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SEC 486
(3-99) Potential persons who are to respond to the collection of information
contained in this form are not required to respond unless the form
displays a currently valid OMB control number.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. _____)
MICROSOURCEONLINE, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 5045 16-1605111
- -------------------- ---------------------------- ------------------------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
130 Centennial Parkway North, Hamilton, Ontario, Canada L8E 1H9
(905) 560-0255
---------------------------------------------------------------
(Address and telephone number of principal executive offices)
20 Bay Street, Suite 1205, Toronto, Ontario, Canada M5J 2N8
(416) 848-0266
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(Address of principal place of business or
intended principal place of business)
Glen P. Hannemann, Esq.
Law Offices of Glenn P. Hannemann
24 Brena, Irvine, California, United States of America, 92620
(714) 544-1912
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(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public December 1, 2002
--------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
-------------------------------
Title of each Dollar Proposed maximum Proposed maximum
class of securities amount to be offering price aggregate offering Amount of
to be registered registered per unit price registration fee
- ------------------- ---------------- ---------------- ------------------ ----------------
Common Stock Up to $9,999,996 $ 6.00 $ 9,999,996 $ 920.00
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Disclosure alternative used (check one): Alternative 1 X ; Alternative 2 .
--- ---
PART I -- Narrative Information Required in Prospectus
[Prospectus commences on next page]
2
PROSPECTUS
----------
The information in this Prospectus is not complete and may be changed. The
registrant may not sell these securities until the registration statement filed
with the SEC is effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer of sale is not permitted.
MICROSOURCEONLINE, INC.
-----------------------
A Delaware Corporation (the "Company or MSO")
Type of securities offered: Common voting stock, no par value
(the "Shares" or the "Common Stock")
Maximum number of securities offered: 1,666,666
Minimum number of securities offered: 100,000
Price per security: $ 6.00
Total proceeds: If maximum sold: $ 9,999,996
If minimum sold: $ 600,000 (See Questions 9 and 10)
Is a commissioned selling agent selling the securities in this offering? Yes.
If yes, what percent is commission of price to public? Eight and one-half
percent (8.5%)
Is there other compensation to selling agent(s)? [X] Yes [ ] No
Is there a finder's fee or similar payment to any person? [ ] Yes [X] No
(See Question No. 22)
Is there an escrow of proceeds until minimum is obtained? [X] Yes [ ] No
(See Question No. 26)
Is this offering limited to members of a special group,
such as employees of the Company or individuals? [ ] Yes [X] No
(See Question No. 25)
Is transfer of the securities restricted? [ ] Yes [X] No
(See Question No. 25)
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS REGISTRATION UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. SEE QUESTION NO. 2 FOR THE RISK FACTORS THAT MANAGEMENT
BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS REGISTRATION.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE REGISTRATION, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THESE
AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY
SECURITIES OFFERED OR THE TERMS OF THE REGISTRATION, NOR DOES IT PASS UPON THE
ACCURACY OR COMPLETENESS OF ANY PROSPECTUS OR SELLING LITERATURE.
3
This Company: (Check at least one, as appropriate)
[ ] Has never conducted operations.
[X] Is in the development stage.
[ ] Is currently conducting operations.
[ ] Has shown a profit in the last fiscal year.
[ ] Other (Specify): __________________________________________
This registration (the "Registration") is being made on a "best efforts basis,"
and there is a minimum number of One Hundred Thousand (100,000) Shares that must
be sold in the Registration. The Company can give no assurance that all or any
of the Shares will be sold. An escrow account shall be established, and all
subscription funds will be held in this escrow account unless and until the
minimum number of Shares are sold, at which point all net sales proceeds shall
be paid directly to the Company. Subscriptions shall be irrevocable (assuming
the minimum number of Shares are sold; if subscriptions are not received for One
Hundred Thousand (100,000) Shares, all subscriptions shall be promptly returned
to the subscribers thereof (without interest) and without deduction for
commissions or expenses.
The Registration will begin on the effective date of this Prospectus, and
continue until the Company has sold all of the Shares offered hereby, or such
earlier date as the Company may close or terminate the Registration. There is no
designated termination date for the Registration, but in no event shall the
Registration remain open for more than one (1) year from the date hereof.
This Registration is on a first-come, first-served basis. If subscriptions
exceed One Million, Six Hundred Sixty-six Thousand Six Hundred Sixty-six
(1,666,666) Shares, all excess subscriptions shall be promptly returned to the
subscribers thereof (without interest), again without deduction.
NO STATE REGISTRATION: THE COMPANY HAS NOT AS YET REGISTERED FOR SALE IN ANY
STATE. THE COMPANY CAN OFFER NO ASSURANCE THAT STATE LAWS ARE NOT VIOLATED
THROUGH THE FURTHER SALE OF ITS SECURITIES. THE COMPANY INTENDS TO REGISTER ITS
SHARES FOR SALE IN THOSE STATES IN WHICH THERE ARE INDICATIONS OF SUFFICIENT
INTEREST. SO FAR, NO SHARES HAVE BEEN OFFERED, AND THEREFORE THERE HAVE BEEN NO
INDICATIONS OF INTEREST FROM ANY STATE.
Upon registration under federal and state laws, the securities are to be offered
by underwriters, dealers, or salespersons in Canada and the United States,
including New York, Texas, California, Florida, and Ohio.
Additionally, again upon registration under federal and state laws, the
securities are also to be offered other than by underwriters, dealers or
salespersons in Canada (British Columbia, Newfoundland, Nova Scotia, New
Brunswick, Prince Edward Island, Saskatchewan, Manitoba, Yukon Territory, North
Western Territories, Ontario, Alberta, and Quebec) and in the United States, in
New York, Texas, California, Florida, Ohio, Delaware, and Nevada. The securities
are to be offered, as permitted by law, by word of mouth, print advertisements,
and email.
4
[Inside Front Cover]
TABLE OF CONTENTS
Page
----
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business and Properties . . . . . . . . . . . . . . . . . . . . . 11
Offering Price Factors . . . . . . . . . . . . . . . . . . . . . 22
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 26
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 28
Description of Securities . . . . . . . . . . . . . . . . . . . . 29
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 30
Dividends, Distributions and Redemptions . . . . . . . . . . . . 32
Officers and Key Personnel of the Company . . . . . . . . . . . . 32
Directors of the Company . . . . . . . . . . . . . . . . . . . . 34
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . 35
Management Relationships, Transactions and Remuneration . . . . . 36
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Federal Tax Aspects . . . . . . . . . . . . . . . . . . . . . . . 39
Miscellaneous Factors . . . . . . . . . . . . . . . . . . . . . . 39
Management's Discussion and Analysis of Certain Relevant
Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 42
THIS PROSPECTUS CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING
THIS REGISTRATION, AND NO PERSON SHALL MAKE DIFFERENT OR BROADER STATEMENTS THAN
THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY INFORMATION
NOT EXPRESSLY SET FORTH IN THIS PROSPECTUS.
This Prospectus, together with Financial Statements and other Attachments,
consists of a total of 62 pages.
5
THE COMPANY
-----------
1. Exact corporate name: Microsourceonline, Inc.
State and date of incorporation: Delaware, June 5, 2000
Street address of principal office: 130 Centennial Parkway North,
Hamilton, Ontario, Canada
Company Telephone Number: (905) 560-0255
Fiscal year (month) (day): May 31
Person(s) to contact at Company
with respect to offering: Sumit Majumdar, CEO, Bruce
Frankel, COO, Jamie Lobo, CFO
The Company is a marketing e-services and sales organization for the
computer industry, maintaining and operating an Internet web site for resellers
and purchasers of computer equipment and related peripherals. It is a Delaware
corporation with a corporate headquarters at 130 Centennial Parkway North,
Hamilton, Ontario, Canada. However, Sales and Public Relations are centered in
offices located in Toronto, Ontario, Canada.
A maximum of One Million Six Hundred Sixty-six Thousand Six Hundred
Sixty-six (1,666,666), and a minimum of One Hundred Thousand (100,000) Common
Shares are being offered to the public at Six Dollars ($6.00) per Share. This
means from this Offering, the Company will receive a maximum of Nine Million
Nine Hundred Ninety-nine Thousand Nine Hundred Ninety-six Dollars ($9,999,996),
and a minimum of Six Hundred Thousand Dollars ($600,000), of the gross proceeds.
Insiders hold Seven Million Nine Hundred Forty-six Thousand (7,946,000) shares
of the Common Stock issued previously in private placements. Thus, upon
completion of the Offering, approximately Seventy-eight Percent (78%) of the
Common Stock will be held by these insiders, and Twenty-two (22%) by the public,
assuming that all Shares offered in this Offering are sold.
The Company presently has two (2) underwriters in place and is in
discussions with various other underwriters for best-efforts underwriting
services. These and any other underwriters will receive such compensation as is
allowed by the NASD. This compensation is anticipated to be an Eight and
One-half Percent (8-1/2%) commission on all sales effected by the underwriter,
plus One and One-half Percent (1-1/2%) non-accountable expense reimbursement.
Of the Shares offered hereby, the Company is offering all Shares, and
stockholders of the Company are offering no Shares. The Company will receive all
proceeds from the sale of Shares, after payment of all expenses and any brokers'
or underwriters' compensation. Prior to this Offering, there has been no public
market for the Company's Common Stock.
RISK FACTORS
------------
2. List in the order of importance the factors which the Company considers to
be the most substantial risks to an investor in this offering in view of all
facts and circumstances or which otherwise make the offering one of high risk or
speculative (i.e., those factors which constitute the greatest threat that the
investment will be lost in whole or in part, or not provide an adequate return).
HIGH RISK INVESTMENT. THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE,
INVOLVE A HIGH DEGREE OF RISK, AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CONSIDER
VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL OF THE OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.
6
The following factors, in addition to the other information contained in
this prospectus, should be considered carefully in evaluating the Company and
its business before purchasing shares of Common Stock offered hereby. This
prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below and in
"Business of the Company" as well as those discussed elsewhere in this
prospectus.
(1) The Company's Recent Origin. The Company was incorporated in June of
-----------------------------
2000. Although it has been conducting operations since June 2001, this has been
on a small albeit growing scale. Consequently, the Company has very little
historical information that can show an actual performance trend.
(2) Minimal Revenues. As the Company is primarily still engaged in
------------------
development and test market operations, there are currently minimal revenues. It
may be difficult for the Company to increase its revenues if there is a drop in
anticipated market acceptance.
(3) Market Acceptance of Internet-related Business Model. Due to a common
------------------------------------------------------
problem of internet-related businesses reaching their revenue targets, the
market may be less willing to accept internet-related business models, such as
the Company's.
(4) Management of Web Services with Accelerated Growth. The Company's
-------------------------------------------------------
current management team may not have enough experience to handle accelerated
growth. Although key management personal have been identified to assist the
Company once growth accelerates, there are no guarantees when or if these
management personnel will join the Company if this Offering is unsuccessful.
(5) Recruitment of Competent Management. Likewise, there can be no
---------------------------------------
assurance that the management personnel that have been identified as able to
increase the Company's infrastructure will be able to execute on their
responsibilities.
(6) A Major Distributor May Align with the Company's Untapped Target
----------------------------------------------------------------------
Market with its Own Offering. If a well-financed major competing manufacturer or
- -----------------------------
distributor enters into the market, they may have access to a more substantial
customer pool and supplier database. Although MSO hopes to be the first to
market in its niche, there can be no assurance that MSO would be able to retain
its market share if a well-funded manufacturer enters into the market with its
own offering.
(7) Failure to Raise More Than Minimum Proceeds. There is a One Hundred
----------------------------------------------
Thousand (100,000) Share minimum that must be sold in this Offering, or the
Company will realize no proceeds. Even if the minimum floor is reached, if
substantially fewer than the maximum number of Shares offered are sold, while
the Company intends to proceed with its plans, it will have to proceed on a much
smaller scale and with a lower likelihood of success.
(8) Market Acceptance May Take Longer Than Predicted. It is anticipated
---------------------------------------------------
that market acceptance within the Company's target market niche will take place
within between three (3) and twelve (12) months after first contact. However, as
this is a pioneering effort, there can be no assurance how long it will take to
gain market acceptance, and it may require more time and greater resources to
attain than is presently anticipated.
(9) Significant Change in Computer Technology Markets. The computer
-------------------------------------------------------
industry is constantly changing and there could be a risk to the success of the
Company's business if a medium was created that competes against the Internet.
(10) Best Efforts Offering. This Offering is being made on a "best efforts
----------------------
basis," and there is a minimum number of One Hundred Thousand (100,000) Shares
that must be sold in this Offering. The Company can give no assurance that all
or any of the Shares will be sold. An escrow account will be established (see
Item 26 below), and once the floor is met, all subscription funds will be paid
directly to the Company. Subscriptions are not refundable once the minimum
placement of Six Hundred Thousand Dollars ($600,000) is achieved.
7
(11) Need for Additional Capital. The Company plans an ambitious marketing
----------------------------
and expansion program of the services offered via its web site that will require
expenditure of the net proceeds from this Offering. If less than all of the
Shares offered are sold, the Company may have to delay or modify its marketing
plans and proceed on a much slower or smaller scale. There can be no assurance
that any delay or modification of the Company's marketing plans would not
adversely affect the Company's business, financial condition, and results of
operations. If additional funds are needed to develop and market its products
and services, the Company may be required to seek additional financing. The
Company may not be able to obtain such additional financing, or, if obtained,
such financing may not be on terms favorable to the Company or to the purchasers
of the Shares.
(12) No Regular Trading Market May Develop. Following the Offering, the
----------------------------------------
Company may be considered a "non-reporting" issuer whose securities are not
listed or subject to regulation under the Securities Exchange Act of 1934 (the
"Exchange Act"), depending on how many Shares are sold, and to how many
investors. The vast majority of broker-dealers generally do not engage in the
sale or trading of securities of a "non-reporting" issuer. Further limitations
upon the development of a trading market are possible by virtue of regulations
promulgated under Rule 15c2-11 of the Exchange Act, which require that before
broker-dealers can make a market in the Company's securities, and thereafter as
they continue making the market, the Company must provide these broker-dealers
with current information about the Company. The Company presently has formulated
limited specific plans to distribute current information to broker-dealers, and
will only do so if there appears otherwise to be adequate interest in making a
market in the Company's securities. Furthermore, in view of the relatively small
size of the Offering, the duration of the Offering, and the nature of the
Company as a "non-reporting" issuer, it is possible that a regular trading
market may not develop in the near term, if at all, or that if developed, it
will be sustained. Accordingly, an investment in the Company's Common Stock
should be considered highly illiquid.
(13) No State Registration. The Company has not yet registered its Shares
-----------------------
for sale in any state. The Company can offer no assurance that state laws would
not be violated through the further resale of its Shares. The Company intends to
register its Shares for sale in those states in which there are indications of
sufficient interest. So far, no Shares have been offered, and therefore there
have been no indications of interest from, and hence no registrations in, any
state.
(14) Arbitrary Offering Price of the Company's Securities. Prior to this
-------------------------------------------------------
Offering, there has been no public market for the Company's Shares. The initial
Offering price of the Shares has been determined arbitrarily, with no
consideration being given to the current status of the Company's business, the
value of its properties, its financial condition, its present and prospective
operations, the general status of the securities markets, and the market
conditions for new offerings of securities. The price bears no relationship to
the assets, net worth, book value, recent sales, price of shares issued to
founding shareholders, or any other ordinary criteria of value.
