<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEGAPRO TOOLS INC.
(Exact name of Registrant as specified in its charter)
NEVADA 91-2037081
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Neil Morgan, President
#5 - 5492 Production Boulevard
Surrey, British Columbia V3S 8P5
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(Name and address of principal (Zip Code)
executive offices and agent for service
of process)
Registrant's telephone number, including area code: (604) 533-1777
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this
Registration Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering.
|__|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |__|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |__|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |__|
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES OFFERING AGGREGATE AMOUNT OF
TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE (1) PRICE (2) FEE (2)
----------------------------------------------------------------------
Common Stock 947,100 shares $1.00 $947,100 $250
----------------------------------------------------------------------
(1) Based on last sales price on January 20, 2000
(2) Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
COPIES OF COMMUNICATIONS TO:
Michael A. Cane, Esq.
2300 W. Sahara Blvd., Suite 500
Las Vegas, NV 89102
(702) 312-6255
<PAGE>
SUBJECT TO COMPLETION, Dated June 20, 2000
PROSPECTUS
MEGAPRO TOOLS INC.
947,100 SHARES
COMMON STOCK
----------------
The selling shareholders named in this prospectus are offering all of
the shares of common stock offered through this prospectus. See the
section entitled "Selling Shareholders." The shares were acquired by
the selling shareholders directly from us in four private offerings
that were exempt from registration under the US securities laws. See
the section entitled "Description of Securities."
Our common stock is presently not traded on any market or securities
exchange.
----------------
The purchase of the securities offered through this prospectus
involves a high degree of risk. See section entitled "Risk Factors"
on pages 4 - 8.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
----------------
The Date Of This Prospectus Is: June 20, 2000
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TABLE OF CONTENTS
PAGE
Summary .......................................................... 3
Risk Factors ..................................................... 4
Use of Proceeds .................................................. 8
Determination of Offering Price .................................. 8
Dilution ......................................................... 8
Selling Shareholders ............................................. 8
Plan of Distribution ............................................. 18
Legal Proceedings ................................................ 19
Directors, Executive Officers, Promoters and Control Persons ..... 19
Security Ownership of Certain Beneficial Owners and Management ... 20
Description of Securities ........................................ 21
Interest of Named Experts and Counsel ............................ 22
Disclosure of Commission Position of Indemnification
for Securities Act Liabilities ................................ 22
Organization Within Last Five Years .............................. 22
Description of Business .......................................... 23
Management Discussion and Analysis, Financial Results
and Operating Conditions ...................................... 31
Description of Property .......................................... 35
Certain Relationships and Related Transactions ................... 35
Market for Common Equity and Related Stockholder Matters ......... 37
Executive Compensation ........................................... 38
Financial Statements ............................................. 40
Changes in and Disagreements with Accountants Disclosure ......... 40
Available Information ............................................ 41
Until ______, all dealers that effect transactions in these
securities whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the
dealer' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
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SUMMARY
The following summary is only a shortened version of the more
detailed information, exhibits and financial statements appearing
elsewhere in this prospectus. Prospective investors are urged to
read this prospectus in its entirety.
MegaPro Tools Inc.
We are in the business of designing, manufacturing and marketing a
line of multi-bit screwdrivers known as the MegaPro screwdrivers.
Our screwdriver products are unique screwdrivers that incorporate a
patented retracting cartridge that can hold multiple screwdriver
bits. We are licensed to sell screwdriver products incorporating
the patented cartridge design in the United States and Canada. We
have developed a line of multi-bit screwdriver products that
incorporate the patented cartridge design and that offer enhanced
functionality, productivity and ease of use.
We sell our screwdriver products to both the industrial and
commercial tools market and to the retail market. Presently,
approximately 80% of our sales are to the industrial and commercial
tools market and approximately 20% of our sales are to the retail
tools market. Our business objective is to expand sales of our
screwdriver products to the retail market, which we believe to be
about ten times larger than the industrial and commercial tools
market, while preserving and increasing our sales to the industrial
and commercial market.
Our principal executive offices are located at #5 - 5492 Production
Boulevard, Surrey, British Columbia and our phone number is (604)
533-1777.
Securities Being Offered
Up to 947,100 shares of common stock. See
section entitled Description of Securities.
Securities Issued And to be Issued
6,847,100 shares of common stock are issued
and outstanding as of the date of this
prospectus. This number excludes a total of
260,000 shares of common stock subject to
outstanding options. All of the common stock
to be sold under this prospectus will be sold
by existing shareholders. See section
entitled Description of Securities.
Use of Proceeds
We will not receive any proceeds from the sale
of the common stock by the selling
shareholders. See section entitled Plan of
Distribution.
3
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RISK FACTORS
An investment in our common stock involves a high degree of risk.
You should carefully consider the risks described below and the
other information in this prospectus and any other filings we may
make with the United States Securities and Exchange Commission in
the future before investing in our common stock. If any of the
following risks occur, or if others occur, our business, operating
results and financial condition could be seriously harmed. The
trading price of our common stock could decline due to any of these
risks, and you may lose all or part of your investment.
If We Are Not Successful In Increasing Sales Of Our Screwdriver
Products To The Retail Market, Then We May Not Earn Sufficient
Revenues To Cover The Cost Of Our Expansion And Our Business And
Financial Condition May Be Harmed.
Currently, we earn approximately 80% of our revenues from sales of
our screwdriver products to the industrial and commercial tools
market. We are planning significant growth in the sales of our
screwdriver products and the number of screwdriver products we offer
for sale. Our planned business expansion contemplates increasing
sales of our screwdriver products to the retail tools market as we
estimate that the retail tools market is approximately ten times the
size of the industrial and commercial tools market. This planned
growth will require us to hire additional personnel, increase our
production capacity, and generally expand our business operations.
This expansion will result in our operating costs increasing. If we
are not successful in increasing our sales to the retail tool market
in an amount that exceeds our increased operating costs, then our
business will be harmed. In addition, continued growth could strain
our management, production, engineering, financial and other
resources. Any failure to manage this expansion could have a
materially adverse effect on our business financial condition and
results of operations, such as an increase in expenses or a decrease
in profit margins and net income.
If We Lose Any Of Our Large Customers, Our Revenues Could
Substantially Decrease.
Most of our sales of screwdriver products are derived from a small
number of customers. Sales to Cully Enterprises, our largest
customer, accounted for 18.3% of our net revenues in 1999, 23.0% of
our net revenues in 1998 and 30.7% of our net revenues in 1997. A
significant decrease in sales to, or the loss of, any of our major
customers would have a material adverse effect on our business
prospects, operating results and financial condition, such as a
substantial decline in revenues.
If We Fail To Develop New Distribution Channels, Then Our Revenue
Growth May Be Diminished And Our Business And Financial Condition
May Be Harmed.
We cannot ensure that we will be able to develop new distribution
channels that will be required to penetrate the retail market or
that this growth strategy will be implemented successfully. Our
growth depends on our ability to develop new distribution channels
in order to sell our product in the retail market. The challenges
that we face in developing new distribution channels will include:
* Establishing retail consumer recognition of our products;
* Establishing new distribution arrangements with experienced
distributors in the retail market;
* Managing existing relationships with our current distributors;
4
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* Displacing relationships that potential new distributors have
with current product vendors.
Our failure to develop new distribution channels and our inability
to penetrate the retail market and generate future revenues will
have a material adverse effect on our business prospects, operating
results and financial condition.
If We Lose Our President, Mr. Neil Morgan, Our Ability To Manage Our
Business Could Be Adversely Impacted And Our Business And Financial
Condition May Be Harmed.
Our performance and future success depends to a significant extent
on our senior management and technical personnel; in particular the
experience and continued efforts of Mr. Neil Morgan, the Company's
founder, President and Chief Executive Officer. The loss of Mr.
Morgan could have a material adverse effect on our business
prospects. We presently do not have an employment agreement with
Mr. Morgan.
As We Do Not Have Any Long Term Agreements With Our Manufacturers,
Our Business May Be Interrupted And Revenues Lost In The Event That
We Are Not Able To Use Our Current Manufacturers To Manufacture Our
Screwdriver Products.
We do not manufacture the components used to make our screwdriver
products. We rely on outside manufacturers for the manufacture of
each component of our screwdriver products and the assembly of our
screwdriver products. We do not have long term manufacturing
agreements with any of our manufacturers. In addition, our license
agreement with Winsire Enterprises Corporation requires that we use
one of two designated manufacturers for the manufacture of the
patented cartridge designs. If we are not able to maintain our
relationships with our current manufacturers, or if our current
manufacturers increase their cost of manufacturing the components
comprising our screwdriver products, then our business prospects,
operating results and financial condition may be harmed as a result
of any increased costs or business disruption which we incur as a
result of establishing new manufacturing relationships.
Our Inability To Obtain Acceptance Of Our New Products In The
Marketplace Could Adversely Affect Our Ability To Generate New
Revenues And New Customers.
We are in the process of developing new products that are variations
of our current line of screwdriver products. Our future success
will depend in part on our continuous and timely development and
introduction of these new products into the market. We can provide
no assurance that our new products will be accepted by our
distributors or that they will obtain market acceptance by the
ultimate purchasers. Acceptance of our new products will depend on:
* products introduced by our competitors;
* the success of our marketing efforts;
* our success in establishing distributors for our new products;
and
* the functionality, quality and pricing of our new products.
If we are not successful in achieving market acceptance of our new
products, then our business prospects, financial condition and
operating results will be harmed as a result of the increased costs
we will incur in developing these products and our inability to
generate increased revenues from their sale.
5
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We Face Competition In The Screwdriver Product Market That Could
Adversely Affect Our Sales.
The screwdriver product market in which we compete is a mature and
highly competitive market. Our competition includes many companies
that have significantly greater financial, technical, manufacturing,
sales and marketing resources than we do. These competitors offer
products that are similar to our screwdriver products, or are
different products with similar functionalities. We have designed
our screwdriver products to offer functionality, ease of use and
performance that exceeds the functionality, ease of use and
performance of products offered by our competitors. However, we can
provide investors with no assurance that we will be able to compete
with our competitors, particularly in view of the fact that many of
our competitors own well-known brands, enjoy a large end-user base,
have established distribution relationships and long-standing
customer relationships. Our failure to compete successfully against
our current or future competitors would have a material adverse
effect on our business, operating results and financial condition,
including loss of customers, decline in revenues and loss of market
share.
If We Are Unable To Obtain Raw Materials Or Components Of Our
Products At Our Current Prices, Then Our Manufacturing Capability
And results Of Operation Will Be Adversely Affected.
We purchase raw materials and key components of our screwdriver
products from third party vendors. Although there are alternative
sources for many of the raw materials and components, we could
experience manufacturing and shipping delays if it became necessary
to replace current suppliers or manufacturers. In addition, the
prices of raw materials supplied by certain vendors are subject to a
number of factors including general economic conditions,
competition, labor costs and general supply levels. Our inability
to obtain reliable and timely supplies of raw materials and
components on a cost-effective basis, or an unanticipated change in
suppliers or manufacturers could have a material adverse effect on
our ability to manufacture our screwdriver products and our revenues
and profitability.
If The Patent Protection Of Our Screwdriver Design Is Lost, Our
Business And Financial Condition May Be Harmed.
Our ability to generate revenues and to maintain our competitive
position depends in part on the ability of Winsire Enterprises
Corporation to maintain patent protection for the cartridge design
of our screwdriver products. These patents expire in the Year 2012
in the United States and in the Year 2012 in Canada. We can provide
no assurance to investors that the patent we licensed will not be
challenged, invalidated, or circumvented by other manufacturers in
the future.
If We Are Found Liable In A Product Liability Lawsuit Arising From
The Use Of Our Screwdriver Products, Our Business And Financial
Condition May Be Harmed.
We face potential risk of product liability claims because our
screwdriver products are used in activities where injury may occur,
including in the building and construction industries. Although we
do have product liability insurance coverage, we cannot be certain
that this insurance will adequately cover all product liability
claims or that we will be able to maintain this insurance at a
reasonable cost and on reasonable terms. If we are found liable for
damages with respect to a product liability claim
6
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and our insurance coverage is inadequate to satisfy the claim, then
our business, operating results and financial condition could be
materially and adversely affected.
Because The Morgan Family And Worldwide Envision Products Ltd.
Control All Matters Requiring Shareholder Approval, There Is A
Possibly That They May Cause The Company To Act Or Refrain From
Acting In A Way That Is Inconsistent With The Best Interest Of
Shareholders Other Than Themselves.
Upon the completion of this Offering, Mr. Neil Morgan, Mrs. Maria
Morgan and Envision Worldwide Products Ltd. will be able to control
all matters requiring shareholder approval. Mr. Neil Morgan, our
President and a Director, and his spouse, Mrs. Maria Morgan,
beneficially own 4,017,600 shares of our common stock, representing
58.7% of our outstanding common stock. Worldwide Envision Products
Ltd. owns 1,537,600 shares of our common stock, representing 22.6%
of our outstanding common stock. Mr. Morgan, Mrs. Morgan and
Envision Worldwide Products Ltd. have executed a shareholders
agreement which provides that they will vote their shares of the
Company such that the Board of the Directors of the Company will
consist of three directors, two of whom are appointed by Mr. and
Mrs. Morgan, and one of whom is appointed by Envision Worldwide
Products Ltd. Accordingly, the Morgan Family and Envision Worldwide
Products Ltd. will have the ability to elect all of the directors of
the Board and will have the ability to approve or disapprove all
significant corporate transactions to which we are a party. This
control over all matters requiring shareholder approval could lead
Mr. and Mrs. Morgan and Envision Worldwide Products to cause us to
enter into agreements, take actions or refrain from taking action
that is in their individual best interests, but not in the best
interests of other shareholders.
If We Issue Additional Shares Of Our Common Stock In Order To Raise
Additional Capital, Shareholder's Interests In The Company Will Be
Diluted.
We anticipate that we will be required to raise additional equity
and debt capital in order to continue our current level of
operations and to expand our business operations. We have no
additional equity or debt financing currently in place. Financings
may not be available to us when needed for our expansion or, if
available, may be on unfavorable terms. We anticipate that any
additional equity financing will result in dilution to existing
shareholders. If we are unable to obtain additional financing, then
we anticipate that we will not be able to complete our business
expansion as projected. This inability to expand will most likely
have a material adverse effect on our business, operating results
and financial condition.
Because There Is No Market For Our Common Stock, Our Stock Will Be
Difficult To Sell, And If A Market For Our Common Stock Develops,
Then Our Stock Price May Be Volatile.
There is no market for our common stock and we can provide investors
with no assurance that a market will develop. If a market develops,
we anticipate that the market price of our common stock will be
subject to wide fluctuations in response to several factors,
including:
1. actual or anticipated variations in our results of operations;
2. our ability or inability to generate new revenues;
3. increased competition; and
4. conditions and trends in the general economy and the industrial
tools markets.
