<PAGE> 1
FORM 10-KSB
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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D. C. 20549
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(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30,
2000 OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ______________ TO ______________
Commission file number: 000-27259
REWARD ENTERPRISES, INC.
(Exact name of small business issuer in its charter)
Nevada 98-0203927
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
12880 Railway Avenue
Unit No. 35
Richmond, British Columbia
Canada V6C 2G8
(Address of principal executive offices, including Postal Code)
Issuer's telephone number: (604) 644-5139
Securities Registered Under Section 12(b) of the Exchange Act:
None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, 0.001 par value (Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the issuer's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for most recent fiscal year:
$0
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates based on the average bid and asked price
as of June 30, 2000 being $0.00 per share: $0.00
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,715,000 shares
of Common Stock as of June 30, 2000.
TABLE OF CONTENTS
Page
PART I ............................................................ 4
Item 1. Description of Business ................................... 4
Item 2. Description of Property ...................................12
Item 3. Legal Proceedings .........................................12
Item 4. Submission of Matters to a Vote of Security Holders .......12
PART II ...........................................................13
Item 5. Market for Common Equity and Related Stockholder Matters ..13
Item 6. Management's Discussion and Analysis of Financial Condition
And Results of Operations .........................................14
Item 7. Financial Statements ......................................18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..........................................32
PART III ..........................................................32
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act .................32
Item 10. Executive Compensation ...................................33
Item 11. Security Ownership of Certain Beneficial Owners and
Management ........................................................37
Item 12. Certain Relationships and Related Transactions ...........38
Item 13. Exhibits and Reports on Form 8-K .........................38
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NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained
herein constitutes "forward-looking statements," including without
limitation statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, as well as all
projections of future results. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may
cause the actual results or achievements of the Company to be
materially different from any future results or achievements of the
Company expressed or implied by such forward-looking statements. Such
factors include, but are not limited to the following: the Company's
lack of an operating history, the Company's lack of revenues and
unpredictability of future revenues; the Company's lack of functional
operating systems, distribution infrastructure and website; the
seasonality of the toy industry; the Company's future capital
requirements to develop our operating systems, distribution facilities,
website and administrative support systems; intense competition from
established competitors with greater resources; the Company's reliance
on internally developed systems and system development risks; the risks
of system failure; the Company's dependence on the Internet and
continued growth of online commerce; the uncertainty of participating
in developing a market; the Company's reliance on merchandise suppliers
and third parties and lack of agreements with such third parties; the
risks associated with rapidly changing technology; intellectual
property risks; risks associated with online commerce security; the
risks associated with governmental regulations and legal uncertainties;
and the other risks and uncertainties described under "Description of
Business - Risk Factors" in this Form 10-KSB. Certain of the forward
looking statements contained in this annual report are identified with
cross-references to this section and/or to specific risks identified
under "Description of Business - Risk Factors".
<PAGE> 4
PART 1
ITEM 1. DESCRIPTION OF BUSINESS.
History
Reward Enterprises Inc. (the "Company") was incorporated under the
laws of the State of Nevada on December 12, 1997, as Sports
Entertainment Productions, Inc. to engage in the business of Internet
entertainment including gaming. In July 1998, the Company changed its
name to Reward Enterprises Inc. Reward Enterprises, Inc. maintains and
administrative office at 12880 Railway Avenue, Unit 35, Richmond,
British Columbia, Canada V7E 6G4.
Operations
The Company's is a start-up business and has not commenced
operations as of the date hereof other than an undertaking of a market
analysis and development of a virtual casino website. As such, the
following reflects the Company's proposed plan of operation. There is
no assurance however, that the Company will ultimately be able to
implement its plan of Internet Gaming.
Internet Gaming
The Company plans to offer on the Internet, casino-style gaming
opportunities including baccarat, blackjack and poker through a wholly
owned subsidiary corporation called Reward Nevis Group Inc. which has
been incorporated on island of Nevis, part of St. Kitts & Nevis, in the
Eastern Caribbean. As of the date hereof, the Company has not
established its web-site on the Internet. The Company intends to
establish its web-site under the name of "CasinoReward"; however, there
is no assurance that the Company will begin operations as planned.
Software
In order to initiate its gaming operations, the Company has
entered into a non-exclusive software license agreement with Chartwell
Technologies Inc. ("Chartwell") of Laguna Hills, California to acquire
and develop all software necessary to conduct the Internet gaming
activity and to handle all Internet cash transactions connected
therewith. The software is customized and is a full service gaming
system which includes twelve casino games, a back-end administrative
utility with remote access, I.P. Tracking, e-Commerce software and
technical support. The software is currently licensed to others at a
number of other Internet sites such as: www.casino.com;
www.777casino.net; www.truebet.com; www.oldvegas.com; and,
www.instacash.com. The Company does not intend to undertake any
software development or research, but intends to rely entirely on the
efforts of Chartwell. The Company may not license the software to
anyone other than wholly owned subsidiary corporations of the Company.
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Pursuant to the terms of the license agreement with Chartwell, the
Company paid Chartwell $20,000 upon the execution of the agreement,
made one additional payment of $10,000 in October, 1999 and will make
an additional payments of $20,000 at an indeterminate date. In
addition, the Company has paid Chartwell $8,000 for the purchase of a
server and associated software. Chartwell will also receive 30% of the
Company's gross revenues from its gaming operations up to a maximum of
$100,000; 20% thereafter, up to a maximum of $1,000,000; and 15% of the
Company's gross revenues from gaming thereafter. Upon the execution of
the agreement, the Company paid Chartwell $5,000 for its website design
and development and will pay Chartwell an additional $5,000 upon
completion of the website. The initial agreement is for a period of
two years and is renewable thereafter at the Company's option, provided
that the Company makes a written election to renew the same at least 90
days prior to the termination date.
In the event that Chartwell ceases operations for any reasons or
refuses to renew its agreement with the Company, the Company will have
to cease operations.
The Website
The Company's website will be accessible to customers with a
minimum hardware configuration consisting of a 486 personal computer
with Windows 95 or greater, with 16 MB RAM, 20 MB free hard disk space,
a 14,400 modem and a direct PPP Internet connection. All games will be
provided in a Windows-based, menu driven format with "point and click"
interactivity.
Persons who wish to gamble will be able to subscribe for
membership over the Internet by completing an application form
appearing at the website. Part of the application process requires
that the subscriber open an account and make a minimum deposit into
such account. The account will be located in Nevis and all moneys will
deposited there and winnings will be paid from there to the customer.
The website will be controlled by the Company and will be designed
to invite customers to sign up and apply for a membership. After a
membership application is reviewed, it is either accepted or rejected
based on criteria including, but not limited to, age and geographic
location of the customer. The Company's policy will be to accept
subscriptions only from persons of the legal age of majority who are
believed to reside in jurisdictions that are not known to expressly
prohibit Internet gaming. Upon acceptance, the approved customer is
then given a username and password and is thereby able to access the
Company's gaming server over the Internet through their Internet
service provider.
The Company's website will allow customers to review all terms,
rules and conditions applicable to gaming and other uses at the site.
All gaming winnings and losses are debited and credited to the
customer's account on a real-time basis. All games are conducted
pursuant to house rules and advantages that are published at the
website and which are as favorable or more favorable than those used by
major land based casinos.
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The gaming opportunities offered at the proposed website have been
designed similar to that of a land based style casino and include among
the gaming menu items various games including blackjack, video poker,
slots and roulette. Customers use the Windows format of commands to
carry out gaming activities. The website will initially be written in
English.
The Nevis Company - Reward Nevis Group Inc.
The Company incorporated a wholly owned subsidiary on the island
of Nevis, part of St. Kitts and Nevis, in the Eastern Caribbean which
will is registered in Nevis and which will operate from the island of
Nevis.
The islands of St. Kitts and Nevis are located in the northern
part of the Leeward Islands 1200 miles from Miami and approximately 200
miles from Puerto Rico and the US or British Virgin Islands. A six mile
straight separates the two islands. St. Kitts is 23 miles long and five
miles across at its widest encompassing an area of 68 square miles
while Nevis is approximately 7 miles in diameter and covers a total of
36 square miles and has a combined population of 50,000.
