10SB12G: Registration of securities for small business [Section 12(g)]

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-SB


GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS COMPANYS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934




Commission file no. 0001074828
----------------------------

CIGAR KING CORPORATION
(NAME OF SMALL BUSINESS COMPANY IN ITS CHARTER)


Nevada 91-1948357
----------- -------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

Suite 825-1200 West 73rd Avenue
Vancouver, British Columbia

Canada V6P 6G5
--------------------------------------- -----------------
(Address of Principal Executive Officer) (Zip Code)


(604) 267-1100
------------------------------
(Company's Telephone Number)


Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:


Common Stock, par value $0.001 per share
-----------------------------------------
(Title of Class)







TABLE OF CONTENTS



ITEM PAGE
----- ------
PART 1
Item 1 Description of Business 3
Item 2 Management's Discussion and Analysis or Plan of Operation 15
Item 3 Description of Property 18
Item 4 Security Ownership of Certain Beneficial
Ownership and Management 18
Item 5 Directors, Executive Officers, Promoters and
Control Persons 20
Item 6 Executive Compensation 21
Item 7 Certain Relationships and Related Transactions 22
Item 8 Description of Securities 23

PART 11
Item 1 Market Price of and Dividends on the Registrant's
Common Equity and Other Stockholders Matters 24
Item 2 Legal Proceedings 24
Item 3 Disagreement With Accountants and Financial Disclosure 24
Item 4 Recent Sales of Unregistered Securities 24
Item 5 Indemnification of Directors and Officers 25

PART F/S
Financial Statements 27

PART 111
Item 1 Index to Exhibits 36
Item 2 Description of Exhibits 36


------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE

Documents incorporated by reference: None


2




PART 1

ITEM 1. DESCRIPTION OF BUSINESS


HISTORICAL OVERVIEW OF THE COMPANY



Cigar King Corporation, a Nevada corporation (the "Company"), was
incorporated on October 8, 1998. The Company has no subsidiaries and no
affiliated companies. The Company's executive offices are located at Suite 825 -
1200 West 73rd Avenue, Vancouver, British Columbia, Canada, V6P 6G5, (TEL)
604-267-1100 (FAX) 604-267-1101.

The Company is engaged in the development of a kiosk system for the
distribution and sale of cigars and cigar related accessories (see Part 1,
"Development of the Cigar King Concept"). Management anticipates that the
Company's shares will be qualified on the system of the National Association of
Securities Dealers, Inc. ("NASD") known as the Bulletin Board. The Company has
not yet applied to have its shares quoted on the Bulletin Board but will
consider having its shares called for trading once this Form 10-SB has no more
comments from the United States Securities and Exchange Commission.

On November 24, 1999, the Company entered into an agreement with Archer
Investments Inc. ("Archer"), a party dealing at arm's length with the Company,
its directors and officers, whereby it acquired the rights to develop the
concept for selling cigars through a kiosk system in consideration for $50,000;
which the Company has paid (Exhibit 6 (a) (ii)). Under the above noted
agreement, the Company acquired the rights to use the name of "Cigar King" and
the rights to market the concept any where in the world without Archer's
approval. The Company was to receive any reports, blueprints and documents held
by Archer relating to the development, marketing and sale of the concept. The
only documentation received by the Company was a business plan which forms, in
part, the basis of this Form 10-SB, other than it related to establishing the
kiosk system in Seattle, Washington rather than Vancouver, British Columbia.
Under the agreement the Company does have the executive rights to use the name
"Cigar King" in the marketing of high quality cigars through a climate
controlled kiosk merchandise display case. There are no copyrights or trademarks
for the Cigar King concept and no applications have been made or are pending.

The Company has no revenue to date from the development of its kiosk
concept, and its ability to effect its plans for the future will depend on the
availability of financing. Such financing will be required to develop the
Company's kiosk system to a stage where a decision can be made by management as
to whether or not the consuming public is interested in this form of retail
selling. Initially, the Company will require $27,500 to design the kiosk
prototype and acquire the kiosk location. Once the Company has obtained a
suitable location it will require an additional $75,800 to construct and test
the prototype. The Company anticipates obtaining such funds from its directors
and officers, financial institutions or by way of the sale of its capital stock
in the future (see Part 1, Item 1 - "Plan of Operations"), but there can be no
assurance that the Company will be successful in obtaining additional capital
for its concept from the sale of its capital stock or in otherwise raising
substantial capital. The directors and officers of the Company have not pledged,
at this time, any further financial commitment to the Company but are willing to
add additional funding if required to a limit of $30,000. No other commitments
for funding is available at this time.

In the event the consuming public is not interested in the Company's
concept of selling cigars by way of a kiosk the Company will consider an
association with several cigar manufacturers to distribute their cigars and
tobacco leaves. With the competition already in place this might prove to


3




be difficult for the Company. There is no assurance the Company will be able to
sell enough cigars to ensure a profit. The Company has not taken any steps to
identify cigar manufacturers and no discussions have taken place in this regard.
The Company must be considered subject to all the risks inherent in any newly
formed business, including the absence of a long, profitable operating history,
lack of market recognition and limited banking and financial relationships.

In an Offering Memorandum dated December 4, 1998, the investors signing
a subscription agreement attached to the Offering Memorandum acknowledged that
the nature of their investment was speculative and involved a high degree of
risk. Each potential investor was supplied with a copy of the Offering
Memorandum. In the Offering Memorandum it states "the Subscriber may lose all of
the investment made hereunder". If the Company is not successful, management
does not intend to return any of the subscription proceeds to the shareholders.

The Company was incorporated in the State of Nevada for tax reasons.
Had the Company been incorporated in the Province of British Columbia, it would
have been subject to Provincial Capital Tax on its outstanding capital stock and
Federal Corporate Income Tax on its profits. Once the Company becomes a public
entity, the Federal Corporate Income Tax rate will be approximately 51% of net
income. Management is considering registering ex-provincially once operations
commence. This will allow it to transfer funds to Nevada by paying a withholding
tax rate of 15% based on the Canada/US Tax Treaty. With Nevada having no State
tax it was advantageous for the Company to incorporate in the State of Nevada.