7
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Further, we anticipate that our common stock may be traded in the
future on the NASD over the counter bulletin board. Companies
traded on the bulletin board have traditionally experienced extreme
price and volume fluctuations. We can provide no assurance that our
common stock will be traded on the over the counter bulletin board.
If our common stock is traded on the bulletin board, our stock price
may be adversely impacted by factors that are unrelated or
disproportionate to our operating performance.
Because A Portion Of Our Operating Expenses And Revenues Are In
Canadian Dollars, Our Financial Results And Operating Condition May
Be Impacted By Currency Fluctuations In The Canadian Dollar In
Comparison To The U.S. Dollar.
Our reporting currency is the U.S. dollar. Approximately 51% of our
operating expenses are incurred in Canadian dollars as our principal
executive office is located in Surrey, British Columbia, Canada. In
addition, approximately 40% of our revenues are earned from sales of
our screwdriver products in Canada in Canadian dollars.
Accordingly, our financial results and operating condition will be
affected by currency fluctuations in the Canadian dollar in
comparison to the U.S. dollars.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
risks and uncertainties. We use words such as "anticipate,"
"believes," "plans," "expects," "future," "intends" and similar
expressions to identify such forward-looking statements. You should
not place undue reliance on these forward-looking statements. Our
actual results are most likely to differ materially from those
anticipated in these forward-looking statements for many reasons,
including the risks faced by us described in the Risk Factors
section and elsewhere in this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock
offered through this prospectus by the selling shareholders.
DETERMINATION OF OFFERING PRICE
We will not determine the offering price of the common stock. The
offering price will be determined by market factors and the
independent decisions of the selling shareholders. See section
entitled Selling Shareholders.
DILUTION
The common stock to be sold by the selling shareholders is common
stock that is currently issued and outstanding. Accordingly, there
will be no dilution to our existing shareholders.
SELLING SHAREHOLDERS
The selling shareholders named in this prospectus are offering all of
the 947,100 shares of common stock offered through this prospectus.
The shares include the following:
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1. 300,000 shares of our common stock that the selling shareholders
acquired from us when we acquired our subsidiary, Mega Tools
Ltd. from Maria Morgan, Envision Worldwide Products Ltd.,
Robert Jeffery, Lex Hoos, and Eric Paakspuu.
2. 350,000 shares of our common stock that the selling shareholders
acquired from us in an offering that was exempt from
registration under Regulation S of the Securities Act;
3. 115,500 shares of our common stock that the selling shareholders
acquired from us in an offering that was exempt from
registration under Regulation S of the Securities Act;
4. 134,100 shares of our common stock that the selling shareholders
acquired from us in an offering of common stock that was exempt
from registration under Rule 504 of Regulation D of the
Securities Act.
5. 47,500 shares of our common stock that the selling shareholders
acquired from us in an offering of common stock that was exempt
from registration under Rule 504 of Regulation D of the
Securities Act.
The following table provides as of June 20, 2000, information
regarding the beneficial ownership of our common stock held by each
of the selling shareholders, including:
1. the number of shares owned by each prior to this offering;
2. the total number of shares that are to be offered for each;
3. the total number of shares that will be owned by each upon
completion of the offering;
4. the percentage owned by each; and
5. the identity of the beneficial holder of any entity that owns
the shares.
Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Maria Morgan 4,017,600 194,400 3,823,200 55.8%
19767 - 35A Avenue
Langley, BC V3A 7C6
Envision Worldwide 1,537,600 74,400 1,463,200 21.4%
Products Ltd.
5468 Duff Drive
Cincinnati, OH 45246
Beneficial Owner: Ronn Price
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Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Robert Jeffery 796,400 371,600 424,800 6.2%
Box 404
Union Bay, BC V0R 3B0
Lex Hoos 99,200 4,800 94,400 1.4%
3880 Oak Street
Vancouver, BC V6H 2M5
Eric Paakspuu 104,200 9,800 94,400 1.4%
172 Lakeside Court
Penticton, BC V2A 7W8
A.M.H. Management Ltd. 2,500 2,500 NIL NIL
Box 865
Nanaimo, BC V9R 5N2
Beneficial Owner: Ted Harris
Anthony E.G. Alderson 2,500 2,500 NIL NIL
2518 West 3rd Avenue
Vancouver, BC V6K 1M1
Brian Blundell 5,000 5,000 NIL NIL
1602 - 1065 Quayside Drive
New Westminster, BC V3M 1C5
Martin Browne 10,000 10,000 NIL NIL
900 - 609 Granville Street
Vancouver, BC V7Y 1H4
Ray Clarke 2,500 2,500 NIL NIL
201 - 755 Queens Avenue
Victoria, BC V8T 1M2
David Jordan Cluff 2,500 2,500 NIL NIL
4533 West 15th Avenue
Vancouver, BC V6R 3B3
Craig Davies 2,500 2,500 NIL NIL
213 - 19721 64th Avenue
Langley, BC V2Y 1L1
10
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Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
David Drewry 1,500 1,500 NIL NIL
Box 845,
Cumberland, BC V0R 1S0
Tilly Enriquez 5,000 5,000 NIL NIL
201 - 755 Queens Avenue
Victoria, BC V8T 1M2
Aaron Fader 5,000 5,000 NIL NIL
1435, 132nd Street
South Surrey, BC V4A 4B3
Grant Guardiero 2,500 2,500 NIL NIL
104 Victoria Road
Nanaimo, BC V9R 4P3
Scott Higgins 2,500 2,500 NIL NIL
12641 Malabar Avenue
White Rock, BC V4B 2X8
Denise Jeffery 5,000 5,000 NIL NIL
104 - 2466 West 3rd Avenue
Vancouver, BC V6K 1L8
Dwight Johnson 2,500 2,500 NIL NIL
3300 Smith Drive, RR#2
Armstrong, BC V0E 1B0
Brad A. Kehoe 1,500 1,500 NIL NIL
6244 Jade Court
Richmond, BC V7C 5A7
Norman I. Kerr 2,500 2,500 NIL NIL
P.O. Box 363
Kamloops, BC V2C 5K9
Norman Lee 2,500 2,500 NIL NIL
6487 Dufferin Avenue
Burnaby, BC V5H 3T2
11
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Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Darcy Lynn 2,500 2,500 NIL NIL
267 Ellis Avenue
Toronto, ON M6S 2X4
Darcy Lynn, in Trust 2,500 2,500 NIL NIL
For Matthew Lynn
267 Ellis Avenue
Toronto, ON M6S 2X4
Edward Maskall 2,500 2,500 NIL NIL
5500 Woodwards Road
Richmond, BC V7E 1H1
Karen McNulty 2,500 2,500 NIL NIL
5393 Opal Pl.
Richmond BC V7C 5B4
William Messinezis 2,500 2,500 NIL NIL
2014 West 15th Avenue
Vancouver, BC V6J 2L5
William F. Miloglav 5,000 5,000 NIL NIL
5560 Woodwards Road
Richmond, BC V7E 1H1
Frances L. Naumoff 2,500 2,500 NIL NIL
17 Cuthbert Crescent
Toronto, ON M4S 2G9
Andrew Roberts 2,500 2,500 NIL NIL
2420 Carmaria Court
N. Vancouver, BC V7J 3M4
12
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Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Richard H. Suddaby 2,500 2,500 NIL NIL
6211 Milburough Town Line
RR#3, Burlington, ON L0P 1B0
Kathryn Sutherland 2,500 2,500 NIL NIL
1254 East 23 Avenue
Vancouver, BC V5V 1Y9
Kelly Toyota 2,500 2,500 NIL NIL
3167 Trailwood Drive
Burlington, ON L7M 2Z7
Cheryle Watson 2,500 2,500 NIL NIL
260 Moss Hill Place
Victoria, BC V9C 3Z2
R. Cameron Watt 5,000 5,000 NIL NIL
574 Shannon Crescent
N. Vancouver, BC V7N 2Y9
Karen Winfield 2,500 2,500 NIL NIL
3520B Willow Street
Vancouver, BC V5Z 3R1
Winsire Enterprises 12,500 12,500 NIL NIL
Corporation
210 Tenth Avenue
New Westminster, BC V3L 2B2
Beneficial Owner: Hermann Fruhm
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Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Michael Barker 10,000 10,000 NIL NIL
1627 General Crescent
Moose Jaw, SK S6H 6MZ
Robert N. Lougheed 15,000 15,000 NIL NIL
12907 Crescent Road
S. Surrey, BC V4P 1J6
Helmut Dahl & 5,000 5,000 NIL NIL
Beverley R. Dahl
2566 138A Street
Surrey, BC V4P 2M1
Corrine J. Zajac 5,000 5,000 NIL NIL
#403-1000 Beach Avenue
Vancouver, BC V6E 4M2
G. Werner Spangehl 10,000 10,000 NIL NIL
13258 - 19A Avenue
Surrey, BC V4A 7B2
Michael Levy 15,000 15,000 NIL NIL
13303 - 25th Avenue
Surrey, BC V4P 1Y6
Alan Merriman 2,100 2,100 NIL NIL
2416 127B Street
S. Surrey, BC V4A 8N8
Dennis A. Birch Trust 10,000 10,000 NIL NIL
11808 Rancho Bernardo Road
PMB 123-409
San Diego, CA 92128
Murray Glen Reid 5,000 5,000 NIL NIL
#54-14877 33rd Avenue
Surrey, BC
14
<PAGE>
Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Tim Barker 10,000 10,000 NIL NIL
3486 - 155 Street
Surrey, BC V4B 4A3
Central Commercial 10,000 10,000 NIL NIL
Enterprises Ltd.
3353 S. Main Street, PMB 516
Salt Lake City, UT 84115
Beneficial Owner: Steven Porter
Warren Fredrickson 4,500 4,500 NIL NIL
1626 - 164 Street
Surrey, BC V4P 2R4
Steve Savage 5,000 5,000 NIL NIL
11390 Northern Crescent
Delta, BC V4E 2P7
Fred Dalgleish 7,500 7,500 NIL NIL
1566 Westlake Road
Kelowna, BC
Alexander C. Weemers 5,000 5,000 NIL NIL
2311 Ennerdale Road
North Vancouver, BC V7J 3H5
Eastern Consulting Corp. 10,000 10,000 NIL NIL
6638 Grande Orchid Way
Delray Beach, FL 33446
Beneficial Owner: Mark Sporn
Daniel L. Bowser 2,500 2,500 NIL NIL
2016 Buoy Drive
Stafford, VA 22554
Jack E. Brown 5,000 5,000 NIL NIL
13842 Belvedere Drive
Poway, CA 92064
15
<PAGE>
Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Sheron M. Brown 5,000 5,000 NIL NIL
13842 Belvedere Drive
Poway, CA 92064
Janell Deuel 2,500 2,500 NIL NIL
5708 Heron Drive
West Chester, OH 45069
Patrick A. Deuel 2,500 2,500 NIL NIL
5708 Heron Drive
West Chester, OH 45069
Kimberly E. Farrell 2,500 2,500 NIL NIL
8145 Cherry Laurel Drive
Liberty Township, OH 45044
Tom Farrell 2,500 2,500 NIL NIL
8145 Cherry Laurel Drive
Liberty Township, OH 45044
Marion Forrest-Bowser 2,500 2,500 NIL NIL
2016 Buoy Drive
Stafford, VA 22554
Kenneth W. Gensheimer 2,500 2,500 NIL NIL
7356 Coachford Drive
West Chester, OH 45069
Theresa R. Gensheimer 2,500 2,500 NIL NIL
7356 Coachford Drive
West Chester, OH 45069
Robert D. Holmes 2,500 2,500 NIL NIL
2709 No. Park Drive
Bellingham, WA 98225
Sylvester Klusczinski 2,500 2,500 NIL NIL
3231 White Maple Court
South Bend, IN 46628
16
<PAGE>
Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering
-------------------- --------- ------------- ---------- --------------
Berardo Paradiso 5,000 5,000 NIL NIL
46 Arleigh Road
Great Neck, NY 11021
Royce R. Schultz 2,500 2,500 NIL NIL
7378 Coachford Drive
West Chester, OH 45069
Diane & James E. Simones 2,500 2,500 NIL NIL
22287 San Joaquin Drive W.
Canyon Lake, CA 92587
Stanton Weston 2,500 2,500 NIL NIL
903 11th Lane
Fox Island, WA 98333
Via Holdings Inc. 5,000 5,000 NIL NIL
P.O. Box 1044 GT
Grand Cayman, Cayman Islands
Beneficial Owner: Dominic Busto
-------------------------------------------------------------------------
Except as otherwise noted, the party named above beneficially owns
and has sole voting and investment power over all shares or rights to
these shares. The second column of this table assumes that none of
the selling shareholders sells shares of common stock not being
offered through this prospectus or purchases additional shares of
common stock. The percentages provided above are based on 6,847,100
shares outstanding on June 20, 2000.
Ms. Maria Morgan is the spouse of Mr. Neil Morgan, a director and
our president. Envision Worldwide Products Ltd. is a party to a
shareholders agreement with Ms. Maria Morgan and Mr. Neil Morgan in
which Envision has agreed to vote its shares of common stock with
the Morgans such that our board of directors will consist of three
directors, two of whom are selected by Maria Morgan and one of whom
is selected by Envision.
Except as identified above, none of the selling shareholders or their
beneficial owners:
1. has had a material relationship with the Company other than as
a shareholder as noted above at any time within the past three
years; or
2. has ever been an officer or directors of the Company.
17
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders have not informed us of how they plan to
sell their shares. However, they may sell some or all of their
common stock in one or more transactions, including block
transactions:
1. on such public markets or exchanges as the common stock may
from time to time be trading;
2. in privately negotiated transactions;
3. through the writing of options on the common stock;
4. in short sales; or
5. in any combination of these methods of distribution.
The sales price to the public may be:
1. the market price prevailing at the time of sale;
2. a price related to such prevailing market price; or
3. such other price as the selling shareholders determine from
time to time.
The shares may also be sold in compliance with the Securities and
Exchange Commission's Rule 144.
The selling shareholders may also sell their shares directly to
market makers acting as principals or brokers or dealers, who may act
as agent or acquire the common stock as a principal. Any broker or
dealer participating in such transactions as agent may receive a
commission from the selling shareholders, or, if they act as agent
for the purchaser of such common stock, from such purchaser. The
selling shareholders will likely pay the usual and customary
brokerage fees for such services. Brokers or dealers may agree with
the selling shareholders to sell a specified number of shares at a
stipulated price per share and, to the extent such broker or dealer
is unable to do so acting as agent for the selling shareholders, to
purchase, as principal, any unsold shares at the price required to
fulfill the respective broker's or dealer's commitment to the selling
shareholders. Brokers or dealers who acquire shares as principals may
thereafter resell such shares from time to time in transactions in a
market or on an exchange, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices,
and in connection with such re-sales may pay or receive commissions
to or from the purchasers of such shares. These transactions may
involve cross and block transactions that may involve sales to and
through other brokers or dealers. If applicable, the selling
shareholders also may have distributed, or may distribute, shares to
one or more of their partners who are unaffiliated with us. Such
partners may, in turn, distribute such shares as described above. We
can provide to investors no assurance that all or any of the common
stock offered will be sold by the selling shareholders.
