<PAGE>
As filed with the Securities and Exchange Commission on [DECEMBER __], 2000
Registration No[. 333-50212]
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
[AMENDMENT NO. 1
TO]
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INZECO HOLDINGS INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
ALBERTA, CANADA 2824 N/A
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
Inzeco Holdings Inc.
999 Barton Street
Stoney Creek, Ontario L8E 5H4
Canada
(905) 643-8669
(Address and telephone number
of principal executive offices)
-------------------------
Inzeco Holdings Inc.
999 Barton Street
Stoney Creek, Ontario L8E 5H4
Canada
(905) 643-8669
(Name, address and telephone number
of agent for service)
-------------------------
Copy to:
Eric W. Nodiff, Esq.
Dornbush Mensch Mandelstam
& Schaeffer, LLP
747 Third Avenue
New York, New York 10017
</TABLE>
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date
of this Registration Statement.
<PAGE>
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
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Per Aggregate Offering Amount of
Securities to be Registered be Registered Share (1) Price (1) Registration Fee
-------------------------------- ------------------ ------------------------- ------------------------- -----------------
<S> <C> <C> <C>
Common Stock. 3,557,500] US$0.469 [US$1,668,467]
================================ ================== ========================= ========================= =================
Total [3,557,500] US$0.469 [US$1,668,467 US$847.00(2)]
================================ ================== ========================= ========================= =================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule [457(C)] under the Securities Act of 1933, the proposed maximum
price per share, the proposed maximum aggregate offering price and the amount of
registration fee have been computed on the basis of the average of the high and
low prices of the [COMMON STOCK] reported in Canadian dollars on the Canadian
Venture Exchange on November 14, 2000. The proposed maximum price per share was
C$0.725 and was converted to United States dollars based on the Interbank
exchange rate in effect on November 14, 2000.
[(2) REGISTRATION FEE WAS PREVIOUSLY PAID BASED ON THE REGISTRATION OF 6,840,833
SHARES OF COMMON STOCK.]
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
Preliminary Prospectus
Subject to Completion[, DATED DECEMBER __, 2000]
PROSPECTUS
[INZECO HOLDINGS INC.]
[3,557,500 SHARES OF] Common Stock
This prospectus relates to [3,557,500] shares (the "Shares") of
[COMMON STOCK], no par value, of Inzeco Holdings Inc., an Alberta corporation.
The Shares are outstanding shares of [COMMON STOCK] owned by the persons named
in this [PROSPECTUS] under the caption "Selling [SHAREHOLDERS.]" The Shares were
acquired by the Selling [SHAREHOLDERS] through private placements which were
either not subject to, or exempt from the registration provisions of the
Securities Act of 1933, as amended. [
]On [DECEMBER] 14, 2000, the closing price of [OUR COMMON STOCK] on
the Canadian Venture Exchange was [C$0.67] (US [$0.44)] per share (CDNX Symbol
"IZE").
Prior to this offering, there has been no public market for the [COMMON STOCK]
in the United States and there can be no assurance that a public market for such
securities will develop. [WE INTEND TO HAVE OUR COMMON STOCK] listed on the
Over-the-Counter Bulletin Board ("OTC-BB") under the symbol INZCF.
[WE WILL NOT RECEIVE ANY] part of the proceeds of any sales [OF
SHARES MADE HEREUNDER.]
[An investment in shares of our common stock involves a high degree
of risk. Please see "Risk Factors" beginning on page 6. ]
<PAGE>
[Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The securities offered hereby have not been and will not be qualified for sale
]under the securities laws of [Canada or any province or territory of Canada.
The securities are not being offered for sale and may not be offered or sold,
directly or indirectly, in Canada, or to any resident thereof, in violation of]
the securities laws of [any province or territory of Canada.]
[THE DATE OF THIS PROSPECTUS IS DECEMBER __], 2000.
<PAGE>
TABLE OF CONTENTS
PAGE
[PROSPECTUS SUMMARY........................................................5]
[RISK FACTORS..............................................................6]
FORWARD LOOKING STATEMENTS...............................................[11
ENFORCEABILITY OF CIVIL LIABILITIES.......................................11
EXCHANGE RATE DATA AND ACCOUNTING PRINCIPLES..............................11
USE OF PROCEEDS...........................................................12
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS...................12
DIVIDEND POLICY...........................................................13
CAPITALIZATION............................................................13
PLAN OF OPERATION.........................................................14
BUSINESS..................................................................16
MANUFACTURING PROCESS.....................................................17
COMPETITIVE ADVANTAGE.....................................................17
GOVERNMENT REGULATION.....................................................19]
MANAGEMENT................................................................21
PRINCIPAL SHAREHOLDERS...................................................[26
PROMOTERS.................................................................27]
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................28
DESCRIPTION OF SECURITIES.................................................29
DISCLOSURE OF COMMISSION POSITION ON [INDEMNIFICATION FOR]
SECURITIES ACT LIABILITIES...............................................[32]
[MATERIAL] UNITED STATES [AND CANADIAN] FEDERAL INCOME TAX
CONSIDERATIONS...........................................................[32]
INVESTMENT CANADA ACT....................................................[34
SHARES ELIGIBLE FOR FUTURE SALE...........................................35]
SELLING SHAREHOLDERS.....................................................[36
PLAN] OF DISTRIBUTION....................................................[37]
CHANGE IN ACCOUNTANTS ...................................................[38]
LEGAL MATTERS ...........................................................[38]
EXPERTS..................................................................[38]
WHERE YOU CAN FIND ADDITIONAL INFORMATION................................[39]
POWER OF ATTORNEY........................................................[48]
<PAGE>
[PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SOME OF THE INFORMATION IN THIS
PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE RISK FACTORS AND CONSOLIDATED FINANCIAL STATEMENTS AND
THE NOTES ACCOMPANYING THE CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE
IN THIS PROSPECTUS. REFERENCES IN THIS PROSPECTUS TO "WE," "OUR" AND "US" REFER
TO INZECO HOLDINGS INC., AN ALBERTA CORPORATION.
THE COMPANY
INZECO HOLDINGS INC. WAS INCORPORATED IN ALBERTA, CANADA ON MAY 30,
1997. THROUGH OUR WHOLLY OWNED SUBSIDIARY RTICA INC., WE ARE ENGAGED IN ADVANCED
PLASTICS PROCESSING. WE HAVE DEVELOPED TECHNOLOGY AND A PRODUCTION PROCESS FOR
MAKING HIGH PERFORMANCE INSULATING PRODUCTS FROM LOW COST RECYCLED POLYETHYLENE
TEREPHTHALATE (PET).
OUR PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 999 BARTON STREET,
STONEY CREEK, ONTARIO L8E 54H CANADA AND OUR TELEPHONE NUMBER IS (905) 634-8669.
RISK FACTORS
THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. THE VARIOUS RISK FACTORS RELATED TO THIS OFFERING SHOULD BE CONSIDERED
CAREFULLY BEFORE AN INVESTMENT IS MADE. SEE "RISK FACTORS."
THE OFFERING
THE SHARES BEING OFFERED UNDER THIS PROSPECTUS ARE OWNED BY THE
PERSONS NAMED UNDER THE CAPTION "SELLING SHAREHOLDERS."
THE SELLING SHAREHOLDERS MAY FROM TIME TO TIME SELL THE SHARES ON
THE OTC-BB, ON ANY OTHER NATIONAL SECURITIES EXCHANGE OR AUTOMATED QUOTATION
SYSTEM ON WHICH THE COMMON STOCK MAY BE LISTED OR TRADED, IN NEGOTIATED
TRANSACTIONS OR OTHERWISE, AT PRICES THEN PREVAILING OR RELATED TO THE THEN
CURRENT MARKET PRICE OR AT NEGOTIATED PRICES. THE SHARES MAY BE SOLD DIRECTLY OR
THROUGH BROKERS OR DEALERS. SEE "PLAN OF DISTRIBUTION."
NUMBER OF SHARES ................. 3,557,500 SHARES OF COMMON STOCK
SHARES OF COMMON STOCK OUTSTANDING
BEFORE AND AFTER OFFERING .... 32,856,886 SHARES OF COMMON STOCK
USE OF PROCEEDS WE WILL NOT RECEIVE ANY
PROCEEDS FROM THE SALE OF SHARES OF
COMMON STOCK BY THE SELLING
SHAREHOLDERS. SEE "USE OF PROCEEDS" AND
"SELLING SHAREHOLDERS."]
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. IN ADDITION TO THE OTHER INFORMATION IN THIS
[PROSPECTUS], the following should be considered carefully in evaluating
[INZECO] and its business before investing in the securities.
[We only have a limited operating history upon which you can analyze
our potential profitability. Because of our limited operating history, our
strategies may not prove to be effective in dealing with problems associated
with the formation of a new business and as a result our RTICA(TM) product may
never be successfully commercialized. Since inception, we have] been engaged
primarily in start-up activities related to
<PAGE>
[OUR RTICA(TM) INSULATING PRODUCTS. WE MAY ENCOUNTER] problems, expense,
complications and delays in connection with the development and application [OR
THE UTILIZATION OF OUR TECHNOLOGY, PARTICULARLY BECAUSE THAT TECHNOLOGY IS NEW
AND COMMERCIALLY UNPROVEN AND BECAUSE OF] the competitive environment in which
[WE PLAN TO OPERATE. ]
[We have not sold any product and we have operated at a loss since
inception. Since inception we have operated at a loss and we may never be able
to operate profitably. On May 31, 2000, we] had an accumulated deficit [FROM
INCEPTION] of C$4,340,723 (US$2,884,450) [, AND WE HAVE INCURRED A LOSS FOR THE
THREE MONTHS ENDED AUGUST 31, 2000 OF C$554,290 (APPROX. US$375,375). WE
ANTICIPATE THAT WE WILL CONTINUE TO EXPERIENCE SIGNIFICANT OPERATING AND NET
LOSSES THROUGH THE END OF AT LEAST CALENDAR YEAR 2000 AS A RESULT OF START-UP
COSTS ASSOCIATED WITH IMPLEMENTING OUR BUSINESS PLAN AND OUR PROPOSED EXPANDED
OPERATIONS. SUCH LOSSES WILL CONTINUE UNTIL SUCH TIME, IF EVER, THAT OUR
PRODUCTS CAN SUCCESSFULLY BE BROUGHT TO MARKET AND GENERATE SUFFICIENT OPERATING
REVENUES. WE MAY NEVER BECOME PROFITABLE OR MAY NOT BE ABLE TO SUSTAIN
PROFITABILITY IF ACHIEVED]. Based upon these factors and others discussed in
Note 1 to the Financial Statements for the fiscal year ended May 31, 2000, [OUR]
independent auditors have issued a qualified opinion, indicating [THAT] the
continuation of [INZECO] as a going concern is dependent upon achieving
additional financing and, ultimately, upon the achievement of profitable
operations. See "Plan of Operation" and the Financial Statements.
[We only have sufficient funds to operate for the next twelve
months. We estimate that we have sufficient cash resources to fund our
operations for approximately 12 months based on our current cash requirements,
which result] principally from (i) the implementation of [OUR] business plan and
working capital needs; (ii) the assumption of costs in connection with this
registration; [AND (III) ]high start-up costs. [OUR CURRENT CASH RESOURCES CAME
FROM THREE TRANSACTIONS WHICH WE CLOSED DURING CALENDAR YEAR 2000. IN MAY 2000,
WE] closed a private placement in the United States in which [WE] raised net
proceeds of approximately US$1,107,319. In June 2000, [WE] closed a private
placement in Canada in which [WE] raised net proceeds of approximately
C$2,202,700 (approx. US$1,500,272). Also in June 2000, 850,418 of the 1,243,633
common share purchase warrants issued in connection [WITH INZECO'S] acquisition
of RTICA Inc. were exercised at an
<PAGE>
exercise price of C$0.65 (approx. US$0.45) for a total of C$553,541 (approx.
US$373,308). [AS AT AUGUST 31, 2000, WE HAD CASH RESERVES OF C$3,191,274
(APPROX. US$2,161,187).] See "Description of Securities." The proceeds from
[THESE TRANSACTIONS] are being used principally for equipment, engineering and
installation, start-up expenses and working capital. [UNLESS WE GENERATE
SIGNIFICANT REVENUES DURING CALENDER 2001, OUR FAILURE] to obtain additional
financing [PRIOR TO DECEMBER 31, 2001, MAY PREVENT US FROM BECOMING A LARGE
COMMERCIAL PRODUCER, FORCE US TO SCALE BACK OUR OPERATIONS AND LIMIT OUR ABILITY
TO EFFECTIVELY COMPETE IN THE INSULATION AND BUILDING MATERIALS INDUSTRY.
ADDITIONAL FINANCING WILL HAVE A DILUTIVE EFFECT ON THE OWNERSHIP
INTERESTS OF CURRENT SHAREHOLDERS. IN THE EVENT THAT WE OBTAIN] additional
financing, such financing will most likely have a dilutive effect on the holders
of [OUR SECURITIES. TO THE EXTENT THAT WE FINANCE OUR OPERATIONS THROUGH THE
ISSUANCE OF ADDITIONAL EQUITY SECURITIES, ANY SUCH ISSUANCE MAY INVOLVE
SUBSTANTIAL DILUTION TO OUR THEN-EXISTING STOCKHOLDERS. ADDITIONALLY, TO THE
EXTENT THAT WE INCUR INDEBTEDNESS OR ISSUE DEBT SECURITIES, WE WILL BE SUBJECT
TO ALL OF THE RISKS ASSOCIATED WITH INCURRING SUBSTANTIAL INDEBTEDNESS,
INCLUDING THE RISKS THAT INTEREST RATES MAY FLUCTUATE AND CASH FLOW MAY BE
INSUFFICIENT TO PAY PRINCIPAL AND INTEREST ON ANY SUCH INDEBTEDNESS.]
[Our projected manufacturing cost estimates and gross margin
percentages may not be accurate. Given that we have] no history of commercial
scale operations, [AND BECAUSE WE ARE PRODUCING A NEW AND INNOVATIVE PRODUCT,
OUR] current projections with respect to manufacturing costs and gross margins
per unit of production may not be realized. In the event that the gross margin
percentage is less than currently projected by management, cash flow
contributions from operations may be [LESS THAN WE HAVE PROJECTED WHICH WOULD
LIMIT OUR GROWTH POTENTIAL AND MAY PREVENT US FROM ACHIEVING PROFITABILITY OR
BECOMING A LARGE SCALE COMMERCIAL PRODUCER. ]
[Our inability to protect our technology or the introduction of more
technologically advanced products by our competitors could hurt our competitive
position. Our] success and competitive position [ARE] dependent in large part on
[OUR] ability to defend [OUR] technology against infringement from others.
Although [WE HAVE] patents in the United States and Canada, as well as
[PROPRIETARY TECHNOLOGY AND TRADE SECRETS PROTECTED BY NON-DISCLOSURE
AGREEMENTS], the cost of defending [OUR] technology [AND INTELLECTUAL PROPERTY]
could be beyond [OUR] present or future financial resources. In addition, [OUR]
competitors [MAY] independently develop technology which is substantially
equivalent or superior to [OUR] technology, or [OUR] competitors [MAY] develop
functionally similar products outside the protection of any licenses, patents or
other intellectual property rights that [WE HAVE OR MAY OBTAIN.]
[We lack operating experience which may impede our ability to
effectively produce and market our product. Because we are] a development stage
enterprise and [HAVE] only limited operating experience[, WE MAY NOT BE ABLE TO
EFFECTIVELY PRODUCE AND MARKET OUR PRODUCT]. The transition from a start-up
operation to an enterprise capable of effectively marketing RTICA(TM) products
may require additional management,
<PAGE>
technical personnel, capitAl and other resources. Competition for qualified
personnel in these areas is intense. Failure to obtain qualified personnel or to
meet marketing standards could prevent or delay the effective commercialization
of [OUR] products, even if successfully developed by [US. ]
[Our current marketing and sales strategy is directed at a single,
targeted customer base. If we cannot successfully implement our marketing
strategy, we may not be able to successfully commercialize and sell our product.
We do] not currently have well[-]established sales and distribution channels for
[OUR PRODUCT. WE ARE CURRENTLY FOCUSING OUR MARKETING AND SALES EFFORT ON
CERTAIN MAJOR] insulation subcontractors in the United States and Canada. [WE
BELIEVE] that these users represent [A SIGNIFICANT POTENTIAL] customer base for
the RTICA(TM) products. [MARKETING TO THIS DIRECTED GROUP CAN BE ACCOMPLISHED
WITH A LIMITED NUMBER OF OUR PERSONNEL AND AT A RELATIVELY LOW COST. IF OUR
STRATEGY IS NOT SUCCESSFUL AND WE DO NOT SUCCEED IN SELLING OUR PRODUCT TO THIS
TARGETED CUSTOMER BASE, WE MAY BE FORCED TO DEVELOP A BROAD, NATIONAL BASED
SALES AND DISTRIBUTION NETWORK TO GENERATE CUSTOMER DEMAND AND TO SELL OUR
PRODUCTS ON A NATIONAL BASIS. THE DEVELOPMENT OF SUCH A NETWORK WOULD LIKELY
INVOLVE SIGNIFICANT COSTS AND ADDITIONAL RISKS AND UNCERTAINTIES. THEREFORE, THE
FAILURE OF OUR] current marketing and sales strategy [WOULD LIKELY] have a
material adverse effect on [OUR] business, results of operations and financial
condition.
[We have a limited manufacturing capacity which we may not be able to
expand. We currently have limited manufacturing capacity and we may encounter
problems scaling up our system to commercial scale]. The failure to expand [OUR
CURRENT MANUFACTURING FACILITY TO A COMMERCIAL LEVEL WOULD LIMIT OUR ABILITY TO
MANUFACTURE SIGNIFICANT QUANTITIES OF OUR PRODUCT AND THEREBY LIMIT OUR SALES
POTENTIAL. ALTHOUGH WE CURRENTLY HAVE A MANUFACTURING FACILITY IN STONEY CREEK,
ONTARIO, CANADA THAT IS IN THE PROCESS OF BEING EXPANDED, OUR PLANT AS CURRENTLY
CONFIGURED IS NOT LARGE ENOUGH TO PRODUCE COMMERCIAL QUANTITIES PROFITABLY. TO
MANUFACTURE RTICATM IN SUFFICIENT QUANTITIES AND AT ACCEPTABLE COSTS UNDER OUR
PLAN WE MUST CONTINUE TO EXPAND OUR CURRENT FACILITY. IN CONNECTION WITH OUR
EXPANSION EFFORT, WE MAY ENCOUNTER EQUIPMENT AND PROCESS PROBLEMS WHEN WE
ATTEMPT TO DUPLICATE OUR RESULTS AT HIGHER COMMERCIAL PRODUCTION
<PAGE>
LEVELS.]
[Our business is not diversified. Our] reliance upon one product to generate
revenues exposes [US] to commercial risks reflecting lack of product
diversification. [WE HAVE NOT GENERATED ANY REVENUES TO DATE AND OUR REVENUES
OVER AT LEAST THE NEXT YEAR WILL BE ENTIRELY DEPENDENT UPON THE SALE OF OUR
RTICA(TM) INSULATION AND RELATED TECHNOLOGY AND LICENSING OPPORTUNITIES. IF OUR
RTICA(TM) INSULATION DOES NOT ACHIEVE MARKET ACCEPTANCE, OUR LACK OF
DIVERSIFICATION COULD HAVE MATERIAL ADVERSE EFFECTS ON OUR BUSINESS.
THE TECHNOLOGY THAT WE USE IN PRODUCING RTICA(TM) MAY NOT PASS
LONG-TERM TESTING. BECAUSE RTICA(TM) REPRESENTS A NEW PRODUCT THAT HAS NOT
UNDERGONE LONG-TERM TESTING, OUR PRODUCTS MAY EXPERIENCE UNANTICIPATED PROBLEMS.
WHILE WE BELIEVE] that RTICA(TM) represents a novel technology in insulaTINg
materials, commercialization has only just begun. [OUR] product and technology
may not provide equal or superior performance compared with competitive products
and commercialization may not be successful. Moreover, although [WE HAVE]
completed both internal testing and testing by an independent laboratory, and
although the initial results from presenting [OUR] products to established users
have demonstrated advantages over other products, there has been no long-term
testing done on the product to ensure [OUR] integrity over significant time
periods. Thus, RTICA(TM) products may experience [UNANTICIPATED PROBLEMS.
OUR PRODUCT MAY NOT BE ACCEPTED BY CONSUMERS. EVEN IF OUR TECHNOLOGY
IS SUCCESSFUL AFTER LONG-TERM TESTING, AS DISCUSSED ABOVE,] RTICA(TM) products
may not be accepted by the market. Factors that may limit the market acceptance
of RTICA(TM) may include:
- obstacles in market entry relative to competitive products,
- the availability of alternative products,
- the price of [OUR] products relative to alternative products,
and
- the possible lack of motivation of potential customers to
change suppliers.
[We may not be able to manage the growth of our business. We may not
have adequately provided for the costs and risks associated with rapid future
growth. Any such growth could] place a significant strain on [OUR] managerial,
operational and financial resources [, AND WE WOULD] be required to implement
and improve [OUR] managerial controls and procedures and operational and
financial systems. In addition, [WE] will be required to hire, train, integrate,
manage and retain [OUR] workforce including [OUR] technology, manufacturing,
engineering, sales and business development staff. Locating and retaining
qualified personnel in the insulation industry is extremely competitive. [WE]
may not have adequately allowed for the costs and risks associated with [OUR]
proposed expansion and [OUR] systems, procedures or controls may not be adequate
to support [OUR] operations. [FURTHERMORE, WE] may not be able to successfully
locate, train and integrate personnel into
<PAGE>
[OUR WORKFORCE.]
[We may not be able to compete successfully with other companies in
our industry because some of our competitors are better known and have greater
resources. We may not be able to effectively compete against such well
entrenched industry competitors with much greater technical resources and broad
distribution networks]. The insulation industry is dominated by a small number
of very large and well[-]capitalized [MULTINATIONAL] participants. In response
to environmental and health concerns, these companies are utilizing increasing
percentages of recycled materials in their production processes, and are
developing new products which are perceived to have fewer health related
concerns.
[We may not be able to obtain the recycled plastic needed to
manufacture our product. Because the largest percentage of the production cost
of RTICA(TM) is the cost of the recycled plastic used in its production, the
lack of availability of that raw material or a significant increase in its cost
could impair our ability to profitably produce our product. We rely on a
plentiful and continuing supply of a specific type of low cost recycled plastic.
While we currently believe that there are adequate supplies of the recycled
plastic that we use from several sources, if supply of the type of recycled
plastic we use becomes more difficult to obtain or the price for that raw
material increases significantly we may not be able] to secure adequate raw
material supplies [TO PROFITABLY PRODUCE AND MARKET RTICA(TM).
