As filed with the Securities and Exchange Commission on Nov. 14, 2000
Commission File Number __________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under The Securities Act of 1933
DATAPOWER USA, Inc.
Colorado 3950 95-4686680
--------- ------- ----------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdictions Classification Code Number) Identification number)
of incorporation
or organization
10900 NE 8th Street, Suite 900
Bellevue WA 98004
Telephone: (604)608-3251
(Address and telephone number of registrant's principal executive
offices and principal place of business.)
Michael A. Littman
10200 West 44th Avenue
Wheat Ridge CO 80033
(303) 422-8127
(Name, address and telephone number of agent for service.)
with copies to:
Claudia J. Zaman
Attorney At Law
21800 Oxnard Street
Woodland Hills, California 91367
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |_|
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed Amount
class of Amount to be offering aggregate Registration
securities registered price offering price fee
Common stock 1,500,000 $5.00 7,500,000 $1980.00
---------- ----- ----------- --------
There is no current market value for the common shares. The $5.00 value is based
on the current book value of DATAPOWER USA, Inc.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
i
<PAGE>
PRELIMINARY PROSPECTUS DATED NOVEMBER __, 2000
SUBJECT TO COMPLETION
Up to a maximum of 1,500,000 common shares being registered.
DATAPOWER USA, INC.
We shall receive $6,500,000 of the proceeds from the sale of the common shares
after paying the selected broker dealer discounts and commissions of $975,000
and before expenses estimated at $25,000.
Our common stock does not trade. We have applied for the quotation of our common
stock on the OTC Electronic Bulletin Board.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
We will develop and sell video telephony and communications related products
either through DATAPOWER USA INC.'S efforts or through acquisitions of other
companies and technologies.
This is our initial public offering, and no public market currently exists for
our shares. The offering price may not reflect the market price of our shares
after the offering.
Consider carefully the risk factors beginning on page 7 in the prospectus.
Neither the SEC nor any state securities commission has approved these
certificates or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The date of the prospectus is November 14, 2000
-1-
<PAGE>
REPORTS TO SECURITY HOLDERS
DATAPOWER USA, INC. shall become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
will file reports and other information with the Securities and Exchange
Commission. DATAPOWER USA, Inc. has not yet filed any reports with the
Securities and Exchange Commission. The reports and other information filed by
DATAPOWER USA, Inc. can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D.C., at the Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at the New York Regional Office, 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates.
DATAPOWER USA, Inc. will furnish to shareholders: (i) an annual report
containing financial information examined and reported upon by its certified
public accountants; (ii) unaudited financial statements for each of the first
three quarters of the fiscal year; and (iii) additional information concerning
the business and operations of DATAPOWER USA, Inc. deemed appropriate by the
Board of Directors.
AVAILABLE INFORMATION
DATAPOWER USA, Inc. has filed with the Securities and Exchange Commission a
registration statement (together with all amendments and exhibits thereto, the
"Registration Statement") under the Act with respect to the securities offered
hereby. This prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the Rules and Regulations of the Commission. For further information with
respect to DATAPOWER USA, Inc. and the securities offered hereby, reference is
made to the Registration Statement. Copies of such materials may be examined
without charge at, or obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, at the Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at
the New York Regional Office, 7 World Trade Center, New York, New York 10048.
DATAPOWER USA, Inc. will voluntarily file periodic reports in the event its
obligation to file such reports is suspended under Section 15(d) of the Exchange
Act.
DATAPOWER USA, Inc. will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of any of the
information that was incorporated by reference in the prospectus (not including
exhibits to the information that are incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Requests for
copies of said documents should be directed to Brian Harris, DataPower USA,
Inc., 10900 NE 8th Street, Suite 900, Bellevue, Washington 98004.
The Commission maintains a Web site -- //www.sec.gov -- that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission.
Until February 14, 2001 (90 days after the date of the prospectus), all persons
effecting transactions in the registered securities, whether or not
participating in the offering, may be required to deliver a prospectus. This is
in addition to the obligation of such persons to deliver a prospectus when
acting as
-2-
<PAGE>
underwriters and with respect to their unsold allotments or subscriptions.
No dealer, salesman, agent or any other person has been authorized to give any
information or to make any representation other than those contained in this
prospectus. If given or made, such information or representation must not be
relied upon as having been authorized by DATAPOWER USA, Inc., or the
underwriter, if an underwriter assists in the sale of the securities. This
prospectus does not constitute an offer or a solicitation by anyone to any
person in any state, territory or possession of the United States in which such
offer or solicitation is not authorized by the laws thereof, or to any person to
whom it is unlawful to make such offer or solicitation.
Neither the delivery of this prospectus or any sale made hereunder shall, under
any circumstances, create an implication that there has not been any change in
the facts set forth in this prospectus or in the affairs of DATAPOWER USA, Inc.
since the date hereof.
-3-
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................5
RISK FACTORS................................................................ 7
TERMS OF THE OFFERING...................................................... 11
SOURCE AND USE OF PROCEEDS................................................. 11
DILUTION................................................................... 13
DATAPOWER USA, INC......................................................... 13
BUSINESS ACTIVITIES........................................................ 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION.................................................. 29
Trends and Uncertainties
Capital and Source of Liquidity
Results of Operations
MANAGEMENT................................................................. 31
Officers and Directors
Remuneration
Indemnification
CERTAIN TRANSACTIONS....................................................... 33
PRINCIPAL SHAREHOLDERS..................................................... 35
SHARES ELIGIBLE FOR FUTURE SALE............................................ 36
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.......37
DESCRIPTION OF SECURITIES.................................................. 37
LEGAL MATTERS.............................................................. 38
LEGAL PROCEEDINGS.......................................................... 38
EXPERTS.................................................................... 38
INTERESTS OF NAMED EXPERTS AND COUNSEL..................................... 38
-4-
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about this offering. It likely
does not contain all the information that is important to you. For a more
complete understanding of this offering, we encourage you to read this entire
document and the documents to which we have referred you.
DATAPOWER USA, INC.
DATAPOWER USA, Inc. is a development stage company. The Company was incorporated
in the State of Colorado on March 16, 1998. The Company was formed to develop
communications products either through its own efforts or through the
acquisition of other companies and/or technology. The Company has entered into a
number of agreements to obtain access to certain proprietary information or
systems belonging to other entities. The Company is seeking the proceeds from
this offering to raise the funds necessary for the Company to begin developing
and marketing these proposed communications products.
The Offering
The Offering DATAPOWER USA, Inc hereby Offers up
to 1,500,000 common shares at $5.00 per
common share. There is no minimum investment
and no minimum offering amount.
Common Shares outstanding 11,600,000
prior to Public Offering
Common Shares to be outstanding 13,100,000
after offering
Percent of Common Shares owned by 88.55%
current shareholders after Maximum
Offering
Gross Proceeds After Maximum $7,500,000
Offering
Use of Proceeds from Sale of DATAPOWER USA, Inc. intends to utilize the
Common Shares proceeds from the sale of its common shares
primarily to fund its initial operations.
$1,500,000 will be used to fund the
proposed operation of the parent company
and the remaining $6,000,000 will be used
to fund the proposed operations of the
company's two subsidiaries. See "Source
and Use of Proceeds."
Market For the Common Stock Prior to the date hereof, we have had no
trading market for our common stock. We
have applied for the quotation of our
common stock on the OTC Electronic Bulletin
Board. We cannot offer any assurance that
our common stock will be quoted, that an
active trading market and/or a liquid
market will develop or, if developed, that
-5-
<PAGE>
it will be maintained. See "Risk Factors"
and "Market Listing."
Risk Factors An investment in our company has material
risks such as uncertainty of future
financial results, liquidity dependent on
additional capital and debt financing and
risks related to our operations, in
connection with the purchase of the
securities. See "Risk Factors."
Absence of Dividends; Dividend We do not currently intend to pay regular
Policy cash dividends on our common stock. Our
Board of Directors will review this policy
from time to time in light of, among other
things, our earnings and financial
position. We do not anticipate paying
dividends on our common stock in the
foreseeable future. See "Risk Factors."
Transfer Agent Our transfer agent is United Stock
Transfer, 3615 South Huron Suite 104,
Englewood, Colorado 80110.
-6-
<PAGE>
RISK FACTORS
In analyzing this offering, prospective investors should read this entire
prospectus and carefully consider, among other things, the following Risk
Factors:
Dependence on Future Financing.
Even if this offering is fully subscribed, we may require additional financing
for our operations and working capital. There is no assurance that additional
funds will be available from any source and, if not available, we may not be
able to develop our business in the manner described herein in which case,
investors may lose their entire investment.
Reliance on Key Personnel.
We will rely heavily on the abilities and efforts of management and staff
personnel of DATAPOWER USA, Inc. to manage our daily operations. You should not
purchase any of the common shares we are offering unless you are willing to
entrust all aspects of the management of DATAPOWER USA, Inc. to our Directors,
President, and other executive officers.
Limited Experience of Management.
Our management has limited experience in the conduct of a public corporation.
As compared to other companies, we do not have depth of managerial,
administrative and technical personnel. An investment in us involves a high
degree of risk. See "Management".
Competition.
Many of our competitors have achieved significant national, regional and local
name recognition. Many of DATAPOWER USA, Inc.'s competitors have longer
operating histories and greater financial resources. We cannot be assured that
customers will regard our products as sufficiently distinguishable from similar
products offered by the competitors. We could suffer an adverse effect in the
event of significant or sustained price discounting in the industry.
Government Regulations.
The components of our products currently comply with or are exempt from
regulation by the United States government. In Canada, the sale of our products
currently comply with or is exempt from regulation by the Canadian government.
In the event the regulations change or new laws or regulations are enacted,
these events could have a significant adverse effect on our financial resources.
Dilution.
The common shares offered hereby will incur immediate dilution of $4.515 (90.3%)
in the net tangible book value of their investment. DATAPOWER USA, Inc. may
issue additional shares in private business transactions and may pursue
additional public offerings in the future to complete its business plan. As a
result, the investors in this offering may experience substantial dilution.
See "DILUTION" and "CAPITALIZATION."
-7-
<PAGE>
Arbitrary Offering Price.
Our management arbitrarily determined the sales price for the common shares
offered hereby. The offering price is not based on our assets, book value, or
earnings. Accordingly, the offering price should not be considered as an
indication of the actual fair market value of the common stock.
Control of DATAPOWER USA, Inc. by the Principal Shareholders.
Currently 5,600,000 shares of our outstanding common stock are controlled by the
officers, directors and principal shareholders who will have more than 42% of
our outstanding stock if this offering is fully subscribed. Therefore, they are
in a position to elect all of our Directors. Our Directors, in turn, elect all
of our executive officers. Accordingly, the principal shareholders, directly or
indirectly, will be able to control all of our affairs. It is possible that your
interests will not be the same as those of the principal shareholders.
Authorization and Discretionary Issuance of Preferred Stock.
Our Board of Directors may issue, from time to time, up to 10,000,000 shares of
Preferred Stock without shareholder approval, with dividends, liquidation,
conversion, voting or other rights and preferences which could adversely affect
the voting power or other rights of the holders of the Common Stock. The
issuance of shares of Preferred Stock could, under certain circumstances, make
it more difficult for a third party to gain control of DATAPOWER USA, Inc.,
discourage bids for DATAPOWER USA, Inc.'s Common Stock at a premium, or
otherwise adversely affect shares of Common Stock outstanding, and affect the
market price of the Common Stock. There are no present plans to issue any
preferred stock. See "Description of Securities."
No Assurance of a Public Market.
There is no trading market for the Common Stock and no assurances can be given
that a trading market will develop or continue. If no market develops, it may be
difficult or impossible for holders of shares to sell them.
Unlikelihood of Dividends and Dividend and Redemption Restrictions.
Colorado law prohibits DATAPOWER USA, Inc. from paying any dividends or
redeeming any of its capital stock if DATAPOWER USA, Inc. does not have retained
earnings or capital surplus equal to the amount of the proposed dividend or
redemption payment. Because of these restrictions, there are no assurances that
DATAPOWER USA, Inc. will be able to pay any dividends. DATAPOWER USA, Inc.
intends to retain earnings, if any, for the foreseeable future to fund the
development and growth of the business.
Lack of Dealer, Manager or Underwriter.
DATAPOWER USA, Inc. is using its officers and directors to sell this offering.
Although DATAPOWER USA, Inc. may enter into a placement agency agreement with
one or more broker/dealers for the sale of its securities, there can be no
assurance that DATAPOWER USA, Inc. will be able to obtain any broker/dealer to
act in such capacity. DATAPOWER USA, Inc.'s lack of experience in securities
sales may have an adverse effect on the amount or speed of proceeds raised in
this Offering.
Safe Harbor Disclaimer.
-8-
<PAGE>
Certain Statements contained herein constitute forward-looking statements within
the meaning of Regulation Section 27A of the Securities Act and Regulation
Section 21E of the Exchange Act. Such statements include, but are not limited
to, statements regarding business and financing plans, business trends and
future operating revenues and expenses. Although DATAPOWER USA, Inc. believes
that the expectations reflected in such statements are reasonable, it can give
no assurance that such expectations will prove to be correct.
Forward-looking statements are typically identified by the words: believe,
expect, anticipate, intend, estimate and similar expressions, which by their
nature refer to future events. DATAPOWER USA, Inc. cautions investors that any
forward-looking statements made by DATAPOWER USA, Inc. are not guarantees of
future performance and that actual results may differ materially from those in
the forward-looking statements as a result of various factors, including, but
not limited to, DATAPOWER USA, Inc.'s ability to be able to continue its
projected growth or be able to fully implement its various business strategies.
No Established Business/No Independent Market Research of Potential Demand for
Current Operations.
We are in the development stage. No independent organization has conducted
market research providing us with independent assurance from which to estimate
potential demand for our business operations. We cannot be assured that we will
be successful even in the event a market demand is independently identified. See
"BUSINESS ACTIVITIES."
Lack of Operating Results.
Our Company was formed in March, 1998. Until our recent acquisition of Private
Delivery, a Delaware corporation, our activities have been limited to
organizational and capital formation. DATAPOWER USA, Inc. is still in the
development stage. We will experience higher than normal operating expenses
during initial operations. To date, we have had no revenues. We had an
accumulated deficit of ($328,550 ) at June 30, 2000. We cannot assure future
revenues or profits.
Benefit to Management.
We may, in the future, pay our management substantial salaries and other
benefits. Our payment of future larger salaries, commissions and the costs of
these benefits may be a burden on DATAPOWER USA, Inc. This could be a factor in
limiting or preventing us from achieving profitable operations in the future.
However, we would not continue to pay management such substantial salaries and
other benefits under circumstances where we would experience a material negative
effect on our financial condition. Although specific factors to be utilized in
determining the increase in compensation and benefits have not yet been
determined, we anticipate that individual performance, our liquidity and
profitability will be part of the determining factors. See "MANAGEMENT -
Remuneration."
No Diversification.
We are engaged in the sale, promotion and marketing of video telephony and
communications related products. As a result, our financial viability will
depend almost exclusively on our ability to generate revenues from our
operations. We will not have the benefit of reducing our financial risks by
relying on revenues derived from other operations.
-9-
<PAGE>
Financial Condition.
We currently have a negative cash flow from our operating activities. We cannot
be assured that we will have adequate funds to pay all of our operating
expenses, assuming the expansion and promotion of our operations. Additionally,
we cannot be assured that our business will be operated in a profitable manner.
