FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: September 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________________________ to _________________
Commission file number: 000-27407
---------
JAWZ Inc.
----------------------------
(Exact name of registrant as specified in charter)
Delaware 98-167013
---------------- -----------
(State of Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Idenitification No.)
12 Concorde Gate, Suite 900, Toronto, Ontario, Canada M3C 3N6
-------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
1-888-301-5297
---------------------------
(Registrant's telephone number, including area code)
JAWS Technologies, Inc.
------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No ______
----------------
The number of shares of the Registrant's common stock par value $0.001 per
share (the "Common Stock"), outstanding as of November 28, 2000 was 32,461,265
shares.
NY/311594.5
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JAWZ Inc.
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
As at
<TABLE>
<CAPTION>
September December December December
30, 2000 31, 1999 31, 1998 31, 1997
$ $ $ $
-----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents 1,202,801 8,430,701 33,732 111
Term deposits 28,150 431,729 -- --
Accounts receivable 3,855,910 338,825 7,243 --
Short term investment 2,398,146 -- -- --
Prepaid expenses and deposits 289,230 75,144 140,456 7,500
Deferred charges 185,427 -- -- --
Due from related parties 126,638 1,777 13,118 --
-----------------------------------------------------------------------------------------
Total Current Assets 8,086,302 9,278,176 194,549 7,611
Equipment and leasehold 3,392,856 699,235 78,830 2,320
improvements, net
Intangible assets 23,496,745 2,629,000 -- --
Investment 20,000 -- -- --
-----------------------------------------------------------------------------------------
Total Assets 34,995,903 12,606,411 273,379 9,931
-----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current
Bank indebtedness 193,999 -- -- --
Accounts payable and accrued 3,460,725 1,118,521 428,600 32,976
liabilities
Current portion of capital 86,711 25,235 -- --
lease obligations payable
Deferred revenues 313,851 -- -- --
Due to related parties 329,994 172,093 197,115 --
Lease inducement 264,298 58,757 -- --
Due to stockholders 70,966 2,066 74,717 78,159
-----------------------------------------------------------------------------------------
Total Current Liabilities 4,720,544 1,376,672 700,432 111,135
-----------------------------------------------------------------------------------------
Capital lease obligations 271,406 68,227 -- --
payable
Convertible debentures -- -- 146,606 --
-----------------------------------------------------------------------------------------
Total Liabilities 271,406 68,227 146,606 --
-----------------------------------------------------------------------------------------
Commitments and contingencies
[notes 1 and 14]
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:
36,954,877 common shares
issued and fully paid (December
31, 1999 - 25,040,188; December
31, 1998 - 10,612,317, 1997 -
4,000,000)
Common stock issued and paid-up 36,955 25,040 10,612 4,000
Additional paid in capital 58,149,140 21,699,106 2,637,712 31,650
Cumulative translation (139,276) (181,717) (8,842) --
adjustment
Deficit (28,042,866) (10,380,917) (3,213,141) (136,854)
-----------------------------------------------------------------------------------------
30,003,953 11,161,512 (573,659 ) (101,204)
-----------------------------------------------------------------------------------------
34,995,903 12,606,411 273,379 9,931
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements On
behalf of the Board:
Director Director
NY/311594.5
2
<PAGE>
JAWZ Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
Three Month Period Nine Month Period
Ended Ended
---------------------- ------------------------
September September September September
30, 2000 30, 1999 30, 2000 30, 1999
$ $ $ $
(Unaudited)(Unaudited) (Unaudited) (Unaudited)
-------------------------------------------------------------------------
REVENUE
Consulting and product
revenue 4,032,995 361,979 6,808,104 358,426
Interest and other
income 29,417 471 198,651 14,204
-------------------------------------------------------------------------
4,062,412 362,450 7,006,755 372,630
-------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 1,796,634 -- 2,676,745 --
Research & development 226,402 -- 625,634 --
Advertising and
promotion 172,390 49,631 1,264,102 234,398
Allowance for Doubtful
Accounts 510,545 -- 530,636 --
General and
administration 5,325,509 1,482,150 13,995,452 2,984,744
8,031,480 1,531,781 19,092,569 3,219,142
Loss before interest,
financing fees,
foreign exchange
(gain)/loss,
depreciation and
amortization (3,969,068) (1,169,331) (12,085,814) (2,846,512)
Interest expense,
financing fees and
debt discount 322,540 209,099 337,329 914,913
Foreign exchange
(gain)/loss 209,947 (2,749) 140,329 10,248
Depreciation 167,997 30,344 376,825 67,462
Amortization 1,977,569 -- 4,721,652 --
-------------------------------------------------------------------------
Net loss for the period (6,647,121) (1,406,025) (17,661,949) (3,839,135)
Other comprehensive loss
Foreign currency
translation adjustment 125,098 (18,105) 42,441 (136,801)
-------------------------------------------------------------------------
Comprehensive loss (6,522,023) (1,424,130) (17,619,508) (3,975,936)
-------------------------------------------------------------------------
Deficit, beginning of
period (21,395,745) (5,646,251) (10,380,917) (3,213,141)
Net loss for the period (6,647,121) (1,406,025) (17,661,949) (3,839,135)
-------------------------------------------------------------------------
Deficit, end of period (28,042,866) (7,052,276) (28,042,866) (7,052,276)
-------------------------------------------------------------------------
Net loss per common
share (0.19) (0.09) (0.54) (0.30)
Weighted average number
of common shares
outstanding 35,275,198 15,030,973 32,491,914 12,837,302
-------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
NY/311594.5 3
<PAGE>
JAWZ Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
Nine Month Period
Ended
---------------------
Year Year Period
September September ended ended ended
30, 2000 30, 1999 December December December
31, 1999 31, 1998 31, 1997
$ $ $ $ $
(Unaudited)(Unaudited)
--------------------------------------------------------------------------------
REVENUE
Consulting, product and
other revenue 6,808,104 358,426 577,842 27,042 --
Interest income 198,651 14,204 14,204 2,026 --
--------------------------------------------------------------------------------
7,006,755 372,630 592,046 29,068 --
--------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 2,676,745 2,066 2,066 -- --
Research & development 625,634 -- 16,630 -- --
Advertising and
promotion 1,264,102 234,398 363,916 218,574 35,000
Allowance for Doubtful
Accounts 530,636 -- -- -- --
General and
administration 13,995,452 2,982,678 5,571,203 1,574,453 101,274
Software development
costs -- -- -- 909,003 --
--------------------------------------------------------------------------------
19,092,569 3,219,142 5,953,815 2,702,030 136,274
Loss before interest,
financing fees,
foreign exchange
(gain)/loss,
depreciation and
amortization (12,085,814)(2,846,512) (5,361,769)(2,672,962) (136,274)
Interest expense,
financing fees and
debt discount 337,329 914,913 1,587,237 389,715 --
Foreign exchange
(gain)/loss 140,329 10,248 (12,452) (431) --
Depreciation 376,825 67,462 104,836 14,041 580
Amortization 4,721,652 -- 126,386 -- --
--------------------------------------------------------------------------------
Net loss for the period (17,661,949)(3,839,135) (7,167,776)(3,076,287) (136,854)
Other comprehensive loss
Foreign currency
translation adjustment 42,441 (136,801) (172,875) (8,842) --
--------------------------------------------------------------------------------
Comprehensive loss (17,619,508)(3,975,936) (7,340,651)(3,085,129)(136,854)
--------------------------------------------------------------------------------
Deficit, beginning of (10,380,917)(3,213,141) (3,213,141) (136,854) --
period
Net loss for the period (17,661,949)(3,839,135) (7,167,776)(3,076,287) (136,854)
--------------------------------------------------------------------------------
Deficit, end of period (28,042,866)(7,052,276)(10,380,917)(3,213,141) (136,854)
--------------------------------------------------------------------------------
Net loss per common
share (0.54) (0.30) (0.50) (0.42) (0.03)
Weighted average number
of common shares
outstanding 32,491,914 12,837,302 14,342,053 7,405,421 4,000,000
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Period ended December 31, 1997 consists of the period from the date of
incorporation on January 27, 1997 to December 31, 1997.
NY/311594.5 4
<PAGE>
JAWZ Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Shares Par Paid in Comprehensive Accumulated Total
Value Capital Loss Deficit
# $ $ $ $ $
------------------------------------------------------------------------------------------------------
<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, 10,612,317 10,612 2,637,712 (8,842) (3,213,141) (573,659)
1998
--------------------------------------------------------------------------------------------------------
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
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
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
--------------------------------------------------------------------------------------------------------
</TABLE>
NY/311594.5 5
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Additional Other
Par Paid in Comprehensive Accumulated Total
Shares Value Capital Loss Deficit
# $ $ $ $ $
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash 2,388,238 2,388 11,497,624 -- -- 11,500,012
Share issue costs -- -- (1,187,129) -- -- (1,187,129)
Exercise of employee
stock options 633,092 633 317,917 -- -- 318,550
Issuance of common stock
for cash as a result
of exercise of warrants 1,229,261 1,229 1,507,791 -- -- 1,509,020
Stock options exercised
for no consideration 590,475 591 (591) -- -- --
Issuance of common stock
for services 294,013 294 1,132,132 -- -- 1,132,426
Issuance of common stock
on acquisition of
subsidiaries 6,779,610 6,780 23,182,290 -- -- 23,189,070
Loss for the period -- -- -- 42,441 (17,661,949) (17,619,508)
----------------------------------------------------------------------------------------------------------
Balance, September 30,
2000 (unaudited) 36,954,877 36,955 58,149,140 (139,276) (28,042,866) 30,003,953
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
NY/311594.5 6
<PAGE>
JAWZ Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows used in operating
activities
Net loss for the period (6,447,121) (1,406,025) (17,661,949) (3,839,135)
Adjustments to reconcile loss to
cash flows used in operating
activities:
General and administration
expense not involving the
payment of cash -- -- -- --
Deferred revenue 2,893 -- 2,893 --
Deferred charges 27,464 -- 27,464 --
Depreciation 167,997 30,344 376,825 67,462
Amortization 1,977,569 -- 4,721,652 --
Non cash consulting fees 557,486 -- 899,126 --
Non cash compensation expense -- -- -- --
Non-cash interest expense and
amortization of deferred
financing fees and debt
discount -- 206,930 -- 908,716
Software development costs -- -- -- --
Non-cash financing fees -- -- -- --
Foreign exchange (gain)/loss 209,947 (2,749) 140,329 10,248
Changes in non-cash working
capital balances (3,743,192) (130,568) (4,290,278) 121,341
---------------------------------------------------------------------------------------------------
(7,446,957) (1,302,068) (15,783,938) (2,731,368)
---------------------------------------------------------------------------------------------------
Cash flows used in investing
activities
Purchase of equipment and
leasehold improvements (1,150,533) (98,466) (2,529,223) (552,577)
Proceeds/(purchase) of term
deposits (182,645) (27,000) 220,590 (27,000)
Purchases of subsidiaries (213,942) -- (1,256,411) --
Purchase of investment -- -- (20,000) --
---------------------------------------------------------------------------------------------------
(1,547,120) (125,466) (3,585,044) (579,577)
---------------------------------------------------------------------------------------------------
Cash flows generated by financing
activities
Proceeds from the issuance of
common stock, net of issue costs 4,543,538 51,014 12,141,082 3,024,314
Repayment of stockholder advances -- (13,177) -- (72,673)
Proceeds from stockholder advances -- -- -- --
Proceeds on issue of convertible
debenture -- -- -- 1,100,000
Financing fees on issue of
convertible debenture -- -- -- (110,000)
----------------------------------------------------------------------------------------------------
4,543,538 37,837 12,141,082 3,941,641
-----------------------------------------------------------------------------------------------------
Increase/(decrease) in cash (4,450,539) (1,389,697) (7,227,900) 630,696
Cash and cash equivalents,
beginning of period 5,653,340 2,054,125 8,430,701 33,732
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end
of period 1,202,801 664,428 1,202,801 664,428
-----------------------------------------------------------------------------------------------------
</TABLE>
Cash and cash equivalents consists of cash, term deposits with maturities less
than 30 days.
