SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, for the quarter ended September 30, 1999
Commission File No. _____
TOPCLICK INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 330755473
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Suite 200, 1636 West 2nd Avenue, Vancouver, British Columbia, Canada V6J 1H4
(Address of registrant's principal executive offices) (Zip Code)
(604) 737-1127
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [_] No [X]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was 13,407,473 on September 30, 1999.
Transitional Small Business Disclosure format (check one):
Yes [_] No [X]
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1.
TOPCLICK INTERNATIONAL, INC.
(Formerly Galveston Oil & Gas, Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to Reader)
<TABLE>
<CAPTION>
ASSETS
September 30, September 30,
1999 1998
<S> <C> <C>
CURRENT
Cash (Note 4) $ 1,398,427 $ 19,099
Goods and Services Tax Receivable 25,029 4,280
Prepaid rent 4,815 --
----------- -----------
1,428,271 23,379
PROPERTY, PLANT AND EQUIPMENT ( Note 3) 118,469 29,642
SOFTWARE DEVELOPMENT COSTS (Note 5) 303,521 --
----------- -----------
$ 1,850,261 $ 53,021
=========== ===========
LIABILITIES
CURRENT
Accounts payable $ 12,579 $ 4,453
----------- -----------
SHAREHOLDERS' EQUITY
Preferred shares, $.001 par value, 20,000 shares
authorized, none issued and outstanding
Common shares, $.001 par value, 99,980,000 shares
authorized, 13,407,473 and 2,450,000 issued and outstanding 13,407 2,450
Additional paid - in capital 2,465,714 66,198
Cumulative translation adjustment 27,562 --
Deficit accumulated during development stage (669,001) (20,080)
----------- -----------
1,837,682 48,568
----------- -----------
$ 1,850,261 $ 53,021
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
2.
TOPCLICK INTERNATIONAL, INC.
(Formerly Galveston Oil and Gas, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND FOR THE PERIOD FROM MAY 15, 1998 (INCEPTION) TO SEPTEMBER 30, 1998
(unaudited - See Notice to reader)
<TABLE>
<CAPTION>
TOPCLICK
INTERNATIONAL, INC. DEFICIT TOTAL
(Formerly Galveston ACCUMULATED SHARE-
TOPCLICK CORPORATION Oil & Gas, Inc.) ADDITIONAL CUMULATIVE DURING THE HOLDERS'
Common Common Common Common PAID-IN TRANSLATION DEVELOPMENT EQUITY
Shares Stock Shares Stock CAPITAL ADJUSTMENT STAGE (DEFICIT)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 15, 1998
(inception) -- -- 2,450,000 $ 2,450 $ 17,456 -- (16,583) 3,323
Net loss for the period -- -- -- -- -- -- (3,497) (3,497)
------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 -- -- 2,450,000 2,450 17,456 -- (20,080) (174)
Issued for acquisition of
internet Property 6,972,774 148,550 -- -- -- -- -- 148,550
Issued for acquisition of
Topclick (Canada) Inc. 514,929 51,758 -- -- -- -- -- 51,758
Issued for services rendered 20,000 20,000 -- -- -- -- -- 20,000
Issued for cash 192,297 255,490 -- -- -- -- -- 255,490
Issued and surrendered in
Acquisition of Topclick
International, Inc.
(reverse merger) (7,700,000) (475,798) 8,800,000 8,800 450,415 -- 16,583 --
Issued for cash -- -- 2,157,473 2,157 1,997,843 -- -- 2,000,000
Cumulative translation
adjustment -- -- -- -- -- 27,562 -- 27,562
Net loss to June 30, 1999 -- -- -- -- -- -- (460,517) (460,517)
------------------------------------------------------------------------------------------------------
Balance June 30, 1999 -- -- -- -- -- -- (464,014) (464,014)
Net loss for the period -- -- -- -- -- -- (204,987) (204,987)
------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 -- $ -- 13,407,473 $ 13,407 $2,465,714 $ 27,562 $(669,001) $1,837,682
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
3.
TOPCLICK INTERNATIONAL, INC.
