SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended December 31, 1997
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
For the transition period from to
Commission file number 000-22329
POWERTRADER, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 98-0163116
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
885 Dunsmuir Street, Suite 591, Vancouver, B.C. V6C 1N5
(Address of Principal Executive Offices)
(604) 685-1529
(Issuer's Telephone Number, Including Area Code)
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
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Number of Shares Outstanding
Title of Class as of February 1, 1998
Common Stock, par value $0.01 per share 7,883,115
Traditional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
POWERTRADER, INC.
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
December 31, 1997
PART I - Financial Information
Page
ITEM 1. Financial Statements
Unaudited Consolidated Balance Sheet as of December 31, 1997............
Unaudited Consolidated Interim Statements of Loss and Deficit
for the Three and Six Months Ended December 31, 1997 and
December 31, 1996....................................................
Unaudited Consolidated Interim Statements of Cash Flow for
the Three and Six Months Ended December 31, 1997 and
December 31, 1996....................................................
Notes to Unaudited Consolidated Financial Statements....................
ITEM 2. Management's Discussion and Analysis...............................
PART II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K...................................
SIGNATURE PAGE..................................................................
EXHIBIT INDEX...................................................................
<PAGE>
UNAUDITED CONSOLIDATED BALANCE SHEET
December 31, 1997
December 31, June 30,
1997 1997
Assets
Current
Cash $ 63,793 $ 99,986
Accounts Receivable 7,566 -
Deposits and prepaids 63,659 12,883
135,018 112,869
Fixed assets 711,137 754,741
$ 846,155 $ 867,610
- --------------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued
liabilities $ 265,045 $ 362,520
Current portion of capital lease
obligations, note 5 4,772 5,894
269,817 368,414
Notes payable - 74,248
Capital lease obligations - 2,555
269,817 445,217
Shareholders' Equity (Deficit)
Share capital 988,530 986,030
Capital surplus 2,191,553 1,389,693
Accumulated deficit during
development stage (2,603,715) (1,953,330)
576,338 ( 422,393)
$ 846,155 $ 867,610
- --------------------------------------------------------------------------------
<PAGE>
UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND DEFICIT
For the Three and Six Months Ended December 31, 1997 and 1996
(Expressed in US Dollars)
<TABLE>
<CAPTION>
December 29,
Six Six Three Three 1988
Months Months Months Months to
Ended Ended Ended Ended December 31,
December 31, December 31, December 31, December 31, 1997
1997 1996 1997 1996 (Cumulative)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 28,349 $ 27,478 $ 20,244 $ 17,259 $ 167,613
Cost of Sales 16,461 15,855 9,023 955 95,599
11,888 11,623 11,221 16,304 72,014
Selling, general and
administrative costs 470,014 257,942 218,030 149,569 1,907,300
Development costs 192,289 153,671 84,526 94,656 768,459
Net loss $ (650,415) $ (399,990) $ (291,335) $ (227,921) $(2,603,745)
Deficit, beginning of
period $ (1,953,330) $ (1,050,333) $ (2,312,410) $ (2,603,745) -
Deficit, end of period (2,603,745) (1,450,323) (2,603,745) (1,450,323) (2,603,745)
- -----------------------------------------------------------------------------------------------------------------------------------
Loss per share $ (0.08) $ (0.10) $ (0.04) $ (0.05)
Weighted average shares of
outstanding common stock
and equivalents 7,855,337 4,174,597 7,883,115 4,174,597
</TABLE>
<PAGE>
UNAUDITED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOW
For the Three and Six Months Ended December 31, 1997 and 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
December 29,
Six Months Six Months Three Months Three Months 1988
Ended Ended Ended Ended (inception) to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1997 1996 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Cumulative)
<S> <C> <C> <C> <C> <C>
Cash provided (used) by:
Operating activities
Operations
Net Loss $ (650,415) $ (399,990) $ (291,335) $ (227,921) $(2,603,745)
Item not involving cash
amortization 72,256 17,220 61,668 11,480 158,891
Increase (decrease) in:
Deposits and prepaids (50,776) (8,689) (9,180) (2,112) (63,659)
Accounts receivable (7,566) - (6,870) - (7,566)
Accounts payable and
accrued liabilities (97,475) (77,529) (12,810) 50,387 265,044
(733,976) (468,988) (258,527) (168,166) (2,251,035)
Financing activities
Losses from PowerTrader Inc. - 311,900 - 311,900 -
Notes payable financing
received - - - 74,248
Notes payable financing
repaid (74,248) - (36,203) - (74,248)
Lease financing received - - - - 18,790
Repayment of obligations
under capital lease (3,677) (7,724) (1,797) (1,523) (14,017)
Shareholders' advances - - - - 646,222
Issuance of share capital 804,360 1,844,607
726,435 616,225 (38,000) 343,392 2,495,602
Investing activity
Assets acquired on reverse
acquisition - - - - 314,274
Investment in fixed assets (28,652) (71,533) (2,048) (49,471) (495,028)
(28,652) (71,533) (2,048) (49,471) (180,774)
Increase (decrease) in cash (36,193) 75,704 (298,575) 125,755 63,793
Cash, beginning of period 99,986 127,077 362,368 77,026 -
Cash, end of period $ 63,793 $ 202,781 $ 63,793 $ 202,781 $ 63,793
</TABLE>
<PAGE>
POWERTRADER, INC.
