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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JUNE 30, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended...
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number ________________________________________
TITAN TRADING ANALYTICS INC.
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(Exact name of Registrant as specified in its charter)
INAPPLICABLE
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(Translation of Registrant's name into English)
PROVINCE OF BRITISH COLUMBIA, CANADA
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(Jurisdiction of incorporation or organization)
201 SELBY STREET, NANAIMO, BRITISH COLUMBIA, CANADA V9R 2R2
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(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b)
of the Act.
Name of each exchange
Title of each class on which registered
--------------------- ----------------------
NONE
Securities registered or to be registered pursuant to Section 12(g)
of the Act.
COMMON SHARES WITHOUT PAR VALUE
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(Title of Class)
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(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
NONE
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(Title of Class)
Indicate the number of outstanding shares of each of the registrant's
classes of capital or common stock as of the close of the period
covered by the annual report.
COMMON SHARES WITHOUT PAR VALUE: 8,857,001 as of May 31, 1999
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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.
Yes __ No X
Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 X Item 18 __
Except as otherwise noted, all dollar amounts are presented in
Canadian dollars.
Exchange Rates: As at June 28, 1999, the median bidding exchange rate
of Canadian dollars into United States dollars was $1.4695 Canadian
to $1.00 US.
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TABLE OF CONTENTS
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Part I Page No.
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Item 1. Description of Business................... 5
Introduction............................. 5
History of Business Development.......... 5
Employees................................ 6
1998-99 Fiscal Period Operational Plan... 7
Principal Products and Services.......... 7
Principal Markets and Methods of
Distribution............................ 10
Competition and Competitive Strategy..... 11
Intellectual Property Rights............. 13
Trading and Testing Activities........... 13
Breakdown of Total Sales and Costs To
Date.................................... 15
Status of New Products or Services....... 17
Research and Development Policy.......... 17
Distinctive and Special Characteristics
of Operation............................ 17
Item 2. Description of Property................... 22
Item 3. Legal Proceedings......................... 23
Item 4. Control of Registrant..................... 24
Item 5. Nature of Trading Market.................. 24
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders............. 26
Item 7. Taxation.................................. 27
Dividends................................ 28
Capital Gains............................ 28
Deemed Distributions on Death............ 28
Item 8. Selected Financial Data................... 29
Summary of Financial Data................ 30
Exchange Rates........................... 30
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 31
General Overview......................... 31
Canadian GAAP vs US GAAP................. 32
Overview of Business Operations.......... 33
Results of Operations.................... 34
Liquidity and Capital Resources.......... 40
Item 10. Directors and Officers of Registrant...... 41
Item 11. Compensation of Directors and Officers.... 43
Item 12. Options to Purchase Securities from
Registrant or Subsidiaries............... 44
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- ---------------------------------------------------------------------
TABLE OF CONTENTS
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Part I Page No.
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Item 13. Interest of Management in Certain
Transactions.............................. 44
Material Transactions..................... 44
Indebtedness of Directors and Officers.... 47
Part II
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Item 14. Description of Securities to be
Registered................................ 47
Part III
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Item 15. Defaults Upon Senior Securities............ 48
Item 16. Changes in Securities and Changes in
Security for Registered Securities........ 48
Part IV
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Item 17. Financial Statements....................... 48
Item 18. Financial Statements....................... 49
Item 19. Financial Statements and Exhibits.......... 49
Index...................................... 49
Item 20. Signature Page............................. 50
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PART I
Item 1. Description of Business
INTRODUCTION
Titan Trading Analytics Inc. ("Registrant") is a software development
company that commenced operations in May 1994 and is nearing the
final stages of a multi-year software research and development
program. Registrant uses the software it develops in its own trading
activities, to trade S&P500 stock index futures contracts and
currency futures contracts for its own account, in addition to
offering its software products for sale or license to customers. In
addition, Registrant is testing, developing and planning to publish
and market a monthly financial subscription service to its daily
stock market commentaries through its Internet web site.
In this regard, Registrant has developed a series of software
programs, including: (1) a financial trading simulator called
VirtualTrader ("VT"); (2) a series of real-time proprietary pattern
recognition based US stock market trading indicators and stock index
trading systems for trading the S&P 500 Stock Index, the OEX 100
Stock Index, the Dow Jones Industrial Index and the NYSE Composite
Index called the TITAN Stock Index Trader series ("SIT"); and (3) a
portfolio of currency trading software programs for trading the
Japanese Yen, the Swiss Franc, the British Pound and the German Mark
called the TITAN World Currency Trader series ("WCT").
HISTORY OF BUSINESS DEVELOPMENT
Registrant was incorporated by registration of its Memorandum and
Articles under the Company Act of the Province of British Columbia,
Canada on November 30, 1993 under the name "KBK No. 24 Ventures Ltd."
Registrant changed its name to "Titan Trading Analytics Inc.," by
filing of an amendment to its Articles on November 14, 1994.
Registrant's principal business office is at 201 Selby Street,
Nanaimo, British Columbia, and its registered and records office is
located at 30 Front Street, Nanaimo, British Columbia.
Up to the period ended April 30, 1999, Registrant raised a total of
$2,802,962 in share capital through the sale of its Common Shares,
and up to April 30, 1999 has invested approximately $1,362,185 in the
development of its business. The balance of the funds raised as of
April 30, 1999, totaling $1,447,931, is represented in the balance
sheet as current assets, software and systems development and capital
assets.
On November 23, 1994, Registrant incorporated Titan Trading Corp.
("TTC") under the Company Act of the Province of British Columbia,
Canada, as its wholly owned subsidiary. TTC was originally
incorporated with a view toward forming a separate trading business.
The original intention was to separate that trading activity from the
software development business. That plan, however, never
materialized because the scale of trading (strictly for its own
account) remained relatively small and software development took much
longer than originally expected. The main trading account of
Registrant was originally set up at Refco Futures (Canada) Ltd. in
Canada under the TTC name.
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Although TTC was an otherwise inactive wholly-owned subsidiary of
Registrant, management elected to continue to execute its trades
through TTC, as agent on behalf of Registrant, simply for
convenience.
TTC has no income, expenses, assets or liabilities. It was set-up
with a capital contribution of $100, and currently operates
specifically and exclusively for the purpose of acting as agent for
Registrant in executing Registrant's in-house trading activities.
In November of 1998, Registrant announced a planned joint venture for
US stock day trading with an established brokerage operation on the
West Coast of Canada, Wolverton Securities Ltd.("Wolverton"). On
April 1, 1999, following the receipt of a letter from the Vancouver
Stock Exchange ("VSE") stating that the VSE would not allow profit
sharing between its member company (Wolverton) and a non-member (the
Company) and that it would not allow the Company's traders to execute
trades through Wolverton because they were not registered or part of
the staff of Wolverton, Registrant publicly announced the withdrawal
from the proposed joint venture and abandoned business plans and
activities involved with the development of a stock day trading
business.
Registrant has been publishing a regular stock market commentary on
its Internet web site based on its trading technology for
approximately two years. Registrant is now planning to develop,
publish and market an expanded internet-based, daily financial market
commentary on a paid subscription basis ("Internet Subscription
Service").
EMPLOYEES
The following is a brief description of the Registrant's non-officer
employees:
John Austin, was Titan's Manager of Marketing and Sales from November
1995 to November 17, 1998, but was recently appointed to the position
of General Manager. Since graduating in Business Administration from
Utah State University in 1972, Mr. Austin has held a number of
marketing, service and sales management positions, including
marketing manager for TNT between 1987 and 1991, where he was also
involved in the research and development of trading systems. Between
1992 and 1994 he was engaged in the establishment, development and
sale of several private businesses. Mr. Austin is a full-time
employee of Registrant.
Greg Kennedy joined Registrant as a full-time Manager of Marketing
and Sales on November 17, 1998. Mr. Kennedy graduated from the
University of Alberta in 1989 with a business degree in Marketing and
Statistics. He gained sales, marketing, brokerage and stock trading
experience during 8 years in the investment business as a registered
securities representative for McDermid St.Lawrence Securities Ltd.
Mr. Kennedy is a full-time employee of Registrant.
Ellen Addison joined Registrant as a Special Projects Coordinator
effective March 15, 1999. Ms. Addison is a graduate of British
Columbia Institute of Technology in Administrative Management. During
the past 10 years, Ms. Addison started and managed a public
accounting and financial consulting business, was the Administrative
Director of a 42 bed residential treatment center and recently became
an author and book publisher. Ms. Addison manages new financial
subscription promotions planning,
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corporate marketing media
development and new internet web site development and publication
projects for Registrant. Currently Ms. Addison works as an
independent consultant to the company.
For information regarding Registrant's officers and directors see
Item 10.
1998-99 FISCAL PERIOD OPERATIONAL PLAN
Registrant believes that the rapid growth in the Internet-based
discount brokerage business in North America and the recent high
growth of online Internet trading provides a growing marketplace for
its VT software and the planned development and marketing of its
Internet Subscription Service.
Previous plans to market related training seminars using the VT
software in conjunction with a stock day trading joint venture, have
been cancelled along with the stock day trading joint venture
project. See discussion under "History of Business Development"
section above.
Registrant plans to continue to demonstrate the value and performance
of its software products and services by using them in actual trading
for its own account. Trading income from stock index and currency
trading reported by Registrant through April 30, 1999 totaled
$134,485.00 -- $70,607.00 of which was reported on the October 31,
1998 audited financial statements and $63,878.00 on the April 30,
1999 interim statements. While there can be no assurance that
trading operations will continue to be profitable in the future, this
is management's expectation. As a consequence, management plans to
use such profits, now and in the future, to demonstrate the value of
Registrant's software to potential buyers and subscribers, and thus
promote sales of both its software products and its Internet
Subscription Service.
Over the next 18 months, Registrant expects to spend approximately
$250,000 of its capital on continuing research and development of its
web site and Internet Subscription Service and software products to
enhance trading activities and stay current in the market. In this
on-going process, Registrant further expects to spend an additional
$95,000 on computer equipment and systems. Moreover, Registrant
expects to hire 3 - 6 additional staff as a result of business
expansion and for the development and marketing launch of its
Internet Subscription Service.
Registrant does not, at this time, anticipate any other material
changes to employees, plant and equipment or other business items
over the next 18 months of operation.
PRINCIPAL PRODUCTS AND SERVICES
Originally, Registrant planned to develop and offer a North American
SkyTel pager based financial trading subscription service. This plan
was abandoned in late 1997 based on an assessment of new competition
from internet based financial subscription services. Based on recent
user response to the existing daily stock market commentary published
on Registrant's web site on a test basis for the past two years,
Registrant now plans to proceed with further development and
marketing over the next twelve months of an Internet Subscription
Service similar to that planned originally for distribution by way of
the SkyTel pagers.
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During 1997 and 1998, Registrant developed and tested its
VirtualTrader ("VT") software - an advanced training simulator for
traders that allows users to replay market data on a computer, bar by
bar, in any time frame, simulating a real time computer based
financial market data feed. This makes it possible for stock bond,
currency and commodity traders to easily test simple and complex
trading methods and money management strategies, without requiring
any software programming of mechanical trading rules, technical
methods or systems, and without risking any trading capital.
The VT program lets traders enter simulated trades on price charts,
enter market orders, stop loss orders, trade exit orders and track
trading performance, in a manner very similar to actual trading.
Registrant's management likens its VT trading software to a flight
training simulator for pilots, except VT is a training simulator for
traders. Traders can conveniently test trading strategies, technical
trading methods and different trading indicators, at a lower cost,
with more convenience, and with greater ease than conventional
methods of computerized back-testing.
Registrant uses VT software in the development of its own trading
systems. Applications of the VT software have been completed for
various futures trading applications, including currencies and stock
futures. More recently, the Registrant used the VT software to
develop a technical analysis based approach to day-trading high
volume NASDAQ, AMEX and NYSE stocks. The Registrant's own in-house
application of the VT software along with a previously developed
stock index trading methodology known as the "neural tape reader",
were combined to form an integrated method of day-trading stocks.
The trading methods, indicators and software developed by Registrant,
are intended to allow it (or its licensees and subscribers) to more
efficiently trade US stock indexes and some world currencies on an
intra-day and end-of-day basis. In general, Registrant's systems are
short-term market timing ayatems and indicators that can be used by
licensees and subscribers to trade any stock index or currency
futures. Registrant, however, currently only uses its software to
develop trading for itself in the S&P 500 stock index and currency
futures contracts in the Japanese Yen, German Mark, the British Pound
and the Swiss Franc.
These developments center around the application of Artificial
Intelligence ("AI") to stock index and currency trading, using neural
networks and expert systems. Neural networks are an AI based
mathematical pattern recognition technique that allows software to
mimic the information processing functions of humans by being able to
"learn" to recognize complex patterns through trial and error without
being programmed with specific, preconceived rules. AI based
software trading systems can be taught complex relationships between
sets of variables and use them to find market correlations and
relationships that humans cannot easily see on their own.
All Registrant's software products, including those under
development, are designed to operate in conjunction with TradeStation
or SuperCharts, two of the industry's leading Windows-based technical
analysis and charting programs, developed and marketed worldwide
since late 1991 by Omega Research Inc. of Miami, Florida, USA
("Omega"). Registrant's software requires the Omega software to be
installed on the same computer in order to operate. Customers must
therefore obtain a license for Omega's software as well as a separate
license for Registrant's software. Registrant's software operates
within Omega's software platform by taking advantage of its data-feed
interface, real-time data
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and chart updating, and reporting
functions. TradeStation was the world's first real-time Windows
based charting program for analyzing stocks, stock index futures,
bonds, mutual funds, commodities and other securities. SuperCharts
is a related program for off-line technical market analysis.
Both TradeStation and SuperCharts are widely used software programs
that allow users to develop, test and automate technical analysis of
the financial markets, and to run developed trading systems and
various standard and custom financial trading indicators in real-
time. The Registrant's software products have been designed to be
loaded into and to operate within the TradeStation and SuperCharts
software platforms and to take advantage of the automation and
charting features built into those products and their user-friendly
Windows operating system environment.
VT allows TradeStation software users to test methods without having
to acquire any programming knowledge of Omega's Easy Language
software language. The VT software also allows traders to gain
technical trading knowledge and experience, be formally trained, and
provides the use of conventional and custom technical analysis
techniques in a fully simulated real-time trading environment.
Registrant has also developed a portfolio of currency trading
software programs for trading the Japanese Yen, the Swiss Franc, the
British Pound and the German Mark called the TITAN World Currency
Trader series ("WCT"). These programs, as with VT, operate through
the Omega software products as described above.
Registrant's SIT and WCT trading indicator and system software do not
affect the Omega user interface in operations, but rather take
advantage of Omega's Easy Language programming utilities and back
testing functions to allow Registrant's custom indicator software and
trading systems software to be programmed into Omega's software
products with graphically and tabularly displayed output and
technical analysis charting features. This allows the user to receive
real-time and end-of-day market updates, real-time and end-of-day
trading alerts, trade by trade reporting of results and overall
historic and real-time trading system performance analysis.
Registrant software is principally sold to United States customers
where Omega dominates the private trader technical analysis and
charting software market. However Omega is increasingly making sales
into the international marketplace. Internet use is also growing
internationally and the financial applications sector represents an
established potential market for Registrant's software and planned
internet based daily stock market commentary subscription service.
The US has been substantially the whole market for test marketing and
software product sales to date (only about $14,000 in sales and
licensing revenue out of $149,631 have come from sources outside the
United States).
Presently the Registrant's VT software is compatible with Omega
TradeStation version 4.0. It is not yet compatible with the recently
released TradeStation version 5.0, nor can there be any assurance at
the present time that VT will ever be compatible with TradeStation
version 5.0.
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PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The Registrant's initial target market for its VirtualTrader software
and planned Internet Subscription Service is comprised of an
estimated 30,000 licensed investors [software users] worldwide of the
Windows-based SuperCharts and TradeStation technical charting and
financial analysis software operating platforms (based on information
contained in Omega Research Inc.'s Form S-1/Afiled with the SEC on
August 27, 1997, page 4). The Microsoft Windows operating system now
dominates the PC based software market worldwide. Although there is
a large number of financial software programs now available to
computerized investors and traders, users are increasingly
standardizing on Windows and a few proven Windows based technical
analysis and financial charting program platforms, such as
SuperCharts, TradeStation, and MetaStock for Windows(tm).
A broader market for VT and the planned Internet Subscription Service
is the existing and growing market for online internet stock traders.
Those online stock traders wishing to use the VT software, who are
not currently users of Omega charting programs, would have to invest
US$395 (for SuperCharts) or US$2,395 (for TradeStation) to acquire
them.
Omega, the manufacturer of SuperCharts and TradeStation software,
offers marketing and other support for third-party product
development through the Omega Solution Provider Program (the
"Program"). There are approximately 150 software development and
service firms registered and active under this Program of which
Registrant is one. Products and services under this Program are
typically marketed by a combination of direct mail programs and
advertising in leading financial magazines. Omega presently delivers
the Program's Solution Provider advertisements by direct mail to its
database of customers on a quarterly basis in the form of the Omega
Research magazine. This provides a central advertising medium for
TradeStation and SuperCharts Solution Providers, and also allows
users of the software to become familiar with various new products
and services offered by Omega and Solution Providers. Registrant's
products are listed in Omega's Solution Provider catalogue and
Registrant has a listing on the Omega web site.
Registrant plans to market to the online trader market through: (1)
an established internet web site presence, (2) Omega's Solution
Provider Program, (3) direct advertising in trade periodicals, (4)
direct seminars and mail campaigns, and (5) in-house direct sales. In
addition, Registrant plans to establish wider channels of
distribution with the support of distributors and agents, and through
a combination of its own internet web site and third-party internet
banner advertising.
Up through April 30, 1999 Registrant has made $149,631 in software
product sales and licensing. While Registrant operates out of
Canada, the principal market for the sales and licensing of its
product/software is in the US. Up through April 30, 199, $135,631 of
the sales and licensing of its sales and licensing were in the United
States, and $14,000 was in Great Britain.
The Registrant has installed a computerized sales lead tracking and
database management system capable of supporting telephone sales and
service support functions which it uses to manage customer service,
direct mail campaigns, and marketing and investor relations
administration.
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COMPETITION AND COMPETITIVE STRATEGY
The worldwide financial software and information services marketplace
is both crowded and intensely competitive, with strong growth being
reported in the online internet trading segment of the marketplace.
The emergence of high volume discount brokerage services and online
internet trading with firms such as E-Trade and Datek has changed the
business model and activities of stock traders dramatically.
The marketplace for the planned Internet Subscription Service, stock
index trading software and currency trading software are also crowded
and intensely competitive. There is a wide variety of products
providing direct competition to the Registrant's software, and a
constant threat of new entrants into the market in all areas of the
financial software marketplace.
Competition of the VT Software
Registrant has identified the following three competitors of its VT
software product:
1. The Omni Trader (trading simulator). The End of Day version for
stocks sells for US $395. The End of Day version for futures sells
for US $695, and the Real Time version sells for US $1,995. This
software is established, aggressively marketed, and popular.
2. The TSI001 Playback Assistant by Jan Arps (an Omega Solution
Provider). This software allows the capability of replaying past
intra-day or End of Day data. The price for this software is US
$495.00.
3. Aesis Software & Consulting is currently developing a trading
simulator which reportedly runs in TradeStation 4.0 or TradeStation
2000i. The price for this software is expected to be US $495, but
has not been released yet.
Note that the description of the software mentioned above is
incomplete, and all prices are the published retail prices of the
identified software.
In addition, Registrant estimates there are at least 3 low cost
trading simulator packages on the market that do not facilitate full
trading simulations, yet appear in the marketplace to be low cost
competitors.
Competition for Registrant's planned Internet Subscription Service
The financial services sector of the internet is extremely
competitive. Registrant estimates that there are over 100 internet
sites that could be considered to be competitors to the Registrant's
planned Internet Subscription Service. There are also new competitors
coming onto the internet everyday. The market is intensely crowded
and competitive. The following internet sites are examples of
competitors to the Registrant's planned Internet Subscription
Service, broken down into two categories, as follows: A) full pay
sites, or B) free or low cost sites. Note that the description of
the service is not complete and all prices mentioned are the
published price of the identified service.
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A) Full Pay Sites
1. Societe Anonyme. This is a $200 per month paid subscription site.
It provides daily e-mail alerts on US momentum stocks, and general
news and commentary on the stocks the site follows.
2. Anthony@Pacific. This is a paid subscription site with various
options available: Silver service: $85 per month, $950 per year, 1
hour delayed calls via e-mail. No site access; Gold service: $400 per
month, $4,150 per year, Real-time calls via browser window and e-
mail; Platinum service $1,000 per month, $10,000 per year.
3. Trading Places.net. This is a $279.95 per month paid subscription
service for real time trading desk news alerts, and access to live
trading (chat) room 24 hours per day. There is a cost of $399.95 per
month for real time market hours training for day traders, real time
news and trade alerts, and full access to live trading room.
4. The Momentum Trader: This is a $200 per month paid subscription
service. The service includes early morning market preview and an End
of Day market wrap, both sent by email. Similar to TradingPlaces.net,
it employs a live trading room-chat room.
5. DayTraders Online. This is a $179.00 per month paid subscription
service that provides a live trading desk service.
6. Pristine Daytrader. This is a $125.00 per month service that
offers pay per view via StockhouseOnline. It includes a database of
over 9,000 securities to determine which ones appear to be offering
the best opportunities, and then outlines specific trading strategies
to take advantage of them. This service includes intra-day updates.
It also offers a Pristine Lite service at $19.95 per month, designed
for the developing trader.
B) Low cost or free sites
1. Clearstation.com. This is a financial advisory web site that helps
investors make investment decisions by identifying and interpreting
stock trends.
2. The Bull Market Report. This is a newsletter (specific to hi-tech
issues) delivered daily, with News Flashes delivered via email on
timely events $125 per year or $39 for two months.
3. The Street.com. This is a subscription service that includes full
site access, three emails daily and a weekend wrap up. The service
is $9.95 per month or $99.95 per year.
4. Jag Notes. This is a compilation of 32 Wall Street brokerage and
analyst stock picks. Subscription is $9.95 per month or $99.95 per
year.
5. Tradehard.com. This site develops, assembles and centralizes
market analysis and information, and provides free email summaries.
The service costs $10 per month.
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6. Investools. This site provides investors with a broad selection
of independent financial research at a subscription price of $14.95
per month.
7. Tulips and Bears. This site provides an email service featuring
portfolio picks and shorts, with free real time quotes and stock
charts.
INTELLECTUAL PROPERTY RIGHTS
The Registrant's ability to compete effectively depends in part on
its ability to protect its core software technology. The Registrant
relies for such protection on a combination of: (1) trade secrets;
(2) technical complexity; (3) common law copyright and trademark
protection; (4) non-disclosure agreements; (5) password protection;
(6) software encryption schemes; and (7) the physical security of its
source code.
Despite these measures and precautions, it may be possible for
unauthorized third parties to copy the Registrant's products or
obtain and use its core software. The Registrant has not to date
attempted to obtain copyright registration for any of its software
products, though it may do so in the future. There can be no
assurance, however, that such registration will be granted if applied
for. Moreover, certain aspects of the Registrant's software products
are not subject to intellectual property protection in law, and to
the extent such protection is available, its extent may differ from
one jurisdiction to another.
Application in the United States for registration of a VirtualTrader
trademark was rejected on initial response by the examiner of the
application on the basis that the trademark was merely descriptive.
Registrant is no longer proceeding with its application for trademark
registration in this respect.
Registrant has not applied for patents nor does it plan to apply for
or receive any patent protection for any of its software products or
product parts, under Canadian or US law.
TRADING AND TESTING ACTIVITIES
Beginning in 1994 and continuing through 1995, Registrant was
generally focused on the initial development of its software products
and therefore did no trading or testing activities. In 1996 through
1998, as development continued, Registrant began demonstration and
testing the software. Demonstration and testing, as use herein,
refers to Registrant's use of the software to trade securities at a
time when the software was still under development.
By April of 1998, the SIT and WCT software (as described above) were
substantially tested and thus reference to any income and losses made
from trading after this time is described in the financials and
herein as "Trading" income or loss rather than as "Demonstration and
Testing" income or loss. The table below provides a summary of
trading and testing income and losses, by year, using this
distinction.
1998 1997 1996 1995 1994
Trading $70,607 0 0 0 0
Demo & Testing $42,490 $56,761 $(57,934) 0 0
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Trading systems for stock indexes and currencies were installed in
Registrant's systems in April 1998, and a trading program has been
carried out since that time to show the efficiency of Registrant's
software technologies under development. As noted above,
Registrant's combined trading income from stock index and currency
trading reported in fiscal year ended October 31, 1998 ($70,607) and
the six months ended April 30, 1999 ($63,878), totaled $134,485.00.
The WCT systems trading signals were provided under an annual
US$10,000 license to Lombard Odier International Portfolio Management
Limited ("Lombard") in London England for the one year period ended
September 1998. A written testimonial was received from Lombard
indicating that actual WCT trading profits were realized by them in
14 international currency hedging trades using Registrant's WCT
system, over a one year period, totaling $28,987 USD on a single
contract basis. Actual real-time trading results by Lombard were
confirmed to have been consistent with historically back-tested
(trading results simulated with historic data) results prepared and
represented by the Registrant in its marketing literature. Lombard's
results were produced in a combination of Japanese Yen, German Mark
and Swiss Franc trades, in US Dollars. A copy of this written
testimonial is attached hereto as an exhibit.
In September 1998 the Registrant commenced testing online stock day-
trading activities over the internet for the company's account with
company funds as part of its planned VirtualTrader training and
trader development services program. This program was later expanded
to include training of experienced third party stock traders trading
their own company funds at Wolverton Securities Ltd., a registered
brokerage in British Columbia. This trading involved the use of in-
house day-trader software to trade high volume NASDAQ, AMEX and NYSE
stocks in short-term intra-day trading, based on methods developed
and practiced in the VT trading simulator. Such trading is considered
high risk due to market volatility, trade slippage problems,
occasional internet execution errors, normal random short-term price
movements, and the margin leverage involved.
While these internet based stock day-trading tests indicated that
such a system could be profitable in the hands of experienced traders
using conventional trade execution methods, trading risks from stock
day-trading over the internet remained very high due to intra-day
volatility, commission costs, internet downtime, trade slippage and
the high cost of trader training and daily supervision. When these
normal risks were combined with the recent bad publicity in the day-
trading market and the response of the VSE to Registrant's proposed
joint venture with Wolverton, Registrant assessed the overall
business risks to be excessive and unwarranted relative to the
potential gains. Accordingly, as noted above the project was
cancelled by Registrant and there are no plans at the present time to
pursue any stock day-trading business plans and all in-house stock
day-trading activities have ceased.
The $500,000 previously proposed for allocation out of existing
working capital for the purposes of the Registrant's various
demonstration trading activities is no longer applicable. Typically,
30% of trading account cash balances is actually allocated to trading
margin, the balance is generally held as a reserve for ordinary
course trading draw-downs. Margin is the use of borrowed money for
trading. The use of margin magnifies trading gains and losses in
direct proportion to the extent of money borrowed. As a consequence,
conservative implementation and use of margin by even experienced
traders is required in order to avoid excessive risk of ruin in
trading. Registrant's management and the registered clearing
14
<Page 15>
firm Refco Futures (Canada) Limited, which clears all trades for
Registrant, independently imposes the conservative 30% allocation to
margin limitation used by Registrant, rather than a higher, more
typical and liberal 50% allocation guideline. In hundreds of trades
to date Registrant remains overall profitable since the inception of
stock index and currency trading, in part as a consequence of the
conservative trading practices employed.
Note, even with a conservative approach to trading, there is always
an ongoing risk of material losses from trading activities. While
Registrant intends to remain conservative in its trading practices as
described above and has established internal risk management criteria
associated with the limited use of margin to minimize trading losses,
as described above, due to the volatility associated with stock index
and currency trading activities, and the large draw-downs possible
from such trading, trading losses can and will occur in the ordinary
course of Registrant's trading activities.
Registrant reports trading results on an ongoing basis in regularly
filed public quarterly financial reports with the Sedar system
pursuant to the British Columbia Securities Act and Securities Rules
promulgated thereunder. In addition, shareholders will be advised
of all material events including material changes in Registrant's
investment or trading practices by way of publicly disseminated News
Releases also as required under the British Columbia Securities Act.
BREAKDOWN OF TOTAL SALES AND COSTS TO DATE
The development costs for Registrant's Software and Systems through
April 30, 1999, consist of the following:
Capital Assets: $ 109,468
Product and Development Costs: $ 573,176
Operating Costs*: $ 1,041,474
-----------
Total: $ 1,724,118
*Deficit less total amortization as of April 30, 1998.
