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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10SB
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ENCOUNTER.COM INC.
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(Exact name of Company as specified in its charter)
COLORADO 84-1027606
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6900 Westcliff Drive, Suite 608 SEC File No. 0-30029
Las Vegas, Nevada 89145ia 94514 -------
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(Address of principal executive offices)
Registrant's telephone number, including area code 702-360-0066
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
50,000,000 Shares of Common Stock
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(Title of class)
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TABLE OF CONTENTS
Page
COVER PAGE 1
TABLE OF CONTENTS 2
PART I 3
DESCRIPTION OF BUSINESS 3
DESCRIPTION OF PROPERTY 20
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES 20
REMUNERATION OF DIRECTORS AND OFFICERS 21
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS 21
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS 22
SECURITIES BEING REGISTERED 23
PART II 24
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS 24
LEGAL PROCEEDINGS 24
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 25
RECENT SALES OF UNREGISTERED SECURITIES 25
INDEMNIFICATION OF DIRECTORS AND OFFICERS 26
PART F/S 27
FINANCIAL STATEMENTS F-1
PART III 28
INDEX TO EXHIBITS 28
SIGNATURES 29
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PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
Item 6. Description of Business
The Company is in the business of providing Internet products and
services, including Internet access, colocation and professional
services. The Company, through its subsidiary CyberCastingCorp.com,
executed non-binding letters of intent to acquire two Internet service
providers. These letters expired in December 2000, but were verbally
extended by the parties. The acquisitions, if consummated, would bring
the Company Internet
related capabilities such as delivery of high-speed Internet access;
broadband wireless; networking expertise; colocation facility
development; and management experience and technical personnel for
providing Internet services. Working in conjunction with the two
Internet service providers, the Company has begun offering colocation
service in Las Vegas, NV through a strategic partnership agreement
with an existing colocation facility, and has formed a subsidiary,
CybAirCorp, to market Internet access, professional services and
collocation services. The aforementioned projects and acquisitions
each require substantial capital funding, and there can be no
assurance that the Company will be able to obtain such financing.
Incorporation
Encounter.com was incorporated June 4, 1986 under the laws of the
state of Colorado as Sure Hair, Inc. The Company's original
business, the sale of cosmetic and beauty care products, failed when
its products did not generate anticipated revenues. On September 26,
1997, after being dormant for almost ten years, the Company changed
its name to Palmer Medical, Inc. and attempted to build a medical
products business by acquiring distribution rights to a non-reusable
syringe. The project was discontinued and the Company was again
dormant at the end of its 1998 fiscal year.
On February 3, 1999, the Company changed its name to eDatenow.com,
Inc. and attempted to acquire SA Interactive Technology, Inc., a
privately held company in the voice personals industry with a view
toward development of an Internet dating program. The acquisition
was not consummated and on May 31, 1999, the Company changed its name
to Encounter.com, Inc. Seven months later, following several failed
attempts to develop Internet dating technology, the company was
insolvent.
On February 4, 2000, the Company consummated an agreement with
Encounter.com Acquisition Corp. for the sale of 24,726,198 of its
common shares (75% of the issued and outstanding shares of the
company) in exchange for certain Internet technology and a business
plan that currently represents the business of the Company. The
agreement, among other things, included a requirement for the seller
to negotiate a reduction of certain liabilities of the Company. At
closing, all of the Company's officers and directors were replaced
with nominees of the buyer.
Before February 4, 2000, the Company was managed by 574125 B.C. LTD,
whose place of business was located at Suite 250 - 1455 Bellevue
Avenue, West Vancouver, British Columbia. The Company ceased
operations in Canada immediately upon the transfer of the 24,726,198
common shares to Encounter.com Acquisition Corp.
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Previous Status as Reporting Company
Sure Hair, Inc., the predecessor name to Encounter.com, Inc. was a
reporting company under United States securities laws until September
1, 1994 when it voluntarily terminated it's reporting status upon
filing with the Securities and Exchange Commission.
Subsidiaries
The Company has formed a wholly owned subsidiary,
"CyberCastingCorp.com" to conduct business as an Internet Service
Provider. It has also formed another wholly owned subsidiary,
"CybAirCorp" to conduct business as a provider of Internet access,
professional services and colocation services. (See "Principal
Products and Services)
Principal Products and Services
Internet Service Providers (ISP's) market telephone services, whereby
subscribers are connected to the Internet through local toll-free
telephone numbers. Dial-Up Access, limited to 56,000 bps, is now
used by the majority of Internet subscribers, but is rapidly being
replaced by upscale residential and business users, with various
forms of high-speed access such as DSL, cable and wireless. High-
speed access systems are more profitable to ISP's and tend to
decrease subscriber attrition.
The Company plans to penetrate the Internet Service Provider market
through an acquisition strategy. ISP acquisition targets are
selected based on how well they potentially support the Company's
professional services and colocation operations. Market
demographics, competition, management and technical personnel are
primary considerations when grading a prospective acquisition.
Colocation
Colocation centers are single purpose facilities designed to deliver
clients optimum performance from network equipment and systems owned
by them or provided by the Company. Colocation Space Rental is for a
cabinet or enclosure in a colocation center. Physical components
include raised floors for cooled airflow and static protection,
uninterruptible power supplies with backup generators, biometric
security and redundant cooling systems. Network components include
high-speed, carrier neutral, multi-homed, redundant Internet access,
network security and efficiency monitoring. Space rental is usually
long term, paid monthly.
The Company will arrange strategic partnerships with Colocation
Facility owners, whenever possible, with a goal of being colocation
neutral. Terms of the partnership agreements motivate both parties.
The facility owner sometimes receives a commission on revenue
generated by the Company and the Company may receive a commission on
facility space it is instrumental in renting. Facility owners also
have the option to let the Company provide all Internet Access
Bandwidth sold in the facility saving them the cost of
routers/switches and the commitment for dedicated access from
multiple carriers.
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The Company's strategy is to expand into additional colocation
markets, initially in west coast markets that have potential but have
not yet been penetrated by strong major competitors.
Broadband Internet Access
Broadband Internet access is provided to customers through multiple
carrier lines under contract to the Company. Colocation Partnership
Agreements allow the Company to provide high-speed Broadband Internet
Access within the Colocation Facility either on an exclusive or non-
exclusive basis. Provision of Internet Access requires routers and
switches that the Company purchases through financing agreements with
the equipment vendors. Internet backbone carriers require the
Company to contract for the bulk purchase of access that may
initially be under utilized. Since it is necessary to contract with
several carriers simultaneously to provide customers redundancy
protection, this obligation is a risk factor that could represent $30
to $50 thousand monthly per colocation facility.
Most sales of Internet Access are on a long-term contract basis.
Customers can choose a flat rate for a dedicated bandwidth or
usage pricing based on a burstable limit. Internet Access features
include multi-homing to redundant tier-1 Internet backbones, hop
minimizing, short installation time and scalability.
There is an over supply of available bandwidth and, accordingly, a
reasonable expectation that prices will eventually drop to commodity
levels. The Company has budgeted a dramatic drop in Internet Access
pricing but believes it can maintain a twenty-five percent gross
margin. Controlling the sale of Internet Access and delivery of a
fast, reliable custom product is considered vital to attracting and
retaining long-term customers.
Professional Services
Professional Services include all the services provided by the
Company's management and technical team. These services represent a
strong value proposition to customers in terms of immediate
availability of scarce high quality IT professionals, accelerating
time to market, economies of scale, and enhanced product offerings.
Services, such as an initial proactive evaluation of the e-business
opportunity and data infrastructure requirements, are contracted on a
fixed price or hourly fee basis. Typically, fees for this type of
service are non-refundable but may be applied to contracts for design
of the system and implementation. These expanded contracts include
design of wide and local-area network telecommunications solutions,
installation, site architecture/validation, site migration,
configuration, testing, monitoring and performance review.
Day-to-day, around-the-clock services for management and maintenance
of customers' Internet network operations are provided to customers
in Colocation Facilities owned by Strategic Partners. Services
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include load balancing, data backup, multi-homing, caching,
clustering, server rental, security, maintenance and systems
monitoring. Customers use these services to avoid having to recruit
technical personnel that are expensive and difficult to find and, if
hired, may not be fully utilized in an "in-house" network-operating
center. Customers typically contract for Managed Services on a long-
term basis to provide for continuity and reliability. The services
are billed on a monthly basis with a goal toward achieving a minimum
thirty percent gross profit.
Wireless Broadband Internet Access
Wireless broadband Internet access is a product under development by
the Company for introduction in approximately six months. The
Company has expended considerable time and expense, focused on a new
product being introduced by Cisco Systems, that it believes will be
viable in markets where major competitors are not yet entrenched.
The product is unique in its ability to send and receive signals
point to multi-point rather than point-to-point, as is the case with
existing technology.
The financial impact of the aforementioned product, although believed
to be significant, is not yet well enough defined to include in the
Company's financial planning. When product costs, performance proof
and delivery dates are available, the Company intends to seriously
consider offering this product as a "first mile" Internet
connectivity solution
Market
The Company is focused on the business-to-business market as an "e-
commerce enabler". Gartner Group forecasted on September 14, 2000,
that the worldwide B2B e-commerce market would grow from $403 billion
this year to $7.29 trillion in 2004. Specifically, the Company is
targeting small and medium enterprises (SMEs) that are just now
joining the Internet. According to a May 2000 report by Morgan
Stanley Dean Witter, 50% of GDP and 98% of all business are SMEs.
The Morgan Stanley report also states that solving Internet
bottlenecks (access, routing and server congestion) will be the most
significant wealth creating events. Further, according to the
report, outsourcing is the key driver to lower costs of e-commerce
functions and to deal with a shortage of personnel with IT skills.
Building a data infrastructure is a difficult process involving many
design and engineering disciplines, capital and time. Accordingly,
many companies have contracted with colocation facilities to house
their Internet equipment sometimes on a turnkey basis. Colocation
facilities are specially designed as an ideal environment for
Internet equipment and have high quality Internet links.
Markets studies conducted by the Company have shown that colocation
facilities are available in almost every significant market. In
addition, It is determined that a high percentage of these facilities
either were under utilized or did not have sufficient Managed
Services capacity to serve their clients (see Products and Services)
Strategic partnerships between colocation facilities and the Company
represent a win for both parties. Colocation Facilities receive
numerous requests for services that are valuable sales leads for the
Company. Likewise, the Company's clients often need colocation
service and the Company will
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recommend its strategic partner.
Because of this synergism, the Company has adopted a marketing plan
based on partnering with colocation facilities.
Presently, the Company has identified sufficient colocation
partnering opportunities to support its entire three-year sales goal.
Sales are beginning in December in all of Nevada and New Mexico.
Operations in Arizona, Washington, and Oregon are in development.
Based on this initial progress, the Company believes that market
availability and sales potential are not serious risks.
Other relational marketing opportunities include referrals from ISPs,
ASPs and Telcos. The Company believes these relationships are
potentially more lucrative than heavy advertising and they will be
exploited aggressively.