(Formerly Galveston Oil & Gas, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND THE PERIOD FROM MAY 15, 1998
(INCEPTION) TO SEPTEMBER 30, 1998
(Unaudited - See Notice to Reader)
Period from
Three months May 15, 1998
Ended (Inception)
September 30, to September 30,
1999 1998
EXPENSES
Contract fees $ 71,920 $ --
Accounting and legal 26,726 3,519
Travel 21,691 --
Advertising 20,001 --
Wages and benefits 19,687 --
Internet services 10,692 --
Rent 10,152 --
Securities filing fees 6,176 --
Office expenses 5,813 --
Meals and entertainment 3,254 --
Telephone 2,166 --
Consulting fees 2,007 --
Depreciation 1,582 --
Automobile 1,295 --
Insurance 799 --
Interest and bank charges 370 57
Utilities 271 --
Software 252 --
Education 157 --
- - -------------------------------------------------------------------------------
205,011 3,576
LOSS FROM OPERATIONS (205,011) (3,576)
- - -------------------------------------------------------------------------------
OTHER ITEMS
Interest income 24 79
- - -------------------------------------------------------------------------------
24 3,497
NET LOSS FOR THE PERIOD $ (204,987) $ (3,497)
- - -------------------------------------------------------------------------------
LOSS PER SHARE $ (0.01) $ (0.00)
- - -------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES 13,407,473 2,450,000
============ ============
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
4.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999AND THE PERIOD FROM MAY 15, 1998
(INCEPTION) TO SEPTEMBER 30, 1998
(Unaudited - See Notice to Reader)
<TABLE>
<CAPTION>
Period from
Three months May 15, 1998
Ended (inception)
September 30, to September 30,
1999 1998
<S> <C> <C>
NET LOSS FOR THE PERIOD $ (204,987) $ (3,497)
OTHER COMPREHENSVIE INCOME (LOSS) , Net of tax:
Foreign currency translation adjustments 27,692 --
- - -----------------------------------------------------------------------------------
COMPREHENSIVE LOSS FOR THE PERIOD $ (177,295) $ (3,497)
============ ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
5.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND THE PERIOD FROM MAY 15, 1998
(INCEPTION) TO SEPTEMBER 30, 1998
(Unaudited - See Notice to Reader)
<TABLE>
<CAPTION>
Period from
Three months May 15, 1998
ended (Inception)
September 30, to September 30,
1999 1998
<S> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net (loss) for the period $ (204,987) $ (3,497)
Items not involving cash:
Depreciation 1,582 --
Changes in non-cash working capital --
Accounts payable 10,990 4,453
Goods and Services Tax receivable (8,615) --
Due to director (450) 100
Prepaid rent (4,815) --
- - ----------------------------------------------------------------------------------------
(206,295) 1,056
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 44,362
- - ----------------------------------------------------------------------------------------
-- 44,362
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (47,183) (29,642)
Software development costs (50,386) --
- - ----------------------------------------------------------------------------------------
(97,569) (29,642)
(DECREASE) INCREASE IN CASH (303,864) 15,776
CASH, BEGINNING OF PERIOD 1,702,291 3,323
----------- -----------
CASH, END OF PERIOD $ 1,398,427 $ 19,099
- - ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
6.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999AND THE PERIOD FROM MAY 15, 1998
(INCEPTION) TO SEPTEMBER 30, 1998
(Unaudited - See Notice to Reader)
Period from
Three Months May 15, 1998
ended (Inception) to
June 30, September 30,
1999 1998
Interest Paid $ -- $ --
Income taxes paid -- --
- - --------------------------------------------------------------------------------
$ -- $ --
- - --------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing and Financing Information
Acquisition of assets for issuance of common stock:
Software development costs $ -- --
Topclick (Canada) Inc. -- --
Issuance of common stock -- --
- - --------------------------------------------------------------------------------
$ -- $ --
- - --------------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
7.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to Reader)
NOTE 1 BUSINESS DESCRIPTION
Topclick International, Inc. (formerly Galveston Oil & Gas, Inc. ) (a
development stage company), "the Company", was incorporated on October
3, 1996 under the laws of the state of Delaware in United States of
America. Pursuant to the agreement described in Note 7, the Company
had a change of control, as such, the nature of the business is
changed from development of oil and gas properties to the business of
operating an Internet Website.
Topclick International, Inc. purchased 100% of Topclick Corporation
pursuant to the stock exchange agreement dated February 10, 1999. This
has been accounted for as a reverse acquisition of the Company by
Topclick Corporation.
Topclick Corporation was incorporated under the laws of Delaware on
July 8, 1998. Effective July 8, 1998, Topclick Corporation acquired
100% of Topclick (Canada) Inc. which is a company under common control
and as such the business combination has been accounted for at
historical costs in a manner similar to that in a pooling of
interests.
Topclick (Canada) Inc. was incorporated under the laws of the Canada
Business Corporation Act and commenced operations (deemed date of
inception) on May 15, 1998.
