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Electronically transmitted to the Securities and Exchange Commission
May 30, 2000
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
JAWS Technologies, Inc.
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(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
7371
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(Primary Standard Industrial Classification Code Number)
98-0167013
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(I.R.S. Employer Identification Number)
400, 630-8TH AVENUE S.W.,
CALGARY, ALBERTA CANADA T2P 1G8
(403) 508-5055
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(Address, including zip code, and telephone
number, including area code, of registrant's principal
executive offices)
ROBERT J. KUBBERNUS
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
JAWS TECHNOLOGIES, INC.
400, 630-8TH AVENUE S.W.,
CALGARY, ALBERTA CANADA T2P 1G8
(403) 508-5055
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COPY TO:
LUKE P. IOVINE, III, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 318-6000
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
As soon as practicable following the effectiveness of this
Registration Statement
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(Approximate date of commencement of proposed sale to the public)
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 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, please 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 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 Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Share Offering Price Registration Fee
---------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 5,196,669 shares $4.30 per share(1) $22,345,677 $5,900(1)
============ ================ ==================== ============= ==========
Common Stock 7,624,248 shares(2) (3) (3) $13,655(3)
</TABLE>
(1) Calculated in accordance with Rule 457[c)] under the Securities Act of
1933.
(2) Represents an aggregate of 7,624,248 shares of Common Stock previously
registered pursuant to Registration Statement on Form S-1 (Registration No.
333-30406) that are being carried forward in the Prospectus filed with this
Registration Statement.
(3) This amount has previously been paid by the registrant as the registration
fee for the 7,624,248 shares of Common Stock carried forward from the prior
Registration Statement on Form S-1 (Registration No. 333-30406).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE GENERAL RULES AND REGULATIONS UNDER THE SECURITIES
ACT OF 1933, THE PROSPECTUS INCLUDED AS PART OF THIS REGISTRATION STATEMENT
SHALL BE DEEMED A COMBINED PROSPECTUS WHICH SHALL ALSO RELATE TO OUR
REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 333-30406) [AND CONSTITUTES
A POST-EFFECTIVE AMENDMENT TO OUR REGISTRATION STATEMENT ON FORM S-1
(REGISTRATION NO. 333-30406)]. THIS REGISTRATION STATEMENT AND SAID PRIOR
REGISTRATION STATEMENT ARE COLLECTIVELY REFERRED TO HEREIN AS THE "REGISTRATION
STATEMENT."
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where such offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 30, 2000
12,820,917
JAWS TECHNOLOGIES, INC.
Common Stock
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Of the shares of common stock covered by this prospectus, 7,258,129 shares
are owned by the stockholders listed in the section of this prospectus called
"Selling Stockholders" or are issuable on exercise of warrants owned by the
selling stockholders. The selling stockholders may sell any or all of their
shares from time to time. See "Plan of Distribution." In addition, we have
prepared this prospectus in connection with our prior acquisition of Offsite
Data Systems Ltd. ("Offsite") to allow the former shareholders and
warrantholders of Offsite to acquire up to 5,562,788 shares of our common stock
upon their exchange of exchangeable shares of our subsidiary, JAWS Acquisition
Corp. an Alberta corporation ("JAC"), that have been or may be issued to such
shareholders in connection with the Offsite acquisition. See "Business - Recent
Acquisitions - Offsite Data Systems Ltd."
We will not receive any of the proceeds of sales by the selling
stockholders, or upon the issuance of any shares of our common stock to the
holders of JAC exchangeable shares. However, we received proceeds of CDN
$337,209 from the exercise of 843,023 warrants at $0.40 per warrant, and JAWS
issued 297,081 JAC exchangeable shares, which are exchangeable for shares of
JAWS' common stock on a 1-for-1 basis. We have agreed to bear all expenses
related to this offering, other than underwriting discounts and commissions and
any transfer taxes on the shares of common stock that the selling stockholders
are offering.
Our common stock is included for quotation on the Nasdaq National Market
System under the symbol "JAWZ".
INVESTING IN THIS COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------
THE DATE OF THIS PROSPECTUS IS MAY 30, 2000.
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You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. 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 any sale of the common stock.
Unless the context otherwise indicates, references in this prospectus
to "we," "us," "our" or "JAWS" refer to JAWS Technologies, Inc. and its
subsidiaries, JAWS Technologies Inc., an Alberta corporation, Pace Systems Group
Inc., an Ontario corporation ("Pace"), JAWS Acquisition Corp., an Alberta
corporation, Offsite Data Services Ltd., an Alberta corporation ("Offsite"),
JAWS Technologies (Ontario), Inc., an Ontario corporation, JAWS Technologies
(Delaware), Inc., a Delaware corporation, and JAWS Inc., an Illinois corporation
(formerly named Nucleus Consulting, Inc.) ("Nucleus").
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
PROSPECTUS SUMMARY ................... 1 MANAGEMENT ........................... 46
RISK FACTORS ......................... 5 SECURITY OWNERSHIP OF CERTAIN
USE OF PROCEEDS ...................... 13 BENEFICIAL OWNERS
DIVIDEND POLICY ...................... 13 AND MANAGEMENT ....................... 53
CAPITALIZATION ....................... 14 CERTAIN RELATIONSHIPS AND RELATED
SELECTED FINANCIAL DATA .............. 15 TRANSACTIONS ......................... 55
SELLING STOCKHOLDERS ................. 17 REGISTRATION RIGHTS .................. 59
PLAN OF DISTRIBUTION ................. 19 LEGAL MATTERS ........................ 60
DESCRIPTION OF CAPITAL STOCK ......... 21 EXPERTS .............................. 60
BUSINESS ............................. 25 AVAILABLE INFORMATION ................ 60
MARKET FOR COMMON EQUITY AND INDEX TO CONSOLIDATED FINANCIAL
RELATED STOCKHOLDER MATTERS .......... 39 STATEMENTS ........................... F-1
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................ 40
</TABLE>
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PROSPECTUS SUMMARY
This summary is not a substitute for the more detailed
information, financial statements and the notes to the financial statements
appearing elsewhere in this prospectus. This prospectus contains forward looking
statements that involve risks and uncertainties. JAWS' actual results could
differ materially from the results anticipated in these forward looking
statements as a result of the factors set forth under "Risk Factors" and
elsewhere in this prospectus.
COMPANY SUMMARY
JAWS is a provider of information security consulting services and
software solutions, a developer of proprietary information security encryption
software, a provider of financial information security technology solutions to
retailers and large financial organizations in North America and a provider of
internet based data storage management services. JAWS consulting services and
the software solutions developed by JAWS are designed to minimize the threats to
clients' information and communications. JAWS information security consulting
services, software solutions and proprietary encryption software are provided
through all of its wholly-owned subsidiaries. JAWS financial information
technology security solutions services are directed through its wholly-owned
subsidiary, Pace Systems Group Inc., and include services in the area of payment
systems, including point of sale, automated banking machine and electronic funds
transfer, switch implementation, point of sale application and device
integration, network architecture and design, system integration and project
management. JAWS data storage management services are provided through its
subsidiary, Offsite Data Services Ltd., an Alberta corporation.
JAWS was incorporated in the State of Nevada on January 27, 1997 under
the name "e-biz" solutions, inc. On February 10, 1998, "e-biz" solutions, inc.
entered into an agreement to purchase all of the outstanding shares of common
stock of JAWS Technologies Inc., an Alberta corporation, incorporated on
September 18, 1997, in exchange for 1,500,000 shares of the restricted common
stock of "e-biz" solutions, inc. and options to purchase 400,000 shares of
restricted common stock at $0.50 per share. On March 27, 1998, "e-biz"
solutions, inc. changed its name to JAWS Technologies, Inc. Our executive
offices are located at Paracorp Incorporated, 208, 318 Carson Street, Carson
City, Nevada 89701 and our head office is located at 400, 630-8th Avenue S.W.,
Calgary, Alberta T2P 1G8. Our website is located at www.jawstech.com.
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SUMMARY SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following sets forth summary selected financial information of the
Company on a historical basis for each of the periods and dates indicated and on
a pro forma basis as of and for the year ended December 31, 1999. The following
information should be read in conjunction with the financial statements and
notes thereto of the Company.
The unaudited selected consolidated pro forma financial information for
the period ended March 31, 2000 is presented as if the acquisitions of Offsite
and Nucleus, and the consummation of our private placement financing of
approximately US$2.5 million completed on February 23, 2000 (and the application
of the net proceeds therefrom) had all occurred as of January 1, 2000 for the
income statement accounts and March 31, 2000 for the balance sheet accounts.
The unaudited selected consolidated pro forma financial information as
at and for the year ended December 31, 1999 is presented as if the foregoing
events, and the acquisition of Pace, had occurred as of January 1, 1999, for the
income statement accounts and as of December 31, 1999, for the balance sheet
accounts. The pro forma financial information is unaudited and is not
necessarily indicative of what the financial position and results of operations
of the Company would have been as of the dates and for the periods indicated,
nor does it purport to represent or project the financial position or results of
operations for future periods. The information set forth in the table should be
read in conjunction with the financial statements and notes thereto, the pro
forma information and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
included elsewhere in this prospectus.
THE COMPANY (PRO FORMA) AND (HISTORICAL)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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Pro Forma (Unaudited) Historical (Unaudited)
--------------------- ----------------------
2000 2000 1999
---- ---- ----
<S> <C> <C> <C>
Results of operations
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Revenue 1,087 652 3
Net loss for the period (4,669) (4,020) (1,202)
Net loss for the period per
share of common stock (0.16) (0.14) (0.11)
Financial position
------------------
Total assets 30,357 28,876 507
Long-term debt 139 139 674
Stockholders equity (deficiency) 27,467 26,467 (1,276)
</TABLE>
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THE COMPANY (PRO FORMA) AND (HISTORICAL)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Pro Forma (Unaudited) Historical (Audited)
--------------------- --------------------
1999 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Results of operations
---------------------
Revenue 4,929 592 29 --
Net loss for the period (14,226) (7,168) (3,076) (137)
Net loss for the period per
share of common stock (0.70) (0.50) (0.42) (0.03)
Financial position
------------------
Total assets 32,537 12,606 273 10
Long-term debt 68 68 147 --
Stockholders equity (deficiency) 30,208 11,162 (574) (101)
</TABLE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Some of the
forward-looking statements can be identified by the use of forward-looking words
such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates" or "anticipates" or the
negative of those words or other comparable terminology. Forward-looking
statements involve risks and uncertainties. A number of important factors could
cause actual results to differ materially from those in the forward-looking
statements. These factors include the inability to successfully develop and
commercialize products, the Company's limited operating history and continuing
operating losses, recent and potential development strategic alliances, the
Company's liquidity and capital resources, systems failures, technological
changes, volatility of securities markets, government regulations, and economic
conditions and competition in the geographic and the business areas where we
conduct our operations. For a discussion of the factors that could cause actual
results to differ from projected results, please see the discussion under "Risk
Factors" contained in this prospectus and in other information contained in our
publicly available SEC filings and press releases.
CURRENCY REFERENCES
Financial information herein is expressed in the United States dollars
("US$," "$" or "dollars"), unless stated in Canadian dollars ("Cdn$"). As of May
5, 2000, the exchange rate was US $1.00 equal Cdn $1.49610.
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RISK FACTORS
Investors should carefully consider the risks and uncertainties
described below before making an investment decision. These risks and
uncertainties are not the only ones facing JAWS. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair JAWS' business operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially harmed. In such case, the
trading price of our common stock could decline and you may lose all or part of
your investment.
RISKS RELATING TO OWNERSHIP OF JAWS COMMON STOCK
HIGH VOLUME OF SHARES ELIGIBLE FOR SALE PURSUANT TO THIS PROSPECTUS
The resale of the 12,820,917 shares of common stock registered in the
Company's registration statement of which this Prospectus is a part could
adversely effect the price of the shares of common stock. As of May 5, 2000,
there were 25,747,897 shares of the Company's common stock outstanding
(excluding shares to be issued in connection with certain completed
transactions). In addition, the Company has granted contractually to the holders
of PACE exchangeable shares certain registration rights. No prediction can be
made as to the effect that future sales of shares of common stock, or the
availability of shares of common stock for future sales, will have on the market
price of the common stock prevailing from time to time. Sales of substantial
amounts of common stock, or the perception that such sales could occur could
adversely effect prevailing market prices for the common stock.
THE VOLATILITY OF THE STOCK MARKETS COULD ADVERSELY AFFECT OUR STOCK
PRICE
Stock markets are subject to significant price and volume fluctuations
which may be unrelated to the operating performance of particular companies and
the market price of JAWS common stock may frequently change. The market price of
JAWS common stock could also fluctuate substantially due to a variety of other
factors, including: quarterly fluctuations in JAWS results of operations, JAWS'
ability to meet analysts' expectations, adverse circumstances affecting the
introduction of market acceptance of new products and services 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 stock by existing holders
and loss of key personnel.
JAWS DOES NOT ANTICIPATE PAYING DIVIDENDS ON ITS COMMON STOCK IN THE
FORESEEABLE FUTURE
JAWS has generated minimal cash flow in the past and does not currently
anticipate generating significant cash flows from operations in the near future.
Therefore, JAWS has not paid any dividends on its common stock to date and plans
to retain earnings, if any, for the continued development and expansion of JAWS'
business operations. Accordingly, potential investors should not acquire shares
of JAWS common stock with the investment objective of receiving dividend income
from JAWS.
PENNY STOCK RULES LIMIT THE LIQUIDITY OF JAWS COMMON STOCK
JAWS common stock has recently been included for quotation on the
Nasdaq National Market System at a price greater than $5.00 per share, but has
in the past, and may now and in the future be
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subject to the penny stock rules under the Exchange Act. These rules regulate
broker-dealer practices for transactions in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00. The penny stock
rules require broker-dealers to deliver a standardized risk disclosure document
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
completing the transaction and must be given to the customer in writing before
or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction,
the broker and/or dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These additional penny stock
disclosure requirements are burdensome and may reduce purchases of this offering
and reduce the trading activity in the market for JAWS common stock. As long as
JAWS common stock is subject to the penny stock rules, holders of such JAWS
common stock may find it more difficult to sell their securities.
AN INVESTMENT IN JAWS MAY BE DILUTIVE
JAWS may issue a substantial number of shares of JAWS common stock or
preferred stock without investor approval. Any such issuance of JAWS securities
in the future could reduce an investor's ownership percentage and voting rights
in JAWS and further dilute the value of his or her investment.
RISKS RELATING TO THE BUSINESS OF JAWS
JAWS AND ITS SUBSIDIARIES HAVE LIMITED OPERATING HISTORIES AND
CONTINUED OPERATING LOSSES
With the exception of Pace and the newly-acquired Nucleus, JAWS has a
short operating history, a limited number of sales and operating revenues which
are not significant. For example, JAWS Alberta was incorporated on September 19,
1997, did not begin producing software until October 1997 and did not begin
marketing software until May 1998.
Because of JAWS' short operating history and limited sales, it faces
all the risks and problems associated with a new business, including the
existence of operating losses. For example, between the time of the
incorporation of JAWS and March 31, 2000, JAWS has, on a consolidated basis,
incurred a cumulative loss of $14,400,968. JAWS anticipates that losses with
respect to its operations will continue in the future.
Pace began operations in 1986 and has only achieved profitability in
the year ended December 31, 1999. JAWS cannot be certain that the Pace business
can sustain profitability in 2000 or any future period under JAWS management.
Potential investors should be aware that Pace must respond to competitive
developments, continue to upgrade and expand the services it offers and continue
to attract, retain and motivate employees in order to maintain its
profitability.
JAWS cannot predict future revenues, operating results and/or operating
expenses based on previous results for a number of reasons including the factors
described below. Revenues associated
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with a particular sale may vary significantly depending upon the number of
products licensed by a client, the number of devices used by the client and the
client's relative need for services. Large individual sales or even small delays
in customer orders can cause significant variation in licensing revenues and
results of operations for a particular period. In addition, JAWS expects to
focus its efforts on the sale of enterprise-wide security solutions, including
JAWS' entire product suite and consulting services, as opposed to the sale of
component products. As a result, JAWS anticipates that each sale made may
require additional time and effort from sales staff. Further, JAWS expects to
expand upon the services it provides as well as its sales and marketing
operations and to improve its internal operating and financial systems. Finally,
to enhance market share and the services it offers, JAWS intends to seek
additional candidates for acquisition. As a result, spending levels will be
established by JAWS based, in large part, on expected future revenues. If actual
results in any future period fall below the expectations of JAWS, the operating
results of JAWS will be adversely affected. Due to these factors, JAWS
anticipates that its quarterly and annual revenues, expenses and operating
results will vary significantly in the future.
IF WE CANNOT PROTECT OUR COPYRIGHT, TRADEMARK AND PATENTS PENDING,
OTHER COMPANIES COULD USE OUR TECHNOLOGY IN COMPETITIVE PRODUCTS. IF WE INFRINGE
ON THE COPYRIGHTS, TRADEMARKS OR PATENTS OF OTHERS, OTHER COMPANIES COULD
PREVENT US FROM DEVELOPING OR MARKETING OUR PRODUCTS.
JAWS' success depends upon, amongst other things, its proprietary
encryption technology. We rely on a combination of contractual rights,
copyright, trade secrets, know-how, trademarks, non-disclosure agreements and
technical measures to establish and protect these rights. We cannot assure
investors that we can protect our rights and prevent third parties from using or
copying our technology or intellectual property.
JAWS does not presently own any patents or copyright registrations but
it has filed a U.S. patent application for its data encryption algorithm L5,
which is pending. However, there is no guarantee JAWS will be successful and
receive a patent.
JAWS believes that its technologies have been independently developed
and that these technologies do not infringe on the proprietary rights or trade
secrets of others. However, we cannot assure investors that it has not infringed
on the technologies of third parties or that third parties will not make
infringement violation claims against us. Any infringement claims against JAWS
may negatively effect JAWS' ability to produce and sell software.
International companies currently use all or a portion of the name
"JAWS" in connection with products or services in industries the same as and
different from that of JAWS. While JAWS is attempting to qualify under a
trademark its name throughout the U.S. and Canada, significant issues may be
present as to the ability to widely use the name in connection with the products
or services to be rendered by JAWS.
JAWS' BUSINESS IS IN AN EARLY STAGE OF MARKET DEVELOPMENT AND ITS
SUCCESS DEPENDS ON MARKET ACCEPTANCE OF ITS PRODUCTS AND SERVICES
JAWS' success depends on whether or not our products and services are
accepted in the marketplace. Investors should be aware that companies
introducing new products into the market are subject to a high level of
uncertainty and risk. Because the market for its software and services is new
and evolving, JAWS cannot predict the size and future growth rate, if any, of
the market. JAWS cannot assure investors that the market for its various
products and services will develop or that demand for
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<PAGE> 11
such products and services will emerge or become economically sustainable.
Market acceptance of its products and services depends on its ability to
establish brand images and reputations for high quality and to differentiate
their products and services from competitors. There can be no assurance that the
products and services will be perceived as being of high quality or better than
products and services of others, or that JAWS will be successful in establishing
their brand image. Additionally, the management teams of JAWS has no experience
manufacturing or marketing software or providing services on a large scale. This
lack of experience could result in JAWS' failure to commercialize and sell its
products and services.
JAWS MAY NOT BE ABLE TO CONTINUE TO COMPETE IN ITS RAPIDLY CHANGING
INDUSTRY
Rapid changes in technology pose significant risks to JAWS that it
cannot either control or influence the forces behind such changes. In addition
to emerging competition, evolving requirements and needs of clients and the
extent to which hackers and others seek to compromise secure systems, JAWS must
adapt to changing computer hardware and software standards as well as to
frequent introductions of new products and enhancements to existing products.
The success of JAWS will depend on its ability to create, develop, adapt and
improve information technology solutions in response to these and other changes.
JAWS cannot assure investors that it will be able to successfully
identify new opportunities and develop and bring new products and services to
market in a timely manner, nor can JAWS guarantee investors that products and
services developed by its competitors will not make JAWS products and services
noncompetitive or obsolete. Further, the techniques used by hackers to
compromise the security of networks and intranets are constantly evolving and
are increasingly sophisticated. Because new hacking techniques are usually not
recognized until utilized against one or more targets, JAWS is not able to
anticipate such techniques. To the extent that new hacking techniques result in
the compromise of JAWS security systems, affected clients may believe that JAWS
products and services are ineffective and may affect JAWS business, operating
results and financial condition.
Because JAWS products and services involve complex technology, major
new products and product enhancements require a long time to develop and test
before going to market. JAWS cannot assure investors that it will have the
capital resources or the ability to implement any new technology or service. In
addition, because it is difficult to estimate the amount of time which is
required to develop new products and product enhancements, JAWS has had to delay
the scheduled introduction of new and enhanced products in the past and JAWS may
have to delay the introduction of new products, enhancements and services in the
future. Any failure by JAWS to timely develop and introduce new products and
services or enhance current products and services could adversely affect JAWS
business, operating results and financial condition.
POTENTIAL LIABILITIES COULD ARISE IN JAWS' FUTURE BASED ON PRODUCT
DEFECTS
Many organizations use JAWS products and services for critical
functions of monitoring and enhancing network security. As a result, JAWS risks
product liability and related claims for products and services if it does not
adequately perform this function. JAWS typically seeks to limit liability for
special, consequential or incidental damages in their licensing agreements but
these provisions may not in all cases be enforceable under applicable laws. A
product liability claim, to the extent not covered by insurance, could adversely
affect JAWS business, operating results and financial condition.
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In addition, complex software products, such as those we develop, may
contain undetected "bugs" that, despite testing, are discovered only after
installation and use by clients. These bugs could result in adverse publicity,
loss of or delay in market acceptance or claims by clients against JAWS, any of
which could be very damaging to JAWS business, operating results and financial
condition. Clients who deploy or use products improperly or incompletely may
experience temporary disruptions to their computer networking systems, which
could damage the JAWS' reputation and its relationship with clients. Current
products may not be error-free and it is extremely doubtful that the future
products of JAWS will be error-free. Furthermore, computers are manufactured in
a variety of different configurations with different operating systems, such as
Windows, Unix, Macintosh and OS/2, and embedded software. As a result, it is
very difficult to comprehensively test software products for programming or
compatibility errors. Errors in the performance of JAWS products, whether due to
design or their compatibility with products of other companies, could hinder the
acceptance of these products, and thus JAWS' ability to implement those
products.
JAWS' MARKETING STRATEGIES MAY NOT BE SUCCESSFUL
JAWS expects to derive some of their sales revenue through independent
third parties who will either resell or use JAWS' products to enhance their own
products. JAWS is unable to determine how successful these providers will be in
selling JAWS' software. Furthermore, JAWS does not have any history or
experience in establishing or maintaining such third party support, and there
can be no assurance that we will be able to successfully support reseller
networks. If we are unable to provide such support, we may lose resellers and,
consequently, distribution of our products would be adversely affected.
Additionally, most resellers will offer competitive products manufactured by
third parties. There can be no assurance that resellers will give priority to
JAWS' products and services over competitors' products and services. Finally, if
JAWS is unable to support a reseller, we will need to attract additional or
replacement resellers to sell JAWS' products and services. There can be no
assurance that JAWS will be able to attract a sufficient number of additional or
replacement resellers in order to assure that our products and services will be
successfully marketed and distributed at a profit or that such additional or
replacement resellers will be successful in selling our products and services.
JAWS' EXPANSION OF PRODUCTION AND DISTRIBUTION CAPACITIES MAY NOT BE
SUCCESSFUL
JAWS must increase its software production capacity and expand its
marketing network to sell its software before it will have a chance to compete
in the marketplace. Increasing JAWS manufacturing, service and marketing
capacity will involve hiring additional personnel, purchasing additional
manufacturing equipment and spending significant funds on advertising. The
foregoing will require significant capital expenditures, which will most likely
increase JAWS' operating losses for an indefinite period of time. JAWS'
expansion plans will also place a great deal of strain on its management team,
most of whom have not had experience managing large complex business operations.
JAWS cannot guarantee that it will be able to expand its software production,
service and marketing capabilities as planned. If any of these obstacles prevent
JAWS from expanding its software production, service and marketing business,
JAWS may be forced to terminate its operations.
Although direct sales have accounted for JAWS' revenues in 1999, JAWS'
future performance will depend, in part, upon its ability to attract new
partners and develop additional distribution channels to effectively market and
support its services and the products of JAWS. JAWS cannot guarantee that it
will be able to attract such partners or develop additional distribution
channels.
9
<PAGE> 13
JAWS' PROCEEDS FROM AVAILABLE FINANCING MAY NOT BE SUFFICIENT TO PURSUE
ITS OPERATING OBJECTIVES
Developing, manufacturing and marketing software and information
security solutions and the plans of JAWS for expansion of its operations, as
mentioned above, will require significant amounts of capital. Because JAWS has
no significant internal revenues to finance its continuing operations and plans
for expansion, JAWS is dependent upon the proceeds from sales of JAWS'
securities to satisfy its capital and operating requirements. JAWS believes that
it has adequate financing to satisfy its capital and operating requirements
through the end of 2000. Thereafter, JAWS will have to arrange for additional
financing, unless it can generate revenues from their products and services, to
finance its manufacturing and marketing operations at a sufficient level.
Financing options could include, but will not be limited to, additional sales of
JAWS' securities or an operating line of credit. If JAWS is unable to obtain
additional financing on satisfactory terms when needed, JAWS may have to suspend
their operations or terminate their operations altogether.
DUE TO THE RAPIDLY CHANGING NATURE OF THE INFORMATION SECURITY INDUSTRY
AND THE SIZE OF OUR COMPANY, WE DEPEND ON KEY PERSONNEL AT ALL LEVELS
JAWS depends on the efforts of its management team. Even though JAWS
has employment agreements with Messrs. Kubbernus, Mamdani and Minhas and with
Ms. Gmitter, it cannot guarantee that these persons will continue their
employment. Each such member of JAWS management team has entered into an
employment agreement with JAWS, pursuant to which, in each case, the term of
employment extends until the earlier of (i) the date specified by such executive
officer in a notice of voluntary termination delivered by such executive officer
to JAWS; provided that such notice shall not be effective until at least ten
(10) days after delivery thereof, (ii) the date such executive officer is
terminated by JAWS for "just cause" (as defined in the employment agreement), or
(iii) with respect to termination other than for "just cause," the date which is
determined by providing such executive officer with one month's notice for each
full year of completed service commencing on the date JAWS provides such
executive officer with a notice of termination. The loss of the services of one
or more of the key people may have a negative effect on JAWS' ability to conduct
its operations.
JAWS' success also depends on its ability to attract and retain highly
qualified engineers, managers, marketers and sales and service personnel. The
competition for employees at all levels of the information security industry,
especially those with experience in the relatively new discipline of security
software, is increasingly intense and JAWS cannot assure that it will be able to
hire or retain necessary personnel.
RISKS ASSOCIATED WITH THE AUTHORIZATION OF PREFERRED STOCK AND POSSIBLE
TAKEOVER EFFECTS
The board of directors of JAWS is authorized to create and issue shares
of preferred stock without the approval of JAWS' shareholders. Any preferred
stock that the board of directors of JAWS creates and issues could negatively
affect the voting power or other rights of holders of shares of JAWS common
stock. Also, the board of directors of JAWS may create preferred stock which
could be used to prevent a third party from taking control of JAWS.
10
<PAGE> 14
JAWS' DIRECTORS HAVE LIMITED LIABILITY
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. Such a provision makes it more difficult
to assert a claim and obtain damages from a director in the event of a breach of
his fiduciary duty. The Nevada General Corporation Law provides that a
corporation has the power to (i) indemnify directors, officers, employees and
agents of the corporation against judgments, 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
(ii) 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 JAWS 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 are made parties by
reason of being or having been officers or directors of JAWS; except in relation
to matters as to which any such director or officer is adjudged in such action,
proceeding or suit 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.
INTERNET NETWORKS MAY NOT BECOME WIDELY ADOPTED, LIMITING THE MARKET
FOR JAWS' PRODUCTS
In order for us to be successful, internet networks must be widely
adopted as a means of trusted and secure communications and commerce within an
adequate time frame. Because trusted and secure communications and commerce over
internet networks is new and evolving, it is difficult to predict with any
assurance the size of this market and its growth rate, if any. To date, many
businesses and consumers have been deterred from utilizing internet networks for
a number of reasons, including, but not limited to, potentially inadequate
development of network infrastructure, security concerns, inconsistent quality
of service, lack of availability of cost-effective, high-speed service, limited
numbers of local access points for corporate users, inability to integrate
business applications on internet networks, the need to interoperate with
multiple and frequently incompatible products, inadequate protection of the
confidentiality of stored data and information moving across internet networks
and a lack of tools to simplify access to and use of internet networks. The
adoption of internet networks, for trusted and secure communications and
commerce, particularly by individuals and entities that historically have relied
upon traditional means of communications and commerce, will require a broad
acceptance of new methods of conducting business and exchanging information.
Companies and government agencies that already have invested substantial
resources in other methods of conducting business may be reluctant to adopt a
new strategy that may limit or compete with their existing efforts. Furthermore,
individuals with established patterns of purchasing goods and services and
effecting payments may be reluctant to alter those patterns. There can be no
assurance that internet networks will be widely adopted or adopted by enough
people to make our products successful.
The use of internet networks for trusted and secure communications and
commerce may not increase or may increase more slowly than expected because the
infrastructure required to support widespread trusted and secure communications
and commerce on such networks may not develop. For example, the internet has
experienced, and may continue to experience, significant growth in its number of
users and amount of traffic. There can be no assurance that the internet
infrastructure will continue to support the demands placed on it by this
continued growth or that the performance or reliability of the internet will not
be adversely affected by this continued growth. In addition, internet networks
could lose
11
<PAGE> 15
their viability due to delays in the development or adoption of new standards
and protocols to handle increased levels of activity or due to increased
governmental regulation. Changes in or insufficient availability of
communications services to support internet networks could result in slower
response times and also adversely affect usage of internet networks. If the
market for trusted and secure communications and commerce over internet networks
fails to develop or develops more slowly than expected, or if the internet
infrastructure does not adequately support any continued growth, our business,
operating results and financial condition would be adversely affected.
RECENT ACQUISITIONS INCLUDE INHERENT RISKS
JAWS has recently acquired Pace, Offsite and Nucleus, and substantially
all of the assets of Secure Data Technologies Corporation ("SDTC") and JAWS may
acquire or invest in other businesses, technologies and product lines from time
to time that are complementary to our business. These recent acquisitions are
accompanied by the risks commonly encountered in such transactions, including,
among others, the difficulty of assimilating the operations and personnel of the
acquired businesses, the potential disruption of our ongoing business, the
diversion of our management from our day-to-day operations, our ability to
incorporate acquired technologies successfully into our products and services,
the additional expense associated with amortization of acquired intangible
assets, the potential impairment of our relationships with our employees,
customers and strategic partners, our ability to retain key technical and
managerial personnel of the acquired business and our ability to maintain
uniform standards, controls, procedures and policies. We would also encounter
these risks if we acquire or invest in the other businesses in the future.
Because of these and other factors, the recent acquisitions and any future
acquisitions, if consummated, could negatively impact our business, operating
results and financial condition.
FLUCTUATIONS IN THE EXCHANGE RATE COULD ADVERSELY AFFECT JAWS BECAUSE
SOME OF ITS OPERATING SUBSIDIARIES ARE LOCATED IN CANADA
JAWS' operating currency for its Canadian subsidiaries is Canadian
dollars, while its reporting currency is in United States dollars. Any change in
the value of the United States dollar against the Canadian dollar will affect
our Canadian dollar revenues and earnings when translated into United States
dollars. No assurance can be given that a fluctuation in the value of the
Canadian dollar against the United States dollar will not negatively impact
JAWS' reported revenue and earnings.
12
<PAGE> 16
USE OF PROCEEDS
JAWS will not receive any proceeds from the sales of common stock by
the selling stockholders pursuant to this prospectus, or upon the issuance of
any of our shares to the holders of JAC exchangeable shares. Of the
889,800 warrants issued by JAC in exchange for the outstanding Offsite
warrants, 843,023 warrants were exercised at $0.40 per warrant and JAC issued
297,081 JAC Exchangeable Shares, which are exchangeable for shares of JAWS'
common stock on a 1-for-1 basis for total consideration of CDN $337,209. The
remaining warrants expired pursuant to their terms on March 15, 2000.
DIVIDEND POLICY
JAWS has never declared or paid cash dividends on our capital stock.
JAWS currently intends to retain all available funds for use in the operation
and expansion of our business and does not anticipate paying any cash dividends
in the foreseeable future. Any future determination to pay dividends will be at
the discretion of JAWS' board of directors and will depend on JAWS' results of
operations, financial condition, contractual and legal restrictions and other
factors the board of directors deems relevant.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the historical capitalization of
JAWS at March 31, 2000 and at December 31, 1999, and (ii) the capitalization of
JAWS at March 31, 2000 and at December 31, 1999, respectively, pro forma to give
effect to the Private Placement Transaction consummated on February 23, 2000 and
the acquisitions of Nucleus and Offsite, the acquisitions of PACE, as of March
31, 2000 and December 31, 1999, respectively, as adjusted to reflect the full
issuance of shares hereunder to the holders of JAC exchangeable shares. The
information set forth in the table should be read in conjunction with the
financial statements and notes thereto, the pro forma financial information and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
March 31, 2000 (unaudited) December 31, 1999 (unaudited)
-------------------------- -----------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Bank Indebtedness 461,687 461,687 0 0
Accounts payable and accrued liabilities 1,344,566 1,819,381 1,177,278 1,869,229
Current portion of capital lease 53,992 53,992 25,235 25,235
obligations
Current portion of long term debt 0 0 0 242
Due to related parties 174,144 174,144 172,093 194,790
Due to stockholders 235,743 242,243 2,066 2,066
Income Taxes Payable 0 0 0 88,000
Deferred Income Taxes 0 0 0 81,000
============ ============ ============ ============
Total Current Liabilities $ 2,270,132 $ 2,751,447 $ 1,376,672 $ 2,260,562
------------ ------------ ------------ ------------
LONG TERM DEBT:
Capital lease obligations payable 139,000 139,000 68,227 68,227
------------ ------------ ------------ ------------
$ 139,000 $ 139,000 $ 68,227 68,227
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY
Authorized
95,000,000 common shares at $0.001 par
value
5,000,000 preferred shares at $0.001 par
value
Common stock issued and paid-up 32,041 32,183 25,040 31,017
Additional Paid In Capital 41,188,559 42,188,416 21,699,106 40,739,864
Cumulative translation adjustment (352,916) (352,916) (181,717) (181,717)
Deficit (14,400,968) (14,400,968) (10,380,917) (10,380,917)
------------ ------------ ------------ ------------
Total Stockholders' Equity(1) $ 26,466,716 $ 27,466,716 $ 11,161,512 $ 30,208,246
------------ ------------ ------------ ------------
TOTAL CAPITALIZATION $ 28,875,848 $ 30,357,163 $ 12,606,411 $ 32,537,035
------------ ------------ ------------ ------------
</TABLE>
--------
(1) For details of warrants and stock options outstanding see "Description of
Capital Stock-- Warrants." and "Management-- 1998 Stock Option Plan."
14
<PAGE> 18
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following sets forth selected financial information for each of the
Company, Pace, Offsite and Nucleus on a historical basis for each of the periods
and dates indicated and for the Company on a pro forma basis as of and for the
year ended December 31, 1999 and as of March 31, 2000. The following information
should be read in conjunction with the financial statements and notes thereto of
the Company included elsewhere in this prospectus. See "Business - Recent
Acquisitions."
The selected historical financial information for the Company as of
December 31, 1999, 1998 and 1997, and for each of the three years in the period
ended December 31, 1999 has been derived from the Company's historical financial
statements audited by Ernst & Young, LLP, independent auditors, whose report
with respect thereto is included elsewhere in this prospectus. The selected
historical financial information for Pace as of July 31, 1999, 1998 and 1997,
and for each of the three years in the period ended July 31, 1999 has been
derived from Pace's historical financial statements audited by Ernst & Young,
LLP, independent auditors, whose report with respect thereto is included
elsewhere in this prospectus. The selected historical financial information for
Offsite as of June 30, 1999, 1998 and 1997, and for each of the three years in
the period ended June 31, 1999 has been derived from Offsite's historical
financial statements audited by PricewaterhouseCoopers, LLP, independent
accountants, whose report with respect thereto is included elsewhere in this
prospectus. The selected historical financial information for Nucleus as of
December 31, 1999, 1998 and 1997, and for each of the three years in the period
ended December 31, 1999 has been derived from Nucleus' historical financial
statements audited by Klayman & Korman, LLC, independent auditors. The Klayman
& Korman, LLC report with respect to years 1999 and 1998 is included elsewhere
in this proscpectus. Nucleus! 1997 historical financial data contained herein
is derived from the company's condensed financial statements that have not been
included in this prospectus.
The selected financial data at and as of March 31, 2000 are derived
from unaudited financial statements. The unaudited information includes all
adjustments (consisting of normal recurring adjustments) that management
considers necessary for a fair presentation of the financial position and
results of operations of the respective entities for these periods. These
interim operating results are not necessarily indicative of the results to be
expected for an entire year.
