<PAGE>
File Number: 333-91485
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
KINGSGATE ACQUISITIONS, INC.
----------------------------
(Name of small business
issuer in its charter)
Delaware 6770 98-0211672
------------------------ ---------------------------- -------------------
(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada (604) 926-6775
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(Address and telephone number of principal executive offices)
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada (604) 926-6775
--------------------------------------------------------------------------------
(Address of principal place of business or
intended principal place of business)
Sheila G. Corvino, Esq. 811 Dorset West Road, Dorset, Vermont 05251 802-867-0112
--------------------------------------------------------------------------------
(Name, address, and telephone number of agent for service)
Copies to:
Sheila G. Corvino
Attorney at Law
811 Dorset West Road
Dorset, Vermont 05251
Phone: (802) 867-0112
Fax: (802) 867-2468
Approximate date of proposed sale to the public: as soon as practicable
after the effective date of the registration statement and date of the
prospectus.
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 it shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933,
as amended, or until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
CALCULATION OF REGISTRATION FEE
No registration fee is due on a reconfirmation offering under Rule 419.
<PAGE>
Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Part I. Information Required in Prospectus
Item
No. Required Item Location or Caption
---- ------------- -------------------
1. Front of Registration Statement
and Outside Front Cover of
Prospectus Front of Registration
Statement and Outside
Front Cover of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page
of Prospectus and Outside
Back Cover Page of Prospectus
3. Summary Information and Risk
Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering
Price Market for our Common Stock
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Not Applicable
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and`
Counsel Legal Matters; Financial
Statements
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Statement as to
Indemnification
<PAGE>
15. Organization Within Last
Five Years Management; Certain
Transactions
16. Description of Business Proposed Business
17. Management's Discussion and
Analysis or Plan of
Operation Proposed Business -
Plan of Operation
18. Description of Property Proposed Business
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Stock and
Related Stockholder Matters Prospectus Summary;
Market for Our
Common Stock
21. Executive Compensation Management - Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure Not Applicable
<PAGE>
PROSPECTUS
KINGSGATE ACQUISITIONS, INC.
(A Delaware Corporation)
RECONFIRMATION OFFER
In its initial self-underwritten public offering pursuant to Rule 419 of
the Securities Act of 1933, Kingsgate Acquisitions, Inc. sold 1,000,000 units at
$.0.10 per unit raising an aggregate of $100,000. Each unit consisted of one
share of common stock and five two-year redeemable common stock purchase
warrants. All the offering proceeds as well as certificates representing the
shares and warrants purchased in the offering are being held in an escrow
account. Pursuant to a securities purchase agreement dated August 16, 2000, we
will purchase all the common stock of Sky E-Com Corporation and all Sky E-Com
stockholders will become our stockholders subject to reconfirmation by the
investors in our initial public offering.
This prospectus constitutes an offer to the investors in our initial public
offering to reconfirm their investments. Investors who subscribed to an
aggregate of at least $80,000, representing 80% of the units sold in the
offering, must elect to reconfirm their investments in order for the acquisition
of Sky E-Com to be consummated. Each investor shall have no fewer than 20
business days and no more than 45 business days from the effective date of the
post-effective amendment to notify us in writing whether the investor elects to
remain an investor. We shall send by first class mail funds held in the escrow
account both to investors who elect not to remain investors and those who do not
respond.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. (SEE "RISK FACTORS" COMMENCING ON
PAGE 5 FOR SPECIAL RISKS CONCERNING US AND THE OFFERING).
The date of the Prospectus is , 2001.
<PAGE>
Our expenses relating to our initial public offering were the following:
Escrow Fee.................................................. $ 500
Securities and Exchange Commission Registration Fee......... $ 1,546
Legal Fees.................................................. $ 5,000
Accounting Fees............................................. $ 5,000
Printing and Engraving...................................... $ 500
Blue Sky Qualification Fees and Expenses.................... $ 500
Miscellaneous............................................... $ 400
Transfer Agent Fee.......................................... $ 0
--------
TOTAL....................................................... $ 13,446
The following are our estimated expenses for the reconfirmation offering:
Securities and Exchange Commission Registration Fee.. ...... $ 0
Legal Fees.................................................. $ 20,000
Accounting Fees............................................. $ 7,000
Printing and Engraving...................................... $ 1,500
Miscellaneous............................................... $ 500
Transfer Agent Fees......................................... $ 1,000
--------
TOTAL....................................................... $ 30,000
2
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................
Summary Financial Information..................................
Risk Factors...................................................
Reconfirmation Offer Conducted in Compliance
with Rule 419 to the Securities Act..........................
Terms of the Securities Purchase Agreement.....................
Dilution.......................................................
Use of Proceeds................................................
Capitalization.................................................
Proposed Business..............................................
Management.....................................................
Statement as to Indemnification................................
Market for our Common Stock....................................
Certain Transactions...........................................
Principal Stockholders.........................................
Description of Securities......................................
Where You Can Find More Information............................
Legal Proceedings..............................................
Legal Matters..................................................
Financial Statements...........................................
Kingsgate Acquisitions, Inc.
Sky E-Com Corporation
Pro-forma condensed balance sheet and statement of
operations
3
<PAGE>
PROSPECTUS SUMMARY
Kingsgate Acquisitions, Inc.
----------------------------
We were organized on September 28, 1999 as a vehicle to acquire or merge
with a business.
On June 7, 2000, we offered 1,000,000 units, in compliance with Rule 419 of
Regulation C to the Securities Act. The offering was fully subscribed, and since
offering expenses were paid from funds in our treasury, it generated both gross
and net proceeds of $100,000. Pursuant to Rule 419, the proceeds of the offering
as well as certificates representing the securities purchased in the offering
have been placed in an escrow account.
Since our organization, our activities have been limited to:
+ issuing the initial shares of our common stock in connection with our
organization,
+ preparing the registration statement, including the prospectus, for our
initial public offering,
+ selling our initial public offering,
+ negotiating and executing an acquisition agreement with Sky E-Com and
+ filing a post effective registration statement of which this prospectus is
a part.
We maintain our office at 950 11th Street, West Vancouver, British Columbia
V7T 2M3 Canada. Our phone number is (604) 926-6775. If the acquisition of Sky
E-Com is reconfirmed by our investors we intend to locate our offices at 17300
17th Street, Tustin, California 92680 the present address of Sky E-Com. The
phone number of Sky E-Com is (949) 716-7276; its fax number is 949-716-7311; and
its email address is [email protected].
Sky E-Com Corporation
---------------------
Sky E-Com designs, develops and is marketing mobile personal tablet
computers and interactive video entertainment and electronic commerce software
systems to the airline, train, cruise ship, ferry and automobile rental markets.
Sky E-Com's core product, presently known as the SkyTablet(tm) or SeaTablet(tm),
depending on its market, is a Pentium(tm) III based tablet without a keyboard,
designed exclusively for mobile applications to be provided to passengers or
other users by our customers. In addition, Sky E-Com has enhanced its mobile
tablets to operate in the industrial marine market, including offshore oil
drilling platforms and cargo carrying ships and tankers.
Sky E-Com's SkyTablet and SeaTablet contain an integral DVD Player in which
the electronics built into the unit (rather than software) decodes the signals
from the DVD. Passengers and other users of the tablet can access a number of
products and services ranging from electronic catalog shopping, computer games
and DVD movies to business and personal services, such as e-mail and Internet
access. In addition to the pre-loaded entertainment options, Sky E-Com's tablets
are capable of delivering training programs, step-by-by step maintenance manuals
and data gathering to clients requiring such facilities. Sky E-Com has also
designed, for airline use, a cart, called the SkyKart, which facilitates the
renting of the tablets and related programming, recharging their batteries and
installing entertainment options.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following is a summary of our financial information and is qualified in
its entirety by our financial statements.
<TABLE>
<CAPTION>
From From Sky E-Com Sky E-Com
9/28/99 1/1/00 from 6/03/99 1/1/00 Pro-Forma
to 12/31/99 to 9/30/00 to 12/31/99 to 9/30/00 After
(Audited) (Unaudited) Audited) (Unaudited) Acquisition
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales $ 0 $ 0 $ 0 $ 0 $ 0
Net Income (Loss) $ (663) $ (693) $ (119,839) $ (111,440) $ (111,410)
Net Loss Per Share $ 0.00 $ 0.00 $ (0.07) $ (0.01)
Shares Outstanding
Common 2,000,000 3,000,000 1,656,000 7,854,400 10,854,400
Preferred 124,000
Balance Sheet Data
Working Capital $ 7,552 $ 107,522 $ (4,748) $ 4,722 $ 112,244
Total Assets $ 19,837 $ 108,022 $ 23,033 $ 16,878 $ 124,900
Long Term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Total Liabilities $ 500 $ 500 $ 15,545 $ 1,300 $ 800
Common stock $ 2,000 $ 3,000 $ 3,327 $ 247,327 $ 10,854
Preferred stock $ 124,000
Additional paid in capital $ 18,000 $ 105,215 $ 344,688
Deficit accumulated during
development stage $ (663) $ (693) $ (119,839) $ (231,249) $ (231,942)
Total Shareholders' Equity $ 19,837 $ 108,022 $ 23,033 $ 16,878 $ 124,900
</TABLE>
RISK FACTORS
Reconfirmation of an investment in our securities involves a high degree of
risk. You should carefully consider, together with the other information
appearing in this prospectus, the following factors in evaluating Sky E-Com and
its business before reconfirming your investment.
We cannot assure you of the abilities or success of the Sky E-Com management
--------------------------------------------------------------------------------
team upon whom investors must rely for our future success.
----------------------------------------------------------
We have agreed that, upon the successful completion of our business
combination with Sky E-Com, we will issue 7,854,400 shares of our common stock
and our founders will transfer 1,500,000 of their shares to Sky E-Com
stockholders so that the Sky E-Com stockholders will own 9,3543,400 shares of a
total of 10,854,400 shares or 86.2% of our issued and outstanding common stock.
Therefore, the consummation of this business combination will result in a change
of control to the present management of Sky E-Com and the resignation of all our
present officers and one of our two directors. We can provide no assurance that
the management of Sky E-Com will successfully run the business after our
acquisition.
5
<PAGE>
We believe we will only be able to effect more than one business combination,
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thus, if this combination is approved, our investors will face risks regarding
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the exigencies and economic fluctuations of the mobile tablet computer
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marketplace in which Sky E-Com competes.
----------------------------------------
Since, as a result of our acquisition of Sky E-Com, the present
stockholders of Sky E-Com will own 86.2% of our common stock, we will not be
able to negotiate more than one business combination. Thus, our lack of
diversification will subject us to the success in the marketplace of Sky E-Com
products.
Sky E-Com is a development stage company with no revenues and no assurances can
--------------------------------------------------------------------------------
be given that its products will be accepted in the marketplace or that it will
--------------------------------------------------------------------------------
generate revenues.
------------------
Sky E-Com has been in business for approximately one year. It has developed
prototypes of its products and has begun marketing them to airlines inter-city
trains and offshore drilling platform companies. It cannot offer any assurance
that its tablets will be accepted by its potential clients or that any revenues
will be generated by the sale of its products.
Sky E-Com is dependent on its two officers, Mark Wheeler, President, and Steven
--------------------------------------------------------------------------------
Lefler, Chief Financial Officer, and upon the retention of additional qualified
--------------------------------------------------------------------------------
management and technical personnel.
-----------------------------------
Sky E-Com's success is greatly dependent on its two officers, Mark Wheeler,
President, and Steven Lefler, Chief Financial Officer because of their
backgrounds, experience and contacts in the industry and their knowledge of the
equipment and its capabilities. In addition, Sky E-Com must attract and retain
qualified management and technical personnel for the further development of its
business and improvement and marketing of its products. Competition for
technical, management and marketing personnel is intense. Sky E-Com's inability
to attract additional key employees or the loss of one or more current key
employees could adversely affect it in developing tablets for specific clients
and applications, improving existing products and marketing its products to
existing and future clients.
RECONFIRMATION OFFER CONDUCTED IN COMPLIANCE WITH RULE 419 TO THE SECURITIES ACT
This reconfirmation offering is being conducted in compliance with Rule
419. Rule 419 requires a blank check company, prior to effecting a combination,
to take certain steps. We have listed them below:
6
<PAGE>
Deposit of Securities
---------------------
We have entered into an escrow agreement with Capital Suisse Securities,
Inc. which provides that:
+ Certificates representing our shares of common stock and warrants, which
were issued in our initial offering, as well any other related securities
resulting from stock splits, stock dividends and similar rights, are to be
deposited promptly and directly into the escrow account. We have effected
no stock splits or issued stock dividends or similar rights. The identity
of the investors must be included on all deposited certificates. The
securities held in the escrow account must be held for the sole benefit of
the investors who retain voting rights. The escrowed securities may not be
transferred, disposed of nor may any interest be created other than by will
or the laws of descent and distribution, or pursuant to a qualified
domestic relations order.
+ The warrants, which are part of the units, may be exercised, provided,
however, the shares of our common stock received upon exercise as well as
the cash or other consideration paid to exercise them are promptly
deposited into the escrow account. None of our warrants have been
exercised.
+ No greater than 10% of the proceeds of the offering may be removed from
escrow prior to the reconfirmation of an acquisition.
Prescribed acquisition criteria
-------------------------------
Rule 419 requires that before the deposited securities can be released we
must first execute an agreement to acquire a business. We executed an agreement
to acquire all the capital stock of Sky E-Com. The agreement must provide for
the acquisition of a business or assets for which the fair value of the business
represents at least 80% of the offering proceeds, including funds received or to
be received from the exercise of warrants.
Post-effective amendment
------------------------
Once the agreement to acquire a business has been executed, Rule 419
requires us to update our registration statement with a post-effective amendment
of which this prospectus forms a part. This post-effective amendment must and
does contain information about:
+ the proposed acquisition candidate and its business, including audited
financial statements;
+ the results of the offering; and
+ the use of the funds disbursed from the escrow account. The post-effective
amendment must also include the terms of the reconfirmation offering.
