<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
COMMISSION FILE NO. 333-65583
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
JAWS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
1013 17TH AVENUE SW
CALGARY, ALBERTA CANADA T2T 0A7
(403) 508-5055
NEVADA 7371 98-0167013
(State or other (Primary standard (I.R.S. employer
jurisdiction of industrial identification
incorporation or classification number)
organization) code number
ROBERT KUBBERNUS
CHIEF EXECUTIVE OFFICER
JAWS TECHNOLOGIES, INC.
1013 17th Avenue SW
Calgary, Alberta CANADA T2T 0A7
(403) 508-5055
(Address, including zip code and telephone numbers, including
area code of Registrant's principal executive offices)
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as possible after the Registration Statement is declared effective.
<PAGE> 2
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount To Offering Price Per Aggregate Offering Amount of
To Be Registered Be Registered(1) Security(2) Price Registration Fee
===================================================================================================================
<S> <C> <C> <C> <C>
Common Stock Underlying a) 1,912,317 $0.1118 $213,798 $72.69
TK Debenture b) 1,642,857 $0.28 $460,000 $156.40
c) 625,000 $0.40 $250,000 $85.00
d) 923,077 $0.65 $600,000 $204.00
e) 8,700,000 $0.40 $3,480,000 $1,183.20
Common Stock Underlying
TK Warrants a) 1,428,572 $0.28 $400,000 $136.00
b) 923,077 $0.65 $600,000 $204.00
Common Stock Underlying
Bristol Warrants 1,000,000 $0.70 $700,000 $238.00
- -------------------------------------------------------------------------------------------------------------------
TOTAL 17,154,900 Shares $6,703,798 $2,279.29
</TABLE>
(1) Calculated pursuant to Rule 457(c) and (g).
<PAGE> 3
JAWS hereby amends this registration statement on such date, or
dates as may be necessary to delay our effective date, until we file a further
amendment specifically stating that this registration statement shall become
effective in accordance with Section 8(a) of the Securities Act of 1933, or
until this registration statement becomes effective on such date as the
Securities and Exchange Commission, acting in accordance with section 8(a), may
so determine.
<PAGE> 4
The information in this preliminary prospectus is not complete
and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated April 30, 1999
17,154,900 Shares
JAWS Technologies Inc.
Common Stock
JAWS is registering 17,154,900 shares in this offering. These shares, only
1,912,312 of which have been issued as of March 31, 1999, are issuable upon the
draw down and conversion of all or portions of a five million dollar convertible
debenture. The conversion prices range from $0.28 to $0.65 per share.
JAWS' common stock is traded on the NASDAQ National Market under the symbol
"JAWZ". On March 31, 1999, the last reported sale price for the common stock on
the NASD OTC Bulletin Board was $0.81 per share.
See "Risk Factors" beginning on page 10 to read about certain factors you should
consider before buying shares of common stock.
------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<PAGE> 5
JAWS TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN LOCATION
FORM SB-2 REGISTRATION STATEMENT IN PROSPECTUS
-------------------------------- -------------
<S> <C> <C>
1. Front of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Not Applicable
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Not Applicable
3. Summary Information and Risk Factors............ Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Not Applicable
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Selling Security Holders
8. Plan of Distribution............................ Not Applicable
9. Legal Proceedings............................... Business
10. Directors, Executive Officers, Promoters and
Control Persons................................. Management; Certain Transactions;
Risk Factors
11. Security Ownership of Certain Beneficial Owners
and Management.................................. Security Ownership of Certain
Beneficial Owners and
Management
12. Description of Securities....................... Description of Securities
13. Interest of Named Experts and Counsel........... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Not Applicable
15. Organization Within Last Five Years............. The Company; Business
16. Description of Business......................... Business; Prospectus Summary; Risk
Factors; Management's Discussion
and Analysis
17. Management's Discussion and Analysis or Plan
of Operations................................... Management's Discussion and Analysis
18. Description of Property ........................ Business
19. Certain Relationships and Related Transactions.. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................. Market for Common Equity and Related
Stockholder Matters; Description of
Securities
21. Executive Compensation.......................... Management; Executive Compensation
22. Financial Statements............................ Financial Statements
23. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.......... Not Applicable
</TABLE>
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is explained further by detailed information
contained in the financial statements and notes appearing elsewhere, or
incorporated by reference into this prospectus. The statements that are not
historical facts contained in this prospectus are forward-looking statements
that include risks and uncertainties, including those described under "Risk
Factors."
THE COMPANY
We are a Nevada corporation that owns a 100% interest in JAWS
Technologies Inc., an Alberta company with offices in Calgary, Alberta, Canada
("JAWS Canada"). JAWS is a provider of information security technologies and
practices, and is dedicated to the development and integration of electronic
data security strategies for secure business practices. JAWS Canada has
developed software encompassing encryption algorithms that use 4,096 keys to
scramble data.
The programming of JAWS Canada software has been developed over an
approximate 15 year period. In May 1998, JAWS began to market JAWS L5 DATA
ENCRYPTION SOFTWARE ("L5"), which operates using Windows 3.1, Windows 95,
Windows 98 and Windows NT. Other platforms for the L5 are currently under
development. Other available products include the L5 Data Encryption-PDA Edition
Software for Palm III(TM) and an e-mail encryption product. We are currently
assembling a sales and marketing team which to date, has three agreements with
internet service providers ("ISP's") to market the L5 products.
There are numerous markets for the L5. Value Added Resellers (VAR) are a
significant potential market for this product. External software developers can
use L5 as an added feature in their product to enhance their particular product
offering. Accounting software programs, database developments, e-mail programs
and communication software are all potential uses for L5. Additional potential
customers include the Smart Card industry, hand-held computing devices and the
telecommunications industry. L5 provides security enhancements to existing
products offered by other manufacturers. Direct sales channels for L5 include
Internet service providers, data warehouses, corporate networks and personal
computer users.
<PAGE> 7
We entered into a Debenture Purchase Agreement on September 25, 1998
with Thomson Kernaghan & Co. Ltd. ("TK"). This Agreement allowed TK to purchase
from JAWS up to two million dollars ($2,000,000) of a 10% convertible debenture
and $400,000 in warrants. We have amended the September 25, 1998 Debenture
Acquisition Agreement with an amended agreement dated April 27, 1999. The
amended agreement, amongst other modifications, increased the two million dollar
($2,000,000) convertible debenture to a five million dollar ($5,000,000)
convertible debenture ( the "CDA"). The details of the CDA are as follows:
1. $1,520,000 of the $5 million available under the CDA has previously been
advanced. Of this amount, $210,000, plus interest in the amount of
$3,798, has been converted at $0.1118 resulting in the issuance of
1,912,317 shares.
2. Of the remaining balance;
(a) $210,000 may be converted at a fixed price of $0.28 per share;
(b) $250,000 may be converted at a fixed price of $0.28 per share;
(c) $250,000 may be converted at a fixed price of $0.40 per share.
(d) $600,000 may be converted at a fixed price of $0.65 per share.
The balance of the financing, $3,480,000, will upon effectiveness of the
registration statement be taken at a minimum floor price of $0.40 per share
within a reasonable time period.
In each instance, Jaws need not call the financing from TK if it does
not deem market conditions favorable or the parties may re-negotiate a higher
conversion price prior to any advance.
In connection with the Amendment, TK will receive an additional $600,000
in warrants, a finance fee of 10% of the amount funded up to $2,000,000, and 8%
of the proceeds in excess of two million dollars ($2,000,000). The finance fee
may be paid in cash on funding or a combination of cash and shares issued in a
transaction enabling the stock to be subsequently resold under an exemption of
Rule 144 of the Securities Act of 1933 (the "Rule 144 Stock"). At the option of
Jaws, 37.5% of the finance fee may be paid by the issuance of the Rule 144
Stock.
<PAGE> 8
We anticipate that the net proceeds from the CDA and the exercise of
underlying warrants will be added to the general funds of JAWS and used for
working capital and other general corporate purposes. This financing
transaction, and the proceeds which may be raised by such a transaction have
been made subject to an exemption provided by Regulation S of the Securities Act
of 1933 (the "Reg S Offering"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Financing". JAWS
will pay for all of the expenses of this prospectus, estimated to be
approximately $150,000.
Our executive offices are located at 1013 17th Avenue SW Calgary,
Alberta, Canada T2T 0A7 and our telephone number is (403) 508-5055.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby............... 17,154,900 shares
Common Stock Outstanding as of
March 31, 1999........................ 10,612,317 shares
Common Stock Outstanding after
the Offering.......................... 27,767,217 shares
Use of Proceeds........................... For the product development, expansion of
sales and marketing and working capital. See
"Use of Proceeds."
Risk Factors.............................. An investment in the common stock involves a high
degree of risk and immediate substantial dilution.
See "Risk Factors" and "Dilution".
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
NASD OTC Bulletin Board Symbol............ JAWZ
</TABLE>
- --------------------------
SUMMARY FINANCIAL DATA
CONSOLIDATED FINANCIAL STATEMENTS
The summary financial data in the table is derived from the audited
consolidated financial statements and related notes of JAWS. The data should be
read in conjunction with the consolidated financial statements and the related
notes.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Period
---------------------------- from the date of
Incorporation
on January 27,
1997 to December 1,
1997.
<S> <C> <C>
Results of Operations
Revenue $29,068 $ -
Expenses $3,105,355 $136,854
Net loss for the period $3,076,287 $136,854
Financial Position
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Current Assets $194,549 $7,611
Working Capital (deficiency) $(431,166) $(25,365)
Total Assets $273,379 $9,931
Total Liabilities $847,038 $111,135
Stockholders Equity(deficiency) $(573,659) $(101,204)
</TABLE>
<PAGE> 10
RISK FACTORS
An investment in the securities offered in this statement
involves a high degree of risk. In addition to the other information contained
in the prospectus, prospective investors should carefully consider the following
Risk Factors before making an investment. The cautionary statements made in this
prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this prospectus. JAWS' actual results could
differ materially from those discussed. Factors that could cause or contribute
to such differences include those discussed below and elsewhere in this
document.
Our revenues are minimal.
JAWS cannot foresee when we will be able to rely on revenues for
the operation of our business. Revenues generated thus far have been minimal
($29,068) and outside financing is not guaranteed and is often on costly terms.
We cannot assure investors that JAWS will continue to operate
without revenues and/or other sources of funding. To date, JAWS has entered into
three contracts for the sale of our services and products. We are constantly
exploring different opportunities for contracting with others, however we cannot
guarantee that any other contracts will be signed. Without additional contracts,
it will be difficult to remain viable.
JAWS has chosen a sales method with a lengthy sales cycle and
cannot guarantee significant product sales or revenues.
Our sales initiatives to date have not shown significant success.
Our main sales initiatives involve software resellers who act as intermediaries
in the sales of our L5 suite of products. This type of relationship takes longer
to show results than a direct sales method. These relationships are still in a
developmental stage and remain unproven. Lack of, or delay in sales by the
resellers will cause delays in our results and in collecting revenues. Each of
the channels for these products may take extensive time to develop before any
meaningful sales may occur.
<PAGE> 11
We are very dependent on the TK financing.
There are material risks with respect to the CDA as the price at
which TK will receive shares upon conversion is a set rate ( subject to being
raised to a higher price only upon mutual consent) below the trading price,
at the time of the issuance. This could have an adverse effect on the market
prices of the shares.
While we have secured this financing from TK, the terms of the
financing are expensive. If, for some unforeseen circumstance, the TK financing
were not available to us, without an additional source of financing it may be
required to wind up JAWS. In this situation it is expected that the shareholders
would not obtain any value for their investment.
We believe that the financing from TK will be enough to carry on
the business of JAWS for the next 12 months. If the financing is not available
then we will need to find other sources of funding which we cannot guarantee
would be available, or if available, it may not be on terms satisfactory to us.
Our auditors raise doubts about our ability to continue as a going concern.
JAWS' audited financial statements include a note disclosing that
our continuing operating losses and uncertain financing arrangements raise
substantial doubts about our ability to continue as a going concern. There is no
guarantee that we will cease to have recurring losses from operations and a net
capital deficiency in the near future.
There is continued risk of unauthorized disclosure of proprietary information.
There are risks for JAWS that are associated with tradename,
intellectual property and proprietary rights. Despite any precautions that may
be taken by JAWS, it may be possible for an unauthorized third party to copy or
reverse-engineer certain portions of the JAWS software or to obtain or use
information that JAWS regards as proprietary.
JAWS attempts to protect our proprietary rights in JAWS' software
by utilizing copyright, trademark, trade secrets laws, employee and third party
non-disclosure/confidentiality agreements and other methods of protection common
in the industry. We do not presently own any patents, copyright registrations or
registered trademarks but have filed a U.S. patent application and trademarks
for our encryption algorithm and naming conventions.
We license the source code for our software to some customers to
enable them to customize the software to meet particular requirements.
<PAGE> 12
Although JAWS' source code license contains confidentiality and non-disclosure
provisions, there can be no assurance that such customers will take adequate
precautions to protect the source code. Additionally, the laws of some foreign
countries do not protect JAWS' proprietary rights to the same extent as the laws
of the United States.
A number of U.S. companies currently use all, or a portion of,
the name "Jaws" in connection with products or services in industries different
from that of our company. While we are attempting to qualify under a trademark
throughout the U.S. and Canada, some risk may be present as to the ability to
widely use the name "Jaws" in connection with our product or service.
We cannot guarantee against infringement claims on our product and name.
Although JAWS products have never been the subject of
infringement claims, we cannot assure that third parties will not assert
infringement claims against us in the future. We cannot assure that any such
assertion will not result in JAWS' being required to enter into royalty
arrangements or costly litigation and liability.
Directors are limited in their liability to shareholders.
As permitted by the Nevada General Corporation Law, JAWS'
Articles of Incorporation, as amended, eliminate, with certain exceptions, the
personal liability of its directors to JAWS and its shareholders for monetary
damages as a result of a breach of fiduciary duty. This provision makes it
difficult to assert a claim and obtain damages from a director in the event of
such a breach.
The Nevada General Corporation Law provides that a corporation has the power to:
o indemnify directors, officers, employees and agents of the corporation
against judgements, fines and amounts paid in settlement in connection with
suits, actions and proceedings and against certain expenses incurred by such
parties if specified standards of conduct are met; and
o purchase and maintain insurance on behalf of any of the foregoing parties
against liabilities incurred by such parties in the foregoing capacities.
The Bylaws of the Company provide for indemnification of its officers and
directors against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they
<PAGE> 13
are made parties by reason of being or having been officers or directors of
the Company; except in relation to matters as to which any such director or
officer is adjudged in such action, suit or proceeding to be liable for
gross negligence or willful misconduct in the performance of duty. However,
such indemnification is not exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement, vote of shareholders
or otherwise.
We are dependent upon the services and expertise of key employees.
The loss of the services of one or more of JAWS' employees could
have a material adverse effect on us as much of our development is built on the
contribution of key individuals.
Our current and future success will largely depend upon the
performance of our key officers and our ability to attract and retain highly
skilled managerial, technical, sales and marketing personnel. With the loss of
key individuals the relationships developed through sales contacts, technical
expertise and financial alliances by these key employees could be damaged or
lost. In addition, JAWS' business involves the delivery of professional services
and is labor-intensive. JAWS' success depends largely upon our ability to
attract, develop, motivate and retain highly skilled technical employees.
Qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. Such key personnel, officers and
employees are in high demand and we cannot guarantee that we will be able to
successfully attract and retain these persons.
JAWS has historically experienced a turnover rate amongst our
employees consistent with industry standards. An increase in this rate could
have a material adverse effect on JAWS' business, operating results and
financial condition, including its ability to secure and complete engagements.
We may experience additional risks related to acquisitions.
We are unable to assure that acquired businesses, if any, will
have revenues and earnings. The failure of JAWS to arrange a successful
acquisition strategy could have a material adverse effect upon our business,
operating results and financial condition.
While there are no current plans for expansion, we may expand our
operations in the future through the acquisition of additional businesses. We
cannot assure that JAWS will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses
<PAGE> 14
into JAWS without substantial expenses, delays or other operational or
financial problems.
In addition, acquisitions may involve a number of special risks
or effects. These include diversion of management's attention, failure to retain
key personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on JAWS' business, operating results and financial condition.
We may experience risks related to Year 2000 compliance issues.
We believe that our principal software products are Year 2000
compliant. However, because our products are designed to work with other
software products developed and sold by third parties, any failure of these
third party software products to be Year 2000 compliant could result in the
failure of JAWS' software products to operate effectively. Any such failure
could harm the JAWS' reputation in the market and could have an adverse effect
on sales of JAWS' products and financial performance. See "Management Discussion
and Analysis of Financial Condition and Results of Operation--Year 2000
Compliance Issues".
We are dependent upon our customers' ability to meet their financial commitments
to us.
JAWS' projected income could be adversely affected if a
significant number of customers were unable to meet their obligations to JAWS or
if JAWS were unable to continue to collect our account receivables.
The value of JAWS' computer equipment, software, and intellectual
property may depend on the credit and financial stability of our customers. In
the event of default by customers, JAWS could experience delays in enforcing its
rights as a vendor and may incur substantial costs in protecting our investment.
We are a start-up company with a limited history of earnings.
The business of JAWS should be considered highly speculative due
to our present stage of development. JAWS does not have a history of earnings
nor have we sufficiently diversified our business. Accordingly, we cannot
mitigate the risks associated with planned activities.
<PAGE> 15
As a start-up company, JAWS has limited cash and other assets and
a limited business history. Security holders must rely solely upon the ability,
expertise, judgment, discretion, integrity and good faith of JAWS' management in
all aspects of the development and implementation of JAWS' business strategy.
There is no guarantee that we will be able to compete successfully in the
market.
There can be no assurance that JAWS will be able to compete
successfully with existing competitors or with any new competitors. Many of
these competitors have significantly greater financial, technical and marketing
resources and greater name recognition than JAWS .
The market for information technology services is very
competitive. There are a large number of competitors in our rapidly changing
industry. Primary competitors include participants from a variety of market
segments, including "Big Five" accounting firms, systems consulting and
implementation firms, application software firms, service groups of computer
equipment companies, facilities management companies, general management
consulting firms and programming companies. In addition, JAWS competes with its
client's internal resources, particularly where these resources represent a
fixed cost to the client. Such competition may impose additional pricing
pressures on JAWS.
JAWS' success will depend in part on our ability to develop
information technology solutions that keep pace with continuing changes in
information, technology, evolving industry standards and changing client
preferences. There can be no assurance that JAWS will be successful in
adequately addressing these developments on a timely basis or that, if these
developments are addressed, JAWS will be successful in the marketplace.
Additionally, there can be no assurance that the products or
technologies developed by others will not render JAWS' services uncompetitive or
obsolete. JAWS' failure to address these developments could have a material
adverse effect on JAWS' business, operating results and financial conditions.
See "Business-Competition".
Our stock price has been volatile and may continue to fluctuate.
Between February 1, 1998 and March 31, 1999, the closing sale
price for JAWS stock ranged from $.15 per share to $1.22 per share. The
<PAGE> 16
market price of JAWS common stock could continue to fluctuate substantially due
to a variety of factors.
These factors include fluctuations due to results of operations,
adverse circumstances affecting the introduction of market acceptance of new
products and services which may be offered by JAWS, announcements of new
products and services by competitors, changes in the information technology
environment, changes in earnings estimates by analysts, changes in accounting
principles, sales of JAWS common shares by existing holders and loss of key
personnel.
The market price for the JAWS common shares may also be adversely
affected by our ability to meet expectations of industry observers and
shareholders. Failure to meet such expectations, even if these expectations are
not material, could have a negative effect on the market price of our shares.
The stock market has, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of any particular company. The market prices of the securities of many
publicly-traded companies in the computer industry have in the past been and may
in the future be especially volatile. Factors such as our operating results,
announcements concerning technological innovations, new products or systems may
have a significant impact on the market price of our stock.
In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Any such litigation instigated against JAWS
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect upon our business,
operating results and financial condition.
Our stock has a limited market because it is a penny stock.
JAWS' common stock is traded on the NASD OTC Bulletin Board and
is subject to Rule 15(g)-(9) under the Securities Act of 1934. This rule
adversely effects the ability of purchasers in this offering to sell the
securities acquired in the secondary market.
Rule 15g-9 requires additional disclosure, relating to the market
for penny stocks, in connection with trades in any stock defined as a penny
stock. The Commission defines a penny stock to be any equity security that has
<PAGE> 17
a market price of less than $5.00 per share (exclusive of commissions), subject
to certain exceptions. Such exceptions include any equity security listed on
NASDAQ and any equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
annual revenue of at least $6,000,000, if such issuer has been in continuous
operation for less than three years. Unless an exemption is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith.
In addition, trading in the common stock would be covered by
Rules 15g-1 through 15g-6 under the 1934 Act for non-NASDAQ and non-exchange
listed securities. Under such rules, broker/dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities also are exempt from these rules if the market price is at least
$5.00 per share.
The regulations on penny stocks such as that of JAWS' could limit
the ability of broker/dealers to sell JAWS' securities and thus the ability of
purchasers of the JAWS' securities to sell their securities in the secondary
market.
We have not paid dividends to date.
JAWS has not paid any dividends on its common stock to date. JAWS
does not currently intend to declare or pay any dividends on our common stock in
the foreseeable future, but plans to retain earnings, if any, for development
and expansion of our business operations. See "Dividend Policy".
FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by
reference, contains forward-looking statements, including the statements about
our plans, strategies and prospects under the headings "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Such statements are indicated by words or phrases
such as "anticipate," "estimate," "plans," "projects," "continuing," "ongoing,"
"expects," "management believes," "JAWS believes," "JAWS intends," "we believe,"
"we intend" and similar words or phrases. Although
<PAGE> 18
we believe that our plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we can give no
assurance that our plans, intentions or expectations will be achieved. Important
factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are set out in this
document. All forward-looking statements attributable to JAWS by persons acting
on our behalf are contained in the cautionary statements.
