<PAGE>
As filed with the Securities and Exchange Commission on November 17, 2000
Registration No _____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INZECO HOLDINGS INC.
(Name of small business issuer in its charter)
ALBERTA, CANADA 2824 N/A
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
Inzeco Holdings Inc.
999 Barton Street
Stoney Creek, Ontario L8E 5H4
Canada
(905) 643-8669
(Address and telephone number
of principal executive offices)
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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
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 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................... 6,840,833 US$0.469 US$3,208,350
==================================== ================= ======================== ========================= ====================
Total 6,840,833 US$0.469 US$3,208,350 US$847.00
==================================== ================= ======================== ========================= ====================
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(h)(1) 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.
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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.
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<PAGE>
Preliminary Prospectus Dated November 17, 2000
Subject to Completion
PROSPECTUS
6,840,833 Shares
Inzeco Holdings Inc.
Common Stock
--------------
This prospectus ("Prospectus") relates to 6,840,333 shares (the
"Shares") of Common Stock, no par value (the "Common Stock"), of Inzeco
Holdings Inc., an Alberta corporation ("Inzeco" or the "Company"). The Shares
are outstanding shares of Common Stock owned by the persons named in this
Prospectus under the caption "Selling Security Holders." The Shares were
acquired by the Selling Security Holders through private placements which were
either not subject to, or exempt from the registration provisions of the
Securities Act of 1933, as amended (the "1933 Act"). On November 14, 2000, the
closing price of the Company's Common Stock on the Canadian Venture Exchange
was C$0.725 (US $0.469) 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. See "Risk Factors." The Company
intends to have its Common Stock listed on the Over-the-Counter Bulletin Board
("OTC-BB") under the symbol INZCF.
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."
The Company will receive no part of the proceeds of any sales made
hereunder. See "Use of Proceeds." 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 1933 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.
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<PAGE>
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Selling Shareholders have agreed to indemnify the Company, and
the Company has agreed to indemnify the Selling Shareholders, against certain
liabilities, including liabilities under the Securities Act of 1933. See "Plan
of Distribution" for a description of this agreement and other arrangements
between the Company and the Selling Shareholders. Expenses of this offering,
estimated at $125,000, will be paid by the Company.
The offering is subject to withdrawal and cancellation at any time,
without notice.
Dated November 17, 2000.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ENFORCEABILITY OF CIVIL LIABILITIES...................................................6
EXCHANGE RATE DATA AND ACCOUNTING PRINCIPLES..........................................6
PROSPECTUS SUMMARY....................................................................7
THE COMPANY...........................................................................7
THE OFFERING..........................................................................7
RISK FACTORS..........................................................................8
FORWARD LOOKING STATEMENTS...........................................................13
USE OF PROCEEDS......................................................................13
PRICE RANGE OF COMMON STOCK..........................................................14
DIVIDEND POLICY.....................................................................-14
CAPITALIZATION.......................................................................15
PLAN OF OPERATION....................................................................16
BUSINESS.............................................................................17
MANAGEMENT...........................................................................21
PRINCIPAL SHAREHOLDERS...............................................................27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................28
DESCRIPTION OF SECURITIES............................................................29
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.....................................30
CERTAIN UNITED STATES AND CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS..................................................31
INVESTMENT CANADA ACT................................................................33
SELLING SHAREHOLDERS.................................................................34
PLAN OF DISTRIBUTION ................................................................35
CHANGE IN ACCOUNTANTS ...............................................................35
LEGAL MATTERS .......................................................................36
EXPERTS..............................................................................36
WHERE YOU CAN FIND ADDITIONAL INFORMATION............................................36
POWER OF ATTORNEY....................................................................41
</TABLE>
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<PAGE>
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.
ENFORCEABILITY OF CIVIL LIABILITIES
Inzeco's headquarters are located in, and its officers, directors and
auditors are residents of Canada and a substantial portion of Inzeco's 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 of 1933, as amended, or state securities laws.
However, there is doubt as to the enforceability in Canada against Inzeco or
against any of its 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
may be effected, however, upon Inzeco's 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
Inzeco maintains its books of account in Canadian dollars, and has
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 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>
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<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.
THE COMPANY
Inzeco Holdings Inc. ("Inzeco or the "Company") was incorporated in
Alberta, Canada on May 30, 1997. Through its wholly owned subsidiary RTICA
Inc., the Company is engaged in advanced plastics processing. Inzeco has
developed technology and a production process for making high performance
insulating products from low cost recycled polyethylene terephthalate (PET).
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."
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Number of Shares .................. 6,840,833 shares of Common Stock
Shares of Common Stock Outstanding
Before and After Offering ... 6,840,833 shares of Common Stock
Use of Proceeds ................... The Company will not receive any
proceeds from the sale of shares
of Common Stock by the Selling
Shareholders. See "Principal and
Selling Shareholders."
</TABLE>
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<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 THE
COMPANY AND ITS BUSINESS BEFORE INVESTING IN THE SECURITIES.
DEVELOPMENT STAGE COMPANY. Since inception, the Company has been
engaged primarily in start-up activities related to its RTICA-TM- high
performance insulating products, conducting research, developing products,
equipment, recruiting management, and raising start-up capital. Through August
31, 2000, the Company has had no revenues from product sales. Moreover, the
Company's operations may never generate sufficient revenues to achieve
profitability. The Company's strategies may neither materialize nor prove
successful, in whole or in part, and RTICA-TM- products may never be
successfully commercialized. The Company's proposed operations are subject to
all of the risks inherent in the establishment of a new business enterprise,
including the absence of any operating history. The likelihood of the Company's
success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the
formation of a new business, the development and application of new technology,
the utilization of commercially unproven technology and the competitive
environment in which the Company plans to operate.
LOSSES TO DATE. As at August 31, 2000 the Company's total liabilities
exceeded its total assets by C$3,485,755 (US$2,360,615). Morever, the Company
has operated at a loss during each of its last four fiscal years, the loss
for fiscal 2000 being C$1,305,407 (US$867,455). As at May 31, 2000, the
Company had an accumulated deficit of C$4,340,723 (US$2,884,450). There can
be no assurance that the Company will ever be able to operate profitably.
Based upon these factors and others discussed in Note 1 to the Financial
Statements for the fiscal year ended May 31, 2000, the Company's independent
auditors have issued a qualified opinion, indicating the continuation of the
Company 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.
CONTINUING OPERATING LOSSES. The Company has incurred a loss for the
three months ended August 31, 2000 of C$554,290 (approx. US$375,375), and has
experienced net losses in each year since its formation. The Company
anticipates that it 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 its business plan and its proposed
expanded operations. Such losses will continue until such time, if ever, that
the Company's products can successfully be brought to market and generate
sufficient operating revenues. The Company may never become profitable or may
not be able to sustain profitability if achieved.
NEED FOR CASH; POSSIBLE LACK OF SUFFICIENT FUNDS. The Company has
immediate cash requirements resulting principally from (i) the implementation of
its business plan and working capital needs; (ii) the assumption of costs in
connection with this registration; (iii) unsecured trade payables and (iv) high
start-up costs. In May 2000, the Company closed a private placement in the
United States in which it raised net proceeds of approximately US$1,107,319. In
June 2000, the Company closed a private placement in Canada in which it 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 the Company's acquisition of RTICA Inc. were exercised at an
exercise price of C$0.65 (approx. US$0.45) for a total of C$553,541 (approx.
