U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: July 31, 2002
Commission file no.: 000-28907
ImagineNet Corp.
-------------------------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 65-0878035
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Lakeview Ave., PMB 160
West Palm Beach, FL 33401
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 832-5696
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
- ----------------------------------- -----------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value per share
-----------------------------------------
(Title of class)
Indicate by Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 2002, there were 7,240,000 shares of voting stock of the
registrant issued and outstanding.
PART I
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Balance Sheet................................................................F-2
Statements of Operations.....................................................F-3
Statements of Stockholders' Equity...........................................F-4
Statements of Cash Flows.....................................................F-5
Notes to Financial Statement.................................................F-6
ImagineNet Corp.
(A Development Stage Enterprise)
Balance Sheet
July 31, 2002 October 31, 2001
-------------------- ----------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 17 $ 1,369
Loans to related parties 44,753 42,091
-------------------- ----------------------
Total current assets 44,770 43,460
-------------------- ----------------------
Total Assets $ 44,770 $ 43,460
==================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade $ 660 $ 1,360
Related party note payable 14,295 9,668
-------------------- ----------------------
Total current liabilities 14,955 11,028
-------------------- ----------------------
Total Liabilities 14,955 11,028
-------------------- ----------------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, authorized
10,000,000 shares; 0 issued and outstanding 0 0
Common stock, $0.001 par value, authorized
50,000,000 shares; 7,240,000 issued and outstanding 7,240 7,240
Additional paid-in capital 48,760 48,760
Deficit accumulated during the development stage (26,185) (23,568)
-------------------- ----------------------
Total stockholders' equity 29,815 32,432
-------------------- ----------------------
Total Liabilities and Stockholders' Equity $ 44,770 $ 43,460
==================== ======================
The accompanying notes are an integral part of the financial statements
F-2
ImagineNet Corp.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
From
November 24, 1998
Three Months Ended Nine Months Ended (Inception)
July 31, July 31, through
----------------------- -------------------------
2002 2001 2002 2001 July 31, 2002
------------ ---------- ------------ ------------ ---------------------
REVENUES $ 0 $ 0 $ 0 $ 0 $ 0
------------ ---------- ------------ ------------ ---------------------
OPERATING EXPENSES:
General and administrative expenses 660 1,048 4,653 5,596 20,644
Legal fees - related party 0 0 0 0 4,000
Services - related party 0 0 0 0 6,000
------------ ---------- ------------ ------------ ---------------------
Total expenses 660 1,048 4,653 5,596 30,644
------------ ---------- ------------ ------------ ---------------------
OTHER INCOME (EXPENSE):
Interest income 897 897 2,662 2,194 5,753
Interest expense (264) (195) (626) (461) (1,294)
------------ ---------- ------------ ------------ ---------------------
Total other income (expense) 633 702 2,036 1,733 4,459
------------ ---------- ------------ ------------ ---------------------
Net income (loss) $ (27)$ (346)$ (2,617)$ (3,863)$ (26,185)
============ ========== ============ ============ =====================
Income (loss) per weighted average common
share $ (0.001)$ (0.001)$ (0.001)$ (0.001)
============ ========== ============ ============
Number of weighted average common shares
outstanding 7,240,000 7,240,000 7,240,000 7,240,000
============ ========== ============ ============
The accompanying notes are an integral part of the financial statements
F-3
ImagineNet Corp.