USE OF PROCEEDS
We currently anticipate the net proceeds from the CDA and all
underlying warrants, to the extent that such financing is realized, will be
added to the general funds of JAWS and used for working capital and other
general corporate purposes. JAWS will pay all the expenses of this prospectus,
estimated to be approximately $150,000.
Our best estimates of the application of the net proceeds of the
CDA are based upon present plans and current business conditions. Unforeseen
events, changed business conditions and a number of other factors that are
beyond the control of JAWS, could necessitate changes in the application of net
proceeds. JAWS reserves the right to reallocate the net proceeds of the Reg. S
Offering among the various uses described above or for such other purposes as
it, in its sole discretion, deems necessary or desirable. In the event that JAWS
changes the use of proceeds of this Offering, JAWS may require immediate
additional debt or equity financing to meets its business plan. If the need
should arise, there can be no assurance that any such financing would be
available on terms that are favorable to JAWS, if at all.
JAWS may use a portion of the net proceeds to acquire businesses,
products or technologies complementary to JAWS' current business. JAWS has no
present commitments or agreements and is not currently involved in any
negotiations with respect to any such acquisitions. JAWS has not determined the
amounts it plans to expend on each of the uses or the timing of the
expenditures. The amounts actually expended for each use, if any, are at the
discretion of JAWS and may vary significantly depending upon a number of
factors, including future revenue growth and the amount of cash generated by
JAWS' operations.
DIVIDEND POLICY
JAWS has not paid any dividends since its inception and has no
current plans to pay dividends on its common stock in the foreseeable future.
JAWS intends to reinvest future earnings, if any, in the development and
expansion of our business. Any future determination to pay dividends will depend
upon JAWS' results of operations, financial condition and capital
<PAGE> 19
requirements and any other factors deemed relevant by the JAWS' Board of
Directors.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of
JAWS Technologies, Inc. as at December 31, 1998 before and after giving effect
to the offerings:
<TABLE>
<CAPTION>
Authorized Outstanding as at Pro Forma at December 31,
December 31, 1998 1998 After Giving Effect to
the Offerings
<S> <C> <C> <C>
Common stock 95,000,000 common shares at $2,648,324 $9,368,324
$0.001 par value (10,612,317 shares)
(25,854,900 shares)
Preferred 5,000,000 preferred shares Nil Nil
shares at $0.001 par value
</TABLE>
The above table reflects the following:
o JAWS authorized the increase of the authorized common stock to 100,000,000
common shares at $0.001 par value, as per shareholder approval on February
4, 1999 and prior to the issuance of these shares.
o Includes $2,212,153 of capital in excess of par value.
o Assumes the issuance of the following shares of common stock:
1,912,317 shares converted in relation to the exercise of $210,000 of
convertible debenture plus accrued interest under the $2,000,000
convertible debenture.
750,000 shares at $0.28 per share under the original $2,000,000 10%
convertible debenture held by TK.
892,857 shares at $0.28 per share under the original $2,000,000 10%
convertible debenture agreement.
625,000 shares at $0.40 per share under the amended $2,000,000 10%
convertible debenture agreement.
923,077 shares at $0.65 per share under the amended $2,000,000 20%
convertible debenture.
<PAGE> 20
A maximum of 1,700,000 shares at $0.40 per share under the amended
$2,000,000 10% convertible debenture agreement.
A maximum of 7,500,000 shares at $0.40 per share under the additional
$3,000,000 of financing as per the amended convertible debenture
agreement.
1,428,572 shares pursuant to the exercise of warrants issued to TK, at
an exercise price of $0.28 per common share, for cash consideration of
$400,000. See Note 7 to the consolidated financial statements included
herein.
923,077 shares pursuant to the exercise of warrants to be issued under
the additional $3,000,000 of financing as per the amended convertible
debenture agreement.
1,428,571 shares pursuant to settlement of the Investment Agreement with
BAM.
Includes contributed surplus totaling $118,462 pursuant to the receipt
of funds totalling $420,000 under the $2,000,000 10% convertible
debenture held by TK, representing the amount attributed to the value of
the conversion option.
o Includes contributed surplus totaling $342,857 pursuant to the issuance of
1,428,572 warrants to TK, representing the value attributed to the warrants.
o Includes $35,760 netted to contributed surplus relating to the financial
fees associated with both the equity component of the $420,000 advanced
under the $2,000,000 10% convertible debenture agreement and the warrants.
o Includes financing fees and share issue costs of $21,117 and $65,314
respectively.
MARKET FOR JAWS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The common stock of JAWS commenced quotation on the OTC Bulletin
Board under the symbol "JAWZ" in late 1997. Until the third quarter of 1997 no
substantial public trading market had developed for the common stock of JAWS.
NASD OTC Bulletin Board ........ Symbols
Common Stock ........... JAWZ
JAWS has not paid any dividends on its common stock since its
inception and has no current plans to pay dividends on the common stock in the
foreseeable future. In addition, JAWS' ability to pay cash dividends is
restricted by JAWS' current credit facilities, and future borrowings may contain
<PAGE> 21
similar restrictions. JAWS intends to reinvest future earnings, if any, in the
development and expansion of its business. Any future determination to pay
dividends on the common stock will depend upon JAWS' results of operations,
financial condition and capital requirements and such other factors deemed
relevant by JAWS' Board of Directors.
The closing price of the common stock of JAWS as reported on the
NASD OTC Bulletin Board Issues on March 31, 1999, by brokers making a market,
was $0.81.
JAWS' common stock is traded on the NASDAQ OTC Bulletin Board
under the symbol JAWZ. The following table summarizes the trading activity of
JAWS from February 1998 to March 31, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Price Range Trading Volume
- --------------------------------------------------------------------------
High Low
<S> <C> <C> <C>
February 1998 1.00 0.59 333,800
March 1998 1.06 0.88 693,200
April 1998 1.22 0.94 2,480,000
May 1998 0.88 0.75 869,700
June 1998 0.85 0.55 1,740,000
July 1998 0.75 0.45 2,621,500
August 1998 0.76 0.40 2,282,900
September 1998 0.45 0.28 1,608,800
October 1998 0.33 0.16 4,070,500
November 1998 0.26 0.15 3,905,100
December 1998 0.52 0.35 8,489,200
January 1999 0.68 0.40 3,836,000
February 1999 1.12 0.55 5,862,100
March 1999 0.88 0.65 4,224,800
Totals 41,277,600
- --------------------------------------------------------------------------------
</TABLE>
From February 1, 1998 to March 31,1999 the high and low prices of
the JAWS' common stock were $.15 and $1.22 per share, respectively. As March 31,
1999 there were approximately 52 registered holders of record of JAWS' common
stock.
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
JAWS Canada develops software encompassing encryption algorithms
used to secure binary data in various forms. Since the commencement of
operations in October of 1997 and through to the present, JAWS and JAWS Canada
have been in a development stage. During this period, JAWS has been and is
engaged primarily in recruiting personnel, establishing a corporate
headquarters, developing software and licensing software from external
developers for integration in JAWS Canada proprietary software.
JAWS' internal product development costs incurred prior to
establishing technological feasibility are expensed in accordance with the
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." In accordance with SFAS No. 86, the Company
capitalizes product development costs subsequent to establishing technological
feasibility and amortizes previously capitalized product development costs by
using: (i) the revenue curve method; or (ii) the straight-line method over the
estimated economic life of the product, which typically ranges from six months
to two years.
JAWS has experienced significant losses since our inception,
resulting primarily from overhead and other costs incurred in the development
and growth of the company. Moreover, JAWS expects to incur substantial up-front
expenditures and operating costs in connection with the expansion of our
marketing efforts, which may result in significant losses for the foreseeable
future. There can be no assurance that JAWS will be able to successfully
implement our growth and business strategies, that our revenues will continue to
increase in the future or that we will be able to achieve or sustain profitable
operations.
PLAN OF OPERATIONS
JAWS has experienced some research and development and initial
investment costs. We have planned our budget around the funds provided by TK
under the CDA. Our budget has been designed to work within this capital
allotment which should last for 12 months and meet the growing needs of JAWS. It
is planned however, that within the next 12 months, we will reduce our
dependency on the financing by TK. JAWS' growth will be
<PAGE> 23
controlled to remain within the total financing formula. JAWS believes we will
not need any further financing other than what has been arranged. However, we
continue to search for alternative forms of financing in the event TK fails to
meet their financing obligation.
JAWS plans to meet our cash flow requirements by developing a
solid VAR program, alliance partnerships and direct sales methods typical of the
software industry. The capital proposed in this registration statement will be
used to meet our business objectives.
JAWS continues to expend resources in researching and developing
complimentary technology for our current L5 products. We anticipate that we have
enough financing to continue funding research and development for the next 12
months.
JAWS is experiencing rapid growth and as such, the number of
employees has grown to 24 and is expected to reach 35 in the next year. Our
equipment costs have increased in relation to this as well. To accommodate this
growth we have moved to a larger facility and have incurred significant expenses
related to relocating our corporate office. This expansion of our staff and
facilities was planned and accounted for in our 12 month business plan.
COMPARATIVE AMOUNTS
JAWS was incorporated on January 27, 1997 but did not commence
operations until July, 1997. Accordingly, the following discussion and analysis
compares the financial position of JAWS as at December 31, 1998 with that as at
December 31, 1997, and compares the results of operations for the year ended
December 31, 1998 with those for the fiscal period ended December 31, 1997.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 compared to fiscal period ended
December 31, 1997.
JAWS did not earn any revenues during 1997 since it was in the
initial stages of development and startup. Revenues earned during the year ended
December 31, 1998 were $29,068. Although substantial sales and marketing efforts
were undertaken during this period, sales contracts are not booked as revenue
until actually realized. We believe that sales for the next period will
positively reflect these efforts.
<PAGE> 24
Expenses in all categories have increased significantly as a
result of establishment of operations and moving toward commercialization stage.
These include expenses related to the preparation of various marketing and sales
documents and materials, requirements for office space, supplies and stationery
and related costs. The significant increase in consulting expenses reflects
JAWS' decision to obtain various marketing, promotion, financial and general
business assistance and expertise on a contract basis for the immediate term. We
anticipate that all our operating, and general and administrative expenses will
continue to rise as our operation grows its markets and sales opportunities.
The loss from operations includes a one-time write-off of JAWS'
acquired software development costs. JAWS' policy of expensing software
development costs as incurred until technological feasibility has been
established, is consistent with generally accepted accounting principles;
however, the write-off of $909,003 is a non cash item and therefore did not
result in any cash flow hardship for JAWS.
We believe that expenses will continue to increase and revenues
for the next period will not be sufficient to support the expenses. We will
continue to require equity investment for the next period to support these
losses, with the gap between revenue and expenses lessening slightly.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,135,817 for the year
ended December 31, 1998 compared to $110,798 for the fiscal period ended
December 31, 1997, as a result of the increased expenses incurred as noted
above. JAWS' working capital deficiency of $431,166 as at December 31, 1998 has
increased from the deficiency of $25,365 at December 31, 1997. Management
believes the negative working capital position must be addressed in the next
period and is working toward arranging the appropriate equity investments to
maintain reasonable levels of working capital.
Cash on hand at December 31, 1998 increased to $33,732 from $111
at December 31, 1997 as a result of a series of stock issuances and funds
advanced under the CDA. A net amount of $954,686 was raised during the year
ended December 31, 1998 as a result of issuing equity (compared to only $35,650
during 1997) and was deployed primarily to fund working capital. In addition,
JAWS repaid stockholder loans in the amount of $78,159 during this period, and
acquired approximately $87,660 of fixed assets as part of building the necessary
infrastructure and systems needed to support the additional staff hired during
the period. Management estimates that for each new position created in the
Company, approximately $7,200 will be expended in infrastructure costs (i.e.
furniture, software licensing, technology and general office and stationery
requirements).
<PAGE> 25
Prepaid expenses, consisting of premises deposits and legal fee
retainers increased from $7,500 at December 31, 1997 to $140,456 at December 31,
1998. The decrease in organizational costs from December 31, 1997 to December
31, 1998 reflects the amortization of these costs over a 60 month period.
Accounts payable have increase dramatically from $32,976 at
December 31, 1997 to $379,720 at December 31, 1998 as a result of the efforts
expended to commercialize the products and services offered by JAWS. JAWS has
moved from research and development to full commercialization during this
reporting period and an increase in this category was anticipated as a result of
the increased activity. Management also believes that this trend will continue
until cash flow from sales are realized allowing JAWS to reduce the trade
accounts in a more timely fashion.
JAWS has not established any lines of credit outside of trade
accounts, and will not be in a position to negotiate any lines of credit until
sales contracts have been validated and matured. JAWS has not used any debt
instruments to date due to its early stage of operations.
FLUCTUATIONS IN OPERATING RESULTS
Our quarterly operating results have fluctuated significantly in
the past and will likely fluctuate significantly in the future depending on a
variety of factors, several of which are not in JAWS' control. Such factors
include the demand for the JAWS' products and the products of its competitors,
development and promotional expenses related to the introduction of products or
enhancements, the degree of market acceptance for our products and enhancements,
the timing of orders from significant customers, delays in shipment, the level
of price competition, changes in computing platforms, the nature and magnitude
of product returns, order cancellations, software defects and other quality
problems, the length of product life cycles, the percentage of our sales related
to international sales and changes in personnel. Based on the foregoing, JAWS
believes that period to period comparisons of operating results should not be
relied upon as indicative of future results.
FINANCING
TK Convertible Debenture
We entered into a Debenture Purchase Agreement on September 25,
1998 with Thomson Kernaghan & Co. Ltd. ("TK"). This Agreement allowed TK to
purchase from JAWS up to two million dollars ($2,000,000) of a
<PAGE> 26
10% convertible debenture and $400,000 in warrants. On April 27, 1999 we
amended the September 25, 1998 Debenture Acquisition Agreement (the "CDA") in
order to increase the amount of the debenture to five million dollars ( US
$5,000,000) and in a manner that sets a fixed price for the conversion of the
debenture into shares of JAWS common stock.
As of the date herein, $1,520,000 of the $5,000,000 available
under the CDA has been advanced. Of this amount, $210,000 plus interest in the
amount of $3,798, has been converted at $0.1118 per share resulting in the
issuance of 1,912,317 shares. Of the remaining balance, $210,000 may be
converted at a fixed price of $0.28, $250,000 may be converted at a fixed price
of $0.28, $250,000 may converted at a fixed price of $0.40 and $600,000 may be
converted at a fixed price of $0.65.
The balance of the financing, $3,490,000 may, at the option of
JAWS, be taken down within a reasonable period from the date of effectiveness of
the registration statement with a fixed conversion price of $0.40 per share. In
each instance, JAWS need not call the financing if it does not deem market
conditions favorable, or alternatively, the parties may, upon the mutual consent
of JAWS and TK, renegotiate for a higher conversion price.
In connection with the amendment to the CDA, TK will receive an
additional $600,000 in warrants, at $0.65 which may result in the issuance of
923,077 shares. There will be a finance fee of 10% of the amount funded through
the purchase of debentures of up to two million dollars ($2,000,000), and 8% of
the proceeds funded in excess of two million dollars ($2,000,000). The finance
fee may be paid in cash or funded on a combination of cash and Rule 144 Stock.
At the option of JAWS, 37.5% of the finance fee may be paid by the issuance of
the Rule 144 Stock.
The TK warrants were negotiated to be 20% of the first
$2,000,000,which resulted in the issuance of 1,428,572 warrants exercisable at
$0.28 per share and 20% of the additional $3,000,000 for an additional issuance
of 923,077 warrants exercisable at $0.65 per share.
In connection with the CDA, JAWS has undertaken to register
pursuant to a Form SB-2 Registration Statement, one hundred percent (100%) of
the shares underlying the debentures and the warrants.
TK is distributing the debentures from the CDA in an offshore
transaction that is exempt from registration requirements under Regulation S.
The distribution by TK is to purchasers who are not defined as US persons by
Rule 902 (o) of Regulation S.
BAM Warrants
On April 26, 1999, JAWS issued a warrant for the purchase of
1,000,000 shares of common stock to BAM at a price of $0.70 per share. The
warrants are exercisable, in whole or in part, at any time prior to April 15,
2002. The warrant has been issued in consideration of terminating an
<PAGE> 27
Investment Agreement with JAWS. The shares underlying the warrant are being
registered under this registration statement.
YEAR 2000 COMPLIANCE ISSUES
JAWS, as well as its customers and suppliers and the financial
institutions and governmental entities with which it deals (collectively, "Third
Parties"), utilize information systems that will be affected by the date change
to the year 2000. Many of these systems, if not modified or replaced, will be
unable to properly recognize and process date-sensitive information before, on
and after January 1, 2000.
State of Readiness
In July, 1998, JAWS organized a Year 2000 project team to assess
the impact of the Year 2000 issue on its operations, develop plans to address
the issue and implement compliance. The project team developed a company-wide,
Year 2000 remediation plan which consists of a ten-step process to examine our
own system and those which we estimated may adversely affect our systems: (1)
in-house computer equipment; (2) outside supported network equipment; (3)
bandwidth providers; (4) in-house software; (5) outside supported network
software; (6) contractors; (7) in-house auxiliary equipment; (8) physical plant;
(9) suppliers; and (10) liability.
For each of the above-listed systems JAWS' approach toward
becoming Year 2000 compliant has been as follows:
(1) In-house computer equipment:
Since inception, we have insisted that all new equipment
purchased be certified to be year 2000 compliant. JAWS has
not dealt with legacy equipment for internal use and will
only purchase computer equipment manufactured by Year 2000
compliant manufacturers.
(2) Outside supported network equipment:
JAWS has limited its outside resource affiliations to one
company. FutureLink Distribution Corporation maintains our
network system. JAWS has requested a full report from this
company relative to their compliance.
(3) Bandwidth providers:
<PAGE> 28
JAWS has limited its bandwidth provider to FutureLink
Distribution Corporation.
(4) In-house software:
JAWS' own products have been carefully scrutinized for
compliance. We believe that all in-house software products
developed by us are year 2000 compliant.
(5) Outside support network software:
JAWS relies on FutureLink Distribution Corporation for all
outside software needs with the strict mandate to only
supply Year 2000 compliant support software. A full report
has been requested from FutureLink.
(6) Contractors:
No contractors have been engaged to perform programming
work. Due to the nature of JAWS' product line, strict
controls are followed to ensure no outside contractors
have access to JAWS'systems, designs and programming.
(7) In-house auxiliary equipment:
All auxiliary equipment used and owned by JAWS is less
than 12 months old, including phone systems, printers and
photocopiers. We have requested Year 2000 compliance
certificates from each manufacturer.
(8) Physical plant:
JAWS currently leases office space in the downtown core of
Calgary, Alberta. A notice requesting Year 2000 compliance
has been delivered to the landlord.
(9) Suppliers:
All critical stock items will be in stock prior to the
beginning for the year 2000 thus eliminating inventory
pressure for the first quarter of 2000.
(10) Liability:
<PAGE> 29
JAWS has received definitive answers from all insurance
carriers with the common consensus that no liability is
covered under JAWS' current policies. JAWS believes that
it has reduced its risk to levels such that they do not
warrant additional or special insurance at this time.
Estimated Cost of Remediation
JAWS currently estimates total expenditures of approximately
$25,000 of which approximately $15,000 had been expended as of March 31, 1999,
to make the required Year 2000 modifications and replacements to its own
systems. All modification and maintenance costs, including costs to replace
embedded technology that does not significantly extend the life or improve the
performance of the related asset, are expensed as incurred. Costs to purchase
new hardware and software and to replace embedded technology that does
significantly extend the life or improve the performance of the related asset
are capitalized and depreciated over the assets' useful lives. All of these
costs are being funded through internal cash flow. The estimated total cost does
not include any expenditures that may be incurred in connection with the
implementation of contingency plans, discussed below.
Most Reasonably Likely Worst-Case Scenario
JAWS currently believes that we will be able to modify or replace
our own affected systems in a timely fashion. This will minimize detrimental
effects on our operations, subject to timely assistance by the vendors of
certain process-control systems. JAWS has received written assurances regarding
Year 2000 compliance from some, but not all, third parties with respect to their
own systems and is not in a position to reliably predict whether third parties
will experience remediation problems. If JAWS or major third parties fail to
successfully address the Year 2000 issue, there could be a material adverse
impact on the business and results of operations of JAWS.
JAWS has not determined the most reasonably likely worst-case
scenario that would result from any failure by JAWS or third parties to resolve
the Year 2000 issue. JAWS will consider this matter in connection with its
development of contingency plans, discussed below. However, such a scenario
could include a temporary curtailment or cessation of operations at JAWS'
facilities, with a resulting loss of production; safety and environmental
exposure and a temporary inability on the part of JAWS to process orders and
deliver finished software products to customers on a timely basis.
Contingency Plans
<PAGE> 30
To date, JAWS Year 2000 efforts have been devoted primarily to
the readiness program described above. JAWS has not yet developed contingency
plans to address and mitigate the potential risks associated with the most
reasonably likely worst-case scenario. JAWS expects to have such plans in place
by mid-1999. Such plans may include, among other things, seeking alternative
sources of supply, stockpiling raw materials and increasing inventory levels.
JAWS Year 2000 program is an ongoing process. Estimates of
remediation costs and completion dates as well as projections of the possible
effects of any non-compliance are subject to change.
JAWS has not conducted a systematic evaluation of the Year 2000
compliance of our vendors and customers. As a result, it is possible that JAWS'
future performance may be adversely impacted by payment and financial
difficulties experienced by customers, and by shipping, fulfillment and
accounting difficulties experienced by vendors. We believe that we has
sufficient resources, including cash reserves and inventory supplies, to
maintain operations during delays in payments or supplies of inventories.
However, we are aware that extended difficulties by larger vendors may have a
significant impact; however, it is unable, at this time, to anticipate the
extent of any such impact, were it to occur.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivatives and Hedging Activities". JAWS does not acquire derivatives in
hedging activities.
BUSINESS
JAWS is a Nevada corporation which owns a 100% interest of JAWS
Technologies, Inc. a corporation formed under the laws of the Province of
Alberta, Canada ("JAWS Canada"). JAWS Canada has offices in Alberta, Canada and
develops encryption proprietary software for JAWS US. JAWS US was incorporated
as a Nevada corporation on January 27, 1997 under the name E-Biz Solutions Inc.
