U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
NETWORK CAPITAL, INC.
(Name of Small Business Issuer in its charter)
Minnesota 41-0829057
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11900 Wayzata Blvd., Suite 100, Hopkins, MN 55305
(Address of Principal Executive Offices and Zip Code)
Issuer's Telephone Number: (612) 541-1155
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.01
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION Page
Part I
1. Description of Business 3
2. Management's Discussion and Analysis or Plan of Operations 7
3. Description of Properties 8
4. Security Ownership of Certain Beneficial Owners and Management 8
5. Directors, Executive Officers, Promoters and Control Persons 9
6. Executive Compensation 9
7. Certain Relationships and Related Transactions 9
8. Description of Securities 9
Part II
1. Market Price of and Dividends on the Registrant's 10
Common Equity and Related Stockholder Matters
2. Legal Proceedings 10
3. Changes in and Disagreements with Accountants 10
4. Recent Sales of Unregistered Securities 10
5. Indemnification of Directors and Officers 11
Part F/S Financial Statements 14
Part III
1. Index to Exhibits 14
2. Description of Exhibits 14
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ITEM 1. DESCRIPTION OF BUSINESS
History
The Company was formed as a Minnesota corporation in May 1959
initially under the name of Fast Car Wash Co. In September 1968
the Company amended and restated its articles of incorporation.
The Company changed its name to Eagle Industries, Inc., organized
for the purpose of seeking a favorable business opportunity. In
January 1997 the Company changed its name from Eagle Holdings,
Inc. to Network Capital, Inc.
In September 1991 the Company transferred its operations into
Iowa Dirt Farms Ltd. Partnership of Minnesota (Iowa Dirt Farms)
for a 37.5% general partner interest in the partnership. After
that date the Company operated as a holding company. Iowa Dirt
Farms filed a petition for bankruptcy under Chapter 7 in 1993.
In 1995 the Company had 1,687,624 shares of common stock issued
and outstanding. In 1996 the Company issued 31,104 shares of
common stock in settlement of certain liabilities attributed to
the Company during the Iowa Dirt Farms bankruptcy proceedings.
In 1996 the Company issued 12,000 shares of common stock in
exchange for convertible debentures at $1.50 per share.
During 1997 and 1998 the Company issued 2,250,000 shares of
common stock to reimburse its President for monies
advanced, expenses incurred, services rendered and interest
incurred in settling the claims against Iowa Dirt Farms. In
January 1997 the Company issued 50,000 shares of common stock at
$0.10 per share. In March 1997 the Company
issued 800,000 shares of common stock at $0.03 per share. In
April 1998 the Company issued 1,400,000 shares at
$0.03 per share.
General
The Company is now seeking a favorable business opportunity in
which to participate. The Company has not entered into any
agreement, nor does it have any commitment or understanding to
enter into or become engaged in a transaction as of the date of
this filing. The Company will investigate, review, and evaluate
business opportunities as they become available and will seek to
acquire or become engaged in business opportunities at such time
as specific opportunities warrant.
To date, opportunities have been made available to the Company
through its officers and directors and through professional
advisors including securities broker-dealers and through members
of the financial community. It is anticipated that business
opportunities will continue to be available primarily from these
sources.
To a large extent, a decision to participate in a specific
business opportunity may be made upon management's analysis
regarding the quality of the other firm's management and
personnel, the asset base of such firm or enterprise, the
anticipated acceptability of new products or marketing concepts,
the merit of the firms business plan, and numerous other factors
which are difficult, if not impossible, to analyze through the
application of any objective criteria.
The Company currently has no commitment or arrangement to
participate in a business and cannot now predict what type of
business it may enter into or acquire. It is emphasized that the
business objectives discussed herein are extremely general and
are not intended to be restrictive on the discretion of the
Company's management.
There are no plans or arrangements proposed or under
consideration for the issuance or sale of additional securities
by the Company prior to the identification of an acquisition
candidate. Consequently, management anticipates that it may be
able to participate in only one potential business venture, due
primarily to the Company's limited capital. This lack of
diversification should be considered a substantial risk, because
it will not permit the Company to offset potential losses from
one venture against gains from another.
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Selection of a Business
The Company anticipates that businesses for possible acquisition
will be referred by various sources, including its officers and
directors, professional advisors, securities broker-dealers,
venture capitalists, members of the financial community, and
others who may present unsolicited proposals. The Company will
not engage in any general solicitation or advertising for a
business opportunity, and will rely on personal contacts of its
officers and directors and their affiliates, as well as indirect
associations between them and other business and professional
people. By relying on "word of mouth", the Company may be
limited in the number of potential acquisitions it can identify.
While it is not presently anticipated that the Company will
engage unaffiliated professional firms specializing in business
acquisitions or reorganizations, such firms may be retained if
management deems it in the best interest of the Company.
Compensation to a finder or business acquisition firm may take
various forms, including one-time cash payments, payments based
on a percentage of revenues or product sales volume, payments
involving issuance of securities (including those of the
Company), or any combination of these or other compensation
arrangements. Consequently, the Company is currently unable to
predict the cost of utilizing such services.
The Company will not restrict its search to any particular
business, industry, or geographical location, and management
reserves the right to evaluate and enter into any type of
business in any location. The Company may participate in a newly
organized business venture or a more established company entering
a new phase of growth or in need of additional capital to
overcome existing financial problems. Participation in a new
business venture entails greater risks since in many instances
management of such a venture will not have proved its ability,
the eventual market of such venture's product or services will
likely not be established, and the profitability of the venture
will be unproved and cannot be predicted accurately. If the
Company participates in a more established firm with existing
financial problems, it may be subjected to risk because the
financial resources of the Company may not be adequate to
eliminate or reverse the circumstances leading to such financial
problems.
In seeking a business venture, the decision of management will
not be controlled by an attempt to take advantage of any
anticipated or perceived appeal of a specific industry,
management group, product, or industry, but will be based on the
business objective of seeking long-term capital appreciation in
the real value of the Company. The Company will not acquire or
merge with a business or corporation in which the Company's
officers, directors, or promoters, or their affiliates or
associates, have any direct or indirect ownership interest.
The analysis of new businesses will be undertaken by or under the
supervision of the officers and directors. In analyzing
prospective businesses, management will consider, to the extent
applicable, the available technical, financial, and managerial
resources; working capital and other prospects for the future;
the nature of present and expected competition; the quality and
experience of management services which may be available and the
depth of that management; the potential for further research,
development, or exploration; the potential for growth and
expansion; the potential for profit; the perceived public
recognition or acceptance of products, services, or trade or
service marks; name identification; and other relevant factors.
