10SB12G/A 1 maxim10sbamen1104.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB (AMENDED) GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under Section 12(b) or (g) of the Securities Exchange Act of 1934 MAXIMUM AWARDS, INC. f/k/a Rising Fortune Incorporated (Name of Small Business Issuer in its charter) Nevada 86-0787790 ------------------------------ ---------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Level 1, 164 Wharf Street, Brisbane, Queensland 4000, Australia Address of principal executive offices) Issuer's telephone number: 61 738 312316 Securities to be registered under section 12(b) of the Act: Title of Each Class Name on each exchange on which to be so registered each class is to be registered _________________________________________________________________ _________________________________________________________________ Securities to be registered under section 12(g) of the Act: Common Stock, $0.001 par value per share, 100,000,000 shares authorized, 25,072,950 issued and outstanding as of October 31, 2004. Part I Item 1. Description of Business A. Business Development 1. Form and Year of Organization Maximum Rewards, Inc., is a Nevada corporation. The company was incorporated on March 7, 1995 under the name Rising Fortune Incorporated. 2. Any bankruptcy, receivership or similar proceedings The company has experienced no bankruptcy, receivership or similar proceeding. 3. Material reclassifications, mergers, consolidations, or purchases of sales of assets a. The Maximum Awards Pty Ltd Transaction On December 9, 2003, the company acquired 100% of the outstanding shares of Maximum Awards Pty Ltd, an Australian company, engaged in the business of operating a consumer rewards program in exchange for 22,000,000 common shares and 1,000,000 preferred shares of the Company. In anticipation of this transaction the company's articles of incorporation were amended on November 19, 2003 to change the name of the company to Maximum Awards, Inc. At the same time the company's articles with regard to its capital stock were amended to authorize 110,000,000 shares of capital stock, 100,000,000 shares of which are common stock with a par value of $0.001 per share and 10,000,000 shares of preferred stock with a par value of $0.001 per share. The shares of common were given the right to elect directors and vote on all other corporate matters which come before the shareholders. The preferred shares were given rights to be granted by the company's board of directors. The board of directors then granted each share of preferred stock voting rights equal to 50 votes of each share of common stock on all matters to be voted upon by the shareholders. The board also determined that preferred shares shall be non-participating and shall not be entitled to share in any dividends or in any proceeds on the liquidation of the company. The acquisition of Maximum Awards Ltd resulted in a change of control of the company and was accounted for as a recapitalization of Maximum Awards Pty Ltd. The business of Maximum Awards Pty Ltd is now the business of the company. b. The Travel Easy and Global Business Group Transaction On June 1, 2004, the company acquired 100% of the issued and outstanding shares of Travel Easy Holidays Pty Ltd ("Travel Easy") and Global Business Group PTY LTD ("Global Business"). These corporations are involved in the travel industry and mailorder industries and were acquired to add to the company's rewards program operations by providing an in-house travel agency and consumer products retailer. 2 Travel Easy is an Australian proprietary limited corporation. Travel Easy was organized under the law of the Province of Queensland, Australia on July 19, 2002. Travel Easy is engaged in the business of providing travel agent services and its operations are located in the company's offices in Brisbane, Queensland, Australia. Prior to June 1, 2004, Travel Easy was owned by Maxwell Thomas, the company's chief executive officer and Michael Sullivan, a director of the company. Mr. Thomas owned 60% of Travel Easy and Mr. Sullivan owned 40%. Under terms of the acquisition agreement between the company and Mr. Thomas, the company acquired Travel Easy for $1.00 Australian. Travel Easy now is a wholly-owned subsidiary of the company. Global Business also is an Australian proprietary limited corporation. Global Business was organized under the law of the Province of Queensland, Australia in June 2003. Global Business does business under the name Easy Shopper Direct "Easy Shopper" and is engaged in the business of selling consumer goods on-line and through published catalogs and its operations are located in the company's offices in Brisbane, Queensland, Australia. Prior to June 1, 2004, Global Business was owned by Maxwell Thomas, the company's chief executive officer and Michael Sullivan, a director of the company. Mr. Thomas owned 60% of Global Business and Mr. Sullivan owned 40%. Under terms of the acquisition agreement between the company and Mr. Thomas, the company acquired Global Business for $1.00 Australian. Global Business now is a wholly-owned subsidiary of the company. B. Business of Issuer (1) Principal Products and Services and Principal Markets. The Company has three separate operations which work in unison, but are managed as stand alone businesses. a) Rewards Program The company currently operates a consumer rewards program known as Maximum Awards. Under this program, consumers earn points by purchasing products and services from a range of products and services offered by the Company and its program partners. Accumulated points then can be redeemed in order to acquire additional desired products or services from the same list of such items offered by the company. The company operates its program in Australia and has done so since October 2002. Prior to June 2004, the company charged consumers a membership fee for a one-year membership in the company's program. The company had planned to charge annual membership fees to consumers who desired to maintain membership in the program beyond any one year. However, in June 2004, the company changed its program and now no longer charges a membership fee to consumers participating in the program. Consumers are allowed to sign up for membership for free. Any member of the public can become a consumer member of the company's loyalty program. Consumers can register by calling the company's service center. Once a consumer becomes a member, the consumer maintains membership status as long a consumer uses the program at least once every year. As of August, 2004, the company has approximately 5,000 members. 3 As the consumer member purchases products or services from participating merchant members, the consumer member accumulates points in the company's program. Accumulated points have an underlying monetary value which can be used by the consumer member to purchase products such as consumer goods, air travel or vacation packages. At this point in time, the company's program is operated only in Australia and the dollar values discussed in connection with the program are in Australian dollars. Members who purchase products or services from program participating merchants earn points for every dollar that the member spends. Points are awarded based on type of service or product purchased. The number of points awarded per dollar spent will vary from merchant to merchant. For example, a member purchasing a television using a program participating merchant might earn one point for every dollar the television costs. Those points are assigned a value of $0.01 per point. Purchasing a $500 television would then earn the member 500 points with a value of $5.00. In this example the merchant awards 1 point for every dollar spent. Different merchants will award different points per dollar spent. However, the monetary value assigned to the point always is the same. That monetary value is $0.01 per point. As a member purchases products or services, the merchant member notes the transaction and on a monthly basis reports the same to the company. The company then invoices the merchant member for the dollar value associated with the points the consumer earned from the purchase, plus a percentage of that dollar value which is the company's commission for its services under the program. The company also tracks the total points earned by each member. When the merchant member pays the invoice, the company retains the added fraction amount for the company's expenses and profit. The balance of the funds received, the dollar value associated with the points earned by the consumer member, is transferred to Neil Hope, an attorney licensed to practice law in Queensland, where the funds are place in escrow pending the consumer member's redemption of the points earned. As of September 1, 2004, there was a balance of $2,200 in the escrow account. A member can redeem earned points to purchase desired goods or services listed in an associated company's catalog of available products and services. Easy Shopper (part of Global Business Group) maintains a catalog of available goods and services which a member can obtain though a redemption of points. In addition, the Company's travel agency, Travel Easy, can be used by members to redeem their points for airline tickets or travel packages booked by the travel agent. Points may be redeemed on accommodation, car hire, cruises, travel packages and even travel insurance. There are no blackout periods on air travel and availability of seats is the true availability - not artificial program restrictions imposed by the airlines to protect their yield-per-seat figures. Maximum Awards also allows part-payment of redemption flights and travel products with cash. Points can be redeemed on a wide range of household products and virtually any travel product available in the marketplace - and not just limited to frequent flyer seats. Members may redeem those points on an array of household goods, certain services and on travel products available in the market. Points do not expire while the member remains active in the program and they may also be transferred to other members. 4 To remain active, a consumer member must make at least one purchase of goods or services of points within a twelve month period. If no purchase is made in that time frame, points are forfeited and funds accumulated for the monetary value of the points are transferred from the escrow to the company. The company intends to attract participating merchants by offering such merchants access to the company's base of member consumers. As of August 2004, the company has entered into relationships with three participating merchants. Those merchants are: - Primus Telecom - Mortgage Awards, Pty, Ltd. - Post Master Letter Boxes, Pty, Ltd. Primus Telecom is an Australian telecommunications company that provides international and long distance telephone services to the general public throughout Australia. Under the terms of the company's agreement with Primus Telecom, the company's consumer members who use Primus service earn three points in the company's program for every dollar such consumers spend on their international and long distance service provided by Primus. Once a consumer member who uses Primus' services is identified, Primus reports the member's dollar usage of Primus services to the company. The company then credits the member's account for the applicable number of points and invoices Primus for the dollar value of the points. Mortgage Awards is a mortgage company located in Sydney, New South Wales Australia. Mortgage Awards provides financing to purchasers of residential property. Consumer members who utilize the financing services offered by Mortgage Awards are awarded a lump sum of points based upon the dollar value of the loan such consumer members obtain. And again, the company invoices Mortgage Awards for the dollar value of the points the member earns for the services provided by Mortgage Awards. Post Master Letter Boxes is a manufacturer and wholesaler of Letter Boxes in Australia. Such letter boxes then are sold to the public by retailers purchasing the letter boxes from Post Master Letter Boxes. Such retailers who are consumer members earn points in the company's program for each letter box the retailer purchases from Post Master Letter Boxes. Following the pattern detailed above, the company invoices Post Master Letter Boxes for the dollar value of the points the retailers who are consumer members earn. A member can redeem accumulated points for products or services provided by any of the company's merchant members. Members can access their current points tally at any time through the company's call centre. In addition to the above participating merchants, the Company has also enrolled its subsidiaries, Travel Easy, and Easy Shopper into the program. Travel Easy Holidays is a wholly owned subsidiary of the company. Travel Easy is a travel agency which provides travel agency services to its clients, most of which are located in Australia. Under the terms of the company's agreement with Travel Easy, the company's consumer members who use 5 Travel Easy services earn three points in the company's program for every dollar such consumers spend on travel purchased from Travel Easy. Travel Easy, like Primus, reports the member's dollar usage to the company. The company then credits the members account for the applicable number of points and invoices Travel Easy for the dollar value of the points. Easy Shopper also is a wholly owned subsidiary of the company. Easy Shopper is an internet-based supplier of consumer goods. The company's members can purchase consumers goods from Easy Shopper and earn up to ten points for every dollar spent on goods purchased from Easy Shopper. And as with Primus Telecom and Travel Easy, the company invoices Easy Shopper for the dollar value of the point the member earns. While the Maximum Awards system is Internet-based, the company also operates a Call Centre out of its offices in Brisbane. The Call Centre staff answer member questions and facilitate member points purchases. The company uses commercial systems that have technological support available. The operational system is based in a Sun Microsystems Solaris unit, run on UNIX. The website code is written in the PHP format and servers are PC-based, as are firewalls and back-up systems. Accounting and management work stations are Hewlett-Packard pavilion computers. The Call Centre computers are IBM PCs while the telephone system is NEC PABX. Six full-time staff operate the Call Centre. The company's web address is www.maximumawards.com which links to Global Business's web site, www.easyshopperdirect.com, where members are able to purchase goods. The benefit of the company's program to consumer members is the reward of points for being loyal to merchant members. The benefit to merchant members is an increased usage of products and services by consumer members. The company earns a profit on its program by adding a margin of profit to the dollar value of points for which merchant members are invoiced. b) Travel Agency. The Company operates a licensed travel agency out of the Brisbane Office. The travel agency is registered with IATA and is linked into the worldwide SABRE reservation system. The agency is able to make and update reservation from it offices and has ticketing facilities for most airlines. All of the agency's revenue is generated from within Australia, where the agency earns commission income from reservations booked for air travel, car hire, hotel reservations, holiday packages and travel insurance. Members who participate in the Maximum Awards rewards program are encouraged to make use of Travel Easy for their travel requirements through the reward program incentives. Members can earn three points for every dollar spent on travel. Like the other program merchants, points earned by members are credited to the members accounts, and the underlying value of points purchased is transferred to the escrow account. 6 c) Online Mail Order Easy Shopper (part of Global Business Group) is also a wholly owned subsidiary of the company. Easy Shopper is an internet-based supplier of consumer goods. The company's members can purchase consumers goods from Easy Shopper and earn ten points for every dollar spent on goods purchased from Easy Shopper. And as with Primus Telecom and Travel Easy, the company invoices Easy Shopper for the dollar value of the point the member earns. (3) Competition The company faces substantial competition from the loyalty programs offered by retailers, credit card companies, hotel groups and airlines. Retailers in Australia offer loyalty programs to their customers. One such retailer is Colesmyer which operates its "FlyBuys" point program. Under that program every time one of its participating customers shows the customer's FlyBuys card and spends a minimum of $5.00 at any participating FlyBuys business, the customer earns FlyBuys points. Once the customer has earned enough points, the customer can redeem or exchange those points for a FlyBuys awards. Many credit card companies also offer point programs for cardholders. And for years airlines have offered frequent flyer type programs to passengers. Such programs are run by corporations with substantially greater resources and experience than the company possess. (4) Marketing The company markets its product to both merchants/suppliers as well as consumers. At present the company's marketing is limited to word of mouth from consumer member and advertising via the company's website. In the future the company intends to utilize many different approaches, including point of sale materials, joint mailouts using merchants data-bases, merchant awareness, news bulletins to members, media interviews, media and radio advertising and graphically targeted letterbox drops and mailouts. Marketing to corporate users of the product will be done through selective mailouts and cold calls to corporate executives. (5) Research and Development The company incurred research and development costs through December 31, 2003 amounting to $100,691. Such expenses included internet development, salaries, advertising and travel. Such expenses are passed on to the company's merchant members. Such members pay for such expenses when the company adds a margin of profit to the dollar value of points for which merchant members are invoiced. (6) Dependence on one or a few major customers The Company and its subsidiaries are not dependent on any single group or entity for its profitability, although the expansion of the membership in Maximum awards is critical to the Company's long term success, as the income of the Company and its subsidiaries (Easy Shopper and Travel Easy) is derived from the membership. The company currently has three independent merchant members who pay the company for points which consumer members accumulate. In addition, members can acquire points by using the services of the Company's sunsidiaries, 7 Travel Easy and Easy Shopper. The company is in the process of expanding its merchant base and plans to enroll at least 25 new merchant members by December 2005. The failure of the company to expand its base of merchant members likely will result in the failure of the company as a going concern. (7) Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including duration The company has no patents, trademarks, franchises, concessions, royalty agreements or labor contracts. The only licenses the company has obtained are those normally associated with computer software. (8) Need for any government approval of principal products or services. The company's loyalty program does not require any governmental approval. (9) Effect of existing or probable governmental regulations on the business Generally, the company's business is subject to no more governmental regulation than any other business might be. That is, the company is required to obtain business licenses from the city government in which the company operates in Australia and must file annual lists of its officer and directors with the state of Nevada, the company's state of incorporation. The company wholly-owned travel agent subsidiary, Travel Easy, is required to register as a travel agency with the state government in which the company operates in Australia. Such registration is valid for a period of three years and then must be renewed. Renewal involves the filing of a renewal application and the payment of applicable fees, none of which are substantial expense to the company. The company is unaware of any probable governmental regulation which could impact on the company's business. It is possible that regulation unforeseen by the company could be promulgated which could unfavorably impact on the company's business. For example, the company believes that any governmental regulation concerning the taxation of benefits accumulated in loyalty programs could have a serious negative impact on the company's business. The probability of any such tax related regulation is unknown by the company and the company cannot predict such probability with any degree of reliability or certainty. (10) Employees The company and its subsidiaries employs a total of 6 individuals as part of its operations. 