U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Posteralley.com, Inc.
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(Name of Small Business Issuer in its charter)
Colorado 84-1509950
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1422 Delgany Street, Suite #12
Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (303) 629-9751
Securities to be registered under 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
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
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(Title of class)
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Item 1. Description of Business.
(a) Business Development.
Posteralley.com, Inc. (the "Company" or "PI"), is a development-stage
company that was organized under the laws of the State of Colorado on July 19,
1999. The Company is engaged in the business of acquiring and marketing,
selling, trading and brokering via its Internet web site originals and
reproductions of fine art posters, including, but not limited to, vintage
antique, product advertising, travel, sporting event, movie and theater
memorabilia and commemorative posters, and a limited number of original, antique
fine art paintings. As of the date hereof, the Company's posters are obtained,
primarily, from two wholesalers for sale on consignment. The Company's executive
offices are located at 1422 Delgany Street, Suite #12, Denver, Colorado 80202,
and its telephone and facsimile numbers are (303) 629-9751 and (303) 629-9756,
respectively.
During the period from May 8 through June 28, 2000, the Company issued and
sold an aggregate of 501,200 shares of Common Stock to a total of fifty persons,
all of whom are residents of the State of California, Colorado or Illinois, for
cash consideration totaling $125,300. The sales were made by the Company in
reliance upon the exemption from registration with the U.S. Securities and
Exchange Commission provided under Section 3(b) of the Securities Act of 1933,
as amended (the "1933 Act"), and Rule 504 of Regulation D promulgated
thereunder, and in reliance upon the exemptions from registration provided under
Section 25102(f) of the California Corporations Code, as amended, Section
11-51-308(1)(p) of the Colorado Securities Act, as amended, or Section 4.G. of
the Illinois Securities Law of 1953, as amended. (See Part II, Item 4. "Recent
Sales of Unregistered Securities.")
See (b) "Business of Issuer" immediately below for a description of the
Company's current operations and future proposed activities.
(b) Business of Issuer.
General
The Company, in July 1999, commenced operations in the business of
acquiring and marketing, selling, trading and brokering originals and
reproductions of fine art posters, including, but not limited to, vintage
antique, product advertising, travel, sporting event, movie and theater
memorabilia and commemorative posters. The bulk of the Company's products are
fine art posters obtained for sale on consignment from two wholesalers,
including I. Brewster & Company and Club of American Collectors of Fine Arts,
Inc. In addition, PI also markets a limited inventory of originals and
reproductions of fine art posters and original, antique fine art paintings
recently purchased with proceeds received from the Company's offering of Common
Stock pursuant to Rule 504 of Regulation D under Section 3(b) of the 1933 Act
completed in June 2000.
Messrs. Scott M. Thornock and Bruce A. Capra, the two executive officers,
directors and controlling shareholders of PI, have, personally, and, in the case
of Mr. Capra, professionally, in excess of twenty years of experience in the
purchase, trading, marketing and sale of all types of fine art, antiques and
collectibles, including fine art posters. Both Messrs. Thornock and Capra are
executive officers, directors, founders and controlling shareholders of
Nicklebys.com, Inc. ("Nicklebys.com"), a publicly-held, Denver, Colorado,
corporation that has realized approximately $631,807 in gross revenue
(unaudited) from the marketing and sale of fine art, antiques and collectibles
via the company's auction web site on the Internet, live auctions and retail
sales during the period from Nicklebys.com's inception on January 13, 1999,
through December 31, 1999. Despite its limited operating history, Nicklebys.com
was recognized in the November 1999 edition of Yahoo! Internet Life Magazine
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with the Gold Medal Award for the best art auction site on the worldwide web. In
order to become employed full time by Nicklebys.com, Mr. Bruce A. Capra, the
Secretary, a director and a controlling shareholder of the Company, resigned on
February 1, 1999, as the General Manager and the Director of Sales, Marketing
and Advertising for American Design Ltd., a privately-held, Aurora, Colorado,
company with eight retail outlets that specializes in the publication, auction
and marketing of fine art and realized gross sales of approximately $12,000,000
during its most recent fiscal year. Additionally, Mr. Capra owned and managed
Nickleby's Auction Gallery, Ltd. ("Nickleby's"), Arvada, Colorado, an auction
liquidation company specializing in fine art, antiques and collectibles, from
1992 until the purchase of Nickleby's by Nicklebys.com, on February 8, 1999.
Based upon management's collective experience in investing in, marketing,
selling, trading and brokering many types of artworks, antiques and/or
collectibles for many years, the Company does not expect to have any difficulty
in obtaining quality fine art posters and antique fine art paintings for
marketing, trading, brokering and sale via the Company's web site on the
Internet. Neither individual presently contemplates the formation of, or
affiliation or association with, any company, other than Nicklebys.com and PI,
whose business plan would contemplate or involve the marketing, trading,
brokering and/or sale of fine art, antiques or collectibles, including fine art
posters and/or antique fine art paintings. Further, with the formation of the
Company, Nicklebys.com intends to diminish and ultimately abandon its present
limited activities involving fine art posters.
Inventory; Products Available on Consignment
The Company is presently marketing, trading and brokering originals and
reproductions of fine art posters, including, but not limited to, vintage
antique, product advertising, travel, sporting event, movie and theater
memorabilia and commemorative posters, via its web site on the Internet.
Additionally, the Company is marketing a limited inventory of originals and
reproductions of fine art posters and original, antique fine art paintings
recently purchased with certain of the proceeds received from its recently
completed private offering of Common Stock. As of the date hereof, PI's Internet
web site features approximately 56 fine art posters, including approximately 35
original, antique French posters, approximately 14 contemporary fine art
posters, approximately seven reproductions of antique fine art posters and five
original, antique fine art paintings, including three oils on canvas and two
watercolors. If the Company achieves profitable operations, which is not
assured, or otherwise obtains additional funding, management intends that PI
purchase additional inventory of originals and/or reproductions of fine art
posters and antique fine art paintings with a portion of such funds. The sources
for the Company's inventory are expected to include, among others, estates,
private parties, collectors and original collections. Additionally, both Messrs.
Scott M. Thornock and Bruce A. Capra, executive officers, directors and
controlling shareholders of the Company, may place originals and reproductions
of fine art posters from their own personal collections on consignment with PI
to be marketed and/or sold via the Internet. Management believes that PI could
expect to receive a commission in the amount of 10% to 50% of the sale price of
all fine art posters sold for the account of either Mr. Thornock, Mr. Capra or
Nicklebys.com, a public company affiliated with the Company and Messrs. Thornock
and Capra.
The bulk of the fine art posters featured on PI's web site have been
obtained from two unaffiliated companies, including I. Brewster & Company ("I.
Brewster") and Club of American Collectors of Fine Arts, Inc. ("Club of American
Collectors"), for sale on consignment. Both I. Brewster and Club of American
Collectors have been in business for approximately forty years and Club of
American Collectors is the largest United States importer of French advertising
posters. Each company is itself capable of satisfying the Company's requirements
for posters for the foreseeable future. The Company's consigned inventory of
original fine art posters includes, primarily, product advertising posters for
products such as liquor, ink, bicycles, chocolates, etc. The seven antique
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poster reproductions are of fine art images by Louis Icart and Maxfield Parrish.
