AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ADVERTAIN ON-LINE INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
NEVADA 7319 91-1921796
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
----------------------------------------------------
341 Water St., 3rd Floor
Vancouver, B.C.
Canada V6B 1B6
604/685-0667
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
A Cage
Advertain On-Line Inc.
341 Water St., 3rd Floor
Vancouver, B.C.
Canada V6B 1B8
604/685-0667
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED
PRINCIPAL PLACE OF BUSINESS)
----------------------------------------------------
COPIES TO:
STEVEN A. SANDERS, ESQ.
BECKMAN, MILLMAN & SANDERS LLP
116 JOHN STREET, SUITE 1313
NEW YORK, NEW YORK 10038
(212) 406-4700
----------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Registration
Securities to be Registered (1) Registered Security Price Fee
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001par 1,000,000 $1.50 $1,500,000(2) $517
value
Underlying Common Stock, 1,000,000 $1.50 $1,500,000(2) $517
$0.001 par value
-------------------------------------------------------------------------------------------------------------------
Total 2,000,000 $3,000,000 $1,034
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The issuance is a unit consisting of one common share and one warrant to buy
the underlying common share at an exercise price of $1.50.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended (the "Securities
Act").
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
2
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 28, 2000
PRELIMINARY PROSPECTUS
1,000,000 Units
ADVERTAIN ON-LINE INC.
Common Stock
This is an offering of shares of common stock of Advertain On-Line Inc.
Advertain is offering to sell 1,000,000 units with each unit consisting of one
share of common stock and one warrant to purchase one share of common stock at
$1.50 per share.
Advertain's common stock is quoted on the Pink Sheets under the symbol
"AVTO". On June 30, 2000, the last reported sale price of the common stock was
$0.60 per share. See "Price Range of Common Stock."
INVESTMENT IN THIS COMMON STOCK INVOLVES CERTAIN RISKS AND IMMEDIATE
SUBSTANTIAL DILUTION IN THE COMMON STOCK. SEE "RISK FACTORS" ON PAGE 6.
THE DATE OF THIS PROSPECTUS IS _______, 2000
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................................................................................................1
About Us ................................................................................................1
Our Offices..............................................................................................1
THE OFFERING......................................................................................................2
Use of Proceeds..........................................................................................2
Trading Symbol...........................................................................................2
Risk Factors.............................................................................................2
Termination..............................................................................................2
Plan of Distribution.....................................................................................2
Risk Factors.............................................................................................2
SUMMARY FINANCIAL DATA............................................................................................3
RISK FACTORS......................................................................................................4
We Do Not Have Sources for Working Capital if Needed............................................4
We Have Minimal Operating History or Revenue or Assets.............................................4
Arbitrary Determination of Offering Price................................................................4
Use of Proceeds Not Specifically Allocated...............................................................4
Our Officers and Directors May Have Conflicts of Interest.........................................5
Products and Services are Untested.......................................................................5
We May Not be Able to Keep Up With the Rapid Technological Change and
Dependence on New Products......................................................................5
Development of Markets Required for Successful Performance by Advertain..................................5
We May Not Be Able to Protect Our Intellectual Property..................................................5
Advertain's Business is Highly Competitive...............................................................6
We will Depend on Key Personnel to Control Our Business and Our Business May
Suffer if They are Not Retained............................................................6
Penny Stock Reform Act: Possible Inability to Sell in the Secondary Market. .............................6
Dilution from Exercise of Options........................................................................7
The potential acquisition of Advertain is more difficult as a result of charter provisions.
...............................................................................................7
Shares Eligible for Future Sale Could Depress the Price of Our Shares...............................7
We Will Not Pay a Cash Dividend in the Near Future.......................................................7
We Make Estimates of Our Future In Forward-Looking Statements....................................8
USE OF PROCEEDS...................................................................................................9
DILUTION ........................................................................................................10
CAPITALIZATION...................................................................................................11
PRICE RANGE OF COMMON STOCK......................................................................................12
DIVIDEND POLICY..................................................................................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SELECTED FINANCIAL DATA..........................................................................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................................................15
BUSINESS ........................................................................................................17
Mission ...............................................................................................17
Advertain.com--Consumer Appeal..........................................................................17
Advertain.com...........................................................................................18
The Board of Advisors...................................................................................19
The Advertain Advertising Network.......................................................................19
Sales Strategy..........................................................................................20
Marketing Strategy......................................................................................21
Employees...............................................................................................22
Seasonality.............................................................................................22
Legal Matters...........................................................................................22
Facilities..............................................................................................22
MANAGEMENT.......................................................................................................23
Directors and Executive Officers........................................................................23
Board of Directors and Executive Officers...............................................................25
Board Committees........................................................................................25
Compensation of Directors...............................................................................25
Executive Compensation..................................................................................26
Employment and Consulting Agreements....................................................................26
1999 and 2000 Stock Option Plans........................................................................26
Limitation of Liability and Indemnification.............................................................27
CERTAIN TRANSACTIONS.............................................................................................28
PRINCIPAL STOCKHOLDERS...........................................................................................28
DESCRIPTION OF SECURITIES........................................................................................28
Common Stock............................................................................................28
Private Placements......................................................................................29
Transfer Agent and Registrar............................................................................30
Plan of Distribution....................................................................................30
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................31
SHARES ELIGIBLE FOR FUTURE SALE..................................................................................31
LEGAL MATTERS....................................................................................................31
EXPERTS ........................................................................................................32
AVAILABLE INFORMATION............................................................................................32
</TABLE>
<PAGE>
Advertain On-Line Inc.
1,000,000 UNITS
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the securities. You should read the entire prospectus
carefully, especially the risks of investing in the securities discussed under
"Risk Factors" on page 4.
About Us
Advertain On-Line Inc. was initially incorporated in the State of Nevada on
September 1, 1998. Advertain intends to become the central mediating force and
definitive authority in the emerging industry where entertaining content is
branded by advertisers or advertisement is made to be entertaining. Management
believes that as the demand for and the production of "Advertainment" increase,
Advertain will provide first the research tools to create, refine and track the
effectiveness of Advertainment, and second, the network on which it can be
exposed as part of a new internet advertising model. These two goals will be
managed as separate entities within the business, although they are
complimentary in function: Advertain.com for market research, and the Advertain
Advertising Network for exposure.
On June 23, 1999, Advertain acquired all of the issued and outstanding
shares of Advertain On-Line Inc. As consideration, Advertain issued 1,550,000
shares of common stock, all of which are restricted shares within the meaning of
Rule 144 promulgated under the Securities Act of 1933, as amended. The issuance
of the 1,550,000 common shares of Advertain represented about 24% of the issued
and outstanding shares of common stock at June 23, 1999.
Our Offices
Our offices are located at 341 Water St., 3rd Floor, Vancouver, B.C.
Canada, V6B 1B8. Advertain's telephone number is 604/685-0667
1
<PAGE>
THE OFFERING
Common Stock Offered by Advertain................................. 1,000,000
Warrants offered by Advertain..................................... 1,000,000
Common Stock to be outstanding prior to offering.................. 8,176,140
Warrants to be outstanding prior to offering...................... 650,000
Common Stock to be outstanding after the offering................. 9,176,140
Warrants to be outstanding after this offering ................... 1,650,000
Use of Proceeds
Advertain intends to use its portion of the proceeds for salaries,
marketing, prizes, general and administrative expenditures, development of the
business, working capital and other general corporate purposes. See "Use of
Proceeds."
Trading Symbol
Advertain presently trades over the Pink Sheets under the symbol "AVTO".
Risk Factors
An investment in the shares involves a high degree of risk. See "Risk
Factors" beginning on page 4 of this prospectus.
Termination
We plan to close the offering on ______, 2000.
Plan of Distribution
There is no underwriter for the offering. Our officers intend to sell
Advertain's shares directly on a best efforts, no-minimum basis. Proceeds may be
used as received.
Risk Factors
For a discussion of the risks you should consider before investing in the
common stock, see "Risk Factors."
2
<PAGE>
SUMMARY FINANCIAL DATA
(Dollar amounts and share data)
The following financial information has been derived from Advertain's
financial statements included elsewhere in this prospectus. This data should be
read in conjunction with those financial statements and the related notes. It is
qualified in its entirety by Advertain's financial statements, related notes and
other financial information included elsewhere in this prospectus. See
"Financial Statements".
Three Month
Year Ended Period Ended
December 31, March 31,
1999 2000
(audited) (unaudited)
Balance Sheet Data:
Total assets ................................ $ 300,867 $ 655,439
Current liabilities ......................... $ 195,809 $ 67,037
Long-term debt .............................. $ 0 $ 0
Total stockholders' equity (deficit) ........ $ 105,058 $(551,994)
Statement of Operation Data:
Revenue ..................................... $ 0 $ 0
Expenses:
Total Expenses ............................ $ 373,367 $ 186,336
Income from operations ...................... $ 0 $ 0
Loss before income taxes .................... $(373,367) $(186,336)
3
<PAGE>
RISK FACTORS
An investment in the common stock of Advertain involves a high degree of
risk. Investors could lose their entire investment. Prospective investors should
carefully consider the following factors, along with the other information set
forth in this prospectus, in evaluating Advertain, its business and prospects
before purchasing the common stock.
We Do Not Have Sources for Working Capital if Needed.
The timing and amount of capital requirements are not entirely within our
control and cannot accurately be predicted. If capital is required, we may
require financing sooner than anticipated. We have no commitments for financing,
and we can not be sure that any financing would be available in a timely manner,
on terms acceptable to us, or at all. Further, any equity financing could reduce
ownership of existing stockholders and any borrowed money could involve
restrictions on future capital raising activities and other financial and
operational matters. If we were unable to obtain financing as needed, we could
be bankrupt.
We Have Minimal Operating History or Revenue or Assets.
We were only recently organized and we have a limited operating history and
must be considered in the development stage. Our operations will be subject to
all the risks inherent in the establishment of a developing enterprise and the
uncertainties arising from the absence of a significant operating history. We
may continue to be unprofitable. For the three months ended March 31, 2000 and
the year ended December 31, 1999, we had net losses of $186,336, and $373,367,
respectively. We had no revenue from inception to the year ended December 31,
1999 and for the three months ended March 31, 2000. As of March 31, 2000, we had
total assets of $655,439 and a stockholders' deficit of $(551,994). We continue
to experience losses and we depend upon the implementation of our business plan
to continue our business. Even if we are able to fully implement our business
plan, there is no guarantee that we will become profitable.
Arbitrary Determination of Offering Price
The price of the shares being offered bears no relationship to the assets,
book value or net worth of Advertain and should not be considered as an
indication of our actual value. The offering price of the shares was determined
arbitrarily by management. See "Dilution".
Use of Proceeds Not Specifically Allocated.
Approximately 12% of the proceeds of this offering are not specifically
allocated. Management expects to use approximately $180,000 of the net proceeds
from this offering for unallocated working capital. Management expects to use
the balance of the proceeds for general corporate purposes, including working
capital and capital expenditures in our operations. Consequently, management
will have broad discretion to allocate the proceeds of the offering and the
amounts actually expended for working capital or capital expenditures may vary
significantly depending on a number of factors, including the amount of cash
generated or used by our operations.
4
<PAGE>
Our Officers and Directors May Have Conflicts of Interest.
Our officers and directors will participate in business ventures which
could be deemed to compete directly with us. Additional conflicts of interest
and non-arms length transactions may also arise in the future in the event our
officers or directors are involved in the management of any firm with which we
transacts business.
Products and Services are Untested.
We have created a web site whose primary purpose is to collect and
distribute entertaining advertising on the Internet. The advertisements
generated by us are tested and we have a fully operational site for Internet
users to visit. No assurances can be given that we will be able produce in
sufficient quantities, advertisements for sale or that it will attract
advertisers to our site. Furthermore, there can be no assurance that Internet
users will view our Internet site in sufficient numbers to make our products and
services viable.
We May Not be Able to Keep Up With the Rapid Technological Change and Dependence
on New Products.
The market for software is characterized by rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products incorporating new technologies and the emergence of new
industry standards could render existing products and technology obsolete and
unmarketable. The life cycle of our proposed products is difficult to estimate.