The accompanying notes are an integral part of these financial statements.
NY/311594.5 7
<PAGE>
JAWZ Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Nine month period
ended
---------------------
Year ended Year ended Period ended
September 30, September 30, December 31, December 31, December 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows used in operating
activities
Net loss for the period (17,464,396) (3,839,135) (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 --
Deferred revenue 2,893
Deferred charges 27,464
Depreciation 369,434 67,462 104,836 14,041 580
Amortization 4,721,652 -- 126,386 -- --
Non cash consulting fees 708,964 -- -- -- --
Non cash compensation expense -- -- 810,000 -- --
Non-cash interest expense and
amortization of deferred
financing fees and debt
discount -- 908,716 1,129,709 386,846 --
Software development costs -- -- 909,003 -- --
Non-cash financing fees -- -- 447,187 -- --
Foreign exchange (gain)/loss 140,329 10,248 (12,452) (431) --
Changes in non-cash working
capital balances (4,290,278) 121,341 279,193 439,422 25,476
------------------------------------------------------------------------------------------------------------
(15,783,938) (2,731,368) (4,183,078) (1,127,406) (110,798)
------------------------------------------------------------------------------------------------------------
Cash flows used in investing
activities
Purchase of equipment and
leasehold improvements (2,529,223) (552,577) (636,267) (115,153) (2,900)
Proceeds/(purchase) of term
deposits 220,590 (27,000) (431,729) -- --
Purchases of subsidiaries (1,256,411) -- (30,656) 1,380 --
Purchase of investment (20,000) -- -- -- --
------------------------------------------------------------------------------------------------------------
(3,585,044) (579,577) (1,098,652) (113,773) (2,900)
------------------------------------------------------------------------------------------------------------
Cash flows generated by financing
activities
Proceeds from the issuance of
common stock, net of issue costs 12,141,082 3,024,314 12,761,350 954,686 35,650
Repayment of stockholder advances -- (72,673) (72,651) (78,159) --
Proceeds from stockholder advances -- -- -- 20,273 78,159
Proceeds on issue of convertible
debenture -- 1,100,000 1,100,000 420,000 --
Financing fees on issue of
convertible debenture -- (110,000) (110,000) (42,000) --
-----------------------------------------------------------------------------------------------------------
12,141,082 3,941,641 13,678,699 1,274,800 113,809
-----------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash (7,227,900) 630,696 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 1,202,801 664,428 8,430,701 33,732 111
-----------------------------------------------------------------------------------------------------------
</TABLE>
Cash and cash equivalents consist of cash and term deposits with maturities less
than 30 days.
The accompanying notes are an integral part of these financial statements.
Period ended December 31, 1997 consists of the period from the date of
incorporation on January 27, 1997 to December 31, 1997.
NY/311594.5 8
<PAGE>
JAWZ Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 2000, and for the three month periods and
nine month periods ended September 30, 2000 and 1999, are unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
JAWZ 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. and on September 29,
2000 JAWS Technologies, Inc. changed its name to JAWZ Inc. Effective July 7,
2000, JAWZ Inc. migrated to the State of Delaware.
JAWZ provides e-security services. The Company assists in removing the burden of
information risk management for its customers by providing products and services
that cover the entire e-security market (from assessment to implementation to
monitoring), via its three divisions, Security Products, Professional Security
Services (PSS) and Managed Security Services (MSS). The Company targets six key
market verticals: governments, cyber crime and forensics, healthcare, financial
services, e-commerce, and the telecom markets. As at September 30, 2000, JAWZ
International headquarters is located in Canada in Toronto, Ontario. JAWZ also
has offices in Calgary, Alberta, Edmonton, Alberta and Ottawa, Ontario in
Canada. In the United States JAWZ has offices located in Boston, Massachusetts,
Fairfield, New Jersey, Chicago, Illinois and Pasadena, California.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, JAWZ Inc., JAWZ Canada Inc. (formerly JAWS
Technologies Inc., an Alberta, Canada corporation) and JAWZ USA (formerly JAWS
Technologies (Delaware) Inc., a Delaware corporation), after elimination of
intercompany accounts and transactions.
Effective July 1, 2000 JAWS Technologies Inc., an Alberta, Canada corporation
("JAWS Alberta"), JAWS Technologies (Ontario) Inc. an Ontario, Canada
corporation ("JAWS Ontario"), Pace Systems Group Inc. ("Pace") and Offsite Data
Services Ltd., operating as JAWS Secure Network Storage Division, an Alberta,
Canada corporation, were amalgamated to into one company, JAWZ Canada Inc., an
Alberta Canada Corporation.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future. The
Company has experienced net losses and negative cash flows from operations over
the past three years and, as of September 30, 2000, has an accumulated deficit
of $28,042,866. 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's
continuation as a going concern is dependent on its ability to generate
sufficient cash flow, to meet its obligations on a timely basis, to obtain
additional financing as may be required, and ultimately to attain successful
operations. However, no assurance can be given at this time as to whether the
Company will achieve any of these conditions. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments to the carrying values
and classifications of recorded asset or liability amounts that might be
necessary should the Company be unable to continue as a going concern.
Management believes that additional funding will be required to maintain its
continuing operations and rapid development. Management intends to seek
additional financing through future private or public offerings of stock.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with generally accepted accounting principles in the United
States.
Interim Reporting
The accompanying unaudited consolidated interim financial statements for 2000
and 1999 have been prepared in accordance with generally accepted accounting
principles for interim financial statement information. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for
NY/311594.5 9
<PAGE>
a fair presentation have been included. The results for the interim periods
presented are not necessarily indicative of the results that may be expected for
any future period.
Use of estimates
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
Cash and cash equivalents and term deposits
Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and with original maturities of one month or
less when purchased. 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 exceeding one month
when purchased.
Bank indebtedness
Bank indebtedness represents two outstanding lines of credit acquired through
the purchase of a subsidiary. These lines of credits are secured by the
subsidiary's outstanding accounts receivables and carry personal guarantees from
the former owners of the subsidiary. These line of credits bear interest at 9%
per annum.
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.
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
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 impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present.
NY/311594.5 10
<PAGE>
Intangible assets
Employee and Consultants Base
The employee and consultants base arising from acquisitions 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 employee and consultants bases and goodwill are assessed
periodically based on management estimates of undiscounted future operating
income from each of the acquired businesses to which the goodwill relates.
Software licenses
Software licenses are recorded at cost and are being amortized on a
straight-line basis over the five year license term.
Research and development
Research and development costs relate to software development and 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 and from the sale and
installation of computer software and hardware is recognized at the time of
delivery.
Consulting Revenue: Revenue from information technology services and outsourcing
contracts is recognized when the service is rendered.
Maintenance Revenue: Revenue from maintenance contracts and their associated
costs are deferred and systematically recognized over the term of the
maintenance period.
Deferred Charges: Costs incurred in maintenance contracts are deferred and
systematically recognized over the term of the maintenance period.
Advertising
Advertising costs are expensed as incurred.
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 were charged to that
account.
NY/311594.5 11
<PAGE>
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. Foreign currency denominated monetary assets and
liabilities are translated at exchange rates in effect on the balance sheet
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
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.
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, were
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:
NY/311594.5 12
<PAGE>
$
--------------------------------------------------------------------
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
--------------------------------------------------------------------
Net assets acquired for common stock 839,748
--------------------------------------------------------------------
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.
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 payable
has been reflected in these consolidated financial statements as of September
30, 2000 and has been allocated to employee and consultants base and goodwill.
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:
$
--------------------------------------------------------------------
Employee and consultants base 1,647,673
Goodwill 1,647,674
--------------------------------------------------------------------
Net assets acquired 3,295,347
--------------------------------------------------------------------
Consideration:
1,731,932 common stock 3,264,691
Acquisition costs 30,656
--------------------------------------------------------------------
Total Consideration 3,295,347
--------------------------------------------------------------------
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
NY/311594.5 13
<PAGE>
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 $257,214 and 38,071 common shares, noticed for
issuance, at $7.04 per share, totaling $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 shares 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:
$
--------------------------------------------------------------------
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
--------------------------------------------------------------------
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 5,056,799 exchangeable shares of
the Company with an ascribed value of $13,630,734 and 93% of the outstanding
Offsite warrants in exchange for 1,389,800 warrants.
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. 889,800 of the total warrants entitle the holder to acquire
0.3524 of one of the Company's common shares at $0.40 CDN ($0.28 USD) up to
March 15, 2000. Prior to expiry of these warrants, 843,023 were exercised for
297,073 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 was $337,209 CDN
($232,654 USD). 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.
