<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 2000
COMMISSION FILE NO. 0-8155
NANO WORLD PROJECTS CORPORATION
--------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311 73-0977756
-------- ---- ----------
(State or other Industrial Class Code (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
11715 NORTH CREEK PARKWAY
SOUTH BOTHELL, WA 98011
----------------- -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425)415-1483
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
(TITLE OF CLASS)
The Registrant's securities set forth above are quoted for trading on the OTC
Bulletin Board.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $0.00
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such Stock as of
August 4, 2000, was approximately $ 70,324,866.00.
The number of shares outstanding of the issuer's common stock, as of July 31,
2000 was 18,377,748.
Documents Incorporated by Reference: None, except for those indicated in the
Exhibit Index.
<PAGE>
NANO WORLD PROJECTS CORPORATION
ANNUAL REPORT ON FORM 10-KSB
For the Fiscal Year Ended April 30, 2000
TABLE OF CONTENTS
PART I
Item 1.
Business....................................................... 1
Item 2.
Properties..................................................... 6
Item 3.
Legal Proceedings.............................................. 6
Item 4.
Submission of Matters to a Vote of Security Holders............ 6
PART II
Item 5.
Market for Registrant's Common Equity and
Related Stockholder Matters.................................... 7
Item 6.
Management's Discussion and Analysis or Plan of Operation...... 8
Supplemental Item: Risk Factors................................ 11
Item 7.
Financial Statements and Supplementary Data.................... 23
Item 8.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures........................... 23
PART III
Item 9.
Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 23
Item 10.
Executive Compensation......................................... 25
Item 11.
Security Ownership of Certain Beneficial Owners and
Management..................................................... 29
Item 12.
Certain Relationships and Related Transactions................. 31
Item 13.
Exhibits, Financial Statements and Reports on
Form 8-K....................................................... 31
SIGNATURES.....................................................
<PAGE>
PART I.
ITEM 1. BUSINESS
Our Background and Development. We were formerly known as Aerotec, Inc., which
was incorporated under the laws of the State of Delaware on April 25, 1975. We
subsequently changed our name to Breccia International Minerals, Inc. on
February 21, 1997. On February 22, 2000, we changed our name to Nano World
Projects Corporation (the "Company" or "we, us, our"). Our principal offices are
located at 11715 North Creek Parkway, South Bothell, Washington 98011. Our
registered office is 1209 Orange Street, Wilmington, New Castle, Delaware,
19801. Our telephone number is 604.988.6886.
We were originally organized as a mineral exploration and development company
seeking high tonnage, low to medium grade, gold and copper ore bodies to mine.
However, due to adverse market conditions, in 1999, the Company decided to
pursue other opportunities.
On January 31, 2000, we entered into a Stock Purchase Agreement ("Agreement")
with all of the shareholders ("Selling Shareholders") of Nano World Colloid &
Coating LLC ("Coating LLC"), a corporation incorporated under the laws of the
state of Wyoming. Pursuant to the terms of the Coating LLC Agreement, we
purchased from the Selling Shareholders 1,000 shares, representing 100% of the
issued and outstanding shares of Coating LLC. In exchange, we agreed to deliver
to each Selling Shareholder the sum of $500.00 and 5,000 shares of the Company's
$ .0001 par value common stock for each Coating LLC share. As such, the total
consideration paid for all of the issued and outstanding shares of Coating LLC
was $500,000 and 5,000,000 of the Company's $.0001 par value common stock. The
purchase price was paid by the delivery of a 180-day promissory note in the
amount of $500,000 and the delivery of share certificates representing the
5,000,000 shares to an agent acting on behalf of the Selling Shareholders.
THE INDUSTRY
Nanotechnology is technology based on the manipulation of individual atoms and
molecules to build structures to complex, atomic specifications. A nanometer is
one billionth of a meter (10-9 m) and is the unit of length that is generally
most appropriate for describing the size of single molecules. The prefix nano
means ten to the minus ninth power, or one billionth. Nanotechnology generally
refers to utilization of component structures that are roughly the size of the
smallest molecule. Devices with minimum feature sizes less than 100 nanometers
(nm) are generally considered to be products of nanotechnology. The basis for
nanotechnology is predicated largely on the fact that with respect to such small
structures (a) the number of atoms at the surface is larger than the number of
atoms in the bulk, and (b) the classical laws of physics are superceded by
quantum mechanics. Examples of these phenomena can be found in catalytic
converters, whose spongy structure has an enormous surface area, and in resonant
tunneling transistors where electrons can literally tunnel through solid
barriers.
Nanoscale related activities involve the purposeful manipulation of matter at
the atomic level via the modalities of chemistry and macromachines (surface
probe microscopy equipment). According to Nanothinc, an Internet-based publisher
webcasting interactive and enhanced multimedia nanocontent, these activities
represented $5 billion three years ago in annual revenues and they are forecast
to increase to $80 billion this year.
<PAGE>
Nanotechnology is expected in the future to have fundamental impacts on a wide
range of areas, interests and applications. Under way are applications in
molecular computing, specialized materials with unusual properties
(shape-changing alloys, synthetic "organic" compounds, superconductive
semiconductors, etc.), custom gene construction on demand, and
ultra-miniaturized machinery on a cellular and subcellular scale.
Commercial applications in nanotechnology and nanoscale-related disciplines
abound, according to Nanothinc. The superior properties of "nanophase" materials
(increased hardness, wear resistance, adhesion, slipperiness) are useful in the
manufacture of special bondings, coatings, capsules, catalysts and plastics. The
applications derived from these materials are diverse, including
microelectronics, automotive components, business machines and even personal
care products, such as sunscreens and cosmetics.
Operating at the atomic level, companies have constructed unique materials with
properties superior to conventional materials. These nanophase materials are
expected to be used to manufacture special bondings, coatings, capsules,
catalysts and plastics with current commercial applications in microelectronics,
automotive components, business machines, and even personal care products. This
also encompasses a range of novel nanoscale materials such as organic crystals,
high temperature superconductors, and shape changing alloys. Other areas are
expected to include supramolecular chemistry, protein engineering, x-ray
crystallography and limited aspects of biotechnology ("organic nanotechnology").
These unusually assembled structures are expected to have unique behavioral
properties with an increasing array of applications.
The use of complex molecular machines (assemblers) capable of reproducing
themselves in large numbers and then gathering and positioning other atoms and
molecules in desired constructions comprises molecular manufacturing. Almost any
chemically stable and specifiable structure (product) can be manufactured to
exact specifications and perfect quality and with no waste.
IBM researchers are moving closer to designing computers with the tiniest
features possible using a scanning tunneling microscope, or STM. IBM's nanoscale
research is already yielding scientific insights into the behavior of very small
structures which will allow them to shrink the features on integrated circuits
in their computer designs. In the future, developments using STM technology may
pave the way for circuits made from atomic or molecular components. Such
circuits could be hundreds of times smaller than today's electronic circuits,
allowing computer designers to put more processing power onto chips. That, in
turn, could lead to smaller, faster, lower-power and even more portable
computers.
The promise of Nanotechnology has resulted in a proliferation of private and
public initiatives designed to support its development. Non-profit organizations
such as the Foresight Institute and the Nanotechnology Development Team are
furthering nanotechnology education and many universities around the world have
established specific programs for nanotechnology research.
The Nanotechnology industry has seen a tremendous increase in players due to
recent developments in scientific research. Due to the wide variety of potential
applications of Nanotechnology as well as the diversity of streams from which it
is developed, many companies are often developing markedly different products
and services, from microchips to paint coatings to new industrial processes to
biomedical products.
2
<PAGE>
THE COMPANY AND THE DYNAMIC THIN LAMINAR FLOW METHOD
Pursuant to the Coating LLC Agreement, we purchased the technology known as the
Dynamic Thin Laminar Flow ("DTLF Method"). The DTLF Method was invented in 1997
with the goal of rendering monolayer preparations compatible with industrial
standards. A patent on the DTLF Method was obtained in 1997 in Italy and
subsequent patent applications have been filed in the United States and other
countries. Our sole significant asset is the DTLF patent. We are engaged solely
in research and development of the DTLF technology. We are not currently engaged
in any commercial production or licensing of the DTLF technology. As a result,
we have no revenues and expect to incur losses during the foreseeable future.
The DTLF technology and our Company's ability to commence commercial
exploitation of the patent are subject to additional proof of process research
and development. We have established a research and development facility in
Quebec, Canada. We expect we will incur substantial additional costs and
expenses during the foreseeable future in connection with research and
development and construction of prototype commercial equipment. The DTLF Method
is an unproven concept. We are in the process of constructing an automated
prototype that is expected to produce films applicable to the filter industry.
We expect to have a working prototype working by the end of 2000, however, there
can be no assurance in this regard.
The DTLF Method places single monolayer molecules of nanoscopic particles one
beside the other in a homogeneous, continuous thin film production. Large
numbers of nanostructures linked together in a monolayer can facilitate larger
scale actions such as a monolayer film that can function as a filter with the
size of the pores controlled by the molecules which are utilized. Monolayers are
abundant in nature, for example, in all human cells. A key difficulty in
producing monolayer films whose thickness is only a few nanometers is that they
must be fabricated on a substrate whose surface corrugation is smaller than the
size of a molecule. The prevalent methodology for producing such monolayer films
has to date utilized the Langmuir-Blodgett method in which the
molecularly-smooth water-air interface serves as a floating support for the
molecular constituents of the film. The Langmuir-Blodgett method has been
characterized as a single sheet, or single batch process, where production of
each film is limited to single sheets and production of each new sheet requires
starting the process over again. Although successful for research purposes, the
Langmuir-Blodgett method is generally acknowledged as not commercially viable to
the extent necessary to produce efficient, automated control nanostructure
applications and products.
The DTLF Method overcomes the limitations of the Langmuir-Blodgett method by
producing monolayers in a homogeneous, continuous thin film. With the DTLF
Method, it is possible to produce monolayers of particles of either organic or
inorganic material and apply them to either solid or liquid surfaces. The ultra
thin monolayer films using the DTLF Method places single molecules one beside
the other in continuous sheets. The continuous production aspect distinguishes
the DTLF Method from single sheet monolayer production. The DTLF technology is
versatile and can accommodate a broad range of molecular qualities. For example,
the use of various molecules in such monolayers can be controlled to obtain
various conductivity qualities, isolator qualities, porous qualities and
protective layer qualities. The DTLF Method can also produce sheets to be used
in multiple layer applications, where each constituent monolayer contains one or
more of the foregoing distinct qualities. Such ultra thin films can vary in
thickness from one nanometer to ten microns. The components of the DTLF Method
consist of mechanical and electrical elements, computer interfacing and software
to control an elaborate feedback system. The mechanical system is expected to be
3
<PAGE>
relatively simple to build and does not require a high level of tolerance,
however, the level of control of the parameters required to fabricate monolayer
films is quite daunting as the surfaces that are in contact with the liquids
must be perfectly clean, the liquids and gas surrounding the films pure. In
addition, the precise amount of monolayer constituents and ancillary materials
injected continuously into the system to obtain the desired properties of a
given film must be controlled with a high degree of accuracy, and the
temperature, humidity, and pressure within the monolayer films must also be
controlled. A sophisticated monolayer film quality monitoring capability must
therefore be devised that will activate a feedback electronic system that will
modify the parameters of the system. Although we expect that the Company can
develop or obtain these supplemental production instruments and components,
there can be no assurance in this regard. The development of instrumentation
will require significant research and development investments during the
foreseeable future. There can be no assurance that any of our instrumentation
will be successfully implemented or that it will provide a basis on which to
successfully commercialize any of our products or applications.
