U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
Modern Computer Systems, Inc.
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(Name of Small Business Issuer in its charter)
Florida 65-0793107
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Lakeview Avenue, Suite 160-134
West Palm Beach, Florida 33401
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 832-5705
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 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)
Copies of Communications Sent to:
Donald F. Mintmire, Esq.
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis or Plan of Operation.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and Management.
Item 5 Directors, Executive Officers, Promoters and Control Persons.
Family Relationships
Business Experience
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Item 6 Executive Compensation.
Compensation of Directors
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
Preferred Stock
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
PART I
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Item 1. Description of Business
(a) Development
Modern Computer Systems, Inc. (the "Company" or "MODS") was organized
as a Florida corporation on August 15, 1997. The initial business plan for the
Company was to develop applications of computer software that will manage the
small office. See Part I, Item 1. "Description of the Business - (b) Business of
Issuer." The United States Company's executive offices are presently located at
222 Lakeview Avenue, Suite 410, West Palm Beach, Florida 33401 and its telephone
number is (561) 832-5705. The Company also maintains an office at 1255
University , Suite 410, Montreal, Quebec H3B 3B6 and its telephone number is
(514) 878-1000.
The Company is filing this Form 10-SB on a voluntary basis so that
the public will have access to the required periodic reports on the Company's
current status and financial condition. The Company will continue to voluntarily
file periodic reports in the Event its obligation to file such reports is not
required under the Securities and Exchange Act of 1934 (the "Exchange Act").
In October 1997, the Company issued 9,000,000 founders shares of
common stock, $.0001 par value per share (the "Common") to its sole executive
officer in exchange for services related to the formation of the Company. The
Company relied upon an exemption under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. Such reliance was based upon the fact that
(i) the issuance of the shares did not involve a public offering and (ii) the
sole executive officer is an accredited investor and had full access to the
information regarding the Company necessary to make an informed investment
decision by virtue of his position as an officer and director of the Company.
The offering was made to a Florida resident in the State of Florida. (See Part
I, Item 6. "Executive Compensation)
From October 1997 through February 1998, the Company sold 1,200,000
shares of Common Stock for cash in the amount of $12,000 to twenty-nine(29)
investors: fourteen(14) Georgia residents, four(4) Florida residents and four(4)
foreign investors, pursuant to Section 3(b) of the Securities Act of 1933, as
amended (the "Act"), and Rule 504 of Regulation D promulgated thereunder ("Rule
504")and Section 10-5-9(13) of the Georgia Code and Section 517.061(11) of the
Florida Code. See Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
In December 1997, the Company entered into a share exchange agreement
with M. Investments, Inc.'s ("MII") shareholders . The terms of the share
exchange agreement by the Company required that 9,000,000 shares of the Company
be issued to the shareholders of MII, in exchange for 100% of the issued and
outstanding shares MII stock. In addition, on December 1997, at the closing of
the above acquisition with MII, the Company by agreement canceled 9,000,000
shares of common stock formerly issued to the Company's sole executive officer.
See Part II, Item 4. "Recent Sales of Unregistered Securities." See Part IV.
Item 1. "Index to Exhibits, Material Agreements."; Part I, Item 7. "Certain
Relationships and Related Transactions" and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In July 1998, the Company sold 2,800,000 shares of Common Stock for
cash in the amount of $56,000 to seven(7) foreign investors, pursuant to Section
3(b) of the Securities Act of 1933, as
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amended (the "Act"), and Rule 504 of Regulation D promulgated thereunder ("Rule
504"). See Part I, Item 7. "Certain Relationships and Related Transactions"; and
Part II, Item 4. "Recent Sales of Unregistered Securities."
In August 1998, the Company entered into a Share Exchange Agreement
to acquire all of the issued and outstanding common stock of Interactive Cyber
Television Inc. (hereinafter "ICTV"). The Company issued 8,300,000 shares of its
common stock to nine(9) foreign investors to acquire ICTV. Simultaneously with
the acquisition of ICTV the Company transferred all MII shares acquired in its
MII Share Exchange Agreement back to MII's shareholders in exchange for the
Company's 9,000,000 shares of Common Stock which the Company exchanged with MII
as consideration for all of MII's issued and outstanding shares. The Company
returned these 9,000,000 shares of Common Stock to its Treasury. The Company
rescinded the ICTV acquisition and Share Exchange Agreement ab initio after
determining that the Company would not be able to generate sufficient resources
to be able to sustain product development and leverage of the acquisition.
The ICTV acquisition was undertaken by the Company to acquire the
unique computer based software and technology developed by ICTV. At the time of
the acquisition the Company believed that it would be able to retain the clear
ownership to ICTV's technology, technological talents and manpower. The Company
believed that the acquisition of ICTV would have provided the Company with an
operational and marketing position which would be far superior to any other
United States company looking to enter into the specific technological area ICTV
occupied. However, during the course of the Company's audit, it was discovered
that clear title to the technology which ICTV possessed could not be established
and that the exclusivity to the specific technology that the Company believed it
would acquire was not as strong as it had expected. In addition, financing was
unavailable to sustain product development. After an independent business
valuation was able to confirm the Company's concerns, the Board voted to void
the transaction ab initio and to rescind issuances of Common Stock made under
the acquisition.
There are no preliminary agreements or understandings between the
Company and its officers and directors or affiliates or lending institutions
with respect to any loan agreements or arrangements.
The Company intends to offer additional securities under Rule 506 of
Regulation D under the Act ("Rule 506) to fund its short and medium term
expansion plans. (See Part I, Item 1. Description of Business - (b) Business of
Issuer.").
See (b) "Business of Issuer" immediately below for a description of
the Company's proposed business.
(b) Business of Issuer.
General
The Company remains committed to the development of computer software
solutions that will assist company owners in the management of their various
business enterprises. The Company believes that it will achieve its objectives
by concentrating on delivering business-to-business
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software solutions. A company's survival is dependent upon whether it makes or
loses money which in turn is based on its ability to control its underlying
fixed and variable costs. Technology has played a key role in the global
economic expansion due to its ability to greatly increase productivity to a much
greater extent than the costs directly associated thereto. The Company believes
that there remains substantial additional gains in profitability that can be
achieved through the added application of modern computer software technology
solutions. This widely held belief has been and caused the creation and success
of the Internet. The Company believes the next area wherein business may gain
added efficiencies and additional profitability is in the application of modern
computer software solutions in the business-to-business supply chain.
A leading market research company, has estimated that U.S.-based
Internet commerce between companies will grow from $109 billion in 1999 to $1.3
trillion in 2003. It is also widely believed that by 2003 the market for
business-to-business transactions will be more than ten times larger than the
related business-to-consumer transactions market.
Initial efforts by businesses to reduce transaction costs and
increase commerce efficiency focused on automating supply chains, particularly
for the purchase and sale of raw materials, unfinished items and other direct
goods. Most large companies have historically relied upon enterprise resource
planning ("ERP") and supply chain automation systems to increase the efficiency
of their internal procurement processes for direct goods. These systems are
based on complex client- server architectures that are designed to be used by a
relatively small number of sophisticated users. In addition, since ERP solutions
do not typically tie the corporation with its suppliers or customers, they do
not address any transaction costs or inefficiencies that are external to the
organization.
A variety of point-to-point solutions have been developed to address
procurement cycle inefficiencies across both buyers and suppliers. The most
successful of these has been to integrate electronic data interchange ("EDI")
into existing ERP systems. EDI has gained wide acceptance in automating the sale
and procurement of selected direct goods, principally in environments
characterized by high dollar-volume transactions with a few suppliers. However,
because EDI relies on the execution of certain pre-defined transactions, it
typically is not well suited for situations involving many buyers and suppliers,
a wide variety of goods and services, or numerous low dollar- volume
transactions. Moreover, EDI does not support real-time interactions between
trading partners, making it difficult for buyers to obtain up to date supplier
information about price, availability and order status. Finally, the expense and
complexity associated with licensing, implementing and managing both ERP and EDI
solutions makes them unsuitable for all but the largest organizations.
Modern Computer's Objective
The Company believes that a market opportunity presently exists to
provide a MODERN COMPUTER software solution to the business-to-business
community. This solution, the Company believes, should be compatible with the
exploding use of the Internet, able to function in conjunction with already
existing assets presently operating within the business' information management
environment, be able to function within and between separate industry
environments, be easy-to- use and be a technology solution that will grow as a
business grows and thereby remain the familiar technological solution to those
already proficient in its application.