US$373,308). See "Description of Securities." The proceeds from both offerings
are being used principally for equipment, engineering and installation, and
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<PAGE>
start-up expenses and working capital. The Company estimates that it has
sufficient cash resources to fund its operations for approximately 12 months.
Therefore, additional financing will be required in the near future. Failure by
the Company to obtain additional financing either from a public or private
offering of its securities, a strategic joint venture or partnership, or
otherwise, would have a material adverse effect on the Company. In the event
that the Company obtains any additional financing, such financing will most
likely have a dilutive effect on the holders of the Company's securities.
UNCERTAINTY OF GROSS MARGINS. Given that the Company has no history of
commercial scale operations, its 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
adversely affected.
DEPENDENCE ON TECHNOLOGY. The Company's success and competitive
position is dependent in large part on its ability to defend its technology
against infringement from others. Although the Company has patents in the United
States and Canada, as well as a closely guarded know-how technology base, the
cost of defending this technology base could be beyond its present or future
financial resources. In addition, there can be no assurance that Inzeco's
competitors will not independently develop technology which is substantially
equivalent or superior to Inzeco's technology, or that competitors will not
develop functionally similar products outside the protection of any licenses,
patents or other intellectual property rights that Inzeco has or may obtain.
LACK OF OPERATING EXPERIENCE. The Company is a development stage
enterprise and has only limited operating experience. The transition from a
start-up operation to an enterprise capable of effectively marketing RTICA-TM-
products may require additional management, 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 the Company's products,
even if successfully developed by the Company. The Company may not be able to
effectively produce and market its product.
TARGETED CUSTOMER BASE. The Company does not currently have well
established sales and distribution channels for its product. In order to
generate revenues, the Company must sell RTICA-TM- products through established
channels and develop a general recognition of the product and its benefits. The
Company is currently endeavoring to align with a relatively small number of
large users of insulation, particularly insulation subcontractors, in the
United States and Canada. The Company believes that these users represent the
most likely customer base for the RTICA-TM- products. As a consequence, the
Company's current marketing and sales strategy will be directed principally at
this customer base and thus substantially rely on a small group of potential
users to purchase relatively large quantities of its products. If the Company
cannot successfully implement its strategy, or if the customer base does not
purchase significant quantities of the Company's products, or if the Company
incurs significant additional expenditures, management resources and delay
(which may include the employment of sales personnel) the Company may not be
able to successfully market and sell its product. If the Company's strategy is
not successful, the Company may not be able to develop an effective
infrastructure (including a sales and distribution network) to generate
customer demand and to sell its products on a national basis. The inability to
do so would have a material adverse effect on the Company's business, results
of operations and financial condition.
LIMITED MANUFACTURING CAPACITY. Although the Company has a
manufacturing facility, its pre-commercial scale has only been operated on a
limited basis and is not large enough to produce commercial quantities of its
products. The Company must be able to manufacture RTICA-TM- in sufficient
quantities
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<PAGE>
and at acceptable costs to proceed with its plan. This facility must be
expanded to execute the Company's plan. However, the Company may not be able
to produce commercially viable quantities of its products when the facility
is expanded as planned. In addition the Company may not have sufficient cash
resources to expand its manufacturing facility. The failure to expand such
facility would have a material adverse effect on the Company's business,
results of operations and financial conditions.
ONE PRODUCT COMPANY. The Company's revenues over at least the next
year will be entirely dependent upon the sale of its RTICA-TM- insulation and
related technology and licensing opportunities. The Company is not currently
generating licensing revenue, and as market acceptance with respect to its
insulation product cannot be assured, the Company's reliance upon one product
to generate revenues, exposes it to commercial risks reflecting lack of product
diversification.
UNPROVEN TECHNOLOGY AND MARKET ACCEPTANCE OF RTICA-TM-. While the
Company believes that RTICA-TM- represents a novel technology in insulating
materials, commercialization has only just begun. The Company's product and
technology may not provide equal or superior performance compared with
competitive products and commercialization may not be successful. Moreover,
although the Company has completed both internal testing and testing by an
independent laboratory, and although the initial results from presenting its
products to established users have demonstrated advantages over other products,
there has been no long-term testing done on the product to ensure its integrity
over significant time periods. Thus, RTICA-TM- products may experience
problems. Even if the technology is successfully proven, the Company may not be
able to sell RTICA-TM- products or 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 the Company's products relative to alternative
products, and
- the possible lack of motivation of potential customers to
change suppliers.
GROWTH MANAGEMENT. If Inzeco grows rapidly in the future, such growth
will place a significant strain on the Company's managerial, operational and
financial resources. To manage any such growth, the Company will be required to
implement and improve its managerial controls and procedures and operational and
financial systems. In addition, Inzeco will be required to hire, train,
integrate, manage and retain its workforce including its technology,
manufacturing, engineering, sales and business development staff. Locating and
retaining qualified personnel in the insulation industry is extremely
competitive. The Company may not have adequately allowed for the costs and risks
associated with its proposed expansion and its systems, procedures or controls
may not be adequate to support its operations. The Company may not be able to
successfully locate, train and integrate personnel into its workforce.
COMPETITION. The insulation industry is dominated by a small number of
very large and well capitalized multi-national 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. The ability of the Company to effectively compete against such well
entrenched industry competitors with much greater technical resources and broad
distribution networks cannot be assured.
AVAILABILITY OF RAW MATERIALS. RTICA-TM- relies on low cost recycled
plastics for raw materials. Although the supply and prognosis for supply is
favorable, conditions may change in a way that has a negative impact on the
Company's ability to secure adequate raw material supplies.
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<PAGE>
REGULATORY CONTROLS. Provincial and national building codes regulate
the use of building (including insulation) materials in Canada. Although
building codes are a provincial jurisdiction in Canada, the codes are based on
the National Building Code. Products referenced in the National Building Code
are required to meet an applicable standard. The Company is currently pursuing
federal certification; however, it is uncertain at this time, although
RTICA-TM- will be able to meet the applicable standards, they may not be able
to secure such certification. The Company is familiar with the key parameters
of the American Societies for Testing and Materials (ASTM) and other U.S.
regional standards and has commenced the certification process in the United
States. However, the Company can not guarantee securing such certification
where necessary.
DEPENDENCE ON KEY PERSONNEL. The success of the Company depends, in
part, upon its key management personnel. In particular, the Company is highly
dependent upon Warren Arseneau, Richard Galloway and Michael Noga, President,
Vice President of Sales and Marketing, and Manager of Engineering, respectively,
of the Company. The loss of any of these individual's services could have a
material adverse effect on the Company. The Company is the beneficiary of a
C$1,000,000 (approx. US$687,805) term life insurance policy in the name of Mr.
Arseneau.
CONTROL BY PRINCIPAL STOCKHOLDERS. The Company's directors and officers
beneficially own approximately 30.5% of the Company's 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 the
Company.