Examples of research uses of monolayers are copious, including Light emitting
diodes, optical fiber fluorescence sensors, and optical second harmonic
generation and photoelectric conversion optical interactions. In particular, one
area of potential application for the DTLF Method technology is in the area of
filtration. Modern filters are mostly made in fibers randomly stacked on top of
each other. We believe that the current construction of modern filter results in
a considerable loss of efficiency. The filter expected to be produced using the
DTLF Method will be a membrane with a maximum density of pores, all having the
same diameter. The production process is expected to be automated, thus
providing for the consistency of quality. We believe that nanofilters produced
using the DTLF Method are expected to provide a more efficient and effective
filter for the following reasons: (1) a pre-determined filter diameter to ensure
that all pores are equal; (2) In situ regeneration to facilitate easy
elimination of dust using a simple back flow; (3) low costs of monolayer
fabrication; (4) an exceptional flow rate due to maximum porosity and minimum
thickness; and (5) a longer life because the increased number of pores per unit
surface is expected to take longer to fill and the small mass of the nanofilter
are expected to allow for the usage of several square meters.
We believe that given the nanofilter's performance in tests, the increased
longevity of the nanofilter in white rooms, and the lightweight construction of
the nanofilter, it will be primarily marketed towards the electronic industry,
hospitals and aerospace companies. We believe that the nanofilter also has
applications in the military for the prevention and blocking of viruses and
other bacteriological matter.
We believe that the fabrication of monolayer films using a commercially viable
technique has the potential of removing a bottleneck in Nanotechnology in that
it may enable mass production of parallel nanostructures that can be
functionalized by a variety of means. The DTLF Method combines features of the
Langmuir-Blodgett method due to its theoretical ability to produce high quality
monolayer films with a continuous, non-batch and fast methodology. The
continuity of the DTLF Method enables the system to potentially utilize highly
efficient electronic feedback of all the parameters that control its operation
with a substantially increased production rate relative to the Langmuir-Blodgett
method. Although we believe that nanofilters present a potential commercial
application, there can be no assurance the Company will be able to do so.
Monolayer films are very weak mechanically in both lateral and transverse
directions. It is possible, however, to strengthen the films in the transverse
4
<PAGE>
direction by sandwiching them in-between two supporting media and to strengthen
them in the lateral direction by polymerizing of the constituent molecules.
Exposure of the monolayer films to ambient conditions, be it temperature or
humidity, may destroy them. Therefore, the constituent molecules must be
carefully tailored for each specific application. Although the DTLF Method is
faster than the Langmuir-Blodgett method, it is much slower than most other
commercial methods for fabrication of non-monolayer thin films. It is,
therefore, necessary to identify viable niche areas where specialty monolayer
filters can be competitive.
We do not intend to focus solely on nanofilter application and products based on
the DTLF Method technology. We intend to identify significant business
opportunities where Nanotechnology has the potential to play the pivotal role
and to focus research and development efforts on such activities. Companies
developing and marketing Nanotechnology applications and products are expected
to proliferate and the environment in which we operate is expected to become
increasingly competitive.
We believe that the DTLF Method has the potential to offer significant
commercial advantages over existing monolayer fabrication methods, and in
particular the well-accepted Langmuir Blodgett method. However, the DTLF Method
is still in research and development stage and has not yet been validated by a
commercial prototype. The DTLF method requires substantial development to make
it a viable technology. We will have to supplement the Company's personnel with
strong scientific, production and business leadership in order to develop an
array of Nanotechnology products. We expect that significant further investment
is required to transform the DTLF Method into a commercially practical
technology, however, there can be no assurance of the availability of such
capital at this time nor of commercially viable products, applications or
services resulting from any expenditures of such capital.
COMPETITION.
There are other companies in the business of filtration generally, however, to
our knowledge, none are engaged in DTLF technology. However, we anticipate that
we will experience significant competition in the future. Although we believe
that the market will provide opportunities for more than one supplier of
products and services similar to those of ours, it is possible that a single
supplier may dominate one or more market segments. If competition increases from
these and other sources, we might have to respond to competitive pressures by
implementing pricing, marketing and other programs, or seeking additional
strategic alliances or acquisitions that may be less favorable than would
otherwise be established or obtained. Any such response to competition could
materially affect our business, results of operations and financial conditions.
We also may experience significant competition from other manufacturers and
distributors in international markets, including competition from United
States-based competitors, in addition to companies that are already well
established in foreign markets. Many of our existing competitors, in addition to
a number of potential new competitors, have significantly greater financial,
technical and marketing resources than we do.
RESEARCH AND DEVELOPMENT.
We have not spent any money in the last two fiscal years on research and
development. We acquired the DTLE Method technology through the acquisition of
Nano World Colloid & Coating LLC.
5
<PAGE>
EMPLOYEES.
As of April 30, 2000, we had 3 employees. We anticipate from time-to-time we
will use the services of independent contractors and consultants to support
product research and development, marketing and sales and business development.
Item 2.
DESCRIPTION OF PROPERTY
We currently occupy leased office facilities consisting of 1,000 square feet at
11715 North Creek Parkway, South Bothell, Washington, 98011, on a month-to-month
basis. In addition, we are leasing office space on a one year term in Vancouver
through our Canadian subsidiary, consisting of 1,353 square feet on the 13th
floor of 885 West Georgia Street, Vancouver, British Columbia, described as Lot
B, Block 16, District Lot 541, Plan 4903. We currently do not have any
manufacturing or production facilities.
As of August 1, 2000, we have negotiated a lease for a research facility through
our Canadian subsidiary in Trois Riviere, Quebec, consisting of 5,889 sq feet,
comprising both laboratory and office space. The research facility lease is for
a three year term.
The company is also in the process of establishing an Italian subsidiary and
foresees acquiring office premises in Turin, Italy in the near future.
Item 3.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Company is a party and the Company
has no knowledge of any actions, suits, orders, investigations or claims pending
or threatened against or affecting it or its property.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 15, 2000, pursuant to written consents as provided for by the
Delaware General Corporation Law and the bylaws of the Company, in lieu of a
special meeting of the shareholders, holders of 5,727,500 shares of our common
stock, representing at least 51% of our total issued and outstanding stock
entitled to vote, voted on the matter of changing our name from Breccia
International Minerals, Inc., to Nano World Projects Corporation. All 5,727,500
shares, which were voted in the form of written consents, voted in favor of the
name change. There were no votes cast against and no other votes listed as
abstentions.
NUMBER OF SHARES
Votes For Votes Against Not Voted* Votes Excluded
--------- ------------- ---------- --------------
5,727,500 0 2,400,706 0
6
<PAGE>
* As of February 15, 2000, there were 8,128,206 outstanding shares of Breccia
International Minerals, Inc. common stock.
PART II
Item 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's Common Stock is quoted on the NASDAQ Over-the-Counter Bulletin
Board (the "OTC Bulletin Board") since October 16, 1996. In connection with the
Company's name change to Nano World Projects Corporation in February 2000, the
Company changed its symbol on the OTC Bulletin Board from "BIMI" to "NAPH"
effective March 1, 2000. The following is a list of the low and high bid
quotations by fiscal quarters for 1999 and 2000 as reported by the OTC Bulletin
Board:
2000 1999
---- ----
Quarters Low High Low High
-------- --- ---- --- ----
Quarter ended July 31 7.5625 7.5625 .83 1.67
Quarter ended October 31 0 0 1.01 1.01
Quarter ended January 31(1) 0 0 0 0
Quarter ended April 30 9.37 21.87 0 0
(1) No data was available since two Market Makers with two sided quotes are
needed to generate reports from Nasdaq.
The quotations reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not represent actual transactions.
(b) Holders of Record
As of July 25, 2000 there were 1,961 holders of record of the Company's Common
Stock.
(c) Dividends
The Company has not declared or paid any cash dividends on its Common Stock
since its formation and does not intend to declare or pay any cash dividends in
the foreseeable future. The Company intends to retain future earnings, if any,
to finance the development and expansion of its business. The payment of
dividends, if any, is within the discretion of the Board of Directors and will
depend on the Company's earnings, if any, its capital requirements and financial
condition, and such other factors as the Board of Directors may consider. The
Company currently does not have any restriction that limits its ability to pay
dividends on its Common Stock or that is likely to do so in the foreseeable
future.
(d) Recent Sales of Unregistered Securities
On January 31, 2000, the Company entered into a Stock Purchase Agreement with
various shareholders of Nano World Colloid & Coating LLC ("Nano
7
<PAGE>
World Colloid & Coating") pursuant to which the Company purchased all of the
issued and outstanding stock of Nano World Colloid & Coating. In exchange, the
Company agreed to deliver the sum of $500.00 and 5,000 shares of the Company's
$.0001 par value common stock for each of the 1,000 Coating LLC shares. As such,
the total consideration paid for all of the issued and outstanding shares of
Coating LLC was $500,000 and 5,000,000 of the Company's $.0001 par value common
stock. The shares were issued in reliance on the exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act"), provided by
Section 4(2) of the Securities Act.
During March and April 2000, the Company issued an aggregate of 5,000,000 shares
of restricted common stock for aggregate proceeds of $2,500,000 to accredited
investors at a price $0.50 per share. An additional 250,000 shares were issued
by the Company as consideration for financing services rendered on behalf of the
Company. All of such shares were issued in reliance on the exemption from
registration under the Securities Act provided by Rule 506 of Regulation D and
Section 4(2) of the Securities Act.
Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following description of our financial condition and results of operations
should be read in conjunction with the information included in this prospectus.
The description contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ significantly from the results
discussed in the forward-looking statements as a result of the risk factors set
forth above and elsewhere in this prospectus.
Pursuant to the Coating LLC Agreement, the Company purchased the technology
known as the Dynamic Thin Laminar Flow ("DTLF Method"). The DTLF Method was
invented in 1997 with the goal of rendering monolayer preparations compatible
with industrial standards. A patent on the DTLF Method was obtained in 1997 in
Italy and subsequent patent applications have been filed in the United States
and other countries. Our sole significant asset is the DTLF Method patent. We
are engaged solely in research and development of the DTLF Method technology. We
are not currently engaged in any commercial production or licensing of the DTLF
Method technology. As a result, we have no revenue and expect to incur losses
during the foreseeable future. The DTLF Method technology, and our ability to
commence commercial exploitation of the patent, are subject to additional proof
of process research and development. Given the foregoing status of our
operations, we should be considered a high-risk startup technology concern, in
our early and inchoate stages of development.
We are aware, and advise our shareholders and potential investors, that we are a
high-risk venture with no ability to ensure the establishment of significant
revenue streams, or enhancement of shareholder value.
Our objectives during the foreseeable future consist of the following:
1. Research, development and expansion of existing DTLF Method technology
through the registration of patents for Company technology internationally, and
through the registration of new patents to protect our intellectual property and
work product.
We have formed two subsidiaries: Nano World (Canada) Incorporated, a Canadian
Federal Company, and Centre de Recherche en Assemblage Nanomecanique Ltd., a
8
<PAGE>
company incorporated in the province of Quebec, wholly owned by Nano World
(Canada). Through these entities, our management envisions that we will carry
out basic and applied research and explore relationships with joint venture
partners and licensees in Canada and elsewhere. To this end, NanoMecanique has
established a research center in Trois-Rivieres, Quebec, headed by Dr. Gilles
Picard, the inventor of the DTLF Method and a member of our Board of Directors.
Management is also in the process of forming an advisory board consisting of
specialists in areas related to the technology proprietary to us, and will be
guided by its recommendations, together with the recommendations of its
financial and legal advisors.
2. Identification of potential joint ventures and/or licensees.
We are in the process of creating an Italian subsidiary that will have as its
mandate the implementation of joint venture agreements in Europe, now under
active negotiation by Management. Our European subsidiary is also expected to be
responsible for bringing developed products to market in Europe.
3. Identification and engagement of additional management.
Given the early stages of development and the limit to resources anticipated to
continue for the first and second quarters of fiscal 2000, management functions
have been carried out to date and are expected to continue to be carried out in
large measure by members of our Board of Directors as delegated by the Board as
a whole. The Board plans to delegate to professional managers and assume more of
a policy-making role subsequent to completion of the initial phases of start up
development. We expect to complete such initial phase before calendar year-end
2000, however, there can be no assurance in this regard.
