SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number
0-25989
PEPPERMILL CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 98-0186841
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1819 Clarkson Road, Suite 205
Chesterfield, Missouri 63017
(Address of principal executive offices) (Zip Code)
(636) 530-4532
Registrant's telephone number, including area code
Securities registered pursuant to Sections 12(b) and 12(g) of the Act:
Name of each exchange
Title of Class on which registered:
Common Stock, $.001 par value per share NASD Bulletin Board
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
[x] Yes [_] No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated in Part III of the Form 10-KSB or any amendment to the Form 10-KSB.
[_]
The Registrant's revenues for the fiscal year ended December 31, 1999, were
$0
Based upon the average bid and asked price of $6.75 for the Registrant's
Common Stock as of March 25, 2000. The aggregate market value of the voting
stock held by non-affiliates of the Registrant was then approximately
$7,584,975. (Determination of stock ownership by non-affiliates was made solely
for the purpose of responding to the requirements of this Form 10-KSB and the
Registrant is not bound by this determination for any other purpose).
The number of shares of the Registrant's Common Stock outstanding as of
March 25, 2000, was 11,239,700 (excluding treasury shares).
Transitional Small Business Disclosure Format (check one): [_] Yes [x] No
<PAGE>
PART I
Item Nos. 1 and 2 Description of Business; Description of Property
Information concerning all the factors associated with Peppermill is set
forth in this combined Item 1 and 2 below. FOR A COMPLETE UNDERSTANDING OF SUCH
FACTORS, THIS ENTIRE DOCUMENT, INCLUDING THE FINANCIAL STAEMENTS AND THEIR
ACCOMPANYING NOTES, SHOULD BE READ IN ITS ENTIRETY.
Background.
Peppermill Capital Corporation, a Nevada corporation, was incorporated on
April 9, 1998. Peppermill has no subsidiaries. On November 22, 1999, Varner
Technologies, Inc. ("Varner") completed the purchase of 10,116,000 shares of
Peppermill Common Stock from several Peppermill shareholders. On November 19,
1999, Peppermill entered into a Letter of Intent with Varner Technologies, Inc.
("Varner"), relating to the merger of Varner into Peppermill. Varner is an
Internet service provider, and is further engaged in the marketing and sale of
long distance telephone services, prepaid telephone cards and other
telecommunications products and services via a network of independent
distributors, pursuant to a multilevel marketing plan, in 49 states of the
United States.
The purchase of the shares of Peppermill's Common Stock by Varner was made
in contemplation of a business combination/merger transaction between the two
entities, whereby it is expected that all outstanding voting and non-voting
Common Stock of Varner will be exchanged for 10,116,000 shares of Peppermill's
Common Stock. The final terms of such business combination/merger by way of a
formal Acquisition Agreement are currently being negotiated and there is no
guarantee such transaction will take place. Peppermill will be required to
provide notice to and seek the consent of its shareholders to any business
combination/merger with Varner.
Upon the purchase of Peppermill's Common Stock by Varner, the then current
officers and directors of Peppermill resigned, and Clayton W. Varner, President
and CEO of Varner, was elected sole director and President of Peppermill.
Peppermill intends to change its corporate name and trading symbol upon the
conclusion of any business combination/merger transaction between Peppermill and
Varner.
Peppermill's executive offices were located at 2500-1177 West Hastings
Street, Vancouver, B.C., Canada, V6E 2K3. Upon Varner's acquisition of the
controlling interest in the outstanding shares of Peppermill's Common Stock,
Peppermill's executive offices were moved to Varner's offices, located at 1819
Clarkson Road, Suite 205, Chesterfield, Missouri 63017.
Peppermill was engaged in the exploration and development of mineral
properties. Peppermill presently has the mineral rights to certain mineral
claims located in the Princeton area of British Columbia, Canada and undertook
exploration activities on its mineral claims in February 1999 in order to
maintain the claims in good standing with the Gold Commission of British
Columbia and to adhere to the recommendations put forth in the June 16, 1998
geological report prepared by James W. McLeod, P. Geo. as more fully described
below.
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Peppermill has obtained quotation on the NASD OTC Bulletin Board, and its
common stock commenced trading under the symbol PEPM on November 25, 1999.
Peppermill has no revenue to date from the development of its mineral
claims, and its ability to effect its plans for the future will depend on the
availability of financing. It is anticipated that after the merger, management
efforts will be focused primarily on the business of Varner and that at least
for the immediate future little or no effort will be made to develop
Peppermill's mining business further.
Peppermill has not been subject to bankruptcy, receivership or any similar
proceedings.
