UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
MIAD Systems Ltd.
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(Name of Small Business Issuer in its charter)
Canada N/A
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
43 Riviera Drive, Unit 7, Markham, Ontario, Canada L3R 5J6
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number:
(905) 479 - 0214
Securities to be registered pursuant to Section 12 (b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Our company, MIAD Systems Ltd., is a Canadian company. We were formed
in March 1993 and began operating our business at that same time. Our management
has been the same since we began business. We are located in the Toronto,
Ontario, Canada area and we are an established full-line supplier of business
computer systems, maintenance, installation and networking services. We provide
these goods and services to our major clients who are primarily engaged in the
corporate, institutional and education fields.
(b) Business of the Issuer
Principal Products and Services and their Markets.
The corporate, institutional and educational computer users of today
purchase computer systems for specific tasks. These systems require adaptive
memory, storage, speed, multi-media capabilities and other features to conduct
their business.
Our goal is to provide technology, leadership, superior products,
services and support to our clients, thereby building long-term business
relationships. To meet our clients' requirements for business workstations and
servers, we have uniquely distinguished ourselves, by our "just-in-time"
purchasing and "build-to-order" model of private labeled personal computers.
This includes the MIAD ULTRA(R) line (the "MIAD ULTRA(R) "), currently
trademarked only in Canada, which provides our clients with rapid delivery,
custom configuration, cost savings and enhanced quality control. Our ability to
rapidly deliver the MIAD ULTRA(R) family of systems allows us to keep our
inventory levels at a minimum while still being able to deliver the systems
exactly to the customers' specifications with a delivery time, including the
three days or less required for us to perform an automated test of all systems
for reliability and stability which is referred to as "burn-in".
The "build-to-order" concept, was originated in the United States by
Dell and Gateway. Our concept of "build-to-order" provides:
o Increased reliability and quality
o Flexibility of configuration
o Reduced risk of price erosion
o Ability to respond quickly to technological change
o Consistent components which is mandatory to satisfy the creation of
an exact image of the PC's disk drive for creating completely
identical installations ("ghosting") and software rebuild
requirements of educational and other clients
o Reduced delivery cycle.
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For our MIAD ULTRA(R) line, we are authorized by IBM to use IBM's
licensed patents for personal computers and servers. Our custom manufacturing
approach allows us full flexibility of configuration, increased reliability and
quality control coupled with short delivery cycles.
For clients who require high-end servers, we have partnered with, and
we are an authorized reseller of, Compaq, Toshiba, Hewlett Packard and IBM,
which are some of the most respected names in the industry.
In order to provide a total technology solution for our clients, we
complement our computer assembly and distribution business with value-added
services and support, including in-house and on-site warranty and maintenance
repair, networking, installation and support. We service the MIAD ULTRA(R)
family of systems and we are an authorized Compaq Service Center. We expect to
be an authorized IBM Service Center on or about July 31, 2000. We have designed
and installed networks of 200 or more workstations, including multiple servers
and software. We also provide support and a maintenance exchange program for
7000 printers installed in 1400 branches throughout Canada for one of Canada's
largest national banks.
We have many well-recognized companies as our clients. These clients
include Yamaha Motor Company of Canada, Lexmark Canada, Magna International,
Royal Bank of Canada, and Estee Lauder Cosmetics Canada Ltd. as well as clients
in the educational market in Canada. These clients include private schools and
community colleges in Ontario: Upper Canada College, Sterling Hall School,
Bishop Strachan School, Lambton College and Durham College among others.
(c) Industry and Market Overview
In 1999, the United Nations ranked Canada as the best place to live.
The 2000 IDC/World Times Information Society Index (ISI) shows that Canada has a
more balanced approach between social and technology aspects as it develops a
digital economy than the UK, Germany and France. The International Monetary Fund
(IMF) forecasts the growth of Canada's economy at 4.2% for 2000 compared to 2.8%
for the G- 7 countries, comprised of the United States, Canada, United Kingdom,
France, Italy, Germany and Japan, and a growth of 3.7% in the year 2001 compared
to 3.3% for the G-7 countries. While the Canadian Gross Domestic Product (GDP)
increased at a 4.1% rate, the IT industry contributed to 17.8% of the GDP growth
in 1999. The US Department of Commerce states that the US and Canada rank the
highest in the world with 37% of their respective populations having access to
the digital economy via the Internet.
The Canadian Information Technology ("IT") industry is key to the
economic health of Canada, enabling business to be more efficient and effective
and helping consumers reap the benefits of the on-going advances in
communications and computing. No other force has, in recent years, influenced
the future of Canada's economy as information technology. The "enabling effect"
of IT and the value of the IT industry as a
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job provider, wealth creator and export generator has woven technology into the
life of every Canadian organization and individual. Canadian IT revenue
continues to grow at 6% per annum and employment at 10% per annum. Canada, in
general, is one of the world leaders in technology development and technology
implementation as reported in Industry Canada, a report published by the
Government of Canada, Department of Industry.
The Canadian IT industry is a very significant factor in the Canadian
economy. The Canadian IT industry for 1999. as reported by the Government of
Canada, represents:
o 2,000 firms
o 500,000 jobs
o $100 billion in revenue
o 42% of total Canadian private sector research and development
o 9% of total exports
o 6% of total GDP
We act as a solutions partner for our clients by working with them to
analyze and then provide to them, either directly or through our associates, the
goods and services that they need to compete effectively in the marketplace. Our
clients require that as their solutions partner we understand their business,
their marketplace and what drives their decisions. As a solutions provider, we
relate to our client's business requirements, understand technology and
recommend solutions best suited to their needs. Our team members are proven
professionals with extensive industry and technology knowledge and expertise.
Additionally, we partner with selected premier computer companies to provide the
best solutions for our clients.
We have successfully implemented our "just-in-time" purchasing and
"build-to- order" model for our private label MIAD ULTRA(R) line of business
computers. This concept is based on the successful model originated by Dell and
Gateway in the United States.
Recent research from International Data Corp. (www.idc.com) confirms
the U.S. opportunity and success of the "build-to-order" model as indicated by
the fourth quarter of 1999 shipments of personal computers ("PC's") by vendor:
Rank Vendor Market Share by %
---- ------ -----------------
1 Dell 18.1
2 Compaq 15.9
3 Gateway 9.2
4 HP 8.4
5 IBM 7.8
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We believe that the significant market penetration by Dell and Gateway
in the U.S. is an indicator of the future market potential for our
"build-to-order" model in Canada. In order to become the full-line supplier of
quality business solutions for our clients, we have added, to our
"build-to-order" model, the qualifications for:
o partnering and authorized reselling of Compaq, Hewlett-Packard,
Toshiba and IBM systems for clients who require higher-end servers
o networking design and installation
o national warranty exchange program
o on-site warranty and maintenance repair for the MIAD ULTRA(R) line,
but as an authorized Compaq Service Center and will be an authorized
IBM Service Center.
We expect that our growth will be generated by additional sales to
existing and new clients in the normal course of our business and acquisitions
of companies in the our same industry. This type of growth is frequently
referred to as "organic growth". We expect our organic growth to be accomplished
in two ways:
1) continued top-level service to existing clients in order to be
uniquely positioned for their on-going systems and services
acquisitions.
