<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
Powertech,Inc.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 86-0914695
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
370-1122 Mainland Street, Vancouver, British Columbia, Canada V6B 5L1
- --------------------------------------------------------------------------------
(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)
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
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. Following its purchase of
all the issued and outstanding shares of NETSentry Technology, Inc.
("NETSentry") on February 12, 1999, described below, Powertech 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. 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
protocol to be able to communicate with each other. Unless the context otherwise
indicates or requires, Powertech and NETSentry, 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 first or 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.
NETSENTRY
Pursuant to a Share Purchase Agreement dated for reference January 11, 1999, as
amended by agreement dated January 29, 1999, Powertech acquired from Randy
Voldeng and Dragos Ruiu all of the issued and outstanding shares of NETSentry
Technology, Inc. ("NETSentry") in consideration of $115,000,(1) 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 Powertech, and Powertech's having available funds of
$1,012,500. NETSentry was a start-up company with a business plan to engage in
the business of Internet software and hardware development. Powertech, which had
about 65 shareholders, was seeking a merger, and NETSentry, 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 NETSentry
as a condition of closing. Prior to the transaction, there was no relationship
between
- --------
(1) All dollar amounts in this registration statement, including financial
statements, are US Dollars unless otherwise indicated.
<PAGE> 3
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.
NETSentry 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") 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 the technologies into marketable products.
NETSentry'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 moe complex as traffic
increases, and not surprisingly, there is a corresponding increase in new
network-associated problems.
NETSentry will address the needs of network professionals by providing them with
customizable software tools that will measure network conditions throughout
their networks, alert them to the locations of specific network problems and
conditions and potentially help them identify future trouble spots.
MARKETING AND DISTRIBUTION OF NEW PRODUCTS
NETSentry and Hewlett Packard Network Test Division, now known as Agilent
Technologies, Inc. executed a Memorandum of Understanding, dated May 15, 1998,
with respect to a marketing and distribution structure for NETSentry'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 first or second
quarter of 2000. The Memorandum of Understanding which is subject to mutually
agreed annual renewal terms, requires the Company to sell the ProbeNET software
to Agilent at a discount up to 50% from the net selling price. If Agilent
decides to go forward with the Memorandum of Understanding, Agilent will market
and distribute the Company's products under its own and the Company's label or
badge. The Company also may market and distribute its products directly or
arrange for others to do so. Revenues will be generated through licensing the
Company's products to others. The Company does not expect to be dependent upon
HP 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
<PAGE> 4
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 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. 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
<PAGE> 5
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.
A significant part of the Company's activities since the closing of the Share
Purchase Agreement with NETSentry in February 1999 has been research and
development activities. Such activities ordinarily are not, but may be, paid for
by customers.
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 September 30, 1999, the Company employed 10 full-time employees, including
programmers, technicians and others. The Company considers relations with
employees to be good.
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.
<PAGE> 6
PLAN OF OPERATION
The Company has not had revenues from operations since inception. With the
acquisition of NETSentry, Powertech's plan of operation contemplates utilizing
the $1.5 million additional financing obtained in a private offering during the
next 6 months for the continued development of its technologies in order to
achieve profitable operations. Approximately $250,000 is needed for operations
through the end of the first quarter of 2000, when customer field trials of
ProbeNET will be completed. The Company expects to generate revenues by the
beginning of the second quarter of 2000.
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.
With the additional financing and staff, the Company expects to continue
development of and to launch ProbeNET, primarily through the sales channel of
Agilent Technologies, Inc. (formerly the Test and Measurement Division of HP)
and by its directly licensing 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 4th
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)m 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. Construction of 5 prototypes is estimated to
be completed in the 3rd quarter of 2000.
There can be no assurance that any of the products under development will be
successfully developed or will be commercially successful.
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 result in miscalculations or systems failure in computer systems,
network elements, software applications and other business systems that have
time-sensitive programs.
<PAGE> 7
Management has reviewed the Company's technologies and operations and does not
anticipate that the so-called Year 2000/Y2K issues will have a significant
impact on its business or require a significant commitment of resources to
resolve potential problems associated with these issues. As of the January 5,
2000, the Company had not experienced any problems related to Y2K.
There can be no assurance, however, that the Company will be unaffected by the
Year 200/Y2K issues affecting its customers or suppliers, but management does
not believe that the Year 2000/Y2K readiness of its customers or suppliers will
have a material impact on the Company's business or financial position.
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. Until December 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. In the opinion of management,
these properties are adequate and suitable for the Company's use for the
foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1999, 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
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
Officers & Directors as a group 2,942,500 19.4%
(2 persons)
-----------------------------
</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
Powertech and NETSentry
Jeff Plato 35 Director, Vice
President and Secretary of Powertech
and NETSentry Technology, Inc.
</TABLE>
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 NETSentry, since 1998. Prior to co-founding NETSentry 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, Vice President and Secretary of the Powertech and
NETSentry, since December 1999. Mr. Plato was NETSentry's Product General
Manager, and has been with the Company since February 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. 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. He worked most of his career at one of the world's most respected
technology companies, Hewlett-Packard, where he helped one of its Test and
Measurement manufacturing divisions garner worldwide acclaim for its network
measurement products. From 1985 to 1997, Mr. Plato was in charge of overall
marketing responsibilities for a portfolio of test and measurement
<PAGE> 9
products for the IDACOM division of Hewlett-Packard; from 19__, 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. He worked for
that Hewlett-Packard division for twelve years, from ___ to ___, in various
roles including engineering, supporting, selling and marketing network
measurement equipment, including the highly successful 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 ($750,000 CDN).
By virtue of his position 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 Powertech and
NETSentry, 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 NETSentry in
1999, are not executive officers, but are expected by the Company to make a
significant contribution to its business:
Brent Marykuca is NETSentry's Director of Product Development and Chief Software
Architect. Mr. Marykuca has a deep understanding of the workings of operating
systems, programming languages and the tools used to build software. He has a
B.Sc. in Computer Science and sixteen years experience related to software
development in the corporate and academic worlds. Prior to joining NETSentry,
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 June1996 to June 1997; he worked on
projects for Corel and Adobe products, among others. 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 data. 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 NETSentry's Lead Programmer. Before joining NETSentry, Wing worked
at two of Canada's fastest growing software companies, Merak Projects Ltd. and
Infowave Software Inc. He has been responsible for the design and implementation
of highly successful microcomputer-based products for wireless messaging,
network protocols, oil and gas
<PAGE> 10
information systems, real-time data collection and geographical information
systems. He has ten years experience related to software development.
Prior to joining NETSentry, 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 projects such 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 has held various positions as a
programmer, including at PCI Pacific Inc. where he worked on a Geographic
Information System user interface and Geographic Information System spatial
analysis and indexing, from March 1994 to May 1996, as well as with various
other companies and with 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
NETSentry, through December 31, 1998, and Dragos Ruiu, Chief Technical Officer,
received Cdn $15,000 (US $8,275) during that period. In 1999, Mr. Voldeng
received an annual salary of Cdn $90,000 ((US $62,000). In 2000, Mr. Voldeng
will receive an annual salary of Cdn $100,000 (US $69,000) and Mr. Plato will
receive an annual salary of Cdn $100,000 (US $69,000).
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, Powertech acquired all of the
issued and outstanding shares of NETSentry 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 Powertech amd serving as intial 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 NETSentry US $123,522 in December 1998, which indebtedness
was repaid by Powertech in connection with the closing of the Share Purchase
Agreement in February 1999. The purpose of the loan was to allow NETSentry
management to purchase development equipment, locate facilities and hire staff.
<PAGE> 11
NETSentry entered into an option agreement dated September 10, 1998, amended by
an agreement with Powertech, 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
Powertech. Management expects to exercise the option sometime in 2001, providing
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 15,194,800issued
and outstanding as of September 30, 1999. 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
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. The high and low bid price quotations for
such shares during the period of trading, as reported by the National
Association of Securities Dealers, Inc., was 1-5/8 and 1-7/16, respectively. See
"Item 2. Legal Proceedings."
The quotations set forth above reflect inter-dealer prices, without retail
mark-up, markdown, or commission, and may not represent actual transactions.
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
<PAGE> 12
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 month 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 September 30,1999, there were approximately 42 holders of record
of the Company's shares.
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).
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
<PAGE> 13
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 at $.03125 per share, or an
aggregate consideration of $100,000, to 42 accredited investors outside the
United States, without registration, 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 at $.01 per share for
consulting 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 at $.03125 per share, or an
aggregate consideration of $62,500, to 6 accredited investors outside the United
States, without registration, 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 for $.04101 per share, or
an aggregate consideration of $33,247, to two accredited investors outside the
United States, without registration, 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 NETSentry for no cash
consideration upon its organization in May 1998.
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 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
<PAGE> 14
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> 15
PART F/S
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
PAGE #
- ------
CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT
<S> <C>
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
Notes to the December 31, 1998 Financial Statements 27-29
</TABLE>
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE #
================================================================================================
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
<S> <C>
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> 17
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.