Registrant's total revenue from sales and operations during the past
three fiscal years, plus the six months ended April 30, 1999, by
category of activity, was as follows:
Six Months Ended April 30, 1999
Software Sales and Licensing $ 31,438
Trading Income $ 63,878*
Interest and other Income $ 18,022
-----------
Total $ 113,338
*There was $28,155 in Demonstration and Testing Losses (separately
reported as an expense) during this period.
15
<Page 16>
FYE 10/98
Software Sales & Licensing $ 53,051
Trading Income $ 70,607
Interest and other Income $ 41,457
-----------
Total $ 165,115
FYE 10/97
Software Sales & Licensing $ 36,040
Demonstration and Testing $ 56,761
Interest and Other Income $ 58,581
-----------
Total $ 151,382
FYE 10/96
Software Sales & Licensing $ 21,213
Demonstration and Testing $ 0*
Interest and other Income $ 35,290
-----------
Total $ 56,503
*There was $ 57,934 in Demonstration and Testing Losses during this
period (separately reported as an expense).
All sales are to unaffiliated customers, and because of the limited
amount of revenue generating activities and immateriality no
breakdown has been made into geographic markets or as to differences
in contribution made by revenue to total operating losses over the
past three fiscal years.
Note that software sales reported in the audited financial statements
to the end of fiscal year ended October 31, 1998 includes revenue
received from beta test versions of software programs and from
software products in early stages of market testing. Demonstration
and testing income reported in the financial statements represents
trading income derived from company trading systems software still
under development. Demonstration and testing expenses reported in the
financial statements under expenses represents trading losses from
trading systems software still in a testing and development stage.
See also "Breakdown of Total Sales and Costs to Date" under Item 1,
"Description of Business".
Once management has determined that a particular trading software
system has been satisfactorily tested in actual trading operations,
income from that point forward is reported as trading income or loss,
as the case may be.
16
<Page 17>
STATUS OF NEW PRODUCTS OR SERVICES
Registrant is constantly refining and developing its software and
trading systems to maintain their integrity and marketability. As a
result there is and will be an on-going research and development
effort with associated costs to the company. Registrant anticipates
spending approximately $250,000 over the next 18 months on such
research and development efforts. Moreover, new products are
constantly being investigated and sought within the general area of
the current products developed by Registrant. No new products,
however, other than those described herein have been formally
announced to the public.
RESEARCH AND DEVELOPMENT POLICY
Registrant's accounting policy on software development is to
capitalize Software and Systems Development and amortize that cost
over the expected useful life of the software. Research and
Development, on the other hand, is fully expensed in the year
incurred. Registrant distinguishes Software and Systems Development
from Research and Development in that Software and Systems
Development involves expenditures on the development of software that
creates an asset, the economic benefit of which is expected to extend
into several future periods.
As noted above, Registrant's policy is to maintain an ongoing program
of Software and Systems Development and Research and Development in
order to maintain the quality and competitiveness of its products,
services and trading efforts. The following are the Registrant's
best estimate of the total amounts spent by it on both Systems and
Software Development and Research and Development during each of the
past three fiscal years:
FYE 10/98 $202,200
FYE 10/97 $279,552
FYE 10/96 $137,371
DISTINCTIVE AND SPECIAL CHARACTERISTICS OF OPERATION
In the North American financial software industry it is a regulatory
requirement and practice, to which the Registrant adheres, to make no
representations that any user will or is likely to achieve profits or
suffer losses similar to those described in any product literature or
in any published historical trading simulations, computer test
results, or trading simulator software practice sessions.
Even though Registrant does not believe it is under the jurisdiction
of the United States Commodities and Futures Trading Commission
("CFTC"), Registrant conducts its business in a manner consistent
with the rules and regulations of the CFTC with respect to sales of
trading system software and commodity futures trading activities that
may take place within the United States. Registrant's sales
procedures provide for the inclusion of a Disclosure Statement in
product license agreements, manuals and promotional literature in the
form prescribed by the CFTC. In addition, Registrant's standard form
of license agreement governing use of its software and services,
includes warnings as to the risk of
17
<Page 18>
reliance on hypothetical trading
results, and as to the risk of trading losses. Terms of license and
sale provide that nothing contained in the Registrant's software
products or related user manuals, represents, or is intended to
represent, the furnishing of financial advice by the Registrant, its
officers, agents or employees. Users are warned that the pattern
recognition software and services merely provide educational,
technical trading information, neural network indicator readings, and
buy/sell signals for the decision support of users who remain
responsible for their own actions as the result of use of the product
or service, and that any use of the products and services in the
absence of acknowledgment of these terms, is unauthorized.
Registrant is not a registered member of the National Futures
Association (NFA) and does not conduct a commodity trading business
in the United States. Consequently, Registrant does not presently
come under the direct regulatory jurisdiction of that industry
governing body.
Registrant is not presently registered with the CFTC or NFA as a
Commodity Trading Advisor (CTA) and does not presently solicit or
trade third-party managed accounts. Registrant plans to conduct
business and become registered as a CTA in the United States and
Canada. Such plans would first require the passage of a CTA
examination, registration and appropriate filings which Registrant
has no yet begun, and there can be no assurance that Registrant will
ever submit or obtain such registration. Should Registrant become a
CTA or trade third-party managed accounts in the future, or begin to
conduct trading operations in the United States, Registrant will be
directly governed under the regulations and administrative policies
of the CFTC and the NFA.
Registrant is not presently registered, or required within its
current business operations to be registered as an investment advisor
with any government or regulatory body in the United States, Canada
or elsewhere.
The risk factors set-forth below, while not exhaustive, are believed
to be important in that they may have a material impact upon the
Registrant's future financial performance and could cause actual
results to differ materially from those expressed in any forward-
looking statement made by or on behalf of the Registrant. All
material risk factors known to Registrant are discussed below,
however, note that unknown factors, not discussed herein, could also
have a material adverse effect on Registrant's actual financial and
other results.
1. Short operating history and likelihood of continuing operating
losses. Registrant commenced operations in May 1994, and has, to
date, been largely engaged in product research and development and
establishing its new product development and marketing strategy.
Registrant's initial products and planned services are just beginning
to become available for market release and sale. Registrant thus has
a limited operating history and is expected to continue to incur
start up losses and negative cash flow in the immediate future as
these new products and services are completed and marketed.
Registrant's ability to succeed depends upon it eventually achieving
positive cash flow, failing which it may have to seek additional
financing, and there can be no assurance that such additional
financing will be available on acceptable terms, or at all.
18
<Page 19>
2. Early stage of development and no assurance of market acceptance
of the Registrant's new software products or services. Registrant's
existing and planned software products and the planned VirtualTrader
based training service are in an early stage of development.
Although a small level of sales have been effected and there is an
established market for such products and planned services, there can
be no assurance of market acceptance of Registrant's products and
services.
3. Dependence on the timely development and release of new software
products and services. Achievement of Registrant's objectives, and
its future operating results, are dependent upon completion of its
software marketing and new training service plans, and on the success
of such planned new software products and services. Timing in this
regard is crucial, as other similar products or services that reach
the market prior to Registrant's product may be able to obtain and
maintain business that would have otherwise gone to Registrant. There
can be no assurance that Registrant's timing and business plan will
be sufficiently successful to achieve sustained profitability in its
operations.
4. Dependence on key personnel. Registrant depends on its key
officers, including its founder and President, Michael Paauwe, and
its Vice President and Manager of Software Development, Michael
Gossland, and chief stock trader and trainer John Austin. Although
Registrant has key man life policies in place for Paauwe and
Gossland, loss of their ongoing services, would have a materially
adverse effect on future operating profits and prospects.
5. Dependence on in-house direct sales and the lack of any existing
established indirect sales and distribution channels. The Registrant
plans to market its software and services through direct sales
efforts. The Registrant has recently appointed new marketing and
sales staff but does not presently have in-house staffing of
experienced sales and marketing personnel. There can be no assurance
that the Registrant will be able to attract and retain the necessary
personnel as and when required. The Registrant may not be able to
address all potential markets adequately, without first establishing
indirect distribution channels through distributors and selling
agents, and there can be no assurance that it will be able to
establish or maintain such channels cost effectively.
6. Extensive competition and rapid technological change. The PC
based financial analysis and trading software and training markets
are intensely competitive and characterized by the frequent entry of
new competitors and introductions of new software programs, features
and technical innovations. Although Registrant's software products
are technically advanced and run under industry leading Windows based
technical charting and analysis programs, numerous competitors are
already established in this marketplace. The Registrant will seek to
establish its market position through the sale of fully tested and
high quality trading software, and by making its trading solutions
software and training services available at reasonable cost to
customers through its direct and indirect marketing channels.
However, there can be no assurance that the Registrant will be
successful in this effort, or, if successful, that Registrant will
have the resources to sustain any early growth or market penetration
it may achieve.
There is a large number of established financial trading and trading
software companies. Many are larger than Registrant, have longer
operating histories, more established track records, greater name
recognition, a larger installed base of customers, and greater
financial, technical, sales, marketing and other resources.
Moreover, if Registrant achieves significant success in penetrating
the financial trading
19
<Page 20>
software and training business, financially
stronger companies may seek to enter this market and compete for
market share.
The market for online trading of stocks and commodities, the
provision of financial market data, various financial software
products and related services accessible to PC users is changing
rapidly. The recent applications growth and emergence of the
Internet as a low cost source of worldwide financial market data,
subscriptions, trade execution and research services, is already
threatening the existence of established data and information
vendors, as well as full service brokers. This creates technical,
competitive and business trends, the outcomes of which are uncertain.
7. Potential Trading Losses. Under its business plan, Registrant's
software will be used by Registrant to trade stocks, stock indexes,
futures contracts and international currencies. Due to the high
degree of market volatility for these trading items, as well as the
use of margin and leverage associated with such trading, there exists
the possibility of significant trading losses that could have a
materially adverse effect on Registrant's operating results and
financial condition. As shareholder/investor funds will be used in
these trading activities, there is a direct risk of loss to
shareholders that Registrant could lose significant equity capital on
trading, even if the Registrant were not using its own software.
8. Past software product performance is no assurance of future
performance. Any trading operation involving the use of leverage is
considered highly risky even when conducted by experienced
practitioners. The historic results of Registrant's simulated
trading performance are not as accurate and dependable a measure of
profitability as actual trading results, and past performance cannot
be guaranteed or necessarily assumed to continue in the future.
Potential investors must expect trading losses in actual trading
operations and potentially wide fluctuations in future quarter to
quarter financial performance.
9. Limited intellectual property protection and physical security.
Registrant depends on its ability to protect its core proprietary
software technology. In this regard, Registrant relies on such
protection by a combination of trade secrets, technical complexity,
common law copyright and trademark protection, non-disclosure
agreements, password protection and software encryption schemes, and
on the physical security of its source code. Despite these measures
and precautions, it may be possible for unauthorized third parties
to copy Registrant's products or obtain and use its proprietary
technology. To date, Registrant has not sought to obtain copyright
registration or patent protection for any of its software products,
though it may do so in the future. There can be no assurance,
however, that such registration will be granted if applied for. Also,
certain aspects of the Registrant's software products are not subject
to intellectual property protection in law, and to the extent such
protection might be available, practical and legal distinctions may
apply in different jurisdictions. In addition, there can be no
assurance that competitors will not develop similar technology,
products and services, and if they do, this could reduce the value of
the Registrant's proprietary technology and its ability to
effectively compete.
10. Possible high degree of volatility in the future price of
Registrant's stock. Factors such as news announcements on technical
developments, innovations by the Registrant, its competitors or third
parties, industry developments in high-technology companies in
general, general stock market conditions, changes in interest rates
or general economic conditions, unexpected and extreme general
20
<Page 21>
stock market price and volume fluctuations, or a lack of liquidity, may
individually or collectively have the effect of causing substantial
fluctuations in the traded price of the Registrant's shares. Changes
in the trading price of its shares may be unrelated to Registrant's
performance or its future prospects. In addition, investors in
Registrant's shares may lose their entire investment if Registrant
fails in its business.
12. Control by existing officers and directors. Registrant's
executive officers and directors currently own or control an
aggregate of 3,066,401 of the issued and outstanding shares of the
company which represents approximately 34.6% of the outstanding
shares as at April 30, 1999. As a result, these shareholders will
continue to be able to control the composition of Registrant's board
of directors and to have a significant influence over its affairs.
This concentration of ownership may have the effect of delaying,
deferring or preventing a future change of control of Registrant.
Under certain circumstances, such a limitation may be considered
adverse to the interests of other shareholders.
13. Dependence on financial industry. Registrant is affected by
general economic and regulatory conditions affecting national and
international financial markets. A worldwide economic downturn,
therefore, may have an adverse effect on Registrant's business,
operating results and/or financial condition.
14. Possible changes in derivatives market and the regulatory
environment. The Registrant's software provides pattern recognition
and market timing information related to stock indexes, currencies
and derivatives, including both futures and options. Derivatives
instruments have been involved in a number of well publicized recent
financial losses, including those involving Barings Bank and Orange
County, in California, and more recently, Long Term Capital
Management, among others. Such losses have led to increased
governmental scrutiny and potential new regulation of hedge funds and
derivatives markets generally. Any new regulatory requirements
affecting the sale or distribution of trading software or related
services may have the effect of imposing new and unexpected costs on
Registrant and this may affect future expenses and operating results.
There remains an ongoing risk of an adverse impact of possible new
governmental regulations on Registrant's business.
15. Technological change. The financial trading software marketplace
is characterized by constant and rapid technological change. There
is no assurance that the Registrant will be able to sustain the cost
of the research and development efforts required to continue to
compete and keep pace with this technological change. If Registrant
cannot continue to compete on a technical basis, this will likely
have a materially adverse effect on its operating results and
financial condition.
16. Potential product liability claims. The Registrant does not
maintain product liability insurance against bugs or defects in the
general performance of its software products. In accordance with
standard industry practice, established by Omega Research Inc., the
software license agreements entered into on the sale or license of
its products provides that all these risks are borne solely and
entirely by the customer. There can be no assurance that such
provisions will protect the Registrant from all potential product
liability claims in all markets in which it may sell its products or
offer its services.
17. Strategic marketing dependence on TradeStation and SuperCharts
software of Omega Research Inc. Registrant's software products, and
its strategic marketing and product development
21
<Page 22>
plans, depend to a
large extent on the continued existence of a serviceable installed
customer base of TradeStation and SuperCharts software products and
customers. There is a significant risk that the market leadership
now enjoyed by these Omega products, or their production, development
or technical support may change substantially or be discontinued
completely, which would have a direct and materially adverse effect
on Registrant's operating results and financial condition.
18. Year 2000 potential negative business impact and risks. The Year
2000 computer problem may have an adverse and unpredictable affect on
Registrant's operations due largely to its dependence on Omega
Research Inc.'s TradeStation product as the platform upon which its
main software products operate. While Omega has disclosed plans and
intentions to make its TradeStation software fully Year 2000
compliant, and appears technically and financially able to do so, to
date compliance has not been achieved in its main software product,
TradeStation. If Omega were to fail to make its main products Year
2000 compliant, there would be a materially adverse impact on
Registrant's sales and business operations that would likely result
in increased losses.
In addition, Registrant depends on third-party financial data vendors
of various market exchanges to supply real-time data in order to
carry out its trading operations. To the extent that many such data
suppliers may be adversely affected by the Year 2000 compliance
issue, this will also have the effect of limiting Registrant's actual
trading operations, and may adversely affect its financial results.
In order to get its internal operations Year 2000 compliant,
Registrant needs to download and load the Microsoft Windows 95 and
Windows 98 Year 2000 patch for its Windows 95 and 98 operating
systems and purchase an off the shelf utility program to fix any
problems in the bios and clocks of its computers.
Registrant has expended approximately $5,500 of internal resources to
date (the time of M. Gossland and M. Paauwe) in identifying and
fixing Year 2000 related problems, and expects to expend an
additional $4,500 of the same internal resources, and the purchase of
a utility software, before having remedied identified potential
internal Year 2000 problems.
In the event the potential Year 2000 problems are not completely
dealt with, Registrant runs the risk of interruption to, or shut down
of, its proposed Internet Subscription Service, a halt in the selling
of its software, and/or an interruption in its ability to trade and
analyze data. Similar negative results would ensure if the US stock
exchanges or US commodities markets upon which it depends for its
data, ceased operations, or if Omega failed to develop a Year 2000
patch for its software.
Registrant plans to download the appropriate Microsoft Year 2000
patch and buy a utility program in the future, but has no contingency
plan in the event Omega fails to produce a working patch for its
software, or any of its third-party data providers cease operation as
a result of a year 2000 problem.
ITEM 2. Description of Property
Registrant owns no real property or real property rights.
Registrant's principal business office is a rented facility located
at 201 Selby Street, Nanaimo, British Columbia, Canada V9R 2R2. Due
to the set-up of Registrant's operations many business functions are
undertaken from other confidential, remote locations in British
Columbia, not owned by the company.
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<Page 23>
Registrant's proprietary financial trading software products and
technologies generally fall into five categories:
1. TradeStation based proprietary stock index trading systems and
software. These are Registrant designed neural network and expert
system software based custom trading indicators and software based
trading methods, installed on a computer with the third-party
software programs TradeStation or SuperCharts. They are designed
to provide short-term, predictive market timing information on the
US stock market indexes (such as the S&P 500 index), based on
advanced pattern recognition methods. The trading indicators and
systems are designed for trading stock futures contracts on the
S&P500, OEX, NYSE and NASDAQ markets, and they also provide market
timing information for those indices for US stock, stock options
and index options brokers, traders and investors.
2. TradeStation based proprietary world currency trading systems and
software. These are Registrant designed software based trading
methods for trading world currencies including the Japanese Yen,
the German Mark, the Swiss Franc and the British Pound. To
operate, the software needs to be installed on a computer with the
third party software programs TradeStation or SuperCharts. The
methods are designed for intermediate term trading. Trades are
typically held for weeks or months. The currency trading methods
can also be easily adapted to trading in any other high volume
world currencies.
3. VirtualTrader product software written in Microsoft Visual Basic
4.0 and Omega's Easy Language software.
4. Proprietary software testing and trading system development tools.
These are proprietary software programs written in Microsoft
Visual Basic 4.0 and 5.0, programmed into Microsoft Excel, or
written in Omega's Easy Language trading system development
language. They are basically a group of software utilities,
authored and owned by Registrant, consisting of a series of
specialized trading system development software tools that are
used in Registrant's ongoing software research and development
programs to perform data manipulation, custom system testing,
mathematical functions and code development and software debugging
capabilities not available in off-the-shelf software. This
software now provides Registrant with the advantages of rapid
systems research, systems testing, software debugging and trading
system validation and deployment.
5. Internet web site software for the Company's web site. Registrant
has a body of custom software developed for its web site that
facilitates ongoing maintenance. This software is written in PERL
scripts and includes all the custom graphics and other HTML code
for the web site.
ITEM 3. Legal Proceedings
Registrant is not currently a party to any material legal
proceedings; nor, to Registrant knowledge, are there any legal
proceeding pending or threatened of which Registrant would be a
party, or any of its property or assets are likely to be subject.
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<Page 24>
ITEM 4. Control of Registrant
As far as known to Registrant, and except as disclosed herein,
Registrant is not directly or indirectly owned or controlled by any
other corporation or by any foreign government.
The following table sets forth as of May 31, 1999 information with
respect to record ownership of (a) any person or company who is known
to Registrant to be the owner of more than 10% of any class of the
Registrant's voting securities, and (b) the total amount of any class
of the Registrant's voting securities owned by the officers and
directors as a group.
- ---------------------------------------------------------------------
(1) (2) (3) (4)
Title or class Identity of Person Amount Owned Percent of Class
or Group
- ---------------------------------------------------------------------
Common Shares TTN Escrow Capital 3,000,000 34.0%
without par value Corp.
Common Shares New Equities, Inc. 1,435,600 16.2%
without par value
Common Shares Directors and 3,066,401 34.6%
without par value Officers as a Group
Note 1: TTN Escrow Capital Corp. is owned by Michael Paauwe (66.67%)
and Michael Gossland (33.33%), who are officers and directors of the
Registrant.
Note 2: New Equities, Inc. is an investment company resident in
Nassua, Bahamas.
As of the date hereof, there are no arrangements known to Registrant,
the operation of which may at a subsequent date result in a change in
control of the Registrant.
ITEM 5. Nature of Trading Market
Registrant's shares are listed and traded on the Vancouver Stock
Exchange in British Columbia, Canada. Registrant's shares are not
currently trading on any US stock exchange nor on the over-the-
counter market, and, accordingly, there is currently no public market
for Registrant's common stock in the United States. There can be no
assurance that any such market will develop after the effective date
of this Registration Statement. Registrant plans to list its
securities on the US NASD Over The Counter ("OTC") Bulletin Board
market during the next few months, but no assurance can be given that
such listing will occur.
Trading in Registrant's shares commenced in Canada on the Vancouver
Stock Exchange on July 24, 1996. The following table sets-forth the
high and low sales prices for Registrant's shares for the quarterly
periods shown, expressed in Canadian Dollars and the trading volume
in number of shares for the applicable time period.
24
<Page 25>
- ---------------------------------------------------------------------
(1) (2) (3) (4)
Year and Month High Low Volume
- ---------------------------------------------------------------------
February 1,1999 - April 30, 1999 1.25 .88 556,100
November 1,1998 - January 31, 1999 1.35 .85 425,400
August 1, 1998 - October 31, 1998 1.48 1.20 294,800
May 1, 1998 - July 31, 1998 1.55 1.41 455,350
February 1, 1998 - April 30, 1998 1.49 1.30 765,926
November 1, 1997 - January 31, 1998 1.44 1.25 224,900
August 1, 1997 - October 31, 1997 1.60 1.20 622,490
May 1, 1997 - July 31, 1997 1.35 1.05 406,200
February 1, 1997 - April 30, 1997 1.60 1.30 812,400
November 1, 1996 - January 31, 1997 1.85 1.43 814,950
The Vancouver Stock Exchange was established in Vancouver, British
Columbia, Canada in 1907 by a special Act of the British Columbia
(B.C.) Legislature. In 1998, it was the fourth largest business
stock exchange in North America for trading volume, after NASDAQ, the
New York and Toronto stock exchanges. During 1998, nearly 1400
companies were listed and over 5.2 billion shares worth $3.79 billion
were traded.
The VSE is overseen by the Government of B.C. through the B.C.
Securities Commission. The VSE is a self-regulating organization
owned and operated by 54 national and regional member firms, holding
70 seats on the exchange. The VSE's Board of Governors has 22
members, of which one-third are public governors appointed by the
Provincial Government. The VSE President sits on the Board and the
remainder are member governors, elected annually from the brokerage
industry. The Chair of Board of Governors is a public governor.
With the implementation of its Vancouver Computerized Trading (VCT)
system in January 1990, the VSE became the first stock exchange in
North America to convert from the traditional open-outcry auction
method to a fully automated trade execution system. VCT provides
complete, real-time, online quotations, information on the depth of
the market, accelerates the trading process and improves surveillance
capabilities. In 1998, 2.3 million orders were placed through VCT
resulting in approximately 1.2 million trades. There were over 5.2
billion shares traded valued at $3.79 billion Canadian.
A listed company must file prompt notice with the Exchange of any
proposed significant or material change in its business, property,
affairs or undertakings. The notice must be filed at least 30 days
prior to completion of the proposed change or transaction unless
specific rules or policies of the Exchange permit a shorter filing
requirement.
A reporting issuer must prepare and file with the Exchange and the
B.C. Securities Commission and mail to shareholders the following
financial reports:
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a) Interim Financial Statements - for the three, six and nine month
periods in each financial year - together with a comparative
financial statement to the corresponding period in the previous
financial year; and
b) Annual Comparative Financial Statements - audited comparative
financial statements approved and signed by the directors.
The VSE has two tiers of companies as follows:
ADVANCED COMPANIES. Companies that fall into these categories meet
higher asset, market value and shareholder distribution requirements
than those classified as Venture Companies.
VENTURE BOARD. A classification of VSE-listed companies that are in
the early stages of development and that meet the minimum asset,
market value and shareholder distribution requirements. Approximately
75 per cent of VSE-listed companies fall into this category.
Registrant's shares have traded on the Venture Board since completion
of its initial public offering in July 1996.
As of April 30, 1998 there are approximately 50,000 common shares
representing .5 % of Registrant's outstanding shares held of record
by one person residing in the United States. Registrant estimates,
but is not sure, that there may be a total of four or five beneficial
holders of its common shares holding approximately 350,000 shares of
its stock in the United States, held in both registered and
unregistered form.
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders
Except as discussed in Item 7 as to taxes and withholding, the
Registrant is not aware of any Canadian federal or provincial laws,
decrees, or regulations that restrict the export or import of
capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to non-resident
holders of Registrant's shares.
Registrant is not aware of any limitations on the right of non-
Canadian owners to hold or vote the common shares imposed by Canadian
federal or provincial law or by the Memorandum or Articles of the
Registrant.
The Investment Canada Act (the "Act") governs acquisitions of
Canadian businesses by non-Canadian persons or entities. The Act
provides, among other things, for a review of an investment in
certain Canadian businesses having in excess of $25 million in gross
assets.
The Act provides that a United States investor can hold up to 1/3 of
the issued and outstanding capital of a Canadian corporation without
being deemed a "control person", and that a United States investor
holding greater than 1/3 but less than 1/2 of the issued and
outstanding capital of a Canadian corporation is deemed to be a
control person subject to a rebuttable presumption to the contrary
(i.e. providing evidence of another control or control group holding
a greater number of shares). If a United
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States investor wishes to
acquire "control" of a Canadian corporation, such investor is
required to obtain approval if the asset value of the corporation is
greater than $178 million Canadian. If the asset value of the
corporation at the time of the proposed acquisition is less than $178
million Canadian, the investor wishing to acquire "control" need only
file a form indicating his or her intentions. The Act also provides
that if United States investors collectively hold greater than 50% of
the issued and outstanding shares of the corporation, there is a
rebuttable presumption that the corporation's status has changed to
that of an American corporation. The effect of the change in status
is that if the control of the Registrant is deemed to be held by
United States investors, and if Registrant then wished to make
investments of greater than $178 million Canadian in Canada, it would
need governmental approval.
Certain transactions involving Registrant's Common Shares would be
exempt from the Investment Canada Act, including: (a) an acquisition
of Common Shares made in connection with the person's business as a
trader or dealer in securities; (b) an acquisition of control in
connection with the realization of a security interest granted for a
loan or other financial assistance, and not for any purpose related
to the provisions of the Investment Canada Act; and (c) an
acquisition of control by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the
ultimate direct or indirect control in fact of the Company, through
the ownership of voting interests, remains unchanged.
Provisions of the Investment Canada Act are complex, and any non-
Canadian contemplating an investment to acquire control of Registrant
should consult professional advisors as to whether and how the
Investment Canada Act might apply.
ITEM 7. Taxation
The following paragraphs set-forth a summary of all material
information regarding Canadian income taxation in connection with the
ownership of Registrant's shares. Note that these tax considerations
are stated in general terms and should not be considered to be a
substitute for independent professional advice on the subject of
taxation of Canadian shares held by US stockholders. There may also
be relevant state, or local tax considerations that are not discussed
here.
Registrant's management believes that the following general summary
fairly describes the principal federal income tax consequences
applicable to a holder of Registrant's common shares who is a
resident of the United States and who is not a resident of Canada and
who does not use or hold, and is not deemed to use or hold, his
common shares in connection with carrying on a business in Canada (a
"non-resident holder").
This summary is based upon the current provisions of the Income Tax
Act (Canada) (the "ITA"), the regulations thereunder (the
"Regulations"), the current publicly announced administrative
assessing policies of Revenue Canada, Taxation, and all specific
proposals (the "Tax Proposals") to amend the ITA and Regulations
announced by the Minister of Finance (Canada) prior to the date
hereof. The description is not exhaustive of all possible Canadian
federal income tax consequences, and, except for the Tax Proposals,
does not take into account or anticipate any changes in law, whether
by legislative, governmental or judicial action, nor does it take
into account provincial or foreign tax consideration which may differ
significantly from those discussed herein.
