-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MJXvOKeGKwy/v5DSanDglYzdTUyoyDFitHENayu+n9SIi0qtSzsjijXntY1/wEK7 gw5iWFk5w3+hN2UCiaBW4A== 0000808575-00-000004.txt : 20000215 0000808575-00-000004.hdr.sgml : 20000215 ACCESSION NUMBER: 0000808575-00-000004 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 20000209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX RESOURCES TECHNOLOGIES INC CENTRAL INDEX KEY: 0000808575 STANDARD INDUSTRIAL CLASSIFICATION: 2400 IRS NUMBER: 841034982 STATE OF INCORPORATION: NV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-19708 FILM NUMBER: 528982 BUSINESS ADDRESS: STREET 1: 15945 QUALITY TRAIL NORTH CITY: SCANDIA STATE: MN ZIP: 55073 BUSINESS PHONE: 6514335735 MAIL ADDRESS: STREET 1: 15945 QUALITY TRAIL NORTH CITY: SCANDIA STATE: MN ZIP: 55073 FORMER COMPANY: FORMER CONFORMED NAME: HUGHES RESOURCES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRMA INC DATE OF NAME CHANGE: 19910618 10KSB 1 1 ===================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB [ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, for the fiscal year ended October 31, 1999 [ ] 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) Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12 (g) of the Exchange Act Title of each class Common Stock 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 [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent year. $0.00 State the aggregate market value of the voting stock held by non- affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days, $22,927,380.00. State the number of shares outstanding of the issuer's common equity as of the latest practicable date: 9,092,400 Transitional Small Business Disclosure Format: YES [ ] NO [ ] 2 TABLE OF CONTENTS ITEM NUMBER PAGE PART I 1. Description of Business . . . . . . 3 2. Properties . . . . . . . . 7 3. Legal Proceedings . . . . . . 8 4. Submission of matters to a Vote of Security Holders . . . . . . . 9 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . 10 6. Management's Discussion and Analysis or Plan of Operations . . . . . . 13 7. Index to Financial Statements . . . . . 14 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . 14 PART III 9. Officers and Directors . . . . . . 14 10. Executive Compensation . . . . . . 15 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . 15 12. Certain Relationships and Related Transactions . 16 13. Exhibits and Reports on Form 8-K . . . . 17 Signatures . . . . . . . . 18 Caution Regarding Forward-Looking Information This annual 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. 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. 3 PART I ITEM 1. DESCRIPTION OF BUSINESS. General Phoenix Resources Technologies, Inc. ("Phoenix" or "Company") formerly named Hughes Resources, Inc., was originally organized in the State of Colorado ("Firma, Inc.") as a corporation organized to take advantage of unspecified business opportunities in 1986. On June 3, 1991, its subsidiary pursuant to a reorganization agreement, Firma, Inc. merged with Hughes Wood Products, Inc., ("HWP"), a Texas Corporation, principally owned by Mr. James E. Hughes, Sr., whereby Hughes Resources, Inc. became the named successor and parent corporation and HWP became a wholly owned subsidiary. From 1991 until August 12, 1996 the Company was in the business of logging, milling, and testing wood products in Eastern Texas and Western Louisiana through its subsidiaries. In 1996, the HWP business was resold to Mr. James E. Hughes, Sr. as a part of settlement of a suit commenced by the Company against Mr. Hughes. 1. Sale of Hughes Wood Products and Houston Woodtech, Inc., and Settlement of suit involving James R. Hughes, Sr. On January 22, 1996, at a Special Meeting of the Board of Directors, James E. Hughes, Chairman of the Board of Directors of the Company tendered his resignation as a Director and as Chairman of the Board. The resignation was accepted by the Board. James R. Ray, who was at that time President and Chief Executive Officer of the Company was then elected as Chairman of the Board. Subsequent thereto, the Company had acquired on January 31, 1996, from James R. Hughes, 56 producing oil and gas wells. These properties had been acquired from Mr. Hughes in a transaction to sell a Pole Mill located in Quincy, LA and the office building and airplane and office equipment associated therewith. Mr. Hughes had assumed certain liabilities associated with the properties sold to him and had further agreed to return approximately 400,000 shares of the Company's common stock to the Company. The above transaction was never consummated by Hughes and consequently the Board of Directors authorized the filing of a lawsuit against Mr. Hughes, certain employees of Hughes and the Certified Public Accounting firm representing Hughes in the transaction. This matter was settled on August 12, 1996 with the Agreement that Phoenix would retain 46 of the producing wells, receive a promissory note from Mr. Hughes in the amount of $1,000,000.00, collateralized as agreed to by the parties, and would sell to Hughes the entire Wood Products division of the Company known as Hughes Wood Products, Inc. ("HWP") and Houston Woodtech, Inc. ("HWI"), a wholly owned subsidiary of HWP. Phoenix had returned the stock of HWP, subject to the performance by Phoenix of certain guarantees relating to the obligations owed to Agriculture Production Credit Association ("AgPCA"). Hughes agreed to execute a liabilities undertaking whereby he agreed to assume and pay all obligations and indebtedness of HWP or HWI owing to AgPCA and Phoenix was to deliver the stock of WHP and HWI. This note, in 4 original principal amount of $3,551,000.00 was dated September 10, 1993, signed by Hughes Wood Products (now Phoenix Resources Technologies, Inc.), Hughes Wood Products, Inc. and Houston Woodtech, Inc. and was related to the business of Hughes Wood Products, Inc. and Houston Woodtech, Inc. 2. Judgment by Agricultural Production Credit Association against Phoenix Settled On December 31, 1996 an interlocutory Default Judgment was entered against Phoenix, in the District Court, 11th Judicial District, Smith County Texas by Agricultural Production Credit Association ("AgPCA") in the principal amount of $3,045,140.35, together with pre-judgment interest from October 1, 1996 to date of Judgment. The entire unpaid principal and interest as of date of Judgment was $3,177,300.74 together with Attorney fees on $58,747.00. This Judgment was also entered in Wood County Circuit Court, Parkersberg, West Virginia on March 17, 1997, in the principal amount of $3,236,048.24 and also filed in the District Court, County of Arapaho, State of Colorado on September 26, 1997 in the principal amount of $3,236,047.74. This debt is one that the Company was indemnified from by Hughes Wood Products, Inc. in the sale of Hughes Wood Products, Inc. and Houston Woodtech, Inc. to James R. Hughes, Sr. in 1966. However in the later part of 1996 Hughes Wood Products, Inc. ("HWP") filed for bankruptcy in the United States Bankruptcy Court for the Eastern Division of Texas, Beaumont Division. On May 22, 1997 the Court approved HWP Third Amended Plan of Reorganization. The AgPCA debt of $3,189,068.00, together with interest and other fees and expenses and attorney fees, was allowed as a Class 4 Secured Claim in the principal amount of $3,189,068.74, and constituted a lien on the Debtors property as set out in the Loan document. From that time to May 1998, AgPCA has reduced the amount of the debt through foreclosures on HWP and HWI properties to approximately $1,100,000.00. AgPCA is in the process of pursuing Guarantors of the debt, including MVP Holdings, Inc., which assumed the debt in a transaction as set out hereafter. On August 21, 1998, AgPCA 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, including Racketeering, Influence and Corrupt Organization (RICO) statute violations. In 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. 5 On July 27, 1999, the Company entered into a Forbearance Agreement with AgPCA whereby the Company will pay AgPCA 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. In the event that a merger or combination with a Private investor does not occur within one (1) year of the execution of the Agreement, the Agreement shall immediately and automatically terminate. The October 29, 1999, execution of the Stock Acquisition Contract triggered the liability to pay the $100,000 in settlement of this Forbearance Agreement and the amount was accrued at the date of the Forbearance Agreement. The liability under this Agreement is to be paid from the proceeds to be collected from the Stock Acquisition Contract related to the sale of 9,000,000 shares of the Company's common stock. Of the balance due on the settlement, $50,000 has been paid by the Company subsequent to October 31, 1999. 3. Acquisition of Controlling Interest in Rocky Mountain Crystal Waters, Inc. On the 31st of January, 1997, Phoenix acquired controlling shares of Rocky Mountain Crystal Water, Inc. ("RMCW") in a stock for stock exchange wherein Phoenix issued 6,000,000 shares of Class B Preferred stock, convertible into 60,000,000 shares of Phoenix common stock at the option of RMCW. RMCW transferred to Phoenix 6,000,000 shares of RMCW. RMCW owned the rights to produce water from the aquifer located in Ten Sleep, Wyoming and had a pilot plant in Ten Sleep for the production and distribution of the spring water. On the next day the Board of Directors of Phoenix consisting of James R. Ray and George W. Smith resigned and a new Board of Directors was appointed, consisting of Michael Puhr, Lorina Liang and Allen Wen Jen Lan. 4. Sale of all Oil and Gas Operating Interests to MVP Holdings, Inc. On March 10, 1997, Phoenix entered into an Agreement with MVP Holdings, Inc. ("MVP"), a Nevada corporation. The Agreement essentially called for Phoenix to sell to MVP all of its operating assets excepting the RMCW operation. The properties being sold consisted of the West Virginia Oil and Gas Properties, including the pipeline systems known as Broad Run Pipeline, HPC Pipeline and Panther Pipeline and the rights-of-way associated with these pipelines; the Louisiana Oil and Gas Properties and miscellaneous other properties and assets owned by Phoenix, including all accounts receivable and payables incurred in the operation of the Oil and Gas properties, inventories of Oil and Gas and Assignment of the Erin Oil Co. Contract to drill wells; note receivable from James R. Hughes and note receivable from Erin Oil; right title and interests in all Watermaker and Watermaker projects. The purchase price for these properties was $14,000,000.00 payable by issuance of 4,000,000 shares of the common stock of MVP, a Public Corporation. The stock price at the time of sale was approximately $3.50 per share and was considered to be substantially equal to the purchase price of $14,000,000.00. The Agreement also provided that if the market price of the shares falls below $3.50 and remains there for 6 a period of 90 days, Phoenix would be entitled to receive additional shares of MVP needed to keep the value of such shares equal to $14,000,000.00. No additional shares were issued pursuant to this Agreement, and the stock was distributed to shareholders of the Company in 1998. MVP also agreed to indemnify and hold Phoenix harmless from all liabilities that currently existed at the time of the transaction, including the AgPCA Judgment and any IRS claims arising out of the operation of HWP and HWI, that may be made. On April 9, 19997, the above Agreement was modified to give MVP the right of first refusal and a right to repurchase the shares issued to Phoenix in the event that Phoenix desired to sell said shares. 