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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to
Commission file number 000-27189
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MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
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(Exact name of small business issuer as specified in its charter)
NEVADA 88-0398103
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
SUITE 420 - 6450 ROBERTS STREET, BURNABY, BRITISH COLUMBIA, CANADA V5G 4E1
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(Address of principal executive offices)
(604) 320-7227
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(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
4,450,025 common shares outstanding, as of March 31, 2000
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The Company's financial statements are stated in United States Dollars (US$) and
are prepared in accordance with United States Generally Accepted Accounting
Principles.
The financial statements are attached to this Quarterly Report (see Part II,
Item 6).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes thereto, included as part of this
Quarterly Report.
The Company has been inactive since its incorporation in August, 1995. Upon
completion of the acquisition of Merlin Software Technologies Inc. ("Merlin"),
the Company continued Merlin's business operations. To March 31, 2000, the
Company had no operations and was considered a development stage company.
Accumulated losses to March 31, 2000, totalled $38,677 from inception. The
continuation of the Company is dependent upon the continued financial support of
its creditors and stockholders, and upon obtaining long-term financing.
Management plans to raise equity capital to finance the operations and capital
requirements of the Company and Merlin. There are, however, no assurances that
any such activity will generate funds that will be available for operations.
Accordingly, the Company's financial statements contain note disclosure
describing the circumstances that lead there to be doubt over its ability to
continue as a going concern. The Company's independent accountants have also
expressed a reservation of their opinion on the December 31, 1999 financial
statements of both the Company and Merlin in this regard.
Certain statements contained in this Quarterly Report on Form 10-QSB, including,
without limitation, statements containing the words "believes", "anticipates",
"estimates", "intends", "expects" and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Although management believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Actual results could vary
materially from those expressed in those statements. Readers are referred to
"Sales and Marketing", "Product Development" and "Management's Discussion and
Analysis or Plan of Operation" sections contained in this Quarterly Report, as
well as the factors described below in the section entitled "Factors That May
Affect the Company's Future Results", which identify some of the important
factors or events that could cause the Company's and Merlin's actual results or
performance to differ materially from those contained in the forward looking
statements.
<PAGE>
ACQUISITION OF MERLIN SOFTWARE TECHNOLOGIES, INC.
Effective April 26, 2000, the Company acquired (the "Acquisition") all of the
issued and outstanding shares of Merlin Software Technologies, Inc. ("Merlin").
The Company will continue the operation of Merlin (see "Business of Merlin
Software Technologies, Inc." below).
On January 14, 2000, the Company signed a letter of intent (the "January Letter
of Intent"), pursuant to which it agreed to acquire all the issued and
outstanding shares of Merlin, a private company incorporated on June 25, 1999
under the laws of the State of Nevada ("Merlin"). Merlin is a developer and
marketer of computer software, and specifically a provider of Linux and Unix
based software utility programs. Under the terms of the January Letter of
Intent, the Company was required to issue one common share in exchange for each
issued and outstanding common share of Merlin (the "Share Exchange"). There
were 7,986,665 common shares of Merlin issued and outstanding. All of Merlin's
outstanding options and share purchase warrants were also required to be
exchanged for an equal number of options and warrants of the Company, on the
same terms and conditions.
The Company, Merlin and certain principal shareholders of Merlin entered into a
Share Exchange Agreement, dated April 3, 2000 (the "Share Exchange Agreement"),
that provided for, among other matters, the following:
- - On the effective date of the Share Exchange and without any further action
on the part of the shareholders of Merlin, all of the common shares of Merlin
(an aggregate of 7,986,665) will be exchanged for an equal number of common
shares of the Company (the "Exchange Shares").
- - The Exchange Shares will be issued from the treasury of the Company as
fully paid and non-assessable shares and shall be free and clear of all liens,
charges and encumbrances. After the Share Exchange, the Exchange Shares will be
"restricted shares" under Rule 144 of the Securities Act and subject to certain
hold periods of one (1) or more years unless such common shares are registered
under the Securities Act of 1933.
- - On the Effective Date, by virtue of the Share Exchange all outstanding
warrants (an aggregate of 86,665) and stock options (an aggregate of 781,000) of
Merlin will be exchanged for an equal number of warrants or stock options in the
Company, as applicable (one warrant or stock option of the Company for each
warrant or stock option of Merlin). The terms applicable to the Merlin warrants
or stock options will be applicable to the warrants or stock options of the
Company.
The exchange ratio of the Share Exchange was determined by the Company and
Merlin based on a variety of factors and does not bear any direct relationship
to the assets or results of operations of the Company and Merlin, or to any
other historically-based criteria of value. In determining such ratio,
consideration was given to, among other things, each of the Company's and
Merlin's prospects and earnings potential, its management and the risks
associated with an exchange of the common shares of Merlin. Additionally,
consideration was given to the general status of the economy, the history and
prospects of the e-commerce industry and other relevant factors.
Upon closing the Acquisition, a change in control occurred. The transaction
will be accounted for in the second quarter of the Company's 2000 fiscal year
using the purchase method of accounting as applicable to reverse acquisitions.
Following reverse acquisition accounting, financial statements subsequent to
the closing of the Acquisition will be presented as a continuation of Merlin.
The value assigned to the common stock of the Company upon the Acquisition based
on the fair value of the net assets of the Company at the date of the
Acquisition is approximately $1,240,000.
Merlin has authorized 50,000,000 shares of common stock, par value US$0.001 per
common share, with 7,986,665 common shares issued and outstanding prior to the
Acquisition. Merlin has also authorized 1,000,000 preferred shares, par value
$0.01 per preferred share, none of which are issued and outstanding.
The Company has authorized 50,000,000 common shares with par value US$0.001 per
common, share with 4,450,025 common shares issued and outstanding prior to the
<PAGE>
Acquisition. Pursuant to the Share Exchange Agreement, the Company will issue
7,986,665 common shares of the Company in exchange for all of the issued and
outstanding common shares of Merlin, and the Company will have an aggregate of
12,436,690 common shares issued and outstanding. Once the Merlin shares have
been physically exchanged for the Exchange Shares, the former shareholders of
Merlin will hold approximately 64% of the issued and outstanding common shares
of the Company.
All shareholders of Merlin and the Board of Directors of each of Merlin and the
Company consented to the Acquisition and the Acquisition was completed on April
12, 2000, subject only to the share certificates, options and share purchase
warrants of the Company being issued to the former shareholders of Merlin. The
effective date of the Share Exchange is April 26, 2000, being the date the
Articles of Share Exchange were filed with the Secretary of State of Nevada.
Following the physical exchange of Merlin shares for the Exchange Shares, Merlin
will be a wholly owned subsidiary of the Company.
