-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EDCA3rPHFHBg9IZjHlxRpPBhbG/dAcLE1mdrDKIyPUc5wQ28ZfAzgroGtCDEc9ds yp3REL012oOXr2WiKPelhg== 0001122782-01-500064.txt : 20010123 0001122782-01-500064.hdr.sgml : 20010123 ACCESSION NUMBER: 0001122782-01-500064 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20010119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADRIATIC HOLDINGS LTD CENTRAL INDEX KEY: 0001075636 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 911918326 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-93383 FILM NUMBER: 1511870 BUSINESS ADDRESS: STREET 1: 114 MAGNOLIA ST STREET 2: STE 446 CITY: BELLINGHAM STATE: WA ZIP: 98225 BUSINESS PHONE: 8006617830 MAIL ADDRESS: STREET 1: 114 MAGNOLIA ST STREET 2: STE 446 CITY: BELLINGHAM STATE: WA ZIP: 98225 SB-2/A 1 d24434_sb2-a.txt FORM SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON ______________, 2001 REGISTRATION STATEMENT NO. 333-93383 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- AMENDMENT NO. 3 TO FORM SB-2 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- ADRIATIC HOLDINGS LIMITED (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) NEVADA 3644 91-1918326 (STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION IDENTIFICATION NUMBER) CODE NUMBER) 114 W. MAGNOLIA STREET, SUITE 446 BELLINGHAM, WASHINGTON 98225 (360) 715-3396 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) ROBERT W. KNIGHT ADRIATIC HOLDINGS LIMITED 114 W. MAGNOLIA STREET, SUITE 446 BELLINGHAM, WASHINGTON 98225 (360) 715-3396 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ---------- COPIES TO: STEVEN SANDERS, ESQ. BECKMAN, MILLMAN & SANDERS LLP 116 JOHN STREET, SUITE 1313 NEW YORK, NEW YORK 10038 (212) 406-4700 ---------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] CALCULATION OF REGISTRATION FEE
Proposed Proposed Proposed Title of Each Class Max. offering Aggregate Max. Amount of of Securities Amount to be Price for offering Registration to be registered registered (1) Security Price (1) Fee - ---------------- -------------- -------- --------- --- Common Stock, $0.001 par value 5,000,000 $0.10 $500,000 $132
- ---------- (1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These 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 State. SUBJECT TO COMPLETION, DATED ___________________ PRELIMINARY PROSPECTUS 5,000,000 Shares ADRIATIC HOLDINGS LIMITED Common Stock This is a public offering of 5,000,000 shares of common stock of Adriatic Holdings Limited. There is currently no public market for the common stock. We will list the common stock on the OTC Bulletin Board under the proposed symbol "____". THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK. ---------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS MADE TO THE CONTRARY IS A CRIMINAL OFFENSE Per Share Total --------- ----- Public offering price ........................... $0.10 $500,000 Total Proceeds, before expenses, to us .......... $0.10 $500,000 THE DATE OF THIS PROSPECTUS IS __________________, 2001 THE COMPANY Adriatic Holdings Limited was incorporated in the State of Nevada on July 9, 1998. The business of Adriatic is to become a provider of electrical junction boxes and other quality electrical products for use in both the public and private sector. Junction boxes are used for housing underground wiring connections. They are commonly installed at street intersections, in sidewalks, and anywhere else electrical connections are required. Pursuant to a licensing agreement dated August 15, 1998, we acquired the rights from J.A. Industries (Canada) Inc. to manufacture and distribute J.A. Canada's patented underground electrical junction box. Under the terms of the Licensing Agreement, we agreed to pay to J.A. Canada $5.00 per J.A. Junction Box sold by Adriatic with a minimum fee of $2,000 in 1998 and a minimum fee of $10,000 per annum for the life of the license. The fees of $2,000 for 1998 and $10,000 for 1999 have been paid. Adriatic has not yet undertaken the sale of any J.A. Junction Boxes or any other product since entering into the licensing agreement in August of 1998. Our offices are located at 114 W. Magnolia Street, Suite 446, Bellingham, Washington 98225. Our telephone number is (360) 715-3396. 1 THE OFFERING Common stock offered by the Company ......... 5,000,000 shares Price per share of common stock.............. $0.10 Common stock to be outstanding after the offering(1) .................... 7,090,000 shares Use of proceeds ............................. Adriatic intends to use its portion of the proceeds for license fee payments, marketing, general and administrative expenditures, development of the business, working capital and other general corporate purposes. See "Use of Proceeds." Proposed OTC Bulletin Board symbol .......... _______ Risk factors For a discussion of the risks, you should consider before investing in the common stock of Adriatic, see "Risk Factors." Termination.................................. We plan to close the offering on June 30, 2001 Plan of Offering............................. There is no underwriter for this offering. Our officers or our agents will offer the shares for sale on a "best efforts", no-minimum basis. Proceeds can be used as received. - ---------- (1) See "Dilution." 2 SUMMARY SELECTED FINANCIAL DATA The following selected financial information concerning Adriatic has been derived from the financial statements included elsewhere in this prospectus and should be read in conjunction with such financial statements and the related notes. The financial information as of December 31, 1999 has been derived from the audited financial statements of Adriatic prepared by Spicer, Jeffries & Co. and the financial information as of December 31, 2000 has been prepared by management.
Period from inception (July 9,1998) Year Ended Year Ended Year Ended through December 31, 2000 December 31, 1999 December 31, 1998 December 31, 2000 ----------------- ----------------- ----------------- ----------------- (audited) (audited) (audited) (unaudited) Balance Sheet Data: Total assets ................ $ 18,135 $ 18,003 46 18,135 Current liabilities ......... 17,921 26,024 0 46,231 Long-term debt .............. 0 0 0 0 Total stockholders' deficit . (28,096) (8,021) 46 (28,096) Statement of Operations Data: Revenue ..................... 0 0 0 0 Expenses: Total Expenses .............. 20,975 11,875 12,303 45,153 Income from Operations ...... 0 0 0 0 Loss before income taxes ... (20,975) (11,875) (12,303) (45,153) Provision for income taxes .. 0 0 0 0 Net loss .................... (20,975) (11,875) (12,303) (45,153) Net loss per share .......... (.01) (.01) (.01) (.02)
3 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of the United States federal securities laws that involve risks and uncertainties. When included in this prospectus, the words "expects," "intends," "anticipates," "plans," "projects" and "estimates," and analogous or similar expressions are intended to identify forward-looking statements. A potential investor in the common stock offered hereby should use caution before relying on forward-looking statements because actual results could differ materially from those anticipated by such forward-looking statements in this prospectus. Factors which could cause actual results to differ from those anticipated by forward-looking statements can be found in "Risk Factors," "Management's Discussion and Analysis of Financial Condition or Results of Operations" and "Business." Any forward-looking statements contained in this prospectus speak only as of the date of this prospectus. The Company expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein. 4 RISK FACTORS ADRIATIC HAS A LIMITED OPERATING HISTORY Adriatic was incorporated in July 1998 and thus has a limited operating history. Adriatic is subject to all the general risks, problems, expenses, difficulties, complications and delays frequently encountered in connection with establishing any new business and operations. ADRIATIC IS DEPENDENT ON KEY PERSONNEL Our business plans are significantly dependent upon the abilities and continued participation of Mr. Knight. Mr. Knight has not entered into an employment agreement with us and there can be no assurance that he will continue to provide services to us. Mr. Knight will devote only a portion of his time to Adriatic activities. As Adriatic's sole officer and director, decisions are made at his discretion and not as a result of compromise or vote by members of a board. The loss by or unavailability to the Company of Mr. Knight's services would have an adverse effect on our business, operations and prospects. There can be no assurance that Adriatic would be able to locate or employ qualified personnel to replace Mr. Knight, should his services be discontinued. ADRIATIC REQUIRES ADDITIONAL FINANCING IN ORDER TO STAY IN BUSINESS We believe that raising 20% of the proceeds of this offering will enable us to maintain our operations and working capital requirements approximately for the next 12 months, without taking into account any internally generated funds from operations. Thereafter, we will require additional funds to maintain and expand our operations. Adequate funds for this purpose on terms favorable to Adriatic, whether through equity financing, debt financing, or other sources, may not be available when needed. ADRIATIC MAY CONTINUE TO BE UNPROFITABLE We have had no revenue since our incorporation in July 1998. We have yet to undertake the sale of any J.A. Junction Boxes or any other products. Even after we commence selling the J.A. Junction Box, which is anticipated to begin in the second quarter of 2001, there is no guarantee that we will become profitable. The junction box industry is highly competitive and there is no guarantee that we will be able to secure the business of our target buyers. GOING CONCERN ISSUES IN AUDITOR'S REPORT As a result of losses since inception, our deficiency in working capital at March 31, 2000 and other factors, our auditors have included a paragraph in their report regarding substantial doubt about our ability to continue as a going concern. Our plans in this regard are described in Note 6 to the Financial Statements. 