WE]
may not be able to secure [timely building code] certification. The Company
[DOES NOT YET HAVE BUILDING CODE CERTIFICATION AND LISTING IN CANADA AND THE
UNITED STATES. CUSTOMER ACCEPTANCE AND SALES OF OUR PRODUCT MAY BE ADVERSELY
IMPACTED IF WE DO NOT OBTAIN CERTIFICATION UNDER UNITED STATES AND CANADIAN
BUILDING CODES. ALTHOUGH BUILDING CODE APPROVAL IS NOT LEGALLY REQUIRED TO SELL
OUR PRODUCT TO OUR TARGET MARKET IN EITHER THE UNITED STATES OR CANADA,
CERTIFICATION WOULD ENABLE US TO BYPASS THE REVIEW OF OUR PRODUCT SPECIFICATIONS
ON A CASE BY CASE BASIS IN CONNECTION WITH EACH SALE, AND TO MARKET OUR PRODUCT
WITH A LISTING REFERENCE NUMBER. WE ARE CURRENTLY IN THE PROCESS OF APPLYING FOR
CERTIFICATION IN CANADA AND THE UNITED STATES; HOWEVER, CERTIFICATION WILL NOT
BE OBTAINED UNTIL WE ARE ABLE TO DEMONSTRATE OUR ABILITY TO GENERATE CONSISTENT,
APPROVED PRODUCT QUALITY ON AN ON GOING BASIS USING OUR UPSCALED PLANT. THERE IS
NO GUARANTEE THAT OUR STANDARD WILL BE ACCEPTED OR THAT WE WILL BE CERTIFIED AND
ESTABLISH A LISTING. OUR FAILURE TO ACHIEVE CERTIFICATION COULD IMPAIR OUR
ABILITY TO MARKET AND SELL OUR PRODUCT ON A
<PAGE>
LARGE SCALE. SEE "DESCRIPTION OF BUSINESS - GENERAL." ]
[Our directors and officers may be able to control or significantly influence us
due to their concentrated stock ownership. Our] directors and officers
beneficially own approximately 30.5% of [OUR] issued and outstanding stock
(without giving effect to the exercise of options held by said persons) and,
therefore, may be able to influence or control the outcome of substantially all
actions requiring stockholder approval, including the election of the entire
Board of Directors, and the outcome of any stockholder votes concerning a
merger, asset sale, or other major corporate transaction affecting Inzeco. Such
control could also delay, deter, or prevent an unsolicited takeover of [INZECO.]
[We have incurred substantial indebtedness and encumbered all of our
tangible assets. In order to fund our] development program, [WE HAVE] incurred
substantial liabilities, certain of which are collateralized by [ALL OF OUR
TANGIBLE ASSETS. IF WE ARE]
unable to generate sufficient cash flow from operations to meet scheduled debt
payments or otherwise to comply with the terms of such indebtedness, [WE] may be
required to refinance all or a portion of [OUR] existing debt or to obtain
additional financing. [WE] may not be able to obtain such refinancing or
additional financing. If no such refinancing or additional financing is
available when needed, [WE] may be forced to default on [OUR] debt obligations
which would have a material adverse effect on [US], including the possibility of
receivership or liquidation of [INZECO]. In such an event, [OUR] secured
creditors could elect to foreclose on [OUR] assets and it is likely that the
shares of Common Stock would [SIGNIFICANTLY DIMINISH IN VALUE OR BE WORTHLESS.
SEE "DESCRIPTION OF SECURITIES." ]
<PAGE>
[Currency fluctuations that devalue] the Canadian dollar against the United
States dollar [could adversely effect our results of operations]. In the event
that the Canadian dollar were materially devalued against the United States
dollar, [OUR] operating results could be materially adversely affected. [THE
VOLATILITY OF THE CANADIAN DOLLAR AGAINST UNITED STATES CURRENCY MAY AFFECT OUR
PROFITS, AS CERTAIN SUPPLIES AND EQUIPMENT PURCHASED BY US ARE MANUFACTURED AND
EXPORTED TO CANADA BY FOREIGN COMPANIES. ACCORDINGLY, THE RELATIONSHIP OF THE
CANADIAN DOLLAR TO THE VALUE OF THE UNITED STATES DOLLAR MAY MATERIALLY AFFECT
OUR OPERATING RESULTS.]
[An investment in Inzeco may have limited liquidity if an active trading market
does not develop or continue. Although our common] Stock currently trades on the
Canadian Venture Exchange (CDNX), the trading history suggests there is limited
liquidity in the public market for [OUR] securities and liquidity [MAY NOT]
increase [AND/OR] be sustained. [WE INTEND] to have [OUR COMMON STOCK] listed on
the Over-the-Counter Bulletin Board (the "OTC-BB") under the symbol INZCF.
Factors such as announcements of quarterly variations in [OUR] financial results
and changes in general market conditions, among other things, could cause the
market price of the [SHARES] to fluctuate significantly. In recent years, the
stock market has experienced significant price and volume fluctuations.
[If our stock is listed on a U.S. exchange, it may be subject to penny stock
regulation. Disclosure requirements adopted by the Commission may have the
effect of reducing the trading activity in the secondary market for our stock if
it becomes subject to the penny stock rules. In addition, if our common stock
becomes subject to the penny stock rules, purchasers of Shares may find it more
difficult to sell their shares. These rules] regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny
<PAGE>
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document prepared by the Commission, which
specifies information about penny stocks and the nature and significance of
risks of the penny stock market. The broker-dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker-dealer and [OUR] salesperson in the transaction, and 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 agreement to
the transaction. [BASED ON THE RECENT TRADING PRICES OF COMMON STOCK IN CANADA
(C$0.67 (APPROXIMATELY US$0.44) ON DECEMBER 14, 2000), IT IS LIKELY THAT OUR
STOCK WILL BE] subject to the penny stock [REGULATIONS FOR THE FORESEEABLE
FUTURE.]
[We may be subject to claims by clients and third parties and we may
not have sufficient insurance to cover such claims. Although our product has
been tested, it is newly developed and only has a short performance history.
Accordingly, we are at greater risk of potential liability] for breach of
contract, personal injury, property damage, and negligence, including claims for
lack of timely performance and/or for failure to deliver the service promised
(including improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties). [FURTHER, WHILE
WE HAVE] general liability insurance, including product liability coverage, in
effect, [WE] may not have sufficient coverage to protect [US] against such
claims.
[Seasonality of our product sales could adversely effect the value of our stock.
Once we begin] manufacturing and sales, [OUR] business will probably experience
seasonal fluctuations in sales and operating results from quarter to quarter. In
general[,] operating results in the industry are weakest in the first calendar
quarter because of the effects of winter weather on construction and the
consequent reduction in sales of insulation. Fluctuations in [OUR] quarterly
sales and operating results [CAUSED BY THE SEASONALITY OF OUR INDUSTRY] could
result in significant volatility in, and otherwise adversely affect, the market
price of the [COMMON STOCK].
<PAGE>
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING
OUR OPERATIONS, ECONOMIC PERFORMANCE AND FINANCIAL CONDITIONS, INCLUDING, IN
PARTICULAR, THE LIKELIHOOD OF OUR SUCCESS IN DEVELOPING AND BRINGING RTICA(TM)
TO MARKET. THESE STATEMENTS ARE BASED UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES
WHICH ARE INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND OUR CONTROL AND REFLECT FUTURE BUSINESS DECISIONS WHICH
ARE SUBJECT TO CHANGE. SOME OF THESE ASSUMPTIONS INEVITABLY WILL NOT
MATERIALIZE, AND UNANTICIPATED EVENTS WILL OCCUR WHICH WILL AFFECT OUR RESULTS.
CONSEQUENTLY, ACTUAL RESULTS WILL VARY FROM THE STATEMENTS CONTAINED HEREIN AND
SUCH VARIANCE MAY BE MATERIAL. PROSPECTIVE INVESTORS SHOULD NOT PLACE UNDUE
RELIANCE ON THIS INFORMATION.]
ENFORCEABILITY OF CIVIL LIABILITIES
[OUR] headquarters are located in, and [OUR] officers, directors and
auditors are residents of Canada and a substantial portion of [OUR] assets are,
or may be, located outside the United States. Accordingly, it may be difficult
for investors to effect service of process within the United States upon
non-resident officers and directors, or to enforce against them judgments
obtained in the United States courts predicated upon the civil liability
provision of the Securities Act or state securities laws. However, there is
doubt as to the enforceability in Canada against [US] or against any of [OUR]
directors, controlling persons, officers or the experts named herein, who are
not residents of the United States, in original actions or in actions for
enforcement of judgments of United States courts, of liabilities predicated
solely upon United States federal securities laws. Service of process [IN THE
UNITED STATES] may be effected, however, upon [OUR] duly appointed agent for
service of process, Dornbush Mensch Mandelstam & Schaeffer, LLP, New York, New
York. If investors have questions with regard to these issues, they should seek
the advice of their individual counsel.
EXCHANGE RATE DATA AND ACCOUNTING PRINCIPLES
[WE] maintain [OUR] books of account in Canadian dollars, and [HAVE]
provided the financial data in this [PROSPECTUS] in Canadian dollars and on the
basis of generally accepted accounting principles as applied in Canada. ALL
REFERENCES TO DOLLAR AMOUNTS IN THIS [prospectus], unless otherwise indicated,
are to Canadians dollars, presented in accordance with Canadian generally
accepted accounting principles.
The following table sets forth, for the periods indicated, certain
exchange rates based on the Interbank rate. The average exchange rate is based
on the average of the exchange rates on the last day of each
<PAGE>
month during such periods. On November 14, 2000, the exchange rate was C$1.00
per US$0.6478.
<TABLE>
<CAPTION>
[FISCAL YEAR ENDED THREE MONTHS ENDED
MAY 31, AUGUST 31,
------------------------------------------------------
1998 1999 2000 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
RATE AT END OF PERIOD (C$) $0.6866 $0.6784 $0.6645 $0.6772
AVERAGE RATE DURING PERIOD (C$) 0.7094 0.6627 0.6797 0.6762
HIGH (C$) 0.7318 0.6917 0.6983 0.6833
LOW (C$) 0.6807 0.6307 0.6588 0.6636
</TABLE>
<PAGE>
USE OF PROCEEDS
WE] will not receive any proceeds from the sale of shares of [COMMON
STOCK OFFERED HEREBY.]
[MARKET FOR COMMON STOCK AND RELATED] [STOCKHOLDER MATTERS
Price Range of Common Stock
Our] authorized capital stock consists of an unlimited number of
shares of [COMMON STOCK], of which 32,856,886 were issued and outstanding as of
November [30], 2000, and an unlimited number of Preferred Stock, none of which
is outstanding. [OUR COMMON STOCK] currently trades on the Canadian Venture
Exchange (CDNX) under the symbol IZE. [WE HAVE] no established trading market in
the United States. [WE BELIEVE] that as of November [30], 2000, there were
approximately 679 record holders of [COMMON STOCK].
The following table sets forth, for the period indicated, the high and
low bid prices, in Canadian Dollars for [OUR] shares of [COMMON STOCK] from June
1, 1998 through [NOVEMBER 30], 2000, as reported by the CDNX:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
(In Canadian Dollars)
<S> <C> <C>
Year Ended May 31, 1999
First Quarter $0.50 $0.30
Second Quarter 0.35 0.15
Third Quarter 0.42 0.26
Fourth Quarter 0.30 0.08
Year Ended May 31, 2000
First Quarter 0.50 0.18
Second Quarter 0.50 0.35
Third Quarter 0.45 0.30
Fourth Quarter 1.00 0.22
[YEAR ENDING MAY 31, 2001
FIRST QUARTER 0.84 0.57
SECOND QUARTER 0.81 0.58]
</TABLE>
The high and low bid prices, in Canadian Dollars for [SHARES OF OUR
COMMON STOCK ON DECEMBER 14, 2000 WERE BOTH C$0.67 (APPROX. US$0.44). WE HAVE]
not declared any dividends during the aforesaid twenty-four month period. [WE
ARE NOT AWARE OF ANY RESTRICTIONS THAT LIMIT OUR ABILITY TO PAY DIVIDENDS OTHER
THAN STATUTORY LIMITATIONS ON THE SOURCES FOR DIVIDEND PAYMENTS.]
[Outstanding Options and Convertible Securities
We currently have outstanding (i) options that are exercisable for
2,955,250 shares of common stock and (ii) Debentures in the principal amount of
C$360,000 (approx. US$249,913) that are convertible into 900,000 shares of
common stock. The exercise price of the options range from C$0.20 (approx.
US$0.13) to C$0.75 (approx. US$0.49).
<PAGE>
DIVIDEND POLICY
We have never declared or] paid any cash dividends [TO THE HOLDERS OF
OUR COMMON STOCK AND WE HAVE] no present intention to declare or pay cash
dividends on the [COMMON STOCK] in the foreseeable future. [WE INTEND] to retain
any earnings which [WE] may realize in the foreseeable future to finance [OUR
OPERATIONS. OUR BOARD OF DIRECTORS WILL HAVE THE SOLE DISCRETION IN DETERMINING
WHETHER TO DECLARE AND PAY DIVIDENDS IN THE FUTURE. WE DO NOT CURRENTLY HAVE ANY
RESTRICTIONS THAT LIMIT OUR ABILITY TO PAY DIVIDENDS ON OUR COMMON STOCK OR THAT
ARE LIKELY TO DO SO IN THE FUTURE.]
<PAGE>
CAPITALIZATION
The following table sets forth [OUR] capitalization on August 31, 2000.
Because [WE] will not receive any of the proceeds from, or incur any of the
expenses of the sale of share[S] offered hereby, such shares will not have any
effect on [OUR] capitalization .
<TABLE>
<CAPTION>
AUGUST 31, 2000
DESIGNATION OF SECURITIES (UNAUDITED)
(IN CANADIAN DOLLARS)
<S> <C>
Convertible debentures(1).......................................... $ 356,321
Shareholders' equity:
Preferred shares unlimited shares authorized;
no issued and outstanding............................. $ 0
Common shares unlimited shares authorized;
28,823,553 shares issued and outstanding (2)............ $ 6,167,346
Special Warrants, 4,033,333 issued and
outstanding(3).......................................... $ 2,202,700
Equity component of convertible debentures................... $ 10,722
Deficit...................................................... ($ 4,895,103)
-------------
Total shareholders' equity................................... $ 3,485,755
------------
Total capitalization............................................... $ 3,842,076
============
</TABLE>
---------------------
(1) See note 4 to consolidated financial statements for the year
ended May 31, 2000 attached to this [P]rospectus for
disclosure related to convertible debentures.
(2) See note 5 of the consolidated financial statements for the
year ended May 31, 2000 attached to this [P]rospectus for
disclosure related to the stock options.
(3) As of October 15, 2000, all of the special warrants sold in
the June 2000 Canadian private placement were converted into
common stock for no additional consideration.
<PAGE>
PLAN OF OPERATION
[OUR] future success as a manufacturer and distributor of RTICA(TM)
producTS will be influenced by several factors including technological
developments in the commercial production of RTICA(TM), [OUR] ability to
efficiently meet the requirements of [OUR] customers, and the markeT acceptance
of [OUR] product. Further factors impacting [OUR] operations are increases in
expenses associated with continued sales growth, [OUR] ability to control costs,
management's ability to market the product to increase sales and target
satisfactory profit margins, and competition. [WE HAVE] had no revenues from
operations [TO DATE] and [WE CONTINUE] to be in the development stage.
[WE PLAN] to continue [OUR] research and development effort [DURING]
the next twelve months. Currently, [SUBSTANTIALLY ALL] R&D efforts have been
contracted to National Research Council Industrial Materials Institute
("NRC-IMI"), an outside agency [IN QUEBEC, CANADA] with a specialized
infrastructure and personnel relating to [OUR] products. These R&D activities
are focused on making production of [OUR] products more cost effective and
improving product features to add value. [UNDER THE TERMS OF OUR CURRENT
AGREEMENT WITH NRC-IMI, WE PAY NRC-IMI A TOTAL CONTRACT AMOUNT OF C$400,000
PAYABLE AT THE RATE OF C$20,000 PER MONTH (PLUS AN INITIAL PREPAYMENT OF
C$20,000), AS WELL AS TWO ADDITIONAL PAYMENTS OF C$20,000 FOR AN INTERIM AND
FINAL WRITTEN REPORT FROM NRC-IMI. THE INTERIM REPORT WAS RECENTLY PROVIDED TO
US AND THE FINAL REPORT IS ANTICIPATED TO BE DELIVERED IN OR ABOUT JUNE 2001.
NRC-IMI HAS AGREED TO PROVIDE TO US AT NO COST ADDITIONAL R&D SERVICES VALUED AT
APPROXIMATELY C$104,000. THE AGREEMENT WITH NRC-IMI COMMENCED IN FEBRUARY 2000
AND RUNS THROUGH JUNE 1, 2001, SUBJECT TO THE RIGHT OF EITHER PARTY TO TERMINATE
THE AGREEMENT ON SIXTY DAYS' NOTICE. THE AGREEMENT IS NOT EXCLUSIVE, SO WE] may
contract with additional entities or individuals [TO ADVANCE OUR R&D EFFORTS IF
DEEMED NECESSARY.
[UNDER A ]grant program with the Canadian federal government [THROUGH
THE NATIONAL RESEARCH COUNCIL CANADA ("NRC-CANADA"), WE ARE] eligible to be
reimbursed for [40%] of [R&D] expenses [PAID BY US TO NRC-IMI] as they are
incurred, to a maximum of [C$200,000. DURING OUR FISCAL YEAR ENDED MAY 31, 2000,
WE WERE REIMBURSED FOR C$30,000 OF ELIGIBLE R&D EXPENDITURES. THIS PROGRAM
TERMINATES ON JUNE 30, 2001.]
[IN NOVEMBER 2000, WE ENTERED INTO A REPAYABLE CONTRIBUTION AGREEMENT
WITH NRC CANADA UNDER WHICH NRC CANADA AGREED TO MAKE REPAYABLE CONTRIBUTIONS UP
TO C$445,000 FOR THE PERFORMANCE OF CERTAIN WORK WE UNDERTAKE, WITH UP TO
C$185,417 AVAILABLE FROM NOVEMBER 1, 2000 TO MARCH 31, 2001, AND C$259,583
AVAILABLE FROM APRIL 1, 2001 TO OCTOBER 31, 2001. DURING THE PERIOD JANUARY 1,
2004 TO OCTOBER 1, 2005, WE ARE OBLIGATED TO MAKE REPAYMENTS OF CONTRIBUTED
AMOUNTS, WITH SUCH REPAYMENTS EQUAL TO 1% OF OUR GROSS REVENUES FOR THE QUARTER
PRECEDING THE REPAYMENT. UNREIMBURSED AMOUNTS THEREAFTER WILL BE REPAID ON THE
SAME BASIS UNTIL THE EARLIER OF THE FULL REPAYMENT OF THE NRC CANADA
CONTRIBUTIONS OR TEN YEARS AFTER THE START OF THE REPAYMENT PERIOD. INTEREST
WILL ACCRUE ON ANY
<PAGE>
OVERDUE AMOUNTS AT A RATE OF 1% PER MONTH COMPOUNDED MONTHLY (ANNUAL RATE OF
12.68%). CONTRIBUTIONS FROM NCR CANADA WILL BE SUBJECT TO OUR FULFILLMENT OF
CERTAIN OBLIGATIONS, INCLUDING OUR CONTINUED PERFORMANCE OF WORK RELATED TO
THE SCALING UP OF OUR MANUFACTURING PROCESS. NO AMOUNTS HAVE BEEN DRAWN UNDER
THIS AGREEMENT AT THE DATE OF THIS PROSPECTUS. ]
DURING 1999, WE] focused on the installation [OF OUR] third generation
production system. This manufacturing equipment and supporting systems were
successfully installed and tested on schedule in the last calendar quarter of
1999. In the first calendar quarter of 2000 [WE] stepped-up business development
initiatives and began increasing the output from the original installed capacity
of 1 house per day. This expansion to 5 houses per day is underway and is
scheduled to be completed by the end of the first calendar quarter of 2001.
Despite numerous delays encountered with several key suppliers, [WE EXPECT] to
be ready to begin commercial production [OF LIMITED QUANTITIES] of RTICA(TM)
brand insulation in the first calendar quarter of 2001, approximately as
scheduled. [UPON THE COMMENCEMENT OF COMMERCIAL PRODUCTION, WE EXPECT TO BEGIN
SALES TO CUSTOMERS.]
Marketing initiatives included the hiring of a new Vice-President of
Sales and Marketing (see "Management - Directors and Officers"), and development
of packaging design and a web site for the RTICA(TM) brand. In addition, the
second issue of [OUR] newsletter, ["]R.NEWS["], was produced and distributed to
over 600 recipients in August 1999. The next issue is planned for [DECEMBER
2000. ]
Operating expenses for the three months [ENDED] August 31, 2000 were C$576,916,
which is consistent with planned budgets. This included general and
administration charges of C$291,758. On May 31, 2000, [WE] completed a private
placement in the United States of 2,807,500 common shares with a subscription
price of US$0.40 per share for gross proceeds of US$1,123,000. If [WE DO] not
have a Registration Statement filed and declared effective by the Securities and
Exchange Commission in the United States by December 31, 2000, the Company will
be required to issue one additional common share for each ten shares issued
under this private placement. There were no brokerage or agency fees or
commissions associated with this private placement.
On June 14, 2000, [WE] completed a private placement in Canada of
4,033,333 special warrants at a subscription price of C$0.60 each, resulting in
gross cash proceeds of C$2,420,000 (approx. US$1,648,277). Pursuant to the
subscription agreement, each special warrant was convertible into one common
share or 1.1 common shares if a receipt for the related [PROSPECTUS] was not
received by October 15, 2000. [WE] received a receipt for the [PROSPECTUS] dated
October 13, 2000. Accordingly, the 4,033,333 special warrants have been
converted into shares of [COMMON STOCK]. Costs of arranging the private
placement, including agent's commissions is C$217,300 plus 201,667 special
warrants granted to the agent. On June 30, 2000, 850,418 of the 1,243,633 common
share purchase warrants issued in connection with [OUR] acquisition of RTICA
Inc., were exercised at an exercise price of C$0.65 (approx. US$0.45) each.
<PAGE>
The warrants were held by former stockholders of RTICA Inc. and converted to
850,418 shares of [COMMON STOCK] for a total of $553,541 (approx. US$373,308).
The remaining 393,215 common share purchase warrants issued in connection with
the acquisition expired that same day.
[OUR] only liquid asset at this time is cash reserves. [OUR CASH]
balance as at August 31, 2000 was C$3,191,274 an increase of C$3,000,830 from
[AUGUST 31, 1999]. At this time there are no other sources of capital confirmed
and these reserves must sustain [US] until other funds are obtained. The [REPORT
OF OUR INDEPENDENT AUDITORS FOR THE YEAR ENDED MAY 31, 2000 CONTAINS AN
EXPLANATORY PARAGRAPH DISCUSSING THE SUBSTANTIAL DOUBT THAT EXISTS REGARDING OUR
ABILITY TO CONTINUE AS A GOING CONCERN. HOWEVER, BASED ON OUR CURRENT CASH
BALANCE, THE FUNDING PROVIDED BY NRC-CANADA UNDER THE REPAYABLE CONTRIBUTION
AGREEMENT (DESCRIBED ABOVE), AND OUR ANTICIPATED OPERATING EXPENSES FOR THE
FORESEEABLE FUTURE, WE BELIEVE OUR CURRENT FUNDS ON HAND WILL LAST AT LEAST
TWELVE (12) MONTHS, EVEN IF OPERATIONS DURING FISCAL 2001 DO NOT GENERATE
POSITIVE CASH FLOW.]
