U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
PUSH ENTERTAINMENT INC.
(Name of Small Business Issuer in its Charter)
Delaware 51-0384101
(State of Incorporation) (IRS Employee Identification No.)
Suite 600
560 5th Avenue SW
Calgary, Alberta Canada T2P 3R7
(Address of Principal executive Offices)
(403) 297-1055
(Issuer's Telephone Number:)
Common Shares, $.001 par value per share
(Securities to be Registered Under Section 12(g) of the Act)
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TABLE OF CONTENTS
PART I
PAGE
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Description of Property 13
Item 4. Security Ownership of Certain Beneficial Owners and Management 14
Item 5. Directors, Executive Officers, Promoters and Control Persons 15
Item 6. Executive Compensation 18
Item 7. Certain Relationships and Related Transactions 19
Item 8. Description of Securities 19
PART II
Item 1. Market Price and Dividends on the Registrant's
Common Equity and Other Stockholder Matters 19
Item 2. Legal Proceedings 20
Item 3. Changes in and Disagreements with Accountants 20
Item 4. Recent Sales of Unregistered Securities 20
Item 5. Indemnification of Directors and Officers 20
PART F/S
Index to Financial Statements 23
PART III
Item 1. Index to Exhibits 33
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. The Company
Push Entertainment Inc. (the "Company") was incorporated under the laws of
the State of Delaware on January 7, 1998. The Company's address is Suite 600,
560 5th Avenue SW, Calgary, Alberta, Canada, T2P 3R7. The Company's registered
office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware
19801. Its telephone number is (403)297-1055 and its facsimile number is
(403)297-1059.
On January 7, 1998 the Company acquired all of the issued and outstanding
capital stock of Push Technologies Inc. (formerly 736145 Alberta Inc.) an
Alberta corporation incorporated on April 21, 1997 (the "Subsidiary").
The Subsidiary had entered into an Agreement dated June 4, 1997 (the
"E-Zone Agreement") with E-Zone Networks Inc., a Delaware Corporation
("E-Zone"), pursuant to which the Subsidiary agreed to purchase certain
technology and intellectual property (the "Technology") from E-Zone in
consideration of (1) the payment of $200,000 on or before March 31, 1998; and
(2) payment of an additional $160,500 for improvements made to the Technology.
Pursuant to an Assignment Agreement dated January 27, 1998 (1) the
Subsidiary assigned to the Company all of its right, title and interest in and
to the E-Zone Agreement and in and to the Technology; and (2) the Company agreed
to discharge the obligations of the Subsidiary under the terms of E-Zone
Agreement. The Company has since satisfied all of the Subsidiary's obligations
under the terms of the E-Zone Agreement.
The Company has concluded that in order to more efficiently provide and
make generally available current material information concerning its operations
to its stockholders, a voluntary filing of a registration statement on Form
10-SB pursuant to the Security Exchange Act of 1934, as amended, (the "Exchange
Act") is warranted. If the Company's reporting obligation under the Exchange Act
is terminated its intention would be to continue to disseminate an annual
report, including audited financial statements, to its stockholders.
The Technology consists of a suite of processes and proprietary software
which will facilitate the conversion of existing 2D film and video content to a
3D format. See "Item 1. Description of Business - The Business of the Company."
B. The Business of the Company
Following its acquisition of the Technology, the Company (1) has continued
to expend its resources on the development and enhancement of the Technology
(approximately $744,718 through September 30, 1998); and (2) implemented limited
marketing activities. However, as at August 31, 1998 no revenues have been
generated as a result of these marketing efforts. E-Zone, the initial developer
of the Technology, had not generated any revenues from the Technology.
1. The Technology
The Technology includes the 3D Professional Workstation (the "Workstation")
which consists of a
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suite of functions designed for post-production and digital imaging
professionals. The Workstation significantly improves the production process for
creating stereoscopic 3D video, and when complete, will generate high quality 3D
moving images from existing 2D content.
The Technology is compatible with, and can be delivered on film, videotape,
digital versatile disk ("DVD") and CD-ROM. The Company has completed feasibility
studies of the 3D conversion process and has produced demonstration segments
based on alpha releases of the Workstation. The first release of the Workstation
is scheduled for the second quarter of 1999.
The Technology does not require any "raw" materials (eg. computer hardware,
disks, etc.) that are not widely and generally available from a variety of
different sources at competitive rates.
2. Intellectual Property
The Company has been assigned the rights in and to a certain patent
application pertaining to certain aspects of the Technology and will file
additional patent, as well as copyright, applications for the Company's
technologies and processes as and when management deems such applications are
timely, necessary, and advantageous.
3. Competitive Products
Although there is a history of real time 2D to 3D conversion processes such
as those being developed by the Sanyo Corporation, the Company is aware of only
one other company (Xenotech Ltd., an Australian company) attempting to develop a
post production 3D conversion process. While the Company and Xenotech Ltd. are
developing similar and competitive processes, the Company believes that the
Technology will offer more and greater flexibility than the Xenotech Ltd.
process. Although the Xenotech process has been in development for a longer
period of time it has not yet been made commercially available. As both the
Technology and the Xenotech Ltd. process have yet to be brought to market the
Company is not able to assess the competitive features such as time and ease of
delivery and product pricing. However, the Company does believe that the
Technology will gain greater acceptance because of its ability to give the user
a wider range of artistic control.
Moreover, the entertainment, film, video and software industries are
intensely competitive and the Company competes, and will compete, with companies
having greater financial and technical resources. Therefore to the extent that
the Company is able to establish sales, revenues and profits there is no
assurance that it would be able to sustain such sales, revenues and profits.
Moreover, although not a major factor today, if and when the Company begins
achieving its objectives, larger, better financed companies in peripheral
businesses may be attracted to the Company's markets. They may be prepared to
spend large sums quickly to develop competitive products and to mount major
marketing campaigns. The Company is aware of this possibility and hopes to
establish itself as an industry leader early on. Time is of the essence and the
Company's financing and marketing programs are essential to minimize this risk.
4. Advantages of the Technology
The Technology has three significant advantages:
(a) the market for the Technology is commercial quality, off-line
processing which allows manipulation of specific images without
distortion;
(b) the automated image object tracking capability of the Technology
speeds up the extraction of images from within a scene by
automatically tracking the image forward and backward
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in time; and
(c) the Technology has been designed to aid in enhancement and production
and to become a part of the creative aspect of film and video making.
It provides the editor with the unique ability to generate the desired
final product. For example, in order to give an object a 3D effect,
shading, texturing, rotations and other manipulations can be
controlled and combined into a dynamic operation.
5. Post Production
The Technology has the capability of carrying out special effects film and
video editing by object manipulation and image enhancement. Images which have
been captured on film or video - a person or an object can be extracted on a
scene by scene or a frame by frame basis. Through object recognition and
tracking the undesired elements are extracted from the source. The Technology
also allows the extracted objects to be manipulated in a variety of methods,
thereby allowing the image to be converted from 2D to 3D. In addition, it
completes and fills in the scene behind the extracted object.
6. Potential Market, Sales Plans and Strategies
3D attractions, such as "Terminator II 3D" and "Honey I Shrunk the
Audience" located at Universal Studios Theme Parks, are experienced by 80% of
the patrons*. For further example, IMAX has experienced substantial growth by
deploying 3D content in its theaters**. The Company believes that video and DVD
rentals will soon include 3D titles, thereby providing a market for 3D enhanced
productions, including new releases and re-released existing product. The
Company also sees a market for its technology in the multi-media and computer
gaming industries and for use in upscale, sophisticated corporate presentations.
The Company believes that revenues can be achieved from post production
conversion services, box office percentages and royalties. Initially the Company
intends to use the Technology to provide editing services directly to customers;
however, the Company, if it deems it appropriate, will attempt to establish
industry alliances with potential industry partners for product and process
development, production and distribution agreements and to formalize such of
those alliances as may be advantageous to the Company. The Company plans to
provide conversion services to the film industry on a combination of fixed fee,
income sharing and royalty basis for the conversion of existing film libraries;
however, no pricing policy has been established. For corporate presentations the
Company may become involved directly on a for fee basis for larger presentations
and foresees either licensing advertising agencies to use the processes or
forming alliances to implement the business strategy. To date, the Company has
not effected any such industry alliances.
