<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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: 000-25419
THINWEB TECHNOLOGIES CORPORATION
------------------------------------------------
(Name of Small Business Issuer in its Charter)
DELAWARE 52-2102438
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Suite 111, Phase 1, 6 Antares Drive, Ottawa, Ontario, Canada K2E 8A9
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(613) 225-8446
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports to be filed by Section 13
or 15(d) of the Exchange Act during the past 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 [ ]
As of May 1, 2000, there were 17,548,010 shares of the issuer's common
stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
================================================================================
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking statements
The following discussion contains forward-looking statements that involve risks
and uncertainties. ThinWEB's actual results could differ materially from those
discussed in any forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section. All forward-looking statements included in this document are
based on information available to thinWEB on the date hereof, and thinWEB
assumes no obligation to update any such forward-looking statements. The
following discussion should be read in conjunction with the unaudited
consolidated interim financial statements and notes included elsewhere herein.
Overview
Our business activity is undertaken through our wholly owned subsidiary, ThinWeb
Software Incorporated, with a total of 22 full time employees located in
Halifax, Nova Scotia, Ottawa, Ontario and in Toronto, Ontario. We have incurred
significant expenses in the areas of research and development associated with
the design, development and testing of the code for our core technology and for
our first e-commerce software products discussed below. Substantial costs have
also been incurred in connection with presentations at industry trade shows,
marketing and sales activities, financings and expanded facilities in Halifax
and Ottawa. There are no direct comparables in the three-month period ended
March 31, 1999.
We have developed a core framework technology and two initial software
applications; ThinAccess, designed for organizations that require secure data
over the Internet, and WebCrumbs, for organizations that need web metrics and
analysis of e-visitor interaction. Through our joint venture subsidiary, NoTime
Wireless Corp., ("NoTime") we are also engaged in research and development using
our framework to create a third product called ThinSuite that targets companies
wanting to provide wireless access to business information and applications. Our
unique Java-based core technology enables the rapid development of applications
for fast, online data access, mobile and wireless devices, Web analysis and
other emerging technologies that require platform independence, swift
deployment, flexibility and low cost of implementation.
Our market strategy involves entering into alliance relationships with
complementary vendors to cross-market our products and services. These
relationships currently include partner agreements with Oracle, Informix,
PointBase, Borland-Inprise and Sun Microsystems. Additionally, our market
strategy incorporates direct sales initiatives to key vertical market segments
(financial, telecommunications, healthcare and transportation), leading portal
companies, and B2B e-commerce exchanges. We are also accelerating our market
penetration via channel intermediaries such as Application Service Providers
(ASPs), resellers and Software Systems Integrators and have signed
<PAGE>
reseller agreements with Web Data Solutions, Orion Consulting and Qtech.
Results of operations
Revenues
Although the first minor sale of product occurred in 1998, our product launch
announcement took place on August 9, 1999. WebCrumbs was released on February
1, 2000 and our joint venture subsidiary, NoTime, is targeted to release
ThinSuite for the wireless data base market on June 30, 2000. Our activities to
date have focused on strengthening our senior operational and sales management
team, developing software applications and marketing strategies for our new
products, preparing for a private placement of common equity and assembling a
slate of high profile industry leaders from major telecommunications and high
tech corporations in North America to join our Board of Directors.
In early April 2000 the Company and NoTime appointed an experienced Vice
President of Sales and Business Development to direct corporate sales efforts of
both companies and significantly expand their sales force to meet the growing
demand for customized solutions to meet specific customer needs and to focus on
selling data communications applications for wireless devices. Nevertheless, as
a development stage company, our ability to continue operations is dependent
upon generating cash flow through revenues from the sale of our products and
arranging alternate sources of debt and equity financing as required.
Research and development expenses
Research and development expenditures amounted to $174,349, of which $43,230
relates to NoTime activities, for the three-month period ended March 31, 2000 as
compared to $2,435,537 for the period ended March 31, 1999. The March 31, 1999
expenditure reflects the issuance of common shares at nominal value to employees
in the amount of $2,397,638 whereas there is no comparable expense in the
quarter ended March 2000. Overall, research and development expenses have
increased $136,450 in the March 2000 quarter, largely as a result of the
increased cash salary costs, when the non-cash compensation expense is
eliminated. Compensation in the form of shares is a non-cash charge against
earnings and reflects the cost of attracting highly skilled and qualified
personnel.
The NoTime research and development expenditures were incurred in connection
with the development of ThinSuite pursuant to the agreement described "joint
venture company" below.
Selling, general and administration
Selling, general and administration expenses increased from $1,350,900 in the
three months ended March 31, 1999 to $2,076,237 in the comparable period in
2000. The largest component of these costs ($1,298,000 in 1999 and $1,575,000
in 2000) is attributable to the issuance of common shares at nominal value to
employees as compensation. The remainder of the increase is attributable to
developing a sales, marketing and administrative infrastructure in the new
Ottawa, Ontario location and professional services to assist us with the going
public registration process.
