SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number: 000-22329
POWERTRADER, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
98-0163116
(IRS Employer Identification Number)
885 Dunsmuir Street, Suite 591, Vancouver, British Columbia V6C 1N5
(Address of principal executive offices and zip code)
(604) 685-1529
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Check whether the issuer: (1) has 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 [ ] No [ X ]
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 the 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. [ ]
State issuer's revenues for its most recent fiscal year: $142,088
The number of shares of the registrant's Common Stock outstanding as of June 30,
1999 was 22,383,115. The aggregate market value of the registrant's Common Stock
held by non-affiliates, based upon the closing price on June 30, 1999, as
reported on the Nasdaq Over the Counter System, was approximately $707,341.90.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Transitional small business disclosure format (check one)
Yes [ ] No [ X ]
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security Holders
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters
Item 6. Management's Discussion and Analysis or
Plan of Operation
Item 7. Financial Statements
Item 8. Change in and Disagreement with Accountants
on Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
<PAGE>
Item 1. DESCRIPTION OF BUSINESS
Overview
PowerTrader, Inc. (the "Company") was incorporated under the laws of the State
of Delaware on August 22, 1996. PowerTrader Software Inc., a corporation
incorporated in the Province of British Columbia, Canada in 1988, and its
shareholders, pursuant to a Share Exchange Agreement with the Company entered on
September 30, 1996, sold all of their issued shares to the Company. For each
share of PowerTrader Software Inc. sold the shareholders received one share of
PowerTrader Inc. The Company became the sole shareholder of PowerTrader Software
Inc.
Prior to June 30, 1998, the Company had been exploring other possible business
opportunities including a possible joint business venture with a Toronto-based
television production company to develop and market a financial Internet web
site that is integrated and fully interactive with a traditional television
broadcast (the "Joint Venture"). The Company had been involved in discussions
for such a venture since November 1997, which resulted in a dedication of
resources, including research and development personnel and time, to such
venture.
Additionally, during the fourth quarter of fiscal 1998, the Company had
discussions with a New York-based print financial magazine regarding the
possibility of combining the Company's web site technology with the information
and print medium provided by such magazine (the "Combination"). The Company's
attempts to develop a relationship with the magazine caused the Company to
allocate further financial resources, time and effort to exploring the
feasability of the Combination. Neither the Joint Venture nor the Combination
ever materialized and all discussions were ended in the first quarter of fiscal
1999.
Concurrent with the discussions related to the possible Joint Venture and
Combination but prior to October 16, 1998, the Company, through its then wholly
owned subsidiary PowerTrader Software Inc., continued to be involved in the
design, development, marketing and support of informational and analytical
decision support systems for securities brokerage firms, investment advisers,
trust companies and individual investors. The Company's products were being
designed to enable customers to capture market data from Market Data Vendors and
store same for future reference, display data in tables and graphic form and
analyze trading opportunities.
From November 1, 1998 to February 28, 1999, the Company provided professional
services for the design and development of enhancements to the DataMill software
on behalf of its controlling stockholder, Financial Models Company Inc. ("FMC").
See "Fiscal 1999 Events." Subsequent to March 1, 1999, the Company contracted
with FMC for continued development of enhancements to its DataMill software with
a view to the development of software to provide workstation data processing
solutions to the brokerage industry during fiscal 2000. The Company expects that
the DataMill software product will be the focus of its immediate future
business.
Operating History
Since inception the Company has been a development stage company with its
principal business and assets in Canada and revenue earned in Canada. As at June
30, 1999 the Company had sold only Beta versions of its product and support
services. An accumulated deficit of $3,588,323 U.S., a working capital
deficiency of $210,100 U.S. and the incurring of operating losses in each of the
three fiscal years ending June 30, 1999 resulted in the Company's auditors
issuing a "going concern" warning that there was substantial doubt about the
Company's ability to be able to continue as a going concern.
At the beginning of fiscal 1999 management's choices were to seek financing from
private or public share offerings or debt, sell the assets of the Company,
obtain equity financing or place the Company in liquidation.
Fiscal 1999 Events
After exploring various options, the Company elected to seek a financially
stable investor to assist in its future funding of operations and provide
sufficient funds to satisfy its immediate cash needs and protect its significant
assets, including DataMill. To that end on October 16, 1998 the Company issued
14,000,000 shares of its Common Stock, at $0.01 U.S. per share, to Financial
Models Company Inc. ("FMC"), in exchange for US$140,000. In addition FMC
acquired 1,309,696 shares of Common Stock from 458856 B.C. Ltd. ("458468"), a
company controlled by Michael C. Withrow, president and chief executive officer
of the Company, at $0.01 U.S. per share. Upon closing of the transaction FMC
owned approximately 67% of the issued and outstanding shares of Common Stock of
the Company.
FMC was incorporated on February 2, 1976 in the Province of Ontario, Canada. In
December, 1997 FMC became a reporting issuer pursuant to the provisions of the
Ontario Securities Act. In July 1998 FMC became listed on the Toronto Stock
Exchange under the symbol "FMC". FMC is a leading provider of software products,
network services, securities data and related services to the investment
management industry in Canada, the United States, United Kingdom and Europe. The
Company's products are used by more than 200 clients world-wide with total
assets under management in excess of $2 trillion.
At closing FMC advanced the sum of Cdn$252,000 (approximately $172,000 U.S.) to
the Company to allow it to discharge a promissory note, secured by a General
Security Agreement and Software Security Agreement, held by West Coast Title
Search Limited, and obtain clear title to the DataMill software (see "Product
Development"). Concurrent with the closing FMC advanced the further sum of
$100,000 U.S. to allow the Company to retire outstanding accounts owed to 458468
for consulting and other services provided by Michael Withrow to the Company,
pursuant to a Consulting Agreement. In addition Mr. Withrow and 458468
surrendered to the Company certain stock options granted in accordance with the
terms of the Consulting Agreement. FMC has, during fiscal 1999, advanced,
additional amounts to the Company totaling in aggregate, the sum of $406,208.
These funds have been used to retire outstanding debts and continue operations
and product development (see "Management Discussion and Analysis" and "Product
Development"). All monies advanced to the Company by FMC are secured by a
debenture convertible at FMC's option to shares of Common Stock, at a price of
$0.01 U.S. per share, on the basis of one share for each $0.01U.S. of monies
secured.
At closing, the Company granted to FMC a source code license, for the sum of
Cdn$75,000, to use and develop the DataMill software for FMC's internal use
only. The license does not permit FMC to redistribute or resell DataMill or any
enhancements thereto.
As part of the continued restructuring efforts, on February 28, 1999 the Company
executed a Purchase Agreement for the sale of all its shares in PowerTrader
Software Inc., its wholly owned subsidiary, to FMC for a price of Cdn$300,000.
Additionally, FMC agreed to grant to the Company all right, title and interest
to the source code for the version of DataMill containing all enhancements made
for and on behalf of FMC under its license and to provide to the Company a
prototype of DataMill ready for Beta testing as a commercial product by December
31, 1999 without additional cost. Upon completion of such prototype, the Company
has agreed to enter into an arrangement granting to FMC certain marketing rights
to DataMill and the provision to FMC of any future upgrades of DataMill, the
same for internal use in accordance with FMC's license. Completion of the
transaction was conditioned upon the Company obtaining a Rectification Order (
"the Order") pursuant to the Companies Act (British Columbia) to validate
certain irregularities in the conduct of PowerTrader Software Inc.'s business
and affairs, including validation of the Share Exchange Agreement dated January
2, 1997 whereby shareholders of PowerTrader Software Inc. sold all the issued
shares to the Company in return for shares in the Common Stock of the Company.
The final Order was obtained from the Supreme Court of British Columbia on May
3, 1999. Contemporaneously with the above transaction, PowerTrader Software Inc.
granted all right, title and interest in its proprietary software and
intellectual property to the Company.
All the efforts at reorganization have provided the Company access to financing
which the Company expects will assist in further attempts to fulfill its
business plan. (See "Marketing and Business Strategies")
Industry Background
The continuing rapid changes in the securities industry have resulted in the
need for information systems which (i) lower transaction costs, (ii) manage
increasing data flow and (iii) provide value added services. The Company
believes ongoing telecommunications and information technology advances will
require ongoing development of sophisticated analytical tools to manage data and
address evolving industry advances.
Products
Due to poor sales of PowerTrader Analyst, the Company had discontinued any
further development and marketing of PowerTrader Analyst in the first quarter of
fiscal 1999. The Company had attempted to develop a suite of components which,
if developed successfully, would have permitted a client to purchase a
comprehensive system to match its individual needs. The Company intended to
market these components as separate products, namely, as PowerTrader Pro-Vision,
Data Manager, Formula One, Server and PowerTrader Analyst. As a result of delays
in research and development and in an effort to generate revenues, the Company
had determined to combine the functionality of some or all of the components
into PowerTrader Analyst, which featured a continuously refreshed data base
display in a customizable and tabular format created by Server in a charting
package facilitating technical securities analysis and custom/proprietary
indicators using Microsoft Excel and Visual Basic.