On March 27, 1998, the company changed its name to JAWS Technologies, Inc.
JAWS Canada develops software encompassing encryption algorithms
used to secure binary data on various forms, including streaming and blocked
based data. Currently, JAWS Canada's software technology is capable of
encrypting to a bit level of 4,096. JAWS Canada software operates under
<PAGE> 31
Windows 3.1, Windows 95, Windows 98, and Windows NT. Other platforms are
currently under development.
JAWS has also completed a beta release of L5 e-mail encryption
software for Microsoft Outlook users. This product is currently being tested by
selected e-mail users. The product enables users to protect e-mail and
attachments by pressing a single button for encrypt/decrypt. We have also
completed development of L5 Data Encryption PDA Software for Palm III(TM)
connected organizers. This software provides encryption capabilities securing
sensitive information stored in Palm III(TM) organizers.
The e-mail product we are offering to the ISP market is a plug in
device. It allows users to encrypt an e-mail message from point of sending and
keeps it secure until the recipient accesses the decrypt function allowing the
message to be read. The recipient need not own the e-mail product to decrypt,
but through an attached link may simply access the decrypt function from JAWS.
Also, our e-mail product can be downloaded from our central server so there is
minimal need for production of software disks, manuals and packaging.
Nonetheless, we manufacture and produce all software products, including
packaging, serializing and labelling in our corporate office in Calgary, Canada.
The selling price per user is $49.95.
The programming of JAWS Canada software has been in development
for approximately 15 years. The result is an easy to use means of private key,
very strong encryption. The term "strong encryption" is used to describe codes
that are nearly impossible to break, if not undecipherable in a finite number of
tries.
A sales and marketing team for the L5 Data Encryption software
was put in place in May 1998. Organizing collateral materials (boxes, CD cases,
stationary, brochures) for the JAWS identity was their foremost effort as well
as establishing relationships with public relations companies to provide market
awareness and industry interest in our product. Much effort is currently
underway toward the development of VARs and original equipment manufacturers
("OEM") channels.
In December of 1998 JAWS entered into three agreements with
Internet Service Providers ("ISP's") to implement themselves and market to their
users the L5 and JAWS e-mail encryption product. All three agreements provide
for royalties to be paid to JAWS based on the numbers of their users who
download our products.
Numerous markets exist for the JAWS Canada software. Management
believes that VARs entail a significant potential market for JAWS Canada
products. Such external software developers can use the JAWS software as a
utility embedded in their product to augment or enhance their
<PAGE> 32
particular product offering. Accounting software programs, database
developments, e-mail programs and communication software are all potential
channels for JAWS software. Additional potential customers include the Smart
Card industry, hand-held computing devices, telecommunications and access
control devices. L5 is implemented as a software utility to provide security
enhancements to existing product offerings by other manufacturers. Direct sales
channels include product offerings to Internet service providers (ISP), data
warehouses, corporate networks and personal computer users.
We began our marketing process for L5 in May of 1998 and although
there has been much interest in L5, there has not been significant sales. We
believe there are a number of factors affecting the sales of L5. First, many
systems managers are postponing significant security purchases due to the Y2K
issue. This barrier will be removed by January 1, 2000. Second, many potential
purchasers are aware of security as an issue and are educating themselves as to
what products and services are available and identifying their needs. Third,
the selling cycle for security software through the resellers and VAR programs
we have implemented take considerable time to close.
Services
JAWS' efforts to remain competitive in the marketplace include
providing customers with professional services such as security audit practices,
security business plan development (including security policy development),
implementation practices and re-audit or validation processes. JAWS has
developed its services around the premise of full information security
solutions. This means professional services followed by strong product offerings
to maintain the best possible solution for the given client. JAWS believes that
the marketplace is not geographically restricted, size restricted, or sector
specific. JAWS' professional services can be offered to government agencies,
military agencies, small corporations, large corporations, financial
institutions, industrial clientele and foreign entities.
JAWS' security audit technology is sold to customers and used by
customers so that they may understand the full magnitude and risks inherent with
their current systems information technology ("IT"). This is achieved through a
number of practices including intrusion testing, penetration testing, site
mapping and systems testing with specialized software. Once JAWS fully
understands the risk revealed in the audit, its customer-specific business plan
for IT securities can be developed. At the option of the client, JAWS can then
integrate the appropriate software and products to meet customer needs. The cost
analysis associated with such implementation and products is a critical planning
path. This ensures that the customer meets its objectives, and provides policy
guideline development to ensure that JAWS and the customer, understand the
necessary uses of security. The business plan generally includes a cost
<PAGE> 33
analysis to ensure the customer understands the true cost of security in
relationship to its risk, a critical path schedule to ensure the customer meets
its objectives and policy guidelines development to ensure employees of JAWS
fully understand the security elements. Finally, JAWS provides training for the
customers' staff to ensure that its employees adopt the corporate culture
established by the business plan.
JAWS also offers re-auditing practices to assist the customer in
maintaining its security policies. The re-audit is much like a report card for
the customer to ensure that it is maintaining the policies and procedures
underlying the JAWS Canada software.
The security service division of JAWS believes that in order to
provide satisfactory solutions for its customers, product offerings must include
those of competitors, and in most cases, suppliers of security software,
hardware and firmware. This is achieved through standard licensing contracts
with other security product vendors such as Network Associates, providers of
intrusion detection products, and other security products.
Information Security Marketplace
JAWS believes that the marketplace for encryption software is
virtually unrestricted by size and geography. With the ongoing drive of the
computer industry toward open computing, enormous security risks have been
revealed. Corporations, government, institutions and foreign entities are all
faced with security questions, and as these organizations grow, their network
security will constantly be faced with new challenges. The information industry
in the last ten years has changed from information gathering and information
warehousing, to information sharing. Such information sharing is growing
exponentially, with security being the first component of any solid information
system, whether it is internal or external. More and more, corporations are
finding that their information is their asset and such proprietary information
whether it is market intelligence, corporate planning, corporate development, or
client information, must at all costs remain secure within the organization
while at the same time, be available to strategic partners, employees and
management. The only way to ensure maximum use of all information gathered and
deployed is through security.
According to San Jose, CA, based Data Quest, IT services now make
up 37.5% of all IT spending. Computer sales represent 28.8%, software 14.3% and
telecommunication equipment 9.3%. Approximately $262 billion were spent on IT
services in 1996 and it is anticipated that users will spend approximately $413
billion in the year 2000. A portion of this enormous IT budget for the year 2000
will include a significant amount related to system security.
<PAGE> 34
COMPETITION
Products
A number of companies have developed various security products
ranging from encryption software to firewalls to intrusion detection software or
hardware solutions. No one particular product in the marketplace controls market
share. Two distinctive competitors, RSA and PGP (Network Associates) have led in
the sale of encryption software. JAWS believes that this lead is a result of
being first to the marketplace and commercializing a product specific to
individual users rather than government agencies. With only two strong
competitors in the marketplace, JAWS believes that there is room for additional
products, specifically those products that provide stronger, faster, and easier
to use solutions for the consumer.
An added enhancement of the opportunity for new players in the
marketplace is the typical customer's unwillingness to turn over all security to
a specific product or corporation. JAWS engages in market study and competitive
study research to ensure that JAWS remains aware of other competing product
development. Although other products have entered the marketplace, due to the
size of the market plus the constantly changing atmosphere, JAWS believes it can
penetrate the market with its products. JAWS also believes that healthy
competition has aided in the development of the marketplace through customer
awareness that information security is critical.
Services
Information auditing services, security business planning,
implementation, and security management are relatively new industries, as such,
very few large size competitors exist and only small firms are providing the
services at this time. The growth is anticipated to be exponential over the next
number of years JAWS is positioning itself to be one of the dominant market
players in these areas of professional services. It will achieve this through
both internal growth, and external growth through acquisitions. JAWS is
aggressively pursuing a number of the small operators in this field in order to
maintain its high sales expectations.
BUSINESS STRATEGY
The blend of both product and services offered by JAWS is the
strategy for ensuring that it is well positioned in the customer's mind as being
the number one source for information security solutions. JAWS has developed
specific business processes and marketing strategies that will ensure that it
meets and exceeds the market expectations. Reaching the marketplace is
<PAGE> 35
achieved through conventional marketing tactics but also through educational
processes, such as seminar delivery through accounting and legal firms to their
client base, value added reselling programs and a strong channel marketing
strategy. JAWS believes it can grow its practices, deliver services and products
in a cost-effective manner, but yet be able to handle superior volumes through
exceptional business processes developed by JAWS.
Customer Support
JAWS provides a high degree of initial and continuing customer
service, and support at a level JAWS believes generally exceeds industry
standards. JAWS believes that its focus on customer service will be a key factor
in its high level of customer retention and growth in revenues. Support is
available to the customer through a help desk process and eventually via
regional technicians.
Technological Change
Although JAWS is not aware of any pending or perspective
technological change that would adversely affect its business, new development
in technology could have material effect on the development or sale on some or
all of JAWS' services or could render its services not competitive or obsolete.
There can be no assurance that JAWS will be able to develop or acquire new or
improved services or systems, which may be required in order to remain
competitive. JAWS believes however, that technological change does not present a
material risk to JAWS' business but enhances its business opportunities. Each
technological change reveals new security issues that must be addressed by
professional services and results in new products.
Intellectual Property Matters
JAWS is in the process of applying for a U.S. patent. JAWS
maintains strict confidentiality practices with its employees including
contractual obligations by the employees. JAWS has not registered any of its
trademarks, trade names or service marks. JAWS owns the copyright in all the
software created by its employees and the copyrights which it has contractually
acquired. JAWS also believes that because of the rapid pace of technological
change in the computer industry, copyright and other forms of intellectual
property protection are of less significance within its services division. JAWS'
business is not dependent on a single license or group of licenses. JAWS is
experienced in handling confidential and sensitive client information that is
intrinsic or critical to its corporate culture.
ENVIRONMENTAL LAWS
<PAGE> 36
JAWS endeavors to follow all recycling programs and maintains its
awareness of the changing environmental laws.
EMPLOYEES
As of March 31, 1999, JAWS employs approximately 24 full time
staff. None of JAWS' employees are represented by any type of labor organization
and JAWS is not aware of any activity by employees seeking organization. JAWS
considers its relationships with it employees to be satisfactory. JAWS has, in
its early stages, developed strong human resources practices with belief that
the growth of JAWS is completely reliant on its human resources and as such,
pays great detail and attention to human resource factors.
INSURANCE
JAWS maintains insurance coverage that management believes is
reasonable, including key man life insurance policies, business interruption
insurance, asset protection and public liability insurance. JAWS also maintains
extensive data backup procedures to protect both client and JAWS data.
DESCRIPTION OF PROPERTY
JAWS maintains its offices and computer center in a facility
approximately 10,000 square feet in Calgary, Alberta, Canada, from the director
of corporate affairs of JAWS under an arm's length arrangement. In the past,
JAWS has purchased most of its equipment, and is now considering leasing all
future equipment. JAWS believes that its current and proposed facilities are in
good condition.
LEGAL PROCEEDINGS
There is currently one legal matter whereby David Aplin &
Associates provided employee placement services. Two of the employees hired by
JAWS through David Aplin were released prior to the expiration of the statutory
3 month probationary period. As such, JAWS has refused to pay David Aplin's
placement fee for these two individuals. David Aplin & Associates believes that
regardless of the suitability of these two placements, their fees remain due and
payable and as such has submitted a statement of claim registered in the Alberta
Court of Queen's Bench. JAWS has defended this action and will continue to
monitor the case through our Canadian legal counsel. The total exposure to JAWS
through this action is approximately $28,000 ($41,580 Canadian dollars).
<PAGE> 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of the
outstanding shares of common stock owned beneficially as of March 31, 1999, by
each director of JAWS, by each officer of JAWS, by the four other most highly
compensated executives other than the CEO, by all directors and executive
officers as a group, and by each person who, to the knowledge of JAWS,
beneficially owns more than 5% of any class of JAWS' voting stock on such date.
<TABLE>
<CAPTION>
NAME AND OFFICE OF BENEFICIAL OWNER AMOUNT AND NATURE OF
PERCENT OF CLASS(2)
BENEFICIAL OWNERSHIP(1)
<S> <C> <C>
Robert J. Kubbernus 657,000 6.19%
Vera Gmitter 4,000 0.04%
Julia Johnson 50,000(3) 0.47%
Gayle Howard 21,200 0.20%
Arthur Wong 50,000(3) 0.47%
TK 7,454,900(4) 41.26%
All directors and officers as a group
(5 persons) 782,200 7.37%
</TABLE>
(1) Unless otherwise stated, the business address of each of the stockholders
named in the table is c/o JAWS Technologies Inc., at 1013 17th Avenue S.W.,
Calgary Alberta T2T 0A7, Canada. Except as otherwise indicated and subject to
applicable community property and similar laws, JAWS assumes that each named
person has the sole voting and investment power with respect to such person's
shares.
(2) Percentage of class is based on 10,612,317 shares outstanding on the record
date, and does not include 9,016,255 shares currently
<PAGE> 38
held in escrow by TK pursuant to the terms of the debenture acquisition
agreement which are not eligible to be voted as of the record date. These shares
are not considered issued and outstanding for purposes of a quorum or voting.
Such shares underlie the CDA for the purchase of such shares which, as of the
record date, had not been converted.
(3) Options for the purchase of shares which have vested and are exercisable at
any time.
(4) TK disclaims beneficial ownership of shares. Includes shares already issued
under the conversion of a portion of CDA, shares issuable upon conversion of the
portion of CDA which has been drawn down and warrants to TK. See "Management
Discussion & Analysis of Financial Condition and Results of Operations --
Financing."
MANAGEMENT
DIRECTORS AND OFFICERS
The current directors and executive officers of JAWS are as
follows:
<TABLE>
<CAPTION>
Name Position Held
------- ----------------
<S> <C>
Robert Kubbernus Chairman of the Board and Chief Executive Officer
Cameron Chell Director
Julia Johnson Director
Arthur Wong Director
Vera Gmitter Vice President Operations
Tej Minhas Vice President Technology
Gayle Howard Vice President Sales & Marketing
</TABLE>
Robert Kubbernus has 13 years of financial experience working
with high tech firms in the Calgary area. Before joining JAWS in 1997, he raised
more than $475 million in debt financing for a long-term corporate client base.
Since joining JAWS as CEO and Chairman, his primary responsibilities have been
to oversee JAWS' security product developers, provide executive direction and
develop key contacts within government, corporations, funders, clients,
insurance underwriters and the investment community. From 1992 to 1997, Mr.
Kubbernus held the position of President and CEO at Bankton Financial
Corporation. He headed up a team of corporate financial consultants who
specialize in the placement of debt instruments with institutional and private
lenders. Before 1992, he was the Chief Financial Officer as well as the Chief
Development Officer at Bankers Capital Group, where he developed new products
and markets as well as overseeing the financial controls of the organization.
<PAGE> 39
Cameron Chell has several years of experience in developing
financing solutions for high-tech organizations. As a registered broker, he has
aided corporations through their initial financing and start-up phases. Mr.
Chell is also CEO and Chairman of FutureLink Distribution Corp. In 1997, in
partnership with Mr. Chris McNeill, an investor relations specialist, Mr. Chell
opened his own investment banking firm, Chell McNeill Inc. The firm was
established to assist high-tech companies like JAWS, FutureLink and others in
acquiring market and investor relations support.
On November 6, 1998, Cameron Chell entered into a Settlement
Agreement with the Alberta Stock Exchange to resolve a pending investigation
into alleged breaches by Mr. Chell of Alberta Stock Exchange rules and bylaws.
As part of the Settlement Agreement, (i) Mr. Chell acknowledged that he had
breached certain duties of supervision, disclosure, or compliance in connection
with various offers and sales of securities, and (ii) Mr. Chell was prohibited
from receiving Alberta Stock Exchange approval for a five-year period, subjected
to a CDN$25,000 fine and a three-year period of enhanced supervision.
Julia L. Johnson is a nationally-recognized authority on utility
regulation in the U.S. She currently serves as Chairman of the Florida Public
Service Commission (the "Commission"), state Chair person of the Federal/State
Joint Board on Universal Service, Vice Chairman of the Communications Committee
of the National Association of Regulatory Utility Commissioners, and board
member for the Markle Foundation on a project that encourages the use of new
communications technologies for socially beneficial purposes. Before being
appointed to the Commission, Ms. Johnson served as the Director of Legislative
Affairs and senior land use attorney for the Department of Community Affairs.
She was the chief lobbyist representing the agency before the Florida
Legislature on land use issues. In 1997, Ms. Johnson received the Dollars &
$ense Magazine's Best and Brightest Business & Professional Men and Women award.
In 1996, she received the University of Florida Association of Black Alumni's
Outstanding Leadership Award. Ms. Johnson holds a Juris Doctorate with a
concentration in corporate and real estate transactions from the University of
Florida School of Law, as well as a Bachelor of Science in Business
Administration from the University of Florida.
Arthur Wong provides strategic direction to JAWS in the area of
channel development. In the past seven years Mr. Wong has founded one oil and
gas and three technology companies, taking two of those companies public. In his
current role of Fellow for Network Associates Inc. of Santa Clara, California,
Mr. Wong heads up Active Security issues and spearheads the adoption of new
security infrastructures for global enterprises and integrators. He also
develops standards for new security infrastructures and works on its
<PAGE> 40
integration and adaptation internationally. In 1996, Mr. Wong founded and
managed Secure Networks Inc., an organization that developed Internet security
tools and offered security consulting before it was acquired by Network
Associates Inc. for approximately $25 million. He is the Managing Director and
Founder of H2O Entertainment Corp., a Calgary-based organization that develops
products for Nintendo and its N64 game platform. Mr. Wong also founded
Millennium Systems Canada Inc., a wholesale distributor of high-end computer
equipment. Mr. Wong holds a Bachelor of Science in Communication from the
University of Calgary.
Vera Gmitter is Vice President of Operations for JAWS. Ms.
Gmitter is responsible for day to day operations including financing, government
regulation, policies and procedures. Ms. Gmitter has owned and operated numerous
businesses in the service and retail industries. Before joining JAWS, Ms.
Gmitter held the position of General Manager at Bankton Financial Corporation.
Through Continuing Education, she has helped women entrepreneurs retraining to
enter the workforce. She has also taught Junior Achievement, a North
America-wide business program aimed at educating Elementary school aged
children. Ms. Gmitter holds a Bachelor of Arts in Political Science and
Economics from the Augustana University.
Tej Minhas has professional experience with Sybase Professional
Services, Dofasco, Pace and the Government of Ontario. His knowledge of software
development platforms includes expertise in C, C++, COBOL, Pascal, OO, Assembly,
PL1 and hardware (e.g. IBM, SUN, HP, Intel, DEC, Apple, GEAC) platforms. Mr.
Minhas has provided IT consulting services to a variety of industry sectors
including insurance, banking, telecommunications, oil & gas, retail and
agriculture. While working with Sybase, Mr. Minhas moved from principal
consultant to district manager for Canada. Mr. Minhas holds a Bachelor of
Science in Computer Science from the University of Toronto.
Gayle Howard is the Vice President of Sales and Marketing for
JAWS. Ms. Howard provides JAWS with strategic planning and positioning for the
sales and marketing of JAWS Security products and services into international
business markets. Gayle holds a Bachelor of Commerce degree with a double major
in Marketing and General Business from the University of Saskatchewan. She has
also earned awards in Strategic Marketing, Public Speaking as well as her
athletic achievements.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has nominated a Compensation Committee
consisting of two outside directors and one internal director. Any and all
compensation plans for the executive members are reviewed on an
<PAGE> 41
annual basis. The executive compensation for JAWS is pursuant to a Company Stock
Option Plan.
The Compensation Committee currently consists of Julia Johnson,
Arthur Wong and Cameron Chell. The Compensation Committee establishes salaries,
incentives and other forms of compensation for officers of JAWS. The Audit
Committee consists of Julia Johnson, Arthur Wong and Cameron Chell.
COMPENSATION OF BOARD OF DIRECTORS
Out of pocket expenses of directors related to their attendance
at meetings of the Board of Directors of JAWS are paid by JAWS. JAWS may
reimburse expenses incurred by directors related to Board of Directors meetings.
Each of Ms. Johnson and Mr. Wong are to be compensated in 1998 for their
services rendered to JAWS in an amount equal to US$60,000 for the related
eighteen month period of service payable at JAWS' sole discretion, in stock or
in cash. In addition, the directors are eligible to receive stock options under
the JAWS 1998 Stock Option Plan. No other payments have been made to the
directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning
compensation of the six senior officers and directors of Jaws Canada for the
fiscal year from January 1 to December 31, 1998.
<PAGE> 42
============================================
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------------------------------- ------------
SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS ALL OTHER
NAME AND SALARY BONUS COMPENSATION GRANTED COMPENSATION
PRINCIPAL POSITION PERIOD ENDED ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chief Executive 1998 135,000 USD Nil Nil 350,000 CDN$
Officer
Robert Kubbernus
Director 1998 16,667 USD Nil Nil 250,000 CDN$
Cameron Chell
Director 1998 16,667 USD Nil Nil 200,000 CDN$
Julia Johnson
Director 1998 16,667 USD Nil Nil 200,000 CDN$
Arthur Wong
VP, Operation 1998 24,750 CDN$ Nil Nil 82,500 CDN$
Vera Gmitter
VP, Technology 1998 34,375 CDN$ Nil Nil 88,000 CDN$
Tej Minhas
</TABLE>
============================================
STOCK OPTION PLAN
In July 1998, JAWS US adopted the 1998 Stock Option Plan ("SOP")
which provides for the grant of incentive and restricted stock options to
purchase 20% of the outstanding shares of common stock.
The purpose of the SOP is to enable JAWS to attract and retain
qualified persons as employees, officers and directors and to motivate such
persons by providing them with an equity participation in JAWS. The options
granted which are intended to qualify as Incentive Stock Options under Section
422 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), is
designed to afford qualified optionees certain tax benefits available under the
Code.