We have had nominal/insignificant revenue since the acquisition of our
technology through our subsidiary Nano World Colloid & Coating, consisting
entirely of interest on funds held in our accounts. No additional revenue is
expected until commercial applications of proprietary technology are
established, and joint ventures and/or license agreements are concluded and the
benefits anticipated thereunder are realized. Such relationships are under
active pursuit by our management, and initial partnership agreements are
anticipated in the fall of 2000.
In the event that such relationships are formed in the short term, we are
nevertheless conservative in our revenue forecasts and do not anticipate final
product development and sales revenue from such a collaboration in the short to
medium term.
Initially, revenues are expected to be derived from license agreements, but are
not expected to be sufficient alone for us to sustain ourselves on the basis of
such revenue, and further depletion of capital is therefore presumed in the
short and medium term.
Our management forecasts that we may begin to receive a more sizeable revenue
stream in the final quarter of 2002 based on product development plans, and
discussions with potential joint venture partners and licensees. However, we can
give no assurances that we will generate any such revenues.
9
<PAGE>
To date, we have financed our development primarily through the sale of our
common stock and have been dependent upon such outside sources of financing for
continuation of our development. We believe that we have sufficient cash to
satisfy our cash requirements through the end of October 2000, however, there
can be no assurance in this regard. Without additional funding or collaboration,
our ability to further our current development plans, and continue as a going
concern, will be at serious risk without a significant reduction of expenditures
and a related re-appraisal of operational plans, or a significant and, at
present, unanticipated increase in revenue.
We plan to seek additional equity financing in the fall of 2000 following
completion of start up tasks, which includes the completion of commercial
prototype(s) for exploitation of the DTLF Method technology. There can be no
assurance that such financing will be obtained. In the event that such initial
tasks are not concluded successfully in the fall of 2000, a re-evaluation of our
development and operational plans will be required as a result of limited
capital and diminished ability to raise new funding.
Our current cash expenditure rate is approximately $50,000 per month, though
additional one-time expenditures related to start up plans for the development
of our technology are expected to continue to have a significant budget impact
in our first fiscal quarter of May 1, 2000 through July 30, 2000, causing
monthly expenditures to vary.
Further, in the event that joint venture agreements are concluded, we foresee an
increase in expenditure rates in the short term, associated with a reduction in
some areas of foreseen expenditure over the medium to long term, and a potential
enhancement of our ability to obtain additional financing.
We have entered into negotiations with another company, and potential partner
with respect to completing development of the technology for specialized
applications. If such negotiations are successful, we would expect to see this
agreement in place by the fall of 2000. We expect that additional capital will
be required together with additional human resources to implement this
anticipated development should it occur. While we are exploring such
opportunities with confidence and optimism, negotiations with potential partners
remain at a preliminary stage and no binding commitments have yet been executed.
Our capital requirements will depend on numerous factors, including the progress
of our research and development, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, the economic
impact of competing technologies and the timeliness of company developments, the
costs of implementing and operating a marketing and licensing system in the
medium to long term, and the terms of any new collaborative, licensing and other
arrangements that we may establish.
Management has identified three principal inter-related risks that may have a
material impact on us: (1) the inability to raise additional capital; (2) the
inability to complete development of our technology; and (3) the inability to
sustain ourselves on capital until a revenue stream is established, in the event
of development delays.
In our management's view, raising additional capital is our major immediate
risk. Closely associated is the risk that we may not be able to develop a
working prototype in the short term, impeding both product development and
crucial financing. We believe that another important risk for us is selecting
10
<PAGE>
the most appropriate applications and markets for our proprietary technology,
given available resources and capital, and the urgency associated with bringing
product to market before competitors.
If we are not successful in targeting our technology in the most suitable
applications and markets initially, our current and anticipated capital will not
enable us to generate positive cash flow in the long term, even in the event
sufficient capital is raised to sustain us in the short to medium term.
Notwithstanding the caveats expressed above, and the challenges faced by us, we
maintain confidence as to the viability and value of our proprietary technology.
Our confidence has been bolstered by the enthusiasm expressed by potential
collaborators in on-going negotiations.
RISK FACTORS
In addition to the other information in this report, the following factors
should be carefully considered in evaluating our business and prospects.
RISKS RELATED TO THE COMPANY'S STAGE OF DEVELOPMENT AND BUSINESS MODEL.
LIMITED OPERATING HISTORY
We have a limited operating history upon which an evaluation of our prospects
can be made. Our prospects must be considered speculative considering the risks,
expenses and difficulties frequently encountered in the industry we anticipate
engaging in. The marketing and sale of our proposed products and services
involves significant risks, which a combination of experience, knowledge and
careful evaluation may not be able to overcome. There can be no assurance that
unanticipated problems will not occur which would result in material delays in
our product marketing and development, or that our efforts will result in
successful product commercialization. There can be no assurance that we will be
able to achieve profitable operations.
THE DTLF METHOD IS NEW AND UNPROVEN
Should the DTLF Method not perform as we expect, our business, operating results
and financial condition could be adversely affected. We believe that the DTLF
Method is innovative. As such, the method could be considered untested. If the
DTLF Method does not perform as we expect, our business, operating results and
financial condition could be adversely affected.
FAILURE TO MANAGE GROWTH COULD HARM THE COMPANY
We expect to experience significant growth and expect such growth to continue
for the foreseeable future. Our growth may place a significant strain on our
management, financial, operating and technical resources. Failure to manage this
growth effectively could have a material adverse effect on our financial
condition or results of operations. Part of our business strategy may be to
acquire assets that will complement our existing business. We are unable to
predict whether or when any material transaction will be completed should
negotiations commence. If we proceed with any such transaction, no assurance can
be given that we can effectively integrate the acquired operations with our own
operations. We may also seek to finance any such acquisition by debt financings
or issuances of equity securities and there can be no assurance that any such
financing will be available on acceptable terms or at all.
11
<PAGE>
DEPENDENCE ON THIRD-PARTY PROVIDERS
We may become dependent upon various third parties for one or more significant
services required for the marketing and development of our proposed products,
which services will be provided to our business pursuant to agreements with such
providers. Inasmuch as the capacity for certain services by certain third
parties may be limited, our inability, for economic or other reasons, to
continue to receive services from existing providers or to obtain similar
products or services from additional providers could have a material adverse
effect on our business.
UNPREDICTABILITY OF FUTURE REVENUES
Our results of operations may vary from period to period because of a variety of
factors, including our research and development, our introduction of new
products and services or our competitors, cost increases from third-party
service providers, production interruptions, the availability and cost of
industry service providers, changes in marketing and sales expenditures,
acceptance of our products and services, competitive pricing pressures, and
general economic and industry conditions that affect customer demand and
preferences.
As with any relatively new business enterprise operating in a specialized and
intensely competitive market, we are subject to many business risks which
include, but are not limited to, unforeseen marketing, promotional and
development expenses, unforeseen negative publicity, competition, product
liability and lack of operating experience. Many of the risks may be
unforeseeable or beyond our control. There can be no assurance that we will
successfully implement our business plan in a timely or effective manner, or
that we will be able to market and sell enough products and services to generate
sufficient revenues and continue as a going concern.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
As a result of our limited operating history as well as the innovativeness of
the production procedure we anticipate acquiring, we have neither internal nor
industry-based historical financial data for any significant period of time upon
which to calculate anticipated operating expenses. We expect that our results of
operations may also fluctuate significantly in the future as a result of a
variety of factors, including, but not limited to, (i) demand for our proposed
products and services; (ii) the introduction and acceptance of new or enhanced
products or services by us or by our competitors; (iii) our ability to
anticipate and effectively adapt to a developing market and to rapidly changing
technologies; (iv) our ability to attract, retain and motivate qualified
personnel; (v) initiation, renewal or expiration of significant contracts with
our major clients; (vi) pricing changes by us or our competitors; (vii) specific
economic conditions within the market we will be operating; and (viii) general
economic conditions and other factors. Accordingly, future sales and operating
results are difficult to forecast. Our expenses are based in part on our
expectations as to future revenues and to a significant extent are relatively
fixed, at least in the short-term. We may not be able to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly,
any significant shortfall in relation to our expectations would have an
immediate adverse impact on our business, results of operations and financial
12
<PAGE>
condition. In addition, we may determine from time to time to make certain
pricing or marketing decisions or acquisitions that could have a short-term
material adverse effect on our business, results of operations and financial
condition and may not result in the long-term benefits intended. Because of all
of the foregoing factors, it is probable that in some future period our
operating results may be less than the expectations of investors.
ABILITY TO IMPLEMENT OUR BUSINESS STRATEGIES
Implementation of our business strategies will depend in large part on our
ability to (i) establish a significant number of customers and maintain
favorable relationships with those customers; (ii) effectively introduce
acceptable products and services to our customers; (iii) obtain adequate
financing on favorable terms to fund our business strategies; (iv) maintain
appropriate procedures, policies, and systems; (v) hire, train, and retain
skilled employees; (vi) continue to operate with increasing competition; (vii)
establish and maintain name recognition; and (viii) establish and maintain
beneficial relationships with third-party service providers. Our inability to
obtain or maintain any or all these factors could impair our ability to
implement our business strategies successfully, which could have material
adverse effect on our results of operations and financial condition.
GREATER COSTS THAN ANTICIPATED
We have used reasonable efforts to assess and predict costs and expenses.
However, there can be no assurance that implementing our business plan may not
require more employees, capital equipment, supplies or other expenditure items
than management has predicted. Similarly, the cost of compensating additional
management, employees and consultants or other operating costs may be more than
our estimates, which could result in sustained losses.
FINANCIAL RISKS
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
To achieve and maintain competitiveness of our products and services and to
conduct costly development and marketing activities, we may need additional
funds in the near future. Our anticipation of the time through which our
financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary as a result of a number of factors, including those described
in these Risk Factors and elsewhere in this Report.
We anticipate that we will need additional capital in order to develop, promote
and market our products and services. Such additional capital may be received by
public or private financings, as well as borrowings and other resources. To the
extent that additional capital is received by the sale of equity or
equity-related securities, the issuance of such securities could result in
dilution to our stockholders, including holders of the Offered Shares. There can
be no assurance that additional funding will be available on favorable terms and
conditions, if at all. If adequate funds are not available, we may be required
to curtail operations significantly or to obtain funds by entering into
arrangements with collaborative partners or others that may require us to
relinquish rights that we would not otherwise relinquish.
NO ASSURANCE OF REVENUE OR OPERATING PROFITS
There can be no assurance that we will be able to develop or maintain consistent
revenue sources or that our operations will become profitable.
13
<PAGE>
LIQUIDITY
We may require additional cash to implement our business strategies, including
cash for (i) payment of increased operating expenses and (ii) additional
implementation of those business strategies. No assurance can be given, however,
that we will have access to additional funds in the future, or that additional
funds will be available on acceptable terms and conditions to satisfy our cash
requirements to implement our business strategies. Our inability to obtain
acceptable financing could have a material adverse effect on our results of
operations and financial conditions.
RISKS OF INTERNATIONAL SALES AND OPERATIONS
We anticipate that revenue from the sale of our products may be derived from
customers located outside the United States. Additionally, a portion of our
sales and operations could be subject to certain risks, including tariffs, and
other barriers, currency exchange risks and exchange controls, potentially
adverse tax consequences and the possibility of difficulty in accounts
receivable collection. There can be no assurance that any of these factors will
not have a material adverse effect on our business, financial condition and
results of operations. Although we will monitor our exposure to currency
fluctuations, there can be no assurance that exchange rate fluctuations will not
have an adverse effect on our results of operations or financial condition. In
the future, we could be required to sell our products in other currencies, which
would make the management of currency fluctuations more difficult and expose our
business to greater risks in this regard.
Our products will be subject to numerous foreign government standards and
regulations that are continually being amended.
Although we will endeavor to satisfy foreign technical and regulatory standards,
there can be no assurance that our products will comply with foreign government
standards and regulations, or changes thereto, or that it will be cost effective
for us to redesign our products to comply with such standards or regulations.
