U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NUMBER:
POWER DIRECT,INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 52-2132622
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
1208 Alberni Street, Suite 806, Vancouver, British Columbia, Canada V6E 4N5
(Address of principal executive offices) (Zip Code)
(604) 664-0484
(Issuer's Telephone Number, including Area Code)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Telephone: 949.660.9700
Facsimile: 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. [X] Yes [ ]
No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of June 30, 1999, there were
17,597,500 shares of the issuer's $.0001 par value common stock issued and
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Power Direct, Inc.
(A Development Stage Company)
BALANCE SHEET
As at June 30, 1999
June December December
30, 1999 31, 1998 31, 1997
ASSETS
Current Assets
Cash in Bank 212,995.62 2,246.00 0.00
Accounts Receivable 39,321.00
------------ ------------ ------------
Total Current Assets 252,316.62 2,246.00 0.00
OTHER ASSETS
Loans & Exchanges 2,000.00 0.00 0.00
Stockholder's Notes Receivable 85,000.00 0.00 0.00
Other Assets 1,123.70 0.00 0.00
Organization Costs 571.00 0.00 0.00
Purchase - Rising Phoenix 75,000.00 0.00 0.00
Purchase - Vertizontal 20,393.00 0.00 0.00
Purchase - LANSource 202,255.00 0.00 0.00
Purchase - 577844 BC Ltd 69,445.00 0.00 0.00
------------ ------------ ------------
Total Other Assets 453,787.70 0.00 0.00
------------ ------------ ------------
TOTAL ASSETS 708,104.32 2,246.00 0.00
============ ============ ============
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable 4,137.10 13,042.99 0.00
EQUITY
Capital Stock 1,372.75 600.00 100.00
Additional paid in capital 1,005,627.25 400.00 900.00
Retained Earnings -11,796.99 11,796.99 -1,000.00
Net Income (Loss) -291,235.79 0.00 0.00
------------ ------------ ------------
Total Stockholder's Equity 703,967.22 -10,796.99 0.00
------------ ------------ ------------
TOTAL LIABILITIES &
OWNER'S EQUITY 708,104.32 2,246.00 0.00
============ ============ ============
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR PERIOD
January 1, 1999 to June 30, 1999
June December December
30, 1999 31, 1998 31, 1997
REVENUE
Services 0.00 0.00 0.00
Interest income 2,338.25 0.00 0.00
COSTS AND EXPENSES
Selling, General and Administrative -194,074.04 -10,796.99 0.00
Commissions -99,500.00 0.00 0.00
----------- ----------- -----------
Total Costs and Expenses -293,474.04 -10,796.99 0.00
----------- ----------- -----------
Net Income or Loss -291,235.79 -10.796.99 0.00
=========== =========== ===========
Weighted average number of
Common shares outstanding 17,597,500 6,000,000 2,000,000
NET LOSS PER SHARE -0.0166 -0.0018 0.00
<PAGE>
Power Direct Inc.
(A Development Stage Company)
STATEMENT OF CHANGES iN STOCKHOLDER'S EQUITY
FOR PERIOD
January 1, 1999 to June 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, 1998 6,000,000 $600.00 $400.00 ($11,797) ($10,797)
January 6, 1999
Issued for cash 600,000 $60.00 $5,940.00 -- $6,000
January 28, 1999
Issued for consulting 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
June 15, 1999
Issued for licensing 3,000,000 $300.00 $1,499,700.00 -- $1,500,000
June 15, 1999
Issued for Services 20,000 $2.00 $4,998.00 -- $5,000
June 30, 1999
Issued for services 250,000 $25.00 $49,975.00 -- $50,000
Net loss January 3, 1999
to June 30, 1999 ($291,236) ($291,236)
------------ ------------- ------------- ------------- ------------
Balance - June 30, 1999 17,597,500 $1,759.75 $2,680,240.25 ($303,033) $2,378,967
</TABLE>
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR PERIOD
January 1, 1999 to June 30, 1999
<TABLE>
<CAPTION>
June December December
30, 1999 31, 1998 31, 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss from operations -291,235.79 -10,796.39 0.00
------------- ----------- ----------
Net Cash provided by Operating Activities -291,235.79 10,796.99 0.00
Increase in current asset 250,070.62 2,246.00 0.00
Increase in other assets 453,787.70 0.00 0.00
Increase In current liabilities -8,905.09 13,042.99 0.00
------------- ----------- ----------
Net cash provided by Operating Activities 619,690.16 2,246.00 0.00
INVESTING ACTIVITIES
Deposit on Asset Purchase Agreement 367,093.00 0.00 0.00
------------- ----------- ----------
Net cash used by investing activities 367,093.00 0.00 0.00
FINANCING ACTIVITIES
Issuance of Capital Stock 1,006,000.00 0.00 0.00
Net cash provided by financing activities 638,907.00 0.00 0.00
Net increase (decrease) in cash 250,070.62 2,246.00 0.00
Cash and equivalents, beginning of Current Period 2,246.00 0.00 0.00
Cash and equivalents, end of Current Period 252,316.62 2,246.00 0.00
</TABLE>
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FiNANCIAL ST4TEMENTS
June 30, 1999
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 1O,000 shares of its 3.01 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 to
$.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.
