U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Dakota Fitness Equipment, Inc.,
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(Exact name of registrant as specified in its charter)
Nevada 5941 45-0462070
- ------ ---- ----------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
200 N. 3rd St., Suite 280, Bismarck, North Dakota 58504
- ------------------------------------------------- -----
(Address of registrant's principal executive offices) (Zip Code)
(701) 663-7776
--------------
(Registrant's Telephone Number, Including Area Code)
Deron M. Colby
MC Law Group
4100 Newport Place, Suite 660
Newport Beach, California 92660
949.250.8655
Facsimile 949.250.8656
(Name, Address and Telephone Number of Agent for Service)
Approximate date of proposed sale to the public: From time to time after this
registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
====================================== ======================== ==================== ======================= ===============
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate registration
to be registered registered per share offering price fee
- -------------------------------------- ------------------------ -------------------- ----------------------- ---------------
Common Stock, $.001 par value 20,000,000 $0.025 $500,000 $119.50
====================================== ======================== ==================== ======================= ===============
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
1
Preliminary Prospectus
Dakota Fitness Equipment, Inc.,
a Nevada corporation
20,000,000 Shares of Common Stock
We intend to provide a full line of fitness and exercise equipment along with
nutrition supplements. We expect to market our products to a range of clients,
from individual consumers to companies with on-site exercise facilities for
their employees. We are offering for sale 20,000,000 shares of our common stock
in a self-underwritten offering directly to the public. We are offering the
shares without any underwriting discounts or commissions. The purchase price is
$0.025 per share. If all of the shares offered by us are purchased, the proceeds
to us will be $500,000. We may receive less than $500,000 if all of the offered
shares are not purchased. Investors may not revoke their subscription.
This is our initial public offering and no public market currently exists for
shares of our common stock. We have not applied for listing or quotation on any
public market. We do not expect a liquid market to develop for several years, if
at all.
See "Risk Factors" on Pages 4 to 9 for factors to be considered before investing
in the shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. We will
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is December 27, 2001.
Subject to completion.
2
TABLE OF CONTENTS
Prospectus Summary ...........................................................4
Risk Factors..................................................................5
Forward Looking Statements....................................................9
Use of Proceeds..............................................................10
Determination of Offering Price..............................................10
Dilution.....................................................................10
Selling Security Holders.....................................................11
Plan of Distribution.........................................................11
Legal Proceedings............................................................12
Directors, Executive Officers, Promoters and Control Persons.................12
Security Ownership of Certain Beneficial Owners and Management...............13
Description of Securities....................................................14
Interest of Named Experts and Counsel........................................14
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities...................................................14
Organization Within Last Five Years..........................................15
Description of Business......................................................15
Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................18
Description of Property......................................................19
Certain Relationships and Related Transactions...............................19
Market for Common Equity and Related Stockholder Matters.....................20
Executive Compensation ......................................................21
Financial Statements.........................................................21
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................................32
Legal Matters................................................................32
Experts......................................................................32
Additional Information.......................................................32
Indemnification of Directors and Officers....................................32
Other Expenses of Issuance and Distribution..................................32
Recent Sales of Unregistered Securities......................................33
Exhibits.....................................................................33
Undertakings.................................................................34
Signatures...................................................................35
Power of Attorney............................................................36
Outside Back Cover Page
Dealer Prospectus Delivery Obligation
Until _______, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers'
obligations to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
3
Prospectus Summary
- ------------------
Our Business: Our principal business address is 200 N.
3rd Street, Suite 280, Bismarck, North
Dakota, 58504; our telephone number is
(701) 663-7776.
We intend to provide a full line of
fitness and exercise equipment along with
nutrition supplements. We expect to market
our products to a range of clients, from
individual consumers to companies with
on-site exercise facilities for their
employees. We initially anticipate
marketing our products by means of our
proposed website that will feature advice
from an online fitness expert. We hope to
acquire a trade show booth to feature our
products at various locations, such as
promotional events and conventions.
We also plan to lease facilities in the
Bismarck, North Dakota area from which we
anticipate will house a showcase fitness
facility, and from which we will be able
to conduct our sales operations. We expect
this facility to showcase our nutritional
supplements and fitness equipment in a
functional gymnasium setting. We plan to
begin marketing our products to customers
in the North Dakota market, and later
expand our operations into the upper
Midwest region.
Our state of organization: We were incorporated in Nevada on
October 11, 2001.
Number of shares being offered: We are offering for sale 20,000,000 shares
of our common stock. We will sell the
shares we are registering only to those
individuals who have received a copy of
the prospectus.
Number of shares outstanding 2,550,000 shares of our common stock are
after the offering: currently issued and outstanding. If all
the offered shares are sold, 22,550,000
shares of our common stock will be issued
and outstanding after the offering.
Estimated use of We will receive $500,000 if all of the
proceeds: offered shares are sold. We intend to use
any proceeds from such sale for website
development, inventory, marketing expenses
and for working capital.
Summary Financial Information:
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Form SB-2. We have
prepared our financial statements contained in this Form SB-2 in accordance with
generally accepted accounting principles in the United States. All information
should be considered in conjunction with our consolidated financial statements
and the notes contained elsewhere in this Form SB-2.
Income Statement For the period from inception
(October 11, 2001) to October 31, 2001
$
Revenues 0
Net Income (Loss) (98)
Net Income (Loss) Per Share (0.00)
Balance Sheet October 31, 2001
$
Total Assets 10,785
Total Current Liabilities 5,000
Shareholders' Equity (Deficit) 5,785
4
RISK FACTORS
In addition to the other information in this prospectus, the following risk
factors should be considered carefully in evaluating our business before
purchasing any of our shares of common stock. A purchase of our common stock is
speculative in nature and involves a lot of risks. Any person who cannot afford
the loss of his or her entire purchase price for the offered shares should not
purchase of the offered shares because such a purchase is highly speculative and
involves significant risks. Our business objectives must also be considered
speculative, and we cannot guaranty that we will satisfy those objectives.
Purchasers of the offered shares may not realize any return on their purchase of
the offered shares. Purchasers may lose their investments in us completely.
Risks related to our business:
We may not be able to implement our business strategy unless sufficient funds
are raised in this offering, which could prevent us from becoming profitable.
We are a development stage company. We depend on the proceeds of this offering
in order to implement our business plan. We may not realize sufficient proceeds
to complete organizational and development costs, or to provide adequate cash
flow for planned marketing expenses. Our inability to raise sufficient funds in
this offering may significantly hinder our growth. If we fail to raise
sufficient funds in this offering, investors may lose their entire cash
investment.
We have a limited operating history upon which an evaluation of our prospects
can be made and therefore our prospects should be considered speculative.
We were incorporated in October 2001. Our lack of operating history makes an
evaluation of our business and prospects very difficult. Our prospects must be
considered speculative, considering the risks, expenses, and difficulties
frequently encountered in the establishment of a new business. We cannot be
certain that our business will be successful or that we will generate
significant revenues.
We have incurred a net loss since inception and expect to incur net losses for
the foreseeable future.
For the month of October 2001, we experienced a net loss of $98. We expect to
incur significant operating and capital expenditures and, as a result, we expect
significant net losses in the future. We will need to generate significant
revenues to achieve and maintain profitability. We may not be able to generate
sufficient revenues to achieve profitable operations.
Our ability to succeed is uncertain because we currently have limited sources of
revenue and need additional funds to market our products. Therefore, if we do
not raise funds in this offering or if we fail to generate revenues, investors
may lose all or part of their investment.
We have not yet engaged in any significant marketing of our products. Our
marketing activities are significantly limited and, to fund more sophisticated
marketing activities, we need to raise funds in this offering or generate
revenues. It will be difficult to generate revenues, however, if we do not have
the funds to increase our marketing activities. Our inability to raise
sufficient funds in this offering or generate revenues may significantly hinder
our ability to conduct marketing activities and thus impair our ability to
generate revenue. If we are unable to generate sufficient revenue, our business
will fail and purchasers of the offered shares will likely lose their entire
investment.
If we do not raise funds in this offering, we may not have adequate resources to
market our products in order to compete successfully.
Most of our competitors have substantially greater experience, financial and
technical resources and marketing and development capabilities than we do. Many
of those competitors with greater financial resources can afford to spend more
resources than we can to market their products. We may not be able to succeed in
marketing and selling our selection of products if we do not raise funds in this
offering. We cannot guaranty that our competitors will not succeed in marketing
and selling our various services.
5
We may need to raise additional capital to market our products. Our failure to
raise additional capital will limit any proposed marketing activities.
To market our fitness equipment and nutritional supplement products, we may be
required to raise funds in addition to the funds we hope to raise in this
offering. We do not know if we will be able to acquire additional financing at
commercially reasonable rates. We anticipate that we will spend significant
funds on the marketing and promotion of our products. Our failure to obtain
additional funds would significantly limit or eliminate our ability to fund our
sales and marketing activities. In addition to this offering, we anticipate that
we may seek additional funding through public or private sales of our
securities. That could include equity securities, or through commercial or
private financing arrangements. Adequate funds may not be available when needed
or on terms acceptable to us. In the event that we are not able to obtain
additional funding on a timely basis, we may be required to limit any proposed
operations or eliminate certain or all of our marketing programs, either of
which could harm our ability to make a profit.
