U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
POWER DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2132622
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1288 Alberni Street, Suite 806, Vancouver, British Columbia, Canada V6E 4N5
(Address of registrant's principal executive offices) (Zip Code)
604.664.0484
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which
to be so Registered: Each Class is to be Registered:
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $.0001
(Title of Class)
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp, LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile: 949.660.9010
Page 1 of 26
Exhibit Index is specified on Page 23
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POWER DIRECT, INC.,
a Delaware corporation
Index to Amendment No. 2 to Registration Statement on Form 10-SB
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Item Number and Caption Page
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1. Description of Business 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
3. Description of Property 16
4. Security Ownership of Certain Beneficial Owners and Management 17
5. Directors, Executive Officers, Promoters and Control Persons 17
6. Executive Compensation - Remuneration of Directors and Officers 19
7. Certain Relationships and Related Transactions 19
8. Description of Securities 20
PART II
1. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 20
2. Legal Proceedings 21
3. Changes in and Disagreements with Accountants 22
4. Recent Sales of Unregistered Securities 22
5. Indemnification of Directors and Officers 24
PART F/S
Financial Statements F-1 through F-17
PART III
1(a). Index to Exhibits 25
1(b). Exhibits E-1
Signatures 26
</TABLE>
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Item 1. Description of Business.
Power Direct, Inc. (the "Company") was incorporated in the State of Delaware on
September 13, 1993, and maintains its principal executive offices at1288 Alberni
Street, Suite 806, Vancouver, BC V6E 4N5. The Company's offices in the United
States are located at 4291 Meridian Street, Suite 29, Bellingham, WA 98226. The
Company is currently listed on the Over-the-Counter Bulletin Board Quotation
Service under the symbol PWDR and is filing this Registration Statement on Form
10-SB in order to meet the current rules promulgated by the Securities and
Exchange Commission.
For purposes of clarification, anytime that "US$" appears in this Registration
Statement, it means the currency of the United States of America, unless
otherwise stated. Anytime that "CDN$" appears, it means the currency of Canada,
in Canadian dollars.
The Company was inactive from January 1, 1996, through November 1, 1998. In
November 1998 the Company began the process of identifying available interests
in oil and natural gas producing properties. On January 15, 1999, the Company
entered into a letter of intent with Rising Phoenix Development Group Ltd., a
Canadian corporation, located in Vancouver, British Columbia, Canada ("Rising
Phoenix"), to acquire all the assets of Rising Phoenix, including that
corporation's interest in the oil and natural gas rights on 6,360 acres located
in the Powder River Basin of eastern Wyoming (the "Wyoming Property"). That
letter of intent specifies that the Company must, among other things, pay Rising
Phoenix seventy-five thousand dollars (US$75,000) and, further, issue 3,800,000
shares of its common stock to Rising Phoenix to complete the acquisition of the
assets of Rising Phoenix. The letter of intent also provides that the Company
will appoint no more than three directors from Rising Phoenix's board of
directors to the Company's board of directors. The Company paid Rising Phoenix a
prepayment advance of Twenty-Five Thousand Dollars (US$25,000) on January 27,
1999. On or about February 24, 1999, the Company made a second prepayment
advance to Rising Phoenix of Ten Thousand Dollars (US$10,000). On or about March
29, 1999, the Company made the third repayment advance of Ten Thousand Dollars
(US$10,000). On or about April 7, 1999, the fourth prepayment advance of Ten
Thousand Dollars (US$10,000) was made by the Company. The Company made the fifth
payment of Ten Thousand Dollars (US$10,000) and the final payment of Ten
Thousand Dollars (US$10,000) on or about April 26, 1999, and on or about May 26,
1999, respectively. The Company has not transferred any of its common stock to
Rising Phoenix to complete this transaction. According to the letter of intent,
the Company is to assume all of Rising Phoenix's financial obligations
pertaining to the Wyoming Property as of January 31, 1999. In return, Rising
Phoenix agreed to deliver the Wyoming Property in good title and assign to the
Company its joint venture agreement with Derek Resources Corporation ("Derek
Resources"). Pursuant to that joint venture agreement, Derek Resources agreed to
provide up to a maximum of Three Million Five Hundred Thousand Dollars
(US$3,500,000) of improvements on or before December 31, 2000, on the Wyoming
Property in exchange for a 75% working interest in the Wyoming Property. The
Company anticipates that the site construction will commence sometime early in
the year 2000. Negotiations have begun with Bateman Engineering, Inc. and its
associate company, Silvertip Project Partners, Inc., to provide development,
financing and construction of a pilot production facility. If Derek Resources
successfully meets its obligations under the joint venture agreement, the
Company will own a 25% working interest in the Wyoming Property. If Derek
Resources fails to meet its obligations under the joint venture agreement, the
Company will obtain a 100% working interest in the Wyoming Property, including
all of the improvements financed by Derek Resources. There are no proven oil or
gas reserves on the Wyoming Property.
On January 26, 1999, the Company signed a letter of agreement with I.T.A.
Enterprises, Inc. ("I.T.A."), a Canadian company, to acquire and own a 42%
working interest in a natural gas project in west central Alberta (the "Alberta
Property"). This letter of agreement requires the Company to provide 42% of the
costs for the three-phase project, which are estimated in the letter of
agreement to be Two Hundred Thousand Dollars (CDN$200,000). As of June 10, 1999,
the Company had advanced I.T.A. a total of Twenty Thousand Three Hundred Ninety
Three Dollars (US$20,393) toward the Alberta Property project. The working
interest acquired will be subject to a 10% gross overriding royalty (that is,
4.2% of the 42% working interest shall be payable directly to Nicholas Baiton,
the royalty holder). To date, the Company has paid a deposit of eight thousand
four hundred dollars (CDN$8,400) to I.T.A. pursuant to the terms of the
agreement. It was agreed between I.T.A. and the Company that the $8,400 deposit
would be used for prospect fees and that the Company will receive a refund of
any unused portion of that deposit. Within ten (10) days of I.T.A. providing the
Company with an "Authority for Expenditures" and a cash call for Phases I and II
of
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the development of the Alberta Property, the Company will be required to advance
seventy five thousand six hundred dollars (CDN$75,600) to I.T.A., representing
the balance of the Company's 42% of the estimated costs. There can be no
assurance that the Company will have sufficient funds available to meet this
obligation in the time frame required by the letter of agreement. There are no
proven oil or gas reserves on the Alberta Property.
On February 15, 1999, the Company signed a letter of intent to acquire and own
up to a 51% ownership interest in LANSource Technologies, Inc., a Canadian
company ("LANSource"). LANSource is a developer of fax and data communications
software. LANSource's primary products are WINport, a modem-sharing application
and FAXport, a group of software products which allows users to send and receive
faxes from their desktop computer or through their e-mail system. WINport,
FAXport, and other LANSource products are distributed through Tech Data US, Tech
Data Canada, Ingram Micro Canada, Ingram USA, Ingram UK, Ingram Italy, EMJ Date
Systems Canada, EMJ USA, Merisel US and Micro Central. WINport is currently
available in 12 languages and is distributed worldwide. In order to purchase the
first 12.5% ownership interest in LANSource, the Company was required to make,
on or before March 1, 1999, a total non-refundable deposit of three hundred
thousand dollars (CDN$300,000), which payment was timely made to LANSource by
the Company. The letter of intent contemplated that, on or before March 31,
1999, the Company and LANSource would enter into a formal Purchase and Sale
Agreement. Upon the execution of that agreement, the Company would be required
to make an additional non-refundable deposit of two hundred thousand dollars
(CDN$200,000). The letter of intent also stated that in the event that the
parties, for whatever reason, were unable to finalize the Purchase and Sale
Agreement by March 31, 1999, than the whole transaction between the Company and
LANSource would be considered null and void and LANSource would be entitled to
retain all deposits. Because of delays by LANSource in preparing the formal
Purchase and Sale Agreement, as of April 8, 1999, the Company and LANSource had
not finalized a formal agreement. The Company is taking appropriate action to
resolve this dispute with LANSource. In the event this dispute is resolved, and
a formal Purchase and Sale Agreement is finalized, then the Company plans to
meet its obligation to make additional deposits of Five Hundred Thousand Dollars
(CDN$500,000) and One Million Dollars (CDN$1,000,000). There is no assurance
that the Company can meet those financial obligations. Should the Company meet
the aforementioned financial obligations, the Company will have the option to
purchase an additional 12.5% interest in LANSource for Three Million Dollars
(CDN$3,000,000) by delivering such funds to LANSource on or before September 30,
1999. Should the Company successfully acquire 25% of LANSource, it will then
have the option to purchase an additional 26% ownership interest by delivering
Twenty Million Dollars (CDN$20,000,000) to LANSource on or before September 30,
2000. Moreover, the letter of intent provided that the Company would issue
1,200,000 restricted shares of common stock to Marc Bisnaire, the President of
LANSource, on the signing of the letter of intent. Those shares have not yet
been issued. In addition, the Company is required to deliver to Mr. Bisnaire an
additional 1,200,000 restricted shares of its common stock should it elect to
purchase the additional 12.5% interest in LANSource. The Company's ownership
interest in LANSource is contingent upon the Company making payments to
LANSource in specific installments, and there is presently a dispute between the
Company and LANSource regarding the Company's acquisition of that ownership
interest. The Company's ownership interest in LANSource is also contingent upon
the issuance, by the Company, of certain shares of its common stock to Marc
Bisnaire, President of LANSource, which shares have not been issued. The Company
is taking and will continue to take, the action it believes is appropriate to
resolve its dispute with LANSource.
On or about June 18, 1999, the Company entered into an Asset Purchase Agreement
("J&S Agreement") with J&S Overseas Holdings, of Grand Cayman, Cayman Islands
("J&S Overseas"). Pursuant to the J&S Agreement, the Company agreed to purchase
from J&S Overseas, and J&S Overseas agreed to sell, an URL registered as
"CardStakes.com". In exchange for the URL, the Company agreed to pay US$240,000
and grant to J&S Overseas the rights to purchase 1,000,000 shares of the
Company's $.0001 par value common stock. These rights are exercisable at a
purchase price of US$0.30 per share, and all shares purchased will be
"restricted securities" subject to the limitations and restrictions regarding
resale and distribution specified by Rule 144. As of September 15, 1999, The
Company had met all of its financial obligations under the J&S Agreement.
On or about September 1, 1999, the Company entered into an Asset Purchase
Agreement ("Holm Agreement") with Holm Investment Ltd., a Canadian corporation
("Holm"). Pursuant to the Holm Agreement, the Company agreed to purchase from
Holm, and Holm agreed to sell to the Company, three (3) Universal Resource
Locators ("URL's") registered as "GREETINGCARDLOTTO.NET", "E-CARDLOTTO.NET" and
"CARDLOTTO.NET". In exchange
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for the 3 URL's, the Company agreed to issue Holm 1,000,000 warrants to purchase
the Company's $.0001 par value common stock at a purchase price of US$0.25 per
share. The warrants are exercisable for a period of two (2) years from the date
of issuance and all common stock purchased pursuant to those warrants will be
"restricted securities" subject to the limitations and restrictions regarding
resale and distribution specified by Rule 144. The warrants have not been
issued. The Company anticipates that the sale will close in or around November
of 1999.
Business of Company's Subsidiary. On February 19, 1999, the Company caused
PDTech.com, a Nevada corporation, to be formed as a subsidiary of the Company.
On or about June 8, 1999, PDTech.com changed its name to CardStakes.com. The
Company anticipates that CardStakes.com will invest in Internet companies and
related technology, and further anticipates that the Company's interest in
LANSource, when and if acquired as specified below, will be transferred to this
new subsidiary.
On or about April 28, 1999, the Company entered into a licensing agreement
("Compte Agreement") with Compte De Sierge Accomodative Corp., a corporation
incorporated in Panama City, Panama ("Compte De Sierge"). Compte De Sierge
worked in association with a group of programmers doing business as E-Card. The
Compte Agreement specifies, among other things, that the Company will have the
worldwide right to utilize and commercially exploit certain software systems and
related proprietary technology relating to the operation of the Greeting Card
Lotto, hereinafter referred to as "CardStakes.com". The CardStakes.com
technology was developed and designed by Mr. Conrado Beckerman, a director of
Compte De Sierge, and a team of programmers hired by CardStakes.com.
CardStakes.com has not produced any historical revenue upon which an estimate of
potential revenue can be determined.
