UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[ X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2001
[ ] Transition Report pursuant to 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period ---------- to
Commission File Number 000-27621
---------
PETAPEER HOLDINGS INC.
(Exact name of small Business Issuer as specified in its charter)
Florida 95-4720231
------------------------------------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2300 W. Sahara, Ave., Suite 500
Las Vegas, Nevada 89102
------------------------------------ -----
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number,
including area code: 514-830-4474
------------------------------------ ------------
(Former name, former address and former fiscal year, if changed since
last report)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 9,668,224 Shares of Common Stock
outstanding as of September 30, 2001.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and Item 310 (b) of Regulation S-B, and,
therefore, do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered necessary
for a fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Operating results for the three months and for the nine months ended September
30, 2001 are not necessarily indicative of the results that can be expected for
the year ending December 31, 2001.
2
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Stated in U.S. Dollars)
SEPTEMBER 30 DECEMBER 31
2001 2000
-------------- -------------
ASSETS
Current
Cash $ 3,457 $ -
Subscriptions receivable 1,333 1,333
Accounts receivable 887 -
Prepaid expenses 16,750 -
-------------- -------------
22,427 1,333
Capital Assets, net of depreciation (Note 4) 4,670 -
Technology Costs, net of amortization 28,797 -
-------------- -------------
$ 55,894 $ 1,333
============== =============
LIABILITIES
Current
Accounts payable and accrued liabilities $ 210,857 $ 3,384
Note payable 79,222 -
Due to related company (Note 8(a)) 23,756 -
Loan payable 20,200 -
Due to director (Note 8(c)) 117,818 -
-------------- -------------
451,853 3,384
-------------- -------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock
50,000,000 shares authorized at $0.001 par value
8,500,000 shares issued and outstanding 8,500 8,500
Paid-In Capital (Deficiency) (7,167) (7,167)
Common Stock Subscribed (Note 7(b)) 231,731 -
Deficit Accumulated During The Development Stage (629,023) (3,384)
-------------- -------------
Total Stockholders' Equity (Deficiency) (395,959) (2,051)
-------------- -------------
$ 55,894 $ 1,333
============== =============
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Stated in U.S. Dollars)
PERIOD FROM
THREE NINE INCEPTION
MONTHS MONTHS NOVEMBER 30
ENDED ENDED 2000 TO
SEPTEM SEPTEM
-BER 30 -BER 30 SEPTEMBER 30
2001 2001 2001
----------- ----------- ----------
Revenues $ - $ - $ -
Expenses
Accounting $ 5,757 $ 12,929 $ 12,929
Amortization 5,517 12,393 12,393
Legal 7,666 122,047 122,694
Travel 2,011 26,473 29,192
Marketing - 18,297 18,297
Computer expense 46,322 82,097 82,097
Office and sundry 2,746 13,237 13,255
Interest expense 1,598 3,178 3,178
Salaries and benefits 95,330 161,170 161,170
Bank charges and foreign exchange (1,400) 2,272 2,272
Advertising expense - 2,000 2,000
Investor relations 25,374 39,049 39,049
Transfer agent 2,920 2,920 2,920
----------- ----------- ----------
Net Loss $ (193,841) $ (498,062) $(501,446)
============================================= =========== =========== ==========
Net Loss Per Share $ (0.02) $ (0.06)
============================================= =========== ===========
Weighted Average Number Of Shares Outstanding 8,500,000 8,500,000
============================================= =========== ===========
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Stated in U.S. Dollars)
PERIOD FROM
THREE NINE INCEPTION
MONTHS MONTHS NOVEMBER 30
ENDED ENDED 2000 TO
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
2001 2001 2001
-------------- -------------- --------------
Cash Flows From Operating Activities
Net loss for the period $ (193,841) $ (498,062) $ (501,446)
Adjustment To Reconcile Loss To Net Cash Used By
Operating Activities
Amortization 5,517 12,393 12,393
