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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JUNE 30, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended...
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number ________________________________________
TITAN TRADING ANALYTICS INC.
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(Exact name of Registrant as specified in its charter)
INAPPLICABLE
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(Translation of Registrant's name into English)
PROVINCE OF BRITISH COLUMBIA, CANADA
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(Jurisdiction of incorporation or organization)
201 SELBY STREET, NANAIMO, BRITISH COLUMBIA, CANADA V9R 2R2
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(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b)
of the Act.
Name of each exchange
Title of each class on which registered
--------------------- ----------------------
NONE
Securities registered or to be registered pursuant to Section 12(g)
of the Act.
COMMON SHARES WITHOUT PAR VALUE
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(Title of Class)
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(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
NONE
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(Title of Class)
Indicate the number of outstanding shares of each of the registrant's
classes of capital or common stock as of the close of the period
covered by the annual report.
COMMON SHARES WITHOUT PAR VALUE: 8,857,001 as of May 31, 1999
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes __ No X
Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 X Item 18 __
Except as otherwise noted, all dollar amounts are presented in
Canadian dollars.
Exchange Rates: As at June 28, 1999, the median bidding exchange rate
of Canadian dollars into United States dollars was $1.4695 Canadian
to $1.00 US.
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TABLE OF CONTENTS
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Part I Page No.
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Item 1. Description of Business................... 5
Introduction............................. 5
History of Business Development.......... 5
Employees................................ 6
1998-99 Fiscal Period Operational Plan... 7
Principal Products and Services.......... 7
Principal Markets and Methods of
Distribution............................ 10
Competition and Competitive Strategy..... 11
Intellectual Property Rights............. 13
Trading and Testing Activities........... 13
Breakdown of Total Sales and Costs To
Date.................................... 15
Status of New Products or Services....... 17
Research and Development Policy.......... 17
Distinctive and Special Characteristics
of Operation............................ 17
Item 2. Description of Property................... 22
Item 3. Legal Proceedings......................... 23
Item 4. Control of Registrant..................... 24
Item 5. Nature of Trading Market.................. 24
Item 6. Exchange Controls and Other Limitations
Affecting Securities Holders............. 26
Item 7. Taxation.................................. 27
Dividends................................ 28
Capital Gains............................ 28
Deemed Distributions on Death............ 28
Item 8. Selected Financial Data................... 29
Summary of Financial Data................ 30
Exchange Rates........................... 30
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 31
General Overview......................... 31
Canadian GAAP vs US GAAP................. 32
Overview of Business Operations.......... 33
Results of Operations.................... 34
Liquidity and Capital Resources.......... 40
Item 10. Directors and Officers of Registrant...... 41
Item 11. Compensation of Directors and Officers.... 43
Item 12. Options to Purchase Securities from
Registrant or Subsidiaries............... 44
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- ---------------------------------------------------------------------
TABLE OF CONTENTS
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Part I Page No.
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Item 13. Interest of Management in Certain
Transactions.............................. 44
Material Transactions..................... 44
Indebtedness of Directors and Officers.... 47
Part II
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Item 14. Description of Securities to be
Registered................................ 47
Part III
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Item 15. Defaults Upon Senior Securities............ 48
Item 16. Changes in Securities and Changes in
Security for Registered Securities........ 48
Part IV
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Item 17. Financial Statements....................... 48
Item 18. Financial Statements....................... 49
Item 19. Financial Statements and Exhibits.......... 49
Index...................................... 49
Item 20. Signature Page............................. 50
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PART I
Item 1. Description of Business
INTRODUCTION
Titan Trading Analytics Inc. ("Registrant") is a software development
company that commenced operations in May 1994 and is nearing the
final stages of a multi-year software research and development
program. Registrant uses the software it develops in its own trading
activities, to trade S&P500 stock index futures contracts and
currency futures contracts for its own account, in addition to
offering its software products for sale or license to customers. In
addition, Registrant is testing, developing and planning to publish
and market a monthly financial subscription service to its daily
stock market commentaries through its Internet web site.
In this regard, Registrant has developed a series of software
programs, including: (1) a financial trading simulator called
VirtualTrader ("VT"); (2) a series of real-time proprietary pattern
recognition based US stock market trading indicators and stock index
trading systems for trading the S&P 500 Stock Index, the OEX 100
Stock Index, the Dow Jones Industrial Index and the NYSE Composite
Index called the TITAN Stock Index Trader series ("SIT"); and (3) a
portfolio of currency trading software programs for trading the
Japanese Yen, the Swiss Franc, the British Pound and the German Mark
called the TITAN World Currency Trader series ("WCT").
HISTORY OF BUSINESS DEVELOPMENT
Registrant was incorporated by registration of its Memorandum and
Articles under the Company Act of the Province of British Columbia,
Canada on November 30, 1993 under the name "KBK No. 24 Ventures Ltd."
Registrant changed its name to "Titan Trading Analytics Inc.," by
filing of an amendment to its Articles on November 14, 1994.
Registrant's principal business office is at 201 Selby Street,
Nanaimo, British Columbia, and its registered and records office is
located at 30 Front Street, Nanaimo, British Columbia.
Up to the period ended April 30, 1999, Registrant raised a total of
$2,802,962 in share capital through the sale of its Common Shares,
and up to April 30, 1999 has invested approximately $1,362,185 in the
development of its business. The balance of the funds raised as of
April 30, 1999, totaling $1,447,931, is represented in the balance
sheet as current assets, software and systems development and capital
assets.
On November 23, 1994, Registrant incorporated Titan Trading Corp.
("TTC") under the Company Act of the Province of British Columbia,
Canada, as its wholly owned subsidiary. TTC was originally
incorporated with a view toward forming a separate trading business.
The original intention was to separate that trading activity from the
software development business. That plan, however, never
materialized because the scale of trading (strictly for its own
account) remained relatively small and software development took much
longer than originally expected. The main trading account of
Registrant was originally set up at Refco Futures (Canada) Ltd. in
Canada under the TTC name.
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Although TTC was an otherwise inactive wholly-owned subsidiary of
Registrant, management elected to continue to execute its trades
through TTC, as agent on behalf of Registrant, simply for
convenience.
TTC has no income, expenses, assets or liabilities. It was set-up
with a capital contribution of $100, and currently operates
specifically and exclusively for the purpose of acting as agent for
Registrant in executing Registrant's in-house trading activities.
In November of 1998, Registrant announced a planned joint venture for
US stock day trading with an established brokerage operation on the
West Coast of Canada, Wolverton Securities Ltd.("Wolverton"). On
April 1, 1999, following the receipt of a letter from the Vancouver
Stock Exchange ("VSE") stating that the VSE would not allow profit
sharing between its member company (Wolverton) and a non-member (the
Company) and that it would not allow the Company's traders to execute
trades through Wolverton because they were not registered or part of
the staff of Wolverton, Registrant publicly announced the withdrawal
from the proposed joint venture and abandoned business plans and
activities involved with the development of a stock day trading
business.
Registrant has been publishing a regular stock market commentary on
its Internet web site based on its trading technology for
approximately two years. Registrant is now planning to develop,
publish and market an expanded internet-based, daily financial market
commentary on a paid subscription basis ("Internet Subscription
Service").
EMPLOYEES
The following is a brief description of the Registrant's non-officer
employees:
John Austin, was Titan's Manager of Marketing and Sales from November
1995 to November 17, 1998, but was recently appointed to the position
of General Manager. Since graduating in Business Administration from
Utah State University in 1972, Mr. Austin has held a number of
marketing, service and sales management positions, including
marketing manager for TNT between 1987 and 1991, where he was also
involved in the research and development of trading systems. Between
1992 and 1994 he was engaged in the establishment, development and
sale of several private businesses. Mr. Austin is a full-time
employee of Registrant.
Greg Kennedy joined Registrant as a full-time Manager of Marketing
and Sales on November 17, 1998. Mr. Kennedy graduated from the
University of Alberta in 1989 with a business degree in Marketing and
Statistics. He gained sales, marketing, brokerage and stock trading
experience during 8 years in the investment business as a registered
securities representative for McDermid St.Lawrence Securities Ltd.
Mr. Kennedy is a full-time employee of Registrant.
Ellen Addison joined Registrant as a Special Projects Coordinator
effective March 15, 1999. Ms. Addison is a graduate of British
Columbia Institute of Technology in Administrative Management. During
the past 10 years, Ms. Addison started and managed a public
accounting and financial consulting business, was the Administrative
Director of a 42 bed residential treatment center and recently became
an author and book publisher. Ms. Addison manages new financial
subscription promotions planning,
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corporate marketing media
development and new internet web site development and publication
projects for Registrant. Currently Ms. Addison works as an
independent consultant to the company.
For information regarding Registrant's officers and directors see
Item 10.
1998-99 FISCAL PERIOD OPERATIONAL PLAN
Registrant believes that the rapid growth in the Internet-based
discount brokerage business in North America and the recent high
growth of online Internet trading provides a growing marketplace for
its VT software and the planned development and marketing of its
Internet Subscription Service.
Previous plans to market related training seminars using the VT
software in conjunction with a stock day trading joint venture, have
been cancelled along with the stock day trading joint venture
project. See discussion under "History of Business Development"
section above.
Registrant plans to continue to demonstrate the value and performance
of its software products and services by using them in actual trading
for its own account. Trading income from stock index and currency
trading reported by Registrant through April 30, 1999 totaled
$134,485.00 -- $70,607.00 of which was reported on the October 31,
1998 audited financial statements and $63,878.00 on the April 30,
1999 interim statements. While there can be no assurance that
trading operations will continue to be profitable in the future, this
is management's expectation. As a consequence, management plans to
use such profits, now and in the future, to demonstrate the value of
Registrant's software to potential buyers and subscribers, and thus
promote sales of both its software products and its Internet
Subscription Service.
Over the next 18 months, Registrant expects to spend approximately
$250,000 of its capital on continuing research and development of its
web site and Internet Subscription Service and software products to
enhance trading activities and stay current in the market. In this
on-going process, Registrant further expects to spend an additional
$95,000 on computer equipment and systems. Moreover, Registrant
expects to hire 3 - 6 additional staff as a result of business
expansion and for the development and marketing launch of its
Internet Subscription Service.
Registrant does not, at this time, anticipate any other material
changes to employees, plant and equipment or other business items
over the next 18 months of operation.
PRINCIPAL PRODUCTS AND SERVICES
Originally, Registrant planned to develop and offer a North American
SkyTel pager based financial trading subscription service. This plan
was abandoned in late 1997 based on an assessment of new competition
from internet based financial subscription services. Based on recent
user response to the existing daily stock market commentary published
on Registrant's web site on a test basis for the past two years,
Registrant now plans to proceed with further development and
marketing over the next twelve months of an Internet Subscription
Service similar to that planned originally for distribution by way of
the SkyTel pagers.
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During 1997 and 1998, Registrant developed and tested its
VirtualTrader ("VT") software - an advanced training simulator for
traders that allows users to replay market data on a computer, bar by
bar, in any time frame, simulating a real time computer based
financial market data feed. This makes it possible for stock bond,
currency and commodity traders to easily test simple and complex
trading methods and money management strategies, without requiring
any software programming of mechanical trading rules, technical
methods or systems, and without risking any trading capital.
The VT program lets traders enter simulated trades on price charts,
enter market orders, stop loss orders, trade exit orders and track
trading performance, in a manner very similar to actual trading.
Registrant's management likens its VT trading software to a flight
training simulator for pilots, except VT is a training simulator for
traders. Traders can conveniently test trading strategies, technical
trading methods and different trading indicators, at a lower cost,
with more convenience, and with greater ease than conventional
methods of computerized back-testing.
Registrant uses VT software in the development of its own trading
systems. Applications of the VT software have been completed for
various futures trading applications, including currencies and stock
futures. More recently, the Registrant used the VT software to
develop a technical analysis based approach to day-trading high
volume NASDAQ, AMEX and NYSE stocks. The Registrant's own in-house
application of the VT software along with a previously developed
stock index trading methodology known as the "neural tape reader",
were combined to form an integrated method of day-trading stocks.
The trading methods, indicators and software developed by Registrant,
are intended to allow it (or its licensees and subscribers) to more
efficiently trade US stock indexes and some world currencies on an
intra-day and end-of-day basis. In general, Registrant's systems are
short-term market timing ayatems and indicators that can be used by
licensees and subscribers to trade any stock index or currency
futures. Registrant, however, currently only uses its software to
develop trading for itself in the S&P 500 stock index and currency
futures contracts in the Japanese Yen, German Mark, the British Pound
and the Swiss Franc.
These developments center around the application of Artificial
Intelligence ("AI") to stock index and currency trading, using neural
networks and expert systems. Neural networks are an AI based
mathematical pattern recognition technique that allows software to
mimic the information processing functions of humans by being able to
"learn" to recognize complex patterns through trial and error without
being programmed with specific, preconceived rules. AI based
software trading systems can be taught complex relationships between
sets of variables and use them to find market correlations and
relationships that humans cannot easily see on their own.
All Registrant's software products, including those under
development, are designed to operate in conjunction with TradeStation
or SuperCharts, two of the industry's leading Windows-based technical
analysis and charting programs, developed and marketed worldwide
since late 1991 by Omega Research Inc. of Miami, Florida, USA
("Omega"). Registrant's software requires the Omega software to be
installed on the same computer in order to operate. Customers must
therefore obtain a license for Omega's software as well as a separate
license for Registrant's software. Registrant's software operates
within Omega's software platform by taking advantage of its data-feed
interface, real-time data
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and chart updating, and reporting
functions. TradeStation was the world's first real-time Windows
based charting program for analyzing stocks, stock index futures,
bonds, mutual funds, commodities and other securities. SuperCharts
is a related program for off-line technical market analysis.
