U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALTERNET SYSTEMS, INC.
(formerly SchoolWeb Systems Inc. and formerly North Pacific Capital Corp.)
(Name of Small Business Issuer in its Charter)
Nevada 3576 88-0473897
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer
incoporation or organization) Classification Code Number) Identification No.)
333-89954
(Commission File No.)
Suite 610 - 815 West Hastings Street
Vancouver, Canada V6E 1T9
Tel: (604) 608-2540
Fax: (604) 608-8775
(Address and telephone number of Registrant's principal
executive offices and principal place of business)
Resident Agents of Nevada
711 South Carson Street Suite 4
Carson City, Nevada 89701
Tel: (775) 882-4641;
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration 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 the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. ( X )
CALCULATION OF REGISTRATION FEE
Title of each Amount to be Proposed Maximum Proposed Amount
class of registered(1) offering price maximum of
securities per share of aggregate registration
to be registered common stock(2) offering fee
price
Common Stock 8,443,028 $0.35 $2,955,059.80 $271.87
The Company hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Company
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
Commission, acting pursuant to said Section 8(a), may determine.
(1) The total number of shares of common stock to be sold by
shareholders on a continuous offering basis under Rule 415
including 1,464,514 shares of common stock which may be issued upon
exercise of 1,464,514 outstanding share purchase warrants;
(2) Estimated for the purposes of calculating the registration fee.
(3) The calculation (given footnote 2 above) was as follows:
(8,433,028 shares x $0.35)($92/1,000,000)=$271.87
PROSPECTUS
ALTERNET SYSTEMS, INC.
(formerly SchoolWeb Systems Inc. and formerly North Pacific Capital Corp.)
Suite 280 - 815 West Hastings Street
Vancouver, British Columbia
Canada V6C 1B4
8,443,028 Shares
Common Stock *
This prospectus relates to the resale of up to 8,443,028
shares of our common stock by our shareholders who are hereinafter
referred to as Selling Shareholders. The 8,443,028 shares of common
stock are to be registered as follows (maximum amounts): (a) 6,978,514
shares of common stock for selling shareholders; (b) 1,464,514 shares of
common stock which are reserved for issuance upon the exercise of
1,464,514 share purchase warrants of the Company previously distributed
by the Company under a private placement. Cash proceeds, if any,
received by the Company from the exercise of the warrants will be used
primarily as working capital for the Company. The share purchase
warrants are exercisable for a period of two years at an exercise price
of $0.50 per warrant. Each warrant is exercisable for one share of
common stock.
The selling shareholders will sell the shares from time to time at
$0.35 per share until our shares are quoted on the Over the Counter
Bulleting Board ("OTCBB"). Thereafter, non-affiliate selling
shareholders will sell their shares at prevailing market prices or
privately negotiated prices while affiliate selling shareholders will
continue to sell their shares at $0.35 per share unless an amendment to
this registration statement is declared effective by the SEC and
contains a different selling price.
No public market presently exists for our common stock and, while
we intend to see our shares quoted on the OTCBB, there is no guarantee
that we will be successful in doing so.
The shares offered hereby are highly speculative and involve a high
degree of risk to public investors and should be purchased only by
persons who can afford to lose their entire investment (SEE "RISK FACTORS" ON
PAGE 9).
These securities have not been approved or disapproved by the U.S.
Securities and Exchange Commission or any state securities commission
nor has the U.S. Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
Information contained herein is subject to completion or amendment.
The registration statement relating to the securities has been filed
with the U.S. Securities and Exchange Commission. The securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
Subject to Completion, Dated: ______________, 2002
TABLE OF CONTENTS
PROSPECTUS SUMMARY 7
RISK FACTORS 9
USE OF PROCEEDS 12
DETERMINATION OF OFFERING PRICE 13
DILUTION 13
SELLING SECURITY HOLDERS 14
PLAN OF DISTRIBUTION 17
LEGAL PROCEEDINGS 19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 21
DESCRIPTION OF SECURITIES 23
INTEREST OF NAMED EXPERTS AND COUNSEL 24
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION 24
ORGANIZATION WITHIN LAST FIVE YEARS 25
DESCRIPTION OF BUSINESS 26
MANAGEMENT DISCUSSION AND ANALYSIS NS 37
DESCRIPTION OF PROPERTY 40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 40
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 41
EXECUTIVE COMPENSATION 42
FINANCIAL STATEMENTS 44
YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
NINE MONTHS ENDED SEPTEMBER 30, 2002
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 45
INDEMNIFICATION OF OFFICERS AND DIRECTORS 45
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 45
RECENT SALES OF UNREGISTERED SECURITIES 46
UNDERTAKINGS AND SIGNATURES 46
EXHIBIT INDEX AND EXHIBITS 51
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each prospective
investor is urged to read this prospectus in its entirety.
The Company.
(a) Background.
Alternet was incorporated in the State of Nevada on June 26, 2000,
under the name of "North Pacific Capital Corp.". Alternet changed its
name to "SchoolWeb Systems Inc." effective December 20, 2001. On
May 14, 2002, the Company changed its name to its present name,
"Alternet Systems, Inc.".
Alternet's wholly owned subsidiary, AI Systems Group Inc., was
incorporated in the State of Nevada on October 13, 2000. On January 1,
2001 it entered into the License Agreement with Advanced Interactive
Inc. and its subsidiary, Advanced Interactive (Canada) Inc.
(collectively, "AII"). AI Systems Group changed its first to
"SchoolWeb Systems Inc." and later to "SchoolWeb Holdings Inc.". On
July 1, 2002 it changed its name to its present name, AI Systems Group
Inc.
Alternet's registered offices in the State of Nevada are at 711 South
Carson Street Suite 4, Carson City, Nevada 89701. The address of their
registered office in Canada is Suite 280 - 815 West Hastings Street,
Vancouver British Columbia, Canada V6C 1B4.
(b) Business.
Our business is the marketing and distribution of broadcast caching
server hardware and software technologies which we licence from
Advance Interactive Inc. and market under the names "SchoolWeb",
"1nterlink" and "HealthWeb". These technologies are referred to in
this registration statement as generally "the SchoolWeb system". The
SchoolWeb hardware system and software were developed as a result of
Advanced Interactive Inc.'s subsidiary ("AII") being awarded a
$650,000 contract in 1999 to provide a low cost, distance-learning
Internet access system for an initial pilot of 20 British Columbia,
Canada schools. The contract was awarded to AII by the Government of
British Columbia.
Alternet and its subsidiary, AI Systems Group Inc., licensed the
SchoolWeb System from AII the rights to market and distribute AII's
caching software (which is the basis of the SchoolWeb System's software)
under the terms of a License Agreement. The terms of the License
Agreement call for monthly payments to AII and a royalty payment to AII
of 40% of the revenue realized from sales of the SchoolWeb System.
Each basic SchoolWeb "system" or software / hardware package is
comprised of the SchoolWeb Librarian software, Linux Operating System,
a caching server (a server which downloads entire websites and
updates them so that users can just make requests for information from
their caching server, not from the website), redundant file system,
software configuration, uninterruptible power supply, satellite or
cable port, SchoolWeb user license, 24 hour technical support
(provided by AII through the License Agreement), On-site installation
and training (provided by resellers and distributors), system
maintenance and 5X9 on-site warranty. When sold as the "1nterlink" or
"HealthWeb" product, the package is very similar to the SchoolWeb system.
Summary Financial Information
The following discussion should be read in conjunction with the
financial statements of the Company and notes thereto contained
elsewhere in this prospectus
The fiscal year ended December 31, 2001 was the first full year of
operations for the Company and also represented the year in which it
purchased AI Systems Group Inc.
For this fiscal year, the Company (on a consolidated basis with its
subsidiary AI Systems Group Inc.) had a net loss for the period of
$(263,249) and no revenue. Of this loss, the largest expense or
expenditure was payments for the Company's license agreement with
Advanced Interactive Inc. which represented $120,000. Office and
general expenses were $50,530, marketing expenses were $39,429 and
professional fees were $29,390. The basic net loss per share was $(0.02).
The Company had current assets of $5,669 cash and $3,758 in prepaid expenses.
Given the Company's monthly payment for its license agreement with
Advanced Interactive Inc. (which is $20,000 per month at a minimum) the
Company did not have enough working capital to meet its obligations for
even one month.
We have completed our testing of the SchoolWeb system in the 19
schools in British Columbia where it installed for testing. We have
also completed initial distributorship agreements or understandings
with a number of distributors.
In the third quarter of the fiscal year ending December 2002, sales
and revenues have commenced. Sales in the month of September, 2002
were approximately $40,923, resulting from installation of the
SchoolWeb system (under the name "1nterlink") and installation of
SchoolWeb in three high schools. We had a net loss for the third quarter
of the fiscal year ending December 2002 of $145,836. We continue to try to
develop client contacts and leads to secure future sales. The magnitude and
size of future sales cannot, at this time (partly as a result of a lack
of operating history) be accurately predicted.
On August 10, 2002, we signed an agreement with AII (who we license
the SchoolWeb system from) to settle $80,000 in arrears license
payments for 228,571 shares of common stock. The August 10, 2002
agreement also provided that we only have to pay one-half of our
monthly license payment. The remaining half of the payment can be
accrued or settled in shares for debt issuances. This is important
because, in the remainder of the calendar year 2002 alone, our monthly
license payment is $20,000 so the right to accrue one-half of this
amount each month leaves us less illiquid. We still do not enough
current assets (cash) to operate even one month without further equity
investment or revenues.
Operating costs, particularly those costs associated with
administrative overhead, are expected to increase in the final quarter
of 2002 as a result of planned hirings in sales and marketing. To
date, salaries have been very limited (Patrick Fitzsimmons was the
only paid employee in the fiscal years ending December 31, 2000 and
December 31, 2001 at a salary of $40,000 per year).
The Offering.
Shares of common stock of the Company will be sold on a continuous
delayed basis under a shelf registration under Rule 415. A total of
8,443,028 shares of common stock are to be registered, as follows
(maximum amounts):
- 6,978,514 shares of common for selling shareholders.
- 1,464,514 shares of common stock reserved for issuance, upon
payment of the exercise price of $0.50 to exercise 1,464,514 share
purchase warrants of the Company.
Liquidity of Investment.
Although the shares will be free of resale restrictions once
qualified by this Prospectus, there exists no public market for the
shares. Therefore, an investor may not be able to sell shares when he
or she wishes. Therefore, an investor may consider his or her
investment to be long-term.
Risk Factors.
WE MAY BE ABLE TO RESPOND TO CHANGES IN THE MARKET FOR THE SCHOOLWEB PRODUCT:
We may be unable to anticipate changes in our target market or our
customers' needs and our industry changes very quickly.
WE DEPEND ON TWO MEMBERS OF OUR MANAGEMENT:
We are particularly dependent on, and vulnerable to the departure of, our two
Vice Presidents, Greg Protti and Patrick Fitzsimmons. Their departure
could result in the loss of accounts or customers. They are our sole
contacts with some customers and accounts and their relationships with
customers and potential customers would be difficult if not impossible to
replace.
WE ARE STILL A DEVELOPMENT STAGE COMPANY:
Although the Company (through its subsidiary) has been developing and
testing its product at various sites for the previous two years, the
Company has yet to generate significant revenue from its products.
The Company expects that most of its revenues in the foreseeable
future will be required to expand its sales force and pay its
obligations to AII. The Company's payments on its software license
with AII exceed its revenues for any month of operations to date
except the most recent month, September 2002.
BECAUSE WE HAVE HAD LITTLE SALES REVENUE, WE HAVE INCURRED OPERATING
LOSSES:
We have had no sales revenue to date and have a limited operating
history. We have incurred significant operating losses, including a
net loss of $(263,249) in Fiscal 2001. At December 31, 2001, we had an
accumulated deficit during development stage of $(263,249).
OUR COST OF ESTABLISHING A PRESENCE IN ANY MARKET FOR SOFTWARE IS HIGH
AND CREDIBILITY IS DIFFICULT TO BUILD:
We anticipate that we will incur substantial operating expenses in
connection with marketing and distribution of our SchoolWeb System and
expect these expenses to result in continuing losses until such time
as we are able to achieve adequate revenue levels. There can be no
assurance that we will be able to significantly increase revenues or
achieve profitable operations. We may be unable to attract or retain
customers. Failure to obtain additional capital, if needed, would have
a material adverse effect on our operations. Changes in laws
(especially laws relating to our trademarks or intellectual property)
could hurt our business.
One of the difficulties we have run into is the realization that new
software or technology companies lack credibility with potential
customers. People are not hesitant to buy software from Microsoft or
other companies because they know they will be around for a number of
years to offer after sales support to the software and system.
Establishing credibility with customers may take time.
WE DO NOT HAVE ENOUGH CURRENT ASSETS (CASH) TO OPERATE EVEN ONE MONTH
WITHOUT FURTHER EQUITY INVESTMENT OR REVENUES:
We do not have enough current assets (cash) to operate even one month
without further equity investment or revenues. Because we make monthly
payments under the terms of our License Agreement, if we are unable to generate
significant revenues, our License Agreement with AII could be terminated
if license payments are not made.
WE COULD LOSE OUR RIGHTS TO SELL THE SCHOOLWEB SYSTEM:
We are vulnerable to any loss of the license with which we license the
SchoolWeb System from AII. This could happen if we are unable to make
required payments under the license agreement with AII and the payments
under this agreement exceed our revenues to date significantly.
We are Particularly Vulnerable to Currency Fluctuations.
We report our financial position and results of operations in US dollars
in our financial statements.
However, because a large portion of the Company's operations are in
Canada (and near term sales revenues, if any, are likely to be primarily
from Canada), we are exposed to foreign currency fluctuation and such
fluctuations may materially affect the Company's financial position and
results of operations.
Payments under the software license agreement with AII, our largest
single expenditure and cost, are made in US dollars and, as a result,
this particular cost is not vulnerable to currency fluctuations.
Recently, the Canadian dollar has appreciated against the US currency.
However, if the Canadian dollar were to depreciate it is possible that
revenues we believed would cover payments under the license agreement
would not be adequate once converted to US currency.
Our accounts are maintained in US dollars including our accounts in Canada.
There is no Public Market for our Securities.
There is presently no market for the shares of common stock being
offered. There can be no assurance that an active trading market will
develop or that purchasers of the shares will be able to resell their
securities, even at a loss. The securities are not listed on any
national exchange and are not posted for trading on any facility such as
the NASD's OTCBB or the "pink sheets". It is unclear what the listing
procedures and requirements for the proposed "BBX" exchange in the
United States would be and, as a result, it is impossible to know
whether or not the Company would be able to list on it. We do intend,
in late 2002 and in 2003, to seek a listing on the NASD's OTCBB and
later on the new BBX Exchange.
Even if a market were to develop or we were to successfully seek to post
for trading our securities on an exchange or a trading facility such as
the NASD's OTCBB (which we are seeking to do), the market prices for the
securities of technology companies have historically been highly
volatile and, since 2000, have experienced (overall) a significant
deflation.
ITEM 4: USE OF PROCEEDS
We will not receive proceeds from the sale of shares sold by selling
shareholders. The price at which these selling shareholders will sell
their shares cannot be practicably determined or estimated as there is
no market for our securities.
The only proceeds we will receive from the sale of shares under this
prospectus relate to the funds which the Company will receive from
exercise of warrants. The exercise of these warrants would result in
proceeds to the Company of $732,257 (1,464,514 warrants outstanding at
an exercise price of $0.50 per share) if 100% of the warrants are
exercised, $549,193 if 75% of the warrants are exercised, $366,129 if
50% of the warrants are exercised and $183,064 if 25% of the warrants
are exercised.
The following table sets forth the use of proceeds from the exercise of
the warrants:
Use of Proceeds Maximum Offering
(100% of warrants
exercised for
proceeds of $732,257)
Amount Percent
Transfer Agent Fee $ 1,200 0.16%
Printing Costs $ 600 0.08%
Legal Fees $ 6,000 0.8%
Accounting Fees $ 2,000 0.27%
Working Capital $722,457 98.67%
Total $732,257 100.00%
There can be no certainty that the Company will receive some, all or any
of the maximum proceeds which would be realized from exercise of all
outstanding warrants.
In the event that less than the maximum proceeds are received from
exercise of 100% of the warrants, the use of proceeds remains the same
save and except that the amount allocated to working capital is reduced.
The other costs are essentially "fixed".
Management anticipates expending these funds for the purposes indicated
above. To the extent that expenditures are less than projected, the
resulting balances will be retained and used for general working capital
purposes or allocated according to the discretion of the board of
directors. Conversely, to the extent that such expenditures require the
utilization of funds in excess of the amounts anticipated, supplemental
amounts may be drawn from other sources, including, but not limited to,
general working capital and/or external financing. The net proceeds of
this offering that are not expended immediately may be deposited in
interest or non-interest bearing accounts, or invested in government
obligations, certificates of deposit, commercial paper, money market
mutual funds, or similar investments.
ITEM 5: DETERMINATION OF OFFERING PRICE
There is no existing market for the securities of the Company and, as a
result, it cannot be practicably determined what will be the offering
price selling shareholders sell their securities for.
The exercise price of $0.50 for the 1,464,514 share purchase warrants
outstanding offered hereunder was determined by the Company and
shareholders in negotiation.
ITEM 6: DILUTION
No dilution to existing shareholders will result from the offering to
the public of common shares presently issued and outstanding. No
increase or decrease in the net tangible book value per share will be
attributed to the cash payments made by purchasers of these shares as
the purchases will be made from individuals and not from the Company's
treasury.
There are 1,464,514 outstanding share purchase warrants exercisable for
a period of two years from their date of issue at an exercise price of
$0.50 per share purchase warrant. Each share purchase warrant is
exercisable for one share of common stock.
Warrant holders who exercise their outstanding share purchase warrants
will experience dilution as follows (assuming exercise of all
outstanding warrants):
Net Tangible Book Value Per Share (excluding license) before the
Distribution of Warrant Shares : $0.007
Net Tangible Book Value Per Share (excluding license) After
Distribution of Warrant Shares $0.048
Increase Attributable to Warrant Holders After Distribution of
Warrant Shares $0.041
Amount of dilution to Warrant Holders After Distribution of
Warrant Shares $0.452
Percentage Dilution in Relation to issue price 90.4%
ITEM 7: SELLING SECURITY HOLDERS
Selling shareholders will be offering a total of 8,443,028 shares
of common stock of the Company, as follows (in the chronological order
of their original issuance as restricted shares). A number of the
selling shareholders are affiliates of the Company (and are designated
in the list as such).
