UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED ________________
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
COMMISSION FILE NUMBER ___________
Pure Technologies Ltd.
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(Exact Name of Registrant as specified in its charter)
Not Applicable
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(Translation of Registrant's name into English)
Province of Alberta, Canada
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(Jurisdiction of incorporation or organization)
1050, 340 - 12th Avenue, SW
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Calgary, Alberta, Canada T2R 1L5
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each Class: Name of each exchange on which registered:
NONE NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, no par value per share
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Title of Class
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
NONE
Title of Class
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of September 30, 2000: 12,490,667 Common Shares.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [_] NO [_]
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18 [_]
Except as otherwise noted, all dollar amounts are presented in Canadian dollars.
Exchange Rate: As at September 30, 2000, the exchange rate of Canadian dollars
into United States dollars was $1.50090 Canadian to $1.00 United States.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
ITEM 1. Identity of Directors, Senior Management and Advisors ......................................... 3
ITEM 2. Offer Statistics and Expected Timetable ....................................................... 3
ITEM 3. Key Information ............................................................................... 3
ITEM 4. Information on the Company .................................................................... 8
ITEM 5. Operating and Financial Review and Prospects .................................................. 14
ITEM 6. Directors, Senior Management and Employees .................................................... 19
ITEM 7. Major Shareholders and related Party Transactions ............................................. 23
ITEM 8. Financial Information ......................................................................... 25
ITEM 9. The Offer and Listing ......................................................................... 25
ITEM 10. Additional Information ........................................................................ 27
ITEM 11. Quantitative and Qualitative Disclosure About Market Risk ..................................... 32
PART II
The Items of Part II are inapplicable.
PART III
ITEM 17. Financial Statements .......................................................................... 32
ITEM 18. Financial Statements .......................................................................... 32
ITEM 19. Exhibits ...................................................................................... 33
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PART I
INTRODUCTION
Pure Technologies Ltd. is organized under the laws of the Province of
Alberta, Canada, and is engaged in providing information and communications,
through the use of its SoundPrint(R)acoustic technology, to owners and operators
of buildings and other large structures for infrastructure management.
References herein to the Company refer to Pure Technologies Ltd. unless the
context should otherwise require.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
DIRECTORS AND SENIOR MANAGEMENT
Information responsive to this Item is set forth under Item 6.
Directors, Senior Management and Employees.
ADVISORS
This Item is inapplicable.
AUDITORS
The Company's auditors, since 1996, have been KPMG LLP, Chartered
Accountants, Calgary, Alberta, Canada.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
This Item is inapplicable.
ITEM 3. KEY INFORMATION.
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for the nine months ended September 30, 2000 and 1999 and for the
five years ended December 31, 1999. The data are derived from the audited
consolidated financial statements of the Company, except for periods ended
September 30, 2000 and 1999, which are derived from unaudited consolidated
financial statements of the Company. The table should be read in conjunction
with Item 5. Operating and Financial Review and Prospects and the consolidated
financial statements of the Company, including the notes thereto, appearing
herein.
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NINE MONTHS ENDED YEAR ENDED DECEMBER 31
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2000 1999 1999 1998 1997 1996 1995
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Revenues $3,794,238 $940,463 $1,300,039 $1,935,501 $903,801 $203,473 --
Cost of Sales 1,228,660 692,625 1,025,183 933,259 742,113 77,671 --
Operating Expenses 2,532,870 1,284,857 3,026,271 1,460,555 1,744,328 560,426 --
Net Income (Loss) 32,708 (1,037,019) (2,751,415) (458,313) (1,582,640) (434,624) --
Total Assets 7,091,853 3,030,136 1,753,728 3,079,086 1,798,039 886,154 150,000
Net Assets 6,587,529 2,580,879 857,680 2,383,061 1,323,554 758,138 150,000
Capital Stock 12,016,668 6,328,351 5,158,714 5,093,514 3,575,694 1,427,638 150,000
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As at November 30, 2000, the exchange rate of Canadian dollars into
United Sates dollars was $1.54330 Canadian to $1.00 United States. During each
of the six months ended October 31, 2000, the high and low exchange rates were
as follows (in terms of Canadian dollars into one United States dollar):
MONTH HIGH (1) LOW (1)
----- -------- -------
May $1.51120 $1.47880
June $1.49710 $1.46670
July $1.49090 $1.46540
August $1.48960 $1.4740
September $1.50090 $1.4720
October $1.53150 $1.49470
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(1) London Interbank Rate, as provided by Oanda.com.
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The average exchange rate for each of the five years ended December 31,
1999 and the nine months ended September 30, 2000 were as follows (in terms of
Canadian dollars into one United States dollar):
Nine Months Ended September 30, 2000 $1.47166
1999 $1.48586
1998 $1.48363
1997 $1.38488
1996 $1.36381
1995 $1.37258
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth the cash and cash equivalents and the
capitalization of the Company at September 30, 2000:
AS OF SEPTEMBER 30, 2000
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Cash $ 3,673,797
Indebtedness (1) $ - 0 -
Capital Stock $12,016,688
Deficit $(5,429,159)
Total stockholders' equity(2) $ 6,587,529
Total liabilities and stockholders equity $ 7,091,853
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(1) The Company is a party to a credit facility agreement with National Bank of
Canada dated September 21, 2000 pursuant to which it is able to borrow, subject
to the conditions of the credit facility, up to $750,000 for operating purposes.
Borrowings are limited to the lesser of the $750,000 or 75% of Canadian current
accounts receivable, plus 90% of Canadian and international insured accounts
receivable, plus 60% of current U.S. accounts receivable, less certain sums. The
borrowings bear interest at the lenders prime rate or U.S. base rate (as
defined), plus 1% and are secured by substantially all the assets of the
Company. Borrowings are due on demand and are subject to the Company maintaining
compliance, on a quarterly basis, with certain financial ratios including a 1:1
ratio of debt to equity, a minimum consolidated working capital ratio (current
assets to current liabilities) of 1.5:1, and a minimum
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consolidated equity position of $2.0 million. The agreement contains
restrictions on the payment of bonuses and dividends and a limitation of $1.5
million on investments in affiliates. As of September 30, 2000, no borrowings
were outstanding under the credit facility.
(2) The Company had outstanding at September 30, 2000 options to purchase an
aggregate of 1,221,950 common shares exercisable through August 16, 2005 at
prices ranging from $1.00 to $3.00 and warrants to purchase 1,200,000 common
shares at a price of $3.50 through September 7, 2001 and 83,333 common shares at
a price of $3.50 through September 28, 2001.
RISK FACTORS
An investment in the Company's common shares involves a high degree of
risk and should be considered to be speculative due to the nature of the
Company's business and its present state of development. Investors should
consider the following factors, in addition to the other information contained
in this Registration Statement, in evaluating the Company's business and
proposed activities before you purchase any of its common shares.
1. DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent
upon its personnel. The unexpected loss or departure of any of the Company's key
officers or employees could be detrimental to the future operations of the
Company. The success of the Company's business will depend, in part, upon the
Company's ability to attract and retain qualified personnel as they are needed.
There can be no assurance that the Company will be able to engage the services
of such personnel or retain its current personnel.
2. DIVIDEND PAYMENT. The Company has no present intention to pay dividends
to the holders of its Common Shares.
3. DEVELOPMENT STATE COMPANY. The Company is involved in developing,
manufacturing and marketing its product known as SoundPrint(R) and is subject to
the risks inherent in the establishment of a new business enterprise, including
the need to secure supply contracts with customers. The likelihood that the
Company will be able to generate and increase material revenues or profits
sufficient to pay its obligations must be considered in view of the problems,
expenses, difficulties and delays frequently encountered in connection with
development of a new business in which the final product and extent of the
market is still evolving and its potential applications may be subject to
regulatory approval.
4. PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success will depend,
in part, on its ability to obtain and maintain patents, trade secret protection
and operate without infringing the proprietary rights of others. There is no
assurance that the Company will be granted such patents or proprietary
technology or if granted that such patents and proprietary technology will not
be circumvented through the adoption of a competitive though non-infringing
process or product. The cost of enforcing the Company's patent rights, if any,
or defending rights against infringement charges by other patent holders, may be
significant and could limit operations.
5. COMPETITION. The industry for infrastructure management is highly
competitive. The
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Company may have competitors with different but competitive applications that
have greater financial, marketing, technological and manufacturing resources
than the Company. There can be no assurance that the Company will be able to
compete successfully with competitors or that its business will not be adversely
affected by increased competition or by new competitors. Furthermore, there can
be no assurance that products or technologies developed by competitors or
potential customers will not render the Company's products or technologies
non-competitive or obsolete.
6. RESEARCH AND DEVELOPMENT. The ability of the Company to meet customer
requirements will depend on the Company's ability to continuously improve and
sustain the competitive advantages, which it believes it currently enjoys. The
Company is currently devoting significant research and development efforts to
further develop SoundPrint(R) and its associated technologies. There can be no
assurance that the Company will be successful in this effort or that it will
have the resources available to meet this challenge.
7. FLUCTUATION OF EXCHANGE RATES. The Company is exposed to foreign
exchange risks since a significant amount of its revenue is expected to be
received in or by reference to U.S. dollar denominated prices while the majority
of its expenditures are in Canadian dollars. The exchange rate between Canadian
dollars and U.S. dollars has varied substantially in the last five years.