C. Risk Factors Associated with the Company and Its Business
The Company is engaged in the business of developing and marketing the
Technology which was acquired by the Subsidiary. As no market for the Technology
has been developed and as the Technology remains under development, the
Company's business is characterized by a number of significant risks which are
set forth below.
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* The foregoing statement is based upon information generally available to the
public, and which the Company believes to be reliable, as published in the
Hollywood Reporter, dated May 28, 1996 in an article entitled "T2 Radio Goes
Back to the Future."
** The foregoing statement is based upon information generally available to the
public, and which the Company believes to be reliable, including information
published on the IMAX website.
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1. Recently Organized Company
The Company was only recently organized and has limited assets and
operating history. It has no record of commercial production, earnings or sales.
The Company, therefore, must be considered promotional and in its early
formative and development stage. There is no assurance that the Technology will
achieve commercial acceptance or, if it does, that a functionally equivalent
product will not be developed by competitors with access to significantly
greater resources to devote to research, development and marketing. There is
nothing at this time upon which to base an assumption that the Company's
business plan will prove successful, and there is no assurance that the Company
will be able to operate profitably.
2. No Sales or Revenues and lack of Cash Flow
As noted, the Company is a new enterprise in the development stage, with a
very limited history. It has had no sales or revenues. It is impossible to
predict the timing of receipt or the magnitude of revenues from the marketing of
the Technology, or whether such revenues will be realized. Any material delay in
bringing the Technology to market could result in significant delays in the
generation of revenues. In view of the uncertainties that exist concerning the
ability of the Technology to achieve commercial acceptance, there can be no
assurance that the Company will be able to achieve or sustain sales and/or
profitability.
3. Lack of Cash Flow; Additional Funding Requirements
The Company has no source of operating cash flow. The Company has limited
financial resources. To the extent that additional funds are required, the
Company will seek to obtain such funds through equity and/or debt offerings.
There is no assurance that if additional funding were needed, that it would be
available to the Company on terms and conditions acceptable to it. Failure to
obtain such additional funding could result in delay or indefinite postponement
of the Technology to the market place or the ability to supply sufficient
product to the market place on a continual and profitable basis. Reference
should be made to the Notes to the Financial Statement (Page 28) wherein it is
stated that "the Corporation is in the development stage and has no operating
history of generating cash flow from operation which raises substantial doubt
about its ability to continue as a going concern." See also the Auditor's Report
(Page 24).
4. Competition from Larger Companies
The entertainment, film, video and software industries are intensely
competitive and the Company competes and will compete with companies having
greater financial and technical resources. Therefore, to the extent that the
Company is able to establish sales, revenues and profits there is no assurance
that it would be able to sustain such sales, revenues and profits. Moreover,
although not a major factor today, if and when the Company begins achieving its
objectives, larger, better financed companies in peripheral businesses may be
attracted to the Company's markets. They may be prepared to spend large sums
quickly to develop competitive products and to mount major marketing campaigns.
The Company is aware of this possibility and hopes to establish itself as an
industry leader early on. Time is of the essence and the Company's financing and
marketing programs are essential to minimize this risk.
5. Product Obsolescence
The entertainment, film, video and software industries are characterized by
rapid and significant technological change, and the introduction of new products
and new services. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in either
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industry may adversely affect the Company's ability to sell the Technology. The
Company's ability to anticipate changes in technology, industry standards and
needs and to develop and introduce new (or enhance existing) processes and
products on a timely basis will be a significant factor in its competitive
position and growth prospects.
6. Sales and Distribution
The Company has yet to establish a significant distribution and support
network. Failure on the part of the Company to put into place an experienced and
effective marketing infrastructure in a timely manner, could act to delay or
negate the realization of anticipated revenues.
7. Market Acceptance
The viability of the Company is dependent upon the market acceptance of the
conversion of existing 2D content to 3D. There is no assurance that this process
will attain a level of market acceptance which will allow for continuation and
growth of its business operations. In addition, the Company will need to develop
new processes and products to maintain its operations in the longer term. The
development and launching of such processes and products can involve significant
expenditure. There can be no assurance that the Company will have sufficient
financial resources to fund such programs and whether such undertaking will be
commercially successful.
8. Potential Future 144 Sales
Of the 50,000,000 authorized shares of the Common Stock of the Company,
there are presently issued and outstanding (or reserved for issuance) 18,550,105
shares; all of which, except for 2,522,581 shares, are "restricted securities"
as that term is defined under the Securities Act of 1933, as amended (the
"Act"), and in the future may be sold in compliance with Rule 144 of the Act,
pursuant to a registration statement filed under the Act, or other applicable
exemptions from registration thereunder. Rule 144 provides, in essence, that a
person holding restricted securities for a period of one year may sell those
securities in unsolicited brokerage transactions or in transactions with a
market maker, in an amount equal to one percent of the Company's outstanding
Common Stock every three months. Additionally, Rule 144 requires that an issuer
of securities make available adequate current public information with respect to
the issuer. Such information is deemed available if the issuer satisfies the
reporting requirements of Sections 13 or 15(d) of the Exchange Act and of Rule
15c2-11 thereunder. Rule 144 also permits, under certain circumstances, the sale
of shares by a person who is not an affiliate of the Company and who has
satisfied a two year holding period without any quantity limitation and whether
or not there is adequate current public information available. Investors should
be aware that sales under Rule 144, or pursuant to a registration statement
filed under the Act, may have a depressive effect on the market price of the
Company's Common Stock in any market that may develop for such shares.
9. No Market For the Company's Common Stock and Penny Stock Rules.
There is no current trading market for the shares of the Company's Common
Stock and there can be no assurance that a trading market will develop, or, if
such a trading market does develop, that it will be sustained. The shares of the
Company's Common Stock, to the extent that a market develops for the shares of
the Company's Common Stock at all, of which there can be no assurance, will
likely appear in what is customarily known as the "pink sheets" or on the NASD
Bulletin Board, which may limit the marketability and liquidity of the shares of
the Company's Common Stock. Thus, stockholders may find it difficult to sell
their shares. To date, neither the Company nor anyone acting on its behalf has
taken any affirmative steps to request or encourage any broker/dealer to act as
a market maker for the Company's Common Stock. Further, there have been no
discussions or understandings, preliminary or otherwise,
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between the Company or anyone acting on its behalf and any market maker
regarding the participation of any such market maker in the future trading
market, if any, for the Company's Common Stock.
Under Rule 15g-9 of the Exchange Act, a broker or dealer may not sell a
"penny stock" to, or effect the purchase of a penny stock by, any person unless:
(a) such sale or purchase is exempt from Rule 15g-9;
(b) prior to the transaction the broker or dealer has (1) approved the
person's account for transactions in penny stocks in accordance with
Rule 15g-9, and (2) received from the person a written agreement to
the transaction setting forth the identity and quantity of the penny
stock to be purchased; and
(c) the purchaser has been provided an appropriate disclosure statement as
to penny stock investment.
The United States Securities and Exchange Commission (the "Commission")
adopted regulations that generally define a penny stock to be any equity
security other than a security excluded from such definition by Rule 3a51-1.
Such exemptions include, but are not limited to (1) an equity security issued by
an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operations for at least three years, (ii) net
tangible assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years, or (iii) average revenue of at least
$6,000,000 for the preceding three years; (2) except for purposes of Section
7(b) of the Exchange Act and Rule 419, any security that has a price of $5.00 or
more; and (3) a security that is authorized or approved for authorization upon
notice of issuance for quotation on the NASDAQ Stock Market, Inc.'s Automated
Quotation System. It is likely that shares of the Company's Common Stock,
assuming a market were to develop therefore, will be subject to the regulations
on penny stocks; consequently, the market liquidity for the Company's Common
Stock may be adversely affected by such regulations limiting the ability of
broker/dealers to sell the Company's Common Stock and the ability of
stockholders to sell their securities in the secondary market.
Moreover, the Company's shares may only be sold or transferred by its
stockholders in those jurisdictions in which an exemption for such "secondary
trading" exists or in which the shares may have been registered.
10. Intellectual Property
The Company has been assigned the rights in and to certain patent
applications pertaining to the Technology and intends to file such other patent
applications with respect to Technology as it may deem advisable. No assurance
is given that the patents will be granted or that, even if granted, the
Technology does not infringe upon the patents of others. In the event of
infringement, the consequences to the Company could be materially adverse.