<PAGE> 43
The SOP is administered by the Board who is authorized to appoint
a stock option committee to determine the persons entitled to receive options.
The maximum number of shares with respect to which options may be
granted to any employee in any one calendar year is 500,000 shares. The purchase
price for the shares subject to the SOP is determined by the plan administrator
at the time of the grant, but shall not be less than the par value per share.
The purchase price for shares subject to any Incentive Stock Option shall not be
less than 100% of the fair market value of the shares of common stock of JAWS on
the date the option is granted. In the case of an Incentive Stock Option granted
to an employee who owns stock possessing more than 10% of the total combined
voting power of all classes of stock of JAWS or its subsidiaries, the exercise
price shall not be less than 110% of the fair market value per share of the
common stock JAWS on the date the option is granted.
As March 31,1999 JAWS had granted options under the SOP to
purchase a total of 2,007,000 shares of common stock at exercise prices ranging
from $.15 to $.77 per share. Of such options, 1,286,500 options were granted to
officers and directors and expire in July, 2008. The balance of options
outstanding have been issued to third party contractors and consultants.
DESCRIPTION OF SECURITIES
As of the effective date of this registration statement, JAWS is
authorized to issue: (a) 95,000,000 shares of common stock, par value of $.001
per share; and (b) 5,000,000 shares of Preferred Stock, par value of $.001 per
share. As of March 31,1999, there were 10,612,317 shares of common stock issued
and outstanding as fully paid and non-assessable and no shares of Preferred
Stock issued. As of the date hereof, JAWS has reserved 20% of the outstanding
shares for issuance under the SOP.
The following is a general description of the material rights,
privileges and restrictions and conditions attaching to each class of shares:
COMMON STOCK
Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
<PAGE> 44
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of JAWS, and subject to the prior distribution rights
of the holders of outstanding shares of Preferred Stock, if any, the holders of
shares of common stock shall be entitled to receive pro rata all of the
remaining assets of JAWS available for distribution to its stockholders. The
common stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by the laws of the State of Nevada, with approval by JAWS'
stockholders, to provide for the issuance of up to 5,000,000 shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the designations, powers, preferences
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the stockholders. The Board of Directors
may authorize and issue Preferred Stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of
Shares.
TRANSFER AGENT
U.S. Stock Transfer Corporation is the transfer agent and
registrar for the shares of common stock.
CERTAIN TRANSACTIONS
Consulting Fees
Since inception in 1997, JAWS has paid consulting fees in an amount of $120,486
to Robert Kubbernus, $14,514 was paid to Bankton Financial Corp., a corporation
managed by Robert Kubbernus, $47,986 to Cameron Chell and $16,524 to Mitch Tarr.
Additionally, JAWS enters into consulting agreements for a number of services,
such as employee research and bonding services, employee placement services,
website development services, software development services and some sales and
marketing services. JAWS will experience relatively the same ratio of consulting
service requirements on a go forward basis in the future. See "Financial
Statements".
<PAGE> 45
Directors' Agreement
Each of Ms. Julia Johnson and Mr. Arthur Wong have entered into
agreements with JAWS pursuant to which they have agreed to act as a director on
the Board for a period of eighteen months. In consideration of such services,
the agreement grants each of such directors a fee of stock or cash equal to
$60,000. In addition, the directors have been granted options to purchase
200,000 shares of JAWS at a price per share equal to $0.48, exercisable until
August 1, 2000.
Indemnity Agreement
Each of JAWS' directors have entered into an indemnity agreement
with JAWS pursuant to which JAWS has agreed to indemnify them in third party
proceedings and in proceedings by or in the name JAWS.
TK Financing
JAWS has entered into the CDA with TK. See "Management Discussion &
Analysis-Financing".
SELLING SECURITY HOLDERS
The Selling SECURITY HOLDER (or pledges, donees, transferees or
successors in interest) may sell all or a portion of the respective Selling
SECURITY HOLDER'S Securities held by them from time to time while the
registration statement of which this Prospectus is a part remains effective. The
aggregate proceeds to the Selling SECURITY HOLDERS from the sale of the
respective Selling SECURITY HOLDER'S Securities offered by the Selling SECURITY
HOLDER hereby will be the prices at which such securities are sold, less any
commissions. There is no assurance that the Selling SECURITY HOLDERS will sell
any or all of the Selling SECURITY HOLDER'S Securities offered hereby.
The Selling SECURITY HOLDERS' Securities may be sold by the
Selling SECURITY HOLDERS in transactions on the OTC Bulletin Board, in
negotiated transactions, or by a combination of these methods, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at negotiated prices or through the writing of
<PAGE> 46
options on the Selling SECURITY HOLDER'S Securities. The Selling SECURITY HOLDER
may elect to engage a broker or dealer to effect sales in one or more of the
following transactions: (a) block trades in which the broker or dealer so
engaged will attempt to sell the Selling SECURITY HOLDER'S Securities as agent
but may position and resell a portion of the block as principal to facilitate
the transaction, (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, and (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. In effecting sales, brokers and dealers engaged by the Selling
SECURITY HOLDER may arrange for other brokers or dealers to participate. Brokers
or dealers may receive commissions or discounts from the Selling SECURITY HOLDER
in amounts to be negotiated (and, if such broker-dealer acts as agent for the
purchaser of such Selling SECURITY HOLDER'S Securities, from such purchaser).
Broker-dealers may agree with the Selling SECURITY HOLDER to sell a specified
number of such Selling SECURITY HOLDER'S Securities at a stipulated price per
Selling Security Holder's Security, and to the extent that such broker-dealer is
unable to do so, acting as agent for the Selling SECURITY HOLDER to purchase as
principal any unsold Selling SECURITY HOLDER'S Securities at the price required
to fulfill the broker-dealer commitment to the Selling SECURITY HOLDERS.
Broker-dealers who acquire Selling SECURITY HOLDER'S Securities as principal may
thereafter resell such Selling SECURITY HOLDER'S Securities from time to time in
transactions (which may involve crosses and block transaction and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Selling SECURITY HOLDER'S
Securities commissions as described above.
The Selling SECURITY HOLDER and any broker-dealers or agents that
participate with the Selling SECURITY HOLDER in sales of the Selling SECURITY
HOLDER'S Securities may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agent and any profit on the
resale of the Selling SECURITY HOLDER'S Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
The Company will pay all expenses incidental to this offering and
sale of the Selling SECURITY HOLDER'S Securities to the public other than
selling commissions and fees.
The Selling SECURITY HOLDER have been advised that during the
time they are engaged in "distribution" (as defined under Regulation M
<PAGE> 47
under the Securities Exchange Act of 1934, as amended) of the securities covered
by this Prospectus, they must comply with Regulation M under the Securities
Exchange Act of 1934, as amended, and pursuant thereto: (i) shall not engage in
any stabilization activity in connection with the Company's securities; and (ii)
shall not bid for or purchase any securities of the Company or attempt to
include any person to purchase any of the Company's securities other than as
permitted under the Securities Exchange Act of 1934, as amended. Any Selling
SECURITY HOLDER who are "affiliated purchasers" of the Company, as defined in
Regulation M, have been further advised that they and their affiliates must
coordinate their sales under this Prospectus and otherwise with the Company and
any other "affiliated purchasers" of the Company for purposes of Regulation M.
The Selling SECURITY HOLDER must also furnish each broker through which Selling
SECURITY HOLDER'S Securities are sold copies of this Prospectus.
LEGAL OPINION
The validity of certain of the Securities offered hereby will be
passed upon for JAWS by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles,
California.
EXPERTS
The Consolidated Financial Statements of JAWS audited by Ernst &
Young LLP, Independent Chartered Accountants have been included herein in
reliance on their report given in their authority as experts in accounting and
auditing.
The audited Financial Statements of Jaws Canada, audited by Ernst
& Young LLP, Independent Chartered Accountants have been included herein in
reliance on their report given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
For further information with respect to JAWS Technologies Inc.
and our common stock, reference is made to the registration statement, including
the exhibits. Statements concerning the contents of any contract or of any other
document are not necessarily complete. In each instance, reference is made to
such contract or other document filed with the Commission as an exhibit to the
registration statement. The registration statement, including all of the
attached exhibits and schedules, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, NW, Washington, D.C. 20549. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
NW, Washington, D.C. 20549, at prescribed rates and at the Commission's web
site, www.sec.gov.
<PAGE> 48
CONSOLIDATED FINANCIAL STATEMENTS
JAWS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 1998 AND 1997
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
JAWS TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheets of JAWS
TECHNOLOGIES, INC. (a development stage company) as at December 31, 1998 and
1997 and the related consolidated statements of loss and deficit and
comprehensive loss, changes in stockholders' equity and cash flows for the year
ended December 31, 1998 and for the period from the date of incorporation on
January 27, 1997 to December 31, 1997 and for the cumulative period ended
December 31, 1998 since inception. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. 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 Jaws
Technologies, Inc. (a development stage company) as at December 31, 1998 and
December 31, 1997 and the consolidated results of its operations and its
consolidated cash flows for the year ended December 31, 1998 and for the period
from the date of incorporation on January 27, 1997 to December 31, 1997 and for
the cumulative period since inception in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations and net capital deficiency raise substantial doubts about
its ability to continue as a going concern. Management's plans as to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Calgary, Canada [signed: Ernst & Young LLP]
March 22, 1999 Chartered Accountants
except for Note 15 (c) which is as at
April 26, 1999
<PAGE> 50
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
(see going concern uncertainty - note 1)
<TABLE>
<CAPTION>
AS AT DECEMBER 31
1998 1997
$ $
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash 33,732 111
Accounts receivable 7,243 --
Due from related parties [note 6] 13,118 --
Prepaid expenses and deposits 140,456 7,500
- ---------------------------------------------------------------------------------------
194,549 7,611
Fixed assets, net of $13,461 of accumulated
depreciation 77,090 --
[note 4]
Organization costs, net of $1,160 of accumulated
amortization 1,740 2,320
- ---------------------------------------------------------------------------------------
273,379 9,931
=======================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT
Accounts payable 379,720 32,976
Accrued liabilities 48,880 --
Due to related parties [note 6] 197,115 --
- ---------------------------------------------------------------------------------------
625,715 32,976
Due to stockholders [note 6] 74,717 78,159
Convertible debentures [note 7] 146,606 --
- ---------------------------------------------------------------------------------------
221,323 78,159
COMMITMENTS AND CONTINGENCIES [NOTES 1 AND 9]
STOCKHOLDERS' DEFICIENCY
Common stock issued and paid-up [note 5] 10,612 4,000
Capital in excess of par value 2,212,153 31,650
Contributed surplus 425,559 --
Foreign currency translation adjustment (8,842) --
Deficit accumulated during the development stage (3,213,141) (136,854)
- ---------------------------------------------------------------------------------------
(573,659) (101,204)
- ---------------------------------------------------------------------------------------
273,379 9,931
=======================================================================================
</TABLE>
See accompanying notes
<PAGE> 51
On behalf of the Board:
Director Director
<PAGE> 52
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
For the year ended December 31 (with comparative figures for the period from the
date of incorporation on January 27, 1997 to December 31, 1997)
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS SINCE
1998 1997 INCEPTION
$ $ $
- --------------------------------------------------------------------------------------------------
(note 11)
<S> <C> <C> <C>
REVENUE [NOTES 6 AND 13] 29,068 -- 29,068
- --------------------------------------------------------------------------------------------------
EXPENSES [NOTE 6]
Accounting and legal 186,128 69,952 256,080
Advertising and promotion 218,574 35,000 253,574
Consulting 514,894 30,731 545,625
Depreciation and amortization 14,041 580 14,621
Directors' fees 33,333 -- 33,333
Amortization of deferred financing fees
[note 7] 5,158 -- 5,158
Foreign exchange gain (431) -- (431)
Non cash interest expense 381,688 -- 381,688
Interest expense and bank charges 2,869 -- 2,869
Investor relations 258,016 -- 258,016
Office and administration 83,143 -- 83,143
Other 52,928 591 53,519
Rent 29,637 -- 29,637
Travel 132,646 -- 132,646
Wages and employee benefits 283,728 -- 283,728
Software development costs [note 3] 909,003 -- 909,003
- --------------------------------------------------------------------------------------------------
3,105,355 136,854 3,242,209
- --------------------------------------------------------------------------------------------------
LOSS FOR THE PERIOD [NOTE 8] (3,076,287) (136,854) (3,213,141)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (8,842) -- (8,842)
- --------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS (3,085,129) (136,854) (3,221,983)
==================================================================================================
DEFICIT, BEGINNING OF PERIOD (136,854) -- --
LOSS FOR THE PERIOD (3,076,287) (136,854) (3,213,141)
- --------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (3,213,141) (136,854) (3,213,141)
==================================================================================================
Loss per common share (0.42) (0.03)
Weighted average number of shares
outstanding 7,405,421 4,000,000
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE> 53
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
CAPITAL IN
PAR EXCESS OF CONTRIBUTED
SHARES VALUE PAR VALUE SURPLUS
$ $ $
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock for cash 4,000,000 4,000 56,000 --
Less share issue costs -- -- (24,350) --
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 4,000,000 4,000 31,650 --
Issuance of common stock for
services [note 5] 400,000 400 199,600 --
Issuance of common stock on
acquisition of subsidiary
[note 3] 1,500,000 1,500 838,248 --
Issuance of common stock for cash 2,800,000 2,800 1,017,200 --
Warrants issued with issuance of
convertible debentures [note 7] -- -- -- 342,857
Equity component of convertible
debentures [note 7] -- -- -- 118,462
Equity component of financing
fees [note 7] -- -- -- (11,760)
Equity component of financing
fees [note 7] -- -- -- (24,000)
Issue of common stock upon
conversion of convertible
debentures 1,912,317 1,912 211,886 --
Less financing fee associated
with converted debentures
[note 7] -- -- (21,117) --
Less share issue costs -- -- (65,314)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 10,612,317 10,612 2,212,153 425,559
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE> 54
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
For the year ended December 31, 1998 (with comparative figures for the period
from the date of incorporation on January 27, 1997 to December 31, 1997)
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS SINCE
1998 1997 INCEPTION
$ $ $
- ----------------------------------------------------------------------------------------------------
(note 11)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Loss for the period (3,076,287) (136,854) (3,213,141)
Adjustments to reconcile loss to
cash flows used in operating activities:
Consulting expense not involving the
payment of cash [note 5] 200,000 -- 200,000
Depreciation and amortization 14,041 580 14,621
Amortization of deferred financing fees 5,158 -- 5,158
Software development costs 909,003 -- 909,003
Non-cash interest expense on warrants 257,143 -- 257,143
Non-cash interest expense on
convertible debentures 118,462 -- 118,462
Non-cash interest expense on
convertible debenture conversion and
accrued interest 6,083 -- 6,083
Foreign currency translation adjustment (8,842) -- (8,842)
Changes in non-cash working capital
balances [note 10] 439,422 25,476 464,898
- ----------------------------------------------------------------------------------------------------
(1,135,817) (110,798) (1,246,615)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (87,660) -- (87,660)
Organization costs -- (2,900) (2,900)
Other (19,082) -- (19,082)
- ----------------------------------------------------------------------------------------------------
(106,742) (2,900) (109,642)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common
stock, net of issue costs 954,686 35,650 990,336
Proceeds from (repayment of) stockholder
loans (78,159) 78,159 --
Proceeds from other related party loan 20,273 -- 20,273
Proceeds received on issue of convertible
debenture 420,000 -- 420,000
Financing fees on issue of convertible
debenture (42,000) -- (42,000)
- ----------------------------------------------------------------------------------------------------
1,274,800 113,809 1,388,609
- ----------------------------------------------------------------------------------------------------
INCREASE IN CASH 32,241 111 32,352
Cash acquired on acquisition of
subsidiary 1,380 -- 1,380
Cash, beginning of period 111 -- --
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS SINCE
1998 1997 INCEPTION
$ $ $
- ----------------------------------------------------------------------------------------------------
(note 11)
<S> <C> <C> <C>
CASH, END OF PERIOD 33,732 111 33,732
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE> 56
1. DESCRIPTION OF BUSINESS AND GOING CONCERN UNCERTAINTY
Jaws Technologies, Inc., (the "Company") was incorporated on January 27, 1997
under the laws of the State of Nevada as "E-Biz" Solutions, Inc. On March 27,
1998, "E-Biz" Solutions, Inc. changed its name to Jaws Technologies, Inc. The
Company maintains a fiscal year ending on December 31. The business purpose is
developing and selling encryption software. These activities are carried out
through the Company's wholly owned Canadian subsidiary. The Company is in the
development stage.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company is in the development stage and has accumulated losses
from operations amounting to $3,213,141, a working capital deficiency of
$431,166 and a stockholders' deficiency of $573,659 as at December 31, 1998. The
Company's continuation as a going concern is dependent on its ability to
generate sufficient cash flow, to meet its obligations on a timely basis, to
obtain additional financing as may be required, and ultimately to attain
successful operations. However, no assurance can be given at this time as to
whether the Company will achieve any of these conditions. These factors, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern for a reasonable period of
time.
Management believes that additional funding will be required to finance expected
operations until a market has been developed for the Company's software.
Management intends to seek additional financing through future private or public
offerings of stock and through the exercise of stock options.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Jaws Technologies, Inc., an Alberta, Canada
corporation, after elimination of intercompany accounts and transactions.
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated at the following annual
rates which are designed to amortize the cost of the assets over their estimated
useful lives.
<PAGE> 57
<TABLE>
<S> <C>
Furniture and fixtures - 20% diminishing balance
Computer hardware - 33% straight line
Computer software for internal use - 33% straight line
</TABLE>
SOFTWARE DEVELOPMENT
Software development costs are expensed when technological feasibility has not
yet been established. Subsequent to establishing technological feasibility, such
costs are capitalized until the commencement of commercial sales.
ORGANIZATION COSTS
Organization costs are capitalized and amortized over 60 months on a
straight-line basis.
FINANCING FEES
Financing fees associated with that portion of the 10% convertible debentures
classified as debt are deferred and amortized over the life of the debentures,
unless the debentures have been converted. Financing fees associated with that
portion of the convertible debentures classified as contributed surplus is
charged to that account. The pro rata portion of financing fees associated with
converted debentures is charged to share capital in excess of par value.
REVENUE
Revenue from selling encryption software is recognized when the software is
delivered.
ADVERTISING
Advertising costs are expensed as incurred.
<PAGE> 58
INCOME TAXES
The Company follows the liability method of accounting for the tax effect of
temporary differences between the carrying amount and the tax basis of the
company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Deferred income taxes are recorded at the income tax rates
that are expected to apply when the deferred tax liability is settled or the
deferred tax asset is realized. When necessary, valuation allowances are
established to reduce deferred income tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred income tax assets and liabilities.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiary is Canadian dollars.
Accordingly, assets and liabilities of the subsidiary are translated at the
year-end exchange rate and revenues and expenses are translated at average
exchange rates. Gains and losses arising from the translation of the financial
statements of the subsidiary are recorded in a "Foreign Currency Translation
Adjustment" account in stockholders' equity.
LOSS PER COMMON SHARE
The loss per common share has been calculated based on the weighted average
number of common shares outstanding during the period. Earnings per share on a
fully diluted basis, assuming all warrants, options and conversion features were
exercised, does not differ from basic earnings per share.
STOCK OPTIONS
The Company applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.
<PAGE> 59
3. ACQUISITION
On February 10, 1998 the Company issued 1,500,000 restricted common shares, as
well as options to purchase 400,000 shares of its restricted common stock at
$0.50 per share in exchange for all of the outstanding common stock of Jaws
Technologies, Inc., an Alberta, Canada corporation ("Jaws Alberta"). The options
issued in connection with the acquisition have been ascribed no value. Jaws
Alberta is a development stage company which at the time of acquisition was in
the process of creating a new encryption software product. The acquisition has
been accounted for by the purchase method.
The purchase price, and thereby the amounts allocated to software and the shares
issued, net of other assets and liabilities acquired, was determined based on
estimates by management as to the replacement cost for the encryption software
development which had been incurred by Jaws Alberta prior to the acquisition
date. The purchase price has been allocated to the net assets acquired based on
their estimated fair values as follows:
<TABLE>
<CAPTION>
$
- -----------------------------------------------------
<S> <C>
Net assets acquired
Non-cash working capital (5,087)
Software under development 909,003
Fixed assets 2,891
Due to stockholders (54,443)
- -----------------------------------------------------
Net assets acquired, excluding cash 852,364
Acquisition costs (13,996)
Cash acquired 1,380
- -----------------------------------------------------
Net assets acquired for common stock 839,748
=====================================================
</TABLE>
The amount allocated to software under development relates to encryption
software and its related algorithms, including the "L5" software. This software,
at the time of purchase, was not completely developed, tested or otherwise
available for sale and therefore has been immediately expensed in the
accompanying consolidated statements of loss and deficit. Coding and testing
activities for this software were completed by July 31, 1998.
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
Pro forma loss and pro forma loss per common share for the year ended December
31, 1998, giving effect to the acquisition of Jaws Alberta as at January 1, 1998
are $3,083,685 and $0.42 respectively. Pro forma revenue does not differ from
that recorded for the period to December 31, 1998, being $29,068.
<PAGE> 60
Pro forma loss and pro forma loss per common share for the period from the date
of incorporation on January 27, 1997 to December 31, 1997, giving effect to the
acquisition of Jaws Alberta as at September 18, 1997 (being the date of
inception of Jaws Alberta), are $1,038,995 and $0.19 respectively.
4. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER
1998 31, 1997
--------------------------------------------------------
ACCUMULATED NET BOOK COST AND NET
COST DEPRECIATION VALUE BOOK VALUE
$ $ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Furniture and fixtures 31,758 6,482 25,276 --
Computer hardware 45,631 5,534 40,097 --
Computer software for internal use 13,162 1,445 11,717 --
- ---------------------------------------------------------------------------------------------------
90,551 13,461 77,090 --
===================================================================================================
</TABLE>
5. SHARE CAPITAL
AUTHORIZED
20,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
COMMON STOCK ISSUED
The 400,000 restricted common shares issued for services relate to services
provided by two consultants in relation to the establishment of the capital
structure of the Company. The shares were recorded at their estimated fair value
of $200,000.