The unaudited selected consolidated pro forma income statements for the
year ended December 31, 1999 and the three-month period ended March 31, 2000 is
presented as if the acquisitions of Pace, Offsite, and Nucleus, and the
consummation of the Company's December 31, 1999 and February 22, 2000 Private
Placement Transactions (and the application of the net proceeds therefrom) had
all occurred as of January 1, 1999 and January 1, 2000, respectively. The
unaudited selected consolidated pro forma balance sheet data as of March 31,
2000 and December 31, 1999 are presented as if the foregoing events had occurred
as of such date. The pro forma information is based upon certain assumptions
that are included in the notes to the pro forma financial statements included
elsewhere in this prospectus. The pro forma financial information is unaudited
and is not necessarily indicative of what the financial position and results of
operations of the Company would have been as of the dates and for the periods
indicated, nor does it purport to represent or project the financial position or
results of operations for future periods.
15
<PAGE> 19
THE COMPANY PRO FORMA AND HISTORICAL
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
--------- -----------------------
Pro Forma Historical Historical Pro Forma Historical
--------- ---------- ---------- --------- ----------------------------
2000 2000 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 1,087 $ 652 3 $ 4,929 $ 592 $ 29 --
Net Loss for the period (4,669) (4,020) (1,202) (14,226) (7,168) (3,076) (137)
Net Loss for the period per (0.16) (0.14) (0.11) (0.70) (0.50) (0.42) (0.03)
share common stock
Total assets 30,357 28,876 507 32,537 12,606 273 10
Long-term debt 139 139 674 68 68 147 --
Shareholder's equity (deficiency) 27,467 26,467 (1,276) 30,208 11,162 (574) (101)
</TABLE>
PACE SYSTEMS GROUP INC. (HISTORICAL)
<TABLE>
<CAPTION>
Two Months Ended Year Ended July 31,
September 30, 1999 -----------------------------------
(Unaudited) 1999 1998 1997
<S> <C> <C> <C> <C>
Revenue $ 455 $ 1,262 $ 1,079 $647
Net loss for the period (246) 57 (64) 7
Net loss for the period per -- -- -- --
share common stock
Total assets 55 248 291 212
Long-term debt -- -- -- --
Shareholder's equity (deficiency) (37) (12) (70) (7)
</TABLE>
OFFSITE DATA SYSTEMS LTD. (HISTORICAL)
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 31, 1999 --------------------------
(unaudited) 1999 1998 1997
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 141 157 98 30
Net loss for the period (483) (352) (184) (180)
Net loss for the period per share common stock -- -- -- --
Total assets 660 370 146 101
Long-term debt -- -- 2 7
Shareholder's equity (deficiency) 561 (291) (97) 5
</TABLE>
JAWS INC. (FORMERLY NAMED NUCLEUS CONSULTING, INC.) (HISTORICAL)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Historical
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue 3,435 1,099 1,910
Net income (loss) for the period 404 (232) 29
Total assets 455 522 441
Long-term debt 5 142 126
Shareholder's equity 92 (109) 123
</TABLE>
16
<PAGE> 20
SELLING STOCKHOLDERS
The following table sets forth information with respect to the amount
of common stock (the "Common Stock") held by each selling stockholder as of the
date of this prospectus and the shares being offered by the selling
stockholders. The table indicates the nature of any position, office or other
material relationship that the selling stockholder has had within the past three
years with JAWS or any of its predecessors or affiliates. This prospectus
relates, in part, to the offer and sale of the selling stockholders of up to
7,258,129 shares of Common Stock, including 3,369,592 shares of Common Stock
issuable upon the exercise of outstanding warrants issued by JAWS. The selling
stockholders may offer all or part of such shares of Common Stock covered by
this prospectus. Information with respect to shares owned beneficially after
this offering assumes the sale of all of the shares offered and no other
purchases or sales of Common Stock, and that no shares of Common Stock are
issued to holders of JAC exchangeable shares. The 7,258,129 shares of Common
Stock offered by this prospectus and owned by the selling stockholders may be
offered from time to time by the selling stockholders named below.
17
<PAGE> 21
<TABLE>
<CAPTION>
Number of Number of
Shares of Total Shares to
Common Number Number of be Offered Percentage
Stock, not of Shares Shares of Percentage for Number of to be
including Represented Common Beneficially the Account Shares to Beneficially
Warrants, by Warrants Stock Owned of the be Owned Owned
Beneficially Beneficially Beneficially Before Selling after this after this
Name Owned Owned Owned + Offering Stockholder Offering Offering
<S> <C> <C> <C> <C> <C> <C> <C>
BPI Canadian Small Companies Fund.. 235,295 117,647.5 352,942.5 1.43% 352,942.5 0 1.4%
Interward Capital Corporation...... 40,000 20,000 60,000 .25% 60,000 0 *
Rockhaven Holdings Ltd............. 20,000 10,000 30,000 .12% 30,000 0 *
YMG Capital Management Inc......... 47,058 23,529 70,587 .29% 70,587 0 *
Acuity Investment Management Inc... 470,590** 235,295 705,885 2.82% 705,885 0 2.8%
Beluga NV.......................... 235,295 117,647.5 352,942.5 1.43% 352,942.5 0 1.4%
Pinetree Capital Corp.............. 40,000 20,000 60,000 0.25% 60,000 0 *
Fallingbrook Investments Ltd....... 35,295 17,647.5 52,942.5 0.22% 52,945.5 0 *
Glentel Inc***..................... 1,200,000 934,000 2,134,000 8.1% 2,134,000 0 8.1%
Kehler International Equities
(1990) Inc......................... 23,530 11,765 35,295 .15% 35,295 0 *
Jean Gevaert....................... 47,060 23,530 70,590 .29% 70,590 0 *
Murdoch & Co....................... 275,000 137,500 412,500 1.67% 412,500 0 1.7%
Royal Trust Corp. of Canada
ITF2363129003...................... 235,295 117,647.5 352,942.5 1.43% 352,942.5 0 1.4%
Bristol Asset Management, LLC...... 0 1,000,000 1,000,000 3.9% 1,000,000 0 3.9%
Thomas E. Skidmore................. 69,000 57,546 126,546 .52% 125,546 0 *
A. Allan Skidmore.................. 69,000 57,546 126,546 .52% 125,546 0 *
Arthur Skidmore.................... 10,000 8,340 18,340 .08% 18,340 0 *
Brian Skidmore..................... 7,500 6,255 13,755 .06% 13,755 0 *
Cary Skidmore...................... 10,000 8,340 18,340 .08% 18,340 0 *
Garry Skidmore..................... 7,500 6,255 13,755 .06% 13,755 0 *
Beverly Droulis.................... 500 417 917 .004% 917 0 *
Margrit Hartman.................... 9,000 7,506 16,506 .07% 16,506 0 *
Margaret Alexis Kennedy............ 8,500 7,089 15,589 .06% 15,589 0 *
Suzanne Lowndes.................... 9,000 7,506 16,506 .07% 16,506 0 *
Thomson Kernaghan & Co. Limited***. 5,278,099 276,466 5,278,099 22.61% 276,466 0 17.2%
Third Point Partners LP............ 107,353 53,676.5 161,029.5 .66% 161,029.5 0 *
Third Point Offshore Fund Ltd...... 59,970 29,985 89,955 .37% 89,955 0 *
Points West International
Investments Ltd.................... 34,653 17,326.5 51,979.5 .25% 51,979.5 0 *
Bonzai Partners LP................. 26,786 13,393 40,179 .16% 40,179 0 *
Bonzai Offshore Fund Ltd........... 6,533 3,266.5 9,799.5 .04% 9,799.5 0 *
CALP II LP, c/o Forum Fund
Services........................... 235,295 117,647.5 352,942.5 1.45% 352,942.5 0 1.45%
David Schecter..................... 47,059 23,529.5 70,588.5 .29% 70,588.5 0 *
Kruco Inc. ........................ 23,530 11,765 35,295 .15% 35,295 0 *
</TABLE>
-----------------
* Less than 1%.
** Acuity Investment Management Inc. is the record holder of all 470,590
shares. Acuity Investment Management Inc. disclaims beneficial ownership
for all 470,590 shares of Common Stock listed above. Acuity Investment
Management Inc. purchased such shares of Common Stock at the direction of
the beneficial owners listed below:
(a) 124,100 shares of Common Stock as agent for a/c #AUIF 381 7002;
(b) 25,690 shares of Common Stock as agent for Royal Trust
a/c #114 680 001;
(c) 61,000 shares of Common Stock as agent for a/c #AUIF 381 3002;
(d) 25,000 shares of Common Stock as agent for a/c AFN F00 23002;
(e) 75,000 shares of Common Stock as agent for Bank of Nova Scotia
Custodian for a/c #382 308;
(f) 42,500 shares of Common Stock as agent for a/c #AUIF 380 0002;
(g) 117,300 shares of Common Stock as agent for Royal Trust
a/c #24165008.
*** The relationship of Glentel Inc. and Thomson Kernaghan & Co. Limited, in
each case, with JAWS is described under the caption, "Certain Relationships
and Related Transactions" in this prospectus.
+ The information contained in this table reflects "beneficial" ownership of
Common Stock within the meaning of Rule 13d-3 under the Exchange Act. On
May 1, 2000, JAWS Technologies had 24,293,142 shares of Common Stock
outstanding. Beneficial ownership information reflected in the table
includes shares issuable upon the exercise of outstanding warrants issued
by JAWS.
18
<PAGE> 22
PLAN OF DISTRIBUTION
Of the shares of Common Stock covered by this prospectus, 7,258,129
shares are owned by the selling stockholders. As used in the rest of this
section of the prospectus, the term "selling stockholders" includes the named
selling stockholders and any of their pledgees, donees, transferees or other
successors in interest selling shares received from a named selling stockholder
after the date of this prospectus. The selling stockholders may offer and sell,
from time to time, some or all of the shares of Common Stock registered hereby.
We have registered the shares for sale by the selling stockholders so that the
shares will be freely tradeable by them. Registration of the shares does not
mean, however, that the shares necessarily will be offered or sold. We will not
receive any proceeds from any offering or sale by the selling stockholders of
the shares. We have advised the selling stockholders that Regulation M under the
Exchange Act may apply to the activities of the selling stockholders or
broker-dealers in connection therewith. We will pay all costs, expenses and fees
in connection with the registration of the shares. The selling stockholders will
pay all brokerage commissions and similar selling expenses, if any, attributable
to the sale of the shares.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The shares
may be sold by or for the account of the selling stockholders from time to time
in transactions included for quotation on the Nasdaq National Market or
otherwise. These sales may be at fixed prices or prices that may be changed, at
market prices prevailing at the time of sale, at prices related to these
prevailing market prices or at negotiated prices. The shares may be sold by
means of one or more of the following methods:
-- in a block trade in which a broker-dealer will attempt to sell a
block of shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
-- on markets where our Common Stock is traded or in an exchange
distribution in accordance with the rules of the exchange;
-- through broker-dealers, that may act as agents or principals;
-- directly to one or more purchasers;
-- through agents;
-- in connection with the loan or pledge of shares to a broker-dealer,
and the sale of the shares so loaned or the sale of the shares so
pledged upon a default;
-- in connection with put or call option transactions, in hedge
transactions, and in settlement of other transactions in
standardized or over-the-counter options;
-- through short sales of the shares by the selling stockholders or
counterparties to those transactions, in privately negotiated
transactions; or
19
<PAGE> 23
-- in any combination of the above. In addition, any of the shares
that qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 promulgated under the Securities Act
rather than pursuant to this prospectus.
In effecting sales, brokers or dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate. The
broker-dealer transactions may include:
-- purchases of the shares by a broker-dealer as principal and resales
of the shares by the broker-dealer for its account pursuant to this
prospectus;
-- ordinary brokerage transactions; or
-- transactions in which the broker-dealer solicits purchasers.
If a material arrangement with any broker-dealer or other agent is
entered into for the sale of any shares of Common Stock through a block trade,
special offering, exchange distribution, secondary distribution, or a purchase
by a broker or dealer, a prospectus supplement will be filed, if necessary,
pursuant to Rule 424(b) under the Securities Act disclosing the material terms
and conditions of these arrangements.
The selling stockholders and any broker-dealers or agents participating
in the distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of the shares of
Common Stock by the selling stockholders and any commissions received by a
broker-dealer or agents, acting in this capacity, may be deemed to be
underwriting commissions under the Securities Act. We have agreed to indemnify
the selling stockholders, each underwriter who participates in an offering of
the shares of Common Stock, each person, if any, who controls any of such
parties within the meaning of the Securities Act and the Exchange Act, and each
of their respective directors, officers, employees and agents against certain
liabilities, including liabilities arising under the Securities Act. The selling
stockholders may agree to indemnify any agent or broker-dealer that participates
in transactions involving sales of the shares of Common Stock against certain
liabilities, including liabilities arising under the Securities Act.
The selling stockholders are not restricted as to the price or prices
at which they may sell their shares of Common Stock. Sales of such shares may
have an adverse effect on the market price of the Common Stock. Moreover, the
selling stockholders are not restricted as to the number of shares that may be
sold at any time, and it is possible that a significant number of shares could
be sold at the same time, which may have an adverse effect on the market price
of the Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of JAWS consists of 95,000,000 shares of
JAWS Common Stock and 5,000,000 shares of preferred stock. As of May 5, 2000,
there were 25,747,897 shares of JAWS Common Stock and one share of special
series A preferred voting stock issued and outstanding.
COMMON STOCK
The holders of JAWS Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding preferred stock, if
any, holders of JAWS Common Stock are entitled to receive ratably any dividends
declared by the JAWS board of directors out of legally available funds. In the
event of the 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 JAWS Common Stock are entitled to
receive, pro rata, all of the remaining assets of JAWS available for
distribution to its stockholders. Holders of JAWS Common Stock have no
preemptive rights and have no rights to convert their JAWS Common Stock into any
other securities and no redemption provisions apply to the JAWS Common Stock.
All of the outstanding shares of JAWS Common Stock are fully paid and
non-assessable.
PREFERRED STOCK
The board of directors of JAWS is authorized, subject to any
limitations prescribed by the laws of the State of Nevada, 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 series,
to fix the designations, powers, preferences and rights of the shares of each
series and any qualifications, limitations or restrictions, and to increase or
decrease the number of shares of any series, but not below the number of shares
of series then outstanding without any further vote or action by the
stockholders. The board of directors of JAWS 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.
SPECIAL SERIES A PREFERRED VOTING STOCK
In accordance with a Voting Trust Agreement, dated as of November 30,
1999 (the "Voting Trust Agreement"), between JAWS, JAC and Montreal Trust
Company of Canada ("Montreal Trust"), a series of preferred stock, consisting of
one share, was designated as special series A preferred voting stock (the
"Special Series A Preferred Voting Stock"), having a par value of $0.001 per
share and a liquidation preference of $0.001 per share. The Special Series A
Preferred Stock was issued on April 14, 2000. Except as otherwise required by
law or the certificate of incorporation of JAWS, the holder of the one share of
Special Series A Preferred Voting Stock possesses a number of votes on all
matters submitted to a vote of JAWS shareholders equal to the number of
outstanding exchangeable shares of JAC, from time to time not owned by JAWS or
any entity controlled by JAWS. The holders of shares of JAWS Common Stock and
the holder of the Special Series A Preferred Voting Stock are to vote together
as a single class on all matters. In the event of any liquidation, dissolution
or winding-up of JAWS, all outstanding JAC exchangeable shares will be
automatically exchanged for shares of JAWS Common Stock, and the holder of the
Special Series A Preferred Voting Stock will not be entitled to receive any
assets of JAWS available for distribution to its stockholders. The holder of the
Special Series A Preferred Voting Stock is not entitled to receive dividends.
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As of May 8, 2000, the holder of the one share of Special Series A
Preferred Voting Stock has the right to vote on 5,562,788 shares of Common Stock
of JAWS on all matters submitted to a vote of JAWS' shareholders, representing
that number of outstanding JAC Exchangeable Shares outstanding on May 8, 2000
(approximately 5,562,788 JAC Exchangeable Shares are outstanding on May 8, 2000,
consisting of (i) 5,048,426 JAC Exchangeable Shares issued after the initial
tender of common shares by the shareholders of Offsite, (ii) 196,987 JAC
Exchangeable Shares issued after the compulsory acquisition of Offsite common
shares pursuant to the provisions of the Business Corporations Act (Alberta),
(iii) 297,073 JAC Exchangeable Shares issued upon the exercise of JAC
warrants), and (iv) 11,929 shares of Offsite common stock to be exchanged for
JAC Exchangeable Shares at a future date at an exchange ratio of 1 share of
Offsite common stock for .3524 JAC Exchangeable Shares.
As of May 8, 2000, none of the JAC Exchangeable Shares issued in
connection with the Offsite transaction had been exercised. Upon the exercise of
all of the 5,562,788 JAC Exchangeable Shares, JAWS will have issued an
additional 5,562,788 shares of its Common Stock in connection therewith.
Each holder of JAC Exchangeable Shares has the following rights
relating to the exchange, retraction or redemption of JAC Exchangeable Shares
into shares of JAWS Common Stock:
- Shareholder Rights to Exchange or Cause Redemption: Each
holder of JAC Exchangeable Shares has an exchange put right,
which enables each such holder to either put its JAC
Exchangeable Shares to JAWS in exchange for shares of JAWS
Common Stock (on a one-for-one basis) or to cause JAC to
redeem the JAC Exchangeable Shares (the "Put Right"). In
addition, each such holder has a retraction right (the
"Retraction Right"), enabling such holder to require JAWS to
exchange or JAC to redeem the JAC Exchangeable Shares for JAWS
Common Stock;
- Automatic Redemption Rights: Subject to applicable law and
certain JAWS' call rights described in the succeeding
paragraph, upon the occurrence of certain automatic or
triggering events, on an automatic redemption date (as defined
in the Voting and Exchange Trust Agreement), each holder of
JAC Exchangeable Shares has the right to cause JAC to redeem
the JAC Exchangeable Shares for shares of JAWS Common Stock;
and
- JAWS Call Rights: JAWS has certain overriding call rights with
respect to the JAC Exchangeable Shares which override the
rights of the holders of JAC Exchangeable Shares described
above, including (i) JAWS overriding retraction call right to
acquire all, but not less than all,of the JAC Exchangeable
Shares that a holder has requested JAC to redeem, in exchange
for shares of JAWS Common Stock (on a one-for-one basis), and
(ii) JAWS overriding liquidation call right which grants JAWS
the right to acquire all, but not less than all, of the JAC
Exchangeable Shares then outstanding in exchange for JAWS
Common Stock (on a one-for-one basis) upon a proposed
liquidation, dissolution or winding up of JAC.
At such time as the one share of the Special Series A
Preferred Voting Stock has no votes attached to it because there are no
exchangeable shares outstanding not owned by JAWS or an entity controlled by
JAWS, the share of Special Series A Preferred Voting Stock will be automatically
redeemed and canceled.
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WARRANTS
JAWS issued 294,119 warrants, each warrant entitling each such investor
to purchase one-half of one share of Common Stock of the Company at an exercise
price of $6.50 per share to investors in connection with a private placement of
securities consummated on February 23, 2000. Each warrant expires on the third
anniversary date of the effective date of the registration statement of which
this Prospectus forms a part. In addition, on February 23, 2000, the Company
issued 58,824 warrants to Thomson Kernaghan & Co. Limited, the Company's
placement agent in connection with the Private Placement Transaction, each
warrant entitling Thomson Kernaghan to purchase one share of the Company's
Common Stock at an exercise price of $4.25 per share, which warrant shall expire
on March 29, 2003. The exercise price of all warrants issued in connection with
this private placement transaction are subject to adjustment as set forth in the
applicable warrant certificates.
JAWS issued 2,176,418 warrants, each warrant entitling each such
investor to purchase one-half of one share of Common Stock of the Company at an
exercise price of $6.50 per share to investors in the Private Placement
Transaction. Each warrant expires on the third anniversary date of the effective
date of the registration statement of which this Prospectus forms a part. In
addition, on December 31, 1999, the Company issued 217,642 warrants to Thomson
Kernaghan & Co. Limited, the Company's placement agent in connection with the
Private Placement Transaction, each warrant entitling Thomson Kernaghan to
purchase one share of the Company's Common Stock at an exercise price of $4.25
per share, which warrant shall expire on March 29, 2003. The exercise price of
all warrants issued in connection with the Private Placement Transaction are
subject to adjustment as set forth in the warrant certificates.
JAWS issued 411,765 warrants to Heronwood, Ltd. on November 1, 1999.
Each warrant entitles Heronwood to purchase one share of Common Stock at an
exercise price of $1.70 per share. Each warrant expires on November 30, 2002.
The exercise price of all warrants issued in connection with this offering are
subject to adjustment as set forth in the respective warrant certificates.
JAWS issued 1,000,000 warrants to Bristol Asset Management, LLC, each
warrant entitling Bristol to purchase one share of Common Stock of the Company
at an exercise price of $0.70 per share, on April 26, 1999. Each warrant expires
on April 15, 2002. The exercise price of these warrants are subject to
adjustment as set forth in the respective warrant certificates.
JAWS issued 166,000 warrants on June 21, 1999 to a group of investors.
Each warrant entitles an investor to purchase one share of Common Stock of JAWS
at an exercise price of $2.25 per share. Each warrant expires on June 30, 2001.
The exercise price of all warrants issued in connection with this offering are
subject to adjustment as set forth in the respective warrant certificates.
JAWS issued 834,000 warrants to Glentel Inc. on June 21, 1999. Each
warrant entitles Glentel to purchase one share of Common Stock of the Company at
an exercise price of $2.25 per share. Each warrant expires on June 30, 2001. The
exercise price of all warrants issued in connection with this offering are
subject to adjustment as set forth in the respective warrant certificates.
On December 15, 1998, JAWS sold 1,182,188 shares of Common Stock at
$0.32 per share for an aggregate purchase price of $378,300. The sale included
391,094 warrants to purchase 391,094 shares of Common Stock at $1.00 per share,
which warrants expired on March 31, 2000. As of March 31, 2000, all
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warrants were exercised and the Company received $1,173,282 and issued 782,188
shares of Common Stock.
TRANSFER AGENT
JAWS transfer agent for its Common Stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, Glendale, California 91204-2991.
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BUSINESS
CORPORATE OVERVIEW
JAWS was incorporated as a Nevada corporation on January 27, 1997 under
the name "e-biz" solutions, inc. ("e-biz"). On February 10, 1998, e-biz entered
into an agreement to purchase all the outstanding common shares of JAWS
Technologies Inc., an Alberta corporation ("JAWS Alberta"), in exchange for
1,500,000 shares of the restricted Common Stock of e-biz, and options to
purchase 400,000 shares of such restricted Common Stock at $0.50 per share. On
March 27, 1998, e-biz changed its name to JAWS Technologies, Inc.
The registered office of JAWS is located at Paracorp Incorporated, 208,
318 Carson Street, Carson City, Nevada 89701 and its head office is located at
400, 630-8th Avenue S.W., Calgary, Alberta T2P 1G8.
The shares of JAWS Common Stock are included for quotation on the
Nasdaq National Market under the symbol "JAWZ".
JAWS is currently the parent corporation of six material operating
subsidiaries: JAWS Alberta, Offsite, Pace, JAWS Ontario, JAWS Delaware and
Nucleus. The overall strategic goal for JAWS is to consolidate the highly
fragmented information security industry, achieve increasing economies of scale
through the acquisition of high growth, emerging market firms and integrate such
firms through centralized administration and planning. Through industry and
management expertise, JAWS attempts to ensure that acquired firms receive the
capital and corporate planning necessary to maximize the growth potential within
each information security niche.
BUSINESS OVERVIEW
JAWS, through its wholly-owned subsidiary, JAWS Alberta, specializes in
the field of high-end information security, providing consulting services and
software solutions to minimize the threats to clients' information and
communications. At its offices in Calgary, Alberta, JAWS develops proprietary
encryption software using what is currently one of the strongest encryption
algorithms, L5, to secure binary data in various forms, including streamlining
or blocking data.
L5 was developed and refined over approximately 15 years by its
inventor Mr. Jim L. A. Morrison. Mr. Morrison was Chief Programmer at JAWS from
March 1, 1998 to April 20, 1999.
On October 20, 1997, JAWS Software Ltd. (a company controlled by Mr.
Morrison) assigned all of its right, title and interest in L5, and other
miscellaneous intellectual property, to JAWS. In October 1998, during JAWS
patent application process, there was a further assignment of L5, and other
miscellaneous intellectual property, to JAWS by Mr. Morrison personally in order
to fulfill the requirements of the patent application process. L5 itself is not
the software produced and marketed by JAWS but the mathematical process
outlining the detailed steps required to encrypt and decrypt data. L5 can be
incorporated into a variety of software programs requiring encryption of data.
Since the acquisition of L5 by JAWS, a team of JAWS software engineers
has developed and continues to develop numerous applications for L5 on many
different platforms (such as JAWS Data Encryption(TM), JAWS Memo(TM), JAWS
Xmail(TM)). L5 software, prior to acquisition, had been developed
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using the Borland Delphi computer programming language on a Windows 95/98
platform. The software consisted primarily of L5 and a Windows user interface.
Since that time, L5 has been rewritten in the C language. An in-house JAWS
cryptographer, with the co-operation of two University of Calgary professors,
has made several refinements to L5 including some changes introduced to address
speed and security considerations. C language can be used in a variety of
operating systems (e.g. UNIX, OS/2, VMS, and Windows CE). As L5 is no longer
limited to Windows, it and can now be deployed interoperably on a variety of
platforms.
JAWS business plan is to become a full service information security
solution provider. In accordance with this plan, JAWS currently markets both
information security products and professional information security services.
In an attempt to create and maintain a competitive advantage in the
information security industry, JAWS strives to continually differentiate itself
from other industry players and works towards establishing strong brand loyalty
for its products and services through multiple channels of distribution. The
distribution strategy used by JAWS addresses the requirements of small
organizations to large enterprises and matches the appropriate sales and
distribution channels to the software and services offered.
PRODUCTS AND SERVICES
All of the products currently marketed by JAWS are based on L5. The
products described below have been completed and are currently being marketed.
JAWS Data Encryption(TM) is a software program, targeted towards both
corporate and private users, which allows such users to protect important data
on their workstations and network drives by encrypting such data with a
symmetric algorithm or an asymmetric algorithm. The software also allows the
exchange of secure data when using the public key mode. This software program
has taken approximately 18 man months of research and development effort. The
material features of this product are:
- the encryption and decryption of data files;
- the encryption and decryption of folders, including recursive
folders if desired;
- compatibility with Windows 95/98/NT and Citrix;
- symmetric algorithm mode;
- asymmetric algorithm mode;
- a simple easy-to-use interface developed in accordance with
Microsoft standards of user-interface design;
- a relatively fast speed of execution as compared to competitors'
algorithms;
- a relatively small size of executable, as the operational
execution of L5 requires minimal incremental disk space; and
- the strength of a 4096 bit key length.
JAWS Memo(TM) is designed to secure valuable information created and
stored in the platform device of Palm Computing Inc. ("Palm"). This application
can completely replace the existing Memo Pad function in the Palm Pilot III, V
and VII. The material features of this product are:
- the encryption and decryption of memos;
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- compatibility with Palm Pilot III, V and VII and other compatible
operating systems;
- symmetric algorithm mode;
- a relatively small size of executable as the operational execution
of L5 requires minimal incremental disk space;
- the strength of a 4096 bit key length; and
- certified as a Palm Platinum Solution under Palm's Platinum
Solution certification program.
In order to obtain the Palm Platinum Solution certification, a product
must successfully undergo rigorous compatibility testing using standardized
testing products. JAWS Memo(TM) is the only Palm Platinum Solution certified
security related software available to Palm users as listed in the 1999
"Solutions for Your Enterprise" magazine of Palm.
JAWS Xmail(TM) allows the secure exchange of e-mail messages via a
POP3-compatible environment. JAWS Xmail(TM) sits between the user's e-mail
program (e.g. Microsoft Outlook) and the user's mail server and intercepts
incoming and outgoing messages. When receiving encrypted messages, the user is
prompted to enter his private key to decrypt the ciphertext. Conversely,
outgoing messages are automatically encrypted with the recipient's public key.
The JAWS certificate server is a central repository holding user certificates.
The material features of this product are:
- the ability to send and receive secure e-mail messages over the
internet;
- compatibility with Windows 95/98/NT;
- centralized key management;
- compatibility with most POP3-based e-mail servers including
Microsoft Outlook, Microsoft Outlook Express, Eudora, Pegasus, and
Netscape Communicator;
- the encryption and decryption of e-mail messages and attachments;
- public and private key mode;
- temporary caching of password phrase;
- transparency to the user during operation as the application works
in the background, on-line help;
- the strength of a 4096 bit key length; and
- the self-pollinating nature of the product, as described below.
JAWS Xmail(TM) is self-pollinating in that an intended recipient of an
e-mail that does not have JAWS Xmail(TM) is sent a notice that indicates that
the sender of the original message is trying to send a secure message but cannot
because the intended recipient is not currently using JAWS Xmail(TM). The
intended recipient is then invited to click on a button that will initiate the
download, through a web-browser, of a decrypt-only version of the product that
will allow the intended recipient to receive the message. The downloaded version
does not allow the sending of secure e-mail messages. To become fully enabled
and registered the user, or the user's organization, must compensate JAWS. Once
payment is received, a registration program is automatically sent to the user
thus fully enabling the downloaded version of the product.
With the rise in computer connectivity and the push to electronic
commerce, organizations are becoming increasingly more exposed to the outside
world via electronic means. Often these organizations lack the skills and time
requirements needed to protect and secure their information assets. Periodicals
and reference material such as Maximum Security, 2nd ed., have indicated that
servers are often set up by
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non-technical individuals who inadvertently create numerous viable targets for
hackers. As the number of servers supporting websites increases on a daily basis
the security risks increase as well.
In response to this need, JAWS has created its Information Systems
Security Group ("ISSG"). The services offered by ISSG to its clients include:
- network security assessments and audits;
- security policy review and development;
- security system architecture, review and development;
- intrusion detection and testing;
- system penetration testing to uncover areas of risk and weakness;
- mapping of security systems currently in place;
- client data valuation; and
- emergency response following an intrusion.
JAWS has developed its services around the premise of providing full
information security solutions. This means providing services and strong product
offerings to maintain the best possible solution for each client. JAWS
information security services are offered to government agencies, military
agencies, small corporations, large corporations, financial institutions and
industrial clientele.
Once JAWS collects the data during an assessment and fully analyzes the
potential security risks revealed, a client-specific proposal for information
systems security can be developed and presented to the client. At the option of
the client, JAWS can then integrate the appropriate software and products
proposed into a complete solution that meets the client's information security
needs. The proposal generally includes a cost analysis to ensure the client
understands the true cost of security in relationship to its risk and the value
of the information being protected. JAWS also provides training for the clients'
staff to ensure that its employees are able to adopt the technology, policies
and procedures provided by the information security solution.
As a client's business changes, information technology modifications
are inevitable. With these modifications, potential security risks are created.
JAWS offers clients the option of re-assessing their information systems as
needed or to have regularly scheduled re-assessments in order to maintain
adequate information systems security.
ISSG is product neutral and may therefore offer both JAWS' own suite of
products, competitor's products or a combination of both to meet a client's
specific needs. The goal of JAWS is to provide the best possible solution. It is
anticipated that competitor's products and services will be provided by JAWS
through standard licensing/reseller contracts with other security product
vendors (e.g. Network Associates).
Client support services are currently available to JAWS' clients
through the following methods:
- a 1-800 help desk;
- onsite (as demand grows, it is intended that technicians will be
available through regional JAWS offices);
- frequently asked questions documents on the JAWS website;
- e-mail support; and
- online help built into JAWS products.
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A sales and marketing team for L5 data encryption software has been
working since May 1998 towards creating the JAWS brand identity as well as
establishing relationships with public relations companies to provide market
awareness and industry interest in JAWS' products. The sales and marketing
department continues to pursue opportunities with application service providers
and in areas such as smart cards, biometrics and security tokens. Further, the
sales and marketing department has implemented e-mail campaigns to raise the
public's awareness of e-mail security, e-commerce and Public Key Infrastructure
to a higher level. JAWS strives to develop industry specific (health care,
financial services, legal, government, oil and gas, law enforcement and
education) marketing materials for its products and services, develop strategies
for the Personal Data Assistant marketplace (such as the Palm Pilot III, V and
VII) and to identify and implement alliances with complementary organizations.
In relation to product releases, the sales and marketing department has
also developed collateral sales materials including boxes, compact disc cases,
stationery, and brochures. JAWS Data Encryption(TM) first release was in July,
1998 and the second modified version was released in September, 1998. JAWS
Memo(TM) was released in December, 1998 and the second modified version was
released in June, 1999.
Although the print media coverage of L5 has been positive in at least
34 different articles and requests for information from investors, potential
clients and interested parties have been numerous (approximately 150 inquiries
per week), there has not been significant sales of JAWS' products. From the
client feedback that JAWS has received, it is the opinion of management that the
following factors are affecting the sales of L5 products:
- although potential purchasers are aware of security as an issue
surrounding information systems and may have been educating
themselves as to what products and services are available,
specific needs have not been identified; therefore purchasers may
not be ready to make specific buying decisions; and
- the selling cycle for security software with reseller and value
added resellers ("VAR") programs takes considerable time to
conclude.
Export restrictions which slow down the flow of trade and the selling
process as well as widespread 128 bit key length security product entrenchment
within existing security products are additional factors which may affect sales.
DISTRIBUTION
JAWS software is currently distributed through the following channels:
- direct sales to potential clients by employees;
- resellers and VARs;
- online stores;
- the JAWS website; and
- Original Software Manufacturers ("OSM").
The consulting services provided by ISSG are currently marketed through
a direct sales effort although reseller relationships with other organizations
are being explored. Initially the JAWS Data Encryption(TM) software was
distributed in compact disc form. Currently, except for demonstration disks, the
product's distribution is almost completely online either through third party
online stores or via the
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JAWS website. This approach has minimized the cost of distribution of the
product and provides faster turnaround on client requests.
JAWS has distributed and agreed to distribute approximately 580,000
copies of L5. In order to develop a user base, the majority of these placements
have been at nominal or no cost. JAWS recently announced the signing of a
licensing agreement with Arrow Communications Systems Inc. doing business as
ApexMail.Net ("ApexMail.Net") to distribute JAWS Xmail(TM) to 500,000 of
ApexMail.Net's clients across North America. Additionally, approximately 200
copies of JAWS Data Encryption(TM) have been sold at $49.95 per copy and
approximately 245 copies of JAWS Memo(TM) have been sold at $19.95.
With respect to OSMs, external software developers can use L5 software
as a utility embedded in their products to augment or enhance their particular
products. Accounting software programs, database developments, e-mail programs
and communication software are all potential channels for JAWS' software.
Additional potential uses for L5 include use in smart cards, hand-held computing
devices, telecommunications devices and access control devices. Direct sales
channels include internet service providers, data warehouses, corporate networks
and personal computer users. The revenues generated in the normal course of
business by JAWS have come from these various markets. JAWS is not dependent
upon one or a few major clients.
ALLIANCES
The licensing agreement described above with respect to ApexMail.Net is
material to JAWS in that this alliance provides for the distribution of 500,000
copies of JAWS Xmail(TM) to users of ApexMail.Net POP3-based e-mail accounts.
Users of ApexMail.Net will download JAWS Xmail(TM) electronically from the
ApexMail.Net website. There will be no physical distribution of the JAWS
Xmail(TM) product to ApexMail.Net clients. This distribution could produce
revenues equal to $0.333 per month per user or $33,333 per month for 100,000
users. The agreement also provides for the joint marketing of the alliance and
the development by JAWS of a long term strategy that would provide ApexMail.Net
with value-added services such as security audits, data protection systems and
messaging programs. JAWS and ApexMail.Net continue to work towards the
implementation of the terms of this agreement.
JAWS has announced alliances with various other parties in 1999
including the following: OA Group Inc. ("OA"), ServInt Internet Services
("ServInt"), Glentel Inc. ("Glentel"), Thomson Kernaghan & Co. Limited ("Thomson
Kernaghan"), Telus Advanced Communications ("TAC"), Proginet Corporation
("Proginet"), Wimsco, Inc. ("Wimsco") and CobraTech Industries, Inc.
("CobraTech").
JAWS has entered into a sales and distribution agreement with OA
integrating JAWS products and services with the OA's client networks. OA has
agreed to install a hyperlink on its website that will provide OA's client base
direct access to JAWS Xmail(TM). Additionally, OA has agreed to serve as a VAR
for security assessments and product sales to its business clientele. Until the
hyperlink is installed, JAWS will not receive any sales revenue from this
agreement. JAWS does not know when this will occur or if this will occur. JAWS
may never generate sales revenue from this agreement.
JAWS has entered into a sales and distribution agreement with ServInt.
Pursuant to this agreement, ServInt will support the rollout of JAWS Xmail(TM)
to ServInt's existing base of clients. ServInt has agreed to install a hyperlink
on its website that will provide ServInt's client base direct access to JAWS
Xmail(TM). Additionally, ServInt will serve as a VAR for security assessments
and product sales
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to its business clientele. Until the hyperlink is installed, JAWS will not
receive any sales revenue from this agreement. JAWS does not know when this will
occur or if this will occur. JAWS may never generate sales revenue from this
agreement.
