UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 20-F
(MARK ONE)
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-8958
------------------------
EQUITY FINANCE HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
BELIZE
(Jurisdiction of incorporation or organization)
------------------------
SUITE 408
CALLE CLEOFAS RUIZ #853-B
ZONA CENTRO - C.P. 22710
PLYAS DE ROSARITO, B.C., MEXICO
(Address of principal executive offices)
------------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)OF
THE ACT:
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:
5,149,000 Shares of Common Stock
Indicate by check mark whether the Registrant has (1) 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.
Yes /X/ No / /
Indicate by check mark which financial statement item the Registrant has
elected to follow.
Item 17 / / Item 18 /X/
<PAGE>
--------------------------------------------------------------------------------
Equity Finance Holding Corporation (the "Company") was incorporated under
the laws of Belize, Central America on March 6, 1998. Its principal executive
offices are located at Suite 408, Calle Cleofas Ruiz #853-B, Zona Centro - C.P.
22710, Plyas De Rosarito, B.C., Mexico. Its telephone number in the United
States is (888) 450-3342. References herein to "EFIC" refer to Equity Finance
International Corporation, the majority shareholder of the Company. Equity
Finance Holding Corporation trades on the United States NASD OTCBB stock
exchange with the trading symbol of EFHLF.
SAFE HARBOR STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements included in this annual report on Form 20-F ("Form 20-F")
regarding future financial performance and results and the other statements that
are not historical facts are forward-looking statements. The words "believes,"
"intends," "expects," "anticipates," "projects," "estimates," "predicts" and
similar expressions are also intended to identify forward-looking statements.
Such statements reflect various assumptions by the Company concerning
anticipated results and are subject to significant business, economic and
competitive risks, uncertainties and contingencies. Accordingly, there can be no
assurance that such statements will be realized. Such risks, uncertainties and
contingencies could cause the Company's actual results for 2000 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. The Company makes no representation or
warranty as to the accuracy or completeness of such statements contained in this
Form 20-F.
20-F Page 2 of 18
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION
PART I
ITEM 1. DESCRIPTION OF BUSINESS_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 4
ITEM 2. DESCRIPTION OF PROPERTY_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 7
ITEM 3. LEGAL PROCEEDINGS _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 7
ITEM 4. CONTORL OF REGISTRANT_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 7
ITEM 5. NATURE OF TRADING MARKET_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 8
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _8
ITEM 7. TAXATION_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ 8
ITEM 8. SELECTED FINANCIAL DATA_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _11
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS _ _ _ _ _ 11
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT_ _ _ _ _ _ _ _ 13
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS_ _ _ _ _ _ _13
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM
REGISTRANT OR SUBSIDIARIES _ _ _ _ _ _ _ _ _ _ 16
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS_ _ _16
PART II
ITEM 14. (NOT APPLICABLE)_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _17
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES_ _ _ _ _ _ _ _ _ _ _ 17
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES AND USE OF PROCEEDS_ _ _17
PART IV
ITEM 17. FINANCIAL STATEMENTS_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _17
ITEM 18. FINANCIAL STATEMENTS_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _17
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS_ _ _ _ _ _ _ _ _ _ 17
SIGNATURES_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 18
20-F Page 3 of 18
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Equity Finance Holding Corporation ("the Company") is a management
consulting corporation that arranges equity investment in client companies. The
U.S. SIC Code is 8742, Management Consulting Services. The Company's global
target market is small to medium-size enterprises with gross sales between
US$1,000,000 and US$20,000,000. EFHC commenced operations in March 1998. The
Company shares office space in Punto Gordo, Belize with its resident agent. It
also shares office space in Plyas de Rosarito, B.C., Mexico with Equity Finance
International Corporation. It is being provided office space without costs.
The Company intends to market its services through a global network of
business representatives and affiliates. Representatives are freelance
consultants who provide client referrals to EFHC on a commission basis. The
representative refers clients to EFHC. The representative can: (1) simply refer
clients to EFHC, or (2) refer the client, help the client provide underwriting
documentation and assist with the client investor relations program after the
EFHC funding program is successful.
For number (1) above, the standard commission that the representative would
receive from EFHC when the client provides the first deposit would be US$5,000
plus US$7,000 with first funding. For (2) above, the standard commission is
higher when the representative's services include referral of client companies
to EFHC and documentation supporting the SEC filing and investor relations
programs. Commission payment to the representative in this case is US$5,000 from
the client deposit and seven additional payments of US$1,000, plus US$48,000 at
the time of the first client funding and 60,000 shares of the client company.
This is a continuing support role by the representative to EFHC and the client
company for several years with significant activity on the part of the
representative for this extended period.
An affiliate is a strategic partner to EFHC, usually located outside of the
United States, who is generally in the business of assisting companies with
venture financing. EFHC and the Affiliate jointly venture to assist companies
and participate in the fees for services provided on a shared basis. Common
compensation for an affiliate, when the fee is collected from the client, may be
a share of $250,000 plus 8% of the unregistered shares of the client company (or
lesser amounts depending on the nature of the client). The affiliate or EFHC
will recover costs from this fee with the net revenue from the costs being split
on a 50%/50% basis. The costs for services will be mutually agreed upon. The
party expending costs within the month will receive 70% of the monthly
installment fee paid by the client and the party not expending the costs, at the
time, will receive 30% of the monthly installment fee. EFHC and the affiliate
will agree on a fee, scope of work, tasks and roles in advance of commencing on
the funding program for the client.
20-F Page 4 of 18
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At present, EFHC has one representative, Capital Funds Group, located in
Berkeley, California, USA and one affiliate in Woodland, California, USA.
