UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-28879
COOL ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
COLORADO APPLIED FOR
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 N.E. 8TH STREET, SUITE 900, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (888) 603-8833
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO 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 Exchange Act 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 no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant'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. [ ]
State issuer's revenues for its most recent fiscal year: $3,178
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $2,211,888 AS OF SEPTEMBER 19, 2000
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 37,752,401 AS OF SEPTEMBER 19, 2000
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
Exhibit index on page 12 Page 1 of 29 pages
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Cool Entertainment, Inc. (the "Company") was incorporated in the State
of Colorado on June 17, 1996, under the name Minas Novas Gold Corp., to engage
in mining operations. From inception to January 1999, the Company obtained
options to acquire various mining properties. On January 29, 1999, the Board of
Directors elected to abandon all mining operations and proceed to acquire 100%
of the issued and outstanding capital stock of Cool Entertainment, Inc., a
Washington corporation ("Cool Washington"), in exchange solely for 65% of the
Company's then outstanding Common Stock (the "Share Exchange"). The acquisition
of Cool Washington was completed March 1, 1999, and effective February 22, 1999,
the Company changed its name to Cool Entertainment, Inc.
Under the terms of the Share Exchange, 75% of the shares issued to the
four shareholders of Cool Washington (the "Vendors") were initially held in
escrow with Pacific Corporate Trust Company of Vancouver, British Columbia, as
the escrow agent. Chelsea Pacific Financial Corp., of Vancouver, British
Columbia firm, was given a right of first refusal to arrange for all financing
for the Company through March 1, 2000, and had agreed to use its best efforts to
arrange financing for the Company as follows: $500,000 by July 1, 1999; $500,000
by September 1, 1999; $500,000 by December 1, 1999; and $500,000 by March 1,
2000.
Escrowed shares were to be released upon reaching the various financing
milestones and upon Cool Washington certifying that it had fully developed the
website with the following features: on-line magazines, on-line chat rooms,
email services, and on-line games. As of April 7, 2000, all of the shares had
been released from escrow.
BUSINESS
Since February 2000, the Company has offered a variety of entertainment
products on the Internet through its website, WWW.COOLENTERTAINMENT.COM.
Customers can make purchases through their personal computers. The Company ships
to customers in the United States and Canada via the U.S. Parcel Service,
Federal Express, and UPS International Express Services, depending upon the
customer's wishes. The Company has entered into distribution agreements with
distributors in the music, film, video game, and literary segments of the
entertainment industry in order to offer the latest and most widely advertised
entertainment products available. In addition, the Company offers value-added
services such as celebrity interviews, book reviews, online chat rooms, online
games, and free e-mail accounts on its website to attract users to the website.
The Company also offers digital downloading and advertising as an
additional revenue sources. Digital downloading refers to the digital delivery
of music over the Internet. Customers have the option of downloading songs in
the formats of MP3 and Liquid Audio.
CONTENT PROVIDERS. The Company obtains the content for its web site
from various third party providers pursuant to license agreements. Currently,
the Company has agreements with Muze Inc. and Screaming Media Inc. which allows
the Company to use, on a non-exclusive basis, data and editorial content about
music, books, and videos; news about film, music, games, and entertainment;
horoscopes; and other features. Management believes that providing this type of
information on the Company's web site attracts more user traffic and promotes
the sales of products to customers.
ORDER FULFILLMENT. Currently, the Company has fulfillment agreements
with iFiLL, a division of Valley Media, Inc., and with MSI Music Inc. The
Company is responsible for all marketing and merchandising efforts, collecting
orders, and sending the orders to i.FiLL or MSI Music, as the case may be.
i.FiLL and MSI Music are responsible for picking, packing, and shipping the
orders directly to the Company's customers. i.FiLL is the exclusive supplier of
product and order fulfillment services for the Company within the United States
and Canada for domestic products. However, the Company may use third parties as
sources for products not available through Valley Media if the Company has given
Valley Media 30 days' notice of its intention to do so and Valley Media fails to
make the specified product available by the end of that 30-day period. MSI Music
provides imported products not available through Valley Media.
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<PAGE>
In addition to the cost of the products purchased, i.FiLL and MSI Music
charge the Company packing and handling fees on a per unit basis, shipping
costs, return fees, fees for optional services, and fees for credit card
processing. The initial term of the iFiLL agreement expires May 4, 2001, while
the initial term of the MSI agreement expires March 20, 2001. Both agreements
are renewable.
DIGITAL DOWNLOADING. The Company has an agreement with amplified.com,
which has developed an Internet service that allows customers to order music
selected by them on a song-by-song basis and to have that music delivered either
via direct digital transmission (a download) or via the creation of custom
compilation discs (custom CDs). The Company pays a wholesale price to
amplified.com for the service.
ADVERTISING REVENUE. The Company has an exclusive agreement with Wise
Ads New Media, Inc. to provide the Company with assistance and expertise in
advertising, placement of banner ads, and sponsorships on its web site.
MARKETING
The Company's first objective will be to pursue the North American
market with a targeted sales and marketing effort. If a North American market
presence is established, the Company will pursue international markets.
Management believes that market for its products and services will be
individuals within the age range of 18 to 49. Because this market segment
contains a large number of entry-level income earners whose single purchases
will likely be of relatively small dollar value, the Company intends to position
its product line accordingly. The Company intends to offer the following
advantages over other forms of purchasing media product:
o ONE-STOP SHOPPING CONCEPT enabling the customer to purchase all
forms of product in a consistent format
o QUICK DELIVERY SERVICE by offering three-day delivery
o PRE-ORDERING SYSTEM enabling the customer to pre-order products and
have them delivered on the day of general release
o EASE OF PURCHASING enabling customers to search for and order
particular items in a few keystrokes
o COMPETITIVE PRICING
The Company plans to attract customers to its website through the
following methods:
o Targeted advertising and marketing throughout North America
o High visibility promotional campaigns
o Website offering high degree of functionality through a
comprehensive and current database, as well as interesting and
informative content
o Services which will bring new visitors to the website
o Business relationships and alliances with high profile advertisers
and merchandisers
o Special marketing involving reciprocal agreements with recording
artists
The Company plans to conduct significant advertising campaigns
throughout North America at the time the website is launched, as well as at
strategic times throughout the year, such as holidays. Advertising forms will be
focused through trade magazines, radio, television, and billboard type of
advertising targeted at the Company's key demographic groups.