LARGE OUTSTANDING LIABILITIES. In order to fund its development
program, the Company has incurred substantial liabilities, certain of which are
collateralized by the Company's tangible assets. On January 24, 2000, Inzeco
sold a convertible debenture to Enbridge Inc. in the principal amount of
C$360,000 (approx. US$249,913), which is secured by the tangible assets of the
Company and can be subordinated to other debt incurred by the Company up to
C$1,250,000 (approx. US$859,757). The debenture bears interest at the rate of
6.5% per annum, matures on June 30, 2001, and is convertible at the option of
the holder into shares of the Company at C$0.40 (approx. US$.275) per share.
Based on this conversion price, the debenture is convertible into 900,000 shares
of Common Stock. If Enbridge elects to convert the debenture, there will be an
immediate and substantial dilution to shareholders.
SUBSTANTIAL INDEBTEDNESS AND ENCUMBRANCES OF ASSETS. As stated in the
previous paragraph, the Company's operations have been and continue to be
financed in part from short-term and long-term indebtedness. All of the
Company's tangible assets are pledged as collateral to secure the Company's
indebtedness. If the Company is unable to generate sufficient cash flow from
operations to meet scheduled debt payments or otherwise to comply with the terms
of such indebtedness, it may be required to refinance all or a portion of its
existing debt or to obtain additional financing. The Company may not be able to
obtain such refinancing or additional financing. If no such refinancing or
additional financing is available when needed, the Company may be forced to
default on its debt obligations which would have a material adverse effect on
the Company, including the possibility of receivership or liquidation of the
Company. In such an event, the Company's secured creditors could elect to
foreclose on the Company's assets and it is likely that the shares of Common
Stock would be worthless.
TERMINATED LICENSE AGREEMENT. The Company has unilaterally terminated a
licensing agreement which it had previously entered into with a company in
France. As the licensee has not provided
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<PAGE>
acknowledgment or evidence of acceptance with respect to the terms of the
license forfeiture, disputes between the Company and the licensee may arise.
If such dispute occurs, the outcome is unpredictable and may have an adverse
effect on the Company.
EXCHANGE RATE FLUCTUATION. The volatility of the Canadian dollar
against United States currency may affect the Company's profits, as certain
supplies and equipment purchased by the Company 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 the
Company's operating results. In the event that the Canadian dollar were
materially devalued against the United States dollar, the Company's operating
results could be materially adversely affected.
NO CASH DIVIDENDS. The Company has never paid any cash dividends on its
Common Stock, and it is unlikely that the Company will pay cash dividends in the
foreseeable future.
LACK OF LIQUIDITY AND MARKET FLUCTUATION. Although the Company's Common
Stock currently trades on the Canadian Venture Exchange (CDNX), the trading
history suggests there is limited liquidity in the public market for the
Company's securities and there can be no assurance that liquidity will increase
and or be sustained. The Company intends to have its Common Stock listed on the
Over-the-Counter Bulletin Board (the "OTC-BB") under the symbol INZCF. Factors
such as announcements by the Company of quarterly variations in its 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.
FEDERAL INCOME TAX CONSEQUENCES. The Company has not obtained a ruling
from the Internal Revenue Service or an opinion of counsel with respect to the
federal income tax consequences of the purchase or sale of Common Stock by the
Selling Security Holders. Consequently, investors must evaluate for themselves
the income tax implications which attach to their purchase, and any subsequent
sale, of the Shares.
LIMITED PROTECTION FOR INVESTORS IN A FOREIGN ISSUER. The Company is a
foreign private issuer within the meaning of rules promulgated under the
Securities Exchange Act of 1934. As such, the Company is exempt from certain
provisions applicable to United States companies with securities registered
under the Securities Exchange Act of 1934, including the rules under the
Securities Exchange Act of 1934 requiring the filing with the United States
Securities Exchange Commission of quarterly reports on Form 10-Q or current
reports on Form 8-K. Because of these exemptions, investors in the Company's
Common Stock are not afforded the same protections or information generally
available to investors in public companies organized in the United States.
PENNY STOCK REGULATION. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current 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 its 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
-12-
<PAGE>
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.
These disclosure requirements may have the effect of reducing the trading
activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Company's Common Stock becomes subject to the penny
stock rules, purchasers of Shares may find it more difficult to sell their
Shares.
POTENTIAL LIABILITIES INVOLVING CLIENTS AND THIRD PARTIES. In selling
its product and performing services for its clients, the Company could
potentially be liable 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). While the Company has general liability insurance,
including product liability coverage, in effect, the Company may not have
sufficient coverage to protect itself against such claims. Although the Company
intends to acquire such insurance once it begins to manufacture its products on
a commercial basis, the damages available to a customer or other person, should
it prevail in a claim, are potentially large and could exceed the amount of the
Company's insurance policy limit.
POSSIBLE OBSOLESCENCE OF TECHNOLOGY. The Company believes that its
product has features equal to or superior to products sold by its competitors
and can provide its product at a lower cost. However, the Company's product may
be rendered less competitive or obsolete by advances, changes or discoveries in
the insulation and building material industry.
SEASONALITY. Once the Company begins manufacturing and sales, the
Company's 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 the Company's quarterly sales and operating results
could result in significant volatility in, and otherwise adversely affect, the
market price of the Common Stock.
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the 1933 Act and Section 21E of the Securities
Exchange Act of 1934, as amended, concerning the Company's operations, economic
performance and financial conditions, including, in particular, the likelihood
of the Company's 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 the control of the Company 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 the
Company's 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.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock offered hereby.
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's authorized capital stock consists of an unlimited number
of shares of Common Stock, of which 32,856,886 are were issued and outstanding
as of November 9, 2000, 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. The Company has no
established trading market in the United States. The Company believes that as of
November 9, 2000, there were approximately 679 record holders of the Company's
Common Stock.
The following table sets forth, for the period indicated, the high and
low bid prices, in Canadian Dollars for the Company's shares of Common Stock
from June 1, 1998 through May 31, 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
</TABLE>
The high and low bid prices, in Canadian Dollars for the Company's
share of Common Stock on November 14, 2000 were C$0.73 (approx. US$0.473) and
C$0.72 (approx. US$0.466), respectively. The Company has not declared any
dividends during the aforesaid twenty-four month period.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock and
has no present intention to declare or pay cash dividends on the Common Stock in
the foreseeable future. The Company intends to retain any earnings which it may
realize in the foreseeable future to finance its operations.
-14-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on
August 31, 2000. Because the Company will not receive any of the proceeds from,
or incur any of the expenses of the sale of shares offered hereby, such share
will not have any effect on the capitalization of the Company.
<TABLE>
<CAPTION>
AUGUST 31, 2000
---------------
(UNAUDITED)
DESIGNATION OF SECURITIES (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; $ 6,167,346
28,823,553 shares issued and outstanding (2)...
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 Prospectus 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 Prospectus 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.
-15-
<PAGE>
PLAN OF OPERATION
The Company's 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-, its
ability to efficiently meet the requirements of its customers, and the market
acceptance of its product. Further factors impacting its operations are
increases in expenses associated with continued sales growth, its ability to
control costs, management's ability to market the product to increase sales and
target satisfactory profit margins, and competition. The Company has had no
revenues from operations and continues to be in the development stage.
The Company plans to continue its research and development ("R&D")
effort in the next twelve months. Currently, R&D efforts have been contracted
to National Research Council Industrial Materials Institute ("NRC-IMI"), an
outside agency with a specialized infrastructure and personnel relating to
the Company's products. These R&D activities are focused on making production
of the Company's products more cost effective and improving product features
to add value. The Company may contract with additional entities or
individuals over the next twelve months to advance its R&D efforts.
