SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended June 30, 1997
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number 000-22329
POWERTRADER, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 98-0163116
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101 South Hanley, St. Louis, MO 63105
(Address of Principal Executive Offices) (Zip Code)
(604) 685-1529
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
None -
Securities registered under Section 12(g) of the Act:
Common Stock $.01 par value per share
Warrants expiring in the year 2002.
Check whether the issuer: (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
|_| Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The issuer's revenues for its most recent fiscal year. $44,373
At September 26, 1997, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of PowerTrader, Inc. (the "Company") was
approximately $18,196,260, based on the last issue price of the common stock
reported by the Company on July 21st, 1997.
At September 19th, 1997, the Company had outstanding 7,883,115 shares of Common
Stock.
Transitional Small Business Disclosure Format:
Yes No X
<PAGE>
TABLE OF CONTENTS
PART II
Page
ITEM 6. Management's Discussion and Analysis
ITEM 7. Financial Statements
PART III
ITEM 13. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I
ITEM 6. Management's Discussion and Analysis
The following should be read in conjunction with the Financial
Statements and Notes. When used in this Management's Discussion and Analysis,
the words "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the date hereof.
The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview
PowerTrader, Inc. ("PowerTrader" or the "Company") was incorporated
under the laws of the State of Delaware on August 22, 1996 for the purpose of
acquiring the business of PowerTrader Software Inc. in a merger, exchange of
shares or other business combination. Its sole director, officer and shareholder
was Mr. Withrow. In January, 1997, PowerTrader consummated a transaction with
the shareholders of PowerTrader Software Inc. ("PSI") pursuant to which
PowerTrader became the holder of all of the issued and outstanding shares of
PSI's capital stock, issued an aggregate of 4,174,597 to the former shareholders
of PSI (including 1,467,696 shares to a corporation controlled by Mr. Withrow)
and assumed liabilities to issue an aggregate of 2,289,517 shares and options to
purchase an additional 149,999 shares of common stock to certain creditors of
PSI. Prior to such transactions, the Company had not engaged in any business
activity, other than with respect to organizational matters, and had no
predecessors.
Through its wholly owned subsidiary, PSI, the Company designs,
develops, markets and supports informational and analytical desktop decision
support and risk management systems for both securities professionals (including
securities brokerage firms, investment advisors and trust companies) and
individual investors. Substantially all of the Company's sales have resulted
from the distribution of Beta Products and product development work continues;
accordingly, the Company remains a development stage company.
Because of the Company's limited operating history, the Company's
results of operations to date are not necessarily indicative of future operating
results. Moreover, the Company believes that its developmental operations to
date render traditional accounting presentations meaningless.
3
<PAGE>
Results of Operations
Sales.
Sales decreased 12.9% during the year ended 30 June 1997 from the same
period in 1996. Sales during each of the periods compared have been
significantly impacted by the limited financial resources available to the
Company for allocation to advertising and beta product marketing. Sales in
fiscal 1997 decreased primarily due to management's decision to focus on new
market opportunities. Consequently, the marketing efforts were de-emphasized and
greater importance was placed into developing products to capitalize on these
new opportunities resulting from the new network paradigm.
Cost of Sales.
Cost of sales decreased by $12,655 (or 30.9%) from $40,910 (or 80.3% of
sales) in fiscal 1996 to $28,255 (or 63.7% of sales) in fiscal 1997. The
decrease in cost of sales from fiscal 1996 to fiscal 1997 resulted primarily
from improved economies of scale and a continued restriction on resources to
market the company's products.
Selling, General and Administrative Costs.
Selling, General and Administrative Costs ("SGA") increased by $248,713
(or 61.4%) from $405,099 (or 794.8% of sales) in the year ending 30 June 1996 to
$653,812 (or 1,473.4% of sales) in the same period ended 30 June 1997. Such
expenses were incurred to develop the necessary organizational infrastructure to
support the implementation of the Company's business plan, and as a result of
expenses incurred in relation to the Company's proposed public offering. SGA
includes salaries and benefits for corporate management, administrative and
sales personnel, as well as rent expense for PSI's offices. Because the level of
SGA which is required to maintain adequate corporate infrastructure is
relatively fixed in nature, management anticipates that such expenses as a
percentage of sales will decline as total sales levels increase.
4
<PAGE>
Development Costs.