2 individuals form management and 4 individuals serve as sales staff in the company's Brisbane operations. Management anticipates increasing the number of employees over the next six (6) months. 8 (11) Other information No engineering, management or similar report has been prepared or provided for external use by the company in connection with the offer of its securities to the public. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements contained in this registration statement. OVERVIEW 1. Relevant Industry-Wide Factors Management believes that the industries in which the company competes is impacted by economic factors such as fluctuations in prevailing interest rates. In this regard, increasing interest rates negatively impact upon consumer spending. Decreased consumer spending would adversely impact the company by reducing the accumulation of points by the company's consumer members. This would also impact revenues from the Company's subsidiaries which are involved in the travel and consumer goods sectors. The company notes reserve banks in both the United States and Australia have increased their prime lending rates in 2004. Continued increases, if they occur, would adversely impact the company's ability to generate revenue. It is important to note that management cannot predict with any degree accuracy how interest rates in the United States or Australia will vary in the future. Management notes that approximately half of the Company's revenue is derived from its travel operations Consumer willingness to purchase travel products is impacted upon not only by general economic factors, but by the impossible to predict factors such as terrorism and outbreaks of disease. For example, international terrorism in 2001 the outbreak of SARS in 2003 decreased the demand for air travel. A reduction in travel could have a negative impact on the company's revenue. Such factors are impossible to predict and represent an unknowable threat to the company's business. 2. How the Company Generates Revenue The company generates revenue through the operations of its three subsidiaries, being Maximum Awards, Travel Easy and Easy Shopper. Maximum Awards has traditionally earned revenue through membership fees and commissions earned through the sale of on redeemable points. Since July, 2004, the Company has decided to relinquish the membership fee requirements, so that commission income through the sale of redeemable points is the only revenue earned through in the awards division. This income is generated by charging a fee or commission base on the dollar value of points purchased by a merchant member. 9 The elimination of an annual membership fee expected to have a significant short term negative impact to the revenues of the awards program as measured over the previous two years where the Company earned approximately 75% of its revenue ($52,687)over 2 years though membership fees. The Company expects to make up the lost revenue through an increase in commission income that it expects to derive through an increase in members and merchant partners. Easy Shopper earns revenue through the sale of its catalogued items to Maximum Awards members and members of the public through its on-line shopping facilities. Revenue from Easy shopper is expected to increase as membership in the awards program increases. Travel Easy earns revenue from commissions that it earns through its travel agency operations. These commissions are derived through air, hotel, car rental and travel insurance reservations. Revenue from Travel easy is expected to increase as membership in the awards program increases. Both Travel Easy and Easy Shopper are used by Maximum Awards as a conduit to redeem points earned by members of the Maximum Awards loyalty program. The redemption of points through Travel Easy or Easy Shopper is treated as a normal commercial transaction, whereby the members redeem points, and the redemption value is paid to the vendor from the Maximum Awards escrow account. 3. Auditors' Substantial Doubt The company's auditors have issued a going concern opinion based upon their due diligence and auditing procedures. The company's auditors have indicated that the company has sustained operating losses since inception. In addition, the auditors note that the working capital of the company is not sufficient to meet its planned business objectives and that the company's continuation as a going concern is uncertain and dependant on successfully bringing its services to market, achieving future profitable operations and obtaining additional sources of financing to sustain its operations, the outcome of which cannot be predicted at this time. The auditors indicate that in the event the company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. They note that though the business plan indicates profitable operation in the coming year, these profits are contingent on completing and fulfilling contracts with various providers of goods and services throughout the world to provide the company with a cashflow to sustain operations. The auditors conclude that in the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of the company's products and services. The company intends to address these concerns by: o Raising sufficient working capital via private placements of its shares of common stock; o Increasing its base of consumer members via advertising paid for from revenues and funds raised from the sale of capital stock; 10 o Increasing its base of merchant members via advertising paid for from revenues and funds raised from the sale of capital stock; o Increasing consumer member utilization of the company's program by making special product offers provided by merchant members. There can be no assurance that the company's efforts in this regard will be successful. If the company is unsuccessful in such efforts, it is likely the company's business will fail and the company will cease operations. 4. Challenges, Risks and Uncertainties The company's business is subject to several challenges, risks and uncertainties, including, but not limited to, the following: a. The Company has limited operating history, revenue and only minimal assets. The company only has operated its awards program since October of 2002. The company's revenues and earnings from operations are limited and the company has no significant assets or financial resources. The company has operated at a loss and the company may generate additional net operating losses. There can be no assurance that the company will be successful. b. The company's business plan is speculative. The company's business plan is based on management's belief that the company can operate successfully in its chosen industry. This belief is speculative and is based on management's experience alone. The company has not employed economic experts to analyze the company's position in the market or analyze the effect of market conditions on the company's performance. The lack of such information leaves the company dependent on management's subjective beliefs of the company's ability to succeed. c. There is no established market for the company's securities. The company's securities do not trade on an exchange, NASDAQ, the bulletin board or the pink sheets. Therefore, it will be difficult to obtain information regarding the market value of or to effect transactions in the company's securities. d. The company may be unable to raise additional capital to meet capital expenditure needs if its operations do not generate sufficient funds to do so. The company's business is expected to have continuing capital expenditure needs. While management anticipates that the company's operations will generate sufficient funds to meet its capital expenditure needs for the foreseeable future, the company's ability to gain access to additional capital, if needed, cannot be assured, particularly in view of competitive factors and industry conditions. Any additional capital raised through the sale of equity may dilute the ownership percentage of holders of the company's common stock. e. If the company is unable to retain current management, its business operations could be adversely affected. The company's success and future prospects depend on the continued contributions of its current management. There can be no assurances that the company would be able to find qualified replacements for these individuals if their services were no longer available. The loss of services of one or more members of current management could have a material adverse effect on our business. 11 RESULTS OF OPERATIONS 1. Revenues The operations of the Company began in October 2002. Results of operations include the accounts of both Travel Easy Pty Ltd and Global Business Group Pty Ltd which operates Easy Shopper. Revenue for the year ended December 31, 2003 amounted to $231,470 compared to $20,888 for the comparable period ended December 2002. The increase in revenue was due to an increase in membership and commission revenue in Maximum Awards of $$45,510, an increase in commission income in Travel Easy of $105,013 and the commencement of Easy Shopper which contributed $60,059 in its first year of operations ended December 31, 2003. Revenue for the six months ended June 30, 2004 totaled $124,499 compared to $105,051 for the six months ended June 30, 2003. Revenues for the rewards program during this period, reduced by $23,866 due to a decrease in membership fee income. Revenue for Travel Easy decreased by $20,130 while revenue for Easy Shopper amounted to $63,444 with no comparative for the previous period as this was that company's first period of operations. 2. Administrative costs The Company incurred overhead and administrative costs totaling $258,467 for the year ended December 31, 2004 compared to $70,283 for the year ended December 31, 2003. The increase in costs is due to startup costs incurred by both the awards program and the online shopping operations which include marketing and promotion costs, staff training, equipment hire costs, legal and accounting costs and increased staffing costs. The Company incurred overhead and administrative costs totaling $287,746 for the six months ended June 30, 2004 compared to $93,890 for the period ended June 30, 2003. The increase in expenditure is due to an increase in legal and accounting fees , an increase in staffing costs and an increase in travel and promotion costs. 3. Losses The Company incurred a loss of $98,275 for the year ended December 31, 2004, compared to a loss of $ 49,395. The losses for the year ended December 31, 2004 are comprised of a loss in the Awards company of $56,417 (2003 -$ 35,921), a profit in the Travel Easy of $4,517 (2003 - Loss of $13,474) and a loss in Easy Shopper of $46,375 (2003 Nil, not operational). 12 LIQUIDIITY AND CAPITAL RESERVES The company has operated its loyalty and rewards program in Australia since October 2002 and intends to expand its program and operate it in the United States in 2005. Initial expenses for the company will include: leasing suitable facilities in the United States; purchasing or leasing sufficient operating equipment, primarily computers and phone systems; hiring sufficient staff for the Company's United States operations; and, producing sufficient promotional materials. There is no guarantee that the company will be successful in expanding its operations to the United States or that if it does that its marketing and sales endeavors in the United States will be successful. The company's operations in Brisbane, Queensland, Australia currently employs 6 people. The number of employees in Australia may increase though 2004 if the company is able to increase its operations and expands its customer base. If the company is successful in raising capital, the company plans to spend an additional $500,000 during the next 12 months in expanding its Australian customer base, establishing new merchants and expanding its product base. Specifically, such spending shall include advertising in media, both print and electronic, direct mail marketing and consumer member promotions. If the company is successful in raising capital, the company plans to enter the United States market in 2005, using the same technology and format as that used in Australia. The company plans to set up an office and call center in an as yet to be determined location, and plans to duplicate the structure already in place in Australia. Initial expenses for the United States operations will include: leasing suitable facilities in the United States; purchasing or leasing sufficient operating equipment, primarily computers and phone systems; hiring sufficient staff for the company's United States operations; and producing sufficient promotional materials. The company has budgeted to spend $2.5 million dollars in developing the United States market. In order to meet its cash requirements for the next twelve months, the company plans to raise capital through private placements and through working capital generated from operations. There is no guarantee that the Company will be successful in its attempt to raise capital sufficient to meet its cash requirements for the next twelve months. If the company is not successful in its effort to raise sufficient capital to meet its cash requirements, the business will fail and the company will cease to do business. SIGNIFICANT COMPONENTS OF OPERATING EXPENSE & BUDGETED EXPENSES The company significant components of operation expense are: 1) its costs associated with its marketing materials; 2) its advertising costs; 3) its lease expenses and, 4) its costs of staff and the internet and travel reservation system operating costs. 13 The company has incurred expenses to produce and print its marketing materials such as information leaflets, letterbox brochures and magazine inserts. Future advertising cost will be will be for print-media advertising of the company's program. The company's lease expenses are comprised of its lease on its office facilities. In addition, the company rents equipment and facilities on a month to month arrangemnt for its Travel reservation system. Costs of staff include salaries for the company's Call Centre staff and salary for the company's chief executive officer and a director. CRITIAL ACCOUNTING POLICIES 1. Basis of Consolidation The merger of the Company and Maximum Awards (Pty) Limited has been recorded as the recapitalization of the Company, with the net assets of Maximum Awards (Pty) Limited and the Company brought forward at their historical basis. The intention of the management of Maximum Awards (Pty) Limited was to acquire the Company as a shell company to be listed on the OTC Bulletin Board. Management does not intend to pursue the business of the Company. As such, accounting for the merger as the recapitalization of the Company is deemed appropriate. As mentioned in Note 1, these consolidated financial statements include the assets, liabilities, equity, income and expenses of Global Business and Travel Easy using the pooling method. The comparative figures presented in these consolidated financial statements are those of the legal subsidiary, Maximum Awards (Pty) Limited, Travel Easy and Global Business. The weighted average and total number of shares outstanding have been retroactively restated for each period to reflect the number of shares issued to shareholders of the subsidiary at acquisition. 2. Revenue Recognition Consumer Reward Points Program Membership fee revenue represents annual membership fees paid by all of the Company's members. The Company accounts for membership fee income on a "deferred basis" whereby membership fee income is recognized ratably over the one-year life of the membership. 14 Travel Agency The Company earns commission revenues from ticket sales and reports this revenue in accordance with Emerging Issues Task Force ("EITF") Issue No.99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". The Company is an agent and not the primary obligor, and accordingly the amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two. Online Shopping Revenues from the sale of goods are recognized when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. 3. Foreign Currency Translation The Company accounts for foreign currency translation pursuant to SFAS No. 52, "Foreign Currency Translation". The company's functional currency is the Australian dollar. All assets and liabilities are translated into U.S. dollars using the current exchange rate. Revenues and expenses are translated using the average exchange rates prevailing throughout the year. Translation adjustments are included in other comprehensive income for the period OFF-BALANCE SHEET ARRANGEMENT The company has no off-balance sheet arrangement. Item 3. Description of Property A. Description of Property The company's operational offices are located at Level 1, 164 Wharf Street, Brisbane, Queensland 4000, Australia. The office is fully equipped as a call centre and the phone system is able to cater for up to 32 operators. The company does not anticipate expanding the facilities for the remainder of 2004. Business, management and creative functions will be performed in the company's Brisbane facility. Printing, mailing, warehousing, fulfillment and some design is outsourced. The company leases it facilities in Brisbane. The company pays $4,400 Australian per month for rent under the terms of the lease. The company's lease is for a period of 3 years. The lease will expire on December 31, 2007. B. Investment Policies Management of the company does not currently have policies regarding the acquisition or sale of assets primarily for possible capital gain or primarily for income. The company does not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities. 15 Item 4. Security Ownership of Management and Certain Security Holders A. Security Ownership of Management and Certain Beneficial Owners The following table sets forth information as of the date of this Registration Statement with respect to the beneficial ownership of both the common and preferred shares of stock of the company concerning stock ownership by (i) each Director, (ii) each Executive Officer, (iii) the Directors and Officers of the company as a group and (iv) each person known by the company to own beneficially more than five percent (5%) of the Common Stock. Unless otherwise indicated, the owners have sole voting and investment power with respect to their respective shares. 