SHAREHOLDERS WITH COMMON SHARES PRESENTLY ISSUED AND OUTSTANDING:
C>
Name of Amount Beneficially Amount Offered for Amount Benefically Percentage
Selling Owned Prior to Selling Shareholder's Owned after Ownership after
Shareholder Offering Account Offering Offering (1)
Shaun Greffard 1,000 1,000 0 0%
Donna Taylor 1,000 1,000 0 0%
Anna Lush 1,000 1,000 0 0%
Debra Lush 1,000 1,000 0 0%
Janet Horbulyk 1,000 1,000 0 0%
Masa Tamashiro 1,000 1,000 0 0%
Ron Frier 1,000 1,000 0 0%
Gerard Smith 1,000 1,000 0 0%
Pat Martel 1,000 1,000 0 0%
Lynne Martel 1,000 1,000 0 0%
Gina Wakeham 1,000 1,000 0 0%
Andy Martel 1,000 1,000 0 0%
Jennifer Mitchell 1,000 1,000 0 0%
Patrick Sipos 1,000 1,000 0 0%
Corrine Fiesel 1,000 1,000 0 0%
Richard Silas (2) 116,500 116,500 0 0%
Christopher D. Farber 118,500 118,500 0 0%
Streamline Investments
Inc. (3) 2,551,000 847,000 1,704,000 11.05%
Nahatlatch Capital
Inc. (4) 2,550,000 847,000 1,703,000 11.05%
Patrick Fitzsimmons (5) 1,001,000 333,000 668,000 4.98%
Greg Protti (6) 501,000 133,000 368,000 2.39%
Grant Farkes 500,000 133,000 367,000 2.38%
Deborah Stockwell 500,000 133,000 367,000 2.38%
United Equities Manage-
Ment Corp. 1,000,000 333,000 667,000 4.33%
Sheila Adams 250,000 250,000 0 0%
Pamela Briskar 250,000 250,000 0 0%
Tom Acheson 500,000 500,000 0 0%
Karen Acheson 500,000 500,000 0 0%
David Forsythe 10,000 10,000 0 0%
Cynthia M. Eden 500,000 500,000 0 0%
Brandon Douglas (9) 330,000 330,000 0 0%
Martin Dearden (7) 50,000 50,000 0 0%
Dennis Dearden (8) 50,000 50,000 0 0%
Michael Jacobs 50,000 50,000 0 0%
Janette Kryzankowsi 15,000 15,000 0 0%
Robert & Carolyn White 100,000 100,000 0 0%
Michael Holden 150,000 150,000 0 0%
Glenn Burley 25,000 25,000 0 0%
Thomas Anderton 100,000 100,000 0 0%
Alan Gainsford 60,000 60,000 0 0%
Denis Ouellet 40,000 40,000 0 0%
Rainbow Creek Ranch Ltd. 25,000 25,000 0 0%
Catherine Edwards 25,000 25,000 0 0%
John F. Marino 25,000 25,000 0 0%
San Juan Capital Corp. 50,000 50,000 0 0%
Jan Guenther 25,000 25,000 0 0%
Charles W. Gay 25,000 25,000 0 0%
Karim Suleman 25,000 25,000 0 0%
Karima Meraly 25,000 25,000 0 0%
Murray Smith 25,000 25,000 0 0%
563663 BC Ltd. 100,000 100,000 0 0%
Streamline Investment
Inc. (3) 60,000 60,000 0 0%
Wes Huffman 30,000 30,000 0 0%
John Day 60,000 60,000 0 0%
Jacquelyn Scott 10,000 10,000 0 0%
Romeo Zoldan 15,000 15,000 0 0%
John F. Marino 10,000 10,000 0 0%
Charles W. Gay 75,000 75,000 0 0%
George S. Bailey 10,000 10,000 0 0%
Donald Castello 30,000 30,000 0 0%
Romeo Zoldan 15,000 15,000 0 0%
Clayton Underwood 5,000 5,000 0 0%
Jim Pendree 30,000 30,000 0 0%
John F. Marino 17,500 17,500 0 0%
Jack Baumstark 5,585 5,585 0 0%
Florian Baumstark 14,286 14,286 0 0%
Joan Woodrow 10,000 10,000 0 0%
Robert Forsyth 10,000 10,000 0 0%
Debra Gelowitz 9,143 9,143 0 0%
Jenny Grills 10,000 10,000 0 0%
Denis Ouellet 10,000 10,000 0 0%
Rainbow Creek Ranch Ltd. 10,000 10,000 0 0%
Wes Huffman 15,000 15,000 0 0%
Charles W. Gay 100,000 100,000 0 0%
Catherine Edwards 30,000 30,000 0 0%
Ken Noble 30,000 30,000 0 0%
Jim Pendree 18,000 18,000 0 0%
SUBTOTAL: 12,822,514 6,978,514 5,844,000 36.42%
(1) Assuming exercise of all outstanding warrants
(2) Richard Silas is a former director and President of the
Company. He resigned from both offices on September 10, 2001.
(3) Streamline Investments Inc. is a company wholly owned by
Michael Dearden, Director and President of the Company.
(4) Nahatlatch Capital Inc. is a company wholly owned by Griffin
Jones, Director, Secretary and Treasurer of the Company.
(5) Patrick Fitzsimmons is a director and Vice President of the Company.
(6) Greg Protti is a director of the Company.
(7) Martin Dearden is the brother of Michael Dearden, Director and
President of the Company. He is of legal age and does not reside
with Michael Dearden.
(8) Dennis Dearden is the father of Michael Dearden, Director and
President of the Company. He does not reside with Michael Dearden.
(9) Brandon Douglas is a director of the Company.
COMMON SHARES RESERVED FOR ISSUANCE UPON EXERCISE OF SHARE PURCHASE WARRANTS:
Name of Amount Beneficially Amount Offered for Amount Benefically Percentage
Selling Owned Prior to Selling Shareholder's Owned after Ownership after
Shareholder Offering Account Offering Offering (1)
Robert & Carolyn White 100,000 100,000 0 0%
Michael Holden 150,000 150,000 0 0%
Glenn Burley 25,000 25,000 0 0%
Thomas Anderton 100,000 100,000 0 0%
Alan Gainsford 60,000 60,000 0 0%
Denis Ouellet 40,000 40,000 0 0%
Rainbow Creek Ranch Ltd. 25,000 25,000 0 0%
Catherine Edwards 25,000 25,000 0 0%
John F. Marino 25,000 25,000 0 0%
San Juan Capital Corp. 50,000 50,000 0 0%
Jan Guenther 25,000 25,000 0 0%
Charles W. Gay 25,000 25,000 0 0%
Karim Suleman 25,000 25,000 0 0%
Karima Meraly 25,000 25,000 0 0%
Murray Smith 25,000 25,000 0 0%
563663 BC Ltd. 100,000 100,000 0 0%
Streamline Investment
Inc. (2) 60,000 60,000 0 0%
Wes Huffman 30,000 30,000 0 0%
John Day 60,000 60,000 0 0%
Jacquelyn Scott 10,000 10,000 0 0%
Romeo Zoldan 15,000 15,000 0 0%
John F. Marino 10,000 10,000 0 0%
Charles W. Gay 75,000 75,000 0 0%
George S. Bailey 10,000 10,000 0 0%
Donald Castello 30,000 30,000 0 0%
Romeo Zoldan 15,000 15,000 0 0%
Clayton Underwood 5,000 5,000 0 0%
Jim Pendree 30,000 30,000 0 0%
John F. Marino 17,500 17,500 0 0%
Jack Baumstark 5,585 5,585 0 0%
Florian Baumstark 14,286 14,286 0 0%
Joan Woodrow 10,000 10,000 0 0%
Robert Forsyth 10,000 10,000 0 0%
Debra Gelowitz 9,143 9,143 0 0%
Jenny Grills 10,000 10,000 0 0%
Denis Ouellet 10,000 10,000 0 0%
Rainbow Creek Ranch Ltd. 10,000 10,000 0 0%
Wes Huffman 15,000 15,000 0 0%
Charles W. Gay 100,000 100,000 0 0%
Catherine Edwards 30,000 30,000 0 0%
Ken Noble 30,000 30,000 0 0%
Jim Pendree 18,000 18,000 0 0%
SUBTOTAL: 1,464,514 1,464,514 0 0%
TOTAL OF
SUBTOTALS ABOVE 14,287,028 8,443,028 5,844,000 36.42%
(1) included with the percentage calculation is the assumed exercise of
1,464,514 common shares underlying share purchase warrants which are
exercisable for a period of two years from their date of issue.
(2) Streamline Investment Inc. is a company wholly owned by Michael
Dearden, the Company's President and one of its directors.
The Company believes that none of the selling shareholders are broker
dealers or affiliates of broker dealers.
ITEM 8: PLAN OF DISTRIBUTION
Registration under this Offering.
A total of 8,443,028 shares of common stock are to be registered, as
follows (maximum amounts):
- 6,978,514 common shares for selling shareholders, as set forth above.
- 1,464,514 common shares from selling shareholders said shares to be
obtained from exercise of outstanding warrants
No commissions or other fees will be paid, directly or indirectly, by
the Company, or any of its principals, to any person or firm in
connection with solicitation of sales of the shares.
The selling shareholders and any of their pledges, assignees and
successors-in-interest may, from time to time, sell any or all of their
shares of common stock covered by this prospectus on any stock exchange,
market or trading facility on which the shares are then traded or in
private transactions at a price of $0.35 per share until our shares are
quoted on the OTCBB. Thereafter, non-affiliate selling shareholders may
sell at prevailing market prices or privately negotiated prices.
Affiliate selling shareholders must, unless an amended registration
statement disclosing a different selling price is declared effective by
the SEC, continue to sell at a price of $0.35.
We will pay the expense incurred to register the shares being offered by
the selling stockholders for resale but the selling shareholders will
pay any underwriting discounts and brokerage commissions associated with
these sales. As disclosed in Use of Proceeds, a total of $9,800 in costs
are associated with completing this offering. There can be no assurance
that we will have the funds necessary to complete this offering.
(a) ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
(b) block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of the
block as principal to facilitate the transction;
(c) purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
(d) privately negotiated transactions; and
(e) a combination of such methods of sale.
In addition, any shares that qualify for sale under Rule 144 may be sold
under Rule 144 rather than through this prospectus.
In offering the shares covered by this prospectus, the selling
shareholders and any broker-dealers who execute sales for the selling
shareholders may be deemed to be an "underwriter" within the meaning of
the Securities Act in connection with such sales. Any profits realized
by the selling shareholders and the compensation of any broker-dealer
may be deemed to be underwriting discounts and commissions.
Selling shareholders may sell their shares in all 50 states in the US.
Each selling shareholder and any other person participating in a
distribution of securities will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including
Regulation M which may restrict certain activities of, and limit the
timing of purchases and sales of securities by, selling shareholders and
other persons participating in a distribution of securities.
Furthermore, under Regulation M, persons engaged in a distribution of
securities are prohibited from simultaneously engaging in market making
and certain other activities with respect to such securities for a
specified time prior to the commencement of such distributions, subject
to specified exceptions or exemptions. All of the foregoing my affect
the marketability of the securities offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant
to Rule 144 under the Securities Act may be sold under that rule rather
than pursuant to this prospectus. There can be no assurance that the
selling shareholders will sell any or all of the shares of common stock
offered by them hereunder.
ITEM 9: LEGAL PROCEEDINGS
Neither Alternet nor its subsidiary, AI Systems Group Inc., are party
to any litigation and neither have knowledge of any threatened or
pending litigation against them.
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,AND CONTROL PERSONS
The following discussion contains disclosure concerning our directors,
officers and control persons. There are no persons which have acted as
a promoter, controlling person, or significant employee of the Company
other than as disclosed below.
Name Position Term of Office*1*2
Michael Dearden President and Director Expires May 10, 2003
Griffin Jones Secretary, Treasurer
and Director Expires May 10, 2003
Patrick Fitzsimmons Director, Vice President Expires May 10, 2003
Greg Protti Director, Vice President Expires May 10, 2003
Karim Lakhani Director Expires May 10, 2003
Brandon Douglas Director Expires May 10, 2003
1. Directors, whether appointed at a meeting of shareholders or by the
remaining directors, are appointed until the next annual meeting of
shareholders. As Alternet had its last annual meeting of
shareholders on May 10, 2002 all of the directors terms expired on
that date and they were reappointed by the shareholders until the
next annual meeting of shareholders. The expiry dates are
estimates of when the next meeting will be held.
2. The President, Secretary and Treasurer do not have a set term of
office. They serve at the pleasure of the Directors and can be
removed at any time by the Directors.
Michael Dearden, President and Director
Michael Dearden, age 47. Mr. Dearden has over 25 years experience in
sales and marketing, and for the past 15 years has focused
specifically on corporate marketing and venture capital financing.
Prior to joining Alternet in 2000, Mr. Dearden was, for five years, a
director of Rolland Virtual Business Systems Limited (formerly Americ
Resources Corp.), where he helped to facilitate the merger of Rolland
Virtual Business Systems Limited and Americ Resources Corp. and helped
to facilitate a concurrent financing of $1,800,000. Rolland Virtual
Business Systems Limited is a Montreal, Canada, based E-commerce
software developer with approximately 35 employees.
Griffin Jones, Secretary, Treasurer and Director
Griffin Jones, age 46. Mr. Jones has been self-employed for
approximately 15 years as a management consultant. Mr. Jones brings to
the Company experience in financial management, and experience in
providing management to companies in a number of industry areas
including high technology, industrial products and mining. Mr. Jones
has worked in marketing management, finance and corporate relations.
Patrick Fitzsimmons, Director and VP Sales
Pat Fitzsimmons, age 48. Mr. Fitzsimmons joined Alternet in 2001 and
brings to the company his technology sales and management experience
gained from a 22-year career in the high-technology marketplace. From
1996 to 2001, was employed as Manager, Major Accounts, AT&T Canada,
Vancouver B.C., Canada.
Greg Protti, Director and VP Marketing
Greg Protti, age 44. Mr. Protti joined Alternet in 2001 and has over
17 years experience in the high technology sector. He has held sales
and management positions in all segments of the high tech sector and
was Western Regional Sales Manager for Merisel Canada (a NASDAQ listed
software distribution company founded in 1990) from 1996 to 2001. He was
responsible for running a $200 million sales revenue territory for Merisel
in Western Canada.
Karim Lakhani, Director
Karim Lakhani, age 42. He holds a Bachelor of Applied Science in
Electrical Engineering from The University of British Columbia. As
President of Orion Technologies Inc. from 1996 to 1997 he directed the
development secure network software (was involved in the design of
software and hardware for securely conducting electronic commerce
transactions over the internet) for 79 banks in 33 countries in the
Asia Pacific region. Mr. Lakhani is a co-founder of AII (Advanced
Interactive Inc.) and is its President. He has been an officer of AII
or its subsidiary from 1998 to the present.
Brandon Douglas, Director
Brandon Douglas, age 48. Mr. Douglas has been an associate lawyer
with the Law Offices of Vernis & Bowling of Fort Lauderdale, P.A. from
1997 to the present. Prior to that, Mr. Douglas was a sole
practitioner having operated the Law Office of Brandon J. Douglas from
1992 to 1997.
Each officer and director generally serves until the next annual
meeting of shareholders or until such time as he or she resigns.
All of the officers and directors devote themselves full-time to the
Company except for Karim Lakhani and Brandon Douglas whose duties and
time are limited to those typically expected of outside directors and
non-officer directors on a company's board of directors.
The Company does not have standing nominating or compensation
committees of the board of directors, or committees performing
similar functions.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of shares of the Company's common stock as of the date of this
registration statement (16,051,085 shares issued and outstanding) by (i)
all shareholders known to the Company to be beneficial owners of more
than 5% of the outstanding common stock; and (ii) all directors and
executive officers of the Company, and as a group (each person has sole
voting power and sole dispositive power as to all of the shares shown as
beneficially owned by them):
Name and Address Position Amount of Stock Percentage of
Beneficially Class
Owned
Streamline Investments, Inc. (2) Director, President 2,611,000 16.27%
711 South Carson St.
Carson City, Nevada89701
Nahatlatch Capital Corp. (3) Director, Secretary, Treasurer 2,550,000 15.89%
711 South Carson St.
Carson City, Nevada89701
Patrick Fitzsimmons Director, VP Sales 1,001,000 6.24%
1406-151 E. Keith Rd.
N. Vancouver, BCV7L 4M3
Greg Protti Director, VP Business 501,000 3.12%
6405 Holly Park Dr. Development
Ladner, BC V4K 4W6
Karim Lakhani Director *1 0.00%
Advanced Interactive Inc. 3,228,571 20.11%
718 - 1350 East Flamingo Road
Las Vegas, NV 89119
Directors, Officers and 9,891,571 61.63%
5% shareholders in total (6
Persons)
1. Karim Lakhani does not personally own any common stock. However,
as well as being a director of Alternet, he is a Director and
President of Advanced Interactive Inc. and is a director of its
Canadian subsidiary, Advanced Interactive Canada Inc. These two
companies hold a total of 20.11% of the issued and outstanding
stock of the Company.
2. Streamline Investments, Inc. is a company wholly owned by the
Company's President and Director, Michael Dearden. Streamline
Investments, Inc. also owns 60,000 of our outstanding share
purchase warrants. The warrants are exercisable at $0.50 per
warrant for a period until February 28, 2004.
3. Nahatlatch Capital Corp. is a company wholly owned by the Company's
Treasurer, Secretary and Director, Griffin Jones.
4. Advanced Interactive Inc. ("AII") has a common director with the
Company, Karim Lakhani (the President and a Director of AII).
Catherine Edwards, who is listed as a selling shareholder, also is
a director.
5. AII. The day to day business and affair of AII are controlled by its
President, Karim Lakhani and overseen by its board of directors. It is
likely that voting and disposition of AII's shares of Alternet Systems,
Inc. would also be overseen by Mr. Lakhani and the board of directors of
AII. Mr. Lakhani holds 24.95% of the issued and outstanding shares of
AII and no other shareholder owns more than 10%.
ITEM 12: DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The authorized
capital of the Company consists of 100,000,000 shares of common stock,
$0.00001 par value per share. As of October 4, 2002, 16,051,085 shares
of common stock were issued and outstanding. Each outstanding share of
the common stock entitles the holder to one vote, either in person or by
proxy, on all matters that may be voted upon by the owners thereof at
meetings of the shareholders.
The holders of the common stock (i) have equal rights to dividends,
when, and if, declared by our the Board of Directors; (ii) are
entitled to share ratably in all of our assets available for
distribution to the holders of the common stock upon liquidation,
dissolution or winding up of our affairs; and (iii) do not have
preemptive subscription or conversion rights.
There are no restrictions, in the Articles or By-Laws of the Company,
on the rights of holders of common stock to transfer or sell their
shares of common stock.
Non-Cumulative Voting.