We depend on independent suppliers for our fitness equipment and nutritional
supplements.
We do not manufacture the products we sell, but obtain them from third parties.
Because sales of our fitness equipment and nutritional supplements are our only
current potential source of revenue, we rely on independent manufacturers as
sources for these products. Our fitness equipment is currently supplied by
several different manufacturers, and we also obtain our nutritional supplements
from different suppliers. In the event that our supplies of either of these
products are interrupted, we would be required to find other suppliers, or we
would be unable to continue operations. Our failure to develop other
relationships with manufacturers will significantly affect our ability to
generate revenues.
We do not have any written agreements with any suppliers of fitness equipment or
nutritional supplements, and as such, none of these sources of our products that
we carry has any obligation to provide us with these products. These suppliers
may terminate their relationships with us at any time. In the event that these
suppliers terminate their relationships with us, we will not be able to offer
our products until we establish a relationship with other providers. We cannot
guaranty that we will be able to obtain our products from alternative suppliers.
Failure to obtain alternative sources will significantly hinder our ability to
generate revenues.
We may be unable to achieve our expansion plans for future growth, limiting our
ability to generate significant revenues.
After we establish our initial store, we plan to achieve growth by opening
additional store locations. Our continued growth will depend, in large part,
upon our ability to open new stores in a timely manner and to operate them
profitably. Additionally, successful expansion is subject to various
contingencies, many of which are beyond our control. These contingencies
include, among others:
o our ability to identify and secure suitable store sites on a timely
basis;
o our ability to negotiate advantageous lease terms;
o our ability to complete any necessary construction or refurbishment of
these sites; and
o the successful integration of new stores into existing operations.
We cannot give any assurances that we will be able to continue our expansion
plans successfully or that we will be able to continue to manage our growth
effectively.
A downturn in the economy may affect the willingness of businesses to feature
exercise facilities for their employees, and may affect consumer purchases of
discretionary items, which could reduce our sales.
In general, our sales represent discretionary spending by our customers, both
commercial and individual. Discretionary spending is affected by many factors,
including, among others, general business conditions, interest rates, the
availability of consumer credit, taxation and consumer confidence in future
economic conditions. Our customers' purchases of discretionary items, including
our products, could decline during periods when disposable income is lower or
periods of actual or perceived unfavorable economic conditions. If discretionary
spending is lower, our revenues and profitably will also likely decline. In
addition, our sales could be lowered by a downturn in the economic conditions in
the specific regional markets in which we operate and plan to operate.
6
Our inability to identify and anticipate changes in consumer demands and
preferences, and our inability to respond to those consumer demands in a time
manner could reduce our sales, and thus our ability to operate profitably.
Our fitness equipment and nutritional supplement products appeal to a broad
range of consumers whose preferences cannot be predicted with certainty and are
subject to rapid change. Our success depends on our ability to identify product
trends as well as to anticipate and respond to changing merchandise trends and
consumer demand in a timely manner. We cannot give assurances that we will be
able to continue to offer assortments of products that appeal to our customers
or that we will satisfy changing consumer demands in the future. Accordingly, if
we are unable to identify and respond to emerging trends, we miscalculate either
the market for the merchandise in our stores or our customers' purchasing
habits, or consumer demand dramatically shifts away from health and fitness
products our business and profitability could be harmed In addition, we may be
faced with significant excess inventory of some products and missed
opportunities for other products, which would decrease our profitability.
Pressure from our competitors may force us to reduce our prices or increase our
spending, which would lower our revenues and profitability.
The business in which we are engaged is highly competitive. The marketplace for
fitness equipment and nutritional supplements remains highly fragmented as many
different retailers compete for market share by utilizing a variety of store and
online formats and merchandising strategies. We will compete with national
chains that focus on fitness equipment, discount stores, local nutrition
supplement and health food stores, and mass merchandisers. Many of our
competitors have greater financial resources than we do. In addition, many of
our competitors employ price discounting policies that, if intensified, may make
it difficult for us to reach our sales goals without reducing our prices. As a
result of this competition, we may also need to spend more on advertising and
promotion than we anticipate. We cannot guaranty that we will continue to be
able to compete successfully against existing or future competitors. Expansion
into markets served by our competitors, entry of new competitors or expansion of
existing competitors into our markets could hinder our ability to compete
successfully.
If we cannot successfully develop and implement our proposed website, we may not
be able to operate profitably.
We believe that we need a well-designed website to operate our business and to
successfully implement our growth strategy. Our proposed systems include
integrated merchandising, point of sale, warehouse and financial systems. We are
in the process developing our website. If we experience problems with the
development and operation of our site, we may incur significant costs and
interruptions to our business, which could harm our ability to operate
profitably. We anticipate that our website will be operational by early 2002. We
cannot give assurances that our website will operate. Failure to smoothly
implement our website and its associated features could impair our ability to
track key customer data, order inventory, control our costs and could otherwise
impair our operations.
We may not have adequate resources to market our products and compete
successfully with numerous resellers, manufacturers and wholesalers, including
online companies.
Some of our competitors may have greater access to capital than we do and may
use these resources to engage in aggressive advertising and marketing campaigns.
The current prevalence of aggressive advertising and promotion may generate
pricing pressures to which we must respond. We expect that competition will
continue to increase, primarily in the online market, because of the relative
ease with which new websites may be developed. The nature of the Internet as an
electronic marketplace may facilitate competitive entry and comparison-shopping
and may also render online commerce inherently more competitive than traditional
retailing formats. Increased competition may reduce our gross margins, cause us
to lose market share and decrease the value of our Dakota Fitness Equipment
brand.
7
We may be unable to establish additional stores in key locations, which will
hinder our ability to expand our operations.
In order to expand our operations, we intend to establish additional stores in
key locations. After we establish our Bismarck-Mandan, North Dakota location, we
project opening four additional stores in Fargo, North Dakota, Minneapolis,
Minnesota, Sioux Falls, South Dakota, and Chicago, Illinois. Our failure to
establish such locations will hinder our ability to expand the size of our
operations. In addition, a lack of additional stores may limit our ability to
expand our operations.
We may be liable for products that we sell. Any claims or adverse judgments
against us may reduce our financial resources or hinder our reputation.
We face an inherent risk of exposure to product liability claims if the use of
our products results in illness or injury. If we do not have adequate insurance
or contractual indemnification, product liability claims could significantly
reduce our financial resources. Manufacturers and distributors of exercise and
fitness equipment, as well as vitamins, nutritional supplements and minerals
have been named as defendants in product liability lawsuits from time to time.
The successful assertion or settlement of an uninsured claim, a significant
number of insured claims or a claim exceeding the limits of any insurance
coverage that we may acquire would harm us by adding additional costs to our
business and by diverting the attention of our senior management from the
operation of our business.
We depend on the efforts and abilities of certain of our senior management and a
loss of such management could hinder our ability to conduct operations and
generate revenues.
The interruption of the services of key management could harm our operations,
profits and future development, if suitable replacements are not promptly
obtained. Specifically, Troy Schaner, our president, treasurer and a director
provides valuable experience in managing our affairs, running our day-to-day
operations, and has knowledge of the health and fitness products, specifically
fitness equipment and nutritional supplements. His father, Lloyd Schaner is our
vice president, secretary and a director. If Troy Schaner terminated his
relationship with us, our operating results would suffer. It is also possible
that if Troy Schaner left, Lloyd Schaner would also terminate his relationship
with us. We cannot guaranty that each executive will remain with us during or
after the term of any proposed employment agreement, if we enter into such
agreements. In addition, our success depends, in part, upon our ability to
attract and retain other talented personnel. Although we believe that our
relations with our personnel are good and that we will continue to be successful
in attracting and retaining qualified personnel, we cannot guaranty that we will
be able to continue to do so. Our officers and directors will hold office until
their resignations or removal.
Because our officers and directors do not devote their full business time to our
business, we may not be able to implement our business plan and our business may
fail.
The persons serving as our officers and directors have existing responsibilities
and may have additional responsibilities to provide management and services to
other entities. Our officers and directors currently do not devote all of their
time to our operations but anticipate that they will devote significantly more
hours if we begin generating significant revenues. We cannot guaranty that any
of our officers or directors will be able to devote sufficient amounts of their
business time to enable us to implement our business plan. If any or all of our
officers or directors do not devote a sufficient amount of their business time
to the management of our business, then our business may fail.
Risks related to this offering:
We arbitrarily determined the offering price of the shares of common stock.
Therefore, investors may lose all or part of their investment if the offering
price is higher than the current market value of the offered shares.
The offering price of the shares of our common stock has been determined
primarily by our capital requirements and has no relationship to any established
criteria of value, such as book value or earnings per share. Additionally,
because we have no significant operating history and have not generated any
significant revenues to date, the price of the shares of common stock is not
based on past earnings, nor is the price of the shares indicative of current
market value for the assets we own. Investors could lose all or a part of their
investment if the offering price has been arbitrarily set too high. Even if a
public trading market develops for our common stock, the shares may not attain
market values commensurate with the offering price.
