<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
NETMEASURE TECHNOLOGY, Inc.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
86-0914695
Nevada
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
370-1122 Mainland Street, Vancouver, British Columbia, Canada V6B 5L1
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 669-2255
----------------------------------------------------
Securities to be registered under Section 12(b) of the Act: None.
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001
- --------------------------------------------------------------------------------
(Title of class)
(Title of Class)
<PAGE> 2
PRELIMINARY NOTE
The registrant filed this Form 10-SB to: provide full and fair
disclosure about the Company and its business, management and financial
position to present and prospective shareholders; register its shares under the
Securities Exchange Act of 1934 and thereby become a reporting issuer whose
securities are eligible for the OTC Bulletin Board, Nasdaq or a national
securities exchange; and facilitate future financing.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
NetMeasure Technology Inc. ("NetMeasure"), formerly, Powertech, Inc.
("Powertech"), was incorporated under the laws of the State of Nevada on May 4,
1998 with no specific business plan other than to merge with or to acquire an
unspecified company. The company neither owned nor leased any real or personal
property, and had no specific business plan other than to engage in a merger or
acquisition with an unidentified company. On February 12, 1999, Netmeasure
purchased all the issued and outstanding shares of NetMeasure Technology
(Canada) Inc. ("NetMeasure (Canada)"), formerly NetSentry Technology, Inc.
NetMeasure is a development stage company that intends to develop and exploit
technologies to improve efficiency, reliability and recoverability of the
private (intranets or corporate) networks and public (internet) networks that
use Internet protocol ("IP") to transfer data within and between these
networks.NetMeasure will either produce the products using its technologies or
license others to do so. IP is the most widely used data communications protocol
or "common language" for networks that make up the Internet; it allows different
types of networks based on various types of protocols to be able to communicate
with each other. Unless the context otherwise indicates or requires, NetMeasure
and NetMeasure (Canada), its wholly-owned subsidiary, are referred to in this
registration statement as the "Company."
Currently, the Company's activities are devoted primarily to product development
of its proposed products (which are briefly described under "Plan of Operation"
in Item 2). It contemplates that its first product, ProbeNET, will be "feature
complete" and launched during the second quarter of 2000. Other efforts are
devoted by management to product development, direction and strategy, market
research, marketing and sales channel strategy, prospective customer
discussions, sales channel negotiations and discussions, financing discussions,
and general and administrative matters.
NETMEASURE TECHNOLOGY (CANADA) INC.
Pursuant to a Share Purchase Agreement dated for reference January 11, 1999, as
amended by agreement dated January 29, 1999, NetMeasure acquired from Randy
Voldeng and Dragos Ruiu all of the issued and outstanding shares of NetMeasure.
<PAGE> 3
(Canada) in consideration of $115,000,(*) payable by the issuance of 2,442,500
shares to each of them, or an aggregate of 4,885,000 shares, plus an additional
aggregate of 1,000,000 shares from three persons then serving as directors of
NetMeasure, and NetMeasure's having available funds of $1,012,500. NetMeasure
(Canada) was a start-up company with a business plan to engage in the business
of Internet software and hardware development. NetMeasure, which had about 65
shareholders, was seeking a merger, and NetMeasure (Canada), whose 2 founders
were its sole shareholders, was seeking funding. The transaction closed on
February 12, 1999 after the requisite funds were obtained. On that date, Mr.
Voldeng and Mr. Ruiu each entered into Non-Competition Agreements with
NetMeasure (Canada) as a condition of closing. The agreements have not been
assigned to NetMeasure Technology Inc., as management deemed it was not
required, as NetMeasure Technology Inc.'s only operating company is NetMeasure
Technology (Canada) Inc., its wholly owned subsidiary. The Company believes the
Non-Competition Agreements are enforceable. Prior to the transaction, there was
no relationship between the companies or their shareholders. The terms of the
transaction were negotiated on an arm's-length basis; no fairness opinion,
appraisal or report was obtained. Mr. Ruiu was removed as an officer and
director, without cause, in November 1999, and has not had an operating role
with the Company since early September 1999. Mr. Ruiu has not participated in
the development of the Company's current products-under-development and his
departure will not negatively impact the Company.
NetMeasure (Canada) was incorporated under the Company Act of British Columbia
on May 22, 1998 to develop and exploit technologies that improve the efficiency,
reliability and recoverability of the private (intranets or corporate) networks
and public (internet) networks that use the Internet Protocol (" IP") to
transfer data in and between these networks. It was (and still is) a development
stage company that had (and has) not earned any revenues and that required (and
requires) substantial financing to develop and market its technologies.
NetMeasure (Canada)'s business will focus on the development and marketing of
software products that help telecommunications companies and Internet service
providers, national and regional network operators and large corporations
increase the efficiency, reliability and recoverability of their network
infrastructures.
Some of the most common problems faced by network managers relate to the
efficiency of routing, the way that network equipment using the IP protocol
assigns paths that pieces of information take to reach their network
destination in the quickest way, and the way address resources, how source and
destination network addresses are assigned, are distributed throughout IP
networks. Routing and addressing needs are increasing and becoming more complex
as traffic increases, and not surprisingly, there is a corresponding increase
in new network-associated problems.
NetMeasure (Canada) will address the needs of network professionals by
providing them with customizable software tools that will measure and monitor
network conditions throughout their networks, alert them to the locations of
specific network problems and conditions and potentially help them identify
future trouble spots.
- ----------------------
(*) All dollar amounts in this registration statement, including financial
statements, are US Dollars unless otherwise indicated.
<PAGE> 4
MARKETING AND DISTRIBUTION OF NEW PRODUCTS
NetMeasure (Canada) and Hewlett Packard Network Test Division ("HP"), now known
as Agilent Technologies, Inc. ("Agilent") executed a Memorandum of
Understanding, dated May 15, 1998, with respect to a marketing and distribution
structure for NetMeasure (Canada)'s ProbeNET distributed measurement software,
providing for a period of 24 months beginning with the product release date,
which is expected to occur in the second quarter of 2000. The Memorandum of
Understanding was entered into by NetMeasure (Canada) before it was formally
incorporated. The Memorandum of Understanding is not a formal contract but an
expression of interest by Agilent to enter into an agreement with the Company,
provided the product meets the needs of its target customers. Should the
parties enter into an agreement, it would be subject to mutually agreed annual
renewal terms and require the Company to sell the ProbeNET software to HP at a
discount up to 50% from the net selling price. Agilent would then market and
distribute the Company's products under either its own or the Company's label
or badge. The Company also may market and distribute its products directly or
arrange for others to do so. Revenues may also be generated through licensing
the Company's products to others. The Company does not expect to be dependent
upon Agilent or a few major customers or suppliers.
As networks and the Internet have grown, they have also created more headaches
for network managers. IP routing and address resources are distributed
throughout IP Networks, as are their associated problems. ProbeNET is used to
identify, monitor and take action on events, conditions and traffic that happen
at different times and places within the network, but also negatively impact
network performance.
ProbeNET is a software package that is "distributed" in the sense that it can
function with several ProbeNET "agents" installed throughout the network in a
distributed fashion in order to collect and measure network performance from
various points in the network. ProbeNET is a problem-solving tool for network
professionals who need to get more visibility of which problems are occurring
in remote parts of their networks. ProbeNET uses a distributed architecture of
"agents" installed throughout the network to capture and analyze any type of
data, anywhere and anytime on the network. (Other products under development
are described briefly under "Plan of Operation" in Item 2.)
COMPETITION
ProbeNET is a technology that enables the network professional to make a
network related measurement in a fast and efficient manner; it differentiates
itself from other measurement tools by combining data intelligently collected
from distributed measurement points on the network in a meaningful way by means
of an intuitive reporting mechanism and user interface. It also is a highly
customizable tool that uses a deployed or distributed architecture of "agents"
installed throughout the network to capture and analyze any type of data,
anywhere and anytime on the
<PAGE> 5
network. It also enables network managers to specify new measurement needs and
to rapidly obtain a usable measurement that can then be run by the ProbeNET
program.
There are vendors providing measurements for specific applications, such as IP
billing, network performance, service level agreements and policy management,
but the Company's management is not aware of any commercially available,
comprehensive test tools similar to ProbeNET, for its intended use. Products
offering specific applications similar to those incorporated in ProbeNET are
available from such competitors as NFR, Narrus, Saville, Xacct, Network
Associates, Cisco and others.
In general, however, the development of Internet software and hardware is
intensely competitive. The Company competes with numerous other companies,
including several major manufacturers and distributors. Some of the Company's
competitors have greater financial and other resources than the Company.
Consequently, such entities may begin to develop, manufacture, market and
distribute Internet software and hardware that is substantially similar or
superior to the Company's products. There is no assurance that the Company will
be able to develop and sell products that have a competitive advantage in the
market.
GOVERNMENT SUPERVISION AND REGULATION
The phenomenal growth of the Internet indicates a fundamental change in the way
people and organizations interact. Electronic connectivity, once solely the
realm of larger corporate business systems, is now impacting every business
segment in the worldwide economy and all consumers in the form of the Internet.
Voice, fax, e-commerce and video now converge on the Internet. However,
although the government is closely monitoring the development of this new
communications infrastructure, especially to ensure there is fair competition,
the Internet is largely unregulated.
RESEARCH & DEVELOPMENT
The Company estimates spending approximately $1 million on product development
during fiscal 2000, including $175,000 in expected support funding which is
being applied for from Technology BC, a British Columbia provincial government
funding program for joint development activities between the Company and
Advanced Technology Group of the British Columbia Institute of Technology.
The Advanced Technology Group of the British Columbia Institute for Technology
has received funding on many occasions for collaborative projects with industry
partners. Based upon their past experience, the Group has advised the
registrant that is confident that the proposed project, which the Group
supports, would qualify for funding. The registrant is currently working with
the Group to complete the funding application. However, should the funding
application not be successful, or should the Company not secure the funds to
fulfill its part, it would not significantly impact the Company's economic
viability as the funds are intended to be used for
<PAGE> 6
prototyping a second product (code named "TestBot") and not the Company's
flagship product ("ProbeNet"), which is currently under development.
The most significant part of the Company's activities since the closing of the
Share Purchase Agreement with NetMeasure (Canada) in February 1999 has been
product development activities. Research and development activities ordinarily
are not, but may be, paid for by customers.
<PAGE> 7
INTELLECTUAL PROPERTY
The Company believes that the software and hardware technology products it
develops are proprietary in nature, but generally does not intend to seek
patent protection. Rather, the Company intends to protect its intellectual
property through a combination of trade secret laws, non-disclosure agreements
and similar means.
EMPLOYEES
As of January 1, 2000, the Company employed 9 full-time employees, including
programmers, technicians and others. The Company considers relations with
employees to be good. Messrs. Voldeng and Plato, officers and directors, devote
their full time to the business of the Company.
Forward-Looking Statements. The information in this Form 10-SB, contains
forward-looking statements, including statements of management's belief or
expectation, within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Such statements are
subject to known and unknown risks and uncertainties that could cause actual
future results and developments to differ materially from those projected or
suggested in the forward-looking statements. Such risks and uncertainties are
set forth under "Item 1. Business," "Item 2. Management's Discussion and
Analysis or Plan of Operation" and elsewhere in this registration statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The independent auditors' report comments that the Company's having no
established source of revenue and its being dependent on its ability to raise
substantial amounts of equity funds raise substantial doubt about the Company's
ability to continue as a going concern. The technologies the Company intends to
develop will require significant cash. The ability of the Company to develop
the technologies into marketable products is dependent on management's ability
to obtain adequate additional financing, develop commercially saleable products
and achieve profitable operation. There can be no assurance that any of these
objectives will be realized.
PLAN OF OPERATION
The Company has not had revenues from operations since inception. With the
acquisition of NetMeasure (Canada), NetMeasure's plan of operation contemplates
utilizing the $1.2 million additional financing to be obtained in an on-going
private offering during the next 6 months for the continued development of its
technologies in order to achieve profitable operations. Management currently is
actively seeking this funding. Approximately $500,000 has already been obtained
for operations through the end of April 2000, when customer field trials of
ProbeNET are expected to be completed and ProbeNET is launched. The Company
expects to begin generating revenues by the second quarter of 2000. The Company
presently has no contingency plan in the event it does not obtain all the
additional financing, although it is cautiously optimistic that it will do so,
provided a trading market is established for the registrant's shares in the
immediate future. A merger or the sale of technologies likely would result if
the Company is unsuccessful in obtaining financing.