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DIVIDENDS
Dividends paid or credited on Registrant's shares to a non-resident
holder will be subject to withholding tax. The Canada-U.S. Income
Convention (1980) provides that the normal 25% withholding tax rate
is reduced to 15% on dividends paid or credited or deemed paid on
shares of a corporation resident in Canada (such as Registrant) to a
resident of the United States, and also provides, pursuant to a
recently ratified protocol, for a further reduction of this rate to
5% for dividends paid or credited on or after January 1, 1997 if the
beneficial owner of the dividends is a corporation which is a
resident of the United States and owns at least 10% of the voting
shares of the Company paying the dividend.
If a Non-Resident Security Holder carries on business in Canada
through a "permanent establishment" or performs independent personal
services from a fixed base in Canada, and the holding of shares in
respect of which the dividends are paid is effectively connected with
such permanent establishment or fixed base, the limitations set out
in the preceding paragraph will not apply. Instead, the dividends
will be taxed using the rates and rules of taxation generally
applicable to residents of Canada.
A "permanent establishment" of a Non-Resident Security Holder can
generally be described as a fixed place of business through which the
business of a resident is wholly or partly carried on.
CAPITAL GAINS
A non-resident of Canada is not subject to the tax under the ITA in
respect of a capital gain realized upon the disposition of a share of
a class that is listed on a prescribed stock exchange unless the
share represents "taxable Canadian property" to the holder thereof.
A common share of the Registrant will be taxable Canadian property to
a non-resident holder if, at any time during the period of five years
immediately preceding the disposition, the non-resident holder,
persons with whom the non-resident holder did not deal at arm's
length, or the non-resident holder together with persons with whom he
did not deal at arm's length, owned 25% or more of the issued shares
of any class or series of the Registrant.
Where a resident of the United States meets the 25% ownership tests
described above, the person's capital gains realized on the
disposition of Registrant's shares will be subject to Canadian income
tax if the value of Registrant's shares is principally attributed to
real estate, including the right to explore for or exploit mineral
deposits, sources and other natural resources. Where a resident of
the United States meets the 25% ownership test but the Registrant
fails the value of assets test, that person's capital gains realized
on the disposition of Registrant's shares would be eligible for
exemption under the Canada - U.S. Income Tax Convention (1980) (the
"Treaty") unless the U.S. resident had resided in Canada at any time
in the ten-year period immediately preceding the disposition and was
resident in Canada for 120 months during any 20 year period preceding
the disposition.
DEEMED DISPOSITION ON DEATH
Where a resident of the United States owns shares that are taxable
Canadian property as discussed above, that person will be liable for
Canadian income tax on his capital gains or losses accrued to the
date of death. Where the decreased transfers the property to his or
her spouse or a qualifying spouse
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trust, the deceased's
representative may be eligible to apply to defer the tax on the
accrued gain pursuant to the Treaty. Where the application is
accepted, the surviving spouse would pay tax on the capital gain
accrued to the subsequent date of death.
ITEM 8. Selected Financial Data
The following table summarizes certain selected financial information
of Registrant (stated in Canadian dollars) prepared in accordance
with Canadian generally accepted accounting principles (Canadian
GAAP). The table also summarizes certain corresponding information
prepared in accordance with United States generally accepted
accounting principles (US GAAP). The information in the table was
extracted from the more detailed financial statements for the fiscal
year ended October 31, 1994 through the fiscal year ended October 31,
1998, inclusive, and the related notes included therein, and should
be read in conjunction with such financial statements and with the
information appearing under the heading "Item 9 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Reference is made to Note 8 of Registrant's October 31, 1998
financial statement included herewith for a discussion of the
material differences between Canadian GAAP and US GAAP, and their
effects on Registrant's financial statements. To date, Registrant has
not generated sufficient cash flow from operations to fund ongoing
operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity
securities and its ability to continue operations is dependent on the
ability of Registrant to increase revenues from operations or to
obtain additional financing or a combination of both. See "Item 9 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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SUMMARY OF FINANCIAL DATA
- ---------------------------------------------------------------------
Fiscal Years ended October 31
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------
Revenue $ 123,658 $ 92,801 $ 21,213 $ 11,165 $ ---
Expenses $ 557,517 $ 293,615 $ 291,805 $ 336,058 $ 75,058
Interest
& Other
Income $ 41,457 $ 58,581 $ 35,290 $ 9,490 $ ---
Net Loss
for the year
Canadian
GAAP $ 392,402 $ 142,233 $ 235,302 $ 315,403 $ 75,058
US GAAP $ 392,402 $ 142,233 $ 235,302 $ 315,403 $ 75,058
Net Loss Per Share(1)
Canadian GAAP $(.04) $(.02) $(.03) $(.78) $ 75,058
US GAAP $(.07) $(.03) $(.06) $(.78) $ 75,058
Net Working
Capital $1,340,017 $1,672,725 $1,579,827 $ 902,720 $ 77,905
Total Assets
Canadian
GAAP $1,672,903 $1,924,638 $1,776,793 $ 977,238 $106,436
US GAAP $1,672,903 $1,924,638 $1,776,793 $ 977,238 $106,436
Long Term
Obligations $NIL $NIL $NIL $NIL $NIL
_____________________________________________________________________
(1) Calculated based on the average weighted number of shares
outstanding on a non-diluted basis. 3,000,000 escrow shares, which
are issuable based on future financial performance (see Item 4.
Control of Registrant) are excluded from the average weighted
number of shares outstanding on a non-diluted basis, in
calculating net loss per share under US GAAP, but are included in
the same calculation under Canadian GAAP. However, this does not
affect Net Loss for the year and therefore that figure in the
table above remains the same under both US GAAP and Canadian GAAP.
To date, Registrant has paid no dividends on its shares, and does not
anticipate doing so in the foreseeable future. The declaration of
dividends on Registrant's Common Shares is within the discretion of
Registrant's board of directors and will depend upon, among other
factors, earnings, capital requirements, and the operating and
financial condition of Registrant.
EXCHANGE RATES
As at June 28,1999, the median bidding exchange rate of Canadian
dollars into United States dollars was $1.4695 Canadian to $1.00
United States.
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The following table sets forth, for the periods and dates indicated,
certain information concerning exchange rates of United States and
Canadian dollars. All the figures shown represent noon buying rates
for cable transfers in New York City, certified for customs purposes
by the Federal Reserve Bank of New York. The average rate means the
average of the exchange rates on the last day of each month during a
year. The source of this data is the Federal Reserve Bulletin and
Digest.
Period Period End Average High Low
- ------- ---------- ------- ---- ----
(CDN$/US$)
1994 1.4030 1.3699 1.4078 1.3103
1995 1.3655 1.3689 1.4238 1.3285
1996 1.3697 1.3644 1.3822 1.3310
1997 1.4288 1.3894 1.4398 1.3357
1998 1.5375 1.4892 1.5770 1.4075
ITEM 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction
with Registrant's consolidated financial statements and notes thereto
appearing under Item 17 - "Financial Statements".
GENERAL OVERVIEW OF REVENUE AND EXPENSES
Registrant is a development stage company and presently receives
income from the following sources; software sales and licenses,
trading income from trading the company's own cash, and interest
income earned on cash balances held in working capital. In the
future, revenue is also expected to be generated from the planned
Internet Subscription Service to the stock market information
published on Registrant's website.
Interest and other income reported in the financial statements totals
$153,350 for the three and one half years ended April 30, 1999. The
interest income earned on cash balances is from Registrant's own
cash, and includes interest earned on short-term money market funds
and short term treasury bills on corporate cash balances held in
broker accounts for the purposes of trading. Such cash balances are
reported in the financial statements as 'Cash, due from brokers, and
short term investments'. Registrant is not a broker dealer, does not
presently trade any third-party funds, nor does it hold in its
control any cash balances from any third parties.
Existing software products, including the WCT, SIT and VT software,
have only been test marketed up to the present stage of development,
generating total sales and license revenues through April 30, 1999 of
$149,631. VT software is delivered to customers by way of electronic
download over the internet or alternatively the software is shipped
to customers directly on disks. The current price of the VT software
is US $1,995.
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Income or losses from trading of fully developed and tested trading
systems software is reported when earned, as trading income or
trading loss, in each period, as the case may be. Income or losses
from trading systems still in development is reported in the
financial statements as demonstration and testing income or expense,
in each period, as the case may be.
Trading Income was first reported in the fiscal year ended October
31, 1998 after the WCT and SIT systems completed development and were
fully installed in April 1998. Since that time, a trading program
has been carried out, in part, to show the functionality and
efficiency of the software technologies developed. Trading income
from stock index and currency trading reported in fiscal year ended
October 31, 1998 and the six months ended April 30, 1999 totaled
$134,485, $70,607 in the Fiscal Year Ended October 31, 1998 and
$63,878 in the six months ended April 30, 1999.
Demonstration and testing income from trading systems under
development was reported for fiscal year ended October 31, 1997 in
the amount of $56,761.00. There was no development and testing income
reported for fiscal years 1998 and 1996. Demonstration and testing
expenses on systems under development was reported for the fiscal
year ended October 31, 1998 in the amount $42,490.00 mainly for SIT
and stock day trading systems in development and in the amount of
$57,934.00 for the fiscal year ended October 31, 1996, from WCT and
SIT systems under development. There was no demonstration and
testing expenses reported for fiscal year 1997 because gains in that
fiscal year happened to exceed losses on the trading systems under
development. For full details of all trading activities for the past
three years refer to the summary financial information set out in the
section entitled BREAKDOWN OF TOTAL SALES AND COSTS TO DATE.
Daily market commentary and related short term stock market trading
indicators have been published on Registrant's website on a
demonstration basis at no cost to visitors since October 1996.
Traffic to the website generated 45,000 hits (website page views) in
May 1999, rising from 27,000 hits in October 1998. Website traffic
is expected to rise further upon the launch of a sustained
advertising and marketing campaign in connection with the Internet
Subscription Service that is expected to commence in October 1999.
This service is expected to be offered to subscribers at between US
$100 and US $200 per month, depending on the features subscribed to.
CANADIAN GAAP vs. US GAAP
Registrant's consolidated financial statements are prepared in
accordance with generally accepted accounting principles used in
Canada (Canadian GAAP). Material differences resulting from the
application of generally accepted accounting principles in the United
States (US GAAP) are described in Note 8 to the October 31, 1998
fiscal year end audited financial statements provided under Item 17.
Unless expressly stated otherwise, all references to dollar amounts
in this section are in Canadian dollars in accordance with Canadian
GAAP. In the case of the Registrant, a material impact of the
differences between Canadian GAAP and US GAAP in the financial
statements relates to the existence of the 3,000,000 escrow shares
and the fact that these shares are not considered issued under US
GAAP for purposes of calculating the net loss per share. Therefore,
as noted in the discussion below, the net loss per share is increased
under US GAAP versus that shown under Canadian GAAP.
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Note 8 to the audited fiscal year ended October 31, 1998 financial
statements of Registrant, included herein, discusses the material
differences between Canadian GAAP and US GAAP, and their effect on
Registrant's financial statements. Generally, under US GAAP, the loss
per share is calculated on the basis that the weighted average number
of shares outstanding during the year excluding shares that are
subject to escrow restrictions, unless the conditions for issuance
are currently met or will be met by the mere passage of time.
Registrant has 3,000,000 escrowed shares that are subject to release
on the basis of an earn out formula and not merely by the passage of
time and this has resulted in the calculation of a greater loss per
share under US GAAP than is the case under Canadian GAAP. The
existence and terms of release of the escrow shares affects the net
loss per share calculations in the reconciliation between Canadian
GAAP and US GAAP, due to the fact that under US GAAP, shares
conditionally issuable are not to be used in the average number of
shares outstanding in the calculation of net loss per share. Under
Canadian GAAP these escrow shares are used in the calculation of the
average number of shares outstanding for purposes of the net loss per
share calculations. The result is that net loss for the year is the
same under both Canadian GAAP and US GAAP but the net loss per share
differs according to the reduced number of average shares outstanding
as used in the loss per share calculations. The resulting differences
in the loss per share calculations are as set forth in the financial
statements for the FYE October 31, 1998 and in the table referred to
above in Item 8 - "Selected Financial Data".
In addition, under US GAAP, the granting of stock options to
directors, officers and employees may give rise to differences in the
charge to income for compensation. Registrant has prepared its
financial statements in accordance with APB 25 under which stock
options are measured by the intrinsic value method whereby directors,
officers and employee compensation cost is limited to the excess of
the quoted market price at date of grant over the option exercise
price. Since the exercise price equaled the quoted market price at
the dates the stock options were granted, there was no compensation
cost to be recognized. Had Registrant valued the options using a
fair market value method (as required under SFAS 123) such as the
Black-Scholes option pricing model, there would be an increase in
employee and director compensation costs charged to income of $Nil in
1998, $Nil in 1997 and $6,350 in 1996. Thus, in the case of
Registrant, US GAAP results in an increase to compensation totaling
$6,350, as described more fully in Note 8 to the audited fiscal year
ended October 31, 1998 financial statements of Registrant. This
difference is also reflected in the loss per share calculations as
set-forth in the table referred to above in Item 8 - "Selected
Financial Data", together with the impact of the escrow shares, as
noted in the discussion above.
OVERVIEW OF BUSINESS OPERATIONS
Registrant is a financial software development company still in a
development stage. Registrant is engaged in the development of
proprietary software based financial trading systems and technologies
with the aim of developing such proprietary software technologies to
a stage where they can be exploited for profit. Existing software
products have been test marketed up to the present stage of
development and are also being used internally in Registrant's own
operations with the objective of eventually establishing consistent
revenues from profitable trading operations, software sales and a
planned internet financial website subscription service revenues
("Internet Subscription Service"). The application of Registrant's
VirtualTrader software to stock trading and the potential to apply
this technology in a growing internet based electronic trading
environment was, until recently, the focus of Registrant's
development efforts and marketing plans. Efforts are now being
directed to the
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development and marketing launch of Registrant's
planned Internet Subscription Service. Registrant's Internet
Subscription Service will be an internet based, financial
subscription service that provides subscribers with daily US stock
market commentary and technical analysis of individual high quality,
high volume US stocks. This service will be targeted at
stockbrokers, traders and investors, on a pre-paid monthly
subscription basis. Management believes that its existing trading
systems and software technologies can be profitably exploited in its
in-house trading and Internet Subscription Service with a sustained
marketing and sales effort and by the formation of appropriate
strategic business alliances and software license agreements with
established firms. A new full-time Manager of Marketing and Sales
was hired in November 1998 for this purpose. Also, in March 1999 a
Special Projects Coordinator was retained to manage new financial
subscription advertising and promotions planning, corporate marketing
media development and new internet website development and publishing
projects for Registrant.
Prior to the current fiscal year and during 1998, Registrant's
operations were primarily directed at developing trading systems
software with the VT software product, related market testing and
introductory sales. As a result, to date, Registrant has received
only limited revenues from software sales and licenses, in-house
trading income and interest income on cash balances from working
capital.
RESULTS OF OPERATIONS
Stock index and currencies trading revenues have started to be more
consistent since formally establishing the online trading systems in
late April 1998, although they remain small because of limited
trading activity, with only a few contracts being traded per signal.
Trading income, by its nature, remains subject to periodic draw-down
on a quarter by quarter basis in the ordinary course of Registrant's
trading activities. However, the overall net trading results since
May 1, 1998 are positive as noted below and are expected to reduce
overall losses in operations in the current fiscal period and
contribute to profitability in the future.
In the period from August 1, 1998 to October 31, 1998, Registrant
completed development and software testing of its application of the
VT software to day-trading quality, high volume, US big-board stocks.
The testing consisted of completing hundreds of simulated day-trades
inside Registrant's VT software, as well as executing approximately
150 test day-trades over the internet with a US discount brokerage
firm.
A positive independent product review of the VT software was
published in the September 1998 issue of Technical Analysis of Stocks
and Commodities magazine. This increased exposure for the product in
the US market and internationally, and initially produced a larger
response rate than direct mail campaigns to date. This indicates
that greater coverage in the form of third-party publicity will be
needed to improve VT software sales in future.
As a result of Registrant's limited sales and trading activity to
date, inflation and changing prices have not had a material effect on
the Registrant's net sales, revenues and income from continuing
operations.
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Six months ended April 30, 1999 compared to FYE October 31, 1998
As at April 30, 1999 Registrant had cash balances of $1,073,077 and
net working capital of $1,078,842, compared to cash balances of
$1,363,816 and net working capital of $1,340,017 at FYE October 31,
1998.
Revenue in this period from software sales and trading income was
$31,438 and $63,878 respectively, compared to $53,051 and $70,607
respectively in the FYE October 31, 1998. These revenues increased by
$66,100 over the corresponding six month period in 1998 as trading
became profitable and software sales increased. Interest and other
income dropped to $18,022 during the period compared to $41,457 in
FYE October 31, 1998 and compared to $30,236 in the same six month
period in the previous year. Interest income is gradually dropping as
cash balances in working capital drop from period to period.
Total assets dropped to $1,447,931 compared to $1,672,903 at FYE
October 31, 1998 due to the loss for the period. The net loss for the
period was $201,787 compared to $157,448 in the same period of the
prior year and compared to a net loss of $392,402 for FYE October 31,
1998. The increase in the net loss for the period compared to the
same period last year is mainly the result of a $20,000 increase in
Professional fees expenses incurred in connection with a regulatory
filing in the US, an increase in salaries and benefits caused by
increased staffing, and an increase in investor relations expenses of
$19,338 compared to $Nil in the same period of the prior year.
Registrant invested $19,576 in computer system purchases and $84,663
in software and systems development during the period.
After discontinuing on April 1, 1999, the stock day trading joint
venture with Wolverton Securities Ltd. previously announced in
November 1998, corporate development efforts have been directed at
further research and development of the planned internet website,
demonstrating and improving the marketability of the published daily
market commentary, and planning and developing the new Internet
Subscription Service.
In April and May 1999 Registrant began research and development of
new multimedia internet software and related internet e-commerce
software programs expected to be publicly announced before the end of
the fourth quarter of the current fiscal period. This multimedia and
internet software and all related business development by the
Registrant is expected to be sold to third parties prior to the end
of the current fiscal period.
During April, May and June 1999, Registrant registered for its own
planned use, the following Internet Domain names, as part of its
future internet business plans: TitanRadarScreen.com,
WorldMarketScan.com and SeedStockCapital.com. RadarScreen is a new
financial software program recently developed and released by Omega
Research Inc. viewable on the internet at omegaresearch.com.
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FYE October 31, 1998 compared to FYE October 31, 1997
At the end of this last fiscal year end reporting period, Registrant
had cash balances of $1,363,816 and net working capital of
$1,340,017, compared to cash balances of $1,667,530 and net working
capital of $1,672,725 at October 31, 1997.
Total revenue for the year increased to $123,658 (not including
$41,457 in Interest and other income) compared to $92,801 ( not
including $58,581 in Interest and other income) in the previous year
arising from small increases in software sales and trading income.
Total assets dropped to $1,672,903 from $1,924,638 at October 31,
1997. This reflects a net loss in operations for the fiscal year
ended October 31, 1998 of $392,402, or $.04 per share, compared to a
net loss of $142,233, or $.02 per share in the year ended October 31,
1997. The cash loss in operations for the fiscal period ended October
31, 1998 was $287,898 compared to $61,560 in the fiscal year ended
October 31, 1997. The $226,338 increased cash loss in operations came
about as a result of the following factors, in combination.
Advertising, marketing and promotion expenses jumped by $81,142 over
the prior period as marketing efforts to introduce Registrant and its
products to the institutional sector were scaled up. Management fees
and salaries and benefits also increased during the period compared
to the last year by $36,110. Investor relations expenses were
incurred for the first time in the amount of $31,888 as a result of
the costs of presentations to stock brokers and potential investors
in Europe and in offshore financial markets. Demonstration and
testing expenses of $42,490 were incurred, an increase from $NIL the
previous year, which sum included new increased costs from VT related
stock day trading activities. These increased expenses include and
reflect the costs of hundreds of small scale test trades being
conducted over the internet with related commission costs, to
develop, test and validate the stock day trading systems under
development.
Pay scales of a key employee were increased and management fees
expense and software and systems development costs increased as the
result of re-negotiated base monthly contract rates effective January
1, 1998 (see "Related Party Transactions") for officers Paauwe and
Gossland . First time management bonuses of $20,000 were paid to each
of Gossland and Paauwe, and directors' fees totaling $5,000 were paid
to the two outside directors Paul Shatzko and Robert Shatzko.
Marketing and general corporate promotions expenses rose compared to
prior periods due to efforts to increase corporate business exposure
in the US and Europe. Payments averaging approximately US$8,000 per
month since December 1997 covering marketing promotions expenses were
made to an independent contractor who is an associate of one of the
directors. This covered general corporate promotion, initial
marketing efforts and customer and shareholder liaison expenses in
connection with the promotion and licensing of the WCT systems in
London England, negotiations on promotions with public relations
firms in Europe, discussions and negotiations with US market makers
for sponsorship on a US bulletin board listing for Registrant,
promotion to offshore investment groups of the WCT systems,
presentations of Registrant's technology to Canadian banks, Canadian
brokerages and high net-worth investors, negotiations on product
reseller arrangements with US firms, evaluation, monitoring and
reporting on the growth of new online trading and the impact on VT
development, and ongoing monthly market research and reporting.
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<Page 37>
During this period Registrant licensed its WCT trading software for a
period of twelve months to an international money manager based in
London. This resulted in the securing of an independent testimonial
as to the profitability of the WCT software when applied to currency
hedging in international stock portfolio management following use by
this client. This testimonial is expected to form the basis for
future European software marketing efforts..
Expenditures on software and systems development during the period
were $198,718. This compares to expenditures of $146,134 in the
fiscal year ended October 31, 1997. These expenditures on software
and systems development were primarily the result of developing the
stock day-trading and position trading simulations capability of the
VT software and the costs of solving related stock market data
conversion problems necessary to facilitate the development of that
that application.
The main development project on the VT stock day-trading software
application neared completion during this period. Trading income
improved over prior period testing results because the position
trading systems went formally online in April of 1998. Trading income
of $70,607 offset demonstration and testing expenses for the year of
$42,490. Actual trading operations started to contribute to
operations. In sum, the better contribution to operations from
trading during this period is the result of having substantially
completed trading system development of the stock index trading
systems effective in April 1998.
Cash balances were supplemented by the exercise in May 1998 of
$131,250 in broker warrants by Yorkton Securities Inc. of Calgary,
Alberta, Canada. These agent warrants were still outstanding from
the agency agreement related to the initial public offering completed
in British Columbia in July, 1996. This exercise of broker warrants
contributed funds to increase expenditures on travel, corporate
promotion and investor relations. Travel, marketing and promotion
expenditures increased as the result of efforts to promote
Registrant's software and systems technology to new potential US
Canadian and European institutional clients.
A first stage direct mail campaign on the VT software product was
initiated during the second quarter with limited results. The
effectiveness of advertising and marketing programs to date on sales
of the VirtualTrader software into the futures trading market segment
has been limited. The market size of this segment is small and this
is reflected in the relatively small level of software sales to date.
During late 1998 the focus of further applications and software
development work on the VirtualTrader shifted to electronic, high
volume NASDAQ and NYSE stock day-trading applications. Development of
this new application resulted in unplanned delays, extra software
testing and larger development expenditures in the most recent fiscal
year.
Applications work on the VT stock trading application neared
completion during the final quarter ending October 1998, and as noted
above, actual online system testing started in September 1998.
Management believes that if profitability in this internet based
electronic stock trading application of VT can be more consistently
demonstrated in actual trading operations and the planned Internet
Subscription Service successfully launched, the market for the VT
product will be easier to establish and software sales revenues will
rise accordingly in future periods.
37
<Page 38>
FYE October 31, 1997 compared to FYE October 31, 1996
As of October 31, 1997 total assets were $1,924,638, up from total
assets of $1,776,793 as of October 31, 1996. Registrant had cash
balances of $1,667,530 and net working capital of $1,672,725 compared
to cash balances of $1,590,589 and net working capital of $1,579,827
as of October 31, 1996. This reflects a net loss in operations for
the period of $142,233 or $.02 per share compared to a net loss of
$235,302 or $.03 per share for the fiscal year ended October 31,
1996.
Share capital issuance during the period totaled $302,400 as the
result of a private placement that was completed in December 1996.
The cash loss in operations for the period was $57,936 compared to
$198,074 in the fiscal year ended October 31, 1996. Total revenue
jumped to $92,801 from $21,213 the previous year. This was mainly the
result of improved trading results, including a $56,761 increase in
demonstration and testing income. There was also a large reduction in
demonstration and testing expenses, which fell to NIL during this
period, compared to $57,934 in the prior period. In addition, cash
losses were reduced by an increase in Interest and Other Income,
which rose to $58,581 from $$35,290 the prior year, as the result of
larger average monthly cash balances in working capital, following
the initial public offering in July 1996 and the private placement of
common stock in the sum of $302,400 completed in December 1996. These
factors, in combination, produced the net reduction of $140,138 in
the cash loss for the period, over the previous fiscal year.
As noted under Research and Development Policy, Registrant
capitalizes software under development and amortizes these costs over
the expected life of the software. Expenditures on software and
systems development during the period were $146,134. This compares to
expenditures of $129,935 in the year ended October 31, 1996. There
was a small contribution during fiscal year end 1997 of $56,761 from
demonstration trading gains, as compared to a loss of $57,934 the
previous year. This was mainly the result of reduced R&D type test
trading that often resulted in losses. Ordinary course trading draw-
downs experienced in the early part of the 1997 fiscal year caused by
stock index trading losses were offset by gains realized later in the
year from more profitable currency trades, largely the result of
swings in the price of world currencies relative to the US dollar.
A milestone in software development was achieved during the 1997
fiscal year with the completion of the first commercial version of
the VirtualTrader advanced trading simulator. Registrant remained in
an early stage of product and system development and market testing
during this period. The development stage continued as the focus of
Registrant's resource allocation shifted to exploitation of the VT
technology for in-house trading operations work.
Fifty Nine percent (59%) of the operating loss for FYE 1997 was from
amortization expense, a non-cash outlay. This includes the normal
write-off of software and systems development costs, as well as the
normal depreciation of computer systems and office equipment, details
of which are disclosed in the notes to the financial statements
provided herewith.
FYE October 31, 1996 compared to FYE October 31, 1995
As of October 31, 1996 total assets were $1,776,793, up from total
assets of $977,238 as of October 31, 1995. Registrant had cash
balances of $1,590,589 and net working capital of $1,579,827,
compared
38
<Page 39>
to cash balances of $873,552 and net working capital of
$902,720 as of October 31, 1995. This reflects a net loss in
operations for the period of $235,302 compared to a net loss of
$315,403 in the fiscal year ended October 31, 1995. The $80,101
reduction in net loss for the period was the result of a $10,048
increase in software sales, a $25,800 increase in interest income
from the larger cash balances and a reduction of $44,253 in operating
expenses. Included in the expense reduction was $18,000 in management
fees which were allocated to share issue costs associated with the
initial public offering. Share subscriptions received and Share
capital issuance during the period totaled $1,165,500 as the result
of an initial public offering that was completed in July 1996. Share
issue costs associated with the initial public offering totaled
$141,089. The cash loss in operations for the period was $198,074
compared to $304,299 in the year ended October 31, 1995. Expenditures
on software and systems development during the period were $129,935.
During this period, Registrant's operations were generally in a full-
time R&D mode. It completed development of an initial version of its
real-time, online intra-day pattern recognition based stock index
trading system as part of its stock index trader series software
("SIT") development, and produced the first demo software versions of
this product.
A number of fees connected with the filing of Registrant's
preliminary prospectus for its initial public offering in British
Columbia and Alberta were incurred, along with increased marketing
related expenses incurred as a result of the appointment of a manager
of sales and marketing and the creation of a new product market
testing program.
During the two month period from April 1 to May 31, 1996, Registrant
continued with its program of market and product testing and
completed development of a prototype of an advanced software based
trading simulator in connection with the stock index series, Neural
Tape Reader research and development. A substantial amount of
management time and effort was also taken up with matters related to
the filing of the Prospectus and initial public offering during this
period.
Net working capital and deferred share issue costs on May 31, 1996,
prior to the July 1996 initial public offering, amounted to
approximately $800,000.
In August 1996, regulations relating to the sale of commodities,
futures and options trading systems in the United States were changed
by the Commodities Futures Trading Commission ("CFTC"). Legal
proceedings were commenced in the US against certain unregistered and
allegedly unscrupulous vendors of trading systems. As a result of
these actions and the related adverse publicity, customer demand
dropped immediately, and the market environment quickly became
uncertain. Registrant thereafter cancelled plans to market its SIT
series software, incorporating it instead as a component of the VT
software development. This action had the effect of reducing expected
software sales revenues until the development of the new VT simulator
training software could be completed.