Vulnerability to Fluctuations in the Economy.
Demand for our products is dependent on, among other things, general economic
conditions which are cyclical in nature. We may be damaged by prolonged
recessionary periods.
"Penny Stock" Regulation of Broker-Dealer Sales of Company Securities.
We have applied for the listing of our common shares on the OTC Electronic
Bulletin Board and may file a listing application for the listing of our common
shares on NASDAQ when and if the Company meets the requirements for a NASDAQ
listing, if ever. Upon completion of this offering, we will not meet the
requirements for a NASDAQ listing. Until we obtain a listing on NASDAQ, if ever,
our securities will be covered by Rule 15g-9 under the Securities Exchange Act
of 1934. This rule imposes additional sales practice requirements on broker-
dealers who sell such securities to persons other than established customers,
institutional and accredited investors (generally institutions with assets in
excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must furnish to all
investors in penny stocks, a risk disclosure document required by Rule 15g-9 of
the Securities Exchange Act of 1934, make a special suitability determination of
the purchaser and have received the purchaser's written agreement to the
transaction prior to the sale.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must (1) obtain information concerning the person's financial
situation, investment experience and investment objectives; (2) reasonably
determine, based on the information required by paragraph (1) that transactions
in penny stocks are suitable for the person and that the person has sufficient
knowledge and experience in financial matters that the person reasonably may be
expected to be capable of evaluating the risks of transactions in penny stocks;
and (3) deliver to the person a written statement setting forth the basis on
which the broker or dealer made the determination required by paragraph (2) in
this section, stating in a highlighted format that it is unlawful for the broker
or dealer to effect a transaction in a designated security subject to the
provisions of paragraph (2) of this section unless the broker or dealer has
received, prior to the transaction, a written agreement to the transaction from
the person; and stating in a highlighted format immediately preceding the
customer signature line that the broker or dealer is required to provide the
person with the written statement and the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience and investment objectives
and obtain from the person, a manually signed and dated copy of the written
statement.
A penny stock means any equity security other than a security (1) registered, or
approved for registration upon notice of issuance, on a national securities
exchange that makes transaction reports available pursuant to 17 CFR 11Aa3-1;(2)
authorized, or approved for authorization upon notice of issuance, for quotation
-10-
<PAGE>
in the NASDAQ system; (3) that has a price of five dollars or more; (4) whose
issuer has net tangible assets in excess of $2,000,000 demonstrated by financial
statements dated less than fifteen months previously that the broker or dealer
has reviewed and has a reasonable basis to believe are true and complete in
relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of broker-dealers to sell our
securities and also may affect the ability of purchasers in this offering to
sell their shares in the secondary market. See "Market for Registrant's Common
Equity and Related Stockholder Matters - Broker-Dealer Sales of Company's
Securities."
TERMS OF THE OFFERING
Plan of Distribution. DATAPOWER USA, Inc. hereby offers up to 1,500,000 common
shares at a purchase price of $5 per common share. The common shares are being
offered on a "direct participation" basis by DATAPOWER USA, Inc. (employees,
officers and directors) and possibly selected broker-dealers. The officers and
directors who shall sell the offering on behalf of DATAPOWER USA, Inc. are Brian
Harris and Phil Wong. These individuals will be relying on the safe harbor in
Rule 3a4-1 of the Securities Exchange Act of 1934 to sell DATAPOWER USA, Inc.'s
securities. No sales commission will be paid for common shares sold by DATAPOWER
USA, Inc. Selected broker-dealers shall receive a sales commission of up to 10%
plus an non-accountable expense allowance of 3% for any common shares sold by
them. DATAPOWER USA, Inc. reserves the right to withdraw, cancel or reject an
offer in whole or in part. The common shares offered hereby will not be sold to
insiders, control persons, or affiliates of DATAPOWER USA, Inc.
There are no plans, proposals, arrangements or understandings with any potential
sales agent with respect to participating in the distribution of DATAPOWER USA,
Inc. securities. In the future, assuming such participation develops, the
registration statement will be amended to identify such persons.
Offering Period. The offering by DATAPOWER USA, Inc. will terminate on or
before February 14, 2000.
Determination of Offering Price. The offering price and other terms of the total
offering amount needed and the possible dilution to existing and new
shareholders.
Subscription Procedure. The full amount of each subscription will be required to
be paid with a check payable to DATAPOWER USA, Inc. in the amount of the
subscription. Such payments are to be remitted directly to DATAPOWER USA, Inc.
by the purchaser or by the soliciting broker/dealer before 12:00 noon, on the
following business day, together with a list showing the names and addresses of
the person subscribing for the offered common shares or copies of subscribers
confirmations.
No Escrow Account. There is no minimum offering amount and no escrow account. As
a result, any and all offering proceeds will be deposited directly into the
operating account of DATAPOWER USA, Inc.
SOURCE AND USE OF PROCEEDS
Assuming successful completion of the offering, DATAPOWER USA, Inc. shall
receive net proceeds of $6,500,000 after payment of commissions and expenses to
-11-
<PAGE>
participating broker-dealers of $975,000 and offering expenses of approximately
$25,000. The commission amount would only be payable if a broker-dealer is
engaged. If significantly less than the maximum amount is raised, DATAPOWER USA,
Inc. will be able to pay operational expenses but will have less working capital
to expand operations. If only a nominal amount is raised, DATAPOWER USA, Inc.
will still be able to pay some operational expenses but will not be able to fund
the proposed operations of its subsidiaries and will have less working capital
to expand operations. DATAPOWER USA, Inc. shall utilize the net proceeds from
the sale of its common shares as described below. The proceeds are to be
utilized over a six month period.
Video Power, Inc., a subsidiary of DataPower USA, Inc.
Estab of Sales Offices/
Showrooms/Dist. centers in North America $ 300,000
Technical and support Personnel(3) $ 150,000
Marketing and Sales Personnel(3) $ 150,000
Advertising and Sales
Promotion/ Exhibitions $ 250,000
International Marketing $ 200,000
Custom Developments $ 250,000
Inventory $ 1,300,000
Working Capital $ 225,000
Total $ 2,825,000
Private Delivery, Inc., a subsidiary of DataPower USA, Inc.
Buildout of Network in USA $ 600,000
Hardware $ 350,000
Software $ 250,000
Tech Personnel $ 150,000
Marketing and Sales Personnel(3) $ 150,000
Advertising and Sales Promotion $ 100,000
International Marketing $ 100,000
Working Capital $ 275,000
Total $ 1,375,000
Interactive Innovations (DataPower has an option to acquire a 51% Interest)
Buildout of system in USA $ 1,000,000
Hardware $ 450,000
Software $ 550,000
Tech Personnel(4) $ 200,000
Marketing and Sales Personnel $ 150,000
Advertising and Sales Promotion $ 500,000
International Marketing $ 200,000
Working Capital $ 250,000
Total $ 2,300,000
Grand Total $ 6,500,000
In the event that the minimal amount is not received, DATAPOWER USA, Inc. will
-12-
<PAGE>
have to scale back operations and may pursue a rights' offering.
DILUTION
Dilution. There will be a total of 12,100,000, 12,600,000 and 13,100,000 Common
Shares outstanding, respectively if $2,500,000, $5,000,000 or $7,500,000 is
raised. The following table illustrates the per Share dilution, as of the date
of this Prospectus, which may be experienced by investors upon reaching the
various levels as described below.
Raised Raised Raised
$2,500,000 $5,000,000 $7,500,000
Offering price $5 $5 $5
Net tangible book value per
Share before offering (.012618) (.012618) (.012618)
Increase per Share
attributable to investors .178208 .355871 .4976
Pro Forma net tangible
book value per Common
Share after offering .16559 .343254 .485
Dilution to investors 4.83 4.66 4.515
Dilution as a percent of
offering price 96.6% 93.2% 90.3%
Further Dilution. DATAPOWER USA, Inc. may issue additional restricted common
shares pursuant to private business transactions. Any sales under Rule 144 after
the applicable holding period may have a depressive effect upon the market price
of DATAPOWER USA, Inc.'s common shares and investors in this offering. See
"SALES OF STOCK PURSUANT TO RULE 144."
THE COMPANY
DataPower USA, Inc. (the "Company") was formed in 1998 to acquire interests in
companies that are in their emerging growth phase with new communication
technologies. The Company is a Colorado corporation and has two subsidiaries.
These subsidiaries are Private Delivery, Inc. and VideoPower, Inc. Both
subsidiaries are Nevada corporations and were formed in June, 2000. The Company
owns all the issued and outstanding shares of common stock in both subsidiaries.
The Company also has an option to acquire a 51% in Interactive Innovations, Inc.
("Interactive").
The markets that the Company intends to pursue are as follows:
1. Video Compression Technologies
During 1999, the Company acquired the international manufacturing, marketing and
distribution rights for advanced compression technologies and products from
World Wide Video, Inc. ("WWV"), a Virginia corporation.
WWV designs and develops leading edge technology using advanced compression
-13-
<PAGE>
algorithms and custom chipsets that have applications in a number of expanding
markets including security and surveillance, telemedicine, video telephony and a
host of other applications.
The Company established VideoPower, Inc., a Nevada company, as a subsidiary of
DataPower USA, Inc. to commercialize its rights in the WorldWide Video
technology. Under the terms of its marketing and distribution agreement with
WorldWide Video, WorldWide Video granted to DataPower USA, Inc. the exclusive
marketing and distribution license for all WorldWide Video products intended for
the Peoples' Republic of China and Hong Kong as well as a preferred contract
manufacturing arrangement to produce all VideoPower and WorldWide Video mass
market products in all other regions of the world. The Company also has the
right to introduce its own private label brand(s) which can be marketed
worldwide. For these rights, WorldWide Video will receive a ten percent (10%)
equity interest in VideoPower and the right of first refusal to acquire
additional shares in VideoPower for a period of eighteen months or 90 days prior
to VideoPower's initial public offering to being WorldWide Video's interest in
VideoPower up to 33.3%. In return, VideoPower receives a two percent (2%) equity
interest in WorldWide Video.
The Company's first production prototypes are now being assembled in
anticipation of finalizing pre-production sale letters of intent of
approximately $9,000,000 in orders. These orders are a result of VideoPower's
and WorldWide Video's joint efforts to date.
DataPower USA, Inc. has an agreement with Sewam Data Group, Inc. ("Sewam"), a
Nevada company, established by Sewam Data Tech, Inc. of the Peoples' Republic of
China (PRC), for an exclusive marketing and distribution license for all
products for the PRC and Hong Kong as well as the exclusive international
manufacturing license whereby Sewam is the preferred contract manufacturer for
products to be determined. This agreement will be effective upon receipt from
Sewam of a purchase order for the purchase of at least 500,000 WorldWide Video
Build packages for Sewam to assemble into finished products. At such a time,
Sewam will be issued a 10% equity interest in VideoPower and will have the right
to acquire additional shares of VideoPower at a 25% discount of VideoPower's
stock price at such time it determines to conduct an initial public offering. If
no initial public offering is planned, the purchase price shall be the most
recent issuance price, which right shall continue for a period of eighteen
months from the issuance of the purchase order or 90 days prior to VideoPower's
initial offering, whichever is earlier, to bring Sewam's interest up to 33.8%.
Industry Background
Frost and Sullivan, a market research group, estimates the 1999 video
conferencing market in the US alone to be nearly 10 billion dollars. However, to
get a more realistic figure, it is necessary to look at the video communications
in total. Video conferencing is only a small portion of the video communications
industry but is generating a disproportionate share of the equipment and
services revenues. To get a true perspective of the market, one must also
include the video broadcast market, video training market (both live and the
potential stored marketplace), distance learning market and the telemedicine
markets to name a few. Law enforcement uses video extensively, security
companies, hospitals, college campuses and military bases all use video but are
not included in the numbers for video conferencing alone.
The development of the video communications market has been slow because of the
lack of a common access and delivery system. ISDN was believed to be the answer
-14-
<PAGE>
but has proven otherwise. It has been slow in deployment and unreliable when
available. The extremely high bandwidth solutions like Asynchronous Transfer
Mode (ATM) are gaining ground but require tremendous financial outlays to
upgrade entire networks for video. The Internet is showing promise but it is not
available everywhere and is not designed for video transmission. At this time,
the only access and delivery system that is everywhere and generally available
is the POTS system - plain old telephone service.
There are problems associated with using POTS. First of all, there is very
little bandwidth available and that which is available is not guaranteed. That
means you are not sure of what bandwidth you can get, but you know it will not
be adequate. Systems designed to use the POTS system must have tremendous
compression capabilities and be able to "retrain" at varying speeds as the line
speed fluctuates.
Using the latest technology available in the industry, VideoPower has developed
a core video communications technology that works better than anything to date
in the POTS environment. The hardware based on a cooperative chip development
with Analog Devices Inc. includes the latest compression algorithms, high speed
modems that retrain as the line speed changes, and the result is video quality
that is acceptable for a large number of the applications outlined above.
VideoPower's products operate on POTS because that service is available
everywhere at an affordable price. The current technology will provide
acceptable video quality for many applications that up until now were not even
considered because the quality was not acceptable or it was too expensive to
provide a solution. Security systems inside buildings or offices now take on a
whole new dimension. Even the smallest of companies may set up security systems
that can be monitored from home or from a hotel while on the road. Restaurant
owners can watch the bar while at home or in another restaurant, and boat owners
can watch their boats during a storm from their living room TV.
VideoPower is also going to offer video communication products that competes in
the broadband arenas. The chips used in the initial POTS products are designed
to be integrated into any one of the growing technologies on the horizon. We can
produce products useable in the POTS arena, the ISDN arena, and the ATM and xDSL
(Digital Subscriber Line) environments with minor changes to the circuitry. So
the "systems approach" for POTS, which no other POTS manufacturers have, is also
convertible to ISDN or to ATM, whichever technology begins to gain ground in the
industry.
The products can interface with NTSC, the US analog video standard, as well as
PAL, the European and Asian standard. Distribution channels are presently being
finalized in Canada, Europe, Australia, and Africa.
The competition in this industry is intense with other POTS video manufacturers
focusing on the consumer video conferencing market. 8x8, Inc. and C-Phone, Inc.,
which are using four year old technology, are the only two manufacturers in the
H.324 hardware codec business. Both have directed their marketing toward the
home video phone environment with limited success.
The Company's marketing approach will be directed toward the industries that
need remote monitoring now, as in security and surveillance, and quality video
conferencing for the home market in the near future.
VideoPower's standard products fall into two general groups: stand alone
products (e.g., Spectator, Centurion, and Doctor IsIn) and products which are
incorporated
-15-
<PAGE>
with a computer system, (e.g., notebook and PCI Bus Board products).
The Stand Alone Video Communication System is a low cost, high quality,
alternative to dedicated computer-based video communication systems. It can be
used for commercial applications as diverse as security and surveillance, non-
computer based video conferencing, television set-top-box and telemedicine, as
well as consumer personal use.
The Company's computer based video communication systems harness the full
multimedia capability of today's personal computers, enabling anyone with a
personal computer and a telephone line to participate in full-featured
teleconferencing from their desktop or travel location. Our technology allows
the video communications portion (i.e., H.324 potion) to occur without using any
of the computer resources. Competitors with software H.324 implementation
require the full processing power of the expensive computer and are still only
capable of providing very small images at very slow frame rates. In addition,
our technology will effectively support high quality file transfer, white
boarding and application sharing. Our technology is unique in its performance
and small size, therefore, our products will be usable, not only in a full size
PCs, but also notebooks.
