<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark one)
xx QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission File Number: 000-19708
PHOENIX RESOURCES TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 84-1034982
------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
15945 Quality Trail North, Scandia, MN 55073
(Address of principal executive offices)
(888) 709-3975
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES x NO
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: March 6, 2000: 9,458,900
Transitional Small Business Disclosure Format (check one): YES NO x
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Form 10-QSB for the Quarter ended January 31, 2000
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 2
Item 2 Management's Disclosure and Analysis or Plan of Operation 13
Part II - Other Information
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 18
Part 1 - Item 1 - Financial Statements 2
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
BALANCE SHEETS
January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash on hand and in bank $ 22,272 $ -
------------- -------------
Deposit on purchase $ 20,000 -
------------- -------------
Total current assets $ 42,272 -
------------- -------------
Total Assets $ 42,272 $ -
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 35,000 $ -
------------- -------------
Judgments payable $ 150,000 $ 299,966
------------- -------------
Total current liabilities $ 185,000 $ 299,966
------------- -------------
Loans payable - related party $ 150,099 $ -
------------- -------------
Total Liabilities $ 355,099 $ 299,966
------------- -------------
Shareholders' Equity
Preferred Stock - $0.001 par value
Series A - 200
Common stock - $0.01 par value 9,284 27,000
Additional paid-in capital 13,583,878 13,312,212
Accumulated deficit (12,972,589) (12,665,978)
------------- -------------
620,573 673,434
Stock subscription receivable (180,000) (240,000)
Treasury stock - at cost (5,600 shares) (733,400) (733,400)
------------- -------------
Total shareholders' equity (292,827) (299,966)
------------- -------------
Total Liabilities and Shareholders' Equity $ 42,272 $ -
============= =============
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Three months ended January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Revenues 2000 1999
- -------- ---------- --------
<S> <C> <C>
$ -- $ --
Operating Expenses
General and administrative 208,834 --
----------------------
Compensation expense relating to stock options
exercised at less than "fair value" 82,750 --
----------------------
Loss from continuing operations before income taxes and
other income (expenses) (291,584)
----------------------
Other income (expense)
Interest income 7 --
Interest expense on judgment -- (6,655)
----------------------
7 (6,655)
----------------------
Loss before income taxes (291,577) (6,655)
----------------------
Income tax expense -- --
----------------------
Net Loss (291,577) (6,655)
----------------------
Other comprehensive income -- --
----------------------
Comprehensive Loss (291,577) (6,655)
======================
Weighted-average number of shares outstanding - basic 9,311,330 270,000
Weighted average number of shares outstanding - fully
diluted 9,632,830 270,000
Loss per share - basic and fully diluted $ (0.03) $ (0.02)
======================
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Three months ended January 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(291,577) $(6,655)
Adjustments to reconcile net income to net cash provided by
operating activities
Compensation expense relating to stock options exercised 82,750
at less than "fair value"
Increase (decrease) in Judgment payable (150,000) 6,655
Accounts payable 35,000
------------------------------------------
(323,827)
------------------------------------------
Cash Flows from Investing Activities
Deposit on purchase (20,000) --
------------------------------------------
Cash Flows from Financing Activities
Loan payable - related party 150,099 --
Exercise of stock options 216,000 --
-----------------------------------------
366,099 --
-----------------------------------------
Increase in Cash and Cash Equivalents 22,272
Cash and cash equivalents at beginning of period $ -- $ --
-----------------------------------------
Cash and cash equivalents at end of period $ 22,272 $ --
=========================================
</TABLE>
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements
Note 1 - Basis of Presentation
Phoenix Resources Technologies, Inc. (Company) was originally incorporated in
1986 as Firma, Inc. under the laws of the State of Colorado as a corporation
organized to evaluate unspecified business opportunities. In 1991, in accordance
with a reorganization agreement, the Company acquired 100% of the issued and
outstanding stock of Hughes Wood Products, Inc., a privately-owned Texas
corporation, and changed its corporate name to Hughes Resources, Inc. Hughes
Wood Products, Inc. became a wholly-owned subsidiary of the Company.
Pursuant to a plan of merger and reorganization, the Company, a Colorado
corporation, merged into Hughes Resources, Inc., a Nevada corporation, on June
27, 1995. The purpose of this merger was to redomicile the Company from Colorado
to Nevada. The Nevada corporation had been formed solely for this reorganization
purpose and had no assets, liabilities or operations prior to the merger. The
Articles of Incorporation of the surviving Nevada corporation were amended to
increase the authorized number of common shares to 100,000,000 with a par value
of $0.001 each and to increase the authorized number of preferred shares to
50,000,000 with a par value of $0.001 per share.
The Company has had no operations since the year ended October 31, 1996 until
October 1999. The Company had no operating assets from the year ended October
31, 1997 until October 1999. Accordingly, the Company is solely dependent upon
management and/or significant shareholders to provide sufficient working capital
to preserve the integrity of the corporate entity at this time. If feasible, it
is the intent of management and significant shareholders to provide sufficient
working capital, if needed, necessary to support the working capital needs of
the Company until adequate financing is in place.
During interim periods, the Company follows the accounting policies set forth in
its annual report pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U.S. Securities and Exchange Commission.
The information presented herein does not include all disclosures required by
generally accepted accounting principles and the users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its annual report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending October 31, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements - Continued
Note 2 - Summary of Significant Accounting Policies
1. Cash and cash equivalents
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Income taxes
The Company utilizes the asset and liability method of accounting for income
taxes. At January 31, 2000 and 1999, the deferred tax asset and deferred tax
liability accounts, as recorded when material, are entirely the result of
temporary differences. Temporary differences represent differences in the
recognition of assets and liabilities for tax and financial reporting
purposes, primarily the allowance for doubtful accounts, accumulated
depreciation and certain liability items. A 100% valuation allowance was
provided against deferred tax assets, where applicable.
Due to the liquidation and/or disposition of all of the Company's assets,
liabilities and operations as of October 31, 1997, the Company will have no
available net operating loss carry forwards available for use in future
years.
3. Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common stock
equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants using the treasury stock method. The
calculation of fully diluted earnings (loss) per share assumes the dilutive
effect of the exercise of the outstanding options and warrants at either the
beginning of the respective period presented or the date of issuance, which
ever is later.
Note 3 - Discontinued Operations
On March 10, 1997, the Company sold its assets to MVP Holdings Inc. in exchange
for 4,000,000 shares of MVP Holdings Inc. restricted, unregistered common stock
and the assumption by MVP Holdings, Inc. of all liabilities, known and unknown,
of the Company. The shares received by the Company had a value of approximately
$3.50 per share or an aggregate approximate $14,000,000. This transaction was
valued by the Company at approximately $10,300,000, which approximates the net
book value of the assets transferred less the value of the liabilities assumed.
In October 1997, the Company distributed 100.0% of its holdings in MVP Holdings
Inc. to its shareholders as a property distribution.