17
<PAGE> 18
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.
18
<PAGE> 19
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.
19
<PAGE> 20
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.
20
<PAGE> 21
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.
21
<PAGE> 22
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.
22
<PAGE> 23
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:
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
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.
23
<PAGE> 24
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>
24
<PAGE> 25
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.
25
<PAGE> 26
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Unaudited Consolidated Financial Statements
(expressed in U.S. dollars)
September 30, 1999
================================================================================
<TABLE>
<CAPTION>
7. ACCOUNTS PAYABLE AND ACCRUALS SEPTEMBER 30 September 30
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
26
<PAGE> 27
carryforwards will expire unused. Accordingly, the potential tax benefits of
the loss carryforwards are offset by a valuation allowance of the same amount.
11. COMMITMENTS
The company's subsidiary has obligations under premises lease agreements. The
leases provide for approximate annual commitments as follows:
1999 $ 19,000
2000 37,000
2001 15,000
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
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.
27
<PAGE> 28
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.
/s/Davidson & Company
Vancouver, Canada
September 1, 1999
Chartered Accountants
11
<PAGE> 29
==============================================================================
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.
12
<PAGE> 30
===============================================================================
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.
13
<PAGE> 31
===============================================================================
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.
14
<PAGE> 32
===============================================================================
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.
15
<PAGE> 33
===============================================================================
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.
16
<PAGE> 34
==============================================================================
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:
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
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.
17
<PAGE> 35
===============================================================================
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>
4. CAPITAL ASSETS December 31
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>
18
<PAGE> 36
==============================================================================
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
19
<PAGE> 37
================================================================================
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
June 30, 1999
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.
20
<PAGE> 38
================================================================================
<TABLE>
<CAPTION>
7. ACCOUNTS PAYABLE AND ACCRUALS JUNE 30 December 31
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.
21
<PAGE> 39
================================================================================
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:
1999 $ 18,723
2000 37,447
2001 15,603
================================================================================
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.
22
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
Board of Directors October 5, 1999
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.
/s/Peter Demian
Peter Demian, CPA
Demian & Company, P.C.
Certified Public Accountants
October 5, 1999
Clark, New Jersey
23
<PAGE> 41
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.
24
<PAGE> 42
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.
25
<PAGE> 43
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.
26
<PAGE> 44
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.
27
<PAGE> 45
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.
28
<PAGE> 46
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.
29
<PAGE> 47
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.
30
<PAGE> 48
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.
/s/Davidson & Company
Vancouver, Canada
September 1, 1999 Chartered Accountants
31
<PAGE> 49
===============================================================================
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.
32
<PAGE> 50
===============================================================================
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.
33
<PAGE> 51
===============================================================================
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.
34
<PAGE> 52
===============================================================================
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.
35
<PAGE> 53
===============================================================================
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:
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
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.
36
<PAGE> 54
===============================================================================
NETSentry TECHNOLOGY INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(expressed in U.S. dollars)
February 11, 1999
===============================================================================
<TABLE>
<CAPTION>
3. CAPITAL ASSETS FEBRUARY 11, December 31,
1999 1998
---- ----
Accumulated NET 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>
5. PROMISSORY NOTES PAYABLE FEBRUARY 11, December 31,
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.
37
<PAGE> 55
===============================================================================
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>
7. CAPITAL STOCK FEBRUARY 11, December 31,
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.
38
<PAGE> 56
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:
1999 $ 18,723
2000 37,447
2001 15,603
===============================================================================
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.
39
<PAGE> 57
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") and NETSentry
Technologies Inc. ("NETSentry") for their fiscal periods ended December 31, 1998
and September 30, 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 January 1, 1999 to
September 30, 1999
------------------------------------------------------------------
Pro-Forma Pro-Forma
Actual Adjustments Consolidated
------ ----------- ------------
<S> <C> <C> <C>
Revenue
Interest $ 12,993 $ $ 12,993
------------------ ------------------
Expenses
Marketing and sales
Advertising 768 768
Salaries and benefits 81,654 81,654
Travel and
entertainment 13,049 13,049
------------------ ------------------
95,471 95,471
------------------ ------------------
Product development
Travel and
entertainment 2,843 2,843
Salaries and
benefits 179,412 179,412
------------------ ------------------
182,255 182,255
------------------ ------------------
General and administrative
Bank charges 371 371
Communication 11,653 11,653
Computer and
office supplies 11,367 11,367
Consulting fees 9,000 9,000
Depreciation and
amortization 45,019 (1) 4,033 49,052
Employee
relocation 10,300 10,300
Foreign exchange 9,508 9,508
Professional fees 122,594 122,594
Rent 18,243 18,243
Salaries and
benefits 84,754 84,754
Travel and
entertainment 4,673 4,673
------------------ ------------------
327,482 331,515
------------------ ------------------
Total expenses 605,208 609,241
------------------ ------------------
Net loss $ (592,215) $ (596,248)
================== ==================
Weighted average
number of shares
outstanding 7,688,011
==================
Net loss per share $ (0.08)
==================
<CAPTION>
For the Period from Inception to
December 31, 1998
-----------------------------------------------------------------
Pro-Forma Pro-Forma
Actual Adjustments Consolidated
------ ----------- ------------
<S> <C> <C> <C>
Revenue
Interest $ - $ $ -
------------------ ------------------
Expenses
Marketing and sales
Advertising - -
Salaries and benefits - -
Travel and
entertainment - -
------------------ ------------------
- -
------------------ ------------------
Product development
Travel and
entertainment 863 863
Salaries and
benefits - -
------------------ ------------------
863 863
------------------ ------------------
General and administrative
Bank charges - -
Communication 2,825 2,825
Computer and
office supplies 31,941 31,941
Consulting fees 195,595 195,595
Depreciation and
amortization - (1) 32,267 32,267
Employee
relocation - -
Foreign exchange (350) (350)
Professional fees 12,873 12,873
Rent - -
Salaries and
benefits 3,021 3,021
Travel and
entertainment 2,000 2,000
------------------ ------------------
247,905 280,172
------------------ ------------------
Total expenses 248,768 281,035
------------------ ------------------
Net loss $ (248,768) $ (281,035)
================== ==================
Weighted average
number of shares
outstanding 2,995,436
==================
Net loss per share $ (0.09)
==================
</TABLE>
See accompanying note to the pro-forma consolidated statements of operations.
40
<PAGE> 58
POWERTECH, INC.
(A DEVELOPMENT STAGE COMPANY)
Note to the Unaudited Pro-Forma Consolidated Statements of Operations
(expressed in U.S. dollars)
September 30, 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.
41
<PAGE> 59
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
(2)(a) Corporate Charter of Powertech, Inc.
(2)(b) Bylaws of Powertech, Inc.
(6)(a) Non-Competition Agreement dated
February 12, 1999 between Drago Ruiu
and NETSentry Technology 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 Technoogy, Inc. for 1122
Mainland Street
*(6)(i) Indenture between Lyco Holdings Ltd. and
NETSentry Technology, Inc. for 1152
Mainland Street
(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 Powertech, Inc., dated for
reference January 29, 1999
(8)(c) Mutual Waiver dated February 12, 1999
*(21) Subsidiaries of the Small Business Issuer
*Filed with the amendment, January 7, 2000.
<PAGE> 60
DESCRIPTION OF EXHIBITS.
FORM 1-A
<TABLE>
<CAPTION>
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>
<PAGE> 61
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
POWERTECH, INC.
Date: January 5, 2000 By: /s/ Randy Voldeng
-------------------- --------------------------
Randy Voldeng
<PAGE> 1
Exhibit 6(f)
MEMORANDUM OF UNDERSTANDING
This Agreement made this ______ day of May, 1998
Between:
- - --------
NETSentry Technology Inc. of Vancouver, British Columbia, Canada (hereinafter
referred to as "NTI")
And:
- - ----
Hewlett Packard Network System Test Division of Colorado Springs, Colorado, USA
(hereinafter referred to as "NSTD")
Whereas:
NSTD is interested in marketing and distributing NTI's ProbeNET software
product to specific customers on an exclusive basis; and
NTI plans on delivering ProbeNET, as specified in Section 8 of NTI's business
plan, by the second quarter of calendar year 1999; and
NTI is interested in developing other distribution channels for customers not
targeted by NSTD; and
Both parties are interested in a long term relationship whereby NTI becomes an
integral part of NSTD's business strategy; and
Both parties are committed to ensuring ProbeNET (for its designed purpose and
functionality) becomes the preferred product of Internet Service Providers for
testing their Internet Protocol networks; and
Both parties are committed to ensuring ProbeNET customers receive a high level
of service and support.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT, IN CONSIDERATION OF THE MUTUAL
PROMISES HEREINAFTER SET FORTH, THE PARTIES AGREE AS FOLLOWS:
- - Based on NSTD's forecasted marketing, selling and distribution cost
structure, NTI will provide NSTD with a 50% discount off the Net Selling
Price of ProbeNET. The Net Selling Price is the price paid to Hewlett
Packard by end user customers. When more precise estimates of NSTD's cost
structure are available, the exact discount will be finalized.