(A Development Stage Company)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
December 31, 1997
- -------------------------------------------------------------------------------
Note A: The accompanying unaudited consolidated financial statements of
PowerTrader Inc., and its wholly-owned subsidiary PowerTrader Software
Inc., as of and for the three and six months ended December 31, 1997
and December 31, 1996, have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission and do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
PowerTrader Inc. accounts are included in these financial statements
from January 2, 1997, the date it was acquired by PowerTrader Software
Inc.
In the opinion of management, all adjustments considered necessary for
a fair presentation of the results of the interim periods have been
included. Operating results for any interim period are not necessarily
indicative of the results that may be expected for the entire fiscal
year. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended June 30, 1997 included
in the Company's report in Form 10K-SB as filed with the Securities and
Exchange Commission.
Nature of Operations and Acquisition
Note B: PowerTrader Inc., (the "Company") designs, develops markets and
supports informational and analytical desktop decision support and risk
management systems.
Note C: The Company records revenue from the sale of computer software upon
shipment.
Note D: Exchange Rates
Exchange Rates between the United States dollar and the Canadian dollar
for the periods reported in these financial statements are as follows:
1997 1996
Average 1.4313 1.3609
As of December 31 1997 1.3969 1.3706
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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. ("PSI") in a merger,
exchange of shares or other business combination. Its sole director, officer and
shareholder was Michael C. Withrow. In January 1997, PowerTrader consummated a
transaction with the shareholders of 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 shares of its Common Stock 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.
As a result of a joint business venture with a Toronto-based television
production company, the Company is exploring other business opportunities such
as, developing and marketing a financial Internet web site that is integrated
and fully interactive with a traditional television broadcast (the "Joint
Venture"). The Company has been involved in such venture since November 1997 and
intends on focusing a portion of its resources, including research and
development, to such venture.
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.
Results of Operations
Sales.
Sales increased 3.17% during the six months ended 31 December 1997 from
the same period in 1996 and increased 17.29% for the three months ended 31
December 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. Additionally, Sales in the last quarter were hampered by management's
decision to shift resources towards developing products to capitalize on
opportunities the Company believes will result from its participation in the
Joint Venture.
<PAGE>
Cost of Sales.
Cost of sales increased by $606 (or 3.82%) from $15,855 to $16,461 (or
58.07% of sales) in the first half of fiscal 1998 ending 31 December 1997 and
increased by $8,068 to $9,023 from $955 (or 44.57% of sales) in the three month
fiscal period ending 31 December 1997 compared to the same period in 1996. The
increase in cost of sales resulted primarily from the slight increase in
revenues.
Selling, General and Administrative Costs.
Selling, General and Administrative Costs ("SGA") increased by $212,072
(or 182.21%) to $470,014 (or 1,657.96% of sales) in the six month period ending
31 December 1997 compared to $257,942 (or 938.72% of sales) in the same period
ended 31 December 1996. SGA also increased by $68,461 (or 68.6%) to $218,030 (or
1,077% of sales) in the three month period ending 31 December 1997 compared to
$149,569 (or 866.61% of sales) in the same period ended 31 December 1996. Such
expenses were incurred to develop the necessary organizational infrastructure to
support the implementation of the Company's business plan and to cover the
continuing operational costs associated with a public company and the cost of
listing the Company's Common Stock on the NASDAQ Bulletin Board. SGA also
includes salaries and benefits for corporate management, administrative and
sales personnel, as well as rent expense for PSI's offices. Although SGA
increased over the compared periods, the Company believes that the level of SGA
which is required to maintain the current corporate infrastructure should be
relatively fixed in nature; accordingly, management anticipates that such
expenses as a percentage of sales will decline as total sales levels increase.
