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Securities and Exchange Commission
Washington, DC 20549
FORM 10-SB/A4
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
COM-GUARD.COM, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 33-0879853
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2075 CORTE DEL NOGAL, SUITE B, CARLSBAD, CA 92009
(Address of principal executive offices) (Zip Code)
(760) 431-2206
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
N/A N/A
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON EQUITY, PAR VALUE $.001
(Title of class)
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FORM 10-SB/A4
TABLE OF CONTENTS
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NO. TITLE PAGE NO.
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PART I
Item 1. Description of Business..................................................................................3
Item 2. Management's Discussion and Analysis or Plan of
Operation...............................................................................................16
Item 3. Description of Property.................................................................................21
Item 4. Security Ownership of Certain Beneficial Owners and
Management..............................................................................................21
Item 5. Directors, Executive Officers, Promoters, and
Control Persons.........................................................................................22
Item 6. Executive Compensation..................................................................................23
Item 7. Certain Relationships and Related Transactions..........................................................23
Item 8. Description of Securities...............................................................................23
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters.............................................................25
Item 2. Legal Proceedings.......................................................................................25
Item 3. Changes and/or Disagreements with Accountants...........................................................25
Item 4. Recent Sales of Unregistered Securities.................................................................25
Item 5. Indemnification of Directors and Officers.............................................................. 29
PART F/S
Financial Statements....................................................................................29
PART III
Item 1. Index to Exhibits.......................................................................................30
Item 2. Description of Exhibits.................................................................................30
Signatures..............................................................................................31
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Com-Guard.Com, Inc. (the "Registrant" or the "Company") was
incorporated as e-World Security, Inc. in the State of Nevada on October 7,
1998. The Company's name was changed to Com-Guard.Com, Inc. and filed on April
16, 1999.
The Registrant has limited operating history. The principal business of
the Registrant is the exploitation of niche products for the microcomputer
industry that provide enhanced system security for both individual users and
network administrators. The Company's initial product under development,
Com-Guard-TM-, includes unique software and hardware that will enable users to
protect and limit access to data; and to provide a security system against
tampering and unauthorized use of computers.
Com-Guard-TM- products will be able to lock down data files so that if
there is a security violation locally or on the Internet the intruder will not
be able to read the files in the Com-Guard-TM- protected area. The Web-Guard
product will keep unauthorized users from using their browser and therefore
limit their access to the Internet.
The Registrant has not had any sales of its products to date and does
not anticipate sales until the second quarter of its 2001 fiscal year.
The Registrant's present business address is 2075 Corte del Nogal,
Suite B, Carlsbad, California 92009.
OVERVIEW
Com-Guard.Com, Inc. is developing a group of products, called Com-
Guard-TM-, to provide users of personal computers with (1) Internet security,
(2) file security, and (3) internal facility security.
The Com-Guard-TM- system monitors a computer or network and detects,
through proprietary software and hardware, unauthorized attempts to use, tamper
with, or remove data or equipment. The system is designed to generate an alarm,
which can be sent to any receiving device, including pagers, telephones, other
computers, etc.
The market for Com-Guard-TM- consists of individual users and industry.
The popularity of the Internet has created a need for both data security and
access limitations. Limiting access
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to sensitive and/or confidential files has grown to be a need for all users of
microcomputers.
Home automation, including systems to provide "internal" security to
certain areas of a home or office, represents an additional market for
ComGuard-TM-. The system, installed in a PC, will have the ability to function
as an internal home security system, controlling a series of sensors to protect
against theft and intrusion, child safety, etc.
We believe competition to Com-Guard-TM- is limited in scope. PC
security products are generally confined to software, which can help users
protect access to certain files on the host PC, a network, or the Internet. In
contrast, ComGuard-TM- is a combination of hardware and software that, when
installed in a PC, offers protection from unauthorized access to the PC itself
in addition to access to files.
While many security products for the PC are available, the Registrant
believes that most are either inadequate for general consumption and use. The
Registrant further believes that most products are either costly "firewall"
systems for internet management, which have proven both cumbersome and
inadequate. It is also the belief of the Registrant that existing technologies
do not combine the features of data security as well as theft protection; and no
PC product combines the features of Com-Guard-TM- along with an interior
security system (for home or office).
Consequently, the Registrant believes that Com-Guard-TM- is well
positioned in features and price, which can provide it a competitive position in
a market of considerable size.
Nevertheless, there are other software-based PC security products on
the market and the competition for the Registrant's Soft-Guard product is
considerable.
The Com-Guard-TM- system will be offered in several configurations from
$19.95 to $249.95. The least expensive version is Soft-Guard-TM-, which is
software only. At a retail price of $19.95, we are unaware of any PC-based
security product that is less expensive.
The Company is managed by experienced individuals who
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have worked in the microcomputer industry for many years.
THE PRODUCT
Com-Guard-TM- is a PC-based hardware/software system. It provides
features to provide security for computers, networks, and home/office
environments. Based on the results to date, management is not aware of any fatal
errors in the system. Several minor system bugs are in the process of being
corrected. The system will be released to customers upon completion of the beta
testing which is expected to occur in early November.
PROTECTION FROM COMPUTER TAMPERING AND THEFT: Over $8 billion of computers are
stolen annually. Com-Guard-TM- provides an internal sensor in the computer,
which enables an alarm to inform the user of any movement of the system.
The system can be enabled remotely with a "clicker" device similar to that
used in automobiles, which can be carried on a key chain.
PROTECTION OF VALUABLE PC COMPONENTS FROM TAMPERING AND THEFT: While billions
are lost annually due to theft of computers, substantial theft is
attributable to tampering and theft of components, such as mice, memory,
disk drives, keyboards, etc. The Com-Guard-TM- system detects any vibration
of the system, and provides a warning alert to the owner of the system.
PREVENT UNAUTHORIZED ACCESS TO PC: Unauthorized access to a PC can range from
children logging onto Internet sites without parental knowledge or
permission, to office co-workers accessing confidential and sensitive files
from a PC without the user's knowledge or consent. Com-Guard-TM- software
allows the user to lock out certain applications, directories, and/or
files. Additionally, Com-Guard-TM- provides a log of all attempts at
unauthorized access.
INTERNAL HOME/OFFICE SECURITY FEATURES: Com-Guard-TM-, through interconnected
sensors (heat, motion, video, etc.) can serve as a central internal
security system. The same alarm capabilities and event logging features
for the basic PC security system are enabled in an environment that
protects the entire environment. The end user can connect a motion
detector, video camera or other security products that will be provided by
the Registrant to the connectors on the back of the Com-Guard-TM- hardware.
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BATTERY BACKUP: In the event of power failure or deliberate disconnection of the
computer, Com-Guard-TM- continues to operate with its own battery backup on
the computer hardware.
REMOTE NOTIFICATION: Com-Guard-TM- alarm signals can be routed to remote devices
such as pagers and telephones.
The following table is a review of the features and functions of
Com-Guard-TM- and Soft-Guard-TM-:
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Feature/Function Com-Guard Soft-Guard
<S> <C> <C>
Internal hardware sensor for remote on/off control of X
the user PC
Internal hardware vibration sensor to detect X
unauthorized tampering of the user PC
Hardware connections for attachment of sensors such X
as heat, motion, and video, for home security
controlled centrally by the user PC
Battery back-up X
Built-in audio alarm and signal routing to remote X
devices
Password protected PC access X X
Programmable file protection access [enable/deny] X X
Programmable Internet access [enable/deny] X X
</TABLE>
Com-Guard-TM- will be offered in several configurations (and initial
pricing) depending upon the need of the individual customer. Com-Guard-TM- will
consist of three products with three different pricing structures. (1)
Com-Guard-TM- local version hardware and Soft-Guard-TM- software, $149.95, (2)
Com-Guard-TM- network version - Com-Guard-TM- hardware, Soft-Guard-TM- and the
network client/server software - $249.95, (3) Soft-Guard-TM- - software only,
$19.95, (4) Web-Guard - a software package to provide limiting access to the
browser will be free.
THE MARKET
The market for Com-Guard-TM- consists of individual users and industry.
The popularity of the Internet has created a need for both data security and
access limitations. Limiting
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access to sensitive and/or confidential files has grown to be a need for all
users of microcomputers.
Increased use of the internet and of enterprise-wide internal networks
increases the complexity of the it environment, which requires the use of it
security tools. Some of the tools used most often for network and data security
have been commercially available for over a decade. Newer technologies - those
moving away from standard hardware and software password protection - are now
being introduced to the marketplace.