FYE ended October 31, 1995 Compared to FYE October 31, 1994
Total assets as of October 31, 1995 amounted to $977,238, with cash
and cash equivalents of $873,552 and net working capital of $902,720.
39
<Page 40>
During the fiscal year ended October 31, 1995, Registrant engaged in
a full-time program of software research and development activities,
making expenditures of $39,786 on equipment and intellectual property
rights and $161,442 on software research and development. General and
administrative costs for the year ended October 31, 1995 totaled
$129,364; $34,160 was spent on management fees and $30,000 on
marketing consulting fees. The marketing consulting fees were paid
to an associate of a director over a 10 month period ended October
31, 1995, to complete a preliminary assessment of the institutional
and private trader market segments, as well as analyze information
technology developments and trends in the financial industry. A
total of $96,600 was paid to Michael Paauwe and Michael Gossland
during this period pursuant to service contracts, including
management fees of $32,600, research and development expenses of
$57,500, rental expenses of $4,200 and office costs of $2,300.
Registrant completed initial development of a portfolio of
international currency trading models - the WCT series software, and
also developed proprietary standalone software to install AI based
neural network financial pattern recognition indicators and systems
into TradeStation and SuperCharts. Development work continued on AI
based financial pattern recognition applications on stock indexes,
including development of a new and more accurate neural network for
end-of-day trend indication on the S&P 500 stock index as part of the
SIT series software under development.
Share capital issuance of common shares during the period resulted in
net proceeds of $1,168,900. Commencing in August 1995, after
Registrant had completed development of its initial test advertising
and marketing concept and the development of a trademark and logo
design, it began a three month test marketing program of its first
software product, an international currency trading program, at a
cost of $29,000. Six hundred sales leads were generated from several
countries in response to the test marketing program, indicating far
more interest in Europe than in North America for the WCT system.
Initial market test versions of the product were shipped in
September. A full time marketing and sales manager commenced
employment in November to start the process of implementing
Registrant's marketing and sales programs.
Five Month Initial Operating Period ended October 31, 1994
Registrant's founder, Michael Paauwe, commenced operations on behalf
of Registrant in May 1994. In the period from May 1994 to October
31, 1994, Registrant was engaged in the initial formulation of its
capital structure, technical and product development plans and
initial business strategy. It acquired computer and office equipment
for $27,103 and incurred $43,376 in software and systems research and
development expenditures. Total expenses during this period amounted
to $75,058. This included $40,000 in fees paid to Michael Paauwe and
Michael Gossland as independent contractors for management and
research and development services.
LIQUIDITY AND CAPITAL RESOURCES
At the end of the six month reporting period ended April 30, 1999,
Registrant had cash balances of $1,073,077 and net working capital of
$1,078,842, compared to cash balances of $1,363,818 and net working
capital of $1,340,017 as of October 31, 1998. By reference to the
working capital resources
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<Page 41>
and liquidity risks outlined above,
management believes Registrant has sufficient current liquidity and
working capital resources sufficient to sustain the operations in
accordance with its present business plans for at least 12 months
without requiring additional financing.
As Registrant does not as yet have general earnings from its
operations and does not currently have an existing credit facility,
Registrant's liquidity beyond the next 12 months depends on its
ability to either generate such earnings in the future, access the
capital markets or enter into joint venture agreements. The ability
of Registrant to access the capital markets or to enlist new joint
venture partners is determined in part by the success or failure of
its current and prospective sales and trading operations. No specific
arrangements or agreements have been made for any such financing at
this time.
Registrant does not know of any other trends, demands, commitments,
events or uncertainties that will result in, or that are reasonably
likely to result in, Registrant's liquidity either materially
increasing or decreasing at present or in the foreseeable future.
Registrant has not entered into any material commitments for capital
expenditures as of the end of the latest fiscal year end or the
subsequent interim period to the date of this filing, and does not
anticipate any significant capital purchases other than discussed
above.
Registrant is not aware of any material trends, favorable or
unfavorable, in its capital resources other than as discussed herein,
and does not anticipate any material changes in the mix of the
relative costs of such resources.
ITEM 10 Directors and Officers of Registrant
The following table sets forth, as of December 31, 1998, the names of
the directors and executive officers of the Company, the offices held
by them, and their terms of office as a director or officer.
Directors are elected by the shareholders for one year terms and
until their successors have been duly elected, and officers are
appointed by and serve at the pleasure of the Board of Directors.
Paul Shatzko is Robert Shatzko's father, and trader Joe Shatzko is
Paul Shatzko's son and Robert Shatzko's brother. In addition, TTN
Escrow Capital Corp. a 34% shareholder of Registrant is owned by
Michael Paauwe (66.67%) and Michael Gossland (33.33%), who are
officers and directors of the Registrant. There are no other family
relationships between any director or executive officer and any other
director or executive officer.
- ---------------------------------------------------------------------
Name and municipality Position with Commencement of Service
of residence Registrant
- ---------------------------------------------------------------------
Michael B. Paauwe President & Director May 1, 1994
Nanaimo, British Columbia
Michael Gossland Vice President, September 1, 1994
Nanaimo, British Columbia Secretary, Manager
of Software Dev.
& Director
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<Page 42>
Paul Shatzko Director December 1, 1994
West Vancouver,
British Columbia
Robert Shatzko Director April 15, 1996
San Mateo, California
Jennifer Gee Chief Financial December 1, 1994
Nanaimo, British Officer
Columbia
Michael B. Paauwe, the founder, President and a director of
Registrant, graduated in 1974 with an honors Diploma of Technology in
Financial Management (Finance) from the British Columbia Institute of
Technology, receiving the BCIT Alumni Silver Medal for Finance, and
the Dow Jones and Company - Wall Street Journal Silver Medal for
Security Analysis. After a further course of studies, and a period of
training as a tax accountant with Revenue Canada Taxation, Mr. Paauwe
was employed as a tax auditor with the British Columbia Ministry of
Finance from November 1975 to December 1983. Mr. Paauwe received a
professional designation as a Certified General Accountant in British
Columbia in 1980, retiring his membership in May of 1998.
Through his management and financial consulting firm, Michael B.
Paauwe and Associates (a sole Proprietorship), Mr. Paauwe provides
management, trading research and product development services to
Registrant under a contract services agreement. Mr. Paauwe devotes
the majority of his time to the business and affairs of the
Registrant.
Michael Gossland, M. Sc., P. Eng., is the Vice President, Secretary,
a Director, and the Manager of Software Development of Registrant.
Mr. Gossland has provided full time services under contract to Titan
since September 1, 1994. In 1976, he was awarded the Harrington
Prize for academic excellence in physics, and he received his M.Sc.
degree from the University of Saskatchewan in 1978. In 1979, he
obtained his designation as a Professional Engineer - Electrical
Branch (Association of Professional Engineers of Ontario) and from
1986 to 1991 he was Software Project Manager for Sciex, a division of
MDS Health Group Inc., of Toronto.
Since September, 1994, through Michael Gossland and Associates (a
sole proprietorship), Mr. Gossland has been providing engineering and
software development services to Titan under a contract services
agreement. Mr. Gossland devotes the majority of his time to the
business and affairs of the Registrant.
Paul Shatzko, M.D. a radiologist who formerly practiced in North and
West Vancouver, British Columbia, is a director of the Registrant.
Since 1988 Dr. Shatzko has been the President of Mountain Province
Mining Inc.("MPV"), which in March 1995 made a major diamond pipe
discovery in the North West Territories. Dr. Shatzko has held this
position on a full time basis since August, 1995. Prior to that, he
devoted part of his time to the office of President of MPV, and in
addition practiced his profession as a radiologist.
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<Page 43>
Dr. Shatzko has been involved over a number of years as a director or
officer of several publicly traded companies, and devotes such time
to the affairs of the Registrant as is necessary to perform his
functions as a director.
Robert Shatzko, a member of the California State Bar and a trial
lawyer, is a director of the Registrant. Mr. Shatzko obtained a
bachelor of arts degree with honors in political science from Loyola
Marymount University in Los Angeles, California in 1986, and the
degree of Juris Doctor from the McGeorge School of Law of the
University of The Pacific in Sacramento, California, in 1992. He
practices as a trial attorney with the law firm of Clapp, Moroney,
Bellagamba, Davis & Vucinich in Menlo Park, California. Mr. Shatzko
devotes such time to the affairs of the Registrant as is necessary to
perform his functions as a director.
Jennifer Gee, Titan's Chief Financial Officer, is an independent
business and marketing consultant in Nanaimo, British Columbia. From
1984 until May 1994, Ms. Gee was the financial controller for TNT.
She has worked for Titan in a similar capacity on a part time basis
since June 1994, and will continue to do so until such time as the
Registrant's requirements necessitate the appointment of a full-time
Chief Financial Officer.
ITEM 11. Compensation of Directors and Officers
During the six months ended April 30, 1999 and the fiscal year ended
October 31, 1998, the following executive officers received
compensation from Registrant for management, marketing, engineering,
research and development, and consulting services. See Item 13 -
"Interest of Management In Certain Transactions". The compensation
amounts identified below are reported in Canadian dollars.
- ---------------------------------------------------------------------
Name and Position 6 months ended FYE October 1998
April 30, 1999
- ---------------------------------------------------------------------
Michael B. Paauwe, $ 50,000 $ 85,667
president
Michael Gossland,
vice president,
secretary, $ 47,500 $ 82,750
manager of software
development
Jennifer Gee $ 5,600 $ 6,526
chief financial officer
Total Compensation $ 103,100 $ 174,943
to all Directors &
Officers
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Registrant compensates directors who are not also officers of the
company ("Outside Directors") $2,500 per year for serving on the
board. Consequently, Outside Directors Robert and Paul Shatzko
received payment of $2,500 each, in each of the last two fiscal
years.
Registrant does not compensate directors who are also officers of the
company for acting as directors, and Registrant has not set-up or
paid out on any pension, retirement or similar plans for directors or
officers.
ITEM 12. Options to Purchase Securities from Registrant and
Subsidiaries
OPTIONS
Certain of the directors and officers, as well as employees who are
not directors or officers of Registrant, have been granted incentive
stock options to purchase Common Shares of Registrant at various
prices. As of April 30, 1999 the following total number of Company
stock options are outstanding:
- ---------------------------------------------------------------------
Holders Number of Exercise Price Expiration Date
Common Shares
- ---------------------------------------------------------------------
Directors and 755,000 $0.90 July 2001
officers as
a group 390,000 $1.00 April 2004
---------
Total 1,145,000
Employees who
are 75,000 $0.90 July 2001
not directors or 90,000 $0.85 January 2004
officers 45,000 $1.00 January 2004
---------
Total 210,000
WARRANTS
There are no outstanding warrants to purchase Registrant's common
shares as of April 30, 1999; nor were any outstanding at the end of
the last reporting period on October 31, 1998.
125,000 warrants that were issued to an agent for services in
connection with the initial public offering in 1996 were exercised by
their expiration date in July 1997. 158,000 warrants issued in
connection with a private placement in 1997, expired without being
exercised in June of 1998.
ITEM 13. Interest of Management in Certain Transactions
MATERIAL TRANSACTIONS
It is Registrant's policy in related-party transactions is to try to
ensure that the cost and payment terms of such transactions reflect
costs of similar arm's-length transactions, in accordance with normal
Canadian business practices and with due consideration for the impact
of Canadian income tax
44
<Page 45>
requirements. The following are descriptions
of all material transactions between Registrant and its management.
From May 1994 to October 31, 1995, through his independent management
and financial consulting firm, Michael B. Paauwe and Associates (a
sole proprietorship), Mr. Paauwe (the President and a director)
provided corporate and financial management, trading systems research
and product development contract services to Registrant under an oral
arrangement, pursuant to which he received a monthly fee of $5,000
until December 31, 1994, and of $6,000 thereafter, plus reimbursement
of expenses. On November 1, 1995 the terms of the arrangement were
reduced to writing, and have continue since that time to the present.
From September 1994 to October 31, 1995, through his independent
software design and engineering consulting firm, Michael Gossland and
Associates, Mr. Gossland (an officer and director) provided software
engineering and development contract services to Registrant under an
oral arrangement, pursuant to which he received a monthly fee of
$5,000 until December 31, 1994, and of $6,000 thereafter, plus
reimbursement of expenses. Effective November 1, 1995 the terms of
the arrangement were reduced to writing, and have continue since that
time to the present.
Except for the description of the services to be performed
thereunder, the written agreements between Registrant and Paauwe and
the Registrant and Gossland (the "Services Agreements") contain
identical provisions. Each has an initial term of three years,
subject to renewal for further terms of two years, at a monthly fee
to be agreed from time to time (the "Fee"), but not less than $6,000,
plus reimbursement of expenses. Each of the Agreements also provides
for the payment of an annual bonus (the "Bonus") of $4,500.
Registrant may terminate these Services Agreements at any time on 30
days written notice. If it terminates otherwise than for a material
and substantial failure to perform the agreed services by Paauwe or
Gossland, as the case may be, the Services Agreements provide for
payment of a lump sum equal to 12 times the Fee then in effect plus
any unpaid Bonus (the "Lump Sum") if terminated during the initial
term, and an amount to be negotiated, but not less than the Lump Sum,
if terminated thereafter. The latter provision applies as well to a
failure by Registrant to renew the Services Agreement. If terminated
for a material and substantial breach of their obligations, Paauwe
and Gossland, as the case may be, have a 30 day period in which to
cure the breach. The Services Agreements may be terminated by Paauwe
and Gossland, as the case may be, on 120 days written notice to the
Registrant. The Services Agreements also contain confidentiality
provisions, and provisions for the arbitration of disputes.
Pursuant to an agreement dated September 15, 1995 (the "Gossland
Agreement"), Michael Gossland (officer and director) assigned to
Registrant all of his right, title and interest in all software
copyrights, product trademarks and related assets in respect of
NeuralEdge and Neural$. The assets assigned, which included the
object and source codes, were acquired pursuant to an agreement dated
July 28, 1995 with Teranet IA Incorporated and were subsequently
assigned to Registrant at Mr. Gossland's cost of $20,000, of which
$10,000 represented an advance royalty payment in respect of sales of
the DOS-based version of NeuralEdge and Neural$, and certain
components thereof. In view of Titan's decision not to proceed with
the marketing of the DOS-based version of these products, there is no
future royalty obligation payable by Registrant pursuant to the
Gossland Agreement.
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<Page 46>
Note that these transactions were recorded in the Registrant's
accounts at no cost and no gain was realized by Michael Gossland on
the assignment to the Company of the software copyrights, product
trademarks and related assets in respect of NeuralEdge and Neural$.
In addition, of the $10,000.00 of prepaid royalties in 1995 in this
transaction, $6,000.00 was recovered from a third party in 1996 and
the balance of $4,000.00 was written off in 1998. Finally, it should
be noted that this transaction had no impact on the reconciliation
between Canadian and US GAAP.
In June 1994, Registrant acquired certain computer equipment, and in
September 1994 it acquired certain software assets and related
products from Michael B. Paauwe (President and director), at his
depreciated cost of $2,400 and $3,500, respectively.
Registrant rents certain office space from a Mr. Paauwe's spouse at a
monthly rental of $350 and from Mr. Gossland at a monthly rental of
$250. The aggregate rents paid during FYE October 31, 1995 were
$4,200 and $3,000 respectively. These rental agreements continue to
the present time at the same monthly rental amount, which is
comparable to third-party market rates for similar office space in
the areas.
In addition, during the fiscal year ended October 31, 1995,
Registrant paid $30,000 to an associate of Paul Shatzko (a director)
for marketing consulting services under an arrangement which is no
longer in effect. The consulting services were rendered over a 10-
month period which ended in October 1995. The services included a
preliminary market assessment of the institutional segment of the
market, assessment of the competition in the private trader segment
of the market, and analysis of financial industry information
technology trends related to Registrant's business plan.
In 1998 the, Services Agreements for Michael Gossland and Michael
Paauwe were both re-negotiated with the board of directors of
Registrant and amended agreements were entered into effective January
1, 1998. The amended agreements provide for monthly compensation of
$7,667 per month for Paauwe, and $7,250 per month for Gossland, up
from $6000 each. In addition, both Paauwe and Gossland were paid a
one time bonus payment of $20,000 each. In all other respects, the
Services Agreements remain the same as disclosed above.
The Services Agreements were automatically renewed on November 1,
1998 and now have renewable two year terms effective from that date,
in accordance with the terms of the original agreements described
above.
During the nine months ended July 31, 1998 Registrant paid US$70,000
to an associate of Paul Shatzko (a director) for marketing consulting
and promotion services rendered during that period and US$30,000 for
the period August 1, 1998 to December 31, 1998. The services involved
marketing and promotions activities, including: (1) initial marketing
efforts; (2) customer and shareholder liaison services in connection
with the promotion and licensing of the WCT systems in London
England; (3) negotiations on promotions with public relations firms
in Europe and the US; (4) meetings, discussions and negotiations with
potential US market makers for sponsorship on a US bulletin board;
(5) promotion to offshore investment groups; (6) presentations to
Canadian banks, Canadian brokerages and high net worth investors; (7)
negotiations on product reseller arrangements with US firms; (8)
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<Page 47>
evaluation and reporting on the growth of new online trading and its
impact on VT development; and (9) ongoing monthly market research and
reporting.
In addition, certain officers and directors have an interest in the
stock options as more particularly described above.
INDEBTEDNESS OF DIRECTORS AND OFFICERS AND THEIR ASSOCIATES
During the last three years, there has been no recorded indebtedness
of any of the directors or officers, or any associates of the
directors or officers, to the Registrant.
PART II
ITEM 14. Description of Securities to be Registered
The class of capital stock of Registrant being registered hereby is
the Registrant's common shares.
The issued and outstanding share capital of the Registrant is
summarized as follows:
The authorized capital of Registrant consists of 100,000,000 common
shares without par value. As of May 31, 1999, 8,857,001 common
shares were issued and outstanding. If all outstanding options to
purchase common shares were exercised, the issued common share
capital of Registrant would be 10,152,001 shares. The holders of the
common shares are entitled to vote at all meetings of shareholders,
to receive dividends if, as and when declared by the directors, and
to participate ratably in any distribution of property or assets on
the liquidation, winding up or other dissolution of Registrant. The
common shares have no pre-emptive or conversion rights. Registrant
may, by way of a resolution of the Directors and in compliance with
The Company Act, purchase any of its shares at the price and upon the
terms specified in such resolution. No such purchase shall be made
if Registrant is insolvent at the time of the proposed purchase or if
the proposed purchase would render Registrant insolvent. Unless
otherwise permitted under The Company Act, Registrant must make its
offer to purchase such shares pro rata to every shareholder who holds
shares of the class or kind, as the case may be, to be purchased. The
common shares are non-assessable, and not subject to further calls by
Registrant.
A total of 3,000,000 common shares ("Escrow Shares") are held in
escrow by the Montreal Trust Company of Canada ("Montreal Trust"),
510 Burrard Street, Vancouver, British Columbia, V6C 3B9, pursuant to
an escrow agreement (the "Escrow Agreement") dated January 5, 1996 by
and between Registrant, Montreal Trust, and TTN Escrow Capital Corp.,
a private British Columbia company the outstanding voting shares of
which are held 66.67% by Michael Buchanan Paauwe and 33.33% by
Michael Gossland. The Escrow Shares were purchased for cash at a
price of $0.01 per share. They represent approximately 33.87% of the
issued and outstanding common shares.
In general, the Escrow Agreement was devised to create a long-term
incentive for the beneficial owners of the shares (Michael Paauwe and
Michael Gossland) to act in the long-term interest and for maximum
profitability of Registrant, in accordance with the policies of the
Vancouver Stock Exchange. The shares are subject to an earn-out
formula based on cumulative net positive cash flow as described
47
<Page 48>
below, and cannot be released for trading until thresholds of net
profitability are reached. Any escrow shares not released after ten
years are automatically canceled. The Escrow Agreement has been
attached as an Exhibit hereto.
The Escrow Shares are subject to the direction or determination of
the Vancouver Stock Exchange. The Escrow Agreement provides that the
Escrow Shares may not be traded in, dealt with or released without
the consent of the Vancouver Stock Exchange. Any Escrow Shares not
released from escrow by June 21, 2006 will be cancelled at that time.
Release of Escrow Shares from escrow will take place in accordance
with a formula prescribed by Policy 3-07 of the British Columbia
Securities Commission ("Policy 3-07"), applied to Registrant's
cumulative cash flow from operations as disclosed in its audited
financial statements from time to time. In short, Policy 3-07
requires that Registrant first achieve cumulative cash flow per share
of $0.46 or an aggregate cumulative cash flow of $1,380,000 before
the Escrow Shares can be released. For these purposes, "cash flow"
means net income or loss before tax, adjusted to add back
depreciation, amortization of goodwill and deferred research and
development costs (excluding general and administrative costs) and
any other amounts permitted or required by the Vancouver Stock
Exchange. "Cumulative cash flow" at any time means the aggregate cash
flow in the period from September 1, 1995 to that time, net of any
negative cash flow.
The holder of the Escrow Shares has agreed for so long as they remain
in escrow to waive its rights: (i) to vote on a resolution to cancel
any of them; (ii) to receive dividends, and (iii) to participate in
the assets and property of Registrant on a winding up or dissolution.
PART III
ITEM 15. Defaults upon Senior Securities
Registrant has not defaulted on any payment with respect to any
indebtedness.
ITEM 16. Changes in Securities, Changes in Security for Registered
Securities
There have been no changes made to the rights of the holders of
Registrant's securities.
PART IV
ITEM 17. Financial statements
The financial statements of Registrant have been prepared on the
basis of Canadian generally accepted accounting principles.
Differences between Canadian and U.S. generally accepted accounting
principles are set out in Note 8 to the audited financial statements
dated October 31, 1998.
48
<Page 49>
See "Item 19. Financial Statements and Exhibits" for a list of
Registrant's Financial Statements that follow.
ITEM 18. Financial Statements
Inapplicable
Item 19. Financial Statements and Exhibits
INDEX
1. FINANCIAL STATEMENTS
(a) Interim un-audited management prepared financial statements
for the six months ending April 30, 1999, including:
- Consolidated Interim Balance Sheet
- Consolidated Interim Statement of Operations and Deficit
- Consolidated Interim Statement of Cash Flows
(b) Audited Financial Statements of the Registrant as of
October 31, 1998, including:
- Auditors' Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
(c) Consent letter from Collins Barrow in regard to the
inclusion of Independent Auditors' Reports in the Registration
Statement.
2. EXHIBITS
(a) Certificate of Incorporation of KBK No. 24 Ventures Ltd.
(b) Certificate of Change of Name of KBK No. 24 Ventures Ltd.
to Titan Trading Analytics Inc.
(c) Articles of Registrant
(d) Current Contract Services Agreement between Registrant and
Michael B. Paauwe and Associates dated January 1, 1998
(e) Current Contract Services Agreement between Registrant and
Michael Gossland and Associates dated January 1, 1998
(f) Escrow Agreement dated January 5, 1996 with TTN Escrow
Capital Corp.
(g) Testimonial Letters of Lombard Odier International
Portfolio Management Limited
(h) Responses to Comment Letter of Mr. James M. Daly dated
March 11, 1999
49
<Page 50>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
TITAN TRADING ANALYTICS INC.
(Registrant)
/S/ Michael B. Paauwe
MICHAEL B. PAAUWE
PRESIDENT AND DIRECTOR
(Authorized Signatory)
DATE: June 30, 1999
<Page 51>
TITAN TRADING ANALYTICS INC.
----------------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED INTERIM BALANCE SHEET
----------------------------------
APRIL 30, 1999
--------------
ASSETS
------
Current Assets 1999 1998
Cash and short-term investments $ 1,073,077 $ 1,440,592
Accounts receivable 11,683 0
Prepaid expenses 1,236 1,050
----------- -----------
1,085,996 1,441,642
Software and systems development
(net) 304,937 269,267
Capital assets (net) 56,998 41,227
----------- -----------
$ 1,447,931 $ 1,752,136
=========== ============
LIABILITIES
-----------
Current Liabilities
Accounts payable and accrued
Liabilities $ 7,154 $ 5,869
----------- -----------
SHAREHOLDERS' EQUITY
--------------------
Share capital $ 2,802,962 $ 2,671,712
Deficit (1,362,185) (925,445)
----------- -------------
$ 1,447,931 $ 1,752,136
=========== =============
Approved by the Directors
\s\ MICHAEL PAAUWE Director
- --------------------------------
\s\ MICHAEL GOSSLAND Director
- --------------------------------
PREPARED BY MANAGEMENT WITHOUT AUDIT
<Page 52>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED INTERIM STATEMENT OF OPERATIONS AND DEFICIT
--------------------------------------------------------
FOR THE PERIOD FROM NOVEMBER 1, 1998 TO APRIL 30, 1999
------------------------------------------------------
Revenue
1999 1998
Software Sales $ 31,438 $ 29,216
Trading Income 63,878 0
Interest and Other Income 18,022 30,236
----------- -------------
$ 113,338 $ 59,452
Expenses
Advertising, marketing and promotion 57,256 19,266
Amortization 44,850 39,716
Bank charges 805 1,481
Corporate Tax 500 0
Demonstration & Testing 28,155 47,312
Directors fees 5,000 5,000
Investor relations 19,338 0
Management fees 32,800 36,387
Office 6,417 6,401
Professional fees 37,099 17,135
R & D expenses 0 3,483
Rent 2,275 2,438
Salaries and benefits 76,918 31,989
Telephone 2,588 1,682
Travel 1,124 4,610
----------- -------------
315,125 216,900
----------- -------------
Net loss for the period $ (201,787) $ (157,448)
Deficit beginning of period (1,160,398) (767,996)
Deficit end of period $(1,362,185) $ (925,445)
=========== =============
PREPARED BY MANAGEMENT WITHOUT AUDIT
<Page 53>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED INTERIM STATEMENT OF CASH FLOW
-------------------------------------------
FOR THE PERIOD FROM NOVEMBER 1, 1998 TO APRIL 30, 1999
------------------------------------------------------
1999 1998
Cash from operating activities
Net loss for the period $ (201,787) $ (157,448)
Item not involving cash
Amortization 44,850 39,716
----------- -------------
(156,937) (117,732)
Net change in non-cash working
capital balances (29,563) 11,064
----------- -------------
(186,500) (106,668)
Cash used in investing activities
Acquisition of capital assets (19,576) (3,048)
Software & Systems development (84,663) (116,171)
----------- -------------
(104,239) (119,219)
Cash from financing activities
Share subscriptions received
And issuance of Common Shares 0 0
----------- -------------
Increase in cash during the period (290,739) (225,887)
Cash and short-term investments,
beginning of the period 1,363,816 1,667,530
----------- -------------
Cash and short-term investments,
end of period $ 1,073,077 $ 1,441,643
=========== =============
PREPARED BY MANAGEMENT WITHOUT AUDIT
<Page 54>
TITAN TRADING ANALYTICS INC.
CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31, 1998
<Page 55>
Collins
Barrow
Chartered Accountants
Suite 800
1030 West Georgia Street
Vancouver, Canada
V6E 3B9
AUDITORS' REPORT
-----------------
To the Directors of
Titan Trading Analytics Inc.
We have audited the consolidated balance sheets of Titan
Trading Analytics Inc. as at October 31, 1998 and 1997 and
the consolidated statements of operations and deficit and
cash flows for each of the years in the three year period
ended October 31, 1998. These financial statements are the
responsibility of the company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial
position of the company as at October 31, 1998 and 1997 and
the results of its operations and cash flows for each of the
years in the three year period ended October 31, 1998 in
accordance with generally accepted accounting principles in
Canada. As required by the Company Act (B.C.), we report
that, in our opinion, these principles have been applied on a
consistent basis.
\s\ COLLINS BARROW
CHARTERED ACCOUNTANTS
Vancouver, Canada
January 13, 1999
A member of
Moores
Rowland
International Collins Barrow
An association of independent is a Partnership of
accounting firms throughout the world. Incorporated Professionals
<Page 56>
TITAN TRADING ANALYTICS INC.