8
We lack a public market for shares of our common stock, which may make it
difficult for investors to sell their shares.
There is no public market for shares of our common stock. We cannot guaranty
that an active public market will develop or be sustained. Therefore, investors
may not be able to find purchasers for their shares of our common stock. Should
there develop a significant market for our shares, the market price for those
shares may be significantly affected by such factors as our financial results
and introduction of new products and services. Factors such as announcements of
new or enhanced services by us or our competitors and quarter-to-quarter
variations in our results of operations, as well as market conditions in our
sector may have a significant impact on the market price of our shares. Further,
the stock market has experienced extreme volatility that has particularly
affected the market prices of stock of many companies and that often has been
unrelated or disproportionate to the operating performance of those companies.
We may not realize sufficient proceeds from this offering to implement our
business plan because we are offering shares in direct public offering, rather
then using the experience of a broker-dealer.
We are offering shares in a self-underwritten offering directly to the public.
No individual, firm, or corporation has agreed to purchase any of the offered
shares. We cannot guaranty that any or all of the shares will be sold. We do not
plan to use a broker-dealer, even though a broker-dealer may have more
experience, resources or contacts to more effectively sell shares. A delay in
the sale of the shares in this offering could cause us a similar delay in
implementing our business plan.
Because we may be subject to the "penny stock" rules, the level of trading
activity in our stock may be reduced, which may make it difficult for investors
to sell their shares.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks, like shares of our common stock, generally are equity
securities with a price of less than $5.00, other than securities registered on
certain national securities exchanges or quoted on NASDAQ. The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document 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. If the broker-dealer is
the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market, and provide monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, broker-dealers who sell these securities to persons other
than established customers and "accredited investors" must make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may reduce the level of trading activity, if
any, in the secondary market for a security subject to the penny stock rules,
and investors in our common stock may find it difficult to sell their shares.
Forward Looking Statements
- --------------------------
Information in this prospectus contains "forward looking statements" which can
be identified by the use of forward-looking words such as "believes",
"estimates", "could", "possibly", "probably", "anticipates", "estimates",
"projects", "expects", "may", "will", or "should" or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. Among the key factors that have a direct
bearing on our results of operations are the effects of various governmental
regulations, the fluctuation of our direct costs and the costs and effectiveness
of our operating strategy. Other factors could also cause actual results to vary
materially from the future results anticipated by those forward-looking
statements.
9
Use of Proceeds
- ---------------
We will receive up to $500,000 if all of the shares of common stock offered by
us at $0.025 per share are purchased. We cannot guaranty that we will sell any
or all of the shares we are offering for sale. We estimate that our proceeds
will be used in the following manner:
============================= ======================== ================== ================== ====================================
Offered Shares Sold Offering Proceeds Approximate Total Net Principal Uses of Net Proceeds
Offering Expenses Offering Proceeds
- ----------------------------- ------------------------ ------------------ ------------------ ------------------------------------
Website Development, Inventory,
5,000,000 shares (25%) $125,000 $16,669 $108,331 Marketing Expenses, Working Capital
- ----------------------------- ------------------------ ------------------ ------------------ ------------------------------------
Website Development, Inventory,
10,000,000 shares (50%) $250,000 $16,669 $233,331 Marketing Expenses, Working Capital
- ----------------------------- ------------------------ ------------------ ------------------ ------------------------------------
Website Development, Inventory,
15,000,000 shares (75%) $375,000 $16,669 $358,331 Marketing Expenses, Working Capital
- ----------------------------- ------------------------ ------------------ ------------------ ------------------------------------
Website Development, Inventory,
20,000,000 shares (100%) $500,000 $16,669 $483,331 Marketing Expenses, Working Capital
- ----------------------------- ------------------------ ------------------ ------------------ ------------------------------------
============================= ======================== ================== ================== ====================================
The order of priority for the uses of proceeds is website development, marketing
expenses, inventory and working capital. Working capital will be used to pay
general administrative expenses including legal expenses and accounting expenses
for the next twelve months. Those expenses may increase if we are able to grow
our operations and marketing activities. Marketing expenses includes costs
associated with in person marketing presentations to potential customers,
including travel and entertainment expenses. Marketing expenses also includes
development, preparation and printing of marketing materials, such as brochures
and catalogs.
None of the proceeds will be used to reimburse the expenses that were previously
paid by our president including office rent or compensation for services
provided prior to the offering. If the offering proceeds are insufficient to pay
the offering expenses in full, then we intend to pay those expenses from our
current cash reserves.
Determination of Offering Price
- -------------------------------
Factors Used to Determine Share Price. The offering price of the 20,000,000
shares of common stock being offered by us has been determined primarily by our
capital requirements and has no relationship to any established criteria of
value, such as book value or earnings per share. Additionally, because we have
no significant operating history and have not generated any revenues to date,
the price of the shares of common stock is not based on past earnings, nor is
the price of the shares indicative of current market value for the assets we
own. No valuation or appraisal has been prepared for our business and potential
business expansion.
Dilution
- --------
We intend to sell 20,000,000 shares of our common stock being registered by this
registration statement. We were initially capitalized by the sale of our common
stock. The following table sets forth the number of shares of common stock
purchased from us, the total consideration paid and the price per share. The
table assumes all 20,000,000 shares of common stock will be sold.
10
========================= ========================================= ====================================== ==================
Shares Issued Total Consideration Price
Per Share
---------------------- ------------------ ------------------- ------------------ ------------------
Number Percent Amount Percent
- ------------------------- ---------------------- ------------------ ------------------- ------------------ ------------------
Founding Shareholders 2,550,000 Shares 11.31% $2,550 00.51% $0.001
- ------------------------- ---------------------- ------------------ ------------------- ------------------ ------------------
Purchasers of Shares 20,000,000 Shares 88.69% $500,000 99.49% $0.025
========================= ====================== ================== =================== ================== ==================
Total 22,550,000 Shares 100% $502,550 100%
========================= ====================== ================== =================== ================== ==================
The following table sets forth the difference between the offering price of the
shares of our common stock being offered by us, the net tangible book value per
share, and the net tangible book value per share after giving effect to the
offering by us, assuming that all of the shares of the common stock offered by
us are sold. Net tangible book value per share represents the amount of total
tangible assets less total liabilities divided by the number of shares
outstanding as of October 31, 2001.
- ------------------------------------------------------------ ------------------
Offering Price $0.025 per share
- ------------------------------------------------------------ ------------------
Net tangible book value at October 31, 2001 $0.00 per share
- ------------------------------------------------------------ ------------------
Net tangible book value after giving effect to the offering $0.022 per share
- ------------------------------------------------------------ ------------------
Per Share Dilution to New Investors $0.003 per share
- ------------------------------------------------------------ ------------------
Percent Dilution to New Investors 12%
- ------------------------------------------------------------ ------------------
Selling Security Holders
- ------------------------
There are no selling security holders in this offering.
Plan of Distribution
- --------------------
We are offering for sale 20,000,000 shares of our common stock in a
self-underwritten offering directly to the public. We have not conducted any
discussions or negotiations for the sale of all or any portion of those
20,000,000 shares of our common stock. There is no minimum number of shares that
must be purchased by each prospective purchaser. The maximum number of shares we
will sell is 20,000,000. We will not pay any commissions or other fees, directly
or indirectly to any person or firm in connection with solicitation of sales of
the common stock. There are no minimum proceeds set for this offering.
Troy Schaner, our president, treasurer and one of our directors, will
participate in the offer and sale of our shares of common stock, and rely on the
safe harbor from broker-dealer registration set out in Rule 3a4-1 under the
Securities Exchange Act of 1934. Although Mr. Troy Schaner is an associated
person of the company as that term is defined in Rule 3a4-l under the Exchange
Act, he is deemed not to be a broker for the following reasons:
o Mr. Troy Schaner is not subject to a statutory disqualification as
that term is defined in Section 3(a)(39) of the Exchange Act at the
time of his participation in the sale of our securities.
o Mr. Troy Schaner will not be compensated for his participation in the
sale of company securities by the payment of commissions or other
remuneration based either directly or indirectly on transactions in
securities.
o Mr. Troy Schaner is not an associated person of a broker or dealer at
the time of participation in the sale of company securities.
11
Mr. Troy Schaner will restrict his participation to the following activities:
o Preparing any written communication or delivering any communication
through the mails or other means that does not involve oral
solicitation by the President of a potential purchaser;
o Responding to inquiries of potential purchasers in communications
initiated by the potential purchasers, provided, however, that the
content of responses are limited to information contained in this
registration statement and any amendments filed hereto filed under the
Securities Act or other offering document;
o Performing ministerial and clerical work involved in effecting any
transaction.
We have not retained a broker for the sale of securities being offered. In the
event we retain a broker who may be deemed an underwriter, we will file an
amendment to the registration statement.
The shares of common stock we are offering have not been registered for sale
under the securities laws of any state as of the date of this prospectus. We
intend to register or qualify the offered shares in the following states: North
Dakota and Minnesota.