Development Costs increased by $61,370 (or 30%) from $203,933 (or 400%
of sales) in the fiscal period ending 30 June 1996 to $265,303 (or 597.9% of
sales) for the same period ended 30 June 1997. Such increases in development
expense were primarily attributable to costs incurred to support modifications
and error corrections discovered during beta product testing of the PowerTrader
suite of products and the development of a new series of Internet based
applications.
Net Loss
As a result of the foregoing, the Company experienced a net loss of
$902,997 (or 2,035.% of sales) in fiscal 1997 compared to a net loss of $598,971
(or 1,175.1% of sales) in fiscal 1996. Such losses may be offset in part by the
use of net loss tax carry forwards in future years. Because of additional
research and development expenses and the additional personnel expenses which
the Company believes will be necessary to establish its competitive and market
position and build the organizational infrastructure required to support
implementation of the Company's growth strategy, the Company expects to incur
further losses in the future. Such losses will likely have a negative impact on
the Company's results of operation, particularly if sales of the Company's
current products fall below expectation.
Liquidity and Capital Resources
The principal source of funds to the Company and PSI since their
respective formation has been derived from the net proceeds of certain private
offerings of securities which, together with the proceeds of sales, have been
used to fund continued research and development expenses as well as necessary
SGA costs. Although the Company believes that the proceeds of these offerings
and, to a lesser extent, cash generated from operations, will be sufficient to
fund its operations and planned capital expenditures for at least the next
twelve months, there can be no assurance that the Company will not require
additional financing during that time or thereafter. The Company has no plans to
secure any such additional financing. The inability of the Company to obtain
additional financing, if necessary, on acceptable terms, could have a material
adverse effect on the Company's business, financial condition and results of
operations. If additional funds were raised by the issuance of equity
securities, further dilution to existing stockholders could result.
The Company's limited capital resources have caused the Company's
independent accountants to issue a report which indicates that substantial doubt
exists as to the Company's ability to continue as a going concern. The Company
believes that the potential success in securing any development contracts for
work currently in progress and tenders under negotiation will significantly
improve the capital resources of the Company and thereby address certain of the
going concern reservations. Accordingly, the Company considers the conditions
which resulted in questions about the Company's ability to continue as a going
concern will be substantially alleviated through this process.
5
<PAGE>
Income Taxes
The Company did not have any material current or deferred income tax
liabilities at June 30, 1997 or 1996. However, the Company did have available
tax benefits of loss carry-forwards for 1997 totaling $1,778,400 including a
total in 1996 of $1,012,000. The Company did not record these tax benefits in
the Financial Statements because the Company believes that it is more likely
than not that the tax benefits would not be realized. Accordingly, the tax
benefits have been reduced by a valuation allowance of $899,300 in 1997 and
$455,400 in 1996.
ITEM 7. Financial Statements
The Company's financial statements together with the notes thereto and the
reports of the Company's independent auditors, thereon, are included as a
separate section of this report which begins on page F-1.
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
See Exhibit Index beginning on page E-1 of the original filing
of this Report.
(b) Reports on Form 8-K.
A report on Form 8-K was filed with the Commission dated May
2, 1997, disclosing the acquisition of certain intellectual
properties and, as part of the acquisition, the issuance of
125,000 shares of Common Stock in reliance on Regulation S.
A report on Form 8-K was filed with the Commission dated May
21, 1997, disclosing the issuance of 100,000 units, each
consisting of one share of Common Stock and one warrant to
purchase an additional share of Common Stock, in reliance on
Regulation S.
6
<PAGE>
Auditors' Report
To The Shareholders
PowerTrader, Inc.
We have audited the Consolidated Balance Sheets of PowerTrader, Inc. (A
Development Stage Company) as at June 30, 1997 and 1996 and the Consolidated
Statements of Loss, Cash Flow, and Changes in Shareholders' Equity (Deficit) for
each of the years in the three year period ended June 30, 1997. We have also
audited the Consolidated Statements of Loss, Cash Flow and Changes in
Shareholders' Equity (Deficit) for the period from December 29, 1988 (inception
of PowerTrader Software Inc.) to June 30, 1997 (cumulative). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the 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 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 that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PowerTrader,
Inc. as at June 30, 1997 and 1996 and the results of its operations and its cash
flows for each of the years in the three year period ended June 30, 1997 and the
period from December 29, 1988 (inception) to June 30, 1997 (cumulative) in
accordance with the generally accepted accounting principles in the United
States.