On February 1, 2000, the Company signed a contract with the NRC-IMI
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
Canadian federal government, the Company is eligible to be reimbursed for a
portion of its expenses 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.
During 1999, the Company focused on the installation its 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 the Company 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, the Company expects to be ready to begin commercial production of
RTICA-TM- brand insulation in the first calendar quarter of 2001, approximately
as scheduled.
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 the Company's newsletter, R.NEWS, was produced
and distributed to over 600 recipients in August 1999. The next issue is
planned for November 2000.
The National Research Council, Canadian Construction Materials Centre
(NRC-CCMC) finalized its Technical Guide for "Recycled Polyester Batts" on
August 9, 1999 and its Technical Guide for Blowing Wool on August 30, 2000. The
master format number for the Batt Guide is 07214.7 and for the Blowing Wool
07214.8. Once the Company's commercial facility is operating continuously,
tests on RTICA-TM- products will be conducted so that the necessary Evaluation
Report for Building Code approval in Canada can be completed. Dialogue with
building code officials in the United States is underway so that the Canadian
specifications can be adapted to US regional requirements.
Operating expenses for the three months ending 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, Inzeco completed a
private placement in the United States of 2,807,500 common shares with a
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<PAGE>
subscription price of US$0.40 per share for gross proceeds of US$1,123,000.
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. There
were no brokerage or agency fees or commissions associated with this private
placement.
On June 14, 2000, Inzeco 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. The Company 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 the
Company's acquisition of RTICA Inc., were exercised at an exercise price of
C$0.65 (approx. US$0.45) each. 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.
The only liquid asset of the Company at this time is cash reserves.
Cash balance as at August 31, 2000 was C$3,191,274 an increase of C$3,000,830
from the previous year. At this time there are no other sources of capital
confirmed and these reserves must sustain the Company until other funds are
obtained. The Company believes its current funds will last twelve (12) months.
BUSINESS
Inzeco Holdings Inc. ("Inzeco" or the "Company") was incorporated by
Certificate of Incorporation issued pursuant to the provisions of the
BUSINESS CORPORATIONS ACT (Alberta) on May 30, 1997. The principal office of
the Company is located at 999 Barton Street, Stoney Creek, Ontario, Canada.
The registered office of the Company is located at Suite 1210, 606-4th Street
S.W., Calgary, Alberta, T2P 1T1. The Company maintains a website at
www.rtica.com.
Inzeco is a public corporation traded, since October 1997, on the
Canadian Venture Exchange (CDNX) under the symbol IZE. It was 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-. It 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
The Company was organized for the purpose of carrying on the business
of producing insulating materials through its wholly owned subsidiary, RTICA
Inc., an Ontario corporation. RTICA Inc. has developed a technology and
production process for making insulating products from recycled polyethylene
terephthalate ("PET"). Recycled PET is melted, and then air blown, and then
extruded under pressure from an extrusion head into substantially continuous
fibers. These non-woven fibres, when formed into batts or other appropriate
items, constitute the insulating material which is called "RTICA-TM-." Unlike
mineral fibers, those in RTICA-TM- are continuous. Multiple filaments of molten
polymer are introduced into a high-speed airflow through proprietary dies to
create thin fibers that become entangled to form a batt.
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<PAGE>
RTICA-TM- is made in a one-step process; it creates continuous fibers
from recycled PET flakes or pellets and lays them down as a binder-free, high
performance insulating material which is designed to not require secondary
processing to produce "loft." The strength of a fiber is a key characteristic
in defining its physical properties. Higher tenacity in a fiber allows smaller
diameters, which lowers raw material usage and improves thermal performance. A
high level of molecular orientation is essential in order to attain the
necessary strength-to-weight ratio in the fibers for an effective insulating
material. In both glass fiber and mineral wool insulation products, the loft or
thickness is usually created by chemical binders, normally phenol-formaldehyde
resins. The fibers are aligned in layers much like "pick-up sticks" with the
binder holding fibers and layers together. Higher densities and smaller fiber
diameters increase the resin consumption and cost. RTICA-TM- develops loft
solely through the entanglement of the individual fibers in three dimensions.
The large percentage of fibers with components in the vertical direction in
Inzeco's product is responsible for its insulating performance. Inzeco's
proprietary technology can produce useful fibers from a wide range of waste raw
materials. RTICA-TM- has been developed to take advantage of low cost grades of
recycled plastics not currently in demand by other users.
Results from internal and independent laboratory testing demonstrate
that RTICA-TM- provides an equivalent thermal performance to glass and rock
wool fibers, cellulose and expanded polystyrene foam insulating materials at a
cost management considers competitive; however no long-term testing has been
done to date. Based on the tests that have been completed, management believes
that RTICA-TM- meets flammability standards required by the industry. Further,
RTICA-TM-can be produced in a variety of forms and shapes to satisfy most
insulation applications. In addition, no special protection is needed to handle
the material. These qualities, combined with lower production costs associated
with RTICA-TM- than required for the production of traditional insulation
materials make RTICA-TM- competitive with all but the lowest performance
insulation.
Inzeco intends to sell licences to manufacture, use and sell RTICA-TM-
products, including the use of trademarks outside of Canada and the United
States based on Inzeco's patented technology. Some United States installation
contractors are expected to purchase all the output of the Company's 500 kg/hr
production facility subject to building code approval and competitive pricing,
although no assurances can be given that they will indeed make such purchases.
Discussions concerning the location and capacity of the first commercial plants
are key components of discussions with such end users, including placement of
the manufacturing facilities in the customers' plants. Inzeco also intends to
find strategic partners among product users, manufacturers that use and/or
produce PET, and investors who are interested in participating to bring
RTICA-TM- to market. This process has been underway since early 1998.
The Company's future operating results will depend primarily upon its
ability to gain market acceptance of RTICA-TM- and related products. The market
for the Company's products 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 such products. There can be no assurance that the market for the Company's
products and services will develop, or that the Company's products will achieve
market acceptance. If the market fails to develop, develops more slowly than
expected or becomes saturated with competitors, or if the Company's products do
not achieve significant market acceptance, the Company's business, operating
results or financial condition will be materially adversely affected.
The Company's success will depend in part upon the ability of its
proposed products to meet targeted performance and cost objectives, and will
also depend upon the timely introduction of new products into the marketplace
and the acceptance of its products by end-users. The Company will be required
to commit considerable time, effort and resources to finalize development of
its proposed products and product enhancements. Product development efforts
may be subject to unanticipated delays, expenses,
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<PAGE>
difficulties, the possible insufficiency of funding to complete development
and other risks inherent in the development of new products and technologies.
There can be no assurance as to when, or whether, such product development
efforts will be successfully completed. See "Risk Factors".