<PAGE> 8
Attracting additional members to a team of highly skilled experienced technical
professionals, including programmers and marketing engineers, also is
contemplated. The Company expects to pay compensation of Cdn $100,000 (US
$69,000) to Mr. Voldeng and Cdn $100,000 (US $69,000) to Jeff Plato during
fiscal 2000. The Company also has lease obligations aggregating about $42,000
in fiscal 2000. The Company expects to meet the compensation and lease
commitments, as well as other financial obligations, through funds obtained from
private offerings if sufficient funds are not generated from operations.
With the additional financing and staff, the Company expects to continue
development of and to launch ProbeNET and other innovative products during the
next several years, including:
- -ProbeNET Version 2 - will include an architecture for consultants and
customers to develop their own customized measurements and will include more
data exchange between the distributed ProbeNET software "agents" in the
network, to provide more detailed network performance measurement; estimated
release in the 3rd quarter of 2000.
- -TestBOT -is a handheld portable network tester designed for use by system and
network administration professionals. It is envisioned with a processor speed
of 270 MIPS (millions of instructions per second), 32MB (megabytes of random
access memory) 100 base T (network jack interface type and speed, which is 100
megabits per second), handheld, battery-operated console and test tool about
the size and weight of a 35mm camera.
There can be no assurance that any of the products under development will be
successfully developed or will be commercially successful.
NETSENTRY STATEMENTS TO FEBRUARY 11, 1999. During the period from inception (May
22, 1998) to February 11, 1999, the company had only 2 employees, the
co-founders who primarily funded themselves out of their own pockets. Total
expenses for the period were $89,504, which included management fees, salaries
and benefits of $26,595, and legal and accounting fees of $34,493. Most of the
founders' efforts were spent in studying the market, developing a business plan
and trying to secure funding. The majority of the funds spent on legal and
accounting fees were related to the sale of NETSentry to Powertech, Inc., which
closed on February 12, 1999.
POWERTECH'S STATEMENTS TO JUNE 30, 1999. During the period from January 1, 1999
to June 30, 1999, revenues were $7,730, resulting from interest, and total
expenses were $323,836. The Company's activities during this period of time were
related to hiring staff, securing a facility, putting the necessary
infrastructure in place, doing preliminary research and prototyping on two new
potential products attempting to resolve issues with the Securities and Exchange
Commission ("SEC") in the United States arising from the private investigation.
Of the total expenses, salaries and benefits accounted for $165,880 including
the management fees paid to the Chief Executive Officer, Chief Technology
Officer and Product General Manager. In addition, $25,483 was spent for computer
equipment and supplies that were not capitalized and $69,510 was spent on
accounting and legal fees, including fees related to the sale of NETSentry to
Powertech, Inc. The Company began preparatory work to complete a Form 10-SB, the
purpose being to register its shares under the Securities Exchange Act of 1934,
thereby becoming
<PAGE> 9
a reporting issuer whose securities are eligible for the OTC Bulletin Board,
Nasdaq or a national securities exchange, and to facilitate future financing.
It is anticipated legal and accounting fees will be lower after the Company is
registered and the SEC investigation is completed.
POWERTECH'S STATEMENTS TO SEPTEMBER 30, 1999. During the three month period from
June 30, 1999 to September 30, 1999, revenues were $5,240, resulting from
interest, and total expenses were $202,635. The Company's activities during this
period of time were related to hiring additional product development staff,
development of the Company's first product, ProbeNET, a distributed network
problem-solving tool for network professionals, and completing the Form 10-SB.
Management decided to focus resources on the Company's flagship product,
ProbeNET, and temporarily discontinue research on the hand-held tester (code
named "TestBOT").
Of the total expenses incurred during the quarter, salaries and benefits
accounted for $133,419 including $31,280 for marketing and sales, $86,741 for
product development, and $15,398 for general and administrative. In addition,
depreciation was $18,716, accounting and legal fees were $14,976 and rent was
$10,467. The Company completed and submitted its Form 10-SB. It is expected that
accounting and legal fees will be higher during the next quarter for fees
(related to the Form 10-SB) invoiced subsequent to September 30, 1999 for
services rendered before that date.
Year-to-date revenues totaled $12,970 (interest) and expenses were $526,471. Of
the total expenses, salaries and benefits were $299,639 including the
management fees paid to the Chief Financial Officer, Chief Technology Officer
and Product General Manager, accounting and legal fees were $84,486,
depreciation was $44,676, computer equipment and supplies were $30,810 and rent
was $17,106.
YEAR 2000/Y2K ISSUES
Because many computer and computer applications define date by the last two
digits of the year, "00" may not be properly identified as the year 2000. This
error could have resulted in miscalculations or systems failure in computer
systems, network elements, software applications and other business systems
that have time-sensitive programs.
The Company has been unaffected by the Year 2000/Y2K issues and management does
not believe there will be any Year 2000/Y2K issues in the future that will
impact its operations.
ITEM 3. DESCRIPTION OF PROPERTY
The Company subleases office space of approximately 2300 square feet for its
executive offices and primary operating facility from an unrelated entity for
monthly rent of Cdn $4600 (US $3,172) on a lease expiring on May 14, 2001, with
an option to extend the lease for two years and to increase the space by 1000
square feet. The Company also leases approximately 750 feet for its main test
lab and network infrastructure facility in an adjacent building for monthly
rent of Cdn $442 (US $305) on a lease expiring on June 15, 2001, with an option
to extend the lease for two years. In the opinion of management, these
properties are adequate and suitable for the
<PAGE> 10
Company's use for the foreseeable future. Until November 1999, the Company
maintained at no cost a test lab at the home of Mr. Ruiu in Vancouver and a
remote test site at an apartment of Mr. Ruiu in Edmonton, Alberta.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000, the beneficial
ownership of shares of Company's common stock by any person known to be the
beneficial owner of more than 5%, each of the directors and executive officers,
and all directors and executive officers as a group. Except as otherwise
indicated, each of the persons named has sole voting and investment power with
respect to all shares beneficially owned. Beneficial ownership is calculated in
accordance with Rule 13d-3(d) of the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------ ----------------------- ----------------
<S> <C> <C>
*Randy Voldeng 2,942,500 shares 19.4%
370-1122 Mainland Street
Vancouver, BC V6B 5L1
Dragos Ruiu 2,942,500 shares 19.4%
370-1122 Mainland Street
Vancouver, BC V6B 5L1
*Jeff Plato -0- -0-
370-1122 Mainland Street
Vancouver, BC v6b 5l1
Officers & Directors as a group 2,942,500 shares 19.4%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ---- --- --------------------
<S> <C> <C>
Randy Voldeng 50 Director, President and
Chief Executive Officer of
NetMeasure and NetMeasure (Canada)
Jeff Plato 32 Director and Vice
President of NetMeasure
and NetMeasure (Canada)
</TABLE>
- -------------
* Director and/or Officer.
<PAGE> 11
Each director is elected to hold office until the next annual meeting of
stockholders and until his successor is elected or appointed and qualified.
Each officer serves at the discretion of the Board of Directors. There is no
family relationship between or among any of the directors or executive
officers.
RANDY VOLDENG is a director and the President and Chief Executive Officer of
Company since 1999, and NetMeasure (Canada), since 1998. Prior to co-founding
NetMeasure (Canada) in 1998, Mr. Voldeng was the President of Hayes Voldeng
Management, Inc., since 1993. Prior to founding Hayes Voldeng Management, Inc.
in 1993, Mr. Voldeng was responsible for worldwide sales and marketing for the
IDACOM Telecom Division of Hewlett-Packard ("HP"), since May 1992. Previous to
that, he served as HP's Operations Manager, from August 1990. Before joining
HP, Mr. Voldeng was Vice-President and Chief Operating Officer of IDACOM
Electronics Ltd. of Edmonton, Alberta, from December 1998. While at IDACOM
Electronics Ltd., he played a key role in the company's management and eventual
sale to HP.
JEFF PLATO is a director and Vice President of NetMeasure and NetMeasure
(Canada), since December 1999. Mr. Plato has twelve years experience related to
the management of product lines and marketing and sales in a high-tech data
communications environment. Mr. Plato has been NetMeasure (Canada)'s Product
General Manager since February 1999. In 1998, he was Director of Customer
Operations at Total Control Software, a division of General Electric's GE-Fanuc
subsidiary, which provides automation software and hardware for the industrial
automation industry; he was responsible for production, quality, customer
support, training, and IT for the 120-person Canadian operations. In 1997, Mr.
Plato was in charge of overall marketing responsibilities for a portfolio of
test and measurement products for the IDACOM division of HP; from 1992 to 1994,
he was in charge of worldwide sales and support for the same division. He also
spent 2 years in Europe, where he managed business development of IDACOM
products. In total, Mr. Plato worked for IDACOM Electronics Ltd. and the IDACOM
Hewlett-Packard division for twelve years, from 1985 to 1997, in various roles
including engineering, supporting, selling and marketing network measurement
equipment, including the Broadband Series protocol analyzers. Mr. Plato has a
degree in Computer Engineering.
The Company maintains "key man" life insurance for Mr. Voldeng in the amount of
US $517,500 (Cdn $750,000).
By virtue of his positions and beneficial ownership of shares, Mr. Voldeng may
be deemed a "control person" and a "parent"of the Company, within the definition
of those terms in Rule 12b-2 of the Securities Exchange Act of 1934.
By virtue of their activities in founding and organizing NetMeasure and
NetMeasure (Canada), each of Messrs. Voldeng, Ruiu, Daniel Para, David Raftery,
Daniel Hodges and Ms. Kathy Para, who is married to Daniel Para, may be deemed
a "promoter" of those companies, within the definition of that term in Rule
12b-2 of the Securities Exchange Act of 1934.
SIGNIFICANT EMPLOYEES. The following persons, each of whom joined NetMeasure
(Canada) in 1999, are not executive officers, but are expected by the Company
to make a significant contribution to its business:
<PAGE> 12
Brent Marykuca is NetMeasure (Canada)'s Director of Product Development and
Chief Software Architect. Mr. Marykuca has sixteen years' experience with
operating systems, programming languages and the tools used to build software.
He has a B.Sc. in Computer Science. Prior to joining NetMeasure (Canada), Mr.
Marykuca was a Development Manager with Paradigm Development Corporation, from
June 1997 to May 1999. He was responsible for managing Paradigm's projects with
the Office Business Unit at Microsoft. His responsibilities included
coordinating new development and upgrades to existing components, determining
staffing levels, negotiating contracts and specifications, as well as acting as
project lead on several projects. Prior to becoming a Development Manager, he
was a software engineer at Paradigm, from June 1996 to June 1997. From October
1995 to March 1996. Mr. Marykuca was Manager, Systems Group at Essential
Planning Systems, where he led a group responsible for the design and
development of Windows user interface software as well as data access
Application Programming Interfaces for Geographic Information System software.
Previously, he was Technical Manager, Geographic Applications Group at OCS
Technologies Corp., from September 1994 to October 1995, and Programmer/Analyst
at Essential Planning Systems, from June 1993 to September 1994. From 1986 to
1993, Mr. Marykuca held various programming positions at the University of
Victoria. From 1983 to 1986, he worked as an independent programmer.
Rowan Wing is NetMeasure (Canada)'s Lead Programmer. Before joining NetMeasure
(Canada), Mr. Wing worked at two Canadian software companies, Merak Projects
Ltd. and Infowave Software Inc. He has been responsible for the design and
implementation of microcomputer-based products for wireless messaging, network
protocols, oil and gas information systems, real-time data collection and
Geographical Information Systems. He has ten years experience related to
software development. Prior to joining NetMeasure (Canada), Mr. Wing was a
senior programmer at Merak, from May 1997 to January 1999, where he worked on
the development and architecture of a petroleum information system and a
geospatial visualization component. Previously, from May 1996 to May 1997, he
worked at Infowave as a senior programmer on such projects as a wireless email
client user interface, protocols for wireless modems and a client server
architecture for a next generation of wireless messaging services. Mr. Wing
also was a programmer at PCI Pacific Inc., from March 1994 to May 1996, where
he worked on a Geographic Information System user interface and GIS spatial
analysis and indexing; he also worked on several projects for the University of
Victoria, from September 1990 to January 1994.