On September 23, 1983, St. Kitts and Nevis gained independence
from Britain, but the two-island nation remains a member of the
Commonwealth. English is the main language of the islands.
The communication system of the island is fiber optic based, thus
providing a significant advantage as compared to systems of other
Caribbean countries which are typically copper wire based.
All of the Company's Internet gaming and related banking
operations will be carried out by Reward Nevis Group Inc. through the
Bank of Nevis pursuant to the nonexclusive Software License Agreement
entered into with Chartwell. The hardware and software platforms on
which the Company's Internet gaming operations will be conducted,
including all computer servers, will be located and operated by Company
staff. The Company may maintain a redundant server located in North
America in order to monitor gaming operations.
Principal Markets
Use of the Company's gaming website is available to any person of
legal majority age residing in a jurisdiction in which Internet gaming
is legal. Those persons visiting the site that do not wish to gamble
may play the games free of charge in the free game area.
The Company intends to advertise and promote its gaming business
in all available advertising mediums, subject to compliance with
applicable laws. As of the date hereof, the Company has not initiated
any research to determine the parameters in which it may advertise.
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Competition
The Company will compete with other companies marketing gaming
related entertainment products and services. Industry information
indicates that there are currently in excess of 350 Internet gaming
websites, each of which is actively seeking to increase its user base
of gamblers. Many of the Internet gaming sites utilize software
developed for their own purposes. There are at least four other firms
such as Chartwell that are in the business of licensing their
proprietary gaming software systems. Each of these, including
Chartwell, are actively seeking to increase the number of their
licensed sites.
The Company expects to encounter significant competition from
existing providers of Internet gaming operations and expects to
encounter increasing competition as additional Internet gaming service
providers come on-line. Many of the Company's potential competitors
have or may have, as the case may be, greater capital and other
resources than the Company and may choose to adopt a marketing plan
similar to that proposed by the Company. There can be no assurance
that the Company will be able to generate meaningful revenues or
earnings from its proposed Internet gaming operations or otherwise
successfully compete in the future.
The Company believes that its ability to compete favorably is
enhanced by the fact that the Chartwell software is Java based, thus
allowing users to log on to the Company's site and begin play
immediately after completion of financial arrangements. Many existing
Internet gaming sites utilize software written in languages other than
Java, which require users to obtain a disk or CD-ROM in order to play,
or are required to spend lengthy periods of time downloading software
programs. In addition, the communication infrastructure in Nevis is
fiber optic based, thus allowing more traffic to access the site at any
one time as compared to standard copper wire lines. Copper line
telephone systems are prevalent throughout most of the Caribbean
Islands.
The Company may have difficulty in attracting users to its site if
it is unable to construct its virtual casino in such a fashion as to
provide a unique and enjoyable gaming experience for players. In
addition, the Company recognizes the need to spend funds on advertising
and promotion of its site through a host of Internet sites that
management believes are visited by potential gaming customers.
Testing
The Company estimates that the Nevis facility and website will be
fully developed and commercialized prior to the end of fourth quarter
2000. Standard beta testing of the site will take place but is not
anticipated to be onerous since the software has been proven to
successfully operate with a number of other online gaming sites.
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Government Regulation
Gaming activities are stringently regulated in the United States
and most developed countries and are based upon policies that are
concerned with, among other things, (i) the prevention of unsavory or
unsuitable persons from having a direct or indirect involvement with
gaming; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of effective
controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping
and requiring the filing of periodic reports with the governing
jurisdictions; (iv) the prevention of cheating and fraudulent
practices; and (v) the provision of a source of government revenue
through taxation and licensing fees.
At the present time, the Company believes that a number of
developed countries, including Australia and several countries in
Europe, the Caribbean, Latin America, the Middle East, Asia, and Africa
do not prohibited Internet gaming activities. However, gaming over the
Internet is a new industry and some or all of these foreign
jurisdictions may take action to more severely regulate or even
prohibit Internet gaming operations in their jurisdictions.
The Company believes that as of the date of this Annual Report,
many federal and state prosecutorial agencies in the United States have
taken the position that the provision of Internet gaming services to
residents of the United States is subject to existing federal and state
laws which generally prohibit the provision of gaming opportunities,
except where licensed or subject to exemption. It is the Company's
understanding that many providers of Internet gaming services to
citizens and residents of the United States have taken the position
that existing federal and state laws pertaining to the provision of
gaming opportunities do not apply to Internet gaming services. In
1997, legislation was introduced to the United States Senate and House
of Representatives (the Kyle bill) which, if enacted in any of its
modified forms, would effectively amend the Federal Wire Statute,
codified at 18 U.S.C. 1084, to prohibit Internet gaming operations to
residents of the United States (Internet Gambling Prohibition Act of
1997; S. 474 and H.R. 2380). The Company's policy will be to not offer
its Internet gaming services to citizens or residents of any
jurisdiction that prohibits such activities, and to otherwise endeavor
to comply with laws pertaining to gaming.
Since all aspects of the Company's operations will take place on
the island of Nevis in the Eastern Caribbean and Reward Nevis Group
Inc. will be licensed to conduct Internet wagering by the sovereign
state of Nevis, the Company's operations at that location are not
expected to be affected by passage of legislation in other
jurisdictions.
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The Company also believes that the lack of financial security on
the Internet is hindering economic activity thereon. To ensure the
security of transactions occurring over the Internet, U.S. federal
regulations require that any computer software used within the United
States contain a 128-bit encoding encryption, while any computer
software exported to a foreign country contain a 40-bit encoding
encryption. There is uncertainty as to whether the 128-bit encoding
encryption required by the U.S. is sufficient security for transactions
occurring over the Internet. Accordingly, there is a danger that any
financial (credit card) transaction via the Internet will not be a
secure transaction. Accordingly, risks such as the loss of data or loss
of service on the Internet from technical failure or criminal acts are
now being considered in the system specifications and in the security
precautions in the development of the website. There is no assurance
that such security precautions will be successful.
Year 2000
The Year 2000 issue is the result of computer programs written
using two digits rather than four to define the applicable year. As a
result, date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions of operations,
including among others, temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Since the Company has yet to acquire any technology in support of
its services, the planned acquisitions will most likely involve
hardware and software which is relatively new and therefore management
does not anticipate that it will incur significant operating expenses
or be required to invest heavily in computer systems improvements to be
Year 2000 compliant. As the Company makes arrangements with significant
hardware and software suppliers, the Company intends to determine the
extent to which the Company's systems may be vulnerable should those
third parties fail to address and correct their own Year 2000 issues
and take measures to reduce the Company's exposure, such as, finding
alternative suppliers or requiring the suppliers to correct Year 2000
compliance issues prior to the Company acquiring the product. The
Company anticipates that this will be an ongoing process as the Company
begins to implement its plan of operation through 2000 and 2001. There
can be no assurances that the systems of suppliers or other companies
on which the Company may rely on will be converted in a timely manner
and will not have a materially adverse effect on the Company's systems.
Additionally there can be no assurances that the computer systems
necessary to maintain the viability of the Internet will be Year 2000
compliant. The Company believes that it is taking the steps necessary
regarding Year 2000 compliance issues with respect to matters within
its control. However, no assurance can be given that the Company's
systems will be made Year 2000 compliant in a timely manner or that
the Year 2000 problem will not have a material adverse effect on the
Company's business, financial condition and results of operations.
<PAGE> 10
On January 3, 2000, Chartwell conducted tests of their operational
and gaming systems for Year 2000 compliance. Based on these tests, we
believe our systems and the systems of our third-party vendors and
service providers will be Year 2000 compliant. We intend to continue to
monitor our systems for Year 2000 compliance, and in the event that we
incur expenses associated with resolving Year 2000 compliance issues
that arise, we intend to expense the operating costs as they are
incurred and capitalize the capital costs as they are incurred. For the
next fiscal year, we do not expect to incur any major operating or
capital expenditures that would have a material impact on our financial
condition or results of operations.