In addition, the Company had developed a web site known as "Financial Wire" that
it attempted to market on a subscription basis. This web site allowed the
individual investor to access the Company's products in conjunction with an
end-of-day data file retrieved through the Company's Internet server.
The operation of the Company's software by a user and the effectiveness of
"Financial Wire" were dependent upon certain data feeds provided by third party
suppliers, such as Standard & Poor and the New York Stock Exchange, to which the
Company was a subscriber. As a result of the Company's capital deficit and
inability to raise further capital, all such suppliers ceased to supply data by
the first quarter of fiscal 1999 due to nonpayment of accounts. Accordingly all
end user contracts for use of the Company's software and Financial Wire were
terminated by subscribers.
As a result of the lack of funds, the Company was required to negotiate a
forbearance agreement with the holder of the promissory note and security
agreements related to DataMill to prevent a foreclosure on DataMill. Such
forbearance agreement expired during the first quarter of fiscal 1999, and as a
result, the security holder took possession of the source code and any attendant
development work on September 17, 1998. As part of the acquisition of control by
FMC, FMC advanced the sum of Cdn$252,000 (approximately $172,000 U.S.) to the
Company to allow it to discharge the promissory note and security agreement
encumbering DataMill, thereby clearing title to such software for the Company.
As part of the restructuring of the Company on February 28, 1999 PowerTrader
Software Inc., the Company's wholly owned subsidiary, transferred all right,
title and interest in all proprietary software and all intellectual property
rights to the name "PowerTrader" and "PowerTrader Analyst" and associated
tradename registrations to the Company for $1.00 and an undertaking by the
Company to contract with PowerTrader Software Inc, and any successor, for future
development work on the Company's current and future software. Thereafter the
Company and FMC agreed to the rate by the Company of all its shares of
PowerTrader Software Inc. to FMC.
As an additional step of the restructuring, the Company focused its development
efforts on the DataMill software.
Product Development
The Company had expected revenues from subscriptions to its Financial Wire
product and related products and services to provide the necessary funds to
continue product development during fiscal 1999. The cancellation of the
existing subscriptions for the Company's products and services (see "Products")
and the continuing negative cash flow from operations during the first quarter
of fiscal 1999, halted continued research and development. Additionally, the
seizure of the DataMill software by the security holder in September 1998
prevented any further research and development work on that product.
Subsequent to the closing of FMC's purchase of 14,000,000 shares of the Company
(see "Fiscal 1999 Events"), FMC contracted with PowerTrader Software Inc. for
the development of FMC's licensed version of the DataMill software. Such
development work in accordance with FMC's specifications was completed on or
about March 1, 1999. Pursuant to a commitment made by FMC to the Company as part
of the acquisition by FMC of PowerTrader Software Inc., FMC has created further
enhancements to DataMill to, without limitation, (i) allow the software to
operate on most commercial platforms, (ii) allow for remote real-time monitoring
of the system, (iii) view stock prices from a web browser, and (iv) talk
directly to MFC Windows applications as the basis for interfacing with the
Microsoft DNAfs architecture. Subject to FMC's continuing license to use and
develop the DataMill software for internal purposes, FMC has granted to the
Company all right, title and interest in the source code for the version of
DataMill containing all enhancements. The Company believes it will have a
commercial version of DataMill available for use by securities brokers in the
latter half of the 2000 fiscal year. In an effort to further maximize the
benefits of its relationship with FMC, and in accordance with commitments
forming part of the sale of PowerTrader Software Inc. to FMC, the Company
intends to initially market DataMill products through FMC's offices worldwide.
(See "Marketing and Business Strategies") The Company intends to continue to
support industry standard operating environments, client/server architectures
and network protocols as part of its ongoing product development.
Competition
The market for the Company's proposed DataMill products is evolving rapidly and
is sensitive to new product introductions and marketing efforts by industry
participants. Prospective customers tend to be highly sophisticated organization
who undertake extensive investigation and comparison of competitive software
applications offered by prospective vendors. The Company competes directly with
a large number of software vendors and indirectly with existing and potential
clients who have, or may have, developed risk management and other decision
support systems to satisfy particular needs. Many of the Company's competitors
have significantly greater financial, managerial, development, technical,
marketing and sales resources. These competitive forces have been compounded by
the Company's lack of sales resources.
Marketing and Business Strategies
The Company's past strategy for marketing its previously offered products
contemplated the allocation of substantial resources for the hiring and training
of a marketing staff and direct sales force. Delays in the development of a
commercial product, the lack of capital and the attendant inability to increase
its sales force personnel as had been previously anticipated resulted in the
Company having conducted only limited sales, marketing and distribution
activities.
As a result of the financial difficulties experienced by the Company in the
early part of fiscal 1999 and FMC's acquisition of a controlling interest in the
Company, the Company has re-evaluated its product market and marketing strategy
for the future. The Company currently anticipates that, upon commercial release
of the enhanced DataMill software product to initially target the broker
workstation marketplace, the Company's initial sales and marketing will rely
upon the involvement of FMC's staff under the terms of the agreed marketing
agreement. The Company will pay to FMC a commission on all sales made by FMC
equal to 30% of the license fees invoiced by the Company, all in accordance with
generally accepted accounting principles.
In addition to utilizing FMC's staff, the Company expects to attempt to market
and sell its developing products through licensing directly to end-users or
through the development of distribution arrangements with other third parties.
Revenues, if any, received by the Company in this regard will be largely
dependent on the efforts of such third parties and no assurance can be given
that such efforts will be successful.
The Company also intends to investigate the possibility of establishing
relationships with strategic partners and pursue strategic opportunities such as
acquisitions or alliances as the circumstances may warrant. The Company plans to
focus product and service development efforts on the enhancement of existing
products and development of new market opportunities. However there can be no
assurance in the future that the Company will have the resources to be able to
attract and retain qualified marketing and sale personnel necessary to generate
significant growth in revenue from sales of its software products.
Intellectual Property
The Company has registered the trade names "PowerTrader Analyst" and
"PowerTrader" in the United States and Canada, respectively. The Company's
ability to compete effectively depends to a significant extent on its ability to
protect its proprietary technology. The Company relies primarily on a
combination of copyright and trademark laws, trade secrets, software security
measures, confidentiality agreements and licence agreements to establish and
protect its intellectual property rights. The Company enters into
confidentiality agreements with its consultants, employees and sales
representatives and controls access to and distribution of its software and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use certain portions of the
Company's products and technology or to reverse engineer or other otherwise
obtain and use proprietary information. The Company does not have any patents on
its software and existing copyright laws afford only limited protection. In
addition, the Company cannot be certain that others will not develop
substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights.
The Company is not currently engaged in any intellectual property litigation or
proceedings. There can be no assurance that third parties will not assert such
claims or that any such claim will not require the Company to enter into
licensing agreements or result in protracted and costly litigation, regardless
of the merits of such claims. No assurance can be given that any necessary
licences will be available or that, if available, such licences can be obtained
on commercially reasonable terms. Furthermore, litigation may be necessary to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets, to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement. Such litigation could result
in substantial costs and diversion of resources and could have a material
adverse affect on the Company's business, financial condition and results of
operation.
Employees
The Company at the commencement of the fiscal year end had one full time
employee engaged in product development and client service and support and Mr.
Withrow continued to provide administration and management services pursuant to
the consulting agreement signed between the Company and 458468 B.C. Limited.
Prior to February 28, 1999 the Company's subsidiary, PowerTrader Software Inc.,
hired three additional development personnel. The consulting agreement with
458468 B.C. Limited was terminated on October 16, 1998. All employees of
PowerTrader Software Inc. became employees of FMC at March 1, 1999, in
connection with FMC's purchase of the shares of PowerTrader Software Inc. Rather
than initially seeking to attract and retain qualified technical and management
personnel, the Company has outsourced its marketing, sales and development
requirements from FMC. In the future, as the Company generates sales of its
products, the Company's success will depend on its ability to attract and retain
its own qualified technical and management personnel.
Item 2. DESCRIPTION OF PROPERTY
The Company leases approximately 3068 square feet of office space in Vancouver,
British Columbia under a lease expiring in April, 2000. The monthly lease
payment under the lease is approximately Cdn$6,000 gross. Since March 1, 1999
responsibility for the leased premises has been assumed by Financial Models
Company Inc. The Company believes that its existing facilities will be adequate
to meet its current needs and that suitable additional or alternative space will
be available in the future on commercially reasonable terms as needed.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Company did not submit any matters to a vote of shareholders during the
fiscal year covered by this report.
<PAGE>
PART II
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq OTC under the symbol "PWTD".