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The Company is presently in the development stage of design and
testing of its MODERN COMPUTER software solution which it believes meets the
above specifications. It is the Company's objective to be able to deliver its
MODERN COMPUTER software solution to the market within the next six(6) to
eight(8) months.
Sales and Marketing
Sales and Distribution
After development of our MODERN COMPUTER software systems the Company
will put into place a variety of marketing programs to increase awareness of it
software solutions. Our marketing strategy will contain a blend of print media
advertising, outbound e-mail and snail mail, telemarketing, billboard banner
campaigns, trade shows and direct mail campaigns. The Company will also research
leading computer software industry events, associations activities as well as
partnering where mutually beneficial with other service companies.
It is also anticipated that the Company will develop a WEB SITE where
interested parties may directly contact the company and discuss needed areas of
software solutions not presently being satisfied in the marketplace. This WEB
SITE will be where the Company believes many of its leads will be generated and
will be a central focus of sales and marketing efforts.
INTELLECTUAL PROPERTY RIGHTS
Our future success depends in part on our proprietary rights and
technology. We rely on a combination of patent, copyright, trademark and trade
secret laws, employee and third-party nondisclosure agreements and other methods
to protect our proprietary rights. In addition, we have filed and intend to file
additional patent applications on our other proprietary technology. It may be
possible for unauthorized third parties to copy certain portions of our products
or reverse engineer or obtain and use information that we regard as proprietary.
Certain end user license provisions protecting against unauthorized use,
copying, transfer and disclosure of the licensed program may be unenforceable
under the laws of some foreign countries. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States. Some of our agreements with our customers and development
partners contain residual clauses regarding confidentiality and the rights of
third parties to obtain the source code for our products. These provisions may
limit our ability to protect our intellectual property rights in the future. We
cannot assure you that our means of protecting our proprietary rights will be
adequate or that competing companies will not independently develop similar
technology. If any of these events happen, our business, operating results and
financial condition could be harmed.
From time to time we may encounter disputes over rights and obligations
concerning intellectual property. Although we believe that our intellectual
property rights are sufficient to allow us to market our existing products
without incurring liability to third parties, we cannot assure you that we will
prevail in all such disputes. Failure to prevail in one or more such disputes
could impair our right to market our products which, in turn, could harm our
business, results of operations and
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financial condition. We cannot assure you that our products do not infringe upon
issued patents that may relate to our products or to the market for
Internet-based business-to-business e-commerce applications in general. In
addition, because patent applications in the United States are not publicly
disclosed until the patent is issued, we may not be aware of applications that
have been filed which relate to our products. We have agreed, and may agree in
the future, to indemnify certain of our customers against claims that its
products infringe upon the intellectual property rights of others. We could
incur substantial costs in defending ourself and our customers against
infringement claims. In the event of a claim of infringement, our customers and
us may be required to obtain one or more licenses from third parties. We cannot
assure you that such licenses could be obtained from third parties at a
reasonable cost or at all. Defense of any lawsuit or failure to obtain any such
required license could harm our business, operating results and financial
condition.
We will license certain products integral to our products and services
from third parties, including products which are integrated with internally
developed products and used with our products to provide key content and
services. We cannot assure you that these third party product licenses will
continue to be available to us on commercially reasonable terms or that we will
be able to successfully integrate such third party products into our solutions.
Such product licenses may expose us to increased risks, including risks
associated with the assimilation of new products, the diversion of resources
from the development of our products, the inability to generate revenues from
new products sufficient to offset associated acquisition costs and the
maintenance of uniform, appealing products. The inability to obtain any of these
licenses could result in delays in site development or services until equivalent
products can be identified, licensed and integrated. Any such delays in site
development or services could harm our business, operating results and financial
condition.
Employees
Risk Factors
Before making an investment decision, prospective investors in the Company's
Common Stock should carefully consider, along with other matters referred to
herein, the following risk factors inherent in and affecting the business of the
Company.
WE HAVE A LIMITED OPERATING HISTORY, WE HAVE A HISTORY OF LOSSES AND WE EXPECT
FUTURE LOSSES.
We have never been profitable, we expect to incur net losses for the
foreseeable future and we may never be profitable. We incurred net losses of
$71,200 and $52,300 for the years ended July 31, 1999 and 1998, respectively. As
of July 31,1999, we had an accumulated deficit of $123,500.
In addition, we have a limited operating history that makes it
difficult to forecast our future operating results. We expect to substantially
increase our sales and marketing, product development and general and
administrative expenses. As a result, we will need to generate significant
additional revenues to achieve and maintain profitability in the future.
Although our
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revenues have grown in recent quarters, we cannot be certain that such growth
will continue or that we will achieve sufficient revenues for profitability. If
we do achieve profitability in any period, we cannot be certain that we will
sustain or increase such profitability on a quarterly or annual basis.
BECAUSE OUR INDUSTRY IS HIGHLY COMPETITIVE AND HAS LOW BARRIERS TO ENTRY, WE
CANNOT ASSURE YOU THAT WE WILL BE ABLE TO EFFECTIVELY COMPETE.
The market for, business-to-business electronic commerce solutions is
extremely competitive. We expect competition to intensify as current competitors
expand their product offerings and new competitors enter the market. We cannot
assure you that we will be able to compete successfully against current or
future competitors, or that competitive pressures we face will not harm our
business, operating results or financial condition.
Because there are relatively low barriers to entry in the electronic
commerce market, competition from other established and emerging companies may
develop in the future. In addition, our customers and partners may become
competitors in the future. Certain of our competitors may be able to negotiate
alliances with strategic partners on more favorable terms than we are able to
negotiate. Many of our competitors may also have well-established relationships
with our existing and prospective customers. Increased competition is likely to
result in price reductions, lower average sales prices, reduced margins, longer
sales cycles and decrease or loss of our market share, any of which could harm
our business, operating results or financial condition. In addition, certain of
our competitors have announced plans to jointly offer business-to-business
electronic commerce solutions to potential customers. These joint efforts could
intensify the competitive pressure in our market.
Many of our competitors have, and new potential competitors may have,
more experience developing Internet-based software and end-to-end purchasing
solutions, larger technical staffs, larger customer bases, more established
distribution channels, greater brand recognition and greater financial,
marketing and other resources than we have. In addition, competitors may be able
to develop products and services that are superior to our products and services,
that achieve greater customer acceptance or that have significantly improved
functionality as compared to our existing and future products and services. We
cannot assure you that the business-to-business electronic commerce solutions
offered by our competitors now or in the future will not be perceived by buyers
and suppliers as superior to ours.
ACQUISITIONS MAY ADVERSELY AFFECT OUR BUSINESS
As part of our business strategy we expect to make acquisitions of
businesses that offer complementary products, services and technologies. Our
acquisitions are and will be accompanied by the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
possibility that we pay much more than the acquired business is worth, the
difficulty of integrating the operations and personnel of the acquired business
into ours, the potential product liability associated with the sale of the
acquired business's products, the potential disruption of our ongoing business,
the distraction of management from our business, the inability of management
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to maximize our financial and strategic position, and the impairment of
relationships with employees and customers. We have limited experience acquiring
businesses, and we cannot assure you that we will identify appropriate targets,
will acquire such businesses on favorable terms, or will be able to integrate
such organizations into our business successfully. Further, the financial
consequences of our acquisitions and investments may include potentially
dilutive issuances of equity securities, one- time write-offs, amortization
expenses related to goodwill and other intangible assets and the incurrence of
contigent liabilities. These risks could have a material adverse effect on our
business, financial condition and results of operations.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLE COULD CAUSE DELAYS IN
REVENUE GROWTH.
The period between our initial contact with a potential customer and
the purchase of our products and services may be long and may have delays
associated with the lengthy budgeting and approval process of our customers.
Historically, a typical sales cycle will take approximately three to six months
and the implementation cycle at customer sites may take an additional six to
twelve months. These lengthy cycles will have a negative impact on the timing of
our revenues, especially our realization of any transaction fee based revenues.