(15) No Prior Market for Common Stock. Prior to this Offering, there has
---------------------------------
been no public market for the Company's securities, and there can be no
assurance that an active trading market will develop after this Offering, or, if
developed, that it will be sustained. Initially, the Company may be too small
for its securities to be included on the NASDAQ Small Cap Market if it does not
sell enough of its common shares to meet the listing requirements following this
IPO. Such securities may be subject to a rule under the Exchange Act that
imposes additional stringent sales practice requirements on broker-dealers who
sell the Shares. Those sales practice requirements, if imposed, would adversely
affect the ability of broker-dealers to sell the Shares, and consequently would
adversely affect the public market for and the trading price of the Common
Stock.
(16) Shares Eligible for Future Sale. The availability for sale of certain
--------------------------------
shares of Common Stock held by existing shareholders of the Company after this
Offering could adversely affect the market price of the Common Stock. Of the
maximum of Ten Million, Two Hundred, five Thousand, Eight Hundred and sixteen
(10,205,816) shares of Common Stock to be outstanding following this Offering,
Eight Million Five Hundred Thirty-nine Thousand One Hundred Fifty (8,539,150)
shares were issued to the Company's existing shareholders prior to this Offering
in private transactions in reliance upon exemptions from registration under the
Exchange Act, and are, therefore, "restricted securities" under the Exchange
Act, which may not be sold publicly unless the shares are registered under the
Exchange Act or are sold under Rules 144 or 144A of the Exchange Act after
expiration of applicable holding periods as discussed in greater detail in
response to Question 27, below. Sales of substantial amounts of the Company's
currently outstanding shares could adversely affect prevailing market prices of
the Company's securities (including but not limited to the Shares) and the
Company's ability to raise additional capital by occurring at a time when it
would be advantageous for the Company to sell securities.
8
(17) Underwriters' Influence on the Market. The Company presently has two
---------------------------------------
underwriters who have advised the Company that they intend to make a market in
the Common Stock after the Offering or otherwise to effect transactions in the
Common Stock. Additional underwriters may enlist to participate in these regards
after the date of this Prospectus. Any such market-making activity may terminate
at any time. If they participate in the market, underwriters may exert a
dominating influence on the market for the Common Stock. The price and liquidity
of the Common Stock upon conclusion of the Offering may be significantly
affected by the degree, if any, of underwriters' participation in such market.
(18) Dilution. Purchasers of the Shares offered hereby will incur an
---------
immediate substantial dilution, in terms of book value, from the public Offering
price of approximately Five Dollars ($5.00) per Share, assuming that all offered
Shares are sold. If less than the maximum number of Shares is sold, the dilution
will increase to approach a limit of Five Dollars Sixty-two and One-half Cents
($5.625) per Share (if only the minimum of One Hundred Thousand (100,000) Shares
are sold).
(19) No Dividends. No dividends have been paid on the Common Stock of the
-------------
Company. The Company does not intend to pay cash dividends on its Common Stock
in the foreseeable future, and anticipates that profits, if any, received from
operations, rather than being distributed as dividends, will be devoted to
facilitating growth of the Company's future operations. Any decision to pay
dividends will depend upon the Company's profitability at the time, cash
available therefor, and other relevant factors, and will be made by the
Company's Board of Directors in the exercise of its sole and exclusive
discretion at that time.
(20) Brief Operating History as a Marketing Company; Uncertainty of Future
----------------------------------------------------------------------
Operating Results. The Company has an operating history of Fifteen (15) months'
- ------------------
experience offering its services to computer VARs and consultants upon which an
evaluation of its business and prospects can be based. Since inception, the
Company's web site business has generated sales and income of Nine Thousand
($9,000). The Company does not expect to achieve profitability for the next
several quarters, and there can be no assurance that it will be profitable
thereafter, or that the Company will sustain any such profitability if achieved.
The limited operating history of the Company makes the prediction of future
results of operations difficult if not impossible, and the Company and its
prospects must be considered in light of the risks, costs, and difficulties
frequently encountered by emerging companies, particularly companies in the
highly competitive computer sales industry.
(21) Emerging Service Level; Dependence on Telecommunications Carriers and
----------------------------------------------------------------------
Other Service Providers; Demand for Products. The market for the Company's
- -------------------------------------------------
services continues to develop. Although the rapid expansion and increasing
complexity in recent years of internet web sites such as the Company's that
provide services facilitating computer industry product purchasing, has
increased the demand for product, the awareness of and the need for such
services is a recent development. Delays in the introduction of advanced
services, such as network management outsourcing, the failure of such services
to gain widespread market acceptance, or the decisions of telecommunications
carriers and other service providers in the deployment of these services would
have a material adverse effect on the Company's business, operating results, and
financial condition.
(22) Dependence on Key Personnel. The Company's success is substantially
----------------------------
dependent upon a limited number of key management, sales, product development,
technical services, and customer support personnel. The Company believes that
its future success will depend in large part on its ability to attract and
retain highly skilled managerial, sales, technical services, customer support,
and service development personnel. Competition for qualified personnel in the
software industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. The loss of the
services of one or more of such key employees could have a material adverse
effect on the Company's business, financial condition, or results of operations.
In particular, the Company would be materially adversely affected if it were to
lose the services of Sumit Majumdar, Founder, President and Chief Executive
Officer, Bruce Frankel, Chief Operating Officer, Jamie Lobo, Chief Financial
Officer, or Paul Lomack, Vice President of Research & Development, each of whom
has provided significant leadership, direction, and services to the Company
since its inception. The Company does not hold key-man life insurance or
accident insurance policies on, these key personnel. Even if it had other
policies, there is no assurance that any person lost could be replaced by
qualified personnel. At the same time, there are numbers of well-trained
prospective key employees readily available in today's tight marketplace, though
9
at substantial cost. Failure to attract and retain key personnel could
materially adversely affect the Company's business, operating, results, or
financial condition.
(23) New Services and Rapid Technological Change. The market for the
------------------------------------------------
Company's services is comprised of purchasers and resellers of computer
products, which market is characterized by rapidly changing technologies,
evolving industry standards, changing regulatory environments, frequent new
product introductions, and rapid changes in customer requirements and
preferences. There can be no assurance that the introduction or announcement of
new and/or improved services by the Company will cause customers to continue or
increase their use of Company services or their purchases of products offered
through those services, nor can there be any assurance that the products and
services offered by MSO will continue to spur demand for those products. Any
decrease in the utilization of the services offered through the Company's web
site could have a material adverse effect on the Company's business, operating
results, or financial condition.
(24) Risk of Product Defects. Computer products as internally complex as
------------------------
those purchased and sold through the MSO web site may contain errors or defects,
especially when first introduced or when new versions or enhancements are
released. Because the Company does not manufacture any of the products sold over
its site, but instead merely provides the mechanism by which said sales may be
more expeditiously effected, the Company does not maintain product liability
insurance. Although the Company's agreements with those of its customers who
offer products for sale through the MSO web site will typically contain
provisions designed to limit the Company's exposure to potential claims as well
as any liabilities arising from such claims, such provisions may not effectively
protect the Company against such claims and the liability and costs associated
therewith. Accordingly, any such claim could have a material adverse effect upon
the Company's business, results of operations, or financial condition.
(25) Competition. There are other internet-based online sourcing sites
------------
offering computer component purchasing services and e-mail-type marketing
services. Although all of them target large volume orders, greater than Ten
Thousand Dollars ($10,000), and none of them presently offer procurement
services for small- (Five Hundred Dollars ($500) or less) and medium- (Five
Hundred to Ten Thousand Dollars ($500-$10,000)) -sized orders (which is the
Company's present and intended future focus), one or more might attempt to do
so. Some of the Company's current and potential competitors may have longer
operating histories and may have significantly greater financial, technical,
sales, marketing, and other resources, as well as greater name recognition and a
larger customer base or larger product order base, than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer preferences or requirements, or to devote greater
resources to the development, promotion, sale, and support of mechanisms to
facilitate sales of computer products than the Company. Moreover, the Company's
current and potential competitors may increase their share of the computer
product resale market by strategic alliances and/or the acquisition of competing
companies. Finally, the principal competitive factors affecting the market for
the Company's services are functionality, speed, variety, security, and facility
of effecting purchases. The Company's market is continually evolving, and there
can be no assurance that the Company will be able to compete successfully
against current or future competitors, and the failure to do so successfully
would have a materially adverse effect upon the Company's business, operating
results, and financial condition.
(26) Intellectual Property and Other Proprietary Rights. The Company's
------------------------------------------------------
success and ability to compete is dependent in significant part upon its
proprietary server technology. The Company relies on a combination of trade
secret, copyright, and trademark laws, nondisclosure and other contractual
agreements, and technical measures to protect its proprietary rights. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy or "reverse-engineer" aspects of the Company's services or
to obtain and use information of, from, or by the Company that the Company
regards as proprietary. There can be no assurance that the steps taken by the
Company to protect its proprietary technology will prevent misappropriation of
such technology, and such protections may not preclude competitors from
developing services (including web servers) with functionality or features
similar to those of the Company. This would have a material adverse affect on
the Company's business, operating results, or financial condition. In addition,
the Company's Internet site is accessible globally, and effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. While the Company believes that its web site, services, and
trademarks do not infringe upon the proprietary rights of third parties, there
can be no assurance that the Company will not receive future communications from
third parties asserting that the Company's services infringe, or may infringe,
10
the proprietary rights of third parties. Any infringement claims, whether with
or without merit, could be time-consuming, result in costly litigation and
diversion of important technical and management personnel, cause product
shipment delays, or require the Company to develop non-infringing technology. In
the event of a successful claim of technology infringement against the Company
and failure or inability of the Company to develop non-infringing technology or
license the infringed or similar technology, the Company's business, operating
results, or financial condition could be materially adversely affected.
(27) No Prior Trading Market for Common Stock; Potential Volatility of
----------------------------------------------------------------------
Stock Price. Prior to this Offering, there has been no public market for the
- ------------
Common Stock of the Company, and there can be no assurance that an active
trading market will develop or be sustained after this Offering. The initial
public Offering price has been determined arbitrarily, and may not be indicative
of the market price of the Common Stock after this Offering. The market price of
the Shares is likely to be highly volatile, and may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations, new services, product
offerings, or new contracts by the Company or its competitors, developments with
respect to copyrights or proprietary rights, adoption of new accounting
standards affecting the computer industry, general market conditions, and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market price for the common stocks of technology companies. These types of broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
initiated against such company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect upon the Company's business, operating results, or
financial condition.
(28) General Economic and Market Conditions. Segments of the computer
------------------------------------------
industry have experienced significant economic downturns characterized by
decreased product demand, price erosion, work slowdowns, and layoffs. The
Company's operations may in the future experience substantial fluctuations from
period to period as a consequence of general economic conditions affecting the
timing of orders from major customers and other factors affecting capital
spending. Therefore, any economic downturns in general would have a material
adverse effect on the Company's business, operating results, and financial
condition.
(29) Control by Existing Stockholders. Immediately after the closing of
-----------------------------------
this Offering, assuming that the maximum of Shares offered hereby are sold,
Seventy-eight Percent (78%) of the outstanding Common Stock will be held by the
directors and executive officers of the Company and related persons. The present
stockholders, if acting together, would be able to continue controlling
substantially all matters requiring approval by the stockholders of the Company,
including the election of all directors. As a result, those directors and the
officers, if acting together, would be able to control substantially all
significant corporate transactions. This could make it impossible for the new,
public stockholders to influence the affairs of the Company.
(30) Anti-takeover Effects of State Law. Certain provisions of Delaware law
-----------------------------------
could delay or make difficult a merger, tender offer, or proxy contest involving
the Company.
(31) Shares Eligible For Future Sale. Sales of a substantial number of
----------------------------------
Shares in the public market after this Offering could materially adversely
affect the market price of the Common Stock. Such sales also might make it more
difficult for the Company to sell equity securities or equity-related securities
in the future at a time and price that the Company deems appropriate.
Note: In addition to the above risks, businesses are often subject to
risks not foreseen or fully appreciated by management. In reviewing this
Prospectus, potential investors should keep in mind other possible risks that
could be important.
BUSINESS AND PROPERTIES
-----------------------
3. With respect to the business of the Company and its properties:
11
(a) Describe in detail what business the Company does and proposes to do,
including what product or goods are or will be produced or services that are or
will be rendered.
The business of Microsourceonline Inc. originated as a proposed solution to
a significant computer-industry problem.
As computers have evolved from giant structures that occupied an entire
house, to small, efficient machines that fit atop one's desk -- or lap -- they
have been more and more in demand. This is true not only for the computer
industry as a whole, but also to the computer wholesale industry. That demand
has spurred the rapid growth in the computer wholesale industry throughout the
1990s, and continues today, albeit at a slower pace.
The computer wholesale industry operates in a deceptively simple way.
Product is "sourced" (located and purchased) by a broker or distributor from
either the manufacturer or another broker, and then re-sold to "Value-Added
Resellers ("VARs") or consultants. In turn, VARs and consultants re-sell
products to the ultimate end user. While product price and reliability are
important issues, one of the most important factors for VARs and consultants is
from whom they source their product.
In the past, finding reliable and cost-effective suppliers has proven
difficult for VARs. Few of the suppliers and distributors who sell to VARs
advertise in any form, including the Yellow Pages or in trade journals. In order
to do business with these elusive companies, VARs and consultants have been
forced to use the telephone and Internet. Alternatively, distributors may
directly contact VARs, or conduct "pitches" through telemarketing and fax
broadcasts. A VAR or consultant may receive hundreds of faxes per week from
distributors in their local area.
The primary problem arising from this informal, unstructured method of
effecting sales to VARs (who must of course first obtain the product they need
themselves before being able to turn around and re-sell) is the difficulty for
the VAR in judging the reliability of suppliers in the time required to review
all competing vendors and find the best price. Very few distributors maintain
warehousing facilities, thus the product the distributor is selling is usually
not actually "on hand" when the sale is made. This results in a lack of
reliability with respect to both price (which may increase before the supplier
can sell the product) and availability (it may take the supplier some time to
itself receive the product and then forward it on for shipment to the
VAR-customer).
Compounding this problem of finding accurate pricing and ready availability
of goods is the current industry trend of VARs and consultants moving toward a
"just-in-time" inventory system. This requires distributors to have inventory on
hand, or else be able to source product quickly, in order to fill orders upon
receipt.
As component prices have continued to drop throughout the 1990s, and more
computers have entered service in both businesses and households, demand for
computer components by VARs and consultants have increased concomitantly.
Management expects this trend will continue. In order to source their product,
VARs and consultants are increasingly demanding competitive pricing and ready
availability of the product in an easy-to-read format. Simply put, they want to
be able to "comparison shop" for product from different distributors at the best
price possible and receive the product quickly.
To meet this demand, the Company established the Microsourceonline.com
Internet site on the World Wide Web (the "Web Site").
