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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D. C. 20549
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FORM 10-SB
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
HYTEC FLOW SYSTEMS, INC.
(Exact name of registrant as specific in its charter)
British Columbia 77-0341304
(State of Incorporation) (I.R.S. Employer
Identification No.)
2395 Qume Drive
San Jose, California 95131
(Address of executive offices.) (Zip Code)
Registrant's telephone number: (408) 321-6425
Copies to: Conrad C. Lysiak, Esq.
601 West First Avenue
Suite 503
Spokane, Washington 99201
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS.
THE BUSINESS
HYTEC FLOW SYSTEMS, INC. (the "Company"), was incorporated under
the laws of the Province of British Columbia on December 16, 1965 as
BRENMAC MINES LTD. (NON-PERSONAL LIABILITY) to engage in the business
of mining.
Since then, the Company changed its name on numerous occasions
[BrenMac Mines Ltd. (Non-Personal Liability) on February 1, 1966;
International BrenMac Development Corporation (N.P.L.) on November 4,
1975; OBERG INDUSTRIES LTD. on January 13, 1986; and, CONSOLIDATED
OBERG INDUSTRIES LTD. on August 21, 1990].
In March 1994 the Company acquired all of the issued and
outstanding shares of common stock of Hytec Flow Systems, Inc., a
California corporation and changed its business purpose to designing,
developing, manufacturing, and marketing of supporting pumps and filter
housings for fluid movement and filtration of toxic and caustic fluids
used primarily in the electronics manufacturing industry. On January
16, 1997 the Company changed its name to HYTEC FLOW SYSTEMS, INC.
The Company designs, manufacturers and markets "Fluid Management
Technology" products (the "Products"). The Products are essential
components for use in wet chemistry processing as related to the
semiconductor, telecommunications and biomedical/pharmaceutical
industries. The Company's Products are used to transmit fluids which
are used to clean ("etch") computer wafers and chips which are used in
personal computers, lap top computers, cellular phones, televisions and
automobiles.
The Company's Products consist of pneumatic bellows pumps; filter
housings; DI water heaters; and, in-line heat exchangers for
semiconductor manufacturing and other industries which require ultra-
pure delivery of process fluids. The Company's Products are precision-
engineered and custom designed to transport corrosive liquids, such as
acids, without contamination, while providing safe and reliable
solutions to fluid transfer applications. These Products are used as
components and subsystems in original equipment manufacturing ("OEM")
and captive fluid management systems for the semiconductor,
electronics, biomedical and pharmaceutical industries.
PRODUCTS.
Pneumatic Bellow Pumps.
Pneumatic bellows pumps are made from ultra-pure plastics to meet
the standards of ultra-clean systems, as well as, other wide range
requirements of low to high temperature manufacturing processes. The
all Teflon ("PTFE") wetted path, with no O-rings for ultra-pure fluid
transfer, provides resistance to aggressive chemicals and acids, while
pumping fluids up to 180 degrees centigrade. The Company's patented
technology and design allows reliable performance with little or no
vibration for quiet operation.
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Filter Housings.
The single cartridge Filter Housing Series's filter are reusable
and designed for use with filters for high temperature (to 180 degrees
centigrade) acids and chemicals. The filter housings are made of 100%
ultra-pure PTFE and a patented built-in pulsation dampener which
eliminates the need for external dampeners. The Company's Filter
Housings also allow for customizable fluid input and output
configurations, size and location to meet different needs.
Fluid Heating Systems.
The HFS/Therma-Mate(TM) Ultra Pure Fluid Heating System is a
point-of-use in-line heat exchanger. This infrared heater directly
addresses the contamination and downtime issues related to conventional
heating methods of process fluids, such as immersion heaters and
stagnant baths. The foregoing methods of heating process fluid are
seen as major stumbling blocks in the quest for purity, higher yield
and reduced non-scheduled downtime. The Company's HFS/Therma-Mate
provides rapid heating of corrosive and non-corrosive process fluids.
The ultra-pure heating unit satisfies the state-of-the-art process
requirements in the semiconductor and related industries. The
Company's HFS/Therma-Mate improves process yields, reduces chemical
waste and provides rapid, efficient, ultra-pure heating of process
fluids at a very low power consumption.
DI Water Heating Systems.
The ThermaMaster(TM) Ultrapure DI Water Heater (HFS DI-100) with
infrared technology for performance in heating DI Water is in the final
stages of development. The ThermaMaster (TM) Ultrapure DI Water Heater
allows non-contact IR heating for maintaining purity of heated fluids.
This systems also allows for instantaneous heating with no "warming up"
lag of heating elements.
High Performance Controllers.
The Company's HFS Pump Controllers are a compact unit for
controlling multiple pumps as well as any solenoid operated
reciprocating pump. The Company's pumps have a built-in leak detection
function and a stroke monitoring function. These pumps are also
capable of a quadrature "alternate stoke" feature which can control
dual piston pumps for reduced pulsation. The Company's HFS Pump
Controllers are capable of remote operation and serial communications
with host computers. The Company's HFS Heater Temperature Controllers
are compact units for controlling power to the Company's DI or Inline
Heaters. They have built-in interlocking functions for the safe
operation of heaters. The Company HFS Heater Temperature Controllers
are capable of remote operation and serial communications with host
computers.
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Custom Services Division.
The Company also has a Custom Service Division which has serviced
and manufactured components for the chemical, electronics, aerospace,
computer, communications, semiconductor processing equipment and
chemical processing equipment markets. The Company's in-house CNC
milling and lathe equipment are also available for support of direct
machining requirement for our customers in both short run and large
volume quantities.
Manufacturing.
The Company manufactures ninety percent of its components at its
San Jose, California manufacturing plant. The manufacturing plant
contains approximately 15,000 square feet of space for manufacturing
and engineering, and includes a cleanroom. All of the Company's pumps,
in-line heaters, filer housings, DI water heater and other products are
assembled, tested, cleaned and packaged in its cleanroom. The Company
believes all raw materials needed to manufacture its components are
readily available. The Company believes that the components not
manufactured by the Company are readily available from other sources.
Marketing.
The Company concentrates mainly on sales to the equipment
manufacturers in the semiconductor industry. The Company's current
marketing plan is focused on the chemical mechanical planizartion
("CMP") and copper oxide industries and pursuing the biomedical and
pharmaceutical industries. The Company believes it has an unusual
capability to manufacture ultra-precision pumps and other fluid
movement components and can meet or exceed the standards required by
these markets. The Company is implementing a new bundled component
pricing program (multiple component purchases), as well as optimizing
product mix. Further, the Company plans to allocate greater resources
for promotion. The Company utilizes direct marketing such as
advertising in trade publications and telemarketing.
Patents and Trademarks.
The Company holds two domestic patents covering its housing
assembly and its air-operated high-temperature corrosive liquid pump.
The Company has registered the trademarks "HYLON," "HFS/Therma-Mate"
and "ThermaMaster" on the United States Principal Register. While the
Company believes that the rights owned by the Company are important and
cover and protect adequately the Company's proprietary rights in the
patented technologies, there can be no assurance that any future
pending patent applications will ultimately mature as an issued patent
or that any such patents as now exist or as may hereafter exist will
prove valid. Moreover, the Company believes that its growth,
competitive position and future success are more dependent upon its
technical expertise and marketing skills than on the ownership of
patent rights.
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Company's Office
The Company's headquarters and manufacturing facilities are
located at 2395 Qume Drive, San Jose, California 95131. The Company
leases 15,000 square feet under a five (5) year net lease dated October
10, 1994, between the Company and Fortune Trade Associates, a
California limited partnership. The monthly rental is currently
$9,300. The lease is due to expire on November 1, 1999. The Company
has an option to renew the lease for an additional five (5) year period
which the Company intends to exercise.
Employees
The Company currently has ten employees and five consultants other
than its Officers and Directors. None of the Company's employees are
represented by a labor union. Management of the Company expects to hire
additional employees as needed.
Year 2000
The Company has reviewed its internal computer systems and
products and their capability of recognizing the year 2000 and years
thereafter. The Company expects that any costs relating to ensuring
such systems to be year 2000 compliant will not be material to the
financial condition of results of operations of the Company.
Risk Factors
1. Going Concern Opinion. During the fiscal year ended June 30,
1998, the Company had a net loss of $489,916 which reduced the
stockholder's equity to a deficit of $293,716. In addition, assets
decreased by $185,413 and liabilities increased by $304,503. As a
result of the foregoing, serious concerns have been raised as to the
ability of the Company to remain in business during the next twelve
(12) months.
2. Development and Market Acceptance of New Products. The
Company's success and growth will depend upon the Company's ability to
improve and market its existing products and to successfully develop,
manufacture and market new products. The Company's success may depend
in part upon the market's acceptance of, and the Company's ability to
deliver and support its products. See "Business - Products."
3. Liquidity; Need for Additional Financing. The Company
believes that it will need additional cash during the next twelve
months. If the Company is unable to generate a positive cash flow
before its cash is depleted , it will be required to curtail operations
substantially, and seek additional capital. There is no assurance that
the Company will be able to obtain additional capital if required, if
capital is available, or to obtain it on terms favorable to the
Company. The Company is currently suffering from a lack of liquidity
that it believes will impair its short-term marketing and sales efforts
and adversely affect its results for the current quarter and until the
offering proceeds are received. Because of the need for additional
financing described above, the Company's auditors have issued a going
concern opinion. See "Financial Statements."
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4. Dependence Upon Suppliers. The Company relies on a number of
suppliers to provide certain raw materials for its products. The
interruption of certain sources of supply or the failure to adapt
materials to the Company's changing technological requirements could
disrupt the Company's ability to manufacture products or cause the
Company to incur costs associated with the development of alternative
sources, either of which could adversely affect the Company's financial
performance. See "Company - Manufacturing."
5. Technology Risk. All manufacturers, including the Company,
utilize different applications of known technology. Should a
competitor develop a technological breakthrough that cannot be adapted
to the Company's systems or develop a more effective application of
existing technology, the Company's products would be at risk of
becoming obsolete.
6. Competition. Most of the Company's competitors have
substantially greater financial, technical and marketing resources than
the Company. In addition, the Company's products compete indirectly
with numerous other products. As the market for the Company's products
expand, the Company expects that additional competition will emerge and
that existing competitors may commit more resources to those markets.
See "Business - Competition."
7. Product Defects. In the event any of the Company's products
prove defective, the Company may be required to redesign or recall
products. While the Company has not had a recall to date, a redesign
or recall could cause the Company to incur significant expenses,
disrupt sales and adversely affect the reputation of the Company and
its products, any one or a combination of which could have a material
adverse affect on the Company's financial performance.
8. Product Reliability; Warranty. The Company's products have
not been in service for a sufficient time to determine their
reliability. Failure of a substantial number of the Company's products
would result in severe damage to the Company's reputation and a large
warranty expense for the Company.
9. Patents and Trademarks. The Company presently holds certain
domestic patents and is attempting to expand its patent protection.
While the Company believes that patent rights are important and protect
the Company's proprietary rights in the patented technologies, there
can be no assurance that any pending patent application will ultimately
mature as an issued patent, or that any present or future patents of
the Company will prove valid or provide meaningful protection from
competitors. See "Business - Patents and Trademarks."
10. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its sole officer, John Schiavo, Jr., who exercises control over the day
to day affairs of the Company, and upon its Directors. See "Business"
and "Management."
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11. Issuance of Additional Shares. Approximately 83,524,693
shares of Common Stock or 83.52% of the 100,000,000 authorized shares
of Common Stock of the Company are unissued. The Board of Directors
has the power to issue such shares, subject to shareholder approval, in
some instances. Although the Company presently has no commitments,
contracts or intentions to issue any additional shares to other
persons, other than in the exercise of options and warrants, the
Company may in the future attempt to issue shares to acquire products,
equipment or properties, or for other corporate purposes. Any
additional issuance by the Company, from its authorized but unissued
shares, would have the effect of diluting the interest of existing
shareholders. See "Description of Securities."
12. Indemnification of Officers and Directors for Securities
Liabilities. The Company's Articles of Incorporation provide that the
Company will indemnify any Director, Officer, agent and/or employee as
to those liabilities and on those terms and conditions as are specified
in The Company Act of the Province of British Columbia. Further, the
Company may purchase and maintain insurance on behalf of any such
persons whether or not the corporation would have the power to
indemnify such person against the liability insured against. The
foregoing could result in substantial expenditures by the Company and
prevent any recovery from such Officers, Directors, agents and
employees for losses incurred by the Company as a result of their
actions. Further, the Company has been advised that in the opinion of
the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
13. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Shareholders may be further diluted in their percentage ownership of
the Company in the event additional shares are issued by the Company in
the future. Cumulative voting in the election of Directors is not
provided for. Accordingly, the holders of a majority of the shares of
Common Stock, present in person or by proxy, will be able to elect all
of the Company's Board of Directors. See "Description of the
Securities."
14. No Dividends Anticipated. At the present time the Company
does not anticipate paying dividends, cash or otherwise, on its Common
Stock in the foreseeable future. Future dividends will depend on
earnings, if any, of the Company, its financial requirements and other
factors. See "Dividend Policy."
15. Impact of Year 2000 Issue. The Company has reviewed its
internal computer systems and products and their capability of
recognizing the year 2000 and years thereafter. The Company expects
that any costs relating to ensuring such systems to be year 2000
compliant will not be material to the financial condition or results of
operations of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Selected Consolidated Financial Data
The selected financial data presented below has been derived from
the financial statements of the Company. The following table
summarizes certain financial information and should be read in
conjunction with "Plan of Operation" and the Financial Statements and
related notes included elsewhere in this Registration Statement. The
information shown below may not be indicative of the Company's future
results of operations.
Years Ended Six Months Ended
June 30, December 31,
1998 1997 1998 1997
(Unaudited)
[S] [C] [C] [C] [C]
Statement of Operations Data:
Operating Revenue $1,017,885 $1,737,322 $ 308,142 $ 496,237
Operating Expenses $1,581,716 $1,497,852 $ 569,992 $ 769,168
Net Income (Loss) from
operations $ (563,831) $ 239,470 $(261,850) $(272,931)
Basic and Diluted Net
Income (Loss) per Share
before extraordinary item $ (0.03) $ 0.01 $ (0.02) $ (0.02)
Balance Sheet Data:
Working Capital $ (433,416) $ 104,842 $(494,218) $(101,979)
Total Assets $ 372,604 $ 558,017 $ 265,282 $ 390,401
Stockholders' Equity
(Deficit) $ (293,716) $ 196,200 $(419,438) $ 11,171
ITEM 3. DESCRIPTION OF PROPERTIES.
The Company does not own any real property. The Company owns
personal property in the form of inventory, office equipment and
manufacturing equipment.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the Common Stock ownership of each
person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each director individually and
all officers and directors of the Company as a group. Each person has
sole voting and investment power with respect to the shares of Common
Stock shown, unless otherwise noted, and all ownership is of record and
beneficial.
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Name and Number of
address of owner Shares Position
John J. Schiavo[1][4] 747,722 Chairman of the Board
2395 Qume Drive and President
San Jose, CA 95131
Leonard N. Udell [2] 247,405 Member of the Board of
3570 Beach Drive Directors
Victoria, BC
Canada V8R 6M7
David P. Brown [3] 10,462 Member of the Board of
21125 43A Avenue Directors
Langley, BC
Canada V3A 8L8
All officers and 1,005,589
directors as a
group (3 persons)
Rose V. Schiavo [4][5] 2,200,000
[1] Does not include an options to purchase 585,000 additional shares
at an exercise price ranging from $0.15 per share to $0.21 per
share.
[2] Does not include an options to purchase 62,500 additional shares
at an exercise price of $0.15 per share.
[3] Does not include an option to purchase 30,000 additional shares at
an exercise price of $0.15 per share.
[4] Shares are held in the name of Schiavo Family Trust.
[5] Mrs. Schiavo is the mother of the President of the Company, John
J. Schiavo, Jr.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company are as follows:
Name Age Position
John J. Schiavo Jr. 51 Chairman of the Board of Directors
and President
Leonard N. Udell 72 Member of the Board of Directors
David P. Brown 69 Member of the Board of Directors
All directors hold office until the next annual meeting of
shareholders and until their successors have been elected and
qualified. The Company's officers are elected by the Board of
Directors at the annual meeting after each annual meeting of the
Company's shareholders and hold office until their death, or until they
resign or have been removed from office.