8. PRODUCT LIABILITY AND WARRANTY CLAIMS. The sale and use of products and
processes developed by the Company may entail potential liability and possible
warranty claims. Although the Company maintains product liability insurance,
there can be no assurance that such insurance will continue to be available on
commercially reasonable terms and that it will be sufficient to cover all
claims.
9. MANAGEMENT OF BUSINESS GROWTH. As revenues are generated by the Company
and it expands to meet anticipated research and development, sales, marketing,
manufacturing and delivery requirements, the Company's future success will
depend on its ability to establish and maintain an appropriate infrastructure
and to adequately administer and manage its financial, manufacturing and human
resources.
10. ADDITIONAL FINANCING. The Company may not be able to generate
sufficient capital resources to develop and implement its business plan,
including conducting additional testing, manufacturing and marketing of its
product and continuing its research and development activities. Therefore, the
ultimate success of the Company may depend upon its ability to raise additional
capital. It has not investigated the current availability, sources or terms of
acquiring additional capital and, in all likelihood, will not do so until it has
determined a need for such additional capital. If additional capital is needed,
there is no assurance that such capital will be available from any source or, if
available, made or proposed on terms which are acceptable. If such capital is
not available, it will be necessary for the Company to limit its operations to
those that can be financed with existing financial resources.
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ITEM 4. INFORMATION ON THE COMPANY.
OVERVIEW
The Company provides information and communications technology for
infrastructure management. Through the use of the Company's patented
SoundPrint(R) acoustic technology, owners of buildings and other structures may
obtain continuous, remote structural monitoring of infrastructure components,
and automatic surveillance of structures subject to damage. The SoundPrint(R)
acoustic monitoring system "listens" to structures on a continuous basis and
detects the time and location of hidden structural events or other events of
interest. Structural events may include changes or failure of stressed elements
in large civil structures. The owners and operators of the structures can use
this information to reduce costs, focus repairs and extend the useful lives of
the structures. The system uses proprietary components and copyrighted software,
developed by the Company, incorporating advanced pattern recognition capability
to record and analyze data. Data is transmitted from sites around the world
through the Internet to the Company's principal office in Calgary, Canada where
it is analyzed using proprietary software and reported to owners, managers and
their consultants via a Web-based format.
MARKETS
There currently are seven primary markets where the SoundPrint(R)
technology is in use. These are:
1. buildings (commercial, institutional and residential);
2. parking structures;
3. bridges;
4. pre-stressed concrete pipelines;
5. nuclear containment structures and water tanks;
6. special structures (sports arenas, offshore structures, ground
and rock anchors); and
7. seismic and collision damage surveillance.
Other markets identified by the Company that have potential, but which
will require significant research and development, include the monitoring of
process equipment (including industrial tanks and pumps) and piping in
industrial and power generation plants.
The system has also demonstrated the capability to detect other modes
of failure in concrete structures, such as cracking and de-bonding of
reinforcements, and the Company has commercialized this new application.
Management of the Company believes that the SoundPrint(R) technology
could have application in the construction of new buildings and structures,
particularly bridges and pipelines, since the installation of SoundPrint(R)
technology can be installed on a more cost-
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effective basis during the building phase and can provide an ongoing source of
monitoring from inception.
In each market, the Company provides customers with on-demand real-time
information from remote sites to customers' desks through the Company's
SoundPrint(R) web page.
REVENUES
The Company's revenues are derived from two sources: (i) sales of
monitoring systems and (ii) providing continuing monitoring and technical
support services to customers. As more systems are installed, monitoring and
technical support services are expected to comprise a larger portion of future
revenues. During the three years ended Decemeber 31, 1999 and the nine months
ended September 30, 2000 and 1999, fiscal periods ended revenues from these
sources were as follows:
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NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
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2000 1999 1999 1998 1997
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<S> <C> <C> <C> <C> <C>
Sales of Monitoring Systems $2,966,824 $ 698,194 $ 904,550 $1,783,435 $ 869,667
Continuing Monitoring $ 611,285 $ 242,269 $ 395,489 $ 152,066 $ 34,134
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Total $3,578,109 $ 940,463 $1,300,039 $1,935,501 $ 903,801
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Typically, a SoundPrint(R) system is sold for prices ranging from
$50,000 to $1,000,000, accompanied by long-term monitoring and technical support
agreements which amount to 10-12% of the sales price, per year. Systems may also
be leased, or the services contracted by a client on a turnkey basis. The
Company is now marketing the technology directly in North America and the U.K.
and through its strategic partners in Europe, Africa and Asia. Many of the
Company's resources in the past two years have been dedicated to accomplishing
numerous demonstration and technical verification projects to validate the
technology with international agencies and to demonstrate its capabilities to
major clients.
The Company concentrates on high value-added activities by focusing on
critical functions such as system design, software development, data management,
data processing, and reporting, and direct marketing in certain areas.
Peripheral functions such as component assembly and system installation are
subcontracted.
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COMPETITION
To date, the Company has experienced little or no direct competition
for the products and services it provides. SoundPrint(R) is believed by
management to be the only patented method currently available which can provide
continuous, acoustic remote monitoring of a large infrastructure or any part of
it, and which can identify precisely the time and location of certain structural
events. Others seek to provide monitoring systems utilizing different
technologies and generally in more limited applications. Physical Acoustics
Corporation (PAC), a U.S. company, specializes in the manufacture and sale of
acoustic emission and monitoring equipment primarily geared for industrial
applications. PAC may be able to develop the capability to monitor large
structures in a manner similar to SoundPrint(R). However, PAC has no previous
experience in this type of application and they may be limited by the Company's
intellectual property.
INFRASTRUCTURE MANAGEMENT TECHNIQUES AND APPROACHES
Currently there are few options available to owners or operators for
managing and monitoring structures for failure due to hidden corrosion or damage
of highly tensioned steel components. The most commonly used method is visual
inspection., Periodically, sections of these structures are probed for corrosion
by breaking holes in the concrete or otherwise exposing the components. The
corresponding results are used with statistical analysis to predict the
likelihood of other failures throughout the structure. Since these structures
have hundreds or thousands of tensioned wires or strands, and since only a
representative sample is examined, this approach is imprecise and may also be
misleading. It can also be quite costly and destructive to the structure.
Pre-emptive repairs require owners to repair structure failures on an
ad-hoc, as needed basis. This approach can prove to be the most costly, and many
repairs are completed unnecessarily or before they become necessary.
The technical merits and the cost and user advantages of the
SoundPrint(R) system allow the owners or operators of pre-stressed structures to
make only those repairs that are necessary and to significantly reduce the cost
of determining the need for repairs.
Various other conventional, non-destructive evaluation techniques
exist, but they are not usually as efficient as acoustic monitoring technology.
The Company's continuous acoustic monitoring is non-intrusive, non-destructive
and precise in determining the exact time, frequency, and location of failures
without the need for periodic inspections or remote physical administration.
HOW THE SOUNDPRINT(R) SYSTEM WORKS
Pre-stressed structures are built with concrete reinforced with high
strength steel wires, as are many other structures such as suspension bridges,
cable stayed bridges, and containment
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vessels, both nuclear and water. These high strength steel wires sometimes fail
due to stress and corrosion. In failure, these wires release stored energy. The
Company's SoundPrint(R) system utilizes acoustic sensors mounted on a structure
to automatically detect the presence of this energy through the structure. The
sensors are connected to a data acquisition system located at the remote site.
Non-related acoustic events created by ambient activity such as traffic are
filtered so that only critical event information is forwarded via Internet
transmission to the Company's data-processing center where the data are analyzed
using the Company's analytical software. The software will determine, with a
very high degree of accuracy, the classification of events (i.e. if it is a
structural failure or other event of interest) and the corresponding time and
location. All relevant and requested event details are provided to owners of the
infrastructures via the Internet using a web-based format or via a hard copy of
the report.
SoundPrint(R) can also associate seismic activity (i.e. earthquakes)
with consequent structural damage. The location, time and extent of damage can
be assessed and an alarm message with corresponding event data transmitted to a
control center by CDPD, cell-phone, satellite, Internet or phone line.
Other instrumentation can be integrated into the SoundPrint(R) system.
For example, cable vibration on structures such as cable-stayed bridges and
related structures can be precisely monitored with the SoundPrint(R) system.
Data acquisition, filtering and transmission hardware and software (via the
Company's SPDAQ(R) software system) can collect continuous data on wind speed,
wind direction, ambient humidity, rain intensity, and the modes of vibration of
the bridge, deck and cables. Information is transmitted via low-cost Internet
links. The system is powered by a 110-220 volt electrical supply and can be used
with conventional cellular, CDPD or satellite telephone links.
COMPONENTS, PATENTS AND RECENT AWARDS
The SoundPrint(R) system includes the following components, most of
which are designed and manufactured in-house:
o SoundPrint(R)sensors
o SoundPrint(R)signal amplifiers
o SoundPrint(R)signal conditioning components
o SoundPrint(R)power supplies
o SoundPrint(R)signal multiplexers
o SoundPrint(R)Market test impact device
o On-site computer, modem and storage medium
o Uninterruptible power supply
o A/D data acquisition boards
o SoundPrint(R)data acquisition software
o SoundPrint(R)data analysis software
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Patent protection for the SoundPrint(R) system has been approved in
Australia, the U.S.A., and Europe and is being sought in various countries
including Canada, Japan, the U.K., Saudi Arabia, Brazil, South Korea, Hong Kong,
China and Germany and all other Patent Convention Treaty Countries.