Note 4 - Loan Payable B Related Parties
On November 18, 1999, Ben Traub, the president of the Company, made a demand
loan to the Company of $150,000, bearing interest at 6.5%.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements - Continued
Note 5 - Stock Transactions
Preferred Stock Transactions
On October 4, 1999, a former officer of the Company and controlling party of an
entity owning approximately 200,000 shares of Class A Preferred Stock tendered
100% of the issued and outstanding shares of Class A Preferred Stock to the
Company for cancellation with no further consideration being due to the
tendering party. The par value of these issued and outstanding shares was
credited to additional paid-in capital upon their cancellation.
Common Stock Transactions
On January 28, 2000, options to purchase 5,000 common shares were exercised by
Rob Seitz, an officer and a director of the Company, and the shares were issued
for total proceeds of $15,000 to the Company. The quoted market price of the
Company's stock at the date of exercise was approximately $11.75. The
difference between the exercise price and the market price of the Company's
stock was charged to operations on the exercise date for the above exercise of
stock options.
On January 28, 2000, options to purchase 5,000 common shares were exercised by
Judee Fayle, an officer and a director of the Company. The shares were issued
for total proceeds of $15,000 to the Company. The quoted market price of the
Company's stock at the date of exercise was approximately $11.75. The
difference between the exercise price and the market price of the Company's
stock was charged to operations on the exercise date for the above exercise of
stock options.
On January 24, 2000, options to purchase 5,000 common shares were exercised by
Rob Seitz, an officer and a director of the Company, and the shares were issued
for total proceeds of $15,000 to the Company. The quoted market price of the
Company's stock at the date of exercise was approximately $11.00. The difference
between the exercise price and the market price of the Company's stock was
charged to operations on the exercise date for the above exercise of stock
options.
On January 24, 2000, options to purchase 5,000 common shares were exercised by
Judee Fayle, an officer and a director of the Company. The shares were issued
for total proceeds of $15,000 to the Company. The quoted market price of the
Company's stock at the date of exercise was approximately $11.00. The difference
between the exercise price and the market price of the Company's stock was
charged to operations on the exercise date for the above exercise of stock
options.
On January 5, 2000, options to purchase 2,000 common shares were exercised by
Ben Traub, an officer and a director of the Company, and the shares issued for
total proceeds of $6,000 to the Company. The quoted market price of the
Company's stock at the date of exercise was approximately $8.625. The difference
between the exercise price and the market price of the Company's stock was
charged to operations on the exercise date for the above exercise of stock
options.
On December 17, 1999, the Company filed a Form S-8 Registration Statement under
The Securities Act of 1933 with the U.S. Securities and Exchange Commission to
register 900,000 post-reverse split shares of common stock pursuant to the
Company's 1999 Nonqualifying Stock Option Plan (1999 Plan) which was adopted by
the Board of Directors on November 29, 1999.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements - Continued
On December 17, 1999, the Company granted options to Ben Traub, Rob Seitz and
Judee Fayle, all of whom are directors and officers of the Company, to purchase
400,000 shares of the Company's common stock at an exercise price of $3.00 per
share under the 1999 Plan.
On October 27, 1999, the Company entered into a Stock Acquisition Agreement with
Ben Traub, a related third party for the purchase of 9,000,000 post-reverse
split shares of restricted, unregistered common stock for total proceeds of
$300,000. The proceeds, when received, were allocated to settle the outstanding
judgment against the Company for $200,000 and to pay $100,000 to retire the
Forbearance Agreement with the Agricultural Production Credit Association (Ag-
PCA), which was triggered by the execution of the Stock Acquisition Agreement.
Subsequent to October 31, 1999, the Company received $150,000 of the amount due
which was applied $100,000 to the payment of the outstanding judgment and
$50,000 to the Forbearance Agreement. The balances payable by the Company as of
March 14, 2000 are $100,000 and $50,000 respectively.
On October 15, 1999, at a Special Meeting of the Shareholders, a 100 for 1
reverse split of the issued and outstanding common stock was approved.
In October 1999, in connection with the Stock Acquisition Agreement, the Company
agreed to issue 300,000 post-reverse split shares of restricted, unregistered
common stock in April 2000 to an individual for services rendered in connection
with the Stock Acquisition Agreement. Pursuant to generally accepted accounting
principles, the Company will recognize a charge to operations for the fair value
of these shares, as calculated on the discounted (50.0%) value of the quoted
closing price of the Company's common stock on the date of issuance as required
by the Agreement.
In September 1997, the Company, in an effort to seek and obtain a suitable
merger or acquisition agreement with an on-going privately owned business,
issued 15,000,000 pre-split shares (150,000 post reverse split shares) of
unregistered, restricted common stock into the escrow account of the Company's
corporate attorney under a subscription agreement. The attorney is responsible
for reviewing the Company's books and records, reviewing and updating the
Company's corporate status, procuring the services of a qualified independent
certified accounting firm to audit the Company's financial statements,
facilitating the filing of all delinquent reports with the U.S. Securities and
Exchange Commission and evaluating potential private companies for either merger
or acquisition. The Company's common stock had an estimated market trading
price of approximately $0.04 per share on the date of the issuance of these
shares. Due to the restricted nature of the shares issued into escrow, the
Stock Subscription Agreement was valued at approximately $0.016 per share, or
approximately $240,000 in total, as the "fair value" of this transaction. The
Stock Subscription Agreement will be settled upon the successful merger with or
acquisition of a suitable private company.
In September 1999, in anticipation of a transaction involving a change in
control of the Company, the Company's Board of Directors and the Company's
former corporate attorney agreed to reprice the stock subscription agreement to
$0.001 per share, which equals the stated par value of the common stock, as
there had been a deterioration in the quoted price of the Company's common stock
and approximately two (2) years of no operations in the Company. The final
settlement of the stock subscription agreement was a charge of approximately
$15,000 to operations for the various services performed by the Company's former
corporate attorney, as discussed above.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements - Continued
Note 6 - Litigation
Agricultural Production Credit Association (Ag-PCA)
The Company was a co-maker on a loan payable to Ag-PCA along with its former
subsidiaries, Hughes Wood Products, Inc. and Houston Woodtech, Inc. On March
17, 1997, Ag-PCA foreclosed on the underlying assets collateralizing the loan
and was subsequently granted an approximate $3,236,048 judgment collectively
against the Company, Hughes Wood Products, Inc. and Houston Woodtech, Inc.
In the March 1997 sale of the Company's assets to and assumption of liabilities
by MVP Holdings, Inc., the Company was specifically indemnified in the sale
document as follows: "The Purchaser [MVP] will guarantee seller [Company] that
all debts of any kind including but not limited to amounts owed to the
United States Treasury Department, the State of Texas, Agricultural Production
Credit Association and or Community Bank, N.A., incurred or owed by the Phoenix
Resources Technologies, Inc. as of the closing date except the specific debts to
be retained by Seller under this agreement will be paid on a timely basis."
Accordingly, the Company vigorously pursued all avenues available to it in order
to cancel this judgment and related litigation and anticipates no material
financial impact as a result of this action.