John J. Schiavo, Jr. - Chairman of the Board of Directors and
President.
Since April 1, 1995, Mr. Schiavo has been the President, Chief
Executive Officer and Chairman of the Board of Directors of the
Company. From July 1993 to April 1995, Mr. Schiavo was the Vice
President of Sales for the Company.
Leonard N. Udell - Member of the Board of Directors.
Since 1986 Mr. Udell has been a member of the Board of Directors.
Since 1993, Mr. Udell has been retired.
David P. Brown - Member of the Board of Directors.
Since January 1983, Mr. Brown has been a member of the Board of
Directors. Since January 1997, Mr. Brown has been an advisor to the
Office of the Premier, From June 1989 to December 1996, Mr. Brown was
the Advertising, Display and Events Manager for BC Hydro. BC Hydro is
in the business of generating and distributing electrical power.
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation.
The following table sets forth the compensation paid by the
Company during each of the last three fiscal years to its Chief
Executive Officer, and to the other four most highly compensated
officers and executive officers, but only if the total annual salary
and bonus of any such executive officer exceeded $100,000 for Fiscal
1998 (the "Named Executive Officers"). This information includes the
dollar value of base salaries, bonus awards and number of stock options
granted, and certain other compensation, if any.
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Summary Compensation Table.
Annual Compensation
-------------------
Principal Fiscal Year
Name Position Ending 6/30 Salary ($)
- ------------- --------- ---- ----------
John J. Schiavo President 1998 $ 118,245.97
1997 $ 168,295.68
1996 $ 104,498.07
There are no stock option, retirement, pension, or profit sharing
plans for the benefit of the Company's officers and directors.
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs"), and freestanding SARs were
made during Fiscal 1998 to the President or any executive officer.
No stock options were exercised by Mr. Schiavo in Fiscal 1998.
The Company currently has outstanding options held by officers,
directors and others to acquire a total of 2,546,000 shares of common
stock. The option exercise prices range from $0.15 to $0.32 per share.
Long-Term Incentive Plan Awards.
The Company does not have any long-term incentive plans that
provide compensation intended to serve as incentive for performance to
occur over a period longer than one fiscal year, whether such
performance is measured by reference to financial performance of the
Company or an affiliate, the Company's stock price, or any other
measure.
Compensation of Directors.
Directors do not receive any compensation for serving as members
of the Board of Directors. The Board has not implemented a plan to
award options, however, in the past, the Board of Directors has granted
options to its directors, officers and employees. There are no
contractual arrangements with any member of the Board of Directors.
The Company paid salaries to its officers for the fiscal year-
ended June 30, 1998, as follows:
Name of Officer Position Salary
John J. Schiavo President $118,245.97
These amounts were approved by the Board in recognition of the
work and efforts and in connection with the development of the Company.
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Further, the Board recognized the significant role of Mr. Schiavo
in managing the Company's principal office in San Jose, California.
Finally, the Board of Directors took into account the reasonableness of
these salaries in comparison with executive salaries within the
computer industry. On the basis of the above factors, the Board
determined that Mr. Schiavo's salary was proper and fitting. Mr.
Schiavo is the only officer of the Company.
The Board believes that the executive compensation during fiscal
1998 substantially reflects the Company's compensation policy and the
Board anticipates paying a like sum during the fiscal year 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 12, 1993, the Company purchased certain assets, including
accounts receivable, inventory, fixed assets and patents from J&S
Engineering in exchange for $1,000 and a 5% promissory note of
approximately $433,000. The note was satisfied with a portion being
written off.
In March 1994, the Company acquired all of the issued and
outstanding shares of common stock of Hytec Flow Systems, Inc., a
California corporation in consideration 19,250,050 shares of common
stock. The transaction was combination and was accounted for as a
reverse take-over. The shares so issued were assigned a value of
$728,147. In October 1995, 7,759,940 shares of common stock were
returned to the Company.
In March 1994, the Company issued 590,000 shares of common stock
to John Schiavo, Jr., the Company's President and Chairman of the Board
of Directors, in consideration of $200.00.
In 1994 the Company issued 200,000 shares of common stock to
Leonard Udell, a member of the Board of Directors, in consideration of
Mr. Udell forgiving a debt owed to him by the Company in the amount of
$40,000.
In March 1994, the Company issued 3,797,825 shares of common stock
to the Schiavo Family Trust in consideration of $1,000. Ms. Rose
Schiavo is the trustee of the Schiavo Family Trust and is the mother of
John Schiavo, Jr., the President of the Company.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and to its knowledge,
no action, suit or proceedings against it has been threatened by any
person, other than as listed below:
The Company has filed a suit entitled Hytec Flow Systems, Inc vs.
Airconcepts, Tarrant Parts, Compressor Parts Co., American
Hermetic, Turbex, in the Superior Court of Santa Clara County,
California, Case No. CV-764865. The suit claims that a compressor
failed while under warranty, causing property damage and loss of
use of the clean room. The suit names the manufacture,
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distributor, retailer and insurance company. The defendants have
refused to honor the warranty and the Company is suing to recover
damages and the repair of the equipment. The suit was set for
arbitration on February 17, 1999.
ITEM 9. MARKET PRICE FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
No market exists for the Company's securities and there is no
assurance that a regular trading market will develop, or if developed,
that it will be sustained. A shareholder in all likelihood, therefore,
will be unable to resell the securities referred to herein should he or
she desire to do so. Furthermore, it is unlikely that a lending
institution will accept the Company's securities as pledged collateral
for loans unless a regular trading market develops.
There are no plans, proposals, arrangements or understandings with
any person with regard to the development of a trading market in any of
the Company's securities. Public Securities, Inc, however, has filed
a Form 211 with the National Association of Securities Dealers, Inc.
(the "NASD") requesting that the Company's common stock be listed on
the Bulletin Board operated by the NASD. On January 4, 1999, the NASD
amended its rules regarding listing of securities for trading on the
Bulletin Board. Effective January 4, 1999, securities of corporations
will not be listed for trading on the Bulletin Board unless the
corporation files reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Accordingly, the Company's common
stock will not be listed for trading on the Bulletin Board until such
time as this registration statement is declared effective by the
Securities and Exchange Commission (the "Commission") and the Company
has satisfied all comments issued by the Commission.
As of February 16, 1999, the Company has 1,668 holders of record
of its Common Stock.
The Company has not paid any dividends since its inception and
does not anticipate paying any dividends on its Common Stock in the
foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has 16,475,307 shares of Common Stock issued and
outstanding as of February 16, 1999. Of the 16,475,307 shares of the
Company's Common Stock outstanding all of the shares are freely
tradeable with the exception of the shares owned by the Company's
officers, directors and the Schiavo Family Trust which can only be
resold in compliance with Reg. 144 adopted under the Securities Act of
1933 (the "Act") with the exception of the one (1) year holding period.
In August 1994, the Company sold 460,560 shares of common stock in
consideration of $276,336, in cash pursuant to Section 4(2) of the Act
and Sections 55(2)(4) and 55(2)(9) of the British Columbia Act
Securities Act (the "British Columbia Act"). No commissions were paid
to any persons in connection with such sales, no advertising of any
nature was made in connection with the sale of said shares and all
Company information was made available to said purchasers.
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Accordingly, the Company believes that the aforementioned transactions
were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
In March 1994, the Company sold 1,573,453 units in consideration
of $786,726.50 in cash, pursuant to Section 4(2) of the Act and Section
55(2)(4) of the British Columbia Act. Each unit consisted of one share
of common stock and one-half of a one year non-transferable warrant.
Each full warrant was exercisable to purchase one additional share of
common stock at a price of $0.75 per share for a period of one year.
No commissions were paid to any persons in connection with such sales,
no advertising of any nature was made in connection with the sale of
said shares and all Company information was made available to said
purchasers. The Company, however, did pay a finder's fee of $6,250.00
to Whitehead & Associates. Accordingly, the Company believes that the
aforementioned transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended. The warrants
have expired.
In January 1994, the Company sold 2,000,000 units in consideration
of $500,000 in cash, pursuant to Section 4(2) of the Act and Sections
55(2)(4) and 55(2)(9) of the British Columbia Act. Each unit consisted
of one share of common stock and one non-transferable two year warrant
to purchase up to one additional share of common stock at an exercise
price of $0.30 per share during the first year and $0.35 per share
during the second year. No commissions were paid to any persons in
connection with such sales, no advertising of any nature was made in
connection with the sale of said shares and all Company information was
made available to said purchasers. Accordingly, the Company believes
that the aforementioned transactions were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The warrants have expired.
In general, under Rule 144 as currently in effect a person (or
persons whose Shares are aggregated), who has beneficially owned Shares
privately acquired directly or indirectly from the Company or from an
affiliate, for at least one year, or who is an affiliate, is entitled
to sell within any three month period a number of such Shares that does
not exceed the greater of 1% of the then outstanding shares of the
Company's Common Stock or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks, immediately
preceding such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of
current public information about the Company. A person (or persons
whose Shares are aggregated) who is not deemed to have been an
affiliate at any time during the 90 day preceding a sale, and who has
beneficially owned Restricted Shares for at least two years, is
entitled to sell all such Shares under Rule 144 without regard to the
volume limitations, current public information requirements, manner of
sale provisions or notice requirements.
<PAGE> 15
ITEM 11. DESCRIPTION OF SECURITIES.
Common Stock
The authorized Common Stock of the Company consists of 100,000,000
shares of no par value Common Stock. 16,475,307 shares are issued and
outstanding. All shares have equal voting rights and are not
assessable. Voting rights are not cumulative and, therefore, the
holders of more than 50% of the Common Stock could, if they chose to do
so, elect all of the directors of the Company.
Upon liquidation, dissolution or winding up of the Company, the
assets of the Company, after the payment of liabilities, will be
distributed pro rata to the holders of the Common Stock. The holders
of the Common Stock do not have preemptive rights to subscribe for any
securities of the Company and have no right to require the Company to
redeem or purchase their shares. The shares of Common Stock presently
outstanding are fully paid and non-assessable.
Dividends
Holders of the Common Stock are entitled to share equally in
dividends when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefore. No dividend has
been paid on the Common Stock since inception, and none is contemplated
in the foreseeable future.
Warrants
The Company has outstanding, warrants to acquire 800,000 shares of
the Company's common stock. Each warrant permits the holder to acquire
one share of common stock at a price of $0.375 per share. The
foregoing warrants were issued to Wilden Pump & Engineering Company
pursuant to its Strategic Alliance Agreement dated May 14, 1997.
Wilden Pump & Engineering subsequently transferred the warrants to
shareholders and employees of Wilden Pump & Engineering. The foregoing
warrants were issued to Wilden Pump & Engineering in consideration of
Wilden Pump & Engineering canceling a note issued by the Company in the
amount of $204,136. The Strategic Alliance Agreement was terminated by
the parties in November 1998, however, the warrants remain issued,
outstanding and exercisable.
Transfer Agent
The Company's transfer agent is CIBC Mellon Trust Company, 1177
West Hastings Street, Mall Level, Vancouver, British Columbia, Canada
V6E 2K3 and its telephone number is (604) 891-3023.
<PAGE> 16
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company Act of British Columbia and certain provisions of the
Company's Articles of Incorporation under certain circumstances provide
for indemnification of the Company's Officers, Directors and
controlling persons against liabilities which they may incur in such
capacities. A summary of the circumstances in which such
indemnification is provided for is contained herein, but this
description is qualified in its entirety by reference to the Company's
Articles of Incorporation and to the statutory provisions.
In general, any Officer, Director, employee or agent may be
indemnified against expenses, fines, settlements or judgments arising
in connection with a legal proceeding to which such person is a party,
if that person's actions were in good faith, were believed to be in the
Company's best interest, and were not unlawful. Unless such person is
successful upon the merits in such an action, indemnification may be
awarded only after a determination by independent decision of the Board
of Directors, by legal counsel, or by a vote of the shareholders, that
the applicable standard of conduct was met by the person to be
indemnified.
The circumstances under which indemnification is granted in
connection with an action brought on behalf of the Company is generally
the same as those set forth above; however, with respect to such
actions, indemnification is granted only with respect to expenses
actually incurred in connection with the defense or settlement of the
action. In such actions, the person to be indemnified must have acted
in good faith and in a manner believed to have been in the Company's
best interest, and have not been adjudged liable for negligence or
misconduct.
<PAGE>
<PAGE> 17
ITEM 13. FINANCIAL STATEMENTS.
HYTEC FLOW SYSTEMS, INC.
JUNE 30, 1998
CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS . . F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1998 and 1997 . . . . . . . F-2
Consolidated Statements of Income (Loss)
For the Years Ended June 30, 1998 and 1997 . . . F-3
Consolidated Statements of Shareholders' Equity (Deficit)
For the Years Ended June 30, 1998 and 1997 . . . F-4
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1998 and 1997 . . . F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . F-6
<PAGE>
<PAGE> 18
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants
5000 Hopyard Road, Suite 335
Pleasanton, California 94588-3351
(925) 734-6600 FAX (925) 734-6611
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Hytec Flow Systems, Inc.
We have audited the accompanying consolidated balance sheets of Hytec
Flow Systems, Inc., (a British Columbia corporation) and subsidiary as
of June 30, 1998 and 1997, and the related consolidated statements of
income (loss), shareholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hytec Flow
Systems, Inc. and subsidiary as of June 30, 1998 and 1997, and the
results of its operations and its cash flows for the years then ended,
in accordance with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in Note #13
to the financial statements, the company incurred a net loss during the
year, which has raised substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters are
also described in Note #13. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ VAVRINEK, TRINE, DAY & CO., LLP
Pleasanton, California
December 10, 1998
<PAGE> 19
HYTEC FLOW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 46,515 $ 59,415
Accounts receivable, less allowance
for doubtful accounts of $25,829
in 1998 and $25,829 in 1997 68,552 242,774
Inventories 93,784 160,331
Other current assets 24,053 4,139
------------ ----------
Total current assets 232,904 466,659
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $27,604
in 1998 and $17,169 in 1997 85,944 64,857
OTHER ASSETS 53,756 26,501
------------ ----------
TOTAL ASSETS $ 372,604 $ 558,017
============ ==========
LIABILITY AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable to related parties 8,500 8,586
Notes payable to third parties 259,000 64,700
Leases payable 15,168
Accounts payable 246,671 116,811
Income taxes payable 15,763
Accrued compensation 52,450 41,873
Accrued interest 3,350 19,398
Accrued warranty expense 43,686 51,184
Other accrued expenses 37,495 43,502
------------ ----------
Total current liabilities 666,320 361,817
------------ ----------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value-authorize -
100,000,000 shares, 16,475,307
outstanding in 1998 and 1997 929,647 929,647
Warrants outstanding 80,880 80,880
Accumulated deficit (1,304,243) (814,327)
------------ ----------
Total shareholders' equity (deficit) (293,716) 196,200
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 372,604 $ 558,017
============ ==========
</TABLE>
Director /s/ John J. Schiavo, Jr.