BUSINESS OF MERLIN SOFTWARE TECHNOLOGIES, INC.
A detailed description of Merlin's business, and the business to be carried on
by the Company following the Acquisition, can be found in the Company's Form
10-KSB Annual Report, filed on April 14, 2000.
PLAN OF OPERATION
Sales and Marketing
The Company wishes to achieve significant market share for its products
following the Acquisition through the utilization of methods already
demonstrated by a number of companies to be extremely successful. One such
method involves the distribution of free versions of the Company's products over
the Internet, which has already proven to be an excellent way to attract future
paying customers. Indeed, Linux itself has achieved its current market
acceptance primarily because it has always been freely available over the
Internet. Many other successful companies have used a similar model to
establish market share including Netscape, Winzip, Eudora, Pegasus and
Microsoft.
Coupled with the free distribution of previous versions of its products over the
Internet, the Company will continue to offer commercial versions of its products
that can be purchased directly off the Company's website at
www.merlinsoftech.com (the "Website"), at prices from $69 to $89, and is
aggressively pursuing contractual arrangements with distributors, resellers and
other companies which will bundle its products together with the Company's
products. Commercial versions of PerfectBACKUP+ and HotWireFAX are purchased
with, or without, a printed manual and come with 1 year support and maintenance
service, including all updates and upgrades. For subsequent years, clients can
purchase a subscription which provides ongoing service, support, updates and
upgrades.
The Company intends to allocate $1,200,000 over nine months to position its
major product, PerfectBACKUP+, in the industry and to increase its market share
in an expanding market. The promotion strategy is quite comprehensive, and
involves the hiring of nine direct sales personnel augmented by the distribution
of advertising and promotional materials. In addition, trade shows and "show
and tells" will be part of the strategy. The Company believes that the
combination of the Website, advertising, trade shows and a telemarketing
campaign will be effective in gaining sales for its products.
In the first quarter of 2000, Merlin established an aggressive advertising
campaign that will begin with print media in July of 2000. This campaign is
part of the originally estimated $1,200,000 budgeted for marketing. Merlin has
begun the process of interviewing suitable candidates to expand the marketing
and sales team to the projected nine employees. No new hires have been made as
of the end of the quarter but are expected to take place in the second.
Further reseller and distributor agreements have been signed. The majority of
these did not result in stocking orders in the first quarter and are not
considered a material change. While revenues were still low , sales of
PerfectBACKUP+ doubled each month during the first
quarter. It is not expected that there will be any revenues from HotWire FAX
until the last quarter of 2000.
<PAGE>
The Corporate web site was significantly upgraded during the first quarter and
arrangements were made to improve the company's web site visibility.
Cash Requirements
The Company's cash requirements for the 12 months ending March 31, 2001 are
estimated at $5,000,000. The Company anticipates that it
will be able to meet these cash requirements by raising additional equity funds
through private placements. The cash requirements of $5,000,000 are based on
the Company's estimates for operational costs in the 12 months ended March 31,
2001.
Research and Development
The Company has not expended any funds to date on the research and development
of the Company. Merlin estimates that it expended $98,329 on the development
of its current software programs to December 31, 1999. Following the
Acquisition, the Company
anticipates that it will require $1,800,000 to fund the continued development
and enhancement of PerfectBACKUP+, HotWireFAX and the Option Source Project.
The Company anticipates that it will expend $200,000 on the continued
development and enhancement of PerfectBACKUP+, $165,000 on the continued
development and enhancement of HotWireFAX and $1,435,000 on the development and
operation of the Option Source Project. The product development for
PerfectBACKUP+ and HotWire FAX was consolidated in the Florida development
office. Network services development has continued in the head office in
Burnaby, B.C
Product Development
The computer software industry is characterized by rapid technological change
and is highly competitive in regard to timely product innovation. Accordingly,
the Company believes that its future success depends on its ability to enhance
current products that meet a wide range of customer needs and to develop new
products rapidly to attract new customers and provide additional solutions to
existing customers. In particular, the Company believes it must continue to
respond quickly to users' needs for broad functionality and ease of use.
The Company's strategy is to continue to enhance PerfectBackup+'s and
HotWireFAX's functionality through new releases and new feature development to
meet the continually advancing requirements of its customers. At the same time,
Merlin may seek to acquire and develop new products to meet the needs of a
broader group of users.
The Option Source program, itself a product development project, was refined and
the website prepared for announcement at the beginning of the second quarter of
2000. All necessary legal documents were posted on the Option Source website and
links were created to relate the Option Source Project to the Merlin corporate
website, www.merlinsoftech.com (the "Website").
Employees
As of March 31, 2000, the Company had 3 full-time employees, including its
President and Chief Executive Officer (Robert Heller), its Secretary and Chief
Information Officer (Gary Heller) and its Treasurer and Vice President of Sales
(Shelley Montgomery). Pursuant to the terms of the Acquisition, the Company
will assume all of Merlin's employees, which included 4 full-time
employees, 4 full-time programmers, 5 consultants and 2 administration staff.
The development team in Florida was expanded by one developer and one
support technician during the quarter. The Company intends to hire one
additional senior developer during the second quarter to complete the backup
and fax product development teams.
The Company intends to hire a number of individuals over the next twelve months
including Chief Operating Officer, Chief Technology Officer, Vice President
Marketing, OEM Sales Manager, Channel Sales Manager, two account managers and
sales representatives, and three office and executive assistants.
<PAGE>
Purchase or Sale of Equipment
Following the Acquisition, the Company does not anticipate that it will expend
any significant amount of money on equipment for its operations. However, the
Company anticipates that it will make ongoing purchases of computer hardware and
software.
FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS
Certain statements contained in this Quarterly Report on Form 10-QSB, including,
without limitation, statements containing the words "believes", "anticipates",
"estimates", "intends", "expects" and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Although management believes that the expectations reflected in
these forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Actual results could vary
materially from those expressed in those statements. Readers are referred to
"Sales and Marketing", "Product Development" and "Management's Discussion and
Analysis or Plan of Operation" sections contained in this Quarterly Report, as
well as the factors described below in the section entitled "Factors That May
Affect the Company's Future Results", which identify some of the important
factors or events that could cause the Company's and Merlin's actual results or
performance to differ materially from those contained in the forward looking
statements. The following discussion relates to the factors which may
substantially affect the business to be carried on by the Company, following the
Acquisition.
THE COMPANY MAY NOT BE SUCCESSFUL IN THE OPEN SYSTEMS MARKET
The future success of the Company's business is substantially dependent on its
ability to generate revenues from its product offerings. Between February and
April, 2000, Merlin entered into various distribution and reseller agreements to
distribute or bundle PerfectBackup+ in the United States, India and Europe.