----------------------------
(Incorporated under the laws of British Columbia)
CONSOLIDATED BALANCE SHEET
--------------------------
OCTOBER 31, 1998
----------------
ASSETS 1998 1997
------ ---- ----
Current assets
Cash, due from brokers, and short-term
Investments $ 1,363,816 $ 1,667,530
Accounts receivable 5,794 22,634
Prepaid expenses 746 3,483
----------- -----------
1,370,356 1,693,647
Software and systems development (note 3) 259,147 185,571
Capital assets (note 4) 43,400 45,420
---------- -----------
$ 1,672,903 $ 1,924,638
=========== ===========
LIABILITIES
-----------
Current liabilities
Accounts payable and accrued liabilities $ 30,339 $ 20,922
----------- -----------
SHAREHOLDERS' EQUITY
---------------------
Share capital (note 5) 2,802,962 2,671,712
Deficit (1,160,398) (767,996)
----------- -----------
1,642,564 1,903,716
----------- -----------
$ 1,672,903 $ 1,924,638
=========== ===========
Approved by the Directors
\s\ MICHAEL PAAUWE , Director
- ------------------------
\s\ MICHAEL GOSSLAND , Director
- ------------------------
See accompanying notes to the consolidated financial statements.
<Page 57>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
1998 1997 1996
---- ---- ----
Revenue
Software sales $ 53,051 $ 36,040 $ 21,213
Demonstration and testing
Income --- 56,761 ---
Trading income 70,607 --- ---
--------- --------- ---------
123,658 92,801 21,213
Expenses
Advertising, marketing and
Promotion 129,299 48,157 65,159
Amortization 140,258 84,297 37,228
Bank charges 2,408 1,452 1,811
Capital taxes 6,157 4,850 ---
Directors' fees 5,000 --- ---
Demonstration and testing 42,490 --- 57,934
Investor relations 31,888 --- ---
Management fees 65,055 44,887 34,364
Office 12,567 15,005 10,118
Professional fees 17,934 13,424 8,669
Rent 6,177 5,900 6,330
Research and development 3,483 3,483 7,436
Salaries and benefits 63,224 47,282 43,750
Telephone 4,118 4,533 5,060
Travel 27,459 20,345 13,946
--------- --------- ---------
557,517 293,615 291,805
--------- --------- ---------
(433,859) (200,814) (270,592)
Interest and other income 41,457 58,581 35,290
--------- --------- ---------
Net loss for the year (392,402) (142,233) (235,302)
Deficit, beginning of the year (767,996) (625,763) (390,461)
--------- --------- ---------
Deficit, end of the year $(1,160,398)$ (767,996)$ (625,763)
=========== =========== =============
Net loss per share for the year
(note 7(e)) $(.04) $(.02) $(.03)
====== ====== ======
See accompanying notes to the consolidated financial statements.
<Page 58>
TITAN TRADING ANALYTICS INC.
----------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1998
-----------------------------------
1998 1997 1996
---- ---- ----
Cash flows from (used in)
operating activities
Net loss for the year $ (392,402)$ (142,233)$ (235,302)
Adjustments for:
Amortization 140,258 84,297 37,228
Foreign exchange loss (gain) (35,754) (3,624) 8,190
----------- ----------- ------------
(287,898) (61,560) (189,884)
Net change in non-cash working
capital balances
Decrease (increase) in
Accounts receivable 16,840 (13,390) 3,437
Decrease in prepaid
Expenses 2,737 9,755 26,047
Increase (decrease) in
Accounts payable and
accrued liabilities 9,417 (12,322) 10,446
----------- ----------- ------------
Cash used in operating
Activities (258,904) (77,517) (149,954)
----------- ----------- ------------
Cash flows used in investing
activities
Software and system
Development (198,718) (146,134) (129,935)
Acquisitions of
capital assets (13,096) (5,432) (19,295)
----------- ----------- ------------
Cash used in investing
Activities (211,814) (151,566) (149,230)
----------- ----------- ------------
Cash flows from (used in)
financing activities
Share subscriptions received
And issuance of common shares 131,250 302,400 1,165,500
Share issue costs --- --- (141,089)
----------- ----------- ------------
Cash from financing activities 131,250 302,400 1,024,411
----------- ----------- ------------
Foreign exchange gain (loss)
on cash held in foreign
currency 35,754 3,624 (8,190)
----------- ----------- ------------
Net increase (decrease) in cash
during the year (303,714) 76,941 717,037
Cash, due from brokers, and
short-term investments,
beginning of the year 1,667,530 1,590,589 873,552
----------- ----------- ------------
Cash, due from brokers, and
short-term investments, end
of the year $1,363,816 $1,667,530 $1,590,589
=========== =========== ============
See accompanying notes to the consolidated financial statements.
<Page 59>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
1. General information
The company develops, uses for its own account, and markets
financial software trading systems.
2. Significant accounting policies
These financial statements are prepared in accordance with
accounting principles generally accepted in Canada which do
not differ from those established in the United States, except
as disclosed in note 8.
a) Consolidation - The financial statements include the
accounts of the company and of its wholly-owned subsidiary,
Titan Trading Corp.
b) Short-term investments - Short-term investments are carried
at the lower of cost or market. Gains and losses from
demonstration and testing and from trading short-term
investments are recognized as income on the trade date.
c) Research and development - Research costs are expensed when
incurred. Development costs are expensed when incurred
prior to the establishment of technical feasibility.
Subsequent to the establishment of technical feasibility,
the costs associated with the development of a commercial
product for which adequate resources exist to market the
product are capitalized as software and systems development.
d) Software and systems development - Software and systems
development costs are amortized based upon the greater of
(i) the ratio of gross revenues over aggregate anticipated
gross revenues and (ii) straight-line over the remaining
estimated economic life of the related products.
e) Capital assets - Capital assets are recorded at cost and
amortized at the following annual rates:
Computer equipment - 30% declining balance
Copyrights and trademarks - 20% straight line
Furniture and equipment - 20% declining balance
f) Software sales - Revenue arising from software sales is
recognized at the time of the sale unless the company is
obligated to provide services in the future in which case a
portion of the revenue is deferred until the services have
been performed.
g) Foreign currency translation - Foreign currency transactions
are translated using the temporal method, whereby:
i) monetary items are translated at the rate of exchange in
effect at the balance sheet date;
ii) non-monetary items are
translated at historical exchange rates; and
iii) revenue and expense items are
translated at the average rate of exchange for the year.
h) Use of estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates. Significant
areas requiring the use of management estimates relate to
the valuation of software and systems development and the
determination of useful lives of software and systems
development and capital assets for purposes of calculating
amortization.
<Page 60>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
3. Software and systems development
1998 1997
---- ----
Cost $ 474,787 $ 276,069
Accumulated amortization (215,640) (90,498)
=========== ===========
$ 259,147 $ 185,571
Software and system development cost
is comprised of: 1998 1997
---- ----
Computer services $29,520 $18,495
Contract services 359,583 200,750
Other 60,769 34,909
Rent 10,200 7,200
Salaries 14,715 14,715
----------- -----------
$474,787 $276,069
=========== ===========
4. Capital assets
1998
----------------------------------
Accumulated
Cost Amortization Net
-------- ------------ --------
Computer equipment $ 82,785 $ 50,034 $ 32,751
Copyrights and trademarks 13,464 6,714 6,750
Furniture and equipment 7,370 3,471 3,899
-------- ------------ --------
$ 103,619 $ 60,219 $ 43,400
========= ============ ========
1997
----------------------------------
Accumulated
Cost Amortization Net
-------- ------------ --------
Computer equipment $ 71,675 $ 38,378 $ 33,297
Copyrights and trademarks 11,836 4,184 7,652
Furniture and equipment 7,012 2,541 4,471
-------- ------------ --------
$ 90,523 $ 45,103 $ 45,420
Copyrights and trademarks includes $10,000 acquired in 1995
from a related individual.
5. Share capital
Number
of Shares Amount
--------- ------
Authorized
100,000,000 common shares,
without par value
Issued
Balance, November 1, 1996 8,416,001 $ 2,229,312
Issued for cash 316,000 442,400
--------- -----------
Balance, October 31, 1997 8,732,001 2,671,712
Issued for cash 125,000 131,250
--------- -----------
Balance, October 31, 1998 8,857,001 $ 2,802,962
========= ===========
<Page 61>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
5. Share capital - continued
During 1997 the company issued 316,000 common shares for
$442,400.
3,000,000 of the common shares issued during 1996 are held in
escrow with their release being subject to regulatory
approval.
Stock options and common share purchase warrants
Directors, Officers and Common Share
Employee Stock Options Purchase Warrants
------------------------ -----------------
Outstanding, November
1, 1996
Number 830,000 125,000
Exercise price $.90 to July 2001 $.90 to July 1997
and $1.05 to July
1998
Exercised during 1997 --- ---
Issued during 1997 --- 158,000
$1.75 to June 1998
Cancelled during 1998 --- (158,000)
Exercised during 1998 --- (125,000)
------- --------
Outstanding, October
31, 1998 830,000 ---
======= ========
6. Income taxes
The financial statements do not reflect the potential tax
reductions which may be available through the application of
losses of $1,223,000 carried forward against future years'
earnings otherwise subject to income taxes.
The losses expire as follows:
2001 $ 67,000
2002 322,000
2003 373,000
2004 248,000
2005 470,000
----------
1,480,000
Losses attributable to timing
Differences (257,000)
----------
$ 1,223,000
===========
<Page 62>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
7. Other information
a) Related party transactions
Included in the statement of operations and deficit are the
following transactions with officers and directors and
related individuals:
1998 1997 1996
---- ---- ----
Expenses
Management fees $ 65,055 $ 44,887 $ 34,032
Rent $ 4,200 $ 4,200 $ 4,200
Research and development $ --- $ --- $ 6,250
Software and systems development costs incurred during the
year includes $161,833 (1997 - $109,500) paid to officers
and directors.
At October 31, 1998, $7,438 (1997 - $6,093) due to officers
and directors is included in accounts payable and accrued
liabilities.
Share issue costs for 1996 include $18,000 paid to an
officer and director.
The company has contract services agreements with officers
requiring the company to pay monthly fees of $14,917 to
December 2001 and additional amounts if not renewed at that
time.
The related party transactions are in the normal course of
operations and are recorded at the amount paid.
b) Financial instruments
The company's financial instruments consist of cash, due
from brokers, and short-term investments, accounts
receivable, and accounts payable. Unless otherwise noted,
it is management's opinion that the company is not exposed
to significant interest, currency or credit risks arising
from these financial instruments. A significant portion of
the company's cash, due from brokers, and short-term
investments are denominated in United States dollars.
Therefore, the realization of these amounts into Canadian
dollars can fluctuate based on foreign exchange rates. The
fair values of these financial instruments approximate their
carrying values, unless otherwise noted.
c) Geographic information
Substantially all of the company's software sales are to
customers in the United States.
d) Foreign exchange gains and losses
Foreign exchange gains and losses arising because of changes
in the exchange rate between Canadian and United States
currency arose because of trading in short-term investments.
Trading income includes foreign exchange gains of $18,897.
Interest and other income for 1997 includes foreign
exchange gains of $8,623 (1996 - losses of $5,932).
<Page 63>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
7. Other information - continued
e) Loss per share
The loss per share is calculated on the basis of the
weighted average number of shares outstanding during the
year which was 8,775,837 (1997 - 8,680,131; 1996 -
6,966,045).
f) Cash used in operating activities includes:
1998 1997 1996
---- ---- ----
Bank charges and interest paid $ (2,407)$ (1,452)$ (1,811)
Interest received $ 45,329 $ 49,957 $ 41,223
g) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems
use two digits rather than four to identify a year. Date-
sensitive systems may recognize the year 2000 as 1900 or
some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the
Year 2000 Issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It
is not possible to be certain that all aspects of the Year
2000 Issue affecting the entity, including those related to
the efforts of customers, suppliers, or other third parties,
will be fully resolved.
h) Comparative figures
The comparative figures have been reclassified, where
applicable, to conform with the current year's presentation.
8. United States accounting principles
a) Balance sheet
There are no differences between United States generally
accepted accounting principles and Canadian generally
accepted accounting principles that would result in material
changes to the balance sheet.
b) Short-term investments
Under United States generally accepted accounting
principles, short-term investments are recorded at market
value. At October 31, 1998 and 1997, there were no
differences between the cost and the market value of the
short-term investments.
c) Escrow shares
Under United States generally accepted accounting
principles, the 3,000,000 common shares held in escrow are
considered contingent shares because the conditions for
issuance are not currently met and will not be met by the
mere passage of time. When these shares are released from
escrow, to the extent their fair market value exceeds their
issuance price, compensation expense would be recognized by
the company.
<Page 64>
TITAN TRADING ANALYTICS INC.
----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OCTOBER 31, 1998
----------------
8. United States accounting principles - continued
d) Share issue costs
Under United States generally accepted accounting
principles, share issue costs paid to employees are required
to be expensed. Accordingly, share issue costs of $18,000
paid to an officer and director in 1996 would result in an
increase in management fees expense in 1996.
e) Loss per share
Under United States generally accepted accounting
principles, the loss per share is calculated on the basis
that the weighted average number of shares outstanding
during the year excludes shares which are considered
contingent shares. On that basis:
1998 1997 1996
---- ---- ----
Weighted average number of
Shares outstanding 5,775,837 5,680,131 4,515,225
========= ========= =========
Net loss per share $(.07) $(.03) $(.06)
====== ====== ======
f) Stock options
Under United States generally accepted accounting
principles, granting of stock options to directors, officers
and employees may give rise to a charge to income for
compensation. The company has prepared its financial
statements in accordance with APB 25 under which stock
options are measured by the intrinsic value method whereby
directors, officers and employee compensation cost is
limited to the excess of the quoted market price at date of
grant over the option exercise price. Since the exercise
price equalled the quoted market price at the dates the
stock options were granted, there was no compensation cost
to be recognized. Had the company fully adopted the
recommendations of SFAS 123 and valued the options using a
fair market value method such as the Black-Scholes option
pricing model, there would be an increase in employee and
director compensation costs charged to income of $Nil in
1998, $Nil in 1997 and $6,350 in 1996. The weighted average
grant date fair market value of options granted was
determined using the Black-Scholes option pricing model
assuming a risk-free interest rate of 6.25%; an option life
of 5 years; an expected volatility of 13% and that no
dividends would be paid until after the expiry date of the
options.
1998 1997 1996
---- ---- ----
Net loss under United States
Generally accepted accounting
Policies $ (392,402) $ (142,233) $ (253,302)
Increase in directors',
officers' and employees'
compensation --- --- 6,350
---------- ---------- ----------
$ (392,402) $ (142,233) $ (259,652)
========== ========== ==========
Net loss per share if SFAS
123 adopted $(.07) $(.03) $(.06)
====== ====== ======
<Page 65>
Collins
Barrow
Chartered Accountants
Suite 800
1030 West Georgia Street
Vancouver, Canada
V6E 3B9
Telephone (604) 685-0561
Facsimile (6O4) 685-2050
Internet [email protected]
5-1591I
June 28, 1999
Titan Trading Analytics Inc.
3473 Ellis Place
Nanaimo, B.C.
V9T 4Y6
Dear Sirs:
We understand that Titan Trading Analytics Inc. ("the company") will
be filing a Form 20-F Registration Statement pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended.
As requested, we hereby consent to the filing of the audited
consolidated balance sheets of the company as at October 31, 1998
and 1997 and the consolidated statements of operations and deficit
and cash flows for each of the years in the three year period ended
October 31, 1998 including our auditors' report dated January 13, 1999
thereon as part of the registration statement.
If you have any further requirements, please contact us.
Yours truly,
COLLINS BARROW
Chartered Accountants
Per:
/S/ James R. Church
James R. Church
JRC:cd
cc: Mr. Mike Paauwe
cc: Mr. Michael Cane
A member of
Moores
Rowland
International Collins Barrow
An association of independent is a Partnership of
accounting firms throughout the world. Incorporated Professionals
<Page 66>
Number 459156
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
CERTIFICATE OF INCORPORATION
I Hereby Certify that
KBK NO. 24 VENTURES LTD.
has this day been incorporated under the Company Act
Issued under my hand at Victoria, British Columbia
on November 30, 1993
/S/J S Powell
JOHN S. POWELL
Registrar of Companies
<Page 67>
Province of Ministry of Corporate, Central and Mobile
British Columbia Finance and Home Registry
Corporate Relations 940 Blanshard Street
Victoria
British Columbia
V8W 3E6
File Number: 459156
KBK NO. 24 VENTURES LTD.
I hereby certify that the documents attached hereto are copies of
documents filed with the Registrar of Companies on November 30, 1993
/S/ J S Powell
JOHN S. POWELL
Registrar of Companies
<Page 68>
Number: 459156
CERTIFICATE
OF
CHANGE OF NAME
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
I Hereby Certify that
KBK NO. 24 VENTURES LTD.
has this day changed its name to
TITAN TRADING ANALYTICS INC.
Issued under my hand at Victoria, British Columbia
on November 14, 1994
/S/ John S Powell
JOHN S. POWELL
Registrar of Companies
<Page 69>
ARTICLES
OF
TITAN TRADING ANALYTICS INC.
TABLE OF CONTENTS
PART ARTICLE SUBJECT
1 INTERPRETATION
1.1 Definition
Construction of Words
1.2 Company Act and Interpretation Act
1.3 Interpretation Act Rules of
Construction Apply
2 SHARES
2.1 Member entitled to Certificate
2.2 Replacement of Certificates
2.3 Limit of Joint Holders
2.4 Execution of Certificates
2.5 No Recognition of Trusts
3 ISSUE OF SHARES
3.1 Directors' Authority
3.2 Share Warrants
3.3 Commissions and Brokerage
3.4 No Issue Until Fully Paid
3.5 Pro Rata Allotment
4 SHARE REGISTERS
4.1 Registers to be Kept
4.2 Branch Registers of Members
4.3 No Closing of Register of Members
5 TRANSFER AND TRANSMISSION OF SHARES
5.1 Transfer of Shares
5.2 Execution of Instrument of Transfer
5.3 Enquiry as to Title not Required
5.4 Instruments of Transfer
5.5 Transfer Fee
5.6 Death of a Member
5.7 Rights of Representative
<Page 70>
PART ARTICLE SUBJECT
5.8 Registration or Transfer by Representative
6 ALTERATION OF CAPITAL
6.1 Increase of Authorized Capital
6.2 Other Capital Alterations
6.3 Special Rights and Restrictions of
Shares
6.4 Consent of Class or Series
6.5 Class or Series Meetings of Members
6.6 Reduction of Authorized Capital
6.7 Shares Ranking Pari Passu
7 PURCHASE AND REDEMPTION OF SHARES
7.1 Company May Purchase or Redeem
7.2 Selection for Redemption
7.3 Shares Held by Company
8 BORROWING POWERS
8.1 Powers of Directors
8.2 Special Rights in Debt Obligations
8.3 Register of Debentures
8.4 Execution of Debt Obligations
8.5 Register of Indebtedness
9 GENERAL MEETINGS
9.1 Annual General Meetings
9.2 Consent in Writing
9.3 Classification of Meetings
9.4 Calling of Meetings
9.5 Advance Notice
9.6 Particulars of Notice
9.7 Waiver of Notice
9.8 Notice of Documents
10 PROCEEDINGS AT GENERAL MEETINGS
10.1 Special Business
10.2 Need for Quorum
10.3 Quorum
10.4 Lack of Quorum
10.5 Chairman
PART ARTICLE SUBJECT
10.6 Alternate Chairman
10.7 Adjournments
10.8 Moving and Seconding
10.9 Show of Hands or Poll
10.10 Casting Vote Provision
10.11 Taking a Poll
10.12 Retention of Ballots
10.13 Casting of Votes on a Poll
10.14 Ordinary Resolution Sufficient
11 VOTING OF MEMBERS
11.1 Number of Votes
11.2 Persons in Representative Capacity
11.3 Corporate Member
11.4 Joint Holders
11.5 Committee for a Member
11.6 Appointment of Proxyholders
11.7 Execution of Form of Proxy
11.8 Deposit of Proxy
11.9 Form of Proxy
11.10 Validity of Proxy Vote
11.11 Revocation of Proxy
12 DIRECTORS
12.1 Number of Directors
12.2 Remuneration and Expenses
12.3 Qualification
13 ELECTION AND REMOVAL OF DIRECTORS
13.1 Election at Annual General Meetings
13.2 Eligibility of Retiring Director
13.3 Continuance of Directors
13.4 Election of Fewer than Required
Number of Directors
13.5 Filling a Casual-Vacancy
13.6 Additional Directors
13.7 Alternate Directors
13.8 Termination of Directorship
13.9 Removal of Directors
14 POWERS AND DUTIES OF DIRECTORS
14.1 Management of Business
14.2 Appointment of Attorney
<Page 71>
PART ARTICLE SUBJECT
15 DISCLOSURE OF INTEREST OF DIRECTORS
15.1 Disclosure of Conflicting Interest
15.2 Director May Hold Other Office
15.3 Director Acting in Professional
Capacity
15.4 Director Receiving Remuneration From
Others
16 PROCEEDINGS OF DIRECTORS
16.1 Chairman of Meetings
16.2 Procedure at Meetings
16.3 Meetings by Conference Telephone
16.4 Notice of Meeting
16.5 Waiver of Notice of Meetings
16.6 Quorum
16.7 Continuing Directors may Act
16.8 Validity of Acts of Directors
16.9 Resolution in Writing Effective
17 EXECUTIVE AND OTHER COMMITTEES
17.1 Appointment of Executive Committee
17.2 Appointment of Committees Generally
17.3 Audit Committee
17.4 Procedure at Meetings
18 OFFICERS
18.1 President and Secretary Required
18.2 Holding More Than One Office
18.3 Remuneration
18.4 Functions
18.5 Disclosure of Conflicting Interest
19 INDEMNITY AND PROTECTION OF
DIRECTORS, OFFICERS AND EMPLOYEES
19.1 Indemnification of Directors
19.2 Indemnification of Officers,
Employees, Agents
19.3 Indemnification not Invalidated by
Non-compliance
19.4 Company may Purchase Insurance
19.5 Duty to Act Honestly, etc.
<Page 72>
PART ARTICLE SUBJECT
20 DIVIDENDS AND RESERVES
20.1 Declaration of Dividends
20.2 Date Dividend Payable
20.3 Proportionate to Number of Shares
20.4 Reserves
20.5 Receipts from Joint Holders
20.6 No Interest on Dividends
20.7 Payment of Dividends
20.8 Capitalization of Retained Earnings
or Surplus
21 DOCUMENTS, RECORDS AND REPORTS
21.1 Documents to be Kept
21.2 Accounts to be Kept
21.3 Inspection of Accounts
21.4 Financial Statements and Reports
21.5 Copies to Members
22 NOTICES
22.1 Method of giving Notice
22.2 Notice to Joint Holder
22.3 Notice to Personal Representative
22.4 Persons to Receive Notice
23 RECORD DATES
23.1 Directors May Fix Record Dates
23.2 When Record Date Not Fixed
24 SEAL
24.1 Authority to Affix Seal
24.2 Facsimile Signatures
24.3 Reproduction of Seal
24.4 Official Seal for Other Jurisdictions
25 PROHIBITIONS IF NOT A REPORTING COMPANY
25.1 Prohibitions
<Page 73>
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
ARTICLES
OF
TITAN TRADING ANALYTICS INC.
PART 1
INTERPRETATION
1.1. In these Articles, unless there is something in the
subject or context inconsistent therewith:
"Board" and "the Directors" or "the directors" or "the
Board of Directors" mean the Directors or sole Director of
the Company for the time being;
"Company Act" means the Company Act of the Province of
British Columbia as from time to time in force and all
amendments thereto and includes the regulations made
pursuant thereto;
"Interpretation Act" means the Interpretation Act of the
Province of British Columbia as and from time to time in
force and all amendments thereto and includes the
regulations made pursuant thereto;
"proxyholder" means a person duly appointed
registered holder to represent him at a meeting;
"registered address" of a member or registered holder
means his address as recorded in the register of members;
"registered owner" or "registered holder" when used with
respect to a share in the authorized capital of the
Company means the person registered in the register of
members in respect of such share;
"seal" means the common seal of the Company.
Expressions referring to writing shall be construed as including
references to printing, lithography, typewriting, photography and
other modes of representing or reproducing words in a visible form.
<Page 74>
- 2 -
Words importing the singular include the plural and vice versa; and
words importing male persons include female persons and words
importing individuals shall include corporations and vice versa.
1.2. The meaning of any words or phrases defined in the
Company Act and the Interpretation Act shall, if not inconsistent
with definitions herein or with the subject or context, bear the
same meaning in these Articles provided that in the event of any
conflict or inconsistency between the Company Act and the
Interpretation Act, the former shall govern.
1.3. Except as may be otherwise provided expressly or by
necessary implication in the Company Act, the rules of construction
contained in the Interpretation Act shall apply, with the necessary
changes and so far as applicable, to the interpretation of these
Articles.
PART 2
SHARES AND SHARE CERTIFICATE
2.1. Every member is entitled without charge, to one
certificate representing the shares of each class or series held by
him. If a member requests the Company to issue to him more than
one share certificate for any shares of the same class or series
registered in his name, the Directors may prescribe the fee to be
paid for each additional certificate. In respect of a share or
shares held jointly by several persons, the Company shall not be
bound to issue more than one certificate, and delivery of a
certificate for a share to one of several joint registered holders
or to his duly authorized agent shall be sufficient delivery to
all; and provided further that the Company shall not be bound to
issue certificates representing redeemable shares, if such shares
are to be redeemed within one month of the date on which they were
allotted. Any share certificate may be sent through the mail by
registered prepaid mail to the member entitled thereto at his
registered address, and neither the Company nor any transfer agent
shall be liable for any loss occasioned to the member owing to any
such share certificate so sent being lost in the mail, stolen or
destroyed
2.2. If a share certificate:
(i) is worn out or defaced, the Company shall, upon
production to it of the said certificate and
upon such other terms, if any, as the Directors
prescribe, order the said certificate to be
cancelled and shall issue a new certificate in
replacement thereof; or
<Page 75>
- 3 -
(ii) is lost, stolen or destroyed, then, upon proof
thereof to the satisfaction of the Directors
and upon such indemnity, if any, as the
Directors deem adequate being given, a new
share certificate in lieu thereof shall be
issued to the person entitled to such lost,
stolen or destroyed certificate.
Such sum, not exceeding the amount permitted by the Company Act, as
the Directors may from time to time fix, shall be paid to the
Company for each certificate to be issued under this Article.
2.3. Save in the case of the personal representatives of a
deceased member, the Directors may refuse to register more than
three persons as the joint holders of a share.
2.4. Every share certificate shall be signed manually by at
least one officer or Director of the Company, or by or on behalf of
a registrar, branch registrar, transfer agent or branch transfer
agent of the Company and any additional signatures may be printed
or otherwise mechanically reproduced and, in such event, a
certificate so signed is as valid as if signed manually,
notwithstanding that any person whose signature is so printed or
mechanically reproduced shall have ceased to hold the office that
he is stated on such certificate to hold at the date of the issue
of a share certificate.
2.5. Except as required by law or these Articles, no person
shall be recognized by the Company as holding any share upon any
trust, and the Company shall not be bound by or compelled in any
way to recognize (even when having notice thereof) any equitable,
contingent, future or partial interest in any share or in any
fractional part of a share or (except only as by law or these
Articles provided or as ordered by a court of competent
jurisdiction) any other rights in respect of any share except an
absolute right to the entirety thereof in its registered holder.
PART 3
ISSUE OF SHARES
3.1. Subject to the Company Act, the Memorandum and these
Articles and to the rights of holders of issued shares arising
under the Company Act or otherwise, the shares shall be under the
control of the Directors who may issue, allot, sell or otherwise
dispose of, and/or grant options on or otherwise deal in, shares
authorized but not outstanding, and outstanding shares (including
shares purchased or redeemed by the Company but not cancelled) held
by the Company, at such times, to such persons (including
<Page 76>
- 4 -
Directors), in such manner, upon such terms and conditions, and at
such price or for such consideration, as they may determine.
3.2. The Directors may authorize the issue of share purchase
or subscription warrants to the purchasers or holders of any debt
obligations or other evidences of indebtedness or other obligations
or shares of the Company, upon such terms and subject to such
restrictions as they may determine.
3.3. Subject to the provisions of the Company Act, the
Company, or the Directors on behalf of the Company, may pay a
commission or allow a discount to any person in consideration of
his subscribing or agreeing to subscribe, whether absolutely or
conditionally, for any shares in, or securities of, the Company, or
procuring or agreeing to procure subscriptions, whether absolutely
or conditionally, for any such shares or securities, provided that,
if the Company is not a specially limited company, the rate of the
commission and discount shall not in the aggregate exceed 25 per
centum of the amount of the subscription price of such shares. The
Directors may also on any issue or sale of shares or other
securities cause the Company to pay such brokerage as may be
lawful.