<PAGE>
We appointed a new President and Chief Executive Officer in February 2000 and,
in early April 2000, both a Vice President of Sales and Business Development and
a Chief Technology Officer all of whom were provided with a combination of
shares and stock options as inducements to join our organization.
Interest
The Company incurred financing costs of $33,116 in the three months ended March
31, 2000 in connection with the Gateway Research Management Group Ltd.
("Gateway") loan and incurred only minor costs of a similar nature with other
lenders in the comparable period in 1999. The Company financed its operations
during 1998 and the first quarter of 1999 by means of shareholder loans and with
services contributed freely by founding shareholders and employees.
Liquidity and Capital Resources
The Company had negative working capital of $1,417,450 as at March 31, 2000
compared with $734,592 at December 31, 1999. The proposed private placement
discussed below, if completed as contemplated, will strengthen working capital
in the 2000 fiscal year by $5,000,000, less the retirement of the Gateway loan
which stood at $1,558,815 at March 31, 2000.
The Company experienced overall negative cash flow of $352,634 in the three-
month period ended March 31 2000 due primarily to an operating cash loss of
$827,962 net of the change in non-cash working capital balances related to
operations. Proceeds of $500,000 under the Gateway loan facility had a positive
impact on cash flow.
Lines of credit
Lines Overseas Management Limited, ("Lines"), a registered broker-dealer based
in Hamilton, Bermuda, has provided us with an interim credit facility of
$2,000,000 through its affiliate, Gateway. The credit facility bears interest
at the rate of 12% per annum and is secured by a lien on all of our assets. We
have borrowed $1,558,815, including accrued interest under this facility as of
March 31, 2000 and the loan must be repaid out of the proceeds of the private
placement. At the option of Lines, the outstanding balance of the Gateway loan
can be retired by applying the balance to the purchase of units in the private
placement.
Private placements
Since inception, ThinWeb Software Incorporated has received an aggregate of
$578,045 from the private placement of its shares. On January 31, 2000 we
entered into a private placement agreement with Lines pursuant to which Lines
has agreed to act as our placement agent on a best efforts basis in connection
with an offshore private placement of common stock and warrants with certain
non-US institutions and high net worth individuals pursuant to Regulation S of
the Securities Act. We anticipate that the proceeds from the offering will be
received within approximately two weeks of our pending registration statement on
Form SB-2 becoming effective. The offering will consist of a minimum of
<PAGE>
1,000,000 units at a price of $5 per unit, with each unit consisting of one
share of common stock and one warrant to purchase an additional share for a two
year period at $7. If successful, the minimum proceeds to us from this offering
will be $5,000,000 before repaying the outstanding Gateway loan discussed above.
Lines will receive a commission of five percent of the total proceeds of the
offering with the right to receive the commission in units instead of cash. We
have agreed to use our best efforts to file a registration statement with the
SEC with respect to the common shares placed in this offering within 60 days of
completion of the offering.
Joint venture company
On September 10, 1999, the Company entered into a Memorandum of Agreement with
Innovium Capital Corporation ("Innovium") to establish a joint-venture
corporation, NoTime, to be owned equally by the two parties. Notes 6 and 7 to
the financial statements outline the nature of the ownership, financing and
royalty obligations of the joint venture company.
NoTime is obligated to pay the Company a royalty of 5% of net revenues realized
on the sale of its licensed software products after it has reimbursed all
advances from its shareholders. NoTime is currently in the product development
stage and accordingly had no revenues from the commencement of activities to
date. Under the provisions of the Memorandum of Agreement each shareholder is
required to provide advances to fund operating expenses of NoTime or be subject
to a dilution of equity interest. The Company has advanced $43,230 to NoTime
for its share of the joint operating expenses for the three months ended March
31, 2000 which amount has been included in research and development expenses.
Other
The Company has approximately $2,000,000 in losses for income tax purposes
available to reduce future taxable income which begin to expire in 2005. We
have no commitments for capital expenditures of a material nature in the near
future.
The financial statements appearing elsewhere in this report have been prepared
on the assumption that we will continue as a going concern. We believe that the
proceeds from the proposed private placement, borrowings from Lines, anticipated
revenues from operations, the proceeds from the sale of a 50% interest in NoTime
and funds from earlier stock subscriptions will be sufficient to cover our
currently anticipated expenses, including salaries, rent and professional fees
and allow us to continue our research, developmental and marketing operations
for the next 12 months. Beyond that date, our ability to continue operations is
dependent upon generating cash flow from operations through the sale of our
software applications or raising additional equity or debt or any combination of
the foregoing.
