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As filed with the Securities and Exchange Commission on September 23, 1999
Registration No. 0-25873
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
NATEX CORPORATION
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(Name of Small Business Issuer in its Charter)
Utah 84-1431425
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
48 West 300 South, Suite 2303 North, Salt Lake City, Utah 84101
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 595-1193
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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(Title of Class)
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NATEX CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART 1 Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 12
Item 3. Description of Property...................................... 15
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 16
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 17
Item 6. Executive Compensation....................................... 18
Item 7. Certain Relationships and Related Transactions............... 20
Item 8. Description of Securities.................................... 20
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 21
Item 2. Legal Proceedings............................................ 21
Item 3. Changes in and Disagreements with Accountants................ 21
Item 4. Recent Sales of Unregistered Securities...................... 22
Item 5. Indemnification of Directors and Officers.................... 23
PART F/S
Financial Statements......................................... 24
PART III
Item 1. Index to Exhibits............................................ 39
Item 2. Signatures................................................... 39
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
History and Organization
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Natex Corporation (hereinafter the "Company" or "Registrant") was
incorporated on July 9, 1997 under the laws of the State of Utah for the
purpose of raising capital to invest in a joint venture with Powerball
Industries, Inc., a Utah corporation ("Powerball Industries"). Powerball
Industries is wholly owned by Jed Checketts ("Checketts")and is the licensee
of certain Hydrogen Generation System and Fuel Pellet technology relating to
the production of hydrogen (the "Technology"). Checketts is the inventor of
the Technology and licensed the Technology (the "License")to Powerball
Industries in exchange for a royalty. In December, 1997, the Company and
Powerball Industries formed a joint venture named Powerball Technologies, LLC
(the "JV").
The JV is managed by a two person management committee consisting of one
person designated as a manager by the Company (Robert Ipson) and one person
designated as a manager by Powerball Industries (Checketts).
Powerball Industries and the Company, as the owners of the Joint Venture,
have entered into an Operating Agreement which governs their respective rights
and which sets forth their agreement as to various issues such as management,
meetings, voting, tax matters, termination and transfer of interests. The
Operating Agreement provides that neither owner may assign or transfer his or
its ownership in the Joint Venture unless the other owner consents to such
transfer.
The JV has been funded primarily through the Company's equity
participation and approximately $275,000 in loans for: (i) the future
development of the Technology; (ii) the construction of a sodium hydroxide
recycling plant (the "Plant"); (iii) the manufacture of Hydrogen Generation
Systems; (iv) the demonstration of the commercial viability of the Technology;
(v) the development of commercial markets for the Technology; and (vi) meeting
the JV's ongoing working capital requirements. Currently the JV is dependent
on the Company to fund its working capital requirements until the JV can
generate revenues sufficient to meet its working capital needs. In the event
the JV does not receive sufficient funding from the Company, revenues from
operations, or other sources, it is likely that the JV would have to cease to
manufacture Hydrogen Generation Systems. (See MANAGEMENT DISCUSSION AND
ANALYSIS or PLAN OF OPERATIONS).
Use of Hydrogen and the Technology in General
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Currently hydrogen is mainly utilized as a chemical component for
industrial uses. In addition, the market for hydrogen gas as a fuel source
has increased as a result of many factors, including environmental concerns
related to cost and environmental concerns surrounding the use of fossil
fuels, increased research and development of alternative fuel sources in
general, and the development of hydrogen fuel cells. The Technology, as it has
currently been developed, and continues to be developed, is an attempt to
provide an efficient, cost effective and safe method of producing hydrogen gas
for commercial and industrial use.
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There are essentially three ways of providing a hydrogen supply: (i)
storing compressed hydrogen gas in a storage device until needed; (ii) storing
liquid hydrogen gas in a storage device until needed; and (iii) producing
hydrogen on demand from water or hydrocarbon fuels as the hydrogen gas is
needed. Compressed gas and liquid hydrogen storage methods of creating a
hydrogen supply can be expensive and can create health and safety problems.
Hydrogen stored as hydrogen gas or in liquid gas storage systems must be
stored under extreme pressure and can be dangerous. The costs of transporting
and storing compressed hydrogen gas and hydrogen liquids until needed, are
significant. Hydrogen delivery tanker trucks are expensive and have limited
capacity for transporting hydrogen in comparison to their weight and cost. In
order for a hydrogen customer to obtain a bulk shipment of either hydrogen gas
or liquid hydrogen, it must expend a significant amount of money to construct
a hydrogen storage facility on site.
The JV's approach to supplying hydrogen to users will be to eliminate
the costs and risks of transporting and storing a bulk supply of hydrogen in
either a compressed gas or liquid form by producing hydrogen on site as
needed. The JV expects to be able to demonstrate that the Technology can
produce hydrogen gas on an as needed basis by the user (i.e., "Hydrogen On
Demand") in a manner that management believes will be safer and more cost
effective than existing methods.
Operations of the JV
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The operations of the JV can be separated into two facets - the
manufacture and distribution of a hydrogen generation system (the "Hydrogen
Generation System"), and the operation of a recycling plant (the "Recycling
Plant") which will recycle sodium hydroxide to produce sodium hydride which
can be used for the Hydrogen Generation System. Both operations are
initially intended to take place in the same facility. To date, only the
manufacture of a small number of Hydrogen Generation Systems has taken place.
The Recycling Plant construction has been completed and the JV is awaiting its
final occupancy permit from the local government authority.
The Hydrogen Generation Systems are shipped to purchasers with complete
assembly and operating instructions. The purchasers are responsible for
installation and operation of the systems. The purchasers are also
responsible for complying with any and all regulations relating to the
production of hydrogen and disposal of any byproducts.
The Recycling Plant may be used to recycle such byproducts, but
purchasers of the Hydrogen Generation Systems interested in availing
themselves of the Recycling Plant will have to contract for shipment of the
byproducts to the Recycling Plant with commercial haulers. For the immediate
future, the JV does not intend to provide transport services for recycling to
any purchasers.
The Hydrogen Generation System
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The Technology relates to the production of hydrogen gas in a Hydrogen
Generation System. The Hydrogen Generation System is designed to produce
hydrogen gas as needed to be used for whatever purpose it was intended. The
hydrogen is produced in the Hydrogen Generation System through a chemical
reaction of sodium hydride with water. Key components of the Hydrogen
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Generation System include a tank called a Hydrogen on Demand Generator (the
"Tank") and fuel pellets which are made of sodium hydride (the "Powerballs").
Each Powerball is a sodium hydride sphere which is approximately 1.2 inches
in diameter, covered by a polyethylene cover.
The Hydrogen Generation System generally works as follows: ordinary
water and Powerballs are deposited into the Tank. After being deposited into
the Tank, the Powerballs remain inert or inactive and do not produce hydrogen
until needed. Another key component of the Hydrogen Generation System is a
cutting device which, when activated, cuts the Powerball in half, exposing it
to the water contained in the Tank. When hydrogen is needed by the user, the
Powerball is inserted into the cutting device and cut or opened. After being
opened, the sodium hydride core of the Powerball is exposed directly to the
water and reacts with the water to produce hydrogen gas. The Tank's metering
system can detect when additional hydrogen is required, and when required,
another Powerball moves in to the cutting device, and the process of creating
hydrogen is repeated.
As hydrogen is used from the Tank, the mechanism removes Powerballs
stored in the Tank and cuts them one at a time to produce additional hydrogen.
The process can continue until the last Powerball in the Tank is used. The
polyethylene skins that cover the Powerballs remain in the Tank during the
operation. When all the Powerballs have been utilized, the polyethelene skins
and the liquid sodium hydroxide must be removed by the end user. After a Tank
is emptied, it can immediately be refilled with water and new Powerballs. The
used polyethylene skins may be recycled into new Powerballs and the sodium
hydroxide may be recycled to produce sodium hydride for fuel pellets, if the
end user elects to ship the byproducts back to the JV. Otherwise, these
byproducts must be disposed of by the end user.
The Hydrogen Generation System is completely operational. It is shipped
in three separate wooden crates and can be quickly assembled by the purchaser.
It contains a hydraulic control system and an electronic control system and
automatically produces hydrogen by slicing pellets in half inside the Tank.
A second generation Hydrogen Generation System has been developed which
is similar to the original. The Tank holds 600 Powerballs, can produce 2280
liters of hydrogen gas on demand between refills, and is easier to refill than
the previous systems. The old Tank weighed 139 pounds and the new Tank weighs
52 pounds. The new system is more reliable, easier to manufacture and is able
to produce hydrogen at a faster rate. Therefore, the JV has discontinued
production of the old Tank.
The management of Powerball Industries believes that the Technology is a
safe and easy method of producing hydrogen which can be commercially viable.
The Technology was developed to provide incremental, isolated production and
use of hydrogen fuel thereby providing the user with a consistent an
economically viable power supply.
Supplies
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The sodium hydride that is used in the manufacturing of the Powerballs
has been readily available, and it is anticipated that it will continue to be
readily available. The cost of sodium hydride depends upon the quantity in
which it is purchased. The JV has been able to obtain sodium hydride at a
cost of approximately $50 per ton, which represents an almost negligible cost
in terms of the manufacturing process.
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The polyethelene used to coat the Powerballs is likewise readily
available from a variety of sources at negligible cost, and the components of
the hydrogen tanks are standard off-the-shelf parts also available from
numerous suppliers. The total manufacturing costs of the parts needed to
produce the hydrogen generation system represent approximately 75% of the
suggested retail price for the completed system.
Because of the ready availability of all the supplies and components, the
Company has not restricted itself to any particular suppliers, although it may
seek to establish such relationships if production demands increase
substantially.
The managers of the JV believe that the economics of producing hydrogen
through the Technology will be dependent upon many factors including the
purchase price of sodium hydride and the price of hydrogen as supplied by
alternative suppliers.
Potential Products
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If the JV is able to demonstrate that the Technology will permit the cost
effective and safe production of hydrogen, the JV intends to manufacture, or
have manufactured, and ultimately market, three products:
Splitting Mechanisms These are the mechanisms installed in the Tanks
which are used to split the Powerballs, one at a time, as needed to generate
hydrogen.
Tanks The Tank is a stand alone hydrogen generator where the hydrogen
is actually produced. The JV has already manufactured 5 Tanks with the funds
invested in the JV by the Company. The Tank is constructed of lightweight and
strong Kevlar composite material. Steel, stainless steel and other materials
can also be used to construct the Tank. The end caps are mounted securely
using stainless steel tie rods. High density polyethylene is used for the end
cap material along with special strengthening ribs. The pneumatic/hydraulic
combination cylinder used to power the Splitting Mechanism is precision
machined from honed cylinder material and is rated for 5 million cycles. The
blade is made of a special stainless alloy designed to resist corrosion and
remain sharp for millions of cycles. Pressure sensing mechanisms, valves,
fittings, and static pressure refill ports are made of stainless steel or
specially coated brass designed to resist sodium hydroxide (NaOH) corrosion.
Each has been equipped with a pressure gauge, pressure relief valve and a
regulator which converts pressure.
If the JV is successful in obtaining market acceptance of the Technology
and the products derived therefrom, it intends to market Tanks to various
users including Original Equipment Manufacturer's ("OEM's"), such as
electronics manufacturers, experimental fuel cell vehicle manufacturers and
power plants. Inasmuch as the Tanks have not been manufactured by the JV on a
mass basis, the cost of manufacturing the Tanks and the willingness of users
to pay a particular price for the Tanks has not been determined with certainty
at this time.
Powerballs The Powerballs are polyethylene coated pellets of sodium
hydride. The components of the Powerballs are readily available from a variety
of sources. Initially, the JV will not market Powerballs as a separate
product, but will use Powerballs in connection with the generation of
hydrogen to be sold to purchasers of hydrogen gas. If initial marketing
efforts are successful, the JV will attempt to market Powerballs with its
Tanks.
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Powerballs are small solid balls or pellets (1.2 inches in diameter) of
sodium hydride that are coated with a waterproof plastic coating or skin.
Powerballs are stored directly in water. They can remain in water for months
with little or no change to the coatings. When a Powerball is cut in half
under water, the sodium hydride inside reacts with the water to produce
hydrogen. A Powerball will react to completion in approximately 10 seconds.
The Splitting Mechanism, Tanks, and Powerballs will initially be
manufactured by the JV. Necessary components will be supplied by a variety of
outside contractors and suppliers, including fabrication, machining, laser
cutting, vending suppliers, chemical, etc.