In addition, Topclick Corporation purchased certain Internet assets
from Helpful by Design Inc. which is also under common control. This
has been accounted for at predecessor historical costs.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are expressed in U.S. Dollars,
have been prepared in accordance with accounting principles generally
accepted in United States and include the following significant
accounting policies:
Consolidation
The consolidated financial statements of the Company include the
accounts of the Company and the consolidated accounts of its
wholly-owned subsidiary Topclick Corporation. The consolidated
financial statements of Topclick Corporation also include accounts of
its wholly-owned subsidiary, Topclick (Canada) Inc. All significant
inter-company transactions have been eliminated.
As described in Note 7, Topclick International, Inc. acquired all of
the outstanding common shares of Topclick Corporation. For accounting
purposes, the acquisition has been treated as the acquisition of
Topclick International, Inc. with Topclick Corporation as the acquiror
(reverse acquisition). The historical financial statements prior to
February 10, 1999 are those of Topclick Corporation consolidated.
Pro-forma information giving effect to the acquisition as if the
acquisition took place May 15, 1998 is not presented as the effects
are immaterial.
i) The consolidated financial statements of the combined entities
are issued under the name of the legal parent (Topclick
International, Inc.) but are considered a continuation of the
financial statements of the legal subsidiary (Topclick
Corporation).
<PAGE>
8.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to reader)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
ii) As Topclick Corporation is deemed to be the acquiror for
accounting purposes, its assets and liabilities are included in
the consolidated financial statements at their historical
carrying values in the accounts of Topclick International Inc.
Accounting Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles of United States of
America requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilites and disclosures
in the consolidated financial statements and the accompanying notes.
Actual results could differ from those estimates.
Property, plant and equipment
Property, plant and equipment are recorded at costs and are amortized
in the following manner:
Computers 30% declining balance
Furniture and equipment 20% declining balance
In the year of acquisition, depreciation is calculated at one-half of
the above-noted rates.
Software Development Costs
Software development costs represent costs relating to the development
of the Internet website. These costs will be amortized upon the
commercialization of the Internet website, over three years due to the
nature of business in the of software technology industry.
Loss Per Share
Loss per share is provided in accordance with the Statement of
Financial Accounting Standards No. 128 (SFAS), "Earnings Per Share".
Due to the Company's simple capital structure, only basic loss per
share is presented. Basic loss per share is computed by dividing loss
available to common shareholders by weighted average number of common
shares outstanding for the period.
Foreign currency translation
The Company uses the local currency (Canadian Dollars) as the
functional currency. Assets and liabilities dominated in the foreign
functional currency are translated at the exchange rate of the balance
sheet date. Translation adjustments are recorded as a separate
component of the shareholders' equity. Revenues and expenses
demoninated in foreign currency are translated at the weighted average
exchange for the period.
<PAGE>
9.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice To Reader)
NOTE 2 SIGNIFICANT ACCOUTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes using the liability method.
Under this method deferred income tax liabilities and assets are
computed based on the tax liability or benefit in future years of the
reversal of temporary differences in the recognition of income or
reduction of expenses between financial and tax reporting. Deferred
tax assets and/or liabilities are classified as current and noncurrent
based on the classification of the related asset or liability for
financial reporting purposes, or based on the expected reversal date
for deferred taxes that are not related to an asset or liability.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
NOTE 3 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value Depreciation
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer $ 93,765 $ 15,502 $ 78,263 $ 1,281
Furniture and
Equipment 30,815 3,637 27,178 301
Leasehold 13,362 334 13,028 --
--------------------------------------------------------------------------
$ 137,942 $ 19,473 $ 118,469 $ 1,582
--------------------------------------------------------------------------
</TABLE>
During the three months ended September 30, 1999, $1,281 of
depreciation of the computer was capitialized as software development
costs.
NOTE 4 CASH
At September 30, 1999, approximately $1,398,427 of the total cash is
deposited with RBC Dominion Securities Limited (RBC). It carries
interest at 3 3/4 per annum. It is management's intention to utilize
this account as part of its operating bank account. RBC is Canada's
leader in the investment industry. It is the leading debt and equity
underwriter in Canada and is a member of the Royal Bank Financial
Group. The Royal Bank is Canada's premier global financial services
group with leading market share in personal and business banking,
corporate and investment banking, and wealth management.