Company's Office
The Company's administrative headquarters are located 12880
Railway Avenue, Unit 35, Richmond, British Columbia, Canada V7E 6G4 and
its telephone number (604) 644-5139.
Employees
The Company is a development stage company and currently has no
employees other than its Officers and Directors. The Company intends
to hire additional employees as needed.
Risk Factors
1. Company Has No History of Earnings. The Company has no
operating history and is subject to all of the risks inherent in a
developing business enterprise including lack of cash flow and service
acceptance.
2. Development and Market Acceptance of Services. The Company's
success and growth will depend upon its ability to market its services.
The Company's success will depend in part upon the market's acceptance
of, and the Company's ability to deliver and support its gaming
services.
3. Dependence on Technology Supplier. The Company is dependent
upon an outside technology supplier for the preparation and creation of
its web site and gaming activity. The unavailability of such services
will result in the Company ceasing operations.
4. Liquidity; Need for Additional Financing. The Company
believes that it does not have the cash it needs for at least the next
twelve months based upon its internally prepared budget. Further, the
Company's cash requirements are not easily predictable and there is a
possibility that its budget estimates will prove to be inaccurate. If
the Company is unable to generate a positive cash flow, it will be
required to substantially curtail operations and seek additional
capital. There is no assurance that the Company will be able to obtain
additional capital if required, or if capital is available, to obtain
it on terms favorable to the Company. The Company may suffer from a
lack of liquidity in the future which could impair its short-term
marketing and sales efforts and adversely affect its results of
operations.
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5. Foreign Operations Risks. The Company's principal business
operations will be located on the island of Nevis in the Eastern
Caribbean country of St. Kitts and Nevis. St. Kitts and Nevis laws
relating to gaming, taxation, business licensing and other areas may be
different from those typically encountered in the United States.
Currently, there are a number of Internet related websites operating
from Nevis. Although management intends to ensure that all agreements,
permits, licenses and/or regulatory approvals are adequately addressed
and followed, there can be no assurance that the regulatory climate in
the future in St. Kitts & Nevis will not change in a materially
negative way for the Company.
6. Potential Liabilities. The Company could potentially
encounter liabilities with respect to operation of its Internet gaming
website. Prior to any user commencing play on the Company's site, the
user must read and acknowledge by point and click, the respective
conditions of play. Such conditions have been developed by Chartwell
and form part of the standard user registration format at Chartwell's
other licensed sites. The conditions specifically include the fact
that the player fully understands, agrees to, becomes a party to and
shall abide by all rules, regulations, terms and conditions, contained
in the user play agreement.
7. Competition. Most of the Company's competitors have
substantially greater financial, technical and marketing resources than
the Company. In addition, the Company's services compete indirectly
with all other forms of gambling.
8. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers and Directors, who exercise control over the day to day
affairs of the Company.
9. Issuance of Additional Shares. 197,285,000 shares of Common
Stock or 98.6425% of the 200,000,000 authorized shares of Common Stock
of the Company are unissued. The Board of Directors has the power to
issue such shares, subject to shareholder approval, in some instances.
Although the Company presently has no commitments or contracts to issue
any additional shares to other persons. The Company may in the future
attempt to issue shares to acquire products, equipment or properties,
or for other corporate purposes. Any additional issuance by the
Company, from its authorized but unissued shares, would have the effect
of diluting the interest of existing shareholders.
10. Indemnification of Officers and Directors for Securities
Liabilities. The laws of the State of Nevada provide that the Company
could indemnify any Director, Officer, agent and/or employee as to
those liabilities and on those terms and conditions as are specified in
the Corporation Act of the State of Nevada. Further, the Company may
purchase and maintain insurance on behalf of any such persons whether
or not the corporation would have the power to indemnify such person
against the liability insured against. The foregoing could result in
substantial expenditures by the Company and prevent any recovery from
such Officers, Directors, agents and employees for losses incurred by
<PAGE> 12
the Company as a result of their actions. Further, the Company has
been advised that in the opinion of the Securities and Exchange
Commission, indemnification is against public policy as expressed in
the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
11. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Shareholders may be further diluted in their percentage ownership of
the Company in the event additional shares are issued by the Company in
the future. Cumulative voting in the election of Directors is not
provided for. Accordingly, the holders of a majority of the shares of
Common Stock, present in person or by proxy, will be able to elect all
of the Company's Board of Directors.
12. No Dividends Anticipated. At the present time the Company
does not anticipate paying dividends, cash or otherwise, on its Common
Stock in the foreseeable future. Future dividends will depend on
earnings, if any, of the Company, its financial requirements and other
factors.
ITEM 2. Description of Property
The Company does not own any real or personal property. The
Company's only asset is cash.
The Company's administrative headquarters are located at 12880
Railway Avenue, Unit No. 35, Richmond, British Columbia, Canada V7E 6G4
and its telephone number is (604) 644-5139. The Company currently uses
office space provided by one of the directors. There is no formal
lease agreement for the Company's offices.
ITEM 3. Legal Proceedings
The Company is not a party to any pending or threatened litigation
and to its knowledge, no action, suit or proceedings has been
threatened against its officers and its directors.
ITEM 4. Submission of Matters to a Vote of Security Holders
None. No matters were submitted during the forth quarter of the
fiscal year covered by this report to a vote of security holders.
<PAGE> 13
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
No market exists for the Company's securities and there is no
assurance that a regular trading market will develop, or if developed,
that it will be sustainable. A shareholder in all likelihood, there
fore, will be unable to resell the securities referred to herein should
he or she desire to do so. Furthermore, it is unlikely that a lending
institution will accept the Company's securities as pledged collateral
for loans unless a regular trading market develops.
There are no plans, proposals, arrangements or understandings with
any person with regard to the development of a trading market in any of
the Company's securities. On January 4, 1999, the NASD amended its
rules regarding listing of securities for trading on the Bulletin Board
which it operates. Effective January 4, 1999, securities of
corporations will not be listed for trading on the Bulletin Board
unless the corporation files reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
The Company has applied to the NASD for approval to have the
Company's Common Stock accepted for quotation on the OTC Bulletin
Board. No approvals had been obtained by June 30, 2000. The OTCBB
constitutes a limited and sporadic trading market and does not
constitute an "established trading market."
As of June 30, 2000, the Company has 32 holders of record of its
Common Stock.
The Company has not paid any dividends since its inception and
does not anticipate paying any dividends on its Common Stock in the
foreseeable future.
Recent Sales of Unregistered Securities
The Company has 2,715,000 shares of Common Stock issued and
outstanding as of June 30, 2000. Of the 2,715,000 shares of the
Company's Common Stock outstanding all shares are freely tradeable.
In 1999, the Company reverse split its shares of common stock on
a 1 for 10 basis, reducing the total outstanding shares from 10,000,000
to 1,000,000.
On April 5th and 6th, 1999, the Company sold 1,715,000 shares of its
common stock to 18 investors in consideration of $171,500. The shares
were sold pursuant to Reg. 504 of the Act. A commission of $17,500 was
paid to F.J.R. Resources Inc. All sales were made outside the United
States of America.
In March and May 1999, the Company issued options to Gerald
Williams, Brian Doutaz and Frank J. Rigney to acquire up to 2,500,000
shares of common stock. The options were granted pursuant to Reg. 701
of the Act. As of the date hereof, no options have been exercise.
<PAGE> 14
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General Overview
Reward Enterprises, Inc. (the "Company") was incorporated in April
1998 as Sports Entertainment Productions Inc. to pursue opportunities
around the world in the Internet based entertainment industry. The
name was changed to Reward Enterprises, Inc in July 1998. The Company
has two subsidiary companies, Reward International Group Ltd, a Bermuda
corporation, and Reward Nevis Group, Inc., a Nevis based corporation.
Its main objective is to develop a profitable "Entertainment Mall"
through an e-commerce secure "portal." Entertainment options offered
will be videos, CDs, virtual casino-style games, free bingo, and dice
and specialty and interactive video games. The general entertainment
and e-commerce components will be marketed to the whole world while the
gaming related options will focus on Asia, Europe, Australia and South
America.