3.4. Subject to the exceptions permitted by the Company Act,
no share may be issued until it is fully paid and the Company shall
have received the full consideration therefor in cash, property or
past services actually performed for the Company. The value of
property or services for the purpose of this Article shall be the
amount determined by the Directors by resolution to be, in all
circumstances of the transaction, no greater than the fair market
value thereof.
3.5. If the Company is, or becomes, a company which is not a
reporting company and the Directors are required by the Company Act
before allotting any shares to offer them pro rata to the members,
the Directors shall, before allotting any shares, comply with the
applicable provisions of the Company Act.
PART 4
SHARE REGISTERS
4.1. The Company shall keep or cause to be kept a register of
members, a register of transfers and a register of allotments
within British Columbia, all as required by the Company Act, and
may combine one or more of such registers. If the Company's
capital shall consist of more than one class or series of shares
a separate register of members, register of transfers and register
of allotments may be kept in respect of each class or series of
shares. The Directors may appoint a trust company to keep the
<Page 77>
- 5 -
register of members, register of transfers and register of
allotments or, if there is more than one class or series of shares,
the Directors may appoint a trust company, which need not be the
same trust company, to keep the register of members, the register
of transfers and the register of allotments for each class or
series of shares. The Directors may also appoint one or more trust
companies, including the trust company which keeps the said
registers of its shares or of a class or series thereof, as
transfer agent or branch transfer agent for its shares or a class
or series thereof, as the case may be, and the same or another
trust company or companies as registrar for its shares or a class
or series thereof, as the case may be. The Directors may terminate
the appointment of any trust company referred to in this Article or
in Article 4.2 at any time and may appoint another trust company in
its place.
4.2. Subject to the Company Act, the Company may keep or
cause to be kept branch registers of members at such places as the
Directors may determine, provided that any such branch register
kept within British Columbia shall be kept by a trust company.
4.3. The Company shall not at any time close its register of
members.
PART 5
TRANSFER AND TRANSMISSION OF SHARES
5.1. Subject to the Memorandum and these Articles, any member
may transfer any of his shares by instrument in writing executed by
or on behalf of such member. The instrument of transfer of any
share of the Company shall be in the form, if any, on the back of
the Company's share certificates or in any usual or common form or
in such other form as the Directors may from time to time approve.
Except to the extent that the Company Act may otherwise provide,
the transferor shall be deemed to remain the holder of the shares
until the name of the transferee is entered in the register of
members or a branch register of members in respect thereof.
5.2. The signature of the registered owner-of any shares, or
of his duly authorized attorney, upon an authorized instrument of
transfer delivered to the Company shall constitute a complete and
sufficient authority to the Company, its Directors, officers and
agents to register, in the name of the transferee as named in the
instrument of transfer, the number of shares specified therein or,
if no number is specified, all the shares of the registered owner
represented by share certificates deposited with the instrument of
transfer. If no transferee is named in the instrument of transfer,
the instrument of transfer shall constitute a complete and
sufficient authority to the Company, its directors, officers and
<Page 78>
- 6 -
agents to register, in the name of the person on whose behalf any
certificate for the shares to be transferred is deposited with the
Company for the purpose of having the transfer registered, the
number of shares specified in the instrument of transfer or, if no
number is specified, all the shares represented by all share
certificates deposited with the instrument of transfer.
5.3. Neither the Company nor any Director, officer or agent
thereof shall be bound to inquire into the title of the person
named in the form of transfer as transferee, or, if no person is
named therein as transferee, of the person on whose behalf the
certificate is deposited with the Company for the purpose of having
the transfer registered or be liable to any claim by such
registered owner or by any intermediate owner or holder of the
certificate or of any of the shares represented thereby or any
interest therein for registering the transfer, and the transfer,
when registered, shall confer upon the person in whose name the
shares have been registered a valid title to such shares.
5.4. Every instrument of transfer shall be executed by the
transferor and left at the registered office of the Company or at
the office of its transfer agent or branch transfer agent or
registrar or branch registrar for the shares to be transferred for
registration together with the share certificate for the shares to
be transferred and such other evidence, if any, as the Directors or
the transfer agent or branch transfer agent or registrar or branch
registrar may require to prove the title of the transferor or his
right to transfer the shares and the right of the transferee to
have the transfer registered. All instruments of transfer or a
photographic reproduction thereof, if the transfer is registered,
shall be retained by the Company or its transfer agent or branch
transfer agent or registrar or branch registrar and any instrument
of transfer, if the transfer is not registered, shall be returned
to the person depositing the same together with the share
certificate which accompanied the same when tendered for
registration.
5.5. There shall be paid to the Company in respect of the
registration of any transfer such sum, if any, as the Directors may
from time to time determine.
5.6. In the case of the death of a member, the survivors
where the deceased was a joint registered holder, and the personal
representatives of the deceased where he was the sole registered
holder, shall be the only persons recognized by the Company as
having any title to the deceased's interest in the shares
registered in his name. Before recognizing any personal
representative the Directors may require him to deliver to the
Company the documents required by the Company Act and such other
evidence as the Directors may require of the personal
representative's appointment, including a grant of probate, letters
of administration or other similar documentation from the
jurisdiction in which the shares are to be transferred, and of the
<Page 79>
- 7 -
payment or satisfaction of all taxes, duties, fees and other
similar assessments payable to any governmental authority of any
applicable jurisdiction with respect to the shares arising out of
the member's death.
5.7. A guardian, committee, trustee, curator, tutor, personal
representative or trustee in bankruptcy of a member, although not
a member himself, shall have the same rights, privileges and
obligations that attach to the shares held by the member if the
documents and evidence referred in Article 5.6 are delivered to the
Company. This Article does not apply on the death of a member with
respect to shares registered in his name and the name of another
person in joint tenancy.
5.8. Any person referred to in Article 5.7 who becomes
entitled to shares of a member, upon the documents and evidence
referred to in Article 5.6 being delivered to the Company, has the
right either to be registered as a member in his representative
capacity in respect of such shares, or, if he is a personal
representative, instead of being registered himself, to make such
transfer of the shares as the member could have made; but the
Directors shall, as regards a transfer by any such person, have the
same right, if any, to decline registration of a transferee as they
would have in the case of a transfer of the shares by the member.
PART 6
ALTERATION OF CAPITAL
6.1. The Company may by ordinary resolution amend its
Memorandum to increase the authorized capital of the Company by:
(i) creating shares with par value or shares
without par value, or both;
(ii) increasing the number of shares with par value
or shares without par value, or both; or
(iii) increasing the par value of a class of shares
with par value, if no shares of that class are
issued.
6.2 The Company may be special resolution alter its
Memorandum to subdivide, consolidate, change from shares with par
value to shares without par value, or from shares without par value
to shares with par value, or change the designation of, all or any
of its shares but only to such extent, in such manner and with such
consents of members holding a class or series of shares which is
the subject of or affected by such alteration, as the Company Act
provides.
<Page 80>
- 8 -
6.3. The Company may alter its Memorandum or these Articles
by such resolution as is permitted by the Company Act and by
otherwise complying with any applicable provisions of the
Memorandum or these Articles, to create, define and attach special
rights or restrictions to any shares and to vary or abrogate any
special rights and restrictions attached to any shares.
6.4. No right or special right attached to the issued shares
of any class or series shall be prejudiced or interfered with
unless the consents of the holders of the shares of each such class
or series required by the Company Act are obtained.
Notwithstanding such consent, no right or special right attached to
any issued shares shall be prejudiced or interfered with as to any
part of issued shares of any class or series unless the holders of
the rest of the issued shares of such class or series either all
consent thereto in writing or consent thereto by a resolution
passed by the votes of members holding three-fourths of the rest of
such class or series.
6.5. Subject to the Company Act, and unless these Articles or
the Memorandum otherwise provide, the provisions of these Articles
relating to general meetings shall apply, with the necessary
changes and so far as they are applicable, to a class or series
meeting of members holding a particular class or series of shares
but the quorum at a class or series meeting shall be one person
holding in person or by proxy not less than one-third of the issued
shares of that class or series, as the case may be.
6.6. The Company may, by resolution of the Directors, alter
the Memorandum by canceling shares which are not allotted or
issued, or which are surrendered to the Company either by way of
gift or otherwise in accordance with the Company Act, and diminish
its authorized capital accordingly.
6.7. The rights, or special rights or restrictions attached
to the shares of any class or series shall, unless otherwise
expressly provided by the terms, if any, of such rights, or special
rights or restrictions be deemed not to be modified, abrogated,
varied or dealt with by the creation or issue of further shares
ranking pari passu therewith.
PART 7
PURCHASE AND REDEMPTION OF SHARES
7.1. Subject to the special rights and restrictions attached
to any shares, the Company may, by resolution of the Directors and
in compliance with the Company Act, purchase any of its shares at
the price and upon the terms specified in such resolution, or
redeem any of its shares which have a right of redemption attached
<Page 81>
- 9 -
to them. No such purchase or redemption shall be made if the
Company is insolvent at the time of the proposed purchase or
redemption or if the proposed purchase or redemption would render
the Company insolvent. Unless the shares are to be purchased
through a stock exchange or the Company is purchasing the shares
from dissenting members pursuant to the requirements of the Company
Act, or from a bona fide employee or former employee of the Company
or an affiliate of the Company or his personal representative in
respect of shares beneficially owned by such employee or former
employee, the Company shall, if required by the Company Act, make
its offer to purchase pro rata to every member who holds shares of
the class or series, as the case may be, to be purchased.
7.2. If the Company proposes at its option to redeem some but
not all of the shares of any class or series, the Directors may,
subject to the special rights and restrictions attached to the
shares of such class or series, decide the manner in which the
shares to be redeemed shall be selected, and, subject as aforesaid,
need not redeem pro rata.
7.3. Subject to the Company Act and the Memorandum, any
shares purchased or redeemed by the Company, if not cancelled, may
be sold or, if cancelled (but still in the Company's authorized
capital), may be reissued, but, while such shares which have not
been cancelled are held by the Company, it shall not exercise any
vote in respect of such shares and no dividend or other
distribution shall be paid or made thereon.
PART 8
BORROWING POWERS
8.1. Subject to the Company Act, the Directors may authorize
and cause the Company to:
(i) borrow money in such manner and amounts, on
such security, or without security, from such
sources and upon such terms and conditions as
they think fit;
(ii) guarantee the repayment of money by any other
person or the performance of any obligation of
any other person;
(iii) issue debt obligations, or other evidences of
obligations or indebtedness, either outright or
as security for any liability or obligation of
the Company or any other person;
<Page 82>
- 10 -
(iv) mortgage, charge, whether by way of specific or
floating charge, or both, or give other
security on the undertaking, or on the whole or
any part of the property and assets, of the
Company (both present and future); and
(v) for the purposes of the Special Corporate
Powers Act of the Province of Quebec and
without in any way limiting the powers
conferred upon the Company and the Directors by
the foregoing or by any other provisions of
these Articles, or by the Memorandum, or by the
Company Act, for the purpose of securing any
notes, bonds, debentures or debenture stock
which it is by law entitled to, issue,
hypothecate, mortgage or pledge, and cede and
transfer, any property, moveable or immovable,
present or future, which it may own in the
Province of Quebec.
8.2. Any debt obligations of the Company may be issued at a
discount, premium or otherwise, and with any special privileges as
to redemption, surrender, drawings, allotment of or conversion into
or exchange for shares or other securities, attending and voting at
general meetings of the Company, appointment or election of
Directors, or otherwise, and may by their terms be assignable free
from any equities between the Company and the person to whom they
are issued or any other person who subsequently acquires the same,
all as the Directors may determine.
8.3. The Company shall keep or cause to be kept within the
Province of British Columbia in accordance with the Company Act a
register of its debentures and a register of debentureholders,
which registers may be combined, and if there is more than one
series of debentures a separate register of debentures and
debentureholders may be kept in respect of each series. The
Directors may appoint a trust company to keep the register of
debentureholders. Subject to the Company Act, the Company may keep
or cause to be kept branch registers of its debentureholders at
such places as the Directors may determine, provided that any such
branch register kept within British Columbia shall be kept by a
trust company. The Directors may also appoint a trust company as
transfer agent or branch transfer agent for its debentures or a
series thereof. The Directors may terminate the appointment of any
such trust company at any time and may appoint another trust
company in its place.
8.4. Every debt obligation of the Company shall be signed
manually be at least one Director or officer of the Company or by
or on behalf of a trustee, registrar, branch registrar, transfer
agent or branch transfer agent for the debt obligation appointed by
the Company or under any instrument under which the debt obligation
is issued, or by or on behalf of a trustee who certifies it in
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accordance with a trust indenture, and any additional signatures
may be printed or otherwise mechanically reproduced thereon and, in
such event, a debt obligation so signed is as valid as if signed
manually notwithstanding that any person whose signature is so
printed or mechanically reproduced shall have ceased to hold the
office that he is stated on such debt obligation to hold at the
date of the issue thereof.
8.5. If the Company is or becomes a reporting company, the
Company shall keep or cause to be kept a register of its
indebtedness to every Director or officer of the Company or an
associate of any of them in accordance with the provisions of the
Company Act.
PART 9
GENERAL MEETINGS
9.1. Annual general meetings of the Company shall be held as
required by the Company Act at such time and place as is determined
by the Directors.
9.2. If the Company is, or becomes, a company which is not a
reporting company, and all the members entitled to attend and vote
at an annual general meeting consent in writing to all the business
which is required or desired to be transacted at the meeting, the
meeting need not be held, and shall be deemed to have been held on
the date specified in such written consent, or, failing such a date
being specified, on the date all such members consent thereto. A
written consent for the purposes of this Article 9.2 may be given
by any method or means authorized by Article 16.9 for consenting in
writing to a resolution.
9.3. All general meetings other than annual general meetings
are herein referred to as and may be called extraordinary general
meetings or special general meetings.
9.4. The Directors may, whenever they think fit, convene a
special general meeting. A special general meeting, if
requisitioned in accordance with the Company Act, shall be convened
by the Directors or, if not convened by the Directors, may be
convened by the requisitionists as provided in the Company Act.
9.5. If the Company is or becomes a reporting company,
advance notice of any general meeting at which Directors are to be
elected shall be published in the manner required by the Company
Act.
9.6. A notice convening a general meeting specifying the
place, the day, and the hour of the meeting, and, in case of
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special business, the general nature of that business, shall be
given as provided in the Company Act and in the manner hereinafter
in these Articles mentioned, or in such other manner (if any) as
may be prescribed by ordinary resolution, whether previous notice
thereof has been given or not, to such persons as are entitled by
law or under these Articles to receive such notice from the
Company. Accidental omission to give notice of a meeting to, or
the non-receipt of notice of a meeting, by any member shall not
invalidate the proceedings at that meeting.
9.7. All the members of the Company entitled to attend and
vote at a general meeting may, by unanimous consent in writing
given before, during or after the meeting, or if they are present
at the meeting by a unanimous vote, waive or reduce the period of
notice of such meeting and an entry in the minute book of such
waiver or reduction shall be sufficient evidence of the due
convening of the meeting. A consent in writing for the purposes of
this Article 9.7 may be given by any method or means authorized by
Article 16.9 for consenting in writing to a resolution.
9.8. Except as otherwise provided by the Company Act, where
any special business at a general meeting includes considering,
approving, ratifying, adopting or authorizing any document or the
execution thereof or the giving of effect thereto, the notice
convening the meeting shall, with respect to such document, be
sufficient if it states that a copy of the document is or will be
available for inspection by members at the registered office or
records office of the Company or at some other place in British
Columbia designated in the notice during usual business hours on
specified dates prior to the date of such meeting.
PART 10
PROCEEDINGS AT GENERAL MEETINGS
10.1. All business shall be deemed special business which is
transacted at:
(i) a special general meeting other than the
conduct of and voting at, such meeting; and
(ii) an annual general meeting, with the exception
of the conduct of, and voting at, such meeting,
the consideration of the financial statement
and of the respective reports of the Directors
and Auditor, fixing or changing the number of
Directors, electing Directors, appointing the
Auditor, fixing the remuneration of the Auditor
and the Directors if applicable, and such
business as by these Articles or the Company
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Act may be transacted at a general meeting
without prior notice thereof being given to the
members and any business which is brought under
consideration by the report of the Directors.
10.2. No business, other than election of the chairman or the
adjournment of the meeting, shall be transacted at any general
meeting unless a quorum of members, entitled to attend and vote, is
present at the commencement of the meeting, but the quorum need not
be present throughout the meeting.
10.3. Save as herein otherwise provided, a quorum for a
meeting shall be two persons present and being, or representing by
proxy, members holding not less than one-twentieth of the issued
shares entitled to be voted at the meeting. If there is only one
member the quorum is one person present and being, or representing
by proxy, such member. The Directors, the Secretary, an Assistant
Secretary and a solicitor of the Company shall be entitled to
attend at any general meeting but no such person shall be counted
in the quorum or vote at any meeting unless he shall be a member or
proxyholder entitled to vote thereat.
10.4. If within half an hour from the time appointed for a
general meeting a quorum is not present, the meeting, if convened
upon the requisition of members, shall be dissolved. In any other
case it shall stand adjourned to the same day in the next week, at
the same time and place, and, if at the adjourned meeting a quorum
is not present within half an hour from the time appointed for the
meeting, the person or persons present and being, or representing
by proxy, a member or members entitled to attend and vote at the
meeting shall be a quorum.
10.5. The Chairman of the Board, if any, or in his absence the
President of the Company or in his absence a Vice-President of the
Company, if any, shall be entitled to preside as chairman at every
general meeting of the Company.
10.6. If at any general meeting neither the Chairman of the
Board nor President nor a Vice-President is present within fifteen
minutes after the time appointed for holding the meeting or is
willing to act as chairman, the Directors present shall choose some
one of their number to be chairman, or if all the persons occupying
the said offices shall have advised the Secretary or an Assistant
Secretary that they will not be present at a meeting, the Directors
present shall choose one of their number to be chairman or if no
Director is present, the members and proxyholders present may
choose one of their number to be a chairman. If a person willing
to act is not chosen as chairman in accordance with these
provisions within 45 minutes after the time appointed for holding
the meeting, the meeting shall be dissolved.
10.7. The chairman may and shall, if so directed by the
meeting, adjourn a meeting from time to time and from place to
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place, but no business shall be transacted at any adjourned meeting
other than the business left unfinished at the meeting from which
the adjournment took place. When a meeting is adjourned for thirty
days or more, notice, but not, "advance notice" referred to in
Article 9.5, of the adjourned meeting shall be given as in the case
of an original meeting. Save as aforesaid, it shall not be
necessary to give any notice of an adjourned meeting or of the
business to be transacted at an adjourned meeting.
10.8. No motion proposed at a general meeting need be
seconded, and the chairman, a director, a member or a proxyholder
may propose or second a motion.
10.9. Subject to the provisions of the Company Act, at any
general meeting a resolution put to the vote of the meeting shall
be decided on a show of hands, unless (before or on the declaration
of the result of the show of hands) a poll is directed by the
chairman or demanded by at least one member or proxyholder entitled
to vote who is present. The chairman shall declare to the meeting
the decision on every question in accordance with the result of the
show of hands or the poll, and such decision shall be entered in
the book of proceedings of the Company. A declaration by the
chairman that a resolution has been carried, or carried
unanimously, or by a particular majority, or lost or not carried by
a particular majority and an entry to that effect in the book of
the proceedings of the Company shall be conclusive evidence of the
fact, without proof of the number or proportion of the votes
recorded in favour of, or against, that resolution.
10.10. In the case of an equality of votes, whether on a show
of hands or on a poll, the chairman of the meeting at which the
show of hands takes place or at which the poll is demanded shall
not be entitled to a second or casting vote.
10.11. No poll may be demanded on the election of a chairman.
A poll demanded on a question of adjournment shall be taken
forthwith. A poll demanded on any other question shall be taken as
soon as, in the opinion of the chairman, is reasonably convenient,
but in no event later than seven days after the meeting and at such
time and place and in such manner as the chairman of the meeting
directs. The result of the poll shall be deemed to be the
resolution of and passed at the meeting at which the poll was
demanded. Any business other than that upon which the poll has
been demanded may be proceeded with pending the taking of the poll.
A demand for a poll may be withdrawn. In any dispute as to the
admission or rejection of a vote the decision of the chairman made
in good faith shall be final and conclusive. In the event of a
poll by mail, the seven days limit hereinbefore prescribed shall be
deemed to be satisfied if the ballot is mailed within seven days
and specifies a date by which completed ballots must be received to
be counted in the poll that date being such date as the chairman in
the reasonable exercise of his discretion thinks is appropriate,
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but being in no event later than twenty-one days after the mailing
of the ballot form.
10.12. Every ballot cast upon a poll and every proxy appointing
a proxyholder who casts a ballot upon a poll shall be retained by
the Secretary for such period and be subject to such inspection as
the Company Act may provide.
10.13. On a poll a person entitled to cast more than one vote
need not, if he votes, use all his votes or cast all the votes he
uses in the same way.
10.14. Unless the Company Act, the Memorandum or these Articles
otherwise provide, any action to be taken by a resolution of the
members may be taken by an ordinary resolution.
PART 11
VOTES OF MEMBERS
11.1. Subject to any special voting rights or restrictions
attached to any shares and the restrictions on joint registered
holders of shares, on a show of hands every member who is present
in person at a meeting and entitled to vote thereat shall have one
vote and on a poll every member shall have one vote for each share
entitled to be voted at the meeting of which he is the registered
holder and may exercise such vote either in person or by
proxyholder. A proxyholder shall not have the right to vote on a
show of hands unless he is a member entitled to vote at the meeting
on a show of hands.
11.2. Any person who is not registered as a member but is
entitled to vote at any meeting in respect of a share, may vote the
share in the same manner as if he were a member; but, unless the
Directors have previously admitted his right to vote at that
meeting in respect of the share, he shall satisfy the Directors or
the Secretary of his right to vote the share before the time for
holding the meeting, or adjourned meeting, as the case may be, at
which he proposes to vote, and unless he shall so satisfy the
Directors or the Secretary he shall not be entitled to vote that
share.
11.3. Any corporation not being a subsidiary which is a member
of the Company may authorize such person as it thinks fit to act as
its representative at any meeting. The person so authorized shall
be entitled to exercise in respect of and at such meeting the same
powers on behalf of the corporation which he represents as that
corporation could exercise if it were an individual member of the
Company personally present, including, without limitation, the
right to appoint a proxyholder to represent such corporation, and
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shall, if present at the meeting, be counted for the purpose of
forming a quorum and be deemed to be a member present at the
meeting. Evidence of the appointment of any such representative
may be sent to the Company by written instrument, telegram, telex
or any method of transmitting legibly recorded messages.
Notwithstanding the foregoing, a corporation being a member and
entitled to vote may appoint a proxyholder.
11.4. In the case of joint registered holders of a share the
vote of the senior who exercises a vote, whether in person or by
proxyholder, shall be accepted to the exclusion of the votes of the
other joint registered holders; and for this purpose seniority
shall be determined by the order in which the names stand in the
register of members, the person whose name stands first being
senior to the person whose name stands second, and so on. Several
legal personal representatives of a deceased member whose shares
are registered in his sole name shall for the purpose of this
Article be deemed joint registered holders.
11.5. A member of unsound mind entitled to attend and vote, in
respect of whom an order has been made by any court having
jurisdiction, may vote, whether on a show of hands or on a poll, by
his committee, curator bonis, or other person in the nature of a
committee or curator bonis appointed by that court, and any such
committee, curator bonis, or other person may appoint a
proxyholder.
11.6. A member holding more than one share in respect of which
he is entitled to vote shall be entitled to appoint one or more,
but not more than three, proxyholders to attend, act and vote for
him on the same occasion. If such a member should appoint more
than one proxyholder for the same occasion he shall specify the
number of shares each proxyholder shall be entitled to vote. A
member may also appoint one or more alternate proxyholders to act
in the place and stead of an absent proxyholder.
11.7. A proxy shall be in writing under the hand of the
appointor or of his attorney duly authorized in writing, or, if the
appointor is a corporation, either under the seal of the
corporation or under the hand of a duly authorized officer or
attorney. A proxyholder need not be a member of the Company.
11.8. Unless otherwise permitted by the Directors, a proxy and
the power of attorney or other authority, if any, under which it is
signed or a notarially certified copy thereof shall be deposited at
the registered office of the Company or at such other place as is
specified for that purpose in the notice convening the meeting, not
less than 48 hours (excluding Saturdays and holidays) before the
time for holding the meeting in respect of which the person named
in the instrument is appointed. In addition to any other method of
depositing proxies provided for in these Articles, the Directors
may, subject to the Company Act, make regulations relating to the
depositing of proxies at any place or places and fixing the time or
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times for depositing the proxies prior to the meeting or adjourned
meeting at which they are to be used and providing for particulars
of such proxies to be sent to the Company or any agent of the
Company in writing or by letter, telegram, telex or any method of
transmitting legibly recorded messages so as to arrive before the
commencement of the meeting or adjourned meeting at the office of
the Company or of any agent of the Company appointed for the
purpose of receiving such particulars and providing that proxies so
deposited may be acted upon as though the proxies themselves were
deposited as required by this Part and votes given in accordance
with such regulations shall be valid and shall be counted.
11.9. Unless the Company Act or any other statute or law which
is applicable to the Company or to any class of its shares requires
any other form of proxy, a proxy, whether for a specified meeting
or otherwise, shall be in the form following, but may also be in
any other form that the Directors or the chairman of the meeting
shall approve:
PROXY
The undersigned, being a member
of ________________________________,
hereby appoints ___________________,
or failing him, _________________, as
proxyholder for the undersigned to attend,
act and vote for and on behalf of the
undersigned at the annual or extraordinary
(as the case may be) general meeting of the
Company to be held on the ________ day of
______________, 19___ and at any adjournment
thereof.
Signed this ________________ day of
______________, 19___.
_____________________________________
(Signature of member)
11.10. A vote given in accordance with the terms of a proxy is
valid notwithstanding the previous death or incapacity of the
member giving the proxy or the revocation of the proxy or of the
authority under which the form of proxy was executed or the
transfer of the share in respect of which the proxy is given,
provided that no notification in writing of such death, incapacity,
revocation or transfer shall have been received by the chairman of
the meeting or adjourned meeting for which the proxy was given
before the vote is taken.
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11.11 Every proxy may be revoked by an instrument in writing:
(i) executed by the member giving the same or by
his attorney authorized in writing or, where
the member is a corporation, by a duly
authorized officer or attorney of the
corporation; and
(ii) delivered either at the registered office of
the Company at any time up to and including the
last business day preceding the day of the
meeting, or any adjournment thereof at which
the proxy is to be used, or to the chairman of
the meeting on the day of the meeting or any
adjournment thereof before any vote in respect
of which the proxy is to be used shall have
been taken,
or in any other manner provided by law.
PART 12
DIRECTORS
12.1. If the Company is an amalgamated Company, the first
Directors shall be the persons so specified in the amalgamation
agreement. The Directors to succeed the first Directors, after
incorporation of the Company, may be appointed in writing by a
majority of the subscribers to the Memorandum or at a meeting of
the subscribers, or if not so appointed, they shall be elected by
the members entitled to vote on the election of Directors and the
number of Directors shall be the same as the number of Directors so
appointed or elected. The number of Directors, excluding
additional Directors, may be fixed or changed from time to time by
ordinary resolution, whether previous notice thereof has been given
or not, but notwithstanding anything contained in these Articles
the number of Directors shall never be less than one or, if the
Company is or becomes a reporting company, less than three.
12.2. The remuneration of the Directors as such may from time
to time be determined by the Directors or, if the Directors shall
so decide, by the members. Such remuneration may be in addition to
any salary or other remuneration paid to any officer or employee of
the Company as such who is also a Director. The Directors shall be
repaid such reasonable travelling, hotel and other expenses as they
incur in and about the business of the Company (including, if
authorized by resolution of the Directors in respect of the
Directors generally, those incurred in attending meetings of the
Directors or of any committees of the Directors) and if any
Director shall perform any professional or other services for the
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Company that in the opinion of the Directors are outside the
ordinary duties of a Director or shall otherwise be specially
occupied in or about the Company's business, he may be paid a
remuneration to be fixed by the Board, or, at the option of such
Director, by the Company in general meeting, and such remuneration
may be either in addition to, or in substitution for any other
remuneration that he may be entitled to receive. The Directors on
behalf of the Company, unless otherwise determined by ordinary
resolution, may pay a gratuity or pension or allowance on
retirement to any Director who has held any salaried office or
place of profit with the Company or to his spouse or dependents and
may make contributions to any fund and pay premiums for the
purchase or provision of any such gratuity, pension or allowance.
12.3. A Director shall not be required to hold a share in the
capital of the Company as qualification for his office but shall be
qualified as required by the Company Act, to become or act as a
Director.
