UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
Amendment #1
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER No. 0-29922
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UNIVERSAL DOMAINS INCORPORATED
------------------------------
(Exact name of Registrant as specified in its charter)
Inapplicable
------------
(Translation of Registrant's name into English)
Canada
------
(Jurisdiction of incorporation or organization)
Suite 502, 828 Howe Street
Vancouver, British Columbia, Canada V6Z 2X2
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(Address of principal executive offices)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each Class Name of each exchange on which registered
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None
- -------------------------- ------------------------------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares
-------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
Not Applicable
--------------
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
COMMON SHARES: 49,194,778 as at December 31, 2002
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark which financial statement item the Registrant has elected
to follow.
Item 17 X Item 18
----- -----
-2-
NOTE REGARDING FORWARD LOOKING STATEMENTS
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Universal Domains Incorporated (the "Company") cautions readers that certain
important factors (including without limitation those set forth in this Form
20-F) may affect the Company's actual results and could cause such results to
differ materially from any forward-looking statements that may be deemed to have
been made in this Form 20-F annual report, or that are otherwise made by or on
behalf of the Company. For this purpose, any statements contained in the annual
report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "expect", believe", "anticipate", "intend", "could",
"estimate" or "continue" or the negative or other variations of comparable
terminology, are intended to identify forward-looking statements.
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TABLE OF CONTENTS
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Part I Page No
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Item 1. Identity of Directors, Senior Management and Advisers.............5
Item 2. Offer Statistics and Expected Timetable...........................5
Item 3. Key Information...................................................5
Item 4. Information on the Company........................................9
Item 5. Operating and Financial Review and Prospects.....................13
Item 6. Directors, Senior Management and Employees.......................15
Item 7. Major Shareholders and Related Party Transactions................17
Item 8. Financial Information............................................18
Item 9. The Offer and Listing............................................19
Item 10. Additional Information...........................................20
Item 11. Quantitative and Qualitative Disclosure About Market Risk........26
Item 12. Description of Securities Other Than Equity Securities...........27
Part II
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Item 13. Defaults, Dividends Arrearages and Delinquencies.................27
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds..............................................27
Item 15. [Reserved].........................................................
Item 16. [Reserved].........................................................
Part III
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Item 17. Financial Statements.............................................28
Item 18. Financial Statements.............................................28
Item 19. Exhibits.........................................................28
(a) Index to Financial Statements
(b) Exhibits
-4-
PART I
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ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not Applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
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Not Applicable.
ITEM 3 KEY INFORMATION
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A. SELECTED FINANCIAL DATA
-----------------------
This annual report includes financial statements for the Company. The following
is selected financial information from these financial statements. This
information should be read in conjunction with such Financial Statements and the
notes thereto incorporated by reference into this annual report. The financial
statements provided show the financial position of the Company for the fiscal
years 1998, 1999, 2000, 2001 and 2002.
All information provided in the Summary of Financial Information below is in US
dollars and has been compiled according to US Generally Accepted Accounting
Principles.
SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY'S
FINANCIAL STATEMENTS
--------------------
Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002
------------- ------------- ------------- ------------ -------------
OPERATING DATA:
- ---------------
Revenue $0 $0 $0 $0 $0
Gross Profit 0 0 0 0 0
Net Income (Loss) (7,020) (423,152) (1,945,677) (1,382,564) (204,603)
Income (Loss) per share ($0.01) ($0.08) ($0.18) ($0.09) ($0.001)
BALANCE SHEET DATA:
- -------------------
Cash $ 215,447 $ 48,787 $ 70,452 $ 1,840 $ 3,033
Total Assets 401,188 144,900 129,206 20,053 38,877
Current Liabilities 84,288 239,431 217,789 473,123 75,850
Long Term Debt 4,962 408 0 0 0
Total Liabilities 89,250 239,839 217,789 473,123 75,850
Shareholders Equity 311,938 (94,939) (88,583) (453,070) (36,973)
(Deficiency)
-5-
CURRENCY AND EXCHANGE RATES
- ---------------------------
The following table sets out the exchange rates for one United States dollar
("US$") expressed in terms of one Canadian dollar ("Cdn$") in effect at the end
of the following periods, (based on the average of the exchange rates on the
last day of each month in such periods).
2002 2001 2000 1999 1998
---------- ---------- --------- ---------- ---------
End of period 1.5713 1.5519 1.4871 1.4827 1.4894
The following table sets out the high and low exchange rates for each month
during the previous six months for one United States dollar ("US$") expressed in
terms of one Canadian dollar ("Cdn$").
High Low
---- ---
July 2003 1.4188 1.333
June 2003 1.3781 1.3305
May 2003 1.4424 1.3403
April 2003 1.4940 1.4407
March 2003 1.4955 1.4584
February 2003 1.5342 1.4871
January 2003 1.5800 1.5170
Exchange rates are based upon the noon buying rate in New York City for Cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York. Unless otherwise indicated, in this annual report on
Form 20-F (the "Annual Report" or "Form 20-F") all references herein are to
Canadian Dollars.
The noon rate of exchange on August 15, 2003 as reported by the United States
Federal Reserve Bank of New York for the conversion of Canadian dollars into
United States dollars was US$1.3943 (US$1.00 = Cdn$0.7172).
B. CAPITALIZATION AND INDEBTEDNESS
-------------------------------
Not Applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
-----------------------------------------
Not Applicable.
D. RISK FACTORS
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Investment in the securities registered by this Annual Report must be considered
as speculative and carries a high degree of risk. It is possible that an
investor's entire investment may be lost. In addition to the other information
set forth in this Annual Report, a prospective investor should carefully
consider the following factors:
As of March 2003, we discontinued our teleconferencing service business and
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entered the oil and gas business; we may fail in the oil and gas business.
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Further to an agreement dated March 25, 2003, the Company entered into an
agreement with Hawkeye Drilling Co. to acquire an interest in the Puckett Field,
an oil and gas producing property. At this time, we discontinued our
-6-
teleconferencing service business. The teleconferencing service business had
been our only source of revenue. The Company has no experience in the oil and
gas business and its prospects should be considered very speculative.
Our business will fail if we do not obtain additional financing. We have very
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limited current operating funds, and, therefore, we will need to obtain money in
order to complete our anticipated operations. Our anticipated operations
contemplate significant expenses in connection with the exploration of oil and
gas interests. We will also require additional money to sustain our anticipated
operations. We do not currently have any arrangements for financing, and we can
provide no assurance that we will be able to find such financing. Obtaining
additional financing would be subject to a number of factors, including market
prices for oil and natural gas, investor acceptance of our operations, and
investor sentiment. These factors may make the timing, amount, terms, or
conditions of additional financing unavailable to us. We believe the only
realistic source of future funds presently available to us is by the sale of
equity securities. Any sale of our equity securities will result in dilution to
our existing shareholders.
We have only recently commenced oil and gas operations and may not become
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profitable. The probability of our success is quite speculative, considering the
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problems, expenses, difficulties, complications, and delays encountered in the
exploration of the property that we plan to undertake. The potential problems
include, but are not limited to, unanticipated problems relating to exploration,
and additional costs and expenses that may exceed current estimates. We have no
history upon which to base any assumption as to the probability that our
business will be successful, and we can provide no assurance that we will
generate any revenues or achieve profitable operations. If we are unsuccessful
in resolving those problems, our business will probably fail.
Our audited financial statements express a going concern caution. Our attached
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financial statements have been prepared on a going concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. Since we are in the development stage, we have
limited capital resources, insignificant revenue and a loss from operations. The
appropriateness of using the going concern basis is dependent upon our ability
to obtain additional financing or equity capital and, ultimately, to achieve
profitable operations. The uncertainty of these conditions raises substantial
doubt about our ability to continue as a going concern. Our attached financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company expects to incur increased operating expenses until it achieves
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revenues. The Company has not achieved profitability. It expects to continue to
- ---------
incur significant losses for the foreseeable future as it anticipates that it
will incur increased operating expenses as it completes the implementation of
its business plan.
Our future success will depend on the price of oil and gas. Our revenues will
- -----------------------------------------------------------
come from the production and sale of oil and gas. Because the price of oil and
gas is very volatile, we may be able to recover it at prices that are greater
than our recovery costs. If oil and gas prices go below our costs and expenses
of operating our company, we will lose money. Sustained financial losses will
force us to cease operations.
Our business may fail if we do not succeed in our efforts to find and develop
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oil and gas reserves. Management believes that our future success will depend
- ---------------------
upon our ability to find, acquire and develop economically recoverable oil and
gas reserves. We do not currently have any oil or gas reserves. Any reserves we
find and develop will generally decline as they are produced, except to the
extent that we conduct revitalization activities, or acquire properties
containing proved reserves, or both. To establish and increase reserves and
production, we must develop drilling and re-completion programs, identify and
produce previously overlooked or bypassed zones in shut-in wells, or undertake
other replacement activities. Our current strategy is to increase our reserve
-7-
base, production and cash flow through the development of oil and gas fields. We
will accomplish this with selective acquisitions of promising properties.
Despite our efforts, our development and acquisition activities may not result
in significant reserves, and we may not be able to discover and produce reserves
at economical exploration and development costs. In addition, our exploration
costs for additional reserves may increase.
Compliance with governmental regulations can be costly and can limit our planned
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operations. We face many state and federal laws, rules and regulations covering
- -----------
the safety of our operations, environmental conditions and other facets of our
business. These laws, rules and regulations can be expensive and may seriously
limit our ability to conduct our intended business operations.
We may not be able to obtain or maintain licenses and permits to explore for oil
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and natural gas. Environmental and other government regulations of the federal,
- ----------------
state, and local agencies having jurisdiction over our business and property may
require licenses and permits to drill wells, operate oil and gas properties and
conduct our business before permitting our exploration activities. We may not be
able to obtain or maintain all necessary or appropriate licenses and permits
that may be required to conduct such exploration.