JAWS has entered into an alliance agreement with Glentel to explore and
develop secure wireless data products that will incorporate JAWS' products into
applications such as mobile two-way radio, satellite, paging, cellular and
personal cellular service. Product development is in the planning phase for
research and development and as such, JAWS has not received any sales revenues
from this agreement. Unless the planning phase is successful in generating a
plan for research and development, JAWS may never generate revenues from this
agreement.
JAWS has entered into an agreement with Thomson Kernaghan whereby JAWS'
products will be incorporated into Thomson Kernaghan's information security
systems. JAWS will also be involved in training Thomson Kernaghan employees in
the use of JAWS' products. Thomson Kernaghan is a principal shareholder of JAWS.
TAC has agreed to support the North American distribution of JAWS
Xmail(TM) by providing complete hosting services for the JAWS Xmail(TM)
certificate server. The nature of this hosting relationship is such that TAC
will provide power, back up facilities, firewall security and configuration,
physical security, access control and 24 hour monitoring of the servers. These
servers are used to provide access to the certificates of JAWS used by the
program to encrypt e-mail and attachments. TAC will provide its 200,000 plus
user base with the opportunity to install and use JAWS Xmail(TM). This will be
accomplished by e-mailing the TAC users directly. Additionally, TAC will serve
as a VAR for security assessments and product sales to its business clientele.
JAWS does not know when this will occur or if this will occur. JAWS may never
generate sales revenue from this agreement.
JAWS has entered into a development agreement with Proginet whereby
JAWS and Proginet have agreed to jointly develop, market and sell information
security products for the secure transmission of information across the
internet. Product development is in the planning phase for research and
development and, as such, JAWS has not received any sales revenues from this
agreement. Unless the planning phase is successful in generating a plan for
research and development, JAWS may never generate revenues from this agreement.
JAWS has entered into a development agreement with Wimsco whereby JAWS
and Wimsco will jointly develop plans to introduce products into the market
place and develop products for Wimsco's clients. Product development is in the
planning phase for research and development and, as such, JAWS has not received
any sales revenues from this agreement. Unless the planning phase is successful
in generating a plan for research and development, JAWS may never generate
revenues from this agreement.
JAWS has entered into a memorandum of agreement, dated October 19,
1999, with CobraTech whereby JAWS grants exclusive marketing rights to CobraTech
in Asia with respect to a variety of software including JAWS Data
Encryption(TM), JAWS Xmail(TM) and JAWS Memo(TM). The grant is for a term of
four years provided CobraTech achieves certain revenue targets. In exchange for
these rights, JAWS is to obtain a 25% interest in CobraTech. Further, CobraTech
is to pay JAWS a royalty equal to 25% of the gross sales revenue generated by
CobraTech with respect to the sale of JAWS' products. At this stage, JAWS has
not generated any revenues from this agreement.
In addition to the alliances described above, JAWS has alliance
agreements with the following organizations: A1 Axion Communications, Inc.,
Bridge Technology Group LLC, Care Factor, Cheque
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<PAGE> 35
Free Corporation, Citrix Systems, Inc., DBCORP Information Systems Inc., Eye
Sciences, i.com productions inc., Net Nanny Software International Inc., Network
Associates, Offsite, Palm, PSI Net Limited, United Projects, UUNET Internet
Access Services, Secure Computing Corporation, Strategic Profits Inc., Telecom
Wireless Corporation and Westcor Mortgage Inc.
COMPETITION
A number of companies have developed various information security
products such as encryption software, firewalls, intrusion detection software
and hardware solutions. A non-exhaustive list of generally available competitive
cryptographic algorithms includes: DES, TwoFish, Certicom ECC, RSA, MARS, and
PGP. No one particular product in the marketplace controls market share. Two
distinctive competitors, RSA Data Security Inc. ("RSA") and Network Associates,
have been leaders in the sale of encryption software.
L5 currently gives JAWS a competitive advantage over these competitors
because its 4096 bit key length is greater than its competitors. The ability to
make quick changes in L5 programming, in addition to the strength provided by
the 4096 bit key length, allows JAWS to be responsive to clients' demands for
products that require both customization and strength.
More specifically, the current advantages of L5 and the JAWS software
incorporating L5, in contrast to competitive products, are as follows:
<TABLE>
<CAPTION>
JAWS COMPETITORS
---- -----------
<S> <C>
L5 has an easily varied key length that can be quickly Most competitive algorithms have a limit to the key
adapted (greater and lesser) and executed to meet specific size or a maximum length key where adding bits to
client requests. the key length does not improve security (e.g. DES
and TripleDES).
Software coding based on XOR type operations and Many algorithms include several levels of complex operations
SBOXs. which perform slowly on most computers and results in slow and
difficult implementation (e.g. MARS).
The small footprint of the algorithm enables it to be Large key sizes and difficult/complex computations
incorporated into small devices such as smart cards. currently make incorporation of some algorithms into
smart cards unreasonable (e.g. RSA).
The relatively large, 4096 bit, key size is greater than Currently the key size for DES is 56 bit, for
its competitors. Triple DES is 168 bit and for Certicom is 156 bit.
Speed of execution of JAWS' software is faster that its Currently, DES is much slower because of the
competitors. complexity of their products' operations.
</TABLE>
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<PAGE> 36
The 4,096 bit key length has, to date, been unbroken. In August, 1999,
RSA reported that a 512 bit security code was broken and recommended at least
768 bit keys as the minimum for achieving reliable security. Each bit of key
length is significant in that every time a bit gets added to a key length, the
expected number of guesses someone would have to make to decrypt an encrypted
message doubles. For someone to decrypt JAWS 4096 bit key length, it would
require a number of guesses equal to a number 1,233 digits long.
It is generally accepted ("Moore's Law") that computing power doubles
every two years. With the status of computer power today, and the anticipated
doubling of computing power, JAWS estimates it will be a number of years before
there is enough widespread standard computer power to break the JAWS' 4096 bit
key length software via a brute force attack. In the event that a JAWS 4096 bit
system was subjected to a brute force attack and L5 was broken, JAWS' software
can be modified to utilize a higher bit version of L5.
There has been some cryptographic industry criticism of proprietary
algorithms like L5. This criticism is based on the assertion that proprietary
algorithms are intrinsically less secure than public domain algorithms in that
they do not have the benefit of increased public scrutiny and cryptanalysis.
JAWS' competitors, who own a proprietary algorithm, are subject to this
criticism as well.
Information auditing services, security business planning, security
plan implementation and security management are relatively new industries. Very
few large size competitors exist and mainly small firms are providing the
services at this time. However, large accounting and information technology
firms represent potential competitive threats due to such firms' existing brand
loyalty and access to resources.
JAWS manufactures and produces all software products in JAWS' corporate
office in Calgary, Alberta. To manufacture and produce JAWS' software, the only
requirements are computer equipment, compact discs, compact disc burners, and
human resources. Packaging is produced by an external supplier. JAWS takes a
simple in-house approach to the production and packaging of its software. This
approach allows JAWS to be very flexible and is not dependent on any one
supplier. All components of JAWS' products are readily available from a number
of suppliers. There is currently an inventory of packaging in JAWS' head office.
The demand for physical packaging has significantly decreased due to the
availability and convenience of online downloads.
INTELLECTUAL PROPERTY MATTERS
JAWS has applied for patent protection of L5 in the United States. The
United States patent office has confirmed receipt of the application and JAWS
has qualified to have its patent application reviewed and evaluated. To date,
JAWS has applied for but not successfully registered any of its trademarks,
trade names or service marks. However, JAWS has acquired the Xmail tradename
from British Telecom PLC. JAWS owns the copyright in all the software created by
its employees and the copyrights which it has contractually acquired. JAWS
maintains strict confidentiality practices with its employees including
contractual obligations by the employees. JAWS' business is not dependent on a
single license or group of licenses.
GOVERNMENT REGULATION
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Export restrictions on encryption technology above 64 bits are tightly
controlled through the provisions of the Wassenaar Arrangement. The Wassenaar
Arrangement is a 26 country agreement, including Canada and the United States,
controlling the export of encryption technology to any destination outside of
continental North America. This arrangement requires exporters of encryption
technology to make an application prior to exportation. Applications for export
under the agreement are evaluated on a case by case basis and considerable
evaluation is done by both countries involved in the export review. The
application process slows down the selling cycle and flow of trade of JAWS'
products by requiring compliance with the terms of the Wassenaar Arrangement.
ENVIRONMENTAL LAW
No specific environmental laws are applicable to JAWS' products or
business activity other than general environmental controls related to
non-hazardous waste disposal. JAWS does not have any specific environmental
costs and all costs related to waste disposal are accounted for under general
operating costs. Current environmental laws have no direct costs or effect on
JAWS' business activities. Environmental costs related to non-hazardous waste
disposal are incurred in the ordinary course of business.
EMPLOYEES
As of May 8, 2000, JAWS employs approximately 190 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 the belief that the
growth of JAWS is heavily reliant on its human resources.
INSURANCE
JAWS maintains insurance coverage including key man life insurance,
policies, business interruption insurance, asset protection and public liability
insurance. Further, FutureLink Distribution Corporation ("FutureLink") secures
JAWS data through back-up procedures and data recovery procedures.
DESCRIPTION OF PROPERTY
JAWS entered into an agreement to lease premises from Shelbourne Place
Holding Corp. ("Shelbourne"), pursuant to which JAWS is renting approximately
10,000 square feet of commercial space and is obligated to pay Shelbourne
$95,600 per annum, plus operating costs of approximately $42,000 per annum, for
a five-year term commencing November 1, 1998. Riaz Mamdani, director and Chief
Financial Officer of JAWS, owns a majority of the shares of Shelbourne. JAWS is
also the lessee in a lease for approximately 3,000 sq. ft. with Manufacturers
Life under a lease which JAWS entered into prior to entering into its lease with
Shelbourne. JAWS vacated these premises in 1998 when it moved into the
Shelbourne premises. JAWS pays approximately $31,000 per annum for these
premises and has sub-leased some of this space to offset approximately $13,000
per annum of the rental expense associated therewith for the remainder of the
lease term.
On March 1, 2000, JAWS entered into an agreement to lease premises from
799730 Alberta Ltd., pursuant to which JAWS is renting approximately 6,800
square feet of commercial space and is obligated
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<PAGE> 38
to pay 799730 Alberta Ltd. approximately $95,300 per annum, for a lease term
commencing April 1, 2000 and ending March 31, 2005, subject to JAWS' option to
renew for an additional term of five years at the prevailing market price at the
time of such renewal. Operating costs on this facility are expected to cost JAWS
approximately $27,000 per annum. On November 16, 1999, 754615 Alberta Ltd., a
corporation owned by entities which are controlled by Robert Kubbernus (25%),
Riaz Mamdani (25%), Cameron Chell, a former director of JAWS (25%), and Mark
Valentine of Thomson Kernaghan & Co. Ltd. (25%), made an offer to 799730 Alberta
Ltd. to acquire this office building, which offer was accepted in writing
subject to certain conditions.
On September 30, 1999, Offsite separately entered into an agreement to
lease premises from 799730 Alberta Ltd., pursuant to which Offsite is renting
approximately 3,500 square feet of commercial space and is obligated to pay
799730 Alberta Ltd. approximately $47,172 per annum, for a lease term commencing
on January 1, 2000 and ending on December 31, 2004, subject to Offsite's option
to renew for an additional five year term at the prevailing market price at the
time of such renewal.
LEGAL PROCEEDINGS
JAWS is not a party to any material pending legal proceedings other
than ordinary routine litigation incidental to the business of JAWS which the
Company does not believe is material.
RECENT ACQUISITIONS
Pace Systems Group Inc.
Effective as of November 3, 1999, JAWS acquired 100% of the issued and
outstanding shares of common stock of Pace in exchange for a maximum issuance of
1,731,932 shares of JAWS Common Stock, valued at $1.70 per share. The purchase
price was paid by delivering 1,731,932 Pace exchangeable shares having the right
to exchange one Pace exchangeable share for one share of JAWS Common Stock.
According to the terms of the applicable share purchase agreements, 1,385,544
Pace exchangeable shares were to be delivered into escrow for release to the
selling shareholders over a period of two years, with the number of Pace
exchangeable shares to be released dependent upon certain performance and
revenue targets of four key Pace employees over that period.
In determining the value of all of the assets of Pace, JAWS considered
the physical assets reported on the audited financial statements of Pace, dated
July 31, 1999, historical revenues, customer lists, goodwill, leases, key
employees and other assets and determined the value of Pace to be approximately
$2,945,000. Such a valuation represents an amount equal to 2.29 times the gross
revenues of Pace for the fiscal year ended July 31, 1999.
Pursuant to the terms of the applicable share purchase agreements,
Peter Labrinos, James Wang, Aidan O'Brien and Joseph Iuso have entered into
employment agreements with JAWS Alberta for a period of 24 months. Prior to the
transaction, there were no material relationships between Pace's selling
shareholders or any officer or director of Pace and JAWS.
Pace is a private company incorporated in 1986 with a history of
providing financial information technology security solutions to retailers and
large financial organizations in North America. More specifically, Pace offers
services in the area of payment systems, including point of sale/automated
business machines, electronic funds transfer, switch implementation, point of
sale application and device
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<PAGE> 39
integration, network architecture and design, system integration and project
management. With the acquisition of Pace, JAWS retained several highly qualified
financial information and technology specialists who have developed
relationships with clients.
Pace has worked with several financial institutions in Canada with
respect to the development of retail banking systems, including, without
limitation, with respect to the electronic payment technology currently in place
in Canada. Pace has specialized knowledge with respect to Interac, and Pace
currently offers implementation and business expertise to retailers, financial
institutions and third party processors with respect to the connection of such
companies to their banks or similar service providers or as a Direct Connector
to the Interac network.
Other services which Pace provides include pre-sales support to assist
with the customization of sales efforts for prospective clients, software
development, device certification (primarily with respect to the certification
of "Secure PIN Entry Devices," as defined in the regulations of Interac) and
testing, hardware and software vendor proposal evaluation, creation of requests
for information or proposals to be distributed by the client to prospective
hardware and software vendors, systems implementation, facilities management,
post implementation support, user and technical documentation, user training,
general consulting and year 2000 conversion and testing.
JAWS is currently in the process of transferring the Pace business to
its operating subsidiary, JAWS Ontario.
Secure Data Technologies Corporation
On December 31, 1999, JAWS, through JAWS Delaware, purchased
substantially all of the assets of Secure Data, which provides numerous
information security services, including consulting, policy development, risk
assessment, penetration testing, firewall management, certificate authority
services, incident response, high-tech crime investigations, computer forensics
and training. The purchase price included the payment of approximately $250,000
in cash at closing and a deferred payment of up to approximately 47,587 shares
of JAWS Common Stock (shares equivalent in value to $185,000 to be priced at the
five-day closing trading price of JAWS Common Stock on the OTC Bulletin Board
immediately prior to December 31, 1999 and shares equivalent in value to
$150,016, valued at $7.04 per share).
Offsite Data Services Ltd.
On December 9, 1999, JAWS, through JAC, made an offer to purchase all
of the shares of common stock and warrants of Offsite on the basis of 0.3524 of
an exchangeable share of JAC for each common share of Offsite and one
exchangeable share purchase B warrant of JAC for each common share purchase B
warrant of Offsite. Each JAC exchangeable share will be exchangeable for one
share of JAWS Common Stock following the effective date of this registration
statement filed by JAWS to register the shares of Common Stock issuable upon the
exchange of the JAC exchangeable shares. Each JAC warrant will have
substantially the same terms and conditions as the corresponding Offsite warrant
exchanged therefor, except that instead of receiving an Offsite share upon
exercise, the holder will receive 0.3524 of an exchangeable share. On January
28, 2000, the JAC offer expired and JAC acquired approximately 97% of the
outstanding shares of common stock of Offsite and approximately 93% of the
outstanding Offsite warrants. In February 2000, JAC acquired the remaining
196,987 shares of common stock of Offsite.
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<PAGE> 40
Offsite, a Calgary based company incorporated in 1995, provides
management services for automated Internet based back up, storage and recovery
of computer data. Using Offsite's software, a customer's selected computer files
are scanned for changed data. The client data is then compressed and transmitted
to a mainframe data centre in Calgary. Client data is transmitted to the data
centre over a variety of networks depending on the client's needs including the
public switched telephone network, the Internet, cable services and fibre optic
networks. Managed data centre facility services are provided by SHL Systemhouse
Inc. of Ottawa, Ontario.
Data back-up is facilitated through the use of HARBOR(TM) back-up and
protection for distributed data software from HARBOR Systems Management Ltd.
that is installed at the client site on each server and desktop computer that is
to be backed up or serviced. Pursuant to a software licensing agreement, entered
into in November 1998, between Offsite and HARBOR, Offsite has exclusive rights
for a period of five years from August 16, 1998 to install/sell the HARBOR(TM)
software to non-MVS based small businesses in Alberta using a MVS (mainframe)
host with a CPU and data storage facilities based in Calgary, Alberta. Thus,
Offsite has the exclusive right to provide back-up services to businesses that
are PC-based. Offsite does not provide back-up services to businesses that are
mainframe-based. Pursuant to the software licensing agreement, Offsite also has
the non-exclusive right to distribute the HARBOR(TM) software in Canada and in
the United States. The term of the license is five years and began on August 16,
1998. During the term of the licence, HARBOR(TM) has agreed not to appoint a
competing distributor in Alberta. Offsite is not a product or technology
developer and has no proprietary protection beyond its licensing arrangement
with HARBOR.
Offsite currently markets its services to small to mid-size businesses
in Calgary, Alberta using a direct sales approach and a team of two full time
sales professionals. Offsite intends to expand its market to other Canadian and
North American centres by seeking distributors and value added re-sellers (VARs)
to sell its services.
Offsite competes with business which have existing storage systems such
as tape systems which have become more sophisticated, and new software that
allows for automated predetermined back-up and easier retrieval of individual
files as well as full system recovery. There are other enterprise storage
management software packages similar to HARBOR(TM) such as IBM Corporation's
ADSM, Computer Associates' Enterprise Storage Manager and Cheyenne's ARCserve,
which can be utilized by other service providers who wish to offer a competing
service to the Corporation. These software packages can be used by organizations
to back-up their networks to various storage media such as tape or disk. Both
Windows NT Server and Novell's NetWare have basic, built in, back up and restore
functions. There are also a number of new services emerging which offer desktop
back-up over the Internet, however, many of these support only disk to disk
transfer (i.e. not networks) in a Windows operating environment and are aimed at
single users with smaller data needs. Many of these also offer or are about to
offer dial up access and reduced introductory storage rates.
JAWS Inc. (formerly named Nucleus Consulting Inc.)
On April 19, 2000, JAWS acquired 100% of the issued and outstanding
shares of Nucleus, for an aggregate purchase price of up to $4,000,000 in cash
and Common Stock. The purchase price included closing payments of $250,000 in
cash and the issuance of 142,857 shares of Common Stock (valued at $1,000,000,
or $7.00 per share) to the former sole stockholder of Nucleus, and further
includes (i) cash payments aggregating up to $750,000 and payable over the
nine-month period following closing, and (ii) shares issuances of up to 142,857
on each of the first and second anniversary dates of the closing (in each
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case, valued at $1,000,000, or $7.00 per share), subject to the seller's
continuation of employment and the achievement of certain revenue and earnings
milestones over the respective post-closing periods.
Nucleus, an Illinois based company, provides cost-effective enterprise
networked solutions capable of meeting defined business requirements. More
specifically, Nucleus' core service offerings include information systems
planning, comprehensive IT strategy development, network architecture design
(both LAN and WAN), E-Commerce strategy development, technology procurement and
vendor management, financial markets trading systems integration, IT
organizational design and enhancement, distributed systems development, and
complex project management. With the acquisition, JAWS added six professional
business and technical analysts with over 100 years of combined experience.
Nucleus serves a diverse client base throughout North America and
Europe. Their clients range from small dot.com startup organizations to Fortune
500 companies, and span many industries including financial markets, retail
banking, manufacturing, government, healthcare, hospitality, manufacturing, and
professional services. Nucleus' client base includes Arthur Andersen LLP, CNA
Insurance Company, SunAmerica Financial, Inc., Zurich-American Insurance,
Zurich-Kemper Life, Seven Worldwide, Inc., KPC Medical Management, Inc., LCN
Closers, Inc. (division of Ingersoll Rand, Inc.), John Deere Healthcare
(division of John Deere International), and Electronic Data Systems, Inc.
Nucleus also has expertise in helping organizations either develop or
"spin off" new entities to compete in the new digital era. Several Nucleus
consultants come from entrepreneurial backgrounds and have successfully
developed, and/or sold businesses of their own.
Nucleus has not registered any trademarks, trade names, or service
marks. Nucleus owns copyright interests in all of the intellectual capital
created by its employees or subcontractors, and the copyrights which it has
contractually acquired. Nucleus maintains strict confidentiality agreements with
its employees including non-disclosure and non-compete agreements.
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<PAGE> 42
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of May 5, 2000, there were approximately 131 shareholders of record
of JAWS Common Stock. JAWS Common Stock was listed for trading on the
over-the-counter bulletin board under the symbol "JAWZ" from February 1, 2000 to
April 19, 2000 and, since April 20, 2000, JAWS Common Stock has been included
for quotation on the Nasdaq National Market System. The following table sets
forth the high and low bid prices for JAWS Common Stock as reported by the OTC
Bulletin Board. It should be noted that such over-the-counter quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transaction prices.
<TABLE>
<CAPTION>
PRICE RANGE
-----------
HIGH LOW
---- ---
<S> <C> <C>
First Quarter 2000 15.06 5.94
Fourth Quarter 1999 10.75 1.32
Third Quarter 1999 2.78 1.13
Second Quarter 1999 4.25 0.59
First Quarter 1999 1.19 0.38
Fourth Quarter 1998 0.66 0.13
Third Quarter 1998 0.84 0.28
Second Quarter 1998 1.50 0.50
First Quarter 1998 (beginning 1.06 0.48
February 1, 1998)
</TABLE>
On May 16, 2000, the last reported sales price for shares of JAWS
Common Stock was $4.88 per share.
JAWS has not paid any dividends on its Common Stock to date. JAWS does
not currently intend to declare or pay any dividends on its Common Stock in the
foreseeable future, but plans to retain earnings, if any, for development and
expansion of its business operations.
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<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Jaws is currently the parent corporation of six material operating
subsidiaries: Jaws Alberta, Jaws Ontario, Jaws Delaware, Pace, Offsite and
Nucleus. The overall strategic goal for JAWS is to consolidate the highly
fragmented information security industry, achieve increasing economies of scale
through the acquisition of high growth, emerging market firms and integrate such
firms through centralized administration and planning. Through industry and
management expertise, JAWS attempts to ensure that acquired firms receive the
capital and corporate planning necessary to maximize the growth potential within
each information security niche.
JAWS is a provider of information security consulting services and
software solutions, a developer of proprietary information security encryption
software, a provider of financial information security technology solutions to
retailers and large financial organizations in North America and a provider of
internet based data storage management services. JAWS' consulting services and
the software solutions developed by JAWS are designed to minimize the threats to
clients' information and communications. JAWS' information security consulting
services, software solutions and proprietary encryption software are provided
through its wholly-owned subsidiary, JAWS Canada. JAWS' financial information
technology security solutions services are directed through its wholly-owned
subsidiary, JAWS Ontario, and include services in the area of payment systems,
including point of sale, automated banking machine and electronic funds
transfer, switch implementation, point of sale application and device
integration, network architecture and design, system integration and project
management. JAWS' data storage management services are provided through its
subsidiary, Offsite, which is doing business as JAWS Secure Network Storage, and
JAWS' forensic infosec services are provided through JAWS Delaware.
The shares of JAWS Common Stock are included for quotation on the
Nasdaq National Market under the symbol "JAWZ".
RESULTS OF OPERATIONS
Three Months ended March 31, 2000 compared with Three-Month Period
Ended March 31, 1999
JAWS' total revenue increased by $648,935 (21,298%) for the
three-months ended March 31, 2000 from $3,047 in the three months ended March
31, 1999. This increase is primarily due to three key factors. The first is the
continued internal growth of JAWS' operations as the company completes the
transition from a development stage company to the commercialization stage. The
second key factor is the integration and subsequent growth associated with JAWS'
recent acquisitions (including PACE, SDTC, and Offsite). The third key factor
was an increase in interest income of $105,297, which resulted from short term
investing of funds received in connection with JAWS' recent private placement
financings.
General and administrative expenses increased 462% to $3,295,802 for
the three months ended March 31, 2000 from $586,520 in the three months ended
March 31, 1999. This increase was primarily due to the continued growth of JAWS'
operations including geographic expansion, moving JAWS products toward and into
the commercialization stage and the expenses related to the preparation of
various marketing
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<PAGE> 44
and sales documents and materials, wages and benefits, requirements for office
space, supplies and other office related expenses.
Advertising and promotion expenses increased 218% to $475,166
for the three months ended March 31, 2000 from $149,248 in the three months
ended March 31, 1999. This increase was primarily due to increased sales and
marketing activities related to moving JAWS' products toward and into the
commercialization stage based on JAWS vertical and geographical product and
consulting services strategies.
Interest expense, financing fees and amortization of debt
discount decreased by approximately 97% to $13,365 for the three months ended
March 31, 2000 from $447,885 for the three months ended March 31, 1999. The
decrease was primarily due to the retirement of the convertible debentures and
the associated accelerated amortizations of the deferred financing fees and debt
discount.
Amortization expense was $1,001,440 for the three months ended
March 31, 2000 as compared to $0 for the three months ended March 31, 1999. This
increase was primarily due to the amortization of goodwill and employee and
consultants base associated with JAWS' acquisitions of PACE, SDTC, and Offsite.
The Company's net loss for the three months ended March 31,
2000 was $4,020,051 as compared with $1,201,985 for the three months ended March
31, 1999. The increase in the net loss is primarily due to the continued growth
of JAWS' operations, moving JAWS products toward and into the commercialization
stage including geographic expansion and the expenses related to the preparation
of various marketing and sales documents and materials, wages and benefits,
requirements for office space, supplies and other office related expenses.
Year ended December 31, 1999 compared with the year ended
December 31, 1998
JAWS' revenue increased by $562,978 (1,937%) for the year
ended December 31, 1999 from $29,068 in the year ended December 1998. This
increase is primarily due to the acquisition of Pace on November 3, 1999.
General and administrative expenses increased 254% to
$5,589,899 for the year ended December 31, 1999 from $1,574,453 in the year
ended December 31, 1998. This increase was primarily due to the continued growth
of JAWS' operations, moving JAWS products toward and into the commercialization
stage and the expenses related to acquisitions including, without limitation,
expenses related to the preparation of various marketing and sales documents and
materials, wages and benefits, requirements for office space, supplies and other
office related expenses.
Advertising and promotion expenses increased 66% to $363,916
for the year ended December 31, 1999 from $218,574 in the year ended December
31, 1998. This increase was directly attributable to increased sales and
marketing activities related to moving JAWS products toward and into the
commercialization stage.
Interest expense, financing fees and amortization of deferred
financing fees/debt discount increased by approximately 307% to $1,587,237 for
the year ended December 31, 1999 from $389,715 for the year ended December 31,
1998. The increase was due almost entirely to the retirement of the convertible
debentures and the associated accelerated amortizations of the deferred
financing fees and debt discount.
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Depreciation and amortization expense increased by approximately 1,547%
to $231,222 for the year ended December 31, 1999 from approximately $14,041 for
the year ended December 31, 1998. This increase was primarily due to the
amortization of goodwill associated with the PACE acquisition and to the
increase in fixed assets consistent with the expansion of JAWS' operations. The
1998 depreciation and amortization number is exclusive of the one-time write off
of the software development costs of $909,003.
The Company's net loss for the year ended December 31, 1999 was
$7,167,776 as compared with $3,076,287 ending December 31, 1998. The increase in
the net loss is primarily due to the retirement of the convertible debentures
and by the continued growth of JAWS' operations, moving JAWS products toward and
into the commercialization stage and the expenses related to acquisitions
including, without limitation, expenses related to the preparation of various
marketing and sales documents and materials, wages and benefits, requirements
for office space, supplies and other office related expenses.
Year ended December 31, 1998 compared with inception (January 27, 1997)
to December 31, 1997
JAWS' revenue increased $29,068 for the year ended December 31, 1998
from $0 in the 1997 period. This increase is primarily due to the transition
from product and corporate development stages to beginning the sales cycle.
General and administrative expenses increased 2,148% to $1,574,022 for
the year ended December 31, 1998 from $101,274 in the period ended December 31,
1997. This increase was primarily due to the continued growth of JAWS'
operations, moving JAWS products toward and into the commercialization stage and
the expenses related to acquisitions including, without limitation, expenses
related to the preparation of various marketing and sales documents and
materials, wages and benefits, requirements for office space, supplies and other
office related expenses. A one-time write-off of software development costs of
$909,003 was also a key factor for this increase.
Depreciation and amortization expense increased to $14,041 for the year
ended December 31, 1998 from $580 for the period ended December 31, 1997. This
increase was primarily due to a growing fixed asset base to support operational
growth.
The Company's net loss for the year ended December 31, 1998 was
$3,076,287 as compared with $136,854 for the period ended December 31, 1997. The
increase in the net loss is primarily due to JAWS incurring significant
development costs, including, but not limited to, a one-time write-off of
software development costs to bring the product from development to
commercialization stage.
PRO FORMA OPERATING RESULTS
Pro Forma Three-Months ended March 31, 2000 compared with the Three-Months ended
March 31, 2000.
For the three months ended March 31, 2000, JAWS' pro forma revenue
would have been $1,086,680 compared to historical revenue of $651,982 for the
same period. This increase is due primarily to the pro forma assumptions that
the Nucleus transaction closed on January 1, 2000, and to a much lesser extent
that the Offsite transaction closed on January 1, 2000, both of which result in
increased revenue for the period.
42
<PAGE> 46
General and administrative expenses would have increased 7% to
$3,512,008 on a pro forma basis for the three months ended March 31, 2000
compared to historical selling, general and administrative expenses of
$3,295,802 for the same period. This increase is due primarily to the assumption
of the Nucleus acquisition in the pro forma statement of operations for the
three months ended March 31, 2000, and, secondarily, to the assumption of the
Offsite acquisition in the pro forma statement of operations for the three
months ended March 31, 2000.
Advertising and promotion expenses would have increased 12% to
$530,892 on a pro forma basis for the three months ended March 31, 2000 compared
to historical advertising and promotion expenses of $475,166 for the same
period. This increase is due primarily to the assumption of advertising and
promotion expenses related to the Nucleus acquisition in the pro forma statement
of operations for the three months ended March 31, 2000, and secondarily to the
assumption of advertising and promotion expenses related to the Offsite
acquisition in the pro forma statement of operations for the three months ended
March 31, 2000.
Interest expense, financing fees and amortization of deferred
financing fees/debt discount remained the same on a pro forma and historical
basis at $13,365 for the three months ended March 31, 2000.
Depreciation and amortization expense would have increased 50% to
$1,589,835 for the pro forma three months ended March 31, 2000 compared to a
historical depreciation and amortization expense of $1,063,265 for the three
months ended March 31, 2000. This increase was due primarily to the assumption
of the amortization of goodwill associated with the Nucleus acquisition in the
pro forma statement of operations for the three months ended March 31, 2000 and,
to a much lesser extent, to the assumption of the amortization of goodwill
associated with the Offsite acquisition in the pro forma statement of operations
for the three months ended March 31, 2000.
The Company's net loss on a pro forma basis for the three months ended
March 31, 2000 would have been $4,668,928 as compared with a historical net loss
of $4,020,051 for the same period. The increase in the net loss is due primarily
to the assumption of the amortization of goodwill relating to the Nucleus
acquisition in the pro forma statement of operations for the three months ended
March 31, 2000, and secondarily to the assumption of the amortization of
goodwill relating to the Offsite acquisition in the pro forma statement of
operations for the three months ended March 31, 2000.
Pro Forma Year ended December 31, 1999 compared with the Year ended December 31,
1999.
JAWS' total revenue increased by $4,336,938 (733%) on a pro forma
basis for the year ended December 31, 1999 from an actual of $592,046 in the
year ended December 31, 1999. This increase is due primarily due to the pro
forma assumptions of PACE Systems, Offsite, and Nucleus closing on January 1,
1999 all of which would have resulted in increased revenue for the period.
General and administrative expenses would have increased 63% to
$9,101,622 on a pro forma basis for the year ended December 31, 1999 from an
actual of $5,577,447 in the year ended December 31, 1999. This increase is due
primarily due to the pro forma assumptions of PACE Systems, Offsite, and Nucleus
closing on January 1, 1999 all of which would have resulted in increased
expenses for the period.
Advertising and promotion expenses increased 34% on a pro forma basis
to $488,673 for the year ended December 31, 1999 from an actual of $363,916 in
the year ended December 31, 2000. This
43
<PAGE> 47
increase is due primarily due to the pro forma assumptions of Offsite closing on
January 1, 1999, which would have resulted in increased advertising and
promotion expenses for the period.
Interest expense, financing fees and amortization of deferred
financing fees/debt discount increased 1% on a pro forma basis to $1,146,637 for
the year ended December 31, 1999 from an actual of $1,140,050 in the year ended
December 31, 1999. This increase is due primarily due to the pro forma
assumptions of Nucleus closing on January 1, 1999 which would have resulted in
increased interest, financing fees and amortization of deferred financing
fees/debt discount expenses for the period.
Amortization and depreciation expense would have increased 2,840% on a
pro forma basis to $6,798,226 for the year ended December 31, 1999 from an
actual of $231,222 for the year ended December 31, 1999. This increase was
primarily due to the amortization of goodwill on a pro forma basis due to the
pro forma assumptions of PACE Systems, Offsite, and Nucleus closing on January
1, 1999.
The Company's net loss on a pro forma basis for the year ended
December 31, 1999 was $14,226,254 as compared with an actual loss of $7,167,776
for the year ended December 31, 1999. The increase in the net loss is primarily
due to the amortization of goodwill on a pro forma basis due to the pro forma
assumptions of PACE Systems, Offsite, and Nucleus closing on January 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations for the year ended December 31, 1999 was
$4,183,078 as compared with $1,127,406 for the year ended December 31, 1998.
These increases are a result of the increased expenses incurred as noted above.
As at December 31, 1999 JAWS had raised $13,678,699 in additional working
capital for operations.
Cash on hand of $8,430,701 at December 31, 1999, is an increase from
$33,732 at December 31, 1998. This increase is as a result of a series of stock
issuances, including the Private Placement Transaction, and funds advanced under
a convertible debenture agreement. A net amount of $13,678,699 was raised from
financings during the year ended December 31, 1999. These funds will be deployed
primarily to fund operations.
Accounts payable and accrued liabilities have increased 175% to
$1,177,278 for the year ended December 31, 1999 from $428,600 for the year ended
December 31, 1998. These increases are a result of the efforts of management to
increase sales revenue and grow JAWS' operations and are consistent with the
other expense increases in 1999. JAWS has anticipated and budgeted for these
increases to provide for the organizations' shift from development to
commercialization and to provide for the growth of operations. Management has
budgeted for this trend and expects the trend will continue until cash flow from
sales is 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, other than long-term
capital leases and Thomson Kernaghan's convertible debentures which have
recently been converted to equity.
On September 25, 1998, JAWS entered into a $2,000,000, 10% Convertible
Debenture Agreement with Thomson Kernaghan and 1,428,572 warrants to purchase
1,428,572 common shares at $0.28 per common share. These Thomson Kernaghan
warrants were to expire on October 31, 2002 and were to be
44
<PAGE> 48
exercised in whole or in part, from time to time, prior to October 31, 2002 in
accordance with the terms of the Thomson Kernaghan warrants and the amended
debenture agreement. The Thomson Kernaghan warrants are assignable, and
non-callable.
Around this time JAWS also entered into an agreement with Bristol
Asset Management LLC ("Bristol") whereby JAWS was given the right to obligate
Bristol to buy up to 25,000,000 shares of Common Stock for up to $7,000,000 in
"put" options.
On April 26, 1999, JAWS signed a settlement agreement with and in
consideration of the cancellation of the previous financing arrangement JAWS has
granted warrants to Bristol to purchase 1,000,000 shares of the Common Stock of
JAWS at $0.70 USD, expiring April 15, 2002. The cancellation of this financing
did not have an immediate impact on JAWS' plan of operation.
On April 27, 1999, JAWS and Thomson Kernaghan amended the debenture
agreement, increasing the amount available to $5,000,000. $1,520,000 of the $5
million available under the amended debenture agreement was advanced in
accordance with the terms of debentures issued by JAWS.