COMMON STOCK HELD IN ESCROW
Upon entering into the 10% convertible debenture agreement (see note 7) the
Company placed 9,500,000 shares in escrow relating to the $2 million of
financing. In addition, 1,071,429 shares and 357,143 shares were placed in
escrow relating to the purchasers' and agent's warrants issued in relation to
the 10% convertible debenture agreement.
<PAGE> 61
OPTIONS
As at December 31, 1998, the Company has issued 1,667,000 options to purchase
common stock to the Company's directors, officers and employees. Of the total
issued, none have been exercised as at December 31, 1998. Details of the stock
options outstanding at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE PRICE EXPIRY DATE
- --------------------------------------------------------------------
<S> <C> <C>
200,000 0.15 February 22, 2008
32,000 0.15 June 30, 2008
35,000 0.32 June 30, 2008
81,000 0.33 June 30, 2008
143,000 0.37 June 30, 2008
22,000 0.40 June 30, 2008
1,085,500 0.48 June 30, 2008
32,500 0.58 June 30, 2008
36,000 0.69 June 30, 2008
====================================================================
1,667,000
====================================================================
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
stock option plans. The fair value of each option granted during 1998 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: expected volatility of 153%; risk-free interest rate
of 4.0%; no payment of common share dividends; and expected life of 10 years.
Had compensation cost for these plans been determined based upon the fair value
at grant date, consistent with the methodology prescribed in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
compensation," the Company's loss and loss per common share for the year ended
December 31, 1998 would have been $3,324,618 and $0.45 respectively.
<PAGE> 62
6. RELATED PARTY TRANSACTIONS
Amounts due to related parties at December 31 consist of the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- -------------------------------------------------------------
<S> <C> <C>
DUE FROM RELATED PARTIES
Futurelink Distribution Corp. 9,073 --
Futurelink/Sysgold Ltd. 4,045 --
- -------------------------------------------------------------
13,118 --
=============================================================
DUE TO RELATED PARTIES
Officers and stockholders 43,588 --
Futurelink Distribution Corp. 32,175 --
Willson Stationers Ltd. 1,352 --
Directors 120,000
- -------------------------------------------------------------
197,115
=============================================================
DUE TO STOCKHOLDERS
Bankton Financial Corporation 15,775 --
Cameron Chell 1,957 --
Hampton Park Ltd. 56,985 --
Other stockholder -- 78,159
- -------------------------------------------------------------
74,717 78,159
=============================================================
</TABLE>
During the year end December 31, 1998, the Company incurred $76,612 ($113,662
Canadian) in fees associated with computer services provided by Futurelink
Distribution Corp., an entity of which certain Directors are also Directors of
the Company. An amount of $32,175 ($53,934 Canadian) is owed to Futurelink
Distribution Corp. at December 31, 1998. The Company also provided sales to
Futurelink Distribution Corp. in the amount of $9,073 ($13,456 Canadian) which
remains outstanding at December 31, 1998. The fees charged by and sales provided
to Futurelink Distribution Corp. are recorded at their exchange amounts.
During the year ended December 31, 1998, the Company provided services of $4,045
($6,000 Canadian) to Futurelink/Sysgold Ltd., an entity of which certain
Directors are also Directors of the Company. As at December 31, 1998, the
balance remains outstanding. These services are provided on normal commercial
terms and conditions.
Office and administration includes $8,035 ($11,920 Canadian) paid to Willson
Stationers Ltd., an entity of which certain Directors are also Directors and
Officers of the Company. An amount of $1,352 ($2,073 Canadian) is owing to
Willson Stationers Ltd. At December 31, 1998. These transactions are recorded at
the exchange amount.
An amount of $120,000 owing to external Directors of the Company remains
outstanding at year end. The amount may be paid in either cash or shares at the
discretion of the Company, and relates to Directors' fees for the related 18
months of service.
Consulting fees includes $198,168 paid to officers and stockholders of the
Company for services provided, of which $43,588 remains outstanding at December
31, 1998.
The amounts due to stockholders represent advances received by the Company. The
amount owing at December 31, 1997 was repaid during the year. The amount due to
Hampton Park Ltd., a company owned by a stockholder, bears interest at 8% per
annum and has no set repayment terms. The remaining amounts due to stockholders
do not carry interest and have no set
<PAGE> 63
repayment terms. In relation to these amounts, stockholders have indicated they
do not intend to demand repayment within the next year.
7. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
$
- ------------------------------------------------------------------------------------
<S> <C>
PRINCIPAL
Net balance outstanding at December 31, 1997 --
Funds advanced during the year 420,000
Debentures converted during the year (210,000)
- ------------------------------------------------------------------------------------
210,000
- ------------------------------------------------------------------------------------
FINANCING FEES
Fees paid on funds advanced during the year (42,000)
Intrinsic value associated with equity component of debentures 11,760
Fees paid through issuance of warrants to agent (85,714)
Intrinsic value associated with equity component of debentures 24,000
Amortization of financing fees 5,158
Financing fees associated with debentures converted during the
year 21,117
- ------------------------------------------------------------------------------------
(65,679)
- ------------------------------------------------------------------------------------
INTEREST EXPENSE
Accrued interest expense 2,285
- ------------------------------------------------------------------------------------
NET BALANCE OUTSTANDING AS AT DECEMBER 31, 1997 146,606
- ------------------------------------------------------------------------------------
</TABLE>
On September 25, 1998 the Company entered into an agreement to issue 10%
convertible debentures in series of $200,000 up to a total of $2,000,000,
subject to the Company meeting certain conditions, which mature on October 31,
2001. The holders have the right to convert the debentures in increments of at
least $100,000, at a price equal to the lower of $0.28 and 78% of the average
closing bid price of the Company's common stock for the three trading days
immediately preceding the Notice of Conversion served on the Company. The
Company may prepay any or all of the outstanding principal amounts at any time,
upon thirty days' notice, subject to the holders' right to convert into common
shares. A financing fee of 10% is charged on the principal sum of each
convertible debenture issued. Interest is payable on the maturity date. At the
holders' election, interest can be settled in common stock of the Company based
on market prices.
During the year, convertible debentures totalling $420,000 were issued of which
$118,462 was recorded as contributed surplus with an offsetting amount charged
as interest on long term debt. Of the debentures issued, $210,000 principal plus
$3,798 interest was converted into 1,912,317 shares on November 30, 1998. In
addition, interest of $2,285 has been accrued and included in the convertible
debenture balance oustanding at December 31, 1998.
At the time of the initial funding on October 1, 1998, the Company issued
1,428,572 common share purchase warrants (357,143 to the agent and 1,071,429 to
the ultimate subscriber of the issue). Each warrant gives the holders the right
to purchase one common share of the Company at $0.28 until October 31, 2001. An
amount of $342,857 has been included in contributed surplus as the estimated
intrinsic value attributed to these warrants as they were exercisable upon
issuance. In addition, the warrants issued to the agent have been treated as a
financing fee in the amount of $85,714. The intrinsic value of these fees
associated with the equity component of the 10% convertible debentures has been
charged to contributed surplus in the amount of $24,000. The remaining balance
is being amortized over the life of the 10% convertible debentures.
<PAGE> 64
For each issuance of 10% convertible debentures, the Company must pay a
financing fee of 10% which amounted to $42,000 for 1998. The value of the fees
associated with the equity component of the 10% convertible debentures in the
amount of $11,760 has been charged to contributed surplus. The remaining amount
is being amortized over the life of the 10% convertible debentures, unless the
debentures are converted. If converted, the pro rata portion of the financing
fees associated with the converted debentures is charged to capital in excess of
par value. During the period, $21,117 has been charged to capital in excess of
par value relating to $210,000 of convertible debentures which were converted.
The Company is currently in the process of filing a form SB-2 Registration
Statement with the Securities and Exchange Commission in Washington, DC. As per
the 10% convertible debenture agreement, should the registration statement not
be declared effective within 90 days of initial funding, a charge of 0.986% per
day will apply against the initial amount funded. Should successful registration
not occur within 120 days of initial funding, a charge of 0.1644% per day will
apply for each day thereafter. As of March 22, 1999, the SB-2 Registration
Statement has not been declared effective. The initial amount funded on October
1, 1998 was $200,000.
<PAGE> 65
8. INCOME TAXES
The income tax benefit differs from the amount computed by applying the U.S.
federal statutory tax rates to the loss before income taxes for the following
reasons:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- ------------------------------------------------------------------------------------
<S> <C> <C>
Income tax benefit at U.S. statutory rate (34%) (1,045,938) (46,530)
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance 1,106,172 46,530
Non-deductible expenses 128,162 --
Foreign tax rate differences (188,396) --
- ------------------------------------------------------------------------------------
Income tax benefit -- --
====================================================================================
</TABLE>
For financial reporting purposes, loss before income taxes includes the
following components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Pre-tax loss:
United States (1,302,313) (136,854)
Foreign (1,773,974) --
- ---------------------------------------------------------------------------------
(3,076,287) (136,854)
=================================================================================
</TABLE>
<PAGE> 66
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards 697,768 --
Start-up costs 37,999 46,333
Depreciation 5,807 --
Organization costs 394 197
Debt issue costs 5,137 --
Software costs 405,597 --
- ---------------------------------------------------------------------------------
Total deferred tax assets 1,152,702 46,530
Valuation allowance (1,152,702) (46,530)
- ---------------------------------------------------------------------------------
Net deferred tax assets -- --
=================================================================================
</TABLE>
The Company has provided a valuation allowance for the full amount of deferred
tax assets in light of its history of operating losses since its inception.
The Company has U.S. operating losses carried forward of $936,000 which expire
in 2018. The availability of these loss carryforwards to reduce future taxable
income could be subject to limitations under the Internal Revenue Code of 1986,
as amended. Certain ownership changes can significantly limit the utilization of
net operating loss carryforwards in the period following the ownership change.
The Company has not determined whether such changes have occurred and the effect
such changes could have on its ability to carry forward all or some of the U.S.
net operating losses.
The Company has non-capital losses carried forward for Canadian income tax
purposes of $935,000. These losses expire as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2003 44,000
2004 7,000
2005 884,000
</TABLE>
9. COMMITMENTS
The Company is committed to the following minimum lease payments under operating
leases for premises and equipment:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1999 110,538
2000 110,538
2001 93,301
2002 93,023
2003 76,090
</TABLE>
<PAGE> 67
10. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable (7,243) --
Due from related parties (13,118) --
Prepaid expenses and deposits (132,956) (7,500)
Accounts payable 346,744 32,976
Accrued liabilities 48,880 --
Due to related parties 197,115 --
- ---------------------------------------------------------------------------------
Change relating to operating activities 439,422 25,476
- ---------------------------------------------------------------------------------
</TABLE>
11. COMPARATIVE AMOUNTS
The Company was incorporated on January 27, 1997 but did not commence operations
until July, 1997. Accordingly, the comparative 1997 figures provided are for the
period from the commencement of operations in July, 1997 to December 31, 1997.
<PAGE> 68
12. SEGMENTED INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to the development and sale of encryption software. These
activities are carried out in two geographic segments, being Canada and the
United States.
As at December 31, 1997 and during the period from January 27, 1997 to December
31, 1997, all the Company's activities were carried out in the United States.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- ---------------------------------------------------------------------------------
CANADA U.S. TOTAL
$ $ $
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 29,068 -- 29,068
- ---------------------------------------------------------------------------------
Fixed assets and organization costs 77,090 1,740 78,830
=================================================================================
</TABLE>
13. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, amounts due from
related parties, deposits, accounts payable and accrued liabilities, amounts due
to related parties and amounts due to stockholders approximate their fair value.
It is management's opinion that the Company is not exposed to significant
currency or credit risks arising from these financial instruments.
The estimated fair value as at December 31, 1998 of the 10% convertible
debentures is $189,000. This is based on the estimated present value of the
principal and interest of the debenture plus the estimated fair value of the
conversion option (exclusive of the intrinsic value of the conversion option and
the detachable warrants at the issue date of the debenture). The carrying amount
of the 10% convertible debentures is $212,285.
The Company is subject to interest rate risk to the extent of the fixed 10%
simple interest rate being charged on the convertible debentures. The effective
annual interest rate realized by the Company, exclusive of the amounts booked
relating to the conversion feature of the 10% convertible debentures and the
warrants, was 10%.
The Company's sales during 1998 were derived primarily from three customers,
representing 92% of total sales, two of which are related parties, being
Futurelink Distribution Corp. and Futurelink/Sysgold Ltd. (see note 6). Sales to
these two companies represent 52% of total sales.
14. RECENT PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." The Company does not acquire derivatives or engage in
hedging activities.
15. SUBSEQUENT EVENTS
(a) On January 26, 1999, the Company received an additional $500,000 of
financing under the 10% convertible debenture agreement.
(b) On February 4, 1999, the Company's shareholders approved an amendment to
the Articles of the Company to increase the authorized common stock from
20,000,000 shares to 95,000,000 shares.
<PAGE> 69
(c) During the year, the Company entered into a Put Option agreement with an
investor which, allowed the Company to require the investor to purchase up
to 25,000,000 shares of the common stock of the Company. In addition, the
investor was to be granted warrants to purchase up to 3,000,000 shares of
common stock.
Subsequent to the year end, the Company and the investor agreed to cancel
the agreement. In addition, on April 26, 1999 the Company entered into an
agreement to issue warrants to the investor to purchase up to 1,000,000
shares of common stock at an exercise price of $0.70 per share. The warrants
expire April 15, 2002.
<PAGE> 70
FINANCIAL STATEMENTS
JAWS TECHNOLOGIES INC.
(AN ALBERTA CORPORATION)
DECEMBER 31, 1998 AND 1997
<PAGE> 71
AUDITORS' REPORT
To the Directors and Stockholders of
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
We have audited the balance sheets of JAWS TECHNOLOGIES INC. (AN ALBERTA
CORPORATION) as at December 31, 1998 and 1997 and the statements of loss and
deficit and cash flows for the year ended December 31, 1998 and for the period
from the date of incorporation on September 18, 1997 to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and 1997
and the results of its operations and its cash flows for the year ended December
31, 1998 and for the period from the date of incorporation on September 18, 1997
to December 31, 1997 in accordance with accounting principles generally accepted
in Canada.
Calgary, Canada
March 22, 1999 Chartered Accountants
<PAGE> 72
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the directors and stockholders
dated March 22, 1999 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
Calgary, Canada
March 22, 1999 Chartered Accountants
<PAGE> 73
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
BALANCE SHEETS
(ALL AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
(SEE BASIS OF PRESENTATION - NOTE 1)
<TABLE>
<CAPTION>
AS AT DECEMBER 31
---------------------------
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash 51,721 275
Accounts receivable [notes 6 and 11] 31,220 --
Prepaid expenses and deposits 33,680 1,900
- ---------------------------------------------------------------------------------
116,621 2,175
Capital assets [note 3] 118,202 2,746
Software [note 4] 1,116,667 1,200,000
- ---------------------------------------------------------------------------------
1,351,490 1,204,921
=================================================================================
LIABILITIES AND SHAREHOLDER'S DEFICIENCY
CURRENT
Accounts payable and accrued liabilities [note 6] 681,860 7,761
- ---------------------------------------------------------------------------------
681,860 7,761
- ---------------------------------------------------------------------------------
Due to related parties [note 6] 114,564 65,300
- ---------------------------------------------------------------------------------
Due to shareholder [note 6] 882,871 --
- ---------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES [NOTES 1, 8 AND 12]
SHAREHOLDER'S DEFICIENCY
Share capital [note 5] 1,200,000 1,200,000
Deficit (1,527,805) (68,140)
- ---------------------------------------------------------------------------------
(327,805) 1,131,860
- ---------------------------------------------------------------------------------
1,351,490 1,204,921
=================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 74
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
STATEMENTS OF LOSS AND DEFICIT
(ALL AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
For the year ended December 31 (with comparative figures for the period from the
date of incorporation on September 18, 1997 to December 31, 1997)
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
REVENUE [NOTE 6]
Sales [note 11] 15,184 --
Service [note 11] 24,996 --
Other 2,945 --
- ---------------------------------------------------------------------------------
43,125 --
- ---------------------------------------------------------------------------------
EXPENSES [NOTE6]
Accounting and legal 75,142 4,000
Advertising 324,277 --
Bank charges and interest 4,052 --
Consulting 199,854 2,750
Depreciation and amortization [note 4] 103,287 687
Foreign exchange loss 44,177 --
Office and administration 123,351 --
Other 66,283 60,703
Rent 43,969 --
Travel 97,459 --
Wages and employee benefits 420,939 --
- ---------------------------------------------------------------------------------
1,502,790 68,140
- ---------------------------------------------------------------------------------
LOSS FOR THE PERIOD [NOTE 7] (1,459,665) (68,140)
DEFICIT, BEGINNING OF PERIOD (68,140) --
- ---------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (1,527,805) (68,140)
=================================================================================
</TABLE>
See accompanying notes
<PAGE> 75
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
STATEMENTS OF CASH FLOWS
(ALL AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
For the year ended December 31 (with comparative figures for the period from the
date of incorporation on September 18, 1997 to December 31, 1997)
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period (1,459,665) (68,140)
Items not requiring cash
Depreciation and amortization 103,287 687
- ---------------------------------------------------------------------------------
Funds from operations (1,356,378) (67,453)
Net change in non-cash working capital related to
operating 621,099 5,861
activities [note 9]
- ---------------------------------------------------------------------------------
(735,279) (61,592)
- ---------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (135,410) (3,433)
- ---------------------------------------------------------------------------------
(135,410) (3,433)
- ---------------------------------------------------------------------------------
FINANCING ACTIVITIES
Loan from related party 107,264 65,300
Repayment of loan from related party (58,000) --
Loan from shareholder 882,871 --
Net change in non-cash working capital related to (10,000) --
financing activities [note 9]
- ---------------------------------------------------------------------------------
922,135 65,300
- ---------------------------------------------------------------------------------
INCREASE IN CASH 51,446 275
Cash, beginning of period 275 --
- ---------------------------------------------------------------------------------
CASH, END OF PERIOD 51,721 275
=================================================================================
</TABLE>
See accompanying notes
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Jaws Technologies Inc. (the "Company") was incorporated under the laws of
Alberta on September 18, 1997 and is engaged in the business of developing and
selling encryption software. The business comprises one segment for financial
reporting purposes.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has accumulated losses from operations amounting to
$1,527,805 and has a working capital deficiency of $565,239 and a
<PAGE> 76
shareholder's deficiency of $327,805 as at December 31, 1998. Additional funding
will be required to finance expected operations until a market has been
developed for the Company's software, and the Company is economically dependent
on its parent to provide this funding. The Company's continuation as a going
concern is dependent on its ability to generate sufficient cash flow, to meet
its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain successful operations. However, no assurance
can be given at this time as to whether the Company will achieve any of these
conditions. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern
for a reasonable period of time.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
Canadian generally accepted accounting principles. The effects of differences
between accounting principles generally accepted in Canada and the United States
are described in Note 10. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for a period necessarily involves the use of estimates and
approximations which have been made using careful judgment. The financial
statements have, in management's opinion, been properly prepared within
reasonable limits of materiality and within the framework of the significant
accounting policies summarized below:
<PAGE> 77
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash, accounts
receivable, deposits, accounts payable and accrued liabilities, amounts due to
related parties and amounts due to shareholder approximate their fair values.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in a foreign currency are translated
into Canadian dollars at rates of exchange in effect at the balance sheet date.
Revenues and expenses are translated at rates of exchange prevailing on the
transaction dates. The resulting exchange gains and losses on these items are
reflected in income when incurred, except for gains or losses on translation of
foreign currency denominated long-term debt with a fixed and ascertainable life,
which are deferred and amortized over the remaining life of the debt.
CAPITAL ASSETS
Capital assets are recorded at cost and are depreciated at the following annual
rates which are designed to amortize the cost of the assets over their estimated
useful lives
<TABLE>
<S> <C>
Furniture and fixtures - 20% diminishing balance
Computer hardware - 33% straight line
Computer software - 33% straight line
</TABLE>
SOFTWARE
The cost of acquired software under development has been capitalized. Subsequent
expenditures required to establish that the product is technologically and
commercially feasible are expensed as incurred. Amortization of acquired
software costs commenced when the software became available for general release
to customers. Amortization is recorded on a straight line basis over three
years.
STATEMENT OF CASH FLOWS
The Company has adopted the new accounting recommendation of the Canadian
Institute of Chartered Accountants on cash flow statements, issued in June,
1998.
<PAGE> 78
INCOME TAXES
The Company follows the liability method of accounting for the tax effect of
temporary differences between the carrying amount and the tax basis of the
company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Future income taxes are recorded at the income tax rates
that are expected to apply when the future tax liability is settled or the
future tax asset is realized. When necessary, valuation allowances are
established to reduce future income tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in future income tax assets and liabilities.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
-----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
<S> <C> <C> <C>
Furniture and fixtures 48,694 9,939 38,755
Computer hardware 69,966 8,486 61,480
Computer software 20,182 2,215 17,967
-----------------------------------------
138,842 20,640 118,202
=========================================
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
-----------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 3,433 687 2,746
=========================================
</TABLE>
4. SOFTWARE
The Company develops encryption software. The Company completed all coding and
testing activities by July 31, 1998. The carrying value of the software is
$1,116,667 net of amortization of $83,333.
<PAGE> 79
5. SHARE CAPITAL
A) AUTHORIZED
Unlimited Class "A, B, C" common shares Unlimited Class "D and E" non-voting
common shares
Unlimited Class "F and G" preferred shares, voting, non-cumulative redeemable
and retractable
Unlimited Class "H" preferred shares, non-voting, non-cumulative, redeemable
and retractable
<TABLE>
<CAPTION>
SHARES $
- ----------------------------------------------------------------------------------
<S> <C> <C>
B) ISSUED
CLASS A COMMON SHARES
Founders shares 835 --
Shares issued in exchange for software 165 1,200,000
- ----------------------------------------------------------------------------------
Balance, December 31, 1997 and December 31, 1998 1,000 1,200,000
- ----------------------------------------------------------------------------------
</TABLE>
On October 20, 1997 the Company purchased from Jaws Software Ltd. encryption
software and technology in consideration of the issuance of 165 Class A common
shares of the Company valued at $1,200,000.