NY/311594.5 14
<PAGE>
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:
$
-------------------------------------------------------------------
Cash acquired 304,508
Other net assets acquired 125,201
Employee and consultants base 7,822,203
Goodwill 7,822,204
-------------------------------------------------------------------
Net assets acquired 16,074,116
-------------------------------------------------------------------
Consideration:
5,253,786 common stock 14,162,599
Value of warrants and options exchanged 1,649,625
Acquisition costs 261,892
-------------------------------------------------------------------
Total Consideration 16,074,116
-------------------------------------------------------------------
The operating results of the acquired company are included in the consolidated
statement of loss, deficit and comprehensive loss from the date of acquisition.
e. Nucleus Consulting Inc. ("Nucleus")
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
and nine month anniversaries of the closing of the transaction. In addition
there is contingent share consideration of 285,714 common 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 has been accounted for using the purchase method. The purchase
price has been allocated to the net assets based on their estimated fair values
as follows:
$
-------------------------------------------------------------------
Employee & consultants base 963,522
Goodwill 963,523
Other net assets acquired 235,790
-------------------------------------------------------------------
2,162,835
-------------------------------------------------------------------
Consideration:
142,857 common stock 1,000,000
Cash 1,000,000
Acquisition costs 162,835
-------------------------------------------------------------------
Total Consideration 2,162,835
-------------------------------------------------------------------
NY/311594.5 15
<PAGE>
The operating results of the acquired Company are included in the consolidated
financial statements of loss, deficit and comprehensive loss from the date of
acquisition.
f. Doctorvillage.com Inc.
On May 3, 2000 the Company purchased the intellectual assets and operations of
Doctorvillage.com Inc. in exchange for $100,000 cash, payable in installments
and 20,000 common shares of the Company at an ascribed value of $5.00 per share.
At September 30, 2000 outstanding installments amounted to $50,000. In addition,
there is contingent consideration of 60,000 common shares of the Company at an
ascribed value of $5.00 per share. This consideration will be released over 36
months commencing on April 1, 2001, subject to continuing employment conditions.
This additional consideration, which will be recorded as compensation expense,
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 was accounted for using the purchase method.
$
-------------------------------------------------------------------
Goodwill 200,000
-------------------------------------------------------------------
200,000
-------------------------------------------------------------------
Consideration:
20,000 common stock 100,000
Cash 100,000
-------------------------------------------------------------------
Total Consideration 200,000
-------------------------------------------------------------------
g. 4COMM.com Inc.
On August 15, 2000, the Company entered into an agreement to purchase 100% of
the outstanding common shares of 4COMM.com Inc, a company incorporated in
Ontario, Canada in exchange for $218,867 and 140,618 exchangeable shares of the
Company with an ascribed value of $457,037. In addition, 361,055 exchangeable
shares with an ascribed value of $1,173,502 representing the first installment
of contingent consideration was paid on closing. This transaction was
consummated on August 25, 2000.
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.
4COMM.com is an information systems security provider and consultant offering
software, hardware and support solutions and services. In addition, there is
contingent consideration of 1,444,220 exchangeable shares of the Company. As
described above, 361,055 exchangeable shares were issued on closing. The
remainder will be issued at the 12, 24 and 36 month anniversary dates.
This exchangeable share consideration will be released if the 12, 24, 36 month
targets for gross revenue and earnings before interest and taxes are met. These
targets are gross revenues of $3,500,000, $5,500,000 and $8,400,000 respectively
and earnings before interest and tax of $600,000, $1,000,000 and $1,800,000
respectively.
The contingent exchangeable share consideration has not been reflected in these
consolidated financial statements, as the outcome of this consideration cannot
be reasonably determined at this time. This additional consideration will be
recorded as employee and consultants base and goodwill as it becomes payable.
The acquisition has been accounted for using the purchase method. The purchase
price was allocated to the net assets based on their estimated fair values as
follows:
NY/311594.5 16
<PAGE>
$
-------------------------------------------------------------------
Employee & consultants base 960,392
Goodwill 960,392
Other net assets acquired 28,622
-------------------------------------------------------------------
$1,949,406
-------------------------------------------------------------------
Consideration:
501,673 exchangeable shares 1,630,539
Cash 218,867
Acquisition costs 100,000
-------------------------------------------------------------------
Total Consideration $1,949,406
-------------------------------------------------------------------
h. General Network Services Inc.
On August 15, 2000, the Company entered into an agreement to purchase 100% of
the outstanding common shares of General Network Services Inc (GNS), a company
incorporated in Ontario, Canada in exchange for $290,541 and 110,894
exchangeable shares of the Company with an ascribed value of $385,135. This
transaction was consummated on August 25, 2000.
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. These exchangeable shares issued on closing have been exchanged
for common stock as at September 30, 2000.
GNS is a computer and electronic commerce network security consultant for
national and international organizations offering software, hardware and support
solutions and services.
In addition there is contingent consideration of 392,156 exchangeable shares of
the Company to be issued on the 12 and 24 month anniversary dates subject to
continued employment of key staff members.
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 compensation expense as it becomes payable.
The acquisition has been accounted for using the purchase method. The purchase
price was allocated to the net assets based on their estimated fair values as
follows:
$
-------------------------------------------------------------------
Employee & consultants base 293,444
Goodwill 293,445
Other net assets acquired 248,238
-------------------------------------------------------------------
$835,127
-------------------------------------------------------------------
Consideration:
110,894 exchangeable shares 385,135
Cash 290,541
Acquisition costs 159,451
-------------------------------------------------------------------
Total Consideration $835,127
-------------------------------------------------------------------
NY/311594.5 17
<PAGE>
i. Betach Systems Inc. and Betach Advanced Solutions Inc.
On August 22, 2000 the Company entered into an agreement to purchase 100% of the
outstanding common shares of Betach Systems Inc. and Betach Advanced Solutions
Inc. (the Betach companies), incorporated in Alberta, Canada, in exchange for
750,400 exchangeable shares of the Company with an ascribed value of $3,804,528.
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. This transaction was consummated on August 22, 2000.
In addition, 400,000 warrants with an ascribed value of $1.14 were released on
closing. The warrants include cashless exercise provisions and each warrant is
exercisable into one share of common stock at an exercise price of $5.07. These
warrants expire on August 22, 2005.
The Betach companies are full-service e-business solutions providers with
expertise in three key areas: security and networking, e-commerce solutions, and
knowledge management solutions.
There is contingent share consideration of 369,600 exchangeable shares of the
Company to be released on the 12 month anniversary date. The contingent
consideration is subject to the continued employment of certain key individuals
and meeting the 12 month revenue target of $4,000,000.
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 purchase
price was allocated to the net assets based on their estimated fair values as
follows:
$
-------------------------------------------------------------------
Employee & consultants base 2,170,780
Goodwill 2,170,780
Other net assets acquired 18,968
-------------------------------------------------------------------
Net Assets Acquired 4,360,528
-------------------------------------------------------------------
Consideration:
750,400 exchangeable shares 3,804,528
Value of warrants 456,000
Acquisition costs 100,000
-------------------------------------------------------------------
Total Consideration 4,360,528
-------------------------------------------------------------------
j. Proforma results
The following pro forma results of operations give effect to the acquisitions of
Pace, SDTC, Offsite, Nucleus, DoctorVillage.com, 4Comm.com Inc, GNS and the
Betach companies 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.
NY/311594.5 18
<PAGE>
Nine Months Ended Year Ended
---------------------------------------------------
September 30, September30, December 31, December 31,
2000 1999 1999 1998
$ $ $ $
--------------------------------------------------------------------------------
REVENUE 10,966,046 7,345,487 9,379,362 1,772,285
--------------------------------------------------------------------------------
EXPENSES
Cost of sales 4,273,471 4,142,217 5,143,886 1,604,394
Other costs and expenses 24,260,842 7,419,324 11,973,633 8,683,076
--------------------------------------------------------------------------------
28,534,313 11,561,541 17,117,519 10,287,470
--------------------------------------------------------------------------------
Net loss (17,568,267) (4,216,054) (7,738,157) (8,515,185)
--------------------------------------------------------------------------------
Net loss per common share (0.54) (0.33) (0.54) (1.15)
--------------------------------------------------------------------------------
4. TERM DEPOSITS
The term deposits are on deposit with a Canadian Chartered Bank. The deposits,
which earn interest at 2.95 percent per annum, have been pledged as collateral
for certain corporate credit cards, and as such are not available for the
Company's general use.
5. ACCOUNTS RECEIVABLE
Accounts Receivable are recorded at net of allowance for doubtful accounts of
$530,636 (1999 - $1,120, 1998 - $0, and 1997 - $0).
6. INVESTMENTS
Short Term Investment:
Short term investment is comprised of revenues receivable for the period ended
September 30, 2000 in respect of e-Financial Depot.com, an entity in which
certain directors were also directors and officers of the Company. This short
term investment will be settled with common stock of e-Financial Depot.com. This
common stock will be classified as shares available for sale and these shares
will be carried at fair value.
Investment:
On January 6, 2000, the Company exercised its 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, JAWZ currently holds less than 20% of the outstanding Cobratech common
shares. Accordingly, this investment has been recorded at cost.
NY/311594.5 19
<PAGE>
7. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
September 30 December 31
-----------------------------------------
2000 1999 1998 1997
$ $ $ $
--------------------------------------------------------------------
Security equipment 28,563 26,106 -- --
Furniture and fixtures 774,921 206,785 31,758 3,480
Computer hardware 1,660,392 367,301 47,371 --
Computer software 178,332 32,703 13,162 --
Leasehold improvements 1,245,770 184,637 -- --
--------------------------------------------------------------------
3,887,978 817,532 92,291 3,480
--------------------------------------------------------------------
Less accumulated
depreciation 495,122 118,297 13,461 1,160
--------------------------------------------------------------------
Net book value 3,392,856 699,235 78,830 2,320
--------------------------------------------------------------------
NY/311594.5 20
<PAGE>
8. INTANGIBLE ASSETS
Intangible assets includes cost of software licenses and goodwill and
consultants base acquired from recent acquisitions.
