Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2 Registration of Securities by a Small-Business 47 153K
Issuer
2: EX-3.01 Articles of Incorporation 5 17K
3: EX-3.02 Bylaws 24 106K
4: EX-5.01 Opinion re: Legality 1 8K
5: EX-10.01 Master Agreement 11 33K
6: EX-10.02 Stock Option Plan 20 72K
7: EX-10.03 Escrow Agreement 5 21K
8: EX-23.02 Consent 1 6K
SB-2 — Registration of Securities by a Small-Business Issuer
Document Table of Contents
As filed with the Securities and Exchange Commission on February 27, 2001.
Registration No. ____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Instanet, Inc.
(Name of small business issuer in its charter)
Nevada 3578 84-1575085
------------------------------ --------------------------- ---------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) I.D. Number)
26 West Dry Creek Circle, Suite 600
Littleton, Colorado 80120
(303) 794-9450
-----------------------------------------------------------
(Address and telephone number of principal executive offices)
26 West Dry Creek Circle, Suite 600
Littleton, Colorado 80120
-----------------------------------------
(Address of principal place of business or
intended principal place of business)
National Registered Agents, Inc.
1100 East William Street, Suite 207
Carson City, Nevada 89701
(775) 841-0644
-------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Gary A. Agron, Esq.
5445 DTC Parkway, Suite 520
Greenwood Village, CO 80111
(303) 770-7254
Fax (303) 770-7257
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: [ X ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
[Enlarge/Download Table]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered Be Registered Per Share Offering Price Fee
--------------------------- ------------- --------- -------------- ---
Common Stock, $.001 par value 1,850,000 shares $1.00 $1,850,000 $491
This registration statement registers the sale of 500,000 shares of common
stock by Instanet, Inc. at $1.00 per share and the resale of 1,350,000 shares of
common stock offered by our two selling stockholders, valued at $1.00 per share.
In addition to the number of shares set forth above, the amount to be
registered includes any shares of our common stock issued as a result of stock
splits, stock dividends and similar transactions in accordance with Rule 416.
The Proposed Maximum Offering Price Per Share and the Proposed Maximum
Aggregate Offering Price in the table above are estimated solely for the purpose
of calculating the registration fee pursuant to Rule 457(c) promulgated under
the Securities Act of 1933. These estimates were calculated based on the
offering price of $1.00 per share for the 500,000 shares of common stock which
we are offering to the public.
We hereby amend this registration statement on such date or dates as may be
necessary to delay its effective date until we shall file a further amendment
which specifically states that this registration statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until the registration statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a), may
determine.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion. Dated February 27, 2001
1,850,000 shares of common stock
INSTANET, INC.
We are offering a minimum of 150,000 shares and a maximum of 500,000 shares
of our common stock for sale at $1.00 per share on a best-efforts basis for a
maximum period of 90 days from the date of this prospectus and without the
assistance of an underwriter. We will close the offering the earlier of the date
all of the 500,000 shares are sold or 90 days from the date of this prospectus
unless extended by us for up to an additional 60 days. In addition, following
our offering of up to 500,000 shares, our two selling stockholders will offer
for sale up to 1,350,000 shares of our common stock held by them at then
prevailing market prices. Until we sell 150,000 shares, all the proceeds from
the sale of shares sold by us will be deposited in an escrow account at Key
Bank, Denver, Colorado. In the event the minimum 150,000 shares are not sold,
all funds will be promptly returned to subscribers without interest or
deduction.
The selling stockholders may not offer their shares for sale until we close
our 500,000 shares offering and our common stock is listed for trading on the
Nasdaq Over-the-Counter Electronic Bulletin Board Trading System.
There is no public market for our common stock and no assurance that a
market will develop.
Investing in our common stock involves substantial risks. See "Risk
Factors" beginning on page 6.
Commissions
Offering and Discounts Net Proceeds
-------- ------------- ------------
Per Share $1.00 $ 0 $1.00
Minimum $150,000 $ 0 $150,000
Maximum $500,000 $ 0 $500,000
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is ____________, 2001.
TABLE OF CONTENTS
Page
----
About this Prospectus ............................................. 3
Summary ........................................................... 3
Risk Factors ...................................................... 6
Use of Proceeds ................................................... 10
Dilution .......................................................... 11
Capitalization .................................................... 12
Selected Financial Data ........................................... 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 14
Business .......................................................... 15
Management ........................................................ 20
Principal Stockholders ............................................ 23
Selling Stockholders .............................................. 23
Plan of Distribution .............................................. 26
Related Party and Other Material Transactions ..................... 27
Description of Capital Stock ...................................... 27
Shares Eligible for Future Sale ................................... 28
Experts ........................................................... 28
Legal Matters ..................................................... 28
Where You Can Find More Information ............................... 29
Financial Statements .............................................. F-1
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than contained in this
prospectus in connection with the offering described here, and if given or made,
such information or representations must not be relied upon as having been
authorized by us. This prospectus does not constitute an offer to sell, or the
solicitation of an offer to buy, the securities offered by this prospectus to
any person in any state or other jurisdiction in which such offer or
solicitation is unlawful. Neither the delivery of this prospectus nor any sale
under this prospectus shall, under any circumstances, create any implication
that there has been no change in our affairs since this date.
Until _________________ , 2001 (90 days after the date of this prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus as we
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where such an offer or sale is not permitted.
SUMMARY
This summary highlights material information regarding our company and the
offering contained in this prospectus. You should read the entire prospectus
carefully, including the financial information and related notes, before making
an investment decision.
Business.
In February 2001 we entered into a Master Agency Agreement with KeyCom,
Inc. which developed, and now operates under the trade name XTRAN, an electronic
system for transferring funds from one location to another. Currently, XTRAN
initiates funds transfer from approximately 200 remittance locations in New York
and Florida and electronically transfers the funds to any of the approximately
2,100 payout locations in Jamaica, Mexico and Central America.
Under the Master Agency Agreement, we obtained the exclusive right to
initiate funds transfers from a Web site we are developing to any XTRAN payout
location. We also have the right to earn fees from Key Com for obtaining
additional XTRAN remittance locations worldwide.
We are a development stage enterprise and have not commenced operations or
generated any revenue. We intend to use the proceeds of the offering to complete
the development of our Web site for funds transfers and to begin soliciting
XTRAN remittance locations in Florida.
Strategy.
Our strategy is to:
o Complete the development of our funds transfer Web site;
o Direct our Web site marketing specifically to concentrated populations of
expatriates whose countries of origin contain multiple XTRAN payout
locations;
o Solicit XTRAN remittance locations first in Florida and then in other U.S.
and foreign locations;
o Direct our remittance location marketing efforts to retail chain store
operators; and
o Offer Web based funds transfer services at rates below those of our
competitors.
3
History.
We were incorporated in Nevada in January 2001. Our offices are located at
26 West Dry Creek Circle, Suite 600, Littleton, Colorado 80120, and our
telephone number is (303) 794-9450.
Plan of Distribution.
We are offering a minimum of 150,000 shares and a maximum of 500,000 shares
on a best-efforts basis directly to the public through our officers and
directors. All subscriber funds will be held in escrow until at least 150,000
shares are sold. If 150,000 shares are not sold by us during the selling period,
we will return subscriber funds without interest or deduction.
The Offering.
Securities offered by us: 500,000 shares of common stock.
Securities offered by the
selling stockholders: 1,350,000 shares of common stock.
Common stock outstanding prior to offering: 1,350,000 shares of common stock.
Common stock outstanding after the offering: 1,850,000 shares of common stock.
Use of proceeds: Development of our Web site,
repayment of loans from officers,
establishment of remittance
locations, marketing, and
working capital.
Proposed Bulletin Board symbol: "INET"
Our shares outstanding do not include up to 125,000 shares issuable upon
exercise of stock options issued under our 2001 Stock Option Plan.
Description of Selling Stockholders.