Increase in due to related company 15,390 23,756 23,756
Increase in subscriptions receivable - - (1,333)
Increase in accounts payable and accrued
liabilities 24,107 158,050 162,502
Increase in accounts receivable (234) (887) (887)
Increase in prepaid expenses (6,750) (16,750) (16,750)
-------------- -------------- --------------
(155,811) (321,500) (321,765)
-------------- -------------- --------------
Cash Flows From Investing Activities
Technology costs - (40,655) (40,655)
Capital assets (1,609) (5,205) (5,205)
-------------- -------------- --------------
(1,609) (45,860) (45,860)
-------------- -------------- --------------
Cash Flows From Financing Activities
Share capital - - 1,333
Share subscription 10,000 231,731 231,731
Loan payable 20,200 20,200 20,200
Due to director 117,818 117,818 117,818
-------------- -------------- --------------
148,018 369,749 371,082
-------------- -------------- --------------
Increase (Decrease) In Cash (9,402) 2,389 3,457
Cash, Beginning Of Period 12,859 1,068 -
-------------- -------------- --------------
Cash, End Of Period $ 3,457 $ 3,457 $ 3,457
===================================================================== ============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the nine month period ended September 30, 2001, the Company issued
1,168,224 common shares in satisfaction of debt totaling $1,000,000 to its
subsidiary. The amount was subsequently eliminated at consolidation.
PETAPEER HOLDINGS, INC.
(Formerly Ebux, Inc.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
COMMON STOCK
----------------------------------------------
NUMBER ADDITIONAL
OF PAID-IN
SHARES AMOUNT CAPITAL SUBSCRIBED DEFICIT
------------ -------- --------- ----------- ----------
Issuance of common stock 20,000,000 $ 1,333 $ - $ - $
-
Net loss from date of incorporation, November 30, 2000
to December 31, 2000 - - - - (3,384)
------------ -------- --------- ----------- ----------
Balance, December 31, 2000 20,000,000 1,333 - - (3,384)
Adjustment to number of shares issued and outstanding
as a result of the reverse take-over transaction
3838421 Canada Inc. (20,000,000) (1,333) - - -
EBUX, Inc. 8,500,000 8,500 (7,167) - -
Net asset deficiency of EBUX, Inc. at date of reverse
take-over transaction - - - - (127,577)
Net loss for the period - - - - (79,916)
------------ -------- --------- ----------- ----------
Balance, March 31, 2001 8,500,000 8,500 (7,167) - (210,877)
Common stock subscribed - - - 221,731 -
Net loss for the period - - - - (224,305)
------------ -------- --------- ----------- ----------
Balance, June 30, 2001 8,500,000 8,500 (7,167) 221,731 (435,182)
Common stock subscribed - - - 10,000 -
Net loss for the period - -
------------ -------- --------- ----------- ----------
Balance, September 30, 2001 8,500,000 $ 8,500 $ (7,167) $ 231,731 $(629,023)
============ ======== ========= =========== ==========
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of September 30, 2001
included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. It is suggested that
these consolidated financial statements be read in conjunction with the December
31, 2000 audited consolidated financial statements and notes thereto.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation
These financial statements include the accounts of the Company, incorporated in
Florida, and NetworthEurope.com S.A., incorporated in Luxembourg, and 3838421
Canada Inc., a company incorporated in Canada (Note 3).
b) Foreign Currency Translation
The Company's principal operations are located in Canada and its functional
currency is the Canadian dollar. The financial statements of the Canadian
subsidiary have been translated at the period end exchange rate, capital
accounts at the historical exchange rate, and revenues and expenses at the
average exchange rate for the period. Adjustments arising from the translation
of the Company's subsidiary's financial statements are included as a separate
component of shareholders' equity.
c) Capital Assets
Capital assets are comprised of computer software and computer hardware which
are recorded at cost and depreciated over their estimated useful lives as
follows: computer software - three years; computer hardware - three years.