- - NTI will be responsible for the software development and ongoing software
maintenance of ProbeNET. NTI agrees to ensure ProbeNET is Year 2000
compliant in accordance with the guidelines provided by NSTD.
- - ProbeNET will be identified as both an HP and NTI product.
- - NTI is committed to providing a high level of customer satisfaction and
will endeavor to deliver a high quality product. NTI plans to resolve
minor bug fixes with semi-annual software updates. Major bug fixes, should
they occur, will be remedied in the shortest time possible after
discovery.
- - Both parties agree to cooperate to ensure ProbeNET's user interface, where
practical and appropriate, is compatible with other NSTD products.
- - NTI will endeavor to differentiate ProbeNET from network monitoring
products developed by HP's NMX division by focusing on "active
intervention" capabilities.
** - Confidential Treatment Requested
Page 1 of 3
<PAGE> 2
- - If NTI develops resource constraints, rather than delay the introduction
of ProbeNET, functionality may be reduced in accordance with customer and
NSTD priorities.
- - NTI agrees to allow NSTD to have a representative on NTI's Product
Strategy Committee and NSTD agrees to allow NTI to have a representative
participate in the HP/NSTD Service Providers Business Team Strategy and
Planning Sessions.
- - In the event, HP/NSTD becomes an equity investor in NTI, NTI agrees to
allow NSTD have 1 representative on NTI's Board of Directors.
- - NTI will be responsible for training NSTD marketing, sales and support
personnel and for assisting NSTD in training the Hewlett Packard sales
organization.
- - NSTD and the Hewlett Packard sales organization will be responsible for
marketing and selling ProbeNET to customers noted on the attached Schedule
"A". Marketing includes advertising, and promotion at marketing events
(trade shows, customer seminars, industry symposiums etc.). NTI will be
responsible for marketing and selling ProbeNET to small ISPs (as per the
definition noted in NETSentry's business plan) unless NSTD develops an
acceptable strategy for selling to the small ISP market segment.
- - NSTD and the Hewlett Packard sales organization will have primary
responsibility for providing installation assistance and training for end
user customers.
- - Product customization for end user customers will be handled on a
case-by-case basis, however, where appropriate, NSTD and the HP sales
organization will provide this capability.
- - NSTD and the Hewlett Packard sales organization will be responsible for
establishing the end user price with the objective of maximizing revenue.
Potentially, the end user price could vary on a country-by-country basis.
- - NTI will be responsible for assisting NSTD, when required, at marketing
events.
- - NTI will be responsible for providing NSTD with demo software.
- - NSTD will be responsible for developing marketing materials (brochures,
promotional material) for ProbeNET. NTI will be responsible for assisting
NSTD by providing technical specifications and other necessary
documentation in electronic format.
The term of this agreement will cover a period of 24 months, beginning with
ProbeNET's product release date. Thereafter it can be renewed annually
providing both parties are in agreement. During the term of this agreement NSTD
agrees not to develop or market any products that compete directly with
ProbeNET; if NSTD violates this agreement, NTI has the right to terminate the
agreement with 30 days notice. Otherwise, should either party be dissatisfied
with the performance of the other party during the term of this agreement, they
are required to notify the other party in writing. Should the other party fail
to remedy the noted deficiencies within a reasonable period of time, the
dissatisfied party may terminate the agreement with 6 months notice.
This Agreement shall be construed in accordance with and governed by the laws
of the Province of British Columbia.
Page 2 of 3
<PAGE> 3
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date
first above mentioned.
NETSentry Technology Inc. Hewlett Packard Network System Test Division
Per: Per:
-------------------------- --------------------------
Title: Title:
------------------------ ------------------------
Per: Per:
-------------------------- --------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
SCHEDULE "A"
NSTD will have exclusive worldwide marketing and distribution rights for the
following customers:
- - Large and mid-size ISPs ( as per the definition used in NETSentry's
business plan); and
- - Telephone companies; and
- - Private network operators (intranets);
- - Network Equipment Manufacturers.
Page 3 of 3
<PAGE> 1
EXHIBIT 6(h)
1122 MAINLAND STREET
VANCOUVER, BRITISH COLUMBIA
OFFER TO SUB-LEASE
BETWEEN
GRUPPO MODA HOLDINGS LTD.
(SUB-LANDLORD)
AND
NETSENTRY TECHNOLOGY INC.
(SUB-TENANT)
Colliers Macaulay Nicolls Inc.
Leasing Division
("Agent")
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OFFER TO SUB-LEASE
1122 MAINLAND STREET
VANCOUVER, BRITISH COLUMBIA
(THE "BUILDING")
TO: GRUPPO MODA HOLDINGS LTD. ("Sub-Landlord")
#360 - 1122 Mainland Street
Vancouver, BC
WE: NETSENTRY TECHNOLOGY INC. ("Sub-Tenant")
#105 - 1152 Mainland Street
Vancouver, VC
hereby offer to sub-lease from the Sub-Landlord, upon the following terms and
conditions, the premises on the third (3rd) floor of the Building, having a
Rentable Area of approximately 2,300 square feet ( the "Sub-Lease Premises")
subject to confirmation of size. The floor area of the Sub-Lease Premises is as
shown outlined in heavy black on the attached plan (Schedule "A") of the Offer
to Sub-Lease.
1. TERM
The term of the Sub-Lease shall be two (2) years commencing on the 15th
day of May, 1999 (the "Commencement Date") and expiring on the 14th day
of May, 2001.
2. GROSS RENT
The Gross Rent, plus Goods and Services Tax, shall be $24.00 per square
foot per annum payable monthly in advance on the first day of each month
during the Term.
3. DEPOSIT
A cheque for the equivalent of two (2) months Gross Rent (the
"Deposit"), plus applicable Goods and Services Tax, payable to the
Sub-Landlord's agent, Colliers Macaulay Nicolls Inc., in trust, shall be
tendered upon acceptance of the Offer to Sub-Lease as the Deposit. This
payment is to be credited firstly towards the last month's rent and
thereafter towards the first month's rent, and to be returned to the
Sub-Tenant if this Offer is not accepted. If the Offer is accepted, and
in the event the Sub-Tenant does not proceed per the terms of this
Agreement, the Sub-Landlord may terminate this Agreement and retain the
Deposit on account of damages and not a penalty, without prejudice to
any other remedy.
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4. LEASE
The Sub-Tenant covenants to abide by all the terms of the Sub-Landlord's
Lease (the "Lease") with the exception of the terms set out in this
Offer which differ from the terms of the Lease. A copy of the Lease
shall be provided to the Sub-Tenant upon acceptance of the Offer to
Sub-Lease.
The Sub-Tenant shall enter into a Sub-Lease Agreement, which
incorporates the terms of this Offer, and the Lease, amended where
applicable, if requested by the Sub-Landlord, who shall prepare the
Sub-Lease Agreement at its cost prior to May 10th, 1999. Otherwise this
Offer, together with the Lease, shall constitute the Sub-Lease
Agreement.
5. OPTION TO RENEW
Provided the Sub-Tenant has not been in breach of the Sub-Lease, the
Sub-Tenant shall have the right to renew the Sub-Lease for one
additional Terms of one (1) year and two months and fifteen days under
the same terms and conditions. This right shall include any additional
space the Sub-Tenant leases pursuant to Section 6 below. The Gross Rent
during the renewal period shall be the fair market Gross Rent agreed
between the parties, and failing such agreement, as determined by
arbitration pursuant to the Commercial Arbitration Act of British
Columbia. However, the Gross Rent shall not be less than the Basic Rent
payable in the last year of the Term. To exercise this right, the
Sub-Tenant shall give written notice to the Sub-Landlord no earlier than
six (6) months and no later than four (4) months prior to the date of
the expiry of the Term, otherwise this Option to Renew shall be deemed
waived.
6. OPTION TO LEASE ADJOINING SPACE
Provided the Sub-Tenant has not been in breach of the Sub-Lease, the
Sub-Tenant shall have the option to sub-lease the adjoining, and
remaining approximately 1,000 square feet occupied by the Sub-Landlord,
provided the Sub-Tenant gives the Sub-Landlord ninety (90) days written
notice of its intention to expand. This option can be exercised any time
after the first six months of the Sub-Lease term. The sub-lease term on
this additional space shall commence on the first day of the month,
ninety (90) days after Tenant's notification and shall terminate on the
expiry of the Term of the Sub-Lease or any permitted renewal thereof.
The Gross Rental per square foot payable on the additional space shall
be at the same rate payable on the Sub-Lease Premises.
7. USE
The Sub-Lease Premises shall be used only for the purposes on a general
business office, including hardware and software product development,
sales and marketing.
8. SUB-TENANT'S CONDITIONS PRECEDENT
This Offer and Acceptance is subject to the following Conditions
Precedent being waived at the sole discretion of the Sub-Tenant.
