10QSB 1 0001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB (Mark one) XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ---- OF 1934 For the quarterly period ended April 30, 2000 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 ---- For the transition period from ______________ to _____________ Commission File Number: 000-19708 Phoenix Resources Technologies, Inc. (Exact name of small business issuer as specified in its charter) Nevada 84-1034982 (State of incorporation) (IRS Employer ID Number) 15945 Quality Trail North, Scandia MN 55073 ------------------------------------------- (Address of principal executive offices) (888) 709-3975 -------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: May 26, 2000: 9,665,100 Transitional Small Business Disclosure Format (check one): YES NO X --- --- Phoenix Resources Technologies, Inc. Form 10-QSB for the Quarter ended April 30, 2000 Table of Contents Page Part I - Financial Information Item 1 Financial Statements 3 Item 2 Management's Discussion and Analysis or Plan of Operation 16 Part II - Other Information Item 1 Legal Proceedings 19 Item 2 Changes in Securities 19 Item 3 Defaults Upon Senior Securities 22 Item 4 Submission of Matters to a Vote of Security Holders 22 Item 5 Other Information 22 Item 6 Exhibits and Reports on Form 8-K 22 Signatures 22 2 S. W. HATFIELD, CPA certified public accountants Member: American Institute of Certified Public Accountants SEC Practice Section Information Technology Section Texas Society of Certified Public Accountants Item 1 - Part 1 - Financial Statements Accountant's Review Report Board of Directors and Shareholder Phoenix Resources Technologies, Inc. We have reviewed the accompanying balance sheets of Phoenix Resources Technologies, Inc. (a Nevada corporation) as of April 30, 2000 and 1999 and the accompanying statements of operations and comprehensive income for the six and three months ended April 30, 2000 and 1999 and statements of cash flows for the six months ended April 30, 2000 and 1999. These financial statements are prepared in accordance with the instructions for Form 10-QSB, as issued by the U. S. Securities and Exchange Commission, and are the sole responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression on an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be 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. W. HATFIELD, CPA Dallas, Texas May 26, 2000 Use our past to assist your future sm 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 3
Phoenix Resources Technologies, Inc. Balance Sheets April 30, 2000 and 1999 (Unaudited) April 30, April 30, 2000 1999 ------------ ------------ ASSETS ------ Current Assets Cash on hand and in bank $ 15,922 $ - ------------ ------------ Other Assets Option to acquire an unrelated entity 264,871 - ------------ ------------ Total Assets $ 280,793 $ - ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities Accounts payable to related party $ 10,097 $ - Judgment payable - 306,621 ------------ ------------ Total current liabilities 10,097 306,621 ------------ ------------ Commitments and Contingencies Shareholders' 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. 9,665,100and 272,400 shares issued and outstanding, respectively 9,665 272 Additional paid-in capital 17,483,322 13,338,940 Accumulated deficit (16,418,291) (12,672,633) ------------ ------------ 1,074,696 666,779 Stock subscription receivable (70,600) (240,000) Treasury stock - at cost (560,000 shares) (733,400) (733,400) ------------ ------------ Total shareholders' equity 270,696 (306,621) ------------ ------------ Total Liabilities and Shareholders' Equity $ 280,793 $ - ============ ============
See Accountant's Review Report. The accompanying notes are an integral part of these financial statements. 4
Phoenix Resources Technologies, Inc. Statements of Operations and Comprehensive Income Six and Three months ended April 30, 2000 and 1999 (Unaudited) Six months Six months Three months Three months ended ended ended ended April 30, April 30, April 30, April 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues $ - $ - $ - $ - ---------- ---------- ---------- ---------- Expenses Consulting, legal and professional fees 2,154,185 - 2,139,252 - Management fees to related party 210,000 - 105,000 - Other general and administrative fees 53,031 - 48,900 - Compensation expense for issuances of common stock at less than "fair value" 1,320,075 - 1,177,325 - ---------- ---------- ---------- ---------- Total expenses 3,737,291 - 3,470,477 - ---------- ---------- ---------- ---------- Loss from continuing operations before income taxes and other income (expenses) (3,737,291) - (3,470,477) - Other income (expenses) Interest income and other 12 - 12 - Interest on judgment payable - (13,310) - (6,555) ---------- ---------- ---------- ---------- Loss before income taxes (3,737,279) (13,310) (3,470,465) (6,655) Income tax expense - - - - ---------- ---------- ---------- ---------- Net Loss (3,737,279) (13,310) (3,470,465) (6,655) Other comprehensive income - - - - ---------- ---------- ---------- ---------- Comprehensive Loss $(3,737,279) $(13,310) $(3,470,465) $ (6,555) ========= ========== =========== ========== Loss per share of common stock outstanding, computed on net loss - basic and fully diluted $(0.40) $(0.01) $(0.37) $(0.02) ==== ==== ==== ==== Weighted-average number of shares outstanding 9,301,281 272,400 9,466,156 272,400 ========= ========== =========== ==========