The Compte Agreement also provides for three equal cash payments of CDN$100,000
to Compte by the Company as partial consideration pursuant to the Compte
Agreement. The first such payment was due upon execution of the Compte
Agreement; the second payment is due upon completion of the first phase of
testing; and the third payment is due upon completion of the second phase of
testing. The Compte Agreement also provides that the Company shall issue
6,000,000 shares of its $.0001 par value common stock in two separate issuance
transactions, each of 3,000,000 shares. All such shares shall be "restricted
shares" subject to the limitations and restrictions regarding resale and
distribution specified by Rule 144. The first issuance was to occur upon
execution of the Compte Agreement, and the second issuance shall occur upon the
commencement of operations of CardStakes.com, as specified in the Compte
Agreement. As of May 13, 1999, the Company had paid CDN$100,000 and issued
3,000,000 shares of the Company's $.0001 par value common stock as per the
Compte Agreement. On July 6, 1999, with the completion of the first phase of
testing, the Company made the second payment of CDN$100,000 pursuant to the
Compte Agreement. As of September 15, 1999, the second phase of testing had not
been completed. As such, the Company had not yet paid Compte De Sierge the third
CDN$100,000 installment or issued the final 3,000,000 shares. On or about August
16, 1999, with the completion of the second phase of testing, the Company
requested that Compte De Sierge provide the Company with duplicate copies of all
Compact Discs and files necessary for the operation of CardStakes.com. E-Card
had custody and control of those items requested by Power Direct. On or about
August 23, 1999, Compte De Sierge denied the Company's request stating that a
conflict among its programmers and E-Card prevented delivery of such items. This
denial by Compte De Sierge effectively negated any and all contractual
obligations the Company had to Compte De Sierge under the Compte Agreement. On
or about August 30, 1999, a meeting between the principals of Compte De Sierge
and the Company was held, whereby Compte De Sierge agreed to discontinue any
further association or involvement with E-Card. Compte De Sierge also agreed to
retain new programmers. Compte De Sierge also agreed to revise and amend the
April 28, 1999 agreement to reflect the above change. Compte De Sierge and the
Company agreed to change the title of the agreement to the "Proprietary
Technology Usage - License Agreement" (Attached as an Exhibit to this Amendment
No. 2 to the Company's Registration Statement on Form 10-SB). As of November 1,
1999, Power Direct has met all of its financial obligations pursuant to the
Compte Agreement. Except for the contractual relationship between Power Direct
and Compte De Sierge memorialized in the Compte Agreement, and the consulting
services provided to CardStakes.com by Mr. Beckerman, there are no other
affiliations or relationships between either the Company and Compte De Sierge or
CardStakes.com and Compte De Sierge.
On or about May 5, 1999, the Company agreed to enter into an Asset Purchase
Agreement ("On-line Agreement") with On-line Asset Courtesy Inc., a corporation
incorporated in Panama City, Panama ("On-line"). Pursuant to the On-line
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Agreement, The Company agreed to purchase from On-Line, and On-line agreed to
sell, an Universal Resource Locator (URL) registered as "GREETINGCARDLOTTO.COM",
as well as associated URLs registered as "E-CARDLOTTO.COM" and "CARDLOTTO.COM".
An URL is the address of a page on the World Wide Web. Every web page has an URL
that identifies it uniquely, and which provides enough information for any
computer connected to the Internet to locate it. In exchange for the three (3)
URL's, the Company agreed to issue to On-line 2,000,000 warrants to purchase the
Company's $.0001 par value common stock at a purchase price of US$0.25 per
share. The warrants were to be exercisable for a period of two (2) years from
the date of issuance and all common stock purchased pursuant to those warrants
will be "restricted securities" subject to the limitations and restrictions
regarding resale and distribution specified by Rule 144. However, because the
On-line Agreement was never executed by all parties, the 2,000,000 warrants were
never issued, and the On-Line never delivered the right to the 3 URL's. The
Company and On-line have since mutually agreed to terminate their relationship
due to On-line's nonperformance. Except for the proposed contractual
relationship between the Company and On-line, there are no other relationships
or affiliations between either the Company and On-line or CardStakes.com and
On-line.
The Compte Agreement provides that the Company may grant sublicenses to third
parties on terms agreeable to Compte De Sierge with respect to the proprietary
technology. On or about June 15, 1999, CardStakes.com became such a third party
licensee. On or about that date, the Company and CardStakes.com entered into a
licensing agreement whereby CardStakes.com acquired 51% of the Company's rights,
title and interest under the Compte Agreement. The result is that CardStakes.com
has the right to utilize and commercially exploit certain software and related
proprietary technology allowing for the marketing and sale of greeting cards
over the Internet. The technology licensed from Compte De Sierge also allows
CardStakes.com to conduct a scratch and win whereby the winners are awarded cash
prizes and coupons. In exchange for the rights in the Compte Agreement,
CardStakes.com issued to the Company 9,106,123 shares of CardStakes.com's $.0001
par value common stock. The Company and CardStakes.com valued those assets at
$1,470,000 based on the Company's historical cost basis. Any and all assets
acquired by CardStakes.com from the Company will be recorded in CardStakes.com's
financial statements at the Company's historical cost basis. On or about August
16, 1999, Power Direct distributed 2,199,779 shares of the Company's $.0001 par
value common stock to Power Direct shareholders as dividends.
The URL, Cardstakes.com (http://www.cardstakes.com), is a website featuring
electronic greeting cards and retail merchandise link. The electronic Greeting
Card is sent to the recipient via e-mail enabling the recipient to play a
"Scratch and Win" ticket for cash, prizes and coupons. The retail merchandise
links allow the sender to purchase a gift if the sender so desires.
The Greeting Card Industry. The Company believes that the sale of greeting cards
over the Internet represents a world-wide market of over US$15 Billion per year.
Cardstakes.com will be the leader in this industry by being the first Internet
site to combine a greeting card and a scratch and win entry. CardStakes.com's
cards will feature special effects, animation, music, and custom design
abilities.
The Company believes that the traditional greeting card industry is a large and
thriving business. According to the Greeting Card Association ("GCA"), an
organization representing card publishers and allied members of the greeting
card industry organized to provide a forum to educate, communicate and share
ideas among greeting card publishers and suppliers, in 1998, the purchase of
over 7 billion greeting cards by American consumers generated a total of $7.5
billion in U.S. retail sales. Of the total greeting cards purchased annually,
roughly half are seasonal and the remaining half are everyday cards. The Company
believes that sales of alternative cards, especially non-occasion cards, are
also on the increase.
On or about May 20, 1999, the Company commissioned the firm of Hall, Dickler,
Kent, Freidman & Wood of New York, New York, to provide a legal opinion
regarding the operation of the Internet greeting card scratch and win by the
Company's subsidiary, CardStakes.com. The opinion provided by Hall, Dickler,
Kent, Freidman & Wood provided that the scratch and win activities proposed by
CardStakes.com fall under the sweepstakes and promotions laws of the United
States allowing residents of the United States to freely participate in sending
and receiving CardStakes.com's electronic greeting card, while also enabling the
recipient to play a scratch and win ticket for cash, prizes and coupons.
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Hall, Dickler, Kent, Freidman & Wood concluded that the promotion conducted by
CardStakes.com could be permissibly conducted in all United States targeted
jurisdictions.
Competition in Oil and Natural Gas Production. Competition in the oil and
natural gas production industry is intense. The Company will encounter intense
competition from other companies and entities in virtually all phases of the oil
and gas industry. The Company will compete to identify and acquire both existing
producing wells and undeveloped leases as acquisition candidates. If the Company
produces oil and gas in commercial quantities, it will encounter significant
competition in the sale of its oil and gas production. Many of these competitors
have greater financial and other resources, and more experience in the oil and
gas industry, than the Company. The Company competes directly with other
companies and businesses that have developed, and are in the process of
developing, exploration and drilling technologies which may provide those
competitors with an advantage over the Company. The Company believes it will
encounter competition from other oil and natural gas companies in all areas of
its operations, including the acquisition of exploratory prospects and proven
properties.
The Company's competitors include major integrated oil and natural gas companies
and numerous independent oil and natural gas companies, individuals, and
drilling and income programs. Many of its competitors are large,
well-established companies with substantially larger operating staffs and
greater capital resources than those of the Company and which, in many
instances, have been engaged in the oil and natural gas business for a much
longer time than the Company. Such companies may be able to pay more for
exploratory prospects and productive oil and natural gas properties and may be
able to identify, evaluate, bid for and purchase a greater number of properties
and prospects than the Company's financial or human resources permit. In
addition, such companies may be able to expend greater resources on the existing
and changing technologies that the Company believes are and will be increasingly
important to the current and future success of oil and natural gas companies.
The Company's ability to explore for oil and natural gas prospects and to
acquire additional properties in the future will be dependent upon its ability
to conduct its operations, to evaluate and select suitable properties and to
consummate transactions in this highly competitive environment.
The oil and gas industry is characterized by rapid and significant technological
advancements and introductions of new products and services utilizing new
technologies. As others use or develop new technologies, the Company may be
placed at a competitive disadvantage, and competition may force the Company to
implement such new technologies at substantial cost. In addition, other oil and
gas companies may have greater financial, technical and personnel resources that
allow them to enjoy technological advantages and may in the future allow them to
implement new technologies before the Company. There can be no assurance that
the Company will be able to respond to such competitive pressures and implement
such technologies on a timely basis or at an acceptable cost. One or more of the
technologies currently utilized by the Company or implemented in the future may
become obsolete. In such case, the Company's business, financial condition and
results of operations could be materially adversely affected. If the Company is
unable to utilize the most advanced commercially available technology, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
Oil and Gas Regulation in the United States. The Company's operations are
subject to various types of regulation by federal, state and local agencies.
Such regulations impose a comprehensive statutory and regulatory scheme with
respect to oil and natural gas operations. Among other things, these regulations
provide for (i) new well permits and well registration requirements, procedures
and fees; (ii) minimum well spacing requirements; (iii) restrictions on well
locations and underground gas storage; (iv) certain well site restoration,
groundwater protection and safety measures; (v) landowner notification
requirements; (vi) certain bonding or other security measures; (vii) various
production reporting requirements; (viii) well plugging standards and
procedures; (ix) broad state regulatory enforcement powers; (x) limitations on
the rate of allowable oil and gas production; (xi) the method of drilling and
casing wells; (xii) the surface use and restoration of properties upon which
wells are drilled; (xiii) the plugging and abandoning of wells; and (xiv) the
disposal of fluids used in connection with operations. The availability of a
ready market for oil and gas production depends upon numerous factors beyond the
Company's control. These factors include regulation of oil and natural gas
production, federal and state regulations governing environmental quality and
pollution control, state limits on allowable rates of production by well or
pro-ration unit, the amount of oil and natural gas available for sale, the
availability of adequate pipeline and other transportation and processing
facilities and the marketing of competitive
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fuels. For example, a productive natural gas well may be "shut-in" because of an
oversupply of natural gas or lack of an available natural gas pipeline in the
areas in which the Company may conduct operations. State and federal regulations
generally are intended to prevent waste of oil and natural gas, protect rights
to produce oil and natural gas between owners in a common reservoir, control the
amount of oil and natural gas produced by assigning allowable rates of
production and control contamination of the environment. Pipelines are subject
to the jurisdiction of various federal, state and local agencies. The Company is
also subject to changing and extensive tax laws, the effects of which cannot be
predicted. The following discussion summarizes the regulation of the United
States oil and gas industry. The Company believes that it is in substantial
compliance with the various statutes, rules, regulations and governmental orders
to which the Company's operations may be subject, although there can be no
assurance that this is or will remain the case. Moreover, such statutes, rules,
regulations and government orders may be changed or reinterpreted from time to
time in response to economic or political conditions, and there can be no
assurance that such changes or reinterpretations will not materially adversely
affect the Company's results of operations and financial condition. The
following discussion is not intended to constitute a complete discussion of the
various statutes, rules, regulations and governmental orders to which the
Company's operations may be subject.
Regulation of Oil and Natural Gas Exploration and Production. The Company's
operations are subject to various conservation laws and regulations. These
include the regulation of the size of drilling and spacing units or proration
units and the density of wells that may be drilled; and the pooling of oil and
gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely
primarily or exclusively on voluntary pooling of lands and leases. In areas
where pooling is voluntary, it may be more difficult to form units, and,
therefore, more difficult to develop a project if the operator owns less than
100% of the leasehold. In addition, state conservation laws establish maximum
rates of production from oil and natural gas wells, generally prohibit the
venting or flaring of natural gas and impose certain requirements regarding the
ratability of production. The effect of these regulations may limit the amount
of oil and natural gas the Company will be able to produce from its wells and
may limit the number of wells or the locations at which the Company can drill.
The regulatory burden on the oil and gas industry increases the Company's costs
of doing business and, consequently, affects its profitability. Inasmuch as such
laws and regulations are frequently expanded, amended and reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
Regulation of Sales and Transportation of Natural Gas. Federal legislation and
regulatory controls have historically affected the price of natural gas produced
by the Company and the manner in which such production is transported and
marketed. Under the Natural Gas Act of 1938, the Federal Energy Regulatory
Commission (the "FERC") regulates the interstate transportation and sale in
interstate commerce of natural gas. The FERC's jurisdiction over interstate
natural gas sales was substantially modified by the Natural Gas Policy Act,
pursuant to which the FERC continued to regulate the maximum selling prices of
certain categories of gas sold in "first sales" in interstate and intrastate
commerce. Effective January 1, 1993, however, the Natural Gas Wellhead Decontrol
Act (the "Decontrol Act") deregulated natural gas prices for all "first sales"
of natural gas, including all sales by the Company of its own production. As a
result, all of the Company's domestically produced natural gas may now be sold
at market prices, subject to the terms of any private contracts which may be in
effect. The FERC's jurisdiction over natural gas transportation was not affected
by the Decontrol Act.