We are bearing all costs relating to the registration of the common
stock. Any commissions or other fees payable to brokers or dealers
in connection with any sale of the common stock, however, will be
paid by the selling shareholders or other party selling such common
stock.
The selling shareholders must comply with the requirements of the
Securities Act and the Securities Exchange Act in the offer and sale
of the common stock. In particular, during such times as the selling
shareholders may be deemed to be engaged in a distribution of the
common stock, and therefore be considered to be an underwriter, they
must comply with applicable law and may, among other things:
18
<PAGE>
1. not engage in any stabilization activities in connection with our
common stock;
2. furnish each broker or dealer through which common stock may be
offered, such copies of this prospectus, as amended from time to
time, as may be required by such broker or dealer; and
3. not bid for or purchase any of our securities or attempt to
induce any person to purchase any of our securities other than
as permitted under the Securities Exchange Act.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers and directors and their respective ages as of
June 20, 2000 are as follows:
Directors:
Name of Director Age
---------------------- -----
Neil Morgan 47
David Bonner 43
Executive Officers:
Name of Officer Age Office
---------------------- ----- -----------------------
Neil Morgan 47 President and
Chief Executive Officer
David Bonner 43 Secretary and Treasurer
We have set forth below is a brief description of the background and
business experience of each of our executive officers and directors
for the past five years.
Mr. Neil Morgan is our president and is one of our directors. Mr.
Morgan founded our business in 1994 and has been our president and
chief executive officer since our inception. Mr. Morgan owned his
own business from 1992 to 1994 prior to organizing Mega Tools Ltd.
Mr. Morgan was a broker with Goepel McDermid Inc. from 1990 to 1992.
Mr. Morgan was a broker with Midland Walwyn from 1986 to 1990.
Mr. David Bonner is our secretary and treasurer and is one of our
directors. Mr. Bonner joined us as vice-president of sales and
marketing in June, 1998. Mr. Bonner was a principal in a marketing
and consulting firm known as Digital Age Marketing Inc. from
December, 1995 to June, 1998. Mr. Bonner was an independent
marketing consultant from December, 1992 to December, 1995.
19
<PAGE>
Term of Office
Our Directors are appointed for terms of one year to hold office
until the next annual general meeting of the holders of our common
stock, as provided by the Nevada Revised Statutes, or until removed
from office in accordance with our bylaws. Our officers are
appointed by our board of directors and hold office until removed by
the board.
Significant Employees
We have no significant employees other than the officers and
directors described above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides the names and addresses of each person
known to us to own more than 5% of our outstanding common stock as
of June 20, 2000, and by the officers and directors, individually
and as a group. Except as otherwise indicated, all shares are owned
directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class(1)
---------------- ------------------- -------------------- -----------
Common Stock Neil Morgan 4,147,600 shares 60.6%
Director, President
19767 35 A Avenue
Langley, BC V3A 7C6
Common Stock David Bonner NIL shares NIL
Director, Secretary and
Treasurer
18548 - 65 Avenue
Cloverdale, BC V3S 8S9
Common Stock All Officers and
Directors 4,147,600 shares 60.6%
as a Group (2 persons)
Common Stock Envision Worldwide
Products Ltd. 1,537,600 Shares 22.5%
5468 Duff Drive,
Cincinnati, Ohio
USA 45246
Common Stock Robert E. Jeffery 796,400 Shares 11.6%
P.O. Box 404
Union Bay, BC
V0R 3B0
-------------------------------------------------------------------------
20
<PAGE>
Under Rule 13d-3, certain shares may be deemed to be beneficially
owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition,
shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the
amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by
reason of these acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in this table does not
necessarily reflect the person's actual ownership or voting power
with respect to the number of shares of common stock actually
outstanding on June 20, 2000. As of June 20, 2000, there were
6,847,100 shares of the Company's common stock issued and
outstanding. In addition, there were 260,000 shares subject to
options exercisable within 60 days of the date of this registration
statement. The percentages in this table were therefore determined
using the combination of these two figures.
The 4,017,600 shares of common stock are legally and beneficially
owned by Mrs. Maria Morgan, the spouse of Mr. Neil Morgan, a
director and our president. Mr. Morgan has been granted options to
purchase 130,000 shares of our common stock, all of which are fully
vested and are immediately exercisable. The shares which are the
subject of these options are included in Mr. Morgan's beneficial
ownership.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 25,000,000 shares of common
stock at a par value of $0.001 per share.
Common Stock
As of June 20, 2000, there were 6,847,100 shares of our common stock
issued and outstanding that were held by approximately 70
stockholders of record.
Holders of our common stock are entitled to one vote for each share
on all matters submitted to a stockholder vote. Holders of common
stock do not have cumulative voting rights. Therefore, holders of a
majority of the shares of common stock voting for the election of
directors can elect all of the directors. Holders of our common
stock representing a majority of the voting power of our capital
stock issued and outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum at any
meeting of our stockholders. A vote by the holders of a majority of
our outstanding shares is required to effectuate certain fundamental
corporate changes such as a liquidation, merger or an amendment to
our Articles of Incorporation.
Holders of common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally
available funds. In the event of a liquidation, dissolution or
winding up, each outstanding share entitles its holder to
participate pro rata in all assets that remain after payment of
liabilities and after providing for each class of stock, if any,
having preference over the common stock. Holders of our common
stock have no conversion rights and there are no redemption
provisions applicable to our common stock.
21
<PAGE>
Holders of our common stock have a preemptive right, granted on
uniform terms and conditions prescribed by the board of directors to
provide a fair and reasonable opportunity to exercise the right to
acquire proportional amounts of the Corporation's unissued shares
upon any decision of the board of directors to issue additional
shares of our common stock. The preemptive rights of stockholders
of the Corporation will terminate and will cease to be of any force
and effect upon the effectiveness of any registration statement
filed by the Company with the United States Securities and Exchange
Commission under Section 12(b) or (g) of the Securities Exchange Act
of 1934.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or
certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other
legal matters in connection with the registration or offering of the
common stock was employed on a contingency basis, or had, or is to
receive, in connection with the offering, a substantial interest,
direct or indirect, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant
or any of its parents or subsidiaries as a promoter, managing or
principal underwriter, voting trustee, director, officer, or
employee.
Michael A. Cane of Cane & Company, LLC, our independent counsel, has
provided an opinion on the validity of our common stock.
EXPERTS
The financial statements included in this prospectus and the
registration statement of which this prospectus forms a part have
been audited by BDO Dunwoody, LLP, chartered accountants, to the
extent and for the periods set forth in their report and appearing
elsewhere herein and in the registration statement, and are included
in reliance upon such report given upon the authority of BDO
Dunwoody, LLP, chartered accountants, as experts in accounting and
auditing.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Our directors and officers are indemnified as provided by the Nevada
Revised Statutes and our Bylaws. We have been advised that in the
opinion of the Securities and Exchange Commission indemnification for
liabilities arising under the Securities Act 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 is asserted by one of our directors, officers, or
controlling persons in connection with the securities being
registered, we will, unless in the opinion of our legal counsel the
matter has been settled by controlling precedent, submit the question
of whether such indemnification is against public policy to a court
of appropriate jurisdiction. We will then be governed by the court's
decision.
ORGANIZATION WITHIN LAST FIVE YEARS
We were incorporated in December, 1998 under the laws of the state
of Nevada. We conduct our business operations through our two
wholly owned subsidiaries, Mega Tools Ltd. and Mega Tools
22
<PAGE>
USA, Inc. We acquired each of Mega Tools Ltd. and Mega Tools USA,
Inc. on September 30, 1999. Prior to September 30, 1999, Mega Tools
USA, Inc. was operated as a subsidiary of Mega Tools Ltd.
We acquired Mega Tools Ltd. from Ms. Maria Morgan, Envision
Worldwide Products Ltd., Mr. Robert Jeffery, Mr. Lex Hoos and Mr.
Eric Paakspuu in exchange for the issue of 6,200,000 restricted
shares of our common stock. We acquired Mega Tools USA, Inc. from
Mega Tools Ltd. in exchange for the payment of $340,000 which was
satisfied by the issue of a demand promissory note by us to Mega
Tools Ltd. Our acquisition of Mega Tools USA, Inc. was completed
immediately prior to our acquisition of Mega Tools Ltd.
Our president, Neil Morgan, was the Company's sole promoter upon its
inception. Other than the issue of stock to Ms. Maria Morgan upon
our acquisition of Mega Tools Ltd., Mr. Morgan has not entered into
any agreement with the Company in which he is to receive from the
Company or provide to the Company anything of value.
Mega Tools Ltd. was incorporated as a British Columbia, Canada
company on January 7, 1994. Mega Tools USA, Inc. was incorporated
under the laws of the State of Washington on April 18, 1994.
Our principal executive offices are located at #5 - 5492 Production
Boulevard, Surrey, British Columbia, Canada V3S 8P5. Our telephone
number is (604) 533-1777.
DESCRIPTION OF BUSINESS
We are in the business of designing, manufacturing and marketing a
line of multi-bit screwdrivers known as the MegaPro screwdrivers.
Our screwdriver products are unique screwdrivers that incorporate a
patented retracting cartridge that can hold multiple screwdriver
bits. We are licensed to sell screwdriver products incorporating
the patented cartridge design in the United States and Canada. We
have developed a line of multi-bit screwdriver products that
incorporate the patented cartridge design and that offer enhanced
functionality, productivity and ease of use.
We currently sell our screwdriver products to both the industrial
and commercial tools market and to the retail market in both the
United States and Canada. Our business objective is to expand sales
of our screwdriver products to the retail market.
Industry Overview
-----------------
Our screwdriver products are hand tools that are sold in the
industrial, commercial and retail markets.
Industrial and Commercial Tools Market
The industrial and commercial tools market for our screwdriver
products is the market where the professional tradesman purchases
his tools and supplies. The market includes electrical, plumbing,
industrial and contractor supply stores. Sales of screwdriver
products to the industrial and commercial market are through
established industrial tool distributors.
23
<PAGE>
Retail Tools Market
The retail market for our screwdriver products is characterized by
large, nation-wide retailers and big box home center stores. These
retailers include companies such as Home Depot, Sears, Truserve, Ace
Hardware, Target and WalMart. The consumers who purchase hand tool
products from these retailers include both professional tradesmen
and home consumers. We estimate that sales of screwdriver products
to this retail market are approximately ten times the number of
sales of screwdriver products to the industrial and commercial tools
market.
The retail tools market has changed dramatically in recent years
with the emergence of large home center stores owned by nation wide
retailers. Management believes that these large home center stores
offer us a significant business opportunity because they typically
limit their purchases of hand tools products to a few leading
national brands and promote their own store brands in order to
promote customer loyalty. Our objective is establish sales of our
screwdriver products in these large home center stores by both: (i)
establishing our MegaPro screwdriver products as a leading brand of
screwdriver products; and (ii) selling our products under the
retailer's own brand name through private branding.
Our Screwdriver Products
------------------------
Our product line consists exclusively of our MegaPro screwdriver
products and accessories. We have developed three separate lines of
MegaPro screwdriver products and are presently working to develop
additional lines. Our screwdriver products incorporate a patented
cartridge design that incorporates a rotating cartridge that is
stored within the handle of each screwdriver. The cartridge unit is
able to store multiple screwdrivers and drill bits and is easily and
quickly accessible by the user. We have developed our screwdriver
products to offer enhanced functionality, productivity and ease of
use.
License Rights
We manufacture our MegaPro screwdriver products under license from
Winsire Enterprises Corporation pursuant to four separate license
agreements. The MegaPro screwdrivers incorporate a patented
retractable cartridge design that allows for the storage of
screwdriver bits and drill bits. The patent on the retractable
cartridge design is owned by Winsire and is registered in the name
of Winsire under Canadian Patent Number 2,084,270 and United States
Patent Number 5,265,504. Both the United States and Canadian
patents expire in 2012. Winsire has also obtained patent protection
in twelve countries in addition to Canada and the United States.
Our license agreements with Winsire gives us the exclusive right to
manufacture and sell screwdrivers incorporating the patented
retractable cartridge mechanism within North America. The license
agreements are comprised of two separate agreements between Winsire
and Mega Tools, Ltd, our Canadian subsidiary and two separate
license agreements between Winsire and Mega Tools USA, Inc., our
United States subsidiary. The license agreements with Mega Tools
USA, Inc. governs sales of our MegaPro screwdriver products in the
United States Market. The license agreements with Mega Tools, Ltd.
governs sales of our MegaPro screwdriver products in the Canadian
market. Each of Mega Tools, Ltd. and Mega Tools USA, Inc. is a
party to a license agreement for national accounts and a license
24
<PAGE>
agreement for regular accounts. The license agreements for
national accounts applies to sales of our MegaPro screwdriver
products to specific national retail outlets that are listed in each
national accounts license agreement. The license agreements for
regular accounts apply to all other sales.
We pay a royalty to Winsire for each of our screwdriver products
sold based on whether the sale was made under a national accounts
license agreement or a regular account license agreement. For sales
through a national account license agreement, we are required to pay
to Winsire a royalty equal to $0.30 for each screwdriver product
sold, subject to adjustment for inflation. For sales through a
regular account license agreement, we are required to pay to Winsire
a royalty equal to $0.45 for each screwdriver product sold, subject
to adjustment for inflation, which is manufactured within the United
States or Canada. For products manufactured outside of the United
States or Canada, the royalty will equal $0.40 for each screwdriver
product sold for the first 100,000 units sold, and $0.30 for any
units sold in excess of 100,000 units. The per unit royalty
amounts will increase in each subsequent year of each license
agreement, commencing November 9, 2001, by an amount equal to the
percentage increase in the consumer price index for Vancouver,
British Columbia. The license agreements require a minimum aggregate
royalty payment under all four agreements of a minimum of $150,000
in each year, subject to adjustment for inflation. Accordingly, if
the amount of royalty paid under all license agreements on a per
unit basis is in aggregate less than $150,000, then we are required
to make a payment of the amount by which the royalty paid on a per
unit basis falls short of $150,000. The minimum required amount of
royalty payments for the current year ending November 8, 2000 is
$150,000. The minimum required amount of royalty payments for
subsequent years, commencing November 9, 2001, will increase by the
percentage increase in the consumer price index for Vancouver,
British Columbia.
The term of each license agreement will expire on November 8, 2005,
however we have the right to extend the term of each license
agreement until December 1, 2032. Our option to extend the license
agreements is subject to our paying to Winsire renewal maintenance
fees in the amount of $25,000 on November 8, 2002, $30,000 on
November 8, 2003 and $35,000 on November 8, 2004. If we renew the
license agreements, then the "per unit" royalty payable under each
license agreement will continue to increase annually on the basis of
the increase in the consumer price index for Vancouver, British
Columbia. The license agreements will continue to require a minimum
royalty payment that will be equal to $150,000 in aggregate for all
four license agreements for the years ending on November 8, 2006
through November 8, 2012 and $50,000 for the years ending on
December 1, 2012 through December 1, 2032. All minimum royalty
payments will continue to be subject to adjustment for inflation.