The various posters and reproductions obtained by the Company from I. Brewster
and Club of American Collectors for sale on consignment have a retail value in a
range from $35 to $25,000. Because of the arrangements between the Company and
I. Brewster and Club of American Collectors, respectively, to sell these items
on consignment, PI has no cost of sales until it consummates the sale of a
poster or reproduction. Despite management's plans to purchase additional
inventory of originals and/or reproductions of fine art posters and antique fine
art paintings with a portion of any additional capital obtained from profitable
operations or otherwise, the Company expects, for the foreseeable future, to be
partially dependent for its inventory upon fine art posters consigned to it by
I. Brewster, Club of American Collectors and/or others.
Marketing, Sale, Trading and Brokering of Products Via the Internet
The Company has established a web site on the Internet for the purpose of
marketing, selling, trading and/or brokering fine art posters, including, but
not limited to, vintage antique, product advertising, travel, sporting event,
movie and theater memorabilia and commemorative posters, and its limited
inventory of original, antique fine art paintings. The name of the Company's web
site is www.posteralley.com. Management believes that PI's web site is designed
in an attractive manner so as to capture and maintain the interest of most
individuals who visit the site. The web site includes a photographic image of
each poster or painting together with a picture and a biography of the artist,
if relevant and available. Payment arrangements can be made via the Internet
using credit cards and escrow accounts. The Company has implemented security
measures, including but not limited to layering, locking and encryption, in
order to secure, to management's best ability as of the date hereof, PI's
commercial transactions conducted on the Internet. Detailed instructions are
available on the Company's Internet site to enable the purchaser to consummate
the purchase transaction with as much ease and simplicity, in management's
opinion, as is possible.
The Company has entered into that certain Internet Marketing Agreement
dated December 29, 1999 (the "Marketing Agreement"), with Nicklebys.com. The
Marketing Agreement provides for PI to advertise its fine art posters on
Nicklebys.com's Internet web site located at www.nicklebys.com in consideration
for the payment to Nicklebys.com of the sum of $.22 per web site "hit" or
"click-through" that is generated as a result of the advertisement on
Nicklebys.com's web site. Because Messrs. Thornock and Capra, the executive
officers, directors and controlling shareholders of the Company, also serve as
executive officers, directors and controlling shareholders of Nicklebys.com, the
Marketing Agreement cannot be considered to be an arm's-length transaction.
While management believes that the Marketing Agreement will assist the Company
to develop a customer base, it is not possible to predict the amount of revenue
that PI may realize from this arrangement.
The Company is aware of a limited number of other "on-line" sites and art
galleries that are engaged in the business of selling fine art posters in
addition to other fine artworks, antiques and collectibles. The Company, unlike
other competitors, most of whose inventory is limited exclusively or primarily
to items offered on consignment, guarantees the authenticity of each fine art
poster with a written appraisal of the value of the item at the time of
purchase. Mr. Bruce A. Capra, a certified personal property appraiser and a
member of the Certified Appraisers Guild of America, will examine each item sold
to ensure its authenticity and provide the written appraisal of the value
thereof. Furthermore, the Company provides each customer with a 30-day guarantee
in which period of time the poster may be returned if the customer is not
satisfied with the genuineness or authenticity of the poster. Accordingly, the
Company expects to compete on the basis of its reputation among customers as a
quality provider of products that are "100% money-back guaranteed, curated and
appraised" and, to a lesser extent, on the basis of price. The Company receives,
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on average, a listing fee in the amount of approximately 20% of each item sold
on consignment for management or others.
Messrs. Scott M. Thornock and Bruce A. Capra may be subject to direct
conflicts of interest because of their positions as executive officers,
directors and controlling shareholders of the Company and Nicklebys.com, with
regard to opportunities involving fine art posters and antique fine art
paintings that come to their attention and concerning business dealings between
the Company and Nicklebys.com or either of them, individually. In any instance
where such a conflict may arise, the Company intends to employ certain
safeguards, such as ensuring that any agreement with the Company conforms with
standard industry practice in the western United States and is fair and
reasonable to the Company. Further, both individuals will abstain from voting as
members of the Board of Directors of Nicklebys.com on any such agreement in
which PI is a party or has an interest or with regard to any business
opportunity that may be attractive to both companies. The Company's Articles of
Incorporation provide that any such related party contract or transaction must
be authorized, approved or ratified at a meeting of the Board of Directors by
sufficient vote thereon by directors not interested therein or the contract or
transaction must be fair and reasonable to the Company. Accordingly, it is
possible for the Board of Directors of the Company, by vote of either member of
the Board of Directors, to authorize, approve or ratify a related party contract
or transaction or business opportunity involving the other Board member, even if
it is unfair and/or unreasonable to the Company, even though the interested
director abstains from voting thereon. (See Part I, Item 1. "Description of
Business," (b) "Business of Issuer - General" and "- Inventory; Products
Available on Consignment.")
There are many risks associated with the conduct of business on the
Internet, including, among others, security, viruses and fraud. While hacking is
a serious threat to firms such as PI which connect to the Internet, the greatest
threat to the security of the Company's business transactions on the Internet is
expected to arise from its own employees. The Company, like most other companies
conducting business on the Internet, intends to continuously implement a wide
range of hardware security measures to offer network protection and business
continuity. Nevertheless, it is generally known that few companies have
implemented the security measures available utilizing current technology,
including, among others, file encryption for stored information, public key
cryptography, telecommunication encryption and digital signatures/sender
authentication. Many development-stage companies, like PI, lack the capital
and/or customer demand to warrant the investment in electronic security
protective applications and technologies. Further, while many companies have a
formal security policy, nearly all are believed to be far from adequate and very
few companies educate all members of staff, conduct risk analysis on a regular
basis and regularly assess their software for security flaws. With the wide
range of security flaws inherent in the Internet, the Company can be expected to
be at a serious disadvantage, as compared to its competitors, especially with
regard to electronic commercial transactions, if management fails to protect or
minimize the risks to PI from security threats. While the Internet represents a
new and highly lucrative market, management expects to be challenged by the
necessity to become fully aware of new technologies so that it can manage the
risks associated with conducting transactions over the net. Another disadvantage
to the Company's conducting business on the Internet is the lack of physical
representation enabling customers to inspect the Company's merchandise in
advance of placing an order and obtaining customer services from personnel with
whom they are able to interact in person. It is likely that, because the Company
will limit its marketing activities to the Internet, it will be unable to
generate business from the type of customer unable to develop a comfort level in
the absence of physical representation and will likely be required to deal with
dissatisfied customers believing that the product ordered differs in its
physical appearance from the photographic image viewed on the Internet. Despite
the above-described and other risks to the Company of selling fine art posters
"on-line," PI intends to employ this method of displaying, marketing and selling
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fine art posters exclusively because of the significantly reduced cost to PI
from eliminating the need for a retail facility and a sizeable marketing staff.
Proposed Marketing of the Company
In addition to the Marketing Agreement with Nicklebys.com pursuant to which
the Company advertises its fine art posters and, to a lesser degree, itself on
Nicklebys.com's web site, management has plans to employ traditional marketing
methods in order to promote the Company. It is presently intended that these
activities will include advertising in local newspapers, trade journals and
periodicals and mailings of brochures to, among others, interior designers,
retail purchasers and past participants in live auctions hosted by Nicklebys.com
and others.