Competition
The market in which the Company will operate is extremely
competitive, and the Company expects competition in this market to
intensify in the future. The Company's current and prospective
competitors include many large companies that have substantially
greater market presence and financial, technical, marketing and other
resources. The Company competes (or in the future is expected to
compete) directly or indirectly with the following categories of
companies: (i) national and regional ISPs such as MindSpring
Enterprises, Inc., Netcom On-line Communication Services, Inc.,
PSINet, Inc. and UUNET; (ii) established online services companies
such as America Online, Inc.; (iii) computer software and technology
companies such as Microsoft Corporation; (iv) national
telecommunication companies such as AT&T Corp., MCI Communications
Corporation , and Sprint Corporation; (v) regional Bell operating
companies; (vi) cable operators such as Comcast Corporation and Time
Warner, Inc.; and (vii) nonprofit or educational Internet service
providers.
Many established online services companies and telecommunication
companies have introduced or plan to expand their Internet services.
The Company expects that a significant number of major
telecommunication, cable, media, software and hardware companies, as
well as all of the major online services companies, will eventually
compete fully in the Internet services market, and that their entry
into this market will result in substantially greater competition for
the Company. The ability of these competitors or others to bundle
services and products with Internet connectivity services could place
the Company at a significant competitive disadvantage. In addition,
competitors in the telecommunication industry may be able to provide
customers with reduced communication costs in connection with their
Internet access services, reducing the overall cost of Internet
access and significantly increasing pricing pressures on the Company.
There can be no assurance that the Company will be able to offset
the effects of any necessary price reductions resulting from such
pricing pressures with an increase in the number of its customers,
higher revenue from enhanced services, cost reductions or otherwise.
The Company believes that its ability to compete successfully in the
Internet services market depends on a number of factors, including
market presence; the adequacy of the Company's customer support
services; the capacity, reliability and security of its network
infrastructure; the ease of access to and navigation of the Internet
provided by the Company's services; the pricing policies of the
Company, its competitors and its suppliers; the timing of
introductions of new services and products by the Company
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and its
competitors; the Company's ability to support existing and emerging
industry standards; and industry and general economic trends. There
can be no assurance that the Company will have the financial
resources, technical expertise or marketing and support capabilities
to compete successfully.
Research and Development
The Company is in an industry known for rapid evolution and
proliferation of new products. Therefore it must maintain a
competitive level of technology. Whenever possible, new product
technology will be purchased, licensed or acquired through strategic
relationships. The Company did not have any research and development
expenses in the two fiscal years ended May 31, 1999. Research and
development expense in fiscal year end May 31, 2000 was $38,491.
Employees
The Company has conducted business with the services of eight
professionals compensated as consultants. Effective January 1, 2001
the Company plans to hire its consultants as employees.
The Company has one officer, Dennis J. Hinton who is CEO and CFO.
Officers in CyberCastingCorp.com are Dennis Hinton, CEO and CFO; Tom
Kain, President; and Sonia Sworak, Vice President of Corporate
Development. Officers in CybAirCorp are Dennis Hinton, CEO and CFO
and Tom Kain President and COO.
Mr. Hinton is the sole director of the Company. The Company intends
to add four additional board members and will fill the vacancies as
soon as practicable. There is no compensation for board members
although the Company intends to provide non-employee board members
stock options.
Operations
The Company is in a development stage and does not have any business
operations.
Intellectual Property And Other Proprietary Rights
The Company does not have any patents or trademarks, but does intend
to file for appropriate protection of its proprietary assets as they
are developed.
RISK FACTORS
The Company faces substantial risks in executing its business plan
and achieving revenues. The following risks are material risks that
the Company faces. If any of the following risks occur, the business
of the Company and its operating results and financial condition
could be seriously harmed:
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Need for Additional Financing
The Company's audited financial statements as of May 31, 1999 state
that the Company's need for additional equity financing for the
development of the business and lack of revenues raise substantial
doubt about its ability to continue as a going concern. The Company
will not be able to expand its operations as planned without
obtaining additional financing in the near future. If this financing
is not available or obtainable, investors may lose a substantial
portion or all of their investment. There can be no assurance that
additional financing, when necessary, will be available to the
Company on acceptable terms, or at all. The Company sold 1,100,000
shares of common stock for $0.25 per share pursuant to Rule 504 of
Regulation D of the Securities Act during the first half of the year.
The Company's audited financial statements as of May 31, 1999 state
that the Company's need for additional equity financing for the
development of the business and lack of revenues raise substantial
doubt about its ability to continue as a going concern. Management
projections of cash requirements indicate a need for $1,000,000 to
eliminate this going concern opinion. The Company's subsidiary,
CybAir, currently is offering its stock for sale in an attempt to
raise these funds. Although, management is experienced in raising
capital, there is no assurance that necessary cash can be raised and,
if so, on terms satisfactory to the Company.
Limited Operating History; Risks of a New Business Venture
The Company has only recently begun its web site development
business, and, to date has been involved primarily in organization
and product development. Potential investors should be aware that
there is a substantial risk of failure associated with new businesses
as a result of problems encountered in connection with their
formation and commencement. These include, but are not limited to,
unanticipated problems relating to the marketing and sale of the
Company's products and services in a highly competitive marketplace
of Internet services, the entry of new competition and unknown or
unexpected additional costs and expenses that may exceed current
estimates.
There is only a limited operating history upon which to base any
projection as to the likelihood that the Company will prove
successful, and thus there can be no assurance that the Company will
achieve profitable operations or even generate any operating
revenues.
Management of Potential Growth
To manage any future growth, the Company must continue to implement
and improve its operational and financial systems and to expand,
train and manage its employee base. There can be no assurance that
the Company will be able to effectively manage the expansion of its
operations, or that the Company's infrastructure, facilities,
systems, procedures or controls will be adequate to support the
Company's operations. The inability of the Company to effectively
manage its future growth could have a material adverse effect on the
Company's business, financial condition and results of operations.
There can be no assurance that the Company's infrastructure,
technical staff and resources will be adequate to facilitate the
Company's growth. In addition, delays may occur in establishing
Internet accounts for the Company's customers, and customers may
experience significant delays in contacting,
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and in receiving
responses from, the Company's customer and technical support
personnel. There can be no assurance that the Company will be able to
establish accounts or provide customer support on a timely basis, or
that any delays will not result in a loss of customers. The Company
believes that its ability to provide timely access for customers and
adequate customer support will largely depend on its ability to
attract, identify, train, integrate and retain qualified personnel.
Failure to provide adequate customer support services will adversely
affect the Company's ability to increase its customer base and
establish and maintain a low customer cancellation rate, and could
therefore have a material adverse effect on the Company's business,
financial condition and results of operations.
The sales and marketing and other costs to the Company of acquiring
new customers are substantial relative to the monthly fees derived
from such customers. Accordingly, the Company's ability to establish
and sustain sufficient operating margins depends in part on its
ability to retain its existing customers, while continuing to attract
new customers. The novelty of the market for Internet services may
adversely affect the Company's ability to retain new customers.
Because the Internet services market is new and the variety of
available services is not well understood by new and potential
customers, it is difficult, if not impossible, for the Company to
predict future customer retention rates.
Internet Growth
The Company's future success is substantially dependent on continued
growth in the use of the Internet. Rapid growth in the use of and
interest in the Internet, and in particular the World Wide Web, is a
recent phenomenon and there can be no assurance that Internet usage
will become widespread or that extensive content will continue to be
provided over the Internet. The Internet may not prove to be viable
for a number of reasons, including potentially inadequate development
of the necessary infrastructure, such as a reliable network backbone,
or timely development of performance improvements. To the extent that
the Internet continues to experience significant growth in the number
of users and level of use, there can be no assurance that the
Internet infrastructure will be able to support the demands placed on
it by such potential growth. If use of the Internet does not continue
to grow, or if the Internet infrastructure does not effectively
support growth that may occur, the Company's business, results of
operations and financial condition would be materially and adversely
affected.
Rapid Technological Change
The market for Internet services is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs
and frequent new service and product introductions. The Company's
future success will depend, in part, on its ability to use leading
technologies effectively, to develop its technical expertise, to
enhance its services and to develop new services that meet changing
customer needs on a timely and cost-effective basis. There can be no
assurance that the Company will be successful in using new
technologies effectively, developing new services or enhancing
existing services on a timely basis, or that such new technologies or
enhancements will achieve market acceptance. Any failure on the part
of the Company to use new technologies effectively, develop new
services or enhance existing services on a timely basis would have a
material adverse effect on the Company's business, financial
condition and results of operations.
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Market risks
Any time a new business is introduced into a market, there is a
substantial risk that revenues will not meet expectations or even
cover the cost of operations. General market conditions might be
such that sales will be slow or even non-existent, and/or the product
itself might not fit the needs of buyers enough to induce sales.
While the Company anticipates the ability to sell the products it
develops, there is no way to predict the volume of sales that will
occur or even if sales will be sufficient to support the future
operations of the Company. Numerous factors beyond the control of the
Company may affect the marketability of the products offered and
developed. These factors include consumer demand, market
fluctuations, the proximity and capacity of suppliers and government
regulations, including regulations relating to prices, taxes,
royalties, importing and exporting of products and newly legislated
controls. The exact effect of these factors cannot be accurately
predicted, but it's possible they may result in the Company not
receiving an adequate return on its invested capital.
Competitiveness of Industry
The Internet industry is, in general, intensely competitive. There
can be no assurance that any competitors will not develop and offer
services similar, or even superior, to the products to be developed
and offered by the Company. Such competitiveness is likely to bring
both strong price and quality competition to the sale of the
Company's products, among others things, which will likely mean
increased costs in the form of R&D, marketing, manufacture and
customer services, along with a reduction in product pricing.
Generally, this will have a significant negative effect on any bottom
line profits of the Company.
The Company believes that its ability to compete successfully in the
Internet services market depends on a number of factors, including
market presence; the adequacy of the Company's customer support
services; the capacity, reliability and security of its network
infrastructure; the ease of access to and navigation of the Internet
provided by the Company's services; the pricing policies of the
Company, its competitors and its suppliers; the timing of
introductions of new services and products by the Company and its
competitors; the Company's ability to support existing and emerging
industry standards; and industry and general economic trends. There
can be no assurance that the Company will have the financial
resources, technical expertise or marketing and support capabilities
to compete successfully.
Competitors
The Company currently competes or expects to compete for users with
the following types of companies that provide access services:
1. Established online service and content providers, such as
America Online and The Microsoft Network;
2. Independent national Internet service providers, such as
EarthLink, MindSpring and Prodigy;
3. National long-distance carriers, such as AT&T, GTE and MCI
WorldCom;
4. Local telephone companies and regional Bell operating companies,
such as Pacific Bell;
5. Numerous regional and local commercial Internet service
providers;
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6. Computer hardware and software and other technology companies,
such as IBM and Microsoft;
7. Cable operators and online cable services, such as Excite@Home;
8. Internet portals and search engines such as Yahoo!;
9. free Internet service providers such as NetZero; and
10. nonprofit or educational Internet service providers.