Our license agreements with Winsire acknowledge that Winsire is the
owner of all moulds that are used to manufacture the retractable
cartridge components used in our screwdriver products. We are
obligated under the license agreement to use one of two
manufacturers for the manufacture of the retractable cartridge
components, as directed by Winsire.
Winsire is also the owner of the trademarks Megapro, Megapro 15 in 1
and Megapro 16 In 1. These trademarks are licensed to us under the
license agreements. We are obligated to apply the trademark to all
screwdriver products that we manufacture. The license of the
trademark is for the term of the license agreements.
25
<PAGE>
Sub-License to Jore Corporation
We recently entered into two sub-license agreements with Jore
Corporation and Winsire in which we granted Jore Corporation a sub-
license of our Canadian and US national accounts license agreements.
Under these agreements, Jore Corporation has the non-exclusive right
to manufacture our screwdriver products in North America and an
exclusive right to sell our screwdriver products to a number of the
national account retail outlets. The national account retail
outlets will initially include Sears, Sears Canada and Home Depot
but may be extended by agreement in writing to include additional
national account retail outlets. Jore Corporation will pay to us a
unit royalty per screwdriver product, subject to the payment of a
minimum annual royalty payment. The minimum annual royalty payment
would be $30,000 for the first year and $60,000 in each subsequent
year of the term of the agreement. The term of our agreement with
Jore Corporation will expire on December 1, 2012, subject to earlier
termination of our head license agreements with Winsire. The
minimum annual royalty payment is subject to increase in the event
that a national account customer produces and airs a video
promotional informercial in the U.S. national cable market. The
minimum annual royalty payment will equal $60,000 for the first year
and $120,000 in each subsequent year if an informercial is
broadcast, provided that the minimum royalty payment will be
adjusted pro rata according to the number of days in each year
during which the infomercial is broadcast. Under these agreements,
we and Winsire retain the right to purchase screwdriver products
manufactured by Jore Corporation at Jore Corporation's most
favorable price, less the applicable unit royalty.
MegaPro Screwdriver Products
We have designed and developed three lines of MegaPro screwdriver
products based on the patented retractable cartridge mechanism.
Each line of our screwdriver products feature a quick change
screwdriver bit system which enables the user to quickly and easily
change screwdriver bits for various applications. Each screwdriver
is sold complete with industrial quality screwdriver bits that are
housed in the retractable cartridge mechanism. The retractable
cartridge mechanism is stored in the handle of the screwdriver and
is easily accessed by the user. Our screwdriver products also
incorporate a palm saving rotating cap and a rotating balance point
collar in order to enhance the functionality and ease of use of our
products.
We have received two prestigious design awards for our MegaPro
screwdriver products. In 1998, we received the Northwest Design
Invitational Award from the Industrial Designer's Society of
America. In 1997, we received the Design Effectiveness Award from
the Financial Post magazine (Canada).
Screwdriver Product Lines
We have developed and sell the following separate lines of our
MegaPro screwdriver products.
1. MegaPro 15 in 1 Screwdriver
---------------------------
Our principal product is the MegaPro 15 in 1 screwdriver. This
is our core product line and was our original product. This
line of screwdriver product features seven double-ended
screwdriver bits that are stored in the patented retractable
cartridge. We have developed
26
<PAGE>
numerous variations of this product line in order to sell to
distinct markets such as the automotive market and the electrical
supply market. As an example, the version of the MegaPro 15 in 1
screwdriver for the automotive market includes specialized bits
that are commonly used in the automotive/ auto-parts industry.
We have also developed a version of the MegaPro 15 in 1 screwdriver
that incorporates bits for tamper-proof screws that are used in
commercial building to prevent theft and vandalism.
2. MegaPro 8 in 1 Screwdriver
--------------------------
We completed the introduction of the MegaPro 8 in 1 screwdriver
product line in 1999. The main features of this product line
are: (a) the patented cartridge is loaded with seven single-
ended bits, as opposed to double-ended bits; and (b) the
screwdriver shaft has a bit-lock coupler for hex power tool
accessories. The main advantage of this product line is that
all inch hex power tool accessories will also work with the
MegaPro 8 in 1 screwdriver. Hex power tools accessories
include nut drivers, socket adapters and other power tool
accessories.
3. MegaPro 15 in 1 Stainless Screwdriver
-------------------------------------
We completed the introduction of the MegaPro 15 in 1 stainless
screwdriver product line in 1999. The two main features of
this product line are a stainless steel shaft and seven double-
ended electroless nickel-plated bits. These two features give
this line of screwdriver products excellent anti-corrosion
qualities and permit use of the screwdriver products in salt-
water environments. These characteristics make this product
line ideal for the marine environment and for heavy outdoor
use. The principal market for this product is the marine and
boating industry.
Products Under Development
We are continually researching the development of new lines of
screwdriver products and variations of our existing lines in order
to preserve and expand our sales. These products include the
following:
1. We are presently developing a MegaPro 8 in 1 stubby screwdriver
that is shorter and more compact than our regular MegaPro 15 in
1 screwdriver. This screwdriver is planned to include eight
distinct screwdriver bits and will be designed for applications
where the user has limited space.
2. We are investigating new and innovative ways in which to use
the patented cartridge design in other tool products. For
example, we are evaluating the development of an electric
cordless screwdriver that incorporates the patented retractable
cartridge. We believe that such an electric cordless
screwdriver would be a very successful product as current
models of electric cordless screwdrivers suffer from a lack of
bit storage.
3. We are investigating the expansion of our product line by
developing and marketing various accessories for our current
lines of screwdriver products. For example, we are evaluating
the
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introduction of products such as tool holsters, replacement
and accessory bit packs and magnetizer/ demagnetizer products.
The introduction of any new product lines will depend on many
factors, including:
(a) the results of our development efforts;
(b) the perceived market acceptance of any new products;
(c) the acceptance of new products by our distributors;
(d) our financial ability to manufacture and sell new products.
Accordingly, we can provide no assurance to investors that we will
ever commercially manufacture and sell any of the products presently
under development. We can also provide no assurance that if we
attempt to commercially manufacture and sell any new products, we
will be able to achieve commercial acceptance and sell any of these
potential products.
Manufacture of the MegaPro Screwdriver Products
We presently do not have any manufacturing facilities. Our MegaPro
screwdriver products are manufactured and assembled under contract
by outside manufactures. The majority of our products are
manufactured in and around South Bend, Indiana by various
manufacturers. We do not have any exclusive arrangements or long
term manufacturing agreements with our manufacturers.
Marketing And Distribution
--------------------------
We market our products to two very separate and distinct markets;
the industrial and commercial tools market and the national retail
tools market.
Industrial and Commercial Tools Market
We sell our screwdriver products to the industrial and commercial
tools market both in the United States and Canada. The majority of
our sales are in the United States. Our sales are primarily to
contractor suppliers, including industrial, fastening, electrical,
plumbing, heating, ventilation, maintenance and air conditioning
supply houses and distributors. Our largest customer is Cully
Enterprises who account for more than 10% of our sales.
Our sales in the commercial and industrial tools markets have been
accomplished by finding and establishing good relationships with
industrial tool distributors and manufacturing sales
representatives. Our marketing efforts consist of marketing and
displaying our products at industrial trade shows every year. We
attend, on average, approximately six major trade shows each year.
We are a member in good standing with the Specialty Tool and
Fastener Distributors Association. We plan to continue to attend
various industrial trade shows every year as this activity has
proven to be a successful marketing strategy for us.
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We commenced sales of the MegaPro 15 in 1 screwdriver into the
industrial and commercial market in Canada and the United States in
1994. We expanded our product line in the industrial and commercial
market with the release of the tamperproof version of the MegaPro 15
in 1 screwdriver in 1997. Currently, sales of screwdriver products
to the industrial and commercial tools market accounts for
approximately 80% of our sales.
Retail Market
Our products are marketed in the United States and Canada in a
number of retail stores, including Sears and Home Depot.
Currently, sales of screwdriver products to the retail tools market
accounts for approximately 20% of our sales.
We marketed our screwdriver products to the retail market under the
"Tim Allen Signature Tool Line" from late 1996 to 1999. The Tim
Allen Signature Tool Line is marketed to retail consumers in Canada
and the United States. Sales of products in the Tim Allen Signature
Tool Line, however, did not met our expectations. Accordingly, we
are currently attempting to negotiate a different arrangement for
marketing our screwdriver products under the "Tim Allen" name. We
can provide no assurance, however, that we will be able negotiate a
different arrangement or that any future amended arrangement will be
successful in increasing sales.
We also market the patented retractable cartridge to Jore
Corporation for use in a hybrid screwdriver manufactured by Jore
that is sold to Sears for re-sale under the Craftsman brand name.
We are paid a royalty by Jore Corporation for each of these
screwdrivers that are sold by Jore to Sears. The hybrid screwdriver
products are sold to the retail market.
Growth Strategy
---------------
Our objective is to expand the sales of our MegaPro screwdriver
products. Our growth and operating strategies include the following
specific elements:
Maintaining Our Base of Sales to the Industrial and Commercial Tools
Market
We will continue our marketing and distribution efforts in order to
maintain and expand sales of our screwdriver products to the
industrial and commercial tools market. We will continue our
membership with the Specialty Tools and Fastener Distributors
Association and will continue to attend industry trade shows on a
regular basis.
Increase Sales to the Retail Market
We believe that we can translate the strong endorsement and
acceptance we have received from professional tradesman into strong
sales into the retail market. Accordingly, the primarily element of
our plan to expand our sales is our planned expansion of sales to
the retail market. We have two distinct strategies for increasing
sales to the retail market.
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Our first strategy is to sell products directly to retailers. We
believe that by saving the cost of a middleman, the resulting lower
price of our products will translate into more sales to consumers.
Our second strategy is to sell products to retailers for private
branding and re-sale under the retailer's brand names. An example
of sales to retailers for private branding is the sale of our
retractable cartridge products by Jore to Sears under the
"Craftsman" name owned by Sears. The advantage of private branding
with major retailers is that we would not have to undertake the
marketing of our screwdriver products. The marketing would be done
by the retailer under their own name.
Expand our Product Line
We will continue to work towards the expansion of our product line
by developing and marketing new products. We view the continued
development of new products as being essential to our ability to
maintain and attract new market share for our screwdriver products.
Competition
-----------
The screwdriver product market in which we compete is a mature and
highly competitive. Many of our competitors are established
companies that have significantly greater financial, technical,
manufacturing, sales and marketing and support resources than we do.
In addition, many of our competitors own well-known brands, enjoy
large end-user bases and benefit from long-standing customer
relationships. Our competitors include American Tool, Coopers
Industries, Inc., the Stanley Works, Enderes and Pikquik and others,
including both domestic and foreign companies. These competitors
offer products that are similar to our screwdriver products or are
different products with similar functionalities, such as cordless
electric screwdrivers. We have designed our screwdriver products to
offer functionality, ease of use and performance that exceeds the
functionality, ease of use and performance of products offered by
our competitors. Additional factors that affect our ability to
compete against our competitors include:
(a) Our ability to successfully establish the Megapro brand
name with consumers.
(b) Our ability to design, manufacture and market a high
quality range of products that offer better functionality,
performance and ease of use than the products offered by
our competitors.
(c) Establishing distribution relationships with major
retailers within the US and Canada.
(d) Maintaining and expanding our existing distributor
relationships in the industrial and commercial tools
market.
(e) Entering into private branding arrangements with national
retailers.
(f) Obtaining access to national retail outlets and sufficient
shelf space to establish sales of our products.
Employees
---------
As of June 20, 2000, we employed four full-time employees and no
part-time employees. All of our employees are employed at our
facility in Langley, British Columbia, Canada. No employees are
covered by collective bargaining agreements, and we have never had a
work stoppage.
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Intellectual Property
---------------------
Our ability to compete effectively depends in part on the protection
of our license patent and trademark, each of which is used in the
design, marketing and sales of our screwdriver products. We can
provide no assurance to investors that the patents and trademark
licensed by us will not be challenged, invalidated, or circumvented
by other manufacturers.
Our patent license agreements with Winsire Enterprises Corporation
obligate us to maintain a diligent watch for any possible
infringements of the patents. If we detect any potential
infringement, then we are obligated to notify Winsire. We are
authorized under the license agreements to take appropriate legal
action to restrain such infringement, subject to notification of
Winsire. Winsire will pay half of the expense of the required legal
action, subject to a maximum liability of $35,000.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS AND
OPERATING CONDITION
Overview
--------
We were founded to design, market and manufacture innovative multi-
bit screwdriver products under the Megapro name and incorporating
the retractable cartridge design patented by Winsire Enterprises
Corporation. Our business commenced in 1994 when we began selling
our Megapro 15 in 1 Screwdriver to the industrial and commercial
tools market. Our revenues have grown since 1994 as we have
expanded our product sales in the industrial and commercial tools
market and have expanded our line of screwdriver products. We
commenced sales of our screwdriver products to the retail market in
late 1996. We were able to make sales of our screwdriver products
under the Tim Allen Signature Tool brand during 1997, 1998 and 1999.
Our business plan is to increase our revenues by increasing sales to
the retail market, while preserving and increasing our existing
sales in the industrial and commercial tools markets. Our objective
is to increase sales to the retail market by pursuing direct sales
to major retailers and by pursuing private label branding
relationships with major retailers.
Our operating expenses include sales and marketing expenses and
general and administrative costs. Sales and marketing expenses
include commissions paid on sales of our screwdriver products. Our
general and administrative expenses consist primarily of salary and
employee benefits, accounting and legal expenses, and depreciation
and other expenses associated with our office in Surrey, British
Columbia, Canada. Our costs of goods sold consist primarily of
patent royalty payments, payments to outside manufacturers, raw
materials, labor, shipping and other manufacturing expenses
associated with production and packaging of our screwdriver
products. Other expenses consist primarily of interest on our long-
term debt.
RESULTS OF OPERATIONS
1999 compared to 1998
Net revenues decreased to $1,453,112 for the year ended December 31,
1999 from $2,070,448 for the year ended December 31, 1998,
representing a 29.8% decrease. Revenues from sales in the United
States decreased to $876,938 from $1,546,874 during this period,
while revenues from sales in Canada
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increased to $576,174 from $523,574. The decrease in revenues from
sales in the United States was attributable to reduced sales in both
the industrial and commercial tools market and in the retail market.
Management believes that the reason for the decrease in sales to the
industrial and commercial tools market was that our current distributors
in this market reached a saturation point of screwdriver sales to their
customers. We believe that this saturation is represented by a
decrease in sales by our largest customer to $265,796 in 1999 from
$476,463 in 1998. In addition, sales by Envision Industries of our
screwdriver products under the Tim Allen Signature Line did not
achieve the expected results and decreased sales of this product
line accounted for approximately 57% of our overall decrease in
revenues. We believe that this lack of success is a result of the
high-end cost to the consumer of our screwdriver products under the
Tim Allen Signature Line resulting from the distribution arrangement
for these products. We are attempting to negotiate an alternate
distribution arrangement that reduces the price to the consumer in
order to increase sales under this brand name.