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(a) The Sub-Tenant accepting the cost of any construction
required to make the space suitable for its business
purposes, including electrical and communications upgrades
to the Sub-Lease Premises;
(b) The Sub-Tenant reviewing and accepting the Lease;
(c) The Sub-Tenant confirming the size of the Sub-Lease
Premises is acceptable.
If the Sub-Tenant fails to notify the Sub-Landlord, in writing, that the
Conditions Precedent have been satisfied or waived, prior to 3:00 p.m.
on the 21st day of April, 1999, or such other times as may be
subsequently agreed, then this Offer shall become null and void.
Immediately thereafter, the Deposit(s) shall be returned in full to the
Sub-Tenant and neither party shall have further obligation to the other.
This clause is for the sole benefit of the Sub-Tenant.
9. SOLE AGREEMENT
There are no agreements, covenants, representations, warranties or
conditions in any way relating to the subject matter of this agreement
expressed or implied, collateral or otherwise, except as expressly set
forth herein.
10. TIME OF THE ESSENCE
Time is of the essence of this agreement with respect to the covenants
contained herein.
11. DEFINITIONS
Words defined in the Lease and used herein shall have the same meaning
ascribed to them by the Lease.
12. CONSENT OF LANDLORD
This Offer is subject to the consent of the Landlord in accordance with
the terms of the Lease.
13. AGENT'S COMMISSION
An Agent's commission of two (2) months Gross Rent, plus any applicable
Goods and Services Tax, shall be payable to the Agent by the
Sub-Landlord and the Sub-Tenant on an equal basis, with each paying one
(1) months Gross Rent. The Sub-Landlord's portion is to be deducted from
the Deposit on the Commencement Date or occupancy by the Sub-Tenant,
whichever first occurs, the remaining commission due to the Agent by the
Sub-Tenant shall be due and payable on the Commencement Date or
occupancy by the Sub-Tenant.
14. OFFER PROVISIONS
All terms of this Offer shall survive the completion of this
transaction. In the event of any conflict between the terms of this
Offer and the terms of the Lease, the terms of this Offer shall prevail.
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15. DISCLOSURE
The Sub-Landlord and the Sub-Tenant acknowledge and agree that:
(i) in accordance with the Code of Ethics of the Canadian Real
Estate Association, Colliers Macaulay Nicolls Inc. (the "Agent")
has disclosed that it is representing the Sub-Landlord and the
Sub-Tenant in the transaction described in this Agreement;
(ii) the Agent, in order to accommodate the transaction described in
this Agreement, was and is entitled to pass any relevant
information it receives from either party or from any other
source to either of the parties as the Agent sees fit, without
being in conflict of its duties to either party; and
(iii) the Sub-Landlord and the Sub-Tenant shall each pay one half (1/2)
of the commission and compensation due to the Agent, (equivalent
to two months Gross Rent), pursuant to Section 13 of this
Agreement.
15A. LANDLORD'S SUBJECT
This offer is subject to the Sub-Landlord's approving of the
Sub-Tenant's financial strength on or before April 21st, 1999, or this
Offer shall be null and void and any deposit returned to the Sub-Tenant.
15B. POST-DATED CHEQUES
The Sub-Tenant shall provide the Sub-Landlord with post-dated cheques
for the Gross Rent for 12 months at a time.
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(iv)
16. ACCEPTANCE
This Offer shall be irrevocable and open for acceptance until 3:00 p.m.
on the 7th day of April, 1999, after which time if not accepted this
Offer shall be null and void and the Deposit shall be returned in full
to the Sub-Tenant. This Offer may be accepted by signing and returning
one duplicate copy or facsimile of this Offer.
DATED this 7th day of April, 1999.
NETSENTRY TECHNOLOGY INC.
SUB-TENANT
Per: [sig]
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Per: [sig]
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ACCEPTANCE
The Sub-Landlord hereby accepts the above Offer this 7 day of April, 1999.
GRUPPO MODA HOLDINGS LTD.
SUB-LANDLORD
Per: [sig]
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Per: [sig]
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LANDLORD'S CONSENT
The Landlord hereby consents to the attached Offer this 21 day of April, 1999.
PENREAL PROPERTY FUND II LTD.
LANDLORD
Per: [sig]
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Per: [sig]
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SCHEDULE A
[MAP]
<PAGE> 1
EXHIBIT 6(i)
THIS INDENTURE made the 28th of July, 1999.
IN PURSUANCE OF THE BRITISH COLUMBIA "LAND TRANSFER FORM ACT"
BETWEEN:
LYCO HOLDINGS LTD., a body corporate, duly Incorporated under
the laws of the Province of British Columbia, having its
registered office at 2100 - 1075 West Georgia Street, in the
City of Vancouver, in the Province of British Columbia, V6E
3G2
(hereinafter called "the Landlord")
OF THE FIRST PART
AND: NETSENTRY TECHNOLOGY INC. a body corporate duly Incorporated
under the laws of the Province of British Columbia, having an
office at Suite 370 - 1122 Mainland Street, Vancouver, British
Columbia, V6B 5L1
(hereinafter called "the Tenant")
OF THE SECOND PART
WITNESSETH that in consideration of the rents, covenants and agreements
hereinafter reserved and contained on the part of the Tenant to be paid,
observed and performed, the Landlord hath demised and leased and by these
presents doth demise and lease unto the Tenant the demised premises as
hereinafter described, all on the terms, conditions and covenants as hereinafter
set forth.
1. DEMISED PREMISES
1.1 The demised premises when referred to in this lease shall mean the
premises outlined in red on the plan attached hereto as Schedule "A", being a
portion of the building located at 1152 Mainland Street, in the City of
Vancouver, in the Province of British Columbia, more particularly described in
Schedule "B" hereto annexed.
2. RENTABLE AREA
"Rentable Area" of any premises on any floor or level of the building
means the area of the floor space therein as determined by the Landlord either
by actual measurement or from plans therefor in accordance with BOMA Standard
and it is agreed that as at the date hereof the Rentable Area of the premises
is as set out in Schedule "A" hereto.
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3. BASIC RENT
"Basic Rent" means the rent referred to in Article 3.1.
3.1 Yielding and paying therefor unto the Landlord annual Basic Rent for the
demised premises for the term hereof in the sum of Five Thousand Two Hundred and
Ninety-Nine Dollars ($5,299.00), lawful money of Canada, which sum shall not
include the Tenant's proportionate share of operating expenses for the said
period which shall be paid as hereinafter provided, payable in advance in equal
monthly installments of Four Hundred and Forty-One Dollars and Fifty-Eight Cents
($441.58), the first of such installments to be paid on the commencement date of
the term and subsequent installments on the first day of each month thereafter,
up to and including the 14th day of May, 2001, at the office of the Landlord at
P.O. Box 74587, 2803 West 4th Avenue, Vancouver, British Columbia, V6K 4P4 or at
such other place as the Landlord may designate in writing.
3.2 Each and every payment of Basic Rent or additional rent accruing under the
provisions of this lease by the Tenant to the Landlord shall bear interest at
the rate of Two per cent (2%) per month (Twenty-four per cent (24%) per year)
from the date when same shall become payable under the terms of this lease until
the same shall be paid, and such interest shall accrue and be payable without
the necessity of any demand therefor being made.
4. TERM
4.1 TO HAVE AND TO HOLD the demised premises for and during the term of One
Year and Ten and One Half Months, to be computed from the 1st day of August,
1999, and thenceforth next ensuing, at the rental hereinafter covenanted to be
paid by the Tenant.
5. OPTION TO RENEW
5.1 The Landlord covenants and agrees that provided the Tenant is in no way in
default under the within lease, the Tenant shall have the option to extend the
term of this lease for a further period of two additional Terms of one year (1)
each commencing on the 15th day of June, 2001, the said extension to be
substantially upon the same terms, covenants and conditions as those contained
in the within lease save and except this option to renew and reflected in the
Landlord's then standard form of lease and save and except that the rental
payable thereunder shall be at a rate to be agreed upon between the Landlord and
Tenant but in no event shall the annual Basic Rent for the first renewal period
be less than Seven Dollars ($7.00) per square foot. Failing agreement between
the Landlord and Tenant the annual rental is to be determined by arbitration
pursuant to the provisions of the British Columbia Commercial Arbitration Act.
Further, in order to exercise the option to extend the term as herein provided
the Tenant shall notify the Landlord, in writing, of the exercise of its option
to extend the term at least six (6) months prior to the date of completion of
the original term.
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6. USE OF DEMISED PREMISES
6.1 The Tenant shall use the demised premises for the purposes of network
equipment storage and maintenance, and testing for hardware and software product
development and for no other purpose without the written consent of the
Landlord.
7. TENANT'S COVENANTS
The Tenant covenants with the Landlord:
7.1 To pay rent.
7.2 To pay all charges for telephone and wire service, electric current
consumed on the Rentable Area for lighting and for office equipment and all
charges for maintenance and re-lamping of lighting fixtures within the Rentable
Area.
