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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File Number 0-25873
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NATEX CORPORATION
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(Exact name of registrant as specified in charter)
Utah 84-1431425
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
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, including area code (801) 595-1193
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Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
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Securities registered pursuant to section 12(g) of the Act:
None
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(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. (1) Yes [X]
No [ ] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $ 0
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State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:
Based on the average bid and asked prices of the common stock at March
23, 2000, of $12.625 per share, the market value of shares held by
nonaffiliates would be $11,945,775.
As of March 23, 2000, the Registrant had 1,469,000 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
Business in General
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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 ("PIC"). PIC's principal shareholder is
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 PIC in exchange for a royalty. In December,
1997, the Company and PIC 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 PIC (Checketts).
PIC 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.
On February 11, 2000, the Company signed a Letter of Understanding with
PIC for a proposed merger in which the Company would acquire all the issued
and outstanding shares of PIC in exchange for 1,500,000 shares of the
Company's common stock. The terms of the letter require Checketts to assign
all his rights and title to the Technology to PIC prior to the merger. The
Technology would become the property of the Company following the merger,
subject to a royalty payment to Checketts based on the gross sales of the JV.
Checketts would be appointed President of the Company following the merger,
and the Company's name would be changed to Powerball International, Inc. The
merger is subject to the completion of financial statements and other due
diligence, the completion of definitive agreements, and approval by the
Company's shareholders. The Company expects to be able to provide its
shareholders with complete information regarding the proposed transaction on
or before April 30, 2000.
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.
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
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
must be removed. 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.
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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.
The management of PIC 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 JV purchases sodium hydroxide and converts it to the
necessary sodium hydride. The cost of sodium hydroxide depends upon the
quantity in which it is purchased. The JV has been able to obtain sodium
hydroxide at a cost of approximately $50 per ton, which represents an almost
negligible cost in terms of the manufacturing process.
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
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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 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.
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 will be used to recycle
the polyethylene Powerball shells and the spent sodium hydroxide solution
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(NaOH). An additional benefit of the Plant will be that sodium may be
recovered from the spent 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 designed to be a proto type
plant. The operation of the Plant may involve additional research and
development efforts and continuing operations will likely require fine tuning
after it is successfully placed in operation.
As currently constructed, 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
currently 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 has been received. The
tuning and testing process for the Plant has begun. The Company expects the
Plant to be fully operational in the near future.
Initial Marketing Plan
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The JV will initially direct its marketing efforts to the industrial
hydrogen users market, such as peanut butter manufacturers and cooking oil
manufacturers. 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
also attempt to market hydrogen and its hydrogen generating products to oil
refineries, power plants and welding operations as part of its initial
marketing efforts.
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.
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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 water.
As a result of the increase in fuel cell research and development
activities, the demand for hydrogen required in the fuel cell industry 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,
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 $472,000, 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
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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.
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 PIC as its
capital contribution to the JV. PIC 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 NaH, CaH2, NaA1H4, and 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
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units (hydrogen generation systems) and 250,000 pounds of fuel pellets
(Powerballs) for each. The minimum production requirements for the fourth
year 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 PIC
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.
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 will
provide services to the Company on an as needed basis without cash
compensation for the foreseeable future. The Company's President devotes 100%
of his working time, approximately 40 hours per week, to Natex. In the event
that part-time or full time employees are needed, the Company anticipates it
will be able to hire qualified persons.
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 to in its initial efforts to construct the Plant and commercialize
the Technology. The JV pays Checketts a salary of $1,000 per week.
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 has received its occupancy permit from West Valley City,
the local authority.
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ITEM 2. DESCRIPTION OF PROPERTIES
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 executive 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 is conducting its technical operations in a 5,000 sq. foot
facility located at 2095 West 2200 South, Salt Lake City, Utah. The facility
is leased from TSP Enterprises, an unaffiliated entity, by the JV. The term of
the lease expires June 2000. The Company expects to be able to renew the
lease. The current monthly lease payment is $2,158. These facilities will be
leased until such time as additional facilities may be required. The JV
currently makes the monthly lease payment.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the fiscal year ended December 31, 1999.
<PAGE>
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 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
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Fiscal Year 1999 High Bid Low Bid
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Quarter ended 3/31/99 $2.50 $1.12
Quarter ended 6/30/99 $7.00 $1.75
Quarter ended 9/30/99 $2.88 $1.75
Quarter ended 12/30/99 $3.75 $2.88
Fiscal Year 1998 High Bid Low Bid
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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
March 23, 2000, was approximately 60.
The Company has not paid any cash dividends to date and does not
anticipate paying dividends in the foreseeable future.
<PAGE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
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This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such 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 believes it has resolved 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. The Company has
completed its assessment, and believes that costs of addressing this issue
have not and will not have a material adverse impact on the Company's
financial position.