2) intensify penetration in the specific market segments where we
already have a presence which include:
o educational
o POS for food and hospitality industry
o hospital
o major corporate
o mid-size accounting firms
o mutual fund industry
We intend to continue to build our presence as a full-line supplier of
IT solutions in Canada. In doing so, we expect to focus on several priorities:
1) growing revenue from the existing customer base;
2) enlarging our customer base in Ontario;
3) develop an implementation plan to expand our presence in other
Canadian cities and possibly the U.S. market;
4) increase the number of sales personnel;
5) continue to enhance the quality of our technology operations;
6) develop additional partnerships in the high-end data
communications marketplace;
7) bolster our financial resources.
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(d) "Build-to-Order" Model
We have uniquely distinguished ourselves, with our "just-in-time"
purchasing and "build-to-order" model of private label personal computers: the
MIAD ULTRA(R) line to satisfy the custom requirements of the client base. For
our MIAD ULTRA(R) line, we are authorized by IBM to use IBM's licensed patents
for personal computers and servers.
Our custom manufacturing approach allows full flexibility of
configuration, increased reliability and quality control coupled with short
delivery cycles. Our MIAD ULTRA(R) line represents 45% of our revenues which is
a significant portion of our total revenues.
Our ability to rapidly deliver a MIAD ULTRA(R) custom system allows us
to keep inventory levels at a minimum while still being able to deliver the
systems exactly to the customers specifications with a delivery time, including
"burn-in" of three days or less. Our technical and manufacturing expertise
permits us to give our customers better service, not only on our own products
but those of our authorized partners.
The major steps involved in the "build-to-order" process include:
a) Customization
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The assembly process begins with an order for a customized PC.
A technician performs a technical review of the request, making sure
all critical information is available, including component availability
and a proper instruction set for the technician to build the system.
b) Logistics
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The next step focuses on the logistics necessary to make the
process run smoothly.
c) Unpacking
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After all the parts of a system have arrived from suppliers,
they must be unboxed and prepared for the technician building the
system.
d) Assembly and System Check
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The technician assembles the product, using the specific
instruction code shown on a monitor. Hardware components are installed
first, followed by the operating system. A quality check of the system
follows to ensure other equipment manufacturer (OEM) specifications.
The system is then fitted with any additional hardware or software the
customer wanted that is not covered by the manufacturer. A final
quality check is performed for the whole product.
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e) Final Check
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All systems must pass a strict quality-check and "burn-in"
procedure before being shipped.
f) Packaging
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When the technicians complete the assembly and testing process
and the system passed inspection it leaves the customization area and
is packed in its original packaging.
g) Shipment
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The assembled systems are weighed and prepared for shipment.
The "build-to-order" model for our MIAD ULTRA(R) line of systems
provides extensive advantages to clients in cost savings, quality control,
flexible configuration and fast response to industry trends. The main features
of the model include:
o Reduction of Delivery Cycle
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By its nature, our manufacturing approach permits
flexibility of customization combined with very short delivery
cycles. We are able to customize systems to clients' needs with our
"just-in-time" purchasing and "build-to-order" approach.
o Cost Savings
------------
Working with suppliers to provide "just-in-time" delivery of
components reduces overhead costs of warehousing large quantities of
components. This overhead cost reduction is enhanced by fast
inventory turnover. Costs are further reduced by having the ability
to quickly respond to industry trends, thus avoiding obsolete
inventory as technologies change. These cost reductions are reflected
in our pricing to our clients.
o Ability to Manage Technology Change
-----------------------------------
Purchasing components, on an "as needed" basis allows us to
better react to the constant change in technology and price.
o Increased Reliability and Quality
---------------------------------
Quality control of our MIAD ULTRA(R) line is one of the
major reasons that users select the system. After assembling the
client's unique configuration, we subject the system to extensive
"burn-in" and system testing. Since most failures occur in the first
24- 48 hours of use, this testing attempts to make the system fail
before shipping to the client. This leads to better service and fewer
repairs.
o Better Serviceability
---------------------
We choose our components with great care. After-sale
serviceability is taken into account and given great weight. This
concern facilitates not
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only warranty repair but also provides for better customer support
which contributes to customer satisfaction and repeat business.
We strive for quality and consistency in our MIAD ULTRA(R) line of
computers. We use only name brand quality components. As part of our quality
control program, we work in concert with our suppliers to provide consistency of
components. Whether a client orders ten systems or 300 systems, components will
be the same. Clients that require "ghosting" and software rebuild for groups of
users can be assured of this functionality with our insistence on consistency
and quality of components.
(f) Reselling
We are an established full-line supplier of computer systems,
maintenance, installation and networking services which we provide to our major
clients in the corporate, institutional and education fields.
For workstations and other servers, we have distinguished ourselves by
our "build-to-order" model, which is the MIAD ULTRA(R) line systems This system
provides our clients with rapid delivery, custom configuration, cost savings and
enhanced quality control. However, for clients who require high-end servers, we
have partnered with, and we are an authorized reseller of, Compaq, Toshiba,
Hewlett Packard, IBM, Microsoft and other well-recognized brands.
In order to provide the full range of technology solutions to our
clients, we complement our computer assembly and distribution with the necessary
value-added services and support. We provide depot and on-site maintenance for
the MIAD ULTRA(R) line of workstations and we are an authorized Compaq Service
Center and expect to be an authorized IBM Service Center in the near future.
Our current authorizations include:
o Compaq- we are an authorized dealer, public sector dealer,
education dealer and service center.
o IBM- we are an authorized dealer, public sector dealer and
expect to be a service center on or about July 31, 2000.
o Toshiba- we are an authorized dealer, public sector dealer and
education dealer
o Hewlett-Packard- we are an authorized dealer, and public
sector dealer
o Microsoft- we are authorized for all software in addition to
being OEM certified.
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In addition, we have arrangements with the major distributors in Canada
to acquire the products that we then resell. Our acquisition of products from
companies such as Ingram-Micro, Globelle, Tech Data and Merisel is based on
availability, pricing and service.
(g) Services and Support
In order to provide technology solutions for our clients, we complement
our computer assembly and distribution with value-added services and support,
including in-house and/or on-site warranty and maintenance repair, networking,
installation and support.
Networking Services
-------------------
As a provider of IT solutions, we have the personnel, expertise,
experience and partners to provide turn-key network solutions, from peer-to-peer
networks to 200+ station Novell or Microsoft NT networks. We provide network
design and consultation, facility cabling, project management, network
implementation and support. We work with our clients to provide solutions that
not only meet their current requirements, but will allow integration of future
growth and technology.
Service and Support (MIAD ULTRA (R) Systems)
--------------------------------------------
In addition to manufacturing systems, we complement our computer
assembly and distribution with value-added services and support, including
in-house and/or on- site warranty repair, installation, support and maintenance
for the MIAD ULTRA(R) line of systems delivered to clients.
Service and Support (Compaq)
----------------------------
Because of staff training and technical excellence, we have been
selected by Compaq as one of its few authorized Compaq Service Centers in
Ontario, Canada.
Service and Support (IBM)
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We expect to become an authorized IBM Service Center on or about July
31, 2000. Our technical staff are presently completing the process to put the
program in place.