Secure Digital E-mail Document Delivery
DataPower USA, Inc. has an agreement with CyberNet Express Corporation
("CyberNet"), a California corporation, whereby DataPower USA has established
Private Delivery, Inc.,a Nevada corporation, as its subsidiary, to implement
CyberNet technology for secure email and document delivery. Private Delivery
will be owned 70% by DataPower USA and 30% by CyberNet, upon completion of
$1,500,000 in financing of Private Delivery. CyberNet's technology includes the
Front Door/Apex Software, and the Pocket Mailbox/Replicating Network Technology
Rights and related patent application. DataPower has advanced $135,000 to
CyberNet to date as part of this Agreement. CyberNet has agreed to assign its
software distribution rights and pocket mailbox/replicating network technology
rights and related patent applications to Private Delivery.
Private Delivery(TM) provides secure and confidential delivery of all data,
documents and files of any size so that the recipient receives the data exactly
as it was sent. Its proprietary centralized store and forward facility for
handling all e-mail communications ensures that all e-mail and files are sent
directly to the secure server making communications instantly available between
users. The system preserves layout, design or style criteria and data does not
alter through transfer. No font substitution or pagination changes occur
regardless of the recipient's computer program settings. In addition, the
Private Delivery(TM) server contains six levels of protection including
encryption and can act as an electronic safety deposit repository for documents.
There is currently a test service running from secure servers located in San
Diego, CA and the Company is currently working in the first release of its
Windows(TM) version.
The Company has entered into an agreement with Ballad Enterprises Inc., a
Canadian Venture Exchange Company ("CDNX"), whereby BDC has acquired an option
to participate in the financing, marketing and distribution of Private Delivery
and as part of the contribution made to date, has been granted the rights for
marketing the service in the European Common Markets including Great Britain.
Ballad has advanced $125,000 to DataPower to date under this Agreement.
-16-
<PAGE>
DataPower has also signed a Letter Of Intent with Global Wide Web Pty Ltd.
("GWW") to become the technology partner for the provision of a secure e-mail
and document delivery system to the GWW Network. Subject to the completion of
its' finance, GWW plans to launch its service in 10 major markets in Europe
during the first quarter 2001.
Industry Background
By the year 2002, statistics show that there will be 135 million e-mail users,
representing 59% of the overall U.S. population of adults and teens according to
Forrester Research. It is estimated that these users will send approximately 1.5
billion emails per day.
Standard e-mail passes through Internet (TCP/IP) lines and a number of
connecting servers to reach its ultimate destination. During that process,
unauthorized recipients can intercept this e-mail message. In addition, many
copies of e-mail are left on the servers and can be accessed by unauthorized
persons.
In order for businesses to be able to conduct successful e-commerce, secure
methods of communicating are now becoming acknowledged as vital. Evidence of
this is the large number of new companies developing and offering products that
are targeted at the new and rapidly evolving B2B (business-to-business) market
for secure Internet communications and e-commerce.
Competition
Even though the competitive environment in this market has yet to fully develop,
there are a number of well-funded competitors that are developing alternative
solutions. To date, there is no widely accepted Internet secure document
delivery and private messaging system operating at a scale large enough to be
either a standard or at this time be profitable.
Primary direct B2B competitors at this time are Internet based secure services
usually utilizing a form of encryption. Such companies include TumbleWeed
Communications, PGP, Zixit Communications, Qvtech, Authentica, Secure Agent and
others. Indirect competitors include physical courier services such as Federal
Express, UPS, DHL, and the US Postal Service.
Tumbleweed Communications Inc. founded in 1993 was one of the first companies to
see the opportunity in this category. Tumbleweed's Integrated Message Exchange
("IME") technology allows a user to send e-mail and inform recipients that they
have received a document or a message that has been encrypted and stored on the
sender's server computer. When a recipient clicks on a link inside the e-mail
message sent to that server site, where the encrypted document can be viewed
they are retrieved from a secure Web page to which they alone has access. For
instance, Datek, which licenses Tumbleweed's service, offers users the
opportunity to receive confirmation of stock trades by e-mail. Because the
correspondence is secure and documented, it meets requirements set by the
Securities and Exchange Commission for the transmittal of trading information
and spares Datek and its customers the expense and hassle of handling paper
confirmation orders. Companies that license Tumbleweed's service typically pay
in the "mid-six figures" upfront and between 3 cents and 50 cents per e-mail
message sent.
Zixit Corporation is a developer and owner of the Zixit Digital Signature and
encryption technology. ZixMail (launched in April 2000) is a secure document
-17-
<PAGE>
delivery, private e-mail and message tracking service that enables Internet
users worldwide to send and receive encrypted and digitally signed
communications using their existing e-mail systems and addresses. The company
has a growing number of legal professionals in the United States as clients at
present.
QVtech focuses on ways to secure and control e-mail. The Company has developed
Interosa, a service whose technology enables a user to send an e-mail message
and control several aspects of how it is used, including to whom it can be
forwarded and whether or not it can be printed, edited or copied. Notably, the
message can be erased from the Interosa server after a certain date -- the
digital equivalent of paper shredding. After a user types the e-mail message, he
sets the rules for how it can be used. The message is then encrypted before it
is sent. When the recipient clicks on the e-mail message to open it, a message
travels from the user's desktop to a Web site using Interosa's technology, which
then verifies the recipient's, identity and decrypts the message. QVtech is
trying to sell Interosa to companies like Mail.com and MessageMedia, which
handle e-mail direct marketing on behalf of Yahoo and ETrade, among others. The
company intends to charge a penny for each e-mail message sent using its
technology.
Authentica, which sells document security software, is releasing an e-mail
security product that competes with Interosa and others. Companies that want to
send valuable or sensitive documents via e-mail without worrying those customers
can forward them to colleagues.
SecureAgent.com is a privately owned company that offers a product called
SecureNotes. It is a software interface program for window-based systems that
encrypts e-mails and attachments. Customers include Air France, Amdahl, and
Anheuser - Busch.
PGP (Pretty Good Privacy) is a service that utilizes public and private key
encryption and has been mentioned a number of times in related news features.
Businesses are not the only target market. Consumers have already begun to
migrate toward secure e-mail services.
HushMail Inc. has been offering free e-mail (1,024 bit) encryption since May
1999. As is the case with Hotmail, Hushmail requires the user to visit the site
to read and send mail. According to company president, since May 1999, HushMail
has signed up close to 150, 000 users. HushMail has announced plans to offer
"Private Label" scheme to license e-mail technology and server space.
Market Potential
Apart from large and medium sized corporations who are expected to install a
secure email and document delivery system to their own intranets (in addition to
firewall protection), the following are markets that have been identified are
being directly marketed to by the existing competitors.
Attorneys - Prime requirements of a solution are: protection of the attorney -
client privilege, prevention of the retrieval of e-mail from servers (if
subpoenaed), protection of confidential communications between firm and clients
and protection of transfer of legal documents.
Doctor & Medical Personnel - Prime requirements include the protection of
communications between colleagues, and the protection of transfer of diagnoses,
referrals and patient records.
-18-
<PAGE>
Bankers & Investment Advisors - A secure e-mail and document delivery system
must maintain customer/broker privacy, protect sensitive data (social security
number, salary, credit history, and so on) and protect correspondence regarding
customers' finances.
Corporations and other B2B Needs - Prime requirements include: to protect
communication of business strategies and negotiations, protection of transfer of
financial data, business plans and legal matters, and the protection of e-mail
messages and attachments between senior management, board members and key
employees. Sales require the protection of e-mail transfer of competitive data
and sales strategies of off-site sales force. Protection of e-mail messages
containing contract negotiations and new client information, and to provide
secure communications with offsite staff regarding promotional activities,
policies, and so on.
Other Professional Organizations and SOHO's require the protection of Human
Resource records and correspondence, maintenance of the integrity of accounting
documents, protection of essential research and development information, and the
protection of essential marketing and advertising plans, recommendations and the
like.
I-STARS Exact Time Marketing System
Interactive Innovations Inc. ("Interactive"), a Kansas company, has developed a
proprietary advertising and information delivery system called I-STARS(TM)
(Internet Strategic Advertising Response System). The system displays ads to
consumers while the consumers are searching, purchasing or surfing anywhere on
the net at the exact moment of receptivity. Exact time marketing describes how
the I-STARS system works which is the delivery of the right ad, to the right
person, at the right time.
DataPower and Interactive have entered into a Letter of Intent Agreement ("LOI")
granting DataPower an option to purchase 51% of Interactive for $2,500,000 on or
before March 31, 2001. DataPower has paid $50,000 of the $150,000 non-refundable
payment option price.
DataPower also has a second option to purchase the remaining 49% of Interactive
under certain terms and conditions.
To facilitate interim funding for Interactive, DataPower has entered into an
agreement Ameridian Ventures Inc., a Canadian Venture Exchange listed company.
Ameridian can assumed DataPower USA, Inc.'s rights and obligations under the
Letter of Intent. As part of this agreement, DataPower has the rights to
subscribe to all or a portion of a 4,000,000 unit (each unit consisting of 1
share and 1 share purchase warrant) Private Placement Offering at $.55 per unit
of Ameridian shares, which if fully subscribed by DataPower would make DataPower
the largest shareholder in Ameridian.
DataPower also has a LOI signed with Global Wide Web Pty Ltd., whereby the
Company is the preferred technology provider for an ad delivery system for the
GWW Network.
Industry Background
The growth in the number of Internet users, the amount of time users spend on
the Internet and the increase in the number of websites (4 million in September
1999) is being driven by the increasing importance of the Internet as a sales
and
-19-
<PAGE>
distribution channel, a communications medium and an information resource. The
Internet is dramatically affecting the methods by which consumers and businesses
are buying and selling goods and services. The Internet provides online
merchants with the ability to reach a global audience and to operate with
minimal infrastructure, reduced overhead and greater economies of scale, while
providing consumers with a broad selection, increased pricing power and
unparalleled convenience. As a result, a growing number of consumers are
transacting business on the Internet, including trading securities, buying
consumer goods, paying bills and purchasing airline tickets.
The Internet is evolving into an important medium for advertisers due to its
interactive nature, global reach, rapidly growing audience and the expected
increase in online commerce. Advertisers and direct marketers are increasingly
using the Internet to advertise products, drive traffic to their websites,
attract customers and facilitate transactions. Unlike more traditional
advertising methods, the Internet gives advertisers the potential to target
advertisements to broad audience or to selected groups of users with specific
interests and characteristics. The Internet also allows advertisers and direct
marketers to measure the effectiveness and response rates of advertisements and
to track the psychographic characteristics of Internet users. The interactive
nature of Internet advertising enables advertisers to better understand
potential customers, and to change messages rapidly and cost effectively in
response to customer behavior and product availability. Additionally, the
Internet allows advertisers and direct marketers to reach users with attractive
psychographic profiles. A 1997 U.S. Department of Commerce study estimated that
48% of Internet users have a college degree, 34% have a household income greater
than $60,000, and their average age is approximately 35 years. Today, it is
believed that the universe of Internet users more clearly mirrors societal
strata in the U.S.
The unique capabilities of online advertising, the growth in traffic on the
Internet and the favorable characteristics of Internet users have led to a
significant increase in online advertising. It is estimated that $173 billion
was spent on traditional media advertising (television, radio, cable and print)
in the United States. Until recently, the leading Internet advertisers have been
technology companies, search engines and Internet publishers. However, many of
the largest advertisers utilizing traditional media, including consumer product
companies and automobile manufacturers, are expanding their use of online
advertising. Interactive believes online advertising will continue to capture an
increasing share of available advertising dollars and this trend will drive
demand for online ad inventory and sophisticated Internet advertising solutions
such as that provided by Interactive.
One of the main reasons that the Internet represents an attractive new medium
for direct marketing, which has traditionally been conducted through direct mail
and telemarketing, is because highly targeted product offers can be made to
consumers at the point-of-sale. The success of a direct marketing campaign is
generally based on a direct marketer's return on investment that is measured by
the response rate (e.g. number of leads, number of sales) and cost-per-response
and cost-per sale. The Internet has the potential to provide direct marketers
with the ability to target and deliver direct marketing campaigns to users with
specific characteristics and interests. In addition, unlike many of the
traditional methods of direct marketing, the Internet provides direct marketers
with the opportunity to contact consumers at the point-of-sale (i.e., their
personal computers/websites).
-20-
<PAGE>
Direct marketers require information about the recipients of an ad who respond
with a specific action, such as seeking further information or buying a product.
In addition, direct marketers are seeking to improve the return on their
investment by adopting more cost-effective methods to reach their target
consumers. The Internet may be a more cost-effective way to reach consumers than
other direct marketing approaches, including direct mail. As a media outlet, the
Internet offers the unique opportunity to advertise on a one-to-one basis at the
point-of-sale. To become most effective for direct marketers, direct marketing
campaigns on the Internet must be targeted to users that are most likely to
respond. In addition, methods to accurately track direct marketing expenditures
on a cost-per-action basis must be available.
The Internet has the unique capability to provide advertisers with the ability
to accurately and automatically target their ads to users with specific
interests and characteristics. Information (albeit limited and unsubstantiated!)
about the user's geographic location, ISP, browser type and operating system can
be obtained through a user's interactions on the Internet, regardless of the
type of Internet site they are viewing. This information is utilized to target
ads more effectively. Internet users specify their interests by visiting
Internet sites with content focused on specific interests, such as sports,
travel, news, business and finance and entertainment. In addition, these users
visit and utilize Internet search engines to find Internet sites and information
on specific topics, further identifying their unique interests. Interactive
believes as electronic commerce increases, marketers will increasingly seek to
use the Internet to locate customers, advertise and facilitate transactions.
Online transactions can be faster, less expensive and more convenient than
transactions conducted via human interaction. A growing number of users have
transacted business over the Internet, including trading securities, buying
goods, purchasing airline tickets and paying bills.
Problems with Online Advertising
Today most advertising on the Internet is classified as "passive" where a user
must stumble into some form of banner advertising at a particular website.
Passive advertising is founded on "wishing" and "hoping" users will stumble to
websites through browsers, search engines or click through advertising banners
at other websites. Here marketers are "guessing" (also known as "profiling")
where targeted users will go on the Internet. The objective of advertisers is
finding high-visibility sites with demographics and psychographics (consumption
behavior characteristics) that match or provide strong indications that users of
those will have correlating interests and will find relevant advertising
banners.
Ideally to be most effective, marketers need to know detailed demographic,
geographic and psychographic information about their prospects and customers.
Driven to answer this need by marketers, various methods have been devised: 1)
registration at websites by users or voluntary completion of demographic
information at websites. Validity of information completed has always been a
problem due as the consumer is getting little value in return for completion,
coupled with not knowing which member of the household completed the survey and
consumers' tendency to "fib". 2) Use of what is referred to as "cookies," in
addition to other mechanisms, to help compile viewership information, and to
target advertising to a specific user based on his previous destination. Cookies
are bits of information keyed to a specific server, file pathway or directory
location stored on a user's computer hard drive and passed to a website's server
through the user's browser software. Generally, cookies are placed on the user's
computer hard drive with or without the user's knowledge or consent unless the
-21-
<PAGE>
user has opted otherwise, and can be removed by the user at any time through the
modification of the user's browser settings. Due to privacy concerns, some
Internet commentators, advocates and governmental bodies have suggested that the
use of cookies be limited or eliminated. In addition, currently available
Internet browsers allow a user to delete cookies or prevent cookies from being
stored on the user's computer hard drive. Many users feel this surreptitious
trading of their surfing activities to be an invasion of their privacy.