Deposits and/or orders have been received by the Joint Venture for the
new Tanks from a variety of companies in the United States and abroad,
including the following: Vance Mathews in Idaho (1), Technitrace in Utah (5),
Patrick Flanagan in Arizona (2), Optimox Corporation in California (1), Zevco
in the United Kingdom (2), Moonjo Jung in South Korea (1), Axel Schodel in
Germany (1), the Marcelo Group in Australia (1), and Envirotech in Japan (1).
An old style Tank has been sold to Warsitz Enterprises, and a new Tank has
been sold to Aselan, Inc. in Turkey. The Company intends to offer the new
Tanks for general sale at a price of $2,000.
Recycling Plant
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An important aspect of the JV's initial plan is the development of a
Powerball Recycling Plant (the "Plant"). The Plant may be used to recycle
both the polyethylene Powerball shells and the spent sodium hydroxide solution
(NaOH) returned to the JV from purchasers of the Hydrogen Generation System,
and to recycle additional sodium hydroxide to produce sodium hydride for new
Powerballs. An additional benefit of the Plant will be that sodium may be
recovered from sodium hydroxide solution on what management believes may be a
commercially viable basis for resale to industrial and commercial users.
In order to generate hydrogen on a cost effective basis using the
Technology, there must be an economical source of Powerballs. After the
Powerballs are split in the Tanks, there remain the polyethylene shells and
other components of the sodium hydride pellets. The costs of generating
hydrogen using the Technology will be reduced if these remains are recycled.
The Plant constructed by the Joint Venture is a proto type plant. The
actual operation of the Plant will involve additional research and development
efforts and will likely require fine tuning even if it is successfully placed
in operation.
The Recycling Plant consists of a variety of components including two
hydroxide water evaporators, a furnace, heat exchangers, a sodium reactor and
various control systems. The Recycling Plant requires approximately 2,000
square feet of floor space. As of February 1999, engineering plans for the
Plant were completed which allowed it to be built in the existing facility
currently leased by the JV. The Plant was constructed by the JV under the
direction of Checketts.
In March 1999, the Joint Venture entered into a construction contract
with KHI Engineering, Inc., a Utah engineering and construction corporation
("KHI"), to design, procure all equipment and materials, and construct the
Plant for a total price of $250,000. At the date of this filing, construction
has been completed and the final occupancy permit is pending.
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Initial Marketing Plan
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There are currently four standard methods for providing hydrogen to
industrial users: (1) hydrogen liquefaction; (2) compressed hydrogen gas; (3)
on site reformation from natural gas; and (4) by-product hydrogen produced
from nearby chemical plants. The Technology is not expected to be competitive
as an alternative to hydrogen produced from on-site reformation or as a by-
product from chemical plants. The business plan of the JV is to attempt to
demonstrate that the Technology is a viable commercial alternative for either
the bulk shipment of liquid hydrogen or the bulk shipment of compressed
hydrogen gas.
The JV will initially direct its marketing efforts to a variety of low
volume industrial hydrogen users, such as fuel cell experimental laboratories
and certain commercial food producers like peanut butter manufacturers and
cooking oil manufacturers. The JV will also attempt to market hydrogen and
its hydrogen generating products to larger volume users such as oil
refineries, power plants and welding operations. To date, the JV has sold
limited numbers of Hydrogen Generation Systems primarily to fuel cell research
or university laboratories, and has not had the capability to actively seek to
expand its marketing for either low volume or high volume potential customers,
nor will it have such capability until the commercial viability of the
Technology has been established.
The long-term business plan of the JV is to manufacture and market
hydrogen generation products (i.e., Tanks, Powerballs and Plants). However,
due to the limited capital available to the Joint Venture, management intends
to attempt to prove the commercial viability of the Technology by generating
and selling hydrogen generated from the JV's products and Technology to a
limited number of industrial users. However, there can be no assurance that
the JV will be able to produce and market hydrogen for a price which is less
than prices charged by other hydrogen producers.
A projected area of growth in the hydrogen market is as a fuel source in
proton exchange membrane (PEM) fuel cells. The hydrogen combines with oxygen
in the fuel cells to produce electricity. General Motors, Ford, Chrysler,
Daimler-Benz, BMW, Volkswagen, Volvo, Renault, Peugeot, Siemens, Toyota,
Honda, Toshiba, Mitsubishi, Fuji, and Sanyo all have fuel cell development
programs in an attempt to develop and market hydrogen powered automobiles.
Fuel cells can be used for many other purposes. Without hydrogen, fuel cells
cannot function. A fuel cell works by reacting hydrogen gas with oxygen to
produce electricity.
As a result of the increase in fuel cell research and development
activities, the demand for hydrogen required in the fuel cell is expected to
increase significantly. In addition to the demand for hydrogen in the
developing fuel cell industry, the non-fuel cell industrial market for
hydrogen has continued to expand.
The business plan of the JV is to ultimately provide hydrogen generating
products or technology for a variety of uses. As of this date no specific
marketing plan for uses has been developed. It is anticipated that a long-
term marketing plan will be developed when there has been sufficient
acceptance of the Technology and the economics of the Technology, in the
market.
No formal marketing studies have been conducted relating to the
production of hydrogen through the Technology. As stated above, a detailed,
<PAGE> 9
long-term marketing plan has not been developed. The initial marketing
efforts will be directed to trade shows and by direct marketing to end users
or OEM's. As the Technology is further refined and accepted in the market as
a commercially viable alternative to hydrogen generation, the JV will develop
a long-term marketing plan.
Research and Development
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The Company has not incurred and does not expect to incur any research
and development costs. Research and development costs incurred by the JV may
be expensed against revenues derived by the JV before any distributions are
made to the Company. Initially, much of the research and development efforts
of the JV have related to the construction and fine tuning of the Plant. At
such time as the Technology has found commercial acceptance in initial
marketing areas, the JV will attempt to obtain additional capital with which
to develop other commercial uses of the Technology.
Since inception, the Company has invested $250,000, representing its
initial investment, and an additional $275,000, representing loans made by the
Company to the JV towards completion of the Plant. To date, almost none of
the costs for research and development incurred by the JV have been passed
directly to customers. However, the costs of past development and future
improvements and changes to the technology will be incorporated into the price
of the products sold by the JV as the market develops.
Competition
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The JV will engage in the business of providing hydrogen generation
products to end users and OEM's. Initially, the JV will compete with other
companies supplying hydrogen to industrial and commercial users, such as Pax
Air. Generally, such competitors supply their customers with compressed
hydrogen gas or liquid hydrogen, and the Company believes its cost effective
hydrogen generation system will enable it to obtain a significant market share
from such customers. The JV will also compete with any other companies which
may offer technologies and products for hydrogen on demand production,
although no other companies offer on demand systems at this time. In a global
sense, the JV will be also be competing with the suppliers of all other fuels
including natural gas suppliers, gasoline suppliers, and other similar
suppliers.
The Company is aware of specific competitors working on hydrogen
generating equipment, including the Arthur D. Little Corporation, Epyx
Corporation, Los Alamos National Laboratory, and Analytic Power Sysvtems. H
Power is working on a hydride-water system and Dais Corporation is working on
some form of pellets which dissolve in water (according to their web page).
Thermo Power Corporation is working on a slurry of hydride material in oil
which reacts with water to produce hydrogen.
Sales of compressed and liquid hydrogen represent an estimated 1 billion
dollar per year industry. There is great interest and demand for the
development of hydrogen technology and products. This interest and demand will
cause many additional companies and individuals to participate in the hydrogen
industry.
Nationally, there is significant research and development being conducted
in the area of hydrogen fuel generation. The U.S. Government and numerous
multinational corporations have and are funding various research projects.
<PAGE> 10
The Company believes that most of the competitors and future competitors of
the JV will have significantly greater assets, resources, experience, research
and development talent and managerial capabilities than the Company. Although
the JV's managements believes that the Technology has competitive advantages
over other technologies, there can be no assurance that the JV will be able to
fund the further development and marketing of Technology and related products,
that the Technology will be accepted in the market place or that the
Technology will be able to provide hydrogen generating capacity or products on
a mass commercial basis.
Intellectual Property Rights
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The JV has been assigned the License for the Technology from Powerball
Industries as its capital contribution to the JV. Powerball Industries
acquired an Exclusive License for the Technology from Checketts, the owner of
the Technology.
Checketts has been issued United States patents for two primary
inventions: (i) a Hydrogen Generation System; and (ii) a Hydrogen Generation
Pelletized Fuel (e.g., the Powerball). The fuel pellet is used in the
Hydrogen Generation System and is comprised of an alkali metal selected from
the group consisting of sodium and calcium or metal hydride selected from the
group consisting of sodium hydride (NaH), calcium hydride (CaH2), sodium
aluminum hydride (NaA1H4), and lithium aluminum hydride (LiA1H4) core; and a
coating of water impervious material applied over the entire surface of said
core rendering the core impervious to water.
The License with Checketts provides for the payment to Checketts of a
royalty of one per cent (1%) of the net selling price for all retail and
wholesale of units and/or fuel pellets sold by the licensee or any sub-
licensee. The License has annual minimum production requirements commencing
September 18, 1998. There are no minimum production requirements for the
first license year which ran from November 1997 to September 11, 1998. The
minimum production requirements for the second and third license year is of 50
units (hydrogen generation systems) and 250,000 pounds of fuel pellets
(Powerballs) for each. At September 15, 1999, the JV does not expect to meet
the minimum production requirements for the second license year and will pay
the 1% of selling price royalty (1% X [50 units X $2,000 + 250,000 lbs. X
$2.00 per pound] totaling $6,000) from its operating funds. The minimum
production requirements for the fourth year are 150 Units and 500,000 pounds
of Powerballs. Commencing the fifth license year, the minimum production
requirements are 250 units and 5,000,000 pounds of fuel pellets for each
license year.
The License extends for the longer of five years or the life of the
licensed patents, subject to earlier termination without cause by the Licensee
(or its assign) or with cause by Checketts.
Patent Applications for the Technology have been filed in the United
States but have not been filed in any other country. The principals of
Powerball Industries have disclosed certain information about the Technology
on the Internet. As a result of such disclosures, the ability of the
technology owner, Checketts, to obtain a patent in foreign countries has been
significantly diminished if not entirely eliminated. There can be no
assurance that any foreign patents will ever issue. The failure to obtain
patent protection in foreign countries will have an adverse effect on the
prospects of the Company and the JV. The possibility exists that without
patent protection, numerous competitors could use the Technology in competing
products and ventures. The possibility exists that such competitors would
have the financial resources necessary to bring products using the technology
to market earlier than the JV.
<PAGE> 11
Personnel
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The Company does not anticipate that it will be required to hire any
full-time or part-time employees during the next year. The Company's primary
operation will be an investment in the JV. The Company's President devotes
100% of his working time, approximately 40 hours per week, to Natex. The
Company's Vice-President, Mr. Hunsaker, and Secretary/Treasurer, Mr. McStotts,
will provide services to the Company on an as needed basis without cash
compensation for the foreseeable future. Such services are estimated not to
exceed 5 to 10 hours per month. In the event that part-time or full time
employees are needed, the Company anticipates it will be able to hire
qualified persons.
In June 1999, Mr. Ipson signed an employment agreement with the Company
for total compensation of $75,000 for the period January 1, 1999 to December
31, 1999. This compensation is payable as 150,000 Units valued at $0.50 per
Unit, each Unit consisting of one share of the Company's Common Stock and one
Warrant to purchase one share of Common Stock at an exercise price of $1.00
per share.
The JV has hired Checketts and one other employee on a full-time basis to
perform the necessary Technology management, research and development and
marketing efforts of the Company. Jed Checketts has devoted a minimum of 45
hours per week to the JV from its formation to the present. The JV will also
hire such additional part-time employees and independent contractors as may be
required in its initial efforts to construct the Plant and commercialize the
Technology. The JV pays Checketts a salary of $4,000 per month.
Facilities
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The Company has entered into an oral arrangement with Robert K. Ipson,
its president, providing for the use of his residence as its office until such
time as the Company needs additional facilities. The Company has not paid Mr.
Ipson for the use of his residence.
The JV will initially conduct its manufacturing and recycling plant
operations in two attached 2,500 sq. foot facilities located at 2095 and 2097
West 2200 South, Salt Lake City, Utah. The facilities are leased from TSP
Enterprises, an unaffiliated entity, by the JV. The term of the lease is for a
period of eleven months beginning September 1, 1999 and ending July 31, 2000.
