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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
Commission file number 0-29907
BLUE ZONE, INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0863053
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
329 RAILWAY STREET, 5TH FLOOR
VANCOUVER, BRITISH COLUMBIA
CANADA V6A 1A4
(604) 685-4310
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of outstanding shares of the registrant's Common Stock, par value
$0.001 per share, was 21,538,100 on May 12, 2000.
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BLUE ZONE, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations -
Three months ended March 31, 2000 and March 31, 1999 4
Consolidated Statement of Stockholders' Equity (Deficiency)-
Three months ended March 31, 2000 and the year ended
December 31, 1999 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and March 31, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 18
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
BLUE ZONE, INC.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
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2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,104,502 $ 4,097,869
Accounts receivable 89,584 97,600
Work-in-progress 121,190 70,581
Prepaid expenses 31,715 93,204
Receivable from stockholders 4,722
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3,351,713 4,359,254
Capital assets, net of accumulated depreciation 615,977 425,596
- -----------------------------------------------------------------------------------------
$ 3,967,690 $ 4,784,850
- -----------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 382,775 $ 191,675
Accrued liabilities 86,422 178,300
Deferred revenue 172,485 180,143
Income taxes payable - -
Payable to stockholders - 45,559
- -----------------------------------------------------------------------------------------
$ 641,682 $ 595,677
Stockholders' equity (deficit):
Common stock, $.001 par value, authorized
100,000,000 shares; 21,538,100 issued at
March 31, 2000 and December 31, 1999 $ 21,538 $ 21,538
Additional paid in capital 5,643,496 5,626,371
Deficit (2,291,890) (1,433,831)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (47,136) (24,905)
- -----------------------------------------------------------------------------------------
$ 3,326,008 $ 4,189,173
- -----------------------------------------------------------------------------------------
$ 3,967,690 $ 4,784,850
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</TABLE>
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BLUE ZONE, INC.
Consolidated Statements of Operations
(Expressed in U.S. dollars)
Three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
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2000 1999
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<S> <C> <C>
Production and service revenue $ 113,942 $ 95,337
Revenue under barter agreement 8,651 124,065
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122,593 219,402
Cost of revenues 73,128 56,805
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Gross profit 49,465 162,597
Operating expenses:
General and administrative 784,339 33,677
Selling and marketing 71,894 3,184
Advertising under barter agreement 8,651 124,065
Depreciation 42,640 5,691
- --------------------------------------------------------------------------------
907,524 166,617
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Net loss $ 858,059 $ 4,020
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Net loss per common share, basic and diluted $ .04 $ .00
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Weighted average common shares outstanding,
basic and diluted 21,538,100 12,000,000
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- --------------------------------------------------------------------------------
</TABLE>
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BLUE ZONE, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
(Expressed in U.S. dollars)
Three months ended March 31, 2000 and year ended December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
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Preferred stock Common stock
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 5 $ 5 7 $ 7
- ------------------------------------------------------------------------------------------------
Adjustments to comply with
recapitalization accounting,
net of cost of recapitalization
transaction of $32,791 (5) (5) 21,538,093 21,531
Issuance of stock options - - - -
Deferred compensation of stock options- - - - -
Net loss - - - -
Cumulative translation adjustment - - - -
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1999 - - 21,538,100 21,538
Issuance of stock options - - - -
Deferred compensation of stock options- - - - -
Net loss - - - -
Cumulative translation adjustment - - - -
- ------------------------------------------------------------------------------------------------
Balance, March 31, 2000 - $ - $21,538,100 $21,538
</TABLE>
<TABLE>
<CAPTION>
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Accumulated
other
comprehensive
earning
-------------
Foreign
Paid-in currency Total
additional Retained translation stockholders'
capital earnings adjustment equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ - $ (11,500) $ 680 $ (10,808)
- --------------------------------------------------------------------------------------------------------
Adjustments to comply with
recapitalization accounting,
net of cost of recapitalization
transaction of $32,791 5,329,360 - - 5,350,886
Issuance of stock options 368,844 - - 368,844
Deferred compensation of stock options- (71,833) - - (71,833)
Net loss - (1,422,331) - (1,422,331)
Cumulative translation adjustment - - (25,585) (25,585)
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,626,371 (1,433,831) (24,905) 4,189,173
Issuance of stock options 178,215 - - 178,215
Deferred compensation of stock options- (161,090) - - (161,090)
Net loss - (858,059) - (858,059)
Cumulative translation adjustment - - (22,231) (22,231)
