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, 1998
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) 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: $59,500
The number of shares of the registrant's Common Stock outstanding as of June 30,
1998 was 8,283,115. The aggregate market value of the registrant's Common Stock
held by non-affiliates, based upon the closing price on June 30, 1998, as
reported on the Nasdaq Over the Counter System, was approximately $636,543.
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.
The Company, through its wholly owned subsidiary PowerTrader Software Inc.,
designs, develops, markets and supports informational and analytical decision
support systems for securities brokerage firms, investment advisers, trust
companies and individual investors. The Company's products are 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. The Company's products are modular and scalable.
Independent functionality of components provides the user with the ability to
integrate software with the Company's products.
Prior to June 30, 1998, the Company had been exploring other business
opportunities through a joint business venture with a Toronto-based television
production company, such as, developing and marketing a financial Internet web
site that would be integrated and fully interactive with a traditional
television broadcast (the "Joint Venture"). The Company had been involved in
such venture since November 1997, which resulted in a shifting of resources,
including research and development, to such venture.
During the fourth quarter of fiscal 1998, the Company continued to seek out
additional business opportunities. As a result, the Company had ongoing
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 substantial financial resources, time and effort to the Combination.
Industry Background
The securities industry has, and continues to, experience rapid demographic,
instrument and accounting changes. These dynamics have required securities
professionals to increasingly utilize information systems which (i) lower
transaction costs, (ii) manage increasing data flow and (iii) provide
value-added services. The Company believes ongoing advances in
telecommunications and information technology, such as the Internet, will result
in the requirement for analytical tools to manage data and disclose investment
opportunities. Current systems lack the requisite sophistication to provide the
tools necessary to address their evolving advances.
Products
Because the Company is still in the developmental stage, its focus and products
continue to be affected by the success or failure of the Company's development
efforts and Beta testing.
The Company has continued to develop a suite of components which, if developed
successfully, will permit a client to purchase a comprehensive system to match
its individual needs. The Company had previously intended to market these
components as separate products, namely, as PowerTrader Pro-Vision, Data
Manager, Formula One, Server and PowerTrader Analyst. The Company has since
determined to combine the functionality of some or all of the components into
PowerTrader Analyst, which, if developed, would feature 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.
However, the Company has devoted the majority of its resources for the past
fiscal year on the creation of a web site known as "Financial Wire." To
supplement the disappointing results realized from the distribution of Beta
versions of PowerTrader Analyst, the Company has attempted to market
subscriptions for use of Financial Wire. This web site allows 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 Company's Financial
Wire products and services, and related marketing strategy, have been designed
to capitalize on the growing acceptance and use of Internet services. Future
achievement of growth and profit objectives will be largely dependent upon the
capacity, reliability, integrity and security of the Internet, its service
providers and telecommunication vendors. Additionally, implementation of the
Company's strategy will require substantial financial and operational resources,
which are currently not available, to be devoted to the expansion of the
Company's Internet infrastructure. Inability to accomplish this goal will
materially and adversely affect the Company's business, operating results and
financial condition. Sales of currently developed Financial Wire products have
fallen below expectations. (See "Product Development")
On May 2, 1997 the Company, pursuant to an Asset Purchase Agreement and Bill of
Sale, acquired certain intellectual property rights in, and all right, title and
interest to, a securities database software, known as DataMill, from West Coast
Title Search Ltd. for the sum of Cdn$285,000 (approximately $193,878 in U.S.
dollars) cash plus the issuance of shares of Common Stock in the Company. (Note:
do we need to show the number of shares and value i.e. 125,000 shares @
US$3.00/share?) The cash balance owing of Cdn$235,000 (approximately $159,863 in
U.S. dollars) to West Coast Title Search Ltd. is evidenced by a Promissory Note
secured by a General Security Agreement and a Software Security Agreement
maturing August 7, 1998. The Company intends to develop DataMill as a commercial
product which can be added to or replace its developing suite of products.
The Company's limited capital resources have caused its independent auditors to
issue a report which indicates substantial doubt exists at the end of fiscal
1998 as to the Company's ability to continue as a going concern. See
"Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources" and "Subsequent Transactions".
Product Development
In 1998 and 1997 the Company's product research and development expenditures
were $274,940 and $265,303 respectively. With the rapid technological change
characteristic of the industry, the Company seeks to develop applications
incorporating current and new technologies. Such development requires the
dedication of significant expenditures to attract and retain employees with the
requisite skills to successfully develop new products or enhance existing
versions.
The Company had hoped that initial revenues would be largely derived from
subscriptions to its Financial Wire product and other products and services
related thereto. The reduction, delay and/or cancellation of subscriptions for
these products and services has had a material adverse effect on the Company's
business, financial condition and results of operations.
As at June 30, 1998 the Company's negative cash flow from operations has
resulted in its failure to achieve its product development objectives with a
resultant failure to achieve its expectations with respect to product sales,
including, without limitation, the sale of the Financial Wire products.
Additionally, the lack of sufficient funding has delayed the Company's research
and development program.
There can be no assurance the Company will be successful in obtaining additional
funding sufficient to allow it to be successful in developing, introducing and
marketing products on a timely and cost effective basis, if at all. Delays in
the commencement of commercial shipments of new products and enhancements may
result in further delay or loss of product revenues.
Competition
The market for the Company's products is evolving rapidly. Prospective customers
tend to be highly sophisticated and engage in extensive investigation and
comparison of competitive software applications offered by prospective vendors,
including the Company. 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 are compounded by the Company's lack of such
resources. The Company believes that the principal competitive factors affecting
the market for its products include product performance and functionality,
product and Company reputation, product architecture, ease of use, ability to
integrate, rapidity and ease of implementation, quality of client support and
price. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures will not result in price reductions, reduced operating margins and the
loss of market share, any one of which would materially adversely affect the
Company's business, operating results and financial condition.