Competition
The secondary market for originals and reproductions of fine art posters
and antique paintings is intensely competitive. The Company anticipates that it
will be in competition with artists, art galleries, art and/or antique brokers
and dealers, antique stores, auction houses and liquidation companies and other
companies of all sizes located both inside and outside the United States engaged
in brokering and/or dealing in fine art posters and antique paintings of every
character and kind. The Company is aware of a limited number of other companies,
including Nickleby's.com on a very limited basis, that are presently marketing,
selling and/or trading fine art posters on the Internet, via auction and/or
otherwise. Company management believes that there will be an increasing number
of competitors seeking to trade, market and/or sell via the Internet fine art
posters of the types, including vintage antique, product advertising, travel,
sporting event, movie and theater memorabilia and commemorative posters, being
offered by PI or, in the instance of certain reproductions, identical to the
reproductions being offered by the Company. The Company expects to compete on
the basis of its reputation among customers as a quality provider of products
and, to a lesser extent, on the basis of price. Additionally, the Company, like
Nicklebys.com but unlike other competitors whose inventory is limited
exclusively or primarily to items offered on consignment, will guarantee the
authenticity of each poster and will furnish the purchaser with a written
appraisal at the time of purchase. Management hopes, to the extent practicable,
to minimize the Company's weaknesses, including, among others, its
undercapitalization, cash shortage, limitations with respect to personnel,
technological, financial and other resources and lack of a customer base and
market recognition, through its focus on the Internet; which eliminates the need
for a retail facility and a sizeable marketing staff. However, PI's opportunity
to obtain wholesale and other larger customers may also be limited by its
financial resources and other assets. In this regard, many of the companies and
other organizations with which PI will be in competition are established and
have far greater financial resources, substantially greater experience and
larger staffs than the Company. Additionally, many of such organizations have
proven operating histories, which the Company lacks. The Company expects to face
strong competition from both such well-established companies and small
independent companies like itself. In addition, the Company's business may be
subject to decline because of generally increasing costs and expenses of doing
business, thus further increasing anticipated competition. Additionally, it is
anticipated that there may be significant technological advances in the future
and the Company may not have adequate creative management and resources to
enable it to take advantage of such advances. The effects of any such
technological advances on PI, therefore, cannot be presently determined. (See
"RISK FACTORS.")
Employees and Consultants
The Company has had no employees since its organization. Messrs. Scott M.
Thornock and Bruce A. Capra, the President/Treasurer/director and the
Secretary/director, respectively, of PI, have served in those positions without
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cash compensation through the date hereof. See Item 6. "Executive Compensation"
below for a description of the equity ownership interests in the Company of
Messrs. Thornock and Capra. It is anticipated that at such time, if ever, as the
Company's financial position permits, assuming that the Company is successful in
raising additional funds through equity and/or debt financing and/or generating
a sufficient level of revenue from operations, Messrs. Thornock and Capra any
other executive officers and/or directors of PI will receive reasonable salaries
and other appropriate compensation, such as bonuses, coverage under medical
and/or life insurance benefits plans and participation in stock option and/or
other profit sharing or pension plans, for services as executive officers of the
Company and may receive fees for their attendance at meetings of the Board of
Directors of PI. The Company has no plans to retain any consultants or pay
consulting fees to any person to perform services for the Company in any
capacity.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
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Since shortly after its inception, the Company has operated a web site on
the Internet located at www.posteralley.com from which it markets, sells, trades
and/or brokers fine art posters, including, but not limited to, vintage antique,
product advertising, travel, sporting event, movie and theatre memorabilia and
commemorative posters. In addition, PI recently commenced the marketing of
antique paintings. The Company has generated only minimal revenues and a net
loss from this business through the date hereof. For the nine months ended June
30, 2000, and for the period from July 19, 1999, the date of the Company's
inception, through September 30, 1999, the Company realized total revenues of
$700, and a net loss of $(14,530) and $(4,382), respectively (less than $(.01)
per share).
While the Company expects, for the foreseeable future, to be partially
dependent for its products upon fine art posters consigned to the Company by I.
Brewster & Company, Club of American Collectors and/or others, management
intends that PI increase its limited inventory of originals and reproductions of
fine art posters and original, antique fine art paintings. Additionally,
management has plans to expand its marketing efforts in order to obtain a larger
customer base. The implementation of these plans is dependent upon PI's ability
to raise additional capital from equity and/or debt financing and/or achieve
profitable operations. Management believes that the revenue generated from its
business will not be sufficient to finance all future activities and that it
will be necessary to raise additional funds through equity and/or debt
financing. Although management intends to explore all available alternatives for
debt and/or equity financing, including, but not limited to, private and public
securities offerings, there can be no assurance that the Company will be able to
generate additional capital for expansion and/or other purposes. In the event
that only limited additional financing is received, PI expects its opportunities
in the secondary market for fine art posters and antique fine art paintings to
be limited. Further, even if the Company succeeds in obtaining the level of
funding necessary to increase revenue through the expenditure of additional
funds for marketing, advertising and/or promotion in order to obtain more
inventory and a sizable customer base, this will not ensure the realization by
the Company of profits from operations.
Financial Condition, Capital Resources and Liquidity
----------------------------------------------------
As of June 30, 2000, PI had minimal assets in the amount of $104,802,
including $86,511 in cash, accounts receivable of $700, inventory valued at cost
at $16,125 and equipment (less accumulated depreciation) of $1,466, and total
liabilities of $1,750. As of September 30, 1999, the Company had minimal cash
assets of $3,260 and total liabilities of $11,500. As a result of its having
minimal assets and a deficit accumulated during the development stage of
$(18,912) and $(4,382) as of June 30, 2000, and September 30, 1999,
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respectively, the Company's total shareholders' equity (deficit) as of June 30,
2000, and September 30, 1999, was $103,052 and $(8,240), respectively. There can
be no assurance that the Company's financial condition will improve.
Until the successful completion of the Company's offering of Common Stock
on June 28, 2000, for gross proceeds of $125,300, HDG was funded with loans from
Messrs. Scott M. Thornock and Bruce A. Capra, its two executive officers,
directors and principal shareholders. Messrs. Thornock and Capra loaned an
aggregate of $11,000 and $3,500, respectively, to the Company during the period
from July 27, 1999, through March 3, 2000; which loans were evidenced by
unsecured Promissory Notes dated November 1, 1999, with each of Messrs. Thornock
and Capra, as the holders, in the principal amounts of $9,500 and $3,500,
respectively, bearing interest at the rate of 8% per annum, due November 1,
2000, and an unsecured Promissory Note dated March 3, 2000, with Mr. Thornock,
as the holder, in the principal amount of $1,500, bearing interest at the rate
of 8% per annum, due November 1, 2000. On May 31, 2000, the Company repaid the
$14,500 principal balance of all of the outstanding promissory notes together
with accrued interest totaling $825 out of the proceeds of its offering of
Common Stock completed on June 28, 2000.
Item 3. Description of Property.
The Company maintains its offices rent-free at the business offices of
Paragon Real Estate & Development, L.L.C., an affiliated company of which Mr.
Scott M. Thornock, the President/Treasurer, a director and an approximate 75.6%
shareholder of the Company, is the sole owner and operating manager, located at
1422 Delgany Street, Suite #12, Denver, Colorado 80202. The Company anticipates
the continued utilization of these offices on a rent-free basis until such time,
if ever, as it obtains sufficient funding from debt and/or equity financing in
addition to this offering and/or generates a level of earnings sufficient, in
management's determination, to enable it to pay rent for its present offices or
obtain office space from an unaffiliated third party. The Company's telephone
and facsimile numbers are (303) 629-9751 and (303) 629-9756, respectively.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of August 23, 2000, by each shareholder known
by the Company to be the beneficial owner of more than 5% of its outstanding
shares of Common Stock, each director and all executive officers and directors
as a group. Under the General Rules and Regulations of the Commission, a person
is deemed to be the beneficial owner of a security if such person has or shares
the power to vote or direct the voting, or dispose or direct the disposition, of
such security. Each of the shareholders named in the table has sole voting and
investment power with respect to the shares of Common Stock beneficially owned.
Shares Percentage
Beneficially of
Beneficial Owner Owned (1) Class (1)
------------------------------------ ----------- -----------
Scott M. Thornock (2) 3,240,000 75.64%
1422 Delgany Street, Suite #12
Denver, Colorado 80202
Bruce A. Capra (2) 360,000 8.41%
6604 West 67th Avenue
Arvada, Colorado 80003
All executive officers and directors 3,600,000 84.05%
as a group (two persons)
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(1) Represents the number of shares of Common Stock owned of record and
beneficially by each named person or group, expressed as a percentage of
4,283,200 shares of the Company's Common Stock issued and outstanding as of
August 23, 2000.
(2) Executive officer and member of the Board of Directors of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Executive Officers and Directors
Set forth below are the names, ages, positions with the Company and
business experience of the executive officers and directors of the Company.