<PAGE>
10.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to Reader)
NOTE 5 ACQUISITION OF SOFTWARE DEVELOPMENT COSTS (Continued)
a) Effective July 8, 1998 and pursuant to the terms of the
acquisition agreement dated September 15, 1998, Topclick
Corporation (the legal subsidiary) acquired the Internet property
from Helpful By Design Inc., a company under common control of a
controlling shareholder of Topclick Corporation. The
consideration given was 6,972,774 common shares. The software
development costs acquired by Topclick Corporation from Helpful
By Design Inc. are recorded at processor's costs of $148,550.
b) Pursuant to the same agreement as above, Topclick Corporation
acquired 100% of the outstanding shares of Topclick (Canada) Inc.
from Helpful by Design Inc. for the issuance of 514,929 common
shares of Topclick Corporation. The shares issued have been
recorded at the amount of the net assets of Topclick (Canada)
Inc. at the date of acquisition.
The net assets of Topclick (Canada) Inc. at date of acquisition
consists of the following:
Cash $ 37,158
Receivable 16,000
Accounts payable (1,400)
--------------
$ 51,758
==============
The above transaction between entities under common control has been
accounted for at historical cost in a manner similar to that in a
pooling of interests.
NOTE 6 REVERSE MERGER
Pursuant to the stock exchange agreement dated February 10, 1999, the
Company issued eight common shares in exchange for every seven common
shares of Topclick Corporation. Therefore, at February 23, 1999
(closing date), a total of 8,800,000 common shares were issued by the
Company in exchange for 7,700,000 outstanding common shares if
Topclick Corporation.
As a result of the above transactions, the Company legally controls
Topclick Corporation. However, in substance, the shareholders of
Topclick Corporation control the Company with an ownership of
approximately 71% of its outstanding common shares.
<PAGE>
11.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to Reader)
NOTE 7 FINANCIAL INSTRUMENTS
The Company's financial assets and liabilities consist of cash, Goods
Services Tax receivable, accounts payable, the terms and conditions of
which have been described in the preceding notes.
Credit risk arises from the potential that a debtor will fail to
perform its obligations. The Company is subject to credit risk through
its cash deposits. However, these cash deposits are placed in a
well-capitalized, high quality financial institution (Note 4).
Accordingly, concentrations of credit risk are considered to be
minimal.
Interest rate risk is the risk to the Company's earnings that would
arise from fluctuations in interest rates, and would depend of the
volatility of these rates. The Company's borrowings from external
parties is not substantial. Accordingly, its interest rate risk is
considered to be minimal.
Financial risk is the risk to the Company's earnings that would arise
from fluctuations in interest rates and foreign exchange rates, and
would depend on the volatility of these rates. The Company does not
use derivative instruments to reduce its exposure to interest and
foreign currency risk on its cash deposits held in Canadian funds.
NOTE 8 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 be experienced before, on, or after
January 1, 2000, and if not addressed, the impact on operations and
financial reporting may range from minor error to significant system
failure which could affect an entity's ability to conduct normal
business operations. Management believes they have taken appropriate
course of action to ensure that the Company's technologies are Year
2000 compliant. However, it is not possible to be certain that all
aspects of the Year 2000 issue effecting the entity, including those
related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
<PAGE>
12.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to reader)
NOTE 9 DEFERRED INCOME TAXES
Significant components of the Company's deferred income taxes and
liabilities at September 30, 1999 and 1998 are as follows:
September 30, September 30,
1999 1998
Deferred income tax asset
Net operating loss $ (687,691) $ --
Other 18,690 --
------------ -------------
Total deferred income tax asset (669,001) --
valuation allowance 669,001 --
------------ -------------
Net deferred income tax liability $ -- $ --
------------ -------------
Reconciliation's of the effective tax rate to the Canadian statutory
rate is as follows:
Tax expense at Canadian
statutory rate 45.6% 45.6%
Change in valuation allowance (45.6%) (45.6%)
------------ -------------
Effective income tax rate --% --%
------------ -------------
The company has Canadian net operating loss carryforwards of
approximately $462,603 that expire in 2006.
The Company operates its business in its Canadian subsidiary Topclick
(Canada) Inc. and as such has losses carried forward for Canadian
income tax purposes.
NOTE 10 CONTINGENCIES
The Company is the subject of a lawsuit by an individual who is
claiming ownership interest in common stock of Helpful By Design Inc.
(HBD). HBD sold certain assets, including a website to Topclick
Corporation. As described in note 6 there was a share exchange between
Topclick Corporation and the Company that resulted in the Company
legally controlling Topclick Corporation.
The individual has filed a lawsuit in the Supreme Court of British
Columbia seeking the force conversion of approximately 500,000 HBD
shares of its .001 par value common stock into shares of the Company's
.001 par value common stock.
It is not possible to estimate the amount of a contingent loss in
respect of this legal action. The impact on earnings per share is not
material.
<PAGE>
13.
TOPCLICK INTERNATIONAL, INC.