In June 2001, the Company launched the Web Site and began offering its
unique business-to-business ("B2B") services to VARs and Consultants in the
computer wholesale and resale distribution industry. These services allow
resellers to source best pricing and availability when they are looking for
computer components by comparison shopping. The Web Site provides an
easy-to-navigate listing of "pre-screened" computer hardware and software
vendors determined to be reputable by MSO, allowing the VAR to connect
seamlessly to the distribution channel. The VAR customer can select the
distributor that appears to have the best price and/or product, and then place
an order for the product(s) directly online. Customers will be able to broker
their own product as opposed to having to use a conventional broker. Once logged
on, a customer can search for specific product by suppliers geographically. For
example, a customer could request product that is found in New York, or anywhere
in the United States or Canada. This feature is unique to the
Microsourceonline.com site. Pricing search capability is currently limited to
Canada, however, pricing search capability within the United States is expected
to be added following completion of the Offering.
12
Several unique and valuable services are offered that will draw customers
to the MSO Web Site. First, and most importantly, the Company has researched all
the companies featured at the site, and is completing the process of
categorizing them by warehousing abilities (number of SKUs), RMA policies
(governing the return of unfavorable goods), and quality of service. This data
is extremely important to buyers, and the fact that this data has not previously
been available online has been a reason that many VARs have chosen not to use
the Internet for sourcing up until now.
Secondly, the MSO site will allow each customer to set its own individual
user preferences, which subsequently appear every time the customer "logs on"
using standard logon procedure. The customer's 10-digit telephone number serves
as its "user ID," which is not only simple for the user to recall and input, but
also allows for multiple branch membership.
The Web Site offers a number of advantages to VARs and consultants. They
will no longer need to spend hours on the phone calling around to find a
distributor that carries the product(s) they are looking for. They can simply
source it online before they make the call. It will also broaden the number of
suppliers that are available to them to supply the product. Finally and most
importantly, it will save them money. They will be able to compare prices of
components from various distributors, and choose the one that is most cost
efficient for them.
While the Web Site can obviously generate revenue from the companies that
use the site (primarily user fees paid by VARs and consultants), it can also
generate revenue in many other ways, including targeted banner advertising.
These various revenue sources are discussed in detail below. It is expected that
computer resellers and any suppliers seeking to target this segment of the
market will use the Web Site, and many have expressed an interest in paying to
place advertisements on the site. Suppliers also pay a monthly fee to list and
update their online product information daily. Additional related services
offered include targeted email and specialized telemarketing.
The Web Site may be viewed online by entering the web address
http://www.microsourceonline.com into the browser and clicking "Go".
- --------------------------------
(b) Describe how these products or services are to be produced or rendered
and how and when the Company intends to carry out its activities. If the Company
plans to offer a new product(s), state the present stage of development,
including whether or not a working prototype(s) is in existence. Indicate if
completion of development of the product would require a material amount of the
resources of the Company, and the estimated amount. If the Company is or is
expected to be dependent upon one or a limited number of suppliers for essential
raw materials, energy or other items, describe. Describe any major existing
supply contracts.
As discussed above, the Company launched its Web Site providing unique
searching and product listing capabilities in June 2001. Since inception of the
site, MSO has continued its development of the services offered on the Site by
expanding the tools and services offered to users through the addition of new
features. As of the date hereof, the Web Site offers the following features:
1. General features
a) Ease of navigation - The Web Site is easy to navigate. The site
focuses on computer hardware, software, and industry valued
e-services. No other types of equipment are or will be offered.
b) Power searching - MSO's powerful "XPERT" database search engine
allows the user to search using a number of criteria including
vendor, item, location, manufacturer, product category, and part
number. All categories are sub-categorized to increase the ease
with which the database can be searched. A customer is able to
start with a broad-based search, and then narrow down the focus
of the search. The user also has the ability to browse the
alternative items available with detailed product descriptions.
13
c) Customized accounts - A log-on script allows the Web Site to
customize accounts for its users. Though the site defaults to the
individual VAR-user's geographical "home base," the customer is
able to change the searchable area as desired. By choosing a
region, products are available to customers within a two
(2)-business day shipping window.
2. Specific features
a) "All-in-One Driver Database" - A driver database is provided for
all types of computer peripherals, an invaluable resource for a
VAR. Many companies that sell product require customers to search
through the web sites of manufacturers for driver data to
initialize or operate peripherals on those other web sites. Many
of these web sites are themselves very difficult to navigate, and
may have removed drivers for discontinued and end-of-line
products. Management believes this feature alone is a major
contributor to the increasingly heavy traffic on the Company's
Web Site.
b) "The Broker's Corner" - A link to a bulletin board listing
containing a seven (7)-day posting window permits both VARs and
suppliers to source high volume product at exceptional savings.
This service is not regulated by MSO, but VARs are able to
confirm availability and pricing directly with distributors.
c) "The Manufacturers' Links" - The Web Site contains links to
manufacturers' own web sites, so that customers can get in-depth
information on most of the products being listed "straight from
the horse's mouth." To management's knowledge, no other industry
web site makes this information available to clients for their
decision-making process.
d) "The Technical Corner" - Often VARs need more complete technical
information than many vendors make available. The MSO site has a
"technical corner" where VARs can post or email questions to the
Company's experienced technical staff of certified technicians,
who are described below. This feature will be released within
three months of this offering.
e) "The Auction Center" - Under construction on the MSO Web Site is
a liquidation and auction room. While many web sites offer
auctions, they do not qualify the companies posting the products
being offered, usually because the site personnel are themselves
unfamiliar with the products. The Company's personnel qualify as
experts in computer products, as discussed below. Most users will
not bid on product in an online auction or buy liquidation
product as it is normally sold on an "as-is, where-is" basis, and
the user has no opportunity to examine the goods. Although most
competitor auction sites require listing companies to agree to
verify that the companies actually have the product they are
offering, the sites have no way to verify that fact, or settle
disputes that arise post-auction. The various MSO site services
combine to ensure that the product indeed exists, and that it is
in stock, itemized, and catalogued.
f) "Email Broadcast server" The most powerful direct marketing
service in the industry. MSO believes it has the most complete
and extensive email database in Canada for the VAR market.
Distributors and manufacturers alike currently use email
marketing to reach potential VARs with new products and marketing
information. MSO charges a standard (per piece) rate on email
broadcasting.
The Company has acquired specialized server hardware for deployment
allowing for mission critical serving required for an online order-processing
environment. The Company has also developed marketing e-services now being
offered to its members directly and via the Web Site. These services include
telemarketing, telesales, email marketing, financial services, discount
purchasing, and online web design and hosting. The Company is committed to
continuing to improve its ASP e-services while deploying them to its Members,
including advances in MSO's server architecture to include RAD (rapid
application development) tools to advance scalability, reduce redundancy issues,
and ease connectivity of collaborative partner networks. The Company expects to
14
deploy EDI procurement capability over the next five to six (5-6) months in
order to execute Phase II of its business plan. MSO has verified the feasibility
of an online transactional system with its current agreement with
Pricebridge.com Inc. The Company has established in-house expertise to continue
its site development and services deployment requirements.
In sum, the Microsourceonline.com Web Site has been designed with the VAR
in mind, the ultimate business purchaser who has previously been left
unsatisfied, and unwilling to use computer procurement web sites. The MSO site
is a comprehensive "one-stop shop" aimed at the small- to medium-sized VAR
market (the opposite end of the customer size spectrum from other computer
sourcing web sites). Consultants and VARs may comparison-shop from reputable
distributors. Their buying pattern is facilitated by a "just-in-time" inventory
system, buying small quantities of product in high frequency. Users of
www.microsourceonline.com are easily able to log on to the Web Site, source
product from local distributors, research product features, download many
hard-to-find drivers, ask technical questions, and receive one-on-one technical
support. At the same time, vendors are afforded the opportunity to find and
reach most of these VARs, who are most often unreachable by conventional
marketing efforts. Management believes it has structured, and continues to
refine, the MSO Web Site to be the ultimate online computer wholesaler.
The Company's strategy is to not be dependent on any one supplier or
distributor, but to create an active, true online market to promote activity and
competition between suppliers very much along the lines of the current "brick
and mortar" marketplace -- only expedited, using all the tools available through
internet operations. The Company anticipates that it may find it does not have
sufficient funds to execute all its goals even upon maximum completion of this
Offering, and expects to contemplate subsequent offerings.
MSO is not now, and does not expect to become, dependent upon one or a
limited number of suppliers for essential materials, energy, or other items. The
Company has previously established contracts with several suppliers, including a
major Canadian supplier. These suppliers provide hardware and software to the
VAR market.
(c) Describe the industry in which the Company is selling or expects to
sell its products or services and, where applicable, any recognized trends
within that industry. Describe that part of the industry and the geographic area
in which the business competes or will compete.
Indicate whether competition is or is expected to be by price, service, or
other basis. Indicate (by attached table if appropriate) the current or
anticipated prices or price ranges for the Company's products or services, or
the formula for determining prices, and how these prices compare with those of
competitors' products or services, including a description of any variations in
product or service features. Name the principal competitors that the Company has
or expects to have in its area of competition. Indicate the relative size and
financial and market strengths of the Company's competitors in the area of
competition in which the Company is or will be operating. State why the Company
believes it can effectively compete with these and other companies in its area
of competition.
Note: Because this Prospectus focuses primarily on details concerning the
Company, rather than the industry in which the Company operates or will operate,
potential investors may wish to conduct their own separate investigation of the
Company's industry to obtain broader insight in assessing the Company's
prospects.
The computer reselling industry is broken into three main groups: the small
(and medium) value added reseller, the large value added reseller, and the
direct marketer. MSO is focused on the masses of small and medium VARs. Smaller
VARs source product in low quantity and buy through catalogs. Large VARs can
negotiate pricing based on volume, while direct marketers usually buy directly
from Original Equipment Manufacturers (OEMs).
Briefly, the computer industry's resellers usually operate on margins of
between eight percent (8%) and fifteen percent (15%). Management's research
indicates that this margin range for resellers is primarily the result of buying
poorly, with resellers quickly becoming dependent upon a certain few suppliers
with whom they become acquainted and primarily do business with. In the end, the
result is that the VARs become less competitive. Thus there remains a great need
to provide a mechanism to source product more easily (more quickly and
efficiently), and more widely (from a greater number of sellers), in order to
enable resellers to increase their margins.
15
The market targeted for the MSO business opportunity, specifically, small-
and medium-sized Value Added Resellers, represents thirty-five percent (35%) of
the total purchasing power in the North American computer industry. This was
confirmed by the Company's test marketing exercises addressed in detail in
Section 3(d) below under "marketing". In dollar volume, this group encompasses
over 300,000 VARs and consultants, representing over $300 Billion in potential
purchasing power.
Geographically, the Company's principal executive offices are in Ontario,
Canada. Initially, the MSO Web Site has initially been providing services to
Canadian VARs and consultants, with products being accepted for listing on the
site primarily but not exclusively from Canadian distributors and manufacturers.
Of course, because of the nature of the World Wide Web, almost any site in the
world is accessible from almost any other site in the world. Thus, the MSO Web
Site itself is accessible from almost everywhere on the Web, and in that sense
the Company's services are available globally in an "intangible geographic"
sense even while physically headquartered in Canada. Currently, however, the
manufacturers, distributors, and VARs are primarily located physically in
Canada. Again, the Company expects to implement U.S. pricing search capability
following completion of the Offering.
After a free trial-offer period (an integral part of the Company's
marketing strategy, discussed below), each reseller who maintains its membership
with MSO is assessed a monthly fee of Fifty dollars ($50). Advertising rates are
standardized, and all e-services are available with annual contracts at a
substantial discount to current market rates. Most e-services are also offered
on a trial basis, and once subscribed to, monthly billing is then scheduled.
As stated previously, Microsourceonline.com is a comprehensive "one-stop
shop" aimed at the small- to medium-sized VAR market, and to vendors seeking to
market product directly to that target VAR group. There are currently three
other major web sites offering computer-sourcing services. Management believes
those sites are not directly competitive, not only because they target brokers
and dealers for the opposite end of the VAR size spectrum (namely, large-volume
purchasers), but also because the sites are limited in the services they make
available, and do not post compiled database information. By contrast to the MSO
site, which conducts extensive research on vendors and updates those vendors'
pricing continuously, vendors on these competing sites are permitted to post
anything they desire.
For computer resellers, declining margins, the growing voice mail problem
of keeping callers on hold for far too long (or not letting callers through at
all), and the lack of sales support services has created the need for a
Microsourceonline.com to fill a void not being filled by other companies. The
services offered through the MSO Web Site significantly reduce the VAR's costs
of goods sold and the time required to purchase these goods by providing focused
on-demand pricing and availability of those products about which a VAR is
interested. With reliability being a key issue, these services also reduce the
risks to VARs and consultants of purchasing from new companies by strictly
qualifying the ability of those companies to distribute product.
One of the most significant services offered on the Web Site is access to
MSO's powerful "XPERT" search engine, used for finding the best-priced computer
commodities daily. This unique searching capability empowers VARs and
consultants with their own personalized brokerage e-services. The
Microsourceonline.com Web Site allow these VARs and consultants to source their
own product "24:7" by providing them with up-to-date pricing from suppliers
across the country as well as locally. This is accomplished via XPERT, now
deployed on the Web Site, which allows current price and availability searches
focused by requested product categories selected by the Member user.
MSO's management has extensive industry experience in the computer retail,
computer consulting, and computer distribution business sectors with which to
capitalize on this opportunity. The MSO team recognizes an exciting opportunity
in building an international B2B Community: As computer VARs seek out new ways
to improve their bottom line, MSO is providing them with an advanced internet
delivery mechanism to replace their existing low margin revenue opportunities
with higher margin revenue opportunities made available to them through the use
of the Web Site's search engine while significantly improving the level of
satisfaction experienced from current procurement methods. Replacing the use of
conventional telephones for sourcing product is the most significant factor in
this increase in satisfaction levels. The Company's founder personally conducted
a study while operating previously as a computer industry VAR. The results were
gathered over a one-year period, utilizing a precursor to MSO's XPERT
procurement technique to establish price as opposed to using "the top three
16
vendor sourcing" method currently used by most VARs. The study demonstrated that
a VAR could consistently reduce its current cost of goods by up to Eighteen
Percent (18%) using a search system such as MSO's EXPERT. Although the study was
conducted by one VAR, and may not represent a true indication of savings of the
majority of VARs, the Company believes the results will prove generally
applicable to most similarly sized and situated VARs.
The Company acts as an online broker and consultant to advance the exchange
of goods in the reseller industry. There are no companies providing this type of
solution. Fees charged for services rendered through the MSO Web Site depend
greatly on the type of service used and the volume of transactions from specific
customers. MSO makes money by charging a commission to market a new product or
concept into the distribution channel.
The Company's main online competition comes from CNET, Globalsources, and
eBay, all of which companies have a foothold in the U.S. reseller market, but
none of which cater exclusively to the small value added reseller.
CNET (NASDAQ: CNET) is an extremely large web-based business with a market
CAP of $897,123,500 as of March 19, 2002, and a Loss Per Share as March 19, 2002
of Fourteen Dollars and Fifty Cents (-$14.50). CNET recently entered into the
wholesale market offering information services to VARs in order to help them
source products from distributors, but does not focus on this service. However,
CNET has innovative products, and is the Company's greatest potential
competitor.