5 SHAREHOLDERS' LACK OF EQUITY As of December 31, 2000, the lack of equity for shareholders was $(45,153). Further, we anticipate continuing losses for the foreseeable future. AN UNFAVORABLE RESOLUTION OF CURRENT LITIGATION AGAINST J.A. CANADA COULD HAVE AN ADVERSE EFFECT ON ADRIATIC'S BUSINESS J.A. Canada is currently the defendant in a lawsuit concerning the J.A. Junction Box, Canadian patent #2,030,251. The Plaintiffs allege among other things, that the Canadian patent issued on the J.A. Junction Box is invalid. J.A. Canada feels that the suit lacks merit. Although J.A. Canada does not have the necessary funds to adequately defend itself in this action, it has entered a statement of defense. A judgment in favor of the plaintiffs would make us unable to prevent other competitors from using the technology and concept behind the patented J.A. Junction Box for profit.See "Business - Legal Matters." THERE ARE UNCERTAINTIES REGARDING MARKETING OF ADRIATIC'S PRODUCT We intend to market the J.A. Junction Box within the United States. However, our product has had only limited use in the field and is not approved for use in the United States. Furthermore, our product has had limited marketing success in the past due to the lack of funds on the part of J.A. Canada to promote and develop the product. Even if the J.A. Junction Box is accepted by end users, there is no assurance that the United States market will provide sufficient revenue and earnings to permit on-going operations. In the event that we are not able to successfully market our products, we may seek to develop other new opportunities, although no assurances can be made. FAILURE TO ATTAIN APPROVAL FOR THE USE OF THE J.A. JUNCTION BOX IN THE UNITED STATES WOULD ADVERSELY AFFECT THE BUSINESS OF ADRIATIC We intend to market the J.A. Junction Box within the United States. However, our product has had only limited use in the field and is not approved for use in the United States. Failure to attain approval of the J.A. Junction Box for use in the United States would have a material adverse effect on our financial condition, results of operations and cash flows. In order to sell the J.A. Junction Box in a particular state, we must first obtain approval from such state. Each state has its own requirements for approving use of junction boxes and typically require that applicants submit blueprints of the junction box and other documentation demonstrating how the junction box complies with the state's specifications. States also typically require that the junction boxes be tested in several test locations. Adriatic intends to submit the junction box for testing in the State of Washington as soon as practicable. 6 FUTURE REGULATION OF THE USE OR SALE OF POLYURETHANE MAY HAVE A NEGATIVE EFFECT ON OUR BUSINESS We will use a product called polyurethane in the production of the J.A. Junction Box. Polyurethane is a synthetic, oil-based substance, widely varying in flexibility. Although we do not foresee any adverse effect on our operations as a result of any environmental laws in the United States which may regulate the use and manufacture of polyurethane, there can be no assurance that some future law would not have an adverse effect on our business. 7 WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN OUR INDUSTRY There are a number of companies that compete directly and indirectly with the J.A. Junction Box. Many of these companies have financial, technical, marketing, sales, manufacturing, distribution, and other resources that are significantly greater than those of Adriatic. In addition, some of these companies have name recognition, established positions in the market, and long-standing relationships with customers who purchase electrical junction boxes. Accordingly, there is no assurance that we will be able to compete successfully or that our competitors or future competitors will not develop junction boxes that render our junction boxes less marketable. THERE IS NO PUBLIC MARKET FOR THE COMMON EQUITY OF ADRIATIC As of the date of this prospectus, there is no public market for Adriatic's common stock. Although we plan to apply for listing our common stock on the OTC Bulletin Board, there can be no assurance that our attempts to do so will be successful. Furthermore, if we do become listed with respect to our common stock on the OTC Bulletin Board or elsewhere, there can be no assurance that a market will develop for the common stock or that a market in the common stock will be maintained. As a result of the foregoing, investors may be unable to liquidate their investment for any reason. For a discussion of Adriatic's common stock, see "Description of Securities." THE PROCEEDS DERIVED FROM THIS OFFERING MAY BE LIMITED This offering is being conducted on a "best efforts only" basis. This means that we are under no obligation, for purposes of this offering, to sell a specified minimum amount of shares of our common stock. Furthermore, whatever net proceeds we have realized, as a result of this offering, will not be returned to any subscriber and such proceeds will be utilized by our management to meet our proposed objectives as set forth in this prospectus. Under these circumstances, if we only sell a small amount of shares of common stock, the proceeds earned from the sale may not be adequate to meet all of our proposed objectives. PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL INCUR SUBSTANTIAL DILUTION OF THEIR SHARES Purchasers of the common stock in this offering will incur immediate substantial dilution in the net tangible book value of approximately $0.04 per share if all the shares offered are sold. See "Dilution." FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK PRICE The future sale of shares by our existing stockholders may adversely affect our stock price. After completion of this offering, our existing stockholders will own an aggregate of 7,090,000 shares of common stock. All the shares of common stock will be available for sale in the public market, subject in some cases to compliance with the holding period and volume and manner of sale limitations contained in Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). See the information set forth under the caption "Shares Eligible for Future Sale" for a more detailed description of the restrictions on selling shares after this offering. 8 ADRIATIC STOCK COULD CONTINUE TO BE A "PENNY STOCK" WHICH WOULD MAKE IT MORE DIFFICULT TO TRADE. The Securities and Exchange Commission (the "Commission") has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver to the prospective purchaser a standardized risk disclosure document prepared by the Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the prospective purchaser and receive the purchaser's written agreement to the transaction. Furthermore, subsequent to a transaction in a penny stock, the broker-dealer will be required to deliver monthly or quarterly statements containing specific information about the penny stock. It is anticipated that Adriatic's common stock will be traded on the OTC Bulletin Board at a price of less than $5.00. In this event, broker-dealers would be required to comply with the disclosure requirements mandated by the penny stock rules. These disclosure requirements will likely make it more difficult for investors in this offering to sell their common stock in the secondary market. 9 USE OF PROCEEDS The net proceeds to Adriatic from the sale of 100%, 50% and 20% of the common stock offered in this offering are listed below after deducting estimated offering expenses of $40,000 and assuming that no commissions are to be paid for any of the shares to be sold. These proceeds are intended to be utilized substantially as follows: Application of Proceeds Approximate Approximate Approximate Amount Amount Amount $500,000 $250,000 $100,000 - ----------------------- ----------- ----------- ----------- Equipment purchase 150,000 75,000 25,000 Facility setup 50,000 25,000 7,500 Raw materials 100,000 50,000 10,000 Marketing 50,000 25,000 2,500 Working capital 110,000 35,000 15,000 Total $460,000 $210,000 $ 60,000 The amounts apportioned above are only estimates. As of the date of this prospectus, Management anticipates expending the above total of $460,000 within 12 months of its receipt by Adriatic. See "Risk Factors." The actual amount expended to finance any category of expenses may be increased or decreased by our Board of Directors, in its discretion, if required by the operating expense of Adriatic or if a reapportionment or redirection of funds, including acquisitions consistent with the business strategy of Adriatic, is deemed to be in the best interest of Adriatic. However, as of the date of this prospectus, we have no specific plans, arrangements, understandings or commitments with respect to any such acquisition. See "Risk Factors," "Business" and "Management's discussion and analysis of financial condition or Plan of Operation." In addition, pending the use of the proceeds from this offering as set forth above, we may invest all or a portion of such proceeds in United States Government securities, money market investments and short-term, interest-bearing deposits in major banks. 10 DILUTION The net negative tangible book value (total assets less total liabilities and intangible assets) of Adriatic's common stock as of December 31, 2000 was approximately $(28,096) or a nominal amount per share of common stock. Net tangible book value per share represents the amount by which the liabilities exceed the amount of total tangible assets, divided by 2,090,000 shares of common stock currently outstanding. Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of the 5,000,000 shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after this offering. After giving effect to the sale by Adriatic of 5,000,000 shares of common stock offered hereby at an assumed offering price of $0.10 per share, the pro forma net tangible book value of Adriatic as of December 31, 2000 would have been approximately $431,904 or $0.06 per share. This represents an immediate increase in pro forma net tangible book value of $0.06 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $0.04 per share to purchasers of common stock in this offering. Offering price per share of common stock offered hereby ............. $0.10 Net tangible book value per share before offering ................... $0.00 Increase per share attributable to new investors .................... $0.06 Pro forma net tangible book value per share after offering .......... $0.06 Net tangible book value dilution per share to new investors ......... $0.04 ===== The following table summarizes the relative investments of investors pursuant to this offering and the current stockholders of Adriatic.
Investors Pursuant Current to this Stockholders Offering Total ------------ -------- ----- Number of Shares of Common Stock Purchased 2,090,000 5,000,000 7,090,000 Percentage of Outstanding Common Stock After Offering 29.5% 70.5% 100% Gross Consideration Paid, Less Offering Costs $13,050 $460,000 $473,050 Percentage of Consideration Paid 2.7% 97.3% 100% Average Consideration Per Share of Common Stock $0.006 $0.09 $0.07
11 DIVIDEND POLICY Adriatic has never declared or paid any cash dividends. Adriatic currently does not intend to pay cash dividends in the foreseeable future on the shares of common stock. Management intends to reinvest any earnings in the development and expansion of Adriatic business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by the Board of Directors of Adriatic, based upon the Board's assessment of: o the financial conditions of Adriatic; o earnings; o need for funds; o capital requirements; o prior claims of preferred stock to the extent issued and outstanding; and o other factors, including any applicable laws. Therefore, there can be no assurance that any dividends on the common stock will ever be paid. 12 CAPITALIZATION The following table sets forth the actual cash and capitalization of Adriatic as of December 31, 2000. It is conceivable that no shares of Common Stock will be sold in this offering. This table should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus.