Our inability to design or redesign products to comply with foreign standards
could have a material adverse effect on our business, financial condition and
results of operations.
RISKS RELATED TO SALES, MARKETING AND COMPETITION
DEPENDENCE ON NAME RECOGNITION
Our strategy for growth is substantially dependent upon our ability to market
and promote our products successfully. Other companies, including those with
substantially greater financial, marketing and sales resources, compete with us,
and have the advantage of marketing products with existing production and
distribution facilities. There can be no assurance that we will be able to
market and promote our products on acceptable terms, or at all. Failure to
market our products successfully could have a material adverse effect on our
business, financial condition or results of operations.
We believe that our future success will, at least, be dependent partially on our
ability to maintain and increase the name recognition of our products. Our
inability to maintain and increase name recognition could have a material
adverse impact on our business, financial condition or results of operations.
There can be no assurance that our products or services will achieve significant
acceptance by prospective
14
<PAGE>
customers, and that such acceptance, if achieved, will be sustained for any
significant period or that production and distribution will be sufficient to
permit the Company to recover start-up and other associated costs. Failure of
our products to achieve or sustain acceptance by prospective customers could
have a material adverse effect on the business, financial conditions and results
of operations.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
We believe that establishing and maintaining the brand name of our products is
critical to our efforts to attract and expand our customer base. Promotion and
enhancement of products and services to be offered by us will depend
significantly on our success in providing access to high-quality products and
services, which success cannot be assured. In order to attract and retain
customers and to promote and maintain products and services in response to
significant competition, we may determine that it is necessary to increase
substantially our financial commitment to creating and maintaining a loyalty
among consumers. If we are unable to provide high-quality products and services
or otherwise fail to promote and maintain the products offered by us, or if we
incur excessive expenses in an attempt to expand the products and services to be
offered by us, our business, operating results and financial condition will be
materially and adversely affected.
Our promotion of our products may not be successful. The success of our products
depends largely on our ability to provide high-quality products and services. If
customers do not perceive our existing products and services to be of
high-quality, or if we introduce new products and services or enter into new
businesses that are not favorably perceived by customers, we may not be
successful in promoting and maintaining our products or services. Any expansion
of our operations creates a risk of confusing consumers and decreasing the value
of our products. In order to attract and retain customers, and to promote the
products and services to be offered by us, we may need to increase our budgets
for products and services or otherwise substantially increase our financial
commitment to establishing and maintaining loyalty for our products. If we are
unable to establish our products or are forced to substantially increase our
expenditures to promote our products, our business could be severely harmed.
We must establish and maintain distribution relationships to distribute our
products. There is significant competition for relationships on favorable terms.
We must continually attract customers. Our success may depend on our ability to
attract and retain a large number of customers by delivering quality products
and services. If we are unable to provide quality products and services that
allow us to attract, retain and expand loyal customers who can spend significant
amounts of money on our products, we will be unable to generate revenues or
enter into the necessary relationships, and our revenues and operating results
will be severely harmed. The products and services we will provide may not
appeal to a sufficient number of consumers to generate significant revenues.
Consumer choices and preferences change rapidly and we may not be able to
anticipate, monitor and successfully respond to these changes to attract and
retain a sufficient number of consumers for our products. If we are not able to
respond adequately to changing consumer choices and preferences, our business,
operating results and financial condition could be adversely affected.
COMPETITION
Although we believe that the market will provide opportunities for more than one
supplier of products and services similar to those of ours, it is possible that
15
<PAGE>
a single supplier may dominate one or more market segments. If competition
increases from these and other sources, we might have to respond to competitive
pressures by implementing pricing, marketing and other programs, or seeking
additional strategic alliances or acquisitions that may be less favorable than
would otherwise be established or obtained. Any such response to competition
could materially affect our business, results of operations and financial
conditions. We also have significant competition from other manufacturers and
distributors in international markets, including competition from United
States-based competitors, in addition to companies that are already well
established in foreign markets. Many of our existing competitors, in addition to
a number of potential new competitors, have significantly greater financial,
technical and marketing resources than us.
RISKS RELATED TO OPERATIONS
DEPENDENCE ON KEY PERSONNEL
Our future success will depend in part on the service of our key personnel and,
additionally, our ability to identify, hire and retain additional qualified
personnel. There is significant competition for qualified personnel for our
business, and there can be no assurance that we will be able to continue to
attract and retain such personnel necessary for the development of our business.
Because of the significant competition, there can be no assurance that we will
be successful in adding personnel as needed to satisfy our staffing
requirements. Failure to attract and retain key personnel could have a material
adverse effect on us. We do not maintain key person life insurance on any of our
key personnel.
RELIANCE ON MANAGEMENT
We are, and will continue to be, dependant on the efforts and abilities of our
senior management. The loss of various members of that management could have a
material adverse effect on our business and our prospects. We believe that all
commercially reasonable efforts have been made to minimize the risks attendant
with the departure by key personnel from the service of the Company. There is no
assurance, however, that upon the departure of senior management from the
service of the Company that replacement personnel will cause the Company to
operate profitably. All decisions regarding management of our affairs will be
made exclusively by the officers and directors of the Company. Stockholders may
not participate in the management of the Company and, therefore, are dependent
upon the management abilities of the Company's officers and directors. The only
assurance that the Company's stockholders have that the Company's officers and
directors will not abuse their discretion in making decisions with respect to
the Company's affairs and other business decisions is the fiduciary obligations
and business integrity of those officers and directors. Accordingly, no person
should purchase our Common Stock unless that person is willing to entrust all
aspects of management of the Company to the Company's officers and directors, or
their successors. Potential purchasers of our Common Stock must carefully
evaluate the personal experience and business performance of the officers and
directors of the Company. The Company's officers and directors may retain
independent contractors to provide services to the Company. Those contractors
have no fiduciary duty to the Company's stockholders and may not perform as
expected. The Company does not maintain key person life insurance on any of its
senior management.
16
<PAGE>
PRODUCTS AND SERVICES
There can be no assurance that we will not experience difficulties that could
delay or prevent the successful development, introduction or marketing of new or
enhanced products and services, or that our new products and services will
adequately satisfy the requirements of prospective customers and achieve
significant acceptance by those customers. Because of certain market
characteristics, including technologic change, changing customer needs, frequent
new product and service introductions and evolving industry standards, the
continued introduction of new products and services is critical. Delays in the
introduction of new products and services may result in customer dissatisfaction
and may delay or cause a loss of revenue. There can be no assurance that we will
be successful in developing new products or services. Additionally, there can be
no assurance that we will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new or
improved products and services, or that our new products and services will
adequately satisfy the requirements of prospective customers and achieve
acceptance by those customers. In addition, new or enhanced products and
services introduced by us may contain undetected errors that require significant
design modifications. This could result in a loss of customer confidence which
could adversely affect the use of our products, which, in turn, could have a
material adverse effect upon our business, results of operations or financial
condition. If we are unable to develop and introduce new or improved products or
services in a timely manner in response to changing market conditions or
customer requirements, our business, operating results and financial condition
will be materially adversely affected.
EXPERIENCE OF MANAGEMENT TO CONTROL COSTS
We have used reasonable efforts to assess and predict costs and expenses.
However, we have no historical data upon which to base those predictions.
Implementing our business plan may require more employees, equipment, supplies
or other expenditure items than we have predicted. Similarly, the cost of
compensating additional management, employees and consultants or other operating
costs may be more than our estimates, which could result in sustained losses.
LACK OF EXPERIENCE
We have no experience in the sale and marketing of the products and services we
anticipate we will manufacture and market. However, we believe that we can
successfully attract consumers of the products and services we anticipate
manufacturing and marketing. There can be no assurance that we will be able to
establish sales, marketing and distribution capabilities or make arrangements
with collaborators, licensees or others to perform such activities or that such
efforts will be successful.
The development, manufacture and distribution of our products and services will
involve a number of procedures and will require compliance with stringent
quality control specifications imposed by the Company and various regulators. We
may not be able to replace our proposed production capabilities quickly if we
were unable to use either our equipment and facilities or those licensed from
third parties, as a result of a fire, natural disaster (including an
earthquake), equipment failure or other difficulty, or if that equipment and
those facilities are deemed not in compliance with the various regulators'
requirements and the non-compliance could not be rapidly corrected. Our
inability or reduced capacity to develop and distribute our proposed products
17
<PAGE>
and services would have a material adverse effect on our business and results of
operations.
We may enter into arrangements with various third-party service providers to
increase our production capacities in order to satisfy requirements for our
proposed products and services or to attempt to improve overall efficiency. If
we determine that our best course is to contract for products and services and
encounter delays or difficulties in establishing relationships with service
providers to produce and distribute our proposed products and services, market
introduction and subsequent sales of such proposed products and services and
interest in our proposed products and services could be adversely affected.
Additionally, contract service providers must also operate in compliance with
the various regulators' requirements; and failure to do so could result in,
among other things, the disruption of our production capabilities.
CONFLICTS OF INTEREST
The potential for conflicts of interest exists among the Company and affiliated
persons for future business opportunities that may not be presented to the
Company. The Company's officers and directors may engage in other activities.
The Company's officers and directors may have conflicts of interests in
allocating time, services, and functions between the other business ventures in
which those persons may be or become involved. The Company's officers and
directors, however, believe that we will have sufficient staff, consultants,
employees, agents, contractors, and managers to adequately conduct our business.
UNINSURED LOSS; ACTS OF GOD
We may, but are not required to, maintain comprehensive liability and other
business insurance of the types customarily carried by similar businesses. There
are certain types of extraordinary occurrences, however, which may be either
uninsurable or not economically insurable. For example, in the event of a major
earthquake, our computer systems could be rendered inoperable for protracted
periods of time, which would adversely affect our financial condition. In the
event of a major civil disturbance, our operations could be adversely affected.
Should such an uninsured loss occur, we could lose significant revenues and
financial opportunities in amounts which would not be partially or fully
compensated by insurance proceeds.
RISKS RELATED TO GOVERNMENT REGULATION AND INTELLECTUAL PROPERTY
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any government agency in
the United States, other than regulations applicable to businesses generally.
Our efforts to sell products and services may expose us to product liability
claims. We have little experience in the sale of products and the development of
relationships with manufacturers or suppliers of these products. Persons who
purchase products may sue us if any of the products purchased from us are
defective, fail to perform properly or injure the user. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could severely harm our business.
Our success and ability to compete may be significantly dependent on our
proprietary information. We anticipate that we will rely exclusively on
copyright law to protect our proprietary information. Although we will actively
18
<PAGE>
take action to protect our proprietary information, that action may not be
adequate to prevent the infringement or misappropriation of our proprietary
information. Infringement or misappropriation of our proprietary information
could materially harm our business. We may be required to obtain licenses from
others to refine, develop, market and deliver new products. We cannot make
assurances that we will be able to obtain any such licenses on commercially
reasonable terms or at all, or that rights granted pursuant to any licenses will
be valid and enforceable.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
A significant part of our strategy is to develop our products and services in
international markets. There can be no assurance that we will be able to market
and distribute our products and services in foreign markets successfully. In
addition to the uncertainty as to our ability to generate revenues from foreign
operations, there are certain risks inherent in doing business internationally,
such as unexpected changes in regulatory requirements, export restrictions,
trade barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, software piracy, seasonal
reductions in business activity in certain other parts of the world and
potentially adverse tax consequences, which could adversely impact the success
of our international operations. There can be no assurance that one or more of
such factors will not have a material adverse effect on our potential future
international operations and, consequently, on our business, operating results
and financial condition. In order to attract and retain more customers, we plan
to increase our expenditures for sales and marketing, product development,
technology and infrastructure significantly. Many of these expenditures are
planned or committed in advance and in anticipation of future revenues. If our
revenues in a particular period are less than it anticipates, we may be unable
to reduce spending in that period. As a result, any shortfall in revenues would
probably adversely affect our operating results for that period.