The Company's natural gas sales are affected by intrastate and interstate gas
transportation regulation. Beginning in 1985, the FERC adopted regulatory
changes that have significantly altered the transportation and marketing of
natural gas. These changes were intended by the FERC to foster competition by,
among other things, transforming the role of interstate pipeline companies from
wholesaler marketers of gas to the primary role of gas transporters. All gas
marketing by the pipelines was required to be divested to a marketing affiliate,
which operates separately from the transporter and in direct competition with
all other merchants. As a result of the various omnibus rule making proceedings
in the late 1980s and the individual pipeline restructuring proceedings of the
early to mid-1990s, the interstate pipelines are now required to provide open
and nondiscriminatory transportation and transportation-related services to all
producers, gas marketing companies, local distribution companies, industrial end
users and other customers seeking service. Through similar orders affecting
intrastate pipelines that provide similar interstate services, the FERC expanded
the impact of open access regulations to intrastate commerce. More recently, the
FERC has pursued other policy initiatives that have affected natural gas
marketing. Most notable are (i) the large-scale divestiture
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of interstate pipeline-owned gas gathering facilities to affiliated or
non-affiliated companies, (ii) further development of rules governing the
relationship of the pipelines with their marketing affiliates, (iii) the
publication of standards relating to the use of electronic bulletin boards and
electronic data exchange by the pipelines to make available transportation
information on a timely basis and to enable transactions to occur on a purely
electronic basis, (iv) further review of the role of the secondary market for
released pipeline capacity and its relationship to open access service in the
primary market and (v) development of policy and promulgation of orders
pertaining to its authorization of market-based rates (rather than traditional
cost-of-service based rates) for transportation or transportation-related
services upon the pipeline's demonstration of lack of market control in the
relevant service market. It remains to be seen what effect the FERC's other
activities will have on access to markets, the fostering of competition and the
cost of doing business.
As a result of these changes, sellers and buyers of natural gas have gained
direct access to the particular pipeline services they need and are better able
to conduct business with a larger number of counter-parties. The Company
believes these changes generally have improved the Company's access to markets
while, at the same time, substantially increasing competition in the natural gas
marketplace. The Company cannot predict what new or different regulations the
FERC and other regulatory agencies may adopt, or what effect subsequent
regulations may have on the Company's activities.
In the past, Congress has been very active in the area of natural gas
regulation. However, as discussed above, the more recent trend has been in favor
of deregulation and the promotion of competition in the natural gas industry.
Thus, in addition to "first sale" deregulation, Congress also repealed
incremental pricing requirements and previous gas use restraints. There are
other legislative proposals pending in the federal and state legislatures which,
if enacted, would significantly affect the petroleum industry. At the present
time, it is impossible to predict what proposals, if any, might actually be
enacted by Congress or the various state legislatures and what effect, if any,
such proposals might have on the Company. Similarly, and despite the trend
toward federal deregulation of the natural gas industry, whether or to what
extent that trend will continue, or what the ultimate effect will be on the
Company's sales of gas, cannot be predicted.
Alberta Regulation. The Alberta Ministry of Energy ("Ministry") is responsible
for regulating the production, transportation and sale of Alberta's oil, natural
gas, coal, electricity, and mineral resources. The Ministry operates through two
distinct organizations, the Alberta Department of Energy and the Alberta Energy
and Utilities Board. The Ministry is constantly promulgating rules and
regulations, and revising existing rules and regulations, relating to the oil
and natural gas industry in Alberta. For example, amendments to Section 24 of
the Natural Gas Royalty Regulation ("Regulation") specify the various monthly
and annual reports required under the Regulation and provide new penalty rules
for non-compliance, effective January 1, 1999.
Alberta is one of the world's top oil and natural gas producers. 51% of the
natural gas produced in Alberta is now sold into the United States. Alberta's
share of the U.S. natural gas market increased to 11.6% in 1997. Gas Alberta,
formerly a part of the Rural Utilities Branch of the Alberta Transportation and
Utilities, was privatized on July 1, 1998. The new entity, Gas Alberta, Inc.,
has exclusive supply rights to rural gas cooperatives for a two year period.
Moreover, the Alberta electricity market is in the process of being deregulated,
and electricity direct sales could become available as early as 2001. Direct
sellers of gas to core consumers (which might include small producers such as
the Company) are regulated by the Alberta government under the Natural Gas
Direct Marketing Regulation, and might require registration and bonding for
producers dealing with core consumers. All of these regulatory factors could
have a significant effect on the price of natural gas and oil in the Alberta
market.
Oil Price Controls and Transportation Rates. Effective as of January 1, 1995,
the FERC implemented regulations generally grandfathering all previously
approved interstate transportation rates and establishing an indexing system for
those rates by which adjustments are made annually based on the rate of
inflation, subject to certain conditions and limitations. These regulations may
tend to increase the cost of transporting oil and natural gas liquids by
interstate pipeline, although the annual adjustments may result in decreased
rates in a given year. These regulations have generally been approved on
judicial review. The Company is not able at this time to predict the effects of
these regulations, if any, on the transportation costs associated with oil
production from the Company's oil producing operations.
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Environmental Regulations. The Company's operations are subject to numerous
federal, state and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of a permit
before drilling commences, restrict the types, quantities and concentration of
various substances that can be released into the environment in connection with
drilling and production activities, limit or prohibit drilling activities on
certain lands within wilderness, wetlands and other protected areas, require
remedial measures to mitigate pollution from former operations, such as pit
closure and plugging abandoned wells, and impose substantial liabilities for
pollution resulting from production and drilling operations. Public interest in
the protection of the environment has increased dramatically in recent years.
The trend of more expansive and stricter environmental legislation and
regulations applied to the oil and natural gas industry could continue,
resulting in increased costs of doing business and consequently affecting
profitability. To the extent laws are enacted or other governmental action is
taken that restricts drilling or imposes more stringent and costly waste
handling, disposal and cleanup requirements, the business and prospects of the
Company could be adversely affected.
The Company anticipates that it will generate waste that may be subject to the
federal Resource Conservation and Recovery Act ("RCRA") and comparable state
statutes. The U.S. Environmental Protection Agency ("EPA") and various state
agencies have limited the approved methods of disposal for certain hazardous and
non-hazardous wastes. Furthermore, certain wastes generated by the Company's oil
and natural gas operations that are currently exempt from treatment as
"hazardous wastes" may in the future be designated as "hazardous wastes," and
therefore be subject to more rigorous and costly operating and disposal
requirements.
The Company believes that it may eventually own or lease properties that have
been previously used for the exploration and production of oil and gas. Although
the Company's goal is to implement good operating and waste disposal practices,
prior owners and operators of these properties may not have used similar
practices, and hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by the Company or on or
under locations where such wastes have been taken for disposal. In addition,
these properties will likely have been operated by third parties whose treatment
and disposal or release of hydrocarbons or other wastes was not under the
Company's control. These properties and the wastes disposed thereon may be
subject to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), RCRA and analogous state laws as well as state laws governing
the management of oil and gas wastes. Under such laws, the Company could be
required to remove or remediate previously disposed wastes (including wastes
disposed of or released by prior owners or operators) or property contamination
(including groundwater contamination) or to perform remedial plugging operations
to prevent future contamination. The Company's operations may be subject to the
Clean Air Act ("CAA") and comparable state and local requirements. Amendments to
the CAA were adopted in 1990 and contain provisions that may result in the
gradual imposition of certain pollution control requirements with respect to air
emissions from the operations of the Company. The EPA and states have been
developing regulations to implement these requirements. The Company may be
required to incur certain capital expenditures in the next several years for air
pollution control equipment in connection with maintaining or obtaining
operating permits and approvals addressing other air emission-related issues.
However, the Company does not believe its operations will be materially
adversely affected by any such requirements. Federal regulations require certain
owners or operators of facilities that store or otherwise handle oil, such as
the Company, to prepare and implement spill prevention, control, countermeasure
("SPCC") and response plans relating to the possible discharge of oil into
surface waters. The Company believes that it will be able to develop and
implement the necessary plans to meet such federal requirements.
The Oil Pollution Act of 1990, ("OPA") contains numerous requirements relating
to the prevention of and response to oil spills into waters of the United
States. The OPA subjects owners of facilities to strict joint and several
liability for all containment and cleanup costs and certain other damages
arising from a spill, including, but not limited to, the costs of responding to
a release of oil to surface waters. The OPA also requires owners and operators
of offshore facilities that could be the source of an oil spill into federal or
state waters, including wetlands, to post a bond, letter of credit or other form
of financial assurance in amounts ranging from $10 million in specified state
waters to $35 million in federal outer continental shelf waters to cover costs
that could be incurred by governmental authorities in responding to an oil
spill. Such financial assurances may be increased by as much as $150 million if
a formal risk assessment indicates that the increase is warranted. Noncompliance
with OPA may result in varying civil and criminal penalties and liabilities.
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Future operations of the Company may also be subject to the federal Clean Water
Act ("CWA") and analogous state laws. Pursuant to the requirements of the CWA,
the EPA has adopted regulations concerning discharges of storm water runoff.
This program requires covered facilities to obtain individual permits,
participate in a group permit or seek coverage under an EPA general permit. If
the Company owns properties that require permits for discharges of storm water
runoff, the Company believes that it will be able to obtain, or be included
under, such permits, where necessary. Like OPA, the CWA and analogous state laws
relating to the control of water pollution provide varying civil and criminal
penalties and liabilities for releases of petroleum or its derivatives into
surface waters or into the ground. CERCLA, also known as the "Superfund" law,
and similar state laws impose liability, without regard to fault or the legality
of the original conduct, on certain classes of persons that are considered to
have contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the disposal site or sites where
the release occurred and companies that disposed or arranged for the disposal of
the hazardous substances found at the site. Persons who are or were responsible
for releases of hazardous substances under CERCLA may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment, for damages to natural resources and
for the costs of certain health studies, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances released into the
environment.
The Company also anticipates being subject to a variety of federal, state and
local permitting and registration requirements relating to protection of the
environment. Management believes that the Company will be able to maintain
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse effect on the Company.
Operating Hazards and Insurance. The oil and natural gas business involves a
variety of operating hazards and risks such as well blowouts, craterings, pipe
failures, casing collapse, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pipeline ruptures or
spills, pollution, releases of toxic gas and other environmental hazards and
risks. These hazards and risks could result in substantial losses to the Company
from, among other things, injury or loss of life, severe damage to or
destruction of property, natural resources and equipment, pollution or other
environmental damage, cleanup responsibilities, regulatory investigation and
penalties and suspension of operations. In addition, the Company may be liable
for environmental damages caused by previous owners of property purchased and
leased by the Company. As a result, substantial liabilities to third parties or
governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for exploration, development or acquisitions or
result in the loss of the Company's properties. In accordance with customary
industry practices, the Company expects that it will maintain insurance against
some, but not all, of such risks and losses. There can be no assurance that any
insurance obtained by the Company will be adequate to cover any losses or
liabilities. The Company cannot predict the availability of insurance or the
availability of insurance at premium levels that justify its purchase. The
occurrence of a significant event not fully insured or indemnified against could
materially and adversely affect the Company's financial condition and
operations. The Company may elect to self-insure if management believes that the
cost of insurance, although available, is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. The occurrence of an event not fully covered by insurance could
have a material adverse effect on the financial condition and results of
operations of the Company.
Title to Properties; Acquisition Risks. The Company believes that it will be
able to secure satisfactory title to all of its producing properties in
accordance with standards generally accepted in the oil and natural gas
industry. The Company anticipates that properties purchased in the future will
be subject to customary royalty interests, liens incident to operating
agreements, liens for current taxes and other burdens which the Company believes
will not materially interfere with the use of or affect the value of such
properties. As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the time of
acquisition (other than a preliminary review of local records). Investigations,
including a title opinion of local counsel, are generally made before
commencement of drilling operations.
The successful acquisition of producing properties requires an assessment of
recoverable reserves, future oil and natural gas prices, operating costs,
potential environmental and other liabilities and other factors. Such
assessments are
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necessarily inexact and the accuracy inherently uncertain. In connection with
such an assessment, the Company performs a review of the subject properties that
it believes to be generally consistent with industry practices, which generally
includes on-site inspections and the review of reports filed with various
regulatory entities. Such a review, however, will not reveal all existing or
potential problems nor will it permit a buyer to become sufficiently familiar
with the properties to fully assess their deficiencies and capabilities.
Inspections may not always be performed on every well, and structural and
environmental problems are not necessarily observable even when an inspection is
undertaken. Even when problems are identified, the seller may be unwilling or
unable to provide effective contractual protection against all or part of such
problems. There can be no assurances that any acquisition of property interests
by the Company will be successful and, if unsuccessful, that such failure will
not have an adverse effect on the Company's future results of operations and
financial condition.
Uncertainty of Pricing of Oil and Gas. There is currently significant
uncertainty concerning the pricing of oil and natural gas worldwide. The
Organization of Oil Producing Countries ("OPEC") has historically taken
unilateral pricing actions which may have an adverse effect on the Company's
pricing strategies for the Company's future oil and gas production or which may,
in the alternative, prove beneficial to the Company. For example, OPEC has
recently imposed a 1.7-million-barrels-per-day cutback in member states'
production which, as of April 13, 1999, has driven up the price of gas in the
United States. During the late 1980's, and up to the present, oil and gas prices
have been highly volatile. Wellhead prices for oil and natural gas drop
significantly from time to time because of a surplus supply of oil and natural
gas, and cycles of price erosion and recovery occur regularly in the oil and
natural gas markets. Significant future price erosions will have a material
adverse impact on the net revenues of the Company. The availability of a market
for the company's oil and natural gas production, if any, will depend upon
factors largely beyond the control of the Company, including the activities of
OPEC, fluctuations in climate, the availability and proximity of adequate
pipeline or other transportation facilities, the amount of domestic oil and
natural gas production, foreign imports of oil and natural gas, the marketing of
competitive fuels, governmental regulations, and the availability of oil and
natural gas from other sources.