On August 21, 1998, Agricultural Production Credit Association (Ag-PCA) filed
litigation titled "Petition to Enforce Final Judgment" for collection of an
unsatisfied balance of approximately $1,092,100, as of May 6, 1998, in Texas
District Court against 17 named co-defendants, including the Company and its
former officers. The litigation alleges various actions on behalf of the
Company, its former officers, including Racketeering, Influence and Corrupt
Organization (RICO) statute violations.
On July 27, 1999, the Company entered into a Forbearance Agreement with Ag-PCA
whereby the Company will pay Ag-PCA the total sum of $100,000 cash prior to the
effective date of its merger or combination with a private investor in full
settlement of the Company's participation in the litigation discussed above. The
October 27, 1999 execution of the Stock Acquisition Agreement triggered the
Company's obligation to pay the $100,000 in settlement of this Forbearance
Agreement and the amount was accrued at the date of the Forbearance Agreement.
The Company intends to use the proceeds received from the Stock Acquisition
Agreement to pay Ag-PCA. The balance due to Ag-PCA as of March 14, 2000 is
$50,000.
Garnishment Payable
On March 20, 1997, the Company was named as the garnishee in the settlement of a
judgment rendered against Mr. James R. Ray, the Company's former president and
chief executive officer. The garnishment placed against the Company by the
Superior Court of the State of Arizona, Maricopa County, was in the amount of
$266,205.91, plus interest at 10.0% per annum until paid in full. The Company
accrued interest on the unpaid balance through October 27, 1999. On October
27,1999, the garnishment was settled for by agreement with the Company to pay
the claimant $200,000 cash. The Company paid $100,000.
Note 7 - Related Party Commitments
The Company has executed a management agreement with Cyclone Financing Group,
Inc. of 2nd Floor, 827 West Pender Street, Vancouver, British Columbia, Canada,
V6C 3G8, an entity related
through common management personnel who are also shareholders of the Company, at
the amount of $35,000 (US Dollars) per month, effective November 1, 1999. This
amount represents a management fee
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements - Continued
payable for the management of the Company's affairs including: acquisition of
projects, raising monies, administration (i.e. bookkeeping, photocopying,
faxing, office space, telephone charges and supplies) and other related
operational costs. Cyclone has billed the Company a total of $105,000 for the
period from November 1, 1999 through January 31, 2000.
Note 8 - Subsequent Events
Private Placement
On February 10, 2000, the Company issued 80,000 shares at a price of $2.50 per
share for total gross proceeds of $200,000. As part of the placement, 6,000
warrants were issued and fees of $16,500 were paid. The holder of the warrant is
entitled to purchase the common stock of the Company at a price of $3.00 subject
to adjustment, through the Expiration Date of February 10, 2001.
Stock Options Granted
On February 16, 2000, the Company granted options to Duane, Morris & Heckscher
to purchase 5,000 shares of the Company's common stock at an exercise price of
$0.01 per share under the 1999 Nonqualifying Stock Option Plan. Duane Morris
exercised 5000 shares of common stock. The quoted market price of the Company's
stock on the date of exercise was $16.250. The difference between the exercise
price and the market price of the Company's stock will be charged to operations
on the exercise date.
On February 3, 2000, the Company granted options to Peter Somogyi to purchase
25,000 shares of the Company's common stock at an exercise price of $7.00 per
share under the 1999 Nonqualifying Stock Option Plan. On March 6, 2000 Mr.
Somogyi exercised 1,500 shares of common stock. The market price of the
Company's stock on the date of exercise was $19.750. The difference between the
exercise price and the market price of the Company's stock will be charged to
operations on the exercise date.
Stock Options Exercised
Between February 1, 2000 and March 6, 2000, 86,500 shares of common stock of the
Company were issued for total proceeds of $250,550 upon the exercise of options
under the 1999 Nonqualifying Stock Option Plan. The quoted market price of the
Company's stock at the dates of exercise ranged from approximately $12.00
to $19.75. The difference between the exercise price and the market price of
the Company's stock will be charged to operations on the exercise date.
Exercise of Option to Purchase
On November 3, 1999, the Company acquired an option to purchase up to 100% of
HHPN Development Corporation ("HHPN"), an unrelated company located in San
Diego, California. HHPN has developed a software program that is used to
develop database applications on the Internet.
On February 10, 2000, the Company exercised its option to purchase 50% of HHPN
Development Corporation. Under the terms of the purchase agreement the Company
agrees to pay $2,500,000 to the sellers of which a total of $161,618 has been
paid as at March 8, 2000. The Company is also required to make minimum payments
of $17,000.00 per month, up to a maximum of $200,000.00 per month pursuant to a
budget acceptable to the board of HHPN and the Company. The Company can at any
time, and at its sole discretion, elect to increase its monthly payments and/or
pay HHPN in full.
<PAGE>
PHOENIX RESOURCES TECHNOLOGIES, INC.
Notes to Financial Statements - Continued
The Company also has options to purchase an additional 25% interest in HHPN for
$50,000,000 and the remaining 25% interest for $125,000,000, these options
expire on February 10, 2002.
(Remainder of this page left blank intentionally)
<PAGE>
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Please refer to the Management's Discussion and Analysis of Financial Condition
and Results of Operation as Outlined in its October 31, 1999, Form 10-KSB.
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view
of the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Factors that could cause or contribute to such difference include, but are not
limited to, history of operating losses and accumulated deficit; need for
additional financing; competition; dependence on management; risks related to
proprietary rights; government regulation; and other factors discussed in this
report and the Company's other filings with the Securities and Exchange
Commission. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. In each instance, forward-looking information should be
considered in light of the accompanying meaningful cautionary statements herein.
(2) Recent Events
On January 25, 2000, Phoenix Resources Technologies entered into a $4 million
equity investment line agreement with Eurofund Derivatives Ltd.. The Company
issued to Eurofund Derivatives a Class A Warrant with an aggregate warrant
exercise price of $4,000,000. The proposed maximum amount which can be
exercised at any one time is $500,000. Exercise of the warrant depends upon
whether the Company requires Eurofund Derivatives to do so.
On November 3, 1999, Cyclone Financing Group, Inc. transferred its rights in an
Assignment Agreement to Phoenix Resources Technologies. Cyclone transferred
all of its rights in the HHPN Option Agreement, to purchase 100% of HHPN
Development Corporation. This Option Agreement may be executed in several
parts. On February 25, 2000, Phoenix Resources Technologies exercised Option 1
of the Option Agreement. As of March 8, 2000, the Company has paid $161,618 to
HHPN. The Company is also required to make minimum payments to HHPN of
$17,000.00 per month, up to a maximum of $200,000 per month. The Company has
agreed to pay HHPN $2,500,000 for a 50% interest in HHPN. The Company also has
the option to acquire the remaining 50% of HHPN.