11. Adequate Labor and Dependence Upon Key Personnel; No Employment
Agreements
The Company will depend upon recruiting and maintaining qualified personnel
to staff its operations. The Company believes that such personnel are currently
available at reasonable salaries and wages. There can be no assurance, however,
that such personnel will always be available in the future. The continuing
development of the Technology has been almost entirely dependent on the skills
of management and certain key employees of the Company with which the Company
has no employment agreements. Loss of the services of any of this management
team and key employees could have a
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material adverse effect upon the Company.See "Item 5. Directors, Executive
Officers, Promoters and Control Persons."
12. Conflicts of Interest
From time to time certain of the directors and executive officers of the
Company may serve as directors or executive officers of other companies and, to
the extent that such other companies may participate in the industries in which
the Company may participate, the directors of the Company may have a conflict of
interest. In addition, the Company's dependence on directors and officers who
devote time to other business interests may create conflicts of interest, i.e.
that the fiduciary obligations of an individual to the other company conflict
with the individual fiduciary obligations of the Company and visa versa.
Directors and officers must exercise their judgment to resolve all conflicts of
interest in a manner consistent with their fiduciary duties to the Company. In
the event that such a conflict of interest arises at a meeting of the directors
of the Company, a director who has such a conflict will abstain from voting for
or against the approval of such a participation or such terms. In appropriate
cases, the Company will establish a special committee of independent directors
to review a matter in which several directors, or management, may have a
conflict. The Company is not aware of the existence of any conflict of interest
as described herein.
13. Control by Management
The Company's current officers and directors, as a group, own 7,129,960 or
38.4% of the Company's issued and outstanding common stock; and, accordingly may
be able to exercise effective control over the Company's affairs, including but
not limited to, the election of directors.
14. Year 2000 Risks
Currently the Company does not rely on any computer programs that will
materially impact the operations of the Company in the event of a Year 2000
disruption. The Company has been advised by Apple Computers Inc., whose software
the Company has licensed for its operations, that such programs have been
specifically engineered to enable development of Year 2000 compliant
applications. However, like any other company, advances and changes in available
technology can significantly impact its business and operation. Consequently,
although the Company has not identified any specific year 2000 issue, the "Year
2000" problem creates risk for the Company from unforeseen problems in its own
computer systems and from third parties, including but not limited to financial
institutions, with whom it transacts business. Such failures of the Company
and/or third parties computer systems could have a material impact on the
Company's ability to conduct its business. See "Item 2. Management's Discussion
and Analysis of Financial Condition or Plan of Operation."
15. Forward Looking Statements
This registration statement includes "forward-looking statements" within
the meaning of Section 27A of the Act and Section 21E of the Exchange Act. A
shareholder or prospective shareholder should bear this in mind when assessing
the Company's business and prospectus. All statements, other than statement of
historical facts, included in this registration statement, including, without
limitation, the statements under and located elsewhere herein regarding industry
prospects and the Company's financial position are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectation will prove to have been correct. Important factors that could cause
actual results to differ materially from the expectations ("cautionary
statements") are disclosed in this registration statement, including, without
limitation, in conjunction with the forward-looking statements included in this
registration statement
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section entitled "Risk Factors Associated with the Company and Its Business."
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements. See "Item 2. Management's Discussion and
Analysis or Plan of Operation." Reliance on the "Forward Looking Statements"
safe harbor by the Company may adversely effect the ability of a shareholder to
seek redress in the event such forward looking statements are not realized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
A. Operations To Date
The Subsidiary entered into an Agreement dated June 4, 1997 (the "E-Zone
Agreement") with E-Zone Networks Inc., a Delaware Corporation ("E-Zone")
pursuant to which the Subsidiary agreed to purchase certain technology and
intellectual property (the "Technology") from E-Zone in consideration of (1) the
payment of $200,000 on or before March 31, 1998; and (2) payment of an
additional $160,500 for improvements made to the Technology.
Pursuant to an Assignment Agreement dated January 27, 1998 (1) the
Subsidiary assigned to the Company all of its right title and interest to the
E-Zone Agreement and in and to the Technology; and (2), the Company agreed to
discharge the obligations of the Subsidiary under the terms of E-Zone Agreement.
Up to September 30, 1998, the Company has expended $360,500 in satisfying
the Subsidiary's obligation under the E-Zone Agreement and the Company has
expended approximately $104,731 in the acquisition of capital assets including
computer hardware, office furnishings and equipment and an additional $230,864
on technology and product development.
B. Plan of Operation
The Company plans to complete the commercialization of the software for the
Technology within the next twelve months. The initial marketing program for the
completed software will be to the large format (70mm) film industry. The Company
expects to be able to secure at least one contract during the second quarter of
1999.
The Company has budgeted approximately one-half of its efforts and
resources over the next twelve months to research and the development of the
Technology.
As at September 30, 1998 the Company had working capital of $38,664,
derived form the proceeds of the offer and sale of its Common Stock. See "Part
II. Item 4. Recent Sales of Unregistered Securities." The Company will require
additional funding, effected through equity and/or debt financing, in order to
meet its projected cash requirements through August 1999. The Company has no
understandings or agreements with any person regarding any such equity and/or
debt financing and no assurance can be given that the Company will be able to
obtain such additional financing on terms that it deems acceptable. See "Part I.
Item 1. Descriptions of Business - Risk Factors Associated with the Company and
Its Business."
The Company anticipates its cash requirements through August 31, 1999 to be
as follows:
Research and Development $ 442,648
Sales & Marketing Activities 122,848
Capital Investments 122,000
General Administrative Expenses 387,792
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Total $1,075,288
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The Company anticipates making equipment purchases aggregating $74,000
during this period. However its primary focus will be on continued research and
development, as well as increased marketing activities so as to achieve initial
revenues. No assurance can be given that the amount budgeted for such activities
will be sufficient to achieve the Company's goals. If additional funds are
required the Company will need to explore the availability of such funds either
through the sale of equity and/or debt securities or borrowings. To the extent
that the Company engages in such financing activities, the Company's existing
stockholders and/or management may participate.
The Company has nine full time in house consultants and anticipates hiring
additional employees during the period ending August 31, 1999 as its needs and
resources permit.
C. Year 2000 Issues
The "Year 2000 problem", as it has come to be known, refers to the fact
that many computer programs use only the last two digits to refer to a year, and
therefore does not recognize a change in the first two digits. For example, the
year 2000 would be read as being the year 1900. If not corrected, this problem
could cause many computer applications to fail or create erroneous results.
The Company has modified and tested all of the critical applications of its
information technology ("IT"), the result of which is that all such critical
applications are now Year 2000 compliant. Moreover, the Company has been advised
by Apple Computers, Inc. whose software is licensed by the Company, that such
software has been specifically engineered to enable development of Year 2000
compliant applications. The Company believes that virtually all of the
non-critical applications of its IT are or will be made Year 2000 compliant
prior to January 1, 1999. The Company's analysis and program is directed by its
internal IT personnel or others with whom it transacts business. The total
amount of the payments made to date and to be made hereafter to any independent
consultants, are not expected to be material.
Based on the Company's analysis to date, the Company believes that its material
non-IT systems are either Year 2000 compliant, or do not need to be made Year
2000 compliant in order to continue to function in substantially the same manner
in the Year 2000. The Company intends to continue its analysis of whether its
non-IT systems require any Year 2000 remediation. The Company's Year 2000
compliance work has not caused, nor does the Company expect that it will cause,
a deferral on the part of the Company of any material IT or non-IT projects.
However, there can be no assurance that any of the Company's vendors or
others with whom it transacts business, will be Year 2000 compliant prior to
such date. The Company is unable to predict the ultimate effect that the Year
2000 problem may have upon the Company, in that there is no way to predict the
impact that the problem will have nation-wide or world-wide and how the Company
will in turn be affected, and, in addition, the Company cannot predict the
number and nature of its vendors, customers or others with whom it transacts
business, including financial institutions, who will fail to become Year 2000
compliant prior to January 1, 2000. Significant Year 2000 difficulties on the
part of vendors, customers or others with whom it transacts business, including
financial institutions, could have a material adverse impact upon the Company.
The Company intends to monitor the progress of its vendors, customers or others
with whom it transacts business, including financial institutions, in becoming
Year 2000 compliant. The Company has not to date formulated a contingency plan
to deal with the potential non-compliance of vendors, customers and others with
whom it transacts business, including financial institutions, but will be
considering whether such a plan would be feasible.