On June 15, 1999, Reward Nevis Group, Inc, a wholly owned
subsidiary of the Company entered into a non-exclusive software license
agreement with Chartwell Technologies Inc, of Laguna Hills, California
to acquire and development all software necessary to conduct the
Internet gaming activity and to handle all Internet cash transactions.
This software is customized and is a full service gaming system that
includes twelve casino games, a back-end administrative utility with
remote access, I.P. Tracking, e-Commerce software and technical
support. The license is non-exclusive and is currently licensed to
others. The Company is restricted in the use of this technology and
cannot sublicense it to others. It is for a period of two years and
has provision for renewal for additional two years. The royalty payable
is 15% of gross revenues generated. Pursuant to the agreement, $30,000
has been paid to Chartwell to date and a further payment of $20,000
will be made at an indeterminate date.
Management of the Company is currently in the development stage of
its business and is in the process of completing further agreements to
implement its business plan. The Company continues to evaluate its
business plan to determine its best course of action. The Company
continues to test the Web site operating and software systems,
including gaming, shopping and browsing features, and on-line ordering.
There are no new developments regarding this testing program.
Results of Operations - Period From July 01, 1999 to June 30, 2000
REVENUES: There were no revenues in the year ending June 30, 2000
as the Company has not as yet activated its web site. The Company does
not anticipate that it will generate any material revenues from
operations until at least the first quarter of 2001.
EXPENSES: During the year ending June 30, 2000, the Company
incurred expenses of $228,569
<PAGE> 15
A summary of these expenditures is as follows:
Legal and Professional fees $ 47,808
Consulting fees 157,500
Office and Administration 9,169
Travel and promotion 14,182
---------
Total $ 228,659
---------
All of the above noted expenses were related primarily to
organizing the Company and filing a registration statement with the
Securities & Exchange Commission, initial development of the web site
and server, consulting and third party services.
Since the beginning of the fiscal year we paid or accrued
consulting fees in the amount of $157,500 which primarily consisted of
fees paid to Brian C. Doutaz, the Company's secretary and a director,
Frank J. Rigney, the Company's business consultant and to Gerry W.
Williams, the President and a director of the Company.
Legal and accounting fees paid of $47,808 mainly related to the
filing of a Form 10-SB Registration Statement with the Securities &
Exchange Commission and the preparation and filing of quarterly reports
with the SEC.
The Company also incurred expenses relating to the software
licence agreement as well as web site design and server acquisition
that were paid to Chartwell Technologies. Most of these costs are non-
recurring expenses.
The Company anticipates, however, that its operating and
administrative expenses will increase during the second and third
quarters and into the next fiscal year as the Web site is launched and
additional personnel are retained for operations.
The Company continues to carefully control its expenses, and
intends to seek financing in the near future to provide necessary funds
required in its business plan and to further develop its business
model.
The Company has no employees at the present time and engages
personnel through consulting agreements where necessary as well as
outside attorneys, accountants and technical consultants.
Cash on hand at June 30, 2000 was $26,261 and the Company has
sufficient funds to conduct ifs affairs.
NET LOSS: The Company incurred a net loss of $228,630 for the
fiscal year ended June 30, 2000. It is expected that the net loss will
increase during 2001 until the Web site is able to generate sufficient
revenue from operations to become profitable.
<PAGE> 16
Plan of Operation
Subsequent to the fiscal year end of June 30, 2000, the Company
continued to experience delay in the development of the Web site and
the formal commencement of operations. The ability of the Company to
complete the launch of the Web site and to continue as a going concern
will depend on the ability of the Company to obtain future financing.
The Company has inadequate cash to maintain operations during the
next twelve months. In order to meet its cash requirements the Company
will have to raise additional capital through the sale of securities or
loans. As of the date hereof, the Company has not made sales of
additional securities and there is no assurance that it will be able to
raise additional capital through the sale of securities in the future.
Further, the Company has not initiated any negotiations for loans to
the Company and there is no assurance that the Company will be able to
raise additional capital in the future through loans. In the event that
the Company is unable to raise additional capital, it may have to
suspend or cease operations.
It is anticipated that there will be no sales until at least the
end of the second quarter of 2000 (December 31) following the launch of
our website. Operating activities during the next few months will focus
primarily on efforts to:
1. secure additional financing general working capital purposes,
and for the purchase of further development the Web site and
in order to facilitate efforts to begin the initial
implementation of the marketing plan;
2. establish additional strategic relationships with vendors,
merchandisers and distributors of entertainment related
merchandise and products;
3. continue development of the computer infrastructure and
systems related to the website;
4. complete installation of internal system hardware and
software for marketing, distribution and customer service
facilities;
5. continue testing internal operating, distribution and
customer service systems;
6. promoting the initial launch of the website;
7. hiring and training customer service and distribution
personnel.
The Company does not intend to purchase a plant or significant
equipment.
The Company will hire employees on an as needed basis, however,
the Company does not expect any significant changes in the number of
employees.
The Company expects to earn revenues in the first quarter of 2001.
There is no assurance, however, that the Company will earn said
revenues as planned.
<PAGE> 17
Liquidity and Capital Resources
The Company has to date, financed its development stage by the
sale of common stock. At June 30, 2000, the Company had 2,715,000
shares of common stock outstanding and had raised a total of $181,500.
At June 30, 2000 it had cash on hand of $26,261 and said cash resources
are maintained with a large Canadian financial institution. The working
capital deficiency at that date was $119,851. Accounts payable, accrued
liabilities and amounts due to related parties were $214,100.
The Company recognizes that it will need additional cash during
the next twelve months and will endeavor to obtain additional cash
through the sale of common stock. There is no assurance that the
Company will be able to obtain additional capital as required, or
obtain the capital on terms and conditions acceptable to it.
The Company has sufficient cash to finance its operations at this
stage of its development but does intend to seek additional financing.
Its liabilities relate to its software license and website development.
Inflation
Inflation has not been a factor during the fiscal year ended June
30, 2000. While inflationary forces are moderately higher than in 1999,
the actual inflation is immaterial and is not considered a factor in
any contemplated capital expenditure program.
Quantitative and Qualitative Disclosures About Market Risks
Our financial results are quantified in U.S. dollars and a
majority of our obligations and expenditures with respect to our
operations are incurred in U.S. dollars. Although we do not believe we
currently have any materially significant market risks relating to our
operations resulting from foreign exchange rates, if we enter into
financing or other business arrangements denominated in currency other
than the U.S. dollar or the Canadian dollar, variations in the exchange
rate may give rise to foreign exchange gains or losses that may be
significant.
We currently have no material long-term debt obligations. We do
not use financial instruments for trading purposes and we are not a
party to any leverage derivatives. In the event we experience
substantial growth in the future, our business and results of
operations may be materially effected by changes in interest rates
and certain other credit risk associated with its operations.
Acquisition of Plant and Equipment
We do not own any plant facilities or equipment. Our premises are
provided rent-free by a director. The Company does not intend to
purchase a plant or significant equipment. It is our intention to
acquire our own servers and computers prior during fiscal 2000 - 2001.
<PAGE> 18
ITEM 7. Financial Statements
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Consolidated Financial Statements
June 30, 2000 and 1999
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations
and Comprehensive Loss F-3
Consolidated Statement of Stockholders'
Equity (Deficit) F-4
Consolidated Statements of Cash Flows F-5
NOTES TO FINANCIAL STATEMENTS F-6
<PAGE> 19
Board of Directors
Reward Enterprises, Inc.
Richmond, British Columbia
CANADA
Independent Auditor's Report
We have audited the accompanying consolidated balance sheets of Reward
Enterprises, Inc. (a development stage company) as of June 30, 2000 and
1999 and the related consolidated statements of operations and
comprehensive loss, cash flows, and stockholders' equity (deficit) for
the years then ended and for the period from December 12, 1997
(inception) to June 30, 2000. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements
based on our audit.