5. Garnishee Judgment against Phoenix. On March 20, 1997, the Company was named as a Garnishee in the settlement of a Judgment rendered against James R. Ray, the Company's former President and Chief Executive Officer. The Judgment 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% per annum until paid in full. On October 29, 1999, the garnishment was settled for by agreement with the Company to pay the claimant $200,000 cash. Of the balance due on the settlement, $100,000 has been paid by the Company subsequent to October 31, 1999. 6. Divestiture of Rocky Mountain Crystal Waters, Inc. and settlement of claims against Phoenix. On September 20, 1997 Phoenix Board of Directors determined that it was in the best interests of the Company to rescind the acquisition of RMCW. RMCW was not performing up to expectations and RMCW was making a claim that Phoenix was unable to properly fund the operation of RMCW due to the suppression of books and records of Phoenix; loss of financing due to the inability of Phoenix to produce audits or accurate in-house financial statements; loss of revenue by RMCW by reason of the above. RMCW also claimed business interruption due to actions of Phoenix and, in addition, that Phoenix failed to disclose liabilities in excess of five million dollars, consisting of AgPCA note and possible liabilities to the IRS. RMCW had threatened to commence suit against Phoenix based on the foregoing. 7. Adoption of New Business Plan and Actions Relating thereto. To remedy this situation, and to get Phoenix back as a full reporting company, the Board determined that specific actions were required which had the possibility of returning value to the shareholders of Phoenix. In conjunction therewith the Board of Directors on September 20, 1997 entered into an Agreement with M. D. Price, Jr., acting as Escrow Agent ("Price"), whereby the Board authorized the issuance of fifteen million shares of restricted common stock to Price. Price agreed to seek and obtain a suitable merger or acquisition agreement with an on-going privately owned business; engage a qualified public accounting firm to audit the corporate financial records; validate the corporation's corporate status and facilitate the filing of all delinquent reports with the U. S. Securities and Exchange Commission. At the time of the stock being 7 issued to the Escrow Agent the Company's stock was trading at approximately $0.04 per share. Due to the restricted nature of the stock the value for the Subscription Agreement was determined to be $0.016 per share or $240,000.00 fair value. The Subscription Agreement is to be settled upon the successful completion of a merger or acquisition with an on-going private business. As the next step, the Board of Directors, consisting of Michael Puhr, Lorina Liang and Allen Wen Jen Lan, on September 22, 1997 appointed a new Board of Directors consisting of William C. Nichols, Robert Eckman and Paula Nichols. The old Board members then resigned. Concurrently therewith, the Company entered into an Agreement with RMCW which essentially reversed the acquisition of RMCW on January 31, 1997. RMCW returned the 6,000,000 shares of Class B Preferred stock and Phoenix returned the 6,000,000 shares of common stock of RMCW. All liabilities of Phoenix relating to the operation of RMCW were assumed by RMCW and RMCW indemnified Phoenix with respect to these liabilities. In settlement of RMCW claim against Phoenix, Phoenix agreed to transfer to RMCW the stock of MVP Holdings, Inc. and the right to any increases of MVP stock under that Agreement, and subject to MVP's right of first refusal. MVP exercised the right of first refusal, and in connection therewith reissued the 4,000,000 shares to Phoenix with the Agreement that Phoenix would distribute the shares to its shareholders. This was done on September 22, 1997, and the record date for determining shareholders entitled to receive the MVP stock was set as October 1, 1997. The stock was distributed shortly thereafter to Phoenix shareholders. Following the above actions, Phoenix had no assets and undetermined liabilities. All known liabilities were assumed by MVP in its transaction with Phoenix, and the AgPCA and IRS claim were also subject to an indemnity from HWP, and was a part of AgPCA lien granted by the Bankruptcy Court and had been substantially reduced by foreclosure on properties and assets of HWP. 8. Sale of Assets to MVP Holdings, Inc. On March 10, 1997, the Company sold all of its assets to MVP Holdings, Inc. in exchange for 4,000,000 shares of MVP Holdings, Inc., and the assumption of all liabilities. In October, 1997 the Company distributed all of its holdings in MVP Holdings, Inc. to its shareholders as a property distribution. 9. Shell Corporation On October 31, 1999, Phoenix Resources Technologies, Inc. was a shell corporation. 10. Stock Acquisition Agreement The Company entered into a Stock Acquisition Agreement on October 29, 1999, with Benjamin E. Traub, as agent for certain principals, whereby a total of 9,000,000 Section 144 shares of common stock were purchased for $300,000.00. A further 300,000 shares of restricted stock were issued to M.D. Price, Jr., in connection with his role as Escrow Agent to which the former Board of Directors determined that the reasonable value of Mr. Price's services as Escrow Agent carried a dollar value of $1,000.00. 8 11. New Board of Directors Elected The Company elected a new Board of Directors on October 30, 1999, comprising of President: Mr. Benjamin E. Traub, Vice President: Robert Seitz and Secretary - Treasurer: Judee Fayle. 12. Management Company's Services Engaged Subsequent to the Company's October 31, 1999, fiscal year end, the Company entered into a Management Agreement dated November 1, 1999, with Cyclone Financing Group, Inc. ("Cyclone"), a Canadian corporation located at 2nd Floor, 827 West Pender Street, Vancouver, British Columbia, Canada V6C 3G8. Cyclone is an entity related through common management personnel who are also shareholders of the Company. A total of US$35,000.00 is payable to Cyclone, as a monthly management fee, for the management of the Company's affairs including: locating and negotiations for merger and/or acquisition prospects, administration, bookkeeping, faxing, photocopying, telephone charges, office space, supplies, news dissemination, filings with the SEC, management of various professional services such as accounting and legal work and other related operational costs. 13. Option to Purchase 100% of HHPN Development Corporation 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 as outlined in the Exhibits (HHPN Option Agreement). HHPN Development Corporation is a Delaware corporation based in San Diego, California. The owners of HHPN Development Corp., have 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. Its developers 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, applications developed with DBPanacea are platform and database independent. Once all planned functionality has been implemented, sites developed with DBPanacea will run 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. Cyclone Financing Group, Inc. has assigned this agreement to Phoenix Resources Technologies, Inc., under agreement dated November 3, 1999, at no charge to the Company. There is no guarantee that the Company will exercise the option to acquire HHPN. EMPLOYEES Other than the Officers, the Company had no other employees in 1999. 9 ITEM 2. PROPERTIES. The Registrant has no assets and no properties as of October 15, 1999. Executive and Administrative Offices The Registrant offices are located at 15945 Quality Trail North, Scandia, Minnesota 55073. The Company also uses office space in the offices of Cyclone Financing Group, Inc., a company with which a management agreement is in place as detailed in Item 12 of Part I hereof. ITEM 3. LEGAL PROCEEDINGS Agricultural Production Credit Association The Company was a co-maker on a loan payable to Agricultural Production Credit Association (AG-PCA) along with its former subsidiary, 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. On August 21, 1998, 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 alleged various actions on behalf of the Company, its former officers, including Racketeering, Influence and Corrupt Organization (RICO)statute violations. 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. On July 27, 1999, the Company entered into a Forbearance Agreement with AgPCA whereby the Company will pay AgPCA 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. In the event that a merger or combination with a Private investor does not occur within one (1) year of the execution of the Agreement, the Agreement shall immediately and automatically terminate. The October 27, 1999, execution of the Stock Acquisition Contract triggered the liability to pay the $100,000 in settlement of this Forbearance Agreement and the amount was accrued at the date of the Forbearance Agreement. The liability under this 10 Agreement is to be paid from the proceeds to be collected from the Stock Acquisition Contract related to the sale of 9,000,000 shares of the Company's common stock. 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 this garnishment as a current liability and accrued the requisite 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. Of the balance due on settlement, $100,000 was paid by the Company subsequent to October 31, 1999. The difference between the accrued amount and the $200,000 was credited to operations as forgiveness of debt. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS Amendment to the Company's Articles On October 4, 1999, and pursuant to the Revised Corporate Statutes of the State of Nevada, and by proper shareholder vote of 55.55%, the Company adopted the following Articles of Amendment to the Articles of Incorporation: 1. Statement of Amendment: The amendment alters Article VII of the original Articles of Incorporation, filed with the State of Nevada on July 7, 1995: Article VII The aggregate number of shares which this Corporation shall have the authority to issue is One Hundred Million shares (100,000,000) of $0.001 par value each, which shares shall be designated "Common Stock" and ten million (10,000,000) shares of $0.001 par value each, which shares shall be designated "Preferred Stock" and which may be issued in one or series at the discretion of the Board of Directors. In establishing a series, the Board of Directors shall give to it a distinctive designation so as to distinguish it from the shares of all other series and classes; shall fix the number of shares in such series, and the preferences, rights and restrictions thereof. All shares of any one series shall be alike in every particular manner except as otherwise provided by these Articles of Incorporation or the Corporate Laws of Nevada. The Amendment to Article VII of the original Articles of Incorporation was approved, in accordance with Section 78.385 and Section 78.390 of the Revised Corporate Statutes of the State of Nevada, by proper shareholder vote on October 2, 1999. Reverse Split On October 15, 1999 the Company's shareholders, by a 55.5% vote, authorized a 100 to 1 reverse-split of the common stock and authorized the Directors and Officers of the Company to take such action as was deemed necessary to carry out this action. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS. DESCRIPTION OF SECURITIES General The Registrant's Articles of Incorporation, as amended, authorize the issuance of 100,000,000 shares of Common Stock of $0.001 par value per share, with 9,272,400 shares outstanding as at fiscal year- end, October 31, 1999, and 9,092,400 shares issued and outstanding as at January 28, 2000. The Registrants common stock, until April 24, 1996, was publicly traded on the National Association of Securities Dealers, Inc. Automated Quotation System under the symbol "PRTI", within the NASDAQ Small Cap Market. In addition, the Registrants common stock was crosslisted and traded under the symbol of "HRS", on the Boston Stock Exchange until May 20, 1996, at which time it was deregistered by the Exchange. The Registrants common stock which is registered pursuant to Section 12(g) of the Securities Exchange Act, was removed from listing and trading was suspended from the NASDAQ Stock Market and the Boston Stock Exchange due to the company's delinquency in filing its annual report and in preparing and submitting LAS application forms with NASDAQ to list additional securities issued in connection with its financing and acquisition activities during the fiscal year 1996. Cancellation of Preferred Stock On October 4, 1999, through a Special Meeting of the Board of Directors it was resolved that 6,000,000 Preferred shares issued to Rocky Mountain Crystal Waters, Inc. were cancelled by contract between Rocky Mountain Crystal Waters and the Company. It was further determined that 1,200,000 shares of Class E Preferred shares issued in the name of Pacific Corporate Equities LLC ("Pacific") in May of 1995, be cancelled. Mr. James Ray who was the Company's President at the time the shares were issued to Pacific stated that the shares were cancelled. Mr. Ray is trying to locate the Partner of Pacific and stated that he had the shares in his possession and thought that he had surrendered these shares to the transfer agent. The transfer agent denies this. It should also be noted that on October 4, 1999, as determined at a Special Meeting of the Board of Directors, a former officer of the Company and controlling party of an entity (Southwest Holdings, Inc.) owning approximately 200,000 shares of Class A Preferred Stock, which did not go through the transfer agent, 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. On October 15, 1999, through a Closing Resolution filed with Signature Stock Transfer, Inc. all of the Company's preferred stock was cancelled. 12 Reissue of Section 144 Common Stock On January 7, 2000, the Company returned 200,000 shares of Section 144 restricted common stock, formerly issued to Raven Capital Corp., to the transfer agent for cancellation and subsequent reissue in another party's name. These shares, which form part of the Stock Acquisition Agreement of October 29, 1999, will be re-issued to another party at a later date and will not affect the issued and outstanding capital of the Company. Reverse-Split (100:1) October 15, 1999 The Company, by way of a Special Meeting of the Board of Directors held on October 15, 1999, approved and caused a 100 to 1 reverse-split of the Company's common stock. The reverse-split was also authorized at a shareholders meeting of same date. Stock Acquisition Agreement The Company entered into a Stock Acquisition Agreement on October 29, 1999, with Benjamin E. Traub, as agent for certain principals, whereby a total of 9,000,000 Section 144 shares of common stock were purchased for $300,000.00. A further 300,000 shares of restricted stock were issued to M.D. Price, Jr., in connection with his role as Escrow Agent to which the former Board of Directors determined that the reasonable value of Mr. Price's services as Escrow Agent carried a dollar value of $1,000.00. Common Stock Each outstanding share of common stock is fully paid and non- assessable, and the holders thereof are entitled to one vote per share at all meeting of shareholders. All shares are equal to each other with regard to liquidation rights and dividends. The Articles of Incorporation of the Registrant do not include preemptive rights to purchase any additional shares of common stock and do not provide for cumulative voting in the election of directors. In the event of liquidation, dissolution or winding up of the Registrant, holders of common stock will be entitled to receive on a pro rata basis all of the assets of the Registrant after satisfaction of all liabilities. The Company's common stock is presently traded on the Over the Counter Bulletin Board, under the symbol "PRTI." The following table sets forth, for the quarter indicated, the low and high bid prices per share. Such quotations represent interdealer prices without retail markup, markdown or commission, and do not represent actual transactions. Price Per Share High Low Fiscal Year 1998 First Quarter (Nov 1/97 - Jan 31/98) $0.035 $0.01 Second Quarter (Feb 1/98 - Apr 30/98) $0.02 $0.005 Third Quarter (May 1/98 - Jul 31/98) $0.025 $0.015 Fourth Quarter (Aug 1/98 - Oct 31/98) $0.0225 $0.01 13 Price Per Share High Low Fiscal Year 1999 First Quarter (Nov 1/98 - Jan 31/99 $0.03 $0.02 Second Quarter (Feb 1/99 - Apr 30/99) $0.03 $0.02 Third Quarter (May 1/99 - Jul 31/99) $0.045 $0.015 Fourth Quarter (Aug 1/99 - Oct 31/99) $0.04 $0.02 As at October 31, 1999, there were 347 holders of common stock of the Company. There have never been any dividends, cash or otherwise, paid on the common shares of the Company. Dividends Holders of the common stock are entitled to share equally in dividends when, as and if declared by the Board of Directors of the Registrant, out of funds legally available therefore. No dividend has been paid on common stock since inception, and none is contemplated in the foreseeable future. Transfer Agent The Registrant's Transfer Agent is Signature Stock Transfer, Inc. located at 14675 Midway Road, Suite 221, Dallas, Texas 75244. Recent Sales of Unregistered Securities The Registrant's common stock, until April 24, 1996, was publicly traded on the National Association of Securities Dealers, Inc. Automated Quotation System under the symbol "PRTI", within the NASDAQ Small Cap Market. In addition, the Registrants common stock was cross listed and traded under the symbol of "HRS", on the Boston Stock Exchange until May 20, 1996, at which time it was deregistered by the Exchange. The Registrants common stock which is registered pursuant to Section 12(g) of the Securities Exchange Act, was removed from listing and trading was suspended from the NASDAQ Stock Market and the Boston Stock Exchange due to the Companies delinquency in filing its annual report and in preparing and submitting LAS application forms with NASDAQ to list additional securities issued in connection with its financing and acquisition activities during the fiscal year 1996. However, the Registrant intends to reapply for listing it's registered common stock on the NASDAQ Electronic Bulletin Board, upon the filing of and becoming current with its annual and periodic filing requirements. The range of high and low bid quotations for the Company's common stock as provided by the Electronic Bulletin Board and NASDQ for the past two years is provided below. These over the counter market quotation reflect inter-dealer prices without retail markup, markdown or commissions and may not necessarily represent actual transactions. 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 former corporate attorney under a subscription agreement. The attorney is responsible for securing the Company's books and records, validating the Company's corporate status, 14 procuring the services of a qualified independent certified accounting firm to audit the Company's financial statements, facilitate the filing of all delinquent reports with the US securities and Exchange Commission and evaluate potential private companies for either merger or acquisition. At the date of the execution of the subscription agreement, 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, this 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 was to 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 of 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. On October 29, 1999, the Company entered into a Stock Acquisition Agreement with an unrelated 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 (AgPCA), 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. In the event the balance of $150,000 is not received by the Company then the unsold portion of the 9,000,000 post-reverse split restricted shares will be returned to the Company and the monies received to that point are non- refundable. 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 in the Contract. 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). As stated in the 1999 Plan document, "this [1999 Plan is] for persons employed or associated with the Company, including without limitation any employee, director, general partner, officer, attorney, accountant, consultant or advisor, is intended to advance the 15 best interest of the Company by providing additional incentive to those persons who have a substantial responsibility for its management, affairs, and growth by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company." On December 17, 1999, the Company granted options to purchase 200,000 shares of the Company's common stock at an exercise price of $3.00 per share under the 1999 Nonqualifying Stock Option Plan to its President. The options were granted in consideration of the value the President and his Board brought to the Company since their takeover on October 30, 1999. Additionally, the Company granted options to purchase 100,000 shares each to board members, Judee Fayle and Robert Seitz, at an exercise price of $3.00 per share. The decision of where to set the exercise price was based on the pre-determined plan (prior to takeover) to grant options to the board as close as possible to the going rate for the Company's stock prior to takeover. The average closing price of the Company's stock for the ten month period prior to takeover was $2.27, after taking the reverse stock split into consideration. On January 5, 2000, the President exercised 2,000 options for total proceeds to the Company of $6,000.00. The quoted market price of the Company's stock at the date of exercise was approximately $8.625. On January 24, 2000, both Robert Seitz and Judee Fayle exercised 5,000 shares for total proceeds to the Company of $30,000.00. The quoted market price of the Company's stock at January 24, 2000, was approximately $11.00. On January 28, 2000, both Robert Seitz and Judee Fayle exercised a further 5,000 shares each for total proceeds to the Company of $30,000.00. The quoted market price of the Company's stock at January 28, 2000, was approximately $11.75. On February 2, 2000, Ben Traub exercised 40,000 shares for total proceeds to the Company of $120,000.00. The quoted market price of the Company's stock at February 2, 2000, was $13.125. The differential between the exercise price and the market price of the Company's stock will be charged to operations on the exercise date. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations The Company has been newly reorganized, and its operations to date have been in the areas of setting up the organization and financing. The Company had no revenue in the last two years. During the same period the Company had general and administrative expense in the amount of $15,000, and some expense related to the settlement of its law suit. The result is a loss of $21,689, or $0.05 per share. The Company settled the interlocutory Default Judgment which was filed against the Company on December 31, 1996, in the District Court, 11th Judicial District, Smith County Texas by Agricultural Production Credit Association ("AgPCA") in the principal amount of $3,045,140.35, together with pre-judgment interest from October 1, 1996 to date of Judgment. The Judgment was also entered in Wood County Circuit Court, Parkersberg, West Virginia on March 17, 1997, in the principal amount of $3,236,048.24 and also filed in the District Court, County of Arapaho, State of Colorado on September 26, 1997 in the principal amount of $3,236,047.74. To May, 1998, AgPCA reduced the debt through foreclosures on Hughes Wood Products, Inc. and Houston Woodtech, Inc. 16 On July 27, 1999, the Company entered into a Forbearance Agreement with AgPCA whereby the Company will pay AgPCA 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 29, 1999, execution of the Stock Acquisition Agreement triggered the liability to pay $100,000 in settlement of this Forbearance Agreement and the amount was accrued at the date of the Forbearance Agreement. The liability is to be paid from the proceeds collected from the Stock Acquisition Agreement related to the sale of 9,000,000 shares of the Company's common stock. Of the balance due on the settlement, $50,000 has been paid by the Company subsequent to October 31, 1999. On March 20, 1997, the Company was named as a Garnishee in the settlement of a Judgment rendered against James R. Ray, the Company's former President and Chief Executive Officer. The Judgment 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% per annum until paid in full. On October 29, 1999, the garnishment was settled for by agreement with the Company to pay the claimant $200,000.00 cash. Of the balance due on the settlement, $100,000 has been paid by the Company subsequent to October 31, 1999. Except for historical information, the matters discussed are forward-looking statements which involve risks and uncertainties, including, but not limited to economic, competitive, and technological factors affecting the Company's operations, markets, products, services, prices and other factors, which may cause results to differ materially from the results discussed in the forward-looking statements. Liquidity and Capital Resources The Company has plans to raise additional capital through private placements, or otherwise, over the next 12 months in order to make it possible to acquire a suitable business for the Company. This could have an adverse effect on the balance sheet of the Company and make it more difficult to issue other shares for cash to raise additional capital. Product Research and Development The Company does not anticipate conducting any product research and development during the next 12 months that would require significant capital. Purchases or Sale of Plan and Equipment The Company anticipates that it will not need any purchase of significant plant or equipment in the near future. ITEM 7. INDEX TO FINANCIAL STATEMENTS The required accompanying financial statements begin on the following page: 17 PHOENIX RESOURCES TECHNOLOGIES, INC. CONTENTS Page Report of Independent Certified Public Accountants F-1 Financial Statements Balance Sheets as of October 31, 1999 and 1998 F-2 Statements of Operations and Comprehensive Income For the years ended October 31, 1999 and 1998 F-3 Statement of Changes in Stockholders' Equity for the years ended October 31, 1999 and 1998 F-4 Statements of Cash Flows for the years ended October 31, 1999 and 1998 F-5 Notes to Financial Statements F-6 18 S. W. HATFIELD, CPA certified public accountants [letterhead] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Phoenix Resources Technologies, Inc. We have audited the accompanying balance sheets of Phoenix Resources Technologies, Inc. (a Nevada corporation) as of October 31, 1999 and 1998 and the related statements of operations and comprehensive income, changes in stockholders' equity and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Phoenix Resources Technologies, Inc. as of October 31, 1999 and 1998 and the related statements of operations, changes in stockholders' equity and cash flows for each of the years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has no viable operations or significant assets and is dependent upon significant shareholders to provide sufficient working capital to maintain the integrity of the corporate entity. These circumstances create substantial doubt about the Company's ability to continue as a going concern and are discussed in Note A. The financial statements do not contain any adjustments that might result from the outcome of these uncertainties. /s/ S. W. Hatfield S. W. HATFIELD, CPA Dallas, Texas January 7, 2000 P.O. Box 820395 9002 Green Oaks Circle, 2nd Floor Dallas, Texas 75382-0395 Dallas, Texas 75243-7212 (214) 342-9635 (voice) Fax (214) 342-9601 (800) 244-0639 SWHCPA@aol.com F-1 19 PHOENIX RESOURCES TECHNOLOGIES, INC. BALANCE SHEETS October 31, 1999 and 1998
ASSETS 1999 1998 Current assets Cash on hand and in bank $ - $ - ------------- ------------- TOTAL ASSETS $ - $ - ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Forbearance agreement payable $ 100,000 $ - Judgment garnishment payable 200,000 293,311 ------------- ------------- Total liabilities 300,000 293,311 ------------- ------------- Commitments and contingencies Stockholders' equity Preferred stock - $0.001 par value. 50,000,000 shares authorized. Series A - 5.0% annual dividend, non- cumulative. Convertible into 1,000,000 shares of common stock after March 29, 2000. -0- and 200,000 shares issued and outstanding, respectively - 200 Common stock - $0.001 par value. 100,000,000 shares authorized. 9,272,400 and 272,400 shares issued and outstanding, respectively 9,272 272 Additional paid-in capital 13,405,140 13,338,940 Accumulated deficit (12,681,012) (12,659,323) ------------- ------------- 733,400 680,089 Stock subscription receivable (300,000) (240,000) Treasury stock - at cost (5,600 shares) (733,400) (733,400) ------------- ------------- Total stockholders' equity (300,000) (293,311) ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ - $ - ============= =============
The accompanying notes are an integral part of these financial statements. F-2 20 PHOENIX RESOURCES TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years ended October 31, 1999 and 1998
1999 1998 Net revenues $ - $ - Operating expenses General and administrative expenses 15,000 - --------- --------- Total operating expenses 15,000 - --------- --------- Loss from operations (15,000) - Other (expense) income Cost of settlement of contingent liability (100,000) - Interest expense on judgment garnishment (27,181) (26,620) Forgiveness of debt related to judgment garnishment 120,492 - --------- --------- Loss from continuing operations before income taxes (21,689) (26,620) Income tax benefit (expense) - - --------- --------- Net Loss (21,689) (26,620) Other comprehensive income - - --------- --------- Comprehensive Loss $ (21,689) $ (26,620) ========= ========= Loss per weighted-average share of common stock outstanding computed on net loss - basic and fully diluted $ (0.05) $ (0.10) ========= ========= Weighted-average number of common shares outstanding 395,688 272,400 ========= =========
The accompanying notes are an integral part of these financial statements. F-3 21 PHOENIX RESOURCES TECHNOLOGIES, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Years ended October 31, 1999 and 1998
Additional Preferred Stock Common stock paid-in Amount Shares Amount Shares capital Balances at November 1, 1997, as reported 200,000 $ 200 27,000,000 $ 27,000 $13,312,212 Effect of 1 for 100 reverse stock split, including rounding of fractional shares, on October 15, 1999 - - (26,727,600) (26,728) 26,728 -------- ----- ----------- -------- ----------- Balances at November 1, 1997, as restated 200,000 200 272,400 272 13,338,940 Net loss for the year - - - - - -------- ----- ----------- -------- ----------- Balances at October 31, 1998 200,000 200 272,400 272 13,338,940 Return of and cancellation of Series A Preferred Stock by shareholder (200,000) (200) - - 200 Repricing and settlement of stock subscription agreement - - - - (225,000) Private sale of common stock - - 9,000,000 9,000 291,000 Net loss for the year - - - - - -------- ----- ----------- -------- ------------ Balances at October 31, 1999 - $ - 9,272,400 $ 9,272 $ 13,405,140 ======== ===== =========== ======== ============ The accompanying notes are an integral part of these financial statements. F-4a 22 PHOENIX RESOURCES TECHNOLOGIES, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Years ended October 31, 1999 and 1998 Stock subscription Agreement and Treasury stock ------------------- Accumulated Shares Amount deficit Total Balances at November 1, 1997, as reported 15,560,000 $ (973,400) $ (12,632,703) $ (266,691) Effect of 1 for 100 reverse stock split, including rounding of fractional shares, on October 15, 1999 (15,404,400) - - - ----------- ------------ ------------- ---------- Balances at November 1, 1997, as restated 155,600 (973,400) (12,632,703) (266,691) Net loss for the year - - (26,620) (26,620) ----------- ------------ ------------- ---------- Balances at October 31, 1998 155,600 (973,400) (12,659,323) (293,311) Return of and cancellation of Series A Preferred Stock by shareholder - - - - Repricing and settlement of stock subscription agreement (150,000) 240,000 - 15,000 Private sale of common stock 9,000,000 (300,000) - - Net loss for the year - - (21,689) (21,689) ----------- ------------ ------------- ---------- Balances at October 31, 1999 9,005,600 $(1,033,400) $ (12,681,012) $ (300,000) =========== =========== ============= ==========
The accompanying notes are an integral part of these financial statements. F-4b 23 PHOENIX RESOURCES TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS Years ended October 31, 1999 and 1998
1999 1998 Cash flows from operating activities Net loss for the year $ (21,689) $ (26,620) Adjustments to reconcile net loss to net cash provided by operating activities Common stock issued for consulting fees 15,000 - Increase in interest payable on judgment garnishment payable 27,181 26,620 Forgiveness of debt related to judgment garnishment (120,492) - Accrual of forbearance agreement payable 100,000 - ---------- --------- Net cash used in operating activities - - ---------- --------- Cash flows from investing activities - - ---------- --------- Cash flows from financing activities - - ---------- --------- INCREASE (DECREASE) IN CASH - - Cash at beginning of year - - ---------- --------- Cash at end of year $ - $ - ========== ========= Supplemental disclosure of interest and income taxes paid Interest paid for the period $ - $ - ========== ========= Income taxes paid for the period $ - $ - ========== =========