Marketing
The Company's strategy for marketing its products contemplates 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 has, to date, resulted in the Company having
conducted only limited sales, marketing and distribution activities. The Company
has attempted to market its available products primarily through telemarketing
and electronic means, use of direct mail, press releases, customer referrals and
tradeshow participation. 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 sales personnel necessary to generate significant growth in
revenue from sales of its software products.
The Company expects to attempt to market and sell its developing products
through licensing or other distribution arrangements with 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.
<PAGE>
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 license agreements to establish and
protect its intellectual property rights. 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. There can be no assurance that the steps taken by the Company to protect
its proprietary information will be adequate to prevent misappropriation of its
intellectual property, which could adversely affect the Company's business,
operating results and financial condition.
The Company is not currently engaged in any intellectual property litigation or
proceedings. However, 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 licenses will be available or that, if available, such licenses 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
During fiscal 1998 the Company experienced significant reduction in its work
force due to its lack of revenue and diminishing financial resources. The
Company at fiscal year end had one full time and one part time employee engaged
in product development, client service and support and, prior to Mr. Furlonger's
resignation, effective June 25, 1998, two in administration and management. The
Company's future success will depend on its ability to attract and retain
qualified technical and management personnel. Due to the small number of
employees, the loss of any additional employees may have a material adverse
effect on the Company. None of the Company's employees is represented by a labor
union. The Company has not experienced any work stoppage and considers its
relations with its employees to be good.
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, 1999. The monthly lease
payment under the lease is Cdn$4,600 gross (approximately $3,129 in U.S.
dollars). 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
As at June 30, 1998 the Company's subsidiary, PowerTrader Software Inc., was a
defendant in an action commenced October, 1997 in the Supreme Court of British
Columbia by Digidyne Inc., claiming judgment for an unpaid account for supply of
computer equipment services in the amount of Cdn$34,748.42, plus interest and
costs. The Company has initiated a counterclaim for damages against
Hewlett-Packard as the supplier of the computer equipment.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
The Company did not submit any matters to a vote of shareholders during the
fiscal year covered in this report.
<PAGE>
PART II
Item 5. MARKET FOR 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 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 217 stockholders of record at June 30, 1998.
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.
During the year ended June 30, 1998 the Company issued the following securities
in unregistered transactions exempted from the provisions of the Securities Act:
On July 14, 1997 the Company granted a non-qualified stock option to an employee
covering 60,000 shares of the Company's common stock with an exercise price of
$3.00 per share, being the fair market value per share at the time of grant.
Such option was granted in reliance upon the exemptive provisions of Section
4(2) of the Securities Act. Such option was cancelled upon termination of the
employee's employment during fiscal 1998, in accordance with the provisions of
the stock option plan.
On July 21, 1997 the Company completed its sale of 250,000 units, each unit
consisting of one share of the Company's common stock and two warrants, each
warrant to purchase one additional share of common stock at an exercise price of
$3.50, to an institutional investor located in the Bahamas for cash
consideration in the aggregate amount of $812,500. Such transaction was
consummated in reliance upon the exemptive provisions of Regulation S
promulgated under the Securities Act.
On September 17, 1997 the Company granted non-qualified stock options to a
director and an employee, each covering 50,000 shares of the Company's common
stock with an exercise price of $3.00 per share, being the fair market value per
share at the time of grant. Such options were granted in reliance upon the
exemptive provisions of Section 4(2) of the Securities Act. The 50,000 options
granted to the employee were cancelled upon termination of the employee's
employment during fiscal 1998. The remaining 50,000options issued to a director
were cancelled and reissued in February 1998 with an amended exercise price of
$0.35 per share, being the fair market value per share at the time of the
reissuance.
On January 30, 1998 the Company granted a non-qualified stock option to a
company controlled by a director and officer, covering 150,000 shares of the
Company's common stock with an exercise price of $0.35 per share, being the fair
market value per share at the time of grant. Such options were granted in
reliance upon the exemptive provisions of Section 4(2) of the Securities Act. On
that date the Company reissued approximately 460,000 non-qualified stock options
(including the 60,000 and 50,000 options granted on July 14, 1997 and September
17, 1997, respectively, which were subsequently cancelled prior to fiscal year
end), originally issued in fiscal 1997 with an exercise price of $2.00 or $3.00
per share, as applicable, to certain consultants, some of whom were companies
controlled by a director and officer, all at an exercise price of $0.35 per
share, being the fair market value per share at the time of reissuance. A total
of 110,000 of such options, issued to employees who subsequently left the
Company's employment, have been cancelled subsequent to the year end in
accordance with the provisions of the stock option plan.
On February 22, 1998 the Company completed its sale of 400,000 shares of the
Company's common stock to a private individual residing in New York State for
cash consideration in the aggregate amount of $50,000. Such transaction was
consummated in reliance upon the exemptive provisions of Section 4(2) of the
Securities Act.
<PAGE>
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 purpose, 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
these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. 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.
The following should be read in conjunction with the Financial Statements and
Notes thereto. Unless otherwise indicated, all dollar values are expressed in
U.S. Dollars.
Overview
PowerTrader, Inc., through its subsidiary PowerTrader Software Inc., designs,
develops, markets and supports informational and analytical decision support
systems for securities brokerage firms, investment advisers, trust companies and
individual investors. Revenues have resulted from the distribution of Beta
products and product development work continued during fiscal 1998; however, the
Company remains a development stage company. At June 30, 1998 and June 30, 1997
the Company had an accumulated deficit of $3,293,050 and $1,953,330
respectively.
In view of the disappointing product sales the Company actively pursued other
business opportunities in an effort to generate revenue. Prior to June 30, 1998,
the Company had been exploring other business opportunities through a joint
business venture with a Toronto-based television production company to develop
and market a financial Internet web site that would be integrated and fully
interactive with a traditional television broadcast (the "Joint Venture"). The
Company had been involved in such venture since November 1997, which resulted in
a shifting of resources, including research and development personnel and time,
to assess the viability of the proposed venture.
Also, during the fourth quarter of fiscal 1998the Company had ongoing
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 substantial resources, including time and effort, to the Combination.