(A Development Stage Enterprise)
Statements of Stockholders' Equity
Period from November 24, 1998 (Inception)
through July 31, 2002
Deficit
Accumulated
Additional During the Total
Number of Common Paid-In Development Stockholders'
Shares Stock Capital Stage Equity
------------- -------------- --------------- ---------------- ---------------
BEGINNING BALANCE, November 24, 1998 0 $ 0 $ 0 $ 0 $ 0
11/98 - founders' shares ($0.001/sh.) 6,000,000 6,000 0 0 6,000
11/98 - cash ($0.01/sh.) 40,000 40 360 0 400
12/98 - cash ($0.01/sh.) 260,000 260 2,340 0 2,600
4/99 - cash ($0.05/sh.) 940,000 940 46,060 0 47,000
Net loss 0 0 0 (13,880) (13,880)
------------- -------------- --------------- ---------------- ---------------
BALANCE, October 31, 1999 7,240,000 7,240 48,760 (13,880) 42,120
Net loss 0 0 0 (5,607) (5,607)
------------- -------------- --------------- ---------------- ---------------
BALANCE, October 31, 2000 7,240,000 7,240 48,760 (19,487) 36,513
Net loss 0 0 0 (4,081) (4,081)
------------- -------------- --------------- ---------------- ---------------
BALANCE, October 31, 2001 7,240,000 7,240 48,760 (23,568) 32,432
Net loss 0 0 0 (2,617) (2,617)
------------- -------------- --------------- ---------------- ---------------
ENDING BALANCE, July 31, 2002 (unaudited) 7,240,000 $ 7,240 $ 48,760 $(26,185) $ 29,815
============= ============== =============== ================ ===============
The accompanying notes are an integral part of the financial statements
F-4
ImagineNet Corp
(A Development Stage Enterprise)
Statements of Cash Flows
Nine Months Ended July 31,
(Unaudited)
From
November 24, 1998
(Inception)
through
2002 2001 July 31, 2002
--------------- --------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,617)$ (3,863) $ (26,185)
Adjustments to reconcile net loss to net cash used by
operating activities:
Stock issued for services 0 0 6,000
Changes in operating assets and liabilities
(Increase) decrease in interest receivable (2,662) (2,194) (5,753)
Increase (decrease) in accounts payable - trade (700) (72) 660
Increase (decrease) in interest payable 627 460 1,295
--------------- --------------- ---------------------
Net cash used by operating activities (5,352) (5,669) (23,983)
--------------- --------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to related parties 0 (39,000) (39,000)
--------------- --------------- ---------------------
Net cash used by investing activities 0 (39,000) (39,000)
--------------- --------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 0 50,000
Proceeds of loan from related party 4,000 9,000 13,000
--------------- --------------- ---------------------
Net cash provided by financing activities 4,000 9,000 63,000
--------------- --------------- ---------------------
Net increase (decrease) in cash (1,352) (35,669) 17
--------------- --------------- ---------------------
CASH, beginning of period 1,369 37,085 0
--------------- --------------- ---------------------
CASH, end of period $ 17 $ 1,416 $ 17
=============== =============== =====================
The accompanying notes are an integral part of the financial statements
F-5
ImagineNet Corp.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with regard to the nine months
ended July 31, 2002 and 2001 is unaudited)
(1) The Company ImagineNet Corp. (the Company) is a Nevada chartered
development stage corporation which conducts business from its headquarters
in West Palm Beach, Florida. The Company was incorporated on November 24,
1998.
The Company has not yet engaged in its expected operations. The Company's
future operations include plans to sell and distribute musical and related
instruments and devices via the Internet. Current activities include
raising additional capital and negotiating with potential key personnel and
facilities. There is no assurance that any benefit will result from such
activities. The Company will not receive any operating revenues until the
commencement of operations, but will nevertheless continue to incur
expenses until then.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
a) Use of estimates The financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the statements of financial condition and
revenues and expenses for the year then ended. Actual results may differ
significantly from those estimates.
b) Start-Up costs Costs of start-up activities, including organization
costs, are expensed as incurred, in accordance with Statement of Position
(SOP) 98-5.
c) Net loss per share Basic and diluted loss per weighted average common
share is computed by dividing the net loss by the weighted average number
of common shares outstanding during the period. The Company has no dilutive
or anti-dilutive securities outstanding.
d) Stock compensation for services rendered The Company issues shares of
common stock in exchange for services rendered. The costs of the services
are valued according to accounting principles generally accepted in the
United States and have been charged to operations.
e) Impact of recently issued accounting pronouncements No recently issued
accounting pronouncements have any effect on the historical financial
statements nor any currently expected effects on future financial
statements of the Company.
f) Interim financial information The financial statements for the nine
months ended July 31, 2002 and 2001 are unaudited and include all
adjustments which in the opinion of management are necessary for fair
presentation, and such adjustments are of a normal and recurring nature.
The results for the nine months are not indicative of a full year results.
(2) Stockholders' Equity The Company has authorized 50,000,000 shares of $0.001
par value common stock, and 10,000,000 shares of $0.001 par value preferred
stock. Rights and privileges of the preferred stock are to be determined by
the Board of Directors prior to issuance. The Company had 7,240,000 shares
of common stock issued and outstanding at July 31, 2002. The Company had
issued none of its shares of preferred stock at April 30, 2002. On November
24, 1998, the Company issued 6,000,000 shares of common stock to its
founder and President for services rendered in connection with the
organization of the Company. During the period ended July 1999, the Company
issued 1,240,000 shares of common stock for $50,000 in cash.
F-6
ImagineNet Corp.
(A Development Stage Enterprise)
Notes to Financial Statements
(3) Income Taxes Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax and
financial reporting purposes. The Company had net operating loss carry-
forwards for income tax purposes of approximately $2,600, $4,100, $5,600
and $13,900 expiring at October 31, 2022, 2021, 2020 and 2019,
respectively. The amount recorded as deferred tax asset as of July 31, 2002
is approximately $4,000, which represents the amount of tax benefit of the
loss carry-forward. The Company has established a 100% valuation allowance
against this deferred tax asset, as the Company has no history of
profitable operations.