Effective November 1, 1999, JAWS executed a Debenture Acquisition
Agreement Amendment and Settlement Agreement with Thomson Kernaghan, (the
"Settlement Agreement") in order to settle the outstanding obligations of the
parties relating to the $5,000,000 Debenture Acquisition Agreement dated
September 25, 1998, as amended on April 27, 1999. The Settlement Agreement
settles the conversion terms of the $1,520,000 advanced under Debenture
Agreement and the exercise of outstanding warrants issued under the Debenture
Agreement and terminates all further obligations related to the Debenture
Agreement. Debentures issued pursuant to the Debenture Agreement have been
converted to 5,127,672 restricted shares. Thomson Kernaghan has exercised all of
the outstanding warrants issued pursuant to the Debenture Agreement for the
issuance of 2,180,220 shares in the Common Stock of JAWS. The parties have
signed a mutual release.
On December 31, 1999 and February 23, 2000, JAWS consummated the
Private Placement Transactions, pursuant to which JAWS raised approximately
$9.25 million on December 31, 1999 ($8.26 million net of offering expenses) and
approximately $2.5 million on February 23, 2000 ($2.23 million net of offering
expenses).
45
<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Three of the five members of the board of directors are independent directors.
The following table sets forth certain information with respect to the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRATION(1)
---- --- -------- -------------
<S> <C> <C> <C>
Robert J. Kubbernus 40 Chairman of the Board (2)
Chief Executive Officer,
President and Director
Tej Minhas 39 (3) (2)
Riaz Mamdani 32 Chief Financial Officer and (2)
Director
Vera Gmitter 41 (3) (2)
Julia L. Johnson 37 Director 2000
Arthur Wong 31 Director 2000
John S. Burns 59 Director [2000]
</TABLE>
(1) Pursuant to JAWS' bylaws, all directors are elected at each annual
meeting of stockholders for a one-year term, or until their successors
are elected and qualified.
(2) This executive officer has entered into an employment agreement with
JAWS, the term of which will extend until the earlier of (i) the date
specified by such executive officer in a notice of voluntary
termination delivered by such executive officer to JAWS; provided that
such notice shall not be effective until at least ten (10) days after
delivery thereof, (ii) the date such executive officer is terminated
by JAWS for "just cause" (as defined in the employment agreement), or
(iii) with respect to termination other than for "just cause," the
date which is determined by providing such executive officer with one
month's notice for each full year of completed service commencing on
the date JAWS provides such executive officer with a notice of
termination.
(3) Mr. Minhas and Ms. Gmitter are neither directors nor officers of JAWS,
but are included in this table because, as senior officers of JAWS
Alberta, they have performed policy-making functions in respect of
JAWS. Mr. Minhas is the President and Chief Operating Officer of JAWS
Alberta and Ms. Gmitter is Vice President, Administration of JAWS
Alberta.
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<PAGE> 50
Directors and Executive Officers
The following is a biographical summary of each of the directors and executive
officers of the Company:
ROBERT J. KUBBERNUS. Mr. Kubbernus has served as Chairman of the Board, Chief
Executive Officer and President of JAWS Alberta since October 1997 and of JAWS
Technologies, Inc. since February 1998. Mr. Kubbernus resigned as President of
JAWS Alberta in July 1999 upon Minhas' appointment to that position. Mr.
Kubbernus' primary responsibilities have been to oversee security product
developers, provide executive direction and develop key contacts with
governmental authorities, investors, clients, insurance underwriters and the
investment community. From October 1992 to September 1997, Mr. Kubbernus held
the position of President and Chief Executive Officer of Bankton Financial
Corporation, a company which provides business and lending advisory services,
where he led a team of corporate financial consultants who specialized in the
placement of debt instruments with institutional and private lenders. Since
September 1999, Mr. Kubbernus has been a director and officer of Oxford
Capital Corp., a Cayman Islands corporation, which provides financial consulting
and investment capital to technology companies. Since March 2000, Mr. Kubbernus
has been on the Advisory Board of eFinancial Depot.Com.
TEJ MINHAS. Mr. Minhas has served as President and Chief Operating Officer of
JAWS Alberta since July 1999. Mr. Minhas is responsible for developing and
implementing strategic and tactical plans for each department, key alliance
development, managing marketing projects, implementing the corporate vision and
maintaining and improving corporate culture. From August 1998 to June 1999, he
was the Vice President of Technology for JAWS Alberta where his primary
responsibilities were to oversee all aspects of the Technology Department
including strategic planning, software engineering, business systems
infrastructure management, technology vendor relations, security consulting and
technical support. From April 1996 to July 1998, Mr. Minhas was the Vice
President of Technology for AgriTech International Corporation, a creator of
global information systems for the agricultural sector, where he was involved
with strategic IT planning, human resource planning, marketing support
management, executive reporting, vendor relations, industry alliances and IS
Business development. From April 1992 to March 1996, he was the Canadian
District Manager, Professional Services for Sybase Canada, an international
database and tools company, where his responsibilities included the
profitability of Canadian operations. The Canadian District was comprised of
offices in Toronto, Ottawa, and Calgary. In this role, Mr. Minhas duties
included marketing strategy development and execution, sales force management,
staff & consultant recruiting, and the operation of a certification and training
centre. Mr. Minhas graduated with a Bachelor of Science, Computer Science
Specialty, from the University of Toronto in 1985.
RIAZ MAMDANI. Mr. Mamdani has been Chief Financial Officer of JAWS since July
1999. Previous to this appointment, he was Director of Corporate Finance from
March 1999 to July 1999. Since September 1999, Mr. Mamdani has been a director
and officer of Oxford Capital Corp., a Cayman Islands corporation, which
provides financial consulting and investment capital to technology companies.
Mr. Mamdani is responsible for the development of operational financing
including securities issuances, the documentation needed to close these
issuances, establishing and implementing professional relationships and
assisting in matters of corporate compliance as well as company structure. From
May 1996 to August 1998, Mr. Mamdani was a Barrister and Solicitor with Beaumont
Church, a Calgary-based law firm, where his practice focused in the areas of
Corporate, Commercial and Securities law. From May 1992 to April 1996, he was a
Pharmacist at the Foothills Hospital in Calgary while attending law school at
the University of Calgary, from September 1993 to May 1996. Mr. Mamdani
graduated with a Bachelor of Law degree from the University of Calgary in 1996.
He also graduated from the University of Manitoba with a Bachelor of Science
degree in Pharmacy in 1992.
47
<PAGE> 51
VERA GMITTER. Ms. Gmitter has served as Vice President, Administration of JAWS
Alberta since February 1998. Her current responsibilities at JAWS include
developing policies and procedures, government regulation, export, trademark,
finance, accounting, legal, public compliance and human resources as well as
managing over the day to day operations of JAWS Alberta. From July 1997 to June
1998, Ms. Gmitter held the position of General Manager for Bankton Financial
Corporation. In this position she directed daily operations for the corporation,
which specialized in custom finance solutions. From September 1987 to July 1997
Ms. Gmitter was the owner of 396406 Alberta Ltd., a holding company for a
restaurant, concession contracts, retail store and a sign and graphics business,
for which she was President. Ms. Gmitter graduated with a Bachelor of Arts
degree in Political Science and Economics from Augustana University in 1995.
JULIA L. JOHNSON. Ms. Johnson serves as the Chairman of the Information Service
Technology Task Force (Internet Task Force), having been appointed by Governor
Jeb Bush in August 1999. Ms. Johnson has served as (i) a member of the Florida
Public Service Commission, a state agency which regulates utility companies,
from December 1992 to December 1999, (ii) state Chairperson of the Federal/State
Joint Board on Universal Service, a task force within the Federal Communications
Commission from 1996 to 1999, and (iii) a board member for the Markle
Foundation, a project that encourages the use of new communications technologies
for socially beneficial purposes, since 1996. Before being appointed to the
Florida Public Service Commission, Ms. Johnson served as the Director of
Legislative Affairs and senior land use attorney for the Department of Community
Affairs from November 1990 to December 1992, where she was the chief lobbyist
representing the agency before the Florida Legislature on land use issues. Ms.
Johnson graduated with a Juris Doctorate, with a concentration in corporate and
real estate transactions, from the University of Florida School of Law in 1988,
as well as a Bachelor of Science in Business Administration from the University
of Florida in 1985.
ARTHUR WONG. Mr. Wong provides strategic direction to JAWS in the area of
channel development. Since 1992, Mr. Wong has founded three technology
companies. He has been CEO of Security-Focus.com, a database of security
knowledge and resources , since August of 1999 where he is responsible for the
management and direction of an internet security portal. From May 1998 to July
1999, Mr. Wong was the Director of Channel Development for Active Security at
Network Associates Inc. of Santa Clara, California, the world's largest
independent network security and management software company , where he was
responsible for the development and adoption of worldwide integrated security
initiatives and where he also developed standards for new security
infrastructures and worked on its integration and adaption. From July 1996 to
April 1998, he was CEO of Secure Networks Inc. of Calgary, Alberta, a company he
founded. Secure Networks developed internet security tools and offered security
consulting before it was acquired by Network Associates Inc. From April 1993 to
June 1996, Mr. Wong was President of Millennium Systems Canada Inc., a company
he founded and managed, which was a computer hardware distributor and
integrator. Since June 1994 he has been the managing director and founder of H20
Entertainment Corp., a Calgary based organization that develops products for
Nintendo and its N64 game platform. Mr. Wong graduated with a Bachelor of
Commerce from the University of Calgary in 1991.
48
<PAGE> 52
JOHN S. BURNS. Mr. Burns has been a partner of the law firm Bennett Jones since
October 1990. His areas of practice are principally corporate, corporate finance
and securities law. Mr. Burns acts for public and private corporations,
securities issuers and underwriters. His practice focuses on mergers and
acquisitions, public and private offerings, corporate restructurings, cross
border financings and oil, gas and banking transactions. He has participated in
conferences and panels and has authored a number of papers and articles with
respect to these areas of law. Mr. Burns is a board member of several public and
private corporations and served as a Public Governor of the Alberta Stock
Exchange from 1983 to 1998. He also served as a member of the Board of Governors
of the Olympic Trust of Canada, Strathcoma-Tweedsmuir school and is a member of
the law societes of Alberta and Upper Canada and the Calgary and Canadian Bar
Associations. Mr. Burns graduated for the University of Alberta with a Bachelor
of Arts degree in 1963 and a law degree from Dalhousie Law School in 1966.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The board of directors has established an audit
committee consisting of Julia L. Johnson and Arthur Wong, each of whom is an
independent director on the board of directors, and Riaz Mamdani, the Company's
Chief Financial Officer. The audit committee makes recommendations to the board
of directors concerning the engagement of independent public accountants, review
with the independent public accountants the scope and results of the audit
engagement, approve professional services provided by the independent public
accountants, review the independence of the independent public accountants,
consider the range of audit and non-audit fees, and review the adequacy of the
Company's internal accounting controls. The audit committee met four times
during 1999.
Compensation Committee. The board of directors has established a
compensation committee consisting of Julia L. Johnson and Arthur Wong, each of
whom is an independent director on the board of directors. The compensation
committee determines and establishes compensation levels on an annual basis for
the Company's executive officers and administers the Company's Stock Option
Plan. The compensation committee met four times in 1999.
COMPENSATION OF DIRECTORS
Out-of-pocket expenses of JAWS directors, related to their attendance
at meetings of the board of directors, are paid by JAWS. Pursuant to the terms
of a directors' agreement by and between JAWS and each of Ms. Johnson, and
Messrs. Wong and Burns, JAWS is obligated to compensate such directors for
services rendered as directors in cash or in shares of Common Stock in an amount
per term equal to US $60,000. In addition, all directors are eligible to receive
stock options under the JAWS 1998 Stock Option Plan. We do not currently provide
additional compensation for committee participation or special assignments of
the board of directors. No other payments have been made to any member of the
board of directors.
EXECUTIVE COMPENSATION
The following table sets forth the annual base salary rates and other
compensation expected to be paid during the Company's three most-recent fiscal
years ending December 31, 1999 to the Company's Chief Executive Officer (the
"Named Executive Officer"). No other executive officers of the Company were paid
in excess of $100,000 during any of such fiscal years. Information for fiscal
year 1997 is for the period commencing January 27, 1997 (date of inception) and
ending December 31, 1997.
49
<PAGE> 53
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------------- -------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ COMPEN-
NAME AND SALARY BONUS SATION AWARD(S) SARS LTIP SATION
PRINCIPAL POSITION(1) YEAR (US$) (US$) (US$) (US$) (#) PAYOUTS (US$)
--------------------- ---- ----- ----- ----- ----- --- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Kubbernus 1999 180,000 0 0 0 600,000 0 0
Chairman of the Board, 1998 180,000 0 0 0 350,000 0 0
Chief Executive Officer 200,000(3)
and President 1997 45,000 0 0 0 0 0 0
</TABLE>
(1) These options were to be granted to Mr. Kubbernus in connection with
the acquisition of JAWS Alberta by JAWS on February 10, 1998. Such
options have not yet been granted.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END (US$)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (US$) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----- ------------- -------------
<S> <C> <C> <C> <C>
Robert J. Kubbernus 0 0 350,000 Exercisable 2,478,000
0 0 350,000 Exercisable 2,121,000
0 0 250,000 Exercisable 1,420,000
0 0 200,000 Unexercisable 1,412,000
Tej Minhas 0 0 29,333 Exercisable 210,904
0 0 29,333 Unexercisable 210,904
0 0 29,333 Unexercisable 210,904
0 0 25,000 Unexercisable 128,750
Riaz Mamdani 0 0 100,000 Exercisable 1,672,500
0 0 250,000 Exercisable 1,420,000
0 0 250,000 Exercisable 1,212,000
0 0 200,000 Exercisable 210,904
Vera Gmitter 5,000 $31,450 11,500 Exercisable 86,940
0 0 33,000 Unexercisable 249,480
0 0 11,000 Exercisable 83,160
0 0 22,000 Unexercisable 166,320
</TABLE>
50
<PAGE> 54
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Potential Realizable Value
at-Assumed-Annual-Rates
of Stock Price Appreciation
Individual Grants for Option Term
--------------------------------------------------------------------------------- --------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or-Base
Granted in Fiscal Price Expiration
Name (#) Year (US$/Sh) Date 5% 10% 0%
------- --------- ---------- ------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,151,83
Robert J. Kubbernus 600,000 600,000 (1) (1) 7 $1,324,345 (3)
Tej Minhas 25,000 25,000 $2.41 5/17/02 $69,747 $80,193 --
$1,149,15
Riaz Mamdani 700,000 700,000 (2) (2) 6 $1,314,363 (4)
Vera Gmitter 33,000 33,000 $0.62 5/17/02 $24,869 $29,955
</TABLE>
(1) Of the 600,000 options granted, 350,000 shares of Common Stock are
exercisable at $1.50 per share for a period which expires on September
25, 2002 and 250,000 shares of Common Stock are exercisable at $1.88
per share for a period which expires on November 10, 2002.
(2) Of the 700,000 options granted, (i) 250,000 shares of Common Stock are
exercisable at $.87 per share for a period which expires on January
2002, (ii) 250,000 shares of Common Stock are exercisable at $1.88 per
share for a period which expires on November 10, 2002, and (iii)
200,000 shares of Common Stock are exercisable at $1.50 per share for a
period which expires on September 27, 2002.
(3) Of the 600,000 options received by Mr. Kubbernus, 250,000 options were
issued at an exercise price below the then current market price of
shares of JAWS Common Stock. The value at grant date market price for
250,000 of the options is $875,000.
(4) Of the 700,000 options received by Mr. Mamdani, 250,000 options were
issued at an exercise price below the then current market price of
shares of JAWS Common Stock. The value at grant date market price for
250,000 of the options is $875,000.
EMPLOYMENT AGREEMENTS
JAWS has entered into employment agreements with each of Messrs.
Kubbernus, Minhas and Mamdani and with Ms. Gmitter. Pursuant to such employment
agreements, in addition to base salary, each such executive officer will be
entitled to receive annual performance-based compensation as determined by the
Compensation Committee. In addition, the term of each such employment agreement
will extend until the earlier of (i) the date specified by such executive
officer in a notice of voluntary termination delivered by such executive officer
to JAWS; provided that such notice shall not be effective until at least ten
(10) days after delivery thereof, (ii) the date such executive officer is
terminated by JAWS for "just cause" (as defined in the employment agreement), or
(iii) with respect to termination other than for "just cause," the date which is
determined by providing such executive officer with one month's notice for each
full year of completed service commencing on the date JAWS provides such
executive officer with a notice of termination.
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<PAGE> 55
1998 STOCK OPTION PLAN
In July 1998, JAWS adopted the 1998 Stock Option Plan (the "Plan")
which provides for the grant of incentive and restricted stock options to
purchase up to 20% of the shares of Common Stock issued and outstanding from
time to time.
The purpose of the stock option plan is to further the growth and
development of JAWS, by providing, through ownership of stock of JAWS, as
incentive to officers, other key employees and directors who are in a position
to contribute materially to the prosperity of JAWS, to increase such persons'
interests in JAWS' welfare, to encourage them to continue their services to
JAWS, and to attract individuals of outstanding ability to enter the employment
of JAWS, to remain or become directors of JAWS and to provide valuable services
to JAWS. Options granted under the Plan may be either Incentive Stock Options
qualifying for special tax treatment under Section 422 of the U.S. Internal
Revenue Code of 1984, as amended ("Code") or non-qualified stock options.
The Plan is administered by a committee of the Board which is
authorized to determine the persons entitled to receive options under the Plan.
Each member of the Committee is an "outside director" for purposes of Section
162(m) of the Code and a "non-employee director" for purposes of Section 16 of
the Securities Exchange Act of 1934, as amended.
Stock available for issuance pursuant to options granted under the Plan
shall not exceed 20% of all outstanding shares of Common Stock. The maximum
number of shares with respect to which options may be granted to any employee or
director in any one calendar year is 500,000 shares. The purchase price for the
shares of Common Stock subject to an option granted under the Plan is determined
by the committee at the time of the grant, but shall not be less than the par
value per share of Common Stock. 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.
In the event that the number of shares of JAWS Common Stock is
increased or decreased as a result of a stock dividend, stock split, reverse
stock split, recapitalization, reorganization, merger, consolidation, separation
or other similar change, appropriate adjustments shall be made in the number and
class of shares subject to the Plan, to the Options granted under the Plan,
including the exercise price thereof.
As of May 16, 2000, JAWS had granted options under the stock option
plan to purchase a total of 4,763,365 shares of Common Stock at exercise prices
ranging from $.15 to $13.25 per share. Of the options, 2,195,500 options were
granted to officers and directors and expire three years after the vesting date
and 400,000 options expire December 31, 2003. The balance of options outstanding
have been issued to other employees.
52
<PAGE> 56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table describes the information regarding the individuals
who beneficially owned Common Stock as of May 5, 2000, after exercise of all
outstanding options and warrants and conversion of debentures held by Thomson
Kernaghan. The individuals included in the following table are:
(1) each person (or group of affiliated persons) who we know
beneficially owns 5% or more of JAWS Common Stock;
(2) each of our directors; and
(3) the Named Executive Officer listed in the Summary Compensation
Table.
As of May 5, 2000, JAWS had 25,747,897 shares of Common Stock issued
and outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER(1) TITLE OF CLASS BENEFICIALLY OWNED PERCENT OF CLASS(9)
------------------- -------------- ------------------ -------------------
<S> <C> <C> <C>
Robert J. Kubbernus (2) Common Stock 1,510,400 6.29%
Julia Johnson (3) Common Stock 356,408 1.46%
Arthur Wong (4) Common Stock 315,208 1.28%
Riaz Mamdani (5) Common Stock 1,306,000 5.20%
John S. Burns Common Stock 200,000 0%
All directors and executive officers as a Common Stock [3,764,616] 13.87%
group (5 persons)
Thomson Kernaghan & Co. Limited (7) Common Stock 4,940,743 22.37%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
Canada
Glentel Inc. (8) Common Stock 2,034,000 8.49%
Suite 2700, 4710 Kingsway
Burnaby, British Columbia V5H 4M2
Canada
</TABLE>
----------------
(1) Unless otherwise stated, the business address of each of the
stockholders named in the table is C/O JAWS Technologies, Inc., 400,
630-8th Avenue S.W., Calgary, Alberta, Canada, T2P 1G8. Except as
otherwise indicated, to our knowledge, the persons named in the table
have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes 350,000 shares issuable upon the exercise of options
exercisable at $0.48 until June 30, 2008. Includes 350,000 shares
issuable upon the exercise of options exercisable at $1.50 per share
until June 30, 2008. Includes 250,000 shares issuable upon the exercise
of options exercisable at $1.88 per share until June 30, 2008.
53
<PAGE> 57
(3) Includes 150,000 shares of Common Stock issuable upon the exercise of
options exercisable at $0.48 per share until December 31, 2003.
(4) Includes 200,000 shares of Common Stock issuable upon the exercise of
options at $0.48 per share until December 31, 2003 and 113,208 shares
of Common Stock issuable to Mr. Wong for Mr. Wong's 1999 director's fee
of $60,000.
(5) Includes 100,000 options to purchase common shares at $0.15 per share
until June 30, 2008. Also includes (i) 250,000 options to purchase
shares of Common Stock at $.87 per share until June 30, 2008, (ii)
250,000 options to purchase shares of Common Stock at $1.88 per share
until June 30, 2008, and (iii) 200,000 options to purchase shares of
Common Stock at $1.50 per share until June 30, 2008.
(6) Includes 200,000 shares issuable upon the exercise of options
exercisable at $5.88 per share until December 31, 2003.
(7) Includes 217,642 shares of Common Stock issuable upon exercise of
warrants issued to Thomson Kernaghan, as placement agent, in connection
with the Private Placement Transaction and 58,824 shares of Common
Stock issuable upon exercise of warrants issued to Thomson Kernaghan,
as placement agent, in connection with JAWS' private placement
financing which was consummated on February 22, 2000.
(8) Includes 834,000 shares of Common Stock issuable upon the exercise of
warrants. 65.2% of the outstanding shares of Glentel are controlled by
TCG International, Inc. The natural person, with sole or shared voting
and investment power over the shares held of record by Glentel, through
TCG International, Inc. is Arthur Skidmore.
(9) Percentage ownership is calculated in accordance with the Securities
and Exchange Commission's Rule 13d-3(d)(1).
54
<PAGE> 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following paragraphs describe the relationships and transactions of
JAWS in the last two years with a director, executive officer, promoter of JAWS
or a person who JAWS knows beneficially own or exercise voting or control over
5% or more of JAWS Common Stock.
PROMOTERS
Robert J. Kubbernus, the Chairman of the Board, Chief Executive Officer
and President of JAWS and Bankton Financial Corporation, a company which
provides business and lending advisory services controlled by Robert Kubbernus,
are the promoters of JAWS and JAWS Alberta. Bankton Financial Corporation was a
founding shareholder in JAWS and beneficial ownership of any JAWS shares owned
by Bankton Financial Corporation are attributed to Mr. Kubbernus. Until January
1, 2000 JAWS did not pay Mr. Kubbernus directly for his services, but rather
paid directly to Bankton Financial Corporation $180,000 per year for Mr.
Kubbernus' services. Bankton and Robert Kubbernus were also founding
shareholders of JAWS Alberta and received shares in the common stock of e-biz,
in consideration for their shares of JAWS Alberta. Robert Kubbernus and Bankton
each subscribed for shares of the Common Stock of JAWS Alberta and paid
consideration equal to $0.01 per share for these shares. As described below, on
February 10, 1998, Mr. Kubbernus received 315,000 shares in the common stock of
e-biz (now named JAWS Technologies, Inc., a Nevada corporation) worth $315,000
and Bankton Financial Corporation received 322,000 shares in the common stock of
e-biz worth $322,000, in each case in connection with the acquisition of JAWS
Alberta.
PURCHASE OF JAWS ALBERTA
On February 10, 1998, when JAWS was still known as e-biz entered into
an agreement with the shareholders of JAWS Alberta to purchase all of the 1,000
issued and outstanding shares of JAWS Alberta for 1,500,000 restricted shares of
e-biz. Pursuant to this agreement, the following people received common stock of
e-biz, in consideration for their shares of JAWS Alberta, as follows:
<TABLE>
<CAPTION>
JAWS Alberta Shareholder Number of E-Biz Shares Received
<S> <C>
Robert Kubbernus 315,000
Bankton Financial Corporation (1) 322,000
Chell McNeill, Inc.(2) 637,000
</TABLE>
(1) Robert Kubbernus is the controlling shareholder of Bankton Financial
Corporation. Robert Kubbernus was granted 200,000 options to purchase
shares of the Common Stock at $0.50 per share.
(2) Cameron Chell, who resigned as a director of JAWS on November 30, 1999,
is the controlling shareholder of Chell McNeill, Inc. Cameron Chell was
granted 200,000 options to purchase shares of the common stock of
"e-biz" at $0.50 per share.
55
<PAGE> 59
TRANSACTIONS WITH THOMSON KERNAGHAN
As of May 5, 2000 Thomson Kernaghan is the holder of 4,940,743 shares
of JAWS Common Stock, representing 21.74% of the issued and outstanding shares
of Common Stock of JAWS (17.03% on a fully diluted basis). Pursuant to the terms
of a placement agency between JAWS and Thomson Kernaghan, dated February 15,
2000, in connection with the private placement of 588,238 Units of JAWS, each
Unit consisting of one share of Common Stock and one warrant to purchase
one-half share of Common Stock for $6.50 per share, at $4.25 per Unit (the
"February Canadian Agency Agreement"), Thomson Kernaghan received a sales
commission of 7% of the offering and a 3% financial advisory fee (an aggregate
of $250,001.10). Also pursuant to the February Canadian Agency Agreement,
Thomson Kernaghan also received 58,824 warrants, each warrant exercisable for
one share of Common Stock at an exercise price of $4.25 per share.
Pursuant to the terms of a placement agency agreement between JAWS and
Thomson Kernaghan, dated December 31, 1999, in connection with the private
placement of 2,176,418 Units of JAWS, each Unit consisting of one share of
Common Stock and one warrant to purchase one-half share of Common Stock for
$6.50 per share, at $4.25 per Unit (the "Canadian Agency Agreement"), Thomson
Kernaghan received a sales commission of 7% of the offering and a 3% financial
advisory fee (an aggregate of $924,977). Also pursuant to the Canadian Agency
Agreement, Thomson Kernaghan also received 217,642 warrants, each warrant
exercisable for one share of Common Stock at an exercise price of $4.25 per
share.
In addition, Thomson Kernaghan and the Company have entered into a
consulting agreement effective July 1, 1999 pursuant to which Thomson Kernaghan
provides advisory services to the Company, including without limitation,
advising on business and financial matters. The consulting agreement terminates
on June 30, 2000 unless it is extended by mutual agreement thereafter. Under the
terms of the consulting agreement, the Company has agreed to pay Thomson
Kernaghan the lesser of (i) 7,500 shares of JAWS Common Stock; and (ii) that
number of shares of JAWS Common Stock equal to $25,000 divided by 95% of the
average price of the JAWS Common Stock for each calendar month over the year of
the agreement. Payments under the consulting agreement are to be made
semi-annually, with the final payment being on June 30, 2000. In addition, the
Company has agreed to pay Thomson Kernaghan a fee of 2% of the gross value of
any merger and acquisition transaction in which Thomson Kernaghan advises JAWS.
On September 25, 1998, JAWS entered into a $2,000,000, 10% Convertible
Debenture Agreement with Thomson Kernaghan that included 1,428,572 warrants to
purchase 1,428,572 common shares at $0.28 per common share. On April 27, 1999,
JAWS and Thomson Kernaghan amended the debenture agreement, increasing the
principal amount of the convertible debentures to $5,000,000. Subsequently, a
total of $1,520,000 was advanced pursuant to the amended debenture agreement.
On November 17, 1999, JAWS and Thomson Kernaghan executed a Debenture
Acquisition Agreement Amendment and Settlement Agreement (the "Settlement
Agreement") in order to settle the outstanding obligations of the parties. The
Settlement Agreement settles the conversion terms of the $1,520,000 advanced
under the amended debenture agreement and the exercise of outstanding warrants
issued under the amended debenture agreement and terminates all further
obligations related to the amended debenture agreement.
Debentures issued pursuant to the amended debenture agreement were
converted to 5,127,672 shares of JAWS Common Stock and warrants were exercised
for the issuance of 2,180,220 shares in JAWS' Common Stock on November 23, 1999.
56
<PAGE> 60
CONSULTING FEES
As of January 1, 2000, Robert J. Kubbernus has been employed directly
by JAWS pursuant to the terms of an employment agreement which provides for an
annual base salary of $300,000 per annum. Prior to entering into the employment
agreement JAWS paid Bankton Financial Corporation, a company controlled by Mr.
Kubbernus, a consulting fee of $180,000 for services rendered to JAWS by Mr.
Kubbernus. Mr. Kubbernus and Bankton Financial Corporation are shareholders and
promoters of JAWS and continue to direct and promote the company's future
development.
LEASE OF PREMISES
JAWS entered into an agreement to lease premises from Shelbourne Place
Holding Corp. ("Shelbourne"), pursuant to which JAWS is renting approximately
10,000 square feet of commercial space and is obligated to pay Shelbourne
$95,600 per annum, plus operating costs of approximately $42,000 per annum, for
a five-year term commencing November 1, 1998. Riaz Mamdani, a director and Chief
Financial Officer of JAWS owns a majority of the shares of Shelbourne. JAWS is
also the lessee in a lease for approximately 3,000 sq. ft. with Manufacturers
Life under a lease which JAWS entered into prior to entering into its lease with
Shelbourne. JAWS vacated these premises in 1998 when it moved into the
Shelbourne premises. JAWS pays approximately $31,000 per annum for these
premises and has sub-leased some of this space to offset approximately $13,000
per annum of the rental expense associated therewith for the remainder of the
lease term.
On March 1, 2000, JAWS entered into an agreement to lease premises from 799730
Alberta Ltd., pursuant to which JAWS is renting approximately 6,800 square feet
of commercial space and is obligated to pay 799730 Alberta Ltd. approximately
$95,300 per annum, for a lease term commencing April 1, 2000 and ending March
31, 2005, subject to JAWS' option to renew for an additional term of five years
at the prevailing market price at the time of such renewal. Operating costs on
this facility are expected to cost JAWS approximately $27,000 per annum. On
November 16, 1999, 754615 Alberta Ltd., a corporation owned by entities which
are controlled by Robert Kubbernus (25%), Riaz Mamdani (25%), Cameron Chell, a
former director of JAWS (25%), and Mark Valentine of Thomson Kernaghan & Co.
Ltd. (25%), made an offer to 799730 Alberta Ltd. to acquire this office
building, which offer was accepted in writing subject to certain conditions.
TRANSACTIONS WITH EFINANCIAL DEPOT.COM
On February 2, 2000, Oxford Capital Corp. ("Oxford"), a company 50% owned by
Madison Trust, a family trust establised and controlled by Robert J. Kubbernus,
and 50% owned by the Mamdani Family Trust, a family trust established and
controlled by Riaz Mamdami, entered into a $2.5 Million, 6% convertible
debenture purchase agreement with eFinancial Depot.Com ("FDPO")and FDPO issued a
$2.5 million convertible Debenture, 250,000 warrants to purchase 250,000 common
shares at $5.00 per common share and agents warrants to purchase 50,000 common
shares at $5.00 per common share to Oxford. The 2,500,000 convertible debenture
was converted to common shares of FDPO on April 27, 2000 at $ 3.11 per share.
On March 5, 2000, FDPO and JAWS executed a contract pursuant to which JAWS
would assist FDPO with the creation of a package for the total integration of a
secure e-commerce platform for FDPO and the launch of a web-site for consumers
of financial products and services, including stock trading, on-line banking and
mortgage lending, insurance, financial planning and investor and broker
education. In the twelve months ended May 2001, JAWS' management expects this
contract to produce revenues for JAWS equal to approximately $1.5 to $2.4
million, a portion of which revenues may be satisfied by FDPO through the
issuance to JAWS of FDPO common stock.
On April 27, 2000, Oxford and FDPO amended the $2.5 Million, 6%
convertible debenture purchase agreement to provide for the purchase of an
addtional $1,000,000 in debentures in traunches. On April 27, 2000, Oxford
purchased a $100,000 FDPO debenture and on May 25, 2000, Oxford closed the
purchase of an additional $500,000 debenture and received 60,000 purchaser's
warrants and 12,000 agents warrants.
On March 30, 2000, FDPO announced that Robert J. Kubbernus joined the
Advisory Board of FDPO.
57
<PAGE> 61
TRANSACTIONS WITH FUTURELINK
Mr. Chell has resigned as Chief Executive Officer and director of
FutureLink. Robert Kubbernus was a director of FutureLink until he resigned in
November 1999. FutureLink is an application service provider and supplies
network and software services to JAWS. These services are provided to JAWS on
normal commercial terms consistent with the terms FutureLink has with other
clients. In 1998 and 1999 the value of the services provided to JAWS by
FutureLink was $76,612 and $84,420, respectively.
TRANSACTIONS WITH GLENTEL INC.
JAWS has an alliance with Glentel to explore and develop secure
wireless data products that will incorporate JAWS security products into
applications such as mobile two-way radio, satellite, paging, cellular and PCS.
Because product development is in the planning phase for research and
development, JAWS and Glentel have not yet derived any material business from
this alliance and neither JAWS nor Glentel presently know what interest each
party will have in any products or services they may jointly develop. Unless the
planning phase is successful in generating a plan for research and development,
JAWS may never generate revenues from this agreement. Glentel is a principle
stockholder of JAWS.
PROVISION OF STATIONERY AND OFFICE SUPPLIES
Mr. Mamdani was a director of Willsons Stationers, a stationery and
office supplies company, from November 1998 to August 13, 1999. Until recently,
JAWS purchased all of its stationery and office supplies from Willsons at prices
paid by non-related parties in arm's-length transactions.
LEGAL FEES PAID TO BENNETT JONES
Bennett Jones has served as Canadian counsel to JAWS with respect to
certain corporate transactions and related matters since October 1998. Mr. Burns
Q.C. is a director of JAWS and a partner in the law firm of Bennett Jones. JAWS
paid Bennett Jones $455,876 in legal fees and disbursements since January 1,
1999.
58
<PAGE> 62
REGISTRATION RIGHTS
In connection with the Private Placement Transactions, we have agreed
to use our best efforts to cause a registration statement to be filed and
declared effective by the SEC:
(a) within 90 days after February 23, 2000, to register the resale of
588,238 shares of Common Stock issued to investors in this private
placement and the resale of the shares of Common Stock issuable upon
conversion of the warrants issued to investors in this private
placement, which such shares are included in this prospectus. We have
further agreed to cause such registration statement to remain effective
until 30 days after all of the warrants have either (i) been exercised,
(ii) expire in accordance with their terms (on the earlier of (a) the
three- year anniversary date of the effectiveness of the Registration
Statement (as defined therein), or (b) February 23, 2010 or (iii) been
called or repurchased by JAWS); and
(b) within 90 days after December 31, 1999, to register the resale of
2,176,418 shares of Common Stock issued to investors in the Private
Placement Transaction and the resale of the shares of Common Stock
issuable upon conversion of the warrants issued to investors in the
Private Placement Transaction, which such shares are included in this
prospectus. We have further agreed to cause such registration statement
to remain effective until 30 days after all of the Warrants have either
(i) been exercised, (ii) expire in accordance with their terms (on the
earlier of (a) the three-year anniversary date of the effectiveness of
the Registration Statement (as defined therein), or (b) December 31,
2009) or (iii) been called or repurchased by JAWS.
Pursuant to a certain Investors' Rights Agreement, dated June 21, 1999
by and between JAWS and each investor which participated in a separate private
placement transaction of JAWS Common Stock and warrants (the "Glentel
Agreements"), JAWS has granted such investors with certain demand and
"piggyback" registration rights. Pursuant to the Glentel Agreements, JAWS is
required to file a registration statement in January 2000 with the SEC to
register in January 2000 all of the 834,000 shares of Common Stock issued in
connection with such private placement. Furthermore, in the event JAWS proposes
to file a registration statement to effect the sale of Common Stock, the
investors have the right, subject to certain restrictions, to have the Common
Stock of such investors included in the registration statement related thereto.
In connection with the issuance of 1,000,000 warrants to Bristol Asset
Management LLC on April 26, 1999, JAWS must register such warrants, and the
shares underlying such warrants, with the SEC upon the request of Bristol Asset
Management LLC.
JAWS has registered each of the securities described above in this
registration statement and prospectus filed with this registration statement.
59
<PAGE> 63
LEGAL MATTERS
Lionel Sawyer & Collins LLP will give its opinion as to the validity of
the shares of Common Stock offered hereby.
EXPERTS
The financial statements audited by Ernst & Young, LLP have been
included in reliance on their report given on their authority as experts in
accounting and auditing.
PricewaterhouseCoopers LLP, independent accountants, have audited
Offsite's financial statements at and for the periods ended June 30, 1999 and
1998, as set forth in their report included herein. We have included these
financial statements and notes thereto in this prospectus and elsewhere in the
registration statement in reliance on PricewaterhouseCoopers LLP's report given
on the authority of that firm as experts in accounting and auditing.