The holders of shares of common stock of the Company do not have
cumulative voting rights. As a result, the holders of more than 50% of
such outstanding shares, voting for the election of directors, can elect
all of the directors to be elected, if they so choose. In such event,
the holders of the remaining shares will not be able to elect any of the
Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends and has not
in the past paid dividends.
The Company's Articles and By-Laws empower the directors to make
distributions of dividends to the Company's shareholders when the
Company's board of directors deems such distributions appropriate.
Because the Company does not intend to make cash distributions (its
business plan is to use available funds, for the near future, for
expansion of its operations, particularly its marketing and distribution
teams), potential shareholders would need to sell their shares to
realize a short-term return on their investment. There can be no
assurances of the projected values of the shares, nor can there be any
guarantees of the success of the Company. There is presently no public
market for shares of the Company nor are its securities listed on any
exchange.
A distribution of dividends will be made only when, in the judgment of
the Company's board of directors, it is in the best interest of the
Company's shareholders to do so.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
The Company's authorized but unissued capital stock, as of October 4,
2002, consists of 83,948,915 shares of common stock. One effect of the
existence of authorized but unissued capital stock may be to enable the
board of directors to render more difficult or to discourage an attempt
to obtain control of the Company by means of a merger, tender offer,
proxy contest, or otherwise, and thereby to protect the continuity of
the Company's management. If, in the due exercise of its fiduciary
obligations, for example, the board of directors were to determine that
a takeover proposal was not in the Company's best interests, such shares
could be issued by the board of directors without shareholder approval
in one or more private placements or other transactions that might
prevent, or render more difficult or costly, completion of the takeover
transaction by diluting the voting or other rights of the proposed
acquirer or insurgent shareholder or shareholder group, by creating a
substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent board of directors,
by effecting an acquisition that might complicate or preclude the
takeover, or otherwise.
Outstanding Warrants.
There are 1,464,514 outstanding share purchase warrants of the Company.
Each of these share purchase warrants entitles the owner, upon payment
of the $0.50 exercise price, to one share of common stock of the
Company. The outstanding share purchase warrants are each exercisable
for one share of common stock for a period of two years from their date
of issuance. (See "Recent Sales of Unregistered Securities" for expiry dates
of Share Purchase Warrants).
Transfer Agent.
The Company has engaged the services of Transfer Online, Inc., an Oregon
company, as its transfer agent and registrar. The address for Transfer
Online, Inc. is Suite 300 - 227 SW Pine Street, Portland, Oregon 97204
Tel: (503) 227-2950 / Fax: (503) 227-6874.
ITEM 13: INTEREST OF NAMED EXPERTS AND COUNSEL
No named expert or counsel was hired on a contingent basis, will receive
a direct or indirect interest in the small business issuer, or was a
promoter, underwriter, voting trustee, director, officer, or employee of
the Company.
ITEM 14: DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Articles and Bylaws of the Company do not provide for
indemnification of the directors and officers of the Company for acts
taken in their capacity as directors or officers.
The Articles and Bylaws of the Company do not prohibit arrangement by
the Company of indemnification insurance or an agreement by the
Company to indemnify directors and officers against loss or damage
from such acts.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to any future amendments
to the Company's Articles or Bylaws, the Company has been advised that
in the opinion of the US Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforcable.
ITEM 15: ORGANIZATION WITHIN LAST FIVE YEARS
The following are the promoters (including present and past directors,
officers and affiliates) of the Company listed with any material
transactions the Company has had with them:
Stephen Stanley: Mr. Stanley was a director of the Company from
inception to April 25, 2001. Mr. Stanley purchased 1,000 shares of
the common stock of the Company on June 26, 2000 for total
consideration of $1.00. Mr. Stanley lent a total of $945 to the
Company which amount is still outstanding as a shareholder's loan.
This loan was assigned to Mr. Richard Silas, at the time the sole
director of the Company, on April 25, 2001.
Drew Martell: Mr. Martell was a director of the Company from
inception to April 25, 2001. Mr. Martell purchased 1,000 shares of
the common stock of the Company (through a company of which he owned
100% of the issued and outstanding shares, Ramm Capital Corp.) on June
26, 2000 for total consideration of $1.00. Mr. Martell lent a total
of $945 to the Company which amount is still outstanding as a
shareholder's loan. This loan was assigned to Mr. Richard Silas, at
the time the sole director of the Company, on April 25, 2001.
Terry Wells: Mr. Wells was a director of the Company from inception
to April 25, 2001. Mr. Wells purchased 1,000 shares of the common
stock of the Company on June 26, 2000 for total consideration of
$1.00. Mr. Wells lent a total of $945 to the Company which amount is
still outstanding as a shareholders' loan. This loan was assigned to
Mr. Richard Silas, at the time the sole director of the Company, on
April 25, 2001.
Richard Silas: Richard Silas was a director and officer of the
Company from April 25, 2001 to September 10, 2001. Mr. Silas
purchased 1,000 common shares from Drew Martell on April 25, 2001 and
500 common shares from Terry Wells on April 25, 2001 for $1.00 and
$0.50 respectively. On May 18, 2001 he purchased 115,000 common
shares from the Company for $1.15. On May 31, 2001 he purchased
50,000 common shares from the Company for $0.50.
Patrick Fitzsimmons: Mr. Fitzsimmons is a director of the Company and
has been since September 10, 2001. Mr. Fitzsimmmons was issued
1,001,000 common shares of the Company on July 2, 2001. Mr.
Fitzsimmons receives a salary from the Company which totalled $32,607
in the year ended December 31, 2001 and which totalled $26,767 in the
first nine months of financial year ending December 31, 2002 (January 1 -
September 30, 2002). Mr. Fitzsimmons owed $2,498 to the Company as of
June 30, 2002, an amount which he repaid on August 26, 2002 to comply
with the new Sarbanes-Oxley Act of 2002 prohibitions on loans to
directors and officers.
Michael Dearden: Mr. Dearden is a director and officer of the Company
and has been since September 10, 2001. Mr. Dearden owns a company
called Streamline Investments, Inc. which has received a total of
$16,696 in consulting fees from the Company to date in financial year
ending December 31, 2002. Mr. Dearden has purchased a total of
2,001,000 shares of common stock from the Company as part of the
closing of the Share Purchase Agreement. He also purchased, on May
17, 2001, 500,000 shares of the Company for total consideration of
$0.50. To date, Mr. Dearden has loaned to the Company a total of
$2,865 which amount is still outstanding. On February 28, 2002, Mr.
Dearden purchased (through his company, Streamline Investments, Inc.)
a total of 60,000 units (each unit comprised of one share and one
share purchase warrant exercisable until February 28, 2004 for an
exercise price of $0.50) for total consideration of $12,000. On June
1, 2001, he purchased a total of 50,000 shares of common stock from a
shareholder of the Company, Christopher D. Farber, for total
consideration of $7,500.
Griffin Jones: Mr. Jones is a director and officer of the Company and
has been since September 10, 2001. Mr. Jones owns a company called
Nahatlatch Capital Inc. which received a total of $28,623 in
consulting fees from the Company in the first nine months of the
financial year ending December 31, 2002. Mr. Jones purchased
2,000,000 shares of common stock of the Company as part of the closing
of the Share Purchase Agreement on July 2, 2001. He also purchased,
on May 17, 2001, 500,000 shares of the Company for total consideration
of $0.50. To date, Mr. Jones has loaned to the Company a total of
$6,128 which amount is still outstanding. On June 1, 2001, he
purchased a total of 50,000 shares of common stock from a director of
the Company (at the time), Richard Silas, for total consideration of
$7,500.
Karim Lakhani: Mr. Lakhani is a director of the Company and has been
since September 10, 2001. Mr. Lakhani is also a director of Advanced
Interactive Inc., which holds 3,000,000 shares of common stock of the
Company.
Brandon Douglas: Mr. Douglas is a director of the Company and has been
since November 16, 2001. On July 2, 2001 Mr. Douglas purchased
330,000 shares of common stock of the Company as part of the closing
of the Share Purchase Agreement.
Greg Protti: Mr. Protti is a director of the Company and has been
since September 10, 2001. On July 2, 2001 Mr. Protti purchased a
total of 501,000 shares of common stock of the Company as part of the
closing of the Share Purchase Agreement. Mr. Protti has received
$13,392 to date in the financial year ending December 31, 2002 as salary.
ITEM 16: DESCRIPTION OF BUSINESS
Company History.
We were incorporated in the State of Nevada on June 26, 2000, under
the name of "North Pacific Capital Corp.". We sought approval, at our
meeting of shareholders to held on December 20, 2001, shareholder
approval to change our name to "SchoolWeb Systems Inc." This name
change was effected on April 11, 2002 when filed with the Secretary of
State in Nevada. On May 10, 2002 the Company sought and received
shareholder approval to a name change to "Alternet Systems, Inc." and
this name change was effected on May 14, 2002.
Our wholly owned subsidiary, AI Systems Group Inc., was incorporated in the
State of Nevada on October 13, 2000 under the name of Alternet Systems, Inc.
and subsequently changed its name, on March 6, 2001, to "SchoolWeb Systems
Inc.". On July 3, 2001 SchoolWeb's name was changed to "SchoolWeb
Holdings Inc." and on July 1, 2002 changed its name for the final time
to its present name, AI Systems Group Inc.
North Pacific Capital Corp. was a blank check company until it merged with
AI Systems Group Inc. Its management (comprised of Drew Martell, Stephen
Stanley and Terry Wells) did not, and have not, received any compensation,
including any compensation in the form of finder's fees, commissions or
incentive stock options, from the company.
On January 1, 2001, AI Systems Group entered into a software license
agreement to license all of the broadcast caching server technology
developed by Advanced Interactive Inc., including the SchoolWeb
hardware and software system. The "SchoolWeb" name in only one name
under which this technology is marketed by us. We also market the
technology under the names "HealthWeb" and "1nterlink".
The SchoolWeb hardware system and software were developed as a result
of Advanced Interactive Inc.'s subsidiary, Advanced Interactive Canada
Inc., being awarded a $650,000 contract in 1999 to provide a low cost,
distance-learning Internet access system for an initial pilot of 20
British Columbia, Canada schools. The contract was awarded to
Advanced Interactive Canada Inc. by the Government of British
Columbia.
Our registered office in the State of Nevada is 711 South Carson Street
Suite 4, Carson City, Nevada 89701. Its principal executive offices are
located in Canada at Suite 280 - 815 West Hastings Street, Vancouver
British Columbia, Canada V6C 1B4.
We became a reporting issuer under the Securities Exchange Act of 1934
on November 6, 2000.
General.
The consideration exchanged pursuant to the Share Exchange Agreement
was negotiated between the shareholders of AI Systems Group Inc. and
the management of Alternet.
In evaluating AI Systems Group Inc. as a possible acquisition
candidate, management used criteria such as management's estimates of
the value of the assets of AI Systems Group Inc. (particularly the
License Agreement), the anticipated future operations of AI Systems
Group Inc., material contracts, quality of management and current
operations.
The primary asset of Alternet (through its subsidiary, AI Systems
Group Inc.) is the License Agreement between AI Systems Group Inc.,
Advanced Interactive Inc. and Advanced Interactive Canada Inc.
(collectviely, "AII") dated January 1, 2001. AII had developed
proprietary hardware systems and software known primarily as the
"SchoolWeb System" for caching Internet and multimedia files on
special servers at schools, homes, businesses or other locations
AI Systems Group wished to acquire the rights to distribute, market,
sell and license the SchoolWeb System in the United States and Canada.
The License Agreement grants AI Systems Group, for a term of five (5)
years renewable for an additional five (5) years, the exclusive right
to distribute, market, sell and sub-license broadcast caching server
software developed by AII (the SchoolWeb System) in the US and Canada
for educational related purposes and grants AI Systems Group Inc., for
a period of five (5) years renewable for an additional five (5) years,
the non-exclusive worldwide right to distribute, market, sell and
license the same products. Under the terms of the License Agreement,
AI Systems Group Inc. must pay to Advanced Interactive Inc. the sum of
$10,000 per month in year one, $20,000 per month in year two and
increased payments in subsequent years. Advanced Interactive Inc.
also receives a royalty of 40% on revenue realized from AI Systems
Group's use of the Licensed Technology.
Advanced Interactive Inc. was issued a total of 3,000,000 shares of
common stock of AI Systems Group Inc. under the terms of the License
Agreement, the Share Exchange Agreement, and their amendments.
In March of 2002, AII and Hewlett Packard (Canada), in negotiations
for which Alternet was present and involved, entered into an agreement
whereby AII agreed that all sales of its caching server software would
be "bundled" (would include) Hewlett Packard hardware. In exchange
for this promise, Hewlett Packard (Canada) agreed to make efforts to
distribute the SchoolWeb System. No minimum sales were imposed under
the terms of this agreement and the agreement can be terminated with
notice. Because AII had licensed the caching server software to AI
Systems Group Inc. (as the SchoolWeb System), Alternet's consent to
this agreement was required. Alternet consented believing that, even
though there were no guaranteed sales volumes, Hewlett Packard
(Canada)'s established distribution system could potentially generate
significant sales volumes. We simply don't have the established
relationships or distribution capabilities of a company like Hewlett
Packard (Canada).
On August 10, 2002, we agreed with AII to amend the terms of the
License Agreement to provide that, in any given month, we could accrue
up to one-half of the amount due to AII under the License Agreement.
This is expected to significantly decrease our monthly cash flow
needs. For example, in the remaining months of 2002, instead of
having to pay $20,000 per month to AII we can pay $10,000 and accrue
the remainder for the term of the License Agreement. When we signed
the August 10, 2002 amendment, we owed AII $80,000. We agreed with
AII to settle this debt by issuing to AII 228,571 shares of common stock.
Share Purchase Agreement with AI Systems Group Inc.
This is the agreement by which we acquired our subsidiary, AI Systems
Group Inc., and began to pursue its business as our own. Under an
Agreement (the "Share Exchange Agreement") dated as of July 2, 2001,
as amended September 10, 2001 between the shareholders of AI Systems
Group Inc. and Alternet Systems Inc. (at that time named North Pacific
Capital Corp.), all of the 12,343,000 outstanding shares of common
stock of AI Systems Group Inc. were exchanged for 12,343,000 shares of
common stock of the Company, in a transaction in which the Company was
the surviving corporation. The 12,343,000 shares of common stock (of
which 3,000,000 are held by AII) represented approximately 86% of the
issued and outstanding shares of common stock as of September 30,
2001, the end of the quarter in which they were issued.
The Share Exchange Agreement was adopted by the unanimous consent of
the Board of Directors of AI Systems Group on July 2, 2001 and
approved by the unanimous consent (evidenced by their signatures on
the Share Exchange Agreement) of the shareholders of AI Systems Group.
The Share Exchange Agreement was adopted by the unanimous consent of
the Board of Directors of Alternet on July 2, 2001.
The closing of the Share Exchange Agreement occurred on September 10,
2001 with the completion of stock issuances to Advanced Interactive
Inc. under the terms of the Settlement Agreement.
As a result of this closing, AII had a total of 3,000,000 (held
1,500,000 by Advanced Interactive Inc. and 1,500,000 by Advanced
Interactive Canada Inc.) shares of common stock of the Company.
As a result of this closing, Mr. Michael Dearden and Mr. Griffin
Jones, who were concurrently appointed as Directors, acquired 17.85%
and 17.84% of the issued and outstanding shares of common stock of the
Company respectively.
The SchoolWeb System:
Each basic SchoolWeb "system" or software / hardware package is
comprised of the SchoolWeb Librarian software, Linux Operating System,
a network server, redundant file system, software configuration,
uninterruptible power supply, satellite or cable port, SchoolWeb user
license, 24 hour technical support (provided by AII through the
License Agreement), On-site installation and training (provided by
resellers and distributors), system maintenance and 5X9 on-site warranty.
This is how it works:
1 A student makes a request for an Internet website.
2 The SchoolWeb server at the school first searches its memory to
determine if the site was recently requested and cached (stored) in the
computer memory.
3 If the website is present in the computer memory, the information
is delivered at LAN speed (usually 100 megabits per second) to the student.
4 If the file is not available in the server cache, the SchoolWeb
server goes to the Internet (via the school's telephone line link to the
SchoolWeb Network Center).
5 The SchoolWeb Network Center accesses the Internet and downloads
the entire website via satellite to the local SchoolWeb server.
6 All subsequent requests for this site are now available at high speed
(100Mb/sec) from the local SchoolWeb server.
Value added services offered by the SchoolWeb system include:
- fast downloading of large Internet sites for each student
- pre-programmed downloading of teacher-requested Internet sites
e-mail and web site hosting for each student
- streaming audiovisual for 50+ computer stations
- Internet computer games (recreational users do not affect Internet
access speed)
- Content control and the ability to screen viewed sites
Each school's SchoolWeb system includes a network server with large
storage capability, redundant file systems, uninterruptible power
supply and a 36" satellite dish. SchoolWeb utilizes a Linux operating
system that includes e-mail, streaming multimedia (video, audio,
animation, text) and caching of entire websites. The SchoolWeb system
does not produce content. The SchoolWeb system sends digital data via
satellite, fixed dedicated telephone data line or cable TV connection.
The choice of connection is determined by client situation or
available service in an area.
SchoolWeb can be managed and monitored by teachers at each school
using SchoolWeb Management Software. This client interface provides
flexibility for teachers who, for teaching purposes, wish to pre-
request websites the previous day, or minutes before the class
commences. The SchoolWeb network's software and hardware performance
is monitored remotely 24 hours/day by SchoolWeb support personnel (or
rather by AII support personnel under the terms of the License Agreement).
Although SchoolWeb was originally developed for rural schools that do
not have high speed Internet access, urban schools can also benefit
from the SchoolWeb system.
The SchoolWeb system design is the type of infrastructure that is
required to solve the problem of congestion.
The SchoolWeb system was originally developed with funding from the
British Columbia Ministry of Education together with the Canadian
federal government to undertake research, development and pilot
testing of the SchoolWeb system. In British Columbia, Canada where
the first SchoolWeb systems were installed 19 SchoolWeb systems were
installed on a 12 to 18 month test basis. This was, from start to
finish, approximately a two year test program which ended in March 2002.
Because SchoolWeb is a new technology, acceptance of the SchoolWeb
System (the Company believes) must be preceded by a test period of
placing the SchoolWeb server in the school for as long as a year to
build comfort with the system and generate (after the test period has
been completed) orders and revenue.
We completed testing of the SchoolWeb System in May and June of this
year and in September of this year realized revenues of approximately
$38,000 from sales.
The Company, when it sells the SchoolWeb system to First Nations
(native or aboriginal) schools or communities, markets the SchoolWeb
Systems as "1Nterlink" and "First Nations 1Nterlink". We have
considered marketing the SchoolWeb system as "HealthWeb" to hospitals
and health institutions but have not yet commenced such marketing or
studied the possible market.