Both TradeStation and SuperCharts are widely used software programs
that allow users to develop, test and automate technical analysis of
the financial markets, and to run developed trading systems and
various standard and custom financial trading indicators in real-
time. The Registrant's software products have been designed to be
loaded into and to operate within the TradeStation and SuperCharts
software platforms and to take advantage of the automation and
charting features built into those products and their user-friendly
Windows operating system environment.
VT allows TradeStation software users to test methods without having
to acquire any programming knowledge of Omega's Easy Language
software language. The VT software also allows traders to gain
technical trading knowledge and experience, be formally trained, and
provides the use of conventional and custom technical analysis
techniques in a fully simulated real-time trading environment.
Registrant has also developed a portfolio of currency trading
software programs for trading the Japanese Yen, the Swiss Franc, the
British Pound and the German Mark called the TITAN World Currency
Trader series ("WCT"). These programs, as with VT, operate through
the Omega software products as described above.
Registrant's SIT and WCT trading indicator and system software do not
affect the Omega user interface in operations, but rather take
advantage of Omega's Easy Language programming utilities and back
testing functions to allow Registrant's custom indicator software and
trading systems software to be programmed into Omega's software
products with graphically and tabularly displayed output and
technical analysis charting features. This allows the user to receive
real-time and end-of-day market updates, real-time and end-of-day
trading alerts, trade by trade reporting of results and overall
historic and real-time trading system performance analysis.
Registrant software is principally sold to United States customers
where Omega dominates the private trader technical analysis and
charting software market. However Omega is increasingly making sales
into the international marketplace. Internet use is also growing
internationally and the financial applications sector represents an
established potential market for Registrant's software and planned
internet based daily stock market commentary subscription service.
The US has been substantially the whole market for test marketing and
software product sales to date (only about $14,000 in sales and
licensing revenue out of $149,631 have come from sources outside the
United States).
Presently the Registrant's VT software is compatible with Omega
TradeStation version 4.0. It is not yet compatible with the recently
released TradeStation version 5.0, nor can there be any assurance at
the present time that VT will ever be compatible with TradeStation
version 5.0.
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PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The Registrant's initial target market for its VirtualTrader software
and planned Internet Subscription Service is comprised of an
estimated 30,000 licensed investors [software users] worldwide of the
Windows-based SuperCharts and TradeStation technical charting and
financial analysis software operating platforms (based on information
contained in Omega Research Inc.'s Form S-1/Afiled with the SEC on
August 27, 1997, page 4). The Microsoft Windows operating system now
dominates the PC based software market worldwide. Although there is
a large number of financial software programs now available to
computerized investors and traders, users are increasingly
standardizing on Windows and a few proven Windows based technical
analysis and financial charting program platforms, such as
SuperCharts, TradeStation, and MetaStock for Windows(tm).
A broader market for VT and the planned Internet Subscription Service
is the existing and growing market for online internet stock traders.
Those online stock traders wishing to use the VT software, who are
not currently users of Omega charting programs, would have to invest
US$395 (for SuperCharts) or US$2,395 (for TradeStation) to acquire
them.
Omega, the manufacturer of SuperCharts and TradeStation software,
offers marketing and other support for third-party product
development through the Omega Solution Provider Program (the
"Program"). There are approximately 150 software development and
service firms registered and active under this Program of which
Registrant is one. Products and services under this Program are
typically marketed by a combination of direct mail programs and
advertising in leading financial magazines. Omega presently delivers
the Program's Solution Provider advertisements by direct mail to its
database of customers on a quarterly basis in the form of the Omega
Research magazine. This provides a central advertising medium for
TradeStation and SuperCharts Solution Providers, and also allows
users of the software to become familiar with various new products
and services offered by Omega and Solution Providers. Registrant's
products are listed in Omega's Solution Provider catalogue and
Registrant has a listing on the Omega web site.
Registrant plans to market to the online trader market through: (1)
an established internet web site presence, (2) Omega's Solution
Provider Program, (3) direct advertising in trade periodicals, (4)
direct seminars and mail campaigns, and (5) in-house direct sales. In
addition, Registrant plans to establish wider channels of
distribution with the support of distributors and agents, and through
a combination of its own internet web site and third-party internet
banner advertising.
Up through April 30, 1999 Registrant has made $149,631 in software
product sales and licensing. While Registrant operates out of
Canada, the principal market for the sales and licensing of its
product/software is in the US. Up through April 30, 199, $135,631 of
the sales and licensing of its sales and licensing were in the United
States, and $14,000 was in Great Britain.
The Registrant has installed a computerized sales lead tracking and
database management system capable of supporting telephone sales and
service support functions which it uses to manage customer service,
direct mail campaigns, and marketing and investor relations
administration.
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COMPETITION AND COMPETITIVE STRATEGY
The worldwide financial software and information services marketplace
is both crowded and intensely competitive, with strong growth being
reported in the online internet trading segment of the marketplace.
The emergence of high volume discount brokerage services and online
internet trading with firms such as E-Trade and Datek has changed the
business model and activities of stock traders dramatically.
The marketplace for the planned Internet Subscription Service, stock
index trading software and currency trading software are also crowded
and intensely competitive. There is a wide variety of products
providing direct competition to the Registrant's software, and a
constant threat of new entrants into the market in all areas of the
financial software marketplace.
Competition of the VT Software
Registrant has identified the following three competitors of its VT
software product:
1. The Omni Trader (trading simulator). The End of Day version for
stocks sells for US $395. The End of Day version for futures sells
for US $695, and the Real Time version sells for US $1,995. This
software is established, aggressively marketed, and popular.
2. The TSI001 Playback Assistant by Jan Arps (an Omega Solution
Provider). This software allows the capability of replaying past
intra-day or End of Day data. The price for this software is US
$495.00.
3. Aesis Software & Consulting is currently developing a trading
simulator which reportedly runs in TradeStation 4.0 or TradeStation
2000i. The price for this software is expected to be US $495, but
has not been released yet.
Note that the description of the software mentioned above is
incomplete, and all prices are the published retail prices of the
identified software.
In addition, Registrant estimates there are at least 3 low cost
trading simulator packages on the market that do not facilitate full
trading simulations, yet appear in the marketplace to be low cost
competitors.
Competition for Registrant's planned Internet Subscription Service
The financial services sector of the internet is extremely
competitive. Registrant estimates that there are over 100 internet
sites that could be considered to be competitors to the Registrant's
planned Internet Subscription Service. There are also new competitors
coming onto the internet everyday. The market is intensely crowded
and competitive. The following internet sites are examples of
competitors to the Registrant's planned Internet Subscription
Service, broken down into two categories, as follows: A) full pay
sites, or B) free or low cost sites. Note that the description of
the service is not complete and all prices mentioned are the
published price of the identified service.
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A) Full Pay Sites
1. Societe Anonyme. This is a $200 per month paid subscription site.
It provides daily e-mail alerts on US momentum stocks, and general
news and commentary on the stocks the site follows.
2. Anthony@Pacific. This is a paid subscription site with various
options available: Silver service: $85 per month, $950 per year, 1
hour delayed calls via e-mail. No site access; Gold service: $400 per
month, $4,150 per year, Real-time calls via browser window and e-
mail; Platinum service $1,000 per month, $10,000 per year.
3. Trading Places.net. This is a $279.95 per month paid subscription
service for real time trading desk news alerts, and access to live
trading (chat) room 24 hours per day. There is a cost of $399.95 per
month for real time market hours training for day traders, real time
news and trade alerts, and full access to live trading room.
4. The Momentum Trader: This is a $200 per month paid subscription
service. The service includes early morning market preview and an End
of Day market wrap, both sent by email. Similar to TradingPlaces.net,
it employs a live trading room-chat room.
5. DayTraders Online. This is a $179.00 per month paid subscription
service that provides a live trading desk service.
6. Pristine Daytrader. This is a $125.00 per month service that
offers pay per view via StockhouseOnline. It includes a database of
over 9,000 securities to determine which ones appear to be offering
the best opportunities, and then outlines specific trading strategies
to take advantage of them. This service includes intra-day updates.
It also offers a Pristine Lite service at $19.95 per month, designed
for the developing trader.
B) Low cost or free sites
1. Clearstation.com. This is a financial advisory web site that helps
investors make investment decisions by identifying and interpreting
stock trends.
2. The Bull Market Report. This is a newsletter (specific to hi-tech
issues) delivered daily, with News Flashes delivered via email on
timely events $125 per year or $39 for two months.
3. The Street.com. This is a subscription service that includes full
site access, three emails daily and a weekend wrap up. The service
is $9.95 per month or $99.95 per year.
4. Jag Notes. This is a compilation of 32 Wall Street brokerage and
analyst stock picks. Subscription is $9.95 per month or $99.95 per
year.
5. Tradehard.com. This site develops, assembles and centralizes
market analysis and information, and provides free email summaries.
The service costs $10 per month.
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6. Investools. This site provides investors with a broad selection
of independent financial research at a subscription price of $14.95
per month.
7. Tulips and Bears. This site provides an email service featuring
portfolio picks and shorts, with free real time quotes and stock
charts.
INTELLECTUAL PROPERTY RIGHTS
The Registrant's ability to compete effectively depends in part on
its ability to protect its core software technology. The Registrant
relies for such protection on a combination of: (1) trade secrets;
(2) technical complexity; (3) common law copyright and trademark
protection; (4) non-disclosure agreements; (5) password protection;
(6) software encryption schemes; and (7) the physical security of its
source code.
Despite these measures and precautions, it may be possible for
unauthorized third parties to copy the Registrant's products or
obtain and use its core software. The Registrant has not to date
attempted to obtain copyright registration for any of its software
products, though it may do so in the future. There can be no
assurance, however, that such registration will be granted if applied
for. Moreover, certain aspects of the Registrant's software products
are not subject to intellectual property protection in law, and to
the extent such protection is available, its extent may differ from
one jurisdiction to another.
Application in the United States for registration of a VirtualTrader
trademark was rejected on initial response by the examiner of the
application on the basis that the trademark was merely descriptive.
Registrant is no longer proceeding with its application for trademark
registration in this respect.
Registrant has not applied for patents nor does it plan to apply for
or receive any patent protection for any of its software products or
product parts, under Canadian or US law.
TRADING AND TESTING ACTIVITIES
Beginning in 1994 and continuing through 1995, Registrant was
generally focused on the initial development of its software products
and therefore did no trading or testing activities. In 1996 through
1998, as development continued, Registrant began demonstration and
testing the software. Demonstration and testing, as use herein,
refers to Registrant's use of the software to trade securities at a
time when the software was still under development.
By April of 1998, the SIT and WCT software (as described above) were
substantially tested and thus reference to any income and losses made
from trading after this time is described in the financials and
herein as "Trading" income or loss rather than as "Demonstration and
Testing" income or loss. The table below provides a summary of
trading and testing income and losses, by year, using this
distinction.
1998 1997 1996 1995 1994
Trading $70,607 0 0 0 0
Demo & Testing $42,490 $56,761 $(57,934) 0 0
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Trading systems for stock indexes and currencies were installed in
Registrant's systems in April 1998, and a trading program has been
carried out since that time to show the efficiency of Registrant's
software technologies under development. As noted above,
Registrant's combined trading income from stock index and currency
trading reported in fiscal year ended October 31, 1998 ($70,607) and
the six months ended April 30, 1999 ($63,878), totaled $134,485.00.
The WCT systems trading signals were provided under an annual
US$10,000 license to Lombard Odier International Portfolio Management
Limited ("Lombard") in London England for the one year period ended
September 1998. A written testimonial was received from Lombard
indicating that actual WCT trading profits were realized by them in
14 international currency hedging trades using Registrant's WCT
system, over a one year period, totaling $28,987 USD on a single
contract basis. Actual real-time trading results by Lombard were
confirmed to have been consistent with historically back-tested
(trading results simulated with historic data) results prepared and
represented by the Registrant in its marketing literature. Lombard's
results were produced in a combination of Japanese Yen, German Mark
and Swiss Franc trades, in US Dollars. A copy of this written
testimonial is attached hereto as an exhibit.
In September 1998 the Registrant commenced testing online stock day-
trading activities over the internet for the company's account with
company funds as part of its planned VirtualTrader training and
trader development services program. This program was later expanded
to include training of experienced third party stock traders trading
their own company funds at Wolverton Securities Ltd., a registered
brokerage in British Columbia. This trading involved the use of in-
house day-trader software to trade high volume NASDAQ, AMEX and NYSE
stocks in short-term intra-day trading, based on methods developed
and practiced in the VT trading simulator. Such trading is considered
high risk due to market volatility, trade slippage problems,
occasional internet execution errors, normal random short-term price
movements, and the margin leverage involved.
While these internet based stock day-trading tests indicated that
such a system could be profitable in the hands of experienced traders
using conventional trade execution methods, trading risks from stock
day-trading over the internet remained very high due to intra-day
volatility, commission costs, internet downtime, trade slippage and
the high cost of trader training and daily supervision. When these
normal risks were combined with the recent bad publicity in the day-
trading market and the response of the VSE to Registrant's proposed
joint venture with Wolverton, Registrant assessed the overall
business risks to be excessive and unwarranted relative to the
potential gains. Accordingly, as noted above the project was
cancelled by Registrant and there are no plans at the present time to
pursue any stock day-trading business plans and all in-house stock
day-trading activities have ceased.
The $500,000 previously proposed for allocation out of existing
working capital for the purposes of the Registrant's various
demonstration trading activities is no longer applicable. Typically,
30% of trading account cash balances is actually allocated to trading
margin, the balance is generally held as a reserve for ordinary
course trading draw-downs. Margin is the use of borrowed money for
trading. The use of margin magnifies trading gains and losses in
direct proportion to the extent of money borrowed. As a consequence,
conservative implementation and use of margin by even experienced
traders is required in order to avoid excessive risk of ruin in
trading. Registrant's management and the registered clearing
14
<Page 15>
firm Refco Futures (Canada) Limited, which clears all trades for
Registrant, independently imposes the conservative 30% allocation to
margin limitation used by Registrant, rather than a higher, more
typical and liberal 50% allocation guideline. In hundreds of trades
to date Registrant remains overall profitable since the inception of
stock index and currency trading, in part as a consequence of the
conservative trading practices employed.