Klayman & Korman, LLC, independent accountants, have audited Nucleus'
financial statements at and for the periods ended December 31, 1999 and 1998 as
set forth in their report included herein. We have included these financial
statements and the notes thereto in this prospectus and elsewhere in the
registration statement in reliance on Klayman & Korman, LLC's report given on
the authority of that Firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 (including the exhibits, schedules and
amendments) under the Securities Act, with respect to the Common Stock to be
sold in this offering, including our registration statement on Form S-1
(Registration No. 333-30406) which was initially declared effective on March 29,
2000. This prospectus, which is part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
regarding JAWS and our Common Stock, please refer to the registration statement
and the contracts, agreements and other documents filed as exhibits and
schedules to the registration statement.
You may read and copy all or any portion of the registration statement
or any other information that we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549, and at regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500-West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you on the SEC's Web
site at http://www.sec.gov.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and, accordingly, will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission.
60
<PAGE> 64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
JAWS Technologies, Inc. Page
<S> <C>
Pro Forma Consolidated Balance Sheet as at March 31, 2000 (unaudited)..................................F-3
Pro Forma Consolidated Statement of Income/Loss for the three months ended March 31, 2000 (unaudited)..F-4
Notes to Pro Forma Consolidated Financial Statements...................................................F-5
Pro Forma Consolidated Balance Sheet as at December 31, 1999 (unaudited)...............................F-7
Pro Forma Consolidated Statement of Income/Loss for the year ended December 31, 1999 (unaudited).......F-8
Notes to Pro Forma Consolidated Financial Statements...................................................F-9
Independent Auditors' Report..........................................................................F-12
Consolidated Balance Sheets as at December 31, 1999 and 1998 (Audited), and as at
March 31, 2000 (unaudited).......................................................................F-13
Consolidated Statements of Loss and Deficit and Comprehensive Loss for the
year ended December 31, 1999, 1998 and for the period from the
date of inception (January, 27, 1997) to December 31,
1997(audited), and for the Three-Month period ended
March 31, 2000 and March 31, 1999 (unaudited)....................................................F-15
Consolidated Statements of Changes in Stockholders' Equity/Deficit for the year ended
December 31, 1999, 1998 and for the period from the date of inception (January, 27, 1997)
to December 31, 1997 and for the Three-Month period ended March 31, 2000 (unaudited).............F-17
Consolidated Statements of Cash Flows for the year ended December 31, 1999, 1998 and
for the period from the date of inception (January, 27, 1997) to December 31, 1997, and for the
Three-Month period ended March 31, 2000 and 1999 (unaudited).....................................F-19
Notes to Consolidated Financial Statements............................................................F-20
Pace Systems Group Inc.
Independent Auditors' Report..........................................................................F-47
Balance Sheets as at July 31, 1999 and 1998...........................................................F-48
Statements of Income (Loss) and Comprehensive Income (Loss) and Deficit for the
years ended July 31, 1999 and 1998...............................................................F-49
Statements of Cash Flows for the years ended July 31, 1999 and 1998...................................F-50
Notes to Financial Statements.........................................................................F-51
Balance Sheets as of September 30, 1999 (unaudited)...................................................F-56
Statement of Income (Loss) and Retained Earnings (Deficit) for the two-month
period ended September 30, 1999 (unaudited)......................................................F-57
Statement of Cash Flows for the Two-month period ended September 30, 1999
(unaudited)......................................................................................F-58
Notes to Financial Statements.........................................................................F-59
Offsite Data Services Ltd.
Independent Auditors' Report..........................................................................F-62
Balance Sheets as at June 30, 1999 and 1998 and for the six-month period ended December 31, 1999
(unaudited)......................................................................................F-63
Statements of Loss and Deficit for the years ended June 30, 1999 and 1998 and for the six-month
periods ended December 31, 1999 and 1998 (unaudited).............................................F-64
Statements of Cash Flows for the years ended June 30, 1999 and 1998 and for the six-month
periods ended December 31, 1999 and 1998 (unaudited).............................................F-65
Notes to Financial Statements.........................................................................F-66
JAWS Inc. (formerly named Nucleus Consulting, Inc.)
Independent Auditors' Report..........................................................................F-73
Balance Sheets as at December 31, 1999 and 1998.......................................................F-74
</TABLE>
F-1
<PAGE> 65
<TABLE>
<CAPTION>
<S> <C>
Statements of Operations for the periods ended December 31, 1999 and 1998 . ............................F-76
Statement of Changes in Stockholders' Equity............................................................F-77
Statements of Cash Flows for the years ended December 31, 1999 and 1998 ................................F-78
Notes to Financial Statements...........................................................................F-79
</TABLE>
F-2
<PAGE> 66
JAWS TECHNOLOGIES INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
As at March 31, 2000
Jaws
Nucleus Technologies, Inc.
JAWS Consulting Pro Forma
Technologies, Inc. Inc. Note Pro Forma Consolidated
Unaudited Unaudited Reference Adjustments Unaudited
--------- --------- --------- ----------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C> <C> <C> <C>
Cash and short term deposits $8,925,293 ($2,073) 2.0 ($1,000,000) $7,923,220
Term deposits $437,970 $0 -- $437,970
Accounts receivable $812,604 $472,716 -- $1,285,320
Due from Related Parties $76,486 $0 -- $76,486
Prepaid expenses $222,361 $8,783 -- $231,144
----------------------------------------------------------------------------------------------------------------------------------
$10,474,714 $479,426 ($1,000,000) $9,954,140
Intangible Assets $17,132,051 $0 2.0 $1,915,649 $19,047,700
Equipment and Leasehold Improvement $1,249,083 $86,240 $1,335,323
(net)
Investment $20,000 $0 -- $20,000
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $26,875,848 $565,666 915,649 $30,357,163
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Indebtedness $461,687 $0 -- $461,687
Accounts payable and accrued liabilities $1,344,566 $174,815 2.0 $300,000 $1,819,381
Current portion of capital leases $53,992 $0 -- $53,992
Due to related parties $174,144 $0 -- $174,144
Due to shareholders $235,743 $6,500 -- $242,243
-----------------------------------------------------------------------------------------------------------------------------------
$2,270,132 $181,315 $300,000 $2,751,447
Obligations under capital leases $139,000 $0 -- $139,000
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $2,409,132 $181,315 $300,000 $2,890,447
STOCKHOLDERS EQUITY
Share capital $41,220,600 ($550) 2.0 $1,000,000 $42,220,600
2.0 $550
Cumulative translation adjustment (352,916) $0 ($352,916)
(Deficit) / Retained Earnings $(14,400,968) $384,901 2.0 ($384,901) ($14,400,968)
-----------------------------------------------------------------------------------------------------------------------------------
$26,466,716 $384,351 $615,649 $27,466,716
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $28,875,848 $565,666 $915,649 $30,357,163
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-3
<PAGE> 67
JAWS TECHNOLOGIES INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME/LOSS
(All amounts stated in$U.S.)
Three Month Period ending March 31, 2000
<TABLE>
<CAPTION>
Jaws
JAWS Nucleus Technologies, Inc.
Technologies, Offsite Data Consulting Note Pro Forma Pro Forma
Inc. Storage Inc.* Inc. Reference Adjustments Consolidated
Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
REVENUE $651,982 $31,177 $403,521 -- $1,086,680
COST OF SALES $0 $22,573 $262,500 -- $285,073
EXPENSES
Advertising & Promotion $475,166 $55,726 $0 -- $530,892
General & Administration $3,295,802 $139,160 $77,046 -- $3,512,008
------------------------------------------------------------------------------------------------------------------------------------
Loss before interest, Financing
Fees, Depreciation & Amortization ($3,118,986) ($186,281) $63,975 (3,241,292)
Interest Expense & Amortization of
Deferred Financing Fees & Debt
Discount $13,365 $0 $0 -- $13,365
Foreign Exchange (Gain) / Loss ($175,565) $0 $0 -- ($175,565)
Depreciation & Amortization $1,063,265 $0 $0 3.0 $526,570 $1,589,835
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD ($4,020,051) ($186,281) $63,975 ($4,668,928)
Net loss per common share ($0.14) -- -- -- ($0.16)
Weighted avg. number of
shares outstanding 28,774,888 -- -- 2.0 142,587 28,917,475
</TABLE>
* Numbers for Offsite represent results only for the period of January 1,
2000 to January 29, 2000.
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-4
<PAGE> 68
JAWS TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the unaudited financial
statements as at March 31, 2000 and for the 3 month period then ended
of Jaws Technologies, Inc. (a Nevada corporation) ("Jaws"), and the
unaudited financial statements of Offsite and Nucleus Consulting Inc
(an Illinois Company) ("Nucleus"), as at March 31, 2000 and for the 3
month period ended March 31, 2000, together with other information
available to the companies. In the opinion of the management of Jaws,
these unaudited pro forma consolidated financial statements include all
adjustments necessary for fair presentation in accordance with
generally accepted accounting principles in the United States. These
unaudited pro forma consolidated financial statements may not be
indicative of the financial position or the results of operations that
actually would have occurred if the events reflected therein had been
in effect on the dates indicated nor of the financial position or the
results of operations which may be obtained in the future.
These unaudited pro forma consolidated financial statements should be
read in conjunction with the audited and unaudited financial statements
of the companies included elsewhere in this filing.
2. The unaudited pro forma consolidated balance sheet as at March 31, 2000
gives effect to the following assumptions and transactions outlined in
this filing as if the effective dates of those transactions were March
31, 2000:
The acquisition of all of the outstanding shares of Nucleus
for $250,000 in cash and 142,857 shares of Jaws with an
ascribed value of $1,000,000. The Company paid consideration
of $750,000 into a trust which will be released on the third,
sixth and nine month anniversaries of the closing of the
transaction. In addition there is contingent consideration
payable of 285,714 commons shares of the Company at an
ascribed value of $7.00 per share or $2,000,000 in total. Half
of the common share consideration will be released if the
actual revenues and earnings before interest and taxes for the
year ended April 20, 2001 equal or exceed $3,500,000 and
$800,000 respectively and the remaining share consideration
will be released if actual revenues and earnings for the year
ended April 20, 2002 equal or exceed $5,250,000 and $1,200,000
respectively. The contingent consideration has not been
reflected in these consolidated financial statements, as the
outcome of the contingent share consideration cannot be
reasonably determined at this time.
The acquisition has been accounted for in these unaudited pro
forma consolidated financial statements using the purchase
method. The aggregate purchase price of $2,300,000 has been
allocated to the net assets acquired based on their estimated
fair values, as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE
ALLOCATION
<S> <C>
Net assets acquired $384,351
Goodwill $1,915,649
PURCHASE PRICE $2,300,000
Consideration:
Common Shares of JAWS $1,000,000
Cash $1,000,000
Acquisition Costs $300,000
TOTAL CONSIDERATION $2,300,000
</TABLE>
F-5
<PAGE> 69
3. The unaudited pro forma consolidated statement of income for the three
month period ended March 31, 2000 gives effect to the acquisition by
Jaws as described in 2.0 above and the acquisition of Offsite as if the
transactions had occurred January 1, 2000. The following adjustments are
reflected:
The amortization of goodwill attributable to the allocation of the
purchase price of Nucleus and Offsite in excess of the carrying value of
the net assets acquired, (see 2.0 above and the acquisition of Offsite)
calculated on a straight-line basis over a period of three years.
4. The amounts shown in these unaudited pro forma consolidated financial
statements for Offsite have been translated into United States dollars
from Canadian dollars at the period end rate for the balance sheet and
the period average rate for the income statement.
F-6
<PAGE> 70
JAWS TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts in $U.S.)
As at December 31, 1999
<TABLE>
<CAPTION>
Jaws
JAWS Nucleus Technologies, Inc.
Technologies, Offsite Data Consulting Note Pro Forma Pro Forma
Inc. Storage Inc. Inc. Reference Adjustments Consolidated
Audited Unaudited Audited Unaudited
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short term deposits $8,430,701 $319,596 $0 2.1 $2,234,510 $9,984,807
2.3 ($1,000,000)
Term deposits $431,729 -- -- -- $431,729
Accounts receivable $340,602 $105,022 $371,584 -- $817,208
Share Subscription A/R -- $141,225 $0 -- $141,225
License inventory -- $19,435 $0 -- $19,435
Prepaid expenses $75,144 $12,902 $5,292 -- $93,338
----------------------------------------------------------------------------------------------
$9,278,176 $598,180 $376,876 $1,234,510 $11,487,742
Intangible Assets $2,629,000 -- -- 2.2 $15,373,544 $20,210,372
2.3 $2,207,828
Capital assets $699,235 $61,500 $78,186 -- $838,921
----------------------------------------------------------------------------------------------
TOTAL ASSETS $12,606,411 $659,680 $455,062 $18,815,882 $32,537,035
==============================================================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $1,177,278 $98,782 $171,193 2.2 $121,976 $1,869,229
2.3 $300,000
Current portion of capital leases $25,235 -- -- -- $25,235
Current portion of long-term debt -- $242 -- -- $242
Due to related parties $172,093 -- $22,697 -- $194,790
Due to shareholders $2,066 -- - -- $2,066
Income Taxes Payable -- -- $88,000 -- $88,000
Deferred Income Taxes -- -- $81,000 -- $81,000
----------------------------------------------------------------------------------------------
$1,376,672 $99,024 $362,890 $421,976 $2,260,562
Obligations under capital leases $68,227 -- -- -- $68,227
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,444,899 $99,024 $362,890 $421,976 $2,328,789
SHAREHOLDERS EQUITY
Share capital $21,724,146 $1,748,427 $92,172 2.1 $2,234,510 $40,770,880
2.2 $15,812,224
2.2 ($1,748,427)
2.3 $1,000,000
2.3 ($92,172)
Cumulative translation adjustment ($181,717) $53,693 $0 2.2 ($53,693) ($181,717)
Deficit ($10,380,917) ($1,241,464) $0 2.2 $1,241,464 ($10,380,917)
----------------------------------------------------------------------------------------------
$11,161,512 $560,656 $92,172 $18,393,906 $30,208,246
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $12,606,411 $659,680 $455,062 $18,815,882 $32,537,035
==============================================================================================
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-7
<PAGE> 71
JAWS TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME/LOSS
(All amounts in $U.S.)
Twelve Month Period ending December 31, 1999
<TABLE>
<CAPTION>
Pace Jaws
JAWS Systems Offsite Nucleus Technologies,
Technologies, Group, Data Consulting Note Pro Forma Inc. Pro Forma
Inc. Inc. Storage Inc. Reference Adjustments Consolidated
AUDITED UNAUDITED UNAUDITED AUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE $592,046 $667,469 $234,750 $3,434,719 -- $4,928,984
COST OF SALES $0 $0 $187,771 $0 -- $187,771
EXPENSES
Advertising & Promotion $363,916 $0 $124,757 $0 -- $488,673
General & Administration $5,557,447 $129,569 $539,693 $2,854,913 -- $9,101,622
Sub-contracting costs $0 $897,704 $0 $0 -- $897,704
Technical Services $0 $0 $87,418 $0 -- $87,418
-----------------------------------------------------------------------------------------------------------------------------------
Loss before Interest, Financing
Fees,
Depreciation & Amortization ($5,349,317) ($359,804) ($704,889) $579,806 -- ($5,834,204)
Interest Expense & Amortization
of Deferred Financing Fees &
Debt Discount $1,140,050 $0 $0 $6,587 -- $1,146,637
Financing Fees $447,187 $0 $0 $0 -- $447,187
Depreciation & Amortization $231,222 $1,128 $36,443 $0 3.0 $6,529,433 $6,798,225
-----------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD ($7,167,776) ($360,932) ($741,332) $573,219 ($14,226,254)
Net loss per common share ($0.50) -- -- -- -- ($0.70)
Weighted avg. number of shares 14,342,053 -- -- -- 2.3 142,587 20,318,265
outstanding 2.2 5,245,407
2.1 588,238
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-8
<PAGE> 72
JAWS TECHNOLOGIES INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the audited financial statements
as at December 31, 1999 and for the 12 month period then ended of Jaws
Technologies, Inc. (a Nevada corporation) ("Jaws") and the unaudited
financial statements of Pace Systems Group Inc. ("Pace"), and Offsite
Data Services Ltd. ("Offsite"), and the audited financial statements of
Nucleus Consulting Inc ("Nucleus"), together with other information
available to the companies. In the opinion of the management of Jaws,
these unaudited pro forma consolidated financial statements include all
adjustments necessary for fair presentation in accordance with
generally accepted accounting principles in the United States. These
unaudited pro forma consolidated financial statements may not be
indicative of the financial position or the results of operations that
actually would have occurred if the events reflected therein had been
in effect on the dates indicated nor of the financial position or the
results of operations which may be obtained in the future.
These unaudited pro forma consolidated financial statements should be
read in conjunction with the audited and unaudited financial statements
of the companies included elsewhere in this filing.
2. The unaudited pro forma consolidated balance sheet as at December 31,
1999 gives effect to the following assumptions and transactions
outlined in this filing as if the effective dates of those transactions
were December 31, 1999:
2.1 On February 22, 2000, Jaws issued 588,238 shares under a
private placement to a group of investors for net cash of
$2,234,510. This cash will be used to fund operational
commitments in the year 2000.
2.2 The acquisition of all of the outstanding common shares of
Offsite (including common shares of Offsite issuable on the
exercise of all of the outstanding Offsite A warrants) for
5,253,786 exchangeable shares of Jaws with an ascribed value
of $14,162,599
Pursuant to this Offer, Jaws issued 1,389,800 warrants in
exchange for the outstanding Offsite warrants. 889,800 of
these warrants entitle the holder thereof to acquire .3524 of
a Jaws common share upon payment of Cdn $0.40 ($0.28 USD). Of
which 834,023 warrants were exercised for Cdn $297,073 and
46,777 warrants expired on March 15, 2000; the remaining
500,000 warrants entitle the holder to acquire .3524 of a Jaws
common share for prices ranging from Cdn $0.50 ($0.34 USD) to
Cdn $0.55 ($0.38 USD) up to September 29, 2001. Pursuant to
this Offer, 910,584 stock options of Offsite are exchanged for
stock options of Jaws, which entitle the holder of each to
purchase .3524 of an exchangeable share of Jaws, at a price of
Cdn $0.25 ($0.17 USD) which expire on March 15, 2004. A value
of $1,649,625 has been ascribed to the warrants and options
acquired on the acquisition.
The acquisition has been accounted for in these unaudited pro
forma consolidated financial statements using the purchase
method. The aggregate purchase price of $15,934,200 has been
allocated to the net assets acquired based on their estimated
fair values, as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE
ALLOCATION
<S> <C>
Net assets acquired $ 560,656
Goodwill $ 15,373,544
</TABLE>
F-9
<PAGE> 73
<TABLE>
<CAPTION>
<S> <C>
PURCHASE PRICE $ 15,934,200
Consideration:
Common Shares of JAWS $14,162,599
Value of Warrants and Options Exchanged $ 1,649,625
Acquisition Costs $ 121,976
TOTAL CONSIDERATION $ 15,934,200
</TABLE>
2.3 The acquisition of all of the outstanding shares of Nucleus for
$250,000 in cash and 142,857 shares of Jaws with an ascribed value of
$1,000,000. The company paid additional consideration of $750,000 into
a trust, which will be released on the third, sixth and nine month
anniversary of the closing of the transaction. In addition there is
contingent consideration payable of 285,714 commons shares of the
Company at an ascribed value of $7.00 per share or $2,000,000 in total.
Half of the common share consideration will be released if the actual
revenues and earnings before interest and taxes for the year ended
April 20, 2001 equal or exceed $3,500,000 and $800,000 respectively and
the remaining share consideration will be released if actual revenues
and earnings for the year ended April 20, 2002 equal or exceed
$5,250,000 and $1,200,000 respectively. The contingent consideration
has not been reflected in these unaudited pro forma consolidated
financial statements, as the outcome of the contingent share
consideration cannot be reasonably determined at this time.
The acquisition has been accounted for in these unaudited pro forma
consolidated financial statements using the purchase method. The
aggregate purchase price of $2,300,000 has been allocated to the net
assets acquired based on their estimated fair values, as follows:
F-10
<PAGE> 74
<TABLE>
<CAPTION>
PURCHASE PRICE
ALLOCATION
<S> <C>
Net assets acquired $ 92,172
Goodwill $ 2,207,828
Purchase Price $ 2,300,000
Consideration:
Common Shares of JAWS $ 1,000,000
Cash $ 1,000,000
Acquisition Costs $ 300,000
TOTAL CONSIDERATION $2,300,000
</TABLE>
3. The unaudited pro forma consolidated statement of income for the twelve
month period ended December 31, 1999 gives effect to the acquisitions by
Jaws as described in 2.0 above in addition to the acquisition of PACE,
as if the transactions had occurred January 1, 1999. The following
adjustments are reflected:
3.1 The amortization of goodwill attributable to the allocation of
the purchase price of PACE in excess of the carrying value of
the net assets acquired, calculated on a straight-line basis
over a period of three years.
3.2 The amortization of goodwill attributable to the allocation of
the purchase price of Offsite in excess of the carrying value
of the net assets acquired, (see 2.2 above) calculated on a
straight-line basis over a period of three years.
3.3 The amortization of goodwill attributable to the allocation of
the purchase price of Nucleus in excess of the carrying value
of the net assets acquired, (see 2.3 above) calculated on a
straight-line basis over a period of three years.
4. The amounts shown in these unaudited pro forma consolidated financial
statements for Pace and for Offsite have been translated into United
States dollars from Canadian dollars at the period end rate for the
balance sheet and the period average rate for the income statement.
F-11
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
The Board of Directors of JAWS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of JAWS
Technologies, Inc. (and subsidiaries) as at December 31, 1999, and 1998 and the
related consolidated statements of loss and deficit and comprehensive loss,
changes in stockholders' equity and cash flows for the years ended December 31,
1999, and 1998, and for the period from the date of incorporation on January 27,
1997 to December 31, 1997. 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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JAWS Technologies,
Inc. (and subsidiaries) as at December 31, 1999 and 1998 and the consolidated
results of their operations and their cash flows for the years ended December
31, 1999, and 1998, and for the period from the date of incorporation on January
27, 1997 to December 31, 1997, in accordance with accounting principles
generally accepted in the United States.
Calgary, Canada /s/ Ernst & Young
February 25, 2000 Chartered Accountants
(except for notes 18(a) and 18(b)
which are as at May 30, 2000)
F-12
<PAGE> 76
JAWS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
As at
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
$ $ $
------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT
<S> <C> <C> <C>
Cash and cash equivalents 8,925,293 8,430,701 33,732
Term deposits 437,970 431,729 --
Accounts receivable 812,604 338,825 7,243
Due from related parties 76,486 1,777 13,118
Prepaid expenses and deposits 222,361 75,144 140,456
------------------------------------------------------------------------------------------------------------------------------------
10,474,714 9,278,176 194,549
Equipment and leasehold improvements, net 1,249,083 699,235 78,830
Intangible assets 17,132,051 2,629,000 --
Investment 20,000 -- --
------------------------------------------------------------------------------------------------------------------------------------
28,875,848 12,606,411 273,379
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT
Bank indebtedness 461,687 -- --
Accounts payable and accrued liabilities 1,344,566 1,177,278 428,600
Current portion of capital lease obligations payable 53,992 25,235 --
Due to related parties 174,144 172,093 197,115
Due to stockholders 235,743 2,066 74,717
------------------------------------------------------------------------------------------------------------------------------------
2,270,132 1,376,672 700,432
------------------------------------------------------------------------------------------------------------------------------------
Capital lease obligations payable 139,000 68,227 --
Convertible debentures -- -- 146,606
------------------------------------------------------------------------------------------------------------------------------------
139,000 68,227 146,606
------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIENCY)
Authorized
95,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
OUTSTANDING:
32,041,427 common shares issued and fully paid
(December 31, 1999 - 25,040,188; December 31,
1998 - 10,612,317)
Common stock issued and paid-up 32,041 25,040 10,612
Additional paid in capital 41,188,559 21,699,106 2,637,712
Cumulative translation adjustment (352,916) (181,717) (8,842)
Deficit (14,400,968) (10,380,917) (3,213,141)
------------------------------------------------------------------------------------------------------------------------------------
26,466,716 11,161,512 (573,659)
------------------------------------------------------------------------------------------------------------------------------------
28,875,848 12,606,411 273,379
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 77
JAWS TECHNOLOGIES, INC.
The accompanying notes are an integral part of these financial statements
On behalf of the Board:
Director Director
F-14
<PAGE> 78
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
PERIOD FROM
THE DATE OF
INCORPORATION
3 MONTHS ENDED ON JANUARY 27,
----------------------------- YEAR ENDED YEAR ENDED TO
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE
Consulting and product revenue 546,685 3,009 573,255 27,042 --
Interest income 105,297 38 18,791 2,026 --
------------------------------------------------------------------------------------------------------------------------------------
651,982 3,047 592,046 29,068 --
------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Advertising and promotion 475,166 149,248 363,916 218,574 35,000
General and administration 3,295,802 586,520 5,589,899 1,574,453 101,274
Software development costs -- -- -- 909,003 --
------------------------------------------------------------------------------------------------------------------------------------
3,770,968 735,768 5,953,815 2,702,030 136,274
Loss before interest, financing fees, foreign
exchange (gain)/loss, depreciation and
amortization (3,118,986) (732,721) (5,361,769) (2,672,962) (136,274)
Interest expense, financing fees and debt
discount 13,365 447,885 1,587,237 389,715 --
Foreign exchange (gain) loss (175,565) 9,929 (12,452) (431) --
Depreciation 61,825 11,450 104,836 14,041 580
Amortization 1,001,440 -- 126,386 -- --
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (4,020,051) (1,201,985) (7,167,776) (3,076,287) (136,854)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (171,199) (12,080) (172,875) (8,842) --
------------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS (4,191,250) (1,214,065) (7,340,651) (3,085,129) (136,854)
------------------------------------------------------------------------------------------------------------------------------------
DEFICIT, BEGINNING OF PERIOD (10,380,917) (3,213,141) (3,213,141) (136,854) --
NET LOSS FOR THE PERIOD (4,020,051) (1,201,985) (7,167,776) (3,076,287) (136,854)
------------------------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (14,400,968) (4,415,126) (10,380,917) (3,213,141) (136,854)
====================================================================================================================================
NET LOSS PER COMMON SHARE (0.14) (0.11) (0.50) (0.42) (0.03)
</TABLE>
F-15
<PAGE> 79
JAWS TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 28,774,888 10,670,321 14,342,053 7,405,421 4,000,000
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-16
<PAGE> 80
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive Accumulated
Shares Par Value Paid in Capital Loss Deficit Total
# $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 27, 1997 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for cash 4,000,000 4,000 56,000 -- -- 60,000
Share issue costs -- -- (24,350) -- -- (24,350)
Loss for the year -- -- -- -- (136,854) (136,854)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 4,000,000 4,000 31,650 -- (136,854) (101,204)
-----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for services 400,000 400 199,600 -- -- 200,000
Issuance of common stock on acquisition
of subsidiary 1,500,000 1,500 838,248 -- -- 839,748
Issuance of common stock for cash 2,800,000 2,800 1,017,200 -- -- 1,020,000
Warrants issued with issuance of
convertible debentures -- -- 342,857 -- -- 342,857
Equity component of convertible
debentures -- -- 118,462 -- -- 118,462
Equity component of financing fees -- -- (35,760) -- -- (35,760)
Issue of common stock upon conversion
of convertible debentures 1,912,317 1,912 211,886 -- -- 213,798
Financing fees associated with converted
debentures -- -- (21,117) -- -- (21,117)
Share issue costs -- -- (65,314) -- -- (65,314)
Loss for the year -- -- -- (8,842) (3,076,287) (3,085,129)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 10,612,317 10,612 2,637,712 (8,842) (3,213,141) (573,659)
-----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for cash 7,233,132 7,233 13,340,344 -- -- 13,347,577
Share issue costs -- -- (988,477) -- -- (988,477)
Equity component of convertible
debentures -- -- 617,867 -- -- 617,867
Equity component of financing fees -- -- (143,356) -- -- (143,356)
Warrants issued with issuance of
convertible debentures -- -- 341,538 -- -- 341,538
Issuance of common stock for services 360,547 360 309,379 -- -- 309,739
Exercise of employee stock options 15,000 15 2,235 -- -- 2,250
Issuance of stock options recorded as
compensation -- -- 810,000 -- -- 810,000
Issuance of common stock for settlement
of debt 3,215,355 3,215 1,493,076 -- -- 1,496,291
Issuance of common stock for cash as a
result of exercise of warrants 1,428,572 1,429 398,571 -- -- 400,000
</TABLE>
F-17
<PAGE> 81
JAWS TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for settlement
of warrants 751,648 752 258,193 -- -- 258,945
Issuance of common stock on acquisition
of subsidiary 1,385,546 1,386 2,354,042 -- -- 2,355,428
Issuance of common stock warrants and
options on acquisition of assets 38,071 38 267,982 -- -- 268,020
Loss for the year -- -- -- (172,875) (7,167,776) (7,340,651)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 25,040,188 25,040 21,699,106 (181,717) (10,380,917) 11,161,512
----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Issuance of common stock for cash 588,238 588 2,499,423 -- -- 2,500,011
Share issue costs -- -- (265,501) -- -- (265,501)
Exercise of employee stock options 88,333 88 43,695 -- -- 43,783
Issuance of common stock for cash as a
result of exercise of warrants 1,079,261 1,079 1,404,858 -- -- 1,405,937
Issuance of common stock, warrants and
options on acquisition of
subsidiary 5,245,407 5,246 15,806,978 -- -- 15,812,224
Loss for the year -- -- -- (171,199) (4,020,051) (4,191,250)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 32,041,427 32,041 41,188,559 (352,916) (14,400,968) 26,466,716
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-18
<PAGE> 82
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
PERIOD FROM
THE DATE OF
INCORPORATION
ON JANUARY
YEAR ENDED YEAR ENDED 27, TO
DECEMBER DECEMBER DECEMBER 31,
3 MONTH PERIOD ENDED 31, 1999 31, 1998 1997
-----------------------------
MARCH 31, MARCH 31,
2000 1999
$ $ $ $ $
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net loss for the period (4,020,051) (1,201,985) (7,167,776) (3,076,287) (136,854)
Adjustments to reconcile loss to cash
flows used in
operating activities: --
General and administration expense not
involving the
payment of cash -- -- 99,839 200,000 --
Depreciation 61,825 11,450 104,836 14,041 580
Amortization 1,001,440 -- 126,386 --
--
Non cash compensation expense -- -- 810,000 -- --
Non-cash interest expense and amortization
of deferred financing fees
and debt discount -- 446,633 1,129,709 386,846 --
Software development costs -- -- -- 909,003 --
Non-cash financing fees -- -- 447,187 -- --
Foreign exchange (gain)/loss (175,565) 9,929 (12,452) (431) --
Changes in non-cash working capital balances (263,297) 488,867 279,193 439,422 25,476
----------------------------------------------------------------------------------------------------------------------------------
(3,395,648) (245,106) (4,183,078) (1,127,406) (110,798)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements (411,967) (236,640) (636,267) (115,153) (2,900)
Purchase of term deposits (6,241) -- (431,729) -- --
Net cash acquired on purchase of subsidiary 182,532 -- (30,656) 1,380 --
Purchase of investment (20,000) -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
(255,676) (236,640) (1,098,652) (113,773) (2,900)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS GENERATED BY FINANCING ACTIVITIES --
Proceeds from the issuance of common stock, net of issue
costs 3,684,229 101,500 12,761,350 954,686 35,650
Repayment of stockholder advances -- (62,591) (72,651) (78,159) --
Proceeds from stockholder advances -- 9,533 -- 20,273 78,159
Proceeds on issue of convertible debenture -- 500,000 1,100,000 420,000 --
Financing fees on issue of convertible debenture -- (50,000) (110,000) (42,000) --
----------------------------------------------------------------------------------------------------------------------------------
3,684,229 498,442 13,678,699 1,274,800 113,809
----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH 32,905 16,696 8,396,969 33,621 111
Cash and cash equivalents, beginning of period 8,430,701 33,732 33,732 111 --
----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 8,463,606 50,428 8,430,701 33,732 111
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash and cash equivalents consists of cash, term deposits with maturities less
than 30 days, and bank indebtedness
The accompanying notes are an integral part of these financial statements
F-19
<PAGE> 83
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
1. BASIS OF PRESENTATION
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's business purpose is to continue to develop as a provider of secure
information management solutions. This is accomplished through offering
proprietary security software products, consulting services and secure Internet
and remote data storage services for key client groups including governments,
law enforcement, healthcare, legal and accounting, financial services,
e-commerce, internet service providers and application service providers. These
activities are carried out through the Company's wholly-owned Canadian
subsidiaries and U.S. subsidiary.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, JAWS Technologies, Inc., an Alberta, Canada
corporation ("JAWS Alberta"), JAWS Technologies (Ontario) Inc. an Ontario,
Canada corporation ("JAWS Ontario"), JAWS Technologies (Delaware) Inc., a
Delaware corporation ("JAWS Delaware"), and Offsite Data Services Ltd., an
Alberta, Canada corporation ("Offsite"), after elimination of intercompany
accounts and transactions.
The Company has experienced net losses over the past three years and, as of
March 31, 2000, has an accumulated deficit of $14,400,968. Such losses
are attributable to both cash losses and losses resulting from costs incurred in
the development of the Company's services and infrastructure and non-cash
interest and amortization charges. The Company expects operating losses to
continue for the foreseeable future as it continues to develop and promote its
services, and establish its business, while working towards profitability.
Accordingly, the Company will be dependent upon obtaining additional financing
to maintain its continuing operations and rapid development.
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
F-20
<PAGE> 84
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
affect the amount of recorded assets, liabilities, revenues and expenses. Actual
amounts could differ from these estimates.
CASH, CASH EQUIVALENTS AND TERM DEPOSITS, AND BANK INDEBTEDNESS
Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and with original maturities of three months or
less when purchased. Bank indebtedness represents bank overdrafts on the
Company's chequeing accounts. The Company invests its excess cash in term
deposits maintained primarily in Canadian financial institutions in an effort to
preserve principal and to maintain safety and liquidity.
Term deposits include investments with original maturities of one month or less
when purchased.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements 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>
Security equipment - 20% straight line
Furniture and fixtures - 20% declining balance
Computer hardware - 33% straight line
Computer software for internal use - 33% straight line
Leasehold improvements - 20% straight line
</TABLE>
CAPITAL LEASES
Leases in which substantially all the benefits and risks of ownership are
transferred to the Company are capitalized with an offsetting amount recorded as
a liability.
LONG-LIVED ASSETS
The Company follows financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of," which requires
F-21
<PAGE> 85
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present.
INTANGIBLE ASSETS
Employee and Consultants Base
The employee and consultants base recorded on the acquisition of Pace, SDTC, and
Offsite, are recorded at cost and are being amortized on a straight-line basis
over three years.
Goodwill
Goodwill is recorded at cost and is being amortized on a straight-line basis
over three years. The recoverability of goodwill is assessed periodically based
on management estimates of undiscounted future operating income from each of the
acquired businesses to which the goodwill relates.
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.
REVENUE RECOGNITION
Product Revenue
Revenue from selling encryption software is recognized when the software is
delivered.
Consulting Revenue
Revenue from information technology services and outsourcing contracts is
recognized when the service is rendered.
ADVERTISING
Advertising costs are expensed as incurred.
F-22
<PAGE> 86
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
FINANCING FEES
Financing fees associated with that portion of the convertible debentures
classified as debt were deferred and amortized straight-line over the life of
the debentures. Financing fees associated with that portion of the convertible
debentures classified as additional paid in capital was charged to that account.
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.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Canadian subsidiaries is the Canadian
dollar. Accordingly, assets and liabilities of the Canadian subsidiaries 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 subsidiaries are recorded in a
"Cumulative Translation Adjustment" account in stockholders' equity.
Transactions denominated in foreign currencies are translated at the exchange
rate on the transaction date. The resulting exchange gains and losses on these
items are included in net earnings.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share has been calculated based on the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per common share is calculated by adjusting outstanding shares, assuming
any dilutive effects of options, warrants, and convertible securities.
STOCK BASED COMPENSATION
F-23
<PAGE> 87
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
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.
PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform to the
presentation adopted in the current period.
3. ACQUISITIONS
a. JAWS ALBERTA
On February 10, 1998 the Company issued 1,500,000 restricted common shares with
an ascribed value of $1,200,000 CDN ($839,748 USD), 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 Alberta. The options
issued in connection with the acquisition have been ascribed no value. JAWS
Alberta was 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 the amounts allocated to software under development and
the common 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
Equipment 2,891
Due to stockholders (54,443)
-------------------------------------------------------------------------------
Net assets acquired, excluding cash 852,364
Acquisition costs (13,996)
Cash acquired 1,380
</TABLE>
F-24
<PAGE> 88
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C>
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 on 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 though it had
occurred as at January 1, 1998 do not differ materially from that recorded.
b. PACE SYSTEMS GROUP INC. ("PACE")
Effective November 3, 1999, the Company issued 1,385,546 exchangeable common
shares at $1.70 per share, which are exchangeable into 1,385,546 common shares
of the Company, in exchange for all of the outstanding common stock of Pace. In
addition, there is contingent consideration payable of 346,386 exchangeable
common shares subject to the achievement of certain targets. Fifty percent of
the additional share consideration will be released if on the 12 month
anniversary date of the effective date, actual gross revenues equal or exceed
$2,000,000 CDN. ($1,377,505 USD) for the previous 12 month period. The remaining
additional share consideration will be released if, on the 24 month anniversary
date of the effective date, actual revenues for the previous twelve months equal
or exceed $2,000,000 CDN. ($1,377,505 USD). The additional consideration has not
been reflected in these consolidated financial statements, as the outcome of the
contingent share consideration cannot be reasonably determined at this time. The
additional share consideration will be recorded as employee and consultants base
and goodwill as it becomes payable.
