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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-23391
XML-GLOBAL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1434313
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 9 - 1818 Cornwall Avenue
Vancouver, BC, Canada V6J 1C7
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(Address of principal executive offices, including zip code)
Registrant's Telephone No., including area code: (800) 201-1848
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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 X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $53,185.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common
equity was sold, as of June 30, 2000 was $9,300,000.
There were 27,505,000 shares of common stock outstanding, as of September
6, 2000.
The following documents are incorporated by reference.
Transitional Small Business Disclosure Format (Check one):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT.
Effective August 27, 1999, XML-Technologies, Inc. (XML-Technologies) and
International Capital Funding, Inc. (ICF) entered into an Agreement and
Plan of Reorganization (the Agreement). In accordance with the Agreement,
the stockholders of XML-Technologies received 12.5 million shares of ICF
stock in exchange for the 12.5 million outstanding shares of XML-
Technologies. The transaction was accounted for as a recapitalization of
XML-Technologies and the accompanying consolidated financial statements
present the financial position, results of operations, and cash flows of
XML-Technologies. After entering into the Agreement, the ownership
percentage of the original stockholders of XML - Technologies was reduced
from 100% to 71%.
ICF was organized in 1991 for the purpose of consummating a merger or
acquisition with a private entity. Prior to entering into the Agreement,
it had no material amount of assets or liabilities and no operations.
Subsequent to completing the Agreement, ICF changed its name to XML-Global
Technologies, Inc. (XML-Global Technologies or the Company) and changed its
year-end to June 30.
The capital structure in the accompanying consolidated financial statements
reflects a ten for one forward stock split of ICF shares authorized on
August 3, 1999 in anticipation of entering into the Agreement.
XML-Technologies is a Nevada corporation organized May 18, 1999 to hold
either directly or indirectly all outstanding shares of XML-Global
Research, Inc. and Walkabout Website Designs, Ltd., both of which are
British Columbia corporations. The Company and its subsidiaries engage in
the business of developing internet-based software applications using XML
(Extensible Markup Language). XML is an abbreviated version of SGML
(Standard General Markup Language), the international standard for defining
descriptions of the structure and content of electronic documents.
For the period May 18, 1999 through June 30, 1999, the Company and its
subsidiaries' efforts were devoted to legal formation; financial planning;
recruiting directors, advisors and employees'; and raising additional
financing. Development stage operations during this period were financed
with a loan from a director of the Company. In July, 1999, the Company
commenced selling its e-commerce software and, accordingly, is no longer a
development stage company.
BUSINESS OF ISSUER
We, together with our subsidiaries, are positioning ourselves to take
advantage of what we believe is one of the most significant trends in
business today: the adoption of a complete, e-business strategy using XML
(eXtensible Markup Language) by global businesses. XML is a markup language
that is able to add structure, intelligence and content identification to
information on the Internet or Intranets. By being able to attract and
retain persons who are at the forefront of XML technology, we have been
able to identify and develop several commercial products and services that
will enable us to exploit the XML opportunities. Our primary objective is
to assist businesses in their effort to migrate from HTML to XML. There is
an emerging market for XML-based tools such as our search engine and other
e-commerce products which will be targeted and served by our XML
specialists.
OPERATIONS
The founders of the Company began working with Extensible Markup Language
("XML") in early 1998 and began to develop software as a group in the fall
of 1998. XML Technologies, Inc. was formed in May 1999 to develop
commercial applications using the founders' XML expertise. In July 1999, we
commenced sales of Cartnetwork, our proprietary e-commerce software and in
July 1999, we announced goXML, which we believe is the world's first XML
context search engine. On September 29, 1999, we filed an application with
the United States Patent Office in respect of our goXML search engine under
the title "Authoring, altering, indexing, storing and retrieving electronic
documents embedded with contextual markup".
We continue to develop proprietary XML-based solutions for the Internet-
based economy with a focus on e-commerce and the conversion of data from
legacy formats to XML. As an adjunct to our e-commerce business, we develop
web sites for our clients. Our main sources of revenue are currently from
the development of web sites and the licensing of our e-commerce software.
During the year ended June 30, 2000, most of our operations were funded by
the sale of equity securities and revenues were not a significant
contributor to cash flow. As a result, we were not economically dependent
on any customer or group of customers.
ABOUT XML
Previously Web pages have been written on HTML (HyperText Mark-up
Language). HTML is essentially a presentation technology, concerned with
how a browser should arrange text and graphics on a page.
HTML was never designed or intended to accommodate the complexity and
quantity of information on the Web. HTML browsers cannot identify or
determine the meaning of a word or presentation on a page. For example, if
you were looking for a book authored by a person named "Gold," you may
search terms such as "gold" and "book." Yet, an HTML browser cannot
differentiate between "books by Gold" and "books about gold" and therefore
might present the searcher with irrelevant information.
In response to this acknowledged difficulty, the World Wide Web Consortium
("W3C"), the industry association that promotes standards for the evolution
of the Web, defined a new mark-up standard known as XML. XML is a very
simple and flexible text format which, like HTML, is tag based and saves
its information in plain text files. However, while HTML defines a set of
tags used for formatting and displaying text, XML defines a set of tags
used for representing text as pieces of information. XML was originally
designed to meet the challenges of large-scale electronic publishing.
However, with new XML tools, products and services being introduced, we
believe that the greatest potential for XML will be related to business-to-
business applications and, in particular, order processing and order
fulfillment.
XML allows individual users to easily customize the presentation of their
data to meet their specific needs. XML overcomes the limitation of HTML in
that it:
* Provides metadata, or data about information, that will help
people find information and help information producers and users
find each other.
* Delivers information to users in a form that allows automatic
processing after receipt.
* Enables media independent international electronic publishing.
* Makes it easy for users to process data using inexpensive
software.
* Allows users to display information in any form.
The advantages flow from the fact that XML allows each writer to define the
tags that mark up and identify the type of data contained in a particular
document. Commerce on the Internet is undergoing global changes, including
a shift in mark-up language technology. HTML based e-commerce systems have
severe limitations in terms of portability, data recognition and
integration with back-end systems, and generally fail to provide a
streamlined client-friendly approach to e-commerce. XML addresses these
limitations, primarily through its inherent extensibility and is therefore
ideal for creating industry wide shopping systems.
BUSINESS STRATEGY
OUR MARKETING STRATEGY
We intend to pursue the global business-to-business e-commerce market with
our search engine and software tools. Our initial marketing strategy will
focus on forming partnerships and affiliations with leading software and
XML companies.
GOXML.COM AND EXPRESSXCHG MARKETING STRATEGY
* Corporate Partnerships and Affiliations. We are developing
strategic alliances with businesses offering complementary
software; for example, database vendors, and related services and
system integrators.
* License GoXML. We will target companies in industry segments,
such as publishing and education, that need to search for
information from many disparate sources. We believe that these
companies are likely to be early adopters of XML and they will
find it more cost effective to license a search engine than
develop one. We have recently licensed GoXML to a Korean
company. Direct sales, telesales and e-support for the marketing
campaign form the basis of our licensing strategy.
* License expressXchg. We will target companies that wish to adopt
an e-business strategy using their existing computer systems, and
businesses setting up "net markets" that allow online trading
between many unrelated companies. As with GoXML, these
businesses are likely to be early adopters and many of these
companies will be potential customers for boh GoXML and
expressXchg. For the foreseeable future we will rely on direct
sales to promote expressXchg operations.
* Develop the convert2xml.com Website. This Website will be an
important source of technical information, instructions and
tutorials on how to write XML and will provide free software for
converting simple HTML to XML.
* XSLT.com. We developed this Website to advance XSLT and promote
technical contributions. XSLT is at the recommendation stage of
the W3C and is expected to become the dominant language for
template-based stylizing of XML documents.
XML COMMERCEPRO MARKETING STRATEGY
The end-users for our XML CommercePro software are small and medium e-
commerce businesses seeking an XML-enabled e-commerce solution. In order
to effectively reach such businesses, we market XML CommercePro to e-
commerce hosting businesses, such as ISPs, ASPs and server farms that have
multiple e-commerce clients. By using XML CommercePro, the hosting
businesses offer their clients the ability to XML-enable their e-commerce
Websites.
Our sales and marketing approach combines direct sales through our Seattle
and Vancouver offices with a web presence at our CartNetwork site. The
basic software for XML CommercePro is available as a free download at the
CartNetwork site allowing both web hosting businesses and end-users to
sample the software before committing to a purchase.
By allowing free downloads (averaging 100 per week) of the LeCart shopping
cart program, we believe that we will expose our XML CommercePro to its
intended audience of small to medium e-commerce providers. XML CommercePro
is XML enabled and appeals to individuals and corporations that want to be
able to sell online and utilize our XML e-commerce solution. The product
is currently being re-branded to focus on the XML capability of the product
as well as to use it as a link to the GoXML.com site and to promote our
core XML products.
OUR STRATEGIC RELATIONSHIPS
We have developed important relationships with many of the leading XML
firms and we are also maintaining an active role in associations and
industry consortiums that are considered leaders in the development of XML
standards.
CORPORATE RELATIONSHIPS
We have agreements or are in negotiation with a number of major software
companies for the exchange, development and cross-license of XML and other
applications. We consider the creation and maintenance of these
relationships to be important to our business development and future
success.
* PENOP, LTD.
In May, 2000, we purchased from PenOp, Ltd. a non-exclusive license to use
its patented technology that permits verifiable electronic signatures for a
wide range of eBusiness and web-based systems. Known as "Ceremony," the
technology allows individuals to sign and secure electronic transactions
with an electronic signature that replaces ink signatures for paper
transactions. We paid a total of $250,000 for the license. We intend to
incorporate Ceremony into several of our proprietary XML applications.
* B2B INTERNET, INC.
In June 2000, we entered into a software development and license agreement
with B2B Internet, Inc., a Korean Internet software and technology company.
Under the agreement, we are developing a net market solution using our
GoXML and expressXCHG products. The product is scheduled to be completed
in December 2000 for a total development fee of $950,000. When completed,
the software will be owned by B2B Internet and will be part of an
integrated online marketplace that allows buyers and sellers to better
communicate and transact business. Under the agreement we will receive
sublicense fees when B2B Internet sublicenses our products in Korea where
they will have exclusive distribution rights for four years.
STANDARDS ASSOCIATIONS
* XML EDI. This is a consortium of over 1,500 of the world's
leading technology-based companies co-founded and directed by
David Webber, one of our Directors. Its purpose is to promote
the exchange of information and technology among participants in
the XML-EDI industry.
* ebXML. This is an association sponsored by the United Nations
and OASIS whose mandate is to develop standards for businesses to
use the Internet for the exchange of data and e-commerce and
business-to-business transactions using XML. Duane Nickull, our
President, is Editor of the Technical Architectural Committee of
ebXML.
* OASIS. OASIS is a non-profit international consortium of users
and vendors dedicated to the promotion of open specifications for
the exchange of structured data. It is focused on the definition
and implementation of XML communication.