Specialized Maintenance
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As a service and support focused organization, we also provide
specialized national service contracts. For one of Canada's largest national
banks, we support over 7000 printers installed in 1400 of its branches across
the country. This specialized service includes Canada-wide Toll-Free Technical
Support, integrated
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with a national unit exchange program for any unit that cannot be repaired over
the phone. This exchange program provides a pool of remanufactured units that
can be shipped via courier to any location in Canada the next business day. In
most cases, this provides a faster turnaround time than the more expensive
on-site service. With our program, a functional unit will be on the user's desk
the next day rather than waiting for an on-site technician to get a part that
he/she is not carrying with them. Our contract has been renewed in each of the
past three years.
Service Facilities
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Our service facility is 1100 square feet with a planned expansion to
approximately 1500 square feet on or about September 30, 2000. We have two-
production assembly and testing work areas with 120 square feet of working space
along with three service and repair workbenches with 130 square feet of area.
There is a customer receiving area adjoining the 1,800 square feet warehouse for
walk-in clients. The service workbenches are protected with grounded anti-static
matting. This area has access to e-mail and the Internet in order to facilitate
customer and manufacturer contact.
Technical Procedures
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We believe that on-going service and support is the basis for any
long-term partnership with clients. We have a permanent testing LAN set up for
product testing and problem recreation. This test-bed can be run under NT,
Novell or Windows 95/98.
All initial support calls to our 1-(800) toll-free number or local
phone lines are directed to the technical support team. We currently have
Certified Novell-Netware Engineer ("CNE") and Microsoft Certified Engineer
("MSCE") personnel who specialize in, have been trained by, and have passed
certification exams administered by Novell and Microsoft, along with technicians
who specialize in the manufacturing and support of our ULTRA(R) Series
computers. Calls are answered immediately or a technician will return a call
within 30 minutes. Problem escalation is directed to the service manager. we
provide telephone technical support, depot repair as well as on- site service.
From 8:00 a.m. to 6:00 p.m. with after hours and weekend service available upon
request. We are currently recruiting additional staff in order to provide seven
day a week support.
We use a customized service tracking program to track service calls.
With this tracking program, we track customer information, service issues,
problem resolution, parts usage and serial numbers. This information is then
transferred to our accounting system for invoicing. we are, however, evaluating
an upgrade to an integrated service package.
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We stock a wide complement of spare parts, and have established a
network of suppliers that enables us to provide replacement parts in most cases
within one business day.
(h) Marketing and Distribution
Our current client base is primarily focused in four market segments:
(1) Major corporate accounts:
-------------------------
Our major corporate accounts include Lexmark Canada Ltd., Thorn Press
Ltd., Estee Lauder Cosmetics Inc., O'Donnell Funds, Magna International,
Telerate/Dow Jones Canada, Yamaha Motor Company Canada, Trizec Hahn Corporation
and The Royal Bank of Canada.
(2) Institutional accounts:
-----------------------
We provide product support and service to acute care
facilities in the Toronto area such as Centenary Health Care, Rouge Valley
Health System and The Hanen Centre.
(3) Restaurant POS industry:
------------------------
We have supplied over 1,000 systems to a food industry
point-of-sale ("POS") software company. These specialized systems are currently
installed in more than 30 restaurant chains and individual restaurants located
primarily in the Province of Ontario with some installed in the Province of
Alberta.
(4) Educational:
------------
Our customer list includes many of the top private schools and
community colleges in Ontario including Upper Canada College, Durham College,
Lambton College, Bishop Strachan School and Sterling Hall School.
At this stage of our development, we are still a relatively
small player in the Canadian marketplace. However, we believe that we have the
structure and the strategic plan which we expect will allow us to become a
significant player in the Canadian IT systems and services business. We are not
yet measuring market share in either the corporate or institutional field. On
the POS side for the hospitality industry, our market share, with over 1,000
installations, is still in the single digit range. We have made significant
strides in penetrating the Ontario private school and community college markets.
Although we have secured many of the top name institutions as our clients, our
market share is also still in the single digit range.
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Our current customers will continue to receive top quality
coverage, service and support. We believe that this will place us in an
advantageous position to work closely with our clients in planning and executing
future system acquisitions. We plan to use our existing base of satisfied users
in our clients' organizations as referrals to locate other departments/user
groups for additional sales.
Our search for new clients will mainly focus on intensifying our
penetration in the specific market segments where we already have a presence.
These include:
o Educational
o Institutional
o Major Corporate
o POS system supply.
o Corporate expansion
o Mutual Fund Industry
o Midsize accounting firms
In furtherance of our marketing plan we have:
o integrated the sales talent and contacts of the former
president of Clove Computers into our company organization,
o hired two additional sales representative to provide
additional territory coverage,
o initiated a web presence,
We further intend during the current fiscal year to:
o add sales representatives to the southwestern Ontario
territory,
o focus prospect exposure on our service including IBM warranty
service,
o refine or improve our electronic presence with emphasis on
small and medium business and IBM warranty services,
o consider expansion beyond the boundaries of Ontario and
Canada.
(i) Competitive Business Conditions
Our "build-to-order" line of computers competes against what are
considered the tier 1 and tier 2 computer manufacturers/suppliers (IBM, Compaq,
Dell, Fujitsu,
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Patriot, Supercom, etc.). These competitors are much larger and better
capitalized than we are. We believe, however, that our reputation for delivery,
quality of product, pricing and after-sale support and service differentiates us
from our competitors. This is the marketing advantage we have and have
emphasized this in sales situations.
When our role is reselling, high-end name-brand services (such as IBM
and Compaq), to clients and potential clients, we find ourselves competing with
companies such as EDS/Systemshouse, Quiet Touch Computers, GE Capital Corp.,
Microage, Compugen, etc. We emphasize our service and after-sale support in
competitive sales situations and believe that our marketing strategy will allow
us to win a larger percentage of competitive opportunities.
We generally find that we are competing against much larger firms in
the industry. However, we continue to grow in revenue and reputation based on
the quality of our products, sales and after-sales service.
(j) Sources of Supply
For our "build-to-order" MIAD ULTRA(R) line of business computers, we
purchase name brand quality products from manufacturers such as Intel, Quantum,
ATI, Seagate, Maxtor, Panasonic, Acer, LG Electronics, Fujitsu, and others. Our
purchase of these components is based on price, service and availability from
among a number of distributors based in the Toronto area. These distributors
include Merisel Canada, Supercom, Scan Tech, Bell Micro Products, Ingram Canada,
GB Micro, Tech Data Canada.
When we supply high end servers from IBM, Microsoft, Hewlett-Packard,
Compaq and others, we also acquire the products based on prices, service and
availability primarily from the larger international distributors in the Toronto
area (Merisel Canada, Ingram Canada, Tech Data Canada, etc.). We have no
difficulty in sourcing the required products and components to satisfy our
clients' requirements.
Shortages of supply typically are not company specific but rather
industry- wide and are generally caused by natural disasters such as the
earthquakes in Taiwan last year that affected chip production on a worldwide
basis.
(k) Dependence on Major Customers
Our current customer-base is well diversified and spans multiple
industry groups:
o major corporate [Canada's top 5OO companies as listed in "Report
on Business" magazine ("ROB 500")]
o institutional
o mutual fund
o hospitality industry and POS
o educational
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With a focus on specific industries, we have grown our client-base by
concentrating on penetration of each of the specific industry groups. No single
client represents 10% or more of our revenue.