Effects of Y2K
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The Company has completed its assessment of its operations, and has not
experienced any Y2K problems. As far as its information technology systems
("IT"), the Company uses newer model 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 experiences. At
this time, the Company does not anticipate a significant impact to the
Company's business operations.
Costs of Y2K
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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 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.
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Results of Operations
- ---------------------
Year ended December 31, 1999 compared to year ended December 31, 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. The Company had no revenues
for the year ended December 31, 1999 and 1998, respectively, and has had no
revenues since July 9, 1997 ("Inception").
Operating Expenses. For the year ended December 31, 1999, the Company
had total operating expenses of $415,151, compared to $73,608 for the same
period ending December 31, 1998. The increase in operating expenses is
attributable primarily to an $86,591 increase in professional fees and an
increase in partnership loss from the JV of $263,544 during the period. The
increase in professional fees was due primarily to a $75,000 compensation
expense, the value of the securities issued to Mr. Ipson for services provided
the Company from January 1, 1999 to December 31, 1999, and additional
accounting and legal expenses related to the Company's SEC filings. The
significant increase in the operating expenses for 1999 compared to 1998, was
directly attributed to the Company's portion of the JV's write-down for the
construction of the Plant, which had not gone into commercial production of
sodium at December 31, 1999. Total operating expenses from inception through
December 31, 1999 have been $514,794. (See "Financial Statements, Note 5).
Other Income. Other income consisted of interest income of $1,234 for
the year ended December 31, 1999 compared with $842 for the year for the year
ended December 31, 1998.
The Company experienced a net loss of $441,243 for the year ended
December 31, 1999 and a net loss of $72,866 for the year ended December 31,
1998. The Company net loss since inception has been $540,144. The basic loss
per share for the year ended December 31, 1999 was $0.43, based on the
weighted average number of shares outstanding of 1,029,501 shares, compared to
$0.12 based on weighted average number of shares outstanding of 600,000 at
December 31, 1998. The basic loss per share since Inception has been $0.77,
based on the weighted average number of shares outstanding of 705,132.
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. In March and April 1999, the Company completed
a private placement of 400,000 Units consisting of one share and one warrant
exercisable at $1.00 per share, at a price of $0.50 per Unit, for aggregate
proceeds of $200,000. Of the warrants issued, 100,000 were exercised as of
December 31, 1999, for aggregate proceeds of $100,000. In December 1999, the
Company completed a private placement of 120,000 Units consisting of one share
and one warrant exercisable at $1.00, at a price of $1.00 per Unit, for
aggregate proceeds of $120,000.
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.
<PAGE> 15
In December 1997, the Company entered into the JV with PIC 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 has agreed to
loan additional capital to the JV, up to $500,000, 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. As of December 31, 1999, the
Company had loaned the JV an aggregate of $472,000. The additional funds
loaned to the JV by the Company were obtained through the private placement of
the Company's equity securities.
At December 31, 1999, the Company had current assets of $129,190,
consisting of cash of $79,190 and a stock subscription receivable of $50,000,
and current liabilities of $10,807, for working capital of $118,383. At
December 31, 1999, the Company had other assets of $472,000, consisting
entirely of the Company's loans to the JV, offset by noncurrent liabilities of
$140,165, consisting of the Company's investment in the JV at cost less share
of losses.
Cash used in operations for the year ended December 31, 1999 was
$(33,836) compared to and $(20,910) for the same period ended December 31,
1998. Since inception the Company's operations been funded primarily by cash
received from capital contributions and the issuance of common stock for cash.
Cash used in investing activities by the Company during the year ended
December 31, 1999, was $331,000, representing primarily loans from the Company
to the JV. The funds loaned by the Company to the JV were expended for
development of the JV's Plant. The JV's Plan was completed during the last
quarter of 1999, and it has not yet been determined if the Plant will be
capable of producing sodium in commercial quantities.
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 PIC in the JV will be reduced. There can be no assurance that any
additional required funding will be available to the JV.
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 period
ended December 31, 1999 were approximately $100,000. The Company expects such
expenses to be consistent for the next 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.
<PAGE> 16
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material
impact on its current or proposed operations.
Principal Customers
- -------------------
During the most recent fiscal year ended December 31, 1999, the Company
had no individual customer that accounted for more than 10% of the Company's
revenues.
Seasonality
- -----------
Management of the Company knows of no seasonal aspects relating to the
nature of the Company business operations that had a material effect on the
financial condition or results of operation of the Company.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company's prior accountant is no longer performing audits on public
companies. The Company has appointed David C. Thomson, CPA, P.C., as its
certified public accountant.
The date of the appointment of David C. Thompson CPA, P.C. as the
Company's certified public accountant was February 1, 2000. The principal
accountant's reports on the financial statements for any of the past two years
(December 31, 1997 and December 31, 1998) did not contain an adverse opinion
or disclaimer of opinion or was qualified as to audit scope or accounting
principles.