Note, even with a conservative approach to trading, there is always
an ongoing risk of material losses from trading activities. While
Registrant intends to remain conservative in its trading practices as
described above and has established internal risk management criteria
associated with the limited use of margin to minimize trading losses,
as described above, due to the volatility associated with stock index
and currency trading activities, and the large draw-downs possible
from such trading, trading losses can and will occur in the ordinary
course of Registrant's trading activities.
Registrant reports trading results on an ongoing basis in regularly
filed public quarterly financial reports with the Sedar system
pursuant to the British Columbia Securities Act and Securities Rules
promulgated thereunder. In addition, shareholders will be advised
of all material events including material changes in Registrant's
investment or trading practices by way of publicly disseminated News
Releases also as required under the British Columbia Securities Act.
BREAKDOWN OF TOTAL SALES AND COSTS TO DATE
The development costs for Registrant's Software and Systems through
April 30, 1999, consist of the following:
Capital Assets: $ 109,468
Product and Development Costs: $ 573,176
Operating Costs*: $ 1,041,474
-----------
Total: $ 1,724,118
*Deficit less total amortization as of April 30, 1998.
Registrant's total revenue from sales and operations during the past
three fiscal years, plus the six months ended April 30, 1999, by
category of activity, was as follows:
Six Months Ended April 30, 1999
Software Sales and Licensing $ 31,438
Trading Income $ 63,878*
Interest and other Income $ 18,022
-----------
Total $ 113,338
*There was $28,155 in Demonstration and Testing Losses (separately
reported as an expense) during this period.
15
<Page 16>
FYE 10/98
Software Sales & Licensing $ 53,051
Trading Income $ 70,607
Interest and other Income $ 41,457
-----------
Total $ 165,115
FYE 10/97
Software Sales & Licensing $ 36,040
Demonstration and Testing $ 56,761
Interest and Other Income $ 58,581
-----------
Total $ 151,382
FYE 10/96
Software Sales & Licensing $ 21,213
Demonstration and Testing $ 0*
Interest and other Income $ 35,290
-----------
Total $ 56,503
*There was $ 57,934 in Demonstration and Testing Losses during this
period (separately reported as an expense).
All sales are to unaffiliated customers, and because of the limited
amount of revenue generating activities and immateriality no
breakdown has been made into geographic markets or as to differences
in contribution made by revenue to total operating losses over the
past three fiscal years.
Note that software sales reported in the audited financial statements
to the end of fiscal year ended October 31, 1998 includes revenue
received from beta test versions of software programs and from
software products in early stages of market testing. Demonstration
and testing income reported in the financial statements represents
trading income derived from company trading systems software still
under development. Demonstration and testing expenses reported in the
financial statements under expenses represents trading losses from
trading systems software still in a testing and development stage.
See also "Breakdown of Total Sales and Costs to Date" under Item 1,
"Description of Business".
Once management has determined that a particular trading software
system has been satisfactorily tested in actual trading operations,
income from that point forward is reported as trading income or loss,
as the case may be.
16
<Page 17>
STATUS OF NEW PRODUCTS OR SERVICES
Registrant is constantly refining and developing its software and
trading systems to maintain their integrity and marketability. As a
result there is and will be an on-going research and development
effort with associated costs to the company. Registrant anticipates
spending approximately $250,000 over the next 18 months on such
research and development efforts. Moreover, new products are
constantly being investigated and sought within the general area of
the current products developed by Registrant. No new products,
however, other than those described herein have been formally
announced to the public.
RESEARCH AND DEVELOPMENT POLICY
Registrant's accounting policy on software development is to
capitalize Software and Systems Development and amortize that cost
over the expected useful life of the software. Research and
Development, on the other hand, is fully expensed in the year
incurred. Registrant distinguishes Software and Systems Development
from Research and Development in that Software and Systems
Development involves expenditures on the development of software that
creates an asset, the economic benefit of which is expected to extend
into several future periods.
As noted above, Registrant's policy is to maintain an ongoing program
of Software and Systems Development and Research and Development in
order to maintain the quality and competitiveness of its products,
services and trading efforts. The following are the Registrant's
best estimate of the total amounts spent by it on both Systems and
Software Development and Research and Development during each of the
past three fiscal years:
FYE 10/98 $202,200
FYE 10/97 $279,552
FYE 10/96 $137,371
DISTINCTIVE AND SPECIAL CHARACTERISTICS OF OPERATION
In the North American financial software industry it is a regulatory
requirement and practice, to which the Registrant adheres, to make no
representations that any user will or is likely to achieve profits or
suffer losses similar to those described in any product literature or
in any published historical trading simulations, computer test
results, or trading simulator software practice sessions.
Even though Registrant does not believe it is under the jurisdiction
of the United States Commodities and Futures Trading Commission
("CFTC"), Registrant conducts its business in a manner consistent
with the rules and regulations of the CFTC with respect to sales of
trading system software and commodity futures trading activities that
may take place within the United States. Registrant's sales
procedures provide for the inclusion of a Disclosure Statement in
product license agreements, manuals and promotional literature in the
form prescribed by the CFTC. In addition, Registrant's standard form
of license agreement governing use of its software and services,
includes warnings as to the risk of
17
<Page 18>
reliance on hypothetical trading
results, and as to the risk of trading losses. Terms of license and
sale provide that nothing contained in the Registrant's software
products or related user manuals, represents, or is intended to
represent, the furnishing of financial advice by the Registrant, its
officers, agents or employees. Users are warned that the pattern
recognition software and services merely provide educational,
technical trading information, neural network indicator readings, and
buy/sell signals for the decision support of users who remain
responsible for their own actions as the result of use of the product
or service, and that any use of the products and services in the
absence of acknowledgment of these terms, is unauthorized.
Registrant is not a registered member of the National Futures
Association (NFA) and does not conduct a commodity trading business
in the United States. Consequently, Registrant does not presently
come under the direct regulatory jurisdiction of that industry
governing body.
Registrant is not presently registered with the CFTC or NFA as a
Commodity Trading Advisor (CTA) and does not presently solicit or
trade third-party managed accounts. Registrant plans to conduct
business and become registered as a CTA in the United States and
Canada. Such plans would first require the passage of a CTA
examination, registration and appropriate filings which Registrant
has no yet begun, and there can be no assurance that Registrant will
ever submit or obtain such registration. Should Registrant become a
CTA or trade third-party managed accounts in the future, or begin to
conduct trading operations in the United States, Registrant will be
directly governed under the regulations and administrative policies
of the CFTC and the NFA.
Registrant is not presently registered, or required within its
current business operations to be registered as an investment advisor
with any government or regulatory body in the United States, Canada
or elsewhere.
The risk factors set-forth below, while not exhaustive, are believed
to be important in that they may have a material impact upon the
Registrant's future financial performance and could cause actual
results to differ materially from those expressed in any forward-
looking statement made by or on behalf of the Registrant. All
material risk factors known to Registrant are discussed below,
however, note that unknown factors, not discussed herein, could also
have a material adverse effect on Registrant's actual financial and
other results.
1. Short operating history and likelihood of continuing operating
losses. Registrant commenced operations in May 1994, and has, to
date, been largely engaged in product research and development and
establishing its new product development and marketing strategy.
Registrant's initial products and planned services are just beginning
to become available for market release and sale. Registrant thus has
a limited operating history and is expected to continue to incur
start up losses and negative cash flow in the immediate future as
these new products and services are completed and marketed.
Registrant's ability to succeed depends upon it eventually achieving
positive cash flow, failing which it may have to seek additional
financing, and there can be no assurance that such additional
financing will be available on acceptable terms, or at all.
18
<Page 19>
2. Early stage of development and no assurance of market acceptance
of the Registrant's new software products or services. Registrant's
existing and planned software products and the planned VirtualTrader
based training service are in an early stage of development.
Although a small level of sales have been effected and there is an
established market for such products and planned services, there can
be no assurance of market acceptance of Registrant's products and
services.
3. Dependence on the timely development and release of new software
products and services. Achievement of Registrant's objectives, and
its future operating results, are dependent upon completion of its
software marketing and new training service plans, and on the success
of such planned new software products and services. Timing in this
regard is crucial, as other similar products or services that reach
the market prior to Registrant's product may be able to obtain and
maintain business that would have otherwise gone to Registrant. There
can be no assurance that Registrant's timing and business plan will
be sufficiently successful to achieve sustained profitability in its
operations.
4. Dependence on key personnel. Registrant depends on its key
officers, including its founder and President, Michael Paauwe, and
its Vice President and Manager of Software Development, Michael
Gossland, and chief stock trader and trainer John Austin. Although
Registrant has key man life policies in place for Paauwe and
Gossland, loss of their ongoing services, would have a materially
adverse effect on future operating profits and prospects.
5. Dependence on in-house direct sales and the lack of any existing
established indirect sales and distribution channels. The Registrant
plans to market its software and services through direct sales
efforts. The Registrant has recently appointed new marketing and
sales staff but does not presently have in-house staffing of
experienced sales and marketing personnel. There can be no assurance
that the Registrant will be able to attract and retain the necessary
personnel as and when required. The Registrant may not be able to
address all potential markets adequately, without first establishing
indirect distribution channels through distributors and selling
agents, and there can be no assurance that it will be able to
establish or maintain such channels cost effectively.
6. Extensive competition and rapid technological change. The PC
based financial analysis and trading software and training markets
are intensely competitive and characterized by the frequent entry of
new competitors and introductions of new software programs, features
and technical innovations. Although Registrant's software products
are technically advanced and run under industry leading Windows based
technical charting and analysis programs, numerous competitors are
already established in this marketplace. The Registrant will seek to
establish its market position through the sale of fully tested and
high quality trading software, and by making its trading solutions
software and training services available at reasonable cost to
customers through its direct and indirect marketing channels.
However, there can be no assurance that the Registrant will be
successful in this effort, or, if successful, that Registrant will
have the resources to sustain any early growth or market penetration
it may achieve.
There is a large number of established financial trading and trading
software companies. Many are larger than Registrant, have longer
operating histories, more established track records, greater name
recognition, a larger installed base of customers, and greater
financial, technical, sales, marketing and other resources.
Moreover, if Registrant achieves significant success in penetrating
the financial trading
19
<Page 20>
software and training business, financially
stronger companies may seek to enter this market and compete for
market share.
The market for online trading of stocks and commodities, the
provision of financial market data, various financial software
products and related services accessible to PC users is changing
rapidly. The recent applications growth and emergence of the
Internet as a low cost source of worldwide financial market data,
subscriptions, trade execution and research services, is already
threatening the existence of established data and information
vendors, as well as full service brokers. This creates technical,
competitive and business trends, the outcomes of which are uncertain.
7. Potential Trading Losses. Under its business plan, Registrant's
software will be used by Registrant to trade stocks, stock indexes,
futures contracts and international currencies. Due to the high
degree of market volatility for these trading items, as well as the
use of margin and leverage associated with such trading, there exists
the possibility of significant trading losses that could have a
materially adverse effect on Registrant's operating results and
financial condition. As shareholder/investor funds will be used in
these trading activities, there is a direct risk of loss to
shareholders that Registrant could lose significant equity capital on
trading, even if the Registrant were not using its own software.
8. Past software product performance is no assurance of future
performance. Any trading operation involving the use of leverage is
considered highly risky even when conducted by experienced
practitioners. The historic results of Registrant's simulated
trading performance are not as accurate and dependable a measure of
profitability as actual trading results, and past performance cannot
be guaranteed or necessarily assumed to continue in the future.
Potential investors must expect trading losses in actual trading
operations and potentially wide fluctuations in future quarter to
quarter financial performance.
9. Limited intellectual property protection and physical security.
Registrant depends on its ability to protect its core proprietary
software technology. In this regard, Registrant relies on such
protection by a combination of trade secrets, technical complexity,
common law copyright and trademark protection, non-disclosure
agreements, password protection and software encryption schemes, and
on the physical security of its source code. Despite these measures
and precautions, it may be possible for unauthorized third parties
to copy Registrant's products or obtain and use its proprietary
technology. To date, Registrant has not sought to obtain copyright
registration or patent protection for any of its software products,
though it may do so in the future. There can be no assurance,
however, that such registration will be granted if applied for. Also,
certain aspects of the Registrant's software products are not subject
to intellectual property protection in law, and to the extent such
protection might be available, practical and legal distinctions may
apply in different jurisdictions. In addition, there can be no
assurance that competitors will not develop similar technology,
products and services, and if they do, this could reduce the value of
the Registrant's proprietary technology and its ability to
effectively compete.
10. Possible high degree of volatility in the future price of
Registrant's stock. Factors such as news announcements on technical
developments, innovations by the Registrant, its competitors or third
parties, industry developments in high-technology companies in
general, general stock market conditions, changes in interest rates
or general economic conditions, unexpected and extreme general
20
<Page 21>
stock market price and volume fluctuations, or a lack of liquidity, may
individually or collectively have the effect of causing substantial
fluctuations in the traded price of the Registrant's shares. Changes
in the trading price of its shares may be unrelated to Registrant's
performance or its future prospects. In addition, investors in
Registrant's shares may lose their entire investment if Registrant
fails in its business.
12. Control by existing officers and directors. Registrant's
executive officers and directors currently own or control an
aggregate of 3,066,401 of the issued and outstanding shares of the
company which represents approximately 34.6% of the outstanding
shares as at April 30, 1999. As a result, these shareholders will
continue to be able to control the composition of Registrant's board
of directors and to have a significant influence over its affairs.