The Common Stock was approved for trading on August 19, 1997. The following
table summarizes the high and low bid prices as reported by the Nasdaq OTC for
the periods indicated:
Bid Range
---------
Fiscal Year 1999 High Low
---------------- ----- -----
First Quarter $0.03 $0.01
Second Quarter 0.04 0.01
Third Quarter 0.03 0.03
Fourth Quarter 0.12 0.07
Bid Range
---------
Fiscal Year 1998 High Low
---------------- ----- -----
First Quarter $0.30 $0.04
Second Quarter $0.50 $0.05
Third Quarter $0.25 $0.06
Fourth Quarter $0.26 $0.07
The quotations reflect inter-vendor pricing without retail mark-up, mark-down or
commission and may not represent actual transactions.
The Company had approximately seventy-one (71) stockholders of record at June
30, 1999.
The Company has not declared or paid any cash dividends on its Common Stock
since its inception, and the Board of Directors presently intends to retain cash
flow for the development of the Company's business for the foreseeable future.
The declaration and payment of cash dividends in the future will be at the
discretion of the Company's Board of Directors and will depend upon a number of
factors, including, among others, future earnings, operations, capital
requirements, the general financial condition of the Company and such other
factors as the Board of Directors may deem relevant.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended and Section 27A of the
Securities Act of 1933, as amended. For this purposes, any statements contained
herein that are not statements of historical fact may be deemed forward-looking
statements. Without limiting the foregoing, the words "believes", "anticipates",
"plans", "expects" and similar expressions are intended to identify forward-
looking statements. 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
their forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. These forward-looking statements should be read in
conjunction with the Company's disclosures under the heading "Cautionary
Statements - Additional Important Factors to be Considered" in Exhibit 99.1 to
the Company's Form 10-KSB for the fiscal year ended June 30, 1998.
The following should be read in conjunction with the Financial Statements and
Notes thereto.
Overview
The Company, since its inception, had designed and developed, through its wholly
owned subsidiary PowerTrader Software Inc., informational and analytical
decision support systems for securities brokerage firms, investment advisors,
trust companies and individual investors. The Company has been and continues to
be a development stage company.
In October 1998 the Company issued 14,000,000 shares of common stock to
Financial Models Company Inc. ("FMC") at a price of $0.01US per share, the
market price of the Company's Common Stock on such date. FMC is a leading
provider of a comprehensive suite of mission-critical and decision support
software products, securities data and related services to automate, integrate
and support the front, middle and back office needs of large investment
management institutions in Canada, the United States, the United Kingdom and
Europe. At the time of this transaction the Company was in an insolvent
condition. FMC has contributed further capital during the past fiscal year to
retire the outstanding indebtedness and reorganize the development, marketing
and business plans of the Company.
Until February 28, 1999 FMC contracted with PowerTrader Software Inc. to provide
professional services for the development and enhancement of the proprietary
DataMill software, pursuant to the source code development license granted to
FMC at the time of the acquisition by FMC of the control of the Company. As of
February 28, 1999 FMC purchased all the issued and outstanding shares of
PowerTrader Software Inc. from the Company and continued the business of
PowerTrader Software Inc. as a wholly owned subsidiary of FMC commencing March
1, 1999. As part of this transaction FMC agreed to grant to the Company all
right, title and interest to the source code version of DataMill containing all
enhancements made under FMC's license and to provide to the Company a prototype
of DataMill ready for Beta testing as a commercial product by December 31, 1999.
Upon completion of such prototype, the Company has agreed to enter into an
agreement granting to FMC certain marketing rights for DataMill and the
provision of future upgrades of DataMill to FMC for use in accordance with FMC's
license.
Results of Operations for the Years Ended June 30, 1999 and June 30, 1998
Sales. Revenue increased by 139% from $59,500 in 1998 to $142,088 in 1999. Cost
of sales increased 13.6% from $20,217 in 1998 to $22,958 in 1999. Net Revenue
increased by 203% from $39,283 in 1998 to $119,130 in 1999. Substantially all of
the Company's net revenue was derived from the sale of the source code license
to FMC and from professional fees for consulting, design and development work
provided to FMC for the enhancement of the DataMill software. Revenue did not
reflect any amounts attributable to the installation of Beta site licenses for
PowerTrader Analyst or subscriptions to Financial Wire, all of which
subscription agreements had been cancelled by the end of the first quarter of
the fiscal year ending June 30, 1999.
Selling, General and Administrative Costs. Selling, General and Administrative
("SGA") costs decreased by 56% from $1,104,063 in 1998 to $487,594 in 1999. Such
decrease resulted from the reduction in the number of staff, loss of ongoing
Beta sites and Financial Wire subscriptions requiring payment of data suppliers,
and other attendant operating expenses associated with the operation of the
business. The reductions reflected the insolvent condition in which the Company
found itself at the end of the first quarter of fiscal 1999. SGA includes
salaries and benefits for corporate management, administrative and sales
personnel, as well as rent expenses for the Company's office premises.
Development Costs. Development costs decreased by 86.6% from $274,940 in 1998 to
$36,886 in 1999. The decrease resulted from a reduction of staff during the
first quarter of fiscal 1999. Only one developer remained in the Company's
full-time employment. Three other developers were hired by the Company's
subsidiary, PowerTrader Software Inc., during the second and third quarters of
fiscal 1999; however, with the sale of PowerTrader Software Inc. in February,
1999 to FMC such staff became full-time employees of FMC and all development
costs from March 1, 1999 to the end of the fiscal year were incurred pursuant to
the development agreement between the Company and FMC.
Net Loss. The Company experienced further net losses in 1999 in the amount of
$295,273, a decrease of 78% from the 1998 net loss of $1,339,720. The net loss
reflects a gain on the sale of the Company's subsidiary, PowerTrader Software
Inc., of $110,077. Total cumulative net losses for the period ending December
29, 1988 to and including June 30, 1999 were $3,588,323. With the completion of
a commercial version of the DataMill software the Company believes that
additional personnel expenses may be required to establish the Company's
competitive and market position and build the requisite infrastructure to
support the Company's ongoing growth strategy. The Company therefore anticipates
that it may incur further losses in the future which will likely continue to
have a negative impact on the Company's results of operation. Net Loss.
Liquidity and Capital Resources. The principal source of funds to the Company
and its subsidiaries since their respective formations had been derived from net
proceeds of certain private placements of securities which, together with sales,
were used to fund continued development, selling, general and administrative
costs. The source of funds for the past fiscal year has been monies advanced by
FMC, in the amount of $406,208, which funds have been used to retire outstanding
indebtedness owed to the Company's suppliers and to fund current operations. All
agreements for the maintenance and ongoing operation of Beta site licences for
PowerTrader Analyst and subscriptions for Financial Wire have expired or been
cancelled. Major product development work was undertaken by FMC under contract
with PowerTrader Software Inc. for the development of a commercial version of
the DataMill software. The Company believes that additional financing for the
next twelve months will continue to be provided by FMC. In the event that FMC
does not provide such financing the Company may be unable to obtain satisfactory
alternate financing on acceptable terms and which inability could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Year 2000 Readiness Disclosure
As of June 30, 1999 the Company has not experienced any Year 2000 interruptions
or disruptions to services supplied by third party vendors. The Company will
continue to monitor vendors and suppliers to ensure that no Year 2000 issues or
problems are experienced. Minimal Year 2000 costs have been incurred or are
expected to be incurred during the current fiscal year.
<PAGE>
Item 7. FINANCIAL STATEMENTS
(1) Financial Statements
The following financial statements of the Company and the Report of
Independent Accountants are included as a separate section of this
report, which begins on page F-1:
Consolidated Balance Sheets - June 30, 1999 and 1998
Consolidated Statements of Operations - Years Ended June 30, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended June 30,
1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended June 30, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As of August 1, 1999, BDO Dunwoody LLP was replaced as the Company's independent
accountants by KPMG LLP. Such change was recommended and approved by the
Company's board of directors. There were no disagreements on any matter of
accounting principles or practices with the Company's former accountants.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(C) OF THE
EXCHANGE ACT.
The following sets forth certain information regarding the executive officers of
the Company as of June 30, 1999:
Name Age Position
---- --- --------
Stamos D. Katotakis 54 Chairman of the Board, President
and Chief Executive Officer
Michael C. Withrow(1) 36 Chairman of the Board, President
and Chief Executive Officer
George McCord 59 Director, Chief Information
Officer
(1) Mr. Withrow's resignation and the cancellation of the agreement with 458856
B.C. Ltd. became effective October 16, 1998.
The services of Mr. Withrow were provided under an agreement with a corporation
wholly owned by him. Mr. McCord devotes up to an aggregate of 120 hours a month
to the Company's business in his capacity as Chief Information Officer. Set
forth below are descriptions of the backgrounds of the executive officers and
directors of the Company.
Mr. Withrow was a founding director of PowerTrader Software Inc. and served as a
director since 1988. In 1994 Mr. Withrow was named President and Chairman. Mr.