LIABILITY FOR SERVICES
There can be no assurance that third parties will not, in the future, claim
infringement by us with respect to current or future products, trademarks or
other proprietary rights, or that we will not counterclaim against any such
parties in such claims. Any such claims or counterclaims could be
time-consuming, result in costly litigation, cause product release delays,
require us to redesign or reproduce our products or require us to enter into
royalty or licensing agreements, any of which could have a material adverse
effect upon our business, operating results and financial condition. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us, or at all.
LICENSES AND CONSENTS
The utilization or other exploitation of the products and services developed by
us may require us to obtain licenses or consents from government regulatory
agencies or from the producers or other holders of patents, copyrights or other
similar rights relating to our products and services. In the event we are
unable, if so required, to obtain any necessary licenses or consents on terms
and conditions which we consider to be reasonable, we may be required to stop
developing, utilizing, or exploiting products and services affected by
government regulation or by patents, copyrights or similar rights. In the event
we are challenged by a government regulatory agency, or by the holders of
19
<PAGE>
patents, copyrights or other similar rights, there can be no assurance that we
will have the financial or other resources to defend any resulting legal action,
which could be significant.
We may rely on certain proprietary technologies, trade secrets, and know-how
that are not patentable. Although we may take options to protect our unpatented
trade secrets, our technology and our proprietary information, in part, by the
use of confidentiality agreements with our employees, consultants and certain of
our contractors, there can be no assurance that (i) these agreements will not be
breached, (ii) we would have adequate remedies for any breach; or (iii) our
proprietary trade secrets and know-how will not otherwise become known or be
independently developed or discovered by competitors. There is also no assurance
that our actions will be sufficient to prevent imitation or duplication of our
products and services by others or prevent others from claiming violations of
their trade secrets and proprietary rights.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
Our proposed production processes will subject us to various laws and
regulations governing the use, manufacture, storage, handling, and disposal of
hazardous materials and certain waste products. The risk of accidental
contamination or injury from hazardous materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our financial resources.
In addition, there can be no assurance that, in the future, we will not be
required to incur significant costs to comply with environmental laws and
regulations relating to hazardous materials. We may be subject to various laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. Although we believe that we will be able
to institute the necessary safety procedures for handling and disposing of such
materials and comply with the standards prescribed by such laws and regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, we could be held liable
for any damages that result, and any such liability could exceed our resources.
There can be no assurance that we will not be required to incur significant
costs to comply with current or future environmental laws and regulations nor
that our operations, business or assets will not be materially or adversely
affected by current or future environmental laws or regulations.
GENERAL RISKS
LIMITATION ON LIABILITY OF OUR OFFICERS AND DIRECTORS
Article VII of our Certificate of Incorporation includes a provision eliminating
or limiting the personal liability of our officers and directors to the Company
and its shareholders for damages for breach of fiduciary duty as a director or
officer. Accordingly, our officers and directors may have no liability to our
shareholders for any mistakes or errors of judgment or for any act of omission,
unless such act or omission involves intentional misconduct, fraud, or a knowing
violation of law or results in unlawful distributions to our shareholders.
SPECULATIVE INVESTMENT AND POSSIBLE LOSS OF ENTIRE INVESTMENT.
A purchase of our shares of Common Stock is significantly speculative and
involves significant risks, and our Common Stock should not be purchased by any
person who cannot afford the loss of his or her entire purchase price for our
Common Stock. Our Common Stock would be "unsuitable" for a person who cannot
20
<PAGE>
afford to lose his or her entire purchase price for the Common Stock. Our
business objectives must also be considered speculative, and there is no
assurance we will satisfy those objectives. No assurance can be given that the
purchasers of our Common Stock will realize a substantial return on their
purchase of our Common Stock, or any return whatsoever, or the purchasers of our
Common Stock will not lose their investments in the Company completely. For this
reason, each prospective purchaser should read this Report and all exhibits to
this Report carefully and should consult with that purchaser's attorney,
business advisor, or investment advisor.
LOSS ON DISSOLUTION OF THE COMPANY
In the event of dissolution of the Company, the proceeds realized from the
liquidation of the Company's assets, if any, will be distributed to our
shareholders only after satisfaction of claims of our creditors. The ability of
our stockholders to recover all or any portion of his or her purchase price for
our Common Stock in that event will depend on the amount of funds realized and
the claims to be satisfied therefrom.
PENNY STOCK REGULATION
The Securities and Exchange Commission ("Commission") has adopted rules that
regulate broker-dealer practices in connection with transactions in "penny
stocks". Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules, deliver a
standardized risk disclosure document prepared by the Commission, which
specifies information about penny stocks and the nature and significance of
risks of the penny stock market. The broker-dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker-dealer and our salesperson in the transaction, and monthly account
statements indicating the market value of each penny stock held in the
customer's account. In addition, the penny stock rules require that, prior to a
transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for a stock that
becomes subject to the penny stock rules. If any of the Company's securities
becomes subject to the penny stock rules, holders of those securities may have
difficulty selling those securities.
NO CUMULATIVE VOTING
The Company's governing documents do not allow for the cumulative voting of
shares of the Company's $.0001 par value common stock for the election of
directors of the Company, which could minimize the voting power of the Company's
minority stockholders. Briefly, cumulative voting allows a shareholder to
accumulate the number of votes he or she would be permitted to cast in favor of
or against all directors and vote them for or against a single director or in
any manner he or she chooses. When cumulative voting is permitted, a stockholder
is entitled to cast all votes for a single director or to distribute them among
any two or more directors as he or she may determine. An approximate measure of
the minimum number of votes a stockholder must have to elect a target number of
21
<PAGE>
directors by cumulating ins or her votes can be determined by multiplying the
total number of shares of the Company's $ .0001 par value common stock by a
number equal to the total number of directors, dividing this by a number equal
to the total number of directors to be elected plus one, and adding one to the
result.
Although cumulative voting is intended to provide minority stockholders with an
opportunity to elect directors, it does not provide a guarantee of minority
representation.
NO FORESEEABLE DIVIDENDS
We do not anticipate paying dividends on our common stock in the foreseeable
future; but, rather, we plan to retain earnings, if any, for the operation and
expansion of our business.
RECEIPT OF COMPENSATION REGARDLESS OF PROFITABILITY
The Company's officers, directors, and employees are entitled to receive
significant compensation, payments and reimbursements, regardless of whether the
Company operates at a profit or a loss. The Company's Bylaws provide that
directors shall receive no compensation for their services as directors.
However, any compensation received by officers, the Company's management
personnel, and directors if earned in a capacity other than director will be
determined from time to time by the Company's Board of Directors. Officers,
directors and management personnel of the Company will be reimbursed for any
out-of-pocket expenses incurred on the Company's behalf.
ILLIQUIDITY OF INVESTMENT
Holders of shares of our Common Stock will have no right to present their shares
of the Company for repurchase. Purchasers of our Common Stock who wish to
terminate their investment in the Company must rely solely upon their ability to
sell or otherwise transfer their Common Stock, subject to applicable securities
laws. Consequently, the purchase of our Common Stock should be considered only a
long-term investment.
SECURITIES MARKET FACTORS
The Company's common stock is currently quoted on the OTC Bulletin Board under
the symbol "NAPH". The market price for those securities may be significantly
affected by such factors as our financial results and introduction of new
products and services. Additionally, in recent years, the stock market has
experienced a significant level of price and volume volatility and market prices
for many companies, and such companies have experienced significant price
fluctuations not necessarily related to the operating performance of such
companies. In the event a significant market for our securities develops, the
market price for our securities may be affected by general stock market
volatility.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or the Company's future
financial performance. In some cases, investors can identify forward-looking
statements by terminology such as "could," "may," "will," "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "potential" or
22
<PAGE>
"continue," the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, investors should specifically consider various
factors, including the risks described above and in other parts of this Report.
These factors may cause the Company's actual results to differ materially from
any forward-looking statement. Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither the Company nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. The Company is under no duty to update any of the forward- looking
statements after the date of this Report to conform them to actual results or to
changes in the Company's expectations.
Item 7.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the company are included herein, commencing on page
F-1 hereof.
Item 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Item 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
(a) The Company's executive officers and directors are as follows:
Name Age Position
---- --- --------
David L. Hunter 46 Chief Executive Officer, President and
Director
Battistino Fornero 53 Executive Vice President and Director
John Andrew A. Cochrane 33 Director
Robert Papalia 55 Director
Dr. Gilles Picard 47 Vice-President and Director
David L. Hunter has been Chief Executive Officer, President and director of the
Company since April 10, 2000. Mr. Hunter was a Registered Representative at
Thompson Kernaghan Stock Brokerage in Vancouver, British Columbia from May 1999
until the end of March, 2000. He was also a Registered Representative at
Dominick and Dominick in Vancouver from March 1997 until April 1999. In 1996 he
acted as President and CEO of Claire Corp. in Arizona. From August 1992 until
December 1995 he was a Registered Rep at Canacord Capital Corp. in Vancouver.
Mr. Hunter graduated from Langara College in 1975.
23
<PAGE>
Battistino Fornero has been Executive Vice-President and Director of the Company
since March 27th, 2000. Since 1971, Mr. Fornero has been a self-practicing
surveyor. Mr. Fornero graduated from the University of Turin in 1971.
John Andrew A. Cochrane has been a director, and treasurer and secretary of the
Company since April 17th, 2000. Since 1999, Mr. Cochrane has been self-employed
as a barrister & solicitor practicing corporate and commercial law in Vancouver,
British Columbia. Prior to this, Mr. Cochrane was an associate at several
Vancouver law firms practicing civil and criminal litigation. Mr. Cochrane
obtained his Bachelor of Arts in Philosophy (1st class standing) from Dalhousie
University in 1990 and his Bachelor of Laws from Dalhousie University in 1993.
Mr. Cochrane has been a member of the Bar of British Columbia since September,
1994.
Robert Papalia has been a director of the Company since April 17, 2000. Mr.
Papalia is President and Chief Executive Officer of Metals Research Group, a
mining business, and has been since 1975. In 1996 he became a Director and Chief
Operating Officer of PacRim Information Systems, Inc., and such through the
present. Since 1975 he has been a director at Metals Research S.A., a financial
institution, and International Metals Research Management, a mining management
company, and continues being director for both companies through the present.
Since 1988 Mr. Papalia has been a director of Pantorini Corporation, a financial
business, and since 1970 he has been a director of Pyramid Trust Corporation, a
private merchant bank. Mr. Papalia was Assistant Governor of the U.S.-Italian
Chamber of Commerce, in Milan, Italy from 1980 until 1982 and was Special
Assistant to Loris Fortuna, Vice-President of Italy and Member of Parliament,
from 1980 until 1984.
Dr. Gilles Picard has been a Research Associate in an exploratory research
program focusing on the development of protein 2-D crystals at Tsukuba Science
City in Japan from 1992-1994. Dr. Picard obtained his Ph.D. in biophysics at
Trois-Rivieres (Quebec) Canada in 1990 and made post-doctoral studies at the
University of Montreal, and Syracuse University in New York. Both studies
concentrated on holography of bi-layer lipid membranes. Dr. Picard has published
articles extensively in leading publications related to monolayers and colloidal
chemistry. Dr. Picard was appointed a Director of the Company on May 1, 2000.
All of the above directors hold office until the next annual meeting of the
stockholders and until their successors have been duly elected and qualified.
All of the above executive officers were elected by and serve at the direction
of the Board of Directors of the Company. All of the officers serve at the
discretion of the Board of Directors. There are no family relationships among
the directors, executive officers or key personnel.
(b) Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review Forms 3,4 and 5 furnished to the Company, the Company
does not believe that any director, officer or beneficial owner of more than 10%
of any class of the Company's equity securities failed to file on a timely
basis, reports required by Section 16(a) of the Securities Exchange Act of 1934
during the last fiscal year.
24
<PAGE>
Item 10.