The Company's proprietary technology has received several awards,
including the Alberta Science and Technology Award for Excellence in Industrial
Research, finalist in the U.S. Civil Engineering Research Foundation for
Innovative Applications in 1996, and the 1998 Building Owners and Managers
Association Pinnacle Award for Innovation.
CLIENTS
SoundPrint(R) has been under development over the last five years and
has been installed in over three million square feet of high-rise offices and
parking structures in North America. Test installations have been completed and
tested on a nuclear containment structure in France and another on a test
nuclear site in New Mexico, U.S. Installations have also been completed on
bridges in Canada, France, the U.S. and the U.K. and in pre-stressed concrete
water pipelines throughout the United States. Clients include: CN, TrizecHahn
Office Properties Ltd., OMERS, Miller Brewing Company, University of Virginia,
Metropolitan Transit Authority of New York, The Port Authority of New York and
New Jersey, Sandia National Laboratories, EDF (the French national electrical
generation company), U.K. Highways Agency and others. The Company's clients are
generally established, well capitalized and stable.
DISTRIBUTION AND LICENSING
On May 26, 1999, the Company entered into a license agreement (the
"License Agreement") and a research and development agreement (the "R&D
Agreement") with Freyssinet International (STUP) SNC ("Freyssinet"), a leading
provider in pre-stressing technologies used in bridge construction, nuclear
power generating plants and other applications. Freyssinet is also a leader in
the strengthening and repair of bridges. The License Agreement provides for
Freyssinet to market the Company's SoundPrint(R) technology exclusively in
certain countries and non-exclusively in others. On October 11, 2000 the Company
amended its agreement with Freyssinet to expand the exclusive territories
granted to Freyssinet and to grant a sub-license to Advitam, a sister company to
Freyssinet. Advitam was established by VINCI, the parent company of Freyssinet
for the sole purpose of marketing SoundPrint(R) and a proprietary technology
developed by Freyssinet. Advitam will exclusively market SoundPrint(R) in
numerous countries in Europe, Asia and Africa.
The R&D Agreement entered into at the same time by Freyssinet and the
Company provides for joint research by the companies in areas of mutual
interest, utilizing the Company's technology in new applications to be marketed
by Freyssinet.
Previously, on March 6, 1998, the Company had entered into exclusive
distribution agreements with subsidiaries of Fugro N.V. ("Fugro"), a
multi-national consulting firm. Fugro
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N.V. is a public corporation listed on the Amsterdam Exchange in the
Netherlands. The distribution agreements provided for Fugro, through its
subsidiaries Fugro Limited in the United Kingdom and Fugro Geotechnical Services
(HK) Limited in Hong Kong, to market the Company's SoundPrint(R) Acoustic
Monitoring Systems in the U.K., Hong Kong, Macao, China and Singapore. Fugro
remains involved in marketing the technology in certain countries including the
U.K.
PROPERTIES
The Company leases office space of approximately 7,000 square feet in
Calgary, Alberta, Canada. This lease expires in February 28, 2002. The Company
also leases office space for its marketing office in the United Kingdom and a
service office in Tularosa, New Mexico. The Company's annual rental under all of
its leases is approximately $113,000. The Company believes these facilities are
adequate for its present requirements.
INFLATION
Inflation has not had any material impact on the Company. The Company's
financial statements are presented in Canadian dollars.
FOREIGN CURRENCY FLUCTUATIONS
Currency fluctuations have not had a material impact on the Company.
CERTAIN GOVERNMENTAL ECONOMIC, FISCAL, MONETARY OR POLITICAL POLICIES OR FACTORS
The Company has not and believes that it will not in the foreseeable
future be materially adversely affected by any economic, fiscal, monetary or
political policies or factors adopted by any of the countries in which it is
currently doing business. It also believes the investors residing in the United
States will not be materially adversely affected by any economic, fiscal,
monetary or political policies or factors adopted by any of the countries in
which it is currently doing business.
RESEARCH AND DEVELOPMENT EXPENSES
During the three years ended December 31, 1999, the Company expended
$302,071, $212,621 and $512,070, respectively, on research and development. Such
expenses were $494,679 during the nine months ended September 30, 2000.
ORGANIZATION
The Company was incorporated pursuant to the provisions of the Business
Corporations Act (Alberta) ("ABCA") on December 18, 1995 as Sextant Enterprise
Corp. The Company changed its name to Pure Technologies Ltd. by Articles of
Amendment filed on June 17, 1998.
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The Company amalgamated with its wholly-owned subsidiary, Pure Technologies Inc.
("Pure Inc.") on January 1, 1999. Pure Technologies Inc. had previously been
incorporated on May 11, 1993 by Articles of Incorporation under the ABCA. The
registered office of the Company are the offices of Bennett Jones, Barristers
and solicitors, 4500, 855 - 2nd Street, Calgary, Alberta, T2P 3K7 and its head
office is located at 1050, 340 - 12th Avenue, SW, Calgary, Alberta T2R 1L5.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1999
Revenue
Total revenue increased to $3,794,000 during the nine months ended
September 30, 2000 from $940,000 during the nine-month period ended September
30, 1999, or an increase of 304%. System sales revenue increased by $2,269,000
or 325% over 1999. System sales included installations in two suspension bridges
in the United States, three buildings or parking structures in Canada and the
United States, a bridge in the United Kingdom and pipeline service revenues in
excess of $423,000 for the nine-month period. Monitoring and technical support
revenue rose to $611,000 for the nine-month period from $242,000 in 1999, an
increase of 152%. Monitoring revenue has increased as a result of system sales
in 1999, system sales in the first nine months of 2000 and significant technical
support fees for pipelines. Other revenue in 2000 consists largely of interest
income from the investment of the proceeds from the Company's public offering
which closed in March 2000.
Gross Margin
The Company achieved a gross margin of 68% on total revenue for the
nine-month period of 2000 compared to 26% for the same period in 1999. The gross
margin on system sales was 59% for the nine-month period of 2000 compared to 1%
for the same period in 1999. The increase in gross margin percentage is a result
of the shift to higher margin business segments and increased commercial
activity.
Marketing Expenses
Marketing expenses increased $211,000 in the nine months ended
September 30, 2000 or an increase of 38% over the nine-month period ended
September 30, 1999 due to the addition of the Company's United Kingdom office,
costs associated with the Company's strategic relationship with Freyssinet and
the addition of new marketing staff in North America.
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General and Administrative Expenses
General and administrative expenses increased $541,000 in the nine
months ended September 30, 2000 or an increase of 99% compared to the same
period in 1999 as resources were added in anticipation to the revenue growth
expected in 2000 and 2001.
Depreciation and Amortization
Depreciation and amortization has increased $85,000 in the nine months
ended September 30, 2000 or an increase of 88% over the nine-month period ended
September 30, 1999 due to depreciation associated with the pipeline equipment
purchased in 1999, amortization associated with SoundPrint(R) software and a
general increase in computer hardware.
Research and Development
The expense for the nine months ended September 30, 2000 presented on
the income statement is net of IRAP (Industrial Research Assistance Program)
grants totaling $85,000; therefore, the gross expense for the period was
$580,000 compared to $84,000 for the same period in 1999. The increase is a
result of an expansion of the Company's research projects including the pilot
pipeline project for GMRA for approximately $273,000 and research to develop
eddy current technology for approximately $55,000.
Total Assets
Total assets at September 30, 2000 increased to $7,092,000 from
$1,753,728 or 304% largely due to an increase in cash generated through the
public and private financings undertaken during the nine-month period of 2000, a
significant increase in accounts receivable, an increase in other assets and an
increase in patents and trademarks, partially offset by a decline in inventory
and capital assets.
Liabilities and Shareholders' Equity
Current liabilities at September 30, 2000 declined $392,000 from
December 31, 1999 due to an improved cash position offset by increased activity.
Share capital at September 30, 2000 rose to $5,697,000 over December 31, 1999
due the public and private share offerings in March 2000.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Total revenues for the year ended December 31, 1999 were reduced to
$1.3 million from $1.9 in the prior year, a decline of 32%. The Company's
historical revenues have been
15
<PAGE>
generated by a small sales force of two people and have been secondary to its
technology development. The Company has expended its efforts on the development
of its product, numerous demonstration projects and the technological
verification required in various markets including pipelines, bridges, nuclear
and water containment structures. The Company expects that the marketing efforts
undertaken in the last six months of 1999 will result in significant revenue
growth in 2000.
Revenues from pre-stressed water pipeline services increased in 1999 to
$534,000 from $197,000 in 1998. This represents an increase of 171%. The Company
focused a significant portion of its operational resources on the pipeline
business. In addition, approximately $600,000 was invested in acquisition units
and arrays for use in pipeline monitoring. The majority of the pipeline
contracts were three months or less, allowing owners the opportunity to assess
the technology. The Company expects to enter into longer term service contracts
in the future.
Monitoring and technical support revenues for 1999 were $764,000
compared to $204,000 in 1998, an increase of 275%. The pipeline business
represented $534,000 and buildings, parking structures and bridges contributed
$230,000. The annualized exit recurring monitoring revenue at December 31, 1999
was $247,000.
Gross Margin
Gross margin for the year 1999 declined significantly over 1998 due to
the large number of demonstration projects the Company entered into and the
fixed nature of the labor component included in cost of sales. The Company's
demonstration projects generate revenues, but the costs often exceed the revenue
recovered. The Company's current operations staff have the capacity to handle a
significant increase in project activity.
Operating Expenses
Operating expenses in 1999 increased $1.0 million over 1998 or 71%.