(4) Loans Receivable from Related Parties In December 2000, the Company made
two demand loans to related parties amounting to $35,000 and $4,000.
Accrued interest amounted to $4,358 and $498 at July 31, 2002. At the time
these loans were made, the Company did not immediately need the cash and
the Company could earn a significantly higher return than a bank deposit
with a low level of risk.
(5) Loan Payable to Related Party In December 2000, June 2001 and June 2002,
the Company borrowed $8,000, $1,000 and $4,000 as a demand loan from a
related party. Accrued interest amounted to $1,295 at July 31, 2002.
(6) Related Parties See Note (2) for shares issued for services. See Notes (4)
and (5) for loans to and from related parties.
During the period ended October 31, 1999, a shareholder and general counsel
for the Company performed legal services in the amount of $2,764 on behalf
of the Company. This amount was paid in the first quarter of fiscal 2000.
(7) Going Concern The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company's
financial position and operating results raise substantial doubt about the
Company's ability to continue as a going concern, as reflected by the net
loss of $26,200 accumulated from November 24, 1998 (Inception) through July
31, 2002. The ability of the Company to continue as a going concern is
dependent upon commencing operations, developing sales and obtaining
additional capital and financing. The financial statements do not include
any adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company is currently seeking additional
capital to allow it to begin its planned operations. If this initial public
offering on Form SB-1 as filed with the U.S. Securities and Exchange
Commission fails to raise sufficient capital, the Company intends to seek
such funds through alternative channels, for example - venture capital, or
a joint venture with an established retailer or manufacturer. The Company
is currently not able to evaluate the potential success of such alternative
financing, as it has not attempted to seek such financing. If, in fact, no
such alternative financing is available, the principals of the Company may
invest additional cash personally in order to develop the business plan of
the Company. If, in fact, this is the only funding available to the
Company, it is expected that the plan of operations development will take
substantially longer to develop.
(8) Subsequent Events
(a) Stockholders' Equity In August 2002, the Company received $100,000 in
exchange for 100,000 shares of the Company's common stock under its SB-1
public offering.
F-7
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operations
Since inception, we have conducted no business operations except for
organizational, capital- raising and market research activities. For the period
from inception through July 31, 2002, we have had no revenue from operations and
accumulated operating expenses amounted to $30,644. These operating expenses are
related to start up, legal and organizational expenses. We propose to sell
musical instruments and related devices to the public via the Internet.
We have approximately $17 in cash currently in the bank and a demand loan
receivable of $44,753 and feel that this will meet our specific cash
requirements for the next 3 to 9 months. In addition, we have completed a
majority of the start-up organizational, fund-raising and research activities
necessary to position us to start the next level of our business. We do not
foresee the incurring of additional losses at this point. However, we must
successfully complete the current offering of securities, the finalization of
the design and implementation of our website, the establishment of binding
agreements with musical instrument and accessory providers and their drop
shipment partners culminating with the hiring of our controller followed by the
hiring of an Internet- experienced chief executive officer.
In August 2002, we sold 100,000 shares of the Company's common stock under
the Company's current SB-1 offering. We anticipate that the efforts described
above can be undertaken with the $100,000 raised so far from the current
offering. If we are unable to generate sufficient capital from our offering or
revenue from operations to implement our business plans, we intend to explore
all available alternatives for debt and equity financing, including private and
public securities offerings. If those bootstrap efforts fail, we will have no
choice but to close down.
Initially, Mr. Ragsdale will be solely responsible for developing our
business. However, when sufficient capital becomes available, we expect to
employ a controller and a CEO. In addition, we expect to engage in continuing
market research to monitor new market trends and other critical information
deemed relevant to our business. This continuous research will take the form of
electronic and market reports from our Internet hosting providers which will
show the history of visits by customers to our various links on other websites
as well as our own website.
These electronic reports will be supplemented by the review of market
literature, comparison shopping surveys and investigative surveys. This research
will be provided as part of the web hosting costs which will be covered by our
partnering relationships with our musical instrument and accessory
manufacturers. If such arrangements cannot be established, we expect such
research to cost not more than $5,000 on an annualized basis. In any event,
based on this market research, we expect to be able to assess existing and
prospective trends and adjust our business plan accordingly.
Financial Condition, Capital Resources and Liquidity
At July 31, 2002, the Company had assets totaling $44,770 and liabilities
of $14,955 attributable to a short term, related party, note payable and
professional fees. Since the Company's inception, it has received $150,000 in
cash contributed as consideration for the issuance of shares of common stock,
with the recent subscription in the amount of $100,000 in August 2002.