The Company expects that competition for users will continue to
intensify for the foreseeable future. Increased competition could
result in additional sales and marketing expenses and user-
acquisition costs and could also result in increased user turnover
and decreased advertising revenues. The Company may not be able to
offset the effects of these increased costs by raising monthly access
fees, and may not have the resources to continue to compete
successfully. The ability of competitors to acquire other Internet
service providers or to enter into strategic alliances or joint
ventures could also put the Company at a significant competitive
disadvantage.
In addition, new competitors for Internet users, including major
computer manufacturers and software, media and telecommunications
companies, are likely to continue to enter the Internet access
market. Existing competitors may take steps such as reducing their
subscriber fees, offering promotions for access services or bundling
free access services with other product offerings. For example,
AltaVista, a leading portal and search engine, offers a free Internet
access solution to strengthen its relationship with its users, and
both Microsoft and CompuServe partner with personal computer makers
and consumer electronics retailers to offer consumers substantial
rebates on computer equipment when the consumer signs long term
contracts (e.g., three years) for their Internet access services. As
awareness of the Internet grows, existing competitors are likely to
further increase their emphasis on their Internet access services,
resulting in even greater competition.
Moreover, telecommunications companies with far greater resources,
distribution channels and brand awareness offer or have announced
that they will offer, their own Internet access services to users.
Since these companies have their own telecommunications network
infrastructure, they have lower communications costs than the
Company. These advantages reduce the overall cost of Internet access
for such companies and may significantly increase competitive
pressures. In addition, each of the Company's telecommunications
providers supplies network access to competitors, and could choose to
grant those competitors preferential network access, potentially
limiting the Company's users' ability to access the Internet. If
telecommunications service providers were to decrease the levels of
service or access provided to the Company, or if they were to
terminate their relationships with the Company for competitive or
other reasons, and it was not able to develop alternate sources of
supply, the Company would not be able to provide Internet access to
its customers, which could ultimately result in a significant loss of
users and revenues. At this time, the Company is searching for
telecommunications service providers for its business.
The Company also faces competition from companies that provide
broadband Internet access, including local and long-distance
telephone companies, cable television companies, electric utility
companies, wireless communications companies and other Internet
service providers. Broadband technologies
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enable users to transmit
and receive print, video, voice and data in digital form at
significantly faster access speeds.
The telephone, cable and other companies that own broadband networks
may prevent the Company from offering broadband Internet access
through the wire and cable networks that they own. The Company's
ability to compete with telephone and cable television companies that
are able to support broadband transmission may depend on future
regulation to guarantee open access to their broadband networks.
However, in January 1999, the Federal Communications Commission
declined to take any action to mandate or otherwise regulate access
by Internet service providers to broadband cable facilities at this
time.
In addition to competing directly in the Internet access market, both
cable and telephone companies are also aligning themselves with
Internet service providers who would receive preferential or
exclusive use of broadband local connections to users. If broadband
Internet access becomes the preferred mode by which users access the
Internet and the Company is unable to gain access to broadband
networks on reasonable terms, its ability to compete could be
materially and adversely affected.
Telecommunications Carriers
The Company's business substantially depends on the capacity,
affordability, reliability and security of its telecommunications
networks. Only a small number of telecommunications providers offer
the network services required. There has been significant
consolidation in the telecommunications industry, and there is a
significant risk that further consolidation would make the Company
reliant on an even smaller number of providers. Most
telecommunications services are provided pursuant to short-term
agreements that the providers can terminate or elect not to renew. As
a result, any or all of the Company's potential telecommunications
service providers could decide not to provide it with service at
acceptable rates, or at all, in which event, the Company may not be
able to provide Internet access to its users.
In addition, the Company is subject to potential disruptions in these
telecommunication services and may have no means of replacing these
services, on a timely basis or at all, in the event of such
disruption.
Further, the Company is dependent on certain third-party suppliers of
hardware components. Certain components used by the Company in
providing its network services are likely to be acquired from limited
sources. Failure of the Company's suppliers to provide components
and products in the quantities, at the quality levels or at the times
required by the Company, or an inability by the Company to develop
alternative sources of supply if required, could result in delays in
and/or increased costs of expansion of the Company's network
infrastructure.
The Company's suppliers and telecommunication carriers also sell or
lease services and products to the Company's competitors and may be,
or in the future may become, competitors of the Company. There can be
no assurance that the Company's suppliers and telecommunication
carriers will not enter into
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exclusive arrangements with the
Company's competitors or stop selling or leasing their services or
products to the Company.
The Company may also from time to time experience increases in
telecommunications usage which exceed its then-available
telecommunications capacity and the capacity of its internal servers.
As a result, users may be unable to register or log on to its
service, may experience a general slow-down in their Internet access
or may be disconnected from their sessions. Excessive user demand
could also result in system failures of the Company's internal server
networks, which would prevent the Company from generating advertising
revenues. Inaccessibility, interruptions or other limitations on the
ability to access service due to excessive user demand, or any
failure of servers to handle user traffic, would have a material
adverse effect on the Company's reputation and revenues.
Moreover, if third-party telecommunications service providers deliver
unacceptable service, the quality of the Company's Internet access
service would suffer. In this event, the Company would likely lose
users who are dissatisfied with its service. Since the Company does
not have direct control over its telecommunications carriers' network
reliability and the quality of their service, it cannot provide any
assurance that it will be able to provide consistently reliable
Internet access for its users.
The Company's margins are highly sensitive to variations in prices
for its telecommunications services. Its business could be harmed if
minimum connection charges increase or become more prevalent. In
addition, the availability and pricing of telecommunications services
varies geographically, and the Company may not be able to obtain new
or substitute telecommunications services in certain geographic areas
on commercially reasonable terms, if at all.
Technology
The Company relies upon third parties to help it develop technologies
that enhance its current product and service offerings. If the
Company's relationships with these third parties are impaired or
terminated, then it would have to find other developers on a timely
basis or develop technology completely on its own. Failure to
successfully do so could materially effect the Company's results of
operations.
In addition, other companies may develop services or technologies
that render the Company's services or technology noncompetitive or
obsolete. For instance, a number of companies are offering broadband
and other high speed Internet access services, which allow users to
access the Internet at much faster speeds than the access services
the Company intends to initially provide. The Company's ability to
remain technologically competitive may require substantial
expenditures and lead time. If the Company is unable to respond in a
timely manner to technological advances, it may not be able to
compete effectively for users, which could cause its revenues to
decrease.
Moreover, the software and hardware used to operate and provide our
services is complex and, accordingly, may contain undetected errors
or failures. This could result in such adverse consequences as:
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1. users being disconnected from our service or being unable to
access our service;
2. loss of data or revenue;
3. injury to reputation; and
4. diversion of development resources.
Security Breach, Virus or Inappropriate Use By Internet Users
The Company's future success will depend, in part, on the security of
its network and, in part, on the security of the network
infrastructures of its third-party telecommunications service
providers, over which it has no control. Computer viruses or
problems caused by users or other third parties, such as the sending
of excessive volumes of unsolicited bulk e-mail or "spam", could lead
to interruptions, delays, or cessation in service. In addition, the
sending of "spam" through the Company's network could result in third
party claims against the Company. Users or other third parties could
also potentially jeopardize the security of confidential information
stored in the Company's computer systems or its users' computer
systems by their inappropriate use of the Internet, including
breaking into the Company's computer network, which could cause
losses to the Company or its users. Users or third parties may also
potentially expose the Company to liability by "identity theft", or
posing as another Encounter.com user. Unauthorized access by current
and former employees or others could also potentially jeopardize the
security of confidential information stored in the Company's computer
systems and those of its users.
The Company expects that its users will increasingly use the Internet
for commercial transactions in the future. Any network malfunction or
security breach could cause these transactions to be delayed, not
completed at all, or completed with compromised security. Users or
others may assert claims of liability against the Company as a result
of any failure to prevent these network malfunctions and security
breaches, and may deter others from using its services. Although the
Company intends to use Industry-standard security measures, such
measures have been circumvented in the past, and there can be no
assurance that these measures will not be circumvented in the future.
In addition, to alleviate problems caused by computer viruses or
other inappropriate uses or security breaches, the Company may have
to interrupt, delay, or temporarily cease service to its users, which
could have a material adverse effect on revenues and could also
result in increased user turnover.
Integration of Future Acquisitions Into Operations
In the future, the Company may make acquisitions or undertake other
business combinations that can complement its current or planned
business activities. Such acquisitions may not be available at the
times or on acceptable terms, or at all. In addition, acquiring a
business involves many risks, including:
1. disruption of ongoing business and diversion of resources and
management time;
2. unforeseen obligations or liabilities;
3. difficulty assimilating the acquired operations and personnel;
4. risks of entering markets in which the Company has little or no
direct prior experience;
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5. potential impairment of relationships with employees or users as
a result of changes in management; and
6. potential dilutive issuances of equity, large and immediate
write-offs, the incurrence of debt, and amortization of goodwill
or other intangible assets.
Potential Legal, Regulatory and/or Compliance Risk
The Company may be subject to United States and international laws
and regulations regarding the development, use and/or sale of the
products or services it sells. The Company may, with regard to
governmental and/or regulatory agencies, be required to comply with
certain regulations, and/or potential future regulations, rules,
and/or directives. Due to the nature of the industry, there is no
guarantee that certain regulations may not, in the future, be
imposed. Moreover, potential regulatory conditions and/or compliance
therewith and the effects of such on the Company, may have a
materially adverse affect upon the Company, its business operations,
prospects and/or financial condition.
The law relating to the Company's business and operations is evolving
and no clear legal precedents have been established. The adoption of
new laws or the application of existing laws may decrease the growth
in the use of the Internet, affect telecommunications costs or
increase the likelihood or scope of competition from regional
telephone companies. These results could decrease the demand for the
Company's services or increase it's cost of doing business, each of
which would cause gross margins and revenues to fall. In particular,
the following risks could occur:
1. Regulation of Content and Access Could Limit the Company's
Ability To Generate Revenues And Expose it to Liability;
2. The Company Could Be Exposed to Liability for Defamation,
Negligence, and Infringement;
3. Telecommunications Regulation Could Make It More Expensive For
Us To Do Business.
Domain Names
The Company currently holds the web site domain name relating to our
brand, CyberCastingCorp.com, CybAirCorp and other web site domain
names. Governmental agencies and their designees generally regulate
the acquisition and maintenance of domain names. The regulation of
domain names in the United States and in foreign countries is subject
to change in the near future. As a result, the Company may be unable
to acquire or maintain relevant domain names in the countries in
which it conducts, or plans to conduct, business. Furthermore, the
relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear.
Therefore, the Company may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon, dilute or
otherwise decrease the value of its trademarks and other proprietary
rights.
The Company depends on its key persons and/or suppliers
Due to the highly technical nature of the Company's business, having
certain key personnel will be
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essential to the web site development
process and thus to the entire business itself. Consequently, the
loss of any of those individuals once hired may have a substantial
effect on the Company's future success or failure.