December 31, 2000 ----------------- (unaudited) Actual -------- Cash and equivalents $ 214 Short-term debt 46,231 Long-term debt 0 Common stk. $.001 p.v 25,000,000 authorized 2,090,000 shs.(actual) 2,090 Additional Paid in capital 14,967 Accumulated Deficit (45,153) Tot. Stockholders Equity (Deficit) (28,096) Total Capitalization (28,096)
13 [THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION The information contained below includes statements of Adriatic management's beliefs, expectations, hopes, goals and plans that are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially form those anticipated in the forward-looking statements. For a description of such risks and uncertainties, see the information set forth under the caption "Forward-Looking Statements," which information is incorporated herein by reference. The following discussion and analysis should be read in conjunction with the information set forth under the caption "Selected Financial Data" and the financial statements and notes thereto included elsewhere in this prospectus. Plan of Operation Since our inception on July 9, 1998, we have not been engaged in any significant operations nor have we had any revenues, as we are in the development stage. Our only recent activities through December 31, 2000 include organization of the Company and the raising of equity capital. Until an infusion of capital from this offering, we will not be able to commence operations. We currently have insufficient capital to commence operations and are dependent on the proceeds of this offering to begin such operations. We have suffered recurring losses from operations and have a working capital deficiency of $28,096 which raise substantial concern regarding our ability to continue as a going concern. We believe that the maximum proceeds of this offering will enable us to maintain our operations and working capital requirements approximately for the next 12 months, without taking into account any internally generated funds from operations. We will need to raise $500,000 to continue operations for the next 12 months based on our capital expenditure requirements. Capital will be raised pursuant to this filing. We have the authority to issue 25,000,000 shares of common stock, $0.001 par value. Prior to this filing, we have raised all funds through private placements. In July 1998, we issued 1,000,000 shares of common stock to one of our founders for $1,000 and 50,000 shares of common stock to another founder for $50. In September 1998, we issued 1,000,000 shares of common stock in connection with an additional private offering for $10,000. In February 1999, we issued 40,000 shares of common stock in connection with an additional private placement offering for $2,000. After this current offering, we will require additional funds to maintain and expand our operations. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of the shares being offered in this prospectus. There is still no assurance that, even with the funds from this offering, we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable. At the current time, we have not begun manufacturing any junction boxes, but expect to do so when the additional funds have been made available. Currently we have $41,231 in liabilities. Our financial statements report a loss of $12,303 for the fiscal period ended December 31, 1998. For this period, we paid $4,444 in office expenses and $1,050 in management fees to the original founding shareholders. For the period ended December 31, 1999, we report a loss of $24,178. We paid $4,620 in office expenses and $10,103 in license fees. For the period ended December 31, 2000 we report a loss of $20,975. After we raise additional funds through this current offering, we anticipate an increase in the number of employees to five. Management believes that the J.A. Junction Box has a competitive advantage over the traditional steel and concrete junction boxes. The J.A. Junction Box is manufactured with high impact polyurethane. Polyurethane is an oil-bases product which is readily available in the market place. Its price and supply are stable now, and is expected, in management's opinion, to remain so in the foreseeable future, although there can be no assurance. The design of the Junction box is cylindrical so that the lid, which provides access to the wiring connections, cannot fall into the box while installation or repairs are being made. Polyurethane construction allows for a much lighter product in comparison with steel or concrete, allowing for easier production, installation and transportation of the junction boxes. Further, the polyurethane J.A. Junction Box is earthquake proof, impact resistant, and does not corrode or deteriorate. The equipment needed to manufacture J.A. Junction 15 Boxes include RIM cell machinery, presses and molds. The RIM cell machinery is used to compress certain materials into polyurethane. The polyurethane is then poured into moulds where it solidifies into the shape of the junction box. Upon receipt of the funds from this offering, we plan to use $150,000 to purchase the mentioned plant equipment. It is evident that the production process will use an above normal amount of electricity and will require facility upgrades and improvements to electrical sources. We anticipate spending a further $50,000 on such facility upgrades in the first year of production. There is a patent on the junction box and we do not anticipate any further need for Research and Development at this time. The Company entered into a licensing agreement with J.A. Canada, the terms require the Company to pay a monthly royalty fee of $1,000 CDN for use of the license. The Company anticipates first year production costs to be $200,000 for supplies and $60,000 for labor. It is our goal to penetrate the junction box market in the first year of operation with an estimated goal to capture 10% of the Pacific Northwest market in underground junction boxes. Also, we plan to expand into the Eastern Canadian and United States market, which management believes, and according to International Municipal Signal Association publications, is a $350 million per annum market. The Company has the right to manufacture and distribute and underground electrical junction box patented by J.A. Canada. J.A. Canada is currently the defendant in a lawsuit with regards to its product. The statement of claims, among other things, alleges that the Canadian patent issued on the electrical box is invalid. If the plaintiffs are successful in this action, the patent would be declared invalid and would not provide the Company with protection from competition. If the patent is declared invalid, then the design of the J.A. Canada junction box will revert to the public domain and no further patents would be able to be issued on such a design. If the patent is declared invalid, the Company has the option to cancel the licensing agreement without affecting the manufacturing of the product. Currently, the plaintiff in the lawsuit is manufacturing a similar box to the J.A. Canada box and is selling the box successfully in Canada. J.A. Canada, through its lawyers, threatened litigation with the plaintiffs if they did not cease and desist producing a copy of the J.A. Canada junction box. The plaintiffs took the position that the box did not infringe on the J.A. Canada junction box and initiated the lawsuit to invalidate the patent held by J.A. Canada. It is J.A. Canada's position that in the event the J.A. Canada patent on the junction box is successfully invalidated by the plaintiffs in the lawsuit, then the design of the junction box belongs in the public domain and therefore no patent could be issued to anyone on this specific design. Furthermore, the current plaintiffs would be able to continue to manufacture their junction box whose design would also belong in the public domain. If the patent is declared invalid by the courts, the Company will (a) not assert any exclusive rights to the patent and (b) be in a position to cancel its licensing agreement with J.A. Canada. The Company will also be able to manufacture the junction box using the J.A. Canada design without any recourse from or payments to J.A. Canada. As the design will belong to the public domain and no patent will be available on the J.A. Canada junction box design, the Company may have to compete directly with other manufacturers of the J.A. Canada junction box design. The Company has suffered recurring losses from operations and has a working capital deficiency of (28,096) that raise substantial doubt about its ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the Company attaining and maintaining profitable operations and raising additional capital. Management's plans in this regard is to raise additional capital through an equity offering. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company discontinue operations. Our functional currency is the United States Dollar and our consolidated financial statements are reported in United States Dollars unless otherwise stated. Year 2000 Compliance The Year 2000 issue arises as the result of computer programs having been written, and systems having been designed, using two digits rather than four to define the applicable year ("Year 2000"). Consequently, such software has the potential to recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has not been affected by Year 2000 as it does not rely on date-sensitive software or affected hardware. The Company's current accounting and other systems were purchased "off-the-shelf". The Company intends to timely update its accounting and other systems which are determined to be affected by Year 2000 by purchasing Year 2000 compliant software and hardware available from retail vendors at reasonable cost. 16 BUSINESS General Adriatic was incorporated in the State of Nevada on July 9, 1998. Our business is to become a provider of quality electrical products to users in both the public and private sectors. Pursuant to the Licensing Agreement dated August 15, 1998, we acquired the rights from J.A. Canada to manufacture and distribute J.A. Canada's patented J.A. Junction Box. This patent expires in 2021. Underground electrical junction boxes are used for housing underground wiring connections for electrical companies at street intersections, in sidewalks, on highways and anywhere else electrical connections are required. The J.A. Junction Box has the United States patent number 5,142,102, filed on August 25, 1992. Under the terms of the Licensing Agreement, we agreed to pay to J.A. Canada $5.00 per J.A. Junction Box sold with a minimum fee of $2,000 in 1998 and a minimum fee of $10,000 per annum for the life of the license. The fees of $2,000 for 1998 and $10,000 for 1999 have been paid. The Licensing Agreement, assuming Adriatic maintains it in good standing, expires when the patent expires. Sales for the J.A. Junction Box by J.A. Canada were approximately $CD 500,000 (approximately $US 350,000) in 1993 and $CD 500,000 (approximately $US 350,000) in 1994. J.A. Canada completed no sales since 1994. We have not yet undertaken the sale of any J.A. Junction Boxes or any other product. Historically, junction boxes have been constructed out of steel and concrete weighing between 100 and 200 pounds. Manufacturers of concrete junction boxes are typically located in concrete manufacturing regions that are often located long distances from the area of final installation. Thus, transportation costs of these concrete boxes are often prohibitively expensive, causing most concrete companies to produce only enough concrete junction boxes to service their local markets. Unlike conventional junction boxes, the J.A. Junction Box is manufactured with a lightweight and high-impact polyurethane. As a result, the J.A. Junction Box is light and durable. Because the J.A. Junction Box only weighs approximately 15 pounds, it can be easily installed by one person. Management believes that our products will be able to successfully compete with standard concrete junction boxes which are heavier and cannot be installed without the use of heavy machinery. In addition, unlike conventional junction boxes, the design of the Junction box is cylindrical so that the lid, which provides access to the wiring connections, cannot fall into the box while installation or repairs are being made. While different in design and material, the J.A. Junction Box retains all the advantages of concrete junction boxes. It is resistant to high impacts, including those generated by earthquakes. Similarly, the J.A. Junction Box does not corrode or deteriorate when put into contact with gasoline, diesel fuel and other corrosive elements. We have not incurred any expenses for research and development of our product in the past two years. Plans for Expansion It is our goal to capture 10% of the Pacific Northwest market in underground junction boxes over the next two years, although no assurances can be made. In addition, we plan to expand into the Eastern Canadian and United States market, which is estimated by Management, based on reports in International Municipal Signal Association publications, to be a $350 million per annum market. 