The decision to participate in a specific business may be based
on management's analysis of the quality of the other firm's
management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological
changes, and other factors which are difficult, if not
impossible, to analyze through any objective criteria. It is
anticipated that the results of operations of a specific firm may
not necessarily be indicative of the potential for the future
because of the requirement to substantially shift marketing
approaches, expand significantly, change product emphasis, change
or substantially augment management, and other factors.
The Company will analyze all available factors and make a
determination based on a composite of available facts, without
reliance on any single factor. The period within which the
Company may participate in a business cannot be predicted and
will depend on circumstances beyond the Company's control,
including the availability of businesses, the time required for
the Company to complete its investigation and analysis of
prospective businesses, the time required to prepare appropriate
documents and agreements providing for the Company's
participation, and other circumstances.
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Acquisition of a Business
In implementing a structure for a particular business
acquisition, the Company may become a party to a merger,
consolidation, or other reorganization with another corporation
or entity; joint venture; license; purchase and sale of assets;
or purchase and sale of stock, the exact nature of which cannot
now be predicted. Notwithstanding the above, the Company does
not intend to participate in a business through the purchase of
minority stock positions. On the consummation of a transaction,
it is likely that the present management and shareholders of the
Company will not be in control of the Company. In addition, a
majority or all of the Company's directors may, as part of the
terms of the acquisition transaction, resign and be replaced by
new directors without a vote of the Company's shareholders.
In connection with the Company's acquisition of a business, the
present shareholders of the Company, including officers and
directors, may, as a negotiated element of the acquisition, sell
a portion or all of the Company's Common Stock held by them at a
significant premium over their original investment in the
Company. As a result of such sales, affiliates of the entity
participating in the business reorganization with the Company
would acquire a higher percentage of equity ownership in the
Company. Management does not intend to actively negotiate for or
otherwise require the purchase of all or any portion of its stock
as a condition to or in connection with any proposed merger or
acquisition. Although the Company's present shareholders did not
acquire their shares of Common Stock with a view towards any
subsequent sale in connection with a business reorganization, it
is not unusual for affiliates of the entity participating in the
reorganization to negotiate to purchase shares held by the
present shareholders in order to reduce the amount of shares held
by persons no longer affiliated with the Company and thereby
reduce the potential adverse impact on the public market in the
Company's common stock that could result from substantial sales
of such shares after the business reorganization. Public
investors will not receive any portion of the premium that may be
paid in the foregoing circumstances. Furthermore, the Company's
shareholders may not be afforded an opportunity to approve or
consent to any particular stock buy-out transaction.
In the event sales of shares by present shareholders of the
Company, including officers and directors, is a negotiated
element of a future acquisition, a conflict of interest may arise
because directors will be negotiating for the acquisition on
behalf of the Company and for sale of their shares for their own
respective accounts. Where a business opportunity is well suited
for acquisition by the Company, but affiliates of the business
opportunity impose a condition that management sell their shares
at a price which is unacceptable to them, management may not
sacrifice their financial interest for the Company to complete
the transaction. Where the business opportunity is not well
suited, but the price offered management for their shares is
high, Management will be tempted to effect the acquisition to
realize a substantial gain on their shares in the Company.
Management has not adopted any policy for resolving the foregoing
potential conflicts, should they arise, and does not intend to
obtain an independent appraisal to determine whether any price
that may be offered for their shares is fair. Stockholders must
rely, instead, on the obligation of management to fulfill its
fiduciary duty under state law to act in the best interests of
the Company and its stockholders.
It is anticipated that any securities issued in any such
reorganization would be issued in reliance on exemptions from
registration under applicable federal and state securities laws.
In some circumstances, however, as a negotiated element of the
transaction, the Company may agree to register such securities
either at the time the transaction is consummated, under certain
conditions, or at specified times thereafter. Although the terms
of such registration rights and the number of securities, if any,
which may be registered cannot be predicted, it may be expected
that registration of securities by the Company in these
circumstances would entail substantial expense to the Company.
The issuance of substantial additional securities and their
potential sale into any trading market which may develop in the
Company's securities may have a depressive effect on such market.
While the actual terms of a transaction to which the Company may
be a party cannot be predicted, it may be expected that the
parties to the business transaction will find it desirable to
structure the acquisition as a so-called "tax-free" event under
sections 351 or 368(a) of the Internal Revenue Code of 1986, (the
"Code"). In order to obtain tax-free treatment under section 351
of the Code, it would be necessary for the owners of the acquired
business to own 80% or more of the voting stock of the surviving
entity. In such event, the shareholders of the Company would
retain less than 20% of the issued and outstanding shares of the
surviving entity. Section 368(a)(1)
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of the Code provides for tax-free treatment of certain business
reorganizations between corporate entities where one corporation
is merged with or acquires the securities or assets of another
corporation. Generally, the Company will be the acquiring
corporation in such a business reorganization, and the tax-free
status of the transaction will not depend on the issuance of any
specific amount of the Company's voting securities. It is not
uncommon, however, that as a negotiated element of a transaction
completed in reliance on section 368, the acquiring corporation
issue securities in such an amount that the shareholders of the
acquired corporation will hold 50% or more of the voting stock of
the surviving entity. Consequently, there is a substantial
possibility that the shareholders of the Company immediately
prior to the transaction would retain less than 50% of the issued
and outstanding shares of the surviving entity. Therefore,
regardless of the form of the business acquisition, it may be
anticipated that stockholders immediately prior to the
transaction will experience a significant reduction in their
percentage of ownership in the Company.
Notwithstanding the fact that the Company is technically the
acquiring entity in the foregoing circumstances, generally
accepted accounting principles will ordinarily require that such
transaction be accounted for as if the Company had been acquired
by the other entity owning the business and, therefore, will not
permit a write-up in the carrying value of the assets of the
other company.
The manner in which the Company participates in a business will
depend on the nature of the business, the respective needs and
desires of the Company and other parties, the management of the
business, and the relative negotiating strength of the Company
and such other management.
The Company will participate in a business only after the
negotiation and execution of appropriate written agreements.
Although the terms of such agreements cannot be predicted,
generally such agreements will require specific representations
and warranties by all of the parties thereto, will specify
certain events of default, will detail the terms of closing and
the conditions which must be satisfied by each of the parties
prior to such closing, will outline the manner of bearing costs
if the transaction is not closed, will set forth remedies on
default, and will include miscellaneous other terms.
Operation of Business After Acquisition
The Company's operation following its acquisition of a business
will be dependent on the nature of the business and the interest
acquired. The Company is unable to predict whether the Company
will be in control of the business or whether present management
will be in control of the Company following the acquisition. It
may be expected that the business will present various risks,
which cannot be predicted at the present time.