Mr. Ben Traub is an officer of both Cyclone Financing Group and Phoenix
Resources Technologies, Inc.. Mr. Traub has conditionally agreed to transfer
the HHPN Option Agreement to Phoenix Resources Technologies, Inc. Cyclone has
the right to either cancel the Assignment Agreement to Phoenix Resources
Technologies, Inc. or claim from the Company restricted shares to make up for
the difference in value enjoyed by Mr. Traub that would have resulted if certain
deficiencies had not existed. These rights will expire once the $2.5 million
has been paid in full to HHPN. Cyclone may only exercise these rights if
certain deficiencies result in the reduction of value of Mr. Traub's ownership
in Phoenix Resources Technologies, Inc. Deficiencies are defined in the
Agreement as material deficiencies in information supplied to Mr. Traub by the
former board of Phoenix Resources Technologies, Inc.
<PAGE>
(3) Plan of Operations, Liquidity and Capital Resources
The Company has been recently reorganized, and its operations to date have been
in the areas of setting up its organization and financing. The Company has
acquired a 50% interest in HHPN Development Corp. and its products. HHPN
Development Corp., has created a suite of Web development tools, code named
DBPanacea, which are designed to increase the flexibility while lowering the
cost of developing Web sites that require database functionality, i.e. Internet
based business applications and Web sites used for e-commerce transactions. The
Company's goals are to develop HHPN or DB Panacea, acquire management for PRTI
and ultimately acquire 100% of HHPN. As a result, the Company's personnel should
increase.
The management of HHPN Development believe DBPanacea has some significant and
noticeable advantages over competing products, especially in areas such as
reducing overall development costs and time-to-production. Additionally, the
Company understands that the applications developed with DBPanacea are platform
and database independent. Once the planned functionality has been implemented,
sites developed with DBPanacea are expected to operate on NT, UNIX, LINUX or MAC
without recoding, using SQL, Sybase, Oracle and most other database engines.
DBPanacea will run on any webserver including Apache, Microsoft's Information
Server, Netscape Server or any other server that supports servlets making
DBPanacea potentially one of the most flexible and user friendly web development
tools worldwide.
At January 31, 2000, the Company had cash and cash equivalents of $22,272.00
compared to $0 at January 31, 1999. Working capital defined as current assets
less current liabilities was $(142,728) at January 31, 2000 as compared to
$(299,996) at January 31, 1999. The Company had current assets of $42,272 and a
stockholders' deficit of $292,827 at January 31, 2000 compared to current assets
of $0 and a stockholders' deficit of $299,966 at January 31, 1999.
The Company had capital expenditures of $325,300.78 for the three months ended
January 31, 2000. Net cash flow provided by financing activities increased from
$0 at January 31, 1999 to $366,099 for the period ended January 31, 2000. The
increase is primarily due to the proceeds from the exercised stock options and a
loan from a related party. On October 27, 1999, the Company received a loan for
a $150,000 from Ben Traub, president of the Company.
On February 10, 2000, as part of a private placement, the company issued 80,000
shares at a price of $2.50 per share for total gross proceeds of $200,000. As
part of the placement, 6,000 warrants were issued and fees of $16,500 were paid.
The report of our independent certified public accountants in connection with
our annual year end financial statements are as of October 31, 1999. This
report contains an explanatory paragraph indicating factors which create
substantial doubt about our ability to continue as a growing concern. These
factors include recurring net losses for fiscal year 1999 and uncertainty
surrounding future equity financing through anticipated offerings. As of the
date of that report, the Company was without viable operations or significant
assets and was dependent upon certain significant shareholders to provide
sufficient working capital. The Company's ability to implement its business
plan is dependent upon obtaining adequate financial resources. The Company has
been engaged in various exploratory discussions with prospective investors.
While no specific terms have been negotiated, a due diligence process has begun
on behalf of some investors who are considering a equity investment in the
company. No assurance can be made that a private placement or public offering
of Company's equity will be successful. In such an instance the Company intends
to rely upon certain shareholders to meet future financing needs for the
remainder fiscal year 2000 while the Company pursues other financing
alternatives.
The Company needs to raise capital to continue its operations. In the three
months of fiscal year 2000 to date, the Company has continued substantial
operating losses which utilize most of its available cash reserves. The Company
anticipates that it will continue to incur net losses for the foreseeable
future. The Company had no operating revenue in the last two years. The
balance sheet for the past three months show that the
<PAGE>
Company has general and administrative expenses in the amount of $35,000, and
some expenses related to the settlement of its law suit. The result is a loss of
$21,689, or $0.05 per share.
The Company does not intend to pay cash dividends in the foreseeable future.
The Company anticipates that it will not need any purchase of significant plant
or equipment in the near future.
(Remainder of this page left blank intentionally)
<PAGE>
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
Cyclone Financing Group, Inc., entered into an agreement on October 26, 1999,
with certain parties who control HHPN Development Corporation, to purchase up to
100% of HHPN and associated products for a total of one hundred and seventy five
million dollars in three stages. Cyclone Financing Group, Inc. has assigned
this agreement to Phoenix Resources Technologies, Inc., under agreement dated
November 3, 1999. The Company has exercised the option to acquire a 50%
interest in HHPN. HHPN Development Corporation is a Delaware corporation based
in San Diego, California. HHPN Development Corp., has created a suite of Web
development tools, code named DBPanacea, which are designed to increase the
flexibility while lowering the cost of developing Web sites that require
database functionality, i.e. Internet based business applications and Web sites
used for e-commerce transactions.
On January 25, 2000, Phoenix Resources Technologies entered into a $4 million
equity investment line agreement with Eurofund Derivatives Ltd.. The Company
issued to Eurofund Derivatives a Class A Warrant with an aggregate warrant
exercise price of $4,000,000. The proposed maximum amount which can be
exercised at any one time is $500,000. Exercise of the warrant depends upon
whether the Company requires Eurofund Derivatives to do so.
There is no guarantee that the Company will exercise the option to acquire the
other 50% of HHPN.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
4 Stock Option Plan/1/
10 Equity Line Agreement
10 Management agreement between Cyclone and Phoenix Resources Technologies,
Inc./2/
10 HHPN Option Agreement with Cyclone/3/
15 Letter on Unaudited Interim Financial Information
27 Financial Data Schedule
(b) On November 15, 1999, the Company filed a Form 8-K with the Securities and
Exchange Commission to report a change in control, the resignation of the
board of directors, the appointment of a new board and a stock acquisition
agreement.
- ------------
/1/ Incorporated by reference to the Registrant's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on December 17, 1999.
/2/ Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission on February 9, 2000.
/3/ Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission on February 9, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHOENIX RESOURCES TECHNOLOGIES, INC.