PLANNED BUSINESS

The Company is a start-up company founded for the purpose of building a
retail premium cigar business that purchases premium cigars and sells them,
along with premium cigar accessories, through Company-owned and operated Cigar
King retail kiosks.

In addition to developing its initial market in the distribution of
premium cigars in the Greater Vancouver Area, the Company will consider
expansion to other cities in Western Canada, such as Calgary, Edmonton, Victoria
and Regina. Expansion will only occur when adequate funds are available and the
Company can foresee a positive return on its investment. (See Part 1, Item 2
Management's Discussion and Analysis or Plan of Operation").

Much of the discussion contained in this section is "forward looking"
in that actual results may materially differ from the Company's plans as
currently contemplated. Information concerning all the factors associated with
the Company is set forth in this Item 1 and in Items 2 and 3 below. FOR A
COMPLETE UNDERSTANDING OF SUCH FACTORS, THIS ENTIRE DOCUMENT, INCLUDING THE
FINANCIAL STATEMENTS AND THEIR ACCOMPANYING NOTES, SHOULD BE READ IN ITS
ENTIRETY.


None of the directors or officers have any experience in owning or
operating a cigar retail business.

All dollar amounts shown in this document are stated in United States
dollars unless otherwise noted.


DEVELOPMENT OF THE CIGAR KING CONCEPT

a. Industrial Overview


4



According to Cigar Association, approximately 280,000,000 premium
cigars were sold in the United States in 1996, reflecting sales of $550,000,000
to $600,000,000, or $1.96 to $2.14 per cigar. The number of premium cigars sold
in 1996 increased 67% over 1995. In units, premium cigars accounted for 6.4% of
all cigars sold, but over 40% of the total dollars ($1,300,000,000) were spent
on cigars. According to Tobacconist Magazine, the Official Publication of the
Retail Tobacco Dealers of America, the number of premium cigars sold in the
United States in 1997 increased 22% over 1996. The Tobacconist Magazine reported
flat sales in the United States in the first half of 1998.

The Company was unable to procure market data specific to Canada other
than is more fully described under Cigar Smokers below. However, the Company
believes, on a per person basis, the consumption of premium cigars in Canada
reflects that of the United States. Therefore, because the population of Canada
is one-tenth the population of the United States, the Company estimates the
market for premium cigars in Canada is one-tenth the size of that of the United
States. Accordingly, the Company estimates premium cigar sales in Canada of
$650,000,000 in 1997. Because the population of Greater Vancouver area is
roughly one-tenth the population of Canada, the Company estimates the 1997
market for premium cigars in the Greater Vancouver area at CDN $65,000,000. In
Canadian dollars, at an exchange rate of 1.45, the Company estimates the 1997
market in the Greater Vancouver area at CDN $95,000,000. The Company believes
that this is the current market as at the date of this Form 10-SB.

Growth in the retail market for premium cigars has been aided by
several factors, including the emergence of cigar evenings, the publication of
the magazine Cigar Aficionado ("Cigar Aficionado"), the recapture of the cigar's
traditional image as a symbol of success, celebration and achievement, and the
rise in self-indulgence. However, it appears that the market for premium cigars
has reached its peak in both the U.S. and Canada. The future for the market is
uncertain. There are no assurances that the market will sustain current sales,
or whether it will drop dramatically to its earlier levels.

The Company is relying of its selection of cigars as set forth in the
publications of Cigar Aficionado. If Cigar Aficionado ceases publication, the
Company will rely on other publications, namely Smoke magazine and Cigar
magazine, for critiques of newly introduced cigars. In addition, the Company can
access the Internet Cigar Group's comprehensive database of cigar critiques. The
Internet Cigar Group is the largest cigar-related Internet organization in the
world. For established brands, the back editions of Cigar Aficionado provide the
critiques of the 1,300 cigars in its database. Additionally, The Ultimate Cigar
Book, written by Richard Carleton Hacker, is the best-selling cigar book in the
world, and is regarded as an authority on the different cigar brands.

When the premium cigar market was growing in 1995, 1996 and 1997, the
availability of premium cigars became increasingly constrained by accelerating
demand in the face of a world-wide shortage of premium cigar leaf tobacco. In
response to this demand, premium cigar manufacturers rushed to produce more
premium cigar leaf tobacco and more premium cigars. Currently, with the flatness
of the market, and the output of the newly produced cigars, there is no shortage
in supply.


The retail market for premium cigars is highly fragmented. The market
is characterized by hundreds of small, independent operators and small retail
chains. No single chain in the United States or Canada has a significant share
of the retail market for premium cigars. The


5



Company anticipates the retail market will become consolidated, with the
emergence of a small number of larger companies in clear leadership positions.

b. Cigar Smokers


Almost 60 percent of Canadian smokers are addicted. There are 5,800,000
smokers in Canada, approximately 19 percent of the entire population. The
National Population Health Survey interviews members of more than 200,000
households every two years. The results from 1996/1997 shows 10% of Canadians
who said they were smokers in 1994/1995 have quit and 3 percent have cut down.
But 1,300,000 have started or resumed smoking, so in total there has been a
slight decrease in the number of smokers, from 31 percent to 29 percent. Other
statistics revealed are as follows:

o the average number of cigarettes smoked daily is 18 whereas the number
of cigars is 4.

o men are more likely to smoke than women; less than 4% of all cigar
smoker are women.

o 44 percent of Canadians have never smoked.

o lower income Canadians are more likely to smoke than richer ones.

o smokers are more likely to be found in jobs in factories, fishing,
construction and mining than in ones such as teaching, natural resources
and medicine.

o Smokers in percentage of the numbers of persons in some of the Canadian
provinces are as follows:

Quebec 34%
Nova Scotia 33%
Prince Edward Island 33%
Ontario 26%
British Columbia 26%

The above noted statistics are derived from the Globe & Mail newspaper
(January 21, 1999) published in Toronto, Ontario.