How the SchoolWeb System is to be sold:
The business model for sale of the SchoolWeb System is essentially as
follows.
AII, the original developer of the SchoolWeb software, has licensed
the software to us. We pay them a monthly royalty for this software
and for technical support (eg. A help desk and product research and
development).
We take the software and develop a marketable product (create
marketing and sales materials and brochures, give the software the
name "SchoolWeb" or First Nations 1Nterlink). We then make contact
with potential resellers and distributors (eg. Hewlett Packard or
others) to secure sales through their distribution channels. We also
make contact with end user customers ourselves sometimes to secure sales.
Resellers and distributors are the people who, for the most part,
contact customers and, with our user manuals and sales materials, make
the sale.
Once a sale is made, local installers actually install the software
and the hardware which the end user customer has purchased. Depending
on the individual customer's needs, the hardware can be leased (eg.
from Hewlett Packard (Canada)) or purchased outright. The software is
sold immediately with our Company agreeing to provide user support
(through AII) to the reseller's customers.
The business model for our Company is very typical for companies
acting as channel distribution companies. In Alternet's case, the
approach is two tiered: you have a host company (through the
subsidiary, AI Systems Group Inc.) and a set of resellers and agents.
The idea is that AI Systems Group Inc. recruits and trains the
resellers and agents and they become the direct contact with the end
customers for the product. AI Systems Group Inc. also develops the
user manuals and marketing materials that these resellers and agents
use. In our case, there is an additional step: AII (which originally
developed the SchoolWeb product) performs product development and
support functions for us as well.
Product Pricing
The SchoolWeb System includes an Hewlett Packard Server, SchoolWeb
Librarian software, a SchoolWeb license, Linux Operating System,
software configuration, telephone technical support, automatic backup,
24 hour remote system monitoring and uninterruptible power supply.
For an elementary school, the package cost is $395 per month for 36
months. For a middle school, the package cost is $495 per month for
36 months. For a secondary school, the package costs is $595 per
month for 36 months.
Prices will vary with the number of students to be served at each
school, difficulty of installation, remoteness from other communities
or installations and other factors (number of sites, particular
requests from the customer).
In the event that a customer wishes to make an "up front" or immediate
full payment for the SchoolWeb System such payment is available. For
an elementary school, the total payment would be $12,850. For a
middle school, the total payment would be $15,450. For a secondary
school, the total payment would be $18,200.
The system hardware, the Hewlett Packard server, is leased from
Hewlett Packard and becomes the property of the school after the
completion of the 36 months of lease payments or immediately if
payment is made "up front"..
Status of Product Development and Business Development:
We do not anticipate incurring any significant expenditures on
research and development for the next 12 months. AII is responsible
for the updating and revision of the SchoolWeb software under the
terms of the License Agreement.
We do not perform product development or research ourselves. This
function is performed by AII which, under the terms of the License
Agreement, is responsible for developing the SchoolWeb software and
improving it to meet customers' needs. Our product development
(research and development) expenditures are the amounts which we pay
to AII under the terms of the License Agreement. For fiscal year 2002
(ending December 31, 2002) total product development expenditures will
be $240,000 ($20,000 per month under the terms of the License
Agreement). For fiscal year 2003 (ending December 31, 2003) this
increases to $336,000 ($28,000 per month). We have the right to accrue
(under an agreement with AII dated August 10, 2002), for the term of
the License Agreement, up to half of the amount due each month under
its terms.
We do not anticipate any acquisitions or business combinations with
other business entities in the near future. Our time and efforts are
consumed by developing the SchoolWeb business, as are our limited
financial resources.
Markets
The market for the SchoolWeb system and software can best be
characterized as the market for "Internet access and e-learning in
educational organizations".
Estimating the size of this market is difficult.
The SchoolWeb system is suitable for colleges, universities and
libraries. Combined with approximately 96,000 K-12 schools (elementary
and high schools) and an additional 44,000 private schools, colleges,
universities and other educational institutions in North America, the
total annual market targeted by SchoolWeb is very large.
The market for Internet access and e-learning in educational
organizations is one of the fastest growing segments of the high-tech
industry in North America. Merrill Lynch estimates that the K-12 e-
learning market is currently $1.3 billion and is likely to increase to
$6.9 billion in 2003.
In addition, the US Federal Communications Commission recently
allocated $2.25 billion to fund additional high-speed Internet access
to US schools and libraries.
In Canada, similar funding initiatives are being implemented by
Industry Canada, a federal government agency, to facilitate Internet
access for all Canadian K-12 students (in fact, the first development
funding that SchoolWeb received, through AII, came from Industry Canada).
The figures for schools and numbers of schools above include those for
First Nations (native or aboriginal) communities.
Market Trends and Analysis:
Management of the Company believes that there has been significant
growth in the sales of caching servers and software in North America
although figures for the sales of caching servers specifically are not
available from independent sources such as the US Census Bureau.
This growth, management believes, is fuelled by the necessity of
having a caching server if the internet is to be a teaching tool in
classrooms. Having a large number of students accessing the internet
over traditional lines (eg. Telephone or fibre) at the same time slows
the traditional lines and access to the point where classroom teaching
cannot be based on active use of the internet. Caching websites
(using SchoolWeb software and a caching server) speeds student's
access and makes use of the internet in classrooms more feasible.
Management of the Company believes that the trend in the market is for
educational institutions (customers) to seek software and hardware
that permits such use of the internet. Management also believes that
First Nations communities are becoming more and more technologically
sophisticated and represent a segment of the market we wish to
concentrate on.
Marketing Strategy:
Our marketing strategy is characterized by the following:
- Push sales strategy. The relative newness of the SchoolWeb hardware
system and software requires us to actively push it out into the field
through direct sales efforts (of distributors, authorized dealers and
resellers) rather than pull clients through print advertising campaigns.
- Solution selling. The product is sold as a total solution complete
with implementation and on-going management services at the client
site. This differentiates us from "shrink-wrapped" software or
communications suppliers that offer no services or provide a limited
set of services after installation has occurred.
- Strong branding within target segments. We intend to build the
School WebT brand name within targetted markets. We hope to
accomplish this in part through selective advertising in trade
journals and attendance at relevant trade shows if and when revenues
permit such expenditures (it is unlikely that there will be
significant resources devoted to this in the year ending December 31, 2002).
- Channel ready product. The SchoolWeb system is designed to be
channel-ready and easily installable by personnel working for our
distributors and authorized dealers. Installation of the SchoolWeb
hardware system and software does not require extensive training or
experience.
- Direct Distribution Channel (Direct Sales). Our direct sales channel
will consist of 4 regional sales managers for each geographic region,
overseen by the vice president of sales, Patrick Fitzsimmons. All
corporate sales management personnel will be involved in managing
direct sales and in dealing with Federal, State and Provincial
Education Departments, school boards and First Nations communities.
Although this direct distribution from AI Systems Group to schools is
planned, it is clear that SchoolWeb's marketing strategy relies to a
great degree upon AI Systems Group Inc.'s ability to secure agreements
with channel partners (authorized dealers) and distributors (value
added resellers).
To this end we have entered into Reseller Agreements with Microserve Computer
Solutions Inc. (with offices in the United States and Canada) and Vancouver
Office Technologies, Inc. (a franchisee of Microage Canada, Inc.), the terms
of which are expected to be typical of reseller agreements (also called agent
agreements). Under the terms of the reseller agreements with Microserve
Computer Solutions Inc. and Vancouver Office Technologies, Inc. (a franchisee
of Microage Canada, Inc.), no exclusivity is granted (either on a product line
or geographically). The reseller receives a commission of $400 per SchoolWeb
sale for elementary schools and $600 per unit for secondary schools. The term
of the reseller agreements is one year.
None of the distributors are expected to be given geographical or product
exclusivity and a copy of the specimen form of Reseller Agreement is attached
hereto as an exhibit.
The agreement with Hewlett Packard (Canada) and AII where Hewlett
Packard (Canada) agrees to make efforts to distribute the SchoolWeb
System will also, hopefully, generate product sales through Hewlett
Packard (Canada)'s distribution channels.
To date, our marketing efforts have been limited primarily to parts of
Western Canada. Installation in approximately 52 schools and other
facilities is planned throughout the late fall (October to December) of 2002.
Competitors
We compete with the distribution branches of IBM, Compaq, Dell and
Hewlett Packard in that these companies market their servers directly
to educational institutions. These companies may, in the future,
attempt to bundle high margin software with low margin hardware sales
and, if they did, would become our competitors.
Our leading competitors in the area of caching server software are
Novell and Bascom.com (a company which produces caching server
software not directly targeted at educational institutions). Novell
does not specifically target educational institutions and Bascom.com
does not have the same number of value added services that SchoolWeb's
systems have, in management's view.
The SchoolWeb system also arguably competes with providers of
traditional cable and telecomm (data dedicated telephone lines or T1
lines) means of accessing the internet. The competitive advantages
that SchoolWeb has over these providers is detailed in Competitive
Factors below.
Competitive Factors in the Market:
The primary competitive factors in the market for internet access at
educational institutions are reliability, speed and cost efficiency.
The SchoolWeb system provides an increase in user speed and capacity
over telecommunication (data dedicated telephone) lines of similar
cost. This increase in user speed and capacity is due primarily to
the SchoolWeb system's caching of internet files and websites.
Although originally developed by AII as a software and hardware system
geared towards rural locations, the SchoolWeb system has been
installed with success in urban locations in British Columbia as well.
In rural areas, which represent 23% of all schools in North America
(22,000 schools), schools often have no access to high-speed
infrastructure. These schools are restricted to access the Internet
through slow-speed (56K-128K) telephone lines, which are most suitable
for a small number of users at a time. For many rural schools,
SchoolWeb may be the only alternative for high-speed Internet access.
A rural or isolated First Nations community is in a similar position
to these rural schools.
A typical School Board will be utilizing a Private Line solution at
56k or 128k for primary schools, and usually T-1 (DS-1), or Ethernet
ports for their secondary schools. Schools are usually connected to
State or Provincial communication systems by full or partial T-1
circuits to a central government office, which provides services such
as firewall filtering, virus protection, curriculum and systems
management. Because so many students and schools become connected,
not only are the typical school's overall telephone line operating
costs substantial (especially for rural long distance lines), these
circuits are usually near or at saturation most times, due to
increased demand from an ever increasing number of online computers.
ADSL and high speed Cable, although excellent for the residential/SOHO
(small office/home office) market, is not widely used by schools due
to security issues and limited performance for commercial
applications. Cable is a shared network with security and congestion
problems, and ADSL bandwidth performance is greatly affected by the
distance from the telephone company Central Office (C.O.). These
internet access solutions are rarely used by educational institutions
(except in circumstances where a small or less developed school may
only have one or a few computers with internet access).
Because many school Internet requests are repetitive, the SchoolWeb
system caches and serves these requests at LAN speed of 100
megabits/second (Mb/S). Based on SchoolWeb data in schools in British
Columbia where the SchoolWeb system has been installed, it has been
shown that the repeat request ratio is between 40% and 70%.
Therefore, over half of the student requests are serviced at 100
Mb/sec from the local SchoolWeb cache. This equates to a performance
increase of between 5 and 100 times when compared to operating without
SchoolWeb.
Proprietary Protection
(a) General.
The Company does not itself own the intellectual property rights to the
SchoolWeb System. These rights are held by AII and licensed under the
terms of the Company's Software License Agreement with AII.
The SchoolWeb System's software is written by AII using Linux code
available on the internet as "shareware" (that is, it is in the public
domain and is unlikely to be patentable). Furthermore, we think it is
unlikely that the process by which the software is written can itself be
patented. Other associated processes, such as installation, are too
generic to be patented.
As a result, although we state that we or AII wish to seek protection of
our software when possible, it is unlikely that the SchoolWeb System or
the process of writing its software and installing it can be patented
and protected.
(b) Patents, Copyrights and Trade Secrets.
AII itself is unlikely to seek patent protection of the SchoolWeb
System because, as described in the previous section, the software and
the processes of installing it with customers are unlikely to be patentable.
We do not have patents or patents pending.
We rely upon trade secrets, know-how and continuing technological
innovations to develop our competitive position as well as (hopefully)
confidential customer lists and contacts in the future.
(c) Trademark Applications.
We have applied for trademark rights in the United States and Canada
for the tradename "SchoolWeb". The initial application was filed in
Canada on March 30, 2001 and it is expected that a response should be
received within 18 months.
The trademark is expected to be registered on the supplemental
register in the United States as the United States trademark was
applied for based on the Canadian trademark application. Once a
company has used a supplemental register mark in the United States for
five years, the company's mark is placed on the full register. In the
meantime, its rights in the United States are protected to the limited
extent that another company cannot commence using the name.
We anticipate filing for trademark protection in a similar manner for
the "First Nations 1Nterlink" and "1Nterlink" trademarks when funds
permit us to do so.
Organizational Structure and Facilities
At this time, none of our employees are subject to collective bargaining
agreements.
Alternet currently has only four employees: Patrick Fitzsimmons, who
performs sales and marketing functions as VP Sales; Greg Protti,
who performs various business development functions as VP Marketing.
Both devote all of their working time to the Company; Michael Dearden,
who is the President; and Griffin Jones, who is the Secretary and Treasurer.
The directors of Alternet, excluding Karim Lakhani and Brandon
Douglas, offer their services full-time to Alternet (although not
remunerated as employees). Karim Lakhani is only part-time as is
Brandon Douglas. Griffin Jones and Michael Dearden have received
consulting service payments from the Company as described in Executive
Compensation.
Our business model is not labour intensive. Our software development
and updating is provided by Advanced Interactive Inc. and Advanced
Interactive Canada Inc. under the terms of the License Agreement. The
actual sales and installations are performed by various resellers.
However, there will be a need in the future to either hire additional
sales people or develop additional distribution relationships.
In addition, when needed, Alternet and AI Systems Group employ
independent consultants and intends to appoint an advisory board
(possibly for equity compensation) to help manage its affairs. At
present, the Company has two consultants employed on a project basis
writing the user manuals for its software and working to create a
distribution system for its products.
We anticipate 4-6 full time hirings by June 30, 2003 in the areas of
sales and marketing. We do not anticipate any additional hirings of
administrative personnel.
ITEM 17: MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
financial statements of the Company and notes thereto contained
elsewhere in this prospectus.
(a) Fiscal Year Ended December 31, 2001
The fiscal year ended December 31, 2001 was the first full year of
operations for the Company and also represented the year in which it
purchased AI Systems Group Inc.
For this fiscal year, the Company (on a consolidated basis with its
subsidiary AI Systems Group Inc.) had a net loss for the period of
$(263,249) and no revenue. Of this loss, the largest expense or
expenditure was payments for the Company's license agreement with
Advanced Interactive Inc. which represented $120,000. Office and
general expenses were $50,530, marketing expenses were $39,429 and
professional fees were $29,390. The basic net loss per share was $(0.02).
The Company had current assets of $5,669 cash and $3,758 in prepaid
expenses.
Given the Company's monthly payment for its license agreement with
Advanced Interactive Inc. (which is $20,000 per month at a minimum) the
Company did not have enough working capital to meet its obligations for
even one month.
As of the date of this registration statement, the Company has raised
additional working capital through sales of unregistered securities
under Regulations S and D. The proceeds of these sales have, to date,
been sufficient to meet the Company's ongoing requirements.
Our limited operating history makes the prediction of future results
difficult or impossible. Furthermore, our limited operating history
leads us to believe that period-to-period comparisons of our operating
results may not be meaningful and that the results for any particular
period should not be relied upon as an indication of future performance.
To date, we have essentially developed and tested the SchoolWeb
system. We are only anticipating that we will begin to realize
significant revenue in the remaining quarter of this fiscal year.
(b) Fiscal Year Ended December 31, 2000:
This was the first year that SchoolWeb's subsidiary, AI Systems Group
Inc., commenced operations.
As a result, there was little operating or financial activity other
than that relating to negotiating the License Agreement, installing
servers and the SchoolWeb system in the 19 schools in British Columbia
where they are installed, working with AII to detect any failings in
the SchoolWeb software and monitoring the performance of the SchoolWeb
system in the schools in which it was installed.
(c) Nine months ending September 30, 2002 and plans for the next 12 months:
For the nine months ending September 30, 2002, we had a net loss of $373,649.
Our basic net loss per shares doubled to $0.02 from the same period
last year. On September 30, 2002, we had $19,254 in cash available to us, not
even enough to operate for one month. We also had approximately $86,771
in accounts payable of which $21,517 was owed to AII, leaving us with less of a
working capital deficit.
For the quarter ending September 30, 2002, the Company had a net loss of
$145,836 or ($(0.01) per share. The net loss for the corresponding period of
July 1, 2001, to September 30, 2001 was $55,591 or $(0.01) per share. The
increased loss (relative to the same period last year) was due to: an
increase in marketing expenses, consulting fees, professional fees, office
expense and an increase in License Agreement fees due to Advanced Interactive
Inc.
SALES
For the period ending September 30, 2002, the Company had sales of $40,923.
During the corresponding period of July 1, 2001 to September 30, 2001, the
Company had no sales. The increase in sales is attributable to the fact that
the SchoolWeb and 1nterLink products were in development during the period and
not ready for commercial sale.
EXPENSES
For the quarter ended September 30, 2002, the Company incurred general and
administrative expenses of $21,115; marketing expenses of $25,585; consulting
fees of $22,080; fees payable under the License Agreement of $60,000; and
$10,134 in professional fees. For the corresponding period of July 1, 2001
to September 30, 2001, the Company had general and administrative expenses
of $3,689; marketing expenses of $12,162; no consulting fees; fees payable
under the License Agreement of $30,000 and professional fees of $8,450.
The increase in marketing, consulting and office and general expense
this quarter, compared to the corresponding period of July 1 2001 to
June 30 2002, is a result of increased activity in marketing the
SchoolWeb and 1nterLink products since their commercial launch in May
2002. License fees payable to Advanced Interactive have increased to
$20,000 per month compared to $10,000 per month during the period of
July 1 2001 to September 30 2001, as per the License Agreement; and
professional fees increased this quarter due to fees associated with
achieving a public listing.
As at September 30, 2002, the Company had $19,254 cash in the bank,
accounts receivable of $30,619 and prepaid expenses of $5,897.
Inventory as of that date was $6,057.
The Company has installed an 1nterLink ISP system at the Heiltsuk
aboriginal nation, located at Bella Bella, British Columbia, Canada.
This system was installed in June 2002, and invoiced this quarter.
Partial payment was received during this quarter, with the balance
received subsequent to the quarter. The Company also installed and
invoiced a SchoolWeb system during the quarter.
Audit Fees
During the period ended September 30, 2002, the Company incurred
approximately $5,700 in fees to its principal independent accountant
for all non-audit services (including reviews of the Company's
quarterly financial statements).