Results of Operations for the Years Ended June 30, 1998 and June 30, 1997
Sales. Revenues increased by 34% from $44,373 in 1997 to $59,500 in 1998. Cost
of Sales decreased by 28% from $28,255 in 1997 to $20,217 in 1998. Net Revenue
increased by 244% from $16,118 in 1997 to $39,283 in 1998. Substantially all of
the Company's net revenues were derived from domestic sales and installation of
Beta site licenses.
Selling, General and Administrative Costs. Selling, General and Administrative
costs ("SGA") increased by 69% from $653,812 in 1997 to $1,104,063 in 1998. Such
expenses were incurred in an effort to develop the organizational infrastructure
to implement the Company's business plan. Certain of the SGA costs related to
the Company's effort to raise working capital and to pursue the Joint Venture
and Combination. 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 increased by 4% from $265,303 in 1997 to
$274,940 in 1998. Such increase in development expenses were primarily
attributable to salary increases to staff engaged in the ongoing development of
the PowerTrader suite of products.
Net Loss. The Company experienced further net losses in 1998 in the amount of
$1,339,720, an increase of 48% from the 1997 net loss of $902,997. Total
cumulative net losses for the period ending December 29, 1988 to and including
June 30, 1998 were $3,293,050. The Company believes additional personnel
expenses related to further research and development expense will 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 expects to incur further losses in the future which will likely
continue to have a negative impact on the Company's results of operation.
Liquidity and Capital Resources.
The principal source of funds to the Company and its subsidiaries since their
respective formations has been derived from net proceeds of certain private
placements of securities which, together with sales, have been used to fund
continued research and development expenses as well as necessary SGA costs. To
date the Company has sold only Beta product and support services. Major product
development work continues. The Company has not yet recorded significant sales
and is, accordingly, still a development stage company. The Company requires
additional financing to fund its operations and planned capital expenditures for
at least the next twelve months. The Company currently has no avenues to secure
any such additional financing. The inability of the Company to obtain additional
financing on acceptable terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's limited capital resources have caused the Company's independent
accountants to issue a report which indicates that substantial doubt exists as
to the Company's ability to continue as a going concern.
Year 2000 Readiness Disclosure.
The Company intends to develop a Year 2000 Action Plan with the identification
of specific tasks and goals to be implemented before the advent of the Year
2000. These tasks and goals include the assessment of the Company's current
computer systems, current product offerings, and internally developed
information systems, identification of potential problems and remediation of
identified problems and testing of newly implemented systems. In view of the
reliance of the Company upon vendor-supplied information systems all key
information technology vendors and suppliers will be contacted to provide
assurances on their ability to deal with the Year 2000 issues. Changes, as
required, will be implemented by the Company to address any vendor supplied
information systems which are, in the opinion of the Company, not going to
achieve Year 2000 compliance. Based upon the responses of both the Company's
customers and third party suppliers, the Company will formulate a Year 2000
contingency plan to obviate the impact of any disruptions in the supply or sale
of the Company's products.
Readers are cautioned that this Year 2000 disclosure contains forward-looking
statements. Readers should understand the Company's current assessment of the
Year 2000 issue is based upon management's best estimates. These estimates were
derived utilizing numerous assumptions of future events, including the
availability of certain resources, third party modification plans and other
factors. There can be no guarantee, however, that these estimates will be
achieved, or that there will not be a delay in, or increased costs associated
with the implementation of our Year 2000 Action Plan. A delay in specific
factors that might cause differences between the estimates and actual results
include, but are not limited to, the availability and cost of personnel trained
in these areas, the ability of locating and correcting all relevant computer
code, timely responses to and corrections by third parties and suppliers, and
the ability to implement interfaces between any new systems and systems not
being replaced.
<PAGE>
Item 7. FINANCIAL STATEMENTS
The following financial statements of PowerTrader, Inc. 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, 1998 and 1997
Consolidated Statements of Operations - Years Ended June 30, 1998, 1997
and 1996.
Consolidated Statements of Stockholders' Equity - Years Ended June 30,
1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended June 30, 1998, 1997
and 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following sets forth certain information regarding the executive officers of
PowerTrader, Inc. as of June 30, 1998:
Name Age Position
---- --- --------
Michael C. Withrow 35 Chairman of the Board, President
and Chief Executive Officer
David C. Furlonger (1) 36 Director, Chief Financial
Officer and Secretary
George McCord 58 Director, Chief Information
Officer
(1) Mr. Furlonger's resignation and the cancellation of the agreement with
Peridot International became effective June 25, 1998.
The services of each of Mr. Withrow and Mr. Furlonger are provided under an
agreement with corporations wholly owned by such persons. Mr. McCord, exclusive
of his obligations as a director, devotes up to an aggregate of 120 hours a
month to the Company's business pursuant to a consulting agreement under which
he is entitled to be paid up to $88,800 annually. 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 has served
as a director since 1988. In 1994 Mr. Withrow was named President and Chairman.
Mr. Withrow has 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.
Mr. Furlonger has been a director, Secretary and Chief Financial Officer of the
Company since its inception in August, 1996. From April 1995 to March 1996 Mr.
Furlonger served as Senior Proprietary Trader for Commerzbank, London, England
and for five years prior thereto was employed within the treasury and trading
operations of Baring Brothers & Co. in England.
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.
<PAGE>
The Board of Directors of the Company consists of three members, subject to Mr.
Furlonger's resignation on June 25, 1998. 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 three reporting persons, (Messrs. Withrow, Furlonger and
McCord) failed to file on a timely basis one Form 4, each of which would have
disclosed an amended, or a repricing, of non-qualified stock options.