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or financial
disclosure. See ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<PAGE>
<PAGE> 17
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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. The term of office for each Officer is one year and until a
successor is elected at the annual meeting of the Board of Directors and is
qualified, subject to removal by the Board of Directors. The Company will
reimburse Directors for their expenses associated with attending Directors'
meetings. However, Directors have not, nor is it anticipated they will,
receive any additional compensation for attending Directors' meetings.
Biographical Information
- ------------------------
Set forth below is certain biographical information for each of the
Company's Officers and Directors and other key personnel.
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
systems, device components, and sensors for medical technology companies.
ZEVEX also designs, manufactures and markets its own medical devices using its
<PAGE> 18
proprietary technology. ZEVEX currently has 118 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 previously served for seven years as President and Past President of
the Community Foundation for the Disabled, Inc.
Key Employee of the JV
- ----------------------
Jed Checketts, age 31, is the owner of Powerball Industries, Inc., a Utah
corporation and JC Industries, a Utah based sole proprietorship. Mr.
Checketts owned and operated JC Industries, a precision machining operation,
from 1993 tp 1998. Mr. Checketts has studied Manufacturing Engineering
Technology at Brigham Young University and Chemical Engineering at the
University of Utah.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
The Company's Common Stock was recently registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in connection therewith, directors, officers, and beneficial owners of
more than 10% of the Company's Common Stock are required to file on a timely
basis certain reports under Section 16 of the Exchange Act as to their
beneficial ownership of the Company's Common Stock. The following table sets
forth as of March 1, 2000, the name and position of each person that failed to
file on a timely basis any reports required pursuant to Section 16 of the
Exchange Act.
<TABLE>
<CAPTION>
Name and Position of Person No. of Late Reports No. of Transactions Report and File Date
- --------------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
Robert K. Ipson, President 1 4 Form 4 filed 3-13-00
Shorland Hunsaker, Vice-Pres. 1 1 Form 4 filed 3-13-00
Philip McStotts, Sec./Treas. 1 1 Form 4 filed 3-13-00
</TABLE>
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's chief executive officer and each of its other
executive officers that received compensation in excess of $100,000 during
such period (as determined at December 31, 1999, the end of the Company's last
completed fiscal year):
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert K. Ipson 1999 $ -0- -0- 75,000 -0- -0- -0- -0-
President 1998 $ -0- -0- -0- -0- -0- -0- -0-
1997 $ -0- -0- -0- -0- -0- -0- -0-
</TABLE>
<PAGE>
<PAGE> 19
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
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 December 31, 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 was paid 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. At December 31, 1999, Mr. Ipson had not exercised any of the
Warrants.
Compensation for Management of JV
- ---------------------------------
The JV is managed by two managers, one appointed by the Company and one
appointed by PIC. The Company has appointed Robert K. Ipson, its president as
its management representative. PIC 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
$1,000 per week. 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.
Compensation Pursuant to Plans
- ------------------------------
None.
Pension Table
- -------------
Not Applicable.
Other Compensation
- ------------------
None.
Compensation of Directors
- -------------------------
None.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Executive
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment with the Company or its subsidiaries, or any change
in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.
<PAGE> 20
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 2000 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 1,469,000
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group. The
information on share numbers and percentage ownership listed assumes:
- the exercise of options and warrants by the beneficial owner (all
included warrants and options are currently exercisable); and
- a corresponding increase in the number of shares issued and
outstanding.
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
Title of Class Name and Address Number of Shares % of Class
- -------------- ---------------- ---------------- ----------
Common Stock Robert K. Ipson 542,300 30.83
48 West 300 South, # 2303
Salt Lake City, UT 84101
Common Stock Linda Lou Ipson 542,300 30.83
48 West 300 South, # 2303
Salt Lake City, UT 84101
Common Stock Shorland Hunsaker 318,000 20.26
2751 East Rubidoux Road
Salt Lake City, UT 84093
Common Stock Maynard Victor 125,000 8.28
1815 Maple View Drive
Salt Lake City, UT 84124
Common Stock Paul N. Davis 80,000 5.37
2351 Hintze Drive
Salt Lake City, UT 84124
Common Stock Phillip L. McStotts 92,500 6.13
746 Quaking Aspen Drive
Murray, UT 84123
Securities Ownership of Management
- ----------------------------------
Robert K. Ipson - See above -
President and Director
Shorland Hunsaker - See above -
Vice President and Director
Phillip L. McStotts - See above -
Secretary/Treasurer and Director
Common Stock Officers and Directors
As a Group (3 persons) 952,800 50.99
- ----------------------
[Notes on the above table appear on the following page]
<PAGE> 21
In the preceding table:
- Mr. Ipson's shares include an option to purchase 100,000 shares of the
Company's common stock at $1.00 per share.
- 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.
- Ms. Ipson holds of record 30,500 shares and 30,000 warrants. Mr. Ipson
holds of record 221,800 shares, 100,000 options, and 160,000 warrants.
