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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
AMENDMENT NO. 3
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
Radiant Energy Corporation
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(Name of Small Business Issuer in its charter)
Canada N/A
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
40 Centre Drive, Orchard Park, New York 14127
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(Address of principal executive office) (Zip Code)
Issuer's telephone number: (716) 662-0022
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Securities to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
None
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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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PART I
Item 1. Description of Business.
General
Radiant Energy Corporation ("REC") is in the business of providing its
patented INFRATEK(R) deicing technology and services to the commercial airline
industry. It conducts all of its operations through its wholly-owned operating
subsidiary Radiant Aviation Services, Inc. ("RAS"). REC and RAS are sometimes
referred to herein as the "Company". The Company has never generated a profit
and, as a result, has an accumulated deficit of $7,183,133 at April 30, 2000.
All currency references in this document are in U.S. dollars, unless otherwise
indicated. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations." Its ability to remain in business depends
on achieving profitable operations, of which there can be no assurance. For
these and other reasons, an investment in the securities of the Company is
risky. Please see "Risk Factors and Investment Considerations" at pages - .
Following four years of development and three years of field tests of
the INFRATEK(R) technology at the Rhinelander Oneida County Airport in Wisconsin
and the Greater Buffalo International Airport in New York, the Company opened
its first major commercial deicing facility at Newark International Airport
("the Newark Facility") in New Jersey in December 1999. The Newark Facility is
being operated by Continental Airlines, Inc. and revenues from operations at the
facility are being shared between the Company and Continental. On December 20,
1999, the Newark Facility was sold to MDFC Equipment Leasing Corporation
("MDFC"), a wholly-owned subsidiary of Boeing Capital Services Corporation
("Boeing Capital") and, contemporaneously, leased to the Company.
The Company's website is "www.radiantenergycorp.com." It has ten (10)
employees.
The INFRATEK(R) Technology and Deicing System
Through the controlled combustion of natural or propane gas, the
Company's proprietary heating devices melt accumulated ice and snow on aircraft.
The heat energy generated by the devices does not harm the aircraft or the
passengers inside. The Company's INFRATEK(R) technology combines infrared energy
with a method of concentrating this energy; the technology is proprietary,
patented and approved for use by the Federal Aviation Administration ("FAA").
The Company's INFRATEK(R) system is housed in an open-ended structure.
The heating
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devices are suspended from an arched frame over the aircraft. To begin the
deicing process, an aircraft enters the structure and comes to a full stop, but
is not required to shut off its engines. Passengers and crew remain on board. An
operator at the facility enters the aircraft type into a computer which controls
the heating devices. The computer then starts the heating devices which produce
the required amount of radiant heat energy to melt and evaporate the snow, ice
and frost from the surface of the aircraft. The process time varies depending on
the amount of snow, ice and frost on the aircraft. After the INFRATEK(R) system
has been utilized, and the aircraft is "clean", it may be necessary, depending
on weather conditions, to apply a chemical (glycol-based) anti-icing fluid to
prevent accumulations of snow, ice or frost.
The following table is based upon Management's personal industry
experience and opinion. It compares the INFRATEK(R) system to traditional,
chemical deicing with glycol, assuming a mid-sized aircraft (e.g., a Boeing 737)
with an average covering of snow, ice and frost.
INFRATEK(R) GLYCOL
Time to deice 3 to 20 minutes 5 to 25 minutes
Gas/Glycol Quantity 5 to 10 million BTUs 75 to 1,000 gallons
Cost per unit $5.00/million BTU $9 to $15 gallon -
includes cost of
glycol and recovery
Cost/Application (excluding Labor) $25 to $50 $675 to $15,000
Equipment INFRATEK(R) Trucks, deicing
equipment, and a
containment system
Labor (Workers) 1 to 2 4 to 8
The INFRATEK(R) system's computerization enables a single operator to
adjust the system for specific aircraft and various deicing conditions. The
control system is PC-based and runs on software set up for the Company's
application.
Advantages of the INFRATEK(R) System
Data collected from working installations demonstrate that the
INFRATEK(R) system offers the following advantages over the traditional chemical
deicing process:
1. Operating cost savings;
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2. Improved and dependable throughput timing, resulting in
greater airport efficiencies;
3. Capital cost savings; and
4. Environmental risks are reduced and worker safety is improved.
Disadvantages of the INFRATEK(R) System
Management believes that the INFRATEK(R) system may have, or be
perceived by the industry to have, the following disadvantages, compared to
traditional deicing:
1. The technology depends upon an electrical power source and an
uninterrupted flow of natural gas;
2. The INFRATEK(R) system requires more space than chemical deicing
trucks, resulting in higher real estate costs and is subject to the availability
of real estate; and
3. An INFRATEK(R) system is stationary.
Commercialization of the INFRATEK(R) Technology
In March 1997 Prior Aviation Services, an aviation service company with
extensive experience in aircraft deicing, commenced operation of the first
INFRATEK(R) system at the Greater Buffalo International Airport in New York.
In January 1998 Radiant sold the first INFRATEK(R) system to the
Rhinelander Oneida County Airport in Wisconsin. The Company retained no rights
to this system or to the revenues produced by it. On March 15, 1998, the system
commenced commercial operations. The INFRATEK(R) system deices approximately 50%
of Rhinelander Airport's air traffic, which consists primarily of commuter
aircraft including Dash 8s and Beech 1900s. To date, over 175 deicings utilizing
the INFRATEK(R) system have occurred at the Rhinelander Airport.
On December 20, 1999, the Company opened its first major installation
of an INFRATEK(R) system at Newark International Airport. The 32,868 square foot
facility was sold to MDFC, a wholly-owned subsidiary of Boeing Capital, on
December 20, 1999, and, contemporaneously, leased back to the Company.
Continental has an option to purchase the Newark Facility. Continental operates
the Newark Facility and charges airlines a per use deicing fee, which is shared
with the Company.
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The Market for INFRATEK(R) and Plan of Marketing
The potential users of the INFRATEK(R) system include commercial
passenger airlines, air cargo haulers, military installations, and the general
aviation industry.
The Company estimates the primary North American market of major hub,
medium-sized and regional airports to be approximately 750 locations, with
approximately an additional 750 locations in Europe. Some of these 1,500
locations have traffic volumes which could justify installation of multiple
INFRATEK(R) systems. Primary locations include those with suitable weather
patterns, as well as some warm weather locations (e.g., Atlanta) where icing
occurs. Company owned Deicing Service Centres ("DSCs") are planned to be located
in high-traffic locations to be operated by an airline, with direct sales taking
place to the airports and the military. A DSC is a facility housing an
INFRATEK(R) system which is either owned or leased by the Company and operated
by an airline, airport authority, or third party.
The Company plans to generate revenues:
o by owning or leasing DSCs at major hub locations;
o through direct sales to end users, with or without a per use
deicing licensing fee; and
o from maintenance agreements.
DSCs
The Company plans to own or lease the INFRATEK(R) systems at the major
airline hubs and enter into management contracts with an airline or general
aviation service company to operate the system at the airport. Revenues will be
shared between the Company and the operator of the system. The operator will be
responsible for the operating costs.
Direct Sales
The Company plans to sell INFRATEK(R) systems primarily to airports
with low traffic volume. The Company also plans to make direct sales to the
military. As a condition of these sales, the purchaser may be assessed a royalty
fee based on use.
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Maintenance Contracts
The Company plans to offer maintenance services for its INFRATEK(R)
system on a fixed fee basis.
THE AVIATION INDUSTRY AND DEICING
The Deicing of Aircraft
The aviation services industry includes aircraft fueling, cargo
warehousing, maintenance of aircraft, ground support equipment and aircraft
deicing. The FAA currently requires that aircraft prepared for flight must be
free and clear of frozen contamination (frost, snow and ice). This requirement,
the "clean aircraft concept", has been a major factor in both the decrease in
the number of ice related aircraft crashes since 1992 and the increase in the
amount of glycol used in deicing.
Although the FAA regulates the airline industry, standards for deicing
are determined by the airlines and individual airports. The traditional and most
common method of aircraft deicing consists of spraying a mixture of hot water
and the chemical glycol on the contaminated surfaces. A substantial capital
investment in traditional deicing infrastructure has already been made by the
airline industry, principally in tanker trucks equipped with booms, training
programs, and contaminant removal and disposal facilities for recovery and
containment of used glycol.
The Environmental Issues
Environmental issues associated with glycol have prompted the
Environmental Protection Agency to protest the increased utilization of
chemical-based technologies for deicing operations. Glycol chemicals used in
deicing fluids pose health hazards to operators including eye irritation,
central nervous system depression, and kidney and liver damage. The
environmental risks have prompted increasingly tighter procedures and techniques
in the handling, use and disposal of these chemicals. As a result, airports are
developing multi-million dollar deicing fluid recovery, containment and
disposal facilities. The Company's technology addresses these environmental and
industry issues by providing a service that reduces operating costs,
environmental risks, operating risks, and health risks by significantly reducing
the need for these chemicals.
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FAA Approval and Recognition
The FAA approved for use the INFRATEK(R) deicing system in 1997. In
June 1997, the FAA awarded the Company its 1997 Environmental Award in
recognition of the Company's efforts to develop a more environmentally
responsible method of deicing aircraft. The Company won the 1997 Technology and
Innovation Award presented by Aviation Week & Space Technology Magazine. The
editors of Discover Magazine nominated the Company for the magazine's Award for
Technological Innovation. In February 1998, the Federal Laboratory Consortium
recognized the Company for its outstanding efforts in technology transfer
between industry and federal agencies.
The INFRATEK(R) system has been designated by the FAA as eligible for
Federal Airport Improvement Program and Passenger Facility Charge funding. As a
result, U.S. airports are eligible to apply for funding from these programs for
up to 90% of the total cost incurred to install an INFRATEK(R) system.
Environmentally Responsible Technology
Glycol used for deicing can enter streams, sewage and water supply
systems serving suburban and urban communities, contaminating surface water and
groundwater drinking systems. The Company's technology eliminates the need for
glycol chemicals used in the removal of ice, snow and frost from aircraft
surfaces.
Depending on weather conditions, a light spraying of glycol may be
applied to provide anti-icing protection. This last measure is not part of the
INFRATEK(R) system and is common in the industry.
Deicing
Overview
Aircraft deicing consists of the pre-flight removal of ice, snow and
frost from aircraft surfaces. Depending on weather conditions, the application
of anti-icing chemicals may be required after the deicing process to prevent
re-accumulation.
The use of deicing chemicals increased markedly in 1992 and 1993 as a
result of a commercial airliner crash which was suspected to be the result of
improper deicing at LaGuardia Airport in New York. In response to this incident,
the FAA mandated that aircraft be free of ice, snow and frost. Currently,
aircraft deicing is primarily accomplished through
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the application of chemical deicing solutions. Due to the hazardous
environmental and human safety effects of these chemicals, aircraft deicing
operations are facing increasing regulations and costs.
The Traditional Chemical Deicing Process Using Glycol
Glycol is applied to aircraft as a hot liquid most commonly in a
mixture of 50% glycol and 50% hot water. The hot water melts the ice; the glycol
is added to the hot water so it does not refreeze on the aircraft. This mixture
is applied under pressure using a nozzle mounted on a vehicle. The pressure of
the liquid hitting the surface of the aircraft mechanically removes snow and
ice, which is also melted by the heat of the solution. In addition, the
antifreeze properties of the compound remove snow and ice. The solution that
remains on the surface of the aircraft helps prevent refreezing. The amount of
deicing solution used on an individual aircraft can range from 10 gallons for
light frost on a small corporate jet to several thousand gallons for a large
commercial aircraft. Aircraft deicing is performed by the airline or by a
service company. Using conventional glycol sprays, airlines currently can pay
between $675 and $15,000 to deice a narrow body passenger jet, depending on the
amount of accumulation and weather conditions.
Traditional Deicing Environmental Infrastructure
Because most airports were built before environmental regulations for
polluted water runoff were enacted, the infrastructure needed to control large
quantities of deicing fluids does not exist at many airports. Deicing generally
takes place directly on the tarmac. Deicing chemicals may enter the "runoff" and
flow into nearby waterways. In 1987, under Clean Water Act revisions, storm
water runoff was recognized under federal law as a serious water pollution
problem, and the national storm water permit system was adopted to attempt to
control polluted runoff from urban areas, including industrial sites.
To minimize the potentially hazardous effects of aircraft deicing, some
airports use centralized deicing systems which drain into recycling tanks or
large retention ponds. Other airports collect storm water runoff through drains
and treat it before discharging it into a sanitary sewage system. In addition,
many larger airports conduct water monitoring studies. At other airports,
deicing fluid runoff flows directly into creeks and other tributaries.
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Competition
The Company faces competition primarily from two sources: (i) existing
chemical deicing methods and the related airport Ground Support Equipment
("GSE") infrastructure, and (ii) alternative deicing methods.
Ethylene and Propylene Glycol
The current method of deicing large aircraft is to first deice the
critical aircraft surfaces using so-called "Type I" or "Type II" ethylene glycol
fluids, which are specifically formulated for deicing applications(1). The
Company's principal competition, therefore, comes from the manufacturers of
ethylene and propylene glycol technology in combination with the GSE industry
infrastructure (i.e., deicing trucks, special booms, related procedures and
training programs, and the substantial existing and planned contaminant removal
and disposal facilities) and the companies committed to using glycol. Glycol
manufacturers and the GSE industry infrastructure have been operating without
any substantial competition from alternative deicing methods. The inertia
implicit in the long-standing relationship between chemical-based deicing
delivery systems, airports and airlines is strong and well entrenched.
The major producer of ethylene glycol in North America is Union Carbide
Corporation; other producers include Saudi Basic Industries Corp., Shell Oil
Company, Occidental Petroleum Corporation, Texaco Chemical Company, and BASF
Corporation.
Due to the potential environmental and human safety hazards posed by
ethylene glycol use, several major U.S. airlines, as well as the U.S. Air Force,
decided in 1993 to cease utilizing ethylene glycol for deicing. Instead, they
now use propylene glycol which has fewer adverse environmental effects than
ethylene glycol. According to one producer, Arco Chemical Co., propylene glycol
is as effective for deicing aircraft as is ethylene glycol, and has no harmful
effects on humans in this application. However, anti-corrosion chemicals added
to a propylene glycol deicer can render the substance just as toxic to aquatic
life as ethylene glycol-based deicing fluids.
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(1) In many cases, so-called "Type II" fluid is then applied for
anti-icing purposes to protect the deiced aircraft from re-accumulation of
frozen contamination prior to and during takeoff. The need to apply such
anti-icing chemicals to an aircraft after deicing is not eliminated by the
utilization of the INFRATEK(R) system.
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GSE Operators and Alternative Deicing Methods
The GSE industry has expanded and adapted its deicing equipment,
materials, and operating standards in an effort to provide acceptable service to
airline clients and comply with aviation and environmental regulations.
The increased attention placed on icing-related aircraft crashes has
resulted in an increase in the use of deicing chemicals. This, in turn, has
caused airport operating problems in the form of aircraft congestion and longer
holdover times. Airports have attempted to address the congestion and holdover
problems in a number of ways, including the construction of centralized remote
deicing facilities removed from gate activity.
A number of glycol spray truck manufacturers are reviewing other forms
of combined glycol and forced air, or hot forced air systems. To date, no air
only or combined air/glycol systems are in commercial operation or approved for
use by the FAA.
Intellectual Property
The Company was issued Patent #5,417,389 by the U.S. Patent and
Trademark Office on May 23, 1995. The Patent was re-issued on December 28, 1999
as Patent #36468. The Patent covers two aspects of the proprietary INFRATEK(R)
system:
(i) generating and focusing specific electromagnetic wavelengths
of radiant energy on a target surface; and
(ii) creating an increased component of radiant energy through
natural or propane gas.
The Company was issued Trademark #2,072,371 for "Infratek" by the U.S.