A recent International Data Corporation ("IDC") survey of businesses
revealed that security is of paramount concern in the enterprise. Increased use
of the Internet and corporate growth are among the most significant business
drivers for adding security; and there was little evidence that these pressures
would change over the next several years.
The events related to the "Love Virus" that effected millions of
computers world-wide in May 2000 serve to punctuate the value of PC security.
Computer Economics, Inc., an economics research firm in Carlsbad, California
estimates damages from the virus at $2.6 billion.
Market researcher Dataquest has forecast that the world-wide market for
computer security services will rise to $2.24 billion by 2003, reflecting an
average annual growth rate of more than 34 percent.
The U.S. personal computer industry consists of thousands of computer
manufacturers, assemblers, OEMs, and peripheral/parts producers. Their products
are sold and supported by a variety of distributors, resellers, systems
integrators, retail merchants, and service companies. Saturating markets and
increasing competition is forcing vendors to seek new users in homes, small
businesses and classrooms with revamped marketing strategies and lower cost
computers. The information on the size of the PC Computer Industry and network
market is considered pertinent because the Registrant cannot sell and install a
Com-Guard-TM- board and its related software unless there are Personal Computers
that are installed.
Shipments of personal computers (including desktops, network servers,
and portables) exceeded 25 million in 1996, while revenues were over $60
billion, according to Dataquest. This included computers manufactured in the
United States by domestic and foreign firms, plus imported systems. PCs with
Pentium processors represented over 70 percent of shipments. In 1996, the U.S.
installed base of personal computers grew to 85 million units.
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According to recent research, market growth in the 10 to 20 percent
range will continue into the new century, with annual unit shipments approaching
60 million by the year 2002. By this time, computer use in the United States
will be substantially more pervasive, especially in homes and educational
institutions, and will impact more human activities. Consumer sales will define
the market as telecommuting, electronic commerce, digital home "infotainment"
systems, and Internet access attain high levels of market penetration. There
will be more types of computers, from single use to multi-purpose devices,
networks will be all encompassing (including in the home), and the use of
portable and wireless technologies will be widespread.
With the exception of anticipated growth in sales via electronic
commerce (the Internet, TV shopping networks, etc.), there should be minimal
shifts in market share among the various distribution channels. The outlets with
the highest projected growth through 2000 are the large computer, office
product, and consumer electronics superstores. These large retailers will focus
on providing more product support and services to their customers. Direct
response and mail order sales are also expected to do well. The channels that
may be most negatively affected by current trends toward consolidating marketing
and selling at the national level will be small operations, like computer
specialty stores and VARs, which will lose market clout.
Major vendors are beginning to target small businesses, which form the
least penetrated, fastest growing business sector. Market drivers include the
improved availability of PCs in consumer outlets at attractive prices and new
efforts by major vendors to address the problems faced by these companies, most
of which have limited resources and technical know-how. Sales to the more than 6
million firms with less than 100 employees in the United States constitute the
largest share of shipments to the business sector, rising to an estimated 42
percent by the year 2000. The small business sector represents more than 60
percent of business employees.
Sales to the nation's 100 million U.S. households jumped dramatically
in 1994 and 1995. Growth during this period averaged 30 percent per year.
Besides price, this
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sector is driven by growth in telecommuting and home businesses, improved
consumer software, and more recently, the popularity of the Internet and online
information services. Vendors are beginning to base computer designs on consumer
preferences and needs and to promote these features, rather than solely pushing
technology and performance. About 35 percent of the 100 million U.S. households
owned personal computers in 1996, while one-fourth of all PC households had
multiple computers.
Sales of PCs to educational institutions in the United States during
1996 exceeded 1.8 million units, about 8 percent of total shipments for the
year. Although there is a high number of PCs in the computer labs and libraries
of K-12 schools, personal computers have not yet visibly penetrated the
classroom for instructional purposes. Additional funding, more curriculum-based
software, lower prices, and intensified training and technical awareness among
teachers and administrators should lead to greater growth in this sector.
National, state and local governments are a small but growing market
segment, representing about 8 percent of total units shipped in 1996 and 10
percent of server sales, according to Dataquest. Unit shipments exceeded 1.9
million and were valued over $4.3 billion. There is an estimated installed base
of over 3 million PCs in the Federal Government, over 90 percent of which are
connected to LANs. Future demand at all levels of government will be stimulated
by greater emphasis on enhancing employee productivity and the ongoing
modernization of government programs.
Networking is having an increasingly profound effect on the PC
industry, from local area networks (LANs) and wide area networks to the Internet
and Intranets. Over half of the business PCs in the United States are now
connected via a LAN and 80 percent of all organizations with more than 100
employees have a LAN installed according to International Data Corporation
("IDC"). Networking and client/server technologies have enabled the personal
computer to play a greater role in mission-critical business functions, which
expands its value to companies and reduces the status of
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legacy mainframe and midrange systems. LAN functions are graduating from
traditional print sharing, file transfer, and e-mail uses to transaction
processing, management support, and Internet access applications. Users are also
seeking to link LANs to wider areas to accommodate regional offices and to
provide remote access to home workers.
Like multimedia in the early 1990s, the Internet is creating a
revolution in the way PCs are used in organizations and households. In 1996 the
number of Internet users worldwide was estimated at 50 million, and the number
has been growing exponentially. In 1999, there were approximately 100 million
users. After traditional business applications, the Internet could historically
be the biggest driver of PC sales, especially in the home, as the World Wide Web
takes on more electronic commerce and consumer applications. Since the Internet
is a global phenomenon, demand for PCs and network servers will be stimulated in
all regions. Although the United States accounts for about two-thirds of the
over 13 million host computers on the Internet, other countries are creating
sites at a fast pace, led by Japan and Western Europe. Organization-specific
Intranets are also gaining popularity. It has been estimated that over 90
percent of Fortune 1000 companies have either established or plan to establish
an Intranet. These are closed or tightly controlled networks within the Internet
that are used for e-mail, information dissemination, and other business
functions.
According to Dataquest, the global market for personal computers
exceeded $168 billion in 1996. Unit shipments grew to more than 70 million,
feeding an installed base of over 228 million machines. The largest national
markets were the United States (36 percent of global shipments) and Japan (11
percent), followed by the major Western European countries. Regionally, North
America represented 39 percent of the world market, Western Europe, 23 percent,
and Asia, most of the rest.
Sources used in the above analysis are: Dataquest.
(http://www.dataquest.com); and IDC., (http://www.idcresearch.com).
Increased use of the Internet and of enterprise-wide internal networks
increases the complexity of the IT environment, which requires the use of IT
security tools. Some of the tools used most often for network and data
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security have been commercially available for over a decade. Newer technologies
- those moving away from standard hardware and software password protection -
are now being introduced to the marketplace.
A recent IDC survey of businesses revealed that security is of
paramount concern in the enterprise. Increased use of the Internet and corporate
growth are among the most significant business drivers for adding security; and
there was little evidence that these pressures would change over the next
several years.
The IDC survey also covered the priority given by respondents to
securing assets. Other than virus protection, which has been addressed by dozens
of products over the past few years, the most important concern was corruption
of data and unwanted disclosure of data.
Finally, the IDC report indicated a general dissatisfaction with the
usability and integration of current security technologies, which represents an
opportunity for Com-Guard-TM- and associated technologies. Further, IDC found
price expectations to be in the $50 per user range for basic security, which
falls within the strategic plan for the Registrant.
IDC reported that user expectations regarding the price of basic
security products is $50.00. Soft-Guard-TM-, the Company's most basic product
sells for $19.95, which is well below this projected customer expectation level.
BUSINESS STRATEGY
The Registrant's fundamental strategy is to position its Com-Guard-TM-
products as a preferable method of PC security to end-users, businesses, and
institutions worldwide.
Prior to the Registrant acquiring the worldwide rights to the
technology, Kyungki System Co. Ltd. had sold over 5,000 units of an earlier
version of Com- Guard-TM-.
At this time, the Company out-sources its manufacturing to Kyungki
System, Ltd., Inc, ("Kyungki"), a Korean corporation. Kyungki sells inventory to
the Company pursuant to Company-generated purchase orders. To date, the Company
has purchased inventory in the amount of $624,000 from Kyungki.