We have completed our testing of the SchoolWeb system in the 19
schools in British Columbia where it was installed. Installations of more
systems, including installation in a number of First Nations (native or
aboriginal) communities under the name "1Nterlink" is planned for October to
December of 2002. Installations in three schools and two First Nations
communities occurred in August and September of 2002 resulting in sales
revenues of $40,923.
Our plan of operation for the year ending December 31, 2002
anticipates an increase in employees to 6 people, representing the
hiring of 2 additional persons, to focus on direct sales to schools.
Existing employees will (primarily Patrick Fitzsimmons and Greg
Protti) continue to develop distributorship and reseller relationships
in the hopes of generating sales through these channels.
The Company expects that it will, at least to the year ending December
31, 2003, maintain its present offices which have some additional
office space for expansion if necessary.
There has been no additional sales revenues recognized from September 30,
2001 to November 20, 2002. While sales are expected to increase future
periods, the magnitude and size of these sales cannot, at this time
(partly as a result of a lack of operating history on Alternet's part) be
predicted.
We plan (at this time) to seek a listing on the new BBX Exchange or
on the NASD's OTCBB in the spring of 2003. If such a listing is sought
(and occurs) we would attempt to finance more aggressive sales and
marketing initiatives with public financings. There is no guarantee
that we will continue to pursue this strategy or, if listed, that we
would be able to secure any financing. Market conditions right now
are very poor for technology debt or equity financings and even if we
did obtain financing, it would likely be expensive to the Company or
cause significant dilution to existing shareholders.
Forward-Looking Statements.
This prospectus contains "forward looking statements" within the meaning
of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of
the Securities Act of 1934, as amended, including statements regarding,
among other items, the Company's business strategies, continued growth
in the Company's markets, projections, and anticipated trends in the
company's business and the industry in which it operates. The words
"believe," "expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward-looking statements. These forward-
looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. The Company cautions that these
statements are further qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statements, including, among others, the following: reduced or lack of
increase in demand for the Company's products, competitive pricing
pressures, changes in the market price of ingredients used in the
Company's products and the level of expenses incurred in the Company's
operations. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein will in
fact transpire or prove to be accurate. The Company disclaims any
intent or obligation to update "forward looking statements."
ITEM 18: DESCRIPTION OF PROPERTY
We currently do not have any physical property other than two computer
servers. These servers were valued at $2,635 as of September 30, 2002.
Our office furniture and computers are rented, on a monthly basis.
ITEM 19: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there have not been any transactions that
have occurred between the Company and its officers, directors, and five
percent or greater shareholders, except as follows:
The software License Agreement entered into between the Company's
subsidiary, AI Systems Group Inc. and Advanced Interactive Inc. saw
Advanced Interactive Inc. become an affiliate of the Company with its
President, Karim Lakhani, joining the board of directors of the Company
and with Advanced Interactive Inc. AII received 3,000,000 shares of
common stock in the Company for entering into the License Agreement.
The number of shares was negotiated between AI Systems Group, the
Company and AII. In August of 2002, we were $80,000 in arrears on
license payments to AII. This arrears debt was settled by issuing to
AII a total of 228, 571 shares of common stock. In the nine months ended
September 30, 2002, AII received $180,000 in license agreement payments from
Alternet. AII received $120,000 in license agreement payments from
Alternet in the year ending December 31, 2001.
Michael Dearden (through his wholly owned company, Streamline
Investments Inc.) has acquired 60,000 share purchase warrants
(exercisable for a period of two years at an exercise price of $0.50)
and 60,000 shares of the Company. Streamline Investments Inc. paid
$21,000 to the Company for these securities.
Certain of the officers and directors of the Company are and have been
compensated for their work with the Company (see Executive
Compensation), either personally or through corporations which they own.
Officers and Directors of the Company are reimbursed for expenses they
incur on behalf of the Company.
Certain of the officers and directors of the Company are engaged in
other businesses, either individually or through partnerships and
corporations in which they have an interest, hold an office, or serve on
a board of directors. As a result, certain conflicts of interest may
arise between the Company and its officers and directors. The Company
will attempt to resolve such conflicts of interest in favor of the
Company. The officers and directors of the Company are accountable to
it and its shareholders as fiduciaries, which requires that such
officers and directors exercise good faith and integrity in handling the
Company's affairs. A shareholder may be able to institute legal action
on behalf of the Company or on behalf of itself and other similarly
situated shareholders to recover damages or for other relief.
ITEM 20: MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no market for the securities of the Company at this time.
The Company's securities are not traded on a recognized exchange or
the NASD's over-the-counter trading system at this time.
A total of 16,051,085 shares are issued and outstanding. A total of
6,978,514 shares are being registered for resale under this
registration statement. The remaining 9,072,571 issued and
outstanding shares may become free of resale restrictions under Rule
144 (as the Company is no longer a blank check company) or could be
separately registered under the Securities Act of 1933.
A total of 1,464,514 warrants are outstanding as of October 4, 2002.
These warrants expire two years after their issuance and upon payment
of the exercise price of $0.50 per warrant, result in the issuance of
one share of common stock to the warrant holder.
As of November 20, 2002, there were 72 shareholders of record of the
Company's common stock.
We intend to seek an OTCBB or BBX Exchange listing of our securities in
late 2002 and early 2003 respectively. We may or may not be able to
achieve this and it is possible that other considerations will cause us
to change our minds regarding this listing. The purpose of seeking such
a listing is to then secure funds to finance further expansion of sales
and marketing operations through a public financing. There can be no
guarantee that such funds will be available or, if available, will be
available at rates which are not prohibitively expensive or do not
result in significant dilution to existing shareholders.
Dividend Information.
The Company has not declared or paid a cash dividend to shareholders
since it was incorporated on June 26, 2000. The board of directors
presently intends to retain any earnings to finance Company operations
and does not expect to authorize cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon
the Company's earnings, capital requirements and other factors.
ITEM 21: EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term Compensation
Awards Payouts
Name and Other Restricted Securities
principal annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) options/SARs payouts compensation
($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Michael Dearden 2000 0 0 (1) 0 0 0 0
President & 2001 0 0 (2) 0 0 0 0
Director
Griffin Jones 2000 0 0 0 0 0 0 0
Secretary, 2001 0 0 (3) 0 0 0 0
Treasurer &
Director
Patrick 2000 0 0 0 0 0 0 0
Fitzsimmons 2001 $40,000 0 (4) 0 0 0 0
Director
Greg Protti 2000 0 0 0 0 0 0 0
Director 2001 0 0 (5) 0 0 0 0
Karim Lakhani 2000 0 0 0 0 0 0 0
Director 2001 0 0 0 0 0 0 0
(1) Michael Dearden received $16,696 in consulting fees, paid to
him personally and to a company which he owns, Streamline Investments,
Inc., to date in fiscal year 2002. Consulting fees were paid to him in
the year ending December 2000 totalling $6,250.
(2) See 1 above.
(3) Griffin Jones received $28,623 in consulting fees for the
six months ended September 30, 2002 He received a total of $11,050 in
compensation in the fiscal year ending December 31, 2001 and no
compensation for the fiscal year ending December 31, 2000.
(4) Patrick Fitzsimmons has, for the nine months ending September 30,
2002, received $26,767 in marketing fees / salary from the Company.
(5) Greg Protti has, for the nine months ending September 30, 2002,
received $13,392 in salary from the Company.
Alternet, at its annual meeting of shareholders held on December 20,
2001, adopted a Stock Option Plan which would permit Alternet to grant up to
1,000,000 incentive stock options. This Stock Option Plan was
approved by shareholders. No stock options have yet been granted
under this Stock Option Plan nor has it been filed with the SEC using
the S8 Registration Statement procedure. However, some or all of the
persons named above may be granted stock options in the future and the
Stock Option Plan may be filed using the S8 Registration Statement
procedure.
EQUITY COMPENSATION PLAN INFORMATION
Plan category Number of securities Weighted average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights warrants and rights
Stock Option Incentive Plan No options outstanding No options outstanding 1,000,000
(1,000,000 common shares so no exercise price Common Shares
authorized for issuance)
Total Nil Nil 1,000,000 Common
Shares
As of December 31, 2001, certain directors had provided cash loans to,
or incurred expenses on behalf of, the Company totaling $16,186. This
amount decreased (with the partial reimbursement of expenses) to
$12,542 as of September 30, 2002. These amounts due from related parties
are non-interest bearing and have no specific terms of repayment.
A director of AI Systems Group Inc. received $32,607 in marketing fees
in the year ended December 31, 2001 (the director was Patrick
Fitzsimmons and the $32,607 is included in the $40,000 figure given in
the table above).
Other than as stated below, there is no known relationship between any
of the Directors and Control persons with major clients or providers
of essential products and technology, nor are there any other known
related transactions except as disclosed otherwise in this
registration statement.
Karim Lakhani is Director and President of Advanced Interactive Inc.
and Director of Advanced Interactive Canada Inc., corporations which
own a total of 3,000,000 shares of common stock (approximately 21% of
the issued and outstanding shares of common stock) of Alternet. These
corporations are also party to the License Agreement and its
amendments. As of August 10, 2002 AII was owed $80,000 in arrears
license payments by the Company which was debt settled by the issuance
to AII of 228,571 shares of common stock of the Company.
None of the directors or officer's individual's total compensation under
all contracts with the Company, including special allowances or bonuses,
will exceed $100,000 this year. All officers and directors will be
reimbursed for expenses incurred on behalf of the Company including
director expenses pertaining to attendance at meetings. It is
anticipated that additional management may be hired as the Company
develops and revenue is generated. If such hirings occur, salaries paid
to new employees will be consistent with the salaries of others in
similar positions in the industry.
Although the Company's shareholders adopted a Stock Option Plan on
December 20, 2001 at the Company's annual shareholders' meeting no stock
options have been granted under this Stock Option Plan to date and no
stock options are, at this time, planned to be granted.
There are no annuity, pension or retirement benefits proposed to be paid
to officers, directors, or employees of the Company in the event of
retirement at normal retirement date as there is no existing plan
provided for or contributed to by the Company.
ITEM 22: FINANCIAL STATEMENTS
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
- ------------------------------------------------------------------------------
(Unaudited) (Note 1)
$ $
ASSETS
CURRENT ASSETS
Cash 2,665 5,669
Accounts receivable 14,625 -
Prepaid expenses 4,194 3,758
Inventory 6,057 -
-------------------------------------------------------------------------------
27,541 9,427
LICENSE RIGHTS, net of amortization of $9,000
(2001 - $6,000) (Note 4) 21,000 24,000
FIXED ASSETS, net of depreciation of $1,110
(2001 - $600) 2,890 3,400
-------------------------------------------------------------------------------
51,431 36,827
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 77,046 26,091
Due to related parties (Note 6) 8,970 33,486
-------------------------------------------------------------------------------
86,016 59,577
-------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 4)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock (Note 5)
Common stock, $0.00001 par value,
100,000,000 shares authorized
15,580,371 (2001 - 14,733,000)
issued and outstanding 156 147
Additional paid-in capital 460,873 242,302
Accumulated comprehensive loss (4,552) (1,950)
Deficit accumulated during development stage (491,062) (263,249)
-------------------------------------------------------------------------------
(34,585) (22,750)
- -----------------------------------------------------------------------------
51,431 36,827
===============================================================================
The accompanying notes are an integral part of
these interim consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Three Six Six Oct 13,
months months months months 2000
ended ended ended ended (inception)
June 30, June 30, June 30, June 30, to June
2002 2001 2002 2001 30, 2002
$ $ $ $ $
(Note 1)
HARDWARE SALES 14,625 - 15,450 - 15,450
- -----------------------------------------------------------------------------
EXPENSES
Depreciation and
Amortization 1,755 3,000 3,510 3,000 10,110
Consulting 21,881 - 38,836 - 56,136
License fees 60,000 30,000 120,000 60,000 240,000
Office and general 19,295 18,795 29,581 24,833 80,111
Marketing 15,709 10,145 31,555 14,376 70,984
Professional fees 16,238 5,841 19,781 7,161 49,171
-------------------------------------------------------------------------------
134,878 67,781 243,263 109,370 506,512
-------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (120,253) (67,781) (227,813) (109,370) (491,062)
===============================================================================
BASIC NET LOSS PER SHARE (0.01) (0.01) (0.02) (0.01)
====================================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,439,579 12,343,000 15,175,483 12,343,000
=====================================================================
The accompanying notes are an integral part of these
interim consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
October 13,
Six months Six months 2000
ended June ended June (inception)
30, 2002 30, 2001 to June 30 2002
$ $ $
- ----------------------------------------------------------------------------
(Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (227,813) (109,370) (491,062)
Adjusted for item not involving cash:
Depreciation and amortization 3,510 3,000 10,110
Changes in operating assets
and liabilities:
Accrued consulting fees (17,300) - -
Changes in accounts receivable (14,625) - (14,625)
Changes in inventory (6,057) - (6,057)
Changes in prepaid expenses (435) - (4,194)
Changes in accounts payable 50,955 14,395 72,906
------------------------------------------------------------------------------
NET CASH FLOWS USED IN
PERATING ACTIVITIES (211,766) (91,975) (432,922)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from related parties (7,216) 20,985 5,132
Proceeds on sale of common stock 218,580 128,100 438,933
-------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 211,364 149,085 444,065
-------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets - (4,000) (4,000)
Cash acquired on reverse acquisition
of SchoolWeb - - 74
- -----------------------------------------------------------------------------
NET CASH FLOWS USED IN INVESTING
ACTIVITIES - (4,000) (3,926)
- -----------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (2,602) - (4,552)
- -----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (3,004) 53,110 2,665
CASH, BEGINNING OF PERIOD 5,669 3 -
- -----------------------------------------------------------------------------
CASH, END OF PERIOD 2,665 53,113 2,665
===============================================================================
The accompanying notes are an integral part of
these interim consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on June 26, 2000 in the State of Nevada as North
Pacific Capital Corp. and was organized for the purpose of creating a corporate
vehicle to locate and acquire an operating business. On December 19, 2001 the
Company changed its name to Schoolweb Systems Inc. and on May 14, 2002 the
Company changed its name to Alternet Systems Inc. ("Alternet" or the "Company")
On November 6, 2000, the Company filed a Form 10SB registration with the United
States Securities and Exchange Commission ("SEC") and as a result is subject to
the regulations governing reporting issuers in the United States.
By agreement dated July 2, 2001 and completed September 10, 2001, Alternet
Issued 12,343,000 shares of restricted common stock to the shareholders of
Schoolweb Holdings Inc. ("SW Holdings"), a development stage company
incorporated October 13, 2000 in the State of Nevada, in exchange for all of
the issued and outstanding shares of SW Holdings. On June 26, 2002 SW Holdings
changed its name to AI Systems Group, Inc.
The acquisition resulted in the former shareholders of SW Holdings acquiring
90.1% of the outstanding shares of the Company and has been accounted for as a
reverse merger with SW Holdings being treated as the accounting parent and
Alternet, the legal parent, being treated as the accounting subsidiary.
Accordingly, the consolidated results of operations of the Company include
those of SW Holdings for all periods shown and those of the Alternet since the
date of the Reverse acquisition. The results of operations of SW Holdings
are from its inception, October 13, 2000 and include the results of its wholly-
owned subsid-iary, SchoolWeb Systems (Canada) Ltd. a company incorporated
April 17, 2001 in the Province of British Columbia. The comparative balance
sheet as at December 31, 2001 and the comparative results of operations and
cash flows for the three and six months ended June 30, 2001 are those of SW
Holdings. Refer to Note 3.
SW Holdings, through a License Agreement dated January 1, 2001, distributes,
markets sells and licenses in the United States and Canada, certain proprietary
software and hardware systems technology known as "SchoolWeb" used for caching
Internet and multimedia files on special servers (refer to Note 4).
The consolidated financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
has incurred losses since inception and further losses are anticipated before
the Company reaches a commercial stage raising substantial doubt as to
the Company's ability to continue as a going concern. The Company's
continued operations are dependent on the successful implementation of its
business plan, its ability to obtain additional financing as needed, and
ultimately to attain profitable operations.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB of
Regulation S-B. They do not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
changes in the information disclosed in the notes to the financial
statements for the year ended December 31, 2001 included in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission. The interim unaudited financial statements should be read in
conjunction with those financial statements included in the Form 10-KSB. In the
opinion of Management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have been
made. Operating results for the six months ended June 30, 2002
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, AI Systems Group, Inc. and Schoolweb Systems
(Canada) Ltd. All significant intercompany transactions and account balances
have been eliminated.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original maturity of
Three months or less when purchased, to be cash equivalents.
Inventory
Inventory consists of computer hardware products held for resale and is carried
at the lower of cost and net realizable value.
License Rights
The Company amortizes the cost of acquiring license rights on a straight-line
basis over the term of the license. The Company evaluates the carrying amount
of its unamortized license rights against the undiscounted future cash flows
associated with them. If the evaluation indicates that the future undiscounted
cash flows are not sufficient to recover the carrying value, an impairment
provision is recorded to adjust the carrying value of the license rights to
their fair value.
Fixed Assets
Fixed assets are recorded at cost and depreciated on a declining balance basis
at a rate of 30% per annum.
Revenue recognition
To date, the Company has not generated any revenues from the licensing of its
SchoolWeb system. The Company will license its SchoolWeb system on a prepaid
basis for terms ranging from one to three years. The Company will recognize
license revenues on a straight-line basis over the license term upon completion
of the required hardware and software installations and upon acceptance by the
purchasers.
The Company has generated revenues from hardware sales in connection with the
testing of the SchoolWeb system. Hardware sales are shown net of hardware
acquisition costs and are recognized upon completion and acceptance of
installation by the purchasers.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined
the estimated fair value of financial instruments using available market
information and appropriate valuation methodologies. The fair value of
financial instruments classified as current assets or liabilities approximate
carrying value due to the short-term maturity of the instruments.
Stock-Based Compensation
The Company accounts for stock-based compensation in respect to stock options
granted to employees and officers using the intrinsic value based method in
accordance with APB 25. Stock options granted to nonemployees are accounted for
using the fair value method in accordance with SFAS No. 123. In addition, with
respect to stock options granted to employees, the Company provides pro-forma
information as required by SFAS No.123 showing the results of applying the fair
value method using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-
18. Costs are measured at the estimated fair market value of the consideration
received or the estimated fair value of the equity instruments issued,
whichever is more reliably measurable. The value of equity instruments issued
for consideration other than employee services is determined on the earliest of
a performance commitment or completion of performance by the provider of
goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25. FIN 44 is
generally effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.