March 15, 2000 /s/ Ben Traub
-------------
Ben Traub, President
/s/ Judee Fayle
---------------
Judee Fayle, Secretary, Treasurer
/s/ Rob Seitz
-------------
Rob Seitz, Vice President
<PAGE>
===============================================================================
EQUITY INVESTMENT
LINE AGREEMENT
PART ONE
EUROFUND DERIVATIVES LIMITED
24-26 CALTON ROAD EDINBURGH EH8 9DP U.K
INTL TEL: 0044 131 622 7415 INTL FAX: 0044 131 662 0210
EMAIL: [email protected] WEBSITE: www.eurofund.8m.com
===============================================================================
<PAGE>
EQUITY INVESTMENT LINE AGREEMENT
CONTENTS
Equity Investment Line Agreement Page VI
II
<PAGE>
Letter of Intent
January 4, 2000
Company: Phoenix Resources Technologies, Inc. (OTCBB:PRTI)
Attention: Mr. Benjamin Traub
Gentlemen,
This letter is to set forth our understanding regarding the investment by
Eurofund Derivatives Limited., a United Kingdom Company (the"Investor") of $4
million United States dollars maximum amount in Phoenix Resources Tehnologies,
Incorporated, a Nevada corporation (the"Company"). The provisions of this letter
are not intended to be legally binding,
Under the terms and conditions of the Equity Line Investment Agreement
(described herein) the Company may require the Investor to purchase Shares of
the Company's Common Stock, par value $0.001 per share (the "Common Stock"),
over a period of two years from the effective date of Registration of the Common
Stock for an aggregate purchase price of $4 million USD. Under the terms of the
Equity Line , during any 90 day period, the Company, subject to the satisfaction
of certain conditions in the Agreement, can require the Investor to purchase
Shares of Common Stock for a aggregate purchase price of between $0 USD and
$500,000 USD. The purchase price per share to be paid by Investor for the
Shares of Common Stock under the Agreement will equal 92% of the average
closing bid price of the Common Stock during the five trading days immediately
preceding the Notice of Exrcise given by the Investor to the Company.
To give an example of how this would work: If the Company wanted to raise
$500,000 during the course of any three month period, it would send Eurofund a
Put Notice specifying that Eurofund must exercise $500,000 worth of a class A
warrant during a three month period. The Company Put Notice would also contain a
Floor Price under which the class A warrant may not be exercised. If Eurofund
decided to exercise $100,000 of this amount the next day, it would send the
Company $100,000 along with a notice of exercise stating that it was exercising
$100,000 of the class A warrant and that $400,000 of the class A warrant
remained to be exercised during the remainder of the three-month period. If the
average of the 5 day bid price per share of the Company's Common Stock during
the ten days prior to Eurofund exercise was $10 per share, and the Floor Price
set by was not above $10 per share, then the Company would issue to Eurofund
10,000 Shares of Common Stock. During the remainder of the three-month period,
Eurofund would send the Company notices of exercise for the remaining $400,000.
The class A warrant allows the Company to require Eurofund to buy from the
Company a dollar amount of Common Stock set from time to time by the Company.
The Company can raise a maximum of $4
III
<PAGE>
million USD over the life of the class A warrant, raising between $0 USD to
$500,000 USD during each three month period set by the Company. The Company may
also choose not to issue any Shares of Common Stock under the class A warrant.
The Company, at its discretion, sets the dollar amount of the class A warrant to
be exercised, and the minimum or Floor Price per share below which such warrant
may not be exercised.
The exercise price is the price paid by Eurofund for each share of Common Stock
and is will equal 92% of the average 5 day bid price per share for each of the
five trading days before the date of exercise, but can never be lower than the
Floor Price set by the Company from time to time.
The class A warrant expires two (2) years after execution of the Equity Line
Investment Agreement.
The Company's decision whether to require Eurofund to exercise the class A
warrant may depend upon a variety of factors. These factors may include:
need for additional funding; when such funding is required; the current and
anticipated market price for Common Stock; the availability and terms of equity
funding elsewhere; general market conditions.
Each three month period begins on the date specified in the Put Notice to
Eurofund, and ends on the earlier of the date three months later or when the
entire amount of stock which Eurofund is obligated to buy from the Company
during such three-month period has been exercised. The three-month periods may
not necessarily be consecutive.
If the Company decides to require Eurofund to purchase the amount specified in
the Put Notice Eurofund would then exercise a portion of the class A warrant
during a three-month period into the number of Shares of Common Stock which
equals the amount specified by the Company divided by the exercise price in
effect at the time. During each three-month period in which Eurofund is
required to buy Shares of Common Stock from the Company, Eurofund must send the
Company a notice of exercise.
The Company will receive from Eurofund the aggregate exercise price of the
warrants if such warrants are exercised by Eurofund.
Investor's obligation to purchase Shares of Common Stock under the Agreement is
subject to various conditions, including among other things, the average closing
bid price of the Common Stock being at least $(The Floor Price) per share for
the five trading days preceding the date of the Notice of Exercise, continued
trading of the Common Stock on the Principal Market for the Common Stock and the
Common Stock beneficially owned by the investor being not more than 9.9% of the
then outstanding Common Stock. The Company may terminate the Agreement without
further notice to the Investor at any time after it has sold to the investor $4
million USD of Common Stock.
The securities purchased by the Investor under the Agreement will be offered
for sale and will be sold without registration, the Company will agree to file
and maintain effectiveness of a Registration Statement under the Securities Act
of 1933 for the resale by the Investor of the Shares of Common Stock
IV
<PAGE>
purchased under the agreement. The Investor will be entitled to registration, at
the cost and expense of the Company, initiated by the Company upon reasonable
terms and conditions to be agreed upon and set forth in the Equity Line
Agreement
The Equity Investment Line Agreement shall be subject to the approval of all of
the parties and their counsel. Such terms and conditions shall include among
others: (a) warranties, representations including those usually given in
transactions of the nature herein contemplated, satisfactory to the Investor
relating to the Company's structure, organisation, business, operations and
financial condition; (b) the usual conditions which must be satisfied before
parties to transactions of the type contemplated are obligated to close,
including, but not limited to, obtaining of any required consents relating to
material contracts, the absence of any litigation or other legal proceeding
relating to this transaction or the Company; and (c) provisions relating to
compliance with all applicable securities laws.
All the parties agree to use their reasonable best efforts to complete the
aforesaid Agreement within 45 days
Following execution of the letter, the Investor and it's agents agree to hold
all information obtained by virtue of such Equity Investment Line Agreement in
confidence and not to release it to third parties without the prior written
consent of the Company.
From the date of execution of the Agreement, the Company will operate its
business in the manner described in the latest 8K or most recent SEC filing
documents and will use its best efforts to; (i) maintain its listing requirement
and its business as a going concern and (ii) register an effective registration
statement with the SEC for the securities contemplated in the Equity Investment
Line Agreement.
If the foregoing accurately describes our understandings and agreements,
please sign, date and return the enclosed copy of this letter to me.
Sincerely,
Eurofund Derivatives Limited, (the "Investor")
Signed By:
Name & Title : Roger Green , Managing Director
Read and Agreed to this 10th. Day of January, 2000:
Phoenix Resources Technologies, Inc. (the "Company")
Signed By:
Name & Title: Benjamin E. Traub, President and C.E.O.
V
<PAGE>
Equity Investment Line Agreement
For reference purposes the date of this Agreement is the 25th. January, 2000.
This Equity Investment Line Agreement relates to the purchase and sale from time
to time by the Selling Investor (the "Selling Investor") of an indeterminate
number of Shares of Common Stock, $0.001 par value per share (the "Common
Stock"), of Phoenix Resources Technologies, Inc., a Nevada corporation (the
"Company") issuable upon exercise of a Class A Warrant.