Affiliates are being sought in various parts of the world including Australia,
China, Cypress, England, Germany, India, Pakistan, Singapore, and the United
States. EFHC is also seeking to develop affiliate relationships with Venture
Capital companies throughout the world. EFHC has no assurances that it can
attract affiliates, representatives or additional clients.
STATUS OF THE MANAGEMENT CONSULTANT INDUSTRY
In the past 20 years, the Management Consulting Industry has undergone a
period of radical change. The Market is global. Management consultants offer a
growing diversity of services. This includes everything from Corporate Finance
to Human Resources.
COMPANY HISTORY
The Company was formed in Belize, Central America, under the Belize
International Business Corporation Act, pursuant to Section 14(3), on March 6,
1998 as IBC #6826. The Company operates under the laws of Belize, Central
America. The registered office of the Company is at 1st Floor East Wing, 65
Front St., Punto Gordo, Belize, Central America. The International Corporate
address is Suite 408, Calle Cleofas Ruiz #853-B, Zona Centro - C.P. 22710, Plyas
De Rosarito, B.C., Mexico. All office space is shared and the Company does not
pay any part of the rent for its use. EFHC business operations are located
outside the United States. EFHC's affiliate in the United States is located at
1296 E. Gibson Road, #149, Woodland, CA, 95776, USA. The U.S. telephone number
is 888-450-3342.
THE BUSINESS OF THE COMPANY
EFHC is a Management Consultant firm that arranges equity investment in
client companies. The Company identifies foreign and United States companies
that can carry out an expansion program designed to groom the company for sale
or merger with an industry giant. EFHC will assist the client in becoming a
reporting company and list with the NASD OTCBB for trading. Shares of the client
company will be sold to public and private investors to arrange a funding of up
to $10 million. EFHC will then work with the client company for the period.
EFHC will assist with developing sound growth, shareholder value, and investor
relations. Shares in the name of principals of the client company will be pooled
and vaulted for five years. The pooling and vaulting agreement will be designed
to protect new shareholders; however, this agreement may be modified at any time
by unanimous vote of all parties to the pooling and vaulting agreement. Because
the pooling and vaulting agreement may be modified by the parties pooling and
vaulting their shares, shareholders not party to the agreement may suffer
significant adverse effects, specifically a material decline in their share
value, should the pooling and vaulting agreement be modified. EFHC has
represented this program to some potential clients under the name "Advantage
20-F Page 5 of 18
<PAGE>
2000 Program." EFHC representatives and affiliates may use other names for the
program.
As of December 31, 1999, the Company has two clients. A commission of
$62,500 is due Capital Funds Group for one of the clients, which will be paid
upon the client's first capital infusion. To date no companies have been
financed through the program.
If EFHC is able to increase its capital resources, either through a debt or
equity financing, the Company may seek to grow through the acquisition of
Management Consulting Firms whose clients need EFHC's help. However, management
can provide no assurances that such financing will be available to the Company
or that suitable acquisition candidates will be identified.
The Company plans to reinvest profits and does not envision the payment of
cash dividends to stockholders. The Company does plan to pay stock dividends in
client companies to EFHC shareholders. However, since inception no stock
dividends in client companies have been paid to EFHC shareholders and no
assurances can be provided that such dividends will be paid in the future.
START-UP OF BUSINESS OPERATIONS
The Company continues to interview prospective clients. EFHC anticipates
losing money for several years. Without paid employees or paid office space,
the Company's operating costs are minimal.
COMPETITION AND PRICING
Many firms offer financial solutions to businesses. Many of these firms
are larger and better financed than EFHC. EFHC must price its services
competitively.
CURRENCY AND FOREIGN EXCHANGE
While the Company is incorporated in Belize and has its primary office in
Mexico, the Company does business in United States dollars. This policy may
exclude some potential clients from using EFHC's services. EFHC's U.S. Dollar
policy appears to limit foreign exchange risk.
CONFLICT OF INTEREST
EFHC has a policy of appointing a member to the Board of Directors of each
of its client companies. At present, EFHC would select Mr. J. Mahan, Mr. J.
Bishop, or Mr. W. Cate as their representative to the client's Board of
Directors. This policy has a potential to create a conflict of interest
between EFHC and the client company's Board of Directors. The Company does
maintain a policy on Conflict of Interest. This policy requires a fiduciary duty
on the part of each and every director and officer of the Company. Should such a
conflict develop, the appointed client board member would withdraw from the
discussion and vote on the issue before the EFHC Board. In any potential
20-F Page 6 of 18
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conflict issue, it is the responsibility of the individual director to state
that they see a conflict and withdraw from the discussion and voting on that
topic. Further, the Board of Directors will also determine if a conflict of
interest exists pursuant to the policy of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in substantial part upon the continued
services of J. Bishop, W. Cate and J. Mahan and the Company's ability to attract
and retain executive personnel for its expanded operations. The loss of any of
these individuals would have a material adverse effect on the Company. There
can be no assurances that the Company will be successful in attracting and
retaining qualified employees and the failure to do so could have a material
adverse effect on the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
There is no property, tangible or intangible recorded in the financial
statements of the Company.
ITEM 3. LEGAL PROCEEDINGS.
The Company has not experienced any legal proceedings, nor are any
anticipated. The Company has not experienced bankruptcy, receivership or similar
proceedings. There has been no material reclassification, merger or
consolidation of the Company, no acquisition or disposition of any material
amount of assets other than in the ordinary course of business, and no material
changes in the mode of conducting the business.
ITEM 4. CONTROL OF REGISTRANT.