The Company also plans to initiate a number of promotional offers in
conjunction with its website launch. The Company plans to advertise and sell a
number of items in order to attract heavy web traffic, stimulate the initial
demand for orders, and prompt customers who patronize competing retailers to try
the Company's website. The Company plans to use a discount pricing structure for
institutional clients in order to induce heavier volumes of purchase and to be
competitive with the large traditional retail outlets or distribution channels.
Management believes that it will need to demonstrate the following for
a customer's online shopping experience to be successful:
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o Consumers must be able to save time and money
o Consumers must be see a wide variety of selection of all media
categories in one place
o Consumers must be comfortable with security of their credit cards
There is no assurance that the Company will be able to attract a
sufficient number of users to its website or generate enough sales to be
profitable. The business of selling products on a retail basis on the Internet
is highly competitive. There are a large number of companies engaged in this
business. Given the Company's present size, it can be assumed that virtually all
of these other companies have greater financial and personnel resources than the
Company.
In addition, the Company faces risks pertaining to e-commerce security,
system capacity-related challenges, and growth management. As explained below in
Item 6. Management's Discussion and Analysis or Plan of Operation, the Company
has only a limited operating history, has generated losses since inception, and
requires a significant amount of funding to sustain operations through the
current fiscal year. There is also substantial doubt about the Company's ability
to continue as a going concern.
TRADEMARKS
The Company proposes to register its name and logo as a trademark in
the United States and Canada once it has adequate funds to do so.
COMPLIANCE WITH LAWS AND REGULATIONS
As of the date of this report, there are no laws directly affecting
commerce over the Internet, other than those generally pertaining to fraud and
fair trade. No governmental approval is required for any of the Company's
proposed products or services. There is no assurance that laws will not develop
concerning use of the Internet as a retail medium. The Company does not expect
that environmental laws will impact its activities.
EMPLOYEES
As of September 15, 2000, the Company had 6 full-time employees, 2 of
which were the Company's officers.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own real property. Since the Company has
contracted with Cool Management Ltd. (now known as Fictional Media Inc.) in
Vancouver for the management of the Company, it is using the offices of
Fictional Media Inc. at Suite 303, 343 Railway Street, Vancouver, British
Columbia. The offices, approximately 2,700 square feet, are leased from the
third party. The Company does not invest in real estate.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is not traded on a registered securities
exchange, or on NASDAQ. The Company's Common Stock is quoted on the OTC Bulletin
Board, and was first listed on June 18, 1998 under the symbol "MNGD." Since
March 2, 1999, the stock has been trading under the symbol "CULE." The following
table sets forth the range of high and low bid quotations for each fiscal
quarter since the stock began trading. These quotations reflect inter-dealer
prices without retail mark-up, mark-down, or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FISCAL QUARTER ENDING HIGH BID LOW BID
June 30, 1998 $0.875 $0.625
September 30, 1998 $1.375 $0.250
December 31, 1998 $1.500 $1.000
March 31, 1999 $1.563 $0.290
June 30, 1999 $1.563 $0.813
September 30, 1999 $1.000 $0.438
December 31, 1999 $0.700 $0.230
March 31, 2000 $1.000 $0.290
June 30, 2000 $0.625 $0.180
</TABLE>
On September 19, 2000, the closing price for the common stock was
$0.12.
As of September 19, 2000, there were 197 record holders of the
Company's Common Stock. Since the Company's inception, no cash dividends have
been declared on the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The acquisition of Cool Washington on March 1, 1999 has been accounted
for as a reverse takeover with Cool Washington being the deemed acquiror for
accounting purposes. The transaction has been accounted for as the issuance of
shares by Cool Washington for the net assets of the Company. Accordingly, the
financial statements included with this registration statement reflect the
financial position, results of operations, and cash flows of Cool Washington
from the date of its incorporation on November 3, 1998, consolidated with those
of the Company from March 1, 1999.
RESULTS OF OPERATIONS
The Company is considered to be in the development stage since it has
generated only minimal revenues and is continuing to develop its business. The
Company has generated only $3,178 of revenues through June 30, 2000.
For the fiscal year ended June 30, 2000, the Company incurred a net
loss of $13,305,193. It generated revenue of $3,718, but incurred expenses of
$13,305,606. Approximately 95% of the expenses ($12,612,461) were for site
development and maintenance. Of this amount $12,345,500 was recognized as a
result of the release of 17,388,033 shares of Common Stock from escrow. The
amount of $12,345,500 is the difference between the market value of the Common
Stock on the date of release and the original cost of these shares. See Part I -
Item 1. Description of Business.
Other operating expenses increased substantially for the fiscal year
ended June 30, 2000, as compared to the previous fiscal year. This was due to
the Company being in operation for the full twelve months, as compared to only
four months during fiscal 1999; the Company registering under the Securities
Exchange Act of 1934 in January 2000; the Company becoming subject to the
reporting requirements of the Securities and Exchange Commission in
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<PAGE>
February 2000; and the Company launching its website in February 2000.
Accordingly, the statement of operations for the year ended June 30, 2000
reflects a much higher level of activity.
