As filed with the Securities and Exchange Commission on September 13, 2000
Registration No. 333 -_______
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
==================
WEDGE NET EXPERTS, INC.
------------------------------
(Name of small business issuer in its charter)
California 7379 33-0875030
------------------------- ------------------------- --------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
==================
1706 Winding Ridge Road
Knoxville, Tennessee 37922; (865) 694-6468
------------------------------------------------------------
(Address and telephone number of principal executive offices)
1706 Winding Ridge Road
Knoxville, Tennessee 37922; (865) 694-6468
--------------------------------------------------------------------------------
(Address of principal place of business or intended principal place of business)
Gregory M. Walters
1706 Winding Ridge Road
Knoxville, Tennessee 37922; (865) 694-6468
--------------------------------------------------------
(Name, address and telephone number of agent for service)
Please send copies of all correspondence to:
PATRICIA CUDD, ESQ.
Cudd & Associates
1120 Lincoln Street, Suite #1507
Denver, Colorado 80203
Telephone: (303) 861-7273
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Title of Each Dollar Maximum Maximum Amount of
Class of Securities Amount to Offering Price Aggregate* Registration
to Be Registered Be Registered Per Share* Offering Price Fee
--------------------------------------------------------------------------------
Common Stock,
$.001 par value $85,000 $.05 $85,000 $100.00
--------------------------------------------------------------------------------
TOTAL $85,000 $100.00
--------------------------------------------------------------------------------
*Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
2
<PAGE>
<TABLE>
<CAPTION>
WEDGE NET EXPERTS, INC.
------------------
Cross Reference Sheet Pursuant to Rule 404 (c)
Showing Location in Prospectus of Information
Required by Items of Form SB-2
Item Heading or
Number Caption Location in Prospectus
------------------------------------------------------------------------------------------------------
<S> <C>
1. Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . . . . . Facing Page; Cross-Reference Sheet; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . . . . Inside Front Cover Page; Outside
Back Cover Page
3. Summary Information and Risk Factors. . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds. . . . . . . . . . . . . . . . . . Prospectus Summary; Use of Proceeds
5. Determination of Offering Price . . . . . . . . . Outside Front Cover Page; Inside
Back Cover Page; Risk Factors;
Plan of Offering
6. Dilution. . . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Security Holders. . . . . . . . . . . . . Inapplicable
8. Plan of Distribution. . . . . . . . . . . . . . . Facing Page; Cross-Reference Sheet; Outside
Front Cover Page; Prospectus Summary; Plan
of Offering
9. Legal Proceedings . . . . . . . . . . . . . . . . Proposed Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . . . Management - Executive Officers and
Directors
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . Principal Shareholders
12. Description of Securities . . . . . . . . . . . . Prospectus Summary; Description of
Securities - Capital Stock - Common Stock
13. Interest of Named Experts and Counsel. . . . . . Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . Inapplicable
15. Organization Within Last Five Years. . . . . . . Plan of Operation
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
16. Description of Business . . . . . . . . . . . . . Proposed Business
17. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . . Facing Page; Cross - Reference Sheet; Outside
Front Cover Page
18. Description of Property. . . . . . . . . . . . . Proposed Business - Facilities
19. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . Certain Transactions
20. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . Facing Page; Cross - Reference Sheet; Outside
Front Cover Page
21. Executive Compensation . . . . . . . . . . . . Management - Executive Compensation
22. Financial Statements . . . . . . . . . . . . . Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . Inapplicable
4
</TABLE>
<PAGE>
Preliminary Prospectus Dated September__, 2000
SUBJECT TO COMPLETION
The information in this Preliminary Prospectus is not complete and may be
changed. We may complete or amend this Preliminary Prospectus without notice.
These securities may not be sold until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Preliminary Prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
1,700,000 Shares of Common Stock, $.001 par value
WEDGE NET EXPERTS, INC.
This Prospectus covers up to a maximum of 1,700,000 shares of common stock,
$.001 par value per share (the "Common Stock"). There is no public market for
the Common Stock and no assurance that a public market will develop by reason of
this offering. We arbitrarily determined the offering price of the Common Stock
and, accordingly, the price is not an indication of the actual value of Wedge
Net Experts, Inc. (the "Company"), and bears no relationship to any applicable
criteria of value. We are a development-stage enterprise that proposes to
develop and market computer and Internet consulting, technical assistance and
support and information services to prospective customers, including, primarily,
businesses, educational institutions and governmental agencies, via the
Internet. Our proposed web site, which will include an on-line database of
computer, software, Internet and related information, is in the initial stages
of development and our proposed provider network of expert consultants has not
yet been assembled. As of the date hereof, we have no customers for our proposed
consulting and informational services and, accordingly, we have received no
revenue from operations since the date of our inception on September 21, 1999.
(See "RISK FACTORS" on pages 4 to 11 and "PROPOSED BUSINESS" on pages 13 to 18.)
YOU SHOULD MAKE YOUR CHECK IN PAYMENT FOR A SUBSCRIPTION FOR SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS PAYABLE TO "FIRSTBANK - ESCROW AGENT."
YOUR PURCHASE OF THE SHARES OF COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. YOU SHOULD NOT PURCHASE THE SHARES
UNLESS YOU CAN AFFORD A LOSS OF YOUR INVESTMENT. (SEE "RISK FACTORS" AND "PLAN
OF OFFERING".)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATORY
AUTHORITY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, ENDORSED THE MERITS
OF THIS OFFERING OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price Selling Proceeds to
to Public Commissions (1) the Company (2)
--------------------------------------------------------------------------------
Per Share $ .05 $-0- $ .05
--------------------------------------------------------------------------------
Total Minimum
(800,000 shares) (3) $40,000 $-0- $40,000
--------------------------------------------------------------------------------
Total Maximum
(1,700,000 shares) (3) $85,000 $-0- $85,000
================================================================================
(Footnotes on following page.)
We are offering the shares of Common Stock on a "minimum - maximum" basis
subject to prior sale, to allotment and withdrawal and to cancellation of the
offer without notice, at any time prior to the release or delivery of the
proceeds of this offering to the Company. We reserve the right to reject any
order or cancel any sale, in whole or in part, for the purchase of any of the
shares of Common Stock offered prior to the release or delivery of the proceeds
of this offering.
The date of this Prospectus is __________, 2000.
<PAGE>
NOTES:
(1) We will offer the shares of Common Stock directly to the public through
our executive officers and directors. We will not pay any selling commissions or
other compensation on sales of shares of Common Stock by our executive officers
and directors.
(2) Does not reflect expenses of the offering estimated not to exceed
$20,000. At September 6, 2000, $11,000 of such expenses had not been paid and,
accordingly, that portion of the estimated offering expenses will be paid out of
the proceeds of this offering.
(3) Our executive officers and directors will offer the shares of Common
Stock on a "$40,000 minimum - $85,000 maximum" basis. There is no assurance that
any or all of the shares of Common Stock will be sold. We will transmit all
proceeds from subscriptions to purchase the first 800,000 shares of Common Stock
by noon of the next business day following receipt to an escrow account at
FirstBank of Littleton, N.A., 101 West County Line Road, Littleton, Colorado
80126. Subscribers have no right to the return of their funds during the term of
the escrow period. If we do not receive subscriptions for at least 800,000
shares of Common Stock within 90 days from the date of this Prospectus (unless
we extend the offering for up to an additional 90 days), we will refund the
escrowed funds promptly to subscribers, without deduction or interest. After we
have received proceeds from the sale of 800,000 shares of Common Stock, we may
continue the offering without any escrow or refund provisions until all
1,700,000 shares of Common Stock are sold, the expiration of 90 days from the
date of this Prospectus (unless extended as described above) or until we elect
to terminate the offering, whichever occurs first.
-----------------------------
We intend to furnish our shareholders, after the close of each fiscal year,
an annual report that will contain financial statements that will be examined by
independent public accountants and a report thereon, with an opinion expressed,
by our independent public accountants. We may furnish to shareholders unaudited
quarterly or semi-annual reports. In addition, we will file any reports required
by the U.S. Securities and Exchange Commission; which reports are public
documents.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT
RELY ON ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN, IF GIVEN OR
MADE, AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR
AFFAIRS SINCE THE DATE HEREOF.
The offering of shares of Common Stock by us is subject to approval of
certain legal matters by Cudd & Associates, counsel for the Company. We may not
modify the terms of the offering described herein without amending the
Registration Statement of which this Prospectus is a part.
2
<PAGE>
PROSPECTUS SUMMARY
The more detailed information and financial statements appearing elsewhere
in this Prospectus qualify this summary in its entirety.
The Company
Wedge Net Experts, Inc. (the "Company"), is a development-stage corporation
that was incorporated under the laws of the State of California on September 21,
1999. We propose to develop and market computer and Internet consulting and
technical assistance and support services and provide access to an international
database of computer, software, Internet and related information via a web site
on the Internet currently under development. We propose to complete the
development of the web site and purchase certain needed equipment with
approximately 68% to 69% of the anticipated proceeds from this offering.
Further, we intend to assemble a provider network of expert consultants;
however, this will not be possible until we raise capital in addition to the
funds available from this offering and/or achieve profitable operations, if
ever. Because our activities to date have been organizational and fund raising
in nature, primarily, and our proposed web site and database are not yet
complete, there are no customers for our proposed services as of the date
hereof. Accordingly, we have realized no revenue from operations to date. Our
prospective customers are expected to include, primarily, businesses,
educational institutions and governmental agencies. Our offices are located at
1706 Winding Ridge Road, Knoxville, Tennessee 37922, and our telephone and
facsimile number is (865) 694-6468. (See "PROPOSED BUSINESS.")
The Offering
Number of shares of Common Stock offered
hereby...................................... 1,700,000 shares of Common
Stock, $.001 par value.
(See "DESCRIPTION OF
SECURITIES - Description
of Capital Stock -
Description of Common
Stock.")
Number of shares of Common Stock outstand-
ing prior to offering....................... 3,800,000
Number of shares of Common Stock to be
outstanding after offering*
Minimum................................... 4,600,000
Maximum................................... 5,500,000
Percentage of shares of Common Stock to be
owned by present shareholders after offering
Minimum................................... 82.6%
Maximum................................... 69.1%
Use of Proceeds
The net proceeds available to us upon completion of this offering, after
deducting the estimated unpaid expenses of the offering, will be approximately
$29,000 if the minimum, and approximately $74,000 if the maximum, number of
shares of Common Stock is sold. We intend to allocate the net minimum and
maximum offering proceeds over twelve months, as follows: (i) development of web
site ($15,000 - minimum; $40,000 - maximum); (ii) purchase of equipment ($5,000
- minimum; $10,000 - maximum); (iii) professional fees ($5,000 - minimum;
$10,000 - maximum); (iv) stock transfer fees ($2,500); (v) marketing ($1,500 -
minimum; $6,500 - maximum); and (vi) working capital ($-0- - minimum; $5,000 -
maximum). (See "USE OF PROCEEDS.")
3
<PAGE>
Risk Factors
This offering involves a high degree of risk and prospective investors
should understand that they may lose all or a part of their investment. The risk
factors associated with the purchase of shares of Common Stock in this offering
are described herein under "RISK FACTORS."
Selected Financial Information
The Company was only recently organized on September 21, 1999, and,
accordingly, has only recently commenced operations in its proposed business of
developing, marketing and providing computer and Internet consulting, technical
assistance and support and informational services to businesses, educational
institutions and governmental agencies, primarily, via its proposed web site and
on-line database. No assurance can be given that we will ever generate earnings
from our proposed business. (See "PROPOSED BUSINESS.")
Summary Balance Sheet Data:
--------------------------
As of As of
June 30, 2000 December 31, 1999
------------- ------------------
Working Capital $(13,797) $ (93)
Total Assets $ 5,856 $4,915
Total Liabilities $ 16,725 $5,008
Total Shareholders' Equity $(10,869) $ (93)
Summary Operating Data:
----------------------
<TABLE>
<CAPTION>
Inception Inception
Six Months (September 21, 1999) (September 21, 1999)
Ended through through
June 30, 1999 December 31, 1999 June 30, 2000
------------- ------------------- -------------------
<S> <C> <C> <C>
Net Loss $(3,976) $(3,593) $(7,569)
Basic Loss Per Share $ * $ *
Basic Weighted Average
Common Shares Outstanding 2,800,000 2,800,000
------------------
*Less than $.01 per share.
