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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. TWO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
AXYN CORPORATION
(Name of Small Business Issuer in Its Charter)
STATE OF COLORADO 95-4754179
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number
2 GURDWARA ROAD, SUITE 208, NEPEAN, ONTARIO, CANADA K2E 1A2
(Address of Principal Executive Offices) (Zip code)
(613) 564-2996
(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title Of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.0001
(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS.
Forward Looking Statements
This Item contains forward-looking statements. Please review the information in
light of the risk factors and other cautionary statements identifying important
factors that could cause actual results to differ materially from those in the
forward-looking statements. In particular, please see "Risk Factors" in Item 1.
Currency Conversion.
All monetary amounts are expressed in United States Dollars, unless
specifically indicated otherwise. Where conversion from Canadian Dollars to
United States Dollars has been made, the conversion factor used is one and
one-half Canadian Dollars per one United States Dollar ($C1.50=$US1.00).
Business Development.
AXYN CORPORATION ("AXYN") is a Colorado corporation which owns 100% of
the outstanding shares of AXYN Canada Corporation ("ACC"), a Canadian
corporation, and AXYN TECHNOLOGIES CORPORATION, a Delaware corporation, which
are engaged in the development, marketing, licensing and sales of Y2K products
and services in Canada and the United States, respectively, which are explained
below. AXYN, ACC, and AXYN TECHNOLOGIES Corporation are hereafter referred to
collectively as the "Company".
The Company's Common Stock trades in the over-the-counter market on the
Electronic Bulletin Board ("EBB") under the symbol "AXYN" (previous
symbol:TMPG). AXYN's EBB listing resulted from a reverse share exchange
consummated on June 18, 1998, between ACC, and Thor Management Group, Inc.
("Thor"), which was the EBB listed company. As a result of the transaction, Thor
acquired all of the outstanding Common Stock of ACC and Thor changed its name to
AXYN CORPORATION (pronounced ak-shun).
Thor was incorporated under the laws of the State of Colorado on January
12, 1998 and was established as a real estate management company located at 1422
Delgany Street, Denver, CO. Thor never conducted any business prior to the
exchange of shares.
The Company's US corporate mailing address is AXYN Corporation, 1122
North Stanford Drive, Simi Valley, CA 93065-9455. The Subsidiary's address is
AXYN Canada Corporation, 201 - 338 Montreal Road, Vanier, Ontario, Canada K1L
6B3. Its telephone number is (613) 564-2996 and its fax number is (613)742-6068.
BUSINESS OF COMPANY.
ACC began business as a Year 2000 ("Y2K") solutions supplier for desktop
and embedded systems ("Y2K sectors"). A desktop system is typically a software
system that operates on desk-top computers, including servers, workstations, and
smaller computers. It is typically single-user computer, and may be either
networked or stand alone. These computers are often called "personal computers"
or "PCs". An embedded system is a software system that is embedded directly into
computer chips and is generally not subject to reprogramming. A Y2K problem
arises when dates and date codes in the software systems use only two digits to
identify the year, such "99", for the year 1999, with the first two digits "19"
implied. When the year 2000 commences, some computers and systems will read the
year as "1900" rather than "2000". The wrong date might cause numerous problems.
A system is Y2K compliant when it
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will recognize the right date. The Company established two separate strategies
to develop or acquire products and services for its two Y2K sectors.
The Company has no patents on software; however The Company Canada applied
for a Canadian Patent for "Date Overloading" on April 16, 1998 and a U.S. Patent
on May 19, 1998. Date Overloading is a method for handling Year 2000 dates such
that an end-user could selectively migrate Y2K date fields using in-house
developed software that incorporates the Date Overloading method. Axyn Canada
assigned the patent rights, title and interest in the Date Overloading patent to
MPT Millennium Patent Technologies Corporation Limited on June 17, 1998 in
return for entering into an exclusive licensing agreement.
The Company acquired the rights to a second patent pending technology
called "D.A.R.T. (Date Arithmetic Remediation Technology)" on May 27, 1998, from
the inventor, Mr. Robert Chambers, who was also the sole shareholder of The
Monroe Group Inc. This patent is still pending in Canada. No sales or licenses
of D.A.R.T. have been recorded as of June 30, 1999.