Oil and natural gas exploration, development and production involves many
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physical hazards. In the course of exploration, development, and production of
- -----------------
oil and natural gas properties, several risks and, in particular, unusual
geological or unexpected operating conditions, including excessive gas
pressures, dry holes, failure of pit walls or dams, fires, and flooding, may
occur. Also, we may incur liability as a result of pollution or other incidents.
We currently are not insured against such risks. Payment of compensation for
obligations resulting from such liability may result in significant costs for us
and could harm our business, financial condition, or results of operations.
Our officers and directors may not devote their full time to our operations.
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Some of our officers and directors are also officers, directors and principal
shareholders of other companies. These relationships may give rise to conflicts
of interest from time to time. However, in conflict of interest situations, our
officers and directors may owe the same duties to another company and its
shareholders, and will, therefore, have divided loyalties. Some of our officers
and directors may attempt to balance their competing obligations and duties,
which may not be possible. Moreover, because of these other affiliations with
our competitors, our officers' and directors' other activities will prevent them
from devoting their full time to our operations. This will slow our operations
and may interfere with our financial results.
Information regarding our future exploration and development activities reflects
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our current intent and is subject to change. Whether we continue exploitation or
- --------------------------------------------
exploration on our properties will depend on the availability and cost of
capital, current and forecasted oil and gas prices, the costs and availability
of drilling rigs and other equipment, supplies and personnel necessary to
conduct these operations, success or failure of other nearby exploration and
development projects, and changes in the estimates of the costs to explore,
drill, test and complete wells on the leased acres. We will continue to gather
data about our proposed plan of operation, and it is possible that additional
information may cause us to alter our plan.
Success of the Company will Depend on the Developments of an Active Trading
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Market. While the Company's common shares ("Common Shares") are included on NASD
- -------
Over the Counter Bulletin Board, there can be no assurance that an active
trading market for the Common Shares will continue. In the absence of such a
market, investors may be unable to readily liquidate their investment in the
Common Shares. The market for equity securities in general has been volatile and
the trading price of the Common Shares could be subject to wide fluctuations in
-8-
response to general market trends, changes in general conditions in the economy,
the financial markets or the oil and gas industry and other factors that may be
unrelated to the Company's performance.
Low-Priced Stocks Subject to Greater Disclosure Requirements. The Securities and
- -------------------------------------------------------------
Exchange Commission adopted rules ("Penny Stock Rules") that regulate
broker-dealer practices in connection with transactions in penny stocks. The
Common Shares of the Company may fall within the Commission's definition of a
penny stock. The closing price of the Company's shares on August 15, 2003 was
$0.012. Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current prices and volume
information with respect to transactions in such securities is provided by the
exchange or system). The Penny Stock Rules require a broker-dealer, prior to
effecting a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prepared by the Securities and
Exchange Commission that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information must be given to the customer orally or
in writing prior to effecting the transaction and must be given to the customer
in writing before or with the customer's confirmation. In addition, the Penny
Stock Rules require that prior to a transaction in a penny stock not otherwise
exempt from such rules, the broker-dealer must receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that is subject to the Penny Stock Rules. At any time when the Company's common
stock is subject to the Penny Stock Rules, shareholders may find it more
difficult to sell their shares.
ITEM 4 INFORMATION ON THE COMPANY
- ------------------------------------
A. HISTORY AND DEVELOPMENT OF THE COMPANY
--------------------------------------
Universal Domains Incorporated (the "Company") is an independent energy company
engaged in the exploration, development, production, and acquisition of crude
oil and natural gas. The Company owns a 75% working interest in the Puckett
Field, in the State of Mississippi, and is partnered with Hawkeye Drilling Co.
The Company acquired this interest in March 2003.
Until March 2003, the Company, through its wholly-owned subsidiary VCL
Communications Corp. ("VCL"), was in the business of providing teleconferencing
services to clients in North America. In March 2003, the Company decided to
discontinue providing teleconferencing services in order to focus on the oil and
gas business.
The Company was incorporated as a federal company pursuant to the laws of Canada
under the Canada Business Corporations Act (the "Act") on October 30, 1997,
under the name 3430502 Canada Ltd. The Company changed its name as of December
4, 1997 to Four Crown Foods Inc. The Company changed its name as of June 5, 2000
to Universal Domains Incorporated.
The Company's principal corporate office is located at Suite 502, 828 Howe
Street, Vancouver, British Columbia, Canada V6Z 2X2. The registered and records
office of the Company is located at Suite 502, 828 Howe Street, Vancouver,
British Columbia, Canada V6Z 2X2.
-9-
The Company was previously involved in the food and beverage retail business
("the Food Retail Business"). Prior to December 31, 2001 the Company
discontinued its Food Retail Business Operations. The Company commenced a domain
registration business upon the acquisition on April 12, 2000 of the licence
rights to a domain registration agreement for the ".cc" Internet registration
domain. The Company withdrew from the domain registration business during fiscal
2001. In October, 2001 the Company acquired 100% of the issued and outstanding
shares of VCL, a teleconferencing services company targeting clients throughout
North America. In March 2003, the Company decided to discontinue providing
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teleconferencing services in order to focus on the oil and gas business. See
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"Description of Business" for further detail.
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B. BUSINESS OVERVIEW
-----------------
DESCRIPTION OF BUSINESS
- -----------------------
a) PUCKETT FIELD ACQUISITION
- ------------------------------
Further to an agreement dated March 25, 2003, the Company entered into an
agreement with Hawkeye Drilling Co. (the "Vendor") to acquire the Puckett Field
(the "Field"), an oil and gas producing property, in consideration for a fee
payment of $30,000; a payment of $50,000 towards reworking of existing wells for
drilling and completion of an earning well; the issuance of 15,000,000 shares of
common stock of the Company; execution of a Loan Agreement and Production
Payment Obligation for the Cash Payment; execution of the Mortgage and related
financing statements securing the Loan Agreement and Production Payment
Obligation; assumption of costs and liability associated with the Vendor's
carried interest; and funding drilling and testing all potentially productive
zones in the earning well. In return, the Company received 75% of the assets of
the project and proportionate entitlement to all existing and future oil and gas
production revenues from the Field, subject to a 25% carried interest to be held
by Hawkeye Drilling Co., on existing wells and the earning well.
The Puckett Field and its existing production of 807 gross acres and 721 net
acres is located 20 miles east of Jackson, Mississippi. The Field produces from
a series of Cretaceous age sands including Mooringsport, Paluxy, Fredricksbury,
Washita and Tuscaloosa. Proven reserves are estimated at 5-million barrels of
oil and 5.8-billion cubic feet of gas.
The Puckett Field currently contains 7 active wells producing 150+ barrels of
oil per day, and it has 17 additional wells that are not producing but have been
scheduled for re-work. Studies indicate that with moderate capital invested of
$1,000,000 in a program to re-equip and work-over existing wells, combined with
the drilling of roughly 8 to 13 new wells, the field is capable of yielding
years of production that could generate between 10,000 to 25,000 barrels of oil,
together with 60-million cubic feet of gas, on average per month.
Two workovers have been completed successfully to date and are producing at a
steady rate of 50 barrels of oil per day each.
b) VCL COMMUNICATIONS CORP.
- -----------------------------
Pursuant to an agreement dated October 15, 2001 the Company acquired 100% of the
issued and outstanding shares of VCL in consideration for the issue of 5,000,000
shares of common stock of the Company. The closing took place on October 30,
2001. In March 2003, the Company decided to discontinue providing
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teleconferencing services in order to focus on the oil and gas business. See
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"Description of Business" for further detail.
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-10-
MARKET
- ------
We are a minor factor in the Mississippi oil and gas industry and face
competition from numerous companies, which have considerably more financial
resources, property and manpower. We are in a weak financial condition and must
rely upon third party sources of funds to conduct our proposed operations.
The oil and gas industry is highly competitive. Competitors include major oil
companies, other independent oil and gas companies, and individual producers and
operators, many of which have financial resources, staffs and facilities
substantially greater than ours.
EFFECTS OF GOVERNMENT REGULATIONS
- ---------------------------------
OIL AND GAS BUSINESS
- --------------------
Our operations are regulated by certain federal and state agencies. In
particular, oil and natural gas production and related operations are or have
been subject to price controls, taxes and other laws relating to the oil and
natural gas industry. We cannot predict how existing laws and regulation may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted, or the effect such changes may have on our
business or financial condition.
All of our operations are subject to extensive federal, state and local laws and
regulations relating to the generation, storage, handling, and transportation of
materials and their potential discharge into the environment. Permits are
required for all of our operations, and these permits are subject to revocation,
modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their
regulations, and violators are subject to fines, injunctions or both. It is
possible that increasingly strict requirements will be imposed by environmental
laws and enforcement policies thereunder. We do not anticipate that we will be
required in the near future to expend amounts that are material to the Company's
financial position or results of operations by reason of environmental laws and
regulations, but because such laws and regulations are frequently changed, we
are unable to predict the ultimate cost of such compliance.
It is our belief that the oil and gas industry may experience increasing
liabilities and risks under the Comprehensive Environmental Response,
Compensation and Liability Act, as well as other federal, state and local
environmental laws, as a result of increased enforcement of environmental laws
by various regulatory agencies. As an "owner" or "operator" of property where
hazardous materials may exist or be present, we, like all others engaged in the
oil and gas industry, could be liable for the release or remediation of any
hazardous substances.
We are required to comply with various federal and state regulations regarding
plugging and abandonment of oil and gas wells.