Through this prospectus, we are also registering for resale up to 1,350,000
shares of our common stock held by our two selling stockholders who acquired
their shares upon our organization in January 2001.
Forward-Looking Statements.
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us which are discussed in the Risk Factors
section below as well as throughout this prospectus. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur.
4
SUMMARY FINANCIAL DATA
The following summary of our financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited financial statements and related notes included
elsewhere in this prospectus.
Statement of Operations Data:
Period from inception
(January 9, 2001) to
January 31, 2001
----------------
Total costs and expenses $ 0
Net (loss) $ 0
Net (loss) per share $ 0
Weighted average number of shares
of common stock outstanding 1,350,000
Balance Sheet Data:
The as adjusted information below gives effect to the sale of the minimum
and maximum shares and receipt of the net proceeds from the sale.
[Enlarge/Download Table]
Minimum As Adjusted Maximum As Adjusted
January 31, 2001 January 31, 2001
At January 31, 2001 (Unaudited) (Unaudited)
------------------- ------------------- --------------------
Cash and cash equivalents $ 3,334 $ 70,000 $ 420,000
Total assets $ 30,000 $ 70,000 $ 420,000
Total liabilities $ 0 $ 0 $ 0
Stockholders' equity $ 30,000 $ 70,000 $ 420,000
5
RISK FACTORS
The shares of common stock offered by this prospectus involve a high degree
of risk and represent a highly speculative investment. You should not purchase
these shares if you cannot afford the loss of your entire investment. In
addition to the other information contained in this prospectus, you should
carefully consider the following risk factors in evaluating our company, our
business prospects and an investment in our shares of common stock.
We cannot assure you that we will be profitable and may need additional capital.
Our limited operating history, lack of revenue to date and the uncertainty
of the electronic funds transfer market in which we intend to operate, make any
prediction of our future results of operations difficult or impossible. We
expect to increase considerably our operating expenses in the future,
particularly expenses to develop our funds transfer Web site and for marketing.
We do not expect that our revenue will cover these expenses. As a result, we
expect to incur significant losses and expect that we will need to raise
additional capital. We cannot assure that we will be able to raise additional
capital and we do not know what the terms of any such capital raising would be.
Any future sale of our equity securities would dilute the ownership and control
of our stockholders and could be at prices substantially below the offering
price. Our inability to raise capital could require us to significantly curtail
our operations.
We have not generated any revenue or incurred any expenses since our
inception on January 9, 2001 through January 31, 2001. In order to achieve
profitability, we must complete the development of and market our funds transfer
Web site. We cannot assure you that our Web based funds transfer business will
ever achieve broad market acceptance, profitability or positive operating cash
flow.
We are completely dependent upon KeyCom for our funds transfer business.
We have an exclusive license with KeyCom to market its electronic funds
transfer system through the Internet and a non-exclusive right to be compensated
for merchant remittance locations we obtain for KeyCom. Should KeyCom elect
not to honor its exclusive agreement with us or cease its electronic funds
transfer operations, we would be unable to continue in that business. Moreover,
we can only market our Web based transfers of funds to destinations in which Key
Com has already contracted for payout locations. Accordingly, should KeyCom
fail to obtain a significant number of such payout locations, our business will
be extremely limited.
We have received a going concern opinion from our auditors.
In their audit report dated February 9, 2001 our auditors indicated that
there was substantial doubt as to our ability to continue as a going concern and
that our ability to continue as a going concern was dependent upon our obtaining
additional financing for our operations. We cannot assure that we will be able
to do so.
We have not completed the development of our funds transfer Web site and cannot
assure that we will be able to do so in the future.
Our funds transfer Web Site is not yet operational and we can give no
assurance that it will become operational in the future. Our inability to cause
our Web site to become operational would significantly reduce any anticipated
revenue.
6
We face intense competition in the funds transfer industry which could reduce
our revenue and earnings.
The funds transfer industry is intensely competitive with two multinational
companies dominating the business. While no company has as yet initiated Web
based funds transfers, either of these two companies as well as other well
established smaller competitors could enter the Web based business. Moreover,
there can be no assurances that customers will elect to use Web based funds
transfers. In either event, this competition is likely to reduce any future
revenue we might generate and reduce any earnings we might otherwise report.
We depend on key personnel and could be affected by the loss of their services
because of the limited number of qualified people in our industry.
Competition for qualified employees in the Internet services and electronic
funds transfer industries is intense and there are a limited number of people
with knowledge of and experience in either industry. The process of locating
personnel with the skills required to carry out our strategies may be lengthy
and costly. We do not have employment agreements with any of our executive
officers nor do we carry key man insurance on their lives. Our success depends
to a significant degree upon our ability to attract and retain qualified
management, technical, marketing and sales personnel and upon the continued
contributions of such people. Any of our employees may voluntarily terminate
their employment with us at any time. We cannot assure you that we will be
successful in attracting and retaining qualified executives and personnel. The
loss of the services of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on our business,
operating results and financial condition.
Rapid technological change could negatively affect our business.
Rapidly changing technology and frequent new product and service
introductions characterize the market for Internet and electronic funds transfer
companies. Our future success will depend on our ability to maintain one of the
fastest and most secure Web site for funds transfers in response to other
competitive product offerings. Our efforts in these areas may not be successful.
Our business model is new, unproven and changing.
Our business model consists of using the Internet to originate funds
transfers. To our knowledge, no other company has attempted to institute this
business model and we can give no assurance that customers will find these
services attractive compared to current funds transfer systems. Even if
customers accept our funds transfer arrangements we cannot assure that the costs
of marketing to funds transfer customers will allow us to earn a profit.
We have not yet launched our funds transfer Web site and therefore, you
should consider our prospects in light of the risks and difficulties frequently
encountered by early stage companies in the rapidly evolving Internet market.
These risks include, but are not limited to, an unpredictable business
environment, the difficulty of managing growth and the successful application of
our business model. To address these risks, we must, among other things:
o Develop customers;
o Enhance our brand recognition;
o Successfully implement our business and marketing strategy;
o Respond effectively to competitive and technological developments; and
o Attract and retain qualified personnel.
7
Shares of our common stock which are eligible for sale by our stockholders may
decrease the price of our common stock.
Upon completion of the offering, we will have 1,850,000 shares outstanding
comprised of 500,000 shares offered to investors by this prospectus and
1,350,000 registered for sale by our two stockholders. Accordingly, all
1,850,000 shares will be freely tradeable as of the date of this prospectus. If
our selling stockholders or any other holders sell substantial amounts of our
common stock, then the market price of our common stock could decrease.
There is no trading market for our common stock.
Our common stock is not currently eligible for trading on any stock
exchange and there can be no assurance that our common stock will be listed on
any stock exchange in the future. We have applied for listing on the Nasdaq
Over-the-Counter Bulletin Board Trading System pursuant to Rule 15c2-11 of the
Securities Exchange Act of 1934, but there can be no assurance we will obtain
such a listing. The Bulletin Board tends to be highly illiquid, in part because
there is no national quotation system by which potential investors can track the
market price of shares except through information received or generated by a
limited number of broker-dealers that make a market in particular stocks. There
is a greater chance of market volatility for securities that trade on the
Bulletin Board as opposed to a national exchange or quotation system. This
volatility may be caused by a variety of factors, including:
o The lack of readily available price quotations;
o The absence of consistent administrative supervision of "bid" and "ask"
quotations;
o Lower trading volume; and
o Market conditions.
In a volatile market, you may experience wide fluctuations in the market
price of our securities. These fluctuations may have an extremely negative
effect on the market price of our securities and may prevent you from obtaining
a market price equal to your purchase price when you attempt to sell our
securities in the open market. In these situations, you may be required to
either sell our securities at a market price which is lower than your purchase
price, or to hold our securities for a longer period of time than you planned.
Because our common stock is likely to be classified as "penny stock," trading
will be limited, and our stock price could decline.