The current monthly lease payment is $965 for the 2095 West facility and $1193
for the 2097 West facility [which includes remodeling expenses prorated over
the lease term]. The JV intends to lease these facilities until such time as
additional facilities may be required.
Government Regulation
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Sodium hydroxide, the primary component of the Powerballs is not a
regulated substance. Essentially, the only regulations to which the Company
is subject are the normal local business license and building permit
regulations. The JV is in the final stage of its occupancy permit review for
the pilot plant and expects to receive confirmation on the permit from West
Valley City, the local authority, shortly.
<PAGE>
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Reasons for Registration
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The Registrant is voluntarily filing its registration statement on Form
10SB in order to make information concerning itself more readily available to
the public. In addition, because of new listing requirements for the NASDAQ
OTC Bulletin Board (the "OTCBB"), the Registrant is obligated to become a
reporting company in order to maintain its listing on the OTCBB. The rule
changes for OTCBB listings involve a one year phase-in period beginning July
1, 1999, during which time companies must file registration statements. The
Registrant has chosen to complete its registration statement and begin
periodic reports in advance of the deadline.
As a result of filing its registration statement, the Registrant is
obligated to file with the Commission certain interim and periodic reports
including an annual report containing audited financial statements. The
Registrant intends to continue to voluntarily file these periodic reports
under the Exchange Act even if its obligation to file such reports is
suspended under applicable provisions of the Exchange Act.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
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Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. Examples of
forward-looking statements include, but are not limited to: (a) projections of
revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of plans and objectives
of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Year 2000 Disclosure
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The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a minimum
number of computer programs in its operations. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
State of Readiness
- ------------------
The Company has completed a preliminary assessment of its operations. As
far as its information technology systems ("IT"), the Company uses newer model
<PAGE> 13
desktop PCs in its executive office, and in the JV operation. These PCs are
all running commercial software with the patches and updates added as they are
available.
Any non-IT microprocessors used in the JV manufacturing process have
already been assessed and changed where necessary. The Company does not
utilize any other non-IT systems which could be affected by the Y2K problem.
The Company has not established any major customers and has not made
inquiries to its customers concerning their respective Y2K preparedness. At
this time, the Company does not anticipate a significant impact to the
Company's business operations.
Costs of Y2K
- ------------
The Company has replaced or upgraded its IT systems in the ordinary
course of business and therefore cannot attribute specific costs of such
upgrades to Y2K. The costs of assessing potential non-IT problems have
involved a small amount of evaluation time which has likewise been
incorporated into ordinary business costs. There have been no significant
hardware costs directly attributable to Y2K.
Risks of Y2K
- ------------
The Company does not anticipate that Y2K problems pose substantial risks
to its current operations, unless Y2K causes catastrophic systemic failures of
the power grid, for instance. The worst case scenario contemplated to date
would involve a temporary suspension of the JV's activities while systemic
problems are resolved. Any such suspension of operations might have a
significant adverse impact on the Company's overall revenues.
Contingency Plans
- -----------------
The Company does not have any contingency plans at this time and does not
intend to prepare any such plan because the most critical factors in its worst
case scenario are essentially beyond the Company's control. The Company
intends to continue its maintenance and upgrades of its internal systems, and
will query its major customers, if any such customers develop, concerning
their respective states of readiness.
Results of Operations
- ---------------------
Six Months Ended June 30, 1999 compared with June 30, 1998
- ----------------------------------------------------------
Revenues. The Company's expects that initial revenues will be generated
primarily through its investment in the JV and those profits, if any that will
be derived through the licensing of the JV's technology and/or manufacturing
and sale of hydrogen generation systems by the JV. In this regard, the
company may receive a distribution of any profits derived by the JV based on
its 50% ownership in the JV. (See "Liquidity and Capital Resources" under
this Item below). The Company had no revenues for the six month periods ended
June 30, 1999 and 1998, respectively, and has had no revenues since July 9,
1997 ("Inception").
<PAGE> 14
Operating Expenses. For the six month period ended June 30, 1999, the
Company had total operating expenses of $11,702, compared to $9,911 for the
same period ending June 30, 1998. Total operating expenses from inception
through June 30, 1999 have been $34,811.
Other Expense. Other expense for the six month period ended June 30,
1999 was a net $36,302, of which $36,938 was loss on the Company's investment
in the JV, before being offset by $636 of interest income. Other expenses for
the six month period ended June 30, 1998 was a net $14,798, of which all was
represented by loss on the Company's investment in the JV. The Company's loss
on its investment in the JV is $112,842 since the Company's Inception.
The Company experienced a net loss of $47,474 for the six month period
ended June 30, 1999 and a net loss of $24,809 for the six month period ended
June 30, 1998. The Company net loss since inception has been $146,375. The
basic loss per share for the six month period ended June 30, 1999 was $0.592,
based on the weighted average number of shares outstanding of 801,834 shares,
compared to $0.062 based on weighted average number of shares outstanding of
400,000 at June 30, 1998. The basic loss per share since Inception has been
$0.1826, based on the weighted average number of shares outstanding of
801,834.
Liquidity and Capital Resources
- -------------------------------
In connection with the Company's organization the founding shareholders
acquired 200,000 shares of the Company's common stock for $40,000 cash.
Thereafter, in December 1997, the Company completed a public offering of
400,000 shares of common stock at a price of $1.00 per share for aggregate
offering proceeds of $400,000.
The issuances of common stock have been utilized for working capital,
payment of professional services, the initial capital investment in the JV;
the loan of additional working capital to JV, and for the continued
development activities of the Company.
In December 1997, the Company entered into the JV with Powerball
Industries wherein the Company contributed $250,000 cash. In addition to the
original $250,000 capital contribution to the JV made by the Company, the
Company agreed to loan additional capital to the JV, up to $100,000, for
the purpose of (i) further development of the Technology; (ii) construction of
the Plant; (iii) the manufacture of Hydrogen Generation Systems; (iv)
demonstrate the commercial viability of the Technology; (v) develop commercial
markets for the Technology; and(vi) meet the JV's ongoing working capital
requirements. Because of the JV's additional working capital needs, the
Company has agreed to loan additional monies to the JV under the same terms as
the initial $100,000. As of June 30, 1999, the Company had loan the JV an
aggregate of $275,000. The additional funds loaned to the JV by the Company
were obtained through the private placement of the Company's common stock
Company during the reporting period for aggregate proceeds of $200,000. (See
Item 4. Recent Sales of Unregistered Securities.)
At June 30, 1999, the Company had current assets of $109,664 and no
current liabilities for working capital of $329,461, consisting of cash of
$54,461 and receivables from the JV of $275,000. At June 30, 1999, the
Company had other assets of $164,164, consisting of the Company's investment
in the JV. At June 30, 1999, the Company had no liabilities and a working
capital surplus of $329,461.
<PAGE> 15
Cash used in operations for the six month period ended June 30, 1999 was
$(57,140) compared to and $(23,871) for the same period ended June 30, 1998.
Since inception the Company's operations been funded primarily by cash
received from capital contributions and the issuance of common stock for cash.
In connection with the expenditures of the JV, all major financial
decisions of the JV, including the expenditure of $5,000 or more, must be
approved by both of the managers. The managers determine whether any
distributions of cash will be made to the owners. Cash distributions will not
be made until and unless the JV operates at a profit and thereafter, only if
the managers jointly agree to such distributions. It is not anticipated that
cash distributions will be made to the owners in the foreseeable future. If
the JV generates profits, of which there can be no assurance, it is likely
that most of such profits will be retained by the JV to fund additional
research and development, to fund additional marketing efforts, to acquire
additional inventory and for working capital.
The Company anticipates that within the next year additional funds will
also be needed to allow the JV to enter into other markets for hydrogen
technology. Future funding may involve the sale of additional ownership
interests in the JV. In such event, the percentage ownership interests of the
Company and Powerball Industries in the JV will be reduced. There can be no
assurance that any additional required funding will be available to the JV.
Subsequent to June 30, 1999, the JV entered into a letter of
understanding with an unrelated third party to license the manufacturing and
marketing of pelletized hydride, hydrogen generating systems (the "Licensed
System"). The purpose of the letter of understanding was to set forth the
principal terms to be incorporated into a more comprehensive definitive
agreement relating to the license. The definitive license agreement would
specifically limit the Licensed System to systems integrated and in
conjunction with electric generated fuel cell systems. The definitive license
would exclude proton exchange membrane based fuel cell electric generating
systems for any applications sold to General Motors, Daimler Chrysler, Ford
Motor Company, Toyota, Nissan, Honda, Ballard or any of their subsidiaries or
affiliates. In connection with the proposed license the JV is to receive
$1,000,000 through periodic installments paid on or before February 1, 2000.
The JV received a $25,000 down payment towards the license fee on execution of
the letter of understanding. The second installment due under the letter of
understanding was not paid by the due date and the proposed license
relationship was terminated. Both management of the JV and the proposed
licensee have orally agreed that the $25,000 down payment is non-refundable.
It is expected that during the next year the primary expenditure of the
JV will relate to the operation of the Plant and the general overhead related
thereto. Now that the Plant is completed, the Company does not expect that it
will need to advance any additional funds to the JV and will only experience
the costs associated with the office expenses, and professional and related
fees associated with its ongoing reporting obligations, which for the six
month period ended June 30, 1999 were $11,702. The Company expects such
expenses to be consistent for the balance of its fiscal year. The Company
believes it has sufficient working capital to meet its ongoing expenses for
the next twelve months should it not receive any repayments for loans made to
the JV or other cash distributions from the JV.
ITEM 3. DESCRIPTION OF PROPERTY
The information required by this Item 3 is not applicable to this Form
10SB due to the fact that the Registrant does not own or control any material
property.
<PAGE> 16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 15, 1999 the name and
address and the number of shares of the Company's Common Stock, par value
$0.001 per share, held of record or beneficially by each person who held of
record, or was known by the Company to own beneficially, more than 5% of the
1,190,000 shares of Common Stock issued and outstanding, and the name and
shareholdings of each director and of all officers and directors as a group.
<TABLE>
<CAPTION>
Security Ownership of Certain Beneficial Owners (4)
- -----------------------------------------------
Title of Class Name and Address Number of Shares Nature of Ownership % of Class
- -------------- ---------------- ---------------- ------------------- ----------
<S> <C> <C> <C> <C>
Common Stock Robert K. Ipson 271,800 Direct 22.84
48 West 300 South, # 2303 30,500 Indirect (2) 2.56
Salt Lake City, UT 84101 100,000 Options (1) 7.75
270,000 Warrants (2) 18.49
Total Beneficial 672,300 43.10
Linda Lou Ipson 30,500 Direct 2.56
48 West 300 South, # 2303 271,800 Indirect (2) 22.84
Salt Lake City, UT 84101 100,000 Options (2) 7.75
270,000 Warrants (2) 18.49
Total Beneficial 672,300 43.10
Common Stock Shorland Hunsaker 102,000 Direct 8.57
2751 East Rubidoux Road 70,000 Warrants 5.56
Salt Lake City, UT 84093
Total Beneficial 172,000 13.65
Maynard Victor 25,000 Direct 2.10
1815 Maple View Drive 60,000 Indirect (3) 5.04
Salt Lake City, UT 84124 50,000 Warrants 4.03
Total Beneficial 135,000 10.89
Common Stock Paul N. Davis 50,000 Direct 4.20
2351 Hintze Drive 20,000 Warrants 1.65
Salt Lake City, UT 84124
Total Beneficial 70,000 5.79
Securities Ownership of Management
- ----------------------------------
Robert K. Ipson - See above -
President and Director
Shorland Hunsaker - See above -
Vice President and Director
Common Stock Phillip L. McStotts 32,500 Direct 2.73
Secretary/Treasurer and Director 20,000 Warrants 1.65
Total Beneficial 52,500 4.34
Common Stock Officers and Directors
As a Group (3 persons) 406,300 Direct 34.14
30,500 Indirect 2.56
100,000 Options 7.75
360,000 Warrants 31.30
------- -------- -----
Total Beneficial 896,800 54.35
======= =====
- ------------------------------
1) Mr. Ipson was issued an option to purchase 100,000 shares of the Company's common stock at
$1.00 per share. See "Executive Compensation."
2) Linda L. Ipson is the spouse of Robert K. Ipson; shares and warrants held of record by Linda
Lou Ipson may be deemed to be beneficially owned by Robert K. Ipson, and shares, options and
warrants held of record by Robert Ipson may likewise be deemed to be beneficially owned by Linda
Lou Ipson. Linda Ipson holds of record 30,500 shares and 70,000 warrants. Robert Ipson holds of
record 271,800 shares, 100,000 options, and 200,000 warrants.