See Accountant's Review Report. The accompanying notes are an integral part of these financial statements. 5
Phoenix Resources Technologies, Inc. Statements of Cash Flows Six months ended April 30, 2000 and 1999 (Unaudited) Six months Six months ended ended April 30, April 30, 2000 1999 ----------- ----------- Cash Flows from Operating Activities Net loss $(3,737,279) $ (13,310) Adjustments to reconcile net income to net cash provided by operating activities Compensation expense for issuances of common stock at less than "fair value" 1,320,075 - Common stock issued for consulting expenses 2,090,175 - Increase (decrease) in Accounts payable to a related party 10,097 - Judgment payable - 13,310 ----------- ----------- Net cash provided by operating activities (316,932) - ----------- ----------- Cash Flows from Investing Activities Cash advanced for option to acquire an unrelated entity (261,646) - ----------- ----------- Cash Flows from Financing Activities Payment of judgments payable (300,000) - Cash received on stock subscription receivable 300,000 - Cash received on sales of common stock and exercise of stock options 911,000 - Cash paid to facilitate sale of common stock (16,500) - ----------- ----------- Net cash provided by financing activities 594,500 - ----------- ----------- Increase in Cash and Cash Equivalents 15,922 - Cash and cash equivalents at beginning of period - - ----------- ----------- Cash and cash equivalents at end of period $ 15,922 $ - =========== =========== Supplemental Disclosures of Interest and Income Taxes Paid Interest paid during the period $ - $ - =========== =========== Income taxes paid (refunded) $ - $ - =========== =========== Supplemental Disclosure of Non-Cash Investing and Financing Activities Common stock issued for option to acquire an unrelated entity $ 3,225 $ - =========== ===========
See Accountant's Review Report. The accompanying notes are an integral part of these financial statements. 6 Phoenix Resources Technologies, Inc. Notes to Financial Statements Note 1 - Basis of Presentation Phoenix Resources Technologies, Inc. (Company) was originally incorporated in 1986 as Firma, Inc. under the laws of the State of Colorado as a corporation organized to take advantage of unspecified business opportunities. 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 became solely dependent upon management and/or significant shareholders to provide sufficient working capital to preserve the integrity of the corporate entity at this time. If feasible, it is the intent of management and significant shareholders to provide sufficient working capital, if needed, necessary to support the working capital needs of the Company until adequate financing is in place. On November 3, 1999, the Company acquired an option to purchase up to 100% of HHPN Development Corporation (HHPN), an unrelated company located in San Diego, California. HHPN has developed a software program that is used to develop database applications on the Internet. On February 10, 2000, the Company exercised its option to purchase 50.0% of HHPN and has options to purchase the remaining 50.0% through February 10, 2002. During interim periods, the Company follows the accounting policies set forth in its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission. The information presented herein does not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim financial results presented herein. In the opinion of management, the accompanying interim financial statements, prepared in accordance with the instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending October 31, 2000. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 7 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 2 - Summary of Significant Accounting Policies 1. Cash and cash equivalents ------------------------- The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company's cash management policies. 2. Income taxes ------------ The Company utilizes the asset and liability method of accounting for income taxes. At April 30, 2000 and 1999, the deferred tax asset and deferred tax liability accounts, as recorded when material, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily the allowance for doubtful accounts, accumulated depreciation and certain liability items. A 100% valuation allowance was provided against deferred tax assets, where applicable. 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 April 30, 2000 and 1999, the Company's outstanding warrants and/or options are deemed to be anti_dilutive due to the Company's net operating loss position. Note 3 - Option to Acquire an Unrelated Entity On November 3, 1999, the Company acquired an option to purchase up to 100% of HHPN Development Corporation (HHPN), an unrelated company located in San Diego, California. HHPN has developed a software program that is used to develop database applications on the Internet. On February 10, 2000, the Company exercised its option to purchase 50% of HHPN for $2,500,000. The Company also has options to purchase an additional 25% interest in HHPN for $50,000,000 and the remaining 25% interest for $125,000,000. These options expire on February 10, 2002. The Company is also required to make minimum payments of $17,000.00 per month, up to a maximum of $200,000.00 per month pursuant to a budget acceptable to the board of HHPN and the Company. The Company can at any time, and at its sole discretion, elect to increase its monthly payments and/or pay HHPN in full. As of April 30, 2000, the Company has paid a total of approximately $265,000 towards its obligations under this acquisition agreement. 