Because our common stock is likely to fall under the definition of "penny
stock," trading in our common stock, if any, is expected to be limited because
broker-dealers are required to provide their customers with disclosure documents
prior to allowing them to participate in transactions involving our common
stock. These disclosure requirements are burdensome to broker-dealers and may
discourage them from allowing their customers to participate in transactions
involving our common stock.
8
"Penny stocks" are equity securities with a market price below $5.00 per
share other than a security that is registered on a national exchange; included
for quotation on the Nasdaq system; or whose issuer has net tangible assets of
more than $2,000,000 and has been in continuous operation for greater than three
years. Issuers who have been in operation for less than three years must have
net tangible assets of at least $5,000,000.
Rules promulgated by the Securities and Exchange Commission under Section
15(g) of the Exchange Act require broker-dealers engaging in transactions in
penny stocks, to first provide to their customers a series of disclosures and
documents, including:
o A standardized risk disclosure document identifying the risks inherent in
investment in penny stocks;
o All compensation received by the broker-dealer in connection with the
transaction;
o Current quotation prices and other relevant market data; and
o Monthly account statements reflecting the fair market value of the
securities. In addition, these rules require that a broker-dealer obtain
financial and other information from a customer, determine that
transactions in penny stocks are suitable for such customer and deliver a
written statement to such customer setting forth the basis for this
determination.
In addition, under the Exchange Act and its regulations, any person engaged
in a distribution of shares of our common stock offered by this prospectus may
not simultaneously engage in market making activities with respect to the common
stock during the applicable "cooling off" periods prior to the commencement of
this distribution.
Our preferred stock may make a third-party acquisition of our company more
difficult.
Our articles of incorporation authorize our Board of Directors to issue up
to 5,000,000 shares of preferred stock having such rights as may be designated
by our Board of Directors, without stockholder approval. This issuance of
preferred stock could inhibit a change in control by making it more difficult to
acquire the majority of our voting stock.
We do not anticipate paying dividends.
We have not paid any cash dividends on our common stock since our inception
and we do not anticipate paying cash dividends in the foreseeable future. Any
dividends which we may pay in the future will be at the discretion of our Board
of Directors and will depend on our future earnings, any applicable regulatory
considerations, our financial requirements and other similarly unpredictable
factors. For the foreseeable future, we anticipate that we will retain any
earnings which we may generate from our operations to finance and develop our
growth.
9
USE OF PROCEEDS
The net proceeds of the offering after payment of all expenses will be
$110,000 if the minimum 150,000 shares are sold, and $460,000 if all 500,000
shares are sold. These net proceeds reflect offering expenses previously paid by
us in the amount of $70,000. We expect to use the net proceeds over a six-month
period, approximately as follows:
Purpose Minimum Maximum
------- ------- -------
Development of our Web site $ 10,000 $ 10,000
Repayment of loans from officers $ 40,000 $ 40,000
Establish remittance locations $ 10,000 $ 50,000
Marketing expenses $ 45,000 $200,000
Working capital $ 5,000 $160,000
TOTALS $110,000 $460,000
Proceeds not immediately needed will be invested in bank certificates of
deposit, treasury bills, insured bank deposits or similar investments.
We will not receive any proceeds from the sale of up to 1,350,000 shares of
our common stock being offered by our two selling stockholders.
10
DILUTION
At January 31, 2001, the net tangible book value of our outstanding shares
of common stock was $30,000, or $.02 per share. "Net tangible book value" per
share represents the total amount of our tangible assets, less the amount of our
liabilities, divided by the number of shares of common stock outstanding.
Without taking into account any changes in net tangible book value after January
31, 2001, other than to give effect to the sale of all 500,000 shares of common
stock offered at the public offering price of $1.00 per share, less estimated
costs of the offering, our net tangible book value at January 31, 2001, would
have been $420,000, or approximately $.23, per share. This represents an
immediate increase in net tangible book value of $.21 per share of common stock
to our existing stockholders, and an immediate dilution of $.77 per share to new
investors at January 31, 2001.
"Dilution" per share represents the difference between the price to be paid
by the new stockholders and the net tangible book value per share of common
stock immediately after this offering. The following table illustrates this per
share dilution.
[Enlarge/Download Table]
January 31, 2001
----------------
Initial public offering price per share: $1.00
Net tangible book value per share before
the offering: $.02
Increase in net tangible book value per share
attributable to new investors purchasing
in the offering: $.21
Net tangible book value per share after the offering: $ .23
Dilution per share to new investors: $ .77
Dilution as a percentage of the per share purchase price: 77%
The following table sets forth the number of shares of common stock
purchased, assuming all 500,000 shares are sold, the total consideration paid,
before the deduction of offering expenses, and the average price per share paid
by our existing stockholders as of January 31, 2001, and new investors
purchasing the shares of common stock offered:
Shares Purchased Total Consideration Average Price
---------------- -------------------
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
New investors 500,000 27% $500,000 94% $1.00
Existing stockholders 1,350,000 73% $ 30,000 6% $ .02
--------- ---- -------- ----
Totals: 1,850,000 100% $530,000 100%
========= ==== ======== ====
11
CAPITALIZATION
The following table sets forth our actual and as adjusted capitalization as
of January 31, 2001, after deducting commissions and estimated offering
expenses. As adjusted capitalization reflects the sale of the maximum 500,000
shares of common stock offered by us at an offering price of $1.00 per share and
the application of the net proceeds. You should carefully read our financial
statements and related notes included elsewhere in this prospectus.
January 31, 2001
January 31, 2001 (As Adjusted)
---------------- -------------
Long-term liabilities $ 0 $ 0
Common Stock, $.001 par value,
50,000,000 shares authorized,
1,350,000 shares outstanding,
1,850,000 shares outstanding,
as adjusted $ 1,350 $ 1,850
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares issued $ 0 $ 0
Additional paid-in-capital $28,650 $418,150
Accumulated deficit $ 0 $ 0
Total stockholders' equity $30,000 $420,000
------- --------
Total capitalization $30,000 $420,000
======= ========
12
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited financial statement and related notes included
elsewhere in this prospectus.
Statement of operations data:
Period from January 9, 2001
(date of inception) through
January 31, 2001
---------------------------
Total costs and expenses $ 0
Operating loss $ 0
Net loss $ 0
===
Net loss per share $ 0
===
Weighted average number of shares
of common stock outstanding 1,350,000
=========
Balance Sheet data:
As of
January 31, 2001
----------------
Cash and cash equivalents $ 3,334
Total assets $30,000
Total liabilities $ 0
Stockholders' equity $30,000
13
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus. This
discussion should be read in conjunction with our audited financial statements
and notes included elsewhere in this prospectus.
Results of Operations.
Period from inception (January 9, 2001) to January 31, 2001.
We commenced operations on January 9, 2001. From January 9, 2001 through
January 31, 2001, we reported neither revenue nor expense. Subsequent to January
31, 2001, we incurred expenses in connection with organizing our company,
entering into our agreement with KeyCom and preparing this prospectus. All of
our expenses were paid in cash.
Liquidity and Capital Resources.
To date we have not generated any revenue from operations. Funds used in
our organizational activities were provided in the form of a $30,000 equity
investment and a $40,000 loan from our two stockholders. The loans are evidenced
by promissory notes bearing interest at 10% per annum and are due the earlier of
completion of the offering or March 31, 2002.
We expect to need additional funds to finance the further development of
our cash transfer business, in addition to the funds which may be generated from
this offering. However, there can be no assurance that such funds will be
available to us or that adequate funds for our operations, whether from debt or
equity financings, will be available when needed or on terms satisfactory to us.
Our failure to obtain adequate additional financing may require us to delay or
curtail some or all of our business efforts. Any additional equity financing may
involve substantial dilution to our then-existing stockholders.
14
BUSINESS
Current Operations.
In February 2001 we entered into a Master Agency Agreement with Key Com,
Inc. which developed, and now operates under the trade name XTRAN, an electronic
system for transferring funds from one location to another. Currently, XTRAN
initiates funds transfer from approximately 200 remittance locations in New York
and Florida and electronically transfers the funds to any of the 2,100 payout
locations in Jamaica, Mexico and Central America.