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The following table sets forth certain information, as of June 30, 1998,
regarding the compensation paid to the Chief Executive Officer. No other officer
of the Company received total compensation in excess of $100,000 during fiscal
1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Other Securities
Name and Principal Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation Compensation Compensation
- ------------------ ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael C. Withrow 1998 $87,333 ---- 350,000(1) -----
President/Chief 1997 $62,693 ---- 200,000 -----
Executive Officer
</TABLE>
Option Grants in Last Fiscal Year
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise
Name Granted Fiscal Year Price Expiration Date
- ---- ---------- ------------- -------- ---------------
Michael C. Withrow 150,000 24.6% $0.35 February, 2000
200,000(1) 32.8% $0.35 April, 2000
(1) Includes 200,000 shares covered by an option which was repriced in fiscal
1998.
Aggregate Option/SAR Exercises in Last Fiscal Year
And FY-End Option/SAR Values
Number of
Unexercised Value Of
Securities Unexercised
Underlying In-The Money
Shares Options/SARs Option/SARs
Acquired on Value At FY-End (#) At FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- -------- ------------- -------------
Michael C. Withrow 0 0 350,000/0 0/0
Repricing of Options
On January 30, 1998 the Board of Directors of the Company decided to reprice
options held by Mr. McCord, and corporations controlled by Mr. Withrow and Mr.
Furlonger, covering 350,000 shares of common stock. As a result, the exercise
price of the option was reduced to $0.35 per share, the then current market
price of the common stock.
The Board based its decision to reprice the options on the efforts of these
persons on behalf of the Company and to provide further incentive to them to
continue in their capacities.
Employment Agreements
Precision Investment Services Inc. (now PowerTrader Software Inc.) entered into
an employment agreement with 458468 B.C. Ltd., a British Columbia corporation
wholly owned by Michael C. Withrow ("458468"), the Company's Chairman and
President. Pursuant to that agreement 458468 will provide the services of Mr.
Withrow to manage PowerTrader Software's operations. The agreement with 458468
will expire in September 1999, subject to renewal, at the option of PowerTrader
Software, for an additional three year term. The agreement with 458468 contains
non-competition clauses that provide, in pertinent part, that during the term of
the agreements, as they may be extended, and for a period of one year
thereafter, 458468 will not engage in any activity competitive with the business
of PowerTrader Software, will not solicit nor attempt to solicit customers or
employees of PowerTrader Software, and will not otherwise interfere with
PowerTrader Software's business relationships.
<PAGE>
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, 1998, with
respect to beneficial ownership of shares of Common Stock by (i) 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") and (iv) all directors and executive officers
of the Company as a group. 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
- ------------------- ------------- --------
Michael C. Withrow 1,817,697 (1) 22%
12-1850 Argue Street
Port Coquitlan, British Columbia
David C. Furlonger 100,000 (2) 1.2%
11837 190th Street
Pitt Meadows, British Columbia
George E. McCord 50,000 (3) *
885 Dunsmuir Street
Suite 591
Vancouver, British Columbia
All directors and executive 1,967,697 24.6%
officers as a group (3 persons)
* Less than 1%.
(1) The stated number of shares are held of record by 458468 B.C. Ltd., a
British Columbia corporation ("458468") of which Mr. Withrow is the sole
shareholder. The total includes 350,000 shares subject to acquisition by
458468 upon exercise of currently exercisable options.
(2) The stated number of shares are held of record by Peridot International
Enterprises Ltd., a British Columbia corporation ("Peridot") of which Mr.
Furlonger is the controlling shareholder. Upon termination of Mr.
Furlonger's services to the Company on June 25, 1998 Peridot forfeited
any right to any additional 150,000 shares after the second year of
service and a further 100,000 shares after the third year of service and
forfeited the right to exercise a stock option to purchase up to 100,000
shares of Common Stock of the Company in accordance with the PowerTrader,
Inc. 1996 Stock Option Plan.
(3) The stated number of shares are comprised of shares subject to
acquisition by Mr. McCord upon exercise of currently exercisable options.
Item 12. 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 current
proposed.
On October 25, 1996 PowerTrader Software Inc. executed an agreement, (the
"Consultant Agreement") effective October 25, 1996, with Peridot International
Enterprises Ltd. ("Peridot"), a company controlled by Mr. David C. Furlonger.
Pursuant to the Consultant Agreement Peridot provided the services of Mr.
Furlonger as a director, Chief Financial Officer and Secretary of PowerTrader,
Inc. His duties also included acting as the principal accounting manager of
PowerTrader Software Inc.. The Consultant Agreement was for a term of three (3)
years and Peridot was to be paid $70,000 in the first two years, $80,000 in the
third year. In addition the Company would grant to Peridot 350,000 shares of
Common Stock with 100,000 vesting after the first year of service, 150,000 after
the second year of service and 100,000 after the third year of service. In
addition Peridot would receive a stock option to purchase up to 100,000 shares
of Common Stock of the Company in accordance with the Company's 1996 Stock
Option Plan. These options were repriced in January, 1998 and were subsequently
cancelled after year end upon termination of Mr. Furlonger's employment on June
25, 1998.
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 C. Withrow, a director and the
President and Chief Executive Officer of the Company. This Agreement has
subsequently, with the approval of the Company, been 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.
On June 12, 1997 PowerTrader Software Inc. entered into a consulting agreement
with George E. McCord to act as the Chief Information Officer 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.
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 signature page 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
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-1
<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-2
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(US Dollars)
June 30 1998 1997
- -------------------------------------------------------------------------------
Assets
Current
Cash $ 6,000 $ 99,986
Receivables - 12,883
------------- --------------
6,000 112,869
Fixed assets, note 3 464,182 754,741
------------- --------------
$ 470,182 $ 867,610
- -------------------------------------------------------------------------------
Liabilities
Current
Accounts payable and accrued
liabilities, notes 3 and 9 $ 507,352 $ 362,520
Notes payable, note 4 15,000 74,248
Current portion of capital
lease obligations, note 5 2,657 5,894
----------- -------------
525,009 442,662
Capital lease obligations, note 5 - 2,555
------------- --------------
525,009 445,217
------------- --------------
Shareholders' Equity (Deficit)
Share capital, note 6
Authorized
The company is authorized to issue
23,000,000 common shares and 2,000,000
preferred shares with a $.01 par value
per share.