Globalsources (NASDAQ: GSOL) is a global sourcing site for resellers around
the world. Globalsource had a market CAP of $105,216,000 and Earnings Per Share
of Three Cents ($0.03) as of March 19, 2002. GSOL offers an assortment of
product lines ranging from ceramics to computers. Globalsources competes against
MSO by offering wholesale all types of products to thousands of resellers
globally. GSOL does not focus on one type of product or any particular computer
equipment.
EBay (NASDAQ: EBAY) is an online auction site selling nearly everything
under the sun. In the computer realm, eBay caters primarily to end-users, and
has no particular focus on resellers and their products. EBay had a market cap
of $15,968,022,840 and Earnings Per Share of Thirty-three Cents ($0.33) as of
March 19, 2002. MSO currently posts liquidation product for auction on the eBay
website, and uses eBay's services for the auction component of MSO's revenue
model.
The Company believes it can and will effectively compete against these
companies provided the Company focuses on providing services that bring MSO's
target market into its marketing reach. MSO intends to establish marketing
partnerships with key distributors to make it difficult for "copycat" sites to
make similar alliances.
There is currently no marketing competition for the products and services
being offered by MSO, save MSO's soon-to-be-deployed auction site. MSO plans to
charge approximately Fifteen Cents ($0.15) per email and Ten Cents ($0.10) per
product listed on the Web Site. By comparison, eBay charges Two Dollars
Twenty-five Cents ($2.25) per product listed plus a commission on the sale, and
does not offer email broadcasting. For its part, GSOL does not broadcast email
at all, at this time.
(d) Describe specifically the marketing strategies the Company is
employing or will employ in penetrating its market or in developing a new
market. Set forth in response to Question 4 below the timing and size of the
results of this effort, which will be necessary in order for the Company to be
profitable. Indicate how and by whom its products or services are or will be
marketed (such as by advertising, personal contact by sales representatives,
etc.), how its marketing structure operates or will operate and the basis of its
marketing approach, including any market studies. Name any customers that
account for, or based upon existing orders will account for a major portion (20%
or more) of the Company's sales. Describe any major existing sales contracts.
Marketing Strategy
- ------------------
Microsourceonline, Inc. is continuing the marketing strategy with which it
commenced providing services to VARs and consultants located in Canada. VARs are
contacted by telephone via the MSO Call Center using the Company's extensive
proprietary database of VAR and consultant contact information. VARs and
17
consultants are informed of the various services offered through the MSO site,
in particular that the Company has compiled information about the suppliers
approved to offer products through the site including the suppliers' product
lines and pricing schedules, allowing resellers the obvious advantage of being
able to quickly and easily comparison-shop for exactly the product desired.
Although the initial focus at this point is Canada, the Company intends to
pursue the United States market, and is currently compiling a U.S. reseller
database.
Specifically, MSO deploys telemarketing to solicit new customers.
Telemarketers undergo education that addresses the types and advantages of each
product being offered through the site, as well as proper telephone etiquette.
These employees are randomly monitored to ensure that they have and use proper
techniques and are conducting themselves at all times in a professional manner,
including honoring "do-not-call" requests.
Generally, the Company is promoting Microsourceonline aggressively.
Following the completion of a successful IPO, MSO will commence advertising in
print in computer magazines and journals targeting the reseller market. The
Company plans to attend conventions such as Comdex and CeBit, the world's most
prominent computer shows. Microsourceonline.com is in the process of securing
listings with the most popular search engines, such as Yahoo!, Lycos, and
WebCrawler. Finally, email broadcasts are being sent to potential members
detailing the site's unique features and services, and inviting registration for
a free trial site membership.
Free trial memberships to utilize the MSO Web Site's services are offered
for a period of ninety (90) days to ensure that the potential VAR member
frequents the site and has sufficient opportunity to explore the array of
services offered. Thereafter, Preferred Membership is maintained for a fee.
Those reluctant to pay for membership services beyond the trial date are
reminded of the additional and continuing benefits of Preferred Membership. The
Company will also sponsor giveaways and other draw-based promotions to add
incentive to potential and trial members to continue using the site. With an
aggressive email and advertising campaign combined with the many invaluable
value-added services described above, the Company believes that it will exceed
Two Thousand Five Hundred (2,500) active Preferred Members in Canada by the end
of June 2003.
Beta Testing
- ------------
MSO conducted a beta test of its marketing program from July through August
2000. The purpose of this test was to validate empirical and non-empirical data
collected from the new computer distribution market analysis already performed.
The beta test consisted of four (4) designated MSO sales personnel
conducting, over a four (4) week period, a survey study that probed distributor
acceptance of both the concept of the MSO Web Site, and the attractiveness of
its proposed offered services. Over Ten Thousand (10,000) VARs were contacted,
and some Seventy-five Hundred (7,500) participated in responding to specific
sample studies and surveys. Over Ninety-two Hundred (9,200) Resellers signed
onto MSO to utilize the Web Site. Each participating Reseller was asked specific
questions about its own distinct operations, sales analysis, and product
typically sold. This yielded a satisfyingly broad analysis of what products are
gaining greater market acceptance. Resellers were also invited to subscribe to
the MSO email bulletin, and were then given their exclusive sign-on "user id"
and password to start utilizing the site upon its launch. (All email broadcasts
always have a direct link to the Microsourceonline.com Web Site to place
orders.)
Management believes the beta test was extremely successful. With over a
Ninety Percent (90%) sign-on, the test demonstrated widespread demand for the
services offered over the Web Site, with little or no competition for MSO's site
in the market place.
Additional Revenue Sources
- --------------------------
Transactional revenues. Microsourceonline Inc has entered into an agreement
-----------------------
with Pricebridge.com Inc. to provide an "EDI Bridge", a direct EDI connection
and an email ordering system to connect MSO's distributors to MSO's VARs. By
creating an online transactional system, MSO plans to earn commissions of
between One-half Percent (0.50%) to Two Percent (2%) on all VAR purchases. Since
some of MSO's distributors are not sophisticated enough in their accounting
systems to allow for an EDI Bridge, MSO has designed an email order delivery
system with third party verification in order to span this gap. All distributors
who wish to use this automated ordering system will pay a transactional fee to
MSO.
18
Leasing revenues. MSO has a signed agreement with Alliance Finance Inc. to
-----------------
create a "white labeled leasing product" for MSO VARs. This product is named
"MSO Finance." VARs will be able to use "MSO Finance" to finance small business
and consumer leases with online credit adjudication. Through this interface
across a secured back end, VARs will be able to receive near-instant credit
adjudication for leases at some of the lowest rates in the country. Alliance
Finance Inc. has agreed to pay MSO a commission on the total lease amount.
Affinity programs. MSO has signed a deal with Hertz rental car to provide
-------------------
MSO's members with discounted car rental services from Hertz. MSO will earn an
undisclosed amount of revenues from its members' car rentals, while those
members receive a Ten Percent (10%) discount off of Hertz' already low prices.
MSO intends to create more of these affinity programs to create savings for its
users while earning revenues from its affinity partners.
With an adequate budget, management expects to realize revenues from the
affinity programs within three months of inception, and revenues on the
transactional system within six months, with profitability following shortly
thereafter.
MSO has no customers accounting for more than twenty percent (20%) of its
sales, due to the vast number of suppliers and VARs, and does not anticipate
having any in the near future.
MSO has had product-posting contracts in place with major computer
distributors. Contracts are fee-for-service- and/or performance-based. MSO has
an advanced data entry system that allows for batch inputting of product in high
quantities (100,000 line items or more).
(e) State the backlog of written firm orders for products and/or services
as of a recent date (within the last 90 days) and compare it with the backlog of
a year ago from that date.
As of 5/31/02: $9,000 As of 5/31/01: $-0-
---------------------- ----------------------
(a recent date) (one year earlier)
Explain the reason for significant variations between the two figures, if
any. Indicate what types and amounts of orders are included in the backlog
figures. State the size of typical orders. If the Company's sales are seasonal
or cyclical, explain.
On May 31st, 2001, the Company had incorporated eleven months before, and
while work was underway on designing the Microsourceonline.com Web Site, site
launch was still in the future. Thus, on that date, the Company had no backlog
of written firm orders for its services or for products marketed over the Web
Site. Prior to the launch of the MSO Web Site in June 2001 and commencement of
substantially full site operations, the Company spent the bulk of its resources
of initial capital, some Four Hundred Eighty Five thousand nine hundred
fourty-seven dollars ($485,947), on Web Site and marketing plan development
requirements. With the commencement of operations, the Company slowly begun to
accumulate orders for new business, totaling Nine Thousand Dollars ($9,000) set
forth above as of May 31st 2002. A typical order has not been determined at this
time. Orders are presently varying in size from $150 to $950. The company is
still developing its transactional based system during this time.
As for seasonality, summertime tends to be the slowest season in the
computer industry, as consumers spend more time out of doors. By contrast, fall
tends to be the prime time for selling as those consumers return to work and
school. The Company anticipates its revenue stream will track this
long-established seasonal pattern for the computer industry generally
(f) State the number of the Company's present employees and the number of
employees it anticipates it will have within the next 12 months. Also, indicate
the number by type of employee (i.e., clerical, operations, administrative,
19
etc.) the Company will use, whether or not any of them are subject to collective
bargaining agreements, and the expiration date(s) of any collective bargaining
agreement(s). If the Company's employees are on strike, or have been in the past
three years, or are threatening to strike, describe the dispute. Indicate any
supplemental benefits or incentive arrangements the Company has or will have
with its employees.
As of October 1st, 2002, the Company had ten (10) full-time and two (2)
part-time employees. Key employees are discussed in detail in Sections 29 and
following, below. Assuming a successful Offering, MSO expects to hire twelve
(12) additional employees during the next twelve (12) months.
All employees are either part of the technical development team, management
team, sales/customer service team, public relations, or the administrative team.
All required employees are non-union, and thus not subject to collective
bargaining agreements. The Company believes that its relations with its
employees are good to excellent.
The benefits presently under negotiation to be made available by the
Company to its current employees, and which MSO expects to continue offering to
new hires, will include a top-end medical, dental, disability, life insurance,
and profit sharing.
(g) Describe generally the principal properties (such as real estate,
plant and equipment, patents, etc.) that the Company owns, indicating also what
properties it leases and a summary of the terms under those leases, including
the amount of payments, expiration dates and the terms of any renewal options.
Indicate what properties the Company intends to acquire in the immediate future,
the cost of such acquisitions and the sources of financing it expects to use in
obtaining these properties, whether by purchase, lease or otherwise.
Presently, the Company does not own any real property. MSO's principal
service operations center and executive offices are located in approximately
Fifteen Hundred (1,500) square feet of office space in the City of Hamilton,
Province of Ontario, Canada. This office space is leased for a term of two (2)
years at a monthly rent of Two Thousand Dollars ($2,000). The Company has an
option to extend this lease for an additional five (5) years at a rent of
Twenty-five Hundred Dollars ($2,500) per month. Management believes that the
Company's current facilities are adequate for its needs through the next twelve
(12) months, and that, should it be needed, suitable additional space will be
available to accommodate expansion of the Company's operations on commercially
reasonable terms, although there can be no assurance in this regard. It is
anticipated that the company will shift its operational headquarters to Florida,
USA upon completion of its anticipated IPO. We are operating a sales and Public
relations office in downtown Toronto on a month-to-month basis of approximately
1,000sq.ft., for an inclusive rate of about $2,000 per month.
(h) Indicate the extent to which the Company's operations depend or are
expected to depend upon patents, copyrights, trade secrets, know-how or other
proprietary information and the steps undertaken to secure and protect this
intellectual property, including any use of confidentiality agreements,
covenants-not-to-compete and the like. Summarize the principal terms and
expiration dates of any significant license agreements. Indicate the amounts
expended by the Company for research and development during the last fiscal
year, the amount expected to be spent this year and what percentage of revenues
research and development expenditures were for the last fiscal year.
The Company is currently developing proprietary software technology for
facilitating the merchandising of computer products with which to enhance its
Web Site. The current services offered through the Web Site include specialized
know-how and an in-house-developed, proprietary database of VARs and consultants
not available from any other source. MSO does not presently license any of the
technologies utilized in the expansion or operation of the Web Site, and does
not presently foresee a need to seek any such licenses in the future. The
Company has spent approximately Eight Hundred Thirty-Five Thousand Dollars
($835,000) in Web Site development and market testing over the last year,
representing approximately One Hundred Percent (100%) of MSO's total initial
capital allocated to costs. This current year (FYE 2003), such expenditures are
estimated to amount to approximately Four Million Three Hundred Fifty-nine
Thousand Thirty Dollars ($4,359,030) against projected revenues of Four Million
Three Hundred Seven Thousand Five Hundred Dollars ($4,307,500).
20
All VARs that sign on to the MSO Web Site "opt in" to receive emails from
MSO and its business partners. The Targeted E-mail Broadcast (TEB) system,
allows MSO to send out targeted email aimed at over 16 statistics gathered from
most of its VARs. For example, a distributor can pick a broadcast to go out to
all VARs located in a particular area, with a specific amount of employees, and
an identified reseller authorization containing a particular ratio on service
versus hardware sales.
(i) If the Company's business, products, or properties are subject to
material regulation (including environmental regulation) by federal, state, or
local governmental agencies, indicate the nature and extent of regulation and
its effects or potential effects upon the Company.
MSO's primary business existence (its Web Site and the services provided
through it) is electronic, not corporeal, rendered entirely over the Internet.
In conducting its operations, the Company adheres to the standards of proper
internet conduct and etiquette, including, without limitation, the use of
"opted-in" lists when deploying email services (with services marketed
exclusively to those who affirmatively request being contacted). The Company
otherwise has no such restrictions besides the various regulations of commerce
as dictated by each jurisdiction.
(j) State the names of any subsidiaries of the Company, their business
purposes and ownership, and indicate which are included in the Financial
Statements attached hereto. If not included, or if included but not
consolidated, please explain.
The Company has never had, nor does it currently have, any subsidiaries.
All financial information presented here is that of the Company alone.
(k) Summarize the material events in the development of the Company
(including any material mergers or acquisitions) during the past five years, or
for whatever lesser period the Company has been in existence. Discuss any
pending or anticipated mergers, acquisitions, spin-offs or recapitalizations. If
the Company has recently undergone a stock split, stock dividend or
recapitalization in anticipation of this offering, describe (and adjust
historical per share figures elsewhere in this Offering Circular accordingly).
The Company was incorporated under Delaware law on June 5, 2000.
Construction of the Web Site commenced, and the site was opened with its initial
services functional on June 5, 2001. There are no pending or anticipated
mergers, acquisitions, spin-offs, or recapitalizations involving the Company.
MSO has undergone no stock splits, stock dividends, or recapitalizations in
anticipation of this Offering, and does not anticipate any in the near future.
4. (a) If the Company was not profitable during its last fiscal year, list
below in chronological order the events which in management's opinion must or
should occur or the milestones which in management's opinion the Company must or
should reach in order for the Company to become profitable, and indicate the
expected manner of occurrence or the expected method by which the Company will
achieve the milestones.
[ continued on next page ]
Date or number of months
Expected manner of occurrence after receipt of proceeds
Event or Milestone or method of achievement when should be accomplished
- ------------------------------------ --------------------------------- ---------------------------
(1) Complete US database In house 6 months
(2) Acquire full scale Management In house 3 months
21
(3) Install new Web server platform Outsourced through ISP 3 months
(4) Acquire Strategic Value In talks with several contenders 3 months
Partner
(5) Add EDI deployment Outsourced through 6-9 months
Price-bridge.com Inc.