In addition, we maintain ongoing dialogues with many technology and
software companies that are involved in the growing XML industry. These
discussions and relationships have not resulted in specific business
arrangements or revenues, but rather they position us to capture possible
future opportunities should they arise.
PRODUCTS
We have developed and are using our proprietary technology to commercialize
a suite of applications for e-business to help companies convert from HTML
to XML. We believe that this technology, together with technology we
currently have under development, will allow existing businesses to
successfully adopt XML database structures:
* GoXML - is, we believe, the first context XML search engine,
allowing users to search for terms according to the type of
information they are looking for. Version 1.0 of GoXML was
launched in July 1999 and was designed to handle over 60 million
documents. It is based on our proprietary technology that is
patent pending, and uses a proprietary spidering program that
scans the Internet to find and index XML data. We released
Version 2.0 together with a software developer kit in August
2000. Version 2.0 is designed to handle up to 200 million
complex documents. One application for the search engine product
is for corporate intranets of companies that have already
converted databases to XML. The Internet-based version of the
search engine has been showcasing our technology since July 1999.
* expressXCHG - is a patented data transformation tool under final
development that allows direct interface between different
systems including EDI, HTML, EDIFACT / X12, SAP BAPIs with an
expected release in November, 2000. We are developing
expressXCHG to be able to effect the conversion between all of
these standards and XML. We believe this to be a key component to
the migration and interchange of business data on the Internet.
* XML CommercePro - is an XML enabled multi-user shopping cart
system designed for ISPs (Internet Service Providers), CSPs
(Commerce Service Providers) and ASPs (Application Service
Providers). It was first launched in June 1999 but one of its
components, LeCart, has been commercially available since
September 1998. Its setup-once, run-anywhere design means it not
only enables hosted clients' Websites for e-commerce, but any
Website on the Internet as well. The software has a simple
browser-based administration interface which will allow users to
sign up manually or online, thereby becoming e-commerce enabled
immediately.
* XML Data Conversions - XML Global is developing solutions to
enable Websites to seamlessly integrate an XML-based solution
into their Web presence. One such solution is eXtensible Object
Server Pages (XOSP). XOSP is the XML equivalent to the ASP
(Active Server Pages) standard which was developed by Microsoft.
This software allows web masters and ISPs to mark up HTML
documents with XML, thus providing all of the retrieval benefits
of XML to HTML documents. XOSP will be used along with our other
tools to develop other XML-based business applications.
COMPETITION IN GENERAL
As in most technology-based industries, competitive advantages in our
industry are gained by speed of market entry, availability of working
capital, scope and scalability of software functionality, adaptability to
different applications, existence or access to distribution channels and,
of course, technological innovation and related patent protection. Our
greatest advantage is in our patented technology; however, many of our
competitors have better finances and have better access to channels of
distribution. Each of these factors applies to our business, which is
quickly evolving.
Our competitors are frequently quite secretive about their development
efforts, but because of the rapid evolution of XML technology, we expect
new competitive product releases will appear quickly and frequently.
COMPETITION WITH GOXML SEARCH ENGINE
Our competition comes from a variety of companies who have adopted XML and
are using various XML-based products for commercial purposes.
PRIVATE SEARCH ENGINES
* Sequoia Software has what we believe to be the only other pure
XML search engine which is called "Xdex." This is for use in
intranet applications with very small businesses. To our
knowledge, the product has not yet been commercially launched,
and its future release date is unknown.
* Inktomi has an HTML search engine created at the University of
California at Berkeley. It develops and markets software design
for Internet infrastructure and media companies. It works with
leading companies including America On Line, British
Telecommunications, Cnet, Excite@Home, Intel, Microsoft, Real
Networks, Sun Microsystems and Yahoo. The Inktomi search engine
is licensed to both public search portals and private
corporations for their intranets. There is no public portal for
a direct query of the Inktomi index directly. We believe that
Inktomi is the industry leader in search engine licensing. Based
on published reports, it reported 1999 revenues of $71,000,000
and handled 2.9 billion queries in the fourth quarter alone.
* Ultraseek, as a division of Go.com (a Disney company), launched
its Ultraseek server in 1997 and now claims customers such as Sun
Microsystems, 3Com and Ericsson. Ultraseek's 3.0 version
provides support for indexing and search of XML documents. They
have modified their HTML search engine to recognize XML
documents. Ultraseek is not actively marketed and, to our
knowledge, is not a context-based search engine.
* IBM, like Ultraseek, has modified an existing HTML search tool to
accommodate XML documents. This product has not been
commercially launched to date.
COMMERCIAL SEARCH ENGINES
We believe that eventually our GoXML.com search engine will compete with
the large Web-based search portals. To date, there are not a sufficient
number of XML documents to make a commercial Internet XML portal
competitive with HTML search portals, and we are not presently capable of
competing with the HTML-based search portals. However, we believe that we
ultimately may compete with the larger HTML based search portals such as
Alta Vista, Ask Jeeves, Excite, Go.com, Goto.com, Google, HotBot, Look
Smart, Snap and Yahoo.
COMPETITION WITH expressXCHG
Several companies have developed XML/EDI translation systems that compete
with our expressXCHG transformation software:
* XML Solutions offers its XEDI translator which can convert EDI
documents to XML documents for transmission over the public
Internet or private networks.
* EComXML offers secure EDI/Backoffice integration. Its EComTalk
Server is a secure e-commerce gateway for the exchange of
transaction documents.
* IBM has recently moved into a beta testing stage for its new EDI
to XML translator. When fully deployed, IBM has estimated
substantial savings for its internal systems resulting from a
broad implementation of this translator.
COMPETITION WITH XML COMMERCEPRO
There are many e-commerce shopping cart programs available for sale, and a
growing number available for free on the Internet. Although certain of
these programs directly compete with our bolt-on capability, none of these
programs, we believe, compete with us in being able to input and output XML
product data. We intend to continue to sell and license our product to be
sublicensed, in many cases at very competitive prices. If the use of XML
increases and e-commerce applications begin utilizing XML, we would expect
to experience increased competition.
INTELLECTUAL PROPERTY
PATENTS AND LICENSES
We have filed a 51 point patent with the United States Patent and Trademark
Office on our XML search engine and are in the process of preparing two
other patents relating to our proprietary technologies. We also have a
perpetual worldwide exclusive license to use and sublicense and make, use
and sell products based on the expressXCHG technology, including, without
limitation, the patented "expressXCHG" software. No assurance can be given
that any patent will be issued or that the scope of any patent protection
will exclude competitors or that any patent, if issued, will be held valid
if subsequently challenged.
We have recently licensed Ceremony from PenOp, Ltd., a technology-based
electronic signature product. This capability will be incorporated into
several of our XML applications.
OTHER INTELLECTUAL PROPERTY
As we discussed under the section "Risk Factors," we have applied with the
United States Patent and Trademark Office to register the following
trademarks all of which are still pending:
* GoXML
* XOSP
* XHML
* LeCart
* XOP
In addition we have registered the following domain names:
* www.GoXML.com
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* www.lecart.com
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* www.cartnetwork.com.
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* www.cartnetwork.net
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* www.convert2xml.com
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* www.findxml.com
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* www.xslt.com
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* www.xosp.com
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* www.xosp.net
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* www.xosp.org
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* www.walkaboutwebs.com
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* www.xmldirectory.com
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While we have applied for registration of the foregoing trademarks and
registered domain names in an effort to protect them, we cannot be sure of
the nature or extent of the protection afforded, since trademark
registration does not assure any enforceable rights under many
circumstances and there exists significant uncertainty surrounding legal
protections of domain names.
In addition, we try to protect our software, to the extent not patentable,
by registering copyrights of the source code. However, there can be no
assurance that any steps that we take in this regard will be adequate to
deter misappropriation of our proprietary rights or independent third
parties developing functionally equivalent products. Despite our
precautions, unauthorized parties may attempt to engineer, reverse
engineer, copy, or obtain and use our products or other information.
Although we believe that our products do not infringe on the intellectual
property rights of others, there can be no assurance that an infringement
claim will not be asserted against us in the future. The prosecution or
defense of any intellectual property litigation can be extremely expensive
and would place a material burden upon our working capital.
RESEARCH AND DEVELOPMENT
We have 24 full time employees devoted to software research and development
and Website development. In the period ended June 30, 1999, and the year
ended June 30, 2000, we expended approximately $49,800 and $774,100
respectively, for research and development costs related to our products.
EMPLOYEES
We now have 34 full time employees most of whom are located at our
principal office in Vancouver, British Columbia. In addition, we also have
an additional labor pool consisting of contract professionals that are
hired on a part-time basis.
COST OF COMPLIANCE WITH ENVIRONMENTAL LAWS
We did not incur any separately identifiable costs to comply with
environmental laws.
ITEM 2. DESCRIPTION OF PROPERTY
We maintain our corporate headquarters in Vancouver, Canada, and a sales
office in Seattle, Washington State. The Vancouver lease agreement is for
approximately 6,800 square feet of office space and expires in 2005. The
Seattle lease is month to month for 500 square feet. We also have
geographically dispersed employees who work out of home offices.
The Company owns or leases a variety of computers and other computer
equipment for its operational needs. This year the Company has
significantly upgraded and expanded its computers and related equipment in
order to increase efficiency, enhance reliability, and provide the
necessary base for business expansion.
The Company believes that its facilities and equipment are suitable and
adequate for the business of the Company as presently conducted.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which we are a party,
and we are not aware of any threatened legal proceedings involving us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
TRADING INFORMATION
The shares of the Company are not traded on any automated quotation
system, stock market or exchange.
HOLDERS
As of June 30, 2000, the Company had approximately 156 shareholders of
record. This does not include shareholders who held stock in accounts at
broker/dealers.
DIVIDENDS
The Company has not declared or paid any cash dividends on its capital
stock since inception and does not expect to pay any cash dividends for the
foreseeable future. The Company currently intends to retain future
earnings, if any, to finance the expansion of its business.
RECENT SALES OF UNREGISTERED SECURITIES
1. In August 1999, the Company issued 12,500,000 shares of common stock
in exchange for 12,500,000 shares of common stock of XML-Technologies,
Inc., a Nevada corporation. The shares were issued to 23 persons, all of
whom qualified as "accredited investors" within the meaning of Rule 501(a)
of Regulation D under the Securities Act. The securities, which were taken
for investment and subject to appropriate transfer restrictions, were
issued without registration under the Securities Act pursuant to the
exemptions set forth in Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder.
2. In August 1999, we issued and sold a total of 2,330,000 units in
consideration of $1.00 per unit. The units consisted of one share of
common stock and one warrant exercisable until December 31, 2000 to
purchase an additional share of common stock at an exercise price of $4.00
per share. The shares were issued exclusively to investors who qualified
as "accredited investors" within the meaning of Rule 501(a) of Regulation D
under the Securities Act. The securities, which were taken for investment
and subject to appropriate transfer restrictions, were issued without
registration under the Securities Act pursuant to the exemptions set forth
in Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder.