To comply with the qualification provisions in North Dakota, the proceeds from
the sale of those shares in North Dakota will be deposited in an interest
bearing escrow account with an impoundment agent. The impoundment agent will be
a financial institution located in the State of North Dakota. The North Dakota
Securities Commission will execute the impoundment agreement if and when our
offer of securities is registered within that state. As such, we will not have
access to the use of funds so raised, if and until the requirements of the North
Dakota Securities Commission are met.
Under the Securities Exchange Act of 1934 and the regulations thereunder, any
person engaged in a distribution of the shares of our common stock offered by
this prospectus may not simultaneously engage in market making activities with
respect to our common stock during the applicable "cooling off" periods prior to
the beginning of such distribution.
Legal Proceedings
- -----------------
There are no legal actions pending against us nor are any legal actions
contemplated by us at this time.
Directors, Executive Officers, Promoters and Control Persons
- ------------------------------------------------------------
Our directors and principal executive officers are as specified on the following
table:
=============== =============== ==============================================
Name Age Position
- --------------- --------------- ----------------------------------------------
Troy Schaner 33 president, treasurer and a director
- --------------- --------------- ----------------------------------------------
Lloyd Schaner 58 vice president, secretary and a director
- --------------- --------------- ----------------------------------------------
Dan Saunders 37 director
=============== =============== ==============================================
Troy Schaner. Mr. Troy Schaner has been our president, treasurer, and director
since our inception. Mr. Schaner is responsible for the management of our day to
day operations. Mr. Troy Schaner has been employed as a police detective for the
Bismarck Police Department in Bismarck, North Dakota, since 1990. In addition to
his long time dedication to personal health and fitness, Mr. Troy Schaner serves
on the Bismarck Police Department Fitness committee, which oversees the police
department's fitness activities and needs. In the course of those duties, Mr.
Troy Schaner researches, solicits bids, and is the buyer for various types of
equipment for the police department. With his experience with fitness programs,
purchasing and understanding of the fitness equipment market, we believe that
Mr. Troy Schaner is well-suited to run our day-to-day operations. Mr. Troy
Schaner has an associate of arts degree in Criminal Justice that he earned from
Bismarck State College. Mr. Troy Schaner is not an officer or director of any
other company.
Lloyd Schaner. Mr. Lloyd Schaner has been our vice president, secretary and one
of our directors since our inception. Mr. Schaner was employed for 35 years by
Interstate Brands located in Bismarck, North Dakota, where he worked as a
transportation manager and mechanic until his retirement in 1999. Mr. Lloyd
Schaner has a longtime active interest in health and fitness, and has been the
head of maintenance and equipment for the Bismarck YMCA since 2000. His duties
there include insuring that all fitness equipment is maintained and functions
properly. Mr. Lloyd Schaner works closely with his son, Mr. Troy Schaner, on our
day-to-day operations. Mr. Lloyd Schaner is not an officer or director of any
other company.
12
Dan Saunders. Mr. Saunders has been one of our directors since our inception.
Mr. Saunders has been employed by Tesoro Petroleum Refinery, formerly B.P.
Amoco, since 1988 as a relief supervisor. His duties include overseeing the
operations of the power generation systems at the Tesoro Oil Refinery located in
Mandan, North Dakota. Since 1997, Mr. Saunders has also been the president of
Effective Sport Nutrition Corp., a company which supplies health and body
building supplements. We believe that Mr. Saunders' expertise with health and
fitness is a valuable asset to our operations. Mr. Saunders is not an officer or
director of any other reporting company.
Troy Schaner is the son of Lloyd Schaner. There are no orders, judgments, or
decrees of any governmental agency or administrator, or of any court of
competent jurisdiction, revoking or suspending for cause any license, permit or
other authority to engage in the securities business or in the sale of a
particular security or temporarily or permanently restraining any of our
officers or directors from engaging in or continuing any conduct, practice or
employment in connection with the purchase or sale of securities, or convicting
such person of any felony or misdemeanor involving a security, or any aspect of
the securities business or of theft or of any felony. Nor are any of the
officers or directors of any corporation or entity affiliated with us so
enjoined.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 27, 2001, by each person or entity
known by us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, each of our directors and named executive officers, and all of
our directors and executive officers as a group.
Title of Class Name and Address of Amount and Nature of Percent of Class Percent of Percent of Percent of
Beneficial Owner Beneficial Owner if no shares are Class if Class if Class if
sold 20,000,000 10,000,000 5,000,000
shares are shares are shares are
sold sold sold
- --------------- ------------------------- ----------------------- ------------------ --------------- ----------------- -------------
Common Stock Troy Schaner 850,000 shares,
431 Southwood Ave. president, treasurer, 33.33% 3.77% 6.77% 11.26%
Bismarck, ND 58504 director
Common Stock Lloyd Schaner 850,000 shares, vice
1222 Albany Dr. president, secretary, 33.33% 3.77% 6.77% 11.26%
Bismarck, ND 58504 director
Common Stock Dan Saunders 650,000 shares,
1928 Oakland Dr. director 24.59% 2.88% 5.18% 8.61%
Bismarck, ND 58504
Common Stock All directors and named 2,350,000 shares 92.16% 10.42% 18.73% 31.13%
executive officers as a
group
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.
Changes in Control. Our management is not aware of any arrangements which may
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B.
13
Description of Securities
- -------------------------
We are authorized to issue 65,000,000 shares of $.001 par value common stock and
10,000,000 shares of $.001 par value preferred stock. As of December 27, 2001,
2,550,000 shares of our common stock were issued and outstanding, and no shares
of our preferred stock were issued or outstanding.
Each shareholder of our common stock is entitled to a pro rata share of cash
distributions made to shareholders, including dividend payments. The holders of
our common stock are entitled to one vote for each share of record on all
matters to be voted on by shareholders. The holders of our common stock are
entitled to receive dividends when, as and if declared by our Board of Directors
from funds legally available for that purpose. Cash dividends are at the sole
discretion of our Board of Directors. In the event of our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of our liabilities and after provision has been made for each class of stock, if
any, having any preference in relation to our common stock. Holders of shares of
our common stock have no conversion, preemptive or other subscription rights,
and there are no redemption provisions applicable to our common stock.
Dividend Policy. We have never declared or paid a cash dividend on our capital
stock. We do not expect to pay cash dividends on our common stock in the
foreseeable future. We currently intend to retain our earnings, if any, for use
in our business. Any dividends declared in the future will be at the discretion
of our board of directors and subject to any restrictions that may be imposed by
our lenders.
Interest of Named Experts and Counsel
- -------------------------------------
No "expert" or our "counsel" was hired on a contingent basis, or will receive a
direct or indirect interest in us, or was a promoter, underwriter, voting
trustee, director, officer, or employee of the company, at any time prior to the
filing of this registration statement.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
- ------------------------------------------------------------------------
Article Twelfth of our Articles of Incorporation provides, among other things,
that our officers and directors shall not be personally liable to us or our
shareholders for monetary damages for breach of fiduciary duty as an officer or
a director, except for liability:
o Acts or omissions which involve intentional misconduct, fraud or
knowing violation of the law; or
o The payment of dividends in violation of Section 78.300 of the Nevada
Revised Statutes.
Accordingly, our directors may not be liable to our shareholders for any
mistakes or errors of judgment or for any act of omission, unless the act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
Indemnification Agreements. Article V of our Bylaws provides for, under certain
circumstances, the indemnification of our officers and directors. We anticipate
we will enter into indemnification agreements with each of our executive
officers. We will agree to indemnify each such person for all expenses and
liabilities, including criminal monetary judgments, penalties and fines,
incurred by such person in connection with any criminal or civil action brought
or threatened against such person by reason of such person being or having been
our officer or director or employee. In order to be entitled to indemnification
by us, such person must have acted in good faith and in a manner such person
believed to be in our best interests. With respect to criminal actions, such
person must have had no reasonable cause to believe his or her conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that act and is, therefore, unenforceable.
14
Organization Within Last Five Years
- -----------------------------------
Transactions with Promoters. In October 2001, we issued 850,000 shares of our
common stock to Troy Schaner, our president, treasurer and one of our directors
850,000 shares of our common stock to Lloyd Schaner, our vice president,
secretary and one of our directors, and 650,000 shares of our common stock to
Dan Saunders in exchange for services valued at $2,550.
Description of Business
- -----------------------
Our Background. We were incorporated in Nevada on October 11, 2001.
Our Business. We intend to sell fitness and exercise equipment as well as
nutritional supplements in the Bismarck-Mandan area of North Dakota. Initially,
we intend to market our products by means of our proposed website, and then open
a display and distribution center in Bismarck, North Dakota, where customers may
meet with fitness consultants in a gymnasium setting for personalized advice on
selecting the proper mix of equipment and products for their individual or
corporate needs.
Our Products. We intend to provide a comprehensive range of exercise equipment
and nutrition supplements to individual consumers who are interested concerned
with health and fitness, as well as to companies operating or planning to
operate their own in-house exercise centers for the benefit of their employees.
We intend to compete on price by provided a fully array of nutritional products
and fitness equipment. Well-equipped fitness centers feature a wide array of
exercise equipment, each of which is designed to focus on a particular set of
muscles in the human body. Additionally, many individuals who regularly use
fitness equipment also buy nutritional supplements, and as such we carry wide
range of products, such as vitamins, minerals, and other products to complement
a personalized fitness regimen.