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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Reward Enterprises, Inc. as of June 30, 2000, and 1999, and the results
of its operations and its cash flows for the period from December 12,
1997 (inception) to June 30, 2000, in conformity with generally
accepted accounting principles.
As discussed in Note 2, the Company has been in the development stage
since its inception on December 12, 1997. Realization of a major
portion of the assets is dependent upon the Company's ability to meet
its future financing requirements, and the success of future
operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding
those matters are described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
August 4, 2000
F-1
<PAGE> 20
REWARD ENTERPRISES INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2000 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,261 $ 102,614
----------- -----------
TOTAL CURRENT ASSETS 26,261 102,614
----------- -----------
PROPERTY AND EQUIPMENT
Computer hardware 9,985 8,665
Website 10,000 10,000
Software license 50,000 50,000
Accumulated depreciation
and amortization (1,997) -
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 67,988 68,665
----------- -----------
TOTAL ASSETS $ 94,249 $ 171,279
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 55,500 $ 72,500
Accrued expenses 155,000 -
Loans payable, related party 3,600 -
----------- -----------
TOTAL CURRENT LIABILITIES 214,100 72,500
----------- -----------
TOTAL LIABILITIES 214,100 72,500
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 200,000,000 shares authorized,
$0.01 par value; 2,715,000 shares
issued and outstanding 27,150 27,150
Additional paid-in capital 154,350 154,350
Subscriptions receivable - (10,000)
Accumulated deficit during
development stage (301,165) (72,506)
Accumulated other comprehensive income (186) (215)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (119,851) 98,779
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 94,249 $ 171,279
=========== ===========
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 21
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Year Year Dec 12,1997
Ended Ended (Inception)
June 30, June 30, Through
2000 1999 June 30, 2000
REVENUES $ - $ - $ -
EXPENSES
Consulting fees 157,500 47,500 214,000
Commissions - - 1,000
Legal and professional
fees 47,808 10,000 57,808
Travel and
entertainment 14,182 4,791 18,973
Office and
administration 9,169 215 9,384
---------- --------- ----------
TOTAL OPERATING EXPENSES 228,659 62,506 291,165
---------- --------- ----------
NET LOSS FROM OPERATIONS (228,659) (62,506) (291,165)
PROVISION FOR TAXES - - -
---------- --------- ----------
NET LOSS (228,659) (62,506) (291,165)
OTHER COMPREHENSIVE INCOME
(LOSS)
Foreign currency translation
gain (loss) 29 (215) (186)
---------- --------- ----------
COMPREHENSIVE LOSS $ (228,630) $ (62,721) $ (291,351)
========== ========= ==========
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $ (0.08) $ (0.04) $ (0.12)
========== ========= ==========
WEIGHTED AVERAGE NUMBER
OF BASIC AND DILUTED
COMMON STOCK SHARES
OUTSTANDING 2,715,000 1,428,750 2,428,750
========== ========= ==========
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 22
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
Number Additional Subscriptions
of Shares Amount Paid-in Capital
Issuance of common stock in April,
1998 for services valued at
$0.01 per share 1,000,000 $ 10,000 $ - $ (10,000)
Loss for period ending
June 30, 1998 - - - -
--------- -------- --------- ---------
Balance, June 30, 1998 1,000,000 10,000 - (10,000)
Issuance of common stock in May,
1999 for cash at $0.01
per share 1,400,000 14,000 - -
Issuance of common stock in May,
1999 for cash at $0.50
per share 315,000 3,150 154,350 -
Loss for year ending
June 30, 1999 - - - -
Foreign translation gain
(loss) - - - -
--------- -------- --------- ---------
Balance, June 30, 1999 2,715,000 27,150 154,350 (10,000)
Services provided for
stock subscription - - - 10,000
Loss for year ending
June 30, 2000 - - - -
Foreign translation gain
(loss) - - - -
--------- -------- --------- ---------
Balance, June 30, 2000 2,715,000 $ 27,150 $ 154,350 $ -
========= ======== ========= =========
The accompanying notes are an integral part of these financial
statements.
F-4A
<PAGE> 23
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated Accumulated Total
Deficit During Other Stock-
Subscriptions Development Comprehensive holders'
Receivable Stage Income (Loss) Equity
Issuance of common
stock in April 1998
for services valued
at $0.01 per share $ (10,000) $ - $ - $ -
Loss for period ending
June 30, 1998 - (10,000) - (10,000)
--------- ---------- ------ ---------
Balance, June 30, 1998 (10,000) (10,000) - (10,000)
Issuance of common stock
in May, 1999 for cash
at $0.01 per share - - - 14,000
Issuance of common stock
in May, 1999 for cash
at $0.50 per share - - - 157,500
Loss for year ending
June 30, 1999 - (62,506) - (62,506)
Foreign translation
gain (loss) - - (215) (215)
--------- ---------- ------ ---------
Balance, June 30, 1999 (10,000) (72,506) (215) 98,779
Services provided for
stock subscription 10,000 - - 10,000
Loss for year ending
June 30, 2000 - (228,659) - (228,659)
Foreign translation
gain (loss) - - 29 29
--------- ---------- ------ ---------
Balance, June 30, 2000 $ - $ (301,165) $ (186) $(119,851)
========= ========== ====== =========
The accompanying notes are an integral part of these financial
statements.
F-4B
<PAGE> 24
REWARD ENTERPRISES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Year Dec 12,1997
Ended Ended (Inception)
June 30, June 30, Through
2000 1999 June 30, 2000
Cash flows from operating activities:
Net loss $ (228,630) $ (62,506) $ (301,136)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 1,997 - 1,997
Services provided in exchange for
stock subscriptions 10,000 - 10,000
Stock subscribed in exchange for
payables - - 10,000
Increase in:
Other assets - (60,000) (60,000)
Accounts payable 18,000 - 18,000
Accrued expenses 155,000 - 155,000
Decrease in:
Accounts payable (35,000) 62,500 27,500
---------- --------- ----------
Net cash (used) by
operating activities (78,633) (60,006) (138,639)
---------- --------- ----------
Cash flows from investing activities:
Purchase of property and equipment (1,320) (8,665) (9,985)
---------- --------- ----------
Net cash (used) by
investing activities (1,320) (8,665) (9,985)
Cash flows from financing activities:
Proceeds from related party loans 3,600 - 3,600
Issuance of stock - 171,500 171,500
---------- --------- ----------
Net cash provided by
financing activities 3,600 171,500 175,100
Net increase in cash (76,353) 102,829 26,476
Foreign translation gain (loss) - (215) (215)
Cash, beginning of period 102,614 - -
---------- --------- ----------
Cash, end of period $ 26,261 $ 102,614 $ 26,261
========== ========= ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and income taxes:
Interest $ - $ - $ -
========== ========= ==========
Income taxes $ - $ - $ -
========== ========= ==========
NON-CASH INVESTING AND FINANCING:
Services exchanged for stock
subscriptions $ 10,000 $ - $ -
========== ========= ==========
Stock subscribed in exchange
for payables $ - $ - $ 10,000
========== ========= ==========
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE> 25
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Reward Enterprises, Inc., formerly Sports Entertainment (hereinafter
"the Company"), was incorporated in December 1997 under the laws of
the State of Nevada primarily for the purpose of offering interactive
online Internet entertainment and game playing. The name change to
Reward Enterprises, Inc. was effective on July 28, 1998.
In July and August 1999, the Company incorporated two subsidiaries in
the eastern Caribbean. See Note 5. The Company is in the
development stage and as of June 30, 2000 had not realized any
significant revenues from its planned operations. The Company's
year-end is June 30.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Reward
Enterprises, Inc. is presented to assist in understanding the
Company's consolidated financial statements. The consolidated
financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of
the financial statements.
Development Stage Activities
The Company has been in the development stage since its formation on
December 12, 1997. It is primarily engaged in internet entertainment
and the business of gaming.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern.
As shown in the accompanying financial statements, the Company
incurred a comprehensive net loss of $228,630 and $62,721 for the
years ended June 30, 2000 and 1999, respectively. The Company is
currently putting technology in place that will, if successful,
mitigate these factors that raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
and classification of liabilities that might be necessary in the
event the Company cannot continue in existence.