Development Costs.
Development Costs increased by $38,618 (or 25.13%) from $153,671 (or
559.3% of sales) in the six months ending 31 December 1996 to $192,289 (or
678.29% of sales) for the same period ending 31 December 1997. However,
Development Costs decreased by $10,130 (or 10.7%) from $94,656 (or 548.44% of
sales) in the three months ending 31 December 1996 to $84,526 (or 417.53% of
sales) for the same period ending 31 December 1997. The six month comparative
increase in development expense was primarily attributable to costs incurred to
support the development and completion of products resulting from the Joint
Venture.
Net Loss.
As a result of the foregoing, the Company experienced net losses of
$650,415 (or 2,294% of sales), and $291,335 (or 1,439.12% of sales) for the six
months and quarter ending 31 December 1997 respectively. 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
and public 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. The Company believes that its current cash position will be
insufficient to fund its continued operations and planned capital expenditures
for the next twelve months. Accordingly, the Company is currently attempting to
secure additional necessary financing either from a future offering or future
offerings of securities or by increasing its sales. The inability of the Company
to obtain additional financing on acceptable terms, will have a material adverse
effect on the Company's business, financial condition and results of operations.
Moreover, if additional funds are raised by the issuance of equity securities,
<PAGE>
further dilution to existing stockholders could result. Although the Company has
now developed products that are market-ready and available for sale, there can
be no assurance that the Company will not require additional financing prior to
the collection of revenue that would fund its operations from this point and in
the future.
In an attempt to reduce the capital strain on the Company's current
cash position, the Company reduced its employee work force from nine to only
three employees in January 1998. Although the Company believes that this
decision will stabilize its short-term cash position, the Company will still be
in need of long-term financing. Also, this decision will most likely slow
production and development of new products and will limit the Company's ability
to sell existing and market-ready products.
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, if it is successful in securing any development contracts for
work currently in progress and tenders under negotiation, the capital resources
of the Company may significantly improve and thereby address certain of the
going concern reservations.
Income Taxes
The Company did not have any material current or deferred income tax
liabilities at June 30, 1997, 1996 and 1995. However, the Company did have
available tax benefits of loss carry-forwards for 1997 totaling $1,999,300
including a total in 1996 of $1,119,700. 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 $758,000 in 1997
and $495,500 in 1996.
Year 2000
Many existing information systems were designed and developed without
consideration of the impact of the next millennium and accordingly, may not be
capable of accurately processing dates which include the year 2000 or any
subsequent year ("Year 2000 Issue"). Based on an internal assessment of its
existing information system, the Company has determined that its system is
capable of accurately processing such dates. For this reason, the Company does
not expect the Year 2000 Issue to materially affect the Company's future
financial results.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K
(A) See Exhibit Index
(B) No reports on Form 8-K were filed with the Commission during
the second quarter.
<PAGE>
PowerTrader, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POWERTRADER, INC.
Date: February 17, 1998 By: /s/ David C. Furlonger
David C. Furlonger
Secretary, Chief Financial Officer
and Director
<PAGE>
PowerTrader, Inc.
EXHIBIT INDEX
Exhibit
No. Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 63,793
<SECURITIES> 0
<RECEIVABLES> 71,225
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 135,018
<PP&E> 864,556
<DEPRECIATION> 153,419
<TOTAL-ASSETS> 846,155
<CURRENT-LIABILITIES> 269,817
<BONDS> 0
0
0
<COMMON> 3,180,083
<OTHER-SE> (2,603,715)
<TOTAL-LIABILITY-AND-EQUITY> 846,135
<SALES> 28,349
<TOTAL-REVENUES> 28,349
<CGS> 16,461
<TOTAL-COSTS> 470,014
<OTHER-EXPENSES> 192,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (650,415)
<INCOME-TAX> 0
<INCOME-CONTINUING> (650,415)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (650,415)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