While these agreements are significant, there can be no assurance that the
Company will be successful in its efforts to generate revenues from these
agreements. Additionally, the software application market is characterized by
rapid technological growth and intense competition. The Company may not have
the financial or personnel resources to effectively capitalize on, and continue
with, its early and limited success in this market.
THE COMPANY IS DEPENDENT ON RESELLERS AND IF THE COMPANY IS NOT SUCCESSFUL IN
EXPANDING ITS DISTRIBUTION CHANNELS, ITS ABILITY TO GENERATE REVENUES WILL BE
HARMED
The Company's growth will be dependent on its ability to expand its third-party
distribution channels to market, sell and distribute its software products. The
Company is currently investing, and intends to continue to invest, significant
resources in the development of these distribution channels; the investment of
significant resources could have a materially adverse effect on the Company's
ability to generate revenues. The Company has only limited experience in
marketing its products through distributors and resellers. Additionally, the
Company will have no control over its third-party distributors. There can be no
assurance that the Company will be successful in its efforts to generate revenue
from these distribution channels, nor can there be any assurance that it will be
successful in recruiting new organizations to represent it and its products.
As noted, Merlin recently entered into various distribution and reseller
agreements to distribute and/or bundle its software products in the United
States, India and Europe. While the Company believes that these arrangements
will be beneficial, there can be no assurance that the Company will be able to
deliver its products to these companies in a timely manner or that these
companies will license its products in volumes anticipated by the Company.
Further, these agreements are the Company's only significant distribution
agreements to date. While the Company's strategy is to enter into additional
agreements with resellers and distributors, it may not be able to successfully
attract additional vendors to distribute its products. Any such failure would
result in the Company having expended significant resources with little or no
return on its investment, which would significantly harm its business.
<PAGE>
These additional investments and responsibilities will require the Company to
expend substantial resources and may require it to divert employees from other
projects to provide the support services and development efforts required to
provide products and services to these third party vendors and other new third
parties, if any.
THE COMPANY'S MARKET IS SUBJECT TO INTENSE COMPETITION AND CONTINUED COMPETITION
IN ITS MARKET MAY LEAD TO A REDUCTION IN ITS PRICES, REVENUES AND MARKET SHARE
The Company may experience intense competition from other software development
companies and the market is rapidly changing. The Company believes that its
ability to compete successfully depends on a number of factors, including the
performance, price and functionality of its products relative to those of its
competitors. Most of the Company's competitors are larger and have greater
financial, technical, marketing, support and other resources. As a result, they
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements than the Company. In addition, the software industry is
characterized by low barriers to entry. There can be no assurance that the
Company's current competitors or any new market entrants will not develop
software products that offer significant performance, price, or other advantages
over the Company's products. In addition, operating system vendors could
introduce new or upgrade existing operating systems or environments that include
similar software programs to those offered by the Company, which could render
its products obsolete and unmarketable. The Company may not be able to
successfully compete against current or future competitors which could
significantly harm its business.
THE COMPANY ANTICIPATES THAT A SIGNIFICANT PORTION OF ITS REVENUES WILL BE
DERIVED FROM A SINGLE PRODUCT AND IF THAT PRODUCT FAILS TO ACHIEVE AND MAINTAIN
MARKET ACCEPTANCE, THE COMPANY'S BUSINESS MAY BE SIGNIFICANTLY HARMED
The Company expects that a substantial portion of its future revenue will be
derived from its PerfectBACKUP+ software application. The Company expects that
the PerfectBACKUP+ product and its extensions and derivatives will account for a
majority, if not all, of the Company's revenue for the foreseeable future. Broad
market acceptance of PerfectBACKUP+ is, therefore, critical to its future
success. Failure to achieve broad market acceptance of PerfectBACKUP+, as a
result of competition, technological change, or otherwise, would significantly
harm its business. The Company's future financial performance will depend in
significant part on the successful development, introduction and market
acceptance of PerfectBACKUP+ and its product enhancements. There can be no
assurance that the Company will be successful in marketing PerfectBACKUP+ or any
new products, applications or product enhancements, and any failure to do so
would significantly harm its business.
THE MARKET FOR THE COMPANY'S PRODUCTS IS CHARACTERIZED BY RAPID TECHNOLOGICAL
CHANGE AND THE COMPANY MAY NOT BE ABLE TO DEVELOP OR MARKET NEW PRODUCTS TO
RESPOND TO SUCH CHANGE
The market for the Company's products is characterized by rapid technological
developments, evolving industry standards and rapid changes in customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards, or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a result,
its success depends upon the Company's ability to continue to enhance existing
products, respond to changing customer requirements and rapidly develop and
introduce new products that keep pace with technological developments and
emerging industry standards.
Additionally, other operating systems, such as Windows NT, may significantly
affect deployment of Unix and Linux systems for business critical applications.
A significant portion of the Company's revenue will be derived from Unix and
Linux based computer systems for the foreseeable future. A significant decline
in sales of Unix and Linux-based systems would decrease the demand for the
Company's products and would significantly harm its business. Finally, the
Company may not be successful in developing and marketing, on a timely basis,
product enhancements or new products that respond to technological change or
evolving industry standards, the Company may experience difficulties that could
delay or prevent the successful development, introduction and sale of these
products, and any such new products or product enhancements may not adequately
meet the requirements of the marketplace and achieve market acceptance.
<PAGE>
There can be no assurance that the Company will be successful in developing and
marketing new features or products that respond to technological change or
evolving industry standards, that it will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of any
new features or products, or that its new features or products will adequately
meet the requirements of the marketplace and achieve market acceptance.
Additionally, the Company's product development staff will be under increased
pressure to offer its products that operate on different vendor's Linux and Unix
based operating systems. Due to the complexity of the product, it is extremely
difficult to fully test PerfectBACKUP+ and HotWireFAX in all possible
environments and, although the Company employs a continual effort to assure a
quality product, there is no assurance that errors will not be found in the
released commercial product resulting in delays of new feature development. If
the Company is unable, due to lack of resources or for technological or other
reasons, to develop and introduce new features and products in a timely manner
in response to changing market conditions or customer requirements, its
business, operating results and financial condition will be materially adversely
affected.
THE COMPANY HAS A HISTORY OF LOSSES AND ANTICIPATES FURTHER SIGNIFICANT LOSSES
AND CANNOT ASSURE THAT IT WILL ACHIEVE PROFITABILITY
The Company and Merlin have each incurred operating losses since inception and,
as a result, the Company cannot be certain that it will generate revenue
sufficient to achieve profitability. The Company expects to continue to incur
significant losses for the foreseeable future and these losses may be higher
than its current losses. The Company cannot be certain when or if it will
achieve profitability. Failure to become and remain profitable may adversely
affect the market price or the Company's common stock and its ability to raise
capital and continue operations.