Director /s/ David P. Brown
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 20
HYTEC FLOW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
REVENUE
Product $ 829,377 $ 1,534,328
Service 188,508 202,994
------------ ------------
Total revenue 1,017,885 1,737,322
------------ ------------
COST OF SALES
Product 665,727 736,908
Service 178,963 128,079
------------ ------------
Total cost of sales 844,690 864,987
------------ ------------
Gross profit 173,195 872,335
------------ ------------
SELLING, ENGINEERING, GENERAL
AND ADMINISTRATIVE EXPENSES 737,026 632,865
------------ ------------
Income (loss) from operations (563,831) 239,470
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (16,426) (27,078)
Other income (expense) 11,505 2,669
------------ ------------
Total other income (expense) (4,921) (24,409)
------------ ------------
Income (loss) before taxes
and extraordinary item (568,752) 215,061
EXTRAORDINARY GAIN - gain from
debt defeasance, net of taxes of
$0- in 1998, $12,267 in 1997 81,015 160,807
------------ ------------
Income (loss) before taxes (487,737) 375,868
PROVISION FOR TAXES 2,179 9,795
------------ ------------
NET INCOME (LOSS) $ (489,916) $ 366,073
============ ============
EARNINGS (LOSS) PER SHARE
Income (loss) before
extraordinary item $ (0.03) $ 0.01
============ ============
Net income (loss) $ (0.03) $ 0.02
============ ============
WEIGHTED AVERAGE SHARES 16,475,307 16,475,307
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements
F-3
<PAGE> 21
HYTEC FLOW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Retained
Common Stock Earnings
Shares Amount Warrants (Deficit) Total
<S> <C> <C> <C> <C> <C>
BALANCE AS OF
JUNE 30, 1996 16,475,307 $ 929,647 $ (1,180,400) $ (250,753)
Issuance of
800,000
warrants $ 80,880 80,880
Net income 366,073 366,073
---------- --------- -------- ------------ ----------
BALANCE AS OF
JUNE 30, 1997 16,475,307 929,647 80,880 (814,327) 196,200
Net loss (489,916) (489,916)
---------- --------- -------- ------------ ----------
BALANCE AS OF
JUNE 30, 1998 16,475,307 $ 929,647 $ 80,880 $ (1,304,243) $ (293,716)
========== ========= ======== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements
F-4
<PAGE> 22
HYTEC FLOW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (489,916) $ 366,073
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation 10,435 7,138
Extraordinary gain from debt
defeasance before taxes (81,015) (173,075)
Loss on asset 6,324
(Increase) decrease in
Accounts receivable 174,222 131,375
Inventories 66,547 (13,701)
Other current assets (19,914)
Other assets (27,255) (6,910)
Increase (decrease) in
Accounts payable 129,860 (73,005)
Income taxes payable (15,763) 15,763
Accrued liabilities (2,661) (82,090)
---------- ----------
Net cash provided by (used in)
operating activities (255,460) 177,892
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,351) (45,955)
---------- ----------
Net cash used by
investing activities (1,351) (45,955)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable to related
parties (43,586) (62,016)
Borrowings from notes payable to
related parties 43,500 26,086
Payments on capitalized leases (15,003)
Payments on notes payable to
third parties (37,237)
Borrowings from notes payable to
third parties 259,000
---------- ----------
Net cash provided (used) in
financing activities 243,911 (73,167)
---------- ----------
NET INCREASE (DECREASE) IN CASH (12,900) 58,770
CASH, Beginning of period 59,415 645
---------- ----------
CASH, End of period $ 46,515 $ 59,415
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE> 23
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #1 - ORGANIZATION AND OPERATIONS
Hytec Flow Systems, Inc., a British Columbia Corporation, (the
"Company"), through its wholly-owned subsidiary Hytec Flow Systems,
Inc. ("Hytec"), is engaged in the design, development, manufacture,
marketing and support of pumps and filter housings for fluid movement
and filtration of toxic and caustic fluids used primarily in the
electronics manufacturing industry. Hytec was incorporated on June
4, 1993, as a California corporation.
Reverse Take-Over and Organization
On March 11, 1994, the Company acquired all issued and outstanding
common shares of Hytec in exchange for 19,250,050 shares of the
Company's common stock. The business transaction and combination was
accounted for as a reverse take-over whereby Hytec was identified as
the acquiring entity under the purchase method of accounting and
obtained the controlling interest of the Company. As a result of
the reverse take-over, common stock in the accompanying financial
statements is equal to the capital of Hytec at the date of the
reverse take-over plus the fair market value of the Company's assets
and liabilities. However, the number of shares outstanding reflects
only the shares of the Company. The shares issued to effect the
reverse take-over have been assigned a value of $728,147 in the
accompanying financial statements.
NOTE #2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are expressed in U.S. dollars
and have been prepared in conformity with U.S. generally accepted
accounting principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiary, Hytec Flow Systems, Inc. All
material intercompany accounts and transactions have been eliminated.
F-6
<PAGE> 24
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . continued
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead. As of
June 30, 1998 and 1997, inventories consisted of the following:
1998 1997
Raw materials $ 29,016 $ 36,190
Work in progress 59,612 118,862
Packaging 5,156 5,279
-------- ---------
Total inventories $ 93,784 $ 160,331
======== =========
Property and Equipment
Property and equipment are carried at cost and are depreciated using
the straight-line method over estimated useful lives of three to
seven years. Amortization of leasehold improvements is provided on
the straight line method over useful lives of up to fifteen years.
Revenue Recognition
The Company recognizes revenues from product sales at the time the
products are shipped. Provisions are made at that time for estimated
warranty costs to be incurred. Service revenues are recognized upon
completion of the service.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual amounts could differ from those
estimates.
Concentrations of Credit Risk
The Company sells its products primarily to fabricators of
semiconductor manufacturing equipment. Accounts receivable are
generally unsecured. The Company grants credit to customers,
performs ongoing credit evaluations of its customers' financial
condition, and establishes an allowance for doubtful accounts based
upon factors surrounding the credit risks of specific customers,
historical trends, and other information. The Company maintains its
cash in bank deposit accounts at high quality financial institutions.
The balances, at times, may exceed federally insured limits. At June
30, 1998, the Company did not exceed the federally insured limit.
F-7
<PAGE> 25
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . continued
Foreign Currency Translation
The functional currency of Hytec is the U. S. dollar. The financial
statements of the Company are translated into U. S. dollars using the
current rate method. Net translation losses charged to income during
the year were immaterial.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
NOTE #3 - PROPERTY AND EQUIPMENT
The company's property and equipment consisted of the following:
1998 1997
Office equipment, computers and furnishings $ 36,151 $ 22,350
Production and related equipment 44,336 26,615
Leasehold improvements 33,061 33,061
--------- --------
113,548 82,026
Less accumulated depreciation (27,604) (17,169)
--------- --------
Net property and equipment $ 85,944 $ 64,857
========= ========
NOTE #4 - EXTRAORDINARY ITEM - INCOME FROM DEBT DEFEASANCE
The Company had a $64,700 note payable to a former consultant and
shareholder for services rendered. As of October 31, 1997, the
balance including accrued interest was $81,015. The Company had
filed suit against the former consultant alleging fraud, negligence
and breach of contract in performance of duties while acting in the
capacity of chief financial officer. On November 18, 1997, the
parties settled their dispute. The terms of the settlement were a
mutual release of all claims. The Company recorded an extraordinary
item representing the income from cancellation of the debt and
accrued interest in the amount of $81,015.
The income has not been reduced by an income tax provision because
the entire amount will be sheltered from federal taxes by net
operating loss carryforwards from prior years, and it is anticipated
that the amount will be sheltered from California taxes by current
operating losses.
F-8
<PAGE> 26
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #4 - EXTRAORDINARY ITEM - INCOME FROM DEBT DEFEASANCE . . .
continued
Also, included in the underlying debt that was acquired in the
purchase of J&S Engineering was an amount of $61,524 due to the
creditors of J&S Engineering that arose from the dismissal of a
Chapter 13 bankruptcy case from August 1992. The Company made a
payment to one creditor in November 1996 in the amount of $11,706 to
settle all claims. Upon advice from its legal counsel, the Company
believes that the remaining obligations arising from the Chapter 13
case became unenforceable and uncollectible as of August 31, 1996,
due to the provisions of the California Code which provides that any
action upon an obligation must be commenced within four years. As of
August 31, 1996, the Company accordingly removed from its balance
sheet $49,818 in notes payable and recognized income from debt
defeasance in the same amount.
The income has been reduced by an income tax provision in the amount
of $3,531 representing estimated taxes due to the State of California
associated with this event. For federal purposes, the entire amount
of additional income will be sheltered from federal income taxes by
the net operating loss carryforwards from prior years.
Note Payable to Distributor
As outlined in Note 11, in May 1997 modifications were made to the
Strategic Manufacturing and Marketing Alliance between the Company
and a major customer. Under the terms of the "Addendum Number Two",
the note payable to the customer in the amount of $204,136 was
canceled. The Company issued to the customer 800,000 warrants to
purchase Hytec stock at $.375 (US) per share. The warrants were
valued according to the Black-Scholes formula at $80,880. The
Company is therefore recognizing $123,256 of income from the
cancellation of the debt.
The income has been reduced by an income tax provision in the amount
of $8,736 representing estimated taxes due to the State of California
associated with this event. For federal purposes, the entire amount
of additional income will be sheltered from federal income taxes by
the net operating loss carryforwards from prior years.
F-9
<PAGE> 27
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #5 - INCOME TAXES
The Company accounts for income taxes by the deferral method. As of
June 30, the components of deferred income taxes are as follows:
1998 1997
Reserves for accounts receivable
and inventory $ 11,363 $ 18,820
Accrued liabilities 23,887 30,899
Net operating loss carry forwards 87,375 79,162
--------- ---------
Deferred tax asset 122,625 128,881
Valuation allowance (122,625) (128,881)
--------- ---------
Net deferred income tax asset - -
========= =========
Depreciation differences (1,379) -
--------- ---------
Net deferred income tax liability $ (1,379) $ -
========= =========
A valuation allowance has been provided for the entire deferred tax
asset due to uncertainties regarding its realizability.
As of June 30, 1998, the Company has net operating loss carry
forwards available to offset future Federal taxable income of
approximately $750,000. These carry forwards expire at various dates
through 2010. Additionally, prior to the reverse take-over, the
Company had generated net operating loss carry forwards for Canadian
tax reporting purposes of approximately $8,080,000. These net
operating loss carry forwards expire at various times through 2000.
The ability to utilize these net operating loss carry forwards is
significantly limited under Canadian tax rules.
The components of income tax expense for the year ended June 30, 1998
and 1997 were as follows:
1998 1997
Current $ 800 $ 9,795
Deferred 1,379
------- -------
$ 2,179 $ 9,795
======= =======
F-10
<PAGE> 28
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #6 - NOTES PAYABLE
The Company had the following notes payable outstanding as of June
30, 1998 and 1997:
1998 1997
Asset purchase note A $ 8,586
Note payable to consultant B 64,700
Note payable to distributor C $ 40,000
Note payable to distributor D $ 219,000
Note payable to officer E 8,500
--------- --------
$ 267,500 $ 73,286
========= ========
A. Asset Purchase Note
On July 12, 1993, Hytec purchased certain assets (including accounts
receivable, inventory, fixed assets and patents) of J&S Engineering
in exchange for $1,000 of cash and a 5% promissory note of
approximately $433,000 due January 1, 1994. The owner of J&S
Engineering and his family members were significant shareholders of
Hytec prior to the acquisition.
By November 1996, the note balance stood at $26,086, which
represented the balance due to one remaining creditor of J&S
Engineering, the Internal Revenue Service. In November 1996, the
Company borrowed an amount equal to the Internal Revenue Service
balance from an individual related to the Company's president. The
Company paid the Internal Revenue Service in full and executed a note
payable to the individual. The note bears interest at a rate of 12%
per annum until paid, with payments to be made in no more than twelve
monthly installments.
As of June 30, 1998, and 1997 the balances were $0 and $8,586,
respectively.
B. Note Payable to Consultant
The Company has a $64,700 secured note payable to a former consultant
and shareholder for services rendered. The note is due July 5, 1996,
and bears interest at 10% per annum. Principal repayment was due
monthly beginning July 1, 1995, contingent upon the Company
maintaining a minimum cash balance of $100,000 at the end of the
month. No payments were made to this note holder subsequent to June
30, 1995.
F-11
<PAGE> 29
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #6 - NOTES PAYABLE . . . continued
The Company has disputed this note and entered into a mutual release
agreement dated November 18, 1997, releasing both parties from any
liabilities.
C. Note Payable to Distributor
The Company has a note payable to Wilden Pump & Engineering Co. in
the amount of $40,000 with an interest rate of 10.5% per annum. The
note is unsecured and due on demand or November 11, 1998, whichever
should occur first. Payments of interest only are due each month in
the amount of $350. See note #14.
D. Note Payable to Distributor
On January 29, 1998, the Company entered into another loan agreement
with Wilden Pump & Engineering Co. The agreement allows the Company
to borrow up to $340,000, at an interest rate of 10%. Accrued
interest is payable monthly, and the balance of all principal and
interest are due upon demand or December 31, 1998, whichever should
occur first. This note is secured by the Company's equipment and
patents. The balance as of June 30, 1998 was $219,000. See note
#14.
E. Note Payable to Officer
The Company borrowed $43,500 from its President in April 1998.
During the fiscal year ended June 30, 1998, the company repaid
$35,000 of this loan leaving a balance due of $8,500. The loan
agreement executed on March 23, 1998, provides for interest payments
of prime plus 2% per annum. The loan is due on demand.
NOTE #7 - CAPITAL LEASES
The Company entered into three new long-term capital leases during
the year. The first lease with Norwest Financial Leasing Inc., was
for a front display unit valued at $4,035. Twelve monthly payments
of $364 are due on this lease. The second lease with WINR Business
Credit, dated April 22, 1998 was for office furniture, including
dividers, desks and chairs valued at $5,962. Twelve monthly payments
of $535 are due on this lease. The third lease with Sealed Air
Company, dated May 21, 1998, was for a speedy packer benchtop system
with pumps valued at $14,744. Twelve quarterly payments of $1,228
are due on this lease.
F-12
<PAGE> 30
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #7 - CAPITAL LEASES . . . continued
The following is a schedule of future minimum rental payments
required under the above leases as of June 30, 1998:
Year Ending
June Amount
1999 $ 11,554
2000 4,916
2001 3,686
Lease payments on these three leases and one other lease paid off
this year amounted to $8,082 in 1998.
NOTE #8 - COMMON STOCK
As part of the reverse take-over of the Company by Hytec in a stock
for stock exchange, Hytec shareholders were issued 8,000,000
performance escrow shares. In October 1995, as part of a settlement
agreement with the then President and Chief Financial Officer,
shareholders holding 7,759,940 performance escrow shares agreed to
return them to the treasury. The shares were cancelled October 13,
1995.
As of June 30, 1998, a balance of 240,060 performance shares remain
in escrow.
Stock Options
On March 11, 1998, the Company approved the issuance of incentive
stock options to its employees. The options are to purchase 598,500
common shares of the Company at an exercise price of $0.21 per share,
exercisable on or before March 11, 2003. This issuance was approved
by the Vancouver Stock Exchange on April 24, 1998.
On November 5, 1997, the Company approved the issuance of incentive
stock options to an employee and a consultant who is acting as a
sales manager for the Company. The options are to purchase a total
of 250,000 common shares of the Company at an exercise price of $0.22
per share, exercisable on or before November 5, 2002. This issuance
was approved by the Vancouver Stock Exchange on February 10, 1998.
As of June 30, 1998, 200,000 options were outstanding.
F-13
<PAGE> 31
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #8 - COMMON STOCK . . . continued
The Company had the following issues of stock options outstanding as
of June 30, 1998.
Date
Through
Exercise which
Number price options
of share per share can be
Issue Date Options (Cdn$) exercised
Prior to June 30, 1995 1,405,000 $ 0.15 June 3, 1999
December 31, 1995 242,500 $ 0.15 December 21, 2000
May 31, 1996 100,000 $ 0.32 May 31, 2001
November 5, 1997 200,000 $ 0.22 November 5, 2002
March 11, 1998 598,000 $ 0.21 March 11, 2003
As of June 30, 1998, no options have been exercised.
Warrants
In June 1997, the Company issued 800,000 common share purchase
warrants to Wilden Pump & Engineering Company in conjunction with the
"Addendum Number Two," to the Strategic Alliance Agreement between
the two companies. Each warrant permits the holder to acquire one
common share at a price of $.375 (US) per share. The fair value of
each warrant was estimated on the date of the agreement using the
Black-Scholes option pricing model with the following assumptions:
interest rate of 7%; life of 4 years; zero dividend yield, and
volatility of 37.65%.
As of September 30, 1997, the Company approved Wilden's request to
transfer the warrants to the shareholders and employees of Wilden
Pump and Engineering Company.
NOTE #9 - EARNINGS PER SHARE
Basic earnings per share
The earnings per share were calculated using the weighted monthly
average number of shares outstanding during the respective fiscal
years.