7
<PAGE>
Reconfirmation
--------------
The reconfirmation must and does include the following conditions:
+ this prospectus which is contained in the post-effective amendment will be
sent to each investor whose securities are held in the escrow account
within five business days after the effective date of the post-effective
amendment;
+ each investor will be given no fewer than 20, and no more than 45, business
days from the effective date of this post-effective amendment to notify us
in writing whether or not he or she elects to remain an investor;
+ if we do not receive written notification from any investor within 45
business days following the effective date, the investors' escrowed
securities will be returned to us and the investor's escrowed funds will be
returned to the investor;
+ unless investors representing 80% of the maximum offering proceeds of our
initial public offering elect to remain investors, the acquisition of the
target business, Sky E-Com, will be prevented, deposited securities held in
escrow will be returned to us and the escrowed funds will be returned to
the investors; and
+ if a consummated acquisition has not occurred within 18 months from the
date of this prospectus, the deposited securities held in the escrow
account will be returned to us and escrowed funds will be returned to the
investors.
Release of deposited securities
-------------------------------
Certificates representing the deposited securities may be released to
investors after:
+ the escrow agent has received a signed representation from us and any other
evidence acceptable by the escrow agent that we have executed an agreement
for the acquisition of a business for which the value of the business
represents at least 80% of the maximum offering proceeds and we have filed
the required post-effective amendment;
+ the post-effective amendment has been declared effective; the
reconfirmation offer has been completed; and we have satisfied all of the
prescribed conditions of the reconfirmation offer; and
+ the acquisition of the business with the fair value of at least 80% of the
maximum proceeds has been consummated within 18 months from the effective
date of the registration statement.
8
<PAGE>
TERMS OF THE SECURITIES PURCHASE AGREEMENT
The terms of our acquisition of Sky E-Com are set forth in a securities
purchase agreement, dated August 16, 2000, by and among us, our founding
stockholders, Sky E-Com and the stockholders of Sky E-Com.
The agreement includes the following terms:
+ Each of our stockholders who purchased units in our initial public offering
and who accepts the reconfirmation offer shall continue to own our common
stock.
+ Each of the investors in our initial public offering who rejects the
reconfirmation offer will be paid his or her pro rata share of the amount
in the escrow account or approximately $.09 per unit.
+ At the effective date of the acquisition, all of Sky E-Com's issued and
outstanding shares shall be exchanged for an aggregate of 7,854,400 of our
shares of common stock in proportion to the holdings of the Sky E-Com
stockholders. In addition, our founding stockholders will transfer to Sky
E-Com's stockholders 1,500,000 of their shares. Our founders shall continue
to hold 500,000 shares, representing 4.6% of the combined entity. Our
public stockholders hold 1,000,000 shares, representing 9.2% of the
combined entity. The former stockholders of Sky E-Com will own 9,354,400
shares of our common stock representing 86.2% of the combined entity.
Effect on current management
----------------------------
We will pay no fees or other compensation to present management or our
affiliates nor have we entered into or intend to enter into any understandings
for any future arrangements that will result in income for current management or
our affiliates.
Our board of directors believes that our acquisition of Sky E-Com
represents a good investment opportunity for our shareholders and recommends
that investors in our public offering elect to accept this reconfirmation
offering.
Accounting Treatment
--------------------
Although we are the parent corporation, for accounting purposes, our
acquisition of Sky E-Com is treated as the acquisition of us by Sky E-Com, known
as a reverse acquisition, and a recapitalization of Sky E-Com. Sky E-Com is the
acquirer for accounting purposes because the former Sky E-Com stockholders will
receive the larger portion of the common stockholder interests and voting rights
than those retained by our stockholders. The fiscal year will remain the same as
both our company and Sky E-Com have the same fiscal year, December 31.
9
<PAGE>
USE OF PROCEEDS
We raised $100,000 from the sale of units in our initial public offering.
Both gross and net proceeds of the offering were $100,000 as all costs
associated with the offering were paid from funds in our treasury. Pursuant to
Rule 15c2-4 under the Securities Exchange Act of 1934, all offering proceeds
were placed in escrow. None of the escrowed funds were released to us prior to
this reconfirmation offering. Pursuant to Rule 419, after all of the units are
sold, we intend to have $10,000, representing 10% of the escrowed funds,
released to us to pay expenses of this reconfirmation offering.
We will request the escrow agent to release all remaining funds held in
escrow when our acquisition of Sky E-Com is consummated to be used by the
post-merger management in its sole discretion.
Percentage
of net proceeds
Amount of the offering
--------- ---------------
Expenses of consummating the $10,000 10%
business combination*
Working capital to be used 90,000 90%
in the discretion of new
management**
--------------------------------
* primarily legal and accounting
** Management of Sky E-Com has agreed to pay legal and accounting fees which
exceed $10,000 from working capital. It is estimated that legal and
accounting fees will amount to approximately $20,000.
PROPOSED BUSINESS
Forward-looking Statements
--------------------------
Certain statements contained under this caption and elsewhere in this
prospectus regarding matters that are not historical facts are forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
All statements that address operating performance, events or developments that
our management or the management of Sky E-Com expects to incur in the future,
including statements relating to sales and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements. These forward-looking statements are based on Sky E-Com management's
current views and assumptions regarding future events and operating performance.
Many factors could cause actual results to differ materially from estimates
contained in these forward-looking statements. The differences may be caused by
a variety of factors, including, but not limited to, adverse economic
conditions, competitive pressures, inadequate capital, unexpected costs, lower
revenues or net income, the possibility of fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans and loss of key executives, among other things.
10
<PAGE>
History and Organization
------------------------
We were organized on September 28, 1999 as a blank check company, which is
essentially a vehicle to pursue a business combination. We offered our
securities to the public pursuant to Rule 419 and closed our offering, raising
proceeds of $100,000 on July 27, 2000. After we closed our offering, we located
Sky E-Com, a company our management believes to be a suitable acquisition and
entered into an agreement to acquire it. Sky E-Com was formed on June 3, 1999.
None of our officers or directors had any preliminary contact or discussions
with any representative of Sky E-Com regarding a business combination until
subsequent to the close of our offering.
Under Rule 419, we cannot acquire a target business unless its fair value
represents 80% of the offering proceeds. For this purpose, offering proceeds
includes the aggregate exercise price of the warrants which are part of the
units. To determine the fair market value of Sky E-Com, our management examined
its financial statements, including balance sheets and statements of cash flow
and stockholders' equity, its business plan, its prospects, its negotiations
with potential customers, its contracts with manufacturers and suppliers of
technology and other aspects of its business which our management thought
material. Our management also compared the business of Sky E-Com to other
companies in the inflight entertainment business and the computer tablet
business. Based on its analysis, our management concluded that the market value
of Sky E-Com is $10,000,000.
Employees
---------
We presently have no employees. Sky E-Com has four employees and two
consultants.
Facilities
----------
We are presently using the office of our President, Barney Magnusson, at no
cost, as our office, an arrangement which we expect to continue until the
consummation of our acquisition of Sky E-Com. We presently do not own any
equipment, and do not intend to purchase or lease any equipment prior to the
consummation of the acquisition.
Sky E-Com presently utilizes a shared executive office and conference
facility located at 17300 17th Street, Suite J-117, in Tustin, California on a
month-to-month rental basis at a rate of $150 per month from an unaffiliated
party. This space is used by Sky E-Com on an as needed basis and is shared with
other organizations. All of the Sky E-Com's employees have established home
offices that are used at no cost to Sky E-Com.
Sky E-Com
---------
Sky E-Com has developed a portable interactive entertainment and service
platform for passenger airlines and other transportation markets. The platform
is based around its SkyTablet and the SeaTablet, which are smaller than notebook
computers but have the same power and functionality. They are simple to use and
utilize an icon style, menu driven, user interface. They do not have keyboards
but utilize touchscreen technology.
11
<PAGE>
Originally formed to offer portable interactive inflight entertainment
systems to the airline industry, Sky E-Com has broadened its business to include
the rail, bus, cruise ship and rental car markets. More recently, Sky E-Com has
expanded into commercial maritime markets such as offshore oil drilling
platforms, cargo vessels and oil tankers.
Inflight Entertainment Systems
------------------------------
Inflight entertainment represents, in Sky E-Com management's opinion, a
major potential market for Sky E-Com's tablets. Sky E-Com has calculated that
there are in excess of 8,000 commercial long haul aircraft currently in
operation. It has adopted the accepted airline industry definition of a long
haul as one lasting over 5 hours. Sources of airline marketing information
include:
+ data published in the magazine "Air Transport World", from an annual series
published in July 1998, 1999 and 2000, entitled "World Airline Fleets;
+ information published in "AirFax" throughout 1998, 1999, and 2000 on
aircraft deliveries and retirements;
+ the International Air Transport Association's publication "World Air
Transport Statistics" published in June of 1998, 1999 and 2000;
+ Boeing Aircraft Corporation's periodic press releases on aircraft orders
and deliveries and its website under the tab "Orders and Deliveries -
2000;" and
+ Airbus Industrie's statistics and figures published on its website under
"Orders and Deliveries" and "Market Forecasts."
Key potential customers are the approximately 30 major international
commercial carriers. Further growth opportunities exist as airlines replace
aging aircraft with new models which are increasingly delivered with equipment
that may be used as platforms for Sky E-Com's products and services.
Sky E-Com management has formed strong professional relationships with
airline executives and inflight entertainment personnel through
+ membership in and attendance at six annual World Airline Entertainment
Association, known as WAEA conferences,
+ attendabce at five International Passenger Electronic and Communication,
known as IPEC, conferences,
+ participation on the WAEA DVD and Internet working group committees,
+ sales and marketing discussions and meetings with inflight entertainment
personnel at over 20 major airlines and
+ technical discussions and meetings with management and engineering
executives at all three of the inflight entertainment equipment vendors.
12
<PAGE>
Sky E-Com management believes that its portable interactive inflight
entertainment system will capture a significant share of the airline market due
to its greatly reduced cost per aircraft, as compared to installed inflight
entertainment systems, and its dramatic increase in functionality and
performance compared to installed systems. Current installed systems range in
price from $10,000 to $16,000 per seat unit.
Delivery prices for installed systems are common knowledge in the inflight
entertainment industry and price ranges are regularly referred to in airline
industry professional magazines, such as Air Transport World. Additionally, Sky
E-Com management has firsthand knowledge of the price ranges of installed
inflight entertainment systems from its efforts while employed by InterGame to
install these sytems on aircraft of British Airways, Swissair, Sabena, Austrian
Air and Lauda Air and in working with the carriers to obtain financing for these
systems.
Management of Sky E-Com, through pricing discussions with its vendors,
primarily Intelliworxx, believes it can deliver its mobile computer devices for
each seat at a price of less than $8,000 per seat and be profitable.
Inflight Entertainment Background
---------------------------------
In the early 1990's, several of the world's major airlines began installing
full-cabin inflight entertainment systems in their wide-body long-haul fleets as
a way to increase their per flight revenues either by charging for the service
or by attracting passengers. The typical system is comprised of a small video
screen and a computer game controller installed at each passenger seat.
The management of Sky E-Com confirmed through discussion with the inflight
entertainment personnel of various airlinesthat the prices of full-cabin
inflight entertainment systems have remained constant or have risen. These
discussions have also revealed that a number of changes have occurred in the
inflight entertainment paradigm:
+ The revenue generated by inflight entertainment systems has been less than
30% of original projections made by hardware and software vendors.
+ Overall performance and reliability of full cabin systems has been lower
than anticipated.
+ At present, installed inflight entertainment systems are technologically
obsolete and consist of computers containing limited processing power and
memory.
+ The ability to develop products with a high level of consumer appeal and
sophistication has been severely limited due to the technical constraints
of the installed systems.
13
<PAGE>
Specifically these products have:
+ limited graphics of 320 x 200 and 320 x 240 pixels when current consumer
off-the-shelf computer monitors are 800 x 600 pixels or greater;
+ small screens of 5.5" to 6.5" diagonal compared to typical laptop screens
of 10.5 " to 15.5";
+ limited random access memory of 4 to 8 megabytes compared to typical laptop
memory of 64 megabytes or greater;
+ limited data storage capacity of 8 gigabytes on the central server compared
to typical server storage capacities of 40 gigabytes or greater; and
+ limited computer power of older Intel 386 and 486 chips compared to Pentium
III chips.
Many major long haul airlines are no longer considering full cabin
interactive entertainment systems but are moving towards installed Local Area
Networks to service mobile computing devices. Sources of information setting
forth this trend include:
+ article "ife.com" in "Avion" 3rd quarter 2000 edition by John Wade and
Peter Lemme;
+ article in the September 2000 issue of "inflight" by Tania Sherwood
entitled "Sound Business";
+ marketing and technical materials distributed at the September, 2000 WAEA
conference by Tenzing International, British Telecommunications, AT&T,
In-Flight Network, Primex Aerospace, Connexion by Boeing and Inmarsat; and
+ management discussions with inflight entertainment and engineering staff at
British Airways, TWA, United Airlines, American Airlines, Air France,
Qantas, Cathay Pacific and Ansett Airways.
The SkySystem(tm)
-----------------
The Skysystem is Sky E-Com's portable interactive inflight entertainment
system based around the SkyTablet and the SkyKart.
SkyTablet
---------
Features of the SkyTablet include:
+ Pentium III based processor of at least 500 megahertz or greater;
+ 15 to 75 gigabytes hard drives;
+ a minimum of 64 megabytes random access memory;
+ An 8.5 or a 10.5 inch diagonal viewing active matrix screen with
touch-screen;
+ imbedded Windows 2000, Windows NT or Windows CE;
14
<PAGE>
+ external buttons including brightness and sound volume;
+ DVD with hardware decoding;
+ MPEG-1 and MPEG-2 decoding;
+ MP3 decoding;
+ CD;
+ high fidelity sound with THX, Dolby and 3D formats;
+ standard magnetic stripe card reader;
+ smart card reader/writer including appropriate security access modules;
+ encryption of data and critical software;
+ battery resulting in 3 hour battery life when passenger is using product or
service with the highest battery usage or seat power driven system
resulting in unlimited continuous use;
+ power inputs for battery charging in the SkyKart;
+ infrared communications;
+ radio frequency communications when and if approved by airline regulatory
authorities;
+ a universal serial bus port for joystick controller or other communications
devices;
+ a serial port for plug-in joystick controller;
+ a local area network connection;
+ a port for standard telephone plug; and
+ extremely durable, but light - weighing between 3.5 - 5.5 pounds.