On February 10, 1998, Jaws Technology Inc., a Nevada company (previously "E-Biz"
Solutions, Inc.) became the Company's parent when it issued common shares to the
shareholders of the Company in exchange for all of the outstanding common shares
of the Company.
6. RELATED PARTY TRANSACTIONS
At December 31, 1998 the Company had amounts due to related parties of $114,564
(1997 - $65,300). Of this amount, $87,358 ($56,985 US) is due to a company owned
by a shareholder, bears interest at 8% per annum and has no set repayment terms.
The remaining amounts are due to shareholders of the Company's parent. The
amounts represent advances received by the Company to fund its operations. They
do not carry interest and have no set repayment terms.
During the year ended December 31, 1998, the Company was charged fees totaling
$113,662 for computer services provided by Futurelink Distribution Corp., an
entity of which certain Directors are also Directors of the Company. Included in
accounts payable and accrued liabilities at December 31, 1998 is an amount of
$53,934 owing to Futurelink Distribution Corp. The Company also provided sales
to Futurelink Distribution Corp. in the amount of $13,456 which remains in
accounts receivable at December 31, 1998. The fees charged by, and sales
provided to Futurelink Distribution Corp. are recorded at the exchange amount.
During the year end December 31, 1998, the Company provided services of $6,000
to Futurelink/Sysgold Ltd., an entity of which certain Directors are also
Directors of the Company. As at year end the balance remains outstanding and is
reflected in accounts receivable. These services are provided on normal
commercial terms and conditions.
Office and administration expenses include $11,920 charged by Willson Stationers
Ltd., an entity of which certain Directors are also Directors and Officers of
the Company, for office products. Included in accounts payable and accrued
liabilities at December 31, 1998 is an amount of $2,073 owing to Willson
Stationers Ltd. These transactions are recorded at the exchange amount.
At December 31, 1998 the Company had an amount due to its parent, Jaws
Technologies Inc., a Nevada corporation, of $882,871 ($575,798 U.S.). The amount
does not carry interest and has no set repayment terms.
<PAGE> 80
7. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
federal statutory tax rates to loss before income taxes for the following
reasons:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Tax benefit at Canadian statutory rate (44.62%) (651,303) (30,404)
Increase (decrease) in taxes resulting from:
Future tax asset valuation allowance 650,623 30,404
Non-deductible expenses 680 --
- ---------------------------------------------------------------------------------
Income tax benefit -- --
=================================================================================
</TABLE>
Future income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of the Company's
future tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Future tax assets:
Loss carryforwards 634,712 30,175
Depreciation 9,132 229
Software costs 37,183 --
- ---------------------------------------------------------------------------------
Total future tax assets 681,027 30,404
Valuation allowance (681,027) (30,404)
- ---------------------------------------------------------------------------------
Net future tax assets -- --
=================================================================================
</TABLE>
The Company has provided a valuation allowance for the full amount of future tax
assets in light of its history of operating losses since its inception.
The Company has non-capital losses carried forward for income tax purposes of
$1,433,000. These losses expire as follows:
<TABLE>
<CAPTION>
$
----------
<S> <C>
2003 67,000
2004 11,000
2005 1,355,000
</TABLE>
8. COMMITMENTS
The Company is committed to the following annual minimum lease payments under
operating leases for premises and equipment:
<TABLE>
<CAPTION>
$
-----------
<S> <C>
1999 169,488
2000 169,488
2001 143,059
2002 142,632
2003 116,669
-----------
741,336
-----------
</TABLE>
<PAGE> 81
9. NET CHANGE IN NON-CASH WORKING CAPITAL
RELATED TO OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable (31,220) --
Prepaid expenses and deposits (31,780) (1,900)
Accounts payable and accrued liabilities 674,099 7,761
- ---------------------------------------------------------------------------------
611,099 5,861
=================================================================================
The change relates to the following activities:
Operating activities 621,099 5,861
Financing activities (10,000) --
- ---------------------------------------------------------------------------------
611,099 5,861
=================================================================================
</TABLE>
<PAGE> 82
10. UNITED STATES ACCOUNTING PRINCIPLES
The Company's financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles, as they pertain to the Company's financial statements, differ from
United States' generally accepted accounting principles ("U.S. GAAP") as
follows:
In accordance with U.S. GAAP, costs associated with the development of software,
whether incurred directly or otherwise purchased are to be expensed. On February
10, 1998, the Company acquired $1,200,000 of encrypton software through the
issuance of shares. The software was acquired from the original developer of the
encryption algorithms and was assigned a value based on its fair market value.
Under Canadian GAAP, the $1,200,000 is capitalized and amortized over its
estimated useful life. Under U.S. GAAP, the $1,200,000 would be expensed. For
income tax purposes, future tax assets would increase by $498,257 with an equal
and offsetting amount being recorded as a valuation allowance.
If U.S. GAAP had been followed, the income statement would have been as follows:
<TABLE>
<CAPTION>
1998 1997
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
Loss as reported (1,459,665) (68,140)
Adjustments:
Write-off of capitalized software -- (1,200,000)
Amortization of capitalized software 83,333 --
- ---------------------------------------------------------------------------------
Loss for the period (1,376,332) (1,268,140)
- ---------------------------------------------------------------------------------
</TABLE>
If U.S. GAAP had been followed, the balance sheet would have differed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ -----------------------
CANADIAN CANADIAN
GAAP US GAAP GAAP US GAAP
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOFTWARE 1,116,667 -- 1,200,000 --
SHAREHOLDERS' DEFICIENCY
Deficit capital 1,527,805 (2,644,472) (68,140) (1,268,140)
=================================================================================
</TABLE>
<PAGE> 83
11. FINANCIAL INSTRUMENTS
The Company's sales during 1998 were derived primarily from three customers,
representing 92% of total sales, two of which are related parties, being
Futurelink Distribution Corp. and Futurelink/Sysgold Ltd. (see note 6). Sales to
these two companies represent 52% of total sales. As at December 31, 1998, 86%
of accounts receivable relates to these three customers, with 67% relating to
Futurelink Distribution Corp. and Futurelink/Sysgold Ltd.
12. YEAR 2000 UNCERTAINTY
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant system failure which could
affect the Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
<PAGE> 84
================================================================================
17,154,900 Shares Being Registered
JAWS TECHNOLOGIES, INC.
COMMON STOCK
__________
PROSPECTUS
__________
______________
April 30, 1999
______________
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Until _________, 1999, all dealers that buy, sell or trade in our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
================================================================================
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
JAWS US
Indemnification of Directors and Officers
The registrant has the power to indemnify its directors and officers against
liability for certain acts pursuant to the laws of Nevada, being the
Registrant's state of incorporation. In addition, under the Articles of
Incorporation of the Registrant, no director, officer or agent is personally
liable to the corporation or its stockholders for monetary damages arising out
of a breach of such person's fiduciary duty to the Registrant, unless such
breach involves intentional misconduct, fraud or a knowing violation of law.
Liability of Directors and Officers. No director or officer shall be personally
liable to the corporation or stockholders for monetary damages for any breach of
fiduciary duty by such person as a director or officer. Notwithstanding the
foregoing sentence, the director or officer shall be liable to the extent
provided by the applicable laws for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
The provisions hereof shall not apply to or have any effect on the liability or
alleged liability of any officer or director of the corporation for or with
respect to any acts or omissions of such person occurring prior to this
amendment. Jaws US' Articles state that it may, in its sole discretion indemnify
and advance expenses to any person who incurs liability or expense by reason of
such person acting as a director, officer, employee or agent of Jaws US, to the
fullest extent allowed by the Nevada General Corporation Law.
Section 78.7502 of the Nevada General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any
<PAGE> 86
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
the corporation shall indemnify him against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
The articles of incorporation of Jaws US provide that Jaws US will exercise, to
the extent permitted by law, its power of indemnification, and that the
foregoing right of indemnification shall not be exclusive of other rights to
which a person shall be entitled as a matter of law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
JAWS CANADA
Jaws Canada's Articles state that it may, in its sole discretion indemnify and
advance expenses to any person who incurs liability or expense by reason of such
person acting as a director, officer, employee or agent of the Corporation, to
the fullest extent allowed by the Business Corporations Act (Alberta).
The Business Corporations Act (Alberta) provides that a corporation may
indemnify its current and former officers and directors against reasonable
expenses which, in each case, were incurred in connection with actions, suits,
or proceedings in which such persons are parties by reason of the fact that they
are or were an officer or director of the corporation, if: (i) they
<PAGE> 87
acted honestly and in good faith; (ii) in the case of a criminal or
administrative proceeding, they had no reasonable cause to believe the conduct
was unlawful. Unless limited by its articles of incorporation, a corporation
shall be required to indemnify an officer or who was wholly successful in
defense of a proceeding, against reasonable attorneys' fees.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the sale
and distribution of the securities being registered, other than underwriting
discounts and commissions and non-accountable expense allowance. All of the
amounts shown are estimates, except the Securities and Exchange Commission
registration.
<PAGE> 88
<TABLE>
<S> <C>
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE.............. $ 2,279.29
ACCOUNTING FEES AND EXPENSES..................................... $60,000.00
PRINTING AND ENGRAVING EXPENSES.................................. $18,000.00
TRANSFER AGENT AND REGISTRAR (FEES AND EXPENSES)................. $ 5,000.00
BLUE SKY FEES AND EXPENSES (INCLUDING COUNSEL FEES).............. $ 2,000.00
OTHER LEGAL FEES AND LEGAL EXPENSES.............................. $60,000.00
MISCELLANEOUS EXPENSES........................................... $ 2,720.71
-----------
TOTAL............................................................ $150,000.00
===========
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
The following securities have been sold by Jaws US since the Company's
incorporation in 1997.
1. Offering Memorandum dated February 14, 1997 with a Sticker Update dated April
1, 1997 pursuant to which JAWS sold 4,000,000 shares of Common Stock at $.015
per share for an aggregate investment of $60,000. The Offering was made pursuant
to an exemption provided by Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act"). The sale of shares was to 14
investors in the state of Nevada and 27 additional investors, all of which
purchases took place outside the United States.
2. Issuances to two consultants to JAWS for an aggregate of 300,000 shares of
common stock issued in December 1997 (250,000 shares) and in February 1998
(50,000) shares in consideration for consulting services rendered to JAWS. The
issuances were made pursuant to an exemption provided by Rule 506 of Regulation
D under the Act.
3. Share Exchange Agreement between JAWS and shareholders of Jaws Canada dated
February 10, 1998 pursuant to which Jaws US issued 1,500,000 shares of Common
Stock. This issuance was made pursuant to an exemption provided by Regulation S
promulgated under the Securities Act.
4. Offering Memorandum ("February O.M.") dated February 18, 1998 pursuant to
which JAWS sold 600,000 shares of Common Stock at $0.50 per share for an
aggregate investment of $300,000. The Offering was made pursuant to an exemption
provided by Rule 504 of Regulation D promulgated under the Securities Act. The
sale of shares was to 26 investors.
<PAGE> 89
5. Issuance of 100,000 shares of Common Stock of JAWS to Bonanza Management Ltd.
in consideration of services rendered. The issuance was made pursuant to an
exemption provided by Rule 506 of Regulation D under the Act.
6. Sale pursuant to the February O.M. of 1,250,000 shares of common stock of
JAWS at $0.40 per share for an aggregate investment of $500,000 to BAM. The
Offering was made pursuant to an exemption provided by Rule 504 of Regulation D
promulgated under the Securities Act of .
7. Sale pursuant to the February O.M. of 900,000 shares of Common Stock of the
Company at $0.20 per share for an aggregate investment of $180,000 to two
investors (450,000 shares each) Hampton Park Ltd. and Linear Strategies Ltd.
The Offering was made pursuant to an exemption provided by Rule 504 of
Regulation D promulgated under the Act.
8. Sale pursuant to an Offering Memorandum dated April 1998 of 50,000 shares of
common stock of JAWS at $0.40 per share for an aggregate investment of
$20,000. The Offering was made pursuant to an exemption provided by Rule 504 of
Regulation D promulgated under the Securities Act.
9. 10% Convertible Debentures issued to TK in connection with the Debenture
Purchase Agreement dated April 27, 1999. To date, JAWS has issued debentures for
$1,520,000. Of such issuance only $210,000 plus interest has been converted into
1,912,317 shares of common stock. The sale of shares under the Debenture was
made pursuant to an exemption provided by Regulation S promulgated under the
Act. TK warranted in the Debenture that it is not a "US Person," as such term is
defined in Rule 902(o) of Regulation S; that the securities have not been
offered to it in the United States and that offers of securities of the Company
shall not be made to United States persons for a period of one year from the
date of the closing of all debentures offered pursuant to the agreement.
10. Sale on April 6, 1999 pursuant to the February O.M. of 1,571,428 of common
stock of the company at $0.35 per share for an aggregate investment of $550,000
to Hampton Park Ltd ($300,000) and Global Equity Fund Ltd. ($250,000). The
offering was made pursuant to an exemption provided by Rule 504 of Regulation D
promulgated under the Securities Act. The purchasers are contractually
prohibited from transferring the securities for a six month period.
ITEM 27. EXHIBITS.
(a) Exhibits
The following exhibits pursuant to Rule 601 of Regulation SB are included
herein.
3.1.1 Articles of Incorporation of "E-Biz" Solutions, Inc. (now JAWS
<PAGE> 90
US), a Nevada Corporation as amended on March 11, 1998 and on February
4, 1999.
3.1.2 Articles of Incorporation of JAWS Canada dated September 17, 1997.(1)
3.2.1 Bylaws of E-Biz Solutions Inc. (now Jaws US) dated January 27,
1997.(1)
3.2.2 Bylaws No. 1 of JAWS Canada dated October 20, 1997 and Bylaw No. 2
of JAWS Canada dated October 20, 1997.(2)
4.1.1 Amendment No. 1 to Debenture Purchase Agreement by and between JAWS and
TK dated April 27, 1999.
4.1.2 Investment Agreement by and between JAWS and Bristol Asset
Management V, LLC dated August 27, 1998 and letter of termination
thereto.(1)
4.1.3 Warrant to purchase 1,000,000 shares of common stock of JAWS issued to
Bristol Asset Management, LLC.
5.1.1 Jeffer, Mangels, Butler & Marmaro LLP legal opinion (to be filed
by amendment).
10.1.1 Lease Agreement by and between JAWS and The Manufacturer of
Life Insurance Company dated December 15, 1997.(1)
10.1.2 Director's Agreement between JAWS and Arthur Wong dated July
1998.(1)
<PAGE> 91
10.1.3 Director's Agreement between JAWS and Julia Johnson dated July 30,
1998.(1)
10.1.4 Incentive and Non-Qualified Stock Option Plan for JAWS.(1)
10.1.5 Master Agreement by and between JAWS and A.I. Axion Internet
Communications, Inc. dated November 24, 1998.(2)
10.1.6 Master Agreement by and between JAWS and Calgary On-Line dated
December 1998.(2)
10.1.7 Master Agreement by and between JAWS and ABC Internet Inc. dated
December 7, 1998.(2)
10.1.8 Written Consent of the Board of Directors authorizing payment of
consulting fees to officers of JAWS and their affiliates.
21 Subsidiaries of Issuer include: JAWS Canada.
23.1 Consent of Jeffer, Mangels, Butler & Marmaro LLP
23.2 Consent of Ernst & Young LLP.
27 Financial Data Schedule
(1) Filed on October 13, 1998.
(2) Filed on January 11, 1999
Item 28. Undertakings.
<PAGE> 92
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to
(i) include any Prospectus required by 9section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually, or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
Offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (Section 230.424(b)
of this Chapter) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate Offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at that time
shall be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising from the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling
<PAGE> 93
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Calgary, Province of
Alberta on the 30th day of April, 1999.
JAWS TECHNOLOGIES INC.
By: /s/ ROBERT KUBBERNUS
Robert Kubbernus, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
Kubbernus or Cameron Chell, or either of them, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, any Amendments thereto and any Registration
Statement for the same Offering which is effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, each acting
alone, full powers and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
<PAGE> 94
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
* CEO and Director April 30, 1999
- -------------------------
Robert Kubbernus
* Director April 30, 1999
- --------------------------
Cameron Chell
* Director April 30, 1999
- -------------------------
Julia Johnson
* Director April 30, 1999
- -------------------------
Arthur Wong
/s/ VERA GMITTER Vice President Operations April 30, 1999
- -------------------------
</TABLE>
*By: /s/ ROBERT KUBBERNUS
------------------------
Robert Kubbernus
CEO and Director
<PAGE> 95
<TABLE>
<S> <C> <C>
Vera Gmitter
/s/ TEJ MINHAS Vice President Technology April 30, 1999
- -------------------------
Tej Minhas
/s/ GAYLE HOWARD Vice President Sales&Marketing April 30, 1999
- -------------------------
Gayle Howard
</TABLE>
<PAGE> 1
EXHIBIT 3.1.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
FUTURELINK DISTRIBUTION CORP.
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
(AFTER ISSUANCE OF STOCK)
JAWS TECHNOLOGIES, INC.
A NEVADA CORPORATION
We the undersigned President and Secretary of JAWS Technologies, Inc., a
Nevada corporation, do hereby certify:
That the Board of Directors of said corporation adopted a resolution by
written consent without a meeting pursuant to the provisions of Section 78.196
of the Nevada Revised Statutes to amend the original articles as follows:
Article VI Section 1 is hereby amended to read as follows:
Section 1. Authorized Shares. The total number of shares which this Corporation
is authorized to issue is 100,000,000 shares of Capital Stock at $.001 par value
per share as set forth in subsections (a) and (b) of this Section 1 of Article
VI.
(a) The total number of shares of Common Stock which this Corporation is
authorized to issue is 95,000,000 shares at $.001 par value per share.
(b) The total number of shares of Preferred Stock which the Corporation is
authorized to issue is 5,000,000 shares at $.001 par value per share, which
Preferred Stock may contain special preferences as determined by the Board of
Directors of the Corporation, including, but not limited to, the bearing of
interest and convertibility into shares of Common Stock of the Corporation.
The number of shares of the Corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 8,700,000; that said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
___________________________________
Robert Kubbernus, President
___________________________________
Vikki Robinson, Secretary
<PAGE> 2
(SEAL)
STATE OF______________________ )
) SS.
COUNTY OF____________________ )
ON _______________ PERSONALLY APPEARED BEFORE ME, ________________________,
(DATE)
A NOTARY PUBLIC, __________________________ AND ______________________, WHO
ACKNOWLEDGED THAT THEY EXECUTED THE ABOVE INSTRUMENT.
___________________________________
(NOTARY PUBLIC)
(SEAL)
<PAGE> 1
EXHIBIT 4.1.1
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION
UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF
COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
AMENDMENT NO. 1 TO
DEBENTURE PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO DEBENTURE PURCHASE AGREEMENT (the "Agreement")
is made and entered into as of April 27, 1999, by and between JAWS TECHNOLOGIES
INC., a Nevada corporation ("Seller") and THOMSON KERNAGHAN & CO. LTD, an
Ontario corporation ("Buyer"), with respect to the following facts:
A. Buyer and Seller originally entered into a Debenture Acquisition
Agreement dated September 25, 1998 respecting a $2,000,000 10% Convertible
Debenture (the "Debenture"). To this date $1,520,000 has been drawn down (with
$210,000 thereof previously converted to common stock) leaving a balance of
$480,000. The parties desire to clarify conversion prices and other terms with
respect to the previously drawn down debentures and also to restate their terms
and intentions with respect to an additional $3,000,000 debenture facility, and
to restate the terms of portions of the convertible debentures previously drawn
down and still outstanding.
B. Seller desires to sell to the Buyer, and Buyer desires to purchase
from the Seller an aggregate of up to $5,000,000 of a 10% Convertible Debenture
(the "Debentures") of Seller in the form of Exhibit B and an aggregate of
$1,000,000 of Warrants of Seller in the forms of Exhibit A and Exhibit D hereto,
respectively, $600,000 of which may be converted at $0.28 per share and $400,000
of which may be converted at $0.65 per share (collectively, the "Securities"),
upon the terms and conditions as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties hereby agree as follows:
<PAGE> 2
1. PURCHASE AND SALE OF SECURITIES. Seller hereby sells to the
Buyer, and Buyer hereby purchases the Securities from Seller on the terms and
conditions stated herein. Buyer is acquiring the Securities, outside the
United States for certain of its customers who are not U.S. persons.
2. PURCHASE PRICE. The total purchase price (the "Purchase Price")
for the Securities shall be up to Five Million Dollars ($5,000,000), payable in
cash in accordance with the terms, conditions and procedures set forth herein.
3. TRANSFER OF SECURITIES AND DELIVERY OF PURCHASE PRICE.
3.1
(a) As of September 25, 1998, ("Initial Funding Date"),
the Buyer purchased Two Hundred Thousand Dollars ($200,000) of Debentures and
Seller:
(i) Filed on an appropriate form with the United States
Securities and Exchange Commission (the "SEC") to register its Common Stock
under Section 12(g) of the Securities Exchange Act of 1934, as amended, and the
registration statement with the SEC under the Securities Act of 1933, as
amended, as provided for in Section 6 hereof, which registration statements
contains the required clean opinion on the financial statements of the Seller by
Ernst & Young and was reviewed by United States securities counsel for the
Seller, Jeffer, Mangels, Butler & Marmaro LLP; and
(ii) Provided on the opinion of the Seller's counsel,
Jeffer, Mangels, Butler and Marmaro, LLP to the effect that the Seller is duly
incorporated and has the corporate power to enter into this Agreement and the
Exhibits thereto, that this Agreement and the Exhibits thereto that have been
entered into as of the Initial Closing Date have been duly approved by all
necessary action on behalf of the Seller and this Agreement and such Exhibits
are binding agreements effective according to their respective terms except for
bankruptcy and equitable principal.