Equity Finance International Corporation, a Belize Corporation, currently
owns ninety-seven percent of the Company's currently outstanding Common Stock,
which consists of 5,149,000 shares. Approximately 914 shareholders retain
beneficial interest in the company as of December 31, 1999.
---------------------------------------- --------- ------------
IDENTITY OF PERSON/GROUP PERCENT AMOUNT OWNED
COMMON STOCK OF CLASS
---------------------------------------- --------- ------------
Equity Finance International Corporation 96.7% 4,980,555
Officers & Directors as a group. . . . . .2% 9,500
---------------------------------------- --------- ------------
20-F Page 7 of 18
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ITEM 5. NATURE OF TRADING MARKET.
On March 23, 1999, Equity Finance Holding Corporation received the
effective letter from the US Securities and Exchange Commission registering
514,900 common shares. The CUSIP number for these certificates is P37473-10-8.
The ISN is BZP374731081. The Company was listed on the NASD Over The Counter
Bulletin Board exchange on June 14, 1999. The OTCBB is the trading market for
the common shares of EFHC (OTCBB trading symbol is EFHLF:OTC.BB).
The Company commenced trading in July 1999 at one US cent. The following is the
high and low sales prices, since July 1999, for the Company's Common Stock for
each month of 1999.
------------- ---------------- ---------------
Month of 1999 High US Dollars Low US Dollars
------------- ---------------- ---------------
July $ 2.50 $ 0.01
------------- ---------------- ---------------
August $ 4.00 $ 1.25
------------- ---------------- ---------------
September $ 4.00 $ 0.45
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October $ 4.00 $ 0.40
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November $ 3.00 $ 1.00
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December $ 5.00 $ 3.00
------------- ---------------- ---------------
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.
There are no governmental laws, decrees or regulations in Belize where the
Company's principal executive office is located or Mexico, where another of the
Company's offices is located, relating to restrictions on the import/export of
capital affecting the remittance of interest, dividends or other payments to
non-residential holders of the Company's stock. There are no limitations on the
right of nonresident or foreign owners to hold or vote the common shares.
ITEM 7. TAXATION.
BELIZE TAX LAW
Since the Company operates under Belize IBC laws, the Company's primary tax
reporting country is Belize. These tax laws are summarized as follows. The
Company is responsible for income tax under Belize law. Unless exempt under an
investment incentive, resident companies are liable for corporate income tax on
all of their income, whether derived from Belize or not, although foreign earned
income is taxed only on remittances to Belize. A company is resident if it is
incorporated in Belize or if its central management and control are exercised in
Belize. If a company does not operate under a Fiscal Incentives (Approved
Enterprise Order) the total tax payable is 35% of the chargeable income. All
companies should file a Company's Income Tax Return, together with their
financial statements within three (3) months of the end of the financial period,
to the nearest Income Tax Department. If more time is required, a request in
writing should be directed to the Commissioner of Income Tax before the due
date. Otherwise a penalty for late filing is a levy of 3% of the tax for the
financial period, for each month or part of the month in which the return is
20-F Page 8 of 18
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late to a total of twenty (20) months. The penalty for late payment of income
tax is 1.5% per month on the unpaid amount from the due date to the date of
payment. This applies to any deficiencies in installment as well as to any other
amount. In the case of installments this charge is based on the tax calculated
on the chargeable income for the previous financial period or the actual income
tax for the financial period for which this return is filed, whichever is less.
This charge also applies to any amount unpaid after the date for final payment.
A company should pay its income tax by quarterly installments. Installments are
due no later than the last day of the 3rd, 6th, 9th, and 12th month of the
company's financial period. If a company wishes to employ foreign consultancy,
technicians etc. who are not normally resident in Belize, their names should be
registered at the Income Tax Department and the company should deduct 25% of
total income paid to non-residents.
Corporate income tax is charged on net profits, as adjusted for tax
purposes. Net profits comprise the aggregate amount of net income derived from
conducting business in Belize. Inventory valuation is not specifically
addressed in income tax law and, in any event, is inapplicable to the Company.
Methods that conform to generally accepted accounting principles may be used as
long as they are consistently applied. Dividends are taxable in the hands of
recipients, the cash amount of the dividends paid being grossed up by the amount
of corporate income tax paid by the distributing company, although the latter is
liable only for corporate income tax and does not actually account to the tax
authorities for any withholding. Some dividends are not taxable on recipients,
including those paid to exempt entities and those paid under specified tax
incentives.
Foreign Source Income
Foreign-source earned income is taxable only when it is remitted to Belize.
Income derived from the United Kingdom qualifies for tax credit relief under a
double tax treaty. Unilateral relief is available for income received from
countries in the British Commonwealth and from the CARICOM countries.
Belize's legislation does not specifically address exchange differences.
Realized exchange gains are in practice taxed like other business income, and
realized exchange losses are deducted like other business expenses.
20-F Page 9 of 18
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Taxation Of Nonresident Entities
Nonresident companies are liable for tax at the normal rate of 35% on
income arising in Belize and all foreign income brought into Belize. Branches of
foreign companies operating in Belize must register there. Foreign entities
qualify for various tax and customs duty incentives when they satisfy the
relevant rules.
Tax Treatment Of Groups & Companies
Exempt in the case of public investment companies, there are no rules in
Belize under which consolidated returns can be submitted or losses transferred
between companies in a group. Also, there are no special rules governing
intercompany payments or transfers of assets within a group. Belize has no
specific provisions dealing with thin capitalization or transfer-pricing issues.
As far as public investment companies are concerned, a group consists of the
public investment company itself and its subsidiaries (those in which it has a
greater than 50% holding). Subsidiaries may or may not be public investment
companies, and they may include nonresident as well as resident companies. The
group may file one return as if it comprised a single company, and it
effectively may transfer losses between group companies. The public investment
company group pays tax as one entity on the combined net profit of the Belizean
subsidiaries at the special rate of 25%.