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Capitalized Costs
Costs for developing computer software are capitalized when technological
feasibility has been established for the computer software product.
Capitalization of computer software costs will be discontinued when the product
is available for general release to customers and such costs are amortized on a
straight line basis over two years. At each balance sheet date, the unamortized
capitalized costs of a computer software product shall be compared to the net
realizable value of that product. The amount by which the unamortized
capitalized costs of a computer software product exceed the net realizable value
of that asset shall be written off.
The costs incurred in the design, configuration, coding, installation and
testing of the Company's website up to its initial implementation are
capitalized and amortized on a straight line basis over two years.
Ongoing website post-implementation costs of operation, including training and
application maintenance, will be charged to expense as incurred.
e) Revenue Recognition
The Company will generate revenue from registration fees for users who wish to
upgrade or obtain additional functionalities made available by the Company on an
ongoing basis. Revenue will be recognized as received.
f) Loss Per Share
The loss per share is calculated using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is not shown
as the effect is anti-dilutive.
3. ACQUISITION
Effective February 22, 2001, the Company:
i) acquired the worldwide rights to a software application (known as
Gnotella) for consideration of $1,000,000 payable to the vendor, 3838421 Canada
Inc. (Note 7(a));
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
3. ACQUISITION (Continued)
ii) granted warrants to 3838421 Canada Inc. to acquire 13, 300,000 common
voting shares of the Company. The warrants have no expiry date and are
exercisable at a price of $1.625 per share. At June 30, 2001, no warrants have
been exercised;
iii) granted warrants to the shareholders of 3838421 Canada Inc. to acquire
6,700,000 common voting shares of EBUX, Inc. (the "Company"). Effective the
same date, a director of 3838421 Canada Inc. was appointed as sole director of
the Company. At June 30, 2001, no warrants have been exercised.
Since the above transactions and the board appointment result in the
shareholders of 3838421 Canada Inc. acquiring control of EBUX, Inc., the
transaction, which is referred to as a "reverse take-over", has been treated for
accounting purposes as an acquisition by 3838421 Canada Inc. of the net assets
and liabilities of EBUX, Inc. Under this purchase method of accounting, the
results of operations of EBUX, Inc. are included in the combined financial
statements from February 22, 2001.
The reverse acquisition was a reorganization and recapitalization of a private
operating company with a public shell in which no goodwill or other intangibles
were recorded as part of the transaction. At February 22, 2001, EBUX, Inc. had
a net asset deficiency of $127,577, therefore, on the granting of the warrants
to acquire 13,300,000 common shares of EBUX, Inc., the net asset deficiency of
$127,577 was charged to deficit. 3838421 Canada Inc. is deemed to be the
purchaser for accounting purposes.
Accordingly, its net assets are included in the balance sheet at their
previously recorded amounts. The acquisition is summarized as follows:
Current Assets
Cash $512
----------
Current Liabilities
Accounts payable 48,867
Note payable 79,222
128,089
----------
Net Asset Deficiency $(127,577)
==========
All inter-company balances and transactions have been eliminated on
consolidation, including the transfer of the software license rights referred to
in (i) above.
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
4. CAPITAL ASSETS (Continued)
SEPTEMBER 30 DECEMBER 31
2001 2000
----------------------------------- -----------
Accumulated Net Book Net Book
Cost Depreciation Value Value
------ ------------- -------- -----------
Computer software $2,883 $ 320 $ 2,563 $ -
Computer hardware 2,322 215 2,107 -
------ ------------- -------- -----------
$5,205 $ 535 $ 4,670 $ -
====== ============= ======== ===========
5. COMMITMENTS
i) Pursuant to the acquisition to acquire the software rights (Note 3), the
Company will enter into employment contracts with certain directors and
officers.
ii) Pursuant to the acquisition agreement, the Company may issue 1,000,000
common shares to certain minority shareholders of companies affiliated with the
vendor in exchange for their shareholdings in those companies.
iii) The Company is required to pay a license fee equivalent to 20% of
revenue earned from the Gnotella software, plus 10% of financing proceeds to a
company with directors in common with the Company and 3838421 Canada Inc. The
amount is payable on a quarterly basis.