Withrow had been a director, Chairman and President of the Company since its
inception in August, 1996. Mr. Withrow has previous experience as an account
executive for a multinational distributor of computer equipment and as a private
and institutional securities trader. As part of the reorganization of the
Company, Mr. Withrow resigned effective October 16, 1998 from all offices and as
a director of the Company, and the services provided under the consulting
agreement with 458856 B.C. Limited were terminated. (See "Description of
Business - Fiscal 1999 Events").
Mr. Katotakis became a director, President and Chief Executive Officer of the
Company on October 16, 1998. Since 1976 to the present, Mr. Katotakis has served
as the President and Chief Executive Officer of Financial Models Company Inc.
and a member of the board of directors of Financial Models Company Inc.
Mr. McCord was elected by the Board to fill a vacancy on the Board in June 1997.
For the last nine years Mr. McCord has acted as a Principal in the Financial
Markets Consulting Group, New York, N.Y. Prior to this he served for five years
as Vice President Information Systems Development at Instinet Corporation, New
York, N.Y.
The Board of Directors of the Company currently consists of two members. The
Company's Certificate and Bylaws provide that the Board of Directors will
consist of three classes serving staggered three year terms, so that
approximately one-third of the directors will be elected at each annual meeting.
The number of directors comprising the Board of Directors may be increased or
decreased by resolution adopted by the affirmative vote of a majority of the
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's Executive Officers and Directors, and persons who own more than 10% of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such individuals are required by Securities and Exchange Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file. The
Company believes that Mr. Katotakis and FMC each failed to timely file one Form
3, each of which would have disclosed the initial relationship of each person to
the Company.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the compensation
paid to Mr. Withrow as Chief Executive Officer, and his successor, Mr. Stamos
Katotakis. No other officer of the Company received total compensation in excess
of $100,000 during fiscal 1999.
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation Compensation Compensation
- ------------------ ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stamos D. Katotakis(1) 1999 $ 0 ---- ---- --- ---
President/Chief
Executive Officer
Michael C. Withrow(2) 1999 $21,833 ---- ---- --- ---
President/Chief 1998 $87,333 ---- ---- 350,000(3) ---
Executive Officer 1997 $62,693 ---- ---- 200,000 ---
<FN>
(1) Mr. Katotakis serves as President and Chief Executive Officer but does
not receive any compensation.
(2) Mr. Withrow's employment by the Company, pursuant to the consulting
agreement, was terminated on October 16, 1998. The above amount
represents the pro rata share due under this agreement until the date
of termination of the agreement.
(3) Includes 200,000 shares covered by an option which was repriced in
fiscal 1998.
</FN>
</TABLE>
Options
No options were granted during the past fiscal year and all options previously
granted to Mr. Withrow were cancelled.
Employment Agreement
PowerTrader Software Inc. ("PSI") entered into a consulting agreement with
458468 B.C. Limited, a British Columbia corporation wholly owned by Michael C.
Withrow ("458468"), the Company's Chairman and President. Pursuant to that
agreement 458468 was to provide the services of Mr. Withrow to manage PSI's
operations. Such agreement was cancelled effective October 16, 1999 at the time
of the acquisition of the controlling interest by FMC. (See "Description of
Business--Fiscal 1999 Events").
Director Compensation
Under the Company's present policy, no director of the Company is entitled to
receive compensation for services rendered to the Company as a director.
Directors are entitled to be reimbursed for expenses incurred by them in
attending meetings of the Board of Directors and its committees.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following tables sets forth certain information, as of June 30, 1999, with
respect to beneficial ownership of shares of Common Stock by such persons as are
known to the company to beneficially own more than 5% of the issued shares of
Common Stock, (ii) the directors and nominees for directors of the Company,
(iii) the Chief Executive Officer and the four other most highly compensated
executive officers who were serving as executive officers as at June 30, 1998
(the "Named Executive Officers"). Each person named has sole voting and
investment power with respect to the shares indicated, except as otherwise
stated in the notes to the table:
No. of Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned of Class
- ------------------- ------------- --------
Financial Models Company Inc. 15,309,696 67 %
5255 Orbitor Drive
Mississauga, Ontario
Stamos D. Katotakis 0 *
9 Edgehill
Toronto, Ontario
George E. McCord 50,000 (1) *
13 Lyons Plain Road
Weston, CT, USA
All directors and executive
officers as a group (2 person) 50,000 *
* Less than 1%.
(1) The stated number of shares are comprised of shares subject to
acquisition by Mr. McCord upon exercise of currently exercisable options.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From time to time the Company and PowerTrader Software Inc. have engaged in
various transactions with its directors, executive officers and other affiliated
parties. The following paragraphs summarize certain information concerning
transactions which have occurred in the past two years or which are currently
proposed.
On February 26, 1996 Precision Investment Services Inc., the predecessor company
to PowerTrader Software Inc., the Company's wholly owned subsidiary, entered
into an agreement for the services of Michael Withrow. This Agreement was
subsequently, with the approval of the Company, assigned to 458468 B.C. Limited,
a company controlled by Mr. Withrow. Under the terms of the agreement Mr.
Withrow was appointed President and was to (i) provide services related to the
technical revision and development of the Company's products, (ii) direct the
long term strategy of the Company and (iii) oversee the marketing of the
Company's systems until development of a marketing plan. In return for his
services Mr. Withrow received an annual compensation of $85,000 for the first
two years and $92,000 for the third year. This Agreement was terminated on
October 16, 1999 (see "Description of Business - Fiscal 1999 Events").
On June 12, 1997 PowerTrader Software Inc. entered into a consulting agreement
with George E. McCord to act as the Chief Information Officer and director of
the Company. Mr. McCord also became a Class I Director of the Company. Under the
terms of the agreement Mr. McCord, in his capacity as Chief Information Officer,
provides the Company with up to 120 hours per month of telephonic or other
advice and counsel regarding the Company's business in exchange for an annual
fee of $88,800, payment of 66.67% of all travel, accommodation and incidental
expenses incurred with respect to travel and the right to receive a certain
number of shares upon the first annual anniversary of the date of the agreement.
On September 17, 1997 the Company granted to Mr. McCord a non-qualified stock
option covering 50,000 shares of the Company's common stock with an exercise
price of $3.00. This option was repriced in January 1998.
On January 30, 1998 the Company granted a non-qualified stock option to 458468
B.C. Limited, a company controlled by Mr. Withrow, covering 150,000 shares of
common stock with an exercise price of $0.35 per share. These options were
cancelled on October 16, 1998 contemporaneously with FMC's acquiring control of
the Company.
On October 16, 1998, the Company issued 14,000,000 shares of common stock to
Financial Models Company Inc. ("FMC") at a price of $0.01 per share, which led
to FMC becoming the largest controlling stockholder of the Company. In
connection therewith the Company entered into a consulting agreement for
Cdn$2,800 per month (inclusive of expenses and relevant taxes) with 458468 B.C.
Limited, a company controlled by Mr. Withrow, a former officer and director of
the Company.
On February 28, 1999 the Company executed a Purchase Agreement for the sale of
all its shares in PowerTrader Software Inc., its wholly owned subsidiary, to FMC
for a price of Cdn$300,000 and a commitment to provide the source code for a
prototype of DataMill ready for Beta testing as a commercial product by December
31, 1999. Completion of the transaction was conditioned upon the Company
obtaining a Rectification Order ( "the Order") pursuant to the Companies Act
(British Columbia) to correct certain statutory irregularities in the conduct of
PowerTrader Software Inc.'s business and affairs, including validation of the
Share Exchange Agreement dated January 2, 1997 whereby shareholders of
PowerTrader Software Inc. sold all the issued shares to the Company in return
for shares in the Common Stock of the Company. The final Order was obtained from
the Supreme Court of British Columbia on May 3, 1999. Contemporaneously with the
above transaction, PowerTrader Software Inc. granted all right, title and
interest in its proprietary software and intellectual property to the Company.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates are required to be approved by a majority
of the independent and disinterested outside directors and must be on terms no
less favorable to the Company than could be obtained from an unaffiliated third
party under similar circumstances.
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual
Report on Form 10-KSB:
1. Consolidated Financial Statements required to be filed by
Item 7 of Form 10-KSB. See the list of Financial
Statements contained in Item 7 of this Report.
2. Exhibits.
The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules
are filed as part of, or incorporated by reference into,
this Form 10-KSB
(b) Reports on Form 8-K
None
<PAGE>
Auditors' Report
To The Shareholders of PowerTrader, Inc.
We have audited the consolidated balance sheet of PowerTrader, Inc. (A
Development Stage Company) as at June 30, 1999 and the consolidated statements
of loss, cash flows and changes in shareholders' equity (deficit) for the year
then ended. 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 audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of PowerTrader, Inc. as at June 30,
1999 and the results of its operations and its cash flows for the year then
ended in accordance with United States generally accepted accounting principles.