MANUFACTURING
The raw material, recycled PET, is received in flake or pellet form
and stored in silos. The stored material is filtered, blended and ground to
remove metals, dust and other contaminants to better ensure that material
sent to the extruder is consistent. The PET is then dried and fed to a hopper
above the extruder which melts it, and pushes the molten material through a
die into a stream of hot air which pulls it from the die. An important
feature of the technology is that the distance of the die and the collection
is variable. Therefore, the extruder is mounted on a hydraulic platform so
that it can be set accurately. In addition, there is an automatic screen
changer for "melt filtering" of the molten PET, a heated polymer manifold,
and a number of die modules. The heated polymer manifold will include
metering equipment for the injection of flame retardants, colorants, and
other additives. The air supply system is particularly important to the
process as the polymer is pushed into an attenuating zone where it is pulled
by hot air. To achieve this, the system will contain an air supply system and
an air heater capable of maintaining the air supply at the required
temperature. The hot air is delivered through insulated piping to a manifold
and proprietary nozzles. The properties of the finished PET fibers depend on
the parameters used in the process. The rate of the molecular orientation
(stretch) in the PET depends on drawing it out from the extruder at the
proper speed and temperature, and a critical feature of the process is the
quenching of the PET under stress as the air dissipates. It is essential that
the temperatures and drop are coordinated to achieve optimal results.
MARKETING
The residential segment of the insulation market in North America is
dominated by fiberglass and other mineral fiber products. Management believes
its 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.
The Company does not currently have any established distribution
channels for RTICA-TM-. In order to generate revenues, the Company must achieve
broad distribution of the product through established channels and develop a
general recognition of the product and its benefits. The Company believes that
the most significant impediment to the commercialization of RTICA-TM- is the
absence of an existing market for this new product. In order to overcome this
obstacle, Inzeco is currently endeavoring to establish relationships with
architects, builders, sub-contractors and retail outlets throughout Canada and
the United States. Management believes that its resulting commercial
relationships will assist and enhance Inzeco's marketing efforts by providing
product validation as well as important anticipated customer endorsements for
RTICA-TM-. However, if the Company cannot successfully implement its strategy,
or if the customer base does not purchase significant quantities of the
Company's products, or if the Company incurs significant additional
expenditures, management resources and delay (which may include the employment
of sales personnel) the Company may not be able to successfully market and sell
its product. If the Company's inability to implement this strategy would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors -- Targeted Customer Base." While Inzeco
expects to focus its marketing efforts in Canada and the United States, it also
intends to market its technology and related production equipment to potential
licensees worldwide.
PRICING
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There are a number of parameters that impact upon the pricing of
insulation products. These include costs of raw materials, the density of the
fiber, fiber thickness, direct labor, packaging, and in the case of fiberglass
and certain other manufactured products there are a number of resins and other
additives that can be used in the manufacturing process to instill certain
desired properties within the insulating product. Inzeco believes that
RTICA-TM- will be able to demonstrate superior cost competitive attributes at
R-values of 4.0 per inch and above in relation to fiberglass, and will be
competitive with products with R-values of less than 4.0 per inch. R-values are
used to rate insulation in terms of thermal resistance. The R-value indicates
the insulation's resistance to heat flow and is based on the type of material,
its thickness and density. Numerous factors in addition to the R-value are
likely to influence cost competitiveness considerations. For example, ease of
installation is a factor in that insulating products that have a comparatively
low mean installation cost with comparatively high R-values per inch, are
likely to be better received in the marketplace than products which have
comparatively favorable R-values with excessively high installation costs.
Inzeco's pricing assumptions are predicated upon a dollar per kilo formula.
This in turn is 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,
and resultant density. As Inzeco has not yet utilized RTICA-TM- in a single
demonstration home, its ability to fully test the reasonableness of its pricing
assumptions is not yet evident. This will be necessary if Inzeco is 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
US patent number 5,582,905 (published on December 10, 1996) and
Canadian patent number 2,190,957 (published on April 6, 1999) (collectively,
the "Patents") are product patents which have as their principal claims the
loft building mechanism in the structure and cover all thermoplastics.
Applications for such product patents are also pending in the European Patent
Office. The Company has filed additional patent applications for Inzeco's
method and related equipment designs in the United States. Although the Patents
do not prevent others from making thermoplastic fiber insulation, management
believes that they will result in their incurring higher manufacturing costs
due to the need to use binders or mechanical methods to create the loft. See
"Risk Factors --Dependance on Technology". While Inzeco plans to use PET as its
raw material, a wide range of polymers are believed by management to be covered
by the Patents.
COMPETITION
RTICA-TM- will compete in the building insulation market which is an
extremely competitive market, principally composed of large domestic and
multinational companies which have significantly greater assets, working
capital and marketing personnel than the Company. See "Risk Factors --
Competition". The Company believes 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, the Company expects that if its products become successful,
competitors will be more likely to develop and introduce into the marketplace
comparable products and technologies. In such event, the Company will likely be
competing with larger, better capitalized and nationally recognized competitors.
EMPLOYEES
The Company currently employs eight full-time employees and three
full-time consultants, including Warren Arseneau, President of the Company,
who provides services pursuant to a written consulting agreement. See
"Management." As Inzeco grows, the Company will be required to hire, train,
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integrate, manage and retain its workforce including its technology,
manufacturing, engineering, sales and business development staff.
PROPERTY
The Company's executive offices and its 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
monthly rent of C$7,100 (approximately US$4,665) plus taxes.
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a
party, and the Company is not aware of any threatened legal proceedings
involving the Company. See "Risk Factors -- License Agreement."
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the information regarding all directors
and executive officers of the Company:
<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. 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 until present, Mr. Arseneau has provided services
to E2 Development Corporation, RTICA Inc. and Inzeco Holdings Inc. through a
management contract with Flat Rock Management, a sole proprietorship in Ontario
engaged in management consulting, which Mr. Arseneau founded in June of 1998.
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<PAGE>
ROGER J. SHORT - Director. 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 and Director. 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 1988,
Mr. Beck has been the principal shareholder and director of Dev Tech Labs, Inc.,
a private corporation 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 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. 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, Mr. Galloway has served the Company as Vice-President, Sales and
Marketing. Prior to that period, from September 1999 to May 2000, Mr. Galloway
performed similar marketing services for the Company on a part time basis.
There is no family relationship between any director or executive
officer and any other director or executive officer.
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<PAGE>
EXECUTIVE COMPENSATION
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"). The Company 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 the most recently completed financial year of the Company the Named
Executive Officer received an aggregate cash compensation by the Company and
RTICA Inc. in the amount of C$195,000 (approx. US$127,693).
SUMMARY COMPENSATION TABLE(1)
IN CANADIAN DOLLARS
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- ----------------------------------
SECURITIES UNDERLYING OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY (C$) BONUS(C$) (#)
--------------------------- ---- ---------- -------- ----------------------------------
<S> <C> <C> <C> <C>
Warren Arseneau............ 2000 120,000(2) 75,000(3) 425,000(3)
President 1999 120,000(2) - -
1998 120,000(2) - -
1997 118,700(2) - 225,000
</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 the Company, over the
four year term of the agreement, Mr. Arseneau is entitled to bonuses
totaling up to C$325,000 if the Company meets certain economic and
strategic goals. See "Contracts with Executives."
(3) Of the 425,000 options granted to Mr. Arseneau pursuant to the
Consulting Agreement dated May 15, 2000, the options shall become
exercisable at fair market value as to 100,000 shares of Common Stock
on December 1, 2000, as to another 100,000 shares of Common Stock on
each of January 15, 2001, January 15, 2002 and January 15, 2003 and as
to the remaining 25,000 shares of Common Stock on January 15, 2004.