The acquisition was accounted for using the purchase method. The purchase price
has been allocated to the net assets based on their estimated fair values as
follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------
<S> <C>
Employee and consultants base 1,193,042
Goodwill 1,193,042
--------------------------------------------------------------------------------
NET ASSETS ACQUIRED 2,386,084
================================================================================
</TABLE>
F-25
<PAGE> 89
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<S> <C>
Consideration:
1,385,546 common stock 2,355,428
Acquisition costs 30,656
--------------------------------------------------------------------------------
TOTAL CONSIDERATION 2,386,084
================================================================================
</TABLE>
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
F-26
<PAGE> 90
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
C. SECURE DATA TECHNOLOGIES CORPORATION ("SDTC")
Effective December 31, 1999 the Company purchased substantially all of the
assets of SDTC for a total purchase price of $525,234, through the Company's
wholly-owned subsidiary JAWS Delaware. SDTC was incorporated in December 1998
and had no material operations prior to January 1, 1999. The purchase price
provided for a promissory note of $297,081 and 38,071 common shares, noticed for
issuance, at $7.04 per share, totalling $268,020, as well as contingent
consideration of an additional 9,516 common shares subject to the achievement of
certain targets. The issuance of 9,516 common stock is dependent upon achieving
revenues equal to the greater of $200,000 per employee, or a minimum of
$1,200,000, for the fiscal year 2000 only. The additional consideration has not
been reflected in these consolidated financial statements, as the outcome of the
contingent share consideration cannot be reasonably determined at this time. The
additional share consideration will be recorded as employee and consultants base
and goodwill as it becomes payable.
The acquisition was accounted for using the purchase method. The purchase price
has been allocated to the assets based on their estimated fair values as
follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------
<S> <C>
Equipment 155,932
Employee and consultants base 184,651
Goodwill 184,651
--------------------------------------------------------------------------------
NET ASSETS ACQUIRED 525,234
================================================================================
Consideration:
38,071 common stock 268,020
Promissory note 257,214
--------------------------------------------------------------------------------
TOTAL CONSIDERATION 525,234
================================================================================
</TABLE>
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the effective date of
acquisition.
d. OFFSITE DATA SERVICES LTD. ("OFFSITE")
Effective January 29, 2000, the Company acquired 96% of the issued and
outstanding shares of Offsite Data Services Ltd., a company incorporated in the
Province of Alberta, Canada, in exchange for 5,048,420 exchangeable shares of
the Company with an ascribed value of $13,630,734 and the outstanding Offsite
warrants in exchange for 1,389,800 warrants.
F-27
<PAGE> 91
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
Prior to March 31, 2000, the Company acquired the remaining issued and
outstanding shares of Offsite pursuant to the compulsory acquisition provisions
in exchange for 196,987 exchangeable shares of the Company, with an ascribed
value of $531,865. Prior to expiry of these warrants, 843,023 were exercised for
297,081 exchangeable shares of the Company and 46,777 expired. Exchangeable
shares have economic rights, including the right to any dividend and voting
attributes equivalent to the Company's common stock. The holders of the
exchangeable shares have the right to receive Company common stock on a one for
one basis. The cash received from the exercised warrants of $337,209 CDN.
($232,654 USD) is being held in trust. The remaining 500,000 warrants entitle
the holder to acquire 0.3524 of one of the Company's common shares for prices
ranging from $0.50 CDN. ($0.34 USD) to $0.55 CDN. ($0.38 USD) up to September
29, 2001. In addition, 910,584 stock options to purchase shares of Offsite have
been exchanged for 910,584 stock options to purchase shares of the Company. The
options entitle the holder to purchase 0.3524 of an exchangeable share of the
Company, at a price of $0.25 CDN. ($0.17 USD) and expire on March 15, 2004. A
value of $1,649,625 has been ascribed to the warrants and options acquired on
the acquisition.
The acquisition has been accounted for using the purchase method. The purchase
price has been allocated to the net assets acquired based on their estimated
fair values, as follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------
<S> <C>
Cash acquired 304,508
Other net assets acquired 125,201
Employee and consultants base 7,752,245
Goodwill 7,752,246
--------------------------------------------------------------------------------
NET ASSETS ACQUIRED 15,934,200
================================================================================
Consideration:
5,253,786 common stock 14,162,599
Value of warrants and options exchanged 1,649,625
Acquisition costs 121,976
--------------------------------------------------------------------------------
TOTAL CONSIDERATION 15,934,200
================================================================================
</TABLE>
The operating results of the acquired company are included in the consolidated
statement of loss, deficit and comprehensive loss from the date of acquisition.
F-28
<PAGE> 92
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
The following pro forma results of operations give effect to the acquisitions of
Pace, SDTC and Offsite as if the transactions had occurred January 1, 2000 and
1999 and includes the amortization of goodwill and employee and consultants base
calculated on a straight-line basis over a period of 3 years.
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED YEAR ENDED
------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998
$ $ $ $
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 683,159 331,884 1,856,302 1,772,285
----------------------------------------------------------------------------------------
EXPENSES
Subcontracting costs -- 109,389 2,209,205 1,604,394
Other costs and expenses 5,300,114 2,985,430 14,250,474 8,683,076
----------------------------------------------------------------------------------------
5,300,114 3,094,819 16,459,679 10,287,470
----------------------------------------------------------------------------------------
NET LOSS (4,616,955) (2,762,935) (14,603,377) (8,515,185)
NET LOSS PER COMMON SHARE (0.16) (0.26) (1.02) (1.15)
----------------------------------------------------------------------------------------
</TABLE>
4. TERM DEPOSITS
The term deposits are on deposit with a Canadian Chartered Bank. Of the
deposits, $24,890 have been pledged as collateral for certain corporate credit
cards, and as such are not available for the Company's general use. The term
deposits earn interest at 2.95 percent per annum and mature May 29, 2000.
5. INVESTMENT
On January 6, 2000, the Company exercised their option to purchase 2,000,000 of
Cobratech Industries Inc. common shares (25% of Cobratech) for $20,000, and
granted Cobratech the exclusive right to market and sell the Company's products
in Asia for a four year period commencing on October 19, 1999. The Company will
receive a 25% royalty on all products sold by Cobratech. No royalties have been
received to date. As Cobratech has issued additional common shares since January
6, 2000, JAWS currently holds 18% of the outstanding Cobratech common shares.
Accordingly, this investment has been recorded at cost.
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
F-29
<PAGE> 93
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
COST
------------------------------------------------------
MARCH 31 DECEMBER 31
------------------------------------------------------
2000 1999 1999 1998
$ $ $ $
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Security equipment 26,070 -- 26,106 --
Furniture and fixtures 272,172 134,036 206,785 31,758
Computer hardware 832,158 83,689 367,301 47,371
Computer software for internal use 96,525 13,819 32,703 13,162
Leasehold improvements 250,910 98,942 184,637 ---
-------------------------------------------------------------------------------------------------
1,477,835 330,486 817,532 92,291
-------------------------------------------------------------------------------------------------
Less accumulated depreciation 228,752 24,976 118,297 13,461
-------------------------------------------------------------------------------------------------
NET BOOK VALUE 1,249,083 305,510 699,235 78,830
=================================================================================================
</TABLE>
7. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------------------------------------------------------------------------
<S> <C> <C> <C>
Employee and consultants base 9,129,938 563,913 8,566,025
Goodwill 9,129,939 563,913 8,566,026
--------------------------------------------------------------------------
18,259,877 1,127,826 17,132,051
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
DECEMBER 31,
1999
----------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
---------------------------------------------------------------------------
<S> <C> <C> <C>
Employee and consultants base 1,377,693 63,193 1,314,500
Goodwill 1,377,693 63,193 1,314,500
---------------------------------------------------------------------------
2,755,386 126,386 2,629,000
===========================================================================
</TABLE>
8. SHARE CAPITAL
AUTHORIZED
F-30
<PAGE> 94
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
95,000,000 common shares at $0.001 par value, including exchangeable shares
5,000,000 preferred shares at $0.001 par value
COMMON STOCK ISSUED
During 1998, 400,000 restricted common shares were issued for 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.
During 1999, the Company issued 141,000 and 11,999 common shares at $1.34 and
$0.90 per common share respectively for a total of $199,739 in settlement of
trade payables.
During 1999, the Company issued 207,548 common shares as per the contracted
terms, at $0.53 per common share or $110,000 for settlement of amounts
outstanding to two directors for services provided. The expense has been
included in general and administration expense [See note 9].
COMMON STOCK HELD IN ESCROW
Effective November 3, 1999, the Company placed 1,385,546 common shares in escrow
relating to the acquisition of Pace.
Upon entering into the 10% convertible debenture agreement [see note 10] the
Company placed 9,500,000 common shares in escrow relating to the $2 million of
financing. In addition, 1,071,429 shares and 357,143 common shares were placed
in escrow relating to the purchasers' and agent's warrants issued in relation to
the 10% convertible debenture agreement. Upon settlement of the convertible
debentures November 1, 1999, all of these common shares were released from
escrow [see note 10].
OPTIONS
The Company is authorized to grant employees options to purchase up to an
aggregate of common stock not in excess of 20% of the common stock issued and
outstanding, at prices based on the market price of the shares as determined on
the date of grant.
F-31
<PAGE> 95
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF PRICE PER AVERAGE
OPTIONS SHARE EXERCISE PRICE
$ $
---------------------------------------------------------------------------------
<S> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1998 1,667,000 0.15 - 0.69 0.41
---------------------------------------------------------------------------------
Granted 2,221,721 0.37 - 7.56 1.74
Exercised (15,000) 0.15 0.15
Cancelled (85,267) 0.15 - 0.98 0.41
---------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1999 3,788,454 0.15 - 7.56 1.18
---------------------------------------------------------------------------------
Granted 361,964 6.25 - 13.25 8.90
Exercised (88,333) 0.37 - 0.65 0.50
Cancelled (61,884) 0.48 - 7.50 1.05
---------------------------------------------------------------------------------
OUTSTANDING AT MARCH 31, 2000 4,000,201 0.15 - 13.25 1.95
=================================================================================
</TABLE>
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of March 31, 2000
were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING Options exercisable
----------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
$ $ $
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.15 - 0.40 458,500 3.31 0.26 286,167 0.21
0.44 - 0.87 1,673,167 3.38 0.60 1,323,667 0.57
1.44 - 2.72 1,383,241 3.15 1.84 1,081,970 1.70
4.81 -12.81 441,123 4.40 8.04 -- --
13.25 44,170 3.93 13.25 -- --
----------------------------------------------------------------------------------------
</TABLE>
The fair value of each option granted to date is estimated on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
expected volatility of 115% (December 31, 1999 - 151%; March 31, 1999 - 171%;
December 31, 1998 - 153%), risk-free interest rate of 5.15% (December 31, 1999 -
4.87%; March 31, 1999 - 4.95%; December 31, 1998 - 4.0%); no payment of common
share dividends for all years; and expected life of 3 years (December 31, 1999 -
3 years; March 31, 1999 - 10 years; December 31, 1998 - 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
F-32
<PAGE> 96
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and net loss per common share for the period ended March 31,
2000 would have been $4,077,212 and $0.14 respectively (December 31, 1999 -
$9,121,253 and $0.64; March 31, 1999 - $1,303,187 and $0.12; December 31, 1998 -
$3,324,618 and $0.45 respectively).
During 1999 the Company granted a total of 500,000 options to two officers of
the Company at an exercise price of $1.88 per share which was calculated based
on the previous three month's average price. The difference between the exercise
price and the trading price on the day prior to the grant date, has been
recognized as compensation expense for the year ended December 31, 1999.
The weighted average fair value of options granted during 2000 was $8.90 (1999 -
$2.32; 1998 - $0.41).
WARRANTS ISSUED
During 1998, the Company had 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.
On April 26, 1999, the Company and the investor agreed to cancel the agreement
in exchange for 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.
On June 21, 1999, the Company issued 1,000,000 share purchase warrants, which
entitle the holder to purchase 1,000,000 common shares at $2.25 per share until
June 30, 2001.
On November 1, 1999, the Company issued 411,765 share purchase warrants, which
entitle the holder to purchase 411,765 common shares at $1.70 per share until
November 30, 2002.
On December 31, 1999, the Company issued 2,176,418 share purchase warrants in
connection with an issuance of 2,176,418 shares of common stock, which entitle
the holder to purchase one-half of one share of common stock of the Company at
an exercise price of $6.50 per share. As a financing fee, the Company issued
217,642 warrants to the placement agent, which entitle the agent to purchase one
share of common stock at an exercise price of $4.25 per share. Each warrant will
expire on March 29, 2003. If the share price of the Company exceeds $9.75 for 30
consecutive days any time after March 29, 2000, the Company, with 30 days
notice, may repurchase these warrants at a price of $0.001 per warrant.
On February 23, 2000, the Company issued 294,119 share purchase warrants in
connection with an issuance of 588,238 shares of common stock, which entitle the
holder to purchase one half of one share
F-33
<PAGE> 97
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
of common stock of the Company at $6.50 per share. In addition, as a financing
fee, the Company issued 58,824 warrants to the placement agent, which entitle
the agent to purchase one share of common stock at an exercise price of $4.25
per share. Each warrant will expire on March 29, 2003.
9. RELATED PARTY TRANSACTIONS
Unless otherwise noted, all related party transactions have been recognized at
their exchange amounts. Amounts due to/from related parties consist of the
following amounts:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER
2000 1999 31, 1998
$ $ $
----------------------------------------------------------------------
<S> <C> <C> <C>
DUE FROM RELATED PARTIES
Oxford Capital Corp. 65,921 -- --
Bankton Financial Corp. 10,565 -- --
Futurelink Corp. -- 1,777 13,118
----------------------------------------------------------------------
76,486 1,777 13,118
----------------------------------------------------------------------
DUE TO RELATED PARTIES
Officers and stockholders -- 4,821 43,588
Futurelink Corp. 19,760 42,888 32,175
Willson Stationers Ltd. -- -- 1,352
Directors 154,384 124,384 120,000
----------------------------------------------------------------------
174,144 172,093 197,115
----------------------------------------------------------------------
DUE TO STOCKHOLDERS
Bankton Financial Corp. -- -- 15,775
Cameron Chell 2,063 2,066 1,957
Hampton Park Ltd. -- -- 56,985
Other stockholder 233,680 -- --
----------------------------------------------------------------------
235,743 2,066 74,717
======================================================================
</TABLE>
General and administration expense for the period ended March 31, 2000, includes
$35,275 (March 31, 1999 - $nil; December 31, 1999 - $84,420; December 31, 1998 -
$76,612; December 31, 1997 - $nil) in fees associated with computer services
provided by Futurelink Corp., an entity of which certain directors were also
directors of the Company. The Company provided sales to Futurelink Corp. during
the period
F-34
<PAGE> 98
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
ended March 31, 2000 in the amount of $nil (March 31, 999 - $1,175; December 31,
1999 - $1,777; December 31, 1998 - $13,118; December 31, 1997 - $nil).
General and administration expenses for the period ended March 31, 2000, include
$nil (March 31, 1999 - $2,563; December 31, 1999 - $20,508; December 31, 1998 -
$8,035) paid to Willson Stationers Ltd., an entity of which certain directors
were also directors and officers of the Company.
During the period ended March 31, 2000, the Company expensed fees of $95,235
(December 31, 1999 - $22,714) associated with and for the benefit of the launch
of IT Florida.com, a government sponsored taskforce, the chairman of which is
also a director of the Company.
For the period ended March 31, 2000, general and administration expense includes
$125,000 (March 31, 1999 - $45,037; December 31, 1999 - $233,643; December 31,
1998 - $198,168; December 31, 1997 - $nil) of management fees to officers and
stockholders of the Company for services provided. General and administration
for the period ended March 31, 2000 includes $30,000 (March 31, 1999 - $32,499;
December 31, 1999 - $124,384; December 31, 1998 - $33,333; December 31, 1997 -
$nil) of directors fees.
Due to stockholders represents advances received by the Company. The amount due
to Hampton Park Ltd., a company owned by a stockholder, incurred interest at 8%
per annum and was repaid in 1999. The remaining amount due to stockholders does
not bear interest and has no set repayment terms.
General and administration expenses for the period ended March 31, 2000 include
$233,680 of consulting services provided by a stockholder. The payable will be
settled in common stock of the Company.
The Company entered into an agreement to lease premises from a stockholder who
is also an officer and director of the Company, commencing on November 1, 1998,
for a five year term. The minimum rent is $9.42 per square foot per annum with
9,920 square feet of net rentable area. Additional rent is estimated at $4.03
per square foot of net rentable area per annum. The net rent expense recognized
for the period ended March 31, 2000, that has been included in general and
administration expense, was $59,360 (March 31, 1999 - $5,986; December 31, 1999
- $129,611; December 31, 1998 - $3,991; December 31, 1997 - $nil). The Company
entered into a second lease agreement on April 1, 2000 to lease premises from a
stockholder who is also an officer and director of the Company for a five year
term. The minimum rent is $9.42 per square foot per annum with 7,500 square feet
of net rentable area. Additional rent is estimated at $4.03 per square foot of
net rentable area per annum. The net rent expense recognized for the year ended
March 31, 2000 was $nil.
Oxford Capital Corp. is an entity whose shareholders are also shareholders of
the Company.
F-35
<PAGE> 99
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
F-36
<PAGE> 100
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
10. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER DECEMBER
2000 31, 1999 31, 1998
$ $ $
------------------------------------------------------------------------------------------------------------
PRINCIPAL
<S> <C> <C> <C>
Net balance outstanding, beginning of period -- 146,606 --
Funds advanced to date -- 1,100,000 420,000
Debentures converted during the period -- (1,246,606) (210,000)
------------------------------------------------------------------------------------------------------------
-- -- 210,000
------------------------------------------------------------------------------------------------------------
FINANCING FEES
Fees paid on funds advanced to date -- (110,000) (42,000)
Intrinsic value associated with equity component of debentures -- 33,329 11,760
Fees paid through issuance of warrants to agent -- (341,538) (85,714)
Intrinsic value associated with equity component of debentures -- 110,027 24,000
Amortization of financing fees to date -- 75,601 5,158
Financing fees associated with debentures converted to date -- -- 21,117
Amortization of financing fees on settlement of debt -- (232,581) --
------------------------------------------------------------------------------------------------------------
-- -- (65,679)
------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Accrued interest expense -- 77,323 2,285
Interest expense converted on settlement of debt -- (77,323) --
------------------------------------------------------------------------------------------------------------
NET BALANCE OUTSTANDING, END OF PERIOD -- -- 146,606
------------------------------------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE> 101
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
In September, 1998 the Company entered into a debenture agreement to issue 10%
convertible debentures up to a total of $2,000,000 which mature on October 31,
2001. The debentures were convertible, at the holders' option, into common
shares of the Company at various prices as outlined in the agreement. The
Company could prepay any or all of the outstanding principal amounts at any
time, subject to the holders' right to convert into common shares. A financing
fee of 10% was charged on the principal sum of each convertible debenture
issued. Interest was payable in cash or common shares at maturity.
The agreement was amended in April, 1999 to include, among others, an increase
in the amount available from $2,000,000 to $5,000,000 and a reduction of the
financing fee to 8% on the additional amount available.
The Company issued $420,000 of debentures in 1998, and an additional $1,100,000
during 1999. Amounts of $118,462 and $617,867, in 1998 and 1999 respectively,
representing the intrinsic value of the conversion option, were recorded as
additional paid in capital with an offsetting charge to interest expense. The
portion of $152,000 of financing fees associated with the equity component of
the debentures were recorded as a reduction to paid in capital. The remainder,
which were recorded as a reduction of the debenture principal, were being
amortized on a straight-line basis over the life of the debentures.
At the time of initial funding in 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 granted the holder the right to purchase
one common share of the Company at $0.28 until October 31, 2001. The estimated
value of the subscriber warrants, in the amount of $342,857, was recorded as
additional paid in capital as they were exercisable upon issuance. The warrants
issued to the agent, with an estimated value of $85,714, were treated as a
financing fee; the portion thereof associated with the equity component of the
debenture ($24,000) was charged to additional paid in capital. The remainder was
being amortized on a straight-line basis over the life of the debentures. The
debenture amendment in April, 1999 included the issuance of an additional
923,077 warrants which granted the holder the right to purchase one common share
of the Company at $0.65. The estimated value of these warrants, in the amount of
$341,538 were recorded as additional paid in capital, reduced by an offsetting
amount of $110,027 attributable to the equity component of the debenture. The
remainder was charged as a discount to debt and was being amortized on a
straight-line basis over the life of the debentures.
During 1998, $210,000 principal amount of debentures, together with $3,798
interest, was converted into 1,912,317 common shares.
Effective November 1, 1999 the Company settled the entire outstanding principal
amount of the debentures in exchange for 3,157,712 common shares, at a
recognized value of $1,091,348. Accrued
F-38
<PAGE> 102
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
interest and penalties were settled in exchange for 57,643 common shares valued
at $404,943. As part of the settlement of the debt, the Company issued 1,428,572
common shares upon exercise of the 1,428,572 common stock purchase warrants,
which were granted at the time of the initial funding of the debt. The warrants
were exercised at the stated price of $0.28 per warrant. The Company also issued
751,648 shares of common stock upon exercise of the 923,077 common share
purchase warrants, which were granted at the time of the amendment in April
1999. In exchange for issuing 171,429 fewer shares as per the exercise agreement
terms, the warrant holders were not required to pay cash on the exercise of
these warrants; accordingly, the original amount recognized as additional paid
in capital has been reversed and $258,945 was recognized as financing expense.
11. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is net loss for the period divided by the
weighted average number of common shares outstanding. The effect on earnings
(loss) per share of the exercise of options and warrants, and the conversion of
the convertible debentures is anti-dilutive.
The following table sets forth the computation of earnings (loss) per common
share:
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED YEAR ENDED
--------------------------------------------------------------------------------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET LOSS (4,020,051) (1,201,985) (7,167,776) (3,076,287) (136,854)
--------------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Weighted average number of
common shares outstanding 28,774,888 10,670,321 14,342,053 7,405,421 4,000,000
--------------------------------------------------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED (0.14) (0.11) (0.50) (0.42) (0.03)
================================================================================================================================
</TABLE>
12. INCOME TAXES
F-39
<PAGE> 103
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
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>
3 MONTH PERIOD ENDED YEAR ENDED
---------------------------------------------------------------------------------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
---------------------------------------------------------------------------------------------------------------------------------
(34%) (34%) (34%) (34%) (34%)
<S> <C> <C> <C> <C> <C>
Income tax benefit at U.S. statutory rate (1,366,817) (408,675) (2,437,044) (1,045,938) (46,530)
Increase (decrease) in taxes resulting from:
Change in deferred tax asset valuation allowance 1,208,070 328,700 2,500,670 1,106,172 46,530
Non-deductible expenses 327,375 141,663 322,810 128,162 --
Foreign tax rate differences (205,789) (61,688) (368,588) (188,396) --
State tax rate differences (12,649) -- 1,508 -- --
Income not previously recognized 36,534 -- 2,439 -- --
Foreign exchange 13,276 -- (21,795) -- --
---------------------------------------------------------------------------------------------------------------------------------
Income tax benefit -- -- -- -- --
=================================================================================================================================
</TABLE>
For financial reporting purposes, loss before income taxes includes the
following components:
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED YEAR ENDED
-----------------------------------------------------------------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pre-tax loss:
United States (1,880,877) (621,139) (3,697,076) (1,302,313) (136,854)
Foreign (2,139,174) (580,846) (3,470,700) (1,773,974) --
------------------------------------------------------------------------------------------------------------------
(4,020,051) (1,201,985) (7,167,776) (3,076,287) (136,854)
===================================================================================================================
</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:
F-40
<PAGE> 104
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Future tax assets:
Net operating loss carryforwards 4,293,638 3,209,318 697,768
Start-up costs 26,367 28,694 37,999
Depreciation 94,053 45,549 5,807
Organization costs 723 591 394
Debt issue costs -- -- 5,137
Finance costs 85,757 -- --
Donations 878 435 --
Software costs 360,025 368,785 405,597
----------------------------------------------------------------------------------------------
Net future tax assets 4,861,441 3,653,372 1,152,702
Valuation allowance (4,861,441) (3,653,372) (1,152,702)
----------------------------------------------------------------------------------------------
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.
At March 31, 2000, the Company has U.S. operating losses carried forward of
$4,108,000 which expire as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
2018 880,000
2019 2,750,000
2020 478,000
</TABLE>
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 $6,470,000. These losses expire as follows:
F-41
<PAGE> 105
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
$
---------
<S> <C>
2003 46,000
2004 7,000
2005 884,000
2006 3,457,000
2007 2,076,000
</TABLE>
13. CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at March 31, 2000 under capital and operating
leases are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
---------------------------------------------------------------------------------------
<S> <C> <C>
2000 46,852 258,332
2001 62,469 311,188
2002 61,600 228,634
2003 51,886 163,180
2004 13,877 72,444
---------------------------------------------------------------------------------------
Total future minimum lease payments 236,683 1,033,777
---------
Less: imputed interest (43,691)
--------------------------------------------------------------
Balance of obligations under capital leases 192,992
Less: current portion (53,992)
--------------------------------------------------------------
Long term obligation under capital leases 139,000
--------------------------------------------------------------
</TABLE>
Rent expense was $85,452 for the period ended March 31, 2000 (March 31, 1999 -
$40,327; December 31, 1999 - $269,004; December 31, 1998 - $29,637).
14. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1999 1998 1997
$ $ $ $ $
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts receivable (310,584) (17,495) (331,582) (7,243) --
</TABLE>
F-42
<PAGE> 106
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Due from related parties (74,709) 2,410 11,341 (13,118) --
Prepaid expenses and deposits (136,109) 26,520 81,979 (132,956) (7,500)
Accounts payable and accrued liabilities 256,054 472,243 799,691 395,624 32,976
Due to related parties 2,051 5,189 (25,022) 197,115 --
----------------------------------------------------------------------------------------------------------------------------
(263,297) 488,867 536,407 439,422 25,476
Attributable to investing activities -- -- 257,214 -- --
----------------------------------------------------------------------------------------------------------------------------
Attributable to operating activities (263,297) 488,867 279,193 439,422 25,476
============================================================================================================================
</TABLE>
15. SEGMENTED INFORMATION
The Company's activities include professional security consulting services,
integration and installation of secure information systems, and remote data
storage and recovery services. The activities are conducted in one operating
segment and are carried out in three geographic segments as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000
-------------------------------------------------------------------------------------------------------
ALBERTA, ONTARIO, U.S. TOTAL
CANADA CANADA
$ $ $ $
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS INFORMATION
Revenue 185,606 392,942 73,434 651,982
Expenses 2,149,637 568,085 311,372 3,029,094
--------------------------------------------------------------------------------------------------------
(1,964,031) (175,143) (237,938) (2,377,112)
Corporate overheads (1,642,939)
--------------------------------------------------------------------------------------------------------
Net loss (4,020,051)
--------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
Equipment and leasehold improvements 1,013,917 68,546 166,620 1,249,083
Goodwill and employee and consultants base 14,732,667 2,060,858 338,526 17,132,051
--------------------------------------------------------------------------------------------------------
</TABLE>
F-43
<PAGE> 107
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------------------------------------------
ALBERTA, ONTARIO,
CANADA CANADA U.S. TOTAL
$ $ $ $
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS INFORMATION
Revenue 3,047 -- -- 3,047
Expenses 582,349 -- -- 582,349
----------------------------------------------------------------------------
(579,302) -- -- (579,302)
Corporate overheads (622,683)
----------------------------------------------------------------------------
Net loss (1,201,985)
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------------------------------------------------------
ALBERTA, ONTARIO,
CANADA CANADA U.S. TOTAL
$ $ $ $
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS INFORMATION
Revenue 85,675 469,001 37,370 592,046
Expenses 3,414,558 610,966 11,098 4,036,622
-------------------------------------------------------------------------------------------------------------
(3,328,883) (141,965) 26,272 (3,444,576)
Corporate overheads (3,723,200)
-------------------------------------------------------------------------------------------------------------
Net loss (7,167,776)
-------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
Equipment and leasehold improvements 520,507 27,379 151,349 699,235
Goodwill and employee and consultants base -- 2,259,698 369,302 2,629,000
-------------------------------------------------------------------------------------------------------------
</TABLE>
F-44
<PAGE> 108
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------
ALBERTA, ONTARIO,
CANADA CANADA U.S. TOTAL
$ $ $ $
<S> <C> <C> <C> <C>
LOSS INFORMATION
Revenue 29,068 -- -- 29,068
Expenses 1,835,561 -- -- 1,835,561
-------------------------------------------------------------------------------------------------
(1,809,493) -- -- (1,806,493)
Corporate overheads -- -- -- 1,269,794
Net loss -- -- -- (3,076,287)
-------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
Equipment and leasehold improvements 77,090 -- 1,740 78,830
-------------------------------------------------------------------------------------------------
</TABLE>
16. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, term deposits, accounts receivable,
amounts due to and from related parties, bank indebtedness, accounts payable and
accrued liabilities, capital lease obligations, 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.
17. RECENT PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which will be effective for fiscal years beginning after
June 15, 2000. The Company does not expect this pronouncement to have a material
effect.
18. SUBSEQUENT EVENTS
a) On April 20, 2000, the Company purchased 100% of the outstanding common
shares of Nucleus Consulting, Inc. (Nucleus), a company incorporated in
the State of Illinois, USA, in exchange for $250,000 and 142,857 shares
of the Company with an ascribed value of $1,000,000. Nucleus provides
consulting services related to data networking, telephony and mobile
communications. There was also cash consideration paid of $750,000 into
a trust to be released on the third, sixth
F-45
<PAGE> 109
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at March 31, 2000, and for the three month periods ended March 31,
2000 and 1999, are unaudited)
and nine month anniversaries of the closing of the transaction. In
addition there is contingent share consideration of 285,714 commons
shares of the Company at an ascribed value of $7.00 per share. Half of
the common share consideration will be released if the actual revenues
and earnings before interest and taxes for the year ended April 20,2001
equal or exceed $3,500,000 and $800,000 respectively and the remaining
share consideration will be released if actual revenues and earnings
for the year ended April 20, 2002 equal or exceed $5,250,000 and
$1,200,000 respectively. The contingent share consideration has not
been reflected in these consolidated financial statements, as the
outcome of the contingent share consideration cannot be reasonably
determined at this time. The additional share consideration will be
recorded as employee and consultants base and goodwill as it becomes
payable.
The acquisition will be accounted for using the purchase method. The aggregate
purchase price of $2,300,000 will be allocated to the net assets acquired based
on their estimated fair values, as follows:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------
<S> <C>
Net assets acquired 362,890
Goodwill 1,937,110
--------------------------------------------------------------------------------
NET ASSETS ACQUIRED 2,300,000
================================================================================
Consideration:
142,857 common stock 1,000,000
Cash 1,000,000
Acquisition costs 300,000
--------------------------------------------------------------------------------
TOTAL CONSIDERATION 2,300,000
================================================================================
</TABLE>
b) On May 30, 2000, the Company filed an S-1 Registration Statement to
register 12,820,917 common stock of the Company.
F-46
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
To the Directors of Pace Systems Group
We have audited the accompanying balance sheets of Pace Systems Group as at July
31, 1999 and 1998 and the related statements of income (loss) and comprehensive
income (loss) and deficit and cash flows for the years then ended. 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 United States 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Corporation as at July 31,
1999 and 1998 and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States.
Toronto, Canada, /s/ Ernst & Young LLP
October 1, 1999. Chartered Accountants
F-47
<PAGE> 111
Pace Systems Group
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
As at July 31
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
ASSETS
Current
Cash 12,734 236,125
Accounts receivable 350,831 193,813
Income taxes recoverable -- 2,238
-------- --------
Total current assets 363,565 432,176
-------- --------
Fixed assets, net [note 2] 9,870 6,129
-------- --------
373,435 438,305
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities 129,045 542,501
Due to related parties [note 4] 262,854 605
-------- --------
Total current liabilities 391,899 543,106
-------- --------
Commitment [note 6]
Stockholders' deficiency
Authorized
100 common shares
Issued
100 common shares at $1 [note 3] 100 100
Deficit (18,564) (104,901)
-------- --------
Total stockholders' deficiency (18,464) (104,801)
-------- --------
373,435 438,305
======== ========
</TABLE>
See accompanying notes
F-48
<PAGE> 112
Pace Systems Group
STATEMENTs OF Income (Loss) and COMPREHENSIVE income (loss) and deficit
[all amounts are expressed in Cdn. dollars]
Years ended July 31
<TABLE>
<CAPTION>
1999 1998
$ $
---------- ----------
<S> <C> <C>
Revenue
Consulting fees 1,901,187 1,626,094
Subcontracting [note 4] 1,580,833 1,604,394
---------- ----------
Gross profit 320,354 21,700
---------- ----------
Expenses
General and administrative 232,198 116,392
Depreciation 1,819 1,599
---------- ----------
234,017 117,991
---------- ----------
Net income (loss) and comprehensive
income (loss) for the year 86,337 (96,291)
Deficit, beginning of year (104,901) (8,610)
---------- ----------
Deficit, end of year (18,564) (104,901)
========== ==========
</TABLE>
See accompanying notes
F-49
<PAGE> 113
Pace Systems Group
STATEMENTs OF CASH FLOWS
[all amounts are expressed in Cdn. dollars]
Years ended July 31
<TABLE>
<CAPTION>
1999 1998
$ $
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) and comprehensive income (loss) for the year 86,337 (96,291)
Adjustments to reconcile net income (loss) to cash used
in operating activities
Depreciation 1,819 1,599
Net change in non-cash working capital balances
related to operations [note 11] (568,236) 69,284
-------- -------
Cash used in operating activities (480,080) (25,408)
-------- -------
INVESTING ACTIVITIES
Purchase of fixed assets (5,560) --
-------- ------
Cash used in investing activities (5,560) --
-------- ------
FINANCING ACTIVITIES
Due to related parties 262,249 (2,010)
-------- -------
Cash provided by (used in) financing activities 262,249 (2,010)
-------- -------
Net decrease in cash during the year (223,391) (27,418)
Cash, beginning of year 236,125 263,543
-------- -------
Cash, end of year 12,734 236,125
======== =======
</TABLE>
See accompanying notes
F-50
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
Pace Systems Group [the "Corporation"] was incorporated in 1986 under the laws
of Ontario. The Corporation's purpose is providing consulting services to
companies relating to information systems.
The accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the years
being presented.
These financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States. The more significant accounting policies are summarized below:
Revenue recognition
Consulting fees are recognized when the services are rendered or earned.
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, revenue and expenses. Actual amounts could differ from these
estimates.
Fixed assets
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is
provided on a declining balance basis at rates which are designed to amortize
the cost of the assets over their estimated useful lives as follows:
Furniture and fixtures 20%
Computer hardware 30%
Income taxes
The Corporation accounts for deferred income taxes based on the liability
method. Under the liability method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases measured using the substantially enacted tax rates and laws
that will be in effect when the difference as reflected reverse.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the rates of exchange prevailing at the balance sheet
dates. Non-monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at historic rates. Revenue and expenses
denominated in foreign currencies are translated into Canadian dollars at the
prevailing rates at the transaction dates. Exchange gains and losses are
included in income.
Cash
Cash consists of cash on hand and balances with banks.
2. FIXED ASSETS
F-51
<PAGE> 115
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1999
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------ ------ ------
<S> <C> <C> <C>
Furniture and fixtures 67,949 58,340 9,609
Computer hardware 1,279 1,018 261
------ ------ ------
69,228 59,358 9,870
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1998
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------ ------ ------
<S> <C> <C> <C>
Furniture and fixtures 62,388 56,632 5,756
Computer hardware 1,279 906 373
------ ------ ------
63,667 57,538 6,129
====== ====== ======
</TABLE>
3. SHARE CAPITAL
Share capital consists of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
---- ----
<S> <C> <C>
Authorized
100 common shares
Issued
100 common shares 100 100
=== ===
</TABLE>
On August 20, 1999, the Articles of Incorporation were amended to change the
amount of authorized common shares to unlimited.
4. RELATED PARTY TRANSACTIONS
As at July 31, the Corporation has outstanding account balances with its
shareholder and related party as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
1322669 Ontario Inc. 262,395 --
Shareholder 459 605
------- -------
262,854 605
======= =======
</TABLE>
The amount due to the shareholder is unsecured, non-interest bearing and is due
on demand. 1322669 Ontario Inc. is wholly owned by the Corporation's sole
shareholder.