<PAGE>
[BUSINESS]
[INZECO ]was incorporated by Certificate of Incorporation issued
pursuant to the provisions of the BUSINESS CORPORATIONS ACT (Alberta) on May 30,
1997. [OUR] principal office is located at 999 Barton Street, Stoney Creek,
Ontario, Canada. [OUR] registered office is located at Suite 1210, 606 - 4th
Street S.W., Calgary, Alberta, T2P 1T1. [WE MAINTAIN] a website at
www.rtica.com.
[WE ARE] a public corporation traded, since October 1997, on the
Canadian Venture Exchange (CDNX) under the symbol IZE. [WE WERE] incorporated
under the Junior Capital Pool policy of the former Alberta Stock Exchange to
purchase E2 Development Corporation ("E2D"), a private Ontario corporation that
invented RTICA(TM). [WE] then acquired all the outstanding shares of E2D in
April 1998. As a result, E2D became a wholly owned subsidiary of Inzeco.
Subsequent to the fiscal year ended May 31, 1999, E2D changed its name to RTICA
Inc.
GENERAL
[WE ARE IN THE BUSINESS (THROUGH OUR RTICA SUBSIDIARY) OF DEVELOPING
AND] producing insulating materials [FOR USE IN THE RESIDENTIAL AND COMMERCIAL
BUILDING MARKET. OUR INSULATING PRODUCTS ARE MARKETED UNDER THE NAME "RTICATM ."
RTICATM IS A NON-IRRITATING INSULATING MATERIAL FOR THERMAL AND ACOUSTICAL
APPLICATIONS. WE MANUFACTURE RTICATM UTILIZING POLYETHYLENE TEREPHTHALATE
("PET"), A PLASTIC COMMONLY USED IN SOFT DRINK BOTTLES, PACKAGING, FILM AND
FIBERS. PET IS A COMMODITY RAW MATERIAL AVAILABLE FROM MANY SOURCES IN CANADA
AND THE UNITED STATES. FOR MORE THAN THE PAST FIVE YEARS, WE HAVE ENDEAVORED TO
IMPROVE THE INSULATING PROPERTIES OF OUR PRODUCT WHILE INCREASING PRODUCTION
LEVELS OF CONSISTENT, HIGH QUALITY PRODUCT. ]
[RTICATM IS
<PAGE>
CHARACTERIZED BY ITS (I) SIMPLIFIED INDUSTRIAL HYGIENE REQUIREMENT, (II)
EXCELLENT THERMAL AND ACOUSTICAL PROPERTIES; (III) RESISTENCE TO CHEMICALS AND
MOISTURE, (IV) VARIETY OF USEFUL FORMS AND (V) SPECIFICATIONS COMPATIBLE WITH
BUILDING CODE STANDARDS. WE ARE CURRENTLY IN THE PROCESS OF EXPANDING OUR
MANUFACTURING CAPABILITIES AND ANTICIPATE PRODUCING AND OFFERING LIMITED
QUANTITIES OF RTICATM FOR SALE DURING THE FIRST QUARTER OF CALENDAR 2001. SALES
WILL INITIALLY BE TARGETED TO LARGE INSULATION CONTRACTORS IN CANADA AND IN THE
EAST COAST OF THE UNITED STATES. AS WE SUCCESSFULLY IMPLEMENT OUR EXPANSION
STRATEGY, WE WILL OFFER INCREASING QUANTITIES OF OUR PRODUCTS. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT WE WILL SUCCEED IN INCREASING OUR MANUFACTURING
CAPABILITY OF LARGE COMMERCIAL QUANTITIES.
RTICATM LOOKS AND IS APPLIED LIKE FIBERGLASS IN BOTH BLOWING WOOL AND
BATT APPLICATIONS].
Results from internal and independent laboratory testing demonstrate that
[RTICATM] provides an equivalent thermal performance to glass and rock wool
fibers, cellulose and expanded polystyrene foam insulating materials [. IN
ADDITION, BASED ON OUR MANUFACTURING COSTS, WE BELIEVE THAT RTICATM CAN BE SOLD
AT COMPETITIVE PRICES.
RTICATM] can be produced in a variety of forms and shapes to satisfy
most insulation applications. [THIS INCLUDES, FLEXIBLE BATTS, BOARDS, SHAPES,
AND BLOWING WOOL (LOOSE FILL).] In addition, no special protection is needed to
handle the material. These qualities, combined with lower production costs
associated with [RTICATM] than required for the production of traditional
insulation materials make [RTICATM] competitive with all but the lowest
performance insulation.
[OUR SUCCESS WILL DEPEND IN LARGE PART UPON THE ABILITY OF OUR
PRODUCTS TO MEET TARGETED PERFORMANCE AND COST OBJECTIVES. WE ARE COMMITTING
CONSIDERABLE TIME, EFFORT AND RESOURCES TO FINALIZE DEVELOPMENT OF OUR PRODUCTS
AND PRODUCT ENHANCEMENTS. ALTHOUGH WE ANTICIPATE INITIAL SALES OF RTICATM DURING
THE FIRST QUARTER OF CALENDAR 2001, SIGNIFICANT COMMERCIAL PRODUCTION WILL NOT
OCCUR UNTIL AT LEAST THE END OF THE YEAR. OUR ABILITY TO PRODUCE LARGE SCALE
COMMERCIAL QUANTITIES OF RTICATM OF CONSISTENT HIGH QUALITY IS UNPROVEN. LARGE
SCALE COMMERCIAL PRODUCTION IS SUBJECT TO UNANTICIPATED DELAYS, EXPENSES,
DIFFICULTIES, THE POSSIBLE INSUFFICIENCY OF FUNDING AS WELL AS OTHER RISKS
INHERENT IN THE DEVELOPMENT OF NEW PRODUCTS AND TECHNOLOGIES. THERE CAN BE NO
ASSURANCE AS TO WHEN, OR WHETHER, SUCH LARGE SCALE COMMERCIALIZATION OF RTICATM
WILL BE SUCCESSFULLY COMPLETED. SEE "RISK FACTORS -- WE HAVE A LIMITED OPERATING
HISTORY UPON WHICH YOU CAN ANALYZE OUR POTENTIAL PROFITABILITY."]
[OUR] future operating results will [ALSO] depend upon
<PAGE>
[OUR] ability to gain market acceptance of RTICA(TM). The market for [OUR
PRODUCT] is new and evolving, it is difficult to assess or predict with any
assurance the growth rate, if any, or the size of the market for [RTICA(TM)].
There can be no assurance that the market for [OUR PRODUCT] will develop, or
that [OUR PRODUCT] will achieve market acceptance. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if [RTICA(TM) DOES] not achieve significant market acceptance,
[OUR] busines operating results or financial condition will be materially
adversely affected. [SEE "RISK FACTORS - OUR PRODUCT MAY NOT BE ACCEPTED BY
CONSUMERS."]
[Manufacturing Process]
[RTICATM IS MADE IN A ONE-STOP PROCESS: THE RECYCLED PET IS MELTED AND
MULTIPLE STRANDS OF MOLTEN PLASTIC ARE INTRODUCED INTO A HIGH-SPEED AIRFLOW TO
CREATE THIN FIBERS THAT BECOME ENTANGLED TO FORM A THICK PAD, OR BATT. THESE
NON-WOVEN FIBERS, WHEN FORMED INTO BATTS OR SHAPES CONSTITUTE OUR RTICATM
INSULATING MATERIAL. OUR MANUFACTURING PROCESS RESULTS IN A PRODUCT WITH HIGH
THERMAL EFFICIENCY, IDENTIFIED BY ITS SUPERIOR FIBER CONFIGURATION, STRENGTH AND
DENSITY.]
[OUR MANUFACTURING PROCESS IS DEPENDENT ON THE AVAILABILITY OF
SUFFICIENT QUANTITIES OF PET. CURRENTLY, WE PURCHASE PET ON THE OPEN MARKET FROM
A VARIETY OF SUPPLIERS. BECAUSE WE CAN USE PET OF ANY COLOR AND FROM NUMEROUS
SOURCES (BOTH BOTTLE AND FILM WASTE), WE DO NOT HAVE THE LIMITATION FACED BY
MANY OTHER USERS OF PET WHOSE PRODUCTS REQUIRE SPECIFIC COLORS OR SOURCES OF
PET. WHILE WE CURRENTLY BELIEVE THAT THERE ARE ADEQUATE SUPPLIES OF THE RECYCLED
PLASTIC THAT WE USE, IF SUPPLY OF PET BECOMES MORE DIFFICULT TO OBTAIN OR ITS
PRICE MATERIALLY
<PAGE>
INCREASES, WE MAY NOT BE ABLE TO SECURE ADEQUATE RAW MATERIAL SUPPLIES TO
PROFITABLY PRODUCE AND MARKET RTICATM. SEE "RISK FACTORS - WE MAY NOT BE ABLE TO
OBTAIN THE RECYCLED PLASTIC NEEDED TO MANUFACTURE OUR PRODUCT."
COMPETITIVE ADVANTAGE
WE BELIEVE THAT CERTAIN ATTRIBUTES OF RTICATM PROVIDE US WITH A
COMPETITIVE ADVANTAGE. THESE ATTRIBUTES INCLUDE THE FOLLOWING:
- USER FRIENDLY PRODUCT: RTICAT NEITHER CAUSES SKIN IRRITATION
ON CONTACT NOR POSES A THREAT TO RESPIRATORY HEALTH DUE TO
DUST INHALATION. SUCH EASE AND COMFORT IN HANDLING ARE FACTORS
THAT WE BELIEVE PROVIDE THE MOST SIGNIFICANT ADVANTAGE OF OUR
PRODUCT FOR ALL USERS, ESPECIALLY PROFESSIONAL INSTALLATION
CONTRACTORS.
- THERMAL PERFORMANCE: RTICATM PROVIDES EXCELLENT THERMAL
PERFORMANCE PROPERTIES WITH OPTIMUM COST-EFFICIENCY.
- ENERGY CONSERVATION: RTICATM REQUIRES LESS ENERGY TO MAKE THAN
MOST COMPETITIVE PRODUCTS, YET CONSERVES MORE ENERGY WHEN IN
PLACE; IT UTILIZES SIGNIFICANT QUANTITIES OF RECYCLED PET, AN
INDUCEMENT TO RECYCLING OF PLASTIC WASTE.
RESEARCH AND DEVELOPMENT
FROM INCEPTION TO MAY 31, 2000, WE HAVE INCURRED C$1,709,649 (APPROX.
US$1,136,078) ON RESEARCH AND DEVELOPMENT. WE CURRENTLY CONTRACT SUBSTANTIALLY
ALL OF OUR R&D EFFORTS TO NATIONAL RESEARCH COUNCIL INDUSTRIAL MATERIALS
INSTITUTE ("NRC-IMI"), AN OUTSIDE AGENCY IN QUEBEC, CANADA WITH A SPECIALIZED
INFRASTRUCTURE AND PERSONNEL RELATING TO OUR PRODUCTS. THESE R&D ACTIVITIES ARE
FOCUSED ON MAKING PRODUCTION OF OUR PRODUCTS MORE COST EFFECTIVE AND IMPROVING
PRODUCT FEATURES TO ADD VALUE. UNDER A GRANT PROGRAM WITH THE CANADIAN FEDERAL
GOVERNMENT THROUGH THE NATIONAL RESEARCH COUNCIL CANADA ("NRC-CANADA"), WE ARE
ELIGIBLE TO BE REIMBURSED FOR A PORTION OF R&D EXPENSES PAID BY US TO NRC-IMI.
IN ADDITION, WE ARE PARTIES TO A REPAYABLE CONTRIBUTION AGREEMENT WITH
NRC-CANADA UNDER WHICH NRC CANADA AGREES TO MAKE REPAYABLE CONTRIBUTIONS UP TO
C$445,000 FOR THE PERFORMANCE OF CERTAIN WORK WE UNDERTAKE. AMOUNTS CONTRIBUTED
BY NRC-CANADA ARE REPAYABLE COMMENCING JANUARY 1, 2004. SEE "PLAN OF OPERATION."
MARKETING AND SALES]
The residential segment of the insulation market in North America is
[CURRENTLY] dominated by fiberglass and other mineral fiber products. [WE
BELIEVE OUR] RTICA(TM) product is well positioned to supply product for high
performance thermal and acoustical applications in construction and
manufacturing sectors currently occupied by fiberglass and plastic foams.
[HOWEVER, RTICA(TM) IS A NEW PRODUCT WITH NO BROAD BASED RECOGNITION AND WE DO]
not currently have any established [SALES AND] distribution channels for
RTICA(TM). [TO OVERCOME THE LACK] of
<PAGE>
an existing market [, WE HAVE ADOPTED A STRATEGY OF A FOCUSED MARKETING EFFORT
DIRECTED AT LARGE INSULATION CONTRACTORS IN CANADA AND THE EAST COAST OF THE
UNITED STATES. WE BELIEVE THAT THIS MARKET REPRESENTS A SIGNIFICANT CUSTOMER
BASE THAT CAN BE TARGETED AT RELATIVELY LOW COST, RATHER THAN EXPENDING
SIGNIFICANT FUNDS FOR THE CREATION OF A BROAD-BASED NATIONAL SALES NETWORK.
RELATIONSHIPS DEVELOPED WITH LARGE INSULATION CONTRACTORS WILL ASSIST AND
ENHANCE OUR MARKETING EFFORTS BY PROVIDING PRODUCT VALIDATION AS WELL AS
IMPORTANT ANTICIPATED CUSTOMER ENDORSEMENTS FOR RTICA(TM) WHICH WILL GENERATE
ADDITIONAL CONSUMER DEMAND. BASED ON THE SUCCESS OF OUR MARKETING AND SALES
EFFORT, WE CAN THEN CONSIDER EXPANDING OUR MARKETING PROGRAM TO INCLUDE]
architects, builders, sub-contractors and retail outlets throughout Canada and
the United States.
[CONSISTENT WITH OUR MARKETING STRATEGY, WE ARE PRESENTLY NEGOTIATING
WITH UNITED STATES INSTALLATION CONTRACTORS, WHO WE BELIEVE WILL PURCHASE ALL
THE INITIAL OUTPUT OF OUR PRODUCTION FACILITY SUBJECT TO COMPETITIVE PRICING.
SUCH SALES WILL LIKELY BE SUBJECT TO THE PURCHASER OBTAINING BUILDING CODE
APPROVAL FOR THE INTENDED PRODUCT APPLICATION. TO DATE, NO SALES CONTRACTS HAVE
BEEN ENTERED INTO AND THERE CAN BE NO ASSURANCE THAT ANY SALES WILL ACTUALLY BE
MADE TO THESE CONTRACTORS.
WE BELIEVE THAT IN THE FUTURE, WE WILL HAVE THE POTENTIAL TO SELL
LICENSES TO MANUFACTURE, USE AND SELL RTICATM PRODUCTS USING OUR PATENTED
TECHNOLOGY AND TRADEMARKS OUTSIDE OF] Canada and the United States [. POTENTIAL
LICENSEES INCLUDE CONTRACTORS, DISTRIBUTORS OF CONSTRUCTION MATERIALS AND END
USERS WHO REQUIRE LARGE QUANTITIES OF INSULATION MATERIALS. WE MAY ALSO SEEK
STRATEGIC PARTNERS AMONG PRODUCT USERS AND MANUFACTURERS THAT USE AND/OR PRODUCE
PET, AS WELL AS OTHER INVESTORS WHO ARE INTERESTED IN PARTICIPATING TO BRING
RTICA(TM) TO MARKET.
ON SEPTEMBER 1, 1997, WE SOLD FOR A FEE OF C$20,000, AN OPTION FOR
AN EXCLUSIVE TEN-YEAR LICENSE TO MAKE, USE AND SELL OUR INSULATION PRODUCTS
IN FOUR PROVINCES LOCATED IN WESTERN CANADA USING OUR TECHNOLOGY. THE OPTION
MAY BE EXERCISED AT ANY TIME WITHIN SIX MONTHS AFTER THE DATE WE PRODUCE
RTICA-TM- AT A RATE OF 500 KILOGRAMS PER HOUR AT OUR ONTARIO FACILITY. THE
EXERCISE PRICE FOR THE OPTION IS C$500,000. ALTHOUGH THE LICENSE WOULD BE
EXCLUSIVE EVEN AS TO INZECO, MANAGEMENT BELIEVES THAT THE TERRITORY COVERED
BY THE LICENSE REPRESENTS APPROXIMATELY 2% OF THE POTENTIAL CUSTOMER BASE (BY
POPULATION) IN CANADA AND THE UNITED STATES. THERE CAN BE NO ASSURANCE THAT
THE OPTIONEE WILL EXERCISE ITS OPTION FOR THE LICENSE.
DURING FISCAL 2000, WE HIRED RICHARD GALLOWAY, AS VICE PRESIDENT OF
SALES AND MARKETING. MR. GALLOWAY BRINGS TO US TWENTY-FIVE YEARS OF EXPERIENCE
IN THE FIBERGLASS INSULATION INDUSTRY, THE MAJORITY OF THAT TIME SPENT IN SALES
AND MARKETING. WE BELIEVE HIS ESTABLISHED RELATIONSHIPS WITH THE MARKET AND
POTENTIAL CUSTOMERS WILL ASSIST US IN ESTABLISHING A NETWORK OF CUSTOMERS AND
IMPLEMENTING OUR MARKETING STRATEGY.
GOVERNMENT REGULATION
<PAGE>
BASED ON OUR PRODUCT TESTING, WE BELIEVE THAT RTICATM WILL MEET
APPLICABLE BUILDING CODE STANDARDS IN MOST JURISDICTIONS IN CANADA AND THE
UNITED STATES. ALTHOUGH BUILDING CODE CERTIFICATION IS GENERALLY NECESSARY AS A
PRACTICAL MATTER, IT IS NOT REQUIRED TO LEGALLY SELL OUR PRODUCT; USERS OF OUR
PRODUCT MAY OBTAIN APPROVAL FOR THEIR INTENDED PRODUCT USE ON A CASE-BY-CASE
BASIS IN THE LOCAL JURISDICTION WHERE THE PRODUCT IS BEING USED. ONCE A PRODUCT
IS CERTIFIED, IT IS GIVEN A "LISTING REFERENCE NUMBER," WHICH ENABLES USERS TO
BYPASS THE BUILDING CODE REVIEW PROCESS ON A CASE BY CASE BASIS IN CONNECTION
WITH EACH PROPOSED USE OF THE PRODUCT. AS CERTIFICATION THEREBY SAVES USERS TIME
AND EFFORT, WE BELIEVE THAT IT IS IMPERATIVE THAT WE OBTAIN CERTIFICATION FOR
RTICATM AS SOON AS PRACTICABLE. WE ARE CURRENTLY IN THE PROCESS OF APPLYING FOR
CERTIFICATION IN CANADA AND THE UNITED STATES. BUILDING CODE CERTIFICATION OF A
PRODUCT GENERALLY REQUIRES AN AUDIT OF MANUFACTURING AND TESTING PROCESSES AND A
MANUFACTURER'S DEMONSTRATION OF ITS ABILITY TO MAKE A PRODUCT WITH GIVEN
SPECIFICATIONS ON A CONSISTENT, ONGOING BASIS. THEREFORE, WE BELIEVE
CERTIFICATION OF RTICATM WILL NOT BE OBTAINED UNTIL THE EXPANSION OF OUR
MANUFACTURING CAPABILITY IS COMPLETED AND REASONABLE PRODUCTION LEVELS ARE
SUSTAINED. THERE IS NO GUARANTEE THAT OUR STANDARD WILL BE ACCEPTED OR THAT WE
WILL BE CERTIFIED AND ESTABLISH A LISTING. THE FAILURE TO OBTAIN CERTIFICATION
COULD HAVE A SIGNIFICANT ADVERSE AFFECT ON OUR ABILITY TO SUCCESSFULLY
COMMERCIALIZE OUR PRODUCT. SEE "RISK FACTORS - GOVERNMENT REGULATION MAY IMPAIR
OUR PROFITABILITY AND RESTRICT OUR GROWTH."]
PRICING
There are a number of parameters that impact upon the pricing of
insulation products. These include costs of raw materials, [COSTS OF ENERGY,]
the density of the fiber, fiber thickness, direct labor [AND PACKAGING. IN
ADDITION, NUMEROUS FACTORS] are likely to influence cost competitiveness
considerations [, INCLUDING] ease of installation [AND RESISTANCE TO HEAT FLOW.
OUR] pricing assumptions are based upon underlying assumptions with respect to
direct labor, materials, and yield, which in turn is predicated upon certain
mean assumptions with respect to production output, fiber physical properties,
thickness, loft, [RESULTANT DENSITY AND THERMAL PERFORMANCE. WHILE WE HAVE MADE
TEST INSTALLATIONS OF RTICA(TM), WE HAVE NOT YET SOLD ANY PRODUCT. THEREFORE,
OUR] ability to fully test the reasonableness of [OUR] pricing assumptions is
not yet evident. This will be necessary if [WE ARE] to instill confidence in
builders and distributors, and in various trade associations, which might then
be willing to promote the dissemination of RTICA(TM) in the marketplace.
PATENTS
<PAGE>
[WE HAVE] US patent number 5,582,905 (published on December 10,
1996) and Canadian patent number 2,190,957 (published on April 6, 1999) [. THESE
PATENTS COVER FIBER BASED PLASTIC INSULATING PRODUCTS MADE WITHOUT USING
ADHESIVES OR MECHANICAL METHODS TO CREATE THICKNESS, OR LOFT, WHICH IS A
FUNDAMENTAL REQUIREMENT FOR EFFICIENT INSULATING PERFORMANCE. ALTHOUGH RTICA(TM)
IS MADE OF RECYLED PET, WE BELIEVE THAT THE PATENTS COVER A WIDE RANGE OF
POLYMERS. THE US PATENT WILL EXPIRE ON DECEMBER 9, 2016, AND THE CANADIAN PATENT
WILL EXPIRE ON APRIL 5, 2019]. Applications for such patents are also pending in
the European Patent Office. [EVEN THOUGH OUR PATENTS] do not prevent others from
making thermoplastic fiber insulation, [WE BELIEVE] that they will result in
their incurring higher manufacturing costs due to the need to use [MORE
DIFFICULT] methods to create the loft. [WE HAVE FILED ADDITIONAL PATENT
APPLICATIONS FOR OUR METHOD AND RELATED EQUIPMENT DESIGNS IN THE UNITED STATES.
SEE "RISK FACTORS- OUR INABILITY TO PROTECT OUR TECHNOLOGY OR THE INTRODUCTION
OF MORE TECHNOLOGICALLY ADVANCED PRODUCTS BY OUR COMPETITORS COULD DECREASE OUR
PROFITABILITY."]
COMPETITION
RTICA(TM) will compete in the [EXTREMELY COMPETITIVE] building
insulation market , principally composed of large domestic and multinational
companies which have significantly greater assets, working capital and marketing
personnel than [US]. See "Risk Factors -- [WE MAY NOT BE ABLE TO SUCCESSFULLY
COMPETE WITH OTHER COMPANIES IN OUR INDUSTRY". WE BELIEVE] that there is no
insulation product on the market that competes directly with RTICA(TM) in terms
of achieving significant savings through the use of recycleD plastic to produce
insulation material. However, [WE EXPECT] that if [OUR] products become
successful, competitors will be more likely to develop and introduce into the
marketplace comparable products and technologies. In such event, [WE] will
likely be competing with larger, better capitalized and nationally recognized
competitors.