17 There would be some risk of currency fluctuation, when selling the product in Canada for Canadian Dollars and paying United States suppliers in United States Dollars. Our target customers in Canada would be municipalities, provincial highways, Transport Canada (airports), armed forces, and real estate developers. In the United States, our target customers would be the Federal Transport (military), states, counties and cities. With the proceeds of this offering, we plan to lease a manufacturing facility in Bellingham, Washington. Once a property is secured, management estimates that it will cost approximately $50,000 to make the plant operational. The cost would be funded from the proposed financing contemplated by this filing. Our Management estimates that if the plant achieves certain production and distribution goals, it will be able to supply the Pacific Northwest and western Canada with J.A. Junction Boxes. We anticipate that similar plants will be established in the eastern United States and Canada after the existing markets in the Pacific Northwest and Western Canada are penetrated. Possible Joint Venture Opportunities We are aware of the existence of certain companies who are in the business of developing and conducting joint venture enterprises with other corporate entities. Although we will conduct our business as planned and scheduled, we may explore the prospect of engaging in a joint venture if such a venture would increase stockholder value. See "Risk Factors." Marketing and Distribution We plan to market our product using manufacturers' representatives. Typically, these representatives work strictly on a commission basis whereby we would negotiate a percentage payable as commission to the representatives for all sales they generate. It is anticipated that for every customer the representative brings to Adriatic, the representative would be entitled to a 10% commission on all future sales to the customer. Additionally, we plan to attend trade shows in target market areas to market our products. Either our management or the manufacturers' representatives in that area would attend the shows. We plan to print brochures on our product and mail them to major electrical companies and wholesale distributors. The product will be distributed directly by Adriatic. We plan to have inventory on hand. This way, when orders are received from the manufacturers' representatives or directly from customers, the orders will be packaged for shipping and sent via trucking companies. We will sell our product Free On Board ("FOB") with the customer being charged for the freight costs. Competition There are a number of companies that compete directly and indirectly with our product, including both domestic and international companies. Many of these companies have financial, technical, marketing, sales, manufacturing, distribution, and other resources, which are significantly greater than those of Adriatic. In addition, some of these companies have name recognition, established positions in the market, and long-standing relationships with customers who purchase electrical junction boxes. Some of our competitors include Brooks Box, Inc., Westcoast Engineering, Ltd., Fogtite Inc. and Quazite Corp. Such competitors may be developing junction boxes of which we are unaware, which may be similar to our junction boxes. Accordingly, there is no assurance that we will be able to compete successfully or that our competitors or future competitors will not develop junction boxes that render our junction boxes less marketable. 18 Intellectual Property Rights We do not own the intellectual property rights to the J.A. Junction Box. However, under the Licensing Agreement, we acquired the right from J.A. Canada to manufacture and distribute its patented underground electrical J.A. Junction Box. Under the terms of the Licensing Agreement, we are to pay J.A. Canada $5.00 for each J.A. Junction Box sold by us with a minimum fee of $2,000 in 1998 and a minimum fee of $10,000 per annum for the life of the license. Sales for the products by J.A. Canada were approximately $CD 500,000 (approximately $US 350,000) in 1993 and $CD 500,000 (approximately $US 350,000) in 1994. In the event the patent for the J. A. Junction Box is ruled invalid, we have the right to terminate our license agreement without penalty. Employees We currently have one employee. There is no specified time period for employment. However, with the anticipated manufacturing of the J.A. Junction Box, we plan to hire five individuals to fill positions in operations; one individual to perform clerical functions and two to serve in executive, financial and/or administrative positions. Our sole employee is not represented by a labor union. We will pay our current employee and any future employee/s a salary on a bi-monthly basis. Furthermore, Management plans to implement an employee incentive program in fiscal year 2000. See "Management - Board of Directors and Executive Officers." Seasonality Our management does not believe that the change in season will have a material affect on our financial condition or our operations with respect to the manufacture and sale of the J.A. Junction Box. Legal Matters We are not currently involved in any material litigation or proceeding and we are not aware of any material litigation or proceeding threatened against us. There have been no suits involving Adriatic, its officer or director. However, J.A. Canada is currently the defendant in a lawsuit involving the J.A. Junction Box, Canadian patent #2,030,251. The Plaintiff, Westcoast Engineering Ltd. and Nonad Plastic Ltd., both British Columbia companies, allege, among other things, that the Canadian patent issued on the J.A. Junction Box is invalid. J.A. Canada believes that the suit lacks merit. Although J.A. Canada does not have the necessary funds to adequately defend itself, it has entered a statement of defense. A judgment in favor of the plaintiffs would render the patent on the J.A. Junction Box invalid. As a result, we would not be able to prevent other competitors from utilizing this technology. If the patent is declared invalid, we have the option to cancel the Licensing Agreement with J.A. Canada. However, in this event, even if we do cancel the Licensing Agreement, we would still be entitled to manufacture the product without paying any fees to J.A. Canada since J.A Canada would no longer hold an absolute interest in the J.A. Junction Box. We believe that the lawsuit will be resolved within the next 24 months, although no assurance can be given. See "Risk Factors." Facilities Adriatic currently operates out of office space located at 114 W. Magnolia Street, Suite 446, Bellingham Washington 98225. The President of Adriatic provides this space free of charge. The office space aggregates approximately 1,000 square feet. We have not leased any manufacturing space at this time. Upon completion of the proposed financing, we will move our operations to a manufacturing facility once such a facility has been located and leased. The President of Adriatic carries $2,000,000 in liability insurance on the current office space. Management has been actively searching for a site to build a manufacturing facility in Bellingham, Washington, the present location of Adriatic's corporate headquarters. It is expected that the facility will aggregate approximately 5,000 square feet of warehouse and manufacturing space and 1,200 square feet of office space. Approximately 10,000 square feet of open yard space adjacent to the facility should be utilized for outside storage of the junction boxes. At this time, we have not determined the location or specifications of the manufacturing facility. To date, we have no investment or interest in any real estate, nor do any of our principal officers. 19 MANAGEMENT Directors and Executive Officers Robert Knight, age 43, is the Director, President, Secretary and Treasurer of Adriatic. Robert Knight has served as the Company's President, Secretary, Treasurer and Director since July 9, 1998. Since September 1, 1998, Mr. Knight served as President and Director of Coretech Industries, Inc., a development stage company, formed to consolidate the yacht brokerage industry (no revenues); Centaur BioResearch Inc., which specializes in licensing its genetic research services and databases to pharmaceutical and biotechnology companies by the Internet (no revenues); and Torik Corporation, a technology consulting firm specializing in Y2K impact analysis (no revenues). Since November 1997, Mr. Knight served as President and Director of Peregrine Mineral Resources Group, Inc., a mineral exploration company (no revenues). From June 24, 1997 to February 1, 1999, Mr. Knight served as President and Director of ANM Holdings Corporation who merged with International Menu Solutions Corp., whose shares are publicly traded OTC BB. Mr. Knight is no longer involved with the company who recorded sales of $21,000,000 for its most recent 9 month reporting period. From March 24, 1997 to July 1, 1998, Mr. Knight served as President and Director of AFD Capital Group, Inc. a development stage company formed to develop quality electrical products (no revenues). From November 12, 1996 to February 1, 1999, Mr. Knight served as President and Director of Biologictics, Inc., a development stage company formed to engage in the business of clinical consulting, contract packaging and labeling services for clinical studies. The company subsequently merged with Skintek Labs, Inc. (OTC BB)which continues as an operating company. From November 1995 to September 1996, Mr. Knight served as President and Director of BioQuest, Inc., a development stage company formed to develop therapeutics and vaccines for the effective treatment of the Human Immunodeficiency Virus (HIV), formerly Victoria Enterprises, Inc. (after the merger between Victoria Enterprises, Inc. and BioQuest, Inc. became effective, Mr. Knight resigned as President, Secretary and Treasurer but remained a director until May 1998). Shares of BioQuest are quoted in the "pink sheets". From December 1992 to June 1995, Mr. Knight served as President and Director of J.A. Industries (Canada) Inc., a private British Columbia corporation formed to become a provider of quality electrical products to the commercial and industrial electrical industry. Mr. Knight has had no relationship with J.A. (Canada) Inc. since it was acquired in 1996. From June 1994 to August 1996, Mr. Knight served as a Director of Everest Security Systems Corporation, a development stage company formed to become a home alarm service and installation company. The company subsequently merged with Everest Security Systems Corporation (OTC BB)who had sales of $13,000,000 for its monst recent 9 month reporting period. From 1991 to September 1996, Mr. Knight served as an independent financial consultant involved in the administration of public companies. Mr. Knight has 15 years of experience in corporate management and finance. Mr. Knight will devote more time to the operations of Adriatic than any of the companies with which he is associated, or approximately 50% per cent of his business time. Board of Directors and Executive Officers To date, Mr. Knight is the only executive officer and director of Adriatic. Directors of Adriatic serve until the annual meetings of stockholders and until their respective successors are duly elected and qualified. The executive officers of the Company are elected annually by the Board of Directors and serve terms of one year or until their death, resignation or removal by the Board of Directors. See "Business - Employees." Board Committees In August 1998, the Board of Directors established an Audit Committee. To date, Mr. Knight serves as the only member of the Audit Committee. The function of the Audit Committee is to select and engage, on behalf of the Company, independent public accountants to audit Adriatic's annual financial statements and to review and approve the planned scope of the annual audit. 20 Board of Advisors To date, a formal Board of Advisors has not been selected; however, certain persons have been solicited to serve on such board. Advisory board members will provide the Company with general consulting services on matters that may or may not be outside the scope of their specific industry expertise. Members will serve at will and may resign at any time. At the time of selection of specific individuals to serve as members on such board, the members will not be required to investigate Adriatic or to verify its business plan, nor will they be requested to do so. A member's agreement to serve on the Board of Advisors will not constitute a recommendation or endorsement of them by Adriatic. Adriatic plans to issue stock options to members of the Board of Advisors as compensation. Compensation of Directors To date, Mr. Knight has not collected any compensation for his services as Director of Adriatic. Executive Compensation The following summary sets forth the cash and other compensation paid or accrued by Adriatic from July 9, 1998, the date of the Company's inception, until December 31, 2000 with respect to services performed by Robert Knight for services as Chief Executive Officer and President. To date, Mr. Knight has not received compensation in salary and bonus in excess of $100,000.