(formerly Galveston Oil & Gas, Inc.)
( A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited - See Notice to reader)
NOTE 11 COMMITMENTS
The Company has commitments under certain contracts of employment and
consulting agreements as follows:
2000 $ 88,970
Further, contracts of employment and consulting agreements call for
the granting of stock options to the individuals under contract. The
option agreement have not been formally prepared and signed at
September 30, 1999 as management is in the process of creating a
formal Stock Option Plan.
Options for the issuance of 776,000 shares of the company are
committed to be granted upon the creation of the Stock Option Plan at
a price less than $1.00 per share to be determined at the time of the
granting of the options.
NOTE 12 COMPARATIVE FIGURES
The comparative figures have been reclassified to conform with the
presentation adopted in the current period.
Item 2. Plan of Operation
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
INCLUDING, WITHOUT LIMITATION, FORWARD-LOOKING STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE STRATEGIES. FORWARD-
<PAGE>
LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE HAPPENING OF FUTURE EVENTS
AND ARE NOT BASED ON HISTORICAL FACTS. FORWARD-LOOKING STATEMENTS MAY BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "COULD", "MAY",
"WILL", "EXPECT", "SHALL", "ESTIMATE", "ANTICIPATE", "PROBABLE", "POSSIBLE",
"SHOULD", "CONTINUE", "INTEND" OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR
THE NEGATIVE OF THOSE TERMS. THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS
REPORT HAVE BEEN COMPILED BY MANAGEMENT OF THE COMPANY ON THE BASIS OF
ASSUMPTIONS MADE BY MANAGEMENT AND CONSIDERED BY MANAGEMENT TO BE REASONABLE.
FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND
NO REPRESENTATION, GUARANTY, OR WARRANTY IS TO BE INFERRED FROM THOSE
FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview. The Company's primary source of revenue is the sale of the Company's
securities. The Company presently has external sources of capital through
financing from third party lenders. On or about January 28, 1999, the Company
entered into a Financing Agreement which provided the Company with $2,000,000.
The Company believes that it may be able to acquire additional financing at
commercially reasonable rates; however, there can be no assurance that the
Company will be able to obtain additional financing at commercially reasonable
rates, or at all. The Company has expended, and will continue to expend in the
future, substantial funds on the research and development of its products and
services. The failure of the Company to obtain additional financing would
significantly limit or eliminate the Company's ability to fund its research and
development activities, which would have a material adverse effect on the
Company's ability to continue to compete with other Internet directory service
providers.
The Company has not yet realized any revenue from operations. In the quarter
ending September 30, 1999, the Company expended $303,521 in software development
costs, as compared with no funds expended during the quarter ending September
30, 1998. These expenditures represent costs relating to the development of the
Company's Internet website. The Company anticipates that these costs will be
amortized upon the commercialization of the Company's Internet website over
three years due to the nature of the software technology business. During the
three months ended September 30, 1999, $1,281 of depreciation of the Company's
computer equipment was capitalized as software development costs. The Company
does not anticipate purchasing or selling any significant equipment within the
next 12 months.
2
<PAGE>
The Company's operating expenses increased significantly during the three month
period ending September 30, 1999 as compared with the three month period ending
September 30, 1998. The Company's accounting and legal expenses, cumulatively,
increased from $3,519 during the three month period ending September 30, 1998 to
$26,726 during the three month period ending September 30, 1999 due to increased
reporting requirements, as the Company is now a reporting company required to
file quarterly and annual reports with the Securities and Exchange Commission.
The Company's advertising expenses increased from zero dollars expended during
the three month period ending September 30, 1998 to $20,001 expended during the
three month period ending September 30, 1999. The Company also had a
corresponding increase in office expenses, from zero dollars expended during the
three month period ending September 30, 1998 to $5,813 expended during the three
month period ending September 30, 1999. The total wages and benefits paid to
employees of the Company increased from zero dollars in the three month period
ending September 30, 1998 to $19,687 in the three month period ending September
30, 1999.
The Company's loss from operations increased from a loss of $3,576 during the
period from inception (May 15, 1998) through September 30, 1998 to $205,011
during the three month period ending September 30, 1999, due to increased
software development costs, increased advertising costs, increased wages and
benefits paid to employees, and increased operations without generating any
revenues. The Company's net loss for the period ending September 30, 1999 was
$204,987, a significant increase over the net loss of $3,497 for the
corresponding three month period in 1998. The Company's loss per share of common
stock was $0.01 per share. Loss per share is computed by dividing loss available
to common shareholders by weighted average number of common shares outstanding
for the period.