Name Age Position with Company
------------------ ----- -------------------------
Scott M. Thornock* 41 President, Treasurer and
Director
Bruce A. Capra* 46 Secretary and Director
------------------
*May be deemed to be "parents" and "promoters" of the Company, as those
terms are defined under the General Rules and Regulations promulgated under the
Securities Act of 1933, as amended.
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualify. Officers
serve at the pleasure of the Board of Directors. Messrs. Thornock and Capra are
expected to devote approximately 15% and 15%, respectively, of their time to the
business of the Company. Set forth below under "Business Experience" is a
description of the business experience of Messrs. Thornock and Capra.
Family Relationships
There are no familial relationships between the executive officers and
directors of the Company.
Business Experience
Scott M. Thornock has approximately fifteen years of experience in the real
estate development business. He has served as the President, the Treasurer and a
director of PI since its inception on July 19, 1999. Mr. Thornock has served as
the President, the Chief Financial Officer, the Secretary and a director of
Nicklebys.com, Inc., a publicly-held, Denver, Colorado, corporation engaged in
the marketing and sale of fine art, antiques and collectibles via the company's
auction web site on the Internet, live auctions and retail sales, since that
company's inception on January 13, 1999. Since August 27, 1999, Mr. Thornock has
served as the Secretary/Treasurer of Celebrity Sports Network, Inc., a
privately-held, Littleton, Colorado, company engaged in the promotion of
professional athletes as motivational speakers via the Internet and the
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sponsorship of motivational seminars, which is seeking to raise capital
publicly. He served as a director of Perseus Art Group, Inc. ("PAG"), a public
Colorado corporation, from the date of PAG's inception on June 26, 1998, until
his resignation on May 12, 1999, and as the Vice President, the Chief Financial
Officer and the Secretary of PAG from June 30, 1998, until his resignation from
these positions on May 12, 1999. Mr. Thornock served as the President, the Chief
Executive Officer, the Treasurer and a director of Triad Development Corp., a
publicly-held Colorado corporation, from the date of its inception on October
31, 1997, through the date of his resignation on April 2, 1999. He served as the
President, the Chief Executive Officer, the Treasurer, the Chief Financial
Officer and a director of Perfection Development Corporation from April 18,
1997, the date of the organization of the company, through October 2, 1998, on
which date he resigned as an executive officer and director. Mr. Thornock served
as the Vice President, the Chief Financial Officer, the Secretary and a director
of Thor Management Group, Inc., from the date of that company's inception on
January 9, 1998, through June 19, 1998, on which date he resigned his positions
as an executive officer and director of the company. He served as the President,
the Chief Executive Officer and a director of Pegasus Development Group, Inc., a
publicly-held Colorado corporation, from the date of its organization on
December 23, 1996, through October 22, 1997, on which date Mr. Thornock resigned
as executive officer and director of the company. He has been the sole owner and
managing member of Paragon Real Estate and Development, L.L.C. ("Paragon Real
Estate and Development"), a Denver, Colorado-based residential real estate
development, brokerage and business consulting firm that has performed
administrative supervision, financial management and other services for, among
others, twenty-nine Colorado limited liability companies of which Mr. Thornock
has been the founder, the manager and a member, since he founded the company in
February 1996. These twenty-nine limited liability companies, including Paragon
Development I-IV, L.L.C., Paragon Development VI-XII, L.L.C., Paragon
Development XIV-XXIX, L.L.C., 32-5, L.L.C., and Paragon Investment Group, I,
L.L.C., have raised capital from time-to-time over the past approximately five
years for the purposes of acquiring, developing, constructing and/or brokering
multi-family, residential properties located in Denver, Boulder, Longmont and
Vail, Colorado. Twenty of these companies are operating currently. Mr. Thornock
has held a real estate brokers license in the State of Colorado since December
1995. He received a Bachelor of Arts degree in history and a Masters degree in
business management from the University of Colorado, Boulder, Colorado, in 1982
and 1994, respectively.
Bruce A. Capra has served as the Secretary and a director of the Company
since its inception on July 19, 1999. Since its inception on January 13, 1999,
he has served as the Chairman of the Board of Directors and the Chief Executive
Officer of Nicklebys.com, Inc., a publicly-held, Denver, Colorado, corporation
engaged in the marketing and sale of fine art, antiques and collectibles via
auction on the Internet, live auctions and retail sales. He was employed, from
1988 until his resignation on February 1999, as the General Manager and the
Director of Sales, Marketing and Advertising for American Design, Ltd.
("American Design"), an Aurora, Colorado, corporation specializing in the
publication of fine art that has eleven retail outlets located in California,
Colorado and New Mexico. American Design, which is today recognized as one of
the largest wholesale fine art publishing firms in the United States, realized
gross revenues of approximately $12,000,000 during its most recent fiscal year.
Mr. Capra served as the President, the Chief Executive Officer and a director of
Perseus Art Group, Inc., a publicly-held Colorado corporation, from June 26,
1998, until his resignation from these positions with PAG on May 12, 1999. He
was the founder and served as the President, a director and the sole owner of
Nickleby's Auction Gallery Ltd. ("Nickleby's"), Aurora, Colorado, an auction
liquidation company specializing in fine art, antiques and collectibles, from
1992 through January 15, 1999, on which date Nicklebys.com purchased all of the
outstanding common stock of Nickleby's. Mr. Capra founded and served as the
President, from 1981 until the sale of the business in 1988, of Image Tech Inc.,
Denver, Colorado, a fine art serigraph printing company specializing in printing
and publishing fine art and commercial signage and, during Mr. Capra's tenure,
printed limited edition fine art prints for internationally known artists such
as Andy Warhol, Roy Liechtenstein, Earl Biss and others. Prior to that time,
10
<PAGE>
from 1979 through 1982, he owned and operated The Mushroom Gallery, Ltd., an art
gallery located in Denver, Colorado. Mr. Capra attended Missouri Auction School
in 1988 and is a licensed auctioneer in the states of California, Colorado,
Nevada and Texas. He is also a certified personal property appraiser and a
member of the Certified Appraisers Guild of America.
Item 6. Executive Compensation
No cash compensation has been awarded to, earned by or paid to either Mr.
Scott M. Thornock or Mr. Bruce A. Capra, the present executive officers and
directors of the Company, for all services rendered in all capacities to the
Company since PI's inception on July 19, 1999. Further, for the foreseeable
future, Messrs. Thornock and Capra will receive no compensation in any form for
their services to the Company in the capacities of executive officers and
directors. On July 19, 1999, the Company issued 3,240,000 shares, and 360,000
shares, of Common Stock (a total of 3,600,000 shares of Common Stock) to each of
Messrs. Thornock and Capra, respectively, for services performed in organizing
the Company. Neither Mr. Thornock nor Mr. Capra holds any option to purchase any
of the Company's securities. The executive officers and directors of the Company
plan to devote only such time to the affairs of PI that each deems necessary.
(See Part I, Item 7. "Certain Relationships and Related Transactions" and Part
II, Item 4. "Recent Sales of Unregistered Securities.")
The Company does not provide its officers or employees with pension, stock
appreciation rights, long-term incentive or other plans and has no intention of
implementing any such plans for the foreseeable future. In the future, PI may
offer stock options to prospective employees and/or consultants; however, no
such options have been granted as of the date hereof. It is possible that in the
future the Company may establish various executive incentive programs and other
benefits, including reimbursement for expenses incurred in connection with the
Company's operations, Company automobiles and life and health insurance, for its
executive officers and directors, but none has yet been granted. The provisions
of such plans and benefits will be at the discretion of PI's Board of Directors.
Compensation of Directors
The Company has no standard arrangements for compensating the directors of
the Company.
Item 7. Certain Relationships and Related Transactions.