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The Company is satisfied, at present, that the terms,
delivery, and pricing of inventory from Kyungki are competitive with other
alternative sources of supply. Management expects to continue to review
alternative sources of supply from time-to-time, as it deems appropriate and/or
necessary.
End-user marketing will focus on providing a limited version of the
product over the Registrant's Internet site. In this way, the product is exposed
to a broad sector of the market that would match the profile of our consumer.
Customers could order broadened feature sets of the product direct from the
Registrant, or from resellers, who might stock the product in stores.
Com-Guard-TM- will be made available to selected resellers either as a
branded product or under private-label arrangements. The product would be
merchandised for sale with new computer systems or as an add-on product to
existing PC owners. The Registrant intends to use standard distribution such as
major distributors, speciality distributors in the enterprise area and computer
resellers located throughout the United States.
The Company anticipates initial sales and distribution of its products
world-wide in the fourth quarter of 2000. The target markets for Com-Guard-TM-
consist of thousands of computer manufacturers, assemblers, OEMs, and
peripheral/parts producers throughout the world. The Company will use its
internal sales force and outside representatives to sell Com-Guard-TM- to
distributors, resellers, systems integrators, retail merchants, and service
companies. Additionally, the Company will create and promote an Internet site to
promote its products to end-users.
The Registrant's sales force will be responsible for selling direct to
business and commercial accounts' principally Fortune 1000 companies whose needs
for the product have been validated by the research.
The Registrant employed a total of five persons at September 30, 1999,
of whom two were in corporate administration and finance, two in engineering and
research and development, and one in sales and marketing.
At present, the Registrant employs only one person in sales and
marketing, whose responsibilities, at this time, are to develop sales and
marketing programs to prepare for
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sales of the Registrant's products in the second quarter of its 2001 fiscal
year.
The Registrant will plan and execute an integrated advertising public
relations campaign to promote Com-Guard-TM-, including participation in trade
shows and seminars, and frequent use of consumer and trade publications.
Neither the Registrant or anyone acting on behalf of the Registrant at
this time will be taking affirmative steps to request or encourage any
broker-dealer to act as a market-maker for the Registrant's securities.
COMPETITION
Existing products do not combine the features of data security as well
as theft protection; and the Company has not found another PC product which
combines the features of Com-Guard-TM- along with an interior security system
(for home or office).
Com-Guard-TM- is differentiated from competitive products in its price
range because the system is hardware based and provides a user-controlled
locking mechanism for the PC. Additionally, the product includes an alarm system
that informs the user (even if the user is in a remote location) of unauthorized
tampering with the PC, which is not offered in competitive products.
Soft-Guard is differentiated from most PC security products because the
user controls the access profile for the PC. Most PC security products provide
password protection for the PC as a whole; Com-Guard-TM- can be configured to
provide selective access to programs, files, and/or directories located on the
PC.
Through the use of hardware and software, the Com-Guard-TM- and
SoftGuard products avoid reliance on encryption, password, and/or firewall
systems by providing the user a method (1) to control unauthorized access to the
PC system as a whole, and (2) to selectively control access to the PC's file
system.
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Furthermore, the Com-Guard-TM- system is differentiated from other PC
security systems because of its ability to additionally provide environmental
security that is controlled and monitored from the PC.
While the Com-Guard-TM- system is not a virus protection system, the
ability to control access to various parts of the PC's file system, including
internet and e-mail access will provide the user some control over exposure to
viruses.
The Registrant has not yet shipped Com-Guard-TM- to customers and has
not recorded any sales of its products to date. While management believes that
the Company will be competitive, it can provide no assurance that it will be
successful, or that purchasers of the product will be satisfied with its
performance. Accordingly, the competitive position of the Company is completely
reliant on the market's acceptance of Com-Guard-TM-, which has not been
established.
The Registrant's management has extensive experience in outsourcing
computer hardware products and believes that there is a lot of competition for
manufacturing computer related hardware boards. The components for ComGuard-TM-
are widely available from multiple manufactures.
Companies generally compete by advertising product features and having
products tested by independent product reviewers and testing companies. The
Company will pursue these avenues for competing with their products.
INTELLECTUAL PROPERTY
The Registrant has a patent in the United States (Application number
09/030,993), which covers the Com-Guard-TM- hardware technology acquired from
Kyunghi Systems Co., Ltd. Copyright applications will be filed on all
software developed for the system. The Intellectual Property covers the use
of a hardware board which has a device to determine when the computer has
been moved or tampered with. The Company has incurred $430,604 on research
and development from inception October 7, 1998 through December 31, 1999
including cash of $70,604 and common stock of $360,000.
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EMPLOYEES
The Registrant employed a total of five (5) persons at January 30, 2000, of
whom two were in corporate administration and finance, two in engineering and
research and development, and one in sales and marketing.
RISK FACTORS
LACK OF OPERATIONS AND PROFITABILITY.
The Registrant is in the development-stage and commenced pre-operating
activities less than one year ago. It has no history of operations or profits in
the industries in which it participates.
UNCERTAINTY OF COMMERCIAL SUCCESS.
Although the Registrant is optimistic about its revenue and
profitability prospects, there can be no assurance of commercial success of its
Com-Guard-TM- products. Furthermore, the computer industry is characterized by
rapid change and growth. There can be no assurance that the Registrant will be
able to keep up with the pace of technological change or fund its growth.
COMPETITION.
The Registrant is subject to competition from other companies that may
try to emulate or compete with similar products or services. These competitors
have been in the business longer than the Registrant and may have large
executive and operating staffs. There can be no assurance that the Registrant's
prospects will not be adversely affected by competition from these companies.
NEED FOR ADDITIONAL FINANCING.
The Registrant will require additional financing in order to establish
profitable, ongoing operations; there is no assurance that such financing will
be available or, if available, that it can be obtained on terms favorable to the
Registrant.
DEPENDENCE ON MANAGEMENT.
The Registrant is largely dependent upon the efforts and abilities of
Dr. Edward W. Savarese and there can be no assurance that the Registrant can be
successful in operating
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the Company should the services of Dr. Savarese be unavailable. Dr. Savarese has
had extensive experience in marketing, sales and financing. He has managed for
Hewlett-Packard and has extensive contacts in the computer industry.
DIVIDENDS.
The Registrant has never paid a cash dividend on its common stock. The
Registrant is not obligated to pay a dividend on the shares being registered
hereby, nor does it anticipate payment of any dividends for the foreseeable
future. The Registrant anticipates retaining its earnings to finance its
operations, growth, and expansion.
NO ASSURANCE OF PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE.
There currently is no public trading market for the Registrant's common
stock. There can be no assurance that an active public trading market can be
established or sustained. Furthermore, if a public market for the common stock
is established, the shares could be subject to significant fluctuations in
response to operating results and other factors, many of which are not within
the control of the Registrant.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF THIRD PARTY
INFRINGEMENT CLAIMS.
Although the Registrant has received patent protection, there can be no
assurance that the Registrant's measures to protect its current proprietary
rights will be adequate to prevent misappropriation of such rights or that the
Registrant's competitors will not independently develop or patent technologies
that are substantially equivalent to or superior to the Registrant's
technologies. Additionally, although the Registrant believes that its products
and technologies do not infringe upon the proprietary rights of any third
parties, there can be no assurance that third parties will not assert
infringement claims against products and technologies which the Registrant
licenses, or has the rights to use, from third parties. Any such claims, if
proved, could materially and adversely affect the Registrant's business and
results of operations. In addition, though any such claims may
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ultimately prove to be without merit, the necessary management attention to, and
legal costs associated with litigation or other resolution of such claims could
materially and adversely affect the Registrant's business and results of
operations.
YEAR 2000 SOFTWARE COMPLIANCE.
The Company is aware of the issues associated with the programming code
in existing computer systems related to the year 2000. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
Additionally, if the Company, its customers, vendors or others with
whom it does significant business are unable to resolve external processing
issues in a timely manner, it could result in material adverse effect on the
Company.
The Company has performed an analysis of all of its products and has
determined that all such products are year 2000 compliant. In the event a
modification is required to a software driver to accommodate year 2000
modifications instituted by a manufacturer of a software package, computer
platform or operating system that the Company is currently supporting, the
Company currently plans to update that driver free-of-charge and make it
available to customers for down-loading from the Internet.
As of August 15, 2000, no problems with respect to the Year 2000
software compliance have surfaced and/or been reported to the Registrant.