7.3 To maintain and replace from time to time as may be reasonably necessary
during the term of this lease all light fixtures, tubes, ballasts and starters
in the Rentable Area.
7.4 To pay any and all licence fees and taxes imposed in connection with the
occupancy of the demised premises, or with the particular business of the Tenant
or in connection with any form of equipment used by the Tenant in the demised
premises.
7.5 To repair, reasonable wear and tear and damage by fire, lightning tempest
and structural defect or act of God excepted.
7.6 That the Landlord may enter and view the state of repair and that the
Tenant will repair according to notice save as aforesaid.
7.7 That he will leave the demised premises in good repair.
7.8 To restore forthwith at the Tenant's expense from time to time any glass
on the demised premises broken or damaged as a result of the negligence of the
Tenant, its servants, agents, or invitees.
7.9 Not to do or suffer any waste or damage, disfiguration or injury to the
demised premises or the fixtures and equipment therein nor to permit or suffer
any overloading of the floors thereof, and not to use or permit the use of any
part of the demised premises for any dangerous, noxious or offensive trade or
business and not to permit, cause or maintain any nuisance or interference with
the comfort of any of the occupants of the said building,
7.10 Not to exhibit signs of any nature on walls, doors or windows nor to
install any window coverings without the prior written approval of the Landlord.
7.11 Not to do or permit to be done whereby any policy or insurance on the said
building or any part thereof may become void or voidable or whereby the premium
thereon may be increased.
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7.12 The Tenant shall not assign or sublet in whole or in part without the
Landlord's prior consent in writing and without first offering the demised
premises to the Landlord at the same rent and on the same terms as herein set
out. Should the Landlord having first been offered the demised premises by the
Tenant as aforesaid fail to accept such offer within thirty (30) days from the
date such offer is received in writing by the Landlord, then the Tenant may with
the Landlords prior consent in writing, which consent shall not be unreasonably
withheld, assign or sublet, the demised premises to any person, persons, firm,
partnership or corporation, provided that no such assignment, or subleting shall
be made to any person, persons, firm, partnership or corporation carrying on any
business which the Landlord is obliged to restrict by reason of any other lease
or contract relating to the building.
7.13 To keep the demised premises free of rubbish and debris at all times and
to provide proper receptacles for waste and rubbish and to engage the services
of the building janitorial service company on a minimum weekly basis to sweep
the floors, clean the interior surface of the exterior windows, dust the desks,
tables, other furniture, light fixtures, airducts and venetian blinds, empty
waste paper baskets and vacuum any carpeting, all in accordance with normal
office cleaning standards.
7.14 To abide by and comply with all laws, rules end regulations of every
municipal or other authority which in any manner relate to or affect the
business or profession of the Tenant or the use of the demised premises by the
Tenant and to save harmless the Landlord from all costs, charges or damages to
which the Landlord may be put or suffer by reason of the breach by the Tenant of
any such law, rule or regulation.
7.15 The Tenant shall not install any equipment which will exceed or overload
the capacity of any utility, electrical or mechanical facilities in the demised
lease and the Tenant will not bring into the demised premises or install any
utility, electrical or mechanical facility or service which the Landlord does
not approve. The Tenant agrees that if any equipment installed by the Tenant
requires additional utility, electrical or mechanical facilities, the Landlord
may, in its sole discretion, if they are available, elect to install them at the
Tenant's expense and in accordance with plans and specifications to be approved
in advance in writing by the Landlord.
7.16 That the Landlord or its agents may at any time enter upon the demised
premises for the purpose of examining the same, or for the making of any
repairs, alterations, improvements or additions to the demised premises or the
building of which the same form a part which the Landlord shall deem necessary
or desirable,
7.17 To permit the Landlord, or its agents, to show the demised premises at any
reasonable time to any prospective purchasers or, within the six (6) months
immediately preceding the expiry of this Lease, any prospective tenant, and in
either case to allow the exhibiting of the usual for sale or leasing notices on
the exterior of the demised premises.
7.18 The Tenant further covenants to indemnify the Landlord and save it
harmless from any and all liability, damage, cost, claims, and causes of actions
whatsoever arising from any breach or violation of any of the Tenant's
obligations under this lease or from the use and occupation of the demised
premises by the Tenant hereunder, and to furnish evidence of public liability
insurance coverage satisfactory to the Landlord. The landlord covenants he will
maintain in force at all times adequate insurance coverage on the Building and
other Common areas.
<PAGE> 5
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It is the intention of the parties that the Tenant shall take out,
maintain in force at all times, pay for and deliver to the Landlord all of the
policies of insurance hereinabove referred to at such times and in such manner
so that the Landlord shall at all times during the term of this Lease be in
possession of paid up policies which are in full force and effect.
7.19 Not to register this Lease against the title to the demised premises.
8. COVENANTS OF THE LANDLORD
The Landlord covenants with the Tenant:
8.1 For quiet enjoyment,
8.2 To maintain and operate during normal office hours an efficient heating
and air-conditioning system, if any, in the building of which the demised
premises form a part.
8.3 To provide standard building cleaning and janitorial services in the
building's common areas, during the term of this Lease; the Landlord to be
responsible for the performance of such work, but not for negligent or dishonest
acts on the part of the person or persons employed by the Landlord or its
contractors to perform such work.
8.4 To provide adequate washrooms for the use of the Tenant in common with
other tenants.
8.5 Subject to Article 11.1 provide elevator service at all times,
8.6 To provide access to the demised premises for the Tenant, its employees
and agents, and all other persons lawfully requiring communication with it
during normal business hours as set out in the rules and regulations attached
hereto and at other times subject to such security and control measures as the
Landlord may from time to time institute.
8.7 To repair and keep in repair as may be necessary, the common areas, roof,
exterior and structure of the building of which the demised premises form a part
and the plumbing, heating, electrical and ventilating systems, equipment, and
apparatus thereof, and to make all necessary structural repairs and
replacements.
9. ALTERATIONS AND INSTALLATIONS
9.1 The Tenant shall make no alterations, installations, removals, additions
or improvements in or about the demised premises without the Landlord's prior
written consent and in the event of such consent the Tenant shall have such work
performed by competent contractors and sub-contractors to whom the Landlord
shall have approved, such approval not to be unreasonably withheld (except that
the Landlord may require that the Landlord's contractors and sub-contractors be
engaged for any plumbing, mechanical or electrical work) at Tenant's sole
expense. Any out-of-pocket expense incurred by the Landlord in connection with
any such request
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for approval shall be paid by the Tenant to the Landlord promptly upon receipt
of invoices therefor from the Landlord.
9.2 All alterations, additions, partitions and built in cabinet-work and
fixtures, and wall to wall carpeting and fixtures whether placed there by the
Tenant or the Landlord, shall at the expiration or earlier termination of this
lease become the Landlord's property without compensation therefor to the Tenant
and shall not be removed from the demised premises by the Tenant at any time.
All articles or personal property and all furniture, business and trade
fixtures, and machinery and equipment, owned or installed by the Tenant at the
expense of the Tenant in the demised premises shall remain the property of the
Tenant and may be removed by the Tenant at its expanse. Providing that the
Tenant shall repair any damage to the demised premises or the building in which
the demised premises are located caused by the aforesaid removal. If the Tenant
does not remove its property forthwith after written demand by the Landlord,
such property shall if the Landlord elects be deemed to become the Landlord's
property or the Landlord may remove the same at the expense of the Tenant the
cost of such removal to be paid by the Tenant forthwith to the Landlord on
written demand, the Landlord not to be responsible for any loss or damage to
such property because of such removal.
10. EXAMINATION OF DEMISED PREMISES
10.1 The Tenant shall examine the demised premises and the building before
taking possession hereunder and acknowledges that it is taking the demised
premises in an as is condition except for any improvements as agreed to in
writing by the parties hereto. No promise of the Landlord to alter, remodel or
improve the demised premises or the building, except for any improvements as
agreed to in writing by the parties hereto, and no representation respecting the
condition of the demised premises or the building has been made by the Landlord,
11. LIABILITY FOR PROPERTY DAMAGE AND/OR PERSONAL INJURY
11.1 The Landlord shall not be responsible for any damage which may be caused,
nor shall the Tenant be entitled to claim any diminution of rent or other
compensation, should it become advisable in the sole discretion of the Landlord,
for any reasonable cause to stop the operation of the elevators or heating
apparatus or air-conditioning apparatus or electric light or water service, or
any of the engines, boilers or machinery appertaining thereto, but in such case
the Landlord shall use its best efforts to recommence any such operations, as
may have been effected and the Landlord shall not be liable for any damage which
may be caused to the Tenant or to the employees of the Tenant through the use
made by them of such elevators or for unavoidable delay in furnishing heat or in
the operating of the elevators or air-conditioning system. The Landlord shall
not be liable for any damage in or upon the demised premises, arising from any
reason or cause whatsoever, or for any personal injury sustained by the Tenant,
its officers or employees, or other persons, or for any property loss, howsoever
occurring, and the Tenant shall have no right to any diminution of rent in any
of such cases; and without restricting the generality of the foregoing, the
Landlord shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow or leaks from any part of the building or from pipes, appliances or
plumbing works or from the roof, street or sub-surface, or from any other place,
or by dampness, or for any such injury or damage by any cause of whatsoever
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nature, provided such injury or damage is not caused by the negligence of the
Landlord or its servant or agent,
11.2 The Tenant shall reimburse the Landlord for all expenses, damages, losses
or fines incurred or suffered by the Landlord by reason of any breach, violation
or non-performance by the Tenant of any covenant or provision of this lease or
by reason of damage to persons or property caused by the Tenant, its servants or
agents.