Long-term Compensation ------------------------- Annual Compensation Awards Payouts ------------------- ------ ------- Name and Other Annual Restricted Securities LTIP All Principal Salary Bonus Compensation Stock Underlying Payouts Other Position Year ($) ($) ($) Awards ($) Options (#) ($) Compensation - -------- ---- --- --- --- ---------- ----------- --- ------------ Robert Knight 1998 1,050 0 0 0 0 0 0 President/CEO 1999 0 0 0 0 0 0 0 2000 0 0 0 0 0 0 0
Employment and Consulting Agreements To date, Adriatic has not entered into any employment or consulting agreements with its employee or with any other entity. Stock Option Plan Although we have not implemented a Stock Option Plan, we intend to implement such a plan in 2000. As of present date, we have decided to make the plan eligible to our officers. Limitation of Liability and Indemnification Adriatic's Certificate of Incorporation and By-laws contain provisions which reduce the potential personal liability of directors for certain monetary damages and provide for indemnity of directors and other persons. We are unaware of any pending or threatened litigation against Adriatic or its directors that would result in any liability for which such director would seek indemnification or similar protection. 21 The Nevada General Corporation Law and the Company's Articles of Incorporation and By-laws authorize indemnification of a director, officer, employee or agent of the Company against expenses incurred by him or her in connection with any action, suit, or proceeding to which such person is named a party by reason of having acted or served in such capacity. Negligent performance or misconduct would not be covered by indemnification unless a court of competent jurisdiction decided otherwise. In so far as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the company of expenses incurred or paid by a director, officer, or controlling person of the company 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 company 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. To date, we have not entered into any indemnification agreements with our officer and director. Indemnification agreements may require a company, among other things, to indemnify its officers and directors against certain liabilities (other than liabilities arising from willful misconduct of a culpable nature) that may arise by reason of their status or service as directors or officers. Such agreements may require a company to advance the expenses of its directors or officers incurred as a result of any proceeding against them as to which they could be indemnified. In addition, such agreements may require a company to obtain directors' and officers' insurance if available on reasonable terms. We reserve the right to enter into indemnification agreements in the future with our directors and officers 22 CERTAIN TRANSACTIONS During the past two years, we have not entered into a transaction with a value in excess of $60,000 with a director, officer or beneficial owner of 5% or more of the Company's capital stock. PRINCIPAL STOCKHOLDERS The following table sets forth the beneficial ownership of the shares of voting stock of Adriatic, as of December 31, 2000 by: (i) each person who is known by Adriatic to beneficially own more than 5% of common stock; (ii) Adriatic's Chief Executive Officer, (iii) each director, and (iv) all directors and executive officers of Adriatic as a group.
Shares Beneficially Shares to be Beneficially Name and Owned Prior to Offering Owned After Offering Address of ----------------------------- ---------------------------- Beneficial Owner(s) Number Percent(1) Number Percent(2) - ------------------- ------ ------- ------ ------- 5% Stockholder: G.M. Capital Partners, Ltd.(3) 1,000,000 47.8% 1,000,000 14.1% Finneran Investments, Ltd.(4) 175,000 8.4% 175,000 2.5% Noble Holdings Corporation(5) 175,000 8.4% 175,000 2.5% Tiger-Eye Investments (Cayman) Ltd.(6) 175,000 8.4% 175,000 2.5% Huda Limited(7) 175,000 8.4% 175,000 2.5% Tamarin Investment Group, Inc.(8) 175,000 8.4% 175,000 2.5% Kallur Enterprises Limited(9) 125,000 6.0% 125,000 1.8% Executive Officers and Directors: Robert Knight(10) 50,000 2.4% 50,000 <1% Director/President/Secretary All executive officers and directors as a group 50,000 2.4% 50,000 <1%
- ---------- (1) These percentage calculations are based on 2,090,000 shares, which are outstanding prior to this offering (including shares that have been paid for in full, but not issued) as of June 30, 2000. (2) These percentage calculations are based on 7,090,000 shares outstanding after this offering as of June 30, 2000. (3) The address for G.M. Capital Partners, Ltd. is Place de St.-Gervaise 1, Geneva 1 Switzerland CH 1211 (Mark Hartman and Martin Stuiki, shareholders; J.A. Michie, North American managing director and Mark Angst, director, have the right to vote and sell shares). (4) The address for Finneran Investments Ltd. is Columbus Centre Building, First Floor, Road Town, Tortola, BVI (Ian Fleming, managing director and shareholder). (5) The address for Noble Holdings Corporation is P.O. Box 268, Bank of Nova Scotia Building, George Town, Grand Cayman, Cayman Islands BWI (Bill Meadows,managing director and shareholder). (6) The address for Tiger-Eye Investments (Cayman) Ltd. is P.O. Box 884, Bank of Nova Scotia Building, George Town, Grand Cayman, Cayman Islands, BWI (Simon Stephens, officer, Keith Baldwin, director/shareholder). (7) The address for Huda Limited is Herald House, 22 Hill Street, St. Helier, Jersey JE4 9XB Channel Islands (Shiraz Ali Huda, managing director/shareholder). (8) The address for Tamarin Investments Group, Inc. is 22 Hill Street, St. Helier Jersey, JE4 9XB Channel Islands (Mark Siegel, managing director/ shareholder). (9) The address for Kallur Enterprises Limited is Austrasse 39, FL-9490 Vaduz, Principality of Liechtenstein (Klaus Boehler, managing director/shareholder). (10) The shares issued to Mr. Knight are registered in the name of Knight Financial Ltd., a private Delaware corporation controlled by Mr. Knight. The address for Mr. Robert Knight is 114 W. Magnolia Street, Suite 446, Bellingham, WA 98225. 23 DESCRIPTION OF SECURITIES. Common Stock General. Adriatic's authorized capital stock consists of 25,000,000 shares of common stock, $.001 par value per share. As of December 31, 2000, there were 2,090,000 shares issued and outstanding held by 46 holders of record. All shares of common stock currently outstanding are validly issued, fully paid and non-assessable. Furthermore, all shares which are the subject of this prospectus, when issued and paid for pursuant to this offering, will be validly issued, fully paid and non-assessable. At the completion of this offering, the present stockholders of Adriatic as of December 31, 2000 will own beneficially 29.4% of shares outstanding if all of the shares offered in this respect are sold. Voting Rights. Each share of common stock entitles the holder thereof to one non-cumulative vote, either in person or by proxy, at meetings of stockholders. Since holders of common stock do not have cumulative voting rights, holders of more than fifty percent (50%) of the issued and outstanding shares of common stock can elect all of the directors of Adriatic. Dividend Policy. All shares of common stock are entitled to participate ratably in dividends when and as declared by Adriatic's Board of Directors out of the funds legally available therefor. Any such dividends may be paid in cash, property or additional shares of common stock. Adriatic has not paid any dividends since its inception and presently anticipates that all earnings, if any, will be retained for development of Adriatic's business and that no dividends on the shares of common stock will be declared in the foreseeable future. Payment of future dividends will be subject to the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, the operating and financial condition of the Company, its capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on the common stock will be paid in the future. See "Dividend Policy." Miscellaneous Rights and Provisions. Stockholders of common stock have no preemptive or other subscription rights, conversion rights, redemption or sinking fund provisions. In the event of liquidation or dissolution of Adriatic, whether voluntary or involuntary, each share of common stock is entitled to share ratably in any assets available for distribution to holders of the equity of the Company after satisfaction of all liabilities, subject to the rights of holders of preferred stock, if any such preferred stockholders should exist at the time of such liquidation or dissolution. Private Placement. In September 1998, Adriatic offered 1,000,000 shares of common stock, $0.001 par value, at $0.05 per share. This offering expired without the sale of any shares. In February of 1999, the Company sold a total of 40,000 shares of common stock, $0.001 par value, at $0.05 per share pursuant to Rule 504 of Regulation D of the Securities Act, to 40 investors for a total consideration of $2,000. In September 1998, Adriatic sold 1,000,000 shares of common stock, $0.001 par value, at $0.01 per share pursuant to Rule 504 of Regulation D of the Securities Act, to 6 investors for a total consideration of $10,000. In July 1998, Adriatic sold 1,000,000 restricted shares of common stock, $0.001 par value, at $0.001 per share to one investor pursuant to Rule 144 of the Securities Act, for a total consideration of $1,000. 24 In July 1998, Adriatic sold 50,000 restricted shares of common stock, $0.001 par value, at $0.001 per share to one investor pursuant to Rule 144 of the Securities Act, for a total consideration of $50. Transfer Agent and Registrar The transfer agent and registrar for Adriatic's common stock is Liberty Transfer Co., 191 New York Avenue, Huntington, NY 11743-2711. Plan of Distribution This offering is a best-efforts, no-minimum offering, and will not be underwritten nor will any underwriter be engaged for the marketing, distribution or sale of any shares registered in this prospectus. We plan to close the offering on December 31, 2000. However, we reserve the right to terminate the Offering without notice ant any time piror to the sale of all shares of Common Stock offered in the prospectus. We may sell shares from time to time in one or more transactions at a price of $.10 per share. Sales may be made to purchasers directly by us or, alternatively, we may offer the shares through dealers, brokers or agents, who may receive compensation in the form of concessions or commissions. Any dealers, brokers or agents that participate in the distribution os shares may be deemed to be underwriters, and any profits on the sale of the shares by them and any discounts or commissions received by any such dealers, brokers for agents may be deemed to be underwriting discounts and commissions under the Securities Act. The shares will be offered by our executive officers (currently Mr. Knight is the only officer) to prospective investors. Pursuant to Rule 3a-4-1 of the Exchange Act of 1934, Mr. Knight will not be deemed a "broker" as defined in the Exchange Act of 1934 by his participation in the offering. To comply with the securities laws of certain jurisdictions, as applicable, the common stock may be offered and sold only through registered or licensed brokers or dealers. In addition, the common stock may not be offered or sold in certain jurisdictions unless they are registered or otherwise comply with the applicable securities laws of such jurisdictions by exemption, qualification or otherwise. 