The accompanying notes are an integral part of these financial statements. F-5 24 PHOENIX RESOURCES TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS 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 take advantage of 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, as 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 and no operating assets since the year ended October 31, 1997. 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. It is the intent of management and significant shareholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. 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. NOTE B - 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. F-6 25 PHOENIX RESOURCES TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 2. Income taxes The Company utilizes the asset and liability method of accounting for income taxes. At October 31, 1999 and 1998, 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 carryforwards 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 outstanding options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later. As of October 31, 1999 and 1998, the Company has no outstanding warrants and options. NOTE C - DISCONTINUED OPERATIONS On March 10, 1997, the Company sold all remaining assets to MVP Holdings, Inc. in exchange for 4,000,000 shares of MVP Holdings, Inc. restricted, unregistered common stock issued pursuant to Rule 144 of the US Securities and Exchange Commission and the assumption of all liabilities, known and unknown, of the Company. The shares received by the Company had a street 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. F-7 26 PHOENIX RESOURCES TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS NOTE D - 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. NOTE E - COMMON STOCK TRANSACTIONS 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. The effects of this action are reflected in the accompanying financial statements as of the first day of the first period presented. On October 27, 1999, the Company entered into a Stock Acquisition Agreement with an unrelated 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 (AgPCA), 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. 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 former corporate attorney under a subscription agreement. The attorney is responsible for securing the Company's books and records, validating the Company's corporate status, procuring the services of a qualified independent certified accounting firm to audit the Company's financial statements, facilitate the filing of all delinquent reports with the US Securities and Exchange Commission and evaluate potential private companies for either merger or acquisition. At the date of the execution of the subscription agreement, 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, this 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 was to settled upon the successful merger with or acquisition of a suitable private company. F-8 27 PHOENIX RESOURCES TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS NOTE E - COMMON STOCK TRANSACTIONS - Continued 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. 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 in the Contract. NOTE F - LITIGATION Agricultural Protection Credit Association The Company was a co-maker on a loan payable to Agricultural Production Credit Association (AgPCA) along with its former subsidiaries, Hughes Wood Products, Inc. and Houston Woodtech, Inc. On March 17, 1997, AgPCA 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. On August 21, 1998, AgPCA 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 alleged various actions on behalf of the Company, its former officers, including Racketeering, Influence and Corrupt Organization (RICO) statute violations. 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. F-9 28 PHOENIX RESOURCES TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS NOTE F - LITIGATION - Continued On July 27, 1999, the Company entered into a Forbearance Agreement with AgPCA whereby the Company will pay AgPCA 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. In the event that a merger or combination with a Private investor does not occur within one (1) year of the execution of the Agreement, the Agreement shall immediately and automatically terminate. The October 27, 1999 execution of the Stock Acquisition Agreement triggered the liability to pay the $100,000 in settlement of this Forbearance Agreement and the amount was accrued at the date of the Forbearance Agreement. The liability under this Agreement is to be paid from the proceeds to be collected from the Stock Acquisition Agreement related to the sale of 9,000,000 shares of the Company's common stock. 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 this garnishment as a current liability and accrued the requisite 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. Of the balance due on the settlement, $100,000 was paid by the Company subsequent to October 31, 1999. The difference between the accrued amount and the $200,000 was credited to operations as forgiveness of debt. NOTE G - 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 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, supplies, news dissemination) and other related operational costs. Cyclone has billed the Company a total of $70,000 for the period from November 1, 1999 through December 31, 1999. F-10 29 PHOENIX RESOURCES TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS NOTE H - SUBSEQUENT EVENTS 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). As stated in the 1999 Plan document, "This [1999 Plan is] for persons employed or associated with the Company, including without limitation any employee, director, general partner, officer, attorney, accountant, consultant or advisor, is intended to advance the best interest of the Company by providing additional incentive to those persons who have a substantial responsibility for its management, affairs, and growth by increasing their proprietary interest in the success of the Company, thereby encouraging them to maintain their relationships with the Company." On December 17, 1999, the Company granted options to purchase 200,000 shares of the Company's common stock at an exercise price of $3.00 per share under the 1999 Nonqualifying Stock Option Plan to its President. The options were granted in consideration of the value the President and his Board brought to the Company since their takeover on October 30, 1999. Additionally, the Company granted options to purchase 100,000 shares each to board members, Judee Fayle and Robert Seitz, at an exercise price of $3.00 per share. The decision of where to set the exercise price was based on the pre-determined plan (prior to takeover) to grant options to the board as close as possible to the going rate for the Company's stock prior to takeover. The average closing price of the Company's stock for the ten month period prior to takeover was $2.27, after taking the reverse stock split into consideration. On January 5, 2000, the President exercised 2,000 options for total proceeds to the Company of $6,000.00. The quoted market price of the Company's stock at the date of exercise was approximately $8.625. The differential between the exercise price and the market price of the Company's stock will be charged to operations on the exercise date. 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. F-12 30 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES NONE PART III ITEM 9. OFFICERS AND DIRECTORS New Board of Directors Elected The Company elected a new Board of Directors on October 30, 1999, comprising of President: Mr. Benjamin E. Traub, Vice President: Robert Seitz and Secretary/Treasurer: Judee Fayle. The officers and directors of Registrant are as follows: Name Age Position Benjamin E. Traub 36 President, Director Robert Seitz 30 Vice President, Director Judee Fayle 41 Secretary/Treasurer, Director Benjamin E. Traub Mr. Traub is the President and a Director of the Company. From 1991 to 1997, Mr. Traub was President of the Vancouver, British Columbia based, Imagenation Media Corp., a marketing consulting firm specializing in relationship and direct marketing. Mr. Traub presently serves in his capacity as President and Chief Executive Officer of Cyclone Financing Group, Inc., a Vancouver, British Columbia based consulting firm specializing in corporate management and financial marketing. Mr. Traub is responsible for developing corporate strategies and overall business development. Robert Seitz Mr. Seitz is the Vice President and a Director of the Company. From June of 1994 to October of 1996, Mr. Seitz provided customer service, promotion and marketing skills to Host International Canada, a Vancouver, British Columbia based company which provides airport services. From November 1996 to February 1998, Mr. Seitz provided customer service and event co-ordination services to the Vancouver Trade and Convention Center. In April of 1998 until August of 1999, Mr. Seitz designed and set up various web pages for the Vancouver based company Public Image Inc., a company that provides contract labor for client firms, including dissemination of information and development of corporate overviews. 31 Judee Fayle Ms. Fayle is the Secretary/Treasurer, Chief Financial Officer and a Director of the Company. From June of 1993 to April 1995, in her capacity as Manager - Investor Relations, Ms. Fayle worked for the Northair Group of Companies, a Vancouver, British Columbia based management company to several Vancouver and/or Toronto Stock Exchange publicly traded companies. From October 1996 to March of 1997, Ms. Fayle worked for Image Power, Inc., a Vancouver Stock Exchange public company, as Manager - Administration. From October 1997 to March of 1998, Ms. Fayle held the position of Manager - Administration for a Toronto Stock Exchange publicly traded company, Napier International Technologies, Inc. Ms. Fayle also worked for the Vancouver Stock Exchange's Listings Department, for a three year period. The directors of the Company are elected annually by the shareholders for a term of one year or until their successors are elected and qualified. The officers serve at the pleasure of the Board of Directors. ITEM 10. EXECUTIVE COMPENSATION None of the Registrant's current officers or directors receives or has received any salary from Registrant during the preceding five years. Directors do not receive compensation for their services as directors and are not reimbursed for expenses incurred in attending board meeting. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of the Company's fiscal period ended October 31, 1999, there were a total of 9,272,400 shares of the Company's common stock outstanding and as at January 28, 2000, there are presently 9,092,400 outstanding shares of the Company's common stock. The following table sets forth the information as to the ownership of each person who, as of the date of this Form 10-KSB, owns of record, or is known by the Company to own beneficially, more than five percent (5%) of the Company's common stock, and the officers and directors of the Company. Shares of Percentage of Name Common Stock Ownership Wealthy Investor Network Inc, [1] 7,292,000 78% Robert Seitz 25,000 <1% Judee Fayle 25,000 <1% All officers and directors as a group (3 persons) 7,362,000 79% [1] Mr. Benjamin E. Traub is the beneficial owner of Wealthy Investor Network, Inc. 32 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Cyclone Financing Group, Inc., is the management company for Phoenix Resources Technologies, Inc. Ben Traub is president of both companies and 100% owner of Cyclone Financing Group, Inc. Management Company's Services Engaged Subsequent to the Company's October 31, 1999, fiscal year end, the Company entered into a Management Agreement dated November 1, 1999, with Cyclone Financing Group, Inc. ("Cyclone"), a Canadian corporation located at 2nd Floor, 827 West Pender Street, Vancouver, British Columbia, Canada V6C 3G8. Cyclone is an entity related through common management personnel who are also shareholders of the Company. A total of US$35,000.00 is payable to Cyclone, as a monthly management fee, for the management of the Company's affairs including: locating and negotiations for merger and/or acquisition prospects, administration, bookkeeping, faxing, photocopying, telephone charges, office space, supplies, news dissemination, filings with the SEC, management of various professional services such as accounting and legal work and other related operational costs. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K On November 12, 1999, a Form 8-K disclosing a Stock Acquisition Agreement dated October 29, 1999, and related change in control of the Company. Exhibits 10.1 Forbearance Agreement with AgPCA 10.2 Amended Forbearance Agreement with AgPCA 10.3 Assignment of HHPN Option to Phoenix Resources Technologies, Inc. 23.1 Consent of Scott Hayfield. 27.1 Financial Data Schedule 99.1 Management agreement between Cyclone and Phoenix Resources Technologies, Inc. 99.2 HHPN Option Agreement with Cyclone. 33 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. Dated this 7th date of February, 2000. PHOENIX RESOURCES TECHNOLOGIES, INC. By: /s/ Benjamin E. Traub Benjamin E. Traub President and Director By: /s/ Judee Fayle Judee Fayle Chief Financial Officer By: /s/ Robert Seitz Robert Seitz Vice President EX-10 2 34 EXHIBIT 10.1 FORBEARANCE AGREEMENT THIS AGREEMENT, made and entered by and between Agricultural Production Credit Association ("AgPCA") and Phoenix Resources Technologies, Inc. ("PRTI"): WITNESS: WHEREAS, AgPCA has entered and abstracted Judgment against PRTI in several jurisdictions throughout the United States wherein AgPCA obtained a Default Judgment against PRTI in the principal amount of $3,177,300.74 in Cause No. 96-2451-B/A, Agricultural Production Credit Association v. Phoenix Resources Technologies, Inc., in the 114th Judicial District Court, Smith County, Texas, and has commenced subsequent litigation under the same cause number and court wherein PRTI is also a named Defendant related to the collection of the Judgment (collectively referred to as the "Lawsuit"), and WHEREAS, the current Officers and Directors of PRTI, William D. Nichols and Paula Nichols, have represented to AgPCA that they are newly appointed, were not involved in or associated with or responsible for PRTI at the time the Judgment was entered, and were not officers or directors or associated with PRTI or responsible for any of the actions of PRTI at the times referred to in the pending suit, and WHEREAS the current officers, directors and shareholders are desirous of attempting to bring a new business into PRTI by way of merger or combination with a Private Investor (as defined below) but are unable to do so due to the current Judgment and pending suit, without the relief as set out herein, and WHEREAS, the parties have agreed that under the conditions and limitations as set out hereafter, that AgPCA will not pursue any post-merger assets that may be brought into PRTI. NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties do agree as follows: 1. PRTI agrees to pay AgPCA the total sum of ONE HUNDRED THOUSAND DOLLARS ($100,000) prior to the effective date of its merger or combination with a Private Investor (the "Merger Date"). It is agreed that this payment is a strict condition precedent to each and every promise made by AgPCA in this Forbearance Agreement, and AgPCA shall not be obligated in any way to perform any of the promises contained in this Forbearance Agreement unless PRTI makes full payment in a timely manner in accordance with the terms of this paragraph. 35 2. All assets of whatever nature ever owned by PRTI to the Merger Date, including all proceeds, mutations, accessions, and increases thereof, ("Prior Assets") shall remain subject to the claims of AgPCA and nothing contained in this Agreement shall prohibit, hinder or otherwise defeat AgPCA's right of execution issued on said Prior Assets, if any, to satisfy its current Judgment or from obtaining any relief to which it may be entitled under the pending Lawsuit with respect to such Prior Assets that may be owned or that may have been owned by PRTI. The current officers and directors of PRTI agree to cooperate with AgPCA in locating any Prior Assets of PRTI that may exist or that may have existed and to provide such information, as may be available to them, to AgPCA, with respect to the Lawsuit. PRTI futher agrees to provide to AgPCA copies of all documents and records within its possession that relate to the Prior Assets and the claims made by AgPCA in the Lawsuit within thirty days of the execution of this Forbearance Agreement. AgPCA agrees that it will limit its actions for recovery of damages to only those Prior Assets of PRTI and that it will not claim, attempt to lien, or otherwise interfere with, or assert any claim to, any assets, of whatever nature, of PRTI that may be or are actually brought into PRTI, either by way of loan, capital contributions or merger or other combination with a private group or public company ("Private Investor") subsequent to the Merger Date. The parties agree that to the extent as may be required by a Private Investor that they will furnish such other documents as may reasonably be required to protect such Private Investor from any current actions pending or commenced by AgPCA. The parties agree that PRTI shall have one year from the date of this Forbearance Agreement to complete its merger or combination with a Private Investor. In the event that such merger or combination is not completed within one year, the obligations of the parties set forth in paragraphs 1 through 5 of this Forbearance Agreement shall immediately and automatically terminate. Nothing herein contained shall be construed to affect or impair the validity of AgPCA's Judgment against PRTI, AgPCA's rights to collect its Judgment against PRTI's Prior Assets or its prior officers and directors, or AgPCA's claims in the pending Lawsuit in Smith County, Texas, referred to above. PRTI affirmatively acknowledges and agrees that AgPCA retains 36 all rights and claims to enforce or collect the Judgment against PRTI's Prior Assets and PRTI's pre-merger officers and directors (even if such pre-merger officers and directors remain or become officers or directors of PRTI after the Merger Date). PRTI will provide AgPCA with an opinion letter from a qualified securities attorney certifying that the transaction contained in this Forbearance Agreement will not result in any liability to AgPCA from any source within thirty days of the execution of this Forbearance Agreement. PRTI further agrees to release and fully indemnify AgPCA as to any and all potential liabilities, known or unknown, arising from this transaction. The parties agree that there are no third party beneficiaries of this Forbearance Agreement, that only AgPCA and PRTI and their heirs, successors and assigns possess the right to enforce or otherwise claim the benefits of this Agreement, and that no other person or entity may enforce or otherwise claim the benefits of this Agreement. IN WITNESS WHEREOF, the parties have set their signatures the day and year written below: AGRICULTURAL PRODUCTION CREDIT ASSOCIATION BY: /s/ Stephen Ogletree, CEO Stephen Ogletree, CEO DATE: July 27, 1999 PHOENIX RESOURCES TECHNOLOGIES, INC. BY: /s/ William C. Nichols William C. Nichols, President DATE: July 22, 1999 BY: /s/ Paula Nichols Paula Nichols Secretary DATE: July 22, 1999 EX-10 3 37 EXHIBIT 10.2 M.D. PRICE, Jr. ATTORNEY AT LAW 15945 Quality Trail N. Scandia, MN 55073 Phone: (651) 433-3522 Fax: (651) 433-5735 October 12, 1999 Mr. Christopher M. Joe McKool and Smith 300 Crescent Court, Suite 1500 Dallas, TX 75201 Re: PRTI-AgPCA Dear Mr. Joe: This is to follow up on our telephone conversation of this morning. We are currently negotiating with a Group to purchase the PRTI "shell." We have a stumbling block as to the payment of the $100,000.00 to AgPCA. They have requested that we pay $50,000.000 upon closing (which would be non-refundable) and $50,000 at then end of March 2000.. We believe that the Group is going to bring in a substantial amount of assets, and that they will not default in the March payment. I don't see any down side to your client, as the $50,000.00 would not be refundable in event of default. If this is agreeable to your client I think we can proceed and close this with in the next 10 days. Please advise. Sincerely, M.D. Price, Jr. MDP/hs We accept the above terms and conditions Agriculture Production Credit Association By: /s/ Stephen R. Ogletree, Stephen R. Ogletree CEO Agriland, Farm Credit Services FKA Agricultural Production Credit Assoc. EX-10 4 38 EXHIBIT 10.3 ASSIGNMENT AGREEMENT This Assignment Agreement is dated this 3rd day of November, 1999. BY AND BETWEEN: CYCLONE FINANCING GROUP INC., a Canadian corporation with a business address located at 240 - 11948 207th Street, Maple Ridge, British Columbia V2X 1X7 (herein called "Cyclone") OF THE FIRST PART AND: PHOENIX RESOURCES TECHNOLOGIES INC., a U.S. public company with a business address located at 15945 Quality Trail N., Scandia, MN. 55073, USA (herein called "Phoenix") OF THE SECOND PART WHEREAS: Cyclone has entered into an agreement with John Carter and Theodore Strout (herein referred to as "HHPN Option Agreement" a copy of which is enclosed) to purchase up to 100% of their company, HHPN Development Corporation. NOW THEREFORE WITNESSETH, THAT in consideration of the sum of $10.00 (ten dollars) and the premises and the covenants, agreements, representations, warranties and payments herein contained, the parties hereto covenant and agree as follows: Cyclone hereby transfers and assigns to Phoenix all of its rights, benefits, obligations, duties and responsibilities, as outlined in the HHPN Option Agreement. This Assignment Agreement constitutes the entire agreement between the parties and there are no representations or warranties, expressed or implied, statutory or otherwise other than as expressly set forth or referred to herein. This Assignment Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Assignment Agreement may be executed in several parts in the same form and such parts as so executed shall together form one original agreement, and such parts, if more than one, shall be read together and construed as if all the signing parties hereto had executed one copy of this Assignment Agreement. 