ITEM 6. EXECUTIVE COMPENSATION
Neither Mr. Voldeng, the Chief Executive Officer, nor any other executive
officer of the Company received compensation (total salary and bonus) in excess
of US $100,000 in any fiscal year since inception. Mr. Voldeng, Chief Executive
Officer, received Cdn $12,000 (US $8,275) from May 22, 1998, inception of
NetMeasure (Canada), through December 31, 1998, and Dragos Ruiu, former Chief
Technical Officer, received Cdn $15,000 (US $10,344) during that period. In
1999, Mr. Voldeng received an annual salary of Cdn $90,000 ((US $62,000). In
2000, Mr. Voldeng and Mr. Plato each will receive an annual salary of Cdn
$100,000 (US $69,000).
<PAGE> 13
ITEM 7. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
Pursuant to a Share Purchase Agreement dated for reference January 11, 1999, as
amended by agreement dated January 29, 1999, NetMeasure acquired all of the
issued and outstanding shares of NetMeasure (Canada) from Messrs. Voldeng and
Ruiu in consideration of $115,00 payable by the issuance of 2,442,500 shares to
each of them, or an aggregate of 4,885,000 shares, plus the transfer of an
aggregate of 1,000,000 shares from promoters Kathy Para (300,000), Daniel
Hodges (400,000) and David Raftery (300,000).
Each of Ms. Para and Mr. Raftery had acquired 300,000 shares in August 1998 and
Mr. Hodges had acquired 400,000 shares in June 1998 for management services and
organizational development services provided in connection with the
incorporation of NetMeasure and serving as initial officers and/or directors.
Daniel Para, who is married to Kathy Para, acquired 600,000 shares in December
1998 for $.03125 per share. Mr. Para also loaned NetMeasure (Canada) $100,000 in
December 1998, which indebtedness was repaid by NetMeasure in connection with
the closing of the Share Purchase Agreement in February 1999. The purpose of the
loan was to allow NetMeasure (Canada) management to purchase development
equipment, locate facilities and hire staff.
NetMeasure (Canada) entered into an option agreement dated September 10, 1998,
amended by an agreement with NetMeasure, with Dragostech.com Inc., a company
controlled by Mr. Ruiu, to obtain the related rights and equipment for an
internet protocol tester known as TestBOT for $50,000 in cash and 500,000
common shares of NetMeasure. Management expects to exercise the option sometime
in 2001, provided management still believes the product will achieve commercial
success.
The Company has no formal policy, procedure or method concerning transactions
with related or interested persons other than that any such transactions be
fair to the Company and, where appropriate, be approved by a majority of
disinterested directors or shareholders.
ITEM 8. DESCRIPTION OF SECURITIES
The securities being registered are shares of common stock, par value $.001.
There are 100,000,000 shares of common stock authorized, with 15,194,800 issued
and outstanding as of March 31, 2000. Each of the common shares is entitled to
one vote on all matters submitted to a vote of the stockholders. There are no
cumulative voting rights or other special voting rights; nor are there any
preemptive rights, or any preference as to dividends or interest or upon
liquidation.
PART II
<PAGE> 14
ITEM 1. MARKET PRICE OF AND DIVIDEND ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
The shares of common stock were quoted and traded on the OTC Bulletin Board for
two days, from January 11, 1999 until the temporary, ten-day trading suspension
by the Securities and Exchange Commission ("SEC") on January 13, 1999 and, to
the knowledge of the Company, trading has not resumed although the trading
suspension no longer is in effect.
All of the Companys outstanding shares were issued without registration under
the Securities Act of 1933, in reliance upon exemptions from registration
afforded by Rule 504 of Regulation D, Rule 903 of Regulation S and Section 4(2)
of that Act. The Division of Corporation Finance of the SEC is the view that
none of such securities are "freely transferable," but the SEC itself has not
officially expressed any views. Securities issued pursuant to Rule 504 are
"restricted securities" which generally may not be offered or sold until after
a one-year holding period and other conditions are satisfied. Securities issued
pursuant to Rule 903 generally may be offered and sold outside the United
States in accordance with the provisions of Rule 904 or in the United States or
to U.S. Persons, as defined in Rule 902(k), after a one-year "distribution
compliance period." The Company has not agreed to register any securities.
Risk of Low-Priced Stocks. Based upon the past quotations, shares of the
Company's common stock are considered a "penny stock" for purposes of the
Securities Exchange Act of 1934. The "penny stock" regulations, set forth in
Rules 15g-1 through 15g-9 promulgated under that Act, impose sales practice and
disclosure requirements on certain brokers and dealers who engage in certain
transactions involving "penny stock."
Under the "penny stock" regulations, unless the broker or dealer or the
transaction is otherwise exempt, a broker or dealer selling "penny stock" to any
person other than an established customer or an "accredited investor"
(generally, a financial institution or an individual with net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or $300,000 together
with his or her spouse) must make a special suitability determination for the
purchaser and must receive the purchaser's written consent to the transaction
prior to the sale. In addition, the "penny stock" regulations require the broker
or dealer to deliver, prior to any transaction involving a "penny stock," a
disclosure schedule prepared by the SEC relating to the "penny stock" market. A
broker or dealer also is required to disclose commissions payable to the broker
or dealer and the registered representative and current quotations for the
"penny stock." In addition, a broker or dealer is required to send monthly
statements disclosing recent price information with respect to the "penny stock"
held in a customer's account and information with respect to the limited market
in "penny stocks."
The additional sales practice and disclosure requirements imposed by the "penny
stock" regulations could impede the sale of the Company's shares in the
secondary market. In addition, the market liquidity for the Company's shares may
be further severely affected, with concomitant adverse effects of the market
price for the Company's shares.
HOLDERS. As of January 1, 2000, there were approximately 42 holders of record
of the Company's shares.
<PAGE> 15
DIVIDENDS. The Company has not declared any dividends since inception and does
not intend to declare or pay any cash dividends in the foreseeable future.
Rather, any net earnings shall be used for working capital and other corporate
purposes.
ITEM 2. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company is a party
or to which any of its property is the subject.
On January 13, 1999, the SEC announced the temporary, ten-day suspension,
pursuant to Section 12(k) of the Securities Exchange Act of 1934, of over the
counter trading of the securities of Powertech, commencing at 9:30 a.m. on
January 14, 1999 and terminating at 11:59 p.m. on January 28, 1999, because of
questions raised about the accuracy and adequacy of publicly disseminated
information concerning, among other things, contracts entered into by the
issuer.
The SEC also is conducting a private investigation involving the Company
pursuant to a formal order entered on January 26, 1999, styled In the Matter of
PTC Group, Inc. (NY-6515). To the registrant's knowledge, the investigation is
continuing.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Peter Demian, CPA, Peter Demian & Co., Certified Public Accountants Clark, New
Jersey, was the principal independent accountant for Powertech as of December
31, 1998 and for the partial period of May 4, 1998 (corporate inception) to
December 31, 1998. Following the closing of the Share Purchase Agreement on
February 12, 1999, Davidson and Company, Vancouver, British Columbia, were
engaged as the principal independent accountants. The new accountants were not
consulted regarding the application of accounting principles to a specific
completed or contemplated transaction, or the type of audit opinion that might
be rendered.
The decision to change accountants was made by Mr. Voldeng, primarily because
of previous working relationships and the new accountants' physical proximity
to the registrant. The former accountant's report on the financial statements
did not contain an adverse opinion or disclaimer of opinion, and was not
modified as to uncertainty, audit scope, or accounting principles. There were
no disagreements with the former accountants on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
<PAGE> 16
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On June 18, 1998, 400,000 shares were issued to Daniel Hodges for management
services and organizational development services rendered. On August 14, 1998,
300,000 shares were issued to each of Kathy Para and David Raftery, then
directors, for management services rendered. There were no underwriters
involved in these issuances. These shares were not registered under the
Securities Act of 1933 in reliance upon the exemption afforded by Section 4(2).
On September 10, 1998, 3,200,000 shares were issued without registration at
$.03125 per share, or an aggregate consideration of $100,000, to 42 accredited
investors outside the United States, in reliance upon the exemption provided by
Rule 903 of Regulation S. There were no underwriters involved.
On September 30, 1998, 3,550,000 shares were issued without registration at
$.03125 per share for consulting services (management services and
organizational development services) to 12 persons outside the United States in
reliance upon the exemption provided by Rule 903 of Regulation S. There were no
underwriters involved.
On December 7, 1998, 2,000,000 shares were issued without registration at
$.03125 per share, or an aggregate consideration of $62,500, to 6 accredited
investors outside the United States, in reliance upon the exemption provided by
Rule 903 of Regulation S. There were no underwriters involved.
On February 3 and 4, 1999, 809,800 shares were issued without registration at
$.04101 per share, or an aggregate consideration of $33,247, to two accredited
investors outside the United States, in reliance upon the exemption provided by
Rule 903 of Regulation S. There were no underwriters involved.
On February 12, 1999, Powertech acquired from Randy Voldeng and Dragos Ruiu,
citizens of Canada and residents of British Columbia, all of the issued and
outstanding shares of NETSentry in consideration of $115,000 payable by the
issuance of 2,442,500 shares to each of them, or an aggregate of 4,885,000
shares, without registration, in reliance upon the exemptions afforded by
Section 4(2) and Rule 903 of Regulation S. There were no underwriters involved.
Messrs. Voldeng and Ruiu had acquired their shares of NetMeasure (Canada) for
no cash consideration upon its organization in May 1998.
There were two separate transactions in which the registrant committed to issue
125,000 shares without registration at $2.00 per share, or an aggregate of
$250,000 to accredited investor outside the United States, in reliance upon Rule
903 of Regulation S, on January 11, 2000 and March 1, 2000; two-year warrants
for 125,000 shares at an exercise price of $2.50 per share, also were issued to
each investor. No underwriters were involved.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Nevada Revised Statutes ("NRS") 78.7502 of the Nevada General
Corporation Law, a corporation may indemnify an officer, director, employee or
agent who was or is a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except a derivative action, by reason of the fact that he is or was
<PAGE> 17
an officer, director, employee or agent of the corporation, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
Pursuant to NRS 78.751, any discretionary indemnification under NRS 78.7502 may
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances. The determination must be made by: (a) the
stockholders; (b) the board of directors by majority vote of directors who were
not parties to the action, suit or proceeding; or (c) by independent legal
counsel in a written opinion.
Article TWELVE of the Company's Articles of Incorporation provides that no
director or officer of the corporation shall be personally liable for damages
for breach of fiduciary duty as a director or officer involving any act or
omission except those involving intentional misconduct, fraud or a knowing
violation of law, or the payment of unlawful distributions to shareholders in
violation of NRS 78.300.