In an article published by the Province newspaper in Vancouver, British
Columbia on November 18, 1998 it stated that cigarette and other smoking among
US college students of all back-grounds has increased by 28% in the last 4
years. A survey of 116 four-year colleges by the Harvard School of Public Health
found 28% of students smoking in 1997, up from 23% in 1994.

More than a quarter of the smokers in the 1997 survey began smoking
regularly while in college. "We found a dramatic increases in smoking among all
college students, at all types of colleges" said Henry Wechsler, Director of
College Alcohol Studies at the school and lead author of the report published in
the Journal of American Medical Association.



6



Smokers of premium cigars tend to be more highly educated and more
affluent than the population at large. The magazine Cigar Aficionado ran an
advertisement in the magazine Direct in February 1996 which reported that the
average household income for its 150,000 readers was $148,000; the median income
was $109,000; the average net worth was $1.1 million. Seventy-nine percent (79%)
graduated from college and forty-nine percent (49%) took post-graduate courses.
As for occupation, sixty-five percent (65%) were described as
managerial/professional; seventeen percent (17%) were owner/president;
twenty-four percent (24%) were CEO/COO/CFO. They smoked an average of eight
cigars per week and spent an average of $4.10 per cigar. The average usually
spent on premium cigars per week was $35.50. Seventy-three percent (73%)
reportedly stock up by the box.


c. Plan of Operation

The Company intends to locate twenty-five Company-owned and operated
Cigar King retail kiosks in the Greater Vancouver Area in a period of two and
one-half years. The Company intends to locate the kiosks centrally and in close
proximity to achieve operating and marketing efficiencies and to enhance
awareness of the Cigar King brand. The Company intends to locate the kiosks in
high-foot traffic, high-visibility.

The Company's start-up and expansion plan involves four phases:


Phase I
Phase I is the design of the kiosk prototype and the acquisition of the
kiosk location. The Company estimates the cost of Phase I at $27,500
(Cdn. $40,000), which is comprised of $3,500 for legal expense, $10,300
for kiosk design, $3,500 for the production of the property manager
proposal, and $10,200 to induce the property manager to agree to the
kiosk installation and the terms of the tenancy agreement. The Company
estimates that Phase I will take three months from the date the Company
receives the $27,500 in funding.

Phase II
Phase II is the construction and test of the kiosk prototype. The
Company estimates the construction of the kiosk prototype, the design
and development of promotional and merchandising programs, and the
procurement of cigars and cigar accessories, as well as the hiring and
training of staff, will take two months from the date the Company
acquires the kiosk location. Accordingly, the Company anticipates the
kiosk prototype will be open for business and operating immediately
thereafter. The Company estimates the cost of Phase II at $75,800 (Cdn.
$110,000). This cost includes kiosk construction expense, promotion and
merchandising expense, and inventory expense, as well as unallocated
working capital to cover, in part, start-up losses.

Phase III
Provided the kiosk concept is viable, Phase III involves the opening of
a further fourteen Cigar King kiosks in central Vancouver, bringing the
total number of Cigar King kiosks to fifteen. The Company estimates the
cost of Phase III at $386,000 (Cdn. $560,000). Provided the Company is
adequately funded, the Company estimates it will take twelve


7


months to procure fourteen adequate locations, construct the kiosks, and
have them open for business.

Phase IV
Provided Phase III is viable, Phase IV involves the opening of a
further ten Cigar King kiosks in the Greater Vancouver Area, bringing
the total number of Cigar King kiosks to twenty-five. The Company
estimates the cost of Phase IV at $276,000 (Cdn. $400,000). Provided
the Company is adequately funded, the Company estimates it will take
twelve months to procure ten adequate locations, construct the kiosks,
and have them open for business.

At present the Company does not the funds to complete Phase I without
the help of its directors who have agreed to advance $30,000 to the Company.
These funds will only be advanced if there is certainty that the Company can
progress to Phases II and III. If the funds are not advanced for Phase I then
there is the possibility that the Company will not proceed with the concept.


d. Product

The Company will offer only the highest-quality cigars, stocking and
displaying them in the Company's climate-controlled kiosk merchandise display
cases. Thirty types of premium cigars will be offered, along with a limited
selection of premier cigar cutters, ashtrays, lighters, travel and pocket
humidors, and cigar-related publications. The design of the Cigar King kiosk
will be upscale, with emphasis on Cigar King branding and on maximizing cigar
display. The kiosk design will reflect Cigar King's principal position, that of
an expert and knowledgeable purveyor of premium cigars.

The Cigar Association uses three criteria to define a premium cigar:

(i) made by hand;
(ii) consisting of all natural, long-filler tobacco; and
(iii) retailing anywhere from $1.25 to more than $25.

The Company will offer only premium cigars rated 80 or better by Cigar
Aficionado. Cigar Aficionado maintains a comprehensive Internet database of
nearly 1,300 cigar ratings - every cigar the magazine has rated since the
magazine's launch in September, 1992. All cigars in the database are scored on a
100-point scale: 95 to 100 - classic; 90 to 94 - outstanding; 80 to 89 - very
good to excellent; 70 to 79 - average to good commercial quality; and below 70 -
not worth considering. Further, the database enables the user to profile cigars
based not only on rating, but also; size, origin, brand and price.

Of the cigars rated 80 or higher, the Company will focus its efforts on
procuring a selection of premium cigars based on size:

Corona (thirty-five percent (35%) of mix);
Lonsdale(twenty-five percent (25%) of mix);
Double Corona (twenty percent (20%) of mix);
Churchill (ten percent(10%) of mix); and
Rothchild (ten percent (10%) of mix).