As advertisers increase their online Internet presence, they will seek
sophisticated technologies and solutions, which allow them to exploit the
attractive demographics, highly targeted messages, real-time feedback, business
process efficiencies and other potential advantages of Internet advertising and
direct marketing
Proprietary Technology
An Internet user completes a simple registration form and then downloads one of
Interactive's FREE software products (discussed below) which has the Company's
proprietary patent-pending advertising software technology attached to it. This
action activates Interactive's proprietary technology and the user becomes a
"registrant" of Interactive Henceforth, Interactive's proprietary system
intercepts, interprets and displays advertising of its participating sponsors
(NO UPFRONT FEE sign-up which is discussed below) based upon Internet search
engine and browser computer keyboard entries by a registrant from either AOL,
Internet Explorer or Netscape's browsers (4.0+) or the 500+ search engines on
the Internet.
The proprietary system is "pro-active" advertising placed on the users' personal
computers and is continuously updated through "pull" technology and is
completely non-invasive. The pull technology updates/upgrades the registrant's
software automatically when they enter the Internet without any intentional re-
registration requirement. The proprietary system communicates with the
registrant's browser and the search engines. The proprietary system allows
participating sponsors the ability to position advertising banners IN FRONT OF
Internet registrants at critical product purchasing decision-making moments.
Advertising is delivered at the exact piqued moment of buying interest!
Interactive calls its proprietary system Internet Strategic Advertising and
Response System or I-STARS (TM). I-STARS allows advertisers to present their
"proposition" to consumers at the point of purchase, efficiently, timely and
with maximum impact. One venture capitalist called I-STARS the "next generation"
in Internet Direct Marketing. I-STARS allows participating Sponsors to select
the search keywords and Internet sites to open a window and display their
advertising with multiple response options. I-STARS permits a participating
Sponsor to choose 5 keywords and 5 URL's (Internet addresses) to trigger the
display of his ad. Continuously working in the background, keywords and URLs
keyed by the consumer are automatically matched and in the event a match is made
with a sponsor selected keyword or URL, advertising is displayed. Interactive
refers to this ubiquity across all search engines as Unlimited Keyword
Bandwidth.
For example, Fred Jamison ("registrant") is deciding to purchase a computer so
he goes to one of the 500+ search engines on the Internet to try to find a
website address and keys in the words "Dell Computer." The following then
occurs: the search engine locates Dell's website and with a click the mouse
takes the inquiry to www.dell.com. Simultaneously, I-STARS pops-up a window with
banner advertising and teaser copy for Compaq Computer, if Compaq is one of the
Company's participating Sponsors, IN FRONT OF Dell's splash page. Fred must make
-22-
<PAGE>
a decision whether to follow the advertising banner to Compaq's website OR dial-
through to Compaq's telemarketing center with the click of a button, or continue
with Dell's site. Fred also may click "NO THANKS" (ad disappears) or "REMIND ME"
(ad is minimized on the icon task bar for later access.) The Compaq message is
delivered in a dynamic and captivating manner. Welcome to DISTRIBUTED INTERNET
ADVERTISING from Interactive Innovations, Inc.!
An additional example. Fred Jamison ("registrant") has decided to purchase a
Dell computer and knows the Internet address for ordering. He keys in
http://www.dell.com at his browser and immediately the following occurs: the
Dell Splash page will appear and simultaneously, I-STARS will pop-up a window
with banner advertising and teaser copy for Compaq Computer, if Compaq is one of
Interactive's participating Sponsors, IN FRONT OF Dell's splash page. Fred is
required to make a decision whether to follow the advertising banner to Compaq's
website OR dial-through to Compaq's telemarketing center with the click of a
button. Fred also may click "NO THANKS" (ad disappears) or "REMIND ME" (ad is
minimized on the icon task bar for later access.) The Compaq message is
delivered in a dynamic and captivating manner. Once again, Welcome to
DISTRIBUTED INTERNET ADVERTISING from Interactive Innovations, Inc.!
Business Model
Interactive Innovations' business model is focused on distributing totally FREE
useful software products over the Internet (discussed below) which has
Interactive's proprietary patent-pending advertising software technology
attached to the FREE software. Initially there is one FREE useful software
product, a sophisticated telephony software product (d.b. phone) with built-in
long distance carrier service (discussed below). Proprietary features of
Interactive's first FREE software product include the ability to remotely change
and direct the long distance call to the provider of choice by directing the PIC
code at the dialer; the ability to display and activate (click-thru, dial-thru)
relevant advertising messages based upon keywords, URLs entered using the
Internet and calendar-activated events independent of the Internet; and the
ability to track response/transaction activities regardless of the response
path! ... all at the registrants' personal computers.
Interactive has numerous additional FREE useful software products under
development, some of which Interactive believes has patentable content. The
planned software offerings focus on Convenience, Privacy, Fun and Facts. All
FREE software will be electronically downloaded from the Company's site:
99Million.com with the promotional tag line of giving away at least $99 Million
in software annually.
There are many ways to distribute FREE software. Interactive anticipates its
FREE software products will be distributed by non-affiliated software publishers
and websites as a bonus incentive or inducement feature for consumer activities
in return for a prominent link placement back to the referring affiliate.
Interactive is building what is referred to as an "affinity" group, others might
refer to it as a "branded community," directing the group's buying power on the
Internet and by incentivizing users with FREE software products. How large will
this group be after one year- How many free telephony and other software
products can Interactive give away- Because of the uniqueness and sophistication
of Interactive's telephony software product (which is believed to have a value
of approximately $ 200 at retail value) it is anticipated at least one million
copies (and possibly much more!) will be downloaded on the Internet absolutely
FREE over the next year.
-23-
<PAGE>
Interactive sees its business model as a means to establishing, leading and
controlling a hegemony known as Distributed Internet Advertising. The business
model is made possible by the low costs of electronic distribution through the
Internet. Interactive's mission is to build a substantial user base through FREE
software distribution in a short space of time never before possible without the
Internet while rewarding its shareholders for their vision. As this user base
grows, the revenue generating opportunities to Interactive will increase.
Interactive is applying for patent protection on additional software products.
These products will also have great appeal to millions of households and
commercial enterprises.
Because the process of directly managing the sale and delivery of Internet
online advertisements can generate valuable consumer profile and behavioral
data, Interactive believes that the desirability of maintaining direct control
over its registrant database may be even greater than with respect to
traditional media. Data mining of Interactive's registrant base with all
promotional efforts conducted internally could eventually become a source of
significant revenues. Interactive will not sell or rent information that is
specific to individuals to 3rd parties.
At the time an Internet user downloads Interactive's FREE software product they
must register, by filling out a simple form requiring name, address, email
address and telephone number(s). The user also acknowledges marketing
information will be presented tastefully and unobtrusively at relevant times on
their computer systems. The FREE software product can be deleted with just a
click. Initially to build its affinity or consumer base, the Company will be
using the techniques others are forced to use now, banner advertising, to
solicit membership by advertising Interactive's FREE software product, free
download sites such as http://www.download.com and reciprocal and bartered space
on other websites. Interactive is also in discussions with significant third
party OEM's for inclusion on their new PC's and with other parties interested in
distributing software for the promise of backend downstream revenues.
Initial Revenue Streams:
1) Revenue sharing with Sponsors based upon actual product or services purchased
by I-STARS users.
2) Revenue from Sponsors that do not fit revenue sharing product or service
mold.
3) Long distance carrier revenues from revenue sharing split from telephone
carrier affiliate.
4) Revenues derived from data mining Interactive's affinity group data base in
aggregate forms.
In addition, Interactive anticipates additional profit centers based on the
development of new software and marketing opportunities.
FREE Software Concept
Interactive's marketing approach is built around the FREE software concept.
American Online or AOL built a customer base of 14 million users in a few years
by distribution of FREE floppy disk software. First Microsoft with Internet
Explorer and now Netscape are giving their browsers away to Internet users in an
effort to establish a User base for several reasons including direct marketing
from their websites which have become "portals." This was followed by Yahoo and
-24-
<PAGE>
other search engines providing FREE service and are rewarded with a highly
successful initial public offering (IPO) based upon millions of accesses daily.
Amazon proved the formula can be extended to physical products by providing a
wealth of information, interaction and service, FREE of charge. AOL purchased
Mirabilis for $287 million in cash and stock, a company that never had one
dollar of revenue and Mirabilis had built a community of 12 million users (now
at 50 million!) for their entirely FREE online paging/chat technology. Qualcomm
bought a 10% share of NetZero for $144 million to participate in NetZero's 4
million subscribers and their advertising revenue model for wireless
applications in the future. The examples go on and on.
FREE is guaranteed to grab the attention of all. FREE is a word that somehow
never loses its attraction, regardless of how many times it is used.
But on the Internet a new dimension of FREE is going to be introduced upon
launching of Interactive's software product: advertising sponsored totally FREE
software! This is a creation of Interactive. Interactive's entire business model
is focused on advertising sponsored FREE software. Interactive's business model
of advertising-sponsored FREE software is applicable to virtually all consumer
and business application software. All will benefit from Interactive's business
model. Advertisers get a new medium. Software companies get a new revenue stream
and consumers finally get some real value for their attention - totally free
useful software.
If one reviews the origin of the Internet, one understands the inherent culture
of FREE. The Internet was initially populated primarily by academics and
computer techies, who believed in a friendly and cooperative ideal in which
information is freely available and assistance readily given with no thought of
recompense or gain. Thus Interactive's business model of advertising sponsored
totally FREE software fits perfectly with the paradigms of the Internet. ZD Net
has recently announced a similar initiative.
Interactive believes advertising-sponsored FREE software fosters the ability to
deliver more targeted advertising and co-branding as people are more likely to
be responsive when unobtrusive advertising is presented at the exact moment User
mindshare is focused on the advertised subject. Recent case studies show
response rates of approximately 20% for keyword on-page advertising compared to
response rates of 0.5% on Run of Press banner advertising. Interactive also
believes response and closure rates will be enhanced by a 50% increase with the
additional direct link provided to Sponsors' toll-free telemarketing centers via
the Company's unique Call Toll Free capability in its proprietary software
program.
There are many avenues to deliver totally free software to consumers. As
consumers are looking for FREE offers on the Internet, many sites are providing
links and downloads as their "content."
Interactive has received the servicemark on the advertising slogan "The best
things in life ... are Totally FREE!"
Distribution Options
1.) Pre-loading by OEM's on new PCs
2.) Downloads at free software sites such as Download.com and Xoom.com
3.) Reciprocity on Sponsors' sites with display of our banners/buttons
4.) Purchased Internet advertising on related sites such as Switchboard.com
-25-
<PAGE>
5.) Search engine listings such as Yahoo.com and Excite.com
6.) Affiliation with non-competitive adv. services such as WelcomeTo.com
7.) Distribution via 3rd party Affiliate software publishers
8.) Distribution via misc. retailers as premium incentives such as CompUSA
9.) Other bartered placements with complementary sites (affiliates)
Affiliate Partnership Program
Because affiliate marketing programs have become so popular and a proven success
avenue for sites like Amazon.com with 450,000+ affiliates ... Interactive also
plans to use a similar marketing approach to augment it's own advertising and
distribution.
Interactive believes it has significant advantages both from an advertising
delivery standpoint as well as unique benefits to web site affiliates.
The Internet has discovered that even if you have a successful site in
attracting consumers ... that in itself does NOT guarantee profitability. There
is and always will be an infinite amount of advertising supply compared to
advertising demand. While onpage banner ads were initially successful due to the
novelty of the medium, consumers have trained their eyes and habits to overlook
most on screen advertising just as they discard unsolicited mail that arrives in
their mailboxes daily.
Banner click through rates are down to .5% or less for untargeted Run of Site
advertising although it may be 20% for targeted advertising. The business model
of charging so much per thousand views of an ad is falling apart as dismal click
throughs and abundant supply are clashing ... billable rates are falling
rapidly.
This is why site owners are grasping and gasping for new techniques and
technologies ... they're fighting for their very survival! In reality, the
Company believes it's simply a matter of direct marketing inefficiencies of the
Internet are that coming to light.
A competent direct marketing system contains four elements: target consumers
proactively, trigger advertising based upon geo-demographics/psychographics,
transact by providing consumers every possibility to respond to an offer and
track all activities and transactions to build a knowledge base on each
consumer.
Judged by these four critical elements, the Internet is mediocre at best and
dismal at worst as a direct marketing delivery system. Interactive believes that
faced with these inherent Internet paradigms, site owners will be anxious to use
Distributed Internet Advertising to produce accountable revenue sharing
transactions as Affiliates to Interactive's system.
For a major Affiliate site, Interactive can also include Affiliate site
advertising in I-STARS similar to any other advertiser. This would be an example
of site traffic generated by Interactive's system in which the Affiliate did not
participate.
Interactive believes it has a proprietary system to share with Affiliates in
which they can participate in advertising revenues based upon one on one
consumer transactions.
Compared to other Affiliate programs, the Affiliate may participate only on that
one Sponsor's site products and services. Interactive's program allows
Affiliates to participate at some level on all the revenues generated by
-26-
<PAGE>
consumers across the board on products and services. This ability to tap in to
their site visitors total consumption pattern and disposable dollars will be
very attractive to them.
Performance Based
Interactive's target is any Sponsor/advertiser wishing to market using the
Internet as a response system in a pro-active delivery system. Typically, there
are no upfront fees to Sponsors. How many advertising Sponsors can the Company
sign-up to participate in a proprietary technology providing priority banner
placements over all other advertisers - How interested will Sponsors in a
proprietary technology system which presents their "proposition" to consumers at
the moment of purchase, efficiently, timely and with maximum impact- How
interested will advertising Sponsors be in a system presenting their relevant
offers ahead of all other advertisers on the Internet- Interactive believes the
interest will be great, especially in light of advertisers paying millions of
dollars up-front cash for similar exposure to companies such as American Online.
Another alternative advertisers have is to pay the search engines from $10,000
to $25,000 PER SEARCH WORD per search engine per month for priority placement in
the search results. I-STARS is designed to enable Sponsors to take advantage of
the growing opportunities to realize significant economic gain through
Distributed Internet Advertising ... Interactive's byline is "Defining
Opportunities ... Delivering Solutions!" Interactive will be contacting
prospective advertisers through their advertising agencies and directly. This
will be done through direct mail solicitations, press releases, trade shows and
telemarketing. Competition
The market for Internet online advertising and direct marketing is relatively
new, highly fragmented, intensely competitive, rapidly evolving, subject to
rapid technological changes and multiple revenue models are the rule. This
market is characterized by rapidly changing technology, evolving industry
standards, frequent new product and service announcements, introductions and
enhancements, market alliances and changing customer demands.
Interactive's I-STARS, interprets and displays advertising of its participating
Sponsors based upon Internet search engine and browser computer keyboard entries
by a registrant from ANY Internet browser or the 500+ search engines on the
Internet. It is ubiquitous to the entire Internet and not limited to a single
website or Internet address. Other systems that purportedly deliver one-to-one
advertising are bound to specific websites and/or software programs accessing a
central server.