The amount advanced was represented by a Debenture in the form of
Exhibit B hereto for the amount advanced. The Seller also delivered to the Buyer
on the Initial Funding Date, Warrants for the purchase of 1,071,429 shares of
Common Stock in the form of Exhibit A hereto.
(b) After the Initial Funding Date, one or more Subsequent
Funding Dates occurred in which the Buyer purchased an additional One Million
Three Hundred Twenty Thousand Dollars ($1,320,000) of Debentures.
3.2
-2-
<PAGE> 3
(a) On the Initial Funding Date, Seller (i) paid a finance fee
to the Buyer, in an amount equal to ten percent (10%) of the Principal Sum (as
defined in the Debenture) funded on the Initial Funding Date, (ii) paid Buyer's
reasonable attorney's fees and costs incurred in entering into this Agreement,
(but not more than $10,000) against detailed invoices, and (iii) issued to the
Buyer, for Buyer's own account, $100,000 of Warrants of the Seller exercisable
at a per share price equal to the average of the closing bid prices of the
Common Stock of the Seller as quoted on the NASD Electronic Bulletin Board for
the three trading days prior to the Initial Funding Date, Twenty-Eight Cents
($0.28), in the form of Exhibit D hereto (the "Buyer Warrants"). For each
funding following the Initial Funding Date and until $2,000,000 has been drawn
upon, Seller shall pay a finance fee in an amount equal to ten percent (10%) of
the sum funded on such date.
(b) Upon the first funding following the filing of Amendment No.
2 of the Seller's SB-2 Registration Statement ("Amendment No. 2 Funding Date"),
Seller shall issue Warrants in the form of Exhibit A hereto for $600,000 of
Common Stock at an exercise price equal to sixty five cents ($0.65) per share
and shall pay to the Buyer, for Buyer's own account, Buyer's reasonable
attorney's fees and costs incurred in entering into this Agreement (but not more
than $10,000) against detailed invoices.
3.3 For each funding following a draw down of the initial Two
Million Dollars ($2,000,000) contemplated in the Debenture, the Seller shall pay
a finance fee to the Buyer, in an amount equal to eight percent (8%) of the sum
that is funded, thirty-seven point five percent (37.5%) of which may be paid by
the issuance of shares of Common Stock which may subsequently be resold pursuant
to an exemption under Rule 144. Such shares shall be issued at a value of
seventy-eight percent (78%) of the average closing price for the three days
preceding the funding date on the particular financing or another conversion
price determined by the parties for such funding.
3.4 On the Initial Funding Date, the Seller and Buyer entered
into the Escrow Agreement in the form of Exhibit C hereto, with the Buyer as
Escrow Agent.
3.5 On each Amendment No. 2 Funding Date for all advances in
excess of the Two Hundred Thousand Dollars ($200,000) referred to in Section
3.1(a) and the $720,000 referred to in Section 3.1(b) additional funding shall
be provided up to an aggregate total of Five Million Dollars ($5,000,000). For
the Six Hundred Thousand Dollars ($600,000) advanced on April 19, 1999, the
conversion price to be reflected in the Convertible Debenture shall be sixty
five cents ($0.65) per share. With respect to any purchases of the remaining
$3,480,000, the conversion price shall be a fixed forty cents ($0.40) per share,
unless the parties agree to a higher conversion price prior to the issuance of a
debenture.
(a) An Amendment No. 2 Funding Date will occur on the 30th
day (or the next business day if such 30th day is not a Business Day as defined
in the form of debenture) after the Buyer receives a written request from the
Seller to advance additional funds with such written request being sent by
facsimile to the Buyer followed up in writing by over-night courier service;
-3-
<PAGE> 4
(b) Notwithstanding any other provision hereof, the Buyer at
a proposed subsequent funding date is not required to advance any additional
amounts to the Seller if the Form 10 or Form 10SB Registration Statement
described in Section 3.1(a) hereof has not become effective under the Securities
Exchange Act of 1934, as amended, and the Registration Statement under the
Securities Act of 1933, as amended as provided for in Section 6 hereof has
become effective.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The
Seller hereby represents and warrants to the Buyer as follows:
4.1 Any Common Stock of Seller issuable upon conversion of or as
payment of interest pursuant to the Debentures and the exercise of the Warrants
and the Buyer's Warrants, will be duly and validly issued fully paid and
nonassessable Common Stock of the Seller.
4.2 The Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. The Seller has full
corporate power and authority to own and operate its properties and assets, and
to carry on its business as presently conducted and as proposed to be conducted.
The Seller is duly qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified could have a material
adverse effect on the Seller. The Seller has furnished the Buyer or its special
counsel with true, correct and complete copies of its Articles of Incorporation
and Bylaws, as amended, as in effect on the date hereof.
4.3 The Seller has and will have at each Amendment No. 2 Funding
Initial Date, all requisite legal and corporate power and authority to execute
and deliver this Agreement and the Exhibits hereto, to sell and issue the
Securities and the Buyer's Warrants and all Common Stock underlying the
Securities, the Buyer's Warrants, hereunder, and to carry out and perform its
obligations under the terms of this Agreement and the Exhibits hereto.
4.4 The authorized capital stock of the Seller consists of (a)
95,000,000 shares of Common Stock, par value $.001 per share, of which
10,612,317 were issued and outstanding as of March 31, 1999 and, (b) 5,000,000
shares of Preferred Stock, par value $.001 per share, none of which are issued
and outstanding immediately prior to the Initial Funding Date. Schedule 4.4(a)
sets forth a true and correct list of the current stockholders of the Seller
indicating the number of shares of each class of the Seller's stock held by each
such stockholder. Except as set forth on Schedule 4.4(b), the Seller does not
have any authorized or outstanding options, warrants, convertible debentures,
rights or other securities exercisable for or convertible into any capital stock
of any of the Seller. Except for rights granted under this Agreement, no person
is entitled to any preemptive right or right of first refusal or similar right
with respect to any issuance of capital stock or other securities by the Seller.
Except for the Seller's obligations under this Agreement, there are no
outstanding obligations of the Seller to redeem, purchase or otherwise acquire
capital stock or other securities of any corporation. Except as provided herein
no person has any right to require the
-4-
<PAGE> 5
Seller to register any shares of its capital stock for sale pursuant to the
Securities Act of 1933, as amended.
4.5 All corporate action on the part of the Seller, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Exhibits hereto, the authorization,
sale, issuance and delivery of the Securities the Buyer's Warrants and all
underlying Common Stock and the performance of all of the Seller's obligations
hereunder and under each of the Exhibits hereto has been duly taken by the
Seller. This Agreement, when executed and delivered by the Seller, constitutes,
and each of the Exhibits thereto shall, when executed and delivered, constitute,
a valid and binding obligation of the Seller, enforceable in accordance with
their terms except for bankruptcy and equitable remedies. The Common Stock when
issued in compliance with the Securities and the Buyer's Warrants, shall be
validly issued, fully paid and non-assessable. The Securities and the Buyer's
Warrants are free of any liens claims or encumbrances; provided, however, that
the will be subject to restrictions on transfer under applicable state and/or
federal securities laws as set forth herein. The issuance of the Securities or
Buyer's Warrants will not be subject to any preemptive rights or rights of first
refusal, or result in any default of, or conflict with, the Articles of
Incorporation or Bylaws of the Seller, any contract or agreement to which the
Seller is a party or by which it is bound or any other obligation or commitment
of the Seller.
4.6 The Seller has delivered to the Buyer the audited balance
sheet and statements of operations and cash flows of the Seller as of and for
the period ended December 31, 1998 (the "Financial Statements"). The Financial
Statements are complete and correct and have been prepared in accordance with
the books and records of the Seller on a consistent basis. The Financial
Statements accurately set out, present fairly and describe the consolidated
financial condition and operating results of the Seller as of the dates, and
during the periods, indicated therein.
4.7 Except as set forth in Schedule 4.7 hereto, the Seller has
no liabilities or obligations of any kind, absolute, contingent or otherwise,
except (a) the liabilities and obligations set forth in the Financial
Statements, (b) liabilities with respect to equipment leases entered into in the
ordinary course of business, and (c) liabilities and obligations which have been
incurred subsequent to December 31, 1998, in the ordinary course of business and
consistent with past practice.
4.8 The Seller has good and marketable title to its properties
and assets, and has good title to all its leasehold interests, in each case
subject to no lien, claim or encumbrance other than (a) the lien of current
taxes not yet due and payable, (b) possible minor liens and encumbrances which
do not in any case or in the aggregate materially detract from the value of the
property subject thereto or materially impair the operations of the Seller, and
which have not arisen otherwise than in the ordinary course of business. The
assets and properties of the Seller are adequate to conduct the operations
currently conducted and proposed to be conducted by it. The Seller enjoys
peaceful and undisturbed possession under all leases under which it is
operating, and all said leases are valid and subsisting and in full force and
effect. The leasehold improvements of the Seller and all of their tangible
personal
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<PAGE> 6
property, machinery, equipment, fixtures and inventories used in the ordinary
course of business are in good repair and in good operating condition,
reasonable wear and tear excluded.
4.9 The Seller is not in violation of any term of its
Articles of Incorporation or Bylaws, or of any material term or provision of any
mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or
decree, including without limitation any Material Contract. The Seller is in
compliance with all judgments, decrees, governmental orders, laws, statutes,
rules and regulations by which it is bound or to which it or any of its
properties or assets is subject, except where the failure to comply would not
have a material adverse effect on the Seller. The Seller has all permits,
licenses, franchises and authorizations (collectively, the "Licenses") which are
required by law and/or necessary to operate its business as conducted or
proposed to be conducted, except where the failure to have any such License
would not have a material adverse effect on the Seller. All such Licenses were
validly issued and are in full force and effect. The Seller is in compliance in
all material respects with all of its Licenses and no suspension, revocation or
termination of any License is pending or, to the knowledge of the Seller,
threatened. The execution, delivery and performance of and compliance with this
Agreement and the Exhibits thereto, and the issuance of the Securities and the
Buyer's Warrants have not resulted and will not result in any violation of, or
conflict with, or constitute a material default under, (a) the Articles of
Incorporation or By-laws of the Seller or (b) assuming the accuracy of the
representations and warranties of the Seller set forth in hereto, any applicable
law, statute, rule, regulation or License, or (c) any agreement, contract,
franchise or instrument to which the Seller is a party, and has not resulted and
will not result in the creation of, any Lien upon any of the properties or
assets of the Seller.
4.10 The Seller has good and marketable title to, or valid
and continuing rights and licenses to use, all patents, patent rights, trade
secrets, trademarks, trademark rights, service marks, trade names, copyrights,
franchises, licenses, permits, inventions, customer lists, and all rights with
respect to the foregoing, which are necessary for the operation of its business
as presently conducted and now proposed to be operated (collectively, with any
application with respect to the issuance or granting of any of the foregoing,
the "Intangible Property"). To the Seller's knowledge, the conduct of business
of the Seller as now operated and as now proposed to be operated does not and
will not conflict with any valid intellectual property right of others. The
Seller has not received any notice of any claim against it that any of its
operations, activities, products or publications infringes on any patent,
trademark, trade name, copyright or other property right of a third party, or
that it is illegally or otherwise using the trade secrets or any property rights
of others. The Seller has no knowledge that any licensor of it has any disputes
with or claims against any third party for infringement by such third party of
any trade name or other Intangible Property. Each employee of the Seller has
executed a confidentiality and non-disclosure agreement in favor of the Seller.
4.11 There are no actions, suits, proceedings or
investigations pending against the Seller or its properties before any court or
governmental agency (nor, to the best of the Seller's knowledge, is there any
reasonable basis therefor or threat thereof).
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<PAGE> 7
4.12 To the best of the Seller's knowledge, no employee of
the Seller is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of such employee with the Seller.
4.13 All agreements material to the business of the Seller
("Material Contracts") are valid, binding and in full force and effect in all
material respects. The Seller and, to the best of the Seller's knowledge, each
other party to a Material Contract have in all material respects performed all
the obligations required to be performed by them, have received no notice of
default and are not in default under any Material Contract.
4.14 The Seller (a) has accurately prepared and timely filed
all tax returns that are required to have been filed by it with all appropriate
federal, state, county and local governmental agencies (and all such returns
fairly reflect the Seller's operations for tax purposes); and (b) has paid in
full or made adequate provision on the Financial Statements for the payment of
all taxes.
4.15 None of this Agreement (including the Exhibits and
Schedules hereto), any instrument, certificate or report furnished to the
Shareholder when read together, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading. The Seller knows of no information or fact that has and/or
could have a material adverse effect on it that has not been disclosed to the
Buyer in writing.
4.16 The Seller represents that it has not offered the
Securities to the Subscriber in the U.S. or, to the best knowledge of the
Seller, to any person in the United States or any U.S. person (as defined in
Regulation S promulgated by the United States Securities and Exchange
Commission).
4.17 To the best of the knowledge of the Seller, neither the
Seller nor any person acting for the Seller has conducted any "directed selling
efforts" as that term is defined in Rule 902 of Regulation S.
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
BUYER. The Buyer hereby represents and warrants to and covenants and agrees with
the Seller the following:
5.1 The Buyer represents and warrants to the Seller that (i) the
Buyer is not a "U.S. person" as that term is defined in Rule 902(o) of
Regulation S; (ii) the Securities and the Buyer's Warrants were not offered to
the Buyer in the United States and at the time of execution of this Agreement
and of any offer to buy the Securities and Buyer's Warrants hereunder the Buyer
was physically outside the United States; (iii) the Buyer is purchasing the
Securities and Buyer's Warrant for its own account and not on behalf of or for
the benefit of any U.S. person and the sale of the Securities has not been
prearranged with or on behalf of any buyer in the United States; (iv) the Buyer
and to the best knowledge of the
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<PAGE> 8
Buyer each distributor, if any, participating in the offering of the Securities
and Buyer's Warrants, has agreed and the Buyer hereby agrees that all offers and
sales of the Securities and the Buyer's Warrants prior to the expiration of a
period commencing on the closing of all the sale of all Debentures offered by
this Agreement and ending one year thereafter (the "Distribution Compliance
Period") shall not be made to U.S. persons or for the account or benefit of U.S.
persons and shall otherwise be made in compliance with the provisions of
Regulation S. The Buyer is not a dealer or underwriter with respect to this
transaction and is a "distributor" as defined in Regulation S.
5.2 The Purchase Price to be paid by Buyer to Seller for the
Securities and Buyer's Warrants has been determined by Buyer as fair and
appropriate based solely upon Buyer's independent investigation and due
diligence of the Seller, and neither the Seller nor any of its agents,
including, without limitation, any of their officers, directors, employees,
accountants and attorneys, has made any representations or warranties whatsoever
in connection with the sale of the Securities and Buyer's Warrants by the Seller
to the Buyer, except as specifically set forth herein. The Buyer has had
sufficient opportunity in connection with the sale of the Securities and Buyer's
Warrants to review the Seller's business and affairs (including, without
limitation, the Seller's financial statements and other information) and to
inquire of the Seller's management with respect thereto. The Buyer has had
answered to its satisfaction any questions with respect to the Seller's business
and affairs. The Buyer further has had the opportunity to obtain independent
financial, legal, accounting, business, tax and other appropriate advice with
respect to the transactions contemplated by this Agreement, and is not relying
upon the Seller or any of its agents in any manner in connection with same.
5.3 The certificates representing the Securities and the Buyer's
Warrants shall bear the first legend set forth on the first page of this
Agreement and any other legend, if such legend or legends are reasonably
required by the Seller to comply with state, federal or foreign law.
5.4 THE BUYER UNDERSTANDS AND AGREES WITH THE SELLER, THAT IN
THE ABSENCE OF THE REGISTRATION OF THE SECURITIES, THE BUYER'S WARRANTS AND THE
UNDERLYING COMMON STOCK UNDER THE ACT, THE SECURITIES, THE BUYER'S WARRANTS AND
THE UNDERLYING COMMON STOCK MAY ONLY BE RESOLD AS PROVIDED FOR IN RULES 903 OR
904 OF REGULATION S, PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER THE
ACT, INCLUDING SALES UNDER RULE 144. Rule 144, promulgated by the United States
Securities and Exchange Commission under the Act, may not be currently available
for sale of the Securities and Buyer's Warrants and underlying Common Stock in
the United States, and there is no assurance that it will be available at any
particular time in the future. Sales of Common Stock underlying the Securities
and the Buyer's Warrants may be made in reliance upon Rule 144 but ONLY (i)
limited quantities after the completion of the Distribution Compliance Period
(for Common Stock underlying the Warrants, one year after exercise if latter),
or (ii) in unlimited quantities by non-affiliates after the first yearly
anniversary of the completion of the Distribution Compliance Period (for Common
Stock underlying the Warrants, two years after exercise if latter), in each case
in accordance with the conditions of the Rule, all of which must be met
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<PAGE> 9
(including the requirement, if applicable, that adequate information concerning
the Seller is then available to the public).
5.5 To the best of the knowledge of the Buyer and Seller neither
the Buyer nor any distributor, if any, participating in the offering of the
Securities and Buyer"s Warrants nor any person acting for the Buyer or any such
distributor has conducted any "directed selling efforts" as that terms is
defined in Rule 902 of Regulation S.
5.6 The Buyer understands that the Securities, the Buyer's
Warrants and all underlying Common Stock have not been registered under the Act
and are being offered and sold pursuant to a "safe harbor" from registration
contained in Regulation S promulgated under the Act based in part upon the
representations of the Seller contained herein. The Seller has reviewed the
terms of the Warrants and the Buyer's Warrants and is aware of the restrictions
on exercise of the Warrants and the Buyer's Warrants by U.S. Persons, namely the
following:
THE WARRANTS AND THE BUYER'S WARRANTS MAY ONLY BE EXERCISED (i) BY A PERSON WHO
IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S.
PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS OR BUYER'S
WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON
EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING
THE WARRANTS AND THE BUYER'S WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED
STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANTS AND THE BUYER'S
WARRANTS CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND
SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE SELLER
PRIOR TO EXERCISE OF THE WARRANTS AND BUYER'S WARRANTS BEING EXERCISED THAT
REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON
EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
5.7 The Buyer knows of no public solicitation or advertisement
of an offer in connection with the proposed issuance and sale of the Securities
and the Buyer's Warrants, the Buyer's Warrants or any underlying Common Stock.
5.8 The Buyer is acquiring the Securities to be issued and sold
hereunder (and the Common Shares issuable thereunder) as a nominee (but is
acquiring the Buyer's Warrants (and the underlying Common Stock) for its own
account for investment and not as a nominee and not with a view to the
distribution thereof). The Buyer understands that it must bear the economic risk
of this investment indefinitely unless the sale of such Securities and Buyer's
Warrants and the underlying shares of Common Stock is registered pursuant to the
Act, or an exemption from such registration is available, and that the Buyer has
no present intention of registering any such sale of the Securities, the Buyer's
Warrants and any
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<PAGE> 10
underlying Common Stock, except as otherwise specifically provide for herein.
The Buyer represents and warrants to the Seller that it has no present plan or
intention to sell any of such Securities, the Buyer's Warrants and the
underlying Common Stock in the United States or to a United States person
pursuant to any predetermined arrangements. The Buyer covenants that neither it
not its affiliates nor any person acting on its or their behalf has the
intention of entering or will enter during the Distribution Compliance Period,
into any put option, short position, hedging transactions, equity swaps or other
similar instrument or position with respect to any of such Securities, the
Buyer's Warrants and the underlying Common Stock or securities of the same class
as any of such Securities, the Buyer's Warrants and the underlying Common Stock
in violation of the Act and neither the Buyer nor any of its affiliates or any
person acting on its or their behalf will use at any time any of such acquired
pursuant to this Agreement to settle any put option, short position, hedging
transactions, equity swaps or other similar instrument or position that may have
been entered into prior to the execution of this Agreement in violation of the
Act.
5.9 The Buyer further covenants that it will not make any
sale, transfer or other disposition of the Securities and the Buyer's Warrants
or any underlying Common Stock in violation of the Act, the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
5.10 The Buyer has the full power and authority to execute,
deliver and perform this Agreement. This Agreement when executed and delivered
by the Buyer will constitute a valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms except for bankruptcy and
equitable remedies.
5.11 The Buyer has reviewed with his, her or its own tax
advisors the foreign, federal, state and local tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. The Buyer is relying solely on such advisors and not on any
statements or representations of the Seller or any of its agents and understands
that the Buyer (and not the Seller) shall be responsible for the Buyer's own tax
liability that may arise as a result of this investment or the transactions
contemplated by this Agreement.
5.12 The Buyer acknowledges that it has had this Agreement
and the transactions contemplated by this Agreement reviewed by its own legal
counsel. The Buyer is relying solely on such counsel and not on any statements
or representations of the Seller or any of its agents for legal advice with
respect to this investment or the transactions contemplated by this Agreement.
5.13 The Buyer is a "distributor" as defined in Regulation S
and will send to any broker/dealer or other person receiving a commission on the
sale of the Securities, the Buyer's Warrants and the underlying Common Stock, a
confirmation or other notice stating that such person is subject to the same
restrictions on transfer to U.S. Persons or for the account of or benefit of
U.S. Persons during the Distribution Compliance Period as provided herein.
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<PAGE> 11
5.14 Upon any transfer of the Securities, the Buyer's
Warrants or the underlying Common Stock unless such transfer is subject to Rule
144 or is covered by a current and effective registration statement under the
Act, the transferee must supply to the Seller with the same representations and
warranties as provided for in Section 5 hereof.