We believe that a customer's decision to purchase our products and
services is discretionary, involves a significant commitment of resources, and
is influenced by customer budgetary cycles. To successfully sell our products
and services, we generally must educate our potential customers regarding the
use and benefit of our products and services, which can require significant time
and resources. Many of our potential customers are large enterprises that
generally take longer to make significant business decisions. In addition, our
solutions include enterprise applications that take significant time to deploy
successfully across an organization.
FAILURE TO MANAGE OUR GROWTH COULD STRAIN OUR MANAGEMENT AND
OTHER RESOURCES.
Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires an effective planning
and management process. Future expansion efforts could be expensive and put a
strain on our management and resources. We have increased, and plan to continue
to increase, the scope of our operations. In addition, we expect to hire a
significant number of new employees in the near future. To manage future growth
effectively, we must maintain and enhance our financial and accounting systems
and controls, integrate new personnel and manage expanded operations. We can not
assure you that we will be able to do this effectively.
WE MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING AND TECHNICAL
PERSONNEL THAT WE NEED TO SUCCEED BECAUSE THESE PERSONNEL ARE LIMITED IN NUMBER
AND IN HIGH DEMAND.
If we fail to hire and retain sufficient numbers of sales, marketing
and technical personnel, our business, operating results and financial condition
would be harmed. Competition for qualified sales,
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marketing and technical personnel is intense as these personnel are in limited
supply, and we might not be able to hire and retain sufficient numbers of such
personnel to grow our business. We need to substantially expand our sales
operations and marketing efforts, both domestically and internationally, in
order to increase market awareness and sales of our MODERN COMPUTER software
solutions and the related services we offer. We will also need to significantly
increase our technical staff to support the growth of our business and our
increasing commitments to other parties. In addition, our competitors have in
the past attempted to hire our employees away from us. We expect that they will
continue to attempt to do so in the future.
IF OUR ELECTRONIC COMMERCE PRODUCTS DO NOT CONTAIN THE FEATURES AND
FUNCTIONALITY OUR CUSTOMERS WANT, OUR CUSTOMERS WILL NOT BUY THEM.
Our success depends upon our ability to accurately determine the
features and functionality required by customers and to design and implement
business-to-business electronic commerce products that meet these requirements
in a timely and efficient manner. If we fail to accurately determine customer
feature and functionality requirements, enhance our existing products and
develop new products, our current and potential future customers will not buy
them. To date, our products have been based on our internal efforts and on
feedback from a limited number of customers and potential customers. We cannot
assure you that we have determined or will successfully determine customer
requirements or that the features and functionality of our future products and
services will adequately satisfy current or future customer demands.
OUR FUTURE REVENUES DEPEND UPON POTENTIAL CUSTOMERS INTEGRATING OUR FUTURE
SOLUTIONS INTO THEIR BUSINESSES.
Our success depends upon the acceptance and successful integration by
customers and their suppliers of our MODERN COMPUTER software solutions. Our
potential customers and their related suppliers often rely on third-party
systems integrators such as Andersen Consulting, CSC, PricewaterhouseCoopers and
Cambridge Technology Partners and others to develop, deploy and manage their
Internet-based, business-to-business electronic commerce platforms and
solutions. If a large number of systems integrators fail to adopt and support
our solution, if any of our customers or suppliers are not able to successfully
integrate our solution or if we are unable to adequately train our existing
systems integration partners, our business, operating results and financial
condition could suffer.
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND THIS CHANGE MAY MAKE OUR
FUTURE PRODUCTS AND SERVICES OBSOLETE OR CAUSE US TO INCUR SUBSTANTIAL COSTS TO
ADAPT TO THESE CHANGES.
If the market for our products and services fails to develop and grow
or we fail to gain acceptance in this market such failure would harm our
business, operating results and financial condition. Our market is characterized
by rapidly changing technology, evolving industry standards and frequent new
product announcements. To be successful, we must adapt to our rapidly changing
market by continually improving the performance, features and reliability of our
products and services or else our products and services may become obsolete. We
also could incur substantial costs to modify our products, services or
infrastructure in order to adapt to these changes. Our
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business, operating results and financial condition could be harmed if we incur
significant costs without adequate results, or find ourselves unable to adapt
rapidly to these changes.
SECURITY RISKS OF ELECTRONIC COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS AND
SERVICES.
A fundamental requirement to conduct Internet-based,
business-to-business electronic commerce is the secure transmission of
confidential information over public networks. Failure to prevent security
breaches, or well publicized security breaches affecting the Internet in
general, could significantly harm our business, operating results and financial
condition. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the algorithms we use to protect content and
transactions on the Company's software solutions or proprietary information in
our databases. Anyone who is able to circumvent our security measures could
misappropriate proprietary, confidential customer information or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information.
IF OUR POTENTIAL CUSTOMERS ARE NOT WILLING TO SWITCH TO OR ADOPT OUR ELECTRONIC
COMMERCE SOLUTION, OUR GROWTH AND REVENUES WILL BE LIMITED.
The failure to generate a large customer base would harm our growth and
revenues. This failure could occur for several reasons. Some of our
business-to-business electronic commerce competitors charge their customers
large fees upon the execution of customer agreements. Businesses that have made
substantial up-front payments to our competitors for electronic commerce
solutions may be reluctant to replace their current solution and adopt our
solution. As a result, our efforts to create a larger customer base may be more
difficult than expected even if we are deemed to offer products and services
superior to those of our competitors. Further, because the business-to-business
electronic commerce market is new and underdeveloped, potential customers in
this market may be confused or uncertain about the relative merits of each
electronic commerce solution or which electronic commerce solution to adopt, if
any. Confusion and uncertainty in the marketplace may inhibit customers from
adopting our solution, which could harm our business, operating results and
financial condition.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers and other key personnel, and none of our executive officers or key
employees are bound by an employment agreement for any specific term. If we lose
the services of one or more of our executive officers or key employees, or if
one or more of them decide to join a competitor or otherwise compete directly
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or indirectly with us, our business, operating results and financial condition
would be seriously harmed.
OUR PRODUCTS DEPEND UPON THE CONTINUED AVAILABILITY OF LICENSED
TECHNOLOGY FROM THIRD PARTIES.
We license and will continue to license certain technology integral to
our products and services from third parties. Our inability to acquire any
third-party product licenses, or integrate the related third-party products into
our products, could result in delays in product development until equivalent
products can be identified, licensed and integrated. We also expect to require
new licenses in the future as our business grows and technology evolves. We
cannot assure you that these licenses will continue to be available to us on
commercially reasonable terms, if at all.
ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE OUR COSTS OF DOING BUSINESS.
The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws or regulations relating to the Internet could
harm our business, operating results and financial condition by increasing our
costs and administrative burdens. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel,
consumer protection and taxation apply to the Internet.
Laws and regulations directly applicable to communications or commerce
over the Internet are becoming more prevalent. We must comply with new
regulations in both Europe and the United States, as well as any other
regulations adopted by other countries where we may do business. The growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, as
well as new laws governing the taxation of Internet commerce. Compliance with
any newly adopted laws may prove difficult for us and may harm our business,
operating results and financial condition.
WE EXPECT OUR OPERATIONS TO CONTINUE TO PRODUCE A NEGATIVE CASH FLOW;
CONSEQUENTLY, IF WE CANNOT RAISE ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO FUND
OUR CONTINUED OPERATIONS.
Since our inception, cash used in our operations has substantially
exceeded cash received from our operations, and we expect this trend to continue
for at least in the next two years. We currently anticipate that our available
cash resources will be sufficient to meet our anticipated working capital and
capital expenditure requirements for at least the next twelve months. The
estimate of the time period in which our cash resources will be sufficient to
meet our working capital and capital expenditure needs is a forward-looking
statement that involves risks and uncertainties. The actual time period may
differ materially from that indicated in the forward-looking statement as a
result of a number of factors so that we cannot assure you that such resources
will be sufficient for anticipated or unanticipated working capital and capital
expenditure requirements for this period. Factors that may vary significantly
affect whether our cash resources are sufficient to meet our needs for the
period indicated include our expectation that we will continue to incur net
losses and our continuing incurrence of substantial negative cash flow. If
adequate funds are not available or are
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not available on acceptable terms, we may not be able to take advantage of
unanticipated opportunities, develop new products or services, fund our
continued operations, or otherwise respond to unanticipated competitive
pressures. We cannot assure you that any additional financing we may need will
be available on terms favorable to us, if at all.
CONTROL BY PRESENT SHAREHOLDERS.