<PAGE> 17
(3) Represents shares and warrants held of record by Victor Investments, LLC., a limited
liability company controlled by Maynard Victor.
(4) Calculations of Total Beneficial ownership give effect to the exercise of options and/or
warrants. The percentages expressed for the options, warrants and Total Beneficial ownership
assume the exercise of the related options and warrants. Each person currently holding options
or warrants has the right to acquire the underlying shares upon exercise of the options or
warrants.
</TABLE>
ITEM 5. Directors, Executive Officers, Promoters and Control Persons
The names and ages of the Registrant's executive officers and directors
and the positions held by each of them are set forth below:
Name Age Position Dates Served
---- --- -------- ------------
Robert K. Ipson 60 President/Director July 1997 to date
Shorland G. Hunsaker 70 Vice President/Director July 1997 to date
Phillip L. McStotts 41 Secretary/Treasurer/Director July 1997 to date
All directors of the Company will hold office until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified.
Robert K. Ipson. Mr. Ipson is, and has been since 1973, president of
M.S.J. & Associates, Inc., a family-held company. M.S.J. & Associates was the
operator of the Bonneville Raceway in Salt Lake City, Utah until 1986. Since
that date it has managed its own investments. Mr. Ipson has been an officer
and/or director of several publicly held companies including the following:
Carrigan Gold Corporation-president/director 1984-1986; Nova Gold Corporation-
president/director 1983-1984; Petro Development Corporation-president/director
1983-1984 and 1989-1992; Midas Gold Corporation-vice president/director 1983-
1984; Pathfinder's Resources, Inc.-president/director 1983-1987; K.M.A., Inc.-
president/director 1983-1986; Megagold Corporation-president/director 1984-
1986; Datex Resources, Inc.-president/director 1985-1986; Lintex Resources,
Inc.-president/director 1986-1988 and 1989-1996; and Adlex Corporation-
president/director 1989-1992. Mr. Ipson was a director of Interline Resources
Corporation, a publicly held company engaged in the oil and gas business from
1989-1992.
Shorland G. Hunsaker. Mr. Hunsaker was a teacher for 28 years with the
Murray City Schools in Murray, Utah. Mr. Hunsaker retired from his position
with the Murray City School District in June 1987. Since his retirement, Mr.
Hunsaker has been involved in the business and investment field as an
individual investor, and owns and manages a large ranch in Montana. Mr.
Hunsaker was a director of Quasar Tech, Inc. from 1986-1987, and a director of
Alvarada, Inc. from 1987-1989. Mr. Hunsaker was president and a director of
Commodore Investments, Inc. from 1987 to 1988. Mr. Hunsaker was
secretary/treasurer and a director of Opportunity Capital, Inc. from 1988-
1990. Mr. Hunsaker received a Master's Degree in Economics in 1959 from the
University of Florida, received a Bachelor's Degree in Economics from Utah
State in 1957, and received a teaching certificate in 1958 from the University
of Utah.
Phillip L. McStotts Mr. McStotts is a founder of ZEVEX International,
Inc. (NASDAQ/NMS:"ZVXI"), and serves as the Chief Financial Officer and
Director of the Company. ZEVEX, based in Salt Lake City, Utah, is a company
that designs and manufactures advanced medical devices, including surgical
<PAGE> 18
systems, device components, and sensors for medical technology companies.
ZEVEX also designs, manufactures and markets its own medical devices using its
proprietary technology. ZEVEX currently has 93 employees and has been in
business since 1986. Mr. McStotts is a CPA with fifteen years of experience.
Mr. McStotts received his BS Degree in Accounting from Westminster College,
Salt Lake City, UT and an MBA in Taxation from Golden Gate University. Mr.
McStotts has served for the last seven years, including the last two, as
President and Past President of the Community Foundation for the Disabled,
Inc.
ITEM 6. EXECUTIVE COMPENSATION
At December 31, 1999, no compensation had been paid or accrued to any
officer or director of the Company. Mr. Ipson, the Company's President,
signed an employment agreement in June 1999, described below. Currently,
there is no plan to pay cash compensation to the Company's officers and
directors for services rendered. The Company may issue shares of Common Stock
to management for services rendered valued at competitive rates. In the event
any shares are issued for services rendered by management, they shall be
issued in such an amount as the Board of Directors deems fair and reasonable
to the Company and its public shareholders and in compliance with management's
fiduciary duties under state law. Officers and directors will be reimbursed
for actual out-of-pocket expenses incurred on behalf of the Company as
approved by the Board of Directors.
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last two completed
fiscal years (since inception in July 1997) to the Registrant's chief
executive officer and each of its other executive officers that received
compensation in excess of $100,000 during such period (as determined at
December 31, 1998, the end of the Registrant's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert K. Ipson 1998 $ -0- -0- -0- -0- -0- -0- -0-
President 1997 $ -0- -0- -0- -0- -0- -0- -0-
</TABLE>
Options/SAR Grants in Last Fiscal Year
- --------------------------------------
None.
Bonuses and Deferred Compensation
- ---------------------------------
It is expected that the Company's President, Robert K. Ipson, will
primarily be responsible for the day-to-day operations of the Company and will
be appointed as the Company's designate as manager of the Joint Venture. As
<PAGE> 19
an incentive for such services to the Company, the Company has granted Mr.
Ipson an option to purchase 100,000 shares of the Company's common stock at a
price of $1.00 per share. The option vests as follows: (i) 50,000 shares on
January 31, 1998; and (ii) 50,000 shares on March 31, 1998. Each option is
exercisable for a period of four (4) years from the date of vesting. The
shares issuable upon the exercise of the Option carry registration rights
which entitle Mr. Ipson to require the Company to register such shares with
the Securities and Exchange Commission and with, to the extent necessary,
appropriate state securities regulators. At August 18, 1999, Mr. Ipson had
not exercised any of his options.
In June 1999, Mr. Ipson signed an employment agreement with the Company
for total compensation of $75,000 for the period January 1, 1999 to December
31, 1999. This compensation is payable as 150,000 Units valued at $0.50 per
Unit, each Unit consisting of one share of the Company's Common Stock and one
Warrant to purchase one share of Common Stock at an exercise price of $1.00
per share.
Compensation for Management of JV
- ---------------------------------
The JV is managed by two managers, one appointed by the Company and one
appointed by Powerball Industries. The Company has appointed Robert K. Ipson,
its president as its management representative. Powerball Industries has
appointed Checketts to serve as its representative as manager. The JV will
not compensate Mr. Checketts for his services as a manager, but it has hired
him as an employee at a salary of $4,000 per month. The JV will compensate
Mr. Ipson at the rate of $25.00 per hour for services rendered to the JV. The
rate of compensation is subject to adjustment in the future based upon factors
such as the financial condition of the JV, the amount of time devoted by Mr.
Ipson to the JV and the success of the JV.
Key Employee of the JV
- ----------------------
Jed Checketts, age 30, is the owner of Powerball Industries, Inc., a Utah
corporation and JC Industries, a Utah based sole proprietorship. Mr.
Checketts has owned and operated JC Industries, a precision machining
operation, since 1993. Mr. Checketts has studied Manufacturing Engineering
Technology at Brigham Young University and Chemical Engineering at the
University of Utah.
Compensation Pursuant to Plans
- ------------------------------
None.
Pension Table
- -------------
Not Applicable.
Other Compensation
- ------------------
None.
Transactions with Promoters
- ---------------------------
The Company's officers and directors may be deemed to be promoters of the
Company and, other than the transactions disclosed in ITEM 7 below, the
Company has not engaged in any other transactions with promoters.
<PAGE> 20
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, in connection the organization of the Company, the Company
issued a total of 200,000 shares of its common stock to its founding
shareholders for $40,000 cash and issued an option to purchase an additional
100,000 shares of common stock to Robert K. Ipson, one of its founding
shareholders.
The Company presently utilizes the residence of its president, Robert K.
Ipson, as its office at no cost to the Company.
The JV has hired Jed Checketts, the owner of Powerball Industries, the
Company's Joint Venture partner, who is paid a monthly salary of $4,000.
In addition to the original $250,000 capital contribution to the JV made
by the Company, the Company agreed to loan additional capital to the JV., up
to $100,000., for the purpose of (i) further development of the Technology;
(ii) construction of the Plant; (iii) the manufacture of Tanks; (iv)
demonstrate the commercial viability of the Technology; (v) develop commercial
markets for the Technology; and(vi) meet the JV's ongoing working capital
requirements. Because of the JV's additional working capital needs, the
Company has agreed to loan additional monies to the JV under the same terms as
the initial $100,000. As of June 30, 1999, the Company had loaned the JV an
aggregate of $275,000.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
- ------------
The Company is authorized to issue 25,000,000 shares of $0.001 par value
Common Stock. At September 15, 1999, 1,190,000 shares were issued and
outstanding. The holders of the Company's Common Stock are entitled to one
vote per share on each matter submitted to vote at any meeting of
shareholders. Shares of Common Stock do not carry cumulative voting rights.
Shareholders of the Company have no pre-emptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption and carries no subscription or conversion rights.
In the event of liquidation of the Company, the shares of Common Stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities. The shares of Common Stock, when issued, will be validly issued,
fully paid, and nonassessable.
Holders of Common Stock are entitled to receive such dividends as the
Board of Directors may from time to time declare out of funds legally
available for the payment of dividends. The Company seeks growth and
expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay cash dividends in the foreseeable future.
The Company has authorized the issuance of up to 400,000 Warrants to
purchase an aggregate of 400,000 shares of common stock (subject to adjustment
under certain circumstances, and has reserved an equivalent number of shares
for issuance on exercise of such Warrants. During March and April 1999, the
Company sold an aggregate of 400,000 Units in a private placement to
accredited investors for cash at a price of $0.50 per Unit, each Unit
consisting of one share of restricted Common Stock and one warrant to purchase
one share of Common Stock at an exercise price of $1.00 per share, exercisable
over a term of three years.
<PAGE> 21
Each Warrant entitles the holder thereof to purchase one share of common
stock at the exercise price at any time during the exercise period. The
holder of a Warrant will not possess any rights as a shareholder of the
Company. There are no registration rights connect to the Warrants, and the
shares issued on exercise shall bear a restrictive legend.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the number of shares of Common Stock purchaseable on
exercise of the Warrants in certain events, specifically stock dividends and
distributions, splits and recapitalizations. The Warrants are not redeemable
by the Company.
PART II
ITEM 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The following table sets forth, for the respective periods indicated,
the prices of the Company's Common Stock in the over the counter market as
reported by a market maker on the NASD'S OTC Bulletin Board. Such over the
counter market quotations are based on inter-dealer bid prices, without
markup, markdown or commission, and may not necessarily represent actual
transactions.
Bid Quotation
-------------
Fiscal Year 1999 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 3/31/99 $2.50 $1.12
Quarter ended 6/30/99 $7.00 $1.75
Fiscal Year 1998 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 3/31/98 $5.81 $1.12
Quarter ended 6/30/98 $5.87 $1.62
Quarter ended 9/30/98 $4.50 $0.94
Quarter ended 12/31/98 $3.50 $1.25
To the best knowledge of management of the Company, prior to January 1
1998, there was no reported bid or ask prices for the Company's Common Stock
and there was no trading of the Company's Common Stock during its fiscal years
ended December 31, 1997.
The number of shareholders of record of the Company's Common Stock as of
September 15, 1999, was approximately 59.
The Company has not paid any cash dividends to date and does not
anticipate paying dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings and no such
action by or against it, to the best of its knowledge, has been threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant has not changed nor had any disagreements with its
independent certified accountants.
<PAGE> 22
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In July 1997, the Company issued 200,000 shares of its Common Stock to
its founding shareholders at $0.20 per share, a limited number of five
persons, all of whom were officers and directors and/or sophisticated
purchasers, and all of whom had access to information regarding the Company
and its activities. These shares are "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), and were issued to the founders of the Company
pursuant to an exemption available under section 3(b) and/or section 4(2) of
the Securities Act. Under Rule 144, restricted securities may not be sold in
market transactions until such shares have been held for not less than one
year and may only be resold thereafter if the seller complies with all of the
terms and conditions of Rule 144 and if such resale is in compliance with
applicable state securities laws.
In 1997, in connection the organization of the Company, the Company
issued an Option to purchase an additional 100,000 shares of common stock to
Robert K. Ipson, one of its founding shareholders, pursuant to an exemption
available under section 4(2) of the Securities Act. The Option vested in two
parts, 50,000 shares on January 31, 1998 and 50,000 shares on March 31, 1998.