- Mr. Hunsaker's shares include 218,000 shares and 100,000 warrants.
- Mr. Victor is holder of record of 25,000 shares. The shares listed
include 60,000 shares and 40,000 warrants held of record by Victor
Investments, LLC., a limited liability company controlled by Maynard Victor of
which Mr. Victor may be deemed to be the beneficial owner.
- Mr. Davis' shares include 60,000 shares and 20,000 warrants.
- Mr. McStotts' shares include 52,500 shares and 40,000 warrants.
- The number of shares held by officers and directors as a group assumes
the exercise of all of their respective options and warrants. If such options
and warrants were exercised, the total issued and outstanding shares would be.
ITEM 12. 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 PIC, the Company's Joint
Venture partner, who is paid a weekly salary of $1,000.
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
$500,000, 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.
As of December 31, 1999, the Company had loaned the JV an aggregate of
$472,000.
In March and April 1999, the Company completed a private placement of
400,000 Units consisting of one share and one warrant exercisable at $1.00 per
share, at a price of $0.50 per Unit, for aggregate proceeds of $200,000. Of
these Units, officers and directors purchased a total of 210,000, including
70,000 purchased by Shorland Hunsaker, 120,000 purchased by Robert Ipson and
his spouse Linda, and 20,000 purchased by Philip McStotts. Of the 100,000
exercised as of December 31, 1999, 70,000 were exercised by Shorland Hunsaker.
<PAGE> 22
In June 1999, the Company issued shares and warrants to Robert Ipson in
connection with an employment agreement with the Company for total
compensation of $75,000 for the period January 1, 1999 to December 31, 1999.
This compensation was paid 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.
In October 1999, the Company issued 15,000 shares valued at $3.00 per
share to Jed Checketts in connection with royalty payments due to him from the
JV for license fees for the Technology.
In December 1999, the Company completed a private placement of 120,000
Units consisting of one share and one warrant exercisable at $1.00, at a price
of $1.00 per Unit, to two officers and directors, in the amounts of 100,000
Units to Shorland Hunsaker and 20,000 Units to Philip McStotts.
On February 11, 2000, the Company signed a Letter of Understanding with
Powerball Industries, Inc. ("PIC"), the Company's JV partner, for a proposed
merger in which the Company would acquire all the issued and outstanding
shares of PIC in exchange for 1,500,000 shares of the Company's common stock.
The terms of the letter require Jed Checketts, the owner of the Technology and
a principal of PIC, to assign all his rights and title to the Technology to
PIC prior to the merger. The Technology would become the property of the
Company following the merger, subject to a royalty payment to Mr. Checketts
based on the gross sales of the JV. Mr. Checketts would be appointed
President of the Company following the merger, and the Company's name would be
changed to Powerball International, Inc. The merger is subject to the
completion of financial and other due diligence, the negotiation of definitive
agreements, and approval by the Company's shareholders. The Company expects
to be able to provide its shareholders with complete information regarding the
proposed transaction on or before April 30, 2000.
<PAGE>
<PAGE> 23
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
- ----------------- ----
Independent Auditors' Report 25
Consolidated Balance Sheet as of December 31, 1999 26
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998 and from inception on July 9, 1997 through December 31, 27
1999
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows for the years ended December 31,
and 1998 and from inception on July 9, 1997 through December 31, 1999 29
Notes to Consolidated Financial Statements 30
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report: None.
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------- --------- ----------------- ------------
10 10 Letter of Understanding This Filing
27 27 Financial Data Schedule This Filing
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed with the Commission during the
year ended December 31, 1999. On February 8, 2000, the Company filed a Report
on Form 8-K indicating the change in auditors described in this filing. See
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
<PAGE>
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
NATEX CORPORATION
Date: By /S/Robert K. Ipson, President
Date: By /S/Shorland Hunsaker,
Vice-president
Date: By /S/Phillip McStotts,
Secretary/Treasurer
<PAGE>
<PAGE> 25
Independent Auditor's Report
- ----------------------------
Board of Director
NATEX CORPORATION
Salt Lake City, Utah
I have audited the accompanying balance sheet of Natex Corporation (a
development stage company) as of December 31, 1999 and the related statements
of operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on the financial statements based
on my audit. The financial statements of Natex Corporation for the year ended
December 31, 1998 and from inception to December 31, 1999, were audited by
other auditors whose report thereon, dated February 5, 1999, expressed an
unqualified opinion.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audits provide a reasonable basis
for my opinion.
In my 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, 1999 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 8, the Company has been in the development stage since
its inception on July 9, 1997. Realization of a major portion of the assets
is dependent upon the Company's ability to meet its future financing
requirements, and the success of its future operations and that of the
partnership in which it has loaned or invested most of the capital it has
raised. The Company at December 31, 1999 had a deficit accumulated during its
development stage of $552,703. These factors raise substantial doubt the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in existence.