Issued and outstanding common shares 992,530 986,030
8,283,115 Common shares (1997 - 7,633,115)
Capital surplus 2,245,693 1,389,693
Accumulated deficit during development stage (3,293,050) (1,953,330)
------------- --------------
(54,827) 422,393
------------- --------------
$ 470,182 $ 867,610
- -------------------------------------------------------------------------------
The accompanying summary of significant accounting policies and notes from an
integral part of these consolidated financial statements.
F-3
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Statements of Loss
(US Dollars)
December 29,
1988
(inception) to
Year Ended Year Ended Year Ended June 30,
June 30, June 30, June 30, 1998
1998 1997 1996 (cumulative)
- --------------------------------------------------------------------------------
Revenue $ 59,500 $ 44,373 $ 50,971 $ 198,870
Cost of Sales 20,217 28,255 40,910 106,793
------------ ---------- ---------- ------------
39,283 16,118 10,061 92,077
Selling, general & 1,104,063 653,812 405,099 2,532,884
administrative
costs
Development costs 274,940 265,303 203,933 852,243
------------ ---------- ---------- ------------
Net loss $ (1,339,720) $ (902,997) $ (598,971) $ (3,293,050)
- --------------------------------------------------------------------------------
Loss per share $(0.17) $(0.16) $(0.14)
- --------------------------------------------------------------------------------
The accompanying summary of significant accounting policies and notes from an
integral part of these consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flow
(US Dollars)
December 29
1988
(inception) to
Year Ended Year Ended Year Ended June 30,
June 30, June 30, June 30, 1998
1998 1997 1996 (cumulative)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided (used) by:
Operating activities
Operations
Net loss $ (1,339,720) $ (902,997) $ (598,971) $ (3,293,050)
Item not involving cash
Amortization 355,743 42,210 26,589 439,798
Increase (decrease) from
changes in:
Receivables 12,883 (10,491) (620) -
Accounts payable and
Accrued liabilities 144,832 193,865 71,997 507,351
------------- -------------- ------------- --------------
(826,262) (677,413) (501,005) (2,345,901)
------------- -------------- ------------- --------------
Financing activities
Notes payable financing
received 15,000 74,248 - 89,248
Notes payable paid (74,248) (74,248)
Lease financing received - 11,074 18,790
Repayment of obligations
under capital leases (5,792) (5,527) (3,732) (16,132)
Shareholders' advances - - 253,917 646,222
Issuance of share capital
and subscriptions 862,500 632,049 408,089 1,902,747
------------- -------------- ------------- --------------
797,460 700,770 669,348 2,566,628
------------- -------------- ------------- --------------
Investing activity
Net assets acquired on
Reverse Acquisition - 314,254 - 314,254
Investment in fixed assets (65,184) (364,702) (43,690) (528,981)
-------------- --------------- -------------- ---------------
(65,184) (50,448) (43,690) (214,727)
------------- -------------- ------------- --------------
Increase (decrease) in cash (93,986) (27,091) 124,653 6,000
Cash, beginning of period 99,986 127,077 2,424 -
------------- -------------- ------------- --------------
Cash, end of period $ 6,000 $ 99,986 $ 127,077 $ 6,000
- --------------------------------------------------------------------------------------------------------
Non-cash transactions
Shares issued for debt $ - $ - $ 646,222 $ 646,222
Shares issued for software
acquisition $ - $ 375,000 $ - $ 375,000
Shares issued on Reverse
acquisition $ - $ 314,254 $ - $ 314,254
- --------------------------------------------------------------------------------------------------------
Interest paid $ 14,516 $ 4,254 $ 1,584 $ 20,354
</TABLE>
The accompanying summary of significant accounting policies and notes from an
integral part of these consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PowerTrader, Inc.
(A Development Stage Company)
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
(US 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 at
July 1, 1994 65 48 84 61 - - - -
Net Loss - - - - - - - (451,362)
---------------------------------------------------------------------------------------------
Balance at
July 30, 1995 65 48 84 61 - - - (451,362)
Shares issued
for debt 4,174,448 646,222 - - - - - -
Net loss - - - - - - - (598,971)
---------------------------------------------------------------------------------------------
Balance at
June 30, 1996 4,174,513 646,270 84 51 - 646,331 - (1,050,333)
Reverse acquisition
January 1, 1997 - - - - 5,088,598 314,254 - -
Shares issued for
Software share
subscriptions - - - - 2,319,517 23,195 691,943 -
Computer software
acquired - - - 125,000 1,250 373,750 -
Cash - - - - 100,000 1,000 324,000 -
Net loss - - - - - - - (902,997)
---------------------------------------------------------------------------------------------
Balance at
June 30, 1997 - - - - 7,633,115 986,030 1,389,693 (1,953,330)
Shares issued
for cash
September 10, 1997 - - - - 250,000 2,500 810,000 -
March 16, 1998 - - - - 400,000 4,000 46,000 -
Net loss - - - - - - - (1,339,720)
---------------------------------------------------------------------------------------------
Balance at
June 30, 1998 - - - - 8,283,115 $992,530 $2,245,693 $(3,293,050)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes from an
integral part of these consolidated financial statements.
F-6
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
Consolidation These financial statements include the accounts of
PowerTrader, Inc. and its wholly-owned subsidiary
PowerTrader Software Inc. ("Software") (collectively "the
Company") which was acquired in a "Reverse Acquisition".
Software (and not PowerTrader, Inc.) is treated as the
"acquiring" or "continuing" entity for financial accounting
purposes, notwithstanding that PowerTrader, Inc. is the
continuing entity for legal purposes. Accordingly, the
consolidated statements of loss are a continuation of
Software's financial statements, and therefore reflect (i)
the operations of Software from inception (December 29,
1988) and (ii) the operations of PowerTrader, Inc. after
January 2, 1997, the date of acquisition.
All significant intercompany transactions and balances are
eliminated on consolidation.
Basis of The consolidated financial statements have been prepared in
Presentation accordance with generally accepted accounting principles in
the United States.