<PAGE> 18
PART F/S
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT
Consolidated Balance Sheets - Unaudited as at September 30, 1999
and September 30, 1998 1
Consolidated Statements of Operations - Unaudited for the cumulative period from
inception to September 30, 1999, and for the period from January 1, 1999
to September 30, 1999 2
Consolidated Statements of Cash Flows - Unaudited for the cumulative period from
inception to September 30, 1999, and for the period from January 1, 1999
to September 30, 1999 3
Consolidated Statement of Stockholders' Equity - Unaudited from inception to
September 30, 1999 4
Notes to the September 30, 1999 Unaudited Consolidated Financial Statements 5-10
Report of the Independent Auditors on the Consolidated Financial Statements
at June 30, 1999, and for the six months then ended 11
Consolidated Balance Sheets as at June 30, 1999 and December 31, 1998 12
Consolidated Statement of Operations for the cumulative period from inception
to June 30, 1999, and for the period from January 1, 1999
to June 30, 1999 13
Consolidated Statement of Cash Flows for the cumulative period from inception
to June 30, 1999, and for the period from January 1, 1999
to June 30, 1999 14
Consolidated Statement of Stockholders' Equity from inception to
June 30, 1999 15
Notes to the June 30, 1999 Consolidated Financial Statements 16-21
Independent Auditor's Report on the Financial Statements as at
December 31, 1998, and for the period from inception to
December 31, 1998 22
Balance Sheet as at December 31, 1998 23
Statement of Operations for the period from inception to
December 31, 1998 24
Statement of Stockholders' Equity for the period from inception
to December 31, 1998 25
Statement of Cash Flows for the period from inception to
December 31, 1998 26
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
Notes to the December 31, 1998 Financial Statements 27-29
</TABLE>
<PAGE> 20
PART F/S
INDEX TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Report of the Independent Auditors on the Financial Statements at February 11,
1999 and December 31, 1998, and for the period from January 1, 1999 to
February 11, 1999, from inception to December 31, 1998, and for the
cumulative period from inception
to February 11, 1999 30
Balance Sheets as at February 11, 1999 and December 31, 1998 31
Statement of Operations for the cumulative period from inception to February
11, 1999, and for the periods from January 1, 1999
to February 11, 1999, and from inception to December 31, 1998 32
Statements of Cash Flows for the cumulative period from inception to February
11, 1999, and for the periods from January 1, 1999
to February 11, 1999, and from inception to December 31, 1998 33
Statement of Stockholders' Equity from inception to February 11, 1999 34
Notes to the February 11, 1999 Financial Statements 35-38
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Pro-Forma Consolidated Statements of Operations for the period from inception to
December 31, 1998 and for the period from January 1, 1999
to September 30, 1999 39
Note to the Pro-Forma Consolidated Statements of Operations 40
</TABLE>
<PAGE> 21
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 271,776 $ -
Prepaids 6,742 -
Receivables 33,622 -
Stock subscription receivable - 100,000
--------------- ---------------
312,140 100,000
Due from company controlled by a shareholder
(Note 3) 16,463 -
Capital assets (Note 4) 145,247 -
Goodwill (net of amortization of $32,267) (Note 5) 209,735 -
--------------- ---------------
$ 683,585 $ 100,000
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accruals (Note 7) $ 25,191 $ -
--------------- ---------------
STOCKHOLDERS' EQUITY
Capital stock (Note 8) 15,195 4,200
Authorized:
100,000,000 common shares of $0.001 par value
Issued:
15,194,800 (September 30, 1998 - 4,200,000)
common shares
Additional paid-in capital 1,383,090 96,800
Deficit (739,891) (1,000)
--------------- ---------------
658,394 100,000
--------------- ---------------
$ 683,585 $ 100,000
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
1
<PAGE> 22
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the For the
Period from Nine Months Three Months Period from
Inception to Ended Ended Inception to
September 30, September 30, September 30, September 30,
1999 1999 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Interest $ 12,970 $ 12,970 $ 5,240 $ -
--------------- --------------- --------------- --------------
Expenses
Marketing and sales
Advertising 768 768 - -
Salaries and benefits 75,768 75,768 31,280 -
Travel 11,958 11,958 3,193 -
--------------- --------------- --------------- --------------
88,494 88,494 34,473 -
--------------- --------------- --------------- --------------
Product development
Salaries and benefits 166,233 166,233 86,741 -
Travel and
entertainment 1,063 1,063 583 -
--------------- --------------- --------------- --------------
167,296 167,296 87,324 -
--------------- --------------- --------------- --------------
General and administrative
Bank charges 537 371 168 -
Communication 14,403 11,653 180 -
Computer and
office supplies 38,644 30,810 5,327 -
Consulting 194,938 9,000 9,000 1,000
Depreciation and
amortization 44,676 44,676 18,716 -
Employee relocation 4,794 4,794 2,922 -
Foreign exchange 5,678 5,678 2,398 -
Professional fees 114,188 84,486 14,976 -
Rent 17,106 17,106 10,467 -
Salaries and benefits 57,638 57,638 15,398 -
Travel 4,469 4,469 1,286 -
--------------- --------------- --------------- --------------
497,071 270,681 80,838 1,000
--------------- --------------- --------------- --------------
Total expenses 752,861 526,471 202,635 1,000
--------------- --------------- --------------- --------------
Net loss $ (739,891) $ (513,501) $ (197,395) $ (1,000)
--------------- --------------- --------------- --------------
Weighted average
number of shares
outstanding 9,031,639 14,360,301 15,194,800 1,136,000
--------------- --------------- --------------- --------------
Loss per share - basic
and diluted $ (0.08) $ (0.04) $ (0.01) $ Nil
--------------- --------------- --------------- --------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 23
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the For the
Period from Nine Months Three Months Period from
Inception to Ended Ended Inception to
September 30, September 30, September 30, September 30,
1999 1999 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash derived from (applied
to)
OPERATING
Net loss $ (739,891) $ (513,501) $ (197,395) $ (1,000)
Depreciation and
amortization 44,676 44,676 18,716 -
Shares issued for
services rendered 111,938 - - 1,000
Change in non-cash
operating working
capital
Prepaids (6,742) (6,742) (654) -
Receivables (15,313) (15,313) (12,999) -
Accounts payable
and accruals (12,700) (25,311) (41,125) -
--------------- --------------- --------------- --------------
(618,032) (516,191) (233,457) -
--------------- --------------- --------------- --------------
FINANCING
Shares issued for cash 1,079,003 979,003 - -
Share subscriptions
received 54,688 54,688 - -
Payment of
promissory notes
payable by
subsidiary company (127,373) (127,373) - -
--------------- --------------- --------------- --------------
1,006,318 906,318 - -
--------------- --------------- --------------- --------------
INVESTING
Bank overdraft - (1,841) - -
Short term note - - 250,182 -
Capital assets (134,160) (134,160) (26,984) -
Advances to
company controlled
by a shareholder (16,463) (16,463) - -
Cash assumed on
acquisition of
subsidiary 34,113 34,113 - -
--------------- --------------- --------------- --------------
(116,510) (118,351) 223,198 -
--------------- --------------- --------------- --------------
Net decrease in cash 271,776 271,776 (10,259) -
Cash
Beginning of period - - 282,035 -
--------------- --------------- --------------- --------------
End of period $ 271,776 $ 271,776 $ 271,776 $ Nil
--------------- --------------- --------------- --------------
- --------------------------------------------------------------------------------------------------------
NON-CASH ITEMS NOT INCLUDED IN CASH FLOWS:
Shares issued
for subscription
receivable $ - $ - $ - $ 100,000
Shares issued for
services $ 111,938 $ - $ - $ 1,000
Shares issued to
acquire subsidiary $ 152,656 $ 152,656 $ - $ -
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 24
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Stockholders' Equity - Unaudited
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
From the Date of Inception to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Common stock issued to
officers for services
rendered 1,000,000 $ 1,000 $ - $ - $ 1,000
Common stock issued by
offering at $.03125 per
share 3,200,000 3,200 96,800 - 100,000
Net loss for the period
from inception to
September 30, 1998 - - - (1,000) (1,000)
------------- ---------- ------------- ------------ -----------
Balance, September 30,
1998 4,200,000 4,200 96,800 (1,000) 100,000
Common stock issued by
offering at $.03125 per
share 1,750,000 1,750 52,938 - 54,688
Common stock issued by
offering at $.03125 per
share for services
rendered 3,550,000 3,550 107,388 - 110,938
Net loss for the period
from October 1, 1998 to
December 31, 1998 - - - (225,390) (225,390)
------------- ---------- ------------- ------------ -----------
Balance, December 31,
1998 9,500,000 9,500 257,126 (226,390) 40,236
Common stock issued
for cash, net of issue
costs of $33,247 809,800 810 978,193 - 979,003
Common stock issued at
$.03125 per share on
acquisition of
NETSentry Technology
Inc. (Note 5) 4,885,000 4,885 147,771 - 152,656
Net loss for the nine
months ended
September 30, 1999 - - - (513,501) (513,501)
------------- ---------- ------------- ------------ -----------
Balance, September 30,
1999 15,194,800 $ 15,195 $ 1,383,090 $ (739,891) $ 658,394
------------- ---------- ------------- ------------ -----------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
4
<PAGE> 25
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
- --------------------------------------------------------------------------------
1. OPERATIONS AND GOING CONCERN
The company was incorporated under the laws of the State of Nevada on May 4,
1998 to engage in the business of internet software and hardware development.
The company's fiscal year end is December 31.
On February 12, 1999, the company acquired all the issued and outstanding
common shares of NETSentry Technology Inc., a Vancouver, Canada based company
in business to develop and exploit technologies that improve the efficiency,
reliability and recoverability of internet protocol networks.
THE COMPANY HAS COMMENCED ITS PLANNED PRINCIPAL OPERATIONS THROUGH ITS NEWLY
ACQUIRED SUBSIDIARY, HOWEVER, IT HAS NOT YET EARNED ANY REVENUE THEREFROM AND
THE TECHNOLOGIES THAT IT INTENDS TO DEVELOP WILL REQUIRE CASH SIGNIFICANTLY IN
EXCESS OF ITS CURRENT RESOURCES. THE ABILITY OF THE COMPANY TO DEVELOP THESE
TECHNOLOGIES INTO MARKETABLE PRODUCTS IS DEPENDENT ON MANAGEMENT'S ABILITY TO
OBTAIN ADEQUATE ADDITIONAL FINANCING, DEVELOP COMMERCIALLY SALEABLE PRODUCTS
AND TO ACHIEVE PROFITABLE OPERATIONS.
MANAGEMENT IS DEVOTING SIGNIFICANT EFFORTS TO OBTAIN PRIVATE FINANCING TO FUND
THE CONTINUED DEVELOPMENT OF ITS PROBENET TECHNOLOGY (NOTE 6). TO DATE,
MANAGEMENT HAS NOT BEEN SUCCESSFUL IN OBTAINING THIS FINANCING AND SHOULD IT BE
ULTIMATELY UNSUCCESSFUL, A MERGER OR A SALE OF THE TECHNOLOGY IS AN ALTERNATIVE
COURSE OF ACTION THAT WOULD BE EXPLORED.
THE COMPANY'S CURRENT OPERATIONAL FOCUS IS TO ENSURE THAT PROBENET IS ABLE TO
BE COMMERCIALLY EXPLOITED. TO THAT END, MANAGEMENT IS DEVOTING SUBSTANTIALLY
ALL OF THE COMPANY'S RESOURCES TO THE DEVELOPMENT OF THE TECHNOLOGY AND IS ALSO
NEGOTIATING WITH A STRATEGIC SALES CHANNEL PARTNER (NOTE 6) TO SUPPORT THE
MARKETING OF THE TECHNOLOGY ONCE ITS DEVELOPMENT IS COMPLETE.
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PREPARED BY MANAGEMENT
These consolidated financial statements have been prepared by the company's
management and include all adjustments which, in the opinion of management, are
necessary in order to make the financial statements not misleading.
USE OF ESTIMATES
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY ACCEPTED
5
<PAGE> 26
- --------------------------------------------------------------------------------
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ materially from those estimates.
6
<PAGE> 27
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONSOLIDATION
These financial statements include the accounts of the company and its
wholly-owned subsidiary, NETSentry Technology Inc. All intercompany
transactions and balances have been eliminated.
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation. Depreciation
is provided for at the following rates and methods:
<TABLE>
<S> <C>
Office equipment 20%, straight line method
Computer hardware 30%, straight line method
Computer software 50%, straight line method
Furniture and fixtures 20%, straight line method
Leasehold improvements straight line over the term of the lease
</TABLE>
Depreciation is recorded at one-half the annual rate in the year of acquisition.
TECHNOLOGY
The company capitalizes the acquisition costs of technologies where their
technological feasibility has been established. The acquisition cost of the
ProbeNET technology (Note 5) has been recorded at $Nil since it has yet to
attain technological feasibility. All costs incurred to develop this technology
will be expensed as incurred.
GOODWILL
Goodwill arises from the acquisition of the operations of the subsidiary and
consists of the excess of the purchase price over the estimated fair value of
the net assets acquired. Goodwill is being amortized over a period of five
years. The company reviews the value assigned to goodwill to determine if it
has been impaired by adverse conditions affecting the company. Management is of
the opinion that there has been no diminuation in the value assigned.
FINANCIAL INSTRUMENTS
The company has financial instruments that include cash, receivables and
payables and amounts due from a company controlled by a shareholder. The
carrying value of these financial instruments approximates their fair value.
7
<PAGE> 28
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FOREIGN CURRENCY TRANSLATION
THE COMPANY CONSIDERS THE U.S. DOLLAR ITS FUNCTIONAL CURRENCY.
Monetary assets and liabilities resulting from foreign currency transactions
are translated into United States dollars using the year end conversion rates.
Revenues, expenses, receipts and payments are translated throughout the year at
exchange rates prevailing at the date of the transaction. Exchange gains and
losses are included in earnings for the period.
STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the company considers cash on
hand and balances with banks, net of overdrafts, and highly liquid temporary
money market instruments with original maturities of three months or less as
cash or cash equivalents.
DEFERRED INCOME TAXES
Deferred income taxes are provided for significant carryforwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets or liabilities are determined by
applying the presently enacted tax rates and laws.
A valuation allowance is required when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
- --------------------------------------------------------------------------------
3. DUE FROM COMPANY CONTROLLED BY A SHAREHOLDER
Advances to this related party are due on demand, bear no interest and are
unsecured.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. CAPITAL ASSETS September 30
SEPTEMBER 30, 1999 1998
----------------------------------------------------- ----
Accumulated NET Net
Cost Depreciation BOOK VALUE Book Value
---- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Computer hardware
and software $ 120,707 $ 10,251 $ 110,456 $ -
Office equipment 13,585 486 13,099 -
Leasehold
improvements 15,410 1,627 13,783 -
Furniture and fixtures 8,298 389 7,909 -
------------ ----------------- ---------------- ----------------
$ 158,000 $ 12,753 $ 145,247 $ Nil
------------ ----------------- ---------------- ----------------
</TABLE>
8
<PAGE> 29
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
- --------------------------------------------------------------------------------
5. ACQUISITION
On February 12, 1999, the company acquired all the issued and outstanding
shares of NETSentry Technology Inc. from unrelated parties for 4,885,000
shares. This acquisition was accounted for by the purchase method with the
company being the acquirer.
The net assets acquired were recorded at their net book value which
approximated their fair values except for the in-process technology acquired
which was not recognized in these financial statements as it has not yet
reached technological feasibility. The stock issued in this transaction was
recorded at an estimate of its fair market value at the time that the
acquisition agreement was negotiated. The results of operations of NETSentry
Technology Inc. have been included in these consolidated financial statements
from the date of acquisition.
<TABLE>
<S> <C>
Assets acquired
Cash $ 34,113
Receivables 18,309
Capital assets 23,496
Goodwill 242,002
----------------
317,920
Liabilities assumed
Payables and accruals 37,891
Advances from Powertech, Inc. to repay
promissory notes payable by NETSentry 127,373
----------------
Net assets acquired $ 152,656
----------------
Purchase price consists of:
4,885,000 of the company's common shares
at $.03125 per share $ 152,656
----------------
</TABLE>
- --------------------------------------------------------------------------------
6. TECHNOLOGY
By an agreement dated December 23, 1998, the company's newly-acquired
subsidiary purchased from one of its shareholders for nominal consideration,
all world-wide rights, title and interest in the internet technology known as
ProbeNET.
The marketing of this technology is subject to a Memorandum of Understanding
("MOU") entered into by the company and an international computer products
distributor. If development of this technology is successful, the terms of the
MOU require the company to sell the ProbeNET software through the distributor
at a negotiated 50% discount from its net selling price. The term of this MOU
is 24 months from the date that ProbeNET is initially released and the MOU is
subject to mutually agreed annual renewal terms.
The ProbeNET technology has not been recorded in these financial statements.
9
<PAGE> 30
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30 September 30
7. ACCOUNTS PAYABLE AND ACCRUALS 1999 1998
---- ----
<S> <C> <C>
Accounts payable $ 12,191 $ -
Accruals 13,000 -
------------------ -------------------
$ 25,191 $ Nil
------------------ -------------------
</TABLE>
- --------------------------------------------------------------------------------
8. CAPITAL STOCK
As a result of the acquisition of NETSentry, 5,885,000 of the issued and
outstanding shares are restricted securities as defined under the Securities
Act of 1933 and in the future may be sold only in compliance with Rule 144 of
the Act, pursuant to a registration statement filed under the Act, or other
applicable exemptions from registration thereunder.
On September 30, 1998 the Board of Directors authorized a stock issuance of
3,550,000 common shares of the company at $.03125 per share subject to
Regulation D, Rule 504 Offering Memorandum. The offering was closed on October
10, 1998. An amount of 3,550,000 common shares were issued in exchange for
services. These services were booked at an estimate of the fair value of the
shares issued of $110,938, and are recorded as consulting expense.
- --------------------------------------------------------------------------------
9. OPTION AGREEMENT
The company's subsidiary has entered into an option agreement with a company
controlled by a director and shareholder of the company. This agreement enables
this subsidiary to obtain the related rights and equipment for an Internet
Protocol Tester known as TestBOT for consideration consisting of $50,000 in
cash and 500,000 of its common shares. This option expires on September 10,
2003.
Should the option be exercised, the consideration issued under this option will
be capitalized in the event that TestBOT has attained technological
feasibility. The shares issued to exercise this option will be recorded at
their fair value based on current trading price on the date that they are
issued.
- --------------------------------------------------------------------------------
10. INCOME TAXES
At September 30, 1999, the company has net operating losses carried forward of
approximately $740,000 (September 30, 1998: $1,000) that may be offset against
future taxable income from 2006 to 2011. No future tax benefit has been recorded
in the financial statements, as the company believes that is more likely than
not that the carryforwards will expire unused. Accordingly, the potential tax
benefits of the loss carryforwards are offset by a valuation allowance of the
same amount.
10
<PAGE> 31
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
- --------------------------------------------------------------------------------
11. COMMITMENTS
The company's subsidiary has obligations under premises lease agreements. The
leases provide for approximate annual commitments as follows:
<TABLE>
<S> <C>
1999 $ 19,000
2000 37,000
2001 15,000
</TABLE>
- --------------------------------------------------------------------------------
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. Also, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000. If not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which
could affect business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the company, including those related
to the efforts of customers, suppliers, or other third parties, will be fully
resolved.
- --------------------------------------------------------------------------------
13. SEC investigation and suspension of trading
On January 13, 1999, the Securities and Exchange Commission (SEC) announced the
temporary ten-day suspension, pursuant to Section 12(k) of the Securities
Exchange Act of 1934, of over the counter trading of the securities of
Powertech, as a result of questions raised about the accuracy and adequacy of
information publicly disseminated regarding the company.
A private investigation styled "In the Matter of PTC Group, Inc." involving
Powertech is being conducted by the SEC pursuant to a formal order of
investigation entered by the Commission on January 26, 1999. To the company's
knowledge, the investigation is continuing as of the date of this audit report.
The outcome of the investigation and the potential loss, if any, cannot be
reasonably determined at this time since the probability that a negative
outcome will result is currently indeterminable and the extent of any monetary
loss cannot be reasonably estimated. No amount has therefore been included in
the financial statements.
11
<PAGE> 32
INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors
and Shareholders of Powertech, Inc.
We have audited the consolidated balance sheet of Powertech, Inc. as
at June 30, 1999 and the consolidated statements of operations, cash
flows and stockholders' equity for the six months then ended. These
consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in Canada, which are in substantial agreement with
those in the United States of America. 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 financial position of
Powertech, Inc. as at June 30, 1999 and the results of its operations
and its cash flows for the six months then ended in accordance with
generally accepted accounting principles in the United States of
America.
The accompanying consolidated financial statements have been prepared
assuming the company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the company has
no established source of revenue and is dependent on its ability to
raise substantial amounts of equity funds. This raises substantial
doubt about its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
The financial statements as at December 31, 1998 and for the period
from inception to December 31, 1998 were audited by a firm of
certified public accountants who expressed an opinion without
reservation on those statements in their report dated October 5,
1999.
"Davidson & Company"
Vancouver, Canada
September 1, 1999 Chartered Accountants
12
<PAGE> 33
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 282,035 $ -
Short term note 250,182 -
Prepaids 6,088 -
Receivables 20,623 -
Stock subscription receivable - 54,688
--------------- ---------------
558,928 54,688
Due from company controlled by a shareholder
(Note 3) 16,463 -
Capital assets (Note 4) 124,879 -
Goodwill (net of amortization of $20,167) (Note 5) 221,835 -
--------------- ---------------
$ 922,105 $ 54,688
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable, accruals and bank overdraft
(Note 7) $ 66,316 $ 14,452
--------------- ---------------
STOCKHOLDERS' EQUITY
Capital stock (Note 8) 15,195 9,500
Authorized:
100,000,000 common shares of $0.001 par value
Issued:
15,194,800 (December 31, 1998 - 9,500,000)
common shares
Additional paid-in capital 1,383,090 257,126
Deficit (542,496) (226,390)
--------------- ---------------
855,789 40,236
--------------- ---------------
$ 922,105 $ 54,688
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
13
<PAGE> 34
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the For the
Period from Six Months Period from
Inception to Ended Inception to
June 30, June 30, December 31,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Interest $ 7,730 $ 7,730 $ -
--------------- --------------- ---------------
Expenses
Marketing and sales
Advertising 1,108 1,108 -
Salaries and benefits 44,148 44,148 -
Travel and entertainment 8,765 8,765 -
--------------- --------------- ---------------
54,021 54,021 -
--------------- --------------- ---------------
Product development
Salaries and benefits 79,492 79,492 -
Travel and entertainment 480 480 -
--------------- --------------- ---------------
79,972 79,972 -
--------------- --------------- ---------------
General and administration
Bank charges 203 203 -
Communication 14,223 11,473 2,750
Computer and office supplies 54,970 25,483 29,487
Consulting 186,688 - 186,688
Depreciation and amortization 25,960 25,960 -
Employee relocation 1,872 1,872 -
Foreign exchange 3,280 3,280 -
Professional fees 74,975 69,510 5,465
Rent 6,639 6,639 -
Salaries and benefits 42,240 42,240 -
Travel and entertainment 5,183 3,183 2,000
--------------- --------------- ---------------
416,233 189,843 226,390
--------------- --------------- ---------------
Total expenses 550,226 323,836 226,390
--------------- --------------- ---------------
Net loss $ (542,496) $ (316,106) $ (226,390)
--------------- --------------- ---------------
Weighted average number of shares
outstanding 7,688,011 13,963,136 2,995,436
--------------- --------------- ---------------
Loss per share - basic and diluted $ (0.07) $ (0.02) $ (0.08)
--------------- --------------- ---------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<PAGE> 35
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the For the
Period from Six Months Period from
Inception to Ended Inception to
June 30, June 30, December 31,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash derived from (applied to)
OPERATING
Net loss $ (542,496) $ (316,106) $ (226,390)
Depreciation and amortization 25,960 25,960 -
Shares issued for services rendered 111,938 - 111,938
Change in non-cash operating
working capital
Prepaids (6,088) (6,088) -
Receivables (2,314) (2,314) -
Accounts payable and accruals 28,425 15,814 12,611
--------------- --------------- ---------------
(384,575) (282,734) (101,841)
--------------- --------------- ---------------
FINANCING
Shares issued for cash 1,079,003 979,003 100,000
Share subscriptions received 54,688 54,688 -
Payment of promissory notes
payable by subsidiary company
(Note 6) (127,373) (127,373) -
--------------- --------------- ---------------
1,006,318 906,318 100,000
--------------- --------------- ---------------
INVESTING
Bank overdraft - (1,841) 1,841
Short term note (250,182) (250,182) -
Capital assets (107,176) (107,176) -
Advances to company controlled
by a shareholder (16,463) (16,463) -
Cash assumed on acquisition of
subsidiary 34,113 34,113 -
--------------- --------------- ---------------
(339,708) (341,549) 1,841
--------------- --------------- ---------------
Net increase in cash 282,035 282,035 -
Cash
Beginning of period - - -
--------------- --------------- ---------------
End of period $ 282,035 $ 282,035 $ Nil
--------------- --------------- ---------------
- ---------------------------------------------------------------------------------------------------------
NON-CASH ITEMS NOT INCLUDED IN CASH FLOWS:
Shares issued for subscription
receivable $ - $ - $ 54,688
Shares issued for services $ 111,938 $ - $ 111,938
Shares issued to acquire subsidiary $ 152,656 $ 152,656 $ -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
15
<PAGE> 36
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Stockholders' Equity
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
From the Date of Inception to June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
Common stock issued to
officers for services
rendered 1,000,000 $ 1,000 $ - $ - $ 1,000
Common stock issued by
offering at $.03125 per
share 4,950,000 4,950 149,738 - 154,688
Common stock issued by
offering at $.03125 per
share for services
rendered 3,550,000 3,550 107,388 - 110,938
Net loss for the period
from inception to
December 31, 1998 - - - (226,390) (226,390)
------------- ---------- ------------- ------------ -----------
Balance,
December 31, 1998 9,500,000 9,500 257,126 (226,390) 40,236
Common stock issued
for cash, net of issue
costs of $33,247 809,800 810 978,193 - 979,003
Common stock issued at
$.03125 per share on
acquisition of
NETSentry Technology
Inc. (Note 5) 4,885,000 4,885 147,771 - 152,656
Net loss for the six months
ended June 30, 1999 - - - (316,106) (316,106)
------------- ---------- ------------- ------------ -----------
Balance, June 30, 1999 15,194,800 $ 15,195 $ 1,383,090 $ (542,496) $ 855,789
------------- ---------- ------------- ------------ -----------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
16
<PAGE> 37
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
- --------------------------------------------------------------------------------
1. OPERATIONS AND GOING CONCERN
The company was incorporated under the laws of the State of Nevada on May 4,
1998 to engage in the business of internet software and hardware development.