CONTRACTS WITH EXECUTIVES
RTICA Inc., the wholly owned subsidiary of the Company, signed a
consulting agreement with Warren Arseneau dated May 15, 2000 to manage the
Company. The consulting agreement terminates on December 31, 2004. In
consideration for the services to be provided by Mr. Arseneau, the Company has
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 the Company, Mr.
Arseneau will be entitled to one percent (1%) of the sale proceeds.
In addition, Mr. Arseneau will also be granted options to purchase a
total of 425,000 shares of the Company's Common Stock. The options shall be
exercisable as follows: with respect to 100,000 shares on each of December 1,
2000, January 15, 2001, January 15, 2002, and January 15, 2003, and with
respect to the remaining 25,000 shares underlying the options on January 15,
2004. The options shall be exercisable
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<PAGE>
at the market price on the date of issuance. Mr. Arseneau is also reimbursed
for certain travel expenses and other direct expenses made on behalf of the
Company.
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., (AJIFC")
provides financing, strategic planning and other consulting services to the
Company pursuant to a consulting agreement between RTICA Inc., a wholly owned
subsidiary of the Company, 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 the Company pursuant to a consulting agreement with RTICA
Inc., a wholly owned subsidiary of the Company. 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 the Company secures financing of at least C$2,000 during the term of
the agreement.
Mr. Roger Short serves the Company 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 and
reimbursement for out of pocket expenses incurred by Mr. Short in connection
with services performed.
From September 1999 through May 2000, Mr. Richard Galloway provided
consulting services to the Company 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 the Company, however, the Company intends 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. The Company
intends to enter into a multi-year written employment agreement with Mr.
Galloway during the fiscal year ending 2001, the terms of which are currently
being negotiated.
None of the Company's other executive officers or directors presently
receives or has received a salary or other compensation from the Company or
RTICA Inc. However, it is intended that certain of the Company's officers may be
employed in the future pursuant to written employment agreements. The Company
presently believes that none of the salaries will exceed C$30,000 (approx.
US$20,634) during the fiscal year ending 2001.
DIRECTORS AND OFFICERS INSURANCE
The Company does not maintain directors and officers insurance.
KEY MAN INSURANCE
The Company maintains 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
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<PAGE>
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 the Company under contract to Inzeco, or the registered
retirement savings plan, or holding companies of them, the option to purchase
shares of Common Stock of the Company. 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 30 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 the Company's last completed fiscal year, none
of the directors or senior officers of the Company nor any of their respective
associates or affiliates, has been indebted to the Company or to its 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."
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<PAGE>
PRINCIPAL SHAREHOLDERS
To the Company's knowledge, the Company is 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>
======================================================= ============================= ==============================
Name Amount Percent of Class (9)
------------------------------------------------------- ----------------------------- ------------------------------
<S> <C> <C>
Warren Arseneau 3,908,175 (1) 12.63%
------------------------------------------------------- ----------------------------- ------------------------------
Martin Beck 4,970,962 (2) 14.87%
------------------------------------------------------- ----------------------------- ------------------------------
Michael Boyd 901,378 (3) 2.72%
------------------------------------------------------- ----------------------------- ------------------------------
Richard Galloway 33,503 0.10%
------------------------------------------------------- ----------------------------- ------------------------------
Steven Letwin 100,000 (4) 0.30%
------------------------------------------------------- ----------------------------- ------------------------------
Roger J. Short 1,577,518 (5) 4.72%
------------------------------------------------------- ----------------------------- ------------------------------
Robert Stikeman 368,026 (6) 1.12%
Stikeman, Graham & Keeley
220 Bay Street, 7th Floor, Box 24
Toronto, Canada M5J 2W4
------------------------------------------------------- ----------------------------- ------------------------------
Enbridge Inc. 3,627,723 (7) 10.75%
Canada Trust Tower
421 7th Avenue SW, Suite 2900
Calgary, Alberta T2P 4K9 Canada
------------------------------------------------------- ----------------------------- ------------------------------
Nice Investments LLC 2,807,500 8.54%
40 West Gude Drive, Suite 210
Rockville, MD 20850
------------------------------------------------------- ----------------------------- ------------------------------
All officers and directors as a group 11,659,562 (8) 33.92%
(6 persons)
======================================================= ============================= ==============================
</TABLE>
---------------------
(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.
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<PAGE>
(6) Includes 100,000 shares subject to options granted to Mr. Stikeman that
are currently exercisable.
(7) Includes an aggregate of 900,000 shares issuable upon the conversion of
Debentures held by Enbridge Inc.
(8) Includes an aggregate of 1,805,250 shares issuable upon exercise of
currently outstanding options granted to officers and directors of the
Company that are currently exercisable or exercisable within 60 days.
(9) 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."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth below, the Company has 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 the
Company with product and process development services in
consideration for the following amounts for the years
indicated: US$34,459 (1997), US$372,583 (1998) and US$88,940
(1999). Mr. Martin Beck, a Director of the Company is the
President, Director and a principal shareholder of DevTech. In
addition, since January 1, 2000, the Company has paid Mr. Beck
US$1,100 per month as consulting fees.
2. On June 25, 1999, the Company 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 the Company 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, the Company obtained short term financing
from a number of investors. Mr. Michael Boyd, a director of
the Company and one of the investors in the group, loaned the
Company 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. Mr. Robert Stikeman through Stikeman, Graham & Keeley receives
fees from the Company in consideration for legal services
provided to the Company.
The Company believes that the terms of the transactions described above
were comparable to those which could have been obtained from non-affiliated
parties.
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<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 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.
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<PAGE>
ESCROWED SHARES
Particulars of the shares of Common Stock (the "Common Shares") that
are escrowed are as follows:
<TABLE>
<CAPTION>
---------------------------------------- ------------------------------------- -------------------------------------
NUMBER OF COMMON SHARES HELD IN PERCENTAGE OF COMMON SHARES HELD IN
DESIGNATION OF SECURITY ESCROW 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 was entered
into as a requirement of the Alberta Securities Commission. 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 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, 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 completion of the Major Transaction,
which took place on June 3, 1998. As of November 14, 2000, 546,999
Common Shares remain in escrow and will be released on June 3, 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.
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<PAGE>
CERTAIN UNITED STATES AND
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
UNITED STATES
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of Inzeco shares of
Common Stock by a shareholder, that is a citizen or resident of the United
States or a United States domestic corporation or that 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 principal 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 the Company's Common Stock.
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, 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 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 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
the Company's current and accumulated earnings and profits, foreign source
ordinary income on the receipt of cash dividends, if any, on the shares of the
Company's 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 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 Canadian tax withheld or paid with respect to
dividends on the shares of the Company's Common Stock as a foreign tax credit
against the United States federal income tax liability of such holder.
Dividends on the shares of the Company's 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.
United States shareholders who do not elect to claim any foreign tax credits
may claim a deduction for Canadian income tax withheld. Dividends paid on the
shares of the Company's 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 the Company's Common Stock, a
United States shareholder will 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 the Company's Common Stock are
sold or exchanged, as the case may be, were held.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR
AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR
INVESTOR IS MADE.