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D. Forward Looking Statements
This registration statement includes "Forward-Looking Statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Any statements that express or involve discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives, assumptions
or future events or performance (often, but not always, using words or phrases
such as "expects" or "does not expect", "is expected", "anticipates" or "does
not anticipate", "plans", "estimates" or "intends", or stating that certain
actions, events or results "may", "could", "would", "might" or "will" be taken,
occur or be achieved) are not statements of historical fact and may be "forward
looking statements". Such statements are included, among other places in this
registration statement, in the sections entitled "Management's Discussion and
Analysis or Plan of Operation," "Description of Business" and "Description of
Property." Forward-looking statements are based on expectations, estimates and
projections at the time the statements are made that involve a number of risks
and uncertainties which could cause actual results or events to differ
materially from those presently anticipated. See "Risk Factors Associated with
the Company and Its Business." Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
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ITEM 3. DESCRIPTION OF PROPERTY
All of the Company's tangible assets have been acquired over the last
twelve months and were new at the time of acquisition by the Company. The
Company SUB-leases 3,700 square feet of office and research premises, located at
Suite 600, 560 5th Avenue SW, Calgary, Alberta, Canada from E-Zone Networks
Canada Inc., (E-Zone Canada) a wholly owned subsidiary of E-Zone. The basic rent
is $24,213Cdn.* annually ($2,017.75Cdn. monthly). In addition, the Company is
responsible for payment of additional rent for operating costs in the current
amount of $28,675. The lease expires February 28, 2001.
Mr. Lowe, the Company's President and director is also the President and
Chief Executive Officer as well as a directors of E-Zone. In addition, Messrs.
Hess and Simpson, directors of the Company, are also officers of E-Zone. See
"Item 7., Certain Relationships and Related Transactions."
- ----------
* The Company's accounts are maintained in United States dollars. In this
Registration Statement all dollar amounts are expressed in United States dollars
except where otherwise indicated.
The rate of exchange means the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposed by the Federal
Reserve Bank of New York. The average rate means the average of the exchange
rates on the last date of each month during a year.
1998 1997 1996 1995 1994
High $1.5845 $1.4378 $1.3822 $1.4238 $1.4078
Low 1.4075 1.3470 1.3548 1.3285 1.3103
Average for Period 1.4846 1.3800 1.3646 1.3689 1.3699
======= ======= ======= ======= =======
End of Period 1.5375 1.4328 1.3620 1.4030 1.3255
======= ======= ======= ======= =======
13
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of December 31, 1998, (1) each
person who is known by the Company to own beneficially more than five percent
(5%) of the Company's outstanding Common Stock; (2) each of the Company's
directors and officers; and (3) all directors and officers of the Company as a
group.
<TABLE>
<CAPTION>
Shares of
Common Approximate
Stock Percentage
Name of Beneficially of Issued
Beneficial Owner Owned and Outstanding
- ---------------- ------------ ---------------
<S> <C> <C>
Directors and Officers:
Danny Lowe 1,799,990(1)(3) 9.7%
Norman Hess 130,000(1) .7%
Todd Simpson 1,499,990(1)(4) 8.1%
Mark Holden 1,799,990(1)(5) 9.7%
Dan Matthews 1,799,990(2)(6) 9.7%
Ian Tweedie 100,000(2)(7) .5%
5% Stockholders:
Buchaneer Holdings Ltd. (8) 1,290,000(1) 7.0%
Directors and Officers as a Group (6 persons) 7,129,960 38.4%
</TABLE>
(1) Direct ownership
(2) Beneficial ownership
(3) Does not include 1,290,000 shares owned by a Bahamian corporate foundation,
as to which Mr. Lowe disclaims any direct or beneficial interest but as to
which certain members of Mr. Lowe's family and other third parties may
benefit.
(4) Does not include 750,000 shares owned by a Bahamian corporate foundation as
to which Dr. Simpson disclaims any direct or beneficial interest but as to
which members of Dr. Simpson's family and other third parties may benefit.
(5) Does not include 573,000 shares owned by a Bahamian corporate foundation as
to which Mr. Holden disclaims any direct or beneficial interest but as to
which members of Mr. Holden's family and other third parties may benefit.
(6) These shares are registered in the name of Abacus (Nominee) Limited - M1636
as trustee for the Matthews Family Trust of which Mr. Matthews is one of
the discretionary beneficiaries.
(7) These shares are registered in the name of Baracuda Financial Corp., a
corporation controlled by Mr. Tweedie.
(8) Buchaneer Holdings Ltd. is a Bahamian corporate foundation whose principal
is Richard W. De Vries of Calgary, Alberta, Canada.
14
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following persons are the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Position Held Term
- ---- --- ------------- ----
<S> <C> <C>
Danny D. Lowe 50 President, Director & Chairman of the Board Since 1/7/98
Norman R. Hess 51 Secretary/ Treasurer & Director Since 1/7/98
Todd G. Simpson 33 Vice President & Director Since 1/7/98
Mark H. Holden 40 Vice President & Director Since 1/7/98
Dan Matthews 33 Director Since 1/7/98
Ian Tweedie 49 Director Since 1/7/98
</TABLE>
All directors and officers of the Company are elected annually to serve for
one year or until their successors are duly elected and qualified.
The Company currently has nine full time personnel and is supported to the
extent required by outside consultants. Additional staff will be recruited as
required to support the Company's growth and development. All of the full time
personnel are contracted consultants. Key personnel also have equity positions
and have executed confidentiality and non-competition agreements. Compensation
levels are, and will continue to be commensurate with industry standards with
incentive programs extended to the key personnel.
Danny D. Lowe
President, Chairman of the Board and Director
Since January, 1996 Mr. Lowe has been a director, President and Chief
Executive Officer of E-Zone and its subsidiary E-Zone Research and Development,
Inc. Mr. Lowe co-founded QSound Labs, Inc. (NASDAQ) in 1988 and served as an
officer and director thereof until January, 1996. Mr. Lowe was the inventor of
QSound's proprietary 3D audio technology, widely recognized as a standard in 3D
audio. QSound's technology has been licensed by Intel, Sega and NEC and used by
such recording artists as Sting, Madonna and Pink Floyd. E-Zone provides a
closed television network to the fitness industry and will be bringing
entertainment products to market this year designed specifically for the fitness
industry and which alleviate the boredom associated with the use of stationary
exercise equipment. Mr. Lowe co-founded the Company.
Todd G. Simpson, Ph.D.
Vice President, Technical Direction & Intellectual Property, and Director
Dr. Simpson's career has been exclusively in Calgary, Alberta. He was
employed on a full time basis by Alberta Government Telephones (Telus) as a
Research Analyst between 1991 and 1993. For the period of 1992 through 1995 Dr.
Simpson held the part time position of an Instructor in programming and system
design courses with Continuing Education at the University of Calgary. From 1993
through 1995 Dr., Simpson was employed full time at QSound Labs Inc. as a
Project Leader and from 1995
15
<PAGE>
through to the present Dr. Simpson has held the position of Vice President,
Engineering at E-Zone Networks Inc. Since 1997 Dr. Simpson has also been the
President of Push Technologies Inc. and has been the Vice President and a
director of Push Entertainment Inc.
Mark Holden
Vice President, Film & Video Acquisition, and Director
Mr. Holden founded Tanisys Technologies Inc. in Vancouver, British Columbia
in 1990 where he was employed until 1994. In 1994 Mr. Holden became a self
employed consultant to Rainmaker Digital Imaging Inc. and between 1995 and 1998
he consulted to E-Zone Networks Inc. Mr. Holden is currently providing
consulting services to Push Entertainment Inc.
Norman R. Hess
Secretary/Treasurer and Director
Mr. Hess is the legal counsel and Secretary of the Company. He was called
to the Alberta Bar in 1972, and has been a sole practitioner carrying on his
practice in Calgary, Alberta, since 1982. Mr. Hess has held memberships on the
boards of a number of private, public and non-profit corporations and
organizations in Canada during his career.
Dan Matthews
Director
prior to 1994 Mr. Matthews operated a sports distribution business. In 1994
Mr. Matthews commenced employment with Opal Equity Associates, LLC in New York,
New York. Since Mr. Matthews returned to Vancouver, British Columbia in 1996 he
has been employed by and the President of Tri-Gold Investments Ltd.