Moreover, the Company is dependent on the principal members of its
management staff, the loss of any of whom could impair the
development of the Company's products and projects. The Company's
success will be largely dependent on the decisions made by members of
management. Furthermore, the Company may depend on its ability to
attract and retain additional qualified personnel to manage certain
business interests. The Company may have to recruit qualified
personnel with competitive compensation packages, equity
participation and other benefits that may affect the working capital
available for the Company's operation(s). Management may seek to
obtain outside independent professionals to assist them in assessing
the merits and risks of any business proposals as well as assisting
in the development and operation of any projects. No assurance can
be given that the Company will be able to obtain such needed
assistance on terms acceptable to the Company.
Limited Assets of the Company
The Company has limited assets and will require significant capital
to complete its research and development programs. The Company does
not know the exact specific financial requirements of the projects,
products or ventures in which it may eventually participate, and
therefore does not know what its exact capital needs will be. In
addition, the Company may incur substantial costs in connection with
any research and/or negotiations for business opportunities, which
may deplete the assets of the Company.
Trademarks and Protection of Proprietary Technology
The Company's success may depend in part on its ability to obtain and
enforce intellectual property protection for its technology in both
the United States and other countries. To date, the Company has not
filed any trademark applications in the United States Trademark
Office.
No assurance can be given that trademarks, when applied for, will
issue. In addition, no assurance can be given that any trademarks
acquired by the Company will not be challenged, invalidated or
circumvented, that the rights granted under trademarks will provide
competitive advantages to the Company, or that the Company's
competitors will not independently develop or trademark products that
are substantially equivalent or superior to the Company's products.
Furthermore, the possibility exists that the Company could be found
to infringe on trademarks held by others. The Company may have to go
to court to defend its trademarks, to prosecute infringements, or to
defend itself from infringement claims by others.
Trademark litigation is expensive and time-consuming, and can be used
by well-funded adversaries as a strategy for depleting the resources
of a small company such as the Company. There is no assurance that
the Company will have sufficient resources to successfully prosecute
its interests in any litigation which may be brought.
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The Company's Short Operating History makes its business difficult to
evaluate
The Company has only just begun developing its business under its
current business plan, and, accordingly, has no operating history
upon which to base an evaluation of its business and prospects.
Consequently, the Company's business and prospects must be considered
in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets such as
the Internet. To address these risks, the Company must successfully
implement its business plan and marketing strategies, although both
strategies are currently under development. The Company may not
successfully implement all or any of its business strategies or
successfully address the risks and uncertainties that it encounters.
The Company has no revenues
The Company has no revenues and no products or services that it can
sell at the present time. Future revenues will depend on the
Company's ability to develop a product and thereafter to market the
product. There is no assurance that the Company will meet its
objectives or attain revenues. The Company is engaged in business
for profit but cannot predict future profitability.
Operating results are difficult to predict
The Company's future financial results are uncertain due to a number
of factors, many of which are outside the Company's control. These
factors include:
1. The fact that the Company has not finalized development of its
product;
2. The fact that the Company is a new venture which has not begun
to market its product;
3. The amount and timing of costs relating to development of the
Company's product;
4. The announcement or introduction of competing products of
competitors; and
5. General economic conditions.
Additional Financing
The Company will require additional financing in order to complete
its business plan. The Company has no agreements for additional
financing and there can be no assurance that additional funding will
be available to the Company on acceptable terms in order to enable
the Company to complete its plan of operations.
The Company's capital requirements depend on numerous factors,
including the rate of market acceptance of the Company's services,
the Company's ability to maintain and expand its customer base, the
level of resources devoted to developing and expanding the Company's
marketing and sales
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organization and the Company's research and
development activities, the availability of hardware and software
provided by third-party vendors, the rate of expansion of the
Company's network infrastructure and other factors. The timing and
amount of such capital requirements cannot accurately be predicted.
If capital requirements vary materially from those currently planned,
the Company may require additional financing. The Company has no
commitments for any additional financing, and there can be no
assurance that any such commitments can be obtained on favorable
terms, if at all. Any additional equity financing may dilute the
interest of the Company's stockholders, and debt financing, if
available, may involve restrictive covenants with respect to
dividends, raising future capital and other financial and operational
matters. If the Company is unable to obtain additional financing as
needed, the Company may be required to reduce the scope of its
operations or its anticipated expansion, which could have a material
adverse effect on the Company's business, financial condition and
results of operations.
The Company will not be able to continue operations if additional
financing is not obtained.
The Company carries no insurance policies.
The Company currently carries no policies of insurance to cover any
type of risk to its business.
Compliance
The Company is delinquent with respect to the requirement of the OTC
Bulletin Board requirement of registering with the Securities and
Exchange Commission. Although the Company is in the process of
registering its stock with the SEC, it has been de-listed from the
Bulletin Board and will need to re-apply in order to re-gain its
listed status at a later date.
Liquidity
The Company is a development stage enterprise that has not, to date,
earned any revenues. The Company's audited financial statements as
of May 31, 2000 state that the Company's need for additional equity
financing for the development of the business and lack of revenues
raise substantial doubt about its ability to continue as a going
concern. Management projections of cash requirements indicate a need
for $1,000,000 to eliminate this going concern opinion. The Company's
subsidiary sold 400,000 shares of its common stock for $0.50 per share
pursuant to Rule 504 of Regulation D of the Securities Act during the
remainder of the year. The Company's subsidiary, CybAir, currently is
offering its stock for sale in an attempt to raise these funds. Although,
management is experienced in raising capital, there is no assurance
that necessary cash can be raised and, if so, on terms satisfactory
to the Company.
Controlling Ownership of Messrs. Hinton and Cleveland
Mr. Dennis Hinton, our sole director and CEO, and Mr. Dave
Cleveland own approximately 72.8% of the outstanding shares of our
common stock. Accordingly, they will have a significant influence
in determining the outcome of all corporate transactions or other
matters, including mergers,
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consolidations and the sale of all or
substantially all of our assets, and also the power to prevent or
cause a change in control. The interests of Messrs. Hinton and
Cleveland may differ from the interests of the other stockholders.
Item 7. Description of Property
The Company is headquartered in leased premises at 6900 Westcliff
Drive, Suite 608, Las Vegas, NV 89145. The leased premises are
approximately 1,310 square feet, representing Suite 608 and a portion
of Suite 601. The lease commitment is for three (3) years and three
(3) months and expires on June 30, 2003. The Company has a three-
year lease renewal option.
Rent is based on 1,158 square feet until the additional 152 square
feet is completed by the landlord and turned over to the Company.
The rent formula is as follows:
Monthly Minimum Base Rate: Months 01-03 Free Rent
Months 04-15 $2.35/Sq.Ft./Month*
Months 16-27 $2.42/Sq.Ft./Month*
Months 28-39 $2.49/Sq.Ft./Month*
--------------------------------
*Adjusted by Cost of Living
The Company also pays $70 ($35 each) for two covered parking spaces.
Total rent including parking is currently $3,148.50.
The Company owns no real property.
Item 8. Directors, Executive Officers and Significant Employees
The following information sets forth the names of the officers and
directors of the Company, their present positions with the Company,
and their biographical information.
Name Age Office(s) Held
---- --- --------------
Dennis Hinton 65 President, CEO & CFO
Dennis J. Hinton - President, CEO and Chief Financial Officer
Mr. Hinton for the past twenty years has conducted investment banking
in his own firm, specializing in high growth companies with IPO
potential. He has experience in mergers and acquisitions, roll-ups
and public companies. Mr. Hinton's background also includes general
and financial management in major corporations, such as R. J.
Reynolds, Yardley of London, Inc. and Gulf Oil Corporation. Over the
past five years, Mr. Hinton has worked for several of his own
company's including Extra Equity, Inc. and Delta Leasing. Since 1996
he has been a principal and director of StorNet, Inc., a national
data storage solutions provider. Mr. Hinton devotes his full time to
the management of the Company and it's subsidiaries. Mr. Hinton
received his BS from Gustavus Adolphus College with a major in
Business
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Administration in 1957.
Directors of the Company are appointed for one year terms to hold
office until the next annual general meeting of the holders of the
Company's Common Stock or until removed from office in accordance
with the Company's by-laws. Officers of the Company are appointed by
the Company's board of directors and hold office until removed by the
board.
Significant Employees
The Company has been using the services of consultants and does not
have any significant employees other than its President.
Item 9. Remuneration of Directors and Officers
The Company paid Mr. Hinton $3,311 during the fiscal year end May 31, 2000.
The Company currently has an agreement to pay Mr. Hinton $10,000 per month
in compensation for his services.
Item 10. Security Ownership of Management and Certain Security
Holders
The following table sets forth, as of March 1, 2000, the beneficial
ownership of the Company's Common Stock by each officer and director
of the Company, by each person known by the Company to beneficially
own more than 10% of the Company's Common Stock outstanding and by
the officers and directors of the Company as a group. Except as
otherwise indicated, all shares are owned directly.
Name and address Number of Shares Percentage of
Title of class of beneficial owner of Common Stock Common Stock(1)
-------------- ------------------- ---------------- ---------------
Common Stock Dennis J. Hinton(2) 12,363,099 37.5%
5001 Cabrillo Point
Discovery Bay,
CA 94514
Common Stock Dave Cleveland(2) 12,363,099 37.5%
8981 NE Highway
Number 104
Kingston, WA 98346
Common Stock All Officers and
Directors
as a Group
(1 person) 12,363,099 37.5%
------------
(1) Based on 32,968,264 Common shares outstanding as of March 1, 2000.
(2) 24,726,198 shares of Common Stock are held by Encounter Acquisition Corp.
that is equally beneficially owned by Dennis Hinton
and Dave Cleveland. These shares were acquired in consideration of the
Company's acquisition of certain software and a business
plan relating to the development of the Company as an Internet Service Provider
in February 2000. Dennis Hinton is the
Company's current President, CEO and CFO; Dave Cleveland does not hold a
position in the Company.
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Share Purchase Warrants
The Company has not issued and does not have outstanding any warrants
to purchase shares of its Common Stock.
Options
There are no options to purchase securities of the Company
outstanding.
Registration Rights
None of the holders of the Company's common shares or options to
purchase common shares have any right to require the Company to
register its common shares pursuant to the Securities Act of 1933.
Convertible Securities
The Company has not issued and does not have outstanding any
securities convertible into shares of Common Stock or any rights
convertible or exchangeable into shares of Common Stock
Item 11. Interest of Management and Others in Certain Transactions
Except as disclosed below, none of the following persons has any
direct or indirect material interest in any transaction to which the
Company is a party in any proposed transaction to which the Company
is proposed to be a party:
(A) Any director or officer of the Company;
(B) Any proposed nominee for election as a director of the
Company;
(C) Any person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights attached
to the Company's Common Stock; or
(D) Any relative or spouse of any of the foregoing persons, or
any relative of such spouse, who has the same house as such
person or who is a director or officer of any parent or
subsidiary of the Company.
The Company currently does not have any policies about entering into
transactions with affiliated parties.
Messrs. Hinton and Cleveland received 24,726,198 shares (75%) of the
Company's common stock in exchange for a business plan, management
team and expertise with which the company could resume operations in
the Internet market. Concurrently, Messrs. Hinton and Cleveland
committed 1,000,000 of their shares to a technology license agreement
with WebSuite.com for non-exclusive use of software enabling
subscribers to create and publish websites. This agreement was later
terminated without transfer of any shares.