September 30, 2000
-------------------------------
Accumulated Net Book
Cost amortization Value
$ $ $
----------------------------------------------------------
Employee and
consultants base 14,042,665 2,422,532 11,620,133
Goodwill 14,242,667 2,422,532 11,820,135
Software licenses 59,451 2,974 56,477
----------------------------------------------------------
28,344,783 4,848,038 23,496,745
==========================================================
-------------------------------
December 31, 1999
-------------------------------
Accumulated Net Book
Cost amortization Value
$ $ $
----------------------------------------------------------
Employee and
consultants base 1,377,693 63,193 1,314,500
Goodwill 1,377,693 63,193 1,314,500
Software licenses -- -- --
----------------------------------------------------------
2,755,386 126,386 2,629,000
==========================================================
9. SHARE CAPITAL
Authorized
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 2000, 150,639 (1999 - 0, 1998 - 400,000) restricted common shares were
issued for services provided by consultants. The shares were recorded at their
estimated fair value of $720,459 (1999 - $0, 1998 - $200,000).
During 2000, 178,070 restricted common shares with a value of $812,355 were
issued to a director and 178,070 common shares with a value of $812,355 were
issued to a shareholder for services in relation to the establishment of the
capital structure of the Company. 234,335 common shares with a value of
$1,794,069 were issued to a shareholder as a result of the exercise of 250,000
stock options for no consideration. The number of shares issued was reduced from
the number of shares originally granted in exchange for receiving no cash.
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 2000, the Company issued 30,166 common shares at $2.75 per common share
for a total of $82,956 in settlement of trade payables.
NY/311594.5 21
<PAGE>
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].
During 2000, the Company issued 113,208 common shares valued at $329,011 for
settlement of amounts outstanding to a director for services provided.
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. This escrow agreement was terminated by an
agreement between the parties in August 4, 2000. On December 31, 1999, relating
to the acquisition of SDTC, the Company placed an additional 38,071 common
shares in escrow. In August 2000, the Company placed an additional 1,430,325
shares in to escrow relating to the acquisition of GNS, 4COMM and the Betach
companies.
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.
Weighted
Number of Price per average
Options share exercise price
$ $
------------------------------------------------------------------------------
Outstanding at December 31, 1997 -- -- --
------------------------------------------------------------------------------
Granted 1,667,000 0.15 - 0.69 0.41
------------------------------------------------------------------------------
Outstanding at December 31,1998 1,667,000 0.15 - 0.69 0.41
------------------------------------------------------------------------------
Granted 2,371,725 0.37 - 7.56 2.33
Exercised (15,000) 0.15 0.15
Cancelled (85,267) 0.15 - 0.98 0.41
------------------------------------------------------------------------------
Outstanding at December 31, 1999 3,938,458 0.15 - 7.56 3.02
------------------------------------------------------------------------------
Granted 1,829,453 2.56 - 13.25 5.02
Exercised (713,669) 0.15 - 1.72 0.46
Cancelled (274,415) 0.48 - 8.63 3.37
------------------------------------------------------------------------------
Outstanding at September 30, 2000 4,779,827 0.32 - 13.25 2.81
------------------------------------------------------------------------------
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of September 30, 2000
were as follows:
Options outstanding Options exercisable
-------------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of Number of remaining average average
exercise options contractual exercise Shares exercise
Price outstanding life price exercisable price
(years)
$ $ $
-------------------------------------------------------------------------------
0.32 - 0.37 211,499 3.96 0.34 108,666 0.34
0.48 - 0.87 1,252,500 2.91 0.61 1,062,833 0.59
1.44 - 3.06 1,917,870 2.92 2.07 1,274,337 1.81
3.28 - 7.88 1,208,778 3.61 5.54 15,184 7.56
8.56 - 13.25 189,180 3.44 10.10 -- --
-------------------------------------------------------------------------------
NY/311594.5 22
<PAGE>
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 133% (December 31, 1999 - 151%; September 30, 1999 -
167%; December 31, 1998 - 153%), risk-free interest rate of 6.50% (December 31,
1999 - 4.87%; September 30, 1999 - 4.87%; 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; September 30, 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 Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per common share for the
three month period ended September 30, 2000 would have been $19,503,814 and
$0.60 respectively (December 31, 1999 - $9,121,253 and $0.64; September 30, 1999
- $4,220,310 and $0.33; 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 months 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 $5.02 (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 5, 2000, 150,000 common shares were issued in exchange for
$105,000.
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 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.
On June 22, 2000 the Company issued 240,000 share purchase warrants in
connection with an issuance of 800,000 shares of common stock which entitle the
holder to purchase one share of common stock at an exercise price of $5.00 per
share. Each warrant will expire on June 22, 2005.
NY/311594.5 23
<PAGE>
In addition, the holders received adjustable warrants to purchase a number of
shares of common stock, at an exercise price of $0.001 per share. The number of
common stock to be purchased will be determined pursuant to a formula that is
applied at three separate 40 day adjustment periods commencing between the 150th
and 240th day following June 22, 2000. At each adjustment date, the holders will
be entitled to purchase under the adjustable warrants a number of common stock
equal to 33.33% of the common stock purchased, multiplied by the difference
between the quotient of $5.00 divided by .89 and the average of the 10 lowest
closing bid prices for the Company's common stock during the 40 trading day
period preceding the applicable adjustment date.
On July 17, 2000, the Company issued an additional 120,000 share purchase
warrants which entitle the holder to purchase one share of common stock at an
exercise price of $5.00 per share. Each warrant will expire on July 17, 2005. In
addition, the investors received adjustable warrants to purchase a number of
shares of common stock, at an exercise price of $0.001 per share. The number of
commons stock to be purchased will be determined pursuant to a formula that is
applied at three separate 40 day adjustment periods commencing between the 150th
and 240th day following July 17, 2005. The terms of the adjustable warrants are
consistent with the terms of the adjustable warrants issued on June 22, 2000
described in the previous paragraph.
On August 21, 2000, the Company issued 180,000 share purchase warrants in
connection with an issuance of 600,000 shares which entitle the holder to
purchase one share of common stock at an exercise price of $5.00 per share. Each
warrant will expire on August 21, 2005.
In addition, the holders received adjustable warrants to purchase a number of
shares of common stock, at an exercise price of $0.001 per share. The number of
common stock to be purchased will be determined pursuant to a formula that is
applied at three separate 40 day adjustment periods commencing between the 150th
and 240th day following August 21, 2005. At each adjustment date, the holders
will be entitled to purchase under the adjustable warrants a number of common
stock equal to 33.33% of the common stock purchased, multiplied by the
difference between the quotient of $5.00 divided by .89 and the average of the
10 lowest closing bid prices for the Company's common stock during the 40
trading day period preceding the applicable adjustment date.
10. 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:
NY/311594.5 24
<PAGE>
September 30, December 31, December 31, December 31,
2000 1999 1998 1997
$ $ $ $
----------------------------------------------------------------------------
Due from related parties
Oxford Capital Corp. 60,116 -- -- --
ICONIX International Inc. 58,513 -- -- --
Bankton Financial Corp. 8,009 -- -- --
Futurelink Corp. -- 1,777 13,118 --
----------------------------------------------------------------------------
126,638 1,777 13,118 --
----------------------------------------------------------------------------
Due to related parties
Officers and stockholders -- 4,821 43,588 --
Futurelink Corp. 120,610 42,888 32,175 --
Willson Stationers Ltd. -- -- 1,352 --
Directors 209,384 124,384 120,000 --
----------------------------------------------------------------------------
329,994 172,093 197,115 --
----------------------------------------------------------------------------
Due to stockholders
Thomson Kernaghan 70,966 -- -- --
Other stockholders -- 2,066 74,717 78,159
----------------------------------------------------------------------------
70,966 2,066 74,717 78,159
----------------------------------------------------------------------------
General and administration expense for the period ended September 30, 2000,
includes $184,203, (September 30, 1999 - $28,289; 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
shareholders are also shareholders of the Company. The Company provided sales to
Futurelink Corp. during the period ended September 30, 2000 in the amount of -
$nil (September 30, 1999 - $2,925; December 31, 1999 - $1,777; December 31, 1998
- $13,118; December 31, 1997 - $nil).
General and administration expenses for the period ended September 30, 2000,
includes $34,718 paid to eSupplies.com, an entity of which certain directors are
also directors and officers of the Company.
Revenues for the period ended September 30, 2000 include $71,418 in respect of
ICONIX International Inc. an entity in which a shareholder is also a shareholder
in the Company.
General and administration expenses for the period ended September 30, 2000,
$1,983 (September 30, 1999 - $11,858; 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 September 30, 2000, the Company expensed fees of
$118,023 (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 September 30, 2000, general and administration expense
includes $nil (September 30, 1999 - $198,168; 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 September 30, 2000 includes $414,011
(September 30, 1999 - $97,501; December 31, 1999 - $124,384; December 31, 1998 -
$33,333; December 31, 1997 - $nil) of directors fees.
NY/311594.5 25
<PAGE>
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 administrative expenses for the period ended September 30,2000
include $530,916 of consulting services provided by stockholders. $525,623 of
the amount was settled in common stock of the company on April 5, 2000, April 6,
2000, July 1, 2000 and August 23, 2000. The Company also issued common stock to
prepay consulting fees of $65,344 for the period from October to November 2000.
$82,956 of leasehold improvements expense was settled in common stock of the
Company on September 22, 2000.
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 $7.33 per square foot per annum with
12,287 square feet of net rentable area. Additional rent is estimated at $3.88
per square foot of net rentable area per annum. The net rent expense recognized
for the period ended September 30, 2000, that has been included in general and
administration expense, $112,171 (September 30, 1999 - $67,870; 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 $8.66 per square foot per annum with 11,445
square feet of net rentable area. Additional rent is estimated at $5.02 per
square foot of net rentable area per annum. The net rent expense recognized for
the period ended September 30, 2000 was $78,932.
Oxford Capital Corp. is an entity whose shareholders are also shareholders of
the Company. For the period ended September 30, 2000, due from related parties
was $58,476, which includes expense recoveries for salaries, rent and office
expenses.
Bankton Financial Corp. is an entity whose shareholders are also shareholders of
the Company. For the period ended September 30, 2000 due from related parties
includes general expense recoveries of $15,976. General and administration
expenses for the period ended September 30, 2000 includes $9,405 for
administrative costs incurred on behalf of the company.