Ian Tweedie, C.A.
Director
Since October 1996 Mr. Tweedie has been a director and President of Digital
Armor Inc. (NASD OTC). Prior thereto Mr. Tweedie was President and a Director of
Virtual Universe Corporation, a public company whose shares traded on the
Alberta Stock Exchange.
The following individuals, although not officers or directors, are expected
by the Company to make a significant contribution to its business:
David Spooner, Ph.D.
Senior Software Architect
Dr. Spooner, age 34, has 10 years of experience in software engineering and
design. Dr. Spooner's Ph.D. was granted in computer science. Dr. Spooner's
thesis was programming language grammatics. Dr. Spooner's responsibilities with
the Company include the architectural design of the Technology.
Len Bruton, Ph.D.
Technical Consultant
Dr. Bruton, age 56, has since June, 1998 been Vice President Research of
the University of
16
<PAGE>
Calgary; prior thereto he was a Professor in the Faculty of Engineering at the
University of Calgary. In addition to his academic responsibilities Dr. Bruton
carries on research in the areas of digital video and 3D filtering. Dr. Bruton
is extensively published and is recognized worldwide for his work in filter
design and intellectual property.
The Company's consultants have entered into consulting agreements which
provide in part for the definition of the services to be provided by them, the
compensation to be paid for their services and the reservation by the Company of
all existing and developed intellectual property. Each of the consulting
agreements can be terminated by either the Company or the consultant on thirty
(30) days notice. The non-disclosure/non-competition agreements which the
Company has with each of the consultants provides in part that the consultants
will not disclose or utilize the intellectual property of the Company and that
the intellectual property will be kept in the strictest confidence. The
non-disclosure/non-competition agreements also provide that the consultants will
not compete, either directly or indirectly with the Company or carry on a
business similar to that carried on by the Company for a period of three (3)
years from the termination of the consulting agreements. The Company
acknowledges that such agreements are not strictly enforced by the courts in the
United States and Canada and may be enforced in part only and in some cases not
at all.
During the past five years no director, executive officer, promoter or
control person of the Company:
(1) was the subject of any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
(2) was convicted in a criminal proceeding or is subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law.
17
<PAGE>
ITEM 6. SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
The following table sets forth information concerning the compensation
of the named executive officers from April 21, 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------------
Awards Payments
----------------------------------------
Other Annual Securities All
Year Compen- Restricted Under- other
Name And or sation Stock Lying LTIP Compen-
Principal Position Period Salary Bonuses ($) Award(s) Options/ Payouts sation
Ended ($) ($) ($) SARs ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Danny D. Lowe 12/31/97 -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
President(1) 9/30/98 -- -- 29,200 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Todd G.Simpson(2) Ph.D 12/31/97 -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Vice President 9/30/98 -- -- 24,800 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Mark Holden(3) 12/31/97 -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Director 9/30/98 -- -- 22,500 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Norman R. Hess(4) 12/31/97 -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Secretary/Treasurer/Director 9/30/98 -- -- 11,350 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Dan Matthews 12/31/97 -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Director 9/30/98 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Ian Tweedie 12/31/97 -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------
Director 9/30/98 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total -- -- 87,850 -- -- -- --
====================================================================================================================================
</TABLE>
(1) Paid to T.I. - The Idea Company Ltd., a corporation controlled by Danny D.
Lowe.
(2) Paid to Quandri Inc., a corporation controlled by Todd G. Simpson.
(3) Paid to M. Holden Productions Ltd., a corporation controlled by Mark
Holden.
(4) Paid to Norman R. Hess Professional Corporation a corporation controlled by
Norman Hess.
The Company anticipates making additional payments to its officers and
directors, aggregating $175,280 through August, 1999. The Company does not have
any employee stock option or other compensatory plans.
18
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Lowe and Dr. Simpson are stockholders, officers and directors of E-Zone
from whom the Subsidiary acquired the Technology. Mr. Hess is a stockholder and
officer of E-Zone.
In December, 1998, the Company entered into a sub-lease agreement with
E-Zone Canada, a wholly owned subsidiary of E-Zone. The sub-lease provides for
payment of basic and additional rent of $52,888Cdn annually. See "Item 3.
Description of Property." The Company believes that the sublease is on terms and
conditions as, or more favorable than, could be obtained from unrelated third
parties.
Through September 30, 1998, corporations controlled by certain officers and
directors have received fees aggregating $118,000. See "Part I. Item 6.
Executive Compensation."
The company has not formulated any policy towards entering into future
transacting with related parties.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock of
which 18,550,105 shares were issued and outstanding as of December 31, 1998 and
held of record by 177 shareholders. Each outstanding share of the Common Stock
entitles the holder to one vote, either in person or by proxy, on all matters
that may be voted upon by the owners thereof at meetings of the stockholders.
The holders of the Common Stock (1) have equal rights to dividends from
funds legally available therefor, when, and if, declared by the board of
directors of the Company; (2) are entitled to share ratably in all of the assets
of the Company available for distribution to the holders of the Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company; (3)
do not have preemptive, subscription or conversion rights; and (4) are entitled
to one non-cumulative vote per share on all matters on which stockholders may
vote at all meetings of stockholders.
The holders of the Common Stock of the Company do not have cumulative
voting rights, which means that the holders of more than 50% of such outstanding
shares, voting for the election of directors, can elect all directors of the
Company if they so choose and, in such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.
There are no shares of preferred stock issued and outstanding; there are no
options, warrants to purchase, or other securities convertible in to any shares.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
There is no trading market for the Common Stock and there can be no
assurance that a trading market will develop, or, if such a trading market does
develop, that it will be sustained. To the extent that a market develops for the
Common Stock at all, of which there can be no assurance, it will likely appear
in what is customarily known as the "pink sheets" or on the NASD Bulletin Board,
which may limit the marketability and liquidity of the Company's Common Stock.
Thus, stockholders may find it
19
<PAGE>
difficult to sell their shares. To date, neither the Company nor anyone acting
on its behalf has taken any affirmative steps to request or encourage any
broker/dealer to act as a market maker for the Company's Common Stock. Further,
there have been no discussions or understandings, preliminary or otherwise,
between the Company or anyone acting on its behalf and any market maker
regarding the participation of any such market maker in the future trading
market, if any, for the Company's Common Stock. See "Part I. Item 1. Description
of Business - Risk Factors Associated with the Company and Its Business."
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any litigation, and has no knowledge of any
threatened or pending litigation against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in or disagreements with the Company's auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) Founders Shares
In January, 1998, an aggregate of 16,027,524 shares were offered and
sold for an aggregate consideration of $37,907. The Company believes
that each of the above-referenced transactions were exempt from
registration under the Act, pursuant to exemptions afforded by, and
the rules and regulations promulgated thereunder, including, but not
limited to, Regulation S and Section 4(2), as transactions by an
issuer not involving any public offering. All but two of the Company's
shareholders are non US Persons (as defined in Regulation S) the offer
and sale of shares to such non US Person were conducted pursuant to
Regulation S.
(b) Rule 504 Shares
From May to August 1998, the Company offered and sold 2,522,581 shares
for an aggregate cash consideration of $861,290 to 30 persons in
accordance with the exemption from registration afforded by Rule 504
of Regulation D.
Except for 2,522,581 shares, all of the issued and outstanding shares are
"restricted securities," as that term is defined in the rules and regulations
promulgated under the Act, and are subject to certain restrictions regarding
resale. Certificates evidencing these "restricted securities" have been endorsed
and stamped with a restrictive legend and are subject to stop transfer orders.
Except as hereinafter set forth there is no charter provision, bylaw,
contract, arrangement or statute under which any officer or director of the
Company is insured or indemnified in any manner against any liability which he
may incur in his capacity as such.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of The Delaware General Corporation Law, as amended, provides
for the indemnification of the Company's officers, directors and corporate
employees and agents under certain circumstances as follows:
20
<PAGE>
Indemnification Of Officers, Directors, Employees And Agents; Insurance
(a) A corporation may 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 upon 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.