At September 30, 1999, the Company had deposited approximately $1,398,427 with
RBC Dominion Securities Ltd. ("RBC"), earning interest at 3.75% per annum.
Management of the Company intends to utilize these funds as part of its
operating account. RBC is a leading debt and equity underwriter in Canada and a
member of the Royal Bank Financial Group, a global financial services group.
Therefore, Management of the Company believes that the Company can satisfy its
cash requirements for the next 12 months without raising any additional funds.
The Company realized $27,692 during the three month period ending September 30,
1999 from foreign currency translation adjustments. The Company uses the local
currency, which is Canadian Dollars, as its functional currency. Assets and
liabilities denominated in the foreign functional currency are translated at the
exchange rate of the balance sheet date. Translation adjustments are recorded as
a separate component of the shareholders' equity. Revenues and expenses
denominated in foreign currency are translated at the weighted average exchange
rate for the period.
Company's Plan of Operation for Next 12 Months. The Company anticipates
generating revenues from commission referral fees during the next 12 months. The
Company contemplates that it will direct Internet traffic to e-commerce vendors;
in return, the Company anticipates receiving a commission referral fee ranging
from 8% to 25%. The Company also anticipates more direct involvement in
e-commerce. For example, the Company has recently opened a virtual bookstore by
packaging approximately 300 books on privacy issues. The Company intends to sell
these books over the Internet and receive sales commissions. The Company
anticipates deriving revenues from the virtual bookstore within the next 6
months.
While the Company is considering the possibility of generating revenues from
subscription fees from subscribers for certain proposed Internet services, the
Company does not currently provide any specialized services and does not
currently have any subscribers. The Company is considering providing
personalized information services
3
<PAGE>
to paid subscribers but has not yet determined the scope of such services nor
the subscription rates for such services.
The Company derives certain consumer data from customer profiles. During the
past 12 months, the Company contemplated generating revenues through the sale of
this consumer data to third parties. However, as specified above, the Company
recently opened a virtual bookstore relating to privacy issues, and Management
of the Company believes that selling research data (commonly referred to as
"aggregated data") to advertisers or market researches may not comport with the
Company's privacy-related businesses. While it is a common practice for entities
with high traffic volume websites to sell such aggregated data, this proposed
policy is currently under review by Management of the Company. Therefore, the
Company may elect to forego this potential revenue source.
In the same way, websites with high traffic volumes typically generate
advertising fees through the sale of banner and other types of Internet
advertising. The Company has not yet determined whether it will sell such
advertising on its website. Moreover, in the event the Company elects to sell
such advertising, the Company's advertising revenues will depend, in part, on
the volume of traffic at the Company's website.
A "link" is a selectable connection from one word, picture, or information
object to another on the Internet. The most common form of link is the
highlighted word or picture that can be selected by the user (with a mouse or in
some other fashion), resulting in the immediate delivery and view of another
file. The highlighted object is often referred to as an "anchor". The anchor
reference and the object referred to constitute a hypertext link. The Company
anticipates that it will seek logo and URL linking arrangements with targeted
sites. The Company intends to develop "tell-a-friend" extensions to the TopClick
site to make it easy for existing users to electronically tell friends about the
Company's services.
The Company may decide to provide free content enhancement and free advertising
on a by-subject approach to the top Internet guides. For example, the Company
may provide the Yahoo Golf website with links and coverage on the Company's Golf
Guide page. The Company anticipates entering into certain strategic partnership
agreements to provide content and links to existing high-value news information
providers, such as ESPN in its "sports" section and PointCast in its "business"
section. The Company further intends to promote its products and services by
developing on-site competitive games and contests.
Developing Site Traffic. The Company believes that it must develop volume
traffic on its site in order to be successful. Once traffic volume has been
established, the Company believes that it will become a distribution point for
advertisers and will develop opportunities to participate in sponsorship
agreements, electronic commerce agreements and joint marketing ventures. The
Company intends to build its initial equity value measured by traffic (that is,
page views) and then intends to develop multiple revenue streams as a broker of
diverse audience interests. There is no assurance, however, that the Company
will build an equity base which will be considered worth acquiring. Initially,
the Company will offer its products and services free to its customers,
strategic partners and media partners.
In keeping with this strategy, the Company will concentrate its marketing
efforts on increasing site traffic. Promotional space and other content on the
site will be provided free to content partners, to increase traffic. The Company
intends to form strategic relationships with the existing top Internet guides,
including providing free content links to areas of their sites that those guides
want to promote (for example, by providing free content links to the Yahoo Golf
Guide). Through the use of free space inside the TopClick guide, the Company
intends to develop a database of advertising contacts, media contacts, and
Internet guide contacts. At the same time, the
4
<PAGE>
Company will attempt to increase volume to the Company's site using an
integrated marketing communications program to existing and new Internet users.