Management fees for the 2000 fiscal year increased by $235,256 or 881%
over the 1999 amount. The increase was due primarily to the fact that management
fees were paid for only a few months during the 1999 period, as compared to
being paid for the entire twelve months in fiscal 2000. Professional fees for
fiscal 2000 increased by $243,125 or 616% over the 1999 amount. $151,480 of this
amount was for financial public relations and consulting services, paid in
shares of the Company's Common Stock. Travel, advertising and promotion
increased by $82,388 or 557% over the 1999 amount due to the Company's efforts
in fiscal 2000 to promote the new website. Office and administrative expenses
increased $33,126 or 629% over the 1999 amount due to the higher level of
activity.
From inception to June 30, 1999, the Company generated a net loss of
$117,297. Approximately 34% of the operating expenses were professional fees. Of
this amount, 59% or $23,367 were costs related to the acquisition of Cool
Washington. Of the remaining operating expenses, $29,878 was incurred for site
development and maintenance and $26,689 were management fees.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 and 1999, the Company had a working capital deficiency
of $46,914 and a positive balance of $58,951, respectively. The decrease in
working capital is due primarily to the loss generated for the 2000 fiscal year.
Virtually all of the Company's liquidity has been provided through the
sale of its Common Stock. For the year ended June 30, 2000 and for the period
from November 3, 1998 to June 30, 1999, the Company received $651,226 and
$210,353, respectively in net proceeds from the issuance of its Common Stock.
Additional funding will be needed from sales of the Company's securities to keep
the Company in operation.
Current sales of product are not sufficient to sustain operations. The
Company needs substantial amounts of cash to fund a marketing program to attract
potential customers to its web site. As of this date, the Company has no sources
of funds for a marketing effort.
PLAN OF OPERATION
As of June 30, 2000, the Company did not have any cash. The Company is
dependent upon external sources of funds and there is no assurance that any such
funding will be available to the Company. The Company does not anticipate making
any expenditures for plant or equipment, or increasing the number of employees.
Due to the losses generated to date and the fact that operations have
been financed through the issuance of Common Stock, there is substantial doubt
about the Company's ability to continue as a going concern. As stated above, the
Company does not have sufficient working capital to sustain operations until the
end of its current fiscal year, which ends June 30, 2001. Additional debt or
equity financing will be required and may not be available or may not be
available on reasonable terms. The auditors' report on the consolidated
financial statements contains an explanatory paragraph that states that these
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Management is currently assessing the future viability of the Company.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
6
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
7
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITIONS
Clement K.M. Lau 27 President, CEO and Director
William J. Hadcock 42 Vice President of Marketing and
Distribution and Director
Marc Belcourt 34 Vice President of Technology and
Director
Len Voth 52 Director
</TABLE>
The term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when such director's successor
is elected and qualifies. No date for the next annual meeting of stockholders is
specified in the Company's bylaws or has been fixed by the Board of Directors.
The term of office of each officer of the Company ends at the next annual
meeting of the Company's Board of Directors, expected to take place immediately
after the next annual meeting of stockholders, or when such officer's successor
is elected and qualifies.
CLEMENT LAU, has been the President, CEO and a director since March
1999. He was the president and a partner in Tilde Multimedia Inc., Vancouver,
British Columbia, from March 1997 to March 1999, an Internet development company
that specialized in website and CD-ROM development. He attended Vancouver Film
School, receiving a certificate in multimedia program in 1997; and Columbia
Academy of Radio, Television & Recording Arts, receiving a certificate in film
and video production in 1996. From May 1994 to June 1995, he was the owner and
operator of a restaurant in Vancouver. As the operator, he managed all aspects
of the business: starting up operations, leasing, design, decorating,
advertising, public relations, personnel, entertainment, menu creation, and
inventory control
WILLIAM J. HADCOCK has been the Vice President of Marketing and
Distribution and a director since March 1999. He worked for Astral Home
Entertainment, a Canadian company which distributes software, CDs and DVDs, from
1990 to August 1999 as a district sales representative in Scarborough, Ontario
(1990-92), corporate account manager in Toronto, Ontario (1992-94), and branch
manager in Vancouver, British Columbia (1994-99). As the branch manager, he
supervised 21 employees and was responsible for key account management, studio
relations, budget implementation, and warehouse/showroom operations.
MARC BELCOURT has been the Vice President of Technology and a director
since March 1999. He was the lead programmer and production manager for CRM
Training Inc., a multimedia firm located in Vancouver, British Columbia,
specializing in interactive training software for the marine safety industry,
from May 1997 to August 1999. Mr. Belcourt has also provided website design,
development, and programming services as an independent contractor to other
companies. He attended the Vancouver Film School, receiving a certificate in
multimedia program in 1997. From February 1995 to May 1996, he was the owner and
operator of a convenience store in downtown Vancouver. Mr. Belcourt received a
bachelor's degree in fine arts from the University of Saskatchewan in 1994.
LEN VOTH has been a director since March 1999. Since February 1989, Mr.
Voth has worked for Westech Information Systems in Vancouver, British Columbia.
He has been a managing consultant since January 1996, providing consulting and
advisory services for technology selection, contract services, financial
services, marketing, and operations. He served as a marketing manager from
February 1989 to January 1996. Prior to his employment with Westech, he worked
as a computer programmer in Vancouver and Calgary, Alberta. Mr. Voth received a
bachelor's degree in mathematics in 1970 from the University of British Columbia
and a diploma in computer programming from McKay Technical Institute in 1968. He
is a member of the Canadian Information Processing Society and has professional
certification as a content development provider, Internet service provider, and
content service provider.
8
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Messrs. Lau, Belcourt, Voth, and Hadcock may be deemed to be "parents"
of the Company within the meaning of the rules and regulations of the Securities
and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended June 30, 2000, Messrs. Lau, Belcourt,
Voth, and Hadcock failed to file their reports on Form 3 (Initial Statement of
Beneficial Ownership of Securities) and Form 4 (Statement of Changes in
Beneficial Ownership) on a timely basis.
ITEM 10. EXECUTIVE COMPENSATION.