The present shareholders of the Company's Common Stock will, by virtue of their
percentage share ownership and the lack of cumulative voting, be able to elect
the entire Board of Directors, establish the Company's policies and generally
direct its affairs. Accordingly, persons investing in the Company's Common Stock
will have no significant voice in Company management, and cannot be assured of
ever having representation on the Board of Directors. (See Part I, Item 4.
"Security Ownership of Certain Beneficial Owners and Managers.")
POTENTIAL ANTI-TAKEOVER AND OTHER EFFECTS OF ISSUANCE OF PREFERRED STOCK MAY BE
DETRIMENTAL TO COMMON SHAREHOLDERS.
The Company is authorized to issue up to 10,000,000 shares of preferred stock.
$.0001 par value per share (hereinafter referred to as the "Preferred Stock");
none of which shares has been issued. The issuance of Preferred Stock does not
require approval by the shareholders of the Company's Common Stock. The Board of
Directors, in its sole discretion, has the power to issue shares of Preferred
Stock in one or more series and to establish the dividend rates and preferences,
liquidation preferences, voting rights, redemption and conversion terms and
conditions and any other relative rights and preferences with respect to any
series of Preferred Stock. Holders of Preferred Stock may have the right to
receive dividends, certain preferences in liquidation and conversion and other
rights; any of which rights and preferences may operate to the detriment of the
shareholders of the Company's Common Stock. Further, the issuance of any shares
of Preferred Stock having rights superior to those of the Company's Common Stock
may result in a decrease in the value of market price of the Common Stock
provided a market exists, and additionally, could be used by the Board of
Directors as an anti-takeover measure or device to prevent a change in control
of the Company.
NO SECONDARY TRADING EXEMPTION.
In the event a market develops in the Company's shares, of which there can be no
assurance, secondary trading in the Common Stock will not be possible in each
state until the shares of Common Stock are qualified for sale under the
applicable securities laws of the state or the Company verifies that an
exemption, such as listing in certain recognized securities manuals, is
available for secondary trading in the state. There can be no assurance that the
Company will be successful in registering or qualifying the Common Stock for
secondary trading, or availing itself of an exemption for secondary trading in
the Common Stock, in any state. If the Company fails to register or qualify, or
obtain or verify an exemption for the secondary trading of, the Common Stock in
any particular state, the shares of Common Stock could not be offered or sold
to, or purchased by, a resident of that state. In the event that a significant
number of states refuse to permit secondary trading in the Company's Common
Stock, a public market for the Common Stock will fail to develop and the shares
could be deprived of any value.
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POSSIBLE ADVERSE EFFECT OF PENNY STOCK REGULATIONS ON LIQUIDITY OF COMMON STOCK
IN ANY SECONDARY MARKET.
In the event a market develops in the Company's shares, of which there can be no
assurance, then if a secondary trading market develops in the shares of Common
Stock of the Company, of which there can be no assurance, the Common Stock is
expected to come within the meaning of the term "penny stock" under 17 CAR
240.3a51-1 because such shares are issued by a small company; are low-priced
(under five dollars); and are not traded on NASDAQ or on a national stock
exchange. The Securities and Exchange Commission has established risk disclosure
requirements for broker- dealers participating in penny stock transactions as
part of a system of disclosure and regulatory oversight for the operation of the
penny stock market. Rule 15g-9 under the Securities Exchange Act of 1934, as
amended, obligates a broker-dealer to satisfy special sales practice
requirements, including a requirement that it make an individualized written
suitability determination of the purchaser and receive the purchaser's written
consent prior to the transaction. Further, the Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 require a broker-dealer, prior to a
transaction in a penny stock, to deliver a standardized risk disclosure
instrument that provides information about penny stocks and the risks in the
penny stock market. Additionally, the customer must be provided by the
broker-dealer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and the salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. For so long as the Company's Common Stock is considered
penny stock, the penny stock regulations can be expected to have an adverse
effect on the liquidity of the Common Stock in the secondary market, if any,
which develops.
Competitive Environment
The market for the Company's products and services is characterized
by rapidly changing technology, evolving industry standards and frequent
introduction of new products and services. The Company's success will partially
depend upon its ability to enhance its existing products and services and to
introduce new competitive products and services with features that meet changing
consumer requirements. In addition, there can be no assurance that services or
technologies developed by one or more of the Company's present or potential
competitors could not render obsolete both present and future products and
services of the Company.
There also can be no assurance that the Company's services will
receive or maintain substantial market acceptance. Changes in customer
preferences could adversely affect levels of market acceptance of the Company's
products and services and the Company's operating results.
The market that the Company operates in is characterized by
competition from new entrants, as well as competition by established
participants. Although the Company believes that it will be able to establish
and maintain a sizable market niche, there can be no assurance that a competitor
with greater financial and human resources than the Company will not enter the
Company's market with products and services similar or identical to those of the
Company.
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The Company's ability to compete successfully will depend in large
part on its ability to protect any proprietary technology it may develop. The
Company currently has no patents with respect to its product or service designs
or processes, and will attempt to protect its technology by limiting the people
with knowledge of its specifications to those with a need to know and by having
such persons execute confidentiality agreements. The Company will also rely, to
the extent possible, on trade secret law to protect its intellectual property.
There can be no assurance, however, that any intellectual property protection or
trade secret protection will be sufficient to protect the Company and its
business from others seeking to copy or appropriate the Company's proprietary
information.
To establish, maintain or increase the Company's market share
position in the business-to- business software solutions marketplace, we will
continually need to enhance our current product offerings, introduce new product
features and enhancements, and expand our professional service capabilities. We
currently compete principally on the basis of the specialized nature of our
software solutions and ability to expeditiously install and implement the
Company's MODERN COMPUTER software solutions. Our product features and functions
facilitate integration with a wide range of operating systems and platforms to
insure product quality, ease of use and reliability. The Company believes it
competes favorably in all of these areas.
Our competitors vary in size and in the scope and breadth of the
products and services offered. We compete against numerous, smaller,
privately-held companies with fewer resources based on breadth of product
features and functionality, as well as larger, publicly-held companies with
greater resources and having greater product and market diversification.
Many of our current and potential competitors, both privately-held
and publicly-held, have greater financial, technical, marketing and distribution
resources than ours. As a result, they may be able to respond more quickly to
new or emerging technologies and changes in customer requirements or to devote
greater resources to the development and distribution of their products. In
addition, because there are relatively low barriers to entry in the software
marketplace, we expect additional competition from other established or emerging
companies as the business-to-business software solutions marketplace continues
to expand. Increased competition is likely to result in pricing pressures,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and results of operations. We
also expect that competition will increase as a result of software industry
consolidations. There can be no assurance that we will be able to compete
successfully against current and future competitors or that competitive
pressures we encounter will not materially adversely affect our business,
financial condition and results of operations.
Dependence on Key Customers and Suppliers
The Company is currently in the development stage and has no material
or critical customers, the loss of whom would have an adverse material impact on
operations. The Company does not anticipate that it will develop such
relationships in the near future.
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Government Regulation
The Company's operations are subject to various federal, state and
local requirements which affect businesses generally, such as taxes, postal
regulations, labor laws, and environment and zoning regulations and ordinances.
Although certain aspects of our services may be subject to Regulation
E promulgated by the Federal Reserve Board, we believe that most of our services
are not subject to Regulation E. Regulation E governs certain electronic funds
transfers made by regulated financial institutions and providers of access
devices and electronic fund transfer systems. Regulation E requires written
receipt for transactions, monthly statements, pre-transaction disclosures and
error resolution procedures. There can be no assurance that the Federal Reserve
Board will not require all of our services to comply with Regulation E, or
revise Regulation E, or adopt new rules and regulations for electronic funds
transfers that could result in an increase in our operating costs, reduce the
convenience and functionality of our services and products, possibly resulting
in reduced market acceptance which would have a material adverse effect on our
business, financial condition or operating results.
We believe that current state and federal regulations concerning
electronic commerce do not apply to our current product line. However, there is
a move towards taxation of Internet use by several states including the State of
Washington. There are some strategic plans under consideration to conduct
commerce on the Internet using our core technology. We have an ongoing
regulatory compliance program pertaining to transactions utilizing smart card
technology and subscribe to industry watch publications that address regulatory
issues.