Description of the Mineral Claim
Peppermill presently has a 100% interest in certain mineral claims known as
the Star mineral claims situated 12 miles north of the Village of Princeton,
British Columbia, Canada. The claims area totals approximately 587 acres.
Exploration Activities
Peppermill completed an exploration program on its mineral claims in
February 1999 that was undertaken by Mr. Edward Skoda, mining consultant. The
program, as performed and reported upon by Mr. Skoda comprised the following.
"In preparation for a proposed geological and geophysical survey, as
per the recommendations in the June 16, 1998 Geological Report by Mr. James
W. McLeod, P. Geo., line cutting and grid establishment was commenced on
February 4, 1999.
The baseline was brushed out and stations were horizontally chained-in
every 100 meters. Chaining was completed using 10 meter intervals and flagged.
The baseline totals were 1,581 meters.
The grid sampling lines were brushed out with stations horizontally
chained-in and flagged every 10 meters, for a total distance of 2,949 meters.
To date the combined gridding for the baseline and gridline layout is 4,530
meters.
On February 8, 1999, the above exploration work was filed with the Ministry
of Energy and Mines under a Statement of Work, Section 29, 30, 31 and 50 of the
Minerals Act. All 11 of
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the Star Claims were therefore maintained in good standing. Six of the claims
expired on February 16, 2000 and five of the claims expire on June 22, 2000.
Notwithstanding the foregoing, upon the conclusion of any final business
combination/merger transaction by way of a formal Acquisition Agreement between
Varner and Peppermill, Peppermill anticipates that the focus of its business
will shift from that of exploring and developing its mineral claims, to that of
Varner, namely, providing Internet Service, and engaging in the marketing and
sale of long distance telephone services, prepaid telephone cards and other
telecommunications products and services via a network of independent
distributors, pursuant to a multi-level marketing plan, in 49 states of the
United States.
Other Mineral Properties
Peppermill has not identified any other mineral properties either for
staking or purchasing. It is not contemplated that Peppermill will seek other
mineral properties in the near future in order to diversify its holdings into
other areas of interest and minerals. Peppermill has not as yet inaugurated any
steps toward the investigation of any mineral claims, and does not presently
have the financial capacity to do so and it is not anticipated that Peppermill
will commence its mining operations in the near future.
Employees
As of March 30, 2000, Peppermill had one part-time employee, Clayton W.
Varner, its President. Peppermill is not a party to any employment contracts or
collective bargaining agreements. The British Columbia area has a relatively
large pool of people experienced in exploration and development of mineral
properties; being mainly geologists and mining consultants. In addition, there
is no lack of people who have experience in working on the mineral claim either
as laborers or prospectors.
Item No. 3 Legal Proceedings
There are no legal proceedings to which Peppermill is a party or to which
its property is subject, nor to the best of management's knowledge are any
material legal proceedings contemplated.
Item No. 4 Submission of Matters to a Vote of Security Holders
Not Applicable
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PART II
Item No. 5 Market for Registrant's Common Equity and Related Stockholder Matters
Market Information.
The Company's Common Stock was admitted to trading on the NASD OTC Bulletin
Board under the symbol PEPM on November 25, 1999. Prior to that time, there was
no established public trading market for the Company's Common Stock. As a
result, there is no available trading information for the period from January 1,
1998, to November 24, 1999.
The high and low bid prices during fiscal 1999 by quarter, according to the
NASD OTC Bulletin Board were:
High Low
---------------------
November 25, 1999 (the inception of trading) $10.00 $4.875
to December 31, 1999
Since the foregoing are over-the-counter market quotations, the quotations
reflect inter-dealer prices without retail mark-up, mark-down or commission, and
may not represent actual transactions.
Peppermill's market maker is Emerson, Bennett & Associates, LLC, 6261 North
West 6th Way, Suite 207, Fort Lauderdale, Florida 33309.
Description of Securities
Peppermill's articles of incorporation currently provide that Peppermill is
authorized to issue up to 200,000,000 shares of common stock, par value $0.001
per share. As of March 30, 2000, 11,239,700 shares were outstanding.
Common Stock
Each holder of record of Peppermill's common stock is entitled to one vote
per share in the election of Peppermill's directors and all other matters
submitted to Peppermill's stockholders for a vote. Holders of Peppermill's
common stock are also entitled to share ratably in all dividends when, as, and
if declared by Peppermill's Board of Directors from funds legally available
therefor, and to share ratably in all assets available for distribution to
Peppermill's stockholders upon liquidation or dissolution. There are no
preemptive rights to subscribe to any of Peppermill's securities, and no
conversion rights or sinking fund provisions applicable to the common stock.