PART 13
ELECTION AND REMOVAL OF DIRECTORS
13.1. At each annual general meeting of the Company all the
Directors shall retire and the members entitled to vote thereat
shall elect a Board of Directors consisting of the number of
Directors for the time being fixed pursuant to these Articles. If
the Company is, or becomes, a company that is not a reporting
company and the business to be transacted at any annual general
meeting is consented to in writing by all the members who are
entitled to attend and vote thereat such annual general meeting
shall be deemed for the purpose of this Part to have been held on
such written consent becoming effective.
13.2. A retiring Director shall be eligible for re-election.
13.3. Where the Company fails to hold an annual general
meeting in accordance with the Company Act, the Directors then in
office shall be deemed to have been elected or appointed as
Directors on the last day on which the annual general meeting could
have been held pursuant to these Articles and they may hold office
until other Directors are appointed or elected or until the day on
which the next annual general meeting is held.
13.4. If at any general meeting at which there should be an
election of Directors, the places of any of the retiring Directors
are not filled by such election, such of the retiring Directors who
are not re-elected as may be requested by the newly-elected
Directors shall, if willing to do so, continue in office to
complete the number of Directors for the time being fixed pursuant
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to these Articles until further new Directors are elected. If any
such election or continuance of Directors does not result in the
election or continuance of the number of Directors for the time
being fixed pursuant to these Articles such number shall be fixed
at the number of Directors actually elected or continued in office.
If no Directors are elected at such meeting the retiring Directors
shall be deemed to have been re-elected, but nothing herein shall
prohibit or restrict the right of a Director to resign.
13.5. Subject to Article 16.7, any casual vacancy occurring in
the Board of Directors may be filled by the remaining Directors or
Director.
13.6. Between successive annual general meetings the Board of
Directors shall itself have power to appoint one or more additional
Directors of the Company but the number of Directors so appointed
shall not at any time exceed one-third of the number of Directors
elected at the last general meeting at which Directors were
elected. Any Director so appointed shall hold office only until
the next following annual general meeting of the Company, but shall
be eligible for election at such meeting and so long as he is an
additional Director the number of Directors shall be increased
accordingly.
13.7. Any Director may by instrument in writing delivered to
the Company appoint any person to he his alternate to act in his
place at meetings of the Directors at which he is not present
unless the Directors shall have reasonably disapproved the
appointment of such person as an alternate Director and shall have
given notice to that effect to the Director appointing the
alternate Director within a reasonable time after delivery of such
instrument to the Company. Every such alternate shall be entitled
to notice of meetings of the Directors and to attend, be counted in
the quorum and vote as a Director at a meeting at which the person
appointing him is not personally present, and, if the alternate is
a Director in his own right, to be separately counted in the
determination of a quorum on behalf of the Director or Directors he
is representing and to have a separate vote on behalf of the
Director or Directors he is representing. Every such alternate, to
the extent not restricted by the instrument appointing him, may
sign on behalf of the Director or Directors who appointed him,
resolutions submitted to the Directors to be consented to in
writing, as referred to in Article 16.9, and shall be deemed to be
a Director for the purposes of so signing such resolutions. Save
as aforesaid or as expressly otherwise provided in these Articles,
an alternate Director shall not generally have the power to act as
a Director. A Director may at any time by instrument in writing
revoke the appointment of an alternate appointed by him. The
remuneration if any payable to such an alternate Director shall be
payable out of the remuneration of the Director appointing him.
The appointment or revocation of the appointment of an alternate
Director may be by telegram, telex or any method of transmitting
legibly recorded messages delivered to the Company.
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13.8. In addition to the provisions of Article 13.1 and
Article 13.9, a Director shall cease to hold office if he:
(i) resigns his office by notice in writing
delivered to the registered office of the
Company; or
(ii) is convicted of an indictable offence and the
other Directors shall have resolved to remove
him; or
(iii) ceases to be qualified to act as a Director
pursuant to the Company Act.
The appointment of an alternate Director shall terminate if:
(i) the Director who appointed him at any time or
by notice to the Company revokes his
appointment; or
(ii) he resigns by notice to the Company; or
(iii) the Director who appointed him ceases for any
reason to be a Director; or
(iv) he is convicted of an indictable offence and
the other Directors shall have resolved to
remove him; or
(v) he ceases to hold the qualifications necessary
for a Director pursuant to the Company Act; or
(vi) the term of his appointment, if any, expires.
13.9. The Company may by special resolution remove any
Director before the expiration of his period of office, and may by
an ordinary resolution appoint another person in his stead.
PART 14
POWERS AND DUTIES OF DIRECTORS
14.1. The Directors shall manage, or supervise the management
of, the affairs and business of the Company and shall have the
authority to exercise all such powers of the Company as are not, by
the Company Act or by the Memorandum or these Articles, required to
be exercised by the Company in general meeting.
14.2. The Directors may from time to time by power of attorney
or other instrument under the seal, appoint any person to be the
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attorney of the Company for such purposes, and with such powers,
authorities and discretions (not exceeding those vested in or
exercisable by the Directors under these Articles and excepting the
powers of the Directors relating to the constitution of the Board
and of any of its committees and the appointment or removal of
officers and the power to declare dividends) and for such period,
with such remuneration and subject to such conditions as the
Directors may think fit, and any such power of attorney or other
instrument may contain such provisions for the protection or
convenience of persons dealing with such attorney as the Directors
think fit. Any such attorney may be authorized by the Directors to
subdelegate all or any of the powers, authorities and discretions
for the time being vested in him.
PART 15
DISCLOSURE OF INTEREST OF DIRECTORS
15.1. A Director who:
(i) is, in any way, directly or indirectly
interested in an existing or proposed contract
or transaction with the Company; or
(ii) holds any office or possesses any property
whereby, directly or indirectly, a duty or
interest may be created to conflict with his
duty or interest as a Director,
shall declare the nature and extent of his interest in such
contract or transaction or of the conflict or potential conflict
with his duty and interest as a Director, as the case may be, in
accordance with the Company Act. A Director interested in a
contract or transaction as aforesaid shall be counted in the quorum
at a meeting of the Directors at which the proposed contract or
transaction is approved, if present at the meeting, and such
Director may vote in respect of the approval of the contract or
transaction. If he votes he may be liable to account for any
profit in accordance with the provisions of the Company Act.
15.2. A Director may hold any office or place of profit with
the Company (other than the office of auditor of the Company) in
addition to his office of Director for such period and on such
terms (as to remuneration or otherwise) as the Directors may
determine and no Director or intended Director shall be
disqualified by his office from contracting with the Company either
with regard to his tenure of any such other office or place of
profit or as vendor, purchaser or otherwise, and, subject to
compliance with the provisions of the Company Act, no contract or
transaction entered into by or on behalf of the Company in which a
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Director is in any way interested shall be liable to be voided by
reason thereof.
15.3. Subject to the Company Act, a Director or his firm may
act in a professional capacity for the Company (except as auditor
of the Company) and he or his firm shall be entitled to
remuneration for professional services as if he were not a
Director.
15.4. A Director may be or become a director or other officer
or employee of, or otherwise interested in, any corporation or firm
in which the Company may be interested as a shareholder or
otherwise, and, subject to compliance with the provisions of the
Company Act, such Director shall not be accountable to the Company
for any remuneration or other benefits received by him as director,
officer or employee of, or from his interest in, such other
corporation or firm.
PART 16
PROCEEDINGS OF DIRECTORS
16.1. The Chairman of the Board, if any, or in his absence,
the President shall preside as chairman at every meeting of the
Directors, or if there is no Chairman of the Board or neither the
Chairman of the Board nor the President is present within fifteen
minutes of the time appointed for holding the meeting or is willing
to act as chairman, or, if the Chairman of the Board, if any, and
the President have advised the Secretary that they will not be
present at the meeting, the Directors present shall choose one of
their number to be chairman of the meeting.
16.2. Subject to these Articles, the Directors may meet
together for the dispatch of business, adjourn and otherwise
regulate their meetings, as they think fit. Questions arising at
any meeting shall be decided by a majority of votes. In case of an
equality of votes the chairman shall not have a second or casting
vote. Meetings of the Board held at regular intervals may be held
at such place, at such time and upon such notice (if any) as the
Board may by resolution from time to time determine.
16.3. A Director may participate in a meeting of the Board or
of any committee of the Directors by means of conference telephones
or other communications facilities by means of which all Directors
participating in the meeting can hear each other and provided that
all such Directors agree to such participation. A Director
participating in a meeting in accordance with this Article shall be
deemed to be present at the meeting and to have so agreed and shall
be counted in the quorum therefor and be entitled to speak and vote
thereat.
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16.4. A Director may, and the Secretary or an Assistant
Secretary upon request of a Director shall, call a meeting of the
Board at any time. Reasonable notice of such meeting specifying
the place, day and hour of such meeting shall be given by mail,
postage prepaid, addressed to each of the Directors and alternate
Directors at his address as it appears on the books of the Company
or by leaving it at his usual business or residential address or by
telephone, telegram, telex, or any method of transmitting legibly
recorded messages. It shall not be necessary to give notice of a
meeting of Directors to any Director if such meeting is to be held
immediately following a general meeting at which such Director
shall have been elected or is the meeting of Directors at which
such Director is appointed.
16.5. Any Director or alternate Director may file with the
Secretary a document executed by him waiving notice of any past,
present or future meeting or meetings of the Directors being, or
required to have been, sent to him and may at any time withdraw
such waiver with respect to meetings held after such withdrawal.
After filing such waiver with respect to future meetings and until
such waiver is withdrawn no notice need be given to such Director
and, unless the Director otherwise requires in writing to the
Secretary, to his alternate Director of any meeting of Directors
and all meetings of the Directors so held shall be deemed not to be
improperly called or constituted by reason of notice not having
been given to such Director or alternate Director. A waiver as
aforesaid may be given by telegram, telex or other method of
transmitting legibly recorded messages.
16.6. The quorum necessary for the transaction of the business
of the Directors may be fixed by the Directors and if not so fixed
shall be that number of Directors that is a majority of the number
of Directors positions then fixed for the Company, whether or not
each position is filled.
16.7. The continuing Directors may act notwithstanding any
vacancy in their body, but, if and so long as their number is
reduced below the number that, pursuant to these Articles, is the
necessary quorum for meetings of the Directors, the continuing
Directors may act for the purpose of increasing the number of
Directors to that number, or of summoning a general meeting of the
Company, but for no other purpose.
16.8. Subject to the Company Act, all acts done by any meeting
of the Directors or of a committee of Directors, or by any person
acting as a Director, shall, notwithstanding that it be afterwards
discovered that there was some defect in the qualification,
election or appointment of any Director or person acting as
aforesaid, be as valid as if every such person had been duly
elected or appointed and was qualified to be a Director.
16.9. A resolution consented to in writing (which resolution
may be in counterparts which together shall be deemed to constitute
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one resolution in writing) whether by document, telegram, telex or
any method of transmitting legibly recorded messages or other
means, by all of the Directors shall be as valid and effectual as
if it had been passed at a meeting of the Directors duly called and
held on the date, expressly or by necessary implication stated
thereon to be the effective date of the passage or adoption of the
resolution. In the event of counterparts bearing expressly or by
implication different effective dates, then in the absence of a
further resolution of the Directors in that regard, the date the
resolution is passed or adopted shall be deemed to be the latest
effective date stated on any counterpart.
PART 17
EXECUTIVE AND OTHER COMMITTEES
17.1. The Directors may appoint an Executive Committee to
consist of such member or members of their body as they think fit,
which Committee shall have, and may exercise during the intervals
between the meetings of the Directors, all the powers vested in the
Directors except the power to fill vacancies in the Board of
Directors, the power to change the membership of, or fill vacancies
in, said Committee and such other powers, if any, as may be
specified by the Directors.
17.2. The Directors may appoint committees consisting of such
members of their body as they think fit and may delegate to any
such committee any power of the Directors (except the power to fill
vacancies in the Board of Directors, the power to change the
membership of, or fill vacancies in, any committee of the Directors
and the power to appoint or remove officers appointed by the
Directors), subject to such conditions as may be prescribed by the
Directors.
17.3. If the Company is or becomes a reporting company, the
Directors shall appoint an audit committee at such time and
consisting of such members of their body as they think fit subject
to the Company Act. The audit committee shall exercise the powers
and perform the functions of an audit committee as described in the
Company Act. In addition, the Directors may delegate to the audit
committee any power of the Directors (except the power to fill
vacancies in the Board of Directors, the power to change the
membership of, or fill vacancies in, any committee of the Directors
and the power to appoint or remove officers appointed by the
Directors), subject to such conditions as may be prescribed by the
Directors.
17.4. All committees of Directors shall keep regular minutes
of their proceedings and meetings and shall cause them to be
recorded in books kept for that purpose, and shall report the same
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to the Directors at such times as the Directors may from time to
time require. Committees may make rules for the conduct of their
business and may appoint such assistants as they may deem
necessary. A majority of the members of a committee shall
constitute a quorum thereof . Save as set out in this Part 17 or in
the rules made by a committee as aforesaid, the meetings and
proceedings of a committee consisting of more than one member shall
be governed by the provisions of these Articles regulating the
proceedings and meetings of the Directors, including, without
limitation, the provisions with respect to the appointment of
alternates to the intent that a Director who is a member of a
committee may appoint an alternate to represent him at a meeting of
the committee unless the Board of Directors shall prohibit the
appointment of alternates by the members of such committee, and
including the provisions with respect to resolutions consented to
in writing. The Directors shall have power at any time to revoke
or override any authority given to or acts to be done by any such
committees, except with respect to acts done before such revocation
or overriding, and to terminate the appointment or change the
membership of a committee and to fill vacancies in it.
PART 18
OFFICERS
18.1. The Directors shall appoint a President and a Secretary
and such other officers, if any, as the Directors shall determine
from time to time and the Directors may, at any time, terminate any
such appointment. No officer shall be appointed unless he is
qualified in accordance with the provisions of the Company Act.
18.2. One person may hold more than one of such offices except
that the offices of President and Secretary must be held by
different persons unless the Company has only one member. Any
person appointed as the Chairman of the Board, the President or the
Managing Director shall be a Director. The other officers need not
be Directors.
18.3. The remuneration of the officers of the Company as such
and the terms and conditions of their tenure of office or
employment shall from time to time be determined by the Directors;
such remuneration may be by way of salary, fees, wages, commission
or participation in profits or any other means or all of these
modes and an officer may in addition to such remuneration be
entitled to receive after he ceases to hold such office or leaves
the employment of the Company a pension or gratuity.
18.4. The Directors may decide what functions and duties each
officer shall perform and may entrust to and confer upon him any of
the powers exercisable by them upon such terms and conditions and
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with such restrictions as they think fit and may from time to time
revoke, withdraw., alter or vary all or any of such functions.
duties and powers. The Secretary shall, inter alia, perform the
functions of the Secretary specified in the Company Act.
18.5. Every officer of the Company who holds any office or
possesses any property whereby, whether directly or indirectly,
duties or interests might be created in conflict with his duties or
interests as an officer of the Company shall, in writing, disclose
to the President the fact and the nature and extent of the
conflict.
PART 19
INDEMNITY AND PROTECTION OF
DIRECTORS, OFFICERS AND EMPLOYEES
19.1. Subject to the Company Act and these Articles, the
Directors shall cause the Company to indemnify a Director or former
Director of the Company and a Director or former Director of a
corporation which is or was a subsidiary of the Company or (if he
acted as such at the request of the Company) of any other
corporation of which the Company is or was a shareholder and the
heirs and personal representatives of any such person against all
costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, actually and reasonably incurred by
him or them including an amount paid to settle an action or satisfy
a judgment in a civil, criminal or administrative action or
proceeding to which he is or they are made a party by reason of his
being or having been a Director of the Company or a director of
such corporation, including any action brought by the Company or
any such corporation. The Company shall apply to the Court for all
approvals of the Court which may be required to make any indemnity
referred to in this Article effective and enforceable. The Company
shall be deemed to have contracted, on the terms of the foregoing
indemnity, with each Director of the Company and each such Director
of such corporation on his being elected or appointed.
19.2. Subject to the Company Act and these Articles, the
Directors shall cause the Company to indemnify:
(i) any officer or former officer (but in the case
of an officer of a corporation other than a
subsidiary of the Company only if he acted as
such at the request of the Company); and
(ii) any employee, former employee or agent or
former agent designated by the Directors,
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of the Company or of a corporation which is or was a subsidiary of
the Company or of any other corporation of which the Company is or
was a shareholder (notwithstanding that he is also a Director) and
his heirs and personal representatives against all costs, charges
and expenses whatsoever (including, without limiting the generality
of the foregoing, those specifically referred to in Article 19.1
above) incurred by him or them and resulting from his acting as an
officer, employee or agent of the Company or of such corporation.
The Company shall be deemed to have contracted, on the terms of the
foregoing indemnity, with each such officer or former officer on
his being appointed.
19.3. The failure of a person to comply with the Company Act
or of the Memorandum or these Articles shall not, of itself,
invalidate any indemnity to which such person is entitled under
this Part.
19.4. The Directors may cause the Company to purchase and
maintain insurance for the benefit of:
(i) any person who is or was serving as a Director
or officer of the Company or as a director or
officer of a corporation which is or was a
subsidiary of the Company or (if he acted as
such at the request of the Company) of any
other corporation of which the Company is or
was a shareholder; and
(ii) any person designated by the Directors who is
or was serving as an employee or agent of the
Company or of such corporation; and
(iii) any person in respect of whom the Company is or
may be obligated to indemnify pursuant to this
Part 19,
and his heirs and personal representatives against any liability
incurred by him as such Director, director, officer, employee or
agent.
19.5. If any of the provisions of this Part shall be void,
illegal or invalid, the remaining provisions of this Part shall be
construed and take effect as if the void, illegal or invalid
provision had never been contained herein. The Company shall not
be required to indemnify a person pursuant to Articles 19.1 or 19.2
if such person did not, with respect to the act or matter giving
rise to the proposed indemnification, act honestly and in good
faith and with a view to the best interests of the Company or the
corporation referred to therein, as the case may be, or in the case
of a criminal or administrative actor proceeding, if he did not
have reasonable grounds for believing his conduct was lawful or
duly authorized. The provisions of this Part 19 relating to
Directors and former Directors of the Company and to directors and
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former directors of a corporation which is or was a subsidiary of
the Company or of a corporation in which the Company is or was a
shareholder also apply, with the necessary changes and so far as
applicable, to alternate Directors of the Company and alternate
directors of such corporations.
PART 20
DIVIDENDS AND RESERVES
20.1. Subject to the Company Act and to the special rights and
restrictions as to dividends attached to any shares, the Directors
may from time to time declare and authorize payment of such
dividends, if any, as they may deem advisable and need not give
notice of such declaration to any member. No dividend shall be
paid otherwise than out of funds and/or assets properly available
for the payment of dividends and a declaration by the Directors as
to the amount of such funds and/or assets available for dividends
shall be conclusive. The Company may pay any such dividend wholly
or in part by the distribution of specific assets and in particular
by paid up shares, bonds, debentures or other securities of the
Company or any other corporation or in any one or more such ways as
may be authorized by the Company or the Directors and where any
difficulty arises with regard to such a distribution the Directors
may settle the same as they think expedient, and in particular may
fix the value for distribution of such specific assets or any part
thereof, and may determine that cash payments in substitution for
all or any part of the specific assets to which any members are
entitled shall be made to any members on the basis of the value so
fixed in order to adjust the rights of all parties and may vest any
such specific assets in trustees for the persons entitled to the
dividend as may seem expedient to the Directors.
20.2. Any dividend declared on shares of any class or series
by the Directors may be made payable on such date as is fixed by
the Directors.
20.3. Subject to the rights of members (if any) holding shares
with special rights as to dividends, all dividends on shares of any
class or series shall be declared and paid according to the number
of such shares held.
20.4. The Directors may, before declaring any dividend, set
aside out of the funds properly available for the payment of
dividends such sums as they think proper as a reserve or reserves,
which shall, at the discretion of the Directors, be applicable for
meeting contingencies, or for equalizing dividends, or for any
other purpose to which such funds of the Company may be properly
applied, and pending such application may, at the like discretion,
either be employed in the business of the Company or be invested in
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such investments as the Directors may from time to time think fit.
The Directors may also, without placing the same in reserve, carry
forward such funds, which they think prudent not to divide.
20.5. If several persons are registered as joint holders of
any share, any one of them may give an effective receipt for any
dividend, bonuses or other moneys payable in respect of the share.
20.6. No dividend shall bear interest against the Company.
Where the dividend to which a member is entitled includes a
fraction of a cent, such fraction shall be disregarded in making
payment thereof and such payment shall be deemed to be payment in
full.
20.7. Any dividend, bonus or other moneys payable in cash in
respect of shares may be paid by cheque or warrant sent through the
post directed to the registered address of the holder, or in the
case of joint holders, to the registered address of that one of the
joint holders who is first named on the register, or to such person
and to such address as the holder or joint holders may direct in
writing. Every such cheque or warrant shall be made payable to the
order of the person to whom it is sent. The mailing of such cheque
or warrant shall, to the extent of the sum represented thereby
(plus the amount of any tax required by law to be deducted)
discharge all liability for the dividend, unless such cheque or
warrant shall not be paid on presentation or the amount of tax so
deducted shall not be paid to the appropriate taxing authority.
20.8. Notwithstanding anything contained in these Articles the
Directors may from time to time capitalize any retained earnings or
surplus of the Company and may issue as fully paid and non-
assessable any unissued shares or any debt obligations of the
Company as a dividend representing such retained earnings or
surplus or any part thereof.
PART 21
DOCUMENTS, RECORDS AND REPORTS
21.1. The Company shall keep at its records office or at such
other place as the Company Act may permit, the documents, copies,
registers, minutes, and records which the Company is required by
the Company Act to keep at its records office or such other place,
as the case may be.
21.2. The Company shall cause to be kept proper books of
account and accounting records in respect of all financial and
other transactions of the Company in order properly to record the
financial affairs and condition of the Company and to comply with
the Company Act.
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21.3. Unless the Directors determine otherwise, or unless
otherwise determined by an ordinary resolution, no member of the
Company shall be entitled to inspect the accounting records of the
Company.
21.4. The Directors shall from time to time at the expense of
the Company cause to be prepared and laid before the Company in
general meeting such financial statements and reports as are
required by the Company Act.
21.5. Every member shall be entitled to be furnished once
gratis on demand with a copy of the latest annual financial
statement of the Company and, if so required by the Company Act, a
copy of each such annual financial statement and interim financial
statement shall be mailed to each member.
PART 22
NOTICES
22.1. A notice, statement or report may be given or delivered
by the Company to any member either by delivery to him personally
or by sending it by mail to him to his address as recorded in the
register of members. Where a notice, statement or report is sent
by mail, service or delivery of the notice, statement or report
shall be deemed (i) to be effected by properly addressing,
prepaying and mailing the notice, statement or report, and (ii) to
have been given on the date, Saturdays and holidays excepted,
following the date of mailing. A certificate signed by the
Secretary or other officer of the Company or of any other person
acting in that behalf for the Company that the letter, envelope or
wrapper containing the notice, statement or report was so
addressed, prepaid and mailed shall be conclusive evidence thereof.
22.2. A notice, statement or report may be given or delivered
by the Company to the joint holders of a share by giving the notice
to the joint holder first named in the register of members in
respect of the share.
22.3. A notice, statement or report may be given or delivered
by the Company to the persons entitled to a share in consequence of
the death, bankruptcy or incapacity of a member by sending it
through the mail prepaid addressed to them by name or by his title
or by any like description, at the address (if any) supplied to the
Company for the purpose by the persons claiming to be so entitled,
or (until such address has been so supplied) by giving the notice
in a manner in which the same might have been given if the death,
bankruptcy or incapacity had not occurred.
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22.4. Notice of every general meeting or meeting of members
shall be given in a manner hereinbefore authorized to every member
holding at the record date for determining the members entitled to
such notice shares which confer the right to notice of and to
attend and vote at any such meeting. No other person except the
auditor of the Company and the Directors of the Company shall be
entitled to receive notices of any such meeting.
PART 23
RECORD DATES
23.1. Subject to the Company Act, the Directors may fix in
advance a date as the record date for the determination of the
members entitled to notice of any meeting of members or any
adjournment thereof, and/or a date as the record date f or the
determination of the members entitled to attend and vote at any
meeting of members or any adjournment thereof (which may but need
not be the same date as the record date for determining members
entitled to notice) and/or a date as a record date for the
determination of members entitled to receive payment of a dividend,
or for any other proper purpose and in such case, notwithstanding
anything elsewhere contained in these Articles, only members or
persons of record on the date so picked shall be deemed to be
members for the particular purpose or purposes aforesaid.
23.2. Where no record date is fixed for the determination of
members entitled to notice, or to vote, or of members entitled to
receive payment of a dividend or for any other proper purpose, the
date on which notice of the meeting is mailed or on which the
resolution of the Directors declaring the dividend is adopted
respectively is the record date for such determination.
PART 24
SEAL
24.1. The Directors may provide a seal for the Company and, if
they do so, shall provide for the safe custody of the seal which
shall not be affixed to any instrument except in the presence of
the following persons, namely;
(i) the President or the Secretary;
(ii) any two Directors of the Company;
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(iii) one of the Chairman of the Board, the
President, a Director or the Vice-President
together with any one of the Secretary, an
Assistant Secretary, the Treasurer, the
Secretary-Treasurer, an Assistant Treasurer and
an Assistant Secretary-Treasurer; or
(iv) such person or persons as the Directors may
from time to time by resolution appoint,
and the said Directors, officers, person or persons in whose
presence the seal is so affixed to an instrument shall sign such
instrument. For the purpose of certifying under the seal copies or
extracts from the Memorandum or Articles of the Company, minutes of
meetings or resolutions of the members or Directors or committees
of Directors, or any instrument executed or issued by the Company,
the seal may be affixed in the presence of any one of the persons
hereinbefore mentioned unless the Directors shall by resolution
determine otherwise.
24.2. The signatures of any one or more of the Chairman of the
Board, President, Vice-Presidents, Directors, Secretary, Treasurer,
Assistant-Secretaries, Assistant-Treasurers and any other officers
of the Company and any persons referred to in Article 24.1(iv) may,
if authorized by the Directors, be printed, lithographed, engraved
or otherwise mechanically reproduced upon all instruments executed
or issued by the Company; and any instrument on which the signature
of any such person is so reproduced by authorization of the
Directors shall be deemed to have been manually signed by such
person whose signature is so reproduced and shall be, subject to
the Company Act, as valid to all intents and purposes as if such
instrument had been signed manually, and notwithstanding that the
person whose signature is so reproduced may have ceased to hold
office (if applicable) at the date of the delivery or issue of such
instrument. The term "instrument" as used in Article 24.1 and this
Article 24.2 shall include deeds, mortgage, hypothecs, charges,
conveyances, transfers and assignments of property, real or
personal, agreements, releases, receipts and discharges for the
payment of money or other obligation, certificates of the Company's
shares, bonds, debentures and other securities and debt obligations
of the Company, and all paper-writings.
24.3. To enable the seal of the Company to be affixed to any
debt obligations, share certificates, or other securities of the
Company, whether in definitive or interim form, on which facsimiles
of any of the signatures of the Directors or officers of the
Company are, in accordance with the Company Act and/or these
Articles, printed or otherwise mechanically reproduced there may be
delivered to the firm or company employed to engrave, lithograph or
print such definitive or interim debt obligations, share
certificates or other securities one or more unmounted dies
reproducing the Company's seal and the Chairman of the Board, the
President, the Managing Director or a Vice-President and the
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Secretary, Treasurer, Secretary-Treasurer, an Assistant Secretary,
an Assistant Treasurer or an Assistant Secretary-Treasurer may by
a document authorize such firm or company to cause the Company's
seal to be affixed to such definitive or interim debt obligations,
share certificates or other securities by the use of such dies.
Debt obligations, share certificates or other securities to which
the Company's seal has been so affixed shall for all purposes be
deemed to be under and to bear the Company's seal lawfully affixed
thereto.
24.4. The Company may have for use in any other province, state,
territory or country an official seal which shall have on its face
the name of the province, state, territory or country where it is
to be used.
PART 25
PROHIBITIONS IF NOT A REPORTING COMPANY
25.1. If the Company is, or becomes, a company which is not a
reporting company under the Company Act:
(i) the number of members for the time being of the
Company, exclusive of persons who are for the
time being in the employment of the Company and
continue to be members after the termination of
such employment, shall not exceed 50;
(ii) no securities of the Company shall be offered for
sale or subscription to the public;
(iii) no shares shall be transferred without the
previous consent of the Directors expressed by a
resolution of the Board and the Directors shall
not be required to give any reason for refusing
to consent to any such proposed transfer.