As discussed in Note 1 to the financial statements under organization costs,
the Company in 1999 changed its method of accounting for the costs of
organizing the Company.
Salt Lake City, Utah
February 29, 2000
<PAGE>
PAGE> 26
NATEX CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31,
1999 1998
----------- -----------
CURRENT ASSETS
Cash in bank $ 79,190 $ 65,664
Stock subscription receivable - related party 50,000 -
----------- -----------
Total Current Assets 129,190 65,664
----------- -----------
OTHER ASSETS
Receivable - related party 472,000 44,000
Organization costs, net of amortization of $-0-
and $1,239 - 17,339
Investments in limited liability company, at cost
less shares of losses - 174,096
----------- -----------
Total Other Assets 472,000 235,435
----------- -----------
TOTAL ASSETS $ 601,190 $ 301,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 807 $ -
Deferred equity on stock sale 10,000 -
----------- -----------
Total Current Liabilities 10,807 -
----------- -----------
NONCURRENT LIABILITIES
Investments in limited liability company,
at cost less share of losses 140,165 -
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 25,000,000 shares
authorized, 1,399,000 and 600,000 shares issued
and outstanding respectively 1,399 600
Capital in excess of par value 988,963 399,400
Earnings (deficit) accumulated during the
development stage (540,144) (98,901)
----------- -----------
Total Stockholders' Equity 450,218 301,099
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 601,190 $ 301,099
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 27
NATEX CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Deficit)
For the For the Accumulated
Year ended Year ended During the
December 31, December 31, Development
1999 1998 Stage
----------- --------------- --------------
REVENUE $ - $ - $ -
EXPENSES
Loss from partnership 314,261 50,717 390,165
Office expense 6,003 748 6,769
Professional fees 91,558 4,967 97,355
Amortization expense - 1,239 1,239
Dues and subscriptions - 2,190 2,190
Filing fees 2,555 12,436 14,991
Travel - 1,301 1,301
Taxes and licenses 774 10 784
------- ------ -------
Total Expenses 415,151 73,608 514,794
------- ------ -------
OPERATING LOSS (415,151) (73,608) (514,794)
OTHER INCOME
Interest Income 1,234 842 2,076
------ ------ ------
INCOME(L0SS) BEFORE INCOME
TAXES (413,917) (72,766) (512,718)
Minimum State franchise tax 100 100 200
------- ------ -------
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (414,017) (72,866) (512,918)
Cumulative effect of
accounting change for
organization costs (27,226) - (27,226)
------- ------ -------
NET INCOME (LOSS) $ (441,243) $ (72,866) $ (540,144)
======= ====== =======
EARNINGS (LOSS) PER SHARE
BEFORE ACCOUNTING CHANGE $ (0.40) $ (0.12) $ (0.73)
==== ==== ====
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (0.03) $ (0.00) $ (0.04)
==== ==== ====
EARNINGS (LOSS) PER SHARE $ (0.43) $ (0.12) $ (0.77)
==== ==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 1,029,501 600,000 705,132
========= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Capital in During the
Common Stock Excess of Development
Shares Amount Par Value Stage
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, July 9, 1997 (Inception) - $ - $ - $ -
Shares issued to initial stockholders
for cash, July 9, 1997 at $.20 per share 200,000 200 39,800 -
Shares issued pursuant to a public
offering, December 5, 1997 at $1.00
per share 400,000 400 399,600 -
Direct costs of public offering - - (40,000) -
Net income(loss) from July 9, 1997
(inception) to December 31, 1997 - - - (26,035)
------------ ------------ ------------ ------------
BALANCE, December 31, 1997 600,000 600 399,400 (26,035)
Net income (loss) for the year ended
December 31, 1998 - - - (72,866)
------------ ------------ ------------ ------------
BALANCE, December 31, 1998 600,000 600 399,400 (98,901)
Shares issued pursuant to a private
placement at $.50 per share, March
and April 1999 400,000 400 199,600 -
Direct costs of stock offering - - (1,638) -
Shares issued to vendor for services
June 1999 at $4.00 per share 10,000 10 39,990 -
Shares issued to officer and director
for services, June 1999 at $.50
per share 150,000 150 74,850 -
Shares issued upon exercise of
warrants, July and September 1999 at
$1.00 per share 100,000 100 99,900 -
Shares issued to pay royalty for joint
venture partner, October 1999 at
$3.00 per share 15,000 15 44,685 -
Shares issued to vendor for services,
December 1999 at $3.00 per share 4,000 4 11,996 -
Shares issued to officers and directors
pursuant to a private placement at
$1.00 per share, December 1999 120,000 120 119,880 -
Net income (loss) for the year ended
December 31, 1999 - - - (441,243)
--------- ------------ ------------ -------------
BALANCE, December 31, 1999 1,399,000 $ 1,399 $ 988,963 $ (540,144)
========= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 29
NATEX CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the Cumulative
Year ended Year Ended During the
December 31, December 31, Development
1999 1998 Stage
------------ --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (441,243) $ (72,866) $ (540,144)
Adjustments to reconcile net (loss) to
net cash provided by operating activities - - -
Cumulative change in accounting principle 27,226 - 27,226
Stock issued for services 75,000 - 75,000
Decrease in investment in limited liability
company 314,261 50,717 390,165
Amortization - 1,239 1,239
Changes in assets and liabilities
Increase in organization costs (9,887) - (28,465)
(Increase) in accounts payable 807 - 807
--------- -------- ---------
Net cash (used) by operating activities (33,836) (20,910) (74,172)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Related party loans (331,000) - (375,000)
Investment in limited liability company - - (250,000)
--------- --------- ---------
Net cash provided (used) by investing
activities (331,000) - (625,000)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 380,000 - 820,000
Direct costs of stock sale (1,638) - (41,648)
--------- --------- ---------
Net cash provided by financing activities 378,362 - 778,362
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 13,526 (20,910) 79,190
CASH - BEGINNING OF PERIOD 65,664 86,674 -
--------- --------- ---------
CASH - END OF PERIOD $ 79,190 $ 65,664 $ 79,190
========= ========= =========
SUPPLEMENTAL INFORMATION
Interest paid during the period $ - $ - $ -
====== ====== ======
Income taxes paid during the period $ - $ - -
====== ====== ======
Stock issued to pay royalties and
expenses of related entity $ 97,000 $ - $ 97,000
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 30
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 acquired a license to 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.