Governmental Regulation
It is impossible to predict the government regulation, if any, to
which the Company may be subject until it has acquired an
interest in a business. The use of assets and/or conduct of
businesses which the Company may acquire could subject it to
environmental, public health and safety, land use, trade, or
other governmental regulations and state or local taxation. In
selecting a business in which to acquire an interest, management
will endeavor to ascertain, to the extent of the limited
resources of the Company, the effects of such government
regulation on the prospective business of the Company. In
certain circumstances, however, such as the acquisition of an
interest in a new or start-up business activity, it may not be
possible to predict with any degree of accuracy the impact of
government regulation. The inability to ascertain the effect of
government regulation on a prospective business activity will
make the acquisition of an interest in such business a higher
risk.
Competition
The Company will be involved in intense competition with other
business entities, many of which will have a competitive edge
over the Company by virtue of their stronger financial resources
and prior experience in business. There is no assurance that the
Company will be successful in obtaining suitable investments.
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Employees
The Company is a development stage company and currently has no
employees. Executive officers, who are not compensated for their
time contributed to the Company, will devote only such time to
the affairs of the Company as they deem appropriate, which is
estimated to be approximately 20 hours per month per person.
Management of the Company expects to use consultants, attorneys,
and accountants as necessary, and does not anticipate a need to
engage any full-time employees so long as it is seeking and
evaluating businesses. The need for employees and their
availability will be addressed in connection with a decision
whether or not to acquire or participate in a specific business
industry.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
Results of Operations
Six Months Ended September 30, 2000 and 1999
The Company had no revenue from continuing operations for the six-
month periods ended September 30, 2000 and 1999.
General and administrative expenses for the six-month periods
ended September 30, 2000 and 1999 consisted of general corporate
administration, legal and professional expenses, and accounting
and auditing costs. These expenses were $1,636 and $0 for the
six-month periods ended September 30, 2000 and 1999,
respectively. General and administrative expenses in the period
ended September 30, 2000 were greater due to expenses incurred to
bring the Company's corporate and financial records current and
locate a new business venture in which to participate.
The Company had no interest expense or interest income in the six-
month periods ending September 30, 2000 or 1999. As a result of
the foregoing factors, the Company realized a net loss of $1,636
for the six months ended September 30, 2000 and no gain or loss
for the comparable period in 1999.
Fiscal Years Ended March 31, 2000 and 1999
The Company had no revenue from continuing operations for the
fiscal years ended March 31, 2000 and 1999.
General and administrative expenses for the years ended March 31,
2000 and 1999 consisted of general corporate administration,
legal and professional expenses, and accounting and auditing
costs. These expenses were $6,567 and $1,478 for the periods
ended March 31, 2000 and 1999, respectively. General and
administrative expenses for the year ended March 31, 2000 were
greater due to expenses incurred to bring the Company's corporate
and financial records current and locate a new business venture
in which to participate.
The Company had no interest expense or interest income in the
fiscal years ended March 31, 2000 or 1999. As a result of the
foregoing factors, the Company realized a net loss of $6,567 and
$1,478 for the years ended March 31, 2000 and 1999, respectively.
Liquidity and Capital Resources
At September 30, 2000, the Company had a working capital deficit
of $2,974. Management does not believe that the Company has
sufficient cash to meet the anticipated needs of the Company's
operations through the next 12 months. In the past the Company's
sole director has provided capital through the purchase of common
stock. This individual has indicated his willingness to provide
additional debt or equity financing in the future, but there is
no written agreement or commitment to do so. Should this
individual fail to provide financing, the Company has not
identified any alternative sources. Consequently, there is
substantial doubt about the Company's ability to continue as a
going concern.
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The Company's need for capital may change dramatically if it
acquires an interest in a business opportunity during that
period. The Company's current operating plan is to (i) handle
the administrative and reporting requirements of a public
company; and (ii) search for potential businesses, products,
technologies and companies for acquisition. At present, the
Company has no understandings, commitments or agreements with
respect to the acquisition of any business, product, technology
or company and there can be no assurance that the Company will
identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no
assurance that the Company would be successful in consummating
any acquisition on favorable terms or that it will be able to
profitably manage the business, product, technology or company it
acquires.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company uses offices and related clerical services at 11900
Wayzata Blvd., Suite 100, Hopkins, MN 55305, provided by an
officer and director of the Company and pays no rent.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth as of August 31, 2000, the number
and percentage of the outstanding shares of common stock which,
according to the information supplied to the Company, were
beneficially owned by (i) each person who is currently a director
of the Company, (ii) each executive officer, (iii) all current
directors and executive officers of the Company as a group and
(iv) each person who, to the knowledge of the Company, is the
beneficial owner of more than 5% of the outstanding common stock.
Except as otherwise indicated, the persons named in the table
have sole voting and dispositive power with respect to all shares
beneficially owned, subject to community property laws where
applicable.
Name and Address Common Percent
Shares of
Class
Bruce Cairney (1) 1,081,391 27
5805 West 61st Street
Edina, MN 55436
George Fredericks 325,000 8
1625 Utah Drive
St. Louis Park, MN 55426
Inter-Ad, Inc. (2) 390,000 10
2801 West 28th Street
Minneapolis, MN 55416
Intergrowth Fund, Inc. (2) 300,000 7
2801 West 28th Street
Minneapolis, MN 55416
Craig Laughlin 350,000 9
11900 Wayzata Blvd., Suite 100
Hopkins, MN 55305
Patrick L. Riggs 325,000 8
2187 Seventh Street, East
St. Paul, MN 55119
All Executive officers and 1,081,391 27
Directors as a Group
(1 person)
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(1) Mr. Cairney is the sole director and officer of the Company.
The number of shares held by Mr. Cairney includes 140,000 shares
held of record by his spouse, 264,112 shares held of record by
his sons, 335,000 shares held of record by Siskiyou, Inc., a
private corporation owned and controlled by Mr. Cairney, and
285,000 shares held of record by Vashon, Inc., a private
corporation owned and controlled by Mr. Cairney.
(2) Richard Prescott of Minneapolis, Minnesota is the
controlling officer and director of Inter-Ad, Inc., and
Intergrowth Fund, Inc., so he may be deemed to have investment
and voting control over the shares held by those corporations.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Directors and Officers
The following table sets forth the name, age, and position of the
sole director and officer of the Company.
Name Age Positions (1) Since
Bruce Cairney 54 President and Director 1990
All executive officers are elected by the Board and hold office
until the next Annual Meeting of stockholders and until their
successors are elected and qualify.
The following is information on the business experience of the
sole director and officer of the Company.
Bruce Cairney has been the principal owner and President since
1948 of Siskiyou, Inc., a private company located in Minneapolis,
Minnesota engaged in the computer consulting business. Since
1986 Mr. Cairney has been a director of Corona Equities, Inc. of
Edina, Minnesota, a publicly-held company seeking a business
venture in wihich to particpate.