This concentration of ownership may have the effect of delaying,
deferring or preventing a future change of control of Registrant.
Under certain circumstances, such a limitation may be considered
adverse to the interests of other shareholders.
13. Dependence on financial industry. Registrant is affected by
general economic and regulatory conditions affecting national and
international financial markets. A worldwide economic downturn,
therefore, may have an adverse effect on Registrant's business,
operating results and/or financial condition.
14. Possible changes in derivatives market and the regulatory
environment. The Registrant's software provides pattern recognition
and market timing information related to stock indexes, currencies
and derivatives, including both futures and options. Derivatives
instruments have been involved in a number of well publicized recent
financial losses, including those involving Barings Bank and Orange
County, in California, and more recently, Long Term Capital
Management, among others. Such losses have led to increased
governmental scrutiny and potential new regulation of hedge funds and
derivatives markets generally. Any new regulatory requirements
affecting the sale or distribution of trading software or related
services may have the effect of imposing new and unexpected costs on
Registrant and this may affect future expenses and operating results.
There remains an ongoing risk of an adverse impact of possible new
governmental regulations on Registrant's business.
15. Technological change. The financial trading software marketplace
is characterized by constant and rapid technological change. There
is no assurance that the Registrant will be able to sustain the cost
of the research and development efforts required to continue to
compete and keep pace with this technological change. If Registrant
cannot continue to compete on a technical basis, this will likely
have a materially adverse effect on its operating results and
financial condition.
16. Potential product liability claims. The Registrant does not
maintain product liability insurance against bugs or defects in the
general performance of its software products. In accordance with
standard industry practice, established by Omega Research Inc., the
software license agreements entered into on the sale or license of
its products provides that all these risks are borne solely and
entirely by the customer. There can be no assurance that such
provisions will protect the Registrant from all potential product
liability claims in all markets in which it may sell its products or
offer its services.
17. Strategic marketing dependence on TradeStation and SuperCharts
software of Omega Research Inc. Registrant's software products, and
its strategic marketing and product development
21
<Page 22>
plans, depend to a
large extent on the continued existence of a serviceable installed
customer base of TradeStation and SuperCharts software products and
customers. There is a significant risk that the market leadership
now enjoyed by these Omega products, or their production, development
or technical support may change substantially or be discontinued
completely, which would have a direct and materially adverse effect
on Registrant's operating results and financial condition.
18. Year 2000 potential negative business impact and risks. The Year
2000 computer problem may have an adverse and unpredictable affect on
Registrant's operations due largely to its dependence on Omega
Research Inc.'s TradeStation product as the platform upon which its
main software products operate. While Omega has disclosed plans and
intentions to make its TradeStation software fully Year 2000
compliant, and appears technically and financially able to do so, to
date compliance has not been achieved in its main software product,
TradeStation. If Omega were to fail to make its main products Year
2000 compliant, there would be a materially adverse impact on
Registrant's sales and business operations that would likely result
in increased losses.
In addition, Registrant depends on third-party financial data vendors
of various market exchanges to supply real-time data in order to
carry out its trading operations. To the extent that many such data
suppliers may be adversely affected by the Year 2000 compliance
issue, this will also have the effect of limiting Registrant's actual
trading operations, and may adversely affect its financial results.
In order to get its internal operations Year 2000 compliant,
Registrant needs to download and load the Microsoft Windows 95 and
Windows 98 Year 2000 patch for its Windows 95 and 98 operating
systems and purchase an off the shelf utility program to fix any
problems in the bios and clocks of its computers.
Registrant has expended approximately $5,500 of internal resources to
date (the time of M. Gossland and M. Paauwe) in identifying and
fixing Year 2000 related problems, and expects to expend an
additional $4,500 of the same internal resources, and the purchase of
a utility software, before having remedied identified potential
internal Year 2000 problems.
In the event the potential Year 2000 problems are not completely
dealt with, Registrant runs the risk of interruption to, or shut down
of, its proposed Internet Subscription Service, a halt in the selling
of its software, and/or an interruption in its ability to trade and
analyze data. Similar negative results would ensure if the US stock
exchanges or US commodities markets upon which it depends for its
data, ceased operations, or if Omega failed to develop a Year 2000
patch for its software.
Registrant plans to download the appropriate Microsoft Year 2000
patch and buy a utility program in the future, but has no contingency
plan in the event Omega fails to produce a working patch for its
software, or any of its third-party data providers cease operation as
a result of a year 2000 problem.
ITEM 2. Description of Property
Registrant owns no real property or real property rights.
Registrant's principal business office is a rented facility located
at 201 Selby Street, Nanaimo, British Columbia, Canada V9R 2R2. Due
to the set-up of Registrant's operations many business functions are
undertaken from other confidential, remote locations in British
Columbia, not owned by the company.
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<Page 23>
Registrant's proprietary financial trading software products and
technologies generally fall into five categories:
1. TradeStation based proprietary stock index trading systems and
software. These are Registrant designed neural network and expert
system software based custom trading indicators and software based
trading methods, installed on a computer with the third-party
software programs TradeStation or SuperCharts. They are designed
to provide short-term, predictive market timing information on the
US stock market indexes (such as the S&P 500 index), based on
advanced pattern recognition methods. The trading indicators and
systems are designed for trading stock futures contracts on the
S&P500, OEX, NYSE and NASDAQ markets, and they also provide market
timing information for those indices for US stock, stock options
and index options brokers, traders and investors.
2. TradeStation based proprietary world currency trading systems and
software. These are Registrant designed software based trading
methods for trading world currencies including the Japanese Yen,
the German Mark, the Swiss Franc and the British Pound. To
operate, the software needs to be installed on a computer with the
third party software programs TradeStation or SuperCharts. The
methods are designed for intermediate term trading. Trades are
typically held for weeks or months. The currency trading methods
can also be easily adapted to trading in any other high volume
world currencies.
3. VirtualTrader product software written in Microsoft Visual Basic
4.0 and Omega's Easy Language software.
4. Proprietary software testing and trading system development tools.
These are proprietary software programs written in Microsoft
Visual Basic 4.0 and 5.0, programmed into Microsoft Excel, or
written in Omega's Easy Language trading system development
language. They are basically a group of software utilities,
authored and owned by Registrant, consisting of a series of
specialized trading system development software tools that are
used in Registrant's ongoing software research and development
programs to perform data manipulation, custom system testing,
mathematical functions and code development and software debugging
capabilities not available in off-the-shelf software. This
software now provides Registrant with the advantages of rapid
systems research, systems testing, software debugging and trading
system validation and deployment.
5. Internet web site software for the Company's web site. Registrant
has a body of custom software developed for its web site that
facilitates ongoing maintenance. This software is written in PERL
scripts and includes all the custom graphics and other HTML code
for the web site.
ITEM 3. Legal Proceedings
Registrant is not currently a party to any material legal
proceedings; nor, to Registrant knowledge, are there any legal
proceeding pending or threatened of which Registrant would be a
party, or any of its property or assets are likely to be subject.
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<Page 24>
ITEM 4. Control of Registrant
As far as known to Registrant, and except as disclosed herein,
Registrant is not directly or indirectly owned or controlled by any
other corporation or by any foreign government.
The following table sets forth as of May 31, 1999 information with
respect to record ownership of (a) any person or company who is known
to Registrant to be the owner of more than 10% of any class of the
Registrant's voting securities, and (b) the total amount of any class
of the Registrant's voting securities owned by the officers and
directors as a group.
- ---------------------------------------------------------------------
(1) (2) (3) (4)
Title or class Identity of Person Amount Owned Percent of Class
or Group
- ---------------------------------------------------------------------
Common Shares TTN Escrow Capital 3,000,000 34.0%
without par value Corp.
Common Shares New Equities, Inc. 1,435,600 16.2%
without par value
Common Shares Directors and 3,066,401 34.6%
without par value Officers as a Group
Note 1: TTN Escrow Capital Corp. is owned by Michael Paauwe (66.67%)
and Michael Gossland (33.33%), who are officers and directors of the
Registrant.
Note 2: New Equities, Inc. is an investment company resident in
Nassua, Bahamas.
As of the date hereof, there are no arrangements known to Registrant,
the operation of which may at a subsequent date result in a change in
control of the Registrant.
ITEM 5. Nature of Trading Market
Registrant's shares are listed and traded on the Vancouver Stock
Exchange in British Columbia, Canada. Registrant's shares are not
currently trading on any US stock exchange nor on the over-the-
counter market, and, accordingly, there is currently no public market
for Registrant's common stock in the United States. There can be no
assurance that any such market will develop after the effective date
of this Registration Statement. Registrant plans to list its
securities on the US NASD Over The Counter ("OTC") Bulletin Board
market during the next few months, but no assurance can be given that
such listing will occur.
Trading in Registrant's shares commenced in Canada on the Vancouver
Stock Exchange on July 24, 1996. The following table sets-forth the
high and low sales prices for Registrant's shares for the quarterly
periods shown, expressed in Canadian Dollars and the trading volume
in number of shares for the applicable time period.
24
<Page 25>
- ---------------------------------------------------------------------
(1) (2) (3) (4)
Year and Month High Low Volume
- ---------------------------------------------------------------------
February 1,1999 - April 30, 1999 1.25 .88 556,100
November 1,1998 - January 31, 1999 1.35 .85 425,400
August 1, 1998 - October 31, 1998 1.48 1.20 294,800
May 1, 1998 - July 31, 1998 1.55 1.41 455,350
February 1, 1998 - April 30, 1998 1.49 1.30 765,926
November 1, 1997 - January 31, 1998 1.44 1.25 224,900
August 1, 1997 - October 31, 1997 1.60 1.20 622,490
May 1, 1997 - July 31, 1997 1.35 1.05 406,200
February 1, 1997 - April 30, 1997 1.60 1.30 812,400
November 1, 1996 - January 31, 1997 1.85 1.43 814,950
The Vancouver Stock Exchange was established in Vancouver, British
Columbia, Canada in 1907 by a special Act of the British Columbia
(B.C.) Legislature. In 1998, it was the fourth largest business
stock exchange in North America for trading volume, after NASDAQ, the
New York and Toronto stock exchanges. During 1998, nearly 1400
companies were listed and over 5.2 billion shares worth $3.79 billion
were traded.
The VSE is overseen by the Government of B.C. through the B.C.
Securities Commission. The VSE is a self-regulating organization
owned and operated by 54 national and regional member firms, holding
70 seats on the exchange. The VSE's Board of Governors has 22
members, of which one-third are public governors appointed by the
Provincial Government. The VSE President sits on the Board and the
remainder are member governors, elected annually from the brokerage
industry. The Chair of Board of Governors is a public governor.
With the implementation of its Vancouver Computerized Trading (VCT)
system in January 1990, the VSE became the first stock exchange in
North America to convert from the traditional open-outcry auction
method to a fully automated trade execution system. VCT provides
complete, real-time, online quotations, information on the depth of
the market, accelerates the trading process and improves surveillance
capabilities. In 1998, 2.3 million orders were placed through VCT
resulting in approximately 1.2 million trades. There were over 5.2
billion shares traded valued at $3.79 billion Canadian.
A listed company must file prompt notice with the Exchange of any
proposed significant or material change in its business, property,
affairs or undertakings. The notice must be filed at least 30 days
prior to completion of the proposed change or transaction unless
specific rules or policies of the Exchange permit a shorter filing
requirement.
A reporting issuer must prepare and file with the Exchange and the
B.C. Securities Commission and mail to shareholders the following
financial reports:
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a) Interim Financial Statements - for the three, six and nine month
periods in each financial year - together with a comparative
financial statement to the corresponding period in the previous
financial year; and
b) Annual Comparative Financial Statements - audited comparative
financial statements approved and signed by the directors.
The VSE has two tiers of companies as follows:
ADVANCED COMPANIES. Companies that fall into these categories meet
higher asset, market value and shareholder distribution requirements
than those classified as Venture Companies.
VENTURE BOARD. A classification of VSE-listed companies that are in
the early stages of development and that meet the minimum asset,
market value and shareholder distribution requirements. Approximately
75 per cent of VSE-listed companies fall into this category.
Registrant's shares have traded on the Venture Board since completion
of its initial public offering in July 1996.
As of April 30, 1998 there are approximately 50,000 common shares
representing .5 % of Registrant's outstanding shares held of record
by one person residing in the United States. Registrant estimates,
but is not sure, that there may be a total of four or five beneficial
holders of its common shares holding approximately 350,000 shares of
its stock in the United States, held in both registered and
unregistered form.
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders
Except as discussed in Item 7 as to taxes and withholding, the
Registrant is not aware of any Canadian federal or provincial laws,
decrees, or regulations that restrict the export or import of
capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to non-resident
holders of Registrant's shares.
Registrant is not aware of any limitations on the right of non-
Canadian owners to hold or vote the common shares imposed by Canadian
federal or provincial law or by the Memorandum or Articles of the
Registrant.
The Investment Canada Act (the "Act") governs acquisitions of
Canadian businesses by non-Canadian persons or entities. The Act
provides, among other things, for a review of an investment in
certain Canadian businesses having in excess of $25 million in gross
assets.
The Act provides that a United States investor can hold up to 1/3 of
the issued and outstanding capital of a Canadian corporation without
being deemed a "control person", and that a United States investor
holding greater than 1/3 but less than 1/2 of the issued and
outstanding capital of a Canadian corporation is deemed to be a
control person subject to a rebuttable presumption to the contrary
(i.e. providing evidence of another control or control group holding
a greater number of shares). If a United
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States investor wishes to
acquire "control" of a Canadian corporation, such investor is
required to obtain approval if the asset value of the corporation is
greater than $178 million Canadian. If the asset value of the
corporation at the time of the proposed acquisition is less than $178
million Canadian, the investor wishing to acquire "control" need only
file a form indicating his or her intentions. The Act also provides
that if United States investors collectively hold greater than 50% of
the issued and outstanding shares of the corporation, there is a
rebuttable presumption that the corporation's status has changed to
that of an American corporation. The effect of the change in status
is that if the control of the Registrant is deemed to be held by
United States investors, and if Registrant then wished to make
investments of greater than $178 million Canadian in Canada, it would
need governmental approval.