Our sales in the US market decreased to $876,938 in 1999 compared to
$1,546,874 in 1998. The decrease in US sales was attributable
primarily to decreased sales of our products under the Tim Allen
Signature Line and a reduction in sales by our largest customer.
Cost of goods sold decreased to $1,009,780 for the year ended
December 31, 1999 from $1,567,524 for the year ended December 31,
1998, representing a 35.6% decrease. Cost of goods sold as a
percentage of revenues decreased to 69.5% for the year ended
December 31, 1999 from 75.7% for the year ended December 31, 1998.
The decrease in cost of goods sold is attributable in part to the
decline in sales during 1999 and in part to a decrease in the
royalty rate paid during this period. The royalty rates that we
paid to Winsire were $0.45 per unit in 1999, compared to $0.65 per
unit during 1998. An additional factor that decreased our costs of
goods sold was our new bit supplier who was able to provide us with
bits at a reduced cost.
General and administrative expenses increased to $524,700 for the
year ended December 31, 1999 from $269,714 for the year ended
December 31, 1998. The increase is primarily the result of an
increase in the wages and benefits paid to the Company's employees,
including our president, Mr. Neil Morgan. Wages and benefits
increased to $228,245 for the year ended December 31, 1999 from
$115,965 for the year ended December 31, 1998. The increase in
wages and benefits was primarily attributable to the hiring of Mr.
David Bonner, one of our directors, and one additional employee.
These increased costs reflect our decision in late 1998 to expand
our operations in order to provide greater infrastructure to support
the marketing and operations requirements of our business. The
increase in general and administrative expenses was also a result of
the increase in our accounting and legal expenses to $109,803 for
the year ended December 31, 1999 from $15,824 for the year ended
December 31, 1998. This increase in accounting and legal expenses
is primarily attributable to completion of our audited financial
statements and the reorganization of our corporate structure in
preparation for our filing of a registration statement with the
United States Securities and Exchange Commission.
The interest paid on our long-term debt increased to $17,117 for the
year ended December 31, 1999 from $9,478 for the year ended December
31, 1998. This increase in interest expense was reflective of the
increase in the principal amount of our long-term debt payable to
the Bank of Montreal.
Income taxes (recoveries) were $(22,169) (30.0% of loss before income
taxes) in 1999 and $50,464 (22.5% of income before income taxes) in
1998. Differences between the effective rate and the statutory rate of
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34% resulted from Canadian income taxed at a different rate, federal
income taxed at a lower rate and permanent differences between
accounting and taxable income as a result of non-deductible expenses.
We incurred a loss of $51,585 for the year ended December 31, 1999,
compared with net income of $173,268 for the year ended December 31,
1998. This loss is primarily the result of the increased general
and administrative expenses incurred during the year ended December
31, 1999. While our sales decreased significantly during the year
ended December 31, 1999, compared with the year ended December 31,
1998, this decrease in revenues was matched by corresponding
decreases in costs of goods sold.
First Quarter 2000 compared to First Quarter 1999
Net revenues decreased slightly to $382,095 for the quarter ended
March 31, 2000 from $389,758 for the quarter ended March 31, 1999.
Cost of goods sold also decreased slightly to $240,605 for the
quarter ended March 31, 2000 from $275,823 for the quarter ended
March 31, 1999, resulting in a net increase in the gross profit of
$27,555. The decrease in cost of goods sold is attributable in part
to the decline in sales and in part to a decrease in the royalty
rate paid.
General and administrative expenses increased to $161,740 for the
quarter ended March 31, 2000 from $143,685 for the quarter ended
March 31, 1999. The increase is the result of a mixture of
increased costs, including accounting and legal, commissions,
insurance and general office expenses. The increase in accounting
and legal expenses is primarily attributable to completion of our
audited financial statements and the preparation for our filing of a
registration statement with the United States Securities and
Exchange Commission.
The interest paid on our long-term debt decreased to $3,800 for the
quarter ended March 31, 2000 from $3,975 for the quarter ended March
31, 1999.
Income taxes (recoveries) were $(4,901) (27.1% of loss before income
taxes) in March 2000 as compared to $14,510 (43.0% of loss before
income taxes) in March 1999. Differences between the effective rate
and the statutory rate resulted from Canadian income taxed at a
different rate, federal income taxed at a lower rate and permanent
differences between accounting and taxable income as a result of non-
deductible expenses.
We incurred a loss of $13,195 for the quarter ended March 31, 2000,
compared with a loss of $19,215 for the quarter ended March 31,
1999. This loss is primarily the result of the general and
administrative expenses incurred during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our business operations primarily from
net operating income. We have also relied on loans from the Bank of
Montreal and Mr. Robert Jeffery, one of our shareholders, to fund
business operations. Our cash position was $56,398 on March 31,
2000, $23,907 on December 31, 1999 and $65,472 on December 31, 1998.
Net cash used for operating activities was $151,553 for the year
ended December 31, 1999 and $23,507 in 1998. Net cash used for
investment activities was $36,272 for the year ended December 31,
1999 and $162,893 in 1998. Net cash used in investment
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<PAGE>
activities consists primarily of property and equipment purchases.
Net cash provided by financing activities was $145,744 for the year
ended December 31, 1999 and $150,703 in 1998. Cash provided from
financing activities in 1999 was primarily attributable to sales of
our common stock completed in 1999. Cash provided from financing
activities in 1998 was primarily attributable to loans from the Bank
of Montreal and one of our shareholders.
We obtained a fixed loan from the Bank of Montreal in 1998. This
loan is payable on demand with an agreed upon repayment schedule
requiring payments of $862 per month, plus interest at the bank's
funding rates, plus 1.5% per annum. The principal amount of the
outstanding loan was $38,973 as of December 31, 1999, and $46,468 as
of December 31, 1998.
Mr. Robert Jeffery, a shareholder of the Company, has advanced the
Company unsecured loans at an interest rate of 10.25% per annum.
The loans are repayable in full on October 1, 2000. Until maturity,
we are required to make quarterly payments of interest to Mr.
Jeffery. The principal amount of this loan was $90,071 as at
December 31, 1999, and $97,828 as at December 31, 1998.
During 1999, we completed two private placement offerings of our
common stock in order to raise funds for our business operations.
We completed a private offering of our common stock in September
1999. A total of 350,000 shares of our common stock were sold for
proceeds of $35,000. We completed an additional private offering
of our common stock in November 1999. A total of 115,500 shares of
our common stock were sold for proceeds of $115,500.
Subsequent to 1999, we completed an additional private offering of
our common stock in May 2000. A total of 134,100 shares of our
common stock were sold for proceeds of $134,100. An additional
47,500 shares of our common stock was sold on June 1, 2000 for
proceeds of $47,500.
New Accounting Pronouncements
In June 1998, SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, was issued. SFAS No. 133 requires companies
to recognize all derivative contracts as either assets or
liabilities on the balance sheet and to measure them at fair value.
If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing
of gain or loss recognition on the hedging derivative with the
recognition of: (a) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk; or (b)
the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000.
Historically, the Company has not entered into derivative contracts
either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standards on January 1, 2001 to affect its financial statements.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5, Reporting on the
Costs of Start-up Activities which provides guidance on the
financial reporting of start-up costs and organization costs. It
requires costs of start-up activities and organization costs to be
expensed as incurred. The Company has adopted Statement of Position
98-5 effective upon its inception.
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Year 2000
Our computer-based systems did not encounter any problems with Year
2000 compliance and are successfully operating as of April 30, 2000.
We are not aware of any problems experienced by the Company's
suppliers and manufacturers with their computer based systems as a
result of problems with Year 2000 compliance. We have not
experienced any business disruptions from problems with Year 2000
compliance and our operating systems and infrastructure are Year
2000 compliant as of April 30, 2000.
Plan of Operations
We anticipate that we will require additional funding in the amount
of approximately $500,000 over the next twelve-month period in
connection with our expansion into the retail market. If we are
successful in securing orders for the retail market, then we will be
required to substantially increase our inventory prior to
realization of sales. This increase in inventory will require
additional funding in excess of cash provided from our current
operations. We anticipate, however, that our costs of marketing
will not increase significantly compared with 1999. Accordingly, we
do not anticipate needing any additional funding as a result of our
marketing efforts to the retail market.
We can provide no assurance that adequate funds from public or
private financings will be available when needed, or that, if
available, it will be offered on acceptable terms. If additional
funds are raised by issuing shares of our common stock, then our
existing shareholders will suffer dilution. If we are unable to
raise additional funding, we will not be able to expand into the
retail market, complete our business plan as anticipated or respond
to competitive pressures, any one of which could have an adverse
effect on our business, financial condition or results of
operations.
Our actual expenditures and business plan may differ from this
stated plan of operations. Our Board of Directors may decide not to
pursue this plan. In addition, we may modify the plan based on the
available amounts of financing in the event that we cannot obtain
the required equity financings to complete the plan. We do not have
any arrangement in place for any debt or equity financing that would
enable us to meet our stated plan of operations.
DESCRIPTION OF PROPERTY
Our head office and administrative services and our primary business
activities are carried on from premises that we own at #5 - 5492
Production Boulevard, Surrey, British Columbia. The premises are
comprised of 2400 square feet. Our phone number is (604) 533-1777.
We do not lease or own any other real property.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as disclosed in this section below, none of the following
parties has, since our date of incorporation, had any material
interest, direct or indirect, in any transaction with us or in any
presently proposed transaction which has or will materially affect
us:
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* Any of our directors or officers;
* Any person proposed as a nominee for election as a director;
* Any person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights attached to
our outstanding shares of common stock;
* Any of our promoters;
* Any relative or spouse of any of the foregoing persons who has
the same house as such person.
We acquired our subsidiary, Mega Tools Ltd., from Ms. Maria Morgan,
Envision Worldwide Products Ltd., Mr. Robert Jeffery, Mr. Lex Hoos
and Mr. Eric Paakspuu in consideration for the issue of 6,200,000
shares of our common stock. These shares break down as follows:
1. Maria Morgan was issued 4,017,600 shares of our common
stock. Ms. Morgan is the spouse of Mr. Neil Morgan, our
President and a Director. The shares issued to Ms. Morgan
represent more than 10% of our outstanding common stock
2. Envision Worldwide Products Ltd. was issued 1,537,600
shares of our common stock. The shares issued to Envision
Worldwide Products Ltd. represent more than 10% of our
outstanding common stock
3. Mr. Robert Jeffery was issued 446,400 shares of our common
stock.
4. Mr. Lex Hoos was issued 99,200 shares of our common stock.
5. Mr. Eric Paakspuu was issued 99,200 shares of our common
stock
Mr. Neil Morgan, our President and a director, was our sole officer
and director prior to completion of the acquisition of Mega Tools
Ltd.
Mr. Robert Jeffery, a shareholder who owns in excess of 10% of our
common stock, has advanced unsecured shareholders loans to us which
bear interest at the rate of 10.25% per annum. The loans are
repayable in full by the Company on October 1, 2000. Until
maturity, we are required to make quarterly payments of interest to
Mr. Jeffery. The principal amount of this loan was $90,071 as at
December 31, 1999, and $97,828 as at December 31, 1998.
Envision Worldwide Products Ltd. is a party to a shareholders
agreement with Ms. Maria Morgan and Mr. Neil Morgan whereby Envision
Worldwide Products Ltd. has agreed to vote their shares of common
stock such that our board of directors will consist of three
directors, two of whom will be selected by Maria Morgan and one of
whom will be selected by Envision Worldwide Products Ltd. We are
not party to this shareholder agreement. Our board of directors
currently consists of two directors as the nominee of Envision
Worldwide Products Ltd. has resigned and no replacement has been
appointed. Envision Worldwide Products Ltd. has directed that Neil
Morgan be authorized to designate the replacement director on its
behalf.
Mr. Neil Morgan, our President and a Director, and his spouse, Mrs.
Maria Morgan, beneficially own 4,017,600 shares of our common stock,
representing 58.7% of our outstanding voting shares. Worldwide
Envision Products Ltd. owns 1,537,600 shares of our common stock,
representing 22.5% of our outstanding common stock. Accordingly,
the Morgan Family and Envision Worldwide Products Ltd. have the
ability to elect all of our directors and have the ability to
approve or disapprove
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<PAGE>
all significant corporate transactions to which we are a party. This
ability to exercise control over all matters requiring shareholder
approval allows these parties to take actions or refrain from taking
actions which may be contrary to the interests of other shareholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
No Present Public Market
There is presently no public market for our common stock. We
anticipate applying to the NASD for approval to trade our common
stock on the NASD over the counter bulletin board upon effectiveness
of this registration statement. We can provide investors with no
assurance that our common stock will be approved for trading on the
NASD Bulletin Board, and we cannot currently provide investors with
any assurance that a public market will materialize for our stock.
Holders of Our Common Stock
As of the date of this registration statement, there were 70
registered shareholders in the Company.
Registration Rights
We have not granted registration rights to the selling shareholders
or to any other persons.
Dividends
There are no restrictions in our Articles of Incorporation or bylaws
that restrict us from declaring dividends. The Nevada Revised
Statutes, however, prohibit us from declaring dividends where, after
giving effect to the distribution of the dividend:
(A) we would not be able to pay our debts as they become due
in the usual course of business; or
(B) our total assets would be less than the sum of our total
liabilities, plus the amount that would be needed to
satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution.
We have not declared any dividends. We do not plan to declare any
dividends in the foreseeable future.
Rule 144 Shares
A total of 6,550,000 shares of our common stock will be available for
resale to the public after September 30, 2000 in accordance with the
volume and trading limitations of Rule 144 of the Securities Act of
1933. In addition, an additional 115,500 shares of our common stock
will be available for resale to the public after November 24, 2000 in
accordance with those same volume and trading limitations.
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In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of a company's common stock for at least
one year is entitled to sell within any three month period a number
of shares that does not exceed the greater of:
1. 1% of the number of shares of the company's common stock then
outstanding which, in our case, would equal approximately 70,000
shares as of the date of this prospectus; or
2. the average weekly trading volume of the company's common stock
during the four calendar weeks preceding the filing of a notice on
form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions
and notice requirements and to the availability of current public
information about the company.
Under Rule 144(k), a person who is not one of the company's
affiliates at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at
least 2 years, is entitled to sell shares without complying with the
manner of sale, public information, volume limitation or notice
provisions of Rule 144.
As of the date of this prospectus, 5,555,200 shares that may be sold
pursuant to Rule 144 after September 30, 2000 are held by persons who
are our affiliates.
Options
We have granted options to purchase a total of 260,000 shares of our
common stock that are outstanding as of June 20, 2000. All options
have been granted to our directors, Mr. Neil Morgan and Mr. David
Bonner.