Each part of the Option is exercisable for a period of four years from the
date of vesting. The shares issuable upon exercise of the Option carry
registration rights which require the Company to register such shares with the
Securities and Exchange Commission and with, to the extent necessary,
appropriate state securities regulators.
In December 1997, the Company issued 400,000 shares of its Common Stock
in a public offering in Utah and New York at a price of $1.00 per share. The
offering was made under the registration by qualification provisions of
section 61-1-10, of the securities laws of the State of Utah and was deemed to
be exempt from registration under federal law pursuant to section 3(b) and/or
Regulation D, Rule 504 of the Securities Act. The registration was declared
effective by the State of Utah on November 10, 1997. In addition, the
securities were registered with the Colorado Securities Division pursuant to
section 11-51-304 of the Colorado Revised Statutes, and declared effective by
the State of Colorado on November 7, 1997, however, no securities were sold to
residents of the State of Colorado. Further, in connection with sales made to
residents of the State of New York, the Company filed an Issuer's Statement on
Form M-11 with the New York Department of Law, together with other
documentation and information required by the State of New York. The
securities sold in the above offering were sold by Alpine Securities
Corporation, the Underwriter, as the Company's exclusive agent on a "best
efforts, all or none" basis to the public. All subscription payments were
placed in escrow pending the completion of the sale of the 400,000 shares.
The Underwriter was paid a Underwriting Commission of $40,000 or 10% of the
total offering proceeds. A Notice of Sale of Securities on Form D was filed
with the Securities and Exchange Commission in connection with the offering in
October 1997.
During March and April 1999, the Company sold an aggregate of 400,000
Units in a private placement to accredited investors for cash at a price of
$0.50 per Unit, each Unit consisting of one share of restricted Common Stock
and one warrant to purchase one share of Common Stock at an exercise price of
$1.00 per share, exercisable over a term of three years. No underwriter or
placement agent was used by the Company and no commissions were paid. The
securities issued in the foregoing transaction were issued in reliance on the
exemptions from registration and the prospectus delivery requirements of the
Securities Act set forth in Rule 506 of Regulation D and/or section 4(2) of
the Securities Act. All of the purchasers executed Suitability and Investment
<PAGE> 23
Letters representing that they were "accredited investors" as that term is
defined under Rule 501 of Regulation D. Of the Units purchased, current
officers and directors of the Company purchased an aggregate of 210,000 Units.
No general advertising or solicitation was used in connection with the sale of
the Units by the Company.
In June 1999, the Company issued 10,000 shares of its $.001 par value
restricted common stock which was valued at $40,000 for the cancellation of
$40,000 in outstanding liabilities owed to KHI Construction for construction
services, pursuant to an exemption available under section 4(2) of the
Securities Act. The share price of $4.00 per share was determined based on
negotiations between the parties.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 16-10a-901 through 909 of the Utah Revised Business Corporation Act
provides in relevant parts as follows:
(1) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or on
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the feet that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine on application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
<PAGE> 24
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in 1) or (2) of this subsection, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
(4) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
a person.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to the above
discussed sections of the Utah Revised Business Corporation Act.
The Registrant's certificate of incorporation and bylaws provide that the
Registrant "may indemnify" to the full extent of its power to do so, all
directors, officers, employees, and/or agents. It is anticipated that the
Registrant will indemnify its officers and directors to the full extent
permitted by the above-quoted statute.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to officers and directors of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
is aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's balance sheets at December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1998 and the period from July 9, 1997 (date of
inception) to December 31, 1998, have been examined to the extent indicated in
their report by Daines and Rasmussen, a profession corporation of certified
public accountants, and have been prepared in accordance with generally
accepted accounting principles and are attached hereto and incorporated herein
by this reference.
The unaudited balance sheet of the Company as of March 31, 1999; the
related unaudited statements of operations and cash flows for the three months
ended March 31, 1999 and from July 9, 1997 (inception) through March 31, 1997;
are attached hereto and incorporated herein by this reference.
<PAGE>
<PAGE> 25
DAINES AND RASMUSSEN
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NATEX CORPORATION
(A Development Stage Company)
Salt Lake City, Utah
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheet of NATEX CORPORATION (A
Development Stage Company) as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1998 and the period from July 9, 1997, (date of inception)
to December 31, 1998. 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. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NATEX CORPORATION (A
Development Stage Company) as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the period then ended, in conformity
with generally accepted accounting principles.
/s/Daines and Rasmussen
Salt Lake City, Utah
February 5, 1999
495 EAST 4500 SOUTH, SUITE 202
SALT LAKE CITY, UTAH 84107
TELEPHONE (801) 266-1500
<PAGE>
<PAGE> 26
NATEX CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
----------- -----------
Current Assets
Cash $ 65,664 $ 86,574
Receivable - related entity 44,000 44,000
----------- -----------
TOTAL CURRENT ASSETS 109,664 130,574
----------- -----------
Organization costs, net of amortization of $1,239
and none 17,339 18,578
Investments in limited liability company, at cost
less shares of losses 174,096 224,813
----------- -----------
TOTAL ASSETS $ 301,099 $ 373,965
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 0 $ 0
----------- -----------
TOTAL CURRENT LIABILITIES 0 0
----------- -----------
Stockholders' Equity
Common stock, $.001 par value;
Authorized 25,000,000 shares;
Issued and outstanding 600,000 shares 600 600
Additional paid in capital 399,400 399,400
(Deficit) accumulated during the development
stage (98,901) (26,035)
----------- -----------
Total Stockholders' Equity 301,099 373,965
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 301,099 $ 373,965
=========== ===========
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE>
<PAGE> 27
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
Year ended December 31, 1998 and the Period from
July 9, 1997 (Date of Inception) to December 31, 1998
July 9, July 9,
Year ended 1997 (Inception) 1997 (Inception)
December 31, to December to December
1998 31, 1997 31, 1998
----------- --------------- --------------
REVENUE $ 0 $ 0 $ 0
Operating expenses:
Office expense 748 18 766
Professional fees 4,967 830 5,797
Amortization expense 1,239 0 1,239
Dues and subscriptions 2,190 0 2,190
Filing fees 12,436 0 12,436
Travel 1,301 0 1,301
Taxes and licenses 10 0 10
Loss from partnership 50,717 25,187 75,904
------ ------ ------
TOTAL OPERATING EXPENSES 73,608 26,035 99,643
------ ------ ------
OPERATING (LOSS) (73,608) (26,035) (99,643)
Other income and expenses:
Interest Income 842 0 842
------ ------ ------
(Loss) before provision for
income taxes (72,766) (26,035) (98,801)
Provision for income taxes 100 0 100
------ ------ ------
NET INCOME (LOSS) $ (72,866) $ (26,035) (98,901)
====== ====== ======
Net (loss) per common share $ (.1214) $ (.0979) (.2076)
====== ====== ======
Weighted average number of
common shares 600,000 265,909 476,420
======= ======= =======
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE>
<PAGE> 28
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from July 9, 1997 (Date of Inception) to December 31, 1998
<TABLE>
<CAPTION>
Retained
(Deficit)
Accumulated
Additional During the Total
Common Stock Paid in Development Stockholders'
Shares Amount Capital Stage Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at July 9, 1997 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock for cash 200,000 200 39,800 0 40,000
Issuance of common stock to the public
net of offering costs of $40,000 400,000 400 359,600 0 360,000
Net (loss) for the period July 9, 1997
to December 31, 1997 0 0 0 (26,035) (26,035)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 600,000 600 399,400 (26,035) 373,965
Net (loss) for year ended
December 31, 1998 0 0 0 (72,866) (72,866)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 600,000 $ 600 $ 399,400 $ (98,901) $ 301,099
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE> 29
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Year ended December 31, 1998, and the Period from
July 9, 1997 (Date of Inception) to December 31, 1998
<TABLE>
<CAPTION>
July 9, July 9,
Year ended 1997 (Inception) 1997 (Inception)
December 31, to December to December
1998 31, 1997 31, 1998
------------ --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (72,866) $ (26,035) $ (98,901)
Adjustments to reconcile net (loss) to
net cash provided by operating activities - - -
Amortization 1,239 - 1,239
Increase in organization costs 0 (18,578) (18,578)
--------- --------- ---------
Net cash (used) by operating activities (71,627) (44,613) (116,240)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Related party loans 0 (44,000) (44,000)
Investment in limited liability company 0 (250,000) (250,000)
Decrease in investment in limited
liability company 50,717 25,187 75,904
--------- --------- ---------
Net cash provided (used) by investing
activities 50,717 (268,813) (218,096)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 400,000 400,000
--------- --------- ---------
Net cash provided by financing activities 0 400,000 400,000
--------- --------- ---------
Increase (decrease) in cash (20,910) 86,574 65,664
Cash and cash equivalents - beginning
of period 86,574 0 0
--------- --------- ---------
Cash and cash equivalents - end of period $ 65,664 $ 86,574 $ 65,664
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 0 $ 0 $ 0
====== ====== ======
Income taxes paid during the period $ 100 $ 0 0
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE>
<PAGE> 30
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
From Inception on July 9, 1997 to December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
The Company was incorporated on July 9, 1997 under the laws of the State of
Utah. At the present time, the Company is in the development stage. The
Company was formed for the purpose of raising capital to invest in a joint
venture which will acquire a license for certain technology relating to the
production of hydrogen, to generate hydrogen for sale, and to market hydrogen
generating equipment and products. The Company will, through its investment in
a joint venture, be involved in research and development efforts of
commercializing the technology.
b. Investment in Limited Liability Company
---------------------------------------
The Company will account for its investment in the Limited Liability Comapny
using the equity method of accounting.
c. Amortization of Organization Costs
----------------------------------
The Company is amortizing the organization cost over a 60 month period using
the straight-line method.
d. Income Taxes
------------
The Company provides for income taxes based on the liability method, which
requires recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and
liabilities measured using enacted tax rates and laws that are expected to be
in effect when the differences are expected to reverse.
e. Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f. Cash and Cash Equivalent
------------------------
For purposes of the statement of cash flows, the Company considers all
investment instruments purchased with a maturity of three months or less to be
cash equivalents.
g. Net Income (Loss) Per Common Share
----------------------------------
Primary earnings (loss) per common share is calculated by dividing net income
(loss) for the period by the weighted average number of the Company's common
shares outstanding and dilutive common equivalent shares from stock options
and warrants, as calculated using the treasury stock method.
<PAGE> 31
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (continued)
From Inception on July 9, 1997 to December 31, 1998
g. Net Income (Loss) Per Common Share (Continued)
Fully diluted earnings (loss) per common share reflect the calculation of the
number of common equivalent shares based on the stock price at the end of the
period. Fully diluted per common share amounts are not reported because the
difference is not material from primary earnings per common share. The fully
diluted (loss) per common share was $(.12) for the year ended December 31,
1998 and $(.21) for the period July 9, 1997 (date of inception) to December
31, 1998. The weighted average number of common shares outstanding used in the
fully diluted calculation was $600,000 and $176, 420, respectively.
h. New Accounting Pronouncements
-----------------------------
In 1997 the FASB issued SFAS No. 128, Earnings Per Share, SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Company believes the new
standards will not have a material impact on the Company's financial
statements presented herein or in the future.
(2) EXECUTIVE STOCK OPTION PLAN
The Company's president has agreed to perform services on behalf of the
Company for no compensation. To provide incentive for such services, the Board
of Directors agreed on August 1, 1997 to grant an option to purchase 100,000
shares of the Company's common stock at $1 per share. No options have been
exercised as of December 31, 1998.
(3) RECEIVABLE - RELATED PARTY
The receivable from related entity is an unsecured non-interest bearing loan
which has no repayment terms. Th Company has agreed to loan up to a maximum of
$100,000.
The receivable is due from Powerball Technologies, LLC (A Development Stage
Company). Natex Corporatin is a 50% owner of Powerball Technologies, LLC.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
December 31, December 31,
1998 1997
------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- --------- ----------
Cash and Cash Equivalents $ 65,664 $ 65,664 $ 86,574 $ 86,574
======== ========= ========= ==========
<PAGE> 32
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (continued)
From Inception on July 9, 1997 to December 31, 1998
(5) INVESTMENT IN LIMITED LIABILITY COMPANY
The Company and Powerball Industries, Inc. have agreed to form a limited
liability company (the "Joint Venture") to license the Technology; to further
develop the Technology; to build a sodium hydride pellet recycling plant; to
manufacture tanks in which hydrogen is generated; to demonstrate the
commercial viability of the Technology; and to commercialize the Technology.