Investment in Limited Liability Company - The Company will account for its
investment in the Limited Liability Company using the equity method of
accounting.
Amortization of Organization Costs - The Company was amortizing its
organization costs over a sixty (60) month period using the straight-line
method. In 1998, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5. "Reporting on the Costs of Start-up Activities." The SOP
requires costs of start-up activities and organization costs to be expensed as
incurred. During 1999, the Company adopted the SOP and recognized a charge
for the cumulative effect of accounting change of $27,226.
Income Taxes - The Company provides for income taxes based on the liability
method, which required 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.
Use of Estimates - The preparation of financial statements in conformity with
the generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - 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. The Company had no noncash
financing activities for the years ended December 31, 1999 and 1998.
Net Income (Loss) Per Common Share - Basic earnings (loss) per common share
(EPS) is calculated by dividing net income (loss) for the period by the
weighted average number of the Company's common shares outstanding and, if
applicable, EPS is computed by dividing net income by diluted diluted common
equivalent shares from stock options and warrants, as calculated using the
treasury stock method.
Fully diluted earnings 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 Company
has had losses for every period since inception and thus a diluted earnings
per share computation would be antidilutive for December 31, 1999 and 1998.
Per Financial Accounting Statement No. 128 if there is a loss from continuing
operations, diluted EPS is the same as basic EPS.
<PAGE>
<PAGE> 31
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Issuance of Shares for Services and Other Expenses - Valuation of shares
issued for royalties, services and expenses of the Company and in behalf of
its joint venture partner were based on the fair market value of the above
items at the time of issuance
NOTE 2 - STOCK OPTION PLAN AND STOCK FOR COMPENSATION
The Company's president 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. This option has not been
exercised as of December 31, 1999. Of the above options, 50,000 expire January
1, 2002 and 50,00 expire March 31, 2002.
Pursuant to an employment agreement the President was also issued in June of
1999, 150,000 shares of common stock and warrants. The common stock was
valued at $.50 for compensation of $75,000 and the warrants can be exercised
at $1.00 per share. The transaction was concurrent with the March 1999
Private Placement of the Company's common stock. The warrants were not
exercised at December 31, 1999 and expire June 6, 2002.
Subsequent to December 31, 1999, the Company issued to an employee options
for 10,000 shares of common stock at $3.00 per share under a incentive stock
option plan for employees. The shares vest in 3,333 shares increments on
January 1, 2003, 2004, and 2005. The options expire January 1, 2006. Under
the option plan the exercise price of incentive based options is equal to the
market price of the Company's stock on the date of grant.
NOTE 3 - RECEIVABLE - RELATED ENTITY
The receivable from related entity is an unsecured non-interest bearing loan
which has no repayment terms. The Company has loaned $472,000 to the related
party through December 31, 1999. The receivable is due from Powerball
Technologies, LLC (A Development Stage Company). Natex Corporation is a 50%
owner of Powerball Technologies, LLC. (See note 5).
NOTE 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 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- --------- --------
Cash and Cash Equivalents $ 79,190 $ 79,190 $ 65,664 $ 65,664
========= ======== ========= ========
<PAGE> 32
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN LIMITED LIABILITY COMPANY
The Company and Powerball Industries, Inc. have formed a limited liability
company called Powerball Technologies, LLC (LLC) 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. assigned the Technology License to the LLC for a
50% ownership interest in the LLC. The Company invested $250,000 in the LLC
for a 50% ownership interest. The LLC is a development Stage Company.