Cool Washington entered into a Management Agreement dated March 1,
1999, with Cool Management Inc. (now known as Fictional Media Inc.), a British
Columbia corporation. Pursuant to the terms of that Agreement, Cool Management
provided management services to Cool Washington which included management of
Cool Entertainment's business of Internet distribution of audio and visual
products, design and maintenance of the website, provision of operational and
strategic leadership to Cool Entertainment, keeping the directors informed about
major policy issues, reporting results of operating activities to the directors,
provision of recommendations for financial budgeting, and provision of advice to
the directors concerning possible acquisitions and divestitures by Cool
Entertainment. The Agreement has been terminated.
Cool Management in turn had entered into employment agreements with
Clement Lau, William Hadcock, and Marc Belcourt, and a consulting agreement with
Len Voth. Cool Entertainment was obligated to pay Cool Management a fee equal to
the amounts payable under these employment or consulting agreements plus 10% of
such amount. All of the employment and consulting agreements had the same term
as the Management Agreement described above. In addition, all of the employment
and consulting agreements provided for confidentiality of information and
contain a covenant not to compete for a period of one year after the termination
of employment. The initial terms of the employment and consulting agreements are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Employee/ Duties to be Performed Base Salary/
Consultant Consulting Fees
Clement Lau o Oversight of management of Company's business; $50,000 per year
o Provision of operational and strategic leadership to Company;
o Keeping the directors informed about major strategic issues;
o Monitoring and maintaining Company's relationship with
Chelsea Pacific
o Oversight and development of business alliances for the
Company; and
o Provision of advice to directors concerning possibility
and desirability of acquisitions and divestitures by the
Company
William Hadcock o Management and supervision of Company sales program; $50,000 per year
o Establishment and development of distribution links for
markets outside of North America
o Establishment, maintenance, and monitoring of
distribution links within North America
o Establishment and maintenance of Company's relations with
record companies and movie studios
o Management and supervision of efforts to sell
advertising on Company's website; and
o Management and supervision of Company's efforts to obtain
marketing and co-operative advertising funds from record
companies and movie studios
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<PAGE>
<S> <C> <C>
Employee/ Duties to be Performed Base Salary/
Consultant Consulting Fees
Marc Belcourt o Development of website; $50,000 per year
o recruitment and supervision of technical and development
staff;
o Equipment procurement;
o Software procurement;
o Database development; and
o Project development and management
Len Voth o Consulting services as requested by the Company $25,000 per year
</TABLE>
In addition to their base salaries, Messrs. Lau, Hadcock, and Belcourt receive
employee benefits such as health, accident, life, and long-term disability
insurance coverage.
For the fiscal year ended June 30, 2000 and the period from November 3,
1998 to June 30 1999, the Company incurred cash compensation expense of $nil and
$56,567, respectively.
In the fall of 1999, the agreements were amended to decrease the
compensation to Cdn.$60,000 for Messrs. Lau, Hadcock, and Belcourt and Cdn.$30
per hour for Mr. Voth. As of September 1, 2000, Mr. Lau is no longer paid a
salary.
The following table sets forth information for all persons who have
served as the chief executive officer of the Company during the last three
fiscal years:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER
ANNUAL RESTRICT- SECURITIES
NAME AND COMPEN ED STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($) ($) ($) ($) SARs (#) ($) SATION ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clement Lau, 2000 $38,850 -0- $2,535 -0- 300,000 -0- -0-
President and 1999 $17,000 -0- -0- -0- -0- -0- -0-
CEO (1)<F1> (2)<F2>
Leroy Halterman, 1999 -0- -0- -0- -0- -0- -0- -0-
President (3)<F3>
Reg Handford, 1999 -0- -0- -0- -0- -0- -0- -0-
President (4)<F4>
Wolfdietrich F. 1999 -0- -0- -0- -0- -0- -0- -0-
Bruehl, 1998
President (5)<F5>
Charles F. 1998 -0- -0- -0- -0- -0- -0- -0-
Stetler, (6)<F6>
President
----------------
<FN>
(1)<F1> Mr. Lau has been the President since March 1, 1999. The amount shown
reflects compensation paid through the Management Agreement described
above.
(2)<F2> The actual amounts paid for 2000 and 1999 were Cdn$57,500 and
Cdn$25,000, respectively, which are approximately US$38,850 and
US$17,000, respectively, depending upon the exchange rate in effect at
the time.
(3)<F3> Mr. Halterman was the President from September 25, 1998 to March 1,
1999.
(4)<F4> Mr. Handford was the President from August 14, 1998 to September 25,
1998.
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(5)<F5> Mr. Bruehl was the President from June 24, 1998 to August 13, 1998.
(6)<F6> Mr. Stetler was the President from inception to June 23, 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO
OPTIONS/SARs EMPLOYEES IN FISCAL EXERCISE OR BASE
NAME GRANTED (#) YEAR PRICE ($/SH) EXPIRATION DATE
<S> <C> <C> <C> <C>
Clement Lau 300,000 25% $0.625 02/04/03
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS/SARs AT MONEY OPTIONS/
FY-END(#) SARs AT FY-END ($)
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Clement Lau -0- -0- 300,000/0 0/0
</TABLE>
The Company does not pay monetary compensation to its directors, nor
does the Company compensate its directors for attendance at meetings. The
Company does reimburse the directors for reasonable expenses incurred during the
course of their performance.