Our future success will depend largely upon our ability to develop and
introduce, on a timely basis, new products that keep pace with technological
developments and merging industry standards and address the increasingly
sophisticated needs of its customers. We cannot assure that we will be
successful in developing and marketing product enhancement or new products that
respond to technological change or evolving industry standards, that we will not
experience difficulties that could delay or prevent the successful development
introduction and marketing of these products, or that any products developed by
us will adequately meet the requirements of the marketplace and achieve market
acceptance. Management expects delays in the development and introduction of new
products and product enhancement. The length of these delays is unpredictable
and the inability to introduce new products in a timely matter would have a
materially adverse effect on us
Development of Markets Required for Successful Performance by Advertain.
We only have limited marketing activity and there can be no assurance that
our marketing program, when further developed and employed, will be successful.
Our financial performance will depend, in part, on market acceptance of our
products which will require substantial marketing efforts and expenditures of
significant funds. See "Business-Strategy".
We May Not Be Able to Protect Our Intellectual Property
We will rely primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
any proprietary technology that we may develop. In addition, we will seek to
avoid disclosure of any trade secrets it may develop including requiring those
persons with access to our information that is developed to
5
<PAGE>
execute confidentiality agreements with us and restricting access to any of our
source codes that might be developed. We will seek to protect any software we
develop and associated documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.
Despite our efforts to protect any proprietary rights, unauthorized parties
may attempt to copy aspects of any products developed by us or to obtain and use
information that we regard as proprietary. Policing unauthorized use of products
that we hope to develop is difficult and while we are unable to determine the
extent to which piracy of software exists, software piracy can be expected to be
a persistent problem. In addition, the laws of many countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that our means of protecting any proprietary rights we
may develop will be adequate or that our competitors will not independently
develop similar technology.
To date, we have not developed any proprietary rights but there can be no
assurance that if and when we develop products those third parties will not
claim infringement by us. We expect that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require Advertain to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could have a material adverse effect upon our
business, operating results and financial condition.
Advertain's Business is Highly Competitive
We are in a development stage with limited business operations. Our
business environment is highly competitive. There are a number of companies,
which compete both directly and indirectly with our products and services, which
are more established and have much more money and resources than us.
We will Depend on Key Personnel to Control Our Business and Our Business May
Suffer if They are Not Retained
We are not sure that we will be able to retain our employees or to identify
or rehire additional people. The need for people is particularly important in
light of the anticipated demands of future growth and the competition. Our
inability to attract, hire or retain good people could have a bad effect on us.
We are highly dependent on our key employees, including technical, sales,
marketing, information systems, financial and executive personnel due to our new
products and the new markets and new sales people we have recently hired.
Therefore, our success depends upon our ability to train and retain these people
and to identify, hire and retain additional people as the need arises.
Competition for these people is substantial.
Penny Stock Reform Act: Possible Inability to Sell in the Secondary Market.
In October 1990, Congress enacted the "Penny Stock Reform Act of 1990" (the
"90 Act") to counter fraudulent practices common in penny stock transactions.
Rule 3a51-1 of the Exchange Act defines a "penny stock" as an equity security
that is not, among other things: a) a
6
<PAGE>
security registered or approved for registration and traded on a national
securities exchange that meets certain guidelines, where the trade is effected
through the facilities of that national exchange; b) a security listed on
NASDAQ; c) a security of an issuer that meets certain minimum financial
requirements ("net tangible assets" in excess of $2,000,000 if the issuer has
been continuously operating for less than three years, or $5,000,000 if the
issuer has been continuously operating for more than three years, or "average
revenue" of at least $6,000,000 for the last three years); or d) a security with
a price of at least $5.00 per share for the transaction in question or that has
a bid quotation (as defined in the Rule) of at least $5.00 per share. Under Rule
3a51-1(d)(3), Advertain's Common Stock falls within the definition of a "penny
stock". Pursuant to the 90 Act, brokers and/or dealers, prior to effecting a
transaction in a penny stock, will be required to provide investors with written
disclosure documents containing information concerning various aspects of the
market for penny stocks including specific information about the penny stock and
the transaction involving the purchase and sale of that stock (e.g., price
quotes and broker-dealer and associated person compensation). Subsequent to the
transaction, the broker will be required to deliver monthly or quarterly
statements containing specific information about the penny stock. Because our
shares are at this time designated "penny stocks", these added disclosure
requirements will likely negatively affect the ability of purchasers herein to
sell their shares in the secondary market.
Dilution from Exercise of Options
After this offering , we will have approximately 11,898,860 shares of
common stock authorized but unissued and not reserved for specific purposes, an
additional 2,275,000 shares of common stock unissued but reserved for issuance
under our option plans. All of such shares may be issued without any action or
approval by our stockholders. Any issuance of these additional shares of common
stock would further dilute the percentage ownership of Advertain held by the
investors in this offering.
The potential acquisition of Advertain is more difficult as a result of charter
provisions.
Certain provisions of Nevada law could make more difficult a merger, tender
offer or proxy contest involving us, even if those events could benefit our
stockholders. These provisions could limit the price that certain investors
might be willing to pay in the future for share of our common stock or preferred
stock.
Shares Eligible for Future Sale Could Depress the Price of Our Shares
Sales of a substantial number of shares of common stock in the public
market following this offering, or the perception that sales could occur, could
make the market price of the common stock prevailing from time to time go down
and could impair our future ability to raise capital through a sale of our
stock. Upon completion of this registration, there will be 9,176,140 shares of
common stock outstanding, 5,935,000 of which will be freely tradable without
restriction.
We Will Not Pay a Cash Dividend in the Near Future.
We have never declared or paid any cash dividends on its capital stock and
do not anticipate paying cash dividends in the foreseeable future.
7
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We Make Estimates of Our Future In Forward-Looking Statements.
The statements contained in this prospectus that are not historical fact
are "forward- looking statements," which can be identified by the use of
forward-looking terminology as "believes," "expects," "may," "will," "should,"
or "anticipates," the negatives thereof or other variations thereon or
comparable terminology, and include statements as to the intent, belief or
current our expectations with respect to the future operations, performance or
position. These forward-looking statements are predictions. We cannot assure you
that the future results indicated, whether expressed or implied, will be
achieved. While sometimes presented with numerical specificity, these
forward-looking statements are based upon a variety of assumptions relating to
our business, which, although considered reasonable by us, may not be realized.
Because of the number and range of the assumptions underlying our forward-
looking statements, many of which are subject to significant uncertainties and
contingencies beyond our reasonable control, some of the assumptions inevitably
will not materialize and unanticipated events and circumstances may occur
subsequent to the date of this prospectus. These forward-looking statements are
based on current information and expectation, and we assume no obligation to
update. Therefore, our actual experience and results achieved during the period
covered by any particular forward-looking statement may differ substantially
from those anticipated. Consequently, the inclusion of forward-looking
statements should not be regarded as a representation by us or any other person
that these estimates will be realized, and actual results may vary materially.
We can not assure that any of these expectations will be realized or that any of
the forward-looking statements contained herein will prove to be accurate.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to Advertain On-Line Inc. from the sale of 100%, 50% and
20% of the common stock offered in this offering are listed below after
deducting estimate offering expenses of $40,000 and assuming that no commissions
are to be paid for any of the shares to be sold. These proceeds are intended to
be utilized substantially as follows:
<TABLE>
<CAPTION>
Application of Approximate Approximate Approximate
Proceeds Amount at 20% Amount at 50% Amount at 100%
<S> <C> <C> <C>
Salaries $45,000 $125,000 $265,000
Prizes 65,000 177,000 365,000
Legal 15,600 43,000 83,000
Canadian Office 4,400 10,000 22,000
Marketing 60,000 150,000 321,000
New York Office 30,000 93,000 180,000
IR Budget 10,000 27,000 44,000
Unallocated Working 30,000 85,000 180,000
Capital
======================================================================
Total 260,000 710,000 1,460,000
----------------------------------------------------------------------
</TABLE>
The amounts apportioned above are only estimates. As of the date of this
prospectus, we anticipate expending the above total of $1,460,000 within 12
months of its receipt by us. See "Risk Factors." The actual amount expended to
finance any category of expenses may be increased or decreased by our Board of
Directors, in its discretion, if required by our operating expenses or if a
reapportionment or redirection of funds, including acquisitions consistent with
our business strategy, is deemed to be in our best interest. However, as of the
date of this prospectus, we have no specific plans, arrangements, understandings
or commitments with respect to any such acquisition. See "Risk Factors,"
"Business" and "Management's Discussion and Analysis of Financial Condition or
Plan of Operation."
Pending use of the proceeds from this offering as set forth above, we may
invest all or a portion of such proceeds in short-term, interest-bearing
securities, U.S. Government securities, money market investments and short-term,
interest bearing deposits in major banks.
9
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DILUTION
Purchasers of the Common Stock offered hereby can expect an immediate and
substantial dilution of their investments. Set forth below is a discussion of
the dilution, which an investor would experience upon purchasing a share of
Common Stock in the Offering. The consolidated net tangible book value of
Advertain as of March 31, 2000 was $402,704. "Consolidated net tangible book
value" is the net tangible assets of Advertain (total assets less total
liabilities and intangible assets) (see "Unaudited Financial Statements"). As of
the date hereof, there are 9,773,750(1) Shares of Advertain's common stock
outstanding. Therefore, the consolidated net tangible book value as of March 31,
2000 was $0.04.
After giving effect to the number of outstanding shares as of the date of
this Offering Document, and in the event that all Units offered hereby are sold
(2,000,000 Shares) and assuming that no commissions are paid, the pro forma
consolidated net tangible book value of the Common Stock as of March 31, 2000
would be $5,083,719 or $0.42 per share. These figures give effect to the
deduction of all of the estimated expenses of the offering, including all
printing, legal, accounting, blue sky and other fees. The pro forma consolidated
net tangible book value of each share will have increased by approximately $0.38
per share to the present stockholders, and decreased by approximately $1.08 per
Share to the investors herein if all 2,000,000 Shares are sold.
Dilution represents the difference between the offering price of the shares
offered hereby and the pro forma consolidated net tangible book value per share
immediately after the completion of this private offering. Dilution arises
mainly from the arbitrary decision by management as to the offering price per
share. Dilution of the value of the shares purchased by the investors in this
offering will also be due, in part, to the lower book value of the Shares
presently outstanding, and in part, to expenses incurred in connection with this
offering. The following table illustrates this dilution.
Offering price per share of common stock offered hereby ............. $1.50
Net tangible book value per share before offering ................... $0.04
Increase per share attributable to new investors .................... $0.42
Pro forma net tangible book value per share after offering .......... $0.38
Net tangible book value dilution per share to new investors ......... $1.08
-------------------------
(1) For fully diluted purposes, common shares, 650,000 warrants and 1,235,750
stock options which are either vested or that will vest in three months
following the date of this Registration Statement. However, this figure
does not include the 270,000 shares of common stock underlying the units
issued pursuant to the June, 2000 private placement or the 18,140 shares of
common stock issued in the April, 2000 private placement. See "Private
Placements" on page 29.
10
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CAPITALIZATION
The following table sets forth the actual cash and capitalization of
Advertain as of March 31, 2000 and the adjusted capitalization, which gives
effect to the sale of 100% of the common stock offered in this offering as if it
occurred on March 31, 2000. It is conceivable that no shares of common stock
will be sold in this offering. This table should be read in conjunction with the
financial statements and related notes included elsewhere in this prospectus.
As of Assuming all
March 31, 1,000,000
2000 Units sold(2)
Cash and Equivalents $ 383,421 $5,064,436
Short-term debt $ 67,037 $ 67,037
Long-term debt $ 0 $ 0
Stockholders equity (deficit): $ 588,402 $2,038,402
Common Stock,
$0.001 par value; 25,000,000
authorized, 7,888,000(3) actual,
12,061,890 fully diluted $ 7,888 $ 12,061
Additional paid in capital $ 869,083 $5,538,037
Subscription Received in advance $ 263,425 $ 0
Accumulated deficit $ 551,994 $ 602,012
Total stockholders equity (deficit) $ 588,402 $2,038,402
----------------------
(2) For fully diluted purposes, assuming all warrants and vested options are in
the money, the amount of common shares outstanding including those
registered by this registration statement are 12,061,890 (common shares
9,176,140, warrants 1,650,000, options vested or that will vest in three
months following the date of this document 1,235,750). Of the warrants
650,000 are exercisable at $1.00 and 1,000,000 are exercisable at $1.50. Of
the options 160,000 are exercisable at $0.25, 745,750 are exercisable at
$0.50 and 330,000 exercisable at a $1.00.