Under the Master Agency Agreement, we obtained the exclusive right to
initiate funds transfers from a Web site we are developing to any XTRAN payout
location. We also have the right to earn fees from KeyCom for obtaining
additional XTRAN remittance locations worldwide.
We are a development stage enterprise and have not commenced operations or
generated any revenue. We intend to use the proceeds of the offering to complete
the development of our Web site for funds transfers and to begin soliciting
XTRAN remittance locations in Florida.
XTRAN
KeyCom developed XTRAN as an innovative method for transferring cash by
electronic means, which KeyCom believes offers significant technological and
cost advantages over traditional funds transfer systems currently used by market
leading competitors such as Western Union and MoneyGram.
XTRAN's electronic transfer system employs specially programmed point of
sale terminals, which are the terminals that read credit cards or ATM cards at
the cash register. XTRAN transfers cash instantaneously, as compared to the bank
wire systems used by competitors. XTRAN transfers are simple and secure,
allowing funds transfer clerks to be quickly trained.
XTRAN's funds transfer system is also user friendly. The person originating
the funds transfer, often referred to as the remitter, tenders cash or a credit
card, the clerk programs numbers into the XTRAN terminal, a receipt is generated
and the funds are available nearly instantly at the receiving payout destination
point, directed solely by pin number and transaction number, to the person
entitled to receive the funds. The user also receives a free 2-minute telephone
card to arrange for funds pick-up with the recipient. The simple tasks performed
by the XTRAN terminal operator at a typical retail location set into motion the
following series of computer-driven processes that make XTRAN work seamlessly:
o The receiving point is notified;
o The system that accomplishes the withdrawal and transfer of funds is
alerted;
o Cash is withdrawn from the sending location and transferred to central
banking locations for electronic re-transmittal;
o Cash is then transmitted from central banking locations to the proper
receiving accounts;
o Fees are identified for payment through the XTRAN distribution system; and
oab Transfers are tracked through secure Internet routing.
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Consumers sending expatriate remittance funds to their country of origin
and individuals without bank accounts are the two largest segments of repetitive
funds transfer customers. The Federal Reserve Board of Governors estimates that
approximately 15% of families in the United States do not have checking
accounts. A large portion of individuals without bank accounts remit funds
regularly through cash transfers to relatives in their countries of origin.
KeyCom has elected to concentrate its initial funds transfer marketing
efforts to specific targeted expatriate populations. Initially, KeyCom selected
the Latin American and Caribbean markets as the two markets best suited for its
initial marketing emphasis. This market is large, approximately $23 billion in
annual funds transfers, easy to identify and reach, and offers numerous
opportunities to establish strategic alliances with existing retail chains in
the target remittance and payout markets. KeyCom has further focused its
initial marketing efforts on expatriates from Jamaica, Cuba and Mexico with the
following results:
According to the Bank of Jamaica, Jamaica represents one of the largest
transmittal remittance markets from the United States, receiving over $650
million per year from conventional money transfer sources, such as bank
transfers, Western Union and the like. Jamaicans in the United States have
concentrated their populations in readily identifiable areas, such as specific
neighborhoods in Queens, the Bronx and Brooklyn, New York, and Ft. Lauderdale,
Florida. Other concentrated populations exist in Toronto, Canada and in various
smaller locations throughout the United States. KeyCom has an exclusive
agreement with Paymasters (Jamaica), LTD. which operates 51 utility payment
locations on Jamaica to provide XTRAN payout services and has over 200
remittance terminals in Jamaican neighborhoods in New York and South Florida.
According to Valores Panafin, S. A., a Costa Rican based financial services
company, Mexicans living in the United States wire home over $12 billion per
year. In Mexico, KeyCom has contracted with Gigante Mercados S. A., Dimex S.A.
and Central de Communicaciones S.A. which operate in the aggregate over 1,100
retail locations throughout Mexico, to act as payout locations. KeyCom has also
joined the Mexican American Grocer's Association, which has hundreds of retail
member stores suitable for use as remittance locations in Southern California,
Texas, New Mexico and Arizona, where Mexicans and Mexican-Americans concentrate.
The existing market for funds transfers from expatriates to relatives in
Cuba is estimated at $1.1 billion per year according to Valores Panafin. The
heaviest concentration of Cuban expatriates live in the South Florida area. Key
Com has contracted with Global Cash, S. A. which will provide over 500 payout
locations through its relationships with banks in Cuba and with other retail
locations in Nicaragua, El Salvador, Honduras and Costa Rica. U.S. originated
funds transfers destined for Cuba must be routed through Central American
locations to comply with U.S. regulations concerning doing business in Cuba.
Strategy.
Our strategy is to:
o Complete the development of our funds transfer Web site;
o Direct our Web site marketing specifically to concentrated populations of
expatriates whose countries or origin contain multiple XTRAN payout
locations;
o Solicit XTRAN remittance locations first in Florida and then in other U.S.
and foreign locations;
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o Direct our remittance location marketing efforts to retail chain store
operators; and
o Offer Web based funds transfer services at rates below those of our
competitors.
We expect to complete the development of our Web site for funds transfer by
the third quarter of 2001. Because we have limited funds, we intend to direct
our initial marketing efforts to Internet users who are expatriates of countries
served by XTRAN and who live in concentrated geographical locations where
marketing is expected to be more cost effective. An example of this approach is
our expected emphasis upon expatriates of Jamaica living in New York and Florida
and expatriates of Mexico living in California and Texas.
With respect to our rights to obtain new remittance locations for XTRAN, we
intend to focus first on locations in Florida, followed by locations in other
expatriate concentrated population centers such as New York, California and
Texas. In this regard, we will direct our marketing to operators of retail store
chains and to non-bank financial services companies in the U. S. and abroad in
order to maximize our marketing budget.
We expect that our costs of funds transfers will be less than those of our
competitors which use traditional, manual, employee intensive systems.
Accordingly, we expect to offer our funds transfer services at rates below those
of our competitors.
Web Based Transfer of Funds.
We are developing a Web site that will allow our customer to initiate, from
the customer's computer, a funds transfer transaction to a specific recipient at
a designated payout location within the XTRAN system. We will use the customer's
credit card or ATM card and other identifying customer information in order to
allow the customer to transfer the funds in a secure and encrypted environment.
Because there are security considerations for Web based funds transfers, we are
carefully considering the type of software that will be used and the methods we
deploy.
Our Web site will be designed to promote ease of use and is expected to be
a less expensive alternative for executing a funds transfer transaction. Our Web
site will also provide a directory of XTRAN payout locations so that the
customer will have access to the address of a payout location close to the
recipient. We intend to also provide a two minute phone card to be used by the
customer to relay transaction and security code information to the recipient.
Our KeyCom Master Agency Agreement.
Under our Master Agency Agreement with KeyCom, we obtained the exclusive
right to originate funds transfers from our Web site to any payout location
which accepts XTRAN funds transfers. Currently XTRAN has payout locations in
Jamaica, Mexico and Central America. Under the agreement we receive a fee of 15%
of the fee charged the customer by XTRAN to complete the funds transfer.
Our Master Agency Agreement also entitles us to obtain on a non-exclusive
basis remittance locations for XTRAN anywhere in the world on a non-exclusive
basis. In such event, we are entitled to 9% of the fee charged by XTRAN for
payouts outside the U.S. and 5% of XTRAN's fee for payouts within the U.S. We
are also entitled to a fixed fee of $225 for each remittance location
established by us for XTRAN, and a monthly fee of $3,000, cancellable by KeyCom
on 30 days notice, to assist KeyCom in developing new Florida remittance
locations. We employ one full-time employee in Florida to assist us in obtaining
remittance locations.
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The agreement is not terminable by either party unless breached by the
other party. We are not required to generate any minimum number or amount of Web
based transactions in order to maintain our exclusive Internet funds transfer
rights.