The SkyKart(tm)
---------------
In some installations, the Skytablets will be stored onboard the aircraft
in a SkyKart. The SkyKart is a purpose built cart having similar dimensions to
the food and materials carts found aboard most airlines. General specifications
are:
+ holds 20 - 25 machines and 20 - 25 extra batteries;
+ does not exceed the weight of the current food carts;
+ connects to the same onboard power supply as the standard hot food carts;
+ integrates with a local area network;
15
<PAGE>
+ contains magnetic stripe card reader and smart card reader/writer;
+ contains a printer;
+ contains an onboard cart server to manage the installed SkyTablets as to
o device status,
o card reading and charging of rental,
o passenger seat recording,
o data recording for redundancy,
o audit trail,
o data updates when on the ground and
o air-to-ground communications.
Development of hardware
-----------------------
Sky E-Com has built eleven prototype tablets that contain all of the
components of the proposed production units except the credit card reader which
is available from a number of manufacturers. These machines were used during the
second quarter of 2000 in a six week comprehensive market test and operated
reliably. Sky E-Com anticipates that production will be managed by Intelliworxx,
a strategic partner, and the production models will be built in the same
facilities in Puerto Rico where other Intelliworxx products are currently being
fabricated. Sky E-Com has built a prototype SkyKart that is being used in sales
and marketing demonstrations to prospective customers. It has not been decided
where production of the SkyKarts will take place but management has held
preliminary manufacturing discussions with companies including AeroVision
Avionics and BPW Metal Productions.
Target Markets
--------------
Airlines
--------
Sky E-Com management will concentrate its initial marketing efforts on ten
international airlines having a combined fleet of approximately 500 long haul
aircraft. Management has entered into extensive discussions with the executives
and technical support personnel of these airlines.
British Airways
---------------
In 2000, Sky E-Com and British Airways completed a market research test in
London of the SkyTablet at British Airway's Heathrow and Gatwick Premium Class
Lounges, Executive Clubs, and economy class waiting areas. 947 interviews were
conducted with first, business and economy class passengers. Interviewees were
given the SkyTablet to use as they wished for 10 minutes and then responded to a
20 minute questionnaire.
16
<PAGE>
While the Company is restricted by confidentiality agreements with British
Airways from releasing more specific data, some of the key results of the survey
were as follows.
+ More than 80% of those surveyed were positively impressed by the product
and indicated that they would use it on a flight. The response rate was
relatively constant across all passenger classes.
+ In excess of 50% of those surveyed would be influenced positively in their
decision to fly British Airways if the SkyTablets were available on the
flights.
+ A small percentage of first class passengers indicated that they would pay
for the service. The management of Sky E-Com did not anticipate any
positive responses as it assumed that first and business class would expect
free access to the SkyTablet as a part of their ticket price.
+ The price at which passengers would hesitate to pay for the SkyTablet
started at $25 per flight. There was little sensitivity to a price of $20
per flight.
As a result of the positive results from this marketing survey, British
Airways, entered into a letter of intent with Sky E-Com to conduct a future
on-aircraft test of the SkyTablet. Sky E-Com is in various stages of discussions
with the nine other target airlines and has submitted proposals to a number of
them.
Airport Lounges
---------------
Management of Sky E-Com has learned through face to face discussions with
marketing management staff at British Airways, Swissair, Sabena, Austrian Air,
TWA, United Airlines, American Airlines, Qantas, Cathay Pacific Airlines, Lauda
Air and Connexion by Boeing that most airlines are constantly seeking new ways
to enhance their passenger options in first and business class lounges. The
SkyTablet would, in Sky E-Com's management's opinion, be a perfect vehicle for
delivering a number of enhanced entertainment services to these passengers. Each
major airline has, at minimum, a first class lounge in each of the world's major
airports.
Cruise Lines
------------
Through study of professional publications, attendance at four trade
conferences including SeaTrade, held annually in Miami, Florida, discussions
with executives at Princess Cruises, Disney Cruises and Cunard Cruise Lines that
there are more than 100 major cruise ships in the world and hundreds of smaller
inter-country ferries. To address this target market, Sky E-Com has developed
the SeaTablet, a portable onboard entertainment system for the cruise line
industry. Discussions with cruise line executives have revealed that cruise
lines are receptive to portable interactive entertainment systems as opposed to
fixed placed entertainment systems, which will incur large upfront retrofit
costs.
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<PAGE>
Cross-country and Inter-City Trains
-----------------------------------
Passengers in cross-country and inter-city trains undergo a travel
experience similar to that experienced by airline passengers. They are trapped
in a confined environment for long periods with few entertainment options.
Through meetings with executives at EuroTunnel and with consultants to this
industry, Company management has formed a belief that portable interactive
entertainment systems such as developed by Sky E-Com would offer the same
entertainment advantages to the customers and enhanced revenue options to the
railway companies as that offered to the airlines.
Marine
------
In June 2000, Sky E-Com was invited to submit a preliminary proposal to an
international marine services, drilling and oil platform operating company. The
proposal envisions an exclusive marketing relationship between Sky E-Com and the
drilling company for all areas of merchant shipping and industrial marine
endeavors. Sky E-Com considers itself to be in the active proposal stage with
the drilling company.
Plan of Operation
-----------------
The following tables illustrate Sky E-Com's projected time-line and cash
needs in its two major markets, airline and offshore drilling platform:
Airlines
<TABLE>
<CAPTION>
Activity Completion Cost Source of Funds
-------- ---------- ---- ----------------
<S> <C> <C> <C>
1. First airline Agreement 3/01 Nominal Operating capital from escrow
2. Software development 5/01 $25,000 Operating capital from escrow
3. Air Trial 7/01 Nominal Operating capital from escrow
4. Final hardware design 9/01 Nominal Operating capital from escrow
5. Software Development 10/01 $250,000 Client funded
6. Hardware fabrication Through 2001 $1000/unit Trade financing or client funded
7. Aircraft rollout Through 2001 $150,000/ Revenue funded
aircraft
8. Operation Through 2006 $100,000/air- Revenue funded
craft/year
Offshore drilling platforms
1. Agreement for trial 2/01 Nominal Operating capital from escrow
2. Trial software development 4/01 $15,000 Operating capital from escrow
3. Platform trial 6/01 Nominal Operating capital from escrow
4. Final hardware design 7/01 Nominal Operating capital from escrow
5. Software development 9/01 $150,000 Funded by client,
6. Hardware fabrication Through 2001 $2000/unit Trade financing or client funded
7. Platform/vessel rollout Through 2001 $25,000/venue Revenue funded
8. Operation Through 2006 $10,000/year/ Revenue funded
venue
</TABLE>
18
<PAGE>
In the event the actual contracts between Sky E-Com and various airlines
and offshore drilling platform operators contain different terms from the ones
presently being negotiated , Sky E-Com's cash needs for software development,
hardware fabrication, roll out and operating expenses may not be provided by the
client. In that event, we will need additional working capital in the form of
equity, loans collateralized by purchase orders, inventory or work in progress,
terms from manufacturers or other sources. None of the funds presently in escrow
will be used for management compensation. We cannot give any assurance that any
of our warrants will be exercised.
Revenue Generation
------------------
In general, Sky E-Com intends to charge its transportation or maritime
customers an agreed upon fee for the use of the SkyTablet, while Sky E-Com's
customers will rent the SkyTablet to their passengers or provide them without
charge to passengers as part of a particular class of service. Sky E-Com dos not
intend to enter into pure revenue-sharing agreements with any customer unless it
is protected against the customer's potential discounting and giveaways.
Transportation customers might be prompted to give away the services of the
tablet as a marketing promotion; thereby placing Sky E-Com in a position counter
to the customer's marketing needs. In cases where a service fee is charged to
the airline, the airline will receive all net revenue generated by use of the
tablet.
In order to attract airline clients, Sky E-Com intends to incorporate the
following revenue generating features in its tablets:
+ Installed PC Games
Use and availability of the installed PC Games will be provided in the
standard rental.
+ Personal PC Games
Use of the tablet for PC Games that the customer brings onboard will be
provided in the standard rental.
+ DVD Movies
Depending upon the licensing agreements the airlines and/or Sky E-Com enter
into with the motion picture industry, the airlines will rent out DVD
movies.
+ Personal DVD Movies.
Passengers can also play their own DVD movies and CDs on the SkyTablet.
+ Electronic newspapers and magazines
+ Fax and e-mail
+ Internet
+ Business Software
+ Inflight Duty Free and Airport Duty Free
+ Catalog Shopping
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<PAGE>
Since portable inflight entertainment is still in its infancy, the revenue
generation model will be constantly evolving. Revenue sharing on items such as
catalogue shopping and duty free will be worked out on an airline by airline
basis.
Strategic Relationships
-----------------------
Sky E-Com has completed strategic relationships with several key services
suppliers including the following:
IntelliWorxx
------------
Sky E-Com's agreement with IntelliWorxx provides for an exclusive right to
market and sell into closed environment markets, such as airlines and cruise
ships, the IntelliWorxx DVD equipped tablet in which Sky E-Com's entertainment
and services software and products has been installed.
Primex Aerospace Company
------------------------
Primex supplies power and data LANs for the delivery of in-cabin services
and has produced over 100 power-related products and shipped over 400,000 units
to aircraft worldwide, including power supplies and associated systems. It has
agreed to integrate the SkyTablet into its EmPower(tm) and EmPort(tm) systems
and keep a Sky E-Com tablet in its display room to demonstrate its use as a
portable device.
The EmPower is an in-seat power system that furnishes safe, low voltage, DC
power directly at the seat to permit laptop computer operation throughout the
flight.
The EmPort data system, announced at the 1999 World Airline Entertainment
Association Conference, is scheduled to be available shortly. The system is
designed to provide high-speed direct connection from the RS-232 or USB ports of
a computer at a speed of up to 12Mbps. That direct connection, coupled into one
of four independent high speed local area networks provide broader bandwidth
than existing products.
BuyNow, Inc.
------------
Sky E-Com and BuyNow, Inc. have signed a letter of intent to negotiate an
agreement under which BuyNow would perform services related to Sky E-Com's
desire to perform electronic commerce and fulfill Sky E-Com customer orders via
Sky E-Com's tablet technology.
BuyNow, Inc. provides service solutions to e-commerce businesses, including
software technology, credit card collections and the referral of product
manufacturers and service providers.
Operating Concept
-----------------
We anticipate employing the following operating concept which has been
developed for the airline industry. Other target market sectors will have
similar operating concepts, but venue and distribution differences may be
significant.
20
<PAGE>
The Sky Tablet will be prepared at a Sky E-Com facility at the airport.
Twenty to twenty-five tablets will be placed in each SkyKart and updated with
the current products and services offering via the imbedded network in the
SkyKart through an installed server at Sky E-Com's local facility. A data
network connection to Sky E-Com's master network will be used for facilitating
this update. The SkyKarts will also be loaded with spare batteries, power plugs
and all of the products that are CD or DVD based, such as movies and PC games.
Each SkyKart will be tagged for a specific aircraft and flight by Sky E-Com's
inventory tracking system. In certain instances, a specific product or service
might be removed if it were not appropriate on that route. In addition, certain
products and services might be loaded which apply only to those routes. The
SkyKarts will be delivered to an airport catering company to be loaded aboard
aircraft. The SkyKarts will have security features to ensure that tablets were
not removed during the transit to and from the aircraft (similar to those
employed by inflight duty free).
When the SkyKarts are loaded on the aircraft, they will be plugged into the
food hot cart slots until the food carts need to be plugged in to heat food, and
then plugged back in after the food has been served to passengers. Some airlines
do not use hot food carts and will require modification to the galley to allow a
plug-in. On aircraft with installed in-seat power, the SkyTablets need not be
equipped with batteries.
Cabin crew will push SkyKarts down the aisle, renting or otherwise
providing the tablets to passengers, using procedures similar to those used to
sell duty free items. In addition, passengers can contact cabin crew to rent a
tablet.
Passengers who rent the tablet will provide the cabin crew member with a
credit card or other approved payment mechanism such as a prepaid debit card
which will be swiped through the reader on the SkyKart and a charge will be
levied on their card for the rental. The passenger will then access the services
of the tablet on a pay-for-view, pay-for-play, pay-for-use, or other method to
gain the services of the Sky Tablet.
When passengers have finished using their Sky Tablets or at the end of the
flight, they will return the tablets to the cabin crew who will plug the tablets
back in the SkyKarts for rental to the next passenger or for subsequent use. At
the completion of a flight, the SkyKarts will be removed from the aircraft by
the bonded catering company and made available to Sky E-Com on the land-side of
the airport for data removal, servicing and updating of products.
Support Services
----------------
Sky E-Com has developed a comprehensive array of software designed to
provide a robust, complete, and redundant accounting and product and services
support management system.
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<PAGE>
Transaction Processing
----------------------
Sky E-Com's proprietary transaction processing system, known as the Venue
Host System, is resident on the tablets and the server on the SkyKart and, in
general, is designed to do the following:
+ capture all payment card transactions that are generated from use of the
tablet;
+ monitor and account for the checkout and return of the Sky Tablets from the
SkyKart;
+ all financial and game play data from the SkyKart to an external media
device for backup and analysis purposes; and
+ provide for external air-to-ground communications if is required.
Merchant Services System
------------------------
The processing of credit cards, prepaid cards, and smart card transactions
is generally referred to as merchant services within the financial services
community. Sky E-Com's merchant services system administers all merchant
services processes including authorizations, reversals, clearings, debits, and
credits with all approved major credit card companies. Sky E-Com's merchant
services system provides high-speed electronic links to VISA, MasterCard, Diners
Club and American Express as well as other application vendors as required by
the customer.
Venue Host System
-----------------
Sky E-Com's venue host system will perform a number of functions on each
tablet which are usually related to the type of product or service being
delivered to the customer.
