UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2000
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 000-30299
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GLOBAL INNOVATIVE SYSTEMS, INC.
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(Name of small business issuer in its charter)
NEVADA 98-0217653
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5975 SELKIRK CRESCENT,
PRINCE GEORGE, B.C. CANADA V2N 2G9
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (250) 964-2692
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.001
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(Title of class)
(Title of class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. Nil
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State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
Not Applicable
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(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
21,700,000 common shares, par value $0.001 outstanding as of December 31, 2000
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
GLOBAL INNOVATIVE SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PAGE
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PART I 1
Item 1. Description of Business. 1
Item 2. Description of Property. 13
Item 3. Legal Proceedings. 14
Item 4. Submissions of Matters to a Vote of Security Holders. 14
PART II 14
Item 5. Market for Common Equity and Related Stockholder Matters. 14
Item 6. Management's Discussions and Analysis or Plan of Operation. 15
Item 7. Financial Statements. 17
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure. 34
PART III 34
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act. 34
Item 10. Executive Compensation. 36
Item 11. Security Ownership of Certain Beneficial Owners
and Management. 37
Item 12. Certain Relationships and Related Transactions. 38
Item 13. Exhibits and Reports on Form 8-K. 39
SIGNATURES 40
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
This Annual Report contains forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors", that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
While we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
General
Global Innovative Systems Inc. was incorporated on September 14, 1995,
under the laws of the State of Nevada, under the name "Legacy Bodysentials
Inc.". On September 25, 1996, we changed our name to "Legacy Minerals Inc.".
On May 18, 1998, we changed our name to "Global Commonwealth Inc.". On November
12, 1999, we changed our name to our current name of "Global Innovative Systems
Inc.". Other than the acquisition described herein, we do not have any plans,
proposals, arrangements or understandings with respect to future acquisitions.
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles. In this Annual Report, unless otherwise specified, all dollar
amounts are expressed in United States Dollars. Herein, all references to
"CDN$" refer to Canadian Dollars and all references to "common shares" refer to
common shares in our capital stock.
Business Development of the Company of the Past Three Years
We had been inactive since our incorporation until we entered into a share
exchange agreement dated December 1, 1999 (the "Share Exchange Agreement") with
Niew Industries Inc. ("Niew Industries"), pursuant to which we agreed to acquire
100% of the issued and outstanding shares from the stockholders of Niew
Industries along with amounts owing to these stockholders totalling $420,864, in
exchange for issuing 12 million of our common shares to the former shareholders
of Niew Industries. The intent of acquiring the stockholder loans was to settle
the indebtedness and reduce total liabilities subsequent to the acquisition
date. The transaction to acquire Niew Industries closed on January 31, 2000.
Settlement of the loans to former stockholders of Niew Industries was
conditional upon closing of the transactions contemplated in the Share Exchange
Agreement. The share exchange resulted in Niew Industries becoming our wholly
owned subsidiary. Prior to the share exchange, we did not generate any revenue
but did incur administrative expenses.
The share exchange with the stockholders of Niew Industries was accounted
for as a reverse acquisition, since at the completion of the share exchange the
former stockholders of Niew Industries controlled approximately 55% of our
company. Following the accounting for reverse acquisitions, the financial
statements subsequent to closing of the share exchange are presented as a
continuation of Niew Industries consistent with the change of business.
Accordingly, our operations are consolidated with those of Niew Industries since
the date of acquisition.
Niew Industries was incorporated on January 15, 1997 under the British
Columbia Company Act. Niew Industries was inactive until March 23, 1998, when
it began the development of a twin rotating asphalt mixing system. To date this
has been Niew Industries' only activity.
<PAGE>
Our Current Business
We conduct our operations through our recently acquired subsidiary, Niew
Industries, in British Columbia, Canada. Our business objective is to
successfully develop a simplified asphalt mixing system that is compact,
environmentally friendly and easy to move from and to various locations. Niew
Industries has taken a step towards this goal with the design and development of
the twin rotating asphalt mixing system (the "Trams System").
The Trams System - Phase I
The main frame of the Trams System houses a diesel gas powered electric
generator for electrical power, all electrical components, a four bin feed
system (split bins, two side by side), a burner with a blower and an exhaust fan
to dry the aggregate and drum. The drum was designed as a double tapered
mixer-dryer with one drum inside the other. This caused the overall drum length
to be cut in half thus allowing for more frame area. The drum's double tapered
design allows asphalt oil to be sprayed in with no fire contact. The asphalt
spray system was designed to arrest the majority of dry particulate from the air
and introduced back into the mixed product. The shape of the drums allows the
plant to be set up level rather than at an incline as with conventional plants.
The tapered drums also cause the air to slow down on exit, thus any particles
that may have escaped fall back into the drum.
Other auxiliary equipment is required before and after the mixing process,
with the mixing being done in the drum. This equipment includes a power source
(generator), gravel bins to feed the mixer, scale belts to weigh and calibrate
the aggregate supply, and a burner to dry the gravel and bring the material to a
specified temperature. Other equipment includes a control centre to control and
monitor the integrated electronic system, liquid asphalt storage and pump system
to inject a specified percentage of gravel to oil ratio, a pollution system to
capture airborne emissions, discharge system which moves the properly heated and
mixed material to a silo capable of holding 25 to 70 tons of finished product.
The trailer for the Trams System holds all but the silo and liquid storage tank
which is a unique feature compared to existing asphalt plants.
Conventional plant drums are not tapered requiring them to be elevated and
blocked so the aggregate will flow downhill. The Trams System does not require
very much blocking because the plant is setup level. This is because the drums
on the Trams System are tapered like a funnel and so the drum is sloped when the
trailer is level. The Trams System is capable of producing the same volume of
asphalt per hour as is delivered by plants that take three to four days to set
up. The current conventional systems also require five trucks to move all of
the equipment that they require to the production site, whereas Phase I of the
Trams System requires only one truck load.
The Trams System - Phase II
We have plans for the development of a Phase II Trams System. The Phase II
Trams System will consist of a second plant, carried on a separate trailer,
which will contain a self-erecting silo and separate storage tanks to carry and
store asphalt, diesel fuel and propane fuel. Once Phase I and Phase II testing
has been completed, we will sell or lease the prototype to an asphalt firm for a
paving season to further test the system's performance and dependability. Upon
receipt of positive results, we intend to commence manufacturing the Trams
System Phase I and II.
A conventional plant of comparable productivity has a drum mixer which is
twice the length of the Trams System's double tapered drum. The Trams System
houses the drying/mixer drum, belt scales, four aggregate feeders, bag-house,
all electrical and electronic equipment, and a 312 KVA generator on one frame.
Having a silo, asphalt tank, diesel and propane tank on another load makes the
Trams System a two pin (two trailer) load to move. Setup time for the entire
Trams System is expected to be 4 to 6 hours. A conventional plant has five to
six pin loads and takes from three to four days to setup.
Asphalt Plant Control System Software
Asphalt mixing plants are always an electrical jig-saw puzzle, that is,
they are electrically pieced together using technology from several different
companies. Typically, they will use a brand name burner, burner controller,
scale system (including the controller), asphalt mixing controller, and a bin
feeder controller for each bin. These systems are then pieced together by
cables that would run from the various trailers containing that specific piece
<PAGE>
of equipment to the operator's control booth. This always leads to between 80
and 150 cables laying on the ground. Over time, these cables become damaged due
to the elements and human neglect.
Information management between these components was the primary decisive
factor in basing the decision on how the whole system would be controlled. The
fact that there was just so much information to transfer made it impossible for
any operator to keep a handle on things. It became obvious that some type of
computer based system would be necessary to manage all the in-going and
out-going information. The most compatible means of linking these signals was
the implementation of a programmable logic controller to manage, store and
execute these functions simultaneously.
Once the decision that a programmable logic controller was to be
implemented as our primary controller, we examined the electrical system as a
whole, comparing the cost of hardwiring all the necessary pushbuttons, timers,
counters and control relays that would be necessary to run the entire operation.
Upon completion of this cost analysis, it became clear that the implementation
of a man machine interface would not only be feasible, but would save money. It
was decided that we would utilize a Lookout (TM. National Instruments Inc.) man
machine interface package. Once this man machine interface package was
purchased, it gave us the capability of great on screen graphics and the
flexibility to make extensive system revisions without any added electrical
costs.
Once the control systems were decided upon, we examined the possibility of
using the programmable logic controller as the controller for the complete plant
operation, including the burner system, the asphalt injection system, the bin
controller system, the scale integration systems, as well as our motor control
system. This proved to be a formidable challenge, as the use of one
programmable logic controller to control all mixing plant functions had never
been done. After considerable research, the necessary components were located
and a program was written by Niew Industries to attempt to achieve this goal.
After several trial runs, and several revisions, the program now appears to have
the necessary accuracy and functionality to run the operation efficiently.
To date between the programmable logic controller and man machine interface
packages, we're using over 100 internal timers, 200+ internal relays and
counters, 100+ pushbuttons and numerous potentiometers. The ladder logic
program is currently approximately 115 networks long, and we have created over
100 complex expressions in the Lookout program to assist in the information
transfer for the plant operation.
The overall effect of integrating all the plant functions in one package is
that instead of the multitude of cables laying on the ground, we ended up with
two, one power cable and one computer cable, which both run from the main plant
frame to the control booth. The other main benefits of this integration are the
reduced cost (estimated at approximately $60,000 - $100,000), the ability to
make extensive control revisions without changing the cabling, the fact that
there are less cables on the ground to require maintenance, and the ability to
monitor and troubleshoot system problems remotely.
Self-Erecting Silo
Niew Industries has also negotiated an exclusive licensing agreement with
Ian Westwood, the inventor of a self-erecting silo, also called a portable
overhead bin. Mr. Westwood's silo design is referred to as the "Silovation".
The Silovation system can be used with any existing asphalt plant, including the
Trams System.
The Silovation is not the self-erecting silo that we intend to use in Phase
II of the Trams System. The Silovation is designed to sit alone on one
tractor-trailer unit. The Trams System uses a single tractor trailer unit to
contain a silo along with a liquid asphalt storage tank, propane tank and a
diesel tank. Thus the Trams System requires less equipment in the form of
tractor-trailers than does the Silovation. However some contractors will
already have some of their own equipment, including the tanks mentioned above,
making the Silovation an efficient choice.
The Silovation prototype was completed in May, 1999 and is currently owned
by the Everall Construction Company of Edmonton, Alberta. Everall does not own
any rights or other property relating to the design of the Silovation. On
November 8, 1999, Niew Industries and Mr. Westwood executed a licence agreement
pursuant to which Mr. Westwood licensed to Niew Industries patents and all
<PAGE>
technical knowledge derived from the portable overhead bin used on the
Silovation and the applicable patents held by Mr. Westwood in exchange for the
sum of CDN$75,000. We have paid CDN$35,000 to Mr. Westwood to date. On
November 22, 2000, we entered into an agreement with Mr. Westwood which modified
the earlier license agreement. Pursuant to that amending agreement, we agreed
to pay the balance of CDN$40,000 on or before February 28, 2001. We also agreed
to pay royalties to Mr. Westwood as follows:
- CDN$6,000 each for the first two portable overhead bins sold in any
calendar year;
- CDN$8,000 each on the next two portable overhead bins sold in any calendar
year; and
- CDN$10,000 on any further portable overhead bins sold in any calendar
year.