11. CONVERTIBLE DEBENTURES
September December December
30, 2000 31, 1999 31, 1998
$ $ $
----------------------------------------------------------------------
Principal
Net balance outstanding, -- 146,606 --
beginning of period
Funds advanced to date -- 1,100,000 420,000
Debentures converted during the -- (1,246,606) (210,000)
period
----------------------------------------------------------------------
-- -- 210,000
----------------------------------------------------------------------
Financing Fees
Fees paid on funds advanced to -- (110,000) (42,000)
date
Intrinsic value associated with --
equity component of debentures 33,329 11,760
Fees paid through issuance of --
warrants to agent (341,538) (85,714)
NY/311594.5 26
<PAGE>
Intrinsic value associated with
equity component of debentures -- 110,027 24,000
Amortization of financing fees -- 75,601 5,158
to date
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 -- -- 146,606
period
----------------------------------------------------------------------
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 was recorded as a reduction to paid in capital. The remainder,
which was recorded as a reduction of the debenture principal, was 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 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,
NY/311594.5 27
<PAGE>
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.
12. 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:
Three Months Ended Year Ended
-------------------------------------------------------------------------------
September September December December 31, December
30, 2000 30, 1999 31, 1999 1998 31, 1997
$ $ $ $ $
-------------------------------------------------------------------------------
Net loss (17,661,949)(3,839,135) (7,167,776) (3,076,287) (136,854)
-------------------------------------------------------------------------------
Basic and
diluted loss
per common
share:
Weighted
average
number of
common shares
outstanding 32,491,914 12,837,302 14,342,053 7,405,421 4,000,000
-------------------------------------------------------------------------------
Net loss per
common share
- basic and
diluted (0.54) (0.30) (0.50) (0.42) (0.03)
================================================================================
NY/311594.5 28
<PAGE>
13. INCOME TAXES
The income tax benefit differs from the amount computed by applying the U.S.
federal statutory tax rates to the loss before income taxes for the following
reasons:
Nine Months Ended Year Ended
-----------------------------------------------------------
September September December December December
31, 1999 31, 1999 31, 1998 31, 1997 30, 1997
$ $ $ $ $
-----------------------------------------------------------------------------
(34%) (34%) (34%) (34%) (34%)
Income tax
benefit at
U.S. statutory
rate (6,004,939) (1,305,306) (2,437,044)(1,045,938) (46,530)
Increase
(decrease) in
taxes
resulting from:
Change in
deferred tax
asset
valuation
allowance 5,235,081 1,200,985 2,500,670 1,106,172 46,530
Non-deductible
expenses 2,048,503 338,887 322,810 128,162 --
Foreign tax
rate
differences (1,166,653) (234,566) (368,588) (188,396) --
State tax rate
differences (164,113) -- 1,508 -- --
Federal tax
rate
differences
on opening
assets 36,534 -- -- -- --
Income not
previously
recognized -- -- 2,439 -- --
Foreign
exchange 15,587 -- (21,795) -- --
-----------------------------------------------------------------------------
Income tax
benefit -- -- -- -- --
=============================================================================
For financial reporting purposes, loss before income taxes includes the
following components:
Nine Months Ended Year Ended
-----------------------------------------------------------
September September December December December
30, 2000 30, 1999 31, 1999 31, 1998 31, 1997
$ $ $ $ $
-------------------------------------------------------------------------
Pre-tax loss:
United
States (5,534,577) (1,740,449) (3,697,076) (1,302,313) (136,854)
Foreign (12,127,372) (2,098,686) (3,470,700) (1,773,974) --
-------------------------------------------------------------------------
(17,661,949) (3,839,135) (7,167,776) (3,076,287) (136,854)
=========================================================================
NY/311594.5 29
<PAGE>
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:
September December December December
30, 2000 31, 1999 31, 1998 31, 1997
$ $ $ $
---------------------------------------------------------------------------
Future tax assets:
Net operating loss 8,132,306 3,209,318 697,768 --
carryforwards
Start-up costs 21,714 28,694 37,999 46,333
Depreciation 263,051 45,549 5,807 --
Organization costs 936 591 394 197
Debt issue costs -- -- 5,137 --
Finance costs 326,025 -- -- --
Donations 1,603 435 -- --
Software costs 142,818 368,785 405,597 --
---------------------------------------------------------------------------
Net future tax assets 8,888,453 3,653,372 1,152,702 46,530
Valuation allowance (8,888,453) (3,653,372) (1,152,702) (46,530)
---------------------------------------------------------------------------
Net future tax assets -- -- -- --
===========================================================================
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 September 30, 2000, the Company has U.S. operating losses carried forward of
$8,349,000 which expire as follows:
$
----------
2018 880,000
2019 2,750,000
2020 4,719,000
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.
At September 30, 2000, the Company has non-capital losses carried forward for
Canadian income tax purposes of $11,852,000. These losses expire as follows:
$
----------
2003 46,000
2004 7,000
2005 884,000
2006 3,527,000
2007 7,388,000
NY/311594.5 30
<PAGE>
14. CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at September 30, 2000 under capital and
operating leases are as follows:
Capital Operating
Leases Leases
-----------------------------------------------------------------
2000 31,132 261,820
2001 124,528 972,564
2002 109,509 926,623
2003 100,882 744,378
2004 59,860 578,224
2005 24,215 371,564
-----------------------------------------------------------------
Total future minimum lease payments 450,126 3,855,173
==============
Less: imputed interest (92,009)
---------------------------------------------------
Balance of obligations under
capital leases 358,117
Less: current portion (86,711)
---------------------------------------------------
Long term obligation under capital
leases 271,406
===================================================
Rent expense was $428,166 for the period ended September 30, 2000 (September 30,
1999 - $180,840; December 31, 1999 - $269,004; December 31, 1998 - $29,637).
15. NET CHANGE IN NON-CASH WORKING CAPITAL
Nine Months Ended Year Ended
-----------------------------------------------------------
September September December December December
30, 2000 30, 1999 31, 1999 31, 1998 31, 1997
$ $ $ $ $
-----------------------------------------------------------------------------
Operating
Activities
Accounts
receivable (3,517,085) (413,895) (331,582) (7,243) --
Short term
investment (2,398,146) -- -- -- --
Prepaid expenses
and deposits (214,086) 53,628 81,979 (132,956) (7,500)
Due from related --
parties (124,861) 13,118 11,341 (13,118)
Bank indebtedness 193,999 -- -- -- --
Accounts payable
and accrued
liabilities 2,342,204 469,347 799,691 395,624 32,976
Lease inducement 205,541 -- -- -- --
Due to
stockholder 68,900 -- -- -- --
Due to related
parties 157,901 (857) (25,022) 197,115 --
-----------------------------------------------------------------------------
(3,285,633) 121,341 536,407 439,422 25,476
-----------------------------------------------------------------------------
Attributed to
investing
activities (1,004,645) -- 257,214 -- --
Attributed to
financing
activities -- -- -- -- --
-----------------------------------------------------------------------------
Attributed to
operating
activities (4,290,278) 121,341 279,193 439,422 25,476
=============================================================================
NY/311594.5 31
<PAGE>
16. 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:
September 30, 2000
Canada U.S. Total
$ $ $
---------------------------------------------------------
Loss information
Revenue 5,816,142 1,190,613 7,006,755
Cost of sales 2,266,061 410,684 2,676,745
Expenses 15,719,550 3,604,693 19,324,243
---------------------------------------------------------
(12,169,469) (2,824,764) (14,994,233)
Corporate overheads (2,667,716)
---------------------------------------------------------
Net loss (12,169,469) (2,824,764) (17,661,949)
---------------------------------------------------------
Selected balance
sheet information
Equipment and
leasehold
improvements 3,020,658 372,198 3,392,856
Goodwill and
employee and
consultants base 21,403,379 2,093,366 23,496,745
=========================================================
September 30, 1999
Canada U.S. Total
$ $ $
---------------------------------------------------------
--
Loss information
Revenue 372,630 -- 372,630
Cost of sales 2,066 -- 2,066
Expenses 2,579,279 -- 2,579,279
---------------------------------------------------------
(2,208,715) -- (2,208,715)
Corporate overheads (1,630,420)
---------------------------------------------------------
Net loss (2,208,715) -- (3,839,135)
=========================================================
Selected balance
sheet information
Equipment and
leasehold
improvements 496,699 1,305 498,004
=========================================================
NY/311594.5 32
<PAGE>
December 31, 1999
Canada U.S. Total
$ $ $
------------------------------------------------------
Loss information
Revenue 554,676 37,370 592,046
Cost of sales 2,066 -- 2,066
Expenses 4,023,458 11,098 4,036,622
------------------------------------------------------
(3,470,848) 26,272 (3,444,576)
Corporate overheads (3,723,200)
------------------------------------------------------
Net loss (7,167,776)
------------------------------------------------------
Selected balance
sheet information
Equipment and
leasehold
improvements 547,886 151,349 699,235
Goodwill and
employee and
consultants base 2,259,698 369,302 2,629,000
=========================================================
December 31, 1998
Canada U.S. Total
$ $ $
------------------------------------------------------
Loss information
Revenue 29,068 -- 29,068
Cost of sales -- -- --
Expenses 1,835,561 -- 1,835,561
------------------------------------------------------
(1,806,493)
Corporate overheads (1,269,794)
------------------------------------------------------
Net loss (1,806,493) -- (3,076,287)
------------------------------------------------------
Selected balance
sheet information
Equipment and
leasehold 77,090 1740 78,830
improvements
Goodwill and -- -- --
employee and
consultants base
=========================================================
NY/311594.5 33
<PAGE>
17. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, and cash equivalents, 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 risks arising from these financial instruments.
At September 30, 2000 approximately 62% of consolidated accounts receivable are
due from a related party engaged in the business of internet delivery of
financial services.
18. RECENT PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 Revenue Recognition in Financial Statements, which will become
effective December 31, 2000. The Company does expect the standard to have a
material effect on its results, however an analysis has not been completed.
19. COMPARITIVE FIGURES
Certain of the comparative figures have been reclassified to conform with the
current period's presentation.
20. SUBSEQUENT EVENTS
On October 2nd, 2000, in connection with the private placement financing
agreement dated August 21, 2000, the Company issued 400,000 common shares for
proceeds of $2,000,000. In connection with this private placement, the Company
issued 120,000 share purchase warrants which entitle the holder to purchase one
share of common stock at an exercise price of $5.00 per share. Each warrant will
expire on August 21, 2005. In addition, the holders received adjustable
warrants, pursuant to a formula, to purchase a number of shares of common stock,
at an exercise price of $0.001 per share.