Search engines such as Yahoo! sell "keywords" to advertisers also through server
based ad delivery giants such as DoubleClick, Engage, 24/7 and others. Those
"keywords" do not come cheap and are only applicable to a single website, in
this case Yahoo!. When a visitor types in a keyword during a search -- like
variants of "automobile" -- an advertisement tagged to that topic will appear on
the results page, at the top of the listings for Web pages containing the search
terms.
In June, 1998 DLJ-direct, E*Trade Securities and Waterhouse Securities agreed to
pay American Online $ 25 million apiece ($ 75 million in total) for strategic
advertising in AOL's portal. What are they paying for- AOL and Yahoo! is simply
capitalizing on their primary asset, "eyeballs" they can deliver to the
advertiser. It is estimated that AOL has signed "category exclusive" short term
contracts worth over $ 400 million in 1998 plus participation in subsequent
revenues.
-27-
<PAGE>
Over the past year, there has been significant consolidation in the ad-serving
industry. The following is a review of those mergers and acquisitions.
1. AOL acquires ICQ for $300 Mil even though ICQ doesn't have $1 of revenues
Reason: ICQ has 20 million eyeballs and desktop presence.
(2) DoubleClick acquires Abacus for $1 Billion Reason: Abacus has catalogue
buys/lifestyle indicators on millions of households.
(3) Engage acquires Adknowledge for $200 milllion Reason: Engage wants to
deliver ads based on their "anonymous" profile system.
(4) CMGI acquires AdForce for $500 million Reason: CMGI wants ad-serving
capability (ultimately for AltaVista).
(5) CMGI acquires FlyCast for $600 million Reason: Flycast has developed
targeting technology and is now profitable.
(6) NetZero goes public and hits $3 Billion Market Cap the first day Reason:
NetZero has signed up 1.7 million consumers to their free ISP Value
Proposition.
More recently there have been several entries into the industry by companies
providing direct marketing by way of a software-driven approach similar to our
concept of Distributed Internet Advertising. Because Interactive Innovations has
applied for, and may quite possibly receive patent protection on our invention
of a client/server eCommerce solution that is ubiquitous to the Internet, these
companies could very well be encroaching on our patent if approved. These
companies include: Dash.com, IChoose.com, and Gater.com.
B2B Network
DataPower USA, Inc. has executed a Letter of Intent ("LOI") with Global Wide Web
Pty Limited ("GWW") to become a preferred strategic technology partner, and the
right to acquire an equity interest in GWW.
The LOI grants DataPower the rights to be GWW's preferred technology partner
for: the secure email and document delivery system for the network; the video
conferencing software and hardware for the GWW network; and the preferred the
digital advertising and information delivery system for the network.
DataPower also has the rights to provide interim funding to acquire a 5% equity
position in GWW and GWW Australia for $2 million. The Company would advance
$200,000 from proceeds of this Offering within 60 days, and the balance within
180 days. As part of the agreement, DataPower, and or its' assigns, has a right
of first refusal to purchase up to an additional 15% of GWW.
GWW has concluded four years of research and development in preparation to
implement and establish a business strength Internet and telecommunications
organization, focused on providing managed e commerce business solutions through
a series of linked national virtual private networks. GWW is negotiating a
funding agreement with Lynara Management Ltd., a United Kingdom company, to
raise approximately $200 million to fund the establishment of technical and
operational centers in up to ten markets outside Australia. If successful, this
funding is scheduled for completion in March 2001.
-28-
<PAGE>
DATAPOWER USA, Inc. principal offices are located at 10900 NE 8th Street, Suite
900, Bellevue WA 98004, telephone number (604)608-3251. These offices consist of
150 square feet on a month to month lease. The monthly rental fee is included in
management remuneration.
Employees DATAPOWER USA, Inc. currently has two full time employees, both of
whom are executives officers of DATAPOWER USA, Inc.
DATAPOWER USA, Inc. employs the services of sub-contractors as needed.
Government Regulations. At the present time, there are no pervasive regulations
of DATAPOWER USA, Inc. business.
BUSINESS ACTIVITIES
BUSINESS OF DATAPOWER USA, INC.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Trends and Uncertainties. Demand for DATAPOWER USA, Inc.'s services will be
dependent on, among other things, general economic conditions which are cyclical
in nature. Inasmuch as a major portion of DATAPOWER USA, Inc.'s activities is to
acquire interests in companies that are in their emerging growth phase with new
telecommunications technologies, DATAPOWER USA, Inc.'s business operations may
be adversely affected by DATAPOWER USA, Inc.'s competitors and prolonged
recessionary periods.
Capital and Source of Liquidity. DATAPOWER USA, Inc. currently has several
material commitments for capital expenditures. These include its agreement with
Interactive Innovations which requires payment of $100,000, although DataPower
USA has assigned this contract to Ameridian Ventures, Inc. DataPower USA, Inc.
also has a commitment to pay $1,365,000 to CyberNet.
DATAPOWER USA, Inc. expects that the net proceeds from this offering and the
cash flow from future operations upon commencement, if any, will be sufficient
to allow DATAPOWER USA, Inc. to meet the expected growth in demand for its
products and services. However, there can be no assurance that future sales will
meet DATAPOWER USA, Inc.'s growth expectations. Should either of these fail to
occur, DATAPOWER USA, Inc. may elect to (i) reduce the planned expansion of
operations or (ii) pursue other financing alternatives such as a rights
offering, warrant exercise or borrowings. Implementation of either of the
foregoing options could delay or diminish DATAPOWER USA, Inc. planned growth and
adversely affect its profitability.
On a long-term basis, liquidity is dependent on increased revenues from
operations, additional infusions of capital and debt financing. DATAPOWER USA,
Inc. believes that additional capital and debt financing in the short term will
allow DATAPOWER USA, Inc. to commence its marketing and sales efforts and
thereafter result in revenue and greater liquidity in the long term. However,
there can be no assurance that DATAPOWER USA, Inc. will be able to obtain
additional equity or debt financing in the future, if at all.
Results of Operations.
DataPower USA, Inc. Company realized a net loss of ($121,032) from operations
for the eight month period ended June 30, 2000. Since inception, the Company has
-29-
<PAGE>
realized a net loss of ($328,550). For the fiscal year ended October 31, 1999,
DataPower USA, Inc. realized a net loss of ($65,364). Since inception, the only
revenue has been interest income of approximately $1,100. For the eight month
period ended June 30, 2000, the Company had interest income of approximately
$500.
The net loss per share for the eight month period ended June 30, 2000 was ($.01)
per share compared to a net loss per share of ($.01) for the fiscal year ended
October 31, 1999.
The Company had costs and expenses of $121,537 for the eight month period ended
June 30, 2000 compared to costs and expenses of $65,364 for the fiscal year
ended October 31, 1999. The Company's expenses consisted of management fees due
to officers, travel and entertainment expenses, consulting fees, professional
fees and rent expense along with general office expenses.
The Company's assets at June 30, 2000 were $224,966 compared to assets of
approximately $71,000 at October 31, 1999. The difference is due primarily to
the Company's investment in WorldWide Video, Inc. and the advances paid on its
proposed acquisition of CyberNet. The Company's liabilities at June 30, 2000
were approximately $370,000 compared to liabilities of approximately $97,000 at
October 31, 1999. Part of the difference is attributable DataPower USA, Inc.'s
entering into the Interactive and CyberNet agreements as well as borrowing money
to fund its present operations. The largest liabilities of the Company at June
30, 2000 are its loans payable of approximately $132,000, advances payable of
$125,000 and accounts payable of approximately $90,000. For the fiscal year
ended October 31, 1999, the Company's liabilities were its accounts payable of
approximately $84,000 and loans payable of approximately $13,000.
Total shareholder equity decreased from ($25,333) at October 31, 1999 to
($146,365) at June 30, 2000.
Liquidity and Capital Resources
As of June 30, 2000, the Company had working capital of approximately ($337,000)
consisting of $9,381 in current assets and $346,331 in current liabilities. The
Company had working capital of approximately ($80,000) at October 31, 1999
consisting of $16,535 in current assets and $96,937 in current liabilities. The
Company does not have adequate working capital for its current operations and
does not have sufficient capital to fund its proposed operations.
Effect of Inflation
Inflation did not have any significant effect on the operations of the Company
during the three months ended June 30, 2000. Further, inflation is not expected
to have any significant effect on future operations of the Company.
Plan of Operation. DATAPOWER USA, Inc. over the next twelve months intends to
market and distribute the products and licenses it has acquired and to utilize
the World Wide Web in the implementation of its planned business operations.
Management possesses the experience to implement its business plan.
DATAPOWER USA, Inc. shall seek to maintain low operating expenses while
commencing operations and increasing operating revenues. DATAPOWER USA, Inc. is
focusing on maintaining a low cost administrative approach. However, increased
marketing expenses will probably occur in future periods as DATAPOWER USA, Inc.
attempts to further increase its marketing and sales efforts.
-30-
<PAGE>
MANAGEMENT
Officers and Directors. Pursuant to the Articles of Incorporation, each Director
shall serve until the annual meeting of the stockholders, or until his successor
is elected and qualified. DATAPOWER USA, Inc. basic philosophy mandates the
inclusion of directors who will be representative of management, employees and
the minority shareholders of DATAPOWER USA, Inc. Directors may only be removed
for "cause". The term of office of each officer of DATAPOWER USA, Inc. is at the
pleasure of DATAPOWER USA, Inc. Board.
The principal executive officers and directors of DATAPOWER USA, Inc. are as
follows:
Name Position
Brian Harris President, Director
John Gilliss Perry Director
Phillip Wong Director, Secretary, Treasurer
All of the above officers and directors began their terms from the inception of
DATAPOWER USA, INC. established on or about March 16, 1998.
Brian Harris, President, Director. Mr. Harris, 57, has over 25 years
international business experience including establishment of a number of
successful companies listed on the Australian, Canadian and United States
markets. He was one of the Founders of EFTech Ltd., which pioneered EFT / POS
into the Australian market. He also was a Founder of Best Available Seating
Services (BASS), which is known today as Ticketmaster and is currently a Founder
and Director of DataPower USA, Inc.
Phillip Wong, Secretary, Treasurer, Director. Mr. Wong, 40, has been in the
Financial Services industry since 1982 to present. From 1982 to 1992, he was a
Stockbroker in Vancouver Canada with Yorkton Securities Inc. and Wolverton
Securities Ltd. specializing in IPO's, RTO's and mergers. Since then, he has
acted as an Independent Consultant in the restructuring, sale and purchase of
Public Companies. He has had extensive experience in arranging seed and venture
capital for start-ups and junior companies and in the project management process
of going public. He is a founder and director of DataPower USA, Inc.
John Gilliss Perry, Director. Mr. Perry has extensive experience managing
complex networked computer systems for the government, and spent several years
in private industry as president or director in video over POTS security, VTC
companies. Presently, Mr. Perry serves as president and director of World Wide
Video, Inc., a Colorado company headquartered in Virginia. Mr. Perry graduated
from Randolph-Macon College with a Bachelor of Science degree in Mathematics in
1967 and from the University of Maryland with an Masters of Science degree in
Computer Science in 1976.
Remuneration: To date, none of the officers have received any compensation.
Board of Directors Compensation. Members of the Board of Directors will receive
as yet to be determined compensated per meeting if said Directors are not
separately compensated by DATAPOWER USA, Inc. and will be required to attend a
minimum of four meetings per fiscal year. All expenses for meeting attendance or
out of pocket expenses connected directly with their Board representation will
be reimbursed by DATAPOWER USA, Inc. Director liability insurance may be
provided to all members of the Board of Directors. DATAPOWER USA, Inc. has not
-31-
<PAGE>
yet obtained such insurance and does not have any specifics for available cost
and coverage. DATAPOWER USA, Inc. does not have a specific time frame to obtain
the insurance. No differentiation is made in the compensation of "outside
directors" and those officers of DATAPOWER USA, Inc. serving as directors.
Conflicts of Interest Policy. DATAPOWER USA, Inc. has adopted a policy that any
transactions with directors, officers or entities of which they are also
officers or directors or in which they have a financial interest, will only be
on terms consistent with industry standards and approved by a majority of the
disinterested directors of DATAPOWER USA, Inc. Board of Directors. The Bylaws of
DATAPOWER USA, Inc. provide that no such transactions by DATAPOWER USA, Inc.
shall be either void or voidable solely because of such relationship or interest
of directors or officers or solely because such directors are present at the
meeting of the Board of Directors of DATAPOWER USA, Inc. or a committee thereof
which approves such transactions, or solely because their votes are counted for
such purpose if: (i) the fact of such common directorship or financial interest
is disclosed or known by the Board of Directors or committee and noted in the
minutes, and the Board or committee authorizes, approves or ratifies the
contract or transaction in good faith by a vote for that purpose without
counting the vote or votes of such interested directors; or (ii) the fact of
such common directorship or financial interest is disclosed to or known by the
shareholders entitled to vote and they approve or ratify the contract or
transaction in good faith by a majority vote or written consent of shareholders
holding a majority of the common shares entitled to vote (the votes of the
common or interested directors or officers shall be counted in any such vote of
shareholders), or (iii) the contract or transaction is fair and reasonable to
DATAPOWER USA, Inc. at the time it is authorized or approved. In addition,
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors of DATAPOWER USA, Inc. or a committee thereof
which approves such transactions.
Indemnification. DATAPOWER USA, Inc. shall indemnify to the fullest extent
permitted by, and in the manner permissible under the laws of the State of
Colorado, any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he is or was a director or officer of DATAPOWER USA, Inc., or
served any other enterprise as director, officer or employee at the request of
DATAPOWER USA, Inc. The Board of Directors, in its discretion, shall have the
power on behalf of DATAPOWER USA, Inc. to indemnify any person, other than a
director or officer, made a party to any action, suit or proceeding by reason of
the fact that he/she is or was an employee of DATAPOWER USA, Inc.
Pursuant to DATAPOWER USA, Inc. bylaws, DATAPOWER USA, Inc. shall have the right
to indemnify, to purchase indemnity insurance for, and to pay and advance
expenses to, Directors, Officers and other persons who are eligible for, or
entitled to, such indemnification, payments or advances, in accordance with and
subject to the provisions of the Colorado Business Corporation Act and any
amendments thereto, to the extent such indemnification, payments or advances are
either expressly required by such provisions or are expressly authorized by the
Board of Directors within the scope of such provisions. The right of DATAPOWER
USA, Inc. to indemnify such persons shall include, but not be limited to, the
authority of DATAPOWER USA, Inc. to enter into written agreements for
indemnification with such persons.
Subject to the provisions of Colorado Revised Civil Statues and any amendments
thereto, a Director of the Company shall not be liable to the Company or its
shareholders for monetary damages for an act or omission in the Director's
-32-
<PAGE>
capacity as a Director, except that this provision does not eliminate or limit
the liability of a Director to the extent the Director is found liable for:
1) a breach of the Director's duty of loyalty to the Company or its
shareholders;
2) an act or omission not in good faith that constitutes a breach of duty of the
Director to the Company or an act or omission that involves intentional
misconduct or a knowing violation of the law;
3) A transaction from which the Director received an improper benefit, whether
or not the benefit resulted from an action taken within the scope of the
Director's office; or
4) an act or omission for which the liability of a Director is expressly
provided by an applicable statute.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of DATAPOWER USA, Inc.,
DATAPOWER USA, Inc. has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by DATAPOWER
USA, Inc. of expenses incurred or paid by a director, officer or controlling
person of DATAPOWER USA, Inc. in the successful defense of any action, suit or
proceedings) is asserted by such director, officer, or controlling person in
connection with any securities being registered, DATAPOWER USA, Inc. 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
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING DATAPOWER USA, INC. FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE AGAINST
PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS THEREFORE
UNENFORCEABLE.