5.15 NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT,
THE DEBENTURES, THE WARRANTS OR THE BUYER'S WARRANTS, THE SELLER DOES NOT HAVE
TO AND WILL NOT RECOGNIZE AND WILL TREAT AS NULL AND VOID ANY ATTEMPT TO
TRANSFER THE DEBENTURES, THE WARRANTS, THE BUYER'S WARRANTS AND THE UNDERLYING
COMMON STOCK MADE IN VIOLATION OF THIS AGREEMENT OR REGULATION S OR TO EXERCISE
THE WARRANTS AND THE BUYER'S WARRANTS OTHER THAN AS PROVIDED THEREIN.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) As soon as possible after this date (but in no case
prior to the Initial Funding Date), the Seller will include in an appropriate
form of registration statement filed under the Securities Act of 1933 (the
"Act") for resale by the potential holders (the "Buyer") the following shares of
Common Stock, but only Common Stock, of the Seller (collectively, the "Resale
Securities"):
(i) One hundred one hundred percent (100%) of the shares
underlying the Debentures, assuming the aggregate outstanding Principal Sum was
Five Million Dollars ($5,000,000) based on the conversion prices set forth in
Section 3 above.
(ii) One hundred percent (100%) of the shares underlying the
Warrants to purchase for aggregate of One Million Dollars ($1,000,000) of the
Common Stock of the Seller based on an exercise price per share as set forth in
Section 3 above.
(b) The Seller shall use its best efforts to cause the
registration statement provided for in Section 6(a) hereof to become effect
under the Act no latter than the ninetieth (90th) day after the Initial Funding
Date; provided, that if such registration statement has not been declared
effective by the close of such ninetieth (90th) day after the Initial Funding
Date, then for each of the next thirty (30) days after such ninetieth (90th) day
after the Initial Funding Date that such registration statement has not been
declared effective, the Seller shall pay the Holder an amount equal to the
Principal Sum funded on the Initial Funding Date times Nine Hundred Eighty Six
One Thousands of a percent (0.986%); provided further, that if such registration
statement has not been declared effective by the close of the one hundred
twentieth (120th) day after the Initial Funding Date, then for each day after
such one hundred twentieth (120th) day after the Initial Funding Date that such
registration statement has not been declared effective, the Seller shall pay the
Holder and amount equal to the Principal Sum funded on the Initial Funding Date
times One Thousand Six Hundred Four-four One Ten Thousands of a percent
(0.1644%). Any amounts due to the Holder under this
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<PAGE> 12
Section 6(b) shall be paid by check no later than the next business day after an
amount is incurred.
(c) The following provision of this Section 6 shall also be
applicable:
(i) The Buyer shall furnish the Seller with such appropriate
information (relating to the intentions of such holders with regard to the sale
of the Resale Securities included in the registration statement as the Seller
shall reasonably request in writing. Following the effective date of such
registration statement, the Seller shall upon the request of the Buyer forthwith
supply such a number of prospectuses meeting the requirements of the Act, as
shall be requested by the Buyer to permit the Buyer to make a public offering of
all the Resale Securities from time to time offered or sold to the Buyer
provided that the Buyer shall from time to time furnish the Seller with such
appropriate information (as provided for in the immediately proceeding sentence)
as the Seller shall request in writing and provided, further, that the Seller
shall keep such registration statement current and effective until the last to
occur of thirtieth (30th) day after the last to occur of (i) the Principal Sum
of the Debentures being reduced to zero or (ii) the first to occur of the
exercise or all of the Warrants and the Buyer's Warrants or the expiration of
the Warrants and the Buyer's Warrants. The Seller shall also use its best
efforts to qualify the Resale Securities for sale in New York and Florida,
provided that the Seller shall not be required to file a general consent to
service of process in any state pursuant to this sentence.
(ii) The Seller shall fill the registration statement at its
own expense and without charge to the Buyer. The Buyer shall, however, bear the
fees of his own counsel and any transfer taxes or underwriting discounts or
commissions applicable to the Resale Securities sold by it pursuant thereto.
(iii) The Seller shall indemnify and hold harmless the Buyer
and each underwriter, within the meaning of the Act, who may purchase from or
sell for any the Buyer any Resale Securities from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement or any post-effective amendment thereto under the Act or any
prospectus included therein required to be filed or furnished by reason of this
Section 6 or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished or required to
be furnished in writing to the Seller by the Buyer or underwriter expressly for
use therein, which indemnification shall include each person, if any, who
controls any such underwriter within the meaning of such Act; provided, however,
that the Seller shall not be obliged so to indemnify any such underwriter or
controlling person unless such underwriter shall at the same time indemnify the
Seller, its directors, each officer signing the related registration statement
and each person, if any, who controls the Seller within the meaning of such Act,
from and against any and all losses, claims, damages and liabilities caused by
any untrue statement or
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<PAGE> 13
alleged untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by reason of this
Section 6 or caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon information
furnished in writing to the Seller by any such underwriter expressly for use
therein.
(iv) The Seller's agreements with respect to the Resale
Securities in this Section 6 shall continue in effect regardless or the
conversion and surrender of the Debenture or any exercise of the Warrants or the
Buyer's Warrants. The registration rights of the Buyer under this Section 6 will
inure to the benefit and be assignable automatically to any transferee of the
Securities, the Warrants, the Buyer's Warrants or the underlying Common Stock,
except for any such underlying Common Stock sold pursuant to a registration
statement under the Act or sold pursuant to Rule 144.
7. ENTIRE AGREEMENT. This Agreement, and the Exhibits hereto,
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings relating to such subject matter.
8. CHOICE OF LAW AND VENUE. This Agreement shall be governed by and
construed under the laws of the Province of Alberta, Canada, without regard to
choice of laws, in force from time to time. Any proceeding arising out of this
Agreement shall be brought in Ontario, Canada.
9. ATTORNEYS' FEES. In any action to enforce this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party all
reasonable costs, including, without limitation, attorneys' fees.
10. PARTIES BOUND. This Agreement is binding on and shall inure to
the benefit of the parties and their respective successors, assigns, heirs, and
legal representatives.
11. NOTICES. Except as otherwise provided herein, all notices,
instructions or other communications required or permitted hereunder shall be in
writing and sent by registered mail, postage prepaid, addressed as follows:
To Jaws Technologies Inc.
1013 17th Avenue SW
Calgary, Alberta Canada T2T OA7
Fax: 403-508-5058
Voice: 403-508-5055
Attn: Robert Kubbernus
President and CEO
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<PAGE> 14
To Thomson Kernaghan & Co. Limited:
365 Bay Street,
Toronto, Ontario Canada M5H 2V2
Fax: 416-367-8055
Voice: 416-860-8800
Attn: Robert F. Wilson
or such other address, telephone numbers or contact persons as shall be
furnished in writing by such party to the other parties hereto. Any such notice,
instruction or communication shall be deemed to have been given three (3)
business days after the date mailed by registered mail or if sent by fax, upon
electronic confirmation or receipt.
12. GENDER. Masculine nouns and pronouns shall include feminine nouns
and pronouns.
13. ARBITRATION. All disputes that may arise between the parties
regarding the interpretation or application of this Agreement and the Exhibits
thereto and the legal affect of this Agreement shall, to the exclusion of any
court of law, be arbitrated and determined by a board of arbitrators, unless the
parties can resolve the dispute by mutual agreement. Either party shall have the
right to submit any dispute to arbitration thirty (30) days after the other
party has been notified as to the nature of the dispute. If the dispute goes to
arbitration, each party shall select one arbitrator and the two arbitrators so
selected shall jointly select a third arbitrator. The arbitration shall be
governed by the arbitration rules of the International Chamber of Commerce. The
arbitration proceeding shall be governed by the statutes of the Province of
Ontario, Canada, and the proceeding shall be held in Toronto, Ontario, Canada.
Anything to the contrary contained in the above-mentioned rules and statutes
notwithstanding, the parties consent that any papers, notices, or process
necessary or proper for the institution or continuance of, or relating to any
arbitration proceeding, or for the confirmation of an award and entry of
judgment on any award made, including appeals in connection with any judgment or
award, may be served on each of the parties by registered mail addressed to the
party at the principal office of the party, or by personal service on the party
in or without the above-mentioned state. The parties recognize and consent to
the above-mentioned arbitration association's jurisdiction over each and every
one of them.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Seller: JAWS TECHNOLOGIES INC.
By:_________________________________
Its:__________________________________
Buyer: THOMSON KERNAGHAN & CO. LTD.
By:__________________________________
Its:__________________________________
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<PAGE> 16
EXHIBIT LIST
<TABLE>
<S> <C>
Exhibit A FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK
Exhibit B 10% CONVERTIBLE DEBENTURE
Exhibit C ESCROW AGREEMENT
Exhibit D FORM OF BUYER WARRANTS
</TABLE>
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<PAGE> 1
EXHIBIT 4.1.2
APRIL 20, 1999
MR. PAUL KESSLER
BRISTOL ASSET MANAGEMENT LLP
1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA
1132 LA 90067
Dear Sir,
As per our recent discussions and negotiations and further to recent
comments and concerns by the SEC, relative to JAWS Technologies Inc. becoming a
reporting issuer, all parties are in agreement that the commitment for financing
by Bristol Asset Management to JAWS Technologies Inc. is cancelled herewith.
JAWS Technologies Inc., in consideration of this cancellation, agrees to
issue Bristol Asset Management 1,000,000 warrants with an exercise price of
$0.70 USD. The warrants will expire April 15, 2002.
Please sign below to signify your acknowledgement of the above terms.
Please return this signed document, via facsimile, to our offices by April 23,
1999 so that we may proceed with our registration.
We appreciate your urgent attention to this matter.
___________________________________ ___________________________________
Robert Kubbernus Paul Kessler
JAWS Technologies Inc. Bristol Asset Management LLP
<PAGE> 1
EXHIBIT 4.1.3
Void after 5:00 p.m. Los Angeles Time, on April 15, 2002
Warrant to Purchase Shares of Common Stock ("Expiration Date")
--------------------------------
WARRANT TO PURCHASE 1,000,000 SHARES OF COMMON STOCK
OF
JAWS TECHNOLOGIES, INC.
--------------------------------
This is to Certify That, FOR VALUE RECEIVED, BRISTOL ASSET
MANAGEMENT, LLC or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from JAWS TECHNOLOGIES, INC., ("Company"), ONE
MILLION SHARES (1,000,000) of the fully paid, validly issued and nonassessable
shares of Common Stock of the Company ("Common Stock") at any time or from time
to time during the period from the date hereof, through and including April 15,
2002, but not later than 5:00 p.m. Los Angeles Time, on April 15, 2002
("Exercise Period"). The price to be paid for each share of Common Stock shall
be $0.70 per share. The shares of Common Stock deliverable upon such exercise,
and as adjusted from time to time, are hereinafter sometimes referred to as
"Warrant Shares" and the respective exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
(a) Exercise of Warrant. The Holder may exercise this
Warrant in whole or in part, at any time or from time to time on any Business
Day on or prior to the Expiration Date, by delivering to the Company a duly
executed notice (a "Notice of Exercise") in the form of Annex A hereto, by
payment to the Company of the Exercise Price per Warrant Share in an amount
equal to the product of (i) the Exercise Price times (ii) the number of Warrant
Shares as to which this Warrant is being exercised.
As soon as practicable after the Company shall have received such
Notice of Exercise an any required payment, the Company shall execute and
deliver or cause to be executed and delivered, in accordance with such Notice of
Exercise, to the Holder at the address set forth in such Notice of Exercise a
certificate or certificates which shall not bear any legend representing the
number of shares of Common Stock specified in such Notice of Exercise. The
Warrant shall be deemed to have been exercised and such share certificate or
certificates shall be deemed to have been issued, and the Holder shall be deemed
for all
<PAGE> 2
purposes to have become a holder of record of shares of Common Stock, as of the
date that such Notice of Exercise and any required payment shall have been
received by the Company.
The Holder shall surrender this Warrant certificate of the
Company when it delivers the Notice of Exercise, and in the event of a partial
exercise of the Warrant, the Company shall execute and deliver to the Holder, at
the time the Company delivers the share certificate or certificates issued
pursuant to such Notice of Exercise, a new Warrant certificate for the
unexercised portion of the Warrant, but in all other respect identical to this
Warrant certificate.
The Company shall not be require to issue fractional shares of
Common Stock upon an exercise of the Warrant. If any fraction of a share would,
but for this restriction, be issuable upon an exercise of the Warrant, in lieu
of delivering such fractional share, the Company shall pay to the Holder, in
cash, an amount equal to the same fraction times the FMV for the Common Stock
(as defined above) immediately prior to the date of such exercise.
The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of
certificates for the Warrant Shares and any new Warrant certificates.
(b) Reservation of Shares. The Company shall at all
times reserve for issuance and/or delivery upon exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of the Warrants.
(c) Fractional Shares. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ system, the current market value shall be
the last reported sale price of the Common Stock on such exchange or system on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made (or reported) on such day, the average closing bid and asked
prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or
admitted to unlisted trading privileges, the current market value shall be the
mean of the last reported bid and asked prices reported by the Electronic
Bulletin Board or National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount, not less than book value
thereof as at the end of the most recent
-2-
<PAGE> 3
fiscal year of the Company ending prior to the date of the exercise of the
Warrant, determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.
(d) Exchange, Transfer, Assignment or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Upon surrender of this
Warrant to the Company at its principal office, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay and transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt of the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by
virtue hereof, be entitled to any rights of a shareholder in the Company, either
at law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) Anti-Dilution Provisions. The respective Exercise
Price in effect at any time and the number and kind of securities purchasable
upon the exercise of the Warrants shall be subject to adjustment from time to
time upon the happening of certain events as follows:
(1) In case the Company shall (i) declare a
dividend or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
respective Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the respective Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
-3-
<PAGE> 4
(2) Whenever the respective Exercise Price
payable upon exercise of each Warrant is adjusted pursuant to Subsection (1)
above, the number of Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the respective number of Shares
initially issuable upon exercise of this Warrant by the respective Exercise
Price in effect on the date hereof and dividing the product so obtained by the
respective Exercise Price, as adjusted.
(3) No adjustment in the respective Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least one cent ($0.01) in such price; provided, however, that any
adjustment which by reason of this Subsection (3) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section (f) shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such changes in
the respective Exercise Price, in addition to those required by this Section
(f), as it shall determine, in its sole discretion, to be advisable in order
that any dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by the Company
shall not result in any Federal Income tax liability to the holders of Common
Stock or securities convertible into Common Stock (including the Warrants).
(4) In the event that at any time, as a result of
an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Subsections (1) to (3) inclusive above.
(5) Irrespective of any adjustments in the
respective Exercise Price or the related number or kind of share purchasable
upon exercise of this Warrant, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the similar Warrants initially issuable pursuant to this Agreement.
(g) Officer's Certificate. Whenever the respective
Exercise Price shall be adjusted as required by the provisions of the foregoing
Section (f), the Company shall forthwith file in the custody of its Secretary or
an Assistant Secretary at its principal office, an officer's certificate showing
the adjusted respective Exercise Price determined as herein provided, setting
forth in reasonable detail the facts requiring such adjustment, including a
statement of the number of related additional shares of Common Stock, if any,
and such other facts as shall be necessary to show the reason for and the manner
of computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the holder or any holder of
a Warrant executed and delivered pursuant to
-4-
<PAGE> 5
Section (a) and the Company shall, forthwith after each such adjustment, mail a
copy by certified mail of such certificate to the Holder or any such holder.
(h) Notices to Warrant Holders. So long as this
Warrant shall be outstanding, (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if the capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up. The failure to give such notice shall not otherwise effect the
action taken by the Company.
(i) Reclassification, Reorganization or Merger. In
case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety,
the Company shall, as a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right thereafter by
exercising this Warrant at any time prior to the expiration of the Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased upon exercise of this
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (i) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in connection
with any such capital reorganization or reclassification, consolidation, merger,
sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for a
security of the Company other
-5-
<PAGE> 6
than Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Subsection (1) of Section (f) hereof.
(j) Registration or Exemption Under the Securities
Act of 1933.
This warrants and the shares of Common Stock underlying
this Warrant shall be registered under the United States Securities Act of 1933,
upon the request of the Holder, in the event that the Company files a
Registration Statement with the Securities and Exchange Commission pursuant to
Form SB-2 including the current Registration Statement, or any other applicable
form for the registration of common shares, without expense to the Holder. In
addition, to the extent that the Company is able to issue warrants or shares
pursuant to Rule 504 under Regulation D at any time, the Holder shall have the
first right to exchange the warrants or shares for freely tradeable warrants or
shares issued by the Company pursuant to the exemption provided by Rule 504. In
either instance, the Company shall provide written notice to the Holder, thirty
(30) days in advance of any proposed filing of a Registration Statement with the
SEC, or the availability of resale of common shares or warrants under Rule 504.
(k) Venue. The terms of this Agreement shall be
construed in accordance with the laws of the State of California. The exclusive
venue with respect to any claims or disputes under this Agreement shall be the
appropriate State or Federal Courts located in Los Angeles, California.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be signed and attested by the Undersigned, each being duly authorized, as of the
date below.
JAWS TECHNOLOGIES, INC.
By:__________________________________
Its: __________________________________
Dated: April ____, 1999
ATTEST:
____________________________________
_______________________, Secretary
-6-
<PAGE> 7
EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing Shares of Common Stock of Jaws Technologies,
Inc. at $0.70 per share.
--------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________________________
(Please typewrite or print in block letters)
Address ____________________________________________________
Social Security of Federal I.D. Number: __________________________
THE UNDERSIGNED REPRESENTS AND WARRANTS TO JAWS TECHNOLOGIES, INC. THAT THE
CONDITIONS FOR EXERCISE OF THE WITHIN WARRANT SET FORTH IN THE FIRST SENTENCE OF
THE FIRST PARAGRAPH ABOVE HAVE BEEN FULLY COMPLIED WITH.
CHECK APPROPRIATE BOX
[ ] Payment of $__________ enclosed
[ ] Cashless Exercise Option
Signature _____________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
------------------------------------------------------
PRINT NAME
<PAGE> 8
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________________
hereby sells, assigns and transfers unto
Name ________________________________________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________________________________
Social Security of Federal I.D. Number: _____________________________________
the right to purchase shares of Common Stock of Jaws Technologies, Inc.
represented by this Warrant as to which such right is exercisable and does
hereby irrevocably constitute and appoint _____________________________________
Attorney, to transfer the same on the books of Jaws Technologies, Inc. with full
power of substitution in the premises.
Date __________ __, ______
Signature ________________________________________
(Sign exactly as your name appears on
the first page of this Warrant)
-2-
<PAGE> 1
EXHIBIT 10.1.8
WRITTEN CONSENT OF THE
BOARD OF DIRECTORS
OF
JAWS TECHNOLOGIES, INC.
A NEVADA CORPORATION
The undersigned, constituting all of the members of the Board of
Directors of JAWS Technologies, Inc., a Nevada corporation (the "Corporation"),
hereby approve, adopt, and consent to the adoption of the following resolutions
by written consent without a meeting pursuant to the provisions of Section
78.196 of the Nevada Revised Statutes:
Approval of Consulting Fees
WHEREAS, the Bylaws of the Corporation currently provide for the
approval of all consulting fees by the Board of Directors; and
WHEREAS, the Corporation paid Robert Kubbernus, consulting fees
in the amount of $120,486 in connection with management and support services for
services rendered between the dates of January 27, 1997 and December 31, 1998;
and
WHEREAS, the Corporation paid Bankton Financial Corp., a
corporation managed by Robert Kubbernus, consulting fees in the amount of
$14,514 in connection with management and support services for services rendered
between the dates of January 27, 1997 and December 31, 1998; and
WHEREAS, the Corporation paid Cameron Chell, consulting fees in
the amount of $47,986 in connection with management and support services for
services rendered between the dates of January 27, 1997 and December 31, 1998;
and
WHEREAS, the Corporation paid Mitch Tarr, consulting fees in the
amount of $16,524 in connection with consulting services related to sales and
marketing for services rendered between the dates of January 27, 1997 and July
26, 1998; and
WHEREAS, the Board of Directors believe it to be in the best
interests of the Corporation that, to the extent allowed by law, the current
Board of Directors ratify all acts with regard to the compensation of consulting
fees paid to Robert Kubbernus, Bankton Financial Corp., Cameron Chell, and Mitch
Tarr between the dates of January 27, 1997 and December 1998.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby ratify and confirm all of the above-mentioned compensation paid to Robert
Kubbernus, Bankton Financial Corp., Cameron Chell, and Mitch Tarr by the Board
of Directors between the dates of January 27, 1997 and December 31, 1998.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have signed this Written
Consent as of the 27th day of April, 1998. The Secretary of the Company is
hereby instructed to place a copy of this Written Consent in the Minute Book of
the Company.
___________________________________ ___________________________________
Cameron Chell Robert Kubbernus
___________________________________ ___________________________________
Julia Johnson Arthur Wong
<PAGE> 1
EXHIBIT 23.1
CONSENT OF JEFFER, MANGELS, BUTLER & MARMARO LLP
We consent to the reference to our firm under the caption "Legal
Opinion" and to the inclusion of our opinion as an Exhibit to Amendment No. 2 of
the Form SB-2 Registration Statement of Jaws Technologies, Inc. as filed with
the Securities and Exchange Commission on April 30, 1999.
/s/ JEFFER, MANGELS, BUTLER & MARMARO LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report on the consolidated financial statements of Jaws Technologies,
Inc. (a development stage company) dated March 22, 1999, (except for Note 15(e)
which is as at April 26, 1999), and our report on the financial statements of
Jaws Technologies Inc. (an Alberta corporation) dated March 22, 1999, included
in the Prospectus filed as part of Amendment No. 2 (dated April 30, 1999) to
the Registration Statement (Form SB-2) of Jaws Technologies, Inc. for the
registration of 17,154,900 shares of its common stock.
Calgary, Canada
April 30, 1999 Chartered Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 33,732
<SECURITIES> 0
<RECEIVABLES> 7,243
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 194,549
<PP&E> 90,551
<DEPRECIATION> 13,461
<TOTAL-ASSETS> 273,379
<CURRENT-LIABILITIES> 625,715
<BONDS> 146,606
0
0
<COMMON> 10,612
<OTHER-SE> 584,271
<TOTAL-LIABILITY-AND-EQUITY> 273,379
<SALES> 0
<TOTAL-REVENUES> 29,068
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,723,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381,688
<INCOME-PRETAX> (3,076,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,076,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,076,287)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