5% SHAREHOLDERS Amount Percent Title Name and Address of shares Percent of Of of Beneficial held by of Voting Class Owner of Shares Owner Class Power ----- --------------- ---------- -------- ------- Common Cutan Trust 3,480,000 15.2% 4.7% 16 Moorgate Street Macgregor Queensland 4109 QLD Australia Common Vieles Geld Trust 9,539,000 41.7% 13.0% 16 Extasis Street The Gap Queensland 4061 Australia Common Lorraine Krueger and 1,740,000 7.6% 2.3% Klaus Krueger, JTTEN Level 1 164 Wharf St. Brisbane 4000 QLD Australia Common Maxjam Pty Ltd 2,609,000 11.4% 3.5% 38 Edgewood David Ave. Waitara 2077 NSW Australia Total 17,368,000 75.9% 23.8% Preferred Maxwell Thomas 1,000,000 100.0% 68.6% Series A 16 Extasis Street The Gap Queensland 4061 QLD Australia 16 SECURITY OWNERSHIP OF MANAGEMENT Amount Percent Title Name, Position and of shares Percent of Of Address of Beneficial held by of Voting Class Owner of Shares Owner Class Power ----- --------------- ---------- ------- -------- Common Maxwell A. Thomas 9,539,000 41.7% 13.0% CEO,Director 16 Extasis Street The Gap Queensland 4061 QLD Australia Common Michael Sullivan 3,480,000 15.2% 4.7% Director 16 Moorgate Street Macgregor Queensland 4109 QLD Australia Common Officers,Directors 13,019,000 56.9% 17.8% as a group Preferred Maxwell A. Thomas 1,000,000 100.0% 68.6% CEO;Director Mr. Thomas is the trustee of the Vieles Geld Trust and the 9,539,000 shares reported by his name under the Security Ownership of Management section are the same 9,539,000 shares owned by The Vieles Geld Trust and reported in the 5% Shareholders section. The company also issued 1,000,000 shares of Class A Preferred stock to Mr. Thomas. Given the 50 votes for every share voting rights such preferred shares enjoy, Mr. Thomas' ownership of the preferred shares gives Mr. Thomas voting control on all matters upon which shareholders are entitled to vote. Mr. Sullivan is the trustee of the Cutan Trust and the 3,480,000 shares reported by his name under the Security Ownership of Management section are the same 3,480,000 shares owned by the Cutan Trust and reported in the 5% Shareholders section. Maxjam Pty Ltd is owned and operated by Tony Gerrard of Sydney, Australia. Mr.Gerrard is not otherwise related to the company. B. Persons Sharing Ownership of Control of Shares None C. Non-voting Securities and Principal Holders Thereof The Company has not issued any non-voting securities. D. Options, Warrants and Rights 17 There are no options, warrants or rights to purchase securities of the Company. E. Parents of the Issuer Under the definition of parent, as including any person or business entity who controls substantially all (more than 80%) of the issuers of common stock, the Company has no parents. Item 5. Directors, Executive Officers and Significant Employees A. Directors, Executive Officers and Significant Employees The names, ages and positions of the Company's Directors and Executive Officers are as follows: Maxwell Thomas Age: 43 CEO and Director Served in both capacities since December 2003. Term as a director: until resignation or replacement Michael Sullivan Age: 44 Director Served as a director since December 2003. Term as a director: until resignation or replacement 1. Work Experience Maxwell A. Thomas, Age 43 (Chief Executive Officer). Mr. Thomas has been involved in the European and Australian travel industries for more than 20 years. Having worked in the travel industry in Europe for 20 years, Mr. Thomas returned to Australia in 1998 when he established a consultancy business. Over the last 5 years he has advised Australian travel companies entering international markets. Specifically, Mr. Thomas worked for Flight Centre LTD ASX FTL from 1998 to 1999 as a Special Projects Manager. From 1999 to 2000, Mr. Thomas worked as the Director of Marketing for Pangaea Corporation. From 2000 until 2002 he has developed the loyalty program which is the basis of the company's program. From 2002 to present, he has actively worked at and promoted the company's business. Michael Sullivan, Age 44 (Director). Mr. Sullivan has directed his career into the specialized area of travel publishing over the past 15 years. His background includes editing and managing regional newspapers in Australia for Rural Press Ltd and operating his own press photography business. Mr. Sullivan concentrated on travel and business magazine publishing throughout his seven years based in Hong Kong as Editor-in-Chief of the Times Publishing (Far East Trade Press) travel division, responsible for the travel industry magazine Travel News Asia, specialist executive travel title Arrival magazine, the annual Golf Vacations and in-room magazine Inn Asia (for Holiday Inns). Mr. Sullivan is a regular writer for the Economist Intelligence Unit and has written a regular piece for Time magazine since 1997. From 1997 to 1999 Mr. Sullivan was the Editor in Charge for Travel Publishing Pty Ltd based in Brisbane, Australia. From 1999 through the present, Mr. Sullivan has been a director of Post Haste Graphics and Screamer Media, both of which are involved in publishing digital printing in Brisbane, Australia. 18 2. Employment Agreements Effective January 1, 2004, the company has entered into an employment with Mr. Thomas. Under the terms of this agreement the company agrees to employ Mr. Thomas as the chief executive officer of the company until such time as either the company or Mr. Thomas terminate such employment. Mr. Thomas' base salary under the agreement is $60,000 for the year ended December 31, 2004 and $200,000 per year thereafter, an amount which is subject to review after each year the agreement is in effect. The company also has agreed to pay Mr. Thomas' business related expenses, provide health and dental insurance to Mr. Thomas and pay Mr. Thomas for vacation time as the board of directors and Mr. Thomas agree. The company has agreed to employ Mr. Sullivan on a part-time basis at an annual salary of $16,000 for the year ended December 31, 2004 and $40,000 per annum thereafter. There is no written employment agreement between the company and Mr. Sullivan. C. Family Relationships None D. Involvement on Certain Material Legal Proceedings During the Last Five Years (1) No Director, Officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations. (2) No Director, Officer or significant employee has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities. (3) No Director, Officer or significant employee has been convicted of violating a federal or state securities or commodities law. Item 6. Executive Compensation Remuneration of Directors and Executive Officers The company currently has employment agreements with its executive officers, however, only the agreement between the company and its chief executive officer, Maxwell Thomas, is in writing. All Executive Officers of the company prior to January 1, 2004 have not drawn a formal salary from the company. Over the next twelve (12) months, however, each Executive Officer is expected to draw the following annual compensation. The company does not currently have an employee stock option plan. 19 FUTURE COMPENSATION OF DIRECTORS 2004 COMPENSATION OF OFFICERS AND DIRECTORS (1) Name of Individual Capacities in Which Annual or identity of Group Remuneration was Recorded Compensation -------------------- ------------------------- ------------ Maxwell A. Thomas Chief Executive Officer $130,000 Michael Sullivan Employee $ 28,000 Mr. Thomas devotes his full time to the business of the company and his annual compensation reflects that time commitment. In addition to being a director of the company, Mr. Sullivan is an employee as well. His annual compensation reflects his part-time status. Mr. Sullivan devotes time equal to approximately one day per week to the company's business. There were no arrangements pursuant to which any officer or director of the company was compensated for the period prior to January 1, 2004 for any service provided as an Officer or Director. The company has no arrangement to compensate directors for their services as directors. Item 7. Certain Relationships and Related Transactions 1. The December 9, 2003 Maximum Awards Pty Ltd transaction On December 9, 2003, the company entered into an Exchange Agreement with Maximum Awards Pty Ltd, an Australian company. At that time, Maximum Awards Pty Ltd was owned by thirty three shareholders, including persons who are directors or officers of the company, security holders owning 5% or more of the company's common stock, security holders owning 5% or more of the company's preferred shares of stock or are member of the immediate family of such persons. As a result of this Agreement, the company acquired 100% of the issued and outstanding ownership of Maximum Awards Pty Ltd., in exchange for 22,000,000 shares of common stock and 1,000,000 preferred shares of Maximum Awards Inc. The property acquired consists of cash, a long-term lease for the Company's facility in Brisbane and all personal and intellectual property associated with the operations of the Maximum Awards program. The 22,000,000 shares of stock were registered in the names of the shareholders of Maximum Awards Pty Ltd in proportion to their respective ownership interest in Maximum Awards Pty Ltd. As part of this transaction, the following shares were issued to including persons who are directors or officers of the company, security holders owning 5% or more of the company's common stock, security holders owning 5% or more of the company's preferred shares of stock or are a member of the immediate family of such persons: Name Number of Shares ---- ---------------- Lorraine & Klaus Krueger 1,740,000 Vieles Geld Trust 9,593,000 Maxjam Pty Ltd 2,609,000 Raymond Gerrard 1,200,000 Cutan Trust 3,480,000 Post Haste Pty Ltd 15,000 20 Lorraine Krueger is the sister of Maxwell Thomas, the company's chief executive officer. Klaus Krueger is the brother-in-law of Maxwell Thomas, the company's chief executive officer. Maxwell Thomas, the company's chief executive officer, is the trustee of the Vieles Geld Trust. Maxwell Thomas also owns 1,000,000 preferred shares. Maxjam Pty Ltd owns 5% or more of the company's issued and outstanding shares of common stock. Maxjam Pty Ltd is owned and operated by Tony Gerrard of Sydney, Australia. Mr.Gerrard is not otherwise related to the company. The company's chief executive officer, Maxwell Thomas, has no relationship with, or ownership or control of, Maxjam Pty Ltd. Any similarity in the names is purely coincidence. Raymond Gerrard is the father-in-law of Maxwell Thomas, the company's chief executive officer. Raymand Gerrard is not related to Tony Gerrard, though they have the same last name. Michael Sullivan, a director of the company, is the trustee of the Cutan Trust, and controls Post Haste Pty Ltd as director and owner of 50% of the shares of Post Haste Pty Ltd. 2. Employment Agreement with, and shares issued to, Maxwell Thomas As part of the company's acquisition of Maximum Awards Pty Ltd, 9,539,000 shares of the company's common stock were issued to the Vieles Geld Trust. Mr. Thomas is the trustee for the Vieles Geld Trust and therefore controls such shares. 3. Employment Agreement with, and shares issued to, Michael Sullivan The company has agreed to employ Mr. Sullivan on a part-time basis at an annual salary of $16,000 for the year ended December 31, 2004 and $40,000 per annum thereafter. There is no written employment agreement between the company and Mr. Sullivan. As part of the company's acquisition of Maximum Awards Pty Ltd, 3,480,000 shares of the company's common stock were issued to the Cutan Trust. Mr. Sullivan is the trustee for the Cutan Trust and therefore controls such shares. 4. The June 1, 2004 Travel Easy and Global Business Transactions On June 1, 2004, the company acquired 100% of the issued and outstanding shares of Travel Easy Holidays Pty Ltd and Global Business Group Pty Ltd. These corporations are involved in the travel industry and mailorder industries, respectively, and were acquired to add to the company's rewards program operations by providing an in-house travel agency and consumer products retailer. 21 Travel Easy is an Australian proprietary limited corporation. Travel Easy was organized under the law of the Province of Queensland, Australia on July 19, 2002. Travel Easy is engaged in the business of providing travel agent services and its operations are located in the company's offices in Brisbane, Queensland, Australia. Prior June 1, 2004, Travel Easy was owned by Maxwell Thomas, the company's chief executive officer and Michael Sullivan, a director of the company. Under terms of the acquisition agreement between the company and Mr. Thomas and Mr. Sullivan, the company acquired Travel Easy for $1.00 Australian. Travel Easy now is a wholly-owned subsidiary of the company. Global Business is also an Australian proprietary limited corporation. Global Business was organized under the law of the Province of Queensland, Australia in June 2003. Global Business does business under the name Easy Shopper and is engaged in the business of selling consumer goods on-line and through published catalogs and its operations are located in the company's offices in Brisbane, Queensland, Australia. Prior to the company's acquisition of Global Business in June 2004, Global Business was owned by Maxwell Thomas, the company's chief executive officer and Michael Sullivan, a director of the company. Under terms of the acquisition agreement between the company and Mr. Thomas and Mr. Sullivan, the company acquired Global Business for $1.00 Australian. Mr. Thomas and Mr. Sullivan acquired their ownership of Global Business in June of 2003 from a corporation, Aussie Watchdog Pty Ltd, which had operated that business since 2000. Mr. Thomas and Mr. Sullivan were the only owners of Aussie Watchdog, having started what eventually became the operations of Global Business in Aussie Watchdog in 2000. Global Business now is a wholly-owned subsidiary of the company. As part of this transaction, the company assumed debts which Travel Easy and Global Business owed. Such debt were debts Travel Easy and Global Business owed the company for operating expenses. Item 8. Description of Securities A. Common Stock (1) Description of Rights and Liabilities of Common Stockholders i. Dividend Rights - the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available, therefore at such times and in such amounts as the Board of Directors of the Company may from time to time determine. ii. Voting Rights - each holder of the company's common stock are entitled to one vote for each share held of record on all matters submitted to the vote of stockholders, including the election of Directors. All voting is non-cumulative, which means that the holder of fifty percent (50%) of the shares voting for the election of the Directors can elect all the Directors. The Board of Directors may issue shares for consideration of previously authorized but un-issued common stock without future stockholder action. 22 iii. Liquidation Rights - upon liquidation, the holders of the common stock are entitled to receive pro rata all of the assets of the company available for distribution to such holders. iv. Preemptive Rights - holders of common stock are not entitled to preemptive rights. v. Conversion Rights - no shares of common stock are currently subject to outstanding options, warrants or other convertible securities. vi. Redemption rights - no redemption rights exist for shares of common stock. vii. Sinking Fund Provisions - no sinking fund provisions exist. viii. Further Liability For Calls - no shares of common stock are subject to further call or assessment by the issuer. The company has not issued stock options as of the date of this Registration Statement. (2) Potential Liabilities of Common Stockholders to State and Local Authorities No material or potential liabilities are anticipated to be imposed on stockholders under State or local statutes. As of October 31, 2004 there were 25,072,950 shares of the company's 100,000,000 authorized shares of common stock issued and outstanding. B. Preferred Stock (1) Description of Rights and Liabilities of Preferred Stockholders i. Divided Rights - the holders of outstanding shares of preferred stock are not entitled to receive dividends out of assets. ii. Voting Rights - each holder of the company's preferred stock are entitled to fifty votes for each share held of record on all matters submitted to the vote of stockholders, including the election of Directors. All voting is non-cumulative, which means that the holder of fifty percent (50%) of the shares voting for the election of the Directors can elect all the Directors. The Board of Directors may issue shares for consideration of previously authorized but un-issued preferred stock without future stockholder action and under conditions deemed appropriate by the board of directors. iii. Liquidation Rights - upon liquidation, the holders of the preferred stock are not entitled to receive any dividend. iv. Preemptive Rights - holders of preferred stock are not entitled to preemptive rights. 23 v. Conversion Rights - no shares of preferred stock are currently subject to outstanding options, warrants or other convertible securities. vi. Redemption Rights - no redemption rights exist for shares of preferred stock. As of October 31, 2004 there were 1,000,000 shares of the company's 10,000,000 authorized shares of preferred stock issued and outstanding. Debt Securities The company is not registering any debt securities, nor are any outstanding. B. Other Securities To Be Registered The company is not registering any security other than its common stock. Part II Item 1. Market for Common Equity and Related Stockholder Matters A. Market Information (1) The common stock of the company is currently not trading. (2) (i) There is currently no common stock that is subject to outstanding options or warrants to purchase or securities convertible into, the company's common stock. (ii) On October 31, 2004 there were 25,072,950 shares of the company's stock issued and outstanding, of which 757,950 shares are free trading or could be sold under Rule 144 under the Securities Act of 1933 as amended. Rule 144 provides an exemption and permits the public resale of restricted or control securities if a number of conditions are met, including how long the securities are held, the way in which they are sold, and the amount that can be sold at any one time. A shareholder who wants to sell restricted or control securities to the public, must follow the conditions set forth in Rule 144. The rule is not the exclusive means for selling restricted or control securities, but provides a "safe harbor" exemption to sellers. The rule's five conditions are summarized as follows: Holding Period. Before a shareholder may sell restricted securities in the marketplace, the shareholders must hold them for at least one year. The one-year period holding period begins when the securities were bought and fully paid for. The holding period only applies to restricted securities. Because securities acquired in the public market are not restricted, there is no holding period for an affiliate who purchases securities of the issuer in the marketplace. But an affiliate's resale is subject to the other conditions of the rule. 24 Additional securities purchased from the issuer do not affect the holding period of previously purchased securities of the same class. If a shareholder purchased restricted securities from another non-affiliate, the shareholder can tack on that non-affiliate's holding period to the shareholder's holding period. For gifts made by an affiliate, the holding period begins when the affiliate acquired the securities and not on the date of the gift. In the case of a stock option, such as one an employee receives, the holding period always begins as of the date the option is exercised and not the date it is granted. Adequate Current Information. There must be adequate current information about the issuer of the securities before the sale can be made. This generally means the issuer has complied with the periodic reporting requirements of the Securities Exchange Act of 1934. Trading Volume Formula. After the one-year holding period, the number of shares a shareholder may sell during any three-month period can't exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock exchange or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding the filing a notice of the sale on Form 144. Over-the-counter stocks, including those quoted on the OTC Bulletin Board and the Pink Sheets, can only be sold using the 1% measurement. Ordinary Brokerage Transactions. The sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission. Neither the seller nor the broker can solicit orders to buy the securities. Filing Notice With the SEC. At the time a shareholder places the shareholder's order, the shareholder must file a notice with the SEC on Form 144 if the sale involves more than 500 shares or the aggregate dollar amount is greater than $10,000 in any three-month period. The sale must take place within three months of filing the Form and, if the securities have not been sold, you must file an amended notice. If a shareholder is not an affiliate of the issuer and has held restricted securities for two years, the shareholder can sell them without regard to the above conditions. B. Holders As of October 31, 2004, the Company had approximately 133 stockholders of record. (5) Dividend Policy The company has not paid any dividends to date. In addition, it does not anticipate paying dividends in the foreseeable future. The Board of Directors of the Company will review its dividend policy from time to time to determine the desirability and feasibility of paying dividends after giving consideration to the company's earnings, financial condition, capital requirements and such other factors as the Board may deem relevant. 