(6) Meet sales forecast In house 6 months
(7) Acquire 25,000 US VPP Solicited 8 months
Members
(8) Meet Phase II development In house 12 months
forecast
(b) State the probable consequences to the Company of delays in achieving
each of the events or milestones within the above time schedule, and
particularly the effect of any delays upon the Company's liquidity in view of
the Company's then anticipated level of operating costs. (See Question Nos. 11
and 12)
Note: After reviewing the nature and timing of each event or milestone,
potential investors should reflect upon whether achievement of each within the
estimated time frame is realistic and should assess the consequences of delays
or failure of achievement in making an investment decision.
The consequences to the Company of delays in achieving milestone (2) will
be serious, because MSO will be unable to expand without additional management.
Persons have been identified whom the Company desires to add to its management,
and those persons have expressed a serious interest in joining MSO when the
Company has secured additional funding. If the Offering fails to raise adequate
proceeds, it is unlikely that this new staff will agree to join. Regarding
milestone (5), if Pricebridge is unable to create an EDI bridge with the primary
distributors, MSO's transactional revenue source (by far the most significant
source of present income for the Company) will be eliminated, which could hamper
profitability for the Company, and in turn directly impact MSO's ability to
raise future funding. MSO does have the in house capability of developing an
online email based ordering system in house but a realtime EDI system is
required to meet revenue targets.
By contrast, delays in accomplishing milestones (3) and (8) will not be
serious. With regard to milestone (3), this is because the current MSO platform
is stable and able to handle ten (10) times MSO's current "HIT" rate. Similarly,
regarding milestone (8), meeting the Phase II development forecast may be
redundant with successful integration of stage (5).
OFFERING PRICE FACTORS
----------------------
If the securities offered are common stock, or are exercisable for or
convertible into common stock, the following factors may be relevant to the
price at which the securities are being offered.
5. What were net, after-tax earnings for the last fiscal year? (If losses,
show in parenthesis.)
Total (-$348,942) (-$0.04 per share)
6. If the Company had profits, show offering price as a multiple of earnings.
Adjust to reflect for any stock splits or recapitalizations, and use conversion
or exercise price in lieu of offering price, if applicable.
The Company did not realize net profits in its fiscal year ended
May 31, 2002.
7. (a) What is the net tangible book value of the Company? (If deficit,
show in parenthesis.) For this purpose, net tangible book value means total
22
assets (exclusive of copyrights, patents, goodwill, research and development
costs and similar intangible items) minus total liabilities.
(-$287,482) (-$0.03 per share)
As of May 31, 2002, the Company had a deficit net tangible book value of
Two Hundred Eighty-seven Thousand Four Hundred Eighty-two Dollars (-$287,482),
or approximately negative Three Cents (-$0.03) per share of Common Stock.
"Deficit net tangible book value" represents the amount total liabilities exceed
the value of tangible assets.
If the net tangible book value per share is substantially less than this
offering (or exercise or conversion) price per share, explain the reasons for
the variation.
The Offering price per share is based on the projected future performance
of the Company as set out in the financial forecast attached as Exhibit 15. The
expected performance and future anticipated earnings of the Company are the
basis for the valuation upon Offering. It is expected that post-Offering, the
net tangible assets of the Company will be One Dollar ($1.00) per share, in the
event of a sale of the maximum number of Shares offered.
Dilution: Investors participating in this Offering will incur immediate,
--------
substantial dilution. Without taking into account any other changes in the net
tangible book value after May 31, 2002, other than to give effect to the receipt
by the Company of the net proceeds from the sale of the Shares of Common Stock
offered by the Company hereby at an assumed initial public Offering price of Six
Dollars ($6.00) per share, and without deducting discounts and estimated
Offering expenses, the pro forma net tangible book value of the Company as of
January 1st, 2003 is projected to be Nine Million Nine Hundred Ninety six
Thousand Nine Hundred Ninety-six Dollars ($9,999,996), or One Dollar ($1.00) per
Share. This represents an immediate increase in net tangible book value of
Ninety-nine and nine-tenths Cents ($0.999) per Share to existing stockholders,
and an immediate dilution in net tangible book value of Five Dollars Forty Cents
($5.40) per share to purchasers of Common Stock in the Offering. This is
illustrated in the following table:
Assumed initial public offering price per share $ 6.000
Pro forma net tangible book value per share as of July 31, 2001 $ 0.001
Increase per share attributable to new investors $ 0.999
Dilution per share to new investors $ 5.000
(b) State the dates on which the Company sold or otherwise issued
securities during the last 12 months, the amount of such securities sold, the
number of persons to whom they were sold, and relationship of such persons to
the Company at the time of sale, the price at which they were sold and, if not
sold for cash, a concise description of the consideration. (Exclude bank debt.)
The only issuances of the Company's securities since its incorporation were
the private issuances of shares of its Common Stock, for the consideration
specified, as forth on the following page:
(IN) Represents Insider as
defined by Securities Act of Value Value
Issuance 1993/94 Number Paid Paid
Date Name Issued To: Issuee USD CDN Consideration
- ---------- ---------------------------- ------- ---------- ---------- -------------
01/08/2002 Bruce Frankel (IN) 20,000 $4.00 Services
08/08/2002 Micheal Marino 500 $6.00 Cash
23
09/08/2002 Evert Grift 1000 $6.00 Cash
21/08/2002 Randy Rogers 200 $6.00 Cash
21/08/2002 John Morris 200 $6.00 Cash
04/09/2002 Edgar Wilson 2000 $6.00 Cash
04/09/2002 John Vandommelen 200 $6.00 Cash
05/09/2002 John Milligan 200 $6.00 Cash
05/09/2002 Marvin Roberts 1000 $6.00 Cash
06/09/2002 Leo Klein 1000 $6.00 Cash
11/09/2002 Minh Tathanhlong 200 $6.00 Cash
11/09/2002 Patrick Kiely 500 $6.00 Cash
11/09/2002 Emma Winter 200 $6.00 Cash
13/09/2002 Paul Commanda 200 $6.00 Cash
13/09/2002 Kevin Drensek 1000 $6.00 Cash
13/09/2002 Fred Ng 2000 $6.00 Cash
13/09/2002 Jason Symons 200 $4.00 Services
18/09/2002 Frank Tenaglia 200 $6.00 Cash
15/09/2002 Arnold Smith 3000 $6.00 Cash
18/09/2002 Paul Tucknott 200 $6.00 Cash
18/09/2002 Wally Speckert 500 $6.00 Cash
27/09/2002 Elgin Greenfield 1000 $6.00 Cash
27/09/2002 Leo Klein 1000 $6.00 Cash
02/10/2002 Jack and Jean Maltby 200 $6.00 Cash
02/10/2002 Ron Jepson 500 $6.00 Cash
03/10/2002 Micheal Marino 500 $6.00 Cash
04/10/2002 Robert Rice 2000 $6.00 Cash
04/10/2002 Todd Leclair 350 $6.00 Cash
04/10/2002 David Dawson 500 $6.00 Cash
02/10/2002 David Dombroski 200 $6.00 Cash
09/10/2002 Minh Tathanhlong 500 $6.00 Cash
09/10/2002 John Vandommelen 400 $6.00 Cash
41,650
8. (a) What percentage of the outstanding shares of the Company will the
investors in this offering have? (Assume exercise of outstanding options,
warrants or rights and conversion of convertible securities, if the respective
exercise or conversion prices are at or less than the offering price. Also
assume exercise of any options, warrants or rights and conversions of any
convertible securities offered in this offering.)
If the maximum is sold: 16.3 %
If the minimum is sold: 1.0 %
(b) What post-offering value is management implicitly attributing to the
entire Company by establishing the price per security set forth on the cover
page (or exercise or conversion price if common stock is not offered)? (Total
outstanding shares after offering times offering price, or exercise or
conversion price if common stock is not offered.)
24
If the maximum is sold: $ 61,234,896
If the minimum is sold: $ 51,834,900
These values assume that the Company's capital structure would be changed
to reflect any conversions of outstanding convertible securities and any use of
outstanding securities as payment in the exercise of outstanding options,
warrants or rights included in the calculation. The type and amount of
convertible or other securities thus eliminated would be:
None (no such securities exist).
(For above purposes, assume outstanding options are exercised in
determining "shares" if the exercise prices are at or less than the offering
price. All convertible securities, including outstanding convertible securities,
shall be assumed converted and any options, warrants or rights in this offering
shall be assumed exercised.)
Note: After reviewing the above, potential investors should consider
whether or not the offering price (or exercise or conversion price, if
applicable) for the securities is appropriate at the present stage of the
Company's development.
[balance of page intentionally left blank]
25
USE OF PROCEEDS
---------------
9. (a) The following table sets forth the use of the proceeds from this
offering:
If Minimum Shares Sold If Maximum Shares Sold
---------------------- ----------------------
$600,000 $9,999,996
Total Proceeds 100% 100%
- --------------
Less: Offering Expenses
- ------------------------
Commissions & Finders Fees 60,000 1,000,000
Legal & Accounting 175,000 175,000
Copying & Advertising 20,000 20,000
Other (Specify): Taxes, 38,000 38,000
insurance, filing fees
Net Proceeds from Offering 307,000 8,767,000
Use of Net Proceeds:
- --------------------
Office set-up 10,000 100,000
Computers 75,000 910,000
Legal and other professional 20,000 450,000
fees (non-operating costs)
Technology development 20,000 1,000,000
Further development of Web Site 20,000 1,000,000
Web Server 40,000 500,000
Phone System 20,000 500,000
Wages - Set up 10,000 2,000,000
Network installations 10,000 500,000
Internet Bandwidth 15,000 500,000
Misc. expenditures 5,000 7,000
Total Use of Net Proceeds by Category:
- --------------------------------------
Hardware 45,000 1,000,000
Technology Development 7,000 200,000
Infrastructure and staff 10,000 50,000
Software 10,000 50,000
Total Use of Net Proceeds $307,000 $8,767,000
26
(b) If there is no minimum amount of proceeds that must be raised before
the Company may use the proceeds of the offering, describe the order of priority
in which the proceeds set forth above in the column "If Maximum Sold" will be
used.
Not applicable. There is a minimum amount of proceeds that must be raised,
namely, Six Hundred Thousand Dollars ($600,000).
Note: After reviewing the portion of the offering allocated to the payment
of offering expenses, and to the immediate payment to management and promoters
of any fees, reimbursements, past salaries or similar payments, a potential
investor should consider whether the remaining portion of his investment, which
would be that part available for future development of the Company's business
and operations, would be adequate.
10. (a) If material amounts of funds from sources other than this offering
are to be used in conjunction with the proceeds from this offering, state the
amounts and sources of such other funds, and whether funds are firm or
contingent. If contingent, explain.
The company is currently raising funds in the form of private placements
in the Province of Ontario. All fund raising activities are being done directly
by the Company and are on the Company's best efforts. The Maximum amount that
can be raised is Three Million (3,000,000) Canadian Dollars and would be used by
the company in addition to the proceeds from this offering. The company cannot
guarantee the total amount to be raised privately. The company is currently
offering Five Hundred Thousand (500,000) common shares at Six (6) Canadian
Dollars per share. All shares are restricted under rule 144 of the Securities
Act of 1933 and their offer and sale are restricted to residents of Ontario,
Canada.
(b) If any material part of the proceeds is to be used to discharge
indebtedness, describe the terms of such indebtedness, including interest rates.
If the indebtedness to be discharged was incurred within the current or previous
fiscal year, describe the use of proceeds of such indebtedness.
Some of the proceeds realized by the Company from the Offering may be used
to pay for previous outstanding legal and accounting bills associated with the
Offering. This amount is reflected in the legal costs in Schedule 9(a) "Use of
Proceeds", above.
(c) If any material amount of proceeds is to be used to acquire assets,
other than in the ordinary course of business, briefly describe and state the
cost of the assets and other material terms of the acquisitions. If the assets
are to be acquired from officers, directors, employees or principal stockholders
of the Company or their associates, give the names of the persons from whom the
assets are to be acquired and set forth the cost to the Company, the method
followed in determining the cost, and any profit to such persons.
There are no material amounts of proceeds from the Offering that are to be
used to acquire assets outside of the ordinary course of the Company's business.
(d) If any amount of the proceeds is to be used to reimburse any officer,
director, employee or stockholder for services already rendered, assets
previously transferred, or monies loaned or advanced, or otherwise, explain:
Some of the proceeds of this offering may be used to pay officers,
directors and employees for services already rendered. There is no agreement or
schedule to pay any of these wages at this time.
11. Indicate whether the Company is having or anticipates having within the
next 12 months any cash flow or liquidity problems and whether or not it is in
default or in breach of any note, loan, lease or other indebtedness or financing
arrangement requiring the Company to make payments. Indicate if a significant
amount of the Company's trade payables have not been paid within the stated
trade term. State whether the Company is subject to any unsatisfied judgments,
liens or settlement obligations and the amounts thereof. Indicate the Company's
plans to resolve any such problems.
27
The Company is facing a debt or lease obligation for operations as of
October 17th, 2002. Without the benefit of the net proceeds of this offering it
is uncertain as to weather the company can timely satisfy those obligations. The
Company is not in default or breach of any note, loan, lease, or other
indebtedness or financing arrangement. No significant amount of MSO's trade
payables has been paid late. The Company is not subject to any unsatisfied
judgments, liens, or settlement obligations.
12. Indicate whether proceeds from this offering will satisfy the Company's
cash requirements for the next 12 months, and whether it will be necessary to
raise additional funds. State the source of additional funds, if known.
The principal purposes of the Offering are to raise funds for working
capital and general corporate purposes. To management's best estimation, if the
maximum proceeds are received, the Company anticipates having no further cash
requirements for the next twelve (12) months. However, if less than the maximum
proceeds are received, the Company will continue development of the
Microsourceonline.com Web Site and its features and services, a project which is
already underway, but the completion of this project will likely be delayed to a
lesser or greater degree depending upon how much less the maximum proceeds are
actually received by the Company. Should the Company receive substantially less
than the maximum allotted for this Offering, the Company may seek additional
capital financing in the public or private markets, or both.
Assuming that the maximum number of Shares are sold, the net proceeds to
the Company from the sale of the Shares in this Offering are estimated to be
Nine Million Nine Hundred Ninety-nine Thousand Nine Hundred Ninety-six Dollars
($9,999,996), less any discounts, commissions, and Offering expenses payable by
the Company.
None of the net Offering proceeds will be payable to promoters, management,
principal shareholders, or their affiliates.
CAPITALIZATION
--------------
13. Indicate the capitalization of the Company as of the most recent balance
sheet date (adjusted to reflect any subsequent stock splits, stock dividends,
recapitalizations or refinancings) and as adjusted to reflect the sale of the
minimum and maximum amount of securities in this offering and the use of the net
proceeds therefrom:
As of If Minimum Adjusted
5/31/02 Shares Sold Maximum
---------- ----------- ----------
Debt:
Short-term debt (average interest $-0- $-0- $-0-
rate 2%)
Long-term debt $287,628 $287,628 $287,628
Total debt $287,628 $287,628 $287,628
Stockholders equity (deficit): $(834,889) $(234,889) $9,165,107
Common stock - par or stated value $84,975 $85,975 $102,058
Additional paid in capital $-0- $600,000 $9,999,996
Retained earnings (deficit) $(287,482) $(287,482) $(287,482)
Total stockholders equity (deficit) ($834,889) $(234,889) $9,165,107
Total Capitalization $(287,482) $312,518 $9,712,368
28
Number of preferred shares authorized to be outstanding:
The Company has no authorized shares of preferred stock.