Securities Exchange Act Industry Guide 2. The Securities Exchange Act Industry
Guide 2 requires certain information be provided by small business issuers
engaged in the oil and gas industry including estimates of oil and natural gas
reserves. There are numerous uncertainties inherent in estimating oil and
natural gas reserves and their estimated values, including many factors beyond
the control of the producer. Reservoir engineering is a subjective process of
estimating underground accumulations of oil and natural gas that cannot be
measured in an exact manner. Estimates of economically recoverable oil and
natural gas reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical production from
the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions concerning
future oil and natural gas prices, future operating costs, severance and excise
taxes, development costs and work-over and remedial costs, all of which may in
fact vary considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows expected therefrom
prepared by different engineers or by the same engineers but at different times
may vary substantially and such reserve estimates may be subject to downward or
upward adjustment based upon such factors. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, when and if made, and such variances may be material. In addition,
the 10% discount factor, which is required by the Securities Exchange Commission
to be used in calculating discounted future net cash flows for reporting
purposes, is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the Company
or the oil and natural gas industry in general.
In general, the volume of production from oil and natural gas properties
declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Except to the extent the Company conducts successful
exploration and development activities or acquires properties containing proved
reserves, or both, the proved reserves of the Company will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make the necessary capital investment to
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maintain or expand its asset base of oil and natural gas reserves would be
impaired. The failure of an operator of the Company's wells to adequately
perform operations, or such operator's breach of the applicable agreements,
could adversely impact the Company. In addition, there can be no assurance that
the Company's future exploration, development and acquisition activities will
result in additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs. Furthermore, although the Company's
revenues could increase if prevailing prices for oil and natural gas increase
significantly, the Company's finding and development costs could also increase.
The Wyoming Property is currently undeveloped and as such there are no records
as to average sales price, production costs, total gross and net productive
wells, drilling activities or delivery commitments. The Company has not
performed its own examination as to the net oil or gas reserves existing on the
Wyoming Property. The total amount of undeveloped acreage is 6,360 acres.
According to I.T.A., the Alberta Property currently contains one existing deep
abandoned natural gas well. Also according to I.T.A., during the drilling of the
existing well, a gas flow was encountered from an uphole zone. The amount of
undeveloped acreage on the Alberta Property is 1,120 acres. The Company
anticipates that it will re-enter the existing well and plans to drill up to 3
new wells. There are no present activities on the land with no current delivery
commitments. The Company has not performed its own examination as to the net oil
or gas reserves existing on the Alberta Property. Neither the Alberta Property
nor the Wyoming Property have proven oil or gas reserves at this time.
Competition in the Greeting Card Industry. Competition in the Internet greeting
card industry is significant. Certain of the Company's competitors have more
experience, management, name recognition, marketing capabilities and financial
resources than the Company. The Company may also encounter increasing
competition from the new as well as the existing Internet greeting card
operations. The Company may also encounter indirect competition from companies
selling greeting cards in the traditional storefront form. It is possible that
increased competition could have a material adverse effect on the Company. Many
of these competitors have greater financial and other resources, and more
experience in the greeting card industry than the Company. There can be no
assurance that competitors have not or will not succeed in developing
technologies that are more effective than any which that have been or are being
developed by the Company or which would render the greeting card operations of
the Company obsolete and non-competitive.
The Company anticipates it will face significant competition from other
companies including, but not limited to, (i) Cybercard, a company domiciled in
Cambridge, United Kingdom, that offers the consumer an opportunity to design his
or her greeting card and either send the recipient a card through the mail or
have his or her card posted on the Cybercard Internet site; (ii) Based in India,
an Internet company that offers animated electronic greeting cards that the
sender can deliver to the recipient via e-mail; (iii) 1001 Post Cards, a company
that offers the sender the opportunity to customize a postcard which is sent to
the recipient via e-mail; (iv) My Sentiments Greeting Cards, an Internet company
that allows the sender to customize a greeting card and send it via e-mail; and
(v) Hallmark, a company that offers the sender the option of sending an
electronic greeting card. The Company, however, believes that it can meet this
competition with its unique coupling of the online greeting card with the
scratch and win entry.
Business Interruption; Reliance on Computer and Telecommunications
Infrastructure. The Company or its subsidiary's success will be dependent in
large part on its continued investment in sophisticated telecommunications and
computer systems and computer software. The Company and/or its subsidiary
anticipates making significant investments in the acquisition, development, and
maintenance of such technologies in an effort to remain competitive and
anticipates that such expenditures will be necessary on an on-going basis.
Moreover, computer and telecommunication technologies are evolving rapidly and
are characterized by short product lifecycles, which requires the Company to
anticipate technological developments. There can be no assurance that the
Company or its subsidiary will be successful in anticipating, managing or
adopting such technological changes on a timely basis or that the Company or its
subsidiary will have the capital resources available to invest in new
technologies. In addition, the Internet Gaming business is highly dependent on
computer and telecommunications equipment and software systems, the temporary or
permanent loss of which, through physical damage or operating malfunction, could
have a material adverse effect on the either the Company or its subsidiary's
business. While neither the Company nor any of its Affiliates anticipates any
problems with their computer software relating to the year 2000, operating
malfunctions in the software systems of financial institutions and other parties
might have an adverse affect on the operations of the Company or its subsidiary.
The Internet Gaming business is materially dependent on service provided by
various local
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and long distance telephone companies. A significant increase in the cost of
telephone services that is not recoverable through an increase in the price of
the Company or its subsidiary's services, or any significant interruption in
telephone services, could have a material adverse effect on the Company or its
subsidiary.
Employees. The Company currently has 2 part-time employees and 2 full-time
employees. None of the Company's employees are subject to any collective
bargaining agreements. Each employee of the Company will be required, as a
condition of employment, to execute an agreement not to disclose the Company's
trade secrets or other confidential information.
Reports to Security Holders. The Company is filing this Registration Statement
on Form 10-SB in order to meet its obligations under the Securities and Exchange
Act of 1934. The Company is currently listed on the Over-the-Counter Bulletin
Board Quotation Service ("OTCBB") maintained by the National Association of
Securities Dealers, Inc., under the symbol "PWDR". As such, the Company is
required to provide an annual report to its security holders, which will include
audited financial statements, and quarterly reports, which will contain
unaudited financial statements. The Company is a reporting company. The public
may read and copy any materials filed with the SEC at the SEC's Public Reference
Room at 450 Fifth Street NW, Washington, D.C. 20549. The public may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources. The Company had cash resources of US$2,246.00
at December 21, 1998. For the period ended March 31, 1999, the Company had cash
resources of US$271,396. The influx of cash for the period ended March 31, 1999,
resulted primarily from the Company's sale of its $.0001 par value common stock.
At September 30, 1999, the Company had cash resources of US$54,413.00. At
September 30, 1999, the Company had total assets of US$176,229.00 and total
liabilities of US$4,137.00. At September 30, 1999, total current assets exceed
total current liabilities by US$172,092.00. The cash and equivalents constitute
the Company's present internal sources of liquidity. Because neither the Company
nor its subsidiaries are generating any significant royalty revenues, the
Company's only external source of liquidity is the sale of its capital stock.
Results of Operations. The Company has not yet realized any significant revenue
from operations, nor does it expect to in the foreseeable future. Loss from
operations increased from $0.00 in 1997 to US$10,796.99 in 1998 due to the
Company's renewed activities in locating and evaluating suitable gas and oil
leases and the general, selling, and administrative amortization of organization
costs. For the nine months ended September 30, 1999, the Company experienced a
net loss of US$565,984.00 which resulted primarily as a result of selling,
general and administrative expenses and commissions.
The Company may require additional cash to implement its business strategies,
including cash for (i) payment of increased operating expenses and (ii) further
implementation of those business strategies. No assurance can be given, however,
that the Company will have access to the capital markets in the future, or that
financing will be available on acceptable terms to satisfy the cash requirements
of the Company to implement its business strategies. The inability of the
Company to access the capital markets or obtain acceptable financing could have
a material adverse effect on the results of operations and financial conditions
of the Company.
The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
as a result of a number of factors.
The Company anticipates that it will need to raise additional capital within the
next 12 months in order to develop, promote, produce and distribute its proposed
products. Such additional capital may be raised through additional public or
private financings, as well as borrowings and other resources. To the extent
that additional capital is raised through the sale of equity or equity-related
securities, the issuance of such securities could result in dilution of the
Company's
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stockholders. There can be no assurance that additional funding will be
available on favorable terms, if at all. If adequate funds are not available
within the next 12 months, the Company may be required to curtail its operations
significantly or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its products that the Company would not otherwise
relinquish.
The Company does not anticipate any material expenditures within the next 12
months. The Company does not anticipate any significant research and development
within the next 12 months, nor does the Company anticipate that it will lease or
purchase any significant equipment within the next 12 months. The Company does
not anticipate a significant change in the number of its employees within the
next 12 months.
The Company anticipates that it will begin to realize a positive revenue stream
beginning in or about November, 1999, as a result of the activities of its
subsidiary, CardStakes.com, Inc. Specifically, the Company, as a holder of 59%
of CardStakes.com's issued and outstanding stock, believes that CardStakes.com,
Inc.'s greeting card/scratch and win business, having recently completed its
beta testing, will generate a positive revenue stream for the Company.
Plan of Operation-Alberta Property. The Company anticipates that the Alberta
Property will produce mainly methane gas. The projected timetable for start-up
of production on the Alberta Property is as follows: (1) In or around September,
1999, the Company anticipates that Liberty Oil & Gas Ltd. ("Liberty"), the
company that will be operating the Alberta Property project, will receive a well
license; (2) In or around October, 1999, the testing and evaluation of the well
will be completed; (3) Also in or around October, 1999, Liberty will design and
license production facilities; (4) In or around November or December of 1999,
Liberty expects to procure and install production facilities; and (5) In or
around the first quarter of 2000, gas production is slated to begin. The Company
will have a working interest in the Alberta Property but Liberty will physically
operate the facility. The Alberta Property does not contain proven oil or gas
reserves at this time.
The material risks include, but are not necessarily limited to, the danger that
an economically recoverable quantity of gas may not exist and there may be a
fire or explosion. Liberty has assured the Company it has taken all necessary
precautions to prevent the latter from occurring. The project will proceed into
the production stage only if it is determined that there are enough gas reserves
to justify the additional capital expense. If actual gas production occurs,
Liberty will issue joint venture billings and revenue statements on a monthly
basis. Liberty will also market the gas production for all interest owners
unless it gets notification of intent to take in kind. Liberty is solely
responsible for meeting any and all regulatory requirements.
Plan of Operation-Wyoming Property. The Company anticipates that the Wyoming
Property will produce mainly oil. As discussed earlier, Derek Resources is
solely responsible for the capital expenditures on the Wyoming Property. At this
time, the Company cannot guarantee or predict the timetable for completion of
the material steps to get the Wyoming Property producing oil. As discussed
earlier, Derek Resources has until December 31, 2000 to meets its financial
obligations. The Company anticipates that if the Wyoming Property produces oil,
it will be sometime before December 31, 2000. As of September 14, 1999, Derek
Resources had expended approximately $1,000,000 on the Wyoming Property. The
Wyoming Property does not contain proven oil or gas reserves at this time.
Marketing. The Company anticipates any future production will be marketed to
third parties consistent with industry practices. Typically, oil is sold at the
wellhead at field-posted prices plus a bonus and natural gas is sold by contract
at a negotiated price based upon factors normally considered in the industry,
such as distance from the well to the pipeline, well pressure, estimated
reserves, quality of natural gas and prevailing supply/demand conditions. The
Company's marketing objective is to receive the highest possible wellhead price
for its product. There are a variety of factors which affect the market for oil
and natural gas, including the extent of domestic production and imports of oil
and natural gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal regulations on oil and
natural gas production and sales. The Company does not anticipate significant
difficulties in marketing the oil and natural gas it eventually produces. The
oil and natural gas industry also competes with other industries in supplying
the energy and fuel requirements of industrial, commercial and individual
customers. The availability of a ready market for the Company's oil and natural
gas production depends on the proximity of reserves to, and the capacity of, oil
and natural gas gathering systems, pipelines and trucking or terminal
facilities. The Company anticipates that it will deliver natural
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gas through gas gathering systems and gas pipelines that it does not own.
Federal and state regulation of natural gas and oil production and
transportation, tax and energy policies, changes in supply and demand and
general economic conditions all could adversely affect the Company's ability to
produce and market its oil and natural gas. The Company anticipates it will take
the necessary steps to attempt to control price risk. Even if the Company takes
the proper steps, it will remain subject to price fluctuations for natural gas
sold in the spot market due primarily to seasonality of demand and other factors
beyond the Company's control. Domestic oil prices generally follow worldwide oil
prices, which are subject to price fluctuations resulting from changes in world
supply and demand. The Company believes that it will be able to reduce these
risks by entering into, and expects to enter into, hedge transactions in future
years.