- --------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $5,643,496 $(2,291,890) $(47,136) $3,326,008
</TABLE>
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BLUE ZONE, INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
Three months ended March 31, 2000 and year ended December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (858,059) $(1,422,331)
Items not involving cash:
Stock based compensation 17,125 297,011
Depreciation 42,640 97,755
Changes in operating assets and liabilities:
Accounts receivable 5,412 (110,801)
Work-in-progress (50,609) (70,581)
Prepaid expenses 61,489 (92,646)
Accounts payable and accrued liabilities 79,596 335,851
Deferred revenue (7,658) 180,143
Income taxes payable - (2,589)
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Net cash provided by (used in) operating activities (710,064) (788,188)
Cash flows from financing activities:
Increase in payable to stockholders (50,280) -
Repayment of payable to shareholder - 36,296
Issue of common shares - 5,331,764
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Net cash provided by financing activities (50,280) 5,368,060
Cash flows from investing activities:
Purchase of capital assets (233,023) (482,894)
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Net cash used in investing activities (233,023) (482,894)
- -----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (993,367) 4,096,978
Cash and cash equivalents, beginning of period 4,097,869 891
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents end of period $ 3,104,502 $ 4,097,869
- -----------------------------------------------------------------------------------------------
Supplementary information:
Interest paid $ 1,352 $ 23,984
Income taxes paid - 1,090
- -----------------------------------------------------------------------------------------------
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed, or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. In our opinion,
the statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. These financial statements should be read in conjunction with
our audited consolidated financial statements for the year ended December 31,
1999, included in our Form 10, dated March 9, 2000 and amended on May 2, 2000,
filed with the Securities and Exchange Commission. Our results of operations for
any interim period are not necessarily indicative of the results of operations
for any other interim period or for a full fiscal year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This filing contains forward-looking statements that are subject to
a number of risks and uncertainties, many of which are beyond our control. Some
of these risks and uncertainties include:
- - plans for and ability to hire additional personnel;
- - business strategy, including development of our MediaBz(TM) software;
- - expectations for future expansion both in the U.S. and in Asia;
- - anticipated growth in revenue;
- - uncertainty regarding our future operating results;
- - anticipated sources of funds to fund our operations; and
- - plans, objectives, expectations and intentions contained in this Form
10-Q that are not historical facts.
All statements, other than statements of historical fact included in
this Form 10-Q, regarding our strategy, future operations, financial position,
estimated revenues or losses, projected costs, prospects, plans and objectives
of management are forward-looking statements. When used in this Quarterly
Report, the words "will", "believe", anticipate", "intend", estimate", "expect",
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such identifying
words. All forward-looking statements speak only as of the date of this
Quarterly Report. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make in this
Quarterly Report are reasonable, we can give no assurance that these plans,
intentions or expectations will be achieved.
You should read the following discussion in conjunction with the
unaudited consolidated financial statements of this Quarterly Report, and the
audited consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Conditions and Results of Operations in our
Form 10 dated March 9, 2000 and as amended on May 2, 2000.
OVERVIEW
We generate revenue from software licensing, interactive television
content enhancements, creative production and maintenance services related to
website development and interactive television broadcasting and from consulting
services related to Internet strategies. Our business has historically been
focused on providing website design and content services to a range of British
Columbia-based media and broadcasting companies, as well as fulfilling the
interactive needs of a group of clients on a project basis.
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We have developed proprietary technology and knowledge from working
closely with broadcasting companies. Our experience with live news delivery,
including the large variety of filming, graphics and editing equipment for audio
and video production and specific communication standards that exist inside a
newsroom between equipment or employees, has provided us with opportunities to
develop software to service the unique needs of the broadcast community.
Bruce Warren and Jamie Ollivier, our Chief Executive Officer and
President, respectively, have worked in the broadcast field for ten years,
during which time we acquired valuable insights into the technology requirements
of traditional television and radio broadcast companies to access the world wide
web, set-top-boxes, and other interactive devices. In 1997, we began development
of a proprietary product, now trademarked as the MediaBz(TM) suite of products,
to facilitate convergence of television, radio, and print media organizations to
the interactive environment.
In the latter half of 1999, we contracted with CTV, Canada's largest
private TV network, to develop, plan, and design CTV's interactive website, to
be focused around the MediaBz(TM) product. We have also been retained as an
ongoing consultant to CTV.