FURTHER CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
Since inception, both the Company and Merlin have financed their operations
through sales of equity securities. The Company's existing capital resources
are adequate to maintain its current operations through July, 2000. However, the
Company will require substantial additional financing to implement its current
plans to expand its operations and fund its long-term product development. The
Company has been actively seeking financing to expand its operations. If any
planned financing fails to close and the Company is unable to obtain alternative
financing as needed, its long- term product development and commercialization
programs would be delayed or prevented and the Company may be required to
curtail its operations.
PENNY STOCK RULES
The Company's common shares are subject to rules promulgated by the SEC relating
to "penny stocks," which apply to companies whose shares are not traded on a
national stock exchange or on the NASDAQ system, trade at less than $5.00 per
share, or who do not meet certain other financial requirements specified by the
SEC. These rules require brokers who sell "penny stocks" to persons other than
established customers and "accredited investors" to complete certain
documentation, make suitability inquiries of investors, and provide investors
with certain information concerning the risks of trading in the such penny
stocks. These rules may discourage or restrict the ability of brokers to sell
the Company's common shares and may affect the secondary market for the
Company's common shares. These rules could also hamper the Company's ability to
raise funds in the primary market for the Company's common shares.
NATURE OF THE COMPANY'S PRESENT OPERATIONS
The success of the Company's proposed plan of operation will depend to a great
extent on the operations, financial condition, and management of Merlin. Merlin
has a limited operating history, as it was incorporated on June 25, 1999. As a
result, the Company cannot ensure that it will be a commercially or economically
viable business operation. It will face all of the risks inherent in a new
business, the majority of which are beyond the control of the management of both
the Company and Merlin.
<PAGE>
RECENT MARKET DEVELOPMENT
The markets for the Company's products and services have only recently begun to
develop. Demand and market acceptance for software products developed under the
open source development model and services relating to these products are
subject to a high level of uncertainty and risk. Few open source software
products have gained widespread commercial acceptance. This is partly due to
the lack of viable open source industry participants to offer adequate service
and support on a long term basis. In addition, open source vendors are not able
to provide industry standard warranties and indemnities for their products,
since these products have been developed largely by independent parties over
whom open source vendors exercise no control or supervision. Finally, there are
currently few widely available commercial applications built for use with open
source operating systems, such as those based on the Linux kernel. If open
source software should fail to gain widespread commercial acceptance, the
Company's business, operating results and financial condition would be
materially adversely affected.
INTERNET AVAILABILITY
Historically, Merlin's business was based on the sale of the official versions
of PerfectBACKUP+. Using a standard telephone connection, a user can currently
download PerfectBACKUP+ from the Internet free of charge. Although the
distribution of free older versions over the Internet has proved to be an
excellent way in which to attract future paying customers, the Company would
prefer users to purchase the official versions. To avoid significant download
time, users can purchase the shrink-wrapped version of PerfectBACKUP+. If
hardware and data transmission technology advances in the future to the point
where increased bandwidth allows PerfectBACKUP+ to be more quickly downloaded
from the Internet, users may no longer choose to purchase the latest release of
PerfectBACKUP+. Any resulting decrease in product revenue as a result, if
significant, could have a material adverse effect on the Company's business,
operating results and financial condition.
DIFFICULTIES IN DEPLOYING THE COMPANY'S PRODUCTS
Deployment of the Company's products often involves a significant commitment of
resources, financial and otherwise, by its customers. The deployment process
can be lengthy due to the size and complexity of the Company's products and the
need to purchase and install new applications. If the Company fails to attract
and retain services personnel, the failure of companies with which Merlin has
relationships to commit sufficient resources towards deploying its products, or
a delay in deployment for any other reason could result in dissatisfied
customers. This could have a material adverse effect on the Company's
reputation and on the Merlin brand, which in turn could materially adversely
affect the Company's business, operating results and financial condition.
LIMITED OPERATING HISTORY/EARLY STAGE COMPANY
Merlin was incorporated on June 25, 1999, and accordingly, both the Company and
Merlin have a relatively limited operating history upon which potential
investors in the Company can evaluate its business and prospects. Investors
must consider the Company's prospects in light of the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets.
FLUCTUATION OF QUARTERLY RESULTS/DIFFICULTY IN FORECASTING QUARTERLY RESULTS
Due to the limited operating histories of both the Company and Merlin, and the
unpredictability of the software industry generally, the Company's predicted
revenue and net income (loss) may fluctuate significantly from quarter to
quarter and, as a result, are difficult to forecast. The Company bases its
current and projected future expense levels in part on its estimates of future
revenue. The Company's expenses are to a large extent fixed in the short term.
It may not be able to adjust its spending quickly if revenues fall short of the
Company's expectations. Accordingly, a revenue shortfall in a particular
quarter would have a disproportionate adverse effect on the Company's net income
(loss) for that quarter. Further, the Company may make pricing, purchasing,
service, marketing, acquisition or financing decisions that could adversely
affect its business, operating results and financial condition. The Company's
quarterly operating results will fluctuate for many reasons, including:
- - the Company's ability to retain existing customers, attract new customers
and satisfy its demand;
- - changes in gross margins of current and future products and services;
<PAGE>
- - the timing of the release of upgraded versions of the Company's products;
- - introduction of new products and services by the Company or its
competitors;
- - changes in the market acceptance of Linux and Unix-based operating systems
and software programs;
- - changes in the usage of the Internet and online services;
- - timing of upgrades and developments in the Linux kernel and other open
source software products;
- - the effects of acquisitions and other business combinations, including
one-time charges, goodwill amortization and integration expenses or
difficulties; and
- - technical difficulties or system downtime affecting the Internet or the
Website.
For these reasons, investors should not rely on period-to-period comparisons of
the Company's financial results to forecast its future performance. The
Company's future operating results may fall below expectations of securities
analysts or investors, which would likely cause the trading price of the
Company's common stock to decline significantly.
STRAIN ON RESOURCES AS A RESULT OF RAPID GROWTH
Since Merlin's incorporation, it has experienced a period of rapid growth and
expansion which in the past has placed a significant strain on its resources.
The Company expects that its anticipated growth will further strain management,
operational and financial resources. The Company's management team has had
limited experience managing a rapidly growing company on either a public or
private basis. To accommodate its anticipated growth, the Company must:
- - improve existing and implement new operational and financial systems,
procedures and controls;
- - hire, train and manage additional qualified personnel, including sales and
marketing, professional services and software engineering and development
personnel; and
- - effectively manage multiple relationships with its customers, suppliers
and other third parties.
