UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to________ Commission file number 000-50612 INNOCAP, INC. (Exact name of small business issuer as specified in its charter) Nevada 01-0721929 ------ ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 5675B Baldwin Court Norcross, GA 30071 (Address of principal executive offices) 770-378-4180 (Issuer's telephone number) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 68,000,000 shares of Common Stock, as of December 14, 2004. Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] INNOCAP, INC. INDEX PART I. FINANCIAL INFORMATION Page Number PART I Item 1 - Unaudited Condensed Financial Statements: Condensed Balance Sheet as of October 31, 2004............................3 Condensed Statements of Operations for the Three and Nine Months Ended October 31, 2004.............................................4 Statement of Cash Flows for the Nine Months Ended October 31, 2004........5 Notes to Unaudited Condensed Financial Statements.........................6 Item 2. - Management's Discussion and Analysis or Plan of Operation.......9 Item 3 - Controls and Procedures.........................................11 PART II. Other Information (Items 1-6)............................................11 2 INNOCAP, INC Balance Sheet October 31, 2004 (Unaudited) ASSETS CURRENT ASSETS: Cash $ -0- ------------ TOTAL ASSETS $ -0- ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accrued liabilities $ 30,000 ------------ STOCKHOLDERS' EQUITY: Preferred stock at $0.001 par value; 1,000,000 shares authorized, -0- outstanding - Common stock at $0.001 par value; authorized 190,000,000 shares; 68,000,000 shares issued and outstanding 68,000 Additional paid-in capital 1,600 Accumulated deficit (99,600) ------------ Net Stockholders' Deficit (30,000) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ -0- ============ The accompanying notes are an integral part of these financial statements. 3 INNOCAP, INC. Statements of Operations Three and Nine Months Ended October 31, 2004 (Unaudited) Three Months Nine Months ------------------- -------------------- Revenue $ - $ - ------------------- -------------------- General and administrative 23,000 49,600 ------------------- -------------------- Net loss $ (23,000) $ (49,600) =================== ==================== Basic and diluted loss per share $(.00) $(.00) =================== ==================== Weighted average number of common shares outstanding 68,000,000 56,000,000 =================== ==================== The accompanying notes are an integral part of these financial statements. 4 INNOCAP, INC. Statement of Cash Flows Nine Months Ended October 31, 2004 (Unaudited) OPERATING ACTIVITIES: Net Loss $ (49,600) Stock-based compensation 1,600 Net change in accrued liabilities 30,000 --------------- Net Cash Used by Operating Activities (18,000) --------------- FINANCING ACTIVITIES: Issuance of shares 18,000 --------------- INCREASE IN CASH AND CASH EQUIVALENTS - CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - =============== SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITIES: Cash Paid For: Interest $ - =============== Income taxes $ - =============== The accompanying notes are an integral part of these financial statements. 5 INNOCAP, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 1--BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended October 31, 2004 are not necessarily indicative of the results that may be expected for the year ending January 31, 2005. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-SB for the fiscal period ended January 31, 2004. NOTE 2 -- ORGANIZATION Innocap, Inc. (the "Company") was incorporated under the laws of the State of Nevada on January 23, 2004. In June 2004, it filed a notice with the Securities and Exchange Commission of its intent to elect in good faith, within 90 days from the date of such filing, to be regulated as a Business Development Company under the Investment Company Act of 1940 and be subject to Sections 54 through 65 of said Act. NOTE 2 -- STOCK OPTION PLAN Pursuant to a January 27, 2004 Board of Directors approval and subsequent stockholder approval, the Company adopted its 2004 Non-Statutory Stock Option Plan (the "Plan") whereby it reserved for issuance up to 20,000,000 shares of its common stock. The purpose of the Plan is to provide directors, officers and employees of, consultants, attorneys and advisors to the Company and its subsidiaries with additional incentives by increasing their ownership interest in the Company. Directors, officers and other employees of the Company and its subsidiaries are eligible to participate in the Plan. Options in the form of Non-Statutory Stock Options ("NSO") may also be granted to directors who are not employed by the Company and consultants, attorneys and advisors to the Company providing valuable services to the Company and its subsidiaries. In addition, individuals who have agreed to become an employee of, director of or an attorney, consultant or advisor to the Company and/or its subsidiaries are eligible for option grants, conditional in each case on actual employment, directorship or attorney, advisor and/or consultant status. The Plan provides for the issuance of NSO's only, which are not intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code, as amended. 6 The Board of Directors of the Company or a Compensation Committee (once established) will administer the Plan with the discretion generally to determine the terms of any option grant, including the number of option shares, exercise price, term, vesting schedule and the post-termination exercise period. Notwithstanding this discretion (i) the term of any option may not exceed 10 years and (ii) an option will terminate as follows: (a) if such termination is on account of termination of employment for any reason other than death, without cause, such options shall terminate one year thereafter; (b) if such termination is on account of death, such options shall terminate 15 months thereafter; and (c) if such termination is for cause (as determined by the Board of Directors and/or Compensation Committee), such options shall terminate immediately. Unless otherwise determined by the Board of Directors or Compensation Committee, the exercise price per share of common stock subject to an option shall be equal to no less than 10% of the fair market value of the common stock on the date such option is granted. No NSO shall be assignable or otherwise transferable except by will or the laws of descent and distribution or except as permitted in accordance with SEC Release No.33-7646 as effective April 7, 1999. The Plan may be amended, altered, suspended, discontinued or terminated by the Board of Directors without further stockholder approval, unless such approval is required by law or regulation or under the rules of the stock exchange or automated quotation system on which the common stock is then listed or quoted. Thus, stockholder approval will not necessarily be required for amendments which might increase the cost of the Plan or broaden eligibility except that no amendment or alteration to the Plan shall be made without the approval of stockholders which would (a) decrease the NSO price (except as provided