Certain transactions involving Registrant's Common Shares would be
exempt from the Investment Canada Act, including: (a) an acquisition
of Common Shares made in connection with the person's business as a
trader or dealer in securities; (b) an acquisition of control in
connection with the realization of a security interest granted for a
loan or other financial assistance, and not for any purpose related
to the provisions of the Investment Canada Act; and (c) an
acquisition of control by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the
ultimate direct or indirect control in fact of the Company, through
the ownership of voting interests, remains unchanged.
Provisions of the Investment Canada Act are complex, and any non-
Canadian contemplating an investment to acquire control of Registrant
should consult professional advisors as to whether and how the
Investment Canada Act might apply.
ITEM 7. Taxation
The following paragraphs set-forth a summary of all material
information regarding Canadian income taxation in connection with the
ownership of Registrant's shares. Note that these tax considerations
are stated in general terms and should not be considered to be a
substitute for independent professional advice on the subject of
taxation of Canadian shares held by US stockholders. There may also
be relevant state, or local tax considerations that are not discussed
here.
Registrant's management believes that the following general summary
fairly describes the principal federal income tax consequences
applicable to a holder of Registrant's common shares who is a
resident of the United States and who is not a resident of Canada and
who does not use or hold, and is not deemed to use or hold, his
common shares in connection with carrying on a business in Canada (a
"non-resident holder").
This summary is based upon the current provisions of the Income Tax
Act (Canada) (the "ITA"), the regulations thereunder (the
"Regulations"), the current publicly announced administrative
assessing policies of Revenue Canada, Taxation, and all specific
proposals (the "Tax Proposals") to amend the ITA and Regulations
announced by the Minister of Finance (Canada) prior to the date
hereof. The description is not exhaustive of all possible Canadian
federal income tax consequences, and, except for the Tax Proposals,
does not take into account or anticipate any changes in law, whether
by legislative, governmental or judicial action, nor does it take
into account provincial or foreign tax consideration which may differ
significantly from those discussed herein.
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DIVIDENDS
Dividends paid or credited on Registrant's shares to a non-resident
holder will be subject to withholding tax. The Canada-U.S. Income
Convention (1980) provides that the normal 25% withholding tax rate
is reduced to 15% on dividends paid or credited or deemed paid on
shares of a corporation resident in Canada (such as Registrant) to a
resident of the United States, and also provides, pursuant to a
recently ratified protocol, for a further reduction of this rate to
5% for dividends paid or credited on or after January 1, 1997 if the
beneficial owner of the dividends is a corporation which is a
resident of the United States and owns at least 10% of the voting
shares of the Company paying the dividend.
If a Non-Resident Security Holder carries on business in Canada
through a "permanent establishment" or performs independent personal
services from a fixed base in Canada, and the holding of shares in
respect of which the dividends are paid is effectively connected with
such permanent establishment or fixed base, the limitations set out
in the preceding paragraph will not apply. Instead, the dividends
will be taxed using the rates and rules of taxation generally
applicable to residents of Canada.
A "permanent establishment" of a Non-Resident Security Holder can
generally be described as a fixed place of business through which the
business of a resident is wholly or partly carried on.
CAPITAL GAINS
A non-resident of Canada is not subject to the tax under the ITA in
respect of a capital gain realized upon the disposition of a share of
a class that is listed on a prescribed stock exchange unless the
share represents "taxable Canadian property" to the holder thereof.
A common share of the Registrant will be taxable Canadian property to
a non-resident holder if, at any time during the period of five years
immediately preceding the disposition, the non-resident holder,
persons with whom the non-resident holder did not deal at arm's
length, or the non-resident holder together with persons with whom he
did not deal at arm's length, owned 25% or more of the issued shares
of any class or series of the Registrant.
Where a resident of the United States meets the 25% ownership tests
described above, the person's capital gains realized on the
disposition of Registrant's shares will be subject to Canadian income
tax if the value of Registrant's shares is principally attributed to
real estate, including the right to explore for or exploit mineral
deposits, sources and other natural resources. Where a resident of
the United States meets the 25% ownership test but the Registrant
fails the value of assets test, that person's capital gains realized
on the disposition of Registrant's shares would be eligible for
exemption under the Canada - U.S. Income Tax Convention (1980) (the
"Treaty") unless the U.S. resident had resided in Canada at any time
in the ten-year period immediately preceding the disposition and was
resident in Canada for 120 months during any 20 year period preceding
the disposition.
DEEMED DISPOSITION ON DEATH
Where a resident of the United States owns shares that are taxable
Canadian property as discussed above, that person will be liable for
Canadian income tax on his capital gains or losses accrued to the
date of death. Where the decreased transfers the property to his or
her spouse or a qualifying spouse
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trust, the deceased's
representative may be eligible to apply to defer the tax on the
accrued gain pursuant to the Treaty. Where the application is
accepted, the surviving spouse would pay tax on the capital gain
accrued to the subsequent date of death.
ITEM 8. Selected Financial Data
The following table summarizes certain selected financial information
of Registrant (stated in Canadian dollars) prepared in accordance
with Canadian generally accepted accounting principles (Canadian
GAAP). The table also summarizes certain corresponding information
prepared in accordance with United States generally accepted
accounting principles (US GAAP). The information in the table was
extracted from the more detailed financial statements for the fiscal
year ended October 31, 1994 through the fiscal year ended October 31,
1998, inclusive, and the related notes included therein, and should
be read in conjunction with such financial statements and with the
information appearing under the heading "Item 9 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Reference is made to Note 8 of Registrant's October 31, 1998
financial statement included herewith for a discussion of the
material differences between Canadian GAAP and US GAAP, and their
effects on Registrant's financial statements. To date, Registrant has
not generated sufficient cash flow from operations to fund ongoing
operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity
securities and its ability to continue operations is dependent on the
ability of Registrant to increase revenues from operations or to
obtain additional financing or a combination of both. See "Item 9 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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SUMMARY OF FINANCIAL DATA
- ---------------------------------------------------------------------
Fiscal Years ended October 31
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------
Revenue $ 123,658 $ 92,801 $ 21,213 $ 11,165 $ ---
Expenses $ 557,517 $ 293,615 $ 291,805 $ 336,058 $ 75,058
Interest
& Other
Income $ 41,457 $ 58,581 $ 35,290 $ 9,490 $ ---
Net Loss
for the year
Canadian
GAAP $ 392,402 $ 142,233 $ 235,302 $ 315,403 $ 75,058
US GAAP $ 392,402 $ 142,233 $ 235,302 $ 315,403 $ 75,058
Net Loss Per Share(1)
Canadian GAAP $(.04) $(.02) $(.03) $(.78) $ 75,058
US GAAP $(.07) $(.03) $(.06) $(.78) $ 75,058
Net Working
Capital $1,340,017 $1,672,725 $1,579,827 $ 902,720 $ 77,905
Total Assets
Canadian
GAAP $1,672,903 $1,924,638 $1,776,793 $ 977,238 $106,436
US GAAP $1,672,903 $1,924,638 $1,776,793 $ 977,238 $106,436
Long Term
Obligations $NIL $NIL $NIL $NIL $NIL
_____________________________________________________________________
(1) Calculated based on the average weighted number of shares
outstanding on a non-diluted basis. 3,000,000 escrow shares, which
are issuable based on future financial performance (see Item 4.
Control of Registrant) are excluded from the average weighted
number of shares outstanding on a non-diluted basis, in
calculating net loss per share under US GAAP, but are included in
the same calculation under Canadian GAAP. However, this does not
affect Net Loss for the year and therefore that figure in the
table above remains the same under both US GAAP and Canadian GAAP.
To date, Registrant has paid no dividends on its shares, and does not
anticipate doing so in the foreseeable future. The declaration of
dividends on Registrant's Common Shares is within the discretion of
Registrant's board of directors and will depend upon, among other
factors, earnings, capital requirements, and the operating and
financial condition of Registrant.
EXCHANGE RATES
As at June 28,1999, the median bidding exchange rate of Canadian
dollars into United States dollars was $1.4695 Canadian to $1.00
United States.
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The following table sets forth, for the periods and dates indicated,
certain information concerning exchange rates of United States and
Canadian dollars. All the figures shown represent noon buying rates
for cable transfers in New York City, certified for customs purposes
by the Federal Reserve Bank of New York. The average rate means the
average of the exchange rates on the last day of each month during a
year. The source of this data is the Federal Reserve Bulletin and
Digest.
Period Period End Average High Low
- ------- ---------- ------- ---- ----
(CDN$/US$)
1994 1.4030 1.3699 1.4078 1.3103
1995 1.3655 1.3689 1.4238 1.3285
1996 1.3697 1.3644 1.3822 1.3310
1997 1.4288 1.3894 1.4398 1.3357
1998 1.5375 1.4892 1.5770 1.4075
ITEM 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction
with Registrant's consolidated financial statements and notes thereto
appearing under Item 17 - "Financial Statements".
GENERAL OVERVIEW OF REVENUE AND EXPENSES
Registrant is a development stage company and presently receives
income from the following sources; software sales and licenses,
trading income from trading the company's own cash, and interest
income earned on cash balances held in working capital. In the
future, revenue is also expected to be generated from the planned
Internet Subscription Service to the stock market information
published on Registrant's website.
Interest and other income reported in the financial statements totals
$153,350 for the three and one half years ended April 30, 1999. The
interest income earned on cash balances is from Registrant's own
cash, and includes interest earned on short-term money market funds
and short term treasury bills on corporate cash balances held in
broker accounts for the purposes of trading. Such cash balances are
reported in the financial statements as 'Cash, due from brokers, and
short term investments'. Registrant is not a broker dealer, does not
presently trade any third-party funds, nor does it hold in its
control any cash balances from any third parties.
Existing software products, including the WCT, SIT and VT software,
have only been test marketed up to the present stage of development,
generating total sales and license revenues through April 30, 1999 of
$149,631. VT software is delivered to customers by way of electronic
download over the internet or alternatively the software is shipped
to customers directly on disks. The current price of the VT software
is US $1,995.
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Income or losses from trading of fully developed and tested trading
systems software is reported when earned, as trading income or
trading loss, in each period, as the case may be. Income or losses
from trading systems still in development is reported in the
financial statements as demonstration and testing income or expense,
in each period, as the case may be.
Trading Income was first reported in the fiscal year ended October
31, 1998 after the WCT and SIT systems completed development and were
fully installed in April 1998. Since that time, a trading program
has been carried out, in part, to show the functionality and
efficiency of the software technologies developed. Trading income
from stock index and currency trading reported in fiscal year ended
October 31, 1998 and the six months ended April 30, 1999 totaled
$134,485, $70,607 in the Fiscal Year Ended October 31, 1998 and
$63,878 in the six months ended April 30, 1999.
Demonstration and testing income from trading systems under
development was reported for fiscal year ended October 31, 1997 in
the amount of $56,761.00. There was no development and testing income
reported for fiscal years 1998 and 1996. Demonstration and testing
expenses on systems under development was reported for the fiscal
year ended October 31, 1998 in the amount $42,490.00 mainly for SIT
and stock day trading systems in development and in the amount of
$57,934.00 for the fiscal year ended October 31, 1996, from WCT and
SIT systems under development. There was no demonstration and
testing expenses reported for fiscal year 1997 because gains in that
fiscal year happened to exceed losses on the trading systems under
development. For full details of all trading activities for the past
three years refer to the summary financial information set out in the
section entitled BREAKDOWN OF TOTAL SALES AND COSTS TO DATE.
Daily market commentary and related short term stock market trading
indicators have been published on Registrant's website on a
demonstration basis at no cost to visitors since October 1996.
Traffic to the website generated 45,000 hits (website page views) in
May 1999, rising from 27,000 hits in October 1998. Website traffic
is expected to rise further upon the launch of a sustained
advertising and marketing campaign in connection with the Internet
Subscription Service that is expected to commence in October 1999.
This service is expected to be offered to subscribers at between US
$100 and US $200 per month, depending on the features subscribed to.
CANADIAN GAAP vs. US GAAP
Registrant's consolidated financial statements are prepared in
accordance with generally accepted accounting principles used in
Canada (Canadian GAAP). Material differences resulting from the
application of generally accepted accounting principles in the United
States (US GAAP) are described in Note 8 to the October 31, 1998
fiscal year end audited financial statements provided under Item 17.
Unless expressly stated otherwise, all references to dollar amounts
in this section are in Canadian dollars in accordance with Canadian
GAAP. In the case of the Registrant, a material impact of the
differences between Canadian GAAP and US GAAP in the financial
statements relates to the existence of the 3,000,000 escrow shares
and the fact that these shares are not considered issued under US
GAAP for purposes of calculating the net loss per share. Therefore,
as noted in the discussion below, the net loss per share is increased
under US GAAP versus that shown under Canadian GAAP.
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Note 8 to the audited fiscal year ended October 31, 1998 financial
statements of Registrant, included herein, discusses the material
differences between Canadian GAAP and US GAAP, and their effect on
Registrant's financial statements. Generally, under US GAAP, the loss
per share is calculated on the basis that the weighted average number
of shares outstanding during the year excluding shares that are
subject to escrow restrictions, unless the conditions for issuance
are currently met or will be met by the mere passage of time.