Patent and Trademark Office on June 17, 1997.
Material Contracts
The Boeing Capital Investment Agreement and Boeing Capital Financing Agreement
The Boeing Capital Investment Agreement
On June 30, 1999, the Company entered into an agreement with Boeing
Capital
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pursuant to which Boeing Capital (1) purchased 2,292,260 shares of common stock
of the Company ("Shares") for $2,330,243; (2) was granted the option to purchase
653,145 Shares at a price of Cdn. $1.35(2) per Share; and (3) was granted the
right of first refusal to provide financing on a case by case basis to the
Company for construction of INFRATEK(R) systems (the "Boeing Capital Investment
Agreement"). The Boeing Capital Investment Agreement, among other things, grants
Boeing Capital (1) proportionate representation on the Company's board of
directors and (2) pre-emptive rights and anti-dilution protection to enable
Boeing Capital to maintain its proportionate equity interest in the Company
should it elect to do so. In addition, Boeing Capital and certain shareholders
have entered into an agreement which provides that they will recommend to the
board of directors that Boeing Capital be allowed to increase its ownership to
25%. The agreement also grants to Boeing Capital the right of first refusal with
respect to all future financing of the Company's products for the period ending
on the fifth anniversary of the listing of the Company's shares on any exchange
or market in the United States. Boeing Capital's rights under these agreements
could potentially result in a change in control of the Company. See "Item 4.
Security Ownership of Certain Beneficial Owners and Management."
The Boeing Capital Financing Agreement
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(2) The following table sets forth the exchange rates for one Canadian
("Cdn.") dollar, expressed in terms of one U.S. dollar, for the past five years.
AVERAGE LOW HIGH YEAR END
1995 .7305 .7023 - .7527 .7323
1996 .7332 .7140 - .7472 .7301
1997 .7286 .7145 - .7513 .7233
1998 .6742 .6490 - .7020 .6521
1999 .6744 .6535 - .6944 .6944
The exchange rates are based upon the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York. At June 27, 2000, one Canadian dollar, as
quoted by Telerate and other sources at 4 P.M. Eastern Time for New York foreign
exchange selling rates (for bank transactions of at least $1,000,000), equaled
$.6755 in U.S. dollars. (Source: The Wall Street Journal.)
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The Company entered into an agreement with Boeing Capital dated June
24, 1999 (the "Boeing Capital Financing Agreement") in connection with entering
into the Boeing Capital Investment Agreement. The Boeing Capital Financing
Agreement provides that Boeing Capital will provide financing for the
construction of up to four (4) INFRATEK(R) systems to an aggregate of $10
million. The Boeing Capital Financing Agreement provides that upon the
construction of an INFRATEK(R) system by the Company, the Company will sell the
system to Boeing Capital, which contemporaneously will lease the system to the
Company. The lease term will be seven (7) years. The rent payable pursuant to
the lease will be equal to the sum of (i) 1.432% of the equipment cost, and (ii)
10% of the monthly deicing revenue from such system. The Company will be
responsible for maintaining insurance and all costs associated with the systems'
operations. The Company will have the option to purchase each INFRATEK(R) system
at fair market value, not to exceed 37.5% of its original cost, at the
expiration of the lease.
The Company sold the Newark Facility to a wholly-owned subsidiary of
Boeing Capital, MDFC, on December 20, 1999 for $3,383,700; the Newark Facility
cost $2,911,905 to construct. Contemporaneously with the sale, the Company
leased the Newark Facility for a period of eight years at a monthly rental of
approximately $49,000 plus 10% of the monthly deicing revenue.
The Continental Agreement
On September 9, 1999, RAS entered into an agreement with Continental
for, among other things, RAS to build an INFRATEK(R) system at a site controlled
by Continental at Newark International Airport. This installation, the Newark
Facility, was completed on December 20, 1999.
The Continental Agreement provides that Continental will (1) operate
the Newark Facility, (2) pay for all operating costs, (3) pay RAS a fee (in
accordance with an approved schedule of fees) for use of the INFRATEK(R) system,
and (4) share equally in all net revenues generated for advertising sold to
third parties, either on the inside or outside of the Newark Facility. RAS is
responsible for costs of all future capital repairs.
The Continental Agreement also grants Continental the option to
purchase the Newark Facility after May 1, 2000, and before the later of (i) May
1, 2002 or (ii) 30 days after the Newark Facility is completed. The purchase
option price ranges from $3,322,793 on May 1, 2000 to $2,815,238 on May 1, 2002.
If Continental exercises the purchase option, Continental will pay RAS $150 for
each deicing treatment of a non-Continental aircraft and $75 for each deicing
treatment of a Continental aircraft.
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The Lufthansa Agreement
On May 10, 1999, RAS entered into a contract with Lufthansa Engineering
and Operational Services Gmbh for Lufthansa, on a non-exclusive basis, to
provide for the installation, sale, maintenance and service of INFRATEK(R)
systems in Europe and Scandinavia. Lufthansa was granted a right of first
refusal, on a project by project basis, for the installation, maintenance and
service of INFRATEK(R) systems in these areas. RAS is obligated to pay Lufthansa
10,000 D.M.(3) per year regardless of whether sales are made. If a sale is made
by Lufthansa, RAS is obligated to pay a 5% commission on each sale. RAS has the
right to cancel the contract after December 31, 2002 if Lufthansa has not sold a
minium of two systems by that date. If not canceled, the Lufthansa contract will
automatically renew for one (1) year periods beginning December 31, 2002, unless
terminated by either party.
Distribution Agreement for Norway, Sweden, Denmark, Finland and Iceland
On March 17, 1997, the Company entered into a distribution agreement
with Oakmoor Enterprises Inc. Under the distribution agreement, Oakmoor
Enterprises was appointed the Company's exclusive distributor of deicing systems
in Norway, Sweden, Denmark, Finland and Iceland. Oakmoor Enterprises is required
to sell a minimum of five deicing systems during the initial five-year term of
the distribution agreement. The distribution agreement is automatically
renewable for a further five year term if the minimum sales requirement is met.
Corporate Development
REC was incorporated under the laws of Ontario, Canada on October 21,
1994 as a private company. On February 21, 1996, it was continued as a Canadian
federal corporation and amalgamated with Northern Atlas Inc. ("Northern Atlas"),
an inactive, publicly held Canadian corporation. The new company continued as
Radiant Energy Corporation. REC was deemed the acquirer for accounting purposes
and its assets and liabilities were recorded at their historic values at the
date of acquisition.
Pursuant to the amalgamation, shareholders of Northern Atlas received
one (1) share in the amalgamated company for every four (4) shares held of
Northern Atlas; REC shareholders received two (2) shares in the amalgamated
company (now REC) for each share held in their company. The amalgamation was
approved by the shareholders of both
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(3) At June 27, 2000, one (1) Deutsche Mark (D.M.) equaled $.4837.
(Source: Wall Street Journal.)
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companies. Immediately after the amalgamation, there were 6,461,837 common
shares ("Shares") of REC outstanding, approximately 96% of which were issued to
the shareholders of REC prior to the amalgamation.
REC has one subsidiary, RAS, a New York corporation, incorporated on
November 5, 1992, through which it conducts all of its operations. RAS changed
its name from Process Technologies, Inc. effective March 29, 1999.
Enforceability of Certain Civil Liabilities
The enforcement by investors of civil liabilities under the United
States federal securities laws may be adversely affected by the fact that REC is
organized under the laws of Canada, and that some of REC's officers and
directors are neither citizens nor residents of the United States. There can be
no assurance that (i) REC's U.S. shareholders will be able to effect service of
process within the United States upon such persons, (ii) REC's U.S. shareholders
will be able to enforce, in United States courts, judgments against such persons
obtained in such courts predicated upon the civil liability provisions of United
States federal securities laws, (iii) appropriate foreign courts would enforce
judgments of United States courts obtained in actions against such persons
predicated upon the civil liability provisions of the federal securities laws,
and (iv) the appropriate foreign courts would enforce, in original actions,
liabilities against such persons predicated solely upon the United States
federal securities laws.
Risk Factors and Investment Considerations
Investment in the Company's Shares is speculative and subject to many
substantial risks.
1. Dependence Upon Relationships With Boeing Capital and Continental.
The Company is dependent upon working relationships it has established, and
agreements it has entered into, with Boeing Capital and Continental. These
relationships and agreements have provided the Company with investment capital,
operating expertise and marketing assistance. The Company would be adversely and
materially affected in the event that either of these companies fails to perform
its obligations under its respective agreements or the agreements are cancelled,
or the respective relationships deteriorate.
2. The Company's Marketing Plan May Need to be Modified. As a
relatively young company introducing a new technology, the Company will be
regularly monitoring and reviewing its marketing plan in order to make
appropriate modifications to it based upon
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feedback from the market.
The Company presently plans to market its technology by (a) operating
DSCs in conjunction with airline industry partners, and (b) selling deicing
systems. There can be no assurance that this marketing plan will be effective or
that management will be able to formulate an alternative marketing plan which
will be effective. If the Company is unable to execute its current marketing
plan or modify it, if necessary, the Company will be materially and adversely
affected.
3. Resistance of Airline Industry to the Company's Technology. There
may be substantial resistance by the airline industry to adopt the Company's
INFRATEK(R) technology. Such resistance could be caused by any one or more of
the following factors: (a) uncertainty of effectiveness, safety and cost of the
INFRATEK(R) system, (b) additional capital expenditures required to implement
INFRATEK(R) deicing technology, (c) concerns about general liability issues
respecting INFRATEK(R) deicing technology, (d) substantial existing investments
in traditional chemical deicing infrastructure and methods, and (e) substantial
investment in glycol containment systems, which will continue to be required
(for anti-icing) with the INFRATEK(R) system. If the Company is unable to
successfully overcome any such resistance, the Company will be materially and
adversely affected.
4. Environmental Issues and Liabilities. Although the Company's
INFRATEK(R) deicing system does not use hazardous chemicals for deicing,
hazardous deicing chemicals are regularly used after the INFRATEK(R) system to
prevent new ice build-up. Accordingly, the Company's operations could be
affected by environmental issues and liabilities encountered by the traditional
chemical deicing industry. Some of these issues involve (a) worker safety, (b)
protection of the environment, (c) construction of facilities to collect,
contain and dispose of the chemicals, and (d) compliance with governmental
regulations. The failure of the Company to effectively address and resolve such
issues as they are anticipated or arise could have a material, adverse affect on
the business.
5. Substantial Lease Obligations. The Company presently has substantial
lease obligations to an affiliate of Boeing Capital, and minimal revenues from
operations. If the Company is unable to satisfy its lease obligations, the
Company will be materially and adversely affected.
6. The Company's Business is Dependent Upon the Weather. Demand for
deicing services only exists when weather conditions of frost, freezing rain,
sleet and snow are present. Accordingly, the Company's business is cyclical,
being linked to the seasons and weather patterns. Since the Company's initial
market focus is North America, management believes that the peak demand for its
services will be approximately six (6) months long from
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approximately November 1 - April 30. If North America experiences unseasonably
mild weather, there will be reduced demand for deicing in general and reduced
demand for the Company's INFRATEK(R) system, in particular. Mild weather would
have a materially adverse affect on the Company.
7. Sufficiency of Liability Insurance. The Company presently has
$100,000,000 in general liability coverage. In addition, Continental maintains
general liability coverage of $100,000,000 which only covers the Company with
respect to operations with Continental. There can be no assurance that these
insurance policies are adequate for the Company's operations or that they will
be maintained. If claims are made against the Company for losses allegedly
incurred as a result of the Company's technology or operations and insurance
coverage is not in effect or adequate, the Company would be materially and
adversely affected.
8. Additional Technical Development of the INFRATEK(R) Technology May
be Required. The Company is considering making certain modifications to the
INFRATEK(R) system in order to increase its efficiency and lower operating
costs. Presently, the most important change being considered by management
involves the integration of a system of air blowers into the process which would
remove accumulated, loose snow prior to applying the infrared energy from the
Company's heating devices. There can be no assurance that the Company will be
able to develop and integrate an air blower system into the INFRATEK(R) system
that will increase the system, efficiency or result in reduced operating costs
or that any other desirable or necessary modifications can be made cost
effectively, or at all. In such event, the Company could be materially and
adversely affected.
9. Additional Financing Requirements and Access to Capital. The Company
anticipates that it will be necessary to raise substantial additional funds in
order to pursue its business. There can be no assurance that any funds will be
available on acceptable terms, or at all.
10. New Business; Continued Dependence on Securing Additional
Financing; Shareholder Dilution. The Company is subject to all of the risks
attendant to young business ventures including, without limitation, raising
capital, acquiring or developing complementary services or technologies which
can be marketed as intended, entering into strategic relationships with other
companies, obtaining necessary personnel, establishing and/or penetrating
markets for such services, and achieving profitable operations, of which there
can be no assurance. Investors should not purchase any Shares unless they are
prepared, and can afford, to lose their entire investment.
As a young business having low sales and revenues, management
anticipates that the
17
<PAGE>
Company will be dependent over the foreseeable future upon securing additional
financing, of which there can be no assurance. In order to obtain additional
financing, if available, it is likely that the Company will sell additional
Shares or financial instruments which are exchangeable or convertible into
Shares, resulting in substantial dilution to all shareholders. In order to
provide incentives to current employees and offer attractive compensation
packages to prospective employees and consultants, the Company intends to
continue to offer and issue options to purchase Shares and/or rights,
exchangeable or convertible into Shares; the exercise of such options and/or
conversion of such other exchangeable or convertible rights into Shares could
result in substantial dilution to all shareholders.
11. Competitive Disadvantage of Company. The Company operates in a
highly competitive environment, and against other corporations, many of which
have substantially greater financial, marketing and other material resources.
These other companies, with substantial capital investment and financial stakes
in traditional chemical deicing methods, have a strong incentive to vigorously
compete with the Company in order to maintain market control and dominance.
Accordingly, the Company is at a substantial competitive disadvantage with
respect to these other companies.
12. Dependence Upon and Retention of Key Personnel. The Company is
heavily dependent upon its senior management team. The continued availability of
this team will be a major contributing factor to the Company's future growth. If
any member of senior management becomes unavailable for any reason, the Company
would be materially and adversely affected. The Company does not maintain
executive life insurance on any member of its senior management team.
The Company's ability to achieve its revenue and operating performance
objectives will depend on its ability to attract and retain qualified and highly
skilled sales, consulting, marketing and management personnel. It vies for all
of its personnel with other companies, where competition for such personnel is
intense and is expected to remain so for the foreseeable future. Failure to
retain and expand its key employees could adversely affect the Company's
business and operating results.
13. Volatility of Stock Price and Absence of Dividends. The market
price of the Shares has been and is likely to be highly volatile. Factors such
as a termination of strategic alliances, announcements of technological
innovations by others or new services offered by the Company or its competitors,
governmental regulatory actions, developments concerning proprietary rights of
the Company or its competitors (including litigation), period-to-period
fluctuations in the Company's operating results, changes in estimates of the
Company's performance by securities analysts, and other factors not within the
control of the Company, could have a significant adverse impact on the market
price of the Shares. The Company has
18
<PAGE>
never paid cash dividends on its Shares and does not anticipate paying any cash
dividends in the foreseeable future.
14. Limited Trading Market. The Shares trade over-the-counter in Canada
with bid and ask price quotes on the Canadian Dealing Network Inc. There can be
no assurance that an active public market will exist at any time or can be
sustained. Making a market involves maintaining bid and ask quotations for the
Shares and being available as principal to effect transactions in reasonable
quantities at those quoted prices, subject to various securities laws and other
regulatory requirements. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of willing buyers and sellers of the Shares at any given time,
which presence is dependent upon the individual decisions of investors over
which the Company has no control. Accordingly, an investor may be unable to sell
his or her Shares when he or she wishes to do so, if at all.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. These statements
relate to future events or our future business performance. In some cases, you
can identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should," or "will," or the negative of such
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors," that may cause actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels or activity, performance or achievements expressed or implied by
such forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. To the extent required by
federal law, we shall update these forward-looking statements after the date of
this registration statement to conform such statements to actual results.