8

With each size category, the Company will focus its efforts on procuring a
selection of premium cigars based on origin:


Cuban (fifty percent (50%) of mix) *;

Dominion Republic (twenty-five percent (25%) of mix);
Honduras(fifteen percent (15%) of mix);
Jamaica (five percent (5%) of mix); and
Canary Islands and Mexico together
(five percent (5%) of mix).


(*) In Canada there is no embargo on the importing of Cuban cigars.

The Company will price cigars at the medium to high-end of the market
(refer to Cigar King's website at www.cigarkingcorp.com). Half of the cigars
offered will be priced between $2 to $5 per cigar; one-quarter will be priced
between $5 to $10 per cigar; and one-quarter will be priced at $10 and over per
cigar. In respect of each cigar type, the Company will sell the cigars
individually, as well as by the box. Each type will be displayed by open box and
supported with professional signs describing the cigar's origin and flavor
characteristics, as well as the Cigar Aficionado rating. Further, the kiosk
merchandise display case climate will be controlled to ensure cigars are
perfectly maintained at 70 degrees Fahrenheit and 70% humidity.


The Company estimates approximately 600 types of premium cigars meet the
Company's cigar selection criteria. The Company will offer a selection of
approximately 30. With 600 types of cigars to choose from and the Company only
offering a selection of approximately 30, if one type of cigar was to become
unavailable or prohibitively expensive, the Company could introduce another type
with no significant impact.

e. Cigar Accessories

In addition to premium cigars, the Company intends to offer a limited
selection of premium cigar cutters, ashtrays, lighters, travel and pocket
humidors, and cigar-related publications.

f. Retail Kiosks

The Company will retail its premium cigars and cigar accessories through
Company-owned and operated kiosks. The Company estimates the kiosks will vary in
size from approximately 50 to 75 square feet. Depending on the location, the
kiosks will either be self-standing or build-out. The kiosk design will be
upscale, with emphasis on Cigar King branding and on maximizing cigar display.

Retail kiosks located in downtown buildings will likely be open from 8 a.m.
till 6: p.m. six days a week. Other kiosks, located in shopping centers or
airports, for example, will likely be open till 9 p.m. or later, seven days a
week. The typical staff for one retail kiosk will consist of one full-time kiosk
manager and two to three part-time employees. Each employee will be trained to
be knowledgeable about premium cigars. Retail kiosk operations will be
sale-driven, with training emphasis on customer service and on merchandising
policy and procedure.


The Company anticipates it will take three months from the date the kiosk
is first opened for the kiosk to achieve projected monthly sales of
approximately $15,400 or approximately $700 a day. On a monthly basis the net
income derived from a kiosk is estimated to be as follows:

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Gross revenue ($700 per day) (i) $15,400
Less: Cost of goods sold ($400 per day) (ii) 8,800
------
Gross profit 6,600
------
Wages - $175 per day (iii) 3,850
Revenue sharing with landlord (iv) 1,000
Promotion and miscellaneous expenses (v) 500
Depreciation and amortization (vi) 520
------
Total expenses 5,870
------
Net operating profit $ 730
======

(i) It is assumed a 30 day month less 4 days for Saturday and 4 days
for Sunday. In this situation the kiosk is assumed to be located in an
office complex and not a mall or transportation facility.

(ii) Represents the cost for the cigars. Until operations actually
commence this cost will not be known since the combination of cigars
required by the customers will only be determined at this time. No
consideration has been given to spoilage due to length of time the
cigars are kept on hand. Even with a climate controlled temperature,
the cigars not sold will be subject eventually to spoilage. This figure
will be known only after operations commence.

(iii) Represents two individuals, both working part time during the
day.

(iv) The majority of landlords will accept either a percentage of the
monthly revenue or a flat rental charge. Since the kiosk can be located
in any unused area, the monthly charge should not be high. The Company
will offer a 5% commission based on gross revenue to the landlord as
the monthly rental fee. For conservative purposes a flat fee of $1,000
has been used.

(v) Represents advertising literature, other assorted displays not
supplied by the cigar manufacturers. Also included in this figure is
the cost of monthly insurance premiums for generally liability
insurance.

(vi) Deprecation and amortization is based on the cost of the kiosk at
$26,000 and equipment, being the humidor system, at a cost of
approximately $5,000 for a total cost of $31,000 which will be written
off in total over a sixty month period.

With a net profit of approximately $730 an individual kiosk is subject to
the distinct possibility of suffering a loss. There is not enough monthly profit
to protect against unknown expenses. For example, damage to the kiosk itself,
spoilage of cigars, refunds to dissatisfied customers, sudden increases in cigar
prices that cannot be passed immediately onto the customer due to a need to
amend the advertising. The contingency plan of the Company is to move the kiosk
to another available location, if possible, in hopes of improving the profit
margin. Until full operations commence, the Company does not know when its
concept will be a marginal operations or whether any profit can be made at all.



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g. Future Possibilities

Direct Mail

The Company intends to investigate the feasibility of compiling a
customer database for the purpose of developing a direct mail catalogue
program. This program will only be considered if the Cigar King kiosk
prototype proves to be a viable concept.

Humidified Vending Machines
The Company intends to investigate the feasibility of supplementing
kiosk sales through use of humidified vending machines in select
settings. This program will only be considered if the Cigar King kiosk
prototype proves to be a viable concept. Further, this program will
only be considered if the Company successfully locates no fewer than
ten kiosks in downtown Vancouver. At this time no consideration has
been given to developing this concept.