F-14
<PAGE> 32
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #9 - EARNINGS PER SHARE . . . continued
Fully diluted earnings per share
If it were assumed that all of the stock options outstanding at June
30, 1998 and 1997 had been converted into common shares at July 1,
1997 and 1996 or their issue date, whichever was later, the earnings
per share for the years ended June 30, 1998 and 1997 would have been:
1998 1997
Income before extraordinary item $ (0.03) $ 0.01
======= ======
Net income $ (0.03) $ 0.02
======= ======
For the purposes of calculating the fully diluted earnings per share
figures, the rate of return used for imputing earnings on the funds
derived from the exercise of the options was 6%. No provision for
taxes was calculated because of the availability of net operating
loss carryforwards.
NOTE #10 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $32,474 and $50,175 in 1998 and 1997
respectively. Cash paid for taxes was $15,526 and $4,300 in 1998 and
1997 respectively.
Non cash transactions
For the year ended June 30, 1998, the Company acquired additions to
equipment, office furniture and to its display booth totaling $30,171
through capital leases.
For the year ended June 30, 1997, the Company acquired demonstration
benches, built by one of its customers as payment for delinquent
account receivable in the amount of $12,470. Also for this year, the
Company issued 800,000 warrants to purchase Hytec stock at a price of
$.375 (US) to a major distributor and creditor in exchange for the
cancellation of a note payable to the creditor in the amount of
$204,136.
NOTE #11 - COMMITMENTS AND CONTINGENCIES
Strategic Marketing Alliance with major distributor
In May 1997, as part of the "Addendum Number Two" to the Strategic
Manufacturing and Marketing Alliance agreement with a major customer
and distributor, a note payable to the customer in the amount of
$204,136 was cancelled, and the Company issued to the customer
800,000 warrants to purchase Hytec stock at $.375 (US) per share. In
conjunction with these clauses, the following commitments were agreed
to:
F-15
<PAGE> 33
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #11 - COMMITMENTS AND CONTINGENCIES . . . continued
1. The customer returned to Hytec on consignment, pump inventory
valued at $142,379. Hytec has agreed to sell the pumps for the
distributor and to remit to the distributor the net sales
proceeds as they are sold. According to the agreement, any
pumps remaining on hand as of December 31, 1998 were to be
repurchased by Hytec. As of January 15, 1998, the parties have
agreed to amend this Date to December 31, 1999. As of June 30,
1998, the value of the consigned inventory remaining on hand was
$123,822.
2. The customer agreed to a revised purchase commitment of Hytec's
Generation II pumps totaling $840,000 for the period July 1,
1997 through December 31, 1998. The purchase commitment for the
year ended June 30, 1998, was $450,000, and orders have been
received fulfilling that requirement through June 30, 1998.
3. The customer will retain exclusive sales and marketing rights to
Hytec's line of pumps. Hytec will be the customer's authorized
distributor for Northern California.
Subsequent to the balance sheet date, the parties agreed to amend the
alliance again. The major terms of the "Addendum Number Three",
signed after June 30, 1998, are as follows:
1. The customer will make no further loans to the Company.
2. The Company will waive all purchase requirements by the customer
for the months of September, October, November, and December
1998. The Company will pay $109,000 plus interest to the
customer by December 31, 1998 in full satisfaction of the
$259,000 loan balance.
3. Any of the customer's inventory held or carried over by the
Company as of December 31, 1999 will be purchased by the Company
at a previously agreed upon amount.
4. The Company will remain liable to fill the customer orders for
the Gen II pumps for which the Company has already received
payment in the amount of $44,484.
See Note #14 for subsequent event.
Royalty and Patent Dispute
The Company settled a dispute with the consulting firm that worked on
the development of the Company's in-line heater. The consulting firm
assigned patent rights to Hytec in return for a royalty on sales of
the in-line heater. However, the patent was not granted and Hytec
believes that the royalty is not owed. The parties have reached a
settlement effective July 16, 1998 in which Hytec agreed to pay the
sum of $25,000 to the consulting firm.
F-16
<PAGE> 34
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #11 - COMMITMENTS AND CONTINGENCIES . . . continued
Facilities Operating Lease
The company has entered into a long term facilities lease expiring
November 30, 1999, with a five year renewal option. Hytec has
exercised its option to renew through November 30, 2004, but the
parties have not agreed on the amount of the monthly rent during the
renewal period. Hytec and the landlord will come to an agreement
regarding the rent to be paid during 1999 and 2000 or submit to
binding arbitration. Rent for 2001 through 2004 is subject to an
escalator clause. A dispute between Hytec and the landlord regarding
repairs to the building was settled in November 1997, with the
landlord agreeing to make repairs, and with Hytec being required to
pay additional rent during 1998 at the rate of $1,006 per month
representing interest, attorney fees and court costs incurred by the
landlord. Current expense for the lease, including the rent required
by the settlement was $111,600 and $98,700 for the years ended June
30, 1998 and 1997 respectively.
Future minimum lease payments for the initial lease term are as
follows:
June 30, 1999 $ 135,636
June 30, 2000 129,600
June 30, 2001 129,600
June 30, 2002 129,600
After 2002 313,200
---------
$ 837,636
=========
F-17
<PAGE> 35
HYTEC FLOW SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #12 - SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION
The following details the operating expenses of the Company for the
years ended June 30, 1998 and 1997:
1998 1997
Cost of sales
Materials $ 198,370 $ 276,816
Labor, overhead and other 646,320 588,171
--------- ---------
Total cost of sales $ 844,690 $ 864,987
========= =========
Sales and Marketing Expenses
Labor and related benefits 303,663 277,685
Services, supplies and
equipment related 10,232 10,789
Facilities and related 22,307 9,754
Travel and miscellaneous 117,547 61,654
--------- ---------
Total sales and marketing expenses 453,749 359,882
--------- ---------
Engineering Expenses
Labor and related benefits 30,590 23,279
Service, supplies and
equipment related 25,886 16,869
Facilities and related 5,070 4,336
Travel and miscellaneous 5,653
--------- ---------
Total engineering expenses 61,546 50,137
--------- ---------
General and Administrative Expenses
Labor and related benefits 39,052 58,238
Service, supplies and
equipment related 4,935 9,683
Facilities and related 84,772 101,300
Travel and miscellaneous 92,972 53,625
--------- ---------
Total general and
administrative expenses 221,731 222,846
--------- ---------
Total selling, engineering,
general and administrative expenses $ 737,026 $ 632,865
========= =========
F-18
<PAGE> 36
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #13-GOING CONCERN
During the fiscal year ended June 30, 1998, the Company had a net
loss of $489,916 which reduces the stockholder's equity to a deficit
of $293,716. In addition, assets have decreased by $185,413 and
liabilities have increased by $304,503.
The Company's plans to reverse its deficit spending and improve
assets to liability ratios includes refinancing equipment, and
negotiating financing to obtain a NASDAQ listing. This will allow
the Company to obtain equity financing to recapitalize the Company
for future growth and profitability in anticipation of an upturn in
the semiconductor industry.
NOTE #14-SUBSEQUENT EVENT
The Company owes a distributor $259,000 as of June 30, 1998. The
Company has a Strategic Alliance with the distributor and has entered
into a modification of the original agreement. In exchange for
releasing the distributor from purchase requirements of Hytec
products from September to December 1998, the distributor will accept
payment of $109,00 plus interest as payment in full of the
outstanding loan balance. Interest accrues at the rate of prime plus
2% per annum of the balance of $109,000, if the $109,000 plus
interest is paid by December 31, 1998. If the $109,000 plus interest
is not paid in full by December 31, 1998 then interest accrues at
prime plus 2% per annum on the full $259,000 balance.
NOTE #15-EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITOR (UNAUDITED)
On October 20, 1998, the Company entered into a new loan agreement
with an unrelated loan company. The new loan is in the amount of
$159,500, and is to be repaid in 23 monthly installments of $7,453,
including interest at prime plus 3% per annum, with all remaining
principal and interest due October 2000. The loan is secured by the
Company's equipment and patents. In October 1998, the Company, using
the proceeds of this new loan, paid $109,000 plus accrued interest of
$1,653 to its former distributor in full satisfaction of loans
totaling $259,000. Accordingly, in the second quarter, the Company
will recognize debt forgiveness income of $150,000 as a result of
this transaction.
In accordance with the amendment to the strategic manufacturing and
marketing alliance agreement with a major customer (see note #11),
the major customer on January 28, 1999 placed the order for $44,484
of Gen II pumps giving Hytec the standard 4 to 6 weeks for delivery.
In January 1999, the Company obtained new financing in the form of a
loan in the amount of $150,000 from an employee who is related to the
President. The loan carries interest at the same rate at which the
employee is paying interest to an outside bank, currently 8.74% p.a.
The note is due on demand.
F-19
<PAGE> 37
HYTEC FLOW SYSTEMS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE #16-YEAR 2000
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.
F-20
<PAGE> 38
Independent Public Accountants
The interim consolidated balance sheets as of December 31, 1998 and
1997 and the interim consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the six months
period ended December 31, 1998 and 1997, incorporated by reference in
this registration, include the report of Cowden & Lippman, CPAs,
independent public accountants.
Cowden & Lippman did not audit the interim financial information and
they do not an express an opinion on it. They have reported that
they have only applied limited procedures in accordance with
professional standards for a review of such information.
Accordingly, the degree of reliance on their report should be
restricted in light of the limited nature of the review procedures
applied. The accountants are not subject to the liability provision
of section 11 of the Securities Act of 1933 for their report on the
interim financial information because that report is not a "report"
or a "part" of the registration statement prepared or certified by
the accountants within the meaning of section 7 and 11 of the act.
<PAGE> 39
HYTEC FLOW SYSTEMS, INC.
December 31, 1998 and 1997
CONTENTS
PAGE
Report of Certified Public Accountants . . . . F-1
Financial Statements
Consolidated Balance Sheets
As of December 31, 1998 and 1997 . . . . F-2
Consolidated Statements of Operations
For the Three Months Ended December
31, 1998 and 1997 . . . . . . . F-3
Consolidated Statements of Operations
For the Six Months Ended December 31,
1998 and 1997 . . . . . . . . F-4
Consolidated Statements of Shareholders'
Equity (Deficit) For the Six Months
Ended December 31, 1998 and 1997 . . . . F-5
Consolidated Statements of Cash Flows
For the Three Months and Six Months Ended
December 31, 1998 and 1997 . . . . . F-6
Notes to Financial Statements . . . . . . F-7
Supplementary Information
Consolidated Schedule of Expenses
For the Three Months Ended December
31, 1998 and 1997 . . . . . . . S-1
Consolidated Schedule of Expenses
For the Six Months Ended December
31, 1998 and 1997 . . . . . . . S-2
<PAGE> 40
Cowden Lippman
Certified Public Accountants
2185 North California Blvd., Suite 270
Walnut Creek, California 94596-3566
Fax (925) 930-9839 Phone (925) 930-0440
February 5, 1999
To the Board of Directors
HYTEC FLOW SYSTEMS, INC.
We have reviewed the accompanying consolidated balance sheets of
Hytec Flow Systems, Inc. (a British Columbia corporation) and
subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, retained earnings (deficit) and
cash flows for the three and six months then ended, in accordance
with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
All information included in these financial statements is the
representation of the management of Hytec Flow Systems, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an examination in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements in order for them to be in conformity with generally
accepted accounting principles.
Our review was made for the purpose of expressing limited
assurance that there are no material modifications that should be
made to the financial statements in order for them to be in
conformity with generally accepted accounting principles. The
information included in the accompanying supplementary schedules of
expenses is presented only for supplementary analysis purposes. Such
information has been subjected to the inquiry and analytical
procedures applied in the review of the basic financial statements,
and we are not aware of any material modifications that should be
made thereto.
The accompanying financial statements have been prepared
assuming that the company will continue as a going concern. As
discussed in Note 12 to the financial statements, the company has
been incurring losses, which have raised substantial doubt about its
ability to continue as a going concern. Management's plans regarding
those matters are described in Note 12. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Cowden & Lippman CPAs
Certified Public Accountants
F-1
<PAGE> 41
HYTEC FLOW SYSTEMS, INC
Consolidated Balance Sheets
As of December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash $ 338 $ 4,485
Accounts receivable, less allowance
for doubtful accounts of $12,517 in
1998 and $25,829 in 1997 21,422 139,130
Inventories 68,629 116,537
Other current assets 15,108 17,099
----------- -----------
Total current assets 105,497 277,251
Property and equipment, net of
accumulated depreciation of $34,568
in 1998 and $22,007 in 1997 79,334 66,556
Other assets 80,451 46,594
----------- -----------
Total assets $ 265,282 $ 390,401
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable 150,759 40,586
Current maturities of capital leases 4,964 3,308
Account payable 281,892 205,836
Payroll and related accruals 73,906 45,904
Accrued interest 2,672 3,110
Accrued warranty expense 34,346 41,897
Other accrued expenses 51,176 38,589
----------- -----------
Total current liabilities 599,715 379,230
Long term liabilities:
Notes payable, net of current maturities 77,702 -
Capital leases, net of current maturities 5,003 -
Deferred taxes 2,300 -
----------- -----------
Total liabilities 684,720 379,230
----------- -----------
Shareholders' equity (deficit)
Common stock, no par value-authorized -
100,000,000 shares, 16,475,307 issued
and outstanding 929,647 929,647
Warrants outstanding 80,880 80,880
Accumulated deficit (1,429,965) (999,356)
----------- -----------
Total shareholders' equity (deficit) (419,438) 11,171
----------- -----------
Total liabilities and
shareholders' equity $ 265,282 $ 390,401
=========== ===========
</TABLE>
Director /s/ John J. Schiavo, Jr.
Director /s/ David P. Brown
See notes to financial statements and report of independent
accountants.
F-2
<PAGE> 42
HYTEC FLOW SYSTEMS, INC.
Consolidated Statements of Operations
For the Three Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1998 December 31, 1997
<S> <C> <C>
Revenue:
Product $ 47,037 $ 215,115
Service 20,490 76,345
------------ ------------
Total revenue 67,527 219,460
------------ ------------
Cost of Sales:
Product 88,644 193,270
Service 32,428 67,992
------------ ------------
Total cost of sales 121,072 261,262
------------ ------------
Gross profit (loss) (53,545) 30,198
Selling, engineering, general
and administrative expenses 125,753 189,182
------------ ------------
Loss from operations (179,298) (158,984)
Other income (expense)
Interest expense (6,888) (1,864)
Miscellaneous income (expense) (29) 5,678
------------ ------------
Total other income (expense) (6,917) 3,814
------------ ------------
Loss before taxes and
extraordinary item (186,215) (155,170)
Extraordinary gain from debt
cancellation (net of taxes of
($0 in 1998 and 1997) 150,000 81,015
------------ ------------
Loss before taxes (36,215) (74,155)
Provision for taxes 1,400 -
------------ ------------
Net loss $ (37,615) $ (74,155)
============ ============
Earnings per share
Loss before extraordinary $ (.01) $ (.01)
item ============ ============
Net loss $ (.00) $ (.00)
============ ============
Weighted average shares 16,475,307 16,475,307
============ ============
</TABLE>
See notes to financial statements and report of independent
accountants.
F-3
<PAGE> 43
HYTEC FLOW SYSTEMS, INC.
Consolidated Statements of Operations
For the Six Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, 1998 December 31, 1997
<S> <C> <C>
Revenue:
Product $ 257,566 $ 383,439
Service 50,576 112,798
------------ ------------
Total revenue 308,142 496,237
------------ ------------
Cost of Sales:
Product 191,304 308,987
Service 70,615 100,703
------------ ------------
Total cost of sales 261,919 409,690
------------ ------------
Gross profit (loss) 46,223 86,547
Selling, engineering, general
and administrative expenses 308,073 359,478
------------ ------------
Loss from operations (261,850) (272,931)
Other income (expense)
Interest expense (15,093) (3,954)
Miscellaneous income (expense) 2,942 11,641
------------ ------------
Total other income (expense) (12,151) 7,687
------------ ------------
Loss before taxes and
extraordinary item (274,001) (265,244)
Extraordinary gain from debt
cancellation (net of taxes of
($0 in 1998 and 1997) 150,000 81,015
------------ ------------
Loss before taxes (124,001) (184,229)
Provision for taxes 1,721 800
------------ ------------
Net loss $ (125,722) $ (185,029)
============ ============
Earnings per share
Loss before extraordinary
item $ (.02) $ (.02)
============ ============
Net loss $ (.01) $ (.01)
============ ============
Weighted average shares 16,475,307 16,475,307
============ ============
</TABLE>
See notes to financial statements and report of independent
accountants.