Income taxes
The Company follows the liability method of accounting for income taxes. Under
this method, future tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax balances. Future tax assets and liabilities are measured
using enacted or substantially enacted tax rates expected to apply to the
taxable income in the years in which those differences are expected to be
recovered or settled. The effect on future tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the date of enactment or substantive enactment. As at June 30,
2002 the Company had net operating loss carryforwards; however, due to the
uncertainty of realization the Company has provided a full valuation
allowance for the deferred tax assets resulting from these loss carryforwards.
Net Loss per Common Share
Basic loss per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings per share reflects the
potential dilution of securities that could share in the earnings of the
Company. The accompanying presentation is only of basic loss per share as
the potentially dilutive factors are anti-dilutive to basic loss per share.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), which
requires that goodwill not be amortized. SFAS requires that the Company
review goodwill at least annually to determine if an impairment has
occurred and if so that goodwill should be reduced accordingly. The
Company has determined that the implementation of this standard does not
have any impact on its financial statements.
NOTE 3 - ACQUISITION OF SW HOLDINGS
By agreement dated July 2, 2001 and completed September 10, 2001, Alternet
acquired 100 % of the issued and outstanding shares of SW Holdings in exchange
for 12,343,000 shares of restricted common stock of Alternet. At the time of
this transaction, the former shareholders of SW Holdings acquired 90.1% of the
13,693,000 total issued and outstanding shares of Alternet.
This acquisition has been accounted for as a recapitalization using accounting
Principles applicable to reverse acquisitions with SW Holdings being treated as
the accounting parent (acquirer) and Alternet being treated as the accounting
subsidiary (acquiree). The value assigned to the capital stock of consolidated
Alternet on acquisition of SW Holdings is equal to the book value of the
Capital stock of SW Holdings plus the book value of the net assets liabilities)
of Alternet as at the date of the acquisition.
The book value of SW System's capital stock subsequent to the acquisition is
calculated and allocated as follows:
SW Holdings capital stock $ 153,103
Alternet net assets (liabilities) (7,904)
--------------
$ 145,199
===============
Capital stock $ 137
Additional paid-in capital 145,062
---------------
$ 145,199
==============
These consolidated financial statements include the results of operations of SW
Holdings since October 13, 2000 (inception) and the results of operations of
Alternet since the date of the reverse acquisition on September 10, 2001.
NOTE 4 - LICENSE AGREEMENT
By agreement dated January 1, 2001, SW Holdings entered into an agreement with
Advanced Interactive Inc. ("AII") and Advanced Interactive (Canada) Inc.
("AIC") whereby SW Holdings acquired exclusive and non-exclusive rights and
licenses to commercialise, distribute and market SW Holdings related licensed
technology, products and services in the United States and Canada for a period
of five years renewable for a further five years at SW Holdings' option. SW
Holdings must pay royalties equal to 40% of net revenue received plus a fixed
amount of $10,000 per month in the first year, $20,000 per month in year two,
and increasing by $8,000 per month in each of the subsequent years to a
maximum of $84,000 per month in year ten. After year three, the fixed
monthly payment is reduced by the amount of royalties otherwise payable. In
addition SW Holdings issued 2,500,000 shares on June 29, 2001 valued at $.01
per share or $25,000.
Effective September 10, 2001 SW Holdings, AII and AIC amended the original
agreement such that AI and AIC would receive an additional 500,000 shares
valued at $5,000 which Alternet issued on September 10,2001.
Also effective September 10, 2001 the President and director of AII and AIC
became a director of the Company.
NOTE 5 - CAPITAL STOCK
To June 30, 2002, the Company has not granted any stock options and has not
recorded any stock-based compensation.
During the period ended June 30, 2002 the Company completed a private placement
of 510,000 units at a price of $.20 per unit. Each unit consists of one common
share and one share purchase warrant entitling the holder to acquire an
additional share at a price of $0.50 per share to February 28, 2004.
During the period ended June 30, 2002 the Company completed a private placement
of 100,000 units at a price of $.35 per unit. Each unit consists of one common
share and one share purchase warrant entitling the holder to acquire an
additional share at a price of $0.50 per share to March 15, 2004.
During the period ended June 30, 2002 the Company completed a private placement
of 140,000 units at a price of $.35 per unit. Each unit consists of one common
share and one share purchase warrant entitling the holder to acquire an
additional share at a price of $0.50 per share to April 30, 2004.
The Company is in the process of completing a private placement of 146,514
units at a price of $0.35 per unit. Each unit consists of one common share
and one share purchase warrant entitling the holder to acquire an additional
share at a price of $0.50 per share to July 18, 2004. To June 30, 2002, the
Company had received total subscription proceeds of $32,580 towards the
issuance of 97,371 units in connection with this private placement. The 97,371
common shares in connection with these units are included in issued and
outstanding capital stock as of June 30, 2002.
At June 30, 2002 there were 510,000 warrants outstanding to purchase 510,000
common shares at a price of $0.50 per share to February 28, 2004, 375,000
warrants outstanding to purchase 375,000 common shares at a price of $0.50 per
share to November 24, 2003, 100,000 warrants outstanding to purchase 100,000
common shares at a price of $0.50 per share to March 15, 2004, 140,000 warrants
outstanding to purchase 140,000 common shares at a price of $0.50 per share to
April 30, 2004 and 97,371 warrants outstanding to purchase 97,371 common shares
at a price of $0.50 per share to July 18, 2004.
Effective June 3, 2002 the Company filed a Form SB-2 Registration Statement
with the SEC for the registration of a total of 7,764,000 shares of the
Company's common stock of which 6,639,000 are issued and outstanding and
1,125,000 will be reserved to be issued upon the exercise of 1,125,000 share
purchase warrants.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2002, certain directors were paid for
previously accrued consulting fees of $17,300 and were repaid cash advances
totalling $7,216. At June 30, 2002 a total of $8,970 is owing to directors and
shareholders. Amounts due from related parties are non-interest bearing and
have no specific terms of repayment.
During the six months ended June 30, 2002, the following amounts were incurred
to directors of the Company or its subsidiary, and a company with a director in
common.
Six months ended June 30,
2002 2001
$ $
--------------------------
Consulting 29,096 -
License fees 120,000 -
Marketing 25,921 14,376
--------------------------
175,017 14,376
==========================
NOTE 7 - INCOME TAXES
The Company and its subsidiaries have tax losses which may be available to
Reduce future year's taxable income, that result in deferred tax assets.
Management believes that the realization of the benefits from these deferred
tax assets appears uncertain due to the Company's limited operating history
and losses to date. Accordingly a full, deferred tax asset valuation allowance
has been provided and no deferred tax asset benefit has been recorded.
NOTE 8 - SUBSEQUENT EVENT
Subsequent to June 30, 2002, the Company received $18,700 towards the purchase
of 53,429 units at a price of $0.35 per unit. Each unit consists of one common
share and one share purchase warrant entitling the holder to acquire an
additional share at a price of $0.50 per share to July 18, 2004.
SCHOOLWEB SYSTEMS INC.
(Formerly North Pacific Capital Corp.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LABONTE & CO. 1205 - 1095 West Pender Street
C H A R T E R E D A C C O U N T A N T S Vancouver, BC Canada
V6E 2M6
Telephone (604) 682-2778
Facsimile (604) 689-2778
Email rjl@labonteco.com
AUDITORS' REPORT
To the Board of Directors and Stockholders of Schoolweb Systems Inc.
(formerly North Pacific Capital Corp.)
We have audited the consolidated balance sheets of Schoolweb Systems
Inc. (formerly North Pacific Capital Corp.) (A Development Stage
Company) as at December 31, 2001 and 2000 and the consolidated
statements of operations, changes in stockholders' equity and cash
flows for the year ended December 31, 2001, the period from October
16, 2000 (inception) to December 31, 2000 and cumulatively, from
October 16, 2000 (inception) to December 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 Canadian and United States
generally accepted auditing standards. Those standards require that
we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at December 31, 2001 and 2000 and the results of its
operations and its cash flows and the changes in stockholders' equity
for the year ended December 31, 2001, the period from October 16, 2000
(inception) to December 31, 2000 and cumulatively, from October 16,
2000 (inception) to December 31, 2001in accordance with generally
accepted accounting principles in the United States.
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES
REPORTING DIFFERENCES
In the United States, reporting standards for auditors' would require
the addition of an explanatory paragraph following the opinion
paragraph when the financial statements are affected by a significant
uncertainty such as referred to in Note 1 regarding the Company's
ability to continue as a going concern. Our report to the directors
and stockholders dated February 28, 2002 is expressed in accordance
with Canadian reporting standards which do not permit a reference to
such uncertainties in the auditors' report when the uncertainties are
adequately disclosed in the financial statements.
"LaBonte & Co."
CHARTERED ACCOUNTANTS
February 28, 2002
Vancouver, B.C.
SCHOOLWEB SYSTEMS INC.
(Formerly North Pacific Capital Corp.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31 December 31
2001 2000
(Note 1)
ASSETS
CURRENT ASSETS
Cash $ 5,669 $ 3
Prepaid expenses 3,758 -
9,427 -
LICENSE RIGHTS, net of amortization of $6,000
(Note 4) 24,000 -
FIXED ASSETS, net of depreciation of $600 3,400 -
$ 36,827 $ 3
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 26,091 $ -
Due to related parties (Note 6) 33,486 -
59,577 -
COMMITMENTS AND CONTINGENCIES (Notes 1 and 4)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock (Note 5)
Common stock, $0.00001 par value, 100,000,000
shares authorized
14,733,000 (2000 - 20,000) issued and
outstanding 147 3
Additional paid-in capital 242,302
Comprehensive loss (1,950) -
Deficit accumulated during development stage (263,249) -
(22,750) 3
$ 36,827 $ 3
The accompanying notes are an integral part of these consolidated
financial statements
SCHOOLWEB SYSTEMS INC.
(Formerly North Pacific Capital Corp.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
October 13 2000 October 13 2000
Year ended (inception) (inception)
December 31 to December 31 to December 31
2001 2000 2001
(Note 1)
EXPENSES
Depreciation and amortization $ 6,600 $ - $ 6,600
Consulting fees to related parties 17,300 - 17,300
License fees to related parties 120,000 - 120,000
Office and general 50,530 - 50,530
Marketing ($32,607 to a related party) 39,429 - 39,429
Professional fees ($3,000 to a related party 29,390 - 29,390
NET LOSS FOR THE PERIOD $(263,249) $ - $ (263,249)
BASIC NET LOSS PER SHARE $ (0.02) $ -
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,566,069 12,343,000
The accompanying notes are an integral part of these consolidated
financial statements
SCHOOLWEB SYSTEMS INC.
(Formerly North Pacific Capital Corp.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 13, 2000 (INCEPTION) TO DECEMBER 31, 2001
Deficit Other
Accumulated Comprehensive
Additional During Income
Number of Paid-In Development (Loss)
Shares Amount Capital Stage Total
Issuance of common stock for
cash at $.001 per share -
October 16, 2000 3,000 $ 3 $ - $ - $ - $ 3
Balance, December 31 2000 3,000 3 - - - 3
Issuance of common stock for
cash at $.007 per share -
May 24, 2001 5,500,000 5,500 33,000 - 38,500
Issuance of common stock for
cash at $.01 per share -
June 4, 2001 4,010,000 4,010 36,090 - 40,100
Issuance of common stock for
cash at $.15 per share -
June 8, 2001 330,000 330 49,170 - 49,500
Issuance of common stock for
license agreement at
$.01 per share - June 29,
2001 (Note 4) 2,500,000 2,500 22,500 - 25,000
Schoolweb Holdings Inc.
balance before reverse
acquisition 12,343,000 12,343 140,760 - 153,103
Schoolweb Systems Inc.
balance before reverse
acquisition (Note 5) 1,350,000 14 19 (7,937) - (7,904)
Issued to effect reverse
Acquisition 12,343,000 123 (123) - - -
Reverse acquisition
Recapitalization
Adjustment (12,343,000) (12,343) 4,406 7,937 - -
Schoolweb Systems Inc.
balance after reverse
acquisition 13,693,000 137 145,062 - - 145,199
Issuance of common stock for
license agreement at $.01
per share - September 10,
2001 500,000 5 4,995 - - 5,000
Issuance of common stock for
cash at $.10 per share -
September 11, 2001 100,000 1 9,999 - - 10,000
Issuance of common stock for
cash at $.10 per share -
November 5, 2001 50,000 1 4,999 - - 5,000
Issuance of common stock for
cash at $.15 per share -
November 8, 2001 15,000 - 2,250 - - 2,250
Issuance of common stock for
cash at $.20 per share -
November 24, 2001 375,000 3 74,997 - - 75,000
Foreign exchange translation
Adjustment - - - - (1,950) (1,950)
Net loss for the year ended
December 31, 2001 - - - (263,249) - (263,249)
Balance, December 31 2001 14,733,000 147 242,302 (263,249) (1,950) (22,750)
Note: The statement of Stockholders' Equity has been restated to reflect the
reverse acquisition of Schoolweb Holdings Inc. Refer to Notes 1 and 3.
The accompanying notes are an integral part of these consolidated
financial statements
SCHOOLWEB SYSTEMS INC.
(Formerly North Pacific Capital Corp.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
October 13 2000 October 13 2000
Year ended (inception) (inception)
December 31 to December 31 to December 31
2001 2000 2001
(Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (263,249) $ - $ (263,249)
Adjusted for item not involving cash:
Depreciation and amortization 6,600 - 6,600
Changes in operating assets and liabilities:
Accrued consulting fees 17,300 - 17,300
Changes in prepaid expenses (3,758) - (3,758)
Changes in accounts payable 21,951 - 21,951
NET CASH FLOWS USED IN OPERATING ACTIVITIES (221,156) - (221,156)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related parties 12,348 - 12,348
Proceeds on sale of common stock 220,350 3 220,353
NET CASH FLOWS FROM FINANCING ACTIVITIES 232,698 3 232,698
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (4,000) - (4,000)
Cash acquired on reverse acquisition
of SchoolWeb (Note 3) 74 - 74
NET CASH FLOWS FROM INVESTING ACTIVITIES (3,926) - (3,926)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,950) - (1,950)
INCREASE IN CASH 5,666 3 5,669
CASH, BEGINNING OF PERIOD 3 - -
CASH, END OF PERIOD 5,669 3 5,669
OTHER NON-CASH TRANSACTION:
During 2001 the Company issued a total of 3,000,000 common shares for
a license agreement at $.01 per share. (Note 4)
The accompanying notes are an integral part of these consolidated financial
statements
SCHOOLWEB SYSTEMS INC.
(Formerly North Pacific Capital Corp.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on June 26, 2000 in the State of Nevada
as North Pacific Capital Corp. and was organized for the purpose of
creating a corporate vehicle to locate and acquire an operating
business. On December 19, 2001 the Company changed its name to
Schoolweb Systems Inc. ("SW Systems" or the "Company"). On November
6, 2000, the Company filed a Form 10SB registration with the United
States Securities and Exchange Commission and as a result is subject
to the regulations governing reporting issuers in the United States.
By agreement dated July 2, 2001 and completed September 10, 2001, SW
Systems issued 12,343,000 shares of restricted common stock to the
shareholders of Schoolweb Holdings Inc. ("SW Holdings"), a development
stage company incorporated October 13, 2000 in the State of Nevada, in
exchange for all of the issued and outstanding shares of SW Holdings.
The acquisition resulted in the former shareholders of SW Holdings
acquiring 90.1% of the outstanding shares of the Company and has been
accounted for as a reverse merger with SW Holdings being treated as
the accounting parent and SW Systems, the legal parent, being treated
as the accounting subsidiary. Accordingly, the consolidated results
of operations of the Company include those of SW Holdings for all
periods shown and those of the SW Systems since the date of the
reverse acquisition. The results of SW Holdings are from its
inception, October 13, 2000 and include the results of its wholly-
owned subsidiary, SchoolWeb Systems (Canada) Ltd. a company
incorporated April 17, 2001 in the Province of British Columbia. The
comparative balance sheet as at December 31, 2000 and the comparative
results of operation and changes in financial position for the periods
ended December 31, 2000 are those of SW Holdings. Refer to Note 3.
SW Holdings, through a License Agreement dated January 1, 2001, will
distribute, market, sell and license in the United States and Canada,
certain proprietary software and hardware systems technology known as
"SchoolWeb" used for caching Internet and multimedia files on special
servers (refer to Note 4).
The consolidated financial statements have been prepared on the basis
of a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
Company has incurred losses since inception and further losses are
anticipated before the Company reaches a commercial stage raising
substantial doubt as to the Company's ability to continue as a going
concern. The Company's continued operations are dependent on the
successful implementation of its business plan, its ability to obtain
additional financing as needed, and ultimately to attain profitable
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, SW Holdings and Schoolweb
Systems (Canada) Ltd. which have been accounted for as a reverse
acquisition. All significant intercompany transactions and account
balances have been eliminated.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original
maturity of three months or less when purchased, to be cash equivalents.
License Rights
The Company amortizes the cost of acquiring license rights on a
straight-line basis over the term of the license. The Company
evaluates the carrying amount of its unamortized license rights
against the undiscounted future cash flows associated with them. If
the evaluation indicates that the future undiscounted cash flows are
not sufficient to recover the carrying value, an impairment provision
is recorded to adjust the carrying value of the license rights to
their fair value.
Fixed Assets
Fixed assets are recorded at cost and depreciated on a declining
balance basis at a rate of 30% per annum.
Revenue recognition
To date, the Company has not generated any revenues from the licensing
of its SchoolWeb system. The Company will license its SchoolWeb
system on a prepaid basis for terms ranging from one to three years.
The Company will recognize license revenues on a straight-line basis
over the license term upon completion of the required hardware and
software installations and upon acceptance by the purchasers.
The Company has generated revenues from hardware sales in connection
with the testing of the SchoolWeb system. Hardware sales are shown
net of hardware acquisition costs and are recognized upon completion
and acceptance of installation.
Foreign Currency Translation
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", foreign denominated monetary assets
and liabilities are translated to their United States dollar
equivalents using foreign exchange rates which prevailed at the
balance sheet date. Revenue and expenses are translated at average
rates of exchange during the year. Related translation adjustments
are reported as a separate component of stockholders' equity, whereas
gains or losses resulting from foreign currency transactions are
included in results of operations.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has
determined the estimated fair value of financial instruments using
available market information and appropriate valuation methodologies.
The fair value of financial instruments classified as current assets
or liabilities approximate carrying value due to the short-term
maturity of the instruments.
Stock-Based Compensation
The Company accounts for stock-based compensation in respect to stock
options granted to employees and officers using the intrinsic value
based method in accordance with APB 25. Stock options granted to non-
employees are accounted for using the fair value method in accordance
with SFAS No. 123. In addition, with respect to stock options granted
to employees, the Company provides pro-forma information as required
by SFAS No. 123 showing the results of applying the fair value method
using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance
with SFAS No. 123 and the conclusions reached by the Emerging Issues
Task Force in Issue No. 96-18. Costs are measured at the estimated
fair market value of the consideration received or the estimated fair
value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration
other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of
goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial
Accounting Standards Board Interpretation No.44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation
of APB Opinion No. 25 ("FIN 44"), which provides guidance as to
certain applications of APB 25. FIN 44 is generally effective July 1,
2000 with the exception of certain events occurring after December 15, 1998.