Marketing.
We intend to reach prospective customers by targeting our advertising to
the concentrated population centers in which these customers reside. Our
advertising will include local and neighborhood foreign language newspapers,
direct mailings and pamphlets distributed by local merchants. We may also use
Web based advertising links and banners on Web sites and portals which appeal to
our target customers, as well as affiliate programs and search engine listings.
We will attempt to use key words and phrases for funds transfers in order to
improve our placement ranks in search engines.
With respect to our marketing to obtain remittance and payout locations, we
intend to target U.S. and foreign chain stores which have the potential to serve
as both remittance and payout locations. We will also target international
financial service companies, including banks, that offer check cashing, prepaid
telephone cards and prepaid cellular services to their customers. We will also
market to retail grocery stores that offer non-bank financial services. We will
focus primarily on merchants already selling products using an existing point of
sale terminal rather than customers that require installation of new point of
sale terminals.
Government Regulation.
Various aspects of KeyCom's service areas are subject to federal and state
regulation, which, depending on the nature of any non-compliance, may result in
the suspension or revocation of any funds transfer license, as well as the
imposition of civil fines and criminal penalties.
Although many states license funds transfer companies and may require bonds
or other forms of collateral, compliance with these laws is the responsibility
of KeyCom, and not us. We simply act as a remittance merchant to KeyCom,
similar to the retail stores which initiate funds transfers to payout locations.
However, if KeyCom fails to comply with application laws or regulations and is
prohibited from doing business in any state or market, we would be unable to
originate funds transfers in these same locations.
Competition.
The consumer money transfer services industry is large and intensely
competitive. Although we are not aware of anyone offering a Web site to initiate
funds transfers, we nevertheless will compete with the two multinational
companies serving our industry, Western Union and MoneyGram, as well as smaller
local and regional funds transfers companies. Western Union is a wholly-owned
subsidiary of First Data Corporation, a public company, and MoneyGram is a
wholly-owned subsidiary of Travelers Express Company, Inc., which in turn is a
wholly-owned subsidiary of Viad Corp., a public company. These two companies
have substantially longer operating histories, greater name recognition and
financial resources than we. Moreover, our product offerings are small compared
to the wide variety of products offered by Western Union, MoneyGram and others.
However, we believe that the convenience of initiating funds transfers on the
Internet, and the lower costs of our funds transfers, offer a competitive
advantage.
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Employees.
As of February 19, 2001, we employed one full-time employee and one
part-time employee along with our President and Vice President, who work
part-time and are uncompensated.
Facilities.
Our President provides us with 450 square feet of office space in his
offices at 26 West Dry Creek Circle, Suite 600, Littleton, Colorado 80120 on a
month to month basis at no cost to us.
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MANAGEMENT
Directors and Executive Officers.
The following table sets forth information regarding our executive officers
and directors:
[Enlarge/Download Table]
Name Age Office Officer/Director Since
---- --- ------ ----------------------
Earnest Mathis, Jr. 41 Chief Executive Officer, Chief Financial January 2001
Officer and Director
Van R. Perkins 54 Vice President, Secretary and Director January 2001
Michael G. Carpenter 44 Chief Technical Officer February 2001
Directors hold office for a period of one year from their election at the
annual meeting of stockholders and until their successors are duly elected and
qualified. Officers are elected by, and serve at the discretion of, the Board of
Directors. None of the above individuals has any family relationship with any
other. Our audit committee is composed of Messrs. Mathis and Perkins. Directors
do not receive payment for attending Board meetings, but are reimbursed for
out-of-pocket expenses.
The following is a summary of the business experience of our two executive
officers and directors:
Earnest Mathis, Jr. has been President and a director of Inverness
Investments, a privately held financial consulting company based in Denver,
Colorado, since 1987. Since February 1998, Mr. Mathis has also been a manager of
Amerigolf, LLC, a golf course development company. From January 1997 to March
1999, Mr. Mathis was President of Integrated Medical Services, Inc., a medical
waste processor. He is a director of Vov Enterprises, Inc., Zedik Enterprises,
Inc., Milestone Capital, Inc. and Care Concepts, Inc. all of which are inactive
companies subject to SEC reporting requirements. Mr. Mathis attended Denver
University where he studied finance.
Van R. Perkins has been the President and Chief Executive Officer of
Business Development Corporation, a privately held Colorado corporation, since
1985. Business Development Corporation is engaged in the business of investing
in securities for its own account and in providing strategic financial
consulting services.
Michael G. Carpenter has been our Chief Technical Officer since February
2001. Since January 2000, Mr. Carpenter has been the Chief Executive Officer of
Linux Wizardry, Inc., a software company that produces new products in the Linux
and router areas. From July 1997 to January 2000, Mr. Carpenter was President of
Internet Software Group, a firm specializing in the development of
database-driven Web sites. In 1999 Mr. Carpenter was also employed by IBM in its
voice synthesis software division. From October 1997 to December 1998, Mr.
Carpenter was also employed by Motorola as a system administrator. From December
1994 to September 1997, Mr. Carpenter was President and founder of EmiNet
Domain, Inc., a Web design and programming company.
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Significant Employee
Russell Pollock, age 38, has been our Locations Director since February
2001. From August 2000, until he joined us, Mr. Pollock was senior project
manager for KeyCom. From June 1988 to July 2000, Mr. Pollock was employed by
Vehicle Specialists as its Sales Manager.
Executive Compensation.
None of our executive officers has received or currently receives
compensation. We do not have employment agreements with any of our executive
officers.
Although we have developed a stock option plan, none of our executive
officers or directors have been granted stock options under the plan.
Stock Option Plan.
In February 2001, our stockholders adopted our 2001 Stock Option Plan,
which provides for the grant to employees, officers, directors and consultants
of options to purchase up to an aggregate of 250,000 shares of common stock,
consisting of both "incentive stock options" within the meaning of Section 422A
of the United States Internal Revenue Code of 1986 (the "Code") and
"non-qualified" options. Incentive stock options are issuable only to employees,
while non-qualified options may be issued to non-employee directors, consultants
and others, as well as to employees.
The Plan is administered by our board of directors, which determines those
individuals who are to receive options, the time period during which the options
may be partially or fully exercised, the number of shares of common stock that
may be purchased under each option, and the option price.
The per share exercise price of the common stock subject to an incentive
stock option or non-qualified option may not be less than the fair market value
of the common stock on the date the option is granted. The per share exercise
price of the common stock subject to a non-qualified option will be established
by the board of directors. The aggregate fair market value, determined as of the
date the option is granted, of the common stock that any employee may purchase
in any calendar year pursuant to the exercise of incentive stock options may not
exceed $1,000,000. No person who owns, directly or indirectly, at the time of
the granting of an incentive stock option to him, more than 10% of the total
combined voting power of all classes of our stock is eligible to receive any
incentive stock options under the Plan unless the option price is at least 110%
of the fair market value of the common stock subject to the option, determined
on the date of grant. Non-qualified options are not subject to this limitation.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by him or her. In the event of
termination of employment other than by death or disability, the optionee has
three months after such termination during which he or she can exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent total disability, his or her option remains exercisable for one year
thereafter to the extent it was exercisable on the date of such termination. No
similar limitation applies to non-qualified options.
Options under the Plan must be granted within ten years from the effective
date as amended of the Plan. The incentive stock options granted under the Plan
cannot be exercised more than ten years from the date of grant except that
incentive stock options issued to 10% or greater stockholders are limited to
five year terms. Options granted under the Plan may provide for the payment of
the exercise price in cash or by delivery to us of shares of common stock
already owned by the optionee having a fair market value equal to the exercise
price of the options being exercised, or by a combination of such methods of
payment. Therefore, an optionee may be able to tender shares of common stock to
purchase additional shares of common stock and may possibly exercise all of his
stock options with no additional investment other than his original shares.