25 D. Reports to Shareholders The company intends to furnish its shareholders with annual reports containing audited financial statements and such other periodic reports as the Company may determine to be appropriate or as may be required by law. Upon the effectiveness of this Registration Statement, the company will be required to comply with periodic reporting, proxy solicitation and certain other requirements by the Securities Exchange Act of 1934. Transfer Agent and Registrar The Transfer Agent for the shares of common voting stock of the company is Nevada Agency and Trust Company, Reno, NV. Item 2. Legal Proceedings The Company is not currently involved in any legal proceedings, nor does it have knowledge of any threatened litigation. Item 3. Changes in and Disagreements with Accountant In April of 2004, the Company's independent accountants, Forbush and Associates of Reno, Nevada, resigned as the Company's auditors. Forbush and Associates resigned because they were not registered with the Public Company Accounting Oversight Board and consequently its audit reports in connection with the company's financial statements could not be included in the company's filing with the Securities and Exchange Commission. Following the resignation of Forbush and Associates, the company retained SF Partnership, Llp of Toronto, Canada to act as the company's principal independent accountants. Reports prepared by the company's principal accountant on the company's financial statements for the past two (2) years, have not contained an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except as follows: 1. The Independent Auditor's Report prepared by Forbush and Associates in connection with the Company's financial statements as of December 31, 2003, 2002 and Inception to Date, contained the following statement: The accompanying financial statements have been presented assuming that the Company will continue as a going concern. The Company has suffered losses from operations and has raised minimal capital and has no long-term contracts related to its business plans, which raises doubt about its ability to continue as a going concern (See Note 7). The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 26 Note 7 of those financial statements, under the heading "Going Concern," stated: The Company is in the development stage of operations. Though the business plan indicates profitable operation in the coming year, these profits are contingent on completing and fulfilling contracts with various providers of goods and services throughout the world to provide the company with a cash flow to sustain operations. The company has sustained losses from the inception of operations. In addition the working capital of the Company at $55,597 is not sufficient for the Company to meet its planned business objectives. The Company's continuation as a going concern is uncertain and dependant on successfully bringing its services to market, achieving future profitable operations and obtaining additional sources of financing to sustain its operations, the outcome of which cannot be predicted at this time. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. These financial statements do not reflect adjustments to the carrying values and classification of assets or liabilities that might be necessary should the Company not be able to continue its operations. The Independent Auditor's Report prepared by S F Partnership in connection with the Company's revised financial statements as of December 31, 2003, and December 31, 2002 contain the following statement: The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company experienced operating losses since inception, has raised minimal capital and has no long-term contracts related to its business plans. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 2 states: 2. Going Concern These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. 27 The Company has sustained operating losses since inception, has raised minimal capital and has no long-term contracts related to its business plans. The Company's continuation as a going concern is uncertain and dependant on successfully bringing its services to market, achieving future profitable operations and obtaining additional sources of financing to sustain its operations, the outcome of which cannot be predicted at this time. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. Though the business plan indicates profitable operation in the coming year, these profits are contingent on completing and fulfilling contracts with various providers of goods and services throughout the world to provide the company with a cashflow to sustain operations. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern During the most recent two (2) fiscal years, and any subsequent interim period, there have not been any disagreements with the company's former or current accountants on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused it to make a reference to the subject matter of the disagreements in connection with its report. None of the following events have occurred within the company's two (2) most recent fiscal years, or in any subsequent interim period preceding the former accountant's replacement: (A) The company's accountant, or former accountant, having advised the company that the internal controls necessary for the company to develop reliable financial statements do not exist; (B) the company's accountant, or former accountant having, advised the company that information has come to the accountant's attention that has led it to no longer be able to rely on management's representations, or that has made it unwilling to be associated with the financial statements prepared by management; (C)(1) the company's accountant, or former accountant, having advised the registrant of the need to expand significantly the scope of its audit, or that information has come to the accountant's attention during the time period covered by Item 304(a)(1)(iv) of Regulation S-K, that if further investigated may (i) materially impact the fairness or reliability of either; a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that may prevent it from rendering an unqualified audit report on those financial statements), or (ii) cause it to be unwilling to rely on management's representations or be associated with the registrant's financial statements, and (2) due to the accountant's resignation (due to audit scope limitations or otherwise) or dismissal, or for any other reason, the accountant did not so expand the scope of its audit or conduct such further investigation; or 28 (D)(1) the company's accountant, or former accountant, having advised the company that information has come to the accountant's attention that it has concluded materially impacts the fairness or reliability of either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report (including information that, unless resolved to the accountant's satisfaction, would prevent it from rendering an unqualified audit report on those financial statements), and (2) due to the accountant's resignation, dismissal or declination stand for re-election, or for any other reason, the issue has not been resolved to the accountant's satisfaction prior to its resignation, dismissal or declination to stand for re-election. Item 4. Recent Sale of Unregistered Securities On December 8, 2003, the company issued 22,000,000 shares of its common stock and 1,000,000 shares of its preferred stock to Maxwell Thomas in connection with the acquisition of Maximum Awards Pty Ltd. Such shares were issued to Mr. Thomas as an agent for the shareholders of Maximum Awards Pty, Ltd. Such share were later transferred into the names of the shareholders of Maximum Awards Pty, Ltd. All such shares were issued in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, and the certificates representing such shares bear a restrictive legend reflecting the limitations on future transfer of those shares. All the shareholders of Maximum Awards Pty, Ltd. are, and were at the time they received their shares identified in this paragraph, "accredited investors" as that term is defined in the Securities Act of 1933 and the rules promulgated by the Securities and Exchange Commission. Specifically, all such shareholders are, and were, persons who, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an accredited investor under Rule 215 prescribed by the Commission. Further, each of the shareholders of Maximum Awards Pty, Ltd. had sufficient information regarding the company and its financial condition prior to being issued shares of the company's stock. The Company has issued a total of 2,200,000 shares of its common stock as payment as a finders fee for securing the aquistion of Maximum Awards Pty Ltd. Such shares were issued in equal amounts of 1,100,000 to Kevin Murray and Mitchell Stough. Mr. Murray and Mr. Stough operate businesses separate from each other, are not related by blood or marriage and do not act as group for purposes of owning or voting such shares. All such shares were issued in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, and the certificates representing such shares bear a restrictive legend reflecting the limitations on future transfer of those shares. Both Mr. Murray and Mr. Stough are, and were at the time they received their shares identified in this paragraph, "accredited investors" as that term is defined in the Securities Act of 1933 and the rules promulgated by the Securities and Exchange Commission. Specifically, all such shareholders are, and were, persons who, on the basis of such factors as financial sophistication, net 29 worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an accredited investor under Rule 215 prescribed by the Commission. Further, Mr. Murray and Mr. Stough had sufficient information regarding the company and its financial condition prior to being issued shares the company's stock. On June 2, 2004, the Company issued 15,000 shares of its common stock to Sharon Hooper in consideration for $5,000 in cash. Such shares were issued in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, and the certificate representing such shares bears a restrictive legend reflecting the limitations on future transfer of those shares. Ms. Hooper is, and was at the time she received her shares identified in this paragraph, an "accredited investor" as that term is defined in the Securities Act of 1933 and the rules promulgated by the Securities and Exchange Commission. Specifically, Ms. Hooper is, and was, a person who, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an accredited investor under Rule 215 prescribed by the Commission. Further, Ms. Hooper had sufficient information regarding the company and its financial condition prior to being issued shares the company's stock. On June 2, 2004, the Company issued 100,000 shares of its common stock to D.J. Heriot in consideration for $50,000 in cash. Such shares were issued in reliance on the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, and the certificate representing such shares bears a restrictive legend reflecting the limitations on future transfer of those shares. Mr. Heriot is, and was at the time he received his shares identified in this paragraph, an "accredited investor" as that term is defined in the Securities Act of 1933 and the rules promulgated by the Securities and Exchange Commission. Specifically, Ms. Heriot is, and was, a person who, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an accredited investor under Rule 215 prescribed by the Commission. Further, Ms. Heriot had sufficient information regarding the company and its financial condition prior to being issued shares the company's stock. Item 5. Indemnification of Directors and Officers The Bylaws of the Company provide for indemnification of its Directors, Officers and employees as follows: Every Director, Officer, or employee of the Corporation shall be indemnified by the Corporation against all expenses and liabilities, including counsel fees, reasonably incurred by or imposed upon him/her in connection with any proceeding to which he/she may be made a party, or in which he/she may become involved, by reason of being or having been a Director, Officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a Director, Officer, employee or agent of the Corporation, partnership, joint venture, trust or enterprise, or any settlement thereof, whether or not he/she is a Director, Officer, employee or agent at the time such expenses are incurred, except in such cases wherein the Director, 30 Officer, employee or agent is adjudged guilty of willful misfeasance or malfeasance in the performance of his/her duties; provided that in the event of a settlement the indemnification herein shall apply only when the Board of Directors approves such settlement and reimbursement as being for the best interests of the Corporation. The Bylaws of the Company further states that the Company shall provide to any person who is or was a Director, Officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a Director, Officer, employee or agent of the corporation, partnership, joint venture, trust or enterprise, the indemnity against expenses of a suit, litigation or other proceedings which is specifically permissible under applicable Nevada law. The Board of Directors may, in its discretion, direct the purchase of liability insurance by way of implementing the provisions of this Article. However, the Company has yet to purchase any such insurance and has no plans to do so. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Directors, Officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, Officer or controlling person of the Registrant 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 Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question 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. 31 Part F/S Item 1. Financial Statements MAXIMUM AWARDS INC. CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2003 AND 2002 CONTENTS Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 - F-21 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders of Maximum Awards Inc. We have audited the accompanying consolidated balance sheets of Maximum Awards Inc., as at December 31, 2003 and 2002 and the consolidated statements of changes in stockholders' equity (deficiency), operations and comprehensive loss and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maximum Awards Inc., as at December 31, 2003 and 2002 and the results of its operations and comprehensive loss, changes in its stockholders' equity (deficiency) and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. As discussed in Note 12 to the accompanying consolidated financial statements, the Company has restated the consolidated balance sheets as at December 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity (deficiency) and cash flows for the years ended December 31, 2003 and 2002. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company experienced operating losses since inception, has raised minimal capital and has no long-term contracts related to its business plans. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. "SF Partnership, LLP" Toronto, Canada CHARTERED ACCOUNTANTS May 27, 2004 and September 3, 2004 F-1 MAXIMUM AWARDS INC. Consolidated Balance Sheets December 31, 2003 and 2002 2003 2002 (Restated) (Restated) (Note 12) (Note 12) ASSETS Current Cash $ 15,763 $ 1,576 Cash held in escrow 1,538 1,569 Accounts receivable 33,249 1,927 Inventory 4,495 -- Prepaid and sundry assets 53,073 516 Notes receivable (note 4) -- 18,520 --------- --------- 108,118 24,108 Furniture and Equipment (note 5) 4,672 4,357 --------- --------- $ 112,790 $ 28,465 ========= ========= LIABILITIES Current Accounts payable and accrued charges $ 36,913 $ 16,458 Deferred membership fee income 1,561 33,503 Notes payable (note 6) 29,662 -- Liability for unredeemed points 1,538 1,569 --------- --------- 69,674 51,530 --------- --------- STOCKHOLDERS' EQUITY (DEFICIENCY) Capital Stock (note 7) 25,958 758 Additional Paid-In Capital 219,290 27,367 Accumulated Other Comprehensive Loss (54,462) (1,795) Accumulated Deficit (147,670) (49,395) --------- --------- 43,116 (23,065) --------- --------- $ 112,790 $ 28,465 ========= ========= APPROVED ON BEHALF OF THE BOARD "Maxwell Thomas" "Michael Sullivan" __________________________________ __________________________________ Director Director (The accompanying notes are an integral part of these consolidated financial statements) F-2
MAXIMUM AWARDS INC. Consolidated Statements of Changes in Stockholders' Equity (Deficiency) Years Ended December 31, 2003 and 2002 Accumulated Preferred Shares Common Shares Additional Other Total ----------------------- ----------------------- Paid in Comprehensive Accumulated Stockholders' "Series A" Par Value Capital Loss Deficit Equity Number Number (Restated) (Restated) (Restated) (Restated) (Restated) of Shares Par Value of Shares (Note 12) (Note 12) (Note 12) (Note 12) (Note 12) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance, January 1, 2002 -- $ -- 757,950 $ 758 $ 27,367 $ -- $ -- 28,125 Foreign exchange on translation -- -- -- -- -- (1,795) -- (1,795) Net Loss -- -- -- -- -- -- (49,395) (49,395) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2002 -- $ -- 757,950 $ 758 $ 27,367 $ (1,795) $ (49,395) $ (23,065) ========== ========== ========== ========== ========== ========== ========== ========== Balance, January 1, 2003 -- $ -- 757,950 $ 758 $ 27,367 $ (1,795) $ (49,395) $ (23,065) Capital contributed by shareholder of Maximum Awards Pty -- -- -- -- 179,523 -- -- 179,523 Pooling of Global Business Pty Ltd.'s equity -- -- -- -- 37,600 -- -- 37,600 Shares issued for the reverse take over 1,000,000 1,000 22,000,000 22,000 (23,000) -- -- -- Shares issued for finder's fee on reverse take over -- -- 2,200,000 2,200 (2,200) -- -- -- Foreign exchange on translation -- -- -- -- -- (52,667) -- (52,667) Net Loss -- -- -- -- -- -- (98,275) (98,275) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance, December 31, 2003 1,000,000 $ 1,000 24,957,950 $ 24,958 $ 219,290 $ (54,462) $ (147,670) $ 43,116 ========== ========== ========== ========== ========== ========== ========== ==========
(The accompanying notes are an integral part of these consolidated financial statements) F-3
MAXIMUM AWARDS INC. Consolidated Statements of Operations and Comprehensive Loss Years Ended December 31, 2003 and 2002 2003 2002 (Note 12) (Note 12) ------------ ------------ Revenue $ 231,470 $ 20,888 Cost of Sales 67,861 -- ------------ ------------ Gross Profit 163,609 20,888 ------------ ------------ Expenses General and administrative 257,230 69,799 Depreciation 1,237 484 ------------ ------------ 258,467 70,283 ------------ ------------ Loss from Operations (94,858) (49,395) Income tax expense 3,417 -- ------------ ------------ Net Loss $ (98,275) $ (49,395) ============ ============ Foreign currency translation adjustment (52,667) (1,795) ============ ============ Comprehensive Loss $ (150,942) $ (51,190) ============ ============ Basic and Fully Diluted Loss per Share $ (0.004) $ (0.002) ============ ============ Basic and Fully Diluted Weighted Average Number of Shares 24,263,163 24,200,000 ============ ============
(The accompanying notes are an integral part of these consolidated financial statements) F-4
MAXIMUM AWARDS INC. Consolidated Statements of Cash Flows Years Ended December 31, 2003 and 2002 2003 2002 Restated Restated (Note 12) (Note 12) --------- --------- Cash Flows from Operating Activities Net loss $ (98,275) $ (49,395) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 1,237 484 Accounts receivable (26,500) (1,927) Prepaid and sundry assets (45,257) (516) Inventory (3,884) -- Accounts payable and accrued charges 12,882 16,458 Deferred membership fee income (37,348) 33,503 Liability for unredeemed points (483) 1,569 --------- --------- (197,628) 176 --------- --------- Cash Flows from Investing Activities Proceeds from notes receivable 21,391 (18,520) Purchase of equipment (1,552) (4,841) --------- --------- 19,839 (23,361) --------- --------- Cash Flows from Financing Activities Proceeds from notes payable 25,626 -- Proceeds from additional paid in capital 157,628 28,125 --------- --------- 183,254 28,125 --------- --------- Net Increase in Cash 5,465 4,940 Foreign Exchange on Cash Balances 8,691 (1,795) Cash - beginning of year 3,145 -- --------- --------- Cash - end of year $ 17,301 $ 3,145 ========= ========= Cash is represented by the following: Cash $ 15,763 $ 1,576 Cash held in escrow 1,538 1,569 --------- --------- $ 17,301 $ 3,145 ========= =========