On February 4, 2000, the Company granted options to each of Clement
Lau, Marc Belcourt, William Hadcock, and Len Voth to purchase 300,000 shares of
Common Stock at $0.625 per share through February 4, 2003. The options expire
three years from the grant date.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Common Stock of the Company, as of September 19, 2000:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS (1)<F1>
BENEFICIAL OWNERSHIP
<S> <C> <C>
Marc G. Belcourt 5,736,011 (2)<F2> 15.07%
9139 Carver Crescent
North Delta, British Columbia
V4C 6N1 Canada
Leonard Wayne Voth 5,736,011 (2)<F2> 15.07%
4422 Stone Crescent
West Vancouver, British Columbia
V7V 1B7 Canada
Clement K.M. Lau 5,720,011 (2)<F2> 15.03%
5484 Rugby Avenue
Burnaby, British Columbia
V5E 2N1 Canada
11
<PAGE>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS (1)<F1>
BENEFICIAL OWNERSHIP
<S> <C> <C>
William J. Hadcock 5,376,011 (2)<F2> 14.13%
Apt. 1301 -- 238 Alvin Narod Mews
Vancouver, British Columbia
V6B 5Z3 Canada
All officers and directors as 22,568,044 (3)<F3> 57.94%
a group (4 persons)
-------------------
<FN>
(1)<F1> This table is based on 37,752,401 shares of Common Stock outstanding on
September 19, 2000. If a person listed on this table has the right to
obtain additional shares of Common Stock within sixty (60) days from
September 19, 2000, the additional shares are deemed to be outstanding
for the purpose of computing the percentage of class owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(2)<F2> Includes shares issuable upon exercise of an option to purchase up to
300,000 shares.
(3)<F3> Includes shares issuable upon exercise of an option to purchase up to
1,200,000 shares.
</FN>
</TABLE>
Messrs. Lau, Belcourt, Voth, and Hadcock may be deemed to be "parents"
of the Company within the meaning of the rules and regulations of the Securities
and Exchange Commission.
CHANGES IN CONTROL
Other than the Escrow Agreement described in Item 1. Business, there
are no agreements known to management that may result in a change of control of
the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Lau may be deemed to be a "promoter" of the Company within the
meaning of the Rules and Regulations promulgated by the Securities and Exchange
Commission.
At June 30, 1999, $45,297 was reflected as a receivable on the balance
sheet. This amount had been advanced to Fictional Media Inc. (formerly Cool
Management) to fund development of the Company's website. This amount was later
billed to the Company in accordance with the Company's Management Agreement with
Fictional Media Inc. At June 30, 2000, $2,836 was due to Fictional Media Inc.
for services rendered under the Management Agreement. This payable is
non-interest bearing, unsecured, and due on demand.
In February 1999, Advantage Investment Holding Ltd., a shareholder,
advanced $15,000 to the Company to fund development of its website. At June 30,
1999, this amount was reflected on the balance sheet as a loan payable. This
amount was repaid through the issuance of 28,300 shares of Common Stock in
December 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
REGULATION SEQUENTIAL
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Chelsea Pacific Financial Corp. Agreement dated February 25, 1999(1)<F1> N/A
3.1 Articles of Incorporation, as amended(1)<F1> N/A
3.2 Bylaws(1)<F1> N/A
12
<PAGE>
REGULATION SEQUENTIAL
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
10.1 Management Agreement between Cool Entertainment, Inc., and Cool Management
Inc. dated March 1, 1999 (1)<F1> N/A
10.2 Employment Agreement between Cool Management Inc. and Marc G. Belcourt dated
March 1, 1999 (1)<F1> N/A
10.3 Consulting Agreement between Cool Management Inc. and Leonard Wayne Voth
dated March 1, 1999 (1)<F1> N/A
10.4 Employment Agreement between Cool Management Inc. and William J. Hadcock
dated March 1, 1999 (1)<F1> N/A
10.5 Employment Agreement between Cool Management Inc. and Clement K.M. Lau dated
March 1, 1999 (1)<F1> N/A
10.6 Escrow Agreement between Pacific Corporate Trust Company, Cool
Entertainment, Inc. (Washington), Chelsea Pacific Financial Corp.,
Entertainment, Inc. (Colorado), Clement kar Man Lau, William James Hadcock,
Leonard Wayne Voth, and Marc Gregory Belcourt dated March 1, 1999,
as amended (1)<F1> N/A
10.7 Form of Registration Rights Agreement between Cool Entertainment, Inc. and
each of Clement Kar Man Lau, William James Hadcock, Leonard Wayne Voth, and
Marc Gregory Belcourt dated March 1, 1999 (1)<F1> N/A
21 Subsidiaries of the registrant(1)<F1> N/A
27 Financial Data Schedule 30
-------------------
<FN>
(1)<F1> Incorporated by reference to the exhibits to the registrant's
registration statement on Form 10-SB, file number 0-28879.
</FN>
</TABLE>
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
13
<PAGE>
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.
COOL ENTERTAINMENT, INC.
Date: September 27, 2000 By:/s/ William J. Hadcock
--------------------------------------
William J. Hadcock, Vice President of
Marketing and Distribution
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C> <C> <C> <C> <C>
/S/ CLEMENT K.M. LAU
----------------------------------------- President, CEO and Director September 27, 2000
Clement K.M. Lau
/S/WILLIAM J. HADCOCK
----------------------------------------- Vice President of Marketing and September 27, 2000
William J. Hadcock Distribution and Director (Principal
Executive, Financial, and Accounting
Officer)
/S/MARC BELCOURT
----------------------------------------- Vice President of Technology and September 27, 2000
Marc Belcourt Director
/s/ LEN VOTH
----------------------------------------- Director September 27, 2000
</TABLE>
14
<PAGE>
Consolidated Financial Statements of
COOL ENTERTAINMENT INC.
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cool Entertainment, Inc.
We have audited the consolidated balance sheets of Cool Entertainment Inc. (a
Development Stage Enterprise) as of June 30, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended June 30, 2000, the period from November 3, 1998 (inception) to
June 30, 1999 and the cumulative period from November 3, 1998 (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 audits.