NY/311594.5 34
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
JAWZ is currently the parent corporation of five subsidiaries. The two
material operating companies are JAWZ Canada Inc. and JAWZ USA Inc. The third
subsidiary is JAWZ Illinois, Inc., an Illinois corporation (formerly "Nucleus
Consulting, Inc."). The other two subsidiaries, which are non-operating, are
JAWZ Acquisition Corporation ("JAC") and JAWZ Acquisition Canada Corporation
("JACC"), whose sole purpose is to facilitate Canadian acquisitions.
On July 1, 2000, JAWZ reorganized its corporate structure by migrating the
parent company, JAWZ Inc., to the state of Delaware. In addition, JAWZ
amalgamated four operating subsidiaries in Canada (JAWS Technologies Inc., an
Alberta corporation ("JAWS Alberta"), JAWS Technologies (Ontario) Inc., an
Ontario corporation ("JAWS Ontario"), Pace Systems Group Inc., an Ontario
corporation ("PACE"), and Offsite Data Services Ltd., an Alberta corporation
("Offsite")) to form a single operating subsidiary in Canada, JAWZ Technologies
Inc., an Alberta corporation ("JAWZ Canada"). JAWZ Canada is extra-provincially
registered to carry on business in Ontario.
During the last twelve months JAWZ has completed seven material
acquisitions, acquiring PACE Systems Inc. (November 1999), SDTC (December 1999),
Offsite Data Storage Inc. (January 2000), Nucleus Consulting Inc. (April 2000),
General Network Systems Inc (August 2000), Betach Systems Inc and Betach
Advanced Systems Inc. (August 2000), and 4COMM.com Inc. (August 2000).
The shares of JAWZ common stock are included for quotation on the Nasdaq
National Market under the symbol "JAWZ". As at September 30, 2000, JAWZ
International headquarters is located in Canada in Toronto, Ontario. JAWZ also
has offices in Calgary, Alberta, Edmonton, Alberta and Ottawa, Ontario in
Canada. In the United States JAWZ has offices located in Boston, Massachusetts,
Fairfield, New Jersey, Chicago, Illinois and Pasadena, California.
JAWZ is organized under a vertical business model, with the six target
verticals, namely Financial Services, Health Care, Cyber-crime & Forensics,
Government, Telecommunications (which includes ISP's and ASP's), and Strategic &
Emerging Markets.
Both of JAWZ' two primary operating subs, JAWZ Canada and JAWZ USA,
specialize in the field of end-to-end information security, providing consulting
services and software solutions to minimize the threats to clients' information
and communications. The overall strategic goal for JAWZ 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, JAWZ attempts to ensure that acquired firms
receive the capital and corporate planning necessary to maximize the growth
potential within each information security niche.
JAWZ has also developed or purchased several strategic horizontal product
or service offerings that it offers to its customers across all verticals. These
horizontal offerings include managed services (which includes JAWZ Secure
Network Storage offering) and managed security services, professional services
and professional security services, JAWZ products and best-of-breed third party
products.
In addition to the vertical model outlined above, and a horizontal
offering across all verticals, JAWZ has also developed several Centers of
Excellence. At its offices in Calgary, Alberta, JAWZ Canada develops proprietary
encryption software using what is currently one of the world's strongest
encryption algorithms, L5, to secure binary data in various forms, including
streamlining or blocking data. JAWZ Secure Network Storage offers secure, fully
automated on-line backup, retrieval and storage services through the Internet
from its data center in
NY/311594.5 35
<PAGE>
Calgary. At its offices in Toronto, JAWZ provides financial information
technology security solutions services, including services in the area of
payment systems, including POS/ABM EFT switch implementation, point of sale
application and device integration, network architecture and design, system
integration and project management.
Results of Operations
Three months ended September 30, 2000 (third fiscal quarter 2000) compared with
the three months ended September 30, 2000 (third fiscal quarter 1999)
JAWZ' total revenue increased by 1,021%, or $3,699,962, to $4,062,412 for
the three months ended September 30, 2000 from $362,450 in the three months
ended September 30, 1999. This increase is primarily a result of two key
factors. Roughly 50% of the revenue for the quarter was derived from the
continuation of the eFinancial Depot.com contract and the start of the CU
Connect contract. The second key factor is the integration and subsequent growth
associated with acquisitions of JAWZ (including PACE Systems, SDTC, Offsite,
Nucleus, General Network Systems, Betach Systems, Betach Advanced Systems and
4COMM.com).
Cost of sales increased to $1,796,634 for the three months ended September
30, 2000 from $0 in the three months ended September 30, 1999. This increase is
directly related to the increase in revenue discussed above and the direct and
identifiable costs associated with generating that business recorded as a cost
of sales.
Selling, general and administrative expenses increased 259% to $5,325,509
for the three months ended September 30, 2000 from $1,482,150 in the three
months ended September 30, 1999. This increase is primarily a result of the
continued growth of JAWZ' operations including geographic expansion, moving
JAWZ' products toward and into the commercialization stage 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.
Advertising and promotion expenses increased 247% to $172,390 for the
three months ended September 30, 2000 from $49,631 in the three months ended
September 30, 1999. This increase is primarily a result of increased sales and
marketing activities related to moving JAWZ' products toward and into the
commercialization stage based on JAWZ vertical and geographical product and
consulting services strategies.
Interest expense, financing fees and amortization of debt discount
increased 54% to $322,540 for the three months ended September 30, 2000 from
$209,099 for the three months ended September 30, 1999. This increase is due
primarily to underwriting fees associated with the private placements
transactions that occurred during the quarter.
Amortization expense was $1,977,569 for the three months ended September
30, 2000 as compared to $0 for the three months ended September 30, 1999. This
increase was due to the amortization of goodwill and employee and consultants
base associated with JAWZ' acquisitions of Pace Systems, SDTC, Offsite, Nucleus,
Betach, GNS, and 4COMM.
JAWZ' net loss for the three months ended September 30, 2000 was
$6,647,121 as compared with $1,406,025 for the three months ended September 30,
1999. This increase in the net loss is primarily due to the continued growth of
JAWZ' operations, moving JAWZ products toward and into the commercialization
stage. This includes geographic expansion and the expenses related to the
preparation of various marketing and sales documents and materials, payment of
wages and benefits, requirements for office space, supplies and other office
related expenses.
NY/311594.5 36
<PAGE>
Nine months ended September 30, 2000 compared with the Nine Months ended
September 30, 1999
JAWZ' total revenue increased by $6,634,125 (1,780%) to $7,006,755 for the
nine months ended September 30, 2000 from $372,630 in the nine months ended
September 30, 1999. This increase is primarily a result of two key factors.
Approximately 40% of the revenue was derived from the eFinancial Depot.com
contract and the CU Connect contract. The second key factor is the integration
and subsequent growth associated with acquisitions of JAWZ (including PACE
Systems, SDTC, Offsite, Nucleus, General Network Systems, Betach Systems, Betach
Advanced Systems and 4COMM.com).
Cost of sales increased to $2,676,745 for the nine months ended September
30, 2000 from $0 in the nine months ended September 30, 1999. This increase is
directly related to the increase in revenue above and the direct and
identifiable costs associated with generating that business recorded as a cost
of sales.
Selling, general and administrative expenses increased 369% to $13,995,452
for the nine months ended September 30, 2000 from $2,984,744 in the nine months
ended September 30, 1999. This increase is primarily a result of the continued
growth of JAWZ' operations including geographic expansion, moving JAWZ products
toward and into the commercialization stage 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.
Advertising and promotion expenses increased 439% to $1,264,102 for the
nine months ended September 30, 2000 from $234,398 in the nine months ended
September 30, 1999. This increase is primarily due to increased sales and
marketing activities related to moving JAWZ' products toward and into the
commercialization stage based on JAWZ vertical and geographical product and
consulting services strategies.
Interest expense, financing fees and amortization of debt discount
decreased by approximately 63% to $337,329 for the nine months ended September
30, 2000 from $914,913 for the nine months ended September 30, 1999. This
decrease is due to the retirement of the convertible debentures (which occurred
in November, 1999) and the associated accelerated amortizations of the deferred
financing fees and debt discount.
Amortization expense was $4,721,652 for the nine months ended September
30, 2000 as compared to $0 for the nine months ended September 30, 1999. This
increase is primarily due to the amortization of goodwill and employee and
consultants base associated with JAWZ' acquisitions.
JAWZ' net loss for the nine months ended September 30, 2000 was
$17,661,949 as compared with $3,839,135 for the nine months ended September 30,
1999. This increase in the net loss is primarily due to the continued growth of
JAWZ' operations, moving JAWZ products toward and into the commercialization
stage. This includes geographic expansion and the expenses related to the
preparation of various marketing and sales documents and materials, payment of
wages and benefits, requirements for office space, supplies and other office
related expenses.
NY/311594.5 37
<PAGE>
Litigation
Except as provided in Part II, Item 1 of JAWZ' Quarterly Report on form
10-Q, filed with the SEC on August 17, 2000, JAWZ is not a party to any material
pending legal proceedings other than ordinary routine litigation incidental to
the business of JAWZ which JAWZ does not believe is material.
Liquidity and Capital Resources
Net cash used in operations for the nine months ended September 30, 2000
was $15,783,938, compared with $4,170,626 as of December 31, 1999. These
increases are a result of the increased expenses incurred as noted above.
Cash and cash equivalents on hand at September 30, 2000 was $1,202,801,
compared with $8,430,701 at December 31, 1999. During the nine month period
ended September 30, 2000, JAWZ completed four private placements. The first
private placement financing of approximately $2,500,000 gross proceeds on
February 23, 2000, and an additional private placement for $4,000,000 gross
proceeds on June 22, 2000, the third and fourth private placements were for
$5,000,000 (each) gross proceeds, which were received through out the period
(together, the "Private Placement Transactions"). In addition, several options
and warrants were exercised during the nine month period ending September 30,
2000. These funds were used to fund current and anticipated losses from
operations. These funds will continue to be deployed primarily to fund
operations.
JAWZ has experienced net losses over the past three years and as of
September 30, 2000, had an accumulated deficit of approximately $28.0 million.