Recent accounting pronouncements
In 1998, SFAS No. 133 ("FAS 133") - Accounting for Derivative Instruments and
Hedging Activities was issued and is effective for fiscal years commencing after
June 15, 2000. The Company will comply with the requirements of FAS 133 in
fiscal year 2000 and does not expect the adoption of FAS 133 will be material to
the Company's results of operations.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation, filed with the registration
statement of Warwick Acquisition Corporation on Form 10-SB (file
no. 0-25419) filed with the Commission on February 19, 1999 and
incorporated herein by reference
3.2 By-Laws of the Company, filed with the registration statement of
Warwick Acquisition Corporation on Form 10-SB (file no. 0-25419)
filed with the Commission on February 19, 1999 and incorporated
herein by reference
3.3* Amendments to Certificate of Incorporation
3.4** Certificate of Designation for Series 1 Preferred Shares
4.1 Share Exchange and Share Purchase Agreement among Warwick
Acquisition Corporation, ThinWeb.com Inc., ThinWeb Software
Incorporated, and all of the shareholders of ThinWeb Software
Incorporated, filed with the Form 8-K of Warwick Acquisition
Corporation (file no. 0-25419) filed with the commission on May
28, 1999, and incorporated herein by reference.
4.2 Exchange and Voting Agreement among Warwick Acquisition
Corporation, ThinWeb Software Incorporated, the Trustee, and all
of the shareholders of ThinWeb Software Incorporated, and all of
the shareholders of ThinWeb Software Incorporated, filed with
the Form 8-K of Warwick Acquisition Corporation (file no. 0-
25419) filed with the Commission on May 28, 1999, and
incorporated herein by reference
10.1** License Agreement with Sun Microsystems
10.3** License Agreement with Cloudscape, Inc.
10.4** List of Beneficial Owners of Selling Security Holders
10.5** Agreement with E-Capital Management
10.6* Employment Agreement with Mr. Cappadocia
10.7** Agreement with Brokerwise Communication, Inc.
10.8* Joint Venture Agreements with Innovium Capital Corp.
10.9** License Agreement with Informix Software, Inc.
10.10** Loan Agreement with E-Capital Management, Inc.
10.11* Private Placement Agreement with Lines Overseas Management
Limited
10.12** Stock Option Plan
10.13* Employment Agreement with Mr. MacLean
10.14* Employment Agreement with Mr. Reid
10.15* Employment Agreement with Mr. Enman
10.16* Voluntary Trading Restrictions Agreements
10.17***Cooperative Marketing Agreement with Oracle Corporation
10.18***Consulting Agreement with J.S. Anthony & Co. Ltd.
10.19***Software License Agreement with PointBase, Inc.
10.20***Employment Agreement with Alan Guneyler
10.21***Employment Agreement with James Gillen
* Incorporated by reference from Amendment No. 2 to Form SB-2 Registration
Statement dated February 17, 2000.
** Incorporated by reference from Amendment No. 1 to Form SB-2 Registration
Statement dated November 2, 1999.
*** Incorporated by reference from Amendment No. 3 to Form SB-2 Registration
Statement dated April 11, 2000.
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THINWEB TECHNOLOGIES CORPORATION
Date: May 11, 2000 By /s/ James Cappadocia
----------------------------
James Cappadocia
Chief Executive Officer
Date: May 11, 2000 By /s/ George R. Fraser
---------------------------
George R. Fraser
Chief Financial Officer
<PAGE>
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
thinWEB Technologies Corporation
(A Development Stage Company)
(Unaudited)
Consolidated Interim Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
$ $
<S> <C> <C>
Assets
Current assets
Cash 75,035 427,669
Amounts receivable from NoTime Wireless joint venture 86,495 32,868
Other current assets (note 5) 148,443 80,404
----------------------------------------
309,973 540,941
Investment in Innovium Capital Corporation
Available for sale securities (note 6) 636,395 266,766
Warrants, at cost (note 7) 162,832 162,832
Capital assets (note 8) 100,888 95,724
Trademarks 4,092 1,232
----------------------------------------
1,214,180 1,067,495
----------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 160,402 242,180
Loan payable (note 9) 1,558,815 1,020,142
Obligation under capital leases 8,206 13,211
----------------------------------------
1,727,423 1,275,533
----------------------------------------
Commitments (note 10)
Shareholders' Equity
Capital stock issued and outstanding - 17,381,344 (1999 -
17,066,344) common shares and 1,500,000 (1999 - 1,500,000)
preferred shares (note 11) 1,888 1,857
Additional paid in capital 10,126,333 8,551,364
Share subscriptions receivable (32,896) (32,896)
Warrants 271,373 271,373
Deficit accumulated during the development stage (11,310,662) (9,044,269)
Foreign currency translation adjustments 59,204 44,533
Unrealized gain on available for sale securities 371,517 -
----------------------------------------
(513,243) (208,038)
----------------------------------------
1,214,180 1,067,495
----------------------------------------
</TABLE>
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
(Unaudited)
Consolidated Interim Statements of Loss and Comprehensive Loss
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
April 22, 1998 For the three For the three
to March 31, months ended months ended
2000 March 31, 2000 March 31, 1999
$ $ $
<S> <C> <C> <C>
Revenue
Product 26,588 23,020 253