Management intends to seek new capital from new equity securities
issuances that will provide funds needed to increase liquidity, fund
internal growth and fully implement its business plan.
F-6
<PAGE> 26
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Basic and Diluted Loss Per Share
Net loss per share was computed by dividing the net loss by the
weighted average number of shares outstanding during the period. The
weighted average number of shares was calculated by taking the number
of shares outstanding and weighting them by the amount of time that
they were outstanding. Basic and diluted loss per share were the
same, as there were no common stock equivalents outstanding.
Cash and Cash Equivalents
For purposes of the Consolidated Statement of Cash Flows, the Company
considers all short-term debt securities purchased with a maturity of
three months or less to be cash equivalents.
Provision for Taxes
At June 30, 2000, the Company had a net operating loss of
approximately $228,000. No provision for taxes or tax benefit has
been reported in the financial statements, as there is not a
measurable means of assessing future profits or losses.
Use of Estimates
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses. Such estimates primarily relate
to unsettled transactions and events as of the date of the financial
statements. Accordingly, upon settlement, actual results may differ
from estimated amounts.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets." In
complying with this standard, the Company reviews its long-lived
assets quarterly to determine if any events or changes in
circumstances have transpired which indicate that the carrying value
of its assets may not be recoverable. The Company does not believe
any additional adjustments are needed to the carrying value of its
assets at June 30,2000.
F-7
<PAGE> 27
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those
instruments at fair value. At June 30, 2000, the Company has not
engaged in any transactions that would be considered derivative
instruments or hedging activities.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Segment Reporting
In July and August 1999, the Company incorporated two subsidiaries in
the eastern Caribbean.
As of June 30, 2000, neither subsidiary had revenues or expenses.
The Company experts to use segment reporting for its subsidiaries
once operations are established.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
assets. The useful lives of property, plant and equipment for purposes
of computing depreciation is five years.
Depreciation expense of $1,997 has been recognized for the year ended
June 30, 2000.
NOTE 4 - INTANGIBLE ASSETS
The Company has capitalized $60,000 which is the contractual cost of
the website and software license purchased from an independent
supplier. No portion of this software"acquired at June 30, 2000"was
internally developed and, accordingly, there are no internal costs
associated with this software which were charged to research and
development. Consistent with SOP 98-1, the costs of this
software"which was purchased solely for internal use and will not be
marketed externally"have been capitalized and will be amortized over
five years. Currently the web site and software license have not been
put into service and are not being amortized.
<PAGE> 28
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 5 - SUBSIDIARIES
On July 22, 1999, the Company incorporated a subsidiary in Nevis,
eastern Caribbean under the name Reward Nevis Group, Inc. The shares
are held by another subsidiary, Reward International Group Ltd., a
Bermudian company, which was incorporated August 6, 1999. Reward
International Group Ltd. is wholly owned by Reward Enterprises, Inc.
The Company contributed an initial investment of $10,400 toward the
start-up of the subsidiaries.
NOTE 6 - COMMON STOCK
Upon incorporation, subscriptions for 10,000,000 shares of common
stock were issued at $.001 per share for $10,000. In July 1999, the
Board of Directors authorized a 1 for 10 reverse stock split. This
decreased the number of issued and outstanding shares to 1,000,000
and increased the par value of the stock to $0.01 per share. All
financial statement information herein has been changed to reflect
this stock split.
Additional share issuances under Regulation D, Rule 504, include
1,400,000 common shares at $.01 and 315,000 common shares at $0.50
per share, for total proceeds of $171,500.
At June 30, 1999, $10,000 in stock subscriptions was receivable.
During the year ended June 30, 2000, the subscriptions receivable
were satisfied.
NOTE 7 - STOCK OPTIONS
In September 1998, the Company adopted the Reward Enterprises, Inc.
1999 Directors and Officers Stock Option Plan, a non-qualified plan.
This plan allows the Company to distribute up to 2,000,000 shares of
common stock to officers, directors, employees and consultants
through the authorization of the Company's board of directors.
During 1999, under Rule 701, the Company issued 2,500,000 common
stock options for the services of consultants. The options issued
include negotiation rights and begin vesting in June 1999, with 25%
of the eligible shares vesting each year until the recipients are
fully vested in their shares. The Company entered into consulting
agreements with three directors of the Company. Two of the directors
will each receive $5,000 per month and 500,000 common stock options
exercisable at $0.10 per share and 500,000 common stock options
exercisable at $0.25 per share. The other director will receive
$2,500 per month and 250,000 common stock options exercisable at $.10
per share and 250,000 common stock options exercisable at $0.25 per
share. All options related to these agreements expire June 30, 2010.
At June 30, 2000, $150,000 has been accrued and recorded as
consulting fees.
F-9
<PAGE> 29
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 7 - STOCK OPTIONS (continued)
The fair value of each option granted is estimated on the grant date
using the Black-Scholes Option Price Calculation. The following
assumptions were made in estimating fair value: Risk-free interest
rate of 5% and expected life of ten years. A minimum volatility of
0.5 was used and resulted in no adjustment to compensation.
Following is a summary of the stock options:
Weighted
Number Average
Of Exercise
Shares Price
Outstanding at 6-30-98 - -
============= ===========
Granted 1,250,000 $ 0.10
Granted 1,250,000 $ 0.25
Exercised - $ -
Forfeited - $ -
------------- -----------
Outstanding at 6-30-99 2,500,000 $ 0.18
Options exercisable at 6-30-99 625,000 $ 0.18
============= ===========
Outstanding at 6-30-2000 2,500,000
Granted -
Exercised -
Forfeited -
-------------
Outstanding 2,500,000
Options exercisable at 6-30-2000 1,250,000
=============
Weighted average fair value of
options granted at 6-30-2000 $0.18
=============
NOTE 8 - RELATED PARTIES
Certain consultants who received common stock options under the
Company's non-qualified stock option plan are the Company's directors
and stockholders. (See Note 6). An associate of a director of the
Company provides office space to the Company at no charge. The value
of this space is not considered significant. The Company also
received funds from a related party. See Note 10.
F-10
<PAGE> 30
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30,2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Database Development
The Company's purchase commitment for services to develop a website
totaled $10,000, of which $5,000 was paid in 1999. As of June 30,
2000, the Company considered that the majority of the services
contracted for were payable and accrued the balance owing of $5,000
as part of accounts payable.
Software License Agreement
The Company's purchase commitment for a software license agreement
totaled $50,000 of which $20,000 was paid in 1999. As of June 30,
2000, the Company considered the contract payable and accrued the
balance of $30,000 as part of accounts payable.
As further consideration for the rights granted under the software
license, the licensee, Reward Enterprises, Inc., will pay a royalty
calculated at 30% of gross revenue until aggregate royalty payments
of $100,000 have been paid. After the $100,000 has been paid, the
royalty rate will be reduced to 20% of gross revenue until an
aggregate $1,000,000 has been paid and, thereafter, royalty payments
will be 15% of gross revenue for the balance of the term of the
agreement. The term of the agreement is two years commencing June
15, 1999 with an option to renew for another two years. Royalty
payments begin at the end of the first month after the Company is no
longer considered to be in the development stage.
NOTE 10 - LOANS PAYABLE
The Company received funds from related parties in the form of loans.
These are recorded as unsecured, non-interest bearing, short-term
loans, payable upon demand.
NOTE 11 - CONCENTRATIONS
The Company maintains two checking accounts at a financial institution
located in Delta, British Columbia, Canada. One checking account is
maintained in U.S. dollars, and the second in Canadian dollars. The
combined total of both accounts, as translated to U.S. dollars, was
$26,261 as of June 30, 2000. The U.S. currency account is not insured.
NOTE 12 - TRANSLATION OF FOREIGN CURRENCY
The Company has adopted Financial Accounting Standard No. 52. Foreign
currency translation resulted in an aggregate exchange loss of $186 for
the period ended June 30, 2000. The Company recorded this transaction
in the Statement of Stockholders' Equity.