LOCATIONS



The Company intends to identify the highest-visibility, highest-foot
traffic locations and acquire them where possible. The Company believes the
small size of the kiosk and its freestanding nature should enable the kiosk to
be installed in non-traditional locations. The Company anticipates that many of
the locations sought will be build-outs, anchored by vacant nooks, crannies, or
corners; and, as a result, the locations are not presently occupied, nor do
conventional retailers regard them as location opportunities in general. In
addition, the Company intends to pay a revenue royalty equal to 5% of the
kiosk's sales, guaranteeing the property manager a minimum monthly royalty of
CDN $1,000. The Company intends to locate the kiosks centrally and in close
proximity (Greater Vancouver Area) to achieve operating and marketing
efficiencies and to enhance awareness of the Cigar King brand.

With many of the office buildings in Vancouver being "smoke-free" and
the trend for this status increasing continually with municipal by-laws enacted,
it will become more difficult for the Company to secure good location.



COMPETITION


Competition in the retail market for premium cigars is highly
fragmented. In the U.S., the market is characterized by hundreds of small,
independent operators and small retail chains. In Canada, the market is the
same: it is characterized by dozens of small, independent operators and small
retail chains. Tinder Box, a franchiser, is the largest retailer of premium
cigars, tobacco products, gifts and accessory products in North America with
roughly 100 franchised stores as at the date of this Form 10-SB.

According to the Internet Cigar Group, the largest cigar-related
Internet organization, there are ten premium cigar retailers in Vancouver, as
listed in the Internet Cigar Group International Database. The list does not
include retailers that offer cigars for sale on a limited basis. Each retailer
listed is a single store. None of the retailers operate kiosks. All of the
retailers operate conventional retail stores. The list is consistent with the
Cigar, Cigarette & Tobacco - Retail directory in the Vancouver Metro Yellow
Pages, through April 1999. These retailers are better known than the Company and
many are better funded. Accordingly, the Company may not be able to successfully
compete with them. In addition to premium cigar


11






retailers, the Company will compete directly against all stores, restaurants,
hotels and clubs that sell premium cigars.


RISK FACTORS

There are certain inherent risks with the Cigar King concept from the
point of view of the Company and its shareholders as follows:



o The premium cigar industry is highly competitive and has relatively few
barriers to entry. If the kiosk concept is viable, the Company runs the
risk of more established companies and of unknowns copying the concept,
which would impact the availability of choice locations, which would
adversely affect unit revenue and the opening of new kiosks.

o When the premium cigar market was growing in 1995, 1996 and 1997, the
availability of premium cigars became increasingly constrained by
accelerating demand in the face of a world-wide shortage of premium cigar
leaf tobacco. In response to this demand, premium cigar manufacturers
rushed to produce more premium cigar leaf tobacco and more premium cigars.
Currently, with the flatness of the market, and the output of the newly
produced cigars, there is no shortage in supply. However, the success of
the Company's business plan is dependent in part on management's ability
to procure high-quality premium cigars. The Company competes for supply
with established competitors. These competitors will likely take priority
with distributors. Accordingly, it is possible, if supply again becomes
short, that the Company will have to resort to less known premium cigar
brands, which would likely adversely affect unit revenue.

o The Company's competitors, as existing retailers, are better known than
the Company and many are better funded. Accordingly, the Company may not
be able to successfully compete with them.



o The success of the Company's business plan is dependent in part on
management's ability to identify and acquire suitable locations.



o The Company has no operating history, nor does the Company have a
management team with either retail kiosk management expertise or premium
cigar management expertise. There are no assurances the Company will
operate efficiently or viably.

o There are no assurances that the Company will be able to raise the funds
necessary to design, install and begin operating the kiosk prototype.
Accordingly, investors in this venture run the risk of losing their
investment.

o Tobacco kills more people than alcohol, drugs and car accidents combined,
yet in the eyes of our children we continue to treat it with a passive
attitude (The Province newspaper - British Columbia, June 4, 1998). For
example, statistics show that nearly one-third of Canadians between the
age of 15 to 19 years smoke. Every year, 40,000 Canadians die of
smoking-related diseases (that's about equal to the number of Canadians
killed on active duty during the Second World War and ten times the number
killed each year in car accidents (The Vancouver Sun, British Columbia,
April 21, 1998).


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o The Company recognizes that there is a trend in Vancouver whereby many of
the office buildings are "smoke-free" and that this trend is accelerating.
This trend definitely makes it more difficult for the Company to obtain
good locations for its kiosks. For example, on January 1, 1999 the Capital
Regional Board implemented Canada's toughest anti-tobacco laws. The bylaw
bans smoking in all indoor workplaces, including pubs, restaurants, bingo
halls, bowling alleys, casinos, prisons and long-term health care
facilities. The only enclosed places smokers can still light up are
private homes and cars. The vast majority of businesses are complying
successfully with the by-laws (The Province newspaper - March 9, 1999).
These trends in non-smoking areas might inhibit the Company from placing
its kiosks in buildings and malls which otherwise it might have been able
to do.

o The Federal Government in Ottawa collects more than $1,333,400,000 (Cdn.
$2,000,000,000) a year in taxes but only spends $13,334,000 (Cdn.
$20,000,000) a year on anti-smoking enforcement and educational programs
for youth (The Vancouver Sun newspaper, April 21, 1998). The
responsibility for health care rests with the provincial governments and
not the Federal. In an article in the Globe & Mail newspaper published in
Toronto, Ontario on February 25, 1999 it stated that the Government of
Ontario is considering joint the British Columbia Government in a lawsuit
against three major tobacco companies, Imperial Tobacco, Rothmans, Bensons
& Hedges and RJR MacDonalds Inc., alleging that the industry know for
decades that smoking was addictive and lethal but conspired to keep that
information from the public. The lawsuit is seeking billions of dollars to
compensate the British Columbia Government for costs of treating illnesses
caused by smoking; actual statistics are $333,400,000 (Cdn. $500,000,000).
With the press that this lawsuit will attract, the Company might have
extremely difficulty in attracting and retaining a customer base.