</TABLE>
RISK FACTORS
The purchase of the shares of Common Stock being offered hereby is
speculative and involves a high degree of risk. Before making an investment
decision, prospective investors should carefully consider, along with other
matters referred to herein, the following risk factors inherent in and affecting
our business and this offering:
4
<PAGE>
Risk Factors Related to the Company
1. We Are a Development-Stage Company with No Prior Business Operations.
The Company was organized on September 21, 1999, is in the development stage and
must be considered promotional. The likelihood of our success must be considered
in light of the Company's stage of development and the fact that our business
plan of providing on-line computer and Internet consulting, technical assistance
and informational services to businesses, educational institutions and
governmental agencies is neither conventional nor proven. Management has
identified no prospective customers for our proposed consulting and information
services and there is no assurance that we will be successful in identifying and
obtaining customers in the future. Because we are in the development stage, our
marketing program may be expected to encounter problems, complications, expenses
and delays. Further, as a development-stage enterprise, we will be subject to
many of the risks common to such enterprises, including undercapitalization,
cash shortages, limitations with respect to personnel, technological, financial
and other resources and lack of a customer base and market recognition, most of
which are beyond our control. In addition, we will face special risks associated
with the rapidly changing computer and Internet businesses. (See "USE OF
PROCEEDS" and "PROPOSED BUSINESS - The Company," "- Proposed Services," "-
Marketing" and "- Competition.")
2. We Have Realized No Revenue or Earnings and Have Limited Assets. Since
our inception on September 21, 1999, the Company has realized no revenue or
earnings and has had only very limited assets and financial resources. We
realized a net loss of $(3,976) and $(3,593) for the six months ended June 30,
2000, and the period from inception (September 21, 1999) through December 31,
1999, respectively, and cumulatively in the amount of $(7,569) since the
Company's inception. As of June 30, 2000, we had total assets, including $2,928
in cash and $2,928 in equipment (less accumulated depreciation), of $5,856, a
working capital deficit of $(13,797) and a total shareholders' deficit of
$(10,869). There can be no assurance that we will achieve profitable operations
from the proposed provision of on-line computer and Internet consulting,
technical assistance and informational services in the future. Since inception,
we have realized no revenue and have conducted only limited operations
including, primarily, organizational activities and raising interim capital.
(See "PROPOSED BUSINESS - The Company," "- Proposed Services" and Financial
Statements.)
3. Our Business Concept Is Unproven; Our Business Will Be Subject to
Technological Change. Our business plan of amassing an international database of
computer, software, Internet and related information and retaining expert
consultants for the purpose of developing, marketing and providing related
consulting, technical support and informational services to prospective
business, educational institution and government agency customers is unproven.
Assuming the implementation of our business concept such that we commence
generating revenue, the markets that we will serve are subject to rapid
technological change, changing customer requirements, frequent new product
introductions and evolving industry standards that may render our proposed
services obsolete from time-to-time. As a result, our market position could be
eroded rapidly by advancements by competitors. It is not possible to predict
presently the life cycle of any of our proposed services. Broad acceptance of
such proposed services by customers will be critical to our future success, as
will our ability to perform services on a timely basis that meet changing
customer needs and respond to technological developments and emerging industry
standards. There can be no assurance that we will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of our proposed consulting, technical assistance and information
services, or that new services would meet the requirements of the marketplace
and achieve market acceptance. (See "PROPOSED BUSINESS - The Company" and "-
Proposed Services.")
5
<PAGE>
4. Dependence on Management; Limited Experience and/or Time Commitment. We
will be dependent upon our executive officers and directors, including Messrs.
Gregory M. Walters and Donald R. Brady and Ms. Dana E. Walters, who, except for
Ms. Walters, are not expected to receive any monetary compensation for the
foreseeable future. The loss of the services of any of these individuals,
particularly Messrs. Walters and Brady, could be expected to have a material
adverse effect on us. Ms. Walters has no prior experience in our proposed
business. Mr. Brady's prior business experience in the conception, design and
deployment of intelligent transportation border crossing systems and trade data
and commercial vehicle information systems, while computer-related and technical
in nature, differs from the computer and Internet consulting, technical support
and informational services that we propose to develop and market. While Messrs.
Walters and Brady expect to devote approximately 50% and approximately 20%,
respectively, of their time and effort to the Company, Ms. Walters will devote
only so much of her time as is required to attend meetings of the Board of
Directors. The computer and Internet-related services that we propose to offer
involve complicated business determinations requiring qualitative and subjective
evaluations by management and/or others. For the foreseeable future, we have no
plans to retain any other personnel, although we hope to obtain the funds
necessary to pay consulting fees to a proposed provider network of expert
consultants. Reliance by management upon services of outside consultants or
independent contractors will subject us to additional risks associated with the
ability and technical competence of such persons, their availability and the
cost of obtaining their services. (See "USE OF PROCEEDS," "BUSINESS - Employees
and Consultants" and "MANAGEMENT - Executive Officers and Directors" and "-
Conflicts of Interest.")
5. Speculative Nature of Our Proposed Business. We have allocated the
proceeds to be received upon completion of this offering, primarily, for the
development of our proposed web site on the Internet and the purchase of the
necessary equipment, including computer hardware and software. The success of
this business plan is dependent upon our ability to develop a web site
sufficiently attractive to potential customers; amass the quantity of computer,
software, Internet and related information necessary to fulfill customers'
informational demands; and retain the number and caliber of consultants required
to achieve rapid problem-solving capability and provide the in-depth e-commerce
solutions demanded by customers. Because of the limited proceeds of this
offering, no funds will be available to pay expert consultants. Our future
success will be dependent upon our ability to raise financing in addition to
that anticipated from this offering and numerous other factors beyond
management's control. Unless we are successful in obtaining a sufficient number
of customers for our proposed services within the one-year period during which
the proceeds of this offering have been allocated, investors may lose all or a
substantial portion of their investments in the shares of Common Stock being
offered hereby. As of the date hereof, our proposed web site and database is not
yet operational and we have no expert consultants or customers. (See "BUSINESS -
The Company," "- Proposed Services," "- Competition," and "- Marketing.")
6. Competition. For the foreseeable future, we are expected to be
insignificant participants in the computer and Internet consulting, technical
assistance and informational services businesses. Nearly all existing companies
providing one or more of the foregoing services are substantially larger and
have more substantial operating histories, backgrounds, experience and records
of successful operations; greater financial resources, technical expertise,
managerial capabilities and other resources; more employees; and more extensive
facilities than we have or will have in the foreseeable future. Consequently, we
will be at a competitive disadvantage in developing a web site sufficiently
attractive to potential customers; amassing the quantity of computer, software,
Internet and related information necessary to fulfill customers' informational
demands; retaining the number and caliber of consultants required to achieve the
rapid problem-solving capability desired; and providing the in-depth e-commerce
solutions demanded by customers. (See "BUSINESS - The Company," "- Proposed
Services," "- Competition," and "- Marketing.")
6
<PAGE>
7. No Customers. We have no arrangement, agreement or understanding for the
provision of our proposed computer and Internet problem-solving, technical
assistance and/or informational services to any customer for the reason that,
among other things, our proposed Internet web site, with its proposed
international database of computer, software, Internet and related information,
is in the design and development stage. There can be no assurance that the
capital available from this offering will enable us to complete our proposed web
site and database to the satisfaction of prospective customers, thus enabling us
to obtain the number and caliber of customers necessary to achieve profitable
operations. Further, we are dependent upon the funds anticipated, without
assurance, to be available from future equity and/or debt financing and/or
profits from operations, if any, to retain the various expert consultants in
each technological area needed to serve as the network providers of our proposed
services. Purchasers of shares of Common Stock in this offering will have no
opportunity to evaluate, or have a voice in the determination of, the selection
of customers or fees charged for our proposed services. Management will make
day-to-day business decisions and, thus, the funds of purchasers of shares of
Common Stock will be wholly at risk of the determination of present management
concerning their use. Investors must depend entirely upon the business judgment
of management whose business plan is conceptual in nature as of the date hereof.
(See "BUSINESS - The Company," "- Proposed Services," "- Competition," and "-
Marketing.")
8. Continued Management Control; Limited Management Participation. Mr.
Gregory M. Walters, record owner of 2,800,000 shares of our issued and
outstanding Common Stock, is the principal shareholder, a parent and a
controlling person of the Company because of his positions and shareholdings.
Even following the completion of this offering, Mr. Walters will own
approximately 50.9% to approximately 60.9% of the Company's issued and
outstanding shares of Common Stock. However, he is expected to devote only a
limited portion of his time and effort to the Company. Mr. Walters has not
entered into a written employment agreement with us and is not expected to do so
in the foreseeable future. We have not obtained "key man" life insurance on any
of our executive officers and directors. Notwithstanding the limited time
commitment of management, loss of the services of any of these individuals,
particularly Messrs. Walters and Donald R. Brady, could adversely affect
development of our business of and the likelihood of continuing operations. (See
"BUSINESS - Employees and Consultants," "MANAGEMENT - Executive Officers and
Directors" and "- Conflicts of Interest" and "PRINCIPAL SHAREHOLDERS.")
9. Conflicts of Interest. Because of existing and potential future
associations of our executive officers and directors in various capacities with
other companies involved in a range of business activities and because of the
limited amount of time and effort that is expected to be devoted by said persons
to our business, potential continuing conflicts of interest may be inherent in
their acting as our executive officers and directors. In addition, all of our
executive officers, directors and controlling shareholders are or may become, in
their individual capacities, officers, directors, controlling shareholders
and/or partners of other entities engaged in a variety of businesses that may in
the future engage in various transactions with the Company. Conflicts of
interest and transactions that are not at arm's-length may arise in the future
because our executive officers, directors and/or controlling shareholders are
involved in the management of any company that transacts business with the
Company. Existing and potential conflicts of interest, including time, effort
and corporate opportunity, are involved in the participation by management and
control persons in other business entities and in transactions with the Company.
Messrs. Walters and Brady and Ms. Walters, constituting our Board of Directors
and management, have agreed, during any period in which they serve as our
executive officers or directors, that they will not act as an officer or
director of any other company, whether private or public, engaged in any aspect
of our business of providing on-line computer and Internet consulting, technical
support and informational services. (See "MANAGEMENT - Conflicts of Interest,"
"PRINCIPAL SHAREHOLDERS" and "CERTAIN TRANSACTIONS.")
7
<PAGE>
Risk Factors Related to the Offering
10. There Is No Public Market for Our Common Stock and the Price of the
Common Stock Is Arbitrary. There is no public market for the Common Stock and
there is no assurance that a public market will develop as a result of this
offering or, if developed, that it will be sustained. Furthermore, if investors
desire to sell their shares of Common Stock, they may encounter substantial
difficulty in doing so because of the fact that, if a market in the Common Stock
develops, the price thereof may fluctuate rapidly as a result of changing
economic conditions as well as conditions in the securities markets. Because a
public market may not develop for the Common Stock and because the market price
of the shares can be expected to fluctuate if a public market develops, the
market value could be greater or less than the public offering price of the
shares of Common Stock. Many brokerage firms may not effect transactions in the
securities and many lending institutions may not permit their use as collateral
for loans. The Common Stock will be traded, if at all, in the "pink sheets"
maintained by members of the National Association of Securities Dealers, Inc.,
and possibly on the electronic Bulletin Board. We will not satisfy the
requirements either for being quoted on the National Association of Securities
Dealers' Automated Quotations System ("NASDAQ") or for listing on any national
securities exchange. Accordingly, until we qualify for NASDAQ or listing on an
exchange, any trading market that may develop for the Common Stock is not
expected to qualify as an "established trading market" as that term is defined
in Securities and Exchange Commission regulations, and is expected to be
substantially illiquid. We have arbitrarily established the offering price of
the Common Stock and it should not be considered to bear any relationship to our
assets, book value or net worth and should not be considered to be an indication
of our value.
11. Public Will Bear Risk of Loss. The capital required by us to continue
operations and carry on our business is being sought principally from the
proceeds of this offering. Therefore, public investors will bear most of the
risk of our operations until such time as we attain a level of profitability
capable of sustaining our operations, if ever.
12. Proceeds of Offering May be Inadequate. The minimum and maximum net
proceeds of this offering are $29,000 and $74,000, respectively, and, therefore,
are sufficient to conduct only a limited amount of activity. Particularly if
only the minimum number of shares of Common Stock being offered hereby is sold,
our continued operation will be dependent on our ability to generate operating
revenue or procure additional financing. There is no assurance that any such
revenue will be generated or that any such additional financing can be obtained
on terms favorable to the Company. (See "USE OF PROCEEDS" and "PROPOSED BUSINESS
- General Development of Business" and "- General Description of Business.")
13. Present Shareholders May Sell Their Shares of Common Stock in the
Future under Rule 144. All of the 3,800,000 shares of our Common Stock presently
outstanding may be deemed to be "restricted securities," as defined by Rule 144
of the Securities Act of 1933, as amended ("Rule 144"). Under Rule 144,
restricted securities that have been beneficially owned for at least one year
may be sold in brokers' transactions or directly to market makers, subject to
certain quantity and other limitations. Generally, a person may not sell under
Rule 144, in any three-month period, an amount equal to the greater of the
average weekly trading volume, if any, of the Common Stock during the four
calendar weeks preceding the sale, or one per cent of the Company's outstanding
Common Stock. Shares beneficially owned for two years by non-affiliates of the
Company may be sold without regard to this quantity or other limitations. All
3,800,000 shares of the Common Stock will be eligible for sale pursuant to Rule
144 commencing in September 2000. The possibility of sales of substantial
amounts of Common Stock could have a depressive effect upon the price of the
shares of Common Stock acquired pursuant to this offering in any market that may
develop. Such sales might also impede future financing by the Company. (See
"PLAN OF OFFERING.")