The Company has assigned software development staff on research and
development projects in Fiscal 1999 and 1998. Software development costs are
expensed as incurred unless they meet generally accepted accounting principles
criteria for deferral and amortization. Software development costs incurred
prior to the establishment of technological feasibility do not meet these
criteria and are expensed as incurred. Research costs are expensed as incurred.
The Corporation reassesses whether it has met relevant criteria for deferral and
amortization at each reporting date.
The Company completed development of the AXYN Corporation Embedded
Systems (ACES) database software program. ACES is used in conjunction with the
ACES Embedded Systems Methodology. ACES is a software program that allows the
Company's engineers to collect information about embedded systems located within
buildings. The Company completed AXYN enhancements to the DateManager 2000
product, a personal computer software Y2K compliance assessment tool. The
Company entered into an exclusive distribution agreement with MPT Millennium
Patent Technologies Corporation Limited ("MPT"), the owner of DateManager 2000.
The agreements cover all sales in Canada and the continental United States plus
Alaska and Hawaii. In fiscal 1998 the Company spent $38,257 on development
activities relating to Date Tool for COBOL and various applications of Date
Overloading and D.A.R.T. In fiscal 1999 The Company spent $20,285 on development
of the ACES data base software and $32,567 on The Company enhancements to
DateManager 2000. The cost for development has been expensed and no direct cost
has been allocated to customers or imbedded in product costing.
Y2K DESKTOP SOLUTIONS The Company identified a requirement for PCs and
network workstations to be Y2K compliant. The Company identified several PC Y2K
vulnerabilities needing assessment and remediation tools. These were: 1)
hardware clocks in PCs, namely the real time clock, the BIOS and the system
clock; 2) operating systems software, such as DOS or Windows; 3) application
programs such as accounting systems and commercial-off-the-shelf software; 4)
custom software programs developed in languages such as C, C++, COBOL,
Microfocus COBOL, Visual Basic and Fortran; and 5) the need to fix data used by
or created from these applications. These potential Y2K failure risks could each
independently or in conjunction with each other cause the PC to malfunction as a
result of Y2K errors.
The Company established marketing and distribution agreements with desktop
tool suppliers that addressed these Y2K problems associated with PCs and network
workstations. The Company established a software support center in Ottawa and
manages product development and distribution from this center for its resellers
and customers.
The principal software product is DateManager 2000 an assessment tool that
analyses software applications on PCs and compares programs to a database of
over 23,000 software programs. All software in the DateManager 2000 database has
been independently tested and the database is updated monthly. Users of
DateManager 2000 can rerun the software multiple times as they introduce new
software to their PC environment, thus allowing for continual assessment of the
PCs Y2K compliant software programs. Updates for DateManager2000 are provided
free of charge to users via the Internet. No portion of the cost of any updates
provided by the manufacturer is assumed by AXYN, and accordingly no concession
is granted to the customer by AXYN.
The Company entered into an exclusive distribution agreement for
DateManager 2000 covering Canada and the United States for five (5) years. The
Distribution Agreement requires the Company to pay 16% of gross revenues from
the sale of the software for all sales in the territory. The agreement requires
the Company to pay an annual support and maintenance fee of $10,000 for each of
Canada and the United States. The DataManager 2000 product is available on a
CD-ROM and through a downloadable version on its Web site for general
distribution.
The Company has entered into marketing agreements with other parties of
desktop tools. Under the terms of these marketing agreements, the Company has
the full rights to promote, market and sell any of the identified Y2K products
within its territories and to provide those same products to its network of
resellers. The network of resellers includes 16 resellers located throughout
Canada and three resellers located in the United States, and single resellers
located in East Africa, Chile, India, Turkey, England, Australia, New
Zealand, Tasmania, and Malaysia. The agreements with the resellers are
nonexclusive. The agreements terminate on December 31, 1999, or they may be
terminated on 30 days notice or immediately for cause. The Company may accept
purchase orders on a case by case basis and may change the terms from time to
time. The resellers are entitled to discounts ranging from 15% to 35% depending
on the volume of purchases. The Company's other PC and Network workstation tools
include DateManager Pro, Evolution 2000, Excelsior and Network 2000. The tools
are marketed as a suite of PC Y2K software tools to be distributed directly to
existing large clients, however, they are sold as individual tools. The parties
to the marketing agreements are: Business Computer Systems (BCS) and The Company
for DateManager Pro, Dark Star Systems and The Company for Excelsior, The Penton
Group and The Company for Evolution 2000, and NetSuite and The Company for
Network 2000. The Y2K desktop software tools are distributed by The Company to
its resellers who sell direct to their clients in their territories. Licenses
are sold to individual resellers upon receipt of purchase order requests that
are in compliance with the reseller agreement.