ITEM 6. EXECUTIVE COMPENSATION
The Company has no agreement or understanding, express or
implied, with any officer, director, or principal stockholder, or
their affiliates or associates, regarding employment with the
Company or compensation for services. The Company has no plan,
agreement, or understanding, express or implied, with any
officer, director, or principal stockholder, or their affiliates
or associates, regarding the issuance to such persons of any
shares of the Company's authorized and unissued common stock.
There is no understanding between the Company and any of its
present stockholders regarding the sale of a portion or all of
the common stock currently held by them in connection with any
future participation by the Company in a business. There are no
other plans, understandings, or arrangements whereby any of the
Company's officers, directors, or principal stockholders, or any
of their affiliates or associates, would receive funds, stock, or
other assets in connection with the Company's participation in a
business. No advances have been made or contemplated by the
Company to any of its officers, directors, or principal
stockholders, or any of their affiliates or associates.
There is no policy that prevents management from adopting a plan
or agreement in the future that would provide for cash or stock
based compensation for services rendered to the Company.
On acquisition of a business, it is possible that current
management will resign and be replaced by persons associated with
the business acquired, particularly if the Company participates
in a business by effecting a stock exchange, merger, or
consolidation as discussed under "BUSINESS." In the event that
any member of current management remains after effecting a
business acquisition, that member's time commitment and
compensation will likely be adjusted based on the nature and
location of such business and the services required, which cannot
now be foreseen.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no proposed transactions and no transactions during the
past two years to which the Company was a party and in which any
officer, director, or principal stockholder, or their affiliates
or associates, was also a party.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of common
stock, par value $0.01 per share, of which 4,050,000 shares are
issued and outstanding. Holders of common stock are entitled to
one vote per share on each matter submitted to a vote at any
meeting of stockholders. Shares of common stock do not carry
cumulative voting rights and, therefore, holders of a majority of
the outstanding shares of common stock will be able to elect the
entire board of directors, and, if they do so, minority
stockholders would not be able to elect any members to the board
of directors. The Company's board of directors has authority,
without action by the Company's stockholders, to issue all or any
portion of the authorized but unissued shares of common stock,
which would reduce the percentage ownership in the Company of its
stockholders and which may dilute the book value of the common
stock. Stockholders of the Company have no pre-emptive rights to
acquire additional shares of common stock. The common stock is
not subject to redemption and carries no subscription or
conversion rights. In the event of liquidation of the Company,
the shares of common stock are entitled to share equally in
corporate assets after satisfaction of all liabilities. Holders
of common stock are entitled to receive such dividends as the
board of directors may from time to time declare out of funds
legally available for the payment of dividends. The Company has
not paid dividends on its common stock and does not anticipate
that it will pay dividends in the foreseeable future.
The Company is authorized to issue 5,000,000 shares of
undesignated stock, par value $0.01, none of which are issued and
outstanding. The Company currently has no plans to issue any
undesignated stock. The Company's board of directors has
authority, without action by the shareholders, to issue all or
any portion of the unissued undesignated stock in one or more
series and to determine the voting rights, preferences as to
dividends and liquidation, conversion rights and other rights of
such series. The undesignated stock, if and when issued, may
carry rights superior to those of the common stock.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
There is no established trading market for the Company's common
stock. Since its inception, no dividends have been paid on the
Company's common stock. The Company intends to retain any
earnings for use in its business activities, so it is not
expected that any dividends on the common stock will be declared
and paid in the foreseeable future. At August 31, 2000, there
were approximately 382 holders of record of the Company's Common
Stock.
ITEM 2. LEGAL PROCEEDINGS
In 1993 Iowa Dirt Farms filed a petition for bankruptcy under
Chapter 7 and received a discharge from its liabilities in 1995.
During these proceedings, certain liabilities of Iowa Dirt Farm
were attributed to the Company. In 1996, although creditors had
not pursued any collection efforts, the Company issued 31,104
shares of common stock in settlement of certain liabilities. An
additional $4,729 in Iowa Dirt Farm liabilities were attributed
to the Company in the bankruptcy proceedings. The Company
continues to dispute these liabilities. Through December 1999 the
creditors have not contacted the Company regarding these
contingent liabilities.
The Company is not a party to any material pending legal
proceedings, and to the best of its knowledge, no such
proceedings by or against the Company have been threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in or disagreements with accountants
since the Company's organization.
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ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In March 1999 the Company issued 14,558 shares of common stock to
its President, Bruce Cairney, for funds advanced for the benefit
of the Company in the amount of $437.
In March 1999 the Company issued 4,714 shares of common stock to
Robert D. Schwartz for services rendered to the Company valued at
$1,478.
In March 2000 the Company issued 50,000 of common shares to its
President, Bruce Cairney, for funds advanced for the benefit of
the Company in the amount of $1,500.
In each of the foregoing transactions, the shares were issued in
reliance on the exemption from registration set forth in Section
4(2) of the Securities Act of 1933. No brokers were involved in
the transactions and no commissions were paid to any person. On
the basis of their position with the Company or engagement by the
Company, the Company believes each of the purchasers was either
accredited or sophisticated and had such knowledge of the
business and financial condition of the Company Buyers United so
as to make an informed investment decision.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's articles of incorporation provide the following:
No director shall have personal liability to the corporation
or its shareholders for monetary damages for breach of
fiduciary duty as a director. Nothing in these Articles shall
eliminate or limit the liability of a director: (a) for any
breach of the director's duty of loyalty to the corporation or
the shareholders; (b) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation
of law; (c) under (Minnesota Statutes) Section 302A.559 or
80A.23; (d) for any transaction from which the director
derived an improper personal benefit; or (e) for any act or
omission occurring prior to the date when the provision of
these articles eliminating or limiting liability (this Article
IV) becomes effective. If Minnesota statutes, Chapter 302A,
hereafter is amended to authorize the further elimination or
limitation of the liability of the directors, then the
liability of a director of the corporation, in addition to the
limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended Chapter
302A. Any repeal of this provision as a matter of law or any
modification of this Article by the shareholders of the
corporation shall be prospective only, and shall not adversely
affect any limitation on the personal liability of a director
of the corporation existing at the time of such repeal or
modification.
The Company's by-laws provide that the officers and directors
shall have rights to indemnification provided by Minnesota
statute. Section 302A.521 of the Minnesota Statutes provided as
follows:
Subdivision 1. Definitions.
(a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" includes a domestic or foreign corporation
that was the predecessor of the corporation referred to in this
section in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the
transaction.