Neither Peppermill's Articles of Incorporation nor its bylaws provide for
cumulative voting. Accordingly, persons who own or control a majority of the
shares outstanding may elect all of the Board of Directors, and persons owning
less than a majority could be foreclosed from electing any.
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Options Outstanding
There are currently no options, warrants or rights to purchase Peppermill's
common stock outstanding.
Holders
The number of record holders of Peppermill Common Stock as at March 31,
2000, was 32, of which 1 was a director.
Dividends
Peppermill has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. Peppermill currently intends to
retain any earnings for the operation and expansion of its business.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be equity securities that has a market price
(as defined) of less than $5.00 per share, subject to certain exemptions.
Peppermill's Common Stock may be deemed to be a "penny stock" and thus, may
become subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the Common Stock is listed on The
NASDAQ SmallCap Market or other exchange.
Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell Peppermill's securities, and may adversely affect the
ability of holders of Peppermill's Common Stock to resell their shares in the
secondary market.
Item No. 6 Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Peppermill has not yet received revenues from operations. Assuming the
merger is completed, it is anticipated that management's primary focus will be
on the business of Varner and that Peppermill's operations will not be developed
further at least for the immediate future.
Plan of Operation
Peppermill's management to date concentrated on the Star Claims. Peppermill
has had limited operations and no revenues to date.
Liquidity and Capital Resources
Peppermill had no assets and no liabilities as of December 31, 1999.
Peppermill will require significant additional financing in order to continue on
with either the Varner or mining business. No financing has been arranged. If
Peppermill is unable to raise additional capital, it will not be able to engage
in any future operations.
An analysis of the expenses for the period from inception, being April 9,
1998, to December 31, 1998 and for the year ended December 31, 1999 are as
follows:
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From April 9, 1998
(date of inception) For the Year
to Ended
December 31, 1998 December 31, 1999
----------------- -----------------
Accounting and audit $ 3,050 $ 2,798
Amoritization of Mining Rights -- $ 2,129
Assessment work 1,800 --
Bank charges 119 36
Consulting fees 7,800 13,200
Filing Fee - EDGAR -- 1,634
Incorporation costs written off 640 --
Legal 2,500 --
Office and miscellaneous 727 267
Report preparation 619 --
Salary -- --
Transfer agent's fees 2,777 1,435
Travel 3,000 --
------- -------
TOTAL EXPENSES $23,032 $21,499
======= =======
An analysis of the above expenses is as follows:
Accounting and Audit
Peppermill has expended funds for accounting and auditing in connection
with a Form 15C-211B submitted to NASD in connection with the listing of its
common stock on the OTC Bulletin Board. Peppermill has also been required to
file quarterly reports on Form 10-QSB.
Amortization of Mining Rights
Peppermill is amortizing costs of obtaining mining rights which were
previously capitalized.
Assessment Work
Peppermill engaged the services of Edward Skoda to perform certain
exploration work on the property more fully described above. This work was
assigned in December but was not performed and filed with the Gold
Commissioner's Office until February 1999.
Bank Charges
Represents bank service charges during the period.
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Consulting Fees
Consulting fees include payments for (i) preparation of various securities
subscription agreements, Offering Memoranda, corporate minutes and various other
documents required by Peppermill, and (ii) expenses incurred in identifying a
market maker for Peppermill.
Incorporation Costs Written Off
Peppermill decided to write off the cost of incorporation rather than
capitalize it.
Legal
Legal fees were incurred in obtaining a tradeability letter on the issued
shares of Peppermill. This letter was filed along with the Form 15C-211.
Office and Miscellaneous
Office and miscellaneous represents charges paid for photocopying, faxing
and delivery.
Report Preparation
James McLeod was paid the sum of $619 for the preparation of his geological
report on the Star Claims dated June 16, 1998.
Transfer Agent's Fees
Transfer agent's fees include an annual fee of $1,200, printing of share
certificates and obtaining CUSIP.
Travel
Peppermill reimbursed its former President, Brent Vickers, for travel costs
to Florida to meet with Peppermill's market maker. This expense was incurred
subsequent to the resignation of Brent Vickers as President and Director of
Peppermill.
Peppermill has no contractual obligations for either lease premises,
employment agreements or work commitments on the Star Claims and has made no
commitments to acquire any asset of any nature.
The majority of the general and administrative expenses relate to filing
costs, transfer agent's fees and audit and accounting.
To date, Peppermill has spent $2,129 for exploration and development of the
Star Claims.