Foreign Currency Foreign monetary assets and liabilities are translated into
Translation US 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 US dollar for
periods presented in these financial statements with
bracketed figures reflecting the average rate for the
period are:
June 30, 1998 US$1.00 $1.465 (1.423)
June 30, 1997 US$1.00 $1.381 (1.366)
June 30, 1996 US$1.00 $1.384 (1.360)
Fixed Assets Fixed assets are recorded at cost. Amortization is provided
at the following annual rates:
Computer equipment 30% declining balance
Computer software 100% declining balance
Furniture and equipment 20% declining balance
One half the normal amortization is recorded in the period
in which the assets become available for use.
F-7
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - continued
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
Revenue The Company records revenue from the sale of computer
Recognition software upon shipment of products.
Research and Research and development costs are charged to expense as
Development Costs incurred.
Capitalized Certain software development and production costs are
Software Costs capitalized upon a product's reaching technological
feasibility. The capitalization of these costs will stop
when a product is ready for sale. Technological feasibility
is considered to be attained when the company has completed
all planning, designing, coding and testing activities that
are necessary to establish that the product can be produced
to meet its design specifications including functions,
features and technical performance requirements. The
Company has attained technological feasibility on certain
products, however, it has not incurred any capitalizable
costs with respect to these products.
Estimates and The preparation of financial statements in conformity with
Assumptions generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value of The respective carrying value of certain on balance sheet
Instruments 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.
Loss Per Share Loss per share is calculated based on the weighted average
number of shares outstanding.
Uncertainty Due The Year 2000 Issue arises because many computerized
to the Year systems use two digits rather than four to identify a year.
2000 Issue Date-sensitive systems may recognize the year 2000 as 1900
or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates
in 1999 to represent something other than a date. The
effects of the Year 2000 Issue may be experienced before,
on, or after January 1, 2000, and, if not addressed, may
range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal
business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the entity,
including those related to the effects of customers,
suppliers, or other third parties, will be fully resolved.
F-8
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - continued
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
New Accounting Statement of Financial Accounting Standards No. 128,
Pronouncements "Earnings Per Share" ("SFAS No. 128") issued by the
Financial Accounting Standards Board is effective for
financial statements with fiscal years beginning after
December 15, 1997. The new standard simplifies guidelines
regarding the calculation and presentation of earnings per
share. The Company does not expect adoption to have a
material effect on the presentation of its results of
operations.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"), which
establishes standards for reporting and display of
comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments
by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting
standards as components of comprehensive income be reported
in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management
has not fully evaluated the impact, if any, SFAS 130 may
have on future financial statement disclosures. Results of
operations and financial position, however, will be
unaffected by implementation of this standard.
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, Disclosures and Segments of an
Enterprise and Related Information ("SFAS 131") which
supersedes SFAS No. 14, Financial Reporting for Segments of
a Business Enterprise. SFAS 131 establishes standards for
the way that public companies report information about
operating segments in annual financial statements and
requires reporting of selected information about operating
segments in interim financial statements issued to the
public. It also establishes standards for disclosures
regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as
components of a company about which separate financial
information is available that is regularly used by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance.
F-9
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - continued
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
New Accounting SFAS 131 is effective for financial statements for periods
Pronouncements - beginning after December 15, 1997 and requires comparative
Continued information for earlier years to be restated. Management
has not fully evaluated the impact, if any, SFAS 131 may
have on future financial statement disclosures. Results of
operations and financial position, however, will be
unaffected by implementation of this standard.
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on
the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk or (ii) the
earnings effect of the hedged instrument, the gain or loss
is recognized in income in the period of change. SFAS No.
133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption
of the new standards on July 1, 1999 to affect its
financial statements.
F-10
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Summary of Significant Accounting Policies - continued
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
New Accounting In October 1997, the AICPA issued Statement of Position
Pronouncements - (SOP) 97-2, Software Revenue Recognition, which supersedes
Continued SOP 91-1. The Company was required to adopt SOP 97-2 for
software transactions entered into beginning January 1,
1998 and retroactive application to years prior to adoption
is prohibited. SOP 97-2 generally requires revenue earned
on software arrangements involving multiple elements (i.e.
software products, upgrades/enhancements, postcontract
customer support, installation, training, etc.) to be
allocated to each element based on the relative fair values
of the elements. The fair value of an element must be based
on evidence which is specific to the vendor. The revenue
allocated to software products (including specified
upgrades/enhancements) generally is recognized upon
delivery of the products. The revenue allocated to
postcontract customer support generally is recognized
ratably over the term of the support and revenue allocated
to service elements (such as training and installation)
generally is recognized as the services are performed. If a
vendor does not have evidence of the fair value for all
elements in a multiple-element arrangement, all revenue
from the arrangement is deferred until such evidence exists
or until all elements are delivered. The Company follows
the guidance of SOP 97-2.
F-11
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
1. Nature of Business and Continued Operations
PowerTrader, Inc. and Software design, develop, market and support
informational and analytical desktop decision support and risk
management systems. Software was originally incorporated on December 29,
1988 under the name Corporate Media Solutions, Inc. On November 6, 1989,
it changed its name to Precision Investment Services and on April 16,
1996, changed its name from Precision Investment Services, Inc. to
PowerTrader Software Inc. Software was inactive until July 1994 when it
commenced development of its current suite of software products. On
January 2, 1997, PowerTrader, Inc. was acquired in a Reverse Acquisition
by PowerTrader Software, Inc. (Note 2).
To date, since the Company has only sold Beta product and support
services, major product development work continues and the Company has
not yet recorded significant sales, accordingly, the Company is still a
development stage company with its principal business and assets in
Canada and its revenue earned in Canada.
These financial statements are stated in US dollars and have been
prepared in accordance with United States generally accepted accounting
principles, on a going concern basis. As reflected in these financial
statements, the Company has at June 30, 1998 an accumulated deficit of
$(3,293,050) and a working capital deficiency of $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.