CANADA
The following is a summary of the principal Canadian federal income
tax considerations generally applicable to the acquisition, holding and
disposition of shares of the Company's 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,
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<PAGE>
(i) is resident in the United States and not resident in Canada, (ii) holds
shares of the Company's Common Stock as capital property, (iii) does not have
a "permanent establishment" or "fixed base" in Canada, and (iv) deals at arm's
length with the Company. 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.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
AND SHOULD NOT BE INTERPRETED AS, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE
INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY
PARTICULAR INVESTOR IS MADE.
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 the Company's Common Stock to a United States shareholder who
owns less than 10% of the Company's 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.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR
AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR
INVESTOR IS MADE.
DISPOSITION OF SHARES OF COMMON STOCK
A capital gain realized by a United States shareholder on a
disposition or deemed disposition of shares of the Company's Common Stock will
not be subject to tax under the Income Tax Act (Canada) unless such shares of
the Company's Common Stock 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 the Company's 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 the Company's shares. A deemed
disposition of shares of the Company's 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 of the Company's Common Stock 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 the
Company's Common Stock at the time of the disposition or deemed disposition is
not derived principally from real property situated in Canada. Inzeco is 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
-31-
<PAGE>
applicable on a disposition or deemed disposition of shares of the Company's
Common Stock must be made at the time of the disposition or deemed disposition.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR
AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR
INVESTOR IS MADE.
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).
Inzeco is currently a Canadian company (as that term is defined in the
Investment Canada Act). If a non-Canadian seeks to acquire control of Inzeco,
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 Company's assets, as set out in its most
recent financial statements, exceeds the applicable threshold. If the potential
acquirer is a WTO Investor, acquiring control of the Company would only be
reviewable if the book value of the Company's 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 the Company's assets exceeds the applicable
threshold for review, 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.
-32-
<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 Shares Number of
Number of Shares of Stock Shares of Percentage of
of Common Stock Eligible for Common Stock Common Stock
Owned as of the Resale Pursuant to be Owned to be Owned
Name of Selling Securityholder Date of the to the Following the following the
Prospectus Prospectus Offering Offering
------------------------------------------- ------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Jayvee & Co., as custodian 2,400,000 2,400,000 0 0%
for A/C AUIF3817002
P.O. Box 9
Commerce Court West
Securities Level
Toronto, Ontario M5H 4A6 Canada
Carr & Co. (RT2) 600,000 600,000 0 0%
c/o Royal Bank Plaza
South Tower, SL Level
200 Bay Street
Toronto, Ontario M5J 2S1 Canada
Eleuterra Investment Management Inc. -- 250,000 250,000 0 0%
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
R.D. Dacks Limited 283,333 283,333 0 0%
225 East Beaver Creek Road
Richmond Hill, Ontario L4B 3P4 Canada
Superior Intech Inc. 500,000 500,000 0 0%
1340 Warwick Avenue
Oakville, Ontario L6L 2W1 Canada
</TABLE>
-33-
<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).
The Company is bearing all of the costs relating to the registration
of the shares of Common Stock 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 of 1933, as amended, may be sold under
Rule144 rather than pursuant to this Prospectus.
The Selling Shareholders have agreed to indemnify the Company, and the
Company has agreed to indemnify the Selling Shareholders, against certain
liabilities, including liabilities under the Securities Act of 1933.
CHANGE IN ACCOUNTANTS
Effective August 21, 1998, KPMG LLP, Chartered Accountants, were
engaged as the Company's independent auditors, replacing Collins Barrow, the
Company's 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. The Company's Board of Directors
determined that it was in the best interest of the Company 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
-34-
<PAGE>
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 the Company by Dornbush, Mensch Mandelstam & Schaeffer, LLP,
New York, New York.
EXPERTS
The Company's 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 12, 2000 and note
5(e) which is as of November 17, 2000, which contains a reference to note 1
where it states that the Company had suffered recurring losses from operations
and had not commenced commercial production which raises substantial doubt
about its 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.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Inzeco is 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.
-35-
<PAGE>
Consolidated Financial Statements
(Expressed in Canadian dollars)
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Years ended May 31, 2000 and 1999 and
cumulative period from June 13, 1991
(inception) to May 31, 2000
<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
October 15, 2000 and note 5(e)
which is as of November 17, 2000
<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
shareholders dated July 31, 2000, except for note 11(b) which is as of October
12, 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
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheets
(Expressed in Canadian dollars)
May 31, 2000 and 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
_____________________________________ Director
_____________________________________ Director
1
<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
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
2000 1999 May 31, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<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
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
2000 1999 May 31, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===================================================================================================================
</TABLE>
Cash and cash equivalents are comprised of cash and cash in trust.
3
<PAGE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1998
-------------------------------------------------------------------------------
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.
5
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1998
-------------------------------------------------------------------------------
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.
6
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1998
-------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The accounting for the business combination was as follows:
<TABLE>
---------------------------------------------------------------------
<S> <C>
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
=====================================================================
</TABLE>
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:
<TABLE>
---------------------------------------------------------------------
<S> <C>
Machinery and equipment 25%
Furniture 25%
Vehicles 30%
Computer hardware 30%
---------------------------------------------------------------------
</TABLE>
(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.
7
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1998
-------------------------------------------------------------------------------
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.
8
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1998
-------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Accumulated Net book
2000 Cost amortization value
---------------------------------------------------------------------
<S> <C> <C> <C>
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
=====================================================================
</TABLE>
9
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(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.
The equity component represents the excess of the face value over the
debt component at the date of issuance.
10
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1998
-------------------------------------------------------------------------------
5. SHARE CAPITAL:
The authorized share capital of the Company consists of unlimited
preference shares issuable in series and unlimited common shares.
Common share transactions from inception are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Shares Amount
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=======================================================================================================
</TABLE>
11
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(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> <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 June 3, 1999. On June 3, 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 - 450,000) shares were released from escrow.
12
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(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.
During the year, 125,000 (1999 - 71,250) common shares were issued
under this plan for cash proceeds of $25,000 (1999 - $14,250). An
additional 120,000 (1999 - 85,000) shares were reserved for
consultants in 2000 at an exercise price ranging from $0.22 to $0.39
(1999 - $0.25 to $0.35). In 1999, options to acquire 28,500 common
shares expired. At year end, the remaining options will expire
between December 20, 2001 and April 29, 2003. During the year, the
maximum number of shares issuable under the stock option plan was
increased by 500,000 to 2,700,000.
(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.
13
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------------------
5. SHARE CAPITAL (CONTINUED):
(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
shareholders:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
<S> <C> <C>
Purchase of fixed assets $ 330,000 $ -
Management fees 267,000 210,000
Consulting 163,000 18,000
Development charges 57,000 452,000
Professional fees 26,000 36,000
----------------------------------------------------------------------
</TABLE>
14
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(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:
<TABLE>
------------------------------------------------------------------------
<S> <C>
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
------------------------------------------------------------------------
</TABLE>
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.
15
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(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.
(b) The Company is committed to minimum annual payments under an
operating lease for its administrative office and manufacturing
facility as follows:
<TABLE>
-------------------------------------------------------------------
<S> <C>
2001 $ 60,000
2002 60,000
2003 62,500
2004 65,000
-------------------------------------------------------------------
$ 247,500
===================================================================
</TABLE>
(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.