TELECONFERENCING SERVICES BUSINESS
- ----------------------------------
To date, governmental regulations have not materially restricted use of sales of
teleconferencing services. In March 2003, the Company decided to discontinue
-------------------------------------------------
providing teleconferencing services in order to focus on the oil and gas
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business. See "Description of Business" for further detail.
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ADDITIONAL INFORMATION
- ----------------------
a) OIL AND GAS BUSINESS
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-11-
Competitive Conditions
- ----------------------
The oil and gas industry is highly competitive. The Company will compete for
reserve acquisitions, exploration leases, licences and concessions and skilled
industry personnel with a substantial number of other oil and gas companies,
many of which have significantly greater financial resources than the Company.
The Company's competitors include major integrated oil and natural gas companies
and numerous other independent oil and natural gas companies and individual
producers and operators. The Company's ability to increase reserves in the
future will depend not only on its ability to explore and develop its
properties, but also on its ability to select and acquire suitable producing
properties or prospects for exploratory drilling. Competitive factors in the
distribution and marketing of oil and natural gas include price and methods and
reliability of delivery.
The Company's ability to successfully bid on and acquire additional property
rights, to discover reserves, to participate in drilling opportunities and to
identify and enter into commercial arrangements with customers will be dependent
upon developing and maintaining close working relationships with its future
industry partners and joint operators and its ability to select and evaluate
suitable properties and to consummate transactions in a highly competitive
environment.
b) TELECONFERENCING SERVICES BUSINESS
- ---------------------------------------
In March 2003, the Company decided to discontinue providing teleconferencing
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services in order to focus on the oil and gas business. See "Description of
- ---------------------------------------------------------------------------
Business" for further detail.
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c) DOMAIN REGISTRATION BUSINESS
- ---------------------------------
The Company was previously involved in the domain registration business, however
the Company has ceased its involvement in this business sector during the past
fiscal year.
d) FOOD RETAIL BUSINESS
- -------------------------
The Company used to hold a 51% interest in Primo's Mexican Specialties Ltd.
("Primo's"), a manufacturer of Mexican specialty foods such as salsa, nacho and
tortilla chips. The Company discontinued this operation prior to December 31,
2000 and has disposed of the assets and liabilities of Primo's during 2002.
C. ORGANIZATIONAL STRUCTURE
------------------------
VCL is a 100% owned subsidiary of the Company incorporated under the laws of
British Columbia, Canada on February 7, 2000 under the name Esearch Information
Corp. On October 3, 2001 it changed its name to VCL Communications Corp. In
--
March 2003, the Company decided to discontinue providing teleconferencing
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services in order to focus on the oil and gas business. See "Description of
- ---------------------------------------------------------------------------
Business" for further detail.
- -----------------------------
The Company used to own a 51% interest in Primo's. The Company discontinued this
operation prior to December 31, 2000 and has disposed of the assets and
liabilities of Primo's during 2002.
D. PROPERTY, PLANTS AND EQUIPMENT
------------------------------
-12-
The Company's principal corporate office is located at Suite 502, 828 Howe
Street, Vancouver, British Columbia, Canada. The office is approximately 900
square feet and is leased on a month-to-month basis. The monthly rent on the
Vancouver premises is $1,550.00 Cdn.
PUCKETT FIELD
- -------------
In March 2003, the Company acquired 75% of the assets of Puckett Field and its
existing production of 807 gross acres and 721 net acres is located 20 miles
east of Jackson, Mississippi and proportionate entitlement to all existing and
future oil and gas production revenues from the Field, subject to a 25% carried
interest to be held by Hawkeye Drilling Co., on existing wells and the earning
well.
The Field produces from a series of Cretaceous age sands including Mooringsport,
Paluxy, Fredricksbury, Washita and Tuscaloosa. Proven reserves are estimated at
5-million barrels of oil and 5.8-billion cubic feet of gas.
The Puckett Field currently contains 7 active wells producing 150+ barrels of
oil per day, and it has 17 additional wells that are not producing but have been
scheduled for re-work. Studies indicate that with moderate capital invested of
$1,000,000 in a program to re-equip and work-over existing wells, combined with
the drilling of roughly 8 to 13 new wells, the field is capable of yielding
years of production that could generate between 10,000 to 25,000 barrels of oil,
together with 60-million cubic feet of gas, on average per month.
Two workovers have been completed successfully to date and are producing at a
steady rate of 50 barrels of oil per day each.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
- ------------------------------------------------------
A. OPERATING RESULTS
-----------------
The Company did not report any income from operations during financial years
ending December 31, 2002 and December 31, 2001. The Company's teleconferencing
business did not produce revenue and was discontinued in the first quarter of
2003. During fiscal 2000 the Company's income from operations was affected
primarily by the discontinuation of the two branches of its food retail
business. These dispositions caused a downturn in the revenues of the Company
from US$739,148 in the year ended December 31, 1999 to US$176,420 in the year
ended December 31, 2000. Revenues for the Company ceased at the time of these
discontinuations approximately mid April 2000 and this is completely
attributable to the discontinuation of the food retail business.
The impact of inflation and hyperinflation are not material to the Company.
The impact of foreign currency fluctuations are not material to the Company. The
Company reported a gain on foreign currency translation for the year ended
December 31, 2002 of $4,777. The Company reported a $18,077 gain on foreign
currency translation for the year ended December 31, 2001.
The Company is not aware of any governmental fiscal monetary or political policy
or factors that have materially effected or could materially effect directly or
indirectly the Company's operations or investments by non-Canadian shareholders.
B. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
-13-
As of December 31, 2002 the Company reported a working capital deficiency of
US$38,976 and cash of $3,033. The Company's working capital is not sufficient
for the Company's present requirements. The Company proposes to meet any further
working capital requirements through future equity financing. The Company does
not have any current cash flows. The Company will be dependent on future equity
financing to create future cash flows. During the year end in December 31, 2002
the Company had no borrowings or long-term debt. As of December 31, 2002 the
Company did not have any material commitments for capital expenditures, however,
it does have present material commitments for capital expenditures.
Specifically, the Company is obligated to pay approximately $200,000 as part of
the Puckett Field acquisition and is required to raise up to $500,000 to fund
the drilling of wells on the property. The Company anticipates that it will
require future equity financings in order to fulfil such commitments.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES, ETC.
----------------------------------------------------
The Company has not undertaken any significant research or development over the
past three years.
D. TREND INFORMATION
-----------------
Commodity Price Volatility
- --------------------------
Crude oil and natural gas prices are volatile and subject to a number of
external factors. Prices are cyclical and fluctuate as a result of shifts in the
balance between supply and demand for crude oil and natural gas, world and North
American market forces, inventory and storage levels, OPEC policy, weather
patterns and other factors. In early 2002, the industry initially saw a general
weakening of prices for both oil and natural gas. However, through the second
half of the year, commodity prices rebounded above historical averages.
Currently, tight supply/demand balance has kept prices high for both crude oil
and natural gas.
Crude oil is influenced by a world economy and OPEC's ability to adjust supply
to world demand. Recent success by OPEC and low North American crude stocks have
kept crude oil prices high. However, the Company expects world prices of crude
oil to decrease to historical average levels of approximately US $24 per barrel
(WTI), but also expect continued global political factors to hold prices at
those levels.
Natural gas prices are greatly influenced by market forces in North America. It
is generally believed that natural gas has greater stability than crude oil in
terms of short-term pricing as there is a shortage of natural gas production and
natural gas storage levels are low. The Company expects natural gas prices to
moderate somewhat through 2003, but expect the supply of North American natural
gas to continue to be constrained by North American production decline rates.
Teleconferencing Services
- -------------------------
The Company believes that the trend of growth in Internet based business will
continue as more and more people begin and continue to use the Internet, and as
on-line activities become a greater part of day-to-day life. The Company expects
this growth to have a positive effect on its net sales or revenues, incomes from
operations, profitability and liquidity. However, there is no assurance that the
current trend toward growth in the Internet will continue.
The Company also believes that the teleconferencing services industry continues
to grow due to the globalization of businesses around the world and the
uneasiness within the travel industry due to September 11, 2001 events. Growth
is also believed to be taking place in the United States due to the
implementation of the Regulation to the Fair Disclosure Act that requires
reporting companies to make earnings, analyst conference calls, corporate media
-14-
announcements and other information available simultaneously to all investors.
However there is no certainty that the current trend toward growth in the
telecommunications services industry will continue.
E. OFF-BALANCE SHEET ARRANGEMENTS.
-------------------------------
Not applicable.
F. DISCLOSURE OF CONTRACTUAL OBLIGATIONS.
--------------------------------------
None.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
- ----------------------------------------------------
A. DIRECTORS AND SENIOR MANAGEMENT
-------------------------------
The following table sets forth all directors and executive officers of the
Company as of August 18, 2003, with each position and office held by them in the
Company, and the period of service as such:
Name and Position Commencement of Common Shares Held as of
With the Company Age Service August 18, 2003
- -------------------------------- --------- ------------------- --------------------------
Alan Brown 36 4/12/2000 10,102,334
Director, President
Cory Mitchell 33 8/14/2002 Nil
Director
Mr. Alan Brown - Mr. Brown is the President and a director of the Company. Mr.
- --------------
Brown has been the Company accountant for the last four years. Prior to his work
with the Company Mr. Brown spent many years advising clients on tax planning and
structure.
Mr. Cory Mitchell - Mr. Mitchell is a director of the Company. Mr. Mitchell is
- -----------------
an active businessman in areas of construction and finance. He is also an
investor and entrepreneur in many start-ups. Resident in Colville, Washington,
USA.
There are not any arrangements or understandings between any directors or
executive officers and any other person to which the director or executive
officer was selected as a director or member of senior management. There are not
any family relationships among any of the directors and senior management of the
Company.
The Company does not have any agreements with its directors providing for
benefits upon termination of their employment.