We have not granted any other options, warrants or other securities
that are convertible into shares of our common stock.
EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes the compensation earned for services
rendered for the fiscal year ended December 31, 1999 by Mr. Neil
Morgan, our chief executive officer. None of our other executive
officers earned compensation in excess of $100,000 during 1999.
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Annual Compensation Long Term Compensation
------------------- ----------------------
Other All
Annual Other
Com- Com-
pen- Restricted pen-
sa- Stock Options/* LTIP sa-
Name Title Year Salary Bonus tion Awarded SARs (#)payouts($)tion
---- ----- ---- ------ ----- ------ ------- ------- --------- ----
Neil Morgan President1999 $56,757 $50,271 0 0 0 0 0
Director
David Bonner Secretary/
Director Treas- 1999 $40,540 $ 0 0 0 0 0 0
urer
All compensation amounts are paid by us in Canadian dollars and are
calculated based on an exchange ratio of $1.48 Canadian dollars to
$1.00 US dollars as of May 1, 2000.
Stock Option Grants
We did not grant any stock options to our officers or directors,
during our most recent fiscal year ended December 31,1999. The
following table sets forth information with respect to stock options
granted to our officers and directors since December 31, 1999:
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (per Share) Date
-------------- ---------- ----------- -------- ----------
Neil Morgan 130,000 50.0% $0.85 01/20/02
President and
Director
David Bonner 130,000 50.0% $0.85 01/20/02
Secretary and
Treasurer
Exercises of Stock Options
None of the options granted to Mr. Morgan have been exercised.
Employment Agreements
The services of Mr. Neil Morgan, our president and a director, are
not provided pursuant to any written employment agreement. We pay
Mr. Morgan a salary of $84,000 CDN (approximately $56,757 US per
year as at May 1, 2000) per year plus a bonus based on performance.
We anticipate entering into a written employment agreement with Mr.
Morgan in the current fiscal quarter.
The services of Mr. David Bonner, our secretary and treasurer and a
director, are not provided pursuant to any written employment
agreement. We pay Mr. Bonner a salary of $60,000 per year plus a
bonus based on performance. We anticipate entering into a written
employment agreement with Mr. Bonner in the current quarter.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
1. Auditors' Report
2. Audited Consolidated Financial Statements For the Periods ended
March 31, 2000 and 1999 and December 31, 1999 and 1998, including:
a. Consolidated Balance Sheets as at March 31, 2000, December
31, 1999 and December 31, 1998.
b. Consolidated Statements of Operations for the years ended
December 31, 1999, December 31, 1998 and for the three
months ended March 31, 2000 and March 31, 1999.
c. Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, December 31, 1998
and for the three months ended March 31, 2000 and March
31, 1999.
d. Consolidated Statements of Cash Flows for the years ended
December 31, 1999, December 31, 1998 and for the three
months ended March 31, 2000 and March 31, 1999.
e. Consolidated Summary of Significant Accounting Policies
f. Notes to Consolidated Financial Statements
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We have had no changes in or disagreements with our accountants
since our inception.
40
<PAGE>
MegaPro Tools, Inc.
Consolidated Financial Statements
For the periods ended March 31, 2000 and 1999
and December 31, 1999 and 1998
Contents
-------------------------------------------------------------
Auditors' Report 2
Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in
Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Summary of Significant Accounting Policies 7
Notes to Consolidated Financial Statements 11
<PAGE>
BDO BDO Dunwoody LLP Fraser Valley Region
Chartered Accountants 220, 19916 - 64th Avenue
and Consultants Langley, BC Canada v2Y 1A2
Telephone: (604) 534-8691
Telefax: (604) 534-8900
www.bc.bdo.ca
-------------------------------------------------------------------
Auditors' Report
-------------------------------------------------------------------
To the Stockholders of
MegaPro Tools, Inc.
We have audited the consolidated balance sheets of MegaPro
Tools, Inc. as at December 31, 1999 and 1998 and the
consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then
ended. 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
audits.
We conducted our audits in accordance with auditing
standards generally accepted in Canada. Those standards
require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial
position of the Company as at December 31, 1999 and 1998 and
the results of its operations and its cash flows for the
years then ended in accordance with generally accepted
accounting principles in the United States.
/s/ BDO Dunwoody LLP
Chartered Accountants
Langley, Canada
May 2, 2000
2
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
<PAGE>
==========================================================================
MegaPro Tools, Inc.
Consolidated Balance Sheets
(Stated in U.S. Funds)
--------------------------------------------------------------------------
March 31, December 31, December 31,
2000 1999 1998
--------------------------------------------------------------------------
(Unaudited)
Assets
Current
Cash $ 56,398 $ 23,907 $ 65,472
Accounts receivable (Note 3) 264,443 338,878 351,645
Due from stockholders - - 11,686
Income taxes refundable 17,996 23,670 -
Inventories (Note 4) 344,044 371,739 272,197
Prepaid expenses 36,180 11,398 7,657
----------------------------------------
719,061 769,592 708,657
Fixed assets (Note 5) 225,851 194,068 173,025
Deferred income taxes (Note 10) 63,126 34,389 -
----------------------------------------
$1,008,038 $ 998,049 $ 881,682
==========================================================================
Liabilities and Stockholders' Equity
Current
Accounts payable $ 189,371 $ 272,563 $ 260,322
Accrued liabilities 61,219 24,408 7,093
Income taxes payable 20,230 - 9,659
Current portion of loans
and notes payable (Note 6) 142,558 154,765 56,241
----------------------------------------
413,378 451,736 333,315
Long-term debt
Loans and notes payable (Note 6) - - 105,654
Deferred income taxes (Note 10) 1,075 2,870 -
----------------------------------------
414,453 454,606 438,969
----------------------------------------
Stockholders' equity
Common stock (Note 7) 6,666 6,666 6,200
Additional paid-in capital 183,109 144,109 (5,925)
Subscribed stock (Note 8) 45,000 - -
Deferred compensation (Note 9) (19,500) - -
Accumulated other comprehensive
Income
Foreign currency translation
gains 1,917 3,080 1,265
Retained earnings 376,393 389,588 441,173
----------------------------------------
593,585 543,443 442,713
----------------------------------------
$1,008,038 $ 998,049 $ 881,682
==========================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
3
<PAGE>
==========================================================================
MegaPro Tools, Inc.
Consolidated Statements of Operations
(Stated in U.S. Funds)
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
For the period ended 2000 1999 1999 1998
--------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales $ 382,095 $ 389,758 $ 1,453,112 $ 2,070,448
Cost of goods sold 240,605 275,823 1,009,780 1,567,524
-----------------------------------------------------
Gross profit 141,490 113,935 443,332 502,924
-----------------------------------------------------
Expenses
Accounting and legal 46,296 27,800 109,803 15,824
Automotive 1,661 588 4,929 1,756
Bad debts 567 900 7,985 4,261
Commissions 6,326 1,247 20,401 1,053
Depreciation 5,808 3,681 22,310 10,800
Distribution rights
written off - - - 21,875
Insurance 2,381 1,306 5,581 6,364
Office and miscellaneous 4,380 1,799 18,094 7,705
Property taxes 860 705 3,173 490
Repairs and maintenance 449 214 1,002 898
Utilities 3,074 3,766 11,627 8,213
Travel and promotion 14,671 33,161 91,550 74,510
Wages and benefits 75,267 68,518 228,245 115,965
-----------------------------------------------------
161,740 143,685 524,700 269,714
-----------------------------------------------------
Operating (loss)
Income (20,250) (29,750) (81,368) 233,210
-----------------------------------------------------
Other income (expense)
Royalties 5,954 - 21,760 -
Gain on sale of
fixed assets - - 2,971 -
Interest and bank
charges (3,800) (3,975) (17,117) (9,478)
-----------------------------------------------------
2,154 (3,975) 7,614 (9,478)
-----------------------------------------------------
Income (loss) before
income taxes (18,096) (33,725) (73,754) 223,732
-----------------------------------------------------
Income taxes (Note 10)
Current 25,875 143 8,367 50,464
Deferred (30,776) (14,653) (30,536) -
-----------------------------------------------------
(4,901) (14,510) (22,169) 50,464
-----------------------------------------------------
Net (loss) income
for the period $ (13,195) $ (19,215) $ (51,585) $ 173,268
==========================================================================
Basic and diluted
(loss) income
per share $ - $ - $ (0.01) $ 0.03
=====================================================
Weighted average
shares outstanding 6,297,125 6,200,000 6,297,125 6,200,000
=====================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
4
<PAGE>
==============================================================================
MegaPro Tools, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Stated in U.S. Funds)
------------------------------------------------------------------------------
Accu-
mulat-
ed
Addi- Defer- Other Total
tional Sub- red Compre- Re- Stock-
Common Stock Paid-in scribed Compen- hensive tained holders'
Shares Amount Capital Stock sation Income Earnings Equity
--------------------------------------------------------------------
Balance,
January 1,
1998 6,200,000 $6,200 $(5,925) $ - $ - $(1,139) $300,270 $299,406
Dividends - - - - - - (32,365) (32,365)
--------------------------------------------------------------------
6,200,000 6,200 (5,925) - - (1,139) 267,905 267,041
--------------------------------------------------------------------
Foreign
currency
adjustment - - - - - 2,404 - 2,404
Net income
for the
year - - - - - - 173,268 173,268
--------------------------------------------------------------------
Comprehensive
income for
the year - - - - - 2,404 173,268 175,672
--------------------------------------------------------------------
Balance,
December
31, 1998 6,200,000 6,200 (5,925) - - 1,265 441,173 442,713
Share capital
issued on:
Sept 30,
1999
$.10 per
share 350,000 350 34,650 - - - - 35,000
Nov 24,
1999
$1.00 per
share 115,500 116 115,384 - - - - 115,500
--------------------------------------------------------------------
6,665,500 6,666 144,109 - - 1,265 441,173 593,213
--------------------------------------------------------------------
Foreign
currency
adjustment - - - - - 1,815 - 1,815
Net loss for
the year - - - - - - (51,585) (51,585)
--------------------------------------------------------------------
Comprehensive
loss for
the year - - - - - 1,815 (51,585) (49,770)
--------------------------------------------------------------------
Balance,
December
31, 1999 6,665,500 6,666 144,109 - - 3,080 389,588 543,443
(Period ended March 31, 2000 is unaudited)
Subscribed
stock
(Note 8) - - - 45,000 - - - 45,000
Deferred
Compen-
sation
(Note 9)
Stock
options
issued - - 39,000 - (39,000) - - -
Amorti-
zation
of
vested
portion
of stock
options - - - - 19,500 - - 19,500
--------------------------------------------------------------------
6,665,500 6,666 183,109 45,000 (19,500) 3,080 389,588 607,943
--------------------------------------------------------------------
Foreign
currency
adjustment - - - - - (1,163) - (1,163)
Net loss for
the period - - - - - - (13,195) (13,195)
--------------------------------------------------------------------
Comprehensive
loss for
the period - - - - - (1,163) (13,195) (14,358)
--------------------------------------------------------------------
Balance,
March 31,
2000
(Una-
udited) 6,665,500 $6,666$183,109 $ 45,000$(19,500)$1,917 $ 376,393 $593,585
===============================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
5
<PAGE>
==========================================================================
MegaPro Tools, Inc.
Consolidated Statements of Cash Flows
(Stated in U.S. Funds)
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
For the period ended 2000 1999 1999 1998
--------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by (used in)
Operating activities
Net (loss) income
for the year $(13,195) $ (19,215) $ (51,585) $ 173,268
Items not
involving cash
Depreciation 5,808 3,681 22,310 10,800
Distribution
rights written off - - - 21,875
Gain on sale of
fixed assets - - (2,971) -
Deferred income taxes (30,776) (14,653) (30,536) -
(Increase) decrease
in assets
Accounts receivable 73,903 65,712 20,012 (130,285)
Income taxes refundable 5,635 (14,857) (34,015) (21,901)
Inventory 27,565 (12,166) (98,464) (180,264)
Prepaid expenses (24,796) 3,486 (3,617) (3,503)
Decrease (increase)
in liabilities
Accounts payable (83,029) (27,518) 10,813 102,542
Accrued liabilities 56,389 12,118 16,500 3,961
Income taxes payable 20,173 (26,920) - -
-----------------------------------------------------
37,677 (30,332) (151,553) (23,507)
-----------------------------------------------------
Investing activities
Proceeds on sale of
fixed assets - - 17,021 6,927
Purchase of fixed
Assets (38,371) (8,505) (53,293) (169,910)
Advances to
Stockholders (7,843) - - -
-----------------------------------------------------
(46,214) (8,505) (36,272) (162,983)
-----------------------------------------------------
Financing activities
Proceeds from loans - - 16,826 64,055
Repayment of loans (3,681) (3,583) (20,181) (5,910)
Proceeds from notes
Payable - - - 101,140
Repayment of notes
Payable - - (13,461) (18,035)
Advances from
Stockholders - 11,036 12,060 41,818
Stock subscriptions 45,000 - - -
Dividends paid - - - (32,365)
Share capital issued - - 150,500 -
-----------------------------------------------------
41,319 7,453 145,744 150,703
-----------------------------------------------------
Increase (decrease)
in cash during
the period 32,782 (31,384) (42,081) (35,787)
Effect of foreign
currency on cash (291) (41) 516 2,027
Cash, beginning of
period 23,907 65,472 65,472 99,232
-----------------------------------------------------
Cash, end of period $ 56,398 $ 34,047 $ 23,907 $ 65,472
==========================================================================
The accompanying summary of significant accounting policies and notes are
an integral part of these financial statements.
6
<PAGE>
=================================================================
MegaPro Tools, Inc.
Consolidated Summary of Significant Accounting Policies
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
-----------------------------------------------------------------
Basis of Presentation
These consolidated financial statements are
expressed in U.S. dollars and have been
prepared in accordance with accounting
principles generally accepted in the United
States. These consolidated financial
statements include the accounts of the
Company and its wholly-owned subsidiaries,
Mega Tools Ltd. and Mega Tools USA, Inc.
The subsidiaries were acquired on September
30, 1999.
In accordance with provisions governing the
accounting for reverse acquisitions, the
comparative figures presented for the year
ended December 31, 1998 and three-month
period ended March 31, 1999 consolidate the
accounts of Mega Tools Ltd. with Mega Tools
USA, Inc. its former subsidiary. Operations
and cash flows of the Company are included
from the date of acquisition.
All significant intercompany accounts and
transactions have been eliminated on
consolidation. All per share information
for the years ended December 31, 1999 and
1998 and three-month period ended March 31,
1999 has been restated to reflect the
recapitalization.
Foreign Currency Transactions
The Company conducts business in both Canada
and the United States and uses the U.S.
dollar as its reporting currency. Assets
and liabilities denominated in a foreign
currency are translated at the exchange rate
at the period end. Income statement
accounts are translated at the rates of
exchange prevailing during the periods.
Translation adjustments arising from the use
of differing exchange rates from period to
period are included in the Accumulated
Foreign Currency Translation Gains account
in Stockholders' Equity.