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Any unexercised options that expire or that terminate upon an optionee
ceasing to be an officer, director or an employee becomes available once again
for issuance. To date, we have granted 100,000 options under the Plan to Mr.
Carpenter, one of our executive officers, and 25,000 options to an employee,
exerciseable at $.25 per share.
Liability and Indemnification of Officers and Directors.
Our Articles of Incorporation provides that our directors will not be
liable for monetary damages for breach of their fiduciary duty as directors,
other than the liability of a director for:
o An intentional breach of the director's fiduciary duty to our company or
our stockholders;
o Acts or omissions by the director which involve intentional misconduct,
fraud or a knowing violation of law; or
o The payment of an unlawful dividend, stock purchase or redemption.
Our Articles of Incorporation also require us to indemnify all persons whom
we may indemnify pursuant to Nevada law to the full extent permitted by Nevada
law.
Our bylaws require us to indemnify our officers and directors and other
persons against expenses, judgments, fines and amounts incurred or paid in
settlement in connection with civil or criminal claims, actions, suits or
proceedings against such persons by reason of serving or having served as
officers, directors, or in other capacities, if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to our
best interests and, in a criminal action or proceeding, if he had no reasonable
cause to believe that his/her conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of no contest or its equivalent shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to our best interests or that he or
she had reasonable cause to believe his or her conduct was unlawful.
Indemnification as provided in our bylaws shall be made only as authorized in a
specific case and upon a determination that the person met the applicable
standards of conduct. Insofar as the limitation of, or indemnification for,
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, or persons controlling us pursuant to the foregoing, or
otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, such limitation or indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore, unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock owned, as of January 31, 2001, by:
o Holders of more than 5% of our common stock;
o Each of our directors; and
o All of our directors and executive officers as a group.
Each stockholder's address is in care of our company at 26 West Dry Creek
Circle, Suite 600, Littleton, Colorado 80120.
[Enlarge/Download Table]
Number of Percent of Common Percent of Common
Shares of Common Stock Owned Stock Owned
Name of Beneficial Owner Stock Owned Prior to Offering After Offering
------------------------ ----------- ----------------- --------------
Earnest Mathis, Jr. 450,000 33.3% 24.3%
Van R. Perkins 900,000 66.7% 48.6%
Michael G. Carpenter (1) 100,000 6.9% 5.1%
All officers and directors as a 1,450,000 100% 74.4%
group (two persons)
(1) Represents stock options to purchase 100,000 shares at $.25 per share.
SELLING STOCKHOLDERS
The following table sets forth the names of our two selling stockholders
and the number of shares of our common stock beneficially owned by each as of
January 31, 2001. Each selling stockholder is offering all shares owned by him.
The two selling stockholders founded our company, acquired their shares
following our incorporation in January 2001, and are our only officers and
directors. The two selling stockholders may offer their shares from time to
time. However, the selling stockholders may not offer their shares for sale
until we close our offering of up to 500,000 shares and our common stock is
listed for trading on the Electronic Bulletin Board or the Pink Sheets.
Nevertheless, the selling stockholders are under no obligation to sell all or
any portion of their shares either now or in the future. Since the selling
stockholders may sell all or part of their shares, we cannot estimate the number
of shares of our common stock that will be held by the selling stockholders upon
termination of this offering.
Shares Beneficially Owned and Offered
Name As of the Offering Date
of Beneficial Owner Number Percent
------------------- ------ -------
Earnest Mathis, Jr. 450,000 33.3%
Van R. Perkins 900,000 66.6%
Information Regarding the Selling Stockholders.
The shares of our common stock which the selling stockholders or their
pledgees, donees, transferees or other successors in interest are offering for
resale will be sold from time to time in one or more of the following
transactions:
o Block transactions;
o Transactions on the Bulletin Board or on such other market on which our
common stock may from time to time be trading;
o Privately negotiated transactions;
o Through the writing of options on the shares;
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o Short sales; or
o Any combination of these transactions.
The sale price to the public in these transactions may be:
o The market price prevailing at the time of sale;
o A price related to the prevailing market price;
o Negotiated prices; or
o Such other price as the selling stockholders determine from time to time.
The selling stockholders may not offer their shares for sale until we close
our offering of up to 500,000 shares and then not until our common stock is
listed for trading on the Bulletin Board or the Pink Sheets.
In the event that we permit or cause this prospectus to lapse, the selling
stockholders may sell all of their shares of our common stock pursuant to Rule
144 under the Securities Act of 1933 commencing in January 2002. The selling
stockholders will have the sole and absolute discretion not to accept any
purchase offer or make any sale of these shares of our common stock if they deem
the purchase price to be unsatisfactory at any particular time.
The selling stockholders or their pledges, donees, transferees or other
successors in interest, may also sell these shares of our common stock directly
to market makers acting as principals and/or broker-dealers acting as agents
for themselves or their customers. These broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders and/or the purchasers of these shares of our common stock for whom
such broker-dealers may act as agents or to whom they sell as principal, or
both. As to a particular broker-dealer, this compensation might be in excess of
customary commissions. Market makers and block purchasers purchasing these
shares of our common stock will do so for their own account and at their own
risk. It is possible that a selling stockholder will attempt to sell shares of
our common stock in block transactions to market makers or other purchasers at a
price per share which may be below the prevailing market price of our common
stock. There can be no assurance that all or any of these shares of our common
stock offered hereby will be issued to, or sold by, the selling stockholders.
Upon effecting the sale of any of these shares of our common stock offered under
this prospectus, the selling stockholders and any brokers, dealers or agents,
hereby, may be deemed "underwriters" as that term is defined under the
Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules and
regulations thereunder.
Alternatively, the selling stockholders may sell all or any part of the
shares of our common stock offered hereby through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a selling
stockholder enters into an agreement or agreements with an underwriter, then the
relevant details will be set forth in a supplement or revision to this
prospectus.
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The selling stockholders and any other persons participating in the sale or
distribution of these shares of our common stock will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and regulations
thereunder including, without limitation, Regulation M. These provisions may
restrict activities of, and limit the timing of purchases and sales of any of
these shares of our common stock by, the selling stockholders. Furthermore,
pursuant to Regulation M, a person engaged in a distribution of our securities
is prohibited from bidding for, purchasing, or attempting to induce any person
to bid for or purchase our securities for a period beginning five business days
prior to the date of this prospectus until such person is no longer a selling
shareholder. These regulations may affect the marketability of these shares of
our common stock.
We will pay substantially all of the expenses incident to the registration
and offering of our common stock including the common stock held by our selling
stockholders, other than commissions or discounts of underwriters,
broker-dealers or agents.
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PLAN OF DISTRIBUTION
We are offering a minimum of 150,000 shares and a maximum of 500,000 shares
on a best-efforts basis directly to the public through our officers and
directors, who will not receive any compensation for assisting us with the
offering. Our two officers and directors may purchase up to 15,000 shares in the
offering.
We intend to apply to list our common stock on the Electronic Bulletin
Board. Unless and until the common stock is accepted for listing, on the
Electronic Bulletin Board or another exchange, no public market will develop for
the resale of the securities.
Prior to this offering, there has been no market for our securities.
Accordingly, the public offering price for the shares was determined solely by
us. Among the factors we considered in determining the public offering price
were our record of operations, our current financial condition, our future
prospects, the background of our management, and the general condition of the
equity securities market.
Method of Subscribing.
Persons may subscribe by completing and returning our subscription
agreement. The offering price of $1.00 per share must accompany the subscription
agreement. All checks must be made payable to "Key Bank - Instanet, Inc. Escrow
Account." All checks will be transmitted to the escrow account by noon of the
next business day following receipt. The minimum purchase is 250 shares for
$250. Certificates for the shares subscribed will be issued within three
business days following the closing of the offering.
Selling Period.
The selling period of the offering will terminate 90 days from the date of
this prospectus unless extended for up to an additional 60 days.
Minimum-Maximum and Escrow.