Number of common shares reserved to meet conversion requirements or for the
issuance upon exercise of options, warrants or rights: Zero (0) shares.
DESCRIPTION OF SECURITIES
-------------------------
The only class of securities that the Company is authorized to issue is
Common Stock. The Company is authorized to issue Twenty Million (20,000,000)
common shares. These common shares have a par value of $0.01. Generally, holders
of shares of the Company's Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. The holders are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors in the exercise of its discretion out of funds legally
available therefor. In the event of the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of then-outstanding liabilities, if any. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the Shares to be issued upon completion of this Offering will
also be fully paid and nonassessable.
14. The securities being offered hereby are:
[X] Common Stock
[ ] Preferred or Preference Stock
[ ] Notes or Debentures
[ ] Units of two or more types of securities composed of: ___________
[ ] Other:___________________________________________________________
15. These securities have:
Yes No
[ ] [X] Cumulative voting rights
[ ] [X] Other special voting rights
[ ] [X] Preemptive rights to purchase in new issues of shares
[ ] [X] Preference as to dividends or interest
[ ] [X] Preference upon liquidation
[ ] [X] Other special rights or preferences (specify): __________
16. Are the securities convertible? [ ] Yes [X] No
17. (a) If securities are notes or other types of debt securities: Not
applicable.
(b) Not applicable.
18. If securities are Preference or Preferred stock: Not applicable.
19. If securities are capital stock of any type, indicate restrictions on
dividends under loan or other financing arrangements or otherwise:
There are no formal restrictions on dividends of any kind.
20. Current amount of assets available for payment of dividends (if deficit
must be first made up, show deficit in parenthesis): $ -0-.
Not applicable. Management contemplates no dividend payments in the next 12
months.
29
PLAN OF DISTRIBUTION
--------------------
21. The selling agents (that is, the persons selling the securities as agent
for the Company for a commission or other compensation) in this offering are:
Name: Address: Phone:
- ------------------------------- ------------------------------------------- --------------
Equitrade Securities Corpor- 23736 Birtcher Drive, Lake Forest, CA 92630 (800) 266-1170
ation Inc.
Sierra Brokerage Services, Inc. 2000 Bethel Road, Columbus, OH 43220 (800) 535-1625
22. Describe any compensation to selling agents or finders, including cash,
securities, contracts or other consideration, in addition to the cash commission
set forth as a percent of the offering price on the cover page of this
Prospectus. Also indicate whether the Company will indemnify the selling agents
or finders against liabilities under the securities laws. ("Finders" are persons
who for compensation act as intermediaries in obtaining selling agents or
otherwise making introductions in furtherance of this offering.)
None.
23. Describe any material relationships between any of the selling agents or
finders and the Company or its management.
There are no material relationships between the selling agents or finders
and the Company.
Note: After reviewing the amount of compensation to the selling agents or
finders for selling the securities, and the nature of any relationship between
the selling agents or finders and the Company, a potential investor should
assess the extent to which it may be inappropriate to rely upon any
recommendation by the selling agents or finders to buy the securities.
24. If this offering is not being made through selling agents, the names of
persons at the Company through which this offering is being made:
Not applicable.
25. If this offering is limited to a special group, such as employees of the
Company, or is limited to a certain number of individuals (as required to
qualify under Subchapter S of the Internal Revenue Code) or is subject to any
other limitations, describe the limitations and any restrictions on resale that
apply: Will the certificates bear a legend notifying holders of such
restrictions? [ ] Yes [X] No
This Offering is not limited to any special group or number of individuals,
nor is it subject to any other limitations.
26. (a) Name, address and telephone number of independent bank or savings and
loan association or other similar depository institution acting as escrow agent
if proceeds are escrowed until minimum proceeds are raised:
M & T Bank shall provide escrow services in connection with the Company's
offering. (M & T Bank, 1 M & T Plaza, Suite 900, Buffalo, NY 14203 Telephone
number: (716) 842-5439
30
(b) Date at which funds will be returned by escrow agent if minimum
proceeds are not raised:
Funds will be returned no later than sixty (60) days after a final
determination that the minimum proceeds sought though this Offering will not be
received.
Will interest on proceeds during escrow period be paid to investors?
[ ] Yes [X] No
27. Explain the nature of any resale restrictions on presently outstanding
shares, and when those restrictions will terminate, if this can be determined:
The Eight Million Five Hundred Thirty-nine Thousand One Hundred Fifty
(8,539,150) shares of the Common Stock presently outstanding are deemed
"restricted securities" under Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Restricted shares may be sold in the public
market only (a) if registered, or (b) if they qualify for an exemption from
registration under Rules 144, 144(k), or 701 under the Securities Act. As a
result of the provisions of Rules 144, 144(k), and 701, none of the Company's
restricted shares will be available for immediate sale in the public market on
the date of this Prospectus. Beginning ninety (90) days after the date of this
Prospectus (i) some restricted shares will be available for immediate sale in
the public market, in accordance with Rule 144(k), and (ii) some restricted
shares will be available for sale in the public market in accordance with Rule
144 or Rule 701, subject to the volume and other resale limitations of Rule 144.
The remainder of such restricted shares will be eligible for sale in the public
market more than one hundred eighty (180) days after the date of this
Prospectus.
In general, under Rule 144, beginning approximately ninety (90) days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an "Affiliate" (as that term is defined in Rule
144), who has "beneficially owned" (as that term is also defined) his or her
restricted securities for at least one year from the later of (i) the date such
securities were acquired from the Company, or (ii) the date they were acquired
from an Affiliate (whichever is the case), is entitled to sell, within any three
(3) month period, a number of such shares that does not exceed the greater of
(iii) one percent (1%) of the then-outstanding shares of Common Stock
(approximately 10,205,816 shares immediately after this Offering, assuming full
subscription), or (iv) the average weekly trading volume in the Common Stock
during the four (4) calendar weeks preceding the date on which notice of such
sale was filed under Rule 144, provided certain requirements concerning
availability of public information, manner of sale, and notice of sale are
satisfied. In addition, under Rule 144(k), if a period of at least two (2) years
has elapsed between the later of the date restricted securities were acquired
(v) from the Company, or (vi) from an Affiliate, a stockholder who is not an
Affiliate of the Company at the time of sale, and has not been an Affiliate of
the Company for at least three (3) months prior to the sale, is entitled to sell
the shares immediately without compliance with the foregoing requirements of
Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of any options granted prior to
this Offering are also restricted securities, and beginning ninety (90) days
after the date of this Prospectus, may be sold (vii) by stockholders other than
Affiliates of the Company subject only to the manner of sale provisions of Rule
144, and (viii) by an Affiliate under Rule 144 without compliance with its one
(1) year holding period requirement.
Prior to this Offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
Shares or the availability of Shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of Shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers, and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Common Stock, and could impair
the Company's ability to raise capital through an offering of its equity
securities.
Note: Equity investors should be aware that unless the Company is able to
complete a further public offering or the Company is able to be sold for cash or
merged with a public company that their investment in the Company may be
illiquid indefinitely.
31
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS
----------------------------------------
28. If the Company has within the last five years paid dividends, made
distributions upon its stock or redeemed any securities, explain how much and
when:
The Company has never declared or paid any cash dividends on its capital
stock, and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained by the Company to develop and expand its business. Any future
determination with respect to the payment of dividends will be at the discretion
of the Company's Board of Directors and will depend upon, among other things,
the Company's operating results, financial condition, and capital requirements,
the terms of then-existing indebtedness (if any), general business conditions,
and such other factors as the Board of Directors deems relevant.
OFFICERS AND KEY PERSONNEL OF THE COMPANY
-----------------------------------------
As of October 1st, 2002, the Company had four (4) key employees,
described below, all of whom are officers of MSO. Each officer is elected by and
serves at the discretion of the Board of Directors.
The Company believes that its relations with its employees are good.
The Company believes that its future success will depend in large part on
its ability to attract and retain highly skilled managerial, sales, technical
services, customer support, and service development personnel. Competition for
qualified personnel in the software industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. Failure to attract and retain key personnel could materially
adversely affect the Company's business, operating, results, or financial
condition.
29. Chief Executive Officer:
Title: Managing Director and Founder
Name: Sumit Majumdar Age: 26
Office Street Address: 130 Centennial Pkwy North, Hamilton, Ontario,
Canada, L8E 1H9
Telephone No.: (905) 560-0255
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities. Mr. Majumdar, the President
and Chairman of the board of directors of Innofone.com Inc. (OTCBB: INNF) since
October 2001, has extensive experience in the used and refurbished computer
distribution industry. He is a board level technician and is fully trained for
assembly of PC's, software installation, network configuration and Internet
connectivity. Mr. Majumdar has spent over five years in the computer wholesale
industry and has made many contacts with distributors and VAR's alike. In July
1997 he started a wholesale division for Burloak Systems Inc., a computer
retailer., Mr. Majumdar was the President of Digital Micro Distribution Canada
Inc., which is the former subsidiary of Innofone.com Inc from July 1998 to July
2002. Mr. Majumdar has experience with preparing and filing company reports to
the Securities Exchange Commission. Sumit has been the founder and president of
MSO since its inception on June 5th 2000. Mr. Majumdar caused the incorporation
of MSO in Delaware and has been the main architect of it's current operations.
Mr. Majumdar has been the CEO of MSO since June of 2000.
Education (degrees, schools, and dates): Mr. Majumdar attended the Kasturba
Medical College in Karnataka, India in 1996. Mr. Majumdar did not complete his
medical degree.
Also a Director of the Company [X] Yes [ ] No
32
Indicate amount of time to be spent on Company matters if less than full
time: As the President of Innofone.com Inc OTCBB: INNF Mr. Majumdar will be
splitting his time between both positions.
30. Chief Operating Officer:
Title: Chief Operating Officer
Name: Bruce B. Frankel Age: 46
Office Street Address: 130 Centennial Pkwy North, Hamilton, Canada, L8E 1H9
Telephone No.: (905) 560--0255
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities. In 1989, Mr. Frankel completed
ten years' service in banking, the last three as Senior Vice President of
Lending at Life Savings Bank in Florida, where he had been responsible for
overseeing all operations in the residential, commercial, consumer lending, loan
servicing, and secondary market departments. That year, and continuing until
joining the Company's management, Mr. Frankel founded and managed Frankel Travel
Associates, Inc., a full-service travel business emphasizing service as a host
agency for a national network of independent travel consultants, with current
annual volume exceeding $5,000,000. In 1999 he established a master franchise
for Bevinco Liquor Auditing Service, for the Caribbean territory, a business
engaged in monitoring and evaluating liquor inventories for bars and restaurants
utilizing a comprehensive auditing system throughout that region. From December
1999 through April 2001, Mr. Frankel was engaged as Director of Business
Development for NetCruise.com, Inc., a publicly traded e-commerce travel
company, and also participated in securing venture capital and managing
outsourcing partnerships. He has also rendered services as a marketing
consultant. Mr. Frankel has been the Chief Operating Officer since May of 2002
and has been working with the company on a consulting basis since August 2001.
Education (degrees, schools, and dates): Mr. Frankel received a Bachelor of
Arts degree in Political Science from Livingston College of Rutgers University
in 1976. During the next two years, he studied at Rutgers' Graduate School of
Urban Planning.
Also a Director of the Company [X] Yes [ ] No
31. Chief Financial Officer:
Title: Chief Financial Officer
Name: Jamie Lobo Age: 29
Office Street Address: 130 Centennial Pkwy North, Hamilton, Canada, L8E 1H9
Telephone No.: (905) 560-0255
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities. Mr. Lobo has extensive
experience raising lease capital during his prior employment with CIT. He
specialized in lease products, and was the founder of Newstar Capital, a
fundraising company specializing in leases located in Toronto. Mr. Lobo
currently acts as the president of Newstar. He also founded Blue Chip PC, a
national personal computer manufacturer that sold computers to retail clients
with the use of revolving credit products. Blue Chip PC ceased operations when
its major source of lease underwriting closed its consumer leasing division. Mr.
Lobo was instrumental in producing this Offering filing, and will take an active
role in raising future funds for MSO.
Education (degrees, schools, and dates): Mr. Lobo attended the University
of Waterloo for Mechanical Engineering in 1994. He received a B.B.A in economics
from York University in 1996.
33
Also a Director of the Company [X] Yes [ ] No
Indicate amount of time to be spent on Company matters if less than full
time: Mr. Lobo will be working in an "as required" capacity. Most of his
activities will revolve around the raising of capital.
32. Other Key Personnel:
Name: Paul Lomack Age: 40
Title: Vice President, Research & Development
Office Street Address: 130 Centennial Pkwy North, Hamilton, Ontario,
Canada, L8E 1H9
Telephone No.: (905) 560-0255
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities. Mr. Lomack has been with MSO
since its pre-incorporation days. Mr. Lomack was a lecturer in statistics and
sociology at the University of Western Ontario prior to joining MSO. Mr. Lomack
was the initial developer of the MSO database and has been with the Company
since March of 2000. Mr. Lomack is responsible for all technical, software, and
database functions in MSO. He is has extensive knowledge of Databases and
Statistical analysis and is constantly upgrading his personal skills with
regards to the usage of Oracle 8i, Apache, and Microsoft server software.
Education (degrees, schools, and dates): B.A. (Sociology), McMaster
University, Hamilton, 1984. Masters degree (Sociology), McMaster University,
Hamilton, 1987. Ph.D. (Social Demography) (incomplete), University of Western
Ontario, London, 1993.
Also a Director of the Company [ ] Yes [X] No
DIRECTORS OF THE COMPANY
------------------------
33. Number of Directors: Three (3). If Directors are not elected annually, or
are elected under a voting trust or other arrangement, explain:
Directors are elected annually at each annual meeting of stockholders. The
successors to directors whose term expires at such a meeting will be elected to
serve from the time of election and qualification until the next annual meeting
following election.
34. Information concerning outside or other Directors (i.e. those not described
above):
None. The Company's three (3) directors are Sumit Majumdar, Bruce Frankel,
and Jamie Lobo, described in response to Questions 29-33, above. The Company has
no outside or other directors.
35. (a) Have any of the Officers or Directors ever worked for or managed a
company (including a separate subsidiary or division of a larger enterprise) in
the same business as the Company?
[ ] Yes [X] No
(b) If any of the Officers, Directors or other key personnel have ever
worked for or managed a company in the same business or industry as the Company
or in a related business or industry, describe what precautions, if any,
34
(including the obtaining of releases or consents from prior employers) have been
taken to preclude claims by prior employers for conversion or theft of trade
secrets, know-how or other proprietary information.
Not applicable.
(c) If the Company has never conducted operations or is otherwise in the
development stage, indicate whether any of the Officers or Directors has ever
managed any other company in the start-up or development stage and describe the
circumstances, including relevant dates.