Management fees 1,464 1,464 -
--------------------------------------------------------
28,052 24,484 253
--------------------------------------------------------
Expenses
Research and development (note 4) 3,438,894 174,349 2,435,537
Selling, general and administration 5,716,202 2,076,237 1,350,900
Interest 2,155,644 33,116 8,545
Amortization 27,974 7,175 1,622
--------------------------------------------------------
11,338,714 2,290,877 3,796,604
--------------------------------------------------------
Net loss for the period (11,310,662) (2,266,393) (3,796,351)
Other comprehensive income
Foreign currency translation adjustments 59,204 14,671 -
Unrealized gain on available for sale securities 371,517 371,517 -
--------------------------------------------------------
Comprehensive loss for the period (10,879,941) (1,880,205) (3,796,351)
--------------------------------------------------------
Basic and fully diluted loss per
Common share (note 11) (0.14) (3.82)
------------------------------------
Weighted average number of shares outstanding during
the period 16,770,077 994,167
------------------------------------
</TABLE>
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative For the three For the three
April 22, 1998 months ended months ended
to March 31, 2000 March 31, 2000 March 31, 1999
$ $ $
<S> <C> <C> <C>
Cash flows from (used in)
Operating activities
Net loss for the period (11,310,662) (2,266,393) (3,796,351)
Items not affecting cash:
Amortization 27,974 7,175 1,622
Shares issued for employee compensation 6,446,388 1,574,969 3,695,468
Shares issued for financing costs 2,087,418 - -
Shares and warrants issued for services 216,316 - -
Accrued interest on non-current loan payable 58,815 58,815 -
Net change in non-cash working capital balances related
to operations (note 12) (77,884) (202,528) 75,782
-----------------------------------------------------------
(2,551,635) (827,962) (23,479)
-----------------------------------------------------------
Financing activities
Proceeds from Gateway loan 1,500,000 500,000 -
Repayment of loans payable - - (794)
Proceeds from E-Capital loan 495,829 - -
Repayment of E-Capital loan (495,829) - -
Capital lease repayments (15,927) (14,493) 251,132
Issue of common shares 578,045 31 -
-----------------------------------------------------------
2,062,118 485,538 250,338
-----------------------------------------------------------
Investing activities
Acquisition of capital assets (102,790) (3,429) (5,878)
Acquisition of trademarks (4,057) (2,868) -
Proceeds from technology licence transfer to NoTime
Wireless joint venture 841,341 - -
Investment in Innovium Capital Corporation common
shares and warrants (168,268) - -
-----------------------------------------------------------
566,226 (6,297) (5,878)
-----------------------------------------------------------
Effect of exchange rate changes in cash (1,674) (3,913) 827
-----------------------------------------------------------
Increase (decrease) in cash during the period 75,035 (352,634) 221,808
Cash - Beginning of period - 427,669 31,566
-----------------------------------------------------------
Cash - End of period 75,035 75,035 253,374
-----------------------------------------------------------
</TABLE>
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Consolidated Interim Statements of Shareholders' Equity
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common shares Preferred shares
----------------------- ---------------------
Additional
paid in capital
Number $ Number $ $
<S> <C> <C> <C> <C> <C>
Shares issued for subscription 900,000 90 - - 32,579
Net loss for the period - - - - -
Foreign currency translation adjustments - - - - -
------------------------------------------------------------------------------
Balance - December 31, 1998 900,000 90 - - 32,579
Shares issued for cash 1,505,000 151 - - 535,683
Shares issued for compensation 10,401,344 1,040 - - 4,965,246
Shares issued for financing costs 4,110,000 411 - - 2,076,800
Shares issued for a corporate reorganization 150,000 15 - - 74,985
Warrants issued for services - - - -
Warrants issued for investment - - - - -
Convertible shares issued for a financing
arrangement - - 1,500,000 150 -
Additional paid in capital on organization of
joint venture - - - - 866,071
Net loss for the period - - - - -
Foreign currency translation adjustments - - - - -
---------------------------------------------------------------------------
Balance - December 31, 1999 17,066,344 1,707 1,500,000 150 8,551,364
Shares issued for compensation 315,000 31 - - 1,574,969
Net loss for period - - - - -
Foreign currency translation adjustment - - - - -
Unrealized gain on available for sale
securities - - - - -
---------------------------------------------------------------------------
Balance - March 31, 2000 17,381,344 1,738 1,500,000 150 10,126,333
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Warrants
------------
Deficit
accumulated
Less during the
subscriptions Development
receivable stage
$ Number $ $
<S> <C> <C> <C> <C>
Shares issued for subscription (32,668) - - -
Net loss for the period - - - (100,296)
Foreign currency translation adjustments - - - -
--------------------------------------------------------------------
Balance - December 31, 1998 (32,668) - - (100,296)
Shares issued for cash - - - -
Shares issued for compensation (51) - - -
Shares issued for financing costs (27) - - -