The following discussions and analysis presents a review of the
consolidated condensed operating results and financial condition of the Company
including its subsidiary RAS for the years ended October 31 1999 and 1998, and
the six month periods ended April 30, 2000 and 1999 . This discussion and
analysis should be read in conjunction with the Consolidated Condensed Financial
Statements and Notes thereto contained herein.
19
<PAGE>
QUARTER IN REVIEW - APRIL 30, 2000
History of Losses
The Company has never generated a profit and, as a result, has
accumulated a significant deficit, as follows:
Losses from Operations $3,469,767
Research and development costs 2,955,908
Patent rights settlement 384,315
Cost from issuance of Shares 373,143
-------
Accumulated deficit April 30, 2000 $7,183,133
Liquidity and Capital Resources
During the six month period ended April 30, 2000, the Company's working
capital decreased from $2,315,000 at October 31, 1999 to $2,241,000, primarily
as a result of continuing operating losses that were largely offset by financing
activities. During that period, deposits and prepaid expenses decreased from
$1,203,316 to $24,412. Deposit and prepaid expenses at October 31, 1999 included
deposits with suppliers of $1,152,000, which decreased to nil as a result of the
completion of the INFRATEK(R) 2000 System at the Newark International Airport
and without the commencement of any new installations.
Short and Long Term Liquidity
Management expects that cash on hand will be sufficient to meet
reasonably foreseeable minimum working capital, capital expenditures and rental
requirements until January 2001. There is no assurance that assumed levels of
revenues and expenses will prove to be accurate. Unless the Company is able to
secure additional sales during the period, the Company will need to secure
additional financing in order to fund its continuing operations beyond January
2001. Based on the Company's low sales and revenues to date, it currently
anticipates that it will need to raise substantial additional funds in order to
continue to develop its business.
The Company is considering raising funds by selling additional
securities; there can be no assurance that any such efforts to raise funds will
succeed.
20
<PAGE>
In the event the Company is unable to generate sales or raise funds
selling securities, the Company may be forced to reduce its level of operations
and postpone planned development.
The Company's ability to open new de-icing installations is dependent
upon its ability to finance their construction. Currently, the Company has an
arrangement with Boeing Capital, which could provide financing to a maximum of
$10 million. However, Boeing Capital is under no obligation to provide any
financing. In the event that Boeing Capital does not provide financing, the
Company will be required to secure financing from other sources. There can be no
assurance that the Company will be able to obtain any such financing.
During the six month period ended April 30, 2000, the Company issued
Shares as a result of conversion of its 7% convertible subordinated debentures,
exercises of incentive stock options by employees, directors and consultants,
and exercise of stock options by Boeing Capital. In summary, capital stock was
changed by these transactions as follows:
<TABLE>
<CAPTION>
SHARES $
ISSUED
<S> <C> <C>
Outstanding at October 31, 1999 12,027,934 8,721,039
Issued upon conversion of 7% debentures - net of costs 603,060 431,922
Issued upon exercise of stock options 509,625 600,909
Issued upon exercise of stock options to Boeing Capital 304,739 281,087
------- -------
Outstanding at April 30, 2000 13,445,358 10,034,957
========== ==========
</TABLE>
After giving effect to these transactions, the following options and 7%
debentures were outstanding as of April 30, 2000:
o $273,160 of 7% debentures convertible into 294,492 Shares;
o incentive stock options exercisable for 768,145 Shares at
prices ranging from $0.78 to $4.05 and total potential gross
proceeds of $1,204,346; and
o Boeing Capital options to purchase 348,406 Shares at $0.91 per
Share (Boeing Capital exercised options to purchase 110,840
Shares for $110,000 after the end of the period).
Results of Operations
21
<PAGE>
During the six months ended April 30, 2000, the Company installed an
INFRATEK System 2000 at the Newark International Airport. On December 20, 1999,
the system was turned over to the operator, Continental, to commence training
and to start the process of system integration into their de-icing operations.
By the end of January, having treated over 20 aircraft, the training and
integration phase was substantially completed. Integrated operations began on
February 3, 2000. By April 30, 2000, Continental had treated over 60 aircraft at
the Newark Facility.
Revenue
For the six months ended April 30, 2000, revenues and the costs of
sales related to revenues were as follows:
<TABLE>
<CAPTION>
SERVICE
SYSTEM CENTER MAINTENANCE
SALES OPERATIONS SERVICE TOTAL
<S> <C> <C> <C> <C>
Sales $3,383,700 $25,217 $19,200 $3,428,117
Cost of Sales
Installation Cost 2,911,905 -- -- 2,911,905
Rent Revenue participation -- 212,300 -- 212,300
Other cost of sales -- 11,789 1,145 12,934
------ ----- ------
Gross Margin $471,795 $(201,401) $18,055 $288,449
======== ========== ======= ========
</TABLE>
During the six month period ended April 30, 2000, RAS received
$3,383,700 from the sale of the INFRATEK 2000 System installed at Newark
International Airport to MDFC. This facility cost RAS $2,911,905 to build. RAS
entered into an agreement to lease the facility back from MDFC. The Newark
Facility was placed in operation on December 20, 1999 and generated $25,217 in
revenue during the period. This lease was classified as an operating lease;
accordingly, the profit on the sale to MDFC was recorded in the period. The
Company also received $19,200 in maintenance revenue from the INFRATEK system at
Rhinelander Airport in Wisconsin.
Interest income in the first six months was $66,298 in 2000 compared to
nil in 1999. The Company received interest income on its daily cash balances and
from low risk term deposits.
22
<PAGE>
Marketing Expenses
During the six month period, the Company continued to expand its
marketing efforts. Marketing expenses in the period were $419,997 compared to
$154,348 in 1999. For the same period ended April 30, 1999, the Company incurred
costs for only one sales person for four months and limited expenditures on
general market activities such as travel and trade shows. For the six month
period ended April 30, 2000, the Company's marketing department consisted of
five individuals and incurred costs for new sales material and travel.
General and Administrative Expenses
General and administrative expenses for the first six months increased
to $645,134 in 2000 from $258,298 in 1999. Staffing levels remained constant
between 2000 and 1999. The Company incurred higher legal and accounting expenses
related to the registration of its Shares under the Securities Exchange Act of
1934. In the six month period ended April 30, 2000, the Company incurred
additional administrative expenses for consulting fees in connection with the
Boeing Capital financing, for consulting fees related to investor relations and
for executive search costs related to the recruitment of new executive
personnel.
Research and Product Development Costs
For the six-month period ended April 30, 2000 research and development
costs increased to $152,859 from $82,414 in the corresponding period in 1999.
The increase in research and development costs in the current period resulted
from the engagement of an independent aviation consultant to conduct comparative
tests of the INFRATEK(R) treatment with conventional deicing methods with
respect to refreezing on aerodynamically quiet areas of aircraft wings. The
Company also continued research on optional equipment that could be incorporated
into the system.
Interest on Long-term Debt
Interest expense for the six months ended April 30, 2000 decreased to
$4,735 from $15,846 in 1999. Interest expense in 1999 related to the 6%
debentures, which were converted in October 1999, and the 9% secured loan that
was retired in May 1999. Interest expense for the three months ended April 30,
2000 included a reversal of accrued interest equal to $9,971 on the 7%
debentures that were converted in the period.
Depreciation and Amortization
23
<PAGE>
Depreciation and amortization for the six month ended April 30, 2000
increased to $116,260 from $109,806 in 1999. The increase primarily resulted
from amortization of the costs related to the issuance of the 7% debentures.
The operating activities of the Company for the years ended October 31,
1998 and 1999 reflect a net use of cash in operating activities. However, an
overall increase in cash resources was reported for 1999 when investing and
financing activities are considered. This is consistent with the sale of Shares
to Boeing Capital and the need for resources to construct the Newark Facility.
Provision for Income Tax
At October 31, 1999, the Company had Canadian non-capital losses of
approximately $427,000 and net operating losses of approximately $5,316,000 for
tax purposes in the United States. For the six months ended April 30, 2000, the
Canadian non-capital losses incurred in the period were approximately $180,000
and the net operating losses incurred in the United States in the period were
approximately $785,000. These losses may be carried forward to reduce taxable
income in future years. The future benefit of these tax losses have not been
recorded in the financial statements.
If not utilized, the Company's cumulative Canadian losses as of April
30, 2000 will expire as follows:
2002 121,000
2003 17,000
2004 156,000
2005 133,000
2006 180,000
If not utilized, the Company's cumulative United States losses as of
April 30, 2000 will expire as follows:
2009 500,000
2010 1,020,000
2011 843,000
2012 1,686,000
24
<PAGE>
2013 1,267,000
2014 785,000
In addition, the Company has approximately $66,000 of cumulative costs
relating to the issuance of Shares, which are deductible over the next three
years. The potential income tax benefits relating to these accumulated losses
have not been recorded in the Company's accounts.
YEAR IN REVIEW - OCTOBER 31, 1999
Operational Highlights:
The Company made significant gains in the introduction of the
INFRATEK(R) technology to the market. Highlights for the year were:
o Hired sales and marketing staff from within the aviation
industry.
o Signed a strategic alliance with Lufthansa for European
distribution.
o Entered into an agreement with Continental for the
establishment of a DSC at Newark International Airport.
o Signed the Boeing Capital Investment Agreement and Boeing
Capital Financing Agreement.
Market Development
During the period, the Company commenced the implementation of its
strategic plan to introduce INFRATEK(R) technology to the aviation market place.
The Company developed a dual marketing approach, as follows:
1) Sell INFRATEK(R)systems and charge a user license fee per
deicing; and
2) Provide deicing services in a Company owned DSC.
To enhance recognition within the industry, the name of the Company's
wholly owned subsidiary was changed from Process Technologies, Inc. to Radiant
Aviation Services, Inc. Senior representatives of the Company met with key
personnel from several major airlines
25
<PAGE>
based in the United States, and the Company attended major trade shows in North
America and Europe. Other marketing activities included attendance at aviation
conferences, print advertising in aviation trade publications, multi-media video
and CD-ROM presentations, brochures and promotion of a website
(www.radiantenergycorp.com).
During the period, the Company expanded its sales and marketing
personnel. In January 1999, Robert Maier was appointed Vice President of Sales
and Service. Mr. Maier brought to Radiant 30 years experience in operational and
technical marketing roles at American Airlines, Inc., and its subsidiary, AMR
Services Inc. In his most recent position as Assistant Vice President -
Technical Sales at AMR Services Inc., he was responsible for all technical sales
and the introduction of new technology to the aviation industry.
Lufthansa Agreement for Europe
In May 1999, the Company announced that it had entered into an
agreement with Lufthansa to use its best efforts to promote the installation,
sale, maintenance and service of INFRATEK(R) aircraft pre-flight deicing systems
in Europe and Scandinavia. Lufthansa has decades of experience in the de-icing
of aircraft and specializes in providing professional solutions pertaining to
all aspects of the ground handling of aircraft. Its services include aircraft
towing and pushback, the procurement, maintenance and overhaul of ground-support
equipment, and the ground transportation of airline passengers and crews.
Installation at Newark International Airport
For over a year, management held discussions with officers and
employees of Continental in connection with the installation of an INFRATEK(R)
System at Newark International Airport. In September 1999, the Company signed an
agreement to install an INFRATEK(R) deicing system as part of Continental's
global gateway construction project at its major hub at the Newark International
Airport.
Revenues
Revenues were generated from the maintenance agreement with the
Rhinelander Airport in Wisconsin. The maintenance agreement was in effect until
March 2000. In 1999 no new systems were sold. The Company shares in revenues
generated from the Buffalo Airport DSC with Prior Aviation Services, the
operator of the facility. No deicing revenues were generated for the Company
during the year.
Interest income increased to $37,471 from $6,155 in 1998. The increase
resulted from
26
<PAGE>
a higher average cash balance than in 1998.
Marketing Expenses
Marketing expenses increased to $433,192 from $191,881 in 1998. Prior
to 1999, the Company was engaged primarily in product development and market
research. In the year the Company increased it's marketing expenses through the
addition of sales and marketing personnel, expenditures on sales literature,
print advertising and attendance at trade shows.
General and Administrative
General and administrative expenses decreased to $618,412 from $697,426
in 1998. The decrease in expenses was attributable to lower professional fees
and administrative salaries.
Research and Product Development
Research and product development expenses were reduced to reflect the
change from product development and market research to an early stage
operational company. The expenses in 1999 reflect the salaries and benefits of
those employees primarily engaged in product development ($161,087) and other
costs related to product research and development ($28,323).
Depreciation and Amortization
Depreciation and amortization was reduced to $128,843 from $156,746 in
1998. As at October 31, 1999, as a result of the Company's increased economic
activity in the U.S., and high level of sales and significance of U.S. dollar
denominated assets to operations, the U.S. dollar became the functional currency
of the Company's operations. Effective the same date, the U.S. dollar was
adopted as the reporting currency. The conversion from the Canadian dollar to
U.S. dollar as the functional currency resulted in an adjustment to depreciation
and amortization. Had the adjustment not been made, the depreciation and
amortization for the year would have been slightly higher in 1999 than 1998.
Interest Expense
Interest expense increased to $40,606 from $27,064 in 1998. The
increase resulted from the issuance of the 7% debentures in May 1999 and an
increase in the principal amount of the 9% secured loans.
27
<PAGE>
Cash Resources
The operating activities of the Company for the years ended October 31,
1998 and 1999 reflect a net use of cash in operating activities. However an
overall increase in cash resources was reported for 1999 when investing and
financing activities are considered. This is consistent with the sale of Shares
to Boeing Capital and the need for resources to construct the Newark Facility.
Please refer to the analysis of the detailed components of non-cash working
capital items.
Income Tax
At October 31, 1999, the Company had Canadian non-capital losses of
approximately $427,000 and net operating losses of approximately $5,316,000 for
tax purposes in the United States. These losses may be carried forward to reduce
taxable income in future years.
The significant components of the Company's deferred tax liabilities
and assets are as follows:
<TABLE>
<CAPTION>
October 31, 1999 October 31, 1998
$ $
<S> <C> <C>
Deferred tax assets
Income tax losses available for carryforward 2,680,000 2,020,000
Less valuation allowance (2,680,000) (2,020,000)
Net deferred tax assets ---- ----
Deferred tax liabilities
Temporary differences comprehensive 4,402 8,118
income
Total deferred tax liabilities 4,402 8,118
</TABLE>
Liquidity and Capital Resources
The Company raised adequate funds to meet its requirements. Key
transactions and events were as follows:
o Rights offering for 7% debentures that raised $1,277,985 (Cdn.
$1,889,300) of gross proceeds was completed.
28
<PAGE>
o Loans from directors equal to $305,571 were received; and
$286,054 of such loans from directors were converted into
Shares.
o Private placement of Shares to Boeing Capital for $2,223,712
(net of expenses) was completed.
o Credit facility for $10,000,000 for the construction of DSCs
was established.
o $617,530 of outstanding 6% debentures and 7% debentures were
converted into Shares.
Completed Rights Offering for 7% Debentures
In May 1999, the Company raised approximately $1.28 million in a rights
offering of 7% debentures. The proceeds were used to retire existing
indebtedness and for working capital. The 7% debentures mature on May 31, 2004,
bear interest at an annual rate of 7% payable semi-annually, and are convertible
at the option of the holders at any time at a conversion price equal to Cdn.
$1.15 per Share if converted prior to May 31, 2000 or Cdn. $1.45 per Share
thereafter. The 7% debentures are guaranteed by RAS, and are redeemable at the
option of the Company on or after the first anniversary of the date of issue
provided that the weighted average price of the Shares, for a specified period
of time, equals or exceeds Cdn. $2.50 per Share.