The Company may not be able to install and implement adequate operational and
financial systems, procedures and controls in an efficient and timely manner,
and the Company's current or planned systems, procedures and controls may not be
adequate to support its future operations. The difficulties associated with
installing and implementing these new systems, procedures and controls may place
a significant burden on management and internal resources. In addition, if the
Company grows internationally, as it intends, it will have to expand its
worldwide operations and enhance its communications infrastructure. Any delay
in the implementation of, or any disruption in the transition to, new or
enhanced systems, procedures or controls could adversely affect the Company's
ability to accurately forecast sales demand, manage our supply chain, and record
and report financial and management information on a timely and accurate basis.
The Company's inability to manage growth effectively could have a materially
adverse effect on its business, operating results and financial condition.
KEY EMPLOYEES
The Company's future success depends on the continued services of its key
officers, including Robert Heller (President and CEO), Gary Heller (CIO and
Secretary) and Shelley Montgomery (Vice President of Sales and Treasurer). The
loss of the technical knowledge and industry expertise of any of these people
could seriously impede the Company's success. Moreover, the loss of one or a
group of the Company's key employees, particularly to a competitor, and any
resulting loss of customers to a competitor could materially adversely affect
the Company's business, operating results and financial condition.
<PAGE>
COMPETITION - LINUX AND UNIX-BASED PRODUCTS AND TOOLS
The market for Linux and Unix-based products and tools is new, rapidly evolving
and intensely competitive. The Company expects competition to persist and
intensify in the future. The Company expects the number of suppliers of Linux
and Unix-based software applications to grow as Linux and Unix-based operating
systems gain increased market share from its competition. In addition, there
are a number of companies with large customer bases and greater financial
resources and name recognition, such as Sun Microsystems, Corel and Cygnus
Solutions, that have indicated a growing interest in the market for Linux and
Unix-based products and tools. These companies may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies, and
offer more attractive terms to their customers than the Company. Barriers to
entry are minimal and accordingly, it is possible that new competitors or
relationships among competitors may emerge and rapidly acquire significant
market share. These companies may be able to leverage their existing service
organizations and provide higher levels of support on a more cost-effective
basis than the Company. If the Company is not able to compete successfully with
current or future competitors, its business, operating results and financial
condition will be materially adversely affected.
ESTABLISHMENT AND MAINTENANCE OF BUSINESS RELATIONSHIPS
The Company's success depends on its ability to continue to establish and
maintain distribution, reseller and other collaborative relationships with
industry-leading hardware manufacturers, distributors, software vendors and
enterprise solutions providers in order to offer products and services to a
larger customer base than the Company could otherwise reach through direct sales
and marketing efforts. The Company must develop and expand its distribution
channels through relationships with original equipment manufacturers (OEMs) and
value-added resellers (VARs). If the Company is unable to maintain its existing
relationships or enter into additional relationships, it will have to devote
substantially more resources to the distribution, sale and marketing of its
products than it otherwise intends to, and the Company's business, operating
results and financial condition would be materially adversely affected.
The Company's existing relationships do not, and any future relationships may
not, afford the Company any exclusive marketing or distribution rights. The
companies with which Merlin currently has such relationships are free to pursue
alternative technologies and to develop alternative products in addition to or
in lieu of its products, either on their own or in collaboration with others,
including the Company's competitors. The Company cannot guarantee that its
resellers and distributors will market the Company's products effectively or
continue to devote the resources necessary to provide effective sales, marketing
and technical support. In order to support and develop leads for the Company's
distribution channels, it plans to expand its field sales and support staff
significantly. The Company cannot guarantee that it will be able to
successfully complete this internal expansion, that the revenue generated from
this expansion will exceed its cost or that the Company's expanded sales and
support staff will be able to compete successfully against the significantly
more extensive and better-funded sales and marketing operations of many of our
current or potential competitors. The Company's inability to effectively manage
the expansion of its sales and support staff, or its programming staff, would
materially adversely affect the Company's business, operating results and
financial condition.
INTERNATIONAL EXPANSION
The Company plans to expand its presence in foreign markets, and indeed has done
so through Merlin's agreements with such companies as Italsel SRI (Italy), G.T.
Enterprises (India) and Hanmi Information & Communications Co. Ltd. (Korea).
The Company has little experience in marketing and distributing products or
services for these markets and there can be no assurance that any revenues will
be generated as a result of such agreements. As the Company expands its
international operations, it will face a number of additional risks associated
with the conduct of business overseas, including:
- - difficulties relating to the management and administration of a globally-
dispersed business;
- - fluctuations in exchange rates;
- - the burdens of complying with a wide variety of foreign laws;
<PAGE>
- - the uncertainty of laws and enforcement in certain countries relating to
the protection of intellectual property rights;
- - reductions in business activity during the summer months in Europe and
certain other parts of the world;
- - export controls;
- - multiple and possibly overlapping tax structures;
- - changes in import/export duties and quotas; and
- - economic or political instability in some international markets.
NEW BUSINESS COMBINATIONS/ALLIANCES
The Company may expand its operations or market presence by entering into
business combinations, investments, joint ventures or other strategic alliances
with other companies. These transactions create risks such as:
- - difficulty assimilating the operations, technology and personnel of the
combined companies;
- - disruption of the Company's ongoing business;
- - problems retaining key technical and managerial personnel;
- - one-time in-process research and development charges and ongoing expenses
associated with amortization of goodwill and other purchased intangible assets;
- - potential dilution to the Company's stockholders;
- - additional operating losses and expenses of acquired businesses; and
- - impairment of relationships with existing employees, customers and
business partners.
The Company's inability to address these risks could have a materially adverse
effect on its business, operating results and financial condition.
COMPETITION FOR SKILLED PERSONNEL
The Company's future performance also depends upon its ability to attract and
retain highly qualified programming, technical, sales, marketing and managerial
personnel. There is intense competition for skilled personnel, particularly in
the field of software engineering. If the Company does not succeed in retaining
its personnel or in attracting new employees, its business could suffer
significantly.
NEED FOR CONTINUED DEVELOPMENT AND MAINTENANCE OF THE INTERNET'S INFRASTRUCTURE
The success of the Company's Internet strategy will depend in large part on the
continued development and maintenance of the infrastructure of the Internet.
Because global commerce and the online exchange of information is new and
evolving, the Company cannot predict with any certainty that the Internet will
be a viable commercial marketplace in the long term. The Internet has
experienced, and it may continue to experience, significant growth in number of
users and amount of traffic. To the extent that the Internet continues to
experience an increased number of users, frequency of use or increased bandwidth
requirements of users, it may not be able to support the demands placed upon it
by such growth, and its performance and reliability may suffer. Furthermore, the
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face similar outages and
<PAGE>
delays in the future. Any outage or delay could affect the level of Internet
usage, as well as the level of traffic on the Website. In addition, the
Internet could lose its viability due to delays in the development or adoption
of new standards and protocols to handle increased levels of activity or due to
increased governmental regulation. If the necessary infrastructure, standards
or protocols or complementary products, services or facilities are not
developed, or if the Internet does not become a viable commercial marketplace,
the Company's business, operating results and financial condition could be
materially adversely affected.