8
<PAGE>
14. Arbitrary Offering Price. The offering price of the shares of Common
Stock being offered hereby has been arbitrarily determined by our management.
Accordingly, the offering price should not be considered an indication of the
actual value of the Company. (See "DESCRIPTION OF SECURITIES.")
15. Immediate Substantial Dilution. Mr. Gregory M. Walters, our President
and Chairman of the Board of Directors, and four recipients of Common Stock, as
a result of their recent conversion of Promissory Notes aggregating $50,000 in
principal amount at a price of $.05 per share, are our five current shareholders
of 3,800,000 shares of Common Stock outstanding as of the date hereof. Mr.
Walters, beneficial owner of 2,800,000 shares of Common Stock, received the
shares in consideration for the performance of services valued at $.001 per
share (a total of $2,800), which is substantially less than the price of $.05
per share of Common Stock to be paid by the investors in this offering.
Accordingly, an investor who acquires shares in this offering will incur an
immediate substantial dilution from the offering price of approximately $.04
(80%) per share acquired. (See "DILUTION," "CERTAIN TRANSACTIONS" and "PLAN OF
OFFERING.")
16. No Dividends. While payment of dividends on shares of Common Stock
received in this offering rests with the discretion of the Board of Directors,
there can be no assurance that dividends can or will ever be paid. Payment of
dividends is contingent upon, among other things, future earnings, if any, and
our financial condition, capital requirements, general business conditions and
other factors that cannot now be predicted. It is highly unlikely that we will
pay dividends on the Common Stock in the foreseeable future. (See "DESCRIPTION
OF SECURITIES - Description of Common Stock - Dividend Policy.")
17. No Commitment to Purchase Shares. We are offering the shares of Common
Stock on a $40,000 minimum - $85,000 maximum basis, and no commitment exists by
anyone to purchase all or any part of the shares of Common Stock being offered
hereby. Therefore, there can be no assurance that the offering will be totally
subscribed for at least the minimum 800,000 shares of Common Stock being
offered. If we have not received subscriptions for 800,000 shares of Common
Stock prior to the expiration of the term of the offering, we will promptly
refund all funds received, without interest, to the subscribers. During the
ninety-day offering period (and a ninety-day extension, if any), subscribers
will not have the opportunity to have their funds returned. To the extent that
only the minimum amount of funds is received, we may not be able to fully
implement our business plan and our prospects for success may be jeopardized. As
a result, the Common Stock purchased by an investor herein may be deprived of
any value. (See "PLAN OF OFFERING.")
18. No Cumulative Voting. The election of directors and other questions
will be decided by majority vote. Since cumulative voting is not permitted and a
majority of our outstanding shares constitutes a quorum, the investors who
purchase the shares of Common Stock offered hereby may not have the power to
elect even a single director and, as a practical matter, the current management
will continue to effectively control the Company. (See "MANAGEMENT," "PRINCIPAL
SHAREHOLDERS" and "DESCRIPTION OF SECURITIES - Description of Common Stock.")
19. Control by Present Shareholders. Upon completion of this offering and
assuming the sale of all 1,700,000 shares of Common Stock, our present
shareholders will own approximately 69.1% (approximately 82.6% if we sell the
minimum number of shares) of our outstanding Common Stock and 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 our affairs. Accordingly, persons investing in this offering
will bear most of the financial risk without having any significant voice in
9
<PAGE>
Company management, and cannot be assured of ever having representation on the
Board of Directors. (See "PRINCIPAL SHAREHOLDERS" and "PLAN OF OFFERING.")
20. Potential Anti-Takeover and other Effects of Issuance of Preferred
Stock Rights May Be Detrimental to Common Shareholders. We are authorized to
issue up to 10,000,000 shares of preferred stock, $.001 par value per share (the
"Preferred Stock"); none of which shares have been issued. The issuance of
Preferred Stock does not require approval by the shareholders of our 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 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 our Common Stock. Further, the issuance of
any shares of Preferred Stock having rights superior to those of the Common
Stock may result in a decrease in the value or 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. ("DESCRIPTION OF SECURITIES - Description of Common Stock -
Dividend Policy.")
21. No Secondary Trading Exemption. 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 that state or we
verify that an exemption, such as listing in certain recognized securities
manuals, is available for secondary trading in that state. There can be no
assurance that we will be successful in registering or qualifying the Common
Stock for secondary trading, or availing ourselves of an exemption for secondary
trading in the Common Stock, in any state. If we fail 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 our Common Stock, a
public market for the Common Stock will fail to develop and the shares could be
deprived of any value.
22. Possible Adverse Effect of Penny Stock Regulations on Liquidity of
Common Stock in Secondary Market. If a secondary trading market develops in our
shares of Common Stock, of which there can be no assurance, the Common Stock is
expected to come within the meaning of the term "penny stock" under 17 CFR
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 a
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 for 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 requires 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 our 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.
10
<PAGE>
23. New Rules for OTCBB-Eligible Securities May Have a Possible Adverse
Effect on the Company. Effective January 4, 1998, the National Association of
Securities Dealers, Inc. (the "NASD"), enacted new OTC Bulletin Board Rules (the
"Rules") regarding the eligibility of a security to be quoted by members of the
NASD in the OTC Bulletin Board Service (the "Service"), an electronic quotation
medium for subscribing members to reflect market making interest in
OTCBB-eligible securities. The new Rules require, generally, that the issuer of
the securities be required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
subject to a thirty calendar day grace period, be current in its reporting
obligations. Accordingly, broker-dealers that are members of the NASD and their
associated persons are prohibited from entering, updating or displaying
quotations in the Service for, i.e., making a market in, securities that are not
OTCB eligible. We will be required to file a Registration Statement on Form 8-A
under Section 12(g) of the Exchange Act in order to become a "reporting company"
and, therefore, qualify for OTCBB-eligibility. There can be no assurance that we
will become a reporting company or, even if we achieve such status, that we
would be capable of remaining current in our reporting obligations under the
1934 Act.
DILUTION
The following table, which assumes the completion of this offering by the
sale of a minimum of 800,000, to a maximum of 1,700,000, shares of Common Stock
for proceeds of a minimum of $40,000 to a maximum of $85,000, illustrates the
per share dilution and the percentage of ownership in the Company to be held by
our present shareholders and by the investors in this offering.
Per share amounts shown in the table as of June 30, 2000, give effect to
the issuance by the Company prior to this offering on August 2, 2000, of an
additional 1,000,000 shares of Common Stock upon the conversion of four
Promissory Notes in the aggregate principal amount of $50,000, dated December
1999 through July 2000, due on various maturity dates from March 2000 to April
2001, at interest rates of six or eight per cent per annum. The table takes into
account the estimated unpaid expenses of the offering in the amount of $11,000.
<TABLE>
<CAPTION>
Minimum Maximum
Per Share Dilution ------- -------
------------------
<S> <C> <C>
Offering price per share.......................................... $.05 $.05
Average cost per share to present shareholders at June 30, 2000... $.01 $.01
Net tangible book value per share as of June 30, 2000 (1)......... $ * $.01
Pro forma net tangible book value per share after offering........ $.01 $.01
Per share dilution from offering price absorbed by investors
in this offering (2)............................................. $.04 $.04
Gain to present shareholders in net tangible book value per share
attributable to cash payments by investors in this offering...... $ -- $ --
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Comparative Amounts Paid For Shares
-----------------------------------
<S> <C> <C>
Offering price per share.......................................... $.05 $.05
Average cost per share to present shareholders.................... $.01 $.01
Differential...................................................... $.04 $.04
Comparative Share Ownership
---------------------------
Per cent of equity purchased by investors in this offering
for $40,000 (minimum) and $85,000 (maximum)...................... 17.4% 30.9%
Per cent of equity purchased by present shareholders for $50,000
in cash and services valued at $2,800............................ 82.6% 69.1%
---------------------------
</TABLE>
*Less than $.01.
(1) "Net tangible book value per share" is equivalent to the total assets
of the Company, less its total liabilities and intangible assets, divided by
the number of shares of its Common Stock currently issued and outstanding.
(2) "Dilution" is the difference between the public offering price and the
net tangible book value of the shares of the Company's Common Stock immediately
after the offering and is the result of the lower book value of the shares of
Common Stock outstanding prior to the offering, the public offering price and
the unpaid expenses payable in connection with the offering. Dilution will be
increased by the amount of the Company's operating losses for the period from
June 30, 2000, to the closing date of the offering being made hereby.
USE OF PROCEEDS
We estimate that the net proceeds available to us upon completion of this
offering will be $29,000, in the event of the minimum offering, and $74,000, in
the event of the maximum offering, after deducting the estimated unpaid expenses
of the offering in the amount of $11,000. We expect to apply and allocate the
net proceeds of the offering during the following year in substantially the
manner set forth below. You should note that the amounts set forth in the table
are merely management estimates of costs, expenses and other factors and there
is no assurance that the net proceeds of the offering will be so allocated.
Application of Net Proceeds Minimum Per Cent Maximum Per Cent
------------------------------- ------- -------- ------- --------
Development of web site (1) $15,000 51.73% $40,000 54.06%
Purchase of equipment (1) 5,000 17.24% 10,000 13.51%
Professional fees 5,000 17.24% 10,000 13.51%
Stock transfer fees 2,500 8.62% 2,500 3.38%
Marketing (2) 1,500 5.17% 6,500 8.78%
Working capital -0- 0.00% 5,000 6.76%
------- ------- ------- -------
TOTAL NET PROCEEDS $29,000 100.00% $74,000 100.00%
------------------
12
<PAGE>
(1) See "PROPOSED BUSINESS OF THE COMPANY - Proposed Services."
(2) See "PROPOSED BUSINESS OF THE COMPANY - Marketing."
There is no commitment by any person to purchase any or all of the shares
of Common Stock offered hereby and, therefore, there can be no assurance that
the offering will be totally subscribed for the sale of at least the minimum
800,000 shares of Common Stock being offered.
Management is of the opinion that the proceeds from the offering will
satisfy our cash requirements for at least the next year and that it will not be
necessary, during that period, to raise additional funds to meet the
expenditures required for operating our business. However, the proceeds of this
offering that will be available to us for operating expenses are limited.
Because of this and our inability to specifically define our business plan at
this time, management is incapable of predicting with any degree of specificity
the nature or the amount of operating expenses that we will incur in the
one-year period following the closing of this offering. The offering proceeds
are expected to be inadequate to fully implement our proposed business plan and
it is anticipated that our continued operation after the expiration of one year
will be dependent upon our ability to obtain additional debt and/or equity
financing, the availability of which cannot be assured. Since inception, our
operations have been funded, principally, by convertible loans, the aggregate
$50,000 principal amount of which has been converted into shares of the
Company's Common Stock as of the date hereof. As of this date, we have no
customers for our proposed computer and Internet consulting, technical
assistance and support and informational services and there is no assurance that
we will be successful in obtaining customers in the future. (See "RISK FACTORS"
and "PROPOSED BUSINESS OF THE COMPANY - The Company" and "- Proposed Services.")
Pending expenditure of the proceeds of the offering substantially in the
manner described above, we will make temporary investments in interest-bearing
savings accounts, certificates of deposit, United States government obligations
and/or money market instruments. We intend to take appropriate measures to
insure that we do not inadvertently become an investment company subject to the
requirements of the Investment Company Act of 1940. Accordingly, the investments
that we will be capable of making using the proceeds of this offering will be
limited in nature and with respect to the term of the investment.
PROPOSED BUSINESS
The Company
Wedge Net Experts, Inc. (the "Company"), is a development-stage corporation
that was organized under the laws of the State of California on September 21,
1999. We propose to provide computer and Internet consulting and technical
assistance and support services and information concerning computer- and
Internet-related matters from a web site on the Internet to be developed with
approximately 55% of the anticipated proceeds from this offering. The balance of
the anticipated net offering proceeds has been allocated, depending upon the
realization of the minimum or the maximum offering, for equipment purchases,
professional and stock transfer fees, marketing and/or working capital. Because
our activities to date have been, primarily, organizational and fund raising in
nature and our proposed web site is in the design and development stage, we have
no customers for our proposed services as of the date hereof. Further, our
business plan is in the conceptual stage and involves an unproven business
13
<PAGE>
concept; i.e., we propose to employ expert consultants and amass an
international database of information to enable persons, for a reasonable fee,
to access our proposed web site and obtain needed assistance and information in
order to solve difficulties and answer questions relating to computers,
software, the Internet and related matters.