The following is a summary of financial position and results of operations of
the LLC:
1999 1998
--------- ---------
Current assets $ 8,720 $ 112,361
Property and equipment-net 18,434 -0-
Other assets 17,564 34,486
--------- ---------
Total assets 44,718 $ 146,847
Current liabilities $ 99,704 $ 1,311
Long-term debt 472,000 44,000
Members' equity (526,986) 101,536
--------- ---------
Total liabilities and equity $ 44,718 $ 146,847
Revenue $ -0- $ -0-
--------- ---------
Net income (loss) $(628,522) $(101,434)
--------- ---------
NOTE 6 - STOCK OFFERINGS AND COMMON STOCK TRANSACTIONS
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.
During March and April 1999, the Company completed a private placement of
400,000 Units consisting of one share of restricted Common Stock at $.50 per
share and 1 Warrant for 1 share of restricted Common Stock exercisable at
$1.00 per share. The Warrants expire March and April of 2002. Direct costs of
the offering were $1,638. During December 1999, the Company completed a
second private placement of 120,000 Units consisting of one share of
restricted Common Stock at $1.00 per share and 1 Warrant for 1 share of
restricted Common Stock exercisable at $1.00 per share. The Warrants expire
December 2001. The Units were sold to Officers and Directors of the Company.
At December 31, 1999, of the above Warrants 100,000 had been exercised.
Subsequent to year end an additional 80,000 shares have been exercised.
Also during 1999, the Company issued a total of 14,000 shares of its common
stock to a vendor to pay for services rendered at a value of $52,000 and
15,000 common shares to pay for royalties owed by the LLC which were valued at
$45,000.
<PAGE>
<PAGE> 33
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCK OFFERINGS AND COMMON STOCK TRANSACTIONS - CONTINUED
The Company has received $10,000 for a sale of its common stock but the shares
have not yet been issued. The Company has recorded this transaction as a
deferred equity transaction in the liability section of the balance sheet
until the shares are issued. The Company has a Stock Subscription receivable
of $50,000 connected with the private placement of its Common Stock in
December 1999. Subsequent to yearend the $50,000 was received and the
subscription receivable was satisfied.
NOTE 7 - INCOME TAXES
Due to losses at December 31, 1999 and 1998, the Company had no income tax
liability and thus no provision for taxes was recorded. The Company had a
deferred tax benefit of $9,257 derived from the amortizing of organization
costs for tax reporting and expensing of organization costs for finical
reporting purposes. At December 31, 1998, the Company has a net operating loss
carryforward of approximately $552,700 which will expire between the years
2012 and 2019. A Valuation allowance of $197,175 has been established for
those tax credits which are not expected to be realized. The change in the
valuation allowances for 1999 was $163,549.
NOTE 8 - DEVELOPMENT STAGE COMPANY AND GOING CONCERN
The Company is a development stage company as defined in Financial Accounting
Standards Board Statement No. 7. It has yet to commence full-scale business
operations. From inception through the date of these financial statements,
the Company did not have any net income form operations. At the current time,
the Company has a deficit accumulated during the development stage of
$552,703.
Accordingly, the Company's ability to accomplish it business strategy and to
ultimately become profitable is at this time dependent on the success of its
joint venture and the joint venture's future ability to generate significant
revenue and to ultimately achieve profitable operations. At present most of
the capital the Company has obtained has been loaned to the joint venture.
There can be no assurance that the Company will be able to obtain additional
funding. and, if available, that the funding will be obtained on terms
favorable to or affordable or in adequate amounts needed to complete its
current business plan with its joint venture. The Company's management is
exploring all of its options so that if can successfully develop successful
operations around its business plan. Ultimately, however, the Company will
need to achieve profitable operations in order to continue as a going concern
NOTE 9 - SUBSEQUENT EVENTS
The Company has signed a letter of understanding with Powerball Industries,
Inc. (PIC) which is the other owner in the LLC. Under the terms of the letter
the Company will acquire PIC by effecting a merger in which the Company will
acquire all of the issued and outstanding stock of PIC in exchange for the
issuance of one million five hundred thousand shares of the Common Stock of
the Company. The letter also addresses the assignment of technology, the
share exchange, a rewriting of the exclusive license agreement and assignment,
and the Royalty agreement of the LLC. This acquisition will be accounted for
as a purchase.
<PAGE>
<PAGE> 34
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - OFFICE SPACE
The Company is receiving free office space from the management of the Company.
The management of the Company has deemed the value of the free office space to
be of nominal value through December 31, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 79,190
<SECURITIES> 0
<RECEIVABLES> 522,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 129,190
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 601,190
<CURRENT-LIABILITIES> 10,807
<BONDS> 0
0
0
<COMMON> 1,399
<OTHER-SE> 448,819
<TOTAL-LIABILITY-AND-EQUITY> 601,190
<SALES> 0
<TOTAL-REVENUES> 1,234
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 415,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (413,917)
<INCOME-TAX> 100
<INCOME-CONTINUING> (414,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (27,226)
<NET-INCOME> (441,243)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
<PAGE>
Exhibit 10.01
NATEX CORPORATION
48 West 300 South, Suite 2303 North
Salt Lake City, Utah 84101
February 11, 2000
Jed Checketts
Powerball Industries, Inc.