(c) "Official capacity" means (1) with respect to a director,
the position of director in a corporation, (2) with
respect to a person other than a director, the elective or
appointive office or position held by an officer, member of a
committee of the board, or the employment relationship undertaken
by an employee of the corporation, and (3) with respect to a
director, officer, or employee of the corporation who, while a
director, officer, or employee of the corporation, is or was
serving at the request of the corporation or whose duties in that
position involve or involved service as a director, officer,
partner, trustee, employee, or agent of another organization or
employee benefit plan, the position of that person as a
director, officer, partner, trustee, employee, or agent, as the
case may be, of the other organization or employee benefit plan.
11
<PAGE>
(d) "Proceeding" means a threatened, pending, or completed
civil, criminal, administrative, arbitration, or
investigative proceeding, including a proceeding by or in the
right of the corporation.
(e) "Special legal counsel" means counsel who has not
represented the corporation or a related organization,
or a director, officer, member of a committee of the board, or
employee, whose indemnification is in issue.
Subdivision 2. Indemnification mandatory; standard.
(a) Subject to the provisions of subdivision 4, a corporation
shall indemnify a person made or threatened to be made a party to
a proceeding by reason of the former or present official capacity
of the person against judgments, penalties, fines, including,
without limitation, excise taxes assessed against the person with
respect to an employee benefit plan, settlements, and reasonable
expenses, including attorneys' fees and disbursements, incurred
by the person in connection with the proceeding, if, with respect
to the acts or omissions of the person complained of in the
proceeding, the person:
(1) Has not been indemnified by another organization or
employee benefit plan for the same judgments, penalties,
fines, including, without limitation, excise taxes assessed
against the person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorneys'
fees and disbursements, incurred by the person in connection
with the proceeding with respect to the same acts or
omissions;
(2) Acted in good faith;
(3) Received no improper personal benefit and section
302A.255, if applicable, has been satisfied;
(4) In the case of a criminal proceeding, had no reasonable
cause to believe the conduct was unlawful; and
(5) In the case of acts or omissions occurring in the
official capacity described in subdivision 1, paragraph (c),
clause (1) or (2), reasonably believed that the conduct was in
the best interests of the corporation, or in the case of acts
or omissions occurring in the official capacity described in
subdivision 1, paragraph (c), clause (3), reasonably believed
that the conduct was not opposed to the best interests of the
corporation. If the person's acts or omissions complained of
in the proceeding relate to conduct as a director, officer,
trustee, employee, or agent of an employee benefit plan, the
conduct is not considered to be opposed to the best interests
of the corporation if the person reasonably believed that the
conduct was in the best interests of the participants or
beneficiaries of the employee benefit plan.
(b) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo
contendere or its equivalent does not, of itself, establish that
the person did not meet the criteria set forth in this
subdivision.
Subdivision 3. Advances.
Subject to the provisions of subdivision 4, if a person is made
or threatened to be made a party to a proceeding, the person is
entitled, upon written request to the corporation, to payment or
reimbursement by the corporation of reasonable expenses,
including attorneys' fees and disbursements, incurred by the
person in advance of the final disposition of the proceeding, (a)
upon receipt by the corporation of a written affirmation by the
person of a good faith belief that the criteria for
indemnification set forth in subdivision 2 have been satisfied
and a written undertaking by the person to repay all amounts so
paid or reimbursed by the corporation, if it is ultimately
determined that the criteria for indemnification have not been
satisfied, and (b) after a determination that the facts then
known to those making the determination would not preclude
indemnification under this section. The written undertaking
required by clause (a) is an unlimited general obligation of the
person making it, but need not be secured and shall be accepted
without reference to financial ability to make the repayment.
Subdivision 4. Prohibition or limit on indemnification or
advances.
12
<PAGE>
The articles or bylaws either may prohibit indemnification or
advances of expenses otherwise required by this section or may
impose conditions on indemnification or advances of expenses in
addition to the conditions contained in subdivisions 2 and 3
including, without limitation, monetary limits on indemnification
or advances of expenses, if the prohibition or conditions apply
equally to all persons or to all persons within a given class. A
prohibition or limit on indemnification or advances may not apply
to or affect the right of a person to indemnification or advances
of expenses with respect to any acts or omissions of the person
occurring prior to the effective date of a provision in the
articles or the date of adoption of a provision in the bylaws
establishing the prohibition or limit on indemnification or
advances.
Subdivision 5. Reimbursement to witnesses.
This section does not require, or limit the ability of, a
corporation to reimburse expenses, including attorneys' fees and
disbursements, incurred by a person in connection with an
appearance as a witness in a proceeding at a time when the person
has not been made or threatened to be made a party to a
proceeding.
Subdivision 6. Determination of eligibility.
(a) All determinations whether indemnification of a person is
required because the criteria set forth in subdivision 2 have
been satisfied and whether a person is entitled to payment or
reimbursement of expenses in advance of the final disposition of
a proceeding as provided in subdivision 3 shall be made:
(1) By the board by a majority of a quorum, if the directors who
are at the time parties to the proceeding
are not counted for determining either a majority or the
presence of a quorum;
(2) If a quorum under clause (1) cannot be obtained, by a
majority of a committee of the board, consisting
solely of two or more directors not at the time parties to the
proceeding, duly designated to act in the matter by a majority
of the full board including directors who are parties;
(3) If a determination is not made under clause (1) or (2), by
special legal counsel, selected either by a
majority of the board or a committee by vote pursuant to
clause (1) or (2) or, if the requisite quorum of the full
board cannot be obtained and the committee cannot be
established, by a majority of the full board including
directors who are parties;
(4) If a determination is not made under clauses (1) to (3), by
the shareholders, but the shares held by
parties to the proceeding must not be counted in determining
the presence of a quorum and are not considered to be present
and entitled to vote on the determination; or
(5) If an adverse determination is made under clauses (1) to (4)
or under paragraph (b) or if no
determination is made under clauses (1) to (4) or under
paragraph (b) within 60 days after (i) the later to occur of
the termination of a proceeding or a written request for
indemnification to the corporation or (ii) a written request
for an advance of expenses, as the case may be, by a court in
this state, which may be the same court in which the
proceeding involving the person's liability took place, upon
application of the person and any notice the court requires.
The person seeking indemnification or payment or reimbursement
of expenses pursuant to this clause has the burden of
establishing that the person is entitled to indemnification or
payment or reimbursement of expenses.
(b) With respect to a person who is not, and was not at the
time of the acts or omissions complained of in the
proceedings, a director, officer, or person possessing, directly
or indirectly, the power to direct or cause the direction of the
management or policies of the corporation, the determination
whether indemnification of this person is required because the
criteria set forth in subdivision 2 have been satisfied and
whether this person is entitled to payment or reimbursement of
expenses in advance of the final disposition of a proceeding as
provided in subdivision 3 may be made by an annually appointed
committee of the board, having at least one member who is a
director. The committee shall report at least annually to the
board concerning its actions.