39 The parties acknowledge that the HHPN Option Agreement being assigned was acquired solely at Ben Traub's expense. Ben Traub, as an Officer of both Cyclone and Phoenix, has been induced to transfer the HHPN Option Agreement to Phoenix, at no charge, with the expectation that it will increase the future value of his ownership in Phoenix. That future value is subject to many variables including potential litigation and claims by former associates, directors, officers, suppliers, debtors or any other significant or material relationships with Phoenix and Ben Traub has agreed to transfer the HHPN Option Agreement to Phoenix conditionally, in that, if there are material deficiencies in the information that was supplied to him by the former board or Phoenix ("Deficiencies") and those Deficiencies result in the reduction of value of his ownership in Phoenix then Cyclone has the right, at its discretion, to either cancel this Agreement or claim from the Company restricted shares to make up the difference in value enjoyed by Ben Traub ("Difference") that would have resulted had those Deficiencies not existed. A mediator or arbitrator, who shall be mutually acceptable or appointed by the courts, shall first attempt to calculate any such Difference prior to the courts having to make that calculation. If the Agreement is cancelled, the Company alone shall be responsible to and agrees to return any monies received from investors who participate in private or public offerings made by the Company during the term of this Agreement. The Company hereby indemnifies Cyclone and Ben Traub from all liability arising out of such an action, or any claim whatsoever, related to this Agreement, including cost of defense. GOVERNING LAW AND DISPUTES: The parties hereto agree that any disagreement or dispute between them shall first be attempted to be remedied by mediation or arbitration. In the event that agreement cannot be reached on the appointment of an independent mediator or arbiter then the parties hereto agree to accept the appointment of a mediator or arbiter who shall be appointed, following application for such appointment by the court. If the dispute cannot be remedied by mediation or arbitration then this agreement shall be governed for all purposes by the laws of the province of British Columbia. For any disputes arising among the parties hereto, venue shall lie with the court of competent jurisdiction in Vancouver, British Columbia. ASSIGNMENT: This Assignment Agreement may be assigned by either party without the consent of the other parties. This Agreement supersedes all previous assignment agreements entered between Cyclone Financing Group, Inc. and Phoenix Resources Technologies, Inc. IN WITNESS WHEREOF, the parties hereto have agreed to and have caused this agreement to be executed effective as of the date first above written. 40 Authorized Signatures: SIGNED, SEALED & DELIVERED ) By Authorized signatory of ) CYCLONE FINANCING GROUP INC. ) ) __________________________ ___________________________________) Ben Traub Witness SIGNED, SEALED & DELIVERED ) By Authorized signatory of ) PHOENIX RESOURCES ) C/S TECHNOLOGIES INC. ) ) ) ) __________________________ ___________________________________) Director Witness EX-23 5 41 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent the incorporation by reference in the Registration Statement No. 333-92971 on Form S-8 of our report of independent certified public accountants dated January 7, 2000 on the balance sheets of Phoenix Resources Technologies, Inc. as of October 31, 1999 and 1998 and the related statements of operations and comprehensive income, change in shareholders' equity and cash flows for each of the two years then ended, which report appears in the 1999 Annual Report on Form 10-KSB of Phoenix Resources Technologies, Inc. /s/ S.W. Hatfield, C.P.A. S.W. Hatfield CPA Dallas, Texas February 7, 2000 EX-27 6
5 YEAR OCT-31-1999 OCT-31-1999 0 0 0 0 0 0 0 0 0 300,000 0 0 0 9,272 (309,272) 0 0 0 0 15,000 (6,689) 0 0 0 0 0 0 0 0 (21,689) (0.05) (0.05)
EX-99 7 42 EXHIBIT 99.1 MANAGEMENT AGREEMENT This Management Agreement is dated this 1st day of November, 1999 BY AND BETWEEN: PHOENIX RESOURCES TECHNOLOGIES INC., a U.S. public company with a business address located at 15945 Quality Trail N., Scandia, MN. 55073, USA (herein called "Phoenix") OF THE FIRST PART AND: CYCLONE FINANCING GROUP INC., a Canadian corporation with a business address located at 2nd Floor 827 West Pender Street, Vancouver, British Columbia, Canada V6C 3G8 (herein called "Cyclone") OF THE SECOND PART WHEREAS: Phoenix wishes to engage the management services of Cyclone as per the terms of this agreement. NOW THEREFORE WITNESSETH, THAT the premises and the covenants, agreements, representations, warranties and payments herein contained, the parties hereto covenant and agree as follows: 1. Cyclone will provide management services to Phoenix for a monthly management fee of USD $35,000.00 and Phoenix will pay the required fee in a timely manner. 2. Cyclone will provide, as required, the following management services to Cyclone: acquisition of projects, raising monies, bookkeeping services, news dissemination, faxing, photocopying, paying telephone charges, purchasing supplies, providing office space and paying for other related operational costs and any other corporate requirements that Cyclone carries out on behalf of Phoenix. 3. This Management Agreement constitutes the entire agreement between the parties and there are no representations or warranties, expressed or implied, statutory or otherwise other than as expressly set forth or referred to herein. 43 4. This Management Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 5. This Management Agreement may be executed in several parts in the same form and such parts as so executed shall together form one original agreement, and such parts, if more than one, shall be read together and construed as if all the signing parties hereto had executed one copy of this Management Agreement. 1. GOVERNING LAW AND DISPUTES: The parties hereto agree that any disagreement or dispute between them shall first be attempted to be remedied by mediation or arbitration. In the event that agreement cannot be reached on the appointment of an independent mediator or arbiter then the parties hereto agree to accept the appointment of a mediator or arbiter who shall be appointed, following application for such appointment by the court. If the dispute cannot be remedied by mediation or arbitration then this agreement shall be governed for all purposes by the laws of the province of British Columbia. For any disputes arising among the parties hereto, venue shall lie with the court of competent jurisdiction in Vancouver, British Columbia. IN WITNESS WHEREOF, the parties hereto have agreed to and have caused this agreement to be executed effective as of the date first above written. Authorized Signatures: SIGNED, SEALED & DELIVERED ) By Authorized signatory of ) CYCLONE FINANCING GROUP INC. ) ) ___________________________ _________________________________) Ben Traub, President Witness SIGNED, SEALED & DELIVERED ) By Authorized signatory of ) PHOENIX RESOURCES ) TECHNOLOGIES INC. ) ) ) ) ___________________________ _________________________________) Judee Fayle, Witness Secretary-Treasurer and Director EX-99 8 44 EXHIBIT 99.2 Agreement THIS AGREEMENT is dated as of the 26th day of October, 1999 BY AND BETWEEN CYCLONE FINANCING GROUP INC., a Canadian corporation with a business address located at 240-11948 207th Street, Maple Ridge, BC, Canada V2X 1X7, (Herein called "Investor") OF THE FIRST PART AND: JOHN CARTER, business Man residing at 6215 Branting Street, San Diego, CA, 92122 and THEODORE STROUT, Business man residing at 4629 Esther Street, San Diego, CA 92115 and HHPN DEVELOPMENT CORP., doing business at 2815 Camino Del Rio So., Suite 123, San Diego, Ca., 92108 (Herein called the "Managers") OF THE SECOND PART WHEREAS: The Managers have developed a software program (Software) that is used to develop database applications on the internet. The program is currently known as DBPanacea' and offers significant advantages over existing internet website database engines. In addition, various other applications have been developed based on the DBPanacea technology, including; an online auction template system which can be duplicated worldwide without restriction, a banner advertising management network, a sports game template, and other back-end' template concepts and applications based on the DBPanacea technology not herein disclosed and/or not yet developed. (All versions of DBPanacea and all other applications developed thus far and applications yet to be developed based on or associated with DBPanacea technology and the intellectual property of DBPanacea, including all patents, trademarks, copyrights and all other associated assets, are herein jointly called the Products). AND WHEREAS: John Carter and Ted Strout have incorporated a company called HHPN DEVELOPMENT CORPORATION, referenced herein, which is a Delaware corporation, which has been created for the purpose of commercially exploiting the Products and which has an existing revenue stream derived from custom web development and consulting. 45 AND WHEREAS: The Managers are the sole owners of the Products and the sole owners of the Company (jointly called the Projects') and desire to sell up to 100% of the total ownership in the Projects to the Investor for a total sum of $177,500,000.00. NOW THEREFORE WITNESSETH, THAT in consideration of the premises and the covenants, agreements, representations, warranties and payments herein contained, the parties hereto covenant and agree as follows: 1. WARRANTIES AND REPRESENTATIONS: a) The following are the only warranties and representations by and between the parties: b) The Managers warrant and represent to the Investor as follows: c) That to the best of their knowledge, the business plan attached hereto (Business Plan) previously supplied to the Investor, is true and contains an accurate representation of the commercialization potential for the Projects; d) That they are the sole and exclusive owners of the Projects, free and clear of any encumbrances, liens and other charges and no other party has licence to sell or reproduce the software; e) That they have the right and authority to grant to the Investor an exclusive option to purchase up to 100% of the Projects; f) The Software has certain powerful advantages over existing competitive applications (Cold Fusion, Visual Studio, JDeveloper, etc) including but not limited to; platform independence, ease of use, lower learning curve for developers, speed of development and lower overall development costs derived from quicker development with less costly development staff; g) That they have committed their professional lives for a minimum of the next two years exclusively to commercially exploiting the Projects and currently work full time at the Company and all contracts which the Managers take on directly or indirectly shall be exclusively fulfilled by the Company; h) The total liabilities in the Projects do not exceed $100,000.00 which is primarily back wages for the Managers; i) They are in the process of fulfilling a $200,000.00 contract for website development of which approximately 90% is gross profit; j) The Company has 21 million shares issued and outstanding of which the Managers own 100%. 46 k) The Investor warrants and represents to the Managers as follows: l) That it has the right and authority to enter into this agreement; m) That is has the ability to fulfill this Agreement once Option1 has been exercised. 