(b) A corporation may 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 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)
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 to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) 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 subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of the directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested director so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation
21
<PAGE>
in advance of the final disposition of such action, suit or proceeding upon
receipt of any undertaking by or on behalf of such director to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the corporation as authorized in this section. Such expenses including
attorneys' fees incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, 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.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who 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 any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
including (any constituent of a constituent) absorbed in a consolidation or
merger which, if separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, reference to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involve services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, 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 person."
The Securities and Exchange Commission's Policy on Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to any provisions contained in its Certificate of Incorporation, or by-laws, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore,
22
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
23
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
Page
Auditor's Report to the Stockholders dated September 17, 1998 24
Comments by Auditors for U.S. Readers on Canada/U.S.
Reporting Conflicts Dated September 17, 1998 24
Consolidated Audited Balance Sheet dated May 31, 1998
and December 31, 1997 and unaudited Balance
sheet as at September 30, 1998 25
Consolidated Statements of Operations and Deficit
for the five month period ended May 31, 1998,
and for the period from the date of commencement
of operations on April 21, 1997 to December 31, 1997;
and, unaudited consolidated statements of operations for
the four month ended September 30, 1997 and 1998 26
Consolidated Statements of Cash Flow for the five month period
ended May 31, 1998 and for the period from the date
of commencement of operations on April 21, 1997 to
December 31, 1997; and, unaudited consolidated statements
of cash flow for the four months ended September 30, 1997
and 1998 27
Notes to the Consolidated Financial Statements 28-32
24
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of Push Entertainment Inc. (a
Development Stage Enterprise) as at May 31, 1998 and December 31, 1997 and the
consolidated statements of operations and deficit and changes in cash flow for
the five month period ended May 31, 1998 and for the period from the date of
commencement of operations on April 21, 1997 to December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at May 31, 1998
and December 31, 1997 and the results of its operations and the changes in its
financial position for the five month period ended May 31, 1998 and for the
period from the date of commencement of operations on April 21, 1997 to December
31, 1997 in accordance with generally accepted accounting principles in the
United States.
Chartered Accountants
Calgary, Canada
September 17, 1998
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA U.S. REPORTING CONFLICTS
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph following the opinion paragraph when there are
substantial uncertainties about the Corporation's ability to continue as a going
concern, as referred to in Note 1 to these consolidated financial statements.
Our report to the shareholders dated July 2, 1998 is expressed in accordance
with Canadian reporting standards which do not permit a reference to such
matters in the auditors' report when the facts are adequately disclosed in the
financial statements.
Chartered Accountants
Calgary, Canada
September 17, 1998
25
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Consolidated Balance Sheet
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
==========================================================================================================
December 31, May 31, September 30,
1997 1998 1998
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash $ 1 $ 18,984 $ 54,516
Accounts receivable -- 9,162 8,269
Subscriptions receivable (note 5) -- 286,728 --
Prepaid expenses -- 8,032 7,670
- ----------------------------------------------------------------------------------------------------------
1 322,906 70,455
Capital assets (note 3) -- 32,901 99,373
- ----------------------------------------------------------------------------------------------------------
$ 1 $ 355,807 $ 169,828
==========================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ -- $ 63,812 $ 31,791
Due to company under common control
(note 4) 360,500 5,831 5,551
- ----------------------------------------------------------------------------------------------------------
360,500 69,643 37,342
Shareholders' equity:
Share capital (note 5) 1 877,204 877,204
Deficit accumulated during the
development stage (360,500) (591,040) (744,718)
- ----------------------------------------------------------------------------------------------------------
(360,499) 286,164 132,486
Future operations (note 1)
- ----------------------------------------------------------------------------------------------------------
$ 1 $ 355,807 $ 169,828
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Consolidated Statements of Operations and Deficit
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
==============================================================================================================
Period from date of
commencement of
operations on Five months Four months Four months
April 21, 1997 to ended ended ended
December 31, May 31, September 30, September 30,
1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Expenditures:
Technology and product
development $360,500 $123,211 $ -- $107,653
General and administration -- 63,259 -- 11,390
Business promotion and
development -- 38,712 -- 34,635
Depreciation -- 5,358 -- --
- --------------------------------------------------------------------------------------------------------------
360,500 230,540 -- 153,678
- --------------------------------------------------------------------------------------------------------------
Net loss 360,500 230,540 -- 153,678
Deficit, beginning of period -- 360,500 -- 591,040
- --------------------------------------------------------------------------------------------------------------
Deficit, end of period $360,500 $591,040 $ -- $744,718
==============================================================================================================
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Consolidated Statements of Cash Flow
(Expressed in U.S. Dollars)
<TABLE>
==========================================================================================================================
Period from date of
commencement of
operations on Five months Four months Four months
April 21, 1997 to ended ended ended
December 31, May 31, September 30, September 30,
1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Net loss $(360,500) $(230,540) $ -- $(153,678)
Item not involving cash:
Depreciation -- 5,358 -- --
Net changes in non-cash working capital:
Accounts receivable -- (9,162) -- 893
Accounts payable and
accrued liabilities -- 63,812 -- (32,021)
Prepaid expenses -- (8,032) -- 362
Due to company under
common control (note 4) 360,500 (354,669) -- (280)
- --------------------------------------------------------------------------------------------------------------------------
-- (533,233) -- (184,724)
Financing activity:
Issuance of share capital 1 590,476 -- 286,728
Investing activities:
Acquisition of capital assets -- (38,259) -- (66,472)
Acquisition of subsidiary -- (1) -- --
- --------------------------------------------------------------------------------------------------------------------------
-- (38,260) -- (66,472)
- --------------------------------------------------------------------------------------------------------------------------
Increase in cash 1 18,983 -- 35,532
Cash, beginning of period -- 1 -- 18,984
- --------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 1 $ 18,984 $ -- $ 54,516
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
================================================================================
Incorporation and basis of presentation:
Push Entertainment Inc. (the "Corporation") was incorporated under the laws
of the State of Delaware on January 7, 1998. Effective January 7, 1998 the
Corporation acquired for cash consideration consisting of $1 all of the
issued outstanding capital stock of Push Technologies Inc. ("PTI"), a
company incorporated under the laws of Alberta, Canada. PTI was
incorporated as 736145 Alberta Inc. on April 21, 1997 with all capital
stock being issued to a provisional shareholder to hold until the
incorporation of its ultimate shareholder, which was to be the Corporation.
As a result, the Corporation has accounted for the operations of PTI on the
continuity of interests basis, as if PTI had always been owned by the
Corporation. The Corporation is in the business of developing,
manufacturing and distributing technologies for the conversion of 2D film
and video images into 3D content.
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary PTI.
These consolidated financial statements are presented in U.S. Dollars, and
are prepared in accordance with accounting principles generally accepted in
the United States.
1. Future operations:
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume that the Corporation
will continue in operation for the foreseeable future and will be able to
realize its assets and discharge its obligations in the normal course of
operations.
The Corporation is in the development stage and has no history of
generating cash flow from operations which raises substantial doubt about
its ability to continue as a going concern. The Corporation is actively
pursuing various initiatives, most particularly the development, marketing
and production of its products and capabilities so as to achieve a
commercial level of operations, and the sourcing of additional financing.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
29
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
================================================================================
2. Significant accounting policies:
(a) Capital assets:
Capital assets are recorded at cost. Depreciation is provided over the
estimated useful lives of the assets using the following methods and
annual rates:
======================================================================
Assets Basis Rate
----------------------------------------------------------------------
Furniture and equipment Declining balance 20%
Computer equipment Declining balance 30%
======================================================================
(b) Technology and product development costs:
Technology and product research costs are expensed in the period
incurred.
(c) Deferred technology and product development:
Costs incurred in the development of new software products are
capitalized once technological and commercial feasibility has been
established, and are amortized over the life of the product once the
product is available for general release to customers. There have been
no costs capitalized to date.
(d) Income taxes:
The Corporation uses the liability method of accounting for income
taxes. The Corporation has not recognized in these financial
statements the potential benefits of income tax losses.
(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 expenses
during the reported period. Actual results could differ from these
estimates.
(f) Fiscal year end:
The Corporation's fiscal year end is December 31.