During the period from December 1999 through July 2000, we received net
proceeds in the amount of $50,000 from loans from four persons that were
subsequently converted into an aggregate of 1,000,000 shares of Common Stock at
the price of $.05 per share. For exemptions from registration in connection with
the sales of the securities, we relied upon Section 4(2) of the Securities Act
of 1933, as amended, for transactions by an issuer not involving a public
securities offering and Section 25102(f) of the California Corporations Code and
Section 517.061(11)(a) of the Florida Securities and Investor Protection Act, as
amended.
Proposed Services
We propose to provide computer and Internet consulting and technical
support services and access to an international "knowledge bank," or database,
of computer, software, Internet and related information via our proposed web
site on the Internet. We propose that customers who visit our site be able to
access, among other things, (i) on-line technical support and assistance; (ii)
hardware and software product reference and use guides; (iii) repair information
in question and answer format; and (iv) "short response and in-depth response
informational data mining" or "FAQ's." The proposed service described in item
(iv) would enable the customer to engage in a dialog on the Internet with one or
more of our proposed expert consultants. Ideally, users who access our proposed
Internet site would obtain on-line, real-time responses that may include
demonstrations and tutorials, rapid problem elimination and real-time, in-depth
solutions to problems and questions relating to, among other things, computer
software and hardware malfunction, computer network configuration and operation,
Internet connectivity and e-commerce (the conduct of business via the Internet).
Because our web site, including the configuration of the software, is in
the initial development stage, we have no customers for our proposed services as
of the date hereof. We have allocated $15,000 and $40,000 (approximately 55%) of
the minimum and the maximum proceeds, respectively, anticipated, without
assurance, to be received from this offering for the completion of the design
and development of our proposed Internet site. Our customers are expected to
include, primarily, businesses, governments, educational institutions and those
engaged in leading-edge product development. We will charge each customer an as
yet undetermined fee for access to our proposed on-line, "knowledge
bank"/information database, which is not yet complete, and provider network of
expert consultants, who have not yet been selected or employed.
Management envisions that, because world commerce, industry and education
are expected to be increasingly computer-and Internet-driven in the future,
demand will inevitably increase for the problem-solving, technical assistance
and informational services that we propose to offer on-line via our proposed web
site on the Internet. We believe that our proposed on-line services would serve
as alternatives to textbooks, service manuals, product and user guides,
reference works and certification guides that, historically, have been the
principal sources of information and assistance for owners of personal computers
seeking to load and/or use computer software and other products. We believe that
our customers would benefit from obtaining desired information and/or assistance
from us on-line and in real-time by saving the time required in locating the
proper manuals, guides or other reference materials and reading lengthy
inapplicable or otherwise undesirable text. Further, a customer's use of our
proposed services might obviate the need to obtain formal technical training in
a classroom setting on the usage of various products, and the continuously
updated versions of those products, available on the market from time-to-time.
14
<PAGE>
We intend to retain experts, including professors at universities and
colleges, authors and others, involved in cutting-edge technologies in each of
the computer, software, Internet and related fields to serve as the network of
providers performing consulting services for us. As of the date hereof, we have
not yet approached or selected any individual(s) to serve in this capacity.
Further, while we have not yet begun to determine the amount of compensation
necessary to be paid in order to attract individuals of high caliber, we
anticipate that it will be sizable in many instances. We have allocated no
funds, out of the proceeds anticipated, without assurance, to be received from
this offering, for consulting fees or other compensation for these proposed
consultants. Accordingly, we expect that we will be unable to retain the
services of even one such consultant until we realize profits, if ever, from our
proposed operations or raise capital from equity and/or debt financing in
addition to that anticipated from this offering. Further, if we are successful
in retaining any such consultant(s) in the future, we will be required to
compensate them at a competitive level in order to assure their continued
association with us. We anticipate, although we are not certain, that the
necessary compensation arrangements would include an hourly fee that would be
passed on to the consumer, in combination with incentive compensation of some
type. We expect to benefit from the anticipated retention of experts as
consultants who would work from their own homes or businesses and not be
employed as employees requiring office space, salary, insurance and other
benefits. While we plan, in the future, to retain a number of high profile
consultants associated with published works who are expected to be critical to
our achievement of long-term success, we will not have the capability to do so
until we obtain significant capital in excess of that anticipated to be realized
from this offering and/or achieve significant profits from operations.
We have allocated $5,000 and $10,000 of the minimum, and the maximum, net
proceeds, respectively, anticipated to be realized form this offering for the
purchase of equipment. In order to provide all of the proposed services in
accordance with our business plan, we require software, including server/client,
front-end web software, web and telephone activity and billing products, data
entry tools, security and firewall tools, page presentation products, mirroring,
back-up and recovery tools, data distribution utilities for graphics, sound and
animated delivery and full relational database (including deep mining
protocols). Hardware that we require includes telephone-bank/web-connect entry
and exit products, a reserve power back-up ("UPS") system, a front-end server
for expert and client interaction and a large central server system with mass
storage for data. Further, we would need redundancy for software and hardware
with 24-hour, seven-day access.
Marketing
While the market for our services is potentially as vast as the combined
number of owners of computers and users of the Internet, our customers are
expected to be, primarily, businesses, governments, educational institutions and
those engaged in cutting-edge product development. It is estimated by Jupiter
Communications that the Internet is growing at a rate of 20% to 30% per month
and that it has over 200 million users worldwide. Of this estimated number of
users, 8.6 million and an additional 8.4 million are "business" and "corporate"
users, respectively, between the ages of 25 and 45. Jupiter Communications
projects that there will be 21.9 million and 16.6 million business and corporate
users by the year 2002. According to International Data corporation, Internet
usage is expected to increase to 320 million users by 2002; which projections
are more conservative than many other estimates.
Internet consumer and business-to-business transactions have also
experienced dynamic growth rates in recent years. International Data Corporation
indicates that e-commerce reached $32 billion in 1998 and is expected to exceed
$426 billion by the year 2002. More specifically, a research study conducted by
Jupiter Communications of 600 business and corporate users of the Internet and
their e-commerce habits concluded that 37% and 66% of business and corporate
15
<PAGE>
users, respectively, have purchased or located services on-line. This
information reinforces our belief that an immediate need exists for on-line
computer and Internet consulting, technical assistance and information services.
We believe that the more accurate measure of our market is Jupiter
Communications' projection of $8.2 billion in e-commerce transactions for the
year 2002, $100 million of which transactions are expected to be attributable to
business and corporate users.
Our operating strategy will be to provide superior, innovative consulting
services, technical assistance and e-commerce solutions to customers on demand,
in real-time and at a reasonable cost. We believe that our business concept has
the advantage of providing for a centralized, international database of
computer, software, Internet and related information and expert consultants
available to interpret and assist customers to utilize the information to solve
or answer their computer network configuration and operation, Internet
connectivity, e-commerce and other computer, software and Internet-related
difficulties and questions. Further, our proposed web site is expected to be
more attractive in comparison to printed materials in that enhancements can be
made to the graphics and sound, animation, demonstrations, video and assembly
graphics tools can be employed in place of the single frame pictures available
in printed form.
The fact that a corporation or other entity is affiliated with us or an
equity interest in the company is owned by one or more of our executive
officers, directors and/or controlling shareholders, will not disqualify such
company from consideration as a potential customer. In order to minimize
conflicts of interest, we have adopted in our minutes a policy that any
contracts or other transactions with entities of which our officers, directors
and/or controlling shareholders are also directors or officers, or in which they
have a financial interest, will be approved by a majority of the disinterested
members of the Board of Directors or will be fair and reasonable, but that no
such transactions by the Company shall be affected or invalidated solely because
of such relationship or interest of directors or officers. Nevertheless, in an
instance where a disinterested majority of the members of the Board of Directors
is unavailable to approve a transaction with an affiliated or related party, the
Company, pursuant to action of the Board of Directors, requires that the
transaction be deemed to be fair and reasonable in order to be a valid,
enforceable obligation. (See "RISK FACTORS," "MANAGEMENT - Conflicts of
Interest," "PRINCIPAL SHAREHOLDERS" and "CERTAIN TRANSACTIONS.")
Competition
Our competition consists of a myriad of companies currently engaged in the
business(es) of providing computer and/or Internet consulting services;
providing Internet-based and/or telephone-in technical assistance and support;
and/or conducting technical training in a classroom setting or otherwise on the
usage of new computer and software products and new versions thereof; and, in
addition, publishers of computer, software and/or Internet-related textbooks,
service manuals, product and user guides, reference works and certification
guides. All of these companies seek to meet the need for information, training
and/or assistance as a result of the burgeoning complexities and difficulties
created by the increasing dependence of corporations, businesses and consumers
on computers and the Internet. Many of the companies and other organizations
with which we will be in competition are established and have far greater
financial resources, substantially greater experience and larger staffs than we
do. Additionally, many of such organizations have proven operating histories,
which we lack. We expect to face strong competition from both such
well-established companies and small independent companies like ourselves. To
the extent that we become dependent on one or a few clients, the termination of
these relationships could adversely affect our ability to continue as a viable
enterprise. In addition, our proposed business may be subject to decline because
of generally increasing costs and expenses of doing business, thus further
increasing anticipated competition. It is anticipated that there may be
significant technological advances in the future and we may not have adequate
16
<PAGE>
creative management and resources to enable us to take advantage of such
advances. The effects of any such technological advances on us, therefore,
cannot be presently determined. We believe, to the extent that we have funds
available, that we will be capable of competing effectively with our
competitors. However, because of our minimal capital, even after the successful
completion of this offering, we expect to be at a competitive disadvantage in
our endeavor to develop a web site sufficiently attractive to potential
customers; amass the quantity of computer, software, Internet and related
information necessary to fulfill customers' informational demands; retain the
number and caliber of consultants required to achieve the rapid problem-solving
capability desired; and provide the in-depth e-commerce solutions demanded by
customers. Further, we cannot assume that we will be successful in achieving
profitable operations through our proposed business of providing computer and
Internet consulting, technical assistance and support and informational services
via the Internet. (See "RISK FACTORS.")
Employees and Consultants
Messrs. Gregory M. Walters and Donald R. Brady and Ms. Dana E. Walters, our
executive officers and directors, have served as part-time employees of the
Company since its inception. Except for the sum of $1,500 paid to Ms. Dana E.
Walters, our Secretary/Treasurer and a director of the Company, through the date
hereof for administrative services, no cash compensation has been awarded to,
earned by or paid to any individual for all services rendered in all capacities
to the Company since its organization on September 21, 1999. However, on
September 22, 1999, we issued Mr. Walters, our President and Chairman of the
Board of Directors, 2,800,000 shares of Common Stock in consideration for
services performed by him in connection with the organization of the Company
valued at $2,800 ($.001 per share). No portion of the proceeds of this offering
has been allocated for executive compensation. Except for Ms. Walters, who is
expected to receive an additional $1,000 in cash for administrative services to
be performed on behalf of the Company from the proceeds of loans aggregating
$50,000 that were subsequently converted to Common Stock, none of our executive
officers and directors is expected to receive any cash compensation for the
foreseeable future. We anticipate that, at such time, if ever, as our financial
position permits, assuming that we are successful in raising additional funds
through equity and/or debt financing and/or generating a sufficient level of
revenue from operations, Messrs. Walters and Brady and Ms. Walters and any other
executive officers and/or directors of the Company will receive reasonable
salaries and other appropriate compensation, such as bonuses, coverage under
medical and/or life insurance benefits plans and participation in stock option
and/or other profit sharing or pension plans, for services as our executive
officers and may receive fees for their attendance at meetings of the Board of
Directors. Further, we may pay consulting fees to unaffiliated persons who
perform services for us, although we have no present plans to do so and no such
fees have been paid as of the date hereof. (See "MANAGEMENT - Executive
Compensation" and "CERTAIN TRANSACTIONS.")
Facilities
The Company maintains its offices rent-free at the residence of Mr. Gregory
M. Walters, the President, the Chief Executive Officer and the Chairman of the
Board of Directors of the Company, located at 1706 Winding Ridge Road,
Knoxville, Tennessee 37922. We anticipate the continued utilization of these
offices on a rent-free basis until such time as we are able to locate facilities
adequate to support low-cost access to a T-1 line. This office arrangement,
which is expected to be adequate to meet our needs for the foreseeable future,
has been valued at $200 per month and is included in the accompanying financial
statements as rent expense with a corresponding credit to contributed capital.
The Company's telephone and facsimile number is (865) 694-6468.
17
<PAGE>
Legal Proceedings
We know of no legal proceedings to which the Company is a party or to which
any of the property of the Company is the subject, which are pending, threatened
or contemplated or any unsatisfied judgments against the Company.