(l) Intellectual Property
In our reselling arrangements, we supply products from the major
companies in the industry such as IBM, Microsoft, Hewlett-Packard and Compaq. We
do not have any patents but rely upon licenses from the companies whose products
we purchase. For our MIAD ULTRA(R) line of "build-to-order" business computers,
we are authorized by a non-exclusive license agreement with IBM to use IBM's
licensed patents for personal computers and servers. We pay IBM an annual fee
and a surcharge for each MIAD ULTRA(R) system we build. This license agreement
terminates on December 31, 2000 which we expect to renew.
The name of our "build-to-order" business computer, the MIAD ULTRA(R),
has now been trademarked in Canada. There are currently no plans to trademark
the MIAD ULTRA(R) line in the United States although we may decide to do so at a
later date.
(m) Government Approval Regulation and Environmental Compliance
In Canada, computer systems and computer components must be CSA
(Canadian Standards Association ) certified. This certification is virtually the
same as the Underwriters Laboratories (UL) certification in the United States.
We only purchase systems and components that are CSA certified.
We are subject to Canadian provincial and federal laws governing our
relationship with employees, including minimum wage requirements, overtime,
working and safety conditions requirements. We presently are not the subject of
any governmental proceeding and we are currently in compliance with provincial
and federal regulations in Canada.
(n) Research and Development
We do not perform research and development ("R & D") in the traditional
sense. Rather, our R&D activities are primarily focused on
researching/evaluating/sourcing, and quality improvements for the products that
we integrate into our MIAD ULTRA(R) "build-to-order" business computer systems.
This R&D activity is conducted in the technical lab on our premises. Via the
Internet and other sources worldwide, we are also researching the availability
of new peripheral products such as specialized cases (small size to reduce the
amount of needed space, etc.) as well as new products in colors and sizes
preferred by certain industries (black cases, monitors and peripherals for the
hospitality industry).
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(o) Employees and Facilities
As of the date of this filing, we employ 13 persons (of which 10 are
full-time employees). None of our employees are covered by a collective
bargaining agreement. We believe that our employee relations are satisfactory.
REPORTS TO SECURITY HOLDERS
Prior to this filing, we have not been required to deliver annual
reports to our security holders. To the extent that we are required to deliver
annual reports to security holders through our status as a reporting company, we
will deliver annual reports. Upon effectiveness of this Form 10-SB and in
accordance with NASDAQ Rule 6530, we intend to file annual and quarterly reports
with the U.S. Securities and Exchange Commission ("SEC"). The public may read
and copy any materials filed by us with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the SEC's Public Reference Room by calling the
SEC at 1-800-SEC-0330. We will be an electronic filer and the SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC which may be
viewed at http://www.sec.gov/.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this report are by their nature forward-looking. For the reasons
stated in this report or our SEC filings, or for various unanticipated reasons,
actual results may differ materially. Our operating results may fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including the
competitive and economic factors affecting the Canadian market, production and
assembly delays or difficulties, and the degree of acceptance that the Company's
products achieve during the year.
All figures stated herein are in Canadian dollars.
RESULTS OF OPERATIONS
Six months ended March 31, 2000 compared to the same period in 1999.
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Revenues
For the six month period ended March 31, 2000, our revenues increased
by 58% from $1,549,977 in the same period in 1999 to $2,459,902. This increase
is attributable to the sales representatives and the senior sales executives we
added in the third and fourth quarters of the 1999. Our increased market
penetration generated a significant number of new name major corporate and
education accounts. The increase is also due to the additional focus on high-end
servers particularly from Compaq and IBM sold into our customer base during the
period.
Our gross profit on product sales increased from $363,159 in the
comparable period in 1999 to $436,225 in six months ended March 31, 2000. This
gross profit on product sales is 17% compared to 23% in the comparable period in
1999. The margin reduction is due to the higher proportion of Compaq and IBM
sales during the period which carry a lower profit margin than our ULTRA(R)
line, which represented a higher percentage of revenue in the comparable period
in 1999.
Selling, general and administrative expenses increased from $393,858
in the period in 1999 to $460,885 in the six month period ended March 31, 2000.
This increase is directly attributable to increased sales manpower and
commissions resulting from our increased revenues in the period. Although
professional fees declined from $50,235 to $13,400 because of our equity
financing expenses in 1999, it is expected that our professional fees will
increase as we become a reporting company.
Interest expense on loans was marginally reduced in the current year
because of timing differences reductions in the principal amount of our loans
which are payable.
Liquidity and Capital Resources
As of March 31, 2000 we had a cash position of $57,326 compared to
$59,852 as of the same date in 1999. Working capital on March 31,2000, was
$79,614 compared to $95,202 on March 31, 1999. We had current assets of $908,834
and stockholders' equity of $91,407 on March 31, 2000 compared to current assets
of $528,321 and stockholders' equity of $23,464 on March 31,1999. The increase
in stockholders' equity is attributable to increased equity in reduced by
operating losses for the four intervening quarters. During the six-month period
ended March 31, 2000, we used $119,154 for operating activities compared to
$32,194 for the same period in 1999. Cash flow from financing activities
increased from $103,386 in the comparable period in 1999 to $161,762 in the six
month period ended due to the additional equity raised. Fixed asset additions
were essentially unchanged.
Recent Accounting Pronouncement
Among other provisions, SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
also required that an entity recognize all derivatives as either assets or
liabilties in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for financial statements for fiscal
years beginning after June 15, 1999. we do not believe that this standard will
have a material effect on the financial statements.
16
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
Our facilities are located at 43 Rivera Drive, Unit 7, Markham,
Ontario, Canada. This location is in the Greater Metropolitan Toronto area. The
facility is a light modern, secure, industrial brick and concrete block
building. We currently occupy approximately 5,300 square feet of warehouse,
assembly and office space. The current lease, which expires in November 2000, is
a one year renewal of an original lease dated November 14, 1996. Our monthly
rent is $3,600 (Canadian) per month. There is a verbal agreement with our
landlord that we can renew our lease on December 1, 2000 for an additional one
year term which will increase our rent by approximately $220 per month. We
believe that we will need additional space which is available at this location
or replacement space at a new location to accommodate our current rate of
growth.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following information relates to those persons who we know are
the beneficial owners of five percent or more of our voting common stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Title of Class Beneficial Owner of Beneficial Owner Percentage of Class(1)
-------------- ---------------- ------------------- -------------------
<S> <C> <C> <C>
Common Michael Green 1,960,000 59.0%
178 Ridley Blvd.
Toronto, Ontario,
Canada
Common Adrienne Green 490,000 14.8%
5096 Bloomington
Road
Stouffville, Ontario,
Canada
</TABLE>
1) Does not include possible exercise of 895,500 stock purchase warrants
exercisable at $1.00 (USD) per share until October 31, 2000.
17
<PAGE>
The following table has been completed for each of the shares of common
stock beneficially owned by our directors, nominees, and executive officers and
all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Owner (1) Percentage of Class (2)
-------------- ---------------- ----------------- --------------------
<S> <C> <C> <C>
Common Michael Green 1,960,000 59.0%
178 Ridley Blvd.
Toronto, Ontario,
Canada
Common Adrienne Green 490,000 14.8%
5096 Bloomington
Road
Stouffville, Ontario,
Canada
Common Joseph Misetich 85,000 2.6%
6 Allonsius Drive
Etobicoke, Ontario,
Canada M9C3N5
All officers and 2,535,000 76.4%
directors as a
group (2 persons)
</TABLE>
-----------------------
(1) These shares are directly owned by each individual.