(The accompanying notes are an integral part of these consolidated financial statements) F-5 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 1. Operations and Business Maximum Awards, Inc, formerly known as Rising Fortune Incorporated ("the Company"), was incorporated in the State of Nevada on March 7, 1995. The Company was inactive between 1996 and 2000. In 2000 the Company entered into an agreement to distribute product. However, the agreement never materialized and the Company continued to remain inactive until November 18, 2003. On November 19, 2003, the Company amended its Articles of Incorporation to change its name to Maximum Awards Inc. On December 9, 2003, the Company entered into a definitive Share Exchange Agreement (the "Agreement") with Maximum Awards (Pty) Limited, an Australian corporation operating a consumer rewards program, whereby the Company acquired all of the issued and outstanding shares of the Subsidiary in exchange for 22,000,000 common shares and 1,000,000 preferred shares Series "A" of the Company. The preferred shares Series "A" are non-participating, but each share is entitled to 50 votes in a general meeting. In addition, the Company issued 2,200,000 common shares as a finders fee for assistance in the acquisition of the Subsidiary. As a result of the Agreement, the shareholder of Maximum Awards (Pty) Limited controls 96% of the Company. While the Company is the legal parent, as a result of the reverse takeover, Maximum Awards (Pty) Limited became the parent company for accounting purposes. On June 1, 2004, the Company, through its subsidiary, Maximum Awards Pty Ltd, acquired 100% of the issued and outstanding share capital of both Global Business Group Australia Pty Ltd ("Global Business") and Travel Easy Holidays Pty Ltd ("Travel Easy") from the directors of the respective companies for $1.00. Global Business and Travel Easy are controlled by the same shareholder, who controls the Company and Maximum Awards Pty Ltd. As such, this transfer of equity interests between common controlled entities is accounted for by using the pooling of interests method as prescribed under SFAS No. 141. The assets, liabilities, income and expenses of Global Business and Travel Easy have been brought forward on a historical basis in these restated financial statements of the Company. The equity of Global Business and Travel Easy have been brought forward on a historical basis and included in additional paid in capital of the Company. The Company currently operates a loyalty and rewards program known as Maximum Awards. Under this program, consumers earn points by purchasing products and services from a range offered by the Company's subsidiaries, Global Business and Travel Easy, or program partners. Accumulated points then can be redeemed in order to acquire additional desired products or services from the same list of such items offered by the Company's subsidiaries. The Company's subsidiary, Global Business, maintains a catalogue of available goods and services which a member can purchase, or acquire through the redemption of points. Travel Easy is a licensed travel agency which services the public and also allows members to purchase travel services or redeem points for airline tickets or travel packages. F-6 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 2. Going Concern These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has sustained operating losses since inception, has raised minimal capital and has no long-term contracts related to its business plans. The Company's continuation as a going concern is uncertain and dependant on successfully bringing its services to market, achieving future profitable operations and obtaining additional sources of financing to sustain its operations, the outcome of which cannot be predicted at this time. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. Though the business plan indicates profitable operation in the coming year, these profits are contingent on completing and fulfilling contracts with various providers of goods and services throughout the world to provide the company with a cashflow to sustain operations. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. 3. Summary of Significant Accounting Policies a) Basis of Financial Statement Presentation These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. F-7 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 3. Summary of Significant Accounting Policies (cont'd) b) Basis of Consolidation The merger of the Company and Maximum Awards (Pty) Limited has been recorded as the recapitalization of the Company, with the net assets of Maximum Awards (Pty) Limited and the Company brought forward at their historical basis. The intention of the management of Maximum Awards (Pty) Limited was to acquire the Company as a shell company to be listed on the OTC Bulletin Board. Management does not intend to pursue the business of the Company. As such, accounting for the merger as the recapitalization of the Company is deemed appropriate. As mentioned in Note 1, these consolidated financial statements include the assets, liabilities, equity, income and expenses of Global Business and Travel Easy using the pooling of interests method. The comparative figures presented in these consolidated financial statements are those of the legal subsidiary, Maximum Awards (Pty) Limited, Travel Easy and Global Business. The weighted average and total number of shares outstanding have been retroactively restated for each period to reflect the number of shares issued to shareholders of the subsidiary at acquisition. c) Unit of Measurement United States of America currency is being used as the unit of measurement in these financial statements. d) Use of Estimates In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. e) Inventory Inventory consists of goods purchased for resale. Inventory is stated at the lower of cost (first-in, first-out method) and net realizable value. F-8 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 3. Summary of Significant Accounting Policies (cont'd) f) Revenue Recognition Consumer Reward Points Program Membership fee revenue represents annual membership fees paid by all of the Company's members. The Company accounts for membership fee income on a "deferred basis" whereby membership fee income is recognized ratably over the one-year life of the membership. The Company recognizes commission income from a participating vendor when the consumer has earned points from their purchases. Travel Agency The Company earns commission revenues from ticket sales and reports this revenue in accordance with Emerging Issues Task Force ("EITF") Issue No.99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". The Company is an agent and not the primary obligor, and accordingly the amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two. Online Shopping Revenues from the sale of goods are recognized when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. g) Consumer Reward Points Program The Company's consumer rewards points program allows members to earn points that can be redeemed for a broad range of travel and retail merchandise. The Company makes payments from the escrow account on reward redemptions when members redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of member rewards is based upon points awarded that are ultimately expected to be redeemed by members using the current weighted-average cost per point of redemption. The ultimate points to be redeemed are estimated based on many factors, including a review of past behavior of members segmented by product, year of enrollment in the program; spend level and duration in the program. Past behavior is used to predict when current enrollees will attrite and their ultimate redemption rate. In addition, the cumulative balance sheet liability for unredeemed points is adjusted over time based on actual redemption and cost experience with respect to redemptions. h) Foreign Currency Translation The Company accounts for foreign currency translation pursuant to SFAS No. 52, "Foreign Currency Translation". The company's functional currency is the Australian dollar. All assets and liabilities are translated into U.S. dollars using the current exchange rate. Revenues and expenses are translated using the average exchange rates prevailing throughout the year. Translation adjustments are included in other comprehensive income for the period. F-9 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 3. Summary of Significant Accounting Policies (cont'd) i) Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair value. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. At December 31, 2003 and 2002, the carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued charges, and notes payable approximate their fair values due to the short-term maturities of these instruments. j) Furniture and Equipment Furniture and equipment is stated at cost. Depreciation, based on the estimated useful lives of the assets, is provided using the undernoted annual rates and methods: Furniture and equipment 20% Declining balance Additions during the year are depreciated at half the normal rate. k) Impairment of Long-Lived Assets In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less cost to sell. As described in Note 2, the long-lived assets have been valued on a going concern basis. However, substantial doubt exists as to the ability of the Company to continue as a going concern. If the Company ceases operations, the asset values may be materially impaired. l) Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. F-10 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 3. Summary of Significant Accounting Policies (cont'd) m) Stock Based Compensation In accordance with SFAS No. 123 "Accounting for Stock-Based Compensation", the Company enters into transactions in which goods or services are the consideration received for the issuance of equity instruments. The value of these transactions are measured and accounted for, based on the fair value of the equity instrument issued or the value of the services, whichever is more reliably measurable. The services are expensed in the periods during which the services are rendered. n) Net Loss per Common Share The Company calculates net loss per share based on SFAS No. 128, "Earnings Per Share". Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The common shares outstanding for 2002 have been calculated by using the number of shares issued by the legal parent for the reverse take over mentioned in Note 1. o) Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of changes in stockholders' equity, and consists of net loss and unrealized gains (losses) on available for sale marketable securities; foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments recognized in accordance with SFAS 87. SFAS No. 130 requires only additional disclosures in the financial statements and does not affect the Company's financial position or results of operations. p) Concentration of Credit Risk SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk", requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company does not have significant off-balance sheet risk or credit concentration. The Company maintains cash with major Australian financial institutions. The Company provides credit to its clients in the normal course of its operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses which, once they materialize, are consistent with management's forecasts. F-11 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 3. Summary of Significant Accounting Policies (cont'd) p) Concentration of Credit Risk (cont'd) For other debts, the Company determines, on a continuing basis, the probable losses and sets up a provision for losses based on the estimated realizable value. Concentration of credit risk arises when a group of clients having a similar characteristic such that their ability to meet their obligations is expected to be affected similarly by changes in economic conditions. The Company does not have any significant risk with respect to a single client. q) Segment Reporting SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the manner in which public enterprises report segment information about operating segments. The Company has determined that its operations primarily involve three reportable segments based on the companies being consolidated: Maximum Awards Inc. - a consumer rewards program; Travel Easy Holidays Pty Ltd. - a travel agency; and Global Business Group Pty Ltd. - an online shopping business. r) Recent Accounting Pronouncements In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 in December 2003 which modifies and clarifies various aspects of the original interpretations. A Variable Interest Entity ("VIE") is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, pursuant to FIN 46, an enterprise that absorbs a majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE. For VIEs created before January 31, 2003, FIN 46 was deferred to the end of the first interim or annual period ending after March 15, 2004. The adoption of FIN 46 did not have a material impact on the financial position or results of operations of the Company. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity" ("SFAS No. 150"). This standard requires issuers to classify as liabilities the following three types of freestanding financial instruments: (1) mandatory redeemable financial instruments, (2) obligations to repurchase the issuer's equity shares by transferring assets; and (3) certain obligations to issue a variable number of shares. The Company adopted SFAS No. 150 effective July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the financial position or results of operations of the Company. F-12
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 3. Summary of Significant Accounting Policies (cont'd) r) Recent Accounting Pronouncements (cont'd) In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition" which supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21. The Company adopted the provisions of this statement and it did not have a material impact on the financial position or results of the Company. 4. Notes Receivable 2003 2002 Notes receivable from companies controlled by a director of the Company: Aussie Watchdog (Pty) Ltd. $ -- $ 5,301 Notes receivable from directors of the Company: Maxwell Thomas -- 13,219 ---------- ---------- $ -- $ 18,520 ========== ========== The notes receivable are non-interest bearing and have no specified terms of repayment. These notes were repaid in the 2003 year end. 5. Furniture and Equipment 2003 2002 Accumulated Accumulated Cost Depreciation Cost Depreciation ------------ ------------ ------------ ------------ Office furniture and equipment $ 6,393 $ 1,721 $ 4,841 $ 484 ------------ ------------ ------------ ------------ Net carrying amount $ 4,672 $ 4,357 ------------ ------------
F-13 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 6. Notes Payable 2003 2002 Notes payable to companies controlled by a director of the Company: Aussie Watchdog $ 453 $ -- Notes payable to directors of the Company: Maxwell Thomas 1,386 -- Michael Sullivan 457 -- Notes payable to unrelated parties: A & D Bushell 19,359 -- K & L Krueger 8,007 -- ---------- ---------- $ 29,662 $ -- ========== ========== The notes payable are non-interest bearing, unsecured and have no specified terms of repayment. Starting January 1, 2004, the notes will bear interest at 6% per annum. The funds received from these notes were utilized in the general working capital of the Company. F-14
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 7. Capital Stock Authorized 100,000,000 Common shares, par value of $0.001 per share 10,000,000 Preferred shares, Series "A", par value of $0.001 per share, non-participating, voting rights of 50 votes per share 2003 2002 Issued 24,957,950 Common shares (2002 -757,950) $ 24,958 $ 758 1,000,000 Preferred shares, Series "A" (2002 - nil) 1,000 -- ----------- ----------- $ 25,958 $ 758 =========== ===========
The Company was incorporated in Nevada on March 7, 1996 having an authorized share capital of 25,000,000 common stock with a par value of $0.001 per share. On November 19, 2003, the Company amended its authorized share capital to increase the number of its authorized common shares to 100,000,000 common shares and to create 10,000,000 preferred shares with a par value of $0.001 per share. The rights of the preferred shares are to be determined at the discretion of the directors. On December 5, 2003, the board of directors designated 1,000,000 Series "A" preferred shares. The Series "A" preferred shares are non-participating but carry 50 votes per share at a general meeting. The remaining 9,000,000 preferred shares have not as yet been designated. During the year 2003, the shareholder of Maximum Awards Pty Ltd. contributed $179,523 to fund operating expenses. The amount was recorded in equity of the legal subsidiary, Maximum Awards Pty Ltd., and it has been reflected as additional paid in capital upon consolidation. F-15 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 8. Segmented Information 2003 2002 Revenues by Segment: Maximum Awards - consumer rewards program $ 53,566 $ 8,056 Travel Easy - travel agency 117,845 12,832 Global Business - online shopping 60,059 -- --------- --------- Consolidated revenues $ 231,470 $ 20,888 ========= ========= Operating Earnings (Loss) by Segment: Maximum Awards - consumer rewards program $ (56,417) $ (35,921) Travel Easy - travel agency 7,934 (13,474) Global Business - online shopping (46,375) -- --------- --------- Consolidated operating loss $ (94,858) $ (49,395) ========= ========= Net Assets by Segment: Maximum Awards - consumer rewards program $ 21,458 $ (37,239) Travel Easy - travel agency 30,693 14,174 Global Business - online shopping (9,035) -- --------- --------- Consolidated net assets $ 43,116 $ (23,065) ========= ========= Geographical information is not presented as the Company's consolidated operations occur in Australia. The Company does not earn any significant revenues from a single customer. F-16
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 9. Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". This Standard prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. Under SFAS No. 109 income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The Company's current income taxes is as follows: 2003 2002 Expected income tax recovery at the statutory rate of 34% $ (32,252) $ (16,794) Australian income taxes 3,417 -- Valuation allowance 32,252 16,794 --------- --------- Current income taxes $ 3,417 $ -- ========= ========= The Company has deferred income tax assets as follows: 2003 2002 Loss carry-forwards $ 49,046 $ 16,794 Valuation allowance (49,046) (16,794) --------- --------- $ -- $ -- ========= =========
As of December 31, 2003, the Company had net operating loss carryforwards for income tax reporting purposes of approximately $143,000 that may be offset against future taxable income indefinitely. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs or a change in the nature of the business. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements as the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. F-17
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 10. Related Party Transactions The following table summarizes the Company's related party transactions, that occurred in the normal course of operations for the year, measured at the exchange amount: 2003 2002 At the end of the year, the advances due to and (from) related entities are as follows: Included in Notes Receivable - amounts due from directors and companies controlled by directors of the Company $ -- $ 18,520 Included in Notes Payable - amounts due to directors and companies controlled by directors of the Company 2,296 --