B. COMPENSATION
------------
The compensation payable to the Company's directors and members of its
administrative, supervisory or management bodies is summarized below:
1. General
-------
-15-
The Company does not have any members of administrative, supervisory or
management bodies. The Company does not compensate directors for acting solely
as directors. Except as described below, the Company does not have any
arrangements pursuant to which directors are remunerated by the Company or its
subsidiaries for their services in their capacities as directors, other than
options to purchase shares of the Company which are granted to the Company's
directors from time to time and the reimbursement of direct expenses. See "Stock
Options" for greater detail. The Company does not have any pension plans and the
Company has not set aside or accrued amounts for retirements or similar
benefits.
2. Directors and officers of the Company
-------------------------------------
During the financial period ended December 31, 2002, the aggregate cash
remuneration paid or payable by the Company to its directors and executive
officers for services rendered was US$60,000 as follows:
1. The Company entered into a prior agreement with Alan Brown, the president
of the Company pursuant to which Mr. Brown provides consulting services to
the Company for a fee of US$5,000 per month. During the Company's last
completed financial year US$60,000 was paid to Mr. Brown pursuant to this
agreement.
C. BOARD PRACTICES
---------------
All of the directors of the Company are elected annually by the shareholders and
hold office until the next annual general meeting of shareholders or until their
successors are duly elected and qualified, unless they sooner resign or cease to
be directors in accordance with the Registrant's Articles. The Company's last
annual regular general meeting was held on September 6, 2001. The Company's
executive officers are appointed by and serve at the pleasure of the Board of
Directors.
Members of the Board of Directors are elected by the holders of the Company's
shares to represent the interests of all shareholders. The Board of Directors
meets periodically to review significant developments affecting the Company and
to act on matters requiring Board approval. Although the Board of Directors
delegates many matters to others, it reserves certain powers and functions to
itself. The only standing committee of the Board of Directors of the Company is
the Audit Committee. The Audit Committee of the Company's Board of Directors
currently consists of Cory Mitchell and Alan Brown. This committee is directed
to review the scope, cost and results of the independent audit of the Company's
books and records, the results of the annual audit with management and the
adequacy of the Company's accounting, financial and operating controls; to
recommend annually to the Board of Directors the selection of the independent
auditors; to consider proposals made by the Company's independent auditors for
consulting work; and to report to the Board of Directors, when so requested, on
any accounting or financial matters. The Company does not have an Executive
Committee.
D. EMPLOYEES
---------
As at December 31, 2002 the Company did not have any full-time employees.
E. SHARE OWNERSHIP
---------------
1. The following table sets forth as of August 18, 2003, information with
respect to the total number of Common Shares owned by the Company's
directors. The Company does not have any members of administrative,
supervisory or management bodies. There is no person known to the Company
to be the owner of more than 10% of any class of the Company's voting
securities except as set forth below.
-16-
Title of Class Shareholder Number of Shares Percent of Class(1)
- ----------------- ----------------- ---------------------- -------------------------
Common shares Alan Brown 10,102,334 Shares 10.56%
0 Options 0%
Common shares Cory Mitchell 0 Shares 0%
0 Options 0%
<FN>
(1) Based upon 95,694,776 common shares issued and outstanding as at August 18,
2003.
</FN>
STOCK OPTIONS
- -------------
As at August 18, 2003 there were no outstanding options to purchase Common
Shares:
Optionees Type of Shares Number of Shares Exercise Price Expiry Date
Optioned Optioned
- ------------------------- -------------------- ---------------------- -------------------- -----------------
Directors and Officers Nil Nil Nil N/A
Persons other than Nil Nil Nil N/A
Directors and Officers
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
- -----------------------------------------------------------
A. MAJOR SHAREHOLDERS
------------------
The following persons known to the Company to own more than 5% of the Company's
voting securities as at August 18, 2003:
Name Number of Shares % of Class
- ---------------------- ---------------------- ----------------
Whitney Pansano 5,000,000 5.22
Keith Robertson 5,766,955 6.03
The Company's major shareholders' voting rights do not differ from the voting
rights of other shareholders.
To the extent known by the Company, it is not directly or indirectly owned or
controlled by another corporation, by any foreign government or by any natural
or legal person.
Based on the records of the Company's registrar and transfer agent, as at August
18, 2003 there were nineteen holders of record of the Company's shares with
United States addresses who collectively held 28,815,300 shares or approximately
30.11% of the issued and outstanding shares.
The Company is not aware of any agreements, the operation of which may at a
subsequent date result in a change of control of the Company.
-17-
B. RELATED PARTY TRANSACTIONS
--------------------------
Except for the consulting services contracts described under "Directors, Senior
Management and Employees", during the past fiscal year the Company has not been
a party to a material transaction or loan with (a) enterprises that directly or
indirectly through one or more intermediaries, control or are controlled by, or
are under common control with the Company; (b) associates; (c) individuals
owning directly or indirectly, an interest in the voting power of the Company
that gives them significant influence over the Company, and close members of any
such individuals' families; (d) key management personal or (e) enterprises in
which a substantial interest in the voting power is owned directly or
indirectly, by any person described in (c) and (d) or over which such a person
is able to exercise significant influence.
ITEM 8 FINANCIAL INFORMATION
- -------------------------------
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
-------------------------------------------------------
The Company's financial statements, included as an exhibit to this Annual
Report, are incorporated into this Annual Report by reference.
LEGAL PROCEEDINGS
- -----------------
There are no material legal proceedings in progress or, to the knowledge of the
Company, pending or threatened to which the Company is a party or to which any
of its property is subject except for the following:
1. An application of default was filed against the Company in the Los Angeles
Superior Court on February 6, 2002 by David Sam Industries. The application
relates to an Assignment Agreement dated on or about April 12, 2000
respecting the registration of 500,000 .cc domain names and a Purchase
Agreement dated June 9, 2000 respecting the purchase of one particular
domain name. The amount of the judgement is $712,608. The Company intends
to appeal the judgement.
2. The Company has been involved in litigation with Cavio Corporation and Paul
Mann respecting the acquisition by the Company of all of the issued and
outstanding shares of Cavio Corporation ("Cavio"). The acquisition failed
to close and the Company commenced an action to recover the advances of
$80,000 (US) made by the Company to Cavio, plus interest, in respect of the
acquisition. On May 17, 2002 the parties reached a settlement agreement
pursuant to which Cavio will pay the Company $80,000 (US) by way of 16
monthly installments of $5,000 (US) commencing May 1, 2002. The first two
installments were paid and Cavio is now in default of the settlement
agreement. The Company has obtained an order to enforce the settlement
agreement and is proceeding to enforce the agreement.
3. On June 19, 2003, counsel for Keith Henderson, Grant Young and Exeter
international (collectively "Exeter") contacted the Company by mail
regarding the Company's obligation under the Assignment of Letter of Intent
and Additional Covenants Agreement (the "Assignment Agreement"), between
Exeter and the Company. The Assignment Agreement relates to the acquisition
of the Puckett Field oil and gas property. Exeter demands payment of
consideration under the Assignment Agreement and threatens the commencement
of legal proceedings on June 23, 2003 if consideration has not been paid.
The Company disputes that consideration is owed to Exeter. As of August 18,
2003, Exeter has not commenced legal proceedings against the Company.
-18-
DIVIDENDS
- ---------
The Company has not and does not currently intend to pay any dividends on any of
its shares. The Company intends to follow a policy of retained earnings to
finance the growth of the business. Any future determination to pay dividends
will be at the discretion of the board of Directors of the basis of earnings,
financial requirements and other relevant factors.
B. SIGNIFICANT CHANGES
-------------------
1. On January 7, 2003, the Company approved a 2002 supplementary stock option
plan under which the Company may grant up to 9,838,835 stock options at an
exercise price of up to $0.02 per share up to December 31, 2007. On January 8,
2003, the Company granted stock options to consultants to acquire 9,800,000
common shares at a price of $0.018 per share up to January 8, 2008. On January
13, 2003, the Company issued 9,800,000 common shares on the exercise of stock
options at a price of $0.018 per share, for total consideration of $176,400 paid
by way of services rendered, and to be rendered, to the Company.
2. On April 11, 2003, the Company approved a consultant stock plan under which
the Company may issue up to 17,300,000 common shares of capital stock. On April
30, 2003, a total of 17,300,000 common shares were issued for consulting
services to be performed over a twelve month period commencing April 2003.
3. On March 25, 2003, the Company entered into an agreement to acquire a 75%
interest in certain oil and gas interests in the State of Mississippi. To earn
its interest, the Company is required to pay $225,000, issue 15,000,000 common
shares of the Company and raise up to $500,000 to fund the drilling of a well on
the acquired interest. Further common shares may be issued to the vendor by the
Company in order to not dilute the vendor's percentage interests. On April 1st,
the Company entered into consulting agreements with two directors of the vendor
company, under which the Company will pay an aggregate of $5,000 per month for a
one year period, and issue a total of 8,650,000 shares (included in the
17,300,000 shares referred to under subheading 1. above.
4. In March 2003, the Company decided to discontinue providing tele-
conferencing services in order to focus on the oil and gas business. See
"Description of Business" for further detail.
ITEM 9 THE OFFER AND LISTING
- -------------------------------
The following table lists the high and low closing sale prices for the Company's
common stock for the periods indicated as reported by the NASD over the counter
Bulletin Board.