The company's fiscal year end is December 31.
On February 12, 1999, the company acquired all the issued and outstanding
common shares of NETSentry Technology Inc., a Vancouver, Canada based company
in business to develop and exploit technologies that improve the efficiency,
reliability and recoverability of internet protocol networks.
The company has commenced its planned principal operations through its newly
acquired subsidiary, however, it has not yet earned any revenue therefrom and
the technologies that it intends to develop will require cash significantly in
excess of its current resources. The ability of the company to develop these
technologies into marketable products is dependent on management's ability to
obtain adequate additional financing, develop commercially saleable products
and to achieve profitable operations.
Management is devoting significant efforts to obtain private financing to fund
the continued development of its ProbeNET technology (Note 6). To date,
management has not been successful in obtaining this financing and should it be
ultimately unsuccessful, a merger or a sale of the technology is an alternative
course of action that would be explored.
The company's current operational focus is to ensure that ProbeNET is able to
be commercially exploited. To that end, management is devoting substantially
all of the company's resources to the development of the technology and is also
negotiating with a strategic sales channel partner (Note 6) to support the
marketing of the technology once its development is complete.
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ materially from those estimates.
17
<PAGE> 38
- --------------------------------------------------------------------------------
CONSOLIDATION
These financial statements include the accounts of the company and its
wholly-owned subsidiary, NETSentry Technology Inc. All intercompany
transactions and balances have been eliminated.
18
<PAGE> 39
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation. Depreciation
is provided for at the following rates and methods:
<TABLE>
<S> <C>
Office equipment 20%, straight line method
Computer hardware 30%, straight line method
Computer software 50%, straight line method
Furniture and fixtures 20%, straight line method
Leasehold improvements straight line over the term of the lease
</TABLE>
Depreciation is recorded at one-half the annual rate in the year of acquisition.
TECHNOLOGY
The company capitalizes the acquisition costs of technologies where their
technological feasibility has been established. The acquisition cost of the
ProbeNET technology (Note 5) has been recorded at $nil since it has yet to
attain technological feasibility. All costs incurred to develop this technology
will be expensed as incurred until such time as ProbeNET attains technological
feasibility.
GOODWILL
Goodwill arises from the acquisition of the operations of the subsidiary and
consists of the excess of the purchase price over the estimated fair value of
the net assets acquired. Goodwill is being amortized over a period of five
years. The company reviews the value assigned to goodwill to determine if it
has been impaired by adverse conditions affecting the company. Management is of
the opinion that there has been no diminuation in the value assigned.
FINANCIAL INSTRUMENTS
The company has financial instruments that include cash, receivables and
payables and amounts due from a company controlled by a shareholder. The
carrying value of these financial instruments approximates their fair value.
FOREIGN CURRENCY TRANSLATION
The company considers the U.S. dollar its functional currency.
Monetary assets and liabilities resulting from foreign currency transactions are
translated into United States dollars using the year end conversion rates.
Revenues, expenses, receipts and payments are translated throughout the year at
exchange rates prevailing at the date of the transaction. Exchange gains and
losses are included in earnings for the period.
19
<PAGE> 40
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the company considers cash on
hand and balances with banks, net of overdrafts, and highly liquid temporary
money market instruments with original maturities of three months or less as
cash or cash equivalents.
DEFERRED INCOME TAXES
Deferred income taxes are provided for significant carryforwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets or liabilities are determined by
applying the presently enacted tax rates and laws.
A valuation allowance is required when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
SHORT TERM NOTE
The short term note was issued by GE Capital Corp. The note was purchased on
May 18, 1999 for $250,181 and matures on August 17, 1999 at $253,000.
- --------------------------------------------------------------------------------
3. DUE FROM COMPANY CONTROLLED BY A SHAREHOLDER
Advances to this related party are due on demand, bear no interest and are
unsecured.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
4. CAPITAL ASSETS JUNE 30, 1999 1998
----------------------------------------------------- ----
Accumulated NET Net
Cost Depreciation BOOK VALUE Book Value
---- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Computer hardware
and software $ 101,253 $ 5,044 $ 96,209 $ -
Office equipment 9,598 140 9,458 -
Leasehold
improvements 13,341 441 12,900 -
Furniture and fixtures 6,480 168 6,312 -
------------ ----------------- ---------------- ----------------
$ 130,672 $ 5,793 $ 124,879 $ Nil
------------ ----------------- ---------------- ----------------
</TABLE>
20
<PAGE> 41
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
- --------------------------------------------------------------------------------
5. ACQUISITION
On February 12, 1999, the company acquired all the issued and outstanding
shares of NETSentry Technology Inc. from unrelated parties for 4,885,000
shares. This acquisition was accounted for by the purchase method with the
company being the acquirer.
The net assets acquired were recorded at their net book value which
approximated their fair values except for the in-process technology acquired
which was not recognized in these financial statements as it has not yet
reached technological feasibility. The stock issued in this transaction was
recorded at an estimate of its fair market value at the time that the
acquisition agreement was negotiated. The results of operations of NETSentry
Technology Inc. have been included in these consolidated financial statements
from the date of acquisition.
<TABLE>
<S> <C>
Assets acquired
Cash $ 34,113
Receivables 18,309
Capital assets 23,496
Goodwill 242,002
----------------
317,920
Liabilities assumed
Payables and accruals 37,891
Advances from Powertech, Inc. to repay
promissory notes payable by NETSentry 127,373
----------------
Net assets acquired $ 152,656
----------------
Purchase price consists of:
4,885,000 of the company's common shares at
$.03125 per share $ 152,656
----------------
</TABLE>
- --------------------------------------------------------------------------------
6. TECHNOLOGY
By an agreement dated December 23, 1998, the company's newly-acquired
subsidiary purchased from one of its shareholders for nominal consideration,
all world-wide rights, title and interest in the internet technology known as
ProbeNET.
The marketing of this technology is subject to a Memorandum of Understanding
("MOU") entered into by the company and an international computer products
distributor. If development of this technology is successful, the terms of the
MOU require the company to sell the ProbeNET software through the counterparty
at a negotiated 50% discount from its net selling price. The term of this MOU is
24 months from the date that ProbeNET is initially released and the MOU is
subject to mutually agreed annual renewal terms.
The ProbeNET technology has not been recorded in these financial statements.
21
<PAGE> 42
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30 December 31
7. ACCOUNTS PAYABLE AND ACCRUALS 1999 1998
---- ----
<S> <C> <C>
Bank overdraft $ - $ 1,841
Accounts payable 33,626 8,611
Accruals 32,690 4,000
---------------- ----------------
$ 66,316 $ 14,452
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
8. CAPITAL STOCK
As a result of the acquisition of NETSentry, 5,885,000 of the issued and
outstanding shares are restricted securities as defined under the Securities
Act of 1933 and in the future may be sold only in compliance with Rule 144 of
the Act, pursuant to a registration statement filed under the Act, or other
applicable exemptions from registration thereunder.
On September 30, 1998 the Board of Directors authorized a stock issuance of
3,550,000 common shares of the company at $.03125 per share subject to
Regulation D, Rule 504 Offering Memorandum. The offering was closed on October
10, 1998. An amount of 3,550,000 common shares were issued in exchange for
services. These services were booked at an estimate of the fair value of the
shares issued of $110,938, and recorded as consulting expense.
- --------------------------------------------------------------------------------
9. OPTION AGREEMENT
The company's subsidiary has entered into an option agreement with a company
controlled by a director and shareholder of the company. This agreement enables
this subsidiary to obtain the related rights and equipment for an Internet
Protocol Tester known as TestBOT for consideration consisting of $50,000 in
cash and 500,000 of its common shares. This option expires on September 10,
2003.
Should the option be exercised, the consideration issued under this option will
be capitalized in the event that TestBOT has attained technological
feasibility. The shares issued to exercise this option will be recorded at
their fair value based on current trading price on the date that they are
issued.
- --------------------------------------------------------------------------------
10. INCOME TAXES
At June 30, 1999, the company has net operating losses carried forward of
approximately $542,000 (December 31, 1998: $226,000) that may be offset against
future taxable income from 2006 to 2011. No future tax benefit has been
recorded in the financial statements, as the company believes that is more
likely than not that the carryforwards will expire unused. Accordingly, the
potential tax benefits of the loss carryforwards are offset by a valuation
allowance of the same amount.
22
<PAGE> 43
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
- --------------------------------------------------------------------------------
11. COMMITMENTS
The company's subsidiary has obligations under premises lease agreements. The
leases provide for annual commitments as follows:
<TABLE>
<S> <C>
1999 $ 18,723
2000 37,447
2001 15,603
</TABLE>
- --------------------------------------------------------------------------------
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. Also, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the year 2000 issue may be experienced before, on, or
after January 1, 2000. If not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which
could affect business operations. It is not possible to be certain that all
aspects of the year 2000 issue affecting the company, including those related
to the efforts of customers, suppliers, or other third parties, will be fully
resolved.
- --------------------------------------------------------------------------------
13. SEC INVESTIGATION AND SUSPENSION OF TRADING
On January 13, 1999, the Securities and Exchange Commission (SEC) announced the
temporary ten-day suspension, pursuant to section 12(k) of the Securities
Exchange Act of 1934, of over the counter trading of the securities of
powertech, as a result of questions raised about the accuracy and adequacy of
information publicly disseminated regarding the company.
A private investigation styled "In The Matter Of PTC Group, Inc." involving
Powertech is being conducted by the SEC pursuant to a formal order of
investigation entered by the Commission on January 26, 1999. To the company's
knowledge, the investigation is continuing as of the date of this audit report.
The outcome of the investigation and the potential loss, if any, cannot be
reasonably determined at this time since the probability that a negative outcome
will result is currently indeterminable and the extent of any monetary loss
cannot be reasonably estimated. No amount has therefore been included in the
financial statements.
23
<PAGE> 44
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors
Powertech, Inc.
We have audited the accompanying balance sheet of Powertech, Inc. (a
development stage company), as of December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the
partial period of May 4, 1998 (corporate inception) through December
31, 1998. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. I believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Powertech, Inc. (a development stage company) as of December 31, 1998
and the results of its operations and cash flows for the partial
period May 4 to December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
company will continue as a going concern. As discussed in Note 6 to
the financial statements, the company has no established source of
revenue. This raises substantial doubt about its ability to continue
as a going concern. Management's plan in regard to these matters are
also described in Note 6. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
"Peter Demian"
Peter Demian, CPA
Demian & Company, P.C.
Certified Public Accountants
October 5, 1999
Clark, New Jersey
24
<PAGE> 45
POWERTECH, INC.