8 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 4 - Loan payable In November 1999, the Company executed a $150,000 US$ revolving demand note payable to it's President and Chief Executive Officer. The note bears interest at 6.5%. At April 30, 2000, there is no outstanding balance on this note payable. Note 5 - 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 6 - 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. 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 then corporate attorney under a subscription agreement. The attorney was responsible for reviewing the Company's books and records, reviewing and updating the Company's corporate status, procuring the services of a qualified independent certified accounting firm to audit the Company's financial statements, facilitating the filing of all delinquent reports with the U.S. Securities and Exchange Commission and evaluating potential private companies for either merger or acquisition. The Company's common stock had an estimated market trading price of approximately $0.04 per share on the date of the issuance of these shares. Due to the restricted nature of the shares issued into escrow, the Stock Subscription Agreement was valued at approximately $0.016 per share, or approximately $240,000 in total, as the "fair value" of this transaction. The Stock Subscription Agreement was settled upon the successful merger with or acquisition of a suitable private company. In September 1999, in anticipation of a transaction involving a change in control of the Company, the Company's Board of Directors and the Company's former corporate attorney agreed to reprice this 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. 9 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 6 - Common Stock Transactions - continued On October 27, 1999, the Company entered into a Stock Acquisition Agreement with Ben Traub, a related third party for the purchase of 9,000,000 post-reverse split shares of restricted, unregistered common stock for total proceeds of $300,000. The proceeds, when received, were allocated to settle the outstanding judgment against the Company for $200,000 and to pay $100,000 to retire the Forbearance Agreement with the Agricultural Production Credit Association (AgPCA), which was triggered by the execution of the Stock Acquisition Agreement. As of April 30, 2000, all amounts due under this Agreement have been received by the Company and the related obligations have been satisfied. On February 10, 2000, the Company sold 80,000 shares at a price of $2.50 per share for total gross proceeds of $200,000. As part of the placement, 6,000 warrants were issued and fees of $16,500 were paid. The holder of the warrant is entitled to purchase the common stock of the Company at a price of $3.00 subject to adjustment, through February 10, 2001. Note 7 - Stock Options On December 17, 1999, the Company filed a Form S-8 Registration Statement under The Securities Act of 1933 with the U. S. Securities and Exchange Commission to register 900,000 post-reverse split shares of common stock pursuant to the Company's 1999 Nonqualifying Stock Option Plan (1999 Plan). 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 April 28, 2000, Ben Traub, Robert Seitz, and Judee Fayle, all officers and directors of the Company, rescinded an aggregate total of 298,000 of these unexercised options. On January 5, 2000, options to purchase 2,000 common shares were exercised by Ben Traub, an officer and a director of the Company, and the shares issued for total proceeds of $6,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $8.625. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. 10 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 7 - Stock Options - continued On January 24, 2000, options to purchase 5,000 common shares were exercised by Rob Seitz, an officer and a director of the Company, and the shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On January 24, 2000, options to purchase 5,000 common shares were exercised by Judee Fayle, an officer and a director of the Company. The shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On January 28, 2000, options to purchase 5,000 common shares were exercised by Rob Seitz, an officer and a director of the Company, and the shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.75. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On January 28, 2000, options to purchase 5,000 common shares were exercised by Judee Fayle, an officer and a director of the Company. The shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.75. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 2, 2000, options to purchase 40,000 common shares were exercised by Ben Traub, an officer and a director of the Company; and the shares issued for total proceeds of $120,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $13.125. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 3, 2000, the Company granted options to purchase 25,000 shares of the Company's common stock at an exercise price of $7.00 per share under the 1999 Nonqualifying Stock Option Plan to employee, Peter Somogyi. On February 7, 2000, options to purchase 10,000 common shares were exercised by Ben Traub, an officer and a director of the Company; and the shares issued for total proceeds of $30,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $12.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 11, 2000, options to purchase 30,000 common shares were exercised by Ben Traub, an officer and a director of the Company; and the shares issued for total proceeds of $90,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $15.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. 11 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 7 - Stock Options - continued On February 16, 2000, the Company granted options to purchase 5,000 shares of the Company's common stock at an exercise price of $0.01 per share under the 1999 Nonqualifying Stock Option Plan to the law firm, Duane Morris & Heckscher for continued legal guidance. On February 17, 2000, options to purchase 5,000 common shares were exercised by Duane Morris Heckscher; and the shares issued for total proceeds of $50 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $16.25. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On March 6, 2000, options to purchase 1,500 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 10,500 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $19.75. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On March 20, 2000, options to purchase 10,000 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 70,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $17.125. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options On March 29, 2000, options to purchase 3,500 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 24,500 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $15.50. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On April 18, 2000, the Company granted options to employee, Peter Somogyi, to purchase an additional 50,000 shares of the Company's common stock at an exercise price of $7.00 per share under the 1999 Nonqualifying Stock Option Plan. On April 18, 2000, the Company granted options to purchase 100,000 shares of the Company's common stock at an exercise price of $7.00 per share under the 1999 Nonqualifying Stock Option Plan to employee, Jason Lee. On April 26, 2000, options to purchase 10,000 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 70,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $12.50. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. 12 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 7 - Stock Options - continued On April 28, 2000, the Company granted options to purchase 5,000 shares of the Company's common stock at an exercise price of $0.01 per share under the 1999 Nonqualifying Stock Option Plan to the law firm, Duane Morris & Heckscher. On April 28, 2000, options to purchase 160,000 common shares were granted to and exercised by Ben Traub under the 1999 Nonqualifying Stock Option Plan. These options were exercised for cash proceeds of $550 and the reimbursement to Mr. Traub for the payment of consulting fees to M. D. Price, Jr., the Company's former corporate legal counsel, paid on behalf of the Company by Mr. Traub in the amount of $1,959,450. The quoted market price of the Company's stock at the date of exercise was approximately $12.25. There was no difference between the exercise price and the market price of the Company's stock on the exercise date of the stock options; therefore no charge was made to operations. The following table summarizes all options granted from December 31, 1999 through April 30, 2000: Options Options Options Options Exercise price granted exercised terminated outstanding per share ------- --------- ---------- ----------- -------------- 745,000 292,000 298,000 155,000 $0.01 - $7.00 ======= ======= ======= ======= The weighted average exercise price of all issued and outstanding options at April 30, 2000 was approximately $6.77. Note 8 - 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. 13 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 8 - Litigation - continued Agricultural Protection Credit Association - 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 was 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. On March 15, 2000, AgPCA executed a "Receipt and Acknowledgment of Payment in Full" for the $100,000 obligation. The Company has no further obligation under this obligation. 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. The difference between the accrued amount and the $200,000 was credited to operations as forgiveness of debt. As of April 30, 2000, the Company has paid this obligation in full and has no further liability to the claimant. Note 9 - 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 $210,000 for the period from November 1, 1999 through April 30, 2000 and the Company has an outstanding balance due Cyclone of approximately $10,000 as of April 30, 2000. 