Management does not believe Peppermill's operations have been materially
affected by inflation.
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Year 2000 Issue
The Year 2000 issue (i.e. the ability of computer systems to recognize a
date using "00" as the year 2000 rather than 1900) affects all companies and
organizations. As a result of the Company's Year 2000 efforts, no significant
internal problems have occurred to date. The Company has not experienced any
problems with suppliers, vendors, customers, or financial institutions. There
were no significant expenditures related to Year 2000 compliance, and the
Company does not anticipate any further expenses associated with Year 2000.
Safe Harbor Provision of the Private Securities Litigation Act of 1995 and
Forward Looking Statements
Peppermill operates in a rapidly changing environment that involves
numerous risks and uncertainties. The mining business is generally characterized
by intense competition and a fluctuating demand for the particular ores to be
mined. The statements contained in Item 1 (Description of Business) and Item 6
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) that are not historical facts may be forward-looking statements (as
such term is defined in the rules promulgated pursuant to the Securities
Exchange Act of 1934) that are subject to a variety of risks and uncertainties
more fully described in Peppermill's filings with the Securities and Exchange
Commission including, without limitation, those described under "Risk Factors"
in Peppermill's Form 10-SB Registration Statement (File No. 000-25989) effective
May 6, 1999. The forward-looking statements are based on the beliefs of
Peppermill's management, as well as assumptions made by, and information
currently available to Peppermill's management. Accordingly, these statements
are subject to significant risks, uncertainties and contingencies which could
cause Peppermill's actual growth, results, performance and business prospects
and opportunities in 2000 and beyond to differ materially from those expressed
in, or implied by, any such forward-looking statements. Wherever possible, words
such as "anticipate," "plan," "expect," "believe," "estimate," and similar
expressions have been used to identify these forward-looking statements, but are
not the exclusive means of identifying such statements. These risks include the
chance that the merger with Varner Technologies, Inc. may not occur or may occur
on terms different than anticipated.
Item No. 7 Financial Statements
PART F/S
FINANCIAL STATEMENTS
INCEPTION TO FEBRUARY 28, 1999
The following financial statements are filed with this Form 10-KSB:
Page
----
Report of Independent Certified Public Accountants 9
Financial Statements of Peppermill Capital Corporation
Balance Sheet as at February 28, 1999 10
Statement of Operations for the Period from April 9, 1998 (Date
of Inception) to February 28, 1999 11
Statement of Cash Flows for the Period from April 9, 1998 (Date
of Inception) to February 28, 1999 12
Statement of Changes in Stockholders' Equity for the Period from
April 9, 1998 (Date of Inception) to February 28, 1999 13
Notes to Financial Statements 14- 16
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ANDERSEN ANDERSEN & STRONG, L.C. 941 East 3300 South, Suite 220
Certified Public Accountants and Business Salt Lake City, Utah, 84106
Consultants Board Telephone 801-486-0096
Member SEC Practice Section of the AICPA Fax 801-486-0098
E-mail Kandersen @ msn.com
Board of Directors
Peppermill Capital Corporation
Vancouver, B.C., Canada
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of Peppermill Capital Corporation
(a development stage company) at February 28, 1999, and December 31, 1998 the
statement of operations, stockholders' equity, and cash flows for the two months
ended February 28, 1999 and the period from April 9, 1998 to December 31, 1998
and the period from April 9, 1998 (date of inception) to February 28, 1999.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peppermill Capital Corporation
at February 28, 1999 and December 31, 1998, and the results of operations, and
cash flows for the two months ended February 28, 1999 and the period from April
9, 1998 to December 31, 1998 and the period from April 9, 1998 (date of
inception) to February 28, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and will need additional working capital for its planned activity, which
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 5. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Salt Lake City, Utah /s/ "Andersen Andersen & Strong"
April 12, 1999
A member of ACF International with affiliated offices worldwide
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
FEBRUARY 28, 1999 AND DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Feb 28 Dec 31
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 16,125 $ 1,125
Note Receivable -- 15,000
-------- --------
Total Current Assets 16,125 16,125
-------- --------
OTHER ASSETS
Mineral lease - Note 3 2,129 2,129
-------- --------
$ 18,254 $ 18,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - related parties $ 6,800 $ 6,800