On July 19, 1999, PI issued and sold 3,240,000 shares, and 360,000 shares,
of Common Stock (a total of 3,600,000 shares of Common Stock) to Messrs. Scott
M. Thornock and Bruce A. Capra, respectively, in consideration for services
performed by each individual in connection with the organization of the Company
valued at $324 and $36, respectively (a total of $360 at the rate of $.0001 per
share). Messrs. Thornock and Capra serve as both of the executive officers and
directors of PI and together own of record and beneficially 3,600,000 shares,
representing approximately 84.1% of the total number of issued and outstanding
shares, of the Company's Common Stock as of the date hereof. Because of their
present management positions with, organizational efforts on behalf of and
percentage share ownership in, the Company, Messrs. Thornock and Capra may be
deemed to be "parents" and "promoters" of PI, as those terms are defined in the
Securities Act of 1933, as amended, and the applicable Rules and Regulations
thereunder. Because of the above-described relationships, transactions between
and among the Company and Messrs. Thornock and Capra, such as the Company's sale
11
<PAGE>
of Common Stock to each of them as described hereinabove, should not be
considered to have occurred at arm's-length. ). (See Part II, Item 4. "Recent
Sales of Unregistered Securities.")
Messrs. Thornock and Capra loaned an aggregate of $11,000 and $3,500,
respectively, to the Company during the period from July 27, 1999, through March
3, 2000; which loans were evidenced by unsecured Promissory Notes dated November
1, 1999, with each of Messrs. Thornock and Capra, as the holders, in the
principal amounts of $9,500 and $3,500, respectively, bearing interest at the
rate of 8% per annum, due November 1, 2000, and an unsecured Promissory Note
dated March 3, 2000, with Mr. Thornock, as the holder, in the principal amount
of $1,500, bearing interest at the rate of 8% per annum, due November 1, 2000.
On May 31, 2000, the Company repaid the $14,500 principal balance of all of the
outstanding promissory notes together with accrued interest totaling $825 out of
the proceeds of its offering of Common Stock completed June 28, 2000. (See Part
I, Item. 2 "Management's Discussion and Analysis or Plan of Operation" and Part
II, Item 4. "Recent Sales of Unregistered Securities).
Since October 1, 1999, the Company has maintained its offices rent-free at
the business offices of Paragon Real Estate & Development, L.L.C. ("Paragon"),
an affiliated company of which Mr. Scott M. Thornock, the President/Treasurer, a
director and an approximate 75.6% shareholder of the Company, is the sole owner
and operating manager, located at 1422 Delgany Street, Suite #12, Denver,
Colorado 80202. From the date of the Company's inception through September 30,
1999, Mr. Thornock provided office space to the Company at no charge. The
$250.00 per month value of the office space provided by Paragon and Mr. Thornock
is included in the Company's Financial Statements that commence on page F-1
hereof as rent expense with a corresponding credit to contributed capital. (See
Part I, Item. 3 "Property.")
On July 26, 1999, the Company issued and sold 182,000 shares, representing
approximately 4.3% of the aggregate number of issued and outstanding shares, of
the Company's Common Stock, to Cudd & Associates, 1120 Lincoln Street, Suite
#1507, Denver, Colorado 80203, the sole proprietorship owned by Patricia Cudd,
Esq., that has acted as counsel to the Company since its inception on July 19,
1999. Cudd & Associates received said shares of Common Stock in consideration
for the performance of certain legal services in connection with the
organization of the Company valued at $182 ($.001 per share). (See Part II, Item
4. "Recent Sales of Unregistered Securities.")
Item 8. Description of Securities.
Description of Capital Stock
----------------------------
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.0001 par value per share, and 3,000,000 shares of preferred
stock, $.001 par value per share (the "Preferred Stock").
Description of Common Stock
---------------------------
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully-paid and nonassessable shares. Cumulative voting in the election of
directors is not permitted; which means that the holders of a majority of the
issued and outstanding shares of Common Stock represented at any meeting at
which a quorum is present will be able to elect the entire Board of Directors if
they so choose and, in such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors. In the event of liquidation of
the Company, each shareholder is entitled to receive a proportionate share of
12
<PAGE>
the Company's assets available for distribution to shareholders after the
payment of liabilities and after distribution in full of preferential amounts,
if any, to be distributed to holders of the Preferred Stock. All shares of the
Company's Common Stock issued and outstanding are fully-paid and nonassessable.
Dividend Policy. Holders of shares of Common Stock are entitled to share
pro rata in dividends and distributions with respect to the Common Stock when,
as and if declared by the Board of Directors out of funds legally available
therefor, after requirements with respect to preferential dividends on, and
other matters relating to, the Preferred Stock, if any, have been met. The
Company has not paid any dividends on its Common Stock and intends to retain
earnings, if any, to finance the development and expansion of its business.
Future dividend policy is subject to the discretion of the Board of Directors
and will depend upon a number of factors, including future earnings, capital
requirements and the financial condition of the Company.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Company's Common Stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek
Drive South, Suite #430, Denver, Colorado 80209.
Description of Preferred Stock
------------------------------
Shares of Preferred Stock may be issued from time to time in one or more
series as may be determined by the Board of Directors. The voting powers and
preferences, the relative rights of each such series and the qualifications,
limitations and restrictions thereof shall be established by the Board of
Directors, except that no holder of Preferred Stock shall have preemptive
rights. The Company has no shares of Preferred Stock outstanding, and the Board
of Directors has no plan to issue any shares of Preferred Stock for the
foreseeable future unless the issuance thereof shall be in the best interests of
the Company.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market Information.
There has been no established public trading market for the Common Stock
since the Company's inception on July 19, 1999.
(b) Holders.
As of August 23, 2000, the Company had approximately fifty-three
shareholders of record of its 4,283,200 issued and outstanding shares of Common
Stock, $.0001 par value per share.
(c) Dividends.
The Company has never paid or declared any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
13
<PAGE>
Item 2. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject, which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 3. Changes in and Disagreements with Accountants.
Cordovano & Harvey, P.C., 201 Steele Street, Suite #300, Denver, Colorado
80206, has reported upon the financial statements of the Company, including the
Balance Sheets as of June 30, 2000, and September 30, 1999, the related
Statements of Operations and Statements of Cash Flows for the Nine Months Ended
June 30, 2000, from July 19, 1999 (inception), through September 30, 1999, and
from July 19, 1999 (inception), through June 30, 2000, and the related
Statements of Shareholders' Equity (Deficit) from July 19, 1999 (inception),
through June 30, 2000, and has been appointed as the Company's independent
accountant for the year ending September 30, 2000. There has been no change in
the Company's independent accountant during the period commencing with the
Company's retention of Cordovano & Harvey, P.C., through the date hereof.
Item 4. Recent Sales of Unregistered Securities.
On July 19, 1999, PI issued and sold 3,240,000 shares, and 360,000 shares,
of Common Stock, $.0001 par value per share (a total of 3,600,000 shares of
Common Stock), to Messrs. Scott M. Thornock and Bruce A. Capra, respectively, in
consideration for services performed by each individual in connection with the
organization of the Company valued at $324 and $36, respectively (a total of
$360 at the rate of $.0001 per share). Messrs. Thornock and Capra serve as both
of the executive officers and directors of PI and together own of record and
beneficially 3,600,000 shares, representing approximately 84.1% of the total
number of issued and outstanding shares, of the Company's Common Stock as of the
date hereof. The Company relied, in connection with the sales of the shares,
upon the exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act"), and Section 11-51-308(1)(p) of the
Colorado Uniform Securities Act, as amended (the "Colorado Act"). The Company
relied upon the fact that the issuance and sale of the shares by the Company did
not constitute a public securities offering together with the fact that Messrs.
Thornock and Capra were executive officers, directors and controlling
shareholders of PI at the time of the sales, to make the exemptions available.
(See Part I, Item 7. "Certain Relationships and Related Transactions.")