14 Phoenix Resources Technologies, Inc. Notes to Financial Statements - Continued Note 9 - Related Party Commitments In October 1999, in connection with a Stock Acquisition Agreement, the Company agreed to issue 300,000 post-reverse split shares of restricted, unregistered common stock in April 2000 to the Company's Company's former corporate attorney for services rendered in connection with the Stock Acquisition Agreement. This obligation was satisfied on behalf of the Company by the Company's President and Chief Executive Officer with the transfer of 300,000 restricted, unregistered shares of the Company's common stock owned by the Company's President and Chief Executive Officer. The Company recognized a charge to operations of approximately $1,959,450 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 settlement and the Company's President and Chief Executive Officer was given credit for this payment against the amount due from the President on the exercise of options to purchase 160,000 shares of stock. Note 10 - Financing Agreements On April 12, 2000, the Company entered into a $10 million equity investment line agreement with Eurofund Derivatives Ltd. This agreement replaces one dated January 25, 2000 for a $4 million equity investment line. The Company issued to Eurofund Derivatives a Class A Warrant with an aggregate warrant exercise price of $10,000,000. The proposed maximum amount which can be exercised at any one time is $1,000,000. Eurofund may not exercise the warrant until the Company notifies Eurofund Derivatives to do so by issuing notice in writing. Eurofund may then exercise the warrant but such exercise is dependent on market conditions and therefore there is no guarantee that the warrant will ever be exercised. Note 11 - Subsequent Events On May 2, 2000, the Company granted options to purchase 500 shares of the Company's common stock at an exercise price of $0.01 per share under the 1999 Nonqualifying Stock Option Plan to consultant, Patrick McEvoy. On May 4, 2000, options to purchase 500 common shares were exercised by Patrick McEvoy; and the shares issued for total proceeds of $ 5 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $13.25. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On May 5, 2000, the Company sold 30,000 shares at a price of $5.00 per share for total gross proceeds of $150,000. As part of the placement, 15,000 warrants were issued and no commissions or fees paid. 15 Part I - Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Caution Regarding Forward-Looking Information This quarterly report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of the Company or management as well as assumptions made by and information currently available to the Company or management. When used in this document, the words "anticipate," "believe," "estimate," "expect" and "intend" and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company regarding future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties noted. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. In each instance, forward-looking information should be considered in light of the accompanying meaningful cautionary statements herein. (2) Plan of Operations The Company has been reorganized and its operations to date have been in the areas of setting up its organization and financing. The Company has exercised an option to acquire a 50% interest in HHPN Development Corp. and its products. HHPN Development Corp., has created a suite of Web development tools, also known as a web application server, code named DBPanacea, which are designed to increase the flexibility while lowering the cost of developing Web sites that require database functionality, e.g. Internet based business applications and Web sites used for e-commerce transactions. The Company's goals are to develop HHPN or DBPanacea, retain a senior management team for The Company and ultimately acquire 100% of HHPN. As a result, the Company's personnel and related costs are anticipated to increase in future periods. The Company needs to raise capital to continue its operations. In the six months of fiscal year to date, the Company has continued substantial operating losses which utilize most of its available cash reserves. The Company anticipates that it will continue to incur net losses for the foreseeable future. The Company had no operating revenue in the last two years. The Company has incurred aggregate general and administrative expenses of approximately $2,417,216. Further, the Company has charged operations approximately $1,320,000 for the difference between the "fair value" of its common stock at the date of the exercise of granted stock options and the actual cash proceeds received. Total loss per share for the six months ended April 30, 2000 was $(0.40). On November 3, 1999, Cyclone Financing Group, Inc. transferred its rights in an Assignment Agreement to the Company. Cyclone transferred all of its rights in the HHPN Option Agreement, to purchase 100% of HHPN Development