Our Industry. We believe that the benefits of regular exercise are becoming more
widely recognized by the general population, and that more people will engage in
professionally tailored exercise regimens as a result. We believe that an
individual can reap the greatest health benefits by utilizing a fitness routine
designed by a professional trainer, along with the use of appropriate
nutritional supplements to complement that routine. We believe that the large
number of health club members in the United States today, which number
approximately 32.8 million people, is a reflection of this trend. According to
the International Health, Racquet and Sportsclub Association, revenues
attributable to this trend are approximately $11.6 billion annually. Not only do
individuals pursue their own health and fitness programs, but many companies and
higher educational institutions are providing well-equipped gymnasium and
workout facilities onsite as a benefit and convenience for their employees and
students.
Our Target Markets and Marketing Strategy. We will primarily market our products
to health-conscious individuals and to fitness clubs, colleges and universities,
and other commercial facilities that sponsor their own health club or
gymnasiums. Our product lines will be tailored to these markets, and our staff
will work directly with product manufacturers to structure competitive product
bids after a customer makes the initial contact through our internet site. We
believe that as the long-term and immediate health benefits of physical fitness
become more widely appreciated, there will be increased demands for our
products. Our marketing initiatives will include:
o utilizing direct response print advertisements placed primarily in
health and fitness magazines;
o links to related websites;
o advertising by television, radio, banners, affiliated marketing and
direct mail; and
o presence at industry tradeshows and fitness events.
Specifically, we plan to promote our products and attract consumers and
businesses through our proposed website and our trade show booth. We anticipate
that we will contract for the construction of a state-of-the-art trade show
booth which will be easily transportable and fully functional. We expect that
the booth will showcase many of our products and provide information and
personal assistance for customers, allowing for several customers to be served
simultaneously. We anticipate that the booth will also feature a section for
promotions and give-aways of nutritional supplement samples. Additionally, we
plan to use call-in radio spots in the Bismarck, North Dakota media market. We
anticipate utilizing call-in spots on local radio stations featuring our
president, Troy Schaner, whereby listeners can discuss a variety of fitness and
nutrition topics, and hear about our proposed website. We also expect to
co-sponsor participants in fitness events in the upper Midwest region in
conjunction with fitness equipment manufacturers. We believe this type of
sponsorship will result in exposure for our brand name and endorsements for our
products.
15
Growth Strategy. Our objective is to expand our operations by adding staff while
increasing our market presence in the Bismarck-Mandan area of North Dakota, and
into the upper Midwest region of the United States. We anticipate achieving
growth by hiring additional staff, installing computers and launching a
professionally designed website to attract new clients. We also hope to
establish sufficient facilities in the Bismarck, North Dakota area designed to
accommodate additional staff. We plan to hire individuals with the following
strengths:
o Webmaster: This person will be instrumental in designing our website,
which will be key to our initial operations and establishing our
brand. We will seek an individual with experience in website
development and maintenance, e-commerce, and online marketing
programs.
o Computer Technician: This individual will have full knowledge of
website development and maintenance, order fulfillment, merchant
credit card on-line transaction software, and constantly resolve
software and hardware issues as they arise.
o Order Fulfillment Manager: This individual will ensure that all
on-line orders are filled, and will contribute ideas and solutions for
improvement of our website. The Order Fulfillment Manager will be
experienced in online order taking, merchant credit card
relationships, and website development, and will also be responsible
for supervising warehouse workers to make sure orders are properly
filled.
o Business Manager: This person will have experience in business
operations, human resource management, accounting and marketing.
Additionally, our Business Manager will be responsible for researching
new suppliers and product contracts, and work to increase revenues and
reduce costs.
o Fitness Manager: The person in this position will provide expertise
and information to enhance the content of the website. Additionally,
our Fitness Manager will contribute ideas and work closely with our
Marketing Manager to develop working solutions for the website, the
tradeshows, and manage our gym.
o Two Fitness Trainers: These individuals will work at our fitness
facility, showcasing the equipment and nutritional supplements to gym
members and potential customers.
o Customer Service: This position will work with customers on a
continual basis, to resolve customer concerns and service issues.
o Marketing Manager: This person will be fully responsible for all
marketing efforts, including online marketing, trade shows, and the
personal follow-ups to clients outside the Upper Midwest. They will
also coordinate closely with the Webmaster to develop and implement a
cost-effective on-line marketing strategy. Their background will
include experience in marketing campaigns, computers, online and
retail sales, tradeshow marketing and management. This person will
also coordinate the efforts of our staff of marketing representatives,
and will assist with training, as well as conducting actual marketing
efforts with universities and fitness centers
o Four Marketing Representatives: These individuals will report directly
to the Marketing Manager, and will be responsible to coordinate the
activities in their designated trade areas. Incentives will be
available to each Representative to encourage them to achieve optimum
results.
o Clerical Assistant: This individual will perform all daily office
tasks including, but not limited to, computer input and bookkeeping.
We hope to establish our headquarters in the Bismarck-Mandan region of North
Dakota by early 2002. We then plan to expand our services to other cities in the
upper Midwest region of the United States. We believe it is critical to have a
physical presence in key cities in the upper Midwest market, so that continue
our growth, as well as provide quality service to customers in those locations.
We intend to expand operations to the following cities on the schedule
indicated:
- ------------------------------------- --------------------------------------
City Proposed Date
- ------------------------------------- --------------------------------------
Fargo, ND June 2002
- ------------------------------------- --------------------------------------
Minneapolis, MN January 2003
- ------------------------------------- --------------------------------------
Sioux Falls, SD June 2003
- ------------------------------------- --------------------------------------
Chicago, IL January 2004
- ------------------------------------- --------------------------------------
16
Once established in these cities, we will evaluate the need for an additional
distribution center in one of these future locations, based on sales volume.
Our Proposed Website. We anticipate that our website will be developed by the
webmaster and computer staff we intend to hire. We intend to design a
user-friendly website which provides prospective customers with a complete
listing of our available products, as well as pages dedicated to relevant topics
of interest to people concerned with fitness and health. We anticipate that our
website will be designed to provide product information, accept customer orders
and credit card purchases, and allow customers to check the status of their
orders. We plan to design our website to allow current and potential customers
to ask our Fitness Manager basic questions about fitness, nutrition and
exercise. After the website is operational, we subsequently expect to expand the
scope of our Internet presence. We hope to achieve such expansion by registering
with major search engines with the goal of placing our website at the top of
search results. This typically requires pre-funding with certain search engines.
We do not currently have adequate financial resources to conduct such
registration.
Our Intellectual Property. We do not presently own any domain names, copyrights,
patents, trademarks, licenses, concessions or royalties. Our success may depend
in part upon our ability to promote our brand name and to preserve our trade
secrets, obtain and maintain patent protection for our technologies, products
and processes, and operate without infringing upon the proprietary rights of
other parties. However, we may rely on certain proprietary technologies, trade
secrets, and know-how that are not patentable. Although we may take action to
protect our unpatented trade secrets and our proprietary information, in part,
by the use of confidentiality agreements with our employees, consultants and
certain of our contractors, we cannot guaranty that:
o these agreements will not be breached;
o we would have adequate remedies for any breach; or
o our proprietary trade secrets and know-how will not otherwise become
known or be independently developed or discovered by competitors.
We cannot guaranty that our actions will be sufficient to prevent imitation or
duplication of either our products and services by others or prevent others from
claiming violations of their trade secrets and proprietary rights.
Competition. The market for health and fitness products and services is highly
competitive. In order to compete effectively in the health and fitness industry,
a company must provide a wide range of quality services and products at a
reasonable cost. The changing environment has also produced an evolving range of
products for consumers and businesses concerned with health and fitness issues,
many of whom are unfamiliar with the importance of selecting precisely the
correct regimen of training and nutritional supplements for optimum results. As
a result, many are turning to the resources provided by experts in nutrition and
physical fitness training, whether by visiting local providers of such
information, or by turning to books, magazines, television programs or internet
sources of information and products.
We compete with traditional "brick and mortar" providers of fitness and
nutritional products. Also, once our website is operational, we will compete
with other Internet-based companies and businesses that have developed and are
in the process of developing competing websites. We cannot guaranty that other
websites or functionally similar services have not been developed or are not in
development. Additionally, many of these Internet-based competitors have greater
financial and other resources, and more experience in research and development,
than we have. In providing our services, we will likely compete with local
providers of similar products and services. These include Push, Peddle, Pull,
R&R Enterprises, and Bigger, Faster, Stronger. Our primary local competitor is
Push, Peddle, Pull, who features a more diverse product line, but has higher
prices than we do. Consequently, we believe we are competitive in terms of
price. Also, we believe we carry more heavy-duty exercise equipment, and as such
can cater more to the commercial exercise equipment customer. We will also
compete with national and international providers of health and fitness
equipment and products, such as Bally Total Fitness and 24-Hour Fitness, as well
as other online providers of equipment tailored to individuals and commercial
customers, such as The Fitness Zone, Busy Body Fitness, Corporate Fitness
Source, Premier Fitness and Wellness, and others. Additionally, there are
numerous manufacturers and marketers of nutritional supplements, who market
their products over the internet, in traditional and health food stores, as well
as in fitness centers.