REPORTS TO SECURITY HOLDERS
The Registrant has voluntarily filed Form 10-SB in order to become a
fully reporting company. This filing was undertaken in order to be eligible for
an initial listing on the NASD OTC Bulletin and a listing when qualified on the
NASDAQ Small Cap Market. By virtue of being so listed as a publicly traded
company, the Registrant will have access to the public markets for fund raising
to assist it with its in Research and Development efforts and for the
distribution of its products.
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This Registration Statement became automatically effective as of 60
days from the date of filing and consequently, the Registrant is required to
file annual reports in accordance with the Securities Exchange Act of 1934.
The public may read and copy any materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is (http://www.sec.gov). The Registrant's Internet address is
www.com-guard.com.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Planned principal operations of the Registrant have not yet commenced,
and activities to date have been limited to forming the Company, assembling a
management and consultant team, identifying markets, developing products, and
obtaining initial capitalization. The Registrant has not had revenues from
operations to date. Accordingly, the financial information furnished with this
registration statement is limited in scope.
Since the inception on October 7, 1998 through June 30, 1999, the
Registrant had income of $3,028 from interest. Costs and expenses were $595,715,
including $360,000 in purchased research and development. For the six-month
period ended December 31, 1999, the Company had interest income of $1,850. Costs
and expenses for the six-month period ended December 31, 1999 were $257,755.
The Registrant purchased 6,000 units of work in process inventory
during the period ended December 31, 1999 in order to take advantage of lower
prices. This inventory consists principally of PC boards, which will not be
subject to obsolescence or spoilage. Its lease of the operating facilities,
which runs through November 2001 is at a monthly cost of $1,466.
18
<PAGE>
At June 30, 1999, the Registrant had working capital of $286,865, which
included $221,285 in cash. Management is seeking additional equity financing to
fund planned operations. At December 31, 1999, the Company's working capital was
$651,361, which included $3,070 in cash and $624,000 in inventory. The increase
in working capital is primarily attributable to the sale of common stock
totaling $626,500 less net operating expenses of $255,905 and capital
expenditures of $9,820 during the six-month period ended December 31, 1999.
The Registrant periodically advances monies to its employees to cover
travel and subsistence costs. At December 31, 1999, the Registrant had advanced
the President $35,616 for anticipated costs for both international and domestic
business trips that are planned but not yet taken. At December 31, 1999, the
Registrant had loaned the President $110,000 for personal living expenses. The
loan is non-interest bearing and will be repaid in calendar year 2000.
For the period from inception to June 30, 1999, the Registrant had a
net loss of $592,687; a loss of $0.07 per common share. The net loss for the
six-month period ended December 31, 1999 was $255,905; a net loss of $0.01 per
common share. The Company has had net losses totaling $848,592 for the period
October 7, 1998 (date of inception) to December 31, 1999; $0.10 per common
share.
PLAN OF OPERATION.
The Company expects to begin marketing its Com-Guard(TM) product by the
end of the Registrant's second quarter of fiscal 2001. Cash on hand at December
31, 1999, together with the proceeds from $200,000 in convertible notes obtained
in early 2000, should be sufficient to cover the product development and testing
and research through September 30, 2000. These notes bear 7% interest and mature
one (1) year from the date of issuance. The note holders may convert unpaid
principal and interest into shares of common stock at $1.00 per share.
The Registrant has revised its plans to release its products in the
first quarter of fiscal 2001 to the second
19
<PAGE>
quarter of fiscal 2001 due to several factors, including (1) the desire to
improve system performance through software enhancements; and (2) the need to
raise additional capital in order to support marketing an advertising
expenditures to support the sales effort.
The Company has purchased $624,000 of work in process inventory, which
fulfilled its financial commitment to purchase $350,000 of such inventory.
Research and development was purchased with the issuance of common stock
(560,000 shares) for $360,000. In addition the Company has spent $70,604 on
research and development activities.
The implementation and expansion of the Registrant's business will
require a commitment of substantial funds. Additional funding will be required
in the future to satisfy capital requirements for the Registrant. Issuing
additional equity will result in dilution to the existing shareholders. If
adequate funds are not available, the Registrant's business could be adversely
affected since internally generated funds are not expected to be sufficient to
fund the Registrant's expansion needs in the near-term. At present, there are no
funds committed to the Registrant, and no offer for equity or debt financing is
imminent.
The market for personal computer products and services is characterized
by rapidly changing technology, frequent introductions of new products, and
evolving industry standards, which result in product obsolescence and short
product life cycles. Accordingly, the Registrant's success is dependent upon its
ability to anticipate technological changes in the industry and to continually
identify, obtain, and successfully market new products and services that satisfy
evolving technologies, customer preferences, and industry requirements within
the markets in which the Registrant operates.
There can be no assurance that competitors will not market products and
services that have certain competitive advantages over those of the Registrant.
Furthermore, the markets for the Registrant's products may be particularly
volatile due to the changing nature of personal computer usage and purchasing
habits. The Internet is changing the way technology and technology markets are
developing and sufficient data and market studies are not available for any
thorough analysis in determining the long-term viability of the Registrant's
business plan. The Registrant will rely on
20
<PAGE>
the experiences of its management team to make strategic decisions with respect
to its operations. The lack of clear and reliable market information
dramatically increases the risks of the Registrant in making correct market
assumptions.
In January 1999, the Registrant acquired the rights to certain
technology for its Com-Guard-TM- products from Kyungki System Co., Ltd., a
Korean corporation. This acquisition included the copyrights, trademarks,
patents, object codes, source codes, enhancements and updates. The Registrant
has hired engineering personnel and consultants to further develop the
technology and to prepare Com-Guard-TM- for market.
The product, which the Registrant calls Com-Guard-TM-, was acquired
from a Korean company to function as a computer hardware device to protect
computers. This hardware includes unique features such as internal sensors to
detect tampering and messaging capabilities to remotely inform users of
unauthorized use of a computer. A U.S. Patent (No. 5,926,092) has been granted
for the product, which is owned by the Registrant.
While the acquired Com-Guard-TM- hardware was marketable in Korea at
the time of its acquisition by the Registrant, the Registrant is adding several
software features for the product, including file protection, Internet access
limiting, and e-mail and anti-virus protection. At the time of this filing, the
Registrant estimates it is 90% complete with these enhancements. Total costs for
these enhancements are expected to be approximately $105,000. The final
market-ready version of the product is expected to be completed by the end of
the Registrant's second quarter of fiscal 2001.
The Registrant believes that there is only minimal risk that the
product will not be completed on time and, in the event that it is not
completed, revenues from sales of the product will be delayed.
The product was acquired through negotiation during which the
Registrant tried to assess how much it would have cost to bring the product to
the stage it was when acquired.
At present, the Registrant is using three engineers to design, develop,
and test the current products. Management believes that the product will be
ready for release and sale on schedule.
21
<PAGE>
In particular, the Registrant has engaged a very seasoned and
experienced consultant in the area of microcomputers to assist the Registrant.
More specifically, Woo Young Kim was instrumental in introducing Com-Guard-TM-
to the Registrant and facilitated the acquisition of this technology. Mr. Kim
has continued to assist the Registrant with respect to the production and
marketing of its products.
The dynamic nature of the personal computer market will require
additional investment by the Registrant in research and development. In order to
be competitive in the near-term and in the foreseeable future, the Registrant
will be required to continue to upgrade its existing products and to develop new
products. Such activities will require substantial additional capital to provide
for engineering personnel and infrastructure, including the potential need for
additional facilities and equipment. At present, the Registrant is focused
primarily on the introduction and technical support of its first products. It
will continue to evaluate its needs related to future research and development
activities.
There are no known trends, events, or uncertainties, other than those
discussed above, that have had or are reasonably expected to have a material
impact on the net sales or other revenues from continuing operations of the
Registrant.
Seasonality is not expected to have a material effect on the financial
condition or results of operations of the Registrant.
Other than those discussed above, the Registrant is unaware of any
material events and uncertainties that would cause its reported financial
information not to be indicative of future operating results or of its future
financial condition. The Registrant's cost of goods and labor, now and in the
future, is somewhat predictable and anticipated periodic increases in such costs
are not expected to have a material adverse effect on operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.
Certain statements contained in this report regarding matters that are
not historical facts are forward-looking statements. Because such
forward-looking statements include
22
<PAGE>
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to,
competition, the demand for the Registrant's products, and other factors
identified from time to time in the Registrant's filings with the Securities and
Exchange Commission. The Registrant urges readers to review the risk factors
listing in this report.