EMPLOYEES
[WE] currently [EMPLOY] eight full-time employees and three full-time
consultants, including Warren Arseneau, President of [INZECO], who provides
services pursuant to a written consulting agreement. See "Management [--
CONTRACTS WITH EXECUTIVES." AS WE GROW, WE] will be required to hire, train,
integrate, manage and retain [OUR] workforce including [OUR] technology,
manufacturing, engineering, sales and business development staff.
PROPERTY
[OUR] executive offices and [OUR] prototype equipment and development
facilities are located 30 minutes west of Toronto in Stoney Creek, Ontario,
Canada. The site is equipped with production, office and test laboratory
facilities and is under a lease expiring May 31, 2004 and has a
<PAGE>
monthly rent of C$7,100 (approximately US$4,665) plus taxes.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which [WE ARE] a party,
and [WE ARE] not aware of any threatened legal proceedings involving [US.]
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the information regarding all directors
and executive officers of [INZECO]:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Warren D. Arseneau 51 President and Director
Roger J. Short 60 Director
Robert H. Stikeman 54 Counsel and Director
Martin H. Beck 48 Vice President, Technology
and Director
Michael Boyd 48 Director
Steve Letwin 45 Director
Richard Galloway 50 Vice-President, Sales and
Marketing
</TABLE>
WARREN ARSENEAU - Warren Arseneau - President and Director [SINCE
APRIL 1987]. Mr. Arseneau has occupied a key role in guiding the development of
RTICA Inc. since its establishment in 1991. RTICA Inc. is a wholly owned
subsidiary of Inzeco Holdings Inc. and was named E2 Development Corporation
prior to its name change in 1999. From June 1991 to June 1998, Mr. Arseneau
served as a consultant to the Company pursuant to a management contract between
E2 Development Corporation and Mr. Arseneau. From June 1998 [THROUGH DECEMBER
1999], Mr. Arseneau provided services to E2 Development Corporation, RTICA Inc.
and Inzeco Holdings Inc. [PURSUANT TO] a management contract with Flat Rock
Management, a sole proprietorship in Ontario engaged in management consulting
[WHICH IS WHOLLY OWNED BY MR. ARSENEAU. FROM DECEMBER 1999 THROUGH MAY 15, 2000,
MR. ARSENEAU WORKED WITHOUT A WRITTEN AGREEMENT. ON MAY 15, 2000, A SECOND
CONSULTING AGREEMENT WAS EFFECTED BETWEEN FLAT ROCK MANAGEMENT AND RTICA INC.
MR. ARSENEAU CURRENTLY SERVES AS A CONSULTANT TO INZECO UNDER THIS CONTRACT
WHICH WILL REMAIN IN EFFECT UNTIL DECEMBER 31, 2004. SEE "EXECUTIVE COMPENSATION
- CONTRACTS WITH EXECUTIVES." ]
ROGER J. SHORT - Director [SINCE INCEPTION]. Since September 1996,
Mr. Short has owned Lecourt Enterprises Investment Management and Consulting.
From September 1994 to September 1996, Mr. Short was chairman and chief
executive officer of ES&S Limited, a privately held Canadian corporation in the
industrial distribution business. From January 1991 to September 1994, Mr. Short
was president and chief executive officer of Wajax Ltd., a Canadian public
corporation listed on both the Toronto Stock Exchange and the Montreal Stock
Exchange. He was also a director of Wajax Ltd.
ROBERT H. STIKEMAN - Counsel [, DIRECTOR AND CHIEF FINANCIAL OFFICER
SINCE INCEPTION]. Mr. Robert Stikeman has practised law in the Province of
Ontario for approximately twenty years. Since 1986 he has served as senior
partner in Stikeman, Graham & Keeley, a law firm which he was instrumental in
establishing. Prior to that he was employed in private practice since
approximately 1975.
MARTIN H. BECK - Vice President, Technology and Director [SINCE
INCEPTION]. Since 1988, Mr. Beck has been the principal shareholder and director
of Dev Tech Labs, Inc., a private corporation
<PAGE>
providing a research and development facility. In 1986, Mr. Beck founded Dev
Tech, Inc., a consulting and engineering corporation. In 1991, Dev Tech, Inc.
and Dev Tech Labs, Inc. merged. During the period from 1977 to 1985, Mr. Beck
was employed by Continental Can Corporation, a public corporation in the United
States, initially as a research and development supervisor and then a general
manager of research and engineering and site manager in research and
development, engineering and manufacturing support and division quality control.
MICHAEL M. BOYD - Director [SINCE INCEPTION]. Since September 1997,
Mr. Boyd has been Vice-President of Merchant Banking with HSBC Capital (Canada)
Inc. HSBC Capital (Canada) Inc. is a subsidiary of the HSBC Bank Canada, a
member of the HSBC Group which is one of the largest financial institutions in
the world. From May 1995 to present, Mr. Boyd has also served as President of
Junior Industrial Finance Corp, a personal investment company. Mr. Boyd has over
twenty-four years of business experience in the areas of venture capital
investment, corporate finance and merchant banking. Mr. Boyd also serves as a
Director for Acton Food Group Inc. which is listed on the Toronto Stock Exchange
under the symbol AFF, Wescam Inc, listed on the Toronto Stock Exchange as WSC,
and Stake Technology Limited, listed on NASDAQ under the symbol STKL.
STEVEN LETWIN - Director [SINCE NOVEMBER 2000]. Mr. Letwin is currently
the Vice-President, Distribution & Services of Enbridge Inc. and prior to
holding this position he was the President and Chief Operating Officer of Energy
Services for Enbridge Inc. during the period of March 1999 through August 2000.
Prior to his employment with Enbridge Inc., he was employed as the Chief
Financial Officer (from March 1998 to March 1999) and Vice-President, Marketing
(from October 1995 to March 1998) of TransCanada Pipelines. Mr. Letwin has held
senior executive positions with a number of companies in the energy
transmission, exploration and production sectors. He has been responsible for
acquisitions and divestitures, corporate economics and planning, corporate
services and information systems, and financial services in companies that were
involved in gas transmission, oil, refined products and electrical power.
RICHARD GALLOWAY - Vice-President, Sales and Marketing [SINCE JUNE
2000]. Prior to that period, from September 1999 to May 2000, Mr. Galloway
performed similar marketing services for [INZECO] on a part time basis. [FROM
SEPTEMBER 1989 THROUGH DECEMBER 1999, MR. GALLOWAY PERFORMED MARKETING SERVICES
FOR TEAM CONTRACTING INC. IN THE CONSTRUCTION INDUSTRY. SPECIFICALLY MR.
GALLOWAY WORKED IN THE AREAS OF CONSTRUCTION MANAGEMENT FOR ADDITIONS AND
RENOVATIONS AND CONSTRUCTION OF LOW INCOME HOUSING. HIS MAJOR CLIENTS INCLUDED
THE UNITED STATES MILITARY, THE DEPARTMENT OF HOUSING, IN VARIOUS LOCATIONS
THROUGH OUT THE UNITED STATES, THE NEW YORK CITY BOARD OF EDUCATION AND THE CITY
OF NEW YORK DESIGN & CONSTRUCTION DEPARTMENT. PRIOR TO HIS EMPLOYMENT AT TEAM
CONTRACTING, INC., MR. GALLOWAY WAS A SALES AND MARKETING EXECUTIVE IN THE
INSULATION INDUSTRY.
ALL DIRECTORS HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OF
STOCKHOLDERS AND THE ELECTION AND QUALIFICATION OF THEIR SUCCESSORS. DIRECTORS
CURRENTLY RECEIVE NO COMPENSATION FOR SERVING ON THE BOARD OF DIRECTORS OTHER
THAN REIMBURSEMENT OF REASONABLE EXPENSES INCURRED IN ATTENDING MEETINGS.
OFFICERS ARE ELECTED ANNUALLY BY THE BOARD OF DIRECTORS AND SERVE AT THE
DISCRETION OF THE BOARD.] There is no family relationship between any [DIRECTOR
OR OFFICER] and any other [DIRECTOR OR OFFICER].
EXECUTIVE COMPENSATION
<PAGE>
The following table sets forth all compensation paid in respect of
the Chief Executive Officer and those individuals who received compensation in
excess of US$100,000 per year ("Named Executive Officer"). [INZECO] has one
Named Executive Officer. There were no other individuals who received
compensation in excess of US$100,000 in the most recently completed fiscal year.
During [OUR] most recently completed financial year the Named Executive Officer
received an aggregate cash compensation by [INZECO] and RTICA Inc. in the amount
of C$195,000 (approx. US$127,693).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)
IN CANADIAN DOLLARS
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- --------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY (C$) BONUS(C$) SECURITIES UNDERLYING OPTIONS/SARS
(#)
------------------------------- --------- ----------------- --------------- --------------------------------------
<S> <C> <C> <C> <C>
Warren Arseneau................ 2000 [120,000(1) 75,000(2) -]
President 1999 - -
[120,000(1)]
1998 - -
[120,000(1)]
1997 - 225,000
[118,700(1)]
</TABLE>
(1) This represents management fees paid under a consulting contract pursuant
to which office and administrative expenses of approximately C$40,000
(approx. US$26,193) incurred by Mr. Arseneau were to be paid by Mr.
Arseneau.
(2) Under the terms of Mr. Arseneau's contract with [INZECO], over the four
year term of the agreement, Mr. Arseneau is entitled to bonuses totaling
up to C$325,000 if [INZECO] meets certain economic and strategic goals.
See "Contracts with Executives."
CONTRACTS WITH EXECUTIVES
RTICA Inc., the wholly owned subsidiary of [INZECO], signed a
consulting agreement with Warren Arseneau dated May 15, 2000 to manage [INZECO].
The consulting agreement terminates on December 31, 2004. In consideration for
the services to be provided by Mr. Arseneau, [WE HAVE] agreed to pay the
following consulting fees to Mr. Arseneau: C$12,500 (approx. US$8,185) per month
from June 1, 2000 through December 31, 2000; C$13,000 (approx. US$8,513) per
month during 2001; C$13,500 (approx. US$8,840) per month during 2002; C$14,000
(approx. US$9,168) per month during 2003; C$1,500 (approx. US$982) per day, for
a maximum of 100 days during 2004. Mr. Arseneau is also entitled to bonuses
totaling C$325,000, in the event the company meets certain economic and
strategic goals. In the event of a sale of [INZECO,] Mr. Arseneau will be
entitled to one percent (1%) of the sale proceeds. [IN ADDITION, IN THE
<PAGE>
EVENT OF A CHANGE IN CONTROL, WE WILL OWE MR. ARSENEAU A PENALTY FEE OF
C$750,000 (APPROX. US$485,286) IF THE CONSULTING AGREEMENT IS TERMINATED WITHIN
24 MONTHS OF THE CHANGE IN CONTROL.]
In addition, Mr. Arseneau will also be granted options to purchase a
total of 425,000 shares of [INZECO'S COMMON STOCK]. The options shall be [ISSUED
AS ]to 100,000 shares on each of December 1, 2000, January 15, 2001, January 15,
2002, and January 15, 2003, and [AS] to the remaining 25,000 shares underlying
the options on January 15, 2004. The options shall be [IMMEDIATELY] exercisable
at the [FAIR] market [VALUE] on the date of issuance. Mr. Arseneau is also
reimbursed for certain travel expenses and other direct expenses made on behalf
of [INZECO].
RTICA Inc. has also signed a confidentiality, non-competition and
intellectual property agreement with Warren Arseneau dated May 15, 2000. The
term of the agreement is for 3 years after termination of the consulting
agreement with Mr. Arseneau.
Mr. Michael Boyd, through Junior Industrial Finance Corp., ("JIFC")
provides financing, strategic planning and other consulting services to [INZECO]
pursuant to a consulting agreement between RTICA Inc., a wholly owned subsidiary
of [INZECO], and JIFC. The agreement is effective as of April 1, 2000 and
terminates on December 30, 2001. Under the agreement, Mr. Boyd receives US$500
per month plus US$50 per month expense allowance and reimbursement for out of
pocket expenses incurred in connection with services performed.
Mr. Martin Beck provides financing, strategic planning and other
consulting services to [INZECO] pursuant to a consulting agreement with RTICA
Inc., a wholly owned subsidiary of [INZECO]. The agreement is effective as of
April 1, 2000 and terminates on December 30, 2002. Under the agreement, Mr. Boyd
receives US$1,000 for up to ten hours consulting services per month plus US$100
expense allowance for up to twenty hours consulting services per month. For
consulting services over ten hours per month, Mr. Beck is paid fees of US$1,000
per day and US$50 per day for expenses incurred over twenty hours of consulting
services per month. In addition, Mr. Beck is entitled to a bonus of US$5,000 in
the event [INZECO] secures financing of at least [C$2,000,000 (APPROX.
US$1,294,096)] during the term of the agreement.
Mr. Roger Short serves [INZECO] pursuant to a consulting agreement
executed by RTICA Inc. and Mr. Short (the "Short Agreement"). The Short
Agreement is effective as of January 1, 2000 and terminates on December 31,
2001. Under the Short Agreement, Mr. Short receives C$2,500 (approx. US$1,609)
per month plus C$300 (approx. US$203) per month expense allowance [FOR UP TO TWO
DAYS OF CONSULTING SERVICES PER MONTH] and reimbursement for out of pocket
expenses incurred by Mr. Short in connection with services performed. [FOR
CONSULTING SERVICES OVER TWO DAYS PER MONTH, MR. SHORT IS PAID FEES OF C$1,600
(APPROX. US$1,035) PER DAY.]
From September 1999 through May 2000, Mr. Richard Galloway provided
consulting services to [INZECO] related to sales and marketing on a part time
basis and was paid a total of US$52,853 for that period. Since June 2000, Mr.
Galloway has provided such consulting services on a full time basis and receives
US$8,500 per month for services performed. Mr. Galloway has no written contract
with [US,] however, [WE INTEND] to enter a written consulting agreement with Mr.
Galloway during the fiscal year ending May 31, 2001. Mr. Galloway has not been
granted any bonuses or options to date.
<PAGE>
[NONE OF OUR] other executive officers or directors presently receives
or has received a salary or other compensation from [INZECO] or RTICA Inc.
However, it is intended that certain of [OUR] officers may be employed in the
future pursuant to written employment agreements. [WE] presently [BELIEVE] that
none of the salaries will exceed C$30,000 (approx. US$20,634) during the fiscal
year ending 2001.
DIRECTORS AND OFFICERS INSURANCE
[WE DO] not maintain directors and officers insurance.
KEY MAN INSURANCE
[WE MAINTAIN] a Canadian one million dollar (C$1,000,000) term life
insurance policy on Warren Arseneau.
STOCK OPTION PLAN
The shareholders of Inzeco have adopted the Inzeco Holdings Inc. Stock
Option Plan (the "Plan") in order to provide an incentive for key directors,
officers and employees. The Plan provides that the Board of Directors of Inzeco
may, from time to time in its discretion, grant to key directors, officers and
employees and consultants providing significant time and attention to [INZECO]
under contract to Inzeco, or the registered retirement savings plan, or holding
companies of them, the option to purchase shares of [INZECO'S COMMON STOCK]. The
Board of Directors may determine the market price per share of [COMMON STOCK]
and the number of shares of [COMMON STOCK] which may be allotted to each such
person or plan and all other terms and conditions of the option, in accordance
with the applicable policies of any relevant regulatory authority or the
Canadian Venture Exchange. These options will be exercisable for a period not
exceeding 5 years from the date of grant. The shareholders have authorized the
granting of up to 3,500,000 options by the directors. Currently there are
2,955,250 outstanding, which have been granted at the following exercise prices:
1,810,250 at $0.20 per share; 5,000 at $0.22 per share; 55,000 at $0.25 per
share; 30,000 at $0.35 per share; 115,000 at $0.39 per share and 940,000 at
$0.75 per share (451,000 of which are subject to shareholder approval).
The Plan provides that if a participant ceases to be eligible due to
the loss of corporate office (being that of an officer or director) or
employment or consultant status, the option shall expire after [90] days. The
Plan also provides that the estate of a deceased participant can exercise the
deceased's options for a period not exceeding six months following the date of
the death.
INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS
Since the beginning of [OUR] last completed fiscal year, none of [OUR]
directors or senior officers nor any of their respective associates or
affiliates, has been indebted to [INZECO] or to [OUR] wholly owned subsidiary,
except Warren Arseneau who owed C$39,117 (approx. US$25,993), which was paid
prior to the year ending May 31, 2000. See "Certain Relationships and Related
Transactions."
<PAGE>
PRINCIPAL SHAREHOLDERS
To [OUR] knowledge, [WE ARE] not directly or indirectly owned or
controlled by another corporation or by any foreign government.
The following table sets forth information as of November 1, 2000 with
respect to the beneficial ownership of shares of [COMMON STOCK] currently issued
and outstanding by (i) each person known to us to be the owner of more than 5%
of the outstanding shares of [COMMON STOCK], (ii) each officer and director, and
(iii) all officers and directors as a group. Unless otherwise indicated, the
address for each individual listed is 999 Barton Street, Stoney Creek, Ontario
L8E 5H4 Canada.
<TABLE>
<CAPTION>
[TITLE OF CLASS] Name Amount Percent of Class
[(12)
<S> <C> <C> <C>
Common Warren Arseneau 3,908,175 (1) 12.63%
Stock]
[COMMON Martin Beck 4,970,962 (2) 14.87%
STOCK]
[COMMON Michael Boyd 901,378 (3) 2.72%
STOCK]
[COMMON Richard Galloway 33,503 0.10%
STOCK]
[COMMON Steven Letwin 100,000 (4) 0.30%
STOCK]
[COMMON Roger J. Short 1,577,518 (5) 4.72%
STOCK]
[COMMON Robert Stikeman 368,026 (6) 1.12%
STOCK] Stikeman, Graham & Keeley
220 Bay Street, 7th Floor, Box 24
Toronto, [ONTARIO]
M5J 2W4 [CANADA]
[COMMON Acuity Investment Management 2,400,000 7.30%
STOCK Inc. as agent for AUIF3817002(7)
65 Queen Street West, Suite
1800
Toronto, Ontario M5H 2M5
Canada
Common Enbridge Inc. [(8)] 3,627,723 [(9)] 10.75%
Stock] Canada Trust Tower
421 7th Avenue SW, Suite 2900
Calgary, Alberta T2P 4K9
Canada
[COMMON Nice Investments LLC [(10)] 2,807,500 8.54%
STOCK] 40 West Gude Drive, Suite 210
Rockville, [MARYLAND]
20850
[COMMON All officers and directors as a 33.92%
STOCK] group [(7] persons) [11,859,562 (11)]
</TABLE>
<PAGE>
-----------
(1) Includes 325,000 shares subject to options granted to Mr. Arseneau that
are currently exercisable. Does not include 325,000 shares subject to
options granted to Mr. Arseneau that are not currently exercisable and
will not be exercisable within the next 60 days.
(2) Includes 4,083,212 shares owned by Greensulate L.L.C., a private U.S.
company controlled by Martin Beck. Also includes 567,750 shares subject to
options granted to Mr. Beck that are currently exercisable.
(3) Includes 263,838 shares owned directly by Mr. Boyd; 113,073 shares owned
indirectly through Investor Services in Trust for Mr. Boyd's RRSP; and
289,467 shares owned indirectly through Junior Industrial Finance Corp., a
private company wholly owned by Mr. Boyd. Also includes 235,000 shares
subject to options granted to Mr. Boyd that are currently exercisable.
(4) Includes 100,000 shares subject to options granted to Mr. Letwin that are
currently exercisable.
(5) Includes 577,500 shares subject to options granted to Mr. Short that are
currently exercisable.
(6) Includes 100,000 shares subject to options granted to Mr. Stikeman that
are currently exercisable.
(7) [ACUITY INVESTMENT MANAGEMENT INC. AS AGENT FOR A/C AUIF3817002 IS MUTUAL
FUND INVESTMENT COMPANY.
(8) ENBRIDGE INC. IS A PUBLIC COMPANY THAT TRADES ON THE TORONTO STOCK
EXCHANGE UNDER THE SYMBOL ENB AND ON NASDAQ UNDER THE SYMBOL ENBR.
(9)] Includes an aggregate of 900,000 shares issuable upon the conversion of
Debentures held by Enbridge Inc.
[(10) NICE INVESTMENTS LLC IS A DELAWARE LIMITED LIABILITY COMPANY OWNED BY
MEMBERS OF A TRADE ASSOCIATION IN THE CONSTRUCTION INDUSTRY.
(11)] Includes an aggregate of 1,805,250 shares issuable upon exercise of
currently outstanding options granted to officers and directors of
[INZECO] that are currently exercisable or exercisable within 60 days.
[(12)] Shares of [COMMON STOCK] which a person has the right to acquire within
60 days of the date of this [PROSPECTUS] pursuant to the exercise of
options, warrants or other convertible securities are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table. See "Management - Option Plans and Grants" and "Plan of
Distribution."
<PAGE>
[PROMOTERS
WARREN D. ARSENEAU AND MARTIN BECK, WHO ARE DIRECTORS OF INZECO, MAY BE
CONSIDERED TO BE ITS PROMOTERS IN THAT THEY TOOK THE INITIATIVE IN FORMING
INZECO. FOR A LISTING OF COMMON SHARES AND OPTIONS ISSUED TO THE PROMOTERS NAMED
IN THIS SECTION, SEE "DIRECTORS AND OFFICERS" AND "EXECUTIVE COMPENSATION -STOCK
OPTIONS."]
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth below, [WE HAVE] not entered into any transactions
during the last two fiscal years with any director, executive officer, director
nominee, 5% or more shareholder, or any member of the immediate families of the
foregoing persons (including spouses, parents, children, siblings and in-laws).
1. Since 1997, DevTech Labs Inc. ("DevTech") has provided [US]
with product and process development services in consideration
for the following amounts for the years indicated: US$88,940
(1999) [AND US$49,292 (2000)]. Mr. Martin Beck, a Director of
[INZECO] is the President, Director and a principal
shareholder of DevTech. In addition, since January 1, 2000,
[WE HAVE] paid Mr. Beck US$1,100 per month as consulting fees.
2. On June 25, 1999, [WE] loaned Mr. Warren Arseneau C$25,000
pursuant to a term promissory note bearing interest at a rate
of 9% per annum with a maturity date of May 31, 2000. There
was no prepayment penalty under the terms of the note. Mr.
Arseneau repaid the total indebtedness including interest due
under the note and an unused advance received for expenses in
the amount of C$39,117 (approx. US$25,993) prior to the
maturity date.
3. On November 23, 1999, DevTech loaned RTICA, Inc, a wholly
owned subsidiary of [INZECO,] US$25,000 pursuant to a
promissory note bearing interest at a rate of 5.42% per annum
with a maturity date of November 22, 2000. There was no
prepayment penalty under the terms of the note. RTICA Inc.
repaid the total indebtedness due under the note prior to the
maturity date.
4. On April 4, 2000, [WE] obtained short term financing from a
number of investors. Mr. Michael Boyd, a director of [INZECO]
and one of the investors in the group, loaned [INZECO]
C$31,800 (approx. US$21,934) pursuant to a term promissory
note bearing interest at a rate of 20% per annum with a
maturity date of May 31, 2000. The note was repaid in full
prior to the maturity date.
5. [MESSRS. ARSENEAU, BOYD, BECK AND SHORT, ALL OF WHOM ARE
DIRECTORS OF INZECO, PERFORM SERVICES FOR THE COMPANY PURSUANT
TO CONSULTING CONTRACTS. THE TERMS OF THESE CONTRACTS ARE SET
FORTH IN THE SECTION ENTITLED "EXECUTIVE COMPENSATION -
CONTRACTS WITH EXECUTIVES."