Sales of software products are also referred to as license sales. The
principal revenues are generated from the sale of software product licenses to
these Axyn reseller channels. The Company expects that sales of software will
peak as the year 2000 approaches. The Company has invoiced approximately $51,000
in license revenues during fiscal 1999 and expects such revenues to continue
with estimated sales between $50,000 to $150,000 up to the year 2000. The
Company and its resellers have not been dependent on a single or narrow customer
base, as most commercial and government enterprises have significant PC Y2K
risks. Management had anticipated much higher Y2K desktop sales for the period.
Interest in the products was high, evaluation of the Company's products against
competing products was usually favorable and yet this converted into only a
small number of relatively small sales. This experience was consistent with that
of a number of the Company's competitors as potential customers deferred
decisions and/or chose to follow less comprehensive approaches to address their
Y2K issues. The Company also suffers from not being recognized as a "name" brand
in the market place and some potential clients have chosen to buy from name
brand companies even though their products may be less effective.
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The Company has the full rights to promote, market and sell any of the
identified Y2K products within its territories and to provide those same
products to its network of resellers.
Y2K EMBEDDED SYSTEMS During the fiscal quarter ending June 30, 1999, the
Company completed the development of its AXYN Corporation Embedded Systems
("ACES") software that allows the Company's engineers to 1) inventory, 2)
assess, 3) recommend, 4) test, and 5) provide contingency plans for
organizations with embedded systems. The ACES is a testing based methodology.
ACES complies to the Institute of Electrical Engineers of the UK (IEE) and the
British Standard Institute definition for Y2K compliance, which is generally
accepted worldwide.
ACES evolved from initial work completed for the World Bank where the
Company, and its affiliate, Axyn Technologies Corporation, a Delaware
corporation, provided on-site per diem personnel to provide embedded systems
analysis to the World Bank's entire office complex including all structures in
the block bordered by 18th, 19th, H and G streets located in Washington DC,
totaling approximately five million square feet of office space. The Company and
Axyn Technology Corporation developed a database program that allows the
embedded systems program manager to collect data on facilities and potential
microprocessor devices and to apply risk priorities that are used to catalogue,
categorize and prioritize risks to organizations with embedded systems. The
World Bank headquarters embedded systems project was completed on June 30, 1999,
and the Company invoiced and subsequently received full payment for its
services. The value of this contract was $70,000. The Company was awarded a
contract by the United Nations, UN Operations Organization to assist the
Argentina Government in the setting up of contingency plans to deal with their
Y2K crisis. The World Bank in a non-related transaction also sponsored this
contract.
The Company acquired all of the outstanding stock of Axyn Technology
Corporation in the fiscal quarter ending June 30, 1999. See Part I, Item 7, and
Part II, Item 4.
In the fiscal quarter ending June 30, 1999, the Company bid and won a
supply contract with the Canadian Government giving the Company first rights of
refusal on the Y2K building assets of the Canadian government, coast-to-coast. A
Y2K building asset refers to the base building infrastructure such as fire alarm
systems, heating and ventilation, water supply, security alarms and access
controls. The Standing Offer contract call-up procedures instruct the government
to issue call-ups to "the highest ranked consultant". The Company was evaluated
number one by the Canadian government and as such is the highest ranked
consultant. Therefore the Company has the first right to either accept or refuse
any or all work contemplated under this standing offer contract. There were two
other firms ranked number 2 and number 3, who were also awarded standing offer
contracts. The Company is not subject to any periodic reevaluation in connection
with the standing offer contract.
While individual departments are required to complete assessments and
contingency plans, all departments coordinate these activities through a central
organization called Public Works and Government Services Canada ("PWGSC"). PWGSC
awarded the Company a blanket Supply Agreement with individual call-ups
(purchase orders) in amounts not to exceed $C200,000. While no ceiling amount
was set in this agreement, the Company expects that quarterly call-ups will
establish a baseline as to the number of buildings to be assessed and ongoing
backlog of work to be completed. The Canadian Government standing offer contract
is effective from May 13, 1999 through to May 12, 2001. Estimates of the
government of between 2,000 and 5,000 buildings at an average per building cost
of between $C5,000 and $C10,000 could generate demand in excess of $C5 million
should the government elect to undertake all of this work under the Company's
agreement.