PLAN OF OPERATION
Plan of Operation
We propose to operate an interactive web site located on the Internet via
which we propose to offer computer and Internet consulting, technical assistance
and support and informational services. The Company is in the development stage
and, to date, management has devoted substantially all of its time and effort to
organizational and financing matters and the initial design and development of
our proposed web site. Through the date hereof, we have not yet generated
service revenue and we have realized a net loss from operations. For the six
months ended June 30, 2000, and the period from inception (September 21, 1999)
through December 31, 1999, we had no revenue and a net loss of $(3,976) and
$(3,593), respectively, or less than $(.01) per share. Operating expenses for
the six months ended June 30, 2000, included software development costs
($1,500), rent ($1,200), contract labor ($500), depreciation ($84) and other
($475). For the period from inception through December 31, 1999, operating
expenses included stock-based compensation ($2,800), rent ($600) and other
($185).
The success of our proposed web site is dependent upon our ability to amass
a sizable amount of computer, software, Internet and related information and
attract and retain qualified expert consultants to provide accurate, real-time
responses to customers' questions, rapid problem elimination and real-time,
in-depth solutions to problems relating to, among other things, computer
software and hardware malfunction, computer network configuration and operation,
Internet connectivity and e-commerce. There can be no assurance that we will
achieve commercial acceptance for any of our proposed services in the future;
that future service revenue will materialize or be significant; that any sales
will be profitable; or that we will have sufficient funds available for further
research and development of our proposed services. The likelihood of our success
will also depend upon our ability to raise additional capital from equity and/or
debt financing to overcome the problems and risks described herein; to absorb
the expenses and delays frequently encountered in the operation of a new
business; and to succeed in the competitive environment in which we will
operate. Although management intends to explore all available alternatives for
equity and/or debt financing, including, but not limited to, private and public
securities offerings, there can be no assurance that we will be able to generate
additional capital. Our continuation as a going concern is dependent on our
ability to generate sufficient cash flow to meet our obligations on a timely
basis and ultimately to achieve profitability.
Financial Condition, Capital Resources and Liquidity
As of June 30, 2000, and December 31, 1999, we had total assets of $5,856
and $4,915, respectively, which included total current assets (cash) of $2,928
and $4,915, respectively, and equipment (less accumulated depreciation) of
$2,928 and $-0-, respectively.
We had total current liabilities of $16,725 and $5,008 and a working
capital deficit of $(13,797) and $(93) as of June 30, 2000, and December 31,
1999, respectively. The Company has experienced working capital shortages from
time-to-time and management expects such working capital shortages to continue
for the foreseeable future. As of June 30, 2000, and December 31, 1999, the
Company's total shareholders' deficit was $(10,869), and $(93), respectively,
including deficits accumulated during the development stage of $(7,569) and
18
<PAGE>
$(3,593), respectively. While our independent auditors have presented the
Company's financial statements on the basis that it is a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business over a reasonable length of time, they have noted
that the Company has a limited operating history during which it has suffered
operating losses, limited operating capital with which to finance its
development, a deficit in working capital and an unproven business concept that
will require additional resources to perfect. These factors raise substantial
doubt about our ability to continue as a going concern. Our future success will
be dependent upon our ability to provide effective and competitive computer and
Internet consulting, technical assistance and informational services; the
continued acceptance of the Internet for the sale of goods and services and the
Company's ability to develop and provide new services that meet customers'
changing requirements. Should the Company's efforts to raise additional capital
through equity and/or debt financing fail, management and other related parties
are expected to provide the necessary working capital so as to permit the
Company to continue as a going concern.
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors are as follows:
Name Age Title
------------------ ---- -----------------------------------
Gregory M. Walters* 53 President and Chairman of the Board
of Directors
Donald R. Brady* 57 Vice President and Director
Dana E. Walters 40 Secretary, Treasurer and Director
------------------
*The above-named persons may be deemed to be our "parents" and "promoters,"
as those terms are defined in the General Rules and Regulations under the
Securities Act of 1933, as amended.
Our directors are elected to hold office until the next annual meeting of
shareholders and until their respective successors have been elected and
qualified. Our executive officers are elected by the Board of Directors and hold
office until resignation or removal by the Board of Directors. Set forth below
under "Business Experience" is a description of the business experience of our
executive officers and directors. Except as otherwise indicated below, all
organizations with which each executive officer and director is or has been
previously employed, affiliated or otherwise associated, are not affiliated with
us.
Family Relationships
Mr. Gregory M. Walters, our President, Chief Executive Officer and Chairman
of the Board of Directors, is the brother-in-law of Ms. Dana E. Walters, the
Secretary, the Treasurer and a director of the Company.
Business Experience
Gregory M. Walters has served as the President and the Chairman of the
Board of Directors of the Company since its inception on September 21, 1999.
Since March 1986, he has been employed in the middle management position of
19
<PAGE>
program coordinator/department chair by Pellissippi State Technological College,
Knoxville, Tennessee, which is rated in the top one per cent of technical
colleges. Mr. Walters has also been self-employed, since 1980, as a consultant
in new software product development to businesses, industries and educators.
From 1984 through March 1986, he was employed as an editor by South-Western
Publishing Co., a division of Scotts Forseman Co., which publishes
computer-related textbooks, software and similar materials for high school,
college and other educational institutional markets. From October 1976 through
July 1984, Mr. Walters served as a computer science instructor for Romeo
Schools, a microcomputer-based educational center located in Romeo, Michigan,
which serves five school districts. In that position, he taught computer-related
courses in applied programming, systems operations, data processing, vocational
computer science education and data entry. During that period, Mr. Walters also
served on the engineering/computer science staff of Oakland University, Pontiac,
Michigan; taught college level courses at Oakland College; and served as an
industrial programming concepts instructor at Ford Community College, Romeo,
Michigan.
For a period of approximately five years, from August 1979 through August
1984, Mr. Walters was the sole proprietor of MaxSoft, a company engaged in the
development and distribution of software in Ann Arbor, Michigan. For a period of
approximately six years, from July 1978 through January 1984, he was a partner
in Logics One, a partnership engaged in consulting in the computer industry for
educators from four states and Canada. Mr. Walters has lectured to a number of
local, state and national educational workshops on computer and robot usage, the
future of computers and computer and office trends analysis. He is the author of
a number of commercial and data processing programs in national distribution.
Mr. Walters has received national awards for his work, including "Nationally
Recognized Technology Educator" and "Excellence in Teaching" (including "NISOD"
and "N.I.L.L.I.E." awards). He received a Bachelor of Science degree in
industrial electronics from Northern Michigan University, Marquette, Michigan,
in 1975 and a Master of Education degree in computer-based education from Wayne
State University, Detroit, Michigan, in 1981.
Donald R. Brady has served as the Vice President and a director of the
Company since its organization on September 21, 1999. He is a nationally
recognized leader in the conception, design and deployment of intelligent
transportation border crossing systems and innovative trade data and commercial
vehicle information systems. Since July 1995, Mr. Brady has been employed by
Transborder Systems, Inc., a privately-held Harrisburg, Pennsylvania, company
engaged in the design, development and implementation of border crossing
systems. He has served, since October 1998, as a member of the board of
directors of the California Alliance for Advanced Transportation Systems
("CAATS").
Since 1995, Mr. Brady has been employed in various positions by TransCore,
a privately-held SAIC company located in San Diego, California. While employed
by TransCore, he designed and deployed the first automated, dedicated commuter
lane at the United States/Mexico border; conceptualized, designed and deployed
automated international crossings for commercial vehicles and private
automobiles at the Buffalo Peace and Detroit Ambassador Bridges; designed and
directed the development of the United States Treasury International Trade Data
System ("ITDS") and the North American Trade Automation Prototype ("NATAP") to
support inter-agency pre-clearance in North America of truck and rail shipments;
and initiated a program designed to augment security and improve efficiency at
the Port of Los Angeles. During this period, he also managed the Northwest
International Trade Corridor system and the North American Pre-Clearance and
Safety Systems ("NORPASS").
He was employed by Scientific Atlanta Signal Processing Systems
("Scientific Atlanta"), a publicly-held, Atlanta, Georgia, company, as an
engineering and transportation manager from 1992 through 1995. During his tenure
20
<PAGE>
at Scientific Atlanta, Mr. Brady developed the company's Transportation Business
Unit and implemented various programs, including electronic border pre-clearance
for trucks and cargo, advanced traveler information systems, data collection
programs for crash avoidance research and the IBEX program designed for the
transportation of trucks and cargo across the Mexican border at Otay Mesa. He
also conceived and implemented the Cross Border International Transportation
Early Development Study that was incorporated in the I-15 Corridor Strategic
Plan.
Mr. Brady, from 1988 through 1992, was employed as a staff engineer by the
Unisys Corporation, a privately-held company located in Minneapolis, Minnesota;
in which position he was responsible for the development of multi-source data
fusion systems and the design and development of anti-submarine warfare command
and control systems. From 1968 through 1988, he was an intelligence specialist
in the United States Navy. Mr. Brady received a Bachelors of Arts degree in
history from Oregon State University, Corvallis, Oregon, in 1968 and a Masters
degree in management from Salva Regina University, Newport, Rhode Island, in
1989.
Dana E. Walters has served, since the inception of the Company on September
21, 1999, as its Secretary/Treasurer and a director. She has been employed,
since January 1988, as a real estate associate by Douglas, Wilson & Company, San
Diego, California, commercial real estate brokers that have been appointed by a
California bankruptcy court to liquidate a real estate portfolio of 92
properties located in 27 states. Ms. Walters' responsibilities in this position
are primarily administrative, including monitoring all co-listing brokers and
properties. From August 1987 through April 1980, she was employed by Grubb &
Ellis Realty, San Diego, California, as an executive assistant whose
responsibilities included designing brochures, updating the multiple listing
service, conducting comparative market analyses, hosting open houses and
negotiating and consummating residential real estate sales. Ms. Walters was
employed, from 1986 through 1987, as a stock broker/registered representative by
National Securities Network, Inc., a Denver, Colorado-based securities
broker-dealer that ceased operations in 1987. From 1984 to 1986, she was
employed as a coordinator by Eastridge Temporary Service, San Diego, California,
in which position she had responsibility for interviewing and placing over 200
receptionists. Ms. Walters received a Bachelor of Arts degree in business
administration from San Diego State University, San Diego, California, in 1983.
Executive Compensation
Messrs. Gregory M. Walters and Donald R. Brady and Ms. Dana E. Walters, our
executive officers and directors, have served as part-time employees of the
Company since its inception. Except for the sum of $1,500 paid to Ms. Dana E.
Walters, our Secretary/Treasurer and a director of the Company, through the date
hereof, for administrative services, no cash compensation has been awarded to,
earned by or paid to any individual for all services rendered in all capacities
to the Company since its organization on September 21, 1999. However, on
September 22, 1999, we issued Mr. Walters, our President and Chairman of the
Board of Directors, 2,800,000 shares of Common Stock in consideration for
services performed by him in connection with the organization of the Company
valued at $2,800 ($.001 per share). No portion of the proceeds of this offering
has been allocated for executive compensation. Except for Ms. Walters, who is
expect to receive an additional $1,000 in cash for administrative services to be
performed on behalf of the Company from the proceeds of loans aggregating
$50,000 that were subsequently converted to Common Stock, none of our executive
officers and directors is expected to receive any cash compensation for the
foreseeable future. However, we anticipate that, at such time, if ever, as our
financial position permits, assuming that we are successful in raising
additional funds through equity and/or debt financing and/or generating a
sufficient level of revenue from operations, Messrs. Walters and Brady and Ms.
Walters and any other executive officers and/or directors of the Company will
receive reasonable salaries and other appropriate compensation, such as bonuses,
21
<PAGE>
coverage under medical and/or life insurance benefits plans and participation in
stock option and/or other profit sharing or pension plans, for services as
executive officers of the Company and may receive fees for their attendance at
meetings of the Board of Directors. Further, we may pay consulting fees to
unaffiliated persons who perform services for us, although we have no present
plans to do so and no such fees have been paid as of the date hereof. (See
"CERTAIN TRANSACTIONS.")
None of our executive officers or directors holds any option to purchase
any securities of the Company. In the future, we may offer stock options to
employees, if any, non-employee members of the Board of Directors and
consultants; however, we have not proposed or adopted any stock option plan; and
no such options have been granted as of the date hereof. We have no retirement,
pension, profit sharing, insurance, medical reimbursement or any other executive
incentive or other programs or benefits covering our executive officers and/or
directors, and we do not contemplate implementing any such plans at this time.
Further, we do not presently remunerate our directors for their attendance at
meetings of the Board of Directors.
Under California law and pursuant to our Articles of Incorporation, we may
indemnify our officers and directors for various expenses and damages resulting
from their acting in such capacity. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "1933 Act"), may be
permitted to officers or directors of the Company pursuant to those provisions,
we have been informed by our counsel that, in the opinion of the U.S. Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act, and is therefore unenforceable.
Compensation of Directors
Our directors receive no compensation pursuant to any standard arrangement
for their services as directors.
Employment Agreements
We have no employment agreements with Mr. Gregory M. Walters, Mr. Donald R.