The Company further intends to develop piggy-back marketing programs and
cross-promotional opportunities with other online media. The Company anticipates
increasing its top sites to 25,000 top sites from 5,000 top sites during the
next 12 months. The TopClick guide will be offered free to users, strategic
partners (such as existing Internet guides) and other media partners.
The Company will retain records of and analyze information areas that users
visit most frequently on its website, allowing the Company to develop specific
indexes and guides based on user demand.
Name Identification. The Company has purchased additional domain names and will
attempt to prevent third parties from adopting names similar to TopClick. The
Company has entered into various domain name registration agreements for
Topsearches.com, Mytopclick.com, Topclicking.com, Topclick-Inc.com,
Topclickinc.com, Top-Clicks.net, Topclick.net, Topclicks.net, Topclicks.com,
Top-click.com, Top-clicks.com, Top-click.net, Lookmarks.com with Network
Solutions, Inc. ("NSI"). NSI is responsible for the registration of second-level
Internet domain names in the top level COM, ORG, NET, and EDU domains. NSI
registers these second-level domain names on a first come, first served basis.
By registering a domain name, NSI does not determine the legality of the domain
name registration, or otherwise evaluate whether that registration or use may
infringe upon the rights of a third party. Effective February 25, 1998, NSI
revised its domain name dispute policy which provides, among other things, that
if a registrant files a civil action related to the registration and use of a
domain name, and provides NSI with a copy of the file-stamped complaint, NSI
will maintain the status quo ante of the domain name record pending a final or
temporary decision of that court. In such cases, NSI will deposit control of the
domain name into the registry of the court by supplying the registrant with the
registry certificate for deposit. While the domain name is in the registry of
the court, NSI will not make any changes to the domain name record unless
ordered by the court.
The Company believes that this revision to NSI's domain name dispute policy will
discourage frivolous claims against the domain names held by the Company. Domain
name registrations are effective for two years and may be renewed year-to-year
thereafter.
Expanding Internet Markets. Nua, one of Europe's leading online consultants and
developers, estimates that there were approximately 100 million Internet users
worldwide in January, 1998. According to a recent report in Computer
Intelligence, the growth rate of Internet users may have increased by as much as
30% in 1998. The Company anticipates that it may benefit from that growth;
however, no guaranty can be provided that such will occur.
According to reports in trade magazines such as Computer Intelligence, North
American Internet users represent more than 80% of all users. Until a year ago,
almost 99% of the 13 million servers hooked to the Internet were distributed
throughout North America, Western Europe and Japan. Internet advertising revenue
has grown significantly since 1996, and, in 1998, approached the total
advertising revenue for all domestic national newspaper revenues. Most analysts
predict that this significant growth rate will continue through the year 2000.
Netscape World recently predicted that Internet advertising revenues will
surpass those of all domestic national newspaper revenues by this year. The
Company should benefit from such growth; however, no guaranty can be provided
that the Company will so benefit.
State of Readiness for Y2K. The Company has performed an assessment of the
Company's information technology ("IT") systems as well as its non-IT systems
(such as embedded technology in manufacturing or process control equipment
containing microprocessors or other similar circuitry) relating to the Y2K
problems
5
<PAGE>
previously referenced herein. The Company evaluated all hardware and software
for Y2K compliance by using sources from the Internet, by contacting
manufacturers, and by contacting third party suppliers of phone systems and
security systems. Additionally, the Company reviewed product documentation for
Y2K compliance where such was available.
The in-house workstations of Company employees and subcontractors are Pentium
Personal Computers which utilize Windows 95 and Office 97+ software. The Company
believes that all critical applications of that software are Y2K compliant. The
Company has one additional workstation which is also Y2K compliant.
Built on a UNIX platform, the server hardware and software for the webserver
environments used to host and serve the TopClick website are also Y2K compliant.
After conducting testing and evaluation, the Company believes that its phone
system, its Network Hub, its power backup systems and its security system are
all Y2K compliant. The Company's facsimile machine, however, is not Y2K
compliant.
Cost to Address the Company's Y2K Issues. The only significant equipment
replacement cost the Company anticipates is approximately CDN$600 (approximately
US$392.16) to replace the Company's facsimile machine. The Company does not
anticipate any additional upgrade, replacement, or equipment servicing charges
to become Y2K compliant. The Company will monitor external service providers
through the Year 2000 at a cost of approximately CDN$125.00 (approximately
US$81.70). Therefore, based on current estimates, the costs of addressing this
issue are not expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows. The potential impact of
the Y2K issue on significant customers, vendors and suppliers of the Company
cannot be reasonably estimated at this time.