6.] Mr. Robert Stikeman through Stikeman, Graham & Keeley receives
fees from [INZECO] in consideration for legal services
provided to [INZECO. ]
[WE BELIEVE] that the terms of the transactions described above were
comparable to those which could have been obtained from non-affiliated parties.
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of an unlimited number
of shares of [COMMON STOCK], of which 32,856,886 are presently issued and
outstanding, and an unlimited number of Preferred Stock, none of which is
outstanding. The Company's [COMMON STOCK] currently trades on the Canadian
Venture Exchange (CDNX) under the symbol IZE. On November 14, 2000, the closing
price of the [COMMON STOCK] was C$0.72 (approx. US$0.466). The Stock has a 52
week high and a 52 week low of C$1.20 (approx. US$0.783) and C$0.22 (approx.
US$0144), respectively. The Company intends to have its [COMMON STOCK] listed on
the OTC-BB under the symbol INZCF.
COMMON STOCK
Subject to preferential rights with respect to any outstanding
Preferred Stock, none of which is presently issued and outstanding, holders of
[COMMON STOCK] are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, holders of [COMMON
STOCK] are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights and have no rights to
convert their [COMMON STOCK] into any other securities. All shares of [COMMON
STOCK] have equal, non-cumulative voting rights, and have no preference,
exchange, preemptive or redemption rights.
The Company is authorized to issue an unlimited number of shares of
[COMMON STOCK] without nominal value or par value, of which as at the date
hereof, 32,856,886 are issued and outstanding as fully paid and non-assessable;
2,955,250 are issuable upon the exercise of options granted under the Company's
Stock Option Plan; 900,000 shares of [COMMON STOCK] are reserved for issuance
upon the conversion of Debentures of the Company in the principal amount of
C$360,000 (approx. US$249,913) held by Enbridge Inc.
Inzeco plans to retain any future earnings for use in its business and,
accordingly, does not anticipate paying dividends in the foreseeable future.
Payment of dividends is within the discretion of Inzeco's Board of Directors and
will depend, among other factors, upon Inzeco's earnings, financial condition
and capital requirements. There can be no assurance that dividends will ever be
declared and paid.
PREFERRED STOCK
The Board of Directors of the Company, without action by the
stockholders, is authorized to issue the shares of Preferred Stock in one or
more series and, within certain limitations, to determine the voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and in liquidation, conversion, redemption and other rights of each
such series. The Board of Directors could issue a series with rights more
favorable with respect to dividends, liquidation and voting than those held by
the holders of any class of [COMMON STOCK].
The authority of the Board to issue the Preferred Stock could have the
effect of discouraging attempts to obtain control of the Company by means of
merger, tender offer, proxy contests or otherwise
<PAGE>
or could delay and make more costly any such attempt. The voting and conversion
rights provided to such shares could adversely affect the voting power of the
holders of [COMMON STOCK]. There are presently no agreements or understandings,
and the Board of Directors currently has no intention, to issue any shares of
Preferred Stock.
ESCROWED SHARES
Particulars of the shares of [COMMON STOCK] (the "Common Shares") that
are escrowed are as follows[ ]:
<TABLE>
<CAPTION>
Number of Common Shares Percentage of Common Shares
DESIGNATION OF SECURITY Held in Escrow Held in Escrow
--------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Common Shares 10,295,939 31.34%
</TABLE>
10,295,939 Common Shares are held in escrow pursuant to the following
three escrow agreements:
(1) 450,001 Common Shares (the "Initial Escrowed Shares") are held in escrow
pursuant to an escrow agreement dated September 18, 1997, among the
Company, Montreal Trust Company of Canada, Roger J. Short, William R.
Beavers, Sheila M. Finn, Martin H. Beck, Doug W. Lammle, Barrie W. Lammle,
Robert Griesdale and Ken Unger, (the "Security Holders") all of whom
executed such escrow agreement (the "Initial Escrow Agreement"). The
Security Holders under the Initial Escrow Agreement have deposited in
escrow with Montreal Trust Company of Canada all of the Common Shares
beneficially owned, directly or indirectly, at the time of the offering
made by the Company pursuant to the [PROSPECTUS] of the Company dated
September 19, 1997 (filed with Alberta Securities Commission), or to be
acquired upon exercise of options held by them prior to a major
transaction. The Initial Escrow Agreement [AS WELL AS THE PERFORMANCE
ESCROW AGREEMENT AND THE TIME RELEASE ESCROW AGREEMENT, DESCRIBED FURTHER
BELOW, WERE ENTERED INTO AS REQUIREMENTS] of the Alberta Securities
Commission [PURSUANT TO THE ALBERTA SECURITIES COMMISSION POLICY 411 AND
THE ALBERTA STOCK EXCHANGE CIRCULAR NO. 7]. The Initial Escrowed Shares
are to be released as to one third of the original number of Initial
Escrowed Shares on each of the first, second and third anniversaries of
completion of the [ACQUISITION OF E2 DEVELOPMENT CORPORATION BY INZECO
HOLDINGS INC. (THE "MAJOR TRANSACTION")], which took place on April 28,
1998. Accordingly, as of November 14, 2000, 450,001 of the Initial
Escrowed Shares remain held in trust by Montreal Trust Company of Canada
and will be released on April 28, 2001.
(2) In relation to the Company's Major Transaction, CDNX required that
1,640,998 Common Shares be held in escrow pursuant to a timed release
escrow agreement dated April 28, 1998 (the "Timed Release Escrow") between
the Company and Roger J. Short, William R. Beavers,
<PAGE>
Greensulate L.L.C., Sheila M. Finn, Warren D. Arseneau, Michael Boyd,
Junior Industrial Finance Corp. Robert H. Stikeman, Gundyco in Trust for
Sheila Finn RRSP Account #550-28824-17, T/D Investor Company in Trust for
Mike Boyd RRSP Account #140422-S, and RBC Dominion in Trust for William
Beavers RRSP Account #49380616-1-3 (the "Securityholders"), whereby the
escrowed securities shall, with the consent of CDNX, be released from
escrow as to one third thereof on each of the first, second, and third
anniversaries of April 28, 1998, the date the Major Transaction was
completed. As of November 14, 2000, 546,999 Common Shares remain
in escrow and will be released on April 28, 2001.
(3) In relation to the Company's Major Transaction, CDNX further required that
9,298,939 Common Shares be held in escrow pursuant to a performance escrow
agreement dated April 28, 1998 (the "Performance Release Escrow") between
the Company and the Securityholders, whereby one escrowed share shall,
with the consent of CDNX, be released for each $0.20 of cash flow
generated by or from the Company's assets as shown on the audited
financial statements or verified by the Company's auditors, provided that
the maximum number of shares which may be released from escrow in any one
calendar year to any Securityholder shall be one-third of the original
number of shares held in escrow on behalf of such Securityholder. As of
November 14, 2000, 9,298,939 Common Shares remain in escrow.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's certificate of incorporation generally provides for
indemnification of each director, officer, employee or agent as long as these
individuals acted in good faith and in a manner he or she believed to be in or
not opposed to its best interest and had no reasonable cause to believe that
such conduct was unlawful. The Securities and Exchange Commission is of the
opinion that indemnification of directors, officers and controlling persons for
liabilities arising under the Securities Act is against public policy and is,
therefore, unenforceable.
[MATERIAL] UNITED STATES AND
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
UNITED STATES
The following describes [MATERIAL] United States federal income tax
consequences of the purchase, ownership and disposition of Inzeco shares of
[COMMON STOCK] by a shareholder [WHO] is a citizen or resident of the United
States or a United States domestic corporation or [WHO] otherwise will be
subject to United States federal income tax. This summary is based on the United
States Internal Revenue Code of 1986 (the "Code"), as amended, administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this [PROSPECTUS]
may affect the tax consequences described herein. This summary discusses only
the [MATERIAL] United States federal income tax consequences to those beneficial
owners holding the securities as capital assets within the meaning of Section
1221 of the Code and does not address the tax treatment of a beneficial owner
that owns 10% or more of shares of [OUR COMMON STOCK. IT DOES NOT ADDRESS THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THOSE BENEFICIAL OWNERS WHO
ACQUIRED SECURITIES UNDER A STOCK OPTION PLAN OR OTHERWISE IN CONNECTION WITH
THE
<PAGE>
PERFORMANCE OF SERVICES FOR THE COMPANY]. It is for general guidance only and
does not address the consequences applicable to certain specialized classes of
taxpayers such as certain financial institutions, insurance companies, dealers
in securities or foreign currencies, [CERTAIN RELIGIOUS, SCIENTIFIC, CHARITABLE
AND SIMILAR TAX-EXEMPT ORGANIZATIONS,] or United States persons whose functional
currency (as defined in Section 985 of the Code) is not the United States
dollar. Persons considering the purchase of these securities should consult
their [OWN] tax advisors with regard to the application of the United States and
other income tax laws to their particular situations. In particular, a United
States shareholder should consult his [OWN] tax advisor with regard to the
application of the United States federal income tax laws to his situation.
A United States shareholder generally will realize, to the extent of
[OUR] current and accumulated earnings and profits, foreign source ordinary
income on the receipt of cash dividends, if any, on the shares of [OUR COMMON
STOCK] equal to the United States dollar value of such dividends determined by
reference to the exchange rate in effect on the day they are received by [(OR
CREDITED TO)] the United States shareholder (with the value of such dividends
computed before any reduction for any Canadian withholding tax). United States
shareholders should consult their own tax advisors regarding the treatment of
foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code[,] a United States
shareholder may elect to claim [(]as a foreign tax credit against the United
States federal income tax liability of such holder[) THE AMOUNT OF ANY CANADIAN
TAX WITHHELD OR PAID WITH RESPECT TO DIVIDENDS ON THE SHARES OF OUR COMMON
STOCK]. Dividends on the shares of [OUR COMMON STOCK] generally will constitute
"passive income" or, in the case of certain United States shareholders,
"financial services income," for United States foreign tax credit purposes.
[SUBJECT TO THE REQUIREMENTS AND LIMITATIONS IMPOSED BY THE CODE,] United States
shareholders who do not elect to claim any foreign tax credits may claim a
deduction [(IN COMPUTING THEIR UNITED STATES TAXABLE INCOME) FOR ANY] Canadian
income tax withheld [OR PAID WITH RESPECT TO SUCH DIVIDENDS]. Dividends paid on
the shares of [OUR COMMON STOCK] will not be eligible for the dividends received
deduction available in certain cases to United States corporations.
Upon a sale or exchange of a share of [OUR COMMON STOCK], a United
States shareholder will [GENERALLY] recognize gain or loss equal to the
difference between the amount realized on such sale or exchange and the tax
basis of such share of [COMMON STOCK].
Generally, any gain or loss recognized as a result of the foregoing will be a
capital gain or loss and will be either long-term or short-term depending upon
the period of time the shares of [OUR COMMON STOCK THAT WERE] sold or exchanged,
as the case may be, were held.
[Each investor should consult his tax advisor to discuss] the tax
consequences [of owning shares in view of his particular situation, as the
general rules described above may vary depending on his circumstances.]
CANADA
<PAGE>
The following is a summary of [MATERIAL] Canadian federal income tax
considerations generally applicable to the acquisition, holding and disposition
of shares of [OUR COMMON STOCK] purchased pursuant to this [PROSPECTUS] by a
United States shareholder who, for the purposes of the Income Tax Act (Canada)
and the Canada-United States Income Tax Convention, as applicable and at all
relevant times, (i) is resident in the United States and not resident in Canada,
(ii) holds shares of [OUR COMMON STOCK] as capital property, (iii) does not have
a"permanent establishment" or "fixed base" in Canada, and (iv) deals [WITH US]
at arm's length . Special rules, which are not discussed in this summary, may
apply to "financial institutions" and to non-resident insurers carrying on an
insurance business in Canada and elsewhere.
This summary is based on the current provisions of the Income Tax Act
(Canada) and the regulations thereunder and the Canada-United States Income Tax
Convention, all specific proposals to amend the Income Tax Act (Canada) or the
regulations thereunder announced by the Canadian Minister of Finance prior to
the date of this [PROSPECTUS] and the current published administrative practices
of Revenue Canada. This summary does not otherwise take into account or
anticipate any changes in law or administrative practice nor does it take into
account income tax laws or considerations of any province or territory of Canada
or any jurisdiction other than Canada, which may differ from the federal income
tax consequences described herein.
[Each investor should consult his tax advisor to discuss] the tax
consequences [of owning shares in view of his particular situation, as the
general rules described above may vary depending on his circumstances.]
DIVIDENDS
Under the Income Tax Act (Canada) and the Canada-United States Income
Tax Convention, dividends paid or credited, or deemed to be paid or credited, on
the shares of [OUR COMMON STOCK] to a United States shareholder who owns less
than 10% of [OUR] voting shares will be subject to Canadian withholding tax at
the rate of 15% of the gross amount of such dividends or deemed dividends.
Under the Canada-United States Income Tax Convention, dividends paid or
credited to certain religious, scientific, charitable and similar tax exempt
organizations and certain pension organizations that are resident, and exempt
from tax, in the United States and that have complied with certain
administrative procedures are exempt from this Canadian withholding tax.
[Each investor should consult his tax advisor to discuss] the tax
consequences [of owning shares in view of his] particular [situation].
DISPOSITION OF SHARES OF COMMON STOCK
A capital gain realized by a United States shareholder on a disposition
or deemed disposition of
<PAGE>
shares of [OUR COMMON STOCK] will not be subject to tax under the Income Tax Act
(Canada) unless such shares constitute taxable Canadian property within the
meaning of the Income Tax Act (Canada) at the time of the disposition or deemed
disposition. In general, the shares of [OUR COMMON STOCK] will not be "taxable
Canadian property" to a United States shareholder unless they are not listed on
a prescribed stock exchange (which includes the Nasdaq Small Cap Market) or at
any time within the five-year period immediately preceding the disposition the
United States shareholder, persons with whom the United States shareholder did
not deal at arm's length, or the United States shareholder together with such
persons owned or had an interest in or a right to acquire more than 25% of any
class or series of [OUR] shares. A deemed disposition of shares of [OUR COMMON
STOCK] will arise on the death of a United States shareholder.
If the shares of [COMMON STOCK] are taxable Canadian property to a
United States shareholder, any capital gain realized on a disposition or deemed
disposition of such shares will generally be exempt from tax under the Income
Tax Act (Canada) by virtue of the Canada-United States Income Tax Convention if
the value of the shares of [COMMON STOCK] at the time of the disposition or
deemed disposition is not derived principally from real property situated in
Canada. [WE ARE] of the view that the shares of [COMMON STOCK] do not now derive
their value principally from real property situated in Canada; however, the
determination as to whether Canadian tax would be applicable on a disposition or
deemed disposition of shares of [OUR] Company's [COMMON STOCK] must be made at
the time of the disposition or deemed disposition.
[Each investor should consult his tax advisor to discuss] the tax
consequences [of owning shares in view of his] particular [situation].
INVESTMENT CANADA ACT
The Investment Canada Act, a Federal Canadian statute, regulates the
acquisition of control of existing Canadian businesses by any non-Canadian (as
that term is defined in the Investment Canada Act).
[WE ARE] currently a Canadian company (as that term is defined in the
Investment Canada Act). If a non-Canadian seeks to acquire control of [US], such
acquisition will be subject to the Investment Canada Act. In general, any
transaction which is subject to the Investment Canada Act is a reviewable
transaction if the book value of the [TARGET COMPANY'S] assets, as set out in
its most recent financial statements, exceeds the applicable threshold. If the
potential acquirer is a ["]WTO Investor,[" (AS DEFINED BELOW)] acquiring control
of [US] would only be reviewable if the book value of [OUR] assets exceeded
C$192 million. (This number is the threshold amount for 2000 and this amount is
increased each year by a factor equal to the increase in the rate of Canadian
inflation for the previous year). A WTO Investor is defined in the Investment
Canada Act as an investor ultimately controlled by nationals of World Trade
Organization member states, such as the United States of America.
If the book value of [OUR] assets exceeds the applicable threshold for
review,
<PAGE>
the potential acquirer must file an application for review and obtain
the approval of the Minister of Industry before acquiring control of us. In
deciding whether to approve the reviewable transaction, the Minister considers
whether the investment "is likely to be of net benefit to Canada.["] This
determination is made on the basis of economic and policy criteria set out in
the Investment Canada Act.
The approval process begins with an initial review period of 45 days
from the date the completed application is received. However, the Minister of
Industry has authority to extend the review period unilaterally for 30 more
days. Any further extensions require the potential acquirer's consent.
[SHARES ELIGIBLE FOR FUTURE SALE
WE HAVE 32,856,886 SHARES OF COMMON STOCK ISSUED AND OUTSTANDING OF
WHICH 32,669,286 SHARES (INCLUDING THE 3,557,500 SHARES OFFERED BY THIS
PROSPECTUS) WILL BE FREELY TRADEABLE WITHOUT RESTRICTION OR FURTHER
REGISTRATION UNDER THE SECURITIES ACT, EXCEPT FOR ANY SHARES PURCHASED BY AN
AFFILIATE OF INZECO. AN AFFILIATE OF INZECO, A PERSON WHO HAS A CONTROLLING
POSITION WITH REGARD TO INZECO, WILL BE SUBJECT TO RESALE LIMITATIONS OF RULE
144 UNDER THE SECURITIES ACT.
ALL OF THE REMAINING 187,600 SHARES OF COMMON STOCK CURRENTLY
OUTSTANDING THAT WERE SOLD IN THE UNITED STATES AND/OR HELD BY UNITED STATES
RESIDENTS ARE "RESTRICTED SECURITIES" AS THE TERM IS DEFINED IN RULE 144. SUCH
RESTRICTED SHARES WILL BECOME ELIGIBLE FOR SALE BEGINNING 90 DAYS FOLLOWING THE
DATE OF THIS PROSPECTUS, SUBJECT TO THE COMPLIANCE WITH THE NOTICE AND MANNER OF
SALE REQUIREMENTS OF RULE 144 AND PROVIDED WE ARE CURRENT IN OUR REPORTING
OBLIGATIONS UNDER THE SECURITIES ACT OF 1934. IN ADDITION, THE NUMBER OF
RESTRICTED SECURITIES THAT CAN BE SOLD BY A PERSON DURING ANY THREE MONTH PERIOD
IS SUBJECT TO LIMITATIONS UNDER RULE 144.
WE CANNOT PREDICT THE EFFECT, IF ANY, THAT MARKET SALES OF COMMON STOCK
OR THE AVAILABILITY OF THESE SHARES FOR SALE WILL HAVE ON THE MARKET PRICE
PREVAILING FROM TIME TO TIME. NEVERTHELESS, THE POSSIBILITY THAT SUBSTANTIAL
AMOUNTS OF COMMON STOCK MAY BE SOLD IN THE PUBLIC MARKET MAY ADVERSELY AFFECT
PREVAILING MARKET PRICES FOR THE COMMON STOCK AND COULD IMPAIR OUR ABILITY TO
RAISE CAPITAL THROUGH THE SALE OF OUR EQUITY SECURITIES.]
<PAGE>
SELLING SHAREHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the [COMMON STOCK] by the Selling Shareholders and as adjusted to
give effect to the sale of the shares offered in this [PROSPECTUS].
<TABLE>
<CAPTION>
Number of
Number of Number of Shares of Percentage
Shares of Shares of Common of Common
Common Stock Stock Eligible Stock to be Stock to be
Owned as of for Resale Owned Owned
the Date of the Pursuant to Following the following
Name of Selling Securityholder Prospectus the Prospectus Offering the Offering
------------------------------------------ ------------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
250,000 250,000 0 0%
[ELEUTERRA INVESTMENT
MANAGEMENT INC. - FIRST WAVE
INC.]
2004-200 King Street West
Toronto, Ontario M5H 3T4 Canada
Nice Investments LLC 2,807,500 2,807,500 0 0%
40 West Gude Drive, Suite 210
Rockville, MD 20850 500,000 500,000 0 0%
Superior Intech Inc.
1340 Warwick Avenue
Oakville, Ontario L6L 2W1 Canada
</TABLE>
[ALL OF THE SELLING SHAREHOLDERS OTHER THAN NICE INVESTMENTS LLC
ACQUIRED THEIR SHARES IN OCTOBER 2000 UPON CONVERSION OF SPECIAL WARRANTS ISSUED
IN A PRIVATE PLACEMENT CONSUMMATED IN CANADA (AND NOT SUBJECT TO THE SECURITIES
ACT) IN JUNE 2000. THE SPECIAL WARRANTS WERE SOLD FOR
<PAGE>
C$.60 EACH (APPROXIMATELY US$0.45) AND AUTOMATICALLY CONVERTED INTO ONE SHARE OF
COMMON STOCK UPON THE FILING OF AN APPROPRIATE PROSPECTUS WITH ONTARIO
SECURITIES COMMISSION. SUCH SHARES MAY CURRENTLY BE SOLD IN CANADA ON THE
CANADIAN VENTURE EXCHANGE WITHOUT RESTRICTION. SEE "PLAN OF OPERATION."
NICE INVESTMENTS LLC ACQUIRED ITS 2,807,500 SHARES FOR US$.40 EACH IN A
PRIVATE PLACEMENT CONSUMMATED IN THE UNITED STATES IN MAY 2000.
IN RECOGNITION OF THE FACT THAT THE SELLING SHAREHOLDERS MAY WISH TO BE
LEGALLY PERMITTED TO SELL THEIR SHARES OF COMMON STOCK WHEN THEY DEEM
APPROPRIATE, WE AGREED WITH THE SELLING SHAREHOLDERS TO FILE WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION, UNDER THE SECURITIES ACT, AS AMENDED,
A REGISTRATION STATEMENT ON FORM SB-2, OF WHICH THIS PROSPECTUS IS A PART, WITH
RESPECT TO THE RESALE OF THE SHARES OF COMMON STOCK, AND HAVE AGREED TO PREPARE
AND FILE SUCH AMENDMENTS AND SUPPLEMENTS TO THE REGISTRATION STATEMENT AS MAY BE
NECESSARY TO KEEP THE REGISTRATION STATEMENT IN EFFECT UNTIL THE SHARES OF
COMMON STOCK ARE NO LONGER REQUIRED TO BE REGISTERED FOR THE SALE THEREOF BY THE
SELLING SHAREHOLDERS.]
<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock offered hereby by the Selling Shareholders
may be sold from time to time by the Selling Shareholders, or by pledgees,
donees, transferees and other successors in interest. These pledgees, donees,
transferees and other successors in interest will be deemed "Selling
Shareholders" for the purposes of this [PROSPECTUS]. The shares of common stock
may be sold on
- one or more exchanges or in the over-the-counter market
(including the OTC Bulletin Board);
- or in privately negotiated transactions.
The shares of common stock may be sold to or through brokers or
dealers, who may act as agent or principal, or in direct transactions between
the Selling Shareholders and purchasers. In addition, the Selling Shareholder
may, from time to time, sell short the common stock, and in these instances,
this [PROSPECTUS] may be delivered in connection with the short sale and the
shares of common stock offered hereby may be used to cover the short sale.