Income taxes
The Company follows the liability method of accounting for income
taxes. Under this method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax balances. Future tax assets
and liabilities are measured using enacted or substantially enacted
tax rates expected to apply to the taxable income in the years in
which those differences are expected to be recovered or settled. The
effect on future tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the date of
enactment or substantive enactment. As at December 31, 2001 the
Company had net operating loss carryforwards; however, due to the
uncertainty of realization the Company has provided a full valuation
allowance for the deferred tax assets resulting from these loss
carryforwards.
Net Loss per Common Share
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Dilutive
earnings per share reflects the potential dilution of securities that
could share in the earnings of the Company. Because the Company does
not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"),
which requires that goodwill not be amortized. SFAS requires that the
Company review goodwill at least annually to determine if an
impairment has occurred and if so that goodwill should be reduced
accordingly. The Company has determined that the implementation of
this standard will not have any impact on its financial statements.
NOTE 3 - ACQUISITION OF SW HOLDINGS
By agreement dated July 2, 2001 and completed September 10, 2001, SW
Systems acquired 100 % of the issued and outstanding shares of SW
Holdings in exchange for 12,343,000 shares of restricted common stock
of SW Systems. At the time of this transaction, the former
shareholders of SW Holdings acquired 90.1% of the 13,693,000 total
issued and outstanding shares of SW Systems.
This acquisition has been accounted for as a recapitalization using
accounting principles applicable to reverse acquisitions with SW
Holdings being treated as the accounting parent (acquirer) and SW
Systems being treated as the accounting subsidiary (acquiree). The
value assigned to the capital stock of consolidated SW Systems on
acquisition of SW Holdings is equal to the book value of the capital
stock of SW Holdings plus the book value of the net assets of SW
Systems as at the date of the acquisition.
The book value of SW System's capital stock subsequent to the
acquisition is calculated and allocated as follows:
SW Holdings capital stock $ 153,103
SW Systems net assets (liabilities) (7,904)
$ 145,199
Capital stock $ 137
Additional paid-in capital 145,062
$ 145,199
These consolidated financial statements include the results of
operations of SW Holdings since October 13, 2000 (inception) and the
results of operations of SW Systems since the date of the reverse
acquisition on September 10, 2001. SW Systems had no material assets,
liabilities or operations for the period from July 1, 2001 to
September 10, 2001.
For the period from October 13, 2000 (inception) to September 10, 2001
the weighted average number of common shares outstanding is deemed to
be 12,343,000 being the number of shares issued by SW Systems in
connection with the acquisition of SW Holdings.
NOTE 4 - LICENSE AGREEMENT
By agreement dated January 1, 2001, SW Holdings entered into an
agreement with Advanced Interactive Inc. ("AII") and Advanced
Interactive (Canada) Inc. ("AIC") whereby SW Holdings acquired
exclusive and non-exclusive rights and licenses to commercialise,
distribute and market SW Holdings related licensed technology,
products and services in the United States and Canada for a period of
five years. SW Holdings must pay royalties equal to 40% of net
revenue received plus $10,000 per month in the first year, $20,000 per
month in year two, and increasing by $8,000 per month in each of the
subsequent years to a maximum of $84,000 per month. After year three,
the monthly payment is reduced by the amount of royalties otherwise
payable. In addition SW Holdings issued 2,500,000 shares on June 29,
2001 valued at $.01 per share or $25,000.
Effective September 10, 2001 SW Holdings, AII and AIC amended the
original agreement such that AI and AIC would receive an additional
500,000 shares valued at $5,000 which SW Systems issued on September
10, 2001.
Also effective September 10, 2001 the President and director of AII and
AIC became a director of the Company.
NOTE 5 - CAPITAL STOCK
To December 31, 2001, the Company has not granted any stock options
and has not recorded any stock-based compensation.
SW System's capital stock transactions prior to reverse acquisition are
as follows:
Deficit
Accumulated
Additional During
Number of Paid-In Development
Shares Amount Capital Stage Total
Issuance of common stock for
cash at $.001 per share
- June 26, 2000 3,000 $ - $ 3 $ - $ 3
Issuance of common stock for
cash at $.001 per share
- September 13, 2000 17,000 1 16 - 17
Net loss for the period June 26,
2000 (inception)
to December 31, 2000 - - - (4,280) (4,280)
Balance, December 31, 2000 20,000 1 19 (4,280) (4,260)
Issuance of common stock for
cash at $.00001 per share
- May 17, 2001 1,000,000 10 - - 10
Issuance of common stock for
cash at $.001 per share
- May 18, 2001 230,000 2 - - 2
Issuance of common stock for
cash at $.001 per share
- June 1, 2001 100,000 1 - - 1
Loss from January 1, 2001 to
date of reverse take-over - - - (3,657) (3,657)
SW Systems balance before
reverse acquisition 1,350,000 14 19 (7,937) (7,904)
NOTE 6 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2001, certain directors and
shareholders provided cash loans totalling $12,348. In addition,
consulting fees of $17,300 were accrued to two directors, and $3,838
was acquired in connection with the reverse acquisition described in
Note 3. At December 31, 2001 a total of $33,486 is owing to these
directors and shareholders. Amounts due from related parties are non-
interest bearing and have no specific terms of repayment.
During the year ended December 31, 2001, the following amounts were
incurred to directors of the Company or its subsidiary, a company with
a director in common and a company controlled by a shareholder of the Company.
Consulting $ 17,300
License fees 120,000
Marketing 32,607
Professional fees 3,000
$ 172,907
Of the amounts incurred above, the $120,000 license fees were incurred to AII
and AIC. AII and AIC became related to the Company effective September 10,
2001 when the President and director of AII and AIC became a director of the
Company.
NOTE 7 - INCOME TAXES
The Company and its subsidiaries have tax losses which may be
available to reduce future year's taxable income, that result in
deferred tax assets. Management believes that the realization of the
benefits from these deferred tax assets appears uncertain due to the
Company's limited operating history and losses to date. Accordingly a
full, deferred tax asset valuation allowance has been provided and no
deferred tax asset benefit has been recorded.
NOTE 8 - SUBSEQUENT EVENT
Subsequent to December 31, 2001 the Company received $55,000 towards
private placement subscriptions.
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30 December 31
2002 2001
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
Cash $ 19,254 $ 5,669
Accounts receivable 30,619 -
Prepaid expenses 5,897 3,758
Inventory 6,057 -
61,827 9,427
LICENSE RIGHTS, net of amortization of $10,500
(Note 4) 19,500 24,000
FURNITURE AND EQUIPMENT, net of depreciation of
$1,365 (2001 - $600) 3,691 3,400
85,018 36,827
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 86,771 26,091
Deferred license revenue 5,615 -
Due to related parties (Note 6) 12,542 33,486
104,928 59,577
COMMITMENTS AND CONTINGENCIES (Notes 1 and 4)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Capital stock (Note 5)
Common stock, $0.00001 par value, 100,000,000
shares authorized
15,858,085 (2001 - 14,733,000) issued and
outstanding 158 147
Additional paid-in capital 559,571 242,302
Obligation to issue shares 62,300 -
Deficit accumulated during development stage (636,898) (263,249)
Accumulated other comprehensive loss (5,041) (1,950)
(19,910) (22,750)
85,018 36,827
The accompanying notes are an integral part of these interim
consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Three Nine Nine October 13
months months Months Months 2000
ended ended ended ended inception
Sept 30 Sept 30 Sept 30 Sept 30 to
2002 2001 2002 2001 Sept 30
2002
(Note 1)
HARDWARE SALES AND FEES $ 40,923 $ - $ 58,398 $ - $ 58,398
COST OF SALES 46,090 - 48,115 - 48,115
GROSS PROFIT (LOSS) (5,167) - 10,283 - 10,283
EXPENSES
Depreciation and
Amortization 1,755 1,650 5,265 4,650 11,865
Consulting 22,080 - 60,916 - 78,216
License fees 60,000 30,000 180,000 90,000 300,000
Office and general 21,115 3,689 50,696 28,522 101,226
Marketing 25,585 12,162 57,140 26,538 96,569
Professional fees 10,134 8,450 29,915 15,611 59,305
140,669 55,951 383,932 165,321 647,181
NET LOSS FOR THE PERIOD (145,836) (55,951) (373,649) (165,321) (636,898)
BASIC NET LOSS PER
SHARE (0.01) (0.00) (0.02) (0.01)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 15,672,446 12,762,022 15,346,800 12,484,208
The accompanying notes are an integral part of these interim
consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Nine months October 13
ended ended 2000
September 30 September 30 inception
2002 2001 to
September
30, 2002
(Note 1)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss for the period $ (373,649) $ (165,321) $ (636,898)
Adjusted for item not involving
cash:
Depreciation and amortization 5,265 4,650 11,865
Changes in operating assets and
liabilities:
Changes in accounts receivable (30,619) - (30,619)
Changes in inventory (6,057) - (6,057)
Changes in prepaid expenses (2,139) (3,758) (5,897)
Changes in deferred license revenue 5,615 - 5,615
Changes in accounts payable 140,680 15,743 179,931
NET CASH FLOWS USED IN OPERATING
ACTIVITIES (260,904) (148,686) (482,060)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from related parties (20,944) 15,558 (8,596)
Obligation to issue shares 62,300 - 62,300
Proceeds on sale of common stock 237,280 138,100 457,633
NET CASH FLOWS FROM FINANCING
ACTIVITIES 278,636 153,658 511,337
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of capital assets (1,056) (4,000) (5,056)
Cash acquired on reverse acquisition
of SchoolWeb - 74 74
NET CASH FLOWS USED IN INVESTING
ACTIVITIES (1,056) (3,926) (4,982)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,091) (706) (5,041)
INCREASE IN CASH 13,585 340 19,254
CASH, BEGINNING OF PERIOD 5,669 3 -
CASH, END OF PERIOD 19,254 343 19,254
OTHER NON-CASH TRANSACTIONS:
During 2002 the Company issued 228,571 common shares at a price of
$0.35 per share to settle debt of $80,000.
The accompanying notes are an integral part of these interim
consolidated financial statements
ALTERNET SYSTEMS INC.
(Formerly Schoolweb Systems Inc.)
(A Development Stage Company)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The Company was incorporated on June 26, 2000 in the State of Nevada
as North Pacific Capital Corp. and was organized for the purpose of
creating a corporate vehicle to locate and acquire an operating
business. On December 19, 2001 the Company changed its name to
Schoolweb Systems Inc. and on May 14, 2002 the Company changed its
name to Alternet Systems Inc. ("Alternet" or the "Company"). On
November 6, 2000, the Company filed a Form 10SB registration with the
United States Securities and Exchange Commission ("SEC") and as a
result is subject to the regulations governing reporting issuers in
the United States.
By agreement dated July 2, 2001 and completed September 10, 2001,
Alternet issued 12,343,000 shares of restricted common stock to the
shareholders of Schoolweb Holdings Inc. ("SW Holdings"), a
development stage company incorporated October 13, 2000 in the State
of Nevada, in exchange for all of the issued and outstanding shares
of SW Holdings. On June 26, 2002 SW Holdings changed its name to AI
Systems Group, Inc.
The acquisition resulted in the former shareholders of SW Holdings
acquiring 90.1% of the outstanding shares of the Company and has been
accounted for as a reverse merger with SW Holdings being treated as
the accounting parent and Alternet, the legal parent, being treated
as the accounting subsidiary. Accordingly, the consolidated results
of operations of the Company include those of SW Holdings for all
periods shown and those of the Alternet since the date of the reverse
acquisition. The results of operations of SW Holdings are from its
inception, October 13, 2000 and include the results of its wholly-
owned subsidiary, SchoolWeb Systems (Canada) Ltd. a company
incorporated April 17, 2001 in the Province of British Columbia.
Refer to Note 3.
SW Holdings, through a License Agreement dated January 1, 2001,
distributes, markets, sells and licenses in the United States and
Canada, certain proprietary software and hardware systems technology
known as "SchoolWeb" used for caching Internet and multimedia files
on special servers (refer to Note 4).
The consolidated financial statements have been prepared on the basis
of a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
Company has incurred losses since inception and further losses are
anticipated before the Company reaches a commercial stage raising
substantial doubt as to the Company's ability to continue as a going
concern. The Company's continued operations are dependent on the
successful implementation of its business plan, its ability to obtain
additional financing as needed, and ultimately to attain profitable
operations.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB of Regulation S-B. They do not include
all information and footnotes required by generally accepted
accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material changes in the
information disclosed in the notes to the financial statements for
the year ended December 31, 2001 included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange
Commission. The interim unaudited financial statements should be read
in conjunction with those financial statements included in the Form
10-KSB. In the opinion of Management, all adjustments considered
necessary for a fair presentation, consisting solely of normal
recurring adjustments, have been made. Operating results for the nine
months ended September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, AI Systems Group, Inc. and
Schoolweb Systems (Canada) Ltd. All significant intercompany
transactions and account balances have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original
maturity of three months or less when purchased, to be cash
equivalents.
Inventory
Inventory consists of computer hardware products held for resale and
is carried at the lower of cost and net realizable value.
License Rights
The Company amortizes the cost of acquiring license rights on a
straight-line basis over the term of the license. The Company
evaluates the carrying amount of its unamortized license rights
against the undiscounted future cash flows associated with them. If
the evaluation indicates that the future undiscounted cash flows are
not sufficient to recover the carrying value, an impairment provision
is recorded to adjust the carrying value of the license rights to
their fair value.
Furniture and Equipment
Furniture and equipment are recorded at cost and depreciated on a
declining balance basis at a rate of 30% per annum.
Revenue recognition
To date, the Company has not generated any revenues from the
licensing of its SchoolWeb system. The Company will license its
SchoolWeb system on a prepaid basis for terms ranging from one to
three years. The Company will recognize license revenues on a
straight-line basis over the license term upon completion of the
required hardware and software installations and upon acceptance by
the purchasers.
The Company has generated revenues from hardware sales in connection
with the testing of the SchoolWeb system. Hardware sales are
recognized upon completion and acceptance of installation by the
purchasers.
Foreign Currency Translation
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", foreign denominated monetary assets
and liabilities are translated to their United States dollar
equivalents using foreign exchange rates which prevailed at the
balance sheet date. Revenue and expenses are translated at average
rates of exchange during the year. Related translation adjustments
are reported as a separate component of stockholders' equity, whereas
gains or losses resulting from foreign currency transactions are
included in results of operations.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has
determined the estimated fair value of financial instruments using
available market information and appropriate valuation methodologies.
The fair value of financial instruments classified as current assets
or liabilities approximate carrying value due to the short-term
maturity of the instruments.
Stock-Based Compensation
The Company accounts for stock-based compensation in respect to stock
options granted to employees and officers using the intrinsic value
based method in accordance with APB 25. Stock options granted to non-
employees are accounted for using the fair value method in accordance
with SFAS No. 123. In addition, with respect to stock options
granted to employees, the Company provides pro-forma information as
required by SFAS No. 123 showing the results of applying the fair
value method using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for
the receipt of goods or services from other than employees in
accordance with SFAS No. 123 and the conclusions reached by the
Emerging Issues Task Force in Issue No. 96-18. Costs are measured at
the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is
more reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by
the provider of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial
Accounting Standards Board Interpretation No.44, Accounting for
Certain Transactions Involving Stock Compensation - An Interpretation
of APB Opinion No. 25 ("FIN 44"), which provides guidance as to
certain applications of APB 25. FIN 44 is generally effective July
1, 2000 with the exception of certain events occurring after December
15, 1998.
Income taxes
The Company follows the liability method of accounting for income
taxes. Under this method, future tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax balances.
Future tax assets and liabilities are measured using enacted or
substantially enacted tax rates expected to apply to the taxable
income in the years in which those differences are expected to be
recovered or settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the date of enactment or substantive enactment.
As at September 30, 2002 the Company had net operating loss
carryforwards; however, due to the uncertainty of realization the
Company has provided a full valuation allowance for the deferred tax
assets resulting from these loss carryforwards.
Net Loss per Common Share
Basic loss per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average
number of common shares outstanding for the period. Dilutive
earnings per share reflects the potential dilution of securities that
could share in the earnings of the Company. The accompanying
presentation is only of basic loss per share as the potentially
dilutive factors are anti-dilutive to basic loss per share.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement No. 142, Goodwill and Other Intangible Assets ("SFAS
142"), which requires that goodwill not be amortized. SFAS requires
that the Company review goodwill at least annually to determine if an
impairment has occurred and if so that goodwill should be reduced
accordingly. The Company has determined that the implementation of
this standard does not have any impact on its financial statements.
NOTE 3 - ACQUISITION OF SW HOLDINGS
By agreement dated July 2, 2001 and completed September 10, 2001,
Alternet acquired 100 % of the issued and outstanding shares of SW
Holdings in exchange for 12,343,000 shares of restricted common stock
of Alternet. At the time of this transaction, the former
shareholders of SW Holdings acquired 90.1% of the 13,693,000 total
issued and outstanding shares of Alternet.
This acquisition has been accounted for as a recapitalization using
accounting principles applicable to reverse acquisitions with SW
Holdings being treated as the accounting parent (acquirer) and
Alternet being treated as the accounting subsidiary (acquiree). The
value assigned to the capital stock of consolidated Alternet on
acquisition of SW Holdings is equal to the book value of the capital
stock of SW Holdings plus the book value of the net assets
(liabilities) of Alternet as at the date of the acquisition.
The book value of SW System's capital stock subsequent to the
acquisition is calculated and allocated as follows:
SW Holdings capital stock $ 153,103
Alternet net assets (liabilities) (7,904)
$ 145,199
Capital stock $ 137
Additional paid-in capital 145,062
$ 145,199
These consolidated financial statements include the results of
operations of SW Holdings since October 13, 2000 (inception) and the
results of operations of Alternet since the date of the reverse
acquisition on September 10, 2001.
NOTE 4 - LICENSE AGREEMENT
By agreement dated January 1, 2001, SW Holdings entered into an
agreement with Advanced Interactive Inc. ("AII") and Advanced
Interactive (Canada) Inc. ("AIC") whereby SW Holdings acquired
exclusive and non-exclusive rights and licenses to commercialise,
distribute and market SW Holdings related licensed technology,
products and services in the United States and Canada for a period of
five years renewable for a further five years at SW Holdings' option.