We also agreed to pay a minimum royalty of CDN$20,000 in any calendar year,
beginning in 2001, in which fewer than three portable overhead bins are sold.
This royalty is to be paid on or before January 31 after the end of the
applicable calendar year. We agreed to pay a minimum royalty of $10,000 for the
2000 calendar year, which royalty is to be paid on or before February 28, 2001.
If we default on any of these payments, we will lose our rights under the
licence agreement.
The portable overhead bin used on the Silovation will be sold with the
Trams System if a customer does not require an asphalt tank. We believe the
portable overhead bin to be a valuable product, but to date only one such
product has been sold - the prototype to Everall Construction. The portable
overhead bin is adaptable for use outside of the asphalt industry as a water
storage container, to load chipped waste wood or any other bulk commodity.
We intend to manufacture the Silovation for commercial sale and accordingly
we acquired the licence to the rights of the Silovation from Mr. Westwood.
However, we will not commence manufacturing of this product until we complete
development of Phase I and Phase II of the Trams System.
Competitive Advantages
In the opinion of management, the objective benefits of the Trams System
includes: mobility, which lowers costs; productivity; improved product quality;
decreased environmental impact; and reduced costs for the customer.
In large urban areas asphalt plants are located on gravel sources that have
been appropriately zoned for such use, as well as situated on sites where the
aggregate general materials are transported to the site (e.g. barged, trucked or
railed). These plants are semi-permanent operations. For non-urban areas such
as highways, airports, mine-sites, small communities and sawmills, portable or
mobile asphalt plants can be economically more viable or cost competitive than
stationary asphalt plants.
In a conventional stationary asphalt plant, the asphalt is mixed in the
asphalt plant which is normally located at a gravel source, but the Trams System
allows the asphalt to be mixed onsite if the gravel has been stockpiled by the
project where the finished product is required, assuming that the proper permits
are obtained in advance.
Because the Trams System asphalt plant is closer to the work-site, we
anticipate that the cost of transporting the finished product, the asphalt hot
mix, to the site where it will be used will be considerably less that if the
asphalt hot mix was transported from a conventional stationary asphalt plant.
We estimate that transportation costs are normally 25-30% of the operating costs
to manufacture and lay asphalt. We anticipate that any savings on such
transportation costs will be a competitive advantage in the market.
We believe that the asphalt industry will find the Trams System attractive
due to the compactness and perceived neatness of a totally self-contained
asphalt plant that can be easily transported with two trucks. We also believe
that there will be a demand for the Trams System because of its operational
performance in categories such as environmental compliance, quality control,
integration of electrical and computer programming, increased user friendliness
and cost effectiveness.
<PAGE>
Future Research and Development
Although we have completed development of the Trams System Phase I
prototype, we identified several areas where improved performance was possible.
These areas included improvements to the asphalt-oil injection system, pollution
control system, ramps, and the conveyor system. We have implemented and
successfully tested a majority of these changes. One of the last required
improvements is the addition of a conventional bag-house system in order to
comply with the 2001 British Columbia air pollution regulations imposed by the
British Columbia Ministry of Environment. See "Governmental Approval and
Regulation" below.
We have plans for the development of a Phase II Trams System. The Phase II
Trams System will consist of a second trailer, which will contain a
self-erecting silo and separate storage tanks to carry and store asphalt, diesel
fuel and propane fuel. Once Phase II testing has been completed, we will sell
or lease the prototype to an asphalt firm for a paving season to further test
the system's performance and dependability. Upon receipt of positive results,
we intend to commence manufacturing the Trams System Phase I and II.
After we complete design, development and testing of our Phase I and Phase
II Trams System prototypes, we will be required to:
- identify target markets and potential customers;
- develop a marketing plan;
- test the Trams System in specific applications with potential customers;
- commence commercial production of the Trams System for sale or lease.
The Asphalt Industry and Marketing of the Trams System
We estimate that there are about eight major asphalt plant manufacturers
situated in the central and eastern United States. Together they sell
approximately 150 asphalt plants per year across North America.
We project revenue to be derived from sales of the Trams System, but we are
also considering the possibility of leasing the Trams System to potential
customers. We intend to market the Trams System to manufacturers and users of
asphalt plants.
Intellectual Property
We have filed a patent application for the Trams System in Canada and the
U.S. under the title "Multiple Drum Mixing System". On November 27, 1999, Niew
Industries obtained from Walter Niemi, a director of our company, a worldwide
assignment of all patent rights and intellectual property rights to the Trams
System. We paid consideration of $1.00 for this assignment. Thus, if we obtain
a patent, it will be the property of Niew Industries. On April 19, 1999, we
obtained from Lloyd Olson, an employee of our company, the rights to a copyright
registration in Canada for the Trams System operating software entitled "Asphalt
Plant Control System". We paid consideration of $1.00 for this assignment.
This software program is not protected by any patents nor do we intend to seek
any such patent protection. We treat our software program and its associated
technology as proprietary and all copyrights in such software program.
Intellectual Property Protection
We are not aware that our products, or other proprietary rights infringe
the proprietary rights of any third parties. However, from time to time, we may
receive notices from third parties asserting that we have infringed their
patents or other intellectual property rights. In addition, we may initiate
claims or litigation against third parties for infringement of our proprietary
<PAGE>
rights or to establish the validity of our proprietary rights. Any such claims
could be time-consuming, result in costly litigation, cause product development
delays or lead us to enter into royalty or licensing agreements rather than
disputing the merits of such claims. Any such claims, with or without merit,
can be time consuming and expensive to defend. An adverse outcome in litigation
or similar proceedings could subject us to significant liabilities to third
parties, require expenditure of significant resources to develop non-infringing
technology, require disputed rights to be licensed from others, or require us to
cease the marketing or use of certain information, any of which could have a
material adverse effect on our business, operating results and financial
condition.
Research and Development Expenditures and Testing Activities
To date, we have employed a third party evaluator, Source Test Limited, to
test the Trams System's pollution emissions. A separate third party evaluator,
Levelton Engineering Ltd., tested the Trams System aggregate, oil usage and hot
mix asphalt cement.
When testing, the mixing system of the Phase I Trams System was set up in
Columbia Bitulithic Ltd.'s Aldergrove, British Columbia pit and used our asphalt
mix. Columbia Bitulithic is a British Columbia paving company. Columbia
Bitulithic used the material produced by the Trams System to build an all
weather road in their operations centre in Abbottsford, British Columbia. They
were not active in the research and development of the Trams System.
Research and development expenditures are charged to expenses when
incurred. Research and development costs consist of the cost of materials and
services consumed, salaries and wages of personnel directly engaged in research
and development and the costs of patent applications. The cost of the research
and development is reduced by investment tax credits accrued in respect to
qualifying costs of research and development. The investment tax credit program
is available to qualifying companies as an incentive from the Canadian federal
government to carry on research and development activities. Since the Share
Exchange Agreement resulted in Niew Industries being owned by non-Canadians, it
is expected that Niew Industries will no longer qualify for this government
incentive program. Research and development costs incurred from inception to
September 30, 2000 consist of the following:
<TABLE>
<CAPTION>
JAN. 15, 1997
(INCORPORATION)
TO SEPT. 30, 2000 YEAR ENDED YEAR ENDED YEAR ENDED
(CUMULATIVE) SEPT. 30, 2000 SEPT. 30, 1999 SEPT. 30, 1998
------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ 272,954 $ 4,244 $ 44,627 $ 224,083
Materials and supplies . . . . 201,947 66,593 85,782 49,572
Salaries and benefits. . . . . 23,670 9,497 9,443 4,730
Patent applications. . . . . . (95,486) Nil (51,250) (44,236)
------------- --------------- ---------------- ----------------
Investment tax credit recovery $ 403,085 $ 80,334 $ 88,602 $ 234,149
------------------------------ ============= =============== ================ ================
</TABLE>
Certain specific scientific or technological objectives were identified at
the outset of research and development activities in 1999. We sought to
establish that we could develop an asphalt manufacturing plant that: (1)
provides an integrated system that was able to improve dramatically on pollution
control which is virtually non-existent in conventional systems without
bag-houses or settling ponds; (2) improves the durability of the finished
product by the introduction of a different production process; and (3) improves
in the recovery of fine aggregate in the production process with the result that
the finished product has a higher grade and a longer life.
Governmental Approval and Regulation
The Province of British Columbia's Ministry of Environment and its
legislation, the Waste Management Act, specify in strict detail the amount of
emissions permitted from new asphalt plant operations. The three most important
parameters deal with airborne particulates, organics and carbon monoxide. These
are outlined in the Waste Management Act and all asphalt operators are expected
to submit stack emission tests to the Ministry of Environment on an annual
basis.
<PAGE>
Our Trams System prototype asphalt plant was meant to meet and exceed these
strict requirements. The new concept and drum technology developed by us was
tested during operational trials in the spring of 1999. The test results, which
are included below, were obtained without the use of either of the two pollution
control methods, the bag-house or the wet scrubber, that are currently used by
the asphalt industry:
<TABLE>
<CAPTION>
PARAMETERS REGULATORY SPECIFICATIONS TEST RESULT
--------------- ------------------------- -------------
<S> <C> <C>
Particulates. . 90mg / m3 105.41mg / m3
Organics. . . . 60mg / m3 24mg / m3
Carbon Monoxide 200mg / m3 196mg / m3
--------------- ------------------------- -------------
</TABLE>
The regulations under the Waste Management Act specify that all new asphalt
plants must meet the above specifications immediately while older or existing
plants must be up-graded to comply by the year 2001.
Most asphalt plants only have two means to deal with pollution control; the
wet scrubber system or a bag-house. The first system uses recycled water to
reduce dust to water born particulate (mud) and requires at least two settlement
ponds, one for the mud and one for the recycled water. The second system or
bag-house is a sophisticated vacuum that sucks particulate or dust from the
exhaust gases and traps them in cotton bags. These collected particulates are
eventually added back into the mixing process to be recycled.
The bag-house system will be used on all future Trams Systems, as the wet
scrubber application is becoming out dated and obsolete. We anticipate that the
use of a bag-house will result in compliance with particulate emission
requirements under all existing emission standards. However, testing of the
Trams System with a bag-house has not yet been undertaken. To fit the Trams
System, the bag-house's outer physical structure has been modified to fit the
Trams System's frame. We have not yet ordered the material necessary to
complete the inner structure of the bag-house. The bag-house designed for the
Trams System will be compatible to existing bag-house units, but smaller.
Smaller versions are available from several sources and we do not believe that
obtaining compatible bag-houses will be problematic. Further, the bag-house
required for the Trams System is actually less expensive than that used on
larger units and the cost of the Trams System compatible bag-houses is not
excessive.