Fire, floods, hurricanes, tornadoes, earthquakes, power loss, telecommunications
failures, break-ins and similar events could damage the Company's computer
hardware systems. In addition, although the Company has implemented network
security measures, its servers are vulnerable to computer viruses, electronic
break-ins, human error and other similar disruptive problems which could
adversely affect its systems and the Website. Although the Company has tried to
prevent unauthorized access to its systems, it cannot eliminate this risk
entirely. The Company's business could be adversely affected if its systems
were affected by any of these occurrences. The Company's insurance policies may
not adequately compensate it for any losses that may occur due to failures or
interruptions in the Company's systems. It does not presently have any
secondary "off-site" systems or a formal disaster recovery plan. The Website
must accommodate a high volume of traffic and deliver frequently updated
information. The Website has in the past experienced slower response times or
decreased traffic for a variety of reasons. These occurrences have not had a
material impact on the Company' s business. These types of occurrences in the
future, however, could materially adversely affect its reputation and brand name
and could cause users to perceive the Website as not functioning properly.
Under these circumstances, the Company's customers could choose another website
or other methods to obtain Linux or Unix-related information.
POSSIBILITY OF PRODUCT DEFECTS
Despite testing, errors may be found in the Company's products after
commencement of commercial shipments. If errors are discovered, the Company may
not be able to successfully correct them in a timely manner or at all. Errors
and failures in the Company's products could result in a loss of, or delay in,
market acceptance of its products and could damage its reputation and ability to
convince commercial users of the benefits of Linux or Unix-based operating
systems and other open source software products. In addition, the Company may
need to make significant expenditures of capital resources in order to eliminate
errors and failures. Although the license agreements with the Company's
customers typically contain provisions designed to limit the Company's exposure
to potential product liability claims, it is possible that these provisions may
not be effective or enforceable under the laws of some jurisdictions. In
addition, the Company's insurance policies may not adequately limit its exposure
with respect to this type of claim. A product liability claim, even if
unsuccessful, could be costly and time consuming. Claims related to the
occurrence or discovery of these types of errors or failures could have a
materially adverse effect on the Company's business, operating results and
financial condition.
INFRINGEMENT CLAIMS
The Company may be subject to future litigation based on claims that its
products infringe the intellectual property rights of others. Claims of
infringement could require that the Company reengineer its products or seek to
obtain licenses from third parties in order to continue offering its products.
In addition, an adverse legal decision affecting the Company's intellectual
property, or the use of significant resources to defend against this type of
claim, could materially adversely affect the Company's business, operating
results and financial condition.
TRADEMARK PROTECTION
There is no assurance that patent, copyright and trademark registration or
protection for the Company's intellectual property will be available, and
therefore the Company may have little or no protection for its intellectual
property assets, comprising the main business assets of the Company.
The Company's software technology, business tools, consumer products and its
other intellectual property are important to the Company's continued operations
and success. The Company's efforts to protect this intellectual property may
not be adequate. Unauthorized parties may infringe upon or misappropriate its
software technology, business tools and consumer products or other proprietary
<PAGE>
information. In the future, litigation may be necessary to protect and enforce
the Company's intellectual property rights or to determine the validity and
scope of its intellectual property, which could be time consuming and costly.
The Company could also be subjected to intellectual property infringement claims
as the numbers of competitors grows. These claims, even if not meritorious,
could be expensive and divert the Company's attention from its continued
operations. If the Company becomes liable to any third parties for such claims,
it could be required to pay a substantial damage award or to develop comparable
non-infringing intellectual property and systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company knows of no material, active or pending legal proceedings against
it, nor is the Company involved as a plaintiff in any material proceedings or
pending litigation. There are no proceedings in which any director, officer or
affiliate of the Company, or any registered or beneficial shareholder is an
adverse party of has a material interest adverse to the Company.
ITEM 2. CHANGES IN SECURITIES.
On January 10, 2000, the Company's common stock underwent a forward stock split
on a 1.235:1 basis for all shareholders of record, increasing the then issued
and outstanding shares from 6,000,000 to 7,410,000 common shares. On January
12, 2000, in connection with the Acquisition and with the approval of the former
directors of the Company, the Company cancelled 3,809,975 common shares held by
the former officers and directors.
Recent Sales of Unregistered Securities
On February 10, 2000, the Company sold to the following subscribers an aggregate
of 850,000 units (the "Units") at a price of $1.50 per Unit for proceeds of
$1,275,000 in an offshore transaction relying on Regulation S under the
Securities Act of 1933. Each Unit consisted of one common share and one share
purchase warrant with each share purchase warrant entitling the holder to
purchase up to an aggregate of 850,000 common shares at the price of $2.00 per
common share for a period of two (2) years. The common shares were sold to the
following three subscribers:
NUMBER OF COMMON
SHARES AVAILABLE UPON
NAME OF SUBSCRIBER AMOUNT OF UNITS EXERCISE OF WARRANTS
------------------ --------------- ---------------------
Big Plans Investments Ltd. 250,000 250,000
Roberts & Scott Financial, Inc. 200,000 200,000
Mepol Management S.A. 400,000 400,000
The proceeds of the private placement were advanced on a non-interest bearing
basis to Merlin in contemplation of closing the Acquisition.
Share Exchange with Merlin Software Technologies, Inc.
Subsequent to the quarter ended March 31, 2000, the Company acquired all of the
issued and outstanding common shares of Merlin in exchange for the issuance of
an aggregate of 7,986,665 common shares of the Company. These common shares
will be issued to the former shareholders of Merlin relying on Section 4(2),
Regulation D and Regulation S of the Securities Act of 1933, as applicable. As
part of the Share Exchange the Company has also agreed to issue 86,665 share
purchase warrants and 781,000 stock options to the former shareholders of Merlin
relying on Section 4(2), Regulation D and Regulation S of the Securities Act of
1933, as applicable. Although the Share Exchange was effective on April 26,
2000, the Company has not yet issued the common shares, warrants or stock
options to the former shareholders of Merlin.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On January 12, 2000, the Company accepted the resignation of Eugene F.
Koppenhaver as a member of the Board of Directors; the vacancy left by Mr.