Registrant has 3,000,000 escrowed shares that are subject to release
on the basis of an earn out formula and not merely by the passage of
time and this has resulted in the calculation of a greater loss per
share under US GAAP than is the case under Canadian GAAP. The
existence and terms of release of the escrow shares affects the net
loss per share calculations in the reconciliation between Canadian
GAAP and US GAAP, due to the fact that under US GAAP, shares
conditionally issuable are not to be used in the average number of
shares outstanding in the calculation of net loss per share. Under
Canadian GAAP these escrow shares are used in the calculation of the
average number of shares outstanding for purposes of the net loss per
share calculations. The result is that net loss for the year is the
same under both Canadian GAAP and US GAAP but the net loss per share
differs according to the reduced number of average shares outstanding
as used in the loss per share calculations. The resulting differences
in the loss per share calculations are as set forth in the financial
statements for the FYE October 31, 1998 and in the table referred to
above in Item 8 - "Selected Financial Data".
In addition, under US GAAP, the granting of stock options to
directors, officers and employees may give rise to differences in the
charge to income for compensation. Registrant has prepared its
financial statements in accordance with APB 25 under which stock
options are measured by the intrinsic value method whereby directors,
officers and employee compensation cost is limited to the excess of
the quoted market price at date of grant over the option exercise
price. Since the exercise price equaled the quoted market price at
the dates the stock options were granted, there was no compensation
cost to be recognized. Had Registrant valued the options using a
fair market value method (as required under SFAS 123) such as the
Black-Scholes option pricing model, there would be an increase in
employee and director compensation costs charged to income of $Nil in
1998, $Nil in 1997 and $6,350 in 1996. Thus, in the case of
Registrant, US GAAP results in an increase to compensation totaling
$6,350, as described more fully in Note 8 to the audited fiscal year
ended October 31, 1998 financial statements of Registrant. This
difference is also reflected in the loss per share calculations as
set-forth in the table referred to above in Item 8 - "Selected
Financial Data", together with the impact of the escrow shares, as
noted in the discussion above.
OVERVIEW OF BUSINESS OPERATIONS
Registrant is a financial software development company still in a
development stage. Registrant is engaged in the development of
proprietary software based financial trading systems and technologies
with the aim of developing such proprietary software technologies to
a stage where they can be exploited for profit. Existing software
products have been test marketed up to the present stage of
development and are also being used internally in Registrant's own
operations with the objective of eventually establishing consistent
revenues from profitable trading operations, software sales and a
planned internet financial website subscription service revenues
("Internet Subscription Service"). The application of Registrant's
VirtualTrader software to stock trading and the potential to apply
this technology in a growing internet based electronic trading
environment was, until recently, the focus of Registrant's
development efforts and marketing plans. Efforts are now being
directed to the
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development and marketing launch of Registrant's
planned Internet Subscription Service. Registrant's Internet
Subscription Service will be an internet based, financial
subscription service that provides subscribers with daily US stock
market commentary and technical analysis of individual high quality,
high volume US stocks. This service will be targeted at
stockbrokers, traders and investors, on a pre-paid monthly
subscription basis. Management believes that its existing trading
systems and software technologies can be profitably exploited in its
in-house trading and Internet Subscription Service with a sustained
marketing and sales effort and by the formation of appropriate
strategic business alliances and software license agreements with
established firms. A new full-time Manager of Marketing and Sales
was hired in November 1998 for this purpose. Also, in March 1999 a
Special Projects Coordinator was retained to manage new financial
subscription advertising and promotions planning, corporate marketing
media development and new internet website development and publishing
projects for Registrant.
Prior to the current fiscal year and during 1998, Registrant's
operations were primarily directed at developing trading systems
software with the VT software product, related market testing and
introductory sales. As a result, to date, Registrant has received
only limited revenues from software sales and licenses, in-house
trading income and interest income on cash balances from working
capital.
RESULTS OF OPERATIONS
Stock index and currencies trading revenues have started to be more
consistent since formally establishing the online trading systems in
late April 1998, although they remain small because of limited
trading activity, with only a few contracts being traded per signal.
Trading income, by its nature, remains subject to periodic draw-down
on a quarter by quarter basis in the ordinary course of Registrant's
trading activities. However, the overall net trading results since
May 1, 1998 are positive as noted below and are expected to reduce
overall losses in operations in the current fiscal period and
contribute to profitability in the future.
In the period from August 1, 1998 to October 31, 1998, Registrant
completed development and software testing of its application of the
VT software to day-trading quality, high volume, US big-board stocks.
The testing consisted of completing hundreds of simulated day-trades
inside Registrant's VT software, as well as executing approximately
150 test day-trades over the internet with a US discount brokerage
firm.
A positive independent product review of the VT software was
published in the September 1998 issue of Technical Analysis of Stocks
and Commodities magazine. This increased exposure for the product in
the US market and internationally, and initially produced a larger
response rate than direct mail campaigns to date. This indicates
that greater coverage in the form of third-party publicity will be
needed to improve VT software sales in future.
As a result of Registrant's limited sales and trading activity to
date, inflation and changing prices have not had a material effect on
the Registrant's net sales, revenues and income from continuing
operations.
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Six months ended April 30, 1999 compared to FYE October 31, 1998
As at April 30, 1999 Registrant had cash balances of $1,073,077 and
net working capital of $1,078,842, compared to cash balances of
$1,363,816 and net working capital of $1,340,017 at FYE October 31,
1998.
Revenue in this period from software sales and trading income was
$31,438 and $63,878 respectively, compared to $53,051 and $70,607
respectively in the FYE October 31, 1998. These revenues increased by
$66,100 over the corresponding six month period in 1998 as trading
became profitable and software sales increased. Interest and other
income dropped to $18,022 during the period compared to $41,457 in
FYE October 31, 1998 and compared to $30,236 in the same six month
period in the previous year. Interest income is gradually dropping as
cash balances in working capital drop from period to period.
Total assets dropped to $1,447,931 compared to $1,672,903 at FYE
October 31, 1998 due to the loss for the period. The net loss for the
period was $201,787 compared to $157,448 in the same period of the
prior year and compared to a net loss of $392,402 for FYE October 31,
1998. The increase in the net loss for the period compared to the
same period last year is mainly the result of a $20,000 increase in
Professional fees expenses incurred in connection with a regulatory
filing in the US, an increase in salaries and benefits caused by
increased staffing, and an increase in investor relations expenses of
$19,338 compared to $Nil in the same period of the prior year.
Registrant invested $19,576 in computer system purchases and $84,663
in software and systems development during the period.
After discontinuing on April 1, 1999, the stock day trading joint
venture with Wolverton Securities Ltd. previously announced in
November 1998, corporate development efforts have been directed at
further research and development of the planned internet website,
demonstrating and improving the marketability of the published daily
market commentary, and planning and developing the new Internet
Subscription Service.
In April and May 1999 Registrant began research and development of
new multimedia internet software and related internet e-commerce
software programs expected to be publicly announced before the end of
the fourth quarter of the current fiscal period. This multimedia and
internet software and all related business development by the
Registrant is expected to be sold to third parties prior to the end
of the current fiscal period.
During April, May and June 1999, Registrant registered for its own
planned use, the following Internet Domain names, as part of its
future internet business plans: TitanRadarScreen.com,
WorldMarketScan.com and SeedStockCapital.com. RadarScreen is a new
financial software program recently developed and released by Omega
Research Inc. viewable on the internet at omegaresearch.com.
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FYE October 31, 1998 compared to FYE October 31, 1997
At the end of this last fiscal year end reporting period, Registrant
had cash balances of $1,363,816 and net working capital of
$1,340,017, compared to cash balances of $1,667,530 and net working
capital of $1,672,725 at October 31, 1997.
Total revenue for the year increased to $123,658 (not including
$41,457 in Interest and other income) compared to $92,801 ( not
including $58,581 in Interest and other income) in the previous year
arising from small increases in software sales and trading income.
Total assets dropped to $1,672,903 from $1,924,638 at October 31,
1997. This reflects a net loss in operations for the fiscal year
ended October 31, 1998 of $392,402, or $.04 per share, compared to a
net loss of $142,233, or $.02 per share in the year ended October 31,
1997. The cash loss in operations for the fiscal period ended October
31, 1998 was $287,898 compared to $61,560 in the fiscal year ended
October 31, 1997. The $226,338 increased cash loss in operations came
about as a result of the following factors, in combination.
Advertising, marketing and promotion expenses jumped by $81,142 over
the prior period as marketing efforts to introduce Registrant and its
products to the institutional sector were scaled up. Management fees
and salaries and benefits also increased during the period compared
to the last year by $36,110. Investor relations expenses were
incurred for the first time in the amount of $31,888 as a result of
the costs of presentations to stock brokers and potential investors
in Europe and in offshore financial markets. Demonstration and
testing expenses of $42,490 were incurred, an increase from $NIL the
previous year, which sum included new increased costs from VT related
stock day trading activities. These increased expenses include and
reflect the costs of hundreds of small scale test trades being
conducted over the internet with related commission costs, to
develop, test and validate the stock day trading systems under
development.
Pay scales of a key employee were increased and management fees
expense and software and systems development costs increased as the
result of re-negotiated base monthly contract rates effective January
1, 1998 (see "Related Party Transactions") for officers Paauwe and
Gossland . First time management bonuses of $20,000 were paid to each
of Gossland and Paauwe, and directors' fees totaling $5,000 were paid
to the two outside directors Paul Shatzko and Robert Shatzko.
Marketing and general corporate promotions expenses rose compared to
prior periods due to efforts to increase corporate business exposure
in the US and Europe. Payments averaging approximately US$8,000 per
month since December 1997 covering marketing promotions expenses were
made to an independent contractor who is an associate of one of the
directors. This covered general corporate promotion, initial
marketing efforts and customer and shareholder liaison expenses in
connection with the promotion and licensing of the WCT systems in
London England, negotiations on promotions with public relations
firms in Europe, discussions and negotiations with US market makers
for sponsorship on a US bulletin board listing for Registrant,
promotion to offshore investment groups of the WCT systems,
presentations of Registrant's technology to Canadian banks, Canadian
brokerages and high net-worth investors, negotiations on product
reseller arrangements with US firms, evaluation, monitoring and
reporting on the growth of new online trading and the impact on VT
development, and ongoing monthly market research and reporting.
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<Page 37>
During this period Registrant licensed its WCT trading software for a
period of twelve months to an international money manager based in
London. This resulted in the securing of an independent testimonial
as to the profitability of the WCT software when applied to currency
hedging in international stock portfolio management following use by
this client. This testimonial is expected to form the basis for
future European software marketing efforts..
Expenditures on software and systems development during the period
were $198,718. This compares to expenditures of $146,134 in the
fiscal year ended October 31, 1997. These expenditures on software
and systems development were primarily the result of developing the
stock day-trading and position trading simulations capability of the
VT software and the costs of solving related stock market data
conversion problems necessary to facilitate the development of that
that application.
The main development project on the VT stock day-trading software
application neared completion during this period. Trading income
improved over prior period testing results because the position
trading systems went formally online in April of 1998. Trading income
of $70,607 offset demonstration and testing expenses for the year of
$42,490. Actual trading operations started to contribute to
operations. In sum, the better contribution to operations from
trading during this period is the result of having substantially
completed trading system development of the stock index trading
systems effective in April 1998.
Cash balances were supplemented by the exercise in May 1998 of
$131,250 in broker warrants by Yorkton Securities Inc. of Calgary,
Alberta, Canada. These agent warrants were still outstanding from
the agency agreement related to the initial public offering completed
in British Columbia in July, 1996. This exercise of broker warrants
contributed funds to increase expenditures on travel, corporate
promotion and investor relations. Travel, marketing and promotion
expenditures increased as the result of efforts to promote
Registrant's software and systems technology to new potential US
Canadian and European institutional clients.
A first stage direct mail campaign on the VT software product was
initiated during the second quarter with limited results. The
effectiveness of advertising and marketing programs to date on sales
of the VirtualTrader software into the futures trading market segment
has been limited. The market size of this segment is small and this
is reflected in the relatively small level of software sales to date.
During late 1998 the focus of further applications and software
development work on the VirtualTrader shifted to electronic, high
volume NASDAQ and NYSE stock day-trading applications. Development of
this new application resulted in unplanned delays, extra software
testing and larger development expenditures in the most recent fiscal
year.
Applications work on the VT stock trading application neared
completion during the final quarter ending October 1998, and as noted
above, actual online system testing started in September 1998.
Management believes that if profitability in this internet based
electronic stock trading application of VT can be more consistently
demonstrated in actual trading operations and the planned Internet
Subscription Service successfully launched, the market for the VT
product will be easier to establish and software sales revenues will
rise accordingly in future periods.
37
<Page 38>
FYE October 31, 1997 compared to FYE October 31, 1996
As of October 31, 1997 total assets were $1,924,638, up from total
assets of $1,776,793 as of October 31, 1996. Registrant had cash
balances of $1,667,530 and net working capital of $1,672,725 compared
to cash balances of $1,590,589 and net working capital of $1,579,827
as of October 31, 1996. This reflects a net loss in operations for
the period of $142,233 or $.02 per share compared to a net loss of
$235,302 or $.03 per share for the fiscal year ended October 31,
1996.
Share capital issuance during the period totaled $302,400 as the
result of a private placement that was completed in December 1996.
The cash loss in operations for the period was $57,936 compared to
$198,074 in the fiscal year ended October 31, 1996. Total revenue
jumped to $92,801 from $21,213 the previous year. This was mainly the
result of improved trading results, including a $56,761 increase in
demonstration and testing income. There was also a large reduction in
demonstration and testing expenses, which fell to NIL during this
period, compared to $57,934 in the prior period. In addition, cash
losses were reduced by an increase in Interest and Other Income,
which rose to $58,581 from $$35,290 the prior year, as the result of
larger average monthly cash balances in working capital, following
the initial public offering in July 1996 and the private placement of
common stock in the sum of $302,400 completed in December 1996. These
factors, in combination, produced the net reduction of $140,138 in
the cash loss for the period, over the previous fiscal year.