2095 West 2200 South
West Valley City, Utah 84119 Via Fax Transmission 801-972-5032
Re: Letter of Understanding
Dear Jed:
This letter shall serve to outline certain terms relating to the desire
of Natex Corporation ("Natex") to acquire Powerball Industries, Inc. ("PIC")
by effecting a merger in which Natex will acquire all the issued and
outstanding stock of PIC in exchange for the issuance of one million five
hundred thousand (1,500,000) shares of the common stock of Natex. Set forth
below is an outline of certain of the essential terms upon which definitive
agreements would be based.
1. Terms of the Transaction
(a) Assignment of Technology. Prior to the merger, you will
assign all rights, title and interest in the technology covered by the
Exclusive License Agreement between you and PIC, dated September 18, 1997 (the
"Technology"), to PIC. The Technology will become the property of Natex
following the merger, subject to royalty payments to you based on the gross
sales of Powerball Technologies, LLC.
(b) Share Exchange. Natex will issue a total of one million
five hundred thousand (1,500,000) shares of its common stock to the
shareholders of PIC in exchange for all of the issued and outstanding stock of
PIC.
(c) Rewriting of Exclusive License Agreement and Assignment. At
the effective date of the merger, Natex and PIC will agree to rewrite the
Exclusive License Agreement and the Assignment of the Exclusive License
Agreement dated December 4, 1997 under which Powerball Technolgies, LLC (the
"JV") currently has rights and obligations relating to the above Technology.
(d) Royalty Agreement. Upon closing, Natex will enter into a
royalty agreement with you for payments based on the gross sales of Powerball
Technologies, LLC.
(e) Appointment of President. Upon closing, you will be
appointed President of the surviving corporation. You understand that the
board of directors will remain the final authority for the corporation.
(f) Closing Conditions. Consummation of this transaction will
be subject to, among other things: (i) the satisfactory completion of due
diligence of PIC, as outlined in paragraph 3 below; (ii) the negotiation and
execution of definitive agreements and related documentation and
representations with terms and conditions as outlined herein and that are
mutually satisfactory to you, myself, and our legal counsel; (iii) the
approval or consent satisfactory to our legal counsel to the transfer or
assignment of any contracts requiring such approval; and (iv) obtaining all
other third party approvals (including governmental or regulatory approvals)
deemed necessary or appropriate.
<PAGE>
2. Confidentiality. The parties acknowledge the confidential nature
of confidential information disclosed during the investigation of the proposed
transaction. Both parties agree not to disclose, communicate, divulge, or use
for the benefit of any other person, the confidential information (i.e.,
information not known or available to the public or persons engaged in the
same business) shared by each party, unless mutually agreed by both parties,
except for legal counsel and accountants as retained by the parties pursuant
to this transaction.
3. Due Diligence. I acknowledge that certain informal information
about PIC has been received and reviewed, however, this letter of intent and
our mutual willingness to proceed with the transaction are subject to standard
due diligence. I suggest that we set a date of February 25, 2000 (15 days
from the date of this letter) to complete and be satisfied with the results of
our respective due diligence so that this transaction can be completed as soon
as is reasonably practicable. In connection with performing standard due
diligence, both parties further agree to mutually cooperate in connection with
the due diligence review (including promptly providing all such information
and access to such information, personnel, representatives, properties,
facilities, and other matters as each party may from time to time request).
4. Fees and Costs. Natex agrees that it shall bear all of the legal,
accounting, and other fees and expenses in connection with this transaction.
5. Closing Date. The Closing Date of the transactions contemplated
by this Letter of Understanding, including the execution and delivery of the
definitive agreements and any other documents or agreements required hereunder
or thereunder shall be February 25, 2000, unless extended by the mutual
consent of the parties.
6. Obligation to Proceed in Good Faith. This Letter of Understanding
shall supersede and cancel any and all other representations, communications,
whether oral or written, between the parties hereto relating to the
transactions contemplated herein or the subject matter hereof, and shall serve
as a basis to proceed in good faith with the preparation of the definitive
agreements and other necessary documentation.
If this letter properly reflects our understanding, please initial each
page hereof, sign, date, and return by fax a copy of this letter. This letter
may be executed in counterparts.
Sincerely,
NATEX CORPORATION
By: /S/ Robert K. Ipson
Bob Ipson
Agreed and accepted this 11th day of February 2000.
POWERBALL INDUSTRIES, INC.
By: /S/ Jed Checketts
Jed Checketts
cc: Craig McCullough, Esq.
Fax: 801-364-9127