License Fees
License Fees are payable by the 31st of December in the year following
incorporation, and then annually. Companies with an authorized capital up to
$5,000 pay the sum of $100.00 per year, which is fixed for a period of twenty
years. Companies with a share capital between $5,001 and $50,000 pay $300.00 per
year, and companies with share capitals in excess of $50,001 pay the sum of
$1,000 per year. Companies whose authorized capitals have some or all of its
shares with no par value pay the sum of $350.00 per year
Financial Statement Requirement
While there is no requirement to file audited accounts with the
authorities, a company is required to keep financial records which reflect the
financial position of a company.
20-F Page 10 of 18
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ITEM 8. SELECTED FINANCIAL DATA.
IN US DOLLARS
SELECTED FINANCIAL DATA
FOR THE PERIOD ENDED DECEMBER 31,
------------------------------------------------------------------
OPERATIONS FOR THE PERIOD: 1999 1998
--------------------------------------------------------------
Consulting fees $ 1,429 $ 4,922
Loss from operations $(236,109) $(341,578)
Loss from operations per share
of common stock
Basic and diluted $ (.05) $ (.07)
Cash dividends declared per share of
common stock $ - $ -
DECEMBER 31,
--------------------------------------------------------------
BALANCE AT THE END OF THE PERIOD:. . 1999 1998
--------------------------------------------------------------
Total Assets $ 582 $ 2,898
Long-term obligations $ 69,805 $ 27,069
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
GENERAL
Management's discussion and analysis should be read in conjunction with the
Company's audited Financial Statements, including the notes thereto, at pages
F-1 to F-10 herein.
All statements contained herein that are not historical facts, such as
statements regarding the Company's current business strategy and plans for
future operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties. Such
risks and uncertainties include, but are not limited to, those described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and include, among other things, (1) significant increases in
competitive pressure in the management and financial consulting industry; (2)
general global economic conditions; (3) changes in the regulatory environment;
and (4) changes in the securities markets. Therefore, the information set forth
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in such forward-looking statements should be carefully considered when
evaluating the business prospects of the Company.
OVERVIEW
The Company had a net loss of $236,109 for the year ended December 31, 1999
compared to a net loss of $341,578 for the period from inception (March 6, 1998)
to December 31, 1998. The reduction in the current year loss of $105,469, or
30.9%, relates primarily to a reduction in professional fees and referral fees.
These reductions were offset by an increase in salary expense which covered a
full year in 1999.
FINANCIAL POSITION
The Company's financial position reflects nominal assets and negative
working capital. At December 31, 1999 obligations in accounts payable included
a $42,750 refund due to a former EFHC Advantage 2000 Program (the Program)
participant who terminated its participation and $22,753 of trade payables. At
December 31, 1998, in addition to the refund due to the former Program
participant, accounts payable included $42,000 for contracted legal service and
$6,043 of trade payables.
In 1999, the Company exercised a note in favor of the service provider
noted above for $42,000. This note offset the account payable. The note is due
June 2004 and bears an interest rate of 5%. No payment of either principal or
interest is due until maturity.
The total shareholders deficit is $179,726 at December 31, 1999 compared to
$159,964 at December 31, 1998. Losses from operations were offset by the value
of services provided to the Company by its organizers without compensation.
Basic and diluted loss per share was $0.05 and $0.07 for the year ended December
31, 1999 and the period from inception (March 6, 1998) to December 31, 1998,
respectively. The reduction in the loss per share is attributable to a larger
number of outstanding shares brought about by the sale of 514,900 shares of
common stock to A&A International Industries. The weighted average common
shares outstanding during each period was 5,065,770 and 4,587,910, respectively.
On April 1, 1998, the Company sold 3,000,000 warrants to Beowulf
Investments (whose managing director is a director of the Company) for $2,000.
These warrants expired September 30, 1999. On October 22, 1999, warrants for
3,000,000 shares of the Company's common stock were distributed to EFIC and the
related party note payable to EFIC was reduced by $1,000. The warrants have an
exercise price of $3.34 per share and expire October 22, 2002, with an option to
be extended.
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RESULTS OF OPERATIONS
To date the company has not been successful in meeting the milestones in
the Program that would allow for revenue recognition. Accordingly, revenue
includes other consulting fees related to services provided on an ad hoc basis
to clients not enrolled in the Program.
The Company incurred $2,171 in professional fees compared to $128,737 in
professional fees in its initial operating period. Additionally, referral fees
decreased as no clients were accepted in 1999 under arrangements requiring the
payment of a referral fee to a third party. These expense reductions were
offset by an increase in salary expense related to the fact that 1999 included
twelve months and the initial operating period in 1998 included approximately 10
months.
LIQUIDITY, CAPITAL RESOURCES AND PLAN FOR OPERATIONS
As noted in the financial statements for the year ended December 31, 1999
and the period from inception (March 6, 1998) to December 31, 1998, the Company
has incurred significant operating losses and has limited cash resources.
Management continues to operate under a plan designed to generate cash for
operations from the (1) acquisition of additional clients, (2) additional debt
or equity financing and (3) exercise of the warrants.
In 1999, the Company revised the fee collection methods related to the
Advantage 2000 Program. Previously, the Company required a $45,000 fee deposit
prior to enrolling in the Program. Management found the initial capital outlay
presented a significant obstacle to obtaining Program participants. Under the
revised fee collection method, total cash compensation for the Program is
$250,000. After an initial payment of $15,000, the client remits payments of
$10,000 to EFHC on the first of the month to a maximum cumulative total of
$100,000. No further payments beyond the cumulative total of $100,000 are due
until the first proceeds are received from public trading at which time $150,000
dollars is due and payable by the client to EFHC. The client is also required
to sell 150,000 of its registered shares to EFHC for a nominal amount.