(2) Does not include possible exercise of 895,500 stock purchase warrants
exercisable at $1.00 (USD) per share until October 31, 2000.
Stock Option Plan
In June 1999 the Board of Directors approved a Stock Option Plan (the
"Plan") which authorizes that up to a maximum of 15% of the Company's issued and
outstanding common stock is available to be issued under the Plan to those
persons who can participate in the Plan in accordance with its terms. As of the
date of this filing, options to purchase an aggregate of 160,000 shares of our
common stock (the "Options") have been approved by the Board of Directors for
two persons and will be issued to the them upon approval of the Plan by our
shareholders. The Options will have an exercise price of $.20 per share and will
be exercisable, in whole or in part, at any time from the date that the Plan is
approved by our shareholders until June 17, 2004. The Plan provides that no
18
<PAGE>
resident of the United States may be a participant in the Plan unless such
participation would not violate any applicable securities or other laws of the
United States or any state, territory or possession of the United States. The
Plan will be presented to our shareholders at the next shareholders' meeting for
approval and ratification.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
The names, ages and positions of all of our executive officers as of
March 31, 2000 are listed below, followed by a summary of their business
experience during the past five years. Officers are normally appointed annually
by the Board of Directors at a meeting of the Directors immediately following
the Annual Meeting of Stockholders.
The directors, executive officers and key management employees of the Company
are:
<TABLE>
<CAPTION>
Period Served as
Name Age Position Director
---- --- -------- --------
<S> <C> <C> <C>
Michael Green 56 President, Chief Executive Since
Officer and Director November 1996
Adrienne Green 59 Secretary and Director Since
March1993
Joseph Misetich 61 Vice-President, Senior N/A
Sales Executive
</TABLE>
Michael Green has been our President and Chief Executive Officer and
Managing Director of our Board of Directors since September 1998. A chartered
accountant by training, Mr. Green has extensive experience in sales, marketing
and finance of computer products in Canada. From 1968 to 1972, Mr. Green was an
accountant with Price Waterhouse. After completing his required program for
licensing as a chartered accountant at Price Waterhouse, Mr. Green became
controller of Mercedes-Benz Canada from 1972 to 1974, then Controller of Memorex
Canada (a computer peripheral products company) from 1974 to 1977. From 1977 to
1983 he was one of the founders of ESSNA Ltd. the distributor of Epson printers
in Canada. Mr. Green was President of Technical Logistics Systems, a Canadian
distributor of specialized printers and computers from 1983 to 1992 when he
joined Adrienne Green, his sister, to form MIAD Systems Ltd. in 1993. From 1993
until September 1998, Mr. Green was our Business Development Manager and was our
only direct sales representative in our early years of development. Mr. Green
obtained his Bachelor of Arts degree from the University of Toronto and his
Chartered Accountant Certification in Ontario with Price Waterhouse.
19
<PAGE>
Adrienne Green has been our Secretary since March 1993 and was our
President from March 1993 to September 1998. Ms. Green is an educator by
profession, specializing in teaching French in the Toronto school system from
1960 to 1990. In 1990, she joined Fourth Party Maintenance Inc. as
administrator. In March 1993, she joined Michael Green, her brother, to form
MIAD Systems Ltd. Ms. Green obtained her Bachelor of Arts Degree from the
University of Toronto, Trinity College.
Joseph Misetich is Vice-President and Senior Sales Executive. Mr.
Misetich's career in the Canadian IT industry spans over 40 years. After IT
operations responsibilities at the Canadian National Railroad, Mr. Misetich,
starting in 1970, progressed through sales positions at Pertec Canada and
Motorola Computer Systems Canada before becoming the President and Business
Development Manager, at Clove Computers Ltd., a Toronto based microcomputer
reseller from 1985 to 1999. Mr. Misetich joined us in October 1999.
All directors hold office until the next annual meeting of shareholders
of the Company and until their successors are elected and qualified. Officers
hold office until the first meeting of directors following the annual meeting of
shareholders and until their successors are elected and qualified, subject to
earlier removal by the Board of Directors.
Family Relationships:
Michael Green, our President and Chief Executive Officer and a
director, and Adrienne Greene, our Secretary and a director, are brother and
sister.
(f) Involvement in Certain Legal Proceedings:
None of our officers, directors, promoters or control persons have been
involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior
to that time;
(2) Any conviction in a criminal proceedings or being subject to
a pending criminal proceeding (excluding traffic violations
and other minor offenses);
(3) Being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, or any court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil
action), the SEC or the U.S. Commodity Futures Trading
Commission to have
20
<PAGE>
violated a federal or state securities laws or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation of our management for
the past three fiscal years. Michael Green, our President and Chief Executive
Officer, was the only member of our management that earned more than $100,000 in
the year ended December 31, 1999. None of our executive officers earned more
than $100,000 during the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
----------------------
Annual compensation Awards Payouts
------------------- ------ -------
Annual Restricted Under- Other
Name and compen- Stock lying LTIP Comp-
principal position Year Salary Bonus sation Awards Options Payouts ensation
------------------ ---- ------ ----- ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Green 1999 135000 15000 150000 none none none none
President, CEO and
Director
1998 90000 6000 96000 none none none none
1997 72000 ---- 72000 none none none none
Adrienne Green 1999 77000 5000 82000 none none none none
Secretary and
Director
1998 57000 ---- 57000 none none none none
1997 53000 ---- 53000 none none none none
Joseph Misetich 1999 (1) (1) (1) none none none none
Vice President
1998 none none none none none none none
1997 none none none none none none none
</TABLE>
1) On October 1, 1999 the Board of Directors of the Company authorized the
issuance of 85,000 restricted common shares of the Corporation to Joseph
Misetich as an inducement to execute a two year employment agreement to join us
as vice-president and a senior marketing executive. Mr. Misetich had previously
served as President and Business Development Manager of Clove Computers Ltd., a
competitor of ours. The value of the goodwill recorded on our books is $17,000
funds ($25,500 Canadian). The Board determined that the fair market value of the
21
<PAGE>
restricted common stock was $0.20 per share, the same price recorded in the most
recent private placement of the Company's stock. This restricted common stock
can not be sold for an 18 month period and after that can only be sold in
accordance with Rule 144. Mr. Misetich also received salary of $12,500 for the
three month period he was employed, from October 1 to December 31, 1999. He also
received commissions of approximately $5,100 during the same three month period.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two (2) years, we have not entered into a transaction
with a value in excess of $60,000 with an officer, director or beneficial owner
of 5% or more of our common stock except as described in the following
paragraphs.
Mr. Green currently has a one year employment agreement that provides
for a annual salary of $180,000 (Canadian) per year. He also is entitled to earn
a sales commission at the rate of $5,000 for each $1,000,000 of sales achieved
by us in the fiscal year up to the first $3,000,000 of sales. If sales exceed
$3,000,000, he will receive a bonus of $20,000 for each $1,000,000 of sales
between $3,000,000 and $5,000,000. For sales above $5,000,000, his bonus will be
$12,000 for each $1,000,000 of sales. Mr. Green also will be entitled to receive
a bonus of 4% of our pre-tax profit. The agreement also provides a covenant that
he will not compete with or solicit any business of MIAD for a three year period
from October 1, 1999.