Koppenhaver's resignation was filled by Martin Holt, who was then appointed
President, Secretary and Treasurer of the Company. Also on January 12, 2000,
the Company accepted the resignations of Douglas Ansell and Bruce N. Barton as
members of the Board of Directors. On January 19, 2000, Mr. Holt elected Robert
Heller and Gary Heller to fill the vacancies on the Board of Directors, and
expanded the Board of Directors by electing Shelley Montgomery. Also on January
19, 2000, Mr. Holt resigned as President, Secretary and Treasurer (remaining
only as a director of the Company), effective immediately. Robert Heller was
then appointed as the President, Gary Heller as the Secretary and Shelley
Montgomery as the Treasurer.
Following the end of the quarter, on May 5, 2000, Hank Barber was appointed to
the Company's Board of Directors. Also on May 5, 2000, the Company amended its
Bylaws, expanding the number of directors on the Board of Directors to between
one and twelve (from between one and five).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Reports of Form 8-K
On February 1, 1999, the Company filed a current report on Form 8-K announcing
the January Letter of Intent, the Company's name change from "Austin Land &
Development, Inc." to "Merlin Software Technologies International Inc.", the
forward split of its common shares, the resignation of Eugene Koppenhaver,
Douglas Ansell and Bruce N. Barton from and the appointment of Martin Holt,
Robert Heller, Gary Heller and Shelley Montgomery to the Company's Board of
Directors. On March 30, 2000, the Company filed an amendment to this Form 8-K
to include audited financial statements for Merlin in connection with the
Acquisition. Prior to the Acquisition, the Company was not operating, and had
no assets and no revenue. The pro-forma financial statements, which served to
state the results of 1999 as if Merlin and the Company had combined operations
during 1999, therefore, did not differ in any material way from the audited
financial statements of Merlin; and therefore, the Company did not include
separate pro-forma financial statements.
On March 28, 2000, the Company filed a current report on Form 8-K announcing
that it had engaged BDO Dunwoody LLP as its independent accountants to audit its
annual financial statements. On April 5, 2000 and April 13, 2000, the Company
filed a Form 8-K/A and a Form 8-K/2A with respect to the change in its
independent accountants. The Company's Board of Directors approved the change
of accountants to BDO Dunwoody, LLP on March 20, 2000. During the Company's
two most recent fiscal years, and any subsequent interim periods preceding the
change in accountants, there were no disagreements with Barry Friedman, P.C.,
CPA on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope procedure. The report on the financial statements
prepared by Barry Friedman, P.C., CPA, for either of the last two years did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principals. The decision
to change accountants was based on the appointment of new directors to the
Company's Board of Directors. Barry Friedman, P.C., CPA provided the Company
with a letter addressed to the SEC stating that he agreed with the statements
made in the Form 8-K/2A. The Company has engaged the firm of BDO Dunwoody
LLP as of March 20, 2000. BDO Dunwoody LLP was not consulted on any
matter relating to accounting principles to a specific transaction, either
completed or proposed or the type of audit opinion that might be rendered on the
Company's financial statements.
Financial Statements Filed as a Part of the Quarterly Report
The Company's unaudited financial statements include:
Balance Sheets: March 31, 2000 and December 31, 1999
<PAGE>
Statement of Operations: For the three months ended March 31, 2000 and
1999 and for the period from August 30, 1995 (inception) to
March 31, 2000
Statements of Changes in Stockholders' Equity: for the three months ended
March 31, 2000
Statements of Cash Flows: For the three months ended March 31, 2000 and
1999 and for the period from August 30, 1995 (inception) to
March 31, 2000
Notes to the Financial Statements
Exhibits Required by Item 601 of Regulation S-B
(3) Articles of Incorporation and By-laws:
3.1 Articles of Incorporation of the Company (incorporated by reference
from the Company's Form 10-SB Registration Statement, filed August 31, 1999)
3.2 Bylaws of the Company (incorporated by reference from the Company's
Form 10-SB Registration Statement, filed August 31, 1999)
3.3 Certificate of Amendment to Articles of Incorporation of the
Company, dated January 7, 2000 (incorporated by reference from the Company's
Form 10-KSB Annual Report, filed April 14, 2000)
3.4 Corporate Charter of the Company, dated March 27, 2000
(incorporated by reference from the Company's Form 10-KSB Annual Report, filed
April 14, 2000)
3.5 Articles of Incorporation of Merlin, dated June 25, 1999
(incorporated by reference from the Company's Form 10-KSB Annual Report, filed
April 14, 2000)
3.6 Bylaws of Merlin, dated June 25, 1999 (incorporated by reference
from the Company's Form 10-KSB Annual Report, filed April 14, 2000)
3.7 Corporate Charter of Merlin, dated June 25, 1999 (incorporated by
reference from the Company's Form 10-KSB Annual Report, filed April 14, 2000)
(10) Material Contracts
10.1 Letter of Intent, dated January 14, 2000, between the Company,
Merlin, Robert Heller, Gary Heller and Shelley Montgomery (incorporated by
reference from the Company's Form 10-KSB Annual Report, filed April 14, 2000)
10.2 Share Exchange Agreement, dated April 3, 2000, between the
Company, Merlin, Robert Heller, Gary Heller and Shelley Montgomery (incorporated
by reference from the Company's Form 10-KSB Annual Report, filed April 14, 2000)
(27) Financial Data Schedule
<PAGE>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND FOR THE PERIOD FROM AUGUST 30, 1995 (INCEPTION) TO
MARCH 31, 2000
(UNAUDITED)
CONTENTS
--------
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
MARCH 31 December 31
2000 1999
- --------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
DUE FROM MERLIN SOFTWARE TECHNOLOGIES INC. (Note 3) $1,275,000 $675,000
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
CURRENT
Accounts payable and accrued liabilities. . . . . $ 32,677 $ 15,000
ADVANCES FOR STOCK SUBSCRIPTIONS. . . . . . . . . . - 675,000
----------- ---------
32,677 690,000
----------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Share capital (Note 4)
Authorized
50,000,000 common shares, $0.001 par value
Issued
4,450,025 (December 31, 1999 - 7,410,000)
common shares . . . . . . . . . . . 4,450 7,410
Additional paid-in capital. . . . . . . . . . . . 1,276,550 -
Deficit accumulated during the development stage. (38,677) (22,410)
----------- ---------
1,242,323 (15,000)
----------- ---------
$1,275,000 $675,000
----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
AUGUST 30
1995
(Inception) TO Three months ended
March 31 March 31
2000 2000 1999
- -------------------------------------------------------------------------
<S> <C> <C> <C>
EXPENSES
Professional fees . . . . . . . . $ 38,317 $ 17,677 $ -
Amortization. . . . . . . . . . . 360 - -
---------- ---------- ----------
NET LOSS FOR THE PERIOD . . . . . . $ 38,677 $ 17,677 $ -
- -----------------------------------------------------------------------
LOSS PER SHARE. . . . . . . . . . . $ - $ -
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,372,328 7,410,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
Accumulated Total
Common Stock Additional in the Stockholders'
------------- Paid-in Development Equity
Shares Amount Capital Stage (Deficit)
----------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 2000 7,410,000 $7,410 $- $(22,410) $ (15,000)
Common stock redeemed in
January 2000 for no
consideration (3,809,975) (3,810) 2,400 1,410 -
Common stock issued on private
placement in March 2000 at
1.50 per share 850,000 850 1,274,150 - 1,275,000
Loss for the period from January 1,
2000 to March 31, 2000 - - - (17,677) (17,677)
----------- -------- ------------- --------- -------------
BALANCE, March 31, 2000 4,450,025 $4,450 $1,276,550 $(38,677) $1,242,323
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
AUGUST 30
1995
(INCEPTION) TO Three months ended
MARCH 31 March 31
-------------------
2000 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period . . . . . . . . . $ (38,677) $ (17,677) $ -
Adjustment to reconcile net loss to net
cash used in operating activities
Amortization of incorporation costs . . 360 - -
Increase in accounts payable and accrued
liabilities . . . . . . . . . . . . . . 32,677 17,677 -
------------ ---------- -----
(5,640) - -
------------ ---------- -----
FINANCING ACTIVITY
Proceeds on issuance of common stock. . . 1,281,000 600,000 -
------------ ---------- -----
INVESTING ACTIVITIES
Advances to Merlin Software
Technologies Inc. . . . . . . . . . . . (1,275,000) (600,000) -
Incorporation costs . . . . . . . . . . . (360) - -
------------ ---------- -----
(1,275,360) (600,000) -
------------ ---------- -----
CASH, beginning and end of period . . . . . $ - $ - $ -
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000 AND 1999
- ---------------------------
1. BASIS OF PRESENTATION AND CONTINUED OPERATIONS
The interim financial statements for the three-month periods ended March 31,
2000 and 1999 included herein have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading.