The comparative figures as at June 30, 1998 and 1997 and the period from
inception to June 30, 1998 were audited by other auditors who expressed an
opinion without reservation on those statements in their report dated January
12, 1999.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
December 1, 1999
F-1
<PAGE>
Comments by Auditors for U.S. Readers On Canada-U.S. Reporting Differences
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 2 to the consolidated financial statements. Our report to the shareholders
dated December 1, 1999 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
December 1, 1999
F-2
<PAGE>
- --------------------------------------------------------------------------------
Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders
PowerTrader, Inc.
We have audited the Consolidated Balance Sheet of PowerTrader, Inc. (A
Development Stage Company) as at June 30, 1998 and the Consolidated Statements
of Loss, Cash Flow and Changes in Shareholders' Equity (Deficit) for the years
ended June 30, 1998 and 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, 1998
(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 Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of PowerTrader, Inc. as at June 30,
1998 and the results of its operations and its cash flows for the years ended
June 30, 1998 and 1997 and the period from December 29, 1988 (inception) to June
30, 1998 (cumulative) in accordance with generally accepted accounting
principles in the United States.
/s/ BDO Dunwoody LLP
Chartered Accountants
Vancouver, British Columbia
January 12, 1999
F-3
<PAGE>
- --------------------------------------------------------------------------------
Comments by Auditors for US Readers
On Canada-US Reporting Differences
- --------------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Our report to the shareholders
dated January 12, 1999 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
/s/ BDO Dunwoody LLP
Chartered Accountants
Vancouver, British Columbia
January 12, 1999
F-4
<PAGE>
PowerTrader, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
(Expressed in U.S. dollars)
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 31,058 $ 6,000
Due from related party (note 5) 205,050 -
- --------------------------------------------------------------------------------
236,108 6,000
Fixed assets (note 4) - 464,182
- --------------------------------------------------------------------------------
$ 236,108 $ 470,182
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities $ 40,000 $ 507,352
Notes payable (note 6) - 15,000
Current portion of capital
lease obligations (note 7) - 2,657
Due to related party (note 5) 406,208 -
- --------------------------------------------------------------------------------
446,208 525,009
Shareholders' deficiency:
Share capital (note 8):
Authorized:
2,000,000 preferred shares
with a $0.01 par value per share
23,000,000 common shares with a
$0.01 par value per share
Issued and outstanding:
22,383,115 common shares
(1998 - 8,383,115) 1,132,530 992,530
Capital surplus 2,245,693 2,245,693
Accumulated deficit during
development stage (3,588,323) (3,293,050)
- --------------------------------------------------------------------------------
(210,100) (54,827)
- --------------------------------------------------------------------------------
$ 236,108 $ 470,182
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PowerTrader, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Loss
(Expressed in U.S. dollars)
- ---------------------------------------------------------------------------------------------------------------
December 29,
1988
(inception) to
Year ended Year ended Year ended June 30,
June 30, June 30, June 30, 1999
1999 1998 1997 (cumulative)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 142,088 $ 59,500 $ 44,373 $ 340,958
Cost of sales 22,958 20,217 28,255 129,751
- ---------------------------------------------------------------------------------------------------------------
119,130 39,283 16,118 211,207
Selling, general and
administrative costs 487,594 1,104,063 653,812 3,020,478
Development costs 36,886 274,940 265,303 889,129
Gain on sale of subsidiary
(note 3) (110,077) - - (110,077)
- ---------------------------------------------------------------------------------------------------------------
Loss for the period $ (295,273) $ (1,339,720) $ (902,997) $ (3,588,323)
- ---------------------------------------------------------------------------------------------------------------
Loss per share $ (0.02) $ (0.17) $ (0.16)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
PowerTrader, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
- -------------------------------------------------------------------------------------------------------------------
December 29,
1988
(inception) to
Year ended Year ended Year ended June 30,
June 30, June 30, June 30, 1999
1999 1998 1997 (cumulative)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss for the period $ (295,273) $ (1,339,720) $ (902,997) $ (3,588,323)
Items not involving cash:
Amortization 318,304 355,743 42,210 758,102
Gain on sale of subsidiary (110,077) - - (110,077)
Increase (decrease) from changes in:
Accounts receivable - 12,883 (10,491) -
Accounts payable and
accrued liabilities (418,592) 144,832 193,865 88,759
Due from related party (205,050) - - (205,050)
Due to related party 406,208 - - 406,208
- -------------------------------------------------------------------------------------------------------------------
(304,480) (826,262) (677,413) (2,650,381)
Financing:
Notes payable financing received - 15,000 74,248 89,248
Notes payable paid (14,768) (74,248) (89,016)
Lease financing received - - 18,791
Repayment of obligations
under capital leases (744) (5,792) (5,527) (16,876)
Shareholders' advances - - - 646,222
Issuance of share capital
and subscriptions 140,000 862,500 632,049 2,042,747
- -------------------------------------------------------------------------------------------------------------------
124,488 797,460 700,770 2,691,116
Investments:
Net assets acquired on
Reverse Acquisition - - 314,254 314,254
Proceeds on sale of
PowerTrader Software Inc. 205,050 - - 205,050
Investment in fixed assets - (65,184) (364,702) (528,981)
- -------------------------------------------------------------------------------------------------------------------
205,050 (65,184) (50,448) (9,677)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 25,058 (93,986) (27,091) 31,058
Cash, beginning of period 6,000 99,986 127,077 -
- -------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 31,058 $ 6,000 $ 99,986 $ 31,058
- -------------------------------------------------------------------------------------------------------------------
Non-cash transactions:
Shares issued for software
acquisition $ - $ - $ 375,000 $ 375,000
Shares issued on Reverse
Acquisition - - 314,254 314,254
Shares issued on debt
conversion - - - 646,222
Interest paid 69 14,516 4,254 20,423
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
PowerTrader, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
(Expressed in U.S. dollars)
- -------------------------------------------------------------------------------------------------------------------
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,
July 1, 1994 65 48 84 61 - - - -
Loss for the period - - - - - - - (451,362)
- -------------------------------------------------------------------------------------------------------------------
Balance,
July 30, 1995 65 48 84 61 - - - (451,362)
Shares issued
for debt 4,174,448 646,222 - - - - - -
Loss for the period - - - - - - - (598,971)
- -------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1996 4,174,513 646,270 84 61 - 646,331 - (1,050,333)
Reverse Acquisition
January 1, 1997 (4,174,513) (646,270) (84) (61) 5,088,598 314,254 - -
Shares issued for:
Software share
subscriptions - - - - 2,319,517 23,195 691,943 -
Computer software
acquired - - - - 125,000 1,250 373,750 -
Cash - - - - 100,000 1,000 324,000 -
Loss for the period - - - - - - - (902,997)
- -------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1997 - - - - 7,633,115 986,030 1,389,693 (1,953,330)
Shares issued
for cash:
September 10, 1997 - - - - 250,000 2,500 810,000 -
March 16, 1998 - - - - 400,000 4,000 46,000 -
Loss for the period - - - - - - - (1,339,720)
- -------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1998 - - - - 8,283,115 992,530 2,245,693 (3,293,050)
Shares issued for cash:
October 16, 1998 - - - - 14,000,000 140,000 - -
Shares issued under
Rectification Order
from the B.C.
Supreme Court - - - - 100,000 - - -
Loss for the period - - - - - - - (295,273)
- -------------------------------------------------------------------------------------------------------------------
Balance,
June 30, 1999 - $ - - $ - 22,383,115 $ 1,132,530 $ 2,245,693 $ (3,588,323)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
PowerTrader, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements (continued)
(Expressed in U.S. dollars)
Years ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
PowerTrader, Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
1. Significant accounting policies:
(a) 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. Software was sold during February, 1999. For
details of sale, refer to note 3.
All significant intercompany transactions and balances are eliminated
on consolidation.
(b) Basis of presentation:
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States, on
a going concern basis.
(c) Foreign currency translation:
Foreign monetary assets and liabilities are translated into U.S.
dollars at the rates of exchange in effect at the balance sheet dates.
Non-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 U.S. dollar for periods
presented in these financial statements with bracketed figures
reflecting the average rate for the period are:
- --------------------------------------------------------------------------------
June 30, 1999 U.S. $ 1.00 $ 1.463 (1.5119)
June 30, 1998 U.S. 1.00 1.465 (1.4230)
June 30, 1997 U.S. 1.00 1.381 (1.3660)
- --------------------------------------------------------------------------------
F-9
<PAGE>
1. Significant accounting policies (continued):
(d) Fixed assets:
Fixed assets are recorded at cost less accumulated amortization.
Amortization is provided on the declining-balance basis using the
following annual rates:
- --------------------------------------------------------------------------------
Computer equipment 30%
Computer software 100%
Furniture and equipment 20%
- --------------------------------------------------------------------------------
One half the normal amortization is recorded in the period in which the
assets become available for use.