Currently, two clients are enrolled in the EFHC Advantage 2000 Program and
12 prospective clients are reviewing the Company's product.
While Management believes that the plan of operations in place is viable,
the Company's ability to obtain additional clients or financing cannot be
assumed or assured. Accordingly, substantial doubt about the Company's ability
to continue as a going concern exists.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
<TABLE>
<CAPTION>
Name Position Occupation
------------------ ------------------ --------------------------
<S> <C> <C>
Jack L. Mahan, Jr. President/Chairman Management Consultant
James A. Bishop CFO/Secretary Management Consultant
William Cate Director Management Consultant
Malcolm Granger Director Health Services Management
Ian N. Collins Director Management Consultant
</TABLE>
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The Company's Board of Directors consists of five (5) directors. Each
director is elected by the shareholders of the Company and will serve until the
next annual meeting or until a successor is elected or appointed. Executive
officers are appointed annually and serve at the discretion of the board of
directors. There are currently no arrangements or understandings between or
among any of the above persons pursuant to which they were selected as director
or executive officer.
For the convenience of the US stockholders, the 1999 annual shareholders
meeting was conducted December 19, 1999 in Pleasanton, California, USA. At this
meeting, Mr. Cate was elected to the office of Chairman of the Board of
Directors and Mr. Mahan to the office of Secretary of the Board. The election
was to be effective January 1, 2000. The other directors were elected to
continue in their present positions. The officers were directed to continue in
place. The annual meeting of the Audit Committee and the Compensation Committee
was held in London on December 4, 1999, results of which were reported at the
annual shareholders meeting.
MANAGEMENT
The principal managers of the Company have experience with business
start-up, management financing, consulting, credit underwriting, and public
corporation growth and development. J. Mahan is president and J. Bishop is
CFO. They have managed the company from its inception.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
As per the recommendation of the EFHC Board of Directors Compensation Committee
meeting held on December 4, 1999 in London, the Company disclosed the
information below to its shareholders through the proxy solicitation and at the
annual shareholders meeting held in December 1999.
COMPENSATION OF DIRECTORS
For the year ended December 31, 1999, there was no compensation paid by
the Company to its directors as a group. In the year 2000, the directors may
receive compensation in the amount of $100.00 per month and $500.00 for each
board of directors meeting that they attend. This applies to directors who are
not paid a salary by the Company. Board members will be reimbursed for all
travel expenses for the general annual meeting.
COMPENSATION OF OFFICERS
For the year ended December 31, 1999, there was no compensation paid by the
Company to its officers. Officer compensation was recorded in additional
paid-in-capital. The Company has developed a formal strategic policy regarding
the compensation of its executives and officers. This policy is intended to
ensure executives a total compensation package that is commensurate with their
skill and experience. In addition to salary, each officer will receive a
benefits package including medical, dental, vision, liability and life
20-F Page 14 of 18
<PAGE>
insurance. J. Mahan, Jr. and James A. Bishop, as President/Director and
CFO/Director, respectively, will each receive an annual salary of $100,000. W.
Cate, in his capacity as Treasurer, will receive an annual salary of $12,000.00.
The eventual aggregate salary paid to the officers, excluding the management
benefits package described above will be $212,000.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company does have a policy of indemnification of its directors,
officers, and employees as it pertains to day-to-day operations of the Company.
That policy is included hereunder. There is no specific indemnification of the
directors, officers or controlling persons relating to the liability arising
under the Securities Act.
The following are sections contained in the Bylaws of the Company.
ARTICLE IX
Section 1. Every director, officer, or employee of the Corporation shall be
indemnified by the Corporation against all expenses and liabilities, including
counsel fees, reasonably incurred by or imposed upon him in connection with any
proceeding to which he may be made a party, or in which he may become involved,
by reason of his being or having been a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of the corporation, partnership, joint
venture, trust or enterprise, or any settlement thereof, whether or not he is a
director, officer, employee or agent at the time such expenses are incurred,
except in such cases wherein the director, officer, or employee is adjudged
guilty of willful misfeasance or malfeasance in the performance of his duties;
provided that in the event of a settlement the indemnification herein shall
apply only when the Board of Directors approves such settlement and
reimbursement as being for the best interests of the Corporation.
Section 2. The Corporation shall provide to any person who is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of the
corporation, partnership, joint venture, trust or enterprise, the indemnity
against expenses of suit, litigation or other proceedings which is specifically
permissible under applicable law.
Section 3. The Board of Directors may, in its discretion, direct the purchase
of liability insurance by way of implementing the provision of this Article.
20-F Page 15 of 18
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 12. OPTIONS TO PURCHASE SECURITES FROM REGISTRANT OR SUBSIDIARIES.
On April 1, 1998, The Company sold 3,000,000 warrants to Beowulf
Investments, Belize, Central America for US$2,000 ("Warrants"). The Warrants
entitled Beowulf to purchase 3,000,000 shares of Common Stock. These securities
have not been registered and are not being offered in the United States. The
EFHC Board of Directors declared these warrants expired effective September 30,
1999.
On October 22, 1999, EFHC entered into an agreement with Equity Finance
International Corporation (EFIC), a Belize, C.A. IBC, for the purchase of three
million (3,000,000) warrants for one thousand United States Dollars (US$1,000).