Included in subcontracting expenses are expenses incurred with related parties
as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
1322669 Ontario Inc. 413,050 --
Shareholder's spouse 9,800 49,346
------- -------
422,850 49,346
======= =======
</TABLE>
5. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
combined statutory tax rates to the income (loss) before income taxes for the
following reasons:
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
Income tax (benefit) at Canadian statutory rate 19,000 (22,000)
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance -- 22,000
Tax benefit of loss carryforwards (19,000) --
------- -------
</TABLE>
F-52
<PAGE> 116
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
Corporation's deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
---- -------
<S> <C> <C>
Deferred tax assets (liabilities:
Tax benefit of loss carryforwards -- 22,000
---- -------
Deferred tax assets net of liabilities -- 22,000
Valuation allowance -- (22,000)
---- -------
Net deferred tax assets -- --
==== =======
</TABLE>
The Corporation has provided a valuation allowance for the full amount of
deferred tax assets in light of its history of operating losses.
6. COMMITMENT
The Corporation is committed to the following future minimum annual lease
payments for leasing office space:
<TABLE>
<CAPTION>
$
-------
<S> <C>
2000 74,476
2001 74,476
2002 43,445
-------
192,397
=======
</TABLE>
Under the operating leases for office space, the Corporation is also required to
pay for operating expenses. These amounts vary from year to year dependent upon
usage and are, therefore, not included in the future minimum annual lease
payments shown above.
7. SEGMENTED INFORMATION
The Corporation's activities are conducted in one operating segment with all
activities relating to development and sale of encryption software. To date, all
the activities have occurred in Canada.
8. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value. It is management's opinion
that the Corporation is not exposed to significant currency or credit risks
arising from these financial instruments.
Credit risk
Accounts receivable are subject to concentration of credit risk. As at year end,
43% of accounts receivable is outstanding with two customers.
There is no allowance for doubtful accounts recorded for the years ended July
31, 1999 and 1998.
9. RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", the implementation of which has been delayed one year. The
Corporation does not acquire derivatives or engage in hedging activities.
10. STATEMENT OF CASH FLOWS
The net change in non-cash working capital balances related to operations
consists of the following:
F-53
<PAGE> 117
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Accounts receivable (157,018) (172,608)
Income taxes recoverable 2,238 (2,238)
Accounts payable and accrued (413,456) 246,368
liabilities
Income taxes payable -- (2,238)
-------- --------
(568,236) 69,284
======== ========
</TABLE>
11. ECONOMIC DEPENDENCE
Approximately 29% of the Corporation's sales were made to two customers. These
customers accounted for 24% of the Corporation's accounts receivable balance at
year end.
Approximately 31% of the Corporation's subcontracting expenses were provided by
two vendors. These vendors accounted for 23% of the Corporation's accounts
payable and accrued liabilities balance at year end.
12. SUBSEQUENT EVENT
In October 1999, the Corporation's sole shareholder agreed to sell all of the
Corporation's issued shares to Jaws Technologies Inc. The Corporation has been
dealing with Jaws Technologies Inc. as a customer in the ordinary course of
business during 1999.
F-54
<PAGE> 118
FINANCIAL STATEMENTS
Pace Systems Group
Unaudited
September 30, 1999 and 1998
F-55
<PAGE> 119
Pace Systems Group
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30 UNAUDITED UNAUDITED
1999 1998
$ $
-------- --------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents 117,377 533,272
Accounts receivable 60,636 165,762
Income taxes recoverable 24,546 --
-------- --------
Total current assets 202,559 699,034
-------- --------
Fixed assets, net [note 2] 9,289 8,681
-------- --------
211,848 707,715
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 108,940 564,798
Due to related parties [note 4] 158,407 605
Income taxes payable -- 64,762
-------- --------
Total current liabilities 267,347 630,165
-------- --------
Commitments [note 6]
Stockholder's equity (deficiency)
Authorized
100 common shares
Issued
100 common shares at $1 [note 3] 100 100
Retained earnings (deficit) (55,599) 77,450
-------- --------
Total stockholder's equity (deficiency) (55,499) 77,550
-------- --------
211,848 707,715
======== ========
</TABLE>
See accompanying notes
F-56
<PAGE> 120
Pace Systems Group
STATEMENTS OF Income (Loss) and COMPREHENSIVE
INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
TWO-MONTH PERIODS ENDED SEPTEMBER 30 UNAUDITED UNAUDITED
1999 1998
$ $
-------- --------
<S> <C> <C>
REVENUE
Consulting fees 24,240 450,662
Subcontracting [note 4] 75,385 181,871
-------- --------
(51,145) 268,791
-------- --------
EXPENSES
General and administrative 9,855 19,188
Depreciation 581 252
-------- --------
10,436 19,440
-------- --------
Income (loss) before income taxes (61,581) 249,351
Provision for (recovery of) income taxes [note 5] (24,546) 67,000
-------- --------
Net income (loss) and comprehensive
income (loss) for the period (37,035) 182,351
Deficit, beginning of period (18,564) (104,901)
-------- --------
Retained earnings (deficit), end of period (55,599) 77,450
======== ========
</TABLE>
See accompanying notes
F-57
<PAGE> 121
Pace Systems Group
STATEMENTS OF CASH FLOWS
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
TWO-MONTH PERIODS ENDED SEPTEMBER 30 UNAUDITED UNAUDITED
1999 1998
$ $
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) and comprehensive income (loss)
for the period (37,035) 182,351
Adjustment to reconcile net income (loss) to cash
provided
by operating activities
Depreciation 581 252
Net change in non-cash working capital balances
related to operations [note 10] 245,544 117,348
-------- --------
Cash provided by operating activities 209,090 299,951
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets -- (2,804)
-------- --------
Cash used in investing activities -- (2,804)
-------- --------
FINANCING ACTIVITIES
Due to related parties (104,447) --
-------- --------
Cash used in financing activities (104,447) --
-------- --------
Net increase in cash during the period 104,643 297,147
Cash, beginning of period 12,734 236,125
-------- --------
Cash, end of period 117,377 533,272
======== ========
</TABLE>
F-58
<PAGE> 122
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
September 30, 1999 Unaudited
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
Pace Systems Group [the "Corporation"] was incorporated in 1986 under the laws
of Ontario. The Corporation's purpose is providing consulting services to
companies relating to information systems.
The accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the periods
being presented.
These financial statements have, in management's opinion, been properly prepared
in accordance with generally accepted accounting principles in the United
States. The more significant accounting policies are summarized below:
Revenue recognition
Consulting fees are recognized when the services are rendered or earned.
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, revenue and expenses. Actual amounts could differ from these
estimates.
Fixed assets
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is
provided on a declining balance basis at rates which are designed to amortize
the cost of the assets over their estimated useful lives as follows:
Furniture and fixtures 20%
Computer hardware 30%
Income taxes
The Corporation accounts for deferred income taxes based on the liability
method. Under the liability method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases measured using the substantially enacted tax rates and laws
that will be in effect when the differences as reflected reverse.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the rates of exchange prevailing at the balance sheet
dates. Non-monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at historic rates. Revenue and expenses
denominated in foreign currencies are translated into Canadian dollars at the
rates prevailing at the transaction dates. Exchange gains and losses are
included in income (loss) for the period.
Cash
Cash consists of cash on hand and balances with banks.
2. FIXED ASSETS
F-59
<PAGE> 123
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1999
-----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------ ------ ------
<S> <C> <C> <C>
Furniture and fixtures 67,949 58,660 9,289
Computer hardware 1,279 1,279 --
------ ------ ------
69,228 59,939 9,289
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------ ------ ------
<S> <C> <C> <C>
Furniture and fixtures 65,192 56,871 8,321
Computer hardware 1,279 919 360
------ ------ ------
66,471 57,790 8,681
====== ====== ======
</TABLE>
3. SHARE CAPITAL
Share capital consists of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
--- ---
<S> <C> <C>
Authorized
100 common shares
Issued
100 common shares 100 100
=== ===
</TABLE>
On August 20, 1999, the Articles of Incorporation were amended to change the
amount of authorized common shares to unlimited.
4. RELATED PARTY TRANSACTIONS
As at September 30, the Corporation has outstanding account balances with its
stockholder and related party as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
1322669 Ontario Inc. 157,948 --
Stockholder 459 605
------- -------
158,407 605
======= =======
</TABLE>
The amount due to the stockholder is unsecured, non-interest bearing and is due
on demand. 1322669 Ontario Inc. is wholly-owned by the Corporation's sole
stockholder.
Effective August 1, 1999 the Corporation assigned the contracts which earned
consulting fees to Jaws Technologies Inc. [note 12]
5. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
combined statutory tax rates to the income (loss) before income taxes for the
following reasons:
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
Income tax benefit at Canadian statutory rate (24,546) 67,000
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance -- --
Tax benefit of loss carryforwards -- --
------- -------
(24,546) 67,000
======= =======
</TABLE>
At the end of the period, no deferred tax asset or deferred tax liability had
been recorded.
6. LEASE COMMITMENTS
F-60
<PAGE> 124
The Corporation is committed to the following future minimum annual lease
payments for leasing office space:
<TABLE>
<CAPTION>
$
-------
<S> <C>
2000 62,063
2001 74,476
2002 55,858
-------
192,397
=======
</TABLE>
Under the operating leases for office space, the Corporation is also required to
pay for operating expenses. These amounts vary from year to year depending on
usage and are therefore not included in the above lease payments.
7. SEGMENTED INFORMATION
The Corporation's activities are conducted in one operating segment with all
activities relating to development and sale of encryption software. To date, all
the activities have occurred in Canada.
8. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value. It is management's opinion
that the Corporation is not exposed to significant currency or credit risks
arising from these financial instruments.
Credit risk
Accounts receivable are subject to concentration of credit risk. As at period
end, 87% of accounts receivable is outstanding with three customers.
There is no allowance for doubtful accounts recorded for the two-month periods
ended September 30, 1999 and 1998.
9. RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", the implementation of which has been delayed one year. The
Corporation does not acquire derivatives or engage in hedging activities.
10. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
$ $
-------- --------
<S> <C> <C>
Accounts receivable 290,195 28,051
Income taxes recoverable (24,546) 2,238
Accounts payable and accrued liabilities (20,105) 22,297
-------- --------
Income taxes payable -- 64,762
-------- --------
245,544 117,348
======== ========
</TABLE>
11. ECONOMIC DEPENDENCE
100% of the Corporation's sales were made to three customers. These customers
accounted for 47% of the Corporation's accounts receivable balance at period
end.
Approximately 99% of the Corporation's subcontracting expenses were provided by
seven vendors. These vendors accounted for 16% of the Corporation's accounts
payable and accrued liabilities balance at period end.
12. SUBSEQUENT EVENT
In October 1999, the Corporation's sole stockholder agreed to sell all of the
Corporation's issued shares to Jaws Technologies Inc. The Corporation has been
dealing with Jaws Technologies Inc. as a customer in the ordinary course of
business during 1999.
August 9, 1999 (except for note 13, which is as at January 28, 2000)
F-61
<PAGE> 125
AUDITORS' REPORT
TO THE DIRECTORS OF OFFSITE DATA SERVICES LTD.
We have audited the balance sheets of OFFSITE DATA SERVICES LTD. as at June 30,
1999 and 1998 and the statements of loss and deficit and cash flows for each of
the years in the three year period ended June 30, 1999, in our report dated
August 9, 1999. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian 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 June 30, 1999 and 1998 and
the results of its operations and its cash flows for each of the years in the
three year period ended June 30, 1999 in accordance with Canadian generally
accepted accounting principles.
/s/PriceWaterhouseCoopers LLP
-----------------------------
CHARTERED ACCOUNTANTS
F-62
<PAGE> 126
OFFSITE DATA SERVICES LTD.
Balance Sheets
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ -----------------------------
1999 1999 1998
$ $ $
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 650,605 379,817 22,417
Accounts receivable 151,578 77,473 45,326
Share subscription receivable (note 8(h)) 14,500 -- --
License inventory (note 6) 28,050 30,140 39,490
Prepaid and deposits 18,622 4,241 4,540
---------- ---------- ----------
863,355 491,671 111,773
DEFERRED INITIAL PUBLIC OFFERING COSTS -- -- 58,839
CAPITAL ASSETS (note 3) 87,430 50,415 41,412
---------- ---------- ----------
950,785 542,086 212,024
---------- ---------- ----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 142,573 54,605 59,683
Current portion of long-term debt (note 5) 350 2,452 6,626
Harbor License liability (note 6) -- -- 3,562
---------- ---------- ----------
142,923 57,057 69,871
LONG-TERM DEBT (note 5) -- -- 2,455
---------- ---------- ----------
142,923 57,057 72,326
---------- ---------- ----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 8) 2,558,211 1,520,038 704,665
DEFICIT (1,750,349) (1,035,009) (564,967)
---------- ---------- ----------
807,862 485,029 139,698
---------- ---------- ----------
950,785 542,086 212,024
---------- ---------- ----------
</TABLE>
F-63
<PAGE> 127
OFFSITE DATA SERVICES LTD.
Statements of Loss and Deficit
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30,
----------------------------- --------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Backup services 203,921 91,344 224,032 123,816 35,813
License sales 5,015 5,865 13,830 15,235 6,155
---------- -------- ---------- -------- --------
208,936 97,209 237,862 139,051 41,968
COST OF SALES 150,599 87,576 215,948 116,266 60,080
---------- -------- ---------- -------- --------
GROSS MARGIN 58,337 9,633 21,914 22,785 (18,112)
---------- -------- ---------- -------- --------
EXPENSES
General and administrative 483,338 74,182 251,118 172,652 144,002
Sales and marketing 106,380 26,278 93,899 62,171 33,987
Technical services 77,634 52,307 118,010 48,939 59,315
Corporate services 106,325 995 28,929 -- --
---------- -------- ---------- -------- --------
773,677 153,762 491,956 283,762 237,304
---------- -------- ---------- -------- --------
LOSS FOR THE PERIOD (715,340) (144,130) (470,042) (260,977) (255,416)
DEFICIT - BEGINNING OF PERIOD (1,035,009) (564,967) (564,967) (303,990) (48,574)
---------- -------- ---------- -------- --------
DEFICIT - END OF PERIOD (1,750,349) (709,097) (1,035,009) (564,967) (303,990)
---------- -------- ---------- -------- --------
LOSS PER SHARE ($ 0.06) ($ 0.02) ($ 0.05) ($ 0.04) ($ 0.05)
---------- -------- ---------- -------- --------
</TABLE>
F-64
<PAGE> 128
OFFSITE DATA SERVICES LTD.
Statements of Cash Flows
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------------- ------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period (715,340) (144,129) (470,042) (260,977) (255,416)
Item not affecting cash
Employee compensation (note 8(g)) 150,000 -- -- -- --
Amortization 12,625 7,300 18,507 16,613 14,558
Loss on disposal of capital assets -- -- -- -- 6,665
-------- -------- -------- -------- --------
(552,715) (136,829) (451,535) (244,364) (234,193)
Changes in non-cash working capital balances
Accounts receivable (74,105) 1,914 (32,147) (31,010) (9,767)
License inventory 2,090 3,410 9,350 10,890 3,630
Prepaids and deposits (14,381) (7,555) 299 288 (4,828)
Accounts payable and accrued liabilities 87,968 80,448 (5,078) 2,432 47,684
-------- -------- -------- -------- --------
(551,143) (58,612) (479,111) (261,764) (197,474)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Initial public offering costs -- -- -- (58,839) --
Increase (decrease) in long-term debt (2,102) (3,565) (6,629) (10,328) 1,993
Repayment of Harbor license liability -- (3,562) (3,562) (27,050) (24,607)
Issuance of capital stock, net of share
issue costs 873,673 49,379 874,212 394,659 250,000
Repayment of shareholder loans -- -- -- (2,199) --
-------- -------- -------- -------- --------
871,571 42,252 864,021 296,243 227,386
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Purchase of capital assets (49,640) (1,060) (27,510) (8,842) (32,811)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH DURING THE PERIOD 270,788 (17,420) 357,400 25,637 (2,899)
CASH AND CASH EQUIVALENTS (BANK OVERDRAFT) -
BEGINNING OF PERIOD 379,817 22,417 22,417 (3,220) (321)
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS (BANK OVERDRAFT) -
END OF PERIOD 650,605 4,997 379,817 22,417 (3,220)
-------- -------- -------- -------- --------
INTEREST PAID ON LONG-TERM DEBT 59 365 842 3,574 6,072
-------- -------- -------- -------- --------
</TABLE>
F-65
<PAGE> 129
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
1. NATURE OF BUSINESS
638279 Alberta Ltd. ("the company") was incorporated under the Business
Corporations Act (Alberta) on January 10, 1995. The name of the company
was changed to OffSite Data Services Ltd. on June 1, 1995 and the company
commenced commercial operations on July 1, 1995. The company offers fully
automated data backup, retrieval and storage services of mission critical
computer data. The company has entered a software license distribution
agreement (note 6) and it is currently in the process of establishing a
market and client base for its operations.
2. ACCOUNTING POLICIES
a) LICENSE INVENTORY
License inventory is recorded at the lower of cost and net
realizable value.
b) DEFERRED INITIAL PUBLIC OFFERING COSTS
Costs associated with the initial public offering have been recorded
against capital stock.
c) CAPITAL ASSETS
Capital assets are recorded at cost, less accumulated amortization.
Amortization is provided for over the estimated useful life of the
assets at annual rates as follows, using the declining balance
method except for the first year for which only one half of this
amortization is recorded:
Computer equipment 30% declining balance
Computer equipment under capital lease 30% declining balance
Furniture and fixtures 30% declining balance
Software licenses 20% straight-line
d) REVENUE RECOGNITION
Revenues from back-up services and consulting are recognized in the
period in which the services are rendered. Revenues from license
sales, representing one-time fees, are recognized on delivery and
installation of the software.
e) INCOME TAXES
The company follows the tax allocation method of accounting for
income taxes. Provision is made for deferred income taxes applicable
to timing differences arising between taxable income and income
reported in the financial statements.
f) LOSS PER SHARE
Earnings per share are computed based on the weighted average basic
number of shares outstanding for the period. The weighted average
shares outstanding at December 31, 1999 are 12,431,275 (December 31,
1998 - 7,478,300) June 30, 1999 - 8,841,220; June 30, 1998 -
6,274,550; June 30, 1997 - 5,002,740. Fully diluted earnings per
share, which are affected by stock options, are not materially
different from basic earnings per share.
g) CASH AND CASH EQUIVALENTS
Cash comprises cash on hand and demand deposits. Cash equivalents
are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an
insignificant risk of change in value.
F-66
<PAGE> 130
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 (UNAUDITED)
----------------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
------- ------ ------
<S> <C> <C> <C>
Computer equipment 94,299 34,740 59,559
Computer equipment under capital lease 9,370 7,772 1,598
Furniture and fixtures 24,333 3,449 20,884
Software licenses 29,448 24,059 5,389
------- ------ ------
157,450 70,020 87,430
------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
------- ------ ------
<S> <C> <C> <C>
Computer equipment 63,692 26,931 36,761
Computer equipment under capital lease 9,370 7,490 1,880
Furniture and fixtures 5,514 2,174 3,340
Software licenses 29,234 20,800 8,434
------- ------ ------
107,810 57,395 50,415
------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------------
ACCUMULATED
COST AMORTIZATION NET
$ $ $
------- ------ ------
<S> <C> <C> <C>
Computer equipment 39,628 15,864 23,764
Computer equipment under capital lease 11,454 6,684 4,770
Furniture and fixtures 3,738 1,561 2,177
Software licenses 25,476 14,775 10,701
------ ------ ------
80,296 38,884 41,412
------ ------ ------
</TABLE>
4. BANK OVERDRAFT
The company has an overdraft facility, which can be drawn to a maximum of
$25,000 and bears interest at prime plus 1.5%. A Guaranteed Investment
Certificate in the amount of $20,000 is pledged as collateral in the event
the facility is drawn upon. At December 31, 1999, the overdraft balance
was $nil (June 30, 1999 - $Nil; June 30, 1998 - $Nil).
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
(UNAUDITED) JUNE 30,
------------ ---------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Small business investment loan bearing interest at prime
plus 1.25% in year one and prime plus 2.5% in years 2
and 3, collateral provided by computer equipment,
repayable in monthly instalments of $350, plus
interest to January, 2000 350 2,452 6,656
Small business investment loan bearing interest at prime
plus 2.5%, collateral provided by computer equipment,
repayable in monthly instalments of $244 plus
interest to April 1999 -- -- 2,425
Obligations under capital lease with implicit interest at
9.5%, collateral provided by computer equipment under
capital lease, repayable in blended monthly
instalments of $546 to December 31, 1997 -- -- --
------ ------ ------
350 2,452 9,081
Less: Current portion (350) (2,452) (6,626)
------ ------ ------
-- -- 2,455
------ ------ ------
</TABLE>
F-67
<PAGE> 131
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
6. HARBOR LICENSE INVENTORY AND LIABILITY
In August 1995, the company purchased 500 Harbor workstation software
licenses which were recorded as inventory and are being charged to cost of
sales upon installation of the software at a customer site. The company
currently has an international licensing agreement with Beta Systems
Canada Ltd. (formerly Harbor Systems Management Ltd.) for the Harbor
product for a five-year period commencing August 16, 1998, with a
five-year renewal option. The agreement provides for monthly maintenance
charges to Beta on installed software.
The purchase of the inventory was financed over a three-year period.
Repayments were made in monthly instalments of $2,400 to August 1998. The
interest component of this liability was approximately 9.5% which was
equal to the bank borrowing rate available to the company at the time of
acquisition. Collateral for the financing was provided by the software
licenses acquired through this financing.
<TABLE>
<CAPTION>
DECEMBER 31,
(UNAUDITED) JUNE 30,
------------ ------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Harbour license liability -- -- 3,562
Less: Current portion -- -- (3,562)
---- ---- ------
</TABLE>
7. RELATED PARTY TRANSACTIONS
For the period ended December 31, 1999, the company paid $9,000 (December
31, 1998 - $18,359; June 30, 1999 - $45,056; June 30, 1998 - $5,600; June
30, 1997 - $nil) in consulting fees to a company owned by a principal
shareholder.
During 1997, management services were provided by the principal
shareholders at no cost to the company. No recognition of these services
has been given in these financial statements.
At June 30, 1997, amounts due to shareholders were the result of
expenditures made on behalf of the company, and were non-interest bearing
and payable on demand.
8. CAPITAL STOCK
Authorized Unlimited number of common shares Unlimited number of preferred
shares
Common shares issued
<TABLE>
<CAPTION>
NUMBER OF AMOUNT
SHARES $
<S> <C> <C>
Balance - June 30, 1997 6,000,000 310,006
Private placement for cash 1,131,598 396,059
Repurchase of shares (4,000) (1,400)
----------- ----------
Balance - June 30, 1998 7,127,598 704,665
Private placement for cash 168,286 58,900
Additional proceeds from founding shareholders -- 34,994
(note (a))
Redemption of Special A shares (note (b)) (1,299,884) (454,959)
Redemption of Special B shares (note (b)) (996,000) (248,600)
Exercise of special warrants (note (b)) 2,815,838 703,559
Initial Public Offering (note (c)) 3,200,000 800,000
Over Allotment Option (note (c)) 320,000 80,000
Exercise of "A" Warrants 264,500 66,125
Exercise of "B" Warrants 11,750 4,700
Exercise of stock options 49,000 12,250
Share issue costs -- (241,596)
----------- ----------
Balance - June 30, 1999 11,661,088 1,520,038
Exercise of "A" warrants 1,130,919 282,730
Exercise of "B" warrants 839,900 335,960
Share issuance to employee (note (g)) 500,000 250,000
</TABLE>
F-68
<PAGE> 132
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<S> <C> <C>
Exercise of stock options 584,611 169,483
----------- ----------
Balance - December 31, 1999 (unaudited) 14,716,518 2,558,211
----------- ----------
</TABLE>
a) ADDITIONAL PROCEEDS FROM FOUNDING SHAREHOLDERS
On October 27, 1998, the company's founding shareholders contributed
$34,994 of additional equity to the company to be attached to the issued
and outstanding founders' common shares.
b) REORGANIZATION OF CAPITAL STOCK
On October 22, 1998, the shareholders of the company signed a special
resolution relating to the reorganization (the "Reorganization") of the
share capital of the company. Pursuant to the Reorganization:
i) An unlimited number of Special A, Special B and Common A shares were
created.
ii) Each one outstanding common share issued at a price of $0.35 was
exchanged for 1.4 Special A shares and each one outstanding common
shares issued at a price of $0.25 was exchanged for one Special B
share.
Immediately after being issued, each Special A share and each Special B
share was redeemed by the Corporation at a deemed redemption price of
$0.25 per share, which redemption price was paid by the issuance of one
Special Warrant. Each Special Warrant entitles the holder to acquire upon
exercise or deemed exercise, at no additional cost, one common share and
one half of one A Warrant on or before the "Expiry Time", which is the
earlier of:
(a) seven business days after the date upon which the final receipt for
a final version of the prospectus is issued by the Commissions in
the qualifying jurisdictions; or
(b) an order that permits the common shares and A Warrants issuable upon
the exercise or deemed exercise of the Special Warrants to be freely
tradable, has been obtained from the Commissions in the qualifying
jurisdictions.
Any Special Warrants which are not exercised by the Expiry Time will be
deemed to have been exercised on the Expiry Time.
Each whole A Warrant entitles the holder thereof to acquire one common
share at a price of $0.25 per share for a period ending nine months from
the completion of the offering (see note c)).
Each one outstanding common share issued at a price that was less than
$0.25 was exchanged for one Common A share.
Immediately after being issued, each Common A share was exchanged for one
common share.
c) INITIAL PUBLIC OFFERING
Pursuant to an Initial Public Offering ("IPO") dated February 25, 1999,
the company sold 3,200,000 units of the company at an offering price of
$0.25 per unit. Each unit consists of one common share and one-half common
share purchase warrant ("B Warrant"). Each whole B Warrant entitles the
holder thereof to acquire one common share at a price of $0.40 per share
for a period ending one year from the date of completion of the offering.
In addition, the IPO qualified for distribution:
i) 2,815,838 common shares and 1,407,919 A Warrants issuable upon the
exercise of 2,815,838 Special Warrants (see note a)).
ii) 320,000 common shares and 160,000 B Warrants underlying the Agent's
Option to purchase 320,000 units at a price of $0.25 per unit,
exercisable for a period ending two years following the listing of
the company's common shares and B Warrants on the Alberta Stock
Exchange.
iii) 320,000 common shares and 160,000 B Warrants underlying the
over-allotment option to purchase 320,000 units at a price of $0.25
per unit for a period expiring thirty days following the closing
date of this offering to cover over-allotments.
F-69
<PAGE> 133
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
iv) 1,101,584 common shares underlying stock options to purchase common
shares at a price of $0.25 per share to be granted to directors,
officers, employees and consultants of the company.
d) STOCK OPTIONS
At December 31, 1999, options were outstanding to purchase 944,584 common
shares (June 30, 1999 - 1,037,584; June 30, 1998 - nil; June 30, 1997 -
nil) at a price of $0.25 to $0.43 per share. These options expire on March
15, 2004. During the period July 1 to December 31, 1999, 171,611 options
were granted (June 30, 1999 - 1,101,584; June 30, 1998 - nil; June 30,
1997 - nil) 264,611 options (June 30, 1999 - 49,000; June 30, 1998 - nil;
June 30, 1997 - nil) were exercised and nil (June 30, 1999 - 15,000; June
30, 1998 - nil; June 30, 1997 - nil) were cancelled.
e) AGENT UNIT OPTIONS
At December 31, 1999, the company's agent had options to purchase nil
(June 30, 1999 - 320,000; June 30, 1998 nil; June 30, 1997 - nil) common
shares with an exercise price of $0.25 per share. During the period July 1
to December 31, 1999, 320,000 options (June 30, 1999, June 30, 1998, and
June 30, 1997 - nil) were exercised. With each exercised option, the agent
will also receive one-half of a warrant. Each warrant enables the holder
to purchase one common share for $0.40.
f) WARRANTS
<TABLE>
<CAPTION>
OTHER WARRANTS
A WARRANTS B WARRANTS (NOTE 8(g)) TOTAL
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Issue of warrant on initial public
offering 1,407,919 1,920,000 -- 3,327,919
Exercised 264,500 11,750 -- 276,250
---------- ---------- ------- ----------
Balance - June 30, 1999 1,143,419 1,908,250 -- 3,051,669
Granted -- -- 500,000 500,000
Exercised (1,130,919) (839,900) -- (1,970,819)
Expired (12,500) -- -- (12,500)
---------- ---------- ------- ----------
Balance - December 31, 1999 (unaudited) -- 1,068,350 500,000 1,568,350
---------- ---------- ------- ----------
</TABLE>
The B warrants expire on March 15, 2000.
g) SHARE ISSUANCE TO EMPLOYEE
In accordance with the terms of an employee agreement dated July 27, 1999,
the Chairman and Chief Executive Officer of the company purchased 500,000
units of the company for a price of $0.38 per unit which represented a 25%
discount to the trading price of the common shares. Each unit consists of
one common share and one share purchase warrant. The warrants entitle the
holder to acquire one common share for $0.50 per share until August 2001
if certain criteria are met and at $0.55 per share if such criteria are
not met. The common shares were issued in September 1999. The company
loaned the employee $90,000 to purchase a portion of the shares. At the
same date the company declared a bonus of $90,000 to the employee which
will be applied in stages against the loan. The balance of $100,000 was
paid in cash by the employee in October and November 1999 and is reflected
as a share subscription receivable at September 30, 1999.
The common share discount ($60,000) and the bonus ($90,000) have been
accounted for as general and administrative salary expense for the six
months ended December 31, 1999.
h) SHARE SUBSCRIPTION RECEIVABLE
The share subscription receivable at December 31, 1999 was non-interest
bearing, unsecured and due on demand.
9 INCOME TAX LOSSES
The following table reconciles income taxes calculated at the statutory
rate with the income tax provision in the financial statements.
F-70
<PAGE> 134
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, (UNAUDITED) JUNE 30,
--------------------------------------- ------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Provision for income taxes at the
statutory rate (44.6%; 1998 - 44.6%) (319,042) (64,282) (209,639) (116,396) (113,916)
-------- ------- -------- -------- --------
Benefit of losses not recognized 319,042 64,282 209,639 116,396 113,916
-------- ------- -------- -------- --------
</TABLE>
The company has approximate non-capital tax losses available for
carryforward against future taxable income as follows:
<TABLE>
<CAPTION>
AMOUNT AVAILABLE
YEAR OF LOSS $ UNTIL
------------ --------- -----
<S> <C> <C>
1999 513,200 2006
1998 261,000 2005
1997 249,700 2004
1996 45,600 2003
---------
1,069,500
=========
</TABLE>
These losses are subject to Revenue Canada audit. The future benefit of
these losses has not been recognized in these financial statements.
10 FINANCIAL INSTRUMENTS
The company's financial instruments recognized in the balance sheet
consist of cash and short-term deposits, accounts receivable, accounts
payable and accrued liabilities, long-term debt and Harbor License
Liability.
The estimated fair values of long-term debt and Harbor License Liability
are not materially different from their carrying values. The fair values
of all other financial instruments approximate their carrying values due
to their short-term maturity.
11 UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
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. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
12 COMPARATIVE NUMBERS
Where necessary, information provided for comparative purposes has been
reclassified to conform with the financial statement format adopted in the
current year.
13 TERMS OF THE TRANSACTION WITH JAWS TECHNOLOGIES, INC.
Effective January 28, 2000, Jaws Technologies Inc., through its wholly
owned subsidiary, Jaws Acquisition Corp., acquired all of the common
shares and certain warrants of the company on the basis of 0.3524
exchangeable shares of Jaws Acquisition Corp. for each common share of the
company and one exchangeable share purchase warrant of Jaws Acquisition
Corp. for each common share purchase B warrant of the company.
14 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP). These principles
conform in all material respects to accounting principles generally
accepted in the United States (U.S. GAAP) except as follows:
a) STATEMENT OF LOSS AND DEFICIT
F-71
<PAGE> 135
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
--------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED
(UNAUDITED) JUNE 30,
------------------------- ------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loss for period in
accordance with
Canadian GAAP (715,340) (144,130) (470,042) (260,977) (255,416)
Impact of U.S.
adjustments
Stock based
compensation(c) -- -- (61,142) -- --
-------- -------- -------- -------- --------
Loss for the period
and
comprehensive
loss in
accordance with
U.S. GAAP (715,340) (144,130) (531,184) (260,977) (255,416)
-------- -------- -------- -------- --------
</TABLE>
b) The liability method of accounting for income taxes is followed
under U.S. GAAP which requires that the components of the net
deferred tax asset or liability be disclosed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(UNAUDITED) JUNE 30,
------------ -------------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Net book value of capital assets in excess
of tax basis 1,330 1,330 1,471
Loss carryforwards 796,039 476,997 248,110
Share issue costs 86,201 86,201 --
-------- -------- --------
883,570 564,528 249,581
Less: Valuation allowance (883,570) (564,528) (249,581)
-------- -------- --------
-- -- --
-------- -------- --------
</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.
c) STOCK-BASED COMPENSATION
Under US GAAP, the company follows APB Opinion No. 25 to account for
options issued to employees, whereby the intrinsic value method is
used to determine the cost associated with the granting of stock
options to employees. Under this method, the amount by which the
market price of the underlying shares exceeds the exercise price of
the options is accounted for as compensation expense over the
periods in which services are rendered. Accordingly, since stock
options to employees were granted at the quoted market value for the
company" common shares at the date of the grant, there is no
stock-based compensation cost recognized by the company. This
treatment is consistent with Canadian GAAP.
Under FASB Statement No. 123, all transactions with non-employees in
which equity instruments are issued in exchange for goods or
services should be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. In the company's
case, the fair values of the equity instruments issued were used.
Under US GAAP, the methodology for calculating the fair value of
equity instruments issued requires the use of an option-pricing
model whereas, under Canadian GAAP, the methodology for calculating
fair value is unspecified and has been determined using the
intrinsic value method. Under US GAAP, stock options issued to
service providers are recorded at their fair market value using the
Black-Scholes option-pricing model at the date of the grant and this
amount is charged to operations over the periods in which services
are rendered.
F-72
<PAGE> 136
INDEPENDENT AUDITORS' REPORTS
Board of Directors
Nucleus Consulting, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of Nucleus Consulting, Inc. as
of December 31, 1999 and 1998, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Nucleus Consulting, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with United States generally accepted
accounting principles.
February 10, 2000
/s/ Klayman & Korman, LLC
---------------------------------
Klayman & Korman, LLC
F-73
<PAGE> 137
NUCLEUS CONSULTING, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current Assets
Cash $ 85,594
Accounts receivable $371,584 321,184
Prepaid expenses 807 3,465
-------- --------
Total Current Assets 372,391 410,243
Property and equipment,
net of accumulated depreciation 78,186 107,467
-------- --------
Other assets
Security deposit 4,485 4,485
-------- --------
Total Assets $455,062 $522,195
======== ========
</TABLE>
See notes to the financial statements
F-74
<PAGE> 138
NUCLEUS CONSULTING, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current liabilities
Bank overdraft $ 9,791
Line of credit $ 97,000
Current portion of long-term debt 20,000
Accounts payable 132,302 353,620
Accrued expenses 29,100 18,322
Due to officer 22,697
Income taxes payable 88,000
Deferred income taxes 76,000
--------- ---------
Total current liabilities 357,890 488,942
--------- ---------
Long-term liabilities
Line of credit 97,000
Long-term debt 45,000
Deferred income taxes 5,000
--------- ---------
Total long-term liabilities 5,000 142,000
--------- ---------
Stockholders' equity 92,172 (108,747)
--------- ---------
Total liabilities and stockholders' equity $ 455,062 $ 522,195
========= =========
</TABLE>
See notes to the financial statements
F-75
<PAGE> 139
NUCLEUS CONSULTING, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------------
Percent Percent
of of
Amount Revenues Amount Revenues
<S> <C> <C> <C> <C>
Revenues $ 3,434,719 100.0% 1,099,205 100.0%
Operating expenses 2,854,913 83.1 1,330,620 121.1
----------- ---- ----------- ----
Income (loss) from operations 579,806 16.9 (231,415) (21.1)
----------- ---- ----------- ----
Other income (expense)
Interest expense (7,574) (0.2) (20,485) (1.9)
Interest income 987
----------- ---- ----------- ----
(6,587) (0.2) (20,485) (1.9)
----------- ---- ----------- ----
Income (loss) before provision
for income taxes 573,219 16.7 (251,900) (23.0)
Provision for income tax benefit
(expense) (169,000) (4.9) 20,000 1.8
----------- ---- ----------- ----
Net income (loss) $ 404,219 11.8 $ 231,900) (21.2)
=========== ==== =========== ====
</TABLE>
See notes to the financial statements
F-76
<PAGE> 140
NUCLEUS CONSULTING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock (1)
<TABLE>
<CAPTION>
Retained
Shares Amount Earnings Total
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 40,475 35,000 88,153 123,153
Net loss (231,900) (231,900)
Shares granted under stock grant plan 3,166
-------- -------- --------- ---------
Balance, December 31, 1998 43,641 35,000 (143,747) (108,747)
Net income 404,219 404,219
Repurchase and retirement of common stock (35,550) (34,000) (169,300) (203,300)
-------- -------- --------- ---------
Balance, December 31, 1999 8,091 $ 1,000 $ 91,172 $ 92,172
======== ======== ========= =========
</TABLE>
(1) $1 par value, 1,000,000 shares authorized
See notes to the financial statements
F-77
<PAGE> 141
NUCLEUS CONSULTING, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 404,219 $(231,900)
Adjustments to reconcile net income (loss) to net cash
flows provided by operating activities
Deprecation 32,312 29,766
Provision for deferred income tax (benefit) expense 81,000 (20,000)
Changes in
Accounts receivable (50,402) (7,817)
Prepaid expenses 2,658 2,984
Security deposit -- (255)
Accounts payable (221,316) 279,000
Accrued expenses 10,778 (20,098)
Due to officer 22,697
Income taxes payable 88,000
--------- ---------
Net cash flows provided by operating activities 369,946 31,680
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (3,031) (36,870)
--------- ---------
Cash flows from financing activities
Bank overdraft 9,791
Repurchase and retirement of common stock (203,300)
Principal repayments on long-term debt (65,000) (20,000)
Net borrowings (repayments) on line of credit (194,000) 94,613
--------- ---------
</TABLE>
See notes to the financial statements
F-78
<PAGE> 142
<TABLE>
<S> <C> <C>
Net cash flows provided by (used in) financing activities (452,509) 74,613
--------- ---------
Net increase (decrease) in cash (85,594) 69,423
Cash,
Beginning of year 85,594 16,171
--------- ---------
End of year $ $ 85,594
========= =========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 7,574 $ 20,485
========= =========
</TABLE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Nucleus Consulting, Inc. (the "Company"), is a consulting firm
specializing in assisting companies achieve corporate objectives
through the use of the most appropriate networking technologies
including data networking and telephony and mobile communications. The
Company's clients are located throughout the United States. Clients
include privately held businesses and Fortune 500 companies. The
Company grants credit to substantially all of its clients.