(A Development Stage Company)
BALANCE SHEET
ASSET
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
CURRENT ASSET
Stock Subscription Receivable $ 54,688
------------------
TOTAL CURRENT ASSET 54,688
------------------
TOTAL ASSET $ 54,688
------------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Bank Overdraft $ 14,452
------------------
TOTAL CURRENT LIABILITIES 14,452
------------------
TOTAL LIABILITIES 14,452
------------------
STOCKHOLDERS' EQUITY
Common Stock, $0.001 par value,
100,000,000 authorized shares;
9,500,000 shares issued and outstanding 9,500
Additional Paid-in Capital 257,126
Deficit accumulated during the Development Stage (226,390)
------------------
TOTAL STOCKHOLDERS' EQUITY 40,236
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 54,688
------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 46
POWERTECH, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
On May 4,
1998
Through
December 31,
1998
--------------
<S> <C>
REVENUE (A DEVELOPMENT STAGE CO.) $ -0-
------------------
EXPENSES:
Consulting 186,688
Public Relations 2,750
Office Administration 27,204
Professional Fees 5,465
Travel & Lodging 2,000
Office Expenses 2,283
------------------
TOTAL EXPENSES: 226,390
------------------
NET LOSS (see note 2b) $ (226,390)
------------------
Weighted Average Number of Shares 2,995,436
------------------
LOSS PER SHARE $ (0.08)
------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 47
POWERTECH, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
From Inception on May 4, 1998 Through December 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage
------ ------ ---------- -----------
<S> <C> <C> <C> <C>
Inception date of
May 4, 1998 (see note 3)
Common Stock Issued at
$.001 per share
June 18 & Aug 14, 1998
to Officers for Services
Rendered (see note 4) 1,000,000 $ 1,000
Common Stock Issued
by Offering at $.03125
per share from the
offering closed
September 10, 1998 3,200,000 3,200 $ 96,800
Common Stock Issued
for services by Offering
at $.03125 per share from
the offering closed
October 10, 1998 3,550,000 3,550 107,388
Common Stock Issued
by Offering at $.03125
per share from the
offering closed
December 21, 1998 1,750,000 1,750 52,938
Net Loss for Period
May 4, 1998 to
December 31, 1998 $ (226,390)
------------- ----------- ------------- ------------------
BALANCE AS OF
DECEMBER 31, 1998 9,500,000 $ 9,500 $ 257,126 $ (226,390)
------------- ----------- ------------- ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 48
POWERTECH, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
On May 4,
1998
Through
December 31,
1998
--------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Loss from operations (see note 2b) $ (226,390)
Adjustment to reconcile net cash to net loss from
operations due to current liabilities 12,611
Adjustment to reconcile net cash from operations
due to shares issued for services 111,938
------------------
Net cash used by operating activities (101,841)
CASH FLOWS FROM INVESTING ACTIVITIES
Bank overdraft 1,841
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash 100,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD -0-
------------------
CASH (OVERDRAFT), END OF PERIOD $ -0-
------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid For: Interest $ -0-
------------------
Income Taxes $ -0-
------------------
NON CASH FINANCING ACTIVITIES
Stock issued to Incorporators for services rendered $ 1,000
------------------
Stock issued for services rendered $ 110,938
------------------
Shares issued for subscription receivable $ 54,688
------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE> 49
POWERTECH, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
On May 4, 1998, Powertech, Inc. (the "Company") was
incorporated under the laws of the State of Nevada to engage in
the business of Internet software and hardware development.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
b. Provision for Taxes
At December 31, 1998, the Company has net operating loss carry
forwards of approximately $226,390 that may be offset against
future taxable income through 2011. No tax benefit has been
reported in the financial statements, because the Company
believes there is a 50% or greater chance the carry forwards will
expire unused. Accordingly, the potential tax benefits of the
loss carry forwards are offset by a valuation allowance of the
same amount.
c. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
d. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statement and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
29
<PAGE> 50
NOTE 3 - STOCK TRANSACTIONS
On June 18, 1998 the Board of Directors authorized a stock
issuance totaling 400,000 common shares to Daniel L. Hodges for
management services and organizational development services
provided to the Company.
On August 14, 1998 the Board of Directors authorized a stock
issuance totaling 600,000 common shares to David Raftery and
Kathy Para (300,000 each) for management services rendered.
On August 14, 1998 the Board of Directors authorized a stock
issuance totaling 6,000,000 common shares of the Company at
$.03125 per share subject to Regulation D, Rule 504 Offering
Memorandum. The offering was closed September 10, 1998. An amount
of 3,200,000 common shares were issued and $100,000.00 was
received.
On September 30, 1998 the Board of Directors authorized a stock
issuance of 3,550,000 common shares of the Company at $.03125 per
share subject to Regulation D, Rule 504 Offering Memorandum. The
offering was closed on October 10, 1998. An amount of 3,550,000
common shares were issued in exchange for services. These
services were booked at an estimate of the fair value of the
shares issued of $110,938, and recorded as consulting expense.
On December 7, 1998 the Board of Directors authorized a stock
issuance of 2,000,000 common shares of the Company at $.03125 per
share subject to Regulation D, Rule 504 Offering Memorandum. The
offering was closed on December 21, 1998. An amount of 1,750,000
common shares were issued and $54,688.00 is receivable. This
amount was received after December 31, 1998.
NOTE 4 - RELATED PARTY TRANSACTIONS
On June 18, 1998 and August 14, 1998 the officers and directors
of the Company were issued a total of 1,000,000 common shares of
the Company for services rendered to the Company.
The Company neither owns nor leases any real or personal
property. Office services have been provided without charge by an
officer. Such costs are immaterial to the financial statements
and accordingly are not reflected herein. The officers and
directors are involved in other business activities and most
likely will become involved in other business activities in the
future. If a specific business opportunity becomes available,
such persons may face a conflict of interest. A Company policy
for handling such a conflict has not yet been formulated.
30
<PAGE> 51
NOTE 5 - CONTINGENCIES
On January 13, 1999, the Securities and Exchange Commission (SEC)
announced the temporary suspension, pursuant to Section 12(k) of
the Securities Exchange Act of 1934, of over the counter trading
of the securities of Powertech, as a result of questions raised
about the accuracy and adequacy of information publicly disclosed
by the Company.
A private investigation involving Powertech is being conducted by
the SEC pursuant to a formal order of investigation entered by
the Commission on January 26, 1999. To the Company's knowledge,
the investigation is continuing as of the date of this audit
report.
The outcome of the temporary suspension and the investigation and
the potential loss, if any, cannot be reasonably determined at
this time, therefore no amount has been included in the financial
statements.
NOTE 6 - GOING CONCERN
The Company has not commenced commercial operations and its
ability to continue as a going concern is dependent upon its
success in raising substantial amounts of equity for use in
developing its intended business and its administrative
activities, as revenues have not yet been established. While
management believes that the Company will be able to raise
sufficient funds through the sale of equity or debt securities,
there is no assurance that sufficient funds will be raised.
In January 1999 the Company commenced negotiations to acquire
NETSentry Technology, Inc. (a private Canadian company) for an
amount to be determined of treasury stock subject to due
diligence by both parties. NETSentry develops software technology
for network monitoring. If and when this transaction takes place
it could significantly affect the Company.
31
<PAGE> 52
INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS
To the Board of Directors and
Shareholders of NETSentry Technology Inc.
We have audited the balance sheets of NETSentry Technology Inc. as at
February 11, 1999 and December 31, 1998 and the statements of
operations, cash flows and stockholders' equity for the periods from
January 1, 1999 to February 11, 1999 and from inception to December
31, 1998. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards in Canada, which are in substantial agreement with
those in the United States of America. 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 financial statements present fairly, in all
material respects, the financial position of NETSentry Technology
Inc. as at February 11, 1999 and December 31, 1998 and the results of
its operations and its cash flows for the periods from January 1,
1999 to February 11, 1999 and from inception to December 31, 1998 in
accordance with generally accepted accounting principles in the
United States of America.
The accompanying financial statements have been prepared assuming the
company will continue as a going concern. As discussed in Note 1 to
the financial statements, the company has no established source of
revenue and is dependent on its ability to raise substantial amounts
of equity funds. This raises substantial doubt about its ability to
continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
"Davidson & Company"
Vancouver, Canada
September 1, 1999 Chartered Accountants
32
<PAGE> 53
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
(Incorporated under the Company Act of British Columbia)
BALANCE SHEET
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
February 11, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash $ 34,113 $ 81,450
Receivables 18,309 20,633
--------------- ---------------
52,422 102,083
Capital assets (Note 3) 23,496 4,407
Technology (Note 4) 1 1
--------------- ---------------
$ 75,919 $ 106,491
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 37,891 $ 5,209
Promissory notes payable (Note 5) - 123,522
Due to Powertech, Inc. (Note 6) 127,373 -
--------------- ---------------
165,264 128,731
--------------- ---------------
SHAREHOLDERS' DEFICIENCY
Capital stock (Note 7) 136 136
Authorized:
500,000 class "A" voting common shares without
par value
500,000 class "B" non-voting, redeemable,
retractable preference shares without
par value
Issued:
200,000 class "A" shares
Deficit (89,481) (22,376)
--------------- ---------------
(89,345) (22,240)
--------------- ---------------
$ 75,919 $ 106,491
--------------- ---------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
33
<PAGE> 54
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the
For the Period from For the
Period from January 1, Period from
Inception to 1999 to Inception to
February 11, February 11, December 31,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Interest $ 23 $ 23 $ -
--------------- --------------- ---------------
Expenses
Marketing and sales
Salaries and benefits 5,399 5,399 -
Travel and entertainment 1,578 1,578 -
--------------- --------------- ---------------
6,977 6,977 -
--------------- --------------- ---------------
Product development
Salaries and benefits 12,289 12,289 -
Travel and entertainment 3,533 2,670 863
--------------- --------------- ---------------
15,822 14,959 863
--------------- --------------- ---------------
General and administration
Computer and office supplies 3,843 1,314 2,529
Depreciation 343 343 -
Employee relocation 5,506 5,506 -
Foreign exchange (gain) 1,891 2,241 (350)
Management fees 8,907 - 8,907
Professional fees 34,493 27,086 7,407
Rent 1,137 1,137 -
Salaries and benefits 7,361 7,361 -
Travel and entertainment 3,224 204 3,020
--------------- --------------- ---------------
66,705 45,192 21,513
--------------- --------------- ---------------
Total expenses 89,504 67,128 22,376
--------------- --------------- ---------------
Net loss $ (89,481) $ (67,105) $ (22,376)
--------------- --------------- ---------------
Weighted average number of shares
outstanding 200,000 200,000 200,000
--------------- --------------- ---------------
Loss per share - basic and diluted $ (0.45) $ (0.34) $ (0.11)
--------------- --------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the financial statements.
34
<PAGE> 55
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
For the
For the Period from For the
Period from January 1, Period from
Inception to 1999 to Inception to
February 11, February 11, December 31,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash derived from (applied to)
OPERATING
Net loss $ (89,481) $ (67,105) $ (22,376)
Depreciation 343 343 -
Change in non-cash operating
working capital
Receivables (18,309) 2,324 (20,633)
Accounts payable and accrued
liabilities 37,891 32,682 5,209
--------------- --------------- ---------------
(69,556) (31,756) (37,800)
--------------- --------------- ---------------
FINANCING
Issuance of promissory notes 123,522 - 123,522
Issuance of capital stock 136 - 136
Repayment of promissory notes (127,373) (127,373) -
Foreign exchange gain on financing
activities 3,851 3,851 -
Advances from Powertech, Inc. 127,373 127,373 -
--------------- --------------- ---------------
127,509 3,851 123,658
--------------- --------------- ---------------
INVESTING
Acquisition of capital assets (23,839) (19,432) (4,407)
Acquisition of technology right (1) - (1)
--------------- --------------- ---------------
(23,840) (19,432) (4,408)
--------------- --------------- ---------------
Net increase (decrease) in cash 34,113 (47,337) 81,450
Cash
Beginning of period - 81,450 -
--------------- --------------- ---------------
End of period $ 34,113 $ 34,113 $ 81,450
--------------- --------------- ---------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
35
<PAGE> 56
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
Statement of Stockholders' Equity
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
From the Date of Inception to February 11, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON SHARES
----------------------------
SHARES AMOUNT DEFICIT TOTAL
<S> <C> <C> <C> <C>
Common shares issued on
incorporation 200,000 $ 136 $ - $ 136
Net loss for the period from
inception to December 31, 1998 - - (22,376) (22,376)
------------- ----------- ------------ ------------
Balance,
December 31, 1998 200,000 136 (22,376) (22,240)
Net loss for the period January 1,
1999 to February 11, 1999 - - (67,105) (67,105)
------------- ----------- ------------ ------------
Balance, February 11, 1999 200,000 $ 136 $ (89,481) $ (89,345)
------------- ----------- ------------ ------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
36
<PAGE> 57
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(expressed in U.S. dollars)
February 11, 1999
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
The company was incorporated under the Company Act of British Columbia on May
22, 1998. The company's business is to develop and exploit technologies that
improve the efficiency, reliability and recoverability of internet protocol
networks.