30
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
================================================================================
3. Capital assets:
===========================================================================
Accumulated Net book
September 30, 1998 Cost depreciation value
---------------------------------------------------------------------------
Furniture and equipment $ 35,954 $ 763 $ 35,191
----------------------------------------------
Computer equipment 68,777 4,595 64,182
----------------------------------------------
---------------------------------------------------------------------------
$104,731 $ 5,358 $ 99,373
===========================================================================
===========================================================================
Accumulated Net book
May 31, 1998 Cost depreciation value
---------------------------------------------------------------------------
Furniture and equipment $ 7,625 $ 763 $ 6,862
Computer equipment 30,634 4,595 26,039
---------------------------------------------------------------------------
$ 38,259 $ 5,358 $ 32,901
===========================================================================
4. Related party transactions:
(a) During the four month period ended September 30, 1998 the Corporation
was charged $25,000 (May 31, 1998 - $38,000), (1997 - $nil) for
technology and product development expenditures by related parties.
(b) During the four month period ended September 30, 1998 the Corporation
was charged $23,000 (May 31, 1998 - $32,000), (1997 - $nil) for
business promotion and development expenditures by related parties.
(c) During the period from the date of commencement of operations on April
21, 1997 to December 31, 1997 the Corporation was charged $360,500 for
technology and product development expenditures by a company under
common control.
Related parties include directors, officers, and significant shareholders
of the Corporation and companies under their control.
31
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
================================================================================
5. Share capital:
(a) Authorized:
50,000,000 common shares with a par value of $.001 per share
5,000,000 preferred shares with a par value of $.001 per share
(b) Common shares issued and to be issued:
<TABLE>
<CAPTION>
=============================================================================================================
Subscriptions
Number Amount Receivable
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 7, 1998 -- $ -- $ --
Issued:
For cash and subscriptions receivable 18,550,105 899,198 308,722
-------------------------------------------------------------------------------------------------------------
Balance, May 31, 1998 18,550,105 899,198 308,722
Subscriptions received -- -- (286,728)
-------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 $18,550,105 $ 899,198 $ 21,994
=============================================================================================================
</TABLE>
Subsequent to May 31, 1998, the Corporation collected $286,728 of
subscriptions receivable, and has recognized this amount as
subscriptions receivable as at May 31, 1998. The remainder of the
subscriptions receivable are not included in share capital and
subscriptions receivable on the balance sheet, and will be recognized
when settled.
6. Fair value of financial assets and liabilities:
The fair value of the Corporation's financial assets and liabilities as at
September 30, 1998 and May 31, 1998 approximate their carrying amounts, due
to their short terms to maturity.
32
<PAGE>
PUSH ENTERTAINMENT INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
================================================================================
7. Income taxes:
The Corporation has available approximately $700,000 (May 31, 1998 -
$575,000) of income tax losses and pools, which begin expiring in 2004,
available to reduce future periods taxable income. No benefit for these
losses and pools has been recognized in these financial statements.
8. Uncertainty Due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Corporation,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
33
<PAGE>
PART III
INDEX TO EXHIBITS
2.1 Certificate of Incorporation dated January 7, 1998*
2.2 Certificate of Correction dated January 23, 1998 to the Certificate of
Incorporation*
2.3 Certificate of Amendment dated February 23, 1998 to the Certificate of
Incorporation*
2.4 Certificate of Amendment dated March 11, 1998 to the Certificate of
Incorporation*
2.5 By-laws*
6.1 Consulting Agreement with David Spooner and Lambda Software Corporation*
6.2 Consulting Agreement with Susan Hubele and White Line Communications Ltd.*
6.3 Consulting Agreement with Dong Pan*
6.4 Consulting Agreement with Jim Turner*
6.5 Consulting Agreement with P. Randall Hess*
6.6 Consulting Agreement with Brad Steckel*
6.7 Consulting Agreement with Todd Reed and Reaction Software Inc.*
6.8 Non-Disclosure and Non-Competition Agreement with David Spooner and Lambda
software Corporations*
6.9 Non-Disclosure and Non-Competition Agreement with Susan Hubele and White
Line Communications*
6.10 Non-Disclosure and Non-Competition Agreement with Dong Pan*
6.11 Non-Disclosure and Non-Competition Agreement with Jim Turner*
6.12 Non-Disclosure and Non-Competition Agreement with P. Randall Hess*
6.13 Non-Disclosure and Non-Competition Agreement with Brad Steckel*
6.14 Non-Disclosure and Non-Competition Agreement with Todd Reed*
6.15 Non-Disclosure and Non-Competition Agreement with Mark Holden and M. Holden
Productions Ltd.*
6.16 Technology Transfer Agreement dated June 4, 1997*
6.17 Assignment Agreement dated January 27, 1998*
6.18 Lease dated December 1998 between the Company and E-Zone Networks Canada
27.0 Financial Data Schedules*
- ----------
* Previously filed.
34
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this Amendment No. 1 to the registration statement to be
signed on its behalf by the undersigned, thereunder duly authorized.
Dated: January 13, 1998 Push Entertainment Inc.
By: /s/Norman Hess
-----------------------------
Norman Hess, Secretary and Director
35
<PAGE>
PUSH ENTERTAINMENT INC.
REGISTRATION STATEMENT
in Form 10SB
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 Certificate of Incorporation dated January 7, 1998* Page
2.2 Certificate of Correction dated January 23, 1998 to the Certificate of
Incorporation*
2.3 Certificate of Amendment dated February 23, 1998 to the Certificate of
Incorporation*
2.4 Certificate of Amendment dated March 11, 1998 to the Certificate of
Incorporation*
2.5 By-laws*
6.1 Consulting Agreement with David Spooner and Lambda Software Corporation*
6.2 Consulting Agreement with Susan Hubele and White Line Communications Ltd.*
6.3 Consulting Agreement with Dong Pan*
6.4 Consulting Agreement with Jim Turner*
6.5 Consulting Agreement with P. Randall Hess*
6.6 Consulting Agreement with Brad Steckel*
6.7 Consulting Agreement with Todd Reed and Reaction Software Inc.*
6.8 Non-Disclosure and Non-Competition Agreement with David Spooner and Lambda
Software Corporations*
6.9 Non-Disclosure and Non-Competition Agreement with Susan Hubele and White
Line Communications*
6.10 Non-Disclosure and Non-Competition Agreement with Dong Pan*
6.11 Non-Disclosure and Non-Competition Agreement with Jim Turner*
6.12 Non-Disclosure and Non-Competition Agreement with P. Randall Hess*
6.13 Non-Disclosure and Non-Competition Agreement with Brad Steckel*
6.14 Non-Disclosure and Non-Competition Agreement with Todd Reed*
6.15 Non-Disclosure and Non-Competition Agreement with Mark Holden and M. Holden
Productions Ltd.*
6.16 Technology Transfer Agreement dated June 4, 1997*
6.17 Assignment Agreement dated January 27, 1998*
6.18 Lease dated December 1998 between the Company and E-Zone Networks Canada 37
27.0 Financial Data Schedules*
</TABLE>
- ----------
* Previously filed.
36
i AGREEMENT made this ___ day of December, 1998, by and between
E-Zone Networks Canada Inc.,
a body corporate incorporated pursuant to
the laws of the Province of Alberta, and having
its office at 1000, 355 - 4th Avenue SW, in the
City of Calgary, in the Province of Alberta
(hereinafter referred to as "E-Zone")
OF THE FIRST PART
- -and-
Push Technologies Inc.
a body corporate incorporated pursuant to
the laws of the Province of Alberta, and having
its office at 520, 1000 - 8th Avenue SW, in the
City of Calgary, in the Province of Alberta
(hereinafter referred to as "Push")
OF THE SECOND PART
WHEREAS E-Zone subleases approximately 7,450 square feet of office premises
located on the second floor ("the Premises") of a building ("the Building")
located at 520 - 5th Avenue SW, in the City of Calgary, in the Province of
Alberta, from Photon Systems Ltd. ("Photon") under and by virtue of a sublease
("the Sub Lease") of the Premises dated September 26, 1996;
AND WHEREAS E-Zone and Push have agreed that E-Zone will further sublet the
Premises to Push on the terms and conditions as are contained in this Agreement;
AND WHEREAS E-Zone intends to enter into an agreement with Digital Armor
Ltd. ("Digital") on the same terms and conditions as those contained herein;
AND WHEREAS it is the intention of Push to more or less equally use and
occupy the Premises with Digital.
NOW THEREFORE, in consideration of the rents, covenants, conditions and
agreements hereinafter reserved and contained on the part of Push and E-Zone to
be respectively paid, kept, observed and performed, E-Zone and Push agree one
with the other as follows:
E-Zone does hereby non-exclusively sublet the Premises to Push.