The principal functions of our venue host system are:
For the tablet
--------------
+ Payment card accounting: captures the magnetic strip of the payment card or
communicates with the chip on a smart card to capture financial and use
data;
+ Audit and backup: develops an audit record of the transactions that take
place on the unit;
+ Accounting management: supplies specialized accounting for products and
services;
+ Information capture: writes the transactional, accounting and audit data to
the SkyKart at the end of each use; and
+ Communications: in environments equipped with inter-machine and
machine-to-host systems, performs all communications functions as needed.
22
<PAGE>
For the SkyKart
---------------
+ Payment card accounting: captures the magnetic strip of the payment card or
communicates with the chip on a smart card to capture financial and use
data when the tablet is removed from the SkyKart to be given to a customer;
+ Audit and backup: creates audit and backup copies of data recorded on the
tablet, when each unit is returned to the SkyKart;
+ Housekeeping: copies the transaction records to the SkyKart server, removes
all information regarding the previous customer from the system, erases
user installed programs and services from the user write-encoded directory;
+ Accounting management: creates a summary file of the credit or prepaid cash
card transactions. This file can be transmitted to our ground-based
management support system for credit card processing, assuming the aircraft
is equipped with satellite data communications. If the aircraft is not so
equipped, or if the satellite communications system is inoperative, the
data will be retrieved from the SkyKart along with the detailed data when
the SkyKart is removed from the venue; and
+ Communications: manages the offload of transactional, accounting and audit
data at Sky E-Com's facility as well as the load and update of master
control information and databases.
Content Management System
-------------------------
Sky E-Com's proprietary content management system is resident on the
individual tablet as well as on the server on the SkyKart. In general, Sky
E-Com's content management system is designed to do the following:
+ present navigation and help menus to the customers;
+ present the selection of products and services to the customer;
+ provide the customer with the appropriate controls to manage each service;
+ manage the housekeeping for the products and services that are offered on
the tablet;
+ manage certain accounting functions for the delivery of products and
services, such as the time of use when the customer is using the tablet for
watching their personal DVD movies;
+ communicate with the SkyKart to ensure that all products and services are
correctly prepared for use by customers;
+ communicate with the SkyKart for certain housekeeping functions;
23
<PAGE>
SkyKart is designed to do the following:
on the aircraft or other venue:
-------------------------------
+ provide the capability to check out from customer and check in a tablet to
customer and capture their credit card details;
+ provide electrical power to charge and recharge the tablet and extra
batteries;
+ provide storage for certain content and supplies: DVD movies, batteries,
earphones and game controllers;
+ provide server functionality to the tablets for certain functions such as
removing personal PC Game code and management software.
at a Sky E-Com facility:
------------------------
+ provide the communications capability with a master server to load new
products and services onto the tablets;
+ communicate with the SkyKart to ensure that all products and services are
correctly prepared for use by customers.
Programming Services for Product and Services Management
--------------------------------------------------------
Sky E-Com will provide graphic design and programming for all interactive
product and services system requirements, including information and menu screens
for the navigational menus and the other services provided under the transaction
processing umbrella. The customer has the option to utilize internal or external
programmer to add products and services not provided by Sky E-Com.
In addition, Sky E-Com will provide contract-programming services for a fee
to its strategic partners. Sky E-Com can provide the complete system menu and
interactive interface design customized specifically for the customer. Sky E-Com
will work closely with the Customer to insure a seamless look and feel in the
system with a format and style consistent with customers' requirements.
Integration Services
--------------------
If the customer so chooses, Sky E-Com will provide system integration
services to ensure the coordinated and proper integration of all hardware and
software aspects of the interactive video systems.
Maintenance
-----------
Sky E-Com will provide all maintenance to the individual tablets and
SkyKarts under a long-term maintenance contract with each customer.
Training
--------
Sky E-Com will provide technical training to the customers.
24
<PAGE>
Competition
-----------
The inflight entertainment market is highly competitive and, in addition,
new competitors may enter the market. Current competitors of Sky E-Com which
manufacture hard wired inflight entertainment systems have significantly greater
financial, technical, manufacturing and marketing resources than Sky E-Com. Sky
E-Com's ability to compete depends on a number of factors both within and
outside its control, including the success and timing of its product
introductions and those of its competitors, price, performance, product
distribution and customer support as well as market acceptance. Other, albeit
smaller, companies manufacture data entry tablets and tablets for consumer use.
At present, Rockwell Collins Interactive, Matsushita Avionics and Thompson
Sextant manufacture and sell installed inflight entertainment products for all
classes of the aircraft cabin. None of them manufacture a tablet similar to that
of Sky E-Com. Other smaller companies manufacture data tablets but none directly
competes in Sky E-Com's marketplace. They are in the business of building
full-cabin systems with proprietary software and hardware.
Rockwell Collins Interactive
----------------------------
Rockwell recently announced that its inflight entertainment business will
be named Rockwell Collins Passenger Systems. It acquired the business from the
Hughes Electronics Corp. in 1997. Rockwell Collins recently acquired Sony
Transcom from Sony Corporation and is in the process of integrating the two
lines of business. The company provides airlines with cabin electronics that
allow passengers to select audio and video entertainment for playback at their
seats. One of its products, the APAX 150 system, was installed in Northwest
Airways and Virgin Airways. This system is interactive but severely limited in
power and technical capabilities. It is in process of developing a system based
on the Motorola PowerPC chip.
Sony Trans Com
--------------
Sony Trans Com, recently acquired by Rockwell Collins, is a provider of
Inflight entertainment and cabin information systems for wide-body aircraft,
tradenamed P@ssport. Rockwell Collins has continued marketing the system under
its existing brand name and structure. P@ssport, is a client server network that
provides interactive services to the passenger at the seat. The system offers
access-on-demand to high quality, digitized audio and video programs for more
than 500 seats on an aircraft simultaneously. P@ssport provides access-on-demand
to full-length films, music videos and prerecorded music, and is able phase in a
wealth of other information services such as shopping, games, travel
information, surveys, frequent flyer programs and more. Although Sony Trans Com
has 40+% of the in-cabin movie business it has a very small market share of the
full-cabin inflight entertainment business, only having signed South African
Airways as a client.
Matsushita Avionics
-------------------
Matsushita Avionics, a division of the Matsushita Corporation, is the
leading supplier of interactive inflight entertainment systems, controlling
approximately 40% of the installed base of inflight entertainment systems. Its
inflight entertainment systems, uses the oldest technologies and chips and is
under-powered.
25
<PAGE>
Thompson-CSF Sextant IFS
------------------------
Sextant In-Flight Systems acquired the inflight systems division of B/E
aerospace and is currently marketing an upgraded and enhanced version of the
system. Its product offering includes a distributed video and audio system and a
reduced architecture concept, originally developed by B/E Aerospace, which
provides the individual seat computers in a central location rather than at each
seat
Upgrades
--------
Sky E-Com's future success depends on its ability to develop and
manufacture tablets which are competitive with other inflight entertainment
options and ruggedized tablets in the marine and other markets. Advances in
technology will require substantial investment in product engineering, to
achieve and to maintain Sky E-Com's market position. In addition, Sky E-Com must
monitor new technology and work with its suppliers to enhance its existing
tablets. Sky E-Com's operating results could be adversely affected if it were
unable to develop and manufacture new, competitive products in a timely manner.
Intellectual property
---------------------
Sky E-Com has the right to use the intellectual property embodied in the
hardware which it has incorporated into its tablets. The intellectual property
has been developed by unrelated third parties. In the event these third parties
have not adequately protected their intellectual property rights or have
infringed on the intellectual property rights of others, Sky E-Com
+ could be prohibited from marketing products that incorporate such
technology,
+ could incur substantial costs to redesign its products, or
+ could be forced to defend any legal action taken against it.
Sky E-Com has developed certain unique systems for use in the tablets and,
for commercial airplane use, in the airplane itself and in Sky E-Com's server.
If its products should be found to infringe the intellectual property rights of
others, it could be enjoined from further infringement and be liable for any
damages. Sky E-Com relies on a combination of trade secrets and non-disclosure
agreements to protect its proprietary rights. There can be no assurance,
however, that the measures Sky E-Com has adopted for the protection of its
intellectual property will be adequate to protect its interests or that Sky
E-Com's competitors will not independently develop technologies that are
substantially equivalent or superior to its technologies.
Export sales
------------
Sky E-Com management anticipates that its export sales may represent a
significant portion of its total revenues. It is probable that its international
sales will be denominated in U.S. dollars. Thus, an increase in the value of the
U.S. dollar relative to foreign currencies could make its products less
competitive in foreign markets. International sales and operations may also be
subject to risks such as the imposition of governmental controls, export license
requirements, restrictions on the export of critical technology, currency
exchange fluctuations, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations and
collecting accounts receivable. In addition, the laws of certain countries do
not protect Sky E-Com's products and intellectual property rights to the same
extent as do the laws of the United States. These factors may have an adverse
effect on its future international sales and, consequently, on its operating
results.
26
<PAGE>
MANAGEMENT
Our officers and directors and further information concerning them are as
follows:
Name Age Position
--------------------------------------------------------------------------------
Barney Magnusson(1)(2) 48 President, Treasurer
950 - 11th Street, and a Director
West Vancouver,
British Columbia V7T 2M3
Leslie McGuffin(1)(2) 47 Secretary and a
950 - 11th Street, Director
West Vancouver,
British Columbia V7T 2M3
--------------------
(1) May be deemed our "Promoters" as that term is defined under the Securities
Act.
(2) Barney Magnusson and Leslie McGuffin are husband and wife.
Barney Magnusson recently became chief financial officer and secretary of
CST Coldswitch Technologies Inc., a Vancouver - based private technology company
developing platform photonic fiber optic technology. From 1996 to 1998, he was
vice-president, corporate development, chief financial officer and director of
Patricia Mines Inc., a Toronto - based mining company, listed on the Vancouver
Stock Exchange, the major asset of which was the Island Gold Project located
near Hemlo, Ontario. From 1994 to 1995, Mr. Magnusson was a principal of ADX
Trading Group, a financial derivative and stock trading enterprise. That
company's activities included trading futures, options on futures and stocks and
stock trading together with system design, testing and implementation for other
parties. From 1985 to 1993, he was chief financial officer, secretary/treasurer
and director of Dayton Mines Inc., based in Vancouver, British Columbia and
listed on both the Toronto Stock Exchange and American Stock Exchange. Dayton
Mines operated a mine in Chile that produced 140,000 ounces of gold per year.
From 1986 to 1988, Mr. Magnusson was vice-president finance and a director
of High River Gold Mines Ltd., a Vancouver-based mining company listed on the
Toronto Stock Exchange, with a 50% interest in the Britannia Mine, Manitoba that
produced 80,000 ounces of gold per year. From 1982 to 1985, he was chief
financial officer and director of Brohm Resources Inc., based in Vancouver,
British Columbia, and listed on the Toronto Stock Exchange, which was the
predecessor to Dakota Mining Inc., headquartered in Denver, Colorado. Brohm
operated the Gilt Edge Mine in South Dakota. In 1981, he was principal of
Venture Capital Associates, a Vancouver based venture capital firm that focused
on startup companies. In 1981, he was controller of First City Developments
Inc., a Vancouver based international real estate company owned by First City
Trust. Mr. Magnusson received his Bachelor of Arts from Simon Fraser University,
Vancouver, British Columbia in 1978. He is a chartered accountant and a member
of the Canadian Institute of chartered accountants and Institute of the
Chartered Accountants of British Columbia.
27
<PAGE>
Leslie McGuffin has been president of Western Legal Publications, a
Vancouver - based law publishing company, since 1995. From 1991 to 1995, she was
legal information systems coordinator for Ladner Downs, barristers and
solicitors in Vancouver, British Columbia. Ms. McGuffin served as managing
director of British Columbia International Commercial Arbitration Centre,
located in Vancouver, British Columbia, from 1988 to 1989. From 1981 to 1988,
she was managing editor of Carswell Legal Publications, Vancouver, B.C. Ms.
McGuffin received her Bachelor of Laws from the University of Alberta, Canada
and her Bachelor of Arts with Honors from Trinity College, University of
Toronto, Canada.
At the conclusion of the reconfirmation offer, Leslie McGuffin intends to
resign from our board of directors and Mark Wheeler and Steven Lefler, officers
and directors of Sky E-Com, will be appointed to our board of directors.
Mark Wheeler (56 years old) is one of the two principal founders and
president and chief executive officer of Sky E-Com. Prior to forming Sky E-Com,
Mr. Wheeler consulted in the inflight entertainment area between November, 1998
and April, 1999 under the name, SkySystem Enterprises, Inc. From 1994 to 1998,
Mr. Wheeler was one of the founding team members and president of InterGame,
Inc. At InterGame, he was responsible for the day to day operations, and also
headed the marketing and administration of the airlines, marine and sweepstakes
product lines. From 1991 to 1994, Mr. Wheeler served as vice president of Market
Development Operations at Visa International responsible for strategic
development of international airline travel and entertainment. From 1984 to
1991, Mr. Wheeler was a principal consultant in the United Kingdom with Stanford
Research Institute, where he was involved in financial, technical and marketing
analysis and operations. He operated an independent consulting company from 1980
to 1984 and served as a senior consultant with Touche Ross from 1975 to 1979,
and as a design engineer with Electronic Data Systems from 1972 to 1974, where
he was responsible for developing financial systems for the banking and
securities industries. Mr. Wheeler earned his Bachelor of Science in Mechanical
Engineering in 1966 from the United States Naval Academy. He then served on
active duty in the U. S. Navy from 1966 to 1970 and earned the rank of
Lieutenant. In 1971, he earned his MBA from California State University, San
Diego.