Director's Loans
$305,571 in additional loans from directors and others associated with
directors was received. In May and June 1999, all outstanding loans from these
persons in the aggregate amount of $504,257 were retired. Of the total
outstanding, $286,054 was converted into 366,647 Shares at Cdn. $1.15 per Share,
and the remaining loans were repaid from the proceeds of the 7% debentures.
Private Placement of Shares with an officer of the Company
In April 1999, Colin V.F. Digout, an officer of the Company, purchased
250,000 Shares in a private placement for total proceeds of Cdn. $305,280.
29
<PAGE>
The Boeing Capital Investment Agreement
The Company and Boeing Capital entered into an agreement dated June 30,
1999 for the sale of 2,292,260 Shares and grant of 653,145 options to Boeing
Capital to purchase Shares for an aggregate purchase price of approximately $2.3
million. The options are exercisable from time to time over five years, and
entitle Boeing Capital to purchase up to 653,145 Shares at $0.91 (Cdn. $1.35 per
Share). In addition, Boeing Capital was granted a pre-emptive right to maintain
its proportionate equity interest in the Company.
The Boeing Capital Financing Agreement
In a related transaction, on June 24, 1999 RAS and Boeing Capital
entered into an agreement pursuant to which Boeing Capital will provide up to
$10 million in financing for the construction of DSCs. Boeing Capital also has
the right to provide lease financing to qualified customers of the Company.
Redemption and Conversion of 6% Debentures and 7% Debentures
In September, all outstanding 6% debentures were converted into Shares
at a rate of Cdn. $1.25 per Share. Under the terms of the 6% debenture offering,
the Company granted the option to purchase up to $84,626 of the 6% debentures to
the placement agent. In May 1999, the agent exercised its option to purchase
$52,313 worth of the 6% debentures. In June, the placement agent converted its
6% debentures into Shares.
From the date of issuance on May 28, 1999 to October 31, 1999, 7%
debentures with a face value of $486,170 (Cdn. $793,800) were converted into
690,284 Shares at Cdn. $1.15 per Share.
Share Capital
In summary the Share capital changed by the following transactions:
<TABLE>
<CAPTION>
SHARES
ISSUED $
<S> <C> <C>
Outstanding at October 31, 1998 8,105,657 5,243,320
Issued upon conversion of 6% debentures - net of costs 161,920 131,360
Issued upon conversion of 7% debentures - net of costs 690,284 486,170
Issued upon conversion of 9% secured loans 366,647 286,054
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
SHARES
ISSUED $
<S> <C> <C>
Issued upon exercise of stock options 54,500 48,123
Issued upon exercise of compensation options to agents 80,000 74,354
Issued for officer for cash 276,666 227,946
Issued to Boeing Capital - net of costs 2,292,260 2,223,712
--------- ---------
Outstanding at October 31, 1999 12,027,934 8,721,039
========== =========
</TABLE>
YEAR IN REVIEW - OCTOBER 31, 1998
Operational Highlights
Revenues
The Company realized its first revenue from the sale of a system to
Rhinelander Airport in Wisconsin and from the DSC at the Buffalo Airport. In
February 1998, the Company completed the construction of the system in
approximately thirty (30) working days. The revenues from the sale were $949,610
and the direct contribution margin was 34.1%.
During the year, the Company completed its first full season of
operations at the Buffalo Airport. Prior Aviation Services used the INFRATEK(R)
system 233 times to deice 29 different types of aircraft. The various aircraft
deiced included Saab 2000, Bombardier Dash 8, T-38 military jet, Gulfstream G-3,
military helicopters, and a variety of corporate aircraft.
Operating Expenses
Operating costs, other than depreciation and the patent rights
settlement, increased to $1,071,897 from $945,384 in 1997. The increase was
primarily attributed to the re-acquisition of Canadian marketing rights for Cdn.
$150,000. Cost also shifted from product research to expenditures on efforts to
increase product awareness through the addition of sales agents and through the
increase in other market development expenses, such as attendance at trade
shows.
Research and Product Development Cost
Product development and market research costs increased in the year to
$869,610 from $713,652 in 1997. The increase in costs mainly reflect efforts to
increase product awareness through the addition of sales agents and through the
increase of other market development
31
<PAGE>
expenses, such as attendance at trade shows.
Patent Rights Settlement
The Company incurred an expense of $384,315 in settlement of a lawsuit
involving the Company's ownership rights to the patent for the INFRATEK(R)
technology. In July 1995, the Company, along with its two founders, C. John Chew
and Timothy P. Seel, commenced a lawsuit in Buffalo, New York against
Roberts-Gordon, Inc. ("Roberts-Gordon") to declare the Company to be the sole
owner of the patent. This action was commenced following receipt by the Company
of a letter from Roberts-Gordon demanding ownership of the patent based upon the
prior employment of Messrs. Chew and Seel with Roberts-Gordon.
In May 1996, Roberts-Gordon commenced an action in Erie County, New
York, against the Company and Messrs. Chew and Seel for money damages. The
complaint alleged two claims. The first claim (alleged against all three
defendants) related to the use of Roberts-Gordon "confidential information".
The second claim (against the Company and John Chew only) alleged tortuous
interference with contractual relations. The allegations in this complaint were
similar, but not identical, to what was alleged in the counterclaim in the
action commenced by the Company.
In April 1998, the lawsuits were settled. As a result of the
settlement, the Company's ownership of the patent was confirmed and
Roberts-Gordon agreed, for a period of five years from the date of the
settlement, not to compete with the Company in the business of selling systems
to de-ice aircraft before take-off as a manufacturer, supplier, manufacturer's
representative or any other capacity throughout the world. In return, the
Company agreed not to compete in the infrared heating industry as a
manufacturer, supplier or manufacturer's representative throughout the world for
a period of five years.
Depreciation and Amortization
Depreciation taken on the DSC at the Buffalo Airport resulted in an
increase in depreciation from $69,613 in 1997 to $156,746 in 1998.
Liquidity and Capital Resources
The operations were funded by the gross margin from revenues generated
in the year ($344,008), the private placement of a 9% secured loan from
directors and affiliates ($198,686), the issuance of Shares ($252,683), and cash
on hand at the beginning of the year ($348,800).
32
<PAGE>
During the year, 37,648 warrants were exercised at Cdn. $2.50 each ,
and 74,950 incentive stock options were exercised, for a total of $111,544.
During the year, 6% debentures with a face value of $547,660 were converted into
872,600 Shares, leaving a 6% debenture balance at October 31, 1998 equal to
$85,748.
Item 3. Description of Property.
The Company leases its 6,000 square foot corporate offices in Orchard
Park, New York. The lease payment is $44,000 per year; the lease expires May 15,
2001.
The Company leases the Newark Facility (which houses the Company's
first major commercial installation of an INFRATEK(R) system) from MDFC, an
affiliate of Boeing Capital. The lease term is for seven years; the monthly
rental is approximately $49,000 plus ten (10%) percent of the monthly deicing
revenue. See "Item 1. Description of Business", "Material Contracts."
Item 4. Security Ownership of Certain Beneficial Owners and Management.
At May 1, 2000, there were 13,445,358 Shares outstanding.
(a) At such date, the following persons are believed to beneficially
own 5% or more of the outstanding class:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Type of Class Beneficial Owner of Beneficial Owner Percent of Class
<S> <C> <C> <C>
Shares Boeing Capital 2,596,999(1)(2) 19.32%
Services Corporation
4060 Lakewood Blvd
6th Fl.
Long Beach, CA
90808 1700
Shares David Williams 995,594 (1)(3) 7.4%
90 Roxborough St. E.
Toronto, Ontario
M4N 1V8
</TABLE>
At such date, CDS & Co. of Toronto, Canada was the registered holder of
5,805,253
33
<PAGE>
Shares or 43.17% of the outstanding class; and CEDE & CO., with offices in New
York, New York, was the registered holder of 4,377,020 Shares, or 32.55% of the
outstanding class. The beneficial owners of the Shares held by CDS & CO. and
CEDE & CO. are not known.
Notes:
(1) On June 30, 1999 Boeing Capital and the Company entered into the
Boeing Capital Investment Agreement pursuant to which Boeing Capital purchased
2,292,260 Shares and was granted options to purchase a total of 653,145 Shares
at a price of Cdn.$1.35 per Share. The options are exercisable within 30 days
(the "Exercise Period") from the end of each fiscal quarter of the Company on
the basis of one option for each four Shares issued by the Company during the
preceding fiscal quarter. The options are exercisable only to the extent that
the Company has issued additional Shares within that preceding fiscal quarter
upon the conversion or exercise of other convertible or exchangeable securities
of the Company outstanding as at June 30, 1999. When the Company, as a result of
the exercise of other convertible or exchangeable securities, issues Shares and
Boeing Capital elects not to exercise that portion of the options which it is
entitled to exercise, that portion of the options which are not so exercised
within the Exercise Period will terminate at the end of that Exercise Period.
All options granted to Boeing Capital expire on June 30, 2004. As at April 30,
2000, Boeing Capital had exercised all of the options it was entitled to
exercise during the first Exercise Period and, pursuant thereto, an additional
304,739 Shares were issued to Boeing Capital, for a total of 2,596,999 Shares.
In addition, the Company has granted to Boeing Capital a pre-emptive right to
acquire additional securities of the Company to permit it to maintain its
proportionate interest in the equity securities of the Company. The pre-emptive
right expires on June 30, 2001.
(2) On June 30, 1999, Boeing Capital, C. John Chew ("Chew"), Timothy P.
Seel ("Seel"), Kathleen Seel (the spouse of Seel), David A. Williams
("Williams") and Roxborough Holdings Limited ("Roxborough") entered into a
shareholders agreement (the "Shareholder's Agreement"). Chew, Seel, Williams Ms.
Seel and Roxborough, agreed to vote in favor of the election of Boeing Capital's
designated nominees to the board of directors of the Company. These shareholders
also agreed to recommend to the board of directors of the Company that Boeing
Capital be permitted to increase to 25% its proportionate interest in
outstanding Shares if and when the Company intends to issue additional Shares.
The Shareholders Agreement terminates on or before June 30, 2001.
(3) The Shares owned by Mr. Williams are held in a retirement savings
plan registered under the Income Tax Act (Canada) of which Mr. Williams is the
beneficiary. Mr. Williams has been granted options to acquire 122,600 Shares,
all of which are exercisable
34
<PAGE>
within 60 days of the date hereof.
(b) On May 1, 2000, management beneficially owned Shares as follows:
<TABLE>
<CAPTION>
Name and Address of Title of Amount and Nature of Percent of
Beneficial Owner Class Beneficial Ownership Class
<S> <C> <C> <C>
C. John Chew (Director) Shares 428,000 (Direct) 3.18%
113 Holiview Road
Ellicotville, New York 14731
Timothy P. Seel Shares 521,819 (Direct) 3.88%
(Director and Vice President)
139 Zimmerman Blvd.
Tonawanda, New York 14223
Robert J. Metcalfe (Director) Shares Nil Nil
84 Garmley Avenue
Toronto, Ontario M4V 1Z1
John M. Marsh (Director) Shares 155,882 (Direct) 1.16%
R.R.2 Cedar Crest
Port Colborne, Ontario L3K 5V4
David A. Williams Shares 995,594(5) 7.4%(5)
(Director and Chairman)
90 Roxborough St. E.
Toronto, Ontario M4N 1V8
Gregory G. O'Hara (Director) Shares 252,640(6) 1.88%(6)
14 Valley View
Toronto, Ontario M4T 1L2
Michael Lupynec (Director) Shares Nil Nil(7)
375 Parkside Drive
Toronto, Ontario M6R 2Z6
Thomas J. Motherway (Director) Shares 2,596,999(8) 19.32%
10482 Broadview Place
Santa Ana, California 92705
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Title of Amount and Nature of Percent of
Beneficial Owner Class Beneficial Ownership Class
<S> <C> <C> <C>
Colin V.F. Digout Shares 10,000(9) 0.07%(9)
(C.O.O., C.F.O. and
Secretary - Treasurer)
721 Sugarloaf Street
Port Colborne, Ontario L3K 2R6
Canada
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Title of Amount and Nature of Percent of
Beneficial Owner Class Beneficial Ownership Class
<S> <C> <C> <C>
Daniel O. Anderson (Director) Shares 2,596,999(8) 19.32%
630-103 Wakefield Court
Long Beach, California 90803
Robert D. Maier Shares 2,000 (Direct) 0.01%(10)
(Vice President of Sales
and Services)
107 Lindsey Lane
Orchard Park, New York 14127
</TABLE>
Notes:
(1) Mr. Chew has been granted options to acquire 10,000 Shares, all of
which are exercisable within 60 days of the date hereof.
(2) Mr. Seel has been granted options to acquire 55,742 Shares, all of
which are exercisable within 60 days of the date hereof.
(3) Mr. Metcalfe has been granted options to acquire 20,000 Shares, all
of which are exercisable within 60 days of the date hereof.
(4) Mr. Marsh has been granted options to acquire 49,437 Shares, all of
which are exercisable within 60 days of the date hereof.
(5) The Shares owned by Mr. Williams are held in a retirement savings
plan registered under the Income Tax Act (Canada) of which Mr. Williams is the
beneficiary. Mr. Williams has been granted options to acquire 122,600 Shares,
all of which are exercisable within 60 days of the date hereof.
(6) Of the Shares owned by Mr. O'Hara, 132,640 are held by Mr. O'Hara
directly, 10,000 Shares are held by the O'Hara Family Trust, and 120,000 Shares
are held by Hara Enterprises Ltd. a company wholly owned by Mr. O'Hara and
members of his family. Mr. O'Hara has been granted options to acquire 155,625
Shares, all of which are exercisable within 60 days of the date hereof.
(7) Mr. Lupynec has been granted options to acquire 32,500 Shares, all
of which are exercisable within 60 days of the date hereof.
37
<PAGE>
(8) These Shares are owned by Boeing Capital. Mr. Motherway is the
Chief Executive Officer of Boeing Capital and Mr. Anderson had been the Vice
President - Commercial Finance of Boeing Capital until his retirement on April
28, 2000.
(9) The Shares owned by Mr. Digout are held in a retirement savings
plan registered under the Income Tax Act (Canada) of which Mr. Digout is the
beneficiary. Mr. Digout has been granted options to acquire 45,000 Shares, all
of which are exercisable within 60 days of the date hereof.
(10) Mr. Maier has been granted options to acquire 37,500 Shares, all
of which are exercisable within 60 days of the date hereof. In addition, Mr.
Maier holds 7% debentures in the total principal amount of Cdn. $6,900 that are
convertible into a total of 6,000 Shares at any time up to May 31, 2000 and into
a smaller number of Shares thereafter until May 31, 2004.
(c) Other than as set forth herein, there are no arrangements known to
management which may result in a change in control of the Company.
Item 5. Directors and Executive Officers, Promoters and Control Persons.
(a) David A. Williams (58). Mr. Williams has been a member of the board
of directors since February, 1996 and was appointed Chairman of the Board on
January 10, 2000. From 1977 to the present, Mr. Williams has served as President
and portfolio manager for Roxborough Holdings Limited, a private investment
company. From 1969 to 1994, Mr. Williams served in various capacities, including
Chairman of the Board and Chief Executive Officer, with Beutal Goodman, a
securities dealer registered under the Securities Act (Ontario). Mr. Williams
currently serves as a director of several public companies, including Phoenix
Investment Partners, a U.S. based investment management company, Pico Holdings
Inc., a diversified holding company with investments in wholesale water and
storage, real estate and minerals, insurance and investment management, and
Equisure Financial Network Inc., a financial services company.
Colin V.F. Digout (47). Mr. Digout joined the Company in February 1998
as its Secretary/Treasurer. In March, 1998 he was appointed Chief Financial
Officer. In December 1998, Mr. Digout assumed the additional office of Chief
Operating Officer. Mr. Digout is responsible for the general management of the
Company, there being no designated Chief Executive Officer. From August 1988 to
February 1998, Mr. Digout was Vice President of Finance of Marsh Engineering
Limited, a company providing repair and manufacturing services to the marine,
utilities and heavy industries. Mr. Digout's responsibility included the
supervision of group controllers, the management of banking
38
<PAGE>
relationships and the preparation of financial information. Mr. Digout has been
a member of the Institute of Chartered Accountants of Ontario since 1980.