Brady or Ms. Dana E. Walters, our officers and directors. We may enter into
employment agreements with the foregoing and/or future executive officers of the
Company after the completion of this offering.
Indemnification
Our Articles of Incorporation incorporate the provisions of the California
Corporations Code providing for the indemnification of officers and directors
and other persons against expenses, judgments, fines and amounts paid in
settlement in connection with threatened, pending or completed suits or
proceedings against such persons by reason of serving or having served as
officers, directors or in other capacities, except in relation to matters with
respect to which such persons shall be determined not to have acted in good
faith and in the best interests of the Company. With respect to matters as to
which our officers and directors and others are determined to be liable for
misconduct or negligence, including gross negligence, in the performance of
their duties to us, California law provides for indemnification only to the
extent that the court in which the action or suit is brought determines that
such person is fairly and reasonably entitled to indemnification for such
expenses that the court deems proper.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to officers, directors or persons controlling the Company pursuant
to the foregoing, we have been informed that, in the opinion of the United
States Securities and Exchange Commission, such indemnification is against
public policy as expressed in the 1933 Act, and is therefore unenforceable.
22
<PAGE>
Conflicts of Interest
Our executive officers and directors are presently employed by or otherwise
associated with other companies involved in a range of business activities.
Because of these and potential future associations, and because of the limited
amount of time that all of our executive officers and directors are expected to
devote to the Company, there are existing and potential continuing conflicts of
interest in their acting as our executive officers and directors. Because
management will devote only a limited amount of time and effort to the business
and affairs of the Company, conflicts of interest are likely to arise because of
the simultaneous involvement of those persons in other business ventures. In
addition, all of our executive officers and directors are or may become, in
their individual capacities, officers, directors, controlling shareholders
and/or partners of other entities engaged in a variety of businesses that may in
the future engage in various transactions with the Company. Conflicts of
interest and transactions that are not at arm's-length may arise in the future
because our executive officers and directors are involved in the management of
any company that transacts business with us. Potential conflicts of interest,
including time, effort and corporate opportunity, are involved in the
participation by our executive officers and directors in other business entities
and in transactions with the Company.
In minutes, we have adopted a policy that any contracts or other
transactions with directors, officers and entities of which they are also
directors or officers, or in which they have a financial interest, will be
approved by a majority of the disinterested members of the Board of Directors or
will be fair and reasonable to us, but that no such transactions by the Company
shall be affected or invalidated solely because of such relationship or interest
of directors or officers. In addition, common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or a committee thereof that approves such a transaction. Our policy
with respect to conflicts of interest involving directors, officers and their
affiliates is consistent with California law regarding the fiduciary duty of
such persons to a corporation and its shareholders when engaged in interested
transactions with the corporation. Generally, subject to the "business judgment
rule," pursuant to which courts hesitate to interfere with the internal
management of a corporation provided a fairly minimal degree of care has been
exercised by the management in carrying out its responsibilities, directors,
officers, controlling shareholders and other affiliates of a corporation owe
duties of care and loyalty to the corporation that override their own
self-interests in dealings with the corporation. Transactions between the
Company and an affiliated party, if approved by a disinterested majority of the
directors or by the shareholders, or if deemed to be fair to us, would be
enforceable, valid obligations of the Company. (See "RISK FACTORS," "PRINCIPAL
SHAREHOLDERS" and "CERTAIN TRANSACTIONS.")
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of our Common Stock as of the date of this Prospectus and as adjusted to reflect
the sale of the shares of Common Stock offered hereby, by each shareholder known
by us to be the beneficial owner of more than 5% of our outstanding shares of
Common Stock, each director and all executive officers and directors as a group.
Mr. Gregory M. Walters, our sole shareholder, has sole voting and investment
power with respect to the shares he beneficially owns.
23
<PAGE>
<TABLE>
<CAPTION>
Percent of Class
--------------------------------
Shares After Opening
Name and Address of Beneficially Before ---------------
Beneficial Owner Owned (1) Offering Minimum Maximum
----------------------------------- ----------- -------- ------- -------
<S> <C> <C> <C> <C>
Gregory M. Walters(2) 2,800,000 73.7% 60.9% 50.9%
1706 Winding Ridge Trail
Knoxville, Tennessee 37922
All Executive Officers and
Directors of the Company 2,800,000 73.7% 60.9% 50.9%
as a Group (One Person)
-------------------
</TABLE>
(1) Based upon 3,800,000 shares of our Common Stock issued and outstanding
as of the date hereof.
(2) Executive officer and member of the Board of Directors of the Company.
CERTAIN TRANSACTIONS
Through the date hereof, we paid Ms. Dana E. Walters, our
Secretary/Treasurer and a director of the Company, an aggregate of $1,500 for
administrative services performed by her on behalf of the Company. On October
20, 1999, Ms. Walters contributed the sum of $100 to the Company for working
capital. (See "PROPOSED BUSINESS - Employees and Consultants.")
On September 22, 1999, we issued and sold an aggregate of 2,800,000 shares
of Common Stock to Mr. Gregory M. Walters, our President and Chairman of the
Board of Directors, in consideration for his performance of services in
connection with the organization of the Company valued at $2,800. (See
"PRINCIPAL SHAREHOLDERS.")
Mr. Walters provides office space, located at 1706 Winding Ridge Trail,
Knoxville, Tennessee 37922, to the Company rent-free. The $200 per month value
of the office space is included in the Company's Financial Statements that
commence on page F-1 hereof as rent expense with a corresponding credit to
contributed capital. (See "PROPOSED BUSINESS - Facilities.")
Because of their present management positions with, organizational efforts
on behalf of and percentage share ownership in, the Company, Mr. and Ms. Walters
and Mr. Donald R. Brady, the Vice President and a director of the Company, may
be deemed to be "parents" and "promoters" of the Company, as those terms are
defined in the Securities Act of 1933, as amended, and the applicable Rules and
Regulations thereunder. Because of the above-described relationships,
transactions between and among the Company and its executive officers, directors
and principal shareholder, such as the sale of the Company's Common Stock to Mr.
Walters as described above, should not be considered the result of arm's-length
negotiations. (See "PRINCIPAL SHAREHOLDERS.")
24
<PAGE>
PLAN OF OFFERING
We are offering to the public, through our executive officers and
directors, 1,700,000 shares of Common Stock, $.001 par value, on a "$40,000
minimum - $85,000 maximum" basis at a purchase price of $.05 per share. We will
use our best efforts to find purchasers for the shares offered hereby within a
period of 90 days from the date of the Prospectus, subject to an extension for
an additional period not to exceed 90 days (the "Offering Period"). If we are
unable to sell at least 800,000 shares of Common Stock within the Offering
Period, then the offering will terminate and we will promptly refund all funds
to the subscribers in full, without interest or deduction for expenses relating
to the offering.
We will promptly transmit all funds received during the Offering Period,
pursuant to the terms of the fund Escrow Agreement dated August 1, 2000, to
FirstBank of Littleton, N.A., Littleton, Colorado. The funds maintained in
escrow will not be subject to our creditors or expended for the expenses of this
offering. Until such time as the funds have been released from escrow and the
shares of Common Stock delivered to the purchasers thereof, such purchasers, if
any, will be deemed subscribers for the shares of Common Stock, and not our
shareholders. The funds in escrow will be held for the benefit of those
subscribers until released to the purchasers of shares of Common Stock; who will
not receive stock certificates unless and until the funds are released from
escrow. During the escrow period, subscribers will have no right to demand the
return of their subscriptions.
After 800,000 shares of Common Stock have been sold, the offering will
continue, but without any refund or escrow provisions, until all 1,700,000
shares of Common Stock offered are sold, until ninety days (or 180 days if the
Offering Period is extended) from the date of this Prospectus or until we
terminate the offering, whichever event shall occur first. There are no
arrangements for the refund of the proceeds that may be received from the sale
of any shares of Common Stock in addition to the first 800,000 shares sold. We
may terminate the offering at any time prior to the Closing if the sale, payment
for or delivery of the Common Stock is rendered impractical or inadvisable for
any reason.
DESCRIPTION OF SECURITIES
Description of Capital Stock
Our authorized capital stock consists of 50,000,000 shares of Common Stock,
$.001 par value per share, and 10,000,000 shares of preferred stock, $.001 par
value per share (the "Preferred Stock").
Description of Common Stock
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully-paid and nonassessable shares. Cumulative voting in the election of
directors is not permitted; which means that the holders of a majority of the
issued and outstanding shares of Common Stock represented at any meeting at
which a quorum is present will be able to elect the entire Board of Directors if
they so choose and, in such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors. In the event of liquidation of
the Company, each shareholder is entitled to receive a proportionate share of
the Company's assets available for distribution to shareholders after the
payment of liabilities and after distribution in full of preferential amounts,
if any, to be distributed to holders of the Preferred Stock. All shares of our
25
<PAGE>
Common Stock issued and outstanding are fully-paid and nonassessable and the
shares offered hereby, when issued, will be fully-paid and nonassessable.
Dividend Policy. Holders of shares of Common Stock are entitled to share
pro rata in dividends and distributions with respect to the Common Stock when,
as and if declared by the Board of Directors out of funds legally available
therefor, after requirements with respect to preferential dividends on, and
other matters relating to, the Preferred Stock, if any, have been met. We have
not paid any dividends on our Common Stock and intend to retain earnings, if
any, to finance the development and expansion of our business. Future dividend
policy is subject to the discretion of the Board of Directors and will depend
upon a number of factors, including future earnings, capital requirements and
the financial condition of the Company.
Description of Preferred Stock
The Board of Directors may issue shares of Preferred Stock from time to
time in one or more series as it may determine. The Board of Directors shall
establish the voting powers and preferences, the relative rights of each such
series and the qualifications, limitations and restrictions thereof, except that
no holder of Preferred Stock shall have preemptive rights. We have no shares of
Preferred Stock outstanding, and the Board of Directors has no plan to issue any
shares of Preferred Stock for the foreseeable future unless the issuance thereof
shall be in the best interests of the Company. (See "RISK FACTORS," 20.
"Potential Anti-Takeover and Other Effects of Issuance of Preferred Stock May Be
Detrimental to Common Shareholders.")
Transfer Agent
Silverado Stock Transfer, Inc., 8170 Southeast Avenue, Suite #4-602, Las
Vegas, Nevada 89123, is the transfer agent and registrar for the Company's
Common Stock.
LEGAL MATTERS
Cudd & Associates, 1120 Lincoln Street, Suite #1507, Denver, Colorado
80203, will pass upon certain legal matters in connection with the validity of
the issuance of the shares of Common Stock.
EXPERTS
Cordovano and Harvey, P.C., independent certified public accountants, has
audited the Financial Statements of the Company, for the periods and to the
extent set forth in its report, which are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a Registration Statement on Form SB-2 under the Securities
Act of 1933, as amended, with respect to the shares of Common Stock offered
hereby with the U.S. Securities and Exchange Commission (the "Commission") in
Washington, D.C. This Prospectus does not contain all of the information
included in the Registration Statement. For further information regarding both
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement, including all exhibits thereto, which may be
inspected at the Commission's Washington, D.C., office, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies may be obtained from the Public Reference Section
of the Commission upon request and payment of the prescribed fee.
26
<PAGE>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
Index to Financial Statements
Page
------
Independent auditors' report............................................ F-2
Balance sheets, June 30, 2000 and December 31, 1999..................... F-3
Statements of operations, six months ended June 30, 2000,
September 21, 1999 (inception) through December 31, 1999 and
September 21, 1999 (inception) through June 30, 2000............... F-4
Statement of shareholder's deficit, September 21, 1999 (inception)
through June 30, 2000.............................................. F-5
Statements of cash flows, six months ended June 30, 2000,
September 21, 1999 (inception) through December 31, 1999 and
September 21, 1999 (inception) through June 30, 2000............... F-6
Summary of significant accounting policies.............................. F-7
Notes to financial statements........................................... F-10
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
Wedge Net Experts, Inc.