ITEM 8. DESCRIPTION OF SECURITIES
We are authorized to issue an unlimited number of shares of common
stock without par value (which is the common form of incorporation in Canada),
of which 3,322,500 shares are issued and outstanding. The holders of common
stock are entitled to one vote per share held and have the sole right and power
to vote on all matters on which a vote of stockholders is taken. Voting rights
are non-cumulative. The holders of common shares are entitled to receive
dividends when and if declared by the Board of Directors, out of funds legally
available therefore and to share pro rata in any distribution to the
stockholders. Upon liquidation, dissolution, or winding up of the Company, the
holders of common stock are entitled to receive the net assets of the Company in
proportion to the respective number of shares held by them after payment of
liabilities which may be outstanding. The holders of our common stock do not
have any preemptive rights to subscribe for or purchase any shares of any class
of stock. The outstanding shares of common stock will not be subject to further
call or redemption and are fully paid and non-assessable.
We are also authorized to issue an unlimited number of First Preference
Shares without par value ("FP Shares"), of which no FP Shares are issued and
outstanding. The FP Shares may be issued at any time and from time to time in
one or more series to be fixed by the Board of Directors by Articles of
Amendment to our Certificate of Incorporation prior to any issuance the
designation, rights, privileges, restrictions and
22
<PAGE>
conditions to attach to the FP Shares of that particular series. FP Shares of
any series may be given preferences over any other shares in such matters such
as dividends, distributions, liquidation, dissolution or winding-up of the
Company. FP Shares have no pre-emptive rights except under certain specific
circumstances. Holders of FP Shares have no right to vote separately as a class
or series to amend our Certificate of Incorporation in respect to an increase in
the authorized number of shares of any class or series having rights or
privileges ranking in priority with the FP Shares, effect an exchange,
reclassification or cancellation of all or part of the FP Shares, or create a
new class of shares ranking in priority to or equal with the FP Shares except
under certain circumstances.
There are no provisions in our Certificate of Incorporation or bylaws
that would delay, defer, or prevent a change in control.
Our transfer agent and Warrant Agent for the Common Stock and Warrants,
respectively, is Manhattan Transfer Registrar Co., 58 Dorchester Road, Lake
Ronkonkoma, New York, 11779, certificates to P.O. Box 361 Holbrook, New York,
11741, Phone (516) 585-7341.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
In November 1999, we commenced trading on the Over The Counter Bulletin
Board in what is referred to as the "pink sheets" under the trading symbol
"MIAD". The following table sets forth the high and low bid prices of our common
stock for each calendar quarter and subsequent interim period since our common
stock commenced actual trading, as reported by the National Quotation Bureau and
represents inter dealer quotations, without retail mark-up, mark-down or
commission and may not be reflective of actual transactions:
1999 High Low
---- ---- ---
Quarter ending September 30 $1.50 $1.00
Quarter ending December 31 2.375 1.375
2000
----
Quarter ending March 31 2.375 2.1875
April 1 - May 26 3.25 2.375
23
<PAGE>
There can be no assurances that an active public market for the common
stock will develop or be sustained. In addition, the shares of common stock are
subject to various governmental or regulatory rules which may affect the
liquidity of the shares.
As of March 31, 2000 there were 3,459,400 shares issued and outstanding
and 24 shareholders of record. We also have warrants outstanding which, if
exercised would result in the issuance of an additional 758,600 shares of our
restricted common stock.
Dividends:
There are no restrictions on the common stock that limit the ability of
us to pay dividends if declared by the Board of Directors. The holders of common
stock are entitled to receive dividends when and if declared by the Board of
Directors, out of funds legally available therefore and to share pro-rata in any
distribution to the stockholders. We have not declared any dividends.
ITEM 2. LEGAL PROCEEDINGS
We are not a party to and none of our property is subject to any
pending or threatened legal, governmental, administrative or judicial
proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes or disagreements with our accountants on
accounting and financial disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On September 30, 1998, and October 1, 1998, a total of 2,825,000 shares
of restricted common stock were issued to the following six persons at $.001 per
share for which we received $2,825:
Michael Green 1,960,000
Adrienne Green 490,000
Lynn Lefebvre 75,000
FMS Distributors/Vistra 128,570
Toho Partners 42,860
Corporate Strategy Group 128,570
24
<PAGE>
These shares were issued pursuant to an exemption from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"),
and the certificates representing the shares bear a restrictive legend
restricting transferability under the Act.
In December 1998, we completed a private placement offering of our
securities and issued, pursuant to Rule 504 of Regulation D of the Securities
Act of 1933 as amended, 19,900 Units at a purchase price of $5.00 per Unit. Each
Unit was comprised of 25 shares of common stock and 45 Redeemable Common Stock
Purchase Warrants (the ("Warrants"). Each Warrant is exercisable for one share
of common stock at $1.00 per share. The expiration date of the outstanding
Warrants has been extended by the Board of Directors to October 31, 2000.
In October 1999, we issued 25,000 shares of our common stock to
professionals for services and 85,000 shares to Joseph Misetich, our Vice-
President, as an incentive to join us under a two year employment agreement.
During the period from October 1, 1999 to March 31, 2000 136,000
Warrants were exercised for $136,000. As of March 31, 2000 there are 758,600
Warrants available for exercise.
On October 1, 1999 we issued 25,000 restricted shares of common stock
to two non-employee consultants for past services rendered. The Board of
Directors determined that the fair value of the restricted common stock was
$0.20 per share, the same price recorded in the most recent private placement of
our restricted common stock. This restricted common stock can not be sold for an
18 month period and after that can only be sold in accordance with Rule 144. The
amount recorded in our books for the year ending September 30, 1999 for such
services was $7,500 ($5,000 USD).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Bylaws follow the Business Corporations Act (Ontario) (the "BCA").
The BCA provides for indemnification of a director, officer, former officer and
director or a person who acts or acted at the request of management as a
director or officer of a company of which the corporation was a shareholder or
creditor, his heirs and legal representatives, for all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
reasonably incurred by such person in respect of any civil, criminal or
administrative action or proceeding to which such person is made a party because
such person is or was a director or officer of a corporation or the other
company if he/she acted honestly and in good faith with a view to the best
interests of the corporation and, in the case of a criminal or administrative
proceeding that is enforced by a monetary penalty, he/she had reasonable grounds
for believing his/her conduct was lawful.
25
<PAGE>
PART F/S. FINANCIAL STATEMENTS OF MIAD SYSTEMS LTD.
Auditors Report
Audited Balance Sheet as of September 30, 1999 and 1998
Audited Statements of Income and Deficit for the year ended September 30, 1999
and 1998
Audited Statements of Cash Flow for the year ended September 30, 1999
and 1998
Notes to Financial Statements
Unaudited Balance Sheet as of March 31, 2000 and 1999
Unaudited Statements of Income and Deficit for the six months ended March 31,
2000 and 1999.
Unaudited Statements of Cash Flow for the six months ended March 31,2000
and March 31, 1999
26
<PAGE>
PART III
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of MIAD Systems Ltd.