EXECUTIVE COMPENSATION
None of our executive officers have received any remuneration for their services
as officers of the Company in the fiscal year ending April 30, 2000.
We do not currently have a stock option plan or long term incentive plan.
DIRECTORS' COMPENSATION
None of our directors receive cash compensation, however, directors receive
expense reimbursement for services provided as a director, including attendance
at meetings of the Board of Directors or at meetings of committees of the Board
of Directors of which they are members.
Employment Contracts with Key Employees
The Company currently is a party to five employment contract with the following
executive officers: Dr. Gilles Picard, Jean Beliveau, Giorgio Marinoni, Rosario
Cutri, and Piermaria G. Travaglia.
Employment Contract of Dr. Gilles Picard
On March 23, 2000, we entered into an employment agreement with Dr. Gilles
Picard to act as the Company's Chair of the Scientific Advisory Board and Vice
President of Research & Development, commencing on April 1, 2000 for an
indefinite term (the "Picard Agreement"). Pursuant to the Picard Agreement, Dr.
Picard agreed to devote his business and professional time and efforts to our
business as an executive officer. The Employment Agreement provides that Dr.
Picard shall receive a base salary at an annual rate of $65,000. Pursuant to the
Employment Agreement, Dr. Picard has the right to participate in our option
incentive program once it is initiated on terms as we and Dr. Picard may agree.
Pursuant to the Picard Agreement, both parties agreed that Dr. Picard shall
assign to us any interest in any intellectual property created by him in his
employ and that we can waive assignment of any created intellectual property.
Dr. Picard acknowledged that all information he acquires or is exposed to is
confidential and our exclusive property, that he will not disclose any of our
confidential information to any third party unless permitted by an officer of
the Company or if it is required by law, and that he will not, without time
limitation, disclose any of our confidential information after his employment
with us terminates.
Pursuant to the Picard Agreement, Dr. Picard promises that during his
employment, and for five years after termination of his employment, he will not
engage in any competitive enterprise, or attempt to solicit the business of any
customer of ours who has been a customer at any time within 36 months preceding
the date of his termination, or attempt to request or influence any employee to
terminate his employment.
If Dr. Picard is offered a position which would cause him to be in breach of the
non-compete provisions of the Picard Agreement, we will pay the lesser of his
salary until the end of the post-termination non-competition period or the
amount of his financial loss suffered by declining the offer, provided that he
makes written application to us within seven days of the offer to be released
from the non-compete provisions and we refuse to release him.
25
<PAGE>
The Picard Agreement can be terminated by:
. 12 weeks' notice to us;
. one month's notice to Dr. Picard for each year of service, or payment in
lie thereof, in which case Dr. Picard is free to seek other employment.
Should he obtain other employment prior to the end of the notice period,
our obligations shall cease as of the date his other employment is
obtained; and
. by us for cause, including material breach of the provisions of the Picard
Agreement, and conviction of Dr. Picard of a criminal offense punishable
by indictment.
Employment Contract of Giorgio Marinoni
On March 31, 2000, we entered into an employment agreement with Giorgio Marinoni
to act as the Company's Vice President of Engineering, commencing on April 1,
2000 for an indefinite term (the "Marinoni Agreement"). Pursuant to the Marinoni
Agreement, Mr. Marinoni agreed to devote his business and professional time and
efforts to our business as an executive officer. The Marinoni Agreement provides
that Mr. Marinoni shall receive a base salary at an annual rate of $30,000.
Pursuant to the Marinoni Agreement, Mr. Marinoni has the right to participate in
our option incentive program once it is initiated on terms as we and Mr.
Marinoni may agree.
Pursuant to the Marinoni Agreement, both parties agreed that Mr. Marinoni shall
assign to us any interest in any intellectual property created by him in his
employ and that we can waive assignment of any created intellectual property.
Mr. Marinoni acknowledged that all information he acquires or is exposed to is
confidential and our exclusive property, that he will not disclose any of our
confidential information to any third party unless permitted by an officer of
the Company or if it is required by law, and that he will not, without time
limitation, disclose any of our confidential information after his employment
with us terminates.
Pursuant to the Marinoni Agreement, Mr. Marinoni promises that during his
employment, and for five years after termination of his employment, he will not
engage in any competitive enterprise, or attempt to solicit the business of any
customer of ours who has been a customer at any time within 36 months preceding
the date of his termination, or attempt to request or influence any employee to
terminate his employment.
If Mr. Marinoni is offered a position which would cause him to be in breach of
the non-compete provisions of the Marinoni Agreement, we will pay the lesser of
his salary until the end of the post-termination non-competition period or the
amount of his financial loss suffered by declining the offer, provided that he
makes written application to us within seven days of the offer to be released
from the non-compete provisions and we refuse to release him.
The Marinoni Agreement can be terminated by:
. 12 weeks' notice to us;
. one month's notice to Mr. Marinoni for each year of service, or payment in
lie thereof, in which case Mr. Marinoni is free to seek other employment.
Should he obtain other employment prior to the end of the notice period,
26
<PAGE>
our obligations shall cease as of the date his other employment is
obtained; and
. by us for cause, including material breach of the provisions of the
Marinoni Agreement, and conviction of Mr. Marinoni of a criminal offense
punishable by indictment.
Employment Contract of Rosario Cutri
On March 31, 2000, we entered into an employment agreement with Rosario Cutri to
act as the Company's Vice President of Operations in Europe and Coordinator of
European Operations, commencing on April 1, 2000 for an indefinite term (the
"Cutri Agreement"). Pursuant to the Cutri Agreement, Mr. Cutri agreed to devote
his business and professional time and efforts to our business as an executive
officer. The Cutri Agreement provides that Cutri shall receive a base salary at
an annual rate of $30,000. Pursuant to the Cutri Agreement, Mr. Cutri has the
right to participate in our option incentive program once it is initiated on
terms as we and Mr. Cutri may agree.
Pursuant to the Cutri Agreement, both parties agreed that Mr. Cutri shall assign
to us any interest in any intellectual property created by him in his employ and
that we can waive assignment of any created intellectual property.
Mr. Cutri acknowledged that all information he acquires or is exposed to is
confidential and our exclusive property, that he will not disclose any of our
confidential information to any third party unless permitted by an officer of
the Company or if it is required by law, and that he will not, without time
limitation, disclose any of our confidential information after his employment
with us terminates.
Pursuant to the Cutri Agreement, Mr. Cutri promises that during his employment,
and for five years after termination of his employment, he will not engage in
any competitive enterprise, or attempt to solicit the business of any customer
of ours who has been a customer at any time within 36 months preceding the date
of his termination, or attempt to request or influence any employee to terminate
his employment.
If Mr. Cutri is offered a position which would cause him to be in breach of the
non-compete provisions of the Employment Agreement, we will pay the lesser of
his salary until the end of the post-termination non-competition period or the
amount of his financial loss suffered by declining the offer, provided that he
makes written application to us within seven days of the offer to be released
from the non-compete provisions and we refuse to release him.
The Cutri Agreement can be terminated by:
. 12 weeks' notice to us;
. one month's notice to Mr. Cutri for each year of service, or payment in
lie thereof, in which case Mr. Cutri is free to seek other employment.
Should he obtain other employment prior to the end of the notice period,
our obligations shall cease as of the date his other employment is
obtained; and
. by us for cause, including material breach of the provisions of the Cutri
Agreement, and conviction of Mr. Cutri of a criminal offense punishable by
indictment.
27
<PAGE>
Employment Contract of Piermaria G. Travaglia
On March 31, 2000, we entered into an employment agreement with Piermaria G.
Travaglia to act as the Company's Financial and Administrative Advisor,
reporting to the Vice President of Operations, commencing on April 1, 2000 for
an indefinite term (the "Travaglia Agreement"). Pursuant to the Travaglia
Agreement, Mr. Travaglia agreed to devote his business and professional time and
efforts to our business as an executive officer. The Travaglia Agreement
provides that Mr. Travaglia shall receive a base salary at an annual rate of
$40,000. Pursuant to the Travaglia Agreement, Mr. Travaglia has the right to
participate in our option incentive program once it is initiated on terms as we
and Mr. Travaglia may agree.
Pursuant to the Travaglia Agreement, both parties agreed that Mr. Travaglia
shall assign to us any interest in any intellectual property created by him in
his employ and that we can waive assignment of any created intellectual
property.
Mr. Travaglia acknowledged that all information he acquires or is exposed to is
confidential and our exclusive property, that he will not disclose any of our
confidential information to any third party unless permitted by an officer of
the Company or if it is required by law, and that he will not, without time
limitation, disclose any of our confidential information after his employment
with us terminates.
Pursuant to the Travaglia Agreement, Mr. Travaglia promises that during his
employment, and for five years after termination of his employment, he will not
engage in any competitive enterprise, or attempt to solicit the business of any
customer of ours who has been a customer at any time within 36 months preceding
the date of his termination, or attempt to request or influence any employee to
terminate his employment.
If Mr. Travaglia is offered a position which would cause him to be in breach of
the non-compete provisions of the Travaglia Agreement, we will pay the lesser of
his salary until the end of the post-termination non-competition period or the
amount of his financial loss suffered by declining the offer, provided that he
makes written application to us within seven days of the offer to be released
from the non-compete provisions and we refuse to release him.
The Travaglia Agreement can be terminated by:
. 12 weeks' notice to us;
. one month's notice to Mr. Travaglia for each year of service, or payment
in lie thereof, in which case Mr. Travaglia is free to seek other
employment. Should he obtain other employment prior to the end of the
notice period, our obligations shall cease as of the date his other
employment is obtained; and
. by us for cause, including material breach of the provisions of the
Employment Agreement, and conviction of Mr. Travaglia of a criminal
offense punishable by indictment.
Employment Contract of Jean Beliveau
On March 22, 2000, we entered into an employment agreement with Jean Beliveau to
act as the Company's Chief of Chemistry, commencing on April 1, 2000 for an
indefinite term (the "Beliveau Agreement"). Pursuant to the Beliveau Agreement,
28
<PAGE>
Mr. Beliveau agreed to devote his business and professional time and efforts to
our business as an executive officer. The Beliveau Agreement provides that Mr.
Beliveau shall receive a base salary at an annual rate of $65,000. Pursuant to
the Beliveau Agreement, Mr. Beliveau has the right to participate in our option
incentive program once it is initiated on terms as we and Mr. Beliveau may
agree.
Pursuant to the Beliveau Agreement, both parties agreed that Mr. Beliveau shall
assign to us any interest in any intellectual property created by him in his
employ and that we can waive assignment of any created intellectual property.
Mr. Beliveau acknowledged that all information he acquires or is exposed to is
confidential and our exclusive property, that he will not disclose any of our
confidential information to any third party unless permitted by an officer of
the Company or if it is required by law, and that he will not, without time
limitation, disclose any of our confidential information after his employment
with us terminates.
Pursuant to the Beliveau Agreement, Mr. Beliveau promises that during his
employment, and for five years after termination of his employment, he will not
engage in any competitive enterprise, or attempt to solicit the business of any
customer of ours who has been a customer at any time within 36 months preceding
the date of his termination, or attempt to request or influence any employee to
terminate his employment.
If Mr. Beliveau is offered a position which would cause him to be in breach of
the non-compete provisions of the Beliveau Agreement, we will pay the lesser of
his salary until the end of the post-termination non-competition period or the
amount of his financial loss suffered by declining the offer, provided that he
makes written application to us within seven days of the offer to be released
from the non-compete provisions and we refuse to release him.
The Beliveau Agreement can be terminated by:
. 12 weeks' notice to us;
. one month's notice to Mr. Beliveau for each year of service, or payment
in lieu thereof, in which case Mr. Beliveau is free to seek other
employment. Should he obtain other employment prior to the end of the
notice period, our obligations shall cease as of the date his other
employment is obtained; and
. by us for cause, including material breach of the provisions of the
Employment Agreement, and conviction of Mr. Travaglia of a criminal
offense punishable by indictment.