We conducted our audits in accordance with accepted auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Cool Entertainment, Inc. as at June
30, 2000 and 1999 and the results of its operations and its cash flows for the
year ended June 30, 2000, the period from November 3, 1998 (inception) to June
30, 1999 and the cumulative period from November 3, 1998 (inception) to June 30,
2000 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered losses from
operations and has negative cash flows from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/S/KMPG, LLP
Chartered Accountants
Vancouver, Canada
September 15, 2000
F-2
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
June 30, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Assets ------------- -------------
Current assets:
Cash and cash equivalents $ - $ 89,058
Accounts receivable 84 -
------------- -------------
84 89,058
Receivable from related party (note 3) - 45,297
Property and equipment (note 4) 24,300 -
------------- -------------
$ 24,384 $ 134,355
============= =============
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Bank indebtedness $ 157 $ -
Accounts payable and accrued liabilities 44,005 15,107
Payable to related party (note 3) 2,836 -
Loan payable (note 3) - 15,000
------------- -------------
46,998 30,107
Stockholders' equity (deficiency) (note 6):
Common stock, no par value, authorized 100,000,000 shares;
issued 37,619,401 shares at June 30, 2000 and
35,928,688 shares at June 30, 1999 13,320,355 217,158
Additional paid-in capital 79,521 4,387
Deficit accumulated during the development stage (13,422,490) (117,297)
------------- -------------
(22,614) 104,248
Subsequent events (note 9)
$ 24,384 $ 134,355
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from Period from
Year November 3, November 3,
ended 1998 (inception) 1998 (inception)
June 30, to June 30, to June 30,
2000 1999 2000
------------- ----------------- -----------------
<S> <C> <C> <C>
Operating income:
Sales $ 3,178 $ - $ 3,178
Cost of goods sold 2,765 - 2,765
------------- -------------- -------------
Gross profit 413 - 413
Operating expenses:
Site development and maintenance (note 7) 12,612,461 29,878 12,642,339
Management fees (note 3) 261,945 26,689 288,634
Professional fees (note 9) 282,572 39,447 322,019
Travel, advertising and promotion 97,168 14,780 111,948
Office and administrative 38,411 5,285 43,696
Depreciation 13,049 - 13,049
Organization costs - 1,218 1,218
------------- -------------- -------------
13,305,606 117,297 13,422,903
------------- -------------- -------------
Loss for the period $(13,305,193) $ (117,297) $(13,422,490)
============= ============== =============
Net loss per common share, basic and diluted $ (0.52) $ (0.01) $ (0.63)
============= ============== =============
Weighted average common shares outstanding,
basic and diluted 25,383,924 15,346,241 21,406,776
============= ============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
COMMON STOCK paid-in Subscriptions development stockholders'
Shares Amount capital receivable stage equity
<S> <C> <C> <C> <C> <C> <C>
Balance, November 3, 1998
(Minas Novas Gold Corp.
common stock) 12,483,533 $ 180,958 $ - $ - $ - $ 180,958
Adjustment to comply with
reverse takeover accounting:
o elimination of Minas
Novas common stock - (180,958) - - - (180,958)
o Cool Washington
common stock - 400 - - - 400
Common stock issued to
purchase all issued and
outstanding shares of
Cool Washington, March 1,
1999 (note 2(a)) 23,184,044 11,192 - - - 11,192
Common stock issued for cash,
April 12, 1999 at $0.75 per
share, net of issuance costs
of $2,849 40,000 27,151 - - - 27,151
Common stock issued for cash,
April 23, 1999 at $0.90 per
share, net of issuance costs
of $2,736 121,111 106,264 - - - 106,264
Fully paid stock subscriptions
April 23, 1999, at $0.90 per
share, net of issuance costs
of $113 - - 4,387 - - 4,387
Common stock issued for cash,
May 28, 1999 at $0.75 per
share, net of issuance costs
of $2,849 100,000 72,151 - - - 72,151
Net loss - - - - (117,297) (117,297)
----------- ------------- ---------- --------- ------------- -------------
Balance, June 30, 1999 35,928,688 $ 217,158 $ 4,387 $ - $ (117,297) $ 104,248
=========== ============= ========== ========= ============= =============
</TABLE>
F-5
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity, page 2
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
COMMON STOCK paid-in Subscriptions development stockholders'
Shares Amount capital receivable stage equity
<S> <C> <C> <C> <C> <C> <C>
Fully paid stock subscriptions
July 20, 1999, at $0.65 per
share, net of issuance
costs of $nil - $ - $ 75,000 $ - $ - $ 75,000
Fully paid stock subscriptions
August 6, 1999, at $0.53 per
share, net of issuance
costs of $nil - - 55,985 - - 55,985
Unpaid stock subscriptions
August 6, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 19,015 - - 19,015
Fully paid stock subscriptions
September 10, 1999, at $0.53
per share, net of issuance
costs of $nil - - 70,087 - - 70,087
Unpaid stock subscriptions
September 10, 1999, at $0.53 per
share, net of issuance costs
of $nil - - 5,079 - - 5,079
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.53
per share, net of issuance costs
of $nil 105,625 55,985 (55,985) - - -
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.53
per share, net of issuance costs
of $nil 35,875 19,015 (19,015) - - -
Common stock issued October 1,
1999 to satisfy loan at $0.53
per share 28,300 15,000 - - - 15,000
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.65
per share, net of issuance costs
of $nil 115,375 75,000 (75,000) - - -
Common stock issued October 1,
1999 for fully paid stock
subscriptions at $0.90
per share, net of issuance costs
of $nil 5,000 4,387 (4,387) - - -
</TABLE>
F-6
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity, page 3
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
COMMON STOCK paid-in Subscriptions development stockholders'
Shares Amount capital receivable stage equity
<S> <C> <C> <C> <C> <C> <C>
Fully paid stock subscriptions
December 15, 1999, at $0.25
per share, net of issuance costs
of $nil - $ - $ 123,000 $ - $ - $ 123,000
Unpaid stock subscriptions
December 15, 1999, at $0.25
per share, net of issuance costs
of $nil - - 8,000 (8,000) - -
Common stock issued
January 3, 2000 for fully
paid stock subscriptions at
$0.53 per share, net of
issuance costs of $nil 141,500 75,000 (75,000) - - -
Common stock issued for cash,
January 13, 2000, at $0.61
per share, net of issuance
costs of $nil 46,722 28,500 - - - 28,500
Common stock issued January 3,
2000 for fully paid stock
subscriptions at $0.25, net
of issuance costs of $nil 524,000 131,000 (131,000) 7,000 - 7,000
Common stock issued for cash,
January 27, 2000 at $0.80
per share, net of issuance
costs of $nil 72,500 58,000 - - - 58,000
Common stock issued for cash,
February 1, 2000, at $0.80
per share, net of issuance
costs of $14,440 477,816 209,560 - - - 209,560