F-11
<PAGE> 31
REWARD ENTERPRISES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30,2000
NOTE 13 - YEAR 2000
Like other companies, Reward Enterprises, Inc. may be adversely
affected if the computer systems it, its suppliers or customers use
do not properly process and calculate date-related information and
data from the period surrounding and including January 1, 2000. This
is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and
devices such as production equipment, elevators, etc. At this time,
because of the complexities involved in the issue, management cannot
provide assurances that the Year 2000 issue will not have an impact
on the Company's operations.
The Company has reviewed its business and processing systems and
believes that the majority of its systems are already Year 2000
compliant or can be made so with software updates. Based on
preliminary assessments, the Company regards the costs associated
with Year 2000 readiness to be immaterial. Costs for Year 2000
compliance are expensed as incurred.
F-12
<PAGE> 32
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Each of our directors is elected by the stockholders to a term of
one (1) year and serves until his or her successor is elected and
qualified. Each of our officers is elected by the board of directors to
a term of one (1) year and serves until his or her successor is duly
elected and qualified, or until he or she is removed from office. The
board of directors has no nominating, auditing or compensation
committees.
The officers and directors of the Company are as follows:
Name Age Position
Gerald Williams 50 President and Director
Brian Doutaz 53 Secretary and Director
Robert Dinning 53 Treasurer and Director
Each director serves for a term of one year and the directors are
elected at the annual meeting of shareholders. The Company's officers
are appointed by the Board of Directors and hold office at the
discretion of the Board.
Gerald Williams - President and member of the Board of Directors.
Since March, 1999, Mr. Williams has been the President and a
member of the Board of Directors of the Company. Since 1980, Mr.
Williams has been the President of Sylco Investments Ltd., located in
Surrey, British Columbia which is engaged in the business of providing
management consulting services and raising venture capital for start-up
and developing businesses.
Brian Doutaz - Secretary and a member of the Board of Directors.
Since May 1999, Mr. Doutaz has been Secretary and a member of the
Board of Directors of the Company. Since April 1993, Mr. Doutaz has
been President of Anina Capital Corp., located in Richmond, British
Columbia which is engaged in the business of providing consulting
services to start-up and development stage corporations.
<PAGE> 33
Robert Dinning - Treasurer and member of the Board of Directors.
Since July 1998, Mr. Dinning has been Treasurer and a member of
the Board of Directors of the Company. Since April 5, 1996, Mr.
Dinning has been Chief Financial Officer and Secretary of First
American Scientific Corp., a Nevada Corporation. Since 1977, Mr.
Dinning has been a business consultant providing management and
financial advice to a wide range of clients, including those engaged in
mining and forestry, and the hospitality and leisure industry. Prior
to 1977, Mr. Dinning was Vice President of Finance and Secretary of
Western Broadcasting Ltd., one of the largest public broadcasting
companies of Canada. Mr. Dinning is a Chartered Accountant.
All of our officers and directors are engaged in other business.
As such, they will not be devoting time exclusively to our operations.
Our officers and directors intend to devote approximately 80% of their
time to the operation of our business.
None of the individuals listed above are subject to any
anticipated or threatened legal proceedings of a material nature.
We have not held an annual meeting of shareholders since
inception.
Section 16(a) Beneficial Ownership Reporting Compliance
Federal securities laws require the Company's directors and
executive officers and persons who own more than 10% of the Company's
common stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of any
securities of the Company.
To the Company's knowledge all of the Company's directors,
executive officers, and greater-than-10% beneficial owners made all
required filings on a timely basis for the fiscal year ended June 30,
2000.
ITEM 10. Executive Compensation
Summary Compensation.
The following table sets forth the compensation paid by the
Company from inception through June 30, 2000, for each officer and
director of the Company. This information includes the dollar value of
base salaries, bonus awards and number of stock options granted, and
certain other compensation, if any.
<PAGE> 34
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Securities
Names Other Under Restricted Other
Executive Annual Options/ Shares or Annual
Officer and Compen- SARs Restricted LTIP[2] Compen-
Principal Year Salary Bonus sation Granted Share Payouts sation
Position Ended (US$) (US$) (US$) (#) Units (US$) (US$) (US$)[1]
Gerald 2000 0 0 0 0[2] 0 0 60,000
Williams 1999 0 0 0 0 0 0 0
President 1998 0 0 0 0 0 0 0
Brian 2000 0 0 0 0[3] 0 0 30,000
Doutaz 1999 0 0 0 0 0 0 0
Secretary 1998 0 0 0 0 0 0 0
Robert 2000 0 0 0 0 0 0 0
Dinning 1999 0 0 0 0 0 0 0
Treasurer 1998 0 0 0 0 0 0 0
[1] These figures represent compensation paid to Mr. Williams and Mr.
Doutaz pursuant to Consulting Agreements between the Company and
said individuals dated March 15, 1999 and May 1, 1999
respectively. For more information on the consultant compensation
paid by the Company to Mr. Williams and. Doutaz for the fiscal
year ended June 30, 2000, please see Item 7 of the Financial
Statements attached as an exhibit to the Company's Form 10-KSB for
fiscal year ended June 30 2000, as filed on October 06, 2000.
[2] Does not include Mr. Williams' (i) options to acquire 500,000
shares of common stock at $0.10 per share and (ii) options to
acquire 500,000 shares of common stock at $0.25 per share. These
options were granted pursuant to a consulting agreement between
the Company and Mr. Williams dated March 15, 1999. These options
expire on the earlier of March 15, 2009; thirty days after the
termination (except for death or disability) of Mr. Williams as a
consultant to the company; or, one year after termination due to
death or disability.
[3] Does not include Mr. Doutaz's (i) options to acquire 250,000
shares of common stock at $0.10 per share and (ii) options to
acquire 250,000 shares of common stock at $0.25 per share. These
options were granted pursuant to a consulting agreement between
the Company and Mr. Doutaz dated May 1, 1999. These options expire
on the earlier of May 1, 2009; thirty days after the termination
(except for death or disability) of Mr. Doutaz as a consultant to
the company; or one year after termination due to death or
disability.
The Company anticipates paying the following salaries in 2000,
subject to the Company beginning profitable operations and generating
sufficient revenues to pay the same:
Gerald Williams President 2001 $60,000
Brian Doutaz Secretary 2001 $30,000
<PAGE> 35
The Company has adopted a non-qualified incentive stock option
plan, however, no options have granted as of the date hereof. There
are no other stock option plans, retirement, pension, or profit sharing
plans for the benefit of the Company's officers and directors other
than as described herein.
Option/SAR Grants.
The following grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs") and freestanding SARs have been
made to officers and/or directors:
Number of
Securities
Number of Underlying
Securities Options/SARs
Underlying Granted Exercise Number of
Options During Last or Base Options Expiration
Name SARs Granted 12 Months[1] Price ($/Sh) Exercised Date
Gerald Williams 500,000 500,000 $0.10 -0- 04/30/2004
500,000 500,000 $0.25 -0- 04/30/2004
Brian Doutaz 250,000 250,000 $0.10 -0- 04/30/2004
250,000 250,000 $0.25 -0- 04/30/2004
Long-Term Incentive Plan Awards.
The Company does not have any long-term incentive plans that
provide compensation intended to serve as incentive for performance.
Compensation of Directors.
Directors do not receive any compensation for serving as members
of the Board of Directors. The Board has not implemented a plan to
award options to any Directors. There are no contractual arrangements
with any member of the Board of Directors other than Messrs. Williams
and Doutaz.
Stock Option Plan
In 1998 and 1999, the Board of Directors of the Company approved
the 1998 and 1999 Stock Option Plan respectively (the "Plans"). The
Plans provide for the grant of incentive and non-qualified options to
purchase up to 2,000,000 shares of common stock to officers, directors,
employees, and other qualified persons that may be selected by the Plan
Administrator (which currently is the Board of Directors). The Plan is
intended to help attract and retain key Company employees and any other
persons that may be selected by the Plan Administrator and to give
those persons an equity incentive to achieve the objectives of the
Company's shareholders.