Steven Lefler (45 years old) is one of the two principal founders and
executive vice president and chief financial officer of Sky E-Com. He is
responsible for all product development and program management. Mr. Lefler was
one of the founding members of InterGame which he joined in January 1995, after
providing consulting services during its start-up phase. Mr. Lefler served as
both chief financial officer and senior vice president of technology. From 1992
to 1994, Mr. Lefler served as president and chief financial officer of the OTC
Corporation, which develops and markets communications software and files
utilities for the Microsoft Windows environment. From 1990 to 1992, he was vice
president of finance and administration for Sun Technical Services, Inc., a
technical services firm serving the nuclear power industry. Mr. Lefler served,
from 1983 to 1990, as vice president and chief financial officer of Tower
Systems International, a systems software company acquired by Goal System
International, which was eventually acquired by Computer Associates. Mr. Lefler
earned his Bachelor of Science degree in Accounting from California State
University, Long Beach in 1979 and his Masters in Business Administration degree
from the University of Southern California in 1989.
28
<PAGE>
Roger Clawson (62 years old), has served Sky E-Com as vice president of
operations since June 1999. Mr. Clawson is responsible for day - to - day field
operations and will be responsible for the manufacturing and installation of
systems worldwide. From 1995 to 1998, Mr. Clawson was a principal partner and
general manager of Sundance Sales Representatives, LLC., a company involved in
contract manufacturing sales of printed circuit boards, sheet metal, machining
and final assembly. From 1994 to 1995, he was the Americans with Disabilities
Coordinator and Risk Manager for the Utah Department of Corrections. From 1989
to 1994, Mr. Clawson was MIS Manager for the Utah center of the Federal Job
Corps Program. From 1985 to 1987, he served as a project manager with Northrop
Aircraft Corporation. From 1960 to 1980, Mr. Clawson served with the United
States Marine Corps, specializing in communications and computer center
management. He also served as training manager from 1973 to 1977 at the
Department of Defense Computer Sciences School. During his career as a Marine
officer, in 1969, he earned his Masters of Public Administration from American
University. He finished his service career as a Lieutenant Colonel in 1980. Mr.
Clawson earned his Bachelor of Science degree in Psychology from the University
of Utah in 1960 and his Masters of Public Administration from American
University in 1969.
Significant Employee of Sky E-Com
---------------------------------
Stephen Punak (34 years old) is director of systems engineering with
responsibility as chief technology architect with direct management of
development projects. From 1995 to 1998, he directed the design and development
of the inflight entertainment onboard transaction processing, fleet management
support and merchant service systems for four major inflight entertainment
platforms including Matsushita 2000E, B/E Aerospace MDDS 4000, Sony Trans Com
P@ssport System and The Network Connection AirView System. From 1992 to 1995,
Mr. Punak worked on a contract basis for OTC Corporation as a senior software
engineer. From 1988 to 1992, he was chief engineer for Information Consultants,
Inc.
Remuneration
------------
None of our officers or directors has received nor will receive any cash
remuneration since our inception until the conclusion of the reconfirmation
offer. No remuneration of any nature has been paid for or on account of services
rendered by a director in that capacity. None of our present directors will
receive any compensation either before or after the confirmation for acting as a
director.
Messrs. Lefler and Wheeler anticipate receiving salaries of $75,000 each
per year plus a bonus of 1% of gross sales commencing the date of confirmation.
They have not entered into employment contracts with Sky E-Com or us.
29
<PAGE>
STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for
indemnification of our officers, directors, employees and agents. Under Article
XI of our by-laws, we will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any of our directors,
officers, agents or employees, against all expense, liability and loss
reasonably incurred or suffered by such person in connection with activities on
our behalf. Complete disclosure of relevant sections of our certificate of
incorporation and by-laws is provided in Part II of the registration statement.
This information can also be examined as described in "Further Information."
We have been informed that in the opinion of the SEC, indemnification for
liabilities arising under the Securities Act, which may be permitted to our
directors, officers or control persons pursuant to our certificate of
incorporation and by-laws is against the public policy as expressed in the
Securities Act and is, therefore, unenforceable.
MARKET FOR THE OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for the our common
stock has existed. Pursuant to the requirements of Rule 15g-8 of the Securities
Exchange Act, a trading market will not develop prior to or after the
effectiveness of our post-effective registration statement while certificates
representing the shares of our common stock and warrants which constitute the
units remain in escrow. We can offer no assurance that a trading market will
develop upon the acquisition of the common stock of Sky E-Com and the subsequent
release of the stock and warrant certificates from escrow.
We have retained Public Securities, Inc., Spokane, Washington, a
broker-dealer registered with the NASD, to act as lead market maker for our
units, common stock and warrants and to make application for the listing of our
units, shares of common stock and warrants on the OTC Bulletin Board. No
assurance can be given that our units will be accepted for listing on the OTC
Bulletin Board
The 2,000,000 shares of our common stock issued to our founding
stockholders are "restricted securities" as that term is defined in the
Securities Act. In a recent letter from the Commission's Division of Small
Business to the NASD, the Commission stated its position that Rule 144 is
inapplicable to founders of blank check companies who transfer securities either
before or after the reconfirmation of an acquisition. Thus, we must register the
shares of the founding stockholders, in order for them to sell their shares of
our common stock on the public market.
CERTAIN TRANSACTIONS
We were incorporated in the State of Delaware on September 28, 1999.
Between September 28, 1999 and September 30, 1999, we sold an aggregate of
2,000,000 shares of our common stock to thirteen persons at $.01 per share, for
a total cash consideration of $20,000.
In July, 2000, we sold 1,000,000 units at $.10 per unit to investors in our
initial pubic offering. Three of our founding stockholders, Turf Holding Ltd.,
Partner Marketing AG and The Pembridge Capital Establishment, purchased 100,000,
100,000 and 60,000 units, respectively, in our initial public offering.
In January 2001, Mark Wheeler transferred 100,000 shares of Sky E-Com
common stock which will be exchanged for 100,000 of our shares of common stock
after the reconfirmation to Sheila G. Corvino, Esq. in consideration for legal
services.
We have entered in an agreement, subject to confirmation by the investors
in our initial public offering, to acquire Sky E-Com. Pursuant to the agreement,
the stockholders of Sky E-Com will receive 7,854,400 of our shares from our
authorized but unissued shares and 1,500,000 shares from our founders.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth certain information regarding
the beneficial ownership of our common stock as of the date of the prospectus,
and as adjusted to reflect the acquisition of Sky E-Com:
+ each person who is known by us to own beneficially more than 5% of our
outstanding common stock;
+ each of our officers and directors; and
+ all of our directors and officers as a group.
After Offering After Acquisition
Name/Address Shares of Shares of
Beneficial Common Stock Percent of Common Stock Percent of
Owner Beneficially Class Beneficially Class
Offering Owned Owned Owned Owned
--------------------------------------------------------------------------------
Barney Magnusson(1)(2) 200,000 6.7% 200,000 1.9%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Leslie McGuffin(1)(2) 50,000 1.7% 50,000 0.5%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Tradewinds Investments 190,000 6.3% 190,000 1.7%
Ltd.
Shirley House
50 Shirley Street
Nassau, Bahamas
Turf Holding Ltd.(3) 290,000 9.7% 290,000 2.7%
Oakridge House
5 West Hill Street
Nassau, Bahamas
CCD Consulting, 190,000 6.3% 190,000 1.7%
Commerce Distribution
AG Glockengasse 4
Postfach 1220
4001 Basel
Switzerland
The Pembridge
Capital Establishment(4) 240,000 8.0% 240,000 2.2%
P. O. Box 1617
Meierhofstrasse 5
Vadus FL-9490
Liechtenstein
31
<PAGE>
Seloz Gestion & Finance 190,000 6.3% 190,000 1.7%
SA
Boulevard St. Georges 71
1211 Geneva 4
Switzerland
Partner Marketing AG(3) 290,000 9.7% 290,000 2.7%
Landweg 1
6052 Hergiswil
Switzerland
U. K. Menon 190,000 6.3% 190,000 1.7%
28, Jalar 17/21 C
Peteling Jaya
Selangor
Malaysia
Otto Zimmerli 190,000 6.3% 190,000 1.7%
Poststrasse 2
9050 Appenzil
Switzerland
Renegade Capital Corp. 1,190,976 11.0%
211 Schoolhouse Road
P. O. Box 737
Norwalk, CT 06058
Mark Wheeler 3,673,011 33.8%
17300 17th Street
Suite J-117
Tustin, CA 92680
Steven Lefler 2,572,507 23.7%
17300 17th Street
Suite J-117
Tustin, CA 92680
Stephen Punak 1,286,254 11.9%
17300 17th Street
Suite J-117
Tustin, CA 92680
Total Officers 250,000 8.3%
and Directors
(2 Persons prior to
acquisition)
Total Officers 6,445,518 59.4%
and Directors
(3 Persons after
acquisition)
32
<PAGE>
--------------------------
(1) May be deemed "Promoters" as that term is defined under the Securities Act
and are our only officers and directors.
(2) Barney Magnusson, President, Treasurer and a Director, and Leslie McGuffin,
Secretary and a Director, are husband and wife. They disclaim ownership of
each other's shares.
(3) Includes 100,000 shares purchased in the initial public offering.
(4) Includes 60,000 shares purchased in the initial public offering.
None of the current stockholders have received or will receive any extra or
special benefits that were not shared equally by all holders of shares of our
common stock.
Prior Blank Check Companies Involvement
---------------------------------------
None of our officers, directors, founders, promoters or principal
stockholders has been involved as a principal of a blank check company.
DESCRIPTION OF SECURITIES
Common Stock
------------
We are authorized to issue 50 million shares of common stock, $.001 par
value per share, of which 3,000,000 shares are issued and outstanding. Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by their holders at meetings of
the stockholders.
Holders of our common stock
+ have equal ratable rights to dividends from funds legally available
therefor, if declared by our board of directors;
+ are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon our liquidation, dissolution
or winding up;
+ do not have preemptive, subscription or conversion rights, or redemption
or sinking fund provisions; and
+ are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our stockholders.
All shares of our common stock which are part of the units, or which
underlie the warrants, will be fully paid for and non-assessable when issued,
with no personal liability attaching to ownership. You and other holders of
shares of our common stock do not have cumulative voting rights, which means
that the holders of more than 50% of outstanding shares voting for the election
of directors can elect all of our directors if they so choose and, in such
event, the holders of the remaining shares will not be able to elect any of our
directors. At the completion of our acquisition of Sky E-Com, the officers and
directors and other stockholders of Sky E-Com will beneficially own at least
86.2% of the outstanding shares of our common stock and will be in a position to
control all of our affairs.
33
<PAGE>
Preferred Stock
---------------
We may issue up to 5,000,000 shares of our preferred stock from time to
time in one or more series. As of the date of the prospectus, we have issued no
shares of preferred stock. Our board of directors, without further approval of
our common stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred stock.
Issuances of additional shares of preferred stock, while providing flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of other of our securities and may, under certain circumstances, have
the effect of deterring hostile takeovers or delaying changes in management
control.
Redeemable Common Stock Purchase Warrants
------------------------------------------
You and other holders of our warrants which are part of the units may
exercise them for a period of two years commencing the date of the prospectus.
Each warrant entitles the holder to purchase one share of our common stock at an
exercise price of $1.00. Our common stock underlying the warrants will, upon
exercise of the warrants, be validly issued, fully paid and non-assessable.
We may redeem our warrants, at any time, for $0.001 per warrant, if we
provide 30 days' prior written notice, if the closing bid price of our common
stock, as reported by the market on which our common stock trades, exceeds $1.25
per share for any twenty consecutive trading days ending within ten days prior
to the date of the notice of redemption. If we are unable to qualify our common
stock underlying the warrants for sale in certain states, holders of the
warrants in those states will have no choice but either to sell their warrants
or allow them to expire.
We have delivered to the escrow agent certificates representing five
warrants for each unit purchased. These certificates will be sent, after the
effective date of this reconfirmation offer and a favorable vote of our
stockholders holding 80% of the units, to investors who have voted to approve
the acquisition of Sky E-Com. Thereafter, you and other warrantholders may
exchange your certificates for new certificates of different denominations, and
you may exercise or sell them. However, we can offer no assurance that a market
in the warrants will develop.
You may exercise your warrants by surrendering the warrant certificate,
with the form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us or the warrant agent. You may exercise your warrants in
whole or from time to time in part. If you exercise fewer warrants than are
evidenced by a warrant certificate, we will issue a new warrant certificate for
the number of unexercised warrants.
Warrantholders are protected against dilution of the equity interest
represented by the underlying shares of common stock upon the occurrence of
certain events, including stock splits, recapitalizations and the issuance of
stock dividends. If we merge, reorganize or are acquired in such a way as to
terminate the warrants, they may be exercised immediately prior to such action.
In the event of liquidation, dissolution or winding up, holders of the warrants
are not entitled to participate in our assets.
34
<PAGE>
For the life of the warrants, holders are given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the book value of our common stock at
the time of exercise and would result in a dilution of the percentage ownership
of existing stockholders. The terms upon which we may obtain additional capital
may be adversely affected during the period in which the warrants remain
exercisable. Warrantholders may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain equity capital on terms more
favorable than the exercise price of the warrants.
We may not call the warrants for redemption if there does not exist an
effective registration statement relating to the underlying shares.
Warrantholders may not be able to exercise their warrants if they have not been
qualified for sale under the laws of the state where the warrantholder resides.
A call for redemption could force the warrantholder to accept the redemption
price, which, in the event of an increase in the price of the stock, would be
substantially less than the difference between the exercise price and the market
value at the time of redemption.
Reports to Stockholders
-----------------------
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
Dividends
---------
We have only been recently organized, have no earnings and have paid no
dividends. Sky E-Com likewise has no earnings and has paid no dividends. The
combined company, in all likelihood, will use its earnings, if any, to develop
its business and does not intend to declare dividends for the foreseeable
future.
Transfer Agent
--------------
We have appointed Olde Monmouth Stock Transfer Co., Inc., 77 Memorial
Parkway, Suite 101, Atlantic Highlands, New Jersey 07716 as transfer agent for
our shares of common stock and warrants.
Certain Income Tax Consequences
-------------------------------
In our management's opinion, our acquisition of Sky E-Com is intended to
qualify as a "tax-free reorganization" for purposes of the United States federal
income tax so that our stockholders and the stockholders of Sky E-Com subject to
United States taxes will not recognize gain or loss from the transaction. In
addition, the transaction is not intended to result in the recognition of gain
or loss to either us or Sky E-Com in the respective jurisdictions where each of
us is subject to taxation. We have not obtained an opinion of counsel nor a
ruling from the Internal Revenue Service. You should consult your own tax
advisors as to the specific tax consequences of our acquisition.