Item 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 31, 2000,
regarding the ownership of Common Stock by (i) each person known by the Company
to own beneficially more than 5% of each class of outstanding Common Stock, (ii)
each director and executive officer of the Company and (iii) all directors and
executive officers as a group. The amounts and percentages of common stock
beneficially owned are reported on the basis of regulations of the Securities
and Exchange Commission governing the determination of beneficial ownership of
securities. Under the rules of the Commission, a person is deemed to be a
29
<PAGE>
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic interest.
Name and Address of Number of Shares Percentage of Shares
Beneficial owned (1) Beneficially owned Beneficially owned (2)
-------------------- ------------------ ----------------------
David Hunter(3) 400,000 2.2
Battistino Fornero (4) 1,750,000 9.5
Andrew Cochrane (5) 0 0
Robert Papalia (6) 300,000 1.6
Dr. Giles Picard (7) 250,000 1.4
All Directors and Executive
Officers (8) 2,700,000 14.7
(1) The address for all beneficial owners is c/o Nano World Projects
Corporation, 11715 North Creek Parkway, South Bothell, WA 98011. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, the beneficial owners have sole voting and investment power with
respect to all shares of Company common stock set forth opposite their names.
(2) Percentage of the Company's common stock shares beneficially owned is based
upon 18,377,748 shares of common stock outstanding as of July 25, 2000.
(3) Mr. Hunter is President and a Director of the Company. Members of Mr.
Hunter's family own, in aggregate, 250,000 shares of Company common stock. Mr.
Hunter disclaims any beneficial ownership in such shares.
(4) Mr. Fornero is Executive Vice-President and a Director of the Company.
Includes 500,000 shares held by Las Mariposa Corporation. Includes 500,000
shares held by Carina Management Ltd. Includes 500,000 shares held by Oceanic
Enterprises Ltd. Includes 200,000 shares held by Rosa Maria Alvarez Lopez.
(5) Mr. Cochrane is a Director of the Company.
(6) Mr. Papalia is a Director of the Company. Includes 300,000 shares held by
his spouse and of which she is indirectly a beneficial owner.
(7) Dr. Gilles Picard is a Vice-President and Director of the Company.
(8) Includes 7 persons as a group, including 250,000 shares of Company common
stock owned by members of Mr. Hunter's family as to which Mr. Hunter disclaims
beneficial ownership in such shares, and 500,000 shares of Company common stock
held by Las Mariposa Corporation, 500,000 shares of Company common stock held by
Carina Management Ltd., 500,000 shares of Company common stock held by Oceanic
Enterprises Ltd. and 200,000 shares of Company common stock held by Rosa Maria
Alvarez Lopez.
30
<PAGE>
Item 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald P. Caron, and Richard D. Caron, former directors and officers of the
Company, were directors and officers of Western America Mineral Resource Fund
Inc. ("Western") and controlled 100% of the issued and outstanding shares of
Western at the time that the Company entered into the Stock Acquisition
Agreement and Plan of Reorganization ("Agreement") with Baycove Investments Ltd.
and Western in March of 1999, whereby Western, controlled by Donald and Richard
Caron, sold 94% of the Company's issued and outstanding common stock to twenty
separate shareholders for a total consideration of US$325,000. In return,
Western was to forgive all debt owed to Western and its affiliates by the
Company. The Company entered into a service agreement with an affiliated company
of Richard and Donald Caron, former officers and directors of the Company. The
agreement related to services provided by the affiliated company in order to
keep the Company current with all its SEC filings. The affiliated company was
paid $125,850.00 under this agreement. The Company paid general and
administrative expenses of $55,250.00 in 1999 (1998-$60,000.00) to companies
controlled by Richard and Donald Caron.
On January 31, 2000, the Company entered into a Stock Purchase Agreement
("Agreement") with all of the shareholders ("Selling Shareholders") of Nano
World Colloid & Coating LLC ("Coating LLC"), a corporation incorporated under
the laws of the state of Wyoming. Pursuant to the terms of the Coating LLC
Agreement, we purchased from the Selling Shareholders 1,000 shares, representing
100% of the issued and outstanding shares of Coating LLC. In exchange, we agreed
to deliver to each Selling Shareholder the sum of $500.00 and 5,000 shares of
the Company's $ .0001 par value common stock for each Coating LLC share. As
such, the total consideration paid for all of the issued and outstanding shares
of Coating LLC was $500,000 and 5,000,000 of the Company's $.0001 par value
common stock. The purchase price was paid by the delivery of a 180-day
promissory note in the amount of $500,000 and the delivery of share certificates
representing the 5,000,000 shares to an agent acting on behalf of the Selling
Shareholders. Messrs. Marinoni, Picard and Fornero current directors of the
Company, were among the Selling Shareholders of Coating LLC.
Item 13.
EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements F-
Report of Independent Certified Public Accountants F-
Balance Sheet F-
Statement of Operations F-
Statement of Stockholders' Equity F-
Statement of Cash Flows F-
31
<PAGE>
Notes to Financial Statements F-
(a)(2) EXHIBITS
2 Stock Purchase Agreement between Breccia International Minerals Ltd. and
Nano World Colloid & Coating, LLC and its Selling Shareholders, as filed
with the Commission as Exhibit 2 to Nano World Project Corporation's Form
8-K filed on March 3, 2000, is incorporated by reference.
3.1 (a) Restated Certificate of Incorporation of Certificate of Incorporation
3.1 (b) Certificate of Amendment of Articles of Incorporation of Breccia
International Minerals Inc.
3.2 By-laws of Breccia International Minerals Inc.
10.1 Employment Agreement of Dr. Gilles Picard
10.2 Employment Agreement of Giorgio Marinoni
10.3 Employment Agreement of Rosario Cutri
10.4 Employment Agreement of Piermaria G. Travaglia
10.5 Employment Agreement of Jean Beliveau
21 Subsidiaries of registrant
(b) REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the fourth quarter of
fiscal year ended April 30, 2000:
Form 8-K dated February 29, 2000 relating to the acquisition of all the
outstanding stock of Nano World Colloid & Coating LLC.
32
<PAGE>
Nano World Projects Corporation
(formerly Breccia International Minerals Inc.)
(a development stage company)
Consolidated Financial Statements
For the years ended April 30, 2000 and 1999
<PAGE>
Nano World Projects Corporation
(a development stage company)
Consolidated Financial Statements
For the years ended April 30, 2000 and 1999
Contents
================================================================================
Auditors' Report F-2
Comments by Auditors for U.S. Readers
on Canada - U.S. Reporting Difference F-3
Consolidated Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Deficit F-5
Consolidated Statements of Operations F-6
Consolidated Statements of Cash Flows F-7
Summary of Significant Accounting Policies F-8
Notes to Consolidated Financial Statements F-11
F-1
<PAGE>
================================================================================
Auditors' Report
--------------------------------------------------------------------------------
To the Shareholders of
Nano World Projects Corporation
(a development stage company)
We have audited the consolidated balance sheets of Nano World Projects
Corporation (a development stage company) as at April 30, 2000 and 1999 and the
consolidated statements of deficit, operations and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 2000
and 1999 and the results of its operations and its cash flows for the years then
ended in accordance with generally accepted accounting principles in the United
States of America.
/s/ BDO Dunwoody LLP
Chartered Accountants
Edmonton, Canada
July 13, 2000
F-2
<PAGE>
================================================================================
Comments by Auditors for U.S. Readers
on Canada - U.S. Reporting Difference
--------------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to these consolidated financial statements. Our report to the
shareholders dated July 13, 2000 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such events and
conditions in the Auditors' Report when these are adequately disclosed in the
financial statements.
/s/ BDO Dunwoody LLP
Chartered Accountants
Edmonton, Canada
July 13, 2000
F-3
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Consolidated Balance Sheets
(Expressed in U.S. $)
April 30 2000 1999*
--------------------------------------------------------------------------------
Assets
Current
Cash $ 2,680,672 $ 259
Prepaid expenses 27,499
------------------------
2,708,171 259
Capital assets (Note 2) 30,748 -
------------------------
$ 2,738,919 $ 259
================================================================================
Liabilities and Shareholders' Deficiency
Current
Accounts payable and accrued liabilities (Note 3) $ 208,946 $ 6,891
Due to 53991 BC Ltd. (Note 8) 19,736 -
Subscriptions payable (Note 4) 311,757 -
Promissory note (Note 5) 490,000 -
------------------------
1,030,439 6,891
------------------------
Share subscriptions (Note 4) 5,000,000 -
------------------------
Shareholders' deficiency
Share capital (Note 6) 523,937 523,937
Deficit
Accumulated during the development stage (3,284,888) -
Other (530,569) (530,569)
------------------------
(3,291,520) (6,632)
------------------------
$ 2,738,919 $ 259
================================================================================
* Restated (Note 11)
On behalf of the Board:
" David Hunter " Director
----------------
" Andrew Cochrane " Director
-------------------
F-4
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Consolidated Statements of Deficit
(Expressed in U.S. $)
For the years ended April 30 2000 1999*
----------------------------------------------------------------------------
Deficit, beginning of year, as previously stated $ (291,797) $(467,953)
Correction of error (Note 11) (238,772) -
-----------------------
Deficit, beginning of year, as restated (530,569) (467,953)
Net loss for the year (3,284,888) (62,616)
-----------------------
Deficit, end of year $(3,815,457) $(530,569)
============================================================================
* Restated (Note 11)
F-5
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Consolidated Statements of Operations
(Expressed in U.S. $)
For the years ended April 30 2000 1999*
----------------------------------------------------------------
Expenses
Amortization of capital assets $ 13,196 $ -
General and administrative 291,876 62,616
Acquired in process research and
development costs (Notes 1 and 7) 2,979,500 -
-----------------------
3,284,572 62,616
-----------------------
Loss before the undernoted (3,284,572) (62,616)
-----------------------
Other income (expense)
Interest income 9,684 -
Imputed interest on promissory note (10,000) -
-----------------------
(316) -
-----------------------
Net loss for the year $(3,284,888) $(62,616)
================================================================
Loss per share (Note 9) $ (0.336) $ (0.008)
================================================================
* Restated (Note 11)
F-6
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Consolidated Statements of Cash Flows
(Expressed in U.S. $)
For the years ended April 30 2000 1999*
--------------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net loss for the year $(3,284,888) $(62,616)
Adjustments to reconcile net loss to net cash
Amortization of capital assets 13,196 -
Imputed interest on promissory note 10,000 -
Acquired in process research and development costs 2,979,500 -
Changes in assets and liabilities
Prepaid expenses (27,499) -
Accounts payable and accrued liabilities 202,055 (3,280)
Payable to affiliated companies 19,736 65,857
-----------------------
(87,900) (39)
-----------------------
Investing activities
Purchase of capital assets (43,944) -
Cash acquired on acquisition 500 -
-----------------------
(43,444) -
-----------------------
Financing activities
Proceeds on share subscriptions 2,500,000 -
Subscriptions payable 311,757 -
-----------------------
2,811,757 -
-----------------------
Increase (decrease) in cash during the year 2,680,413 (39)
Cash, beginning of year 259 298
-----------------------
Cash, end of year $ 2,680,672 $ 259
================================================================================
* Restated (Note 11)
During 1999, the Company experienced a gain on the settlement of amounts payable
to affiliated companies of $238,772 (Note 11).
F-7
The accompanying summary of significant accounting policies and notes are an
integral part of these consolidated financial statements.
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Summary of Significant Accounting Policies
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
Significant Accounting
Policies These consolidated financial statements have been
prepared in conformity with generally accepted
accounting principles in the United States. The
following are the significant accounting policies of the
Company.
Nature of Business Breccia International Minerals Inc. was incorporated
under the laws of the State of Delaware on April 25,
1975 and was renewed on March 18, 1994. The Company
changed its name to Nano World Projects Corporation on
February 18, 2000 by resolution of the Board of
Directors in accordance with the provisions of Section
242 of the General Corporation Law of the State of
Delaware. The resolution was approved by the requisite
number of shares of the Company's $0.0001 par value
common stock entitled to vote pursuant to Section 228 of
the General Corporation Law of the State of Delaware.