Marketing and promotion increased $152,000 or 25% over 1998 due to the addition
of the United Kingdom office. General and administrative expenses increased
$489,000 or 86% due to increases in salaries expense, office supplies and rent
and bonuses. The Company's administrative complement was enhanced during 1999 in
order to enable the sales revenue growth expected in 2000 and 2001.
Research and Development
Research and development expenses increased $90,000 or 42% over 1998.
The Company received an Industrial Research Program grant in 1999 of $35,000 in
support of its research projects which was offset against the research and
development expenses. The Company's 1999 projects included development of
wireless data transfer, fiber optic sensors, vibration sensors, video capture
for use in surveillance, crack monitoring in pre-stressed concrete
16
<PAGE>
slabs and containment vessels, introduction of web-based reporting, seismic
sensing, multiplexing technologies and bridge suspender monitoring.
Depreciation and Amortization
Depreciation and amortization in 1999 increased $308,000 or 540% due
largely to the depreciation associated with the pipeline arrays the Company has
purchased over the last two years and the relatively short amortization period.
Other Expenses
The Company wrote down its arrays and acquisition units to replacement
cost at December 31, 1999. The writedown amounted to $522,000 reflecting
technological advancements and the development of lower cost units. These units
will continue to generate future revenue for the Company but will be replaced
with new technology over time.
The Company continues to add to and to protect its intellectual
property. In 1999 capitalized patent and trademark costs were $108,000 compared
to $77,000 in 1998, an increase of 40%. The Company currently has numerous
patents and trademarks issued and pending in many areas of the world for a
variety of intellectual property.
Liquidity and Financial Resources
In June 1999 the Company issued 400,000 special warrants for net
proceeds of $1.16 million the proceeds of which were intended to be used to
support its research and marketing efforts. The securities were offered in units
and each unit consisted of one common share and one half of one common share
purchase warrant. Each full common share purchase warrant entitles the holder to
purchase one common share at a price of $3.50 a any time up to an including
September 8, 2001.
In September 1999 the Company established a revolving operating line of
credit of up to $250,000 bearing interest at prime plus 2% per annum. The
Company had drawn $175,000 under this line at December 31, 1999. Subsequent to
December 31, 1999 the Company replaced the September 1999 line of credit. The
Company is a party to a credit facility agreement with National Bank of Canada
dated September 21, 2000 pursuant to which it is able to borrow, subject to the
conditions of the credit facility up to $750,000 for operating purposes.
Borrowings are limited to the lesser of $750,000 or 75% of Canadian current
accounts receivable, plus 90% of Canadian and international insured accounts
receivable, plus 60% of current U.S. accounts receivable, less certain sums. The
borrowings bear interest at the lenders prime rate or U.S. base rate (as
defined), plus 1% and are secured by substantially all the assets of the
Company. Borrowings are due on demand and are subject to the Company maintaining
compliance, on a quarterly basis, with certain financial ratios including a 1:1
ratio of debt to equity, a minimum consolidated working capital ratio (current
assets to current liabilities) of 1.5:1, and a minimum consolidated equity
position of $2.0 million. The agreement contains restrictions on the payment
17
<PAGE>
of bonuses and dividends and a limitation of $1.5 million on investments in
affiliates. As of September 30, 2000, no borrowings were outstanding under the
credit facility.
In March 2000, the Company issued 2,000,000 units for net proceeds of
$5.4 million under the same terms as the special warrants issued in June 1999.
The proceeds are intended to be used to fund the Company's research and
development program and a significant expansion of marketing efforts over the
next two years. The increase in working capital will also enable the Company to
obtain supplier bonds for specific projects if required. Also in March 2000 the
Company sold 166,666 units in a private placement for proceeds of $500,000. Each
unit consists of one common share and one half of one common share purchase
warrant. Each full common share purchase warrant entitles the holder to purchase
one common share at a price of $3.50 at any time up to and including the date
that is 18 months from the closing of the private placement.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue
Revenue increased 114% from $903,801 for the year ended December 31,
1997 to $1,935,501 for the same period in 1998. Sales from buildings and parking
structures increased from $610,000 in 1997 to $1,387,336, or 127%. Sales from
bridges increased to $124,676 in 1988 from $22,111 in 1997 representing an
increase of 464%. Pipeline revenues decreased slightly from $196,585 in 1997 to
$177,150 in 1998, or 10%. Recurring revenues from monitoring and technical
support fees increased by 434% from $38,148 in 1997 to $203,560 in 1998.
Interest income rose to $42,779 in 1998 from $21,783 in 1997, an increase of 96%
reflecting higher cash balances.
Cost of Sales and Gross Margin
The increase in cost of sales from $742,113 for the year ended December
31, 1997 to $933,259 for the same period in 1998 represents a 26% rise,
reflecting the additional sales contracts completed.
Operating Expenses
Operating expenses for the twelve months ended December 31, 1998
decreased to $1,460,555 from $1,744,328 for the same period in 1997, or 16%.
Marketing and promotion expenses were reduced slightly from $652,844 in 1997 to
$616,462 in 1998, a decrease of 6%. General and administrative expenses rose 3%
from $556,400 in 1997 to $573,906 in 1998. Research and development expenses,
reflecting the capitalization and amortization of certain expenditures relating
to the Company's proprietary SoundPrint(R) software, were reduced from $512,070
in 1997 to $212,621 in 1998, a reduction of 58%. Accordingly, depreciation and
amortization rose 150% from $23,014 in 1997 to $57,566 in 1998. Computer
equipment and
18
<PAGE>
office furnishings were also added and are being depreciated, and the
capitalized research and development expenditures and patent and trademark
expenditures are being amortized.
Net Loss
Net loss for the year ended December 31, 1998 decreased 71% to $458,313
from $1,582,640 for the twelve months ended December 31, 1997. The improvement
arises from increased sales activity and gross margins and from reduced
operating expenses as discussed above.
Capital Expenditures
The Company added $634,125 to its capital assets during 1998, including
an allocation of $222,656 to the Company's SoundPrint(R) assets as discussed
above. In preparation for pipeline monitoring contracts, the Company spent
$257,718 on hydrophone arrays. Computer equipment and office furnishing
expenditures of $153,751 were made to assist in acquiring and analyzing the vast
amounts of data collected. Patent and trademark expenditures of $76,682 were
made to both increase and protect the Company's intellectual property.
Financing
During the year pursuant to the exercise of previously issued warrants
and options, the Company issued 776,000 common shares for proceeds of
$1,556,924.
Liquidity and Capital Resources
The Company had no long-term debt. Working capital as at December 31,
1998 amounted to $1,580,879.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
DIRECTORS AND SENIOR MANAGEMENT
The following table lists the directors and executive officers of the
Company as of September 30, 2000:
19
<PAGE>
NAME AGE POSITION
---- --- --------
James E. Paulson(1) 52 Chairman and a Director
Calgary, Alberta
Peter O. Paulson 53 President, Chief Executive
Calgary, Alberta Officer and a Director
John J. Fleming(1) 61 Director
Calgary, Alberta
Jean-Pierre Marchand 51 Director
Arpoume,Velizy,France
Daryl K. Seaman(1) 78 Director
Calgary, Alberta
John F. Elliott 48 Vice President and General Manager
Calgary, Alberta
Jennifer Stubbs 35 Chief Financial Officer
Calgary, Alberta
----------------
(1) Member of the Audit Committee
The following is a brief description of the employment background of
the management of the Company:
JAMES E. PAULSON of Calgary, Alberta has been Vice President of Yellowbird since
1976 and is the Chairman of the Company. He is an officer and director of
private companies with interests in real estate, oil and gas, technology and
technology research, and financial investments. He received his B. Comm. from
the University of Calgary in 1970 and an MBA from the University of Western
Ontario in 1972. Messrs. Paulson are brothers.
PETER O. PAULSON of Calgary, Alberta has been the President of Yellowbird since
1976 and is the President and Chief Executive Officer of the Company. He has
developed and/or patented new technologies or products in several different
industries. He has designed and operated manufacturing facilities for plastic
injection molding, tool and die making, machining and programming. He also
designed improvements in measurement while drilling ("MWD") telemetry tools and
equipment for the oil industry. Most of Mr. Paulson's career has been spent in
family-owned businesses, including Vice President, Research and Manufacturing of
Vec-Tel Petroleum Services Ltd., President of Reaction Oilfield Products Ltd.,
as well as President of Yellowbird, which is a holding company with interests in
real estate, oil and gas and technology and research. He is the inventor of the
Company's patented SoundPrint(R) technology.
20
<PAGE>
Mr. Paulson's technologies have received national and international recognition
from industry and research organizations. He received a B.Sc. (Physics) in 1969
from the University of Calgary. Messrs. Paulson are brothers.
JOHN J. FLEMING of Calgary, Alberta is the Vice Chairman and Director of
TransAtlantic Petroleum Corp., a Toronto Stock Exchange listed oil and gas
company. Mr. Fleming is also a director of the following Toronto Stock Exchange
listed companies: Poco Petroleum Ltd., oil and gas company; Newfoundland Capital
Corporation, a diversified holding company; and Canadian Helicopter Corporation,
an aviation services company and Southwestern Gold Corporation and affiliated
companies. He is also a director of Imco Recycling Corporation, a New York Stock
Exchange listed recycling company and Gothic Energy Corporation, a U.S.
publicly-traded oil and gas company. Mr. Fleming received his B. Comm. from the
University of Saskatchewan in 1960 and his designation as a Chartered Accountant
in 1963. From 1992 to 1995 he was Chairman of Excel Energy Ltd. before it was
merged into Ranchmen's Resources Ltd.