Accounts payable 2,516 1,316
-------- --------
Total Current Liabilities 9,316 8,116
-------- --------
STOCKHOLDERS' EQUITY
Common stock
200,000,000 shares authorized, at $0.001 par
value; 11,239,700 shares issued and outstanding 11,240 11,240
Capital in excess of par value 21,930 21,930
Deficit accumulated during the development stage (24,232) (23,032)
-------- ========
Total Stockholders' Equity 8,938 10,138
-------- --------
$ 18,254 $ 18,254
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE TWO MONTHS ENDED FEBRUARY 28, 1999 AND THE PERIOD
APRIL 9, 1998 TO DECEMBER 31, 1998 AND THE PERIOD
APRIL 9, 1998 (DATE OF INCEPTION) TO FEBRUARY 28, 1999
================================================================================
<TABLE>
<CAPTION>
April 9, 1998
Feb 28, Dec 31, (date of inception)
1999 1998 to Feb 28, 1999
------- ------- -------------------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ --
EXPENSES 1,200 23,032 24,232
------------ ------------ ------------
NET LOSS $ (1,200) $ (23,032) $ (24,232)
============ ============ ============
NET LOSS PER COMMON SHARE
Basic $ -- $ (0.002)
------------ ============
AVERAGE OUTSTANDING SHARES
Basic 11,239,700 11,239,700
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE TWO MONTHS ENDED FEBRUARY 28, 1999 AND THE PERIOD
APRIL 9, 1999 TO DECEMBER 31, 1998 AND THE PERIOD APRIL 9, 1998
(DATE OF INCEPTION) TO FEBRUARY 28, 1999
================================================================================
<TABLE>
<CAPTION>
Apr 9, 1998
Feb 28, Dec 31, (date of inception)
1999 1998 to Feb 28, 1999
------- ------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (1,200) $(23,032) $(24,232)
Adjustments to reconcile net loss to net cash provided by operating activities:
Change in accounts payable 1,200 8,116 9,316
Net Cash From Operations -- (14,916) (14,916)
-------- ======== ========
CASH FLOWS FROM INVESTING
ACTIVITIES:
Change in note receivable 15,000 (15,000) --
Purchase of mineral lease -- (2,129) (2,129)
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock -- 33,170 33,170
-------- -------- --------
Net Increase in Cash 15,000 1,125 16,125
Cash at Beginning of Period 1,125 -- --
-------- -------- --------
Cash at End of Period $ 16,125 $ 1,125 $ 16,125
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 9, 1998 (DATE OF INCEPTION)
TO FEBRUARY 28, 1999
================================================================================
<TABLE>
<CAPTION>
Common Stock Capital in
------------------------- Excess of Accumulated
Shares Amount Par Value Deficit
------ ------ --------- -------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 2, 1998
(date of inception) -- $ -- $ -- $ --
Issuance of common stock for cash
at $.001 - June 6, 1999 4,000,000 4,000 -- --
Issuance of common stock for cash
at $.001 - June 23, 1998 6,000,000 6,000 -- --
Issuance of common stock for cash
at $.001 - June 25, 1998 1,150,000 1,150 -- --
Issuance of common stock for cash
at $.10 - June 26, 1998 2,700 3 267 --
Issuance of common stock for cash
at $0.25 - September 17, 1998 87,000 87 21,663 --
Net operating loss for the period from
April 9, 1998 to December 31, 1998 -- -- -- (23,032)
BALANCE DECEMBER 31, 1998 11,239,700 11,240 21,930 (23,032)
Net operating loss for the two
Months ended February 28, 1999 -- -- -- (1,200)
BALANCE FEBRUARY 28, 1999 11,040,050 $ 11,240 $ 21,930 $ (24,232)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION
The Company was incorporated under the laws of the State of Nevada on April 9,
1998 with authorized common stock of 200,000,000 shares at $0.001 par value.
Since its inception the company has completed two Regulation D offerings of
7,239,700 shares of its capital stock for cash.
The Company is in the development stage and was organized for the purpose of
engaging in the business of mineral development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting, Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Dividend Policy
The Company has not yet adopted a policy regarding payment of dividends.
Income Taxes
On December 31, 1998, the Company had a net operating loss carry forward of
$23,032. The income tax benefit from the loss carry forward has been fully
offset by a valuation reserve because the use of the future tax benefit is
doubtful since the Company has no operations. The loss carryforward will expire
in the year 2019.
Earning (Loss) Per Share
Earnings (loss) per share amounts are computed based on the weighted average
number of shares actually outstanding using the treasury stock method in
accordance with FASB statement No. 128.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity,
at the time of purchase, of less than three months, to be cash equivalents.
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Foreign Currency Translation
The transactions of the Company completed in Canadian dollars have been
translated to US dollars. Assets and liabilities are translated at the year end
exchange rates and the income and expenses at the average rates of exchange
prevailing during the period reported on.