Warrants issued for services
(note 6) - - 12,000 - - 12,000
Site development (note 7) - 12,345,500 - - - 12,345,500
Common stock issued for
services March 3, 2000 138,000 86,250 - - - 86,250
Write-off of stock subscription
receivable - - (1,000) 1,000 - -
Common stock issued for
services (note 9) - - 68,355 - - 68,355
Net loss - - - - (13,305,193) (13,305,193)
----------- ------------- ---------- --------- ------------- -------------
Balance, June 30, 2000 37,619,401 $ 13,320,355 $ 79,521 $ - $(13,422,490) $ (22,614)
=========== ============= ========== ========= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from Period from
November 3, November 3,
1998 1998
Year ended (inception) to (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the year $(13,305,193) $(117,297) $(13,422,490)
Items not involving cash:
Depreciation 13,049 - 13,049
Amortization of organization costs - 1,218 1,218
Common stock issued for services 154,605 - 154,605
Warrants issued for financial services 12,000 - 12,000
Site development and maintenance 12,345,500 - 12,345,500
Changes in operating asset and liabilities:
Accounts receivable (84) - (84)
Payable to related party 2,836 - 2,836
Receivable from related party 45,297 (21,930) 23,367
Accounts payable and accrued liabilities 28,898 13,754 42,652
------------- ---------- -------------
Net cash used in operating activities (703,092) (124,255) (827,347)
Cash flows from investing activity:
Purchase of property and equipment (37,349) - (37,349)
Cash acquired on acquisition - 2,960 2,960
------------- ---------- -------------
Net cash provided by (used in) investing activity (37,349) 2,960 (34,389)
Cash flows from financing activities:
Net proceeds from issuances of and
subscriptions for common stock 651,226 210,353 861,579
Bank indebtedness 157 - 157
------------- ---------- -------------
Net cash provided by financing activities 651,383 210,353 861,736
------------- ---------- -------------
Increase (decrease) in cash and cash equivalents (89,058) 89,058 -
Cash and cash equivalents, beginning of period 89,058 - -
------------- ---------- -------------
Cash and cash equivalents, end of period $ - $ 89,058 $ -
============= ========== =============
Supplementary disclosure:
Non-cash transactions:
Stock issued to acquire Cool Entertainment,
Inc. (note 2(a)) $ - $ 8,232 $ 8,232
Stock issued to settle loan payable 15,000 - 15,000
Interest paid - - -
Taxes paid - - -
============= ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
1. GENERAL AND FUTURE OPERATIONS
Cool Entertainment Inc. (the "Company") was incorporated under the laws of
the State of Colorado on June 17, 1996, under the name of Minas Novas Gold
Corp. On February 15, 1999, the Company changed its name to Cool
Entertainment Inc. Prior to its acquisition of Cool Washington (note 2(a)),
the Company was a holding company with no substantive operations.
The Company is currently in the business of retailing entertainment related
products such as CDs, DVDs and videos through its website.
These consolidated financial statements have been prepared on a going
concern basis in accordance with United States generally accepted
accounting principles. The going concern basis of presentation assumes the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in
the normal course of business. Certain conditions, discussed below,
currently exist which raise substantial doubt upon the validity of this
assumption. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure strategic partnerships
There can be no assurance that the Company will be able to secure market
acceptance or strategic partnerships. As of June 30, 2000, the Company is
considered to be in the development stage as the Company has not generated
any significant revenues and is continuing to develop its business, and has
experienced negative cash flows from operations. Operations have primarily
been financed through the issuance of common stock. The Company does not
have sufficient working capital to sustain operations until the end of the
year ended June 30, 2001. Additional debt or equity financing will be
required and may not be available or may not be available on reasonable
terms. Subsequent to June 30, 2000 additional common shares were issued for
cash to finance the operations of the Company (note 9(a)). If sufficient
financing cannot be obtained, the Company may be required to reduce
operating activities.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
On March 1, 1999, the Company issued 23,184,044 common shares for all
of the issued and outstanding shares of Cool Entertainment, Inc. ("Cool
Washington"), a company incorporated in the State of Washington on
November 3, 1998. The acquisition was accounted for as a
recapitalization of Cool Washington effectively representing an issue
of shares by Cool Washington for the net assets of the Company.
F-9
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(a) Basis of presentation (continued):
The net assets acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 2,960
Other working capital, net 22,015
Organizational costs 1,217
Loan payable (15,000)
-------------
$ 11,192
=============
</TABLE>
Acquisition related costs of $23,367 were incurred on this
recapitalization and have been recorded in professional fees.
The historical financial statements reflect the financial position of
Cool Washington from the date of its incorporation on November 3, 1998,
consolidated with those of the Company from March 1, 1999.
(b) Basis of consolidation:
These consolidated financial statements have been prepared using
generally accepted accounting principles in the United States. The
financial statements include the accounts of the Company and its
wholly-owned subsidiary, Cool Washington. All significant intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
(c) Use of estimates:
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the recorded amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and reported
revenues and expenses for the reporting period. Actual results may
significantly differ from those estimates.
(d) Property and equipment
Property and equipment is stated at cost and is depreciated using the
straight line method over their estimated useful lives determined to be
two years.
(e) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Under this method, current taxes are recognized for the
estimated income taxes payable for the current period.
F-10
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Income taxes (continued):
Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between financial statement carrying
amounts of assets and liabilities and their respective tax basis as
well as the benefit of losses available to be carried forward to future
years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in operations in the period that includes
the substantive enactment date. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that such deferred
tax assets will not be realized.