Powerball Industries, Inc. will assign the Technology License to the Joint
Venture, or will sub-license the Technology to the Joint Venture for a 50%
ownership interest in the Joint Venture. The Company invested $250,000 in the
Joint Venture for a 50% ownership interest in the Limited Liability Company
Powerball Technologies, LLC (A Developmental Stage Company). The Company has
also agreed to loan up to $100,000 to the Joint Venture if such funds are
required for the Joint Venture's operations (See Note 3).
(6) STOCK OFFERING
On December 31, 1997, the Company successfully completed a public offering of
400,000 shares of its $.001 par value common stock for $400,000 less offering
costs of $40,000.
On March 31, the Company issued 278,00 shares of common stock at $0.50 per
share. Net proceeds from the issuance was $139,000.
(7) INCOME TAXES
At December 31, 1998, the Company has a net operating loss carryforward of
approximately $98,900 which will begin to expire in the year 2012.
Income tax expense for the year ended December 31, 1998 was for state income
taxes in the amount of $100.
(8) COMMITMENTS
The Company's president is providing services without compensation. In
addition, the Company utilizes space in the office of the Company's president
at no cost.
There is no commitment for the Company to pay its president for the above
services. These services are considered to be immaterial to the Company.
<PAGE>
<PAGE> 33
NATEX CORPORATION
(A Development Stage Company)
Balance Sheet
<TABLE>
June 30, 1999 December 31,
(Unaudited) 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 54,461 $ 65,664
Receivable related party 275,000 44,000
----------- -----------
TOTAL CURRENT ASSETS 329,461 109,664
Organization costs, net
of amortization 27,006 17,339
Investment in limited liability
company, at cost, Less share of loss 137,158 174,096
----------- -----------
TOTAL OTHER ASSETS 164,164 191,435
----------- -----------
TOTAL ASSETS $ 493,625 $ 301,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Account payable $ 0 $ 0
----------- -----------
TOTAL CURRENT LIABILITIES 0 0
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $ .001 par value;
authorized 25,000,000 shares
Issued and outstanding 1,010,000
and 600,000 shares in
1999 and 1998, respectively 1,010 600
Additional paid in capital 638,990 399,400
(Deficit) accumulated during
the development stage (146,375) (98,901)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 493,625 301,099
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $493,625 $301,099
=========== ===========
</TABLE>
The footnotes hereto are an integral part of these financial statements.
<PAGE> 34
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
Three and Six months ended June 30, 1999 and June 30, 1998,
and the Period from
July 9, 1997 (Date of Inception) to June 30, 1999
<TABLE>
<CAPTION>
Three months Three months Six Months Six Months July, 1997
ended ended ended ended (Inception)
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30,1999
(unaudited) (Unaudited) (Unaudited) (Unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE $ 0 $ 0 $ 0 $ 0 $ 0
Operating expenses
Office expense 3,967 320 3,967 320 6,923
Professional fees 2,480 0 2,480 862 8,277
Amortization expense 929 310 1,858 938 3,097
Filing Fees 2,515 0 2,515 6,480 14,951
Travel expense 0 1,301 0 1,301 1,301
Taxes and licensees 10 10 252 10 262
--------- ----------- ----------- --------- --------
TOTAL OPERATING EXPENSES 9,901 2,531 11,702 9,911 34,811
--------- ----------- ----------- --------- --------
OPERATING (LOSS) (9,901) (2,531) (11,072) (9,911) (34,811)
Other income and expense
(loss) from partnership (18,336) (7,602) (36,938) (14,798) (112,842)
Interest income 178 0 636 0 1,478
--------- ----------- ----------- --------- --------
(Loss) before provision
for income taxes (28,059) (10,133) (47,374) (24,709) (146,175)
Provision for
income taxes $ 0 $ 0 $ 100 $ 100 $ 200
--------- ----------- ----------- --------- --------
NET (LOSS) $ (28,059) $ (10,133) $ (47,474) $ (24,809) (146,375)
========= =========== =========== ========= ========
NET (LOSS) PER
COMMON SHARE $ (.0280) $ (.0253) $ (.0592) $ (.0620) $ (.1826)
========= =========== =========== ========= ========
Weighted average
number of common shares 1,000,764 400,000 801,834 400,000
801,834
========= =========== =========== ========== ========
</TABLE>
The footnotes hereto are an integral part of these financial statements.
<PAGE>
<PAGE> 35
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Six months ended June 30, 1999 and June 30, 1998
and the Period from
July 9, 1997 (Date of Inception) to June 30, 1999
<TABLE>
<CAPTION>
Six months Six months July 9, 1997
ended ended (inception) to
June 30,1999 June 30,1998 June 30,1999
(unaudited) (Unaudited) (unaudited)
<S> <C> <C> <C >
CASH FLOW FROM
OPEATING ACTIVITIES
Net (loss) $ (47,475) $ (24,809) $ (146,375)
Adjustments to reconcile
net (loss) to net cash
provided by operating
activities
Amortization 1,857 938 3,097
Increase in
organization costs (11,524) -- (30,102)
----------- ---------- -----------
Net cash (used) by
operating activities (57,140) (23,871) (173,380)
CASH FLOW FROM
INVESTING ACTIVITIES
Related party loans (231,000) -- (275,000)
Investment in limited
liability company -- -- (250,000)
Decrease in investment
in limited liability company 36,938 14,798 112,842
----------- --------- -----------
Net cash provided (used)
by investing activities (194,062) 14,798 (412,158)
CASH FLOW FROM
FINANCING ACTIVITIES
Proceeds from issuance
of common stock 240,000 -- 640,000
----------- --------- -----------
Net cash provided by
financing activities 240,000 -- 640,000
----------- --------- -----------
(Decrease) increase in cash (11,202) (9,073) 54,462
Cash and cash equivalents
beginning of period 65,664 86,574 0
----------- --------- -----------
Cash and cash equivalents
end of period $ 54,462 $ 54,462 $ 54,462
=========== ========= ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest paid during
the period $ 0 $ 0 $ 0
---------- -------- ----------
Income taxes paid during
the period $ 100 $ 100 $ 200
---------- -------- ----------
</TABLE>
The footnotes hereto are an integral part of these financial statements.
<PAGE> 36
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
From Inception on July 9, 1997 to June 30, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
- ----------------
The Company was incorporated on July 9, 1997 under the laws of the State of
Utah. At the present time, the Company is in the development stage. The
Company was formed for the purpose of raising capital to invest in a joint
venture which will acquire a license for certain technology relating to the
production of hydrogen, to generate hydrogen for sale, and to market hydrogen
generating equipment and products. The Company will, through its investment in
a joint venture, be involved in research and development efforts of
commercializing the technology.
b. Basis of Presentation
- -------------------------
In the opinion of the Company's management, the accompanying unaudited
financial statements contain all normal recurring adjustments necessary to
present fairly the Company's financial position for the interim period.
Results of operations for the three and nine months ended June 30, 1999, are
not necessarily indicative of results to be expected for the full fiscal year
ending September 30, 1999.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for annual financial
statements. Although the Company believe that the disclosures in these
unaudited financial statements are adequate to make the information present
for the interim periods not misleading, certain information and footnote
information normal included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, and these financial statements included in the Company's
annual report to shareholders for the fiscal year ended September 30, 1998.
c. Investment in Limited Liability Company
- -------------------------------------------
The Company will account for its investment in the Limited Liability Company
using the equity method of accounting.
d. Amortization of Organization Costs
- --------------------------------------
The Company is amortizing the organization cost over a 60 month period using
the straight-line method.
e. Income Taxes
- ----------------
The Company provides for income taxes based on the liability method, which
requires recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and
liabilities measured using enacted tax rates and laws that are expected to be
in effect when the differences are expected to reverse.
<PAGE> 37
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (continued)
From Inception on July 9, 1997 to June 30, 1999
f. Use of Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
g. Cash and Cash Equivalent
- ----------------------------
For purposes of the statement of cash flows, the Company considers all
investment instruments purchased with a maturity of three months or less to be
cash equivalents.
h. Net Income (Loss) Per Common Share
- --------------------------------------
Primary earnings (loss) per common share is calculated by dividing net income
(loss) for the period by the weighted average number of the Company's common
shares outstanding and dilutive common equivalent shares from stock options
and warrants, as calculated using the treasury stock method.
Fully diluted earnings (loss) per common share reflect the calculation of the
number of common equivalent shares based on the stock price at the end of the
period. Fully diluted per common share amounts are not reported because the
difference is not material from primary earnings per common share.
i. New Accounting Pronouncements
- ---------------------------------
In 1997 the FASB issued SFAS No. 128, Earnings Per Share, SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Company believes the new
standards will not have a material impact on the Company's financial
statements presented herein or in the future.
(2) EXECUTIVE STOCK OPTION PLAN
The Company's president has agreed to perform services on behalf of the
Company for no compensation. To provide incentive for such services, the Board
of Directors agreed on August 1, 1997 to grant an option to purchase 100,000
shares of the Company's common stock at $1 per share. No options have been
exercised as of June 30, 1999.
(3) RECEIVABLE - RELATED PARTY
The receivable from related entity is an unsecured non-interest bearing loan
which has no repayment terms. The receivable is due from Powerball
Technologies, LLC (A Development Stage Company). Natex Corporation is a 50%
owner of Powerball Technologies, LLC.
The Company initially agreed to loan a maximum of $100,000 to Powerball
Technologies, LLC, to meet working capital needs, and subsequently agreed to
loan additional monies on the same terms.
<PAGE> 38
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (continued)
From Inception on July 9, 1997 to June 30, 1999
(4) INVESTMENT IN LIMITED LIABILITY COMPANY
The Company and Powerball Industries, Inc. have agreed to form a limited
liability company (the "Joint Venture") to license the Technology; to further
develop the Technology; to build a sodium hydride pellet recycling plant; to
manufacture tanks in which hydrogen is generated; to demonstrate the
commercial viability of the Technology; and to commercialize the Technology.
Powerball Industries, Inc. will assign the Technology License to the Joint
Venture, or will sub-license the Technology to the Joint Venture for a 50%
ownership interest in the Joint Venture. The Company invested $250,000 in the
Joint Venture for a 50% ownership interest in the Limited Liability Company
Powerball Technologies, LLC (A Developmental Stage Company). The Company also
agreed to loan up to $100,000 to the Joint Venture if such funds were required
for the Joint Venture's operations, and subsequently agreed to loan additional
funds to the JV to meet its working capital needs (See Note 3).
(5) STOCK OFFERING
On December 31, 1997, the Company successfully completed a public offering of
400,000 shares of its $.001 par value common stock for $400,000 less offering
costs of $40,000. In April 1999, the Company successfully completed a private
placement offering of 400,000 shares of its $.001 par value common stock for
$200,000.
In June 1999, the Company issued 10,000 shares of its restricted common stock
which was valued at $40,000 for the cancellation of $40,000 in outstanding
liabilities owed to KHI Construction for construction services. The share
price of $4.00 per share was determined based on negotiations between the
parties.
(6) INCOME TAXES
At December 31, 1998, the Company has a net operating loss carryforward of
approximately $98,900 which will begin to expire in the year 2012.
<PAGE>
<PAGE> 39
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this
amended Form 10SB pursuant to Item 601 of Regulation SB.
SEC
Exhibit Reference
No. No. Title of Document
- ------- --------- -----------------
10 10.04 Lease Agreements
10 10.05 Letter of Understanding
10 10.06 Employment Agreement
ITEM 2. SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this amended registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATEX CORPORATION
DATED: September 23, 1999 /S/ Robert K. Ipson, President
<PAGE> 1
Exhibit 10.04
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 2nd day of August, 1999
by and between TSP ENTERPRISES, of 2878 East Heather Cir., Salt Lake City,
Utah 84117, hereinafter referred to as "Lessor: and Jed Checketts, doing
business as POWERBALL TECHNOLOGIES of 2095 West 2200 South, West Valley City,
Ut 84119, hereinafter referred to as "Lessee."
IN CONSIDERATION of the mutual covenants herein contained, the parties
hereto as follows:
1. DEMISED PREMISES. Lessor does hereby lease, demise and let to Lessee
and Lessee does hereby take and lease from Lessor the property located at 2095
West 2200 South, a 2,500 sq. ft. unit, more or less, located in Decker Lake
Industrial Park, West Valley City, Utah 84119, upon the terms and conditions
hereinafter set forth.