We have incurred losses in the last three years, and as of March 31,
2000, had an accumulated deficit of $2.3 million. Our net loss for the three
months ended March 31, 2000 was $858,000 and our net loss in fiscal 1999 was
$1.4 million because we began implementing our business plan built on the
marketing of the MediaBz(TM) product line to a broad range of television and
radio media companies. To this end, general and administrative expenses have
been increased to support this effort. We have leased new office space, and our
capital budget has been increased to provide some of our enlarged infrastructure
needs.
Revenues have been recorded as the services are rendered to our
clients. For long-term development projects, such as the fulfillment of the CTV
contract, revenue is recognized on a percentage of completion basis upon
achievement of specifically identifiable milestones. The deferred revenue of
$172,485 item on our balance sheet represents payment received from CTV that
does not meet the revenue recognition criteria.
A significant proportion of our revenue for the past three years up
to December 31, 1999 has been in the form of a barter exchange agreement with
BCTV. This revenue has been included in total revenues, with the offset to
Selling and Marketing expense.
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RESULT OF OPERATIONS
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected financial data, derived from
our unaudited statements of operations, as a percentage of total revenues for
the periods indicated. The operating results for the three months ended December
31, 2000 and 1999 are not necessarily indicative of the results that may be
expected for the full fiscal year or any future period.
<TABLE>
<CAPTION>
Three months Ended
--------------------------------
March 31,
---------------------------------
2000 1999
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(audited)
<S> <C> <C>
INCOME STATEMENT DATA
Revenues.................................. 100% 100%
Cost of revenues.......................... 59.65% 25.89%
Gross profit.............................. 40.35% 74.11%
Operating Expenses:
General and Administrative................ 639.79% 15.35%
Selling and Marketing..................... 58.64% 1.45%
Advertising under barter agreement 7.06% 56.55%
Depreciation.............................. 34.78% 2.59%
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740.27% 75.94%
Loss before income taxes.................. 699.92% 1.83%
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Net loss.................................. 699.92% 1.83%
-------------------------------------
</TABLE>
REVENUE
Our total revenue decreased 44% for the quarter ended March 31, 2000
to $122,593 from $219,000 in the comparable quarter in 1999. Our decrease in
revenues in the quarter ended March 31, 2000 is due to the loss of BCTV revenues
which accounted for 57% of our revenues in the comparable quarter in 1999. We
received revenues under barter exchange agreements of $9,000 this year compared
to $129,000 last year. The decrease was due to the completion of our contract on
December 31, 1999 with BCTV which was a three-year website evolution project.
Under the BCTV contract, we exchanged our services for airtime rather than
receiving a cash payment. In return for services, we received television
airtime, which we accounted for as advertising under barter exchange agreement
expense. We used this airtime to enhance our name recognition because we believe
it to be valuable in marketing our products to current and other potential
clients. For fiscal 2000, we have entered into a contract with CTV which is
expected to replace the revenues lost from BCTV. We will recognize revenues from
the CTV contract in subsequent quarters.
GROSS PROFIT
Cost of revenues includes labor, materials and overhead expenses
incurred in the delivery of software and services. Prior to our reorganization
in late 1999, the bulk of the technical
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workforce was retained on short-term contracts. Our Chief Executive Officer,
Bruce Warren and our President, Jamie Ollivier, developed much of the detailed
design and code writing for software before our 1999 reorganization.
Cost of revenues for 2000 were 60% of total revenues compared to 26%
for the same period in 1999. There were increased costs in the areas of labor,
materials and networking as we continued to increase our staffing in various
competencies and levels for our MediaBz(TM) product. We replaced contract
workforce last year with full time permanent employees this year. Our personal
and related costs increased by 200% for the three months ended March 31, 2000
over the comparable period in 1999 due to our aggressive recruitment of
production staff. These added costs combined with the loss of the BCTV revenue
this year resulted in a lower gross profit. As revenues are recognized from the
CTV contract, we expect gross profit to fluctuate from the levels experienced in
this quarter.
We expect our gross profit to fluctuate based on our product mix,
geographic mix, product and patent licenses, and the uncertain costs associated
with hiring competent technical, creative and management personnel. We can
provide you no assurance that we will be able to improve our gross margins.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses increased from $34,000 in
1999 to $784,000 in 2000. The 2000 level of expenses was 640% of revenue and 15%
in 1999. Our increase in general and administrative expenses was primarily the
result of the implementation of our new business plan, which focused on
marketing the MediaBz(TM) suite of products, and has resulted in a build-up of
full-time personnel in various disciplines and levels, in place of a contract
workforce in 1999. Personnel and related costs rose to $259,000 in 2000 from
$72,000 1999.