3.2 Certificate of Amendment of Certificate of Incorporation
3.3 Bylaws
4.0 Warrant Certificate
10 Office Lease dated November 14, 1996
10.1 Renewal Agreement dated October 12, 1999
10.2 Employment Agreement for Michael Green dated October 1, 1999
10.3 Stock Option Plan
27 Financial Data Schedule
27
<PAGE>
SIGNATURE PAGE
--------------
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
MIAD SYSTEMS LTD.
Date: June , 2000 By: /s/ Michael A. S. Green
--- ----------------------------
Michael A. S. Green, President
and Principal Financial Officer
28
<PAGE>
MIAD SYSTEMS LTD.
INDEX TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Page
--------------------------------------------------------------------------------
Auditors' Report F-1
Balance Sheet F-2
Statement of Income and Deficit F-3
Statement of Cash Flows F-4
Notes to Financial Statements F-5-7
<PAGE>
BRODEUR DENNIS CHARTERED ACCOUNTANTS LETTERHEAD
AUDITORS' REPORT
To the Shareholders of
Miad Systems Ltd.
We have audited the balance sheet of Miad Systems Ltd. as at September 30,
1999 and 1998 the statements of income and deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
Except as explained in the following paragraph, we have conducted our
audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
Because we were appointed auditors of the company during 1998, we were not
able to observe the counting of physical inventories at the beginning of
the year, confirm opening accounts receivable and opening accounts payable
nor satisfy ourself concerning those inventory quantities, opening accounts
receivable or accounts payable by alternative means. Since opening
inventories, accounts receivable and accounts payable enter into the
determination of the results of operations and cash flows, we were unable
to determine whether adjustments to sales, cost of sales, income taxes, net
income for the year, opening deficit and cash provided from operations
might be necessary for 1998.
In our opinion, except for the effect on the financial statenients for 1998
of adjustments, if any, which we might have determined to be necessary had
we been able to examine opening inventories, opening accounts receivable
and opening payables as at September 30, 1997 as described in the preceding
paragraph, the statements of income and deficit and cash flows for the
years ended September 30, 1999 and 1998 present fairly in all material
respects, the results of the company's operations and its cash flows for
the years then ended in accordance with generally accepted accounting
principles. Further, in our opinion, the balance sheet presents fairly, in
all material respects, the financial position of the company as at
September 30, 1999 and 1998 in accordance with generally accepted
accounting principles.
/s/ BRODEUR DENNIS
Chartered Accountants
Richmond Hill, Ontario
March 23, 2000
F-1
<PAGE>
MIAD SYSTEMS LTD.
BALANCE SHEET
AS AT SEPTEMBER 30, 1999
(All Amounts Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current
Cash $ 24,466 $ 1,436
Accounts receivable (Note 3) 264,975 323,655
Inventories (Note 3) 152,708 118,294
Prepaid expenses 2,195 25,622
Due from Multi-Media Plus Distribution Inc. - 61,310
------------------------------------
444,344 530,317
Capital (Note 2) 29,494 27,126
------------------------------------
$ 473,838 $ 557,443
====================================
LIABILITIES
------------------------------------------------------------------------------------------------------------------
Current
Accounts payable and accrued charges $ 413,104 $ 395,960
Deferred revenue - 23,052
Current portion of loans payable (Note 3) 79,014 85,440
------------------------------------
492,118 504,452
Loans payable (Note 3) 65,000 144,013
------------------------------------
557,118 648,465
------------------------------------
CAPITAL STOCK DEFICIT
------------------------------------------------------------------------------------------------------------------
Capital stock (Note 5) 147,635 2,450
Deficit (230,915) (93,472)
------------------------------------
(83,280) (91,022)
------------------------------------
$ 473,838 $ 557,443
====================================
</TABLE>
See notes to financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
MIAD SYSTEMS LTD.
STATEMENT OF INCOME AND DEFICIT
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(All Amounts Expressed in Canadian Dollars)
1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 3,199,057 $ 3,128,339
Cost of sales 2,437,152 2,537,641
-----------------------------------
Gross Margin 761,905 590,698
-----------------------------------
Expenses
Wages and benefits 540,424 394,698
Salesmen's Auto, travel and entertainment 85,278 45,864
Bad debts 61,589 11
Professional fees 51,279 8,424
Rent 39,283 38,149
Office and general 34,159 42,797
Interest on loans payable 28,040 28,260
Telephone 16,862 23,818
Insurance 14,678 17,668
Bank charges 8,470 2,235
Advertising and promotion 7,514 10,309
Utilities 4,509 4,916
Depreciation 7,263 7,742
-----------------------------------
899,348 624,891
-----------------------------------
Net loss for the year (137,443) (34,193)
Deficit at beginning of year (93,472) (59,279)
-----------------------------------
Deficit at end of year $ (230,915) $ (93,472)
===================================
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
MIAD SYSTEMS LTD.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(All Amounts Expressed in Canadian Dollars)
1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net loss for the year $ (137,443) $ (34,193)
Items not requiring cash
Depreciation 7,263 7,742
Write off of Due from Multi-Media Plus Distribution Inc. 61,310 -
-----------------------------------------
(68,870) (26,451)
Changes in certain non-cash working capital items
Accounts receivable 58,680 (140,423)
Inventories (34,414) (74,936)
Prepaid expenses 23,427 (13,241)
Accounts payable and accrued charges 17,144 (245,490)
Deferred revenue (23,052) (119,272)
-----------------------------------------
Total cash from (used for) operating activities (27,085) (619,813)
-----------------------------------------
Financing Activities
Advances (Repayment) of loans payable (85,439) 205,453
Repayment of Due from Multi-Media Plus Distribution Inc. - 406,760
Issuance of common shares 145,185 2,440
-----------------------------------------
Total cash from (used for) financing activities 59,746 614,653
-----------------------------------------
Investing Activities
Fixed asset additions (9,631) -
Proceeds on sale of fixed assets - 1,224
-----------------------------------------
Total cash from (used for) investing activities (9,631) 1,224
-----------------------------------------
Change in cash position during the year 23,030 (3,936)
Cash and cash equivalents at beginning of year 1,436 2,500
-----------------------------------------
Cash and cash equivalents at end of year $ 24,466 $ (1,436)
=========================================
</TABLE>
See notes to financial statements
F-4
<PAGE>
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1999
1. Significant Accounting Policies
--------------------------------------------------------------------------------
Inventories
Inventories are valued at the lower of cost, with cost being determined
on an average cost basis, and net realizable value.
Capital Assets and Depreciation
Capital assets are recorded at cost. Depreciation is calculated using
the following rates and methods:
<TABLE>
<CAPTION>
<S> <C>
Office Equipment - 30% declining balance method
Computer equipment - 30% declining balance method
</TABLE>
<TABLE>
<CAPTION>
2. Capital assets
--------------------------------------------------------------------------------------------------------------------
Accumulated Net Net
Cost Depreciation 1999 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office equipment $ 43,769 $ 23,775 $ 19,994 $ 21,750
Furniture and fixtures 23,744 14,244 9,500 5,376
------------------------------------------------------------------------
$ 67,513 $ 38,019 $ 29,494 $ 27,126
========================================================================
</TABLE>
<TABLE>
<CAPTION>
3. Loans Payable 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(i) Metcan Information Technologies Inc. $ 101,000 $ 137,000
Repayments monthly of $3,000 principal,
$447 interest and $1,000 additional interest
Matures July 31, 2001
(ii) 636090 Ontario Limited 43,014 92,453
Repayments of $5,000 blended principal
and interest at 15% per annum
Matures June 30, 2000
------------------------------------
144,014 229,453
Due within one year 79,014 85,439
------------------------------------
$ 65,000 144,014
====================================
</TABLE>
The above loans are secured by a General Security Agreement covering
accounts receivable and inventory.