On July 26, 1999, the Company issued and sold 182,000 shares, representing
approximately 4.3% of the aggregate number of issued and outstanding shares, of
the Company's Common Stock, to Cudd & Associates, 1120 Lincoln Street, Suite
#1507, Denver, Colorado 80203, the sole proprietorship owned by Patricia Cudd,
Esq., that has acted as counsel to the Company since its inception on July 19,
1999. Cudd & Associates received said shares of Common Stock in consideration
for the performance of certain legal services in connection with the
organization of the Company valued at $182 ($.001 per share). (See Part I, Item
7. "Certain Relationships and Related Transactions.")
The Company, as the maker, entered into unsecured Promissory Notes dated
November 1, 1999, with each of Messrs. Thornock and Capra, as the holders, in
the principal amounts of $8,000 and $2,000, respectively, bearing interest at
the rate of 8% per annum, due November 1, 2000. These Promissory Notes
14
<PAGE>
memorialized non-interest bearing, working capital advances in the identical
principal amount of each promissory note made be each of Messrs. Thornock and
Capra to the Company on July 27, 1999. The Company, as the maker, entered into
unsecured Promissory Notes dated November 1, 1999, with each of Messrs. Thornock
and Capra, as the holders, in the principal amounts of $1,500 each, bearing
interest at the rate of 8% per annum, due November 1, 2000. The Company, as the
maker, entered into that certain unsecured Promissory Note dated March 3, 2000,
with Mr. Thornock, as the holder, in the principal amount of $1,500, bearing
interest at the rate of 8% per annum, due November 1, 2000. On May 31, 2000, the
Company repaid the $14,500 principal balance of all of the outstanding
promissory notes together with accrued interest totaling $825.
During the period from May 8 through June 28, 2000, the Company issued and
sold an aggregate of 501,200 shares of Common Stock to a total of fifty persons,
all of whom are residents of either the State of California, Colorado or
Illinois, for cash consideration totaling $125,300. The sales were made by the
Company in reliance upon the exemption from registration with the U.S.
Securities and Exchange Commission provided under Section 3(b) of the 1933 Act
and Rule 504 of Regulation D promulgated thereunder and in reliance upon Section
25102(f) of the California Corporations Code, as amended, Section
11-51-308(1)(p) of the Colorado Securities Act, as amended, and Section 4.G. of
the Illinois Securities Law of 1953, as amended. No underwriter was employed in
connection with the offering and sale of the shares. The facts relied upon by
the Company to make the Federal exemption available include, among others, the
following: (i) the aggregate offering price for the offering of the shares of
Common Stock did not exceed $1,000,000, less the aggregate offering price for
all securities sold within the twelve months before the start of and during the
offering in reliance on any exemption under Section 3(b) of, or in violation of
Section 5(a) of, the 1933 Act; (ii) the required number of manually executed
originals and true copies of Form D were duly and timely filed with the U.S.
Securities and Exchange Commission; (iii) no general solicitation or advertising
was conducted by the Company in connection with the offering of any of the
shares; and (iv) the fact that the Company has not been since its inception (a)
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended; (b) an "investment company" within the meaning
the Investment Company Act of 1940, as amended; or (c) a development stage
company that either has no specific business plan or purpose or has indicated
that its business plan is to engage in a merger or acquisition with an
unidentified company or companies, or other entity or person.
Item 5. Indemnification of Directors and Officers.
Article VII of the Company's Articles of Incorporation contains provisions
providing for the indemnification of directors and officers of the Company as
follows:
"(a) The corporation shall indemnify 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 (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is
otherwise serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding, by
15
<PAGE>
judgment, order, settlement, conviction upon a plea of nolo contendere
or its equivalent, shall not of itself create a presumption that the
person did not act in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding,
had reasonable cause to believe the action was unlawful.
(b) The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending
or completed action or suit by or in the right of the corporation, to
procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the
corporation, unless, and only to the extent that, the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses which such court deems
proper.
(c) To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections (a)
and (b) of this Article, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under Section (a) or (b) of this Article
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the officer, director and employee or agent is
proper in the circumstances, because he has met the applicable
standard of conduct set forth in Section (a) or (b) of this Article.
Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties
to such action, suit or 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, or
(iii) by the affirmative vote of the holders of a majority of the
shares of stock entitled to vote and represented at a meeting called
for such purpose.
(e) Expenses (including attorneys' fees) incurred in defending a
civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit
or proceeding, as authorized in Section (d) of this Article, upon
receipt of an understanding by or on behalf of the director, officer,
employee or agent to repay such amount, unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this Article.
16
<PAGE>
(f) The Board of Directors may exercise the corporation's power
to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under this Article.
(g) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking
indemnification may be entitled under these Articles of Incorporation,
the Bylaws, agreements, vote of the shareholders or disinterested
directors, or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs
and personal representatives of such a person."
Article XI of the Company's Bylaws contains provisions providing for the
indemnification of directors and officers of the Company as follows:
"The Corporation shall have the power to indemnify any director,
officer, employee or agent of the Corporation or any person serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise to the fullest extent permitted by the laws of the
State of Colorado."
The Company has no agreements with either of its directors or executive
officers providing for indemnification of either such persons with respect to
liability arising out of his capacity or status as an officer and/or director.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company as to which indemnification is
being sought.
PART F/S
The Financial Statements of Posteralley.com, Inc., required by Regulation
SB commence on page F-1 hereof in response to Part F/S of this Registration
Statement on Form 10-SB and are incorporated herein by this reference.
17
<PAGE>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Page
------
Independent auditors' report............................................. F-2
Balance sheets, June 30, 2000 and September 30, 1999..................... F-3
Statements of operations, for the nine months ended June 30, 2000,
From July 19, 1999 (inception) through September 30, 1999,
and from July 19, 1999 (inception) through June 30, 2000............ F-4
Statement of shareholders' equity (deficit), from July 19, 1999
(inception) through June 30, 2000................................... F-5
Statements of cash flows, for the nine months ended June 30, 2000,
from July 19, 1999 (inception) through September 30, 1999 and
from July 19, 1999 (inception) through June 30, 2000................ F-6
Summary of significant accounting policies............................... F-8
Notes to financial statements............................................ F-11
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Posteralley.com, Inc.
We have audited the balance sheets of Posteralley.com, Inc. (a development stage
company) as of June 30, 2000 and September 30, 1999, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the nine
months ended June 30, 2000, from July 19, 1999 (inception) through September 30,
1999 and from July 19, 1999 (inception) through June 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Posteralley.com, Inc. as of
June 30, 2000 and September 30, 1999, and the results of its operations and its
cash flows for the nine months ended June 30, 2000, from July 19, 1999
(inception) through September 30, 1999 and from July 19, 1999 (inception)
through June 30, 2000, in conformity with generally accepted accounting
principles.
Posteralley.com, Inc. issued promissory notes to its officers totaling $14,500,
the Company repaid the notes and related accrued interest totaling $825 prior to
June 30, 2000. An officer and an affiliate contributed office space to the
Company for all periods presented (see Note B).
Cordovano and Harvey, P.C.