The accompanying financial statements have been prepared assuming that
PowerTrader, Inc. will continue as a going concern. As described in Note 1 to
the financial statements, PowerTrader, Inc. has incurred recurring losses, has
an accumulated deficit and a working capital deficiency, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO Dunwoody
CHARTERED ACCOUNTANTS
Vancouver, British Columbia
August 15, 1997
F-1
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in US Dollars)
<TABLE>
<CAPTION>
June 30 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current
Cash $ 99,986 $ 127,077
Deposits and prepaids 12,883 2,392
----------------------------------------
112,869 129,469
Fixed assets, note 3 754,741 57,249
----------------------------------------
$ 867,610 $ 186,718
- -----------------------------------------------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued liabilities, note 3 $ 362,520 $ 168,655
Notes payable, note 4 74,248 -
Current portion of capital lease obligations, note 5 5,894 5,810
----------------------------------------
442,662 174,465
Capital lease obligations, note 5 2,555 8,166
Share subscriptions, note 6 - 408,089
----------------------------------------
445,217 590,720
----------------------------------------
Shareholders' Equity (Deficit)
Share capital, note 7
Authorized
The company is authorized to issue 23,000,000
common shares and 2,000,000 preferred shares
with a $.01 par value per share
Issued and outstanding common shares 986,030 646,331
7,633,115 Common shares (1996 - 4,174,597)
Capital surplus 1,389,693 -
Accumulated deficit during development stage (1,953,330) (1,050,333)
----------------------------------------
422,393 (404,002)
----------------------------------------
$ 867,610 $ 186,718
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-2
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Statements of Loss
(Expressed in US Dollars)
<TABLE>
<CAPTION>
December 29,
1988
Year Ended Year Ended Year Ended (inception) to
June 30, June 30, June 30, June 30, 1997
1997 1996 1995 (cumulative)
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Revenue $44,373 $50,971 $44,026 $ 139,370
Cost of Sales 28,255 40,910 17,411 86,576
16,118 10,061 26,615 52,794
Selling, general and 653 812 405,099 369,910 1,428,821
Administrative costs
Development costs 265,303 203,933 108,067 577,303
Net loss $ (902,997) $ (598,971) $ (451,362) $ (1,953,330)
- -------------------------------------------------------------------------------------------------------------------------
Loss per share $ (0.16) $ (0.14) $ (0.11)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-3
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flow
(Expressed in US Dollars)
<TABLE>
<CAPTION>
December 29,
1988
Year Ended Year Ended Year Ended (inception) to
June 30, June 30, June 30, June 30, 1997
1997 1996 1995 (cumulative)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided (used) by:
Operating activities
Operations
Net loss $ (902,997) $ (598,971) $ (451,362) $ (1,953,330)
Item not involving cash
Amortization 42,210 26,589 15,257 84,056
Increase (decrease) from
changes in:
Deposits and prepaids (10,491) (620) (1,772) (12,883)
Accounts payable and
Accrued liabilities 193,865 71,997 96,657 362,519
--------------------------------------------------------------------------------
(677,413) (501,005) (341,220) (1,519,638)
--------------------------------------------------------------------------------
Financing activities
Notes payable financing
received 74,248 - - 74,248
Lease financing received - 11,074 7,716 18,790
Repayment of obligations
under capital leases (5,527) (3,732) (1,081) (10,340)
Shareholders' advances - 253,917 392,305 646,222
Issuance of share capital
and subscriptions 632,049 408,089 - 1,040,247
--------------------------------------------------------------------------------
700,770 669,348 398,940 1,769,167
--------------------------------------------------------------------------------
Investing activity
Net assets acquired on Reverse
Acquisition 314,254 - - 314,254
Investment in fixed assets (364,702) (43,690) (55,405) (463,797)
--------------------------------------------------------------------------------
(50,448) (43,690) (55,405) (149,543)
--------------------------------------------------------------------------------
Increase (decrease) in cash (27,091) 124,653 2,315 99,986
Cash, beginning of period 127,077 2,424 109 -
--------------------------------------------------------------------------------
Cash, end of period $ 99,986 $127,077 $ 2,424 $ 99,986
- -------------------------------------------------------------------------------------------------------------------------
Non-cash transactions
Shares issued for debt $ - $646,222 $ - $ 646,222
Share issued for software
acquisition $375,000 $ - $ - $ 375,000
Shares issued on Reverse
Acquisition $314,254 $ - $ - $ 314,254