CERTAIN TRANSACTIONS
In early 1998, DataPower USA, Ltd. issued to Brian Harris, its President and
Phil Wong, Secretary and Treasurer, 2,000,000 shares each of its common stock in
exchange for cash consideration and services valued at $23,500 from each of
them. These shares are restricted securities.
During 1999, the Company acquired international licenses for advanced
compression technologies and products from WorldWide Video, Inc (WWV) in
exchange for the issuance of 250,000 shares of DataPower USA, Inc.'s common
stock and certain shares to be issued in the Company's subsidiary, VideoPower
which shares have not yet been issued.
In 1998, DataPower USA, Inc. conducted an offering under Rule 504 of the
Securities Act of 1933, as amended. DataPower raised $35,000 and issued
3,500,000 shares of its common stock to 12 investors. Later in 1998, DataPower
conducted another offering under Rule 504. DataPower raised $100,000 and issued
2,000,000 shares of its common stock to a total of eight investors.
In late 1999 and during 2000, DataPower USA, Inc. borrowed a total of $131,999.
DataPower will repay these loans from the proceeds of this offering. The lenders
were non-affiliates of the Company and the loans bear interest at twelve percent
(12%). One of the lenders, 470721 BC Ltd., is also a shareholder of DataPower
-33-
<PAGE>
and is controlled by the brother of Phil Wong, Secretary and Treasurer of
DataPower. 470721 BC Ltd. lent a total of $34,937.25 to DataPower. Although
certain of these loans are presently past due, the lenders have verbally agreed
to wait to be repaid from the proceeds of this offering.
In March, 1998, DataPower entered into a Management Agreement with PW Management
Consulting Inc. This agreement was for a term of three years and is due to
expire in March, 2001. PW Management Consulting Inc. is owned by Phil Wong,
Secretary and Treasurer of the Company. DataPower has paid Mr. Wong
approximately $61,000 under this Agreement over the last two years. DataPower
USA, Ltd. pays $500 per month for rent under this agreement, a management fee of
$2,445 per month and reimburses Mr. Wong for his office and travel expenses
incurred on behalf of DataPower USA, Inc.
In March, 1998, DataPower entered into a Management Agreement with MSI Marketing
Services International. This agreement was for a term of three years and is due
to expire in March, 2001. MSI Marketing Services International is owned by Brian
Harris, President of the Company. DataPower has paid Mr. Harris approximately
$37,500 under this Agreement over the last two years for consulting services.
In April, 1998, DataPower entered into an agreement with National Executive
Trade, Inc., a company in which Brian Harris, President of DataPower, is its
president and controlling shareholder. Pursuant to that agreement, National
Executive Trade transferred all right, title and interest it owned in a license
granted to it by World Wide Video, Inc., a Colorado corporation in which John
Gillis Perry, a Director of DataPower, is the president and controlling
shareholder. DataPower issued 1,350,000 shares of its common stock to National
Executive Trade in exchange for the assignment of the World Wide Video license.
In August, 1999, the agreement with National Executive Trade was rescinded and
the 1,350,000 shares are to be canceled.
On June 8, 2000, the Company received an advance of $25,000 from Regeena, Inc.,
whose name has subsequently been changed to Ameridian Ventures, Inc., a Canadian
company in which Brian Harris, President of DataPower, is a director. This
advance is due to be repaid at some time in the future as the Company can afford
to do so.
In April, 2000, DataPower entered into an option agreement to acquire
Interactive Innovations, Inc., a Kansas corporation. Upon payment of the option
price of $150,000, of which $50,000 has been paid thus far, DataPower will have
an option to acquire 51% of Interactive Innovations. Interactive Innovations has
developed a proprietary ad-serving system for use on the Internet. The purchase
price for 51% of Interactive Innovations is $2.5 million. The option price of
$150,000 is non-refundable. If and when DataPower purchases Interactive
Innovations, DataPower will hire its president for five years and will place
five percent (5%) of DataPower's Interactive Innovations common stock in a
voting trust to be controlled by Interactive Innovations' president for five
years. DataPower will appoint two directors while Interactive will appoint three
directors, also for five years. For 180 days after DataPower acquires the 51%
interest in Interactive Innovations, Interactive will have the right to buy back
this interest upon payment of $6,250,000 and with DataPower retaining ten
percent (10%) of its shares. Also, DataPower, upon acquisition of the 51%
interest, will be granted an option to purchase the remaining 49% by May 1, 2005
upon terms and conditions to be determined by the parties. DataPower USA has
entered into a Joint Memorandum of Understanding with Ameridian Ventures, Inc.,
a British Columbia company, in which Brian Harris, director and President of
DataPower is also a director, for Ameridian to acquire the Interactive contract
Under the
-34-
<PAGE>
terms of this Joint MOU, Ameridian Ventures has the right to assume DataPower's
position in the first option to acquire 51% of Interactive Innovations, however
DataPower retains a right to acquire the remaining 49% of Interactive
Innovations DataPower has also negotiated the right to subscribed up to
4,000,000 of Ameridian Ventures's Private Placement Unit Offering at $.55 per
unit.
In September, 1999, DataPower USA, Inc. entered into an agreement with CyberNET
Express Company, a California corporation, which agreement was modified in
February, 2000. CyberNET Express has an exclusive license with respect to pocket
mailbox and replicating network technology which is referred to as "Private
Delivery." Under the terms of the agreement, DataPower USA, Inc. is to pay $1.5
million to acquire 70% of CyberNET's common shares. Thus far, DataPower has paid
a total of $135,000 of the $1.5 million, leaving a balance of $1,350,000 due to
complete the acquisition. As part of its agreement with CyberNET, DataPower and
CyberNET are to create a joint venture which will be owned 70% by DataPower and
30% by CyberNET. Upon completion of this agreement, DataPower anticipates
utilizing its subsidiary, Private Delivery, Inc., a Nevada corporation, as the
joint venture vehicle for the CyberNET agreement. The president of CyberNET will
be president of Private Delivery, upon terms and conditions to be negotiated
between the parties. DataPower USA, Inc. has granted to Ballad Enterprises Ltd.
a Canadian Venture Exchange listed company, the right to acquire the rights to
market and distribute the CyberNet technology in the European Common Markets in
consideration of certain financing commitments.
PRINCIPAL SHAREHOLDERS
There are currently 11,600,000 common shares issued and outstanding. The
following tabulates holdings of shares of DataPower USA, Inc. by each person
who, subject to the above, at the date of Memorandum, holds of record or is
known by Management to own beneficially more than 5% of the common shares and,
in addition, by all directors and officers of DataPower USA, Inc. individually
and as a group.
Shareholdings at Date of
This Prospectus
Percentage
of Outstanding
Shares as
Adjusted to
Reflect
Percentage Shares Conclusion
Number Prior to Owned After of the
Name and Address of Shares(1) Offering Offering(2) Offering
Brian Harris(3) 2,000,000 17.24% 2,000,000 15.27%
101-1425 West Pender
Vancouver, B.C.
Canada V6G 2S3
Phil Wong(3) 2,000,000 17.24% 2,000,000 15.27%
1425 West Pender
Vancouver, B.C.
Canada V6G 2S3
National Executive
-35-
<PAGE>
Trade, Inc.(4) 1,350,000 11.64% 1,350,000 10.31%
101-1425 West Pender
Vancouver, B.C.
Canada V6G 2S3
John Gillis Perry(3)(5) 250,000 2.16% 250,000 1.91%
14327 Smith Road
Culpepper, VA 22701
Officers and Directors
As a Group (3 persons) 4,250,000 36.64% 4,250,000 32.45%
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared voting
power (including the power to vote or direct the voting) and/or sole or shared
investment power (including the power to dispose or direct the disposition) with
respect to a security whether through a contract, arrangement, understanding,
relationship or otherwise. Unless otherwise indicated, each person indicated
above has sole power to vote, or dispose or direct the disposition of all shares
beneficially owned, subject to applicable community property laws.
(2)Assumes sale of all common shares being registered herein.
(3)Denotes officer or director of DataPower USA, Inc.
(4)Mr. Harris is the president and majority shareholder of National Executive
Trade, Inc. These shares are to be canceled pursuant to an agreement reached
with the Company.
(5) Mr. Perry is president of World Wide Video, Inc., a Colorado corporation,
which owns 250,000 shares of DataPower USA, Inc.'s common stock.
SHARES ELIGIBLE FOR FUTURE SALE
DATAPOWER USA, Inc. currently has 11,600,000 shares of common stock outstanding.
Of these, 5,600,000 common shares will be "restricted securities" after the
offering and may be sold in compliance with Rule 144 adopted under the
Securities Act of 1933, as amended. Other securities may be issued in the future
in private transactions pursuant to an exemption from the Securities Act. Rule
144 provides, in essence, that a person who has held restricted securities for a
period of one year may sell every three months in a brokerage transaction or
with a market maker an amount equal to the greater of 1% of DATAPOWER USA, Inc.
outstanding shares or the average weekly trading volume, if any, of the shares
during the four calendar weeks preceding the sale.
Nonaffiliates may each sell, without limitation, shares held for two years.
DATAPOWER USA, Inc. will make application for the listing of its Shares in the
over-the-counter market. Sales under Rule 144 may, in the future, depress the
price of DATAPOWER USA, Inc. common shares in the over-the-counter market,
should a market develop. Prior to this offering there has been no public market
for the common stock of DATAPOWER USA, Inc. The effect, if any, of a public
trading market or the availability of shares for sale at prevailing market
prices cannot be predicted. Nevertheless, sales of substantial amounts of shares
in the public market could adversely effect prevailing market prices.
-36-
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Prior to this offering, there has been no market for DATAPOWER USA, Inc. common
stock. DATAPOWER USA, Inc. has applied to have its common stock traded on the
OTC Electronic Bulletin Board. If DATAPOWER USA, Inc.'s common stock is not
accepted for trading on the OTC Electronic Bulletin Board, DATAPOWER USA, Inc.
will list its common shares in the "pink sheets."
Holders. The approximate number of holders of DATAPOWER USA, Inc.'s common
shares, $.0001 par value common stock, as of September 30, was 35.
Dividends. Holders of DATAPOWER USA, Inc. common stock are entitled to receive
such dividends as may be declared by its Board of Directors.
Broker-Dealer Sales of Company Securities. Until DATAPOWER USA, Inc.
successfully obtains a listing on the NASDAQ quotation system, if ever,
DATAPOWER USA, Inc. securities may be covered by Rule 15g-2 under the Securities
Exchange Act of 1934 that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination of the purchaser and have received the purchaser's
written agreement to the transaction prior to the sale. In order to approve a
person's account for transactions in designated securities, the broker or dealer
must (i) obtain information concerning the person's financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on the information required by paragraph (i) that transactions in
designated securities are suitable for the person and that the person has
sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the rights of
transactions in designated securities; and (iii) deliver to the person a written
statement setting forth the basis on which the broker or dealer made the
determination required by paragraph (ii) in this section, stating in a
highlighted format that it is unlawful for the broker or dealer to effect a
transaction in a designated security subject to the provisions of paragraph (ii)
of this section unless the broker or dealer has received, prior to the
transaction, a written agreement to the transaction from the person; and stating
in a highlighted format immediately preceding the customer signature line that
the broker or dealer is required to provide the person with the written
statement and the person should not sign and return the written statement to the
broker or dealer if it does not accurately reflect the person's financial
situation, investment experience and investment objectives and obtain from the
person a manually signed and dated copy of the written statement. A "designated
security" means any equity security other than a security (i) registered, or
approved for registration upon notice of issuance on a national securities
exchange that makes transaction reports available pursuant to 17 CFR 11Aa3-1;
(ii) authorized or approved for authorization upon notice of issuance, for
quotation in the NASDAQ system; (iii) that has a price of five dollars or more;
or (iv) whose issuer has net tangible assets in excess of $2,000,000
demonstrated by financial statements dated less than fifteen months previously
that the broker or dealer has reviewed and has a reasonable basis to believe are
true and complete in relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of broker-dealers to sell
DATAPOWER USA, Inc.'s securities and also may affect the ability of purchasers
in this offering to sell their shares in the secondary market.
-37-
<PAGE>
DATAPOWER USA, Inc. securities will likely trade below $5.00 and such securities
will be subject to the penny stock rules discussed above.
DESCRIPTION OF SECURITIES
Qualification. The following statements constitute brief summaries of DATAPOWER
USA, Inc. Articles of Incorporation and Bylaws, as amended. Such summaries do
not purport to be complete and are qualified in their entirety by reference to
the full text of the Articles of Incorporation and Bylaws.
DATAPOWER USA, Inc.'s Articles of Incorporation authorize it to issue up to
100,000,000 common shares, par value $.0001. Shares of common stock purchased in
this offering will be fully paid and non-assessable.
Common Stock. Each record holder of common stock is entitled to one vote for
each share held on all matters properly submitted to the stockholders for their
vote. Cumulative voting for the election of directors is not permitted by the
Articles of Incorporation. The holders of outstanding shares of common stock are
entitled to such dividends as may be declared from time to time by the Board of
Directors out of legally available funds and, in the event of liquidation,
dissolution or winding up of the affairs of DATAPOWER USA, Inc., holders are
entitled to receive, ratably, the net assets of DATAPOWER USA, Inc. available to
stockholders after distribution is made to the preferred stockholders, if any,
who are given preferred rights upon liquidation. Holders of outstanding common
shares are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and nonassessable. To the extent that
additional common shares are issued, the relative interest of then-existing
stockholders may be diluted.
There are currently 11,600,000 common shares issued and outstanding.
Preferred Stock. DATAPOWER USA, Inc.'s Articles of Incorporation authorize the
issuance of 10,000,000 shares of $.01 par value preferred stock. The Board of
Directors of DATAPOWER USA, Inc. is authorized to issue the preferred stock from
time to time in series and is further authorized to establish such series, to
fix and determine the variations in the relative rights and preferences as
between series, to fix voting rights, if any, for each series, and to allow for
the conversion of preferred stock into Common Stock.
No preferred stock has been issued by DATAPOWER USA, Inc.
Transfer Agent. United Stock Transfer acts as transfer agent for DATAPOWER USA,
Inc.
LEGAL MATTERS
The due issuance of the common shares offered hereby will be opined upon for
DATAPOWER USA, Inc. by Claudia J. Zaman, Attorney-At-Law, in which opinion
Counsel will rely on the validity of the Certificate and Articles of
Incorporation issued by the State of Colorado, as amended and the
representations by the management of DATAPOWER USA, Inc. that appropriate action
under Colorado law has been taken by DATAPOWER USA, Inc.
LEGAL PROCEEDINGS
DATAPOWER USA, Inc. is not involved in any legal proceedings as of the date of
this prospectus.