Research and Development
Currently the dynamic nature of the business-to-business software
solutions marketplace places large research and development demands on
businesses that desire to remain competitive within the marketplace. Competing
with larger firms with substantially greater capital resources, the Company has
devoted significant portions of available resources to remain abreast of
industry developments and to offer competitive products and services. We
anticipate that the Company will continue to commit substantial resources to
product development in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Reports to Security Holders
The Company will send out audited annual reports to its shareholders
if required by applicable law. Until such time, the Company does not foresee
sending out such reports.
The Company will make certain filings with the SEC as needed, and any
filings the Company makes to the SEC are available and the public may read and
copy any materials the Company files with SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W. Washington, D.C. 20549. The public may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC at (http://www.sec.gov).
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Item 2. Management's Discussion and Analysis or Plan of Operation
The Company's plan of operations for the next twelve (12) months is
for it to further refine its Modern Computer software solution and to develop a
marketing and sales strategy (See Part I, Item 1). The Company plans to
continually refine its strategy for capitalizing on recent trends within the
business-to-business marketplace and to exploit such trends to its advantage.
The Company plans to develop new and varied software solutions, concepts and
ventures in addition to its current MODERN COMPUTER software solution under
development.
The Company plans believes it can capitalize on the general
business-to-business trends of increasing consumer usage and increasing levels
of e-commerce transactions through providing the market the Company's MODERN
COMPUTER software solutions, which the Company believes will increase
efficiencies in the business-to-business marketplace. The Company believes that
it is well positioned to profit from such opportunities.
The Company's business strategy is to complete the development and
testing of its MODERN COMPUTER software solutions. The Company believes the ease
of use and versatility of its MODERN COMPUTER software solution will
differentiate itself among the array of business- to-business options. The
Company believes that this differentiation strategy will allow it to carve out a
profitable market niche. In addition to the primary revenue stream derived from
fees earned through the usage of the Company's MODERN COMPUTER software system,
the Company believes that its market niche will allow it to successfully gain
business-to-business marketplace recognition which the Company believes will
provide additional momentum through the word-of- mouth referral from satisfied
business users.
The Company plans to seek out strategic alliances, joint venture
partners, and business partners with other high-technology firms in which shared
resources of such could provide enhanced shareholder value. The Company plans to
continually scan the environment for such partnering opportunities. Particular
attention will be paid to the possibilities of developing international
corporate strategic alliances, partnering with successful U.S. technology
start-ups, and finding merger and acquisition candidates or counter-parties with
firms operating in the U.S. and/or abroad.
Financial Condition, Capital Resources and Liquidity
At April 30, 2000, the Company had assets totaling $243 and
liabilities of $30,400 attributable to accrued professional fees and a
creditor's judgment. Since the Company's inception, it has received $68,000 in
cash contributed as consideration for the issuance of shares of Common Stock.
The Company's working capital is presently minimal and there can be
no assurance that the Company's financial condition will improve. The Company is
expected to continue to have minimal working capital or a working capital
deficit as a result of current liabilities. In August 1997, the Company issued
9,000,000 founders shares of the Company's Common Stock to its sole executive
officer and director for the fair value of services rendered on behalf of the
Company. These 9,000,000 founders shares were returned to the Company upon the
resignation of its sole executive
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officer and director. In February 1998, the Company issued and sold an aggregate
of 1,200,000 shares of Common Stock to Florida, Georgia European residents for
cash consideration totaling $12,000. No underwriter was employed in connection
with the offering and sale of the shares. The Company claimed the exemption from
registration in connection with each of the offerings provided under Section
3(b) of the Act and Rule 504 of Regulation D promulgated thereunder. In July
1998, the Company issued and sold an aggregate of 2,800,000 shares of Common
Stock to seven foreign investors for cash consideration totaling $56,000. No
underwriter was employed in connection with the offering and sale of the shares.
The Company claimed the exemption from registration in connection with each of
the offerings provided under Section 3(b) of the Act and Rule 504 of Regulation
D promulgated thereunder. Even though management believes, without assurance,
that it will obtain sufficient capital with which to implement its business plan
on a limited scale, the Company is not expected to continue in operation without
an infusion of capital. In order to obtain additional equity financing,
management may be required to dilute the interest of existing shareholders or
forego a substantial interest of its revenues, if any. (See Part I, Item 1.
"Description of Business"; See Part I, Item 4. "Security Ownership of Certain
Beneficial Owners and Managers0" and Part I, Item 7. "Certain Relationships and
Related Transactions.")
The ability of the Company to continue as a going concern is
dependent upon its ability to obtain clients who will utilize the Company's
MODERN COMPUTER software solutions and whether the Company can attract an
adequate number of clients. The Company believes that in order to be able to
expand its initial operations, it must rent offices in West Palm Beach, Florida,
hire clerical staff and acquire through purchase or lease computer and office
equipment to maintain accurate financial accounting and client data. The Company
believes that there is adequate and affordable rental space available in Florida
and sufficiently trained personnel to provide such clerical services at
affordable rates. Further, the Company believes that the type of equipment
necessary for the operation is readily accessible at competitive rates.
Research and Development Plans
At this time it is uncertain to what extent research and development
in proprietary technologies will occur over the next twelve months. For the next
twelve months there is no significant current plan for funding extensive
research and development efforts. However, if the Company deems it feasible, it
may develop and execute such a plan. There are no current plans to invest in the
purchase or sale of plant and significant equipment. The Company also does not
at this time foresee any expected significant changes in the number of permanent
employees.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize the date using 00 as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
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The Company did not experience a detrimental material impact as a
result of the Year 2000 Issue. The Company believes that it will not experience
any future detrimental impacts to its business, operations or financial
condition since all of the internal software utilized by the Company has been
upgraded to support Year 2000 versions.
The Company believes that it has disclosed all required information
relative to Year 2000 issues relating to its business and operations. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely also will be timely converted or that any such failure to
convert by another company would not have an adverse affect on the Company's
systems.
Forward-Looking Statements
This Form 10-SB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-SB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
demand for the Company's products and services, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results or developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general economic
market and business conditions; the business opportunities (or lack thereof)
that may be presented to and pursued by the Company; changes in laws or
regulation; and other factors, most of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-SB are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequence to or effects on the Company or its business or operations. The
Company assumes no obligations to update any such forward-looking statements.
Item 3. Description of Property
The United States corporate headquarters are located at 222 Lakeview
Avenue, Suite 160- 415, West Palm Beach, Florida 33401. This facility is
available to the Company on a month to month basis at an annualized rate of
$600, for the sole purpose of satisfying state of Florida corporation
requirements. In addition, the Company utilizes an office in Canada which is
located at 1255 University, Suite 410, Montreal, Quebec H3B 3B6.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
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The following shareholding information relates to any person or group
who is known to be the beneficial owner of more than five percent of any class
of the issuer's voting securities:
-------------------------------------------------------------------------------
Title of Name and Address Amount and (1)
Class of Beneficial Nature of Beneficial Percent of
Owner Owner Class
--------------------------------------------------------------------------------
Common Stock Euran Investments, Inc.(2) 1,200,000 11.94%
--------------------------------------------------------------------------------
Common Stock Butin International 1,274,400 12.68%
--------------------------------------------------------------------------------
Common Stock Rabinel Trading Corp. 3,500,000 34.82%
--------------------------------------------------------------------------------
All Beneficial Owners of more than five percent 5,974,400 59.44%
(2) Euran Investments, Inc. is a corporation in which Robert Vivian and Luciano
Girlando each hold a 50% ownership position. By virtue of these ownership
positions Mr. Vivian and Mr. Girlando effectively control an additional
600,000 shares respectively of the Company.
(b) Security Ownership of Management
----------------------------------------------------------------------------
Title of Name and Address Amount and (1)
Class of Beneficial Nature of Beneficial Percent of Class
Owner Owner
------------------------------------------------------------------------------
Common Stock Robert Vivian 100,000 (2) 1%
------------------------------------------------------------------------------
Common Stock Luciano Girlando 150,000 (2)(3) 1.5%
------------------------------------------------------------------------------
All Executive Officers, Directors 250,000 2.5%
-------------------------------------
(1) Based upon 10,050,000 shares of the Company's Common Stock issued and
outstanding as of July 10, 2000.