These losses are attributable to both cash losses and losses resulting from
costs incurred in the development of the JAWZ' services and infrastructure as
well as non-cash interest and amortization charges. JAWZ expects operating
losses to continue for the foreseeable future as it continues to develop and
promote its services. JAWZ believes that its existing cash and marketable
securities balances will be sufficient to fund JAWZ' operations through the near
future. In order to develop and promote its services and products, JAWZ will
need, and is considering, financing beyond this period including strategic
partnerships, public or private equity and/or debt financing. No assurance can
be given, however, that JAWZ will be able to obtain additional financing on
terms acceptable to JAWZ, if at all. If JAWZ fails to obtain financing, or fails
to obtain financing on terms favorable to JAWZ, JAWZ may be unable to continue
to complete the commercialization of its products, or continue its current
operations as presently conducted, if at all.
Accounts payable and accrued liabilities have increased 209% to $3,460,725
as of September 30, 2000 as compared to $1,118,521 as of December 31, 1999.
These increases are a result of the efforts of management to increase sales
revenue and grow JAWZ' operations and are consistent with the other expense
increases in the first nine months of the year 2000. JAWZ has anticipated and
budgeted for these increases to provide for the growth of operations.
Through acquisition, JAWZ has purchased a line of credit outside of trade
accounts, which JAWZ is in the process of retiring. JAWZ has not used any other
debt instruments to date, other than long-term capital leases and Thomson
Kernaghan's convertible debentures which were converted to equity.
NY/311594.5 38
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
On August 22, 2000, JAWZ, entered into a Share Purchase Agreement (the
"Betach Agreement") with Jaws Acquisition Canada Corp., an Alberta, Canada
corporation and a wholly-owned subsidiary of JAWZ ("JACC"), and each of the
other parties signatory thereto, pursuant to which JACC issued 1,120,000 JACC
exchangeable shares (the "Exchangeable Shares") to the shareholders of both
Betach Systems Inc. ("BSI") and the shareholders of Betach Advanced Solutions
Inc. ("BASI"), in exchange for 100% of the outstanding shares of BSI and BASI.
This transaction was consummated on September 7, 2000. Each Exchangeable Share
is exchangeable into one share of common stock of JAWZ pursuant to the terms set
forth in the relevant transaction documents.
Of the 1,120,000 Exchangeable Shares issued to the BSI and BASI
shareholders, holders of 375,335 Exchangeable Shares have certain registration
rights set forth in the Betach Agreement. Within 90 days of the closing, JAWZ
has agreed to include 373,335 shares of JAWZ common stock in a registration
statement to be filed with the Securities and Exchange Commission to register
the resale of such shares of JAWZ common stock in accordance with the Securities
Act of 1933, as amended. Upon effectiveness of such registration statement,
holders of the Exchangeable Shares can exchange such shares for shares of JAWZ
common stock, and may, subject to certain limitations, effect the resale
thereof.
Of the 1,120,000 Exchangeable Shares issued to the BSI and BASI
shareholders, JAWZ has placed 369,600 Exchangeable Shares in escrow, to be
released on the first anniversary of the closing date subject to certain revenue
targets.
On August 15, 2000, JAWZ entered into a Share Purchase Agreement with
JACC, and each of the other parties signatory thereto (the "4COMM Agreement"),
pursuant to which JAWZ, through JACC, agreed to acquire all of the outstanding
shares of common stock of 4COMM.com Inc. ("4COMM"). This acquisition was
consummated on August 25, 2000. Pursuant to the 4COMM Agreement, JACC issued to
the shareholders of 4COMM 501,673 JACC shares exchangeable into shares of common
stock of JAWZ and placed 1,083,165 of these exchangeable shares in escrow. These
exchangeable shares, valued at US$3.2502 per exchangeable share, are releasable,
subject to certain earn-out provisions, to the shareholders of 4COMM. These
exchangeable shares will be released from escrow as follows: 1/3 on the first
anniversary of the closing date of the 4COMM acquisition, 1/3 on the second
anniversary of the closing date, and 1/3 on the third anniversary of the closing
date.
On August 15, 2000, JAWZ entered into a Share Purchase Agreement with JACC
and each of the other parties signatory thereto (the "GNS Agreement"), pursuant
to which JAWZ, through JACC, agreed to acquire all of the outstanding shares of
common stock of General Network Services Inc. ("GNS"). This acquisition was
consummated on August 25, 2000. Pursuant to the GNS Agreement, JACC issued to
the shareholders of GNS 110,894 restricted shares of JAWZ common stock and
placed 392,156 shares exchangeable into shares of common stock of JAWZ to be
delivered into escrow for release to the selling shareholders over a period of
two years, with the number of exchangeable shares to be released dependent upon
certain performance requirements of two key GNS employees over that same period.
On June 22, 2000, JAWZ completed a private placement transaction with two
institutional investors. Pursuant to a registration rights agreement entered
into in connection with this transaction, the investors were obligated to
purchase an additional 400,000 shares of common stock in exchange for a purchase
price of $2,000,000. This placement was consummated on July 17, 2000. The
investors also received warrants to purchase 120,000 shares of JAWZ common stock
at an exercise price of $5.00 per share.
In connection with this transaction, the investors also received five-year
adjustable warrants to purchase shares of JAWZ common stock at an exercise price
of $.001 per share. The exact number of shares is to be determined using a
formula that is applied at three separate 40 day adjustment periods commencing
between the 150th and 240th day following June 22, 2000.
NY/311594.5 39
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In addition to the foregoing, JAWZ has granted these investors certain
demand and "piggyback" registration and related rights in respect of the shares
of common stock purchased and those shares underlying the warrants and
adjustable warrants.
On August 21, 2000, in connection with a private placement financing
agreement entered into on August 21, 2000, JAWZ issued 600,000 shares of common
stock a warrant to purchase 180,000 shares of common stock of JAWZ at an
exercise price of $5.00 per share, for an aggregate price of $3,000,000. Each
warrant will expire on August 21, 2005. In addition, each investor is entitled
to receive a number of warrants adjustable pursuant to a formula to purchase a
number of shares of common stock at an exercise price of $0.001 per share.
Additionally, pursuant to the same agreement, on October 2, 2000, JAWZ
issued 400,000 additional shares of common stock and 120,000 purchase warrants
which entitle the holder to purchase one share of common stock at an exercise
price of $5.00 per share, for an aggregate price of $2,000,000.
In each case set forth in this Part II, Item 2, the securities were issued
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended, under Regulation S. Each person who received shares of
JAWZ, or shares exchangeable for shares of common stock of JAWZ, warranted to
JAWZ 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 JAWZ 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.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 29, 2000 JAWZ amended its certificate of incorporation to
change its name from "JAWS Technologies, Inc." to "JAWZ Inc." Such amendment was
effected after obtaining requisite stockholder approval at a meeting of the
stockholders held on September 29, 2000, at the offices of Paul, Hastings,
Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022, counsel to
JAWZ. At the stockholders meeting, 36,823,941 shares were entitled to vote and
18,904,025 shares were voted in favor of the name change and there were no votes
against (or abstaining from voting for or against) the name change. The name
change was approved by JAWZ' board of directors.
NY/311594.5 40
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1(1) Articles of Incorporation of "e-biz" solutions, inc. (now JAWZ
Inc., a Nevada corporation), dated January 27, 1997.
3.2(2) Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation (now JAWZ Inc., a
Nevada corporation), dated March 30, 1998, changing the name
of E-Biz to JAWS Technologies, Inc.
3.3(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(4) Bylaws of "e-biz" solutions, inc. (now JAWZ Inc., a Delaware
corporation), dated January 27, 1997.
3.5(5) Certificate of Incorporation of JAWS Technologies, Inc., a
Delaware corporation, dated April 28, 2000.
3.6(6) Certificate of Amendment to Certificate of Incorporation of
JAWS Technologies, Inc., a Delaware corporation, dated
September 29, 2000, changing the name of JAWS Technologies,
Inc. to JAWZ Inc.
4.1(7) 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(8) Debenture Acquisition Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated September 25, 1998.
4.3(9) Amendment No. 1 to Debenture Purchase Agreement by and between
JAWS Technologies, Inc. and Thomson Kernaghan & Co. Limited,
dated April 27, 1999.
--------------------------------------------
(1) Incorporated by reference to Exhibit 3.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(2) Incorporated by reference to Exhibit 3.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(3) Incorporated by reference to Exhibit 3.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(4) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(5) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1/A (File
No. 333-38088), filed with the SEC on July 13, 2000.
(6) Incorporated by reference to Exhibit 3.6 of the Company's Quarterly Report
on Form 10-Q, filed with the SEC on November 14, 2000.
(7) Incorporated by reference to Exhibit 4.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(8) Incorporated by reference to Exhibit 4.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(9) Incorporated by reference to Exhibit 4.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
NY/311594.5 41
<PAGE>
4.4(10) 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(11) 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(12) Schedule of Warrant holders which received the Form of Warrant
set forth in 4.5 above.
4.7(13) Form of Warrant issued by JAWZ in connection with the Private
Placement Transaction.
4.8(14) Schedule of Warrant holders which received the Form of Warrant
set forth in 4.9 above.
4.9(15) 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(16) 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(17) Incentive and Non-Qualified Stock Option Plan of JAWS
Technologies, Inc., a Nevada corporation.
4.12(18) Placement Agency Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Thomson Kernaghan & Co.
Limited, dated December 31, 1999.
4.13(19) Placement Agency Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Thomson Kernaghan & Co.
Limited, dated February 15, 2000.
--------------------------------
(10) Incorporated by reference to Exhibit 4.4 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(11) Incorporated by reference to Exhibit 4.5 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(12) Incorporated by reference to Exhibit 4.6 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(13) Incorporated by reference to Exhibit 4.7 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(14) Incorporated by reference to Exhibit 4.8 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(15) Incorporated by reference to Exhibit 4.9 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(16) Incorporated by reference to Exhibit 4.10 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(17) Incorporated by reference to Exhibit 4.11 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(18) Incorporated by reference to Exhibit 10.13 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(19) Incorporated by reference to Exhibit 4.13 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
NY/311594.5 42
<PAGE>
4.14(20) Placement Agency Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and SmallCaps Online LLC, dated
February 15, 2000.
4.15(21) 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(22) Schedule of Subscribers that purchased subscriptions pursuant
to the Form of Subscription Agreement set forth above in
10.14.