The Company established a national team of over 700 engineers and
support technicians with help from nine subcontractors experienced with Year
2000 projects from coast-to-coast as part of the Company's plan to execute the
Canadian Government Standing Offer contract. The Company has established fixed
per diem consulting rates with all subcontractors who have also agreed to
maximum ceiling costs on a task by task call-up basis. This single contract is a
significant contract and the Company's reliance on
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PWGSC and the Canadian Government to undertake this work is critical to the
Company's revenue and earnings in the future. Work was initiated in June, 1999,
and while early in the contract cycle, the Company expects significant revenues
from the contract. The Company is responsible for program management, which
includes scheduling and coordination of all project tasks, contract work,
logistics and report coordination.
PWGSC received in excess of ten bids for this work. Two other Supply
Agreements were awarded but are subject to the Company having first rights to
complete any and all work, subject to the availability of resources and the
Company's track record in delivery of call-ups to date. Management of the
Company expect that the Company can undertake 200 buildings per month with its
existing team and the Company has identified other subcontractors that could
increase its delivery capacity to over 500 buildings per month. Gross margins on
Y2K embedded services are expected to exceed 30% for direct work and 25% on
subcontracted work. The Company is responsible for program management, which
includes scheduling and coordination of all project tasks, contract work,
logistics and report coordination.
The Company has established the Y2K embedded systems business during the
period and believes that revenues will continue to grow as building owners and
managers will seek to undertake Y2K assessments. Beyond the Year 2000, these
same owners will want to ensure that contingency plans are in place for both the
effects of Y2K and other potential building hazards such as losses from power
shutdowns and from environmental disasters such as floods, tornadoes and ice
storms.
In addition to the Company's Y2K business unit, the Company has
established additional business lines: Systems Integration; Mobile
Communications and Computing; and the Internet/e-Commerce business unit. These
are described below.
SYSTEM INTEGRATION - In November, 1998, the Company acquired Burlington
Systems Integration, a systems integration company with offices located in
Toronto, Canada. Established in 1993, Burlington Systems Integration provided
systems integration, network management, and hardware and software
implementation services to both public and private sector clients. As part of
the Company, the Toronto office of Burlington Systems Integration will oversee
the systems integration opportunities for the Company. As a complement to
systems integration, network management, and hardware and software
implementation services, the Company has established a hardware commodity
brokerage capability providing for the resale of high volume computer systems,
components and parts to large integrators and end-users seeking access to volume
buying channels. The Company maintains technical and sales reseller status with
leading technology suppliers and companies. Currently the Company has
established reseller relationships with Microsoft, IBM, Hewlett-Packard, Sun
Microsystems, Merisel, Ingram and Corel. These agreements are not material
contracts for the Company's operations. The Company maintains vendor specific
qualifications and is able to utilize these agreements to allow for product
updates, technology reviews and access to training programs that are vendor
specific.
MOBILE COMMUNICATIONS AND COMPUTING - In the 4th quarter, 1999, the
Company acquired a controlling interest in SYSCAN International through the
acquisition of 57.6% of the shares of SYSCAN International held by it's founder,
Mr. Daniel C. Benoit. SYSCAN is a manufacturer of mobile communications and
computing devices such as ruggedized printers, cradles for cellular
communication devices, GPS, data capture devices such as scanners and optical
readers, and specialized software for communications and routing of mobile
assets such as trucks and automobiles. SYSCAN, a public company on the Toronto
Canadian Dealing Network (CDN), symbol "SYSN", had completed development of a
number of products and sought a partner to provide, sales, marketing, and
financial support to launch its latest products. The Company seeks to develop
total turnkey solutions for large government and Fortune 500 clients who require
a solutions company to build systems to manage and control their mobile assets.
The Company's mobile communications and computing ("MC&C") business unit will
work with SYSCAN to leverage its competitive advantage, through its intellectual
property and expertise to build total solutions for the Company's worldwide
customer base. In the mobile communications and computing sector a turnkey
solution is a complete system of hardware and software delivered to the customer
ready-to-run.