3. In September 1999, we issued warrants exercisable to purchase 200,000
shares of our common stock at an exercise price of $5.00 per share to a
consultant in consideration of consulting services. The warrants were
issued to one consultant who qualified as an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act. The
securities, which were taken for investment and subject to appropriate
transfer restrictions, were issued without registration under the
Securities Act pursuant to the exemptions set forth in Section 4(2) of the
Securities Act.
4. In January 2000, we issued to one private investment fund 500,000
units in consideration of payment in the amount of $2.00 per unit. Each
unit consisted of two shares of our common stock, one warrant exercisable
for three years to purchase an additional share of common stock at $2.00
per share and an additional warrant exercisable for 60 days to purchase an
additional share of common stock at an exercise price of $.07 per share.
The units were issued to one institutional investor that qualified as an
"accredited investor" within the meaning of Rule 501(a) of Regulation D
under the Securities Act. The securities, which were taken for investment
and subject to appropriate transfer restrictions, were issued without
registration under the Securities Act pursuant to the exemptions set forth
in Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder.
5. In February 2000, we sold to a private trust 500,000 units at a price
of $1.00 per unit. Each unit consisted of one share of common stock and
one warrant exercisable until December 31, 2000 to purchase an additional
share of common stock at an exercise price of $4.00 per share. The
investor qualified as an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act. The securities, which
were taken for investment and subject to appropriate transfer restrictions,
were issued without registration under the Securities Act pursuant to the
exemptions set forth in Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder.
6. In April 2000, we sold to two investors 150,000 units at a price of
$1.00 per unit. Each unit consisted of one share of our common stock and
one additional warrant exercisable until December 31, 2000 to purchase an
additional share of common stock at an exercise price of $4.00 per share.
The investors qualified as "accredited investors" within the meaning of
Rule 501(a) of Regulation D under the Securities Act. The securities,
which were taken for investment and subject to appropriate transfer
restrictions, were issued without registration under the Securities Act
pursuant to the exemptions set forth in Section 4(2) of the Securities Act
and Rule 506 of Regulation D thereunder.
7. In April 2000, we sold an aggregate of 92.5 units at a price of
$75,000 per unit. Each unit consisted of 50,000 shares of our common stock
and 50,000 warrants exercisable for 18 months to purchase an additional
share of common stock, initially at an exercise price of $4.00 per share
and $6.00 after six months. The units were sold to 50 investors, each of
which qualified as an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act. The securities, which
were taken for investment and subject to appropriate transfer restrictions,
were issued without registration under the Securities Act pursuant to the
exemptions set forth in Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder.
8. In April 2000, we issued to an investment banker a unit purchase
option exercisable to purchase for 18 months 9.25 units at an exercise
price of $75,000 per unit. Each unit consists of 50,000 shares of our
common stock and 50,000 warrants. The investment banker qualified as an
"accredited investor" within the meaning of Rule 501(a) of Regulation D
under the Securities Act. The securities, which were taken for investment
and subject to appropriate transfer restrictions, were issued without
registration under the Securities Act pursuant to the exemptions set forth
in Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder.
9. In March 2000, we issued 500,000 shares of our common stock in
consideration of $.07 per share pursuant to the exercise of the warrant
issued to the private investment fund as part of the units identified in
Paragraph 4 above. The shares were issued to one investor who qualified as
an "accredited investor" within the meaning of Rule 501(a) of Regulation D
under the Securities Act. The securities, which were taken for investment
and subject to appropriate transfer restrictions, were issued without
registration under the Securities Act pursuant to the exemptions set forth
in Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder.
10. In April 2000, we sold to the same private trust identified in
Paragraph 5 above an additional 500,000 units at a price of $1.00 per unit.
Each unit consisted of one share of common stock and one warrant
exercisable until December 31, 2000 to purchase an additional share of
common stock at an exercise price of $4.00 per share. The investor
qualified as an "accredited investor" within the meaning of Rule 501(a) of
Regulation D under the Securities Act. The securities, which were taken
for investment and subject to appropriate transfer restrictions, were
issued without registration under the Securities Act pursuant to the
exemptions set forth in Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder.
11. In June 2000 we issued to Mr. David Webber, one of our directors,
1,000,000 shares of our common stock in exchange for 60% of the issued and
outstanding shares of common stock of DataXchg, Inc. Mr. Webber qualified
as an "accredited investor" within the meaning of Rule 501(A) of Regulation
D under the Securities Act. The securities, which were taken for
investment and subject to appropriate transfer restrictions, were issued
without registration under the Securities Act pursuant to the exemptions
set forth in Section 4(2) of the Securities Act and Rule 506 of Regulation
D thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
REVENUE. Revenue consists of fees received from the sale of e-commerce
solutions, the design and Web site development, implementation and support.
Revenue was $53,200 for the year ended June 30, 2000, compared to $2,100
for the previous fiscal year. The increase was due to the longer fiscal
period, sales of software products under development during the previous
fiscal period and a generally increased scale of operations.
RESEARCH AND DEVELOPMENT EXPENSES. Product and content development costs
include expenses we incur to develop our technology and our clients' web
sites. These costs consist primarily of salaries and fees paid to employees
and consultants to develop and maintain software and web sites. For the
year ended June 30, 2000 and 1999, these costs were $774,100 and $49,800
respectively. The increased expenditures in the year just ended, reflect
increased staffing levels to accelerate development of existing and new
products.
SALES AND MARKETING EXPENSES. Marketing, sales and client services costs
include expenses we incur to obtain and maintain client relationships.
These costs include fees paid to contractors and consultants, related
travel and incidental costs and occupancy costs for our Seattle sales
office. For the year ended June 30, 2000, sales and marketing expenses were
$218,700. Sales and marketing expenses in the previous period were not
material. The increase is due to the addition of staff and corporate
identity and sales initiatives undertaken in the current year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries, contractor fees and related costs for
general corporate functions, including travel, finance, accounting and
legal expenses. For the year ended June 30, 2000, general and
administrative expenses were $629,100, up from $70,100 in previous year.
The increase reflects the longer fiscal period, increased staff, travel
costs and professional fees associated with licensing our products and
defending our intellectual property.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation expense reflects
depreciation of computer hardware, software and equipment over their
estimated useful lives of between two and three years. Depreciation expense
was $35,600 and $3,100 respectively for the years ended June 30, 2000 and
1999. The company recorded only nominal amortization expense in regard to
trademarks and patents as these costs largely relate to applications that
had not been granted at June 30, 2000.
FAIR VALUE OF STOCK OPTIONS. The Company reports the financial impact of
stock options using APB-25. Accordingly, we record the fair value of stock
options granted to non-employees as an operating expense based on the fair
value of the options at the date the services were performed. During the
year ended June 30, 2000 we granted 275,000 options to non-employees at
exercise prices of $1.00 per share. We estimate that the fair value of each
of these options was approximately $0.22. We have recorded an expense of
$55,900 in respect of options that have vested; 25,000 of the options
granted to non-employees were forfeited during the period. There was no
corresponding expense in the prior year, as we had not issued any stock
options.
INTEREST INCOME. During the year ended June 30, 2000, the company earned
interest income of $94,200. We did not earn any interest income in the year
ended June 30, 1999. Interest income has been earned on funds received from
private equity placements which have exceeded operating expenditures to
date with the result that cash and cash equivalents increased in the
period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
placement of equity securities and advances from our principal stockholder.
In the year ended June 30, 2000, we received net proceeds of approximately
$10,477,100 from private offerings of equity securities. Issue costs
associated with these offerings, which have been offset against the net
proceeds of the offering, were $840,200. As of June 30, 2000 we had
$7,535,900 in cash and cash equivalents and $1,000,000 in short term
investments.
We have incurred costs to design, develop and implement search engine and
electronic commerce applications and to grow our business. As a result, we
have incurred operating losses and negative cash flows from operations in
each quarter since we commenced operations. As of June 30, 2000, we had an
accumulated deficit of $1,694,100. These losses have been primarily funded
through private placement of equity securities.
To date, we have experienced negative cash flows from operating activities.
For the year ended June 30, 2000, net cash used in operating activities was
primarily attributable to our net operating loss of $1,573,200. The net
loss for the year was partially offset by non-cash depreciation and
amortization of $35,600, the fair value of options granted to employees of
$55,900 and a net cash outflow of $27,600 with respect to working capital
changes. For the year ended June 30, 2000, net cash used in operating
activities was therefore $1,509,300. In the year ended June 30, 1999
$63,500 was used in operating activities.
For the year ended June 30, 2000, net cash used in investing activities was
$1,434,900. We spent $129,700 on computer hardware, software and equipment,
$10,000 on leasehold improvements, $45,200 on patent and trademark
applications, $250,000 on intellectual property, and $1,000,000 on short-
term investments. The computer hardware and software purchases related to
server upgrades and computers used by programmers. The leasehold
improvements relate to our new Vancouver offices which opened in June 2000.
For the year ended June 30, 2000, net cash provided by financing activities
was $10,477,100 attributable to the private placements of equity
securities, offset by related issue costs. In addition, we acquired a 60%
interest in DataXchg, Inc. at a deemed price of $1,000,000 in exchange for
the issuance of 1,000,000 shares of common stock. In the year ended June
30, 1999, $135,100 was provided by financing activities relating to the
issuance of a note payable.
Changes in exchange rates had a net effect of decreasing our cash balance
by $6,700.
As of June 30, 2000, we had no contractual capital commitments outstanding.
Our ability to generate significant revenue is uncertain. We incurred net
losses of approximately $1,573,200 during the year ended June 30, 2000. We
expect losses from operations and negative cash flow to continue for the
foreseeable future, at least through fiscal 2001, as a result of our
expansion plans and our expectation that operating expenses will increase
significantly in the next several years. The rate at which these losses
will be incurred is likely to increase from current levels. Although we
have experienced revenue growth, revenues have been substantially less than
expenses and may not increase in the future. If our revenue does not
increase and if our spending levels are not adjusted accordingly, we may
not generate sufficient revenue to achieve profitability, which would have
a materially adverse effect on our business, financial condition and
results of operations. Even if we achieve profitability, we may not sustain
or increase profitability on a quarterly or annual basis in the future.
Our working capital requirements depend on numerous factors. We have
experienced increased expenditures since inception, consistent with growth
in our operations and staffing, and expect that this trend will continue
for the foreseeable future. We anticipate incurring additional expenses to
increase our marketing and sales efforts, for software and infrastructure
development. Additionally, we will continue to evaluate possible
investments in businesses, products and technologies, the expansion of our
marketing and sales programs and brand promotions. If we experience a
shortfall in revenue in relation to expenses, or if our expenses precede
increased revenue, our business, financial condition and results of
operations could be materially and adversely affected
We currently estimate that available cash resources at June 30, 2000 will
be sufficient to meet our anticipated needs for working capital and capital
expenditures through June 2001. We may need to raise additional funds,
however, in order to fund more rapid expansion, to develop new or enhance
existing services or products, to respond to competitive pressures or to
acquire complementary products, businesses or technologies. There can be no
assurance that any required additional financing will be available on terms
favorable to us, or at all. If additional funds are raised by the issuance
of equity securities, stockholders may experience dilution of their
ownership interest and these securities may have rights senior to those of
the holders of the common stock. If additional funds are raised by the
issuance of debt, we may be subject to certain limitations on our
operations, including limitations on the payment of dividends. If adequate
funds are not available or are not available on acceptable terms, we may be
unable to fund our expansion, successfully promote our brand name, take
advantage of acquisition opportunities, develop or enhance services or
respond to competitive pressures, any of which could have a materially
adverse effect on our business, financial condition and results of
operations.