6. SHARE PURCHASE WARRANTS
The Company issued 6,700,000 share purchase warrants to certain directors and
officers of 3838421 Canada Inc. at a price of $1.625 per share. The warrants
have no expiry date. No compensation expense has been recorded on the granting
of these warrants as the exercise price of each warrant equals the fair value of
the underlying common stock as of the grant date (A.P.B. Opinion No. 25).
If compensation expense had been recorded as calculated in accordance with
F.A.S. No. 123, the Company's loss and loss per share for the nine month period
to September 30, 2001 would have been increased as indicated below.
Loss $ 4,139,866
Loss per share $ 0.45
PETAPEER HOLDINGS, INC.
(Formerly EBUX, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Stated in U.S. Dollars)
6. SHARE PURCHASE WARRANTS (Continued)
The calculation is based upon the Black-Scholes pricing model with the following
assumptions; dividend yield, Nil percent for all years; expected volatility of
152%; risk free interest rate of 5.25%, and expected life of two years.
7. SHARE CAPITAL
a) On April 16, 2001, the Company issued 1,168,224 common shares at a price
of $0.856 per share to 3838441 Canada Inc., the Company's subsidiary, in
satisfaction of the debt of $1,000,000 (Note 3(i)). This transaction was
subsequently eliminated at consolidation.
b) By a private offering memorandum, dated April 16, 2001, the Company
intends to raise up to $2,000,000 by way of private placement. The Company will
issue up to 2,851,604 common shares at a price of $0.70136 per share, and
warrants entitling the holder to purchase one common share for each warrant held
at a price of $0.70136 per share for a one year period.
As at September 30, 2001, $231,731 has been received by way of subscriptions.
8. RELATED PARTY TRANSACTIONS
a) Amounts due to a company related by way of common directors are interest
free, unsecured and have no specified terms of repayment.
b) 3838421 Canada Inc. entered into a technology license agreement, dated
November 30, 2000, with a private company with common directors, whereby it
acquired the rights to the technology subsequently transferred and assigned to
EBUX, Inc. on February 22, 2001.
Under the terms of the agreement dated November 30, 2000, 3838421 Canada Inc.
undertook to pay as consideration, 20% of revenue and 10% of financing receipts
to the private company (excluding the financing proceeds referred to in the
agreement of February 22, 2000).
c) Amount due to a director is interest free, unsecured and has no specified
terms of repayment.
Item 2. Management's Discussion and Analysis or Plan of Operations
Plan of Operations
Our principal asset is a license to use and commercialise the client software
known as "Gnotella" ("Gnotella"). Our business plan calls for the continued
development of upgrades to Gnotella and the establishment of a broad user base
for the software. Gnotella version 0.9.9 was released on March 2, 2001.
Gnotella version 1.0 was released on July 26, 2001. Between its release date
and the release date of version 1.0, version 0.9.9 was downloaded 2,626,674
times. From its release date on July 26, 2001, through September 31, 2001,
version 1.0 was downloaded 1,647,076 times directly from the Gnotella.com
website . Since the time of its inception in mid-2000, there have been
approximately 5.3 million downloads of Gnotella. There were 4,647,231 page
views of the http://Gnotella.com website during September, 2001. Gnotella is
currently in its 27th week on Cnet's Download.com "Most Popular" list.
All of the foregoing figures exclude the numbers compiled by other mirror Web
sites providing downloads of the software external to http://Gnotella.com.
There are at least 15 mirror Web sites from which Gnotella can be obtained. As
the exact number of such mirror sites is unknown, the number of downloads from
these sites cannot be ascertained. There are at this time more than 30 Web sites
devoted to peer-to-peer computing which refer or point to http://Gnotella.com.