(2) Euran Investments, Inc. is a corporation in which Robert Vivian and Luciano
Girlando each hold a 50% ownership position. By virtue of these ownership
positions Mr. Vivian and Mr. Girlando effectively control an additional
600,000 shares respectively of the Company.
(3) Luciano Girlando, through his relationship as President of Groupimmo, Inc.
effectively controls 50,000 shares of the Company's common stock owned by
Groupimmo, Inc.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
each of our executive officers and directors. Our directors are generally
elected at the annual shareholders' meeting and hold office until the next
annual shareholders' meeting or until their successors are elected and
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qualified. Executive officers are elected by our board of directors and serve at
its discretion. Our bylaws authorize the board of directors to be constituted of
not less than one and such number as our board of directors may determine by
resolution or election. Our board of directors currently consists of four
members.
NAME AGE POSITION
--------------------------- --- --------
1. Robert Vivian 46 President & Director
2. Luciano Girlando 48 Secretary, Treasurer & Director
------------------------
Family Relationships
There are no family relationships between or among the executive
officer and director of the Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934:
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors and persons who own more
than 10% of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (hereinafter referred to as the
"Commission") initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership, of Common Stock and
other equity securities of the Company on Forms 3, 4 and 5, respectively.
Executive officers, directors and greater than 10% shareholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file. To the Company's knowledge, Robert Vivian, Luciano Girlando,
Euran Investments, Inc., Butin International and Rabinel Trading Corp. comprise
all of the Company's executive officers, directors and greater than 10%
beneficial owners of its common Stock, and have complied with Section 16(a)
filing requirements applicable to them during the Company's fiscal year ended
July 31,1999 up to the 3nd Quarter quarter ended April 30, 2000.
Business Experience
Officers and Directors
The following is a brief description of the business background of our executive
officers, and directors:
Robert Vivian President and Director of Modern Computer Systems, Inc.
Prior to assuming the positions of President of the Company Mr. Vivian was the
former President of Biotren Corporation from 1992 until 1998. Biotren
Corporation was formed by Mr. Vivian to develop, finance and build a waste
management complex for the African market. Prior to forming Biotren Corporation
Mr. Vivian was the President of Gestamount Investment, an international real
estate company involved in real estate management, construction and financing.
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Luciano Girlando Secretary, Treasurer & Director of Modern Computer Systems,
Inc.
Prior to assuming the positions of Secretary, Treasurer and Director for the
Company Mr. Girlando was, from 1995 until 2000, the President & Chartered Real
Estate Broker for Groupimmo, Inc. A real estate brokerage company. Mr.
Girlando's duties at Groupimmo, Inc. entailed the analysis and development of
various aspects of real estate brokerage enterprises from negotiating leases,
cost management, financing and the negotiation of acquisitions.
Item 6. Executive Compensation:
At such time as the Company commences operations, it is expected that
the Board of Directors will approve the payment of salaries in a reasonable
amount to its officer for his services. At such time, the Board of Directors
may, in its discretion, approve the payment of additional cash or non-cash
compensation for services to the Company.
The Company does not provide officers with pension, stock
appreciation rights, long-term incentive or other plans but has the intention of
implementing such plans in the future.
Compensation of Directors
The Company has no standard arrangements for compensating the
directors of the Company for their attendance at meetings of the Board of
Directors.
Item 7. Certain Relationships and Related Transactions:
At the current time, the Company has no provision to issue any
additional securities to management, promoters or their respective affiliates or
associates. At such time as the Board of Directors adopts an employee stock
option or pension plan, any issuance would be in accordance with the terms
thereof and proper approval. Although the Company has a very large amount of
authorized but unissued Common Stock and Preferred Stock which may be issued
without further shareholder approval or notice, the Company intends to reserve
such stock for the Rule 506 offerings contemplated to implement continued
expansion, for acquisitions and for properly approved employee compensation at
such time as such plan is adopted. (See Part I, Item 1. "Description of Business
- (b) Business of Issuer.")
Item 8. Description of Securities.
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.0001 par value. The issued and outstanding shares of Common Stock being
registered hereby are validly issued, fully paid and non-assessable. The holders
of outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the Board
of Directors may from time to time determine.
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, have one vote per share in all matters to be voted upon
by the stockholders. A majority
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vote is required on all corporate action. Cumulative voting in the election of
directors is not allowed, which means that the holders of more than 50% of the
outstanding shares can elect all the directors as they choose to do so and, in
such event, the holders of the remaining shares will not be able to elect any
directors. The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and can only be issued as fully paid and
non-assessable shares. Upon liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to receive a pro rata of the
assets of the Company which are legally available for distribution to
stockholders.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of Preferred
Stock, $0.0001 par value. Currently there are no issued and outstanding
preferred shares of the Company.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Information
2000 HIGH LOW
------- ------- -----
December 31, 2000 N/A N/A
September 30, 2000 N/A N/A
June 30, 2000 N/A N/A
March 31, 2000 1.75 1.25
1999 HIGH LOW
------- ------- -----
December 31, 1999 4.50 1.375
September 30, 1999 8.25 4.75
June 30, 1999 8.25 6.75
March 31, 1999 7.35 4.12
1998 HIGH LOW
------- ------- -----
December 31, 1998 4.25 1.25
September 30, 1998 1.50 0.047
June 30, 1998 N/A N/A
March 31, 1998 N/A N/A
1997 HIGH LOW
------- ------- -----
December 31, 1997 N/A N/A
September 30, 1997 N/A N/A
August 15, 1997[Inception
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Shareholders
The approximate number of holders of record of common equity is 35 as
of January 2000.
Dividends
The Company has never declared or paid any cash dividends on its
common stock and does not intend to declare any dividends in the foreseeable
future.
Item 2. Legal Proceedings
From time to time, we may be involved in litigation relating to
claims arising out of our operations in the normal course of business.
1. PR NEWSWIRE ASSOCIATION, INC. vs. MODERN COMPUTER SYSTEMS, Docket No. HUD - L
- 462 - 00, in the Superior Court of New Jersey Law Division: Hudson County.
This lawsuit was filed January 19, 2000, seeking payment for the reasonable
value of goods and services provided by the Plaintiff to the Defendant during
the later part of 1999. A default judgment was rendered by the Superior Court
and the Company has accounted for the $13,400 amount as an account payable.
Item 3. Changes in and Disagreements with Accountants.
Because the Company has been generally inactive since its inception,
it has not had independent accountants until the retention of Durland and
Company, CPAs, P.A., 340 Royal Palm Way, 3rd Floor, Palm Beach, Florida 33480.
There has been no change in the Company's independent accountant during the
period commencing with the Company's retention of through the date hereof.
Item 4. Recent Sales of Unregistered Securities.
In August 1997, the Company issued 9,000,000 founders shares of
common stock, $.0001 par value per share (the "Common") to its sole executive
officer in exchange for services related to the formation of the Company. The
Company relied upon an exemption under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. Such reliance was based upon the fact that
(i) the issuance of the shares did not involve a public offering and (ii) the
sole executive officer is an accredited investor and had full access to the
information regarding the Company necessary to make an informed investment
decision by virtue of his position as an officer and director of the Company.
The offering was made to a Florida resident in the State of Florida. (See Part
I, Item 6.
"Executive Compensation)
In February 1998, the Company sold 1,200,000 shares of Common Stock
for cash in the amount of $12,000 to twenty-nine(29) investors: fourteen(14)
Georgia residents, four(4) Florida residents and four(4) foreign investors,
pursuant to Section 3(b) of the Securities Act of 1933, as amended (the "Act"),
and Rule 504 of Regulation D promulgated thereunder ("Rule 504")and Section
10-5-9(13) of the Georgia Code and Section 517.061(11) of the Florida Code. See
Part I,
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Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In December 1997, the Company entered into a share exchange agreement
with M. Investments, Inc.'s ("MII") shareholders . The terms of the share
exchange agreement by the Company required that 9,000,000 shares of the Company
be issued to the shareholders of MII, in exchange for 100% of the issued and
outstanding shares MII stock. In addition, on December 1997, at the closing of
the above acquisition with MII, the Company by agreement canceled 9,000,000
shares of common stock formerly issued to the Company's sole executive officer.
See Part II, Item 4. "Recent Sales of Unregistered Securities." See Part IV.