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 $120,000.00.
On March 31, 1999, the Company completed a Regulation D, 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 June 15, 1999, the Company issued 3,000,000 shares of its $0.0001 par
value common stock for a licensing agreement valued at $0.50 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.
<PAGE>
Power Direct, Inc..
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
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.
NOTE 2- ACCOUNTING POLICIES AND PROCEDURES
Accounting policies 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.
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANC1AL STATEMENTS
June 30, 1999
NOTE 2- ACCOUNTING POLICIES AND PROCEDURES - continued
10. The cost 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 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 operation.
13. The Company has experienced losses since its inception September 13,
1993 (Date of inception) to June 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 an 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 Vetizontal, Rising Phoenix and
LANSource. Investments in both Vetizontal and Rising Phoenix 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.
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
NOTE 4 - RELATED PARTY TRANSACTION
The Company neither owns nor leases any real or personal property. 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
On April 30, 1999, the Company issued warrants to Yenn Asset Investments
Inc. as part of a Regulation S Offering. At June 30, 1999, there were 1,100,000
of these warrants outstanding. The warrants may be exercised one warrant for one
share of the Company's common stock at $0.30 per share.
The company has option agreements with the following individuals.
May Joan Liu 600,000
R. Angelo Holmes 300,000
Jack Sha 300,000
Ferdinand Marehard 50,000
These options may be exercised at one option for one share of the Company's
common stock and at $0.25 per share. These options will expire of their own
accord eighteen months from date of issue or on October 22, 2000.
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 ($303,033) to ($691,783).
NOTE 6- LONG TERM COMMITMENTS
The Company does not have any long-term rental agreements nor does it have
and long term debt obligations.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Business of the Registrant. Power Direct, Inc. (the "Registrant") was
incorporated in the State of Delaware on September 13, 1993, and maintains its
principal executive offices at 1288 Alberni Street, Suite 806, Vancouver, BC V6E
4N5. The Registrant's offices in the United States are located at 4291 Meridian
Street, Suite 29, Bellingham, WA 98226.
For purposes of clarification, anytime that "US$" 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 Registrant was inactive from September 13, 1993, through November 1, 1998.
In November 1998 the Registrant began the process of identifying available
interests in oil and natural gas producing properties. On January 15, 1999, the
Registrant 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 Registrant 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 Registrant will appoint no more than three directors from Rising
Phoenix's board of directors to the Registrant's board of directors. The
Registrant 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
Registrant made a second prepayment advance to Rising Phoenix of Ten Thousand
Dollars (US$10,000). On or about March 29, 1999, the Registrant 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 Registrant. The Registrant 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 Registrant
has not transferred any of its common stock to Rising Phoenix to complete this
transaction. According to the letter of intent, the Registrant 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 Registrant 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 Registrant 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 Registrant will own a 25% working
interest in the Wyoming Property. If Derek Resources fails to meet its
obligations under the joint venture agreement, the Registrant 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 Registrant signed a letter of agreement with
Vertizontal Energy Resources Inc., formerly 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 Registrant 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 Registrant 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
2
<PAGE>
directly to Nicholas Baiton, the royalty holder). To date, the Registrant 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
Registrant that the $8,400 deposit would be used for prospect fees and that the
Registrant will receive a refund of any unused portion of that deposit. Within
ten (10) days of I.T.A. providing the Registrant with an "Authority for
Expenditures" and a cash call for Phases I and II of the development of the
Alberta Property, the Registrant will be required to advance seventy five
thousand six hundred dollars (CDN$75,600) to I.T.A., representing the balance of
the Registrant's 42% of the estimated costs. There can be no assurance that the
Registrant 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.
Plan of Operation-Alberta Property. The Registrant 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 Registrant 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
Registrant will have a working interest in the Alberta Property but Liberty will
physically operate the facility. The Alberta Property does not contain proved
oil or gas reserves at this time.
Plan of Operation-Wyoming Property. The Registrant 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 Registrant 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 meet its financial
obligations. The Registrant anticipates that if the Wyoming Property produces
oil, it will be sometime before December 31, 2000. The Wyoming Property does not
contain proved oil and gas reserves at this time.