The Trams System prototype results, described above, were satisfactory
considering that the Trams System prototype passed all of the emissions
standards, other than the particulate standard, without the use or application
of any form of conventional pollution control device.
The Trams System failed the regulatory specification for new plants for
particulates but we believe the Trams System would pass in other provinces
because some of these provinces have lower standards. We believe that with a
bag-house, which is proven technology, the Trams System will meet and surpass
the Ministry of Environment's stringent specifications. Without the bag-house,
we were uncertain as to whether the plant would comply with standards. The test
results were close enough to standards to suggest that alterations including the
bag-house would help ensure that the applicable standards would be met. Carbon
monoxide levels can be reduced without impacting the Trams System's performance
appreciably by adjusting the burner.
We believe that the Trams System, with its double tapered drums will meet
the stricter British Columbia specifications when the bag-house is completed.
The results from the pollution tests shows how close the Trams System came to
passing without either proven pollution system in place. Though the Trams
System failed its test for particulates in British Columbia, British Columbia
has the most stringent emissions requirements in Canada. In the U.S.,
California and New Jersey are more stringent than the other states. In New
Jersey one must use a bag-house. If the Trams System did not meet the
applicable North American provincial and state specifications, our market would
be narrowed, but not significantly considering the Asian, and South American
markets which will remain accessible.
<PAGE>
In the event of emission level violations, regulators would not levy fines
against us but rather against the contractor who owns or is operating the plant.
We would have to make full disclosure to the buyer of the Trams System's
pollution testing results as each province and state has different
specifications.
According to a report done by the Canadian Ministry of Environment, Lands
and Parks' Air Resources Branch from November 22, 1995, entitled "A Technical
Report for the Development of Regulations for Asphalt Paving and Recycling
Plants" there are currently over 60 asphalt plants in operation in British
Columbia. The same report shows that the other provinces do not have waste
management acts similar to that found in British Columbia. Thus, British
Columbia is more stringent than the other provinces. The Trams System would
meet the requirements in the other provinces. Existing acts in other provinces
are not currently being upgraded.
We are of the view that, after completing a retrofit that includes a
mini-bag-house installation, the Trams System will meet the requirements set out
in the Waste Management Act and can meet all other current North American
anti-pollution requirements.
Employees
As of December 31, 2000, we had one full-time employee at our offices in
Prince George, British Columbia, Canada, and two full-time employees in our
premises in Quesnel, British Columbia.
RISK FACTORS
An investment in our common shares involves a number of very significant
risks. You should carefully consider the following risks and uncertainties in
addition to other information in this Annual Report in evaluating us and our
business before purchasing shares of common stock. Our business, operating
result and financial condition could be seriously harmed due to any of the
following risks. The trading price of the shares of our common stock could
decline due to any of these risks, and you could lose all or part of your
investment.
GLOBAL IS A DEVELOPMENT STAGE COMPANY WITH A LIMITED OPERATING HISTORY WHICH
MAKES IT DIFFICULT TO EVALUATE WHETHER WE WILL OPERATE PROFITABLY.
We are a development stage company which is primarily involved in the
development, manufacture and marketing of a simplified asphalt mixing system
that is intended to be compact, environmentally friendly and easy to mobilize.
We call our product the Trams System. As a relatively new company, we have not
started selling our product, and as a result, we do not have a historical record
of sales and revenues nor an established business track record. We have not
earned any revenues since our formation.
Unanticipated problems, expenses and delays are frequently encountered in
ramping up sales and developing new products. Our ability to successfully
develop, produce and sell our Trams System and to eventually generate operating
revenues will depend on our ability to, among other things:
- successfully design, develop and market both Phase I and Phase II of the
Trams System;
- successfully develop our second prototype of the Trams System;
- successfully develop market acceptance and a customer base for our Trams
System; and
- obtain the necessary financing to implement our business plan and plan of
operations.
Given our limited operating history, lack of sales and operating losses,
there can be no assurance that we will be able to achieve any of these goals and
develop a sufficiently large customer base to be profitable.
<PAGE>
SINCE WE HAVE A HISTORY OF NET LOSSES AND A LACK OF ESTABLISHED REVENUES, WE
EXPECT TO INCUR NET LOSSES IN THE FUTURE.
We did not generate any revenues and incurred a cumulative loss of $646,341
for the period from January 15, 1997 (incorporation) to September 30, 2000.
Although we anticipate that we will be able to generate revenues in the future,
we also expect development costs and operating costs to increase as well.
Consequently, we expect to incur operating losses and negative cash flow until
our Trams System gain sufficient market acceptance to generate a commercially
viable and sustainable level of sales, additional Trams System prototypes are
developed and commercially released and sales of such products are made so that
we are operating in a profitable manner. These circumstances raise substantial
doubt about our ability to continue as a going concern as described in an
explanatory paragraph to our independent accountant's report on the September
30, 2000 financial statements. To the extent that such expenses are not timely
followed by revenues, our business, results of operations, financial condition
and prospects would be materially adversely affected.
WE ARE UNCERTAIN THAT WE WILL BE ABLE TO OBTAIN ADDITIONAL CAPITAL THAT MAY BE
NECESSARY TO ESTABLISH OUR BUSINESS.
We incurred a cumulative net loss for the period from January 15, 1997
(incorporation) to September 30, 2000 of $646,341. As a result of these losses
and negative cash flows from operations, our ability to continue operations will
be dependent upon the availability of capital from outside sources unless and
until we achieve profitability.
Our future capital requirements will depend on many factors, including cash
flow from operations, progress in developing new products, competing knowledge
and market developments and an ability to successfully market our products. Our
recurring operating losses and growing working capital needs will require us to
obtain additional capital to operate our business before we have established
that our business will generate significant revenue. We do not have sufficient
funds on hand to complete our Phase I development but we believe we have access
to funds sufficient to complete the development and negotiate the sale of the
Phase I Trams System prototype. We have predicted that we will require
approximately $550,000 over the period ending September 30, 2001 in order to
accomplish our goals of designing, developing, manufacturing and marketing the
Trams System. However, there is no assurance that actual cash requirements will
not exceed our estimates. In particular, additional capital may be required in
the event that:
- we incur unexpected costs in completing the development of our Tram System
or encounter any unexpected technical or other difficulties;
- we incur delays and additional expenses as a result of technology failure;
- we are unable to create a substantial market for our Trams System; or
- we incur any significant unanticipated expenses.
The occurrence of any of the aforementioned events could adversely affect
our ability to meet our business plans.
We will depend almost exclusively on outside capital to pay for the
continued development of the Trams System. Such outside capital may include the
sale of additional stock and/or commercial borrowing. There can be no assurance
that capital will continue to be available if necessary to meet these continuing
development costs or, if the capital is available, it will be on terms
acceptable to us. The issuance of additional equity securities by us would
result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments. If we
were unable to obtain financing in the amounts and on terms deemed acceptable,
our business and future success may be adversely affected.
<PAGE>
OUR FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD HARM OUR FUTURE BUSINESS
RESULTS AND MAY STRAIN OUR MANAGERIAL AND OPERATIONAL RESOURCES.
As we proceed with the development of our Trams System, we expect to
experience significant and rapid growth in the scope and complexity of our
business. We will need to add staff to market our products, manage operations,
handle sales and marketing efforts and perform finance and accounting functions.
We will be required to hire a broad range of additional personnel in order to
successfully advance our operations. This growth is likely to place a strain on
our management and operational resources. The failure to develop and implement
effective systems, or to hire and retain sufficient personnel for the
performance of all of the functions necessary to effectively service and manage
our potential business, or the failure to manage growth effectively, could have
a material adverse effect on our business and financial condition.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING SHAREHOLDERS COULD REDUCE THE PRICE
OF OUR COMMON STOCK.
If our common shares become publicly traded, the market price of our common
stock could decline as a result of sales by our existing stockholders of shares
of common stock in the market. Likewise, the perception that these sales could
occur may result in the decline of the market price of our common stock. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price we deem appropriate.
UNLESS WE CAN ESTABLISH SIGNIFICANT SALES OF OUR TRAMS SYSTEM, OUR POTENTIAL
REVENUES MAY BE SIGNIFICANTLY REDUCED.
We expect that a substantial portion, if not all, of our future revenue
will be derived from the sale of our Trams System. We expect that the Trams
System and any similar products we develop will account for a majority, if not
all, of our revenue for the foreseeable future. Market acceptance of the Trams
System is, therefore, critical to our future success and our ability to generate
revenues. Failure to achieve market acceptance of the Trams System, as a result
of competition, technological change, or otherwise, would significantly harm our
business. Our future financial performance will depend in significant part on
the successful introduction and market acceptance of the Trams System, and on
the development, introduction and market acceptance of any future products.
There can be no assurance that we will be successful in marketing the Trams
System or any future products and any failure to do so would significantly harm
our business.
IF WE ARE UNABLE TO ACHIEVE MARKET ACCEPTANCE FOR OUR TRAMS SYSTEM, WE WILL BE
UNABLE TO BUILD OUR BUSINESS.
Our success will depend on the acceptance of our products by the asphalt
industry. Achieving such acceptance may require a significant marketing
investment. We cannot assure you that our existing or proposed products will be
accepted by the asphalt industry at sufficient levels to support our operations
and build our business.
THE LOSS OF OUR KEY TECHNICAL INDIVIDUALS WOULD HAVE AN ADVERSE IMPACT ON FUTURE
DEVELOPMENT AND COULD IMPAIR OUR ABILITY TO SUCCEED.
Our performance is substantially dependent on the technical expertise of
Walter Niemi and Lloyd Olson and our ability to continue to hire and retain such
personnel. The loss of either Walter Niemi or Lloyd Olson or any of our key
officers could have a material adverse effect on our business, development,
financial condition, and operating results. We do not maintain "key person" life
insurance on any of our directors or senior executive officers but we do have
life insurance on Walter Niemi and Lloyd Olson.
TRADING OF OUR STOCK MAY BE RESTRICTED BY THE SEC'S PENNY STOCK REGULATIONS
WHICH MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
The U.S. Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that has a market price
<PAGE>
(as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
"accredited investors." The term "accredited investor" refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of, our common stock.
SINCE A RELATIVELY SMALL GROUP OF STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR
OUTSTANDING SHARES, THEY ARE ABLE TO SIGNIFICANTLY INFLUENCE MATTERS REQUIRING
STOCKHOLDER APPROVAL.
Stockholders owning a majority (i.e. 51%) of our outstanding voting stock
represent the ultimate control over our affairs. Three stockholders currently
control approximately 55% of the outstanding shares of our common stock. As a
result of this ownership, these stockholders will likely be able to approve any
major transactions including the election of directors without the approval of
the other shareholders.
WE DO NOT EXPECT TO DECLARE OR PAY ANY DIVIDENDS.
We have not declared or paid any dividends on our common stock since our
inception, and we do not anticipate paying any such dividends for the
foreseeable future.