The actual number of Shares of Common Stock into which the Class A Warrant is
exercisable will depend upon whether the Company requires the holder of the
Class A Warrant to exercise all or part of such Class A Warrant and will also
depend upon future market conditions. If the Company were to require the holder
of the Class A Warrant to fully exercise such warrant, based upon current market
conditions, as of January 4, 2000, the Class A Warrant being registered
hereunder would be exercisable into approximately 570,000 Shares of Common
Stock. In accordance with Rule 415 under the Securities Act of 1933, Common
Stock offered hereby shall also be deemed to cover an indeterminate number of
securities to be offered or issued to reflect adjustments resulting from stock
splits, stock dividends or similar transactions, as well as an indeterminate
number of Shares of Common Stock issuable upon exercise of the Class A Warrant,
and is deemed to include any additional Shares of Common Stock that may be
issuable upon such exercise as a result of any adjustment to the exercise price.
It is anticipated that the Shares will be offered from time to time in brokerage
transactions (which may include block transactions), in the over-the-counter
market or negotiated transactions at prices and terms prevailing at the time of
such sales, at prices related to such market prices or at negotiated prices.
The Selling Investor has not held any position, office or other material
relationship with the Company, or had any such position, office or material
relationship within the past three (3) years. Because the number of Shares into
which the Class A Warrant is exercisable depends upon whether the Company
requires the Selling Investor to exercise all or part of the Class A Warrant
issued to it, and will also depend upon the market price of the Company's Common
Stock from time to time, it is not possible to calculate the number of Shares of
Common Stock which will be ultimately issued upon exercise of the Class A
Warrant. Therefore the aggregate exercise price of the Class A Warrant
subscribed for by the Selling Investor is listed below in place of the number of
Shares beneficially owned by such Selling Investor prior to this offering and in
place of the number of Shares offered by such Selling Investor. Because of this
it is not possible to calculate the percentage of the Company's outstanding
Common Stock beneficially owned by the Selling Investor. Under the terms of the
Class A Warrant, the total number of Shares of Common Stock of the Company
deemed beneficially owned by the Selling Investor, together with all Shares of
the Common Stock of the Company deemed beneficially owned by the Selling
Investor's affiliates as defined in Rule 144 of the Securities Act of 1933, as
amended, may never exceed 9.9% of the total issued and outstanding Shares of the
Common Stock of the Company.
SECURITIES OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER
THE SECURITIES ACT OF 1933.
Beneficial Owner: Eurofund Derivatives Limited
Aggregate Warrant Exercise Price: (Class A Warrant) $4,000,000
Title of each class of securities to be offered: CLASS A WARRANT
Title of each class of securities to be registered: COMMON STOCK
Proposed Amount to be registered: $4,000,000
Maximum Amount per Put Notice/Notice of Exercise: $500,000
Proposed Maximum Aggregate Value of Common Stock to be issued: $4,000,000
VI
<PAGE>
The Company will only receive the Aggregate Exercise Price if the Warrant is
exercised by the Selling Investor. Such exercise may depend upon whether the
Company requires the Selling Investor to exercise all or part of the Class A
Warrant issued to it, and will also depend upon future market conditions. The
Company has agreed to bear all of the expenses in connection with the
registration of the Shares. The Company expects that any net proceeds from the
exercise of the Warrants will be used for research and development, working
capital, acquisitions, and for general corporate purposes, in such amounts as
the Company, in its discretion, deems appropriate. Pending utilisation, the
Company may invest such funds in money market funds and other interest-bearing
obligations.
Authorisation of Additional Securities. The Company is authorised to issue
100,000,000 Shares of Common Stock. As of the date of this Equity Investment
Line Agreement, there were 9,072,400 Shares of Common Stock issued and
outstanding. The Company's Board of Directors has the power to issue any and all
unissued Shares and, to the extent that additional Shares of Common Stock are
issued, dilution to the interests of the Company's stockholders will occur.
The Company's Common Stock trades on the National Association of Securities
Dealers Bulletin Board under the symbol, "PRTI". On January 19, 2000 as reported
by NASD the last sale price of a share of Common Stock was
$9.00.
Description of Securities Offered Pursuant to Equity Investment Line Agreement
Between Eurofund Derivatives Limited and Phoenix Resources Technologies, Inc.
The Company is authorised to issue 100,000,000 Shares of Common Stock, $0.001
par value per share, of which 9,070,400 Shares were outstanding as of the date
of this Equity Line Agreement.
The Company is obligated to file a registration statement, at the latest within
ten business days after the end of each three month period stipulated in a Put
Notice, for all Shares of Common Stock issued upon exercise of the Warrant
during such three month period. Under the terms of their agreement with the
Company, at no time will the Selling Investor and their affiliates own in excess
of 9.9% of the total issued and outstanding Shares of the Common Stock.
The Class A Warrant, which expires on January 25, 2002, entitles the Selling
Investor to purchase from the Company at the Exercise Price a certain number of
Shares based upon an amount set by the Company from time to time over the life
of the Class A Warrant. Before the beginning of each three month period
specified by the Company, the Company will determine the amount of Common Stock
that the Company wishes to issue to the Selling Investor during such three-month
period. The Company will also set the minimum price or "Floor Price" per share
at which such Common Stock is to be issued. The amount of Common Stock and the
Floor Price can be reset by the Company in its sole discretion prior to the
beginning of any such three month period.
Therefore, at the beginning of each three month period, the Company controls the
maximum aggregate amount of Common Stock to be issued pursuant to exercise of
the Class A Warrant (which can range from $0 USD to $500,000 USD during such
three month period), and the minimum price per share for such issuance. The
Company may also choose not to issue any Shares of Common Stock pursuant to the
Class A Warrant. If the Company decides to require the Selling Investor to
purchase the amount specified by the Company, the Selling Investor must then
exercise the Class A Warrant during such three month period into the number of
Shares which equals the amount specified by the Company divided by the
applicable Exercise Price. On a date or dates during such three-month period in
which the Selling Investor is obligated to exercise all or part of the Class A
Warrant, the Selling Investor is required to send a Notice of Exercise to the
Company. The "Exercise Price" per share shall mean:
VII
<PAGE>
the greater of
(i) The Floor Price to be set by the Company upon issuance of the Put Notice.
(ii) 92% of the average 5 day bid price on the Nasdaq National Market or other
exchange or market if the Shares are traded thereon, for each of the five
trading days preceding the date that a Notice of Exercise is given.
The Exercise Price in effect during any three month period specified by the
Company may never be lower than the Floor Price specified by the Company prior
to the beginning of such three month period, and the Selling Investor's
obligation to exercise the Class A Warrant during such three month period shall
be waived whenever the Exercise Price is lower than the Floor Price specified by
the Company. Unless otherwise agreed to by the Company and the Selling Investor,
no more than $4 million USD may be raised by the Company pursuant to the
exercise of the Class A Warrant. Because the number of Shares into which the
Class A Warrant are exercisable into depends upon whether the Company requires
the Selling Stockholder to exercise all or part of the Class A Warrant issued to
it, and will also depend upon the market price of the Company's Common Stock
from time to time, it is not possible to calculate the number of Shares of
Common Stock which will be ultimately issued upon exercise of the Class A
Warrant.