in paragraph 9 of the Plan) or change the classes of persons eligible to participate in the Plan or (b) extend the NSO period or (c) materially increase the benefits accruing to Plan participants or (d) materially modify Plan participation eligibility requirements or (e) extend the expiration date of the Plan. Unless otherwise indicated the Plan will remain in effect for a period of ten years from the date adopted unless terminated earlier by the board of directors except as to NSOs then outstanding, which shall remain in effect until they have expired or been exercised. The Company filed a Registration Statement on Form S-8 on June 18, 2004 to register those 20,000,000 shares of common stock underlying the options in the Plan Management issued 18,000,000 of the aforesaid options to certain current members of its management team, as well as other persons whom it considers to be important to its current and proposed business activities, with all options exercisable at $.001 per share for a period of five years from date of issuance. Of the total options issued, 2,000,000 were issued to employees and 16,000,000 were issued to non-employees. The 16,000,000 options issued to non-employees have been valued at their date of grant using the Black-Scholes option pricing model and resulted in a charge to general and administrative expenses of $1,600. All options were exercised in August 2004. 7 Financial Accounting Statement No. 123, Accounting for Stock Based Compensation, encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based employee compensation using the intrinsic method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148, which require pro forma disclosures of net income and earnings per share as if the fair value method of accounting had been applied. Pro forma information regarding net income per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation", and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value of these options was estimated at the date of grant using Black-Scholes option pricing model with the following range of assumptions for the nine months ended October 31, 2004: Risk free interest rate 3.0% Expected dividend yield 0% Expected lives 5 years Expected volatility 0% For the purpose of pro forma disclosures, the estimated fair value of the options is amortized over the vesting period. The Company's pro forma information is as follows: Pro Reported Forma --------------- ------------------ Net loss $ (49,600) $ (49,800) Loss per Share: -Basic and Diluted $ (0.00) $ (0.00) 8 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Certain matters discussed in this interim report on Form 10-QSB are forward-looking statements. Such forward-looking statements contained in this annual report involve risks and uncertainties, including statements as to: o our future operating results, o our business prospects, o our contractual arrangements and relationships with third parties, o the dependence of our future success on the general economy and its impact on the industries in which we may be involved, o the adequacy of our cash resources and working capital, and o other factors identified in our filings with the SEC, press releases and other public communications. These forward-looking statements can generally be identified as such because the context of the statement will include words such as we "believe," "anticipate," "expect," "estimate" or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this Form 10-QSB. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Operations We are newly-organized and have not yet entered into any definitive financing transactions with any portfolio companies. We have no experience relating to the identification, evaluation and acquisition of target businesses and, accordingly, there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives. To date, our efforts have been limited primarily to organizational activities and preparation of documents to be filed with the Securities and Exchange Commission. We have no resources and have realized no revenues to date. In addition, we will not achieve any revenues until, at the earliest, we are able to obtain funding, make 9 investments and sell our position of securities in an underlying portfolio company for a profit. Innocap will be wholly dependent for the selection, structuring, closing and monitoring of all of its investments on the diligence and skill of its management, acting under the supervision of Innocap's board of directors. None of these individuals has substantial experience in acquiring and investing in growth stage companies, the negotiation of the terms of such investments and the monitoring of such investments after they are made. We cannot assure you that Innocap will attain its investment objective. We will not commence operations until we (i) become regulated as a Business Development Company under the Investment Company Act of 1940 and are subject to Sections 54 through 65 of said Act and (ii) raise capital through the sales of shares pursuant to Regulation E of the 1933 Act. Liquidity We have not obtained any source of funding. We intend to raise our initial capital through the sale of shares of our common stock. The offer and sale of the shares will not be registered under the 1933 Act because their issuance and sale is exempt from such registration requirements pursuant to Regulation E of the 1933 Act. Because the first $5,000,000 raised will be from shares that will be acquired by investors in transactions involving an exempt public offering pursuant to Regulation E, they will be unrestricted or free-trading securities and may be freely traded, transferred, assigned, pledged or otherwise disposed of at the time of issuance. We cannot make any assurances that we will be successful in selling the common shares or, if sold, at what price. Recent Accounting Pronouncements No new pronouncement issued by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants or the Securities and Exchange Commission is expected to have a material impact on Innocap's financial position or reported results of operations. 10 ITEM III. CONTROLS AND PROCEDURES As of the end of the period covered by this Quarterly Report on Form 10-QSB, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was carried out by the Company under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. There have been no changes in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. PART II OTHER INFORMATION Item 1 Legal Proceedings None Item 2 Changes in Securities and Small Business Issuer Purchases of Equity Securities Options covering 18,000,000 shares of common stock were exercised in August 2004.The Issuer did not purchase any of its equity securities during quarter ended October 31, 2004. Item 3 Defaults Upon Senior Securities None Item 4 Submission of Matters to a Vote of Shareholders None Item 5 Other Information None 11 Item 6 Exhibits and Reports on Form 8-K None Exhibit Number Description 31.1 Section 302 Certification of Chief Executive Officer and Chief Financial Officer 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 12 Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Innocap, Inc. (Registrant) By: /s/ B. Alva Schoomer ---------------- President December 23, 2004