(3) As of March 31, 2000.
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PRICE RANGE OF COMMON STOCK
Advertain has been trading on the Pink Sheets under the symbol AVTO since
January 19, 2000. The following table sets for the high and low closing prices
for the common stock for the periods indicated. As of June 30, 2000, there were
approximately 54 holders of record of the common stock. On June 30, 2000, the
closing sales price of Advertain's common stock was $0.60 per share.
High Low
Second Quarter through $1.55 $0.60
June 30, 2000
First Quarter through $1.99 $1.00
March 31, 2000
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DIVIDEND POLICY
Advertain has never declared or paid any cash dividends. Advertain
currently does not intend to pay cash dividends in the foreseeable future on the
shares of common stock. Management intends to reinvest any earnings in the
development and expansion of Advertain business. Any cash dividends in the
future to common stockholders will be payable when, as and if declared by the
Board of Directors of Advertain, based upon the Board's assessment of:
o the financial conditions of Advertain;
o earnings;
o need for funds;
o capital requirements;
o prior claims of preferred stock to the extent issued and outstanding;
and
o other factors, including any applicable laws.
Therefore, there can be no assurance that any dividends on the common stock
will ever be paid.
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SELECTED FINANCIAL DATA
The following selected financial information concerning Advertain has been
derived from the financial statements included elsewhere in this prospectus and
should be read in conjunction with such financial statements and the related
notes. The financial information as of March 31, 2000 has been derived from the
unaudited financial statements of Advertain prepared by Accounting Services
Inc., Suite 1260, Stock Exchange Tower, 809 Granville Street, Vancouver, B.C.,
Canada, telephone 604-685-7450.
Balance Sheet Data:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1999 March 31, 2000
----------------- --------------
(audited) (unaudited)
<S> <C> <C>
Total assets ................................. $ 300,867 $ 655,439
Current liabilities .......................... 195,809 67,037
Long-term debt ............................... 0 0
Total stockholders' equity (deficit) ......... 105,058 588,402
Statement of Operations Data:
Revenue ...................................... 0 0
Expenses:
Total Expenses ............................. (373,367) 551,994
Income from Operations ....................... 0 0
Loss before income taxes ..................... (373,367) (551,994)
Provision for income taxes ................... 0 0
Net loss ..................................... (373,367) (551,994)
Net loss per share ........................... (.07) (.02)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained below includes statements of Advertain
management's beliefs, expectations, hopes, goals and plans that are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially form those anticipated in the
forward-looking statements. For a description of such risks and uncertainties,
see the information set forth under the caption "Forward-Looking Statements,"
which information is incorporated herein by reference.
The following discussion and analysis should be read in conjunction with
the information set forth under the caption "Selected Financial Data" and the
financial statements and notes thereto included elsewhere in this prospectus.
Plan of Operation
We have suffered recurring losses from operations and have a working
capital deficiency of $(551,994) which raise substantial concern regarding our
ability to continue as a going concern. We believe that the proceeds of this
offering will enable us to maintain our operations and working capital
requirements approximately for the next 12 months, without taking into account
any internally generated funds from operations. We will need to raise $1,500,000
to continue operations for the next 12 months based on our capital expenditure
requirements we expect capital to be raised pursuant to sales of the shares of
common stock registered by this registration statement.
We have the authority to issue 25,000,000 shares of common stock, $0.001
par value. Prior to this filing, we have raised all funds through private
placements. In July 1998, we issued 1,000,000 shares of common stock to one of
our founders for $1,000 and 50,000 shares of common stock to another founder for
$50. In March 1998, we issued 4,000,000 shares of common stock in connection
with an additional private offering for $40,000. In March 1999, we issued 35,000
shares of common stock in connection with an additional private placement
offering for $1,750. In June 1999, the Company issued 1,550,000 shares for
$93,000 and the acquisition of Advertain On Line Canada. In September of 1999
the Company issued 400,000 shares of common stock in connection with an
additional private placement offering for $100,000. In October of 1999, 50,000
shares were returned and cancelled at $0.001 per share. In January of 2000 the
Company settled a loan of $5,820 from an unrelated party by issuing 23,000
restricted shares under rule 144 of the Securities Act. Also, in January of 2000
the Company issued 500,000 shares of common stock in connection with an
additional private placement offering for $250,000. In March of 2000, the
Company issued 280,000 units at $1.00 per share. Each unit consisted of 1 common
share and 1 warrant to purchase another share of the Company at $1.00 per share.
Also, in March the Company settled a note payable of $105,401 by issuing 100,000
units. Each unit consisted of 1 common share and 1 warrant to purchase another
share of the Company at $1.00 per share. In April the Company issued 18,140
shares of common stock for cash. In July of 2000 the Company issued 270,000
units at $1.00 per share. Each unit consisted of 1 common share and 1 warrant to
purchase another share of the Company at $1.00 per share.
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After this current offering, we will require additional funds to maintain
and expand our operations. These funds may be raised through equity financing,
debt financing, or other sources, which may result in further dilution in the
equity ownership of the shares being offered in this prospectus. There is still
no assurance that, even with the funds from this offering, we will be able to
maintain operations at a level sufficient for an investor to obtain a return on
his investment in our common stock. Currently we have $67,037 in debt. Our
financial statements report a loss of $12,303 for the fiscal period ended
December 31, 1998. For this period, we paid $4,444 in office expenses and $1,050
in management fees to the original founding shareholders. For the period ended
December 31, 1999, we report a loss of $361,064. We paid $16,936 in office
expenses and $10,103 in license fees, $55,250 in consulting fees, $61,146 in
marketing and promotion costs and $136,308 in subcontractors and wages. For the
interim period ended March 31, 2000, we report a loss of $186,336. We paid
$9,964 in office expenses and $1,434 in license fees. After we raise additional
funds through this current offering, we anticipate an increase in the number of
employees to twenty.
Our functional currency is the United States Dollar and our consolidated
financial statements are reported in United States Dollars unless otherwise
stated.
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BUSINESS
Mission
We intend to become the central mediating force and definitive authority in
the emerging industry where entertaining content is branded by advertisers or
advertisement is made to be entertaining. We believe that as the demand for and
production of "Advertainment" increase, we will provide first the research tools
to create, refine and track the effectiveness of Advertainment, and second, the
network on which it can be exposed as part of a new Internet advertising model.
These two goals will be managed as separate business divisions within the
business, although they are complimentary in function: Advertain for market
research, and the Advertain Advertising Network for exposure.
Advertainment is defined as any entertaining, engaging, highly interactive
or highly animated the web based content which is associated directly with a
product or service or commercial brand. Interactive games, product demos,
cartoons, puzzles, informational productions. All these forms of entertainment
can be branded by advertisers. In fact, management believes that it is at the
beginning of an entirely new method of communication and the forms will evolve
rapidly as advertisers realize the value of giving consumers entertainment in
exchange for their time.
We believe that Internet advertisers have a problem. Banners are widely
considered to be losing their efficacy and in some cases just don't work. In our
opinion, they provide very little information about a product or its use. We
believe that many in the advertising industry have already noted that internet
ads need to be "entertaining." We believe that this idea is not new and has been
reiterated regularly in online advertising articles.
Macromedia, the company, which we believe is most responsible for the
proliferation of interactive CD-ROMs as a result of its authoring tool
Macromedia Director, has also led the way for online animation and interactivity
by building the Shockwave plugin which enables the execution of Macromedia
Director and Flash files directly in a browser window. Although, the plug-in has
been available for at least three years, in 1998-99 it took the universal
adoption of it by the major browsers and the proliferation of 56K or better
internet connections to make these interactive technologies appealing for the
masses.
Advertain.com--Consumer Appeal
Presently, our staff searches for Advertainment wherever it is found on the
internet. This alone is a laborious task which provides value to others who can
find it all in our one place. In the future, we anticipates having a substantial
portion of our Advertainment brought to us by an aware industry. We hope to
organize the Advertainment and provide access to it through categories,
keywords, and lists.
Further, we believe that we have significant consumer appeal because our
web site will empower consumers to vote and have an impact on how the
Advertainment is exposed. They will be able to interact with the Advertainment
and naturally form opinions about whether they find it dull, mildly interesting,
or fabulously entertaining. The people will vote and give their opinion. If an
ad is disliked by web surfers it may sink to the bottom of all searches. If web
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surfers consider it to be excellent entertainment and vote accordingly, the
Advertainment may rise to the top of searches.
In July 1999 our web site became operational. We found that visitors to our
web site were spending an average of over 25 minutes there on each visit. We
further found that a typical visitor was seeing more than 13 ads and voting on
between 8-10.
The web site allows visitors to see and vote on Advertainment, but for
those who enjoy the process, we offer a point system which gives them increased
odds of winning better prizes the more they vote and participate as members.
When they become members we do not ask for personally identifiable information,
just generic information like zip codes and postal codes, gender and age.
Important information for market research but not invasive for the member. Even
email addresses are optional and as a result virtually everyone gives their
correct email address.
When participating members win prizes, we award them a dollar value and we
let them choose the prize they want. Presently, there are seven prize
categories. The higher the category, the more points needed to qualify and the
more valuable the prizes.
But even if a person is not interested in being heard, and does not care to
win prizes, the web site's constantly growing collection of entertainment and
design will likely hold their attention. Since advertisers are so well motivated
to outstrip and outshine their competitors, we believe that its site will have
"New Release" appeal.
Advertain.com
We intend to produce a report with general industry analysis for between
$300 - $500. We expect that these reports will be produced in quarterly volumes.
The targets for this will be small ad agencies, content developers, the
webmasters, and web site development companies. With an initial target of
between 200 - 400 reports sold per quarter, we believe that revenues from these
sales could average $125,000 per quarter, or $500,000 for the year.
Our research shows that Jupiter Communications produces a major report on
industry trends each year for $25,000. We envision offering an enhanced market
analysis report related to specific consumer target markets that will be
essential for any company intending to spend greater than six figures on
Advertainment. Produced at least twice a year with a $3,000 - $5,000 price
management projects that it should be possible to sell between 200 - 300 in the
next 12 months for revenues around $1 million.
We also have a number of specialized research products that we will offer
which will allow advertisers to see and test the effectiveness of specific
campaigns. We will provide demographic and psychographic profiling of members in
relation to their votes and comments. From this profiling, we anticipate being
able to provide suggestions for how to more effectively engage their target
market. Tied to this will be the ability to bring members who have already voted
on a given Advertainment back to do detailed surveys. At present, the market
research had not been completed to determine what pricing the market will bear
but we anticipate charging between $15,000 - $25,000 for a thorough survey.
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The Board of Advisors
The board of advisors will provide key insights into the various industries
that Advertain intends to do business in. The advisory board will ideally be
made up of seasoned professionals with experience in industries ranging from
advertising, market research, public relations, and internet commerce. This
board has no managerial function nor any form of executive power in the
organization and will be used strictly for advice, contacts, and information. It
is, however, likely that any or all of the advisory board members may be
retained by Advertain as contractors at which time contractor agreements will be
used.
Currently the Company's Advisory Board consists of Majid Khoury and Dan
Janal. Mr. Khoury's company, Market Explorers, provides qualitative and
quantitative research across North America in English, French, Cantonese and
Mandarin. Its research programs have been used to test advertising creative,
track the impact of advertising programs, and evaluate direct mail promotions
and sponsorships. Mr. Khoury holds an M.B.A. from Concordia University in
Montreal and a B.A. from American University in Beirut, Lebanon. A guest speaker
at numerous marketing conferences, Mr. Khoury has served as co-president of the
Professional Marketing Research Society - BC Chapter, and has published a number
of research papers and articles.