Each warrant represents the right to purchase one share of EFHC common stock at
U.S. three dollars and thirty-four cents per share (US$3.34/share). EFIC has
the sole right to determine whether these shares are issued under Regulation S
or Regulation D/506 of the U.S. Securities Laws. Should EFIC request Regulation
D/506 shares, seller is obligated to pay the cost for the registration of such
issued shares. EFIC agreed to make every effort to ensure that the shares so
issued are not made available to United States resident public shareholders
within one year of their issuance. The warrants expire October 22, 2002. If
EFIC exercises all or a portion of the warrants, and this transaction is
registered with the Securities and Exchange Commission, the later sale of the
shares could adversely affect the EFHC share price. None of these warrants were
exercised during the period of this report.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
The Company has entered into no material transactions with any officer,
director, security holder, or spouse of any of the foregoing, since inception.
None of the foregoing persons is indebted to the Company. EFHC is increasingly
indebted to its majority shareholder EFIC for start up and operating capital
until revenues are sufficient to repay the debt. Mr. Cate and Beowulf purchase
registered shares of EFHC stock from time to time.
20-F Page 16 of 18
<PAGE>
PART II
ITEM 14. (NOT APPLICABLE).
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY
FOR REGISTERED SECURITIES AND USE OF PROCEEDS.
The Company has a plan for paying dividends to EFHC shareholders in the
form of stock of each of the client companies successfully served by EFHC. The
EFHC Board of Directors announced several dividends in December of 1999. The
timing of the distribution of such dividends is dependent upon many factors
including the time and uncertainty of completing the US Securities and Exchange
Commission registration process and listing the client company's stock on the
NASD OTCBB for trading.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
EFHC has elected to provide financial statements pursuant to Item 18.
ITEM 18 FINANCIAL STATEMENTS.
The balance sheet of the Company as of December 31, 1999 and 1998, and the
related statements of operations, shareholders' deficit and cash flows for the
year ended December 31, 1999 and the period from inception (March 6, 1998) to
December 31, 1998 are presented in conformity with United States generally
accepted accounting principles, together with the independent auditor's report,
as indicated in the index at ITEM 19.
ITEM 19 FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements, together with the report of Perry Smith
LLP, are filed as part of this annual report
Page
Independent Auditor's Report F-1
Balance Sheet, December 31, 1999 and 1998 F-2
Statement of Operations for the Year Ended
December 31, 1999 and the Period from
Inception (March 6, 1998) to December 31, 1998 F-3
Statement of Shareholders' Deficit for the Year
Ended December 31, 1999 and the Period from
Inception (March 6, 1998) to December 31, 1998 F-4
Statement of Cash Flows for the Year Ended
December 31, 1999 and the Period from
Inception (March 6, 1998) to December 31, 1998 F-5
20-F Page 17 of 18
<PAGE>
Notes to Financial Statements F-6 to F-10
SIGNATURES.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all the requirements for filing on
Form 20-F and has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.
EQUITY FINANCE HOLDING CORPORATION
(Registrant)
By: /s/ Jack L. Mahan, Jr.
----------------------------------------------
Name: Jack L. Mahan, Jr.
Title: President
20-F Page 18 of 18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Board of Directors
Equity Finance Holding Corporation
We have audited the accompanying balance sheet of Equity Finance Holding
Corporation (the "Company") as of December 31, 1999 and 1998, and the related
statements of operations, shareholders' deficit and cash flows for the year
ended December 31, 1999 and the period from inception (March 6, 1998) to
December 31, 1998. 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 audits 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 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 Equity Finance Holding
Corporation at December 31, 1999 and 1998, and the results of its operations and
its cash flows for the year ended December 31, 1999 and the period from
inception (March 6, 1998) to December 31, 1998 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 9, the Company
has not achieved profitable operations and current liabilities exceed current
assets by $109,921. 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.
/s/ Perry-Smith LLP
Sacramento, California
June 23, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
EQUITY FINANCE HOLDING CORPORATION
BALANCE SHEET (IN U.S. DOLLARS)
DECEMBER 31, 1999 AND 1998
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 582 $ 2,898
========== ==========
LIABILITIES AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other liabilities (Note 2)$ 65,503 $ 90,793
Deferred revenue 45,000 45,000
---------- ----------
Total current liabilities 110,503 135,793
Note payable (Note 3) 43,450
Related party note payable (Note 4) 26,355 27,069
---------- ----------
Total liabilities 180,308 162,862
---------- ----------
Commitments (Note 5)
Shareholders' deficit (Note 6):
Common stock, par value $0.001; 100,000,000
shares authorized, 5,149,000 shares and
4,634,100 shares outstanding at December 31,
1999 and 1998, respectively 5,149 4,634
Additional paid-in capital 392,812 176,980
Accumulated deficit (577,687) (341,578)
---------- ----------
Total shareholders' deficit (179,726) (159,964)
---------- ----------
$ 582 $ 2,898
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF OPERATIONS (IN U.S. DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Consulting fees $ 1,429 $ 4,922
------------ -----------
Operating expenses:
Salaries 212,000 174,977
Professional fees 2,171 128,737
Referral fees 1,591 25,300
Other 21,776 17,486
------------ -----------
Total operating expenses 237,538 346,500
------------ -----------
Loss before income taxes (236,109) (341,578)
Income taxes (Note 8) - -
------------ -----------
Net loss $ (236,109) $ (341,578)
============ ===========
Basic and diluted loss per share $ (0.05) $ (0.07)
============ ===========
Weighted average outstanding shares 5,065,770 4,587,910
============ ===========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIT (IN U.S. DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
COMMON STOCK
-------------------------
ADDITIONAL TOTAL
PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------ ------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of common
stock for $1.00 per