JEAN-PIERRE MARCHAND-ARPOUME of Velizy, France is President and Chief Executive
Officer of Freyssinet Group and Chairman and Chief Executive Officer of
Freyssinet International STUP of Velizy, France, the Company's strategic
marketing partner. Freyssinet is a world leader in pre-stressing technologies
used in bridge construction, nuclear power generating plants and other
applications, including the strengthening and repair of bridges. Freyssinet is a
subsidiary of VINCI, Europe's largest construction group.
DARYL K. SEAMAN, O.C., B.SC., L.L.D., of Calgary, Alberta is the Chairman and
President of Dox Investments Inc., a private holding company. Between 1949 and
1992, Mr. Seaman has held the following positions: Past Chairman, Chief
Executive Officer, Director and co-founder of Bow Valley Industries Ltd. Mr.
Seaman is currently a director of the following companies: EKZ Investments Ltd.,
Encal Energy Ltd., Potash Corporation of Saskatchewan Inc., Canadian Chemical
Reclaiming Ltd., Far West Mining Ltd., Bow Valley Energy Ltd., Tetonka Drilling
Inc., and is a co-owner and director of the Calgary Flames Hockey Club.
JOHN F. ELLIOTT of Calgary, Alberta is the Vice President and General Manager of
the Company. Mr. Elliott has a broad range of experience in construction
engineering and specifically concrete construction engineering over the past 20
years. From 1988 to 1993, he was General Manager of a concrete restoration and
protection contractor in Western Canada. From 1993 to 1996, Mr. Elliott was
General Manager of CCD Western Limited and its subsidiary Structural Diagnostics
Limited, companies providing specialist consulting services to engineers and
owners in the area of investigation, evaluation and monitoring of structural
deterioration. For the past four years, Mr. Elliott has been involved with the
SoundPrint(R) technology and has been instrumental in establishing the technical
credibility of the technology through his industry participation. He is Past
President of the American Concrete Institute, Alberta chapter. Mr. Elliott
received his Bachelor of Engineering from University College, Cork, Ireland, in
1974.
21
<PAGE>
JENNIFER STUBBS of Calgary, Alberta was appointed the Chief Financial Officer of
the Company effective January 3, 2000. Prior thereto, commencing in 1988, Ms.
Stubbs was employed as a chartered accountant with the firm of KPMG LLP, most
recently in the position of Senior Manager, Assurance. Ms. Stubbs' role as Chief
Financial Officer of the Company includes all of the Company's financial and
accounting functions. Ms. Stubbs received her B. Comm. from the University of
British Columbia in 1988 and graduated from the ICABC School of Accountancy,
receiving her chartered accountant designation in June 1991.
COMPENSATION
The following table sets forth the compensation paid to the Company's
Chief Executive Officer for the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
NAME AND YEAR SALARY BONUS OTHER LONG-TERM ALL OTHER
PRINCIPAL ANNUAL AWARDS/OPTION COMP.
POSITION COMP. (#)
<S> <C> <C> <C> <C> <C> <C>
Peter Paulson, $99,601 - - - -
President and
Chief Executive
Officer
All Directors $211,000 $24,579 - 75,000 shs -
and Officers as
a group (3 persons)
</TABLE>
Employment Contracts
On August 1, 1996, the Company entered into an employment agreement
with Peter O. Paulson, to serve as President and Chief Executive Officer of the
Company. The agreement commenced on September 3, 1996 and continues for an
indefinite term. The Company is able to terminate the agreement for cause, by
giving 18 months' notice to Mr. Paulson or by paying to Mr. Paulson an amount
equal to 18 months salary. Mr. Paulson may terminate the agreement on three
months' notice. Mr. Paulson's annual salary in accordance with the agreement is
$95,900 reviewable annually. He was granted an option to purchase 225,000 shares
of common stock of
22
<PAGE>
the Company on December 31, 1996.
None of the other officers of the Company are parties to an employment
contract.
BOARD PRACTICES
The term of office of all of the Company's Directors expires annually
at each annual meeting of shareholders. See "Directors and Senior Management"
above for information as to the term that the Company's Directors have held that
office. Except as described above, none of the Company's Directors has any
service, consulting or employment agreement with the Company.
Messrs. James E. Paulson, John J. Fleming and Daryl K. Seaman have been
appointed as the Audit Committee of the Company's Board of Directors. The
Company's Board of Directors has not appointed a compensation committee or a
nominating committee.
EMPLOYEES
As of September 30, 2000, the Company employed 27 persons, of which
four were executive officers, eleven were operations personnel, six were finance
and administrative personnel, four were marketing personnel and two were
software development personnel. The Company does not employ a significant number
of temporary employees. None of the Company's employees is represented by a
labor union, and management believes its relationship with its employees is
good.
SHARE OWNERSHIP
See Item 7. Major Shareholders and Related Party Transactions for
information as to the holdings of securities of the Company by its Directors and
executive officers as of September 30, 2000.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
MAJOR SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Shares of the Company as at September 30, 2000 of each
officer and director of the Company, of all officers and directors as a group,
and each person known by the Company who owns beneficially 5% or more of the
Common Shares. As of September 30, 2000, the Company had 12,490,667 Common
Shares issued and outstanding.
There has not been any significant change in the percentage ownership
held by any of the
23
<PAGE>
Company's major shareholders during the past three years. The Company's major
shareholders voting rights with respect to the shares held by them are no
different from the voting rights of the shares held by others.
Number of Percentage of
Identity of Person or Group(1)(2) Common Shares(3) Common Shares
--------------------------------- ---------------- -------------
James E. Paulson 5,240,291(4) 41.2%
Peter O. Paulson 5,240,291(4) 41.2%
John J. Fleming 900,000 7.2%
Daryl K. Seaman (5) (5)
Jean-Pierre Marchand-Arpoume (5) (5)
John F. Elliott 289,279(6) 2.3%
Jennifer Stubbs 100,000(7) (5)
Dox Investments Ltd. 400,000(8) 3.4%
All officers and directors as a group
(7 persons) 7,169,861(9) 53.8%
--------------------------
(1) This tabular information is intended to conform with Rule 13d-3
promulgated under the U.S. Securities Exchange Act of 1934 relating to the
determination of beneficial ownership of securities. The tabular information
gives effect to the exercise of warrants or options exercisable within 60 days
of the date of this table owned in each case by the person or group whose
percentage ownership is set forth opposite the respective percentage and is
based on the assumption that no other person or group exercise their option.
(2) The addresses of such persons are c/o the Company, 1050 340-12th
Avenue, SW, Calgary, Alberta T2R 1L5, except as follows: Mr. Fleming, #1550
340-12th Avenue, SW, Calgary, AB T2R 1L5; Mr. Seaman, #500 333-5th Avenue, SW,
Calgary, AB T2P 3B6; and Mr. Marchand Arpoume, 1 bis rue de Petit Clamart,
Velizy Villacoublay Cedex, France 78140.
(3) Except as otherwise noted, shares beneficially owned by each person as
of September 30, 2000 were owned of record and each person had sole voting and
investment power with respect to all shares beneficially held by such person.
(4) Includes an aggregate of 5,000,000 shares held by Yellowbird Products
Limited and Paulson Capital Corp., corporations controlled by Messrs. Paulson.
Also includes options exercisable through December 31, 2001 to purchase 175,000
shares at an exercise price of $1.00 per share and 50,000 shares at an exercise
price of $1.50.
(5) Less than 1%
(6) Includes options exercisable through December 31, 2001 to purchase
50,000 shares at an exercise price of $1.00 per share, through August 7, 2002 to
purchase 100,000 shares at an exercise price of $1.74, through June 9, 2003 to
purchase 25,000 shares at an exercise price of $1.79 and through February 3,
2004 to purchase 75,000 shares at an exercise price of $2.55. Mr. Elliott also
holds warrants expiring September 7, 2001 to purchase 6,250 shares at $3.50 per
share.
24
<PAGE>
(7) Includes options exercisable through March 8, 2005 to purchase 100,000
shares at an exercise price of $3.00 per share.
(8) Includes warrants expiring September 7, 2001 to purchase 25,000 shares
at $3.50 per share.
(9) Includes shares issuable on exercise of options held by such persons.
The Company estimates that 32,000 common shares are held by six
registered holders who are residents of the United States.
RELATED PARTY TRANSACTIONS
None of the directors, officers of principal shareholders of the
Company and no associate or affiliate of any of them has had any material
interest in any transaction within the past three years or in any proposed
transaction which has materially affected or will materially affect the Company.
Mr. Jean-Pierre Marchand-Arpoume, a Director of the Company, is the
President and Chief Executive Officer of Freyssinet Group and an officer of
affiliated entities. The Company has a strategic relationship with Freyssinet
(see "Item 1. Description of Business -- Distribution and Licensing").
ITEM 8. FINANCIAL INFORMATION.
Information responsive to this Item is included in response to Item 17.
Financial Statements herein.
The Company is not a party to any material pending legal proceedings.
The Company has never declared a dividend on its common shares and has
no intention of declaring dividends in the foreseeable future.
There has been no significant change in the Company since September 30,
2000, the date of the most recent interim financial statements included herein.
ITEM 9. THE OFFER AND LISTING.
MARKETS AND PRICE HISTORY OF STOCK.
The common shares of the Company are traded on the Canadian Venture
Exchange in Calgary, Canada. The Company's common shares are not currently
traded on any United States
25
<PAGE>
stock exchange or in the over-the-counter market, and, accordingly, there is
currently no public market for the common shares of the Company in the United
States. There can be no assurance that any such market will develop after the
effective date of this Registration Statement.