Corporation. This Option Agreement may be executed in three stages. On February 10, 2000, The Company exercised Option 1 of the Option Agreement. The Company has agreed to pay HHPN $2,500,000 for a 50% interest in HHPN.. As of May 19, 2000, the Company had paid approximately $265,000 either directly to HHPN or on behalf of HHPN. The Company is required to make minimum payments to HHPN of $17,000.00 per month, up to a maximum of $200,000 per month. The Company also has the option to acquire a further 25% of HHPN for $50 million and the remaining 25% of HHPN for a further investment of $125 million. Mr. Ben Traub is an officer of both Cyclone Financing Group Inc. and the Company. Mr. Traub agreed to transfer the HHPN Option Agreement to the Company for $10.00. Cyclone formerly had the right to either cancel the Assignment Agreement to The Company or claim from the Company restricted shares to make up for the difference in value enjoyed by Mr. Traub that would have resulted if certain deficiencies in the Company had not existed. Cyclone may only have exercised these rights if certain deficiencies resulted in the reduction of value of Mr. Traub's ownership in the Company Deficiencies were defined in the Agreement as material deficiencies in information supplied to Mr. Traub by the former board of the Company. These rights were to expire once the $2.5 million had been paid in full to HHPN. During the second quarter of Fiscal 2000, Mr. Traub waived these rights and the Company's option to purchase HHPN is now irrevocable by Mr. Traub under any circumstances. In February and March 2000, the Company received favorable independent evaluations of HHPN's principal product and believes that positive market acceptance of HHPN's internet web application software product could generate revenues for the Company. 16 The Company believes that websites developed with the HHPN software product will be able to operate on WindowsNT, UNIX, LINUX or MAC without recoding, using SQL, Sybase, Oracle and most other database engines. Further, the software is anticipated to run on any webserver including Apache, Netscape Server or any other server that supports servlets. The software is in its first edition and although early testing has provided positive feedback, the Company acknowledges that it will have to invest heavily in ongoing development to continue maintain and create ongoing technological advantages and there is no guarantee that it will be able to do so. Most of the Company's existing competitors have more resources, which will make it difficult for the Company to compete. (3) Liquidity and Capital Resources The reports of our independent certified public accountants on the accompanying interim financial statements and our annual year end financial statements, as of October 31, 1999, contain an explanatory paragraph indicating factors which create substantial doubt about our ability to continue as a going concern. These factors include recurring net losses for fiscal year 1999 and uncertainty surrounding future equity financing through anticipated offerings. As of the date of each respective report, the Company was without viable operations or significant assets and was dependent upon certain significant shareholders to provide sufficient working capital. The Company's ability to implement its business plan is dependent upon obtaining adequate financial resources. The Company has been engaged in various exploratory discussions with prospective investors. While no specific terms have been negotiated, a due diligence process has begun on behalf of some investors who are considering a equity investment in the company. No assurance can be made that a private placement or public offering of Company's equity will be successful. In such an instance the Company intends to rely upon certain shareholders to meet future financing needs for the remainder fiscal year 2000 while the Company pursues other financing alternatives. At April 30, 2000, the Company had cash and cash equivalents of approximately $16,000 compared to $-0- at April 30, 1999. Working capital, defined as current assets less current liabilities, was approximately $6,000 at April 30, 2000 as compared to $-0- at April 30, 1999. The Company had current assets of approximately $16,000 and cumulative stockholders' equity of $270,696 at April 30, 2000 compared to current assets of $-0- and cumulative stockholders' deficit of $(306,621) at April 30, 1999. The Company had no capital expenditures for the six months ended April 30, 2000. However, t he Company anticipates that it will need to purchase equipment in the near future to implement the launch of its products. Net cash flow provided by financing activities increased from $-0- at April 30, 1999 to $594,500 for the period ended April 30, 2000. The increase is primarily due to the proceeds from exercised stock options and a private placement of restricted stock. Initial working capital during Fiscal 2000 was provided by a loan from the Company's President and Chief Executive Officer, which was subsequently repaid during the first six months of Fiscal 2000. The Company has not paid dividends in prior periods and does not intend to pay cash dividends in the foreseeable future. On February 10, 