The Registrant undertakes no obligation to release publicly any
revisions to forward-looking statements to reflect events or circumstances after
the date of this report or to reflect the occurrence of unanticipated events.
ITEM 3. DESCRIPTION OF PROPERTY
The Company occupies approximately 1,800 square feet of space in a
facility located at 2075 Corte del Nogal, Suite B, Carlsbad, CA 92002, at a
monthly rental rate of $1,466. The lease expires on November 30, 2001. Monthly
rental on this facility is subject to annual rent adjustments based on the
Consumer Price Index (CPI). The Company owns no real property.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the shares of common
stock owned as of January 31, 2000. Unless otherwise indicated in the footnotes
below on the table as subject to community property laws, where applicable, the
persons as to whom the information is given has sole investment power over the
shares of common stock shown as beneficially owned.
1. Each person who in so far as the Registrant has been able to
ascertain beneficially owns more than five percent (5%) of the
outstanding shares of the Registrant.
2. Each director.
3. Each of the officers names in the summary compensation table.
4. All of the directors and officers as a group.
23
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Title of Class Name and Amount and Percent of Class
Address of Beneficial Nature of Beneficial
Owner Owner
====================================================================================================================
<S> <C> <C> <C>
1. Common Edward W. Savarese (1) 5,200,000 57.5%
2003 Caracol Court
Carlsbad, CA 92009
2. Common Edward H. Currie (2) 75,000 0.8%
6-57 158th Street
Whitestone, NY 11357
3. Common Directors and Officers as a 5,275,000 58.3%
group
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THIS OFFICER AND DIRECTOR HAS THE RIGHT TO ACQUIRE A TOTAL OF 500,000
ADDITIONAL SHARES WITHIN 60 DAYS.
(2) THIS DIRECTOR HAS THE RIGHT TO ACQUIRE A TOTAL OF 50,000 ADDITIONAL
SHARES WITHIN 60 DAYS.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
<TABLE>
<CAPTION>
NAME AGE POSITION TERM SERVED
------------------------- ---------- ------------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Edward W. Savarese 53 President and Chief Annual Since Inception
Executive Officer
Edward H. Currie 50 Director Annual June 25,
1999
------------------------- ---------- ------------------------------- ------------------ -----------------
</TABLE>
Dr. Edward W. Savarese is the founder of the Company and has been a
director and Chairman of the Board of Directors since its inception. He held the
position of Chief Executive Officer of Imaging Technologies Corporation
(formerly Personal Computer Products, Inc.) from 1982 to 1998. From 1981 to
1982, he was director of sales for SofTech Microsystems. His responsibilities
included establishing and supervising an international sales organization for
marketing a microcomputer operating system. From 1978 to 1981, Dr. Savarese was
employed by Hewlett Packard Company, first as a sales representative for
computer products, and later as district sales manager supervising a sales force
in the marketing of mini- and microcomputers. Dr. Savarese holds a Doctorate
degree from Columbia University, Teacher's College, with specialization in
educational technology and software and systems design. He also holds a Master
of Science in administration and management from Pace University.
Dr. Edward H. Currie has been a director of the Company since June 25,
1999. He has more than twenty years of senior management experience in
domestic and international
24
<PAGE>
microcomputer-related software publishing and hardware manufacturing. Since
1988, Dr. Currie has been president and chief executive officer of ImageSoft,
Inc., an international software publisher. From 1981 to 1988, he was chairman,
president, and chief executive officer of Lifeboat, a software publishing
company. From 1978 to 1981, Dr. Currie served as vice president of product
management for the Microsystems Division of Pertec Computer Corp., a supplier of
magnetic tape storage devices and microcomputer peripherals. From 1975 to 1978,
he was Executive Vice President and General Manager for MITS, the creator of the
first microcomputer personal computer, which was subsequently acquired by
Pertec. Dr. Currie is a co-founder of PC Magazine, the largest circulation
magazine on the personal computer. He also is the founder of C++ Journal and
publisher of The PostScript Journal. He has published many articles, including
technical articles in U.S. and international trade magazines. He holds BSEE, MS
Physics, and Ph.D. Physics from the University of Miami.
Dr. Savarese will be employed on a full time basis for the Registrant.
Mr. Currie will be employed on a part time as needed basis.
ITEM 6. EXECUTIVE COMPENSATION
There has been no executive or director who has received compensation
in excess of $100,000 since the incorporation date of the Registrant. Dr.
Savarese currently receives an annual salary of $60,000.
While the Registrant does not have written employment contracts with
any employee or officer, it employs Dr. Savarese as its president.
OFFICER SHARE OPTIONS VALUE
<TABLE>
<CAPTION>
Option/SAR Values
--------------------------------------------------------------------------------------------------------------------
Name Shares Value Number of Value of
Acquired Realized Securities Unexercised In-
on Underlying the-Money
Exercise Unexercised Options/SARs at
Options/SARs at FY-End
FY-End
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward W. Savarese -0- -0- 500,000 (1) $ 10,000.00
Edward H. Currie -0- -0- 50,000 (1) $ 1,000.00
------------------------------------------------------------------------------------------ --------------------------
</TABLE>
(1) THESE OPTIONS ARE EXERCISABLE NO LATER THAN JUNE 30, 2004 AT A PRICE OF
$.02 PER SHARE. THE SECURITIES UNDERLYING THE UNEXERCISED OPTIONS ARE
EXERCISABLE.
25
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant periodically advances monies to its employees to cover
travel and subsistence costs. At December 31, 1999, the Registrant had advanced
the President $35,616 for anticipated costs for both international and domestic
trips that are planned but not yet undertaken. At December 31, 1999, the
Registrant had loaned the President $110,000 for personal living expenses. The
loan is non-interest bearing and will be repaid during the calendar year 2000.
As of August 15, 2000, the President has repaid to the Company $25,000.
ITEM 8. DESCRIPTION OF SECURITIES.
(a) COMMON STOCK: At January 31, 2000, the Registrant had 9,571,000
shares of the common stock outstanding. The Registrant's Articles of
Incorporation, filed October 7, 1998 authorized the issuance of up to
100,000,000 of the Registrant's common equity shares with a par value of $0.001.
Holders of shares of the common stock are entitled to one vote for each share on
all matters to be voted on by the shareholders. Holders of common stock have no
cumulative voting rights. Holders of shares of common stock are entitled to
share proratably in dividends, if any, as may be declared from time to time by
the Board of Directors in its discretion, from funds legally available
therefore.
In the event of a liquidation, dissolution or winding up of the
Registrant, the holders of shares of common stock are entitled to share pro rata
all assets remaining after payments in full of all liabilities. Holders of
common stock have no preemptive rights to purchase the Registrant's common
stock. All of the outstanding shares of common stock are fully paid and
non-assessable.
(b) PREFERRED STOCK: The Registrant is also authorized to issue
preferred stock from time to time. The Registrant's Board of Directors may fix
and determine the designations, rights, preferences or other rights, preferences
or other variations of each class or series of the preferred stock. At this time
the Registrant has not issued any preferred stock.
26
<PAGE>
(c) POSSIBLE CLASSIFICATION OF REGISTRANT'S SECURITIES AS A "PENNY
STOCK." By virtue of Rule 3a51-1 of the Securities Act of 1934 (the "Act"), if
the Registrant's common stock has a price of less than $5.00 per share it will
be considered a "penny stock." The perquisites required of broker-dealers
engaging in transactions involving "penny stocks" have discouraged, or even
barred, many brokerage firms from soliciting orders for certain low priced
stocks.
Still further, with respect to the trading of penny stocks,
broker-dealers have an obligation to satisfy certain special sales practice
requirements pursuant to Rule 15g-9 of the Act, including a requirement that
they make an individualized written suitability determination for the purchase
and receive the purchaser's written consent prior to the transaction.
Still even further, such broker-dealers have additional disclosure
requirements as set forth in the Securities Enforcement Act Remedies and Penny
Stock Reform Act of 1990. These disclosure requirements include the requirement
for a broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks of the penny stock market.
Still even further, a broker-dealer must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account.
Accordingly, the above penny stock regulations and the associated
broker-dealer requirements will have an adverse effect on the market liquidity
of the Registrant's common stock and the ability of any present and prospective
shareholder investors to sell their securities in the secondary market.