2. TERM OF LEASE. The term of this lease shall commence on the 1st day of
August, 1999 and continue for a period of one year thereafter until July 31,
2000.
3. RENT. The rent for the premises shall be $965.00 on a monthly basis in
advance, upon the first day of each calendar month to Lessor or his authorized
agent or at such other places as may be designated by Lessor from time to
time. Also due on August 1st is $28.00 to be added to the previously paid
$937.00 for the last month's rent. In the event the rent is not paid within
five (5) days after the due date, Lessee agrees to pay a late charge fee of 5%
and interest at the rate of 1-1/2% per month until paid. Lessee further
agrees to pay the sum of $20.00 for each dishonored bank check.
4. SECURITY DEPOSIT. Lessee shall pay to Lessor upon execution of this
agreement a $100.00 Security Deposit (previously paid), which deposit shall
not be used as any part of the rent but shall be refunded to Lessee upon
termination of the lease less all amounts due Lessor including necessary
repairs and/or cleaning.
5. AUTHORIZED USE. Lessee will use and occupy the leased premises for the
purpose of all activities associated with production, storage, distribution
and sales of powerballs and other functions associated with this business and
for no other purpose whatsoever without the written consent of the Lessor
first had and obtained. Lessee agrees that Lessee will not allow, permit, nor
engage in any illegal or unlawful conduct on the lease premises during the
term of the lease or any extension thereof.
6. UTILITIES AND TAXES. Responsibility for utilities, taxes and insurance
shall be as indicated: Tenant responsible for (T), Landlord responsible for
(L).
Power (T), Heat (T), Water (L), Sewer (L), Telephone (T), Real Property Tax
(L), Increase above 1999 in Real Property Tax (T), Personal Property Tax (T),
Fire Insurance on Building (L), Fire Insurance on Personal Property (T), Glass
Insurance (T).
7. MAINTENANCE REPAIRS OR ALTERATIONS. Lessee has inspected the premises
and hereby acknowledges that the premises are in good order and repair.
Responsibility for maintenance and replacement shall be as follows: Tenant
responsible for (T), Landlord responsible for (L).
<PAGE> 2
Roof (L), Exterior Wall (L), Interior Walls (T), Structural Repair (L),
Interior Decorating (T), Yard Surfacing (L), Plumbing Equipment (T), Heating
and Air Conditioning Equipment (T), Light Bulbs, Tubes and Ballasts (T),
Electrical Equipment (T), Glass Breakage (T), Snow Removal (L)< Janitor (T),
Trash Removal (T), Passage and Overhead Doors (T).
8. INJURY AND PROPERTY DAMAGE. Lessee agrees to indemnify and hold Lessor
harmless from any and all claims of any kind or nature arising out of Lessee's
use of the demised premises during the term hereof or any renewal of
continuation period. Lessee shall at all times during the term hereof or any
extension of said term keep in effect liability insurance in the names of and
for the benefit of Lessor and Lessee with a combined limit of bodily injury
and property damage liability or not less than $500,000.00.
9. LESSOR'S RIGHT TO ENTER. The Lessor may at reasonable times enter the
premises to inspect and make necessary repairs or improvements thereon and may
exhibit the premises to prospective buyers at reasonable time upon notice to
Lessee.
10. NO ASSIGNMENT OR SUBLETTING. The Lessee shall not assign, mortgage, or
encumber the leased premises nor sublet or permit the leased premises or any
part thereof to be used by any other without prior written consent of the
Lessor in each instance.
11. HOLDING OVER. If Lessee remains in possession of the premises after
the termination of this lease or any extension or renewal of the term thereof
without execution of a new lease, Lessee shall be deemed to be occupying the
premises as a tenant from month-to-month subject to all of the same terms,
conditions and obligations of this lease agreement.
12. SURRENDER OF PREMISES. Lessee agrees to surrender the leased premises
at the expiration or sooner termination of this lease or any extension thereof
in the same condition as when the premises were delivered to Lessee, normal
wear and tear excepted. The ownership of any and all fixtures and signs shall
belong to the Lessor upon the surrender of the premises. Lessee agrees to pay
a reasonable cleaning charge should it be necessary for Lessor to restore or
cause to be restored the premises to the same condition as when said premises
were delivered to Lessee including the removal of any Lessee's property.
13. WAIVER OF COVENANTS. The failure of any Lessor to enforce any
provision of this agreement shall not constitute a waiver of said provision or
a any other provision herein.
14. DEFAULT. Lessee further covenants with Lessor that if the rent or any
part thereof is not paid when it becomes due, or if Lessee shall violate or
neglect any covenant, agreement or stipulation herein contained on its part
required to be kept, performed or observed, then Lessor may have any or all of
the following remedies or courses of action cumulatively. Lessor may at its
option cancel and annul this lease as to any future rights of Lessee and may
thereafter enter and retake possession of the premises, remove all persons,
furniture, fixtures, and equipment belonging to Lessee at Lessee's expense.
Lessor may take possession and relet said premises or any part thereof for
such terms and rent as Lessor in his sole discretion may deem advisable.
Lessor may sue Lessee for damages on a month-to-month basis or for the entire
term of the agreement and may recover, in addition thereto, Lessor's
reasonable attorneys' fees, court costs and interest at the rate of 1-1/2% per
month on all unpaid amounts. In the event of Lessee's bankruptcy, Lessor may
<PAGE> 3
immediately re-enter and retake possession of the premises without any further
notification or action. Said remedies shall be in addition to any remedies
authorized by law including Lessor's lien on all personal property of Lessee
stored on said premises.
15. TIME. Time is of the essence of this agreement.
16. ENTIRE AGREEMENT. The parties hereto agree that this agreement
constitutes the entire lease agreement and understanding between the parties
and there are no other prior discussions, understandings or agreements
relative to this agreement except as herein expressly set forth. This
agreement may not be altered or changed except in writing signed by all
parties hereto.
17. GOVERNING LAW. This agreement shall be governed and interpreted by the
laws of the State of Utah.
18. ATTORNEYS' FEES. The parties hereto mutually agree should either party
default in any of the covenants or conditions herein contained, the defaulting
party shall pay all court costs, and expenses including a reasonable
attorneys' fees which may arise out of or any way be connected with this case
of the indemnification provisions hereunder.
IN WITNESS WHEREOF the parties have set their signatures hereunto the date
and year first above written.
- ---------------------------------- ------------------------------
Lessor (TSP ENTERPRISES) Lessee (POWERBALL TECHNOLOGIES)
COMMERCIAL PROPERTY MANAGERS
David Towers 467-4130
Gary Stevens 467-2846
Jim Pugmire 272-4434
<PAGE> 4
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 18TH day of August, 1999
by and between TSP ENTERPRISES, of 2878 East Heather Cir., Salt Lake City,
Utah 84117, hereinafter referred to as "Lessor: and Jed Checkets, doing
business as POWERBALL TECHNOLOGIES of 2095 West 2200 South, West Valley City,
Ut 84119, hereinafter referred to as "Lessee."
IN CONSIDERATION of the mutual covenants herein contained, the parties
hereto as follows:
1. DEMISED PREMISES. Lessor does hereby lease, demise and let to Lessee
and Lessee does hereby take and lease from Lessor the property located at 2095
West 2200 South, a 2,500 sq. ft. unit, more or less, located in Decker Lake
Industrial Park, West Valley City, Utah 84119, upon the terms and conditions
hereinafter set forth.
2. TERM OF LEASE. The term of this lease shall commence on the 1st day of
September, 1999 and continue for a period of one year thereafter until July
31, 2000.
3. RENT. The rent for the premises shall be $825.00 (plus 1/11 of the
amount Lessor pays for dry wall, painting, overhead door insulation, and 1/2
electrical) on a monthly basis in advance, upon the first day of each calendar
month to Lessor or his authorized agent or at such other places as may be
designated by Lessor from time to time. Lessee will pay the last month's rent
along with September rent. In the event the rent is not paid within five (5)
days after the due date, Lessee agrees to pay a late charge fee of 5% and
interest at the rate of 1-1/2% per month until paid. Lessee further agrees to
pay the sum of $20.00 for each dishonored bank check.
4. SECURITY DEPOSIT. Lessee shall pay to Lessor upon execution of this
agreement a $500.00 Security Deposit which deposit shall not be used as any
part of the rent but shall be refunded to Lessee upon termination of the lease
less all amounts due Lessor including necessary repairs and/or cleaning.
5. AUTHORIZED USE. Lessee will use and occupy the leased premises for the
purpose of all activities associated with production, storage, distribution
and sales of powerballs and other functions associated with this business and
for no other purpose whatsoever without the written consent of the Lessor
first had and obtained. Lessee agrees that Lessee will not allow, permit, nor
engage in any illegal or unlawful conduct on the lease premises during the
term of the lease or any extension thereof.
6. UTILITIES AND TAXES. Responsibility for utilities, taxes and insurance
shall be as indicated: Tenant responsible for (T), Landlord responsible for
(L).
Power (T), Heat (T), Water (L), Sewer (L), Telephone (T), Real Property Tax
(L), Increase above 1999 in Real Property Tax (T), Personal Property Tax (T),
Fire Insurance on Building (L), Fire Insurance on Personal Property (T), Glass
Insurance (T).
7. MAINTENANCE REPAIRS OR ALTERATIONS. Lessee has inspected the premises
and hereby acknowledges that the premises are in good order and repair.
Responsibility for maintenance and replacement shall be as follows: Tenant
responsible for (T), Landlord responsible for (L).
<PAGE> 5
Roof (L), Exterior Wall (L), Interior Walls (T), Structural Repair (L),
Interior Decorating (T), Yard Surfacing (L), Plumbing Equipment (T), Heating
and Air Conditioning Equipment (T), Light Bulbs, Tubes and Ballasts (T),
Electrical Equipment (T), Glass Breakage (T), Snow Removal (L)< Janitor (T),
Trash Removal (T), Passage and Overhead Doors (T).
8. INJURY AND PROPERTY DAMAGE. Lessee agrees to indemnify and hold Lessor
harmless from any and all claims of any kind or nature arising out of Lessee's
use of the demised premises during the term hereof or any renewal of
continuation period. Lessee shall at all times during the term hereof or any
extension of said term keep in effect liability insurance in the names of and
for the benefit of Lessor and Lessee with a combined limit of bodily injury
and property damage liability or not less than $500,000.00.
9. LESSOR'S RIGHT TO ENTER. The Lessor may at reasonable times enter the
premises to inspect and make necessary repairs or improvements thereon and may
exhibit the premises to prospective buyers at reasonable time upon notice to
Lessee.
10. NO ASSIGNMENT OR SUBLETTING. The Lessee shall not assign, mortgage, or
encumber the leased premises nor sublet or permit the leased premises or any
part thereof to be used by any other without prior written consent of the
Lessor in each instance.
11. HOLDING OVER. If Lessee remains in possession of the premises after
the termination of this lease or any extension or renewal of the term thereof
without execution of a new lease, Lessee shall be deemed to be occupying the
premises as a tenant from month-to-month subject to all of the same terms,
conditions and obligations of this lease agreement.
12. SURRENDER OF PREMISES. Lessee agrees to surrender the leased premises
at the expiration or sooner termination of this lease or any extension thereof
in the same condition as when the premises were delivered to Lessee, normal
wear and tear excepted. The ownership of any and all fixtures and signs shall
belong to the Lessor upon the surrender of the premises. Lessee agrees to pay
a reasonable cleaning charge should it be necessary for Lessor to restore or
cause to be restored the premises to the same condition as when said premises
were delivered to Lessee including the removal of any Lessee's property.
13. WAIVER OF COVENANTS. The failure of any Lessor to enforce any
provision of this agreement shall not constitute a waiver of said provision or
a any other provision herein.
14. DEFAULT. Lessee further covenants with Lessor that if the rent or any
part thereof is not paid when it becomes due, or if Lessee shall violate or
neglect any covenant, agreement or stipulation herein contained on its part
required to be kept, performed or observed, then Lessor may have any or all of
the following remedies or courses of action cumulatively. Lessor may at its
option cancel and annul this lease as to any future rights of Lessee and may
thereafter enter and retake possession of the premises, remove all persons,
furniture, fixtures, and equipment belonging to Lessee at Lessee's expense.
Lessor may take possession and relet said premises or any part thereof for
such terms and rent as Lessor in his sole discretion may deem advisable.