Some of our revenues are earned and a substantial portion of our payroll
and other expenses are paid outside the United States in currencies other
than US dollars. Because our financial results are reported in US dollars,
they are affected by changes in the value of the various foreign currencies
in which we make payments in relation to the US dollar. We do not cover
known or anticipated currency fluctuation exposures through foreign
currency exchange option or forward contracts. The primary currency for
which we have foreign currency exchange rate exposure is the Canadian
dollar. Our financial instruments, including cash, accounts receivable,
accounts payable and accrued liabilities are carried at cost which
approximates their fair value because of the short-term maturity of these
instruments.
<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
XML-GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
<PAGE>
<PAGE>
XML - GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
JUNE 30, 2000 AND 1999
Page
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . .1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Statement of Operations . . . . . . . . . . . . . . . . . . . . . . .3
Statement of Stockholders' Equity (Deficit) . . . . . . . . . . . . .4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . .5
Notes to Consolidated Financial Statements. . . . . . . . . . . . 6-15
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
XML - Global Technologies, Inc.
We have audited the accompanying consolidated balance sheet of XML - Global
Technologies, Inc. and subsidiaries as of June 30, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended June 30, 2000 and the period May 18, 1999
(date of inception) to June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of XML - Global Technologies, Inc. and subsidiaries as of June 30,
2000 and 1999, and the results of their operations and their cash flows for
the year ended June 30, 2000 and the period May 18, 1999 (date of
inception) to June 30, 1999 in conformity with generally accepted
accounting principles.
MOSS ADAMS LLP
Bellingham, Washington
August 14, 2000
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
XML - GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 AND 1999
ASSETS
June 30, June 30,
2000 1999
--------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,535,852 $ 9,581
Investments in securities available
for sale 1,000,000 -
Trade accounts receivable 17,185 8,232
Other receivable 53,653 3,509
Prepaid expenses 11,869 4,658
Deferred income taxes 2,622 -
------------- -------------
Total current assets 8,621,181 25,980
PROPERTY AND EQUIPMENT, net 158,633 54,938
INTANGIBLE ASSETS
Intellectual property rights 1,250,000 -
Trademarks and patents 52,193 7,134
------------- -------------
TOTAL ASSETS $ 10,082,007 $ 88,052
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 95,999 $ 55,182
Income taxes payable 7,178 -
Due to directors - 8,755
Note payable - 135,135
------------- --------------
Total current liabilities 103,177 199,072
------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value
100,000,000 shares authorized,
none issued and outstanding
at June 30, 2000 and June 30,
1999 - -
Common stock, $.0001 par value,
500,000,000 shares authorized,
27,505,000 and 17,500,000 shares
issued and outstanding at June 30,
2000 and June 30, 1999,
respectively 2,751 1,750
Additional paid-in capital 11,675,258 8,079
Accumulated other comprehensive
income (loss) (5,089) -
Accumulated deficit (1,694,090) (120,849)
------------ -------------
Total stockholders' equity
(deficit) 9,978,830 (111,020)
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 10,082,007 $ 88,052
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
XML - GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000 AND FOR THE PERIOD
MAY 18, 1999 (DATE OF INCEPTION) TO JUNE 30, 1999
2000 1999
---- ----
<S> <C> <C>
REVENUE $ 53,185 $ 2,137
------------- -------------
OPERATING EXPENSES
Research and development 774,114 49,809
Marketing and selling 218,713 -
General and administrative 629,075 70,091
Fair value of options granted to
consultants 55,898 -
Depreciation and amortization 35,578 3,086
------------- -------------
Total operating expenses 1,713,378 122,986
OPERATING LOSS (1,660,193) (120,849)
INTEREST INCOME 94,161 -
------------- -------------
NET LOSS BEFORE PROVISION FOR INCOME
TAXES (1,566,032) (120,849)
PROVISION FOR INCOME TAXES 7,209 -
-------------- -------------
NET LOSS $ (1,573,241) $ (120,849)
============== =============
LOSS PER SHARE
Basic $ (0.07) $ (0.01)
============== =============
Diluted $ (0.07) $ (0.01)
============== =============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
XML - GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD MAY 18, 1999 (DATE OF INCEPTION) TO JUNE 30, 1999
Accumulated
Additional Other
Common Stock Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Income (Loss) Total
------ ------ ------------------------------------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MAY 18, 1999
(date of inception) - $ - $ - $ - $ - $ -
Share issuances for cash 12,500,000 1,250 11,250 - - 12,500
Net loss - - - (120,849) - (120,849)
Assumption of liabilities
of International
Capital Funding, Inc. 5,000,000 500 (3,171) - - (2,671)
------------ ---------- ----------- ----------- ------------ -----------
BALANCE, June 30, 1999 17,500,000 1,750 8,079 (120,849) - (111,020)
Share issuances for cash 8,969,865 897 10,441,250 - - 10,442,147
Share issuance for purchase
of DataXchg Inc. 1,000,000 100 999,900 - - 1,000,000
Share issuances on exercise
of warrants 500,000 50 34,950 - - 35,000
Extinguishment of note
payable to stockholder 135,135 14 135,121 - - 135,135
Return of unvested common stock (600,000) (60) 60 - - -
Issuance of compensatory
stock options - - 55,898 - - 55,898
Foreign currency translation
adjustment, net of $2,622
of tax - - - - (5,089) (5,089)
Net loss - - - (1,573,241) - (1,573,241)
------------- ---------- ----------- ---------- ------------- -----------
Total comprehensive
income (loss) (1,578,330)
------------- ---------- ----------- ----------- ------------- -----------
BALANCE, June 30, 2000 27,505,000 $ 2,751 $11,675,258 $(1,694,090) $ (5,089) $9,978,830
============= ========== ============= ============ ============ ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
XML - GLOBAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000 AND FOR THE PERIOD
MAY 18, 1999 (DATE OF INCEPTION) TO JUNE 30, 1999
Increase (Decrease) in Cash
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,573,241) $ (120,849)
Adjustments to reconcile net loss to net
cash used in operating activities
Stock issued in exchange for intellectual
property rights and for services - 12,500
Depreciation and amortization 35,578 3,086
Fair value of options granted to
consultants 55,898 -
Changes in operating assets and liabilities
Trade accounts receivable (8,923) (1,661)
Other receivables (49,475) (3,509)
Prepaid expenses (7,239) (4,658)
Trade accounts payable and accrued
liabilities 39,705 50,389
Income taxes payable 7,209 -
Advances due to directors (8,796) 1,223
------------ -------------
Net cash used in operating activities (1,509,284) (63,479)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments available for sale (1,000,000) -
Purchases of property and equipment (139,684) (55,552)
Acquisition of trademarks and patents (45,246) (7,134)
Acquisition of intellectual property (250,000) -
Acquisition of subsidiary, net of cash
acquired - 611
------------- -------------
Net cash used in investing activities (1,434,930) (62,075)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock and exercise
of warrants, net of issue costs 10,477,147 -
Proceeds from issuance of note payable - 135,135
------------- -------------
Net cash provided from financing
activities 10,477,147 135,135
------------- -------------
EFFECT OF CHANGES IN EXCHANGE RATES (6,662) -
------------- -------------
NET CHANGE IN CASH 7,526,271 9,581
CASH AND CASH EQUIVALENTS, beginning
of period 9,581 -
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 7,535,852 $ 9,581
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ - $ -
============= =============
Income taxes paid $ - $ -
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH
TRANSACTION
Shares issued for acquisition of
subsidiary $ 1,000,000 $ -
============= =============
Extinguishment of note payable to
stockholder $ (135,135) $ -
============= =============
Assumption of liabilities of
International Capital Funding, Inc. $ - $ 2,671
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
<PAGE>
NOTE 1 - ORGANIZATION AND OPERATIONS
ORGANIZATION AND DEVELOPMENT STAGE OPERATIONS
Effective August 27, 1999, XML-Technologies, Inc. (XML-Technologies) and
International Capital Funding, Inc. (ICF) entered into an agreement and plan
of reorganization (the Agreement). In accordance with the Agreement, the
shareholders of XML-Technologies received 12.5 million shares of ICF stock in
exchange for the 12.5 million outstanding shares of XML-Technologies. The
stockholders of ICF retained 5 million shares in exchange for no assets and
the assumption of $2,671 of liabilities of ICF by XML-Technologies. The
transaction was accounted for as a recapitalization of XML-Technologies and
the accompanying consolidated financial statements present the financial
position, results of operations, and cash flows of XML-Technologies. After
entering into the Agreement, the ownership percentage of the original
stockholders of XML-Technologies was reduced from 100% to 71%.
ICF was organized in 1991 for the purpose of consummating a merger or
acquisition with a private entity. Prior to entering into the Agreement, it
had no material amount of assets or liabilities and no operations. Subsequent
to completing the Agreement, ICF changed its name to XML-Global Technologies,
Inc. (XML-Global Technologies or the Company) and changed its year-end to June
30.
The capital structure in the accompanying consolidated financial statements
reflects a ten for one stock split of ICF shares authorized on August 3, 1999
in anticipation of entering into the Agreement.
XML-Technologies is a Nevada corporation organized May 18, 1999 to hold either
directly or indirectly all outstanding shares of XML-Global Research, Inc. and
Walkabout Website Designs, Ltd., both of which are British Columbia
corporations. The Company and its subsidiaries engage in the business of
developing Internet based software applications using XML (eXtensible Markup
Language). XML is an abbreviated version of SGML (Standard General Markup
Language), the international standard for defining description of the
structure and content of electronic documents.
For the period May 18, 1999 through June 30, 1999, the Company and its
subsidiaries' efforts were devoted to legal formation; financial planning;
recruiting directors, advisors and employees; and raising additional
financing. Development stage operations during this period were financed with
a loan from a director of the Company. In July 1999, the Company commenced
selling its e-commerce software and, accordingly, is no longer a development
stage company.
As described in Note 3, during fiscal 2000, the Company acquired DataXchg,
Inc., a Delaware corporation that owns the rights to certain XML-based e-
commerce technology.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of XML-Global Technologies, Inc. and its wholly-owned U.S. and
Canadian subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - All highly liquid investments with a maturity of
three months or less at the time of purchase are consider to be cash
equivalents. Cash equivalents include cash on deposit with banks, money
market funds, and managed bond funds.
INVESTMENTS IN SECURITIES AVAILABLE FOR SALE - Investments in debt and equity
securities with readily determinable fair values are classified as available
for sale and reported at fair value, adjusted for other than temporary
declines in value. Realized and unrealized gains and losses are computed
using the specific identification method. Unrealized gains and losses are
included in the determination of comprehensive income, net of applicable
income taxes.