(e) Revenue recognition:
The Company records revenue from the sale of computer software upon
shipment of products.
(f) Research and development costs:
Research and development costs are charged to expense as incurred.
(g) Capitalized software costs:
Certain software development and production costs are 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.
F-10
<PAGE>
1. Significant accounting policies (continued):
(h) Estimates and assumptions:
The preparation of financial statements in conformity 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 revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
(i) Fair values of financial instruments:
The respective carrying values of certain balance sheet financial
instruments approximated their fair values. These financial instruments
include cash, 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. The fair value of the due
to/from related party cannot be determined as they are non-interest
bearing and have no fixed terms of repayment.
(j) Loss per share:
Loss per share is calculated based on the weighted average number of
shares outstanding.
(k) New accounting pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established methods
of accounting for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging
activities. Application for this SFAS has been postponed. As such, the
Company will be required to implement SFAS No. 133 for its fiscal year
ended June 30, 2001. The Company expects the adoption of SFAS No. 133
will have no material impact on its financial position, results of
operations or cash flows.
F-11
<PAGE>
1. Significant accounting policies (continued):
The American Institute of Certified Public Accountants has issued
Statements of Position entitled "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and "Reporting the
Costs of Start-up Activities". The Company will be required to
implement these pronouncements for its fiscal year ended June 30, 2000.
The Company expects that the adoption of these pronouncements will have
no material impact on its financial position, results of operations or
cash flows.
2. Nature of business and continued operations:
PowerTrader, Inc. through its subsidiary PowerTrader Software Inc.,
engaged in the design and development of informational and analytical
desktop decision support 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 1, 1996, the name changed to PowerTrader Software Inc.
Software did not engage in any material business activity until July
1994 when it began development of its PowerTrader suite of software
products. On January 2, 1997, PowerTrader, Inc. was acquired in a
Reverse Acquisition by Software.
At the commencement of the fiscal year the Company had sold only Beta
versions of its existing product. As reflected in these financial
statements, the Company has at June 30, 1999 an accumulated deficit of
$3,588,323 (1998 - $3,293,050) and a working capital deficiency of
$210,100 (1998 - $519,009). 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.
F-12
<PAGE>
2. Nature of business and continued operations (continued):
Since the Company has sold only Beta products and has not yet recorded
significant sales, the Company is still a development stage company
with its principal business and assets in Canada and its revenue earned
in Canada.
3. Gain on sale of subsidiary:
In February 1999, the Company sold 100% of the issued and outstanding
shares of PowerTrader Software Inc., a software development company, to
Financial Models Company, Inc. for total cash consideration of
$205,050. This transaction resulted in a gain of $110,077.
4. Fixed assets:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
- --------------------------------------------------------------------------------
Computer equipment $ - $ - $ - $ 122,574
Computer software 631,462 631,462 - 321,663
Furniture and equipment - - - 19,945
- --------------------------------------------------------------------------------
$ 631,462 $ 631,462 $ - $ 464,182
- --------------------------------------------------------------------------------
5. Due from/to related party:
The due from/to related party amounts are with Financial Models
Company, Inc. the majority shareholder of the Company. These amounts
have no fixed terms of repayment, are non-interest bearing and are
convertible, at the option of Financial Models Company, Inc., into
common shares of the Company at a price of U.S. $0.01 per share.
6. Notes payable:
The notes payable were repaid during 1999. They bore interest at 10%
per annum, were unsecured and due on demand.
F-13
<PAGE>
7. Capital lease obligation:
The balance of the Company's capital lease obligations were paid during
1999.
8. Share capital:
(a) Restricted shares:
As at June 30, 1999 none (1998 - 250,000) of the outstanding common
shares were restricted shares and may not be sold in the absence of an
exemption under the Securities Act of 1933 (United States).
(b) Warrants:
350,000 warrants were outstanding at June 30, 1999 (1998 - 350,000).
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, expiring between May 2002 and July 2002.
(c) Shares issued to director:
In 1998, 250,000 shares were issued to a Director, subject to an
agreement containing certain restrictions on transfer over a three-year
period and provision for forfeiture upon occurrence of certain events,
including termination of employment. The holder of these shares
resigned as a director in 1998 and the Company cancelled the shares in
accordance with the aforesaid agreement subsequent to year end.
(d) Sale of shares to related party:
On October 16, 1998, the Company sold 14,000,000 unissued common shares
to Financial Models Company, Inc. for a purchase price of $0.01 per
share.
F-14
<PAGE>
9. Stock options and stock compensation plans:
(a) Stock option plans:
Pursuant to the Company's 1996 Stock Option Plan (the "Plan"),
officers, key employees, advisors 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.
A summary of options granted under the Plan is as follows:
- -------------------------------------------------------------------------------
Number Expiry date Exercise price
- -------------------------------------------------------------------------------
Outstanding, June 30, 1996 -
Granted 300,000 April 16, 2000 $ 2.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Outstanding, June 30, 1997 300,000
Granted 50,000 April 16, 2000 $ 0.35
Cancelled (100,000) April 16, 2000 2.00
Granted 20,000 June 18, 2001 0.35
Granted 150,000 January 30, 2000 0.35
Granted 20,000 June 18, 2001 0.35
Granted 20,000 June 18, 2001 0.35
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Outstanding, June 30, 1998 460,000
Cancelled (200,000) April 16, 2000 $ 2.00
Cancelled (150,000) January 30, 2000 0.35
Cancelled (20,000) June 18, 2001 0.35
Cancelled (20,000) June 18, 2001 0.35
- -------------------------------------------------------------------------------
Outstanding, June 30, 1999 70,000
- -------------------------------------------------------------------------------
In addition, the following options, which are not part of the Company's
1996 Stock Option Plan, were outstanding at June 30, 1998 and expired
during 1999 without being exercised.
- --------------------------------------------------------------------------------
Number Exercise price Expiry date
- --------------------------------------------------------------------------------
149,999 $ 0.37 December 1998
100,000 1.00 February 1999
100,000 3.00 February 1999
- --------------------------------------------------------------------------------
349,999
- --------------------------------------------------------------------------------
F-15
<PAGE>
9. Stock options and stock compensation plans (continued):
(b) 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 1998 and 1997: dividend
yield of nil; expected volatility of nil; risk-free interest rates of
1998 - 5.31% (1997 - 6.25%) based on U.S. Treasury Bill yields and an
expected life of two years. The weighted average fair value of options
granted during 1998 was nil (1997 - $0.24) per share. No options were
granted during 1999.
Under the accounting provisions of FASB Statement 123, the Company's
net loss per share would have been reduced to the pro forma amounts
indicated below:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Loss for the period:
As reported $ (295,273) $ (1,339,720) $ (902,997)
Pro forma (295,273) (1,467,871) (956,792)
Loss per share:
As reported (0.02) (0.17) (0.16)
Pro forma (0.02) (0.18) (0.16)
- --------------------------------------------------------------------------------
10. Related party transactions:
During 1999, the Company paid consulting and leasing fees totaling
approximately $100,000 (1998 - $102,300 and 1997 - $171,600) 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 at June 30, 1999, there were no (1998 - $85,900) trade payables to a
director and a company controlled by a director.
F-16
<PAGE>
10. Related party transactions (continued):
During 1999, the Company earned 100% of its revenue from Financial
Models Company Inc. (1998 - nil).
11. Income taxes:
As at June 30, 1999, the Company has no income tax loss carryforwards
available to reduce future taxable income. Tax losses of approximately
$2,950,000 were sold as part of the sale of Software.
Deferred tax liabilities at June 30, 1999 and 1998 were not material.
A summary of deferred tax assets at June 30, 1999 and 1998 is as
follows:
- --------------------------------------------------------------------------------
Loss Tax Valuation Deferred
carryforwards rate Amount allowance tax asset
- --------------------------------------------------------------------------------
1999
Tax benefit of loss
carryforwards $ - .45 $ - $ - $ -
1998
Tax benefit of loss
carryforwards 2,950,000 .45 1,327,500 1,327,500 -
- --------------------------------------------------------------------------------
Since in management's opinion, it was more likely than not that the
1998 tax benefits would not be realized, they were reduced by a
valuation allowance of $1,327,500.
12. Other:
During 1999, 1998 and 1997, the Company had rent expenses for its
premises of $42,280, $48,405 and $27,536, respectively.
F-17
<PAGE>
SIGNATURES
In accordance with Sections 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
POWERTRADER, INC.
Dated: March 22 , 2000 By: /s/ Stamos D. Katotakis
---- -----------------------------------
Stamos D. Katotakis
President, Chief Executive
Officer and Principal Financial
Officer
We, the undersigned officers and directors of PowerTrader, Inc. hereby severally
and individually constitute and appoint Stamos D. Katotakis and Richard W.