11.3 The Tenant shall give the Landlord immediate notice in case of fire or
accident in the demised premises or in the building of which the demised
premises form a part.
12. DAMAGE TO OR DESTRUCTION OF THE DEMISED PREMISES
12.1 Should the demised premises or the building containing them be damaged by
fire or other casualty so as to render the demised premises partially or wholly
unfit for occupancy:
(a) if the damage cannot reasonably be repaired within One Hundred and
Twenty (120) days after the date thereof, either party may terminate
this lease as of the said date by notice to the other given within
Thirty (30) days after such damage, and in that case the Tenant
shall immediately surrender the demised premises to the Landlord and
shall pay rent accrued to the date on which the said damage occurred
but shall not be entitled to any damages or compensation;
(b) if the damage can reasonably be repaired within One Hundred and
Twenty (120) days after the date thereof or if neither the Tenant
nor the Landlord shall have given notice of termination pursuant to
the provisions of clause (a) the Landlord shall forthwith commence
and carry out with due diligence the repair thereof, and this lease
shall continue in full force and effect save that the rent hereby
reserved shall abate proportionately, having regard to such part of
the demised premises as has been rendered unfit for occupancy, until
the repairs have been completed;
(c) provided that there shall be no abatement of rent:
(i) if such fire or other casually shall be caused by or be due to
the negligence of the Tenant, its servants, agents, employees
or invitees;
(ii) for any time required for the replacement or repair of any
property of the Tenant.
13. EXPROPRIATION
13.1 If the demised premises shall be acquired or condemned by any authority
having the power for such acquisition or condemnation for any public or
quasi-public use or purpose then and in that event the term of this lease shall
cease from the date of entry by such authority. If only a portion of the demised
premises shall be so acquired or condemned this lease shall cease and terminate
at the Landlord's option and if such option is not exercised by the Landlord an
equitable
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adjustment of rent payable by the Tenant for the remaining portion of the
demised premises shall be made. In either event, however, and whether all or
only a portion of the demised premises shall be so acquired or condemned,
nothing herein contained shall prevent the Landlord or the Tenant or both from
recovering damages from such authority for the value of their respective
interests or for such other damages and expenses allowed by law.
14. OPERATING EXPENSES AND ADDITIONAL RENT
14.1 The term operating expenses as used herein shall mean and include all
expenses incurred and payable by the Landlord in the operation, maintenance,
repair and management of the lands and premises described in Schedule "B"
hereto, being expenses which are ordinarily chargeable against income in
accordance with good accounting practice and without restricting the generality
of the foregoing shall include:
(a) all taxes, rates, duties, levies and assessments whatsoever, whether
municipal, parliamentary, school or otherwise, charged in a calendar
year upon the buildings on the lands, the lands, and all
improvements now or hereafter thereon, or upon the Landlord on
account thereof, including any Corporation Capital Tax and Goods and
Services Tax (or like taxes instituted in substitution therefor) and
including all taxes, rates, duties, levies and assessments for local
improvements, and including all taxes, rates, duties, levies and
assessments whatsoever imposed on rents or imposed on the Landlord
with respect to rents but excluding taxes otherwise payable on
income or profits;
(b) fuel and operating expenses incurred in heating, ventilating and
air-conditioning the building;
(c) utility expenses, water rates, licences and insurance;
(d) electric power and lighting expenses, other than those referred to
in Article 7.2 hereof;
(e) salaries and wages (including the employee benefits, workers'
compensation) and the costs of independent service contracts
incurred in the cleaning, maintenance and/or operation of the
building, grounds and parking areas, including snow removal and
gardening services;
(f) the costs of cleaning, washroom and other building supplies;
(g) administration and management expenses, accounting, audit and legal
expenses and miscellaneous general expenses, but excluding debt
interest, and capital retirement of debt;
(h) depreciation (computed by the Landlord in accordance with accounting
principles generally accepted in the Province of British Columbia)
of fixtures and equipment which by their nature require periodic
replacement, but excluding buildings and structures and permanent
parts thereof;
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(i) in any given period a portion of the capital cost of and
installation cost of any machinery, electrical services,
air-conditioning, and air-exchange equipment, plumbing, devices,
equipment replacing or upgrading services installed in, or utilized
in connection with, the building, whether installed in the building
in the first instance as part of its original design, or thereafter,
which portion shall be determined by the Landlord amortizing the
costs over the reasonable expected life of the same as determined by
the Landlord.
14.2 The term "Proportionate Share" means the amount which bears the same
proportion to an amount of operating expense as the Rentable Area bears to the
total rentable areas of the building.
14.3 The Landlord shall estimate, from time to time, operating expenses and the
Proportionate Share in advance for each year, or shorter period as the Landlord
may determine, during the term hereof, and the Tenant agrees to pay as
additional rent such estimated Proportionate Share to the Landlord in equal
monthly installments, each in advance. A statement showing details of the
estimated Proportionate Share, including the commencement and completion date of
the period for which the estimate is made, shall, at the Tenants expense, be
submitted to the Tenant before the beginning of each year, or a portion thereof,
of the term hereof, for which the estimate is made.
14.4 The Landlord shall furnish to the Tenant, on or before the day being one
month after the last date for which an estimate of the Proportionate Share is
made, a statement of operating expenses and the Proportionate Share during the
immediately preceding year, or portion thereof, as the case may be, during the
term hereof. Within ten (10) days after delivery of such statement, the Landlord
or the Tenant (as the case may be) shall make the appropriate adjusting payment
in the amount of the difference between the Proportionate Share actually paid by
the Tenant during the preceding year or portion thereof and the actual
Proportionate Share that should have been paid on the basis of the Proportionate
Share set out in such statement.
14.5 It is the purpose, intent and agreement of the Landlord and the Tenant
that the annual rent payable hereunder shall be completely and absolutely
payable net to the Landlord, and the Tenant covenants and agrees with the
Landlord that this lease shall yield net to the Landlord the rents of this lease
hereinbefore set out during the whole term thereof, free and clear of any
charges, assessments, impositions or deductions or set-off and under no
circumstances or conditions, whether now existing or hereafter arising, or
whether beyond the present contemplation of the parties shall the Landlord be
expected or obligated by virtue of this lease or ownership of the land or
otherwise to make any payment of any kind whatsoever or be under any obligation
or liability hereunder or in respect of the said land except as herein otherwise
expressly set forth, and that all costs, expenses, obligations and liabilities
of every kind and nature whatsoever relating to the Rentable Area which may
arise or become due during or in respect of the term of this lease shall be
payable and will be paid by the Tenant, and the Tenant covenants to indemnify
and save harmless the Landlord from and in respect of any and all such costs,
expenses, obligations and liabilities.
<PAGE> 10
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15. DEFAULT
15.1 The Tenant further covenants with the Landlord that if any payments of
Basic Rent, or additional rent as hereinbefore provided, or any part thereof,
whether the same are demanded or not, are not paid when they become due, or if
the Tenant shall violate or neglect any covenant, agreement or stipulation
herein contained on its part to be kept, performed or observed or in case the
demised premises shall be vacated or become vacated or remain unoccupied for
fifteen (15) days, then and in any such case the Landlord in addition to any
other remedy now or hereafter provided by law may at its option cancel and annul
this lease forthwith and re-enter and take possession immediately by force if
necessary without any previous notice of intention to re-enter and may remove
all persons and property therefrom and may use such force and assistance in
making such removal as the Landlord may deem advisable to recover at once full
and exclusive possession of the demised premises and such re-entry shall not
operate as a waiver or satisfaction in whole or in part of any right, claim or
demand arising out of or connected with any breach or violation by the Tenant of
any covenant or agreement on its part to be performed.
15.2 If the term hereby granted or any of the goods or chattels of the Tenant
shall be at any time seized or taken in execution or attachment by any creditor
of the Tenant or if the Tenant shall become insolvent or bankrupt or make any
assignment for the benefit of creditors, or being an incorporated company if
proceedings be begun to wind-up the said company, or in case of non-payment of
rent at the times herein provided, or in case the premises or any part thereof
become vacant and unoccupied for a period of five (5) days or be used by any
other person or persons, or for any other purpose than as hereinbefore provided,
without the consent of the Landlord, this Lease shall, at the option of the
Landlord, cease and be void, and the term hereby created expire and be at an
end, anything hereinbefore to the contrary notwithstanding, and the then current
month's rent and three (3) months' additional rent shall thereupon immediately
become due and payable, and the Landlord may re-enter and take possession of the
premises as though the Tenant or his servants or other occupants of the premises
were holding over after the expiration of the said term, and the term shall be
forfeited and void.