Shares issued for a corporate reorganization - - - -
Warrants issued for services - 50,000 15,000 -
Warrants issued for investment - 100,000 256,373 -
Convertible shares issued for a financing
arrangement (150) - - -
Additional paid in capital on organization of - - - -
joint venture
Net loss for the period - - - (8,943,973)
Foreign currency translation adjustments - - - -
----------------------------------------------------------------
Balance - December 31, 1999 (32,896) 150,000 271,373 (9,044,269)
Shares issued for compensation - - - -
Net loss for period - - - (2,266,393)
Foreign currency translation adjustment - - - -
Unrealized gain on available for sale - - -
securities
----------------------------------------------------------------
Balance - March 31, 2000 (32,896) 150,000 271,373 (11,310,662)
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated other
Comprehensive income
---------------------------------
Unrealized
Foreign gain on
currency available for Total
translation sale shareholders'
adjustments securities equity
$ $ $
<S> <C> <C> <C>
Shares issued for subscription - - 1
Net loss for the period - - (100,296)
Foreign currency translation adjustments 343 - 343
----------------------------------------------------
Balance - December 31, 1998 343 - (99,952)
Shares issued for cash - - 535,834
Shares issued for compensation - - 4,966,235
Shares issued for financing costs - - 2,077,184
Shares issued for a corporate reorganization - - 75,000
Warrants issued for services - - 15,000
Warrants issued for investment - - 256,373
Convertible shares issued for a financing - - -
arrangement
Additional paid in capital on organization of - -
joint venture 866,071
Net loss for the period - - (8,943,973)
Foreign currency translation adjustments 44,190 - 44,190
----------------------------------------------------
Balance - December 31, 1999 44,533 - (208,038)
Shares issued for compensation - - 1,575,000
Net loss for period - - (2,266,393)
Foreign currency translation adjustment 14,671 - 14,671
Unrealized gain on available for sale
securities - 371,517 371,517
----------------------------------------------------
Balance - March 31, 2000 59,204 371,517 (513,243)
----------------------------------------------------
</TABLE>
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
1 Nature of operations and basis of presentation
thinWEB Technologies Corporation and its wholly-owned subsidiaries are
collectively referred to herein as the "Company". Effective April 22, 1999,
Thinweb.com Inc. (formerly 3028184 Nova Scotia Limited), a wholly owned
subsidiary of thinWEB Technologies Corporation (formerly Warwick Acquisition
Corporation, a Delaware Corporation), acquired all the outstanding common
shares of ThinWeb Software Incorporated in exchange for 16,916,344 Class "A"
exchangeable, non-voting, participating common shares of Thinweb.com Inc.
Each of these Class "A" shares of Thinweb.com Inc. are exchangeable into
common shares of thinWEB Technologies Corporation for no additional
consideration on or before April 21, 2024. Under the provisions of various
agreements between thinWEB Technologies Corporation and Thinweb.com Inc., the
holders of the exchangeable shares are entitled to voting, dividend and
liquidation rights as if the holder held the equivalent number of common
shares in thinWEB Technologies Corporation. In conjunction with these
agreements, thinWEB Technologies Corporation has issued 16,916,344 common
shares in trust to be issued to the holders of the exchangeable shares upon
such exchange.
Prior to April 22, 1999, Warwick Acquisition Corporation did not have any
operations and had 5,000,000 common shares issued and outstanding. As part of
the transaction, Warwick Acquisition Corporation redeemed and retired
4,850,000 common shares and issued 50,000 warrants for no additional
consideration. The warrants, which expire in five years entitle the holder to
acquire up to 50,000 common shares of thinWEB Technologies Corporation for $1
per share. For accounting purposes, the acquisition has been treated as an
issuance of 150,000 shares and 50,000 warrants by the Company for the
services related to the corporate reorganization. These shares and warrants
have been attributed a value of $90,000 based on the value of services
received (see note 13 (b)).
The Company is primarily a software research and development company that has
not yet commenced commercial operations. All of the Company's operations are
in Canada. These statements are prepared on a going-concern basis. There is
substantial doubt as to whether or not the Company will be able to continue
as a going concern. The ability of the Company to continue as a going concern
is dependent upon it obtaining the necessary financing to commercialize and
market its products and upon future profitable operations. Like other
companies at this stage of development, the Company is subject to numerous
risks, including the uncertainty of its chosen market, its ability to develop
its markets and other risks. The Company plans to raise funds through a
public offering of its securities; however, there are no commitments for the
public offering and the public offering has not yet been approved by the
Securities and Exchange Commission. There can be no assurance that the
Company will be successful in raising the required capital to finance
operations.