Subdivision 7. Insurance.
13
<PAGE>
A corporation may purchase and maintain insurance on behalf of a
person in that person's official capacity against any liability
asserted against and incurred by the person in or arising from
that capacity, whether or not the corporation would have been
required to indemnify the person against the liability under the
provisions of this section.
Subdivision 8. Disclosure.
A corporation that indemnifies or advances expenses to a person
in accordance with this section in connection with a proceeding
by or on behalf of the corporation shall report to the
shareholders in writing the amount of the indemnification or
advance and to whom and on whose behalf it was paid not later
than the next meeting of shareholders.
PART F/S: FINANCIAL STATEMENTS
The financial statements of the Company appear at the end of this
registration statement beginning with the Index to Financial
Statements on page 15.
PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
Copies of the following documents are included as exhibits
to this report.
Exhibit Title of Document Location
No.
2.1 Restated Articles of Incorporation Page E-1
2.2 By-Laws Page E-3
15 Financial Data Schedules *
* The Financial Data Schedule is presented in the electronic
filing with the Securities and Exchange Commission.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be
signed on its behalf by the undersigned thereunto duly
authorized.
NETWORK CAPITAL, INC.
Date: December 1, 2000 By: /s/ Bruce Cairney, President
In accordance with the Exchange Act, this registration
statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: December 1, 2000 By: /s/ Bruce Cairney, Director
14
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements:
Balance Sheets as of March 31 and September 30, 2000 (Unaudited) 16
Statements of Operations for the Three and Six Months Ended
September 30, 2000 and 1999, and Reentrance into Development
Stage (April 1, 1995) to September 30, 2000 (Unaudited). 17
Statements of Stockholders' Equity (Deficit) from Reentrance into
Development Stage (April 1, 1995) to September 30, 2000 (Unaudited) 18
Statements of Cash Flows for the Three and Six Months Ended
September 30, 2000 and 1999, and Reentrance into Development
Stage (April 1, 1995) to September 30, 2000 (Unaudited). 19
Notes to Financial Statements 20
Independent Auditors' Report 23
Balance Sheets as of March 31, 2000, 1999 and 1998 (Audited) 24
Statements of Operations for the Years Ended March 31, 2000,
1999 and 1998, and Reentrance into Development
Stage (April 1, 1995) to September 30, 2000 (Audited). 25
Statements of Stockholders' Equity (Deficit) from Reentrance into
Development Stage (April 1, 1995) to March 31, 2000 (Audited). 26
Statements of Cash Flows for the Years Ended March 31, 2000,
1999 and 1998, and Reentrance into Development
Stage (April 1, 1995) to September 30, 2000 (Audited) 27
Notes to Financial Statements 28
15
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, March 31,
2000 2000
ASSETS
Current assets:
Cash $ - $ -
Total current assets and
total assets $ - $ -
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and
accrued expenses $ 2,974 $ 5,067
Total current liabilities 2,974 5,067
Stockholders' equity (deficit):
Undesignated stock: $.01 par value;
5,000,000 shares authorized; none
issued and outstanding - -
Common stock: $.01 par value;
50,000,000 shares authorized;
issued and outstanding 4,050,000
and 4,050,000, respectively 40,500 40,500
Additional paid-in capital 552,532 548,803
Accumulated deficit (512,462) (512,462)
Deficit accumulated during the
development stage (83,544) (81,908)
Total stockholders' equity (deficit) (2,974) (5,067)
Total liabilities and stockholders'
equity (deficit) $ - $ -
The accompanying notes are an integral part of these financial statements
16
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Reentrance Into
Three Months Ended Six Months Ended Development Stage
September 30, September 30, To
2000 1999 2000 1999 September 30, 2000
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
Administrative expenses (1,475) - (1,636) - (83,544)
Income tax expense (benefit) - - - - -
Net income (loss) (1,475) - (1,636) - (83,544)
Other comprehensive
income (loss) - - - - -
Comprehensive income (loss) $ (1,475) $ - $ (1,636) $ - $ (83,544)
Basic earnings (loss) per share $ - $ - $ - $ - $ (.03)
Weighted average number of
shares outstanding 4,050,000 3,981,345 4,050,000 3,981,345 3,191,220
</TABLE>
The accompanying notes are an integral part of these financial statements
17
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Deficit
Common Stock Additional During
Number of Paid-In Accumulated Development
Shares Amount Capital Deficit Stage Total
<S> <C> <C> <C> <C> <C> <C>
Reentrance into development
stage (April 1, 1995) 1,730,728 $ 17,307 $ 494,018 $(512,462) $ - $ (1,137)
Net income (loss) - 1996 - - - - - -
Issuance of common stock in
January 1997 for $.10 per share 50,000 500 4,500 - - 5,000
Issuance of common stock in
settlement of expenses and services
at $.03 per share in March 1997 800,000 8,000 16,840 - - 24,840
Net income (loss) - 1997 - - - - (72,863) (72,863)
Issuance of common stock on
April 5, 1997 in settlement of
accounts payable at $.03 per share 1,400,000 14,000 30,160 - - 44,160
Net income (loss) - 1998 - - - - (1,000) (1,000)
March 31, 1998 3,980,728 39,807 545,518 (512,462) (73,863) (1,000)
Issuance of common stock on
March 24, 1999 for services at
$.03 per share 19,272 193 385 - - 578
Net income (loss) - 1999 - - - - (1,478) (1,478)
March 31, 1999 4,000,000 40,000 545,903 (512,462) (75,341) (1,900)
Issuance of common stock on March 7,
2000 for services at $.03 per share 50,000 500 1,000 - - 1,500
Equity contribution to cover
administrative expenses - - 1,900 - - 1,900
Net income (loss) - 2000 - - - - (6,567) (6,567)
March 31, 2000 4,050,000 40,500 548,803 (512,462) (81,908) (5,067)
Equity contribution to cover
administrative expenses - - 3,729 - - 3,729
Net income (loss) - six month
period ended September 30, 2000 - - - - (1,636) (1,636)
September 30, 2000 4,050,000 $ 40,500 $ 552,532 $(512,462) $ (83,544) $ (2,974)
</TABLE>
The accompanying notes are an integral part of these financial statements
18
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
(Unaudited)
<TABLE>
<CAPTION>
Reentrance Into
Three Months Ended Six Months Ended Development Stage
September 30, September 30, To
2000 1999 2000 1999 September 30, 2000
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,475) $ - $ (1,636) $ - $ (83,544)
Adjustments to reconcile net
income (loss) to cash flows
from operating activities:
Stock isisued for expenses
and services - - - - 71,078
Accounts payable and
other current liabilities 1,475 - (2,093) - 1,837
Cash flows from operating activities - - (3,729) - (10,629)
Cash flows from financing activities:
Equity contribution to cover
administrative expenses - - 3,729 - 10,629
Increase (decrease) in cash - - - - -
Cash:
Beginning of year - - - - -
End of year $ - $ - $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements
19
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ended March 31, 2001. For further information, refer to the financial
statements and footnotes thereto included in the Company's summary report
for the period ended March 31, 2000.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company was incorporated on May 19, 1959, under the laws of the State
of Minnesota. On January 23, 1997, the Company changed its name to Network
Capital, Inc. Formerly the Company was known as Eagle Holdings, Inc.