We have audited the balance sheets of Wedge Net Experts, Inc. (a development
stage company) as of June 30, 2000 and December 31, 1999, and the related
statements of operations, shareholders' deficit, and cash flows for the six
months ended June 30, 2000, from September 21, 1999 (inception) through December
31, 1999 and from September 21, 1999 (inception) through June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wedge Net Experts, Inc. as of
June 30, 2000 and December 31, 1999, and the results of its operations and its
cash flows for the six months ended June 30, 2000, from September 21, 1999
(inception) through December 31, 1999 and from September 21, 1999 (inception)
through June 30, 2000, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the Summary of Significant
Accounting Policies, the Company has suffered significant operating losses from
September 21, 1999 (inception) through June 30, 2000 and has a net capital
deficiency at June 30, 2000, which raises a substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in the Summary of Significant Accounting Policies. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
July 7, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
Balance Sheets
June 30, December 31,
2000 1999
-------- --------
ASSETS
<S> <C> <C>
CASH.............................................................................................. $ 2,928 $ 4,915
EQUIPMENT, less accumulated depreciation of $84................................................... 2,928 --
-------- --------
$ 5,856 $ 4,915
======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
LIABILITIES
Accrued liabilities........................................................................... $ 1,500 $ --
Notes payable (Note C)........................................................................ 15,000 5,000
Accrued interest on notes payable (Note C) ................................................... 225 8
-------- --------
TOTAL LIABILITIES .............. 16,725 5,008
-------- --------
SHAREHOLDER'S DEFICIT
Preferred stock, $.001 par value, 10,000,000 shares authorized;
-0- shares issued and outstanding ......................................................... -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
2,800,000 shares issued and outstanding ................................................... 2,800 2,800
Additional paid-in capital (Note B) .......................................................... 1,900 700
Deferred offering costs ...................................................................... (8,000) --
Deficit accumulated during development stage.................................................. (7,569) (3,593)
-------- --------
TOTAL SHAREHOLDER'S DEFICIT .............. (10,869) (93)
-------- --------
$ 5,856 $ 4,915
======== ========
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
Statement of Operations
September 21, September 21,
1999 1999
Six Months (Inception) (Inception)
Ended through through
June 30, December 31, June 30,
2000 1999 2000
------------ ----------- -----------
OPERATING EXPENSES
<S> <C> <C> <C>
Software development costs................................................. $ 1,500 $ -- $ 1,500
Stock-based compensation (Note B):
Organization services ................................................. -- 2,800 2,800
Rent (Note B) ............................................................. 1,200 600 1,800
Contract labor (Note B) ................................................... 500 -- 500
Depreciation .............................................................. 84 -- 84
Other ..................................................................... 475 185 660
----------- ----------- -----------
TOTAL OPERATING EXPENSES 3,759 3,585 7,344
----------- ----------- -----------
LOSS FROM OPERATIONS (3,759) (3,585) (7,344)
INTEREST EXPENSE (Note C) ...................................................... (217) (8) (225)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (3,976) (3,593) (7,569)
INCOME TAX EXPENSE (Note D) .................................................... -- -- --
----------- ----------- -----------
NET LOSS $ (3,976) $ (3,593) $ (7,569)
=========== =========== ===========
Basic loss per common share..................................................... $ * $ *
=========== ===========
Basic weighted average common shares outstanding................................ 2,800,000 2,800,000
=========== ===========
* Less than $.01 per share
See accompanying summary of significant accounting policies and
notes to the financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
Statement of Shareholder's Deficit
September 21, 1999 (Inception) through June 30, 2000
Preferred Stock Common Stock
Shares Par Value Shares Par Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, September 21, 1999 (inception) ........ -- $ -- -- $ --
September 22, 1999, shares issued to President
in exchange for services related to the
organization of the Company
($.001/share) (Note B) ...................... -- $ -- 2,800,000 2,800
October 20, 1999, capital contribution
by the President (Note B) ................... -- -- -- --
Office space contributed by Company's
president (Note B) .......................... -- -- -- --
Net loss for the period from September 21,
1999 (inception) through December 31,
1999 ........................................ -- -- -- --
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 . -- -- 2,800,000 2,800
June 20, 2000, offering costs incurred ......... -- -- -- --
Office space contributed by Company's
president (Note B) .......................... -- -- -- --
Net loss for the six months ended
June 30, 2000 ............................... -- -- -- --
--------- -------- --------- ---------
BALANCE, JUNE 30, 2000 . -- $ -- 2,800,000 $ 2,800
========= ======== ========= =========
See accompanying summary of significant accounting policies and notes to the financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
Statement of Shareholder's Deficit
September 21, 1999 (Inception) through June 30, 2000
Deficit
Accumulated
Additional Defferred During
Paid-in Offering Development
Capital Costs Stage Total
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, September 21, 1999 (inception) ........ $ -- $ -- $ -- $ --
September 22, 1999, shares issued to President
in exchange for services related to the
organization of the Company
($.001/share) (Note B) ...................... -- -- -- 2,800
October 20, 1999, capital contribution
by the President (Note B) ................... 100 -- -- 100
Office space contributed by Company's
president (Note B) .......................... 600 -- -- 600
Net loss for the period from September 21,
1999 (inception) through December 31,
1999 ........................................ -- -- (3,593) (3,593)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 . 700 -- (3,593) (93)
June 20, 2000, offering costs incurred ......... -- (8,000) -- (8,000)
Office space contributed by Company's
president (Note B) .......................... 1,200 -- -- 1,200
Net loss for the six months ended
June 30, 2000 ............................... -- -- (3,976) (3,976)
--------- --------- --------- ---------
BALANCE, JUNE 30, 2000 . $ 1,900 $ (8,000) $ (7,569) $ (10,869)
========= ========= ========= =========
See accompanying summary of significant accounting policies and notes to the financial statements.
F-5 (Con't)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
Statement of Cash Flows
September 21, September 21,
1999 1999
Six Months (Inception) (Inception)
Ended Through Through
June 30, December 31, June 30,
2000 1999 2000
-------- -------- --------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss................................................... $ (3,976) $ (3,593) $ (7,569)
Transactions not requiring cash:
Depreciation............................................ 84 -- 84
Common stock issued to President in exchange
for services (Note B)................................ -- 2,800 2,800
Office space contributed by the President (Note B)...... 1,200 600 1,800
Changes in operating liabilities:
Increase in accrued liabilities......................... 1,717 8 1,725
-------- -------- --------
NET CASH (USED IN)
OPERATING ACTIVITIES (975) (185) (1,160)
-------- -------- --------
INVESTING ACTIVITIES
Equipment purchases........................................ (3,012) -- (3,012)
-------- -------- --------
NET CASH (USED IN)
INVESTING ACTIVITIES (3,012) -- (3,012)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from notes payable(NoteC)......................... 10,000 5,000 15,000
Capital contribution by President (NoteB).................. -- 100 100
Payments for offering costs................................ (8,000) -- (8,000)
-------- -------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,000 5,100 7,100
-------- -------- --------
CHANGE IN CASH AND CASH EQUIVALENTS (1,987) 4,915 2,928
Cash and cash equivalents, beginning of period.................. 4,915 -- --
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,928 $ 4,915 $ 2,928
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................... $ -- $ -- $ --
======== ======== ========
Income taxes............................................... $ -- $ -- $ --
======== ======== ========
See accompanying summary of significant accounting policies
and notes to the financial statements.
F-6
</TABLE>
<PAGE>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development stage company
Wedge Net Experts, Inc. (the "Company") is in the development stage in
accordance with Financial Accounting Standards Board Statements of Financial
Accounting Standards (SFAS) No. 7 "Accounting and Reporting by Development Stage
Enterprises".
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Equipment and depreciation
Equipment is recorded at cost. When capital assets are retired or otherwise
disposed of, the related cost and accumulated depreciation are removed from the
respective accounts and the net difference, less any amount realized, is
reflected in the statement of operations.
Depreciation is calculated on the straight-line method over the estimated useful
lives of the assets.
Deferred offering costs
The Company incurred legal and accounting fees related to the preparation of an
offering memorandum during the periods presented (see Note E for details of the
offering). Costs associated with the offering will be deducted from the gross
proceeds at its conclusion. Should the offering not be successful, deferred
costs associated with the offering will be charged to operations at that time.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and the tax
basis of assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
F-7
<PAGE>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings (loss) per share
The Company reports earnings (loss) per share using a dual presentation of basic
and diluted earnings per share. Basic earnings per share has been computed on
the weighted average of common shares outstanding. Diluted earnings per share
reflects the increase in weighted average common shares outstanding that would
result from the assumed conversion of notes payable that are convertible to
restricted common stock. For the six months ended June 30, 2000 and the period
ended December 31, 1999, 135,165 and 9,901 shares, respectively, were excluded
from the diluted earnings per share calculation, as these shares were
anti-dilutive. Had these shares been included in the calculation, diluted
weighted average shares outstanding would have increased to 2,935,165 and
2,809,901 for the six months ended June 30, 2000 and the period ended December
31, 1999, respectively.
Software development costs
The Company expenses all internal and external costs incurred to develop
internal-use computer software. As a development stage company, management has
determined there is no assurance that the web site will provide substantive
service potential to the Company.
Year-end
The Company has adopted a fiscal year-end of December 31.
Fair value of financial instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has determined, based on available market information and appropriate
valuation methodologies, the fair value of its financial instruments approximate
carrying value. The carrying amounts of cash, accounts payable, and other
current liabilities approximate fair value due to the short-term maturity of the
instruments.
Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995. This accounting standard permits the use of either a "fair value based
method" or the "intrinsic value method" defined in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) to account for
stock-based compensation arrangements.
Companies that elect to use the method provided in APB 25 are required to
disclose pro forma net income and pro forma earnings per share information that
would have resulted from the use of the fair value based method. The Company
adopted SFAS No. 123 during the period ended September 30, 1999; however, the
Company has elected to continue to determine the value of stock-based
compensation arrangements with employees under the provisions of APB 25. No pro
forma disclosures have been included with the accompanying financial statements
as there was no pro forma effect to the Company's net loss or loss per share.
F-8
<PAGE>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company is a development stage company with net losses
of $7,569 from September 21, 1999 (inception) through June 30, 2000 and a net
capital deficiency as of June 30, 2000. These factors among others may indicate
that the Company will be unable to continue as a going concern for a reasonable
time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company's management intends to seek additional funding
through an equity offering during 2000 to help fund the Company's operation as
it expands. Please refer to Note E - subsequent events, for details.
F-9
<PAGE>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE A: BACKGROUND
The Company was incorporated under the laws of California on September 21, 1999.
The principal activities since inception have been organizational matters, the
issuance of shares of its $.0001 par value common stock, and the development of
internal-use software. The Company intends to provide expert-consulting services
resolved to find solutions for tomorrow's Internet infrastructure problems and
solutions for government, industry, education and leading edge product
development.
NOTE B: RELATED PARTY TRANSACTIONS
An officer provided office space to the Company at no charge for all periods
presented. The office space was valued at $200 per month based on the market
rate in the local area and is included in the accompanying financial statements
as rent expense with a corresponding credit to contributed capital.
On September 22, 1999, the Board of Directors approved the issuance of 2,800,000
shares of the Company's $.001 par value restricted common stock to an officer of
the Company in exchange for services related to the organization of the Company.
The services were rendered by a related party and could not be objectively
measured. The transaction was recorded at a nominal value of $2,800 as there was
no market price for the Company's common stock at the date of issuance. The
Company recognized $2,800 of stock-based compensation expense in the
accompanying financial statements for the period ended December 31, 1999. These
shares are "restricted securities" and may be sold only in compliance with Rule
144 of the Securities Act of 1933, as amended.
On October 20, 1999, an officer contributed $100 to the Company for working
capital.
The Company paid a related party $500 for administrative services rendered
during the six months ended June 30, 2000.
NOTE C: NOTES PAYABLE
Notes payable consisted of the following promissory notes at June 30, 2000 and
December 31, 1999:
June 30, December 31,
2000 1999
--------- ---------
Note payable to individual, interest rate
at 6.00 percent, matures on June 21, 2001,
convertuble to restricted common stock at
$.05 per share, unsecured.......................... $ 5,000 $ 5,000
Note payable to corporation, interest rate
at 8.00 percent matures on November 30,2000,
convertible to restricted common stock at
$.05 per share, unsecured.......................... 10,000 --
--------- ---------
$ 15,000 $ 5,000
========= =========
F-10
<PAGE>
WEDGE NET EXPERTS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE C: NOTES PAYABLE, CONTINUED
Interest expense totaled $217, $8 and $225 for the six months ended June 30,
2000, for the period ended December 31, 1999 and from September 21, 1999
(inception) through June 30, 2000, respectively. Accrued interest payable on the
notes totaled $225 and $8 as of June 30, 2000 and December 31, 1999,
respectively. No principal or interest payments are due until the maturity date.
NOTE D: INCOME TAXES
A reconciliation of the U.S. statutory federal income tax rate to the effective
rate is as follows:
June 30, December 31,
2000 1999
--------- ---------
U.S. fedreal statutory graduated rate.......... 15.00% 15.00%
State income tax rate,
net of fedreal benefit....................... 7.51% 7.51%
Offering costs................................. 36.81% 0.00%
Net operating loss for which no tax
benefit is currently available............... -59.32% -22.51%
--------- ---------
0.00% 0.00%
========= =========
At June 30, 2000, deferred taxes consisted of a net tax asset of $3,168, due to
operating loss carryforwards of $7,569, which was fully allowed for, in the
valuation allowance of $3,168. The valuation allowance offsets the net deferred
tax asset for which there is no assurance of recovery. The changes in the
valuation allowance from December 31, 1999 through June 30, 2000 and from
September 21, 1999 (inception) through December 31, 1999 were $2,359 and $809,
respectively. Net operating loss carryforwards will expire through 2020.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
NOTE E: SUBSEQUENT EVENT
During 2000, the Company anticipates conducting a private placement offering for
a minimum of 1,000,000 and a maximum of 1,700,000 shares of its $.001 par value
common stock. The Company plans to raise $50,000 minimum and $85,000 maximum, on
a "best efforts" basis. Management plans to conduct the offering through its
executive officers and directors.