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-4
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
(Expressed in US Dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated
Class "A" Class "B" During the
Common Common Common Capital Development
Shares Amount Shares Amount Shares Amount Surplus Stage
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares issued for cash
December 29, 1988 - $ - - $ - 100 $ 70 $ - $ -
Shares redeemed and
cancelled
September 12, 1989 - - - - (100) (70) - -
Shares issued
September 12, 1989 100 72 100 73 - - - -
Shares redeemed and
cancelled
July 12, 1990 35 (24) 16 (12) - - - -
-----------------------------------------------------------------------------------------------------------
Balance at
July 1,1994 65 48 84 61 - - - -
Net loss - - - - - - - (451,362)
-----------------------------------------------------------------------------------------------------------
Balance at
July 30, 1995 65 48 84 61 - - - (451,362)
Shares issued 4,174,448 646,222 - - - - - -
for debt
Net loss - - - - - - - (598,971)
-----------------------------------------------------------------------------------------------------------
Balance at
June 30, 1996 4,174,513 646,270 84 51 - 646,331 - (1,050,333)
Reverse acquisition
January 1, 1997 - - - - 5,088,598 314,254 - -
Shares issued for
Software share
subscriptions, note 6 - - - - 2,319,517 23,195 691,943 -
Computer software
acquired, note 3 - - - 125,000 1,250 373,750 -
Cash - - - - 100,000 1,000 324,000 -
Net loss - - - - - - - (902,997)
-----------------------------------------------------------------------------------------------------------
Balance at
June 30, 1997 - - - - 7,633,115 $986,030 $1,389,693 $(1,953,330)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-5
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies
June 30, 1997
Consolidation These financial statements include the accounts of
PowerTrader, Inc. and its wholly-owned subsidiary
PowerTrader Software Inc. ("Software") (collectively
"the Company") which was acquired in a "Reverse
Acquisition". Software (and not PowerTrader, Inc.) is
treated as the "acquiring" or "continuing" entity for
financial accounting purposes, notwithstanding that
PowerTrader, Inc. is the continuing entity for legal
purposes. Accordingly, the consolidated statements of
loss are a continuation of Software's financial
statements, and therefore reflect (i) the operations of
Software from inception (December 29, 1988) and (ii)
the operations of PowerTrader, Inc. after January 2,
1997, the date of acquisition.
All significant intercompany transactions and balances
are eliminated on consolidation.
Basis of
Presentation The consolidated financial statements have been
prepared in accordance with generally accepted
accounting principles in the United States.
Foreign
Currency Translation Foreign monetary assets and liabilities are translated
into US dollars at the rates of exchange in effect at
the balance sheet dates. Monetary assets are translated
at historical rates. Revenue and expense items are
translated at average exchange rates prevailing during
the period, except for amortization which is translated
at the same rate as the assets to which it applies.
Foreign currency translation adjustments are included
in income.
Exchange ratios between the Canadian and US dollar for
periods presented in these financial statements with
bracketed figures reflecting the average rate for the
period are:
June 30, 1997 US$1.00 $1.3805 (1.3663)
June 30, 1996 US$1.00 $1.3836 (1.3600)
June 30, 1995 US$1.00 $1.3725 (1.3793)
Fixed Assets Fixed assets are recorded at cost. Amortization is
provided at the following annual rates:
Computer equipment 30% declining balance
Computer software 100% declining balance
Furniture and equipment 20% declining balance
One half the normal amortization is recorded in the
period in which the assets become available for use.
F-6
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - Continued
June 30, 1997
Revenue Recognition The Company records revenue from the sale of computer
software upon shipment of products.
Research and Research and development costs are charged to expense
Development Costs as incurred.
Capitalized Software Certain software development and production costs are
Costs capitalized upon a product's reaching technological
feasibility. The capitalization of these costs will
stop when a product is ready for sale. Technological
feasibility is considered to be attained when the
company has completed all planning, designing, coding
and testing activities that are necessary to establish
that the product can be produced to meet its design
specifications including functions, features and
technical performance requirements. The Company has
attained technological feasibility on certain products,
however, it has not incurred any capitalizable costs
with respect to these products.