Lessor may sue Lessee for damages on a month-to-month basis or for the entire
term of the agreement and may recover, in addition thereto, Lessor's
reasonable attorneys' fees, court costs and interest at the rate of 1-1/2% per
month on all unpaid amounts. In the event of Lessee's bankruptcy, Lessor may
immediately re-enter and retake possession of the premises without any further
<PAGE> 6
notification or action. Said remedies shall be in addition to any remedies
authorized by law including Lessor's lien on all personal property of Lessee
stored on said premises.
15. TIME. Time is of the essence of this agreement.
16. ENTIRE AGREEMENT. The parties hereto agree that this agreement
constitutes the entire lease agreement and understanding between the parties
and there are no other prior discussions, understandings or agreements
relative to this agreement except as herein expressly set forth. This
agreement may not be altered or changed except in writing signed by all
parties hereto.
17. GOVERNING LAW. This agreement shall be governed and interpreted by the
laws of the State of Utah.
18. ATTORNEYS' FEES. The parties hereto mutually agree should either party
default in any of the covenants or conditions herein contained, the defaulting
party shall pay all court costs, and expenses including a reasonable
attorneys' fees which may arise out of or any way be connected with this case
of the indemnification provisions hereunder.
IN WITNESS WHEREOF the parties have set their signatures hereunto the date
and year first above written.
---------------------------------- ------------------------------
Lessor (TSP ENTERPRISES) Lessee (POWERBALL TECHNOLOGIES)
COMMERCIAL PROPERTY MANAGERS
David Towers 467-4130
Gary Stevens 467-2846
Jim Pugmire 272-4434
<PAGE> 7
ADDENDUM TO 1097 LEASE
August 31, 1999
In accordance with paragraph e, LEASE AGREEMENT dated August 18, 1999, the
following is the breakdown of agreed upon remodeling expenses that are to be
prorated over the life of the LEASE.
Painting/materials $1,496.79
Drywall/installation $1,850.00
O/H door installation $ 504.00
Electrical materials/labor (1/2) $ 194.18
Pressure wash ($175.00) N/C
30 Yard dumpster ($254.79) N/C
Lumber ($118.92) N/C
TOTAL -----------
$4,044.97
Divide by 11 $ 367.72 or $368.00
+825.00
------------
$1,193.00
- ---------------------------------- ------------------------------
LESSOR (TOWERS & CO.) LESSEE (POWERBALL TECH)
<PAGE> 1
Exhibit 10.05 Letter of Understanding
LICENSE AGREEMENT
This agreement evidences the terms and conditions on which POWERBALL
Technologies LLC, a Utah limited liability company, located at 2095 West 2200
South, West Valley City, Utah (hereinafter referred to as "POWERBALL") will
grant to OMEGA DYNAMICS, INC., a Delaware corporation, located at P.O. Box
6243, North Logan, Utah 84341, (hereinafter referred to as "OMEGA") a
worldwide exclusive license to POWERBALL'S PATENTED PELLETIZED HYDRIDE,
HYDROGEN GENERATING SYSTEM (Powerball System) a copy of the Patent attached,
subject to the terms and conditions set forth herein.
Type of Transaction: Omega agrees to purchase and Powerball agrees to sell
under the terms and conditions of this agreement an exclusive, world wide
license of POWERBALL'S patented technology of a pelletized hydride, hydrogen
generating system integrated and in conjunction with electric generated fuel
cell system, except as limited herein. The license shall not grant to OMEGA
rights regarding Proton Exchange Membrane based fuel cell electric generating
systems for any applications sold to General Motors, Daimler Chrysler, Ford
Motor Company, Toyota, Nissan, Honda, Ballard, or any of their subsidiaries or
affiliates.
Purchase Price: The Purchase Price shall be paid by Omega to Powerball for
this license as follows:
a. Five hundred thousand dollars ($500,000.00) to be placed in a special
account to be released by Omega at its sole discretion. The amounts in the
account are to be used to build an integrated fuel cell system working in
conjunction with Pelletized Hydride, Hydrogen Generating System (Powerball
System) and to integrate that system into an electric powered vehicle and
thereafter to drive the vehicle across the United States for the purpose of
advertizing Omega's integrated fuel cell system technology and the Powerball
System. Omega agrees to provide prominent advertising of the Powerball System
as it relates to the electric vehicle both physically on the vehicle and in
press releases, news statements, etc. relating to the vehicle.
b. Any technological improvements and or enhancements that are developed
as a direct result of this join effort will be the sole property of Omega.
c. The sum of One Million Dollars ($1,000,000.00) to paid to Powerball
(Twenty Five Thousand ($25,000) at the signing of this Agreement, an
additional Seventy Five Thousand ($75,000) within 10 days of signing, and an
additional One Hundred and Fifty Thousand ($150,000 within 30 days of signing
with the remaining funds to be paid at a rate of one half (1/1) of all funds
raised by Omega up to and until the funding requirements are met. The entire
One Million Dollars ($1,000,000.00) must be paid on or before February 1,
2000.
d. Powerball shall have the full right to determine the use of the One
Million Dollars ($1,000,000.00), however its present intent is to build a
manufacturing plant to produce Powerballs and to build a refueling station in
order to transport the Powerballs and to build a refueling station in order to
transport the Powerballs from the manufacturing plant to the various
applications. Powerball agrees that they will make use of enough of the funds
to produce sufficient Pelletized Hyride (pellets) at a 'Reasonable Cost' to
fill Omega's needs. If Powerball fails to produce sufficient Pellets, Omega
shall have the right to produce the Pellets in a quantity to satisfy their
requirements. 'Reasonable Cost' shall be defined as it is used in this
<PAGE> 2
Agreement as 'Cost of manufacture plus a reasonable mutually agreed to
profit'. Omega agrees they will stay actively involved to the satisfaction of
both parties to develop the integration of the Powerball Systems with fuel
cells.
e. Omega agrees to assume the obligation of Natex to pay Powerball
Industries, Inc., the royalty as specifically set forth in that certain
Assignment of Exclusive License Agreement and Exclusive License Agreement,
copies of which are attached hereto.
f. Powerball agrees to pay Omega a One percent gross royalty (1%) of any
and all sales of the Powerball System to General Motors, Daimler Chrysler,
Ford Motor Company, Toyota, Nissan, Honda or any of their subsidiaries or
affiliates.
g. Omega and Powerball agree to share on a fifty/fifty basis the net
profit sales for any Powerball Systems to any and all Governments worldwide.
(Net profit to be mutually agreed upon by the parties).
h. Powerball agrees that they will not enter into any agreement,
partnership and or development contract with any other company or entity for
the purpose of marketing and or manufacturing a system that could be construed
as competitive to the Powerball system as outlined in this agreement.
Representations and Warranties: Powerball and Omega shall make customary
representations as to organization and to authorization, execution, delivery
and enforceability of the documents, and such other representations and
warranties as are customary or as shall reasonably be requested by any parties
thereto. The parties shall undertake to indemnify and hold one another
harmless from any loss occasioned by any inaccuracy in the representations and
warranties as set forth in the Definitive Agreement to the date of closing.
Encumbrances: Powerball shall grant the license free and clear of all liens
and encumbrances.
Regulatory Approval: Any and all filings necessary to be made with any
regulatory agencies shall be made by Omega and Powerball.
Accessed Information: Powerball and Omega agree that, on a confidential
basis to each other, its legal counsel, accountants, consultants and other
representatives ("Representatives") access to, and the right to inspect their
respective corporate and financial business records and the patented
technology owned by Powerball.
Definitive Agreement: Powerball and Omega agree that a more comprehensive
agreement may be developed embodying the terms and conditions in this
agreement (the "Definitive Agreement") and containing such representations,
warranties, covenants and conditions as shall be agreed upon between Powerball
and Omega.
<PAGE> 3
Confidentiality: Public Disclosures
Omega and Powerball agree that the integration of the Powerball Systems
with Electric Generating Fuel Cells shall be held mutually confidential during
the research and development stage.
Conditions to Closing: the closing shall be conditioned upon (I) Powerball
and Omega executing the Definitive Agreement; (II) the absence of an order of
relief having been entered against any of the parties under the Federal
Bankruptcy Law; (III) all material, federal, state and local government
approvals required by reason of the transactions set forth herein begin
obtained, or reasonably obtainable.
WHEREFORE, the parties have executed this License Agreement effective the
date and day set forth herein above:
POWERBALL TECHNOLOGIES, LLC, a Utah limited
Liability company
By-------------------------------------------
(Its Managing Representative)
OMEGA DYNAMICS, INC., a Delaware Corporation
By-------------------------------------------
(Its President)
<PAGE> 1
Exhibit 10.06
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into
effective this 1st day of June, 1999, by and between NATEX CORPORATION, a Utah
corporation (the "Employer"), and ROBERT K. IPSON (the "Executive").
FOR AND IN CONSIDERATION of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Employment. Employer hereby employs Executive to perform those
duties generally described in this Agreement, and Employee hereby accepts and
agrees to such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on January 1,
1999, and end on December 31 1999.
3. Duties. During the term of this Agreement, Executive shall be
employed by Employer as its President. Executive agrees to serve in such
office or position with Employer or any subsidiary of Employer and such
substitute or further offices or positions as shall, from time to time, be
determined by Employer's board of directors. Executive agrees to continue to
serve as a member of the Employer's board of directors for no additional
compensation. Executive shall devote substantially all of his working time
and efforts to the business of Employer and its subsidiaries and shall not,
during the term of this Agreement, be engaged in any other substantial
business activities that will significantly interfere or conflict with the
reasonable performance of his duties hereunder.
4. Compensation. For all services rendered by Executive during the
term hereof, Employer shall pay to Executive $75,000, payable as follows:
Securities of the Employer consisting of 150,000 Units, at a value of $0.50
per Unit. Each Unit consisting of one share of the Employer's Common Stock,
$0.001 par value, and one Common Stock Purchase Warrant to purchase one share
of Common Stock at an exercise price of $1.00 per share, as set forth in the
Subscription Agreement attached hereto as Exhibit A. In connection with the
execution of this Agreement Executive will execute the Subscription Agreement
and such other documents the Employer may require to document and provide for
the issuance of the Common Stock and Common Stock Purchase Warrant. All
salary payments may be subject to withholding and other applicable taxes. The
rate of salary may be increased at any time as the board of directors may
determine, based on earnings, increased activities of the Employer, or such
other factors as the board of directors may deem appropriate.
5. Expenses. Employer will reimburse Executive for expenses incurred
in connection with Employer's business, including expenses for travel,
lodging, meals, beverages, entertainment, and other items on Executive's
periodic presentation of an account of such expenses. Employer shall
reimburse Executive for business use of his personal vehicle.
6. Termination for Cause. Employer may not terminate this Agreement
during its term without cause by showing that Executive has materially
breached its terms; that Executive, in the determination of the board, has
been grossly negligent in the performance of his duties; that he has
substantially failed to meet written standards established by Employer for the
performance of his duties; or that he has engaged in material willful or gross
misconduct in the performance of his duties hereunder.
<PAGE> 2
7. Indemnification. Employer shall indemnify Executive and hold
Executive harmless from liability for acts or decisions made by Executive
while performing services for Employer to the greatest extent permitted by
applicable law. Employer shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereafter obtained during
the term of this Agreement insuring officers and directors of Employer against
such liability.
8. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party.
9. Entire Agreement. This Agreement is and shall be considered to be
the only agreement or understanding between the parties hereto with respect to
the employment of Executive by Employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by
the parties to this Agreement.
10. Enforcement. Each of the parties to this Agreement shall be
entitled to any remedies available in equity or by statute with respect to the
breach of the terms of this Agreement by the other party.
11. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the state of Utah.
12. Severability. If and to the extent that any court of competent
jurisdication holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
13. Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement
or to exercise any right or remedy consequent upon a breach hereof shall
constitute a waiver of any such breach or of any covenant, agreement, term, or
condition.
14. Litigation Expenses. In the event that it shall be necessary or
desirable for the Executive to retain legal counsel and/or incur other costs
and expenses in connection with the enforcement of any and all of Executive's
rights under this Agreement, Executive shall be entitled to recover from the
Employer reasonable attorneys' fees, costs, and expenses incurred by Executive
in connection with the enforcement of said rights, should the Executive
prevail in such enforcement action. If, however, the Executive does not
prevail in such enforcement action, Executive shall be responsible for all
attorney's fees, costs, and expenses incurred by both Executive and Employer.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER: NATEX CORPORATION
By________________________________________
Duly Authorized Officer
EXECUTIVE:
By________________________________________
ROBERT K. IPSON