(f) Research and development:
Research and development costs are expensed when incurred. Equipment
used in research and development is capitalized only if it has an
alternative future use.
(g) Cash and cash equivalents:
Cash equivalents includes highly liquid debt investments with remaining
maturities at the date of purchase of three months or less.
(h) Net loss per share:
Basic loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted loss per share is
computed using the weighted average number of common and potentially
dilutive common stock outstanding during the period. As the Company has
a net loss in the period presented, basic and diluted net loss per
share are the same.
Excluded from the computation of diluted loss per share for the period
ended June 30, 1999 are 17,388,033 shares of common stock held in
escrow. The release of these escrowed shares is contingent upon the
Company's achievement of contractually specified financing and website
development milestones. These escrowed shares were released in 2000.
See note 7.
F-11
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Stock based compensation:
The Company accounts for its stock-based compensation arrangement in
accordance with provisions of Acounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense under fixed plans would
be recorded on the date of grant only if the market value of the
underlying stock at the date of grant exceeded the exercise price. The
Company recognizes compensation expense for stock options, common stock
and other equity instruments issued to non-employees for services
received based upon the fair value of the services or equity
instruments issued, whichever is more reliably determined.
SFAS No. 123, Accounting for Stock Based Compensation, requires
entities that continue to apply the provisions of APB Opinion No. 25
for transactions with employees to provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied to these transactions.
3. RELATED PARTY BALANCES AND TRANSACTIONS:
In March, 1999, the Company entered into a contract with a company,
Fictional Media Inc. (formerly known as Cool Management Inc.), which is
controlled by the stockholders of the Company, to provide management
services, site development and other professional services to the Company
at cost plus 10%. For the year ended June 30, 2000, the Company has
incurred $256,334 (1999 - $26,689) as management fees under this contract.
The Company incurred cash compensation expense of $56,567 during the period
from November 3, 1998 (inception) to June 30, 1999 (2000 - $Nil).
The payable to related party is non-interest bearing, unsecured and due on
demand. The balance relates to services rendered by Fictional Media Inc. to
the Company under the contract discussed above.
The receivable from related party at June 30, 1999 of $45,297 is
non-interest bearing, unsecured and due on demand. The funds were advanced
to Fictional Media Inc. to fund development of the Company's website. This
receivable was repaid to the Company during the year ended June 30, 2000.
The loan payable balance at June 30, 1999 of $15,000 arose from a
transaction between a shareholder and the Company. The loan is non-interest
bearing, unsecured and due on demand. This loan was settled during the year
ended June 30, 2000 through the issuance of shares.
F-12
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Computer equipment $ 27,577 $ -
Computer software 9,772 -
------------- ------------
37,349 -
Less accumulated depreciation (13,049) -
------------- ------------
$ 24,300 $ -
============= ============
</TABLE>
5. DEFERRED TAX ASSETS AND LIABILITIES:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Deferred tax asset:
Operating loss carryforward $ 335,920 $ 43,700
Valuation allowance (335,920) (43,700)
------------- ------------
$ - $ -
============= ============
</TABLE>
Management believes that it is not more likely than not that it will create
sufficient taxable income sufficient to realize its deferred tax assets. It
is reasonably possible these estimates could change due to future income
and the timing and manner of the reversal of deferred tax liabilities. Due
to its losses, the Company has no income tax expense.
The Company has operating loss carry forwards for income tax purposes at
June 30, 2000 of approximately $884,000 (1999 - $115,000). Operating losses
begin to expire in fiscal year 2012.
6. WARRANTS:
On February 4, 2000 the Company granted warrants to four directors of the
Company to purchase 1,200,000 common shares at $0.625 per share, being the
market price per common share at the date of the grant. These warrants
expire in three years from their grant date. The Company also elected to
grant on February 4, 2000, warrants to certain shareholders to purchase
1,200,000 common shares at $0.625 per share, being the market price per
common share at the date of the grant. These warrants were valued at
$12,000 and were recorded as a direct financing cost related to prior
equity financings in which these shareholders participated. These warrants
expire in three years from their grant date. All of the warrants are
exercisable immediately but are subject to a one year hold period.
In conjunction with the issue of 477,816 common shares in February 2000,
the Company issued 477,816 warrants to purchase 477,816 common shares at
$1.25 per share. These warrants are exercisable immediately and expire five
years from the issue date.
F-13
<PAGE>
COOL ENTERTAINMENT, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 2000
Period from November 3, 1998 (inception) to June 30, 1999
--------------------------------------------------------------------------------
7. SITE DEVELOPMENT AND MAINTENANCE:
Effective February 25, 2000, the Company reached certain performance
milestones relating to the development of the Company's website. As a
result, 17,388,033 common shares previously held in escrow were released.
Site development and maintenance expense of $12,345,500 has been
recognized, representing the difference between the market value of the
common shares on the date of their release and the original cost of these
common shares.
8. FINANCIAL INSTRUMENTS:
Fair value:
The carrying values of cash and cash equivalents, accounts receivable, bank
indebtedness and accounts payable and accrued liabilities approximate fair
value due to the short-term maturities of these instruments.
It is not practicable to determine the fair value of the loan payable, the
receivable from related party and the payable to related party due to their
related party nature and the absence of a secondary market for such
instruments.
9. SUBSEQUENT EVENTS:
(a) On July 24, 2000, 588,235 common shares were issued for cash
consideration of $0.17 per share to finance the operations of the
Company.
(b) On August 24, 2000, 133,000 common shares were issued to Charterbridge
Financial Group, Inc. as final compensation for its services from March
1, 2000 (initiation of agreement) to July 18, 2000 (termination of
agreement). Expenses of $68,355 relating to the services provided to
the Company for the year ended June 30, 2000 have been accrued for and
are included with professional fees expense.
F-14