As noted under Research and Development Policy, Registrant
capitalizes software under development and amortizes these costs over
the expected life of the software. Expenditures on software and
systems development during the period were $146,134. This compares to
expenditures of $129,935 in the year ended October 31, 1996. There
was a small contribution during fiscal year end 1997 of $56,761 from
demonstration trading gains, as compared to a loss of $57,934 the
previous year. This was mainly the result of reduced R&D type test
trading that often resulted in losses. Ordinary course trading draw-
downs experienced in the early part of the 1997 fiscal year caused by
stock index trading losses were offset by gains realized later in the
year from more profitable currency trades, largely the result of
swings in the price of world currencies relative to the US dollar.
A milestone in software development was achieved during the 1997
fiscal year with the completion of the first commercial version of
the VirtualTrader advanced trading simulator. Registrant remained in
an early stage of product and system development and market testing
during this period. The development stage continued as the focus of
Registrant's resource allocation shifted to exploitation of the VT
technology for in-house trading operations work.
Fifty Nine percent (59%) of the operating loss for FYE 1997 was from
amortization expense, a non-cash outlay. This includes the normal
write-off of software and systems development costs, as well as the
normal depreciation of computer systems and office equipment, details
of which are disclosed in the notes to the financial statements
provided herewith.
FYE October 31, 1996 compared to FYE October 31, 1995
As of October 31, 1996 total assets were $1,776,793, up from total
assets of $977,238 as of October 31, 1995. Registrant had cash
balances of $1,590,589 and net working capital of $1,579,827,
compared
38
<Page 39>
to cash balances of $873,552 and net working capital of
$902,720 as of October 31, 1995. This reflects a net loss in
operations for the period of $235,302 compared to a net loss of
$315,403 in the fiscal year ended October 31, 1995. The $80,101
reduction in net loss for the period was the result of a $10,048
increase in software sales, a $25,800 increase in interest income
from the larger cash balances and a reduction of $44,253 in operating
expenses. Included in the expense reduction was $18,000 in management
fees which were allocated to share issue costs associated with the
initial public offering. Share subscriptions received and Share
capital issuance during the period totaled $1,165,500 as the result
of an initial public offering that was completed in July 1996. Share
issue costs associated with the initial public offering totaled
$141,089. The cash loss in operations for the period was $198,074
compared to $304,299 in the year ended October 31, 1995. Expenditures
on software and systems development during the period were $129,935.
During this period, Registrant's operations were generally in a full-
time R&D mode. It completed development of an initial version of its
real-time, online intra-day pattern recognition based stock index
trading system as part of its stock index trader series software
("SIT") development, and produced the first demo software versions of
this product.
A number of fees connected with the filing of Registrant's
preliminary prospectus for its initial public offering in British
Columbia and Alberta were incurred, along with increased marketing
related expenses incurred as a result of the appointment of a manager
of sales and marketing and the creation of a new product market
testing program.
During the two month period from April 1 to May 31, 1996, Registrant
continued with its program of market and product testing and
completed development of a prototype of an advanced software based
trading simulator in connection with the stock index series, Neural
Tape Reader research and development. A substantial amount of
management time and effort was also taken up with matters related to
the filing of the Prospectus and initial public offering during this
period.
Net working capital and deferred share issue costs on May 31, 1996,
prior to the July 1996 initial public offering, amounted to
approximately $800,000.
In August 1996, regulations relating to the sale of commodities,
futures and options trading systems in the United States were changed
by the Commodities Futures Trading Commission ("CFTC"). Legal
proceedings were commenced in the US against certain unregistered and
allegedly unscrupulous vendors of trading systems. As a result of
these actions and the related adverse publicity, customer demand
dropped immediately, and the market environment quickly became
uncertain. Registrant thereafter cancelled plans to market its SIT
series software, incorporating it instead as a component of the VT
software development. This action had the effect of reducing expected
software sales revenues until the development of the new VT simulator
training software could be completed.
FYE ended October 31, 1995 Compared to FYE October 31, 1994
Total assets as of October 31, 1995 amounted to $977,238, with cash
and cash equivalents of $873,552 and net working capital of $902,720.
39
<Page 40>
During the fiscal year ended October 31, 1995, Registrant engaged in
a full-time program of software research and development activities,
making expenditures of $39,786 on equipment and intellectual property
rights and $161,442 on software research and development. General and
administrative costs for the year ended October 31, 1995 totaled
$129,364; $34,160 was spent on management fees and $30,000 on
marketing consulting fees. The marketing consulting fees were paid
to an associate of a director over a 10 month period ended October
31, 1995, to complete a preliminary assessment of the institutional
and private trader market segments, as well as analyze information
technology developments and trends in the financial industry. A
total of $96,600 was paid to Michael Paauwe and Michael Gossland
during this period pursuant to service contracts, including
management fees of $32,600, research and development expenses of
$57,500, rental expenses of $4,200 and office costs of $2,300.
Registrant completed initial development of a portfolio of
international currency trading models - the WCT series software, and
also developed proprietary standalone software to install AI based
neural network financial pattern recognition indicators and systems
into TradeStation and SuperCharts. Development work continued on AI
based financial pattern recognition applications on stock indexes,
including development of a new and more accurate neural network for
end-of-day trend indication on the S&P 500 stock index as part of the
SIT series software under development.
Share capital issuance of common shares during the period resulted in
net proceeds of $1,168,900. Commencing in August 1995, after
Registrant had completed development of its initial test advertising
and marketing concept and the development of a trademark and logo
design, it began a three month test marketing program of its first
software product, an international currency trading program, at a
cost of $29,000. Six hundred sales leads were generated from several
countries in response to the test marketing program, indicating far
more interest in Europe than in North America for the WCT system.
Initial market test versions of the product were shipped in
September. A full time marketing and sales manager commenced
employment in November to start the process of implementing
Registrant's marketing and sales programs.
Five Month Initial Operating Period ended October 31, 1994
Registrant's founder, Michael Paauwe, commenced operations on behalf
of Registrant in May 1994. In the period from May 1994 to October
31, 1994, Registrant was engaged in the initial formulation of its
capital structure, technical and product development plans and
initial business strategy. It acquired computer and office equipment
for $27,103 and incurred $43,376 in software and systems research and
development expenditures. Total expenses during this period amounted
to $75,058. This included $40,000 in fees paid to Michael Paauwe and
Michael Gossland as independent contractors for management and
research and development services.
LIQUIDITY AND CAPITAL RESOURCES
At the end of the six month reporting period ended April 30, 1999,
Registrant had cash balances of $1,073,077 and net working capital of
$1,078,842, compared to cash balances of $1,363,818 and net working
capital of $1,340,017 as of October 31, 1998. By reference to the
working capital resources
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<Page 41>
and liquidity risks outlined above,
management believes Registrant has sufficient current liquidity and
working capital resources sufficient to sustain the operations in
accordance with its present business plans for at least 12 months
without requiring additional financing.
As Registrant does not as yet have general earnings from its
operations and does not currently have an existing credit facility,
Registrant's liquidity beyond the next 12 months depends on its
ability to either generate such earnings in the future, access the
capital markets or enter into joint venture agreements. The ability
of Registrant to access the capital markets or to enlist new joint
venture partners is determined in part by the success or failure of
its current and prospective sales and trading operations. No specific
arrangements or agreements have been made for any such financing at
this time.
Registrant does not know of any other trends, demands, commitments,
events or uncertainties that will result in, or that are reasonably
likely to result in, Registrant's liquidity either materially
increasing or decreasing at present or in the foreseeable future.
Registrant has not entered into any material commitments for capital
expenditures as of the end of the latest fiscal year end or the
subsequent interim period to the date of this filing, and does not
anticipate any significant capital purchases other than discussed
above.
Registrant is not aware of any material trends, favorable or
unfavorable, in its capital resources other than as discussed herein,
and does not anticipate any material changes in the mix of the
relative costs of such resources.
ITEM 10 Directors and Officers of Registrant
The following table sets forth, as of December 31, 1998, the names of
the directors and executive officers of the Company, the offices held
by them, and their terms of office as a director or officer.
Directors are elected by the shareholders for one year terms and
until their successors have been duly elected, and officers are
appointed by and serve at the pleasure of the Board of Directors.
Paul Shatzko is Robert Shatzko's father, and trader Joe Shatzko is
Paul Shatzko's son and Robert Shatzko's brother. In addition, TTN
Escrow Capital Corp. a 34% shareholder of Registrant is owned by
Michael Paauwe (66.67%) and Michael Gossland (33.33%), who are
officers and directors of the Registrant. There are no other family
relationships between any director or executive officer and any other
director or executive officer.
- ---------------------------------------------------------------------
Name and municipality Position with Commencement of Service
of residence Registrant
- ---------------------------------------------------------------------
Michael B. Paauwe President & Director May 1, 1994
Nanaimo, British Columbia
Michael Gossland Vice President, September 1, 1994
Nanaimo, British Columbia Secretary, Manager
of Software Dev.
& Director
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<Page 42>
Paul Shatzko Director December 1, 1994
West Vancouver,
British Columbia
Robert Shatzko Director April 15, 1996
San Mateo, California
Jennifer Gee Chief Financial December 1, 1994
Nanaimo, British Officer
Columbia
Michael B. Paauwe, the founder, President and a director of
Registrant, graduated in 1974 with an honors Diploma of Technology in
Financial Management (Finance) from the British Columbia Institute of
Technology, receiving the BCIT Alumni Silver Medal for Finance, and
the Dow Jones and Company - Wall Street Journal Silver Medal for
Security Analysis. After a further course of studies, and a period of
training as a tax accountant with Revenue Canada Taxation, Mr. Paauwe
was employed as a tax auditor with the British Columbia Ministry of
Finance from November 1975 to December 1983. Mr. Paauwe received a
professional designation as a Certified General Accountant in British
Columbia in 1980, retiring his membership in May of 1998.
Through his management and financial consulting firm, Michael B.
Paauwe and Associates (a sole Proprietorship), Mr. Paauwe provides
management, trading research and product development services to
Registrant under a contract services agreement. Mr. Paauwe devotes
the majority of his time to the business and affairs of the
Registrant.
Michael Gossland, M. Sc., P. Eng., is the Vice President, Secretary,
a Director, and the Manager of Software Development of Registrant.
Mr. Gossland has provided full time services under contract to Titan
since September 1, 1994. In 1976, he was awarded the Harrington
Prize for academic excellence in physics, and he received his M.Sc.
degree from the University of Saskatchewan in 1978. In 1979, he
obtained his designation as a Professional Engineer - Electrical
Branch (Association of Professional Engineers of Ontario) and from
1986 to 1991 he was Software Project Manager for Sciex, a division of
MDS Health Group Inc., of Toronto.
Since September, 1994, through Michael Gossland and Associates (a
sole proprietorship), Mr. Gossland has been providing engineering and
software development services to Titan under a contract services
agreement. Mr. Gossland devotes the majority of his time to the
business and affairs of the Registrant.
Paul Shatzko, M.D. a radiologist who formerly practiced in North and
West Vancouver, British Columbia, is a director of the Registrant.
Since 1988 Dr. Shatzko has been the President of Mountain Province
Mining Inc.("MPV"), which in March 1995 made a major diamond pipe
discovery in the North West Territories. Dr. Shatzko has held this
position on a full time basis since August, 1995. Prior to that, he
devoted part of his time to the office of President of MPV, and in
addition practiced his profession as a radiologist.
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<Page 43>
Dr. Shatzko has been involved over a number of years as a director or
officer of several publicly traded companies, and devotes such time
to the affairs of the Registrant as is necessary to perform his
functions as a director.
Robert Shatzko, a member of the California State Bar and a trial
lawyer, is a director of the Registrant. Mr. Shatzko obtained a
bachelor of arts degree with honors in political science from Loyola
Marymount University in Los Angeles, California in 1986, and the
degree of Juris Doctor from the McGeorge School of Law of the
University of The Pacific in Sacramento, California, in 1992. He
practices as a trial attorney with the law firm of Clapp, Moroney,
Bellagamba, Davis & Vucinich in Menlo Park, California. Mr. Shatzko
devotes such time to the affairs of the Registrant as is necessary to
perform his functions as a director.
Jennifer Gee, Titan's Chief Financial Officer, is an independent
business and marketing consultant in Nanaimo, British Columbia. From
1984 until May 1994, Ms. Gee was the financial controller for TNT.
She has worked for Titan in a similar capacity on a part time basis
since June 1994, and will continue to do so until such time as the
Registrant's requirements necessitate the appointment of a full-time
Chief Financial Officer.
ITEM 11. Compensation of Directors and Officers
During the six months ended April 30, 1999 and the fiscal year ended
October 31, 1998, the following executive officers received
compensation from Registrant for management, marketing, engineering,
research and development, and consulting services. See Item 13 -
"Interest of Management In Certain Transactions". The compensation
amounts identified below are reported in Canadian dollars.
- ---------------------------------------------------------------------
Name and Position 6 months ended FYE October 1998
April 30, 1999
- ---------------------------------------------------------------------
Michael B. Paauwe, $ 50,000 $ 85,667
president
Michael Gossland,
vice president,
secretary, $ 47,500 $ 82,750
manager of software
development
Jennifer Gee $ 5,600 $ 6,526
chief financial officer
Total Compensation $ 103,100 $ 174,943
to all Directors &
Officers
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Registrant compensates directors who are not also officers of the
company ("Outside Directors") $2,500 per year for serving on the
board. Consequently, Outside Directors Robert and Paul Shatzko
received payment of $2,500 each, in each of the last two fiscal
years.
Registrant does not compensate directors who are also officers of the
company for acting as directors, and Registrant has not set-up or
paid out on any pension, retirement or similar plans for directors or
officers.