The Company, at inception, issued 6,000,000 shares of the Company's common
stock to Mr. Ragsdale, the sole executive officer and director of The Company,
as founders shares. From October through December 1998, the Company received
gross proceeds of $50,000 from the sale of a total of 1,240,000 shares of common
stock in an offering conducted pursuant to Section 3(b) of the Act, as amended
(the "Act"), and Rule 504 of Regulation D promulgated thereunder ("Rule 504").
These offerings were made in the State of Georgia and Florida. Even though
management believes, without assurance, that it will has now obtained sufficient
capital with which to implement its business plan on a limited scale, there can
be no assurance that the Company can continue in operation without another
infusion of capital. In order to obtain additional equity financing, management
may be required to dilute the interest of existing shareholders or forego a
substantial interest of its revenues, if any.
The Company has no potential capital resources from any outside sources at
the current time. In its initial phase, the Company will operate out of the
facility provided by Mr. Ragsdale. In the event the Company requires additional
capital during this phase, Mr. Ragsdale has committed to fund the operation
until such time as additional capital is available.
Net Operating Losses
The Company has net operating loss carry-forwards for income tax purposes
of approximately $2,600, $4,100, $5,600 and $13,900 expiring at October 31,
2022, 2021, 2020 and 2019, respectively. The company has an approximate $4,000
deferred tax asset resulting from the loss carry-forwards, for which it has
established a 100% valuation allowance. Until the Company's current operations
begin to produce earnings, it is unclear as to the ability of the Company to
utilize such carry-forwards.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), finding
suitable merger or acquisition candidates, expansion and growth of the Company's
business and operations, and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
or developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, general economic market and
business conditions; the business opportunities (or lack thereof) that may be
presented to and pursued by the Company; changes in laws or regulation; and
other factors, most of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form 10-QSB are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequence to
or effects on the Company or its business or operations.
PART II
Item 1. Legal Proceedings
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending July 31, 2002, covered by
this report to a vote of the Company's shareholders, through the solicitation of
proxies or otherwise.
Item 5. Other Information
The Company filed an SB-1 Registration Statement on November 21, 2001 for
the purpose of selling at a minimum 100,000 and a maximum of 1,000,000 shares at
an offering price of $1.00 per share. Selling Shareholders may also sell up to
840,000 additional shares. The effective date of this Registration Statement is
February 11, 2002. Proceeds from the sale of shares from this offering by the
Company are expected to be used to continue business operations and expand the
scope of the business.
In June 2002, the Company borrowed $4,000 as a demand loan from a related
party to pay for accounting services.
In August 2002, the Company sold 100,000 shares of its common stock to one
investor for $100,000 pursuant to its SB-1 Registration Statement.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated herein by
reference, as follows:
Exhibit No. Description
- ------------------------------------------------
3(i).1 [1] Articles of Incorporation of ImagineNet Corp. filed November 24, 1998.
3(ii).1 [1] Bylaws.
3.3 [2] Form of Stock Certificate.
3.4 [2] Subscription Agreement and Power of Attorney (attached to the Prospectus as
Exhibit A).
5.1 [2] Opinion of Counsel as to the legality of the Shares.
10.1 [3] Escrow Agreement between the Company and Duncan, Blum & Associates.
23.1 [2] Consent of Counsel (Duncan, Blum & Associates).
23.2 [2] Independent Auditors Consent to the incorporation by reference of financial
statements of the company as of September 30, 2000 in Form SB-1.
99.1 * Sarbanes-Oxley Certification by Chief Executive Officer.
99.2 * Sarbanes-Oxley Certification by Chief Financial Officer.
- ---------------------------------
[1] Previously filed with the Company's Registration Statement on Form 10SB
filed January 14, 2000.
[2] Previously filed with the Company's Registration Statement on Form SB-1
filed November 21, 2000.
[3] Previously filed with the Company's amended Registration Statement on Form
SB-1 filed October 11, 2001.
* Filed herewith
(b) No Reports on Form 8-K were filed during the quarter ended January 31,
2002
SIGNATURES
----------------------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ImagineNet Corp.
------------------------
(Registrant)
Date: September 9, 2002 By: /s/ William H. Ragsdale
-------------------------------------
William H. Ragsdale
President
CERTIFICATIONS
I, William Ragsdale, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ImagineNet
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 10, 2002
/s/ William Ragsdale
- ---------------------------------------------
William Ragsdale
Chief Executive Officer (or equivalent thereof)
I, William Ragsdale, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ImagineNet
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 10, 2002
/s/ William Ragsdale
- ---------------------------------------------
William Ragsdale
Chief Financial Officer (or equivalent thereof)