Securities available for sale consist solely of adjustable rate corporate
notes that mature in October 2003. At June 30, 2000, there are no unrealized
gains or losses on the securities.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company considers all trade accounts
receivable to be fully collectible. Accordingly, no allowance for doubtful
accounts has been recorded.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
INTANGIBLE ASSETS - Intellectual property rights consist primarily of the
rights to certain technology known as "ExpressXchg," which were acquired in
connection with the business combination with DataXchg, Inc. described in Note
3. The recorded value of the rights is $1 million. Other rights relate to
certain electronic signature verification technology obtained for $250,000
cash. Both rights are being amortized using the straight-line method over
four years. The rights were acquired during June 2000, and through June 30,
2000, no amortization expense was recorded.
Legal costs associated with obtaining and protecting trademarks and patents
are capitalized and amortized over five years. As of June 30, 2000, no
trademarks or patents were perfected, and no amortization expense was
recorded.
VALUATION OF LONG-LIVED ASSETS - The Company periodically reviews long-lived
assets, including identifiable intangible assets, whenever events or changes
in circumstances indicate that the carrying amount of an asset may be impaired
and not recoverable. Adjustments are made if the sum of the expected future
undiscounted operating cash flows is less than the carrying amount.
REVENUE RECOGNITION - The Company recognizes revenue when earned, in
accordance with American Institute of Certified Public Accountants Statement
of Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2 with Respect to Certain Transactions. Royalties
based upon licensees' revenues or usage are recognized as licensees' revenues
are earned or usage occurs. In the event that licensees' revenue recognition
criteria are not met, revenue is recognized when received. Maintenance and
subscription revenue is recognized ratably over the contract period. Revenue
attributable to significant undelivered elements, including maintenance and
technical support, is recognized over the contract period as elements are
delivered. Revenues from fixed-price service contracts and software
development contracts requiring significant production, modification, or
customization are recognized using the percentage-of-completion method.
Revenue from service contracts that are based on time incurred is recognized
as work is performed.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are expensed
as incurred. Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,
does not materially affect the Company.
INCOME TAXES - The Company accounts for income taxes using the liability
method. Deferred taxes are recognized for temporary differences between the
basis of assets and liabilities for financial and income tax purposes at
enacted tax rates. Deferred tax amounts represent the future tax consequences
of those differences, which will be either deductible or taxable when the
assets and liabilities are recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. The Company files a consolidated tax return in the
United States. It files separate tax returns for each of its Canadian
subsidiaries in Canada. Additionally, the Canadian subsidiaries are subject to
provincial income taxes in Canada.
FOREIGN CURRENCY TRANSLATION - All asset and liability accounts of Canadian
operations are translated into U.S. dollars at current exchange rates.
Revenues and expenses are translated using the average exchange rate
prevailing during the period. Foreign currency translation adjustments are
reported as a component of accumulated other comprehensive income. Such
adjustments were not material during the period May 18, 1999 (date of
inception) to June 30, 1999.
EARNINGS PER SHARE - The Company reports earnings per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share.
SEGMENT INFORMATION - The Company reports segment information in accordance
with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 requires that reportable segments be designated
using a management approach, which relies on the internal organization used by
management for making operational decisions and assessing performance. SFAS
No. 131 also requires certain disclosures about products and services,
geographic areas, and major customers.
NEW ACCOUNTING STANDARD - In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. Among other provisions, SFAS No. 133 requires that entities
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those financial instruments at fair value. Accounting for changes
in fair value is dependent on the use of the derivatives and whether such use
qualifies as hedging activity. The new standard, as amended, becomes effective
for the Company in fiscal 2001, and management is currently assessing the
impact, if any, it may have on financial position and results of operations.
NOTE 3 - MERGERS AND ACQUISITIONS
XML-GLOBAL RESEARCH, INC.
Effective May 20, 1999, XML-Technologies, Inc. completed the acquisition of
XML-Global Research, Inc. (Global) by purchasing all outstanding shares of
common stock of Global for a nominal amount. Global is a British Columbia
corporation organized on February 4, 1999 for the purpose of engaging in
software development. The acquisition has been accounted for using the
purchase method of accounting for business combinations. Prior to the
acquisition, Global had no significant operations, and no goodwill was
recorded in connection with the combination.
WALKABOUT WEBSITE DESIGNS, LTD.
Effective May 27, 1999, XML-Global Research, Inc. completed the acquisition of
Walkabout Website Designs, Ltd. (Walkabout) by purchasing all outstanding
shares of common stock of Walkabout for a nominal amount. Walkabout is a
British Columbia corporation organized on September 1, 1998 for the purpose of
engaging in software development. The acquisition has been accounted for using
the purchase method of accounting for business combinations; and, accordingly,
the operating results of Walkabout have been included in the Company's
financial statements from the date of acquisition. No goodwill was recorded in
connection with the combination.
DATAXCHG.INC.
In October 1999, the Company and one of its non-employee directors, David
Webber, co-founded DataXchg, Inc. ("DataXchg"), a Delaware corporation. The
Company received 40% of common shares and David Webber received the other 60%.
In exchange for the shares, the parties agreed to transfer all rights to
certain technology and other intellectual property related to certain B2B
(Business-to-Business) and XML-EDI (Electronic Data Interchange) solutions.
Neither party has a historical cost basis in the assets that were transferred
to DataXchg.
Under the terms of a licensing agreement, DataXchg granted the Company the
right to use, develop, and sublicense certain technology known as
"ExpressXchg." Pursuant to the license agreement, the Company will pay
royalties to DataXchg equal to 80% of net revenues derived from the sale and
licensing of products that are either based on the technology owned by
DataXchg or jointly developed by the Company and DataXchg. The Company will
pay royalties equal to 20% of net revenues derived from third party use of the
technology and intellectual rights.
Effective June 28, 2000 the Company acquired in a tax-free exchange Mr.
Webber's 60% interest in DataXchg in exchange for the issuance of 1,000,000
shares of the Company's common stock. For financial reporting purposes, the
acquisition has been accounted for as a purchase. A $1,000,000 value was
assigned to the shares given as consideration for the purchase, based on the
share price of other issuances of Company stock during the period the parties
agreed in substance to the terms of the purchase. The purchase price was
allocated to the technology rights held by DataXchg and will be amortized over
four years. Management has reviewed the $1,000,000 carrying amount of the
technology rights and has identified no events or changes in circumstances
that would indicate that the carrying amount may not be recoverable.
DataXchg has no history of operations; through June 28, 2000, it had no
revenues or expenses. Accordingly, there are no pro forma results of
operations to report for periods ended prior to that date that include
DataXchg.
Prior to the business combination with DataXchg, the Company's 40% investment
was carried at cost, adjusted for its proportionate share of undistributed
earnings or losses. Through June 28, 2000, DataXchg had no earnings or
losses.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
Computer hardware $141,215 $ 50,685
Computer software 8,553 -
Leasehold improvements 9,975 -
Office equipment 37,406 7,339
---------- ----------
197,149 58,024
Accumulated depreciation (38,516) (3,086)
---------- ----------
$158,633 $ 54,938
========== ===========
</TABLE>
NOTE 5 - INCOME TAXES
Net income (loss) before provision for income taxes consists of the following:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
U.S. operations $(1,695,101) $ -
Canadian operations 129,069 (120,849)
------------ ------------
$(1,566,032) $ (120,849)
============ ============
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Current expense
Canadian $ 7,209 $ -
Deferred expense (benefit)
U.S. (576,300) -
Canadian 48,300 (48,300)
Change in valuation allowance 528,000 48,300
------------ ------------
$ 7,209 $ -
============ ============
</TABLE>
The total provision differs from the amount computed using U.S. federal
statutory income tax rates as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net loss before provision for
income taxes $(1,566,032) $ (120,849)
U.S. statutory rate 34% 34%
Tax benefit at statutory rate (532,500) (41,100)
Excess income tax expense
(benefit) in Canada and other 11,709 (7,200)
Increase in valuation allowance 528,000 48,300
------------ ------------
$ 7,209 $ -
============ ============
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Assets
Net operating loss
carryforwards $ 557,300 $ 48,300
Stock-based compensation 19,000 -
Foreign currency translation
adjustment 2,622 -
Valuation allowance (576,300) (48,300)
------------ ------------
Net deferred tax asset $ 2,622 $ -
============ ============
</TABLE>
The Company has approximately $1.6 million of U.S. net operating loss
carryforwards, which expire in 2020. Uncertainty exists surrounding
realization of the benefit of the loss carryforwards; and, accordingly, the
Company has recorded a $576,300 valuation allowance to reduce deferred tax
assets to an amount that will more likely than not be realized.
Under existing tax laws, undistributed earnings of foreign subsidiaries are
not subject to U.S. tax until distributed as dividends. Currently, the
Company's Canadian subsidiaries have no undistributed earnings. In the event
such earnings accumulate, they would be considered to be indefinitely
reinvested, and no deferred income taxes would be provided on such amounts.
NOTE 6 - EARNINGS PER SHARE
The numerators and denominators of basic and diluted earnings per share are as
follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Numerator - net loss $(1,573,241) $ (120,849)
Denominator - weighted average
number of shares outstanding 21,205,800 17,500,000
</TABLE>
As described in Note 7 and Note 8, during fiscal 2000, the Company granted
stock options and warrants to purchase up to 9,975,000 shares of common stock.
These shares were not included in computing diluted earnings per share because
their effects were antidilutive.
NOTE 7 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 100,000,000 authorized shares of $0.01 par value preferred
stock. The Board of Directors may authorize issuance of any number of shares
in series and assign specific rights and preferences to each series without
limitation. As of June 30, 2000 and 1999, no shares have been issued.
COMMON STOCK AND STOCK WARRANTS
The Company has a single class of $0.0001 par value common stock. Authorized
shares total 500 million. After giving effect to the Agreement discussed in
Note 1 and a ten for one stock split authorized on August 3, 1999, the Company
had 17.5 million shares issued and outstanding at June 30, 1999. At June 30,
2000, the Company had 27.5 million shares issued (or committed to be issued)
and outstanding.
During fiscal 2000, the Company entered into the equity transactions described
below. All issuances are exempt from registration in reliance on Rule 506 of
Regulation D or Section 4(2) of the Securities Act of 1933.
1) Concurrent with completing the Agreement discussed in Note 1, the
Company issued 2,330,000 units to investors at $1.00 per unit for
total proceeds of $2,330,000. Total issue costs were approximately
$173,000. Units issued consist of one common share and a stock
purchase warrant entitling the holder to acquire one common share at
an exercise price of $4.00 within the first six months following the
issue date, or $6.00 within the second six months following the issue
date. Subsequent to issuance, the terms of the warrants were modified
such that the holder may acquire one share of common stock at an
exercise price of $4.00 up until December 31, 2000.
2) Effective September 1, 1999, the Company issued a warrant that
entitles the holder to purchase 200,000 shares of common stock for
$5.00 per share. The term of the warrant is five years.