2. GRANTING OF THE OPTION TO PURCHASE AND PAYMENT SCHEDULE: The Managers hereby unconditionally grant the Investor the exclusive and irrevocable right to purchase up to 100% of the Projects for the total purchase price of up to one hundred and seventy seven million and five hundred thousand ($177,500,000.00) US dollars (The rights to purchase as described in this clause shall herein be called Options1/2/3 as described herein). a) OPTION 1. The Managers hereby unconditionally grant the Investor the exclusive and irrevocable right to purchase 50% of the Projects for the total purchase price of two and a half million ($2,500,000.00) US dollars (the Investment). (The right to purchase as described in this clause shall herein be called Option1). 1. The Investor may exercise Option1 by issuing a notice in writing to the Managers. 2. Once Option1 has been exercised, (a) an additional agreement shall be put in place without unreasonable delay by either party outlining in more detail the purchase of the Projects as described herein and which shall contain a clause relating to default and other terms and conditions pertaining to that agreement, none of which shall conflict with the spirit and intent of this Agreement and (b) the Investment shall be paid to the Managers within a reasonable time based on a pre-defined payment schedule mutually agreed upon by the Parties but the Investor shall not be obligated to pay more than $200,000.00 per month towards the Investment until the full Investment has been paid and (c) it is agreed that the payments shall not be less than $17,000.00 per month and (d) the Investor may, solely at its discretion, exceed the $200,000.00 monthly maximum payments referenced above; 3. Prior to Option1 being exercised, the Investor shall pay the Managers a development fee of $10,000.00 per month (Development Fee) to further develop the software and business plan. Payments of the Development Fee shall begin on December 9, 1999 and shall continue monthly until Option1 has been exercised or until this Agreement is terminated. In the event that the Option1 is not exercised prior to the termination of this Agreement all 47 Development Fees paid to the Managers shall be forfeited by the Investor as total liquidated damages and the Managers shall not seek nor be entitled to any other damages; 4. If Option1 is not exercised prior to the termination of this Agreement, then the Managers have the right to immediately cancel Option2 and Option3 by written notice. b) Option 2 The Investor may acquire an additional 25% ownership in the Projects for an additional investment of $50,000,000.00. 5. The Investor may exercise Option2 by issuing a notice in writing to the Managers along with a check for $50,000,000.00 made out to the Managers personally to be used at their discretion; 6. Option 2 is non-cancelable and shall expire 24 months after Option1 has been exercised. c) Option 3 The Investor may acquire the final 25% ownership in the Projects for an additional investment of $125,000,000.00. 7. The Investor may exercise Option3 by issuing a notice in writing to the Managers along with a check for $125,000,000.00 made out to the Managers personally to be used at their discretion. 8. Option 3 is non-cancelable and shall expire 24 months after Option1 has been exercised. 3. DUE DILIGENCE: a) The Investor shall have up to 120 days from the execution date of this Agreement to complete its due diligence in the commercial viability of the Projects (Due Diligence). b) At any time during the term of this Agreement, the Investor may elect to exercise Option1. 4. TERM AND CANCELATION: a) The term of this Agreement shall be three hundred and sixty five (365) days from the execution date of this Agreement b) The Agreement may be cancelled by the Managers anytime after the 120 day Due Diligence period with five days written notice. c) The Investor may cancel this Agreement at anytime during the 365 day term. 48 d) The Agreement may not be cancelled by either party once Option1 has been exercised. 5. USE OF FUNDS: 100% of the Investment derived from Option 1 is for working capital to be used in accordance with the requirements of the Business Plan or a reasonably revised business plan and/or the further development and world commercialization of the Projects, or for previously incurred liabilities not to exceed $100,000.00. 6. CONFIDENTIALITY AND EXCLUSIVITY: a) Whereas all parties agree that the improper or unauthorized use or disclosure of the terms and conditions of this Agreement or unauthorized contact with parties involved directly or indirectly with the Investor would be highly detrimental and damaging to the Investor. b) The Managers agree that neither they nor any of their subsidiaries, divisions, employees, agents, representatives, independent contractors or other persons or organizations over which they have control, will at any time during the term of this Agreement directly or indirectly use or disclose any information pertaining to the terms and conditions thereof, for any purposes which are not associated with the Agreement or disseminate or disclose any information to any person or organization who or which are not directly involved in the Agreement without prior written approval from the Investor. c) The Managers agree that neither they nor their subsidiaries, divisions, employees, agents or representatives, independent contractors, or other persons or organizations over which they have control will attempt to do business with or obtain funding from any party which the Investor has introduced them to for a period of one (1) year after the expiry or termination of this Agreement without the written approval of the Investor. d) That prior to the expiration or termination of this Agreement, no other party will be granted the right to purchase any part of the Projects without the expressed written approval of the Investor. e) Clauses 6a and 6b relating to confidentiality shall survive the term of this agreement for an additional five years. 49 7. GOVERNING LAW AND DISPUTES: The parties hereto agree that any disagreement or dispute between them shall first be attempted to be remedied by mediation or arbitration. In the event that agreement cannot be reached on the appointment of an independent mediator or arbiter then the parties hereto agree to accept the appointment of a mediator or arbiter who shall be appointed, following application for such appointment by the court. If the dispute cannot be remedied by mediation or arbitration then this agreement shall be governed for all purposes by the laws of the province of British Columbia. For any disputes arising among the parties hereto, venue shall lie with the court of competent jurisdiction in Vancouver, British Columbia. The additional agreement referred to in clause 2.a.b.a shall also contain a clause regarding governing law but shall be negotiated once Option1 has been exercised and the jurisdiction shall not necessarily be the same as is written herein (the province of British Columbia jurisdiction applies only to this Agreement and not necessarily to further agreements). 8. DUTIES AND RESPONSIBILITIES: a) The following are the only Duties and Responsibilities by and between the Parties hereto: b) The Duties and Responsibilities of the Managers shall be as follows: c) To be wholly responsible to manage and operate the day to day affairs of the Managers on a best efforts basis and/or to further develop and commercially exploit the Projects as per the business plan for the mutual benefit and profit of the Investor and the Managers. d) The Duties and Responsibilities of the Investor shall be as follows: e) To provide 2.5 million US dollars to the Managers under the terms of this agreement once Option1 has been exercised. 9. NOTICES AND PAYMENTS: Any notice, election, payment, consent or other writing required or permitted to be given hereunder shall be deemed to be sufficiently given if delivered or mailed by registered mail or fax to the parties at the addresses set out in the beginning of this Agreement and any such notice shall be sufficiently given when delivered by mail, on the third business day following the date of mailing, or if faxed, on the next succeeding day following the faxing thereof. 50 10. SCHEDULES: This Agreement constitutes the entire agreement between the parties and there are no representations or warranties, expressed or implied, statutory or otherwise and no agreements collateral hereto, other than as expressly set forth or referred to herein. 11. TIME shall be of the essence in this Agreement. 12. CURRENCY of all funds mentioned in this agreement shall be in US dollars. 13. SUCCESSOR AND ASSIGNS: This Agreement shall endure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 14. SEVERABILITY: Should any part of this Agreement be declared or held invalid for any reason, such validity shall not affect the validity of the remainder which shall continue in full force and effect and be construed as if this Agreement had been executed without the invalid portion and it is hereby declared that the intention of the parties hereto that this Agreement should have been executed without reference to any portion of which may be for any reason hereinafter declared or held invalid. 15. BREACH AND REMEDIES: The parties agree that great loss and irreparable harm would be suffered in the event that the Investor or the Managers breach any of the terms and conditions of this agreement. In the event that such breach appears to be an imminent possibility, the parties shall be entitled to all legal and equitable remedies afforded to them or it by law as a result thereof, including, but not limited to a temporary restraining order and permanent injunction to prevent a breach or contemplated breach of the agreement, and may, in addition to any and all forms of relief, recover all reasonable costs and attorney's fees incurred in seeking any such remedy(ies). 16. ASSIGNMENT: This Agreement may be assigned by either party without the consent of the other parties. 51 17. SUPERSEDES. This Agreement supersedes and replaces all previous agreements between the parties, verbal or written. 18. EXECUTION AND AGREEMENT: This Agreement may be executed in several parts in the same form and such parts as so executed shall together form one original agreement, and such parts, if more than one, shall be read together and construed as if all the signing parties hereto had executed one copy of this agreement. 19. ACCEPTANCE BY FACSIMILE: The parties agree that receipt of a fully executed copy of this Agreement via facsimile transmission shall be binding and may be used as admissible evidence that the party transmitting intends to be bound by the terms set forth herein. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed effective as of the date first above written and have agreed to and initialed each page: Authorized Signatures: SIGNED, SEALED & DELIVERED ) By the authorized signatory of ) CYCLONE FINANCING GROUP INC. ) ) ) _____________________________ ) Ben Traub ________________________________ ) Witness SIGNED, SEALED & DELIVERED ) In the presence of ) ) ) ) ______________________________ ) John Carter ________________________________ ) Witness 51 SIGNED, SEALED & DELIVERED ) In the presence of ) ) ) ) ______________________________ ) Theodore Strout ________________________________ ) Witness SIGNED, SEALED & DELIVERED ) By the authorized signatory of ) HHPN DEVELOPMENT CORP. ) ) ) ) _____________________________ ) Theodore Strout ________________________________ ) Witness SIGNED, SEALED & DELIVERED ) By the authorized signatory of ) HHPN DEVELOPMENT CORP. ) ) ) ) _____________________________ ) John Carter ________________________________ ) Witness -----END PRIVACY-ENHANCED MESSAGE-----