Use of Estimates
The preparation of financial statements
in accordance 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 management's best estimates as
additional information becomes available in
the future.
7
<PAGE>
=================================================================
MegaPro Tools, Inc.
Consolidated Summary of Significant Accounting Policies
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
-----------------------------------------------------------------
Unaudited Financial Statements
The consolidated interim financial
statements for the three-month periods ended
March 31, 2000 and 1999 included herein have
been prepared by the Company without audit,
pursuant to the rules and regulations of the
Securities and Exchange Commission.
These statements reflect all adjustments
consisting of normal recurring adjustments,
which, in the opinion of management, are
necessary for fair presentation of the
information, contained therein. The Company
follows the same accounting policies in
preparation of interim reports.
Results of operations for the interim
periods are not indicative of annual
results.
Inventories
Finished goods inventories are recorded at
the lower of average cost and net realizable
value. Cost includes raw materials,
subcontract labour, royalties and freight
in. Raw materials and work-in-progress
inventories are stated at the lower of cost
and replacement cost, where cost is
determined on a weighted average basis.
Fixed Assets
Fixed assets are recorded at cost.
Depreciation, based on the estimated useful
life of the asset, is calculated at the
following annual rates:
Building - 4% Declining-balance basis
Equipment - 20% Declining-balance basis
Vehicle - 30% Declining-balance basis
Computer hardware - 30% Declining-balance basis
Computer software - 100% Declining-balance basis
Molds - 10% Straight-line basis
Other Asset
United Kingdom distribution rights were
recorded at cost and were being amortized on
a straight line basis over eight years. The
distribution rights were written off in 1998
because the Company's management decided not
to expand operations to the United Kingdom
and consequently did not renew the Company's
United Kingdom licencing agreement.
8
<PAGE>
=================================================================
MegaPro Tools, Inc.
Consolidated Summary of Significant Accounting Policies
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
-----------------------------------------------------------------
Financial Instruments
The Company's financial instruments
consist of cash, accounts receivable, due
from stockholders, accounts payable, accrued
liabilities and long-term debt. Unless
otherwise noted, it is management's opinion
that the Company is not exposed to
significant interest, or credit risks
arising from these financial instruments.
The fair values of these financial
instruments approximate their carrying
values, unless otherwise noted, since they
are short-term in nature or they are
receivable or payable on demand. In
general, the carrying amounts of loans and
notes payable approximate their fair market
value because the interest rates on these
instruments fluctuate with market rates.
Income Taxes
The Company follows the provisions of
Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income
Taxes", which requires the Company to
recognize deferred tax liabilities and
assets for the expected future tax
consequences of events that have been
recognized in the Company's financial
statements or tax returns using the
liability method. Under this method,
deferred tax liabilities and assets are
determined based on the temporary
differences between the financial statement
carrying amounts and tax bases of assets and
liabilities using enacted rates in effect in
the years in which the differences are
expected to reverse.
Earnings per Share
Earnings (loss) per share is computed in
accordance with SFAS No. 128 "Earnings Per
Share". Basic earnings (loss) per share is
calculated by dividing the net income (loss)
available to common stockholders by the
weighted average number of common shares
outstanding for the period. Diluted
earnings (loss) per share reflects the
potential dilution of securities that could
share in earnings of an entity. In loss
periods, dilutive common equivalent shares
are excluded as the effect would be
anti-dilutive. Basic and diluted earnings
per share are the same for the periods
presented.
For the three-month period ended March 31,
2000, total stock options of 260,000 were
not included in the computation of diluted
earnings per share because the effect was
anti-dilutive.
Comprehensive Income
The Company has adopted SFAS No. 130,
"Reporting Comprehensive Income", which
establishes standards for reporting and
display of comprehensive income, its
components and accumulated balances.
Comprehensive income is comprised of net
income and all changes to stockholders'
equity, except those due to investment by
stockholders, changes in paid in capital and
distributions to stockholders.
9
<PAGE>
=================================================================
MegaPro Tools, Inc.
Consolidated Summary of Significant Accounting Policies
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
-----------------------------------------------------------------
Revenue Recognition
The Company recognizes revenue on the
sale of products at the time the products
are shipped to its customers.
Stock Based
Compensation
The Company applies Accounting Principles
Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related
interpretations in accounting for stock
option plans. Under APB 25, compensation
cost is recognized for stock options granted
at prices below market price of the
underlying common stock on date of grant.
SFAS No. 123, "Accounting for Stock-Based
Compensation", requires the Company to
provide pro-forma information regarding net
income as if compensation cost for the
Company's stock option plan had been
determined in accordance with the fair value
based method prescribed in SFAS No. 123.
New Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging
Activities", was issued. SFAS No. 133
requires companies to recognize all
derivatives contracts as either assets or
liabilities on the balance sheet and to
measure them at fair value. If certain
conditions are met, a derivative may be
specifically designated as a hedge, the
objective of which is to match the timing of
gain or loss recognition on the hedging
derivative with the recognition of (i) the
changes in the fair value of the hedged
asset or liability that are attributable to
the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a
derivative not designated as a hedging
instrument, the gain or loss is recognized
in income in the period of change. SFAS No.
133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
Historically, the Company has not entered
into derivatives contracts either to hedge
existing risks or for speculative purposes.
Accordingly, the Company does not expect
adoption of the new standards on January 1,
2001 to affect its financial statements.
In April 1998, the American Institute of
Certified Public Accountants issued
Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" which
provides guidance on the financial reporting
of start-up costs and organization costs.
It requires costs of start-up activities and
organization costs to be expensed as
incurred. The Company has adopted Statement
of Position 98-5 effective upon its
inception.
10
<PAGE>
=================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
-----------------------------------------------------------------
1. Nature of Business
The Company was incorporated in the State of Nevada on
December 17, 1998 and was inactive until the acquisition
of Mega Tools Ltd. and Mega Tools USA, Inc. via reverse
acquisition on September 30, 1999. The Company is
engaged in the manufacture and sale of a patented
multi-bit screwdriver.
The Company has entered into an exclusive North American
licence agreement (Note 12) with the patent holder of a
retracting cartridge type screwdriver. This licence
agreement gives the Company unrestricted use of the
patent in Canada and the United States until November 8,
2005.
The Company's wholly owned subsidiaries, Mega Tools USA,
Inc. and Mega Tools Ltd. manufacture and market the
drivers to customers in the United States and Canada.
Currently, approximately 80% of the Company's sales are
to the professional trades and other industrial
customers. The Company's intention is to increase its
future sales by marketing its products to national
retail, do-it-yourself and mass consumer markets.
-----------------------------------------------------------------
2. Business Combinations
On September 30, 1999, the Company acquired the shares of
Mega Tools Ltd., a company incorporated in British
Columbia, Canada on January 7, 1994 and its wholly owned
subsidiary Mega Tools USA, Inc., a company incorporated
in the state of Washington on April 18, 1994.
Consideration for the purchase was the issuance of
6,200,000 shares of the common stock of the Company.
These transactions are accounted for as a
recapitalization of the Company since there were common
stockholders of Mega Tools Ltd., MegaPro Tools, Inc. and
Mega Tools USA, Inc. These financial statements are
presented as a continuation of the combined business of
Mega Tools Ltd. and Mega Tools USA, Inc., both formerly
controlled by the same stockholders. The net book value
of the Company at the date of acquisition was $Nil as the
Company had been previously inactive since incorporation.
Accordingly, the value assigned to the consideration paid
for these acquisitions, being the common stock of the
Company, was $Nil.
11
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
3. Accounts Receivable
March 31, December 31, December 31,
2000 1999 1998
-------------------------------------------
Trade accounts
Receivable $ 268,832 $ 343,773 $ 355,492
Less: Allowance for
doubtful accounts (4,389) (4,895) (3,847)
-------------------------------------------
$ 264,443 $ 338,878 $ 351,645
===========================================
-----------------------------------------------------------------
4. Inventories
March 31, December 31, December 31,
2000 1999 1998
-------------------------------------------
Raw materials $ 142,750 $ 95,428 $ 105,142
Work-in-progress 111,975 179,839 141,561
Finished goods 89,319 96,472 25,494
-------------------------------------------
$ 344,044 $ 371,739 $ 272,197
===========================================
-----------------------------------------------------------------
5. Fixed Assets
March 31, December 31, December 31,
2000 1999 1998
------------------------------------------------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
Land $29,081 $ - $ 29,204 $ - $ 28,420 $ -
Building 111,708 7,650 112,180 6,627 108,833 2,177
Equipment 29,444 9,726 27,387 8,765 19,289 5,180
Vehicle 26,255 3,791 26,366 1,977 24,947 6,608
Computer
Hardware 20,593 7,917 17,254 7,060 9,708 4,318
Software 5,021 3,105 4,684 2,537 392 281
Molds 40,406 4,468 7,919 3,960 - -
------------------------------------------------------------------
$262,508 $ 36,657 $224,994 $ 30,926 $191,589 $ 18,564
==================================================================
Net book
Value $ 225,851 $ 194,068 $ 173,025
=========== ============ ============
12
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
6. Loans and Notes Payable
March 31, December 31, December 31,
2000 1999 1998
--------------------------------------
Payable to a stockholder of the
Company, unsecured, with quarterly
payments of interest only at 10.25%
per annum, matures October 1, 2000 $ 89,692 $ 90,071 $ 97,828
Bank of Montreal, secured by the
personal guarantee of one of the
Company's stockholders, repayable
$862 monthly plus interest at bank
prime lending rates plus 1r% per
annum, due on demand with an agreed
upon repayment schedule 36,222 38,973 46,468
Bank of Montreal, secured by the
personal guarantee of one of the
Company's stockholders, repayable
$359 monthly plus interest at bank
prime lending rates plus 1r% per
annum, due on demand with an agreed
upon repayment schedule 16,144 17,322 -
Payable to a stockholder of the
Company, unsecured, without interest 500 8,399 7,826
Bank of Montreal - repaid during 1999 - - 9,773
--------------------------------------
142,558 154,765 161,895
Less current portion 142,558 154,765 56,421
--------------------------------------
$ - $ - $ 105,654
======================================
Bank of Montreal prime lending rates were 7.00% - March 31, 2000, 6.50% -
December 31, 1999 and 6.75% - December 31, 1998.
13
<PAGE>
==========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
7. Common Stock
Authorized:
25,000,000 Common stock with a par value
of $.001 per share
---------------------------------------------------------------------------
8. Subscribed Stock
In May and June 2000 the Company issued 181,600 of its
common stock in private placements, representing 2.65% of
6,847,100 common stock outstanding, for $1 per share. As
at March 31, 2000 the Company had received $45,000 in
respect of these stock issues.
---------------------------------------------------------------------------
9. Deferred Compensation
On January 20, 2000, the Company granted options to
employees to purchase 260,000 shares of common stock at
$.85 a share until January 20, 2002. 130,000 of these
options are exercisable immediately and 130,000 of these
options vest over a one and a half year period with
40,000 of the options vesting on each of July 20, 2000
and January 20, 2001 and the balance of 50,000 vesting on
July 20, 2001. The Company has recorded deferred
compensation of $39,000 based upon the difference between
the exercise price and fair market value for the options
granted as at March 31, 2000. The deferred compensation
is amortized over the vesting period of the stock options
with compensation expense of $19,500 recognized for the
three-month period ended March 31, 2000.
Pro-forma information regarding Net Loss and Loss per
Share is required under SFAS No. 123 and has been
determined as if the Company had accounted for its stock
options under the fair value method of SFAS No. 123. The
fair value of options granted in the three month period
ended March 31, 2000 was $.24. The fair value of these
options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following
assumptions: no dividends, a risk-free interest rate of
5.59%, volatility factor of the expected market price of
the Company's common stock of 0.00 and a weighted average
expected life of the options of two years.
Under the accounting provisions of SFAS No. 123, the
Company's January 31, 2000 Net Loss and Loss per share
would have been increased to the pro-forma amounts
indicated below:
As Reported Pro-forma
--------------------------
Net loss for the period $ (13,195) $ (20,917)
Loss per stock - basic and diluted - -
14
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
10. Income Taxes
A reconciliation of the effective tax rate and the
statutory U.S. federal income tax rates are as follows:
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
-----------------------------------------------------
Federal tax (benefit)
at the US federal
statutory rate $ (6,885) $ (11,466) $ (25,076) $ 76,068
Canadian income (loss)
taxed at a different
rate 1,370 (1,530) (5,939) (14,732)
Federal tax (benefit) of
income taxed at a lower
rate - (5,132) (1,398) (9,640)
Permanent differences for
non-deductible portion
of meals and
entertainment and
income tax interest
and penalties 614 637 2,476 2,075
Over or under accruals - 2,981 7,768 (3,307)
-----------------------------------------------------
$ (4,901) $ (14,510) $ (22,169) $ 50,464
=====================================================
The components of deferred taxes are as follows:
March 31, December 31,
2000 1999
-----------------------------------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
Deferred tax assets
Canada - Tax loss
Carryforward $ - $ - $ 78,187 $ 35,553
U.S. - Intangible
asset 169,469 57,619 - -
U.S. - Tax loss
Carryforward
(Expiring 2020) 4,224 1,436 - -
U.S. - Stock
Options 19,500 6,630 - -
-----------------------------------------------------
193,193 65,685 78,187 35,553
-----------------------------------------------------
Deferred tax
liabilities
Depreciation
Canada (2,358) (1,075) (2,556) (1,164)
U.S. (7,526) (2,559) (8,440) (2,870)
-----------------------------------------------------
(9,884) (3,634) (10,996) (4,034)
-----------------------------------------------------
Net deferred tax
Asset $ 183,309 $ 62,051 $ 67,191 $ 31,519
=====================================================
15
<PAGE>
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
11. Related Party Transactions and Balances
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
-----------------------------------------------------
Interest reported on
the promissory notes
payable to stockholders
of the Company $ 2,279 $ 2,508 $ 10,223 $ 2,625
Sales to a 25%
stockholder
of the Company $ - $ 40,811 $ 73,946 $ 425,489
These transactions are recorded at the exchange amount,
being the amount of consideration established and agreed
to by the related parties.
At the period end, the amounts due from related parties
not disclosed elsewhere in these consolidated financial
statements are as follows:
March 31, December 31, December 31,
2000 1999 1998
--------------------------------------
Trade accounts receivable from a 25%
stockholder company $ - $ 33,135 $ 70,500
These balances are interest-free, due on demand and have
arisen from the sales of product referred to above.
---------------------------------------------------------------------------
12. Contractual Obligations
(a) On November 8, 1995 the Company entered into a
five year licence agreement with the owner of the
patents for the Company's multi-bit screwdrivers.
Under the provisions of the agreement the Company is
committed to pay a unit royalty of $.45 (1998 - $.65)
for each unit produced by the Company. The agreement
requires minimum royalty payments of $100,000 for the
year ended November 8, 1998, $125,000 for the year
ended November 8, 1999 and $150,000 for the year ending
November 8, 2000.