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The audited financial statements ending May 31, 1999 noted general
and administrative expenses including a total of $174,846 for
administrative and shareholder relations fees, promotion,
entertainment, travel and accommodation expenses to 574125 B.C. Ltd.,
a shareholder of the Company. Under the terms of a Management
Agreement dated March 18, 1999, 574125 B.C. Ltd. provided
administrative and shareholder relations' services for a monthly fee
of $20,000 plus reimbursement of all costs incurred. The Management
Agreement was mutually rescinded on March 18, 1999. The Company
signed a Promissory Note in the amount of $100,000 in favor of
Woodstock Products Inc., a company related to 574125 B.C. Ltd. in
consideration for the release of the Company from this Management
Agreement.
During the fourth quarter 2000, Dennis Hinton, the Company's CEO and
a major shareholder, loaned the Company $200,000 to support
operations. This loan is a short-term interest free demand loan that
the Company expects to pay back upon the completion of the current
financing being conducted by the Company's subsidiary, CybAir.
Item 12. Securities Being Registered
The securities being registered are the shares of the Company's
common stock, par value $0.001 per share. Under the Company's
Articles of Incorporation, the total number of shares of all classes
of stock that the Company has authority to issue is 50,000,000 shares
of common stock, par value $0.001 per share (the " Common Stock").
As of August 31, 2000, a total of 34,068,264 shares of Common Stock
were issued and outstanding. All issued and outstanding shares of
the Common Stock are fully paid and non-assessable.
Common Stock
Holders of Common Stock have the right to cast one vote for each
share held of record on all matters submitted to a vote of holders of
Common Stock, including the election of directors. Holders of Common
Stock do not have cumulative voting rights in the election of
directors. Holders of a majority of the voting power of the capital
stock issued and outstanding and entitled to vote, represented in
person or by proxy, are necessary to constitute a quorum at any
meeting of the Company's stockholders, and the vote by the holders of
a majority of such outstanding shares is required to effect certain
fundamental corporate changes such as liquidation, merger or
amendment of the Company's Articles of Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata
based on the number of shares held, when, as and if declared by the
Board of Directors, from funds legally available therefor. In the
event of the liquidation, dissolution or winding up of the affairs of
the Company, all assets and funds of the Company remaining after the
payment of all debts and other liabilities shall be distributed, pro
rata, among the holders of the Common Stock. Holders of Common Stock
are not entitled to pre-emptive or subscription or conversion rights,
and there are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable.
Transfer Agent
American Securities Transfer and Trust, Inc. of Lakewood, Colorado is
the transfer agent for the Shares.
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PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Stockholder Matters
The Company's common stock was trading on the OTC Bulletin Board
under the symbol "ENCRE" before being de-listed on February 11, 2000
for not timely registering its common stock with the US Securities
and Exchange Commission. The Company was moved from the bulletin
board to the pink sheets on March 9, 2000.
None of the holders of the Company's common stock have any right to
require the Company to register any shares of the Company's common
stock pursuant to the Securities Act of 1933 (the "1933 Act").
The Company has not declared any dividends on its common stock over
the last two years. There are no dividend restrictions that limit the
Company's ability to pay dividends on its common stock and the
Company does not plan to issue any dividends.
HIGH LOW
---- ----
1999*
First Quarter $12.50 $2.25
Second Quarter $2.625 $0.312
Third Quarter $0.59 $0.125
Fourth Quarter $0.35 $0.07
----------------------------------------------------------------------
* The prices are all "bid" prices.
As of May 31, 2000, there were 418 registered shareholders in the
Company.
Item 2. Legal Proceedings
The Company entered into a Letter of Intent dated February 5, 1999,
to acquire 100% of the shares of SA Interactive Information
Technology, Inc. ("Interactive") (Note 3 (I). The acquisition was
not consummated.
Interactive and its shareholders filed a Statement of Claim in the
Supreme Court of British Columbia (Canada) on April 23, 1999, against
the Company, related companies and individuals.
The Claim pertains to the termination of the proposed acquisition of
Interactive and the continued development of businesses by the
Company in the same or similar fields as Interactive. The Plaintiff
seeks various injunctions restricting the Company from competing
against Interactive, damages for breach of contract and breach of
fiduciary duty, punitive damages and interest. According to the
Plaintiff's Amended Statement of Claim filed July 23, 1999, the total
amount of damages claimed by the Plaintiff in the Interactive lawsuit
is US$300,000 for the alleged repudiation of a Settlement Agreement,
plus unspecified amounts for other alleged damages.
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<PAGE>
The Company has filed Statements of Defense responding that the
actions of the Plaintiff in attempting to renegotiate the terms of
the Letter of Intent abrogated all agreements between them, that the
Company has no fiduciary duties to the Plaintiff and that the
Plaintiff has no exclusive rights to the businesses being developed
by the Company.
The Company intends to defend itself vigorously against this action.
The probable outcome of this action is not determinable at this
time.
The Company is also continuing with its Action against the plaintiffs
identified above for the return of funds advanced to them ($40,333)
towards the proposed acquisition.
Item 3. Changes in and Disagreements with Accountants
The Company has had no changes in or disagreements with its
accountants over the past two years.
Item 4. Recent Sales of Unregistered Securities
The following is a list of equity securities sold by the Company
within the past three years that were not registered under the
Securities Act.
In February of 1999, the Company completed the sale of 8,000,000
shares of common stock to 20 investors for $0.01 per share pursuant
to Rule 504 of Regulation D of the Securities Act. The offering was
completed solely to non-U.S. investors. Total offering price was
$80,000. No sales commissions were paid.
In April of 1999, 80,000 shares of common stock were sold at $2.50
per share to "574125 B.C.LTD." pursuant to Rule 504 of Regulation D
of the Securities Act. Total offering price was $200,000. The
offering was completed to persons known to the Company's officers and
directors. 574125 B.C.LTD provided management services to the
Company at that time. No sales commissions were paid.
In February of 2000, 24,726,198 shares of common stock were sold to
Encounter.com Acquisition Corp. in exchange for the technology rights
and business plan described herein. These shares were sold pursuant
to Section 4(2) of the Securities Act and have been marked
"restricted."
As of May 31, 2000, the Company had sold 1,000,000 shares of common
stock to 5 investors for $0.25 per share pursuant to Rule 504 of
Regulation D of the Securities Act. One Hundred Thousand (100,000)
additional shares were sold in this offering after fiscal year end
May 31, 2000. The total gross receipts of this offering were
$275,000. No sales commissions were paid. All investors were
accredited investors.
As of December 31, 2000, the Company's subsidiary,
CyberCastingCorp.com sold 400,000 shares of its common stock for
$0.50 per share pursuant to Rule 506 of Regulation D of the
Securities Act. The total offering price was $200,000. No sales
commissions were paid. All investors were accredited investors.
25
<PAGE>
All Company stock has been purchased for investment purposes in
each of the offerings. No shares were purchased with a view
toward resale.
Item 5. Indemnification of Directors and Officers
The officers and directors of the Company are indemnified as provided
under the Colorado Revised Statutes (the "CRS") and the Bylaws of the
Company.
The By-laws of the Company provide that the Company will indemnify
its directors and officers to the fullest extent not prohibited by
the Colorado Revised Statutes; provided, however, that the Company
may modify the extent of such indemnification by individual contracts
with its directors and officers; and, provided, further, that the
Company shall not be required to indemnify any director or officer in
connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required to be
made by law, (ii) the proceeding was authorized by the Board of
Directors of the Company, (iii) such indemnification is provided by
the Company, in its sole discretion, pursuant to the powers vested in
the Company under the CRS or (iv) such indemnification is required to
be made pursuant to the By-laws.
The By-laws of the Company provide that the Company will advance to
any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director or officer, of the Company,
or is or was serving at the request of the Company as a director or
executive officer of another Company, partnership, joint venture,
trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses
incurred by any director or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such
person to repay said amounts if it should be determined ultimately
that such person is not entitled to be indemnified under the By-laws
of the Company or otherwise.
The By-laws of the Company provide that no advance shall be made by
the Company to an officer of the Company (except by reason of the
fact that such officer is or was a director of the Company in which
event this paragraph shall not apply) in any action, suit or
proceeding, whether civil, criminal, administrative or investigative,
if a determination is reasonably and promptly made (i) by the Board
of Directors by a majority vote of a quorum consisting of directors
who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the
time such determination is made demonstrate clearly and convincingly
that such person acted in bad faith or in a manner that such person
did not believe to be in or not opposed to the best interests of the
Company.
26
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The Company's audited Financial Statements, as described below, are
attached hereto.
1. Audited financial statements for the year ended May 31, 1999 and
2000 and interim un-audited financial statements for the three month
period ended August 31, 1999 and 2000, including:
(a) Balance Sheet;
(b) Statement of Operations;
(c) Statement of Stockholders' Deficiency;
(d) Statement of Cash Flows;
(e) Notes to the Financial Statements.
27
<PAGE>
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Encounter.com, Inc.
We have audited the accompanying consolidated balance sheets of
Encounter.com, Inc. (a development stage enterprise) as at May
31, 2000 and 1999 and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the
periods ended May 31, 2000, February 4, 2000, the year ended May
31, 1999 and cumulative from inception of the development stage
on February 5, 2000 to May 31, 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 generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Encounter.com, Inc. (a development stage enterprise)
at May 31, 2000 and 1999, and the results of its operations and
its cash flows for the periods ended May 31, 2000, February 4,
2000, the year ended May 31, 1999 and cumulative from inception
of the development stage on February 5, 2000 to May 31, 2000 in
conformity with generally accepted accounting principles.