3) Effective January 13, 2000, the Company entered into a Securities
Purchase Agreement (the "Agreement") with XMLFund LLC ("XMLFund"), an
unrelated third party. Under the Agreement, XMLFund agreed to
purchase 500,000 units at a price of $2.00 per unit for total proceeds
of $1 million. Each unit consists of two shares of common stock, one
Class A warrant and one Class A-1 warrant. Each Class A warrant
entitles XMLFund to purchase one additional share of common stock at a
price of $2.00 per share, and each Class A-1 warrant entitles XMLFund
to purchase one additional share of common stock at a price of $0.07
per share. The term of the Class A warrants is three years and the
term of the Class A-1 warrants is 60 days. The Class A-1 warrants were
exercised in March 2000, from which the Company received gross
proceeds of $35,000. Although the exercise price of the Class A-1
warrants is below the fair value of the Company's stock, the warrants
were not issued in consideration of past or future services received
from XMLFund. The total estimated fair value of all equity
instruments comprising the units sold to XMLFund approximate the total
proceeds received. Accordingly, the Company has recognized no
compensation expense related to the Class A-1 warrants.
If within one year of the sale of the units (or once all warrants are
exercised, if earlier) the Company proposes to register any of its common
stock under the Securities Act of 1993 in connection with a public
offering, the Company agrees to use its best efforts to register also the
shares held by XMLFund. In the event the Company proposes to offer for
sale any new common shares or securities convertible into common shares,
or any other class of capital stock, the Company has granted XMLFund the
preemptive right to purchase additional shares necessary to maintain its
percentage interest in the Company.
4) Effective February 22, February 29, and April 7, 2000, the Company
entered into agreements to issue a total of 1,050,000 units at a price
of $1.00 per unit for total proceeds of $1,050,000. Each unit
consists of one share of common stock and one warrant. Each warrant
entitles holders to purchase one additional share of common stock at a
price of $4.00 per share. The warrants expire on December 31, 2000.
If within one year of the sale of the units the Company proposes to
register any of its common stock under the Securities Act of 1933 in
connection with a public offering, the Company agrees to use its best
efforts to register also the shares issued in these private
placements.
5) On February 24, 2000, one of the Company's founding stockholders left
the employee of the Company. The employee and the Company agreed that
he would return 600,000 of the 800,000 shares originally issued to
him, at no cost to the Company.
6) Effective April 5, 2000, the Company entered into a second Securities
Purchase Agreement (the Agreement) with XMLFund. Under this
Agreement, XMLFund agreed to purchase 100,000 units at a price of
$1.00 per unit for total proceeds of $100,000. Each unit consists of
one share of common stock and one warrant. Each warrant entitles
XMLFund to purchase one additional share of common stock at $4.00 per
share. The warrants expire on December 31, 2000. If, within one year
of the sale of the units, the Company proposes to register any of its
common stock under the Securities Act of 1933 in connection with a
public offering, the Company agrees to use its best efforts to
register also the shares held by XMLFund.
7) Effective March 3, 2000, the Company engaged Westminster Securities
Corporation (Westminster) to serve as its placement agent for the
purpose of offering up to 105 units at a price of $75,000 per unit.
Each unit consists of 50,000 shares of common stock and 50,000
redeemable warrants. During the first six months of the 18 month term
of the warrants, each warrant entitles holders to purchase one
additional share of common stock at a price of $4.00 per share.
During the following 12 months, holders are entitled to purchase
additional common shares at a price of $6.00 per share. The warrants
are redeemable by the Company at $0.01 per warrant in the event the
company (i) registers the shares to honor the warrants, (ii) the
shares are listed on a national exchange, Nasdaq, or the Over-the-
Counter Bulletin Board, (iii) the closing bid price of such shares for
the 20 trading days prior to redemption is 200% of the exercise price
of the warrants, and (iv) no lockup provisions restrict the resale of
the shares. In connection with the offering, the Company intends to
register up to 5.25 million common shares and 5.25 million warrants in
various states where such securities may be sold.
Through June 30, 2000 the Company received paid subscriptions for 92.5
units for gross proceeds of $6,937,500. Related costs of issuance were
approximately $667,000. In connection with the issuance, the Company
granted Westminster an option to purchase 9.25 of the units at the
$75,000 unit price. The term of the option is 18 months.
NOTE 8 - 1999 STOCK PLAN
On October 19, 1999, the Company adopted a stock incentive plan (the "1999
Stock Plan") to provide incentives to employees, directors and consultants.
Under the 1999 Stock Plan, the Company has reserved a total of 4,000,000
shares of Common Stock for issuance with the maximum term of options being ten
years. The Board of Directors has the exclusive power over the granting of
options and their vesting provisions. During the year ended June 30, 2000, the
Company granted 1,170,000 options to employees, directors and consultants at
an exercise price of $1.00 per share and 25,000 options to employees at an
exercise price of $1.50 per share. The options have a seven year term.
A summary of the status of the Plan during fiscal 2000 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
----------- -----------
<S> <C> <C>
Options outstanding at June 30,
1999
Granted 1,195,000 $ 1.01
Exercised - -
Forfeited (25,000) 1.00
Options outstanding at June 30,----------- ------------
2000 1,170,000 $ 1.01
=========== ============
Options exercisable at June 30,
2000 1,140,000 $1.00
=========== ============
</TABLE>
<PAGE>
<PAGE>
A summary of stock options outstanding at June 30, 2000 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- ---------------------
Weighted-
Average Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
--------- ------------ ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$1.00 1,145,000 6.5 years $ 1.00 1,140,000 $ 1.00
$1.50 25,000 7.0 years $ 1.50 - 1.50
---------- -----------
1,170,000 1,140,000
========== ===========
</TABLE>
<PAGE>
<PAGE>
The Company applies the provision of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations to account for its stock-
based awards. Accordingly, costs for employee stock options or issuance of
shares is measured as the excess, if any, of the fair value of the Company's
common stock at the measurement date over the amount the employee must pay to
acquire the stock. The cost for the issuance of options to non-employees is
based on the fair value of the options granted at the date the services were
performed using the Black-Scholes option pricing model. Stock-based
compensation expense recognized during fiscal 2000 was $55,898.
SFAS No. 123, Accounting for Stock-Based Compensation, requires disclosure of
the pro forma effect of applying the fair value method of accounting for stock
options issued to employees. The Company uses the Black-Scholes option-pricing
model to compute estimated fair value, based on the following assumptions:
<TABLE>
<CAPTION>
<S> <C> <C>
Risk-free interest rate 6.0%
Dividend yield rate -%
Price volatility 20%
Weighted average expected life of
options 3 years
</TABLE>
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation. FASB Interpretation No. 44 clarifies that non-employee members
of an entity's Board of Directors do not meet the definition of an employee,
in which case the requirements of SFAS No. 123 must be applied. However, an
exception is made to require the application of APB Opinion No. 25 to stock
compensation granted to a non-employee director for services provided as a
director if the director was (a) elected by stockholders or (b) appointed to a
board position that will be filled by stockholder election when the existing
term expires.
The pro forma effect of applying the fair value method of accounting for
options issued to employees and directors results in a $133,400 increase in
net loss and a $0.01 increase in net loss per share for the year ended
June 30, 2000.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended June 30, 2000, the Company extinguished a $135,135 note
payable due to a director through the issuance of common stock. The Company
also paid $184,000 in management fees to directors and to companies controlled
by directors.
NOTE 10 - CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist of cash and cash equivalents, securities available for
sale, and trade accounts receivable. The Company places its temporary cash
investments with major U.S. and Canadian banks and a U.S. brokerage firm.
Cash deposited with U.S banks are insured up to $100,000. Cash deposited with
Canadian banks are insured up to Cdn $60,000. Securities, mutual funds, money
market funds, and other investments maintained with a U.S. brokerage firm are
uninsured.
The Company extends credit to customers based on evaluation of customers'
financial condition and credit history. Collateral is generally not required.
Customers include U.S., Canadian, and Korean entities engaged in e-commerce
and software development.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, cash equivalents and trade accounts receivable and
payable, and accrued liabilities all approximate their fair value due to the
short-term nature of the instruments. Investments in securities available for
sale are reported at fair value.
NOTE 12 - SEGMENT AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company's operations consist of a single reportable segment. This segment
derives its revenues from sales of products and services employing XML
(eXtensible Mark-up Language) that are used by businesses to conduct e-
commerce. Through June 30, 1999, the Company's efforts were focused primarily
on development stage operations, and activities within this segment were
limited prior to that date. The following tables and schedules summarize
certain information about this segment.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
XML-Based
Products and Services
---------------------
2000 1999
------ -------
<S> <C> <C>
External revenues $ 53,185 $ 2,137
Intersegment revenues - -
Interest expense - -
Depreciation and amortization 35,578 3,086
Segment loss before tax (1,510,228) (120,849)
Segment assets 1,587,019
88,052
Expenditures for segment assets 434,930 62,686
Software rights acquired for stock 1,000,000 -
</TABLE>
Following are reconciliations to corresponding totals in the accompanying
financial statements:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Total revenues for reportable segments $ 53,185 $ 2,137
Less intersegment revenues - -
------------ ------------
Consolidated revenues $ 53,185 $ 2,137
============ ============
Total loss before tax for reportable
segments $(1,510,228) $ (120,849)
Corporate headquarters expense,
net of interest income 45,804 -
------------ ------------
Consolidated net loss before
provision for income taxes $(1,556,032) $ (120,849)
============= ============
Total assets for reportable segments $ 1,587,019 $ 88,052
Unallocated cash and investments 8,494,988 -
------------- ------------
Consolidated total assets $10,082,007 $ 88,052
============= =============
</TABLE>
GEOGRAPHIC INFORMATION
Following is a summary of revenues and long-lived assets related to the
respective countries in which the Company operates. Revenues are attributed to
countries based on location of customers.
<TABLE>
<CAPTION>
2000 1999
----- ------
Long-Lived Long-Lived
Revenues Assets Revenues Assets
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
United States $ 7,254 $ - $ - $ -
Canada 30,731 158,633 2,137 54,938
Korea 15,200 - - -
--------- ---------- ---------- ----------
Consolidated
totals $ 53,185 $ 158,633 $ 2,137 $ 54,938
========== ========== ========== ==========
</TABLE>
MAJOR CUSTOMERS
The Company currently has no major customers.
NOTE 13 - LEASE COMMITMENT
In March 2000, the Company entered into a lease agreement for a new operating
facility in Vancouver, British Columbia. Prior to entering into this
agreement, the Company had been renting its existing facility on a short-term
basis. The new lease commenced on June 1, 2000 and runs for five years. During
the first two years, monthly lease payments are $4,700. However, the facility
is provided at no charge for the first five months of each of the first two
years. During the following three years, monthly lease payments are $5,500.
The lease agreement also requires that the Company pay its proportional share
of operating costs and property taxes.