16. DISTRESS
16.1 Whensoever the Landlord shall be entitled to levy distress against the
goods and chattels of the Tenant it may use such force as it may deem necessary
for the purpose and for gaining admission to the demised premises without being
liable to any action in respect thereof or for any loss or damage occasioned
thereby and the Tenant hereby expressly releases the Landlord from all action
proceedings, claims or demand whatsoever for or on account or in respect of any
such forcible entry or any loss or damage sustained by the Tenant in connection
therewith,
17. LANDLORD'S EXPENSES ENFORCING LEASE
17.1 In the event that it shall be necessary for the Landlord to retain the
services of a Solicitor or any other proper person for the purpose of assisting
the Landlord in enforcing any of its rights hereunder in the event of default on
the part of the Tenant it shall be entitled to collect from the Tenant the cost
of all such services as if the same were rent reserved and in arrears hereunder.
<PAGE> 11
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18. RE-LOCATION
18.1 The Tenant acknowledges and agrees that the Landlord may in its discretion
at any time during the term of this Lease or any renewals, re-locate the Demised
Premises to a reasonable location within the building upon Sixty (60) days
written notice to the Tenant, which relocation shall be to premises of
comparable size and on the same terms and conditions as those contained in this
Lease. If the Tenant refuses to accept the new location within thirty (30) days
of receiving the Landlord's notice, the Landlord may, at the Landlord's option,
terminate this Lease. All reasonable third party out-of-pocket moving expenses
directly incurred by the Tenant in connection with the re-location shall be
borne by the Landlord and the Landlord will construct the new premises for the
Tenant to the same standard as applied to the old premises. The Tenant agrees to
execute such documentation as may be required by the Landlord to give effect to
the relocation herein contemplated including any lease amending agreement
requested by the Landlord.
19. WAIVER
19.1 The failure of either party to insist upon strict performance of any
covenant or condition contained in this lease or in the rules and regulations
attached hereto shall not be construed as a waiver or relinquishment for the
future of any such covenant, condition or rules and regulations. The acceptance
of any rent or the performance of any obligation hereunder by a person other
than the Tenant shall not be construed as an admission by the Landlord of any
right, title or interest of such person as a sub-Tenant, assignee, transferee or
otherwise in the place and stead of the Tenant.
20. HOLDOVER
20.1 If the Tenant shall holdover after the expiration of the term granted and
the Landlord shall accept rent the new tenancy thereby created shall be deemed a
monthly tenancy and not a yearly tenancy and shall be subject to the covenants
and conditions herein contained insofar as the same are applicable to a tenancy
from month to month.
21. RULES AND REGULATIONS
21.1 The Tenant and its servants, employees and agents shall observe faithfully
and comply strictly with the rules and regulations attached hereto as Schedule
"C" and made part of this lease and such other and further reasonable rules and
regulations as the Landlord may from time to time adopt. Written notice of any
additional Rules and Regulations shall be given to the Tenant. Nothing in this
lease contained shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations or the terms, covenants or
conditions in any other lease against any other Tenant of the building of which
the demised premises form a part, and the Landlord shall not be liable to the
Tenant for violation of the same by any other Tenant its servants, employees,
agents, visitors or licencees.
<PAGE> 12
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22. INABILITY TO PERFORM
22.1 The Landlord does not warrant that any service or facility provided by it
hereunder will be free from interruptions caused or required by maintenance,
repairs, renewals, modifications, strikes, riots, insurrections, labour
controversies, accidents, fuel shortages, Governmental intervention, force
majeure, act of God or other cause or causes beyond the Landlord's reasonable
care and control. No such interruption shall be deemed an eviction or
disturbance of the Tenant's enjoyment of the demised premises nor render the
Landlord liable in damages to the Tenant nor relieve the parties from their
obligations under this lease provided that the Landlord shall without delay take
all reasonable steps to remove the cause of such interruptions.
23. NOTICES
23.1 All notices, demands and communications hereunder to either party shall be
given by personal delivery or by registered mail, postage prepaid, and if
intended for the Landlord shall be addressed to P.O. Box 74587, 2803 West 4th
Avenue, Vancouver, British Columbia, V6K 4P4 and if intended for the Tenant
shall be addressed to 150-1152 Mainland Street, Vancouver, British Columbia, or
at such other address as either party may notify the other of in writing, and
any such notice, demand or communications shall be effective as of the day of
such personal delivery or as of two (2) days following the date of such posting,
as the case may be.
24. GUARANTOR
24.1 The Guarantor, if any, for divers valuable consideration hereby covenants,
promises and agrees with the Landlord that it will at all times pay or cause to
be paid to the Landlord the rents hereby reserved and other monies hereby
secured at the time or times respectively appointed therefor, and it will
observe and perform or cause to be observed or performed all the covenants,
terms, provisions, stipulations and conditions herein contained on the part of
the Tenant to be observed and performed and that it will at all times indemnify,
protect and save harmless the Landlord from all loss, costs and damage in
respect of this lease and every matter and thing herein contained. No
indulgences shown by the Landlord in respect of any default by the Tenant which
may arise under this lease and no extension or extensions granted by the
Landlord to the Tenant for payment of the monies hereby secured or for the
doing, observing and performing of any covenant, agreement, matter or thing
herein contained to be done, observed or performed by the Tenant nor any
dealings between the Landlord and the Tenant shall in anywise modify, alter,
vary or in anywise prejudice the Landlord or affect the liability of the
Guarantor in any ways under this covenant which shall continue and be binding on
the Guarantor as well after as before default and as well during as after expiry
of this lease until the said monies are fully paid and satisfied.
25. EXECUTION OF LEASE
25.1 It is agreed that the Landlord shall not be required to deliver a copy of
this Lease in registrable form under the Land Titles Act.
<PAGE> 13
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26. INTERPRETATION
26.1 Where required the singular number shall be deemed to include the plural
and the neuter gender the masculine or feminine. Where there is more than one
Tenant, or more than one guarantor they shall be jointly and severally bound to
the fulfilment of their obligations hereunder. The captions herein are for
convenience only and shall not constitute a part of this lease. The definition
of any words used in any article of this lease shall apply to such words when
used in any other article hereof whenever the context is consistent.
26.2 This Indenture shall be construed in accordance with the laws of British
Columbia.
This Indenture shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
permitted assigns.
IN WITNESS WHEREOF the parties hereto have affixed their corporate seals in the
presence of their officers duly authorized in that behalf, or have hereunto set
their hands and seals, as the case may be, on the day and year first above
written.
THE COMMON SEAL of LYCO HOLDINGS )
LTD. was hereunto affixed in the presence )
of: )
)
[SIG] ) C/S
- ------------------------- )
Authorized Signatory )
)
)
)
)
)
THE COMMON SEAL of NETSENTRY )
TECHNOLOGY INC. was hereunto affixed )
in the presence of )
)
[SIG] ) C/S
- ----------------------------------- )
Authorized Signatory )
)
)
- ----------------------------------- )
Authorized Signatory )
)
<PAGE> 14
SCHEDULE "A"
RENTABLE AREA OF THE PREMISES IS 757 SQUARE FEET
[MAP]
<PAGE> 15
SCHEDULE "B"
LOCATION OF OFFICE BUILDING
ALL AND SINGULAR that certain parcel or tract of land and premises situate,
lying and being in the City of Vancouver, in the Province of British Columbia,
and being composed of:
Parcel Identifier: 017-316-391
Lot 2 of Lot 38
Block 76 District Lot 541
Plan LMP301
<PAGE> 16
SCHEDULE "C"
RULES AND REGULATIONS
1. The entrances, vestibules, passages, corridors, halls, elevators and
stairways shall not be encumbered or obstructed by Tenant, Tenant's agents,
servants, employees, licensees or visitors, or be used by them for any purpose
other than for ingress and egress to and from the demised premises. Landlord
reserves the right to restrict and regulate the use of aforementioned public
areas of the building by Tenants, Tenant's agents, employees, servants,
licensees and visitors and by persons making deliveries to Tenant, (including
if the building is elevatored, but not limited to, the right to allocate certain
elevator or elevators, if any, and the reasonable hours of use thereof for
delivery service) and the right to designate which building entrance or
entrances shall be used by persons making deliveries in the building.