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The Company has established a business plan to develop its mobile
communications and computing ("MC&C") business in fiscal year 2000 and expects
revenues from this business to be a significant portion of the Company's overall
revenues within three years. The Company will utilize existing sales channels to
develop MC&C solutions and will seek government, commercial and industrial
contracts in the areas of public safety and security, logistics, healthcare and
distance education sectors.
In discussion with SYSCAN's original equipment manufacturer ("OEM")
customers, the Company has established that traditional equipment suppliers to
MC&C markets, such as TELXON, PSION, NORAND/INTERMEC, TEKLOGIX and SYMBOL, seek
integrators to build "total solutions" for their customers. These OEMs have
strong customer loyalties and seek to apply the latest technology innovations to
gain competitive advantage for their products. The Company seeks to build on
these relationships to deliver unique "made by AXYN" solutions to satisfy the
need to utilize the latest MC&C hardware and software solutions. Existing
clients of SYSCAN and the Company's OEM customers include Coca Cola, Pepsi,
McDonalds, Bell, Wal-Mart, Giant Tiger, A & P, Randalls, Walgreens, Labatts and
others.
The Company believes that the accelerating growth in the MC&C market
offers the Company and its shareholders opportunities for growth in the future.
Many companies and service organizations are turning to mobile technologies to
improve performance levels and bottom-line cost-effectiveness. The MC&C field
demands the highly specialized capability to integrate new hardware devices that
take advantage of both existing and emerging wireless portals with the many new
software applications that will bring these new technologies together in the
everyday lives of an increasingly mobile workforce.
The Company's focus is on cutting edge MC&C technology applications
(utilizing wireless portal technology) requiring rugged, reliable solutions that
can withstand the extremes of distance, the environment and heavy use.
The Company's business plan also includes the provision of specialized
computer, communication and monitoring equipment to support both local and
remote asset management, including mobile assets found in vehicles, handheld
two-way digital paging systems, such as Research In Motion's data pager, and
portable electronic suitcase solutions.
NEW BUSINESSES.
The Company completed the purchase of three companies on June 30, 1999,
that provide an entry into the Internet and e-Commerce services business. The
Company acquired Le Groupe Mobitech, Inc., Profil CDI, Inc., and Services
Internet Quebec, Inc., all of which are Canadian corporations. The acquisitions
were completed as an exchange of stock between the Company and the shareholders
of the acquired companies. See Part II, Item 4 for more information about the
issuance of shares. The Company believes that the growth of Internet sales and
e-commerce provides new opportunities for the Company. A brief description of
each business follows:
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Le Groupe Mobitech Inc. is a Quebec based holding company that acquired
the business of Tandberg's Quebec operations in early June 1999. Tandberg is a
leading video conferencing manufacturer. The Company's acquisition of Mobitech
establishes Mobitech and the Tandberg sales and support business as part of the
Company.
Profil CDI is a Quebec company operating since 1995 providing Web based
multimedia design and consulting services. Profile CDI acts as a technology
partner to its clients, by offering complete, professional services in the
design of interactive presentations, design of commercial web sites, electronic
commerce and security transactions.
Services Internet Quebec is a Quebec company operating since 1997 as an
Internet Service Provider providing Web access, site hosting, secure e-commerce
transactions over the Internet, Web design services and consulting for Internet
and intranets.
Diversification of Business
The Company is not dependent on any one customer or group of customers,
any one business line or product, or any one economy. The Company has a broad
range of products and services in five primary market sectors in North America,
and through its resellers in many other parts of the world. However, the
Company's business plan calls for a significant increase in sales to its primary
markets. See Item 1, Risk Factors: "The Company Has No Assurance of Market
Acceptance Of Its Solutions, Products or Services" and "The Company Has No
Assurance That Its Marketing and Distribution Methods Will Be Successful".
Backlog of Orders
The Company currently has a backlog of orders of approximately $1.6
million. This comes from Syscan with a supply contract with TELXON Corporation
for approximately 2,500 ZFP-2 printers over the next 18 months in the amount of
$C1,710,000, and call-ups for Y2K work with the Canadian Government in the
amount of $C750,000.
Revenue Recognition Policies
Revenue from consulting, and other services is recognized at the time
such services are rendered. Revenue from software license sales are recognized
upon delivery, if collectability is assured. Revenue from maintenance or support
contracts is deferred and recognized ratably over the term of the contract.
Competition
The Y2K desktop and PC remediation tools market is very competitive with
large PC vendors such as COMPAQ re-branding and selling competing products.