16
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
12. Contractual Obligations (continued)
(b) Subsequent to December 31, 1999 the Company
entered into two licence agreements covering the period
November 8, 1999 to November 8, 2005 with the owner of
the patents for the Company's multi-bit screwdrivers.
These agreements supercede the November 8, 1995 licence
agreement and divide the licencing rights between sales
to national accounts (certain listed retail outlets)
and sales to regular accounts (all accounts which are
not national accounts). These agreements require the
following royalty payments:
The National Accounts Agreement requires a unit royalty
of $.30 per unit manufactured or sold. The Regular
Accounts Agreement requires a unit royalty of $.45 per
unit manufactured in Canada and the U.S., $.40 per unit
for the first 100,000 units annually manufactured
outside of Canada and the U.S. and $.30 per unit for
units in excess of 100,000 annually manufactured
outside of Canada and the U.S.
The Agreements require $150,000 minimum annual royalty
payments for the years ended November 8, 2000 through
2005.
The unit royalties and minimum annual royalties are to
be adjusted annually commencing November 8, 2000 based
upon the increase in the November 8, 1999 Consumer
Price Index for the City of Vancouver, British Columbia
as provided by Statistics Canada.
The Company has the option to renew both the National
and Regular Accounts Licence Agreements until December
1, 2032 provided that it pays renewal fees of $25,000
on November 8, 2002, $30,000 on November 8, 2003 and
$35,000 on November 8, 2004.
(c) Subsequent to March 31, 2000 the Company entered
into a sub-licence agreement covering the period
November 9, 1999 to December 1, 2012 with a national
account. This agreement permits the sub-licencee to
manufacture and distribute the Company's drivers for a
unit royalty of $.60 per unit sold. The minimum annual
royalties required under the agreement for years ending
November 8 are $30,000 for 2000 and $60,000 for 2001
to 2012. If the sub-licencee has produced and is
airing an "infomercial" or equivalent video promotion
the minimum annual royalties are to be doubled.
17
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
13. Segmented Information
The Company has determined that it operates in one
industry, in the manufacture and sale of tools. Based
upon the Company's internal reporting structure the
Company has business segments located in Canada and the
United States. Sales are attributed to Canada and the
United States based upon the subsidiary's location.
Following is information about the Company's segments and
a reconciliation of segment profit to net income:
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
-----------------------------------------------------
United States:
Assets $ 655,234 $ 551,978 $ 600,486 $ 548,486
Sales 227,151 292,034 876,938 1,546,874
Capital
Expenditures 32,500 - 4,732 233
Depreciation 440 410 4,009 2,078
=====================================================
Gross profit $ 86,469 $ 94,388 $ 287,657 $ 414,547
Corporate expense 107,095 64,722 259,865 305,845
Other (income)
Expense (4,129) 208 (20,050) -
-----------------------------------------------------
Segment (loss)
income before
income taxes (16,497) 29,458 47,842 108,702
Income taxes
(recovery) (8,377) 8,047 16,749 23,032
-----------------------------------------------------
Segment net (loss)
Income $ (8,120) $ 21,411 $ 31,093 $ 85,670
=====================================================
Canada:
Assets $ 352,804 $ 282,526 $ 397,563 $ 333,196
Sales 154,944 97,724 576,174 523,574
Capital
expenditures 5,871 8,505 48,561 169,677
Depreciation 5,368 3,271 18,301 8,722
=====================================================
Gross profit $ 55,021 $ 19,547 $ 155,675 $ 88,377
Corporate
expenses (net) 54,645 78,963 264,835 (36,131)
Other expense 1,975 3,767 12,436 9,478
-----------------------------------------------------
Segment (loss)
income before
income taxes $ (1,599) $ (63,183) (121,596) 115,030
Income taxes
(recovery) 3,476 (22,557) (38,918) 27,432
-----------------------------------------------------
Segment net
(loss) income $ (5,075) $ (40,626) $ (82,678) $ 87,598
=====================================================
18
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
13. Segmented Information (continued)
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
-----------------------------------------------------
Total:
Assets $ 1,008,038 $ 834,504 $ 998,049 $ 881,682
Sales 382,095 389,758 1,453,112 2,070,448
Capital
Expenditures 38,371 8,505 53,293 169,910
Depreciation 5,808 3,681 22,310 10,800
=====================================================
Gross profit $ 141,490 $ 113,935 $ 443,332 $ 502,924
Corporate
expenses 161,740 143,685 524,700 269,714
Other (income)
Expense (2,154) 3,975 (7,614) 9,478
-----------------------------------------------------
(Loss) income before
income taxes (18,096) (33,725) (73,754) 223,732
Income taxes
(recovery) (4,901) (14,510) (22,169) 50,464
-----------------------------------------------------
Net (loss) income $ (13,195) $ (19,215) $ (51,585) $ 173,268
=====================================================
March 31, December 31, December 31,
2000 1999 1998
--------------------------------------
Fixed Assets and Other Assets:
Canada $ 185,350 $ 185,627 $ 165,307
U.S. 40,501 8,441 7,718
--------------------------------------
$ 225,851 $ 194,068 $ 173,025
======================================
19
<PAGE>
===========================================================================
MegaPro Tools, Inc.
Notes to Consolidated Financial Statements
(Stated in U.S. Funds)
(Information related to the three-month periods ended March
31, 2000 and 1999 is unaudited)
March 31, 2000
---------------------------------------------------------------------------
14. Sales to Major Customers
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
-----------------------------------------------------
Sales to two U.S.
segment customers $ 115,509 $ 124,227 $ 265,796 $ 476,463
--------------------------------------------------------------------------
15. Supplemental Disclosure of Cash Flow Information
Three-Months Three-Months Year Year
Ended Ended Ended Ended
March 31, March 31, December 31, December 31,
2000 1999 1999 1998
-----------------------------------------------------
Cash basis
Interest paid $ 3,055 $ 2,969 $ 13,679 $ 2,434
Income taxes
(received) paid $ (29) $ 41,696 $ 41,696 $ 72,365
20
<PAGE>
AVAILABLE INFORMATION
We have filed a registration statement on form SB-2 under the
Securities Act of 1933 with the Securities and Exchange Commission
with respect to the shares of our common stock offered through this
prospectus. This prospectus is filed as a part of that registration
statement and does not contain all of the information contained in
the registration statement and exhibits. Statements made in the
registration statement are summaries of the material terms of
contracts, agreements or documents of the company. We refer you to
our registration statement and each exhibit attached to it for a
more complete description of matters involving the company, and the
statements we have made in this prospectus are qualified in their
entirety by reference to these additional materials. You may
inspect the registration statement and exhibits and schedules filed
with the Securities and Exchange Commission at the Commission's
principle office in Washington, D.C. Copies of all or any part of
the registration statement may be obtained from the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New
York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago, IL
60661. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The
Securities and Exchange Commission also maintains a web site
(http://www.sec.gov) that contains reports, proxy statements and
information regarding registrants that file electronically with the
Commission. Our registration statement and the referenced exhibits
can also be found on this site.
41
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are indemnified as provided by the Nevada
Revised Statutes and our bylaws.
Under the NRS, director immunity from liability to a company or its
shareholders for monetary liabilities applies automatically unless
it is specifically limited by a company's Articles of Incorporation
(which is not the case with our Articles of Incorporation). Excepted
from that immunity are: (a) a willful failure to deal fairly with
the company or its shareholders in connection with a matter in which
the director has a material conflict of interest; (b) a violation of
criminal law (unless the director had reasonable cause to believe
that his or her conduct was lawful or no reasonable cause to believe
that his or her conduct was unlawful); (c) a transaction from which
the director derived an improper personal profit; and (d) willful
misconduct.
Our bylaws provide that we will indemnify our directors and officers
to the fullest extent not prohibited by Nevada law; provided,
however, that we may modify the extent of such indemnification by
individual contracts with our directors and officers; and, provided,
further, that we shall not be required to indemnify any director or
officer in connection with any proceeding (or part thereof)
initiated by such person unless: (a) such indemnification is
expressly required to be made by law; (b) the proceeding was
authorized by our Board of Directors; (c) such indemnification is
provided by us, in our sole discretion, pursuant to the powers
vested us under Nevada law; or (d) such indemnification is required
to be made pursuant to the bylaws.
Our bylaws provide that we will advance to 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, by reason of the fact
that he is or was a director or officer, of the Company, or is or
was serving at the request of the Company as a director or executive
officer of another company, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding,
promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt
of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is
not entitled to be indemnified under our bylaws or otherwise.
Our bylaws provide that no advance shall be made by us to an officer
of the Company (except by reason of the fact that such officer is or
was a director of the Company in which event this paragraph shall
not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is
reasonably and promptly made: (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not
parties to the proceeding; or (b) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the
facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such
person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the
Company.
42
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of this offering are as follows:
Securities and Exchange Commission registration fee* $250
Federal Taxes $NIL
State Taxes and Fees $NIL
Transfer Agent Fees $1,000
Accounting fees and expenses $5,000
Legal fees and expenses $20,000
Blue Sky fees and expenses $2,000
Miscellaneous $ NIL
---------
Total $28,250
=========
-------------------------------------------------------------------------
* All amounts are estimates other than the Commission's registration fee.
We are paying all expenses of this offering. No portion of these
expenses will be borne by the selling shareholders. The selling
shareholders, however, will pay any other expenses incurred in
selling their common stock, including any brokerage commissions or
costs of sale.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
We issued 6,200,000 common shares on September 30, 1999 when we
acquired Mega Tools Ltd. from Ms. Maria Morgan, Envision Worldwide
Products Ltd., Mr. Robert Jeffery, Mr. Lex Hoos and Mr. Eric
Paakspuu. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933. The 6,200,000 shares of common stock are
restricted shares, as defined in the Act.
We completed an offering of 350,000 shares of our common stock to
one (1) purchaser at a price of $0.10 per share on September 30,
1999. The total amount received from this offering was $35,000. We
completed the offering pursuant to Regulation S of the Securities
Act. The investor represented to us that he was a Non-U.S. Person
as defined in the Regulation. We did not engage in a distribution
of this offering in the United States. The investor represented his
intention to acquire the securities for investment only and not with
a view toward distribution. Appropriate legends were affixed to the
stock certificate issued in accordance with Regulation S. In
addition, the investor was given adequate access to sufficient
information about us to make an informed investment decision. None
of the securities were sold through an underwriter and accordingly,
there were no underwriting discounts or commissions involved. The
investor was Mr. Robert Jeffery, one of the selling shareholders
named in this prospectus.
We completed an offering of 115,500 common shares to a total of
thirty three (33) purchasers at a price of $1.00 per share pursuant
to Regulation S of the Securities Act on November 24, 1999. The
total amount received from this offering was $115,500. Each
purchaser represented to us that the purchaser was a Non-U.S. Person
as defined in the Regulation. We did not engage in a distribution
of
43
<PAGE>
this offering in the United States. Each purchaser represented
their intention to acquire the securities for investment only and
not with a view toward distribution. Appropriate legends were
affixed to the stock certificates issued in accordance with
Regulation S. In addition, all purchasers were given adequate
access to sufficient information about us to make an informed
investment decision. None of the securities were sold through an
underwriter and accordingly, there were no underwriting discounts or
commissions involved. The selling shareholders named in this
prospectus include all of the purchasers who purchased shares
pursuant to this Regulation S offering.
We completed an offering of 134,100 common shares to a total of
seventeen (17) purchasers at a price of $1.00 per share pursuant to
Rule 504 of Regulation D of the Securities Act on May 11, 2000. The
total amount received from this offering was $134,100. Each
purchaser represented their intention to acquire the securities for
investment only and not with a view toward distribution.
Appropriate legends were affixed to the stock certificates issued in
accordance with Regulation D. All purchasers were given adequate
access to sufficient information about us to make an informed
investment decision. None of the securities were sold through an
underwriter and accordingly, there were no underwriting discounts or
commissions involved. The selling shareholders named in this
prospectus include all of the purchasers who purchased shares
pursuant to this Regulation D offering.
We completed an offering of 47,500 common shares to a total of
seventeen (16) purchasers at a price of $1.00 per share pursuant to
Rule 504 of Regulation D of the Securities Act on June 1, 2000. The
total amount received from this offering was $47,500. Each
purchaser represented their intention to acquire the securities for
investment only and not with a view toward distribution.
Appropriate legends were affixed to the stock certificates issued in
accordance with Regulation D. All purchasers were given adequate
access to sufficient information about us to make an informed
investment decision. None of the securities were sold through an
underwriter and accordingly, there were no underwriting discounts or
commissions involved. The selling shareholders named in this
prospectus include all of the purchasers who purchased shares
pursuant to this Regulation D offering.
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- --------------------
3.1 Articles of Incorporation
3.2 Articles of Amendment changing the Company's name
to Mega Pro Tools Corporation
3.3 Articles of Amendment changing the Company's name
to MegaPro Tools Inc.
3.4 Articles of Amendment amending Article 6
3.5 Amended By-Laws
4.1 Share Certificate
5.1 Opinion of Cane & Company, LLC, with consent to use
10.1 Acquisition Agreement dated September 30, 1999
between the Company and Ms. Maria Morgan,
Envision Worldwide Products Ltd., Mr. Robert
Jeffery, Mr. Lex Hoos and Mr. Eric Paakspuu
10.2 Jore Sublicense Agreement for Canada
10.3 Jore Sublicense Agreement for US
44
<PAGE>
10.4 National Account License Agreement for Canada
10.5 National Account License Agreement for US
10.6 Regular Account License Agreement for Canada
10.7 Regular Account License Agreement for US
23.1 Consent of BDO Dunwoody, LLP
27.1 Financial Data Schedule
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement, or most
recent post-effective amendment, which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement; and
(c) To include any material information with respect to the
plan of distribution not previously disclosed in this
registration statement or any material change to such
information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time
shall be deemed 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 hereby which remain unsold
at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the provisions above, or otherwise,
we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities, other than the payment by us of expenses incurred or
paid by one of our directors, officers, or controlling persons in the
successful defense of any action, suit or proceeding, is asserted by
one of our directors, officers, or controlling person sin connection
with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the
Securities Act, and we will be governed by the final adjudication of
such issue.
45
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2
and authorized this registration statement to be signed on its behalf
by the undersigned in the City of Vancouver, Province of British
Columbia on June 20, 2000.
MEGAPRO TOOLS INC.
By: /s/ Neil Morgan
_________________________
Neil Morgan, President
POWER OF ATTORNEY
ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Neil Morgan, his true and lawful
attorney-in-fact and agent, with full power of substitution and re-
substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all pre- or post-effective amendments
to this Registration statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any one of them, or
their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following
persons in the capacities indicated and on the dates stated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
/s/ Neil Morgan President and Chief Executive June 20, 2000
--------------------- Officer (Principal Executive
Neil Morgan Officer) and Director
Chief Financial Officer June 20, 2000
/s/ David Bonner (Principal Financial /
--------------------- Accounting Officer)
David Bonner and Director