Amortization of Capitalized Mineral Lease Costs
The Company will use the successful efforts method to amortize the capitalized
costs of any mineral leases it acquires, which provides for capitalizing the
purchase price of the project and the additional costs directly related to
proving the properties, and amortizing these amounts over the life of the
mineral deposit. All other costs will be expensed as incurred. Unamortized
capitalized costs will be expensed if the property is proven to be of no value.
Financial Instruments
The carrying amounts of financial instruments, including cash, mineral leases,
and accounts payable, are considered by management to be their estimated fair
values. These values are not necessarily indicative of the amounts that the
Company could realize in a current market exchange.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
3. PURCHASE OF MINERAL LEASES
On June 18, 1998 the Company acquired mineral claims known as "Star Claims"
consisting of 11 units located near the town of Merritt, British Columbia, for
$2,129 with expiration dates in 1999. The units cover 587 acres.
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PEPPERMILL CAPITAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
4. RELATED PARTY TRANSACTIONS
Related parties have acquired 36% of the common stock issued for cash.
The officers and directors of the Company are involved in other business
activities and they may, in the future, become involved in additional business
ventures which also may require their attention. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between the Company and their other business interests. The Company has
formulated no policy for the resolution of such conflicts.
5. GOING CONCERN
Continuation of the Company as a going concern is dependent upon obtaining
additional working capital and the management of the Company has developed a
strategy, which it believes will accomplish this objective through additional
equity funding, and long term financing, which will enable the Company to
operate in the future.
Management recognizes that, if it is unable to raise additional capital, the
Company cannot operate in the future.
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PEPPERMILL CAPITAL CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1999
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C O N T E N T S
Page
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INDEPENDENT AUDITORS' REPORT 19
FINANCIAL STATEMENTS
Balance Sheet 20
Statement of Operations 21
Statement of Stockholders' Equity 22
Statement of Cash Flows 23
Notes to Financial Statements 24 - 25
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INDEPENDENT AUDITORS' REPORT
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To the Stockholders
Peppermill Capital Corporation
Chesterfield, Missouri
We have audited the accompanying balance sheet of Peppermill Capital Corporation
as of December 31, 1999, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peppermill Capital Corporation
as of December 31, 1999, and the results of its operations, and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company does not have working capital as of December
31, 1999. This raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
KAUFMAN, ROSSIN & CO.
Miami, Florida
April 10, 2000
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PEPPERMILL CAPITAL CORPORATION
BALANCE SHEET
DECEMBER 31, 1999
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STOCKHOLDERS' EQUITY
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Common stock, 200,000,000 shares authorized, at $0.001 par value;
11,239,700 shares issued and outstanding $ 11,240
Additional paid-in capital 33,291
Accumulated deficit ( 44,531)
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Total stockholders' equity $ --
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See accompanying notes.
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PEPPERMILL CAPITAL CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
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REVENUE $ --
EXPENSES 21,499
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NET LOSS ($ 21,499)
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 11,239,700
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NET LOSS PER SHARE ($ 0.00)
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See accompanying notes.
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PEPPERMILL CAPITAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 11,239,700 $ 11,240 $ 21,930 ($ 23,032) $ 10,138
Contribution of capital (Note 2) -- -- 11,361 -- 11,361
Net loss for the year ended December 31, 1999 -- -- -- ( 21,499) ( 21,499)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 11,239,700 $ 11,240 $ 33,291 ($ 44,531) $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
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PEPPERMILL CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($21,499)
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Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 2,129
Change in accounts payable 3,245
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Total adjustments 5,374
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Net cash used in operating activities ( 16,125)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable 15,000
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NET DECREASE IN CASH ( 1,125)
CASH AT BEGINNING OF YEAR 1,125
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CASH AT END OF YEAR $ --
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Supplemental Disclosure of Non-Cash Investing and Financing Activities:
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During 1999, certain stockholders of the Company converted
amounts owed to them into capital $11,361
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See accompanying notes.
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PEPPERMILL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Organization and Business Activity
Peppermill Capital Corporation (the Company) was incorporated in April
1998, under the laws of the State of Nevada for the purpose of
exploration and development of mineral properties. The Company was
considered to be in the development stage through December 31, 1998.
On November 22, 1999, in a private transaction, Varner Technologies,
Inc. (Varner) purchased approximately 90% of the Company's outstanding
common stock. The purchase of the shares of the Company's common stock
by Varner was done in contemplation of a business combination/merger
transaction between the two entities. The entities have entered into a
letter of intent, however, the final terms of the combination/merger
have not been finalized as of the date of this report.