These financial statements reflect all adjustments consisting of normal
recurring adjustments, which, in the opinion of management, are necessary for
fair presentation of the information, contained herein. It is suggested that
these interim financial statements be read in conjunction with the financial
statements of the Company for the years ended December 31, 1999 and 1998 and the
notes thereto included in the Company's Form 10-KSB Annual Report. The Company
follows the same accounting policies in preparation of interim reports.
Results of operations for the interim periods are not indicative of annual
results.
The Company was organized August 30, 1995, under the laws of the State of Nevada
as Austin Land & Development, Inc. At March 31, 2000, the Company had no
operations and in accordance with SFAS 7, is considered a development stage
company. On January 7, 2000, the Company changed its legal name to Merlin
Software Technologies International, Inc. in contemplation of closing a share
exchange agreement with the principal stockholders of Merlin Software
Technologies Inc. ("Merlin Private Co.") (Note 2).
These accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. As at March 31,
2000, the Company has recognized no revenue and has accumulated operating losses
of $38,677 since its inception. The continuation of the Company is dependent
upon the continuing financial support of creditors and stockholders and
obtaining long-term financing and achieving profitability. Management plans to
raise equity capital to finance the operations and capital requirements of the
Company. It is management's intention to raise new equity financing of
approximately $25 million within the upcoming year. Amounts raised will be used
for further development of the Merlin Private Co. products, to provide financing
for the marketing and promotion of its products, to secure products and for
other working capital purposes including hardware and software upgrades. While
the Company is expending its best efforts to achieve the above plans, there is
no assurance that any such activity will generate funds that will be available
for operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. These financial statements do not include any adjustments
that might arise from this uncertainty.
<PAGE>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000 AND 1999
- ---------------------------
2. ACQUISITION OF MERLIN SOFTWARE TECHNOLOGIES INC.
Effective April 26, 2000, the Company acquired all of the issued and outstanding
shares of software developer Merlin Software Technologies Inc. in exchange for
7,986,665 shares of the Company's common stock. Merlin Private Co. is a Nevada
company incorporated on June 25, 1999 for the purpose of the development of
Linux-based software utilities and other business management software.
The transaction will be accounted for in the Company's second quarter of 2000 as
a recapitalization of Merlin Private Co. using purchase method accounting
principles applicable to reverse acquisitions. Following reverse acquisition
accounting, financial statements subsequent to the closing date will be
presented as a continuation of Merlin Private Co. The value to be assigned to
common stock issued by the Company on acquisition based on the fair value of the
net assets of the Company at the date of acquisition is approximately
$1,240,000.
Also, in connection with the acquisition, the Company will issue 86,665 share
purchase warrants and grant 781,000 stock options to previous holders of
warrants and options in Merlin Private Co. Options and warrants are to be
exchanged on a 1:1 basis under the same terms and conditions as existed in
Merlin Private Co. The Merlin Private Co. warrants are exercisable at $2 per
share until expiry in March 2002 while the options are exercisable at $1 per
share and expire on various dates in 2001.
3. DUE FROM MERLIN SOFTWARE TECHNOLOGIES INC.
The Company has advanced $1,275,000 to Merlin Private Co. out of the proceeds of
a $1,275,000 private placement received in December 1999 and January 2000. The
amounts were advanced on an unsecured, non-interest bearing basis with no
specific terms of repayment. The private placement resulted in the issuance of
850,000 units at $1.50 per unit with each unit consisting of one share of common
stock and one warrant to purchase common stock for two years at $2 per share.
All warrants remain outstanding at March 31, 2000.
4. SHARE CAPITAL
On January 10, 2000, the Company forward split its issued and outstanding common
stock on a 1.235:1 basis. All share amounts contained in these financial
statements retroactively reflect the effect of the stock split. On January 18,
2000, the Company redeemed and cancelled 3,809,975 shares of common stock for no
consideration.
<PAGE>
MERLIN SOFTWARE TECHNOLOGIES INTERNATIONAL, INC.
(FORMERLY AUSTIN LAND & DEVELOPMENT, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000 AND 1999
- ---------------------------
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 required companies to recognize all derivatives contracts as either
assets or liabilities on the balance sheet and to measure them at fair value.
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standards on January 1, 2001 to affect its
financial statements.
<PAGE>
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.
MERLIN SOFTWARE TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Robert Heller
Robert Heller, President and CEO/Director
Date: May 10, 2000
By: /s/ Gary Heller
Gary Heller, Chief Information
Officer and Secretary/Director
Date: May 10, 2000
By: /s/ Shelley Montgomery
Shelley Montgomery, Vice President of
Sales and Treasurer/Director
Date: May 10, 2000
By: /s/ Martin Holt
Martin Holt, Director
Date: May 10, 2000
By: /s/ Trevor McConnell
Trevor McConnell
Date: May 10, 2000
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