2000, as part of a private placement, the company issued 80,000 shares at a price of $2.50 per share for total gross proceeds of $200,000. As part of the placement, 6,000 warrants were issued with a strike price of $3 and a term of one year, and fees of $16,500 were paid. On May 5, 2000, as part of a private placement, the company issued 30,000 shares at a price of $5.00 per share for total gross proceeds of $150,000. As part of the placement, 15,000 warrants were issued with a strike price of $10 and a term of two years. No fees were paid. On April 12, 2000, the Company entered into a $10 million equity investment line agreement with Eurofund Derivatives Ltd., 17 which replaced a January 25, 2000 agreement for a $4 million equity investment line. The Company issued to Eurofund Derivatives a Class A Warrant with an aggregate warrant exercise price of $10,000,000. The proposed maximum amount which can be exercised at any one time is $1,000,000. Eurofund may not exercise the warrant until the Company notifies Eurofund Derivatives to do so by issuing notice in writing. Eurofund may then exercise the warrant but such exercise is dependant on market conditions and therefore there is no guarantee that the warrant will ever be exercised. On April 19, 2000, the Company was granted a listing by the Deutsche Boerse AG to begin trading on the Third Market Segment of the Frankfurt Stock Exchange. The trading symbol is "PHU" and the German securities code is 898 258. The Company's trades are facilitated by Berliner Freiverkehr AG, a major German investment banking and brokerage firm. The Geneva Group Inc. facilitated the Frankfurt listing and, in conjunction with Teamwork Kommunikations Gmbh., will act as a consultant to the Company concerning investor relations, introductions to strategic partners and corporate financing activities in Europe. (4) Year 2000 Considerations The Year 2000 (Y2K) date change was believed to affect virtually all computers and organizations. The Company undertook a comprehensive review of its information systems, including personal computers, software and peripheral devices, and its general communications systems during 1999 and made all necessary modifications, upgrades or replacements that it believed were necessary to address its potential internal Y2K exposures. The Company also held discussions with its significant suppliers, shippers, customers and other external business partners related to their readiness for the Y2K date change. The costs associated with the Y2K date change compliance did not have a material effect on the Company's financial position or its results of operations. The Company has experienced no negative impact from any potential Y2K issues through March 31, 2000. However, there can be no continued assurance that all of the Company's systems and the systems of its suppliers, shippers, customers or other external business partners will continue function adequately. (Remainder of this page left blank intentionally) 18 Part II - Other Information Item 1 - Legal Proceedings See Notes to the Financial Statements Item 2 - Changes in Securities 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. 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 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 April 28, 2000, Ben Traub, Robert Seitz, and Judee Fayle, all officers and directors of the Company, rescinded an aggregate total of 298,000 of these unexercised options. On January 5, 2000, options to purchase 2,000 common shares were exercised by Ben Traub, an officer and a director of the Company, and the shares issued for total proceeds of $6,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $8.625. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On January 24, 2000, options to purchase 5,000 common shares were exercised by Rob Seitz, an officer and a director of the Company, and the shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On January 24, 2000, options to purchase 5,000 common shares were exercised by Judee Fayle, an officer and a director of the Company. The shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. 19 On January 28, 2000, options to purchase 5,000 common shares were exercised by Rob Seitz, an officer and a director of the Company, and the shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.75. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On January 28, 2000, options to purchase 5,000 common shares were exercised by Judee Fayle, an officer and a director of the Company. The shares were issued for total proceeds of $15,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $11.75. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 2, 2000, options to purchase 40,000 common shares were exercised by Ben Traub, an officer and a director of the Company; and the shares issued for total proceeds of $120,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $13.125. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 3, 2000, the Company granted options to purchase 25,000 shares of the Company's common stock at an exercise price of $7.00 per share under the 1999 Nonqualifying Stock Option Plan to employee, Peter Somogyi. On February 7, 2000, options to purchase 10,000 common shares were exercised by Ben Traub, an officer and a director of the Company; and the shares issued for total proceeds of $30,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $12.