Mr. Janal is an internationally respected Internet marketing consultant,
professional speaker and workshop leader, and best-selling author of eight
books, including "Dan Janal's Guide to Marketing on the Internet." As president
of Janal Communications, Mr. Janal conducts strategic planning seminars and
consultations for clients ranging from start-ups to the Fortune 1000. A former
public relations executive, Mr. Janal was on the public relations team that
launched America Online, the premier online service. He is also a co-founder of
the ShowStoppers Media Reception for technology reporters and companies
exhibiting at Comdex, PC Expo and InternetWorld. He has been a guest speaker at
events sponsored by the U.S. Postal Service, IBM, American Express/IDS, AT&T,
Pacific Bell and the American Chemical Society. He holds bachelor's and master's
degrees in journalism from Northwestern University's Medill School of
Journalism.
The Advertain Advertising Network
Our vision for Advertainment extends well beyond its exposure on the
advertiser's site. We intend to build a network capable of showing Advertainment
throughout the web. We believe that well designed Advertainment can be a brand's
best form of communication.
Much of the Advertainment is designed to appeal to a specific demographic.
We believe that a primary interest for virtually all internet sites is to gather
content that will be interesting to their audiences so that their internet sites
become sticky. Advertainment is entertaining content for their internet sites
that is tailored to their audience's interest and the providers will actually
get paid to show the Advertainment. Unlike a banner ad, after a person
clicks-through and sees an Advertainment, it is our experience that the web
surfers are likely to return to the original site to find more of the same
content. In other words, displaying Advertainment enhances the content value of
the existing internet site and makes the advertiser money at the same time.
Further, the internet site can support their existing business model.
Entertainment sites can have collections
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<PAGE>
of rated entertainment that fits their audience and that will constantly be
changing to keep people coming back. Advertisers will make money for doing what
is in their best interest without footing the bill to build the content
themselves.
We believe that there are some very significant advantages to an
Advertainment network compared to any other form of advertising network on the
internet. For example, our experience shows that it is very difficult to launch
new products or promote upcoming events online because the cost of driving
people to your site is exorbitant. A banner network is too costly to try to use
to launch new products because they drive everyone to a central location,
whereas Advertainment conceptually happens on the sites the people are already
on. Once there are enough affiliates in place, we will seek to secure large
deals with the movie and music industries for promoting all their new releases.
We intend to manage the network, secure the advertising buys, and control
the voting structure and market research information. The network promotes the
Advertain concept by creating a market for Advertainment. It will share revenues
with the affiliates and profit from the traffic on other websites rather than
trying to bring that traffic to its own site. We believe that the network will
likely extend our brand.
We intends to charge advertisers a base rate of 50(cent) for each person
who sees their Advertainment on our network (an Adview). The revenue will be
split 50/50 with the Network. In the next twelve months we hope to attract
between 300 and 500 Network Publishers. We have no way to estimate the average
number of Adviews each Publisher will be able to create since there is no
correlative to the model to base an estimate on.
Sales Strategy
Market Research Sales
We anticipate selling our industry analysis reports in a number of direct
and distributed ways. Industry people will receive monthly top 10 listings from
our Industry Insider Newsletter with editorialized analysis. We believe that
this will create both curiosity and demand for the detailed quarterly reports.
We believe that the involvement of industry people in the editorial process will
encourage industry people to purchase the newsletter. With special rates for
Insiders, we project selling between 200 - 400 each quarter. We estimate selling
the quarterly reports for between $300-$500.
Additionally, we may use an affiliate sales model or other partnering
opportunities to share profits on sales generated with internet publishers whose
audiences belong to the interactive advertising community. We will try to
include deals with several of the ad industry newsletters with the idea of
having our reports bundled with theirs.
We expects that market research that we design specifically for advertisers
will also be sold in several ways such as with a direct sales force. Our
marketing efforts are also expected to create demand for research for companies
seeking test markets, focus groups and consumer feedback in cost effective and
timely fashion. Since we may be the only source for Advertainment research we
hope the relationships with the agencies can be created more quickly in the
environment online.
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Advertain Network Traffic Sales
We will need to sell our network advertising model to the advertisers
and/or their agencies. We expect to charge a base rate of 50(cent) per
clickthrough to an ad that is seen on the network. We anticipate that many of
the companies using Advertain.com for market research regarding their
Advertainment will likely want to expose it on our Network. Further, many of the
companies who have produced Advertainment already will be approached directly by
a sales team. Advertainment sitting on their sites may be an under-utilized
asset and our network may make sense to those who have already spent the money
to build them.
In the same way the banner networks caught on, we suspect that with the
case studies and market research to support it, the network will be attractive
to ad agencies and advertisers trying to make our advertising work.
The initial funding from this offering will fund our projected cash
requirements for the next twelve months at which time it is anticipated that we
will seek additional funding through equity placements. No such placement has
yet been identified or negotiated. Failure to obtain such funding would severely
hamper our ability to complete our business plan.
Marketing Strategy
Advertising
Advertain will need to advertise in the upcoming months in one or two
capacities. We are presently spending $1,500 per month on a small ad campaign on
webstakes.com. This campaign produced 10,000 new members in January 2000 with
exposure to as many as 30,000 people. We have used this small campaign to bridge
the period until its aggressive PR and online marketing can take over after
which time we may stop using conventional online advertising all together.
The majority of advertising spending online will be focused on the
interactive advertising community. We have started a direct mail campaign aimed
at this audience. We will likely also do some print advertising in trade
magazines timed with advertising buys in the online advertising community.
Trade Shows
In addition to off-line advertising we intend to appear in trade shows.
During the Internet World conference in April. Advertain took part in Dan
Janal's Showstoppers event to expose its concept to the media covering the show.
Other conferences and trade shows we may be involved with include Jupiter
Communication's Advertising Forum, and the San Francisco and New York AdTechs.
Managment recognizes the value of exposure during these highly visible events,
but details of when and where will be a function of the evolving PR strategy.
Internet Marketing
We intend to drive traffic using our advertising network, link exchanges,
and viral marketing. We believe that we will create significant branding and
public awareness for our site from our network publishers. Whenever
Advertainment is shown on our network, an additional vote window is also
displayed. This vote window will have its consumer positioning statements while
also providing links back to its site.
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Through link exchanges with strategic partners we hope to gather highly
targeted traffic. For instance, this year we began a strategic relationship with
Brandera.com. They provide a number of valuable services for the interactive
advertising community. Besides traffic exchanged through strategically placed
sponsorship graphics on each other's sites, we have begun a joint effort to
create an industry specific contact list for Advertain. They are promoting the
Advertainment Industry Insider newsletter in exchange for editorial
opportunities and co- branding in it. We receive highly targeted industry
traffic and they receive access to our proprietary listings of how Industry
Insiders vote as opposed to consumers. This same list will later be used to sell
our products and promote our services.
Employees
We presently employ 12 persons full time: 3 Administration, 6 Operations, 3
Sales & Marketing. Within 12 Months management anticipates having approximately
20 Employees: 3 Administrative, 2 clerical, 9 Operations, 6 Sales & Marketing.
The employees are not subject to any collective bargaining agreements and
management feels that its relationship with its employees is good. Furthermore,
management has implemented an employee incentive program in fiscal year 2000.
See "Management - Board of Directors and Executive Officers."
Seasonality
Management does not believe that the change in season will have a material
affect on our financial condition or our operations.
Legal Matters
We are not currently involved in any material litigation or proceeding and
we are not aware of any material litigation or proceeding threatened against us.
There have been no suits involving Advertain, its officers or directors.
Facilities
Advertain On-Line Inc. currently operates out of office space located at
341 Water St., 3rd Floor, Vancouver, B.C. The office space aggregates
approximately 3,000 square feet. We have not leased any manufacturing space at
this time. Advertain On-Line Inc. carries $1,000,000 in liability insurance on
the current office space.
To date, we have no investment or interest in any real estate, nor do any
of our principal officers.
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MANAGEMENT
Directors and Executive Officers
The By-Laws of Advertain provide for a Board of Directors of at least one
director, whose term(s) shall be for one year.
The directors and executive officers of Advertain are as follows:
Name Age Position(s) with Advertain
---- --- --------------------------
A Cage 34 President, CEO, Chairman and Director
Robert Knight 43 CFO, Secretary and Director
Greg Spronken 25 Chief Operating Officer
Corey Rudl 29 Board of Directors
Randy Buchamer 43 Board of Directors
The advisory board of Advertain consists of the following individuals:
Dan Janal 45 Member of Advisory Board
Majid Khoury 39 Member of Advisory Board
A Cage currently serves as Advertain's President and Director, a position
he has held since Advertain acquired Advertain On-Line Canada Inc. on June 23rd,
1999. Mr. Cage was self employed for the previous five years running a company
called Multi Mind Productions. His company specialized in computer graphic
illustration and technical communication with a very high involvement with
internet based training.
Robert Knight served as Advertain's President, Secretary, Treasurer and
Director since inception, July 9, 1998, until June 23, 1999. Robert Knight
serves as CFO and Director of Advertain since appointment May 14, 1999. Mr.
Knight serves as President, Secretary, Treasurer and Director for Adriatic
Holdings Limited, a provider of quality electrical products to the commercial
and industrial electrical industry, since July 9, 1998. Since September 1, 1998,
Mr. Knight served as President and Director of Coretech Industries, Inc., a
development stage company, formed to consolidate the yacht brokerage industry
(no revenues); Centaur BioResearch Inc., which specializes in licensing its
genetic research services and databases to pharmaceutical and biotechnology
companies by the Internet (no revenues); and SmartGate Inc., a supplier of
safety sensor systems to the parking gate industry (no revenues). Since November
1997, Mr. Knight served as President and Director of Peregrine Mineral Resources
Group, Inc., a mineral exploration company (no revenues). From June 24, 1997 to
February 1, 1999, Mr. Knight served as President and Director of ANM Holdings
Corporation who merged with International Menu Solutions Corp., whose shares are
publicly traded OTC- BB. Mr. Knight is no longer involved with the company who
recorded sales of $21,000,000 for its most recent 9 month reporting period. From
March 24, 1997 to July 1, 1998, Mr. Knight served as President and Director of
AFD Capital Group, Inc. a development stage company formed to develop quality
electrical products (no revenues). From November 12, 1996 to February 1, 1999,
Mr. Knight served as President and Director of Biologistics, Inc., a development
stage
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company formed to engage in the business of clinical consulting, contract
packaging and labeling services for clinical studies. The company subsequently
merged with Skintek Labs, Inc. (OTC BB)which continues as an operating company.
From November 1995 to September 1996, Mr. Knight served as President and
Director of BioQuest, Inc., a development stage company formed to develop
therapeutics and vaccines for the effective treatment of the Human
Immunodeficiency Virus (HIV), formerly Victoria Enterprises, Inc. (after the
merger between Victoria Enterprises, Inc. and BioQuest, Inc. became effective,
Mr. Knight resigned as President, Secretary and Treasurer but remained a
director until May 1998). Shares of BioQuest are quoted on the "pink sheets".
From December 1992 to June 1995, Mr. Knight served as President and Director of
J.A. Industries (Canada) Inc., a private British Columbia corporation formed to
become a provider of quality electrical products to the commercial and
industrial electrical industry. Mr. Knight has had no relationship with J.A.
(Canada) Inc. since it was acquired in 1996. From June 1994 to August 1996, Mr.
Knight served as a Director of Everest Security Systems Corporation, a
development stage company formed to become a home alarm service and installation
company. The company subsequently merged with Everest Security Systems
Corporation (OTC BB) who had sales of $13,000,000 for its most recent 9 month
reporting period. From 1991 to September 1996, Mr. Knight served as an
independent financial consultant involved in the administration of public
companies. Mr. Knight has 15 years of experience in corporate management and
finance. Mr. Knight will devote approximately fifty per cent (50%) of business
time to the operations of Advertain On-Line Inc
Greg Spronken is a graduate of the Center for Digital Imaging and Sound in
Vancouver, British Columbia and has a background in animation, illustration and
web design, graphic design, and extensive mid-level experience in banking. Greg
has been an employee of Multi Mind Productions for the past 4 years as Senior
Illustrator and Chief Operations Officer of Advertain On-Line Inc. Mr. Spronken
has also worked for Canada's largest label manufacturing company as Senior
Artist and Production Manager.
Corey Rudl was appointed to Advertain's board of directors in May 2000. Mr.