Price History of Company's Common Stock
Annual High $ Low $
- ------ ------ -----
1999 6.18 1.02
2000 1.25 0.13
2001 0.76 0.02
2002 0.06 0.02
Quarterly
- ---------
1999
July-Sept. 6.18 0.63
-19-
Oct.-Dec. 4.16 1.02
2000
Jan.-Mar. 1.06 0.88
April-June 1.53 0.21
July-Sept. 1.25 0.70
Oct.-Dec. 0.90 0.13
2001
Jan.-Mar. 0.38 0.13
April-June 0.76 0.09
July-Sept. 0.38 0.02
Oct.-Dec. 0.41 0.04
2002
Jan.-Mar. 0.09 0.04
April-June 0.06 0.02
July-Sept. 0.03 0.01
Oct.-Dec. 0.06 0.02
Monthly
- -------
Jan. 2003 0.04 0.01
Feb. 2003 0.02 0.01
Mar. 2003 0.04 0.00
Apr. 2003 0.05 0.03
May 2003 0.04 0.02
June 2003 0.04 0.02
July 2003 0.02 0.02
The shares of the Company commenced trading on the NASD over the counter
Bulletin Board on July 12, 1999.
Markets
- -------
The Company's Common Shares are listed for trading on the NASD Over the Counter
Bulletin Board.
ITEM 10 ADDITIONAL INFORMATION
- --------------------------------
A. SHARE CAPITAL
-------------
Not Applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
--------------------------------------
Directors
- ---------
A director who is, in any way, directly or indirectly interested in a proposed
contract or transaction with shall disclose the nature and extent of his
interest at a meeting of the directors in accordance with the provisions of the
Canada Business Corporations Act ("CBCA"). A director shall not vote in respect
of any contract or transaction with our company in which he is interested, and
any such proposed contract or transaction shall be referred to the Board of
Directors or shareholders for approval even if such contract or transaction is
one that the ordinary course of the Company's business would not require
approval by the Board of Directors or shareholders.
-20-
(a) Subject to the provisions of any unanimous shareholder agreement, the
remuneration of the directors may from time to time be determined by the
directors themselves, and such remuneration may be in addition to any
reimbursement for travel and other expenses.
(b) The directors may, at their discretion and subject to the provisions of any
unanimous shareholder agreement or By-Laws or the CBCA, authorize the
Company to borrow any sum of money or incur indebtedness for the purpose of
the Company and may raise or secure the repayment of such sum of money in
such manner and upon such terms and conditions as the directors think fit.
(c) There are no provisions with respect to the retirement of a director or the
non-retirement of a director under an age requirement.
(d) A director is not required to hold a share in the capital of our company as
qualification for his office.
With respect to the above noted matters, there are generally no significant
differences between Canadian and U.S. law.
Rights, Preference and Restrictions
- -----------------------------------
Common Shares
- -------------
All of the authorized common shares of the Company, once issued, rank equally as
to dividends, voting powers, and participation in assets. Holders of common
shares are entitled to one vote for each common share held of record on all
matters to be acted upon by the shareholders. Holders of common shares are
entitled to receive such dividends as may be declared from time to time by the
board of directors, in its discretion, out of funds legally available therefore.
The Company's By-Laws do not provide for cumulative voting.
Upon liquidation, dissolution or winding up of the Company, holders of common
shares are entitled to receive pro rata our assets, if any, remaining after
payments of all debts and liabilities. No common shares have been issued subject
to call or assessment. There are no pre-emptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or sinking or
purchase funds. There are no restrictions on the repurchase or redemption of
common shares by our company while there is any arrearage in the payment of
dividends or sinking fund installments.
With respect to the rights, preferences and restrictions attaching to the
Company's common shares, there are generally no significant differences between
Canadian and United States law as the board of directors, or the applicable
corporate statute, will determine the rights, preferences and restrictions
attaching to each class of a company's shares.
Changes to Common Shares
- ------------------------
Provisions as to the modification, amendment or variation of the rights
attaching to the common shares are contained in the CBCA. The CBCA requires
approval by a special resolution (i.e. approved by at least two-thirds of then
votes cast at a meeting of the shareholders of our company or consented to in
writing by each of our shareholders) of our company's shareholders in order to
effect any of the following changes:
a) change any maximum number of shares that the Company is authorized to
issue;
b) create new classes of shares;
-21-
c) reduce or increase its stated capital, if its stated capital is set out in
the articles;
d) change the designation of all or any of its shares and add, change or
remove any rights, privileges, restrictions and conditions, including
rights to accrued dividends, in respect of all or any of its shares,
whether issued or unissued;
e) change the shares of any class or series, whether issued or unissued, into
a different number of shares of the same class or series or into the same
or a different number of shares of other classes or series;
f) divide a class of shares, whether issued or unissued, into series and fix
the number of shares in each series and the rights, privileges,
restrictions and conditions therof;
g) authorize the directors to divide any class of unissued shares into series
and fix the number of shares in each series and the rights, privileges,
restrictions and conditions therof;
h) authorize the directors to change the rights, privileges, restrictions and
conditions attached to unissued shares of any series;
i) revoke, diminish or enlarge any authority conferred under paragraphs (g)
and (h); and
j) add, change or remove restrictions on the issue, transfer or ownership of
shares.
Generally, there are no significant differences between Canadian and United
States law with respect to changing the rights of shareholders as most state
corporation statutes require shareholder approval (usually a majority) for any
such changes that affect the rights of shareholders.
Annual General Meetings and Extraordinary General Meetings
- ----------------------------------------------------------
Annual General Meetings (an "AGM") must be held once every financial year,
within 15 months of the previous AGM. If the Company fails to hold an AGM, the
Supreme Court of British Columbia may, on the application of a director or
shareholder of the Company, call or direct an AGM. Under the CBCA, we must give
our shareholders written notice of an AGM not less than 21 days before the AGM
is to be held.
Our directors may, whenever they think fit, convene an Extraordinary General
Meeting (an "EGM").
An AGM or EGM may also be requisitioned by one or more shareholders of our
company so long as such shareholders own not less than 5% of the issued and
outstanding shares at the date such shareholders requisition an EGM. After
receiving such requisition, our directors must within 21 days call the meeting.
All shareholders entitled to attend and vote at an AGM or an EGM will be
admitted to the meeting.
Most state corporation statutes require a public company to hold an annual
meeting for the election of directors and for the consideration of other
appropriate matters. The state statutes also include general provisions relating
to shareholder votings and meetings. Apart from the timing of when an AGM must
be held and the percentage of shareholders required to call a AGM or EGM, there
are generally no material differences between Canadian and United States law
respecting AGMs and EGMs.
-22-
Rights to Own Securities
- ------------------------
There are no limitations on the rights of non-resident or foreign shareholders
to hold or exercise voting rights.
Except as provided in the Investment Canada Act, there are no limitations under
the applicable laws of Canada or by the Company's charter or other constituent
documents of the Company on the right of foreigners to hold or vote common
shares or other securities of the Company.
The Investment Canada Act will prohibit implementation, or if necessary, require
divestiture of an investment deemed "reviewable" under the Investment Canada Act
by an investor that is not a "Canadian" as defined in the Investment Canada Act
(a "non-Canadian"), unless after review the Minister responsible for the
Investment Canada Act ("the Minister") is satisfied that the "reviewable"
investment is likely to be of net benefit to Canada. An investment in our common
shares by a non-Canadian would be reviewable under the Investment Canada Act if
it was an investment to acquire control of our company and the value of our
assets was $5 million or more. A non-Canadian would be deemed to acquire control
of our company for the purposes of the Investment Canada Act if the non-Canadian
acquired a majority of our outstanding common shares (or less than a majority
but controlled our company in fact through the ownership of one-third or more of
our outstanding common shares) unless it could be established that, on the
acquisition, our company was not controlled in fact by the acquirer through the
ownership of such common shares. Certain transactions in relation to our common
shares would be exempt from review under the Investment Canada Act, including,
among others, the following:
1. acquisition of common shares by a person in the ordinary course of that
person's business as a trader or dealer in securities;
2. acquisition of control of our company in connection with the realization of
security granted for a loan or other financial assistance and not for any
purpose related to the provisions of the Investment Canada Act; and
3. acquisition of control of our company by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate
direct or indirect control of our company, through the ownership of voting
interests, remains unchanged.
The Investment Canada Act was amended with the World Trade Organization
Agreement to provide for special review thresholds for "WTO Investors" of
countries belonging to the World Trade Organization, among others, nationals and
permanent residents (including "WTO Investor controlled entities" as defined in
the Investment Canada Act). Under the Investment Canada Act, as amended, an
investment in our common shares by WTO Investors would be reviewable only if it
was an investment to acquire control of our company and the value of our assets
was equal to or greater than a specified amount (the "Review Threshold"), which
published by the Minister after its determination for any particular year. The
Review Threshold is currently $192 million for the year 2000.
Change in Control
- -----------------
There are no provisions in the Company's By-Laws that would have the effect of
delaying, deferring or preventing a change in control of our company, and that
would operate only with respect to a merger, acquisition or corporate
restructuring involving the Company.
The CBCA does not contain any provisions that would have the effect of delaying,
deferring or preventing a change of control of the Company. Generally, there are
-23-
no significant differences between Canadian and United States law in this
regard, as many state corporation statutes also do not contain such provisions
and only empower a company's board of directors to adopt such provisions.
Ownership Threshold
- -------------------
There are no provisions in our Articles or Bylaws or in the CBCA governing the
threshold above which shareholder ownership must be disclosed. The Securities
Act (British Columbia) requires that the Company disclose, in its annual general
meeting proxy statement, holders who beneficially own more than 10% of the
Company's issued and outstanding shares. Most state corporation statutes do not
contain provisions governing the threshold above which shareholder ownership
must be disclosed. United States federal securities laws require a company to
disclose, in its Annual Report of Form 20-F, holders who own more than 5% of a
company's issued and outstanding shares.
Changes in the Capital of our Company
- -------------------------------------
There are no conditions imposed by our By-Laws which are more stringent than
those required by the CBCA.