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 is a development stage enterprise, has to date not
established any revenues, and needs to obtain new equity
financing for the development of its business. These factors
together raise substantial doubt about its ability to continue as
a going concern. Management's plan in regards to these matters
are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
CERTIFIED PUBLIC ACCOUNTANTS
Bellingham, Washington
August 31, 2000
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
=============================================================================
As of May 31, 2000 1999
-----------------------------------------------------------------------------
Note
ASSETS
CURRENT
Cash $ 52,010 $ -
Prepaid expenses 1,539 -
-----------------------------------------------------------------------------
53,549 -
EQUIPMENT AND FURNITURE 4 19,228 -
SECURITY DEPOSIT 3,078 -
-----------------------------------------------------------------------------
$ 75,855 $ -
=============================================================================
LIABILITIES
CURRENT
Bank indebtedness $ - $ 12
Accounts payable and accrued liabilities 43,025 11,600
Due to related party - 82,434
Current portion of note payable 5 74,573 -
-----------------------------------------------------------------------------
117,598 94,046
NOTE PAYABLE 5 20,000 -
-----------------------------------------------------------------------------
137,598 94,046
-----------------------------------------------------------------------------
CONTINGENCY 10
STOCKHOLDERS' EQUITY (DEFICIENCY)
PREFERRED STOCK
Authorized: 5,000,000 shares, $1.00 par value
Issued and outstanding: nil
COMMON STOCK
Authorized: 50,000,000 shares,
$0.001 par value
Issued and outstanding:
May 31, 1999 - 8,242,066 shares
May 31, 2000 - 33,968,264 shares 33,968 8,242
ADDITIONAL PAID-IN CAPITAL 106,032 889,169
DEFICIT (Reorganized February 4, 2000) 3 - (616,124)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (201,743) (375,333)
-----------------------------------------------------------------------------
(61,743) (94,046)
-----------------------------------------------------------------------------
$ 75,855 $ -
=============================================================================
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
=============================================================================
Cumulative
From Febru- June 1,
Inception of ary 5, 1999
Development 2000 to Year
Stage on to Febru- Ended
February 5, 2000 May 31, ary 4, May 31,
to May 31, 2000 2000 2000 1999
GENERAL AND ADMINISTRATIVE
EXPENSES
Amortization $ 1,054 $ 1,054 $ - $ -
Audit and accounting 7,500 7,500 2,025 9,459
Communications 6,183 6,183 4,845 9,997
Interest 3,783 3,783 - -
Legal fees 34,180 34,180 6,029 28,876
Management, administrative
and shareholder relations 40,816 40,816 162,667 163,692
Office and sundry 4,312 4,312 2,972 8,997
Premises rent 6,105 6,105 - -
Software development 38,491 38,491 - -
Travel and promotion 59,319 59,319 12,373 83,979
-----------------------------------------------------------------------------
201,743 201,743 190,911 305,000
COSTS INCURRED TOWARDS
BUSINESS ACQUISITION
NOT PROCEEDED WITH
(NOTE 9) - - - 70,333
GAIN ON SETTLEMENT OF
LIABILITIES (NOTE 3) - - (184,957) -
-----------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $201,743 $201,743 $ 5,954 $375,333
=============================================================================
BASIC LOSS PER SHARE $0.006 $0.001 $0.146
WEIGHTED AVERAGE
NUMBER OF SHARES 33,573,436 8,242,066 2,563,162
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY)
=============================================================================
Deficit
Accumu-
lated Total
Addit- During Stock-
Common Stock ional Develop- holders'
---------------- Paid-in Ment Equity
Number Amount Capital Deficit Stage (Deficiency)
Balance, May 31, 1998
(Note 6) 162,066 $ 162 $622,249 $(616,124)$ - $ 6,287
Issued for cash:
$0.01 per share 8,000,000 8,000 72,000 - - 80,000
Issued for cash:
$2.50 per share 80,000 80 199,920 - - 200,000
Share issue costs
- legal fees (5,000) (5,000)
Net loss-year ended
May 31, 1999 - - - - (375,333) (375,333)
------------------------------------------------------------------------------
Balance,
May 31, 1999 8,242,066 8,242 889,169 (616,124)(375,333) (94,046)
Net loss-June 1,
1999 to
February 4, 2000 (5,954) (5,954)
Reorganization
Adjustments (997,411) 616,124 381,287 -
------------------------------------------------------------------------------
Balance,
February 4, 2000 8,242,066 8,242 (108,242) - - (100,000)
Issued for
technology
license and
business plan 24,726,198 24,726 (24,726) - - -
Issued for cash:
$0.25 per share 1,000,000 1,000 249,000 - - 250,000
Share issue
costs-finder's
fee (10,000) - - (10,000)
Net loss-
February 5,
2000 to May 31,
000 (201,743) (201,743)
------------------------------------------------------------------------------
Balance,
May 31, 2000 33,968,264 $ 33,968 $106,032 $ - $(201,743) $ (61,743)
==============================================================================
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
=============================================================================
Cumulative
From Febru- June 1,
Inception of ary 5, 1999
Development 2000 to Year
Stage on to Febru- Ended
February 5, 2000 May 31, ary 4, May 31,
to May 31, 2000 2000 2000 1999
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period $(201,743) $(201,743) $ (5,954) $(375,333)
Item not requiring
outlay of cash
Amortization 1,054 1,054 - -
Changes in operating
assets and liabilities
Prepaid expenses (1,539) (1,539) - -
Accounts payable and
accrued liabilities 43,025 43,025 (11,600) 11,600
Due to related party - - 17,566 82,434
-----------------------------------------------------------------------------
Net cash - operating
Activities (159,203) (159,203) 12 (281,299)
-----------------------------------------------------------------------------
INVESTING ACTIVITIES
Equipment and furniture (20,282) (20,282) - -
Security deposit (3,078) (3,078) - -
-----------------------------------------------------------------------------
(23,360) (23,360) - -
-----------------------------------------------------------------------------
FINANCING ACTIVITIES
Common stock subscribed 250,000 250,000 - 280,000
Stock offering costs (10,000) (10,000) - (5,000)
Reduction in note payable (5,427) (5,427) - -
-----------------------------------------------------------------------------
234,573 234,573 - 275,000
-----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 52,010 52,010 12 (6,299)
CASH (BANK INDEBTEDNESS)
AT BEGINNING OF PERIOD - - (12) 6,287
-----------------------------------------------------------------------------
CASH (BANK INDEBTEDNESS) AT
END OF PERIOD $ 52,010 $52,010 $ - $ (12)
=============================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest $ 3,783 $ 3,783 $ - $ -
Cash paid for income taxes $ - $ - $ - $ -
SUPPLEMENTAL NON-CASH
INVESTING AND FINANCING
ACTIVITIES
Note payable issued in
settlement of related
party accounts payable $ 100,000 $ - $ - $ -
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was organized June 4, 1986 under the laws of
Colorado as "Sure Hair, Inc.". Its original business was in the
cosmetic and beauty care products field, and was abandoned. The
Company remained dormant until September 1997, when its issued
stock was reduced by a 500:1 reverse split, and an equity
financing of $157,500 was completed. Effective September 26,
1997 the name of the Company was changed to "Palmer Medical,
Inc." to reflect its new business in the field of medical device
manufacturing and sales. This business did not materialize and
the Company was again dormant at the end of its 1998 fiscal year.
In January 1999 the company undertook a 20:1 reverse split
of its issued stock. Effective February 3, 1999 its name was
changed to "Edatenow.com, Inc.". Equity financings for a total
of $280,000 were completed in February and April 1999 to finance
a portion of the acquisition cost of a private company in the
voice personals industry, and to commence the development of an
Internet dating program building upon newspaper voice personals.
The acquisition of the private company in the voice personals
industry was not completed, the Company abandoned its development
plans in the field and, by January, 2000 was again inactive.
Effective February 4, 2000 the Company completed a financial
reorganization wherein debts to prior management totaling
approximately $275,000 were settled by the issuance of a $100,000
promissory note, and a total of 24,726,198 shares were issued to
acquire the rights to the use of certain software and a new
business plan from Encounter.Com Acquisition Corp. ("EAC"). EAC
is a private company organized in Nevada for the purposes of this
transaction, and obtained the software rights and business plan
by assignment from its organizing shareholder Dennis Hinton. The
shares issued to acquire the above assets represented
approximately 75% of the shares outstanding on completion. All
Directors and Officers resigned at the completion of the
transaction and the Company is now controlled by Dennis Hinton.
The new business plan for the Company is to develop and
market Internet products and services including Internet access
(ISP), web site hosting, web site publishing and e-commerce
applications for small and intermediate size businesses. The
Company is considered to be in the development stage commencing
February 5, 2000, after the above reorganization and change of
control. To date the Company has not established any revenues,
and is dependent on its securing new equity financing for the
continued development of its business.
The Company's financial statements were prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has raised $250,000 by way of equity financing in the
period February 5, 2000 to May 31, 2000, and a further $150,000
subsequently to finance on-going development and operations.
Management intends to continue to offer the issue of further
capital stock to finance its operations and acquisitions.
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(i) Consolidation
The consolidated financial statements include the accounts
of Encounter.com, Inc. and its wholly owned subsidiary
Cybercastingcorp.com, organized in Nevada. All significant
intercompany balances and transactions are eliminated in
consolidation.
(ii) Use of estimates
The preparation of the 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 financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
consolidated results could differ from those estimates.
(iii) Financial instruments and financial risk
The Company's financial instruments consist of cash, bank
indebtedness, accounts payable and accrued liabilities,
amounts due to a related party and note payable. The fair
value of the current assets and liabilities approximate the
carrying amounts due to the short-term nature of these
instruments.
(iv) Translation of foreign currencies
The Company's foreign operations comprised management and
administrative services in Canada relating to its former
business prior to reorganization on February 4, 2000. For
foreign operations with the local currency as the functional
currency, assets and liabilities are translated at year-end
exchange rates, and statements of income are translated at
the average exchange rates during the year. Gains or losses
resulting from foreign currency translation are included as
a component of other comprehensive income.
(v) Equipment and furniture
Equipment and furniture is recorded at cost on acquisition
and is amortized by charge to operations on a straight-line
basis over its estimated useful life.
(vi) Loss per share
Basic loss per common share has been calculated based on the
weighted average number of shares of common stock
outstanding during the period. Where reverse splits have
been completed in the year, for the purpose of calculating
the weighted average number of shares outstanding, these
reverse stock splits have been considered effective at the
beginning of the fiscal year.
(vii) Income taxes
The Company accounts for income taxes under an asset and
liability approach that required the recognition of deferred
tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the
Company's financial statements or tax returns. In
estimating future tax consequences, all expected future
events other than enactment of changes in the tax laws or
rates are considered.
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
(viii) Recently issued accounting standard
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, which requires companies to
record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives
would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting.
The Company presently does not use derivatives in its
operations, accordingly this pronouncement is not
applicable.
NOTE 3 - QUASI-REORGANIZATION AND NEW BUSINESS PLAN
The shareholders on December 27, 1999 approved a change of
control of the Company through the issuance of 24,726,198 shares
from treasury for the acquisition of software rights and a new
business plan to develop and market Internet products and
services including access, web site hosting, web site publishing
and e-commerce applications. In connection with this change of
control and business, the former management agreed to a reduction
in the amounts owing to related parties by $184,957.
The Company has accounted for this reorganization by
recognizing a gain on settlement of liabilities of $184,957 in
the period June 1, 1999 to February 4, 2000, the effective date
of the change of control.
The 24,726,198 shares issued to acquire the new assets have
been assigned a value of nil for accounting purposes. The fair
values assignable to the assets and liabilities of the Company by
Encounter.com Acquisition Corp., the acquirer, under accounting
principles for reverse acquisitions do not differ in any material
respect with their book values at February 4, 2000. Both fair
values and the net book values of the assets and liabilities of
Encounter.com, Inc. on reorganization are as follows:
Assets $ -
Liabilities - note payable (100,000)
-----------------------------------------
Net liabilities (100,000)
=========================================
Concurrently with this reorganization, the deficit account
of Encounter.com, Inc. ($616,124) and deficit accumulated during
the development stage with respect to its previous business at
February 4, 2000 ($381,287) were eliminated by a charge to
additional paid-in capital.