-38-
<PAGE>
EXPERTS
The audited financial statements included in this prospectus have been so
included in reliance on the report of Amisano Hanson Chartered Accountants, on
the authority of such firm as experts in auditing and accounting.
INTERESTS OF NAMED EXPERTS AND COUNSEL
None of the experts or counsel named in the prospectus are affiliated with
DATAPOWER USA, Inc.
FINANCIAL STATEMENTS
Index to Financial Statements
Independent Auditor's Report dated July 19, 2000
Balance Sheet as of June 30, 2000
Statement of Operations for the period from inception (March 16, 1998) to June
30, 2000
Statement of Changes in Stockholders' Equity For The Period From Inception
(March 16, 2000) to June 30, 2000
Statements of Cash Flows For The Period From Inception (March 16, 2000) to June
30, 2000
Notes to Financial Statements
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Bellevue, State of Washington on November 10, 2000.
DATAPOWER USA, INC.
By: /s/ Brian Harris
----------------------------------------
Brian Harris, President
By: /s/ Phillip Wong
---------------------------------------
Phillip Wong, Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
November 14, 2000 /s/ Brian Harris
------------------------------------------
Brian Harris, President, Director
-39-
<PAGE>
November 14, 2000 /s/ Phillip Wong
------------------------------------------
Phillip Wong, Secretary, Treasurer, Director
November 14, 2000 /s/ John Gillis Perry
------------------------------------------
John Gillis Perry, Director
-40-
<PAGE>
Item 27. Exhibit Index.
(1) Not Applicable
(2) Not Applicable
(3) Articles of Incorporation
(3.1) Bylaws
(4) Specimen certificate for common stock
(5) Consent and Opinion of Claudia J. Zaman regarding
legality of securities registered under this
Registration Statement and to the references to such
attorney in the prospectus filed as part of this
Registration Statement
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not Applicable
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(21) Not Applicable
(22) Not Applicable
(23) Consent of Amissano & Hanson
(24) Not Applicable
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule
(28) Not Applicable
Item 28. Undertaking.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the formation set forth in the Registration Statement.
(iii) To include any additional or changed material information on the plan of
distribution.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
-41-
<PAGE>
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) Delivery of Certificates. The undersigned registrant hereby undertakes to
provide to the Transfer Agent at the closing, certificates in such denominations
and registered in such names as are required by the Transfer Agent to permit
prompt delivery to each purchaser.
(c) Indemnification. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions set forth in
DataPower's Articles of Incorporation or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant 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 such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
-42-
<PAGE>
DATAPOWER USA, INC.
(A Development Stage Company)
REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, October 31, 1999 and 1998
(Stated in US Dollars)
<PAGE>
TERRY AMISANO LTD. AMISANO HANSON
KEVIN HANSON, C.A. Chartered Accountants
INDEPENDENT AUDITORS' REPORT
To the Stockholders,
DataPower USA, Inc.
We have audited the accompanying consolidated balance sheets of DataPower USA,
Inc. (A Development Stage Company) as at June 30, 2000, October 31, 1999 and
1998 and the consolidated statements of operations, stockholders' equity and
cash flows for the eight month period ended June 30, 2000 and year ended October
31, 1999 and for the period March 16, 1998 (Date of inception) to October 31,
1998 and for the period March 16, 1998 (Date of inception) to June 30, 2000.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with United States 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. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of DataPower USA, Inc. as
at June 30, 2000, October 31, 1999 and 1998 and the consolidated results of its
operations and cash flows for the eight month period ended June 30, 2000 and the
year ended October 31, 1999 and for the period March 16, 1998 (Date of
inception) to October 31, 1998 and for the period March 16, 1998 (Date of
inception) to June 30, 2000, in accordance with generally accepted accounting
principles in the United States.
The accompanying consolidated financial statements referred to above have been
prepared assuming that the company will continue as a going concern. As
discussed in Note 1 to the financial statements, the company is in the
development stage, and has no established source of revenue and is dependent on
its ability to raise capital from shareholders or other sources to sustain
operations. These factors, along with other matters as set forth in Note 1,
raise substantial doubt that the company will be able to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, Canada "AMISANO HANSON"
July 19, 2000 Chartered Accountants
SUITE 604 - 750 WEST PENDER STREET, Telephone: (604) 689-0188
VANCOUVER, BC, CANADA, V6C 2T7 Facsimile: (604) 689-9773
E-MAIL: [email protected]
<PAGE>
DATAPOWER USA, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, 2000, October 31, 1999 and 1998
(Stated in US Dollars)
<TABLE>
<CAPTION>
June 30, October 31, October 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 2,996 $ 15,400 $ 10,080
Accounts receivable - Notes 4, 7, 9 and 10 135 1,135 135
Share subscriptions receivable - Note 7 -- -- 35,000
Prepaid expenses - Note 7 6,250 -- 11,213
--------- --------- ---------
9,381 16,535 56,428
Capital assets - Note 3 5,585 5,069 4,823
Convertible loan receivable - Note 6 -- -- 50,000
Investment in World Wide Video, Inc. - Notes 4 and 9 50,000 50,000 --
Advance on business acquisitions - Note 5 160,000 -- --
--------- --------- ---------
$ 224,966 $ 71,604 $ 111,251
========= ========= =========
LIABILITIES
Current
Accounts payable and accrued liabilities - Note 7 $ 89,332 $ 83,582 $ 71,220
Loans payable - Note 8 131,999 13,355 --
Advances payable - Note 5 125,000 -- --
--------- --------- ---------
346,331 96,937 71,220
Deferred credit - Note 5 25,000 -- --
--------- --------- ---------
371,331 96,937 71,220
--------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital stock - Notes 9 and 11 182,185 182,185 182,185
Deficit accumulated during the development stage (328,550) (207,518) (142,154)
--------- --------- ---------
(146,365) (25,333) 40,031
--------- --------- ---------
$ 244,966 $ 71,604 $ 111,251
========= ========= =========
Nature and Continuance of Operations - Note 1
Commitments - Notes 5, 6 and 11
Subsequent Events - Note 11
</TABLE>
APPROVED BY THE DIRECTORS:
"Phil Wong" "Brian Harris"
--------- ------------
, Director , Director
---------------------------- ----------------------------
SEE ACCOMPANYING NOTES
<PAGE>
DATAPOWER USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the eight month period ended June 30, 2000,
for the year ended October 31, 1999,
for the period March 16, 1998 (Date of Inception) to October 31, 1998 and
for the period March 16, 1998 (Date of Inception) to June 30, 2000
(Stated in US Dollars)
<TABLE>
<CAPTION>
March 16, 1998
(8 months) (12 months) (7 1/2 months) (Date of Inception)
June 30, October 31, October 31, to June 30,
2000 1999 1998 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Interest $ 505 $ 162 $ 465 $ 1,132
------------ ------------ ------------ ------------
Administrative Expenses
Accounting, audit and legal fees
- Note 7 11,743 7,269 9,752 28,764
Amortization 1,111 1,658 827 3,596
Consulting fees 15,375 -- 74,243 89,618
Interest and bank charges 5,525 163 452 6,140
Management fees - Note 7 38,858 20,689 12,069 71,616
Office and miscellaneous 3,775 3,085 1,752 8,612
Rent - Note 7 4,000 6,000 5,079 15,079
Telephone - Note 7 9,408 12,439 8,814 30,661
Transfer agent and filing fees 1,050 1,550 2,488 5,088
Travel and entertainment - Note 7 30,692 12,673 27,143 70,508
------------ ------------ ------------ ------------
121,537 65,526 142,619 329,682
------------ ------------ ------------ ------------
Net loss for the period $ (121,032) $ (65,364) $ (142,154) $ (328,550)
============ ============ ============ ============
Net loss per share $ (0.01) $ (0.01) $ (0.02)
============ ============ ============
Weighted average shares outstanding 11,350,000 11,350,000 8,107,143
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
DATAPOWER USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the eight month period ended June 30, 2000, for the year ended
October 31, 1999, for the period March 16, 1998 (Date of Inception)
to October 31, 1998 and for the period March 16, 1998
(Date of Inception) to June 30, 2000
(Stated in US Dollars)
<TABLE>
<CAPTION>
March 16, 1998
(8 months) (12 months) (7 1/2 months) (Date of Inception)
June 30, October 31, October 31, to June 30,
2000 1999 1998 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss for the period $(121,032) $ (65,364) $(142,154) $(328,550)
Add items not affecting cash:
Amortization 1,111 1,658 827 3,596
Consulting fees -- -- 50 50
--------- --------- --------- ---------
(119,921) (63,706) (141,277) (324,904)
Net changes in non-cash working
capital items related to operations:
Accounts receivable 1,000 (1,000) -- --
Share subscriptions receivable -- 35,000 (35,000) --
Prepaid expenses (6,250) 11,213 (11,213) (6,250)
Accounts payable and accrued
liabilities 5,750 12,362 71,220 89,332
Deferred credit 25,000 -- -- 25,000
--------- --------- --------- ---------
Net cash used in operating activities (94,421) (6,131) (116,270) (216,822)
--------- --------- --------- ---------
Cash flow used in Investing
Activities
Convertible loan receivable -- 50,000 (50,000) --
Advance on business acquisitions (160,000) -- -- (160,000)
Capital asset additions (1,627) (1,904) (5,650) (9,181)
Investment in WorldWide
Video, Inc. -- (50,000) -- (50,000)
--------- --------- --------- ---------
(161,627) (1,904) (55,650) (219,181)
--------- --------- --------- ---------
Cash flow from Financing Activities
Loans payable 118,644 13,355 -- 131,999
Advances payable 125,000 -- -- 125,000
Issuance of common stock -- -- 182,000 182,000
--------- --------- --------- ---------
243,644 13,355 182,000 438,999
--------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents for the period (12,404) 5,320 10,080 2,996
--------- --------- --------- ---------
Cash and cash equivalents, beginning
of period 15,400 10,080 -- --
--------- --------- --------- ---------
Cash and cash equivalents, end of
period $ 2,996 $ 15,400 $ 10,080 $ 2,996
========= ========= ========= =========
Non-cash Transactions - Note 10
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
DATAPOWER USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the eight month period ended June 30, 2000, for the year ended
October 31, 1999 and for the period March 16, 1998 (Date of Inception)
to October 31, 1998
(Stated in US Dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
Issued for cash:
- Initial shares to founder- at $0.01175 4,000,000 $ 400 $ 46,600 $ 47,000
- Private placement - at $0.01 3,500,000 350 34,650 35,000
- Private placement - at $0.05 2,000,000 200 99,800 100,000
Issued for services rendered - at $0.0001 500,000 50 - 50
Issued as per asset purchase agreement
- Note 6 - at $0.0001 1,350,000 135 - 135
Net loss for the period (142,154) (142,154)
---------- ------------ ------------ ------------ ------------
Balance, October 31, 1998 11,350,000 1,135 181,050 (142,154) 40,031
Net loss for the year (65,364) (65,364)
---------- ------------ ------------ ------------ ------------
Balance, October 31, 1999 11,350,000 1,135 181,050 (207,518) (25,333)
Net loss for the period (121,032) (121,032)
---------- ------------ ------------ ------------ ------------
Balance, June 30, 2000 11,350,000 1,135 181,050 $ (328,550) $ (146,365)
========== ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
DATAPOWER USA, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, October 31, 1999 and 1998
(Stated in US Dollars)
Note 1 Nature and Continuance of Operations
DataPower USA, Inc. is a development stage company. The company was
incorporated in the State of Colorado on March 16, 1998. The company
was formed to develop and sell video telephony and communications
related products either through its own efforts or through
acquisition.
These consolidated financial statements have been prepared on a
going concern basis. The company has a working capital deficiency of
$336,950 as at June 30, 2000 and has accumulated losses of $328,550
since inception. Its ability to continue as a going concern is
dependent upon the ability of the company to generate profitable
operations in the future and/or to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal
business operations when they come due. The outcome of these matters
cannot be predicted, with any certainty, at this time.
The company has historically satisfied its capital needs primarily
by issuing equity securities. Management of the company plans to
continue to provide for its capital needs during the year ended
October 31, 2000 by the continued development of its business. In
addition, the company's capital requirements during the year ended
October 31, 2000 will be supplemented by issuing equity securities.
These consolidated financial statements do not include any
adjustments to the amounts and classification of assets and
liabilities that may be necessary should the company be unable to
continue as a going concern.
Note 2 Summary of Significant Accounting Principles
The consolidated financial statements of the company have been
prepared in accordance with generally accepted accounting principles
in the United States. Because a precise determination of many assets
and liabilities is dependent upon future events, the preparation of
financial statements for a period necessarily involved the use of
estimates which have been made using careful judgement. Actual
results may differ from these estimates.
The consolidated financial statements, in management's opinion, have
been properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below:
(a) Development Stage Company
The company is a development stage company as defined in
Statement of Financial Accounting Standards No. 7.
(b) Principles of Consolidation
These consolidated financial statements include the accounts
of DataPower USA, Inc. and its wholly owned subsidiaries,
VideoPower, Inc. and Private Delivery, Inc., both companies
incorporated in the State of Nevada. All significant
inter-company transactions and balances have been eliminated.
(c) Cash Equivalents
The company considers all highly liquid debt instruments
capable of redemption within three months or less to be cash
equivalents.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 2
(Stated in US Dollars)
Note 2 Summary of Significant Accounting Principles - (cont'd)
(d) Capital Assets and Amortization
Capital assets are recorded at historical cost. Amortization
is calculated at the following rates:
Office equipment 20% declining balance basis
Computer equipment 30% declining balance basis
(e) Investments
The Company accounts for its investments at cost.
(f) Income Taxes
The company uses the liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes".
(g) Deferred Credit
Deferred credit represent funds advanced for specific joint
venture costs. These funds will be applied to costs incurred
once the joint venture has been established.
(h) Basic Loss per Share
The company reports basic loss per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". Basic loss per share is computed using the
weighted average number of shares outstanding during the
years. Diluted loss per share has not been provided as it
would be antidilutive.
(i) Foreign Currency Translation
Foreign currency transactions are translated into U.S.
dollars, the functional and reporting currency, by the use of
the exchange rate in effect at the date of the transaction, in
accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation". At each balance sheet
date, recorded balances that are denominated in a currency
other than US dollars are adjusted to reflect the current
exchange rate.
(j) Fair Market Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts
receivable, share subscriptions receivable, convertible loan
receivable, accounts payable and accrued liabilities, loans
payable and advances payable approximate fair value because of
the short maturity of those instruments.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 3
(Stated in US Dollars)
Note 3 Capital Assets
<TABLE>
<CAPTION>
Net Carrying Amount
Accumulated June 30, October 31, October 31,
Cost Amortization 2000 1999 1998
---- ------------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Office equipment $ 1,164 $ 315 $ 849 $ 979 $ 348
Computer equipment 8,017 3,281 4,736 4,090 4,475
----------- ----------- ----------- ----------- -----------
$ 9,181 $ 3,596 $ 5,585 $ 5,069 $ 4,823
=========== =========== =========== =========== ===========
</TABLE>
Note 4 Investment in World Wide Video, Inc.
On June 23, 1998 the company entered into an agreement with National
Executive Trade, Inc. ("NETI") a Nevada corporation, to acquire all
of its assets and liabilities. In consideration, the company issued
1,350,000 shares of the company's common stock. NETI was a related
company by virtue of common directors. NETI's significant asset was
the right, title and interest in a license to manufacture, sell and
distribute products based on technology licensed by World Wide Video
Inc. ("WWV").