17
Many of our competitors have greater financial resources than we have, enabling
them to finance acquisition and development opportunities, pay higher prices for
the same opportunities or develop and support their own operations. In addition,
many of these companies can offer services not provided by us. Many may also
have greater name recognition. Our larger competitors may have the luxury of
sacrificing profitability in order to capture a greater portion of the market
for health and fitness products and equipment. They may also be in a position to
pay higher prices than we would for the same expansion and development
opportunities. Consequently, we may encounter significant competition in our
efforts to achieve our internal and external growth objectives.
Government Regulation. We are subject to federal, state and local laws and
regulations applied to businesses, such as payroll taxes on the state and
federal levels. In general, our equipment sales activities are not subject to
licensing or other regulatory requirements. Additionally, because the market for
protein products and nutritional supplements is relatively new, there is little
common law or regulatory guidance that clarifies the manner in which government
regulation impacts online sales. The two principal federal agencies that
regulate dietary supplements, including vitamins, nutritional supplements and
minerals, are the FDA and the FTC. FDA regulations govern claims that assert the
health or nutritional value of a product. FTC regulations make it unlawful to
disseminate misleading advertising. If we begin to private label our protein
bars, we must comply with those regulations concerning the health or nutritional
value of our products and our advertising associated with those products.
Although our supplier labels our current products, we must ensure that their
labels comply with those regulations. We must also comply with those regulations
with respect to the information that is provided on our website. Many FDA and
FTC remedies and processes, including imposing civil penalties and commencing
criminal prosecution, are available under federal statutes and regulations if
product claims violate the law. Similar enforcement action may also result from
noncompliance with other regulatory requirements, such as FDA labeling rules. If
the claims that are asserted for the products that we sell and distribute
violate the law, we may be forced to pay significant civil penalties.
Internet access and online services are not subject to direct regulation in the
United States. Changes in the laws and regulations relating to the
telecommunications and media industry, however, could impact our business. For
example, the Federal Communications Commission could begin to regulate the
Internet and online services industry, which could result in increased costs for
us. The laws and regulations applicable to the Internet and to our services are
evolving and unclear and could damage our business. There are currently few laws
or regulations directly applicable to access to, or commerce on, the Internet.
Due to the increasing popularity and use of the Internet, it is possible that
laws and regulations may be adopted, covering issues such as user privacy,
defamation, pricing, taxation, content regulation, quality of products and
services, and intellectual property ownership and infringement. Such legislation
could expose us to substantial liability as well as dampen the growth in use of
the Internet, decrease the acceptance of the Internet as a communications and
commercial medium, or require us to incur significant expenses in complying with
any new regulations.
Our Research and Development. We are not currently conducting any research and
development activities, other than the development of our proposed website. We
do not anticipate conducting any research or development activities in the near
future.
Employees. As of December 27, 2001, we have no employees, other than our
officers. We anticipate that we will not hire any additional employees in the
next six months unless we generate significant revenues.
Facilities. Our executive, administrative and operating offices are located 200
North 3rd Street, Suite 280, Bismarck, North Dakota, 58504. We do not own our
offices. Troy Schaner, our president, treasurer and one of our directors,
currently provides office space to us at no charge. We do not have a written
lease or sublease agreement and Troy Schaner does not expect to be paid or
reimbursed for providing office facilities. We believe that our current
facilities are adequate for our current needs and that additional suitable space
will be available on acceptable terms as required. We do not own any real
estate.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------
Liquidity and Capital Resources. We have cash of $5,000 at October 31, 2001. We
were incorporated on October 11, 2001. Our president, treasurer and director,
Troy Schaner, has provided a loan $5,000 to us. The terms of Mr. Schaner's
advance to us are annual interest of 10% and the principal amount shall be due
on demand.
18
Results of Operations. We have not yet realized any revenue from operations. Our
expenses of approximately $98 consist of depreciation through October 30, 2001.
Our Plan of Operation for the Next Twelve Months. To implement our business plan
during the next twelve months, we will need to establish our corporate
headquarters and hire additional staff, so that we can begin selling our
exercise equipment and nutritional supplements in the Bismarck region of North
Dakota. We anticipate that we will use the funds raised in this offering and
revenues generated to fund marketing activities and for working capital. Our
failure to market and promote our services will harm our business and future
financial performance. If we are unable to expand our operations within the next
twelve months, we will likely fail to increase our revenues.
We had cash of $5,000 at October 31, 2001. In the opinion of management,
available funds will satisfy our working capital requirements through the March
2001. Our forecast for the period for which our financial resources will be
adequate to support our operations involves risks and uncertainties and actual
results could fail as a result of a number of factors. We anticipate that we may
need to raise additional capital to expand our operations in addition to the
funds raised in this offering, although we have not made any efforts to obtain
additional capital. Such additional capital may be raised through public or
private financing as well as borrowings and other sources. We cannot guaranty
that additional funding will be available on favorable terms, if at all. If
adequate funds are not available, then we may not be able to expand our
operations.
We are not currently conducting any research and development activities, other
than the development of our proposed website. We do not anticipate conducting
such activities in the near future. In the event that we expand our customer
base, then we may need to hire additional employees or independent contractors.
Description of Property
- -----------------------
Property held by us. As of the date specified in the following table, we held
the following property:
=================================== =========================
Property October 31, 2001
- ----------------------------------- -------------------------
Cash $5,000
- ----------------------------------- -------------------------
Property and Equipment, net $5,883
=================================== =========================
Our facilities. Our executive, administrative and operating offices are located
at 200 N. 3rd Street, Suite 280, Bismarck, North Dakota 58504. Troy Schaner, our
president, treasurer and one of our directors, currently provides office space
to us at no charge. We do not have a written lease or sublease agreement with
Mr. Troy Schaner and we do not believe that Mr. Troy Schaner expects to be paid
or reimbursed for providing office facilities.
Certain Relationships and Related Transactions
- ----------------------------------------------
Troy Schaner, our president, treasurer and one of our directors, currently
provides office space to us at no charge. Mr. Troy Schaner does not expect to be
paid or reimbursed for providing office facilities. We do not have a written
lease or sublease agreement with Mr. Troy Schaner. However, we anticipate that
Mr. Troy Schaner will continue to provide office space to us at no charge.
Additionally, one of our officers provides office services to us without charge.
The fair market value of those services is minimal.
Our president, treasurer and director, Troy Schaner, has provided a loan of
$5,000 to us. The terms of Mr. Schaner's advance to us are annual interest of
10% and the principal amount shall be due on demand.
Mr. Schaner also contributed equipment to us valued at $5,883 in exchange for a
promissory note of $5,883. The terms of the promissory are annual interest of
10% and the principal and annual interest are payable in one lump sum on October
12, 2003.
19
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions, including, but not limited to, the
following:
o disclose such transactions in prospectuses where required;
o disclose in any and all filings with the Securities and Exchange
Commission, where required;
o obtain disinterested directors' consent; and
o obtain shareholder consent where required.
In addition, all future material affiliated transactions and loans will be made
or entered into on terms that are no less favorable to us that those that can be
obtained from unaffiliated third parties.
Market for Common Equity and Related Stockholder Matters
- --------------------------------------------------------
Reports to Security Holders. Our securities are not listed for trading on any
exchange or quotation service; therefore, we are not required to comply with the
timely disclosure policies of any exchange or quotation service. The
requirements to which we would be subject if our securities were so listed
typically include the timely disclosure of a material change or fact with
respect to our affairs and the making of required filings. Although we are not
required to deliver an annual report to security holders, we intend to provide
an annual report to our security holders, which will include audited financial
statements.
When and if we become a reporting company with the Securities and Exchange
Commission, the public may read and copy any materials filed with the Securities
and Exchange Commission at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may
also obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Securities and Exchange Commission. The address of that
site is http://www.sec.gov.
As of December 27, 2001, there were five record holders of our common stock.
There are no outstanding shares of our common stock which can be sold pursuant
to Rule 144. There are no outstanding options or warrants to purchase, or
securities convertible into, shares of our common stock. There are no
outstanding shares of our common stock that we have agreed to register under the
Securities Act of 1933 for sale by security holders.
There have been no cash dividends declared on our common stock. Dividends are
declared at the sole discretion of our Board of Directors.
Penny stock regulation. Shares of our common stock will probably be subject to
rules adopted by the Securities and Exchange Commission that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks are generally equity securities with a price of less than $5.00, except
for securities registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume information with
respect to transactions in those securities is provided by the exchange or
system. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from those rules, deliver a standardized risk
disclosure document prepared by the Securities and Exchange Commission, which
contains the following:
o a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
o a description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to
violation to such duties or other requirements of securities' laws;
o a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and the significance of the
spread between the "bid" and "ask" price;
o a toll-free telephone number for inquiries on disciplinary actions;
o definitions of significant terms in the disclosure document or in the
conduct of trading in penny stocks; and
o such other information and is in such form, including language, type,
size and format, as the Securities and Exchange Commission shall
require by rule or regulation.