Item 1. "Index to Exhibits, Material Agreements."; Part I, Item 7. "Certain
Relationships and Related Transactions" and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In July 1998, the Company sold 2,800,000 shares of Common Stock for
cash in the amount of $56,000 to seven(7) foreign investors, pursuant to Section
3(b) of the Securities Act of 1933, as amended (the "Act"), and Rule 504 of
Regulation D promulgated thereunder ("Rule 504"). See Part I, Item 7. "Certain
Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales of
Unregistered Securities."
In August 1998, the Company entered into a Share Exchange Agreement
to acquire all of the issued and outstanding common stock of Interactive Cyber
Television Inc. (hereinafter "ICTV"). The Company issued 8,300,000 shares of its
common stock to nine(9) foreign investors to acquire ICTV. Simultaneously with
the acquisition of ICTV the Company transferred all MII shares acquired in its
MII Share Exchange Agreement back to MII's shareholders in exchange for the
Company's 9,000,000 shares of Common Stock which the Company exchanged with MII
as consideration for all of MII's issued and outstanding shares. The Company
returned these 9,000,000 shares of Common Stock to its Treasury. The Company
rescinded the ICTV acquisition and Share Exchange Agreement ab initio after
determining that the Company would not be able to generate sufficient resources
to be able to sustain product development and leverage of the acquisition. Of
the 8,300,000 shares of the Company's common stock issued to the aforementioned
foreign investors 2,250,000 shares were returned to the Company's treasury.
The facts relied upon the by the Company to make the federal
exemption available include 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 of the shares in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of, the Act; (ii) no
general solicitation or advertising was conducted by the Company in connection
with the offering of any of the shares; (iii) 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 of 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; and (iv) 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.
25
<PAGE>
The facts relied upon to make the Georgia Exemption available include
the following: (i) the aggregate number of persons purchasing the Company's
stock during the 12 month period ending on the date of issuance did not exceed
fifteen (15) persons; (ii) neither the offer nor the sale of any of the shares
was accomplished by a public solicitation or advertisement; (iii) each
certificate contains a legend stating "These securities have been issued or sold
in reliance of paragraph (13) of Code Section 10-5-9 of the Georgia Securities
Act of 1973 and may not be sold or transferred except in a transaction which is
exempt under such act or pursuant to an effective registration under such act";
and (iv) each purchaser executed a statement to the effect that the securities
purchased have been purchased for investment purposes. Offerings made pursuant
to this section of the Georgia Securities Act have no requirement for an
offering memorandum or disclosure document.
The facts relied upon to make the Florida exemption available include
the following: (i) sales of the shares of Common Stock were not made to more
than 35 persons; (ii) neither the offer nor the sale of any of the shares was
accomplished by the publication of any advertisement; (iii) all purchasers
either had a preexisting personal or business relationship with one or more of
the executive officers of MODERN COMPUTER or, by reason of their business or
financial experience, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction; (iv) each
purchaser represented that he was purchasing for his own account and not with a
view to or for sale in connection with any distribution of the shares; and (v)
prior to sale, each purchaser had reasonable access to or was furnished all
material books and records of the Company, all material contracts and documents
relating to the proposed transaction, and had an opportunity to question the
executive officers of the Company. Pursuant to Rule 3E-500.005, in offerings
made under Section 517.061(11) of the Florida Statutes, an offering memorandum
is not required; however each purchaser (or his representative) must be provided
with or given reasonable access to full and fair disclosure of material
information. An issuer is deemed to be satisfied if such purchaser or his
representative has been given access to all material books and records of the
issuer; all material contracts and documents relating to the proposed
transaction; and an opportunity to question the appropriate executive officer.
In the regard, the appropriate executive officer of the Company supplied such
information and was available for such questioning.
Item 5. Indemnification of Directors and Officers.
Article XI 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, of 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, has no reasonable cause to believe his conduct is unlawful. The
termination of any action, suit or proceeding, by judgment, order, settlement,
conviction upon a plea of nolo contendere or its equivalent, shall not of itself
26
<PAGE>
create a presumption that the person did not act in good faith 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 attorney's 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 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 or 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.
(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
27
<PAGE>
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 Amended 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 person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the heirs
and personal representative of such a person.
The Company has no agreements with any of its directors or executive
offices providing for indemnification of any such persons with respect to
liability arising out of their capacity or status as officers and directors.
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 MODERN COMPUTER required by Item 310 of
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.
28
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................F-2
Balance Sheets..............................................................F-3
Statements of Operations ...................................................F-4
Statements of Stockholders' Equity (Deficiency).............................F-5
Statements of Cash Flows....................................................F-6
Notes to Financial Statements...............................................F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Modern Computer Systems, Inc.
West Palm Beach, Florida
We have audited the accompanying balance sheets of Modern Computer Systems,
Inc., (the Company), a Florida chartered development stage enterprise as of July
31, 1999, and the related statements of operations, stockholders' equity
(deficiency) and cash flows for the year and the period August 15, 1997
(inception) through July 31, 1998, then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based upon our audit.
We conducted our audit 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 financial statement presentation.
We believe that our audit provides 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 Modern Computer Systems, Inc.
as of July 31, 1999, and the results of its operations and its cash flows for
the year and the period from August 15, 1997 (inception) through July 31, 1998,
then ended, in conformity with generally accepted accounting principles.
/s/ Durland & Company
Durland & Company, CPAs, P.A.
Palm Beach, Florida
July 6, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
MODERN COMPUTER SYSTEMS, INC.
(A Development Stage Enterprise)
Balance Sheets
July 31, 1999 April 30, 2000
---------------------- ----------------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,622 $ 243
Investment in subsidiary held for disposal 36,748 0
---------------------- ----------------------
Total Current Assets 38,370 243
---------------------- ----------------------
Total Assets $ 38,370 $243
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 28,799 $ 28,400
Reserve for projected loss on disposal of subsidiary 39,120 0
Short-term loan 0 2,000
---------------------- ----------------------
Total Current Liabilities 67,919 30,400
---------------------- ----------------------
Total Liabilities 67,919 30,400
---------------------- ----------------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.0001 par value, authorized 10,000,000
shares; none issued 0 0
Common stock, $0.0001 par value, authorized 50,000,000
shares; issued and outstanding 12,300,000 and
10,050,000, respectively 1,230 1,005
Additional paid-in capital 92,708 92,933
Deficit accumulated during the development stage (123,487) (124,095)
---------------------- ----------------------
Total Stockholders' Deficiency (29,549) (30,157)
---------------------- ----------------------
Total Liabilities and Stockholders' Deficiency $ 38,370 $ 243
====================== ======================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MODERN COMPUTER SYSTEMS, INC.