The development stage with respect to the new business plan
commenced on February 5, 2000, immediately after completion of
the reorganization. The consolidated statements of operations,
stockholders deficiency and cash flows presented consist of
comparative figures for the previous fiscal year ended May 31,
1999, the period from the end of the previous fiscal year to the
date of reorganization (February 4, 2000), the period from
reorganization to May 31, 2000 (and the Company's regular year-
end), and cumulative for the development stage which corresponds
with the period immediately after reorganization (February 5,
2000) to May 31, 2000.
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
NOTE 4 - EQUIPMENT AND FURNITURE
Equipment and fixtures consist of:
Office Total
Equipment Furniture May 31, 2000 May 31, 1999
Cost $ 7,644 $ 12,638 $ 20,282 $ -
Accumulated
Amortization (424) (630) (1,054) -
------------------------------------------------------------------------------
Net book value $ 7,220 $ 12,008 $ 19,228 $ -
==============================================================================
Amortization is charged at the following annual rates:
office equipment - 33%, furniture and fixtures - 25%.
NOTE 5 - NOTE PAYABLE
The note payable was issued in connection with the
reorganization of the Company detailed in Note 3. The note is
payable at the rate of $20,000 each 3 months, commencing June 30,
2000, is unsecured and bears interest at the rate of 12% per
annum.
Face value of note payable $ 100,000
Less: closing adjustments relating
to sundry accounts payable (5,427)
----------------------------------------------------
94,573
Current portion of maturity (74,573)
----------------------------------------------------
Non current maturity $ 20,000
====================================================
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
NOTE 6 - COMMON STOCK
(i) Common Stock Issued to May 31, 1998
The issued common stock was subject to reverse splits on a
500:1 basis in fiscal 1998, and a 20:1 basis in fiscal 1999. The
number of shares outstanding and the amounts recorded for common
stock and additional paid in capital have been restated
retroactively to inception to effect these reverse splits.
Number Warrants Additional
Of to Acquire Subscription Paid-In
Shares Amount Common shares Receivable Capital
Balance at inception,
June 4, 1986 - $ - $ - $ - $ -
Issued for cash
$0.001 - $0.05
per share 195 69,350
$0.10 per share 500 1 100 499,999
Issued for services
$0.001 per share 185 1,850
Issued for
distribution rights
$0.001 per share 140 -
Share issue costs (135,418)
------------------------------------------------------------------------------
Balance, May 31, 1987 1,020 1 100 - 435,781
Issued for cash
$0.02 per share 10 2,000
------------------------------------------------------------------------------
Balance, May 31, 1988 1,030 1 100 - 437,781
Warrants expired in
year (100) 100
------------------------------------------------------------------------------
Balance, May 31, 1989
and 1990 1,030 1 - - 437,881
Issued for services
$0.002 per share 1,518 2 28,472
------------------------------------------------------------------------------
Balance, May 31, 1991 2,548 3 - - 466,353
Issued for services
$0.002 per share 652 1 12,582
------------------------------------------------------------------------------
Balance, May 31, 1992 3,200 4 - 478,935
Issued in settlement
of liabilities 1,366 1 (2,407) 6,378
------------------------------------------------------------------------------
Balance, May 31, 1993 4,566 5 - (2,407) 485,313
Subscription settled - - 2,407 (2,407)
------------------------------------------------------------------------------
Balance, May 31, 1994,
1995, 1996 and 1997 4,566 5 - - 482,906
Issued for cash
$0.05 per share 157,500 157 157,343
Share issue costs -
legal fees paid (18,000)
------------------------------------------------------------------------------
Balance, May 31, 1998 162,066 $162 $ - $ - $ 622,249
==============================================================================
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
(ii) Stock Option Plan
The Company has adopted a Stock Option Plan (the "Plan") to
be administrated by a Compensation Committee of the Board of
Directors. The purpose of the Plan is to provide incentive stock
options as a means to attract and retain key corporate personnel
and consultants. The shares to be offered under the Plan consist
of authorized but unissued common shares of the Company. The
aggregate number of shares subject to options under the Plan at
any one time shall not exceed 2,500,000 shares. The maximum
number of shares for which an option may be granted to any
optionee during any calendar year shall not exceed 500,000
shares. The exercise price of the options when granted shall not
be less than 85% of the fair market value of the shares on the
date the option is granted. The term of the options granted may
not extend beyond 10 years, and are subject to earlier
cancellation on termination of employment. The Plan stipulates
vesting of stock option rights at the rate of at least 20% per
year, and it is intended that options when granted will vest on a
cumulative basis as to 1/3 of the shares under option annually,
unless otherwise provided by the Plan administrator.
To date there have been no stock options granted under the
Plan.
NOTE 7 - RELATED PARTY TRANSACTIONS
(i)
February 5, 2000 June 1, 1999 Year
To To Ended
May 31, 2000 February 4, 2000 May 31, 1999
General and administrative
expenses for administrative
and shareholder relations
fees, promotion,
entertainment, travel and
accommodation expenses to
574125 B.C. Ltd. under a
Management Agreement
terminated February 4, 2000 $ - $ 174,846 $ 247,725
Gain on settlement of amounts
owing to 574125 B.C. Ltd. - (184,957) -
Management and consulting
fees to stockholders of
Encounter.com Acquisition
Corp. 21,311 - -
Due to 574125 B.C. Ltd. at
period end - - 82,434
Note payable to affiliate of
574125 B.C. Ltd. at period
end 94,573 100,000 -
(ii) The Company in the 1999 fiscal year issued 80,000 shares to
574125 B.C. Ltd. at a price of $2.50 per share for total
consideration of $200,000.
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
NOTE 8 - INCOME TAXES
At May 31, 2000, the Company has tax operating losses
carryforwards of approximately $185,000 expiring in fiscal 2015.
Due to ownership and business purpose changes, the net operating
loss carryforwards at May 31, 1999 of approximately $1,000,000
are subject to restriction under tax laws and any tax benefit is
expected to be minimal.
The tax benefit of the cumulative tax loss carryforwards
have been offset by a valuation allowance of the same amount.
NOTE 9 - PROJECTS NOT PROCEEDED WITH
Voice personals and Internet dating program
The Company in the year ended May 31, 1999 advanced $40,333
under a Letter of Intent to acquire 100% of the shares of SA
Interactive Information Technology, Inc., a private British
Columbia, Canada corporation. The Letter of Intent also required
the Company to issue 9,000,000 common shares, advance a further
$140,000, raise a total of $2,500,000 in financing within 18
months of closing, and issue options to the vendors of the
private company to acquire 750,000 shares at a price of $0.20 per
share exercisable within 2 years of closing. The proposed
acquisition, which was not proceeded with, was intended to
provide the Company with an entry into the field of voice
personals, upon which to develop an Internet presence.
An additional $30,000 was advanced for development costs
towards an Internet presence for the above business. These
costs, together with the $40,333 advanced under the Letter of
Intent have been charged to operations in the 1999 fiscal year
(Note 10 - Contingency).
NOTE 10 - CONTINGENCY
The Company entered into a Letter of Intent dated February
5, 1999 to acquire 100% of the shares of SA Interactive
Information Technology, Inc. ("Interactive") (Note 9). The
acquisition was not proceeded with.
Interactive and its shareholder filed a Statement of Claim
in the Supreme Court of British Columbia (Canada) on April 23,
1999 against the Company, and certain companies and individuals
related to the Company at the time.
The claim pertains to the termination of the proposed
acquisition of Interactive, and the continued development of
businesses by the Company in the same or similar fields as
Interactive. The Plaintiff seeks various injunctions restricting
the Company from competing against Interactive, damages for
breach of contract and breach of fiduciary duty, punitive damages
and interest.
The Company filed a Statement of Defense on November 12,
1999 responding that the actions of the Plaintiff in attempting
to renegotiate the terms of the Letter of Intent abrogated all
agreements between them, and that the Company has no fiduciary
duties to the Plaintiff and that the Plaintiff has no exclusive
rights to the businesses being developed by the Company.
There have been no filings with the Court following the
Statements of Defense filed by the Company on November 12, 1999
and the other defendants on November 17, 1999. No motions have
been calendered and no hearings have been set.
<PAGE>
=============================================================================
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
=============================================================================
The Company intends to continue to defend itself vigorously
against this action. The probable outcome of this action is not
determinable at this time.
The Company is also continuing with its Action against the
plaintiffs above for return of the funds advanced ($40,333)
towards the proposed acquisition.
NOTE 11- PREMISES LEASE COMMITMENT
The Company has entered into a premises lease commitment to
its office in Las Vegas, Nevada expiring June 30, 2003. Future
minimum base rentals due are as follows:
Year ended May 31, 2001: $ 35,864
May 31, 2002: 38,384
May 31, 2003: 39,091
May 31, 2004: 3,260
NOTE 12 - COMPARATIVE FIGURES
Certain of the figures for the 1999 comparative financial
statements have been reclassified to conform to the presentation
adopted for the current periods.
NOTE 13 - SUBSEQUENT EVENT
On July 1, 2000, the Company's wholly-owned subsidiary
Cybercastingcorp.com has by a Private Offering Memorandum
expiring September 1, 2000 offered to sell a maximum of 4,000,000
shares of its capital stock at a price of $0.50 per share The
net proceeds are to be used primarily to acquire an internet
service provider, working capital and general corporate purposes.
There is no minimum number of shares to be sold. This offering
will not have a dilutive effect on the net assets of the Company.
NOTE 14 - UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems
use two digits rather than four to identify a year. Date-
sensitive systems may recognize the year 2000 as 1900 or some
other date, resulting in errors when information using year 2000
dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to recognize
something other than a date. The Company's own financial
accounting functions are not technologically dependent. Although
the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the
entity, including those related to customers, suppliers, or other
third parties, have been fully resolved.