Holders of Common Stock are entitled (i) to receive rateable dividends from
funds legally available for distribution when and if declared by the board of
directors; (ii) to share rateably in all of the Company's assets available for
distribution upon liquidation, dissolution or winding up of the Company; and
(iii) to one vote for each share held of record on each matter submitted to a
vote of stockholders. All outstanding Shares of Common Stock are fully paid for
and non-assessable. The Selling Investor is entitled to distribute from time to
time the Common Stock issuable upon exercise of the Warrant. Based upon current
market conditions, as of the 4th. January, 2000, the outstanding Warrant would
have been exercisable for an aggregate exercise price of $4,000,000 into
approximately 570,000 Shares of Common Stock, representing approximately 5.8% of
the issued and outstanding Common Stock of the Company after taking into account
the issuance of such Common Stock upon exercise of the Warrants. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Investor. The Company will only receive the Aggregate Exercise Price of the
Warrants if such Warrants are exercised by the Selling Investor. Such exercise
may depend upon whether the Company requires the Selling Investor to exercise
all of part of the Class A Warrant issued to it, and will also depend upon
future market conditions.
To comply with certain states' securities laws, if applicable, the Common Stock
will not be offered or sold in a particular state unless the Common Stock has
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and complied with.
VIII
<PAGE>
Read and Agreed to this 25th. Day of January, 2000:
Eurofund Derivatives Limited, (the "Investor")
Signed By: Roger Green
Name & Title: Roger Green, Managing Director
Phoenix Resources Technologies, Inc. (the "Company")
Signed By: Judee Fayle
Name & Title: Judee Fayle, Secretary/Treasurer
IX
<PAGE>
===============================================================================
EQUITY INVESTMENT
LINE AGREEMENT
PART TWO
EUROFUND DERIVATIVES LIMITED
24-26 CALTON ROAD EDINBURGH EH8 9DP U.K
INTL TEL: 0044 131 622 7415 INTL FAX: 0044 131 662 0210
EMAIL: [email protected] WEBSITE: WWW.EUROFUND.8M.COM
===============================================================================
<PAGE>
EQUITY INVESTMENT LINE AGREEMENT
PART TWO
CONTENTS
Equity Investment Class A Warrant Page III
Form of Notice of Exercise Page VII
II
<PAGE>
CLASS A WARRANT
THIS CERTIFIES that, for value received, EUROFUND DERIVATIVES LIMITED
hereinafter called "Warrantholder"), is entitled and required to purchase at the
Exercise Price from Phoenix Resources Technologies, Inc., a Nevada corporation
(hereinafter called the "Company"), the number of Shares of Common Stock, par
value $0.001 per share (hereinafter called the "Shares") of the Company
calculated in accordance with Section 1.1 below, at any time on or before 4:30
p.m. Eastern Standard Time on January 25, 2002 (the "Expiration Date"), all in
accordance with the terms hereof.
1. Exercise of Warrants.
1.1 During any Quarter and prior to 4:30 p.m. Eastern Standard Time on the
Expiration Date, the Warrantholder shall during such Quarter exercise the
Outstanding Amount of this Warrant by delivering to the Company a Notice of
Exercise duly executed and completed by Warrantholder, at the office of the
Company, attention: Ms. Judee Fayle, Secretary/Treasurer, together with
payment in full in lawful money of the United States, of the portion of the
Outstanding Amount of the Warrant being exercised by such Notice of
Exercise. Such payment shall be made by wire transfer of immediately
available funds to the account of Phoenix Resources Technologies, Inc. at
Whatcom State Bank, Point Roberts Branch, 480 Tyee Drive, Point Roberts, WA
98281 Account No.: 903006518 ABA Wire Code No: 125107765.
Upon exercise, the Warrantholder shall receive the number of Shares equal
to the Outstanding Amount being exercised divided by the applicable
Exercise Price. Upon receipt of the aforesaid payment, the Company shall
issue instructions to its transfer agent to issue such Shares to the
Warrantholder within five (5) business days of the Company's receipt of
such payment. Provided that the entire Outstanding Amount during any
Quarter has been exercised, and subject to the other restrictions contained
in this Warrant or in the Equity Line Agreement dated January 25, 2000
between the Company and the Warrantholder, the timing and number of Notices
of Exercise delivered by the Warrantholder to the Company shall be at the
discretion of the Warrantholder. The Company may treat any Notice of
Exercise received by it by facsimile after 4:30 p.m. Eastern Standard Time
to be received on the next business day.
2 The following definitions shall apply:
2.1 The "Exercise Price" shall mean the greater of (i) The Floor Price
specified by the Company in a Put Notice or (ii) 92% of the average 5 day
bid price on the Nasdaq National Market or other exchange or market if the
Shares are traded thereon for each of the five trading days preceding the
date that a Notice of Exercise is given. The Exercise Price in effect
during a Quarter specified in a Put Notice may never be lower than the
Floor Price specified by the Company in such Put Notice, and the
Warrantholder's obligation to exercise this Warrant shall be waived
whenever the Exercise Price is lower than the Floor Price. Nothing
contained in the preceding sentence shall prevent the Warrantholder from
voluntarily electing to exercise this Warrant at a price per Share equal to
or greater than the Exercise Price, provided that such price is at least as
high as the Floor Price.
2.2 "Notice of Exercise" shall mean a notice or notices delivered by the
Warrantholder to the Company indicating (A) the portion of the Outstanding
Amount of this Warrant being exercised, (B) the Warrantholder's
Deposit/Withdrawal At Custodian (DWAC) instructions for delivery of the
Shares, and (C) specifying the Warrantholder's calculation of (1) the
number of Shares to be issued to such Warrantholder, (2) the Exercise Price
in effect for such Notice of Exercise, and (3) the remaining balance of the
Outstanding Amount. Notwithstanding anything to the contrary contained
herein, unless otherwise
III
<PAGE>
agreed to by the Company in writing, each Notice of Exercise shall be
deemed to contain a representation by the Warrantholder that, after giving
effect to the Shares to be issued pursuant to such Notice of Exercise, the
total number of Shares of Common Stock of the Company deemed beneficially
owned by the Warrantholder, together with all Shares of the Common Stock of
the Company deemed beneficially owned by the Warrantholder's affiliates as
defined in Rule 144 of the Act, will not exceed 9.9% of the total issued
and outstanding Shares of the Common Stock of the Company.