F-4
<PAGE> 44
HYTEC FLOW SYSTEMS, INC.
Consolidated Statements of Shareholders' Equity (Deficit)
For the Six Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Retained
Common Stock Earnings
Shares Amount Warrants (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balances as of
June 30, 1997 16,475,307 $ 929,647 $ 80,880 $ (814,327) $ 196,200
Net loss
07/01/97 to
12/31/97 (185,029) (185,029)
---------- --------- -------- ------------ ---------
Balances as of
12/31/97 16,475,307 929,647 80,880 (999,356) 11,171
Net loss,
01/01/98
to 06/30/98 (304,887) (304,887)
---------- --------- -------- ------------ ---------
Balances as of
June 30, 1998 16,475,307 929,647 80,880 (1,304,243) (293,716)
Net loss,
07/01/98 to
12/31/98 - - - (125,722) (125,722)
---------- --------- -------- ------------ ---------
Balances as of
12/31/98 16,475,307 $ 929,647 $ 80,880 $ (1,429,965) $(419,438)
========== ========= ======== ============ =========
</TABLE>
See notes to financial statements and report of independent
accountants.
F-5
<PAGE> 45
HYTEC FLOW SYSTEMS, INC.
Consolidated Statements of Cash Flows
For the Three and Six Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
12/31/98 12/31/97 12/31/98 12/31/97
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net Loss $ (37,615) $ (74,155) $ (125,722) $ (185,029)
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and amortization 3,795 2,742 7,699 5,351
Bad debt adjustment to allowance - - 13,311 -
Extraordinary gain from debt
cancellation before taxes (150,000) (81,015) (150,000) (81,015)
(Increase) decrease in
Accounts receivable 43,876 29,994 33,819 103,644
Inventories 37,458 71,726 25,155 43,794
Other current assets 5,554 (7,304) 8,945 (12,969)
Increase (decrease) in
Accounts payable (25,005) 61,118 35,221 89,025
Payroll and related accruals 12,942 (4,735) 21,456 4,031
Deferred taxes 1,400 - 921 -
Accrued liabilities 35,298 (1,725) 5,042 (27,750)
---------- --------- ---------- ----------
Net cash use by operating
activities (72,297) (3,354) (124,153) (60,918)
---------- --------- ---------- ----------
Cash flow for investing activities:
Purchase of property and equipment - (423) (354) (2,502)
Patent costs incurred - (6,456) (27,430) (20,596)
---------- --------- ---------- ----------
Net cash used by investing
activities - (6,879) (27,784) (23,098)
---------- --------- ---------- ----------
Cash flows from financing activities:
Proceeds from short term debt 186,057 - 226,058 40,000
Payments on short term debt (115,097) (2,000) (115,097) (8,000)
Payments on capitalized leases (2,276) (1,101) (5,201) (2,914)
---------- --------- ---------- ----------
Net cash provided (used) by
financing activities 68,684 (3,101) 105,760 29,086
---------- --------- ---------- ---------
Net decrease in cash (3,613) (13,334) (46,177) (54,930)
Cash balance,
beginning of period 3,951 17,819 46,515 59,415
---------- --------- ---------- ----------
Cash balance, December 31 $ 338 $ 4,485 $ 338 $ 4,485
========== ========= ========== ==========
</TABLE>
See notes to financial statements and report of independent
accountants.
F-6
<PAGE> 46
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Note 1 - Organization and Operations
Hytec Flow Systems, Inc. ("the Company"), (a British Columbia
corporation), through its wholly-owned subsidiary Hytec Flow Systems,
Inc. ("Hytec") (a California corporation), is engaged in the design,
development, manufacture, marketing and support of pumps and filter
housings for fluid movement and filtration of toxic and caustic fluids
used primarily in the electronics manufacturing industry throughout the
United States and overseas. In September 1998, the Company terminated
its relationship with a distributor who had an exclusive right to sell
the Company's line of pumps, although the Company had been acting as an
authorized distributor in Northern California. Pump sales to this
distributor represented 39% and 34% of revenue for the six months ended
December 31, 1998 and 1997 respectively.
Reverse Take-Over and Organization
On March 11, 1994, the Company acquired all issued and outstanding
common shares of Hytec in exchange for 19,250,050 shares of the
Company's common stock. The business transaction and combination was
accounted for as a reverse take-over whereby Hytec was identified as
the acquiring entity under the purchase method of accounting and
obtained the controlling interest of the Company. As a result of the
reverse take-over, common stock in the accompanying financial
statements is equal to the capital of Hytec at the date of the reverse
take-over plus the fair market value of the Company's assets and
liabilities at that date.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are expressed in U. S. dollars
and have been prepared in conformity with generally accepted accounting
principles ("GAAP").
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiary, Hytec Flow Systems, Inc. All
significant intercompany accounts and transactions have been
eliminated.
See report of independent accountants.
F-7
<PAGE> 47
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead. As of
December 31, 1998 and 1997, inventories consisted of the following:
1998 1997
Raw materials $ 16,586 $ 38,094
Work in progress 52,043 78,443
Finished goods - -
-------- ---------
Total inventories $ 68,629 $ 116,537
Property and Equipment
Property and equipment are carried at cost and are depreciated using
the straight-line method over estimated useful lives of three to seven
years. Amortization of leasehold improvements is provided on the
straight line method over useful lives of up to fifteen years.
Intangible Assets
The Company capitalizes costs associated with the acquisition of
patents on its products. Amortization is recorded on a straight line
basis over the life of the patent, starting when the patent is issued.
The Company owns a patent on a high temperature pump that was acquired
in the purchase of J&S Engineering in 1993. The patent has no book
value but was appraised in 1993 at a value of $2,200,000 to $2,500,000.
Revenue Recognition
The Company recognizes revenues from product sales at the time the
products are shipped. Provisions are made at that time for estimated
warranty costs to be incurred. Service revenues are recognized upon
completion of the service.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual amounts could differ from those
estimates.
See report of independent accountants.
F-8
<PAGE> 48
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Concentrations of Credit Risk
The Company sells its products primarily to fabricators of
semiconductor manufacturing equipment. Accounts receivable are
generally unsecured. The Company grants credit to customers, performs
ongoing credit evaluations of its customers' financial condition, and
establishes an allowance for doubtful accounts based upon factors
surrounding the credit risks of specific customers, historical trends,
and other information.
Foreign Currency Translation
The functional currency of the Company is the U. S. dollar. The
financial statements of the Company are translated into U. S. dollars
using the current rate method. Net translation losses charged to
income during the year were immaterial.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Note 3 - Property and Equipment
The company's property and equipment consisted of the following:
1998 1997
Office equipment $ 11,096 $ 11,096
Computers 15,107 13,756
Production and related equipment 34,367 26,615
Equipment under capital leases 20,271 4,035
Leasehold improvements 33,061 33,061
--------- ---------
113,902 88,563
Less accumulated depreciation (34,568) (22,007)
--------- ---------
Net property and equipment $ 79,334 $ 66,556
========= =========
Amortization of leased equipment is included in depreciation expense
which was $6,964 and $4,838 at December 31, 1998 and 1997 respectively.
In addition to the above, the Company owns equipment with an estimated
current value of $400,000. This equipment was acquired with the
purchase of J&S Engineering in 1993, and has no book value. As of
December 31, 1998, all of the above equipment and the Company's patents
have been used as collateral to secure a note payable to a bank
creditor.
See report of independent accountants.
F-9
<PAGE> 49
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
The Company owns patents on its pump and filter housing. Amortization
of patents for the six months ended December 31, 1998 and 1997 was $626
and $31 respectively.
Note 4 - Extraordinary Item - Income from Debt Cancellation
Note payable - distributor:
The Company had a note payable to a distributor in the amount of
$259,000. In October 1998, the Company terminated its distribution
agreement with the distributor, and as part of the settlement
agreement, paid $109,000 plus accrued interest of $1,653 in full
satisfaction of the loan. The Company recorded an extraordinary item
representing income from cancellation of debt in the amount of
$150,000.
The income has not been reduced by an income tax provision because the
entire amount will be sheltered from federal and California taxes by
current losses and net operating loss carryforwards from prior years.
Note payable - consultant:
The Company had a $64,700 note payable to a former consultant and
shareholder for services rendered. As of October 31, 1997, the balance
including accrued interest was $81,015. The Company had filed suit
against the former consultant alleging fraud, negligence and breach of
contract in performance of duties while acting in the capacity of chief
financial officer. On November 18, 1997, the parties settled their
dispute. The terms of the settlement was a mutual release of all
claims. The Company recorded an extraordinary item representing the
income from cancellation of the debt and accrued interest in the amount
of $81,015.
The income was not reduced by an income tax provision because the
entire amount was sheltered from federal taxes by net operating loss
carryforwards from prior years, and from California taxes by current
operating losses.
See report of independent accountants.
F-10
<PAGE> 50
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Note 5 - Income Taxes
The Company accounts for income taxes by the deferral method. As of
December 31, the components of deferred income taxes were as follows:
1998 1997
Reserves for accounts
receivable and inventory $ 7,058 $ 17,531
Accrued liabilities 21,344 27,686
Net operating loss carry forwards 266,421 77,095
---------- ----------
294,823 122,312
Valuation allowance (294,823) (122,312)
---------- ----------
Deferred income tax asset $ - $ -
========== ==========
Depreciation differences 2,300 -
---------- ----------
Net deferred income
tax liability $ 2,300 $ -
========== ==========
A valuation allowance has been provided for the entire deferred asset
due to uncertainties regarding its realizability.
As of December 31, 1998, the Company has net operating loss carry
forwards available to offset future Federal and California taxable
income of $720,898 and $229,196 respectively. These carry forwards
expire at various dates through 2018. Additionally, prior to the
reverse take-over, the Company had generated net operating loss carry
forwards for Canadian tax reporting purposes of approximately
$8,080,000, of which $5,435,006 are unexpired as of December 31, 1998.
These net operating loss carry forwards expire at various times through
2000. The ability to utilize these net operating loss carry forwards
is significantly limited under Canadian tax rules.
See report of independent accountants.
F-11
<PAGE> 51
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Note 6 - Notes Payable
The Company had the following notes payable outstanding as of December
31, 1998 and 1997:
1998 1997
Note payable - bank, secured by
equipment and patents, payable in
monthly installments of $7,453
including interest at the prime
rate plus 3%, currently 11.5%p.a.,
due October 2000 $ 153,404 $ -
Note payable - shareholder, unsecured.
Interest accrues at the prime rate
plus 2%, currently 10.5%p.a.
Due on demand. 22,557 -
Note payable - officer, unsecured.
Interest accrues at the prime rate
plus 2%, currently 10.5%p.a.
Due on demand. 45,000 -
Note payable - officer, unsecured.
Interest accrues at the rate of prime
plus 2%, currently 10.5p.a.
Due on demand. 7,500 -
Note payable - distributor, unsecured.
Interest only payments at 10.5%p.a.
Due on demand. The note was settled
in October 1998 - 40,000
Note payable note - unsecured. Interest
at the rate of 12%p.a. The note was
repaid in January 1998. - 586
---------- ---------
Total notes payable 228,461 40,586
Less current maturities (150,000) (40,586)
---------- ---------
Long-term portion $ 77,702 $ -
========== =========
Maturities of debt as of December 31, 1998 are as follows:
1999 $ 150,759
2000 77,702
2001 -
---------
$ 228,461
=========
See report of independent accountants.
F-12
<PAGE> 52
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Note 7 - Capital Leases
Capital lease obligations as of December 31, 1998 and 1997 consist of
the following:
1998 1997
Equipment lease, secured of office
furniture payable in monthly
installments of $535.04 including
imputed interest at 20.9%p.a.
Final payment due March 1999 $ 2,050 $ -
Equipment lease, secured by equipment,
payable in quarterly installments of
$1,228 including imputed interest at
29%. Final payment due February 2001. 7,917 -
Equipment lease, secured by display
unit, payable in monthly installments
of $364.71 including imputed interest
at 40.3%p.a. Final payment was made
October 1998. - 3,308
-------- --------
Total notes payable 9,967 3,308
Less current maturities (4,964) (3,308)
-------- --------
Long-term portion $ 5,003 $ -
======== ========
Future minimum lease payments under the capital leases for the twelve
months ending December 31, 1999 are as follows:
1999 $ 7,055
2000 4,915
2001 1,229
--------
13,199
Less amount representing interest (3,232)
--------
Present value of minimum lease payments $ 9,967
========
Note 8 - Common Stock
As part of the reverse take-over of the Company by Hytec in a stock for
stock exchange, Hytec shareholders were issued 8,000,000 performance
escrow shares. In October 1995, as part of a settlement agreement with
the then President and Chief Financial Officer, shareholders holding
7,759,940 performance escrow shares agreed to return them to the
treasury. The shares were cancelled October 13, 1995.
See report of independent accountants.
F-13
<PAGE> 53
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
As of December 31, 1998, a balance of 240,060 performance shares remain
in escrow.
Stock Options
On March 11, 1998, the Company approved the issuance of incentive stock
options to its employees. The options are to purchase 598,500 common
shares of the Company at an exercise price of $0.21 (Canadian) per
share, exercisable on or before March 11, 2003. This issuance was
approved by the Vancouver Stock Exchange on April 24, 1998.
On November 5, 1997, the Company approved the issuance of incentive
stock options to an employee and a consultant who is acting as a sales
manager for the Company. The options are to purchase a total of
250,000 common shares of the Company at an exercise price of $0.22
(Canadian) per share, exercisable on or before November 5, 2002. This
issuance was approved by the Vancouver Stock Exchange on February 10,
1998. As of December 31, 1998, 200,000 options were outstanding.
The Company had the following issues of stock options outstanding as of
December 31, 1998:
Exercise Date
Number Price through which
of share per share options can
Issue date options (Cdn $) be exercised
Prior to June 30, 1995 1,405,000 $ 0.15 June 3, 1999
December 31, 1995 242,500 $ 0.15 December 31, 2000
May 31, 1996 100,000 $ 0.32 May 31, 2001
November 5, 1997 200,000 $ 0.22 November 5, 2002
March 11, 1998 598,500 $ 0.21 March 11, 2003
As of December 31, 1998, no options have been exercised.
Warrants
In June 1997, the Company issued 800,000 common share purchase warrants
to Wilden Pump & Engineering Company in conjunction with the "Addendum
Number Two" to the Strategic Alliance Agreement between the two
companies. Each warrant permits the holder to acquire one common share
at a price of $.375 (US) per share, exercisable on or before June 30,
2002.
The fair value of each warrant was estimated on the date of the
agreement using the Black-Scholes option pricing model with the
following assumptions: interest rate of 7%; life of 4 years; zero
dividend yield, and volatility of 37.65%.
As of September 30, 1997, the Company approved Wilden's request to
transfer the warrants to the shareholders and employees of Wilden Pump
and Engineering Company.
See report of independent accountants.
F-14
<PAGE> 54
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Note 9 - Earnings (Loss) per Share
Basic earnings (loss) per share
The earnings (loss) per share were calculated using the weighted
monthly average number of shares outstanding during the respective
periods.
Fully diluted earnings per share
For the six months ended December 31, 1998 and 1997, common stock
equivalents resulting from an assumed exercise of outstanding options
have been excluded since the effect on the loss per share would have
been anti-dilutive.
Note 10- Supplemental Cash Flow Information
Cash paid for interest was $15,466 and $6,937 for the six months ended
December 31, 1998 and 1997 respectively.
Cash paid for taxes was $-0- and $6,501 for the six months ended
December 31, 1998 and 1997 respectively.
During the six months ended December 31, 1997, the Company acquired
additions to its display booth totaling $4,035. The purchase was
financed through a capitalized lease.