Impact of the Year 2000. The Company anticipates that the Year 2000 (commonly
referred to as "Y2K") could adversely impact the business of the Company. Many
business software applications use only the last two digits to indicate the
applicable year. Unless these programs are modified, computers running time-
sensitive software may be unable to distinguish between the year 1900 and the
year 2000, which would result in system failures, miscalculations, and general
disruption of operations, including, among other things, a temporary inability
to process transactions or to engage in other normal business activities. Many
Y2K problems might not be readily apparent when they first occur, but instead
could imperceptibly degrade technology systems and corrupt information stored in
computerized databases, in some cases before January 1, 2000.
The Company anticipates the completion of a preliminary assessment of each of
its operations and their Y2K readiness and feels that the appropriate actions
will be taken. The Company does not believe the Y2K issue will pose significant
problems for the Company's computer systems. The Company anticipates that its
Year 2000 remediation efforts for information technology systems, consisting
primarily of software upgrades, will continue through 1999, and anticipates
incurring less than $10,000 in connection with these efforts. The Company
recognizes, however, that the Y2K issue could have a material impact on the
operations of the Company. There is no guarantee that the systems of other
companies on which the Company's systems rely will be timely readied for the
Year 2000. Moreover, there can be no guarantee that the Company's suppliers,
customers, or other parties with whom the Company does business will not
experience significant Y2K problems, which might result in an adverse effect on
the Company's operations. The Company's computer system currently runs several
programs which may be affected by Y2K. The Company anticipates taking the
necessary steps to determine whether the programs are Y2K compliant and, if not,
what steps need to be taken to reduce the effect of Y2K.
The Company's assessment of its Year 2000 issues involves many assumptions.
There can be no assurance that the Company's assumptions will prove accurate,
and actual results could differ significantly from the assumptions. In
conducting its Year 2000 compliance efforts, the Company has relied primarily on
vendor representations with respect to its internal computerized systems and
representations from third parties with which the Company has business
relationships and has not independently verified these representations. There
can be no assurance that these representations will prove to be accurate. A Year
2000 failure could result in a business disruption that adversely affects the
Company's business, financial condition or results of operations. Although it is
not currently aware of any likely business disruption, the Company anticipates
developing contingency plans to address Year 2000 failures and expects this work
to continue through 1999.
Item 3. Description of Property.
Property held by the Company. As of the dates specified in the following table,
the Company held the following property in the following amounts:
======================== =======================================================
Property December 31, 1998 September 30, 1999
- - ------------------------ -------------------------------------------------------
Cash and equivalents US$2,246.00 US$54,413.00
======================== =======================================================
The Company defines cash equivalents as all highly liquid investments with a
maturity of 3 months or less when purchased. The Company does not presently own
any interests in real estate. The Company does not presently own any inventory
or equipment.
16
<PAGE>
The Company's Facilities. The Company does not own any real or personal
property. However, the Company does lease office space from Holm Investments
Ltd. The Company leases the office space for $1,700 a month. This expense is
reflected in the accounts payable section of the attached financial statements.
Office services are provided to the Company by Jack Sha for which he receives
$2,000 per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners. The following are persons,
other than directors and officers, who are beneficial owners of 5% or more of
the Company's issued and outstanding common stock:
<TABLE>
<CAPTION>
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Owner Percent of Class
- - -------------- ------------------------ --------------------- ----------------
<S> <C> <C> <C>
Warrants to Purchase YENN Asset Management(1) 1,100,000 5.9%
Common Stock Buckingham Square, The Penthouse
Seven Mile Beach, West Bay Road
Grand Cayman, Cayman Islands
Common Stock J&S Overseas Holding Ltd.(2) 1,800,000(3) 9.7%
Warrants to Purchase Buckingham Square, The Penthouse
Common Stock Seven Mile Beach, West Bay Road
Grand Cayman, Cayman Islands
</TABLE>
(1) The beneficial owner of YENN Asset Management is Regina Strakova, Krezdub
317, 696 64, Czech Republic.
(2) The beneficial owner of J & S Overseas Holding Ltd. is Fred Tham, 1301 Pik
Hoi House, Choi Hung Estate, Kowloon, Hong Kong.
(3) Includes 800,000 shares of common stock owned by J & S and 1,000,000
unexercised warrants to purchase the Company's $.0001 par value common stock.
(b) Security Ownership by Management. As of September 30, 1999, the directors
and principal executive officers of the Company beneficially owned, in the
aggregate, 950,000 shares of the Company's common stock, or approximately 5.1%
of the issued and outstanding shares, as set forth on the following table:
<TABLE>
<CAPTION>
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Owner Percent of Class
- - -------------- ------------------------ -------------------- ----------------
<S> <C> <C> <C>
Common Shares Jack Sha 300,000 shares 3.2%
5550 Cambie Street, Suite 306 300,000 options
Vancouver, British Columbia
V5Z 3A2 President and Director
Common Shares Ferdinand Marehard 300,000 shares 1.9%
1270 Robson Street, Suite 406 50,000 options
Vancouver, British Columbia Secretary/Treasurer
V6E 3Z6 and Director
</TABLE>
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403 of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and principal executive officers of the Company are as specified
on the following table:
17
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Name and Address Age Position Term as Director
- - ------------------------------------------------- ------------ ---------------------------------------------------------------------
<S> <C> <C> <C>
Jack Sha 48 President and a Director From October, 1998 to present
5550 Cambie Street, Suite 306
Vancouver, British Columbia V5Z 3A2
- - ------------------------------------------------- ------------ ---------------------------------------------------------------------
Ferdinand Marehard 70 Secretary/Treasurer From October, 1998 to present
1270 Robson Street, Suite 406 and Director
Vancouver, British Columbia V6E 3Z6
====================================================================================================================================
</TABLE>
Jack Sha is the President and a Director of the Company. Mr. Sha was the
president of Tokyo Trading Ltd. from 1990 through 1994, during which time he was
involved in the decision making process for various investment opportunities
ranging from golf course developments to mining properties. In 1991, Mr. Sha
acquired, on behalf of the Tokyo Trading Ltd., the rights to develop and market
a unique essence for skin care products. In 1994, Mr. Sha underwent major
surgery and was inactive until 1998.
Ferdinand Marehard is the Secretary, Treasurer and a Director of the Company.
Mr. Marehard was the president of West-Mar Resources Ltd. ("West-Mar") from 1984
through 1994, during which time he managed West-Mar's participation in various
foreign and domestic gas and oil leases. In 1985, Mr. Marehard managed
West-Mar's participation in the development of six gas wells in Indiana, and
also participated in negotiations for the acquisition of a 1,200,000 acre oil
concession in Liberia, West Africa. In 1986 he acquired, on behalf of West-Mar,
a 5% working interest on 40,000 acres in Adams County, Indiana. From 1990
through 1994 he participated in drilling and developing a horizontal well and in
waterflood oil production in Texas. He also acquired, on behalf of West-Mar,
17,000 acres of gas and oil leases in the state of Washington. From 1975 through
1981 Mr. Marehard was the president of Hesca Resources Corp., Ltd.; from 1982
through 1984 he was the president of Demus Petro Corporation; and from 1979
through 1984 he was the president of Mar-Gold Resources, Ltd. These entities
participated in the oil and gas industry and the mining industry. During this
period, Mr. Marehard had a broad range of management duties for these companies,
including oversight of drilling and production of oil wells in Kentucky, Texas
and Utah. He also negotiated the acquisition of several properties in the
Greenwood-Grandforks gold camp and negotiated financing for the various company
operations. Mr. Marehard has experience in prospecting, including examination of
property in the field. He has supervised placer gold leases in the Yukon and has
identified and negotiated for silver, lead, zinc and copper bearing property on
Vancouver Island, British Columbia. He has experience in mining and exploration
for precious and base metals in British Columbia, the Yukon, the Northwest
Territories and the United States. Michael Wright has extensive experience in
the amusement game industry, commercial real estate sales and development as
well as the gaming and lottery industries. Mr. Wright operated, sold and
marketed amusement video games for Bally Manufacturing. He was an executive
vice-president of Exidy where he manufactured and sold video games. Mr. Wright
was involved with international sales and marketing with Taito Corporation in
Japan. He was also the president of Simutrak, a company specializing in laser
disc technology for coin operated video games. Mr. Wright's real estate
experience involves the development and sale of commercial and single family
real estate in Northern California. Mr. Wright was involved with the design,
manufacture, distribution and operation of slot machines for Bally Gaming. Mr.
Wright operated the National Television Bingo Lottery in Prague. He also was the
president of OnPoint, a San Diego based company where he was involved in the
manufacture and sale of vending machines for the lottery and transportation
industries. Mr. Wright was the president and CEO of Border Capital, a Canadian
public company involved in the software and design of television game shows for
the global lottery industry. Mr. Wright attended the University of Portland
where he majored in Mass Communications. Mr. Wright is currently the Chairman of
the Company's Board of Directors. None of the above listed persons share any
familial relationship. Other than the persons listed above, there are no
significant employees expected by the Company to make a significant contribution
to the business of the Company. All directors of the Company serve until the
next annual meeting of stockholders. The Company's executive officers are
appointed by the Company's Board of Directors and serve at the discretion of the
Board of Directors.
Robert Klein, President of Rising Phoenix, resigned from the Company's Board of
Directors. It is anticipated that Mr. Klein will not return to the Company's
Board of Directors. There are no orders, judgments, or decrees of any
governmental agency or administrator, or of any court of competent jurisdiction,
revoking or suspending for cause any license, permit or other authority to
engage in the securities business or in the sale of a particular security or
18
<PAGE>
temporarily or permanently restraining Mr. Sha or Mr. Marehard from engaging in
or continuing any conduct, practice or employment in connection with the
purchase or sale of securities, or convicting such person of any felony or
misdemeanor involving a security, or any aspect of the securities business or of
theft, nor are Mr. Sha or Mr. Marehard the officers or directors of any
corporation or entity so enjoined.
Item 6. Remuneration of Directors and Officers.
Executive Compensation. Specified below, in tabular form, is the aggregate
annual remuneration of the Company's Chief Executive Officer and the four (4)
most highly compensated executive officers other than the Chief Executive
Officer who were serving as executive officers at the end of the Company's last
completed fiscal year. The officers of the Company received no direct
compensation from the Company during the Company's most recent fiscal year. The
officers of the Company are reimbursed for expenses incurred on behalf of the
Company.
<TABLE>
<CAPTION>
===================================================================================================================
Name of Individual or Identity of Group Capacities in which Remuneration was Aggregate Remuneration
received
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jack Sha President $2,000/month
===================================================================================================================
</TABLE>
As of September 30, 1999, the Company has paid Jack Sha compensation in the
following amounts.
=============== ==============
Month Compensation
--------------- --------------
May $700.00
--------------- --------------
June $1,400.00
--------------- --------------
July $1,400.00
--------------- --------------
August $1,700.00
--------------- --------------
September $1,000.00
--------------- --------------
October $1,000.00
--------------- --------------
November $1,000.00
=============== ==============
The Company anticipates compensating Jack Sha for accrued salary when and if the
funds are available.
Directors' Compensation. The directors of the Company do not receive
compensation in their capacities as directors. However, the directors of the
Company are reimbursed for expenses incurred on behalf of the Company.
Item 7. Certain Relationships and Related Transactions.
Agreement to Purchase Rising Phoenix Development Group Ltd.'s Corporate Assets
was not the result of arms-length negotiations. As specified above, on January
15, 1999, the Company signed a letter of intent to acquire all of the corporate
assets of Rising Phoenix Development Group, Ltd. (previously defined as "Rising
Phoenix") in exchange for 3,800,000 shares of the Company's common stock and
seventy-five thousand dollars (US$75,000). The president of Rising Phoenix,
Robert Klein, was on the Company's Board of Directors from February 1, 1999
through early in March, 1999, at which time Mr. Klein resigned from the
Company's Board of Directors. It is anticipated that Mr. Klein will not rejoin
the Company's Board of Directors.
As of September 30, 1999, the Company had advanced a total of $80,495 to its
subsidiary CardStakes.com to pay for operating expenses. The Company and
CardStakes.com have not yet negotiated repayment terms. However, the Company
anticipates that repayment of such funds will be contingent on CardStakes.com's
results of operations. The outstanding amount due to the Company bears on
interest.
Anti-Dilution Provision. On or about March 9, 1999, the Company's subsidiary,
CardStakes.com amended its Articles of Incorporation to include an Anti-Dilution
Provision ("Provision") providing for the continuous and nondilutable 51%
ownership of CardStakes.com by the Company. In or around September, 1999, the
Company and Power Direct agreed that the Provision would be removed from the
Company's Articles of Incorporation. As consideration for the removal
19
<PAGE>
of the Provision, CardStakes.com agreed to issue Power Direct 3,000,000 shares
of its $.0001 par value common stock. On or about September 10, 1999, the
Company's President and Secretary executed a Certificate of Amendment to the
Company's Articles of Incorporation removing the Provision.
With regard to any future related party transaction, the Company plans to fully
disclose any and all related party transactions, including, but not limited to,
(i) disclosing such transactions in prospectus' where required; (ii) disclose in
any and all filings with the Securities and Exchange Commission, where required;
(iii) obtain uninterested directors consent; and (iv) obtain shareholder consent
where required.