F-5
<PAGE>
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1999
4. Tax Losses
--------------------------------------------------------------------------------
The company has available losses carry forward for tax purposes from prior
years. Revenue Canada has not assessed the prior years tax returns as yet.
These losses amount to $220,000, subject to Revenue Canada assessment.
<TABLE>
<CAPTION>
5. Capital Stock
--------------------------------------------------------------------------------
Authorized 1999 1998
<S> <C> <C> <C>
Unlimited Common shares without par value
Unlimited First Preference shares without par value
Stated
3,322,500 Common shares (1998-2,450,000) $ 147,635 $ 2,450
NIL First Preference shares - -
-----------------------------
$ 147,635 $ 2,450
==============================
</TABLE>
ii) In October 1998, 375,000 shares of common stock were issued for an
aggregate consideration of $545.
i) On December 1, 1998 , the company offered, through a private placement,
19,900 units each consisting of 25 shares of common stock and 45 common
stock purchase warrants at a price of $5 per unit. Each warrant entitled
the holder to purchase one share of common stock at a price of $1 U.S. per
share. These warrants expired within nine months of the closing date of
this offering. The termination date of the offering was extended beyond the
120 days contemplated in the offering. Through the efforts of this
offering, 497,500 shares of common stock were issued for cash for an
aggregate amount of $ 144,640.
6. Lease Obligations
--------------------------------------------------------------------------------
The company is committed under various lease agreements as follows;
i) Premises
The company has negotiated an extension to the current lease for a term of
one year ending November 2000 at a net rent of approximately $44,000.
ii) Vehicles
The company is leasing three vehicles at aggregate annual costs of
approximately $24,000. These leases expire at varying dates.
F-6
<PAGE>
MIAD SYSTEMS LTD.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1999
7. Subsequent Events
--------------------------------------------------------------------------------
i) Subsequent to the year end, the company accepted an offer to settle an
action brought on by a dismissed employee. The aggregate of the settlement
was $4,750.
ii) Subsequent to the year end, the company entered into an employment
agreement whereby the employee will receive 85,000 shares of common stock
of the corporation for the aggregate consideration of $25,500.
iii) Subsequent to the year end, 25,000 common shares were issued to
professionals for services rendered during the fiscal year in the amount of
$7,500.
iv) Subsequent to the year end, 136,900 common shares were issued on the
exercise of 136,900 warrants for the aggregate consideration of $199,346.
v) Subsequent to the year end, the company was awarded the trademark, MIAD
ULTRA.
8. Licencing Agreement
--------------------------------------------------------------------------------
The company entered into a licencing agreement with International Business
Machines Corporation (IBM) whereby the company has nonexciusive rights to
sell certain licenced products in Canada. The company is required to pay an
annual fee for this right and a surcharge of $10 per unit in excess of the
maximum allowed under schedule to the agreement.
9. Uncertainty Due To The Year 2000 Issue
--------------------------------------------------------------------------------
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
F-7
<PAGE>
MIAD SYSTEMS LTD.
BALANCE SHEET
AS AT MARCH 31, 2000
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
ASSETS 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current
Cash $ 57,326 $ 59,852
Accounts receivable 713,745 348,966
Inventories 131,693 111,077
Prepaid expenses 6,070 8,426
---------------------------------
908,834 528,321
Capital assets 39,208 36,902
---------------------------------
$ 948,042 565,223
---------------------------------
LIABILITIES
--------------------------------------------------------------------------------------------------------------------
Current
Accounts payable and accrued charges $ 750,206 $ 354,105
Current portion of loans payable 79,014 79,014
---------------------------------
829,220 433,119
Loans payable 27,415 108,640
----------------------------------
856,635 541,759
----------------------------------
CAPITAL STOCK AND DEFICIT
--------------------------------------------------------------------------------------------------------------------
Capital stock 346,982 147,635
Deficit (255,575) (124,171)
-------------------------------------
91,407 23,464
-------------------------------------
$ 948,042 565,223
=====================================
</TABLE>
F-8
<PAGE>
MIAD SYSTEMS LTD.
STATEMENT OF INCOME AND DEFICIT
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 2,459,902 $ 1,549,977
Cost of sales 2,023,677 1,186,818
----------------------------------
Gross Margin 436,225 363,159
----------------------------------
Expenses
Wages and benefits 341,722 224,547
Salesmen's Auto, travel and entertainment 50,451 40,580
Rent 20,414 19,310
Professional fees 13,400 50,235
Telephone 9,750 7,913
Office and general 10,228 29,329
Interest on loans payable 4,406 10,065
Insurance 3,914 3,707
Advertising and promotion 3,570 2,099
Utilities 2,996 3,073
Depreciation 34 3,000
----------------------------------
460,885 393,858
----------------------------------
Net loss for the period (24,660) (30,699)
Deficit at beginning of period (230,915) (93,472)
----------------------------------
Deficit at end of period $ (255,575) (124,171)
==================================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
MIAD SYSTEMS LTD.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(All Amounts Expressed in Canadian Dollars)
(UNAUDITED)
March 31, March 31,
1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net loss for the year $ (24,660) $ (30,699)
Items not requiring cash
Depreciation 34 3,000
Write off of Due from Multi-Media Plus Distribution Inc. - 61,310
-------------------------------------
(24,626) 33,611
Changes in certain non-cash working capital items
Accounts receivable (448,770) (25,311)
Inventories 21,015 7,217
Prepaid expenses (3,875) 17,196
Accounts payable and accrued charges 337,102 (41,855)
Deferred revenue - (23,052)
-------------------------------------
Total cash from (used for) operating activities (119,154) (32,194)
-------------------------------------
Financing Activities
Advances (Repayment) of loans payable (37,585) (41,799)
Issuance of common shares 199,347 145,185
-------------------------------------
Total cash from (used for) financing activities 161,762 103,386
-------------------------------------
Investing Activities
Fixed asset additions (9,748) (12,776)
-------------------------------------
Total cash from (used for) investing activities (9,748) (12,776)
-------------------------------------
Change in cash position during the period 32,860 58,416
Cash and cash equivalents at beginning of period 24,466 1,436
-------------------------------------
Cash and cash equivalents at end of period $ 57,326 $ 59,852
=====================================
</TABLE>
F-10
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
-------------- -----------
3.1 Certificate of Incorporation of MIAD Systems Ltd.
3.2 Certificate of Amendment of Certificate of Incorporation
3.3 Bylaws
4.0 Warrant Certificate
10 Office Lease dated November 14, 1996
10.1 Renewal Agreement dated October 12, 1999
10.2 Employment Agreement for Michael Green dated October 1, 1999
10.3 Stock Option Plan
27 Financial Data Schedule