Denver, Colorado
July 13, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
June 30, September 30,
2000 1999
--------- ---------
ASSETS
<S> <C> <C>
CASH............................................................................. $ 86,511 $ 3,260
ACCOUNTS RECEIVABLE ............................................................. 700 --
INVENTORY, at cost .............................................................. 16,125 --
EQUIPMENT, less accumulated depreciation
of $20 and $0, respectively ................................................ 1,466 --
--------- ---------
$ 104,802 $ 3,260
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Accrued expenses........................................................... $ 1,750 $ 1,500
Notes payable to officers (Note B) ........................................ 10,000
--------- ---------
TOTAL LIABILITIES ................... 1,750 11,500
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT) (Note B)
Preferred stock, $.001 par value; 3,000,000 shares authorized;
0 and 0 shares issued and outstanding, respectively...................... -- --
Common stock, $.0001 par value; 30,000,000 shares authorized;
4,283,200 and 3,782,000 shares issued and outstanding,
respectively ............................................................ 428 378
Additional paidin capital.................................................. 121,536 664
Deferred offering costs.................................................... -- (4,900)
Deficit accumulated during development stage............................... (18,912) (4,382)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) ...................... 103,052 (8,240)
--------- ---------
$ 104,802 $ 3,260
========= =========
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
July 19, July 19,
1999 1999
For The Nine (Inception) (Inception)
Months Ended through through
June 30, September 30, June 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
SALES (Note B) ....................................................................... $ 700 $ -- $ 700
COST OF GOODS SOLD.................................................................... 475 -- 475
----------- ----------- ----------
GROSS PROFIT .................. 225 225
OPERATING EXPENSES
Stockbased compensation (Note B) ................................................ -- 542 542
Web site development costs....................................................... 3,275 900 4,175
Professional fees................................................................ 5,225 1,500 6,725
Contributed rent (Note B)........................................................ 2,250 500 2,750
Travel........................................................................... 1,959 858 2,817
Depreciation .................................................................... 20 -- 20
Other............................................................................ 1,201 82 1,283
----------- ----------- -----------
(13,931) (4,382) (18,312)
----------- ----------- -----------
LOSS FROM OPERATIONS .................. (13,705) (4,382) (18,087)
INTEREST EXPENSE (Note B) ............................................................ (825) -- (825)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES .................. (14,530) (4,382) (18,912)
INCOME TAXES (Note C) ................................................................ -- -- --
NET LOSS .................. $ (14,530) $ (4,382) $ (18,912)
=========== =========== ===========
Basic loss per common share........................................................... $ * $ *
=========== ===========
Basic weighted average common shares outstanding...................................... 3,837,689 3,764,784
=========== ===========
* Less than $.01 per share
See accompanying summary of significant accounting policies and
notes to the financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
July 19, 1999 (inception) through June 30, 2000
Preferred stock Common Stock
--------------- ------------
Shares Par Value Shares Par Value
-------- --------- -------- ---------
July 19, 1999, shares issued to officers for
services related to organizing the Company,
valued at the fair value of the services
<S> ............................................... <C> <C> <C> <C>
($.0001/share) (Note B) ........................... -- $ -- 3,600,000 $ 360
July 26, 1999, shares issued to attorney for
services related to organizing the Company,
valued at the fair value of the services
($.001/share) (Note D) ............................ -- -- 182,000 18
July 27, 1999, offering costs deferred ............... -- -- -- --
Office space contributed by an officer (Note B) ...... -- -- -- --
Net loss for the period ended September 30, 1999 ..... -- -- -- --
--------- --------- ---------- ---------
BALANCE, SEPTEMBER 30, 1999 .... -- -- 3,782,000 378
February 29, 2000, offering costs deferred ........... -- -- -- --
June 1, 2000, sale of common stock pursuant to
private placement ($.25/share) (Note D) ........... -- -- 501,200 50
Office space contributed by an affiliate (Note B) .... -- -- -- --
Net loss for the nine months ended
June 30, 2000 ..................................... -- -- -- --
--------- --------- --------- ---------
BALANCE, June 30, 2000 .... -- $ -- 4,283,200 $ 428
========== ========= ========= =========
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
July 19, 1999 (inception) through June 30, 2000
Deficit
Accumulated
Additional Deferred During the
Paid-in Offering Development
. Capital Costs Stage Total
--------- --------- --------- ---------
July 19, 1999, shares issued to officers for
services related to organizing the Company,
valued at the fair value of the services
<S> ............................................... <C> <C> <C> <C>
($.0001/share) (Note B) ........................... $ -- $ -- $ -- $ 360
July 26, 1999, shares issued to attorney for
services related to organizing the Company,
valued at the fair value of the services
($.001/share) (Note D) ............................ 164 -- -- 182
July 27, 1999, offering costs deferred ............... -- (4,900) -- (4,900)
Office space contributed by an officer (Note B) ...... 500 -- -- 500
Net loss for the period ended September 30, 1999 ..... -- -- (4,382) (4,382)
--------- --------- --------- ---------
BALANCE, SEPTEMBER 30, 1999 .... 664 (4,900) (4,382) (8,240)
February 29, 2000, offering costs deferred ........... -- (1,728) -- (1,728)
June 1, 2000, sale of common stock pursuant to
private placement ($.25/share) (Note D) ........... 118,622 6,628 -- 125,300
Office space contributed by an affiliate (Note B) .... 2,250 -- -- 2,250
Net loss for the nine months ended
June 30, 2000 ..................................... -- -- (14,530) (14,530)
--------- --------- --------- ---------
BALANCE, June 30, 2000 .... $ 121,536 $ -- $ (18,912) $ 103,052
========= ========= ========= =========
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-5 (Cont)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
July 19, July 19,
1999 1999
For The Nine (Inception) (Inception)
Months Ended through through
June 30, September 30, June 30,
2000 1999 2000
---------- --------- ---------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss..............................................$(14,530) $ (4,382) $ (18,912)
Transactions not requiring cash:
Depreciation ...................................... 20 -- 20
Common stock issued for services .................. -- 542 542
Office space contributed by an officer (Note B) ... -- 500 500
Office space contributed by an affiliate (Note B) . 2,250 -- 2,250
Changes in operating assets and operating liabilities:
Accounts receivable and inventory ................. (16,825) -- (16,825)
Accounts payable and accrued expenses ............. 250 1,500 1,750
-------- -------- --------
NET CASH (USED IN)
OPERATING ACTIVITIES (28,835) (1,840) (30,675)
-------- -------- --------
INVESTING ACTIVITIES
Equipment purchases .................................. (1,486) -- (1,486)
-------- -------- --------
NET CASH (USED IN)
INVESTING ACTIVITIES (1,486) - (1,486)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of debt (Note B) .............. 4,500 10,000 14,500
Repayment of debt (Note B) ........................... (14,500) -- (14,500)
Proceeds from sale of stock (Note D) ................. 125,300 -- 125,300
Payments for offering costs .......................... (1,728) (4,900) (6,628)
-------- -------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 113,572 5,100 118,672
======== ======== ========
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSTERALLEY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
July 19, July 19,
1999 1999
For The Nine (Inception) (Inception)
Months Ended through through
June 30, September 30, June 30,
2000 1999 2000
-------- -------- --------
<S> <C> <C> <C>
NET CHANGE IN CASH 83,251 3,260 86,511
Cash, beginning of period........................................... 3,260 -- --
-------- -------- --------
CASH, END OF PERIOD $ 86,511 $ 3,260 $ 86,511
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................... $ 825 $ -- $ --
======== ======== ========
Income taxes................................................... $ -- $ -- $ --
======== ======== ========
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-7
</TABLE>
<PAGE>
POSTERALLEY.COM, INC.
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company
Posteralley.com, Inc. (the "Company") is in the development stage in accordance
with Financial Accounting Standards Board Statements of Financial Accounting
Standards (SFAS) No. 7 "Accounting and Reporting by Development Stage
Enterprises".
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Allowance for doubtful accounts
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required.
Inventory
The Company's inventory, consisting entirely of posters, is stated at the lower
of cost or market value using the specific identification method.
Equipment and depreciation
Equipment is stated at cost. Equipment is depreciated over its estimated useful
life using the straight-line method. Upon retirement or disposition of
equipment, the cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in operations. Repairs and
maintenance are charged to expense as incurred and expenditures for additions
and improvements are capitalized.
Deferred offering costs
The Company incurred legal and accounting fees related to the preparation of an
offering memorandum during the periods presented (see Note D for details of the
offering). Costs associated with the offering were deducted from the gross
proceeds at its conclusion.