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 10, 2000, the Company sold 80,000 shares at a price of $2.50 per share for total gross proceeds of $200,000. As part of the placement, 6,000 warrants were issued and fees of $16,500 were paid. The holder of the warrant is entitled to purchase the common stock of the Company at a price of $3.00 subject to adjustment, through February 10, 2001. On February 11, 2000, options to purchase 30,000 common shares were exercised by Ben Traub, an officer and a director of the Company; and the shares issued for total proceeds of $90,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $15.00. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On February 16, 2000, the Company granted options to purchase 5,000 shares of the Company's common stock at an exercise price of $0.01 per share under the 1999 Nonqualifying Stock Option Plan to the law firm, Duane Morris & Heckscher for continued legal guidance. On February 17, 2000, options to purchase 5,000 common shares were exercised by Duane Morris & Heckscher; and the shares issued for total proceeds of $50 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $16.25. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On March 6, 2000, options to purchase 1,500 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 10,500 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $19.75. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On March 20, 2000, options to purchase 10,000 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 70,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $17.125. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options 20 On March 29, 2000, options to purchase 3,500 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 24,500 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $15.50. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On April 18, 2000, the Company granted options to employee, Peter Somogyi, to purchase an additional 50,000 shares of the Company's common stock at an exercise price of $7.00 per share under the 1999 Nonqualifying Stock Option Plan. On April 18, 2000, the Company granted options to purchase 100,000 shares of the Company's common stock at an exercise price of $7.00 per share under the 1999 Nonqualifying Stock Option Plan to employee, Jason Lee. On April 26, 2000, options to purchase 10,000 common shares were exercised by Peter Somogyi; and the shares issued for total proceeds of $ 70,000 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $12.50. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. On April 28, 2000, the Company granted options to purchase 5,000 shares of the Company's common stock at an exercise price of $0.01 per share under the 1999 Nonqualifying Stock Option Plan to the law firm, Duane Morris & Heckscher. On April 28, 2000, options to purchase 160,000 common shares were granted to and exercised by Ben Traub under the 1999 Nonqualifying Stock Option Plan. These options were exercised for cash proceeds of $550 and the reimbursement to Mr. Traub for the payment of consulting fees to M. D. Price, Jr., the Company's former corporate legal counsel, paid on behalf of the Company by Mr. Traub in the amount of $1,959,450. The quoted market price of the Company's stock at the date of exercise was approximately $12.25. There was no difference between the exercise price and the market price of the Company's stock on the exercise date of the stock options; therefore no charge was made to operations. On May 2, 2000, the Company granted options to purchase 500 shares of the Company's common stock at an exercise price of $0.01 per share under the 1999 Nonqualifying Stock Option Plan to consultant, Patrick McEvoy. On May 4, 2000, options to purchase 500 common shares were exercised by Patrick McEvoy; and the shares issued for total proceeds of $ 5 to the Company. The quoted market price of the Company's stock at the date of exercise was approximately $13.25. The difference between the exercise price and the market price of the Company's stock was charged to operations on the exercise date for the above exercise of stock options. Item 3 - Defaults on Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders The Company has held no regularly scheduled, called or special meetings of shareholders during the reporting period. Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 10.5 Equity Line Agreement by and between Phoenix Resources Technologies, Inc. and Eurofund Derivatives Ltd. on April 12, 2000 10.6 Investor Relations Agreement by and between Phoenix Resources Technologies, Inc. and Teamwork Kommunikations, GmbH 10.7 Consulting Agreement by and between Phoenix Resources Technologies, Inc. and The Geneva Group, Inc. 27.1 Financial Data Schedule 21 (b) Reports on Form 8-K None -------------------------------------------------------------------------------- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHOENIX RESOURCES TECHNOLOGIES, INC. May 30 , 2000 /s/ Benjamin E. Traub -------- ----------------------- Benjamin E. Traub President and Director 22