Until the minimum 150,000 shares are sold, all funds will be deposited in a
non-interest bearing escrow account at Key Bank, Denver, Colorado and such funds
will only be invested in investments permissible under SEC Rule 15c2-4. In the
event that 150,000 shares are not sold during the 90-day selling period
commencing on the date of this prospectus, or during the 60 day extension, all
funds will be promptly returned to investors without deduction or interest. If
150,000 shares are sold, we may either continue the offering for the remainder
of the selling period or close the offering at any time.
Right to Reject.
We reserve the right to reject any subscription, and to withdraw the
offering at any time prior to acceptance of the subscriptions received, if
acceptance of a subscription would result in the violation of any laws to which
we are subject.
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RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
Mr. Mathis or entities controlled by him, along with Mr. Perkins, purchased
$125,000 and $225,000, respectively of debt securities of KeyCom as part of a
private placement of these securities to a number of accredited investors. The
securities are repayable only out of transaction fees charged by KeyCom for its
funds transfers and included stock options to purchase shares of common stock of
KeyCom. Neither Mr. Perkins nor Mr. Mathis are officers, directors or principal
stockholders of KeyCom.
DESCRIPTION OF CAPITAL STOCK
General.
We are authorized to issue 50,000,000 shares of common stock, $.001 par
value per share, and 5,000,000 shares of preferred stock, $.001 par value per
share.
Common Stock.
At January 31, 2001, we had 1,350,000 shares of common stock outstanding.
The holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders, including the election of directors. There
is no right to cumulate votes in the election of directors. The holders of
common stock are entitled to any dividends that may be declared by the Board of
Directors out of funds legally available therefor subject to the prior rights of
holders of preferred stock and any contractual restrictions we have against the
payment of dividends on common stock. In the event of our liquidation or
dissolution, holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock.
Holders of common stock have no preemptive rights and have no right to
convert their common stock into any other securities. All of the outstanding
shares of common stock are fully paid and non-assessable.
Preferred Stock.
Shares of preferred stock may be issued from time to time in one or more
series with such designations, voting powers, if any, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations and restrictions, as are determined by resolution of our Board of
Directors. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of our company without further
action by stockholders and could adversely affect the rights and powers,
including voting rights, of the holders of common stock. In certain
circumstances, the issuance of preferred stock could depress the market price of
the common stock. There are no shares of Preferred Stock outstanding.
Dividends.
We do not intend to pay dividends on our capital stock in the foreseeable
future.
Transfer Agent.
Corporate Stock Transfer, Inc., Denver, Colorado is our transfer agent.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, we will have 1,850,000 shares outstanding,
all of which have been registered by this prospectus. Our outstanding shares are
comprised of 500,000 shares offered by us and up to 1,350,000 shares offered by
our two selling stockholders. In addition, our selling stockholders, commencing
January 2002, may sell their shares under Rule 144 of the Securities Act.
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who owns shares that were purchased from us, or any
affiliate, at least one year previously, including a person who may be deemed
our affiliate, is entitled to sell within any three-month period, a number of
shares that does not exceed the greater of:
o 1% of the then outstanding shares of our common stock; or
o The average weekly trading volume of our common stock during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. Any
person who is not deemed to have been our affiliate at any time during the 90
days preceding a sale, and who owns shares within the definition of "restricted
securities" under Rule 144 under the Securities Act that were purchased from us,
or any affiliate, at least two years previously, is entitled to sell such shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
Future sales of common stock by our selling stockholders either under this
prospectus or under Rule 144 or otherwise or of the shares which we are
registering under this prospectus could negatively impact the market price of
our common stock. We are unable to estimate the number of shares that may be
sold in the future by our selling stockholders or the effect, if any, that sales
of shares by such stockholders will have on the market price of our common stock
prevailing from time to time. Sales of substantial amounts of our common stock
by selling stockholders could adversely affect prevailing market prices.
EXPERTS
Our financial statements included in this prospectus as of and for the
period ended January 31, 2001, have been included in reliance on the reports of
Ehrhardt Keefe Steiner & Hottman, PC, independent certified public accountants,
given on the authority of this firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us
by the Law Office of Gary A. Agron, Greenwood Village, Colorado.
28
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form SB-2 under the Securities Act of 1933
with respect to our common stock offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration statement
and the exhibits to the registration statement. For further information with
respect to our company, and the common stock offered hereby, reference is made
to the registration statement and the exhibits filed as part of the registration
statement. Following the effective date of the prospectus, we will be required
to file periodic reports with the Securities and Exchange Commission, including
quarterly reports, annual reports which include our audited financial statements
and proxy statements. The registration statement, including exhibits thereto,
and all of our periodic reports may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New
York 10048, after payment of fees prescribed by the Securities and Exchange
Commission. You may obtain additional information regarding the operation of the
Public Reference Section by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission also maintains a World
Wide Web site which provides on-line access to reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission at the address: http://www.sec.gov.
29
INSTANET, INC.
(a Development Stage Company)
Financial Statements and
Independent Auditors' Report
For the period from January 9, 2001 (Inception)
through January 31, 2001
INSTANET, INC.
(a Development Stage Company)
Table of Contents
-----------------
Page
----
Independent Auditors' Report...........................................F - 2
Financial Statements
Balance Sheet.....................................................F - 3
Statement of Operations...........................................F - 4
Statement of Stockholders' Equity.................................F - 5
Statement of Cash Flows...........................................F - 6
Notes to Financial Statements..........................................F - 7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Instanet, Inc.
Littleton, Colorado
We have audited the accompanying balance sheet of Instanet, Inc. (a Development
Stage Company) as of January 31, 2001 and the related statements of operations,
stockholders' equity and cash flows for the period from January 9, 2001
(Inception) through January 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Instanet, Inc. as of January
31, 2001, and the results of its operations and its cash flows for the period
from January 9, 2001 (Inception) though January 31, 2001 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company is in the development stage and has not completed its capital
raising activities to fund substantial initial operations. This condition raises
substantial doubt about the Company's ability as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
the uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
February 9, 2001
Denver, Colorado
F-2
INSTANET, INC.
(a Development Stage Company)
Balance Sheet
January 31, 2001
Assets
Current assets
Cash $ 3,334
-------
Total current assets 3,334
Other assets
Prepaid legal fees 26,666
-------
Total assets $30,000
=======
Liabilities and Stockholders' Equity
Total liabilities $ --
-------
Stockholders' equity
Preferred stock, authorized 5,000,000 shares,
$.001 par value; none issued or outstanding $ --
Common stock, authorized 50,000,000 shares,
$.001 par value; 1,350,000 shares
issued and outstanding 1,350
Additional paid-in capital 28,650
-------
Total stockholders' equity 30,000
-------
Total liabilities and stockholders' equity $30,000
=======
See notes to financial statements.
F-3
INSTANET, INC.
(a Development Stage Company)
Statement of Operations
The Period from January 9, 2001 (Inception) through January 31, 2001
Revenues $ --
Expenses --
----------
Net Income $ --
==========
Earnings per share $ --
==========
Weighted average shares outstanding 1,350,000
==========
See notes to financial statements.
F-4
[Enlarge/Download Table]
INSTANET, INC.
(a Development Stage Company)
Statement of Stockholders' Equity
The Period from January 9, 2001 (Inception) through January 31, 2001
Common Stock Additional Total
---------------------------------- Paid-In Stockholders'
Shares Amount Capital Equity
--------- --------- --------- ------------
Balance, January 9, 2001 -- -- -- --
Issuance of stock for cash 1,350,000 $ 1,350 $ 28,650 $ 30,000
--------- --------- --------- ---------
Balance, January 31, 2001 1,350,000 $ 1,350 $ 28,650 $ 30,000
========= ========= ========= =========
See notes to financial statements.
F-5
INSTANET, INC.