BECAUSE OF OUR LIMITED OPERATING HISTORY, IT IS DIFFICULT TO PREDICT OUR FUTURE
REVENUES
As a result of our limited operating history and the new technology which
we seek to introduce into the markets in which we compete, we are unable to
accurately forecast our revenues. Our current and future expense levels are
based largely on our plan of operation and estimates of future revenues and are
to a large extent fixed.
Sales and operating results generally depend on our ability to develop a
base of customers and businesses who will purchase or lease Trams Systems from
us. We may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
estimated revenues in relation to our planned expenditures would have an
immediate adverse effect on our business, prospects, financial condition and
results of operations.
Further, as a strategic response to changes in the competitive environment,
we may from time to time make certain pricing, service or marketing decisions
that could have a materially adverse effect on its business and financial
condition and results of operations.
<PAGE>
WE EXPECT FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS IN THE FUTURE
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside our
control. Factors that may adversely affect our quarterly operating results
include but are not limited to:
- our ability to attract and retain customers and maintain customer
satisfaction;
- our ability to develop a base of manufacturers and users of asphalt plants
willing to utilize the Trams System for paving applications;
- the announcement or introduction of new services and products by us and
our competitors;
- an increase in consumer acceptance of the Trams System, or other systems
and products offered by us;
- our ability to upgrade and develop our Trams Systems and attract new
personnel in a timely and effective manner;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure;
- governmental regulation;
- general economic conditions; and
- economic conditions specific to the asphalt manufacturing and paving
industries.
BECAUSE OF THE TYPE OF INDUSTRY WE ARE INVOLVED IN, WE EXPECT TO EXPERIENCE
SEASONALITY IN OUR BUSINESS
We expect that we will experience seasonality in our business, reflecting a
combination of seasonal fluctuations in construction and paving projects'
seasonality patterns. Due to the foregoing factors, one or more future quarters
our operating results may fall below the expectations of securities analysts and
investors. In such event, our financial performance would likely be materially
adversely affected.
WE WILL HAVE TO EXPEND SUBSTANTIAL FUNDS ON ADVERTISING, SALES AND MARKETING IN
THE FUTURE
We have not incurred significant advertising, sales and marketing expenses
to date. To increase awareness for the Trams System, we expect to spend
significantly more on advertising, sales and marketing in the future. If our
marketing strategy is unsuccessful, we may not be able to recover these expenses
or even generate any revenues. We will be required to develop a marketing and
sales campaign that will effectively demonstrate the advantages of our, services
and products. To date, our experience with respect to marketing the Trams
System is very limited. We may also elect to enter into agreements or
relationships with third parties regarding the promotion or marketing of the
Trams System. There can be no assurance that we will be able to establish
adequate sales and marketing capabilities, that we will be able to enter into
marketing agreements or relationships with third parties on financially
acceptable terms, or that any third parties with whom we enter into such
arrangements will be successful in marketing and promoting the Trams System, or
other products and services offered by us.
OUR FUTURE REVENUES ARE DEPENDENT ON THE ACCEPTANCE OF THE TRAMS SYSTEM
Our future revenues and our ability to generate profits in the future are
substantially dependent upon the widespread acceptance and use of the Trams
System. There can be no assurance that acceptance and use of the Trams System
will develop or that a sufficiently broad base of consumers will use the Trams
System.
<PAGE>
We will rely on manufacturers and users of asphalt plants who have
historically used traditional means for asphalt manufacturing. For us to be
successful, these manufacturers and users of asphalt plants must accept and
utilize our novel Trams System. In addition, the Trams System may not be
accepted as a viable alternative to traditional asphalt manufacturing processes
for a number of reasons, including potentially inadequate development of the
necessary infrastructure or delayed development of related technologies and
performance improvements.
WE EXPECT TO ENCOUNTER RISKS IF WE ENTER INTO NEW BUSINESS AREAS
We may choose to expand our operations by improving the Trams System or
even developing new systems for the asphalt industry or expanding our market
presence through relationships with third parties. In addition, we may pursue
the acquisition of new or complementary businesses, products or technologies,
although we have no present understandings, commitments or agreements with
respect to any material acquisitions or investments. There can be no assurance
that we would be able to expand our efforts and operations in a cost-effective
or timely manner or that any such efforts would increase overall market
acceptance.
Expansion of our operations in this manner would also require significant
additional expenses and development, operations and editorial resources and may
strain our management, financial and operational resources. The lack of market
acceptance of such efforts or our inability to generate satisfactory revenues
from such expanded services or products to offset their cost could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
IF OUR COMMON SHARES ARE TRADED ON A PUBLIC MARKET, THERE MAY BE THE POSSIBILITY
OF VOLATILE SHARE PRICES
If listed for trading on the OTC Bulletin Board, the trading price of our
common shares may be subject to wide fluctuations. Trading prices of the common
shares may fluctuate in response to a number of factors, many of which are
beyond our control. In addition, the stock market in general has experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. Broad market
and industry factors may adversely affect the market price of the common shares,
regardless of our operating performance.
In the past, following periods of volatility in the market price of a
company's securities, securities class-action litigation has often been
instituted. Such litigation, if instituted, could result in substantial costs
for us and a diversion of management's attention and resources.
OUR CURRENT AND FUTURE SHAREHOLDERS MAY EXPERIENCE DILUTION IN THE FUTURE
The grant and exercise of warrants of creditors or otherwise or stock
options would likely result in a dilution of the value of our common shares.
Moreover, we may seek authorization to increase the number of our authorized
shares and to sell additional securities and/or rights to purchase such
securities at any time in the future. Dilution of the value of the common
shares would likely result from such sales.
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal executive office is located at 5975 Selkirk Crescent in
Prince George, British Columbia in the residence of one of our directors, Ken
Bergestad. Ken Bergestad, one of our directors and officers, provides this
office space to us on a rent free basis and has informed us that the use of this
space does not create any hardship within his residence.
We rent, on a month to month basis, 1500 square feet of space formerly used
by Niew Industries located at 402 Elm Street, Quesnel, British Columbia, V2J
3W9. We pay the property owner approximately CDN$275 per month for this space
which is used primarily as a work shop. We started using this space in March,
2000.
An unrelated third party has granted us access to store the Trams System
plant. Because the plant is located on an unused portion of the owner's
property and does not interfere with the owner's business operations, no rent
<PAGE>
has been requested of us and none has been paid. Management considers the free
rent benefit to be insignificant to our company. There is no guarantee that
this arrangement will continue in the future.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any pending legal action, suit, or proceeding nor is
any of our property the subject of any legal proceeding.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
We are authorized to issue 200,000,000 common shares with par value of
$0.001. There is no public trading market for our common shares. We have filed
an application to have our common shares quoted on the National Association of
Dealers Inc.'s Over-the-Counter Bulletin Board.
As of December 31, 2000, there were:
- no options, warrants or any other securities which were convertible into
our common shares;
- 9,700,000 of our common shares that could be sold pursuant to Rule 144
under the Securities Act of 1933 if all the conditions of Rule 144 were
satisfied; and
- no common shares that we have agreed to register under the Securities Act
of 1933 for sale by security holders.
Our common shares are issued in registered form. Pacific Stock Transfer
Company, 5844 S. Pecos Road, Suite D, Las Vegas, Nevada (telephone: (702)
361-3033, facsimile (702) 732-7890) is the registrar and transfer agent for our
common shares.
On December 31, 2000, the shareholders' list for our common shares showed
75 registered shareholders and 21,700,000 common shares outstanding.
We have not declared any dividends since incorporation and do not
anticipate that we will do so in the foreseeable future. Although there are no
restrictions that limit our ability to pay dividends on our common shares, our
intention is to retain future earnings for use in our operations and the
expansion of our business.
Recent Sales of Unregistered Securities
In the past fiscal year, we have sold the following common shares without
registering such common shares under the Securities Act of 1933:
Three individuals, comprising all of the shareholders of Niew Industries, a
British Columbia corporation, sold one hundred percent of the outstanding shares
of Niew Industries and amounts owing to them by Niew Industries to us in
exchange for 12,000,000 of our common shares. The shares were issued to those
three individuals residing outside of the United States in an "offshore
transaction" relying on Regulation S and Section 4(2) of the Securities Act of
1933. See Item 1 - "Description of Business" for further details of the share
exchange. This transaction closed on January 31, 2000.
<PAGE>
<TABLE>
<CAPTION>
Niew Industries Shares (% of Niew Industries) Shares issued on exchange
-------------------------------------------------------------------------
<S> <C> <C> <C>
Walter Niemi: 1,290 60.0 7,200,000
Ken Bergestad: 430 20.0 2,400,000
Lloyd Olson: 430 20.0 2,400,000
----- ----- ----------
Totals: 2,150 100.0% 12,000,000
===== ===== ==========
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with our financial
statements and related notes appearing elsewhere in this Annual Report. The
following discussion contains forward-looking statements that reflect our plans,
estimates, assumptions and beliefs, and that involve risks and uncertainties.
Our actual results could differ materially from those discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this Annual Report, particularly in the section titled "Risk Factors" in Item
1 of this Annual Report.
General
We were formed in Nevada on September 14, 1995. We were inactive until the
acquisition of 100% of the issued and outstanding shares of Niew Industries Inc.
(a company incorporated in British Columbia on January 15, 1997). That
acquisition was completed by a share exchange reorganization with Niew
Industries Inc. on January 31, 2000. Since March 23, 1998, Niew Industries Inc.
has been in the business of developing a twin rotating asphalt mixing system
called the Trams System. Since January 31, 2000, our focus has been on the
development this twin rotating asphalt mixing system. Our principal executive
offices are located in Prince George, British Columbia, Canada.
Plan of Operation
Our primary objective in the next 12 months will be to complete development
of the Phase I and Phase II of the Trams System for commercial sale and to
implement a sales and marketing program in connection with the sale of the Trams
System.
As of the present date, Phase I of the Trams System requires further
development and testing before it can be made available for commercial release.
We have not yet started on development of Phase II of the Trans System due to a
lack of capital resources. In addition to the development and testing work that
has to be performed on both Phase I and Phase II of the Trams System, a sales
and marketing campaign must be implemented.
We have also acquired a license to manufacture a self-erecting silo which
is different from the self-erecting silo that is going to be used in the Phase
II of the Trams System. We intend to manufacture this self-erecting silo for
commercial sale, but not until we complete development of Phase I and Phase II
of the Trams System.
Further development of Phase I and Phase II of the Trams System was
suspended in fiscal 2000 to devote attention to the registration of our common
shares under Section 12(g) of the Securities Exchange Act of 1934 and to
obtaining a quotation of our securities on the Over-the-Counter Bulletin Board.
Our common shares were registered under Section 12(g) of the Securities Exchange
Act of 1934 in October, 2000 and we have applied to the National Association of
Securities Dealers Inc. to have our common shares quoted on the Over-the-Counter
Bulletin Board.