o The World Health Organization ("WHO") wants to ban tobacco advertising,
and possible smoking in public, around the world. The UN Agency plans to
introduce the world's first public health treaty by the year 2003 which
would cover such areas as harmonization of taxes on tobacco and
legislation on smuggling, advertising, sponsorship and labeling. The push
for the treaty is being spearheaded by WHO Director-General Gro Harlem
Brundtland, who is supported by the World Bank and UN Children's Fund,
UNICEF. WHO states that tobacco will kill 10,000,000 people a year by the
year 2020. If the treaty is ratified by the member states it would be
legally binding (The Province newspaper, January 31, 1999). With this
happening the Company's business might suddenly be terminated and the
Company will be unable to operate.

o In an article published in the Wall Street Journal on February 26, 1999
(Issue 39, Page A3) it stated that the United States Department of Health
& Human Services would introduce the inclusion of a Surgeon General's
warning on cigar packages. This will be a trend that will immediately be
introduced in Canada. In fact, cigar packages such as Old Port bear a
consumer's alert warning indicating the health risk of cigar smoking on
each package. If this trend continues, as it surely will, it will have a
negative effect on the Company's business.

o In an article published in the Consumer's Research Magazine in May 1998,
Robert Pitofsky, Commission of the Food & Drug Administration has stated
that Congress should regulate cigars just as it wants to regulate
cigarettes. He points to a new report from the National Cancer Institute
("NCI"), which in April 1998 released a report which indicate a
significant increase in cigar smoking. The NCI report also notes that
smoking just one or two cigars a


13




day, without inhaling, doubles the risk of esophageal and oral cancer and
increases the risk of cancer of the larynx by more than six times. These
facts will hurt the Company's changes of marketing its cigars to
individuals who read or have knowledge of the facts stated by the NCI.

o The Company's auditors have qualified their opinion as follows:

"The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is
in the development stage and does not have the necessary working
capital for its planned activity, which raises substantial doubt
about its ability to continue as a going concern. Management's
plans in this regard to these matters are described in Note 5.
These financial statements do not include any adjustments that
might result from the outcome of this uncertainty".

In Note 5 to the financial statements, the Company acknowledges the
fact that it is dependent upon additional financing in order to develop
its concept. If the Company is unable to raise additional financing it
will not be able to continue and may eventually cease to operate as a
company. The auditor wishes to alert the readers of the financial
statements that he agrees with the Company that there is a possibility
that without additional funding the Company will not be able to complete
its goals and might cease to be an operating entity.

o The Federal Government of Canada, through its annual Budget, constantly
introduces new taxes on both liquor and tobacco products. For example, a
pack of 35 cigarettes sells for $3.80 (Cdn. $5.50); the majority of this
cost being the taxes imposed by the Government. The public does not
resent increases in taxes when it applied to either tobacco or alcohol
since they look upon it as a hidden tax. If this trend continues it will
hurt the Company's sales as less individuals are willing to pay the
high price for the luxury of smoking.

o Out of the 10,535,000 shares issued and outstanding, Steven Bruce,
President of the Company, owns 2,500,000 shares, former director and
officer, Michael Wolf, owns 1,500,000 shares and Michael Kennaugh,
Director and Secretary Treasurer, own 500,000 shares representing 42.71%
of the stock issued. There is very little chance that any individual or
group of individuals can exercise their shareholders' voting right to
replace either of these two directors. Therefore, these three individuals
effectively control the Company and can dedicate policy as they determine
it.

o Some of the Directors of the Company are also directors and officers of
other companies and conflicts of interest may arise between their duties
as directors of the Company and as directors, officers of other companies.
Even with full disclosure by all the directors and officers, the Company
cannot insure that it will receive fair and equitable treatment in every
transaction.


14


OTHER CONCEPTS

The Company has not identified any other concepts and will concentrate
its entire attention to the development of the Cigar King concept.

EMPLOYEES



As at July 31, 1999, the Company did not have any employees either part
time or full time. At this time the directors and officers do not devote full
time to the activities of the Company.

The Company is considering the employment of a general manager whose
duties will comprise the development and refining of the corporate strategies,
the overall administration of the business including all aspects of location
negotiations. In addition, the general manager will design and develop the
Company's promotion and merchandising programs. Within a short time period
subsequent to the Company receiving additional funding, the general manager will
hire a site manager who will be responsible for setting standards for cigar
handling, cigar merchandising, customer service, cleanliness and presentation as
well as responsibilities for establishing a system of controlling cash, supplies
and payroll. The responsibility for hiring, training and management of all staff
associated with the kiosks will be under the control of the site manager. As at
July 31, 1999 no individual(s) have been identified and hired.


The Company is not a party to any employment contracts or collective
bargaining agreements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The discussion contained in this Item 2 is "forward looking". Actual
establishment of kiosks and the projected revenues derived therefrom may differ
from the amounts shown in this report. Factors that could cause the development
of the Company's concept to differ are described throughout this report.

PLAN OF OPERATION



The Company plans to commence opening its kiosks in the Greater
Vancouver Area. It is presently identifying suitable locations which comprise
high traffic areas and a cigar-orientated clientele. No expansion to other
cities in Canada will be considered until the Company has sufficient resources
to accomplish it. There is a distinct possibility the Company will never have
sufficient resources to expand outside the Greater Vancouver area or within it.


LIQUIDITY AND CAPITAL RESOURCES


As at April 30, 1999, the Company had $61,298 of assets, and $4,273 of
liabilities including cash or cash equivalents amounting to $11,170. Outside of
cash, the remaining asset is the cost paid to acquire the rights to develop the
concept for selling cigars through the kiosk system from Archer Investments Inc.
for the sum of $50,000 (Exhibit 6 (a) (ii)). The purchase


15



price of the rights to the Cigar King concept will be amortized over a five year
period commencing with operations.