27
<PAGE>
However, regardless of the price of the Registrant's stock, in the
event the Registrant has net tangible assets in excess of $2,000,000 and if the
Registrant has been in continuous operation for at least three (3) years, or
$5,000,000, if the Registrant has been in continuous operation for less than
three (3) years, Rule 3a51-1(g) of the Act will preclude the Registrant's common
stock from being classified as a "penny stock."
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION.
There is no public trading market for the Registrant's common stock. As
of January 31, 2000 there were 9,571,000 of shares of the Registrant's common
stock issued and outstanding. There are 855,000 of shares of common stock
reserved for outstanding options and warrants to purchase common stock.
HOLDERS.
The Registrant has approximately 65 common stock shareholders.
DIVIDENDS.
The Registrant has never paid a cash dividend. It is the present policy
of the Registrant to retain any extra profits to finance growth and development
of the business. Therefore, the Registrant does not anticipate paying cash
dividends on its common stock in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
The Company's officers and directors are aware of no threatened or
pending litigation which would have a material, adverse effect on the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
28
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
(a) RECENT SALES: The Registrant had the following stock issuances as
described below. All such shares were sold by the officers and directors of the
Registrant and no underwriters were utilized.
1. On October 7, 1998, 5,000,000 shares of common stock at $.002
per share were issued for cash for a total offering of $10,000.
2. On November 13, 1998, 700,000 options were converted into
700,000 shares of common stock at $.02 per share in lieu of a
cash payment for services.
3. On November 13, 1998, 1,740,000 shares of common stock at $.02
per share were issued for $34,800 of services.
4. From November 25, 1998 through January 14, 1999, 540,000 shares
of common stock at $.20 per share were issued pursuant to a
Regulation D, Rule 504 Offering for cash of $108,000.
5. On January 4, 1999, a total of 25,000 common shares at $.20 per
share were issued for services of $5,000.
6. On January 14, 1999, a total of 250,000 shares of common stock
at $.20 per share were issued pursuant to a Regulation D, Rule
504 Offering for a total offering of $50,000. Included as part
of these 250,000 shares were 100,000 shares issued to Woo Young
Kim as the initial payment for his R & D consulting services.
Also included as part of these same 250,000 shares were a total
of 150,000 shares issued to Kyungki System Co. Ltd. as the
initial payment for the R & D.
7. On January 15, 1999, a total of 50,000 options were converted
into 50,000 shares of common stock at $.50 per share for cash of
$25,000.
29
<PAGE>
8. From January 20, 1999 through February 26, 1999, a total of
275,000 shares of common stock at $.50 per share were issued
pursuant to a Regulation D, Rule 504 Offering for cash of
$137,500.
9. From April 2, 1999 through April 5, 1999, a total of 504,500
shares of common stock at $1.00 per share were issued pursuant
to Regulation D, Rule 504 Offering for a total offering of
$504,500. Included as part of these 504,500 shares were 300,000
shares issued to Woo Young Kim for the remaining payment for his
R & D consulting services. Also included as part of these same
504,500 shares were 10,000 shares issued to Kyungki System Co.
Ltd. for the remaining payment for the R & D.
10. From April 12, 1999 through October 10, 1999, a total of 116,500
shares of common stock at $1.00 per share were issued. Included
as part of these 116,500 shares were (a) 5,000 options converted
into 5,000 shares for cash, (b) 51,500 shares issued for
services and (c) 60,000 shares issued for cash.
11. From November 11, 1999 through November 24, 1999, a total of
70,000 shares of common stock at $1.00 per share were issued for
cash of $70,000.
12. On December 24,1999, a total of 300,000 shares of common stock
at $1.50 per share were issued for cash of $450,000.
13. On January 12, 2000, a Convertible Promissory Note in the
amount of $50,000 was issued. This Note provides for the
conversion of the debt into common stock at $1.00 per share.
14. On February 11, 2000, a Convertible Promissory Note in the
amount of $50,000 was issued. This Note provides for the
conversion of the debt into shares of common stock at $1.00
per share.
30
<PAGE>
15. On March 27, 2000 a Convertible Promissory Note in the amount
of $100,000 was issued. This Note provides for the conversion
of the debt into shares of common stock at $1.00 per share.
16. On April 14, 2000, a total of 100,000 shares of common stock
at $1.00 per share were issued for cash of $100,000.
(b) EXEMPTIONS FROM REGISTRATION: With respect to the issuance of the
540,000 common shares listed at Item 4(a)4, the 250,000 shares listed at Item
4(a)6, the 275,000 common shares listed at Item 4(a)8 and the 504,500 common
share listed at Item 4(a)9, such issuances were made in reliance on the private
placement exemptions provided by Section 4(2) of the Securities Act of 1933 as
amended, (the "Act"), SEC Regulation D, Rule 504 of the Act and Nevada Revised
Statutes Sections 78.211, 78.215, 78.3784, 78.3785 and 78.3791 (collectively the
"Nevada Statutes").
With respect to the issuance of the 5,000,000 common shares listed at
Item 4(a)1, the 700,000 common shares listed at Item 4(a)2, the 1,740,000 common
shares listed at Item 4(a)3, the 25,000 common shares listed at Item 4(a)5, the
50,000 common shares listed at Item 4(a)7, the 116,500 common shares listed at
Item 4(a)10, the 70,000 common shares listed at Item 4(a)11, the 300,000 shares
listed at Item 4(a)12, the $50,000 Convertible Note listed at Item 4(a)13, the
$50,000 Convertible Note listed at Item 4(a)14, the $100,000 Convertible Note
Listed at Item 4(a)15 and the 100,000 shares listed at Item 4(a)16, such
issuances were made in reliance upon the private placement exemptions provided
by Section 4(2) of the Act and the Nevada Statutes.
(c) BASIS FOR RELIANCE UPON EXEMPTION FROM REGISTRATION: The Registrant
has relied upon the private placement exemptions from registration provided by
Section 4(2) of the Securities Act of 1933 as amended (the "Act") and SEC
Regulation D, Rule 504 of the Act. With respect to the Rule 504 exemption, this
type of offering is available to issuers who are not reporting companies,
investment companies or "blank check" companies. Accordingly, this offering was
available to the Registrant. A further requirement is that the offering may not
exceed $1,000,000 in any twelve (12) month period. There is no limitation on the
number of purchasers nor is there a requirement that such purchasers be
accredited investors. All of the shares issued pursuant to Rule 504 offering
satisfied these requirements.
31
<PAGE>
Those shares not issued pursuant to Rule 504 were issued pursuant to
Section 4(2) of the Act which exempts from registration transactions by an
issuer not involving a public offering. This offering exemption is available to
any issuer but prohibits general solicitation or advertising. Prospective
purchasers must have access to information about the issuer. The Registrant
utilized this Section 4(2) exemption by providing prospective purchasers with
such sufficient information and required that all such purchasers be financially
sophisticated; have a certain net worth and have the ability to bear the risk of
loss of their respective investments.
In each instance, each of the share purchasers had access to sufficient
information regarding the Registrant so as to make an informed investment
decision. More specifically, each purchaser signed either a written Subscription
Agreement, a Consulting Agreement, a Technology Purchase Agreement or a Share
Purchase Agreement, with respect to their financial status and investment
sophistication wherein they warranted and represented, among other things, the
following:
1. That they had the ability to bear the economic risks of
investing in the shares of the Registrant.
2. That they had sufficient knowledge in financial, business, or
investment matters to evaluate the merits and risks of the
investment.
3. That they had a certain net worth sufficient to meet the
suitability standards of the Registrant.
4. That the Registrant has made available to them, his counsel and
his advisors, the opportunity to ask questions and that they
have been given access to any information, documents, financial
statements, books and records relative to the Registrant and an
investment in the shares of the Registrant.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation and Bylaws limit the
liability of its directors to the fullest extent permitted by Nevada corporate
securities law. Specifically, directors of the
32
<PAGE>
Company will not be personally liable for monetary damages for breach of
fiduciary duty as directors, except liability for (i) any breach of the duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions, (iv) violations
of certain securities laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law is
not limited by the Articles.
PART F/S
The following financial statements are submitted pursuant to the
information required by Item 310 of Regulation S-B.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<S> <C>
FS-1 Com-Guard.Com, Inc. Balance Sheet as of June 30, 1999
(audited) and December 31, 1999 (unaudited).
FS-2 Com-Guard.Com, Inc. Statement of Operations from
October 7, 1998 (Inception) to June 30, 1999
(audited), from Six Months Ended December 31, 1999
(unaudited) and from October 7, 1998 (Inception) to
December 31, 1999 (unaudited).