Year-end
The Company has adopted a fiscal year-end of September 30.
F-8
<PAGE>
POSTERALLEY.COM, INC.
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Earnings (loss) per share
The Company reports earnings (loss) per share using a dual presentation of basic
and diluted earnings per share. Basic earnings (loss) per share exclude the
impact of common stock equivalents. Diluted earnings (loss) per share utilize
the average market price per share when applying the treasury stock method in
determining common stock equivalents. However, the Company has a simple capital
structure for the period presented and, therefore, there is no variance between
the basic and diluted earnings (loss) per share.
Internet and web site development
The Company expenses all internal and external costs incurred to develop
internal-use computer software. As a development stage company, management has
determined there is no assurance that the web site will provide substantive
service potential to the Company.
Fair value of financial instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair values of its financial instruments
approximate carrying values. The carrying amounts of cash, accounts payable, and
other current liabilities approximate fair value due to the short-term maturity
of the instruments. The carrying amounts of the Company's debt approximates fair
value based on quoted market prices for similar issues or on current rates
offered to the Company for debt of the same remaining maturities.
F-9
<PAGE>
POSTERALLEY.COM, INC.
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995. This accounting standard permits the use of either a "fair value based
method" or the "intrinsic value method" defined in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) to account for
stock-based compensation arrangements.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company
adopted SFAS No. 123 for the periods ended June 30, 1999; however, the Company
has elected to continue to determine the value of stock-based compensation
arrangements with employees under the provisions of APB 25. No pro forma
disclosures have been included with the accompanying financial statements as
there was no pro forma effect to the Company's net loss or loss per share.
F-10
<PAGE>
POSTERALLEY.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE A: BACKGROUND
The Company was incorporated under the laws of Colorado on July 19, 1999. The
principal activities since inception have been organizational matters, the sale
and issuance of shares of its $.0001 par value common stock, and the development
of its web site. The Company plans to engage in the business of acquiring,
marketing, selling, trading and brokering originals and reproductions of fine
art posters via its Internet web site. Until June of 2000, the Company's
inventory was limited to posters obtained from management and others for sale on
consignment. During June of 2000, the Company purchased $16,600 of inventory and
made its first sale.
NOTE B: RELATED PARTY TRANSACTIONS
Contributed office space
An officer provided office space to the Company at no charge from July 19, 1999
(inception) through September 30, 1999. An affiliate provided office space to
the Company at no charge from October 1, 1999 through June 30, 2000. All office
space was valued at $250 per month based on the market rate in the local area
and is included in the accompanying financial statements as rent expense with a
corresponding credit to contributed capital.
Notes payable to officers
On July 27, 1999, two officers made non-interest bearing working capital
advances to the Company totaling $10,000. Effective October 31, 1999, the
advances were converted to promissory notes. During January and March of 2000,
the officers loaned the Company an additional $4,500 in exchange for promissory
notes. On May 31, 2000, the Company repaid the notes and related accrued
interest totaling $825. The promissory notes consisted of the following at June
30, 2000 and September 30, 1999:
June 30, September 30,
2000 1999
------------ ------------
Note payable to officer, interest rate at
8.00 percent, maturity on November 1,
2000, unsecured..............................$ -- $ 8,000
Note payablke to officer, interest rate at
8.00 percent, maturity on November 1,
2000, unsecured..............................$ -- $ 2,000
------------ ------------
$ -- $ 10,000
============ ============
Interest expense totaled $825, $-0- and $825 for the nine months ended June 30,
2000, for the period ended September 30, 1999 and from July 19, 1999 (inception)
through June 30, 2000, respectively.
F-11
<PAGE>
POSTERALLEY.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE B: RELATED PARTY TRANSACTIONS, CONTINUED
Notes payable, continued
On July 19, 1999, the Board of Directors approved the issuance of 3,600,000
shares of the Company's $.0001 par value restricted common stock to two
officers/directors of the Company in exchange for services related to the
organization of the Company. The value of the transaction could not objectively
measured as the services were rendered by related parties. The transaction was
recorded at a nominal value of $360 ($.0001 per share) as there was no market
price for the Company's common stock on the date of issuance. Stock-based
compensation expense of $360 was recognized in the accompanying financial
statements for the period ended September 30, 1999. These shares are "restricted
securities" and may be sold only in compliance with Rule 144 of the Securities
Act of 1933, as amended.
Sales
During the nine months ended June 30, 2000, the Company made one sale to a
shareholder for $700.
NOTE C: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
June 30, September 30,
2000 1999
------------ ------------
U.S. federal statutory graduated rate............. 15.00% 15.00%
State income tax rate,
net of fedreal benefit.......................... 4.04% 4.04%
Offering costs.................................... 0.95% 21.28%
Net operating loss for which no tax
benefit is currently available.................. -19.99% -40.32%
------------ ------------
0.00% 0.00%
============ ============
At June 30, 2000, deferred taxes consisted of a net tax asset of $4,862, due to
operating loss carryforwards of $18,912, which was fully allowed for, in the
valuation allowance of $4,862. The valuation allowance offsets the net deferred
tax asset for which there is no assurance of recovery. The changes in the
valuation allowance from September 30, 1999 through June 30, 2000 and from July
19, 1999 (inception) through September 30, 1999 were $3,095 and $1,767,
respectively. Net operating loss carryforwards will expire through 2020.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
F-12
<PAGE>
POSTERALLEY.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE D: SHAREHOLDERS' EQUITY (DEFICIT)
On July 26, 1999, the Company issued 182,000 shares of its restricted common
stock to an attorney in exchange for legal services related to the organization
of the Company. The shares were valued at the fair value of the services.
Stock-based compensation expense of $182 was recognized in the accompanying
financial statements for the period ended September 30, 1999. These shares are
"restricted securities" and may be sold only in compliance with Rule 144 of the
Securities Act of 1933, as amended.
During May and June of 2000, the Company offered for sale 501,200 shares of its
$.0001 par value common stock at $.25 per share pursuant to an exemption from
registration claimed under Rule 504 of Regulation D of the Securities Act of
1933, as amended. The offering closed on June 27, 2000. The Company sold all
501,200 shares of common stock in the offering. Net proceeds from the offering
were $118,672, after deducting deferred offering costs totaling $6,628. The
offering was conducted through the Company's executive officers and directors.
F-13
<PAGE>
PART III
Item 1. Index to Exhibits.
Item
Number Description
------ ------------------------------------------------------------------------
3.1* Articles of Incorporation of Posteralley.com, Inc., filed July 19, 1999.
3.2* Bylaws of Posteralley.com, Inc.
10.1* Promissory Note dated November 1, 1999, from Posteralley.com, Inc., as
the maker, to Scott M. Thornock, as the holder, in the principal amount
of $8,000 due November 1, 2000, bearing interest at the rate of eight
per cent per annum.
10.2* Promissory Note dated November 1, 1999, from Posteralley.com, Inc., as
the maker, to Bruce A. Capra, as the holder, in the principal amount of
$2,000 due November 1, 2000, bearing interest at the rate of eight per
cent per annum.
10.3* Internet Marketing Agreement dated December 29, 1999, between
Posteralley.com, Inc., and Nicklebys.com, Inc.
------------------
*Filed herewith.
Item 2. Description of Exhibits.
The documents required to be filed as Exhibit Number 2 in Part III of Form
1-A filed as part of this Registration Statement on Form 10-SB are listed in
Item 1 of this Part III above. No documents are required to be filed as Exhibit
Numbers 3, 5, 6 or 7 in Part III of Form 1-A, and the reference to such Exhibit
Numbers is therefore omitted. No additional exhibits are filed hereto.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
POSTERALLEY.COM, INC.
(Registrant)
Date: August 23, 2000 By: /s/ Scott M. Thornock
-----------------------------------
Scott M. Thornock, President/
Treasurer
18