Transactions with Promoters. Holm Investments Ltd. is a promoter of the Company
and has received 600,000 shares of common stock of the Company for promotional
services provided to the Company.
Item 8. Description of Securities.
The Company is authorized to issue 100,000,000 shares of common stock, $.0001
par value, each share of common stock having equal rights and preferences,
including voting privileges. As of September 30, 1999, 18,497,500 shares of the
Company's common stock were issued and outstanding, with 5,370,000 shares
subject to certain restrictions and 13,127,500 unrestricted shares. The shares
of $.0001 par value common stock of the Company constitute equity interests in
the Company entitling each shareholder to a pro rata share of cash distributions
made to shareholders, including dividend payments. The holders of the Company's
common stock are entitled to one vote for each share of record on all matters to
be voted on by shareholders. There is no cumulative voting with respect to the
election of directors of the Company or any other matter, with the result that
the holders of more than 50% of the shares voted for the election of those
directors can elect all of the Directors. The holders of the Company's common
stock are entitled to receive dividends when, as and if declared by the
Company's Board of Directors from funds legally available therefor; provided,
however, that cash dividends are at the sole discretion of the Company's Board
of Directors. In the event of liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities of the
Company and after provision has been made for each class of stock, if any,
having preference in relation to the Company's common stock.
Holders of the shares of Company's common stock have no conversion, preemptive
or other subscription rights, and there are no redemption provisions applicable
to the Company's common stock. All of the outstanding shares of the Company's
common stock are duly authorized, validly issued, fully paid and non-assessable.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
The Company participates in the OTC Bulletin Board, Electronic Quotation System
maintained by the National Association of Securities Dealers, Inc., under the
trading symbol "PWDR". According to quotes provided by Standard & Poor's
Comstock, the Company's common stock has closed at a low of US$0.23 and a high
of US$1.09 for the 52-week period ending November 15, 1999 and closed at US$0.30
on that date. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
As of September 30, 1999, there were two million one hundred thousand
(2,100,000) warrants outstanding. YENN Asset Management is the holder of
1,100,000 of the aforementioned warrants. J & S Overseas Holdings Ltd. ("J&S")
was the holder of 800,000 of warrants. On or about July 6, 1999, J&S exercised
all 800,000 warrants to purchase the Company's $.0001 par value common stock at
a purchase price of $.30 per share. On or about July 15, 1999, the Company
issued to J&S an additional 1,000,000 warrants. The 1,100,000 YENN warrants
represent the right to purchase from the Company one share of its $.0001 par
value common stock at a price of $.30 per share and all of which expire by their
own terms on October 31, 2000. The 1,000,000 outstanding warrants held by J&S
represent the right to purchase from the Company one share of its $.0001 par
value common stock at a price of $0.25 per share and all of which expire by
their own terms on January 15, 2001. Between June 15, 1999 and July 7, 1999,
CardStakes.com issued 7,126,531 shares of its $.0001 par value common stock to
the Company pursuant to the licensing agreement
20
<PAGE>
between the Company and CardStakes.com. On or about August 16, 1999, the Company
issued to each of its shareholders entitled to receive dividends, 1 share of
CardStakes.com's $.0001 par value common stock for every 8 shares of the
Company's $.0001 par value common stock. The Company issued a total of 2,199,779
shares of CardStakes.com's $.0001 par value common stock to the Company's
shareholders. On or about September 10, 1999, and in consideration for the
removal of the anti-dilution provision from CardStakes.com's Articles of
Incorporation (more particularly described in Item 7 of this Amendment No. 2 to
the Company's Registration Statement on Form 10-SB), CardStakes.com issued an
additional 2,000,000 shares of its $.0001 par value common stock to the Company.
The Company has entered into stock option agreements with (i) May Joan Lin in
the amount of 600,000; (ii) R. Angelo Holmes in the amount of 300,000; (iii)
Jack Sha in the amount of 300,000; and (iv) Ferdinand Marchard in the amount of
50,000. All of such options are exerciseable on a 1:1 basis for the $.0001 par
value common stock of the Company. The options are exerciseable at a price of
$0.25 per share and expire by their own terms 18 months from the grant date.
Penny Stock Regulation. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the Commission, which (i) contained a
description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading; (ii) contained a description of the
broker's or dealer's duties to the customer and of the rights and remedies
available to the customer with respect to violation to such duties or other
requirements of Securities' laws; (iii) contained a brief, clear, narrative
description of a dealer market, including "bid" and "ask" prices for penny
stocks and significance of the spread between the "bid" and "ask" price; (iv)
contains a toll-free telephone number for inquiries on disciplinary actions; (v)
defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and (vi) contains such other information and is in such
form (including language, type, size and format), as the Commission shall
require by rule or regulation. The broker-dealer also must provide, prior to
effecting any transaction in penny stock, the customer (i) with bid and offer
quotations for the penny stock; (ii) the compensation of the broker-dealer and
its salesperson in the transaction; (iii) the number of shares to which such bid
and ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (iv) month account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgement of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If any of the Company's securities become subject to the penny stock rules,
holders of those securities may have difficulty selling those securities.
Item 2. Legal Proceedings.
On or about April 15, 1999, a Statement of Claim, on behalf of the Company as
Plaintiff, was issued by the Ontario Court, General Division. Also on or about
April 15, 1999, that Statement of Claim was served on Defendant LANSource. As
described in Item 1, LANSource and the Company entered into a letter agreement
whereby the Company was to purchase a 12.5% interest in LANSource with an option
to purchase an additional 38.5% interest. A formal agreement was to be finalized
on or before March 31, 1999. The letter agreement provided that in the event a
formal agreement was not consummated by March 31, 1999, the letter agreement
would be null and void and LANSource would be permitted to retain all deposits
made by the Company. The Company alleges that LANSource agreed that its counsel
would draft the final agreement in an expeditious manner. The Company further
alleges that counsel for LANSource did not produce an agreement for review by
the Company until March 25, 1999. Moreover, the Company alleges that, prior to
its receipt of the proposed final agreement from counsel for LANSource, the
proposed agreement had not been read or approved by LANSource, the agreement was
incomplete and in need of substantial revisions, and that LANSource failed and
neglected to provide the essential information necessary for a meaningful review
of the proposed final agreement.
The Company has alleged that it has been damaged in the amount of $1,000,000 in
that LANSource breached its agreement with the Company, breached its fiduciary
duty to the Company and breached its duty of good faith. In the alternative, the
Company has asked that the Court either: (i) compel LANSource to perform its
obligations under the
21
<PAGE>
agreement; (ii) order LANSource to pay into the Court a total of $300,000
representing the deposit money paid to LANSource by the Company, declare that
the agreement between the Company and LANSource is rescinded and return the
deposit amount to the Company; declare that LANSource has breached the agreement
and proceed to trial to determine the Company's damages; or issue an order
requiring LANSource to disgorge to the Company any and all profits earned by
LANSource as a result of its breach. Moreover, the Company has alleged punitive
damages in the amount of $100,000. While the action is pending, the Company has
asked the Ontario Court to enjoin LANSource from: (i) transferring or disposing
of, in any manner, its assets; (ii) borrowing funds except in the usual course
of business; (iii) granting any license, franchise or similar arrangement to any
person relating to its intellectual property or potential intellectual property;
(iv) issuing, distributing or transferring in any way shares, warrants, options
or other securities; (v) redeeming or purchasing any of the company's shares;
(vi) taking or instituting proceedings to alter its corporate structure in any
way; (vii) amending its Bylaws, Articles or any material agreements; or (viii)
taking action to materially change the nature of its business in any way. The
Company plans to vigorously prosecute its claim against LANSource.
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in or disagreements with the Company's accountants
since the formation of the Company required to be disclosed pursuant to Item 304
of Regulation S-B.
Item 4. Recent Sales of Unregistered Securities.
There have been no sales of unregistered securities within the last three (3)
years which would be required to be disclosed pursuant to Item 701 of Regulation
S-B, except for the following:
On or about December 31, 1998, the Company commenced an offering of shares of
its common stock in reliance on an exemption from the registration requirements
of the Securities Act of 1933 ("Act") specified by the provisions of Section
3(b) of the Act and Rule 504 of Regulation D promulgated by the Securities and
Exchange Commission pursuant to Section 3(b). The Company relied on Rule 504 of
Regulation D because although at the time of the offering the Company was a
development stage company, it did have a specific business plan other than to
engage in a merger or acquire a unidentified company or companies. Through April
14, 1999, the Company had sold a total of 7,127,500 shares of its common stock
pursuant to that offering. The aggregate offering price was $1,000,000. The
Company was able to rely on Rule 504 of Regulation D because it met all of the
requirements of such rule including, but not limited to, that rules limitation
on the amount raised. Gross proceeds from the offering were US$1,000,000 in
cash, as follows:
3,000,000 shares at US$.08 per share (total US$240,000)
1,000,000 shares at US$.10 per share (total US$100,000)
1,562,500 shares at US$.22 per share (total US$343,750)
500,000 shares at US$.15 per share (total US$75,000)
500,000 shares at US$.20 per share (total US$100,000)
565,000 shares at US$.25 per share (total US$141,250)
The offering price for the Company's shares of common stock was arbitrarily
established by the Company and had no relationship to assets, book value,
revenues or other established criteria of value. The total number of purchasers
was eleven (11). Proceeds from the 504 offering were used for, among other
purposes, working capital, including legal fees; office equipment and office
expenses; and to finance the Company's various acquisition contracts.
On or about January 6, 1999, the Company issued 600,000 shares of its $.0001 par
value common stock for cash. Those shares were issued in reliance upon an
exemption from the registration requirements of the Securities Act of 1933
("Act") specified by the provisions of Regulation S of the Act promulgated by
the Securities and Exchange Commission. Specifically, the issuance was made to a
"non-U.S. person outside the United States of America" as that term is defined
under applicable state and federal securities laws. The proceeds to the Company
were US$6,000.00. Such proceeds were used for working capital.
22
<PAGE>
On or about January 28, 1999, the Company issued 600,000 shares of its $.0001
par value common stock as compensation for consulting services rendered. Those
shares were issued in reliance upon an exemption from the registration
requirements of the Securities Act of 1933 ("Act") specified by the provisions
of Regulations of the Act promulgated by the Securities and Exchange Commission.
Specifically, the issuance was made to a "non-U.S. person outside the United
States of America" as that term is defined under applicable state and federal
securities laws. The Company valued those consulting services at US$120,000.00.
On or about April 30, 1999, the Company issued to YENN Asset Management, a
company located in the Cayman Islands, 1,100,000 warrants to subscribe for and
purchase from the Company one share of the Company's $.0001 par value common
stock at a purchase price of $0.30 per share. The warrants were issued in
reliance upon the exemption from the registration requirements of the Act as set
forth in Regulation S promulgated by the Securities and Exchange Commission.
Specifically, the issuance was made to a "non-U.S. person outside the United
States of America" as that term is defined under applicable federal and state
securities laws. On or about September 15, 1999, YENN Asset Management exercised
100,000 of such warrants at $0.30 per share resulting in gross proceeds to the
Company of US $30,000.
On or about April 30, 1999, the Company issued to J&S Overseas Holdings Ltd., a
company located in the Cayman Islands ("J&S"), 800,000 warrants to subscribe for
and purchase from the Company one share of the Company's $.0001 par value common
stock at a purchase price of $0.30 per share. The warrants were issued in
reliance upon the exemption from the registration requirements of the Act as set
forth in Regulation S promulgated by the Securities and Exchange Commission.
Specifically, the issuance was made to a "non-U.S. person outside the United
States of America" as that term is defined under applicable federal and state
securities laws. On or about July 7, 1999, J&S exercised all 800,000 warrants to
purchase the Company's $.0001 par value common stock at a purchase price of $.30
per share.
Pursuant to the terms of the Compte Agreement, the Company, on or about June 15,
1999, issued 3,000,000 shares of its $.0001 par value common stock to Compte De
Sierge Accomodative Corp., a Panama corporation. The shares were issued in
reliance upon the exemption from the registration and prospectus delivery
requirements of the Act as set forth in Regulation S promulgated by the
Securities and Exchange Commission. Specifically, the issuance was made to a
"non-U.S. person outside the United States of America" as that term is defined
under applicable federal and state securities laws. The Company valued those
shares at US$0.50 per share, the market price at the time of the Compte
Agreement was executed.
Also, on or about June 15, 1999, the Company issued 20,000 shares of its $.0001
par value common stock for services rendered. Those shares were issued in
reliance upon an exemption from the registration requirements of the Securities
Act of 1933 ("Act") specified by the provisions of Regulation S of the Act
promulgated by the Securities and Exchange Commission. Specifically, the
issuance was made to a "non-U.S. person outside the United States of America" as
that term is defined under applicable state and federal securities laws. The
Company valued those services at US$5,000.00.
On or about June 30, 1999, the Company issued 250,000 shares of its $.0001 par
value common stock for services rendered. Those shares were issued in reliance
upon an exemption from the registration requirements of the Securities Act of
1933 ("Act") specified by the provisions of Section 4(2) of the Act and Rule 506
of Regulation D promulgated by the Securities and Exchange Commission pursuant
to that Section 4(2). The Company valued those services at US$50,000.00.
