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 SEPTEMBER 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 (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
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 September 30, 1999, there were
18,497,500 shares of the issuer's $.0001 par value common stock issued and
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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 presentations. 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
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September December December
30, 1999 31, 1998 31, 1997
ASSETS
Current Assets
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 2,246.00 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
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September December December
30, 1999 31, 1998 31, 1997
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 (23,997.00)
($26,971 at time of acquisition
less income attributable to
minority interest $50,968)
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 (691,296.00) (11,796.99) (1,000.00)
Total Stockholders' Equity 2,261,704.00 (10,796.99) 0.00
-----------------------------------------
TOTAL LIABILITIES & OWNERS
EQUITY 2,241,844.00 2,246.00 0.00
=========================================
See accompany notes to financial statements
<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 0.00 0.00 0.00 0.00
Services
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 744,368.00 732,571.00 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) before Minority
interest (50,968.00) (50,968.00) 0.00 0.00
----------------------------------------------------------------------
Net Ordinary Income or (Loss) (690,298.00) (678,499.00) (10,797.00)
======================================================================
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 0
</TABLE>
See accompany notes to financial statements
<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) 0.00
Balance December 31, 1996 6,000,000 600.00 400.00 (1,000.00) 0.00
Balance December 31, 1997 6,000,000.00 600.00 400.00 (1,000.00) 0.00
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 60.00 119,940.00 120,000.00
April 14, 1999 Issued for cash 7,127,500 712.75 999,287.25 1,000,000.00
On or about June 15, 1999
Issued for licensing agreement 3,000,000 300.00 1,499,700.00 1,500,000.00
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 5,000.00
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 29,9990.00 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 2,261,704.00
================================================================================
</TABLE>
See accompany notes to financial statements
<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 used 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
<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.
On July 30, 1998, the State of Delaware approved the Company's restated
Articles of Incorporation, which increase its capitalization from 10,000 common
shares to 25,000,000 common shares. The par value was changed form $.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 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 6000,000 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 D, Rule 504 offering,
issuing 7,127,500 shares of its $0.0001 par value common stock for $1,000,000 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.
<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 $30,000.00 and redeemed 100,000
warrants
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 Statements 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 FINANCIAL STATEMENTS
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 50.00.
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 on 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 interest 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 statemetns 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.
<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 300,000
Jack Sha 300,000
Ferdinand Marchard 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 did not record any compensation expense at the issue of these
options for the following reasons: 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 marke prices both before and since the grant date.
If the Company had recorded compensation expense, the net loss from
inception would have increased from ($690,296.00) to ($1,079,046.00)
NOTE 5 - LONG TERM COMMITMENTS
The Company does not have any long term rental agreements nor does it have
any long term debt obligations.
Item 2. Management's Discussion and Analysis or Plan of Operation
Business of the Registrant. Power Direct, Inc. (the "Registrant") was
incorporated in the State of Delaware on September 13, 1993, and maintains its
principal executive offices at 1288 Alberni Street, Suite 806, Vancouver, BC V6E
4N5. The Registrant's offices in the United States are located at 4291 Meridian
Street, Suite 29, Bellingham, WA 98226.
For purposes of clarification, anytime that "US$" 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. As of September 14, 1999,
Derek Resources had expended approximately $1,000,000 on the Wyoming Property.
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
3
<PAGE>
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 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 September 15,
1999, The Registrant had met all of its financial obligations under the J&S
Agreement.
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On or about September 1, 1999, the Registrant entered into an Asset Purchase
Agreement ("Holm Agreement") with Holm Investment Ltd., a Canadian corporation
("Holm"). Pursuant to the Holm Agreement, the Registrant agreed to purchase from
Holm, and Holm agreed to sell to the Registrant, three (3) Universal Resource
Locators ("URL's") registered as "GREETINGCARDLOTTO.NET", "E-CARDLOTTO.NET" and
"CARDLOTTO.NET". In exchange for the 3 URL's, the Registrant agreed to issue
Holm 1,000,000 warrants to purchase the Registrant's $.0001 par value common
stock at a purchase price of US$0.25 per share. The warrants 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 Registrant anticipates that the
sale will close in or around November of 1999.
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 September 15, 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 September 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
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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
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. On or about August 16, 1999, Power Direct
distributed 2,199,779 shares of the Registrant'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.
Liquidity. The Registrant had cash resources of US$2,246.00 at December 31,
1998. At September 30, 1999, the Registrant had cash resources of US$54,490.00.
The influx of cash for the period ended September 30 1999, resulted primarily
from the Registrant's sale of its $.0001 par value common stock. At September
30, 1999, the Registrant had total current assets of US$95,811.00 and total
current liabilities of US$4,137.00. At September 30, 1999, total current assets
exceeded total current liabilities by US$91,674.00. The cash and equivalents
constitute the Registrant's present internal sources of liquidity. Because
neither the Registrant nor its subsidiaries are generating any significant
royalty 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 nine months ended September 30, 1999, the Registrant experienced
a net loss of US$676,499.00 which resulted primarily as a result of selling,
general and administrative expenses and commissions.
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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 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
7
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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
8