ITEM 12. Options to Purchase Securities from Registrant and
Subsidiaries
OPTIONS
Certain of the directors and officers, as well as employees who are
not directors or officers of Registrant, have been granted incentive
stock options to purchase Common Shares of Registrant at various
prices. As of April 30, 1999 the following total number of Company
stock options are outstanding:
- ---------------------------------------------------------------------
Holders Number of Exercise Price Expiration Date
Common Shares
- ---------------------------------------------------------------------
Directors and 755,000 $0.90 July 2001
officers as
a group 390,000 $1.00 April 2004
---------
Total 1,145,000
Employees who
are 75,000 $0.90 July 2001
not directors or 90,000 $0.85 January 2004
officers 45,000 $1.00 January 2004
---------
Total 210,000
WARRANTS
There are no outstanding warrants to purchase Registrant's common
shares as of April 30, 1999; nor were any outstanding at the end of
the last reporting period on October 31, 1998.
125,000 warrants that were issued to an agent for services in
connection with the initial public offering in 1996 were exercised by
their expiration date in July 1997. 158,000 warrants issued in
connection with a private placement in 1997, expired without being
exercised in June of 1998.
ITEM 13. Interest of Management in Certain Transactions
MATERIAL TRANSACTIONS
It is Registrant's policy in related-party transactions is to try to
ensure that the cost and payment terms of such transactions reflect
costs of similar arm's-length transactions, in accordance with normal
Canadian business practices and with due consideration for the impact
of Canadian income tax
44
<Page 45>
requirements. The following are descriptions
of all material transactions between Registrant and its management.
From May 1994 to October 31, 1995, through his independent management
and financial consulting firm, Michael B. Paauwe and Associates (a
sole proprietorship), Mr. Paauwe (the President and a director)
provided corporate and financial management, trading systems research
and product development contract services to Registrant under an oral
arrangement, pursuant to which he received a monthly fee of $5,000
until December 31, 1994, and of $6,000 thereafter, plus reimbursement
of expenses. On November 1, 1995 the terms of the arrangement were
reduced to writing, and have continue since that time to the present.
From September 1994 to October 31, 1995, through his independent
software design and engineering consulting firm, Michael Gossland and
Associates, Mr. Gossland (an officer and director) provided software
engineering and development contract services to Registrant under an
oral arrangement, pursuant to which he received a monthly fee of
$5,000 until December 31, 1994, and of $6,000 thereafter, plus
reimbursement of expenses. Effective November 1, 1995 the terms of
the arrangement were reduced to writing, and have continue since that
time to the present.
Except for the description of the services to be performed
thereunder, the written agreements between Registrant and Paauwe and
the Registrant and Gossland (the "Services Agreements") contain
identical provisions. Each has an initial term of three years,
subject to renewal for further terms of two years, at a monthly fee
to be agreed from time to time (the "Fee"), but not less than $6,000,
plus reimbursement of expenses. Each of the Agreements also provides
for the payment of an annual bonus (the "Bonus") of $4,500.
Registrant may terminate these Services Agreements at any time on 30
days written notice. If it terminates otherwise than for a material
and substantial failure to perform the agreed services by Paauwe or
Gossland, as the case may be, the Services Agreements provide for
payment of a lump sum equal to 12 times the Fee then in effect plus
any unpaid Bonus (the "Lump Sum") if terminated during the initial
term, and an amount to be negotiated, but not less than the Lump Sum,
if terminated thereafter. The latter provision applies as well to a
failure by Registrant to renew the Services Agreement. If terminated
for a material and substantial breach of their obligations, Paauwe
and Gossland, as the case may be, have a 30 day period in which to
cure the breach. The Services Agreements may be terminated by Paauwe
and Gossland, as the case may be, on 120 days written notice to the
Registrant. The Services Agreements also contain confidentiality
provisions, and provisions for the arbitration of disputes.
Pursuant to an agreement dated September 15, 1995 (the "Gossland
Agreement"), Michael Gossland (officer and director) assigned to
Registrant all of his right, title and interest in all software
copyrights, product trademarks and related assets in respect of
NeuralEdge and Neural$. The assets assigned, which included the
object and source codes, were acquired pursuant to an agreement dated
July 28, 1995 with Teranet IA Incorporated and were subsequently
assigned to Registrant at Mr. Gossland's cost of $20,000, of which
$10,000 represented an advance royalty payment in respect of sales of
the DOS-based version of NeuralEdge and Neural$, and certain
components thereof. In view of Titan's decision not to proceed with
the marketing of the DOS-based version of these products, there is no
future royalty obligation payable by Registrant pursuant to the
Gossland Agreement.
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<Page 46>
Note that these transactions were recorded in the Registrant's
accounts at no cost and no gain was realized by Michael Gossland on
the assignment to the Company of the software copyrights, product
trademarks and related assets in respect of NeuralEdge and Neural$.
In addition, of the $10,000.00 of prepaid royalties in 1995 in this
transaction, $6,000.00 was recovered from a third party in 1996 and
the balance of $4,000.00 was written off in 1998. Finally, it should
be noted that this transaction had no impact on the reconciliation
between Canadian and US GAAP.
In June 1994, Registrant acquired certain computer equipment, and in
September 1994 it acquired certain software assets and related
products from Michael B. Paauwe (President and director), at his
depreciated cost of $2,400 and $3,500, respectively.
Registrant rents certain office space from a Mr. Paauwe's spouse at a
monthly rental of $350 and from Mr. Gossland at a monthly rental of
$250. The aggregate rents paid during FYE October 31, 1995 were
$4,200 and $3,000 respectively. These rental agreements continue to
the present time at the same monthly rental amount, which is
comparable to third-party market rates for similar office space in
the areas.
In addition, during the fiscal year ended October 31, 1995,
Registrant paid $30,000 to an associate of Paul Shatzko (a director)
for marketing consulting services under an arrangement which is no
longer in effect. The consulting services were rendered over a 10-
month period which ended in October 1995. The services included a
preliminary market assessment of the institutional segment of the
market, assessment of the competition in the private trader segment
of the market, and analysis of financial industry information
technology trends related to Registrant's business plan.
In 1998 the, Services Agreements for Michael Gossland and Michael
Paauwe were both re-negotiated with the board of directors of
Registrant and amended agreements were entered into effective January
1, 1998. The amended agreements provide for monthly compensation of
$7,667 per month for Paauwe, and $7,250 per month for Gossland, up
from $6000 each. In addition, both Paauwe and Gossland were paid a
one time bonus payment of $20,000 each. In all other respects, the
Services Agreements remain the same as disclosed above.
The Services Agreements were automatically renewed on November 1,
1998 and now have renewable two year terms effective from that date,
in accordance with the terms of the original agreements described
above.
During the nine months ended July 31, 1998 Registrant paid US$70,000
to an associate of Paul Shatzko (a director) for marketing consulting
and promotion services rendered during that period and US$30,000 for
the period August 1, 1998 to December 31, 1998. The services involved
marketing and promotions activities, including: (1) initial marketing
efforts; (2) customer and shareholder liaison services in connection
with the promotion and licensing of the WCT systems in London
England; (3) negotiations on promotions with public relations firms
in Europe and the US; (4) meetings, discussions and negotiations with
potential US market makers for sponsorship on a US bulletin board;
(5) promotion to offshore investment groups; (6) presentations to
Canadian banks, Canadian brokerages and high net worth investors; (7)
negotiations on product reseller arrangements with US firms; (8)
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<Page 47>
evaluation and reporting on the growth of new online trading and its
impact on VT development; and (9) ongoing monthly market research and
reporting.
In addition, certain officers and directors have an interest in the
stock options as more particularly described above.
INDEBTEDNESS OF DIRECTORS AND OFFICERS AND THEIR ASSOCIATES
During the last three years, there has been no recorded indebtedness
of any of the directors or officers, or any associates of the
directors or officers, to the Registrant.
PART II
ITEM 14. Description of Securities to be Registered
The class of capital stock of Registrant being registered hereby is
the Registrant's common shares.
The issued and outstanding share capital of the Registrant is
summarized as follows:
The authorized capital of Registrant consists of 100,000,000 common
shares without par value. As of May 31, 1999, 8,857,001 common
shares were issued and outstanding. If all outstanding options to
purchase common shares were exercised, the issued common share
capital of Registrant would be 10,152,001 shares. The holders of the
common shares are entitled to vote at all meetings of shareholders,
to receive dividends if, as and when declared by the directors, and
to participate ratably in any distribution of property or assets on
the liquidation, winding up or other dissolution of Registrant. The
common shares have no pre-emptive or conversion rights. Registrant
may, by way of a resolution of the Directors and in compliance with
The Company Act, purchase any of its shares at the price and upon the
terms specified in such resolution. No such purchase shall be made
if Registrant is insolvent at the time of the proposed purchase or if
the proposed purchase would render Registrant insolvent. Unless
otherwise permitted under The Company Act, Registrant must make its
offer to purchase such shares pro rata to every shareholder who holds
shares of the class or kind, as the case may be, to be purchased. The
common shares are non-assessable, and not subject to further calls by
Registrant.
A total of 3,000,000 common shares ("Escrow Shares") are held in
escrow by the Montreal Trust Company of Canada ("Montreal Trust"),
510 Burrard Street, Vancouver, British Columbia, V6C 3B9, pursuant to
an escrow agreement (the "Escrow Agreement") dated January 5, 1996 by
and between Registrant, Montreal Trust, and TTN Escrow Capital Corp.,
a private British Columbia company the outstanding voting shares of
which are held 66.67% by Michael Buchanan Paauwe and 33.33% by
Michael Gossland. The Escrow Shares were purchased for cash at a
price of $0.01 per share. They represent approximately 33.87% of the
issued and outstanding common shares.
In general, the Escrow Agreement was devised to create a long-term
incentive for the beneficial owners of the shares (Michael Paauwe and
Michael Gossland) to act in the long-term interest and for maximum
profitability of Registrant, in accordance with the policies of the
Vancouver Stock Exchange. The shares are subject to an earn-out
formula based on cumulative net positive cash flow as described
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below, and cannot be released for trading until thresholds of net
profitability are reached. Any escrow shares not released after ten
years are automatically canceled. The Escrow Agreement has been
attached as an Exhibit hereto.
The Escrow Shares are subject to the direction or determination of
the Vancouver Stock Exchange. The Escrow Agreement provides that the
Escrow Shares may not be traded in, dealt with or released without
the consent of the Vancouver Stock Exchange. Any Escrow Shares not
released from escrow by June 21, 2006 will be cancelled at that time.
Release of Escrow Shares from escrow will take place in accordance
with a formula prescribed by Policy 3-07 of the British Columbia
Securities Commission ("Policy 3-07"), applied to Registrant's
cumulative cash flow from operations as disclosed in its audited
financial statements from time to time. In short, Policy 3-07
requires that Registrant first achieve cumulative cash flow per share
of $0.46 or an aggregate cumulative cash flow of $1,380,000 before
the Escrow Shares can be released. For these purposes, "cash flow"
means net income or loss before tax, adjusted to add back
depreciation, amortization of goodwill and deferred research and
development costs (excluding general and administrative costs) and
any other amounts permitted or required by the Vancouver Stock
Exchange. "Cumulative cash flow" at any time means the aggregate cash
flow in the period from September 1, 1995 to that time, net of any
negative cash flow.
The holder of the Escrow Shares has agreed for so long as they remain
in escrow to waive its rights: (i) to vote on a resolution to cancel
any of them; (ii) to receive dividends, and (iii) to participate in
the assets and property of Registrant on a winding up or dissolution.
PART III
ITEM 15. Defaults upon Senior Securities
Registrant has not defaulted on any payment with respect to any
indebtedness.
ITEM 16. Changes in Securities, Changes in Security for Registered
Securities
There have been no changes made to the rights of the holders of
Registrant's securities.
PART IV
ITEM 17. Financial statements
The financial statements of Registrant have been prepared on the
basis of Canadian generally accepted accounting principles.
Differences between Canadian and U.S. generally accepted accounting
principles are set out in Note 8 to the audited financial statements
dated October 31, 1998.
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See "Item 19. Financial Statements and Exhibits" for a list of
Registrant's Financial Statements that follow.
ITEM 18. Financial Statements
Inapplicable
Item 19. Financial Statements and Exhibits
INDEX
1. FINANCIAL STATEMENTS
(a) Interim un-audited management prepared financial statements
for the six months ending April 30, 1999, including:
- Consolidated Interim Balance Sheet
- Consolidated Interim Statement of Operations and Deficit
- Consolidated Interim Statement of Cash Flows
(b) Audited Financial Statements of the Registrant as of
October 31, 1998, including:
- Auditors' Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
(c) Consent letter from Collins Barrow in regard to the
inclusion of Independent Auditors' Reports in the Registration
Statement.
2. EXHIBITS
(a) Certificate of Incorporation of KBK No. 24 Ventures Ltd.
(b) Certificate of Change of Name of KBK No. 24 Ventures Ltd.
to Titan Trading Analytics Inc.
(c) Articles of Registrant
(d) Current Contract Services Agreement between Registrant and
Michael B. Paauwe and Associates dated January 1, 1998
(e) Current Contract Services Agreement between Registrant and
Michael Gossland and Associates dated January 1, 1998
(f) Escrow Agreement dated January 5, 1996 with TTN Escrow
Capital Corp.
(g) Testimonial Letters of Lombard Odier International
Portfolio Management Limited
(h) Responses to Comment Letter of Mr. James M. Daly dated
March 11, 1999
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
TITAN TRADING ANALYTICS INC.
(Registrant)
/S/ Michael B. Paauwe
MICHAEL B. PAAUWE
PRESIDENT AND DIRECTOR
(Authorized Signatory)
DATE: June 30, 1999