Future minimum lease payments required under the lease, excluding the
Company's share of operating costs and property taxes, are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
----------
<S> <C> <C>
2001 $ 28,000
2002 38,200
2003 65,500
2004 65,500
2005 54,500
----------
$ 251,700
==========
</TABLE>
The effect of the scheduled rent increase and "rent holidays" are recognized
on a straight-line basis over the five-year term of the lease. During 2000
and 1999, rent expense was $73,700 and $5,900, respectively.
<PAGE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On August 23, 1999, the client-auditor relationship between the Company and
its principal accountants, Kish, Leake & Associates, P.C., ceased. The
resignation of Kish, Leake & Associates, P.C. was effective August 23, 1999.
The reports of Kish, Leake & Associates, P.C. related to the consolidated
financial statements of the Company for the fiscal years ended September 30,
1998, 1997 and 1996 contain a going concern qualification. With the exception
of the foregoing, the reports of Kish, Leake & Associates, P.C. related to the
consolidated financial statements of the Company for the fiscal year ended
September 30, 1998, 1997 and 1996 did not contain any adverse opinion or
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope, or accounting principles. In connection with the audits of the
Company's financial statements for the fiscal year ended September 30, 1998,
1997 and 1996, there were no disagreements with Kish, Leake & Associates, P.C.
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Kish, Leake & Associates, P.C., would have caused Kish, Leake
& Associates, P.C. to make reference to the matter in their report.
The Company has retained the accounting firm of Moss Adams LLP to serve as the
Company's independent accountant to audit the Company's financial statements.
Prior to its engagement as the Company's independent accountant, Moss Adams
LLP had not been consulted by the Company either with respect to the
application of accounting principles to a specific transaction or the type of
audit opinion that might be rendered on the Company's financial statements or
on any matter that was the subject of any prior disagreement between the
Company and its previous certifying accountant.
<PAGE>
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our executive officers, key employees and outside Directors and their
respective ages and positions are set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter Shandro 56 Chairman of the Board, President, Chief
Executive Officer, President and Director
Duane Nickull 36 Chief Technology Officer and Director
Simon Anderson 39 Chief Financial Officer and Director
Laurie Horvath 25 Controller and Principal Accounting Officer
Matt MacKenzie 23 Vice President Research and Development
David Webber 46 Director
</TABLE>
Peter Shandro has been our CEO and a Director since June 1999 and President
since June 2000. He was an initial founder of XML Technologies, Inc., the
Nevada corporation, and supervised its reorganization with the Company in
August 1999. From 1970 to 1982, he was a Partner and Vice President of
Marketing with FMH Canada, Ltd., a leisure products distribution company.
Since 1992, through his privately owned companies, Noram Capital Partners and
Wes-Sport Holdings, Ltd., he has arranged private debt and equity as well as
bank financing for both public and private companies. He is currently the
owner, President and Director of Spectrum BioTech, Inc., a private company
that holds the patents to a unique self-destructing safety syringe. This
company is not currently active. He is also a partner in Production Finance,
Inc., a merchant trade finance company specializing in financing companies in
the leisure and lifestyle products industry. From 1982 to 1991, he provided
management and marketing services for Noram Recreation, Ltd., a company
engaged in the development, financing and operation of eight aquatic
recreation businesses.
Duane Nickull has been a Director since August 1999. Mr. Nickull was our
President from August 1999 to June 2000 and our Chief Technology Officer from
June 2000 onward. He has worked with computers for 19 years and is a
certified level 2 HTML Designer with application skills in Javascript and
DHTML. Prior to helping form and organize XML, from 1986 to 1999 he was
President of Nickull-Dowdall Sales, Ltd., a cosmetics manufacturer.
Simon Anderson has been Chief Financial Officer and Director since June 1999.
Mr. Anderson is also a 50% owner and Vice President of MCSI Consulting
Services Inc. from 1996 to present, to which he devotes about half of his time
and attention. Mr. Anderson is both a Chartered Accountant and a Chartered
Business Valuator and from 1994 to 1996 was a partner with BDO Dunwoody, an
international accounting and consulting firm, where he specialized in mergers,
acquisitions and valuations. From 1999 to the present, he has been a director
of mv Video, a Vancouver-based post production facility. From 1999 to 2000 he
was Treasurer of MC2 Learning Systems, Inc. He was also a director of
Tradewind Communications, Ltd. from March 1997 to June 1999 and a director of
Flexemessaging.com, Inc. from March 1999 to June 1999. Mr. Anderson received
a Bachelor of Commerce in Accounting and Management Information Systems from
the University of British Columbia in May 1983 and was admitted as a member of
the Institute of Chartered Accountants in British Columbia in 1986. He is
also a member of the Canadian Institute of Charter Business Valuators.
Laurie Horvath has been our Controller and Principal Accounting Officer since
May 2000. Ms. Horvath was an Accountant with Martin Meeres, Chartered
Accountants from 1994 to 1998 and a Financial Analyst in Corporate Accounting
with Canadian Airlines International Ltd. from 1998 to May 2000. She was
admitted as a member of the Certified General Accountants Association of
Canada and British Columbia in August 1999.
Matthew MacKenzie has been our Vice President of Research and Development
since August 1999. Mr. MacKenzie attended the University of New Brunswick
from September 1996 to April 1999, majoring in Sociology. Prior to 1996, Mr.
MacKenzie was a high school student.
David R. R. Webber has been a Vice President of DataXchg and Director of the
Company since October 1999. Mr. Webber is co-founder of the XML/EDI Group, a
consortium which provides technical support to the advancement of XML/EDI
technologies as an emerging worldwide standard. In January 1999, he founded
Gnosis, Inc., a computer consulting firm which he continues to serve as
President. From January 1997 to January 1999, he was a Senior Engineer with
Elumen Solutions, a health care management information systems firm. From
September 1994 to January 1997, he was Project Manager for LNK Corporation, an
information technology research firm. From March 1994 to September 1994, he
was an EDI specialist with DynCorpViar. Mr. Webber has a degree in Physics
with Computing from the University of Kent at Canterbury which was received in
1976.
No family relationship exists between any of our directors and/or executive
officers.
Our directors each serve for a term of one year and are elected at each annual
meeting of our shareholders.
Currently, we do not have standing Audit, Compensation or Nominating
Committees of the Board of Directors. During fiscal 2001, we plan to form an
Audit Committee. No member of the Audit Committee will receive any additional
compensation for his service as a member of that Committee and members of this
committee will be primarily comprised of non-officer directors. The Audit
Committee will be responsible for providing assurance that financial
disclosures made by management reasonably portray our financial condition,
results of operations, plan and long-term commitments. To accomplish this,
the Audit Committee will oversee the external audit coverage, including the
annual nomination of the independent public accountants, review accounting
policies and policy decisions, review the financial statements, including
interim financial statements and annual financial statements, together with
auditor's opinions, inquire about the existence and substance of any
significant accounting accruals, reserves or estimates made by management,
review with management the Management's Discussion and Analysis section of the
Annual Report, review the letter of management representations given to the
independent public accountants, meet privately with the independent public
accountants to discuss all pertinent matters, and report regularly to the
Board of Directors regarding its activities.
We also plan to form a Compensation Committee during fiscal 2001. No member
of the Compensation Committee will receive any additional compensation for his
service as a member of that Committee. The Compensation Committee will be
responsible for reviewing pertinent data and making recommendations with
respect to compensation standards for our executive officers, including the
President and Chief Executive Officer, establishing guidelines and making
recommendations for the implementation of management incentive compensation
plans, reviewing the performance of the President and CEO, establishing
guidelines and standards for the grant of incentive stock options to key
employees under our Equity Incentive Plan, and reporting regularly to our
Board of Directors with respect to its recommendations.
ADVISORY BOARD
In February 2000, our Board of Directors authorized the establishment of an
Advisory Board whose members consist of persons who possess particular
expertise in one or more disciplines that we believe are relevant to our
strategic plan, business development and core technologies. To date, two
persons have agreed to serve as members of the Advisory Board: Scott Briggs
and Mark Van der Griend. The members of the Advisory Board do not exercise or
possess any of the authority of members of our Board of Directors, but are
merely advisors to our board.
Item 10. Executive Compensation.
The following table and discussions summarizes all compensation earned by or
paid to our Chief Executive Officer ("CEO") and the other most highly
compensated executive officers for all services rendered in all capacities to
us and our subsidiaries for each of our last three fiscal years. However, no
disclosure has been made for any executive officer, other than the CEO, whose
total annual salary and bonus is less than $100,000.
<PAGE>
<PAGE>
<TABLE>
TABLE 1
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation(1) Awards Payouts
-------------------------- ------------------- ---------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Year Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(2) ($) SARs ($) ($)
--------------- ------- -------- ----- --------- ------------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter Shandro 1999 $96,000 -0- -0- -0- 125,000 -0- -0-
------------------------------
</TABLE>
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED JUNE 30, 2000 AND JUNE 30, 2000
OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers at
June 30, 2000. No options were exercised during the year ended June 30, 2000.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
in the Money
Unexercised Options at June 30, 2000 Options at June 30,
2000(1)
Exercisable Unexercisable Exercisable
Unexercisable
------------ --------------- ----------- --
------------
<S> <C> <C> <C> <C>
Peter Shandro 125,000 - $ 62,500 $ -
Duane Nickull 125,000 - $ 62,500 $ -
David Webber 125,000 - $ 62,500 $ -
Matt Mackenzie 125,000 - $ 62,500
Simon Anderson 125,000 - $ 62,500
Laurie Horvath - 10,000 $ - $ -
Lawell King 25,000 - $ 12,500 $ -
</TABLE>
(1) Options are in the money if the market value of the shares covered thereby
is greater than the option exercise price. This calculation is based on the
estimated fair market value of the common stock at June 30, 2000, of $1.50
per share, less the exercise price.
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENTS
To date, we do not have any written employment agreements with any of our key
personnel. It is our intent to enter into such agreements with our key
employees: Messrs. Shandro, Nickull, MacKenzie and Hoglund, as soon as
possible.
We have entered into lock-up and vesting agreements with certain key personnel
pursuant to which their shares of common stock are subject to vesting over a
two-year period ending August 2001. It is our intent that these agreements
will provide additional incentive to those employees to continue devoting
their efforts and resources to our success until such time as their shares of
our common stock have become fully vested.
INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS
Our Articles of Incorporation provide that we shall indemnify, to the fullest
extent permitted by Colorado law, any of our directors, officers, employees or
agents who are made, or threatened to be made, a party to a proceeding by
reason of the former or present official position of the person, which
indemnity extends to any judgments, penalties, fines, settlements and
reasonable expenses incurred by the person in connection with the proceeding
if certain standards are met. At present, there is no pending litigation or
proceeding involving any of our directors, officers, employees or agents where
indemnification will be required or permitted. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers and controlling persons pursuant to the foregoing
provisions, or otherwise, we have been advised that, in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Our Articles of Incorporation limit the liability of our directors to the
fullest extent permitted by the Colorado Business Corporation Act.