2. No awnings or other projections shall be attached to the outside walls of
the building. No curtains, blinds, shades or screens shall be attached to, or
hung in, or used in connection with, any window or door of the demised premises,
without the prior written consent of Landlord. Such curtains, blinds, shades,
screens or other fixtures must be of a quality type, design and colour, and
attached in the manner approved by the Landlord.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on the outside of the Demised Premises
or the building without the prior written consent of Landlord. In the event of
the violation of the foregoing by Tenant, Landlord may remove same without any
liability, and may charge the expense incurred by such removal to Tenant.
Interior signs on doors shall be inscribed, painted, or affixed for Tenant by
Landlord or by sign painters, first approved by Landlord, at the expense of
Tenant, and shall be of a size, colour, and style acceptable to Landlord.
4. Building directory tablet will be furnished and installed at the expense
of Landlord and the number of listings thereon for Tenant shall be at the
discretion of Landlord.
5. The windows and doors, and, if any, the sashes, sash doors, and skylights,
that reflect or admit light and air into the halls, passageways, or other public
places in the building shall not be covered or obstructed by Tenant, nor shall
any bottles, parcels, or other articles be placed on the windowsills.
6. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the building, nor placed in the halls, corridors, or
vestibules without the prior written consent of Landlord.
7. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed, and no
sweeping, rubbish, rags or other substances shall be thrown therein. All damages
resulting from any misuses of the fixtures by Tenant, its servants, employees,
agents, visitors, or licensees, shall be borne by Tenant.
8. Tenant shall not mark, paint, drill into, or in any way deface any part of
the demised premises or the building. No boring cutting or stringing of wires
shall be permitted except with the prior written consent of Landlord and as
Landlord may direct. Only contractors approved in writing by Landlord may be
employed by Tenant for making repairs, changes or any improvements to the
demised premises. Tenant shall, for the quiet enjoyment of other tenants,
provide floor coverings in the demised premises sufficient to eliminate or
deaden sound from travelling between floors or
<PAGE> 17
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to adjacent premises. Tenant, however, shall not lay floor coverings so that the
same shall come in direct contact with the floor of the demised premises, and,
if wall to wall carpeting, linoleum or other similar floor coverings are desired
to be used and such use is approved by Landlord, an interlining of builders
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use of cement or similar adhesive material being
expressly prohibited. Metal cabinets shall be set on a non-corrosive pad
wherever the floors are tiled.
9. No bicycles, vehicles or animals of any kind shall be brought into or kept
in or about the building or the demised premises excepting that those vehicles
so authorized by the Landlord may enter and be kept in the building's parking
facilities.
10. No space in the building shall be used for manufacturing or for lodging,
sleeping, or any immoral or illegal purposes. No auction sales shall be made
by Tenant without the prior written consent of Landlord.
11. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighbouring buildings
or premises or those having business with them whether by the use of any musical
instrument, radio, television, talking machine, unmusical noise, whistling,
singing, or in any other way. Tenant shall not throw anything out of the doors,
windows, or skylights, if any, or down the passageways, stairs or elevator
shafts nor sweep anything into the corridors, hallways or stairs of the
building.
12. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by Tenant, nor shall any changes whatsoever be made to existing
locks or the mechanics thereof except by the Landlord, at its option. Tenant
shall not permit any duplicate keys to be made, but additional keys as
reasonably required shall be supplied by the Landlord when requested by the
Tenant in writing and such keys shall be paid for by the Tenant, and upon
termination of this Lease, the Tenant shall surrender to the Landlord all keys
of the demised premises and other part or parts of the building.
13. All removals or the carrying in or out of all safes, freight, furniture,
or bulky matter of any description must take place during the hours which
Landlord may determine from time to time. Landlord reserves the right to inspect
all freight to be brought into the building and to exclude from the building all
freight which violates any of these Rules and Regulations or the Lease of which
these Rules and Regulations are a part.
14. Tenant shall not occupy or permit any portion of the demised premises to
be occupied for the possession, storage, manufacture, or sale of narcotics or
drugs.
15. The Landlord shall retain the right to prescribe the weight and proper
position of any metal safes or other heavy articles which the Tenant may wish to
bring upon the demised premises and all damage done to the building or any part
thereof, by such safe or heavy article being taken into, kept within or removed
from the building by or for the Tenant shall be made good and paid for by the
Tenant.
16. Tenant shall not use the name of the building or the Owner in any
advertising without the express consent in writing of Landlord. Landlord shall
have the right to prohibit any
<PAGE> 18
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advertising by any Tenant which, in any way, tends to impair the reputation of
the building or its desirability as a building for offices, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such advertising.
17. Each Tenant, before closing and leaving the demised premises at any time,
shall see that all entrance doors to the demised premises are closed and locked.
18. Each Tenant shall, at its expense, provide artificial light for the
employees of Landlord or its contractors while doing janitors' service or other
cleaning and in making repairs or alterations in said demised premises. Landlord
shall be in no way responsible to any Tenant for loss of property from the
demised premises, however occurring, or for damage done to the furniture or
other effects of any Tenant by Landlord's agents, other janitors, cleaners,
employees, or contractors doing work in the demised premises.
19. The requirements of Tenants will be attended to only upon application to
the Building Manager or such other authorized representative as the Landlord may
designate in writing. Landlord's employees shall not perform any work or do
anything outside of their regular duties, unless under specific instructions
from the office of the Landlord from the Building Manager or other
representatives as aforesaid.
20. Canvassing, soliciting, and peddling in the building are prohibited, and
Tenant shall co-operate to prevent the same.
21. No hand trucks, except those equipped with rubber tires and side guards,
shall be used in any space or in public halls of the building, either by Tenant
or by jobbers or others.
22. Without first obtaining Landlord's written permission, Tenant shall not
install, attach, or bring into the demised premises any equipment, other than
normal office equipment such as electric typewriters, calculators, and the like,
or any instrument, duct, refrigerator, air conditioner, water cooler, or any
other appliance requiring the use of gas, electric current, or water. Any breach
of this covenant will authorize Landlord to enter the demised premises, remove
whatever Tenant may have so installed, attached, or brought in, and charge the
cost of such removal and any damage that may be sustained thereby, as additional
rent, payable at the option of Landlord, immediately or with the next month's
rent accruing under this Lease.
23. Landlord reserves the right to exclude from the building during
non-business hours - such as before 7:30 a.m. and after 5:30 p.m. on weekdays
and during all hours on Saturdays, Sundays and full holidays - all persons not
authorized by Tenant in writing, by pass, or otherwise, to have access to the
building and the demised premises. Landlord from time to time shall provide
Tenant with a schedule of such non-business hours. Each Tenant shall be
responsible for all persons authorized to have access to the building and shall
be liable to Landlord for all of their acts while in the building. When
security service is in effect during non-business hours, entrance, deliveries,
and exits shall be made via designated entrance and Landlord may require all
persons to sign a register on entering and leaving the building.
24. Tenant shall at all times keep draperies adjusted to block the direct rays
of the sun in order to avoid overloading the air conditioning systems, if any.
<PAGE> 19
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25. Neither Tenant nor its servants, employees, agents, visitors, or licensees
shall at any time bring or keep upon the demised premises any inflammable,
combustible, or explosive fluid, chemical or substance, nor do nor permit to be
done anything in conflict with any insurance policy which may or might be in
force upon the Building or any part thereof or with the laws relating to fires,
or with the regulations of the Fire Department or the Health Department, or with
any of the rules, regulations or ordinances of the City in which the demised
premises are located, or of any other duly constituted authority.
26. Tenant shall not, without first obtaining Landlord's prior written
approval, do any cooking, conduct any restaurant, luncheonette, or cafeteria for
the sale or service of food or beverages to its employees or to others, or cause
or permit any odours of cooking or other processes of any unusual or
objectionable odours to emanate from the demised premises. Tenant shall not,
without first obtaining Landlord's prior written approval, install or permit the
installation or use of any food, beverage, cigarette, cigar, or stamp dispensing
machine; or permit the delivery of any food or beverage to the demised premises,
except by such persons delivering the same as shall be approved by Landlord. No
food or beverages shall be carried in the public halls or elevators except in
closed containers.
27. Tenant may request heating and/or air conditioning during other periods in
addition to normal working hours by submitting its request in writing to the
Building Manager's office or the office of such other authorized representative
as the Landlord may designate in writing no later than 12 o'clock noon the
preceding workday (Monday through Friday). The request shall clearly state the
start and stop hours of the "off-hour" service. Tenant shall submit to the
Building Manager a list of personnel who are authorized to make such requests.
Charges are to be determined when Building is in operation and shall be fair and
reasonable and reflect the additional operating costs involved and the necessity
of having maintenance personnel on duty for a full shift regardless of the
actual time the equipment is in use. If two or more Tenants originate such
requests, charges shall be pro-rated for hours of simultaneous operation.
28. The Tenant will ensure the demised premises are kept clean and free of
waste and debris at all times. The Tenant must use the janitorial service
recommended by the Landlord at least once each week during the term of the lease
unless the Tenant requires a specialized service because of the nature of the
Tenant's business.
<PAGE> 1
EXHIBIT 21. SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
NETSentry Technology, Inc. British Columbia