Timothy P. Seel (43). Mr. Seel is one of the Company's founders and has
served on the board of directors since January 1995. Mr. Seel is also the Vice
President of Engineering and is responsible for all of the Company's engineering
and project coordination activities. Mr. Seel has extensive training and over 20
years experience as an alternative energy resource and fuels combustion
engineer. He has worked extensively with gas approval authorities worldwide and
has established industry procedures in various operations. He maintains a
corresponding seat on the Accredited Standards Sub-committee for Gas Fired
Infrared Heaters. Mr. Seel has been involved in a range of new technology
developments in the energy utilization field and is credited as the inventor or
co-inventor on numerous U.S. and foreign patents, including the Company's
INFRATEK(R)technology.
Robert D. Maier (54). Mr. Maier joined the Company in January 1999 as
Vice President of Sales and Service. Mr. Maier is responsible for all aspects of
the Company's sales and service activities. Mr. Maier has over 30 years of
experience in aviation management. Mr. Maier has broad experience in aviation
management having held several positions with AMR Services , Inc., a subsidiary
of American Airlines, from 1991 to January 1999. Mr. Maier served as Assistant
Vice President Technical Sales & Services for AMR Services TX from 1997 to 1999
where he was responsible for new business development and sales for all aviation
maintenance services for 260 air carriers. From 1996 to 1997, Mr. Maier was
General Manager at AMR Los Angeles where he was responsible for the management
of international airport operations including coordinating the handling of
baggage within the eight terminal complex, cargo and passenger operations crew
and hotel shuttles and group equipment maintenance. From 1994 to 1995, Mr. Maier
was General Manager at AMR Hawaii where he was responsible for aircraft
maintenance and passenger and ramp services for contract carriers.
C. John Chew (64). Mr. Chew is one of the Company's founders and served
as President and Chief Executive Officer from 1994 to 1998 and Chairman of the
Board from 1996 to January 10, 2000. Mr. Chew is now retired from active
participation with the Company.
Michael Lupynec (52). Mr. Lupynec has been a member of the board of
directors since February 1996. Mr. Lupynec practices as a professional engineer
in Ontario, Canada. From 1999 to the present, Mr. Lupynec has served as Chief
Operating Officer of Advantech Solutions Inc., a company involved in software
development for staff and vehicle scheduling in the health care industry. From
1997 to 1999, Mr. Lupynec was an independent
39
<PAGE>
engineering consultant. From 1993 to 1997, Mr. Lupynec served as President and
Chief Executive Officer of American Sensors Inc., a manufacturing and
distribution company.
John M. Marsh (57). Mr. Marsh has been a member of the board of
directors since February 1996. From 1972 to 1999, Mr. Marsh was a director and
President of Marsh Engineering Limited, a company providing repair and
manufacturing services to the marine, utilities and heavy industries. Mr. Marsh
resigned his positions with that company in 1999. Mr. Marsh is a director of
Home Capital Group, a Toronto Stock Exchange listed company involved primarily
in residential mortgage funding.
Robert J. Metcalfe (59). Mr. Metcalfe has been a member of the board of
directors since February 1996. From January 1998 to the present, Mr. Metcalfe
has served as Executive Advisor of Developments and Legal Counsel of ClubLink
Corporation, a Toronto Stock Exchange listed company involved in the
acquisition, development and operation of best-of-class golf club and related
amenities. From 1997 to 1998, Mr. Metcalfe was Chairman of the Board of Cohesys
Corp., a real estate development company. From 1989 to 1997, Mr. Metcalf was
President and Chief Executive Officer of Armadale Properties Limited and General
Counsel to the Armadale Group of Companies, a privately-held family enterprise
with holdings in, among other things, aviation and charter airline services.
From 1970 to 1980, Mr. Metcalfe was a senior partner with Lang Michener, a
Toronto-based law firm.
Thomas J. Motherway (57). Mr. Motherway has been a member of the board
of directors since August 1999. From 1994 to the present, Mr. Motherway has
served as President and Chief Executive Officer of Boeing Capital, an indirect
subsidiary of The Boeing Company.
Daniel O. Anderson (58). Mr. Anderson has been a member of the board of
directors since April 2000. Mr. Anderson had been employed by Boeing Capital, an
indirect subsidiary of The Boeing Company, since its inception in 1968,
beginning as a financial analyst and most recently as Vice President -
Commercial Finance until his retirement on April 28, 2000. Mr. Anderson holds a
MBA degree and a B.S. of Science in International Trade degree from the
University of Southern California.
Gregory G. O'Hara (47). Mr. O'Hara has been a member of the board of
directors since February 1996. From 1987 to the present, Mr. O'Hara has served
as President of Hara Enterprises Limited, a privately held investment company.
40
<PAGE>
Item 6. Executive Compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
NAME PRINCIPAL YEAR SALARY SECURITIES
POSITION ($) UNDERLYING
OPTIONS
/SARS
<S> <C> <C> <C> <C>
Colin V. F. Digout Chief Operating 10/31/99 $99,231
Officer and Chief
Financial Officer(4)
Chief Financial 10/31/98 $52,307 64,000
Officer
C. John Chew Chairman 10/31/99 $90,000
President and 10/31/98 $108,056 6,000
CEO
President and 10/31/97 $76,500 7,500
CEO
Timothy P. Seel Vice President 10/31/99 $97,116 120,000
10/31/98 $92,519 3,738
10/31/97 $76,500 2,004
Robert D. Maier Vice President 10/31/99 $114,808
</TABLE>
Option/SAR Grants in Last Fiscal Year (ended October 31, 1999)
Individual Grants
--------
(4) The Company does not have a designated Chief Executive Officer.
41
<PAGE>
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in Price (Cdn. Expiration
Name Granted (#) Fiscal Year $/Share) Date
<S> <C> <C> <C> <C>
Colin V.F. Digout(5) Nil
Chief Operating Officer
C. John Chew 6,000 1.29% $3.70 Dec. 21, 2004
Director
Timothy P. Seel 100,000 $1.30 Dec. 18, 2003
Vice President, Director
20,000 $1.30 Jan. 21, 2004
120,000 25.78%
Robert D. Maier 50,000 10.74% $1.80 Dec. 18, 2003
Vice President
</TABLE>
Aggregated Options/SAR Grants in Last Fiscal Year and Fiscal Year End (ended
October 31, 1999 Option/SAR Values
Aggregated Exercises (in U.S. Dollars)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at at FY-End ($)
FY-End (#)
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Colin V.F. Digout - exercisable Nil Nil 50,000 $10,195
14,000 $9,515
64,000 $19,710
</TABLE>
--------
(5) The Company does not have a designated Chief Executive Officer.
42
<PAGE>
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at at FY-End ($)
FY-End (#)
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Number of Value of
C. John Chew-exercisable 12,000 $26,025 20,000 $4,076
C. John Chew-exercisable 6,000 Nil
Timothy P. Seel-exercisable 20,000 $4,078
2,004 $1,975
3,738 $3,811
100,000 $101,951
20,000 $20,390
145,742 $132,205
Robert D. Maier-exercisable 50,000 $33,984
</TABLE>
The Company has entered into employment agreements with C. John Chew,
Colin V.F. Digout, Robert D. Maier, and Timothy P. Seel, all of which obligate
the Company to make certain payments to the employee upon his termination or a
change in control of the Company, as defined in the agreement. All employment
agreements contain provisions requiring the employee to maintain the
confidentiality of Company information and, upon termination, preventing him
from competing with the Company.
C. John Chew, the Company's Chairman of the Board (until he resigned on
January 10, 2000) and director entered into an employment agreement with the
Company dated October 30, 1998, which provides for an annual salary of $90,000.
His salary terminates in July 2000.
Timothy P. Seel, director and Vice President of Engineering, entered
into an employment agreement with the Company dated November 1, 1999. Mr. Seel's
base salary is $100,000. In the event of Mr. Seel's termination for reasons
other than death, incapacity or cause (as defined in the agreement), the Company
is obligated to continue the base salary
43
<PAGE>
and any benefit arrangements for three (3) years, and make a lump sum payment
equal to the average annual performance bonus, if any, paid to him prorated for
a period of three (3) years.
Robert D. Maier, Vice President of Sales and Service, entered into an
employment agreement with the Company dated November 30, 1998. Mr. Maier's
current base salary is $100,000. In the event of Mr. Maier's termination for
reason other than death, incapacity, or cause (as defined in the agreement), the
Company is obligated to continue his base salary and any benefit arrangements
for two (2) years, and make a lump sum payment equal to the average annual
performance bonus, if any, paid to him, prorated for a period of two (2) years.
Mr. Maier was paid an additional, one-time payment of $40,000 pursuant to the
employment agreement.
Colin V.F. Digout, Chief Operating Officer, Chief Financial Officer and
Secretary/Treasurer entered into an employment agreement with the Company dated
February 2, 1999. Mr. Digout's current Base Salary is $100,000. In the event of
Mr. Digout's termination for reasons other than death, incapacity, or cause (as
defined in the agreement), the Company is obligated to continue his Base Salary
and any benefit arrangements for a period of two (2) years, and make a lump sum
payment to him equal to the average annual performance bonus, if any, paid to
him, prorated for a period of two (2) years.
The directors of REC are entitled to receive fees equal to Cdn. $5,000
per year plus Cdn. $500 per meeting for each meeting attended in person, and
Cdn. $250 per meeting for each meeting attended via telephone. Each director who
is a member of a committee of the board is entitled to receive Cdn. $250 per
meeting for each meeting attended and which is held separate from a meeting of
the board.
Item 7. Certain Relationships and Related Transactions.
On July 31, 1998, the Company entered into a loan agreement with
Timothy P. Seel, Heptagon Investments Ltd., E&M Machinery, a retirement savings
plan registered under the Income Tax Act (Canada) for the benefit of David A.
Williams, Patrick Brigham, and Hara Enterprises Limited pursuant to which the
Company borrowed approximately Cdn.$741,939. As at July 31, 1998, Heptagon
Investments Ltd. was a related party of Ian Barnett; E&M Machinery was a related
party of John M. Marsh; and Hara Enterprises Limited was a related party of
Gregory G. O'Hara. Messrs. Seel, Barnett, Marsh, Williams, Brigham and O'Hara
were then (and Messrs. Seel, Marsh, Williams and O'Hara continue to be)
directors or officers, or both, of the Company. Effective May 8, 1999, the
Company entered into agreements with each of the lenders (other than Mr.
Williams) for the repayment of the indebtedness owed to them and repaid such
indebtedness by issuing a total of 366,647 Shares
44
<PAGE>
at a price of Cdn.$1.15 per share and paying a total of Cdn.$111,500 in cash. On
June 3, 1999, the Company repaid the total indebtedness (approximately
Cdn.$208,794) owed to Mr. Williams.
On June 24, 1999, the Company and Boeing Capital entered into the
Boeing Capital Financing Agreement, pursuant to which Boeing Capital or its
assignee agreed to provide financing of up to $10,000,000 (or $2,400,000 per
facility) to RAS for the construction and installation of deicing facilities.
Thomas J. Motherway, a director of the Company, is President of Boeing Capital.
Daniel O. Anderson, a director of the Company, was Vice President - Commercial
Finance of Boeing Capital until his resignation on June 28, 2000. On December
20, 1999, RAS sold the Newark Facility to MDFC. By equipment lease agreement
dated December 20, 1999, RAS leased the Newark Facility from MDFC for a period
of 7 years or 84 months at a monthly rental of approximately $49,000 plus 10% of
deicing revenue.
On June 30, 1999, REC entered into the Boeing Capital Investment
Agreement with Boeing Capital pursuant to which Boeing Capital purchased a total
of 2,292,260 Shares and was granted options to purchase an additional 653,145
Shares at an exercise price of Cdn.$1.35 per Share. The purchased securities
represent a 20% ownership interest in the equity securities of the Company. The
options are exercisable within 30 days (the "Exercise Period") of the end of
each fiscal quarter of the Company commencing December 31, 1999 on the basis of
one option for each four Shares issued by the Company during the preceding
fiscal quarter. The options are exercisable only to the extent that the Company
has issued additional Shares within that preceding fiscal quarter upon the
conversion or exercise of other convertible or exchangeable securities of the
Company outstanding as at June 30, 1999. When the Company, as a result of the
exercise of other convertible or exchangeable securities, issues Shares and
Boeing Capital elects not to exercise that portion of the options which it is
entitled to exercise, that portion of the options which are not so exercised
within the Exercise Period will terminate at the end of that Exercise Period.
All options granted to Boeing Capital expire on June 30, 2004. As at May 1,
2000, Boeing Capital had exercised all of the options it was entitled to
exercise and, pursuant thereto, an additional 159,841 Shares were issued to
Boeing Capital, brining its total shareholdings to 2,596,999 Shares. In
addition, the Company has granted to Boeing Capital a pre-emptive right to
acquire additional securities of the Company to permit it to maintain its
proportionate interest in the equity securities of the Company. The pre-emptive
right expires on June 30, 2001. Mr. Motherway, a director of the Company, is
President of Boeing Capital. Mr. Anderson, a director of the Company, was
previously Vice President - Commercial Finance for Boeing Capital.
On June 30, 1999, Boeing Capital, C. John Chew, Timothy P. Seel,
Kathleen Seel (the spouse of Timothy P. Seel), David A. Williams ("Williams")
and Roxborough Holdings
45
<PAGE>
Limited ("Roxborough") entered into the Shareholders Agreement. Messrs. Chew,
Seel, Williams and Ms. Seel and Roxborough agreed to vote in favor of the
election of Boeing Capital's designated nominees to the board of directors of
the Company. These shareholders have also agreed to recommend to the board of
directors of the Company that Boeing Capital be permitted to increase to 25% its
proportionate interest in outstanding Shares if and when the Company intends to
issue additional Shares. The Shareholders Agreement terminates on or before June
30, 2001.
C. John Chew and Timothy P. Seel entered into a Patent Royalty
Agreement with the Company on January 29, 1995 (the "Royalty Agreement"),
granting the Company exclusive rights to the patent applications covering the
INFRATEK(R) technology, subject to payment of a 2% royalty (to a maximum of
$1,000,000) to Messrs. Chew and Seel. The Royalty Agreement also granted the
Company the right to purchase the patent applications from Messrs. Chew and Sell
for $500,000. The Company exercised this right, paying Messrs. Chew and Seel
$500,000 on October 31, 1995.
Item 8. Description of Securities.
The Company's capital consists of Shares. At May 1, 2000, 13,445,358
Shares were outstanding; the Company is authorized to issue an unlimited number
of Shares.
Each Share is fully paid and non-assessable, carries one vote at all
meetings of shareholders, participates ratably in any dividend declared by the
directors and carries the right to receive a proportionate share of the assets
of the Company available to shareholders in the event of the liquidation,
dissolution, or winding up of the Company. There are no pre- emptive rights or
cumulative voting rights in the Company's charter.
In connection with the Boeing Capital Investment Agreement, Boeing
Capital is entitled to designate a number of nominees, in proportion to its
holdings, for election or appointment to the Company's board of directors.
Boeing Capital and certain shareholders of the Company holding 1,928,126 Shares
(as at January 20, 2000) have agreed to vote all of their Shares in favor of
Boeing Capital's nominees to the Company's board of directors and to recommend
to it that additional Shares be issued to Boeing Capital, if as and when
subscribed for, to allow Boeing Capital to increase its equity investment in the
Company to 25%.
46
<PAGE>
PART II
Item 1. Market Price of and Dividend on the Registrant's Common Equity and
Related Stockholder Matters.