35
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission under the Securities Act, a
post-effective registration statement relating to the reconfirmation the
acquisition of Sky E-Com. We have not included in the prospectus all of the
information in the registration statement and the attached exhibits. Statements
of the contents of any document are not necessarily complete. Copies of these
documents are contained as exhibits to the registration statement. We will
provide to you a copy of any of any referenced information if you contact us at
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada, Attention:
Chief Financial Officer, telephone (604) 926-6775.
As of the effective date of the post-effective registration statement, we
will be a reporting company and will be subject to the reporting requirements of
the Securities Exchange Act. We will file periodic reports voluntarily in the
event that our obligation to file such reports is suspended under Section 15(d)
of the Securities Exchange Act. Our filings may be inspected and copied without
charge at the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: Seven World Trade
Center, 13th Floor, New York, New York 10048, and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of our filings
can be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. We have filed this registration statement and will file all future
registration statements and other documents and reports electronically through
EDGAR, the Electronic Data Gathering, Analysis and Retrieval System. These
documents are publicly available through the Commission's Internet World Wide
Web site at http://www.sec.gov.
We intend to furnish to our stockholders, after the close of each fiscal
year, an annual report relating to our operations containing audited financial
statements examined and reported upon by an independent certified public
accountant. In addition, we may furnish to our stockholders, from time to time,
such other reports as may be authorized by our board of directors. Our year -
end is December 31.
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of our business and the
offering.
Until 90 days after the date when the escrowed funds and certificates
representing the common stock and warrants are released from escrow, all dealers
effecting transactions in the units, the shares or warrants contained in the
units, or the shares underlying the warrants may be required to deliver a
prospectus.
LEGAL PROCEEDINGS
We not a party to nor are we aware of any existing, pending or threatened
lawsuits or other legal actions.
36
<PAGE>
LEGAL MATTERS
Sheila Corvino, Esq., 811 Dorset West Road, Dorset, Vermont is passing upon
the validity of the shares of common stock and the warrants constituting the
units and the shares of common stock underlying the warrants which are the
subject of this reconfirmation offer. In January 2001, Mark Wheeler transferred
100,000 shares of Sky E-Com common stock which will be exchanged for 100,000 of
our shares of common stock after the reconfirmation to Sheila G. Corvino, Esq.
in consideration for legal services.
FINANCIAL STATEMENTS
The following are our financial statements, with independent auditor's
report, for the period from inception, September 28, 1999, to December 31, 1999;
unaudited financial statements for the nine month period from January 1, 2000 to
September 30, 2000, audited financial statements of Sky E-Com for the period
June 3, 1999 to December 31, 2000, unaudited financial statements for the nine
month period from January 1, 2000 to September 30, 2000 and consolidated
pro-forma financial statements.
37
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To The Board of Directors and Shareholders
of Kingsgate Acquisitions, Inc. (a development stage company)
I have audited the accompanying balance sheet of Kingsgate Acquisitions,
Inc. (a development stage company) as of December 31, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the period from inception, September 28, 1999, through December 31, 1999. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kingsgate Acquisitions, Inc.
(a development stage company) as of December 31, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the period from inception, September 28, 1999, through December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kingsgate Acquisitions, Inc. (a development stage company) will continue as a
going concern. As more fully described in Note 2, the Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans as to these matters are described in Note 2.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the possible inability of
Kingsgate Acquisitions, Inc. (a development stage company) to continue as a
going concern.
/s/Thomas Monahan
----------------------------
THOMAS MONAHAN
Certified Public Accountant
Paterson, New Jersey
January 18, 2000
F-1
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
BALANCE SHEET
September 30,
December 31, 2000
1999 Unaudited
----------- ---------
ASSETS
Current assets
Cash $ 8,052 $ 8,052
Escrowed funds receivable 99,970
---------- ---------
Total current assets 8,052 108,022
Other assets
Deferred offering costs 11,785
----------
Total other assets 11,785
----------
Total $ 19,837 $ 108,022
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued liabilities $ 500 $500
---------- ---------
Total current liabilities $ 500 $ 500
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
5,000,000 shares authorized;
-0- shares issued and outstanding
Common stock, $.001 par value; 50,000,000 shares authorized; At December 31,
1999 and September 30,
2000, there were 2,000,000 and 3,000,000
shares issued and outstanding respectively. $ 2,000 $ 3,000
Additional paid-in capital 18,000 105,215
Deficit accumulated during the
development stage (663) (693)
---------- -------
Total stockholders equity 19,337 107,522
---------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 19,837 $ 108,022
========= ========
See notes to financial statements.
F-2
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
For the period For the nine from inception
from inception months ended to September 30,
September 28, September 30, 1999 to September 30
1999 2000 2000
to December 31, 1999 Unaudited Unaudited
-------------------- ------------------ -----------------
<S> <C> <C> <C>
Income $ -0- $ -0- $-0-
Costs of goods sold -0- -0- -0-
------ ------- ----
Gross profit -0- -0-
Operations:
General and administrative 685 30 715
Depreciation and Amortization -0- -0- -0-
------ ------- ----
Total costs 685 30 715
Other income
Interest income 22 -0- 22
------ ------- ----
Total other income 22 -0- 22
Net profit (loss) $ (663) $ (30) $(693)
======= ======= ======
PER SHARE AMOUNTS:
Net profit (loss) per common
share outstanding - basic $ 0.00 $ 0.00
========= ========
SHARES OF COMMON STOCK OUTSTANDING 2,000,000 2,750,000
========= ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
For the period For the nine from inception
from inception months ended to September 30,
September 28, September 30, 1999 to September
1999 2000 30, 2000
to December 31, 1999 Unaudited Unaudited
-------------------- -------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (663) $ (30) $ (693)
Item not affecting cash flow
from operations:
Amortization -0- -0- -0-
Accrued expenses 500 -0- -0-
--------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES (163) (30) (193)
CASH FLOWS FROM INVESTING ACTIVITY:
Deferred offering costs (11,785) 11,785 -0-
--------- ------ -----
CASH USED IN INVESTING ACTIVITIES (11,785) 11,785 -0-
CASH FLOWS FROM FINANCING ACTIVITY:
Sales of common stock 20,000 88,215 108,215
--------- ------ -------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 20,000 88,215 108,215
Increase (decrease) in cash 8,052 99,970 108,022
Cash balance beginning of period -0- 8,052
--------- ------ -------
CASH, end of period $ 8,052 $ 108,022 $ 108,022
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -
</TABLE>
See notes to financial statements.
F-4
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Preferred Preferred Common Common paid in development
stock stock stock stock capital stage Total
(shares) ($) (shares) ($) ($) ($) ($)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of 2,000,000
shares of
common stock 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ 20,000
Net profit (loss) $ (663) (663)
----------------------------------------------------------------------------------------------------
Balance
December 31, 1999 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ (663) $ 19,337
Unaudited
Sale of stock 1,000,000 1,000 99,000 100,000
Write off of deferred
offering expenses (11,785) (11,785)
Net income (loss) (30) (30)
------------------------------------------------------------------------------------------------------
Balances
September 30, 2000 0 $ 0 3,000,000 $ 3,000 $105,215 $ (693) $107,522
</TABLE>
See notes to financial statements.
F-5
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 28, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE COMPANY
Kingsgate Acquisitions, Inc. (the "Company"), was organized in Delaware on
September 28, 1999 and is authorized to issue 50,000,000 shares of common stock,
$0.001 par value each and 5,000,000 shares of preferred stock, $0.001 par value
each.
The Company is a "blank check" company which plans to search for a suitable
business to merge with or acquire. Operations since incorporation have consisted
primarily of obtaining capital contributions by the initial investors and
activities regarding the registration of the offering with the Securities and
Exchange Commission.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The Company is dependent upon its ability to have positive cash
flows from operations to sustain any business activity. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress in completing its self underwritten offering, finding a
business to acquire, completing the process of acquiring the business and
obtaining the needed investment capital and working capital to engage in
profitable operations. The Company plans to engage in such financing efforts on
a continuing basis.
The financial statements presented consist of the balance sheet of the
Company as at December 31, 1999 and the related statements of operations and
cash flows and stockholders' equity for period from inception, September 28,
1999, to December 31, 1999.
The unaudited financial statements presented at September 30, 2000 consist
of the balance sheet of the Company as at September 30, 2000 and the related
unaudited statements of operations and cash flows and stockholders' equity for
the nine months ended September 30, 2000
Deferred Offering Costs
As Of December 31, 1999, offering costs aggregating $11,785 were incurred
in anticipation of the Company filing a registration statement pursuant to Rule
419 under the Securities Act of 1933, as amended. These offering costs are being
deferred until the registration is complete.
As of September 30, 2000, the deferred offering costs were charged against
the proceeds the completed offering aggregating $100,000.
F-6
<PAGE>
Organization Costs, Net
Organization costs are being charged to operations.
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets at currently
enacted tax rates for the expected future tax consequences of events that have
been included in the financial statements or tax returns. A valuation allowance
is recognized to reduce the net deferred tax asset to an amount that is more
likely than not to be realized. The tax provision shown on the accompanying
statement of operations is zero since the deferred tax asset generated from the
net operating loss is offset in its entirety by a valuation allowance. State
minimum taxes will be expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents, if any, include all highly liquid debt
instruments with an original maturity of three months or less at the date of
purchase.
Fair Value of Financial Instruments
Cash, accounts payable and other current liabilities are recorded in the
financial statements at cost, which approximates fair market value because of
the short-term maturity of those instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Concentration of Credit Risk
At December 31, 1999 and September 30, 2000, the Company has a
concentration of its credit risk by maintaining its deposits in one bank and the
funds held in escrow in one bank. The maximum loss that could have resulted from
this risk totaled $-0- which represents the excess of the deposit liabilities
reported by the banks over the amounts that would have been covered by the
insurance.
Unaudited financial information
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of
September 30, 2000 and the results of its operations and its cash flows for the
nine months ended September 30, 2000. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the SEC's rules and regulations of the Securities and Exchange
Commission. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
F-7
<PAGE>
NOTE 3 - STOCKHOLDERS' EQUITY
Common Stock
For the period from inception, September 28, 1999, to December 31, 1999,
the Company sold an aggregate of 2,000,000 shares of common stock to thirteen
investors for an aggregate consideration of $20,000 or $0.01 per share.
In July, 2000, the Company completed an offering of 1,000,000 units at $.10
per unit or an aggregate offering price of $100,000. Each unit consisted of one
share of common stock and five redeemable common stock purchase warrants.
Preferred Stock
Up to 5,000,000 shares of preferred stock may be issued from time to time
in one or more series. The Company's board of directors, without further
stockholder approval, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any such series. Issuances of
additional shares of preferred stock, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things adversely affect the voting power of the holders of other
securities and may, under certain circumstances, have the effect of deterring
hostile takeovers or delaying changes in control or management.
The number of shares of preferred stock outstanding at December 31, 1999
and September 30, 2000 was $-0-.
NOTE 4 - RULE 419 REQUIREMENTS
Rule 419 requires that proceeds of the Company's initial public offering be
deposited into an escrow or trust account (the "Deposited Funds" and "Deposited
Securities", respectively) governed by an agreement which contains certain terms
and provisions specified by that rule. The Company may receive 10% of the
escrowed funds for working capital. The remaining Deposited Funds and the
Deposited Securities will be released to the Company and to the investors,
respectively, only after the Company has met the following three basic
conditions. First, the Company must execute an agreement for an acquisition
meeting certain prescribed criteria. Second, the Company must file a
post-effective amendment to its registration statement which includes the terms
of a reconfirmation offer that must contain conditions prescribed by Rule 419.
The post-effective amendment must also contain information regarding the
acquisition candidate and its business, including audited financial statements.
The agreement must include, as a condition precedent to its consummation, a
requirement that the number of investors who contributed at least 80% of the
offering proceeds must elect to reconfirm their investments. Third, the Company
must conduct the reconfirmation offer and satisfy all of the prescribed
conditions. The post-effective amendment must also include the terms of the
reconfirmation offer mandated by Rule 419. After the Company submits a signed
representation to the escrow agent that the requirements of Rule 419 have been
met and after the acquisition is consummated, the escrow agent can release the
Deposited Funds and Deposited Securities. Investors who do not reconfirm their
investments will receive the return of a pro rata portion thereof; and in the
event investors representing less than 80% of the Deposited Funds reconfirm
their investments, the Deposited Funds will be returned to all the investors on
a pro rata basis.
F-8
<PAGE>
NOTE 5 - GAIN (LOSS) PER SHARE OF COMMON STOCK
Net gain (loss) per share of common stock outstanding, as shown on the
statement of operations, is based on the number of shares outstanding at each
balance sheet date. Weighted average shares outstanding was not computed since
it would not be meaningful in the circumstances, as all shares issued during the
period from incorporation through December 31, 1999 were for initial capital.
Therefore, the total shares outstanding at the end of each period was deemed to
be the most relevant number of shares to use for purposes of this disclosure.
For future periods, the Company will utilize the treasury stock method for
computing earnings per share, and will compute a weighted average number of
shares outstanding once additional shares of stock are issued to new
stockholders. Under the treasury stock method, the dilutive effect of
outstanding stock options and other convertible securities for determining
primary earnings per share is computed using the average market price during the
fiscal period, whereas the dilutive effect of outstanding stock options and
convertible securities for determining fully diluted earnings per share is
computed using the market price as of the end of the fiscal period, if greater
than the average market price.
NOTE 6 - RELATED PARTY TRANSACTIONS
Office Facilities
Rental of office space and use of office, computer and telecommunications
equipment are provided by the President of the Company on a month to month basis
at a monthly rental of $500 per month commencing with the sale of the units in
the proposed offering until consummation of an acquisition. From the period from
inception, September 28, 1999, to December 31, 1999 and for the nine months
ended September 30, 2000, the accrual for rent is $-0-.