Marketing. The Registrant 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
Registrant'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 Registrant 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 Registrant'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 Registrant anticipates that it will deliver natural 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 Registrant's ability to produce and market its oil and
natural gas. The Registrant anticipates it will take the necessary steps to
attempt to control price risk. Even if the Registrant 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
Registrant'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 Registrant believes that it will be able to reduce these risks
by entering into, and expects to enter into, hedge transactions in future years.
On February 15, 1999, the Registrant 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
3
<PAGE>
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 Registrant 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
Registrant. The letter of intent contemplated that, on or before March 31, 1999,
the Registrant and LANSource would enter into a formal Purchase and Sale
Agreement. Upon the execution of that agreement, the Registrant 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 Registrant
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 Registrant and LANSource
had not finalized a formal agreement. 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 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.
On or about June 18, 1999, the Registrant 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 Registrant 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 Registrant agreed
to pay US$240,000 and grant to J&S Overseas the rights to purchase 1,000,000
shares of the Registrant'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 June 30, 1999,
The Registrant had met all of its financial obligations under the J&S Agreement.
4
<PAGE>
Business of Registrant's Subsidiary. On February 19, 1999, the Registrant caused
PDTech.com, a Nevada corporation, to be formed as a subsidiary of the
Registrant. On or about June 8, 1999, PDTech.com changed its name to
CardStakes.com. The Registrant anticipates that CardStakes.com will invest in
Internet companies and related technology, and further anticipates that the
Registrant'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 Registrant 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 Registrant 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 Registrant 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 Registrant 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 Registrant had paid CDN$100,000 and issued
3,000,000 shares of the Registrant'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 Registrant made the second payment of CDN$100,000 pursuant to the
Compte Agreement. As of June 30, 1999, the second phase of testing had not been
completed. As such, the Registrant 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 Registrant
requested that Compte De Sierge provide the Registrant 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 Registrant'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 Registrant 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 Registrant 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 Registrant agreed to change the title of the agreement to the
"Proprietary Technology Usage - License Agreement". As of June 30, 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 Registrant and Compte De Sierge
or CardStakes.com and Compte De Sierge.
On or about May 5, 1999, the Registrant 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
Agreement, The Registrant 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 Registrant agreed to issue to On-line 2,000,000 warrants to purchase
the Registrant'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
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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 Registrant 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 Registrant and On-line, there are no other
relationships or affiliations between either the Registrant and On-line or
CardStakes.com and On-line.
The Compte Agreement provides that the Registrant 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 Registrant and CardStakes.com entered into
a licensing agreement whereby CardStakes.com acquired 51% of the Registrant'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 Registrant 9,106,123 shares of
CardStakes.com's $.0001 par value common stock. The Registrant and
CardStakes.com valued those assets at $1,470,000 based on the Registrant's
historical cost basis. Any and all assets acquired by CardStakes.com from the
Registrant will be recorded in CardStakes.com's financial statements at the
Registrant's historical cost basis.
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.
Liquidity. The Registrant had cash resources of US$2,246.00 at December 31,
1998. At June 30, 1999, the Registrant had cash resources of US$212,995.62. The
influx of cash for the period ended June 30, 1999, resulted primarily from the
Registrant's sale of its $.0001 par value common stock. At June 30, 1999, the
Registrant had total current assets of US$252,316.62 and total current
liabilities of US$4,137.10. At June 30, 1999, total current assets exceeded
total current liabilities by US$248,179.52. The cash and equivalents constitute
the Registrant's present internal sources of liquidity. Because neither the
Registrant nor its subsidiaries are generating any significant revenues, the
Registrant's only external source of liquidity is the sale of its capital stock.
Results of Operations. The Registrant 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
Registrant's renewed activities in locating and evaluating suitable gas and oil
leases and the general, selling, and administrative amortization of organization
costs. For the six months ended June 30, 1999, the Registrant experienced a net
loss of US$291,235.79 which resulted primarily as a result of selling, general
and administrative expenses and commissions.
The Registrant 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 Registrant 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 Registrant to implement its business strategies. The
inability of the Registrant 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 Registrant.
The Registrant'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 Registrant 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
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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
Registrant's 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 Registrant 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
Registrant to relinquish rights to certain of its products that the Registrant
would not otherwise relinquish.
The Registrant does not anticipate any material expenditures within the next 12
months. The Registrant does not anticipate any significant research and
development within the next 12 months, nor does the Registrant anticipate that
it will lease or purchase any significant equipment within the next 12 months.
The Registrant does not anticipate a significant change in the number of its
employees within the next 12 months.
The Registrant anticipates that it will begin to realize a positive revenue
stream beginning in or about the second quarter of 2000, as a result of the
activities of its subsidiary, CardStakes.com, Inc. Specifically, the Registrant,
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 Registrant.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 16, 2000 POWER DIRECT, INC.
By: /s/ Jack Sha
-------------------------
Jack Sha
Its: President