At December 31, 1999, the Company had no planned operations and was
not considered to be in the development stage.
Use of Estimates
The preparation of these 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
revenues and expenses during the reported period. Actual results could
differ from those estimates.
Income Taxes
The Company accounts for income taxes according to Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Under the liability method specified by SFAS No. 109, deferred
income taxes are recognized for the future tax consequences of
temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities.
Net Loss Per Share
The Company applies Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128). Net loss per share is computed by
dividing net loss by the weighted average number of common shares
outstanding during the reported period. There were no potentially
dilutive securities outstanding at December 31, 1999.
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NOTE 2. RELATED PARTY TRANSACTIONS
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The Company's stockholders, from time to time, pay for Company
expenses and are reimbursed by the Company. At December 31, 1999,
$11,361 was due to the stockholders, which the stockholders elected to
contribute to capital.
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NOTE 3. INCOME TAXES
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At December 31, 1999 the Company had a deferred tax asset of
approximately $17,000, resulting from net operating losses of
approximately $44,000. The deferred tax asset is offset entirely by a
valuation allowance. The net operating losses will expire in 2018 and
2019.
Deferred tax assets are reduced by a valuation allowance if, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Management's
valuation procedures consider projected utilization of deferred tax
assets prospectively over the next several years, and continually
evaluate new circumstances surrounding the future realization of such
assets.
The income tax benefit differs from the amount computed by applying
the federal statutory tax rate to loss before income taxes principally
due to an increase in the deferred tax asset valuation allowance of
approximately $8,000.
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NOTE 4. GOING CONCERN
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The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. The Company has
sustained losses and negative cash flows from inception and has no
working capital available to fund any possible future expenditures
necessary to remain in business. The Company believes any future
capital requirements will be provided by the majority stockholder.
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Item No. 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Disagreement With Accountants and Financial Disclosure
From inception to April 7, 2000, Peppermill's principal accountant was
Andersen Andersen & Strong, L.C. of Salt Lake City, Utah. On April 7, 2000,
Peppermill voluntarily changed its independent accountants from Andersen
Andersen & Strong, L.C. to Kaufman, Rossin & Company. This change was approved
by Peppermill's Board of Directors on March 23, 2000. The financial statements
for the year ended December 31, 1999 were audited by Kaufman, Rossin & Company.
The report of Andersen Andersen & Strong, L.C. for the period from inception to
February 28, 1999 contained no adverse opinion or disclaimer of opinion and was
not qualified
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or modified as to uncertainty, audit scope or application of accounting
principles. The report of Andersen Andersen & Strong, L.C. covering the period
ended December 31, 1998, and February 28, 1999, contains an explanatory
paragraph that states that the developmental state of Peppermill and the need
for additional working capital for its planned activities, raise substantive
doubt about its ability to continue as a going concern. Through the date of
replacement, there were no disagreements with Andersen Andersen & Strong, L.C.
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
PART III
Item No. 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers
The Company's current directors and executive officers and their ages, as of
March 30, 2000, are as follows:
Name Age Position with Company
- ---- --- ---------------------
Clayton W. Varner 40 Chairman, Chief Executive Officer,
and Sole Director
Robert Rapp 52 Director
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliation of the directors and the executive officers of the Company is
set forth below.
Clayton W. Varner, Chairman, Chief Executive Officer and Director. Mr.
Varner was appointed as Chairman, Chief Executive Officer, and Director in
November, 1999. Mr. Varner is responsible for the overall management and
direction of Peppermill. Mr. Varner has been the President and Chief Executive
officer of Varner Technologies, Inc. since its inception in 1994. Mr. Varner has
over 20 years of experience in the areas of computer technology and Information
Services, and was instrumental in the development and management of an
Information System for a start-up network marketing business, Reliv
International, Inc., which grew to be a public company with sales of $50 million
per year (NASDAQ NM- "RELV"). Mr. Varner is educated in Business Administration
and Computer Science.
Robert W. Rapp, Director. Mr. Rapp was appointed as Director in November,
1999. Mr. Rapp has been Executive Vice President of Varner since January 1997,
and has been self-employed as a consultant for the past 12 years in areas of
capitalization and investment in start-up companies. He was Senior
Vice-President and Director of American Life Investors, a holding company and
previous majority owner of Reliv International, Inc.
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Section 16(a) Beneficial Ownership Reporting Compliance
There were no late filings required by Section 16(a) during the most recent
fiscal year or prior years by any officer, director or 10% shareholder.
Item No. 10 Executive Compensation
Executive Compensation
Neither Peppermill's President nor any of its executive officers have
received compensation since Peppermill's incorporation except as noted below.