The Company has been conducting operations since the inauguration of the
Microsourceonline.com Web Site in June, 2001.
(d) If any of the Company's key personnel are not employees but are
consultants or other independent contractors, state the details of their
engagement by the Company.
None of the Company's key personnel are consultants or independent
contractors.
(e) If the Company has key man life insurance policies on any of its
Officers, Directors or key personnel, explain, including the names of the
persons insured, the amount of insurance, whether the insurance proceeds are
payable to the Company and whether there are arrangements that require the
proceeds to be used to redeem securities or pay benefits to the estate of the
insured person or a surviving spouse.
The Company has no key man life insurance policies on any of its Officers,
Directors, or key personnel.
36. If a petition under the Bankruptcy Act or any State insolvency law was
filed by or against the Company or its Officers, Directors or other key
personnel, or a receiver, fiscal agent or similar officer was appointed by a
court for the business or property of any such persons, or any partnership in
which any of such persons was a general partner at or within the past five
years, or any corporation or business association of which any such person was
an executive officer at or within the past five years, set forth below the name
of such persons, and the nature and date of such actions.
No petition for bankruptcy or insolvency was filed against the company or
its officers.
Note: After reviewing the information concerning the background of the
Company's Officers, Directors and other key personnel, potential investors
should consider whether or not these persons have adequate background and
experience to develop and operate this Company and to make it successful. In
this regard, the experience and ability of management are often considered the
most significant factors in the success of a business.
PRINCIPAL STOCKHOLDERS
----------------------
37. Principal owners of the Company (those who beneficially own directly or
indirectly 10% or more of the common and preferred stock presently outstanding)
starting with the largest common stockholder. Include separately all common
stock issuable upon conversion of convertible securities (identifying them by
asterisk) and show average price per share as if conversion has occurred.
Indicate by footnote if the price paid was for a consideration other than cash
and the nature of any such consideration.
35
Number of
Shares
Held After
Name, Offering If
Office Street Address, Telephone Average Number of All
No., and Class of Price Per Shares Now Percent Securities Percent
Principal Occupation Shares Share Held of Total Sold Of Total
- ---------------------------------- -------- --------- ---------- -------- ----------- --------
Musha Inc.* Common $ 0.05 7,500,000 88% 7,500,000 73%
31 Rose Court, Suite 3
Snyder, NY 14226
(905 ) 320-7000
Holding Company
Officers and directors as a group Common $ 0.05 7,500,000 88% 7,530,000 74%
(3 persons)** and and
$ 4.00 30,000
* A corporation wholly owned by Sumit Majumdar, an Officer and Director of
the Company. This shareholder received Founder Shares in consideration of
concept development, funding, and programming services rendered
** Includes shares identified in *, above.
38. Number of shares beneficially owned by Officers and Directors as a group:
Before offering: 7,530,000 shares (88% of total outstanding).
After offering:
(a) Assuming minimum securities sold: 7,530,000 shares (87% of total
outstanding)
(b) Assuming maximum securities sold: 7,530,000 shares (74% of total
outstanding).
MANAGEMENT RELATIONSHIPS, TRANSACTIONS AND REMUNERATION
-------------------------------------------------------
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three (3) years
following the date that such stockholder became an interested stockholder
unless: (i) prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least eighty-five percent (85%) of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also officers
and by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such date,
the business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combinations to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge, or other disposition of ten percent (10%) or more of the
assets of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested stockholder;
(iv) any transaction involving the corporation that has the effect of increasing
36
the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning fifteen percent (15%) or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling
or controlled by such entity or person.
39. (a) If any of the Officers, Directors, key personnel or principal
stockholders are related by blood or marriage, please describe.
None. One Hundred Fifty Thousand (150,000) Shares (totaling Two Percent
(2%)) of the Company's Common Stock outstanding prior to commencement of the
Offering) are held by the father, mother, and brother of Sumit Majumdar, an
officer, director, and key employee of the Company. These relatives are not
themselves principal stockholders. Mr. Majumdar himself holds, directly and
indirectly, a total of Seven Million Five Hundred Thousand (7,500,000) Shares,
or Eighty-Eight Percent (88%).
(b) If the Company has made loans to or is doing business with any of its
Officers, Directors, key personnel or 10% stockholders, or any of their
relatives (or any entity controlled directly or indirectly by any such persons)
within the last two years, or proposes to do so within the future, explain.
(This includes sales or lease of goods, property or services to or from the
Company, employment or stock purchase contracts, etc.) State the principal terms
of any significant loans, agreements, leases, financing or other arrangements.
For its operations from 2000 to 2002, MSO borrowed approximately $360,000
from Digital Micro Distribution Canada Inc. ("DMD"). DMD was in complete control
of Sumit Majumdar, the founder of both companies, during such times. On August
1, 2001, DMD converted its long-term promissory note into stock of MSO at Four
USD ($4.00) per share.
Other than the foregoing, the Company has neither made loans to, nor is
doing business with, any of its Officers, Directors, key personnel, or 10%
stockholders, or any of their relatives, and does not anticipate doing so in the
future.
(c) If any of the Company's Officers, Directors, key personnel or 10%
stockholders has guaranteed or co-signed any of the Company's bank debt or other
obligations, including any indebtedness to be retired from the proceeds of this
offering, explain and state the amounts involved.
None.
40. (a) List all remuneration by the Company to Officers, Directors and key
personnel for the last fiscal year:
Musha LLC (a company owned by Sumit Majumdar) Earned $125,000 USD in
deferred wages. Bruce Frankel Earned $80,000 USD in wages paid by the issuance
of 20,000 shares of Common Stock. Jamie Lobo Earned $40,000 USD in wages paid by
the issuance of 10,000 shares of Common Stock.
Other than the above, Officers and Directors currently receive no
remuneration, and received no remuneration in the last fiscal year.
(b) If remuneration is expected to change or has been unpaid in prior
years, explain:
No remuneration was paid to Officers and Directors in the Company's last
two fiscal years (its only prior years of existence) due to the application of
all capital resources to establishing and developing the MSO Web Site. There is
an accrual of unpaid salaries. The Company plans to continue accruing salaries
to the Officers and Directors until it starts creating profits or receives a
substantial capital injection.
37
(c) If any employment agreements exist or are contemplated, describe:
There are currently basic employment agreements with all employees of the
company. This includes, and is not limited to, contracts with Telemarketers,
Sales, Management, and technical staff. There are currently two consulting
contracts for employee loan outs. The company contemplates employment contracts
for all of its expected new employees that will have benefits not currently
offered to current employees such as Medical and Dental coverage. It is expected
that all exisiting contracts will be revised to include such benefits.
41. (a) Number of shares subject to issuance under presently outstanding stock
purchase agreements, stock options, warrants or rights: -0- shares (-0-% of
total shares to be outstanding after the completion of the offering if all
securities sold, assuming exercise of options and conversion of convertible
securities). Indicate which have been approved by shareholders. State the
expiration dates, exercise prices and other basic terms for these securities:
Presently, the Company has no outstanding stock purchase agreements,
options, warrants, or rights.
(b) Number of common shares subject to issuance under existing stock
purchase or option plans but not yet covered by outstanding purchase agreements,
options or warrants: -0- shares.
The Company has no existing stock purchase plans or option plans, and
consequently none of the Common Shares are presently subject to issuance
thereunder.
(c) Describe the extent to which future stock purchase agreements, stock
options, warrants or rights must be approved by shareholders.
The company currently requires only the majority approval of the Board of
Directors to approve future stock purchase agreements, stock options, warrants
or rights. The company does not require the approval of shareholders for such
agreements at this time.
42. If the business is highly dependent on the services of certain key
personnel, describe any arrangements to assure that these persons will remain
with the Company and not compete upon any termination:
Although the Company's business is highly dependent upon the services of
its Officers and Directors, there are no arrangements presently in place
intended to assure that these individuals will remain with the Company. All key
employees have provided the company a non-compete, non-cirumvention and
non-disclosure agreements.
Note: After reviewing the above, potential investors should consider
whether or not the compensation to management and other key personnel directly
or indirectly, is reasonable in view of the present stage of the Company's
development.
LITIGATION
----------
43. Describe any past, pending or threatened litigation or administrative
action which has had or may have a material effect upon the Company's business,
financial condition, or operations, including any litigation or action involving
the Company's Officers, Directors or other key personnel. State the names of the
principal parties, the nature and current status of the matters, and amounts
involved. Give an evaluation by management or counsel, to the extent feasible,
of the merits of the proceedings or litigation and the potential impact on the
Company's business, financial condition, or operations.
To management's knowledge, no material litigation or administrative action
is pending or threatened, and none has occurred in the past.
38
FEDERAL TAX ASPECTS
-------------------
44. If the Company is an S corporation under the Internal Revenue Code of 1986,
and it is anticipated that any significant tax benefits will be available to
investors in this offering, indicate the nature and amount of such anticipated
tax benefits and the material risks of their disallowance. Also, state the name,
address and telephone number of any tax advisor that has passed upon these tax
benefits. Attach any opinion or description of the tax consequences of an
investment in the securities by the tax advisor.
Not applicable, the Company is not a "Subchapter S" corporation.
Note: Potential investors are encouraged to have their own personal tax
consultant contact the tax advisor to review details of the tax benefits and the
extent that the benefits would be available and advantageous to the particular
investor.
MISCELLANEOUS FACTORS
---------------------
45. Describe any other material factors, either adverse or favorable, that will
or could affect the Company or its business (for example, discuss any defaults
under major contracts, any breach of bylaw provisions, etc.) or which are
necessary to make any other information in this Offering Circular not misleading
or incomplete.
None.
MANAGEMENT'S DISCUSSION AND
---------------------------
ANALYSIS OF CERTAIN RELEVANT FACTORS
------------------------------------
46. If the Company's financial statements show losses from operations, explain
the causes underlying these losses and what steps the Company has taken or is
taking to address these causes.
The Company's financial statements show losses attributed to development
costs associated with designing, implementing, and managing the Web Site and its
services. The Company expects to commercialize its operations within the next
Six to Twelve months, thus creating profitability.
The events of September 11 have created a real sense of uncertainty, and
may directly affect MSO's ability to raise funding or gain market acceptance.
These events have already affected the company's ability to raise private
funding further delaying technology implementation and development of
infrastructure. Due to these unexpected setbacks, MSO decided to reduce its
originally contemplated Offering price of Eight Dollars ($8.00) per share to Six
Dollars ($6.00) per share.
The computer industry as a whole has reported negative sales growth during
the last two quarters. Although analysts anticipate moderate growth in this
industry during the first and second quarters of 2003, there can be no assurance
that the downward trend in the industry will lessen or cease.
Management also believes that the addition of key management is not
guaranteed if the Offering is poorly received. If management is unable to secure
key staff following the Offering, this will seriously impact MSO's ability to
grow and meet future milestones.
47. Describe any trends in the Company's historical operating results. Indicate
any changes now occurring in the underlying economics of the industry or the
Company's business, which, in the opinion of Management, will have a significant
impact (either favorable or adverse) upon the Company's results of operations
within the next 12 months, and give a rough estimate of the probable extent of
the impact, if possible.
Management believes the Company's operational life is of such limited
tenure thus far that there are as yet insufficient economic data from which to
ascertain historical trends.
39
48. If the Company sells a product or products and has had significant sales
during its last fiscal year, state the existing gross margin (net sales less
cost of such sales as presented in accordance with generally accepted accounting
principles) as a percentage of sales for the last fiscal year: -0-%. What is the
anticipated gross margin for next year of operations? Approximately -0-%. If
this is expected to change, explain. Also, if reasonably current gross margin
figures are available for the industry, indicate these figures and the source or
sources from which they are obtained.
The Company does not sell a product or products.
49. Foreign sales as a percent of total sales for last fiscal year: -0-%.
Domestic government sales as a percent of total domestic sales for last fiscal
year: -0-%. Explain the nature of these sales, including any anticipated
changes:
Not applicable.
ADDITIONAL INFORMATION
----------------------
50. Significant parties. List the full names and business addresses, as
applicable, for the Company's directors, officers, promoters, owners of greater
than Five Percent (5%), counsel, and underwriters. None of the persons
identified are subject to any of the disqualification provisions set forth in
Rule 262.
Name Capacity Business Address
- ---------------------- --------------------------------------- -----------------------------------------
Sumit Majumdar Director, Officer, Promoter, Beneficial 130 Centennial Parkway N, Hamilton ON
Owner L8E 1H9
Jamie Lobo Director, Officer, Promoter 130 Centennial Parkway N, Hamilton ON
L8E 1H9
Bruce Frankel Director, Officer, Promoter 130 Centennial Parkway N, Hamilton ON
L8E 1H9
Musha, Inc. Affiliate, Record Owner 31 Rose Court, Suite 3, Snyder, NY 14226
Lindsay Anastasi Record and Beneficial Owner 10 Skyridge Drive, Rochester NY 14625
Glenn P. Hannemann, Counsel 24 Brena, Irvine, California, 92620
(714) 544-1912
[ Table continued on next page ]
40
Name Capacity Business Address
- ---------------------- --------------------------------------- -----------------------------------------
Equitrade Securities Underwriter 23736 Birtcher Dr., Lake Forest, CA 92630
Corporation (800) 266-1170
Equitrade's directors: Stephen Roebuck, Philip Roebuck, Kim Carroll, Kathleen Roebuck
Equitrade's officers: Stephen Roebuck, Philip Roebuck, Kim Carroll
Equitrade's counsel: Irving M. Ianhorne, Esq., 11900 Olympic Bl., Los Angeles CA 90064, (310) 207-8994
Sierra Brokerage Underwriter 2000 Bethel Rd, Columbus, OH 43220
Services, Inc. (800) 535-1625
Sierra's directors: John C. McCarney, Jeffrey A. Richardson, James M. Trowbridge
Sierra's officers: John C. McCarney, Jeffrey A. Richardson
Sierra's counsel: Carlile, Patchen & Murphy LLP, 366 Broad St., Columbus OH 43215, (614) 228-6135
Interwest Transfer Transfer Agent 1981 East Murray Holladay Road, Suite 100
Company, Inc. Salt Lake City, Utah 84117 (801) 272-9294
51. Relationship With issuer of Experts Named in Registration Statement.
If any expert named in the offering statement as having prepared or
certified any part thereof was employed for such purpose on a contingent basis
or, at the time of such preparation or certification or at any time thereafter,
had a material interest in the issuer or any of its parents or subsidiaries or
was connected with the issuer or any of its subsidiaries as a promoter,
underwriter, voting trustee, director, officer or employee furnish a brief
statement of the nature of such contingent basis, interest or connection.
The Law Offices of Glenn P. Hannemann will provide the Company with an
opinion as to legal matters in connection with the Shares offered by this
Prospectus. Danziger & Hochman Chartered Accountants, independent chartered
accountants, has audited the Company's financial statements included in this
Prospectus. Both the Law Offices of Glenn P. Hannemann and Danziger & Hochman
Chartered Accountants shall provide to the Company permission to include said
legal and audit opinions, respectively, which consents shall be included as
exhibits to the Company's Registration Statement on Form SB-1 of which this
Prospectus is a part. Other than the issuer's directors, officers, counsel, and
accountants, no experts participated in the preparation or certification of the
offering statement or any part thereof. None of those who did participate were
employed for that purpose on a contingent basis.