We anticipate we will be able to complete the plan of operations if we can
raise additional financing. Our actual expenditures and business plan may
differ from our plan of operations. Our board of directors may decide not to
pursue our plan of operations as set out below. In addition, we may modify our
plan of operations based on the amount of available financing in the event that
<PAGE>
we cannot raise the required financing to complete our plan of operations. We
do not currently have any arrangement in place for any debt or equity financing
which would enable us to satisfy the cash requirements required by our plan of
operations.
We anticipate incurring further operating losses in the foreseeable future.
We base this expectation in part on the assumption that we will incur
substantial operating expenses in completing our plan of operations. Our future
financial results are also uncertain due to a number of factors, many of which
are outside of our control. These factors include, but are not limited to, the
following:
(a) willingness of external investors to advance capital to us to finance
continued development and production;
(b) general economic conditions, government environmental regulations and
increased industry competition;
(c) uncertainty regarding whether our Trams System can meet new British
Columbia environmental regulations, whether our Trams System can comply with
environmental regulations in other North American jurisdictions, and whether our
Trams System can continue to meet new regulatory requirements as they arise;
(d) whether there will be a market for our Phase I or II Trams System once
the development is complete; and
(e) whether demand for the product that will be adequate to support
economically viable production.
Due to our lack of operating history, there exists substantial doubt about
our ability to continue as a going concern as described in our independent
accountant's report on, and the notes to, the consolidated financial statements
for the year ended September 30, 2000.
Cash Requirements
We will require a minimum of approximately $550,000 over the period ending
September 30, 2001 in order to accomplish our goals. The cash requirements of
$550,000 are based on our estimates for operational costs for the period ending
September 30, 2001. We estimate that approximately $30,000 is required for
further development of Phase I of the Trams System, $150,000 is required for
development of Phase II of the Trams System, $120,000 is required to hire
marketing and sales persons and to implement our planned sales and marketing
program and $70,000 will be required to support an investor relations program.
The balance of $180,000 will be required to support general corporate and
operating expenses.
To date, our operations have been primarily financed by private loans from
our directors and other related parties totaling $698,854 at September 30, 2000,
as well as $95,486 of refundable Canadian government investment tax credits on
eligible research expenditures. Since the share exchange resulted in Niew
Industries no longer being owned by Canadians, we expect that we will no longer
be eligible for any further tax credits.
We do not have sufficient funds on hand to complete our Phase I development
but we believe that we have access to funds sufficient to complete the
development and negotiate the sale of the Phase I Trams System prototype.
We intend to obtain our future cash requirements through the sale of our
equity securities or by obtaining further debt financing. In the event we are
not successful in raising additional financing, we anticipate that we could not
sustain our business operations without further short-term financing from our
controlling shareholders. Deficiencies in cash will be covered by additional
loans and advances by our directors until such time that we can attract equity
investors. Should we be unable to attract equity investors, cutbacks and
deferrals of the planned development of Phase I and Phase II of the Trams System
would occur until such funds were otherwise available externally or from the
proceeds received on sale of Phase I of the Trams System prototype.
Alternatively, we could consider a joint venture to proceed with our plans of
operations.
<PAGE>
Research and Development
As at September 30, 2000, we have expended $403,085 (net of investment tax
credits of $95,486) on direct research and development on the Trams System. We
will continue to expend a significant amount of time in the next 12 months on
research and development activities. These activities will focus on the
following areas:
- further improvement of Phase I of the Trams System to make it more
efficient and to ensure that it meets government standards for pollution
control; and
- commencing development on Phase II of the Trams System.
We estimate that the completion of Phase I will require approximately
$30,000, consisting of $6,000 for testing, $14,000 for materials and $10,000 for
labour and subcontractors. At the completion of Phase I, we intend to sell our
prototype and use the sale proceeds to finance the construction of another Trams
System.
The Phase II of the Trams System will consist of a second trailer
which will contain a self-erecting silo and separate storage tanks to carry and
store asphalt, diesel fuel and propane fuel. We estimate the cost of developing
and completing the Phase II plant will be $150,000, $84,000 for testing and
materials, $16,000 for general corporate and overhead expenses and $50,000 for
labour and subcontractors.
Sales and Marketing
We anticipate that the commercial version of the Trams System will consist
of a package of the Phase I plant and the Phase II trailer, but we also
anticipate selling these machines separately. When we complete Phase II, we
then intend to locate the Trams System plant at a gravel pit, which location has
already been selected, and to record set up time, conduct anti-pollution
equipment testing, and record promotional videos.
Personnel
Over the twelve months ending September 30, 2001, we anticipate an increase
in the number of employees we retain, as we intend to hire two more employees
should we be in a position to proceed with development of Phase II of the Trams
System project.
Purchase or Sale of Equipment
We do not anticipate that we will expend any significant amount on
equipment for our present or future operations.
ITEM 7. FINANCIAL STATEMENTS.
Our consolidated financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.
The consolidated financial statements are attached hereto and are found
immediately following the text of this Annual Report. The Report of Independent
Accountants of Hedden Chong, on the audited financial statements for the fiscal
years ended September 30, 2000 and 1999 is included herein immediately preceding
the audited financial statements.
Our Consolidated Audited Financial Statements include:
Report of Independent Accountants, dated December 15, 2000.
Consolidated Balance Sheets at September 30, 2000 and 1999.
<PAGE>
Consolidated Statements of Operations for the years ended September 30,
2000 and 1999 and for the cumulative period from January 15, 1997
(incorporation) to September 30, 2000.
Consolidated Statements of Changes in Stockholders' Deficit for the
cumulative period from January 15, 1997 (incorporation) to September 30, 2000.
Consolidated Statements of Cash Flows for years ended September 30, 2000
and 1999 and for the cumulative period from January 15, 1997 (incorporation) to
September 30, 2000.
Notes to Consolidated Financial Statements
At September 30, 2000, we were considered a development stage company. As
a result of our acquisition of Niew Industries via reverse acquisition on
January 31, 2000, our financial statements are presented as a continuation of
Niew Industries. Accordingly, financial information pertaining to periods prior
to the acquisition is that of Niew Industries.
<PAGE>
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
SEPTEMBER 30, 2000
PAGE
REPORT OF INDEPENDENT ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT F-4 - F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-13
<PAGE>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND STOCKHOLDERS OF
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
We have audited the Consolidated Balance Sheet of Global Innovative Systems Inc.
(a development stage company) as at September 30, 2000 and 1999, the
Consolidated Statements of Operations, Changes in Stockholders' Deficit and Cash
Flows for the years ended September 30, 2000 and 1999 and for the period from
January 15, 1997 (incorporation) to September 30, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the consolidated 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 consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the consolidated financial position of Global Innovative Systems Inc.
(a development stage company) as at September 30, 2000 and 1999 and the related
consolidated statements of Operations, Changes in Stockholders' Deficit and Cash
Flows for the years ended September 30, 2000 and 1999 and for the period from
January 15, 1997 (incorporation) to September 30, 2000 in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ HEDDON CHONG
BURNABY, CANADA CHARTERED ACCOUNTANTS
DECEMBER 15, 2000
<PAGE>
F-2
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
---------- ----------
ASSETS
<S> <C> <C>
Current assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 726 $ 811
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390 1,100
Investment tax credits refundable . . . . . . . . . . . . . . . . . . . . . . . . . . - 97,136
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,401 5,134
---------- ----------
5,517 104,181
Fixed assets (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,136 9,050
License (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,676 -
---------- ----------
$ 64,329 $ 113,231
========= ==========
LIABILITIES
Current liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,997 $ 14,449
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,462 5,430
Loan payable to related party (Note 6). . . . . . . . . . . . . . . . . . . . . . . . 32,095 34,074
Advances from stockholders (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . 183,850 467,357
---------- ----------
286,404 521,310
---------- ----------
STOCKHOLDERS' DEFICIT
Common stock
Authorized:
200,000,000 common shares, par value $0.001
Issued:
21,700,000 (1999 - 12,000,000) common shares . . . . . . . . . . . . . . . . . 21,700 12,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,632 -
Accumulated other comprehensive income
Foreign currency translation loss . . . . . . . . . . . . . . . . . . . . . . . . . . (9,927) (5,751)
Deficit accumulated in the development stage. . . . . . . . . . . . . . . . . . . . . . (644,480) (414,328)
---------- ----------
(222,075) (408,079)
---------- ----------
$ 64,329 $ 113,231
========= ==========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
F-3
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
JANUARY 15, 1997
(INCORPORATION TO) YEAR ENDED
SEPTEMBER 30,2000 SEPTEMBER 30,
CUMULATIVE 2000
---------------------------------------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
EXPENSES
Accounting, audit and legal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,933 $ 36,550
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,343 4,233
Bank charges and interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,873 5,169
Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,064 10,064
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,377 2,337
Directors' fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 18,000
Insurance, licenses and dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,491 8,454
Office and supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,360 1,439
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,082 1,613
Research and development (Note 8). . . . . . . . . . . . . . . . . . . . . . . . . . . 403,085 80,334
Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,095 5,095
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,378 20,378
Telephone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,727 3,894
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,772 1,622
------------------ -------------------
LOSS BEFORE OTHER ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (605,580) (199,182)
------------------ -------------------
OTHER ITEMS
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,615 3,810
Loss on terminated proposed business
acquisition (Note 8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,376) (45,376)
------------------ -------------------
(40,761) (41,566)
------------------ -------------------
NET LOSS FOR THE PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (646,341) $ (240,748)
================== ===================
LOSS PER SHARE - BASIC AND DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01)
===================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . 18,466,667
===================
The accompanying notes are an integral part of these financial statements
YEAR ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
EXPENSES
Accounting, audit and legal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,539
Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,113
Bank charges and interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,528
Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,203
Directors' fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Insurance, licenses and dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,115
Office and supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,962
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,027
Research and development (Note 8). . . . . . . . . . . . . . . . . . . . . . . . . . . 88,602
Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Telephone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,563
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,643
----------
LOSS BEFORE OTHER ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (145,295)
----------
OTHER ITEMS
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Loss on terminated proposed business
acquisition (Note 8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
----------
76
----------
NET LOSS FOR THE PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(145,219)
==========
LOSS PER SHARE - BASIC AND DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01)
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . 12,000,000
==========
LOSS PER SHARE - BASIC AND DILUTED
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
F-4
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
Common Shares Additional Other in the Total
--------------------- Paid-in Comprehensive Development Stockholders'
Number Amount Capital Income Stage Deficit
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1999 - Niew Industries Inc.