The Company owns the technology known as the Dynamic
Thin Laminar Flow which makes it possible to produce
monolayers of particles of either organic or inorganic
materials and apply them to either solid or liquid
surfaces. A patent on the Dynamic Thin Laminar Flow
method was obtained in 1997 in Italy and subsequent
patent applications have been filed in the United States
and other countries. The Company is engaged solely in
the research and development of the Dynamic Thin Laminar
Flow technology and is not currently engaged in any
commercial production of licensing of the technology.
The Company's future operations are dependent upon
successfully developing the technology, obtaining the
necessary financing to complete the development and
ultimately marketing the technology (Note 1).
Basis of Presentation These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary
company, Nano World Project Colloid & Coating LLC. All
significant intercompany transactions and accounts have
been eliminated.
Financial Instruments The Company as part of its operations carries a number
of financial instruments. Unless otherwise noted, it is
management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising
from these financial instruments.
The fair values of these financial instruments
approximate their carrying values, unless otherwise
noted.
F-8
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Summary of Significant Accounting Policies
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
Capital Assets Capital assets are stated at cost less accumulated
amortization. Amortization based on the estimated
useful life of the asset is calculated on the declining
balance basis at a rate of 30% per annum.
In March 1998, the Accounting Standards Executive
Committee issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained
for Internal Use" ("SPO 98-1"). SOP 98-1 requires all
costs related to the development of internal use
software other than those incurred during the
application software development stage to be expensed as
incurred. Costs incurred during the application
development stage are required to be capitalized and
amortized over the estimated useful life of the
software. Accordingly, direct external costs associated
with the development of the web page have been
capitalized and are being amortized over the estimated
useful life.
Use of Estimates The preparation of financial statements requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, revenue
and expenses and other reported amounts in these
consolidated financial statements and the related notes.
Actual results may differ from those estimates.
Long-Lived Assets The Company reviews the carrying value of long-lived
assets when events or changes in circumstances indicate
that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future
cash flows resulting from these assets. An impairment
would be for the amount by which the carrying amount of
the assets exceeds the fair value of the assets.
Income Taxes The Company accounts for income taxes under the asset
and liability method as required by SFAS No. 109,
"Accounting for Income Taxes". Under this method,
deferred income taxes are recognized for the tax
consequences of temporary differences by applying
enacted tax rates applicable to future years to
differences between the consolidated financial
statements' carrying amounts and the tax bases of
existing assets and liabilities. When tax credits are
available, they are recognized as reductions of current
year's tax expense.
F-9
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Summary of Significant Accounting Policies
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
Foreign Currency
Translation The Company has determined that the U.S. dollar is the
functional currency for its subsidiary company.
Translation gains and losses are included in income in
the period in which they are incurred.
Earnings per Share Loss per share has been computed by dividing loss
applicable to common shareholders by the weighted
average number of shares of common stock outstanding
during the respective years.
Recently Issued
Standards SFAS No. 133, "Accounting for Derivatives Instruments
and Hedging Activities" requires companies to record
derivatives on the balance sheets as assets or
liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those
derivatives are accounted for depending on the use of
the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash
flows. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Management believes that
the adoption of SFAS No. 133 will have no material
effect on its consolidated financial statements.
F-10
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Notes to Consolidated Financial Statements
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
1. Future Operations
Since April 1999, the Company's efforts have been devoted to identifying
potential investments and raising capital to finance the acquisition of
the same. In January 2000, the Company, through its wholly-owned
subsidiary company, acquired the patent on the technology known as the
Dynamic Thin Laminar Flow. Currently, the Company is engaged solely in the
research and development of the Dynamic Thin Laminar Flow technology and
is not currently engaged in any commercial production of licensing of the
technology. As a result, the Company has no revenue and expects to incur
losses during the foreseeable future.
The Dynamic Thin Laminar Flow technology and the Company's ability to
commence commercial exploitation of the patent are subject to additional
proof of process research and development. Subsequent to year end, the
Company established a research and development facility in Quebec, Canada.
The Company is in the process of constructing an automated prototype that
is expected to produce films applicable to the filter industry. Management
expects to incur substantial additional costs and expenses during the
foreseeable future in connection with research and development and
construction of prototype commercial equipment.
The Company's ability to continue as a going concern is contingent upon
its ability to raise capital, to develop a viable technology or
application, to market any such technology or application and to achieve
profitable operations. The Company can give no assurance as to the ability
of the Company to continue as a going concern. These consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
--------------------------------------------------------------------------------
2. Capital Assets
2000 1999
--------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
Web page $26,959 $ 8,100 $18,859 $ --
Computer equipment 16,985 5,096 11,889 --
--------------------------------------------
$43,944 $13,196 $30,748 $ --
============================================
The estimated useful lives of the above assets range from three to five
years.
--------------------------------------------------------------------------------
F-11
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Notes to Consolidated Financial Statements
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
3. Accounts Payable and Accrued Liabilities
2000 1999
----------------
Trade accounts payable $121,446 $4,591
Accrued liabilities 87,500 2,300
----------------
$208,946 $6,891
================
--------------------------------------------------------------------------------
4. Subscriptions Payable
Pursuant to the offering memorandum dated March 27, 2000, the Company
raised $2,500,000 by issuing 5,000,000 common shares. Subscriptions
received for the offering totalled $2,811,757. Accordingly, subscriptions
of $311,757 are repayable as at April 30, 2000.
The Company approved the issuance of 250,000 shares for financing costs
related to the offering memorandum. No value has been assigned to these
shares.
The Company also approved the issuance of 5,000,000 shares for the
acquisition of the subsidiary company (Note 7). A value of $0.50 per share
has been assigned to these shares.
All of the above shares were issued subsequent to year end and therefore
the consideration received has been recorded as share subscriptions.
--------------------------------------------------------------------------------
5. Promissory Note
Pursuant to the purchase and sale agreement dated January 31, 2000, the
Company acquired 100% of the shares of Nano World Project Colloid &
Coating LLC. Under the terms of the agreement, a promissory note was
issued to the vendors in the amount of $500,000. The note is non-interest
bearing and is due and payable no later than August 6, 2000.
Based on an assumed interest rate of 8%, the fair market values of this
note at January 31, 2000 and April 30, 2000 are $480,000 and $490,000
respectively.
--------------------------------------------------------------------------------
F-12
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Notes to Consolidated Financial Statements
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
6. Share Capital
Authorized
Seventy-five million (75,000,000) $0.0001 par value common shares
Issued
Additional
Number of Par Paid in Total
Shares Value Capital Consideration
---------------------------------------------
Balance, April 30, 1998 8,128,206 $ 813 $ 284,352 $ 285,165
Gain on settlement of
payable to affiliated
companies (Note 11) -- -- 238,772 238,772
---------------------------------------------
Balance, April 30, 1999
and 2000 8,128,206 $ 813 $ 523,124 $ 523,937
=============================================
--------------------------------------------------------------------------------
7. Acquisition
On January 31, 2000, the Company entered into an agreement to acquire all
of the issued and outstanding shares of Nano World Project Colloid &
Coating LLC for a total consideration of $2,980,000. The Company's
interest in the underlying net assets acquired at assigned values are as
follows:
Cash $ 500
Acquired in process research and development 2,979,500
----------
$2,980,000
==========
Consideration consists of:
Promissory note (Note 5) $ 480,000
5,000,000 common shares 2,500,000
----------
$2,980,000
==========
Nano World Project Colloid & Coating LLC holds the patent (Note 1). To date,
this company has not earned any revenue, nor incurred any expenses.
--------------------------------------------------------------------------------
F-13
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Notes to Consolidated Financial Statements
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
8. Related Party Transactions
The Company was charged consulting fees of $75,000 (1999 - $55,250) by
directors of the Company, either directly or indirectly. These amounts
were incurred in the normal course of business and are included in general
and administrative expenses.
The balance due to 53991 BC Ltd., a company controlled by a former
director, resulted from the reimbursement of expenses paid by this
company.
--------------------------------------------------------------------------------
9. Loss per Share
Loss per share is calculated on the basis of the weighted average number
of common shares outstanding during the year. The weighted average number
of common shares amounted to 9,788,100 (1999 - 8,128,206).
--------------------------------------------------------------------------------
10. Income Taxes
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
2000 1999
---------------------
U.S. statutory rate applied to pre-tax income 34.0% 34.0%
Differential arising from:
Increase in valuation adjustment
for current year's losses (10.0)% (34.0)%
Permanent difference arising from the
Difference between the accounting
and tax cost of in process
research and development (24.0)% 0.0%
---------------------
0.0% 0.0%
=====================
Deferred income taxes consists of the following:
2000 1999
---------------------
Benefit of loss carryforwards $ 295,800 $ 308,400
Less valuation adjustment (295,800) (308,400)
---------------------
$ - $ -
=====================
F-14
<PAGE>
================================================================================
Nano World Projects Corporation
(a development stage company)
Notes to Consolidated Financial Statements
(Expressed in U.S. $)
April 30, 2000 and 1999
--------------------------------------------------------------------------------
10. Income Taxes (continued)
The Company has non-capital losses available for income tax purposes
totaling $870,000. This amount can be used to reduce taxable income of
future years. The potential tax benefit that may result from application
of these losses against future taxable income has not been recognized in
these consolidated financial statements. These losses expire as follows:
Year Amount
2001 $119,000
2002 23,000
2003 23,000
2004 22,000
2005 22,000
2006 22,000
2007 22,000
2008 46,000
2009 25,000
2010 39,000
2011 97,000
2012 93,000
2015 317,000
--------
$870,000
========
--------------------------------------------------------------------------------
11. Comparative Figures
During the year, the Company changed from following Canadian generally
accepted accounting principles (GAAP) to following U.S. GAAP. The
comparative figures have been restated to report the cancellation of
amounts due to companies controlled by certain former directors of the
Company. As the directors controlled more than 10% of the issued and
outstanding shares of the Company, these amounts are to be recorded as
additional paid in capital, rather than as income. Therefore, comparative
net income has been decreased by $238,772 which has resulted in the
comparative earnings per share changing from income per share of $0.022 to
a loss per share of $(0.008).
--------------------------------------------------------------------------------
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NANO WORLD PROJECTS CORPORATION
By: /s/ David L. Hunter
--------------------------------
Name: David L. Hunter
Title: Chief Executive Officer and President
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<S> <C> <C>
/s/ David L. Hunter Chief Executive Officer,
--------------------- President and Director August 14, 2000
David L. Hunter
/s/ Andrew A. Cochrane Chief Financial Officer and Director August 14, 2000
----------------------
Andrew A. Cochrane
/s/ Battistino Fornero Director August 14, 2000
----------------------
Battistino Fornero
/s/ Dr. Gilles Picard Director August 14, 2000
----------------------
Dr. Gilles Picard
/s/ Robert Papalia Director August 14, 2000
----------------------
Robert Papalia
</TABLE>
33
<PAGE>
EXHIBIT INDEX
2 Stock Purchase Agreement between Breccia International Minerals Ltd. and
Nano World Colloid & Coating, LLC and its Selling Shareholders, as filed
with the Commission as Exhibit 2 to Nano World Project Corporation's Form
8-K filed on March 3, 2000, is incorporated by reference.
3.1 (a) Restated Certificate of Incorporation of Certificate of Incorporation
3.1 (b) Certificate of Amendment of Articles of Incorporation of Breccia
International Minerals Inc.
3.2 By-laws of Breccia International Minerals Inc.
10.1 Employment Agreement of Dr. Gilles Picard
10.2 Employment Agreement of Giorgio Marinoni
10.3 Employment Agreement of Rosario Cutri
10.4 Employment Agreement of Piermaria G. Travaglia
10.5 Employment Agreement of Jean Beliveau
21 Subsidiaries of registrant
34