The Shares are traded on the Canadian Dealing Network, Inc. ("CDN")
under the symbol "MELT."
The high and low bid prices for 1998, 1999, and the first and second
quarters of 2000, as reported by the CDN, in Canadian dollars were:
<TABLE>
<CAPTION>
1998 1999 2000
LOW HIGH LOW HIGH LOW HIGH
<S> <C> <C> <C> <C> <C> <C>
1st Qtr. $1.60 $3.35 $1.10 $2.10 $2.80 $9.00
2nd Qtr. 1.35 2.50 1.10 1.70 4.60 9.125
3rd Qtr. 1.25 1.90 1.70 4.10
4th Qtr. 1.25 1.85 2.60 4.65
</TABLE>
CDN quotations represent inter-dealer prices, without mark-ups,
commissions, etc., and they may not necessarily be indicative of actual sales
prices.
(a) At May 1, 2000, there were 237 shareholders of record.
(b) No dividends have ever been declared.
Item 2. Legal Proceedings.
None.
Item 3. Changes in and Disagreements with Accountants.
None.
Item 4. Recent Sales of Unregistered Securities.
The chart below sets forth all securities sold by the Company within
the last three years without registering the securities under the Securities Act
of 1933, as amended (the "1933
47
<PAGE>
Act"). The securities issued to U.S. persons were issued pursuant to the
exemption from registration set forth in Section 4(2) of the 1933 Act as
transactions not involving a public offering due to the (a) limited number of
purchasers in each instance, and (b) fact that the purchasers were given access
to the kind of information that a registration statement under the 1933 Act
would have provided ("Section 4(2) Exemption"). The securities issued to
non-U.S. persons were issued pursuant to Regulation S, promulgated under the
1993 Act ("Regulation S"). Shares were issued in connection with the exercises
of incentive stock options in accordance with the requirements of Rule 701.
Shares issued in connection with the conversion of the 7% Debentures were issued
pursuant to the exemption set forth in Section 3(a)(9).
All conversions of the 6% Debentures (issued in a 1997 Canadian rights
offering) and the 7% Debentures (issued in a 1999 Canadian rights Offering) were
made by the original subscribers to the respective Offerings.
All exercises of incentive stock options were made by persons included
in the Company's stock option plan.
All exercises of the 1996 Warrants were made by persons who received
them in connection with the 1996 amalgamation with Northern Atlas Inc.
<TABLE>
<CAPTION>
DATE NUMBER AND CLASS OF METHOD OF SALE/ UNDERWRITER
SECURITIES SOLD EXEMPTION UNDER 1933
ACT
<S> <C> <C> <C>
May 22, 1997 6% Redeemable Rights offering to then Thomson Kernaghan & Co. Ltd.
Convertible Secured existing shareholders exempt ("TK"), as soliciting dealer,
Debentures (the "6% from prospectus and received a management fee equal
Debentures") in the total registration requirements to 4% of the gross proceeds of the
principal amount of under the Securities Act offering (Cdn.$45,360). In
Cdn.$1,134,000 (Ontario)./Section 4(2) addition, brokers, including TK,
Exemption; Regulation S were entitled to
receive a solicitation fee equal
to 4% of the gross proceeds. TK
received a total of Cdn.$65,620 in
management and solicitation fees.
May 22, 1997 6% Debentures in the total Compensation option granted
principal amount of to TK under the rights
Cdn.$113,400 offering of 6% Debentures./
Regulation S
Aug. 1-31, 1997 110,000 Shares Conversion of 6%
Debentures./ Regulation S
Sept. 1-30, 1997 28,400 Shares at Cdn.$2.50 Exercise of warrants (the
per Share "1996 Warrants") issued in
connection with the
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
DATE NUMBER AND CLASS OF METHOD OF SALE/ UNDERWRITER
SECURITIES SOLD EXEMPTION UNDER 1933
ACT
<S> <C> <C> <C>
amalgamation of Northern Atlas
Inc. and Radiant Energy Corporation
in February 1996./ Regulation S
Sept. 1-30, 1997 62,400 Shares Conversion of 6%
Debentures./ Regulation S
Oct. 17, 1997 7,500 Shares at Cdn.$1.35 Exercise of incentive stock
per Share options by Michael Kull
20,000 Shares at Cdn. (employee at RAS and U.S.
$1.30 per Share citizen)./ Section 4(2)
Exemption
Feb. 6, 1998 22,648 Shares at Cdn.$2.50 Exercise of 1996 Warrants./
per Share Regulation S
Feb. 15, 1998 19,000 Shares Conversion of 6%
Debentures./ Regulation S
Feb. 18, 1998 35,200 Shares at Cdn.$2.00 Exercise of Warrants by TK./
per Share Regulation S
Feb. 28, 1998 50,000 Shares at Cdn.$3.00 Issued to Jay Jaski in
per Share(1) exchange for the transfer to
the Company of all of the
shares of Deice Canada Ltd./
Regulation S
Mar. 18, 1998 9,750 Shares at Cdn.$1.35 Exercise of incentive stock
per Share and 30,000 options by David Hecht,
Shares at Cdn.$2.50 per former executive officer./
Share Section 4(2) Exemption
Mar. 1-31, 1998 15,000 Shares at Cdn.$2.50 Exercise of 1996 Warrants./
per Share Regulation S
Mar. 31, 1998 65,000 Shares Conversion of 6% Debentures
issued to TK./ Regulation S
May 31, 1998 709,600 Shares Conversion of 6%
Debentures./ Regulation S
June 1-30, 1998 28,000 Shares Conversion of 6%
Debentures./ Regulation S
July 1-31, 1998 51,000 Shares Conversion of 6%
Debentures./ Regulation S
Aug. 31, 1998 50,000 Shares at Cdn.$1.30 C. John Chew and Timothy P.
per Share Seel (25,000 each) as
compensation./ Section 4(2)
Exemption
Nov. 1-30, 1998 42,500 Shares at Cdn.$1.35 Exercise of incentive stock
per Share options. Section 4(2)
Exemption
Dec. 1-31, 1998 16,666 Shares at Cdn.$1.50 Private placement to officer of
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
DATE NUMBER AND CLASS OF METHOD OF SALE/ UNDERWRITER
SECURITIES SOLD EXEMPTION UNDER 1933
ACT
<S> <C> <C> <C>
per Share the Company (Colin V. F./
Digout./ Regulation S
Mar. 1-31, 1999 10,000 Shares at Cdn.$1.25 Private placement to Colin
per Share V.F. Digout./ Regulation S
Apr. 1-30, 1999 50,000 Shares at Cdn.$1.09 Private placement to Colin
per Share V.F. Digout./ Regulation S
May 1-8, 1999 366,647 Shares at Conversion of indebtedness in
Cdn.$1.15 per Share the principal amount of
Cdn.$421,644 owed to
directors and their affiliates./
Regulation S
May 6, 1999 25,000 Shares at Cdn. Private placement to Colin
$1.14 per Share, 30,000 V.F. Digout./ Regulation S
Shares at Cdn. $1.18 per
Share and 145,000 Shares at
Cdn. 1.24 per share
May 28, 1999 7% Convertible Rights offering to then Brant Securities Limited
Redeemable Secured existing shareholders exempt ("Brant"), as soliciting dealer,
Subordinated Debentures from prospectus and management fee equal to 2% of the
(the "7% Debentures") in registration requirements received a gross proceeds of the
the total principal amount of under the Securities Act offering (Cdn.$37,784). In
Cdn.$1,889,200 (Ontario)./ Regulation S addition, brokers, including
Brant, were entitled to receive a
solicitation fee equal to 5% of
the gross proceeds. Brant received
a total of Cdn$64,500 in
management and solicitation fees.
June 1-30, 1999 56,080 Shares Conversion of 6%
Debentures./ Regulation S
June 1-30, 1999 321,490 Shares Conversion of 7%
Debentures. / Regulation S
June 30, 1999 2,292,260 Shares for Private placement to Boeing R.H. Caruso & Co., Inc. received
$2,330,242.96 Capital. /Section 4(2) a cash fee of 3% of the
Exemption subscription price for the Shares
purchased by Boeing Capital
Services Corporation.
July 1-31, 1999 217,660 Shares Conversion of 7%
Debentures./ Regulation S
July 1-31, 1999 80,000 Shares at Cdn.$1.40 Exercise of options by Brant
per Share Securities Limited./
Regulation S
Aug. 1-31, 1999 105,829 Shares Conversion of 7%
Debentures./ Regulation S
Aug. 1-31, 1999 7,500 Shares at Cdn.$1.35 Exercise of incentive stock
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
DATE NUMBER AND CLASS OF METHOD OF SALE/ UNDERWRITER
SECURITIES SOLD EXEMPTION UNDER 1933
ACT
<S> <C> <C> <C>
per share and 4,500 Shares options./ Section 4(2)
at Cdn. $1.30 per share Exemption
Sept. 1-30, 1999 43,479 Shares Conversion of 7%
Debentures./ Regulation S
Sept. 24, 1999 105,840 Shares Redemption of all outstanding
6% Debentures./ Regulation S
Oct. 1-31, 1999 1,826 Shares Conversion of 7%
Debentures./ Regulation S
Dec. 1-31, 1999 43,480 Shares Conversion of 7%
Debentures. / Regulation S
Dec. 10-29, 1999 29,250 Shares at Cdn.$1.30 Exercise of incentive stock
per Share options./ Section 4(2)
Exemption
Jan.21, 2000 159,841 Shares at Exercise of options by Boeing
Cdn.$1.35 per Share Capital./ Section 4(2)
Exemption
Jan. 1-28, 2000 109,500 Shares at Exercise of incentive stock
Cdn.$1.30 per Share options./ Section 4(2)
Exemption
Jan. 1-28, 2000 170,000 Shares at Exercise of incentive stock
Cdn.$1.35 per Share options./ Section 4(2)
Exemption
Jan. 1-28, 2000 41,000 Shares at Cdn.$1.80 Exercise of incentive stock
per Share options./ Section 4(2)
Exemption
Jan. 1-28, 2000 9,000 Shares at Cdn.$2.00 Exercise of incentive stock
per Share options./Section 4(2)
Exemption
Jan. 1-28, 2000 5,000 Shares at Cdn.$3.45 Exercise of incentive stock
per Share options./ Regulation S
Jan. 1-28, 2000 5,000 Shares at Cdn.$3.45 Exercise of incentive stock
per Share options. / Regulation S
Jan. 27, 2000 130,400 Shares at Cdn. Conversion of 7%
$1.15 per Share debenture./Regulation S,
Section 3(a)(9) Exemption
Jan. 1-31, 2000 20,609 Shares at Cdn. Conversion of 7%
$1.15 per Share debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 1, 2000 18,957 Shares at Cdn. Conversion of 7%
$1.15 per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 1, 2000 1,826 Shares at Cdn. $2.50 Conversion of 7% of
per Share Debenture./Regulation S,
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
DATE NUMBER AND CLASS OF METHOD OF SALE/ UNDERWRITER
SECURITIES SOLD EXEMPTION UNDER 1933
ACT
<S> <C> <C> <C>
Section 3(a)(9) Exemption
Feb. 2, 2000 20,000 Shares at Cdn. Exercise of incentive stock
$2.50 per Share options./Section 4(2)
Exemption/ Rule 701
Feb. 2, 2000 6,000 Shares at Cdn. $3.75 Exercise of incentive stock
per Share options./Section 4(2)
Exemption / Rule 701
Feb. 9, 2000 128,526 Shares at Cdn. Conversion of 7%
$1.15 per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 9, 2000 69,568 Shares at Cdn. Conversion of 7%
$1.15 per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 16, 2000 34,784 Shares at Cdn. Conversion of 7%
$1.15 per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 17, 2000 1,739 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 25, 2000 5,478 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 25, 2000 2,434 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Feb. 28, 2000 434 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Mar. 6, 2000 1,826 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Mar. 6, 2000 5,652 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Mar. 9, 2000 6,000 Shares at Cdn. $2.00 Exercise of incentive stock
per Share options./Section 4(2)
Exemption /Rule 701
Mar. 9, 2000 2,000 Shares at Cdn. $1.80 Exercise of incentive stock
per Share options./Section 4(2)
Exemption /Rule 701
Mar. 9, 2000 3,000 Shares at Cdn. $3.70 Exercise of incentive stock
per Share options./Section 4(2)
Exemption /Rule 701
Mar. 9, 2000 1,000 Shares at Cdn. $1.15 Exercise of incentive stock
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
DATE NUMBER AND CLASS OF METHOD OF SALE/ UNDERWRITER
SECURITIES SOLD EXEMPTION UNDER 1933
ACT
<S> <C> <C> <C>
per share. options./ Section 4(2)
Exemption /Rule 701
Mar. 9, 2000 17,875 Shares at Cdn. Exercise of incentive stock
$2.50 per Share options./Section 4(2)
Exemption /Rule 701
Mar. 14, 2000 15,000 Shares at Cdn. Exercise of incentive stock
$1.40 per Share options./Section 4(2)
Exemption /Rule 701
Mar. 16, 2000 434 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
Mar. 23, 2000 8,696 Shares at Cdn. $1.15 Conversion of 7%
per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
April 10, 2000 29,044 Shares at Cdn. Conversion of 7%
$1.15 per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
April 10, 2000 43,480 Shares at Cdn. Conversion of 7%
$1.15 per Share Debenture./Regulation S,
Section 3(a)(9) Exemption
April 14, 2000 144,898 Shares at Cdn. Exercise of options by Boeing
$1.35 per Share Capital/Section 4(2)
Exemption
April 17, 2000 26,609 Shares at Cdn. Conversion of 7%
$1.15 per Share Debentures./Regulation S,
Section 3(a)(9) Exemption
</TABLE>
(1) On February 28, 1998, 50,000 Shares were issued in exchange for all of the
issued and outstanding shares of Deice Canada Inc. pursuant to an agreement
between the parties. At the time of the acquisition, Deice Canada Inc. was an
inactive company and its sole asset was the exclusive right to distribute the
INFRATEK(R) deicing systems in Canada, which it acquired in April of 1997.
Subsequent to the completion of this transaction, Deice Canada Inc. was
dissolved.
Item 5. Indemnification of Directors and Officers.
The by-laws provide that directors and officers will be indemnified
from and against all liabilities, costs and expenses in respect to any action
brought against them relating to their duties as an officer or director.
53
<PAGE>
PART F/S
Financial Statements
1. Consolidated Financial Statements for the years ended October 31,
1999 and 1998 with Auditors Report dated January 10, 2000, prepared by Ernst &
Young. Page F-1.
2. Consolidated Financial Statements (unaudited) for the period ended
April 30, 2000. Page F-19.
54
<PAGE>
PART III
Item 1. Index to Exhibits.
Exhibit Description
(Reference is made to Registration Statement on Form 10-SB filed with the
Securities and Exchange Commission on February 24, 2000 for Exhibits 2(a), 2(b),
2(d), 3, 5, 6(a) -6(l), and 13, and to the Quarterly Report on Form 10Q-SB, for
the quarter ended April 30, 2000, filed with the Securities and Exchange
Commission on June 13, 2000, for Exhibit 2(c) ).
2(a) Articles of Incorporation dated October 21, 1994; Articles of
Amendment dated October 5, 1995.
2(b) Certificate of Amalgamation dated February 21, 1996;
Certificate of Continuance dated February 21, 1996.
2(c) Certificate of Amendment of Articles of Amalgamation, dated
May 24, 2000.
2(d) By-laws.
(3) Trust Indenture dated as of May 28, 1999 among and between
Radiant Energy Corporation, Radiant Aviation Services, Inc.
and the Trust Company of Bank of Montreal respecting 7%
Debentures.
(5) Agreement dated June 30, 1999 among and between Boeing Capital
Services Corporation, Charles John Chew and others (the
"Shareholders Agreement").
6(a) Agreement dated June 30, 1999 between Company and Boeing
Capital Services Corporation ("Boeing Capital Investment
Agreement").