25 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS To date, there is no public market for Adriatic's common stock and no assurance can be given that a market for the shares will develop, or if a market does develop, that it will be sustained following the completion of this offering. Therefore, investors of the Company may be unable to liquidate their investment for any reason. See "Risk Factors." If such a market did develop, sales of substantial amounts of the common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of the common stock from time to time in the public market and could impair our ability to raise additional capital through the sale of equity securities in the future. As of the date of this prospectus we have 46 shareholders of record. SHARES ELIGIBLE FOR FUTURE SALE To date, Adriatic has 2,090,000 shares of common stock outstanding. Upon completion of this offering, Adriatic will have an additional 5,000,000 shares of common stock outstanding for a total of 7,090,000 shares of common stock outstanding. The 5,000,000 shares of common stock offered hereunder will be freely tradable without restriction or the need for further registration under the Securities Act, unless such shares are held by "affiliates" of Adriatic, as that term is defined in Rule 144 of the Securities Act. Of the 2,090,000 shares of common stock currently outstanding, 1,040,000 shares are freely tradable without restriction or the need for further registration under the Securities Act. The remaining 1,050,000 shares are held by affiliates of Adriatic and are "restricted securities," as that term is defined under Rule 144, promulgated under the Securities Act and will continue to be restricted after this offering. The restricted securities will become freely tradable if they are subsequently registered under the Securities Act or to the extent permitted by Rule 144 or some other exemption from registration under the Securities Act. However, other than the shares being registered hereunder, we have not granted any registration rights with regard to any additional shares of common stock. Furthermore, none of the restricted shares are currently eligible for resale under Rule 144 without regard to volume limitations. Nonetheless, all 1,050,000 restricted shares will become eligible for sale pursuant to Rule 144 (subject to volume limitations) upon the expiration of the two-year holding period beginning July 10, 1998, for such restricted shares held by Adriatic's affiliates. No prediction can be made as to the effect, if any, that sales of shares in the public market of Adriatic's common stock, or even the availability of such shares for sale, may have on the market prices of the common stock prevailing at any point in time in the future. Sales of shares of common stock by existing stockholders in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock. Such an adverse effect on the common stock could impair the Company's ability to raise capital through the sale of its equity securities. See "Risk Factors." LEGAL MATTERS The validity of the issuance of the common stock offered hereby will be passed upon for Adriatic by the law firm of Beckman, Millman & Sanders, LLP, 116 John Street, Suite 1313, New York, New York 10038. 26 EXPERTS Spicer, Jeffries & Co., independent certified public accountants, have audited our financial statements from July 9, 1998 (inception) to December 31, 1999, as set forth in their report, included in this prospectus and registration statement. Our financial statements are included in this prospectus and registration statement in reliance on their report, given on their authority as experts in accounting and auditing. AVAILABLE INFORMATION Prior to filing this prospectus, we have not been required to deliver annual reports. However, once we become a reporting company, we shall deliver annual reports to securities holders as required by the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Also, we shall deliver annual reports to securities holders as required by the rules or regulations of any exchange upon which our shares may be traded. If we are not required to deliver annual reports, it is not likely that we will go to the expense of producing and delivering such reports. If we are required to deliver annual reports, such reports will contain audited financial statements as required. Prior to the filing of this prospectus, we have not filed reports with the Commission. Once we become a reporting company, management anticipates that Forms 3, 4, 5, 10-KSB, 10-QSB, 8-K and Schedules 13D along with appropriate proxy materials will have to be filed as they come due. If we issue additional shares, then we may file additional registration statements for those shares. The public may read and copy any materials Adriatic files with the Commission at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The Internet address of the Commission's Web site is http://www.sec.gov. 27 ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM INCEPTION (JULY 9, 1998) THROUGH DECEMBER 31, 1998 ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) TABLE OF CONTENTS Page Independent Auditors' Report 1 Balance Sheets 2 Statement of Operations 3 Statement of Changes in Shareholders' Deficit 4 Statement of Cash Flows 5 Notes to Financial Statements 6-10 INDEPENDENT AUDITORS' REPORT To the Shareholders Adriatic Holdings Limited (A Company in the Development Stage) We have audited the accompanying balance sheets of Adriatic Holdings Limited (a Company in the Development Stage) as of December 31, 1999 and 1998, and the related statements of operations, changes in shareholders' deficit, and cash flows for the year ended December 31, 1999 and the period from inception (July 9, 1998) through December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Adriatic Holdings Limited (a Company in the Development Stage) as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the year ended December 31, 1999 and the period from inception (July 9, 1998) through December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has suffered losses from operations and has a working capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Denver, Colorado SPICER, JEFFRIES & CO. March 10, 2000 ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) BALANCE SHEETS DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998 ---------- ---------- CURRENT ASSET - Cash $ 82 $ 46 DEFERRED OFFERING COSTS (Note 1) 17,921 -- ---------- ---------- $ 18,003 $ 46 ========== ========== LIABILITIES & SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 17,921 $ -- Due to shareholder 8,103 -- ---------- ---------- Total current liabilities 26,024 -- ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 4 and 6) SHAREHOLDERS' DEFICIT (Note 2): Common stock, $.001 par value, 25,000,000 shares authorized; 2,090,000 and 2,050,000 shares issued and outstanding, respectively 2,090 2,050 Additional paid-in capital 14,067 10,299 Deficit accumulated during the development stage (24,178) (12,303) ---------- ---------- Total Shareholders' Deficit (8,021) 46 ---------- ---------- $ 18,003 $ 46 ========== ==========
The accompanying notes are an integral part of these statements. -2- ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM INCEPTION (JULY 9, 1998) THROUGH DECEMBER 31, 1998 Period from inception (July 9, 1998) through December 31, 1999 1998 1999 ----------- ----------- ----------- REVENUE $ -- $ -- -- EXPENSES: (Note 3) General and Administrative 176 4,444 4,620 License fee 8,103 2,000 10,103 Professional fees 1,500 2,550 4,050 Management fees -- 1,050 1,050 Rent expense 2,096 2,259 4,355 ----------- ----------- ----------- Total expenses 11,875 12,303 24,178 ----------- ----------- ----------- NET LOSS $ (11,875) $ (12,303) $ (24,178) =========== =========== =========== BASIC AND FULLY DILUTED LOSS PER COMMON SHARE $ (.01) $ (.01) $ (.02) =========== =========== =========== WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,083,333 1,623,429 1,934,277 =========== =========== =========== The accompanying notes are an integral part of these statements. -3- ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM INCEPTION (JULY 9, 1998) THROUGH DECEMBER 31, 1998
Deficit Accumulated Additional during the Total Common Stock Paid - in Development Shareholders' Shares Amount Capital Stage Deficit --------- --------- ---------- ----------- ------------- INCEPTION, July 9, 1998 -- $ -- $ -- $ -- $ -- Issuance of common stock, July 22, 1998 50,000 50 -- -- 50 Issuance of common stock, July 22, 1998 1,000,000 1,000 -- -- 1,000 Issuance of common stock, September 8, 1998 1,000,000 1,000 9,000 -- 10,000 Contribution of capital (Note 3) -- -- 1,299 -- 1,299 Net loss -- -- -- (12,303) (12,303) --------- --------- --------- --------- --------- BALANCES, December 31, 1998 2,050,000 2,050 10,299 (12,303) 46 Issuance of common stock February 1, 1999 40,000 40 1,960 -- 2,000 Contribution of capital (Note 3) -- -- 1,808 -- 1,808 Net loss -- -- -- (11,875) (11,875) --------- --------- --------- --------- --------- BALANCES, December 31, 1999 2,090,000 $ 2,090 $ 14,067 $ (24,178) $ (8,021) ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements. -4- ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999 AND THE PERIOD FROM INCEPTION (JULY 9, 1998) THROUGH DECEMBER 31, 1998
Period from Inception (July 9, 1998) through December 31, 1999 1998 1999 -------- -------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(11,875) $(12,303) $(24,178) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Rental expense contributed by shareholder 1,808 1,299 3,107 Increase in current liabilities 17,921 -- 17,921 -------- -------- -------- Net cash provided by (used in) operating activities 7,854 (11,004) (3,150) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 2,000 11,050 13,050 Increase in due to shareholder 8,103 -- 8,103 Increase in deferred offering costs (17,921) -- (17,921) -------- -------- -------- Net cash provided by (used in) financing activities (7,818) 11,050 3,232 -------- -------- -------- NET INCREASE IN CASH 36 46 82 CASH, at beginning of period 46 -- -- -------- -------- -------- CASH, at end of period $ 82 $ 46 $ 82 ======== ======== ========
The accompanying notes are an integral part of these statements. -5- ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) NOTES TO FINANCIAL STATEMENTS NOTE-1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and business Adriatic Holdings Limited (the "Company") was incorporated in the state of Nevada on July 9, 1998 and is in the development stage. Activities through December 31, 1999 include organization of the Company, raising equity capital and acquiring a license agreement as discussed below. The Company plans to become a provider of quality electrical products to the commercial and industrial electrical industry in the United States and Canada. Cash flows For purposes of reporting cash flows, cash includes those investments which are short-term in nature (three months or less to original maturity), are readily convertible to cash, and represent insignificant risk of changes in value. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Deferred offering costs Offering costs represent costs incurred to December 31, 1999 in connection with the proposed public offering (see Note 5). In the event that such offering is successful, costs incurred as of December 31, 1999 and additional costs incurred subsequent to that date will be charged against the proceeds of the offering. If the offering is not successful, the costs will be charged to operations. Fair value of financial instruments The carrying amount of cash and accounts payable approximates fair value. Net loss per share of common stock Net loss per share of common stock is based on the weighted average number of shares of common stock outstanding during the period. -6- ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) NOTES TO FINANCIAL STATEMENTS NOTE-2 SHAREHOLDERS' EQUITY The Company has the authority to issue 25,000,000 shares of common stock $0.001 par value. The Company issued 1,000,000 shares of common stock to one of its founders for $1,000 and 50,000 shares of common stock to another of its founders for services rendered valued at $50 in July, 1998. The Company issued 1,000,000 shares of common stock in connection with a private offering for $10,000 in September, 1998. NOTE-3 RELATED PARTY TRANSACTIONS For the period ended December 31, 1998, the Company paid $4,950 in office expenses and $1,050 in management fees to its original founding shareholders. In addition, a shareholder of the Company contributed office facilities valued at $1,808 and $1,299 for the year ended December 31, 1999 and the period from inception (July 9, 1998) through December 31, 1998, respectively. NOTE-4 LICENSING AGREEMENT On August 15, 1998, the Company acquired the rights to manufacture and distribute an underground electrical junction box for a period of 10 years. The box patent is owned by J.A. Industries (Canada) Inc. ("J.A. Canada"). Pursuant to the license agreement the Company must pay $5.00 per junction box sold or a minimum fee of $10,000 per year for the life of the license. In connection with the agreement, J.A. Canada agreed not to compete, directly or indirectly, with the Company's marketing or distribution of the junction boxes for a period of twenty-four months. The Company has not yet begun the manufacturing or selling of the junction boxes. NOTE-5 PROPOSED PUBLIC OFFERING The Company intends to make a public offering of its common stock for the sale of a maximum of 5,000,000 shares of common stock at $0.10 per share. NOTE-6 CONTINGENCIES As discussed in Note 4, the Company has the right to manufacture and distribute an underground electrical junction box patented by J.A. Canada. J.A. Canada is currently the defendant in a lawsuit with regards to its product. The statement of claims, among other things, alleges that the Canadian patent issued on the electrical box is invalid. If the plaintiffs are successful in this action, the patent would be declared invalid and would not provide the Company with protection from competition. If the patent is declared invalid, the Company has the option to cancel the licensing agreement without affecting the manufacturing of the product. -7- ADRIATIC HOLDINGS LIMITED (A Company in the Development Stage) NOTES TO FINANCIAL STATEMENTS NOTE-6 CONTINGENCIES (continued) Currently, the plaintiff in the lawsuit is manufacturing a similar box to the J.A. Canada box. J.A. Canada, through its lawyers, threatened litigation with the plaintiffs if they did not cease and desist producing a copy of the J.A. Canada junction box. The plaintiffs took the position that the box did not infringe on the J.A Canada junction box and initiated the lawsuit to invalidate the patent held by J.A. Canada. It is J.A. Canada's position that in the event the J.A. Canada patent on the junction box is successfully invalidated by the plaintiffs in the lawsuit, then the design of the junction box belongs in the public domain and therefore no patent could be issued to anyone on this specific design. Furthermore, the current plaintiffs would be able to continue to manufacture their junction box whose design would also belong in the public domain. If the patent is declared invalid by the courts, the Company will not assert any exclusive rights to the patent. The Company will be in a position to cancel its licensing agreement with J.A. Canada and the Company will be able to manufacture the junction box using the J.A. Canada design without any recourse from J.A. Canada. As the design will belong to the public domain and no patent will be available on the J.A. Canada junction box design, the Company will or may have to compete directly with other manufacturers of the J.A. Canada junction box design. The Company has suffered recurring losses from operations and has a working capital deficiency of $8,021 that raise substantial doubt about its ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the Company attaining and maintaining profitable operations and raising additional capital. Management's plans in this regard is to raise additional capital through an equity offering. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company discontinue operations. NOTE-7 INCOME TAX CARRYFORWARDS The Company has net operating loss carryforwards for financial and income tax reporting of approximately $24,000 of which approximately $12,000 expires in 2013 and the remainder in 2014. The deferred tax assets that result from such operating loss carryforwards of approximately $3,600 and $1,800 at December 31, 1999 and 1998, respectively, have been fully reserved in the accompanying financial statements. During the year ended December 31, 1999 and the period from inception (July 9, 1998) through December 31, 1998, the valuation allowance established against the net operating loss carryforwards increased by $1,800, respectively. -8- ADRIATIC HOLDINGS LIMITED (A Development Stage Company) FINANCIAL STATEMENTS For the Year Ended December 31, 2000 and 1999 and The Period from Inception (July 9, 1998 Through December 31, 2000 (unaudited) ADRIATIC HOLDINGS LIMITED TABLE OF CONTENTS Page ---- Financial Statements Balance Sheet 1 Statement of Operations 2 Statement of Cash Flows 3 Statement of Shareholder's Equity 4 Notes to the Financial Statement 5 ADRIATIC HOLDINGS LIMITED (A Development Stage Company) Balance Sheet (unaudited) As at December 31, 1999 and December 31, 2000 Notes December 31/00 December 31/99 ===== ============================== ASSETS Current Assets - Cash $ 214 82 Deferred Offering Costs 17,921 17,921 TOTAL ASSETS $ 18,135 18,003 ============================= LIABILITIES Current Liabilities $ 29,037 17,921 Long Term Liabilities 17,194 8,103 TOTAL LIABILITIES $ 46,231 26,024 ============================= SHAREHOLDER'S EQUITY (DEFICIT) 1,2 Common Stock, $0.001 Par Value Authorized 25,000,000 Shares Issued and Outstanding December 31, 1999-2,090,000 $ 2,090 2,090 December 31, 2000-2,090,000 Additional Paid in Capital 14,967 14,067 Retained Earnings (24,178) (12,303) Current Earnings (20,975) (11,875) TOTAL SHAREHOLDERS' EQUITY (DEFICIT) $ (28,096) (8,021) ----------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,135 18,003 ============================= The Accompanying Notes Are An Integral Part of These Financial Statements Page 1 ADRIATIC HOLDINGS LIMITED (A Development Stage Company) Statement of Operations (unaudited)
From Period of For The Year Ended Inception December 31, (July 9, 1998) -------------------------------- through Notes 2000 1999 December 31, 2000 =============================================================== Revenue -- -- ===================================================== General & Administrative Expenses 20,975 11,875 45,153 ===================================================== Total Expenses 20,975 11,875 45,153 Net (Loss) (20,975) (11,875) (45,153) ===================================================== Net (Loss) per Common Share 1 (0.01) (0.01) (0.02) ===================================================== Weighted Average Number of Common Shares Outstanding 2 2,090,000 2,083,333 1,975,297 =====================================================
The Accompanying Notes Are An Integral Part of These Financial Statements. Page 2 ADRIATIC HOLDINGS LIMITED (A Development Stage Company) Cash Flow (unaudited)
From Period of Inception (July 9, 1998) For The Year Ended December 31, through -------------------------------- December 31, Notes 2000 1999 2000 ======= ================================================= Net (Loss) $ (20,975) (11,875) (45,153) ================================================= Adjustment To Reconcile Net Loss To Net Cash -- Used In Operating Activities Rental expense Contributed by Shareholder 900 1,808 4,007 Increase In Current Liabilities 11,116 17,921 29,037 ================================================= Net Cash Used In Operating Activities (8,959) 7,854 (12,109) Cash Flows From Financing Activities Issuance of Common Stock 2 -- 2,000 13,050 ================================================= Increase in due to Shareholder 9,091 8,103 17,194 ================================================= Increase in deffered offering costs (17,921) (17,921) ================================================= Net Cash Provided by Financing Activities $ -- (7,818) 12,323 ================================================= Net Increase (Decrease) in Cash $ 132 36 214 Cash at Beginning of Period 82 46 0 Cash at End of Period $ 214 82 214 =================================================
The Accompanying Notes Are An Integral Part of These Financial Statements. Page 3 ADRIATIC HOLDINGS LIMITED (A Development Stage Company) Shareholders' Equity (unaudited) For the Year Ended December 31, 2000
Number of Capital Paid Shares Common In excess of Accumulated Notes Common Stock Par Value Deficit Total ======= ============================================================================== Balance at July 9, 1998 2 -- $ -- $ -- $ -- $ -- July 22, 1998 issue 1,000,000 shares of $0.001 par value common stock for cash at $0.001 per share 1,000,000 $ 1,000 $ -- $ -- $ 1,000 July 22, 1998 issue 50,000 shares of $0.001 par value common stock for services rendered at $0.001 per share 50,000 $ 50 $ -- $ -- $ 50 September 8, 1998 issue 1,000,000 shares of $0.001 par value common stock for cash at $0.01 per share 1,000,000 $ 1,000 $ 9,000 $ -- $ 10,000 Contribution of Capital $ 1,299 $ 1,299 Net (Loss) -- $ -- $ -- $(12,303) $(12,303) ============================================================================== Balance at December 31, 1998 2,050,000 $ 2,050 $10,299 $(12,303) $ 46 ============================================================================== February 1, 1999 issue 40,000 shares of $0.001 par value common stock for cash at $0.05 per share 40,000 $ 40 $ 1,960 $ 2,000 Contributions of Capital $ 1,808 $ 1,808 Net (Loss) -- $ -- $ -- $(11,875) $(11,875) ============================================================================== Balance at December 31, 1999 2,090,000 $ 2,090 $14,067 $(24,178) $ (8,021) ============================================================================== Contribution of Capital $ 900 $ 900 Net (Loss) -- $ -- $ -- $(20,975) $(20,975) ============================================================================== Balance at December 31, 2000 2,090,000 2,090 14,967 (45,153) $(28,096) ==============================================================================