2 Accounting policies
Financial statement presentation
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include the
accounts of thinWEB Technologies Corporation and its wholly owned
subsidiaries.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
Foreign currency translation
The Company's functional currency is the Canadian dollar. However, the
Company's reporting currency is the United States dollar. Assets and
liabilities of the Company are translated into United States dollars at
period-end exchange rates, and income and expense items are translated at
rates approximating the average rates of exchange for the period. Gains and
losses resulting from such translation are reported in comprehensive income
and the accumulated foreign currency translation adjustment component of
shareholder's equity.
Capital assets and amortization
Amortization of the following capital assets is calculated using the straight
line method at annual rates which will amortize their cost over their
estimated useful lives. These rates are:
Computer hardware 3 years
Computer software 1 year
Office furniture and equipment 5 years
Income taxes
The Company uses the liability method of accounting for income taxes. Under
this method, current income taxes are recognized for the estimated income
taxes payable for the current year. Deferred income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of
losses available to be carried forward to future years for tax purposes.
Deferred income tax assets are evaluated and if realization is not considered
more likely than not, a valuation allowance is provided.
Investment tax credits
Investment tax credits relating to scientific research and experimental
development expenditures are recorded in the accounts in the fiscal period
the qualifying expenditures are incurred provided realization of the tax
credit is considered more likely than not. Investment tax credits in
connection with research and development activities are accounted for using
the cost reduction method, which recognizes the credits as a reduction of the
cost of the related assets or expenditures.
Revenue recognition
The Company records revenue in accordance with the Statement of Position
("SOP") 97-2, "Software Revenue Recognition" and SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2" which provide guidance on applying
generally accepted accounting principles in recognizing revenue from software
transactions.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
The Company records revenue from packaged software and irrevocable
commitments to purchase products when persuasive evidence of an arrangement
exists, the software product has been shipped, there are no significant
uncertainties surrounding product acceptance, the fees are fixed and
determinable, and collection is considered probable.
Research and development
Research and development costs are charged to expense when incurred, unless,
in the opinion of management, the technological feasibility of the product
has been established in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86 - Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed ("FAS 86"), in which case the costs are
capitalized. Capitalization of computer software costs ceases when the
product is available for general release. As of March 31, 2000, no computer
software costs have been capitalized.
Stock based compensation
The Company has elected to follow Accounting Principles Board Opinion ("APB")
No. 25 - Accounting for Stock Issued to Employees ("APB 25") and to present
the pro forma information that is required by SFAS No. 123 - Accounting for
Stock Based Compensation ("FAS 123").
Use of estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenditures during the
reporting periods. Actual results could differ from those estimates.
Financial instruments
The fair value of the Company's cash, amounts receivable, other current
assets, investments, accounts payable and accrued liabilities, loans payable,
and obligation under capital leases approximate their carrying values unless
otherwise noted.
3 Recent pronouncements
In 1998, SFAS No. 133 ("FAS 133") - Accounting for Derivative Instruments and
Hedging Activities was issued and is effective for fiscal years commencing
after June 15, 2000. The Company will comply with the requirements of FAS
133 in fiscal year 2000 and does not expect the adoption of FAS 133 will be
material to the Company's results of operations.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
4 Investment tax credits recoverable
For small, closely held Canadian corporations, a credit of approximately 40%
of eligible scientific research and experimental development expenditures is
available and is refundable in cash if no taxes are owed. For all other
Canadian corporations, the credit is reduced to approximately 20% on a non-
refundable basis, available only against taxes otherwise payable. Eligible
scientific research and experimental development expenditures include direct
current and capital costs and allowance for overhead in the amount of 65% of
specified salaries and wages.
The Company is conducting a review of eligible scientific research and
experimental development expenditures incurred throughout 1999 and the first
quarter of 2000 and accordingly no amounts have been applied in the current
fiscal period to reduce research and development expenditures or the cost of
capital assets.
5 Other current assets
March 31, December 31,
2000 1999
$ $
Refundable commodity taxes 78,036 64,413
Prepaid expenses 58,784 12,526
Other 11,623 3,465
-----------------------------------------
148,443 80,404
=========================================
6 Available for sale securities
On December 16, 1999, the Company purchased 500,000 common shares of the
capital stock of Innovium Capital Corporation ("Innovium") valued at $266,766
(CDN $385,000). Innovium is a publicly listed company with its shares
trading on the Montreal Stock Exchange. The Company is accounting for its
interest in the Innovium common shares as available for sale securities and
accordingly carries the investment on its balance sheet as an asset valued at
fair value as of the balance sheet date. At March 31, 2000, the value of the
Innovium common share investment was $636,395 (CDN$925,000). The unrealized
gain on these available for sale securities has been included in
comprehensive income for the period.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
7 NoTime Wireless Corporation joint venture
On September 10, 1999, the Company entered into a Memorandum of Agreement
with Innovium Capital Corporation ("Innovium") to establish a joint-venture
corporation - NoTime Wireless Corp. ("NoTime") owned equally by the two
parties.