C. MATERIAL CONTRACTS
------------------
The Company has entered into the following material contracts in the past year:
1. Settlement Agreement with Cavio dated May 17, 2002.
2. Purchase and Sale Agreement with Hawkeye Drilling Co., dated March 25,
2003.
3. Registration Rights Agreement, dated April 1, 2003, among the Company,
Hawkeye Drilling Co. and Whitney J. Pansano.
D. EXCHANGE CONTROLS
-----------------
Except as discussed in Item E below, the Company is not aware of any Canadian
federal or provincial laws, decrees, or regulations that restrict the export or
import of capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to non-Canadian holders of
Common Shares. The Company is not aware of any limitations on the right of
non-Canadian owners to hold or vote Common Shares imposed by Canadian federal or
provincial law or by the Company.
The Investment Canada Act (the "Act") governs acquisitions of Canadian business
---------------------
by a non-Canadian person or entity. The Act provides, among other things, for a
review of an investment in the event of acquisition of control in certain
Canadian businesses in the following circumstances:
(a) if the investor is a non-Canadian and is not a resident of a World Trade
Organization ("WTO") country, any direct acquisition having an asset value
exceeding $5,000,000 and any indirect acquisition having an asset value
exceeding $50,000,000;
(b) if the investor is a non-Canadian and is a resident of a WTO member, any
direct acquisition having an asset value exceeding $168,000,000, unless the
business is involved in uranium production, financial services,
transportation services or a cultural business.
An indirect acquisition of control by an investor who is a resident of a WTO
country is not reviewable unless the value of the assets of the business located
in Canada represents more than 50% of the asset value of the transaction, or the
business is involved in uranium production, financial services, transportation
-24-
services or a cultural business. The United States has been a member of the WTO
since January 1, 1995.
The Act provides that a non-Canadian investor can hold up to 1/3 of the issued
and outstanding capital of a Canadian corporation without being deemed a
"control person", and that a non-Canadian investor holding greater than 1/3 but
less than 2 of the issued and outstanding capital of a Canadian corporation is
deemed to be a control person subject to a reputable presumption to the contrary
(i.e. providing evidence of another control person or control group holding a
greater number of shares).
The Act requires notification where a non-Canadian acquires control, directly or
indirectly, of a Canadian business with assets under the thresholds for
reviewable transaction. The notification process consists of filing a
notification within 30 days following the implementation of an investment.
E. TAXATION
--------
CANADIAN FEDERAL INCOME TAXATION
- --------------------------------
The following is a summary of the material Canadian federal income tax
considerations generally applicable to purchasers of the Common Shares who, for
purposes of the Income Tax Act (Canada) and Income Tax Regulations
(collectively, the "Canadian Act") deal at arm's length with the Company, hold
Common Shares as capital property, are not residents of Canada at any time when
holding Common Shares, do not have a permanent establishment in Canada, do not
use or hold and are not deemed to use or hold Common Shares in or in the course
of carrying on business in Canada and, in the case of insurers who carry on an
insurance business in Canada and elsewhere, do not hold Common Shares of the
Company that are effectively connected with an insurance business carried on in
Canada. Such a purchaser is referred to in this discussion as a "shareholder".
It is recommended that any shareholder seeking to purchase Common Shares should
obtain independent legal advice with respect to any tax consequences.
This summary is based on the current provision of the Canadian Act and the
Canada-United States Income Tax Convention, (1980) (the "Treaty"), as amended.
This summary takes into account specific proposals to amend the Canadian Act
publicly announced by the Minister of Finance prior to the date hereof and the
Company's understanding of the current published administrative and assessing
practices of Revenue Canada, Taxation. This summary does not take into account
Canadian provincial income tax laws or the income tax laws of any country other
than Canada.
A shareholder of the Company will generally not be subject to tax pursuant to
the Canadian Act on a capital gain realized on a disposition of Common Shares
unless such shares are "taxable Canadian property" to the shareholder for
purposes of the Canadian Act and the shareholder is not eligible for relief
pursuant to an applicable income tax convention . The Common Shares will not be
taxable Canadian property to a shareholder provided that the Company is listed
on a prescribed Canadian or foreign stock exchange within the meaning of the
Canadian Act and provided that such shareholder, or persons with whom such
shareholder did not deal at arm's length (within the meaning of the Canadian
Act), or any combination thereof, did not own 25% or more of the issued shares
of any class or series of the Company at any time within five years immediately
preceding the date of disposition. The Company is currently not listed on a
prescribed exchange, as the Over the Counter Bulletin Board has not been
prescribed for this purpose. Accordingly, shares of the Company would constitute
taxable Canadian property to a shareholder. The Treaty will generally exempt a
shareholder who is a resident of the United States for purposes of the Treaty
from tax on any gain realized in respect of a disposition of shares of the
Company provided that the value of such shares is not derived principally from
direct or indirect real property interests (including resource property)
situated in Canada.
-25-
Under the Canadian Act, a disposition of shares that constitute taxable Canadian
property will give rise to a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition of such shares, net of any cost of
disposition, exceeds (or is less than) the adjusted cost base of such shares to
the shareholder. Generally, one half of any capital gain realized by the
shareholder on a disposition or deemed disposition of such shares is included in
computing his Canadian income for that year as a taxable capital gain. One half
of any capital loss realized by a shareholder on a disposition or deemed
disposition of such a share in a taxable year may generally be deducted from his
Canadian taxable capital gains for that year.
Under the Canadian Act, the disposition of a share by a shareholder may occur or
be deemed to occur in a number of circumstances including on sale or gift of
such share or upon the death of the shareholder.
The initial adjusted cost base of a share to a shareholder will be the cost to
him of that share. Under the Canadian Act, certain addition or reduction
adjustments may be required to be made to the cost base of a share. The adjusted
cost base of each share of a corporation owned by a shareholder at any
particular time will be the average adjusted cost base to him of all shares of
the same class of that corporation owned by him at that time.
Any dividend, including stock dividends, paid or credited, or deemed to be paid
or credited, by the Company to or for the benefit of a shareholder will be
subject to Canadian withholding tax at the rate of 25% on the gross amount of
the dividend, subject to the provisions of any applicable income tax convention.
Pursuant to the Treaty, the rate of withholding tax generally will be reduced to
15% in respect of dividends paid to a shareholder who is a resident of the
United States for purposes of the Treaty and are further reduced to 5% if the
beneficial owner of the shares is a corporation that is a resident of the United
States for purposes of the Treaty owning at least 10% of the voting shares of
the Company.
F. DIVIDENDS AND PAYING AGENTS
---------------------------
Not Applicable.
G. STATEMENT BY EXPERTS
--------------------
Not Applicable.
H. DOCUMENTS ON DISPLAY
--------------------
The documents concerning the Company may be viewed at Suite 502, 828 Howe
Street, Vancouver, British Columbia, Canada V6Z 2X2, during normal business
hours.
I. SUBSIDIARY INFORMATION
----------------------
Not Required.
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
There are no additional forms of market risk that apply to the Company beyond
currency and interest rate fluctuations.
-26-
ITEM 12 DESCRITPION OF SECURITIES OTHER THAN EQUITY SECURITIES
- ----------------------------------------------------------------
Not Applicable.
PART II
-------
ITEM 13. DEFAULTS, DIVIDENDS, ARREARAGES AND DELINQUENCIES
- -----------------------------------------------------------
None
ITEM 14 MATERIAL MODIFICATONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
- ----------------------------------------------------------------------------
PROCEEDS
--------
None
ITEM 15
- -------
[RESERVED]
ITEM 16
- -------
[RESERVED]
-27-
PART III
--------
ITEM 17. FINANCIAL STATEMENTS
- ------------------------------
See "Item 19. Exhibits" for a list of those Financial Statements of the Company
included in this report.
ITEM 18. FINANCIAL STATEMENTS
- ------------------------------
Not Applicable.
ITEM 19. EXHIBITS
- ------------------
(a) INDEX TO FINANCIAL STATEMENTS
-----------------------------
(a) Audited Statement of Financial Position of the Company as at
December 31, 2002 and 2001.
- Auditors Report
- Consolidated Balance Sheets as at December 31, 2002 and 2001
- Consolidated Statement of Operations and Deficit for the
years ended December 31, 2002, 2001 and 2000
- Consolidated Statement of Stockholders Equity (Deficiency)
- Consolidated Statement of Cash Flow for the years ended
December 31, 2002 and 2001
- Notes to Consolidated Financial Statements
(b) EXHIBITS
--------
1(i) Certificate of Incorporation of the Company dated October 30,
1997.*
1(ii) Certificate of Name Change.*
1(iii) Articles of the Company.*
1(iv) By-laws of the Company.*
2(i) Specimen Common Share Certificate.*
2(ii) Registration Rights Agreement dated April 1, 2003 between the
Company, Hawkeye Drilling and Whitney Pansano.
3(i) Agreement dated April 12, 2000 between the Company and Scott Doiron.*
3(ii) Agreement dated April 12, 2000 between the Company and Mediapros,
LLC.*
3(iii) Lease Indenture dated March 15, 2000 between the Company and Firwood
Land & Trading Company Limited.*
3(iv) Settlement Agreement with Cavio dated May 17, 2002.*
3(v) Acquisition Agreement with the shareholders of VCL dated October 15,
2001 to acquire 100% of the issued and outstanding shares of VCL.*
3(vi) Purchase and Sale Agreement with Hawkeye Drilling dated March
25, 2003.
4(i) 2002 Stock Option Plan*
4(ii) 2002 Supplementary Stock Option Plan*
4(iii) 2003 Consultant Stock Plan*
* Previously filed.
-28-
SIGNATURES
----------
The Company certifies that it meets all of the requirements for filing on Form
20-F and that it has duly caused and authorized the undersigned to sign this
annual report on its behalf.