10.1(23) Securities Purchase Agreement, dated as of June 22, 2000,
among JAWS Technologies, Inc. and investors signatory thereto.
10.2(24) Registration Rights Agreement, made and entered into as of
June 22, 2000, among JAWS Technologies, Inc. and the investors
signatory thereto.
10.3(25) Share Purchase Agreement, dated August 15, 2000, among JAWS
Technologies, Inc., JAWS Acquisition Canada Corp., 4Comm.com,
Inc., and other signatories thereto.
10.4(26) Share Purchase Agreement, dated August 15, 2000, among JAWS
Technologies, Inc., JAWS Acquisition Canada Corp., General
Network Services - GNS Inc., and other signatories thereto.
10.5(27) Registration Right Agreement, dated August 15, 2000, between
JAWS Technologies, Inc. and the Vendors signatories thereto.
10.6(28) Support Agreement, dated August 1, 2000 between JAWS
Technologies, Inc. and JAWS Acquisition Canada Corp.
10.7(29) Voting and Exchange Trust Agreement, dated August 1, 2000,
among JAWS Technologies, inc. and JAWS Acquisition Canada
Corp. and Montreal Trust Company of Canada.
------------------------------
(20) Incorporated by reference to Exhibit 4.14 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(21) Incorporated by reference to Exhibit 10.14 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(22) Incorporated by reference to Exhibit 4.16 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(23) Incorporated by reference to Exhibit 10.19 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(24) Incorporated by reference to Exhibit 10.20 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(25) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(26) Incorporated by reference to Exhibit 2.2 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(27) Incorporated by reference to Exhibit 2.3 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(28) Incorporated by reference to Exhibit 2.4 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(29) Incorporated by reference to Exhibit 2.5 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
NY/311594.5 43
<PAGE>
10.8(30) Share Purchase Agreement, dated August 22, 2000, among JAWS
Technologies, Inc., JAWS Acquisition Canada Corp., the
shareholders of Betach Systems Inc., and the shareholders of
Betach Advanced Solutions Inc.
10.9(31) Form of Warrant Certificate made by JAWS Technologies, Inc. in
favor of the shareholders of Betach Systems Inc. and the
shareholders of Betach Advanced Solutions Inc.
10.10(32)List of warrant holders with respect to whom JAWZ issued
warrants pursuant to the Form of Warrant Certificate set forth
in Exhibit 4.1: Randy Walinga, Stephanie Muzyka, Lawrence
Gordey and Soon Chong.
27.1(33) Financial Data Schedule.
(b) Reports on Form 8-K
A current report on Form 8-K was filed by the Company on September 11,
2000, reporting the acquisition of all the issued and outstanding capital
stock of 4COMM.com Inc and the acquisition of all the issued and outstanding
capital stock of General Network Services, Inc.
A current report on Form 8-K was filed by the Company on September 18,
2000, reporting the acquisition of all the issued and outstanding capital
stock of Betach Systems Inc. and Betach Advanced Solutions, Inc.
An amendment to a current report on Form 8-K/A1 was filed by the Company
on November 1, 2000, amending the Current Report on Form 8-K, dated
September 11, 2000 and its Current Report on Form 8-K dated September 18,
2000, by updating certain financial statements.
------------------------
(30) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on September 18, 2000.
(31) Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K, filed with the SEC on September 18, 2000.
(32) Incorporated by reference to Exhibit 4.2 of the Company's Current Report on
Form 8-K, filed with the SEC on September 18, 2000.
(33) Incorporated by reference to Exhibit 27.1 of the Company's Quarterly Report
on Form 10-Q, filed with the SEC on November 14, 2000.
NY/311594.5 44
<PAGE>
S-1
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JAWZ INC.
Date: December 15, 2000
By: /s/ Robert J. Kubbernus
--------------------------
Name: Robert J. Kubbernus
Title: Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive Officer)
Date: December 15, 2000
By: /s/ Riaz Mamdani
--------------------------
Name: Riaz Mamdani
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
NY/311594.5 S-1
<PAGE>
EXHIBIT INDEX
Exhibit Description
3.1(1) Articles of Incorporation of "e-biz" solutions, inc. (now JAWZ
Inc., a Nevada corporation), dated January 27, 1997.
3.2(2) Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation (now JAWZ Inc., a
Nevada corporation), dated March 30, 1998, changing the name
of E-Biz to JAWS Technologies, Inc.
3.3(3) Certificate of Amendment of Articles of Incorporation of JAWS
Technologies, Inc., a Nevada corporation, increasing the total
number of common stock which JAWZ is allowed to issue from
20,000,000 to 95,000,000.
3.4(4) Bylaws of "e-biz" solutions, inc. (now JAWZ, Inc., a Delaware
corporation), dated January 27, 1997.
3.5(5) Certificate of Incorporation of JAWS Technologies, Inc., a
Delaware corporation, dated April 28, 2000.
3.6(6) Certificate of Amendment to Certificate of Incorporation of
JAWS Technologies, Inc., a Delaware corporation, dated
September 29, 2000, changing the name of JAWS Technologies,
Inc. to JAWZ Inc.
4.1(7) 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(8) Debenture Acquisition Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated September 25, 1998.
4.3(9) Amendment No. 1 to Debenture Purchase Agreement by and between
JAWS Technologies, Inc. and Thomson Kernaghan & Co. Limited,
dated April 27, 1999.
-----------------------------------------
(1) Incorporated by reference to Exhibit 3.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(2) Incorporated by reference to Exhibit 3.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(3) Incorporated by reference to Exhibit 3.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(4) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(5) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1/A (File
No. 333-38088), filed with the SEC on July 13, 2000.
(6) Incorporated by reference to Exhibit 3.6 of the Company's Quarterly Report
on Form 10-Q, filed with the SEC on November 14, 2000.
(7) Incorporated by reference to Exhibit 4.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(8) Incorporated by reference to Exhibit 4.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(9) Incorporated by reference to Exhibit 4.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
NY/311594.5
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4.4(10) 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(11) 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(12) Schedule of Warrant holders which received the Form of Warrant
set forth in 4.5 above.
4.7(13) Form of Warrant issued by JAWZ in connection with the Private
Placement Transaction.
4.8(14) Schedule of Warrant holders which received the Form of Warrant
set forth in 4.9 above.
4.9(15) 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(16) 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(17) Incentive and Non-Qualified Stock Option Plan of JAWS
Technologies, Inc., a Nevada corporation.
4.12(18) Placement Agency Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Thomson Kernaghan & Co.
Limited, dated December 31, 1999.
4.13(19) Placement Agency Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Thomson Kernaghan & Co.
Limited, dated February 15, 2000.
---------------------------
(10) Incorporated by reference to Exhibit 4.4 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(11) Incorporated by reference to Exhibit 4.5 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(12) Incorporated by reference to Exhibit 4.6 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(13) Incorporated by reference to Exhibit 4.7 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(14) Incorporated by reference to Exhibit 4.8 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(15) Incorporated by reference to Exhibit 4.9 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(16) Incorporated by reference to Exhibit 4.10 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(17) Incorporated by reference to Exhibit 4.11 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(18) Incorporated by reference to Exhibit 10.13 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(19) Incorporated by reference to Exhibit 4.13 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
NY/311594.5
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4.14(20) Placement Agency Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and SmallCaps Online LLC, dated
February 15, 2000.
4.15(21) 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(22) Schedule of Subscribers that purchased subscriptions pursuant
to the Form of Subscription Agreement set forth above in
10.14.
10.1(23) Securities Purchase Agreement, dated as of June 22, 2000,
among JAWS Technologies, Inc. and investors signatory thereto.
10.2(24) Registration Rights Agreement, made and entered into as of
June 22, 2000, among JAWS Technologies, Inc. and the investors
signatory thereto.
10.3(25) Share Purchase Agreement, dated August 15, 2000, among JAWS
Technologies, Inc., JAWS Acquisition Canada Corp., 4Comm.com,
Inc., and other signatories thereto.
10.4(26) Share Purchase Agreement, dated August 15, 2000, among JAWS
Technologies, Inc., JAWS Acquisition Canada Corp., General
Network Services - GNS Inc., and other signatories thereto.
10.5(27) Registration Right Agreement, dated August 15, 2000, between
JAWS Technologies, Inc. and the Vendors signatories thereto.
10.6(28) Support Agreement, dated August 1, 2000 between JAWS
Technologies, Inc. and JAWS Acquisition Canada Corp.
10.7(29) Voting and Exchange Trust Agreement, dated August 1, 2000,
among JAWS Technologies, inc. and JAWS Acquisition Canada
Corp. and Montreal Trust Company of Canada.
------------------------------------------
(20) Incorporated by reference to Exhibit 4.14 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(21) Incorporated by reference to Exhibit 10.14 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(22) Incorporated by reference to Exhibit 4.16 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(23) Incorporated by reference to Exhibit 10.19 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(24) Incorporated by reference to Exhibit 10.20 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(25) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(26) Incorporated by reference to Exhibit 2.2 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(27) Incorporated by reference to Exhibit 2.3 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(28) Incorporated by reference to Exhibit 2.4 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
(29) Incorporated by reference to Exhibit 2.5 of the Company's Current Report on
Form 8-K, filed with the SEC on September 11, 2000.
NY/311594.5
<PAGE>
10.8(30) Share Purchase Agreement, dated August 22, 2000, among JAWS
Technologies, Inc., JAWS Acquisition Canada Corp., the
shareholders of Betach Systems Inc., and the shareholders of
Betach Advanced Solutions Inc.
10.9(31) Form of Warrant Certificate made by JAWS Technologies, Inc. in
favor of the shareholders of Betach Systems Inc. and the
shareholders of Betach Advanced Solutions Inc.
10.10(32) List of warrant holders with respect to whom JAWZ issued
warrants pursuant to the Form of Warrant Certificate set forth
in Exhibit 4.1: Randy Walinga, Stephanie Muzyka, Lawrence
Gordey and Soon Chong.
27.1(33) Financial Data Schedule.
--------------------------------------
(30) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on September 18, 2000.
(31) Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K, filed with the SEC on September 18, 2000.
(32) Incorporated by reference to Exhibit 4.2 of the Company's Current Report on
Form 8-K, filed with the SEC on September 18, 2000.
(33) Incorporated by reference to Exhibit 27.1 of the Company's Quarterly Report
on Form 10-Q, filed with the SEC on November 14, 2000.
NY/311594.5
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