The reported high and low bid prices for the Company's common shares
for each of the six months ended October 31, 2000 were as follows(1):
HIGH LOW
---- ---
May $2.40 $1.75
June $3.30 $1.92
July $2.95 $2.50
August $2.95 $2.50
September $2.90 $2.18
October $2.80 $2.06
The reported high and low bid prices for the common shares on a
quarterly basis for the most recent two years and the nine months ending
September 30, 2000 were as follows(1):
High Low
---- ---
1998
1st quarter $2.15 $1.85
2nd quarter $2.35 $1.85
3rd quarter $2.55 $2.00
4th quarter $2.65 $2.00
1999
1st quarter $3.25 $2.75
2nd quarter $3.45 $2.90
3rd quarter $3.04 $2.50
4th quarter $3.20 $2.45
2000
1st quarter $3.75 $2.76
2nd quarter $3.30 $1.92
3rd quarter $2.90 $2.18
26
<PAGE>
The reported high and low bid prices for the Company's common shares
during the years 1997 and 1996 were as follows(1):
High Low
---- ---
1996 $3.00 $0.55
1997 $3.05 $1.50
---------------------
(1) All prices are as quoted by the Alberta Stock Exchange Monthly Review
and the Canadian Venture Exchange Monthly Review.
The Company intends to seek to have a trading market for its common
shares develop in the United States. There can be no assurance that it will be
successful in this regard. The Company currently does not meet the requirements
to have its common shares traded on any NASDAQ trading system or on any national
securities exchange. However, the Company does intend to seek to have its shares
quoted on the NASD OTC Bulletin Board. In order to do so, a broker-dealer in
securities in the United States will be required to file with the NASD a notice
that will enable the broker-dealer to enter quotations for the Company's common
stock on the OTC Bulletin Board. There can be no assurance that a broker-dealer
will file such a notice or, if filed, that quotations will be accepted on the
OTC Bulletin Board. Further, there can be no assurance that if a broker-dealer
commences to enter bid and asked quotations for the Company's common shares in
the OTC Bulletin Board that a viable and active trading market will develop.
ITEM 10. ADDITIONAL INFORMATION.
SHARE CAPITAL
The Company is authorized to issue two classes of shares, including an
unlimited number of preferred shares, without nominal or par value, and an
unlimited number of common shares.
The holders of common shares are entitled to dividends as and when
declared by the board of directors of the Company, to one vote per share at
meetings of shareholders of the Company and, upon liquidation, to receive such
assets of the Company as are distributable to the holders of the common shares.
All of the outstanding common shares are fully paid and non-assessable.
Preferred shares may be issued from time to time in one or more series,
each series consisting of the number of shares and having the designation,
rights, privileges, restrictions and
27
<PAGE>
conditions which the board of directors of the Company determines prior to the
issue thereof. The preferred shares rank prior to the common shares with respect
to the payment of dividends and distribution in the event of liquidation,
dissolution or winding-up of the Company.
The Company holds none of its preferred shares or common shares.
The Company has no preferred shares issued or outstanding. The Company
has issued common shares and warrants to purchase common shares during the past
three years as follows:
<TABLE>
<CAPTION>
NO. OF UNITS OF
DATE SECURITIES(1) PRICE PER UNIT(2) DESCRIPTION OF TRANSACTION
---- ------------- ----------------- --------------------------
<S> <C> <C> <C>
2000
March 28 166,667(3) $3.00 Private placement with Freyssinet International STUP
19,500 $1.49 Exercise of employee options
2,000,000(4) $3.00 Public sale in Canada
400,000 $3.00 Exercise of warrants sold in Canada
1999
64,500 $1.01 Exercise of employee options
1998
35,000 $1.79 Private Placement
495,000 $2.20 Exercise of warrants
276,000 $1.55 Exercise of agents, directors and employee options
(30,000) $1.74 Shares issued to terminated employee returned to treasury
1997
60,000 $1.74 Private Placement
250,000 $1.25 Exercise of warrants
70,000 $0.50 Exercise of director and employee options
1,000,000 $1.00 Public sale in Canada
</TABLE>
------------------
(1) Reflects numbers of shares, unless otherwise described.
(2) In each instance, the consideration received by the Company was cash.
(3) Each unit consisted of one common share and one-half of one common share
purchase warrant exercisable at $3.50 per full share through September 28, 2001.
(4) Each unit consisted of one common share and one-half of one common share
purchase warrant exercisable at $3.50 per full share through September 7, 2001.
28
<PAGE>
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company was organized under the Business Corporation Act (Alberta).
Its corporate access number is 208122911.
EXCHANGE CONTROLS
There is no law or government decree of regulation in Canada that
restricts the export or import of capital, or that affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares,
other than withholding tax requirements. See "Taxation" below.
There is no limitation imposed by Canadian law or by the articles or
other charter documents of the Company on the right of a non-resident to hold or
vote common shares of the Company, other than as provided in the Investment
Canada Act, as amended (the "Investment Act").
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless, after review the minister responsible
for the Investment Act is satisfied that the investment is likely to be of net
benefit to Canada. If an investment by a non-Canadian is not a reviewable
investment, it nevertheless requires the filing of a short notice which may be
given at any time up to 30 days after the implementation of the investment.
An investment in common shares of the Company by a non-Canadian that is
a "WTO investor" (an individual or other entity that is a national of, or has
the right of permanent residence in, a member of the World Trade Organization,
current members of which include the European Community, Germany, Japan, Mexico,
the United Kingdom and the United States, or a WTO investor-controlled entity,
as defined in the Investment Act) would be reviewable under the Investment Act
if it were an investment to acquire direct control, through a purchase of assets
or voting interests, of the Company and the value of the assets of the Company
equaled or exceeded $184 million, the threshold established for 1999, as
indicated on the financial statements of the Company for its fiscal year
immediately preceding the implementation of the investment. In subsequent years,
such threshold amount may be increased or decreased in accordance with the
provisions of the Investment Act.
An investment in common shares of the Company by a non-Canadian, other
than a WTO investor, would be reviewable under the Investment Act if it were an
investment to acquire direct
29
<PAGE>
control of the Company and the value of the assets were $5.0 million or more, as
indicated on the financial statements of the Company for its fiscal year
immediately preceding the implementation of the investment.
A non-Canadian, whether a WTO investor or otherwise, would acquire
control of the Company for the purposes of the Investment Act if he, she or it
acquired a majority of the common shares of the Company or acquired all or
substantially all of the assets used in conjunction with the Company's business.
The acquisition of less than a majority, but one-third or more of the common
shares of the Company, would be presumed to be an acquisition of control of the
Company unless it could be established that the Company was not controlled in
fact by the acquirer through the ownership of the common shares.
The Investment Act would not apply to certain transactions in relation
to common shares of the Company, including:
(a) an acquisition of common shares of the Company by any person if
the acquisition were made in the ordinary course of that person's
business as a trader or dealer in securities;
(b) an acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial
assistance and not for any purpose related to the provisions of the
Investment Act; and
(c) an acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
the Company, through the ownership of voting interests, remains
unchanged.
TAXATION
The following is a summary of the principal Canadian federal income tax
considerations, as of the date hereof, generally applicable to Security holders
who deal at arm's length with the Company, who, for purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act") and any applicable tax treaty or
convention, have not been and will not be resident or deemed to be resident in
Canada at any time while they have held shares of the Company, to whom such
share are capital property, and to whom such shares are not "taxable Canadian
property" (as defined in the Canadian Tax Act). This summary does not apply to a
non-resident insurer.
Generally, shares of the Company will be considered to be capital
property to a holder thereof provided that the holder does not use such shares
in the course of carrying on a business and has not acquired them in one or more
transactions considered to be an adventure in the nature of trade. All security
holders should consult their own tax advisors as to whether, as a matter of
fact, they hold shares of the Company as capital property for the purposes of
the Canadian Tax Act.
30
<PAGE>
This discussion is based on the current provisions of the Canadian Tax
Act and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention (the "Tax Treaty") and current published
administrative practices of the Canada Customs and Revenue Agency. This
discussion takes into account specific proposals to amend the Canadian Tax Act
and the regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted in
their present form. No assurances can be given that the Proposed Amendments will
be enacted in the form proposed, if at all; however the Canadian federal income
tax considerations generally applicable to security holders described herein
will not be different in a material adverse way if the Proposed Amendments are
not enacted.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE INTENDED TO ADDRESS ALL PRINCIPAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS, THIS SUMMARY IS OF A GENERAL NATURE ONLY. THEREFORE, SECURITY
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
Generally, shares of the Company will not be taxable Canadian property
at a particular time provided that such shares are listed on a prescribed stock
exchange, the holder does not use or hold, and is not deemed to use or hold, the
shares of the Company in connection with carrying on a business in Canada and
the holder, persons with whom such holder does not deal at arm's length, or the
holder and such persons, has not owned (or had under option) 25% or more of the
issued shares of any class or series of the capital stock of the Company at any
time within five years preceding the particular time.
A holder of shares of the Company that are not taxable Canadian
property will not be subject to tax under the Canadian Tax Act on the sale or
other disposition of shares.