Estimates and The preparation of financial statements in conformity
Assumptions with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Fair Value of Financial The respective carrying value of certain on balance
Instruments sheet financial instruments approximated their fair
values. These financial instruments include cash,
accounts receivable, accounts payable and accrued
liabilities, notes payable and capital lease
obligations. Fair values were assumed to approximate
carrying values for these financial instruments since
they are short term in nature, their carrying amounts
approximate fair values or they are receivable or
payable on demand.
Loss Per Share Loss per share is calculated based on the weighted
average number of shares outstanding.
F-7
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - Continued
June 30, 1997
New Accounting
Pronouncements Statement of Financial Accounting Standards No. 123,
"Accounting for stock based compensation" (SFAS No.
123). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of
Accounting Principles Board Opinion No. 25, "Accounting
for stock issued to employees" (APB No. 25) for all
arrangements under which employees receive shares of
stock or other equity instruments of the employer or
the employer incurs liabilities to employees in amounts
based on the price of its stock. The Company has
elected to continue accounting for stock options issued
to employees in accordance with APB No. 25 but will
disclose the effects of stock options in accordance
with SFAS No. 123. The adoption did not have a material
effect on the Company's financial position or results
of operations.
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share ("SFAS No. 128") issued by the
Financial Accounting Standards Board is effective for
financial statements with fiscal years beginning after
December 15, 1997. The new standard simplifies
guidelines regarding the calculation and presentation
of earnings per share. The Company does not expect
adoption to have a material effect on the presentation
of its results of operations.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS 130"), which
establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include
all changes in equity except those resulting from
investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current
accounting standards as components of comprehensive
income be reported in a financial statement that is
displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for
periods beginning after December 15, 1997 and requires
comparative information for earlier years to be
restated. Because of the recent issuance of this
standard, management has been unable to fully evaluate
the impact, if any, SFAS 130 may have on future
financial statement disclosures. Results of operations
and financial position, however, will be unaffected by
implementation of this standard.
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, Disclosures and Segments of an
Enterprise and Related Information ("SFAS 131") which
supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise. SFAS 131 establishes
standards for the way that public companies report
information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding
F-8
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - Continued
June 30, 1997
New Accounting
Pronouncements products and services, geographic areas and major
continued customers. SFAS 131 defines operating segments as
components of a company about which separate financial
information is continued available that is regularly
used by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997 and requires
comparative information for earlier years to be
restated. Because of the recent issuance of SFAS 131,
management has been unable to fully evaluate the
impact, if any, it may have on future financial
statement disclosures. Results of operations and
financial position, however, will be unaffected by
implementation of this standard.
F-9
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 1997
1. Nature of Business and Continued Operations
PowerTrader, Inc. and Software design, develop, market and support
informational and analytical desktop decision support and risk
management systems. Software was originally incorporated on December
29, 1988 under the name Corporate Media Solutions, Inc. On November 6,
1989, it changed its name to Precision Investment Services and on April
16, 1996, changed its name from Precision Investment Services, Inc. to
PowerTrader Software Inc. Software was inactive until July 1994 when it
commenced development of its current suite of software products. On
January 2, 1997, PowerTrader Inc. was acquired in a Reverse Acquisition
by PowerTrader Software, Inc. (Note 2).
To date, since the Company has only sold Beta product and support
services, major product development work continues and the Company has
not yet recorded significant sales, accordingly, the Company is still a
development stage company with its principal business and assets in
Canada and its revenue earned in Canada.
These financial statements are stated in US dollars and have been
prepared in accordance with United States generally accepted accounting
principles, on a going concern basis. As reflected in these financial
statements, the Company has at June 30, 1997 an accumulated deficit of
$1,953,330 and a working capital deficiency of $329,793. In addition,
the Company has incurred operating losses in each of the last three
years. These factors among others, raise substantial doubt about the
Company's ability to be able to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on
the Company obtaining additional financing through private or public
share offerings or debt. The financial statements do not include any
adjustments related to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities
that may be necessary should the Company be unable to continue as a
going concern. However, it is reasonably possible, based on existing
knowledge, that changes in future conditions in the near term could
require a material change in the recognized amounts for the assets and
liabilities.
Management's plans in this regard are to obtain financing from private
or public share offerings or debt until such time that sufficient
revenue can be generated to sustain continuing operations.
2. Acquisition
On January 2, 1997, PowerTrader, Inc. entered into an agreement with
the shareholders of Software whereby it acquired all of the outstanding
shares of Software in exchange for 4,174,597 common shares. The
transaction was accounted for as a Reverse Acquisition, utilizing
historical costs. Software is in the same business as PowerTrader, Inc.