carried forward 5,000 $ 3,265 $ - $ (5,751) $(405,593) $(408,079)
Common stock redeemed at $1 Cdn on October 31, 1999 (2,850) (1,861) - - 1,861 -
-------------------------------------------------------------------------------
2,150 1,404 - (5,751) (403,732) (408,079)
Adjustment for the issuance of common stock on
reverse acquisition 11,997,850 10,596 - - (10,596) -
-------------------------------------------------------------------------------
12,000,000 12,000 - (5,751) (414,328) (408,079)
Adjustment of debts to former stockholders of
Niew Industries Inc. (Note 3) - - 410,268 - 10,596 420,864
Adjustment for the stockholders' equity of
the Company at the acquisition date (Note 3) 9,700,000 9,700 364 - - 10,064
-------------------------------------------------------------------------------
21,700,000 21,700 410,632 (5,751) (403,732) 22,849
-------------------------------------------------------------------------------
Net loss for the year - - - - (240,748) (240,748)
Foreign currency translation loss - - - (4,176) - (4,176)
-------------------------------------------------------------------------------
Total comprehensive loss - - - (4,176) (240,748) (244,924)
-------------------------------------------------------------------------------
Balance, September 30, 2000 21,700,000 $ 21,700 $ 410,632 $ (9,927) $(644,480) $(222,075)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
F-5
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(EXPRESSED IN US DOLLARS)
Deficit
Foreign Accumulated
Currency in the
Translation Development
Shares Amount Adjustments Stage
-------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Initial capitalization of the company as of January 15, 1997 . . . . . . 100 $ 67 $ - $ -
Common stock issued at $1 Can April 15, 1998. . . . . . . . . . . . . . . 4,900 3,198 - -
-------- ---------- ------------- ----------
5,000 3,265 - -
------------- ----------
Net loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . - (260,374)
Foreign currency translation adjustments. . . . . . . . . . . . . . . . . 8,588 -
-------- ---------- ------------- ----------
Comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,588 (260,374)
Balance, September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . 5,000 3,265 8,588 (260,374)
------------- ----------
Net loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . - (145,219)
Foreign currency translation adjustments. . . . . . . . . . . . . . . . . (14,339) -
Total comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . (14,339) (145,219)
Balance, September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . 5,000 $ 3,265 $ (5,751) $(405,593)
======== ========= ============= ==========
The accompanying notes are an integral part of these financial statements
Total
Stockholders'
Deficit
-------------
<S> <C>
Initial capitalization of the company as of January 15, 1997 . . . . . . $ 67
Common stock issued at $1 Can April 15, 1998. . . . . . . . . . . . . . . 3,198
----------
3,265
----------
Net loss for the year (260,374)
Foreign currency translation adjustments 8,588
----------
Comprehensive loss (251,786)
----------
Balance, September 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . (248,521)
----------
Net loss for the year (145,219)
Foreign currency translation adjustments (14,339)
----------
Total comprehensive loss (159,558)
----------
Balance, September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . $(408,079)
==========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
F-6
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
JANUARY 15, 1997
(INCORPORATION) TO
SEPTEMBER 30, 2000 YEAR ENDED SEPTEMBER 30,
CUMULATIVE 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
Operating
Net loss for the period . . . . . . $ (646,341) $ (240,748) $ (145,219)
Non cash item
Depreciation. 5,377 2,337 2,203
(Increase) decrease in current assets
Receivables . . . . . . . . . . (390) 710 32,355
Investment tax credits refundable . - 97,136 (54,357)
Prepaid expenses . . . . . . . . . . . . . . . (4,401) 733 (2,526)
Increase (decrease) in current liabilities
Accounts payable. . . 27,960 13,511 5,869
Accrued liabilities . 11,462 6,032 2,430
------------------- ------------------ -------------------
(606,333) (120,289) (159,245)
------------------- ------------------ -------------------
Financing
Loan payable to related party . . . . . . . . . 32,095 (1,979) 34,074
Advances from stockholders. 666,759 199,402 139,258
Repayments to shareholders. (70,416) (70,416) -
------------------- ------------------ -------------------
628,438 127,007 173,332
------------------- ------------------ -------------------
Investing
Cash acquired on reverse acquisition. 10,064 10,064 -
Purchase of fixed assets. (13,544) (1,454) (3,765)
Purchase of license . (19,639) (19,639) -
------------------- ------------------ -------------------
(23,119) (11,029) (3,765)
------------------- ------------------ -------------------
INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . . (1,014) (4,311) 10,322
EFFECT OF FOREIGN EXCHANGE ON CASH. 1,740 4,226 (14,339)
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . - 811 4,828
------------------- ------------------ -------------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . $ 726 $ 726 $ 811
================== ================== ===================
SUPPLEMENTAL INFORMATION
NON CASH INVESTING AND FINANCING ACTIVITIES
Shares of Niew Industries Inc. and loans payable to
stockholders of Niew Industries Inc. acquired for
consideration totaling 12 million shares of common stock . . . . . . . . . . . . $ 420,864 $ -
================ ===============
LICENSE ACQUIRED BY ISSUANCE OF ACCOUNTS PAYABLE. . . .. . . . . . . . . . . . . $ 31,037 $ -
================ ===============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<PAGE>
F-7
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
1. NATURE OF BUSINESS AND CONTINUING OPERATIONS
The Company was incorporated in the State of Nevada on September 14, 1995 and
was inactive until January 31, 2000 when it closed a share exchange agreement
with the stockholders of Niew Industries Inc. ("NIEW"). The transaction
resulted in NIEW becoming a wholly owned subsidiary of the Company. Since the
stockholders of Niew controlled 55% of the combined entity after the merger and
the business of Niew presents the only operations of the new entity, the
transaction was recorded as a reverse acquisition and Niew was considered the
accounting acquirer. As such, the historical financial information of the
company is that of Niew.
NIEW was incorporated on January 15, 1997 under the British Columbia Company
Act. The Company was inactive until March 23, 1998 when it began the
development of a twin rotating asphalt mixing system. To date, this has been
Niew's only activity. These financial statements are expressed in US dollars
and have been prepared in accordance with accounting principles generally
accepted in the United States.
These accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
As at September 30, 2000, the Company has accumulated operating losses of
$646,341 since its inception. The continuation of the Company is dependent upon
the continuing financial support of creditors, directors and stockholders and
obtaining long term financing as well as achieving a profitable level of
operations through the successful development of the twin rotating asphalt
mixing system. It is the intention of the Company to raise a new equity
financing of approximately $550,000 within the upcoming year. Amounts raised
will be used to complete the development of the twin rotating asphalt mixing
system and then proceed into a stage of commercial production. While the
Company is expending its best efforts to achieve the above plans, there is no
assurance that any such activity will generate funds that will be available for
operations.
These conditions raise substantial doubt about the company's ability to
continue as a going concern. These financial statements do not include any
adjustments that might arise from this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT TAX CREDIT: In 1999 and 1998, the company had made
applications to the Canada Customs and Revenue Agency ("CCRA") to claim for
refundable investment tax credits ("ITCS") related to their research and
development activities. The ITCs are earned under a Canadian Government
incentive program at a specified percentage of expenditures that qualify for
this credit under the Income Tax Act of Canada. The ITCs, similar in nature to
a research grant, are taxable to the Company in the year following the year to
which the credit relates. The Company's estimate of the amount recoverable is
shown in the financial statements as investment tax credits refundable and is
stated at the estimated realizable value, net of any reasonably possible
adjustments by CCRA. Credits earned are recorded as a reduction to research and
development expenses (see Note 8). The estimate was based on the CCRA's current
assessing practices.
<PAGE>
F-8
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DEPRECIATION: Fixed assets are recorded at cost and are depreciated
over their estimated useful lives as follows:
Rate per annum
-------------------------
Office equipment 20% declining balance basis
Machinery and equipment 20% declining balance basis
Automotive equipment 30% declining balance basis
FOREIGN CURRENCY TRANSLATION: As a Canadian company operating solely in
Canada, its functional currency is the Canadian dollar. These consolidated
financial statements have been translated into United States dollars for
consistency with other registrants of the Securities and Exchange Commission
("SEC") in the United States. As a result, the assets and liabilities have been
translated at the exchange rate in effect at the balance sheet date, and
revenues and expenses have been translated at the average exchange rate for the
year. Gains or losses on translation are deferred as a separate component of
stockholders' deficit.
RESEARCH AND DEVELOPMENT COSTS: Expenditures on research and development are
charged to expense when incurred. Research and development costs consist of the
cost of materials and services consumed, salaries and wages of personnel
directly engaged in research and development and the costs of patent
applications. The cost of the research and development is reduced by any
investment tax credits accrued in respect of those costs.
USE OF ESTIMATES: The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the recognized amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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 consolidated 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 tax rates in
effect in the years in which the differences are expected to reverse.
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. The Company is
disclosing this information on its Statement of Changes in Stockholders'
Deficit. Comprehensive income is comprised of net income (loss) and all changes
to stockholders' deficit except those resulting from investments by owners and
distributions to owners.
<PAGE>
F-9
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. 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 (i) the changes in the fair value of the hedged assets 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 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 October 1, 2000 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",
("SOP 98-5") which provides guidance on the financial reporting of start-up
activities and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998 with initial adoption reported as the
cumulative effect of a change in accounting principle. Adoption of this
standard did not have a material effect on the financial statements.
In 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 dealing with revenue recognition, which is effective in the
fourth quarter of the Company's 2001 fiscal year. The Company does not expect
its adoption to have a material effect on the Company's financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No. 25. The Company was
required to adopt the Interpretation on July 1, 2000. Among other things, the
Interpretation requires that stock options that have been modified to reduce the
exercise price be accounted for as variable. Adoption of this standard did not
have a material effect on the Company's financial statements.
3. ACQUISITION OF NIEW INDUSTRIES INC.
By agreement dated December 11, 1999, the Company agreed to acquire 100% of the
issued and outstanding shares, and settle $420,864 owing to the stockholders, of
Niew Industries Inc. in exchange for 12 million common shares of the company.
The acquisition closed on January 31, 2000.
Effective as of the closing date, the transaction was accounted for using the
purchase method of accounting as applicable for a reverse acquisition.
Following reverse acquisition accounting, consolidated financial statements
subsequent to closing of the acquisition are presented as a continuation of
NIEW. The operations of the Company are consolidated with those of NIEW from
the date of the acquisition.
<PAGE>
F-10
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
3 ACQUISITION OF NIEW INDUSTRIES INC. - CONTINUED
The net assets of the Company at the date of acquisition consisted of $10,064 of
cash remaining on its initial capitalization. No goodwill was recorded on the
transaction.
Since the Company was inactive until the acquisition of NIEW, pro-forma
information reflecting the acquisition had it occurred at the beginning of the
earliest period presented would not yield results different from the net loss
and loss per share presented on the Consolidated Statement of Operations.
<TABLE>
<CAPTION>
4. FIXED ASSETS
2000
----
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
------- ------------- -----------
<S> <C> <C> <C>
Office equipment. . . . $ 269 $ 114 $ 155
Machinery and equipment 9,832 3,548 6,284
Automotive equipment. . 3,464 1,767 1,697
------- ------------- -----------
$13,565 $ 5,429 $ 8,136
======= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
1999
----
ACCUMULATED NET
COST DEPRECIATION BOOK VALUE
------- ------------- -----------
<S> <C> <C> <C>
Office equipment. . . . $ 270 $ 76 $ 194
Machinery and equipment 8,406 1,983 6,423
Automotive equipment. . 3,476 1,043 2,433
------- ------------- -----------
$12,152 $ 3,102 $ 9,050
======= ============= ===========
</TABLE>
5. LICENSE
By agreement dated November 8, 1999, the Company agreed to purchase a
license entitling it to manufacture a component known as a "Portable Overhead
Bin". This component may be part of the twin rotating asphalt mixing system
that is currently being developed by the Company. The Company's main intention
is to manufacture and sell the component as a separate product because it can be
used with any existing asphalt plant. To acquire the license, the Company is
required to pay a one time payment of $75,000 in Canadian dollars, $30,000 which
has been paid with the balance to be paid by February 28, 2001. In addition,
the company will be required to pay a royalty based on the number of units
manufactured in a calendar year. The minimum royalty is Cdn. $10,000 for 2000
and Cdn. $20,000 for 2001 and thereafter.