Note 11 - Commitments and Contingencies
Facilities operating lease
The company has entered into a long term facilities lease expiring
November 30, 1999, with a five year renewal option. Hytec has exercised
its option to renew through November 30, 2004, but the parties have
agreed that Hytec and the landlord will come to an agreement regarding
the rent to be paid during 1999 and 2000 or submit to binding
arbitration. As of the date of these financial statements, no agreement
has been reached regarding the rent to be paid. Rent for 2001 through
2004 is subject to an escalator clause. A dispute between Hytec and the
landlord regarding repairs to the building was settled in November
1997, with the landlord agreeing to make repairs, and with Hytec being
required to pay additional rent during 1998 at the rate of $1,006 per
month representing interest, attorney fees and court costs incurred by
the landlord. Current expense for the lease was $70,991 and $35,418
for the six and three months ended December 31, 1998 respectively and
$57,300 and $29,400 for the six and three months ended December 31,
1997 respectively.
See report of independent accountants.
F-15
<PAGE> 55
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Future minimum lease payments for the lease term plus the exercised
option period are as follows:
December 31, 1999 129,600
December 31, 2000 129,600
December 31, 2001 129,600
December 31, 2002 129,600
After 2002 248,400
---------
$ 766,800
=========
Termination of Strategic Marketing Alliance with major distributor
In September 1998, the Company ended the Strategic Manufacturing and
Marketing Alliance agreement with a major customer and distributor. The
terms of the termination were as follows:
5. In October 1998, the company paid $109,000 plus accrued interest
in full satisfaction of the $259,000 debt owing to the
distributor. The distributor released all security interests in
Hytec's property.
6. The Company has waived all future purchase commitments for Hytec
products.
7. Inventory returned by the distributor to the Company that has not
been sold by December 31, 1999 will be repurchased by Hytec. As of
December 31, 1998, the value of the inventory subject to this
agreement remaining on hand was $123,822.
8. The Company remains liable to fill orders for which the Company
has received advance payment in the amount of $44,484.
9. The Company and the distributor have mutually released each other
from any and all prior obligations.
Royalty and Patent Dispute
The Company settled a dispute with the consulting firm that worked on
the development of the Company's in-line heater. The settlement was
effective July 16, 1998, and the Company paid $25,000 in full
settlement of all claims.
Note 12 - Going Concern
The Company has suffered operating losses over the past five quarters,
which have reduced the stockholders' equity to a deficit of $419,438.
In addition, since December 31, 1997, assets have decreased by $125,119
and liabilities have increased by $305,490.
See report of independent accountants.
F-16
<PAGE> 56
HYTEC FLOW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
The Company's plans to reverse its deficit spending and to improve the
assets to liabilities ratios include refinancing loans and negotiating
financing to obtain a NASDAQ listing. This will allow the Company to
obtain equity financing to recapitalize the Company for future growth
and profitability. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note 13 - Subsequent Events
In January 1999, the Company obtained new financing in the form of a
loan in the amount of $150,000 from an employee who is related to the
President. The loan carries interest at the same rate at which the
employee is paying interest to an outside bank, currently 8.74% p.a.
The note is due on demand.
Note 14 - Year 2000
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.
See report of independent accountants.
F-17
<PAGE> 57
SUPPLEMENTARY INFORMATION
HYTEC FLOW SYSTEMS, INC.
Consolidated Schedule of Expenses
For the Three Months Ended December 31, 1998 and 1997
Three Months Three Months
Ended Ended
12/31/98 12/31/97
Cost of sales
Materials $ 19,413 $ 60,567
Labor, overhead and other 101,659 200,695
--------- ---------
Total Cost of Sales $ 121,072 $ 261,262
========= =========
Sales and Marketing Expenses
Labor and related benefits $ 51,044 $ 75,534
Services, supplies and
equipment related 6,991 1,726
Facilities and related expenses 6,921 4,279
Travel and miscellaneous expenses 17,633 39,039
--------- ---------
Total sales and marketing expenses $ 82,589 $ 120,575
========= =========
Engineering Expenses
Labor and related benefits $ 4,613 $ 5,326
Service, supplies and
equipment related expenses 154 86
Facilities and related expenses 1,006 1,217
Travel and miscellaneous expenses 2,140 -
--------- ---------
Total engineering expenses $ 7,913 $ 6,629
========= =========
General and Administrative Expenses
Labor and related benefits $ 6,483 $ 9,380
Service, supplies and
equipment related expenses 484 1,122
Facilities and related expenses 13,899 18,434
Travel and miscellaneous expenses 14,385 33,042
--------- ---------
Total general and
administrative expenses $ 35,251 $ 61,978
========= =========
See report of independent accountants.
S-1
<PAGE> 58
SUPPLEMENTARY INFORMATION
HYTEC FLOW SYSTEMS, INC.
Consolidated Schedule of Expenses
For the Three Months Ended December 31, 1998 and 1997
Six Months Six Months
Ended Ended
12/31/98 12/31/97
Cost of sales
Materials $ 55,677 $ 94,760
Labor, overhead and other 206,242 314,930
--------- ---------
Total Cost of Sales $ 261,919 $ 409,690
========= =========
Sales and Marketing Expenses
Labor and related benefits $ 127,863 $ 130,019
Services, supplies and
equipment related 10,759 3,308
Facilities and related expenses 15,778 7,524
Travel and miscellaneous expenses 50,568 64,490
--------- ---------
Total sales and marketing expenses $ 204,968 $ 205,341
========= =========
Engineering Expenses
Labor and related benefits $ 12,336 $ 14,805
Service, supplies and
equipment related expenses 15,051 10,045
Facilities and related expenses 2,165 2,770
Travel and miscellaneous expenses 8,500 -
--------- ---------
Total engineering expenses $ 38,052 $ 27,620
========= =========
General and Administrative Expenses
Labor and related benefits $ 15,064 $ 18,653
Service, supplies and
equipment related expenses 1,171 2,173
Facilities and related expenses 31,135 48,139
Travel and miscellaneous expenses 17,683 57,552
--------- ---------
Total general and
administrative expenses $ 65,053 $ 126,517
========= =========
See report of independent accountants.
S-2
<PAGE> 59
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial
disclosures from the inception of the Company through the date of this
Registration Statement.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit No. Description
3.1 Articles of Incorporation.
3.2 Special Resolution Amending the Articles of
Incorporation on August 21, 1990.
3.3 Special Resolution Amending the Articles of
Incorporation on December 13, 1993.
3.4 Special Resolution Amending the Articles of
Incorporation on January 16, 1997.
4.1 * Specimen Stock Certificate.
27 Financial Data Schedule
* Filed via Form SE.
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-SB Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signatures Title Date
/s/ John H. Schiavo, Jr.
John J. Schiavo, Jr. Chairman of the Board 02/26/99
of Directors and
President
/s/ Leonard N. Udell
Leonard N. Udell Member of the Board 02/26/99
of Directors
/s/ David P. Brown
David P. Brown Member of the Board 02/26/99
of Directors
<PAGE> 61
EXHIBIT 3.1
Form 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
SPECIAL RESOLUTION
The following special resolutions were passed by the undermentioned
Company on the date stated:
Name of Company: OBERG INDUSTRIES LTD.
Date resolution passed: April 28, 1989
Resolution:
"RESOLVED as a Special Resolution that the existing Articles of the
Company be cancelled and the form of Articles presented to the
Meeting and attached hereto as Schedule "A" be adopted as the
Articles of the Company in substitution for and to the exclusion of
the existing Articles of the Company."
CERTIFIED a true copy this 26th day of October, 1989.
/s/ illegible
Solicitor
<PAGE> 62
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
ARTICLES
OF
OBERG INDUSTRIES LTD.
PART I
INTERPRETATION
1.1 In these Articles, unless there is something in the subject tor
context inconsistent therewith:
"Board" and "the Directors" or "the directors" mean the directors
or the sole director and included alternate directors, if any, of
the Company for the time being.
"Company Act" means the Company Act of the Province of British
Columbia as from time to time enacted and all amendments thereto
and statutory modifications thereof and includes the regulations
made pursuant thereto.
"Seal" means the common seal of the Company.
"Month" means a calendar month.
"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 member in respect of such
shares.
"Personal representative" shall including executors,
administrators, trustees,-in-bankruptcy and duly constituted
representatives in lunacy.
Expressions referring to writing shall be construed as including
references to printing, lithography, typewriting, photography,
photocopy, telecopying, telexing, telegraphing and other modes of
representing, reproducing or transmitting words in a visible form
words importing the singular include the plural and vice versa;
and words importing male persons include female persons and words
importing persons shall include corporations.
1.2 The meaning of any words or phrases defined in the Company Act
shall, if not inconsistent with the subject or context, bear the
same meaning in these Articles.
1.3 The Rules of Construction contained in the Interpretation Act
shall apply, mutatis mutandis, to the interpretation of these
Articles.
<PAGE> 63
PART 2
SHARES AND SHARE CERTIFICATES
2.1 Every member is entitled, without charge, to one certificate
representing the share or shares of each class held by him;
provided that, in respect of a share or share 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 the
first named 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, and neither the
Company nor any transfer agent shall be liable for any loss
occasioned to member owing to any such share certificate so sent
being lost in the mail or stolen.
2.2 If a share certificate
(a) is worn out or defaced, the directors shall, upon production
to them of the said certificate and upon such other terms, if
any, as they may think fit, order the said certificate to be
cancelled ad shall issue a new certificate in lieu thereof;
(b) is lost, stolen or destroyed, then upon proof thereof to the
satisfaction of the directors an 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; or
(c) represents more than one share and the registered owner
thereof surrenders it to the Company with a written request
that the Company issue in this name two or more certificates,
each representing a specified number of shares and, in the
aggregate, representing the same number of shares as the
certificate so surrendered and, upon payment of an amount
determined from time to time by the director, the Company
shall cancel the certificate so surrendered and issue in lieu
thereof certificates in accordance with such request.
2.3 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,
lithographed, engraved or otherwise mechanically reproduced in
accordance with these Articles.
2.4 Except as required by law, statute or theses 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,
<PAGE> 64
contingent, future or partial interest in any share or in any
fractional part of a share or (except only as by law, statute 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 Article 3.2 and to any direction to the contrary
contained in a resolution passed at a general meeting authorizing
any increase or alteration of capital, the share s shall be under
the control of the directors who may, subject to the rights of the
registered holders of the shares of the Company for the time being
issued, issue, allot, sell or otherwise dispose of, and/or grant
options on or otherwise deal in, shares authorized but not
outstanding at such times, to such persons (including directors),
in such manner, upon such terms and conditions, and at such price
or for such consideration, as they, in their absolute discretion,
may determine.
3.2 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 pre rata to the members, the
directors shall, before allotting any shares, comply with the
applicable provisions of the Company Act.
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 persons in consideration of his subscribing or
agreeing to subscribe, whether absolutely or conditionally, for
any shares, debentures, share rights, warrants or debenture stock
in the Company, or procuring or agreeing to procure subscriptions,
whether absolutely or conditionally, for any such shares,
debentures, share rights, warrants or debenture stock 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 percent of the amount of the subscription price of such share,
and if the Company is a specially limited company, the rate of the
commission and discount shall not in the aggregate exceed 98
percent of the amount of the subscription price of such shares,
debentures, share rights, warrants or debenture stock. The
Company may also pay such brokerage as may be lawful.
3.4 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 the property or services for the purposes of the Article
shall be the value determined by the directors by resolution to
be, in all circumstances of the transaction, the fair market value
thereof.
<PAGE> 65
PART 4
SHARE REGISTERS
4.1 The Company shall deep 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 consists of more than one class of shares, a separate
register of members, register of transfers and register of
allotments may be kept in respect of each class of shares. The
directors, on behalf of the Company, may appoint a trust company
to deep the register of members, register of transfers 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 of
shares. The directors, on behalf of the Company, may also appoint
one or more trust companies, including the trust company which
keeps the said registers of its shares or of a class thereof, as
transfer agent for its shares or such class thereof, as the case
may be, and the same or another trust company or companies as
registrar for tits shares or such class thereof, as the case may
be. The directors may terminate the appointment of may such trust
company at any time and may appoint another trust company in its
place.
4.2 Unless prohibited by the Company Act, the Company may keep or
cause to be kept one or more branch registers of members at such
place or places as the directors may from time to time determined.
PART 5
TRANSFER AND TRANSMISSION OF SHARES
5.1 Subject to the provisions of the Memorandum and of these Articles
that may be applicable, any member may transfer any of his shares
by instrument in writing executed by or on behalf of such member
and delivered to the Company or its transfer agent. 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 such other form as the directors may form 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 or members thereof.
5.1 The signature of the registered holder of any shares, or of his
duly authorized attorney, upon an authorized instrument of
transfer shall constitute a complete and sufficient authority to
the Company, its directors, officers and agents ro 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 holder 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
<PAGE> 66
authority to the Company, its directors, officers and agents to
register, in the name of the person in 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 holder or by any intermediate 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 registrar 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
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 where
the transfer is registered shall be retained by the Company or its
transfer agent or registrar and any instrument of the transfer
where 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 survivor, or survivors
where the deceased was a joint registered holder, and the legal
personal representative of the deceased where he was the sold
holder, shall be the only persons recognized by the Company as
having any title to his interest in the shares. Before
recognizing any legal personal representative, the directors may
require him to obtain a grant of probate or letters of
administration in British Columbia.
5.7 Upon the death or bankruptcy of a member, his personal
representative or trustee in bankruptcy, although not a member,
shall have the same rights, privileges and obligations that attach
to the shares formerly held by the deceased or bankrupt member if
the documents required by the Company Act shall have been
deposited at the Company's registered office.
<PAGE> 67
5.8 Any person becoming entitled to a share in consequence of the
death or bankruptcy of a member shall, upon such documents and
evidence being produced to the Company as the Company Act requires
or who becomes entitled to a shares as a result of an order of a
court of competent jurisdiction or a statute, has the right either
to be registered as a member in his representative capacity in
respect of such share or, if he is a personal representative,
instead of being registered himself, to make such transfer of the
share as the deceased or bankrupt person could have made; but the
directors shall, as regards a transfer by a personal
representative or trustee in bankruptcy, have the same right, if
any, to decline or suspend registration of a transferee as they
would have in the case of the transfer of a share by the deceased
or bankrupt person before the death or bankruptcy.
PART 6
ALTERATION OF CAPITAL
6.1 The Company may, by ordinary resolution filed with the Registrar,
amend its Memorandum to increase the authorized capital of the
Company by
(a) creating shares with par value or without par value, or both;
(b) increasing the number of shares with par value or shares
without par value, or both; or
(c) increasing the par value of class of shares with par value,
if no shares of that class are issued.
All new shares shall be subject to the same provisions with
reference to transfers, transmissions and otherwise as the
existing shares of the Company.
6.2 The Company may, by special resolution, alter its Memorandum to
subdivide, consolidate, change from shares with par value to share
without par value, or from shares without par value to shares with
par value, or change the designation of all or any of its share
but only to such extent, in such manner and with such consents of
members holding a class of shares which is the subject of or
affected by such alteration as the Company Act provides.
6.3 The Company may alter its Memorandum or these Articles
(a) by special resolution, to create, define and attache special
rights or restrictions to any shares, and.
(b) by special resolution, and by otherwise complying with any
applicable provision of its Memorandum or these Articles, to
vary or abrogate any special rights and restrictions attached
to any shares.
<PAGE> 68
And in each case by filing a copy of such resolution with the
Registrar but not right or special right attached to any issued
shares shall be prejudiced or interfered with unless all member
holdings shares of each class whose right or special right is so
prejudiced or interfered with consent thereto in writing, or
unless a resolution consenting thereto is passed at a separate
meeting of the holders of the shares of each such class by a
majority of three-fourth, or such greater majority as may be
specified by the special rights attached to the class of shares,
of the issued shares of such class.
6.4 Notwithstanding such consent in writing or such resolution, no
such alteration shall be valid as to any part of the issued shares
of any class unless the holders of the remainder of the issued
shares of such class, 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 remaining shares.