Transactions involving brokers or dealers may include, without
limitation, the following:
- ordinary brokerage transactions,
- transactions in which the broker or dealer solicits
purchasers,
- block trades in which the broker or dealer will attempt to
sell the shares of common stock as agent but may position and
resell a portion of the block as principal to facilitate the
transaction; and
- purchases by a broker or dealer as a principal and resale by
such broker or dealer for its account.
In effecting sales, brokers and dealers engaged by the Selling
Shareholders or the purchasers of the shares of [COMMON STOCK] may arrange for
other brokers or dealers to participate. These brokers or dealers may receive
discounts, concessions or commissions from the Selling Shareholders and/or the
purchasers of the shares of common stock for whom the broker or dealer may act
as agent or to whom they may sell as principal, or both (which compensation as
to a particular broker or dealer may be in excess of customary commissions).
[WE ARE] bearing all of the costs relating to the registration of the
shares of [COMMON STOCK (ESTIMATED AT US$125,000)] other than certain fees and
expenses, if any, of counsel or other advisors to the Selling Shareholders. Any
commissions, discounts or other fees payable to brokers or dealers in connection
with any sale of the shares of [COMMON STOCK] will be borne by the Selling
Shareholders, the purchasers participating in the transaction, or both.
Any shares covered by this [PROSPECTUS] which qualify for sale pursuant
to Rule 144 under the Securities Act , as amended, may be sold under Rule144
rather than pursuant to this [PROSPECTUS].
The Selling Shareholders have agreed to indemnify [US AND WE HAVE]
agreed to indemnify the Selling Shareholders, against certain liabilities,
including liabilities under the Securities Act [.
<PAGE>
ALL EXPENSES OF REGISTRATION INCURRED IN CONNECTION WITH THIS OFFERING
ARE BEING BORNE BY THE COMPANY, BUT ALL SELLING AND OTHER EXPENSES INCURRED BY
THE SELLING SHAREHOLDERS WILL BE BORNE BY THE SELLING SHAREHOLDERS. SEE "SELLING
SHAREHOLDERS."
THE SELLING SHAREHOLDERS AND ANY BROKER-DEALERS PARTICIPATING IN THE
DISTRIBUTION OF THE SHARES MAY BE DEEMED TO BE "UNDERWRITERS" WITHIN THE MEANING
OF THE SECURITIES ACT, AND ANY COMMISSIONS OR DISCOUNTS GIVEN TO ANY SUCH
BROKER-DEALER MAY BE REGARDED AS UNDERWRITING COMMISSIONS OR DISCOUNTS UNDER THE
1933 ACT.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE BY THE SELLING
SHAREHOLDERS UNDER THE SECURITIES LAWS OF ANY STATE AS OF THE DATE OF THIS
PROSPECTUS. BROKERS OR DEALERS EFFECTING TRANSACTIONS IN THE SHARES SHOULD
CONFIRM THE REGISTRATION THEREOF UNDER THE SECURITIES LAWS OF THE STATES IN
WHICH TRANSACTIONS OCCUR OR THE EXISTENCE OF ANY EXEMPTION FROM REGISTRATION.]
CHANGE IN ACCOUNTANTS
Effective August 21, 1998, KPMG LLP, Chartered Accountants, were
engaged as [OUR] independent auditors, replacing Collins Barrow, [OUR] former
auditors. The change was made in connection with the acquisition of RTICA Inc
(the ["ACQUISITION")]. Prior to the Acquisition, KPMG LLP, Chartered
Accountants, were the auditors for RTICA Inc. and Collins Barrow were the
auditors for Inzeco Holdings Inc. [OUR] Board of Directors determined that it
was in [OUR] best interest to retain KPMG LLP, Chartered Accountants following
the Acquisition, and approved the change of auditors by resolution on August 21,
1998. There were no disagreements with the former auditors on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure with respect to the Company's financial statements for the
fiscal years covered by Collins Barrow or up through the time of replacement.
LEGAL MATTERS
Certain legal matters in connection with the offering, including the
validity of the issuance of the shares of [COMMON STOCK] offered hereby, will be
passed upon for [US] by Stikeman, Graham & Keeley, Toronto, Ontario, Canada.
EXPERTS
[OUR] financial statements as of May 31, 2000 and 1999 and for the
years ended May 31, 2000 and 1999 and for the period from June 13, 1991
(inception) to May 31, 2000, appearing in this [PROSPECTUS] and registration
statement have been audited by KPMG LLP, Chartered Accountants, as set forth in
their report thereon appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The report covering these financial statements includes Comments By
Auditors For U.S. Readers On Canada-U.S. Reporting Differences which is dated
July 31, 2000, except for note 11(b) which is as of October 15, 2000 and note
5(e) which is as of November 17, 2000, which contains a reference to note 1
where it states that [WE] had suffered recurring losses from operations and had
not
<PAGE>
commenced commercial production which raises substantial doubt about [OUR]
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
[UPON THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, WE WILL BE
REQUIRED TO SEND ANNUAL REPORTS TO OUR SHAREHOLDERS UNDER THE SECURITIES
EXCHANGE ACT OF 1934. WE WILL BE] subject to the information requirements of the
Exchange Act of 1934, and, in accordance therewith will file reports, proxy
statements and other information with the United States Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the United
States Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the
United States Securities and Exchange Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Securities
and Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room
1024,Washington, D.C. 20549, and its public reference facilities in New York,
New York and Chicago, Illinois upon payment of the prescribed fees. Electronic
registration statements filed through the Electronic Data Gathering, Analysis,
and Retrieval System are publicly available through the United States Securities
and Exchange Commission's Web site (http://www.sec.gov). Further information on
public reference rooms available at the United States Securities and Exchange
Commission is available by contacting the United States Securities and Exchange
Commission at 1-(800) SEC-0330.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS'
REPORT..................................................................................................F-3
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES.........................F-4
CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2000 AND 1999............................................F-5
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED
MAY 31, 2000 AND 1999 AND CUMULATIVE PERIOD FROM JUNE 13, 1991
(INCEPTION) TO MAY 31,
2000...........................................................................................F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
MAY 31, 2000 AND 1999 AND CUMULATIVE PERIOD FROM JUNE 13, 1991
(INCEPTION) TO MAY 31,
2000...........................................................................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.........................................................F-8
CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
INTERIM CONSOLIDATED BALANCE SHEETS AS OF AUGUST 31, 2000 AND 1999 (UNAUDITED) ...................F-28
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT FOR THE THREE MONTHS
ENDED AUGUST 31, 2000 AND 1999 AND CUMULATIVE PERIOD FROM JUNE 13, 1991
(INCEPTION) TO AUGUST 31, 2000 (UNAUDITED)....................................................F-29
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED AUGUST 31, 2000 AND 1999 AND CUMULATIVE PERIOD FROM JUNE 13, 1991
(INCEPTION) TO AUGUST 31, 2000 (UNAUDITED)....................................................F-30
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS................................................F-31
</TABLE>
F-1
<PAGE>
kpmg
KPMG LLP
CHARTERED ACCOUNTANTS Telephone(905) 949-7800
Mississauga Executive Centre Telefax(905) 949-7799
Four Robert Speck Parkway www.kpmg.ca
Suite 1500
Mississauga ON L4Z 1S1
AUDITORS' REPORT
To the Board of Directors of Inzeco Holdings Inc.
We have audited the consolidated balance sheets of Inzeco Holdings Inc. (a
development stage company) as at May 31, 2000 and 1999 and the consolidated
statements of operations and deficit and cash flows for the years ended May 31,
2000 and 1999 and cumulative period from June 13, 1991 (inception) to May 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company (a development stage
company) as at May 31, 2000 and 1999 and the results of its operations and its
cash flows for the years ended May 31, 2000 and 1999 and for the period from
June 13, 1991 (inception) to May 31, 2000 in accordance with Canadian generally
accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected the financial statements to the extent summarized in note 12
to the consolidated financial statements.
/s/ KPMG LLP
-------------------------------
Chartered Accountants
Mississauga, Canada
July 31, 2000, except for
note 11(b) which is as of
F-2
<PAGE>
October 15, 2000 and note 5(e)
which is as of November 17, 2000
F-3
<PAGE>
kpmg
KPMG LLP
CHARTERED ACCOUNTANTS Telephone(905) 949-7800
Mississauga Executive Centre Telefax(905) 949-7799
Four Robert Speck Parkway www.kpmg.ca
Suite 1500
Mississauga ON L4Z 1S1
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast
substantial doubt on the Company's ability to continue as a going concern,
such as those described in note 1 to the consolidated financial statements.
Our report to the directors dated July 31, 2000, except for note 11(b) which
is as of October 15, 2000 and note 5(e) which is as of November 17, 2000 is
expressed in accordance with Canadian reporting standards which do not permit
a reference to such events and conditions in the auditors' report when these
are adequately disclosed in the financial statements.
/s/ KPMG LLP
-------------------------------
Chartered Accountants
Mississauga, Canada
July 31, 2000, except for
note 11(b) which is as of
October 15, 2000 and note 5(e)
which is as of November 17, 2000
F-4
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheets
(Expressed in Canadian dollars)
May 31, 2000 and 1999
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash in trust (note 5(e)) $1,712,725 $ 666,429
GST receivable 92,953 77,459
Prepaid expenses 8,442 21,966
------------------------------------------------------------------------------
1,814,120 765,854
Fixed assets (note 3) 534,481 18,790
Goodwill, net of accumulated amortization
of $56,210 (1999 - $29,846) 52,728 79,092
Deferred development costs 1 1
------------------------------------------------------------------------------
$2,401,330 $ 863,737
------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 742,348 $ 11,850
Accrued liabilities 25,900 29,500
Convertible debenture (note 4) - 1,460,000
------------------------------------------------------------------------------
768,248 1,501,350
Convertible debentures (note 4) 349,278 -
Shareholders' equity (deficiency):
Share capital (note 5) 5,613,805 2,292,703
Equity component of convertible debentures
(note 4) 10,722 105,000
Deficit accumulated during development stage (4,340,723) (3,035,316)
------------------------------------------------------------------------------
1,283,804 (637,613)
Going concern (note 1)
Commitments and contingencies (note 9)
------------------------------------------------------------------------------
$2,401,330 $ 863,737
------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
On behalf of the Board:
Director
Director
F-6
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999 and cumulative period from June 13, 1991
(inception) to May 31, 2000
------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
2000 1999 May 31, 2000
------------------------------------------------------------------------------
Income:
Interest $ 7,095 $ 60,233 $ 70,423
Fees and licenses 6,077 - 622,482
------------------------------------------------------------------------------
13,172 60,233 692,905
Operating expenses:
Consulting 354,110 102,434 816,834
Management fees 267,174 209,864 884,386
Development 246,870 568,562 1,709,649
General and administrative 116,260 85,221 378,050
Professional fees 117,109 176,652 464,233
Rent 68,187 12,683 99,720
Travel 44,795 82,965 297,462
Interest on convertible debentures 40,248 65,000 105,248
Amortization of goodwill 26,364 26,364 56,210
Repairs and maintenance 18,673 - 18,673
Amortization of fixed assets 8,025 4,094 24,114
Interest and bank charges 10,764 892 134,763
Patents - 12,962 44,286
------------------------------------------------------------------------------
1,318,579 1,347,693 5,033,628
------------------------------------------------------------------------------
Loss for the period (1,305,407) (1,287,460) (4,340,723)
Deficit accumulated during
development stage, beginning of
period (3,035,316) (1,747,856) -
------------------------------------------------------------------------------
Deficit accumulated during
development stage, end of period $(4,340,723) $(3,035,316) $(4,340,723)
------------------------------------------------------------------------------
Loss per share (note 8) $ (0.06) $ (0.06)
------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 23,493,237 21,259,757
------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999 and cumulative period from June 13, 1991
(inception) to May 31, 2000
------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
2000 1999 May 31, 2000
------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Loss for the period $(1,305,407) $(1,287,460) $(4,340,723)
Items not involving cash:
Interest on convertible
debenture 40,248 65,000 105,248
Amortization 34,389 30,458 80,324
Interest expense on
converted loan - - 96,000
Expenses settled by
issuance of common shares - - 431,388
Change in non-cash operating
working capital balances:
GST receivable (15,494) (57,539) (92,953)
Prepaid expenses 13,524 7,010 (8,442)
Accounts payable 730,498 (9,692) 661,003
Accrued liabilities (3,600) 200 25,900
------------------------------------------------------------------------------
(505,842) (1,252,023) (3,042,255)
Financing activities:
Issuance of convertible
debentures 360,000 - 1,860,000
Issuance of common shares 1,715,854 25,250 2,269,767
Issuance of special warrants - - 667,959
Decrease in due to related
parties - (259,792) -
Proceeds from loan payable - - 254,000
------------------------------------------------------------------------------
2,075,854 (234,542) 5,051,726
Investing activities:
Purchase of fixed assets (523,716) (19,180) (558,595)
Investment in deferred
development costs - - (1)
Cash acquired on reverse takeover - - 261,850
------------------------------------------------------------------------------
(523,716) (19,180) (296,746)
------------------------------------------------------------------------------
Increase (decrease) in cash 1,046,296 (1,505,745) 1,712,725
Cash and cash equivalents,
beginning of period 666,429 2,172,174 -
------------------------------------------------------------------------------
Cash and cash equivalents, end of
period $1,712,725 $ 666,429 $1,712,725
------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 10,214 $ 1,241 $ 46,752
------------------------------------------------------------------------------
F-8
<PAGE>
Cash and cash equivalents are comprised of cash and cash in trust.
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
Inzeco Holdings Inc. ("Inzeco" or the "Company") is a public company that was
incorporated on May 30, 1997 under the Business Corporations Act (Alberta) and
is listed on the Canadian Venture Exchange. The Company continues to develop the
technology and productivity process to enable commercial production of
insulating products from recycled plastics and to pursue the sale of licensing
rights to the technology.
1. GOING CONCERN:
These financial statements have been prepared on a going concern basis
and, as such, it has been assumed that the Company will be able to
realize its assets and discharge its liabilities in the normal course of
operations. To May 31, 2000, the Company has incurred continuing losses
from operations and an accumulated a deficit of $4,340,723. The ability
of the Company to continue is dependent upon the ongoing support of its
shareholders, the attainment of financing necessary to complete the
technology and begin commercial production and the achievement of
profitable operations from the commercial production and licencing of
the insulating products and sale of licensing rights. At May 31, 2000,
the Company had cash balances of $1,712,725 and subsequent to year end
issued common shares for proceeds net of issue costs of approximately
$2.2 million (note 11(b)). These financial statements do not include any
adjustments relating to the recoverability of assets and classification
of liabilities or any other adjustments that might be necessary should
the Company be unable to continue as a going concern.
F-10
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES:
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada. A reconciliation to accounting
principles generally accepted in the United States is provided in note 12.
Significant accounting policies adopted by the Company are as follows:
(a) Basis of presentation:
These financial statements include the accounts of the Company and its
wholly owned subsidiaries, Inzeco Overseas Limited and RTICA Inc.
("RTICA"), (formerly E2 Development Corporation ("E2D")). RTICA was
acquired in a reverse takeover and is treated as the continuing entity
and the acquiror for financial accounting purposes, notwithstanding that
Inzeco is the continuing entity for legal purposes given that the former
shareholders of RTICA controlled the combined entity after the
transaction. Accordingly, the consolidated statements of operations are
a continuation of RTICA's financial statements, and therefore reflect
the following:
(i) the operations of RTICA from inception (June 13, 1991); and
(ii) the operations of the Inzeco after April 28, 1998, the date of
acquisition.
As part of the reverse takeover, Inzeco entered into share for share
agreements with each shareholder of E2D whereby Inzeco agreed to acquire
all of the outstanding common shares and 310,908 common share purchase
warrants of E2D, in exchange for 17,499,995 common shares and 1,243,633
common share purchase warrants of Inzeco which represented 86% of the
issued and outstanding common shares of Inzeco on a fully diluted basis
as at April 28, 1998.
F-11
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The accounting for the business combination was as follows:
------------------------------------------------------------------------------
Ascribed value attributed to shares and
warrants issued to acquire Inzeco Holdings Inc. $ 480,000
Less transaction costs (190,557)
------------------------------------------------------------------------------
Net proceeds $ 289,443
------------------------------------------------------------------------------
Fair value of net assets of Inzeco Holdings Inc.:
Current assets (including cash of $261,850) $ 350,811
Goodwill 108,938
Current liabilities (170,306)
------------------------------------------------------------------------------
$ 289,443
------------------------------------------------------------------------------
All significant intercompany transactions and balances are eliminated on
consolidation.
(b) Fixed assets:
Fixed assets are recorded at original cost less accumulated
amortization. Amortization is provided when the assets are available for
use, on a declining-balance basis over the estimated useful lives of the
assets at the following annual rates:
------------------------------------------------------------------------------
Machinery and equipment 25%
Furniture 25%
Vehicles 30%
Computer hardware 30%
------------------------------------------------------------------------------
(c) Goodwill:
Goodwill is recorded at cost less accumulated amortization and is being
amortized on a straight-line basis over five years. On an annual basis,
management reviews the recoverability of goodwill by assessing future
cash flows on an undiscounted basis.
F-12
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Development and patents:
Development costs are expensed in the period incurred until technical
feasibility has been obtained, adequate resources exist and
recoverability is assured at which time development costs are
capitalized. To date only a nominal amount of development costs has been
capitalized. Patent costs are expensed in the period incurred, prior to
establishment of technical feasibility of the product.
(e) Income taxes:
The Company follows the tax allocation method of accounting for income
taxes, whereby the provision for income taxes is based upon income for
financial reporting purposes rather than income for tax purposes. Timing
differences may occur when revenue and expense are recognized in the
accounts in one year, but are taxed or claimed for income tax purposes
in another year. The tax effect of these timing differences is recorded
as deferred income taxes.
(f) Foreign currency translation:
Transactions in foreign currencies are translated into Canadian dollars
using exchange rates in effect on the date of the transaction. Monetary
assets and liabilities are translated into Canadian dollars using
current exchange rates and non-monetary assets and liabilities using
historical exchange rates. Translation gains and losses are included in
the consolidated statement of operations and deficit.
(g) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the year. Actual results could differ from those estimates.
F-13
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Fair values of financial instruments:
Cash and cash held in trust and accounts payable and accrued liabilities
are reflected in the financial statements at carrying values which
approximate fair values because of the short-term maturities of these
instruments. The carrying value of the debt component of the convertible
debentures approximates its fair value since the interest rate
approximates current interest rates.
(i) Stock-based compensation plan:
The Company has a stock-based compensation plan, which is described in
note 5(c). No compensation expense is recognized for this plan when
shares or stock options are issued to employees or non-employees. Any
consideration paid by employees or non-employees on exercise of stock
options or purchase of shares is credited to share capital. If shares or
stock options are repurchased from employees or non-employees, the
excess of the consideration paid over the carrying amount of the shares
or stock options cancelled is charged to deficit.
3. FIXED ASSETS:
------------------------------------------------------------------------------
Accumulated Net book
2000 Cost amortization value
------------------------------------------------------------------------------
Machinery and equipment $525,292$ 7,842 $517,450
Furniture 10,105 1,263 8,842
Vehicles 7,500 1,125 6,375
Computer hardware 15,698 13,884 1,814
------------------------------------------------------------------------------
$558,595 $ 24,114 $534,481
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Accumulated Net book
1999 Cost amortization value
------------------------------------------------------------------------------
Machinery and equipment $ 19,181 $ 2,983 $ 16,198
Computer hardware 15,698 13,106 2,592
------------------------------------------------------------------------------
$ 34,879 $ 16,089 $ 18,790
------------------------------------------------------------------------------
F-14
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
F-15
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
4. CONVERTIBLE DEBENTURES:
On May 26, 1998, the Company issued a $1,500,000 Series I Convertible
Senior Debenture. The principal was convertible at any time, in whole or in
part, at the option of the holder into common shares at $0.55 per common
share. Once the Company built a plant which produced a specified output,
the debenture was convertible at the Company's option. On December 21,
1999, the debenture was converted at the Company's option into 2,727,723
common shares at $0.55 per common share.
The amount of interest recorded in the current year prior to conversion was
$40,248 (1999 - $65,000).
On April 15, 2000, the Company issued three $120,000 convertible debentures
for total proceeds of $360,000. The principal and any accrued and unpaid is
convertible at any time, in whole or in part, at the option of the holder
into common shares at $0.40 per common share. The principal outstanding
bears interest at 6.5% per annum payable semi-annually and in arrears on
June 15 and December 15 of each year, commencing on June 15, 2000 and is
due on June 30, 2001. The debenture is secured by the tangible assets of
the Company and can be subordinated to other debt incurred by the Company
up to $1,250,000.
These debentures represent compound financial instruments with their
component parts measured at their respective fair values at the time of
issue. The debt component has been calculated at the present value of the
required payment at maturity, discounted at 8% which approximates the
interest rate that would have been applicable to non-convertible debt at
the date of issue. The original value assigned will increase over time to
the settlement amount on maturity, with a corresponding charge to interest
expense for the year.
F-16
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
4. CONVERTIBLE DEBENTURES (CONTINUED):
The equity component represents the excess of the face value over the debt
component at the date of issuance. THE CONTINUITY OF THE EQUITY COMPONENT
OF CONVERTIBLE DEBENTURES FROM INCEPTION IS AS FOLLOWS:
F-17
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
------------------------------------------------------------------------------
EQUITY COMPONENT OF $1,500,000 CONVERTIBLE
DEBENTURE, MAY 26, 1998 $105,000
------------------------------------------------------------------------------
BALANCE, MAY 31, 1998 AND 1999 105,000
CONVERSION OF $1,500,000 CONVERTIBLE
DEBENTURE, DECEMBER 21, 1999 (105,000)
EQUITY COMPONENT OF THREE $120,000 CONVERTIBLE
DEBENTURES, APRIL 15, 2000 10,722
------------------------------------------------------------------------------
BALANCE, MAY 31, 2000 $ 10,722
------------------------------------------------------------------------------
5. SHARE CAPITAL:
The authorized share capital of the Company consists of unlimited
preference shares issuable in series and unlimited common shares.
F-18
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
5. SHARE CAPITAL (CONTINUED):
Common share transactions from inception are as follows:
------------------------------------------------------------------------------
Shares Amount
------------------------------------------------------------------------------
Shares issued for cash, June 13, 1991 1,000 $ 10
Shares issued on stock split, May 30, 1996 2,199,000 -
Shares issued for consulting services,
May 30, 1996 456,166 431,388
------------------------------------------------------------------------------
Balance, May 31, 1997 2,656,166 431,398
Shares issued for cash, August 29, 1997 825,000 275,000
Shares issued on conversion of warrants,
December 23, 1997 145,833 121,528
Shares issued on conversion of warrants,
March 7, 1998 153,750 128,125
Shares issued on conversion of E2D warrants,
March 7, 1998 20,250 -
Shares issued for debt and accrued interest,
April 28, 1998 236,830 350,000
Shares exchanged on reverse takeover,
April 28, 1998 (4,037,829) -
Shares exchanged on reverse takeover,
April 28, 1998 17,499,995 -
Shares issued to Inzeco shareholders at
reverse takeover, April 28, 1998 2,925,000 289,443
Shares issued on exercise of options,
May 20, 1998 20,000 4,000
------------------------------------------------------------------------------
Balance, May 31, 1998 20,444,995 1,599,494
Shares issued on conversion of special
warrants, October 25, 1998 1,666,667 667,959
Shares issued on exercise of options,
May 20, 1999 126,250 25,250
------------------------------------------------------------------------------
Balance, May 31, 1999 22,237,912 2,292,703
Shares issued on conversion of debenture,
December 21, 1999 2,727,723 1,605,248
Shares issued on exercise of options,
October 26, 1999 75,000 33,750
Shares issued on exercise of options,
November 26, 1999 125,000 25,000
Shares issued for cash, May 31, 2000 2,807,500 1,657,104
------------------------------------------------------------------------------
Balance, May 31, 2000 27,973,135 $5,613,805
------------------------------------------------------------------------------
F-19
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
5. SHARE CAPITAL (CONTINUED):
Shares which may be issued under options, warrants and convertible
debenture are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Weighted
average Weighted
Range of remaining average
Number exercise contractual exercise
of shares price Expiry life price
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors' and management's December 20, 2001 to
stock option plan 1,870,250 $0.20 - 0.25 April 29, 2003 3.06 years $ 0.20
Directors' and management's December 20, 2001 to
stock option plan 145,000 0.35 - 0.39 February 8, 2003 2.75 years 0.38
Common share purchase
warrants 1,243,633 0.65 June 30, 2000
Convertible debenture 900,000 0.40 June 30, 2001
------------------------------------------------------------------------------------------------------------------
</TABLE>
All options outstanding at May 31, 2000 are exercisable.