FS-3 Com-Guard.Com, Inc. Statement of Changes in
Stockholders' Equity from October 7, 1998 to June 30,
1999 and June 30, 1999 to December 31, 1999
(unaudited).
FS-4 Com-Guard.Com, Inc. Statement of Cash Flows from
October 7, 1998 (Inception) to June 30, 1999
(audited) for Six Months Ended December 31, 1999
(unaudited) and from October 7, 1998 (Inception) to
December 31, 1999 (unaudited).
</TABLE>
33
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
The exhibits listed and described below in Item 2 are filed herein as
the part of this Registration Statement.
ITEM 2. DESCRIPTION OF EXHIBITS.
The following documents are filed herein as Exhibit Numbers 2, 3, 5, 6
and 7 as required by Part III of Form 1-A:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2 CHARTER AND BY-LAWS
2.1* Certificate of Amendment of Articles of
Incorporation of e-World Security, Inc.
changing name to "COM-GUARD.COM, INC".
2.2* Articles of Incorporation of e-World Security,
Inc.
2.3* By-Laws of e-World Security, Inc.
3. NONE INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS
5. NONE VOTING TRUST AGREEMENTS
6. MATERIAL CONTRACTS
6.1* Technology Purchase Agreement
6.2* Consulting Agreement
7. NONE MATERIAL FOREIGN PATENTS
27 FINANCIAL DATA SCHEDULE
</TABLE>
* Previously filed.
34
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
COM-GUARD.COM, INC.
Date: October 11, 2000 BY: /s/ Edward W. Savarese
-------------------------------
EDWARD W. SAVARESE
President
35
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
INDEPENDENT AUDITORS' REPORT AND
FINANCIAL STATEMENTS
FROM INCEPTION (OCTOBER 7, 1998)
THROUGH JUNE 30, 1999
36
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
--------------------------------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report....................................................................... 1
Audited Financial Statements:
Balance Sheets................................................................................. 2
Statements of Income........................................................................... 3
Statements of Changes in Stockholders' Equity.................................................. 4
Statements of Cash Flows....................................................................... 5
Notes to Financial Statements.................................................................. 6-8
</TABLE>
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors COM-GUARD.COM, INC.
We have audited the accompanying balance sheet of COM-GUARD.COM, INC. (a Nevada
corporation) as of June 30, 1999 and the related statements of operations,
changes in stockholders' equity and cash flows from Inception (October 7, 1998)
through June 30, 1999. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 COM-GUARD.COM, INC. as of June
30, 1999 and the results of its operations and cash flows from Inception
(October 7, 1998) through June 30, 1999, in conformity with generally accepted
accounting principles.
STRABALA, RAMIREZ & ASSOCIATES, INC.
/s/ Strabala, Ramirez & Associates, Inc.
January 10, 2000
Irvine, California
FS-1
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
--------------------------------------------------------------------------------
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 221,285 $ 3,070
Vendor advance to purchase inventory 50,000 -
Work-in-process inventory 624,000
Prepaid expenses 2,500 -
------------- -----------
Total current assets 273,785 627,070
------------- -----------
Fixed assets
Furniture and equipment 20,844 30,644
Accumulated depreciation (1,596) (5,317)
------------- -----------
Furniture and equipment, net 19,248 25,347
------------- -----------
$ 293,033 $ 652,417
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 11,920 $ 61,325
------------- -----------
Commitments and contingencies (Note 3) - -
Stockholders' equity
Common stock, $.001 par value; 100,000,000 shares
authorized; 9,094,500 and 9,571,000 shares issued
and outstanding at June 30, and December 31, 1999 9,095 9,572
Additional paid-in capital 919,705 1,575,728
Stockholder loans and advances (55,000) (145,616)
Accumulated deficit during development (592,687) (848,592)
------------- -----------
Total stockholders' equity 281,113 591,092
------------- -----------
$ 293,033 $ 652,417
============= ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-2
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 7, 1998 OCTOBER 7, 1998
(INCEPTION) TO SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
--------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues
Interest $ 3,028 $ 1,850 $ 4,878
--------------- ----------------- -----------------
Costs and expenses
Research and development 391,491 39,113 430,604
Selling, general and administrative costs 204,224 218,642 422,866
--------------- ----------------- -----------------
595,715 257,755 853,470
--------------- ----------------- -----------------
Net loss $ (592,687) $ (255,905) $ (848,592)
=============== ================= =================
Net loss per share available to common stockholders
Basic and Diluted $ (0.07) $ (0.03) $ (0.10)
Weighted average common shares outstanding 7,983,917 9,196,749 8,479,063
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-3
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCKHOLDER ACCUMULATED
COMMON STOCK ADDITIONAL LOANS DEFICIT
---------------------- PAID-IN AND DURING
SHARES AMOUNT CAPITAL ADVANCES DEVELOPMENT TOTAL
--------- -------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock:
Cash - $0.002 per share 5,000,000 $ 5,000 $ 5,000 $ - $ - $ 10,000
Services - $0.02 per share 2,440,000 2,440 46,360 - - 48,800
Cash - $0.20 per share 540,000 540 107,460 - - 108,000
Services - $0.20 per share 25,000 25 4,975 - - 5,000
Purchase of R&D - $0.20 250,000 250 49,750 - - 50,000
Cash - $0.50 per share 325,000 325 162,175 - - 162,500
Cash - $1.00 per share 159,500 160 159,340 - - 159,500
Services - $1.00 per share 45,000 45 44,955 - - 45,000
Purchase of R&D - $1.00 310,000 310 309,690 - - 310,000
Capital contributed as services - - 30,000 - - 30,000
Stockholder loans and advances - - - (55,000) - (55,000)
Net loss - - - - (592,687) (592,687)
--------- -------- ---------- ----------- ----------- ----------
Balance, June 30, 1999 9,094,500 $ 9,095 $ 919,705 $ (55,000) $ (592,687) $ 281,113
(UNAUDITED)
Issuance of stock:
Cash - $1.00 per share 125,000 125 124,875 - - 125,000
Services - $1.00 per share 51,500 52 51,448 - - 51,500
Cash - $1.50 per share 300,000 300 449,700 - - 450,000
Capital contributed as services - - 30,000 - - 30,000
Stockholder loans and advances - - - (90,616) - (90,616)
Net loss - - - - (255,905) (255,905)
--------- -------- ---------- ----------- ----------- ----------
Balance, December 31, 1999 9,571,000 $ 9,572 $1,575,728 $ (145,616) $ (848,592) $ 591,092
========= ======== ========== =========== =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
FS-4
<PAGE>
COM-GUARD.COM,INC.
(A DEVELOPMENT STAGE ENTITY)
------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
OCTOBER 7, 1998 OCTOBER 7, 1998
(INCEPTION) TO SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
--------------- ----------------- -----------------
(UNADUITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows form operating activities
Net loss $ (592,687) $ (255,905) $ (848,592)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation 1,596 3,721 5,317
Stock issued for services 98,800 51,500 150,300
Stock issued for research and development 360,000 -- 360,000
Services provided as contributed capital 30,000 30,000 60,000
Charges in operating assets and liabilities
Vendor advance (50,000) 50,000 --
Inventory -- (624,000) (624,000)
Prepaid expenses (2,500) 2,500 --
Accounts payable and accrued liabilities 11,920 49,405 61,325
---------- ---------- ----------
Net cash from operating activities (142,871) (692,779) (835,650)
---------- ---------- ----------
Cash flows from investing activities
Capital expenditures (20,844) (9,820) (30,664)
---------- ---------- ----------
Cash flows from financing activities
Prodceeds from issuance of stock 440,000 575,000 1,015,000
Stockholder loans and advances (55,000) (90,616) (145,616)
---------- ---------- ----------
Net cash from financing activities 385,000 484,384 869,384
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 221,285 (218,215) 3,070
Cash and cash equivalents
Beginning of period -- 221,285 --
---------- ---------- ----------
End of period $ 221,285 $ 3,070 $ 3,070
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ -- $ --
Taxes paid $ -- $ -- $ --
"Cash and cash equivalents" include cash in
checking and money market accounts.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO JUNE 30, 1999 FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. The Company was formed and incorporated in the state of Nevada on
October 7, 1998 as e-WORLD SECURITY, INC. On April 16, 1999 the Company changed
its name to COM-GUARD.COM, INC. Planned principal operations of the Company have
not yet commenced; activities to date have been limited to forming the Company,
assembling a management and consultant team, identifying markets, developing
products, and obtaining initial capitalization. The Company intends to sell
products that afford security protection to computer hardware and software in
micro computers.