The company has commenced its planned principal operations, however, it has not
yet earned any revenue therefrom and the technologies that it intends to
develop will require cash significantly in excess of its current resources. The
ability of the company to develop these technologies into marketable products
is dependent on management's ability to obtain adequate additional financing
and to achieve profitable operations. It will be necessary for the company to
raise such additional funds in the coming year for the continued development of
its technologies.
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ materially from those estimates.
CAPITAL ASSETS
Capital assets consist of computer hardware and are recorded at cost less
accumulated depreciation. Depreciation is provided for at the following rates
and methods:
<TABLE>
<S> <C>
Office equipment 20%, straight line method
Computer hardware 30%, straight line method
Computer software 50%, straight line method
Furniture and fixtures 20%, straight line method
Leasehold improvements straight line over the term of the lease
</TABLE>
Depreciation is recorded at one-half the annual rate in the year of acquisition.
FINANCIAL INSTRUMENTS
The company has financial instruments that include cash, receivables and
payables, amounts due to Powertech, Inc. and promissory notes payable. The
carrying value of these financial instruments approximates their fair value.
37
<PAGE> 58
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(expressed in U.S. dollars)
February 11, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 11, December 31,
3. CAPITAL ASSETS 1999 1998
---- ----
Accumulated Net
COST Depreciation BOOK VALUE Book Value
------------ ---------- ----------
<S> <C> <C> <C> <C>
Computer
hardware $ 20,536 $ 312 $ 20,224 $ 4,407
Office equipment 565 5 560 -
Furniture and
fixtures 2,632 22 2,610 -
Software 106 4 102 -
------------ ----------------- ----------------- -----------------
$ 23,839 $ 343 $ 23,496 $ 4,407
------------ ----------------- ----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
4. TECHNOLOGY
Pursuant to an agreement dated December 23, 1998, the company purchased from
one of its shareholders for nominal consideration, all world-wide rights, title
and interest in the internet technology known as ProbeNET.
The marketing of this technology is subject to a Memorandum of Understanding
("MOU") entered into by the company and an international computer products
distributor. If development of this technology is successful, the terms of the
MOU require the company to sell the ProbeNET software through the counterparty
at a 50% discount from its net selling price. The term of this MOU is 24 months
from the date that ProbeNET is initially released and the MOU is subject to
mutually agreed annual renewal terms.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 11, December 31,
5. PROMISSORY NOTES PAYABLE 1999 1998
---- ----
<S> <C> <C>
Unsecured promissory note due February 1, 1999,
convertible at the option of the company at a price
of Cdn. $20.77 per class "A" common share $ - $ 65,110
Unsecured promissory note due February 1, 1999,
convertible at the option of the company at a price
of Cdn. $20.77 per class "A" common share - 58,412
----------------- ------------------
$ NIL $ 123,522
----------------- ------------------
</TABLE>
These promissory notes were repaid on behalf of the company by Powertech, Inc.
on February 1, 1999.
38
<PAGE> 59
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(expressed in U.S. dollars)
February 11, 1999
- --------------------------------------------------------------------------------
6. DUE TO POWERTECH, INC.
Amounts due to Powertech, Inc. are unsecured, bear no interest and are due on
demand. On February 11, 1999, Powertech, Inc. acquired all of the company's
outstanding common shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 11, December 31,
7. CAPITAL STOCK 1999 1998
---- ----
<S> <C> <C>
AUTHORIZED:
500,000 class "A" voting common shares without
par value
500,000 class "B" non-voting, redeemable,
retractable preference shares without par
value
ISSUED:
200,000 class "A" shares $ 136 $ 136
----------------- ------------------
</TABLE>
- --------------------------------------------------------------------------------
8. OPTION AGREEMENT
The company has entered into an option agreement with a company controlled by
one of its shareholders. This agreement enables the company to obtain the
related rights and equipment for an Internet Protocol Tester known as TestBOT
for consideration consisting of $50,000 in cash and 48,884 of NETSentry's
common shares. This option expires on September 10, 2003.
Subsequent to year end, the consideration under this option was amended to
$50,000 cash and 500,000 Powertech, Inc. common shares.
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTION
During the period from inception to December 31, 1998, $8,907 was paid to the
company's shareholders for management fees.
39
<PAGE> 60
- --------------------------------------------------------------------------------
NETSENTRY TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(expressed in U.S. dollars)
February 11, 1999
- --------------------------------------------------------------------------------
10. COMMITMENTS
The company has obligations under premises lease agreements. The leases provide
for annual commitments as follows:
<TABLE>
<S> <C>
1999 $ 18,723
2000 37,447
2001 15,603
</TABLE>
- --------------------------------------------------------------------------------
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. Also, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000. If not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which
could affect business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the company, including those related
to the effects of customers, suppliers, or other third parties, will be fully
resolved.
40
<PAGE> 61
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO-FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
The following unaudited pro-forma statements of operations have been derived
from the statements of operations of Powertech, Inc. ("Powertech") for the
period from inception to December 31, 1998 and for the period January 1, 1999
to September 30, 1999 and NETSentry Technologies Inc. ("NETSentry") for the
period from inception to December 31, 1998 and for the period January 1, 1999
to February 11, 1999. This pro-forma adjusts the foregoing financial statements
to give effect to the acquisition of NETSentry by Powertech as if it had
occurred on Powertech's inception date (May 4, 1998). These pro-forma
statements of operations are presented for information purposes only, and do
not purport to be indicative of the results of operations that actually would
have resulted if this acquisition had been consummated on May 4, 1998, or which
may result from future operations.
The pro-forma consolidated statements of operations should be read in
conjunction with the note thereto and Powertech and NETSentry's financial
statements and related notes contained elsewhere in this 10-SB filing.
<TABLE>
<CAPTION>
For the Period Ended
September 30, 1999
------------------------------------------------------
Pro-Forma PRO-FORMA
Powertech NETSentry Adjustment CONSOLIDATED
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue
Interest $ 12,970 $ 23 $ - $ 12,993
--------- --------- ------------ -----------
Expenses
Marketing and sales
Advertising 768 - - 768
Salaries and benefits 75,768 5,399 - 81,167
Travel and
entertainment 11,958 1,578 - 13,536
--------- --------- ------------ -----------
88,494 6,977 - 95,471
--------- --------- ------------ -----------
Product development
Travel and
entertainment 1,063 2,670 - 3,733
Salaries and
benefits 166,233 12,289 - 178,522
--------- --------- ------------ -----------
167,296 14,959 - 182,255
--------- --------- ------------ -----------
General and administrative
Bank charges 371 - - 371
Communication 11,653 - - 11,653
Computer and
office supplies 30,810 1,314 - 32,124
Consulting fees 9,000 - - 9,000
Depreciation and
amortization 44,676 343 4,033 49,052
Employee
relocation 4,794 5,506 - 10,300
Foreign exchange 5,678 2,241 - 7,919
Professional fees 84,486 27,086 - 111,572
Rent 17,106 1,137 - 18,243
Salaries and
benefits 57,638 7,361 - 64,999
Travel and
entertainment 4,469 204 - 4,673
--------- --------- ------------ -----------
270,681 45,192 4,033 319,906
--------- --------- ------------ -----------
Total expenses 526,471 67,128 4,033 597,632
--------- --------- ------------ -----------
Net loss $ (513,501) $ (67,105) $ (4,033) $ (584,639)
--------- --------- ------------ -----------
Weighted average
number of shares
outstanding 7,688,011
-----------
</TABLE>
<TABLE>
<CAPTION>
For the Period Ended
December 31, 1998
------------------------------------------------------
Pro-Forma PRO-FORMA
Powertech NETSentry Adjustment CONSOLIDATED
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue
Interest - $ - $ - $ -
--------- --------- ------------ -----------
Expenses
Marketing and sales
Advertising - - - -
Salaries and benefit - - - -
Travel and
entertainment - - - -
--------- --------- ------------ -----------
- - - -
--------- --------- ------------ -----------
Product development
Travel and
entertainment - 863 - 863
Salaries and
benefits - - - -
--------- --------- ------------ -----------
- 863 - 863
--------- --------- ------------ -----------
General and
administrative
Bank charges - - - -
Communication 2,750 - - 2,750
Computer and
office supplies 29,487 2,529 - 32,016
Consulting fees 186,688 8,907 - 195,595
Depreciation and
amortization - - 32,367 32,267
Employee
relocation - - - -
Foreign exchange - (350) - (350)
Professional fees 5,465 7,407 - 12,872
Rent - - - -
Salaries and
benefits - - - -
Travel and
entertainment 2,000 3,020 - 5,020
--------- --------- ------------ -----------
226,390 21,513 32,367 280,170
--------- --------- ------------ -----------
Total expenses 226,390 22,376 32,367 281,033
--------- --------- ------------ -----------
Net loss (226,390) $ (22,376) $ (32,367) $ (281,033)
--------- --------- ------------ -----------
Weighted average
number of shares
outstanding 2,995,436
-----------
</TABLE>
41
<PAGE> 62
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Net loss per share $ (0.07)
-----------
</TABLE>
<TABLE>
<S> <C>
Net loss per share $ (0.09)
-----------
</TABLE>
See accompanying note to the pro-forma consolidated statements of operations.
42
<PAGE> 63
- --------------------------------------------------------------------------------
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Note to the Unaudited Pro-Forma Consolidated Statements of Operations
(expressed in U.S. dollars)
FEBRUARY 11, 1999
- --------------------------------------------------------------------------------
1. GOODWILL AMORTIZATION
Based on an assumed acquisition date of May 4, 1998, the amortization of
goodwill has been increased to be consistent with this assumed acquisition
date.
43
<PAGE> 64
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
(2)(a) Corporate Charter of Powertech, Inc.
*(2)(a)(1) Articles of Amendment of Articles of Incorporation
(2)(b) Bylaws of Powertech, Inc.
*(4) Specimen Stock Certificate
(6)(a) Non-Competition Agreement dated February 12, 1999
between Drago Ruiu and NETSentry Inc.
(6)(b) Non-Competition Agreement dated February 12, 1999
between Randy Voldeng and NETSentry Technology Inc.
(6)(c) NETSentry Technology Inc. $100,000 (CDN) Promissory
Note dated December 3, 1998, to Dan Para
(6)(d) Agreement dated February 12, 1999 between Powertech,
Randy Voldeng, Dragos Ruiu and Dan Para
*(6)(e) Assignment Agreement dated December 23, 1998 between
Dragos Ruiu and Dragostech.com Inc. and NETSentry
Technology Inc.
*(6)(f) Memorandum of Understanding dated May 15, 1998
between NETSentry Technology Inc. and
Hewlett-Packard Network System Test Division
(6)(g) Asset Purchase and Sale Agreement made August 1998
between Dragostech.com Inc. and NETSentry
Technology, Inc.
(6)(h) Sublease between Gruppo Moda Holdings Ltd. and
NETSentry, Inc. for 122 Mainland Street
6)(i) Indenture between Lyco Holdings Ltd. and NETSentry
Technology, Inc. for 1152 Mainland Street
</TABLE>
44
<PAGE> 65
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(8)(a) Share Purchase Agreement between Powertech, Inc. -
and Randy Voldeng and Dragos Ruiu, dated for
reference January 11, 1999
(8)(b) Amending Agreement among Randy Voldeng and Dragos
Ruiu and NetMeasure, Inc., dated for reference -
January 29, 1999
(8)(c) Mutual Waiver dated February 12, 1999
*(16)(a) Letter from Demain & Company
*(16)(b) Letter from Davidson & Company
</TABLE>
*Filed with the amendment, February, 2000.
DESCRIPTION OF EXHIBITS.
<TABLE>
<CAPTION>
FORM 1-A
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(2) Charter and Bylaws. See Exhibit Nos. 2(a) and 2(b),
above.
(6) Material Contracts. See Exhibit Nos. 6(a) - 6(h),
above.
(8) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession. See Exhibit Nos. 8(a) -
8(c), above.
</TABLE>
45
<PAGE> 66
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on it behalf by
the undersigned, thereunto duly authorized.
NETMEASURE TECHNOLOGY INC.
Date: April 5, 2000 By: /s/ Randy Voldeng
--------------------- ----------------------
Randy Voldeng
46