52. Selling Security Holders.
None.
53. Changes in and Disagreements With Accountants.
None.
54. Disclosure of Commission Position on Indemnification For Securities Act
Liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
41
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
FINANCIAL STATEMENTS
--------------------
55. Provide the financial statements required by Part F/S of this Prospectus:
- --------------------------------------------------------------------------------
MICROSOURCEONLINE INC.
Financial Statements
(Stated in United States Dollars)
May 31, 2001
42
MICROSOURCEONLINE INC.
INDEX
May 31, 2001
PAGE
----
AUDITORS' REPORT 44
FINANCIAL STATEMENTS
Balance Sheet - Statement I 45
Statement of Shareholders' Deficiency and
Comprehensive Loss - Statement II 46
Statement of Income - Statement III 47
NOTES TO FINANCIAL STATEMENTS 48 - 51
43
AUDITORS' REPORT
To the Board of Directors of:
MICROSOURCEONLINE INC.
We have audited the accompanying balance sheet of MICROSOURCEONLINE INC. as at
May 31, 2001 and the statements of shareholders' deficiency and comprehensive
loss and income for the period commencing June 5, 2000 to May 31, 2001. 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 audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at May 31, 2001 and the
results of its operations for the period then ended in accordance with United
States generally accepted accounting principles.
North York, Ontario
October 8, 2002 Chartered Accountants
- --------------------------------------------------------------------------------
44
MICROSOURCEONLINE INC. Statement I
Balance Sheet
(Stated in United States Dollars)
As at May 31, 2001
================================================================================
2001
- --------------------------------------------------------------------------------
ASSETS
- ------
Current $ NIL
================================================================================
LIABILITIES
- -----------
Current
Due to related company (note 3) $ 277,297
Accounts payable 125,000
- --------------------------------------------------------------------------------
402,297
- --------------------------------------------------------------------------------
SHAREHOLDER'S DEFICIENCY
- ------------------------
CAPITAL STOCK (note 4) 83,650
(DEFICIT) - Statement II (485,947)
- --------------------------------------------------------------------------------
(402,297)
- --------------------------------------------------------------------------------
$ NIL
================================================================================
ON BEHALF OF THE BOARD:
Director
- -----------------------------------------
{See accompanying notes.}
45
MICROSOURCEONLINE INC. Statement II
Statement of Shareholder's Deficiency and Comprehensive Loss
(Stated in United States Dollars)
For the Period Ended May 31, 2001
================================================================================
Common
Shares Deficit Total
- --------------------------------------------------------------------------------
BALANCE, June 5, 2000 $ - $ - $ -
Issuance of Common shares 83,650 - 83,650
Net (loss) for the period - (485,947) (485,947)
- --------------------------------------------------------------------------------
(DEFICIT), May 31, 2001 $ 83,650 $ (485,947) $ (402,297)
================================================================================
{See accompanying notes.}
46
MICROSOURCEONLINE INC. Statement III
Statement of Income
(Stated in United States Dollars)
For the Period Ended May 31, 2001
================================================================================
2001
- --------------------------------------------------------------------------------
REVENUE
- -------- $ -
- --------------------------------------------------------------------------------
EXPENSES
- --------
Facilitation fees 277,297
General and administration fees 83,650
Management salary 125,000
485,947
- --------------------------------------------------------------------------------
NET (LOSS) FOR THE PERIOD $ (485,947)
================================================================================
BASIC NET (LOSS) PER SHARE $ (.06)
================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,677,466
================================================================================
{See accompanying notes.}
47
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2001
================================================================================
1. COMMENCEMENT OF OPERATIONS
--------------------------
The Company was incorporated under the laws of the State of Delaware on
June 5, 2000. The Company was incorporated to develop and launch an online
brokerage service for the computer industry. The Company commenced active
business operations on August 1, 2001 and is currently working on a
strategy to raise capital in order to expand its online brokerage service.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
These financial statements have been prepared by management in conformity
with accounting principles generally accepted in the United States of
America and include the following significant accounting policies:
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from these estimates. These estimates are reviewed periodically and,
as adjustments become necessary, they are reported in earnings in the
period in which they become known.
Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income", which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners or
distributions to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under the current
accounting standards as a component of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is displayed in the statement of
shareholder's equity and in the balance sheet as a component of
shareholder's equity.
48
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2001
================================================================================
3. DUE TO RELATED COMPANY
----------------------
Amount due to company related through common shareholdings is unsecured,
non-interest bearing with no set terms of repayment.
4. CAPITAL STOCK
-------------
The number of outstanding shares of the Company as at May 31, 2001 is
computed as follows:
Outstanding shares as at June 5, 2000 NIL
Shares issued in exchange for services 8,365,000
---------
Outstanding shares as at May 31, 2001 8,365,000
=========
The Company authorized stock consists of 20,000,000 shares of common stock
with a par value of $0.01.
5. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
--------------------------------------------------------
Financial Instruments
---------------------
The following table details the carrying amounts and estimated fair values
of the Company's financial instruments as May 31, 2001. The estimated fair
value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than a
forced or liquidation sale. These estimates, although based on the relevant
market information about the financial instrument, are subjective in nature
and involve uncertainties and matters of significant judgement and,
therefore, cannot be determined with precision.
49
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2001
================================================================================
5. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
--------------------------------------------------------------------
Changes in assumptions could significantly affect the estimates.
Carrying Fair
Amount Value
2001 2001
=====================================================================
Financial Liabilities
Accounts payable $125,000 $125,000
Due to related company 277,297 277,297
---------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Accounts Payable and Due to Related Parties
-------------------------------------------
The carrying amounts approximate fair value because of the short-term to
maturity of these instruments.
6. RELATED PARTY TRANSACTIONS
--------------------------
During the year, the Company was charged facilitation fees of $277,297 from
a company related through common shareholdings, in order for the related
company to recover certain costs incurred on behalf of the Company. These
transactions are in the normal course of operations and are measured at the
exchange amount, which is the amount of consideration established and
agreed to by the related parties.
Management salary of $125,000 was expensed during the year and an accrual
of $125,000 was included in accounts payable at year-end from a company
related through a common shareholder.
50
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2001
================================================================================
7. BASIC NET LOSS PER SHARE
------------------------
Basic net loss per share figures are calculated using the weighted average
number of common shares outstanding computed on a daily basis.
8. STATEMENT OF CASH FLOWS
-----------------------
A statement of cash flows has not been represented since, in the opinion of
management, it would not provide any additional meaningful information.
51
MICROSOURCEONLINE INC.
Financial Statements
(Stated in United States Dollars)
May 31, 2002
52
MICROSOURCEONLINE INC.
INDEX
May 31, 2002
PAGE
----
AUDITORS' REPORT 54
FINANCIAL STATEMENTS
Balance Sheet - Statement I 55
Statement of Shareholders' Deficiency and
Comprehensive Loss - Statement II 56
Statement of Income - Statement III 57
NOTES TO FINANCIAL STATEMENTS 58 - 61
53
AUDITORS' REPORT
To the Board of Directors of:
MICROSOURCEONLINE INC.
We have audited the accompanying balance sheet of MICROSOURCEONLINE INC. as at
May 31, 2002 and the statements of shareholders' deficiency and comprehensive
loss and income for the year 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 audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at May 31, 2002 and the
results of its operations for the year then ended in accordance with United
States generally accepted accounting principles.
North York, Ontario
October 8, 2002 Chartered Accountants
- --------------------------------------------------------------------------------
54
MICROSOURCEONLINE INC. Statement I
Balance Sheet
(Stated in United States Dollars)
As at May 31, 2002
================================================================================
2002 2001
- --------------------------------------------------------------------------------
ASSETS
- ------
Current
Bank $ 146 $ NIL
LIABILITIES
- -----------
Current
Due to related company (note 3) $ - $ 277,297
Accounts payable 287,628 125,000
- --------------------------------------------------------------------------------
287,628 402,297
- --------------------------------------------------------------------------------
SHAREHOLDER'S DEFICIENCY
- ------------------------
CAPITAL STOCK (note 4) 84,975 83,650
CONTRIBUTED SURPLUS 462,432 -
(DEFICIT) - Statement II (834,889) (485,947)
- --------------------------------------------------------------------------------
(287,482) (402,297)
- --------------------------------------------------------------------------------
$ 146 $ NIL
================================================================================
ON BEHALF OF THE BOARD:
- ----------------------------------------------
Director
{See accompanying notes.}
55
MICROSOURCEONLINE INC. Statement II
Statement of Shareholder's Deficiency and Comprehensive Loss
(Stated in United States Dollars)
For the Year Ended May 31, 2002
================================================================================
Common Contributed
Shares Surplus Deficit Total
- --------------------------------------------------------------------------------
BALANCE, June 5, 2000 $ - $ - $ - $ -
Issuance of Common shares 83,650 - - 83,650
Net (loss) for the period - - (485,947) (485,947)
- --------------------------------------------------------------------------------
BALANCE, May 31, 2001 83,650 - (485,947) (402,297)
Issuance of Common shares 1,325 462,432 - 463,757
Net (loss) for the year - - (348,942) (348,942)
- --------------------------------------------------------------------------------
BALANCE, May 31, 2002 $ 84,975 $ 462,432 $ (834,889) $(287,482)
================================================================================
{See accompanying notes.}
56
MICROSOURCEONLINE INC. Statement III
Statement of Income
(Stated in United States Dollars)
For the Year Ended May 31, 2002
================================================================================
2002 2001
- --------------------------------------------------------------------------------
REVENUE $ 9,000 $ -
- -------
- --------------------------------------------------------------------------------
EXPENSES
- --------
Bad debt 56,297 -
Facilitation fees 45,833 277,297
General and administration fees 76,305 83,650
Management salary 125,000 125,000
Professional fees 54,507 -
357,942 485,947
- --------------------------------------------------------------------------------
NET (LOSS) FOR THE YEAR $ (348,942) $ (485,947)
================================================================================
BASIC NET (LOSS) PER SHARE $ (.04) $ (.06)
================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,478,966 7,677,466
================================================================================
{See accompanying notes.}
57
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2002
================================================================================
1. COMMENCEMENT OF OPERATIONS
--------------------------
The Company was incorporated under the laws of the State of Delaware on
June 5, 2000. The Company was incorporated to develop and launch an online
brokerage service for the computer industry. The Company commenced active
business operations on August 1, 2001 and is currently working on a
strategy to raise capital in order to expand its online brokerage service.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
These financial statements have been prepared by management in conformity
with accounting principles generally accepted in the United States of
America and include the following significant accounting policies:
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period.
Actual results could differ from these estimates. These estimates are
reviewed periodically and, as adjustments become necessary, they are
reported in earnings in the period in which they become known.
Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income", which
establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those resulting
from investments by owners or distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to
be recognized under the current accounting standards as a component of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Comprehensive income is displayed in the statement of shareholder's
equity and in the balance sheet as a component of shareholder's
equity.
58
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2002
================================================================================
3. DUE TO RELATED COMPANY
----------------------
Amount due to company related through common shareholdings is unsecured,
non-interest bearing with no set terms of repayment.
4. CAPITAL STOCK
-------------
The number of outstanding shares of the Company as at May 31, 2002 is
computed as follows:
Outstanding shares as at June 5, 2000 NIL
Shares issued in exchange for services 8,365,000
---------
Outstanding shares as at May 31, 2001 8,365,000
Shares issued in exchange for services 15,000
Shares issued for cash 27,500
Facilitation expense converted to common shares 90,000
----------
8,497,500
==========
The Company authorized stock consists of 20,000,000 shares of common stock
with a par value of $0.01.
5. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
--------------------------------------------------------
Financial Instruments
---------------------
The following table details the carrying amounts and estimated fair values
of the Company's financial instruments as May 31, 2002 and 2001. The
estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than a forced or liquidation sale. These estimates, although
based on the relevant market information about the financial instrument,
are subjective in nature and involve uncertainties and matters of
significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
59
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2002
================================================================================
5. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
--------------------------------------------------------------------
Carrying Fair
Amount Value
2002 2002
===========================================================================
Financial Assets
Bank $ 146 $ 146
Financial Liabilities
Accounts payable 283,628 283,628
---------------------------------------------------------------------------
Carrying Fair
Amount Value
2002 2002
===========================================================================
Financial Liabilities
Accounts payable $ 125,000 $ 125,000
Due to related company 277,297 277,297
---------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Bank, Accounts Payable and Due to Related Parties
-------------------------------------------------
The carrying amounts approximate fair value because of the short-term to
maturity of these instruments.
60
MICROSOURCEONLINE INC.
Notes to the Financial Statements
(Stated in United States Dollars)
May 31, 2002
================================================================================
6. RELATED PARTY TRANSACTIONS
--------------------------
During the year, the Company was charged facilitation fees of $45,833 (2000
- $277,297) from a company related through common shareholdings, in order
for the related company to recover certain costs incurred on behalf of the
Company. These transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties. The facilitation expense
relating from this company was exchanged for 90,000 common share of the
Company.
During the year, the Company paid $56,297 on behalf of a company related
through common shareholdings, which will not be recoverable. This amount
has been reflected as a bad debt in the year.
Management salary of $125,000 (2001 - $125,000) was expensed during the
year and accrual was recorded and included in accounts payable from a
company related through a common shareholder. The balance in accounts
payable relating to management salary is $250,000 (2000 - $125,000) at
year-end.
7. BASIC NET LOSS PER SHARE
------------------------
Basic net loss per share figures are calculated using the weighted average
number of common shares outstanding computed on a daily basis.
8. STATEMENT OF CASH FLOWS
-----------------------
A statement of cash flows has not been represented since, in the opinion of
management, it would not provide any additional meaningful information.
61
Items 5 and 6. Index to and Description of Exhibits.
The following exhibits are filed with this registration statement:
Exhibit
Number
- -----
(1) Underwriters' agreements
(a) Equitrade
(b) Sierra
(2) (a) The Company's charter (articles of incorporation)
(b) The Company's bylaws
(4) Form Subscription Agreement (to be supplied by amendment)
(6) Material contracts - Agreement with PriceBridge.com, Inc. (to be filed
under separate cover by counsel)
(7) Material contracts - Agreement with Alliance Capital Inc. (to be filed
under separate cover by counsel)
(8) Material contracts - Agreement with National Car Rental (to be filed
under separate cover by counsel)
(9) Material contracts - Agreement with Hertz (to be filed under separate
cover by counsel)
(10) Material contracts - Agreement with Interwest Transfer Co., Inc.
(11) Escrow Agreement
(12) Consents
(a) of experts - Danziger & Hochman Chartered Accountants
(b) of underwriters - Equitrade
(c) of underwriters - Sierra
(13) Opinion of counsel regarding legality of issuance of Shares
(14) Additional exhibits - Projections
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1, and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of
Hamilton, Province of Ontario, Canada, on October 25, 2002.
"Registrant:"
MICROSOURCEONLINE, INC.
A Delaware Corporation
By: /s/ Sumit Majumdar
----------------------------
Name: Sumit Majumdar
Title: President and Chief
Executive Officer and
Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
By: /s/ Bruce B. Frankel By: /s/ Jamie Lobo
---------------------------- ----------------------------
Name: Bruce B. Frankel Name: Jamie Lobo
Title: Chief Operating Officer Title: Chief Financial Officer
and Director and Director
62