This Agreement and the sublease of the Premises shall expire and be at an end on
February 28, 2000 after which Push shall have no further right to occupy, enjoy
or sublease the Premises.
Push shall pay to E-Zone the basic annual rental of Twenty Four Thousand Two
Hundred and Thirteen Dollars ($24,213.00) ("the Basic Rent") in lawful money of
Canada in equal monthly installments of Two Thousand and Seventeen Dollars and
Seventy Five Cents ($2,017.75).
The Rent shall be paid in advance on the first day of each month commencing on
January 1, 1999, at the address stipulated by E-Zone as the address to which
notices shall be given without demand therefore and without any deduction,
abatement, set-off or compensation whatsoever.
37
<PAGE>
In addition to the Basic Rent Push shall pay to E-Zone all amounts required to
be collected by E-Zone pursuant to any goods and services or value added
legislation ("GST") from time to time then in effect together with all other
amounts due hereunder.
In addition to the Basic Rent and GST Push agrees to pay to E-Zone, as and when
notified, Push's proportionate share of all costs, charges and expenses ("the
Operating Costs") to be paid by E-Zone to Photon pursuant to the head lease by
which Photon holds the Premises as tenant. For the purpose of this Agreement,
proportionate share shall be equal to that fraction which has as its numerator
the area of the Premises and which has as its denominator the total of the
rentable area of the Building.
For the purpose of this Agreement the aggregate of the Basic Rent, GST and the
Operating Costs are referred to as "the Rent".
Push agrees to take the Premises on an "as is, where is" basis with respect to
all leasehold improvements contained therein except that E-Zone agrees to repair
damaged drywall and clean the capering.
Push acknowledges that the Premises contain the following items:
fridge, microwave and dishwasher
existing security card access system
existing telephone mainframe system
bar and four (4) bar stools
and Push covenants and agrees to surrender the aforementioned items in good
condition, normal wear and tear only excepted, upon the expiration or earlier
termination of this Agreement.
10. E-Zone shall provide Push with one (1) underground parking stall in the
Building at prevailing market rates.
11. Push acknowledges and confirms that has been provided with and has reviewed
the head lease by which Photon holds the Premises and the Sub Lease, copies of
which are hereto annexed and marked as Schedules "A" and "B", respectively, and
Push covenants and agrees to be bound by all of the terms and conditions (save
for the length of the term and the amount of rent) and the rules and regulations
contained in the head lease as if it were the tenant and 520 - 5th Avenue (Title
Holding) Corp. were the landlord and the Sub Lease as if it were the sub tenant
and Photon were the sub landlord. Furthermore, Push hereby covenants, agrees and
acknowledges that it shall maintain the same insurance as is required by Photon
pursuant to Section 15 of the head lease and that it shall provide E-Zone with
evidence of such insurance prior to either the commencement of the term
contemplated by this Agreement or occupancy of the Premises.
Prior to taking occupancy of the Premises Push agrees to provide E-Zone with
evidence of insurance in the amounts stipulated by the head lease
Push shall pay all taxes, rates, licenses, duties and assessments relating to
the business carried on or from the Premises and the furnishings, equipment and
improvements owned or installed at the Premises. Push hereby indemnifies and
saves E-Zone harmless from and against all actions, expenses, claims, costs,
damages, liabilities and demands in respect of any breach of the covenants
contained in this Agreement, the Sub Lease and the head lease.
If and whenever:
Push shall default in the payment of the Rent, or any other sum required to be
paid pursuant to the terms of this Agreement;
38
<PAGE>
Push shall default in performing or observing any its other covenants or
obligations of this Agreement, and E-Zone shall have given Push notice of such
default, and if at the expiration of seven (7) days after the giving of such
notice the default shall continue;
the Premises or the assets of Push shall be seized or taken in execution by a
creditor of Push; Push shall make an assignment for the benefit of its
creditors, or shall become or be adjudged to be bankrupt or shall make
application for relief under the provisions of any statute now or hereafter in
force concerning bankrupt or insolvent debtors, or any action whatsoever,
legislative or otherwise, be taken with a view to winding-up, dissolution or
liquidation of Push; or
the Premises shall be abandoned by Push or left vacant for fifteen (15) days or
more
then, and in every such event, the Rent for the then current month, together
with the Rent for the three (3) months next following shall immediately become
due and payable, and E-Zone may, without notice to Push or any form of legal
process whatsoever, forthwith re-enter the Premises, whereupon this Agreement
shall terminate forthwith, anything contained in this Agreement or statute or
law to the contrary notwithstanding; provided however that such termination
shall be wholly without prejudice to the right of E-Zone to recover the arrears
in the Rent and damages for any antecedent breach of covenant on the part of
Push; and provided further however that, notwithstanding such termination E-Zone
may subsequently recover from Push all losses, damages, costs and expenses
whatsoever suffered by reason of this Agreement having been prematurely
determined.
In the case that Push shall default in the payment of the Rent, or fails to
observe any covenant required to be observed by it pursuant to this Agreement,
E-Zone may pay the same on behalf of Push or cause such covenant to be observed,
and the amounts so paid and all costs related thereto and expenses paid by
E-Zone, as between solicitor and client on account of any default by Push under
this Agreement, shall be payable by Push to E-Zone forthwith, either before or
after payment by E-Zone. E-Zone may, by notice to Push, demand payment thereof,
and if not paid by Push within fifteen (15) days of such notice, the amount
thereof shall be deemed to be part of the Rent in arrears and E-Zone may, in
addition to any other remedy it may have for the recovery of the same, distrain
for the amount thereof as rent in arrears.
E-Zone shall be entitled to avail itself of and enjoy all of the rights,
privileges and remedies afforded and granted to the head landlord and Photon
pursuant to the head lease and the Sub Lease as if incorporated herein.
E-Zone may distrain for the Rent or for any other money hereby recoverable by
distress upon the goods and chattels of Push wherever situate, whether upon the
Premises or elsewhere.
Specific remedies to which the parties may resort under the terms of this
Agreement are cumulative and are not intended to be exclusive of any other
remedies or means of redress to either of them may lawfully be entitled in case
of any breach or threatened breach of any covenant, term or provision of this
Agreement.
No waiver of any default shall be binding unless acknowledged in writing by
E-Zone.
Any condoning, excusing or overlooking by E-Zone of any default will not operate
as a waiver of E-Zone's rights hereunder in respect of any subsequent default.
If any provision of this Agreement shall be found to be illegal or invalid or
unenforceable at law such provision will be deemed to be severed from this
Agreement and the remaining provisions will, nevertheless, continue to be in
full force and effect.
Push acknowledges that it, and its employees, agents, contractors, licensees and
invitees will be bound by and will observe the rules and regulations which may
be promulgated from time to time by the head landlord. All such rules and
regulations shall be deemed to be and to form part of this Agreement.
39
<PAGE>
Push and Digital shall apportion the use and occupation of the Premises as well
as any further allocation of the Rent as between themselves.
Any notice, request or demand to be given by one party to the other shall be
sufficiently given if in writing and delivered or transmitted by facsimile to
the following addresses, namely
E-Zone: 1000, 355 - 4th Avenue SW
Calgary, Alberta
facsimile: (403) 508-7620
Push: 600, 520 - 5th Avenue SW
Calgary, Alberta
facsimile: (403) 716-4324
during customary business hours. Notices given as provided herein shall be
deemed to have been received on the date delivered or transmitted. Either party
may change its address for service by notice given to the other as required
herein.
Time shall be and remain of the essence of this Agreement.
Nothing contained herein shall be construed or interpreted as creating a joint
venture, partnership or relationship between the parties except that of sub
landlord and sub tenant.
This Agreement shall be construed and enforced according to the laws of the
Province of Alberta.
This Agreement and everything herein contained will enure to the benefit of and
be binding upon the parties hereto and each of their respective administrators,
successors and permitted assigns.
Push hereby accepts the Premises as tenant of E-Zone subject to all of the
terms,
covenants, acknowledgements and agreements contained herein.
IN WITNESS WHEREOF the parties have executed this Agreement as evidenced the
hands of their duly authorized officers in that regard.
E-Zone Networks Canada Inc.
per: Jessica L. Abt
Push Technologies Inc.
per: Danny Lowe
40