6(b) Agreement dated June 24, 1999 between Radiant Aviation
Services, Inc. and Boeing Capital Corporation ("Boeing Capital
Financing Agreement").
6(c) Agreement dated September 9, 1999 between Radiant Aviation
Services, Inc. and Continental Airlines Inc. (the "Continental
Agreement").
6(d) Agreement dated May 10, 1999 between Company and Lufthansa
Engineering and Operational Services GMBH (the "Lufthansa
Agreement").
6(e) Agreement between Company and C. John Chew dated October 30,
1998.
55
<PAGE>
6(f) Agreement between Company and Timothy P. Seel dated November
1, 1999.
6(g) Agreement between Company and Robert D. Maier dated November
30, 1998.
6(h) Agreement between Company and Colin V.F. Digout dated February
2,1999.
6(i) Agreement between Company and Timothy P. Seel dated July 31,
1998 (the "Loan Agreement").
6(j) Lease Agreement dated December 20, 1999 between Radiant
Aviation Services, Inc. and MDFC Equipment Leasing
Corporation.
6(k) Company Stock Option Plan, as amended April 3, 1998.
6(l) Patent Royalty Agreement between Messrs. Chew and Seel and the
Company dated January 29, 1995.
6(m) Agreement between Company and Oakmoor Enterprises Inc. dated
March 17, 1997. Page 88.
(13) Form F-X.
56
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
RADIANT ENERGY CORPORATION
Date: September 15, 2000 By: /s/ Colin V.F. Digout
----------------------
Colin V.F. Digout
Chief Operating Officer
57
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
RADIANT ENERGY CORPORATION
October 31, 1999 and 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Radiant Energy Corporation
We have audited the consolidated balance sheets of Radiant Energy Corporation as
at October 31, 1999 and 1998 and the consolidated statements of shareholder's
equity, loss and 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Radiant Energy Corporation as at October 31, 1999 and 1998 and the consolidated
results of its operations and cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
On January 10, 2000, we reported separately to the shareholders of Radiant
Energy Corporation on the consolidated financial statements for the same years,
prepared in Canadian dollars and in accordance with accounting principles
generally accepted in Canada.
/s/ Ernst & Young LLP
Hamilton, Canada,
January 10, 2000 [except as to note 11
which is at September 11, 2000] Chartered Accountants
<PAGE>
Radiant Energy Corporation
Amalgamated under the laws of Canada
CONSOLIDATED BALANCE SHEETS
[U.S. dollars]
<TABLE>
<CAPTION>
As at October 31
1999 1998
$ $
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and term deposits [note 4] 1,981,232 --
Accounts receivable -- 30,000
Inventory 13,912 13,912
Deposits and prepaid expenses 1,203,316 24,168
-------------------------------------------------------------------------------------------------------
Total current assets 3,198,460 68,080
-------------------------------------------------------------------------------------------------------
Deferred charges 67,809 8,031
Patents [note 2] 357,634 367,271
Capital [note 3] 663,336 672,421
-------------------------------------------------------------------------------------------------------
4,287,239 1,115,803
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank overdraft -- 4,578
Accounts payable and accrued liabilities 815,021 170,158
Current portion of long-term debt [note 4] 68,484 256,980
-------------------------------------------------------------------------------------------------------
Total current liabilities 883,505 431,716
-------------------------------------------------------------------------------------------------------
Deferred income taxes 4,402 8,118
Long-term debt [note 4] 871,808 250,066
Shareholders' equity
Share capital [note 5] 8,721,039 5,243,320
Cumulative comprehensive income 5,380 9,922
Deficit (6,198,895) (4,827,339)
-------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,527,524 425,903
-------------------------------------------------------------------------------------------------------
4,287,239 1,115,803
=======================================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE>
Radiant Energy Corporation
CONSOLIDATED STATEMENTS OF
SHAREHOLDER'S EQUITY
[U.S. dollars]
Years ended October 31
<TABLE>
<CAPTION>
Accumulated other
Common Comprehensive comprehensive Retained
stock income income earnings Total
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1997 4,371,672 -- 45,568 (3,558,289) 858,951
------------------------------------------------------------------------------------------------------------------------------------
Net loss -- (1,269,050) -- (1,269,050) (1,269,050)
Foreign currency translation, net of tax -- (35,646) (35,646) -- (35,646)
------------
Comprehensive income -- (1,304,696) -- -- --
----------
Proceeds on issue of shares [note 5] 871,648 -- -- -- 871,648
------------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1998 5,243,320 9,922 (4,827,339) 425,903
------------------------------------------------------------------------------------------------------------------------------------
Net loss -- (1,371,556) -- (1,371,556) (1,371,556)
Foreign currency translation, net of tax -- (4,542) (4,542) -- (4,542)
------------
Comprehensive income -- (1,376,098) -- -- --
-----------
Proceeds on issue of shares [note 5] 3,477,719 -- -- -- 3,477,719
------------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1999 8,721,039 5,380 (6,198,895) 2,527,524
====================================================================================================================================
</TABLE>
See accompanying notes
<PAGE>
Radiant Energy Corporation
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[U.S. dollars]
<TABLE>
<CAPTION>
Years ended October 31
1999 1998
$ $
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE 5,500 963,009
Cost of sales 4,064 625,156
-------------------------------------------------------------------------------------------------------
Gross profit 1,436 337,853
Interest income 37,471 6,155
-------------------------------------------------------------------------------------------------------
38,907 344,008
-------------------------------------------------------------------------------------------------------
EXPENSES
Marketing 433,192 --
General and administrative 618,412 175,323
Research and product development 189,410 869,610
Patent rights settlement [note 2] -- 384,315
Depreciation and amortization 128,843 156,746
Interest 40,606 27,064
-------------------------------------------------------------------------------------------------------
1,410,463 1,613,058
-------------------------------------------------------------------------------------------------------
Loss for year (1,371,556) (1,269,050)
Deficit, beginning of year (4,827,339) (3,558,289)
-------------------------------------------------------------------------------------------------------
Deficit, end of year (6,198,895) (4,827,339)
=======================================================================================================
Loss per common share (0.15) (0.17)
=======================================================================================================
</TABLE>
See accompanying notes
<PAGE>
Radiant Energy Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars]
<TABLE>
<CAPTION>
Years ended October 31
1999 1998
$ $
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for year (1,371,556) (1,269,050)
Add (deduct) item not affecting cash
Depreciation and amortization 128,837 156,746
Deferred taxes (3,716) (29,165)
-------------------------------------------------------------------------------------------------------
(1,246,435) (1,141,469)
Change in non-cash working capital items relating to
operating activities
Deposits and prepaid expenses (1,157,440) 51,312
Accounts payable and accrued liabilities 625,487 8,244
Accounts receivable 30,912 (31,630)
Inventories 665 802,898
-------------------------------------------------------------------------------------------------------
Cash used in operating activities (1,746,811) (310,645)
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (63,101) (709,329)
Proceeds on sale of capital assets -- 5,797
-------------------------------------------------------------------------------------------------------
Cash used in investing activities (63,101) (703,532)
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance (repayment) of long-term debt 401,450 (152,097)
(Increase) decrease in deferred charges (55,978) 36,026
Issuance of common shares 3,477,719 871,648
-------------------------------------------------------------------------------------------------------
Cash provided by financing activities 3,823,191 755,577
-------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (27,469) 12,800
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and term deposits 1,985,810 (245,800)
Cash (overdraft) and term deposits, beginning of year (4,578) 241,222
-------------------------------------------------------------------------------------------------------
Cash (overdraft) and term deposits, end of year 1,981,232 (4,578)
=======================================================================================================
Cash interest paid 21,702 42,729
=======================================================================================================
</TABLE>
See accompanying notes
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Radiant Energy Corporation is a company incorporated primarily to provide
services in the aviation industry through the development and marketing of its
InfraTek radiant energy deicing technology. The company is in its early stages
of its operations and its ability to continue as a going concern is dependent
upon achieving a profitable level of operations and obtaining sufficient cash
flow and financing. These consolidated financial statements do not give effect
to adjustments that would be necessary should the company be required to realize
its assets and discharge its liabilities in other than the normal course of
business and at amounts different from those in these consolidated financial
statements.
Basis of presentation
The consolidated financial statements have been prepared in United States
dollars and in accordance with accounting principles generally accepted in the
United States and include certain estimates based on management's judgments.
These estimates affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amount of
revenues and expenses during the year. Actual results may differ from those
estimates.
Consolidated financial statements prepared in Canadian dollars and in accordance
with accounting principles generally accepted in Canada were previously made
available to shareholders and filed with various securities regulatory
authorities.
For purposes of these consolidated financial statements, the company has adopted
the U.S. dollar as the reporting currency effective October 31, 1999. This
improves investors' ability to compare the company's results with those of most
other publicly traded businesses in the industry. These consolidated financial
statements have been translated from Canadian dollars to U.S. dollars by
translating assets and liabilities at the rate in effect at the respective
balance sheet date and revenues and expenses at the average rate for the year.
Any resulting foreign exchange gains or losses are recorded in accumulated other
comprehensive income (loss).
1
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Principles of consolidation
These consolidated financial statements include the accounts of the company and
its wholly-owned subsidiary, Radiant Aviation Services, Inc. ["RAS"] formerly
named Process Technologies Inc.
All significant inter-company transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include cash on deposit and term deposits with
original maturities of less than three months.
Inventory
Inventory is recorded at the lower of actual cost and estimated net realizable
value.
Deferred charges
The costs associated with obtaining debt financing are capitalized and amortized
on a straight-line basis over the life of the debt [5 years].
Patents
The costs associated with obtaining patents are capitalized and amortized on a
straight-line basis over the life of the patent [17 years].
2
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Stock based compensation
The company has an incentive stock option plan as more fully described in note
5. Any consideration paid on the exercise of stock options is credited to share
capital.
Capital assets
Capital assets are carried at cost less accumulated depreciation. Depreciation
is provided on a straight-line basis at rates estimated to amortize the cost of
the assets over their estimated useful lives based on the following rates:
Automobiles 5 years
Office furniture and equipment 5 years
Laboratory equipment 5 years
Leasehold improvements 5 years
Deicing service centers 10 years
Financial instruments
The carrying amount of cash and term deposits, accounts receivable, prepaid
expenses, deposits, inventory, bank overdraft, accounts payable and accrued
liabilities are considered to be representative of their respective fair values.
The company has no derivative financial instruments or any financial instruments
that potentially subject the company to concentrations of credit risk.
3
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
2. PATENT RIGHTS
During 1995, the company acquired all rights to a U.S. patent from two of its
officers for $500,000 U.S.
In July 1995, the company and these two officers commenced legal action against
a third party [the former employer of the two officers] in support of the
company's declaration as sole owner of all right, title, and interest in a
patent. The third party demanded ownership of the patent based upon the prior
employment of the officers and had counter claimed in the action alleging it as
the equitable owner of the patent.
In April 1998, the company, the two officers and the third party reached an out
of court settlement that provided the company with the unequivocal ownership of
the patents. Under the terms of the agreement, the terms and conditions of the
settlement cannot be disclosed. A $50,000 U.S. on deposit with the court was
used as part of the settlement.
4
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1999
-------------------------------------------
Net
Accumulated book
Cost depreciation value
$ $ $
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobiles 63,182 9,167 54,015
Office furniture and equipment 131,461 77,259 54,202
Laboratory equipment 17,568 14,571 2,997
Leasehold improvements 31,222 17,889 13,333
Deicing service centers 673,486 134,697 538,789
--------------------------------------------------------------------------------------------------
916,919 253,583 663,336
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------
Net
Accumulated book
Cost depreciation value
$ $ $
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobiles 28,642 1,432 27,210
Office furniture and equipment 97,464 54,595 42,869
Laboratory equipment 15,019 11,182 3,837
Leasehold improvements 29,773 9,276 20,497
Deicing service centers 642,231 64,223 578,008
--------------------------------------------------------------------------------------------------
813,129 140,708 672,421
==================================================================================================
</TABLE>
During 1998, the company constructed a deicing service center from components
previously held in inventory. The company has entered into an arrangement with a
third party to operate this center on their behalf.
5
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
6% convertible secured debentures, due May 22, 2002 -- 85,748
9% secured loans -- 198,686
7% convertible secured debentures, due May 31, 2004 744,510 --
Other 150,000 200,000
Vehicle loan repayable in monthly
blended payments of principal and interest of $668
bearing interest at 2.9% to August 15, 2001 and $943
bearing interest at 2.9% to July 31, 2002 45,782 22,612
--------------------------------------------------------------------------------------------------
940,292 507,046
Less current portion 68,484 256,980
--------------------------------------------------------------------------------------------------
871,808 250,066
==================================================================================================
</TABLE>
Minimum principal payments over the next 5 years are as follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------------------------
<S> <C>
2000 68,484
2001 68,665
2002 58,633
2003 --
2004 744,510
</TABLE>
6% convertible secured debentures, due May 22, 2002
The 6% convertible secured debentures are convertible in minimum denominations
of $100 [Canadian] at a basic conversion price of $1.00 [Canadian] per share
prior to May 22, 1998 and $1.25 [Canadian] per share, thereafter. The company
has the right after giving 30 days notice to redeem the debentures in whole or
in part should the market price of the shares equal or exceed $3.50 [Canadian]
per share. Redemption is not permitted prior to May 22, 1998.
6
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
4. LONG-TERM DEBT - continued
On August 18, 1999, the company called the debentures for redemption on
September 24, 1999. All outstanding 6% convertible debentures totaling $105,116
were converted on the basis of $1.25 per share [Canadian] to 161,920 common
shares.
Under the terms of the debenture issue, the company granted, as compensation to
the agents, the option to purchase up to $113,400 [Canadian] of debentures at
any time on or before May 22, 1999. At October 31, 1998, an option to purchase
$70,100 [Canadian] remained outstanding. On May 13, 1999, the agents exercised
the option to purchase the remaining $70,100 [Canadian] debentures. On June 13,
1999, the agents converted the debentures to common shares. A total of 56,080
common shares were issued.
9% secured loans
On May 8, 1999 accumulated interest and additional loans provided by directors
of the company totaling $741,939 [Canadian] were retired. In settlement of the
loans, the company provided cash of $320,295 [Canadian] and issued 366,647
common shares.
7% convertible secured debentures, due May 31, 2004
The convertible secured debentures were convertible in minimum denominations of
$100 [Canadian] at a basic conversion price of $1.15 [Canadian] per share prior
to May 31, 2000 and $1.45 [Canadian] per share, thereafter. The company has the
right after giving 30 days notice to redeem the debentures in whole or in part
should the market price of the shares equal or exceed $2.50 [Canadian] per
share. Redemption is not permitted prior to May 31, 2000.
In addition, under the terms of the debenture issue, $89,882 of the proceeds was
placed in escrow in a trust account to pay interest when due.
The estimated fair market value of the debentures approximates their carrying
value as of October 31, 1999.
7
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
5. SHARE CAPITAL
[a] Shares
Authorized
Unlimited number of common shares
<TABLE>
<CAPTION>
Issued and outstanding Number Stated
of shares capital
$
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1997 7,020,459 4,371,672
Issued upon exercise of warrants 37,648 66,181
Issued upon conversion of debentures - net of costs 872,600 547,660
Issued upon conversion of stock options and warrants 74,950 111,544
Issued for acquisition of distributorship 50,000 104,822
Issued to officers for settlement of patent rights 50,000 41,441
-------------------------------------------------------------------------------------------------------
Outstanding at October 31, 1998 8,105,657 5,243,320
-------------------------------------------------------------------------------------------------------
Issued upon conversion of 6% debentures - net of costs 161,920 131,360
Issued upon conversion of 7% debentures - net of costs 690,284 486,170
Issued upon settlement of 9% loans 366,647 286,054
Issued upon conversion of stock options 54,500 48,123
Issued upon conversion of options granted to financial advisors 80,000 74,354
Issued to officer for cash 276,666 227,946
Issued to Boeing Capital Services Corporation - net of costs 2,292,260 2,223,712
-------------------------------------------------------------------------------------------------------
Outstanding at October 31, 1999 12,027,934 8,721,039
=======================================================================================================
</TABLE>
[b] Warrants
Warrants to purchase 4,474,719 common shares outstanding at October 31, 1998
expired on March 1, 1999. No warrants were exercised prior to expiry.