share $ 3 $ 3 $ 3
Issuance of common
stock for $0.001
per share (Note 6) 4,634,097 $ 4,634 4,634
Issuance of stock
purchase warrants
(Note 6) 2,000 2,000
Services contributed by
shareholders with-
out compensation
(Note 1) 174,977 174,977
Net loss $(341,578) (341,578)
------------ ------------- -------------- ---------- --------------
Balance, December 31,
1998 4,634,100 4,634 176,980 (341,578) (159,964)
Issuance of common
stock for $0.0065
per share (Note 6) 514,900 515 2,832 3,347
Issuance of stock
purchase warrants
(Note 6) 1,000 1,000
Services contributed by
shareholders with-
out compensation
(Note 1) 212,000 212,000
Net loss (236,109) (236,109)
------------ ------------- -------------- ---------- --------------
Balance, December 31,
1999 5,149,000 $ 5,149 $ 392,812 $ (577,687) $ (179,726)
============ ============= ============== ========== ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
EQUITY FINANCE HOLDING CORPORATION
STATEMENT OF CASH FLOWS (IN U.S. DOLLARS)
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE PERIOD FROM INCEPTION (MARCH 6, 1998) TO DECEMBER 31, 1998
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(236,109) $(341,578)
Adjustments to reconcile net loss
to net cash used in operating activities:
Increase in accounts payable and other
liabilities 16,710 90,793
Increase in accrued interest included in notes
payable 3,433 1,203
Increase in deferred revenue 45,000
Services contributed by shareholders 212,000 174,977
---------- ----------
Net cash used in operating activities (3,966) (29,605)
---------- ----------
Cash flows from financing activities:
Proceeds from related party note payable 1,650 32,500
Issuance of common stock 3
---------- ----------
Net cash provided by financing activities 1,650 32,503
---------- ----------
(Decrease) increase in cash (2,316) 2,898
Cash at beginning of period 2,898
---------- ----------
Cash at end of period $ 582 $ 2,898
========== ==========
Supplemental schedule of non-cash financing
activities:
Reduction of related party note payable
through sale of warrants (Note 6) $ 1,000 $ 2,000
========== ==========
Reduction of related party note payable through
issuance of common stock (Note 6) $ 3,347 $ 4,634
========== ==========
Conversion of account payable to an
Unsecured note payable (Note 3) $ 42,000
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
EQUITY FINANCE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-------------------------
Equity Finance Holding Corporation (the "Company") was incorporated on
March 6, 1998 in Belize, Central America with offices in Punto Gordo,
Belize and Plyas De Rosarito, B.C., Mexico. The Company is a management
consulting corporation and marketer of management and financial consulting
services offered principally to small businesses with annual sales of
$1,000,000 to $20,000,000. The Company will provide resources to a variety
of business clients, allowing them to develop their capitalization to
achieve corporate growth. Additionally, the Company will provide counsel
and expertise to this market segment which will allow the closely-held
client corporations to be held more broadly and develop equity through
capital infusion.
The Company will provide its management consulting services through a five
year program of coordinated management decisions and acquisition of
resources under the name "The Advantage 2000 Program". The Company markets
and sells its services principally through representatives in California.
The Company maintains its books and records in United States dollars using
accounting principles generally accepted in the United States of America.
Revenue Recognition
--------------------
The Company recognizes revenue for Advantage 2000 Program (the "Program")
services using the specific performance method with revenue recognition
tied to the completion of identifiable milestones. Substantially all
services to be provided by the Company in connection with the Program will
have been completed prior to the recognition of revenue. Revenue for other
consulting services provided to the Program will be recognized upon
completion of the contracted task. Company clients are not required to
purchase supplemental services from the Company and client entitlements
related to refunds vary by contract, but generally allow for the return of
unearned advances, less a 5% processing fee.
Deferred Revenue
-----------------
Deferred revenue consists of a retainer collected from a client in advance
of reaching the contractual milestone for recognizing the revenue.
Salaries
--------
The Company currently has no employees. Management and oversight functions
have been provided, without charge, by shareholders. The Company has
recorded salary expense in an amount that it believes would be commensurate
with compensation that would be paid to employees. A corresponding charge
has been recorded in additional paid-in-capital.
F-6
<PAGE>
EQUITY FINANCE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
-------------
The Company's primary tax reporting country is Belize. Under Belize laws,
foreign earned income is taxable only on remittances to Belize. Income from
operations in the United States is taxable by the United States and
applicable state governments.
Deferred tax assets and liabilities are recognized for the tax consequences
of temporary differences between the financial statement and tax basis of
existing assets and liabilities.
Earnings (Loss) Per Share
----------------------------
Basic earnings (loss) per share (EPS), which excludes dilution, is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock, such as warrants, result in the issuance of common
stock which shares in the earnings of the Company.
Warrants to purchase 3,000,000 shares of the Company's common stock were
outstanding at December 31, 1999 and 1998 (see Note 6). These warrants were
not considered in the calculation of earnings per share as the conversion
of potential common stock is antidilutive when a net loss from operations
occurs.
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. ACCOUNTS PAYABLE
At December 31, 1999 and 1998, accounts payable includes a $42,750 refund
due to a former Advantage 2000 Program participant.
3. NOTE PAYABLE
In June 1999, the Company negotiated the settlement of an outstanding
account payable through the issuance of an unsecured note payable to the
service provider totaling $42,000. The note bears interest at 5% and is due
June 2004. No payment of either principal or interest is required prior to
the maturity date. The service provider has the ability to exchange the
note for 100,000 shares of the Company's stock owned by Equity Finance
International Corporation (EFIC), the majority shareholder of the Company,
at the sole discretion of EFIC. Accrued interest at December 31, 1999
totaled $1,450.