20
Prior to effecting any transaction in penny stock, the broker-dealer also must
provide the customer the following:
o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a
penny stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. Holders of shares of our common stock may have difficulty selling
those shares because our common stock will probably be subject to the penny
stock rules.
Executive Compensation
- ----------------------
Any compensation received by our officers, directors, and management personnel
will be determined from time to time by our Board of Directors. Our officers,
directors, and management personnel will be reimbursed for any out-of-pocket
expenses incurred on our behalf.
Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to us payable to our
president and our other executive officers during the years ending December 31,
2001 and December 31, 2002. Our Board of Directors may adopt an incentive stock
option plan for our executive officers which would result in additional
compensation.
=============================================== ======= ============= ============= ====================== =====================
Name and Principal Position Year Annual Bonus ($) Other Annual All Other
Salary ($) Compensation ($) Compensation
- ----------------------------------------------- ------- ------------- ------------- ---------------------- ---------------------
Troy Schaner - president, treasurer 2001 None None None None
- ----------------------------------------------- ------- ------------- ------------- ---------------------- ---------------------
2002 None None None None
- ----------------------------------------------- ------- ------------- ------------- ---------------------- ---------------------
Lloyd Schaner - vice president, secretary 2001 None None None None
- ----------------------------------------------- ------- ------------- ------------- ---------------------- ---------------------
2002 None None None None
=============================================== ======= ============= ============= ====================== =====================
Compensation of Directors. Our directors who are also our employees receive no
extra compensation for their service on our Board of Directors.
Compensation of Officers. As of December 27, 2001, our officers have not
received any compensation for their services provided to us. We anticipate that
our officers will not receive any compensation for their services unless we
generate significant revenues.
Employment Contracts. We anticipate that we will enter into employment
agreements with Troy Schaner, our president and treasurer, and Lloyd Schaner,
our vice president and secretary, although we do not know the terms of those
proposed agreements.
Financial Statements
- --------------------
DAKOTA FITNESS EQUIPMENT INC.
October 31, 2001
Clyde Bailey, P.C.
Certified Public Accountant
10924 Vance Jackson #404
San Antonio, Texas 78230
21
CLYDE BAILEY P.C.
- -------------------------------------------------------------------------------
Certified Public Accountant
10924 Vance Jackson #404
San Antonio, Texas 78230
(210) 699-1287(ofc.)
(888) 699-1287 (210) 691-2911 (fax)
Member:
American Institute of CPA's
Texas Society of CPA's
Board of Directors
Dakota Fitness Equipment Inc.
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying balance sheet of Dakota Fitness Equipment Inc.
("Company") as of October 31, 2001 and the related statement of operations,
statement of stockholders' equity, and the statement of cash flows from (date of
inception) October 11, 2001 to October 31, 2001. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these statements based on my audit.
I conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
The Company is a development stage enterprise, as defined in Financial
Accounting Standards Board No. 7. The Company is devoting all of its present
efforts in securing and establishing a new business, and its planned principal
operations have not commenced, and, accordingly, no revenue has been derived
during the organizational period.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of October 31, 2001
and the results of its operations and its cash flows for the period from (date
of inception) October 11, 2001 to October 31, 2001 in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has limited operations
currently and suffered recurring losses from operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
This is further explained in the notes to financial statements.
Clyde Bailey P.C.
San Antonio, Texas
December 12, 2001
22
Dakota Fitness Equipment Inc.
(A Development Stage Enterprise)
Balance Sheet
As of October 31, 2001
A S S E T S
-----------
Current Assets
- --------------
Cash $ 5,000
------------------
Total Current Assets 5,000
Fixed Assets:
- -------------
Equipment 5,883
Less:Accumulated Depreciation (98)
------------------
Total Fixed Assets 5,785
------------------
Total Assets $ 10,785
==================
L I A B I L I T I E S
---------------------
Current Liabilities
- -------------------
Note Payable 10,883
------------------
Total Current Liabilities 10,883
------------------
Total Liabilities 10,883
Commitments and Contingencies -
S T O C K H O L D E R S ' E Q U I T Y
-------------------------------------
Preferred Stock -
10,000 authorized shares, par value $.001
no shares issued and outstanding
Common Stock 2,550
65,000,000 authorized shares par value $.001
2,550,000 shares and issued and outstanding
Additional Paid-in-Capital -
Accumulated Deficit (2,648)
------------------
Total Stockholders' Equity (Deficit) (98)
------------------
Total Liabilities and Stockholders' Equity $ 10,785
==================
The accompanying notes are integral part of the
consolidated financial statements.
23
Dakota Fitness Equipment Inc.
(A Development Stage Enterprise)
Statement of Operations
-----------------
From 10/11/01
(Inception)
to October 31
-----------------
2001
-----------------
Revenues:
- ---------
Revenues $ -
-----------------
Total Revenues $ -
Expenses:
- ---------
Consulting Services 2,550
Depreciation Expense 98
Operating Expenses -
-----------------
Total Expenses 2,648
Net Income (Loss) from Operations $ (2,648)
Provision for Income Taxes:
- ---------------------------
Income Tax Benefit -
-----------------
Net Income (Loss) $ (2,648)
=================
Basic and Diluted Loss Per Common Share (0.00)
-----------------
Weighted Average number of Common Shares 2,550,000
=================
used in per share calculations
The accompanying notes are integral part of the
consolidated financial statements.
24
Dakota Fitness Equipment Inc.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
As of October 31, 2001
$0.001 Paid-In Accumulated Stockholders'
Shares Par Value Capital Deficit Equity
-------------- -------------- ------------- -------------- -------------
Balance, October 2, 2001(Inception) - $ - $ - $ - $ -
Stock Issuance for Assets 2,550,000 2,550 - 2,550
Net Income (Loss) (2,648) (2,648)
-------------- -------------- ------------- -------------- -------------
Balance, October 31, 2001 2,550,000 2,550 - (2,648) (98)
============================================================================
The accompanying notes are integral part of the
consolidated financial statements.
25
Dakota Fitness Equipment Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
---------------------
From 10/11/01
(Inception)
to October 31
---------------------
2001
---------------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (2,648)
Changes in operating assets and liabilities:
Stock Issued for Services 2,550
Depreciation 98
---------------------
Total Adjustments 2,648
---------------------
Net Cash (Used in) Provided From Operating Activities $ -
Cash Flows from Investing Activities:
Capital Expenditures -
---------------------
Net Cash Used in Investing Activities $ -
---------------------
Cash Flows from Financing Activities:
Note Payable 5,000
Common Stock -
---------------------
Net Cash Provided for Financing Activities $ 5,000
---------------------
Net Increase (Decrease) in Cash $ 5,000
Cash Balance, Begin Period -
---------------------
Cash Balance, End Period $ 5,000
=====================
Supplemental Disclosures:
Cash Paid for interest $ -
Cash Paid for income taxes $ -
Stock Issued for Services -
The accompanying notes are integral part of the
consolidated financial statements.
26
Dakota Fitness Equipment Inc.
(A Development Stage Enterprise)
Statement of Cash Flows
---------------------
From 10/11/01
(Inception)
to October 31
---------------------
2001
---------------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (2,648)
Changes in operating assets and liabilities:
Stock Issued for Services 2,550
Depreciation 98
---------------------
Total Adjustments 2,648
---------------------
Net Cash (Used in) Provided From Operating Activities $ -
Cash Flows from Investing Activities:
Capital Expenditures -
---------------------
Net Cash Used in Investing Activities $ -
---------------------
Cash Flows from Financing Activities:
Note Payable 5,000
Common Stock -
---------------------
Net Cash Provided for Financing Activities $ 5,000
---------------------
Net Increase (Decrease) in Cash $ 5,000
Cash Balance, Begin Period -
---------------------
Cash Balance, End Period $ 5,000
=====================
Supplemental Disclosures:
Cash Paid for interest $ -
Cash Paid for income taxes $ -
Stock Issued for Services -
The accompanying notes are integral part of the
consolidated financial statements.
27
Dakota Fitness Equipment Inc.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
- ------------------------------------------------------
Organization
- ------------
Dakota Fitness Equipment Inc. ("the Company") was incorporated under the laws of
the State of Nevada on October 11, 2001 for the purpose to promote and carry on
any lawful business for which a corporation may be incorporated under the laws
of the State of Nevada. The company has a total of 75,000,000 authorized shares
with a par value of $.001 per share with 10,000,000 shares designated as
preferred shares and the balance as common shares. The Company has 2,550,000
common shares issued and outstanding as of October 31, 2001 and no preferred
shares issued as of October 31, 2001. The fiscal year end will be December 31.
Development Stage Enterprise
- ----------------------------
The Company is a development stage enterprise, as defined in Financial
Accounting Standards Board No. 7. The Company is devoting all of its present
efforts in securing and establishing a new business, and its planned principal
operations have not commenced, and, accordingly, no revenue has been derived
during the organizational period.
Federal Income Tax
- ------------------
The Company has adopted the provisions of Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes. The Company accounts for income
taxes pursuant to the provisions of the Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes", which requires an asset and
liability approach to calculating deferred income taxes. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure on
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
28
Dakota Fitness Equipment Inc.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (con't
- ------------------------------------------------------------
Accounting Method
- -----------------
The Company's financial statements are prepared using the accrual method of
accounting. Revenues are recognized when earned and expenses when incurred.