Rudl owns the Internet Marketing Center(R), a privately held corporation, as
well as four online businesses. He also consults for hundreds of clients from
"mom and pop" or "home-based" businesses to large multimillion dollar
corporations. The Internet Marketing Center specializes in showing small
businesses unique and unconventional ways to promote their business on the
internet. Mr. Rudl started his first online business in 1994 (the birth of
e-commerce on the internet). He has many large online successes "under his
belt". Mr. Rudl gets over 500,000 visitors to his web sites each month and does
over $5.2 million in sales online every year from his online businesses, not
including the millions of dollars in sales he helps generate for his clients.
Randy Buchamer is a principal in Vast Capital Group, a Vancouver,
B.C.-based venture capital firm, and a director of several other public
companies. Prior to his involvement in Vast Capital, Mr. Buchamer was managing
director of operations for The Jim Pattison Group, a privately held
multinational conglomerate. He has held senior management positions at Mohawk
Oil Co., including chief operating officer and chief information officer. He was
also founder and president of two software companies with offices in Los
Angeles, Toronto and Vancouver.
Dan Janal was appointed to Advertain's advisory board on June 13, 2000. Mr.
Janal is an internationally respected Internet marketing consultant,
professional speaker and workshop
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leader, and best-selling author of eight books, including "Dan Janal(1)s Guide
to Marketing on the Internet." As president of Janal Communications, Mr. Janal
conducts strategic planning seminars and consultations for clients ranging from
start-ups to the Fortune 1000. A former public relations executive, Mr. Janal
was on the public relations team that launched America Online, the premier
online service. He is also a co-founder of the ShowStoppers Media Reception for
technology reporters and companies exhibiting at Comdex, PC Expo and
InternetWorld. He has been a guest speaker at events sponsored by the U.S.
Postal Service, IBM, American Express/IDS, AT&T, Pacific Bell and the American
Chemical Society. He received a bachelor of science and a master of science
degrees in journalism from Northwestern University's Medill School of Journalism
in 1977 and 1978, respectively.
Majid Khoury was appointed to the Advertain Board of Advisors on June 9,
2000. Mr. Khoury's company, Market Explorers, provides qualitative and
quantitative research across North America in English, French, Cantonese and
Mandarin. Its research programs have been used to test advertising creative,
track the impact of advertising programs, and evaluate direct mail promotions
and sponsorships. Mr. Khoury holds an M.B.A. from Concordia University in
Montreal and a B.A. from American University in Beirut, Lebanon. A guest speaker
at numerous marketing conferences, Mr. Khoury has served as co-president of the
Professional Marketing Research Society - BC Chapter, and has published a number
of research papers and articles.
Board of Directors and Executive Officers
To date, A Cage, Bob Knight, Cory Rudl, Randy Buchamer, and Greg Spronken
are the executive officers and directors of Advertain On-Line Inc. Directors of
Advertain On-Line Inc. serve until the annual meetings of stockholders and until
their respective successors are duly elected and qualified. The executive
officers are elected annually by the Board of Directors and serve terms of one
year or until their death, resignation or removal by the Board of Directors. All
members of the Board of Directors are eligible to participate in Advertain's
stock option plans. See "Business - Employees."
Board Committees
To date, a formal Board Committee has not been selected.
Compensation of Directors
To date, Mr. Knight has not collected any compensation for his services as
Director of Advertain. Mr. Buchamer received 50,000 options on March 14, 2000,
exercisable at $0.50. Mr. Rudl received 300,000 stock options on April 11, 2000,
exercisable at $1.00.
25
<PAGE>
Executive Compensation
The following summary sets forth the cash and other compensation paid or
accrued by Advertain for the fiscal year ended December 31, 1999 and the three
month period ended March 31, 2000 with respect to services performed by A Cage
as Chief Executive Officer and President, Bob Knight as Chief Financial Officer
and Treasurer and Greg Spronken as Chief Operating Officer.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Other Securities
Name and Annual Underlying All Other
Principle Position Year Salary($) Bonus Compensation Options Compensation
<S> <C> <C> <C> <C> <C> <C>
A Cage
President/CEO 1998 none none none none none
1999 32,250 none none 550,000 none
2000 15,000 none none none none
Robert Knight
Treasurer/CFO 1998 none none none none none
1999 23,000(4) none none none none
2000 9,000 none none none none
Greg Spronken
COO 1998 none none none none none
1999 38,400 none none 20,000 none
2000 9,000 none none 20,000 none
</TABLE>
Employment and Consulting Agreements
The wholly owned subsidiary of Advertain, Advertain On-Line Canada Inc. has
entered into a consulting agreement with Cage Consulting Ltd. for two years
expiring June 23, 2001. The terms of the contract require Advertain to pay Cage
Consulting Ltd.$60,000 USD per annum.
Advertain has also entered into an agreement with Knight Financial Ltd. as
of June 1, 1999. Pursuant to that contract Advertain is to pay Knight Financial
Ltd. $3,000 USD per month.
1999 and 2000 Stock Option Plans
On May 31, 1999, Advertain adopted a employee consultant and advisory stock
option plan. Further, on January 4, 2000, Advertain adopted a employee
consultant and advisory stock option plan. The shares of common stock issued for
services rendered pursuant to the plans shall be authorized by the Board of
Directors of Advertain. Shares may be issued to persons who are, at the time of
issuance, employees or officers of, or consultants or advisors to, Advertain;
and Common Stock may be issued to consultants or advisors who have rendered or
are rendering and are expect to continue to render consulting or advisory
services, including professional advisory services, to Advertain.
---------------------------
(4) Robert Knight paid through Knight Financial Ltd., a private consulting
company.
26
<PAGE>
We have authorized 160,000 shares to employees, exercisable at $0.25 and
1,115,000 shares exercisable for $0.50 in 1999. We have also authorized
1,000,000 shares to employees, exercisable at $1.00 for 2000.
Limitation of Liability and Indemnification
Advertain's Certificate of Incorporation and By-Laws contain provisions
which reduce the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. We are unaware
of any pending or threatened litigation against Advertain On-Line Inc. or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
The Nevada General Corporation Law and Advertain's Articles of
Incorporation and By-laws authorize indemnification of a director, officer,
employee or agent of Advertain against expenses incurred by him or her in
connection with any action, suit, or proceeding to which such person is named a
party by reason of having acted or served in such capacity, except for
liabilities arising from such person's own misconduct or negligence in the
performance of duty. In addition, even a director, officer, employee or agent of
Advertain who was found liable for misconduct or negligence in the performance
of duty may obtain such indemnification if, in view of all circumstances in the
case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification if, in view of all circumstances in the
case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. In so far as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, or persons controlling Advertain pursuant to the foregoing provisions,
management has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than payment by the small business issuer of expenses incurred or paid by
a director, officer, or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
To date, we have not entered into any indemnification agreements with our
officers and directors. Indemnification agreements may require a company, among
other things, to indemnify its officers and directors against certain
liabilities (other than liabilities arising from willful misconduct of a
culpable nature) that may arise by reason of their status or service as
directors or officers. Such agreements may require a company to advance the
expenses of its directors or officers incurred as a result of any proceeding
against them as to which they could be indemnified. In addition, such agreements
may require a company to obtain directors' and officers' insurance if available
on reasonable terms. We reserve the right to enter into indemnification
agreements in the future with our directors and officers.
27
<PAGE>
CERTAIN TRANSACTIONS
During the past two years, we have not entered into a transaction with a
value in excess of $60,000 with a director, officer or beneficial owner of 5% or
more of Advertain's capital stock.
On June 1, 1999 the Company entered into an independent contractor
agreement with Knight Financial Ltd. Pursuant to the terms of the Agreement, the
consultant will prepare, advise, co-ordinate and supervise all administrative
aspects of operating a public company. The original term of the agreement was
until December 31, 1999 at which time the Company exercised the option to extend
the agreement for another six months. Subsequently, the Company has again
extended the consulting contract for an additional 12 months. The Company pays
the consultant $3,000 USD per month for the services performed pursuant to the
agreement.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the shares of
voting stock of Advertain On-Line Inc. as of June 30, 2000 by: (i) each person
who is known by Advertain On-Line Inc. to beneficially own more than 5% of
common stock; (ii) Advertain's Chief Executive Officer; (iii) each director; and
(iv) all directors and executive officers of Advertain On-Line Inc. as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of Shares Percentage of
Owner Beneficially Owned Ownership
<S> <C> <C>
G.M. Capital Partners 1,000,000 12.23
Place de Saint-Gervais 1
Case Postale 2049
CH-1211 Geneve 1
A Cage 1,550,000 18.99%
341 Water Street 3rd Floor
Vancouver, B.C. V6B 1B8
All executive officers and 1,550,000 18.99%
directors as a group (1 person)
</TABLE>
DESCRIPTION OF SECURITIES
Common Stock
General. Advertain's authorized capital stock consists of 25,000,000 shares
of common stock, $.001 par value per share. As of June 30, 2000, there were
8,176,140 shares issued and outstanding held by 55 holders of record. All shares
of common stock currently outstanding are validly issued, fully paid and
non-assessable. Furthermore, all shares which are the
28
<PAGE>
subject of this prospectus, when issued and paid for pursuant to this offering,
will be validly issued, fully paid and non-assessable. At the completion of this
offering, the present stockholders of Advertain as of June 30, 2000 will own
beneficially 10.9% (including the sale of 1,000,000 units offered herein) of
shares outstanding if all of the shares offered in this prospectus are sold.
Voting Rights. Each share of common stock entitles the holder thereof to
one non- cumulative vote, either in person or by proxy, at meetings of
stockholders. Since holders of common stock do not have cumulative voting
rights, holders of more than fifty percent (50%) of the issued and outstanding
shares of common stock can elect all of the directors of Advertain.
Dividend Policy. All shares of common stock are entitled to participate
ratably in dividends when and as declared by Advertain's Board of Directors out
of the funds legally available therefor. Any such dividends may be paid in cash,
property or additional shares of common stock. Advertain On-Line Inc. has not
paid any dividends since its inception and presently anticipates that all
earnings, if any, will be retained for development of our business and that no
dividends on the shares of common stock will be declared in the foreseeable
future. Payment of future dividends will be subject to the discretion of our
Board of Directors and will depend upon, among other things, our future
earnings, the operating and financial condition as well as our capital
requirements, general business conditions and other pertinent facts. Therefore,
there can be no assurance that any dividends on the common stock will be paid in
the future. See "Dividend Policy."
Miscellaneous Rights and Provisions. Stockholders of common stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of liquidation or dissolution of
Advertain, whether voluntary or involuntary, each share of common stock is
entitled to share ratably in any assets available for distribution to holders of
the equity of Advertain after satisfaction of all liabilities, subject to the
rights of holders of preferred stock, if any such preferred stockholders should
exist at the time of such liquidation or dissolution.
Private Placements
In September, 1998, we sold 1,050,000 restricted shares of common stock,
$0.001 par value, at $0.001 per share pursuant to Rule 144 of the Securities Act
to 2 investors for a total consideration of $1,050. We cancelled and returned to
treasury 50,000 shares upon the completion of the acquisition of Advertain
On-Line Canada, Inc.
In March, 1999, we sold 4,000,000 shares of common stock, $0.001 par value,
at $0.01 per share to ten investors pursuant to Rule 504 Regulation D of the
Securities Act for a total consideration of $40,000.
In March, 1999, we sold 35,000 shares of common stock, $0.001 par value, at
$0.05 per share to thirty-five investors pursuant to Rule 504 Regulation D of
the Securities Act for a total consideration of $1,750.
29
<PAGE>
In September, 1999, we sold 400,000 shares of common stock, $0.001 par
value, at $0.25 per share to four investors pursuant to Rule 504 Regulation D of
the Securities Act for a total consideration of $100,000.
In September, 1999, we issued 1,550,000 shares of common stock, $0.001 par
value, at $0.001 per share to one investor pursuant to Rule 504 Regulation D of
the Securities Act as part of the acquisition of Advertain On-Line Canada Inc.
In October, 1999, 50,000 shares of common stock, $0.001 par value, were
returned from Knight Financial Ltd. and cancelled.