We moved to new Vancouver headquarters in late 1999 and, as a
result, occupancy and related costs increased $35,000 to $39,000 in 2000.
Our accounting, legal, and investor relation fees of $274,000 in
2000 rose by $268,000 from $6,000 in 1999. This increase was primarily due to
legal costs associated with the filing of our Form 10 with the Securities and
Exchange Commission and increased investor relations activities.
Travel costs increased significantly this year by $148,000 to
$149,000 compared to $1,000 in 1999. Much of these travel costs were incurred
for travel between our Vancouver and Toronto facilities as well as travel
related to our efforts to secure further financing.
General and administrative expenses are expected to continue to grow
in the future as additional personnel are hired and new offices are opened in
the United States and overseas.
We recorded $48,000 in interest income in 2000 and none in 1999 as
the proceeds of the share issuance were invested in high quality debt
securities.
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RESEARCH AND DEVELOPMENT
Based on the anticipated success of the MediaBz(TM) suite of
software products and based on our ability to raise additional funds, we expect
to allocate large amounts of money to research and development. These funds will
be used to improve the existing MediaBz(TM) products and to provide features and
options requested by broadcasters and other clients. The amounts spent on
research and development for the three months ended March 31, 2000 and 1999 were
$93,000 and $10,000, respectively. Most of our research and development prior to
becoming a public company was conducted by our President, Jamie Ollivier and
Chief Executive Officer, Bruce Warren. We now have a team of people in the
research and development group. We cannot guarantee that expenditures in
research and development will ensure our success or lead to innovations that are
not available to our competition.
SALES AND MARKETING
We recorded an expense of $72,000 in 2000 compared with $3,000 in
1999. The preparation of promotional and marketing material and related travel
costs accounted for $50,000 of the total costs for the three months ended March
31, 2000.
ADVERTISING UNDER BARTER EXCHANGE AGREEMENT
Expenses for the three months ended March 31, 2000 were $9,000
compared to $124,000 in the same period for 1999. The decrease was due to the
completion of our contract on December 31, 1999 with BCTV which was a three-year
website evolution project. Under the BCTV contract, we exchanged our services
for airtime rather than receiving a cash payment. In return for services, we
received television airtime, which we accounted for as advertising under barter
exchange agreement.
DEPRECIATION
Depreciation has been provided on the declining balance basis using
a 30% rate for all capital asset categories except for leasehold improvements,
which are amortized on a straight-line basis over five years. The 2000 expense
increased to $43,000 from $6,000 in 1999 because we expended $233,000 on capital
assets and leasehold improvements in 2000 and a significant amount in the last
quarter ending December 31, 1999. We purchased $187,000 of computer equipment
and software this quarter.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our reorganization in October 1999, we had very limited
access to capital, and we depended entirely on our principal stockholder and
current Chairman Michael Warren for direct financing or as guarantor of a line
of credit from recognized financial institutions.
As a result of the $5.25 million private placement in October 1999,
we had working capital of $2.71 million as of March 31, 2000. This compared to a
working capital deficit position of $58,000 at the end of March 31, 1999.
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During the three months ended March 31, 2000, we used $710,000 in
our operating activities. The negative impact on cash from our net loss of
$858,000 was mitigated by a total of $60,000 of non-cash charges relating to
stock option compensation and depreciation.
We invested $233,000 in capital assets in the three months ended
March 31, 2000 of which $187,000 was in computer equipment and software.
We believe we have sufficient liquidity on hand to finance our
operations through the end of fiscal 2000, however, we are heavily dependent on
the CTV contract. Should CTV cancel our agreement we do not have other existing
clients to support our Toronto office. We do not have in place any lines of
credit. Our future capital requirements will, however, depend on a number of
factors, including costs associated with product development efforts, the
success of the commercial introduction of our products and the possible
acquisition of complementary businesses, products and technologies. To the
extent additional capital is required, we may sell additional equity, debt or
convertible securities or establish credit facilities. We cannot assure you that
additional capital will be available when we need it on terms that we consider
acceptable.
INCOME TAXES
No taxes were payable for the three months ended March 31, 2000 and
1999, as a result of the operating losses recorded. Based on a number of
factors, including the lack of a history of profits, management believes there
is sufficient uncertainty regarding the realization of deferred tax assets, and
has not booked an income tax benefit. These losses can be carried forward for
seven years.