Arnold, and each of them, the true and lawful attorneys and agents of each of us
to execute in the name, place and stead of each of us (individually and in any
capacity stated below) any and all amendments to this Annual Report on Form
10-KSB and all instruments necessary or advisable in connection therewith and to
file the same with the Securities and Exchange Commission, each of said
attorneys and agents to have the power to act with or without the others and to
have full power and authority to do and perform in the name and on behalf of
each of the undersigned every act whatsoever necessary or advisable to be done
in the premises as fully and to all intents and purposes as any of the
undersigned might or could do in person, and we hereby ratify and confirm our
signatures as they may be signed by our said attorneys and agents to each of
them to any and all such amendments and instruments.
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/ George McCord
- ----------------------- Director March 22, 2000
George McCord
/s/ Stamos D. Katotakis
- ----------------------- President, Chief Executive March 22, 2000
Stamos D. Katotakis Officer, Principal Financial
Officer and Director
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
2.1(1) Stock Acquisition Agreement
3.1(1) Restated Certificate of Incorporation of the
Registrant
3.2(1) Bylaws of the Registrant
4.3(1) Warrant Agreement with American Stock Transfer and
Trust Company
10.1(1)+ Consultant Agreement with 458468 B.C. Ltd.
10.2(1)+ Consultant Agreement with Peridot International
Enterprises, Ltd.
10.3(1)+ Restricted Stock Agreement with Peridot International
Enterprises Ltd.
10.5(1) License Agreement with North American Quotations Inc.
10.6(1) License Agreement with Hong Kong Bank Discount
Trading Corp.
10.7(1)+ PowerTrader, Inc. 1996 Stock Option Plan
10.8(2) Asset Purchase Agreement dated as of May 2, 1997 between
West Coast Title Search Ltd. and PowerTrader, Inc.
10.9(3)+ Consulting Agreement with George E. McCord
10.10(4) Purchase and Subscription Agreement dated September 17, 1998
by and between PowerTrader, Inc., 458468 B.C. Ltd.
PowerTrader Software Inc. and Financial Models Company Inc.
10.11(4) Source Code License Agreement dated August 11, 1998
by and between PowerTrader, Inc. and Financial Models Company
Inc.
10.12(5) Bill of Sale between PowerTrader Software Inc. and
PowerTrader, Inc. dated as of February 28, 1999
10.13(5) Agreement between PowerTrader Software Inc. and
PowerTrader, Inc. dated as of February 28, 1999 with respect
To the transfer of intellectual property.
10.14(5) Purchase Agreement between PowerTrader, Inc. and
Financial Models Company Inc. dated as of February 28, 1999.
16.1* Letter from BDO Dunwoody LLP
21.1(1) Subsidiaries of the Registrant
23.1* Consent of KPMG LLP
23.2* Consent of BDO Dunwoody LLP
24.1* Power of Attorney (included on signature page)
27.1* Financial Data Schedule
99.1* Cautionary Statement Identifying Important Factors that
Could Cause PowerTrader, Inc.'s Actual Results to Differ
from Those Projected in Forward-Looking Statements
- ---------------
* Filed herewith
(1) Incorporated by reference to Form SB-2 Registration Statement (File No.
333-20121) declared effective on April 4, 1997.
(2) Incorporated by reference to Form 8-K dated May 2, 1997
(3) Incorporated by reference to the annual report on Form 10-KSB for the
fiscal year ended June 30, 1997.
(4) Incorporated by reference to the quarterly report on Form 10-QSB for the
quarter ended December 31, 1998.
(5) Incorporated by reference to the quarterly report on Form 10-QSB for the
quarter ended March 31, 1999.
+ Management Contract or Compensatory Plan or arrangement required to be
filed as an Exhibit.
March 22, 2000
Securities and Exchange Commission
Washington, DC
20549
Dear Sirs:
Re: PowerTrader, Inc.
We were previously the independent accountants for PowerTrader, Inc. We have
read PowerTrader, Inc.'s statements included in Item 8 in the Form 10-KSB for
the fiscal year ended June 30, 1999 and we agree with such statements.
Yours truly,
BDO Dunwoody LLP
Per: /s/ Don de Jersey
Don de Jersey, CA
Consent of Independent Chartered Accountants
The Board of Directors
PowerTrader, Inc.
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333-50629) of PowerTrader Inc. of our report dated December
1, 1999 relating to the consolidated balance sheet as at June 30, 1999 and the
related consolidated statements of loss, cash flows and changes in shareholders'
equity (deficit) for the year then ended which report appears in the June 30,
1999 Annual Report on Form 10-KSB of PowerTrader Inc.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
March 21, 2000
- --------------------------------------------------------------------------------
Consent of Independent Accountants
- --------------------------------------------------------------------------------
The Stockholders and Board of Directors
PowerTrader, Inc.
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333-50629) of PowerTrader, Inc. of our report dated January
12, 1999 relating to the Consolidated Balance Sheet of PowerTrader, Inc. as at
June 30, 1998 and the related Consolidated Statements of Loss, Cash Flow and
Changes in Stockholders' Equity (Deficit) for the years ended June 30, 1998 and
1997 and the Consolidated Statements of Loss, Cash Flow and Changes in
Shareholders' Equity (Deficit) for the period from December 29, 1998 (inception
of PowerTrader Software Inc.) to June 30, 1998 (cumulative), which report
appears in the June 30, 1999 Annual Report on Form 10-KSB of PowerTrader, Inc.
/s/ BDO Dunwoody LLP
Chartered Accountants
Vancouver, British Columbia
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 31,058
<SECURITIES> 0
<RECEIVABLES> 205,050
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 236,108
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 236,108
<CURRENT-LIABILITIES> 446,208
<BONDS> 0
0
0
<COMMON> 3,378,223
<OTHER-SE> (3,588,323)
<TOTAL-LIABILITY-AND-EQUITY> 236,108
<SALES> 142,088
<TOTAL-REVENUES> 142,088
<CGS> 22,958
<TOTAL-COSTS> 22,958
<OTHER-EXPENSES> 414,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (295,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (295,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (295,273)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
Exhibit 99.1
Cautionary Statement - Additional Important Factors to be Considered
Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ from those
projected or forecast are included in the factors below. In addition to other
information contained in this report, readers should carefully consider the
following cautionary statements and risks factors.
We May Not Be Able to Continue as a Going Concern. For each of the last three
fiscal years our limited capital resources have caused our independent
accountants to issue a report that indicates that substantial doubt exists as to
our ability to continue as a going concern. In the event Financial Models
Company Inc. ceases to provide funding and we are unable to obtain other funding
and/or generate revenues, we will likely exhaust our capital resources by the
end of fiscal 2000.
We Need to Raise Additional Funds. No material proceeds have been received from
the sale of previous or existing products. Significant monies have been expended
to develop new products, to attempt to market our previous products and to
pursue other business opportunities or develop new products. The lack of success
achieved in any of these endeavours, together with a withdrawal of the financial
support of Financial Models Company Inc. will result in an immediate need to
raise additional funds through debt or equity financing or by other means. We
cannot be certain that additional financing will be available or that, if
available, it can be obtained on terms that we deem favorable. Our inability to
secure these funds will have a material adverse effect on our business.
Additionally, our stockholders may be diluted if we raise additional funds
through the sale of our stock.
We Have a Very Limited Operating History. Although we have developed beta
versions of previous products, we have not had any significant distribution of,
and have experienced many development delays with respect to, these products.
Accordingly, we have a limited operating history upon which to evaluate our
future prospects. Additionally, during the fiscal years ended June 30, 1998 and
1999, we incurred net losses of $1,339,720 and $295,273, respectively. At June
30, 1998 and 1999, we had an accumulated deficit of $3,293,050 and $3,588,323
respectively. We believe additional monies will be required for research and
development and personnel to establish our competitive and market position and
build an organizational infrastructure to support our growth strategy.
Accordingly, we expect to incur further losses in the future. You must consider
our prospects in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as financial software. These
risks include, but are not limited to, the inability to respond promptly to
changes in a rapidly evolving and unpredictable business environment and the
inability to manage growth. To address these risks, we must, among other things:
o expand our customer base;
o enter into distribution and revenue generating arrangements;
o successfully implement our business and marketing strategies;
o continue to develop new products to meet the increasing needs
of potential customers;
o respond to competitive developments; and
o attract and retain qualified personnel.
Our Revenues Are Primarily Based on a Limited Number of Products. We expect to
derive a significant portion of our revenues in fiscal 2000 and in future years
from a limited number of products and services. At this time, we expect to
derive most of this revenue from DataMill products and services and potentially
a limited number of other related products and services. As a result, the
reduction, delay or cancellation of the introduction of DataMill could have a
material adverse effect on our business, financial condition and results of
operation. To date, we have not sold any of these products and we cannot give
any assurance we will be successful in the future.
Our Products May Contain Defects or Other Errors and May Be Returned. The
software products we offer may contain undetected errors when we first introduce
them or as we release new versions. If we fail to detect errors until after we
commence the commercial shipment of a product this could result in loss of or
delay in market acceptance of the product. These errors could also result in
claims against us that could have a material adverse impact on our business,
results of operations and financial conditions. These errors and failures may
also result in returns of such products.