In January, 2000, we issued 500,000 shares of common stock, $0.001 par
value, at $0.50 per share to twenty one investors pursuant to Rule 504
Regulation D of the Securities Act for a total consideration of $250,000.
In January, 2000, we settled a loan of $5,820 which did not bear any
interest and could be prepaid at any time. We issued 23,000 restricted shares
under Rule 144 of the Securities Act in full satisfaction of such loan.
In March, 2000, we sold 280,000 units consisting of 280,000 shares of
common stock, $0.001 par value, and 280,000 warrants exercisable into common
stock at $1.00 per share for two years. The units were sold at $1.00 per share
to two investors pursuant to Regulation S of the Securities Act, for a total
consideration of $280,000.
In March, 2000, we settled a promissory note payable to Dinostar
Investments Ltd. in the amount of $105,401 by issuing 100,000 units, with each
unit consisting of one share of common stock and one warrant entitling the
holder to purchase an additional share of common stock at $1.00 until March 1,
2002. The units were issued pursuant to Regulation S of the Securities Act.
In April, 2000, we sold 18,140 shares at $1.00 per share to one investor
pursuant to Regulation S of the Securities Act, as amended for a total
consideration of $18,140.
In June, 2000, we offered 270,000 units consisting of 270,000 shares of
common stock $0.001 par value and 270,000 warrants exercisable into common stock
at $1.00 per share for two years. The units are offered at $1.00 per share
pursuant to Rule 504 Regulation D of the Securities Act. No shares offered under
this offering have been sold to date.
We are presently offering 1,000,000 units consisting of 1,000,000 shares of
Common Stock $0.001 par value and 1,000,000 warrants exercisable into Common
Stock at $1.50 per share for two years from the date of issuance. The units are
being offered pursuant to this prospectus.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Liberty Transfer
Co., 191 New York Avenue, Huntington, NY 11743-2711.
Plan of Distribution
30
<PAGE>
This offering is a "best-efforts", no-minimum offering, and will not be
underwritten nor will any underwriter be engaged for the marketing, distribution
or sale of any shares registered in this prospectus. We plan to close the
offering on ________, 2000. However, we reserve the right to terminate the
Offering without notice ant any time prior to the sale of all the Units offered
in the prospectus. We may sell Units from time to time in one or more
transactions at a price of $1.50 per share.
The Units will be offered by our executive officers to prospective
investors. Pursuant to Rule 3a-4-1 of the Exchange Act of 1934, the officers
will not be deemed "brokers" as defined in the Exchange Act of 1934 by his
participation in the offering.
To comply with the securities laws of certain jurisdictions, as applicable,
the common stock may be offered and sold only through registered or licensed
brokers or dealers. In addition, the common stock may not be offered or sold in
certain jurisdictions unless they are registered or otherwise comply with the
applicable securities laws of such jurisdictions by exemption, qualification or
otherwise.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advertain trades publicly on the Pink Sheets under the symbol AVTO. Sales
of substantial amounts of the common stock in the public market could adversely
affect the market price of the common stock from time to time in the public
market and could impair our ability to raise additional capital through the sale
of equity securities in the future.
SHARES ELIGIBLE FOR FUTURE SALE
To date, Advertain On-Line Inc. has 8,176,140 shares of common stock
outstanding. Upon completion of this offering, Advertain On-Line Inc. will have
an additional 1,000,000 shares of common stock outstanding for a total of
9,176,140 shares of common stock outstanding. The 2,000,000 shares of common
stock offered hereunder will be freely tradable without restriction or the need
for further registration under the Securities Act, unless such shares are held
by "affiliates" of Advertain, as that term is defined in Rule 144 of the
Securities Act. Of the 8,176,140 shares of common stock currently
outstanding,4,935,000 shares are freely tradable without restriction or the need
for further registration under the Securities Act. The remaining 3,241,140
shares are held by affiliates of Advertain On-Line Inc. and are "restricted
securities," as that term is defined under Rule 144, promulgated under the
Securities Act and will continue to be restricted after this offering. The
restricted securities will become freely tradable if they are subsequently
registered under the Securities Act or to the extent permitted by Rule 144 or
some other exemption from registration under the Securities Act. However, other
than the shares being registered hereunder, we have not granted any registration
rights with regard to any additional shares of common stock. Furthermore, none
of the restricted shares are currently eligible for resale under Rule 144
without regard to volume limitations. Nonetheless, all 3,241,140 restricted
shares will become eligible for sale pursuant to Rule 144 (subject to volume
limitations) upon the expiration of the two-year holding period beginning on the
date such shares were purchased by Advertain's affiliates.
31
<PAGE>
No prediction can be made as to the effect, if any, that sales of shares in
the public market of Advertain's common stock, or even the availability of such
shares for sale, may have on the market prices of the common stock prevailing at
any point in time in the future. Sales of shares of common stock by existing
stockholders in the public market, or the availability of such shares for sale,
could adversely affect the market price of the common stock. Such an adverse
effect on the common stock could impair Advertain's ability to raise capital
through the sale of its equity securities. See "Risk Factors."
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for Advertain On-Line Inc..by the law firm of Beckman, Millman &
Sanders, LLP, 116 John Street, Suite 1313, New York, New York 10038.
EXPERTS
Davidson & Co. independent certified public accountants, have audited our
financial statements for the fiscal year ended December 31, 1999, as set forth
in their report, included in this prospectus and registration statement. Our
financial statements are included in this prospectus and registration statement
in reliance on their report, given on their authority as experts in accounting
and auditing.
AVAILABLE INFORMATION
Prior to filing this prospectus, we have not been required to deliver
annual reports. However, once we become a reporting company, we shall deliver
annual reports to securities holders as required by the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Also, we shall deliver annual reports
to securities holders as required by the rules or regulations of any exchange
upon which our shares may be traded. If we are not required to deliver annual
reports, it is not likely that we will go to the expense of producing and
delivering such reports. If we are required to deliver annual reports, such
reports will contain audited financial statements as required.
Prior to the filing of this prospectus, we have not filed reports with the
Commission. Once we become a reporting company, management anticipates that
Forms 3, 4, 5, 10-KSB, 10-QSB, 8-K and Schedules 13D along with appropriate
proxy materials will have to be filed as they come due. If we issue additional
shares, then we may file additional registration statements for those shares.
The public may read and copy any materials Advertain On-Line Inc. files
with the Commission at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission. The Internet address of the
Commission's Web site is http://www.sec.gov.
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Historical Financial Statements
Unaudited Interim Consolidated Financial Statements - March 31, 2000
Interim Consolidated
Consolidated Balance Sheet ...................................... F-2
Consolidated Statement of Operations............................. F-3
Consolidated Statement of Cash Flows............................. F-4
Consolidated Statement of Stockholders' Equity .................. F-5
Audited Consolidated Financial Statements - December 31, 1999
Independent Auditor's Report..................................... F-6
Consolidated Balance Sheet....................................... F-7
Consolidated Statement of Operations............................. F-8
Consolidated Statement of Cash Flows............................. F-9
Consolidated Statement of Changes in Stockholders' Equity........ F-10
Notes to Financial Statements............................... F-11-F-19
F-1
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
MARCH 31, 2000
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------------------------------------------------------------------------------------------------------
(Audited)
<S> <C> <C>
ASSETS
Current
Cash $ 383,421 $ 43,549
Funds held in trust 11,880 11,929
Accounts receivable 13,146 10,721
Prepaidss 490 --
Due from related parties 586 --
--------- ---------
409,523 66,199
Capital assets, net of accumulated amortization 60,218 56,679
Web site 185,698 185,698
--------- ---------
$ 655,439 $ 308,576
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 16,827 $ 33,654
Due to related parties 50,210 56,754
Promissory note payable -- 105,401
--------- ---------
67,037 195,809
--------- ---------
Stockholders' equity
Capital stock
Authorized
25,000,000 Common shares with a par value of $0.001 per share
Issued
7,888,000 Common shares 7,888 6,985
Additional paid-in capital 869,083 228,765
Subscriptions received in advance 263,425 242,675
Deficit accumulated during the development stage (551,994) (365,658)
--------- ---------
588,402 112,767
--------- ---------
$ 655,439 $ 308,576
==============================================================================================================
</TABLE>
F-2
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company) CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited -
Prepared by Management)
================================================================================
<TABLE>
<CAPTION>
Period From
Incorporation
on
Three Month September 1,
Period Ended 1998 to
March 31, December 31,
2000 1999
-------------------------------------------------------------------------------------------
(Audited)
<S> <C> <C>
EXPENSES
Amortization $ 5,959 $ 9,523
Consulting 8,724 55,250
Interest and bank charges 941 6,392
Marketing and promotion 49,779 61,377
Office and miscellaneous 9,964 14,502
Printing 7,868 --
Professional fees 7,140 55,626
Rent 2,947 5,609
Subcontractors and wages 86,826 136,862
Telephone and internet 2,527 11,059
Travel and promotion 2,227 6,461
Transfer agent and listing fees 1,434 2,997
----------- -----------
Loss for the period 186,336 365,658
Deficit, beginning of period 365,658 --
----------- -----------
Deficit, end of period $ 551,994 $ 365,658
===========================================================================================
Basic and diluted loss per share $ (0.02) $ (0.07)
===========================================================================================
Weighted average number of shares outstanding 7,476,648 5,169,684
===========================================================================================
</TABLE>
F-3
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
<CAPTION>
Period From
Incorporation
on
Three Month September 1,
Period Ended 1998 to
March 31, December 31,
2000 1999
-------------------------------------------------------------------------------------------------------------------
(Audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $(186,336) $(365,658)
Item not affecting cash
Amortization 5,959 9,523
Change in non-cash working capital items
(Increase) decrease in funds held in trust 49 (11,929)
(Increase) decrease in accounts receivable (2,425) (9,110)
(Increase) decrease in prepaids (490) --
(Increase) decrease in due from related parties (586) --
Increase (decrease) in accounts payable (16,827) 25,712
Increase (decrease) in due to related parties (6,544) 1,314
Increase (decrease) in promissory note payable (105,401) 4,734
--------------------------
Net cash used in operating activities (312,601) (345,414)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (9,498) (46,286)
Acquisition of cash on purchase of subsidiary -- 49,824
--------- ---------
Net cash provided by investing activities (9,498) 3,538
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from shares issued 641,221 142,750
Subscriptions received in advance 20,750 242,675
--------- ---------
Net cash provided by financing activities 661,971 385,425
--------- ---------
Change in cash position during the period 339,872 43,549
Cash, beginning of period 43,549 --
--------- ---------
Cash, end of period $ 383,421 $ 43,549
===================================================================================================================
Supplemental disclosure for non-cash operating, investing, and financing activities
Shares issued for purchase of subsidiary $ -- $ 93,000
Cash paid during the period for interest -- --
Share issued for settlement of debt 111,221 --
===================================================================================================================
</TABLE>
F-4
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited - Prepared by Management)
PERIOD FROM INCORPORATION ON SEPTEMBER 1, 1998 TO MARCH 31, 2000
================================================================================
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------ Additional During the
Number Paid-in Development
of Shares Amount Capital Stage Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 14, 1998, shares issued for cash
at $0.001 per share 1,000,000 $ 1,000 $ -- $ -- $ 1,000
September 14, 1998, shares issued for cash
at $0.001 per share 50,000 50 -- -- 50
March 15, 1999, shares issued for cash at
$0.01 per share 4,000,000 4,000 36,000 -- 40,000
March 25, 1999, shares issued for cash at
$0.05 per share 35,000 35 1,715 -- 1,750
June 23, 1999, shares issued for the
acquisition of Advertain On-Line
Canada Inc. 1,550,000 1,550 91,450 -- 93,000
September 14, 1999, shares issued for cash
at $0.25 per share 400,000 400 99,600 -- 100,000
October 4, 1999, shares returned and
cancelled at $0.001 per share (50,000) (50) -- -- (50)
Loss for the period -- -- -- (365,658) (365,658)
---------- ------- -------- --------- ---------
Balance, December 31, 1999 6,985,000 6,985 228,765 (365,658) (129,908)
January 11, 2000, shares issued for
settlement of debt at $0.001 per share 23,000 23 5,797 -- 5,820
January 28, 2000, shares issued for
cash at $0.50 per share 500,000 500 249,500 -- 250,000
March 1, 2000, shares issued for cash at
$1.00 per share 280,000 280 279,720 -- 280,000
March 1, 2000, shares issued for
settlement of debt at $0.001 100,000 100 105,301 -- 105,401
Loss for the period -- -- -- (186,336) (186,336)
---------- ------- -------- --------- ---------
Balance, March 31, 2000 7,888,000 $ 7,888 $869,083 $(551,994) $ 324,977
====================================================================================================================================
</TABLE>
F-5
<PAGE>
DAVIDSON & COMPANY Chartered Accountants A Partnership of Incorporated
Professionals
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Advertain On-Line Inc.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
We have audited the consolidated balance sheet of Advertain On-Line Inc.