COST OF YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were
coded to accept only two-digit entries in date code fields. Both before and
after the year 2000, these date code fields will need to accept four-digit
entries to enable the computer systems and software products to distinguish
twenty-first century dates from twentieth century dates. Any of our computer
programs or hardware that have date-sensitive software or embedded computer
chips which have not been upgraded to be compliant with the requirements of the
year 2000 changeover may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including among other things, a temporary
inability to properly process transactions internally or in conjunction with
external computer systems on which we depend to provide our customers with our
product and services. Although we have not suffered from any of these types of
events to date, we may do so in the future.
OUR GENERAL READINESS
The year 2000 requirements affect the computers, software and other
equipment that we use, operate or maintain for our operations. Substantially all
of our software was developed after
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awareness of these issues became wide spread in the software industry, such that
our software was designed with reference to preventing year 2000 related
difficulties from arising. Nonetheless, we have adopted an internal policy to
ensure that our product remains year 2000 compliant. To the best of our
knowledge, none of our internal systems or equipment which are necessary for the
conduct of our business has any defects, errors or deficiencies relating to the
year 2000 which are not capable of being remedied.
COST OF OUR YEAR 2000 EFFORTS
We have incurred no direct expenses since our inception in
connection with this process, and do not expect to incur any significant
additional expenditures in this regard.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS
We believe that it is not possible to determine with complete
certainty that all year 2000 related problems affecting us have been identified
or corrected. The number of devices and systems that could be affected and the
interactions among these devices and systems are numerous. We believe that there
exists the potential for a significant number of operational inconveniences and
inefficiencies, and possible disputes and claims related to products or services
used or provided by us.
CONTINGENCY PLANS
We have taken measures to ensure that our internal systems and
equipment are year 2000 compliant for both hardware and software. All of our
operating systems on all critical servers have been upgraded, and all individual
computers and tools have been verified as year 2000 compliant. We perform a
daily back-up of all critical information. In the event of a failure, we
estimate that the information technology infrastructure necessary to run our
internal business operations could be restored.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2000, we had not entered into or acquired financial
instruments that have material market risk. We have no financial instruments for
trading or other purposes or derivative or other financial instruments with off
balance sheet risk. All financial assets and liabilities are due within the next
twelve months and are classified as current assets or liabilities in the
consolidated balance sheet provided in response to Item 1. The fair value of all
financial instruments at March 31, 2000 is not materially different from their
carrying value.
We regularly invest funds in excess of our immediate needs in
guaranteed investment certificates issued by major Canadian banks. The fair
value of these instruments, which generally have a term to maturity of 90 days
or less, does not differ significantly from their face value.
To March 31, 2000, substantially all revenues and the majority of
cash costs have been realized or incurred in Canadian dollars. To date we have
not entered into foreign currency contracts to hedge against foreign currency
risks between the Canadian dollar or other foreign
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currencies and our reporting currency, the United States dollar. Generally,
however, we attempt to manage our risk of exchange rate fluctuations by
maintaining sufficient net assets in Canadian dollars to retire our liabilities
as they come due.
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission.
<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
2.1 Share Exchange Agreement, dated as of October 5, 1999, among F.
Michael P. Warren, Bruce Warren, Jamie Ollivier, Blue Zone
Productions Ltd., Blue Zone Entertainment Inc., Blue Zone
International Inc. and Western Food Distributors, Inc.
(incorporated by reference to Exhibit 2.1 of our Registration
Statement on Form 10 (File No. 0-29907))
3.1 Registrant's Articles of Incorporation dated March 10,
1997(incorporated by reference to Exhibit 3.1 of our Registration
Statement on Form 10 (File No. 0-29907)).
3.2 Certificate of Amendment to the Registrant's Articles of
Incorporation, dated July 14, 1998, providing for a 5-for-1 stock
split of all of the Registrant's outstanding common stock
(incorporated by reference to Exhibit 3.2 of our Registration
Statement on Form 10 (File No. 0-29907)).
3.3 Certificate of Amendment to the Registrant's Certificate of
Incorporation, dated September 28, 1999, changing the name of the
Registrant to "Blue Zone, Inc." and providing for a 1.125-for-1
stock split of all of the Registrant's issued and outstanding
common stock (incorporated by reference to Exhibit 3.3 of our
Registration Statement on Form 10 (File No. 0-29907)).
</TABLE>
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<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
3.4 Bylaws (incorporated by reference to Exhibit 3.4 of our
Registration Statement on Form 10 (File No. 0-29907)).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of our Registration Statement on Form 10 (File No.
0-29907)).