The financial position of PowerTrader, Inc. as of January 2, 1997 is
summarized as follows:
Tangible assets $ 314,468
Liabilities (214)
-------------
Shareholders' equity $ 314,254
=========
F-10
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 1997
The following is a summary of pro-forma sales, pro-forma net loss and
pro-forma loss per share for the Company under the assumption that the
Reverse Acquisition was completed on July 1, 1996.
1997 1996
(Unaudited) (Unaudited)
Pro-forma sales $ 44,373 $ 50,971
Pro-forma net loss $ 1,164,029 $598,971
Pro-forma loss per share $ (0.20) $(0.14)
3. Fixed Assets
Accumulated 1997 1996
Cost Amortization Net Net
---- ------------ --- ---
Computer equipment $186,666 $52,443 $139,224 $54,606
Computer software 626,211 29,635 596,576 2,643
Furniture and equipment 25,921 1,979 23,942 -
----------------------------------------------------
$838,798 $84,057 $754,741 $57,249
----------------------------------------------------
Source code related to the acquisition of $592,312 in software during
1997 is being held in escrow pending the Company's payment of $170,228
which is presently included in accounts payable, representing the
balance of the software purchase price owing.
The estimated useful life of the fixed assets varies between 1 and 5
years.
4. Notes Payable
The notes payable bear interest at 10% per annum and are due on May 5,
1997. Subsequent to year-end, $36,219 in notes payable were repaid.
5. Capital Lease Obligations
The company has two capital leases for computer equipment. Future
minimum lease payments are as follows:
1998 $ 5,894
1999 3,447
--------
9,341
Interest Component (892)
--------
$ 8,449
========
F-11
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 1997
6. Share Subscriptions
As at June 30, 1996, Software had received a total of $408,089 with
respect to subscriptions for 1,599,880 Class "A" common shares and
received a further $307,049 with respect to subscriptions for 689,637
Class "A" common shares during 1997. Software shares were never issued
for these share subscriptions, accordingly the amounts were recorded as
a liability at June 30, 1996. On the date of the Reverse Acquisition,
and shortly thereafter, these liabilities were settled through the
issuance of 2,319,517 PowerTrader, Inc. shares.
7. Share Capital
Restricted Shares
As at June 30, 1997 all but 125,000 of the outstanding common shares
are restricted shares and may not be sold in the absence of an
exemption under the Securities Act of 1933 (United States).
Prospectus
The Company is registered under the Securities Acts of 1933 and 1934
(United States) and has filed a prospectus with the Securities and
Exchange Commission for the issuance of a minimum of 1,000,000 Units
and a maximum of 1,700,000 Units, with each Unit consisting of one
share of the Company's Common Stock, $0.01 par value per share, and one
Warrant to purchase one additional share of common stock at an exercise
price of $3.50 per share for a five year period. The Warrants are
subject to redemption by the Company, at a redemption price of $0.01
per Warrant on 30 days prior written notice to the registered holder
thereof if the average closing bid price of the Common Stock as
reported by the principal market on which the Common Stock is traded
equals or exceeds $4.50 per share for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day
prior to the notice of redemption.
Warrants
100,000 warrants are outstanding at June 30, 1997.
Shares Issued to Director
350,000 shares issued to a Director are subject to an agreement, which
contains certain restrictions on transfer over a three year period and
provisions for forfeiture upon the occurrence of certain events.
Vesting of these shares occurs as follows:
Number of Shares Date
100,000 24 October 1997
150,000 24 October 1998
100,000 24 October 1999
-------
350,000
=======
F-12
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 1997
8. Stock Options and Stock Compensation Plans
At June 30, 1997, all of the Company's common stock options were
exercisable. The following options, which are not part of the Company's
1996 Stock Option Plan, were outstanding at the date of the Reverse
Acquisition and June 30, 1997.
Number Exercise Price Expiry Date
149,999 $ 0.37 Dec 1998
100,000 1.00 Feb 1999
100,000 3.00 Feb 1999
-------
349,999
Stock Option Plan
Pursuant to the Company's 1996 Stock Option Plan ("the Plan"),
officers, key employees, advisers and consultants, of the Company may
receive stock options to purchase up to an aggregate of 750,000 shares
of the Company's Common Stock. Under the Plan, stock options awarded
under the Plan may not have a term of more than 10 years or provide for
an exercise price of less than the fair market value of the Common
Stock on the date of grant. During 1997, the Company granted under the
Plan 300,000 options, exercisable at $2.00 per share and expiring April
16, 2000.