(formerly Silverwing Systems Corporation) as at December 31, 1999 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the period from incorporation on September 1, 1998 to
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and the results of its operations and the changes in its stockholders' equity
and cash flows for the period from incorporation on September 1, 1998 to
December 31, 1999 in accordance with generally accepted accounting principles in
the United States of America.
The accompanying financial statements have been prepared assuming that Advertain
On-Line Inc. (formerly Silverwing Systems Corporation) will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company's loss
from operations raises substantial doubt as to the Company's ability to continue
as a going concern unless the company attains future profitable operations
and/or obtains additional financing. Management's plans in regard to these
matters are discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
"DAVIDSON & COMPANY"
Vancouver, Canada Chartered Accountants
March 1, 2000
A Member of SC INTERNATIONAL
Suite 1200, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
F-6
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1999
================================================================================
ASSETS
Current
Cash $ 43,549
Funds held in trust (Note 4) 11,929
Accounts receivable 10,721
---------
66,199
Capital assets (Note 5) 56,513
Web site (Note 6) 178,155
---------
$ 300,867
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 33,804
Due to related parties (Note 10) 56,604
Promissory note payable (Note 7) 105,401
---------
195,809
---------
Stockholders' equity
Capital stock
Authorized
25,000,000 common shares with a par value of $0.001
per share
Issued
6,985,000 common shares 6,985
Additional paid-in capital 228,765
Subscriptions received in advance (Note 14b) 242,675
---------
Deficit accumulated during the development stage (373,367)
---------
105,058
---------
$ 300,867
================================================================================
Nature and continuance of operations (Note 1)
Subsequent events (Note 14)
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM INCORPORATION ON SEPTEMBER 1, 1998 TO DECEMBER 31, 1999
================================================================================
<TABLE>
<S> <C>
EXPENSES
Amortization $ 7,014
Consulting 55,250
Foreign exchange gain 8,348
Interest and bank charges 6,743
Marketing and promotion 61,146
Office and miscellaneous 16,936
Professional fees 55,588
Rent 5,588
Subcontractors and wages 136,308
Telephone and internet 11,014
Travel and promotion 6,435
Transfer agent and listing fees 2,997
-----------
Loss for the period, being deficit accumulated during the development stage $ 373,367
========================================================================================
Basic and diluted loss per share $ (0.07)
========================================================================================
Weighted average number of shares outstanding 5,149,684
========================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-8
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM INCORPORATION ON SEPTEMBER 1, 1998 TO DECEMBER 31, 1999
================================================================================
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $(373,367)
Item not affecting cash
Amortization 7,014
Change in non-cash working capital items
Increase in funds held in trust (11,929)
Increase in accounts receivable (9,110)
Increase in accounts payable 25,862
Increase in due to related parties 1,164
Increase in promissory note payable 4,734
---------
Net cash used in operating activities (355,632)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (43,611)
Acquisition of cash on purchase of subsidiary 57,367
---------
Net cash provided by investing activities 13,756
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from shares issued 142,750
Subscriptions received in advance 242,675
---------
Net cash provided by financing activities 385,425
---------
Change in cash position during the period 43,549
Cash position, beginning of period --
---------
Cash position, end of period $ 43,549
=================================================================================================
Supplemental disclosure for non-cash operating, investing, and financing activities
Shares issued for purchase of subsidiary $ 93,000
Cash paid during the period for interest --
Cash paid during the period for income taxes --
=================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-9
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM INCORPORATION ON SEPTEMBER 1, 1998 TO DECEMBER 31, 1999
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================================
Subscrip- Deficit
Common Stock tions Accumulated
----------------------- Additional Received During the
Number Paid-in In Development
of Shares Amount Capital Advance Stage Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 14, 1998, shares issued for
cash at $0.001 per share 1,000,000 $ 1,000 $ -- $ -- $ -- $ 1,000
September 14, 1998, shares issued for
cash at $0.001 per share 50,000 50 -- -- -- 50
March 15, 1999, shares issued for
cash at $0.01 per share 4,000,000 4,000 36,000 -- -- 40,000
March 25, 1999, shares issued for
cash at $0.05 per share 35,000 35 1,715 -- -- 1,750
June 23, 1999, shares issued for the
acquisition of Advertain On-Line
Canada Inc. 1,550,000 1,550 91,450 -- -- 93,000
September 14, 1999, shares issued for
cash at $0.25 per share 400,000 400 99,600 -- -- 100,000
October 4, 1999, shares returned and
cancelled at $0.001 per share (50,000) (50) -- -- -- (50)
Subscriptions received in advance -- -- -- 242,675 -- 242,675
Loss for the period -- -- -- -- (373,367) (373,367)
--------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 6,985,000 $ 6,985 $ 228,765 $ 242,675 $ (373,367) $ 105,058
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-10
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
1. NATURE AND CONTINUANCE OF OPERATIONS
Silverwing Systems Corporation ("Silverwing"), a Nevada corporation, was
incorporated on September 1, 1998 and was inactive until March 14, 1999. On
June 23, 1999, the Company completed the acquisition of Advertain On-Line
Canada Inc. ("Advertain Canada"), a Canadian company operating in
Vancouver, British Columbia, Canada. Silverwing changed its name to
Advertain On-Line Inc. on July 14, 1999.
Advertain Canada was incorporated in order to create, design, establish and
operate a web site, named "Advertain.com", whose primary purpose is to
collect and distribute entertaining advertising on the Internet.
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As at
December 31, 1999, the Company had a working capital deficiency of
$129,610. The Company incurred a loss of $373,367 for the period from
inception to December 31, 1999. The Company anticipates expending
approximately $1,200,000 over the next twelve month period in pursuing its
anticipated plan of operations. The Company anticipates covering these
costs by operating revenues and additional equity financing. The Company
has, subsequent to year end, completed an offering of 500,000 common shares
at $0.50 per share pursuant to Regulation D, Rule 504 and an offering of
280,000 units at $1.00 per unit to persons who are "Non - U.S. Persons" in
accordance with Regulation S of the United States Securities Act of 1933,
as amended. The total proceeds of $530,000, of which $242,675 was received
at year end, will help the Company to complete its anticipated plan of
operations. If the Company is unable to complete its financing requirements
or achieve revenue as projected, it will then modify its expenditures and
plan of operations to coincide with the actual financing completed and
actual operating revenues. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence.
2. SIGNIFICANT ACCOUNTING POLICIES
In preparing these financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, the reported amount of revenues, and expenses for
the year. Actual results in future periods could be different from these
estimates made in the current year. The following is a summary of the
significant accounting policies of the Company:
Principles of consolidation
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Advertain Canada. All significant
inter-company balances and transactions have been eliminated.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 with initial
adoption reported as the cumulative effect of a change in accounting
principle. The Company adopted SOP 98-5 during the current period.
F-11
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
Web site
The Company capitalized the web site which was acquired on the acquisition
of Advertain Canada. The web site cost will be assessed annually by the
company's management to determine if there has been an impairment on the
web site's value. The web site cost will be amortized over 5 years once the
Company has commenced commercial operations, which are expected to start in
the year 2000.
Capital assets
Capital assets are recorded at cost and are amortized over their useful
lives using the declining balance method at the following annual rates:
Computer equipment 30%
Office furniture 20%
Computer software 100%
Financial instruments
The Company's financial instruments consist of cash, funds held in trust,
accounts receivable, accounts payable and accrued liabilities, due to
related parties and promissory note payable. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments. The fair value of these financial instruments approximate
their carrying values, unless otherwise noted.
Foreign currency translation
The Company accounts for foreign currency transactions and translation of
foreign currency financial statements under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of monetary
assets and liabilities are adjusted at each balance sheet date to reflect
the exchange rate at that date. Non-monetary assets and liabilities are
translated at the exchange rate on the original transaction date. Gains and
losses from restatement of foreign currency monetary and non-monetary
assets and liabilities are included in income. Revenues and expenses are
translated at the rates of exchange prevailing on the dates such items are
recognized in earnings.
Loss per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings per share are to be
presented. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding in the year. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
Segmented information
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the manner in which
public companies report information about operating segments in annual and
interim financial statements. The statement is effective for fiscal years
beginning after December 15, 1997.
F-12
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carryforwards. Deferred
tax expenses (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137
to defer the effective date of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not anticipate that the
adoption of the statement will have a significant impact on its financial
statements.
Comprehensive income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and display
of comprehensive income and its components (revenue, expenses, gains and
losses). The purpose of reporting comprehensive income is to present a
measure of all changes in stockholders' equity that result from recognized
transactions and other economic events of the year, other than transactions
with owners in their capacity as owners. SFAS No. 130 is effective for
financial statements issued for periods beginning after December 15, 1997.
The adoption of SFAS 130 has no impact on total stockholders' equity during
the current period.
3. ACQUISITION OF ADVERTAIN ON-LINE CANADA INC.
On June 23, 1999, the Company acquired all the issued and outstanding share
capital of Advertain Canada. As consideration, the Company issued 1,550,000
common shares at a deemed value of $93,000, all of which are restricted
shares within the meaning of Rule 144 promulgated under the Securities Act
of 1933, as amended.
Advertain Canada was incorporated under the laws of British Columbia on
January 28, 1999. Its purpose is to create, design, establish and operate a
web site called "Advertain.com" whose primary purpose is to collect and
distribute entertaining advertising on the Internet.
F-13
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. ACQUISITION OF ADVERTAIN ON-LINE CANADA INC. (cont'd...)
The issue of 1,550,000 common shares by the Company represented only 24% of
the issued and outstanding common shares at June 23, 1999. Therefore, the
acquisition of Advertain Canada was accounted for by the purchase method of
accounting. The cost of the acquisition should be based on the fair value
of the consideration given, except where the fair value of the
consideration given is not clearly evident, then fair value of the net
assets acquired is used. At June 23, 1999, the Company's common shares were
not publicly traded, so there was no obtainable market price per share.
Therefore, the cost of the acquisition was determined by the fair value of
the net assets of Advertain Canada which was determined as follows:
Current assets $ 58,978
Capital assets 19,916
Web site 178,155
---------
257,049
---------
Accounts payable and accrued liabilities (7,942)
Due to related parties (55,440)
---------
Promissory note payable (100,667)
---------
(164,049)
---------
Net fair value $ 93,000
=========
4. FUNDS HELD IN TRUST
Funds held in trust are for security on the corporate credit cards. These
funds accrue interest from 3.5% to 5.37% per annum.
5. CAPITAL ASSETS
===========================================================================
Accumulated Net
Cost Amortization Book Value
--------------------------------------------------------------------------
Computer equipment $ 47,376 $ 5,081 $ 42,295
Office furniture 4,229 365 3,864
Computer software 11,922 1,568 10,354
------------ ------------ ------------
$ 63,527 $ 7,014 $ 56,513
===========================================================================
6. WEB SITE
===========================================================================
Acquired cost (Note 3) $ 178,155
===========================================================================
F-14
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
7. PROMISSORY NOTE PAYABLE
===========================================================================
Principal amount $ 100,000
Accrued interest 5,401
------------
$ 105,401
===========================================================================
The promissory note payable accrues interest at 9% per annum and is
repayable together with interest on May 31, 2000. Subsequent to the year
end (Note 14e), the promissory note payable was settled by the issue of
100,000 units.
8. CAPITAL STOCK
In connection with a private placement offering completed on September 14,
1998, the Company issued 1,000,000 shares of common stock under Regulation
D, subject to Rule 144 of the Securities Act of 1933 as amended, for
proceeds of $1,000.