There has been no compensation given to any of Peppermill's Directors or
Executive Officers during 1999 other than $4,000 that was paid to the former
president and director, Brent Vickers, in consulting fees and $3,000 in
traveling fees in connection with meetings with Peppermill's market makers,
Emerson Bennett & Associates, LLC, 6261 North West 6th Way, Suite 207, Fort
Lauderdale, Florida, 33309. Mr. Vickers was appointed to the Board of Directors
on April 14, 1998 and resigned as President and Director on May 27, 1998.
There are no stock options outstanding as at December 31, 1999, but it is
contemplated that Peppermill may issue stock options in the future to certain
individuals, including but not limited to its officers, directors, advisers and
future employees.
Director Compensation
Members of the Board of Directors do not receive cash compensation for
their services as Directors. Directors are not presently reimbursed for expenses
incurred in attending Board meetings.
Employment Agreements
Peppermill is not a party to any individual employment contracts or
collective bargaining agreements.
Item No. 11 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of each person who is known to be an executive officer,
director or the beneficial owner of more than 5% of Peppermill's Common Stock as
of March 31, 2000.
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Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Owner Ownership(1) Ownership
- ------------------- ------------ ---------
Varner Technologies, Inc. 10,116,000 90%
1809 Clarkson
Suite 205
Chesterfield, MO 63017
Clayton W. Varner 4,252(2) *
Robert W. Rapp _____0____(3) *
All Officers and Directors as a
group (2 persons) 4,252(2)(3) __0__(2)(3)
* less than one percent
- ----------------------
(1) As of March 31, 2000, there were 11,239,700 common shares outstanding.
Unless otherwise noted, the security ownership disclosed in this table is
of record and beneficial.
(2) As of March 31, 2000, Mr. Varner was the beneficial owner of 8,542,210
shares (including options to purchase up to 750,000 shares) comprising
approximately (42.1%) of Varner Technologies, Inc. Capital Stock
(3) As of March 31, 2000, Mr. Rapp was the beneficial owner of 1,507,408 shares
(including options to purchase up to 500,000 shares) comprising
approximately (7.52%) of Varner Technologies, Inc. Capital Stock
Item No. 12 Certain Relationships and Related Transactions
Not Applicable
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Item No. 13 Exhibits and Reports on Form 8-K
Exhibits
Exhibit
Number Description
--------------------------
*3.1 Articles of Incorporation of Peppermill Capital Corporation filed
April 9, 1998.
*3.2 By-laws of Peppermill Capital Corporation
*4.1 Text of Certificate for Common Stock of Peppermill Capital
Corporation
*10.1 Letter of Intent dated November 19, 1999, between Peppermill
Capital Corporation and Varner Technologies, Inc.
11.1 Computation of Earnings Per Share - Annual
23.1 Consent of Accountants (Andersen, Andersen & Strong, L.C.) (to be
filed by amendment)
27.1 Financial Data Schedule
* Incorporated by reference to Exhibits contained in Peppermill's Form 10-SB
Registration Statement (File No. 000-25989) effective May 6, 1999.
** Incorporated by reference to Exhibits contained in the report on Form
8-KSB, as filed by Peppermill on December 7, 1999.
Reports on Form 8-K
The following report on Form 8-KSB was filed by Peppermill during the last
quarter of fiscal 1999:
(1) On December 7, 1999, Peppermill filed a Report on Form 8-K disclosing that
a controlling interest in the outstanding shares of Peppermill's Common
Stock was purchased by Varner Technologies, Inc. on November 22, 1999, in
contemplation of a future business combination/merger transaction between
the two entities.
The following report on Form 8-KSB was filed by Peppermill after the last
quarter of fiscal 1999, and is hereby reported as a subsequent event:
(1) On April 7, 2000, Peppermill filed a report on Form 8-KSB disclosing a
change in its independent auditors, from Andersen Andersen & Strong, L.C.
to Kaufman, Rossin & Company effective April 10, 2000.
30
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on April 14, 2000.
PEPPERMILL CAPITAL CORPORATION
By: /s/ Clayton W. Varner
---------------------------
Clayton W. Varner, Chairman
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Clayton W. Varner President, Secretary April 14, 2000
- ------------------------- and Director
Clayton W. Varner
/s/ Robert W. Rapp Director April 14, 2000
- -------------------------
Robert W. Rapp
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-KSB.
</LEGEND>
<CIK> 0001063653
<NAME> PEPPERMILL CAPITAL CORPORATION
<MULTIPLIER> 1
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
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</TABLE>