6.5 If the Company is or becomes a reporting company, no resolution to
create, vary or abrogate any special right of conversion attaching
to any class of shares shall be submitted to any meeting of member
unless, if so required by the Company Act, the Superintendent of
Brokers shall have consented to the resolution.
6.6 Unless these Articles 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
meeting of member holding a particular class of shares but the
quorum at a class meeting shall be one person holding or
representing by proxy one-third of the shares affected.
PART 7
PURCHASE AND REDEMPTION OF SHARES
7.1 Subject to the special rights and restrictions attached to any
class of shares, the Company may, be a resolution of the directors
and in compliance with the Company Act, purchase any of its shares
at the price an upon the terms specified in such resolution or
redeem any class of its shares in accordance with the special
rights and restrictions attaching thereto. 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.
7.2 If the Company proposes, at its option to redeem some but not all
of the shares of any class, the directors may, subject to the
special rights and restrictions attached to such class of shares,
decide the manner in which the shares to be redeemed shall be
selected.
7.3 Subject to the provisions of the Company Act, any shares purchased
or redeemed by the Company may be sold or issued by it, but while
such shares are held by the Company, it shall not exercise any
vote in respect of such shares.
<PAGE> 69 PART 8
BORROWING POWERS
8.1 The directors may from time to time on behalf of the Company.
(a) borrow money in such manner and amount, on such security,
from such sources and upon such terms and conditions as they
think fit;
(b) issue bonds, debentures and other debt obligation, either
outright or as security for any liability or obligation of
the Company, or any other person; and
(c) mortgage, charge, whether by way of specific or floating
charge, 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).
8.2 Any bonds, debentures or other debt obligation 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 of directors and otherwise, and may, by their
terms, be assignable free from any equities between the Company
and the person to whom they were issued or any subsequent holder
thereof, all as the directors may determine.
8.3 The Company shall deep 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 subject to the provisions of the
Company Act, may keep or cause to be kept, one or more branch
registers of its debentureholders at such place or places as the
directors may from time to time determine and the directors may,
be resolution, regulation or otherwise, make such provisions as
they think fit respecting the keeping of such branch registers.
8.4 Every bond, debenture or other debt obligation of the Company
shall be signed manually by at least on director or officer of the
Company on by or on behalf of a trustee, registrar, branch
transfer agent for the bond, debenture or other debt obligation
appointed by the Company or under any instrument under which the
bond, debenture or other debt obligation is issued and any
additional signatures may be printed or otherwise mechanically
reproduces thereon and, in such event, a bond, debenture or other
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
is stated on such bond, debenture or other debt obligation to be
held at the date of the issue thereof.
8.5 The Company shall keep or cause to be kept a register of its
indebtedness of every director or officer of the Company or any
associate of any of them in accordance with the provisions of the
Company Act.
<PAGE> 70
PAGE 9
GENERAL MEETINGS
9.1 Subject to any extensions of the time permitted pursuant to the
Company Act, the first annual general meeting of the Company shall
be held within fifteen months from the date of incorporation and
thereafter, an annual general meeting shall be held once in every
calendar year at such time (being not more than thirteen months
after the holding of the last annual general meeting) and place as
may be 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.
9.3 All general meetings, other than annual general meetings, are
herein referred to as and may be called extraordinary general
meetings.
9.4 The directors may, whenever they think fit, convene an
extraordinary general meeting. An extraordinary 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 the case of special business,
the general nature of the business, shall be given as provided in
the Company Act and in 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 note, to such persons as are entitled by law or under
these Articles to receive such persons as are entitled b 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 in entry in the minute book of such waiver or
reduction shall be sufficient evidence of the due convening of the
meeting.
<PAGE> 71
9.8 Except as otherwise provided by the Company Act, where any
specific 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 or proposed
document is or will be available for inspection by member 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 up to the date of such general meeting.
PART 10
PROCEEDINGS AT GENERAL MEETINGS.
10.1 All business shall be deemed special business which is transacted
at
(a) an extraordinary general meeting, other than the conduct of
an voting at such meeting; and
(b) an annual general meeting, with the exception of the conduct
of and voting at such meeting, the consideration of the
financial statements and the respective reports of the
directors and auditors, fixing or changing the number of
directors, approving a motion to elect two or more directors
by a single resolution, the election of directors, the
appointment of the auditor, the fixing of the remuneration of
the auditor, and such other business as by these Articles or
the Company Act may be transacted at a general meeting
without prior notice thereof being given to the members or
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 shall be two members
or one or more proxyholder representing two members, or one member
and a proxyholder representing another member. The directors, the
Secretary, or in his absence, an Assistant-Secretary, and the
solicitor for the Company, shall be entitled to attend at any
general meeting but no such person shall be counted in the quorum
or be entitled to vote at any general 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
requisition by the members shall be dissolved. In any other case,
it shall stand adjourned to the same day in the next week, at the
<PAGE> 72
same time and place, and if at the adjourned meeting a quorum is
not present within half an hour form the time appointed for the
meeting, the person or person present or being represented by
proxy, a member or members entitled to attend at the meeting shall
be a quorum.
10.5 The Chairman of the Board, if any, or in his absence, the
President or 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
the President or a Vice-President is present within fifteen
minutes afer the time appointed for holding the meeting or is
unwilling to act as chairman, the directors present shall choose
one of their number of be chairman, or if all the directors
present decline to take the chair or shall fail to do so, or if no
director be present, the members present shall choose some other
person in attendance, who need not be a member, to be chairman.
10.7 The chairman may and shall, if so directed by the meeting, adjourn
the meeting from time to time and from place to place, but no
business shall be transacted at any adjourned meeting other than
he 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 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 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 by 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 lest one member entitled to vote who is
present in person or by proxy. 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 of proportion of
the votes recorded in favor of or against that resolution.
.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 be entitled to
a casting vote in addition to the vote or votes to which he may be
<PAGE> 73
entitled as a member or proxyholder and this provision shall apply
notwithstanding the chairman is interested in the subject matter
of the resolution.
.11 No poll may be demanded on the election of the 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
not 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 results of the poll shall be deemed to be the
resolution of and passed at the meeting upon 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.
.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 subject to such inspection as
the Company Act may provide.
.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.
.14 Unless the Company Act, the Memorandum or these Articles otherwise
provide, any action to be taken be a resolution of the members may
be taken by a an ordinary resolution.
PART 11
VOTES OF MEMBERS
11.1 Subject to any special voting rights or restrictions attaching to
any class of shares and the restrictions on joint registered
holders of shares.
(a) on a show of hands
(i) every member who is present in person and entitled to
vote shall have one vote, and
(ii) a proxyholder duly appointed by a holder of a share who
would have been entitled to vote shall have one vote,
(b) on a poll, every member shall have one vote for each share of
which he is the registered holder and may exercise such cote
either in person or by proxyholder.
11.2 Any person who is not registered as a member but is entitled to
vote at any general meeting is 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 of
<PAGE> 74
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.
11.3 Any corporation not being a subsidiary which is a member of the
Company may, by a document signed by two directors, or two
officers, or any one director and one officer, or any one member
of an Executive or other committee, or by resolution of its
directors or other governing body, authorize such person as it
thinks fit to act as its representative at any general meeting or
class 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,
unless restricted by such resolution, to appoint a proxyholder to
represent such corporation, and shall be counted for the purpose
of forming a quorum if present at the meeting. Evidence of the
appointment of any such representative may be sent to the Company
be written instrument. Notwithstanding the foregoing, a
corporation being a member 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. 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 an 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 five) proxyholders to attend, act and vote for him on
the same occasion. If such 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 point one or more alternate proxyholders to act in the place
and stead of an absent proxyholder.
11.7 A form of proxy shall be in writing executed by the appointor or
his attorney authorized in writing, or if the appointor is a
corporation, by a duly authorized officer or attorney of such
corporation.
11.8 A proxy shall be deposited in the manner hereinafter specified.
A proxyholder need not be a member of the Company.
<PAGE> 75
11.9 Subject as herein provided, a proxy shall be deposited at the
registration 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, Sundays and holidays)
before the time for holding the meeting or such other time and
place as is specified in the notice calling the meeting.
.10 The chairman, in his absolute and unfettered discretion may, but
is not bound to accept a proxy in substituted form and in his
absolute and unfettered discretion may, but is not bound to accept
in substituted form, evidence of authority by a corporation to
vote or a power of attorney or evidence of other authority under
which a proxy is executed. The chairman may, in his unfettered
discretion waive the requirement to deposit evidence of the
authority under which a proxy or authority by a corporation to
vote is executed. In this Article 11.10, "substituted form" shall
mean a document produced by means of photocopy, telegraph, telex,
telecopy or any other means of transmission or production which
creates a legibly recorded message or copy of a document.
.11 In addition to any other method of depositing proxies provided for
in these Articles, the directors may, from time to time, by
resolution make regulations relating to the depositing of proxies
at any place or places and fixing the time or times for depositing
the proxies not exceeding 48 hours (excluding Saturdays, Sundays
and holidays) preceding the meeting or adjourned meeting specified
in the notice calling a meeting of members and providing for
particulars of such proxies to be sent to the Company or any agent
of the Company in writing so as to arrive before the commencement
of the meeting or adjourned meeting at the office of the Company
or any agent of the Company appoint for the purpose of receiving
such particulars and providing that proxies so deposited as
required by the Part 11 and votes given in accordance with such
regulations shall be valid and counted.
.12 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 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
at the registered office of the Company or by the chairman of the
meeting or adjourned meeting for which the proxy was given before
the vote is taken.
.13 Every proxy may be revoked by instrument in writing.
(a) 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
<PAGE> 76
(b) delivered either to the registered office of the Company at
any time up to and including the last business day preceding
the dat of the meeting or any adjournment thereof at which
the proxy is to be used, or the chairmen 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 The subscribers to the Memorandum of the Company are the first
directors. The Directors to succeed the first directors 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 paid such reasonable traveling, hotel and other expenses
as they incur in and about the business of the Company and if any
director shall perform any professional or other services for the
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, a pension or an 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 provisions 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.
<PAGE> 77
PART 13
ELECTION AND REMOVAL OF OFFICERS
13.1 At each annual general meeting of the Company, one third of the
directors, or, if their number is not a multiple of three, then
the number nearest to, but no exceeding one-third, shall retire
from office and be eligible for re-election. (Provided always
that if in any year the number of directors who are subject to
retirement by rotation shall be two, one of such directors shall
retire.)
The one-third, or other nearest number to retire as aforesaid at
the annual general meeting to be held each year, shall be the
directors who have been longest in office. As between two or more
who have been in office an equal length of time, the director or
directors to retire shall, in default of agreement between the, be
determined by lot. The length of time a director has been in
office shall be computed form his last election or appointment
where he has previously vacated office. A retiring director shall
be eligible for re-election and shall act as a director throughout
the meeting at which he retires.
13.2 A retiring director shall be eligible for re-election.
13.3 When 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 it held.
13.4 If at any general meeting at which there should be an election of
directors, the places of the retiring directors are not filled by
such election, such 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 to these Articles until further
new directors are elected at a general meeting convened for the
purpose. 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 the Articles, such
number shall be fixed at the number of directors actually elected
or continued in office.
13.5 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 directors shall
have power to appoint one or more additional directors but not
more than one-third of the number of directors fixed pursuant to
these Articles and in effect 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
<PAGE> 78
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 be 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 persons 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 the meetings of the directors and to attend and vote
as a director at a meeting at which the person appointing him is
not personally present, and if he is a director, to have a
separate vote on behalf of the director he is representing in
addition to his own vote. A person may be appointed as an
alternate for more than one director and shall have a separate
vote for each director so represented. A director may, at any
time, bu instrument in writing deliver to the Company, revoke the
appointment of an alternate appointed by him. The remuneration
payable to such alternate shall be payable out of the remuneration
of the director appointing him.
13.8 The office of director shall be vacated if the director:
(a) resigns his office by notice in writing delivered to the
registered office of the Company; or
(b) is convicted of an indictable offence and the other directors
shall have resolved to remove him; or
(c) ceases to be qualified as a director pursuant to the Company
Act.
13.9 The Company may, by special resolution, remove any director before
the expiration of his period of office, and may, be 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 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 seal, appoint any person to be the attorney
of the Company for such purpose and with such powers, authorities
and discretions (not exceeding those vested in or exercisable by
the directors under these Articles and excepting the powers to the
directors relating to the constitution of the Board and of any of
its committees and the appointment or removal of officers
<PAGE> 79
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 appointment may be made in favor of any of
the directors or any of the member of the Company, or in favor of
any corporation, or of any of the members, directors, nominees or
managers of any corporation, or of any of the members, directors,
nominees or managers of any corporation, firm or joint venture and
any such power of attorney 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 sub-delegate 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 is, in any way, directly or indirectly interested
in an existing or proposed contract or transaction with the
Company, or who holds any office or possesses any property
whereby, directly or indirectly, a duty or interest might 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 the conflict or potential conflict with his duty
and interest as a director, as the case may be, in accordance with
the provisions of the Company Act.
15.2 A director shall not vote in respect of any such contract or
transaction with the Company in which he is interested and if he
shall do so, his vote shall not be counted, but he shall be
counted in the quorum present at the meeting at which such vote is
taken. Subject to the provisions of the Company Act, the
foregoing prohibitions shall not apply to:
(a) any such contract or transaction relating to a loan to the
Company, which a director or a specified corporation or a
specific firm in which he has an interest has guaranteed or
joined in guaranteeing the repayment of the loan or any part
of the loan;
(b) any contract or transaction made or to be made with, or for
the benefit of a holding corporation or a subsidiary
corporation of which a director is a director;
(c) any contract by a director to subscribed for or underwrite
shares or debentures to be issued by the Company or a
subsidiary of the Company, or any contact, arrangement or
transaction in which a director is, directly or indirectly
interested if all the other directors are also, directly or
indirectly interested in the contract, arrangement or
transaction;
(d) determining the remuneration of the directors;
(e) purchasing and maintaining insurance to cover directors
against liability incurred by them as directors; or
<PAGE> 80
(f) the indemnification of any director by the Company.
These exceptions may from time to time be suspended or amended to
any extend approved by the Company at a general meeting and as
permitted by the Company Act, either generally or in respect of
any particular contract or transaction for any particular period.
15.3 The interest of a director in any matter in Articles 15.1, 15.2 or
otherwise shall not affect such director's alternate director and
such alternate director may be counted in a quorum and may vote
upon such matter notwithstanding disqualification of the director,
nor shall a disqualification of an alternate director affect the
ability of a director to be counted in a quorum or to vote on a
matter in which such director to be counted in a quorum or to vote
on a matter in which such director's alternate director shall been
disqualified.
15.4 A director may hold any office or place of profit with the Company
(other than the office of auditor of the Company) in conjunction
with 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 director is
in any way interested shall be liable to be voided by reason
thereof.
15.5 Subject to compliance with the provisions of the Company Act, a
Director or his firm may act in a professional capacity for the
Company (except as auditor for the Company) and he or his firm
shall be entitled to remuneration for professional services as if
he were not a director.
15.6 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 a director,
officer or employee of, or from his interest in such other
corporation or firm prior to the Company in general meeting
directing otherwise.
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
unwilling to act as chairman, or if the Chairman of the Board, if
<PAGE> 81
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 The directors may meet together for the dispatch of business,
adjourn and otherwise regulate their meeting as they think fit.
Questions arising at any meeting shall be decided by a majority of
votes. In the case of an equality of votes, the chairman shall not
have a second or cast 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 be resolution from time to time
determine.
16.3 One or more directors, or all directors, may participate in a
meeting of the Board or of any committee of the directors by means
of conference telephones or other communication facilities by
means of which the directors participating in the meeting can hear
each other provided that a majority of 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.
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
addressed to each 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 or alternate 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 or
directors at which such director is appointed.
16.5 Any director of the Company may file with the Secretary, a
document executed by him, waiving notice of any past, present or
future 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 thereafter. After filing such waiver
with respect to future meetings, until such notice 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
called or constituted by reason of notice not having been given to
such director or alternate director.
16.6 The quorum necessary for the transaction of the business of the
directors may be fixed by the directors and if so fixed shall be
a majority or the directors or, if the number of directors is
fixed at one, shall be one director.