(A Development Stage Enterprise)
Statements of Operations
Period from Period from
August 15, 1997 August 15, 1997
(Inception) (Inception)
Year Ended through Nine Months Ended through
July 31, July 31, April 30, April 30,
1999 1998 2000 1999 2000
----------------- ----------------- -------------- ------------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE
Total revenue $ 0 $ 0 $ 0 $ 0 $ 0
EXPENSES
Operating expenses 32,093 13,084 2,980 4,108 48,157
Consulting fees - related party 0 900 0 0 900
----------------- ----------------- -------------- ------------- ---------------
Total expenses 32,093 13,984 2,980 4,108 49,057
----------------- ----------------- -------------- ------------- ---------------
Net loss from continuing operations (32,093) (13,984) (2,980) (4,108) (49,057)
Recovery of estimated loss on disposal 0 0 2,372 0 2,372
Estimated loss on disposal of subsidiary (39,120) (38,290) 0 (39,120) (77,410)
----------------- ----------------- -------------- ------------- ---------------
Net loss $ (71,213) $ (52,274) $ (608)$ (43,228) $ (124,095)
================= ================= ============== ============= ===============
Basic net loss per share $ (0.01) $ (0.01)$ (0.01) $ (0.01)
================= ================= ============== =============
Weighted average number of shares
outstanding 12,484,110 9,619,429 11,979,745 12,546,154
================= ================= ============== =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MODERN COMPUTER SYSTEMS, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity (Deficiency)
Deficit
Accumulated
Shares of Additional During the Total
Common Common Paid-in Development Stockholders'
Stock Stock Capital Stage Equity
-------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE, (Inception) 0 $ 0 $ 0 $ 0 $ 0
August 15, 1997
8/97 - services 9,000,000 900 0 0 900
12/97 - shares contributed (9,000,000) (900) 900 0 0
12/97 - acquisition 9,000,000 900 37,390 0 38,290
2nd qtr. 1998 - cash 1,200,000 120 11,880 0 12,000
7/98 - cash ($0.02) 2,800,000 280 55,720 0 56,000
Net loss 0 0 0 (52,274) (52,274)
-------------- -------------- ------------- --------------- ------------
BALANCE, July 31, 1998 13,000,000 1,300 105,890 (52,274) 54,916
11/98 - divestiture (9,000,000) (900) 900 0 0
11/98 - acquisition 8,300,000 830 (14,082) 0 (13,252)
Net loss 0 0 0 (71,213) (71,213)
-------------- -------------- ------------- --------------- ------------
BALANCE, July 31, 1999 12,300,000 1,230 92,708 (123,487) (29,549)
3/00 - divestiture (2,250,000) (225) 225 0 0
Net loss 0 0 0 (608) (608)
-------------- -------------- ------------- --------------- ------------
ENDING BALANCE, April 30, 2000
(unaudited) 10,050,000 $ 1,005 $ 92,933 $ (124,095) $ (30,157)
============== ============== ============= =============== ============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
MODERN COMPUTER SYSTEMS, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Period from Period from
August 15, 1997 August 15,1997
(Inception) (Inception)
Year Ended through Nine Months Ended through
July 31, July 31, April 30, April 30,
1999 1998 2000 1999 2000
-------------- --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (71,213) $ (52,274) $ (608)$ (43,228) $ (124,095)
Adjustment to reconcile net loss to net cash used for
operating activities:
Stock issued for services 0 900 0 0 900
Estimated loss on disposal of subsidiary 39,120 38,290 0 39,120 77,410
Recovery of estimated loss on disposal 0 0 (2,372) 0 (2,372)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 23,799 5,000 (399) 0 28,400
-------------- --------------- ------------ ------------ -------------
Net cash used for operating activities (8,294) (8,084) (3,379) (4,108) (19,757)
-------------- --------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loan receivable (50,000) 0 0 (50,000) (50,000)
-------------- --------------- ------------ ------------ -------------
Net cash used by investing activities (50,000) 0 0 (50,000) (50,000)
-------------- --------------- ------------ ------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds of short-term loan 0 0 2,000 0 2,000
Common stock issued for cash 0 68,000 0 0 68,000
-------------- --------------- ------------ ------------ -------------
Net cash provided by financing activities 0 68,000 2,000 0 70,000
-------------- --------------- ------------ ------------ -------------
Increase (decrease) in cash (58,294) 59,916 (1,379) (54,108) 243
CASH, beginning of period 59,916 0 1,622 59,916 0
-------------- --------------- ------------ ------------ -------------
CASH, end of period $ 1,622 $ 59,916 $ 243 $ 5,808 $ 243
============== =============== ============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Non-cash investing and financing activities:
Subsidiary acquired for stock $ (14,082) $ 37,390 $ 0 $ (14,082) $ 23,308
============== =============== ============ ============ =============
Subsidiary divested for stock $ (37,390) $ 0 $ 14,082 $ (37,390) $ (23,308)
============== =============== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-7
<PAGE>
MODERN COMPUTER SYSTEMS, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with respect to the nine months ended
April 30, 2000 and 1999 is unaudited)
(1) Summary of Significant Accounting Policies
The Company. Modern Computer Systems, Inc.(the Company), is a Florida chartered
development stage enterprise which conducts business from its head-
quarters in West Palm Beach, Florida. It was incorporated on August
15, 1997. The Company is a development stage enterprise intending to
enter a computer-related field. The following summarize the more
significant accounting and reporting policies and practices of the
Company:
a) Significant acquisitions and divestitures The Company entered into
a share exchange agreement with the shareholder of M Investments,
Inc. on December 31, 1997. The Company exchanged 9,000,000 shares of
common stock for 100% of the issued and outstanding common stock of M
Investments, Inc. The Company divested M Investments on November 4,
1998 in exchange for the 9,000,000 it had previously issued, and
recorded a loss of $38,290.
The Company entered into a share exchange agreement with the
stockholders of IC Television, Inc., a Canadian corporation, on
November 4, 1998. The Company issued 8,300,000 shares of common stock
for 100% of the issued and outstanding common stock of ICTV. The
Company divested ICTV on March 21, 2000 in exchange for 2,250,000 of
the shares it had issued in the acquisition, and recorded a loss of
$36,748.
At the time of acquisition of M Investments and ICTV, the
acquisitions were expected to be treated as reverse mergers and,
therefore, were recorded on the Company's books as recapitalizations
of the underlying subsidiaries. The assets, liabilities and results
of operations of these subsidiaries are not reflected in the
accompanying financial statements, as the Company believes that such
presentation could be materially misleading to any potential readers
of the financial statements.
b) Start-up costs Costs of start-up activities, including
organization costs are expensed as incurred, in accordance with
Statement of Position, (SOP), 98-5.
c) Net loss per share Basic is computed by dividing the net loss by
the weighted average number of common shares outstanding during the
period.
d) Use of estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ
from those estimates.
e) Interim financial information The financial statements for the
nine months ended April 30, 2000 and 1999 are unaudited and include
all adjustments which in the opinion of management are necessary for
fair presentation, and such adjustments are of a normal and recurring
nature. The results for the nine months are not indicative of a full
year results.
(2) Income Taxes The Company has a net operating loss carry-forward
amounting to $124,100 through April 30, 2000, which expires $52,300
in 2013, $71,200 in 2019 and $600 in 2020. The amount recorded as
deferred tax assets as of July 31, 1999 and April 30, 2000 are
approximately $18,500 and $18,600, respectively, which represents the
amount of tax benefit of the loss carry-forward. The Company has
established a 100% valuation allowance against this deferred tax
asset, as the Company has no history of profitable operations.
F-8
<PAGE>
MODERN COMPUTER SYSTEMS, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(3) Stockholders' Equity The Company has authorized 50,000,000 shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par
value preferred stock. Rights and privileges of the preferred stock
are to be determined by the Board of Directors prior to issuance. At
July 31, 1999 and April 30, 2000, there were 12,300,000 and 0 and
10,050,000 and 0 common and preferred shares outstanding,
respectively. 9,000,000 shares of common stock were issued on August
15, 1997 to the founder of the Company for services valued at $900.
On December 31, 1997, those shares were contributed back to the
Company. On December 31, 1997, the Company issued 9,000,000 shares of
common stock for the acquisition of M Investments. In March 1998, the
Company issued 1,200,000 shares of common stock for $12,000 in cash.
In July 1998, the Company issued 2,800,000 shares of common stock for
$56,000 in cash. On November 4, 1998, the Company divested M
Investments in exchange for the 9,000,000 shares of common stock it
had issued in the acquisition. On November 4, 1998, the Company
issued 8,300,000 shares of common stock to acquire ICTV. In March
2000, the Company divested ICTV in exchange for 2,250,000 shares of
the common stock it had issued in the acquisition.
(4) Going Concern The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern.
The Company's financial position and operating results raise
substantial doubt about its ability to continue as a going concern,
as reflected by the net loss of $124,100 accumulated from August 15,
1997 (inception) through April 30, 2000. The ability of the Company
to continue as a going concern is dependent upon commencement of
operations, developing sales, and obtaining additional capital and
financing. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a
going concern. The Company is currently seeking additional capital to
allow it to begin its planned operations.
(5) Legal Proceedings In April 2000, a creditor was granted a default
judgment in the amount of approximately $13,400, for services
rendered near the end of fiscal 1999. This amount is reflected in
accounts payable.
F-9
<PAGE>
Part III
Item 1. Index to Exhibits
3(i).1 Articles of Incorporation of MODERN COMPUTER SYSTEMS, INC., effective
August 15, 1997.
3(ii).1 Bylaws of MODERN COMPUTER SYSTEMS, INC., August 15, 1997.
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MODERN COMPUTER, INC.
(Registrant)
Date: July 11, 2000 By: /s/ Robert Vivian
--------------------
Robert Vivian, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date Signature Title
---- --------- ----
July 11, 2000 By: /s/ Robert Vivian President & Director
-------------------------
Robert Vivian
July 11, 2000 By: /s/ Luciano Girlando Secretary & Director
-------------------------
Luciano Girlando