In September 1991, the Company transferred its operations into Iowa Dirt
Farms Ltd. Partnership of Minnesota (Iowa Dirt Farms) for a 37.5% general
partner interest in this partnership. After that date the Company operated
as a holding company. With Iowa Dirt Farms filing of a voluntary
bankruptcy petition on October 23, 1993 under Chapter 7 of the U.S.
Bankruptcy Code and its ultimate liquidation on February 22, 1995, the
Company ceased to have operations. Effective April 1, 1995 the Company was
deemed to have reentered the development stage.
In 1999, the Company attempted to merge with an operating company. The
operating company did not comply with terms of the merger agreement and the
merger was terminated. In 2000, the Company had preliminary negotiations
with an operating entity, but these negotiations did not result in an
agreement to merge.
The Company currently has no operations. The Company continues to search
for an appropriate merger candidate.
20
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Risks, Estimates and Uncertainties
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period.
Earnings Per Share
The Company implemented FASB 128: Earnings Per Share. FASB 128 replaces
the presentation of primary EPS with basic EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted-average
number of common shares outstanding for the year. Diluted EPS reflects the
potential dilution from stock options and warrants and is computed using
the treasury stock method. Under the treasury stock method stock options
are assumed to have been exercised at the beginning of the period if the
exercise price exceeds the average market price during the period. The
computation of diluted EPS does not assume conversion or exercise of
securities that would have an antidilutive effect on earnings per share.
Stock-Based Consideration
The Company has applied the fair value-based method of accounting for
employee and nonemployee stock-based consideration and/or compensation in
accordance with FASB Statement 123.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method" of accounting for income taxes.
The Company's net operating loss carryforwards are fully allowed for due to
questions regarding the Company's ability to utilize these losses before
they expire.
Deferred tax asset relating to net operating
loss carryforwards $ 78,000
Valuation allowance (78,000)
Net deferred tax asset $ -
21
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
At June 30, 2000, the Company has carryforwards as follows:
Federal State
2006 $ 42,000 $ 42,000
2007 179,000 151,000
2008 44,000 -
2009 30,000 -
2010 85,000 85,000
2011 - -
2012 4,000 4,000
2013 - -
2014 - -
2015 5,000 5,000
$ 389,000 $ 287,000
NOTE 2 - DEVELOPMENT STAGE COMPANY
On April 1, 1995, the Company was deemed to have reentered the development
stage. Since that date the Company has devoted the majority of its efforts
to: maintenance of the corporate status; raising capital; and the search
for a merger candidate.
The Company is fully dependent upon the support of certain stockholder(s)
for the maintenance of its corporate status and to provide all working
capital support for the Company. These stockholder(s) intend to continue
to fund necessary expenses to sustain the Company. The Company is
presently seeking a merger candidate and feels it will be successful in
finding such a candidate.
Failure of the Company to find a merger candidate and achieve profitable
operations or the failure of its stockholder(s) to fund necessary expenses
of the Company could result in the Company being unable to continue as a
going concern. No estimate can be made of the range of loss that is
reasonably possible should the Company be unsuccessful.
22
<PAGE>
Callahan, Johnston & Associates, LLC
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Network Capital, Inc.
(A Development Stage Company)
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Network Capital, Inc. as
of March 31, 2000, 1999 and 1998, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended and
the period from reentrance into development stage (April 1, 1995) to March
31, 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 misstatements. 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 Network Capital, Inc.
as of March 31, 2000, 1999 and 1998 and the results of operations and cash
flows for the years then ended and the period from reentrance into
development stage (April 1, 1995) to March 31, 2000, in conformity with
generally accepted accounting principles.
As described in Note 2 to the financial statements, the ultimate
recoverability of investments in the development stage and continuance of
the Company as a going concern is dependent on future profitable
operations, which presently cannot be determined.
/s/ Callahan, Johnston & Associates, LLC
CALLAHAN, JOHNSTON & ASSOCIATES, LLC
Minneapolis, Minnesota
August 9, 2000
7850 Metro Parkway, Suite 207, Minneapolis, MN 55425
Telephone: (952)858-7207 Fax: (952)858-7202
Email: [email protected]
23
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
BALANCE SHEETS
March 31,
2000 1999 1998
ASSETS
Current assets:
Cash $ - $ - $ -
Total current assets and
total assets $ - $ - $ -
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and
accrued expenses $ 5,067 $ 1,900 $ 1,000
Total current liabilities 5,067 1,900 1,000
Stockholders' equity (deficit):
Undesignated stock: $.01 par value;
5,000,000 shares authorized; none
issued and outstanding - - -
Common stock: $.01 par value;
50,000,000 shares authorized;
issued and outstanding
4,050,000, 4,050,000 and
4,000,000, respectively, 40,500 40,000 39,807
Additional paid-in capital 548,803 545,903 545,518
Accumulated deficit (512,462) (512,462) (512,462)
Deficit accumulated during the
development stage (81,908) (75,341) (73,863)
Total stockholders'
equity (deficit) (5,067) (1,900) (1,000)
Total liabilities and
stockholders' equity
(deficit) $ - $ - $ -
The accompanying notes are an integral part of these financial statements
24
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Reentrance Into
Development
Stage
Years Ended March 31, To
2000 1999 1998 March 31, 2000
Revenues $ - $ - $ - $ -
Administrative expenses (6,567) (1,478) (1,000) (81,908)
Income tax expense (benefit) - - - -
Net income (loss) (6,567) (1,478) (1,000) (81,908)
Other comprehensive income
(loss) - - - -
Comprehensive income (loss) $ (6,567) $ (1,478) $ (1,000) $ (81,908)
Basic earnings (loss)
per share $ - $ - $ - $ (.03)
Weighted average number of
shares outstanding 4,003,288 3,981,345 3,961,550 3,191,220
The accompanying notes are an integral part of these financial statements
25
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated
Deficit
Common Stock Additional During
Number of Paid-In Accumulated Development
Shares Amount Capital Deficit Stage Total
<S> <C> <C> <C> <C> <C> <C>
Reentrance into development
stage (April 1, 1995) 1,730,728 $ 17,307 $ 494,018 $(512,462) $ - $(512,462)