8
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
5. SHARE CAPITAL - continued
[c] Stock options
[i] The company has a stock option plan whereby directors, officers, and
employees and consultants, subject to certain conditions, may be granted
options to purchase up to 15% of the outstanding common shares of the
company at the closing price of the common shares at the date when the
option is granted on any stock exchange on which the common shares may be
listed. At October 31, 1999, the maximum stock options available to be
granted was 1,804,190 [1998 - 586,527].
The company applies APB Opinion 25 in accounting for its employee stock options.
The exercise price of all employee stock options is equal to the market price of
the stock at the time of granting. Accordingly, no compensation cost has been
recognized in the financial statements for its employee stock options.
For purposes of meeting requirements of FASB Statement No. 123, the fair value
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for 1999 and 1998, respectively;
risk-free interest rates of 7.5%, 7.5%, dividend yields of 0%, 0%, volatility
factors of the expected market price of the company's common stock of 161.4%,
161.4%, and weighted average expected life per option of 4 years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
9
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
5. SHARE CAPITAL - continued
A summary of the company's stock option and warrant activity and related
information is as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
-------------------------------------------------------------------------------------------------------
[Canadian] [Canadian]
Weighted Weighted
-average -average
exercise price exercise price
<S> <C> <C> <C> <C>
Options
Outstanding, beginning of year 728,958 1.79 519,719 1.83
Granted 1,228,520 1.78 268,989 1.84
Expired -- -- (20,000) (2.50)
Exercised (130,000) (1.38) (39,750) (2.22)
-------------------------------------------------------------------------------------------------------
Outstanding and exercisable, end of year 1,827,478 1.81 728,958 1.79
-------------------------------------------------------------------------------------------------------
Warrants
Outstanding, beginning of period 4,472,271 2.00 4,474,719 2.00
Granted -- -- 35,200 2.00
Expired (4,472,271) (2.00) -- --
Exercised -- -- (37,648) (2.00)
-------------------------------------------------------------------------------------------------------
-- -- 4,472,271 2.00
-------------------------------------------------------------------------------------------------------
Total options and warrants, end of year 1,827,478 -- 5,201,229 --
=======================================================================================================
Weighted - average fair value
of options granted during the year 1,228,520 1.60 268,989 1.45
=======================================================================================================
</TABLE>
10
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
5. SHARE CAPITAL - continued
The following table summarizes information about options outstanding as at
October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------------------
Weighted-average Weighted-
Range of Number remaining average
Exercise prices outstanding contractual life exercise price
-------------------------------------------------------------------------------------------------------
[Canadian]
<S> <C> <C> <C>
$1.15 - $2.50 1,746,478 4.3 years $1.73
$2.50 - $3.70 81,000 5 years $3.47
</TABLE>
[ii] On June 30, 1999, the company completed a private placement for 2,292,260
common shares with Boeing Capital Services Corporation ["BCSC"]. Under the
terms of the private placement, the company offered to BCSC, the option to
purchase up to 653,145 common shares for $1.35 [Canadian] per share. The
options are exercisable at a rate equal to 25% of the common shares to be
issued by the company pursuant to the exercise of options or through the
conversion of securities to common shares that existed on June 30, 1999
["existing options and conversions"]. The options may be exercised between
January 1, 2000 and June 30, 2004 within 30 days of the calendar quarter
end for "existing options and conversions" exercised in the previous
quarter, or in the case of the first conversion date between July 1, 1999
and December 31, 1999. If the BCSC does not exercise their options within
the 30-day period, the options expire. At October 31, 1999, 653,145 options
were granted and 141,658 options are exercisable January 1, 2000.
11
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
6. INCOME TAX
The significant components of the company's deferred tax liabilities and assets
are as follows:
1999 1998
$ $
--------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Income tax losses available for carryforward 2,680,000 2,020,000
Less valuation allowance (2,680,000) (2,020,000)
--------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS -- --
================================================================================
Deferred tax liabilities
Temporary differences comprehensive income 4,402 8,118
================================================================================
At October 31, 1999, the company has Canadian non-capital losses of
approximately $427,000 and U.S. net operating losses of approximately
$5,316,000. These losses may be carried forward to reduce taxable income in
future years.
If not utilized, the Canadian losses will expire as follows:
$ U.S.
--------------------------------------------------------------------------
2002 121,000
2003 17,000
2005 156,000
2006 133,000
If not utilized, the U.S. losses will expire as follows:
$ U.S.
--------------------------------------------------------------------------
2009 500,000
2010 1,020,000
2011 843,000
2012 1,686,000
2013 1,267,000
12
<PAGE>
Radiant Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999 and 1998 [all amounts in U.S. funds unless otherwise noted]
6. INCOME TAX - continued
In addition, the company has approximately $66,000 U.S. of Canadian share issue
costs which are deductible over the next three years.
The potential income tax benefits relating to these accumulated losses have not
been recorded in the company's accounts.
7. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
8. Segmented information
The company's only reportable operating segment is aircraft deicing sales and
service. All revenue is derived from its U.S. operations which also includes all
capital and other assets.
9. comparative figures
The comparative consolidated statements of cash flows have been restated as
required by new accounting recommendations issued by the Canadian Institute of
Chartered Accountants.
10. subsequent events
On September 11, 2000, the company filed a registration statement with the
Security and Exchange Commission.
13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
RADIANT ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED
APRIL 30, 2000 AND OCTOBER 31, 1999
ARIIL 30, OCTOBER 31,
2000 1999
ASSETS
Current
Cash and term deposits 2,856,402 1,981,232
Accounts receivable 35,176 -
Inventory 13,912 13,912
Deposits and prepaid expenses 24,412 1,203,316
--------------------------------------------------------------------------------
Total current assets 2,929,902 3,198,460
Deferred charges 22,934 67,809
Patents 342,587 357,634
Capital 595,603 663,336
--------------------------------------------------------------------------------
3,891,026 4,287,239
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 619,653 815,021
Current portion of long-term debt 68,800 68,484
--------------------------------------------------------------------------------
Total current liabilities 688,453 883,505
--------------------------------------------------------------------------------
Deferred income taxes 4,402 4,402
Long-term debt 340,967 871,808
Shareholders' equity
Share capital 10,034,957 8,721,039
Cumulative comprehensive income 5,380 5,380
Deficit (7,183,133) (6,198,895)
--------------------------------------------------------------------------------
Total shareholders' equity 2,857,204 2,527,524
--------------------------------------------------------------------------------
3,891,026 4,287,239
--------------------------------------------------------------------------------
<PAGE>
RADIANT ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 2000 AND 1999
APRIL 30, APRIL 30
2000 1999
<S> <C> <C>
REVENUE
Sales 3,428,117 350
Cost of sales 3,139,668 2,439
-----------------------------------------------------------------------------------------------------
288,449 (2,089)
Interest income 66,298 -
-----------------------------------------------------------------------------------------------------
354,747 (2,089)
-----------------------------------------------------------------------------------------------------
EXPENSES
Marketing 419,997 154,348
General and administrative 645,134 258,298
Research and product development 152,859 82,414
Depreciation and amortization 116,260 109,806
Interest 4,735 15,846
-----------------------------------------------------------------------------------------------------
1,338,985 620,712
-----------------------------------------------------------------------------------------------------
Loss for the period (984,238) (622,801)
-----------------------------------------------------------------------------------------------------
Basic loss per common share (0.08) (0.08)
-----------------------------------------------------------------------------------------------------
Diluted loss per common share (0.08) (0.08)
-----------------------------------------------------------------------------------------------------
Weighted average number of shares 12,692,351 8,161,066
-----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RADIANT ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 2000 AND 1999
APRIL 30, APRIL 30
2000 1999
<S> <C> <C>
Sales
21,857 350
Cost of sales 272,297 2,439
------------------------------------------------------------------------------------------------------
(250,440) (2,089)
Interest income 45,422 -
------------------------------------------------------------------------------------------------------
(205,018) (2,089)
------------------------------------------------------------------------------------------------------
EXPENSES
Marketing 269,828 112,258
General and administrative 366,353 151,332
Research and product development 104,539 42,550
Depreciation and amortization 50,190 55,028
Interest (6,310) 9,871
------------------------------------------------------------------------------------------------------
784,600 371,039
------------------------------------------------------------------------------------------------------
Loss for the period (989,618) (373,128)
------------------------------------------------------------------------------------------------------
Basic loss per common share (0.08) (0.05)
------------------------------------------------------------------------------------------------------
Diluted loss per common share (0.08) (0.05)
------------------------------------------------------------------------------------------------------
Weighted average number of shares 13,193,761 8,177,126
------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RADIANT ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW - UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 2000 AND 1999
APRIL 30, APRIL 30
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the year (984,238) (622,801)
Add items not affecting cash
Depreciation and amortization 116,260 113,800
Deferred taxes - 7,902
-------------------------------------------------------------------------------------------------
(867,978) (501,099)
Change in non-cash working capital items relating to
operation activities
Accounts receivable (35,176) 30,000
Deposits and prepaid expenses 1,178,904 23,385
Accounts payable and accrued liabilities (195,368) 135,057
-------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 80,382 (312,657)
-------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (28,034) (15,443)
-------------------------------------------------------------------------------------------------
Cash used in investing activities (28,034) (15,443)
-------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance (repayment) of long-term debt (59,175) 276,876
Conversion of convertible secured debentures (471,350) -
Decrease in deferred charges 39,429 -
Issuance of common shares 1,313,918 119,218
-------------------------------------------------------------------------------------------------
Cash provided by financing activities 822,822 396,094
-------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents - (52,175)
-------------------------------------------------------------------------------------------------
Net increase in cash and term deposits 875,170 15,819
Cash (overdraft) and term deposits, beginning of period 1,981,232 (4,578)
-------------------------------------------------------------------------------------------------
Cash and term deposits, end of period 2,856,402 11,241
-------------------------------------------------------------------------------------------------
Cash interest paid 27,089 300
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RADIANT ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW - UNAUDITED
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
<TABLE>
<CAPTION>
APRIL 30, APRIL 30
2000 2000
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the year (989,618) (373,128)
Add items not affecting cash
Depreciation and amortization 50,190 58,485
Deferred taxes - 4,522
-------------------------------------------------------------------------------------------------
(939,428) (310,121)
Change in non-cash working capital items relating to
operation activities
Accounts receivable (35,176) -
Inventory - (29)
Deposits and prepaid expenses 11,945 8,967
Accounts payable and accrued liabilities (314,514) 91,002
-------------------------------------------------------------------------------------------------
Cash used in operating activities (1,277,173) (210,181)
-------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (15,116) (14,634)
-------------------------------------------------------------------------------------------------
Cash used in investing activities (15,116) (14,634)
-------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance (repayment) of long-term debt (4,604) 197,960
Conversion of convertible secured debentures (296,606) -
Decrease in deferred charges 25,958 -
Issuance of common shares 515,661 65,494
-------------------------------------------------------------------------------------------------
Cash provided by financing activities 240,409 263,454
-------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents - (34,185)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and term deposits (1,051,880) 4,454
Cash and term deposits, beginning of period 3,908,282 6,787
-------------------------------------------------------------------------------------------------
Cash and term deposits, end of period 2,856,402 11,241
-------------------------------------------------------------------------------------------------
Cash interest paid 278 102
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RADIANT ENERGY CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated other
Common Comprehensive comprehensive Retained
stock income income earnings Total
$ $ $ $ $
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1998 5,243,320 9,922 (4,827,339) 425,903
------------------------------------------------------------------------------------------------------------------------------------
Net loss - (1,371,556) - (1,371,556) (1,371,556)
Foreign currency translation, net of tax - (4,542) (4,542) - (4,542)
Comprehensive income - (1,376,098) - - -
Proceeds on issue of shares 3,477,719 3,477,719
- - -
------------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 1999 8,721,039 5,380 (6,198,895) 2,527,524
------------------------------------------------------------------------------------------------------------------------------------
Net loss - (984,238) - (984,238) (984,238)
Foreign currency translation, net of tax - - - - -
Comprehensive income - (984,238) - - -
Proceeds on issue of shares 1,313,918 - - - 1,313,918
------------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2000 10,034,957 5,380 (7,183,133) 2,857,204
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited consolidated condensed financial statements of
Radiant Energy Corporation (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation of the results for the interim period ended April 30,
2000, have been included. Operating results for the six-month period ended April
30, 2000, are not necessarily indicative of the results that may be expected for
the full year. All capitalized terms used in these notes to consolidated
condensed financial statements that are not defined herein have the meanings
given to them in such consolidated condensed financial statements and notes to
consolidated condensed financial statements.
ELIMINATION OF INTERCOMPANY BALANCES
All material intercompany balances and transactions have been eliminated.
CHANGES IN FUNCTIONAL CURRENCY
The company has historically measured and presented its financial statements in
Canadian dollars. Effective October 31, 1999, as a result of the company's
increased economic activity in the U.S. as demonstrated by its increasingly high
level of sales activity in U.S. dollars and significance of U.S. dollar
denominated assets to the company's operations, the U.S. dollar has become the
functional currency of the company's operations. Effective the same date, the
U.S. dollar has been adopted as the reporting currency.
U.S. GAAP
<PAGE>
These financial statements have been prepared in accordance with U.S. generally
accepted accounting principles."
MATERIAL CONTRACT
On December 20, 1999 the Company sold it's Newark Facility to a wholly owned
subsidiary of Boeing Capital, MDFC, for $3,383,700. The facility cost $2,911,905
to construct. Contemporaneously with the sale, the Company leased the Facility
for a period of eight years at a monthly rental of approximately $49,000 plus
10% of the monthly deicing revenue."
SHARE CAPITAL
Shares authorized
Unlimited number of common shares
<TABLE>
<CAPTION>
Issued and outstanding Number Stated
of shares capital
$
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1999 12,027,934 8,721,039
------------------------------------------------------------------------------------------------------------
Issued upon conversion of 7% debentures - net of costs
603,060 431,922
Issued upon conversion of stock options
509,625 600,909
Issued upon conversion of stock options - Boeing Capital Services Corporation 304,739 281,087
------------------------------------------------------------------------------------------------------------
1,417,424 1,313,918
------------------------------------------------------------------------------------------------------------
Outstanding at April 30, 2000 13,445,358 10,034,957
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Following is information about the computation of earnings per share data for
the periods ended April 30, 2000 and April 30, 1999.
<TABLE>
<CAPTION>
Per-Share
Numerator Denominator Amounts
Six months Ended April 30, 2000
<S> <C> <C> <C>
Net loss $ (984,238)
Basic earnings per share,
income available to common shareholders $ (984,238) 12,692,351 $(0.08)
----------- ---------- -------
</TABLE>
<TABLE>
<CAPTION>
Six months Ended April 30, 1999
<S> <C> <C> <C>
Net loss $ (622,801)
Basic earnings per share,
income available to common shareholders $ (622,801) 8,161,066 $(0.08)
----------- --------- -------
</TABLE>
At April 30, 2000 options for the purchase of 1,116,551 shares were outstanding
and at April 30, 2000 the Company had 7% secured convertible debentures
outstanding that were convertible to 349,492 shares. At April 30, 1999 options
to purchase 995,883 were outstanding and at April 30, 1999 the Company had 6%
secured convertible debentures outstanding that were convertible to 105,840
shares. The options and shares to be issued on conversion of convertible
debentures were not included in the computation of diluted earnings per share
for April 30, 2000 and April 30, 1999 as their inclusion would have an
anti-dilutive impact as a result of losses being reported for these periods.