4.2 Warrant to Purchase 524,981 shares of common stock of Blue Zone,
Inc., dated October 1, 1999, issued to Savoy Holdings Limited
(incorporated by reference to Exhibit 4.2 of our Registration
Statement on Form 10 (File No. 0-29907)).
10.1* Website and Interactive Television Development Agreement, dated
as of December 14, 1999, between CTV Television Inc. and Blue
Zone Productions Ltd. (incorporated by reference to Exhibit 10.1
of our Registration Statement on Form 10 (File No. 0-29907))
10.2* Website Development Agreement, dated July 1, 1999, between
CKNW/CFMI, a division of WIC RADIO LTD., and Blue Zone
Entertainment Inc. (incorporated by reference to Exhibit 10.2 of
our Registration Statement on Form 10 (File No. 0-29907))
10.3* Joint Venture Agreement, dated June 16, 1998, between WIC Premium
Television, a Limited Subsidiary of WIC Western International
Communications Ltd. and Blue Zone Entertainment Inc.
(incorporated by reference to Exhibit 10.3 of our Registration
Statement on Form 10 (File No. 0-29907))
10.4 Business Banking Loan Agreement, dated July 9, 1999, between Blue
Zone Productions Ltd. and Royal Bank of Canada (incorporated by
reference to Exhibit 10.4 of our Registration Statement on Form
10 (File No. 0-29907)).
10.5 Guarantee and Postponement of Claim, dated July 9, 1999, executed
by F. Michael P. Warren in favor of Royal Bank of Canada
(incorporated by reference to Exhibit 10.5 of our Registration
Statement on Form 10 (File No. 0-29907)).
10.6 Employment Agreement, dated January 1, 2000, between Blue Zone
Entertainment Inc. and Jamie Ollivier (incorporated by reference
to Exhibit 10.6 of our Registration Statement on Form 10 (File
No. 0-29907)).
10.7 Employment Agreement, dated January 1, 2000, between Blue Zone
Entertainment Inc. and Bruce Warren (incorporated by reference to
Exhibit 10.7 of our Registration Statement on Form 10 (File No.
0-29907)).
10.8 Employment Agreement, dated January 1, 2000, between Blue Zone
Entertainment Inc. and Catherine Warren (incorporated by
reference to Exhibit 10.8 of our Registration Statement on Form
10 (File No. 0-29907)).
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit No. Description
- -------------- ----------------------------------------------------------
<S> <C>
10.9 1999 Stock Option Plan (incorporated by reference to Exhibit 10.9
of our Registration Statement on Form 10 (File No. 0-29907))
10.10 Subscription Agreement, dated as of September 22, 1999, between
Savoy Holdings Limited and Western Food Distributors, Inc. for
private placement of common stock and stock purchase warrants
(incorporated by reference to Exhibit 10.10 of our Registration
Statement on Form 10 (File No. 0-29907)).
16.1 Letter regarding change in certifying accountant (incorporated by
reference to Exhibit 16.1 of our Registration Statement on Form
10 (File No. 0-29907)).
27.1 Financial Data Schedule for fiscal quarter ended March 31, 2000
</TABLE>
* Confidential treatment has been requested with respect to certain portions of
the Exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
(b) REPORTS ON FORM 8-K
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUE ZONE, INC.
Date: May 15, 2000 By: /s/ Bruce Warren
----------------------------------
Bruce Warren
Chief Executive Officer
By: /s/ Rick Low
----------------------------------
Rick Low
Controller (Principal Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 3,104,502 0
<SECURITIES> 0 0
<RECEIVABLES> 89,584 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,351,713 39,106
<PP&E> 615,977 42,871
<DEPRECIATION> 42,640 5,691
<TOTAL-ASSETS> 3,967,690 81,977
<CURRENT-LIABILITIES> 641,682 97,455
<BONDS> 0 0
0 0
0 5
<COMMON> 21,538 7
<OTHER-SE> 3,304,470 (15,490)
<TOTAL-LIABILITY-AND-EQUITY> 3,967,690 81,977
<SALES> 122,593 219,402
<TOTAL-REVENUES> 122,593 219,402
<CGS> 0 0
<TOTAL-COSTS> 73,128 56,805
<OTHER-EXPENSES> 907,524 166,617
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,352 533
<INCOME-PRETAX> (858,059) (4,020)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (858,059) (4,020)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (858,059) (4,020)
<EPS-BASIC> (0.04) 0
<EPS-DILUTED> (0.04) 0
</TABLE>
