10-Q 1 doc1.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) {X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2002 { } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _______________ to ____________ Commission file number: 0-29481 RIMPAC RESOURCES LTD. (Exact name of small business issuer as specified in its charter) NEVADA 91-1921379 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3665 RUFFIN ROAD, SUITE 225, SAN DIEGO, CALIFORNIA 92123 (Address of principal executive offices) (866) 568-6266 (Issuer's telephone number) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) State the number of shares outstanding of each of the issuer's classes of common equity, as of the last practicable date: 20,000,000 SHARES OF COMMON STOCK, $0.001 PAR VALUE, AS OF SEPTEMBER 30, 2002 Transitional Small Business Disclosure Format(check one); Yes No X ----- ----- Exhibit index on page 10 Page 1 of 12 pages

RIMPAC RESOURCES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BUSINESS COMBINATION On January 17, 2002, the Rimpac Resources Ltd. ("Rimpac") entered into a share exchange agreement to acquire Internet Loto, Inc. The Company closed its acquisition on Internet Loto, Inc. pursuant to the terms of the share exchange agreement on February 1, 2002. Accordingly, as of February 1, 2002, Internet LOTO, Inc. became a wholly owned subsidiary of Rimpac. Rimpac issued 11,450,000 shares of its common stock to the shareholders of Internet Loto, Inc. and, following the acquisition, there were 20,000,000 shares of common stock of the Company issued and outstanding. The presentation of issued and outstanding shares of common stock previously presented has been changed to reflect this transaction. The transaction has been accounted for in the first quarter of calendar year 2002 as a reverse acquisition. As a result of the reverse acquisition, the operating entity, Internet Loto, Inc. has continued as the operating entity and its historical financial statements have replaced those of Rimpac Resources, Ltd. Internet Loto, Inc. is developing and marketing InternetLOTO.com, the first global internet lottery web portal, where worldwide players may purchase e-tickets for various state and governmental sanctioned lotteries. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation ----------------------- Rimpac has experienced recurring losses, has an accumulated deficit of $1,557,143 and has not yet commenced operations. These factors, among others, raise substantial doubt as to its ability to obtain long-term debt or equity financing to continue its online and offline marketing programs, complete the web portal and, thereby, commence operations and the generation of revenues. During the nine months ended September 30, 2002, management has continued to seek additional capital investment to support its business ventures and provide the capital considered necessary to support operations. Accordingly, the consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities or other adjustments that might be necessary should we be unable to continue in existence. Unaudited Interim Financial Information ------------------------------------------ The accompanying interim consolidated balance sheet as of September 30, 2002 and the consolidated statements of operations and cash flows for the nine-month period ended September 30, 2002, together with the related notes are unaudited and, in the opinion of management, include all normal recurring adjustments that the Company considers necessary. Certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. A more complete description of accounting policies and disclosures is included in the Company's annual report on Form 10-KSB. Principles of Consolidation ----------------------------- The accompanying consolidated financial statements include the accounts of Rimpac and its wholly owned subsidiary, Internet Loto, Inc. (collectively, the "Company"). Income (Loss) Per Common Share ---------------------------------- Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of outstanding common shares during the periods presented. At September 30, 2002, basic income (loss) per share and diluted income (loss) per share are the same amount because the impact of additional common shares that might have been issued under the Company's stock option agreements would be anti-dilutive. RIMPAC RESOURCES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. FIXED ASSETS The Company has paid $125,000 for the development of a gaming engine and $35,000 for a web site through a related party. Since the gaming engine and web site is not fully operational at this point in time the Company has not begun depreciation. Once fully operational the Company anticipates depreciating these assets. 4. CAPITAL STRUCTURE Common Stock ------------- The Company has authorized 50,000,000 of $0.001 par common stock. As of September 30, 2002, 20,000,000 shares were issued and outstanding. 