10. COMPARATIVE FIGURES:
Certain 1999 comparative figures have been reclassified to conform to the
financial statement presentation adopted in 2000.
16
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(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.
(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.
17
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(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.
The following table summarizes the significant components of the
Company's deferred tax balances:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------
<S> <C> <C>
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)
---------------------------------------------------------------------
$ - $ -
=====================================================================
</TABLE>
18
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
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.
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.
19
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(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.
(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.
20
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(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.
The impact of the items noted above on the financial statements is as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===================================================================================================================
</TABLE>
21
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------------------
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total convertible debentures per Canadian GAAP $ 349,278 $ 1,460,000
Reclass equity component of convertible debentures 10,722 105,000
Reclass intrinsic value of conversion feature to paid-in capital (180,000) -
-------------------------------------------------------------------------------------------------------------------
Total convertible debentures per U.S. GAAP $ 180,000 $ 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
-------------------------------------------------------------------------------------------------------------------
Other paid-in capital, end of the year per U.S. GAAP $ 438,195 $ 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
===================================================================================================================
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)
===================================================================================================================
</TABLE>
22
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)
August 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===================================================================================================================
</TABLE>
See accompanying notes to interim financial statements.
1
<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 May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
August 31,
2000 1999 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 operating expenses 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)
===================================================================================================================
</TABLE>
See accompanying notes to interim financial statements.
2
<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 May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Period from
June 13, 1991
(inception) to
2000 1999 August 31, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
-------------------------------------------------------------------------------------------------------------------
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
===================================================================================================================
</TABLE>
See accompanying notes to interim financial statements.
3
<PAGE>
See accompanying notes to interim financial statements.
4
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Interim Consolidated Financial Statements
(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.
5
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
Three months ended 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 one
additional common share for each ten 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.
6
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
Three months ended 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.
(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 consultants under the fair
value method.
(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.
7
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
Three months ended August 31, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
(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.
(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.
8
<PAGE>
INZECO HOLDINGS INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Interim Consolidated Financial Statements
(Expressed in Canadian dollars)
Three months ended August 31, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(CONTINUED):
The impact of the items noted above on the financial statements is as
follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Reclass intrinsic value of conversion feature to paid-in capital (180,000) -
-------------------------------------------------------------------------------------------------------------------
Total convertible debentures per U.S. GAAP $ 187,043 $ 1,577,232
===================================================================================================================
Other paid-in capital, end of period per Canadian GAAP $ - $ -
Fair value of stock options issued to non-employees 749,415 392,245
-------------------------------------------------------------------------------------------------------------------
Other paid-in capital, end of period per U.S. GAAP $ 749,415 $ 392,245
===================================================================================================================
Share capital, end of period per Canadian GAAP $ 8,370,235 $ 2,292,703
Elimination of goodwill (108,938) (108,938)
-------------------------------------------------------------------------------------------------------------------
Share capital, end of period per U.S. GAAP $ 8,261,297 $ 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)
===================================================================================================================
</TABLE>
9
<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
<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 $127,247.00
==========
</TABLE>
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years the following securities have been sold
without being registered in the United Stated under the Securities Act:
<TABLE>
<CAPTION>
DATE NUMBER OF ISSUE PRICE AGGREGATE NATURE OF
COMMON SHARES PER SHARE CONSIDERATION CONSIDERATION
(#) (C$) (C$)
<S> <C> <C> <C> <C>
June 24, 1997 1,050,000(1) $ 0.10 $ 105,000 Cash
June 25, 1997 300,000(1) 0.10 30,000 Cash
October 8, 1997 1,500,000(2) 0.20 300,000 Cash
March 16, 1998 50,000(3) 0.20 10,000 Cash
April 15, 1998 25,000(4) 0.20 5,000 Cash
April 28, 1998 17,499,995(5) 0.20 3,499,999 Shares
May 20, 1998 20,000(6) 0.20 4,000 Cash
June 9, 1998 35,625(7) 0.20 7,125 Cash
July 24, 1998 35,625(8) 0.20 7,125 Cash
<PAGE>
October 30, 1998 1,666,667(9) 0.45 750,000 Cash
May 20, 1999 55,000(10) 0.20 11,000 Cash
November 2, 1999 75,000(11) 0.45 33,750 Cash
November 26, 1999 125,000(12) 0.20 25,000 Cash
December 10, 1999 2,727,723(13) 0.55 1,605,248 Cash
May 31, 2000 2,807,500(14) 0.60 1,680,570 Cash
July 10, 2000 850,418(15) 0.65 553,541 Cash
October 15, 2000 4,033,333(16) 0.60 2,420,000 Cash
</TABLE>
-----------
Notes:
(1) Shares issued as seed capital shares.
(2) Share issued pursuant to an initial public offering in Canada.
(3) Shares issued pursuant to the exercise of an option granted to Goepel
McDermid Inc. ("Goepel"), agent for the Corporation's initial public
offering.
(4) Shares issued pursuant to the exercise of an option granted to Goepel.
(5) Shares issued in connection with the acquisition by the Company of all
of the outstanding shares of E2 Development Corporation in April 1998.
(6) Shares issued pursuant to the exercise of an option granted to Goepel.
(7) Shares issued pursuant to the exercise of a director's option.
(8) Shares issued pursuant to the exercise of a director's option.
(9) Shares issued pursuant to the Special warrants issued in October, 1998.
(10) Shares issued pursuant to the exercise of an option granted to Goepel.
(11) Shares issued pursuant to the exercise of an option granted to Goepel.
(12) Shares issued pursuant to the exercise of a director's option.
(13) Shares issued pursuant to the conversion of a convertible debenture
held by Enbridge Inc. in the amount of C$1,500,000 (approx.
US$1,015,572).
(14) Shares issued pursuant to the May 2000 private placement in the United
States.
(15) Shares issued pursuant to the conversion of warrants issued in
April 1998.
(16) Shares issued pursuant to the conversion of special warrants issued
in the June 2000 private placement in Canada.
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 Dornbush Mensch Mandelstam & Schaeffer, LLP,
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.
<PAGE>
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.
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 Dornbush Mensch Mandelstam & Schaeffer, LLP
(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.
------------
* 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;
(i) To include any prospectus required by Section 10
(a) (3) of the Securities Act of 1933;
(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
<PAGE>
be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by Widecom 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify
that we have reasonable grounds to believe that we meet all of the requirements
for filing on Form SB-2 and have duly caused this Registration Statement to be
signed on our behalf by the undersigned, there unto duly authorized, in the City
of Stony Creek, Ontario, Canada, on November 17, 2000.
/s/ Warren Arseneau
-----------------------------
Warren Arseneau, President
<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 don 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/ MARTIN H. BECK DATE: NOVEMBER 17, 2000
-------------------------- -----------------
MARTIN H. BECK
/S/ MICHAEL BOYD DATE: NOVEMBER 17, 2000
-------------------------- -----------------
MICHAEL BOYD
DATE: NOVEMBER 17, 2000
-------------------------- -----------------
ROGER SHORT
/S/ ROBERT STIKEMAN DATE: NOVEMBER 17, 2000
-------------------------- -----------------
ROBERT STIKEMAN
DATE: NOVEMBER 17, 2000
-------------------------- -----------------
STEVEN LETWIN