NoTime was incorporated on October 21, 1999. On December 15, 1999, the
Company transferred to NoTime an exclusive perpetual license for thinAccess,
a proprietary software application for the wireless access market, in return
for 1,250,000 Class A common shares of NoTime and a promissory note in the
amount of $841,341 (CDN $1,250,000). On December 16, 1999, Innovium acquired
1,250,000 Class B common shares of NoTime, representing a 50% interest in
NoTime, for cash consideration of $841,341 (CDN $1,250,000). NoTime then
repaid the promissory note.
Also on December 16, 1999, the Company purchased 500,000 units of the capital
stock of Innovium (each unit consisting of one freely tradeable common share
(as described in note 6) and one share purchase warrant exercisable for two
years from the date of the subscription agreement at an exercise price of
$0.35 (CDN $0.50) each) for cash consideration of $168,268 (CDN $250,000) and
100,000 share purchase warrants of the Company as described in the following
paragraph. Assuming the share purchase warrants are exercised, the Company
would own approximately 3% of the issued and outstanding common shares of
Innovium. The warrants are carried at their historical cost of $162,832,
which was their estimated fair value on December 16, 1999.
In addition, on December 16, 1999, the Company issued to Innovium 100,000
non-transferrable share purchase warrants, which expire on December 15, 2001,
exercisable for common shares of the Company on a one-for-one basis at an
exercise price equal to the lower of $5.00 or the lowest price at which the
Company issues equity or convertible securities during this period. These
warrants were attributed a value of $256,373 based on the fair value of the
Innovium units received net of cash paid.
As long as the Company owns at least 40% of the issued and outstanding shares
of NoTime, the Company shall manage the day-to-day activities of NoTime, in
return for a fee of 2.5% of NoTime's operating costs. This fee has been
recorded as management fee revenue. Each party shall provide advances to
fund operating expenses of NoTime. If a party is unable or unwilling to
continue funding operating expenses, that party's interest in NoTime shall be
subject to dilution by the other party or a third party, which is prepared to
fund operating expenses.
NoTime shall pay the Company a royalty of 5% of net revenues realized, paid
quarterly in arrears. These royalties are accrued, but payments will only
commence once NoTime has reimbursed to the parties all advances made to
NoTime. NoTime has had no revenues during its initial operating period to
date.
The Company has not recorded its portion of the gain on the transfer of the
licence for thinAccess to NoTime as this transfer did not result in a
culmination of the earnings process. In addition, the Company has recorded as
additional paid in capital that portion of the gain related to the transfer
of a 50% interest in NoTime to Innovium, as the Company has an on-going
funding requirement for future research and development to be conducted by
NoTime. Additional funding advanced to NoTime, of $43,230 during the three-
month period ended March 31, 2000, has been charged to research and
development expense as incurred.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8 Capital assets
March 31, 2000
--------------------------------------------------------------
Accumulated
Cost Amortization Net
$ $ $
<S> <C> <C> <C>
Computer hardware 78,035 16,551 61,484
Computer software 7,718 5,443 2,275
Office furniture and equipment 43,595 6,466 37,129
--------------------------------------------------------------
129,348 28,460 100,888
--------------------------------------------------------------
December 31, 1999
--------------------------------------------------------------
Accumulated
Cost Amortization Net
$ $ $
Computer hardware 66,268 12,148 54,120
Computer software 7,772 4,717 3,055
Office furniture and equipment 43,119 4,570 38,549
--------------------------------------------------------------
117,159 21,435 95,724
--------------------------------------------------------------
9 Loan payable
<CAPTION>
March 31, December 31,
2000 1999
$ $
<S> <C> <C>
Gateway Research Management Group Ltd. loan payable, authorized
amount of $2,000,000, bearing interest at the rate of 12% payable
monthly, repayable June 30, 2000 or upon a Significant Financing
Event. 1,500,000 1,000,000
Accrued interest on Gateway loan 58,815 20,142
---------------------------------------------
1,558,815 1,020,142
---------------------------------------------
</TABLE>
The lenders may, at their sole option, elect to convert all, or any portion
of the outstanding amount, including interest, into common shares of the
Company on the same terms and conditions as such securities are issued
pursuant to a Significant Financing Event, if any.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
10 Commitments
The minimum annual payments under long-term agreements for premises are as
follows:
$
Year ending March 31, 2001 92,000
2002 31,000
2003 29,000
2004 2,000
2005 2,000
11 Capital stock
Authorized
100,000,000 common shares, of the par value of $0.0001 each
20,000,000 preferred shares, of the par value of $0.0001 each
Common shares
Shares subscribed for have been recorded at the value received for the shares
which is considered to be fair value. Shares issued for compensation,
financing costs, and a corporate reorganization were issued at nominal
values. These issues have been recorded at the price established through
cash sales of shares to arms' length parties which occurred within 14 days of
these issues. The excess of the recorded value of the shares over the
nominal issue price is recorded as compensation, financing and professional
fees expense over the estimated term of the related service.