In connection with a private placement offering completed on September 14,
1998 the Company issued 50,000 shares of common stock under Regulation D,
subject to Rule 144 of the Securities Act of 1933 as amended, for proceeds
of $50. These shares were returned to the Company and cancelled on October
4, 1999.
In connection with a private placement offering completed on March 15, 1999
the Company issued 4,000,000 shares of common stock under Regulation D,
subject to Rule 504 of the Securities Act of 1933 as amended, for proceeds
of $40,000.
In connection with a private placement offering completed on March 25, 1999
the Company issued 35,000 shares of common stock under Regulation D,
subject to Rule 504 of the Securities Act of 1933 as amended, for proceeds
of $1,750.
In connection with the acquisition of Advertain On-Line Canada Inc. on June
23, 1999, the Company issued 1,550,000 shares of common stock under
Regulation D, subject to Rule 144 of the Securities Act of 1933 as amended,
with a value of $93,000.
In connection with a private placement offering completed on September 14,
1999 the Company issued 400,000 shares of common stock under Regulation D,
subject to Rule 504 of the Securities Act of 1933 as amended, for proceeds
of $100,000.
9. STOCK OPTIONS
The Company has the following stock options outstanding:
Vested stock options
===========================================================================
Number Exercise
of Shares Price Expiry Date
---------------------------------------------------------------------------
160,000 $0.25 May 31, 2009
553,000 0.50 May 31, 2009
===========================================================================
F-15
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
9. STOCK OPTIONS (cont'd.....)
Non-vested stock options
The Company has granted 110,000 stock options exercisable at $0.50 per
share that become vested in allotments of 27,500 shares every six months
from March 1, 2000 to September 1, 2001. These options are exercisable from
their vesting date to May 31, 2009.
The Company has granted 195,000 stock options exercisable at $0.50 per
share that become vested in allotments of 48,750 shares every six months
from June 1, 2000 to December 1, 2001. These options are exercisable from
their vesting date to May 31, 2009.
The Company has granted 257,000 stock options exercisable at $0.50 per
share that have not been allocated. These options will be exercisable from
their vesting date to May 31, 2009.
10. RELATED PARTY TRANSACTIONS
During the period, the Company entered into the following transactions with
related parties:
a) The Company paid consulting fees of $32,250 to the director and
president of the Company. On June 23, 1999, the Company agreed to a
consulting agreement with the president to pay a consulting fee of
$60,000 per annum. This agreement is for two years and is
automatically renewable for successive two year terms unless either
party gives written notice of non-renewal not less than six months
prior to expiry of any term.
The president has advanced to the Company short-term loans of $35,774,
which are non-interest bearing with no specific terms of repayment.
The Company has a note payable to the president for $15,010 of which
$13,694 is principal and $1,316 is accrued interest. The note is
payable on demand and accrues interest at the Royal Bank of Canada's
prime rate plus 4%.
b) A relative of the president loaned the Company $5,820. The loan was
repaid subsequent to the period end by the issue of 23,000 common
shares (Note 14a).
c) The Company paid or accrued consulting fees of $23,000 to a Company
owned by a former director and officer of the Company.
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
===========================================================================
Net operating loss carry forward $ 197,405
Losses utilized to reduce future income tax liability (81,950)
---------
115,455
---------
Valuation allowance (115,455)
---------
$ --
===========================================================================
F-16
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
11. INCOME TAXES (cont'd.....)
Future income taxes result from timing differences between amounts reported
on the financial statements and amounts reported for income tax purposes.
The future income tax liability of $81,950 relates to the timing
differences in the web site. This amount will be reduced during the
amortization of the web site.
The Company has an operating loss carryforward of approximately $112,469
which expires in the year 2019. The Company's subsidiary, Advertain Canada,
has Canadian operating losses carryforward of approximately $346,011 which
expires in the year 2006. The Company provided a full valuation allowance
on the net operating loss carry forward because of the uncertainty
regarding realizability.
12. SEGMENTED INFORMATION
The Company's operates in Canada. Its administration and research and
development facilities are in Canada. The Company's loss for the period
incurred as follows:
===========================================================================
Canada $260,897
U.S.A 112,470
--------
$373,367
===========================================================================
The Company's assets are as follows:
===========================================================================
Canada $366,141
U.S.A 16,676
--------
$382,817
===========================================================================
13. STOCK BASED COMPENSATION EXPENSE
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock options is
measured as the excess, if any, of quoted market price of the Company's
stock at the date of grant over the option price. No stock based
compensation has resulted from the use of this standard.
Following is a summary of the status of the plan during 1999:
===========================================================================
Weighted
Average
Number Exercise
of Shares Price
---------------------------------------------------------------------------
Granted 1,275,000 $ 0.47
Forfeited -- --
Exercised -- --
---------
Outstanding at December 31, 1999 1,275,000 0.47
===========================================================================
F-17
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
13. STOCK BASED COMPENSATION EXPENSE (cont'd...)
Following is a summary of the status of options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
===================================================================================================
Outstanding Options Exercisable Options
-----------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.25 160,000 9.5 $ 0.25 160,000 $ 0.25
0.50 1,115,000 9.5 0.50 553,000 0.50
===================================================================================================
</TABLE>
Compensation
Had compensation cost been recognized on the basis of fair value pursuant
to Statement of Financial Accounting Standards No. 123, net loss and loss
per share would have been adjusted as follows:
===========================================================================
Net loss
As reported $ (373,367)
===========
Pro forma $ (449,124)
===========
Basic and diluted loss per share
As reported $ (0.07)
===========
Pro forma $ (0.09)
===========================================================================
The fair value of each option granted is estimated using the Black Scholes
Model. The assumptions used in calculating fair value are as follows:
===========================================================================
Risk-free interest rate 6.085%
Expected life of the options 2 years
Expected volatility 0.001%
Expected dividend yield --
===========================================================================
F-18
<PAGE>
ADVERTAIN ON-LINE INC.
(formerly Silverwing Systems Corporation)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
14. SUBSEQUENT EVENTS
The following events occurred subsequent to period end:
a) On January 11, 2000, the Company settled a loan of $5,820 from a
related party by issuing 23,000 restricted shares under rule 144 of
the Securities Act of 1933, as amended.
b) On January 28, 2000, the Company issued pursuant to a private
placement, 500,000 common shares at $0.50 per share for total proceeds
of $250,000. The private placement was issued in accordance with
Regulation D, Rule 504 of the United States Securities Act of 1933, as
amended.
c) On January 4, 2000, the Company adopted a stock option plan of
1,000,000 common shares. These options referred to as the "2000 Stock
Option Plan" have not been allocated to any individuals, nor has the
exercise price been determined. However, once the options are granted
they will expire on December 31, 2010.
d) On March 1, 2000, the Company issued pursuant to a private placement,
280,000 units at $1.00 per share. Each unit consisted of one common
share of the company and a warrant, which entitles the holder thereof,
to purchase another common share of the Company at $1.00 per share
until March 1, 2002. The private placement was issued in accordance
with Regulation S of the United States Securities Act of 1933, as
amended.
e) On March 1, 2000, the Company settled the promissory note payable of
$105,401 by issuing 100,000 units. Each unit consisted of one common
share of the Company and a warrant, which entitles the holder thereof,
to purchase another common share of the Company at $1.00 per share
until March 1, 2002. The private placement was issued in accordance
with Regulation S of the United States Securities Act of 1933, as
amended.
F-19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
See "Management - Limitation of Liability and Indemnification."
Item 25. Other Expenses Of Issuance And Distribution
The following table sets forth an itemization of all estimated expenses in
connection with the issuance and distribution of the securities being
registered:
SEC Registration Fee ....................................... 1,034
Blue Sky Fees and Expenses .................................. 7,500
Transfer Agent Fees ......................................... 1,500
Accounting Fees and Expenses ................................ 10,000
Legal Fees and Expenses ..................................... 20,000
Printing and Engraving ...................................... 2,500
Miscellaneous ............................................... 5,000
------
Total 47,534
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In September, 1998, we sold 1,050,000 restricted shares of common stock,
$0.001 par value, at $0.001 per share pursuant to Rule 144 of the Securities Act
to 2 investors for a total consideration of $1,050. We cancelled and returned to
treasury 50,000 shares upon the completion of the acquisition of Advertain
On-Line Canada, Inc.
In March, 1999, we sold 4,000,000 shares of common stock, $0.001 par value,
at $0.01 per share to ten investors pursuant to Section 3(b) and Rule 504 of
Regulation D of the Securities Act for a total consideration of $40,000.
In March, 1999, we sold 35,000 shares of common stock, $0.001 par value, at
$0.05 per share to thirty-five investors pursuant to Section 3(b) and Rule 504
of Regulation D of the Securities Act for a total consideration of $1,750.
In September, 1999, we sold 400,000 shares of common stock, $0.001 par
value, at $0.25 per share to four investors pursuant to Section 3(b) and Rule
504 of Regulation D of the Securities Act for a total consideration of $100,000.
<PAGE>
In September, 1999, we issued 1,550,000 shares of common stock, $0.001 par
value, at $0.001 per share to one investor pursuant to Section 3(b) and Rule 504
of Regulation D of the Securities Act as part of the acquisition of Advertain
On-Line Canada Inc.
In January, 2000, we sold 500,000 shares of common stock, $0.001 par value,
at $0.50 per share to twenty-one investors pursuant to Section 3(b) and Rule 504
of Regulation D of the Securities Act for a total consideration of $250,000.
In January, 2000, we settled a loan of $5,820 which did not bear any
interest and could be prepaid at any time. We issued 23,000 restricted shares
under Rule 144 of the Securities Act in full satisfaction of such loan.
In March, 2000, we sold 280,000 units consisting of 280,000 shares of
common stock, $0.001 par value, and 280,000 warrants exercisable into common
stock at $1.00 per share for two years. The units were sold at $1.00 per share
to two investors pursuant to Regulation S of the Securities Act for a total
consideration of $280,000.
In March, 2000, we settled a promissory note payable to Dinostar
Investments Ltd. in the amount of $105,401 by issuing 100,000 units, with each
unit consisting of one share of common stock and one warrant entitling the
holder to purchase an additional share of common stock at $1.00 until March 1,
2002. The units were issued pursuant to Regulation S of the Securities Act.
In April, 2000, we sold 18,140 shares of common stock at $1.00 per share to
one investor pursuant to Regulation S of the Securities Act for a total
consideration of $18,140.
In June, 2000, we offered 270,000 units consisting of 270,000 shares of
common stock $0.001 par value and 270,000 warrants exercisable into common stock
at $1.00 per share for two years. The units are offered at $1.00 per share
pursuant to Section 3(b) and Rule 504 of Regulation D of the Securities Act
55
<PAGE>
INDEX TO EXHIBITS
Item 27. Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Articles of Incorporation.
3.2 Certificate of Amendment of Articles of Incorporation, dated
August 18, 1999.
3.3 By-Laws.
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Beckman, Millman & Sanders, LLP.
10.1 Silverwing Systems Corporation 1999 Employee, Consultant and
Advisor Stock Compensation Plan, dated May 31, 1999.
10.2 Independent Contractor Agreement between Silverwing Systems
Corporation and Knight Financial LTD., dated June 1, 1999.
10.3 Consulting Agreement between Silverwing Systems Corporation and
Cage Consulting LTD., dated June 23, 1999.
10.4 Advertain On-Line Inc. 2000 Employee, Consultant and Advisor
Stock Compensation Plan, dated January 4, 2000.
10.5 Form of Warrant Agreement.
23.1 Consent of Beckman, Millman & Sanders, LLP (included in Exhibit
5.1).
23.2 Consent of Davidson & Co.
27.1 Financial Data Schedule for the twelve months ended
December 31, 1999 and the three months ended March 31, 2000.
-------------------------
* To be filed by amendment.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
<PAGE>
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act as part of this registration statement as
of the time the Commission declared it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement;
and that offering of the securities at that time as the initial bona fide
offering of those securities.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Bellingham, State of Washington on July 26, 2000.
ADVERTAIN ON-LINE INC.
By: /s/ A Cage
---------------------------
A Cage
President & Chief Executive Officer