Management's plans in this regard are to obtain financing from private
or public share offerings or debt until such time that sufficient
revenue can be generated to sustain continuing operations. In connection
therewith, the Company entered the agreement described in Note 12.
2. Acquisition
On January 2, 1997, PowerTrader, Inc. entered into an agreement with the
shareholders of Software whereby it acquired all of the outstanding
shares of Software in exchange for 5,088,598 common shares. The
transaction was accounted for as a Reverse Acquisition, utilizing
historical costs. Software is in the same business as PowerTrader, Inc.
The financial position of PowerTrader, Inc. as of January 2, 1997 is
summarized as follows:
Tangible assets $ 314,468
Liabilities (214)
-----------
Shareholders' equity $ 314,254
-----------
F-12
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
2. Acquisition - continued
The following is a summary of pro-forma sales, pro-forma net loss and
pro-forma loss per share for the Company under the assumption that the
Reverse Acquisition was completed on July 1, 1996.
1997 1996
(Unaudited) (Unaudited)
----------- -----------
Pro-forma sales $ 44,373 $ 50,971
Pro-forma net loss $ 1,164,029 $ 698,971
Pro-forma loss per share $(0.20) $(0.14)
3. Fixed Assets
Accumulated
Cost Amortization 1998 Net 1997 Net
----------- ------------ --------- -----------
Computer equipment $ 208,382 $ 85,808 $ 122,574 $ 139,224
Computer software 668,164 346,501 321,608 596,576
Furniture and equipment 26,779 6,834 19,945 23,942
------------------------------------------------------
$ 903,325 $ 439,143 $ 464,182 $ 754,741
------------------------------------------------------
The estimated useful life of the fixed assets varies between one and
five years.
In connection with the acquisition of computer software, the Company
signed a promissory note payable in the amount of $160,400 ($C235,000)
bearing interest at 8% per annum and due on July 24, 1998. The note
payable was collateralized by the software, a Software Security
Agreement and a General Security Agreement. The note payable was repaid
subsequent to July 24, 1998.
4. Notes Payable
The note payable bears interest at 10% per annum, is unsecured and due
on demand.
5. Capital Lease Obligation
The balance of the Company's capital lease obligations are due in 1999.
F-13
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
6. Share Capital
Warrants
350,000 warrants were outstanding at June 30, 1998. (1997 - 100,000)
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.
Shares Issued to Director
250,000 (1997 - 350,000) shares issued to a Director are subject to an
agreement, which contains certain restrictions on transfer over a three
year period and provisions for forfeiture upon the occurrence of certain
events. The holder of these shares has resigned as a Director and the
Company intends to cancel the shares.
7. Stock Options and Stock Compensation Plans
At June 30, 1998, all of the Company's common stock options were
exercisable. The following options, which are not part of the Company's
1996 Stock Option Plan, were outstanding at June 30, 1998 and cancelled
subsequent to year end.
Number Exercise Price Expiry Date
------ -------------- -----------
149,999 $0.37 Dec 1998
100,000 1.00 Feb 1999
100,000 3.00 Feb 1999
-------
349,999
Stock Option Plan
Pursuant to the Company's 1996 Stock Option Plan ("the Plan"), officers,
key employees, 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 that the fair market value of the Common Stock on
the date of grant.
F-14
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
7. Stock Options and Stock Compensation Plans - continued
A summary of options granted under the Plan is as follows:
Exercise
Number Expiry Date Price
------ ----------- --------
Outstanding, June 30, 1996 -
Granted 300,000 April 16, 2000 $0.35
-------
Outstanding, June 30, 1997 300,000
Cancelled (100,000) April 16, 2000 $0.35
Granted 50,000 April 16, 2000 $0.35
Granted 60,000 June 18, 2001 $0.35
Granted 150,000 February 2, 2001 $0.35
-------
Outstanding, June 30, 1998 460,000
-------
All but 20,000 options expiring on June 18, 2001 were cancelled
subsequent to year end.
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, 1997 and 1996:
dividend yield of Nil; expected volatility of Nil; risk-free interest
rates of 1998 - 5.31%; 1997 - 6.25%, 1996 - 5.02% to 5.70%) based on US
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; 1996 - $0.65) per share.
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:
1998 1997 1996
---- ---- ----
Net loss
As reported $ (1,339,720) $ (902,997) $ (598,971)
Pro-forma (1,467,871) $ (956,792) $ (598,971)
Loss per share
As reported $ (0.17) $ (0.16) $ (0.14)
Pro-forma $ (0.18) $ (0.16) $ (0.14)
F-15
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
8. Share Subscriptions
As at June 30, 1996, Software had received a total of $408,089 with
respect to subscriptions for 1,599,880 Class "A" common shares and
received a further $307,049 with respect to subscriptions for 689,637
Class "A" common shares during 1997. Software shares were never issued
for these share subscriptions, accordingly the amounts were recorded as
a liability at June 30, 1996. On the date of the Reverse Acquisition,
and shortly thereafter, these liabilities were settled through the
issuance of 2,319,517 PowerTrader, Inc. shares.
9. Related Party Transactions
During 1998, the Company paid consulting and leasing fees totaling
approximately $102,300 (1997 - $171,600 and 1996 - $11,800) 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, 1998, there was approximately $85,900 (1997 - $Nil) in
trade payables to a director and a company controlled by a director.
10. Income Taxes
The Company has income tax loss carry-forwards of approximately
$2,950,000 available to reduce future taxable income, the tax effect of
which has not been recorded in these financial statements. These losses
will expire between 2002 and 2005.
Deferred tax liabilities at June 30, 1998 and 1997 were not material.
A summary of deferred tax assets at June 30, 1998 and 1997 is as
follows:
Loss
Carry Tax Valuation Deferred
Forward Rate Amount Allowance Tax Asset
------- ---- ------ --------- ---------
1998
- ----
Tax benefit of loss
carry forward $2,950,000 .45 $1,327,500 $1,327,500 $ -
1997
- ----
Tax benefit of loss
carry forward $1,718,000 .45 $ 773,100 $ 773,100 $ -
F-16
<PAGE>
PowerTrader, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1998 (US Dollars)
- --------------------------------------------------------------------------------
10. Income Taxes - continued
Since in management's opinion, it is more likely than not that the tax
benefits would not be realized, they have been reduced by a valuation
allowance of $1,327,500 (1997 - $773,100).