On or about July 15, 1999, pursuant to the J & S Agreement the Company issued to
J&S Overseas Holdings Ltd., a company located in the Cayman Islands ("J&S"),
1,000,000 warrants to subscribe for and purchase from the Company one share of
the Company's $.0001 par value common stock at a purchase price of $0.25 per
share. The warrants were issued in reliance upon the exemption from the
registration requirements of the Act as set forth in Regulation S promulgated by
the Securities and Exchange Commission. Specifically, the issuance was made to a
"non-U.S. person outside the United States of America" as that term is defined
under applicable federal and state securities laws.
23
<PAGE>
Item 5. Indemnification of Directors and Officers.
Article VII of the Company's Bylaws provides that no officer or director of the
Company shall be personally liable for obligations of the Company or for any
duties or obligations arising out of any acts or conduct of such an officer or
director performed for on behalf of the Company. That Article VII also provides
that the Company shall indemnify each officer and director from and against any
and all claims, judgments and liabilities by reason of any action taken or
omitted to have been taken by him or her as a director or officer, and also
provides that the Company shall reimburse each officer and director for all
legal and other expenses reasonably incurred in connection with such a claim or
liability; provided, however, that such officers and directors shall not be
indemnified against, or be reimbursed for, any expense incurred in connection
with any claim or liability arising out of such a person's own negligence or
willful misconduct.
Moreover, Article Five of the Company's Restated and Amended Certificate of
Incorporation filed January 13, 1999 with the Delaware Secretary of State
provides, in pertinent part, that the directors of the Company shall not be
personally liable to the Company or its stockholders for breach of fiduciary
duty as a director, except for (1) breach of such director's duty of loyalty to
the Company or its stockholders, (2) for acts or omissions not in good faith
which involve intentional misconduct or a knowing violation of law, (3) for
transactions in which such director derived improper personal benefit, or (4)
pursuant to the provisions of Section 174 of the General Corporation Law. The
Company anticipates that it will enter into indemnification agreements with each
of its officers and directors pursuant to which the Company agrees to indemnify
each such officer and director for all expenses and liabilities, including
criminal monetary judgments, penalties and fines, incurred by such officer and
director in connection with any criminal or civil action brought or threatened
against such officer or director by reason of such officer or director being or
having been an officer or director of the Company. In order to be entitled to
indemnification by the Company, such officer or director must have acted in good
faith and in a manner such person believed to be in the best interests of the
Company and, with respect to criminal actions, such officer or director must
have had no reasonable cause to believe his or her conduct was unlawful.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC
POLICY AND, THEREFORE, UNENFORCEABLE.
PART F/S
Copies of the financial statements specified in Regulation 228.310 (Item 310)
are filed with this Registration Statement, Form 10-SB.
(a) Index to Financial Statements. Page
- - ----------------------------------- ----
1 Independent Auditor's Report F-1
2 Audited Balance Sheets
as at December 31, 1998 F-2
3 Audited Statement of Operations
for Period From January 1, 1998, to
December 31, 1998 F-3
4 Audited Statement of Changes to Stockholders'
Equity for Period From January 1, 1998, to
December 31, 1998 F-4
5 Audited Statement of Cash Flows
for Period From January 1, 1998, to
December 31, 1998 F-5
24
<PAGE>
6 Notes to Audited Financial Statements F-6 through F-7
7 Independent Auditor's Report F-8
8 Audited Balance Sheet as at September 30, 1999 F-9 through F-10
9 Audited Statement of Operations For Period From
January 1, 1998, to September 30, 1999 F-11
10 Audited Statement of Cash Flows For Period From
January 1, 1998, to September 30, 1999 F-12
11 Audited Statement of Changes in Stockholders' Equity
For Period From January 1, 1998, to September 30, 1999 F-13
12 Notes to Audited Financial Statements F-14 through F-17
PART III
Item 1. Index to Exhibits
Copies of the following documents are filed with this Amendment No. 2 to
Registration Statement, Form S-B, as exhibits:
1 Agreement to Sell URL Between the Company
and Holm Investments E-1
25
<PAGE>
SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this Amendment No. 2 to Registration
Statement on Form 10-SB to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Vancouver, British Columbia, Canada, on December
9, 1999.
Power Direct, Inc.,
a Delaware corporation
By: /s/ Jack Sha
------------------
Jack Sha
Its: President
26
<PAGE>
James E. Slayton, CPA
- - --------------------------------------------------------------------------------
3867 WEST MARKET STREET
SUITE 208
AKRON, OHIO 44333
INDEPENDENT AUDITORS' REPORT
Board of Directors March 8, 1999
Power Direct, Inc. (the Company)
I have audited the Balance Sheet of Power Direct, Inc. (A Development State
Company), as of December 31, 1998, December 31, 1997, and December 31, 1996
and the related Statements of Operations, Stockholders' Equity and Cash Flows
for the period January 1, 1998 to December 31, 1998, and the two years ended
December 31, 1997 and December 31, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statement presentation. An audit
also inc1udes assessing the accounting princip1es used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Power Direct, Inc., (A
Development State Company), at December 31, 1998, December 31, 1997 and December
31, 1996, and the results of its operations and cash flows for the period
January 1, 1998 to December 31, 1998, and the two years ended December 31, 1997,
and December 31, 1996, 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 3 to the
financial statements, The Company has had limited operations and has not
established a long term 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 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ James E. Slayton
James E. Slayton, CPA
Ohio License ID# 04-1-15582
F-1
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
BALANCE SHEET
AS AT
December 31, 1998
<TABLE>
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
ASSETS
<S> <C> <C> <C>
Current Asset
Cash in Bank 2246.00 0.00 0.00
Other Current Assets 0.00 0.00 0.00
--------- --------- ---------
Total Current Assets 2246.00 0.O0 0.00
OTHER ASSETS
Organization Costs net of Amortization 0.00 0.00 0.00
--------- --------- ---------
TOTAL ASSETS 2246.00 0.00 0.00
========= ========= =========
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable 13042.99 0.00
EQUITY
Capital Stock 600.00 100.00 100.00
Additional paid in capital 400.00 900.00 900.00
Retained Earnings -10796.99 -1000.00 -1000.00
--------- --------- ---------
Total Stockholders' Equity -10796.99 0.00 0.00
--------- --------- ---------
TOTAL LIABILITIES & OWNERS EQUITY 2246.00 0.00 0.00
========= ========= =========
</TABLE>
See accompany notes to financial statements & audit report
-2-
F-2
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR PERIOD
January 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
September
15, 1993
(Date of)
Inception)
to
December December December
31, 1998 31, 1998 31, 1997
<S> <C> <C> <C>
REVENUE
Services 0.00 0.00 0.00
COSTS AND EXPENSES
Selling, General and Administrative 11,796.99 10,796.99 0.00
Amortization of Organization Costs
Total Costs an Expenses 11,796.99 10,796.99 0.00
---------- ---------- ----------
Net Ordinary Income or (Loss) -11,796.99 -10,796.99 0.00
========== ========== ==========
Weighted average
number of common
shares outstanding 6,000,000 2,000,000 2,000,000
Net Loss
Per Share -0.002 -0.0064 0
</TABLE>
See accompany notes to financial statements & audit report.
-3-
F-3
<PAGE>
Power Direct, Inc.
A Development Stage Company
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR PERIOD
January 1, 1998 to December 31, 1998
Deficit
accumulated
Additional during
Common Stock paid-in development
Shares Amount capital stage
---------- -------- -------- ----------
Balance
December 31, 1995 8,000,000 800.00 400.00 -1,000.00
Net loss year ended
December 31, 1996 0.00
Net loss year ended 0.00
December 31, 1997
Net Loss
January 1, 1998
December 31, 1998 ($10,796.99)
---------- -------- -------- ----------
Balance
December 31, 1998 8,000,000 $800.00 $400.00 ($11,796.99)
========== ======== ======== ==========
See accompany notes to financial statements & audit report
-4-
F-4
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR PERIOD
January 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
September
13, 1993
(Date of
Inception)
to
December December December
31, 1998 31, 1998 31, 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss from operations -11,796.99 -10,796.99 0.00
Net Cash provided by Operating Activities -11,796.99 -10,796.99 0.00
Increase in current assets 0.00 0.00 0.00
Increase in other assets 0.00 0.00 0.00
Increase in current liabilities 13,042.99 13,042.99 0.00
---------- ---------- ----------
Cash provided by Operating Activities 1,246.00 2,246.00 0.00
---------- ---------- ----------
Net cash flow provided by operating activities 1,246.00 2,246.00 0.00
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit on Asset Purchase Agreement
Net Cash used by investing activities 0.00 0.00 0.00
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Capital Stock 1,000.00
Net cash provided by financing activities 1,000.00 0.00 0.00
Net Increase (decrease) in cash 2,246.00 2,246.00 0.00
Cash and cash equivalents, December 31, 1998 0.00 0.00 0.00
Cash and cash equivalents, end of year 2,246.00 2,246,00 0,00
</TABLE>
See accompany notes to financial statements & audit report
-5-
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized September 13, 1993, under the laws of the State
of Delaware, as Power Direct, Inc. The Company currently has no operations and
in accordance with SFAS #7, the company is considered a development stage
company.
On September 30, 1993, the company issued 10,000 Shares of its .01 par
value common stock for cash of $1,000.00.
On July 30, 1998, the State of Delaware approved the Company's restated
Articles of Incorporation, which increased its capitalization from 10,000 common
shares to 25,000,000 common shares. The par value was changed from $.01 par
value to $0.0001.
On July 30, 1998, the Company forward split its common stock 200:1, thus
increasing the number of outstanding common stock shares from 10,000 to
2,000,000 shares.
On October 21, 1998, the Company forward split its common stock 3:1, thus
increasing the number of outstanding common stock shares from 2,000,000 to
6,000,000 shares.
On December 16, 1998, the Company increased its capitalization from
25,000,000 common shares to 100,000,000 common shares. The par value remained at
$0.0001.
The Statement of Stockholder's equity reflects changes in par value and
common stock splits retroactively.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Accounting polices and procedures have not been determined except as
follows:
1. The Company uses the accrual method of accounting.
2. Earnings per share is computed using the weighted average number of
shares of common stock outstanding.
4. The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
5. The Company has not yet adopted all accounting pronouncements
issued. The effect on the financial statements is deemed insignificant and
immaterial and there were no adjustments made to the financial statements.
6. Organization costs were expensed when incurred.
-6-
F-6
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of revenue. Without
realization of additional capital or revenues, it would be unlikely for the
Company to continue as a going concern. It is management's plan to seek
additional capital though a merger with an existing operating company.
NOTE 4 - RELATED PARTY TRANSACTION
The Company neither owns or leases any real or personal property. Office
services are provided without charge by a director. Such costs are immaterial to
the financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such conflicts.
NOTE 5 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
shares of common stock.
F-7
<PAGE>
James E. Slayton, CPA
- - --------------------------------------------------------------------------------
2858 WEST MARKET STREET
SUITE C
FAIRLAWN, OHIO 44333
INDEPENDENT AUDITORS' REPORT
Board of Directors November 19, 1999
Power Direct, Inc. (the Company)
I have audited the Balance Sheet of Power Direct, Inc. (A Development
Stage Company), as of September 30, 1999, December 31, 1998 and December 31,
1997 and the related Statements of Operations, Stockholders' Equity and Cash
Flows for the period January 1, 1999 to September 30, 1999 and the two years
ended December 31, 1998 and December 31, 1997. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statement presentation. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Power Direct, Inc.,
(A Development Stage Company), at September 30, 1999, December 31, 1998 and
December 31, 1997, and the results of its operations and cash flows for the
period January 1,1999 to September 30, 1999 and the two years ended December
31,1998, and December 31, 1997, 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 3 to the
financial statements, The Company has had limited operations and has not
established a long term 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 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
James E. Slayton, CPA
Ohio License ID# 04-1-15582
F-8
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September December December
30, 1999 31, 1998 31, 1997
ASSETS
Current Asset
Cash in Bank 54,490.00 2,246.00 0.00
Accounts Receivable 39,321.00 0.00 0.00
Other Current Assets 2,000.00
Total Current Assets 95,811.00 2246.00 0.00
OTHER ASSETS
Other Assets 1,123.00 0.00 0.00
Universal Resource Locator 200,000.00
Investments 1,944,910.00
--------------------------------------------
2,146,033.00 0.00 0.00
TOTAL ASSETS 2,241,844.00 2,246.00 0.00
============================================
See accompany notes to financial statements
-2-
F-9
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September December December
30,1999 31, 1998 31,1997
<S> <C> <C> <C>
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable 4,137.00 13,042.99
---------------------------------------------------
Total Liabilities 4,137.00 13,042.99 0.00
Minority interest in Subsidiary ($26,971 at time
of acquisition less income attributable to
minority interest $50,968) (23,997.00)
EQUITY
Common Stock, $.0001 par value, authorized
100,000,000 common shares; issued and
outstanding at 12/31/97, 6,000,000 common
shares; issued and outstanding at 12/31/98,
6,000,000 common shares; issued and
outstanding at 09/30/99, 18,497,500 1,850.00 600,00 100.00
Additional paid in capital 2,950,150.00 400.00 900.00
Retained Earnings (690,296.00) (11,796.99) (1,000.00)
Total Stockholders' Equity 2,261,704.00 (10,796.99) 0.00
---------------------------------------------------
TOTAL LIABILITIES & OWNER'S EQUITY 2,241,844.00 2,246.00 0.00
===================================================
</TABLE>
See accompany notes to financial statements
-3-
F-1O
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR PERIODS ENDING
<TABLE>
<CAPTION>
Date of
Inception
to
September September December December
30,1999 30,1999 31,1998 31,1997
<S> <C> <C> <C> <C>
REVENUE
Services 0.00 0.00 0.00 0.00
COSTS AND
EXPENSES
Selling, General and Administrative 644,868.00 633,071.00 10,797.00 0.00
Commissions 99,500.00 99,500.00
-----------------------------------------------------------------
Total Costs and
Expenses 620,056.00 608,259.00 10,797.00 0.00
-----------------------------------------------------------------
Other Income (Expense):
Interest Income 3,104.00 3,104.00
-----------------------------------------------------------------
Total Other Income (Expense) 3,104.00 3,104.00 0.00 0.00
Net Ordinary Income or (Loss) before Minority
Interest (741,264.00) (729,467.00) (10,797.00) 0.00
-----------------------------------------------------------------
Less: Income or (Loss) attributed to Minority
Interest 41*$124312 (50,968.00) (50,968.00) 0.00 0.00
-----------------------------------------------------------------
Net Ordinary Income or (Loss) (690,296.00) (678,499.00) (10,797.00) 0.00
=================================================================
Weighted average number of common shares
outstanding 13,882,778 13,882,778 6,000,000 2,000,000
Net Loss Per Share -0.053 -0.052 -0.0018
</TABLE>
See accompany notes to financial statements
-4-
F-l1
<PAGE>
Power Direct, Inc.