Net income (loss) - 1996 - - - - - -
Issuance of common stock in
January 1997 for $.10 per share 50,000 500 4,500 - - 5,000
Issuance of common stock in
settlement of expenses and services
at $.03 per share in March 1997 800,000 8,000 16,840 - - 24,840
Net income (loss) - 1997 - - - - (72,863) (72,863)
Issuance of common stock on
April 5, 1997 in settlement of
accounts payable at $.03 per share 1,400,000 14,000 30,160 - - 44,160
Net income (loss) - 1998 - - - - (1,000) (1,000)
March 31, 1998 3,980,728 39,807 545,518 (512,462) (73,863) (512,325)
Issuance of common stock on
March 24, 1999 for services at
$.03 per share 19,272 193 385 - - 578
Net income (loss) - 1999 - - - - (1,478) (1,478)
March 31, 1999 4,000,000 40,000 545,903 (512,462) (75,341) (1,900)
Issuance of common stock on March 7,
2000 for services at $.03 per share 50,000 500 1,000 - - 1,500
Equity contribution to cover
administrative expenses - - 1,900 - - 1,900
Net income (loss) - 2000 - - - - (6,567) (6,567)
March 31, 2000 4,050,000 $ 40,500 $548,803 $(512,462) $ (81,908) $ (5,067)
</TABLE>
The accompanying notes are an integral part of these financial statements
26
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
Reentrance Into
Development
Stage
Years Ended March 31, To
2000 1999 1998 March 31, 2000
Cash flows from operating
activities:
Net income (loss) $ (5,229) $ (1,478) $ (1,000) $ (81,908)
Adjustments to reconcile
net income (loss) to
cash flows from
operating activities:
Stock issued for
expenses and services 1,500 578 - 71,078
Accounts payable and
accrued expenses 1,829 900 - 3,930
Cash flows from operating
Activities (1,900) - (1,000) (6,900)
Cash flows from financing
activities:
Equity contribution to cover
administrative expense 1,900 - - 6,900
Increase (decrease) in cash - - (1,000)
Cash:
Beginning of year - - 1,000 -
End of year $ - $ - $ - $ -
Summary of non cash activity:
In April 1998, the Company issued shares of common stock as
directed by its President totaling 1,400,000 shares as
reimbursement for expenses incurred and for services rendered
in settling claims against the Company relating to Iowa Dirt
Farms Ltd. (see Note 1).
In 1999, the Company issued 19,272 shares of common stock to
its President and another individual for services rendered.
In March 2000, the Company issued 50,000 shares of common stock
to its President for services rendered.
The accompanying notes are an integral part of these financial
statements
27
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
AND THE PERIOD FROM REENTRANCE INTO
DEVELOPMENT STAGE
(APRIL 1, 1995) TO MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company was incorporated on May 19, 1959, under the laws of
the State of Minnesota. On January 23, 1997, the Company changed
its name to Network Capital, Inc. Formerly the Company was known
as Eagle Holdings, Inc.
In September 1991, the Company transferred its operations into
Iowa Dirt Farms Ltd. Partnership of Minnesota (Iowa Dirt Farms)
for a 37.5% general partner interest in this partnership. After
that date the Company operated as a holding company. With Iowa
Dirt Farms filing of a voluntary bankruptcy petition on October
23, 1993 under Chapter 7 of the U.S. Bankruptcy Code and its
ultimate liquidation on February 22, 1995, the Company ceased to
have operations. Effective April 1, 1995 the Company was deemed
to have reentered the development stage.
In 1999, the Company attempted to merge with an operating
company. The operating company did not comply with terms of the
merger agreement and the merger was terminated. In 2000, the
Company had preliminary negotiations with an operating entity,
but these negotiations did not result in an agreement to merge.
The Company currently has no operations. The Company continues
to search for an appropriate merger candidate.
Risks, Estimates and Uncertainties
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and
expenses during the reporting period.
28
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
AND THE PERIOD FROM REENTRANCE INTO
DEVELOPMENT STAGE
(APRIL 1, 1995) TO MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
The Company implemented FASB 128: Earnings Per Share. FASB 128
replaces the presentation of primary EPS with basic EPS. Basic
EPS excludes dilution and is computed by dividing net income by
the weighted-average number of common shares outstanding for the
year. Diluted EPS reflects the potential dilution from stock
options and warrants and is computed using the treasury stock
method. Under the treasury stock method stock options are
assumed to have been exercised at the beginning of the period if
the exercise price exceeds the average market price during the
period. The computation of diluted EPS does not assume
conversion or exercise of securities that would have an
antidilutive effect on earnings per share.
Stock-Based Consideration
The Company has applied the fair value-based method of accounting
for employee and nonemployee stock-based consideration and/or
compensation in accordance with FASB Statement 123.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" which requires the use of the "liability
method" of accounting for income taxes.
The Company's net operating loss carryforwards are fully allowed
for due to questions regarding the Company's ability to utilize
these losses before they expire.
Deferred tax asset relating to net operating
loss carryforwards $ 78,000
Valuation allowance (78,000)
Net deferred tax asset $ -
29
<PAGE>
NETWORK CAPITAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
AND THE PERIOD FROM REENTRANCE INTO
DEVELOPMENT STAGE
(APRIL 1, 1995) TO MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
At June 30, 2000, the Company has carryforwards as follows:
Federal State
2006 $ 42,000 $ 42,000
2007 179,000 151,000
2008 44,000 -
2009 30,000 -
2010 85,000 85,000
2011 - -
2012 4,000 4,000
2013 - -
2014 - -
2015 5,000 5,000
$ 389,000 $ 287,000
NOTE 2 - DEVELOPMENT STAGE COMPANY
On April 1, 1995, the Company was deemed to have reentered the
development stage. Since that date the Company has devoted the
majority of its efforts to: maintenance of the corporate status;
raising capital; and the search for a merger candidate.
The Company is fully dependent upon the support of certain
stockholder(s) for the maintenance of its corporate status and to
provide all working capital support for the Company. These
stockholder(s) intend to continue to fund necessary expenses to
sustain the Company. The Company is presently seeking a merger
candidate and feels it will be successful in finding such a
candidate.
Failure of the Company to find a merger candidate and achieve
profitable operations or the failure of its stockholder(s) to
fund necessary expenses of the Company could result in the
Company being unable to continue as a going concern. No estimate
can be made of the range of loss that is reasonably possible
should the Company be unsuccessful.
30
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