FULL NAME, RESIDENT ADDRESS AND OCCUPATION OF SUBSCRIBER:
/S/ David A. G. Birnie
- --------------------------
DAVID A. G. BIRNIE
875 Aubeneau Crescent
West Vancouver, B.C.
V7T 1T4
Barrister and Solicitor
DATED the 23rd day of November, 1993.
<Page 107>
THIS CONTRACT SERVICES AGREEMENT MADE AS OF: JANUARY 1, 1998
BETWEEN:
TITAN TRADING ANALYTICS INC., a company duly
incorporated under the laws of the Province of
British Columbia, and having an office at 201
Selby Street. Nanaimo, British Columbia, V9R 2R2
(hereinafter referred to as "Titan")
AND:
MICHAEL B. PAAUWE AND ASSOCIATES, management and
financial consultants having an office at 3473 Ellis
Place, Nanaimo, British Columbia, V9T 4Y6
(hereinafter referred to as "Paauwe")
WITNESSES THAT WHEREAS:
A. Titan is and has been engaged in the development of artificial
intelligence ("AI") technologies, research, development, marketing and sale
of financial software, the development of AI based financial trading systems,
and proposes to develop an AI based wireless financial messaging service;
B. Paauwe has experience in the provision of corporate and financial
management, financial trading systems software development, product marketing,
corporate financing, financial research and administration, and related advice
and services (the "Services"), and has since May 1994 been providing the
Services to Titan as an independent contractor under an oral arrangement
entered into in that connection; and
C. the parties consider that it would be in their mutual best interests to
reduce the terms of the oral arrangement to writing, and to amend the Fee
payable pursuant to clause 2.1 in the November 1, 1995 agreement, in
accordance with a directors' resolution dated December 23, 1997,
the parties hereto, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
agree as follows:
1. Engagement
Titan hereby confirms the engagement of Paauwe to perform, and Paauwe agrees
to continue to perform the Services on and subject to the terms of this
Agreement for not fewer than 160 nor more than 200 hours (or such greater
or lesser number of hours as the parties may from time to time agree in
writing) in each calendar month.
<Page 108>
2
2. Payment for the Services and reimbursement of expenses
2.1 Titan hereby agrees:
2.1.1 to pay Paauwe monthly for the Services monthly at a rate, being not
less than $7,666.66, to be agreed upon between the parties from time to
time (the "Fee"); and
2.1.2 to pay Paauwe annually, upon his request, a bonus (the "Bonus") of
$4,500.
2.2 Titan agrees to reimburse Paauwe for vehicle mileage expenses at a rate
to be agreed from time to time, and also agrees to reimburse Paauwe for all
reasonable expenses incurred in travel, administration, promotion and all
other out of pocket expenses actually and reasonably incurred by Paauwe in
connection with the business of Titan and in performing the Services.
3. Paauwe to be an independent contractor
Notwithstanding any other provision of this Agreement, it is understood and
agreed between the parties and it is a condition of this Agreement, that
Paauwe is an independent contractor and not subject except as hereinafter
provided, to the direction or control of any other person in performing
the Services, nor is he an employee by virtue of any provision hereof,
or his position as all officer
of Titan. In performing the Services. Paauwe shall at all times, but subject
to (a) the business plan of Titan, as from time to time approved by its board
of directors, (b) any resolutions of the board of directors from time to
time, and (c) any legal, governmental or regulatory requirements or
conditions, take such steps as in his good faith business judgment shall be
necessary or appropriate.
4. Term and renewal
Subject to the termination provisions of paragraph 7 hereof, the term of this
Agreement shall be for a period of three years from the date of this
Agreement (the "Initial Term"), and unless terminated, shall be renewed by
the parties from time to time for further periods (a "Renewal Term") of two
years.
5. Right of Paauwe to enter into other contracts for services
Nothing in this Agreement shall restrict the right of Paauwe to perform
services for others, provided that such others are not engaged in a business
which is competitive or in conflict with the business of Titan, and provided
further that the performance of such services does not, in the opinion of the
board of directors of Titan acting reasonably, interfere with the performance
of the Services.
6. Confidentiality and non-disclosure
Paauwe agrees that all proprietary information relating to Titan's
technology, business and affairs ("Proprietary Information") is and
shall be kept confidential, and will not be disclosed to any person
other than a person employed by or performing services for Titan and
who has a need to know such Proprietary Information, except with the prior
consent in writing of the President of Titan.
<Page 109>
3
7. Termination
7.1 Titan may at any time and for any reason terminate this Agreement upon 30
days written notice to Paauwe, and such termination shall be effective 30
days following the delivery of such notice to Paauwe.
7.2 If Titan terminates this Agreement for any reason other than the
commission by Paauwe of a material and substantial breach of his
obligation to perform the Services as provided in this Agreement, Titan
shall forthwith pay Paauwe, in a lump sum:
7.2.1 an amount equal to 12 times the Fee, plus any Bonus to which Paauwe
is entitled pursuant to section 2.1.2 hereof, if termination occurs
during the Initial Term;
7.2.2 an amount to be negotiated between the parties, but not less than
the amount payable under section 7.2.1 hereof, if termination occurs
during any Renewal Term or if Titan fails to renew this Agreement.
7.3 If Titan gives notice of termination of this Agreement to Paauwe by
reason of a material and substantial breach of his obligation to
perform the
Services, the notice shall specify and Paauwe shall have 30 days from
delivery of the notice to him to cure, the breach, and upon such breach
being cured notwithstanding section 7.1, the notice of termination shall
thereupon cease to be effective.
7.3 Paauwe may terminate this Agreement at any time upon 120 days written
notice to Titan.
8. Payment of GST
All amounts payable by Titan to Paauwe for the Services shall be exclusive
of any Goods and Services Tax (GST) or other governmental taxes or levies
payable in respect of the Fee and Titan shall, in addition to the Fee,
pay to Paauwe all amounts of GST or other governmental taxes or levies
imposed on Paauwe with respect to the Fee, and agrees to indemnify him
and save him harmless in respect of any such imposition resulting from
any failure by Paauwe to collect, or by Titan to make payment of any
amount properly chargeable to it on account thereof.
9. Severability
If an provision of this Agreement is found to be void, invalid, illegal
or unenforceable by a court of competent jurisdiction, such finding will
not affect any other provision of this Agreement, which will continue to be
in full force and effect.
10. Assignment
This agreement may not be assigned by either party without the prior written
consent of the other, which consent may not be unreasonably witheld.
<Page 110>
4
11. Arbitration of disputes
11.1 Except as provided in section 11.2, all differences or disputes
arising out of or in connection with this agreement, including any
difference or dispute with respect to the amount of the Fee, or in
respect of any defined legal relationship associated herewith or derived
herefrom shall be referred to and finally resolved by arbitration under
the rules for the conduct of domestic commercial arbitrations under the
British Columbia International Commercial Arbitration Centre. The appointing
authority shall be administered by the British Columbia International
Commercial Arbitration Centre. The case shall be administered by the
British Columbia International Commercial Arbitration Centre in accordance
with its Procedures for Cases under the BCICAC Rules". The place of
arbitration shall be Vancouver, British Columbia, Canada.
11.2 The provisions of section 11.1 do not apply to the obligations of
Titan under section 7.2 hereof.
13. Enurement
This Agreement shall enure to the benefit of and shall bind the parties and
their respective heirs, executors, administrators, successors and permitted
assigns.
14. Governing law
This Agreement shall be interpreted in accordance with the laws of the
Province of British Columbia
The parties, intending to be bound, have executed this Agreement as of
the date first above written.
TITAN TRADING ANALYTICS INC.
Per: /S/ Michael Gossland
--------------------------
Authorized signatory
MICHAEL B. PAAUWE AND ASSOCIATES
Per: /S/ Michael B. Paauwe
--------------------------
Authorized signatory
<Page 111>
THIS CONTRACT SERVICES AGREEMENT MADE AS OF: JANUARY 1, 1998
BETWEEN:
TITAN TRADING ANALYTICS INC., a company duly
incorporated under the laws of the Province of
British Columbia, and having an office at 201
Selby Street. Nanaimo, British Columbia, V9R 2R2
(hereinafter referred to as "Titan")
AND:
MICHAEL GOSSLAND AND ASSOCIATES, professional
software developers, having an office at 5966 Broadway
Road, Nanaimo, British Columbia, V9V 1C9
(hereinafter referred to as "Gossland")
WITNESSES THAT WHEREAS:
A. Titan is and has been engaged in the development of artificial intelligence
("AI") technologies, research, development, marketing and sale of financial
software, the development of AI based financial trading systems, and proposes
to develop an AI based wireless financial messaging service;
B. Gossland has experience in software design and engineering, financial
trading software system research and development, computer systems
configuration and maintenance, technical trouble shooting, software
technology security, and matters related to the foregoing (the "Services"),
and has since September 1, 1994 been providing the Services to Titan as an
independent contractor under an oral arrangement entered into in that
connection; and
C. the parties consider that it would be in their mutual best interests to
reduce the terms of the oral arrangement to writing, and to amend the Fee
payable pursuant to clause 2.1 in the November 1, 1995 agreement, in
accordance with a directors' resolution dated December 23, 1997,
the parties hereto, in consideration of the premises and the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, agree as follows:
1. Engagement
Titan hereby confirms the engagement of Gossland to perform, and Gossland
agrees
to continue to perform the Services on and subject to the terms of this
Agreement for not fewer than 160 nor more than 200 hours (or such greater or
lesser number of hours as the parties may from time to time agree in writing)
in each calendar month.
<Page 112>
2
2. Payment for the Services and reimbursement of expenses
2.1 Titan hereby agrees:
2.1.1 to pay Gossland monthly for the Services monthly at a rate, being
not less than $7,250, to be agreed upon between the parties from time to
time (the "Fee"); and
2.1.2 to pay Gossland annually, upon his request, a bonus (the "Bonus")
of $4,500.
2.2 Titan agrees to reimburse Gossland for vehicle mileage expenses at a rate
to be agreed from time to time, and also agrees to reimburse Gossland for all
reasonable expenses incurred in travel, administration, promotion and all other
out of pocket expenses actually and reasonably incurred by Gossland in
connection with the business of Titan and in performing the Services.
3. Gossland to be an independent contractor
Notwithstanding any other provision of this Agreement, it is understood and
agreed between the parties and it is a condition of this Agreement, that
Gossland is an independent contractor and not subject except as hereinafter
provided, to the direction or control of any other person in performing the
Services, nor is he an employee by virtue of any provision hereof, or his
position as all officer of Titan. In performing the Services. Gossland shall at
all times, but subject to (a) the business plan of Titan, as from time to time
approved by its board of directors, (b) any resolutions of the board of
directors from time to time, and (c) any legal, governmental or regulatory
requirements or conditions, take such steps as in his good faith business
judgment shall be necessary or appropriate.
4. Term and renewal
Subject to the termination provisions of paragraph 7 hereof, the term of this
Agreement shall be for a period of three years from the date of this Agreement
(the "Initial Term"), and unless terminated, shall be renewed by the parties
from time to time for further periods (a "Renewal Term") of two years.
5. Right of Gossland to enter into other contracts for services
Nothing in this Agreement shall restrict the right of Gossland to perform
services for others, provided that such others are not engaged in a business
which is competitive or in conflict with the business of Titan, and provided
further that the performance of such services does not, in the opinion of the
board of directors of Titan acting reasonably, interfere with the performance
of the Services.
6. Confidentiality and non-disclosure
Gossland agrees that all proprietary information relating to Titan's
technology, business and affairs ("Proprietary Information") is and shall be
kept confidential, and will not be disclosed to any person other than a
person employed by or performing services for Titan and who has a need to
know such Proprietary Information, except with the prior consent in writing
of the President of Titan.
<Page 113>
3
7. Termination
7.1 Titan may at any time and for any reason terminate this Agreement upon 30
days written notice to Gossland, and such termination shall be effective
30 days following the delivery of such notice to Gossland.
7.2 If Titan terminates this Agreement for any reason other than the
commission by Gossland of a material and substantial breach of his
obligation to perform the Services as provided in this Agreement, Titan
shall forthwith pay Gossland, in a lump sum:
7.2.1 an amount equal to 12 times the Fee, plus any Bonus to which
Gossland is entitled pursuant to section 2.1.2 hereof, if
termination occurs during the Initial Term;
7.2.2 an amount to be negotiated between the parties, but not less than
the amount payable under section 7.2.1 hereof, if termination
occurs during any Renewal Term or if Titan fails to renew this
Agreement.
7.3 If Titan gives notice of termination of this Agreement to Gossland by
reason of a material and substantial breach of his obligation to perform
the Services, the notice shall specify and Gossland shall have 30 days
from delivery of the notice to him to cure, the breach, and upon such
breach being cured notwithstanding section 7.1, the notice of termination
shall thereupon cease to be effective.
7.3 Gossland may terminate this Agreement at any time upon 120 days written
notice to Titan.
8. Payment of GST
All amounts payable by Titan to Gossland for the Services shall be exclusive of
any Goods and Services Tax (GST) or other governmental taxes or levies payable
in respect of the Fee and Titan shall, in addition to the Fee, pay to Gossland
all amounts of GST or other governmental taxes or levies imposed on Gossland
with respect to the Fee, and agrees to indemnify him and save him harmless in
respect of any such imposition resulting from any failure by Gossland to
collect, or by Titan to make payment of any amount properly chargeable to it on
account thereof.
9. Severability
If an provision of this Agreement is found to be void, invalid, illegal or
unenforceable by a court of competent jurisdiction, such finding will not
affect any other provision of this Agreement, which will continue to be in full
force and effect.
10. Assignment
This agreement may not be assigned by either party without the prior written
consent of the other, which consent may not be unreasonably witheld.
<Page 114>
4
11. Arbitration of disputes
11.1 Except as provided in section 11.2, all differences or disputes arising
out of or in connection with this agreement, including any difference or
dispute with respect to the amount of the Fee, or in respect of any defined
legal relationship associated herewith or derived herefrom shall be referred
to and finally resolved by arbitration under the rules for the conduct of
domestic commercial arbitrations under the British Columbia International
Commercial Arbitration Centre. The appointing authority shall be the British
Columbia International Commercial Arbitration Centre. The case shall be
administered by
the British Columbia International Commercial Arbitration Centre in accordance
with its Procedures for Cases under the BCICAC Rules". The place of arbitration
shall be Vancouver, British Columbia, Canada.
11.2 The provisions of section 11.1 do not apply to the obligations of Titan
under section 7.2 hereof.
13. Enurement
This Agreement shall enure to the benefit of and shall bind the parties and
their respective heirs, executors, administrators, successors and permitted
assigns.
14. Governing law
This Agreement shall be interpreted in accordance with the laws of the Province
of British Columbia
The parties, intending to be bound, have executed this Agreement as of the date
first above written.
TITAN TRADING ANALYTICS INC.
Per: /S/ Michael B. Paauwe
--------------------------
Authorized signatory
MICHAEL GOSSLAND AND ASSOCIATES
Per: /S/ Michael Gossland
--------------------------
Authorized signatory
<Page 115>
FORM 16
(APPENDIX A TO LOCAL POLICY STATEMENT 3-07)
ESCR0W AGREEMENT
THIS AGREEMENT is dated for reference January 5, 1996 and made
AMONG:
THE MONTREAL TRUST COMPANY OF CANADA, 510 Burrard
Steet
Vancouver, B.C., Canada V6C 3B9
(the "Escrow Agent")
AND:
TITAN TRADING ANALYTICS INC., of 3473 Ellis Place,
Nanaimo, B.C. Canada V9T 4Y6
(the "Issuer")
AND:
TTN ESCROW CAPITAL CORP., of 3473 E11is Place, Nanaimo,
British Columbia V9T 4Y6
(the "Shareholder").
WHEREAS the Shareholder has acquired shares of the Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent
in respect of the shares upon the acquisition of the shares by the
Shareholder;
NOW THEREFORE in consideration of the covenants contained in this
agreement and other good valuable consideration (the receipt and
sufficiency of which is acknowledged), the Parties agree as
follows:
1. INTERPRETATION
In this agreement:
(a) "Acknowledgement" means the acknowledgement and agreement to
be bound in the form attached as Schedule A to this agreement;
(b) "Act" means the Securities Act, S.B.C. 1985, c. 83, as amended;
(c) "Exchange" means the Vancouver Stock Exchange;
<Page 116>
-2-
(d) "IPO" means the initial public offering of common shares of
the Issuer under a prospectus which has been filed with, and
for which a receipt has been obtained from, the Superintendent
under section 42 of the Act;
(e) "Local Policy Statement 3-07" means the Local Policy Statement
3-07 in effect as of the date of reference of this agreement
and attached as Schedule B to this agreement;
(f) "Shareholder" means a holder of shares of the Issuer who
executes this agreement or an Acknowledgement;
(g) "Shares" means the shares of the Shareholder described in
Schedule C to this agreement, as amended from time to time in
accordance with section 9;
(h) "Executive Director" means the Executive Director appointed
under the Act; and
(i) "Executive Director or the Exchange" means the Executive
Director, if the shares of the Issuer are not listed on the
Exchange, or the Exchange, if the shares of the Issuer are
listed on the Exchange.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and
shall deliver the certificates representing the Shares to the Escrow
Agent as soon as practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all
voting rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares
(a) to vote the Shares on a resolution to cancel any of the
Shares,
(b) to receive dividends, and
(c) to participate in the assets and property of the Issuer on a
winding up or dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain
from voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) The Shareholder shall not transfer any of the Shares except in
accordance with Local Policy Statement 3-07 and with the consent
of the Executive Director or the Exchange.
(2) The Escrow Agent shall not effect a transfer of the Shares
within escrow unless the Escrow Agent has received
<Page 117>
-3-
(a) a copy of an Acknowledgement executed by the person to
whom the Shares are to be transferred; and
(b) a letter from the Executive Director or the Exchange
consenting to the transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow
Agent shall hold the Shares subject to this agreement for the
person that is legally entitled to become the registered owner
of the Shares.
7. RELEASE FROM ESCROW
(1) The Shareholder irrevocably directs the Escrow Agent to retain
the Shares until the Shares are released from escrow pursuant
to subsection (2) or surrendered for cancellation pursuant to
section 8.
(2) The Escrow Agent shall not release the Shares from escrow unless
the Escrow Agent has received a letter from the Executive
Director or the Exchange consenting to the release.
(3) The approval of the Executive Director or the Exchange to a
release from escrow of any of the Shares shall terminate this
agreement only in respect of the Shares so released.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation and the
Escrow Agent shall deliver the certificates representing the Shares to
the Issuer
(a) at the time of a major reorganization of the Issuer, if
required as a condition of the consent to the
reorganization by the Executive Director or the Exchange,
(b) where the Issuer's shares have been subject to a cease
trade order issued under the Act for a period of 2
consecutive years, or
(c) 10 years from the later of the date of issue of the Shares
and the date of the receipt for the Issuer's prospectus on
its IPO, or
9. AMENDMENT OF AGREEMENT
(1) Subject to subsection (2), this agreement may be amended only by
a written agreement among the Parties and with the written
consent of the Executive Director or the Exchange.
(2) Schedule C to this agreement shall be amended upon
(a) a transfer of Shares pursuant to section 6,
(b) a release of Shares from escrow pursuant to section 7,
or
(c) a surrender of Shares for cancellation pursuant to
section 8,
and the Escrow Agent shall note the amendment on the Schedule C in
its possession.
<Page 118>
-4-
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release,
indemnify and save harmless the Escrow Agent from all costs, charges,
claims, demands, damages, losses and expenses resulting from the
Escrow Agent's compliance in good faith with this agreement.
1l. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in
respect of the Shares, the Escrow Agent shall give not fewer
than 30 days notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign as escrow
agent in respect of the Shares, the Issuer shall give not
fewer than 30 days notice to the Escrow Agent.
(3) A notice referred to in subsection (1) or (2) shall be in
writing and delivered to
(a) the Issuer at:
3473 Ellis Place, Nanaimo, B.C. V9T 4Y6, Canada
or
(b) the Escrow Agent at:
510 Burrard Street
Vancouver, B.C.
V6C 3B9
and the notice shall be deemed to have been received on the
date of delivery. The Issuer or the Escrow Agent may change
its address for notice by giving notice to the other party in
accordance with this subsection.
(4) A copy of a notice referred to in subsection (1) or (2)
shall concurrently be delivered to the Executive Director or
the Exchange.
(5) The resignation of the Escrow Agent shall be effective and the
Escrow Agent shall cease to be bound by this agreement on the
date that is 180 days after the date of receipt of the notice
referred to in subsection (1) or (2) or on such other date as
the Escrow Agent and the Issuer may agree upon (the
"resignation date").
(6) The Issuer shall, before the resignation date and with the
written consent of the Executive Director or the Exchange,
appoint another escrow agent and that appointment shall be
binding on the Issuer and the Shareholders.
12. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any
acts necessary to carry out the intent of this agreement.
<Page 119>
-5-
13. TIME
Time is of the essence in this agreement.
14. GOVERNING LAWS
This agreement shall be construed in accordance with and governed by
the laws of British Columbia and the laws of Canada applicable in
British Columbia.
15. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which shall
constitute one Agreement.
16. LANGUAGE
Wherever a singular expression is used in this agreement, that
expression is deemed to include the plural or the body corporate
where required by the context.
17. ENUREMENT
This Agreement enures to the benefit of and is binding on the
Parties and their heirs, executors, administrators, successors and
permitted assigns.
The Parties have executed and delivered this agreement as of
the date of reference of this agreement.
The Common Seal of )
Montreal Trust Company Of Canada )
was affixed in the presence of: ) c/s
)
/s/____________________________________ )
Authorized Signatory )
)
/s/____________________________________ )
Authorized Signatory )
The Common Seal of )
Titan Trading Analytics Inc. )
was affixed in the presence of: ) c/s
)
/S/ Michael Paauwe )
Authorized Signatory )
)
/S/ Michael Gossland )
Authorized Signatory )
The Common Seal of )
TTN Escrow Capital Corp. )
was affixed in the presence of: ) c/s
)
/S/ Michael Paauwe )
Authorized Signatory )
)
/S/ Michael Gossland )
Authorized Signatory )
<Page 120>
SCHEDULE A
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director or Vancouver Stock Exchange
1100 - 865 Hornby St. 609 Granville Street
Vancouver, B.C. Vancouver, B.C.
V6Z 2H4 V7Y 1H1
(if the share are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange) Exchange)
I acknowledge that I have entered into an agreement with _____________
under which __________________ shares of _____________________________
(the "Shares") will be transferred to me upon receipt of regulatory
approval, and that the Shares are held in escrow subject to an escrow
agreement dated for reference ________, 19__(the "Escrow Agreement"),
a copy of which is attached as Schedule A hereto.
In consideration of $1.00 and other good and valuable consideration
(the receipt and sufficiency of which is acknowledged) I agree,
effective upon receipt of regulatory approval of the transfer to me
of the Shares, to be bound by the Escrow Agreement in respect of the
Shares as if I were an original signatory to the Escrow Agreement.
Dated at ___________________ on ______________ , 19___.
Where the transferee is an individual:
Signed, sealed and delivered )
by )
in the presence of: )
)
________________________________________ )
Name )
________________________________________ )
Address )
________________________________________ )
)
________________________________________ )
Occupation
Where the transferee is a company:
The Common Seal of )
)
was affixed in the presence of: ) c/s
)
/S/ Michael Paauwe )
Authorized Signatory )
)
________________________________________ )
Authorized Signatory
<Page 121>
SCHEDULE B
[Copy of Local Policy Statement 3-07 to be attached]
<Page 122>
SCHEDULE C
Number of Shares
Name of Shareholder Held in Escrow
- ------------------- ----------------
TTN Escrow Capital Corp. 3,000,000
<Page 123>
Lombard Odier International
Portfolio Management Limited
Regulated by IMRO
21st November, 1997
Michael Paauwe
Titan Trading Analytics Inc.
5966 Broadway Road
Nanaimo, BC
Canada V9V 1C9
TO WHOM IT MAY CONCERN
RE: Titan Trading Currency System
Lombard Odier has been monitoring the progress of the above noted
proprietary software on a real time basis for one year.
We have been sufficiently impressed with the consistency of results,
relative to simulated back-testing, and the overall profitability of
the currency trading system to enter into a consultancy arrangement
with Titan for this area of their expertise.
Though it is relatively early on in the life of this agreement, we
are encouraged by the advice we have received during the last few
turbulent months in financial markets.
/S/ D.A. Robinson
D.A. Robinson
Director
Norfolk House - 13 Southampton Place - London WC1A 2AJ - UK
(Registered Office)
Telephone: (0171) 831 2350 - Telefax: (0171) 831 7284
Telex: 269151
<Page 124>
Lombard Odier International
Portfolio Management Limited
Regulated by IMRO
FACSIMILE
Name: Michael Paauwe Date: 9 Sep 1998
Nom --------------------- ----------------
Company: Titan Trading Analytics Inc.
Fax number 001-250 758 8322 Number of page
Numero FAX -------------- (including cover page): 2
Nombre de pages -------------
(y compris celle-ci)
- -------------------------------------------------------------------
Sender: Tony Robinson Fax No: 0171 611 7801
Expediteur
- -------------------------------------------------------------------
If this message is incomplete please call phone number Sam Moggan
Si ce message est incomplet veuillez svp appeler le telephone
- -------------------------------------------------------------------
Dear Mike,
Following is a proposed letter I am prepared to sign to attest
to the use of the currency system on a "whoever it may concern
basis":
Titan Currency Trading System
"Lombard Odier (UK) has been a subscriber to the above service
for exactly one year. We have used the signals generated for
$/Yen,$/DM and $/Sfr for hedging some or all of our overseas
equity exposure back into US Dollars.
Over that time, completed "short" trades into US dollars have
resulted in the following overall results:
Winning Trades Currency Basis Points P/L $P/L
- -------------------------------------------------------------------
2/5 Sfr (185) x$12.50= $(2312.50)
per contract of $1.25mn
1/3 DM (92) x$12.50= $1150
"ditto"
4/6 JY 2101 x$12.50= $26262
"ditto"
____________________________________________________________________
7/14 2008 x$12.50= $25100
- -------------------------------------------------------------------
THIS DOCUMENT IS INTENDED ONLY FOR THE USE OF THE PERSON TO WHOM IT
IS ADDRESSED. IT MAY CONTAIN INFORMATION THAT IS PRIVILEGED,
CONFIDENTIAL AND EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW.
If you are not the intended recipient, any dissemination,
distribution, copying or use of this document is strictly
prohibited. If you have received this communication in error,
please notify us by telephone (0171-831-2350) to arrange for
the destruction or return of the original document to us.
- -------------------------------------------------------------------
Norfolk House, 13 Southampton Place, London WC1A 2AJ - UK
(Registered Office)
Telephone 44(0) 171 831 - 2350 Telefax 44(0) 171 831-7284
Telex 269151
<Page 125>
We find the overall success ratio (P/Total trades) of 7/14 or 50%
to be well in line with the represented historical experience of
the currency system.
In addition there was an amount equal to $7775 of unrealised
profit on currently open trades per each contract of $1.25 mn
face value.
Relative to a leveraged futures trader using margin, the rate of
return on allocated funds would be positive and quite possibly
substantial, depending on the amount of leverage in use. Again
the total Dollar value of overall profit for this one year period
was in line with historical experience.
I have received daily faxes from Titan Trading giving information
to me on current positions, entry and exit levels, open
profit/loss on a regular basis and in timely fashion.
Yours faithfully
D.A Robinson"
Please call me or E-mail me with any queries.
Best regards,
\s\ Tony Robinson
Tony Robinson
- -------------------------------------------------------------------
THIS DOCUMENT IS INTENDED ONLY FOR THE USE OF THE PERSON TO WHOM IT
IS ADDRESSED. IT MAY CONTAIN INFORMATION THAT IS PRIVILEGED,
CONFIDENTIAL AND EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW.
If you are not the intended recipient, any dissemination,
distribution, copying or use of this document is strictly
prohibited. If you have received this communication in error,
please notify us by telephone (0171-831-2350) to arrange for
the destruction or return of the original document to us.
- -------------------------------------------------------------------
Norfolk House, 13 Southampton Place, London WC1A 2AJ - UK
(Registered Office)
Telephone 44(0) 171 831 - 2350 Telefax 44(0) 171 831-7284
Telex 2691