(a)On April 28, 1998, all of RTICA's outstanding common shares and
warrants were exchanged for 17,499,995 common shares and 1,243,633
warrants of Inzeco. The warrants have an exercise price of $0.65 per
common share, with an expiry date of June 30, 2000.
In connection with this transaction, the Canadian Venture Exchange
required that a total of 10,939,937 common shares be held in escrow. Of
these shares, 1,640,998 shall be released at a rate of 1/3 each year
commencing April 28, 1999. On April 28, 2000, 547,000 (1999 - 546,999)
shares were released from escrow. The remaining 9,298,939 are to be
released at a rate of 1 share for every $0.20 of cash flow generated to
a maximum of 1/3 per year. Cash flow generated is defined by the escrow
agreement to be audited net income adjusted by certain non-cash items.
None of these shares were released from escrow in 2000.
1,350,000 common shares are also held in escrow in connection with the
initial public offering of Inzeco pursuant to the prospectus of the
Company dated September 19, 1997. These initial escrowed shares will
also be released at a rate of 1/3 for each of the three years ending
April 28, 1999, 2000 and 2001, respectively. During the year, 449,999
(1999 -
F-20
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
450,000) shares were released from escrow.
F-21
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
5. SHARE CAPITAL (CONTINUED):
(b)On April 28, 1998, Inzeco completed a private placement of 1,666,667
special warrants at a subscription price of $0.45 each for net proceeds
of $667,959. The special warrants were converted to common shares on
October 25, 1998. In addition to the commission of 10% of the gross
proceeds of the issue, the Agent was granted a non-transferable option
to acquire 166,667 common shares at $0.45 per share. On October 26,
1999, the Agent exercised 75,000 share options for total consideration
of $33,750. The remaining 91,667 options expired on October 27, 1999.
(c)Inzeco has established a stock option plan for its directors and
officers and certain consultants and has reserved for issuance 2,503,750
common shares. Pursuant to the plan, stock options vest immediately and
are exercisable for a period of between three to five years from the
date of grant. Options are granted at the closing market price of the
Company's common stock on the date of grant. At year end, 2,015,250
(1999 - 2,020,250) options are outstanding at an exercise price ranging
from $0.20 to $0.39 per share with 1,705,250 (1999 - 1,830,250) options
issued to five directors and officers.
A SUMMARY OF THE COMPANY'S STOCK OPTION ACTIVITY IS AS FOLLOWS:
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE
------------------------------------------------------------------------------
OUTSTANDING, BEGINNING
OF YEAR 2,020,200 $ 0.20 2,035,000 $ 0.20
GRANTED 120,000 0.38 85,000 0.28
EXERCISED (125,000) 0.20 (71,250) 0.20
FORFEITED - - (28,500) 0.20
------------------------------------------------------------------------------
OUTSTANDING, END OF
YEAR 2,015,200 0.21 2,020,250 0.20
------------------------------------------------------------------------------
EXERCISABLE, END
OF YEAR 2,015,200 $ 0.21 2,020,250 $0.20
------------------------------------------------------------------------------
AVAILABLE FOR GRANT 488,500 108,500
------------------------------------------------------------------------------
During the year, the maximum number of shares issuable under the stock
option plan was
F-22
<PAGE>
increased by 500,000 to 2,700,000.
F-23
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
5. SHARE CAPITAL (CONTINUED):
(d)In connection with an initial public offering in fiscal 1998, 150,000
non-transferable common share purchase options at $0.20 each were
granted to the Agent. 95,000 options were exercised in fiscal 1998 for
total consideration of $19,000. On May 20, 1999, 55,000 options were
exercised for total consideration of $11,000.
F-24
<PAGE>
(e)On May 31, 2000, Inzeco completed a private placement of 2,807,500
common shares with a subscription price of U.S. $0.40 per share for
gross proceeds of U.S. $1,123,000 or Cdn. $1,680,570. The shares were
fully paid, with the proceeds held in trust by the Company's escrow
agent until June 6, 2000 when the Funds were wired to the Company. Costs
of arranging the private placement were $23,466. If the Company does not
have a Registration Statement filed and declared effective by the
Securities and Exchange Commission in the United States by December 31,
2000, the Company will be required to issue one additional common share
for each ten shares issued under this private placement.
The Registration Statement was filed on November 17, 2000.
6. RELATED PARTY TRANSACTIONS:
In the normal course of operations, the Company had the following
transactions, which were measured at the exchange amount, with certain
related parties:
------------------------------------------------------------------------------
NATURE OF RELATIONSHIP 2000 1999
------------------------------------------------------------------------------
PURCHASE OF FIXED ASSETS SHAREHOLDER $330,000 $ -
MANAGEMENT FEES SHAREHOLDERS, OFFICERS
AND DIRECTORS 267,000 210,000
CONSULTING SHAREHOLDERS, OFFICERS
AND DIRECTORS 163,000 18,000
DEVELOPMENT CHARGES SHAREHOLDERS, OFFICER
AND DIRECTOR 57,000 452,000
PROFESSIONAL FEES SHAREHOLDER, OFFICER
AND DIRECTOR 26,000 36,000
------------------------------------------------------------------------------
F-25
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
7. INCOME TAXES:
During the year, approximately $301,000 of non-capital losses expired.
At May 31, 2000, the Company has approximately $2,854,000 of non-capital
losses and $136,000 of research and development expenses available to
reduce future years' income for income tax purposes. The tax benefit of
these items will be recorded in the consolidated financial statements when
realized:
------------------------------------------------------------------------------
Non-capital losses:
2002 $ 257,000
2003 200,000
2004 210,000
2005 813,000
2006 349,000
2007 1,025,000
Research and development expenses - no expiry 136,000
------------------------------------------------------------------------------
8. LOSS PER SHARE:
Loss per share figures are calculated using the weighted average number of
common shares outstanding calculated on a daily basis. The effect of the
exercise of the special warrants, share purchase options and share purchase
warrants and the conversion of the convertible debentures would not have a
dilutive effect.
F-26
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES:
(a)On September 1, 1997, the Company sold for proceeds of $20,000 an
option for an exclusive license to make, use and sell insulation
products in western Canada using the Company's technology. If the option
is exercised, the price for the license is $500,000 for a 10-year term.
F-27
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES (CONTINUED):
(b)The Company is committed to minimum annual payments under an operating
lease for its administrative office and manufacturing facility as
follows:
------------------------------------------------------------------------------
2001 $ 60,000
2002 60,000
2003 62,500
2004 65,000
------------------------------------------------------------------------------
$247,500
------------------------------------------------------------------------------
(c)On February 1, 2000, the Company signed a contract with the National
Research Council which is to perform certain research and development
projects on the Company's behalf. The Company is committed to pay
$20,000 per month from February 2000 to June 2001 as well as three
additional payments of $20,000 each once certain reporting milestones
are achieved. Under a separate grant program with the Federal
government, the Company is eligible to be reimbursed for a portion of
its expenses from the above program as they are incurred, to a maximum
of $200,000. At year end, the Company has been reimbursed for $30,000 of
expenditures incurred to date, WHICH HAS BEEN CREDITED TO DEVELOPMENT
EXPENSES.
10. COMPARATIVE FIGURES:
Certain 1999 comparative figures have been reclassified to conform to the
financial statement presentation adopted in 2000.
F-28
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS:
(a)On June 6, 2000, an additional 450,000 options at an exercise price of
$0.75, with an expiry date of June 6, 2003, were reserved for a
consultant.
F-29
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS (CONTINUED):
(b)On June 14, 2000, Inzeco completed a private placement of 4,033,333
special warrants at a subscription price of $0.60 each for gross cash
proceeds of $2,420,000. Each special warrant was convertible into one
common share or 1.1 common shares if a receipt for the related
prospectus was not received by October 15, 2000. Costs of arranging the
private placement, including Agent's commissions is $217,300 plus
201,667 special warrants granted to the Agent.
The prospectus was filed on October 12, 2000 and on October 15, 2000 the
special warrants were converted into 4,033,333 common shares.
(c)On June 30, 2000, 850,418 of the 1,243,633 common share purchase
warrants were exercised for $553,541. The remaining 393,215 warrants
expired on the same day.
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES:
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP")
which differ in certain respects with those principles and practices that
the Company would have followed had its financial statements been prepared
in accordance with accounting principles and practices generally accepted
in the United States ("U.S. GAAP").
The Company's accounting principles generally accepted in Canada differ
from accounting principles generally accepted in the United States as
follows:
(a) Earnings per share:
Under Canadian GAAP, basic earnings per share are calculated including
the escrow shares, while under U.S. GAAP, 9,298,939 of the escrowed
shares outstanding at year end requiring the Company to meet specified
performance measures are considered contingently issued and accordingly
are excluded from the basic earnings per share calculation. SINCE THE
COMPANY IS IN A LOSS POSITION ALL POTENTIAL COMMON SHARE ISSUANCES WOULD
RESULT IN AN ANTI-DILUTIVE PER SHARE AMOUNT. THE FOLLOWING ARE ITEMS
WHICH COULD POTENTIALLY DILUTE BASIC EARNINGS PER SHARE IN THE FUTURE:
(I) THE CONVERSION OF THE THREE CONVERTIBLE DEBENTURES DISCLOSED IN
NOTE 4;
F-30
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(ii) THE RELEASE OF THE 9,298,939 PERFORMANCE RELEASE ESCROW SHARES
DISCLOSED IN NOTE 5(a);
(iii) THE EXERCISE OF THE 2,015,250 DIRECTORS AND OFFICERS STOCK
OPTIONS DISCLOSED IN NOTE 5(c); AND
(iv) THE EXERCISE OF THE 850,418 COMMON SHARE PURCHASE WARRANTS, WHICH
OCCURRED ON JUNE 30, 2000 AS DISCLOSED IN NOTE 11(c).
THE RECONCILIATION OF THE OUTSTANDING SHARES FOR PURPOSES OF THE BASIC
EARNINGS PER SHARE CALCULATION UNDER CANADIAN AND U.S. GAAP IS AS
FOLLOWS:
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Weighted average number of outstanding
shares for Canadian GAAP 23,493,237 21,259,757
Less escrow shares to be released based on
achieving specified performance measures 9,298,939 9,298,939
------------------------------------------------------------------------------
Weighted average number of outstanding
shares for U.S. GAAP 14,194,298 11,960,818
------------------------------------------------------------------------------
(b) Deferred tax assets:
Under Canadian GAAP, the Company accounts for income taxes using the tax
allocation method under which income taxes are provided in the year
transactions affect net income regardless of when such transactions are
recognized for tax purposes. The Financial Accounting Standards Board
("FASB") issued Statement 109 on Accounting for Income taxes ("FAS 109")
which is effective for fiscal years beginning after December 14, 1992.
FAS 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled.
F-31
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
The following table summarizes the significant components of the
Company's deferred tax balances:
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Deferred tax assets:
Non-capital loss carryforwards $1,085,000 $ 809,000
Deferred financing costs 74,000 81,000
Fixed assets 29,000 26,000
Cumulative eligible capital 1,000 1,000
Research and development expenses 51,000 -
Investment tax credit 12,000 -
------------------------------------------------------------------------------
1,252,000 917,000
Valuation allowance for deferred tax asset (1,252,000) (917,000)
------------------------------------------------------------------------------
$ - $ -
------------------------------------------------------------------------------
F-32
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
The valuation allowance on deferred tax asset must reflect that portion
of the future tax assets including the income tax loss carryforward
which more likely than not will not be realized from future operations.
Considering the Company's cumulative losses in recent years, the Company
believes it is appropriate to provide an allowance of 100% against all
available future tax assets including income tax loss carryforwards,
regardless of their terms of expiry.
(c) Stock options:
Beginning in 1996, United States accounting principles allow, but do not
require companies to record compensation for employee stock option plans
at fair value. The Company has chosen to continue to account for
employee stock options using the intrinsic value method as permitted
under Canadian and United States accounting principles. Using this
approach, however, the Company is still required under United States
accounting principles to account for stock options issued to consultants
under the fair value method.
F-33
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
Since none of the Company's stock options have been issued by virtue of
employment or directorship, all of the stock options have been accounted
for under U.S. GAAP using the fair value method. The fair value of these
options has been estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 2000 and 1999,
respectively: risk free interest rate of 6.4% and 4.7%; dividend yields
of 0%, volatility factors of the expected market price of the Company's
common stock of 310% and 160%; and a weighted average expected life of
the options of 3 years. The estimated fair value of these options is
expensed in the period granted since there is no vesting period. The
weighted average grant date fair values of options issued in 2000 and
1999 were $0.38 and $0.35, respectively.
The United States accounting pronouncement does also require the
disclosure of pro forma loss and loss per share information as if the
Company had accounted for its employee stock options issued in 1995 and
subsequent years under the fair value method. As all options have
already been accounted for under the fair value method, the pro forma
information is the same as reported for the year.
F-34
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
(d) Convertible debentures:
Under Canadian GAAP, convertible debentures are split for accounting
purposes between debt and shareholders' equity as described in note 4.
Under U.S. GAAP, all of the convertible debenture is recorded as debt,
except if the conversion price at date of issuance is less than the fair
market value, in which case the intrinsic value of the beneficial
conversion feature is allocated to paid-in capital and the resulting
discount is recognized as interest expense over the period through to
the earliest conversion date. The convertible debenture issued on April
15, 2000 is considered to have a beneficial conversion feature under
U.S. GAAP given that the conversion price of $0.40 per share was less
than the recent private placements of $0.60 per share.
F-35
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(e) Business combinations:
Under Canadian GAAP, a reverse takeover transaction is accounted for as
a business combination, with the amount of the purchase price in excess
of the fair market value of the net assets acquired allocated to
goodwill. Under U.S. GAAP, the merger of a private operating company
into a non-operating public shell corporation with nominal net assets is
considered to be a capital transaction, rather than a business
combination, with no goodwill being recorded.
(f) Comprehensive income:
Under U.S. GAAP, comprehensive income or loss must be reported which is
defined as all changes in equity other than those resulting from
investments by owners and distributions to owners. Under U.S. GAAP, the
Company's comprehensive loss is the same as its reported loss for the
year.
F-36
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
(g) New accounting pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No.133 established methods of
accounting for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities.
Application for this SFAS has been postponed. As such, the Company will
be required to implement SFAS No. 133 for its fiscal year ended May 31,
2001.
The Company expects that the adoption of this pronouncement will have no
material impact on its financial position, results of operations or cash
flows.
The U.S. Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), on December 3, 1999. It is effective for the Company no later
than the fourth quarter of fiscal 2001. SAB 101 provides additional
guidance on the application of existing generally accepted accounting
principles to revenue recognition in financial statements. The Company
does not expect the guidance of SAB 101 to have a material effect on its
financial statements upon adoption.
F-37
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
The impact of the items noted above on the financial statements is as
follows:
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Loss for the year per Canadian GAAP $(1,305,407) $(1,287,460)
Goodwill amortization 26,364 26,364
Compensation expense from stock options
issued to non-employees (45,950) (29,450)
Additional interest resulting from
beneficial conversion feature on
convertible debt (180,000) -
------------------------------------------------------------------------------
Loss for the year per U.S. GAAP $(1,504,993) $(1,290,546)
------------------------------------------------------------------------------
Basic loss per share per U.S. GAAP $ (0.11) $ (0.11)
------------------------------------------------------------------------------
Weighted average number of shares
outstanding per U.S. GAAP 14,194,298 11,960,818
------------------------------------------------------------------------------
F-38
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Total convertible debentures per Canadian
GAAP $ 349,278 $1,460,000
Reclass equity component of convertible
debentures 10,722 105,000
------------------------------------------------------------------------------
Total convertible debentures per U.S. GAAP $ 360,000 $1,565,000
------------------------------------------------------------------------------
Other paid-in capital, end of the year per
Canadian GAAP $ - $ -
Fair value of stock options issued to
non-employees 438,195 392,245
BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE
DEBENTURES 180,000 -
------------------------------------------------------------------------------
Other paid-in capital, end of the year per
U.S. GAAP $ 618,195 $ 392,245
------------------------------------------------------------------------------
Share capital, end of the year per Canadian
GAAP $5,613,805 $2,292,703
Elimination of goodwill (108,938) (108,938)
------------------------------------------------------------------------------
Share capital, end of the year per U.S. GAAP $5,504,867 $2,183,765
------------------------------------------------------------------------------
F-39
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
The consolidated statement of deficit under U.S. GAAP is as follows:
------------------------------------------------------------------------------
Deficit, June 1, 1998 per Canadian GAAP $(1,747,856)
Goodwill amortization for years prior to 1999 3,482
Compensation expense from stock options for years
prior to 1999 (362,795)
------------------------------------------------------------------------------
Deficit, June 1, 1998 per U.S. GAAP (2,107,169)
Loss for the year per U.S. GAAP (1,290,546)
------------------------------------------------------------------------------
Deficit, May 31, 1999 per U.S. GAAP (3,397,715)
Loss for the year per U.S. GAAP (1,504,993)
------------------------------------------------------------------------------
Deficit, May 31, 2000 per U.S. GAAP $(4,902,708)
F-40
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $3,191,274 $ 190,444
Miscellaneous receivable 121,070 92,041
Loan receivable - 25,000
Prepaid expenses 8,442 22,666
------------------------------------------------------------------------------
3,320,786 330,151
Fixed assets 510,414 142,895
Goodwill, net of accumulated amortization
of $62,801 (1999 - $36,437) 46,137 72,501
Deferred development costs 1 1
------------------------------------------------------------------------------
$3,877,338 $ 545,548
------------------------------------------------------------------------------
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Accounts payable $ 35,262 $ 33,250
Convertible debentures 356,321 1,472,232
------------------------------------------------------------------------------
391,583 1,505,482
Shareholders' equity (deficiency):
Share capital 8,370,046 2,292,703
Equity component of convertible debentures 10,722 105,000
Deficit (4,895,013) (3,357,637)
------------------------------------------------------------------------------
3,485,755 (959,934)
------------------------------------------------------------------------------
$3,877,338 $ 545,548
------------------------------------------------------------------------------
See accompanying notes to interim financial statements.
F-41
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
Three months ended August 31, 2000 and 1999 and cumulative period from June 13,
1991 (inception) to August 31, 2000 (Unaudited)
------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
August 31,
2000 1999 2000
------------------------------------------------------------------------------
Income:
Interest $ 22,626 $ 3,361 $ 93,049
Fees and licenses - 6,077 622,482
------------------------------------------------------------------------------
22,626 9,438 715,531
Operating expenses:
General and administrative 291,758 236,918 669,808
Other 236,986 66,232 4,572,229
Amortization of fixed assets 34,267 9,561 58,381
Interest on convertible debenture 7,043 12,232 112,291
Amortization of goodwill 6,591 6,591 62,801
Interest and bank charges 271 225 135,034
------------------------------------------------------------------------------
576,916 331,759 5,610,544
------------------------------------------------------------------------------
Loss for the period (554,290) (322,321) (4,895,013)
Deficit accumulated during
development stage, beginning of
period (4,340,723) (3,035,316) -
------------------------------------------------------------------------------
Deficit accumulated during
development stage, end of period $(4,895,013) $(3,357,637) $(4,895,013)
------------------------------------------------------------------------------
Loss per share $ (0.02) $ (0.02)
------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 28,540,080 22,237,912
------------------------------------------------------------------------------
See accompanying notes to interim financial statements.
F-42
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Three months ended August 31, 2000 and 1999 and cumulative period
from June 13, 1991
(inception) to August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
August 31,
2000 1999 2000
--------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Loss for the period $ (554,290) $ (322,321) $(4,895,013)
Items not involving cash:
Interest on convertible
debenture 7,043 12,232 112,291
Amortization 40,858 16,152 121,182
Interest expense on
converted loan - - 96,000
Expenses settled by
issuance of common shares - - 431,388
Change in non-cash operating
working capital:
Miscellaneous receivable (28,117) (14,582) (121,070)
Loan receivable - (25,000) -
Prepaid expenses - (700) (8,442)
Accounts payable (732,986) (8,100) (46,083)
Accrued liabilities (25,900) - -
--------------------------------------------------------------------------------
(1,267,492) (342,319) (4,309,747)
Financing activities:
Issuance of convertible
debentures - - 1,860,000
Issuance of common shares 2,756,241 - 5,026,008
Issuance of special warrants - - 667,959
Proceeds from loan payable - - 254,000
--------------------------------------------------------------------------------
2,756,241 - 7,807,967
Investing activities:
Purchase of fixed assets (10,200) (133,666) (568,795)
Investment in deferred
development costs - - (1)
Cash acquired on reverse takeover - - 261,850
--------------------------------------------------------------------------------
(10,200) (133,666) (306,946)
--------------------------------------------------------------------------------
F-43
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Three months ended August 31, 2000 and 1999 and cumulative period
from June 13, 1991
(inception) to August 31, 2000
(Unaudited)
--------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
August 31,
2000 1999 2000
--------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 1,478,549 (475,985) 3,191,274
Cash and cash equivalents,
beginning of period 1,712,725 666,429 -
--------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $3,191,274 $ 190,444 $3,191,274
--------------------------------------------------------------------------------
See accompanying notes to interim financial statements.
F-44
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Interim Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Three months ended August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
These interim financial statements include all adjustments which in the
opinion of management are necessary in order to make the financial
statements not misleading. For a full description of accounting polices
which have been applied on a consistent basis in these interim financial
statements, except as described in note 2, refer to the Company's annual
financial statements. Accounting principles generally accepted in Canada
vary in certain significant respects from accounting principles generally
accepted in the United States. Application of accounting principles
generally accepted in the United States would have affected the financial
statements to the extent summarized in note 4 to the interim financial
statements.
2. CHANGE IN ACCOUNTING POLICY:
Effective January 1, 2000, The Canadian Institute of Chartered Accountants
("CICA") changed the accounting standards relating to the accounting for
income taxes. The CICA's new standard on accounting for income taxes adopts
the liability method of accounting for future income taxes. Under the
liability method, future income tax assets and liabilities are determined
based on "temporary differences" (differences between the accounting basis
and the tax basis of the assets and liabilities), and are measured using
the currently enacted, or substantively enacted, tax rates and laws
expected to apply when these differences reverse. A valuation allowance is
recorded against any future income tax asset if it is more likely than not
that the asset will not be realized. Income tax expense or benefit is the
sum of the Company's provision for current income taxes and the difference
between the opening and ending balances of the future income tax assets and
liabilities.