2.3. The "Outstanding Amount" of this Warrant shall be the amount specified
in any Put Notice given by the Company from time to time, reduced by the
amount of this Warrant exercised by the Warrantholder during the Quarter
specified in such Put Notice to which the Put Notice relates. Should the
company's share price be subject to the SEC penny stock rules and unless
waived by the Company and the Warrantholder, the Outstanding Amount in any
Quarter shall automatically be reduced to equal the lesser of: an amount
equal to (A) 7% of the daily dollar trading volume in the Company's Common
Stock for the Quarter ending on the day prior to the beginning of the
Quarter specified in the Put Notice multiplied by (B) the number of trading
days in the Quarter specified in the Put Notice. Unless waived by the
Company in writing, on the last day of the Quarter specified in any Put
Notice and on the Expiration Date, the Warrantholder shall be deemed to
have given a Notice of Exercise for any Outstanding Amount remaining on
such date.
2.4. "Put Notice" shall mean the notice given to the Warrantholder or its
specified agent by the Company and signed by an executive officer of the
Company setting forth: (A) the amount chosen by the Company (which may be
any amount from $0.00 to $500,000) to be the Outstanding Amount of this
Warrant to be exercised by the Warrantholder during the Quarter, (B) the
exact dates of the Quarter which shall be specified by the Company, (C) the
Floor Price specified by the Company. The Company shall give the
Warrantholder a Put Notice at least 30 days prior to the beginning of any
Quarter specified in such Put Notice. The Company may amend any terms
specified in such Put Notice (except that the Outstanding Amount may not be
increased by the Company without the Warrantholder's consent) by delivery
of an amendment to such Put Notice to the Warrantholder at any time prior
to the beginning of such Quarter. Unless mutually agreed to in writing, the
Company may not specify a total Outstanding Amount which, when exercised in
full, would result in the Warrantholder having exercised more than $4
million USD. As of the date of this Warrant, the Outstanding Amount shall
be $4 million.
2.5 "Quarter" shall mean any three month period specified in a Put Notice.
2.6 Certificates representing Shares issued hereunder shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under any applicable state securities
laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED PURSUANT TO THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS THERE IS A REGISTRATION
STATEMENT THEN IN EFFECT COVERING SUCH SHARES OR
AN EFFECTIVE EXEMPTION FROM SUCH REGISTRATION OR
AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT UNDER THE CIRCUMSTANCES
REGISTRATION IS NOT NECESSARY.
Provided, however, that if the issuance of the Shares pursuant to the
exercise of this Warrant are subject to an effective registration statement
pursuant to Section 5 of the Securities Act of 1933, as amended,
certificates representing the Shares shall not bear any restrictive legend.
The Floor Price specified in any Put Notice, and the daily trading price of
the Common Stock of the Company for any trading day used to
IV
<PAGE>
calculate the Exercise Price, shall be adjusted proportionally to reflect
any stock splits, stock dividends, reclassifications, combinations and
similar transactions involving the Common Stock. No fractional Shares of
Common Stock shall be issued upon the exercise of any Warrants evidenced
hereby, but in lieu thereof the number of Shares of Common Stock that are
issuable upon any exercise shall be rounded up or down to the nearest whole
share.
2.7 Either party may terminate this Warrant prior to the Expiration Date
if there has been a change in management of the other party by providing
such party with written notice of such election to terminate.
2.8 Prior Notice as to Certain Events.
The Company shall mail to Warrantholder not less than ten (10) days prior
to the date on which (a) a record will be taken for the purpose of
determining the holders of Capital Stock entitled to subscription rights,
or (b) a record will be taken (or in lieu thereof, the transfer books will
be closed) for the purpose of determining the holders of Capital Stock
entitled to notice of and to vote at the meeting of stockholders at which
any consolidation, merger, dissolution, liquidation, winding up or sale of
the Company shall be considered and acted upon.
3. Reservation and Issuance of Shares.
3.1 The Company covenants and agrees that all Shares which may be issued
upon the exercise of the rights represented by this Warrant will be duly
authorised, legally issued and when paid for in accordance with the terms
hereof, fully paid and non-assessable, and free from all liens and charges
with respect to the issue thereof to the Warrantholder.
3.2 The Company will reserve at all times such number of Shares as may be
issuable pursuant to the exercise of Warrants evidenced by this Warrant
Certificate.
4. Investment Representation. By accepting delivery of this Warrant
Certificate and by exercising any Warrants evidenced hereby, the
Warrantholder represents that the Warrantholder is acquiring the Warrants
and the Shares issuable upon the exercise of the Warrants for investment.
5. Miscellaneous.
5.1 The Warrantholder shall not be entitled to any rights whatsoever as a
stockholder of the Company by virtue of its ownership of this Warrant.
5.2 This Warrant is being executed and delivered in the State of Nevada.
This Warrant Certificate shall be interpreted under the laws and
jurisdiction of the state and federal courts in the State of Nevada,
United States of America. The parties hereby consent to such jurisdiction.
5.3 Subject to the provisions of Section 1 hereof, this Warrant may be
exercised at any time after the date hereof and prior to its expiration as
of 4:30 p.m. Eastern Standard Time on the Expiration Date, and shall be
void and of no effect after 4:30 p.m. Eastern Standard Time on the
Expiration Date.
5.4 By accepting delivery of this Warrant, the Warrantholder acknowledges
that the Warrant granted hereunder shall be in full satisfaction of all
obligations to issue Class A Warrants to the Warrantholder pursuant to the
Agreement dated January 25, 2000 between the Company and the Warrantholder.
V
<PAGE>
IN WITNESS WHEREOF,
The Company and the Warrantholder have executed this Warrant on
this Twenty Fifth day of January, 2000 by each of their duly authorised
officers.
PHOENIX RESOURCES TECHNOLOGIES, INC
Signed By: Judee Fayle
Name & title: Judee Fayle, Secretary/Treasurer
EUROFUND DERIVATIVES LIMITED
Signed By: Roger Green
Name & Title: Roger Green, Managing Director
VI
<PAGE>
[S. W. HATFIELD, CPA LETTERHEAD]
March 16, 2000
Mr. Ben Traub, President
Phoenix Resources Technologies, Inc.
i/c/o Cyclone Financing Group, Inc.
827 West Pender Street, 2nd Floor
Vancouver BC V6C 3G8
Dear Mr. Traub:
This letter confirms that the independent certified public accounting firm of
S. W. Hatfield, CPA has read the Form 10-QSB of Phoenix Resources Technologies,
Inc. as of and for the three months ended January 31, 2000 and communicated our
comments thereon to members of the Company's management.
We specifically note that we have performed no auditing procedures, as defined
by generally accepted auditing standards, or any review or compilation
procedures, as defined by the American Institute of Certified Public
Accountants. Accordingly, we do not express an opinion on the document itself
nor the financial statements contained therein nor do we give any other degree
of assurance on the financial statements.
Yours truly,
S. W. HATFIELD, CPA
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This information was derived from the unaudited quarterly financial statements
contained in Form 10-QSB as of and for the quarter ended Jan. 31, 2000
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 22272
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22272
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 42272
<CURRENT-LIABILITIES> 185000
<BONDS> 0
0
0
<COMMON> 9284
<OTHER-SE> (302111)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 291584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (291577)
<INCOME-TAX> 0
<INCOME-CONTINUING> (291577)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291577)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