1996 Share for Debt Agreements
The number of shares issued in connection with the 1996 Share for Debt
Agreements was determined based on management's estimate of value of
the Company at the date the agreements were entered into.
Stock Based Compensation
The Company has elected to provide pro-forma information regarding net
income and earnings per share as if compensation cost for the Company's
stock options granted had been determined in accordance with the fair
value based method prescribed in FASB Statement 123. The Company
estimates the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997: dividend yield of
Nil - 1996; expected volatility of Nil - 1996; risk-free interest rates
of 6.25% (1996 - 5.02% to 5.70%) based on US Treasury Bill yields and
the expected life of two years. (1996 - two years).
Under the accounting provisions of FASB Statement 123, the Company's
net loss and loss per share would have been reduced to the pro-forma
amounts indicated below:
F-13
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 1997
1997 1996
Net loss
As reported $ (902,997) $ (598,971)
Pro-forma $ (956,792) $ (598,971)
Loss per share
As reported $ ( 0.16) $ (0.14)
Pro-forma $ (0.16) $ (0.14)
The weighted average fair value of options granted during 1997 was
$0.24 per share and to the date of the Reverse Acquisition was $0.65
per share.
9. Related Party Transactions
During 1997, the Company paid consulting and leasing fees totaling
approximately $171,600 (1996 - $11,800 and 1995 - nil) to directors,
shareholders and a company controlled by a director of the Company.
During 1997, the Company also acquired from a director, office
equipment for $ 7,100. As of 30 June 1997, there was nil owing (1996 -
$3,491) to directors.
10. Income Taxes
The Company has income tax loss carry-forwards of approximately
$1,778,400 available to reduce future taxable income, the tax effect of
which has not been recorded in these financial statements. These losses
will expire between 2002 and 2004.
Deferred tax liabilities at June 30, 1997 and 1996 were not material.
A summary of deferred tax assets and liabilities at June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
Deferred
Tax Valuation Tax
Rate Amount Allowance Asset
<S> <C> <C> <C> <C> <C>
1997
Tax benefit of loss
carry forward $ 1,778,400 .45 $899,300 $ (899,300) $ -
---------------------------------------------------------------------------------------
1996
Tax benefit of loss
carry forward $ 1,012,000 .45 $ 455,400 $ (455,400) $ -
---------------------------------------------------------------------------------------
</TABLE>
Since in management's opinion, it is more likely than not that the tax
benefits would not be realized, they have been reduced by a valuation
allowance of $899,300 (1996 - $455,400).
F-14
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in US Dollars)
June 30, 1997
11. Commitments
The Company has entered compensation contracts requiring minimum
payments as follows:
1998 $ 117,391
1999 55,554
2000 19,323
------------
$ 192,268
The Company has entered into a Lease Agreement for its premises
requiring total minimum lease payments of $71,245, with required lease
payments as follows:
1998 $ 38,861
1999 32,384
----------
$ 71,245
During 1997, 1996 and 1995, the Company had rent expenses for its
premises of $27,536, $23,795 and $8,770, respectively.
12. Subsequent Events.
Subsequent to year-end the Company paid $ 50,000 to enter a one-year
license agreement to publish Financial World Magazine electronically.
Subsequent to year-end the Company issued 250,000 units for total cash
consideration of $812,500. Each unit consisted of one share and two
warrants, each warrant entitles the holder to purchase one additional
share of common stock at an exercise price of $3.50 per share for a
five year period. These shares and warrants are restricted for 40 days
from the July 21, 1997 date of issue.
Subsequent to the year-end 100,000 shares and warrants became
unrestricted after a 40 day restricted period from the May 21, 1997
date of issue.
F-15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POWERTRADER, INC.
By: /s/ Michael C. Withrow
Michael C. Withrow
Chairman and President
Date: October 14, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Michael C. Withrow Director, Chairman October 14, 1997
Michael C. Withrow and President
(principal executive
officer)
/s/ David C. Furlonger Director, Secretary October 14, 1997
David C. Furlonger and Vice-President
(principal financial
and accounting officer)
/s/ George E. McCord Director,
George E. McCord Chief Information Officer October 14, 1997
F-16