Incentive stock options may be granted to any individual who, at
the time of grant, is an employee of the Company or any related
corporation. Non-qualified stock options may be granted to employees
and to any other persons that may be selected by the Plan
Administrator. The Plan Administrator fixes the exercise price for
<PAGE> 36
options in the exercise of its sole discretion, subject to certain
minimum exercise prices in the case of incentive stock options. Options
will not be exercisable until they vest according to a vesting schedule
specified by the Plan Administrator at the time of grant of the option.
Options are non-transferable except by will or the laws of descent
and distribution. With certain exceptions, vested but unexercised
options terminate on the earlier of: (i) the expiration of the option
term specified by the Plan Administrator at the date of grant
(generally 10 years; or, with respect to incentive stock options
granted to greater-than 10% shareholders, a maximum of five years);
(ii) the date of an employee optionee's termination of employment or
contractual relationship with the Company or any related corporation
for cause; (iii) the expiration of three months from the date of an
optionee's termination of employment or contractual relationship with
the Company or any related corporation for any reason, other than
cause, death or disability; or (iv) the expiration of one year from the
date of death of an optionee or cessation of an optionee's employment
or contractual relationship by death or disability. Unless accelerated
in accordance with the Plan, unvested options terminate immediately on
termination of employment of the optionee by the Company for any reason
whatsoever, including death or disability.
Report of the Board of Directors on Executive Compensation
During 1999, the Board of Directors was responsible for
establishing compensation policy and administering the compensation
programs of the Company's executive officers.
The amount of compensation paid by the Company to each of its
directors and officers and the terms of those persons' employment is
determined solely by the Board of Directors, except as otherwise noted
below. The Company believes that the compensation paid to its directors
and officers is fair to the Company.
In the past, Gerald W. Williams has negotiated all executive
salaries on behalf Of the Company. The Board of Directors believes that
the use of direct stock awards is at times appropriate for employees,
and in the future intends to use direct stock awards to reward
outstanding service to the Company or to attract and retain individuals
with exceptional talent and credentials. The use of stock options and
other awards is intended to strengthen the alignment of interests of
executive officers and other key employees with those of the Company's
stockholders.
Compensation of Chief Executive Officer
Gerald W. Williams receives compensation as a consultant for his
services as the Company's President and Chief Executive Officer under
a consulting agreement between the Company and Mr. Williams dated March
15, 1999.
<PAGE> 37
Mr. Williams received two options to acquire an aggregate of
1,000,000 shares of the Company's common stock in the previous fiscal
year ended June 30, 1990. See "Summary Compensation Table - Footnote
2." For the fiscal year ending June 30, 2001, Mr. Williams will
continue to be entitled to receive options to purchase common stock of
the Company under the Company's 1998 and 1999 Stock Option Plans.
The Company does not intend to pay its directors compensation for
the fiscal year ended June 30, 2001. However, the Company may issue
stock options to directors and executive officers in the fiscal year
ending June 30, 2001.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the captions "Securities Ownership
of Certain Beneficial Owners" and "Securities Ownership of Management"
in the Proxy Statement to be filed with the Securities and Exchange
Commission on Schedule 14A on or before October 06, 2000 is
incorporated herein by reference.
The following table sets forth certain information concerning the
number of shares of Common Stock owned beneficially as of June 30,
2000 by: (i) each person known to the Company to own more than five
percent (5%) of any class of the voting securities; (ii) each of the
directors; and (iii) all of the directors and officers as a group.
Unless otherwise indicated, the shareholders listed possess sole
voting and investment power with respect to the shares shown.
------------------------------------------------------------------------------
TITLE OF NAME AND ADDRESS OF AMOUNT AND PERCENT OF
CLASS BENEFICIAL OWNER NATURE OF CLASS[1]
BENEFICIAL
OWNER
------------------------------------------------------------------------------
Common Stock Gerald W. Williams, Director, President 1,000,000 36.83%
5728 125A Avenue, Surrey, B.C. V3X 3G8 [2][4] [2][4]
Canada
------------------------------------------------------------------------------
Common Stock Brian C. Doutaz, Director, Secretary 500,000 18.42%
35-12880 Railway Ave, Richmond, B.C. [3][4] [3][4]
V7E 1V7
------------------------------------------------------------------------------
Common Stock Frank J. Rigney +5% shareholder 1,590,000 58.56%
356 Taylor Way, West Vancouver, B.C. [2][4] [2][4]
V6E 4K2
------------------------------------------------------------------------------
Common Stock Robert G. Dinning, Director, Treasurer 0 0.00%
12 1900 Indian River Crescent,
North Vancouver, B.C.
------------------------------------------------------------------------------
Common Stock Kimberley Cooper +5% shareholder 300,000 11.05%
16580 78A Avenue Surrey, B.C.
V3S 7V3
------------------------------------------------------------------------------
Common Stock Ridgeback developments Ltd. +5% shareholder 400,000 14.73%
2 Church Street, Hamilton, Bermuda
HM DX
------------------------------------------------------------------------------
Common Stock Ian Jackson +5% shareholder 200,000 7.37%
9 15151 Buena Vista Avenue,
White Rock, B.C. V4B 1Y2
------------------------------------------------------------------------------
Common Stock All directors and officers as a group 1,500,000 57.25%
[5] [1][5]
------------------------------------------------------------------------------
<PAGE> 38
[1] Based on an aggregate 2,715,000 shares outstanding as of March 31,
2000.
[2] Includes (i) options to acquire 500,000 shares of our common stock
at $0.10 per share and (ii) options to acquire 500,000 shares of
our common stock at $0.25 per share, which are currently
exercisable.
[3] Includes (i) options to acquire 250,000 shares of our common stock
at $0.10 per share and (ii) options to acquire 250,000 shares of
our common stock at $0.25 per share, which are immediately
exercisable.
[4] Consists of shares that may be acquired within sixty days of
October 06, 2000 by exercise of incentive stock options that are
vested.
[5] Consists of (1) the 1,500,000 shares that may be acquired within
sixty days of October 06 2000 by exercise of incentive stock
options that are vested by Mr. Williams and Mr. Doutaz.
The Company may issue additional options to the Directors and
Executive Officers in the fiscal year ending June 30, 2001.
However, the Company is not aware of any arrangement, which might
result in a change in control in the future.
ITEM 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships
and Related Transactions between Management and the Company" in the
Proxy Statement to be filed with the Securities and Exchange Commission
on Schedule 14A on or before October 06, 2000 is incorporated herein by
reference.
During the year ended June 30, 2000, the following related party
transactions occurred:
Gerald W. Williams and $30,000 in consulting fees to Brian C.
Doutaz.
During 1999, the Company paid only those salaries and other
compensation to its Named Executive Officers as set forth under the
heading "Executive Compensation."
ITEM 13 - Exhibits and Reports
Exhibits Index to Exhibits
The following documents are incorporated herein by reference
from the Company's Form 10SB Registration Statement, SEC file
#000-27259, as filed with the Securities and Exchange Commission:
<PAGE> 39
Exhibit
Number Description
3.1 Articles of Incorporation.
3.2 Amendment to Articles of Incorporation.
3.3 Bylaws.
4.1 Specimen Stock Certificate.
10.1 Contract with Chartwell Technology Inc.
99.1 Consulting Agreement - Gerald W. Williams.
99.2 Consulting Agreement - Brian C. Doutaz.
99.3 Consulting Agreement - Frank J. Rigney.
99.4 Stock Option Plan.
The following documents are incorporated herein:
27.2 Financial Data Schedule
99.5 1999 Stock Option Plan.
(b) Reports on Form 8-K
None.
<PAGE> 40
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.
Date: October 11, 2000
/s/ Gerald W. Williams
Gerald W. Williams, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Gerald W. Williams
Gerald W. Williams President and Director October 11, 2000
(Principal Executive Officer)
/s/ Brian C. Doutaz
Brian C. Doutaz Director and Secretary October 11, 2000
/s/ Robert Dinning
Robert Dinning Director and Treasurer October 11, 2000