We May Experience Delays in the Introduction and Distribution of Our Products.
Due to the obstacles and uncertainties involved in developing and distributing
software to the market we cannot be certain that we will be able to meet our
planned release dates for our products or develop our anticipated new products
on schedule. If we are unable to meet these goals, our revenue and earnings
would likely be materially and adversely affected.
Our Marketing Capabilities Are Limited and We Depend on Strategic Relationships.
Our strategy to commercialize our products in the future will call for the
allocation of substantial resources to hire and train a marketing staff and
direct sales force. To date, we have conducted only limited sales, marketing and
distribution activities. Also, we have had little success in our efforts to
attract and retain the qualified marketing and sales personnel necessary to
sustain growth in revenues derived from sales of our products. Even if we are
able to maintain an appropriate sales force, we cannot give any assurance that
the expansion and training of that sales force will prove to be economically
feasible. We also expect to market and sell our products through licensing or
other distribution arrangements with third parties. However, we will not have
significant control over the level of resources and attention the third parties
will devote to our products. Accordingly, any revenues received by us will be
dependent in large part, on the efforts of third parties, and we can give no
assurance that their efforts will be successful.
We Anticipate Being Dependent on the Internet. Our future products and services,
and related marketing strategy, may utilize the growing acceptance and use of
the Internet. Accordingly, our achievement of our growth and profitability
objectives may in future be dependent in large part upon the capacity,
reliability, integrity and security of the Internet, and the service providers
and telecommunications vendors associated with the Internet. Such strategy will
require that we devote substantial financial, operational and managerial
resources to the expansion and adaptation of an Internet infrastructure. The
Internet and prospective Internet infrastructure may be vulnerable to computer
viruses and interruptions in service resulting from the accidental or
intentional actions of Internet users. If we are unable to expand or adapt an
Internet infrastructure to meet changing consumer demands or if interruptions of
service or other disruptive events affecting the Internet cannot be minimized,
our business, results of operations and financial condition could be materially
and adversely affected.
We Are Dependent on Our Proprietary Technology and Are at Risk of Infringement
Claims. Our ability to compete effectively depends to a significant extent on
our ability to protect our proprietary information. We rely primarily on
copyright and trade secret laws, confidentiality procedures and licensing
arrangements to protect our intellectual property rights. We enter into
confidentiality agreements with our consultants and employees and limit access
to distribution of our technology, software and other proprietary information.
Although we intend to defend our intellectual property, we cannot give any
assurance that the steps we take will be adequate to prevent misappropriation of
our technology or that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technology.
We are also subject to the risk of alleged infringement of the intellectual
property rights of others. Although we are not currently aware of any pending or
threatened infringement claims with respect to our current or future products,
we cannot give any assurance that third parties will not assert such claims. Any
claims could require that we enter into license arrangements or could result in
protracted and costly litigation, regardless of the merits of these claims. We
cannot give any assurance that any necessary licenses will be available or that
if available such licenses can be obtained on commercially reasonable terms.
Furthermore, litigation may be necessary to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement. Any
litigation could result in substantial costs and diversion of resources and
could have material adverse affect on our business, financial condition and
results of operation.
We May Experience Risks Associated with Acquisitions and Other Business
Combinations. We may in the future acquire, products, technologies or companies
that are complimentary to our business or that add new lines of business. Such
acquisitions involve numerous risks, including but not limited to:
o adverse short-term effects on the combined business' reported
operating results;
o diversion of management's attention;
o dependence on retention, hiring and training of key personnel;
o amortization and/or impairment of goodwill and other intangible
assets; and
o risks associated with unanticipated problems or legal
liabilities.
Our Industry Is Subject to Rapid Technological Developments and Changing Product
Platforms. The financial software market and the PC industry is subject to rapid
technological developments and frequent changes in computer operating
environments. To compete successfully, we must continually improve and enhance
our existing products and technologies and develop new products and technologies
that incorporate technological advances. We must make these improvements while
remaining competitive in terms of performance and price. Our success also will
depend substantially upon our ability to anticipate the emergence of, and adapt
our products to, popular platforms for consumer software.
We intend to design future products for use with new platforms. To coordinate
the release of our products with the release of a new platform, we will need to
make substantial investments in research and development at least one to two
years in advance of the widespread release of the platform in the market. We
cannot be certain that we will have the financial and technical resources
available to make these substantial expenditures. Additionally, a new platform
for which we develop products may not achieve market acceptance. As a result, we
may incur substantial research and development expenses in developing products
that do not sell well in the market. Our failure to anticipate the emergence of
widely accepted product platforms and to timely develop products for use on
these new platforms would have a material adverse effect on our business and
financial condition.
We Experience Intense Competition. The software industry is intensely
competitive and rapidly evolving. We expect our revenues to be derived from
competitive procurement processes managed by sophisticated purchasers that
extensively investigate and compare the software applications offered by us and
our competitors. We believe that the principal competitive factors influencing
the market for our products include:
o vendor and product reputation;
o product architecture;
o functionality, features and ease of use;
o rapidity of implementation;
o product performance and price.
We cannot give any assurance that we will be able to compete successfully with
respect to any of these factors.
Additionally, we compete directly with a large number of software vendors. We
also face competition from internal management information systems departments,
many of which have developed or may develop systems similar to our products.
Many of our current and potential competitors have significantly greater
financial, managerial, development, technical, marketing and sales resources
than us. As a result, they may be able to devote those resources to develop and
introduce products more rapidly than we can or systems with significantly
greater functionality than and superior overall performance to those offered by
us. These competitors may also be able to initiate and withstand significant
price decreases more effectively than we can. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase their ability to offer products
that address the needs of our current and potential customers. New competitors
or new alliances among competitors may emerge and quickly acquire market share.
Competition may therefore result in significant price reductions, decreased
gross revenues, loss of market share and reduced acceptance of our products. Our
failure to effectively compete could have a material adverse impact on our
business, results of operations and financial condition.
We Expect Quarterly Fluctuations in Our Operating Results. Our quarterly results
of operations will vary in the future. Any shortfall in revenues recognized in
any period could have a material adverse effect on our business, results of
operations and financial condition for that period. Because approximately 60% to
75% of our total expenses are relatively fixed, variations in the timing of
product sales and installations can cause significant variations in operating
results from quarter to quarter and may magnify the adverse effect of any
shortfalls in revenues on our results of operations. Quarterly fluctuations in
operating results and variations from projections could have a significant
impact on the market price of our Common Stock.
Our Stock Price May Become Volatile. Our Common Stock is traded on the OTC
Bulletin Board. The market price of our Common Stock may become subject to
substantial volatility, due to many factors, including:
o variations in quarterly operating results;
o the gain or loss of significant contracts;
o changes in management;
o announcements of technological innovations or new products by us
or our competitors;
o legislative or regulatory changes;
o general trends in the industry; and
o recommendations by securities industry analysts.
Additionally, the stock market has experienced extreme price and trading volume
fluctuations that have affected the market price of securities of many
technology companies. Although these fluctuations have, at times, been unrelated
to the operating performances of the specific companies whose stock is affected,
the fluctuations can adversely influence the stock price of these companies.
An Active Trading Market Does Not Exist in Our Common Stock. In the past, our
Common Stock has not experienced significant trading volume, has not been
actively followed by stock market analysts and has had limited market-making
support from broker-dealers. Additionally, we have been unable to meet the
minimum requirements for the inclusion of our Common Stock on a stock exchange
or on the Nasdaq system. As a result, we have experienced limited release of the
market prices of our Common Stock and limited news coverage of our business. In
turn, our Common Stock has had limited investor interest, which may materially
adversely affect the trading market and prices for our Common Stock and our
ability to issue additional securities or to secure additional financing. If
market-making support and analyst coverage does not increase to greater levels,
the average trading volume in our Common Stock may not increase or even sustain
its current levels. We cannot be certain that an adequate trading market will
exist to sell large positions in our Common Stock.
Our Common Stock May Be Subject to "Penny Stock" Rules. Low priced stocks are
subject to additional risks of additional federal and state regulatory
requirements and the potential loss of effective trading markets. Our stock
price has fallen below US$ 1.00. As a result, our Common Stock could be subject
to Rule 15g-9 under the Securities Exchange Act of 1934, as amended, which among
other things, requires that broker/dealers satisfy special sales practice
requirements including making individualized written suitability determinations
and receiving a purchaser's written consent prior to any transaction. Also, our
Common Stock could be deemed penny stocks under the Securities Enforcement and
Penny Stock Reform Act of 1990, which would require additional disclosure in
connection with trades in our securities, including the delivery of a disclosure
schedule explaining the nature and risks of the penny stock market. Such
requirements could severely limit the liquidity of our securities and the
ability of our stockholders to sell securities in the secondary market.