<PAGE>
F-11
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
6. LOAN PAYABLE TO RELATED PARTY
The Company has borrowed $32,095 ($47,500 Canadian) from a person related to one
of the directors. The loan is unsecured and is without specific terms of
repayment. Interest is payable at 8%. Interest of $2,291 was either accrued or
paid during the year.
7. ADVANCES FROM STOCKHOLDERS
In connection with the acquisition of Niew Industries Inc., the purchase
price of 12 million common shares included the settlement of outstanding debts
to stockholders totaling $420,864.
The remaining advances are unsecured, do not bear interest and have no
specific terms of repayment. The advances are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
-----------------------------
<S> <C> <C>
Cash advances to the company $ 245,469 $ 464,619
Repayments . . . . . . . . . (70,416) -
Reimbursable expenses. . . . 8,797 2,738
---------------- ----------------
$ 183,850 $ 467,357
================ ================
Average balance for the year $ 119,535 $ 403,645
=============== ================
</TABLE>
8. RESEARCH AND DEVELOPMENT COSTS
The company is in the process of developing a twin rotating asphalt mixing
system. Costs incurred to date consist of the following:
<TABLE>
<CAPTION>
JANUARY 15, 1997
(INCORPORATION) TO
SEPTEMBER 30, 2000 YEAR ENDED SEPTEMBER 30,
CUMULATIVE 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C>
Materials and supplies. . . . . $ 272,954 $ 4,244 $ 44,627
Salaries and benefits . . . . . 201,947 66,593 85,782
Patent and applications . . . . 23,670 9,497 9,443
Investment tax credits recovery (95,486) - (51,250)
--------------------------------------------------------------
$ 403,085 $80,334 $ 88,602
========== ======== =========
</TABLE>
<PAGE>
F-12
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
9. LOSS ON TERMINATED PROPOSED BUSINESS ACQUISITION
During the period, the Company advanced funds in anticipation of the
acquisition of a business. The directors have reassessed the proposed
acquisition and have chosen to abandon it. As a result, the advances have been
written off.
The company to which the funds were advanced and the Company have one
common director.
10. INCOME TAX INFORMATION
The Company has operating losses of $185,827 available to be carried forward to
reduce taxable income of future years expiring as follows:
2004 $ 22,578
2005 53,797
2007 81,338
2020 28,064
The Company has undeducted expenditures for tax purposes of $378,893 available
to be carried forward indefinitely to reduce taxable income of future years.
The Company has allowable capital losses of $22,568 available to be carried
forward to reduce taxable capital gains of future years.
The tax effect of temporary differences that give rise to the Company's deferred
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Tax losses carried forward $ 84,774 $ 34,842
Undeducted expenses. . . . 172,851 164,160
Fixed assets . . . . . . . 2,470 1,387
Patents. . . . . . . . . . 10,776 6,466
Investment tax credits . . - (23,380)
Allowable capital loss . . 10,295 -
Valuation allowance. . . . (281,166) (183,475)
---------- ----------
$ - $ -
========= ==========
</TABLE>
<PAGE>
F-13
GLOBAL INNOVATIVE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(EXPRESSED IN US DOLLARS)
SEPTEMBER 30, 2000 AND 1999
10. INCOME TAX INFORMATION - CONTINUED
The provision for income taxes differs from the amount computed using the
federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
Benefit at Federal Canadian statutory rate . . . . . $ 70,106 $ 41,800
Benefit at Provincial statutory rate . . . . . . . . 39,723 23,685
Reduction due to non deductible portion of loss
on terminated business acquisition and other items (12,138) -
Increase in valuation allowance. . . . . . . . . . . (97,691) (65,485)
--------- ---------
$ - $ -
======== =========
</TABLE>
The Company evaluates its valuation allowance requirements based on
projected future operations. When circumstances change and this causes a change
in management's judgment about the recoverability of deferred tax assets, the
impact of the change on the valuation allowance is reflected in current income.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash,
receivables, accounts payable and accrued liabilities at September 30, 2000
approximate their fair values due to the short term nature of these financial
statements.
The fair value of loans payable to stockholders and related parties is not
practicable to determine.
12. RELATED PARTY TRANSACTIONS
As of the year ended September 30, 1998, the company had advanced $27,827
to directors of the Company. During the year ended September 30, 1999, these
advances were repaid by the directors.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
'
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
All of our directors serve until the next annual general meeting of
shareholders or until their successors are elected and qualified, or until the
earlier of death, retirement, resignation or removal. Subject to any applicable
employment agreement, executive officers serve at the discretion of the board of
directors, and are appointed to serve until the first board of directors meeting
following the annual meeting of shareholders.
Our directors, executive officers and other significant employees, their
ages, positions held and duration as such, are as follows:
<TABLE>
<CAPTION>
DATE FIRST ELECTED
NAME POSITION HELD AGE OR APPOINTED
------------------ --------------------------------- --- ----------------
<S> <C> <C> <C>
Helge Freudentheil President and Director 51 January 31, 2000
--------------------------------- --- ----------------
Ken Bergestad. . . Vice-President and Director 48 January 31, 2000
--------------------------------- --- ----------------
Walter R. Niemi. . Secretary, Treasurer and Director 56 January 31, 2000
--------------------------------- --- ----------------
Robert W. Stark. . Vice President and Director 50 January 31, 2000
--------------------------------- --- ----------------
Lloyd Olson. . . . Treasurer of Niew Industries 39 January 15, 1997
================== ================================= === ================
</TABLE>
Business Experience
The following is a brief account of the education and business experience
during at least the past five years of each director, executive officer and
significant employee, indicating the principal occupation during that period,
and the name and principal business of the organization in which such occupation
and employment were carried out.
Helge Freudentheil, President and Director
Mr. Helge Freudentheil is one of our directors and has been our President
since January 31, 2000. For 10 years prior to joining us, and continuing to the
present, Mr. Freudentheil has been the Owner-Manager of P.G. Machine Works, a
general machinery, welding, fabricating and manufacturing business in Prince
George, British Columbia. While at P.G. Machine Works, Mr. Freudentheil built
specialty parts for Rolls Royce turbines, Nuvo Pinione pumps for Westcoast
Energy, Inc. and built custom parts for BC Hydro transformer equipment. Mr.
Freudentheil expends approximately 90% of his work efforts to P.G. Machine Works
and the remaining 10% to us. He has served as the Lecturer in Charge for Harare
Polytechnic in Harare, Zimbabwe, lecturing in applied workshop technology,
production of machine tools and processes. He received a Zimbabwe National
Diploma in Mechanical Engineering. Mr. Freudentheil holds a Provincial Trade
Certificate as a Machinist, and an Inter-Provincial Trade Certificate as a
Machinist.
Ken Bergestad, Vice-President and Director
Ken Bergestad is one of our directors and has been our Vice President since
January 31, 2000. From 1997 to present, Mr. Bergestad was Secretary of Niew
Industries. Mr. Bergestad was instrumental in raising the start-up capital for
<PAGE>
Niew Industries and took on the job as bookkeeper as well as day-to-day
administrative duties of the company. Mr. Bergestad has also been involved in
the paving industry for over twenty years. He worked as a grade foreman for
Pittman Asphalt from 1994-1997. Mr. Bergestad has been a member of the
Operating Engineers Union since 1979, and is a classified grade foreman, and
equipment operator. Mr. Bergestad attained a Bachelor of Arts degree in
Psychology from the University of Victoria.
Walter R. Niemi, Secretary, Treasurer and Director
Walter R. Niemi is one of our directors and has been our Secretary and
Treasurer since January 31, 2000. Mr. Niemi is also the President of Niew
Industries since January, 1997. Mr. Niemi has extensive experience in the
paving industry. For the five years prior to joining Niew Industries, Mr. Niemi
worked as a mechanic and plant operator for Quesnel Paving. He joined the
Operating Engineers Union in 1970 and is classified as a heavy duty mechanic,
welder, and asphalt plant operator. At Quesnel Paving, Mr. Niemi's duties
consisted of operating, maintaining, repairing, moving and overseeing the
operation of asphalt equipment. Mr. Niemi began designing a different method of
mixing asphalt in the mid 1980's. The drawings of the double tapered mixing drum
system were completed by the beginning of 1997.
Robert W. Stark, Vice President and Director
Mr. Stark is one of our directors and has been a Vice-President since
January 31, 2000. Since 1988, Mr. Stark has been self-employed with Krats
Drilling. He applies approximately 90% of his work time to Krats Drilling and
the remaining 10% to us. Mr. Stark has been employed for over thirty years as a
driller, blaster and driver in British Columbia and the Yukon. Mr. Stark has
extensive experience and certification in areas including but not limited to: BC
Ministry of Energy Mines and Petroleum Services blasting certification, Mine
Rescue Certification, Transportation of Dangerous Goods Certification, and WCB
Occupational First-Aid Level 1.
Lloyd Olson, Treasurer Niew Industries, Inc.
Mr. Olson has been a part of Niew Industries since 1997 and has held the
position of treasurer of Niew Industries since inception. Mr. Olson was an
electrical apprentice for Service Electric, Quesnel, B.C. from 1986-1990. His
apprenticeship was served mainly in an industrial environment, sawmills, and
pulpmills. During this period he developed a programmable logic controller
program for the logging industry to automatically measure and cut logs to length
in the bush. From 1991 to 1998 he worked as a serviceman for Service Electric in
Quesnel. His duties ranged from residential to commercial work as well as
Industrial instrumentation and programmable logic controller programming.
During this period he developed a program to monitor and run the city of
Quesnel's water system via computer over the telephone line. From 1997 to the
present date, Mr. Olson has been the Treasurer for Niew Industries.
There are no family relationships between any of our directors and
officers. There are no arrangements or understandings between any two or more
directors or executive officers, pursuant to which he/she was selected to be a
director or executive officer.
None of our directors, executive officers, promoters or control persons
have been involved in any of the following events during the past five years:
1. any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
2. any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
3. being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or
<PAGE>
4. being found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.
Committees of the Board of Directors
We do not have an audit or compensation committee at this time.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors and persons who own more than 10% of a
registered class of our common shares to file with the Securities and Exchange
Commission initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership of our common stock and
other equity securities, on Forms 3, 4 and 5 respectively. Executive officers,
directors and greater than 10% shareholders are required by Commission
regulations to furnish us with copies of all Section 16(a) reports they file.