11. Commitments
The Company has entered into a Lease Agreement for its premises
requiring total minimum lease payments of $32,384 in 1999.
During 1998, 1997 and 1996, the Company had rent expenses for its
premises of $48,405, $27,536 and $23,795, respectively.
12. Subsequent Events
Subsequent to June 30, 1998, the Company entered an agreement with
Financial Models Company Inc. ("FMC") whereby FMC, amongst other
matters:
(i) acquired 14,000,000 unissued common shares for a purchase price of
$0.01 per share;
(ii) settled indebtedness to the former president in the amount of
$68,600; and
(iii) paid $C75,000 in exchange for a license to use certain software.
Subsequent to the completion of this transaction, FMC advanced working
capital on an unsecured basis to the Company in sufficient quantity to
settle the promissory note payable discussed in Note 3 and certain other
outstanding trade payables.
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.
Date: March 22 , 2000 By: /s/ Stamos D. Katotakis
----- ----------------------------------
Stamos D. Katotakis
President and Chief Executive
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 an 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
- ------------------------- Officer, Principal Financial
Stamos D. Katotakis 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
21.1(1) Subsidiaries of the Registrant
23.1* Consent of BDO Dunwoody
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.
+ Management Contract or Compensatory Plan or arrangement required to be
filed as an Exhibit.
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 Sheets of PowerTrader, Inc. as at
June 30, 1998 and 1997 and the related Consolidated Statements of Loss, Cash
Flow and Changes in Stockholders' Equity (Deficit) for each of the years in the
three-year period ended June 30, 1998 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, 1998 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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 6,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,000
<PP&E> 464,182
<DEPRECIATION> 0
<TOTAL-ASSETS> 470,182
<CURRENT-LIABILITIES> 525,009
<BONDS> 0
0
0
<COMMON> 3,238,223
<OTHER-SE> (3,293,050)
<TOTAL-LIABILITY-AND-EQUITY> 470,182
<SALES> 59,500
<TOTAL-REVENUES> 59,500
<CGS> 20,217
<TOTAL-COSTS> 20,217
<OTHER-EXPENSES> 1,379,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,339,720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,339,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,339,720)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</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. 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. We anticipate that if we cannot obtain additional financing and
generate revenues, we will likely exhaust our capital resources by the end of
the first quarter of fiscal 1999.
We Need to Raise Additional Funds. We have not had any material
proceeds from any of our products, and have expended significant amounts of
funds in an attempt to market our existing products, develop new products and
explore additional business opportunities. Accordingly, we have 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 our existing products, we have not had any significant
distribution of, and have experienced many set backs 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, 1997 and 1998, we incurred net losses of $902,997 and $1,339,720,
respectively. At June 30, 1997 and 1998, we had an accumulated deficit of
$1,953,330 and $3,293,050. We believe we will need additional research and
development and personnel expenses 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 1999 and in
future years from a limited number of products and services. At this time, we
expect to derive most of this revenue from subscriptions to our Wire products
and services and a limited number of other related products and services. As a
result, the reduction, delay or cancellation of subscriptions for these products
and services could have a material adverse effect on our business, financial
condition and results of operation. To date, we have had limited success with
respect to obtaining subscriptions for these products and we cannot give any
assurance that our success rate will improve. As a result, our revenues
generated from Financial Wire have not been sufficient to fund our ongoing
business plan.
Our Products May Contain Defects or Other Errors and May Be Returned.
The software products we offer may contain undetected errors or failures when we
first introduce them or as we release new versions. Failure to detect errors
until after we commence the commercial shipment of a product could result in
loss of or delay in market acceptance of the product. These errors and failures
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 numerous obstacles and uncertainties involved in developing
and distributing software to the market, however, 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. To date,
we have experienced significant delays in our development and introduction of
certain new products, and in the distribution of existing products. It is likely
in the future that delays will continue to occur and that certain new products
will not be released in accordance with our internal development schedule or the
expectations of public market analysts and investors.
Our Marketing Capabilities Are Limited and We Depend on Strategic
Relationships. Our strategy to commercialize our products calls for the
allocation of substantial resources to the expansion and training of 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 Are Heavily Dependent on the Internet. Our Financial Wire products
and services, and our related marketing strategy, have been designed to
capitalize on the growing acceptance and use of the Internet. Accordingly, our
achievement of our growth and profitability objectives will 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. In addition, our strategy for our Financial Wire products and
services requires that we devote substantial financial, operational and
managerial resources to the expansion and adaptation of our Internet
infrastructure. The Internet and our Internet infrastructure is vulnerable to
computer viruses and interruptions in service resulting from the accidental or
intentional actions of Internet users. In an effort to protect our Internet
infrastructure, we have installed sophisticated firewall and anti-virus
programming and have arranged for standby auxiliary power. However, if we are
unable to expand or adapt our 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 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.
Additionally, we are in the process of reassessing our ability to
function as a stand-alone company. Because of our continuing lack of revenues
and lack of funding necessary to implement our business plan, we are
contemplating the possibility of merging or entering into a business combination
with another software company in a business complimentary to ours that would
potentially resolve these problems. This kind of business combination may only
be possible through drastic corporate measures in order to induce the potential
acquiror to combine with us. In addition to the risks discussed above, a
business combination of this sort could also subject us to the following
additional risks:
o change in management, whose direction may differ from our
current direction;
o significant delays resulting from management change and the
adoption of a new business plan to accommodate the acquiror's
business; and
o change of effective control, resulting from the issuance of
new securities to the acquiror, which may lead to substantial
dilution of existing stockholders.
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 commercial release of such new platforms 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 or systems more rapidly and 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 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.