There have been downloads of Gnotella from users on five continents, in at least
130 countries of which we are aware at this time, with a strong interest in
Europe and South America.
To date, we have provided the software free of charge. Management believes that
providing Gnotella free of charge is instrumental in developing a committed user
base. Once our user base is in place to the satisfaction of management, we will
begin charging for Gnotella upgrades and deluxe features. Given the significant
volume of traffic to our site, management also believes our site will be
attractive to outside advertisers. The first third party advertisements were
posted to our site on July 26, 2001. However, to date, revenue from advertisers
is negligible when compared to the overall cash needs of the Company.
Though operating revenues commenced with the initiation of advertising revenues
on July 26, 2001, and charges for software upgrades and deluxe features will
commence sometime in the future, it is impossible at this time to predict when
operating revenues will become significant when compared to the operating
expenses of the Company. At September 30, 2001, the Company had cash totalling
$3,457. Accordingly, funds obtained through the sale of equity capital are
being used to fund the day to day operations of the Company.
On April 16, 2001, the Company commenced a private placement of shares at a
price of $0.70136 per share. As of September 30, 2001, $231,731 had been raised
under this placement. Management is not confident that additional money can be
raised under this offering given the current public market price of the
Company's stock. Management is therefore under the necessity of making
alternative arrangements for the sale of equity funding. We believe that it
will require $1,000,000 to fund the operations of the Company for the next 12
months. There can be no guarantee the funding will be received. We have three
employees at the present time. We expect to hire two to four more employees
over the next 12 months.
Petapeer recently entered into two business transactions that, if fully
consummated, may have a
3
material impact upon our continuing operations. First, in early November,
Petapeer executed a letter of intent with Clarity Incentive Systems, to
establish a mutually exclusive relationship whereby the two companies will
jointly develop and market a proprietary rewards platform that brings together
highly involved participants and industry leading suppliers. Clarity Incentive
Systems develops electronic payment applications and processes payment
transactions for emerging and specialized markets. The establishment of this
relationship will assist us in developing an effective revenue model.
Additionally, in late October, Petapeer executed a memorandum of understanding
with Strato Productions (2001) Inc. for the purchase by Petapeer of the shares
of Strato, a private company that owns an established record label and recording
studio. The memorandum of understanding is subject to a definitive agreement to
be negotiated between the parties and a due diligence review to be performed by
the companies' respective counsel within the coming weeks. If this acquisition
comes to fruition, it may broaden our ability to bring new artists together with
our existing user base and thereby enhance any future revenue model developed.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, the Company will make written and oral forward-looking
statements about matters that involve risk and uncertainties that could cause
actual results to differ materially from projected results. Important factors
that could cause actual results to differ materially include, among others:
- The Company will obtain funding sufficient to execute its business plan.
- The Company will eventually achieve revenues from upgrades to the client
software known as "Gnotella", as well as from the transactions described
in the two paragraphs immediately preceding this section, sufficient
to sustain the operations of the Company.
- Internet service providers will continue to support peer-to-peer
initiatives.
- Bandwidth cost to its users will not increase to such extent that Gnotella
loses commercial viability.
- The Company will be successful competing in a competitive market.
- The Company will be able to respond in an adequate manner to any
unforeseen technological changes.
- The Company's key personnel will remain with the Company.
- The use of Gnotella will not be unduly restrained by governmental or legal
action.
Many of these factors are beyond the Company's ability to control and predict.
Investors are cautioned not to place undue reliance on forward-looking
statements. The Company disclaims any intent or obligation to update its
forward-looking statements, whether as a result of receiving new information,
the occurrence of future events, or otherwise.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
4
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99.1 Risk Factors
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorised.
PETAPEER HOLDINGS INC.
Date November 14, 2001
By: /s/ Stephane Chouinard
--------------------------
Stephane Chouinard, CEO
5