In 1999, the Company issued 4,000,000 common shares at nominal values to E-
Capital Management Inc. ("E-Capital") for a commitment to provide debt
financing until such time as the Company has raised funds pursuant to a major
private placement, public offering or other significant financing event
("Significant Financing Event"), if any. These shares have been recorded at
the price established through an unrelated arm's length transaction which
occurred within 14 days of the date the shares were issued. The excess of
the fair value of the shares over the nominal issue price has been charged
to interest expense during the current period.
During the current period, the Company appointed a new Chief Executive
Officer. As part of the terms of the employment agreement, the Chief
Executive Officer will be issued a total of 950,000 common shares of the
Company from treasury for nominal consideration. Of these shares, 315,000
were issued during the three-month period ended March 31, 2000 and the
remainder will vest in eight equal quarterly instalments. These issued
shares have been recorded at $5.00 per share.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
Preferred shares
The Preferred shares issued and outstanding as of March 31, 2000 are
convertible into common shares of the Company on a share-for-share basis at
any time prior to June 30, 2000, provided the holders are instrumental in
arranging financing for the Company of not less than $5,000,000. Starting
June 30, 2000, the Company may redeem any of the outstanding preferred shares
at a redemption price of $0.0001 per share. As the preferred shares are
convertible only if the holders are instrumental in arranging financing of
not less than $5,000,000, the beneficial conversion feature will be valued at
that time and recorded as a cost of financing.
Warrants
As described in note 1, on April 22, 1999 the Company issued 50,000 warrants
in connection with the transaction on that date. These warrants, which
expire in five years, entitle the holder to acquire up to 50,000 common
shares of the Company for $1.00 per share. These warrants were attributed a
value of $15,000 based on the value of the services received (see note 13
(b)).
Under the terms of the E-Capital agreement described herein, E-Capital shall
have issued to them, for no additional consideration, certain share purchase
warrants of the Company. These warrants will be exercisable on the basis of
one warrant for one common share, at a strike price equal to the price at
which the Company shares are issued pursuant to a Significant Financing
Event, for a period of one year from the closing of such event. As these
warrants will be issued upon a Significant Financing Event, if any, they will
be valued at that time and recorded as a cost of financing.
In connection with the NoTime Wireless joint venture transaction described in
note 7, the Company issued to Innovium 100,000 non-transferable share
purchase warrants. These warrants expire on December 15, 2001 and are
exercisable for common shares of the Company on a one-for-one basis at an
exercise price equal to the lower of $5.00 or the lowest price at which the
Company issues equity or convertible securities during this period. These
warrants were attributed a value of $256,373 based on the fair value of the
Innovium units received net of cash paid.
Basic and fully diluted loss per share
The calculations of the loss per common share are based on the weighted
average number of shares outstanding during the period. All warrants,
proposed options, and non-vested shares have been excluded from the
calculation of fully diluted loss per share as the impact of their exercise
is anti-dilutive in both the three-month periods ended March 31, 2000 and
1999.
<PAGE>
thinWEB Technologies Corporation
(A Development Stage Company)
Notes to Interim Consolidated Financial Statements
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
Employee stock option plan
At March 31, 2000 options had been granted to purchase 2,319,834 common
shares in accordance with the Company's Employee Stock Option Plan (the
"Plan") all having an exercise price of $5.00. Under the terms of the Plan,
the option term may not exceed five years and options will vest one-third on
the employment date, one-third on the first anniversary of employment and
one-third on the second anniversary of employment, provided that no options
are to be exercisable until the 90th day after the shares of the Company
become publicly traded. The total number of shares to be made available
under the Plan shall not exceed 17% of the Company's common shares.
12 Net change in non-cash working capital balances related to operations
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
March 31, 2000 March 31, 1999
$ $
<S> <C> <C>
Increase in amounts receivable from NoTime Wireless joint venture (53,855) -
Increase in other current assets (68,599) (8,002)
Increase (decrease) in accounts payable and accrued liabilities (80,074) 83,784
--------------------------------------
(202,528) 75,782
--------------------------------------
</TABLE>
13 Subsequent events
a) On April 1, 2000, the Company appointed a Chief Technology Officer and a Vice
President of Sales and Marketing. As part of the terms of these agreements,
the Chief Technology Officer was issued 100,000 common shares and 100,000
options. Of the common shares, 33,333 vested immediately with the remainder
vesting in two equal annual instalments commencing 12 months from the date of
employment. The Vice President of Sales and Marketing was issued 400,000
common shares and 150,000 options. Of the common shares, 133,333 vested
immediately with the remainder vesting in two equal annual instalments
commencing 12 months from the date of employment.
b) On April 11, 2000 the Company cancelled the 50,000 warrants associated with
the Warrick Acquisition Corporation transaction which is described in note 1.
The value attributed to the warrants of $15,000 will be transferred to
additional paid in capital.