SW Holdings must pay royalties equal to 40% of net revenue received
plus a fixed amount of $10,000 per month in the first year, $20,000
per month in year two, and increasing by $8,000 per month in each of
the subsequent years to a maximum of $84,000 per month in year ten.
After year three, the fixed monthly payment is reduced by the amount
of royalties otherwise payable. In addition SW Holdings issued
2,500,000 shares on June 29, 2001 valued at $.01 per share or
$25,000.
Effective September 10, 2001 SW Holdings, AII and AIC amended the
original agreement such that AI and AIC would receive an additional
500,000 shares valued at $5,000 which Alternet issued on September 10,
2001.
Also effective September 10, 2001 the President and director of AII
and AIC became a director of the Company.
NOTE 5 - CAPITAL STOCK
To September 30, 2002, the Company has not granted any stock options
and has not recorded any stock-based compensation.
During the period ended September 30, 2002, the Company completed a
private placement of 510,000 units at a price of $.20 per unit. Each
unit consists of one common share and one share purchase warrant
entitling the holder to acquire an additional share at a price of
$0.50 per share to February 28, 2004.
During the period ended September 30, 2002, the Company completed
private placements of 386,514 units at a price of $.35 per unit. Each
unit consists of one common share and one share purchase warrant
entitling the holder to acquire an additional share at a price of
$0.50 per share for two years.
The Company is in the process of completing a private placement of
193,000 units at a price of $.35 per unit. Each unit consists of one
common share and one share purchase warrant entitling the holder to
acquire an additional share at a price of $0.50 per share to October
2, 2004. To September 30, 2002, the Company had received total
subscription proceeds of $62,300 in connection with this private
placement which was completed subsequently.
At September 30, 2002 there were 375,000 warrants outstanding to
purchase 375,000 common shares at a price of $0.50 per share to
November 24, 2003; 510,000 warrants outstanding to purchase 510,000
common shares at a price of $0.50 per share to February 28, 2004,
100,000 warrants outstanding to purchase 100,000 common shares at a
price of $0.50 per share to March 15, 2004, 140,000 warrants
outstanding to purchase 140,000 common shares at a price of $0.50 per
share to April 30, 2004, and 146,514 warrants outstanding to purchase
146,514 common shares at a price of $0.50 per share to July 18, 2004.
Effective June 3, 2002 the Company filed a Form SB-2 Registration
Statement with the SEC for the registration of a total of 7,764,000
shares of the Company's common stock of which 6,639,000 are issued and
outstanding and 1,125,000 will be reserved to be issued upon the
exercise of 1,125,000 share purchase warrants.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2002, certain directors
were repaid for net cash advances and consulting fees owed totalling
$20,944. At September 30, 2002 a total of $12,542 is owing to
directors and shareholders. Amounts due from related parties are
non-interest bearing and have no specific terms of repayment.
During the nine months ended September 30, 2002, the following
amounts were incurred to directors of the Company or its subsidiary,
and a company with a director in common.
Nine months ended
September 30
2002 2001
Consulting $ 45,319 $ -
License fees 180,000 -
Marketing 40,159 21,719
$ 265,478 $ 21,719
NOTE 7 - INCOME TAXES
The Company and its subsidiaries have tax losses which may be
available to reduce future year's taxable income, that result in
deferred tax assets. Management believes that the realization of the
benefits from these deferred tax assets appears uncertain due to the
Company's limited operating history and losses to date. Accordingly
a full, deferred tax asset valuation allowance has been provided and
no deferred tax asset benefit has been recorded.
ITEM 23: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During the Company's two most recent fiscal years and any subsequent
interim period, there were no disagreements with the Company's
accountants on any matter of accounting principle or practices,
financial statement disclosure or auditing scope or procedure. In
addition, there were no reportable events as described in Item
304(a)(1)(iv)(B)1 through 3 of Regulation S-B that occurred within the
Company's two most recent fiscal years and the subsequent interim periods.
Labonte & Company have been engaged as the Company's principal
accountants to audit its financial statements since its inception
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
No statute, charter provision, article, by-law, contract or other
arrangement exists under which any controlling persons, directors or
officers of the Company is insured or indemnified in any manner
against liability which he or she may incur acting in his or her
capacity as such.
Information on this item is set forth in the prospectus under the
heading "Disclosure of Commission Position on Indemnification for
Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
As the offering under this registration statement, which is a continuous
offering under Rule 415, involves existing shareholders selling their
shares to members of the public, the transfer agent's fees, printing and
engraving, legal, accounting and other fees associated with the
distribution are minimal.
Information on this item is set forth in the prospectus under the
heading "Use of Proceeds."
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following disclosure of recent sales of unregistered securities is
divided into sales by Alternet and by its subsidiary, AI Systems Group:
Alternet Systems, Inc.
On June 26, 2000 Alternet issued a total of 3,000 shares of common stock
to three principals (Stephen Stanley, Terry Wells and Drew Martel as to
1,000 shares each) in a transaction not involving a public offering.
Total consideration for these 3,000 shares was $3.00.
On September 13, 2000 a total of 17,000 shares of common stock were
issued to sixteen (16) non-US resident persons under Regulation S for
total consideration of $17.00.
On May 17 and May 18, 2001 a total of 1,230,000 shares of common stock
were issued to four non-US resident persons under Regulation S for total
consideration of $1,230.
On May 31, 2001 a total of 100,000 shares of common stock were issued to
two non-US resident persons under Regulation S for total consideration
of $100.00.
On July 2, 2001 a total of 12,343,000 shares of common stock were issued
as payment for the purchase of the 12,343,000 shares of common stock of
Alternet's subsidiary, AI Systems Group. Of these 12,343,000 shares of
common stock:
- 3,000,000 shares of common stock were issued to a total of six (6) US
resident persons under Regulation D, Rule 506;
- A total of 8,333,000 shares of common stock were issued to six
affiliates (Patrick Fitzsimmons, 1,001,000 shares; Greg Protti,
501,000 shares; Griffin Jones, 2,000,000 shares; Michael Dearden,
2,001,000 shares; Advanced Interactive Inc., 2,500,000 shares; Brandon
Douglas, 330,000 shares) in a transaction not involving a public
offering; and
- A total of 1,010,000 shares of common stock were issued to three non-
US resident persons under Regulation S.
On September 10, 2001, a total of 500,000 shares of common stock were
issued to Advanced Interactive Inc. in a transaction not involving a
public offering. The shares were issued to settle a dispute between
Alternet and Advanced Interactive Inc. regarding the number of shares
Advanced Interactive Inc. was entitled to under the terms of the License
Agreement.
On September 11, 2001, a total of 50,000 shares of common stock were
issued to one non-US resident person under Regulation S. Total
consideration for these shares of common stock was $5,000.
On September 18, 2001, a total of 50,000 shares of common stock were
issued to one non-US resident person under Regulation S. Total
consideration for these shares of common stock was $5,000.
On November 5, 2001, a total of 15,000 common shares were issued to one
non-US resident person under Regulation S. Total consideration for
these shares was $2,250.
On November 8, 2001, a total of 50,000 common shares were issued to one
non-US resident persons under Regulation S. Total consideration for
these shares was $5,000.
On November 24, 2001, a total of 250,000 units (each unit comprised of
one share of common stock and one share purchase warrant exercisable at
a price of $0.50 until November 24, 2003) were issued at a price of
$0.20 per unit to two US resident persons under Regulation D, Rule 506.
Total consideration for these units was $50,000.
On November 24, 2001, a total of 25,000 units (each unit comprised of
one share of common stock and one share purchase warrant exercisable at
a price of $0.50 until November 24, 2003) were issued at a price of
$0.20 per unit to one non-US resident person under Regulation S. Total
consideration for these units was $5,000.
On December 3, 2001, a total of 100,000 units (each unit comprised of
one share of common stock and one share purchase warrant exercisable at
a price of $0.50 until November 24, 2003) were issued at a price of
$0.20 per unit to one US resident person under Regulation D, Rule 506.
Total consideration for these units was $20,000.
On February 28, 2002, a total of 365,000 units (each unit comprised of
one share of common stock and one share purchase warrant exercisable at
a price of $0.50 until February 28, 2004) were issued at a price of
$0.20 per unit to a total of ten non-US resident persons under
Regulation S. Total consideration for these units was $73,000.
On February 28, 2002 a total of 85,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until February 28, 2004) were issued to two US resident
persons under Regulation D, Rule 506. Total consideration for these
units was $17,000.
On February 28, 2002 a total of 60,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until February 28, 2004) were issued to Streamline
Investment, Inc., a company of which the sole shareholder is Michael
Dearden, Alternet's President and a Director, in a transaction not
involving a public offering. Total consideration for these units was
$12,000.
On March 2, 2002, Griffin Jones, a Director and Secretary of Alternet,
transferred all of his 2,550,000 shares of common stock in Alternet to
the name of Nahatlatch Capital Inc., a company of which he is the sole
shareholder, in a transaction not involving a public offering.
On March 2, 2002, Michael Dearden, a Director and President of Alternet,
transferred all of his 2,551,000 shares of common stock in Alternet to
the name of Streamline Investment Inc., a company of which he is the
sole shareholder, in a transaction not involving a public offering.
On March 15, 2002, a total of 30,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until March 15, 2004) were issued to one non-US resident
person under Regulation S. Total consideration for these units was
$10,500.
On March 15, 2002, a total of 70,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until March 15, 2004) were issued to two US resident
persons under Regulation D, Rule 506. Total consideration for these
units was $24,500.
On April 30, 2002, a total of 35,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until April 30, 2004) were issued to three non-US
resident persons under Regulation S. Total consideration for these
units was $12,250.
On April 30, 2002, a total of 105,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until April 30, 2004) were issued to two US resident
persons under Regulation D, Rule 506. Total consideration for these
units was $36,750.
On May 30, 2002, a total of 60,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until May 30, 2004) were issued to three non-US resident
persons under Regulation S. Total consideration for these units was
$15,750.
On June 27, 2002, a total of 37,371units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until June 27, 2004) were issued to four non-US resident
persons under Regulation S. Total consideration for these units was
$13,080.
On July 8, 2002, a total of 49,143 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until July 8, 2004) were issued to four non-US resident
persons under Regulation S. Total consideration for these units was
$17,200.
On September 11, 2002 a total of 228,571 shares of common stock were
issued to Advanced Interactive Inc. (an affiliate of the Company) in
settlement of an $80,000 debt owed to it by the Company in a transaction
not involving a public offering.
On October 2, 2002, a total of 93,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until October 2, 2004) were issued at a price of $0.35
per unit to four non-US resident persons under Regulation S. Total
consideration for these units was $32,550.
On October 2, 2002, a total of 100,000 units (each unit comprised of one
share of common stock and one share purchase warrant exercisable at a
price of $0.50 until October 4, 2004) were issued at a price of $0.35
per unit to one US resident person, Charles W. Gay, under Regulation D,
Rule 506. Total consideration for these units was $35,000. Because
these units were issued to a US resident person after June 6, 2002 (the
date on which Alternet's initial registration statement on Form SB2 was
filed on EDGAR) it is possible, even though Mr. Gay entered into his
agreement to purchase the units on June 5, 2002, that Mr. Gay will have
rescission rights granted to him under the Securities Act of 1933 for a
period of two years. The position of Alternet is that the sale was made
in accordance with Regulation D, Rule 506 and Alternet has not had any
indication from Mr. Gay that he wishes to exercise any rescission rights
he may have.
As a result of the unit issuances described above, a total of 1,464,514
share purchase warrants are issued and outstanding.
AI Systems Group Inc. (Alternet's wholly owned subsidiary):
On October 16, 2000 a total of 3,000 shares of common stock were issued
to three principals (Michael Dearden, Patrick Fitzsimmons and Greg
Protti as to 1,000 shares each) of AI Systems Group in a transaction not
involving a public offering. Total consideration for these 3,000 shares
was $3.00.
On May 24, 2001 a total of 5,500,000 shares of common stock were issued
to four principals (Griffin Jones, 2,000,000 shares of common stock;
Michael Dearden, 2,000,000 shares of common stock; Patrick Fitzsimmons,
1,000,000 shares of common stock; Greg Protti, 500,000 shares of common
stock) in a transaction not involving a public offering. All of the
four principals were directors and / or senior officers of AI Systems
Group. Total consideration for these 5,500,000 shares was $5,000.
On June 4, 2001, a total of 1,000,000 shares of common stock were issued
to a total of two non-US resident persons under Regulation S for total
consideration of $1,000.
On June 4, 2001, a total of 3,000,000 shares of common stock were issued
to seven US residents under Regulation D Rule 506 for total
consideration of $3,000.
On June 4, 2001 a total of 10,000 shares of common stock were issued to
one non-US resident person under Regulation S for total consideration of
$1.00
On June 8, 2001 a total of 330,000 shares of common stock were issued to
Brandon Douglas (a director of AI Systems Group Inc.) in a transaction
not involving a public offering. Total consideration for these 330,000
shares of common stock was $330.
On June 29, 2001 a total of 2,500,000 shares of common stock were issued
to Advanced Interactive Inc., a US resident company, under the terms of
the License Agreement in a transaction not involving a public offering.
The consideration for the issuance of these shares was the acquisition
by AI Systems Group of software license rights.
Where the offerings (shares and warrants) described above were
undertaken under Rule 506 of Regulation D:
- the sales were made to accredited investors as defined in Rule 502
and to less than 35 non-accredited investors;
- the company gave each purchaser the opportunity to ask questions
and receive answers concerning the terms and conditions of the
offering and to obtain any additional information which the company
possessed or could acquire without unreasonable effort or expense
that is necessary to verify the accuracy of the information furnished;
- at a reasonable time prior to the sale of securities, the company
advised the purchasers of the limitations on resale in the manner
contained in Rule 502(d)2 of this section;
- neither the company nor any person acting on its behalf sold the
securities by any form of general solicitation or general
advertising; and
- the company exercised reasonable care to assure that the purchasers
of the securities are not underwriters within the meaning of
Section 2(11) of the Act in compliance with Rule 502(d).
Where the offerings described above were undertaken under Regulation S
they were made under Rule 903 (Category 3, equity securities) and:
- the sale was made in an offshore transaction;
- no directed selling efforts were made in the United States by the
Company;
- the purchaser certified that it is not a US person and is not
acquiring the securities for the account or benefit of any US person;
- the purchaser agreed to resell such securities only in accordance
with the provisions of the Securities Act of 1933 or regulations
applicable to their securities;
- the securities contained a legend to the effect that transfer was
prohibited unless the securities were first registered under the
Securities Act of 1933 or resale was made pursuant to an exemption
therefrom.
No commission or professional fees were paid in connection with the
Company's sales of unregistered securities under either Regulation S or
Regulation D, Rule 506. Although not strictly required to do so by
Regulation D, Rule 506, in light of anti-fraud provisions and for the
purpose of ensuring that potential investors were aware of the Company's
financial circumstances and stage of development, all persons purchasing
under Regulation S or Regulation D, Rule 506 were advised to review the
Company's continuous disclosure filings and financial statements
available on the EDGAR system.
Neither we nor any person acting on our behalf offered or sold the
foregoing securities by means of any form of general solicitation or
general advertising. All purchasers represented in writing that they
acquired the securities for their own accounts. A resale legend has
been provided for the stock certificates stating that the securities
have not been registered under the Securities Act of 1933 and cannot be
resold or otherwise transferred without registration or an exemption
(such as that provided by Regulation S or Rule 144).
ITEM 27. EXHIBITS
The Exhibits required by Item 601 of Regulation S-B, and an index
thereto, are attached.
ITEM 28. UNDERTAKINGS
In accordance with Rule 415 and Item 512 of Regulation S-K, the
undersigned company hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
Notwithstanding the forgoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation From the low or high end of the estimated
maximum offering range may be reflected in the form of
prospects filed with the U.S. Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer 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 small business issuer of
expenses incurred or paid by a director, officer or controlling
person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
corporation certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorize, in the City of Vancouver in the
Province of British Columbia, Canada on this 20th day of November, 2002.
"Griffin Jones" "Michael Dearden"
/s/Griffin Jones /s/Michael Dearden
Director and Treasurer President and Director
"Patrick Fitzsimmons" "Greg Protti"
/s/Patrick Fitzsimmons /s/Greg Protti
Director Director
NUMBER EXHIBIT DESCRIPTION
3.1 Articles of incorporation dated June 26, 2000 (incorporated
by reference to Exhibit 3 of the Registration Statement of
the Form 10-SB filed on November 6, 2000)
3.2 Certificate of Amendment to Articles of incorporation
concerning name change to SchoolWeb Systems Inc.
3.3 Certificate of Amendment to Articles of incorporation
concerning name change to Alternet Systems Inc.
4.1 Stock Plan for Non-Employee Directors and Consultants
4.2 Specimen Form of Share Purchase Warrants for common shares
issued by the Company and allowing for a total of 1,125,000
common shares to be purchased.
5.1 Legal opinion
10.1 License Agreement between Advanced Interactive Inc.,
Advanced Interactive (Canada) Inc., SchoolWeb Holdings Inc.
(formerly Alternet Systems Inc.) dated January 1, 2001
10.2 Amendment to License Agreement between Advanced Interactive
Inc., Advanced Interactive (Canada) Inc., SchoolWeb Holdings
Inc. (formerly Alternet Systems Inc.) dated June 29, 2001
10.3 Amendment to License Agreement between Advanced Interactive
Inc., Advanced Interactive (Canada) Inc., SchoolWeb Holdings
Inc. (formerly Alternet Systems Inc.) dated July 17, 2001
10.4 Amendment to License Agreement between Advanced Interactive
Inc., Advanced Interactive (Canada) Inc., SchoolWeb Holdings
Inc. (formerly Alternet Systems Inc.) dated March 8, 2002
10.5 Share Purchase Agreement between the shareholders of
SchoolWeb Holdings Inc. and Alternet Systems Inc. (formerly
North Pacific Capital Corp.) (incorporated by reference to
Exhibit 2.1 of the Form 8K filed on December 20, 2002)
10.6 Amendment to License Agreement between Advanced Interactive
Inc., Advanced Interactive (Canada) Inc., SchoolWeb Holdings
Inc. (formerly Alternet Systems Inc.) dated September 10, 2001
10.7 Solutions Partner Agreement between Hewlett Packard (Canada)
Ltd. and Advanced Interactive Inc. dated March 8, 2002
10.8 Consent of Alternet Systems Inc. to the Solutions Partner
Agreement between Hewlett Packard (Canada) Ltd. and Advanced
Interactive Inc. dated March 8, 2002
10.9 Specimen form of Reseller Agreement between Alternet Systems
Inc. and distributors
10.10 Amendment to License Agreement between Advanced Interactive Inc.,
Advanced Interactive (Canada) Inc. and Alternet Systems Inc. dated
August 14, 2002
23.1 Consent of Accountants (see below)
23.2 Consent of Counsel (see below)