Officer Salaries
For the period from inception, September 28, 1999, to December 31, 1999 and
for the nine months ended September 30, 2000, no officer has received a salary
and no officer will receive a salary until the consummation of an acquisition.
NOTE 7 - COMPLETED OFFERING
The Company filed a registration statement with the Securities and Exchange
Commission pursuant to Rule 419 (see Note 4). The offering was conducted on a
"best efforts all-or-none basis" and consisted of 1,000,000 units at $.10 per
unit or an aggregate offering price of $100,000. Each unit consisted of one
share of common stock and five redeemable common stock purchase warrants. Each
warrant is exercisable at $1.00 for a period ending two years from the effective
date of a registration statement relating to the underlying shares of common
stock. The warrants are redeemable at any time, upon thirty day's written
notice, in the event the average closing price of the common stock is at least
$1.25 for a period of twenty consecutive trading days ending within ten days
prior to the notice of redemption. All the offering proceeds as well as
certificates representing the shares and warrants purchased in the offering are
being held in an escrow account.
F-9
<PAGE>
NOTE 8 - ACQUISITION OF SKY E-COM CORPORATION
On August 16, 2000, the Company entered into a Securities Purchase
Agreement, (the "Agreement") whereby it purchased all the common stock of Sky
E-Com Corporation ("Sky E-Com"). It will issue 7,854,400 shares of common stock
to former Sky E-Com shareholders in proportion to their share holdings.
In addition, the Company's founding stockholders will transfer to Sky
E-Com's stockholders 1,500,000 of their shares and will continue to hold 500,000
shares, representing 4.6% of the combined entity. The Company's public
stockholders hold 1,000,000 shares, representing 9.2% of the combined entity.
The former stockholders of Sky E-Com will own 9,354,400 shares of the Company's
common stock representing 86.2% of the combined entity.
The acquisition is subject to the effectiveness of a post-effective
amendment to the registration statement and a reconfirmation offer to investors
in the Company's initial public offering and the election by investors holding
80% of the securities sold in the initial public offering to remain investors.
NOTE 9 - RECONFIRMATION OFFER
The prospectus contained in the post-effective registration statement will
constitute an offer to the Company's investors in our initial public offering to
reconfirm their investments. Unless investors representing 80% of the maximum
offering proceeds of the Company's initial public offering elect to remain
investors, the acquisition of the common stock of Sky E-Com will be prevented,
deposited securities held in escrow will be returned to the Company and the
escrowed funds returned to the investors; and if a consummated acquisition has
not occurred within 18 months from the date of this prospectus, the deposited
securities held in the escrow account will be returned to the Company and
escrowed funds to the investors.
NOTE 10 - PROFORMA EFFECTS OF THE ACQUISITION
The following unaudited proforma combined condensed financial statements
present a combined balance sheet and related statement of income of the Company
and Sky E-Com giving effect to the transaction.
The transaction has been accounted for as a reverse merger involving a
shell company, effectively a recapitalization of Sky E-Com (the operating
company/accounting acquirers. Accordingly, the historical financial statements
of the operating company is presented as the historical financial statements of
the Company. The results of operations of the Company (legal acquirer) are
included in the proforma consolidated financial statements since the date of the
merger.
The pro forma combined condensed balance sheet as of September 30, 2000 and
the related statements of income for the nine months ended September 30, 2000
giving effect to the proposed transactions as if they had been in effect
throughout the periods presented. The information shown is not necessarily
indicative of the results of future operations of the combined entities or the
actual results that would have occurred had the transaction been consummated
during the periods indicated. These statements should be read in conjunction
with the consolidated financial statements of the Company, and the financial
statements of Sky E-Com included herein.
On August 15, 2000, the Company entered into a purchase agreement with
Kingsgate Acquisitions, Inc. The agreement is to be consummated through the
transfer of 1,500,000 shares of common stock owned by existing shareholders of
Kingsgate Acquisitions, Inc., along with the additional issuance of 7,854,400
shares of Kingsgate common stock given proportionately to all current
shareholders of Sky E-Com Corporation. In return, Kingsgate would receive all of
Sky E-Com Corporation's outstanding common stock. Sky E-Com would then become a
wholly owned subsidiary of Kingsgate Acquisitions, Inc.
F-10
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
PROFORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION> Consolidated
Kingsgate Sky E-Com Kingsgate
Acquisition, Inc. Corporation Adjustments Acquisitions, Inc.
----------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Current assets
Cash $ 8,052 $ 2,354 $ 10,406
Note receivable 1,667 1,667
Prepaid expenses 1,000 1,000
Prepaid income tax-federal 500 500
Escrowed funds receivable 99,970 99,970
---------- ------------ ----------- -----------
Total current assets 108,022 5,521 113,543
Fixed assets
Property and equipment net 11,357 11,357
Total assets $ 108,022 $ 16,878 $ 124,900
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities
Accounts payable and accrued
expenses $ 500 $ 500
Income taxes payable 800 800
---------- ---------- ----------- -----------
Total current liabilities 500 800 1,300
Stockholders' Equity
Preferred stock, $0.001 par value,
5,000,000 shares authorized; At September
30, 2000 there were -0- shares outstanding
Common stock, $.001 par value; 50,000,000 3,000 247,327 (239,473) 10,854
shares authorized; At September 30, 2000
there were 3,000,000 shares outstanding
with the issuance of 7,854,000 for the
acquisition of Sky E-Com.
Additional paid in capital 105,215 239,473 344,688
Deficit accumulated during
development stage (693) (231,249) (231,942)
---------- ----------- ----------- ----------
Total stockholders' equity 107,522 16,078 123,600
---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity $ 108,022 $16,878 $ 124,900
========== ========== =========== ==========
</TABLE>
F-11
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Consolidated
Kingsgate Kingsgate
Acquisition, Sky E-Com Acquisitions,
Inc. Corporation Adjustments Inc.
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Income $ -0- $ -0- $ -0-
Cost of goods sold -0- -0- -0-
-------- -------- ---------
Gross profit -0- -0- -0-
Operations:
General and administrative 30 93,055 93,085
Depreciation
Research and development 38,882 38,882
Other operating expenses 3,673 3,673
-------- -------- ---------
Total operating expenses 30 135,610 135,640
Provision for Federal
corporate income taxes 800
Other income 25,000 25,000
Proforma Net income (loss) $(30) $(111,410) $ (111,440)
Other income 25,000 25,000
Proforma Net income (loss) $(30) $(111,410) $ (111,440)
</TABLE>
F-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Sky E-Com Corporation
We have audited the accompanying balance sheet of Sky E-Com Corporation (a
California development stage company) as of December 31, 1999, and the related
statements of operations, stockholders' equity, and cash flows from June 3, 1999
(date of inception) through December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
in all material respects, the financial position of Sky E-Com Corporation at
December 31, 1999, and the results of its operations and its cash flows for the
period from June 3, 1999 (date of inception) through December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the financial statements,
the Company is development stage company and as such is devoting substantial
efforts toward establishing a new business. Its planned principal operations
have just begun and, accordingly, no revenues have been derived to date and the
Company has incurred accumulated losses since inception of $119,839. Such losses
raise substantial doubt about the Company's ability to continue as a going
concern. As indicated in Note 5, the Company has plans in process to sell its
securities to raise additional equity. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Hoffski & Pisano, CPAs
Irvine, California
September 1, 2000
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
BALANCE SHEET
December 31, 1999
ASSETS
Current assets
Cash $ 10,797
-------------
Total current assets 10,797
-------------
Fixed assets
Property and equipment 12,236
-------------
Total property and equipment 12,236
-------------
Total assets $ 23,033
=============
See accompanying notes to financial statements.
F-2
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
BALANCE SHEET
December 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 14,745
Franchise taxes payable 800
----------
Total current liabilities 15,545
----------
Commitments and contingencies -
Stockholders' equity
Common stock, 10,000,000 shares authorized;
no par value; 1,656,000 shares issued and
outstanding 1,656
Additional Contributed Capital 1,671
Preferred stock, 5,000,000 shares authorized;
no par value; 49,600 shares issued and
outstanding 124,000
Deficit accumulated during development stage (119,839)
-----------
Total stockholders' equity 7,488
-----------
Total liabilities and stockholders' equity $ 23,033
============
See accompanying notes to financial statements.
F-3
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
STATEMENT OF INCOME/(LOSS)
For the period from June 3, 1999 (date of inception)
through December 31, 1999
Revenues $ -
Operating expenses
Research & development 70,572
General & administrative expenses 35,664
Other operating expenses 12,803
-----------
Total operating expenses 119,039
-----------
Operating income/(loss) (119,039)
-----------
Provision for income taxes 800
------------
Loss from operations (119,839)
------------
Net loss per common share, basic (0.07)
==============
Weighted average common shares outstanding, basic 1,656,000
==============
Net loss per common share, fully diluted (0.07)
==============
Weighted average common shares outstanding,
fully diluted 1,692,135
==============
See accompanying notes to financial statements.
F-4
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from June 3, 1999 (date of inception)
through December 31, 1999
<TABLE>
<CAPTION>
Additional Total
Common Stock Preferred Stock Paid-in Stockholders'
Shares Amount Shares Amount Capital Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, at June 3, 1999 - $ - - $ - $ - $ -
Stock Issued on 06/03/99 1,656,000 1,656 - - - 1,656
Capital Contributed on 06/03/99 - - - - 1,671 3,327
Stock Issued on 07/02/99 - - 40,000 100,000 - 103,327
Stock Issued on 11/21/99 - - 2,000 5,000 - 108,327
Stock Issued on 11/23/99 - - 4,000 10,000 - 118,327
Stock Issued on 11/29/99 - - 3,200 8,000 - 126,327
Stock Issued on 12/14/99 - - 400 1,000 - 127,327
Net Loss - (119,839)
--------- ---------- --------- ----------- ---------- -------------
Balance, at December 31, 1999 1,656,000 $ 1,656 49,600 $ 124,000 $ 1,671 $ 7,488
========= ========== ========= =========== ========== =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the period from June 3, 1999 (date of inception)
through December 31, 1999
Cash flows from operating activities
Net loss $ (119,839)
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 1,731
Imputed Officers' Salary 1,656
Increase in Income Taxes Payable 800
Decrease in Accounts Payable (4,119)
-------------
Net cash used for operating activities (119,771)
-------------
Cash flows from investing activities
Purchase of Property and Equipment (4,997)
-------------
Net cash used for investing activities (4,997)
-------------
Cash flows from financing activities
Issuance of Preferred Stock 124,000
Contributed Cash 11,565
-------------
Net cash provided by financing activities 135,565
-------------
Net increase in cash and cash equivalents 10,797
Cash and cash equivalents - beginning -
-------------
Cash and cash equivalents - ending $ 10,797
=============
See accompanying notes to financial statements.
F-6
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Sky E-Com Corporation (the Company) is a development stage company as
defined under Statements of Financial Accounting Standards No. 7. The company
was incorporated on June 3, 1999 to design, develop and sell mobile personal
computers to operate interactive video entertainment and electronic software
systems in the passenger airline, train, cruise ship, ferry, and automobile
rental market segments.
The Company's continued existence, as a going concern, is ultimately
dependent upon the success of developing and subsequently selling computers
within the travel industry as well as its ability to secure additional funding
for capital, the marketing of its product and research and development. As of
August 15, 2000, the Company entered into an agreement to be acquired by
Kingsgate Acquisition, Inc. (see Note 5). The acquisition is expected to provide
additional capital to the newly formed company. However, there can be no
assurance that the Company will be able to attain additional capital, consummate
their recent agreement, or successfully offer securities to the public.
Income Taxes
The Company accounts for income taxes under the provisions of Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires a company to recognize deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates.
Fixed Assets and Depreciation
Computers and servers, other computer hardware, office equipment and video
equipment are stated at cost. At the time assets are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is credited to or charged
against income. Depreciation for financial reporting purposes is calculated by
the straight-line method over the estimated useful lives of the assets. The
Modified Accelerated Cost Recovery System (MACRS) method is used for income tax
purposes.
F-7
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Costs
Expenditures for research activities relating to product development and
improvement are charged to expense as incurred. Such expenditures amounted to
$70,572 in 1999.
Loss Per Share
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - STOCKHOLDERS' EQUITY
Common Stock
The Company has a Restricted Stock Plan, encompassing 10,000,000 shares of
common stock, the purpose of which is to permit grants of shares, subject to
restrictions, to key employees of the Company as a means of rewarding them for
performance and to increase their ownership within the Company. Shares awarded
under the Plan entitle the shareholder to all rights of common stock ownership
except that the shares may not be sold, transferred, pledged, exchanged or
otherwise disposed of during the restriction period. The restriction period is
determined by the Board of Directors and may not exceed ten (10) years.
The Company accounts for its Restricted Stock Plan under APB Opinion No. 25
(Accounting for Stock Issued to Employees). During 1999, 1,656,000 shares were
granted with restriction a period of ten years at a market price of $.001. The
shares were recorded at the market value on the date of issuance as
compensation. During the year 1999, earned compensation charged to operations
related to these shares of restricted stock was $1,656. At December 31, 1999,
the weighted average grant date fair market value and weighted-average
contractual life for outstanding shares of restricted stock was $.001 and 9.4
years, respectively.
F-8
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 2 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
The duration of the Restricted Stock Purchase agreement is limited to: a)
the tenth anniversary of the agreement, b) the concurrent affirmative vote of
80% of the shares, or c) a sale of the Company's equity securities to the public
pursuant to an effective registration statement. As of the date of this audit
report, an 80 % affirmative vote by current stockholders cancelled the
restricted stock purchase agreement. This was done as pursuant to the Kingsgate
Acquisitions agreement (see Note 5).
Preferred Stock
The outstanding preferred stock is convertible into common stock on a 1 for
1 basis. However, management reserves the right to make adjustments in the
conversion price, which could affect the conversion rate. The preferred stock is
redeemable at a price of $2.50 per share and has voting rights equal to that of
the common stock. The preferred stock is also eligible to receive $0.0625 per
share dividends each quarter, on a non-cumulative basis. To date, no dividends
have been paid. As of the date of this audit report, the preferred shareholders
have indicated their intent to convert their shares into common stock upon the
consummation of the purchase agreement with Kingsgate Acquisitions, Inc. (see
Note 5).