Accounting Principles
The financial statements have been prepared on the basis of accounting
principles generally accepted in the United States.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue as time is incurred on projects.
Property and Equipment
Property and equipment is stated at cost. Major improvements and
additions, with an estimated useful life of more than one year, are
capitalized. Depreciation is computed using the straight-line method.
When property and equipment are disposed of, the cost and related
accumulated
F-79
<PAGE> 143
depreciation are removed from the accounts and the corresponding gain
or loss, if any, is included in net income. The estimated useful lives
of depreciable assets are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Computer equipment 5 years
Furniture and fixtures 7 years
</TABLE>
F-80
<PAGE> 144
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to the cash basis method of accounting
used for income tax purposes, the tax effect of net operating loss
carryforwards, and the use of different depreciation methods and lives
for financial statement and income tax purposes. If it is more likely
than not that some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized. The deferred tax
liability represents the future tax consequences of those differences,
which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
2. PROPERTY AND EQUIPMENT
At December 31, 1999 and 1998 property and equipment and related
accumulated depreciation consisted of the following:
<TABLE>
<CAPTION>
Description 1999 1998
----------- ---- ----
<S> <C> <C>
Computer equipment $ 136,467 $ 133,436
Furniture and fixtures 40,413 40,413
--------- ---------
176,880 173,849
Less accumulated depreciation (98,694) (66,382)
--------- ---------
$ 78,186 $ 107,467
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 was
$32,312 and $29,766, respectively.
3. LINE OF CREDIT
The Company had a $200,000 line of credit available from Citibank,
F.S.B. Interest on outstanding borrowing was payable monthly at the
bank's prime rate plus 1.5%. Borrowings were collateralized by
substantially all of the assets of the Company and a personal guarantee
by the Company's majority stockholder. The line of credit was repaid in
full and not renewed during the year ended December 31, 1999.
F-81
<PAGE> 145
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998
----
<S> <C>
Citibank, F.S.B., note payable in monthly
installments of $1,667, plus interest at 9.92% to
March 24, 2002. The note was repaid during
1999.
$65,000
Less current portion (20,000)
--------
Long-term portion $ 45,000
========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The majority stockholder of the Company, has a minority equity interest
in a customer.
Revenues for the year ended December 31, 1999 and outstanding accounts
receivable at December 31, 1999 from this customer were $296,637 and
$280,314, respectively.
6. COMMITMENTS
Lease of Premises
The Company is obligated in accordance with the terms of a lease for
office space through December 31, 2002. In addition to rentals, the
Company is responsible for their proportionate share of taxes and other
occupancy costs for the property.
Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C> <C>
2000 $ 22,713
2001 23,622
2002 24,567
------------
$ 70,902
============
</TABLE>
F-82
<PAGE> 146
7. INCOME TAXES
The provision for income tax expense (benefit) consists of the
following components.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current
Federal $ 72,000
State 16,000
--------
Total current provision 88,000
Deferred provision (benefit) 81,000 $(20,000)
-------- --------
Income tax expense (benefit) $169,000 $(20,000)
======== ========
</TABLE>
Deferred tax liabilities and assets consisted of the following
components.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Liability
Tax effect of temporary differences $154,600 $161,300
-------- --------
Asset
Tax effect of temporary differences 73,600 152,500
Benefit of net operating loss carryforwards 50,000
Valuation allowance (41,200)
-------- --------
73,600 161,300
-------- --------
Net deferred tax liability $ 81,000 $
======== ========
</TABLE>
8. 401(k) PLAN
The Company has a salary reduction plan established under Internal
Revenue Code Section 401(k) covering substantially all employees.
Company contributions to the plan are determined at the discretion of
the board of directors. The contribution made for the years ended
December 31, 1999 and 1998 was $8,875 and $10,280, respectively.
9. MAJOR CUSTOMERS
During 1999 and 1998, aggregate revenues from 3 major customers was
$2,405,089 and $907,750, respectively. At December 31, 1999 and 1998,
the aggregate receivables from those customers was $0 and $315,926,
respectively.
10. STOCK GRANT PLAN
F-83
<PAGE> 147
The Company has a stock grant plan for certain eligible employees. The
company may grant up to 100,000 shares of common stock which vests over
service periods. During the year ended December 31, 1998 the Company
awarded 3,166 shares of common stock to its officers. All shares
awarded were vested. The fair market value of the shares at the date of
award was $0. The fair market value of the shares was determined based
on the net equity of the Company as reported in the audited financial
statements for the year ended December 31, 1997.
11. SUBSEQUENT EVENT
Subsequent to December 31, 1999, the Company has received a signed
letter of intent for the purchase of all its common stock from its
stockholder. The Company is currently in negotiations to reach a final
agreement.
F-84
<PAGE> 148
We have not authorized any dealer, salesperson or other person to give
you written information other than this prospectus or to make representation as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of JAWS
Technologies, Inc. have not changed since the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY ................................................... 1
RISK FACTORS ......................................................... 5
USE OF PROCEEDS ...................................................... 13
DIVIDEND POLICY ...................................................... 13
CAPITALIZATION ....................................................... 14
SELECTED FINANCIAL DATA .............................................. 15
SELLING STOCKHOLDERS ................................................. 17
PLAN OF DISTRIBUTION ................................................. 19
DESCRIPTION OF CAPITAL STOCK ......................................... 21
BUSINESS ............................................................. 25
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS .......................................... 39
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 40
MANAGEMENT ........................................................... 46
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT ..................................... 53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................... 55
REGISTRATION RIGHTS .................................................. 59
LEGAL MATTERS ........................................................ 60
EXPERTS .............................................................. 60
AVAILABLE INFORMATION ................................................ 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ........................... F-1
</TABLE>
-------------------
12,820,917 SHARES
JAWS TECHNOLOGIES, INC.
PROSPECTUS
___________, 2000
-------------------
<PAGE> 149
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered (other than
underwriting discounts or commissions) are estimated as set forth
below:
<TABLE>
<S> <C>
SEC Registration Fee US$ ......... $ 19,261
Accounting Fees and Expenses ..... $ 75,000
Legal Fees and Expenses .......... $ 200,000
Printing expenses ................ $ 20,000
Miscellaneous .................... $ 5,000
-----------
TOTAL $ [319,375](2)
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
JAWS' articles of incorporation and By-Laws provide for indemnification
of JAWS' officers and directors, to the fullest extent permitted by
Nevada Law. In addition, the Restated articles of incorporation
provide, under Nevada Law, that no director shall be personally liable
to JAWS, or its shareholders, for monetary damages because of any
breach of fiduciary duty by the director as a director. However, the
directors shall be liable to the extent provided by applicable law for
- breach of the director's duty of loyalty to JAWS or its
shareholders, or
- acts or missions not in good faith or which involve
intentional misconduct or willful violation of law.
At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of JAWS. Insofar as
indemnification for liability arising under the Securities Act may be
permitted to directors, officers, and controlling persons, JAWS is
aware that, in the opinion of the Securities and Exchange Commission,
the indemnification is against public policy as expressed in the
Securities Act and is unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following securities have been sold by JAWS since incorporation in
January 1997.
1. Sale on February 14, 1997, with a sticker supplement dated
April 1, 1997, of 4,000,000 shares of Common Stock at $0.015
per share to forty-one investors for an aggregate investment
of $60,000. The sales were made in a transaction in reliance
on the exemption provided by Rule 504 of Regulation D
promulgated under Section 3(b) of the Securities Act of 1933,
as amended (the "Act"). The sale of shares was to 14
accredited investors in the state of Nevada.
II-1
<PAGE> 150
2. Sales to two consultants to JAWS for an aggregate of 300,000
shares of Common Stock: 250,000 shares of Common Stock were
issued to C. J. Weinstein in December 1997 for remuneration
for his services as a Director, and as incentive to join JAWS.
In February 1998, 50,000 shares of Common Stock were issued to
Joseph Lynch in consideration for services rendered to JAWS in
relation to the establishment of the capital structure of the
company and vetting of public relations firms. The sales were
made in transactions not involving any public offering in
reliance on the exemption provided by Rule 506 of Regulation D
and Section 4(2) of the Act. Each purchaser represented that
he was an accredited investor as defined in Rule 501 of
Regulation D and that the securities were acquired for
investment only and not with a view to resale or
redistribution.
3. Sale on February 10, 1998 of 1,500,000 shares of Common Stock
and options to purchase 400,000 shares of Common Stock at
$0.50 per share to the shareholders of JAWS Alberta in
exchange for all of the issued and outstanding shares of JAWS
Alberta. The sales were made in a transaction not involving
any public offering in reliance on the exemption provided by
Rule 506 of Regulation D and Section 4(2) of the Act. The
purchasers represented that they were accredited investors as
defined in Rule 501 of Regulation D and that the securities
were acquired for investment only and not with a view to
resale or redistribution.
4. Sale pursuant to an offering memorandum on February 18, 1998
of 600,000 shares of Common Stock at $0.50 per share, for an
aggregate investment of $300,000. The sales were made in a
transaction in reliance on the exemption provided by Rule 504
of Regulation D promulgated under Section 3(b) of the Act. The
sale of shares was to 26 accredited investors. All investors
were not residents or citizens of the U.S.
5. Sale pursuant to an offering memorandum on February 18, 1998
of 1,250,000 shares of Common Stock at $0.40 per share for an
aggregate investment of $500,000 to Bristol Asset Management
LLC, an accredited investor. The sale was made in a
transaction in reliance on the exemption provided by Rule 504
of Regulation D promulgated under Section 3(b) of the Act.
This agreement was canceled on April 26, 1999, and in
consideration thereof JAW agreed to issue 1,000,000 warrants
to purchase 1,000,000 shares of Common Stock at $0.70 per
share, which warrants expire April 15, 2002.
6. Sales pursuant to an offering memorandum on February 18, 1998
of 900,000 shares of Common Stock to $0.20 per share for an
aggregate investment of $180,000 to two accredited investors
(450,000 shares each), Hampton Park Ltd. and Linear Strategies
Ltd. These sales were made in a transaction in reliance on the
exemption provided by Rule 504 of Regulation D promulgated
under Section 3(b) of the Securities Act of 1933, as amended.
7. Sales pursuant to an offering memorandum dated April 1998 of
50,000 shares of Common Stock at $0.40 per share for an
aggregate investment of $20,000 to Riaz Mamdani, an accredited
investor. This sale was made in a transaction in reliance on
the exemption provided by Rule 504 of Regulation D promulgated
under Section 3(B) of the Act.
8. On September 25, 1998, JAWS entered into a U.S.$2,000,000, 10%
convertible, debenture agreement with Thomson Kernaghan (the
"Debenture Agreement") whereby Thompson Kernaghan was granted
1,428,572 warrants to purchase 1,428,572 shares in the Common
Stock at $0.28 per share. On April 27, 1999, JAWS and Thomson
Kernaghan amended the Debenture Agreement to increase the
amount available to JAWS to $5,000,000. However, on November
11, 1999, JAWS and Thomson Kernaghan entered into a debenture
amendment and settlement agreement (the
II-2
<PAGE> 151
"Debenture Settlement Agreement") whereby all outstanding
obligations of the parties were settled. Under the Debenture
Settlement Agreement, JAWS issued the following shares of
Common Stock to Thomason Kernaghan on November 23, 1999;
(a) 5,127,672 shares of Common Stock in conversion of the
debentures;
(b) 1,428,572 shares of Common Stock upon the exercise of
warrants held by Thomson Kernaghan at a price of
U.S.$0.28 per share; and
(c) 751,648 shares of Common Stock in consideration for
the relinquishment by Thomson Kernaghan of additional
warrants to acquire shares of Common Stock.
In total, Thomson Kernaghan has been issued a total of 7,307,892 shares of
Common Stock pursuant to the Debenture Agreement, as amended and settled.
Thomson Kernaghan warranted in the Debenture Agreement that it was not a "U.S.
Person", as such term is defined in Rule 92(k) of Regulation S, that the
securities have not been offered to it in the United States and that offers of
securities of JAWS shall not be made to "U.S. Persons" for a period of one year
from the closing of all debentures offered pursuant to the agreement.
9. Sale on July 24, 1998 of 100,000 shares of Common Stock of
JAWS to Bonanza Management Ltd. in consideration of investor
relations and consulting services rendered, including the
distribution of the JAWS business plan to the investment
community. The sale was made in a transaction not involving
any public offering in reliance on the exemption provided by
Rule 506 of Regulation D and Section 4(2) of the Act. The
purchaser represented that he is an accredited investor as
defined in Rule 501 of Regulation D and that the securities
were acquired for investment only and not with a view to
resale or redistribution.
10. Sale on December 15, 1998 of 1,182,188 shares of Common Stock
at $0.32 per share for an aggregate investment of $378,300.
Further, the sale included 391,094 warrants to purchase
391,094 common shares at $1.00 per share until March 30, 2000,
and 391,094 warrants to purchase 391,094 common shares at
$2.00 per share until March 30, 2000. The sale of shares was
to nine accredited investors. The sales were made in a
transaction not involving any public offering in reliance on
the exemption provided by Rule 506 of Regulation D, Section
4(2) of the Act and Regulation S. Each purchaser represented
that it is not a "U.S. Person", as such term is defined in
Rule 902(k) of Regulation S, that the securities had not been
offered to it in the United States and that offers of
securities of JAWS shall not be made to "U.S. Persons" for a
period of one year from the date of closing.
11. Sale on April 6, 1999 pursuant to an offering memorandum on
February 18, 1998 of 1,571,428 common shares 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), both
accredited investors. The sales were made in a transaction in
reliance on the exemption provided by Rule 504 of Regulation D
promulgated under Section 3(b) of the Act. The purchasers are
contractually prohibited from reselling the securities for a
six-month period.
12. Sale on June 9, 1999 of 408,333 shares of Common Stock at
$0.60 per share for an aggregate investment of $245,000 to
Royale Crown Limited, an accredited investor. The sale was
made in a transaction not involving any public offering in
reliance on the exemption provided by Rule 506 of Regulation D
Section 4(2) of the Act and Regulation S. The purchaser
represented that it was not a "U.S. Person", as such term is
defined in Rule 902(k) of Regulation S, that the securities
had not been offered to it in the United
II-3
<PAGE> 152
States and that offers of securities of JAWS would not be made
to "U.S. Persons" for a period of one year from the date of
closing.
13. Sale to Glentel Inc., on June 21, 1999, of 1,000,000 shares of
Common Stock at $1.50 per share for an aggregate investment of
$1,500,000. This sale included 834,000 warrants to purchase
834,000 common shares at $2.25 per share until June 30, 2001.
The sale was made in a transaction not involving any public
offering in reliance on the exemption provided by Rule 506 of
Regulation D, Section 4(2) of the Act and Regulation S. A
finder fee of $105,000 was paid to Mr. Joe Dobosz. The
purchaser represented that it was not a "U.S. Person", as such
term is defined in Rule 902(k) of Regulation S, that the
securities had not been offered to it in the United States and
that offers of securities of JAWS would not be made to "U.S.
Persons" for a period of one year from the date of closing.
14. Sale on June 21, 1999 of 200,000 shares of Common Stock of
JAWS at $1.50 per share for an aggregate investment of
$300,000. This sale included 166,000 warrants to purchase
166,000 common shares at $2.25 per share until June 30, 2001,
to 10 accredited investors, all of whom are not U.S. citizens
or residents. The sale was made in a transaction not involving
any public offering in reliance on the exemption provided by
Rule 506 of Regulation D, Section 4(2) of the Act and
Regulation S. The purchaser represented that it was not a
"U.S. Person", as such term is defined in Rule 902(k) of
Regulation S, that the securities had not been offered to it
in the United States and that offers of securities of JAWS
would not be made to "U.S. Persons" for a period of one year
from the date of closing.
15. Sale on September 15, 1999 of 141,000 shares of Common Stock
to Richard H. Langley Jr., an accredited investor, for
consulting services including investor relations,
communication and public relations services. The sale was made
in a transaction not involving any public offering in reliance
on the exemption provided by Rule 506 of Regulation D and
Section 4(2) of the Act. The purchaser represented that he was
an accredited investor as defined in Rule 501 of Regulation D
and that the securities were acquired for investment only and
not with a view to resale or redistribution.
16. Sale on October 28, 1999 of 283,000 shares of Common Stock at
$1.50 per share for an aggregate investment of $424,500 to
Striker Capital, an accredited investor. The sale was made in
a transaction in reliance on the exemption from registration
provided by section 3(b) of the Act and the provisions of
Regulation D Rule 504 promulgated under the Act as well as the
exemption from registration in Section 109.3 of the Texas
Administrative Code that permits general solicitation and
general advertising so long as sales are made only to
"accredited investors" as defined in Rule 501(a). The investor
has represented that it was an institutional "accredited
investor" as defined in Rule 501(a)(1), (2), (3) and (7) of
Regulation D under the Act purchasing in the State of Texas
for its own account and for investment purposes and not with a
view to or for offer or sale in connection with any
distribution.
17. Sale on November 18, 1999, of 94,340 shares of Common Stock at
$0.53 per share to Cameron Chell in satisfaction of the
$50,000 fee payable to Mr. Chell for serving as a director of
JAWS in 1998. The issuance was made in a transaction not
involving any public offering in reliance on the exemption
provided by Rule 506 of Regulation D, Section 4(2) of the 1993
Securities Act and Regulation S. Mr. Chell represented that
the was not a "U.S. Person", as such term is defined in Rule
902(k) of Regulation S, that the securities had not been
offered to him in the United States and that offers of
securities of JAWS would not be made to "U.S. Persons" for a
period of one year from the date of closing.
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<PAGE> 153
18. Sale on November 18, 1999 of 11,999 shares of Common Stock at
$0.53 per share to GROVEJOHNSONWOOD in consideration of
services rendered related to interior design services. The
issuance was made in a transaction not involving any public
offering in reliance on the exemption provided by Rule 506 of
Regulation D, Section 4(2) of the 1993 Securities Act and
Regulation S. GROVEJOHNSONWOOD represented that it was not a
"U.S. Person", as such term is defined in Rule 902(k) of
Regulation S, that the securities had not been offered to it
in the United States and that offers of securities of JAWS
would not be made to "U.S. Persons" for a period of one year
from the date of closing.
19. Sale on November 24, 1999 of 411,765 shares of Common Stock at
$1.70 per share to Heronwood, Ltd. for an aggregate investment
of $700,000. Further, the sale included 411,765 warrants to
purchase 411,765 shares of Common Stock at $1.70 per share
until November 1, 2002. The sale was made in a transaction not
involving any public offering in reliance on the exemption
provided by Rule 506 of Regulation D, Section 4(2) of the 1993
Securities Act and Regulation S. Heronwood, Ltd, represented
that it was not a "U.S. Person", as such term is defined in
Rule 902(k) of Regulation S, that the securities had not been
offered to it in the United States and that offers of
securities of JAWS would not be made to "U.S. Persons" for a
period of one year from the date of closing.
20. Sale on December 31, 1999 of 2,176,418 Units, each Unit
consisting of one share of Common Stock and one warrant to
purchase one-half share of Common Stock for $6.50 per share,
at $4.25 per Unit for an aggregate investment of $9,249,777.
The sales were made to 29 accredited investors, all of whom
are not U.S. citizens or residents. The sales were made in a
transaction not involving any public offering of securities in
reliance of Rule 506 of Regulation D and Section 4(2) of the
Securities Act. Each subscriber represented that it was an
institutional accredited investor as defined in Rule 501(a) of
Regulation D and that the securities were acquired for
investment only and not with a view to resale or distribution.
21. Sale on February 22, 2000 of 588,238 Units, each Unit
consisting of one share of Common Stock and one warrant to
purchase one-half share of Common Stock for $6.50 per share,
at $4.25 per Unit for an aggregate investment of $2,500,012.
The sales were made to 9 accredited investors. The sales were
made in a transaction not involving any public offering of
securities in reliance of Rule 506 of Regulation D and Section
4(2) of the Securities Act. Each subscriber represented that
it was an institutional accredited investor as defined in Rule
501(a) of Regulation D and that the securities were acquired
for investment only and not with a view to resale or
distribution.
22. Sale on December 22, 1999, of 113,208 shares of Common Stock
at $0.53 per share to Julia Johnson in satisfaction of the
$60,000 directors fee payable to Ms. Johnson for serving as a
member of the board of directors of the Company.
23. Sale on April 6, 2000, of 80,000 shares of Common Stock to
John Anderson for consulting services for a one year term
beginning on November 2, 1999.
24. Sale on April 6, 2000 of 1,875 shares of Common Stock at $8.00
per share to Morten Borch for consulting services for a
contract beginning December 1, 1999. His consulting fees are
$5,000 per month payable in shares of Common Stock.
25. Sale on April 20, 2000 of 142,857 shares of Common Stock to
the stockholders of Nucleus Consulting, Inc., representing a
portion of the purchase price paid by the Company in
connection with its acquisition of Nucleus Consulting, Inc. on
such date.
II-5
<PAGE> 154
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The Exhibits to this registration statement on Form S-1 are
listed in the Prospectus. See "Index to Consolidated Financial
Statements" in the Prospectus on page F-1.
(b) The following financial statement schedules are filed
herewith:
3.1* Articles of Incorporation of "e-biz" solutions, inc. (now JAWS
Technologies, Inc., a Nevada corporation), dated January 27, 1997.
3.2* Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation, dated March 30, 1998,
changing the name of E-Biz to JAWS Technologies, Inc.
3.3* Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation, increasing the total number
of Common Stock which JAWS is allowed to issue from 20,000,000 to
95,000,000.
3.4* Bylaws of "e-biz" solutions, inc. (now JAWS Technologies, Inc., a
Nevada corporation), dated January 27, 1997.
4.1* Investment Agreement by and between JAWS Technologies, Inc., a Nevada
corporation, and Bristol Asset Management LLC, dated August 27, 1998
and letter of termination.
4.2* Debenture Acquisition Agreement by and between JAWS Technologies, Inc.,
a Nevada corporation, and Thomson Kernaghan & Co. Limited, dated
September 25, 1998.
4.3* Amendment No. 1 to Debenture Purchase Agreement by and between JAWS and
Thomson Kernaghan, dated April 27, 1999.
4.4* Warrant to purchase 1,000,000 shares of Common Stock of JAWS
Technologies, Inc., a Nevada corporation, issued to Bristol Asset
Management LLC, dated April 20, 1999.
4.5* Form of Warrant to purchase 834,000 shares of Common Stock of JAWS
Technologies, Inc., a Nevada corporation, issued to Glentel Inc., dated
June 21, 1999.
4.6* Schedule of Warrant holders which received the Form of Warrant set
forth in 4.5 above.
4.7* Form of Warrant issued by JAWS in connection with the Private Placement
Transaction.
4.8* Schedule of Warrant holders which received the Form of Warrant set
forth in 4.9 above.
4.9* Warrant to purchase 217,642 shares of Common Stock of JAWS
Technologies, Inc., a Nevada corporation, issued to Thomson Kernaghan &
Co. Limited, dated December 31, 1999.
4.10* Certificate of the Designation, Voting Power, Preference and Relative ,
Participating, optional and other Special Rights and Qualifications,
Limitations or Restrictions of the Special Series & Preferred Voting
Stock of JAWS Technologies, Inc., dated November 30, 1999.
4.11* Incentive and Non-Qualified Stock Option Plan of JAWS Technologies,
Inc., a Nevada corporation.
4.12* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated December
31, 1999.
II-6
<PAGE> 155
4.13* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated February
15, 2000.
4.14* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and SmallCaps Online LLC, dated February 15, 2000.
4.15* Form of Subscription Agreement to purchase 235,295 Units of JAWS
Technologies, Inc., a Nevada corporation, by and between JAWS
Technologies, Inc., a Nevada corporation, and BPI Canadian Small
Companies Fund, dated December 20, 1999.
4.16 Schedule of Subscribers that purchased subscriptions pursuant to the
Form of Subscription Agreement set forth above in 4.15.
5.1 Opinion of Lionel Sawyer & Collins LLP.
10.1* Director's Agreement between JAWS Technologies, Inc., a Nevada
corporation, and Arthur Wong, dated July 1998.
10.2* Director's Agreement between JAWS Technologies, Inc., a Nevada
corporation, and Julia Johnson, dated July 30, 1998.
10.3* Letter Agreement between JAWS Technologies, Inc., a Nevada corporation,
and Arrow Communications (ApexMail), dated August 10, 1999.
10.4* Addendum to the Letter Agreement between JAWS Technologies, Inc., a
Nevada corporation, and ApexMail.net, dated September 28, 1999.
10.5* Assignment from James L. A. Morrison to JAWS Technologies Inc., a
Nevada corporation, dated October 9, 1998.
10.6* Notification of Assignment from United States Department of Commerce,
Patent and Trademark Office, dated March 15, 1999.
10.7* Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada
corporation, and Ms. Julia L. Johnson.
10.8* Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada
corporation, and Mr. Arthur Wong.
10.9* Form of Stock Purchase Agreement to purchase 1,000,000 shares of Common
Stock and warrants to purchase 834,000 shares of Common Stock by and
between JAWS Technologies, Inc., a Nevada corporation, and Glentel
Inc., dated June 21, 1999.
10.10* Schedule of purchasers which purchased shares of Common Stock pursuant
to the Form of Stock Purchase Agreement set forth in 10.09.
10.11* Form of Investor Rights Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Glentel Inc., dated June 21, 1999.
10.12* Schedule of investors that received rights pursuant to the Form of
Investors Rights Agreement set forth above in 10.11.
II-7
<PAGE> 156
10.13* Debenture Amendment and Settlement Agreement, dated November 17, 1999
and effective as of November 1, 1999, by and between JAWS Technologies,
Inc., a Nevada corporation, and Thomson Kernaghan & Co. Limited.
10.14* Form of Employment Agreement.
10.15* Schedule of officers of JAWS Technologies, Inc., a Nevada corporation,
who executed employment agreements the form of which is set forth in
Exhibit 10.17.
10.16* Stock Purchase Agreement, dated as of April 20, 2000, by and between
JAWS Technologies, Inc., Nucleus Consulting, Inc. and Charles A.
Ehredt.
10.17 First Amendment to Stock Purchase Agreement, dated as of May 19, 2000,
by and between JAWS Technologies, Inc., Nucleus Consulting, Inc. and
Charles A. Ehredt.
21 Subsidiaries of JAWS Technologies, Inc., a Nevada corporation: JAWS
Technologies Inc., an Alberta corporation, Pace Systems Group Inc.,
JAWS Technologies, Inc., an Ontario corporation, JAWS Technologies
(Delaware), Inc., a Delaware corporation and JAWS Acquisition Corp., an
Alberta corporation.
23.1 Consent of Lionel Sawyer & Collins LLP (included in exhibit 5.1).
23.2 Consent of Ernst & Young LLP. (JAWS Technologies Inc.).
23.3 Consent of Ernst & Young LLP (Pace Systems Group Inc.).
23.4 Consent of PricewaterhouseCoopers LLP (Offsite Data Services Ltd.).
23.5 Consent of Klayman & Korman, LLC
27.1 Financial Data Schedule.
---------------------
* Previously filed in JAWS' registration statement on Form S-1 (File No.
333-30406), filed with the Securities and Exchange Commission on
February 14, 2000.
** Incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K, filed with the SEC on May 5, 2000.
II-8
<PAGE> 157
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the Registrant pursuant to the provisions
described above in Item 15, or otherwise, the Registrant has
been informed 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.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 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 Securities Act
and will be governed by the final adjudication of such issue.
(b) 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:
(i) To include any prospectus required by
section 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) of the
Securities Act of 1933, as amended, if, in
the aggregate, the changes in volume and
price represent not 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.
(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) For purposes of determining any liability under the
Securities Act, 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 which remain unsold at the termination of
this offering.
II-9
<PAGE> 158
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
New York, State of New York, on May 30, 2000.
JAWS TECHNOLOGIES, INC.
By: /s/ Robert J. Kubbernus
-----------------------
Name: Robert J. Kubbernus
Title: Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
POWER OF ATTORNEY
Each person signing below also hereby appoints Robert J. Kubbernus and
Riaz Mamdani, and each of them singly, with full power of substitution,
his lawful attorney-in-fact, with full power to execute and file any
amendments to the registration statement, and generally to do all such
things, as such attorney-in-fact may deem appropriate to comply with
the provisions of the Securities Act of 1933 and all requirements of
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Robert J. Kubbernus Chairman of the Board, Chief May 30, 2000
-------------------------- Executive Officer, President and
Robert J. Kubbernus Director (Principal Executive Officer)
/s/ Riaz Mamdani Chief Financial Officer and Director May 30, 2000
-------------------------- (Principal Financial Officer and
Riaz Mamdani Principal Accounting Officer)
/s/ Julia L. Johnson Director May 30, 2000
--------------------------
Julia L. Johnson
/s/ Arthur Wong Director May 30, 2000
--------------------------
Arthur Wong
/s/ John S. Burns Director May 30, 2000
--------------------------
John S. Burns
</TABLE>
S-1
<PAGE> 159
EXHIBIT INDEX
3.1* Articles of Incorporation of "e-biz" solutions, inc. (now JAWS
Technologies, Inc., a Nevada corporation), dated January 27, 1997.
3.2* Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation, dated March 30, 1998, changing
the name of E-Biz to JAWS Technologies, Inc.
3.3* Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation, increasing the total number of
Common Stock which JAWS is allowed to issue from 20,000,000 to
95,000,000.
3.4* Bylaws of "e-biz" solutions, inc. (now JAWS Technologies, Inc., a Nevada
corporation), dated January 27, 1997.
4.1* Investment Agreement by and between JAWS Technologies, Inc., a Nevada
corporation, and Bristol Asset Management LLC dated August 27, 1998 and
letter of termination.
4.2* Debenture Acquisition Agreement by and between JAWS Technologies, Inc.,
a Nevada corporation, and Thomson Kernaghan & Co. Limited, dated
September 25, 1998.
4.3* Amendment No. 1 to Debenture Purchase Agreement by and between JAWS and
Thomson Kernaghan, dated April 27, 1999.
4.4* Warrant to purchase 1,000,000 shares of Common Stock of JAWS
Technologies, Inc., a Nevada corporation, issued to Bristol Asset
Management LLC, dated April 20, 1999.
4.5* Form of Warrant to purchase 834,000 shares of Common Stock of JAWS
Technologies, Inc., a Nevada corporation, issued to Glentel Inc., dated
June 21, 1999.
4.6* Schedule of Warrant holders which received the Form of Warrant set forth
in 4.5 above.
4.7* Form of Warrant issued by JAWS in connection with the Private Placement
Transaction.
4.8* Schedule of Warrant holders which received the Form of Warrant set forth
in 4.9 above.
4.9* Warrant to purchase 217,642 shares of Common Stock of JAWS Technologies,
Inc., a Nevada corporation, issued to Thomson Kernaghan & Co. Limited,
dated December 31, 1999.
4.10* Certificate of the Designation, Voting Power, Preference and Relative,
Participating, optional and other Special Rights and Qualifications,
Limitations or Restrictions of the Special Series & Preferred Voting
Stock of JAWS Technologies, Inc., dated November 30, 1999.
4.11* Incentive and Non-Qualified Stock Option Plan of JAWS Technologies,
Inc., a Nevada corporation.
4.12* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated December
31, 1999.
4.13* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated February
15, 2000.
<PAGE> 160
4.14* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and SmallCaps Online LLC, dated February 15, 2000.
4.15* Form of Subscription Agreement to purchase 235,295 Units of JAWS
Technologies, Inc., a Nevada corporation, by and between JAWS
Technologies, Inc., a Nevada corporation, and BPI Canadian Small
Companies Fund, dated December 20, 1999.
4.16 Schedule of Subscribers that purchased subscriptions pursuant to the
Form of Subscription Agreement set forth above in 4.15.
5.1 Opinion of Lionel Sawyer & Collins LLP.
10.1* Director's Agreement between JAWS Technologies, Inc., a Nevada
corporation,and Arthur Wong dated July 1998.
10.2* Director's Agreement between JAWS Technologies, Inc., a Nevada
corporation, and Julia Johnson, dated July 30, 1998.
10.3* Letter Agreement between JAWS Technologies, Inc., a Nevada corporation,
and Arrow Communications (ApexMail), dated August 10, 1999.
10.4* Addendum to the Letter Agreement between JAWS Technologies, Inc., a
Nevada corporation, and ApexMail.net, dated September 28, 1999.
10.5* Assignment from James L. A. Morrison to JAWS Technologies Inc., a Nevada
corporation, dated October 9, 1998.
10.6* Notification of Assignment from United States Department of Commerce,
Patent and Trademark Office, dated March 15, 1999.
10.7* Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada
corporation, and Ms. Julia L. Johnson.
10.8* Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada
corporation, and Mr. Arthur Wong.
10.9* Form of Stock Purchase Agreement to purchase 1,000,000 shares of Common
Stock and warrants to purchase 834,000 shares of Common Stock by and
between JAWS Technologies, Inc., a Nevada corporation, and Glentel Inc.,
dated June 21, 1999.
10.10* Schedule of purchasers which purchased shares of Common Stock pursuant
to the Form of Stock Purchase Agreement set forth in 10.09.
10.11* Form of Investor Rights Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Glentel Inc., dated June 21, 1999.
10.12* Schedule of investors that received rights pursuant to the Form of
Investors Rights Agreement set forth above in 10.11.
10.13* Debenture Amendment and Settlement Agreement, dated November 17, 1999
and effective as of November 1, 1999, by and between JAWS Technologies,
Inc., a Nevada corporation, and Thomson Kernaghan & Co. Limited..
<PAGE> 161
10.14* Form of Employment Agreement.
10.15* Schedule of officers of JAWS Technologies, Inc., a Nevada corporation,
who executed employment agreements the form of which is set forth in
Exhibit 10.20.
10.16** Stock Purchase Agreement, dated as of April 20, 2000, by and between
JAWS Technologies, Inc., Nucleus Consulting, Inc. and Charles A. Ehredt.
10.17 First Amendment to Stock Purchase Agreement, dated as of May 19, 2000,
by and between JAWS Technologies, Inc., Nucleus Consulting, Inc. and
Charles A. Ehredt.
21 Subsidiaries of JAWS Technologies, Inc., a Nevada corporation:JAWS
Technologies Inc., an Alberta corporation, Pace Systems Group Inc., JAWS
Technologies, Inc., an Ontario corporation, JAWS Technologies
(Delaware), Inc., a Delaware corporation and JAWS Acquisition Corp., an
Alberta corporation, and Jaw's Inc., on Illinois Corporation.
23.1 Consent of Lionel Sawyer & Collins LLP (included in exhibit 5.1).
23.2 Consent of Ernst & Young LLP. (JAWS Technologies Inc.).
23.3 Consent of Ernst & Young LLP (Pace Systems Group Inc.).
23.4 Consent of PricewaterhouseCoopers LLP (Offsite Data Services Ltd.).
23.5 Consent of Klayman & Korman, LLC
27.1 Financial Data Schedule.
---------------------
* Incorporated by reference to JAWS' registration statement on Form S-1
(File No. 333-30406), filed with the Securities and Exchange Commission
on February 14, 2000.
** Incorporated by reference to Exhibit 2.1 of the Company's Current Report
on Form 8-K, filed with the SEC on May 5, 2000.