Dividends paid or deemed to be paid on the shares of the Company are
subject to non-resident withholding tax under the Canadian Tax Act at the rate
of 25%, although such rate may be reduced under the provisions of an applicable
income tax treaty or convention. For example, under the Tax Treaty, the rate is
reduced to 5% in respect of dividends paid to a company that is the beneficial
owner thereof, that is resident in the United States for purposes of the Tax
Treaty and that owns at least 10% of the voting stock of the Company. In all
other cases, the rate is reduced to 15% in respect of dividends paid to the
beneficial owner thereof, that is resident in the United States for purposes of
the Tax Treaty.
31
<PAGE>
DIVIDENDS AND PAYING AGENTS
There are no contractual or other restrictions on the payment of
dividends on the Company's common shares. Dividends can be declared at the
discretion of the Company's Directors. The Company has no intention of paying
dividends in the foreseeable future.
DOCUMENTS ON DISPLAY
None. See Item 19. Exhibits.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Pursuant to subparagraph (e) of this Item, the Company is not required
to provide the information required by this Item.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
This Item is not applicable.
PART II
The Items of this Part are inapplicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
Pages F-1 through F-11 are incorporated by reference.
ITEM 18. FINANCIAL STATEMENTS
The Company has elected to provide financial statements pursuant to Item 17.
32
<PAGE>
ITEM 19. EXHIBITS
1.1 Articles of Incorporation
1.2 Articles of Amendment filed June 17, 1998
1.3 Articles of Amalgamation filed January 1, 1999
1.4 By-laws
4.1 Offer of Financing dated September 21, 2000 with National Bank
of Canada
4.2 Employment Agreement with Peter Paulson dated August 1, 1996
4.3 License Agreement dated May 26, 1999 with Freyssinet
International (STUP) SNC.
4.4 Research and Development Agreement dated May 26, 1999 with
Freyssinet International (STUP) SNC.
8.1 Subsidiaries:
NAME JURISDICTION OF ORGANIZATION
---- ----------------------------
Pure Technologies U.S. Inc. Delaware
Pure Technologies Europe Limited United Kingdom
SoundPrint(R)Technologies Limited Cyprus
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
PURE TECHNOLOGIES LTD.
By: /s/ Peter O. Paulson
-------------------------------------
Peter O. Paulson
-------------------------------------
President and Chief Executive Officer
Date: December 20, 2000
34
<PAGE>
AUDITORS REPORT
To the Board of Directors
We have audited the consolidated balance sheets of Pure Technologies Ltd. as at
December 31, 1999 and 1998 and the consolidated statements of operations and
deficit and cash flow for the each of the years in the three year period ended
December 31, 1999. 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 Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1999
and 1998 and the results of its operations and its cash flow for each of the
three years in the three year period ended December 31, 1999 in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
have not affected results of operations for each of the three years in the three
year period ended December 31, 1999 and shareholders' equity as at December 31,
1999 and 1998 except to the extent summarized in note 8 to the consolidated
financial statements.
KPMG LLP
Chartered Accountants
Calgary, Canada
March 31, 2000
F-1
<PAGE>
PURE TECHNOLOGIES LTD.
Consolidated Balance Sheets
(in Canadian dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
December 31,
September 30, ------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(unaudited)
Assets
Current assets:
Cash $ 3,673,797 $ -- $ 784,516
Accounts receivable 2,020,364 306,102 1,111,679
Inventories 105,215 59,783 380,709
Work in progress 8,590 260,713 --
----------------------------------------------------------------------------------------------------
5,807,966 626,598 2,276,904
Capital assets (note 2) 935,085 893,723 648,048
Other assets 150,684 68,687 82,322
Patents and trademarks 198,118 164,720 71,812
----------------------------------------------------------------------------------------------------
$ 7,091,853 $ 1,753,728 $ 3,079,086
----------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan (note 3) $ -- $ 175,000 $ --
Accounts payable 454,958 697,595 593,047
Deposits on sales contracts 49,366 23,453 102,978
----------------------------------------------------------------------------------------------------
504,324 896,048 696,025
Shareholders' equity:
Share capital (note 4) 12,016,688 5,158,714 5,093,514
Special warrants (note 5) -- 1,160,834 --
Deficit (5,429,159) (5,461,868) (2,710,453)
----------------------------------------------------------------------------------------------------
6,587,529 857,680 2,383,061
----------------------------------------------------------------------------------------------------
$ 7,091,853 $ 1,753,728 $ 3,079,086
----------------------------------------------------------------------------------------------------
</TABLE>
On behalf of the Board:
Director
---------------------------
Director
---------------------------
F-2
<PAGE>
PURE TECHNOLOGIES LTD.
Consolidated Statements of Operations and Deficit
(in Canadian dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Nine months ended Year ended
September 30, December 31,
------------------------------- ---------------------------------------------
2000 1999 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited)
Revenue:
Systems sales $ 2,966,824 $ 698,194 $ 904,550 $ 1,783,435 $ 869,677
Monitoring and technical
support 611,285 242,269 395,489 152,066 34,134
Interest and other revenue 216,129 -- -- -- --
----------------------------------------------------------------------------------------------------------------------
3,794,238 940,463 1,300,039 1,935,501 903,801
Cost of sales 1,228,660 692,625 1,025,183 933,259 742,113
----------------------------------------------------------------------------------------------------------------------
Gross margin 2,565,578 247,838 274,856 1,002,242 161,688
Operating expenses:
Marketing and promotion 767,950 556,700 768,909 616,462 652,844
General and administration 1,089,375 548,197 1,068,242 573,906 556,400
Research and development 494,679 83,778 302,071 212,621 512,070
Depreciation and
amortization 180,865 96,182 365,471 57,566 23,014
Write-down of capital
assets -- -- 521,578 -- --
----------------------------------------------------------------------------------------------------------------------
2,532,869 1,284,857 3,026,271 1,460,555 1,744,328
----------------------------------------------------------------------------------------------------------------------
Net income (loss) 32,709 (1,037,019) (2,751,415) (458,313) (1,582,640)
Deficit, beginning of period 5,461,868 2,710,453 2,710,453 2,252,140 (669,500)
----------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ 5,429,159 $ 3,747,472 $ 5,461,868 $ 2,710,453 $ (2,252,140)
----------------------------------------------------------------------------------------------------------------------
Loss per share $ -- $ (0.10) $ (0.28) $ (0.05) $ (0.19)
----------------------------------------------------------------------------------------------------------------------
Weighted average number
of shares 11,706,299 9,895,012 9,897,580 9,388,027 8,158,068
----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PURE TECHNOLOGIES LTD.
Consolidated Statements of Cash Flow
(in Canadian dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Nine months ended Year ended
September 30, December 31,
------------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash was generated from (used in):
Net income (loss) $ 32,709 $ (1,037,019) $ (2,751,415) $ (458,313) $ (1,582,640)
Gain (loss) on disposal of
capital assets (23,462) 1,639 -- -- --
Depreciation and
amortization 180,865 220,278 365,471 89,651 23,014
Write-down of capital
assets -- -- 521,578 -- --
Changes in non-cash
working capital (1,724,296) 34,512 890,813 (749,932) 87,271
-------------------------------------------------------------------------------------------------------------------------
(1,534,184) (780,590) (973,553) (1,118,594) (1,472,355)
Financing:
Issuance of share capital
net of costs 5,697,140 1,234,837 65,200 1,580,470 2,252,456
Issuance of special
warrants, net of
costs -- -- 1,160,834 -- --
Decrease (increase) in
bank loan (175,000) -- 175,000 -- --
Repurchase of share
capital -- -- -- (52,200) --
Loans receivable -- -- -- (10,450) (104,400)
-------------------------------------------------------------------------------------------------------------------------
5,522,140 1,234,837 1,401,034 1,517,820 2,148,056
Investments:
Purchase of capital assets (267,510) (879,918) (1,117,448) (634,125) (18,799)
Proceeds on disposal of
capital assets 90,120 701 -- -- --
Patent and trademark
expenditures (54,772) (52,448) (107,914) (76,682) --
Decrease (increase) in
other assets (81,997) 10,090 13,365 (28,245) (54,077)
-------------------------------------------------------------------------------------------------------------------------
(314,159) (921,575) (1,211,997) (739,052) (72,876)
-------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 3,673,797 (467,328) (784,516) (339,826) 602,825
Cash, beginning of year -- 784,516 784,516 1,124,342 521,517
-------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 3,673,797 $ 317,188 $ -- $ 784,516 $ 1,124,342
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The consolidated financial statements include the accounts of Pure
Technologies Ltd. (the "Company") and Pure Technologies U.S. Inc. a
wholly owned subsidiary. The Company changed its name to Pure
Technologies Ltd. on June 17, 1998.
(b) Revenue recognition:
Revenue received from system sales contracts is recognized when
products are delivered and installed and the Company has fulfilled its
obligations to the purchaser.
Revenue received from monitoring and technical support contracts is
initially recorded as deferred revenue and is recognized on a
straight-line basis over the term of the contract.
Revenue for long-term system sales and installation contracts is
recognized by the percentage completion method based on estimated costs
incurred.
(c) Capital assets:
Capital assets are stated at cost. Depreciation is provided by the
straight-line method as follows:
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Proprietary SoundPrint(R)software 5 years
Arrays 3 years
Equipment 5 years
--------------------------------------------------------------------------------
</TABLE>
(d) Patents and trademarks:
Patents and trademarks are stated at cost. Amortization is provided by
the straight-line method as follows:
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Trademarks 10 years
Patents 7 years
--------------------------------------------------------------------------------
</TABLE>
(e) Inventory:
Inventory is valued at the lower of cost and net realizable value.