Fixed assets are stated at cost. Depreciation and amortization using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes.
Earnings per Common Share
- -------------------------
The Company adopted Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share requiring the
restatement of all prior periods.
Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year.
Diluted earnings per share are computed on the basis of the weighted average
number of common shares and dilutive securities outstanding. Dilutive securities
having an anti-dilutive effect on diluted earnings per share are excluded from
the calculation.
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No.130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
29
Dakota Fitness Equipment Inc.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies (con't
- ------------------------------------------------------------
Segments of an Enterprise and Related Information
- -------------------------------------------------
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company has evaluated this SFAS and does not believe it is
applicable at this time.
Goodwill and Other Intangible Assets
- ------------------------------------
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Standards ("SFAS") No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 141 established accounting and
reporting standards for business combinations and eliminates the
pooling-of-interests method of accounting for combinations for those
combinations initiated after July 1, 2001. SFAS No, 141 also includes new
criteria to recognize intangible assets separately from goodwill. SFAS No. 142
establishes the accounting and reporting standards from goodwill and intangible
lives. Goodwill and intangibles with indefinite lives will no longer be
amortized, but, alternatively will be reviewed periodically for indicators of
impairment. Separate intangible assets that are not deemed to have an indefinite
life will continue to be amortized over their useful lives. The Company does not
anticipate that the adoption of SFAS No. 141 and SFAS No. 142 will have a
significant effect on its results of operations or financial position.
Note 2 - Common Stock
- -----------------------
A total of 2,550,000 shares of common stock were issued at the organization of
the Company. The stock was issued for services performed by the founders of the
Company and valued at $2,550. The Company has not issued any of its preferred
stock as of October 31, 2001.
30
Dakota Fitness Equipment Inc.
Notes to Financial Statements
Note 3 - Related Parties
- --------------------------
The Company neither owns nor leases any real or personal property. An officer of
the corporation provides office services without charge. Such costs are
immaterial to the financial statements and accordingly, have not been reflected
therein. The officers and directors of the Company are involved in other
business activities and may in the future become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the resolution
of such conflicts.
Note 4 - Income Taxes
- ---------------------
Deferred income taxes arise from temporary differences resulting from the
Company's subsidiary utilizing the cash basis of accounting for tax purposes and
the accrual basis for financial reporting purposes. Deferred taxes are
classified as current or non-current, depending on the classification of the
assets and liabilities to which they relate. Deferred taxes arising from timing
differences that are not related to an asset or liability are classified as
current or non- current depending on the periods in which the timing differences
are expected to reverse. The Company's previous principal temporary differences
relate to revenue and expenses accrued for financial purposes, which are not
taxable for financial reporting purposes. The Company's material temporary
differences consist of bad debt expense recorded in the financial statements
that is not deductible for tax purposes and differences in the depreciation
expense calculated for financial statement purposes and tax purposes.
Note 5 - Going Concern
- ------------------------
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company does not have significant cash or other material
assets, nor does it have an established source of revenues sufficient to cover
its operating costs and to allow it to continue as a going concern. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
Note 6 - Note Payable
- ---------------------
An unrelated individual has loaned the Company $5,000 as operating capital. The
note is dated October 30, 2001 and calls for an interest rate of 10% and is due
on demand.
The President of the Company contributed certain assets to the Company in
exchange for a note payable in the amount of $5,883 and calls for an interest
rate of 10% and is due on demand.
Note 7 - Subsequent Events
- ----------------------------
There were no other material subsequent events that have occurred since the
balance sheet date that warrants disclosure in these financial statements.
31
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
- ---------------------------------------------------------------------------
In October 2001, our Board of Directors appointed Clyde Bailey P.C., independent
accountant, to audit our financials statements from October 11, 2001, our date
of formation, through October 31, 2001.
There have been no disagreements with our accountant since our formation
required to be disclosed pursuant to Item 304 of Regulation S-B.
Legal Matters
- -------------
The validity of the issuance of the shares of common stock offered by us has
been passed upon by the law firm of MC Law Group, located in Newport Beach,
California.
Experts
- -------
Our financial statements for the period from October 11, 2001, our date of
formation, through October 31, 2001, appearing in this prospectus which is part
of a registration statement have been audited by Clyde Bailey P.C., independent
accountant, and are included in reliance upon such reports given upon the
authority of Clyde Bailey P.C. as experts in accounting and auditing.
Additional Information
- ----------------------
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission pursuant to the Securities Act of 1933. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits and schedules to the registration statement. For further
information regarding us and our common stock offered hereby, reference is made
to the registration statement and the exhibits and schedules filed as a part of
the registration statement.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
- -----------------------------------------
Article Twelfth of our Articles of Incorporation provides, among other things,
that our officers and directors shall not be personally liable to us or our
shareholders for monetary damages for breach of fiduciary duty as an officer or
a director, except for liability:
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or
o for unlawful payments of dividends or unlawful stock purchase or
redemption by us.
Accordingly, our directors may have no liability to our shareholders for any
mistakes or errors of judgment or for any act of omission, unless the act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Other Expenses of Issuance and Distribution
- -------------------------------------------
We will pay all expenses in connection with the registration and sale of our
common stock. The estimated expenses of issuance and distribution are set forth
below.
======================================== ==================== ===============
Registration Fees Approximately $119.50
- ---------------------------------------- -------------------- ---------------
Transfer Agent Fees Approximately $650.00
- ---------------------------------------- -------------------- ---------------
Costs of Printing and Engraving Approximately $500.00
- ---------------------------------------- -------------------- ---------------
Legal Fees Approximately $10,000.00
- ---------------------------------------- -------------------- ---------------
Accounting Fees Approximately $5,000.00
======================================== ==================== ===============
32
Recent Sales of Unregistered Securities
- ----------------------------------------
There have been no sales of unregistered securities within the last three years,
which would be required to be disclosed pursuant to Item 701 of Regulation S-B,
except for the following:
In October 2001, we issued 850,000 shares of our common stock to Troy Schaner,
our president, treasurer and one of our directors, for services valued at $850,
850,000 shares of our common stock to Lloyd Schaner, our vice president,
secretary and one of our directors, for services valued at $850, and 650,000
shares of our common stock to Dan Saunders, one of our directors, for services
valued at $650. We also issued 100,000 shares to Kaye Vogel for services valued
at $100 and 100,000 shares to Steve Wolff in exchange for services valued at
$100. These shares were issued in a transaction which we believe satisfies the
requirements of that certain exemption from the registration and prospectus
delivery requirements of the Securities Act of 1933, which exemption is
specified by the provisions of Section 4(2) of the Securities Act of 1933, as
amended.
Exhibits
- --------
Copies of the following documents are filed with this registration
statement, Form SB-2, as exhibits:
Exhibit No.
- ----------
1. Underwriting Agreement (not applicable)
3.1 Articles of Incorporation
3.2 Bylaws
5. Opinion Re: Legality
8. Opinion Re: Tax Matters (not applicable)
11. Statement Re: Computation of Per Share Earnings*
15. Letter on unaudited interim financial information (not applicable)
23.1 Consent of Auditors
23.2 Consent of Counsel**
* Included in Financial Statements
** Included in Exhibit 5
33
Undertakings
- ------------
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by us of expenses incurred or paid by
our director, officer or controlling person in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
B. We hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) To specify in the prospectus any facts or events
arising after the effective date of the registration
statement, or most recent post-effective amendment
thereof, which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered, if the total dollar value of
securities offered would not exceed that which was
registered, and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule
424(b), Section 230.424(b) of Regulation S-B if, in
the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any additional or changed material
information with respect to the plan of distribution
not previously disclosed in the registration
statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
34
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that we meet all of the
requirements of filing on Form SB-2 and authorized this registration statement
to be signed on our behalf by the undersigned, in the city of Bismarck, State of
North Dakota, on December 27, 2001.
Dakota Fitness Equipment, Inc.,
a Nevada corporation
/s/ Troy Schaner
---------------------------------------
Troy Schaner
president, treasurer, director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
/s/ Troy Schaner December 27, 2001
- --------------------------------------------
Troy Schaner
president, treasurer, director
/s/ Lloyd Schaner December 27, 2001
- --------------------------------------------
Lloyd Schaner
vice president, secretary, director
/s/ Dan Saunders December 27, 2001
- --------------------------------------------
Dan Saunders
director
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POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and hereby
authorizes Troy Schaner with the full power of substitution, as
attorney-in-fact, to sign in such person's behalf, individually and in each
capacity stated below, and to file any amendments, including post-effective
amendments to this Registration Statement.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Dakota Fitness Equipment, Inc.
/s/ Troy Schaner December 27, 2001
- --------------------------------------------
Troy Schaner
president, treasurer, director
/s/ Lloyd Schaner December 27, 2001
- --------------------------------------------
Lloyd Schaner
vice president, secretary, director
/s/ Dan Saunders December 27, 2001
- --------------------------------------------
Dan Saunders
director