The Accompanying Notes Are An Integral Part of These Financial Statements Page 4 ADRIATIC HOLDINGS LIMITED (A Development Stage Company) Notes to Financial Statements At December 31, 2000 (unaudited) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and business Adriatic Holdings Limited (the "Company") was incorporated in the state of Nevada on July 9, 1998 and is in the development stage. Activities through December 31, 2000 include organization of the Company and the raising of equity capital. The Company plans to become a provider of quality electrical products to the commercial and industrial electrical industry. In the opinion of management all adjustments (which include only normal reccuring adjustments) necessary to present fairly the financial positon, results of operations, cash flows and changes in shareholders' equity at December 31, 2000 and for all periods presented have been made. Cash flows For purposes of reporting cash flows, cash includes those investments which are short-term in nature (three months or less to original maturity), are readily convertible to cash, and represent insignificant risk of changes in value. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments The carrying amounts of cash and current and long term liabilities approximates fair value. Net loss per share of common stock Net loss per share of common stock is based on the weighted average number of shares of common stock outstanding during the period. NOTE 2 - SHAREHOLDERS' EQUITY The Company has the authority to issue 25,000,000 shares of common stock $0.001 par value. The Company issued 1,000,000 shares of common stock to one of its founders for $1,000 and 50,000 shares of common stock to another of its founders for $50 in July, 1998. The Company issued 1,000,000 shares of common stock in connection with an additional private offering for $10,000 in September, 1998. In February 1999 the Company issued 40,000 shares of common stock in connection with an additional private placement offering for $2,000. NOTE 3 - LICENSING AGREEMENT On August 15, 1998, the Company acquired the right to manufacture and distribute an underground electrical junction box. The box patent is owned by J.A. Industries (Canada) Inc.("J.A. Canada). Pursuant to the licensie agreement the Company must pay $5.00 per junction box sold or a minimum fee of $10,000 per year for the life of the license. In connection with the agreement, J.A. Canada agreed not to compete, directly or indirectly, with the Company's marketing or distribution of the junction boxes for a period of twenty-four months. the Company has not yet begun the manufacturing or selling of the junction boxes. Page 5 ADRIATIC HOLDINGS LIMITED (A Development Stage Company) Notes to Financial Statements At December 31, 2000 (unaudited) NOTE 4 - CONTINGENCIES As discussed in Note 3, the Company has the right to manufacture and distribute an underground electrical junction box patented by J.A. Canada. J.A. Canada is currently the defendant in a lawsuit with regards to its product. The statement of claims, among other things, alleges that the Canadian patent issued on the electrical box is invalid. If the plaintiffs are successful in this action, the patent would be declared invalid and would not provide the Company with protection from competition. If the patent is declared invalid, the Company has the option to cancel the licensing agreement without affecting the manufacturing of the product. Currently, the plaintiff in the lawsuit is manufaturing a similar box to the J.A. Canada box. J.A. Canada, through its laywers, threatened litigation with the plaintiffs if they did not cease and desist producing a copy of the J.A. Canada junction box. The plaintiffs took the position that the box did not infringe on the J.A. Canada junction box and initiated the lawsuit to invalidate the patent held by J.A. Canada. It is J.A. Canada's position that in the event the J.A. Canada patent on the junction box is successfully invalidated by the plaintiffs in the lawsuit, then the design of the junction box belongs in the public domain and therefore no patent could be issued to anyone on this specific design. Furthermore, the current plaintiffs would be able to coontinue to manufacture their junction box, whose design would also belong in the public domain. If the patent is declared invalid by the courts, the Company will not assert any exclusive rights to the patent. The Company will be in a position to cancel its licensing agreement with J.A. Canada and will be able to manufacture the junction box using the J.A. Canada design without any recourse from J.A. Canada. As the design will belong to the public domain and no patent will be available on the J.A. junction box design, the Company will or may have to compete directly with other manufacturers of the J.A. Canada junction box design. The Company has suffered recurring losses from operations and has a working capital deficiency of $28,096 that raise substantial doubt about its ability to continue as a going concern. The continuation of the Company as a going concern is dependent upon the Company attaining and maintaining profitable operations and raising additional capital. Management's plans in this regard is to raise additional capital through an equity offering. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company discontinue operations. Page 6 TABLE OF CONTENTS Page ---- Prospectus Summary .................................................... 1 Risk Factors .......................................................... 5 Use of Proceeds ....................................................... 10 Dilution .............................................................. 11 Dividend Policy ....................................................... 12 Capitalization ........................................................ 13 Selected Financial Data ............................................... 14 Management's Discussion and Analysis of Financial Condition or Plan of Operation ............................................... 15 Business .............................................................. 17 Management ............................................................ 20 Certain Transactions .................................................. 23 Principal Stockholders ................................................ 23 Description of Securities ............................................. 24 Market for Common Equity and Related Stockholder Matters ................................................ 26 Shares Eligible for Future Sale Legal Matters ......................................................... 26 Experts ............................................................... 27 Available Information ................................................. 27 Index to Financial Statements ......................................... 28 5,000,000 Shares ADRIATIC HOLDINGS LIMITED Common Stock ----------------- PROSPECTUS ----------------- DATED _________, 2000 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item. 24 Indemnification of Directors and Officers See "Management - Limitation of Liability and Indemnification." Item 25. Other Expenses of Issuance and Distribution The estimated expenses in connection with the distribution of the shares registered hereby, are set forth in the following table: SEC registration fee ................................. $ 132 Legal fees and expenses .............................. $5,000 Accounting fees and expenses ......................... $1,500 Blue Sky fees and expenses ........................... $ 500 Transfer agent fees and expenses ..................... $ 400 Total ........................................... $7,532 Item 26. Recent Sales of Unregistered Securities In September 1998, Adriatic offered 1,000,000 shares of common stock, $0.001 par value, at $0.05 per share. This offering expired without the sale of any shares. In February of 1999, the Company sold a total of 40,000 shares of common stock, $0.001 par value, at $0.05 per share pursuant to Rule 504 of Regulation D of the Securities Act, to 40 investors for a total consideration of $2,000 net of commission and offering costs. The shares were issued as follows: PURCHASER DATE NUMBER OF COMMON SHARES Melanie Lewis 2/1/99 1,000 Frank Perrozzo 2/1/99 1,000 Sherrye Sailes 2/1/99 1,000 Sheyne Almond 2/1/99 1,000 Sheyanne Almond 2/1/99 1,000 Rheece Metcalfe 2/1/99 1,000 Raelyn Metcalfe 2/1/99 1,000 Cathryn Newman 2/1/99 1,000 Gary Newman 2/1/99 1,000 Mitchell Newman 2/1/99 1,000 Nicholas Newman 2/1/99 1,000 Alexander J. Michie 2/1/99 1,000 Nichole P. Michie 2/1/99 1,000 Mathew R.K. Michie 2/1/99 1,000 Carey Linde 2/1/99 1,000 Hans Drunkenmolle 2/1/99 1,000 Pat Michie 2/1/99 1,000 Sandy Michie 2/1/99 1,000 Dene Knight 2/1/99 1,000 Lorraine Knight 2/1/99 1,000 Doug Knight 2/1/99 1,000 Kathy Knight 2/1/99 1,000 Darcy Knight 2/1/99 1,000 Tyler Knight 2/1/99 1,000 Barb McKnight 2/1/99 1,000 Kara McKnight 2/1/99 1,000 Lauren McKnight 2/1/99 1,000 Mike McKnight 2/1/99 1,000 Li Dong 2/1/99 1,000 Sean Dickenson 2/1/99 1,000 Kirsten DeWolfe 2/1/99 1,000 Paul Stark 2/1/99 1,000 Bridgitte Longshore 2/1/99 1,000 Knight Family Trust 2/1/99 3,000 Michael Steele 2/1/99 1,000 Laura Steele 2/1/99 1,000 Jennifer Steele 2/1/99 1,000 Amanda Steele 2/1/99 1,000 In September 1998, Adriatic sold 1,000,000 shares of common stock, $0.001 par value, at $0.01 per share pursuant to Rule 504 of Regulation D of the Securities Act, to 6 investors for a total consideration of $10,000 net of commission and offering costs. The shares were issued as follows: PURCHASER DATE NUMBER OF COMMON SHARES Finneran Investments, Ltd. 9/8/98 175,000 Noble Holdings Corporation 9/8/98 175,000 Tiger-Eye Investments(Cayman) Ltd. 9/8/98 175,000 Huda Limited 9/8/98 175,000 Tamarin Investment Group, Inc. 9/8/98 175,000 Kallur Enterprises Limited 9/8/98 125,000 In July 1998, Adriatic sold 1,000,000 restricted shares of common stock, $0.001 par value, at $0.001 per share to one investor pursuant to Rule 144 of the Securities Act, for a total consideration of $1,000 net of commission and offering costs. The shares were issued as follows: PURCHASER DATE NUMBER OF COMMON SHARES G.M. Capital Partners Ltd. 7/22/98 1,000,000 In July 1998, Adriatic sold 50,000 restricted shares of common stock, $0.001 par value, at $0.001 per share to one investor pursuant to Rule 144 of the Securities Act, for a total consideration of $50 net of commission and offering costs. The shares were issued as follows: PURCHASER DATE NUMBER OF COMMON SHARES Knight Financial Ltd. 7/22/98 50,000 INDEX TO EXHIBITS Item 27. Exhibits Exhibit Number Description of Exhibit - ------ ---------------------- 3.1 Articles of Incorporation 3.2 By-laws 5.1 Opinion of Beckman, Millman & Sanders, L.L.P.** 10.0 Licensing Agreement between Adriatic and J.A. Canada, dated August 15, 1998 21.1 Subsidiaries of the Company (Adriatic has no subsidiaries) 23.1 Consent of Spicer, Jeffries & Co. 24.1 Consent of Beckman, Millman & Sanders, L.L.P. (Included in Exhibit 5.1)** 27.1 Financial Data Schedule for the nine months ended September 30, 1999 27.2 Financial Data Schedule for the period from inception (July 9, 1998) to March 31, 2000 99.1 United States Registration of trademark for J.A. Junction Box 99.2 Canada Registration of trademark for J.A. Junction Box - ---------- ** Previously filed. Item 28. Undertakings Insofar as indemnification for liabilities arising under the Securities 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 Commission such indemnification is against public policy as expressed in the Securities 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, 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 small business issuer hereby undertakes that it will: (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; (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 (iii) include any additional or changed material information on the plan of distribution. (2) For determining any liability under the Securities Act, treat information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (3) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement; and that offering of the securities at that time as the initial bona fide offering of those securities. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, in the City of Bellingham, State of Washington on January 19, 2001. ADRIATIC HOLDINGS LIMITED By: /s/ ROBERT W. KNIGHT --------------------------- Robert W. Knight, President In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated. (Signature) /s/ ROBERT W. KNIGHT ------------------------------- (Title) President, Secretary and Treasurer (Date) January 19, 2001 EX-23.1 2 d24434_ex23-1.txt CONSENT OF INDEPENDENT CPAS We hereby consent to the use in the Adriatic Holdings Limited registration statement, on Form SB-2, of our report dated March 10, 2000, accompanying the financial statements of Adriatic Holdings Limited as of and for the year ended December 31, 1999 and the period from inception (July 9, 1998) through December 31, 1998 which is part of the registration statement and to the reference to us under the heading "Experts" in such registration statement. SPICER, JEFFRIES & CO. Denver, Colorado August 23, 2000 -----END PRIVACY-ENHANCED MESSAGE-----