(f) Research and development costs:
Research costs are expensed as incurred. Development costs related to
specific products or processes that are proven to be technically and
economically feasible are capitalized and amortized over the useful
life of the product or process.
F-5
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Translation of foreign currencies:
Monetary assets and liabilities denominated in foreign currency are
translated into Canadian dollars at rates of exchange in effect at the
balance sheet date. Non-monetary assets and liabilities and revenue and
expense items are translated at rates prevailing when they were
acquired or incurred. Translation gains and losses are included in
income except for unrealized gains and losses on long-term monetary
items which are deferred and amortized over their term.
(h) Income taxes:
The Company provides for income taxes using the asset and liability
method. Under this method, current income taxes are recognized for the
estimated income taxes payable for the current year and future income
taxes are recognized for temporary differences between the tax and
accounting bases of assets and liabilities and the benefit of losses
available to be carried forward for tax purposes that are likely to be
realized.
Effectively January 1, 2000 the Company adopted the liability method of
accounting for income taxes. The Company had previously used the
deferral method to account for income taxes. The accounting change was
applied retroactively but without restatement of prior year financial
statements and there was no impact on prior periods or the nine month
period ended September 30, 2000.
(i) Stock-based compensation plans:
The Company has stock-based compensation plans, which are described in
Note 4(c). No compensation expense is recognized for these plans when
stock or stock options are issued to employees as all options are
granted with exercise prices equal to the market price at the date of
grant. Any consideration paid by employees on exercise of stock options
or purchase of stock is credited to share capital.
(j) Comparative figures:
Certain comparative figures have been reclassified to comply with the
current year's presentation.
F-6
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
2. CAPITAL ASSETS:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Accumulated Net book
September 30, 2000 Cost depreciation value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proprietary SoundPrint(R)software $ 379,916 $ 136,650 $ 243,266
Arrays 759,981 609,982 149,999
Equipment 783,263 241,443 541,820
------------------------------------------------------------------------------------------------------
$ 1,923,160 $ 988,075 $ 935,085
------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------
Accumulated Net book
December 31, 1999 Cost depreciation value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proprietary SoundPrint(R)software $ 379,916 $ 79,684 $ 300,232
Arrays 777,199 577,199 200,000
Equipment 724,212 330,721 393,491
------------------------------------------------------------------------------------------------------
$ 1,881,327 $ 987,604 893,723
------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------------------------------------------------------------------------
Accumulated Net book
December 31, 1998 Cost depreciation value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proprietary SoundPrint(R)software $ 222,656 $ 20,410 $ 202,246
Arrays 297,419 32,204 265,215
Equipment 250,167 69,580 180,587
------------------------------------------------------------------------------------------------------
$ 770,242 $ 122,194 $ 648,048
------------------------------------------------------------------------------------------------------
</TABLE>
3. BANK LOAN:
The Company has a demand bank loan authorized to $250,000 bearing interest
at bank prime rate plus 2%. Subsequent to December 31, 1999 the Company
obtained an increased loan facility for a maximum of $750,000 with interest
at bank prime rate plus 1% or U.S. base rate plus 1%.
4. SHARE CAPITAL:
(a) Authorized:
Unlimited number of voting common shares.
Unlimited number of preferred shares issuable in series.
F-7
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
4. SHARE CAPITAL (CONTINUED):
(b) Issued:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
September 30, December 31, December 31,
2000 1999 1998
------------------------ ---------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period 9,904,500 $ 5,273,564 9,840,000 $ 5,208,364 9,064,000 $ 3,680,094
Shares issued on
private placement 166,667 500,000 -- -- 35,000 62,650
Shares issued on exercise
of warrants -- -- -- -- 495,000 1,089,000
Shares issued on exercise
of options 19,500 29,140 64,500 65,200 276,000 428,820
Shares issued on public
offering, net of costs 2,000,000 5,438,000 -- -- -- --
Shares returned to treasury -- -- -- -- (30,000) (52,200)
Shares issued on exercise
of special warrants 400,000 1,160,834 -- -- -- --
---------------------------------------------------------------------------------------------------------------
12,490,667 12,401,538 9,904,500 5,273,564 9,840,000 5,208,364
Less: Loans receivable -- 384,850 -- 114,850 -- 114,850
---------------------------------------------------------------------------------------------------------------
Balance, end of period 12,490,667 $ 12,016,688 9,904,500 $ 5,158,714 9,840,000 $ 5,093,514
---------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000 the Company had loans receivable from employees of the
Company relating to the purchase of 155,000 (December 31, 1999 and 1998 -
65,000) common shares for consideration of $384,850 (December 31, 1999 and 1998
- $114,850)). The loans are non-interest bearing, due on demand and secured by
the shares issued.
(c) Stock options:
The Company has authorized 1,221,950 common shares for issuance under stock
options to directors, officers and employees. The exercise prices range from
$1.00 to $3.00 and the options expire on or prior to August 16, 2005.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999 December 31, 1998
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Number average Number average Number average
of exercise of exercise of exercise
shares price shares price shares price
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding,
beginning of period 983,950 $ 1.36 879,400 $ 1.24 1,075,400 $ 1.28
Granted 257,500 2.91 169,050 2.43 80,000 1.69
Exercised (19,500) 1.49 (64,500) 1.02 (276,000) 1.56
Cancelled/expired
-------------------------------------------------------------------------------------------------------
1,221,950 $ 1.69 983,950 $ 1.36 879,400 $ 1.24
-------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
4. SHARE CAPITAL (CONTINUED):
(c) Stock options (continued):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Number Weighted Number Weighted
outstanding average Weighted outstanding average Weighted
Range of at remaining average at remaining average
exercise price September 30, contractual exercise December 31, contractual exercise
outstanding 2000 life price 1999 life price
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 500,500 1.3 years $ 1.00 508,000 2 years $ 1.00
1.50 to 2.00 321,450 2.0 years 1.69 333,450 2.9 years 1.68
2.00 to 3.00 400,000 4.3 years 2.79 142,500 4.2 years 2.53
-------------------------------------------------------------------------------------------------------
1,221,950 983,950
-------------------------------------------------------------------------------------------------------
</TABLE>
5. SPECIAL WARRANTS:
In June 1999 the Company issued 400,000 special warrants for total
proceeds, net of costs, of $1,160,834. The warrants entitle the holders to
acquire 400,000 common shares of the Company and 200,000 common share
purchase warrants subject to the Company filing a prospectus. Each warrant
entitled the holder to purchase one additional common share at a price of
$3.50 until the date that is 18 months from the date of issue of the
warrant to the holder. On March 7, 2000 the common shares issuable under
the special warrants were qualified for trading.
6. INCOME TAXES:
The following is a reconciliation of the income tax expense calculated at
combined Federal and Provincial rates with the income tax expense in the
consolidated statement of operations and deficit:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Nine months
ended Year ended December 31,
September 30, -----------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Combined federal and provincial
income tax rates 44.6% 43.1% 41.9%
Income taxes (reduction) at combined
federal and provincial rates $ 14,588 $ (1,183,741) $ (192,033)
Tax effect of non-deductible expenses 40,000 50,000 25,000
Unrecognized benefit of losses -- 1,133,741 167,033
Benefit of prior years losses (54,588) -- --
----------------------------------------------------------------------------------------------------------------
$ -- $ -- $ --
----------------------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
6. INCOME TAXES (CONTINUED):
Significant components of the Company's future income tax assets and
liabilities as at September 30, 2000 are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
<S> <C>
Future income tax assets:
Operating losses carried forward $ 5,040,439
Share issue expenses 520,450
Capital assets 419,876
-------------------------------------------------------------------------------------
5,980,765
Valuation allowance (5,607,864)
-------------------------------------------------------------------------------------
372,901
Future income tax liabilities:
Intangible assets (372,901)
-------------------------------------------------------------------------------------
$ --
-------------------------------------------------------------------------------------
</TABLE>
At December 31,1999 and September 30, 2000 the Company has losses for
income tax purposes and available deductions in excess of related net book
values of approximately $4,200,000, the future benefit of which has not
been reflected in the financial statements.
7. COMMITMENTS:
The Corporation is committed to payments under operating leases for office
premises through 2002 in the amount of approximately $92,260. Annual
payments are:
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
2000 $ 17,536
2001 64,049
2002 10,675
--------------------------------------------------------------------------------
</TABLE>
8. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada which conform in all
material aspects with generally accepted accounting principles in the
United States, except for disclosure of interest and other income on the
consolidated statement of operations. Under United States generally
accepted accounting principles, interest and other income would not be
included in the gross margin calculation.
F-10
<PAGE>
PURE TECHNOLOGIES LTD.
Notes to Consolidated Financial Statements
Nine months ended September 30, 2000 and years ended December 31, 1999 and 1998
Information as at September 30, 2000 and for the nine month period ended
September 30, 2000 and 1999 is unaudited
(in Canadian dollars)
9. SEGMENTED INFORMATION:
The Company provides monitoring equipment and technical support to
customers through its geographical marketing segments. The system sales and
monitoring and technical support revenue is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Nine months ended Year ended
September 30, December 31,
------------------------------- --------------------------------------------------
2000 1999 1999 1998 1997
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North America $ 2,126,136 $ 917,186 $ 1,276,762 $ 1,935,501 $ 903,801
Europe 222,611 23,277 23,277 -- --
Africa and other 1,445,491 -- -- -- --
----------------------------------------------------------------------------------------------------------------
Total $ 3,794,238 $ 940,463 $ 1,300,039 $ 1,935,501 $ 903,801
----------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