UNIVERSAL DOMAINS INCORPORATED
(Company)
/s/ ALAN BROWN
ALAN BROWN
President and Director
DATED on the 18th day of August, 2003
-29-
CERTIFICATIONS
--------------
I, Alan Brown, certify that;
1. I have reviewed this annual report on Form 20-F of Universal Domains
Incorporated
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other facts that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: August 18, 2003
/s/ Alan Brown
- ---------------------
Alan Brown, Chief Executive Officer,
Chief Financial Officer, President & Director
-30-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan Brown, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form
20-F of Universal Domains Incorporated for the year ended December 31, 2002
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Annual Report on
Form 20-F fairly presents in all material respects the financial condition and
results of operations of Universal Domains Incorporated.
By:
/s/ Alan Brown
----------------------------------
Name: Alan Brown
Title: Chief Executive Officer
Date: August 18, 2003
I, Alan Brown, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form
20-F of Universal Domains Incorporated for the year ended December 31, 2002
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Annual Report on
Form 20-F fairly presents in all material respects the financial condition and
results of operations of Universal Domains Incorporated.
By:
/s/ Alan Brown
----------------------------------
Name: Alan Brown
Title: Chief Financial Officer
Date: August 18, 2003
-31-
EXHIBITS
1(i) Certificate of Incorporation of the Company dated October 30, 1997*
1(ii) Certificate of Name Change*
1(iii) Articles of the Company*
1(iv) By-laws of the Company*
2(i) Specimen Common Share Certificate*
2(ii) Registration Rights Agreement dated April 1, 2003 between the Company,
Hawkeye Drilling and Whitney Pansano.
3(i) Agreement dated April 12, 2000 between the Company and Scott Doiron.*
3(ii) Agreement dated April 12, 2000 between the Company and Mediapros,
LLC.*
3(iii) Lease Indenture dated March 15, 2000 between the Company and Firwood
Land & Trading Company Limited.*
3(iv) Settlement Agreement with Cavio dated May 17, 2002.*
3(v) Acquisition Agreement with the shareholders of VCL dated October 15,
2001 to acquire 100% of the issued and outstanding shares of VCL.*
3(vi) Purchase and Sale Agreement with Hawkeye Drilling dated March 25,
2003.
4(i) 2002 Stock Option Plan*
4(ii) 2002 Supplementary Stock Option Plan*
4(iii) 2003 Consultant Stock Plan*
* Previously Filed
-32-
UNIVERSAL DOMAINS INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
F-1
M O R G A N
&
C O M P A N Y
CHARTERED ACCOUNTANTS
AUDITORS' REPORT
----------------
To the Shareholders
Universal Domains Incorporated
We have audited the consolidated balance sheets of Universal Domains
Incorporated as at December 31, 2002 and 2001, and the consolidated statements
of operations and deficit, stockholders' equity, and cash flows for the years
ended December 31, 2002 and 2001. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with U.S. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001, and the results of its operations and cash flows for the years ended
December 31, 2002 and 2001, in accordance with U.S. generally accepted
accounting principles applied on a consistent basis.
Vancouver, Canada. "Morgan & Company"
August 15, 2003 Chartered Accountants
Comments by Independent Auditors for U.S. Readers on
----------------------------------------------------
Canada - U.S. Reporting Conflict
--------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainties such as those described in
Note 1 of the consolidated financial statements. Our report to the shareholders,
dated August 15, 2003, is expressed in accordance with Canadian reporting
standards which do not permit a reference to such an uncertainty in the
Auditors' Report when the uncertainty is adequately disclosed in the financial
statements.
Vancouver, Canada "Morgan & Company"
August 15, 2003 Chartered Accountants
Tel: (604) 687-5841 MEMBER OF P.O. Box 10007 Pacific Centre
Fax: (604) 687-0075 [LOGO] Suite 1488 - 700 West Georgia Street
www.morgan-cas.com ACPA Vancouver, B.C. V7Y 1A1
INTERNATIONAL
F-2
UNIVERSAL DOMAINS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
DECEMBER 31
2002 2001
- --------------------------------------------------------------------------------------------------
ASSETS
Current
Cash $ 3,033 $ 1,840
Accounts receivable 31,508 3,356
Advances receivable 2,333 10,000
------------------------------------
36,874 15,196
Capital Assets (Note 3) 2,003 4,857
------------------------------------
$ 38,877 $ 20,053
==================================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 53,134 $ 215,018
Advances payable 22,716 258,105
------------------------------------
75,850 473,123
------------------------------------
SHAREHOLDERS' DEFICIENCY
Share Capital
Authorized:
An unlimited number of common shares without par
value
Issued and outstanding:
49,194,778 shares at December 31, 2002 and
19,862,442 shares at December 31, 2001 3,850,144 3,234,221
Contributed Surplus 56,800 56,800
Deficit (3,963,752) (3,759,149)
Cumulative Translation Adjustment 19,835 15,058
------------------------------------
(36,973) (453,070)
------------------------------------
$ 38,877 $ 20,053
==================================================================================================
F-3
UNIVERSAL DOMAINS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
2002 2001
- ---------------------------------------------------------------------------------------------
Sales $ - $ -
------------------------------------
Expenses
Acquisition costs - -
Advertising and promotion 1,536 1,921
Amortization 1,055 1,349
Bank charges and interest 2,292 1,024
Bad debts - 68,779
Conference service - -
Computer development costs - 2,317
Consulting 154,690 155,273
Filing and transfer fees 127 4,767
Office supplies and sundry 3,192 5,472
Professional fees 46,193 60,578
Rent and utilities 6,796 26,962
Telephone 5,494 13,476
Travel 3,088 602
------------------------------------
Loss Before The Following (224,463) (342,520)
Write Off Of Goodwill - (1,000,000)
------------------------------------
Loss From Continuing Operations (224,463) (1,342,520)
Discontinued Operations 19,860 (40,044)
------------------------------------
Loss For The Year (204,603) (1,382,564)
Deficit, Beginning Of Year (3,759,149) (2,376,585)
------------------------------------
Deficit, End Of Year $ (3,963,752) $ (3,759,149)
=============================================================================================
Loss Per Share
Continuing operations $ (0.01) $ 0.09
Loss for the year $ (0.001) $ (0.09)
=============================================================================================
Weighted Average Number Of Common Shares
Outstanding 26,414,194 15,835,045
=============================================================================================
Comprehensive Income
Loss for the year $ (204,603) $ (1,382,564)
Foreign currency translation adjustment 4,777 18,077
------------------------------------
Total Comprehensive Income (Loss) $ (199,826) $ (1,364,487)
=============================================================================================
F-4
UNIVERSAL DOMAINS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
YEARS ENDED
DECEMBER 31
2002 2001
- ------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Loss on continuing operations $ (224,463) $ (1,342,520)
Adjustments To Reconcile Loss To Net Cash Used By
Operating Activities
Stock issued for other than cash 69,000 -
Write off of goodwill 1,055 1,000,000
Amortization (28,152) 1,349
Change in accounts receivable - (3,356)
Change in prepaid expenses 7,667 3,100
Advances receivable - (10,000)
Change in accounts payable and accrued liabilities 34,191 110,110
------------------------------------
Net Cash Used In Operating Activities (140,702) (241,317)
------------------------------------
Cash Flows From Financing Activity
Loan advances, net 82,456 156,370
------------------------------------
Cash Flows From Investing Activity
Purchase of capital assets - (2,248)
------------------------------------
Discontinued Operations 54,662 506
------------------------------------
Effect Of Exchange Rate Changes On Cash 4,777 18,077
------------------------------------
Net Increase (Decrease) In Cash 1,193 (68,612)
Cash, Beginning Of Year 1,840 70,452
------------------------------------
Cash, End Of Year $ 3,033 $ 1,840
================================================================================================
Supplementary Cash Flow Information
Investing Activities
Shares issued for acquisition of VCL
Communications Corp.
$ - $ 1,000,000
Shares issued for accounts and advances payable $ 546,923 $ -
Shares issued for services $ 69,000 $ -
================================================================================================
F-5
UNIVERSAL DOMAINS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
DECEMBER 31, 2002
(Stated in U.S. Dollars)
COMMON STOCK
--------------------------
NUMBER CUMULATIVE RETAINED
OF CONTRIBUTED TRANSLATION EARNINGS
SHARES AMOUNT SURPLUS ADJUSTMENT (DEFICIT) TOTAL
----------------------------------------------------------------------------------------
Balance, December 31, 2000 14,862,442 $ 2,234,221 $ 56,800 $ (3,019) $ (2,376,585) $ (88,583)
Issuance of common stock 5,000,000 1,000,000 - - - 1,000,000
Translation adjustment - - - 18,077 - 18,077
Loss for the year - - - - (1,382,564) (1,382,564)
----------------------------------------------------------------------------------------
Balance, December 31, 2001 19,862,442 3,234,221 56,800 15,058 (3,759,149) (453,070)
Issuance of common stock - - - - - -
Issued for advances and accounts payable 27,032,336 546,923 - - - 546,923
Issued for services 2,300,000 69,000 - - - 69,000
Translation adjustment - - - 4,777 - 4,777
Loss for the year - - - - (204,603) (204,603)
----------------------------------------------------------------------------------------
Balance, December 31, 2002 49,194,778 $ 3,850,144 $ 56,800 $ 19,835 $ (3,963,752) $ (36,973)
========================================================================================
F-6
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
1. OPERATIONS AND GOING CONCERN
- ---------------------------------
a) Operations
During 2002, the Company was in the teleconferencing services
business. In March 2003, it discontinued the operations and commenced
operations as an oil and gas company. The results of the Company's
teleconferencing business have been recorded in discontinued
operations in the financial statements for the year ended December 31,
2002.
b) Going Concern
These financial statements have been prepared on the basis of
accounting principles applicable to a going concern which assumes the
realization of assets and discharge of liabilities in the normal
course of business. During the year ended December 31, 2002, the
Company incurred a loss of $204,603, and as at December 31, 2002, the
Company has a shareholder's deficiency of $36,973, and a working
capital deficit of $38,976. The Company's ability to continue its
operations on a going concern basis is dependent upon obtaining
additional financing and the support of creditors. There is no
assurance that the Company will be successful in achieving any or all
of these objectives over the coming year. These financial statements
do not give effect to any adjustments that would be necessary should
the Company be unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------
a) Consolidation
These financial statements include the accounts of the Company and its
subsidiary, VCL Communications Corp., (100% owned) incorporated in
British Columbia, Canada.
b) Capital Assets and Amortization
Capital assets are recorded at cost and amortized over their economic
lives as follows:
Computer equipment 30% declining balance basis
Equipment and fixtures 20% declining balance basis
Leasehold improvements Lease term
F-7
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------------------------------------------------
c) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
No. 109 - "Accounting for Income Taxes" (SFAS 109). This standard
requires the use of an asset and liability approach for financial
accounting and reporting on income taxes. If it is more likely than
not that some portion of all of a deferred tax asset will not be
realized, a valuation allowance is recognized.
d) Stock Based Compensation
The Company measures compensation cost for stock based compensation
using the intrinsic value method of accounting as prescribed by A.P.B.