NOTE 3 - INCOME TAXES
The Company has a net operating loss of $117,949 available for carryforward
of up to 20 years for Federal purposes. Pursuant to Internal Revenue Code
Section 382 and the regulations thereunder, the amounts of utilizable carryover
may be limited as a result of ownership changes or even eliminated if business
continuity requirements are not met. No carrybacks are available for state
purposes, while carryforwards of 50% of the loss are permitted for up to 5
years.
There were no temporary differences allowing no deferred tax liabilities to
arise.
Components of income tax expense are as follows:
CURRENT
Federal $ -
State 800
-----------
Net provision/(benefit) for income taxes $ 800
===========
Total provision for income taxes $ 800
===========
F-9
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
NOTE 4 - PROPERTY & EQUIPMENT
Property and equipment consist of the following:
Computers, servers, hardware and software $ 13,334
Office and video equipment 633
------------
$ 13,967
Less accumulated depreciation (1,731)
------------
$ 12,236
NOTE 5 - SUBSEQUENT EVENT
On August 15, 2000, the Company entered into a purchase agreement with
Kingsgate Acquisitions, Inc. The agreement is to be consummated through the
transfer of 1,500,000 shares of common stock owned by existing shareholders of
Kingsgate Acquisitions, Inc., along with the additional issuance of 7,854,400
shares of Kingsgate common stock given proportionately to all current
shareholders of Sky E-Com Corporation. In return, Kingsgate would receive all of
Sky E-Com Corporation's outstanding common stock. Sky E-Com would then become a
wholly owned subsidiary of Kingsgate Acquisitions, Inc.
F-10
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
BALANCE SHEET
September 30, 2000
ASSETS
Current assets
Cash $ 2,354
Note receivable - SkySystem Enterprises, Inc. 1,667
Prepaid expenses 1,000
Prepaid income tax - federal 500
-----------------
Total current assets 5,522
-----------------
Fixed assets
Property and equipment 11,357
-----------------
Total property and equipment 11,357
-----------------
Total assets $ 16,878
=================
F-11
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
BALANCE SHEET
September 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 0
Franchise taxes payable 800
----------
Total current liabilities 800
----------
Commitments and contingencies -
Stockholders' equity
Common stock, 10,000,000 shares authorized;
no par value; 7,854,400 shares issued
and outstanding 245,656
Additional Contributed Capital 1,671
Accumulated deficit (231,249)
-----------
Total stockholders' equity 16,078
-----------
Total liabilities and stockholders' equity $ 16,878
===========
See attached footnotes.
F-12
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
From inception
Nine months ended June 3, 1999 to
September 30, 2000 September 30, 2000
------------------ ------------------
Revenues $ - -
Operating expenses
Research & development 38,882 109,454
General & administrative expenses 93,055 128,719
Other operating expenses 3,673 16,476
---------- ----------
Total operating expenses (135,610) (254,649)
---------- ----------
Operating income/(loss) (135,610) (254,649)
---------- ----------
Other income 25,000 25,000
---------- ----------
Net profit/loss (110,610) (229,649)
---------- ----------
Provision for income taxes 800 (1,600)
---------- ----------
Loss from operations $ (111,410) (231,249)
--------- ----------
Net loss per common share, basic (0.01) (0.06)
============ ============
Weighted average common shares
outstanding, basic 7,135,973 3,750,080
========== ==========
See attached footnotes.
F-13
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months and
the fiscal year to date ended September 30, 2000
<TABLE>
<CAPTION>
Additional Total
Common Stock Preferred Stock Paid-in Stockholders'
Shares Amount Shares Amount Capital Equity
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, at January 1, 2000 1,656,000 $ 1,656 49,600 $ 124,000 $ 1,671 $ 7,488
Stock Issued on 1/26/00 - - 8,000 20,000 - 27,488
4 to 1 stock split on 4/7/00 4,968,000 - 172,800 - - -
(Common & preferred)
Stock issued on 4/10/00 - - 250,000 25,000 - 52,488
Stock Issued on 5/19/00 500,000 50,000 - 102,488
Stock Issued on 7/25/00 250,000 25,000 - 127,488
Preferred stock conversion
Into common stock on 5/26/00 980,400 219,000 (980,400) (219,000) - -
Preferred stock conversion
Into common stock on 7/25/00 250,000 25,000 (250,000) (25,000) - -
Net Loss - (111,410)
--------- --------- --------- ---------- ------- ----------
Balance, at September 30, 2000 7,854,400 $ 245,656 - $ - $ 1,671 $ 16,078
========= ========= ========= ========== ======== ==========
</TABLE>
F-14
<PAGE>
SKY E-COM CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
From inception
Nine months ended June 3, 1999 to
September 30, 2000 September 30, 2000
------------------ ------------------
Cash flows from operating activities
Net loss $ (111,410) $ (231,249)
--------- ---------
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation 2,173 3,904
Imputed officer's salary 1,656
Increase in income tax payable 300
Increase in prepaid expenses (1,000) (1,000)
Increase in prepaid income taxes (500) (0)
Increase in notes receivable (1,667) (1,667)
Decrease in accounts payable (14,744) (18,864)
--------- ---------
Net cash used for operating activities (127,149) (246,920)
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (1,294) 6,291
--------- ---------
Net cash used for investing activities (1,294) 6,291
--------- ---------
Cash flows from financing activities
Issuance of preferred stock 120,000 244,000
Contributed Cash 11,565
--------- ---------
Net cash provided by financing activities 120,000 255,565
--------- ---------
Net increase in cash and cash equivalents (8,443) 2,354
Cash and cash equivalents - beginning 10,797 0
--------- ---------
Cash and cash equivalents - ending $ 2,354 $ 2,354
========== =========
See attached footnotes.
<PAGE>
SKY E-COM CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all necessary adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results of Sky E-Com Corporation. (the "Company") for the
nine months ended September 30, 1999 and 2000 are not necessarily indicative of
the results that may be expected for the fiscal year ending December 31, 2000.
NOTE B--NOTE RECEIVABLE AND PREPAID EXPENSES
Note Receivable
Note receivable represents reimbursement for advances made by the Company
to its founding stockholders.
Prepaid Expenses
Prepaid expenses represent a retainer paid to the Company's counsel for
corporate legal services.
NOTE C--EARNINGS PER SHARE
Basic loss per common share is computed by dividing the loss by the
weighted average number of common shares outstanding during the period. During
the nine month periods through September 30, 2000, there were no dilutive
securities outstanding
NOTE D--SPLIT OF COMMON AND PREFERRED STOCK
On April 7, 2000, the Company forward split all of its Common and Preferred
stock at a rate of 4 to 1 resulting in a total of 6,624,000 shares of Common
stock and 230,400 shares of Preferred stock issued.
NOTE E--CONVERSION OF PREFERRED STOCK
On May 26, 2000, the Company and its Preferred stockholders converted
980,000 shares of Preferred stock into Common stock on a 1 to 1 basis. On July
25, 2000 the Company and its Preferred stockholders converted an additional
250,000 shares of Preferred stock to Common stock on a 1 to 1 basis, resulting
in a total of 7,854,400 shares of Common stock issued and 0 shares of Preferred
stock issued.
NOTE F--RESTRICTED STOCK PLAN RESCINDED
On April 5, 2000, the Company's restricted stock plan was rescinded by
action of the board of directors and written consents by all participants.
NOTE G--INCOME TAXES
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1999 and September 30,
2000, the Company had no material current tax liability, deferred tax assets, or
liabilities to impact on the Company's financial position because the deferred
tax asset related to the Company's net operating loss carry forward and was
fully offset by a valuation allowance. At September 30, 2000, the Company has
net operating loss carry forwards for income tax purposes of $231.249. These
carry forward losses are available to offset future taxable income, if any, and
expire in the year 2020 for Federal purposes.
F-16
<PAGE>
The Company recognized no income tax benefit from the loss generated for
the period from the date of inception to September 30, 2000. SFAS No. 109
requires that a valuation allowance be provided if it is more likely than not
that some portion or all of a deferred tax asset will not be realized. The
Company's ability to realize benefit of its deferred tax asset will depend on
the generation of future taxable income. Because the Company has yet to
recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
NOTE H--COMMITMENTS AND CONTINGENCIES
Rental agreements
The company presently utilizes a shared executive office and conference
facility located at 17300 17th Street, Suite J-117 in Tustin CA on a
month-to-month rental basis at a rate of $150 per month. This space is used by
the Company on an as needed basis and is shared with other organizations. All of
the Company's employees and consultants have established home offices that are
used at no cost to the Company. Consultants and contractors provide their own
office space at no cost to the Company.
F-17
<PAGE>
-----------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or
representations must not be relied on as Kingsgate Acquisitions, Inc.
having been authorized by Kingsgate
Acquisition, Inc. This Prospectus does
not constitute an offer to sell or a Reconfirmation
solicitation of an offer to buy, by any
person in any jurisdiction in which it
is unlawful for such person to make such
offer or solicitation. Neither the
delivery of this Prospectus nor any
offer, solicitation or sale made
hereunder, shall under any circumstances
create an implication that the
information herein is correct as of any
time subsequent to the date of the
Prospectus.
----------------------------------------
Until ------- ---, 2001 (ninety days after the date funds and securities are
released from the escrow account pursuant to Rule 419), all dealers effecting
transactions in the registered securities, whether or not participating in the
distribution thereof, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotment or subscriptions.
-----------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law provides for the indemnification of
the officers, directors and corporate employees and agents of Kingsgate
Acquisitions, Inc. (the "Registrant") under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
38
<PAGE>
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this section. Such
expenses including attorneys' fees incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
39
<PAGE>
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Articles Ninth and Tenth of the Registrant's certificate of incorporate
provide as follows:
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
40
<PAGE>
Article XII of the Registrant's by-laws provides as follows:
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
41
<PAGE>
4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragraph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, (b) by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or (c) by the stockholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or proceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
42
<PAGE>
Item 25. Expenses of Issuance and Distribution
The other expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are estimated as
follows:
Escrow Fee $ 600.00
Securities and Exchange Commission Registration Fee 1545.45
Legal Fees 20,000.00
Accounting Fees 5,000.00
Printing and Engraving 1,000.00
Blue Sky Qualification Fees and Expenses 950.00
Miscellaneous 404.55
Transfer Agent Fee 500.00
---------
TOTAL $ 30,000.00
Item 26. Recent Sales of Unregistered Securities
The registrant issued 2,000,000 shares of common stock between September
28, 1999 and September 30, 1999 to thirteen investors for cash consideration of
$.01 per share for an aggregate investment of $20,000. Barney Magnusson,
President, Treasurer and Director, and Leslie McGuffin, Secretary and Director,
purchased 200,000 and 50,000 shares of common stock respectively. The registrant
sold these shares of common stock under the exemption from registration provided
by Section 4(2) of the Securities Act. No securities have been issued for
services.
Neither the registrant nor any person acting on its behalf offered or sold
the securities by means of any form of general solicitation or general
advertising. Purchasers or the beneficial owners of purchasers which are
entities are friends or business associates of Barney Magnusson, President of
the registrant. No services were performed by any purchaser as consideration for
the shares issued. In addition, Roger Fidler, Esq., special securities counsel,
purchased 20,000 shares of our common stock for cash consideration.
All purchasers represented in writing that they acquired the securities for
their own accounts. A legend was placed on the stock certificates stating that
the securities have not been registered under the Securities Act and cannot be
sold or otherwise transferred without an effective registration or an exemption
therefrom. All purchasers of our unregistered securities are accredited
investors.
43
<PAGE>
EXHIBITS
Item 27.
2.1 Securities Purchase Agreement with Sky E-Com Corp. dated August 15, 2000
3.1 Certificate of Incorporation*
3.2 By-Laws*
4.1 Specimen Certificate of Common Stock*
4.2 Form of Warrant*
4.3 Form of Escrow Agreement*
4.4 Executed Escrow Agreement dated June 7, 200 with Capital Suisse
Securities, Inc.**
5.1 Opinion of Roger Fidler, Esq. dated October 31, 1999*
5.1 Opinion of Sheila Covino, Esq. dated October 20, 2000**
10.1 Letter of Intent dated May 5, 2000 between British Airways and
Sky E-Com**
10.2 Letter of Intent dated March 9, 2000 between BuyNow, Inc. and
Sky E-Com**
10.3 Sales Consulting Agreement dated February 25, 2000 with Intelliworxx,
Inc.**
23.1 Consent Thomas Monahan, CPA to Use Opinion
23.2 Consent of Roger Fidler, Esq. dated October 31, 1999 to use opinion*
23.3 Consent of Sheila Corvino, Esq. dated October 20, 2000 to use opinion**
23.4 Consent of Hoffski & Pisano CPAs
23.5 Consent of Mark Wheeler
23.6 Consent of Steven Lefler
27 Financial Data Schedule* **
----------------------------
* Previously submitted as exhibits to registration statement filed November
23, 1999.
* Previously submitted as exhibits to post effective registration statement
filed November 1, 2000
44
<PAGE>
Item 28.
UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the "Registration
Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the Effective Date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in this
registration statement, including (but not limited to) the
addition of an underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) To deposit into the Escrow Account at the closing, certificates in such
denominations and registered in such names as required by the Company to
permit prompt delivery to each purchaser upon release of such securities
from the Escrow Account in accordance with Rule 419 of Regulation C under
the Securities Act. Pursuant to Rule 419, these certificates shall be
deposited into an escrow account, not to be released until a business
combination is consummated.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the Registrant 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 Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 Registrant 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
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, 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 the registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, Canada, on January 9, 2001.
KINGSGATE ACQUISITIONS, INC.
By: /s/Barney Magnusson
---------------------------
Barney Magnusson, President
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/Barney Magnusson
------------------------------- Dated: January 9, 2001
Barney Magnusson
President, Treasurer, Director
/s/Leslie McGuffin
------------------------------- Dated: January 9, 2001
Leslie McGuffin
Secretary, Director
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