The company was unable to close this agreement and consequently
recorded this issuance at par value of the stock of $0.0001 per
share or $135 and a receivable of the same amount for the return to
treasury and cancellation of the stock.
On August 9, 1999 (effective August 31, 1998), the company rescinded
the June 23, 1998 agreement and are holding 1,275,000 shares and are
awaiting the 75,000 shares before returning all of the shares to
treasury for cancellation.
On August 31, 1998 the company advanced $50,000 as a convertible
debenture to WWV as part of the August 31, 1998 direct license
agreement (Note 6). WWV is a related company by virtue of common
directors. The convertible debenture is unsecured and non-interest
bearing. During the year ended October 31, 1999, upon delivery of
two working prototypes, the debenture was converted into 250,000
common shares of WWV.
Note 5 Business Acquisitions
i) Private Delivery
By an agreement dated May 5, 1999 and amended February 22,
2000 and June 21, 2000, (the "Agreements"), the company has
the right to a 70% interest in Private Delivery to be held via
an incorporated joint venture, in consideration for
$1,500,000. Cybernet Express Corporation ("Cybernet") will
have the right to the remaining 30% interest.
Cybernet has the rights, title and interest in and to all of
the technology, assets and intellectual property forming
Private Delivery and will contribute these right to the
incorporated joint venture. Private Delivery is digital
e-mail, file delivery and storage services.
It is intended that Private Delivery, Inc. ("Private") will be
used as the incorporated joint venture and will utilize the
$1,500,000 for the development and marketing of Private .
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 4
(Stated in US Dollars)
Note 5 Business Acquisitions - (cont'd)
i) Private Delivery - (cont'd)
At June 30, 2000, the company had advanced a total of $135,000
to Cybernet and has agreed to the following future payment
schedule:
On or before July 15, 2000 $ 25,000
On or before July 30, 2000 25,000
On or before August 15, 2000 25,000
On or before August 30, 2000 25,000
On or before September 15, 2000 25,000
On or before September 30, 2000 25,000
On or before October 15, 2000 1,215,000
-----------
$ 1,365,000
===========
The company has not paid for the July 15 and 30, 2000
payments. Cybernet has indicated its intention to extend the
payment terms.
All marketing and distribution rights to Private Delivery for
the European Common Market acquired by Private pursuant to the
June 21, 2000 agreement will be acquired by the company from
Private. Private will receive a royalty of 20% of gross sales
as consideration for this acquisition.
If the total of $1,500,000 is not funded by October 15, 2000,
then all marketing and distribution rights to Private, except
for the right to the European Common Market, will be
transferred and assigned to Cybernet.
Private shall enter into an employment agreement with an
individual for a 3 year term commencing September 30, 2000 at
$10,000 per month including stock options.
If at least $310,000 but less than $1,500,000 has been funded
by October 15, 2000, then the company will retain only a pro
rata interest in Private, not to exceed 30%. In addition,
Cybernet shall have until September 30, 2001 to purchase all
of the company's interest in Private for an amount equal to
the company's investment.
If the company completes the payment of $1,500,000, the
company will have the option to issue shares to Cybernet such
that the company or a public company acquired for the purpose
of raising the $1,500,000 will own 100% of Private.
Cybernet shall have the right for two years from the date of
funding the $1,500,000 to maintain its pro-rata interest in
Private Delivery by participating in future financings of
Private, on a pro-rata basis.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 5
(Stated in US Dollars)
Note 5 Business Acquisitions - (cont'd)
i) Private Delivery - (cont'd)
By agreement dated January 12, 2000 and amended June 21, 2000,
the company offered a British Columbia, Canada, public company
("BC") an assignment of the company's interest in the
Agreements for the following consideration:
a) upon the exercise of the option and closing (upon the
later of 30 days after the exercise of the options or 14
days after the acquisition is approved by the regulatory
authorities and in any event no later than July 15,
2000), BC shall pay up to $1,500,000 and 70% of the
value of Private Delivery less $1,500,000 (which may be
paid in cash or shares of BC). If the value of Private
Delivery is less than $1,500,000, then BC will not be
required to provide any consideration in excess of
$1,500,000 and the company may terminate the agreement.
BC has the right to reduce its interest to any
percentage. In the event of a reduction, the $1,500,000
payment will be reduced proportionately, provided that
if it is reduced below 50%, the purchase price may be
subject to an additional reduction as determined by a
certified business valuator.
b) an assignment of the European rights to Private Delivery
for cost as set forth in the Agreements together with
outstanding advances from BC totalling $125,000 at June
30, 2000; or
c) the repayment of the outstanding advances in cash and/or
shares of the company as mutually agreed to and receive
a carried interest in the company's interest in Private
Delivery, not exceeding 10%; or
d) if the Agreements do not close, then BC shall be repaid
all option fees previously paid, in cash and/or shares
of the company as mutually agreed to.
This offer is open for acceptance until August 14, 2000. BC is
related to the company by virtue of common directors.
ii) Interactive Innovations, Inc.
By a letter of intent dated June 23, 2000, the company
proposed to enter into an Option Agreement to purchase 51% of
Interactive Innovations, Inc. ("Interactive") for
consideration of $2,500,000 invested in Interactive on or
before March 31, 2001. The investment will be allocated toward
the commercialization of a proprietary and serving systems
licensed to Interactive.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 6
(Stated in US Dollars)
Note 5 Business Acquisitions - (cont'd)
iii) Interactive Innovations, Inc. - (cont'd)
The consideration for the option is as follows:
a) A non-refundable payment of $150,000 for the Option
($50,000 paid).
b) A five year employment agreement with a former director
of Interactive beginning on March 31, 2000 or upon
completion of the purchase of the 51% equity interest
whichever comes first, which includes voting rights of
5% of Interactive for that period.
c) A Board of Directors consisting of 3 members selected by
the former director of Interactive and 2 directors from
the company.
d) A 180 day claw back agreement which Interactive can
purchase back a specific amount of shares at 2 times the
purchase price leaving the company with no less than 10%
of the issued shares.
e) A further option for the company to acquire the
remaining shares held by a former director of
Interactive at a price determined by a business
evaluator at March 31, 2006 or such other date mutually
agreed to by the parties.
By an agreement dated March 22, 2000, the company entered into
a joint venture agreement with a British Columbia, Canada
public company ("Public") for the purpose of identifying and
acquiring positions in early stage technology companies.
Public will contribute equity financing and certain management
and shareholders' expertise to the joint venture. As at June
30, 2000 Public advanced $25,000, as a payment in respect to
the $150,000 non-refundable payment for the Option. In
addition, Public advanced $25,000 for specific joint venture
costs. As these costs have not been incurred at June 30, 2000,
this advance has been shown as a deferred credit. At June 30,
2000, Public is a related company by virtue of a common
director.
<TABLE>
<CAPTION>
June 30, October 31,
Advance of Business Acquisitions 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cybernet $135,000 $ -- $ --
Interactive 50,000 -- --
Public (25,000) -- --
-------- -------- --------
$160,000 $ -- $ --
======== ======== ========
</TABLE>
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 7
(Stated in US Dollars)
Note 6 License Agreement
On August 31, 1998, the company entered into a direct license
agreement with WWV to acquire the exclusive license to develop and
sell WWV video telephony technology and products in Canada, with the
option to secure similar rights in South Africa, Australia and New
Zealand. WWV is a related company by virtue of common directors..
As consideration of this agreement the company advanced a $50,000
convertible debenture to WWV during the period ended October 31,
1998. The debenture was converted into 250,000 common shares of WWV
during the year ended October 31, 1999 (Note 5).
WWV also granted the company the option to acquire the non-exclusive
rights to market to U.S. Government military bases for 250,000
common shares of the company. The company exercised its option, and
have not issued the 250,000 common shares as at June 30, 2000.
All other terms of this license agreement were replaced by a letter
of agreement dated May 22, 2000. This letter of agreement with WWV
requires that the company assign all of its rights under the direct
license agreement to VideoPower, Inc. a wholly-owned subsidiary of
the company ("Video"). The following are the conditions of the
letter of agreement:
i) WWV to receive 10% equity interest in Video and such 10% shall
be upon closing of the agreement, and shall be based on
Video's pre-initial public offering or major financing.
ii) WWV will grant Video a 2% equity interest in WWV's capital
stock and the assignment to Video of any purchase orders held
by WWV.
iii) Video will deliver a letter of intent for a sub license with a
manufacturer and distributor which includes the order and
assembly of approximately 1,000,000 of WWV's "Building
Packages". This is conditional upon the delivery of superior
performance and cost effective technology by WWV.
iv) WWV shall be granted the right to acquire additional shares of
Video for a period of 18 months from the date of the
definitive agreement or 90 days prior to the Video's IPO,
whichever shall be the earlier, to bring WWV's interest in
Video to 33.3% at the time WWV exercises such rights. The
price per share shall be at a 25% discount to the IPO per
share price or the last trading price. The issuance of the
right is subject to compliance with securities regulatory
policies.
v) WWV shall receive 10% of all sub license fees received by
Video.
The term of this license is 5 years and will be automatically
renewed annually as long as Video maintains reasonable performance
levels.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 8
(Stated in US Dollars)
Note 7 Related Party Transactions - Notes 4, 5 and 6
The company has incurred the following fees charged by directors and
companies controlled by directors of the company:
<TABLE>
<CAPTION>
March 16, 1998
(8 months) (12 months) (7 1/2 months) (Date of Inception)
June 30, October 31, October 31, to June 30,
2000 1999 1998 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accounting fees $ -- $ 1,000 $ 3,725 $ 4,725
Management fees 38,858 20,689 12,069 71,616
Rent 4,000 6,000 3,500 13,500
Telephone 2,000 3,000 1,750 6,750
Travel 2,000 3,000 1,750 6,750
-------- -------- -------- --------
$ 46,858 $ 33,689 $ 22,794 $103,341
======== ======== ======== ========
</TABLE>
Included in accounts receivable as at June 30, 2000 is $135 (October
31, 1999 and 1998: $135) due from NETI, a company controlled by
common directors.
Share subscriptions receivable at October 31, 1998 in the amount of
$35,000 is due from directors of the company for the issuance of
3,500,000 common shares. This amount was paid by these directors
during the year ended October 31, 1999.
Prepaid expenses at October 31, 1998 of $11,213 represent management
fees paid in advance to directors of the company.
Included in accounts payable and accrued liabilities at June 30,
2000 is $64,258 (October 31, 1999 and 1998: $64,258) due to NETI's
shareholders and a creditor as a result of the rescission agreement
(Note 4).
Note 8 Loans Payable
By various agreements dated during the period October 26, 1999 to
June 10, 2000, the company was loaned $131,999. These loans bear
interest at 12% per annum (included in accounts payable and accrued
liabilities) are unsecured and are due on the earlier of one year
from the agreement dates or 90 days after the company obtains a
listing approval and is quoted for trading on the North American
Stock Dealers' Over the Counter Bulletin Board market and are
unsecured.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 9
(Stated in US Dollars)
Note 9 Capital Stock - Notes 7 and 11
Authorized:
100,000,000 common stock, $0.0001 par value
10,000,000 preferred stock, $0.01 par value
Issued:
During the period March 16, 1998 to October 31, 1998, the company's
founders purchased 4,000,000 shares of common stock for proceeds of
$47,000.
Pursuant to a consulting agreement dated March 20, 1998, the company
issued 500,000 shares of common stock in exchange for consulting
services rendered.
On March 30, 1998 the company issued 3,500,000 shares of common
stock at $0.01 per share for proceeds of $35,000.
As part of the asset purchase agreement dated June 23, 1998 (Note
4), the company issued 1,350,000 shares of common stock.
On July 15, 1998 the company issued 2,000,000 shares of common stock
at $0.05 per share for proceeds of $100,000.
Commitments:
Business acquisition (Note 5) and License agreement (Note 6).
Note 10 Non-cash Transactions
Investing and financing activities that do not have a direct impact
on current cash flows are excluded from the cash flow statement.
During the periods ended October 31, 1999 and 1998, the following
transactions were excluded from the statements of cash flows:
a) On October 31, 1998 the company issued 500,000 shares of
common stock at a par value of $0.0001 per share for proceeds
of $50 as part of the consulting agreement.
b) On October 31, 1998, as part of the asset purchase agreement,
the company issued 1,350,000 shares of common stock for $135.
Note 11 Subsequent Events
By a letter of mutual intent dated July 7, 2000, VideoPower, Inc., a
wholly-owned subsidiary (the "Sub") of the company proposes to enter
into a licensing agreement with a People's Republic of China company
("PRC") which will entitle PRC to be the international manufacturer
of all the Sub's standard products and PRC will acquire the rights
to market and distribute World Wide Video's products in China and
Hong Kong (Note 6).
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 10
(Stated in US Dollars)
Note 11 Subsequent Events - (cont'd)
The considerations for these rights are as follows:
1) Payment of $100,000 to the Sub by issuance of 250,000 Video
shares to PRC at $0.40 per share.
2) PRC to acquire marketing and distributing rights by issuing a
purchase order to the Sub for a minimum order of 500,000 units
of chip sets and supported by a letter of credit.
3) Issuance of additional 500,000 shares of the Sub to PRC to be
released pro-rata based on a total of 500,000 units of chip
sets.
The terms of the marketing and distributing rights shall be 3 years
and upon fulfilment of the minimum order of 500,000 units,
automatically extended for an additional 2 years and extended year
to year upon maintaining sales volumes to be determined.
Note 12 Deferred Tax Assets
The Financial Accounting Standards Board issued Statement Number 109
in Accounting for Income Taxes ("FAS 109") which is effective for
fiscal years beginning after December 15, 1992. FAS 109 require the
use of the asset and liability method of accounting of income taxes.
Under the assets and liability method of FAS 109, deferred tax assts
and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled.
The following table summarizes the significant components of the
company's deferred tax assets:
Total
-----
Deferred Tax Assets
Non-capital loss carryforward $ 328,550
=========
Gross deferred tax assets $ 164,275
Valuation allowance for deferred tax asset (164,275)
---------
$ --
=========
The amount taken into income as deferred tax assets must reflect
that portion of the income tax loss carryforwards that is likely to
be realized from future operations. The company has chosen to
provide an allowance of 100% against all available income tax loss
carryforwards, regardless of their time of expiry.
<PAGE>
Datapower USA, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000, October 31, 1999 and 1998 - Page 11
(Stated in US Dollars)
Note 13 Income Taxes
No provision for income taxes has been provided in these financial
statements due to the net loss. At October 31, 1999, the company has
net operating loss carryforwards, which expire commencing in 2009,
totalling approximately $207,518, the benefit of which has not been
recorded in the financial statements.
Note 14 New Accounting Standards
In April 1998, the Accounting Standards Executive Committee issued
SOP 98-5, "Reporting on the costs of start-up activities". This
statement is effective for fiscal years beginning after December 15,
1998. Adopting this standard does not have a significant impact on
the company's financial position, results of operations or cash
flows.
In June 1998, the Financial Accounting Standards board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which standardized the accounting for derivative
instruments. SFAS is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999. Adopting this standard will not
have a significant impact on the company's financial position,
results of operations or cash flows.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". Adopting this Bulletin does not have a significant
impact on the company's financial position, results of operations or
cash flows.