<PAGE> 82
16.7 The continuing directors may, notwithstanding any vacancy in their
body, but if and so long as their number is reduced below the
number fixed pursuant to these Articles as the necessary quorum of
directors, act only for purpose of increasing the number of
directors to that number, or of summoning a general meeting of the
Company, but for no purpose.
16.8 Subject to the provisions of 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 of such directors or
the members of such committee or persons acting aforesaid, or that
they or any of them were disqualified, 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 by all of the directors or
alternate directors shall be as valid and effectual as if it had
been passed at a meeting of the directors duly called and held.
Such resolution may be in tow or more counterparts which together
shall be deemed to constitute on resolution in writing. Such
resolution shall be filed with the minutes of the proceedings of
the director and shall be effective on the date stated thereon or
on the latest day stated on any counterpart. A resolution may be
consented to be a director or alternate director who has an
interest in the subject matter of the resolution provided that he
has otherwise complied with the provisions of these Articles and
the Company Act.
PART 17
EXECUTIVE AND OTHER COMMITTEES
17.1 The directors may, be resolution, create and appoint an Executive
Committee to consists 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 Board, all the
powers vested in the Board except the power to fill vacancies on
the Board, the power to change the membership of or fill vacancies
in said Committee or any other committee of the Board, and such
other powers, if any, as may be specified in the resolution. The
said Committee shall keep regular minutes of its transactions and
shall cause them to be recorded in the books for that purpose, and
shall report the same to the Board of Directors at such times as
the Board of Directors may from time to time require. The Board
shall have the power at any time tot revoke or override the
authority given to or acts done by the Executive Committee except
as to the acts done before such revocation or overriding and to
terminate the appointment or change the membership of such
Committee and to fill vacancies on its. The Executive Committee
may make results for the conduct of its business and may appoint
such assistants as it may deem necessary. A majority of the
members of the said Committee shall constitute a quorum thereof.
<PAGE> 83
17.2 The directors may, be resolution, create and appoint one or more
committees consisting of such member or members of their body as
they think fit and may delegate to any such committee, such powers
of the Board as the Board may designate or prescribe (except the
power to fill vacancies in any committee of the Board and the
power to appoint or remove officers appointed to the Board)
subject to such conditions as may be prescribed in such
resolution, and all committees so appointed shall keep regular
minutes of their transactions and shall cause them to be recorded
in books kept for that purpose, and shall report the same to the
Board of Directors at such times as the Board of Directors may
from time to time require. The directors shall also have power at
any time to revoke or override any authority given to or acts to
be done by any such committees except as 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.
Committees may make rules of the conduct of their business and may
appoint such assistants as they may deem necessary. A majority of
the member of a committee shall constitute a quorum thereof.
17.3 The Executive Committee and any other committee may meet and
adjourn as it thinks proper. Questions arising at any meeting
shall be determined by a majority of votes of the members of the
committee present, and in case of an equality of votes, the
chairman shall not have a second or casting vote. A resolution
approved in writing by all the member of the Executive Committee
or any other committee shall be as valid and effective as it if
had been passed at a meeting of such committee duly called and
constituted. Such resolution may be in two or more counterparts
which together shall be deemed to constitute one resolution in
writing. Such resolution shall be filed with the minutes of the
proceedings of the committee and shall be effective on the date
stated thereon or on the latest date stated in any counterpart.
PART 18
OFFICERS
18.1 The directors shall, from time to time, appoint a President and a
Secretary and such other officers, if any, as the directors shall
determine and the directors may, at any time terminate any such
appointment. No officer shall b e 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. 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
<PAGE> 84
office or leaves the employment of the Company, a pension or
gratuity. The directors may decide what functions and duties each
office shall perform and may entrust to and confer upon him any of
the powers exercisable by them upon such terms and conditions and
with such restrictions as they think fit and may, from time to
time, revoke, withdraw, alter or vary all of any of such
functions, duties and powers. The Secretary shall, inter alia,
perform the functions of the Secretary specified in the Company
Act.
18.3 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, character and extent of
the conflict.
PART 19
INDEMNITY AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES
19.1 Subject to the provisions of the Company Act, the directors shall
cause the Company to indemnify a director or former director of
the Company and the directors may cause the Company to indemnify
a director or former director of a 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 any 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, actually and reasonably incurred by him or them
including an amount paid to settle an 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 a
director of such corporation. Each director of the Company, on
being elected or appointed, shall be deemed to have contracted
with the Company on the terms of the foregoing indemnity.
19.2 Subject to the provisions of the Company Act, the directors may
cause the Company to indemnify any officer, employee or agent of
the Company or of a 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 incurred by him or them and resulting from his
acting as an officer, employee or agent of the Company or such
corporation. In addition, the Company shall indemnify the
Secretary or an Assistant Secretary of the Company (if he shall
not be a full time employee of the Company and notwithstanding
that he is also a director) and his respective heirs and legal
representatives against all costs, charges and expenses whatsoever
incurred by him or them and arising out of the functions assigned
to the Secretary by the Company Act of these Articles and each
such Secretary and Assistant Secretary shall, on being appointed,
be deemed to have contacted with the Company on the terms of the
foregoing indemnity.
<PAGE> 85
19.3 The failure of a director or officer of the Company to comply with
the provisions of the Company Act or of the Memorandum or these
Articles shall not invalidated any indemnity to which he is
entitled under this Part.
19.4 The directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as
a director, officer, employee or agent of the Company, or as a
director, officer, employee or agent of any corporation of which
the Company is or was a shareholder and his heirs or personal
representatives against any liability incurred by him as such
director, officer, employee or agent.
PART 20
DIVIDENDS AND RESERVE
20.1 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 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 by the directors may
be made payable on such date as is fixed by the directors.
20.3 Subject to the rights of member (if any) holding shares with
special rights as to dividends, all dividends on shares of any
class shall be declared and paid according to the number of 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,
<PAGE> 86
either be employed in the business of the Company or be invested
in 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 given an effective receipt for any dividend,
bonuses or other monies payable in respect of the share.
20.6 No dividend shall bear interests 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, bonuses or other monies payable in cash in respect
of shares may be paid by check or warrant sent through the post,
directed to the registered address of the holder, or in these 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 check or warrant shall be made
payable to the order of the person to whom it is sent. The
mailing of such check or warrant shall, to the extent the sum
represented thereby (plus the amount of any tax required by law to
be deducted) discharge all liability for the dividend, unless such
check 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 undistributed
surplus of the Company on hand and may, from time to time, issue
as fully paid and non assessable, any unissued shares, or any
bonds, debentures or debt obligation of the Company as a dividend
representing such undistributed surplus on hand 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 document, 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 to properly record the
affairs and condition of the Company and to comply with Company
Act.
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.
<PAGE> 87
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 provided 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 at 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 to be effected by properly addressing, prepaying
and mailing the notice, statement or report and shall be deemed to
have been given on the day, (Saturday, Sundays and holiday
excepted), following the date of mailing. A certificate signed by
the Secretary or other officer of the Company or of any other
corporation 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 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 the title or
representative of the deceased or incapacitated person or trustee
of the bankrupt, 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 notice in the manner in which same might have
been given if the death, bankruptcy or incapacity had not
occurred.
22.4 Notice of every general meeting or meeting of members holding a
class of shares shall be given in the manner hereinbefore
authorized to every member holding at the time of the issue of the
notice or the date fixed for determining the members entitled to
such notice, whichever is the earlier, 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 notice of any such
meeting.
<PAGE> 88
PART 23
RECORD DATES
23.1 The directors may fix in advance a date, which shall not be more
than the maximum number of days permitted by the Company Act,
preceding the date of any meeting of members of any class of
shares, or of the payment of any dividend, or of the proposed
taking of any other proper action requiring the determination of
members as the record date for the determination of the members
entitled to notice of, or to attend and vote at, any such meeting
and any adjournment thereof, or entitled to receive payment of any
such dividend or for any other proper purpose and, in such case,
notwithstanding anything elsewhere contained in these Articles,
only members of record on the date so fixed shall be deemed to be
members for the purposes aforesaid.
23.2 Where no record date is so fixed for the determination of members
as provide din the proceeding Article, the date on which the
notice is mailed or on which the resolution declaring the dividend
is adopted, as the case may be, shall be 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:
(a) any two directors, or
(b) one of the Chairman of the Board, the President, the Managing
Director, a Director and a Vice President together with one
of the Secretary, the Treasurer, the Secretary/Treasurer, an
Assistant Secretary, an Assistant Treasurer and an Assistant
Secretary/Treasurer, or
(c) if the Company shall have only one member, the President or
the Secretary, or
(d) 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 seal true copies
of any document or resolution, the seal may be affixed in the
presence of any one of the foregoing persons.
24.2 To enable the seal of the Company to be affixed to any bonds,
debentures, 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,
<PAGE> 89
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 bonds, debentures, 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 Secretary,
Treasurer, Secretary/Treasurer, Assistant Secretary, Assistant
Treasurer, Assistant Secretary/Treasurer may be a document
authorize such firm or company to cause the Company's seal to be
affixed to such definitive or interim bonds, debentures, share
certificates or other securities by the use of such dies. Bonds,
debentures, share certificates and 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.
24.3 The Company may have for use in any other province, state,
territory or country an official seal which shall have its face,
the name of the province, state, territory or country where it is
to be used and all of the powers conferred by the Company Act with
respect thereto may be exercised by the directors or by a duly
authorizing agent of the Company.
PART 25
MECHANICAL REPRODUCTION OF SIGNATURES
25.1 The signature of any officer, director, registrar, branch
registrar, transfer agent or branch transfer agent of the Company,
unless otherwise required by the Company Act or by these Articles
may, if authorized by the directors, be printed, lithographed,
engraved or otherwise mechanically reproduced upon all instruments
executed or issued by the Company or any officer thereof; and any
instrument on which the signature of any such person is so
reproduced shall be deemed to have been manually signed by such
person whose signature is so reproduced and shall be 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 the office that he is stated
on such instrument to hold at the date of delivery or issue of
such instrument.
25.2 The term "instrument" as used in Article 25.1 shall include deeds,
mortgages, hypothecs, charges, conveyances, transfers and
assignments of property, real or personal, agreements, releases,
receipts and discharges for the payment of money or other
obligations, shares and share warrants of the Company, bond,
debentures, and other debt obligations of the Company, and all
paper writings.
<PAGE> 90
PART 26
PROHIBITIONS
26.1 If the Company is, or becomes a company which is not a reporting
company
(a) the number of members for the time being of the Company
(counting any two or more joint registered members as one
member) exclusive of person who are in the employment of the
Company, or an affiliate of the Company, or continue to be
members after the termination of such employment, shall not
exceed fifty (50); and
(b) no shares or debt obligations issued by the Company shall be
offered for sale to the public.
26.2 If the Company is, or becomes a company which is not a reporting
company, or a reporting company but does not have any of its
securities listed for trading on any stock exchange wheresoever
situate, or a reporting company and has not with respect to any of
its securities, filed a prospectus with the Superintendent of
Brokers or any similar securities' regulatory body and obtained a
receipt therefor, then 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 any such proposed transfer.
<PAGE> 91
EXHIBIT 3.2
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
SPECIAL RESOLUTION
The following special resolutions were passed by the
undermentioned Company on the date stated:
Name of Company: OBERG INDUSTRIES LTD.
Date resolution passed: April 30, 1990
Resolution:
(a) the name of the Company be changed to "CONSOLIDATED OBERG
INDUSTRIES LTD." . . .
(b) the authorized share capital of the Company be altered by
consolidating all of the 25,000,000 shares without par value
into 5,000,000 shares without par value, every five of such
shares being consolidated into one share;
(c) the authorized capital of the Company be increased from
5,000,000 shares without par value to 25,000,000 shares
without par value;
(d) the Memorandum of the Company be altered to reflect the
consolidation of share capital and change of name of the
Company, so that it shall be in the form set out in Schedule
"A" to this resolution.
CERTIFIED a true copy this 16th day of July, 1990.
/s/ illegible
Solicitor
<PAGE> 92
SCHEDULE "A"
FORM 1 (Section 5)
COMPANY ACT
ALTERED MEMORANDUM
(As altered by Special Resolution dated April 30, 1990)
1. The name of the Company is "CONSOLIDATED OBERG INDUSTRIES
LTD.:
2. The authorized capital of the Company consists of 25,000,000
shares without par value
<PAGE> 93
EXHIBIT 3.3
Form 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned
Company on the date stated.
Name of the Company: Consolidated Oberg Industries Ltd.
Date resolution passed: 12th November, 1993.
Resolution:
UPON MOTION duly made, seconded and carried, IT WAS RESOLVED to
with or without amendment, the following resolutions:
(a) the authorized capital of the Company be increased from
25,000,000 shares without par value to 100,000,000 shares
without par value;
(b) the Memorandum of the Company be altered to reflect the
increase in the Company's authorized capital, so that is shal
be in the form set out in Schedule "A."
Certified a true copy this 1st day of December, 1993.
/s/ W. D. Cameron White
W.D. Cameron White
Solicitor
Relationship to Company
<PAGE> 94
SCHEDULE "A"
ALTERED MEMORANDUM
(As altered by Special Resolution passed 12th November 1993)
1. The name of the Company is "Consolidated Oberg Industries
Inc."
2. The authorized capital of the Company consists of 100,000,00
shares without par value.
<PAGE> 95
EXHIBIT 3.4
PROVINCE OF BRITISH COLUMBIA
FORM 21
(SECTION 371)
COMPANY ACT
SPECIAL RESOLUTION
The following Special Resolution was passed by the under
mentioned Company on the date stated:
Name of Company: Consolidated Oberg Industries Ltd.
Date resolution passed: November 21, 1996
Resolution:
"BE IT RESOLVED as a Special Resolution THAT:
1. Pursuant to Section 247(1) of the Company act, the name of
the Company be changed from Consolidated Oberg Industries
Ltd. to Hytec Flow Systems, Inc.;\
2. Paragraph 1 of the Memorandum of the Company be altered to
read as follows:
1. The name of the Company is Hytec Flow Systems, Inc.
3. The Memorandum be in the form attached hereto and marked
Schedule "A," so that the altered Memorandum complies with
the Company Act.
Certified a true copy this 16th day of December, 1996.
/s/ David Anfield
(Solicitor for the Company)
<PAGE> 96
SCHEDULE "A"
PROVINCE OF BRITISH COLUMBIA
FORM 1
(SECTION 5)
COMPANY ACT
ALTERED MEMORANDUM
(As altered by Special Resolution passed on November 21, 1996)
1. The name of the Company is Hytec Flow Systems, Inc.
2. The authorized capital of the Company consists of One Hundred
Million (100,000,000) Common shares without par value.
3.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at 06/30/98 Audited and at
12/31/98 (Unaudited) and the Consolidated Statement of Income for the twelve
months ended 06/30/98 Audited and the six months ended 12/31//98 (Unaudited)
and is qualified in its entirety by reference to such financial statemeents.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 46,515 338
<SECURITIES> 0 0
<RECEIVABLES> 94,381 33,939
<ALLOWANCES> 25,829 12,517
<INVENTORY> 93,784 68,629
<CURRENT-ASSETS> 232,904 105,497
<PP&E> 113,548 113,902
<DEPRECIATION> 27,604 34,568
<TOTAL-ASSETS> 372,604 265,282
<CURRENT-LIABILITIES> 666,320 599,715
<BONDS> 0 0
0 0
0 0
<COMMON> 929,647 929,647
<OTHER-SE> 80,880 80,880
<TOTAL-LIABILITY-AND-EQUITY> 372,604 265,282
<SALES> 1,017,885 308,142
<TOTAL-REVENUES> 1,029,390 311,084
<CGS> 884,690 261,919
<TOTAL-COSTS> 1,581,716 569,992
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16,426 15,093
<INCOME-PRETAX> (568,752) (274,001)
<INCOME-TAX> 2,179 1,721
<INCOME-CONTINUING> (570,931) (275,722)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 81,015 150,000
<CHANGES> 0 0
<NET-INCOME> (489,916) (125,722)
<EPS-PRIMARY> (0.03) (0.01)
<EPS-DILUTED> (0.03) (0.01)
</TABLE>