To the best of our knowledge, all executive officers, directors and greater
than 10% shareholders filed the required reports in a timely manner, with the
exception of the following:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF TRANSACTIONS NOT FAILURE TO FILE
NAME LATE REPORTS REPORTED ON A TIMELY BASIS REQUESTED FORMS
------------------ ------------- -------------------------- ----------------
<S> <C> <C> <C>
Helge Freudentheil 1(1) 1 1(1)
------------- -------------------------- ----------------
Robert Stark . . . 1(1) 1 1(1)
------------- -------------------------- ----------------
Walter Niemi . . . 1(1) 1 1(1)
------------- -------------------------- ----------------
Lloyd Olson. . . . 1(1) 1 1(1)
------------- -------------------------- ----------------
Ken Bergestrad . . 1(1) 1 1(1)
------------------ ------------- -------------------------- ----------------
<FN>
(1) The named officer, director or greater than 10% shareholder, as
applicable, late filed a Form 3 - Initial Statement of Beneficial Ownership on
June 27, 2000. The Company has not received any other reports from any of these
persons and cannot therefore determine if such individuals have failed or late
filed any applicable reports.
</TABLE>
ITEM 10. EXECUTIVE COMPENSATION.
No executive officer of Global Innovative Systems Inc. received annual
salary and bonus in excess of $100,000 for the years ended September 30, 2000,
1999 and 1998. We paid the following compensation to our executive officers:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION SALARY PAID
----------------------------------------- ----------------------------------
<S> <C>
Lloyd Olson, Treasurer of Niew Industries CDN$30,000 (approximately $20,000)
----------------------------------
Ken Bergestad, Vice President . . . . . . CDN$30,000 (approximately $20,000)
----------------------------------
Walter Niemi, Secretary and Treasurer . . CDN$60,000 (approximately $40,000)
----------------------------------------- ----------------------------------
</TABLE>
There were no grants of stock options or stock appreciation rights made
during the fiscal year ended September 30, 2000 to any of our executive officers
or directors. There were no stock options outstanding as at September 30, 2000,
and we have not granted any stock options to any of our executive officers,
directors, employees or consultants.
<PAGE>
On July 1, 1996, Legacy Minerals Inc. adopted the Legacy Minerals Inc. 1996
Consultant and Employee Stock Compensation Plan pursuant to Rule 701 promulgated
under the Securities Act of 1933. The plan authorizes the distribution of up to
1,000,000 shares. Since we are now a reporting company under the Securities
Exchange Act of 1934, we can no longer grant any options under this plan.
Other than as discussed above, we have no plans or arrangements in respect
of remuneration received or that may be received by our executive officers to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control, where the value of such compensation exceeds
$100,000 per executive officer.
There are no arrangements or plans in which we provide pension, retirement
or similar benefits for directors or executive officers. Other than the
management agreements discussed herein, we have no material bonus or profit
sharing plans pursuant to which cash or non-cash compensation is or may be paid
to our directors or executive officers, except that stock options may be granted
at the discretion of the board of directors or a committee thereof.
Directors Compensation
We reimburse our directors for expenses incurred in connection with
attending board meetings and paid director's fees of $18,000 to our directors
for services rendered as directors in the year ended September 30, 2000.
Effective January 1, 2000, we have agreed to pay our directors an annual fee of
$6,000 for services rendered as directors.
We have no other formal plan for compensating our directors for their
service in their capacity as directors although such directors are expected to
receive in the future options to purchase shares of common stock as awarded by
our board of directors or (as to future options) a compensation committee which
may be established in the future. Directors are entitled to reimbursement for
reasonable travel and other out-of-pocket expenses incurred in connection with
attendance at meetings of our board of directors. The board of directors may
award special remuneration to any director undertaking any special services on
behalf of our company other than services ordinarily required of a director.
Other than indicated below, no director received and/or accrued any compensation
for his or her services as a director, including committee participation and/or
special assignments.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Principal Stockholders
The following table sets forth, as of December 31, 2000, certain
information with respect to beneficial ownership of our common stock by each
stockholder known by us to be the beneficial owner of more than 5% of our common
shares and by each of our current directors and executive officers. Each person
has sole voting and investment power with respect to the common shares, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the common shares, except as otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF CLASS
NAME & ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNER(1) BENEFICIAL OWNER(1)
----------------------------------- ---------------------- -------------------
<S> <C> <C>
Lloyd Olson(2)
105 - 2379
Bjornson Site
Quesnel, B.C.
Canada V2J 5E6 . . . . . . . . . . 2,400,000 11%
---------------------- -------------------
Walter Niemi
105 - 2379 Red Bluff Road
Quesnel, B.C.
Canada V2J 6B9 . . . . . . . . . . 7,200,000 33%
---------------------- -------------------
Ken Bergestad
5975 Selkirk Crescent
Prince George, B.C.
Canada V2N 2G9 . . . . . . . . . . 2,400,000 11%
---------------------- -------------------
Robert W. Stark
2332 Northwood Pulp Road
Prince George, B.C.
Canada V2A 1K2 . . . . . . . . . . Nil Nil
---------------------- -------------------
Helge Freudentheil
23425 Fyfe Road
Prince George, B.C.
Canada V2N 6H7 . . . . . . . . . . Nil Nil
---------------------- -------------------
Directors and officers as a group . 12,000,000 55%
----------------------------------- ---------------------- -------------------
<FN>
(1) Based on 21,700,000 shares of common stock issued and outstanding as of
December 31, 2000. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed above, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of
common stock subject to options or warrants currently exercisable, or
exercisable within 60 days, are deemed outstanding for purposes of computing the
percentage ownership of the person holding such option or warrants, but are not
deemed outstanding for purposes of computing the percentage ownership of any
other person.
(2) Lloyd Olson is an employee of ours, but is not an officer or a director,
nor is he related to any person in management.
</TABLE>
Changes in Control
We are unaware of any contract or other arrangement, the operation of which
may at a subsequent date result in our change of control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except as otherwise indicated below, we have not been a party to any
transaction, proposed transaction, or series of transactions in which the amount
involved exceeds $60,000, and in which, to its knowledge, any of its directors,
officers, five percent beneficial security holder, or any member of the
immediate family of the foregoing persons has had or will have a direct or
indirect material interest.
During the year ended September 30, 1999, Niew Industries borrowed
CDN$50,000 (approximately $34,000) from director Ken Bergestad's father. We
either accrued or paid him interest of $2,291 during the year ended September
30, 2000. The loan is unsecured and is without specific terms of repayment.
Interest is payable at the rate of eight percent per annum. The lender has
indicated that he does not expect to request repayment during the next fiscal
year. As of September 30, 2000, there was a principal balance of CDN$47,500
(approximately $32,000) outstanding as we had repaid $1,974 during the fiscal
year.
Niew Industries had previously received loans in fiscal 1999 of $467,357.
Of this sum, $450,457 did not bear interest. The balance of $16,900 was repaid
during fiscal 2000. These loans are unsecured and have no specific terms of
repayment. In connection with the Share Exchange Agreement, loans totalling
<PAGE>
$420,864 were acquired by us and settled. In fiscal 2000, the directors
advanced a further $156,118 (net of repayments of $70,416) to us on an
unsecured, non-interest bearing basis with no terms of repayment.
At September 30, 2000, the balance of loans payable to our stockholders was
as follows:
Ken Bergestad $ 75,582
Walter Niemi 52,978
Lloyd Olson 55,290
------
$ 183,850
============
Niew Industries advanced as a non-refundable payment of CDN$66,800
(approximately $45,000) to Remote Security Ltd. in contemplation of an
acquisition of Remote Security Ltd. a company in which Robert Stark, one of our
directors, also serves as a director. Management of Niew Industries had
investigated a proposed acquisition of Remote Security Ltd. a Canadian business
involved in the development of a secure locking system for explosives magazines.
Niew Industries performed its due diligence in connection with the acquisition.
Thereafter, Niew Industries' management re-evaluated the proposal and decided
not to pursue the acquisition. As a result, the initial advances were written
off. At the time of the related party transaction, Mr. Stark was a controlling
shareholder of Remote Security Ltd. While he is a member of our board of
directors, Mr. Stark has never been a director of Niew Industries. Thus, he did
not participate in Niew Industries' decision to advance the funds, to abandon
the acquisition, or to forgive the indebtedness.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Financial Statements Filed as Part of our Annual Report
Report of Independent Accountants, dated December 15, 2000.
Consolidated Balance Sheets at September 30, 2000 and 1999.
Consolidated Statements of Operations for the years ended September 30,
2000 and 1999 and for the cumulative period from January 15, 1997
(incorporation) to September 30, 2000.
Consolidated Statements of Changes in Stockholders' Deficit for the period
from January 15, 1997 (incorporation) to September 30, 2000.
Consolidated Statements of Cash Flows for the years ended September 30,
2000 and 1999 and for the cumulative period from January 15, 1997
(incorporation) to September 30, 2000.
Notes to Consolidated Financial Statements
Exhibits Required by Item 601 of Regulation S-B
(3) Articles of Incorporation and By-laws
3.1 Charter (filed as exhibit 3(i) to our Registration Statement on
Form 10SB on April 11, 2000, and incorporated herein by reference)
3.2 Articles of Incorporation (filed as exhibit 3(ii) to our
Registration Statement on Form 10SB on April 11, 2000, and incorporated herein
by reference)
3.3 Bylaws (filed as exhibit 3(iii) to our Registration Statement on
Form 10SB on April 11, 2000, and incorporated herein by reference)
(10) Material Contracts
10.1 Share Purchase Agreement between Global and Niew Industries Inc., dated
December 1, 1999 (filed as exhibit 10(i) to our Registration Statement on Form
10SB on April 11, 2000, and incorporated herein by reference)
10.2 Agreement between Ian Westwood and Global, dated November 8, 1999
(filed as exhibit 10(ii) to our Registration Statement on Form 10SB on April 11,
2000, and incorporated herein by reference)
10.3 Amending Agreement between Ian Westwood and Global, dated November 22,
2000
10.4 Assignment of Patents between Niew Industries Inc. and Walter Niemi,
dated November 7, 1999
10.5 Assignment between Niew Industries and Walter Niemi, dated December 13,
1998
10.6 Assignment of Copyright between Niew Industries and Lloyd Olson, dated
April 19, 1999
(21) Subsidiary
Niew Industries Inc. is a 100% wholly owned subsidiary of ours
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL INNOVATIVE SYSTEMS, INC.
By: /s/ Helge Freudentheil
Helge Freudentheil
President and Director
Date: January 11, 2001
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Helge Freudentheil
Helge Freudentheil
President and Director
Date: January 11, 2001
By: /s/ Ken Bergestad
Ken Bergestad
Vice President and Director
Date: January 11, 2001
By: /s/ Walter Niemi
Walter Niemi
Secretary, Treasurer and Director
Date: January 11, 2001
By: /s/ Robert Stark
Robert Stark
Vice President and Director
Date: January 11, 2001