F-11
<PAGE>
<TABLE>
<CAPTION>
(OUTSIDE BACK COVER PAGE OF PROSPECTUS)
<S> <C> <C>
TABLE OF CONTENTS WEDGE NET EXPERTS, INC.
Item Page
PROSPECTUS SUMMARY................................... 3
The Company........................................ 3
The Offering....................................... 3 1,700,000 Shares of Common Stock
Use of Proceeds.................................... 3
Risk Factors....................................... 4
Selected Financial Information 4 __________________
RISK FACTORS......................................... 4
DILUTION............................................. 11
USE OF PROCEEDS...................................... 12
PROPOSED BUSINESS.................................... 13
The Company........................................ 13
Proposed Services.................................. 14
Marketing.......................................... 15
Competition........................................ 16
Employees and Consultants.......................... 17
Facilities......................................... 17
Legal Proceedings.................................. 18
PLAN OF OPERATION.................................... 18
MANAGEMENT........................................... 19
Executive Officers and Directors................... 19
Family Relationships............................... 19
Business Experience................................ 20
Executive Compensation............................. 21
Compensation of Directors.......................... 22
Employment Agreements.............................. 22
Indemnification.................................... 22
Conflicts of Interest.............................. 23
PRINCIPAL SHAREHOLDERS............................... 23
CERTAIN TRANSACTIONS................................. 24
PLAN OF OFFERING..................................... 25
DESCRIPTION OF SECURITIES............................ 25
Description of Capital Stock......................... 25 __________________
Description of Common Stock.......................... 25
Description of Preferred Stock....................... 26 PROSPECTUS
Transfer Agent....................................... 26 __________________
LEGAL MATTERS........................................ 26
EXPERTS.............................................. 26
ADDITIONAL INFORMATION............................... 26
FINANCIAL STATEMENTS................................. F-1
27
</TABLE>
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Paragraph fifth of the Company's Articles of Incorporation includes
provisions to indemnify its officers and directors and other persons against
expenses, judgments, fines and amounts paid in settlement in connection with
threatened, pending or completed suits or proceedings against such persons by
reason of serving or having served as officers, director or in other capacities,
except in relation to matters with respect to which such persons shall be
determined to not have acted in good faith and in the best interests of the
Company. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers, directors or persons
controlling WNE pursuant to the foregoing, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
The Company's Articles of Incorporation provide for (i) the elimination of
directors' liability for monetary damages for certain breaches of their
fiduciary duties to the Company and its shareholders as permitted by California
law; and (ii) permit the indemnification by the Company to the fullest extent
under California law. At present, there is no pending litigation or proceeding
involving a director or officer of the Company as to which indemnification is
being sought.
Section 317 of the California Corporations Code, as amended, provides for
the indemnification of the officers, directors and controlling persons of a
corporation as follows:
"(a) For the purposes of this section, "agent" means any person who is or
was a director, officer, employee or other agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of the predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expenses" includes without limitation attorneys' fees and any expenses of
establishing a right to indemnification under subdivision (d) or paragraph (4)
of subdivision (e).
(b) A corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the corporation to procure a judgment in its favor)
by reason of the fact that the person is or was an agent of the corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of the corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
(c) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was an agent of the
corporation, against expenses actually and reasonably incurred by that person in
II-1
<PAGE>
connection with the defense or settlement of the action if the person acted in
good faith, in a manner the person believed to be in the best interests of the
corporation and its shareholders.
No indemnification shall be made under this subdivision for any of the
following:
(1) In respect of any claim, issue or matter as to which the person
shall have been adjudged to be liable to the corporation in the performance
of the person's duty to the corporation and its shareholders, unless and
only to the extent that the court in which the proceeding is or was
pending shall determine upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for the expenses and then only to the extent that the court shall
determine.
(2) Of amounts paid in settling or otherwise disposing of a pending
action without court approval.
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of a corporation has been successful
on the merits in defense of any proceeding referred to in subdivision (b)
or (c) or in defense of any claim, issue, or matter therein, the agent
shall be indemnified against expenses actually and reasonably incurred by
the agent in connection therewith.
(e) Except as provided in subdivision (d), any indemnification under
this section shall be made by the corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable
standard of conduct set forth in subdivision (b) or (c), by any of the
following:
(l) A majority vote of a quorum consisting of directors who are not
parties to such proceeding.
(2) If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion.
(3) Approval of the shareholders (Section 153) with the shares owned
by the person to be indemnified not being entitled to vote thereon.
(4) The court in which the proceeding is or was pending upon
application made by the corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not
the application by the agent, attorney or other person is opposed by the
corporation.
(f) Expenses incurred in defending any proceeding may be advanced by the
corporation prior to the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of the agent to repay that amount if it shall be
determined ultimately that the agent is not entitled to be indemnified as
authorized in this section. The provisions of subdivision (a) of Section 315 do
not apply to advances made pursuant to this subdivision.
(g) The indemnification authorized by this section shall not be deemed
exclusive of any additional rights to indemnification for breach of duty to the
corporation and its shareholders while acting in the capacity of a director or
officer of the corporation to the extent the additional rights to
indemnification are authorized in an article provision adopted pursuant to
II-2
<PAGE>
paragraph (11) of subdivision (a) of Section 204. The indemnification provided
by this section for acts, omissions, or transactions while acting in the
capacity of, or while serving as, a director or officer of the corporation but
not involving breach of duty to the corporation and its shareholders shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, to the extent the additional rights to
indemnification are authorized in the articles of the corporation. An article
provision authorizing indemnification "in excess of that otherwise permitted by
Section 317" or "to the fullest extent permissible under California Law" or the
substantial equivalent thereof shall be construed to be both a provision for
additional indemnification for breach of duty to the corporation and its
shareholders as referred to in, and with the limitations required by, paragraph
(11) of subdivision (a) of Section 204 and a provision for additional
indemnification as referred to in the second sentence of this subdivision. The
rights to indemnity hereunder shall continue as to a person who has ceased to be
a director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of the person. Nothing contained in this
section shall affect any right to indemnification to which persons other than
the directors and officers may be entitled by contract or otherwise.
(h) No indemnification or advance shall be made under this section, except
as provided in subdivision (d) or paragraph (4) of subdivision (e), in any
circumstances where it appears:
(1) That it would be inconsistent with a provision of the articles,
bylaws, a resolution of the shareholders or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification.
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
(i) A corporation shall have power to purchase and maintain insurance on
behalf of any agent of the corporation against any liability asserted against or
incurred by the agent in that capacity or arising out of the agent's status as
such whether or not the corporation would have the power to indemnify the agent
against that liability under this section. The fact that a corporation owns all
or a portion of the shares of the company issuing a policy of insurance shall
not render this subdivision inapplicable if either of the following conditions
are satisfied: (1) if the articles authorize indemnification in excess of that
authorized in this section and the insurance provided by this subdivision is
limited as indemnification is required to be limited by paragraph (11) of
subdivision (a) of Section 204; or (2) (A) the Company issuing the insurance
policy is organized, licensed, and operated in a manner that complies with the
insurance laws and regulations applicable to its jurisdiction of organization,
(B) the Company issuing the policy provides procedures for processing claims
that do not permit that company to be subject to the direct control of the
corporation that purchased that policy, and (C) the policy issued provides for
some manner of risk sharing between the issuer and the purchaser of the policy
on one hand, and some unaffiliated person or persons, on the other, such as by
providing for more than one unaffiliated owner of the company issuing the policy
or by providing that a portion of the coverage furnished will be obtained from
some unaffiliated insurer or reinsurer.
(j) This section does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though the person may also be an agent as
defined in subdivision (a) of the employer corporation. A corporation shall have
power to indemnify such a trustee, investment manager, or other fiduciary to the
extent permitted by subdivision (f) or Section 207.")
II-3
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
The following is an itemized statement of the expenses incurred in
connection with this Registration Statement and the issuance and distribution of
the shares of Common Stock being registered hereby. All such expenses will be
paid by the Company.
Securities and Exchange Commission registration fee.................. $ 100
NASD fee............................................................. 509
Legal fees and expenses.............................................. 15,500
Accounting fees and expenses......................................... 2,250
Blue sky fees and expenses........................................... 500
Transfer agent fees and expenses..................................... 500
Printing, electronic filing and engraving expenses................... 500
Miscellaneous expenses............................................... 191
-------
TOTAL .................................................. $20,050
All of the above items except the Securities and Exchange Commission
registration and NASD fees are estimates.
Item 26. Recent Sales of Unregistered Securities.
Since September 19, 1999, the date of the Company's inception, it has sold
securities in transactions summarized in the following subsections (a) and (b).
The transactions described in subsection (b) represent shares of Common Stock
issued upon the conversion on August 2, 2000, at a price of $.05 per share, of
four convertible Promissory Notes aggregating $50,000 in principal amount issued
and sold in a private offering.
<TABLE>
<CAPTION>
(a)
Number of Shares
Purchaser Date of Sale Consideration of Common Stock Sold
------------------- ------------ ------------- --------------------
<S> <C> <C> <C>
Gregory M. Walters 9/19/99 Services valued at $2,800 2,800,000
(b)
Number of Shares
Purchaser Date of Sale Consideration of Common Stock Sold
------------------- ------------ ------------- --------------------
Sean Nevett 7/8/00* $25,000 500,000
Casimer Zaremba 7/25/00* $10,000 200,000
Hurlock, Inc. 5/30/00* $10,000 200,000
Ray W. Grimm, Jr. 12/21/99* $ 5,000 100,000
------------------
</TABLE>
*Date of the promissory note converted on August 2, 2000, into shares of
Common Stock at a price of $.05 per share.
With respect to the sale described in subsection (a), the Company relied
upon Section 4(2) of the Securities Act of 1933, as amended (the "Act"), for
transactions by an issuer not involving any public offering, as an exemption
II-4
<PAGE>
from the registration requirements of Section 5 of the Act. As the President and
Chairman of the Board of Directors of the Registrant, Mr. Walters had access to
information enabling him to evaluate the merits and risks of the transaction on
the date of sale.
With respect to the sales described in subsection (b), the Company relied
upon Section 4(2) of the Act for transactions by an issuer not involving any
public offering, as an exemption from the registration requirements of Section 5
of the Act. All of the purchasers of the securities either had a pre-existing
personal or business relationship with the executive officers, directors or
controlling persons of the Registrant, or by reason of their business or
financial experience or that of their professional advisors were believed to
have the capacity to protect their own interest in connection with the
transaction. Each purchaser represented in writing that he or it acquired the
securities for investment for his or its own account and not with a view to
distribution. Stop transfer instructions have been issued to the Registrant's
transfer agent with respect to the securities, and the transfer agent has been
instructed to issue the certificates representing the securities bearing a
restrictive investment legend. Each purchaser signed a written agreement stating
that the securities will not be sold except by registration under the Act or
pursuant to an exemption therefrom.
Item 27. Exhibits.
The Exhibit Index commences on page 36.
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement;
provided, however, that the undertakings set forth in paragraphs (a)(1)(i)
and (a)(1)(ii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of San
Diego, State of California, on August 29, 2000.
Date: August 29, 2000 WEDGE NET EXPERTS, INC.
(Registrant)
By: /s/ Gregory M. Walters
----------------------------------
Gregory M. Walters, President,
Chief Executive Officer and
Chairman of the Board Directors
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gregory M. Walters and Dana E. Walters, or either
one of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all pre- or
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
either of them, or their or his or her substitutes, may lawfully do or cause to
be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Date: August 29, 2000 By: /s/ Gregory M. Walters
-----------------------------------
Gregory M. Walters, President,
Chief Executive Officer and
Chairman of the Board Directors
(Principal Executive Officer)
Date: August 29, 2000 By: /s/ Donald S. Brady
-----------------------------------
Donald S. Brady, Vice President
and Director
Date: August 29, 2000 By: /s/ Dana E. Walters
-----------------------------------
Dana E. Walters, Secretary/
Treasurer and Director
(Principal Financial and
Accounting Officer)
II-7
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed as part of this Registration Statement on
Form SB-2.
Item
Number Description
(3.1)* Articles of Incorporation of Wedge Net Expert, Inc.,
filed September 21, 1999.
(3.2)* By-Laws of Wedge Net, Inc.
(4)* Form of stock certificate.
(5) Opinion and Consent of Cudd & Associates.
(10)* Fund Escrow Agreement.
(23.1)* Consent of Cordovano & Harvey, P.C., independent auditors.
(23.2) Consent of Cudd & Associates (included in Exhibit (11) hereto).
------------------
*Filed herewith.
36