<PAGE>
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ENCOUNTER.COM, INC
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
(Unaudited)
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August 31, May 31,
2000 2000
--------------------------
$ $
ASSETS
CURRENT ASSETS
Cash - 52,010
Prepaid expense 3,000 1,539
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3,000 53,549
EQUIPMENT AND FURNITURE 20,171 19,228
SECURITY DEPOSIT 3,078 3,078
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26,249 75,855
=======================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank indebtedness 9,013 -
Accounts payable and accrued liabilities 53,756 43,025
Current portion of note payable 94,573 74,573
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157,342 117,598
NOTE PAYABLE - 20,000
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Total Liabilities 157,342 137,598
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CONTINGENCY (NOTE 5)
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MINORITY INTEREST (NOTE 3) 1 -
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STOCKHOLDERS' DEFICIENCY
Preferred Stock:
Authorized: 5,000,000 shares, $1.00 par value
Issued and outstanding: Nil
Common Stock:
Authorized: 50,000,000 shares, $0.001 par value
Issued and outstanding
August 31, 2000 - 34,068,264 shares 34,068 33,968
May 31, 2000-33,968,264 shares
ADDITIONAL PAID IN CAPITAL 264,868 106,032
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (430,030) (201,743)
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(131,094) (61,743)
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26,249 75,855
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See accompanying Notes to the Consolidated Financial Statements
<PAGE>
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ENCOUNTER.COM, INC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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Cumulative
from
Inception of
Development
Stage on
February 5,
For the Three 2000 to
Months Ended August 31,
August 31, 2000
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2000 1999
$ $ $
Revenues - - -
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General and Administrative Expenses
Management, administrative and
shareholder relations 88,545 70,000 129,361
Travel and promotion 60,210 9,944 119,529
Legal fees 23,364 3,927 57,544
Rent 11,203 - 17,308
Communications 3,992 2,004 10,175
Audit and accounting 2,500 (1,889) 10,000
Office and sundry 4,096 1,090 8,409
Amortization 1,491 - 2,545
Interest 2,837 - 6,620
Software development (3,888) - 34,602
Specialized development
components 35,000 35,000
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229,350 85,076 431,093
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Net loss, before minority interest(229,350) (85,076) (431,093)
Minority interest 1,063 - 1,063
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Net Loss (228,287) (85,076) (430,030)
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Basic and Fully Diluted
Loss Per Share $0.01 $0.01
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Weighted Average
Number of Shares 34,068,264 8,242,066
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See accompanying Notes to the Consolidated Financial Statements
<PAGE>
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ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(Unaudited)
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Deficit
Accu- Total
mulated Stock-
During holders'
Addition- Develop Equity
al Paid-in -ment (Defi-
Common Stock Capital Deficit Stage ciency)
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Number Amount
Balance, May 31,
1998 (Note 4) 162,066 $ 162 $ 622,249 $(616,124)$ -$ 6,287
Issued for cash:
$0.01 per share 8,000,000 8,000 72,000 - - 80,000
Issued for cash:
$2.50 per share 80,000 80 199,920 - - 200,000
Share issue costs
- legal fees - - (5,000) - - (5,000)
Net loss-year ended
May 31, 1999 - - - - (375,333)(375,333)
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Balance,
May 31, 1999 8,242,066 8,242 889,169 (616,124) (375,333) (94,046)
Net loss-June 1,
1999 to February
4, 2000 - - - - (5,954) (5,954)
Reorganization
Adjustments - - (997,411) 616,124 381,287 -
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Balance, February
4, 2000 8,242,066 8,242 (108,242) - - (100,000)
Issued for
technology
license
and business
plan 24,726,198 24,726 (24,726) - - -
Issued for cash:
$0.25 per share 1,000,000 1,000 249,000 - - 250,000
Share issue costs-
finder's fee (10,000) - - (10,000)
Net loss-February
5, 2000 to
May 31, 2000 (201,743)(201,743)
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Balance,
May 31, 2000 33,968,264 33,968 106,032 - (201,743) (61,743)
Issued for cash:
$0.25 per share 100,000 100 24,900 - - 25,000
Excess of proceeds
on sale of
subsidiary company
stock over book
value (Note 3) - - 133,936 - - 133,936
Net loss - three
months ended
August 31, 2000 (228,287)(228,287)
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Balance,
August 31, 2000 34,068,264 $ 34,068 $264,868 $ -$(430,030)$(131,094)
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<PAGE>
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ENCOUNTER.COM, INC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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Cumulative
from
Inception of
Development
Stage on
February 5,
For the Three 2000 to
Months Ended August 31,
August 31, 2000
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2000 1999
CASH PROVIDED BY (USED IN): $ $ $
OPERATING ACTIVITIES
Net loss for the period (228,287) (85,076) (430,030)
Items not requiring outlay
of cash
Amortization 1,491 - 2,545
Changes in operating assets
and liabilities
Prepaid expenses (1,461) - (3,000)
Accounts payable and
accrued liabilities 10,731 (3,837) 53,756
Due to related parties 89,469
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Net cash - operating activities (217,526) 556 (376,729)
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INVESTING ACTIVITIES
Additions to equipment and
Furniture (2,434) - (22,716)
Security deposits - (3,078)
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(2,434) - (25,794)
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FINANCING ACTIVITIES
Common stock subscribed 25,000 - 275,000
Reduction in note payable - (5,427)
Stock offering costs (10,000)
Minority interest in subsidiary 133,937 - 133,937
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158,937 - 393,510
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(DECREASE) INCREASE IN CASH (61,023) 556 (9,013)
CASH (BANK INDEBTEDNESS),
BEGINNING OF PERIOD 52,010 (12) -
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(BANK INDEBTEDNESS) CASH,
END OF PERIOD (9,013) 544 (9,013)
=======================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest 2,837 - 6,620
Cash paid for income taxes - - -
SUPPLEMENTAL NON-CASH
INVESTING AND FINANCING
ACTIVITIES
Note payable issued in
settlement of related party
accounts payable 100,000
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
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ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
(Unaudited)
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Note 1 - Basis of Presentation
These unaudited financial statements have been prepared in
accordance with the instructions to SEC Form 10-QSB.
Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such instructions. These unaudited
financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended May 31,
2000.
In the opinion of the Company's management, all adjustments
considered necessary for a fair presentation of these unaudited
consolidated financial statements have been included and all such
adjustments are of a normal recurring nature. Operating results
for the three-month period ended August 31, 2000 are not
necessarily indicative of the results that can be expected for
the year ended May 31, 2001.
Note 2 - Going Concern
These financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company has
incurred operating losses since its organization and has a
working capital deficiency of $154,342 at August 31, 2000.
Management intends to raise additional equity financing to
finance the Company's operations and any acquisitions. However,
there can be no assurance that such additional funds will be
available to the Company when required or on terms acceptable to
the Company. Such limitations could have a material adverse
effect on the Company's business, financial condition or
operations and these financial statements do not include any
adjustments that could result therefrom.
Note 3 - Sale of Common Stock by Subsidiary
The Company's subsidiary Cybercastingcorp.com
("Cybercastingcorp") issued 270,000 shares of its capital stock
by private placement sale at a price of $0.50 per share in the
period, for proceeds of $135,000. Cybercastingcorp was 100%
owned prior to the above sale with the Company holding all
34,000,000 shares issued and outstanding. The effect of the
private placement was to reduce the Company's equity percentage
to approximately 99% at August 31, 2000.
The book value of the Company's investment in Cybercastingcorp is
nominal only. The proceeds of $135,000 received from the non-
controlling shareholders of Cybercastingcorp has been recognized
as Additional Paid In Capital ($133,936) to the extent of the
excess of the proceeds received over the amount initially
recorded as minority interest ($1,064).
The Company has not recognized a gain on this transaction as
Cybercastingcorp is a development stage company and realization
is not assured.
As a result of an operating loss for the period, the minority
interest in Cybercastingcorp has been reduced to a nominal $1 at
August 31, 2000.
<PAGE>
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ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
(Unaudited)
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Note 4 - Common Stock
Common Stock Issued to May 31, 1998
The issued common stock was subject to reverse splits on a 500:1
basis in fiscal 1998, and a 20:1 basis in fiscal 1999. The
number of shares outstanding and the amounts recorded for common
stock and additional paid in capital have been restated
retroactively to inception to effect these reverse splits.
Warrants
to Addition
Number Acquire Sub- -al
of Common scription Paid-In
Shares Amount shares Receivable Capital
Balance at inception,
June 4, 1986 - $ - $ - $ - $ -
Issued for cash
$0.001 - $0.05 per share 195 69,350
$0.10 per share 500 1 100 499,999
Issued for services
$0.001 per share 185 1,850
Issued for distribution
rights
$0.001 per share 140 -
Share issue costs (135,418)
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Balance, May 31, 1987 1,020 1 100 - 435,781
Issued for cash
$0.02 per share 10 2,000
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Balance, May 31, 1988 1,030 1 100 - 437,781
Warrants expired in year (100) 100
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Balance, May 31, 1989 and 1990 1,030 1 - - 437,881
Issued for services
$0.002 per share 1,518 2 28,472
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Balance, May 31, 1991 2,548 3 - - 466,353
Issued for services
$0.002 per share 652 1 12,582
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Balance, May 31, 1992 3,200 4 - 478,935
Issued in settlement of
Liabilities 1,366 1 (2,407) 6,378
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Balance, May 31, 1993 4,566 5 - (2,407) 485,313
Subscription settled - - 2,407 (2,407)
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Balance, May 31, 1994,
1995, 1996 and 1997 4,566 5 - - 482,906
Issued for cash
$0.05 per share 157,500 157 157,343
Share issue costs -
legal fees paid (18,000)
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Balance, May 31, 1998 162,066 $162 $ - $ - $622,249
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<PAGE>
ENCOUNTER.COM, INC.
(A Development Stage Enterprise)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2000
(Unaudited)
Note 5 - Contingency
The Company in the year ended May 31, 1999 advanced $40,333 under
a Letter of Intent to acquire 100% of the shares of SA
Interactive Information Technology, Inc. ("Interactive"), a
private British Columbia, Canada corporation. The Letter of
Intent also required the Company to issue 9,000,000 common
shares, advance a further $140,000, raise a total of $2,500,000
in financing within 18 months of closing, and issue options to
the vendors of the private company to acquire 750,000 shares at a
price of $0.20 per share exercisable within 2 years of closing.
The proposed acquisition, which was not proceeded with, was
intended to provide the Company with an entry into the field of
voice personals, upon which to develop an Internet presence.
Interactive and its shareholder filed a Statement of Claim in the
Supreme Court of British Columbia (Canada) on April 23, 1999
against the Company, and certain companies and individuals
related to the Company at the time. The claim pertains to the
termination of the proposed acquisition of Interactive, and the
continued development of businesses by the Company in the same or
similar fields as Interactive. The Plaintiff seeks various
injunctions restricting the Company from competing against
Interactive, damages for breach of contract and breach of
fiduciary duty, punitive damages and interest.
The Company filed a Statement of Defense on November 12, 1999
responding that the actions of the Plaintiff in attempting to
renegotiate the terms of the Letter of Intent abrogated all
agreements between them, and that the Company has no fiduciary
duties to the Plaintiff and that the Plaintiff has no exclusive
rights to the businesses being developed by the Company.
There have been no filings with the Court following the
Statements of Defense filed by the Company on November 12, 1999
and the other defendants on November 17, 1999. No motions have
been calendered and no hearings have been set.
The Company intends to continue to defend itself vigorously
against this action. The probable outcome of this action is not
determinable at this time.
The Company is also continuing with its action against the
plaintiffs above for return of the funds advanced ($40,333)
towards the proposed acquisition.
<PAGE>
PART III
INDEX TO EXHIBITS
Exhibit 3.1: Articles of Incorporation
Exhibit 3.2: Articles of Amendment of Articles of Incorporation
(Addition of Article 11)
Exhibit 3.3: Articles of Amendment of Articles of Incorporation
(Name Change to Palmer Medical, Inc.)
Exhibit 3.4: Restated Articles of Incorporation with Amendments
(Name Change to edatenow.com, Inc.)
Exhibit 3.5: Articles of Amendment of the Articles of
Incorporation
(Name Change to Encounter.com, Inc.)
Exhibit 3.6: By-Laws
Exhibit 10.1: Technology License Agreement
Exhibit 27.1: Financial Data Schedule
28
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: January 12, 2000
ENCOUNTER.COM INC.
/s/ Dennis J. Hinton
By: _______________________________
Dennis J. Hinton
Director, Chief Executive Officer
and Chairman of the Board
29