5. RELATED PARTY TRANSACTIONS Advances From Related Parties -------------------------------- As of September 30, 2002, the Company has unpaid stockholder advances of approximately $269,000. Outstanding advances are non-interest bearing and are repayable upon demand. Reverse Acquisition -------------------- Owen Bethel, a director of the Company, controls Amoeba Corporation which received 8,587,500 shares of the Company's stock as part of the reverse acquisition with Internet Loto, Inc. Additionally, during March 2002, the Company entered into a stock options agreement with Mr. Bethel to purchase 200,000 shares of the Company's common stock at $1.00 per share. The options vest over a three-year period, beginning March 27, 2002 and expire three years after option becomes exercisable. As of September 30, 2002, no options had yet been exercised. Additionally, the Company may offer to Mr. Bethel an additional 200,000 shares at $5.00 per share, vested over three years, effective March 27, 2005 to March 26, 2008. Consulting and Stock Option Agreement ----------------------------------------- During April 2002, the Company entered into a consulting and stock option agreement with the Company's Chief Executive Officer ("CEO"). As consideration for services to be rendered, the CEO receives a monthly fee of $15,000 and a stock option agreement to purchase 1,500,000 shares of the Company's common stock at $0.50 per share. The options vest over a three-year period beginning February 6, 2002 and expire three years after option becomes exercisable. As of September 30, 2002, no options had yet been exercised. Additionally, the Company may offer to the CEO an additional 2,000,000, shares at $5.00 per share, vested over three years, effective February 6, 2005 to February 6, 2008. Consulting and Stock Option Agreement ----------------------------------------- During May 2002, the Company entered into one-year agreement with a shareholder to provide consulting services to the Company. As consideration for services to be rendered, the consultant receives a monthly fee of $7,000 and a stock option agreement to purchase 100,000 shares of the Company's common stock at $0.85 per share. Additionally, should cash flow not allow for payment of services, the consultant has the option to accept the Company's common stock as payment valuing the shares at the then current market value of the date of issuance. As of September 30, 2002, approximately $33,000 in fees is unpaid and is included in accrued liabilities in the consolidated balance sheet. The options expire after three years, and vest upon the Company generating revenues of at least $100,000. As of September 30, 2002, no options had yet been exercised. RIMPAC RESOURCES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. LITIGATION There are no significant legal proceedings against the Company with respect to matters arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OVERVIEW Effective February 1, 2002, an arrangement was completed between Rimpac Resources and Internet Loto, whereby the shareholders of Internet Loto exchanged all of their common shares for 11,450,000 shares of Rimpac Resources common stock. Following the acquisition, the former shareholders of Internet Loto held a majority of Rimpac's total issued and outstanding common shares; Internet Loto was thereby deemed to be the acquiror. Accordingly, the transaction has been accounted for as a reverse takeover using the purchase method whereby the assets and liabilities of Rimpac Resources have been recorded at their fair market values and operating results have been included in the financial statements from the effective date of purchase. The fair value of the net assets acquired is equal to their book values. References to the "Company," "us," "our," and "we" means Rimpac Resources and its wholly-owned subsidiary, Internet Loto. RESULTS OF OPERATIONS Since Internet Loto was incorporated on September 19, 2001, there is no comparable period information presented. We incurred net losses of $371,837, $897,518 and $1,246,985 for the three, six and nine months ended September 30, 2002, and a net loss of $1,557,143 for the period from inception to September 30, 2002. We have not yet generated any revenues and are still considered to be in the development stage. We expect to continue to incur operating losses over at least the remainder of the current fiscal year as we continue to develop our business plan through the activities of Internet Loto, Inc. We have been financing our cash flow needs through related party loans, and no assurance can be given that we will be able to continue. In order to achieve revenues and profitability, we will have to raise the capital required by the business plan of operation, and no assurance can be given that we will be able to accomplish this goal or, even if we do, that we will operate profitably in the future. Our results of operations for the three, six and nine months ended September 30, 2002 and for the period from inception through September 30, 2002, are reflective of an operation in its development stage. Management has focused our available resources on the development of the web site and the lottery gaming engine that supports the Internet Loto business plan. Phase I of the development has been successfully started, with the launch of the website (www.InternetLOTO.com) and the completion of the initial module of the lottery engine, but the completion will depend on the availability of investment capital. Upon successful completion of the marketing and licensing portion of Phase I, Internet Loto will be capable of commencing operations and the generation of revenue. Management has financed the growth of Internet Loto to date through loans from management and the debt from its major vendor and affiliate, HI-TEK Multimedia, Inc. ("HI-TEK) Internet Loto retained HI-TEK to design, program, produce and implement the following: A. Design corporate and promotional web sites. B. Design and produce the initial module of the Internet Lottery play engine. C. Research, analyze and develop the preliminary offline and online marketing plan, including designing and producing all supporting marketing and promotional materials (CD-ROM, media kit, web slide presentation and corporate literature). D. Consult with the management of the company on an as needed basis. Management proposes to launch our Internet lottery web portal in strategic phases. Phase I will begin with ticket sales in Vietnam and Mexico, Phase II in Europe, and Phase III in Latin America. Phase IV may be launched in North America if regulations permit. The launching dates will be determined by economic conditions, licensing opportunities, and other factors such as technology and security acceptance. The offices and web sites have been completed in both Vietnam and Mexico, including the implementation of the web sites in their respective languages. Management has also been successful in developing relationships with Internet Cafes in Vietnam to support the launching of the site. To complete the initial launch management needs to raise the additional capital necessary to provide the marketing and advertising essential for profitable operation. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, we had a working capital deficiency of $1,502,894, as compared to a deficiency of $457,072 at December 31, 2001. Of the $1,503,194 in current liabilities at September 30, 2002, $1,418,758 was owed to related parties. HI-TEK has substantially provided the funding for all of Internet Loto's expenses incurred through September 30, 2002. At September 30, 2002, Internet Loto owed $1,149,371 to HI-TEK. Our operations used cash of $267,620 for the nine months ended September 30, 2002, and $1,467 was used for the acquisition of a computer. These uses were offset by $268,387 provided by related parties. PLAN OF OPERATION We have a development strategy for the implementation of Phase I of the plan, but it will require $2,000,000 to complete. To accomplish this goal, we are currently offering convertible debentures in reliance upon the private placement exemption contained in Rule 506 under the Securities Act of 1933. The debentures will accrue interest at the rate of 10% per annum. We will pay the principal and any accrued interest due to the registered holders of the debentures upon maturity, which is one year from the date of issuance. Holders of the debentures are entitled, at any time after the date of issuance, by written notice to us, to elect to convert their debentures into our common stock at a conversion price equal to one share of common stock for each $1.50 of the principal amount of their debenture converted. Any unpaid interest, which has been accrued or is accruing from the date of issuance to the date of conversion will be waived and forgiven by the holder. We have historically financed our operations through working capital provided by related party loans. Our ability to continue our operations is currently dependent on financing from external sources. There can be no assurances that additional capital will be available on terms favorable to us or at all, or that we will be able to generate sufficient cash flow in order to sustain operations. To the extent that additional capital is raised through the sale of additional equity or debt securities, the issuance of such securities could result in additional dilution to our stockholders. In the event that we experience the need for additional capital, and are not able to generate capital from financing sources or from future operations, management may be required to modify, suspend or discontinue our operations and business plan. FORWARD LOOKING STATEMENTS Under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), we caution readers regarding forward looking statements found in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by or on our behalf. We disclaim any obligation to update forward-looking statements. Readers should also understand that under Section 27A(b)(2)(D) of the Securities Act, and Section 21E(b)(2)(D) of the Securities Exchange Act, the "safe harbor" provisions of the PSLRA do not apply to statements made in connection with an initial public offering. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS REGULATION SEQUENTIAL S-B NUMBER EXHIBIT PAGE NUMBER 2.1 Share Exchange Agreement by and between Rimpac N/A Resources Ltd. and the shareholders of Internet Loto, Inc. dated as of January 17, 2002 (1) 3.1 Articles of Incorporation (2) N/A 3.2 Bylaws (2) N/A 10.1 Service Contract Agreement between HI-TEK Multimedia, N/A Inc. and Internet LOTO, Inc. dated October 5, 2001 (3) 10.2 Marketing & Production Services Retainer Agreement N/A between HI-TEK Multimedia, Inc. and Internet LOTO, Inc. dated January 2, 2002 (3) 10.3 Stock Options Agreement between Owen Bethel and Rimpac N/A Resources Ltd. Dated March 27, 2002 (3) 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as 12 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ---------------------------- (1) Incorporated by reference to the exhibits to the registrant's current report on Form 8-K dated February 1, 2002, file number 0-29481. (2) Incorporated by reference to the exhibits to the registrant's current report on Form 8-K dated August 21, 2002 file number 0-29481. (3) Incorporated by reference to the exhibits to the registrant's registration statement on Form 10-SB, file number 0-29481. (4) Incorporated by reference to the exhibits to the registrant's annual report on Form 10-KSB for the fiscal year ended December 31, 2001, file number 0-29481. B) REPORTS ON FORM 8-K: On August 12, 2002 the registrant filed an amended Form 8-K disclosing, under Items 1, 2, and 5, the registrant's acquisition of Internet LOTO. Historical audited financial statements of Internet LOTO and pro forma financial statements were filed in this amendment. On August 21, 2002 the registrant filed a Form 8-K disclosing, under Items 4, changes in the registrant's certifying accountant. The registrant disclosed the resignation of Siegel Smith, LLP as independent auditors as of August 20, 2002. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIMPAC RESOURCES LTD. (Registrant) Date: November 19, 2002 By: /s/ THOMAS M. JOHNSON ------------------------ ---------------------------------------- Thomas M. Johnson, President (Principal Financial and Accounting Officer)

RIMPAC RESOURCES LTD/NM 10-Q