Specifically, our directors will not be personally liable for monetary damages
for breach of fiduciary duty as directors, except for (i) any breach of the
duty of loyalty to us or our stockholders, (ii) acts or omissions not in good
faith or that involved intentional misconduct or a knowing violation of law,
(iii) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions,
(iv) violations of certain laws, or (v) any transaction from which the
director derives an improper personal benefit. Liability under federal
securities law is not limited by the Articles.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to beneficial
ownership of our common stock at June 30, 2000 by each person who beneficially
owns more than 5% of the common stock; by each of our executive officers named
in the Management section; by each of our Directors; and by all executive
officers and Directors as a group. Unless otherwise indicated, we believe all
persons in the table have sole voting and investment power for all shares
beneficially owned by them. (1)
<TABLE>
<CAPTION>
Percentage of Outstanding
Number of Shares Shares Owned
Name and Address of Of Common Stock Current
Beneficial Owner Beneficially Owned as of 9/6/00
--------------------------- ---------------------- ---------------
<S> <C> <C>
Duane Nickull 2,125,000 7.7%
Peter Shandro 860,000 3.1%
Simon Anderson 325,000 1.2%
Matt MacKenzie 1,625,000 5.9%
Jamie Hoglund 1,600,000 5.8%
Matthew J. Kavanaugh
3140 South Peoria Street
Unit K-230
Aurora, CO 80014 1,950,000 7.1%
XML Fund, LLC
777 108th Avenue, N.E., Suite 1800
Bellevue, WA 98004 3,050,000 11.1%
All Officers and Directors as a
Group (5 persons) 6,535,000 23.8%
________________
</TABLE>
Beneficial ownership is based on information provided to us, and the
beneficial owner has no obligation to inform us of or otherwise report any
changes in beneficial ownership. Except as indicated, and subject to
community property laws when applicable, the persons named in the table above
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
The percentages shown are calculated based upon 27,505,000 shares of common
stock outstanding on June 30, 2000. In calculating the percentage of
ownership, unless as otherwise indicated, all shares of common stock that the
identified person or group had the right to acquire within 60 days of June 30,
2000 upon the exercise of options and warrants are deemed to be outstanding
for the purpose of computing the percentage of shares of common stock owned by
such person or group, but are not deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by any other
person.
Unless otherwise stated, the beneficial owner's address is Suite 9 - 1818
Cornwall Avenue, Vancouver, BC, V6J 1C7 Canada.
We have granted options to purchase shares of our common stock to our
executive officers. Mr. Nickull was granted options to purchase 125,000
shares, Mr. Shandro was granted options to purchase 125,000, Mr. Anderson was
granted options to purchase 125,000 shares, Mr. MacKenzie was granted options
to purchase 125,000 shares and Mr. Hoglund was granted options to purchase
100,000 shares. The number of shares of common stock shown on the foregoing
table as being beneficially owned by each of these persons includes the shares
of common stock underlying these options.
Includes Warrants to purchase 500,000 shares of common stock at an exercise
price of $2.00 per share, Warrants to purchase an additional 100,000 of common
stock at an exercise price of $4.00 per share and Warrants exercisable to
purchase an additional 425,000 shares of common stock at an initial exercise
price of $4.00 per share until October 6, 2000 and thereafter at an exercise
price of $6.00 per share.
Does not give effect to David Pool, the Manager of XML Fund, becoming a
director subject to our obtaining directors' and officers' liability
insurance. Upon his election and including the securities owned by XML Fund,
the directors and officers of the company as a group, consisting of six
persons, would be the beneficial owners of 9,585,000 shares, representing
34.8% of the total issued and outstanding shares of our common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
FOUNDERS - XML - GLOBAL
When we were first organized in 1991, we issued a total of 500,000 shares of
our common stock to a total of 11 investors in consideration of a purchase
price of $.0003 per share. The following sets forth the names and the number
of shares received by persons who would be considered promoters:
<TABLE>
<CAPTION>
Name Number of Shares(1)
---- -------------------
<S> <C> <C>
Matthew J. Kavanaugh 2,550,000
Terry Whiteside 500,000
Marshal Griffin 500,000
Equitas Corp. 900,000
______________
</TABLE>
(1) Giving retroactive effect to a 10-for-1 forward split which occurred
in August 1999.
FOUNDERS - XML NEVADA; THE REORGANIZATION
In May 1999, XML Nevada was organized and simultaneously acquired 100% of the
outstanding equity securities of XML Research which in turn acquired 100% of
the outstanding stock of Walkabout Websites. The purpose of the transaction
was to consolidate all of the intellectual property and other assets
contributed by Messrs. Nickull, MacKenzie, Hoglund and Palethorpe into one
entity, XML Nevada. In that transaction, XML Nevada issued a total of
12,500,000 shares of its common stock in consideration of the XML Research and
Walkabout Websites shares, which indirectly resulted in the acquisition of the
desired intellectual property and other assets. The persons who would be
deemed founders of XML Nevada, and the number of shares of common stock
received by each, is set forth below:
<TABLE>
<CAPTION>
Name Number of Shares(1)
---- -------------------
<S> <C> <C>
Duane Nickull 2,000,000 *
Matt MacKenzie 1,500,000 *
Jamie Hoglund 1,500,000 *
Peter Shandro 735,000
Simon Anderson 200,000
Michael Palethorpe 200,000 **
</TABLE>
_________________
* Subject to vesting agreements over a two year period ending August 2001.
** Mr. Palethorpe left the Company in February 2000 and surrendered 600,000
of his shares for cancellation.
In August 1999, XML Global (then known as International Capital Funding, Inc.)
acquired 100% of the issued and outstanding shares of common stock of XML
Nevada. In that transaction, all 12,500,000 shares of XML Nevada were
exchanged on a one-for-one basis for 12,500,000 shares of XML Global, which
then represented approximately 63% of the total issued and outstanding shares
of common stock of XML Global.
DATAXCHG, INC.
In 1999, we formed and organized a new company called DataXchg, Inc. 40% of
the equity securities of DataXchg, Inc. is held by us and 60% was held by
David Webber. At that time, David Webber also became a member of our Board of
Directors and a consultant.
Upon its organization, David Webber assigned to DataXchg, Inc. all of the
patents, patent rights and other intellectual property owned by them related
to the Xchg product, an e-business to e-business interchange solution that
permits the conversion of standard EDI documents into an XML format. As part
of the arrangement, DataXchg, Inc. granted to XML Global an exclusive
worldwide license to market, sell and sublicense the Xchg product to end
users, for which DataXchg, Inc. is entitled to a variable royalty depending
upon the nature and configuration of the product marketed and sold.
On June 28, 2000, we purchased the remaining 60% of DataXchg, Inc. in exchange
for the issuance of 1,000,000 shares of our common stock.
XML FUND
In January 2000, we sold to XML Fund a total of 500,000 Units of our
securities at a price of $2.00 per Unit, for a total cash consideration of
$1,000,000. Each Unit consisted of two shares of our common stock, one
Warrant exercisable for three years to purchase an additional share of common
stock at an exercise price of $2.00 per share, and a second Warrant
exercisable for 60 days to purchase an additional share of our common stock at
an exercise price of $.07 per share. In March 2000, XML Fund exercised
warrants to purchase 500,000 shares of our common stock at an exercise price
of $.07 per share. The managing partner of XMLFund, David Pool agreed to
become a member of our Board of Directors subject to our obtaining directors
and officers liability insurance. In addition, XML Fund was granted a limited
preemptive right on certain future financings that we may undertake. By
virtue of this limited preemptive right, XML Fund purchased in April 2000
100,000 units at a price of $1.00 per unit, each unit consisting of one share
of our common stock and one warrant exercisable until December 31, 2000 to
purchase an additional share of common stock at an exercise price of $4.00 per
share. Further, pursuant to the preemptive right, in April 2000 XML Fund
purchased 8.5 units at a price of $75,000 per unit, each unit consisting of
50,000 shares of our common stock and warrants exercisable to purchase an
additional 50,000 shares of our common stock for 18 months at an initial
exercise price of $4.00 per share. This preemptive right will terminate upon
our completion of an initial public offering.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit No. Title
---------- -----
* 3.1 Articles of Incorporation dated June 11, 1991
*** 3.2 Articles of Amendment to Articles of Incorporation dated
October 19, 1999
* 3.3 Bylaws
*** 4.1 Specimen Common Stock Certificate
*** 4.2 Specimen Warrant Certificate
*** 4.3 1999 Equity Incentive Plan
*** 5.0 Opinion of Neuman & Drennen, LLC
** 10.1 Agreement and Plan of Reorganization dated as of August
27, 1999
*** 10.2 Purchase Agreement between International Capital Funding,
Inc. and Jonathan Cohen dated September 1, 1999
*** 10.3 Registration Rights Agreement between International
Capital Funding, Inc. and Jonathan Cohen dated September
1, 1999
*** 10.4 Joint Venture Technology Agreement between XML - Global
Technologies, Inc., Gnosis, Inc. and David R. R. Webber
dated as of November 18, 1999
*** 10.5 Consulting Agreement between Data Xchg, Inc. and David
Webber
*** 10.6 License Agreement between Data Xchg, Inc. and XML - Global
Technologies, Inc.
*** 10.7 Pre-Incorporation Agreement between XML - Global
Technologies, Inc. and David Webber
*** 10.8 Form of Lock-up and Vesting Agreement
*** 10.9 Securities Purchase Agreement between XML - Global
Technologies, Inc. and XML Fund, LLC dated January 13,
2000
*** 10.10 Securities Purchase Agreement between XML - Global
Technologies, Inc. and XML Fund, LLC dated April 5, 2000
*** 10.11 Securities Purchase Agreement between XML - Global
Technologies, Inc. and the Tomasovich Family Trust
*** 10.12 Securities Purchase Agreement between XML - Global
Technologies, Inc. and Tomasovich Family Trust
*** 10.13 Unit Purchase Option Agreement between XML - Global
Technologies, Inc. and Westminster Securities Corp.
*** 10.14 Commercial Lease with Radical Entertainment Ltd. dated May
5, 1999
*** 22.0 List of Subsidiaries
*** 23.1 Consent of Neuman & Drennen, LLC
*** 23.2 Consent of Moss Adams
_________________
* Incorporated by reference from the Registration Statement on Form 10-SB
filed with the Commission on November 18, 1997
** Incorporated by referenced from the Current Report on Form 8-K which was
filed with the Commission on September 8, 1999
*** Incorporated by referenced from the Registration Statement on Form SB-2
which was filed with the Commission on May 24, 2000
On June 30, 2000, the Company filed a Current Report on Form 8-K, pursuant to
Items 1 and 7 of such form, regarding the acquisition of a 60% interest in
DataXchg, Inc.
<PAGE>
<PAGE>
SIGNATURES
XML-GLOBAL TECHNOLOGIES, INC.
Date: September 15, 2000 By: /s/Peter Shandro
--------------------- ---------------------------
Peter Shandro, Chairman of the Board,
President and Chief Executive Officer
Date: September 15, 2000 By: /s/Simon Anderson
---------------------- ----------------------------
Simon Anderson, Chief Financial
Officer