Opinion No. 25 - "Accounting for Stock Issued to Employees". The
Company has adopted those provisions of Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock Based
Compensation", which requires disclosure of the pro-forma effect on
net earnings and earnings per share as if compensation cost had been
recognized based upon the estimated fair value at the date of grant
for options awarded.
e) Foreign Currency Translation
The Company's operations are located in Vancouver, Canada and its
functional currency is the Canadian dollar. The financial statements
have been translated using the current method whereby the assets and
liabilities are translated at the year end exchange rate, capital
accounts at the historical exchange rate, and revenues and expenses at
the average exchange rate for the period. Adjustments arising from the
translation of the Company's financial statements are included as a
separate component of shareholders' equity.
f) Financial Instruments
The Company's financial instruments consist of cash, accounts
receivable, accounts payable, and advances payable.
Unless otherwise noted, it is management's opinion that this Company
is not exposed to significant interest or credit risks arising from
these financial instruments. The fair value of these financial
instruments approximate their carrying values, unless otherwise noted.
F-8
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------------------------------------------------
g) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of
The Company reviews long-lived assets and including identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
h) Comprehensive Income (Loss)
The Company has adopted SFAS No. 130 - "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and
displaying comprehensive income (loss) and its components.
i) Loss Per Share
The loss per share is calculated using the weighted average number of
common shares outstanding during the year. Fully diluted loss per
share is not presented as the result is anti-dilutive.
j) Recent Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The provisions of this
Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged.
This Statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". This
Statement requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. The
Company adopted SFAS No. 146 on January 1, 2003, and its impact did
not have a material effect on the Company's results of operations or
financial position.
F-9
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------------------------------------------------
j) Recent Accounting Pronouncements (Continued)
In December 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure",
which amends SFAS No. 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148
expands the disclosure requirements of SFAS No. 123 to require more
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The transition
provisions of SFAS No. 148 are effective for fiscal years ended after
December 15, 2002. The disclosure provisions of SFAS No. 148 are
effective for financial statements for interim periods beginning after
December 15, 2002. The Company adopted SFAS No. 148 on January 1,
2003, and its impact did not have a material effect on the Company's
results of operations or financial position.
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). The requirements of
SFAS No. 150 apply to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more
than one option or forward contract. SFAS No. 150 does not apply to
features that are embedded in a financial instrument that is not a
derivative in its entirety. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning
after June 15, 2003, except for mandatorily redeemable financial
instruments of non-public entities. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle
for financial instruments created before the issuance date of SFAS No.
150 and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The adoption of this standard
is not expected to have a material effect on the Company's results of
operations or financial position.
F-10
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
3. CAPITAL ASSETS
- -------------------
2002 2001
-------------------------------------- ----------
ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
-------------------------------------- ----------
Computer equipment $ 7,520 $ 5,517 $ 2,003 $ 3,058
Equipment and fixtures - - - 1,511
-------------------------------------- ----------
$ 7,520 $ 5,517 $ 2,003 $ 4,857
====================================== ==========
4. STOCK OPTIONS
- ------------------
i) As at December 31, 2002, there are no stock options outstanding.
A summary of changes in stock options for the years ended December 31,
2002 and 2001 is as follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------------------------------
Balance, December 31, 2000 720,000 $ 0.50
Granted 1,250,000 0.20
Cancelled (1,170,000) 0.38
--------------------------------
Balance, December 31, 2001 800,000 0.20
Granted 11,800,000 0.005
Cancelled (800,000) 0.20
Exercised (11,800,000) 0.005
--------------------------------
Balance, December 31, 2002 - $ -
================================
On March 14, 2002, the Company granted stock options to directors and
employees to purchase a total of 3,000,000 common shares at a price of
$0.03 per share up to April 30, 2002. A total of $69,000 was recorded
as compensation, and $21,000 was charged to advances due to a director
on the exercise of these options.
On October 8, 2002, the Company granted non-qualified stock options to
consultants to purchase up to 5,800,000 common shares at a price of
$0.007 up to October 3, 2007. A total of $40,600 was recorded as
compensation expense on the granting of the stock options. All options
were exercised prior to December 31, 2002.
F-11
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
4. STOCK OPTIONS (Continued)
- ------------------------------
ii) For purposes of pro-forma disclosures, the options estimated fair
values are amortized to expense over the options vesting periods. The
fair value for the options was estimated at the date of the grant
using a Black-Scholes option pricing model with the following weighted
average assumptions for 2002 and 2001: risk free rate of 5.25%; no
dividends; volatility factor of the expected life of the Company's
common stock of 147%; and a weighted average expected life of the
options granted in each year of 1 year. The Company's pro-forma
information follows:
2002 2001
--------------------------------
Pro-forma loss for the year $ 204,603 $ (1,506,895)
================================
Pro-forma loss per share $ (0.01) $ (0.10)
================================
5. DISCONTINUED OPERATIONS
- ----------------------------
a) During the year ended December 31, 2002, the net assets of the
Company's former subsidiary, Primo's Mexican Specialties Ltd., were
disposed resulting in a gain on discontinued operations of $80,990.
b) By an agreement, dated October 15, 2001, the Company acquired 100% of
the issued and outstanding shares of VCL Communications Corp. for
consideration of the issue of 5,000,000 common shares of the Company.
All consideration, totalling $1,000,000, has been allocated to
goodwill and charged to operations in 2001.
In March 2003, the Company discontinued the operations of VCL
Communications Corp. ("VCL"). The results of operations of VCL for the
year ended December 31, 2002 are included in discontinued operations
and consist of the following items:
Revenue $ 94,851
--------------
Expenses
Consulting and contractors 127,949
Telephone 9,864
Travel 18,168
--------------
155,981
--------------
Net loss $ 61,130
==============
F-12
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
6. CONTINGENT LIABILITIES
- ---------------------------
Pursuant to an agreement dated April 12, 2000, a demand has been made
against the Company for aggregate payments of $5,074,000 for amounts due
for the acquisition of the balance of the 500,000 domain names to be
purchased under that agreement.
In addition, demand has been made against the Company to redeem and cancel
640,000 shares issued for a price of $512,000. The shares were issued for
acquisition of certain domain names.
On February 20, 2002, an application for a default judgment was filed
against the Company for an amount of $624,000, plus interest of $88,608.
The Company intends to appeal the judgment as management of the Company
believes the claims are substantially without merit. No provision has been
made in these financial statements for amounts arising from the claim or
default judgment.
7. SUBSEQUENT EVENTS
- ----------------------
a) On January 7, 2003, the Company approved a 2002 supplementary stock
option plan under which the Company may grant up to 9,838,835 stock
options at an exercise price of up to $0.02 per share up to December
31, 2007. On January 8, 2003, the Company granted stock options to
consultants to acquire 9,800,000 common shares at a price of $0.018
per share up to January 8, 2008. On January 13, 2003, the Company
issued 9,800,000 common shares on the exercise of stock options at a
price of $0.018 per share, for total consideration of $176,400 paid by
way of services rendered, and to be rendered, to the Company.
b) On April 11, 2003, the Company approved a consultant stock plan under
which the Company may issue up to 17,300,000 common shares of capital
stock. On April 30, 2003, a total of 17,300,000 common shares were
issued for consulting services to be performed over a twelve month
period commencing April 2003.
c) On March 25, 2003, the Company entered into an agreement to acquire a
75% interest in certain oil and gas interests in the State of
Mississippi. To earn its interest, the Company is required to pay
$225,000, issue 15,000,000 common shares of the Company and raise up
to $500,000 to fund the drilling of a well on the acquired interest.
Further common shares may be issued to the vendor by the Company in
order to not dilute the vendor's percentage interests. On April 1st,
the Company entered into consulting agreements with two directors of
the vendor company, under which the Company will pay an aggregate of
$5,000 per month for a one year period, and issue a total of 8,650,000
shares (included in the 17,300,000 shares referred to in Note 7(b)).
F-13
UNIVERSAL DOMAINS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
7. SUBSEQUENT EVENTS (Continued)
- ----------------------------------
A company is seeking certain unspecified amounts payable in cash
and/or shares of the Company with respect to an obligation under a
Letter of Assignment and other agreements arising from the Company's
acquisition of its oil and gas interest. The Company does not consider
that any compensation is owed to this company and will defend its
position should legal proceedings be commenced. No provision has been
made in these financial statements.
F-14