(a Development Stage Company)
Statement of Cash Flows
The Period from January 9, 2001 (Inception) through January 31, 2001
Cash flows from financing activities
Prepaid legal fees $(26,666)
Proceeds from issuance of common stock 30,000
--------
Net cash provided by financing activities 3,334
--------
Net increase in cash 3,334
Cash, beginning of period --
--------
Cash, end of period $ 3,334
========
See notes to financial statements.
F-6
INSTANET, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
--------------------------------------------------------------------
Instanet, Inc. (the "Company"), Nevada corporation, was incorporated in January
2001. The Company is organized for the purpose of providing market extensions,
including on the internet, for an electronic cash transmission system developed
and owned by an outside company.
The Company is a development stage company that has not had any revenue from
operations since inception. The Company is in the process of obtaining
additional equity from a public offering. There is no assurance that the Company
will generate revenue or earn profit in the future.
Revenue Recognition
-------------------
The Company will recognize revenues as services are performed.
Income Taxes
------------
Deferred income taxes result from temporary differences. Temporary differences
are differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. As the Company had no
operations for the period, there are no differences in the book and tax basis of
its assets and liabilities.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-7
INSTANET, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
--------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
-----------------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin ("SAB") 101, which will become effective for financial
statements with periods ending after December 15, 2000. SAB 101 provides
guidance on applying generally accepted accounting principles to selected
revenue recognition issues. Management believes that the Company's revenue
recognition policies are in accordance with SAB 101.
Note 2 - Related Party Transactions
-----------------------------------
The corporate offices of the Company are located at the corporate offices of the
president of the Company. No rent has been charged, but there can be no
assurance that rent will not be charged in the future. The value of the rent
received is immaterial to the financial statements as a whole.
Note 3 - Subsequent Event
-------------------------
Master Agency Agreement
-----------------------
In February 2001 the Company entered into a Master Agency Agreement with Key
Com, Inc. ("KeyCom") which developed, and now operates under the trade name
XTRAN, an electronic system for transferring funds from one location to another.
Currently, XTRAN initiates funds transfer from approximately 200 remittance
locations in New York and Florida and electronically transfers the funds to any
of the 2,100 payout locations in Jamaica, Mexico and Central America.
Under the Master Agency Agreement with KeyCom, the Company obtained the
exclusive right to originate funds transfers from the Company's Web site to any
payout location, which accepts XTRAN funds transfers. Currently XTRAN has payout
locations in Jamaica, Mexico and Central America. Under the agreement the
Company will receive a fee of 15% of the fee charged the customer by XTRAN to
complete the funds transfer.
The Master Agency Agreement also entitles the Company to obtain on a
non-exclusive basis remittance locations for XTRAN anywhere in the world on a
non-exclusive basis. In such event, the Company is entitled to 9% of the fee
charged by XTRAN for payouts outside the U.S. and 5% of XTRAN's fee for payouts
within the U.S. The Company is also entitled to a fixed fee of $225 for each
remittance location established on behalf of XTRAN, and a $3,000 monthly fee,
cancelable by KeyCom on 30 days notice, to assist KeyCom in developing new
Florida remittance locations.
F-8
INSTANET, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 3 - Subsequent Event (continued)
-------------------------------------
Stock Option Plan (Unaudited)
-----------------------------
In February 2001, our stockholders adopted the 2001 Stock Option Plan, which
provides for the grant to employees, officers, directors and consultants of
options to purchase up to an aggregate of 250,000 shares of common stock,
consisting of both incentive stock options and non-qualified options. For
options granted to an employee owning shares of common stock possessing more
than 10% of the total combined voting power of all classes of the Company's
common stock, the option price shall not be less than 110% of the fair market
value of the common stock, on the date of grant. The incentive stock options
granted under the Plan cannot be exercised more than ten years from the date of
grant except that incentive stock options issued to 10% or greater stockholders
are limited to five-year terms. The Company has granted 100,000 options under
the Plan to one of our executive officers, and 25,000 options to an employee,
exercisable at $.25 per share.
F-9
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Registrant's Articles of Incorporation provide as
follows:
"(2) Indemnification. The corporation shall indemnify, to the maximum
extent permitted by law, any person who is or was a director, officer, agent,
fiduciary or employee of the corporation against any claim, liability or expense
arising against or incurred by such person made party to a proceeding because he
is or was a director, officer, agent, fiduciary or employee of the corporation
or because he is or was serving another entity or employee benefit plan as a
director, officer, partner, trustee, employee, fiduciary or agent at the
corporation's request. The corporation shall further have the authority to the
maximum extent permitted by law to purchase and maintain insurance providing
such indemnification."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. (1)
SEC Registration Statement $ 491
Blue Sky Filing Fees $ 4,000
Blue Sky Legal Fees $ 4,000
Printing Expenses $ 10,000
Legal Fees $ 80,000
Accounting Fees $ 5,000
Transfer Agent Fees $ 1,000
Miscellaneous Expenses $ 5,509
-----------
Total $ 110,000
===========
(1) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant was organized in January 2001, and at that time, sold
450,000 shares to Earnest Mathis, Jr., or entities controlled by Earnest Mathis,
Jr., for $10,000 ($.022 per share) and 900,000 shares to Van R. Perkins for
$20,000 ($.022 per share). There have been no other sales of the Registrant's
common stock. In February 2001, the Registrant issued 100,000 stock options to
Michael G. Carpenter, an executive officer, and 25,000 stock options to Russell
Pollock, an employee, under the Registrant's 2001 Stock Option Plan, exercisable
at $.25 per share.
With respect to the above securities issuances, the Registrant relied on
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and Rule 506 promulgated thereunder. No advertising or general solicitation was
employed in offering the securities. The securities were issued to two persons,
both of whom were officers and directors of the Registrant. Both persons were
accredited investors who acquired the securities for investment and not with a
view toward distribution or resale. All common stock issued contained a
restrictive legend prohibiting transfer of the shares except in accordance with
federal securities laws.
II-1
ITEM 27. EXHIBIT INDEX.
Exhibit No. Title
----------- -----
3.01 Articles of Incorporation of the Registrant
3.02 Bylaws of the Registrant
5.01 Opinion of Gary A. Agron regarding legality
10.01 Master Agency Agreement with Key Com, Inc.
10.02 Stock Option Plan
10.03 Escrow Agreement
23.01 Consent of Gary A. Agron (see 5.01 above)
23.02 Consent of Ehrhardt Keefe Steiner & Hottman, PC
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registration of expenses incurred or paid by a director, officer
or controlling person to the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and Exchange
Commission such supplementary and periodic information, documents and reports as
may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(c) That any post-effective amendment filed will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof), which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
II-2
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(e) That, for the purpose of determining any liability under the Securities
Act, each such post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(f) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(g) To remove from registration by means of a post-effective amendment all
of the securities if the minimum 150,000 shares are not all sold at the
termination of this Offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Denver, Colorado, on February 26, 2001.
INSTANET, INC.
By: /s/ Earnest Mathis, Jr.
--------------------------------------------
Earnest Mathis, Jr., Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed below by the following persons on the
dates indicated.
[Enlarge/Download Table]
Signature Title Date
--------- ----- ----
/s/ Earnest Mathis, Jr. Chief Executive Officer, Chief Financial February 26, 2001
-------------------------- Officer (Principal Accounting Officer)
Earnest Mathis, Jr. and Director
/s/ Van R. Perkins Vice President, Secretary and Director February 26, 2001
--------------------------
Van R. Perkins
II-4
EXHIBIT INDEX
Exhibit No. Title
----------- -----
3.01 Articles of Incorporation of the Registrant
3.02 Bylaws of the Registrant
5.01 Opinion of Gary A. Agron regarding legality
10.01 Master Agency Agreement with Key Com, Inc.
10.02 Stock Option Plan
10.03 Escrow Agreement
23.01 Consent of Gary A. Agron (see 5.01 above)
23.02 Consent of Ehrhardt Keefe Steiner & Hottman, PC
Dates Referenced Herein and Documents Incorporated by Reference
1 Subsequent Filing that References this Filing
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