F-7
<PAGE>
EQUITY FINANCE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. RELATED PARTY NOTE PAYABLE
In March 1998, the Company borrowed $25,000 from EFIC which owns 96.7% of
the Company's common stock. The unsecured note bears interest at 6% and is
due March 2003. The note will be amended each time the Company borrows
funds from EFIC and will be reduced for certain non-cash transactions with
EFIC (see Note 6). During the year ended December 31, 1999, the note
payable was increased for cash advances totaling $1,650. No payment of
either principal or interest is required prior to the maturity date.
Principal and accrued interest at December 31, 1999 and 1998 totaled
$26,355 and $27,069, respectively.
5. COMMITMENTS
In April 1998, the Company entered into an agreement to provide a loan up
to $500,000 to a client company for the purposes of sustaining their
operations and financing their acquisition of a target company should the
Company be unable to arrange equity funding of $10,400,000 for the client
company prior to October 1998. Such financing has not been arranged;
however, the Company was only obligated to provide this loan from the
proceeds received from the exercise of outstanding warrants (see Note 6).
6. SHAREHOLDERS' DEFICIT
The Company distributed 4,634,097 shares valued at $.001 per share to EFIC
to partially repay principal and interest outstanding on the related party
note payable discussed in Note 4. These shares will be subject to the
Lockup/Pooling agreement between EFHC, EFIC and Beowulf outlined below.
Management believes that the agreed-upon per share value was materially
consistent with fair value.
On April 1, 1998, Beowulf Investments (Beowulf), whose managing director is
a director of the Company, purchased warrants for 3,000,000 shares of the
Company's common stock for $2,000. The warrant exercise prices were as
follows: 1,000,000 warrants at $1.95; 1,000,000 warrants at $3.25; and
1,000,000 warrants at $5.20. The warrants expired on September 30, 1999.
On October 22, 1999, warrants for 3,000,000 shares of the Company's common
stock were distributed to EFIC and the related party note payable discussed
in Note 4 was reduced by $1,000. The warrants have an exercise price of
$3.34 per share and expire October 22, 2002, with an option to extend.
Management believes the agreed-upon warrant purchase prices are materially
consistent with the fair value of the warrants.
The Company sold 514,900 shares of its common stock to A&A International
Industries, Inc., a Canadian corporation publicly traded in the United
States (A&A), for Canadian $.01 (approximately US $.0065). A&A distributed
the shares to its shareholders as a dividend. Certain A&A shareholders
entered into separate agreements and immediately sold 346,455 of the
distributed EFHC shares at a price of Canadian $.02 (approximately US
$.013) to EFIC, the sole shareholder of the Company prior to the A&A sale.
Shares purchased by EFIC are subject to a Lockup/Pooling agreement between
EFHC, EFIC and Beowulf which restricts the sale of the shares for a period
of five years from the March 1, 1999 sale date. The Lockup/Pooling
agreement can be amended by the parties.
F-8
<PAGE>
EQUITY FINANCE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and accounts
payable approximated fair value as of December 31, 1999 and 1998 because of
the expected short maturity of these instruments.
Based upon borrowing rates currently available for bank loans with similar
terms and maturity, the carrying amount and fair value of notes payable at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Note payable $ 43,450 $20,500
Related party note
payable 26,355 19,000 $ 27,069 $15,500
--------- ------- --------- -------
$ 69,805 $39,500 $ 27,069 $15,500
========= ======= ========= =======
</TABLE>
8. INCOME TAXES
As of December 31, 1999 and 1998, substantially all activities of the
Company had been undertaken in the United States. Accordingly, the results
of the activities represent a taxable event in the United States. The
Company sustained net operating losses for book and tax purposes for the
year ended December 31, 1999 and for the period from inception (March 6,
1998) to December 31, 1998. Because it is uncertain as to the ultimate
realization of the future benefit associated with these losses, the Company
has not recognized an income tax benefit.
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Organizational costs $ 6,400 $ 8,600
Net operating loss carryforward 73,200 64,000
--------- ---------
79,600 72,600
Deferred tax asset valuation allowance (79,600) (72,600)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
F-9
<PAGE>
EQUITY FINANCE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. INCOME TAXES (Continued)
The benefit for income taxes for the year ended December 31, 1999 and the
period from inception (March 6, 1998) to December 31, 1998 differ from
amounts computed by applying the statutory United States Federal income tax
rate to the operating loss before income tax benefits. The items comprising
these differences consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- ------------------
Amount Rate % Amount Rate %
--------- ------ ---------- ------
<S> <C> <C> <C> <C>
United States Federal income
tax benefit, at statutory
rate $(80,300) 34 $(116,100) 34
California state franchise tax
benefit, net of Federal tax
effect (16,500) 7 (23,900) 7
Contributed services 89,700 (34) 67,400 (20)
Valuation allowance 7,100 (7) 72,600 (21)
--------- ------ ---------- ------
$ - - $ - -
========= ====== ========== ======
</TABLE>
9. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the year ended December 31, 1999, the Company incurred a
loss of $236,109. In addition, the Company's current liabilities exceed its
current assets by $109,921 at December 31, 1999. These factors, among
others, raise a substantial doubt about the Company's ability to continue
as a going concern for a reasonable period of time, generally defined as a
period not to exceed one year beyond the balance sheet date.
The financial statements do not include any adjustments relating to the
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. Management has established a plan
that it believes will generate sufficient cash flows, through operations
and additional debt financing, to remove the threat to the continuation of
the Company. However, there can be no assurances that the Company will be
successful in generating sufficient cash flows from operations or obtaining
additional debt financing.
F-10
<PAGE>