Since October 8, 1999, the date of inception, to April 30, 1999 the
Company has incurred the following expenses:

Accounting and audit (1) $ 6,700
Bank charges (2) 157
Consulting (3) 3,950
Edgar filing fees (4) 1,420
Legal (5) 2,530
Management fee (6) 1,400
Office and miscellaneous (7) 808
Rent (8) 1,500
Telephone (9) 750
Transfer agent's fees (10) 3,160
Travel (11) 2,000
-------
Total expenses for the period $ 24,375
=======

(1) Audit fee - $6,700

The Company had its financial statements audited for the periods ended
January 31 and April 30, 1999 for a total fee of $3,200. In addition,
accounting services in the preparation of working paper files and the
accounting records of the Company was $3,500.

(2) Bank changes - $157

Monthly service charges for operating the account as charged by the
Bank of Montreal.

(3) Consulting - $3,950

Consulting services for preparation of the various forms required for
submission of the Form 10-SB and other documentation.

(4) Edgar filing fees - $1,420

The Company filed the Form 10-SB electronically under the Edgar filing
system.

(5) Legal - $2,530

The Company has accrued $2,500 for a legal opinion on the tradeability
of its shares. In addition, it has paid legal expense for using an
attorney as a notary for signing certain documents.

(6) Management fees - $1,400

The Company has not paid any fees to its directors or officers during
the current period. Nevertheless, the Company realizes that there is a
cost involved in the directors and officers devoting time and effort to
the affairs of the Company. Therefore, a management fee of $1,400 has
been expensed and credited to capital contribution during the current
period.


16



(7) Office and miscellaneous - $808


Office and miscellaneous represents the printing of cheques for use by
the Company, photocopying, courier and fax charges for the period.

(8) Rent - $1,500

The Company uses the offices of the President of the Company as an
office. No charge has been incurred by the Company. Nevertheless, the
Company recognizes that there is a cost to using an office and
therefore has expensed $1,500 and credited to capital contribution a
similar amount.

(9) Telephone - $750

The Company has not incurred any telephone charges to date.
Nevertheless, the Company recognizes the fact that there is a telephone
cost to operating a business and therefore has expensed $750 with an
offsetting credit to capital contribution. This expense was determined
on the fair market value of obtaining a telephone line and operating
for a three month period.

(10) Transfer agent's fees - $3,160

Transfer agent's fees comprise $1,200 as the annual fee paid to
maintain an account with the transfer agent and $1,960 for preparation
and issuance of share certificates. The Company has treated for
accounting purposes the annual fee of $1,200 as a period cost and has
written it off in the current period rather than amortizating it over
the entire year.

(11) Travel - $2,000

Various charges for the period of travel.

Management feels that its present cash position after the payment of
all outstanding accounts payable is sufficient to meet its present needs, being
approximately six months, other than undertaking either Phases I or II mentioned
above. Expenses required by the Company in the immediate future would be for
accounting, transfer agent charges, office expenses and audit. If the Company
wishes to proceed with Phases I it will require additional funds. The Directors
have agreed to fund the development of the Phases I and II in the amount of
$30,000. Other sources of funds which might be available to the Company is by
way of bank financing or the selling of the Company's capital stock. No
consideration, at this time, has been given to the raising additional funds from
these two sources.

If the Company is unable to raise additional funds it cannot operate as
a going concern in the future and will cease to exist as an entity.



Management does not believe the Company's operations have been
materially affected by inflation.


ITEM 3. DESCRIPTION OF PROPERTY


The Company does not own or lease any physical property. It does not
own any kiosks and the Company currently lacks the funds to develop a kiosk
prototype.


17


OFFICES


The Company's executive offices are located at 825 - 1200 West 73rd
Avenue, Vancouver, British Columbia, Canada. The office is located in the
offices of the President of the Company which are used to transact business of
his other business interests. There is no charge to the Company for office but
an imputed charge of $1,500 has been expensed during the current period with an
offsetting entry to capital contribution. The Company realizes it will
eventually be required to contribute its fair share to office rent. No
discussions between the directors has taken place to date to decide upon the
terms and conditions of the office rent.



OTHER PROPERTY

The Company does not own any other property.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information with respect to the
beneficial ownership of each person who is known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock as of July 31,
1999.

(1) (2) (3) (4)
Title Name and Address Amount and Nature Percent
of of Beneficial of Beneficial of
Class Owner Ownership (1),(2) Class (2)
----- --------- ----------------- ---------

Common STEVEN BRUCE 2,500,000 23.73%
Shares 269 Robson Place
Delta, British Columbia
Canada, V4M 3P3

Common MICHAEL WOLF 1,500,000 14.24%
Shares 2101 - 1238 Melville Street
Vancouver, British Columbia
Canada, V3R 2L1


(1) As of July 31, 1999, there were 10,535,000 common shares outstanding.
Unless otherwise noted, the security ownership disclosed in this table is
of record and beneficial.

(2) Under Rule 13-d under the Exchange Act, shares not outstanding but subject
to options, warrants, rights, conversion privileges pursuant to which such
shares may be acquired in the next 60 days are deemed to be outstanding for
the purpose of computing the percentage of outstanding shares owned by the
persons having such rights, but are not deemed outstanding for the purpose
of computing the percentage for such other persons. None of the officers or
directors have any options, warrants, rights or conversion privileges
outstanding.



18


SECURITY OWNERSHIP OF MANAGEMENT


The following table sets forth certain information with respect to the
beneficial ownership of each officer and director, and of all directors and
executive officers as a group as of July 31, 1999.



(1) (2) (3) (4)
Title Name and Address Amount and Nature Percent
of of Beneficial of Beneficial of
Class Owner Ownership (1),(2) Class (2)
----- ------------ ------------------ ---------

Common STEVEN BRUCE 2,500,000 (3) 23.73%
Shares 269 Robson Place
Delta, British Columbia
Canada, V4M 3P3

Common MICHAEL J. KENNAUGH 500,000 (3) 4.75%
Shares 42 - 2951 Panorama Drive
Coquitlam, British Columbia
Canada, V3E 2W3

All officers and directors 3,000,000 28.48%
as a group (two persons)


(1) As of July 31, 1999, there were 10,535,000 common shares outstanding.
Unless otherwise noted, the security ownership disclosed in this table is
of record and beneficial.