A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR PERIODS ENDING
December 31, 1997, December 31, 1998 and September 30, 1999
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
Common Stock paid-in development Stockholder's
Shares Amount capital stage Equity
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 6,000,000 600.00 400.00 (1,000.00)
Balance December 31. 1996 6,000,000 600.00 400.00 (1,000.00)
Balance December 31. 1997 6,000,000.00 600.00 400.00 (1,000.00)
Net loss year ended December 31, 1998 (10,797.00) (10,797.00)
--------------------------------------------------------------------------------
Balance December 31, 1998 6,000,000 $600.00 $400.00 ($11,797.00) (10,797.00)
--------------------------------------------------------------------------------
January 6. 1999 Issued for cash 600,000 60.00 5,940.00 6,000.00
January 28, 1999
Issued for consulting services 600,000 60.00 119,940.00 120,000
April 14, 1999 Issued for cash 7,127,500 712.75 999,287.25 1,000,000
On or about June 15, 1999
issued for licensing agreement 3,000,000 300.00 1,499,700,00 1,500,000
June 15, 1999
Issued for services rendered 20,000 2.00 4,998.00 5,000.00
June 30, 1999
Issued for services rendered 250,000 25.00 49,975,00 50,000.00
July 20, 1999
Issued for cash 800,000 80.00 239,920.00 240,000.00
September 15, 1999
Issued for cash 100,000 10.00 29,990.00 30,000.00
Net loss January 1, 1999 to September
30, 1999 (678,499.00) (678,499.00)
--------------------------------------------------------------------------------
Balance September 30, 1999 18,497,500 $1,849.75 $2,950,150.25 ($690,296.00) $2,261,704
================================================================================
</TABLE>
See accompany notes to financial statements
-5-
F-12
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR PERIOD
<TABLE>
<CAPTION>
Date of January 1,
Inception 1999
to to
September September December December
30,1999 30,1999 31,1998 31,1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) from operations (690,296.00) (678,499.00) (10,797.00) 0.00
Adjustments to reconcile net income to net cash
provided
Depreciation Expense 0.00
Amortization of Intangible Assets (Minority
Interest) 41,667.00 41,667.00
Services rendered in exchange for stock 155,000.00 155,000.00
Increase in current assets (41,321.00) (41,321.00)
Increase (Decrease) in current
liabilities 4,137.00 (8,906.00) 13,043.00
---------------------------------------------------------------------
Net Cash provided by Operating Activities (530,813.00) (532,059.00) 2,246.00 0.00
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Long Term Investments 691,697.00 491,697.00
---------------------------------------------------------------------
Net cash used by investing activities 691,697.00 691,697.00 (0.00)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Capital Stock 1,277,000.00 1,276,000.00
Net cash provided by financing
activities 1,277,000.00 1,276,000.00 0.00 0.00
Net increase (decrease) in cash 54,490.00 52,244.00 2,246.00 0.00
Cash and cash equivalents, beginning
of period 0.00 2,246.00 0.00 0.00
Cash and cash equivalents, end of
year 54,490.00 54,490.00 2,246.00 0.00
</TABLE>
See accompany notes to financial statements
-6-
F-13
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1- HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized September 13, 1993, under the laws of the State
of Delaware, as Power Direct, Inc. The Company currently has no operations and
in accordance with SFAS #7, the Company is considered a development stage
company.
On September 30, 1993, the company issued 10,000 Shares of its $.01 par
value common stock for cash of $ 1,000.00.
On July 30, 1998, the State of Delaware approved the Company's restated
Articles of Incorporation, which increased its capitalization from 10,000 common
shares to 25,000,000 common shares. The par value was changed from $.01 par
value to $0.0001.
On July 30, 1998, the Company forward split its common stock 200:1, thus
increasing the number of outstanding common stock shares from 10,000 to
2,000,000 shares.
On October 21, 1998, the Company forward split its common stock 3:1, thus
increasing the number of outstanding common stock shares from 2,000,000 to
6,000,000 shares.
On December 16, 1998, the Company increased its capitalization from
25,000,000 common shares to 100,000,000 common shares. The par value remained at
$0.0001.
The Statement of Stockholder's equity reflects changes in par value and
common stock splits retroactively.
On January 6, 1999, the Company issued 600,000 shares of its $0.0001 par
value common stock for $6,000.00 in cash.
On January 28, 1999, the Company issued 600,000 shares of its $0.0001 par
value common stock for services rendered in the amount of $120,000.00.
On April 14, 1999, the Company completed a Regulation it Rule 504 offering,
issuing 7,127,500 shares of its $0.0001 par value common stock for $1,000,000.00
in cash. These shares were issued at varying prices which reflected market
prices at time of subscription.
On or about June 15, 1999, the Company issued 3,000,000 shares of its
$0.0001 par value common stock for a licensing agreement valued at $.50 per
share, the market price at the time the agreement was reached. There will be a
future exchange of an additional 3,000,000 shares of common stock when the
licensing agreement is finalized.
On June 15, 1999, the Company issued 20,000 shares of its $0.0001 par value
common stock for services rendered in the amount of $5,000.00.
-7-
F-14
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY-continued
On June 30,1999, the Company issued 250,000 shares of its $0.0001 par value
common stock for services rendered in the amount of $50,000.00.
On July 20, 1999, the Company issued 800,000 shares of its $0.0001 par
value common stock for cash in the amount of $240,000.00 and redeemed 800,000
warrants.
On September 15, 1999, the Company issued 100,000 shares of its $0.0001 par
value common stock for cash in the amount of $30,000 and redeemed 100,000
warrants.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Accounting polices and procedures have not been determined except as
follows:
1. The Company uses the accrual method of accounting.
2. Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding. Diluted earnings per share were not
included as the inclusion of warrants is anti-dilutive.
3. The Company has adopted December 31 as its fiscal year end.
4. The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
5. The Company has not yet adopted all accounting pronouncements issued.
The effect on the financial statements is deemed insignificant and immaterial
and there were no adjustments made to the financial statements.
6. Organization costs were expensed when incurred.
7. The Company records its inventory at cost.
8. The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions which affect the reported amounts of assets and liabilities as at
the date of the financial statements and revenues and expenses for the period
reported. Actual results may differ from these estimates.
9. The Company's Statement of Cash Flows is reported utilizing
cash (currency on hand and demand deposits) and cash equivalents( short-term,
highly liquid investments). The Company's Statement of Cash Flows is reported
utilizing the indirect method of reporting cash flows.
-8-
F-15
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
10. The cast of plant and equipment is depreciated over the estimated
useful life of the equipment utilizing the straight line method of depreciation-
The amount of depreciation recorded during this period was $0.00.
11. Power Direct, Inc. purchased a majority interest in Cardstakes.com. The
Company has accounted for the business combination as a consolidation. All
intercompany eliminations have been made.
12. The Company has incurred Universal Resources Locator's costs as part of
web site development. The costs of the web site will be amortized over 60
months, once the development is complete and in operations.
13. The Company experienced losses since its inception September 13, 1993
(Date of inception) to September 30, 1999. The Company will review its need for
a provision for federal income tax after each operating quarter and each period
for which a statement of operations is issued. There has not been any deferred
tax benefits recorded as management has deemed it less than likely that the net
operating losses will be utilized. The net operating loss carryforwards will
begin to expire in 2008.
14. The Company has purchased interests in Vertizonal, Rising Phoenix and
LANSource. Vertizonal and Rising Phoenix investments have been recorded
utilizing the equity method of accounting. The Company alleges that LANSource
breached the agreement and is currently in negotiations to settle the alleged
breach.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of revenue. Without
realization of additional capital or revenues, It would be unlikely for the
Company to continue as a going concern. It is management's plan to seek
additional capital through a merger with an existing operating company.
NOTE 4 - RELATED PARTY TRANSACTION
The Company does not own any real or personal property. Office services are
provided without charge by a director. Such costs are immaterial to the
financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such conflicts.
-9-
F-16
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - WARRANTS AND OPTIONS
On July 15, 1999, the Company issued warrants to J & S Overseas Holding as
part of the purchase agreement for URL. At September 30, 1999, there were
1,000,000 of these warrants outstanding. The warrants may be exercised one
warrant for one share of the Company's common stock and $0.25 cents per share.
On April 30, 1999, the Company issued warrants to Yenn Assets as part
of a Regulation S offering. At September 30, 1999, there were 1,000,000 of these
warrants outstanding. The warrants may be exercised one warrant for one share of
the Company's common stock and $0.30 cents per share.
The warrants have not been assigned a value, as the monetary value of these
warrants is not readily determined since the warrants are not trading.
The Company has options agreements with the following individuals.
May Joan Liu 600,000
R. Angelo Holmes 399,000
Jack Sha 300,000
Ferdinand Marehard 50,000
The options may be exercised on a one option for one share of the Company's
common stock and $0.25 cents per share. The options are good for a period of 18
months from grant date.
The Company following the guidelines of the fair value method did not
record any compensation expense at the issue of these options. The options were
not issued under a formal or informal compensation package or agreement. The
options were issued by a development stage company which exhibits a high
volatility factor exhibited by the fluctuation in the market prices both before
and since the grant date. There are no expected dividends in the exercise
period. The options are not dependent on performance by the holders of the
options. If the Company had recorded compensation expense, the net loss from
inception would have increased from ($690,296.00) to ($1,079,046.00)
NOTE 6 - LONG TERM COMMITMENTS
The Company does not have any long term rental agreements nor does it have
any long term debt obligations.
-10-
F-17
AGREEMENT TO SELL URL (Universal Resource Locator)
Agreement made this 5th day of May, 1999 by and between On-Line Asset Courtesy
Inc., of Panama City, Panama (hereinafter referred to as "Seller") and Power
Direct, Inc. of Delaware, USA (hereinafter referred to as the "Buyer").
Whereas the Seller desires to sell and the Buyer desires to buy the asset known
as the URL (Universal Resource Locator) registered as "GREETINGCARDLOTTO.COM" as
well as associated URL's registered as "E-CARDLOTTO.COM" and "CARDLOTTO.COM",
the parties hereto agree and covenant as follows:
1. The total purchase price for all three (3) URL's is two million (2,000,000)
warrants of Power Direct, Inc. restricted (144) common stock exerciseable
for up to two (2) years from delivery at twenty five cents US currency
(US$0.25) each.
2. The warrants are to be delivered at the time of passing papers ownership of
the URL's to the Buyer by the Seller.
3. The property to be sold hereunder shall be conveyed by a standard form Bill
of Sale, duly executed by the Seller.
4. The Seller promises and agrees to convey good, clear, and marketable title
to all the property to be sold hereunder, the same to be free and clear of
all liens and encumbrances.
5. Consummation of the sale, with payment by the Buyer of total purchase price
and the delivery by the Seller of a Bill of Sale, will take place on or
before May 15, 1999.
6. All or the terms, representations and warranties shall survive the closing.
This Agreement shall bind and inure to the benefit of the Seller and Buyer
and their respective heirs, executors, administrators, successors and
assigns.
7. If this Agreement shall contain any term or provision which shall be
invalid or against public policy or if the application of same is invalid
or against public policy, then, the remainder of this Agreement shall not
be affected thereby and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in duplicate on May 6, 1999.
/s/ Conrado Beckerman
- - -------------------------------
SELLER
Conrado Beckerman
Director, On-Line Asset Courtesy, Inc.
/s/ Jack Sha /s/ Michael R. Wright
- - ------------------------------- ---------------------------------
BUYER BUYER
Jack Sha Michael Wright
President, Power Direct, Inc. Chairman, Power Direct, Inc.
E-1