The Company's Contingency Plans. To prevent electrical failures from adversely
affecting the Company's operations, the Company performs regularly scheduled
data backups and connects its computer system to backup power systems. Through
the Year 2000, the Company will continue to communicate with its electrical and
telecommunications providers to remain informed about (i) the status of such
suppliers' Y2K compliance, and (ii) the potential impact that the failure of
these suppliers to become Y2K compliant will have on the Company.
Employees. During the next 12 months, depending on the success of the Company's
market expansion plan, the Company may be required to hire additional employees;
however, the Company is not able to provide a reasonable estimate of the number
of such additional employees which may be required at this time.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Except as specified below, there are no legal actions pending against the
Company nor are any such legal actions contemplated.
In March, 1999, the Company was informed that Allen Lees, a resident of British
Columbia, was claiming an ownership interest in certain shares of common stock
of Helpful By Design, Inc. ("HBD"). Mr. Lees claim to ownership of such HBD
shares arises from consulting services which Mr. Lees was engaged to perform on
behalf of HBD under its former name, Voxtech Communications, Inc. , beginning in
or about 1993. HBD disputes Mr. Lees' claim of ownership to those HBD shares.
The Company has become involved in this dispute because in September, 1998, HBD
sold certain assets, including a website, to one of the Company's subsidiaries,
TopClick Corporation ("TC"), for, among other consideration, the issuance of
7,000,000 shares of $.001 par value common
6
<PAGE>
stock of TC. TC later entered into a stock exchange agreement with the Company
which provided, among other things, that, as consideration for the exchange,
assignment, transfer, conveyance, setting over and delivery of the shares of TC
to the Company, the Company issued 8 shares of its $.001 par value common stock
for every 7 shares of TC $.001 par value common stock.
Mr. Lees has filed a lawsuit in the Supreme Court of British Columbia seeking to
force conversion of approximately 500,000 HBD shares into shares of the
Company's common stock. In addition to HBD, the Company and its Chief Executive
Officer, Chris Lewis, have also been named as defendants in this lawsuit. The
Company intends to vigorously defend this action.
Item 2. Changes in Securities
Management of the Company is currently preparing a Stock Option Plan by which it
is contemplated that officers, directors, and employees of the Company will be
granted stock options. The Company's Board of Directors has not yet approved and
adopted the proposed Stock Option Plan. The Company anticipates initially
granting options to purchase approximately 776,000 shares of the Company's
common stock at an exercise price less than $1.00 per share, subject to approval
by the Company's Board of Directors.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
3.1 Certificate of Incorporation
(Charter Document)*
3.2 Amendment to Certificate of Incorporation
(Charter Document)*
3.3 Bylaws*
4. Instruments Defining the Rights of Holders (not applicable)
10.1 Financing Agreement
7
<PAGE>
(material contract)*
10.2 Frontier GlobalCenter, Inc. Agreement
(material contract)*
11. Statement Re: Computation of Per Share Earnings**
15. Letter on Unaudited Interim Financial Information
18. Letter on Change in Accounting Principles (Not applicable)
19. Reports Furnished to Security Holders (Not applicable)
22. Published Report Regarding Matters Submitted to Vote
(not applicable)
23.1 Consent of Auditors*
23.2 Consent of Counsel*
24. Power of Attorney is included on the Signature Page of the
Registration Statement*
27. Financial Data Schedule
99. Additional Exhibits (not applicable)
*Previously filed as Exhibits to Registration Statement on Form SB-2 filed with
the Commission on July 8, 1999.
**Previously filed as Exhibit to Annual Report on Form 10-KSB filed with the
Commission on October 8, 1999.
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K with the Commission during the
three month period ending September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, British Columbia, on November 9, 1999.
TopClick International, Inc.,
a Delaware corporation
By: /s/ Chris Lewis
------------------------
Its: President
8
BUCKLEY DODDS
================================================================================
NOTICE TO READER
We have compiled the consolidated balance sheet of Topclick International, Inc.
as at September 30, 1999 and the consolidated statements of operations, deficit
and cash flows for the three months then ended from information provided by
management. We have not audited, reviewed or otherwise attempted to verify the
accurancy or completeness of such information. Readers are cautioned that these
statements may not be appropiate for their puproses.
/s/ BUCKLEY DODDS
Vancouver, B.C. Chartered Accountants
November 4, 1999
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