Prior to adoption of this new accounting standard, income tax expense was
determined using the deferral method. Under this method, deferred income
tax expense was determined based on "timing differences" (difference
between the accounting and tax treatment of items of expense or income),
and were measured using the tax rates in effect in the year the differences
originated. Certain deferred tax assets, such as the benefit of tax losses
carried forward, were not recognized unless there was virtual certainty
that they would be realized.
The adoption of this standard has had no impact on the Company's financial
position, results of operations or cash flows.
F-45
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
3. SHARE CAPITAL:
(a)On June 6, 2000, an additional 450,000 options at an exercise price of
$0.75, with an expiry date of June 6, 2003 were reserved for a
consultant.
(b)On June 14, 2000, the Company completed a private placement of
4,033,333 special warrants at a subscription price of $0.60 each for
gross cash proceeds of $2,420,000. Each special warrant is convertible
into 1 common share or 1.1 common shares, if a receipt for the related
prospectus is not received by October 15, 2000. Costs of arranging the
private placement, including agent's commissions, is $217,300 plus
201,667 special warrants granted to the agent.
The prospectus was filed on October 12, 2000 and on October 15, 2000,
the special warrants were converted into 4,033,333 common shares.
(c)On June 30, 2000, 850,418 of the 1,243,633 common share purchase
warrants were exercised for $553,541. The remaining 393,215 warrants
expired on the same day.
(d)On May 31, 2000, Inzeco completed a private placement of 2,807,500
common shares with a subscription price of U.S. $0.40 per share for
gross proceeds of U.S. $1,123,000 or Cdn. $1,680,570. The shares were
fully paid, with the proceeds held in trust by the Company's escrow
agent until June 6, 2000 when the Funds were wired to the Company. Costs
of arranging the private placement were $23,466. If the Company does not
have a Registration Statement filed and declared effective by the
Securities and Exchange Commission in the United States by December 31,
2000, the Company will be required to issue 1 additional common share
for each 10 shares issued under this private placement.
The Registration Statement was filed on November 17, 2000.
On August 31, 2000, the Company had 28,823,553 common shares and 2,015,250
stock options outstanding.
F-46
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
These interim financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"), which
differ in certain respects from those principles and practices that the
Company would have followed had its financial statements been prepared in
accordance with accounting principles and practices generally accepted in
the United States ("U.S. GAAP").
Canadian GAAP differs from accounting U.S. GAAP as follows:
(a) Earnings per share:
Under Canadian GAAP, basic earnings per share are calculated including
the escrow shares, while under U.S. GAAP the 9,298,939 escrow shares
outstanding at the end of the period requiring the Company to meet
specified performance measures are considered contingently issued and
accordingly are excluded from the basic earnings per share calculation.
SINCE THE COMPANY IS IN A LOSS POSITION, ALL POTENTIAL COMMON SHARE
ISSUANCES WOULD RESULT IN AN ANTI-DILUTIVE PER SHARE AMOUNT.
THE RECONCILIATION OF THE OUTSTANDING SHARES FOR PURPOSES OF THE BASIC
EARNINGS PER SHARE CALCULATION UNDER CANADIAN AND U.S. GAAP IS AS
FOLLOWS:
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF OUTSTANDING
SHARES FOR CANADIAN GAAP 28,540,080 22,237,912
LESS ESCROW SHARES TO BE RELEASED BASED
ON ACHIEVING SPECIFIED PERFORMANCE
MEASURES 9,298,939 9,298,939
------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF OUTSTANDING
SHARES FOR U.S. GAAP 19,241,141 12,938,973
------------------------------------------------------------------------------
(b) Stock options:
Beginning in 1996, U.S. GAAP accounting principles allow, but do not
require companies to record compensation for employee stock option plans
at fair value. The Company has chosen to continue to account for
employee stock options using the intrinsic value method as permitted
under Canadian and U.S. GAAP. Using this approach, the Company is still
required under United States accounting principles to account for stock
options issued to
F-47
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
consultants under the fair value method.
F-48
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
SINCE NONE OF THE COMPANY'S STOCK OPTIONS HAS BEEN ISSUED BY VIRTUE OF
EMPLOYMENT OR DIRECTORSHIP, ALL OF THE STOCK OPTIONS HAVE BEEN ACCOUNTED
FOR UNDER U.S. GAAP USING THE FAIR VALUE METHOD. THE FAIR VALUE OF THESE
OPTIONS HAS BEEN ESTIMATED AT THE DATE OF GRANT USING A BLACK-SCHOLES
OPTION PRICING MODEL WITH THE FOLLOWING ASSUMPTIONS FOR 2000 (NONE
GRANTED IN 1999): RISK-FREE INTEREST RATE OF 6.1%; DIVIDEND YIELD OF 0%,
VOLATILITY FACTOR OF THE EXPECTED MARKET PRICE OF THE COMPANY'S COMMON
STOCK OF 200%; AND A WEIGHTED AVERAGE EXPECTED LIFE OF THE OPTIONS OF
THREE YEARS. THE ESTIMATED FAIR VALUE OF THESE OPTIONS IS EXPENSED IN
THE PERIOD GRANTED SINCE THERE IS NO VESTING PERIOD. THE WEIGHTED
AVERAGE GRANT DATE FAIR VALUES OF OPTIONS ISSUED IN 2000 WAS $0.69.
(c) CONVERTIBLE DEBENTURES:
UNDER CANADIAN GAAP, CONVERTIBLE DEBENTURES ARE SPLIT FOR ACCOUNTING
PURPOSES BETWEEN DEBT AND SHAREHOLDERS' EQUITY. UNDER U.S. GAAP, THE
CONVERTIBLE DEBENTURE IS RECORDED AS DEBT, EXCEPT IF THE CONVERSION
PRICE AT DATE OF ISSUANCE IS LESS THAN THE FAIR MARKET VALUE, IN WHICH
CASE, THE INTRINSIC VALUE OF THE BENEFICIAL CONVERSION FEATURE IS
ALLOCATED TO PAID-IN CAPITAL AND THE RESULTING DISCOUNT IS RECOGNIZED AS
INTEREST EXPENSE OVER THE PERIOD THROUGH TO THE EARLIEST CONVERSION
DATE. THE CONVERTIBLE DEBENTURE ISSUED ON APRIL 15, 2000 IS CONSIDERED
TO HAVE A BENEFICIAL CONVERSION FEATURE UNDER U.S. GAAP GIVEN THAT THE
CONVERSION PRICE OF $0.40 PER SHARE WAS LESS THAN THE RECENT PLACEMENTS
OF $0.60 PER SHARE.
(d) Business combinations:
Under Canadian GAAP, a reverse takeover transaction is accounted for as
a business combination, with the amount of the purchase price in excess
of the fair market value of the net assets acquired allocated to
goodwill. Under U.S. GAAP, the merger of a private operating company
into a non-operating public shell corporation with nominal net assets is
considered to be a capital transaction, rather than a business
combination, with no goodwill being recorded.
F-49
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
------------------------------------------------------------------------------
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(e) Comprehensive income:
Under U.S. GAAP, comprehensive income or loss must be reported, which is
defined as all changes in equity other than those resulting from
investments by owners and distributions to owners. Under U.S. GAAP, the
Company's comprehensive loss is the same as its reported loss for the
period.
F-50
<PAGE>
The impact of the items noted above on the financial statements is as
follows:
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
Loss for the period per Canadian GAAP $ (554,290) $ (322,321)
Goodwill amortization 6,591 6,591
Compensation expense from stock options
issued to non-employees (310,500) -
------------------------------------------------------------------------------
Loss for the period per U.S. GAAP $ (858,199) $ (315,730)
------------------------------------------------------------------------------
Basic loss per share per U.S. GAAP $ (0.04) $ (0.02)
------------------------------------------------------------------------------
Weighted average number of shares
outstanding per U.S. GAAP 19,241,141 12,938,973
------------------------------------------------------------------------------
Total convertible debentures per Canadian
GAAP $ 356,321 $ 1,472,232
Reclass equity component of convertible
debentures 10,722 105,000
------------------------------------------------------------------------------
Total convertible debentures per U.S. GAAP $ 367,043 $ 1,577,232
------------------------------------------------------------------------------
Other paid-in capital, end of period per
Canadian GAAP $ - $ -
Fair value of stock options issued to
non-employees 748,695 392,245
Beneficial conversion feature of
convertible debentures 180,000 -
------------------------------------------------------------------------------
Other paid-in capital, end of period per
U.S. GAAP $ 928,695 $ 392,245
------------------------------------------------------------------------------
Share capital, end of period per Canadian
GAAP $ 8,370,046 $ 2,292,703
Elimination of goodwill (108,938) (108,938)
------------------------------------------------------------------------------
Share capital, end of period per U.S. GAAP $ 8,261,108 $ 2,183,765
------------------------------------------------------------------------------
Deficit, beginning of period per U.S. GAAP $(4,902,708) $(3,397,715)
Loss for the period per U.S. GAAP (858,199) (315,730)
------------------------------------------------------------------------------
Deficit, end of period per U.S. GAAP $(5,760,907) $(3,713,445)
------------------------------------------------------------------------------
F-51
<PAGE>
[INZECO HOLDINGS INC.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH ANY
DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OR THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL _________, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Part VII of the Company's By-Laws limits the personal liability of
directors and officers to the Company or its shareholders for monetary damages
arising from a breach of their fiduciary duty in certain circumstances. Part VII
of the Company's By-Laws also provides that the Company may indemnify its
officers and directors to the fullest extent permitted by the Alberta Business
Corporations Act from any liability and all costs, charges and expenses that
such officer or director sustains in respect to any action, suit or proceeding
that is proposed or commenced against him or her for or in respect the execution
of the duties of his or her office. Part 9 of the Alberta Business Corporations
Act authorizes a corporation to indemnify directors and officers unless such
party has been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his action was in the best interests of the
corporation. The effect of these provisions is to permit such indemnification by
us for liabilities arising under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company will bear all expenses in connection with the issuance and
distribution of the Shares, including those set forth below. None of these
expenses will be borne by the Selling Shareholders.
<TABLE>
<CAPTION>
Items Amounts
[(US $)]
<S> <C>
Securities and Exchange Commission Registration Fee $ 847.00
Printing and Engraving Expenses $ 3,000.00*
Accounting Fees and Expenses $ 75,000.00*
Legal Fees and Expenses $ 35,000.00*
Blue Sky Fees and Expenses $ 5,000.00*
Listing Fees $ 3,000.00*
Miscellaneous Fees and Expenses $ 5,400.00*
-------------
Total $ 127,247.00
=============
</TABLE>
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years the following securities have been sold
without being registered in the United Stated under the Securities Act:
<TABLE>
<CAPTION>
DATE NUMBER [OF TYPE] OF ISSUE PRICE AGGREGATE NATURE OF
[Securities Security] Per Share
Consideration
(#) (C$) (C$)
<S> <C> <C> <C> <C>
[MARCH 16, 1998* 50,000 (1) COMMON STOCK] 0.20
10,000 Cash
</TABLE>
ii-1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
April 15, 1998 [* 25,000 (2) COMMON STOCK] 0.20 5,000
Cash
April 28, 1998 [** 17,499,995 (3) COMMON STOCK] 0.20 3,499,999
Shares
[APRIL 28, 1998* 1,666,667 (4) WARRANT] 0.45 750,000
Cash
May 20, [1998* 20,000 (5) COMMON STOCK 0.20 4,000
[MAY 26, 1998* 2,727,723 (6) CONVERTIBLE 0.55 1,605,248
CASH
DEBENTURE
JUNE 9, 1998* 35,625 (7) COMMON STOCK 0.20 7,125
CASH
JULY 24, 1998* 35,625 (8) COMMON STOCK 0.20 7,125
CASH
MAY 20, 1999* 55,000 (9) COMMON STOCK 0.20 11,000
CASH
OCTOBER 26, 1999* 75,000 (10) COMMON STOCK] 0.45 33,750
Cash
November 26, 1999 [* 125,000 (11) COMMON STOCK 0.20 25,000
CASH]
[APRIL 15, 2000* 900,000 (12) CONVERTIBLE 0.40 360,000
CASH]
[DEBENTURE]
[MAY 31, 2000*** 2,807,500 (13) COMMON STOCK 0.60 1,680,570
CASH
JUNE 14, 2000* 4,033,333 (14) WARRANT 0.60 2,420,000
CASH
JULY 10, 2000** 850,418 (15) COMMON STOCK] 0.65 553,541
Cash
October [31, 2000* 15,000 (16) COMMON STOCK 0.20 3,000
CASH
</TABLE>
NOTES:
* THESE SHARES OF COMMON STOCK WERE SOLD TO PERSONS WHO WERE NEITHER
NATIONALS NOR RESIDENTS OF THE UNITED STATES AND NO FACILITIES OR
INSTRUMENTALITIES OF U.S. INTERSTATE COMMERCE WERE USED IN CONNECTION WITH
ANY OFFER OR SALE THEREOF.
** SUBSTANTIALLY ALL OF THESE SHARES OF COMMON STOCK WERE SOLD TO PERSONS WHO
WERE NEITHER NATIONALS NOR RESIDENTS OF THE UNITED STATES AND NO
FACILITIES OR INSTRUMENTALITIES OF U.S. INTERSTATE COMMERCE WERE USED IN
CONNECTION WITH ANY OFFER OR SALE THEREOF. A LIMITED NUMBER OF THESE
SECURITIES WERE ISSUED TO UNITED STATES RESIDENTS UNDER AN EXEMPTION
PROVIDED BY SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS TRANSACTIONS
NOT INVOLVING ANY PUBLIC OFFERING.
*** WE ISSUED THESE SECURITIES UNDER AN EXEMPTION PROVIDED BY RULE 506 OF
REGULATION D
ii-2
<PAGE>
UNDER THE SECURITIES ACT RULES. THE PURCHASER OF THESE SECURITIES
CERTIFIED THAT IT WAS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501 OF
REGULATION D, WAS ACQUIRING THE SECURITIES AS AN INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION, AND WOULD NOT RESELL THE SECURITIES UNLESS THEY
BECAME REGISTERED OR ANOTHER EXEMPTION FROM REGISTRATION WAS AVAILABLE.
THE SECURITIES ISSUED BY US WERE APPROPRIATELY LEGENDED TO REFLECT THESE
RESTRICTIONS.
(1)] Shares issued pursuant to the exercise of an option granted to Goepel
McDermid Inc. ("Goepel"), agent for initial public offering.
[(2)] Shares issued pursuant to the exercise of an option granted to Goepel.
[(3)] Shares issued [TO THE SHAREHOLDERS OF E2 DEVELOPMENT CORPORATION ("E2D")]
in connection with the acquisition by [INZECO] of all of the outstanding
shares of [E2D IN APRIL 1998. AN ADDITIONAL 1,243,633 COMMON SHARE
PURCHASE WARRANTS WERE ISSUED TO PURCHASERS OF THE COMMON STOCK FOR NO
ADDITIONAL CONSIDERATION. ]
[(4) SPECIAL WARRANTS ISSUED TO CANADIAN CITIZENS. WARRANTS WERE AUTOMATICALLY
CONVERTED INTO COMMON STOCK FOR NO ADDITIONAL CONSIDERATION IN OCTOBER
1998, UPON THE FILING OF THE PROSPECTUS WITH THE ONTARIO SECURITIES
COMMISSION.
(5)] Shares issued pursuant to the exercise of an option granted to Goepel.
[(6) SERIES I CONVERTIBLE DEBENTURE WAS ISSUED TO ENBRIDGE INC., ("ENBRIDGE") A
CANADIAN PUBLIC COMPANY IN THE AMOUNT OF C$1,500,000 (APPROX.
US$1,015,572). THE DEBENTURE WAS CONVERTED TO 2,727,723 SHARES OF COMMON
STOCK ON DECEMBER 10, 1999.]
(7) Shares issued pursuant to the exercise of a director's option [HELD BY
DOUG LAMMLE, WHO RESIGNED AS A DIRECTOR OF INZECO IN JUNE OF 1998].
(8) Shares issued pursuant to the exercise of a director's option [HELD BY
SHEILA FINN, WHO RESIGNED AS A DIRECTOR OF INZECO IN JUNE OF 1988.
(9)] Shares issued pursuant to the exercise of an option granted to Goepel.
[(10)] Shares issued pursuant to the exercise of an option granted to Goepel.
[(11)] Shares issued pursuant to the exercise of a director's option [HELD BY
ROGER SHORT.
(12) THREE CONVERTIBLE DEBENTURES FOR $120,00 EACH WERE ISSUED TO ENBRIDGE. THE
DEBENTURES ARE CONVERTIBLE INTO A TOTAL OF 900,000 SHARES OF COMMON STOCK
AT C$0.40 PER SHARE. AS OF DECEMBER 14, 2000, THE DEBENTURE HAD NOT BEEN
CONVERTED].
(13) Shares issued [TO A SINGLE ACCREDITED INVESTOR, NICE, LLC] pursuant to the
May 2000 private placement in the United States.
[(14) SPECIAL WARRANTS ISSUED TO CANADIAN CITIZENS IN PRIVATE PLACEMENT IN
CANADA, WHICH WAS SOLD BY PARADIGM CAPITAL INC. ON A BEST EFFORTS BASIS.
SHARES AUTOMATICALLY CONVERTED TO SHARES ON COMMON STOCK FOR NO ADDITIONAL
CONSIDERATION UPON THE FILING OF THE PROSPECTUS WITH THE ONTARIO
SECURITIES EXCHANGE.]
(15) Shares issued pursuant to the [EXERCISE OF 850,418 OF THE 1,243,633 COMMON
SHARE PURCHASE] warrants issued in April 1998. [THE REMAINING 393,215
WARRANTS WERE NOT EXERCISED AND HAVE EXPIRED.]
(16) Shares issued pursuant to the [EXERCISE OF A DIRECTOR'S OPTION HELD BY
WARREN ARSENEAU.]
ii-3
<PAGE>
ITEM 27. EXHIBITS.
The following exhibits are filed herewith.
Number Exhibit
3.1.1[*] Articles of Incorporation.
3.1.2[*] Amendment to Articles of Incorporation[.]
3.1.3[*] Restated and Amended Articles of Incorporation.
3.2.1[*] Bylaws of the Corporation.
3.2.2[*] Amendment to Bylaws.
4.1[*] Form of Common Stock Issued to Selling Shareholders.
4.2[*] Form of Special Warrant Issued to Selling Shareholders in 2000
Canadian Private Placement.
5.1** Opinion of Stikeman, Graham & Keeley, regarding the legality of
shares of Common Stock [.]
10.1[*] Consulting Contract with Warren Arseneau dated May 15, 2000.
10.2[*] Consulting Contract with Martin H. Beck dated April 1, 2000.
10.3[*] Consulting Contract with Michael Boyd dated April 1, 2000.
10.4[*] Consulting Contract with Roger Short dated January 1, 2000.
10.5[*] Confidentiality, Non-competition and intellectual property agreement
with Warren Arseneau dated May 15, 2000.
10.6[*] Escrow Agreement dated as of September 18, 1997 among the
Corporation, Montreal Trust Company of Canada and those shareholders
that executed such Escrow Agreement.
10.7[*] Timed Release Escrow Agreement dated April 28, 1998 between the
Corporation and those shareholders that executed such Escrow
Agreement.
10.8[*] Performance Release Escrow Agreement dated April 28, 1998 between
the Corporation and those shareholders that executed such Escrow
Agreement.
10.9[*] Transfer Agency and Registrarship Agreement dated as of September
18, 1997, between the Corporation and Montreal Trust Company of
Canada.
10.10[*] Inzeco Holdings Inc. Stock Option Plan.
[10.11 STANDARD TERMS FOR R&D PROJECT OF SERVICE.
10.12 INDUSTRIAL RESEARCH ASSISTANCE PROGRAM REPAYABLE CONTRIBUTION
AGREEMENT.
11*] Computation of per share earnings (included in Financial
Statements).
21[*] Subsidiaries of Registrant.
23.1[*] Consent of KPMG LLP, Independent Accountants.
23.2** Consent of Stikeman, Graham & Keeley (included in Exhibit 5.1) .
24[*] Power of Attorney, incorporated by reference, filed as an exhibit to
the Company's [PROSPECTUS] filed as a part of this Registration
Statement.
--------------
* [PREVIOUSLY] filed .
** To be filed by Amendment
ITEM 28. UNDERTAKINGS
(a) 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;
ii-4
<PAGE>
(i) To include any prospectus required by Section 10
(a)(3) of the Securities Act ;
(ii) To reflect in the [PROSPECTUS] any facts or
events arising after the effective date of the Registration
Statement (or the 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 a prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a twenty percent change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement;
(iii)To include any 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; provided, however,
that paragraphs (a) (1) (i) and (a) (1) (ii) above do not
apply if the Registration Statement is on Form S-3, Form S-8
or Form F-3, and the information required to be included in a
post- effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
[INZECO] pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the
Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act, 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.
[(B) INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS
OF THE SMALL BUSINESS ISSUER PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE,
THE SMALL BUSINESS ISSUER HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES
AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE ACT AND IS, THEREFORE, UNENFORCEABLE.]
ii-5
<PAGE>
[SIGNATURES
In accordance with] the requirements of the Securities Act of 1933,
[THE REGISTRANT CERTIFIES THAT IT HAS] reasonable grounds to believe that [IT
MEETS] all of the requirements [OF] filing on Form SB-2 and [AUTHORIZED THIS
REGISTRATION STATEMENT, OR AMENDMENT THERETO,] to be signed on [ITS] behalf by
the undersigned, in the City of [STONEY] Creek, Ontario, Canada, on [DECEMBER
19], 2000.
[INZECO HOLDINGS INC.
BY: /s/ Warren] Arseneau
----------------------------------------
Warren Arseneau
[PRESIDENT (PRINCIPAL
EXECUTIVE
OFFICER)
BY: /s/ Robert Stikeman
----------------------------------------
ROBERT STIKEMAN
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)]
ii-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below substitutes and appoints Warren Arseneau his true and
lawful attorney-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be [DONE] in and about the premises, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Exchange
Act of 1933,this registration statement has been signed below by the following
persons on our behalf and in the capacities and on the dates indicated.
[/s/ Warren Arseneau DATE: DECEMBER 19, 2000
--------------------------------------------
WARREN ARSENEAU
A DIRECTOR AND PRESIDENT
/s/ Martin H. Beck* DATE: DECEMBER 19,] 2000
--------------------------------------------
MARTIN H. BECK
[a Director and Vice President, Technology]
[/s/ Michael Boyd* DATE: DECEMBER 19, 2000
--------------------------------------------
MICHAEL BOYD
A DIRECTOR]
DATE:
ROGER SHORT
[A DIRECTOR]
/s/ Robert Stikeman[*] DATE: [DECEMBER 19,] 2000
--------------------------------------------
ROBERT STIKEMAN
[A DIRECTOR AND CHIEF FINANCIAL OFFICER]
DATE:
STEVEN LETWIN
[A DIRECTOR
-----------------------
* BY WARREN ARSENEAU AS ATTORNEY-IN-FACT]
ii-7