(2) Under Rule 13-d under the Exchange Act, shares not outstanding but subject
to options, warrants, rights, conversion privileges pursuant to which such
shares may be acquired in the next 60 days are deemed to be outstanding for
the purpose of computing the percentage of outstanding shares owned by the
persons having such rights, but are not deemed outstanding for the purpose
of computing the percentage for such other persons.

(3) Mr. Bruce is President of the Company and one of the controlling
shareholders. This stock is restricted since it was issued in compliance
with the exemption from registration provided by Section 4 (2) of the
Securities Act of 1933, as amended. After this stock has been held for one
(1) year, Mr. Bruce could sell a percentage of his shares every three
months based on 1% of the outstanding stock. Therefore, this stock cannot
be sold except in compliance with the provisions of Rule 144. Mr. Kennaugh
is a Director and the Secretary Treasurer of the Company. This stock is
restricted since it was issued in compliance with the exemption from
registration provided by Section 4 (2) of the Securities Act of 1933, as
amended. After this stock has been held for one (1) year, Mr. Kennaugh
could sell a percentage of his shares every three months based on 1% of the
outstanding stock. Therefore, this stock cannot be sold except in
compliance with the provisions of Rule 144.


Mr. Michael Wolf resigned as a director and officer on July 22, 1999
due to other business interests. He was replaced as Secretary Treasurer by
Michael Kennaugh, currently a director of the Company. Mr. Wolf has 1,500,000
common shares or 14.23% of the issued and outstanding shares of the Company.
This stock is restricted since it was issued in compliance with the exemption
from registration provided by Section 4 (2) of the Securities Act of 1933, as
amended. After this stock has been held for one (1) year, Mr. Wolf could sell a
percentage of his shares every three months based on 1% of the outstanding
stock. Therefore, this stock cannot be sold except in compliance with the
provisions of Rule 144.



19





The Company is seeking a new director who has knowledge in the cigar business
and who will be available to devote the majority of his time to the affairs of
the Company. No such person has been found to date.


ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

DIRECTORS AND EXECUTIVE OFFICERS



The following table identifies the Company's directors and executive
officers as of July 31, 1999. Directors are elected at the Company's annual
meeting of stockholders and hold office until their successors are elected and
qualified. The Company's officers are appointed annually by the Board of
Directors and serve at the pleasure of the Board.
Term as
Director
Name Position Held Expires
------- --------------- ----------
Stephan Bruce President and Director October 1999

Secretary Treasurer and
Michael J. Kennaugh Director October 1999

The senior officers and directors of the Company have been officers and
directors since inception.



STEVEN BRUCE, 41, graduated from Simon Fraser University in 1981 with a
Bachelor of Commerce degree in Economics. Since graduation he has been employed
with New Generation Power Corp. as Vice-President and Chief Operational Officer.
While employed with New Generation Power his duties included power contract
negotiation, project financing and administration over all aspects of the
accounting and financial functions. Subsequently Mr. Bruce became Vice-President
and Chief Financial officer of Newgen Environmental Systems Inc., a company
listed on the Alberta Stock Exchange ("Exchange") in Calgary, Alberta, Canada,
and specialized in all aspects of the development of the company and in
compliance reporting with the Exchange.


MICHAEL J. KENNAUGH, 57, graduated in 1963 from Oak Bay High School in
Victoria, British Columbia, Canada before attending the University of Victoria.
In 1971 he graduated with a Bachelor of Science degree in Psychology and Urban
Geography. Subsequent to graduation he became employed as an air traffic
controller before resigning and enrolling in the Masters of Business
Administration program at the University of British Columbia where he
specialized in Urban Land Economics. He graduated in 1977. Upon graduation he
worked for DFH Real Estate Company in Victoria, British Columbia until 1982 when
he moved to Vancouver and joined the commercial division of Royal Trust Company.
In 1986 he joined Realty World's commercial division under the name of Kerr &
Kerr Real Estate Ltd. For three years he worked in their appraisal division
specializing in appraisals of businesses and property. In 1989 he purchased
Canwest Appraisals Ltd. from his former employers and became the sole director
and officer of the Company. Canwest Appraisals specialized in appraisals of
business; mainly in the lumber business. In 1995 he joined the commercial
division of Windermere Cascade Ltd. as a real estate appraiser until 1997 when
he sold out his interest in Windermere Cascade Ltd. In 1997 he joined Kensington
Green Real Estate Services Ltd. where he worked in their commercial property
division selling real estate projects and appraising real estate investments for
clients. He is currently working for Kensington Green Real Estate Services Ltd.


20


None of the Directors or Executive Officers work full time for the
Company, but intend to devote such time as their responsibilities require. None
of the Company's Directors are currently directors of other companies registered
under the Securities Act of 1934 although Mr. Kennaugh was a director of
Sweetbrier Resources Inc., a company that is presently quoted on the OTC
Bulletin Board under the name of Dippy Foods Inc.

There are no family relationships between the directors, executive
officers or with any person under consideration for nomination as a director or
appointment as an executive officer of the Company.


ITEM 6. EXECUTIVE COMPENSATION


None of the Company's executive officers have received compensation
since the Company's inception although the Company has given recognition in its
financial statements to the benefit the Company receives from the services of
its officers. An imputed amount of $1,400 has been included in expenses and
credited to capital contribution as at April 30, 1999 in recognition of the
services performed by its officers.

The following table sets forth compensation paid or accrued by the
Company during the period ended July 31, 1999 to the Company's President and
shows compensation paid to any other officers or directors.


SUMMARY COMPENSATION TABLE (1999)