11. Commitments and Contingencies The Company is committed to a lease obligation expiring in December 2006. Future minimum annual payments (exclusive of taxes, insurance and maintenance costs) under these leases are as follows: 2004 $ 40,021 2005 40,021 2006 40,021 ------------ $ 120,063 ------------ Rent expense for the years ended December 31, 2003 and 2002 was $11,432 and $6,223 respectively. F-18 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 12. Restatement of Financial Statements The Company's financial statements were audited on January 24, 2004 by Forbush and Associates, then by SF Partnership LLP on May 27, 2004 and September 3, 2004. Subsequent to the issuance of the audit report dated May 27, 2004, the company purchased two subsidiaries for a nominal amount which resulted in an exchange of equity interests between entities under common control. This business combination was recorded using the pooling of interests method which necessitated having to retroactively restate the results of operations and financial position for the periods presented as if the transaction had occurred at the beginning of the period. In the previous audit reports issued, the Company was considered in the development stage. As these restated consolidated financial statements include three operating segments; and planned principal operations have commenced in at least one of those segments, the Company is no longer considered in the development stage. a) The adjustments in column (a) arise from the differences in foreign currency exchange rates used, the treatment of foreign currency translation adjustment, classification of general ledger accounts between accounts receivable and payable, and the reversal of an expense accrual. b) The adjustments in column (b) arise from the combination of Travel Easy and Global Business using the pooling of interest method as mentioned in Note 1. c) The adjustment in column (c) arise from the reclassification of the legal parent's deficit from accumulated deficit to additional paid in capital due to the recapitalization from the reverse takeover mentioned in Note 1. d) The adjustments in column (d) arise from the differences in foreign currency exchange rates used, and the treatment of foreign currency translation adjustment. e) The adjustment in column (e) reflects the restatement made to accumulated deficit in the 2002 year end between the audited balances at January 24 and May 27, 2004. f) The adjustment in column (f) reflects the restatement made to accumulated deficit in the 2002 year end between the audited balances at May 27 and September 3, 2004. F-19
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 12. Restatement of Financial Statements (cont'd) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ 2002 Year Ended Audited Balance at Adjustment Adjustment Audited Balance Adjustment Adjustment Audited Balance at Stated in Dollars January 24, 2004 (a) at May 27, 2004 (b) (c) September 3, 2004 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Cash 884 (4) 880 696 1,576 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Cash held in escrow 0 0 1,569 1,569 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accounts Receivable 1,077 (920) 157 1,770 1,927 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Inventory 0 0 0 0 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Prepaid and sundry 519 (3) 516 0 516 assets ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Notes receivable 8,219 (36) 8,183 10,337 18,520 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Furniture and 0 0 0 4,357 4,357 equipment ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accounts payable and 22,207 (8,736) 13,471 2,987 16,458 accrued charges ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Deferred membership 0 0 0 33,503 33,503 fee income ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Notes payable 0 0 0 0 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Liability for 0 0 1,569 1,569 unredeemed points ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Capital Stock 758 0 758 0 758 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Additional Paid in 0 0 0 28,125 (758) 27,367 Capital ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accumulated Other 0 (132) (132) (1,663) (1,795) Comprehensive Loss ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accumulated Deficit (12,266) 7,905 (4,361) (45,791) 758 (49,395) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Revenue 42,040 (1,667) 40,373 (19,485) 20,888 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Cost of Sales 0 0 0 0 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ General and 53,548 (9,571) 43,977 25,822 69,799 administrative ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Financial 0 0 0 0 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Amortization 0 0 0 484 484 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Income tax expense 0 0 0 0 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Net Loss (11,508) 7,904 (3,604) (45,791) (49,395) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Foreign currency 0 0 0 (1,795) (1,795) translation adjustment ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Comprehensive Loss 0 0 0 (51,190) (51,190) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ 2003 Year Ended Audited Balance at Adjustment Adjustment Audited Balance Adjustment Adjustment Audited Balance at Stated in Dollars January 24, 2004 (d) (e) at May 27, 2004 (b) (f) September 3, 2004 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Cash 6,019 20 6,039 9,724 15,763 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Cash held in escrow 0 0 1,538 1,538 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accounts Receivable 5,917 20 5,937 27,312 33,249 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Inventory 0 0 0 4,495 4,495 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Prepaid and sundry 52,895 178 53,073 0 53,073 assets ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Notes receivable 182,819 1,739 184,558 (184,558) 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Furniture and 0 0 0 4672 4,672 equipment ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accounts payable and 8,959 1,154 10,113 26,800 36,913 accrued charges ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Deferred membership 0 0 0 1,561 1,561 fee income ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Notes payable 130,199 (689) 129,510 (99,848) 29,662 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Liability for 0 0 1,538 1,538 unredeemed points ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Capital Stock 25,958 0 25,958 0 25,958 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Additional Paid in 153,722 601 154,323 65,725 220,048 Capital ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accumulated Other 0 (10,171) (10,171) (44,291) (54,462) Comprehensive Loss ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Accumulated Deficit (71,188) 3,157 7,905 (60,126) (43,268) (45,033) (152,137) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Revenue 19,019 (2,801) 16,218 215,252 231,470 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Cost of Sales 0 0 0 67,861 67,861 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ General and 77,941 (5,958) 71,983 185,247 257,230 administrative ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Financial 0 0 0 0 0 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Amortization 0 0 0 1,237 1,237 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Income tax expense 0 0 0 3,417 3,417 ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Net Loss (58,922) 3,157 (55,765) (42,510) (98,275) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Foreign currency 0 0 0 (52,667) (52,667) translation adjustment ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------ Comprehensive Loss 0 0 0 (150,942) (150,942) ----------------------- ------------------ ---------- ---------- --------------- ---------- ---------- ------------------
F-20
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements December 31, 2003 and 2002 13. Supplemental Disclosure of Cash Flow Information: The Company had no cash flows from interest paid or income taxes paid for the years ended December 31, 2003 and 2002. 2003 2002 Supplemental Disclosure of Non-Cash Transactions: Foreign currency translation adjustment $ (52,667) $ (1,795)
F-21 MAXIMUM AWARDS INC. CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2004 AND DECEMBER 31, 2003 UNAUDITIED CONTENTS Report of Independent Registered Public Accounting Firm F-23 Consolidated Balance Sheets F-24 Consolidated Statements of Operations F-25 Consolidated Statements of Cash Flows F-26 Notes to Consolidated Financial Statements F-27 - F-40 F-22 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders of Maximum Awards Inc. We have reviewed the accompanying consolidated balance sheet of Maximum Awards Inc., as at March 31, 2004 and the related consolidated statements of operations for the three-month periods ended March 31, 2004 and 2003 and the consolidated statements of cash flows for the three-month periods ended March 31, 2004 and 2003. These interim financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles. As discussed in Note 10 to the accompanying unaudited consolidated financial statements, the Company restated the consolidated balance sheet as at March 31, 2004 and the related consolidated statements of operations and cash flows for the three-month periods ended March 31, 2004 and 2003. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Maximum Awards Inc. as at December 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficiency), and cash flows for the years then ended, and in our report dated May 27, 2004 and September 3, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. "SF Partnership, LLP" Toronto, Canada CHARTERED ACCOUNTANTS October 13, 2004 F-23
MAXIMUM AWARDS INC. Consolidated Balance Sheets March 31, 2004 and December 31, 2003 Unaudited March December 2004 2003 (Restated) (Restated) (Note 10) (Note 10) ASSETS Current Cash $ 10,873 $ 15,763 Cash held in Escrow 1,362 1,538 Accounts receivable 33,338 33,249 Inventory 4,296 4,495 Prepaid and sundry assets 2,688 53,073 --------- --------- 52,557 108,118 Furniture and Equipment (note 4) 4,806 4,672 --------- --------- $ 57,363 $ 112,790 ========= ========= LIABILITIES Current Accounts payable and accrued charges $ 69,587 $ 36,913 Deferred membership fee income 581 1,561 Notes payable (note 5) 101,972 29,662 Liability for unredeemed points 1,362 1,538 --------- --------- 173,502 69,674 --------- --------- STOCKHOLDERS' (DEFICIENCY) EQUITY Capital Stock (note 6) 25,958 25,958 Additional Paid-In Capital 263,446 219,290 Accumulated Other Comprehensive Loss (55,046) (54,462) Accumulated Deficit (350,497) (147,670) --------- --------- (116,139) 43,116 --------- --------- $ 57,363 $ 112,790 --------- ---------
(The accompanying notes are an integral part of these consolidated interim financial statements) F-24 MAXIMUM AWARDS INC. Consolidated Statements of Operations Three Months Ended March 31, 2004 and 2003 Unaudited Three Three Months Months March 31, March 31, 2004 2003 (Restated) (Restated) (Note 10) (Note 10) Revenue 31,096 38,653 Cost of Sales 16,029 -- ----------- ----------- Gross Profit 15,067 38,653 Expenses General and administration 147,429 54,894 Legal and professional fees 68,073 -- Depreciation 242 260 Interest 2,150 -- ----------- ----------- Total 217,894 55,154 Loss before tax (202,827) (16,501) Tax expense -- -- ----------- ----------- Net Loss (202,827) (16,501) ----------- ----------- Basic and fully diluted Loss per share ($ 0.008) ($ 0.001) ----------- ----------- Basic and Fully Diluted Weighted Average Number of Shares 24,957,950 24,200,000 ----------- ----------- (The accompanying notes are an integral part of these consolidated interim financial statements) F-25
MAXIMUM AWARDS INC. Consolidated Statements of Cash Flows Three Months Ended March 31, 2004 and 2003 Unaudited March 31, March 31, 2004 2003 ---- ---- (Restated) (Restated) (Note 10) (Note 10) Cash Flows from Operating Activities Net loss $(202,827) $ (16,501) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 242 260 Accounts receivable 353 (475) Inventory 258 -- Prepaid and sundry assets 51,091 541 Liability for unredeemed points (196) 821 Accounts payable and accrued charges 32,182 23,230 Deferred membership fee income (1,001) (6,342) --------- --------- (119,898) 1,534 --------- --------- Cash Flows from Investing Activities Proceeds from notes receivable -- 19,412 Purchase of equipment (376) (499) --------- --------- (376) 18,913 --------- --------- Cash Flows from Financing Activities Proceeds from notes payable 71,916 26,539 Proceeds from additional paid in capital 44,156 -- Proceeds from issuance of capital stock -- -- --------- --------- 116,072 26,539 --------- --------- Net (Decrease) Increase in Cash (4,202) 46,986 Foreign exchange on cash balances (864) (11,139) Cash - beginning of year 17,301 3,145 --------- --------- Cash - end of period $ 12,235 $ 38,992 ========= ========= Cash is represented by the following: Cash 10,873 36,464 Cash held in Escrow 1,362 2,528 --------- --------- Total Cash 12,235 38,992 --------- ---------
(The accompanying notes are an integral part of these consolidated interim financial statements) F-26 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 1. Operations and Business Maximum Awards, Inc, formerly known as Rising Fortune Incorporated ("the Company"), was incorporated in the State of Nevada on March 7, 1995. The Company was inactive between 1996 and 2000. In 2000 the Company entered into an agreement to distribute product. However, the agreement never materialized and the Company continued to remain inactive until November 18, 2003. On November 19, 2003, the Company amended its Articles of Incorporation to change its name to Maximum Awards Inc. On December 9, 2003, the Company entered into a definitive Share Exchange Agreement (the "Agreement") with Maximum Awards (Pty) Limited, an Australian corporation operating a consumer rewards program, whereby the Company acquired all of the issued and outstanding shares of the Subsidiary in exchange for 22,000,000 common shares and 1,000,000 preferred shares Series "A" of the Company. The preferred shares Series "A" are non-participating, but each share is entitled to 50 votes in a general meeting. In addition, the Company issued 2,200,000 common shares as a finder's fee for assistance in the acquisition of the Subsidiary. As a result of the Agreement, the shareholder of Maximum Awards (Pty) Limited controls 96% of the Company. While the Company is the legal parent, as a result of the reverse takeover, Maximum Awards (Pty) Limited became the parent company for accounting purposes. On June 1, 2004, the Company, through its subsidiary, Maximum Awards Pty Ltd, acquired 100% of the issued and outstanding share capital of both Global Business Group Australia Pty Ltd ("Global Business") and Travel Easy Holidays Pty Ltd ("Travel Easy") from the directors of the respective companies for $1.00. Global Business and Travel Easy are controlled by the same shareholder, who controls the Company and Maximum Awards Pty Ltd. As such, this transfer of equity interests between common controlled entities is accounted for by using the pooling method as prescribed under SFAS No. 141. The assets, liabilities, income and expenses of Global Business and Travel Easy have been brought forward on a historical basis in these restated financial statements of the Company. The equity of Global Business and Travel Easy have been brought forward on a historical basis and included in additional paid in capital of the Company. The Company currently operates a loyalty and rewards program known as Maximum Awards. Under this program, consumers earn points by purchasing products and services from a range offered by the Company's subsidiaries, Global Business and Travel Easy, or program partners. Accumulated points then can be redeemed in order to acquire additional desired products or services from the same list of such items offered by the company's subsidiaries. The Company's subsidiary, Global Business, maintains a catalogue of available goods and services which a member can purchase, or acquire through the redemption of points. Travel Easy is a licensed travel agency, which services the public and also allows members to purchase travel services or redeem points for airline tickets or travel packages. F-27 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 2. Going Concern These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has sustained operating losses since inception, has raised minimal capital and has no long-term contracts related to its business plans. The Company's continuation as a going concern is uncertain and dependant on successfully bringing its services to market, achieving future profitable operations and obtaining additional sources of financing to sustain its operations, the outcome of which cannot be predicted at this time. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. Though the business plan indicates profitable operation in the coming year, these profits are contingent on completing and fulfilling contracts with various providers of goods and services throughout the world to provide the company with a cashflow to sustain operations. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. 3. Summary of Significant Accounting Policies a) Basis of Financial Statement Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. F-28 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) b) Basis of Consolidation The merger of the Company and Maximum Awards (Pty) Limited has been recorded as the recapitalization of the Company, with the net assets of Maximum Awards (Pty) Limited and the Company brought forward at their historical basis. The intention of the management of Maximum Awards (Pty) Limited was to acquire the Company as a shell company to be listed on the OTC Bulletin Board. Management does not intend to pursue the business of the Company. As such, accounting for the merger as the recapitalization of the Company is deemed appropriate. As mentioned in Note 1, these consolidated financial statements include the assets, liabilities, equity, income and expenses of Global Business and Travel Easy using the pooling method. The comparative figures presented in these consolidated financial statements are those of the legal subsidiary, Maximum Awards (Pty) Limited, Travel Easy and Global Business. The weighted average and total number of shares outstanding have been retroactively restated for each period to reflect the number of shares issued to shareholders of the subsidiary at acquisition. c) Recent Accounting Pronouncements In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 in December 2003 which modifies and clarifies various aspects of the original interpretations. A Variable Interest Entity ("VIE") is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, pursuant to FIN 46, an enterprise that absorbs a majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE. For VIEs created before January 31, 2003, FIN 46 was deferred to the end of the first interim or annual period ending after March 15, 2004. The adoption of FIN 46 did not have a material impact on the financial position or results of operations of the Company. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity" ("SFAS No. 150"). This standard requires issuers to classify as liabilities the following three types of freestanding financial instruments: (1) mandatory redeemable financial instruments, (2) obligations to repurchase the issuer's equity shares by transferring assets; and (3) certain obligations to issue a variable number of shares. The Company adopted SFAS No. 150 effective July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the financial position or results of operations of the Company. F-29 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) c) Recent Accounting Pronouncements (cont'd) In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition" which supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21. The Company adopted the provisions of this statement and it did not have a material impact on the financial position or results of operations of the Company. d) Unit of Measurement United States of America currency is being used as the unit of measurement in these financial statements. e) Use of Estimates In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. f) Inventory Inventory consists of goods purchased for resale. Inventory is stated at the lower of cost (first-in, first-out method) and net realizable value. g) Revenue Recognition Consumer Reward Points Program Membership fee revenue represents annual membership fees paid by all of the Company's members. The Company accounts for membership fee income on a "deferred basis" whereby membership fee income is recognized ratably over the one-year life of the membership. The Company recognizes commission income from a participating vendor when the consumer has earned points from their purchases. F-30 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) g) Revenue Recognition (cont'd) Travel Agency The Company earns commission revenues from ticket sales and reports this revenue in accordance with Emerging Issues Task Force ("EITF") Issue No.99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". The Company is an agent and not the primary obligor, and accordingly the amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two. Online Shopping Revenues from the sale of goods are recognized when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. h) Consumer Reward Points Program The Company's consumer reward points program allows members to earn points that can be redeemed for a broad range of travel and retail merchandise. The Company makes payments from the escrow account on reward redemptions when members redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of member rewards is based upon points awarded that are ultimately expected to be redeemed by members using the current weighted-average cost per point of redemption. The ultimate points to be redeemed are estimated based on many factors, including a review of past behavior of members segmented by product, year of enrollment in the program; spend level and duration in the program. Past behavior is used to predict when current enrollees will attrite and their ultimate redemption rate. In addition, the cumulative balance sheet liability for unredeemed points is adjusted over time based on actual redemption and cost experience with respect to redemptions. i) Foreign Currency Translation The Company accounts for foreign currency translation pursuant to SFAS No. 52, "Foreign Currency Translation". The company's functional currency is the Australian dollar. All assets and liabilities are translated into U.S. dollars using the current exchange rate. Revenues and expenses are translated using the average exchange rates prevailing throughout the year. Translation adjustments are included in other comprehensive income for the period. F-31 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) j) Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair value. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. At March 30, 2004 and December 31, 2003, the carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued charges, and notes payable approximate their fair values due to the short-term maturities of these instruments. k) Furniture and Equipment Furniture and equipment is stated at cost. Depreciation, based on the estimated useful lives of the assets, is provided using the undernoted annual rates and methods: Furniture and equipment 20% Declining balance Additions during the year are depreciated at half the normal rate. l) Impairment of Long-Lived Assets In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less cost to sell. As described in Note 2, the long-lived assets have been valued on a going concern basis. However, substantial doubt exists as to the ability of the Company to continue as a going concern. If the Company ceases operations, the asset values may be materially impaired. m) Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. F-32 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) n) Stock Based Compensation The Company enters into transactions in which goods or services are the consideration received for the issuance of equity instruments. The value of these transactions are measured and accounted for, based on the fair value of the equity instrument issued or the value of the services, whichever is more reliably measurable. The services are expensed in the periods during which the services are rendered. o) Net Loss per Common Share The Company calculates net loss per share based on SFAS No. 128, "Earnings Per Share". Basic loss per share is computed by dividing net loss attributable to the common stockholders by the weighted average number of common shares outstanding. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The common shares outstanding for 2003 have been calculated by using the number of shares issued by the legal parent for the reverse take over mentioned in Note 1. p) Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of changes in stockholders' equity, and consists of net loss and unrealized gains (losses) on available for sale marketable securities; foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments recognized in accordance with SFAS 87. SFAS No. 130 requires only additional disclosures in the financial statements and does not affect the Company's financial position or results of operations. F-33
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) q) Concentration of Credit Risk SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk", requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company does not have significant off-balance sheet risk or credit concentration. The Company maintains cash with major Australian financial institutions. The Company provides credit to its clients in the normal course of its operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses which, once they materialize, are consistent with management's forecasts. For other debts, the Company determines, on a continuing basis, the probable losses and sets up a provision for losses based on the estimated realizable value. Concentration of credit risk arises when a group of clients having a similar characteristic such that their ability to meet their obligations is expected to be affected similarly by changes in economic conditions. The Company does not have any significant risk with respect to a single client. r) Segment Reporting SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the manner in which public enterprises report segment information about operating segments. The Company has determined that its operations primarily involve three reportable segments based on the companies being consolidated: Maximum Awards Inc. - a consumer rewards program; Travel Easy Holidays Pty Ltd. - a travel agency; and Global Business Group Pty Ltd. - an online shopping business. 4. Furniture and Equipment 2004 2003 Accumulated Accumulated Cost Depreciation Cost Depreciation ------------- ------------- ------------- ------------- Office furniture and equipment $ 6,769 $ 1,963 $ 6,393 $ 1,721 ------------- ------------- ------------- ------------- Net carrying amount $ 4,806 $ 4,672 ------------- -------------
F-34 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 5. Notes Payable 2004 2003 Notes payable to companies controlled by a director of the Company: Aussie Watchdog $ 4,026 $ 453 Notes payable to directors of the Company: Maxwell Thomas 27,779 1,386 Michael Sullivan 8,000 457 Notes payable to unrelated parties: A & D Bushell -- 19,359 N Stough 53,911 -- K & L Krueger 8,256 8,007 ------------ ------------ $ 101,972 $ 29,662 ============ ============ The notes payable are non-interest bearing, unsecured and have no specified terms of repayment. The notes bear interest at 6% per annum effective January 1, 2004. The funds received from these notes were utilized in the general working capital of the Company. F-35
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 6. Capital Stock Authorized 100,000,000 Common shares, par value of $0.001 per share 10,000,000 Preferred shares, Series "A", par value of $0.001 per share, non-participating, voting rights of 50 votes per share 2004 2003 Issued 24,957,950 Common shares (2003 -24,957,950) $ 24,958 $ 24,958 1,000,000 Preferred shares, Series "A" (2002 - 1,000,000) 1,000 1,000 --------- --------- $ 25,958 $ 25,958 ========= =========
On December 5, 2003, the board of directors designated 1,000,000 Series "A" preferred shares. The Series "A" preferred shares are non-participating but carry 50 votes per share at a general meeting. The remaining 9,000,000 preferred shares have not as yet been designated. Between January 01, 2004 and March 31, 2004, the company received $44,156 as paid-in capital from shareholders of the Company. F-36 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 7. Segmented Information 3 Months 3 Months March 31, March 31, 2004 2003 --------- --------- Revenues by Segment: Maximum Awards - rewards program 3,741 13,204 Travel Easy - travel agency 17,109 25,449 Global Business - online shopping 10,246 -- --------- --------- Consolidated revenues 31,096 38,653 Operating Earnings (Loss) by Segment: Maximum Awards - rewards program (156,416) (16,079) Travel Easy - travel agency (23,278) (422) Global Business - online shopping (23,133) -- --------- --------- Consolidated operating loss (202,827) (16,501) Net Assets by Segment: Maximum Awards - rewards program (68,765) (56,456) Travel Easy -Travel agency (6,497) 15,322 Global Business - online shopping (40,877) -- --------- --------- Consolidated net assets (116,139) (41,134) Geographical information is not presented as the Company's consolidated operations occur in Australia. The Company did not earn any significant revenues from a single customer. 8. Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". This Standard prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. Under SFAS No. 109 income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. F-37 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 8. Income Taxes (cont'd) The Company's current income taxes is as follows: 3 Months Year March 31, Dec. 31, 2004 2003 ---- ---- Expected Income tax recovery at statutory tax rate of 34% $ (68,961) $ (32,252) Australian income taxes -- 3,417 Valuation allowance 68,961 32,252 ---------- ---------- Current income taxes $ -- $ 3,417 ---------- ---------- As of December 31, 2003, the Company had a net operating loss carry forwards for income tax reporting purposes of approximately $143,000 that may be offset against future taxable income indefinitely. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs or a change in the nature of the business. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. 9. Related Party Transactions The following table summarizes the Company's related party transactions that occurred in the normal course of operations for the period, measured at the exchange amount: 2004 2003 At the end of the year, the advances due to and (from) related entities are as follows: Included in Notes Payable - amounts due to directors and companies controlled by directors of the Company $ 39,805 2,296 F-38
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 10. Restatement of Financial Statements Unaudited Restated Unaudited Balance at Adjustment Adjustment Balance at March 31, 2004 (A) (B) March 31, 2004 -------------- ---------- ---------- ------------------ Cash 1,084 9,789 10,873 Cash held in Escrow 0 1,362 0 1,362 Accounts Receivable 2,033 31,305 33,338 Inventory 0 4,296 4,296 Prepaid and sundry assets 0 2,688 2,688 Notes receivable 167,782 (167,782) 0 Furniture and equipment 0 4806 4,806 Accounts payable and accrued 37,179 32,408 69,587 charges Deferred membership fee income 0 581 581 Liability for unredeemed points 0 1.362 0 1,362 Notes payable 157,272 (55,300) 101,972 Capital Stock 25,958 25,958 Additional Paid in Capital 200,802 62,644 264,204 Accumulated Other Comprehensive (26,657) (28,389) (55,046) Loss Accumulated Deficit (223,655) (581) (126,261) (350,497) Revenue 4,072 (581) 27,605 31,096 Cost of Sales 0 16,029 16,029 General and administrative 112,377 35,052 147,429 Interest 2,150 2,150 Depreciation 0 242 242 Legal and professional fees 53,073 15,000 68,073 Income tax expense 0 0 Net Loss (163,528) (581) (38,718) (202,827)
F-39
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements March 31, 2004 and December 31, 2003 Unaudited 10. Restatement of Financial Statements (cont'd) The Financial statements for the quarter ended March 31, 2004 have been restated to include the accounts of Global Business Group Pty Ltd and Travel Easy Pty Ltd. Both of these corporations were acquired by the Company subsequent to the March 31, 2004 quarter, but have been included into these interim financial statements of the Company because of the common control that exists through the ownership and directors of the Company. The restatement adjustments arise from: A) The provision of deferred income in the prior year and the reversal of a portion of that income against income during the quarter plus the inclusion of cash held in escrow and the associated liability for unredeemed points. B) The inclusion of the accounts of Global Business Group Pty Ltd and Travel Easy Pty Ltd . The restatement of the statement of operations for the 3 months ended March 31, 2003 includes the accounts of Travel Easy Pty Ltd . Global Business Group did not commence operations until after June 2003. The restated Balance Sheet for the Year Ended December 31, 2003 should be read in conjunction with the audited Financial Statements for the year-ended December 31, 2003. 11. Supplemental Disclosure of Cash Flow Information: 3 Months 3 Months March 31, March 31, 2004 2003 ---- ---- Cash paid during the year for: Interest paid $ -- $ -- Income taxes paid -- -- Supplemental Disclosure of Non-Cash Transactions: Foreign currency translation adjustment $ (584) $ (4,309)
F-40 MAXIMUM AWARDS INC. CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 AND DECEMBER 31, 2003 UNAUDITIED CONTENTS Report of Independent Registered Public Accounting Firm F-42 Consolidated Balance Sheets F-43 Consolidated Statements of Operations F-44 Consolidated Statements of Cash Flows F-45 Notes to Consolidated Financial Statements F-46 - F-58 F-41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders of Maximum Awards Inc. We have reviewed the accompanying consolidated balance sheet of Maximum Awards Inc., as at June 30, 2004 and the related consolidated statements of operations for the three-month periods ended June 30, 2004 and 2003 and six-month periods ended June 30, 2004 and 2003, and the consolidated statements of cash flows for the six-month periods ended June 30, 2004 and 2003. These interim financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Maximum Awards Inc. as at December 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficiency), and cash flows for the years then ended, and in our report dated May 27, 2004 and September 3, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. "SF Partnership, LLP" Toronto, Canada CHARTERED ACCOUNTANTS October 13, 2004 F-42
MAXIMUM AWARDS INC. Consolidated Balance Sheets June 30, 2004 and December 31, 2003 Unaudited June December 2004 2003 (Restated) (Note 10) ASSETS Current Cash $ 9,631 $ 15,763 Cash held in Escrow 1,258 1,538 Accounts receivable 71,416 33,249 Inventory 4,155 4,495 Prepaid and sundry assets -- 53,073 --------- --------- 86,460 108,118 Furniture and Equipment (note 4) 5,340 4,672 --------- --------- $ 91,800 $ 112,790 ========= ========= LIABILITIES Current Accounts payable and accrued charges $ 69,141 $ 36,913 Deferred membership fee income 213 1,561 Notes Payable (note 5) 54,508 29,662 Liability for Unredeemed Points 1,258 1,538 --------- --------- 125,120 69,674 --------- --------- STOCKHOLDERS' (DEFICIENCY) EQUITY Capital Stock (note 6) 26,073 25,958 Additional Paid-In Capital 345,311 219,290 Accumulated Other Comprehensive Loss (52,184) (54,462) Accumulated Deficit (352,520) (147,670) --------- --------- (33,320) 43,116 --------- --------- $ 91,800 $ 112,790 --------- ---------
(The accompanying notes are an integral part of these consolidated interim financial statements) F-43
MAXIMUM AWARDS INC. Consolidated Statements of Operations Three Months Ended June 30, 2004 and 2003 and Six Months ended June 30, 2004 and 2003 Unaudited Three Months Six Months Three Months Six Months June 30, June 30, June 30, June 30, 2004 2004 2003 2003 ----------- ----------- ----------- ----------- Revenue 93,403 124,499 66,398 105,051 Cost of Sales 21,097 37,126 -- -- ----------- ----------- ----------- ----------- Gross Profit 72,306 87,373 66,398 105,051 Expenses General and administration 53,891 201,320 38,454 93,348 Legal and professional fees 15,000 83,073 -- -- Depreciation 303 545 282 542 Interest 658 2,808 -- -- ----------- ----------- ----------- ----------- Total 69,852 287,746 38,736 93,890 Income (Loss) before tax 2,454 (200,373) 27,662 11,161 Tax expense 4,478 4,478 3,356 3,356 ----------- ----------- ----------- ----------- Net Income (Loss) (2,024) (204,851) 24,306 7,805 ----------- ----------- ----------- ----------- Basic and fully diluted Income (Loss) per share ($ 0.000) ($ 0.008) $ 0.001 $ 0.000 ----------- ----------- ----------- ----------- Basic and Fully Diluted Weighted Average Number of Shares 24,996,283 24,977,116 24,200,000 24,200,000 ----------- ----------- ----------- -----------
(The accompanying notes are an integral part of these consolidated interim financial statements) F-44 MAXIMUM AWARDS INC. Consolidated Statements of Cash Flows Six Months Ended June 30, 2004 and June 30, 2003 Unaudited June 30 June 30 2004 2003 ---- ---- Cash Flows from Operating Activities Net (loss) income $(204,851) $ 7,805 Adjustments to reconcile net (loss) income to net cash used in operating activities Depreciation 545 542 Accounts receivable (43,323) (34,478) Prepaid and sundry assets 52,254 559 Liability for unredeemed points (174) (354) Accounts payable and accrued charges 37,293 2,033 Deferred membership fee income (1,310) (18,082) --------- --------- (159,566) (41,975) --------- --------- Cash Flows from Investing Activities Proceeds from notes receivable -- 20,084 Purchase of equipment (1,213) (140) --------- --------- (1,213) 19,944 --------- --------- Cash Flows from Financing Activities Proceeds from notes payable 28,848 33,200 Proceeds from additional paid in capital 124,581 -- Proceeds from issuance of capital stock 115 -- --------- --------- 153,544 33,200 --------- --------- Net (Decrease) Increase in Cash (7,235) 11,169 Foreign exchange on cash balances 823 2,335 Cash - beginning of year 17,301 3,145 --------- --------- Cash - end of period $ 10,889 $ 16,649 ========= ========= Cash is represented by the following: Cash 9,631 15,167 Cash held in Escrow 1,258 1,482 --------- --------- Total Cash 10,889 16,649 --------- --------- (The accompanying notes are an integral part of these consolidated interim financial statements) F-45 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 1. Operations and Business Maximum Awards, Inc, formerly known as Rising Fortune Incorporated ("the Company"), was incorporated in the State of Nevada on March 7, 1995. The Company was inactive between 1996 and 2000. In 2000 the Company entered into an agreement to distribute product. However, the agreement never materialized and the Company continued to remain inactive until November 18, 2003. On November 19, 2003, the Company amended its Articles of Incorporation to change its name to Maximum Awards Inc. On December 9, 2003, the Company entered into a definitive Share Exchange Agreement (the "Agreement") with Maximum Awards (Pty) Limited, an Australian corporation operating a consumer rewards program, whereby the Company acquired all of the issued and outstanding shares of the Subsidiary in exchange for 22,000,000 common shares and 1,000,000 preferred shares Series "A" of the Company. The preferred shares Series "A" are non-participating, but each share is entitled to 50 votes in a general meeting. In addition, the Company issued 2,200,000 common shares as a finder's fee for assistance in the acquisition of the Subsidiary. As a result of the Agreement, the shareholder of Maximum Awards (Pty) Limited controls 96% of the Company. While the Company is the legal parent, as a result of the reverse takeover, Maximum Awards (Pty) Limited became the parent company for accounting purposes. On June 1, 2004, the Company, through its subsidiary, Maximum Awards Pty Ltd, acquired 100% of the issued and outstanding share capital of both Global Business Group Australia Pty Ltd ("Global Business") and Travel Easy Holidays Pty Ltd ("Travel Easy") from the directors of the respective companies for $1.00. Global Business and Travel Easy are controlled by the same shareholder, who controls the Company and Maximum Awards Pty Ltd. As such, this transfer of equity interests between common controlled entities is accounted for by using the pooling method as prescribed under SFAS No. 141. The assets, liabilities, income and expenses of Global Business and Travel Easy have been brought forward on a historical basis in these restated financial statements of the Company. The equity of Global Business and Travel Easy have been brought forward on a historical basis and included in additional paid in capital of the Company. The Company currently operates a loyalty and rewards program known as Maximum Awards. Under this program, consumers earn points by purchasing products and services from a range offered by the Company's subsidiaries, Global Business and Travel Easy, or program partners. Accumulated points then can be redeemed in order to acquire additional desired products or services from the same list of such items offered by the Company's subsidiaries. The Company's subsidiary, Global Business, maintains a catalogue of available goods and services which a member can purchase, or acquire through the redemption of points. Travel Easy is a licensed travel agency which services the public and also allows members to purchase travel services or redeem points for airline tickets or travel packages. F-46 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 2. Going Concern These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has sustained operating losses since inception, has raised minimal capital and has no long-term contracts related to its business plans. The Company's continuation as a going concern is uncertain and dependant on successfully bringing its services to market, achieving future profitable operations and obtaining additional sources of financing to sustain its operations, the outcome of which cannot be predicted at this time. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. Though the business plan indicates profitable operation in the coming year, these profits are contingent on completing and fulfilling contracts with various providers of goods and services throughout the world to provide the company with a cashflow to sustain operations. In the event the Company cannot obtain the necessary funds, it will be necessary to delay, curtail or cancel the further development of its products and services. 3. Summary of Significant Accounting Policies a) Basis of Financial Statement Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. F-47 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) b) Basis of Consolidation The merger of the Company and Maximum Awards (Pty) Limited has been recorded as the recapitalization of the Company, with the net assets of Maximum Awards (Pty) Limited and the Company brought forward at their historical basis. The intention of the management of Maximum Awards (Pty) Limited was to acquire the Company as a shell company to be listed on the OTC Bulletin Board. Management does not intend to pursue the business of the Company. As such, accounting for the merger as the recapitalization of the Company is deemed appropriate. As mentioned in Note 1, these consolidated financial statements include the assets, liabilities, equity, income and expenses of Global Business and Travel Easy using the pooling method. The comparative figures presented in these consolidated financial statements are those of the legal subsidiary, Maximum Awards (Pty) Limited, Travel Easy and Global Business. The weighted average and total number of shares outstanding have been retroactively restated for each period to reflect the number of shares issued to shareholders of the subsidiary at acquisition. c) Recent Accounting Pronouncements In January 2003, the FASB issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"). The FASB issued a revised FIN 46 in December 2003 which modifies and clarifies various aspects of the original interpretations. A Variable Interest Entity ("VIE") is created when (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity is deemed to be a VIE, pursuant to FIN 46, an enterprise that absorbs a majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE. For VIEs created before January 31, 2003, FIN 46 was deferred to the end of the first interim or annual period ending after March 15, 2004. The adoption of FIN 46 did not have a material impact on the financial position or results of operations of the Company. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity" ("SFAS No. 150"). This standard requires issuers to classify as liabilities the following three types of freestanding financial instruments: (1) mandatory redeemable financial instruments, (2) obligations to repurchase the issuer's equity shares by transferring assets; and (3) certain obligations to issue a variable number of shares. The Company adopted SFAS No. 150 effective July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the financial position or results of operations of the Company. F-48 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) c) Recent Accounting Pronouncements (cont'd) In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition" which supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21. The Company adopted the provisions of this statement and it did not have a material impact on the financial position or results of operations of the Company. d) Unit of Measurement United States of America currency is being used as the unit of measurement in these financial statements. e) Use of Estimates In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. f) Inventory Inventory consists of goods purchased for resale. Inventory is stated at the lower of cost (first-in, first-out method) and net realizable value. g) Revenue Recognition Consumer Reward Points Program Membership fee revenue represents annual membership fees paid by all of the Company's members. The Company accounts for membership fee income on a "deferred basis" whereby membership fee income is recognized ratably over the one-year life of the membership. The Company recognizes commission income from a participating vendor when the consumer has earned points from their purchases. F-49 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) g) Revenue Recognition (cont'd) Travel Agency The Company earns commission revenues from ticket sales and reports this revenue in accordance with Emerging Issues Task Force ("EITF") Issue No.99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". The Company is an agent and not the primary obligor, and accordingly the amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two. Online Shopping Revenues from the sale of goods are recognized when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. h) Consumer Reward Points Program The Company's consumer reward points program allows members to earn points that can be redeemed for a broad range of travel and retail merchandise. The Company makes payments from the escrow account on reward redemptions when members redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of member rewards is based upon points awarded that are ultimately expected to be redeemed by members using the current weighted-average cost per point of redemption. The ultimate points to be redeemed are estimated based on many factors, including a review of past behavior of members segmented by product, year of enrollment in the program; spend level and duration in the program. Past behavior is used to predict when current enrollees will attrite and their ultimate redemption rate. In addition, the cumulative balance sheet liability for unredeemed points is adjusted over time based on actual redemption and cost experience with respect to redemptions. i) Foreign Currency Translation The Company accounts for foreign currency translation pursuant to SFAS No. 52, "Foreign Currency Translation". The company's functional currency is the Australian dollar. All assets and liabilities are translated into U.S. dollars using the current exchange rate. Revenues and expenses are translated using the average exchange rates prevailing throughout the year. Translation adjustments are included in other comprehensive income for the period. F-50 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) j) Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair value. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. At June 30, 2004 and December 31, 2003, the carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued charges, and notes payable approximate their fair values due to the short-term maturities of these instruments. k) Furniture and Equipment Furniture and equipment is stated at cost. Depreciation, based on the estimated useful lives of the assets, is provided using the undernoted annual rates and methods: Furniture and equipment 20% Declining balance Additions during the year are depreciated at half the normal rate. l) Impairment of Long-Lived Assets In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less cost to sell. As described in Note 2, the long-lived assets have been valued on a going concern basis. However, substantial doubt exists as to the ability of the Company to continue as a going concern. If the Company ceases operations, the asset values may be materially impaired. m) Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. F-51 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) n) Stock Based Compensation The Company enters into transactions in which goods or services are the consideration received for the issuance of equity instruments. The value of these transactions are measured and accounted for, based on the fair value of the equity instrument issued or the value of the services, whichever is more reliably measurable. The services are expensed in the periods during which the services are rendered. o) Net Loss per Common Share The Company calculates net loss per share based on SFAS No. 128, "Earnings Per Share". Basic loss per share is computed by dividing net loss attributable to the common stockholders by the weighted average number of common shares outstanding. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The common shares outstanding for 2003 have been calculated by using the number of shares issued by the legal parent for the reverse take over mentioned in Note 1. p) Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of changes in stockholders' equity, and consists of net loss and unrealized gains (losses) on available for sale marketable securities; foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments recognized in accordance with SFAS 87. SFAS No. 130 requires only additional disclosures in the financial statements and does not affect the Company's financial position or results of operations. F-52
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 3. Summary of Significant Accounting Policies (cont'd) q) Concentration of Credit Risk SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk", requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company does not have significant off-balance sheet risk or credit concentration. The Company maintains cash with major Australian financial institutions. The Company provides credit to its clients in the normal course of its operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses which, once they materialize, are consistent with management's forecasts. For other debts, the Company determines, on a continuing basis, the probable losses and sets up a provision for losses based on the estimated realizable value. Concentration of credit risk arises when a group of clients having a similar characteristic such that their ability to meet their obligations is expected to be affected similarly by changes in economic conditions. The Company does not have any significant risk with respect to a single client. r) Segment Reporting SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for the manner in which public enterprises report segment information about operating segments. The Company has determined that its operations primarily involve three reportable segments based on the companies being consolidated: Maximum Awards Inc. - a consumer rewards program; Travel Easy Holidays Pty Ltd. - a travel agency; and Global Business Group Pty Ltd. - an online shopping business. 4. Furniture and Equipment 2004 2003 Accumulated Accumulated Cost Depreciation Cost Depreciation ------------ ------------ ------------ ------------ Office furniture and equipment $ 7,606 $ 2,266 $ 6,393 $ 1,721 ------------ ------------ ------------ ------------ Net carrying amount $ 5,340 $ 4,672 ------------ ------------
F-53 MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 5. Notes Payable 2004 2003 Notes payable to companies controlled by a director of the Company: Aussie Watchdog $ -- $ 453 Notes payable to directors of the Company: Maxwell Thomas 3,080 1,386 Michael Sullivan 8,000 457 Notes payable to unrelated parties: A & D Bushell -- 19,359 N Stough 35,803 -- K & L Krueger 7,625 8,007 ----------- ----------- $ 54,508 $ 29,662 =========== =========== The notes payable are non-interest bearing, unsecured and have no specified terms of repayment. The notes bear interest at 6% per annum effective January 1, 2004. The funds received from these notes were utilized in the general working capital of the Company. F-54
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 6. Capital Stock Authorized 100,000,000 Common shares, par value of $0.001 per share 10,000,000 Preferred shares, Series "A", par value of $0.001 per share, non-participating, voting rights of 50 votes per share 2004 2003 Issued 25,072,950 Common shares (2003 -24,957,950) $ 25,073 $ 24,958 1,000,000 Preferred shares, Series "A" (2002 - 1,000,000) 1,000 1,000 ------------ ------------ $ 26,073 $ 25,958 ============ ============
On December 5, 2003, the board of directors designated 1,000,000 Series "A" preferred shares. The Series "A" preferred shares are non-participating but carry 50 votes per share at a general meeting. The remaining 9,000,000 preferred shares have not as yet been designated. Between January 01, 2004 and June 30, 2004, the company received $71,136 as paid-in capital from shareholders of the Company. In June 2004, the Company issued 115,000 common shares for cash of $55,000. F-55
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 7. Segmented Information Three Six Three Six Months Months Months Months June 30, June 30, June 30, June 30, 2004 2004 2003 2003 Revenues by Segment: Maximum Awards - rewards program 1,599 5,340 16,002 29,206 Travel Easy - travel agency 38,606 55,715 50,396 75,845 Global Business - online shopping 53,198 63,444 -- -- -------- -------- -------- -------- Consolidated revenues 93,403 124,499 66,398 105,051 Operating Earnings (Loss) by Segment: Maximum Awards - rewards program (16,765) (173,181) 3,646 (12,433) Travel Easy - travel agency 3,861 (19,417) 20,660 20,238 Global Business - online shopping 10,880 (12,253) -- -- -------- -------- -------- -------- Consolidated operating (loss) earnings (2,024) (204,851) 24,306 7,805 Net Assets by Segment: Maximum Awards - rewards program (5,354) (5,354) (58,851) (58,851) Travel Easy -Travel agency 18,337 18,337 40,748 40,748 Global Business - online shopping (43,303) (43,303) -- -- -------- -------- -------- -------- Consolidated net assets (33,320) (33,320) (18,103) (18,103)
Geographical information is not presented as the Company's consolidated operations occur in Australia. The Company did not earn any significant revenues from a single customer. F-56
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 8. Income Taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". This Standard prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. Under SFAS No. 109 income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The Company's current income taxes is as follows: 6 Months Year June 30, Dec. 31, 2004 2003 Expected income tax recovery at statutory tax rate of 34% $ (68,127) $ (32,252) Australian income taxes 4,478 3,417 Valuation allowance 68,127 32,252 ----------- ----------- Current income taxes $ 4,478 $ 3,417 ----------- -----------
As of December 31, 2003, the Company had a net operating loss carry forwards for income tax reporting purposes of approximately $143,000 that may be offset against future taxable income indefinitely. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs or a change in the nature of the business. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. F-57
MAXIMUM AWARDS INC. Notes to Consolidated Financial Statements June 30, 2004 and December 31, 2003 Unaudited 9. Related Party Transactions The following table summarizes the Company's related party transactions that occurred in the normal course of operations for the period, measured at the exchange amount: 2004 2003 At the end of the year, the advances due to and (from) related entities are as follows: Included in Notes Payable - amounts due to directors and companies controlled by directors of the Company $ 11,080 $ 2,296 10. Restatement of Financial Statements The restated Balance Sheet for the Year Ended December 31, 2003 should be read in conjunction with the audited Financial Statements for the year-ended December 31, 2003. 11. Supplemental Disclosure of Cash Flow Information: 6 Months 6 Months June 30, June 30, 2004 2003 ---- ---- Cash paid during the year for: Interest paid $ -- $ -- Income taxes paid -- -- Supplemental Disclosure of Non-Cash Transactions: Foreign currency translation adjustment $ (2,278) $ (9,180)
F-58 Part III Item 1. Index to Exhibits INDEX TO EXHIBITS Exhibit Number Name and/or Identification of Exhibit (1) Underwriting Agreement. None. (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession. Exchange Agreement between Maximum Awards, Inc. and Maximum Awards Pty Ltd. Dated December 9, 2003, filed as an exhibit to the company's July 6, 2004 Form 10-SB and incorporated herein by this reference. (3) Articles of Incorporation; By-Laws. March 7, 1995 Articles of Incorporation of Rising Fortune Incorporated, filed as an exhibit to the company's July 6, 2004 Form 10-SB and incorporated herein by this reference. December 5, 2003 Certificate of Amendment to the Articles of Incorporation of Rising Fortune Incorporated, filed as an exhibit to the company's July 6, 2004 Form 10-SB and incorporated herein by this reference. March 9, 1995 By-Laws, filed as an exhibit to the company's July 6, 2004 Form 10-SB and incorporated herein by this reference. October 8, 2002, Certificate of Registration of a Company, Maximum Awards Pty, Ltd. June 17, 2003, Certificate of Registration of a Company, Global Business Group Pty, Ltd. (4) Instruments Defining the Rights of Security Holders No instruments other than those included in Exhibit 3 (5) Opinion on Legality Not applicable (6) No Exhibit Required (7) Opinion on Liquidation Preference Not applicable 32 (8) Opinion on Tax Matters Not applicable (9) Voting Trust Agreement and Amendments Not applicable (10) Material Contracts -December 4, 2003 Consulting Agreement -January 1, 2004 Employment Agreement -June 1, 2004 Share Purchase Agreement (Global Business Group Pty, Ltd.) -June 1, 2004 Share Purchase Agreement (Travel Easy Pty, Ltd.) (11) Statement Re: Computation of Per Share Earnings The weighted average and total number of shares outstanding have been retroactively restated for each period to reflect the number of shares issued to shareholders of the subsidiary at acquisition. Computation of per share earnings can be clearly determined from the Statement of Operations in the Company's financial statements. (12) No Exhibit Required Not applicable (13) Annual or Quarterly Reports - Form 10-Q Not applicable (14) Material Foreign Patents Not applicable (15) Letter on Un-audited Interim Financial Information Not applicable (16) Letter on Change in Certifying Accountant September 2, 2004 letter from Forbush and Associates (17) Letter on Director Resignation Not applicable (18) Letter on Change in Accounting Principles Not applicable (19) Reports Furnished to Security Holders Not applicable (20) Other Documents or Statements to Security Holders None - Not applicable 33 (21) Subsidiaries of Small Business Issuer Maximum Awards Pty Ltd. (22) Published Report Regarding Matters Submitted to Vote of Security Holders Not applicable (23) Consent of Experts and Counsel Consents of independent public accountants (24) Power of Attorney Not applicable (25) Statement of Eligibility of Trustee Not applicable (26) Invitations for Competitive Bids Not applicable (27) Financial Data Schedule Not applicable (28) Information from Reports Furnished to State Insurance Regulatory Authorities Not applicable (29) Additional Exhibits Not applicable (99) Other 34 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. Maximum Awards, Inc. (Registrant) Date: November 8, 2004 By: /s/ Maxwell A. Thomas ------------------------- Maxwell A. Thomas Chief Executive Officer 35