ACCOUNTING ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
that affect the reported amounts of assets and liabilities and disclosures 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 may differ from those estimates.
SHARES ISSUED IN EXCHANGE FOR SERVICES. The fair value of shares issued in
exchange for services rendered to the Company was determined by the Company's
officers and directors.
WORK-IN-PROCESS INVENTORY. Work-in-process inventory is at the lower of cost
(first-in, first-out) or market.
FURNITURE AND EQUIPMENT. Furniture and equipment is stated at cost. Additions,
renovations, and improvements are capitalized. Maintenance and repairs which do
not extend asset lives are expensed as incurred. Depreciation is provided on a
straight-line basis over estimated useful lives (3 years).
ORGANIZATION COSTS. Organization costs of approximately $10,000 have been
charged against operating income.
RESEARCH AND DEVELOPMENT. Research and development, which includes purchased
research and development and internal costs incurred on the technology are
expensed as incurred. In compliance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," ("FAS 86"), the Company expensed all research
and development costs as technological feasibility has not been established.
Management expects technological feasibility to be established upon completion
of beta testing.
STOCK-BASED COMPENSATION. In accordance with the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and related interpretations in accounting for its employee stock
option plans. Under APB 25, if the exercise price of the Company's employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant, no compensation is recognized. Information regarding the
Company's pro forma disclosure of stock-based compensation pursuant to FAS 123
may be found in Note 5.
INCOME TAXES. The Company has made no provision for income taxes because of
financial statement and tax losses since its inception. A valuation allowance
has been used to offset the recognition of any deferred tax assets due to the
uncertainty of future realization. The use of any tax loss carryforward benefits
may also be limited as a result of changes in Company ownership.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company considers all liquid
interest-earning investments with a maturity of three months or less at the date
of purchase to be cash equivalents. Short-term investments generally mature
between three months and six months from the purchase date. All cash and
short-term investments are classified as available for sale and are recorded at
market using the specific identification method; unrealized gains and losses are
reflected in other comprehensive income. Cost approximates market for all
classifications of cash and short-term investments; realized and unrealized
gains and losses were not material.
FS-6
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO JUNE 30, 1999 FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (continued)
NET LOSS PER COMMON SHARE. Basic loss per common share ("Basic EPS") excludes
dilution and is computed by dividing net loss available to common shareholders
(the "numerator") by the weighted average number of common shares outstanding
(the "denominator") during the period. Diluted loss per common share ("Diluted
EPS") is similar to the computation of Basic EPS except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. In
addition, in computing the dilutive effect of convertible securities, the
numerator is adjusted to add back the after-tax amount of interest recognized in
the period associated with any convertible debt. The computation of Diluted EPS
does not assume exercise or conversion of securities that would have an
anti-dilutive effect on net loss per share. In 1999, all potential common shares
are anti-dilutive; therefore, Basic EPS equals Diluted EPS.
CONCENTRATION OF CREDIT RISK. The Company maintains cash and cash equivalents
with a single financial institution. At June 30, 1999, the total of cash and
cash equivalents exceeded the Federally insured limit by $121,285. The Company
performs periodic evaluations of the relative credit standing of the financial
institution. The Company has not sustained any material credit losses from these
instruments.
2. RESEARCH AND DEVELOPMENT
On January 14, 1999, the Company acquired from Kyungki System Co., Ltd., a
Korean corporation, the right, title, and interest to certain technology
including copyrights, trademarks, patents, object codes, source codes,
enhancements, and updates or other modifications and user manuals. As
consideration for this acquisition of technology, the Company issued 560,000
shares of its common stock. The acquisition of technology as well as additional
costs to further develop the technology is reflected in the accompanying
financial statements as research and development because technological
feasibility has not yet been established and the technology has no alternative
future use.
3. COMMITMENTS AND CONTINGENCIES
UNCERTAINTY. The Company has minimal capital resources presently available to
meet obligations that normally can be expected to be incurred by similar
companies, and with which to carry out its planned activities. These factors
impact the Company's ability to operate. Management is seeking additional equity
financing to fund planned operations; management believes actions currently
being taken provide the opportunity for the Company to operate. However, there
is no assurance that the Company will be able to obtain such financing. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PURCHASE COMMITMENT. On February 8, 1999, the Company issued a purchase order
totaling $350,000 for work in process inventory. The Company advanced $50,000 to
the vendor to finance production of the inventory which is reflected in the
accompanying financial statements as vendor advance. During the fiscal quarter
ended December 31, 1999, the Company fulfilled its purchase commitment,
purchasing inventory totaling $624,000.
LEASE COMMITMENT. Under the terms of a short term leasing facility with an
officer and director, the Company owes $15,000 rent for the period July through
December 1999. In November 1999, the Company entered into an agreement for the
lease of operating facilities. The lease agreement provides for monthly payments
of $1,466 through November 2001.
4. RELATED PARTY TRANSACTIONS
CONSULTING SERVICES. The Company incurred $78,800 in fees from related parties,
including an officer and director, for various consulting and administrative
services. Payment was made in the form of cash ($51,800) and stock (2,725,000
shares.)
FS-7
<PAGE>
COM-GUARD.COM, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO JUNE 30, 1999 FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS (continued)
RENT. The Company incurred rent expense of $15,000 under a short-term facility
lease with an officer and director of the Company; an additional $15,000 was
incurred after June 30, 1999. This leasing agreement was terminated in November
1999 in connection with the lease of facilities discussed in Note 3.
WORK-IN-PROCESS INVENTORY. As discussed more fully in Note 3, the Company
advanced $50,000 to a vendor and minority shareholder for inventory production.
During the fiscal quarter ended December 31, 1999, the Company purchased
$624,000 of work-in-process inventory, including the original advance, from this
vendor.
STOCKHOLDER LOANS AND ADVANCES. From time to time, the Company loans or
advances monies to officers and directors for travel (that has not yet taken
place), personal expenditures, and other matters. At June 30, 1999, the loans
and advances to the president totaled $55,000. These loans and advances are
non-interest bearing and are classified as a reduction of stockholders'
equity in the accompanying financial statements. The loans and advances will
be repaid prior to December 31, 2000. At December 31, 1999, these loans and
advances totaled $145,616.
5. STOCKHOLDERS' EQUITY
STOCK OPTIONS. During the period ended June 30, 1999, the Company granted
non-qualified stock options to certain advisors, consultants and directors to
purchase up to 1,605,000 shares of the Company's common stock at an exercise
price equal to market value at date of grant as determined by the Board of
Directors. These options vested immediately upon grant.
The following is a summary of the stock option activity:
<TABLE>
<S> <C> <C>
Granted $0.02-$1.00 1,605,000
Exercised $0.02-$0.50 (750,000)
---------
Outstanding, June 30, 1999 $0.02-$1.00 855,000
=========
</TABLE>
STOCK-BASED COMPENSATION. The Company recognized no stock-based compensation
during the period ended June 30, 1999. There would be no material difference to
compensation cost had the compensation cost been computed under FAS 123.
CONTRIBUTED CAPITAL. The president elected to forgo his salary through December
31, 1999. The value of his services, determined as equal to his forgone salary
of $60,000, has been treated as contributed capital.
STOCKHOLDER LOANS AND ADVANCES. See Note 4.
6. SUBSEQUENT EVENTS
PATENT. On July 20, 1999, the U.S. Patent and Trademark Office issued a patent
on the technology acquired for common stock as discussed in Note 2.
OPERATING LEASE. See Note 3.
COMMON STOCK. Since June 30, 1999, the Company sold 125,000 shares of stock at
$1.00 per share and 300,000 shares of stock at $1.50 per share. An additional
51,500 shares of stock were issued for services. As of January 10, 2000, shares
outstanding totaled 9,571,000.
CONVERTIBLE NOTES. During the fiscal quarter ended March 31, 2000, the Company
issued three convertible notes together totaling $200,000. The notes bear 7%
interest and mature one year from the date of issuance. The principal and unpaid
interest is due at maturity. The note holders have the option to convert the all
unpaid principal and interest, only in their entirety, to common stock at $1.00
per share, at any time until the due date, at which time the right to convert
expires (UNAUDITED).
FS-8