Price and
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functionality are major competitive factors with Y2K software being sold as a
commodity software product. Competitors include Norton's Utility 2000, GMT's
Check 2000 and Check 2000 Pro, Viasoft and Platinum competitive offerings.
The Y2K embedded systems market is more focused on original equipment
manufacturers and engineering/facility managers with knowledge of the systems
typically found in buildings and in factories. In the US, Litton, Tava and
Raytheon are major competitors and in Canada Oerlikon, System 2000 and local
engineering companies compete with the Company.
The Company competes in the market for mobile communications and
computing solutions. Many players are now entering this sector. Some of note
include:
- - MSN Mobile is Microsoft's entry into the mobile software applications arena.
Microsoft acquired OmniBrowse Inc. in June 1999, a company developing
applications for handheld devices
- - Tegic Communications is a software developer of T9 and other software that
allows wireless devices to enter text and send and receive email, messages and
access to the web. Tegic has 60 employees and relationships with Ericsson,
Nokia, Motorola, Siemens Sony, Qualcomm and other license partners.
- - Riverbed Technologies is a developer of software applications for the mobile
workforce. Applications have been built for the exchange of mission critical
data, healthcare and asset management between mobile devices and servers to
allow for data synchronisation.
- - SnapTrack is a software developer providing a DSP interface to existing
handheld devices by providing software linked to a ground-based server for
locating a wireless caller. SnapTrack is more accurate, sensitive and
cost-effective than standalone GPS technology.
- - Saraide.com's technology allows consumers to connect e-mail and Internet data
to wireless devices such as phones, pagers and personal digital assistants.
- - Research in Motion has had two successful new mobile devices launched within
the last 12 months, "RIM" and their latest product "Blackberry". These devices
communicate to e-mail, pagers, faxes and Internet systems.
- - Descartes is a software developer building applications for the supply-chain
management sector.
The opportunity for the Company is not to compete directly with these
companies, but to build and supply products to them, build applications for
them, build solutions for clients that take advantage of their generic products
or provide the management and technical expertise to implement their products.
The market supports both direct sales to these product companies and
also allows the Company to provide solutions that build upon our knowledge of
the limits of mobile technology. This allows the Company to take a leadership
position in delivering advanced mobile solutions. The challenge is not the
technology; the challenge is generating value to our customers in using this
technology. This allows the Company to have a competitive advantage over other,
much larger wireless players such as AT&T who focus on a single wireless
component
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such as providing basic infrastructure. A number of companies are building the
pieces and the Company believes it can create value for wireless users by
identifying, integrating, and delivering value-added solutions.
Research and Development
The Company's recent acquisitions have been based in Quebec and as such
the Company now has a strong development capability in the province of Quebec.
Recently introduced incentives by the Quebec government, seeking to attract high
tech firms, provides an additional cost incentive for the Company. The Company
intends to utilize these incentives as appropriate.
Employees
The Company currently has 76 employees as follows:
<TABLE>
<S> <C>
AXYN Corporation 5
AXYN Technologies Corporation 4
AXYN Canada Corporation 20
Burlington Systems Integration 3
Syscan International 35
Mobitech/SIQ/Profil CDI 9
---
Total 76
</TABLE>
REPORTS TO SECURITY HOLDERS.
The Company has audited financial statements for its fiscal years ended
June 30, 1998. The Company regularly reports its unaudited quarterly reports to
market makers and provides copies to Standard & Poors and Dun and Bradstreet.
Upon effective date of the FORM 10 SB, the Company will send its audited
annual report to all shareholders of record. All SEC, NASD/NASDAQ and CDN/TSE
reporting requirements will be complied with and filed with EDGAR and SEDAR
electronic database services for public access.
The public is hereby authorized by the Corporation to read and make
copies of any materials filed with the SEC and may be reviewed at the SEC's
Public Reference Room at 450 Fifth Street, N. W., Washington, D.C. The public
may obtain information on the operations of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The Company also submits electronic filings of all
SEC documentation requirements and reports, and these can be accessed through
the SEC's Internet site (at http://www.sec.gov). The Company maintains corporate
information, press releases, investor relations information, products, services,
demo software and corporate contact information at its Internet site at
www.axyn.com.
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The Company provides its financial results in the form of consolidated
financial statements, audited for each fiscal period of operations and these
statements comply with United States generally accepted accounting principles.
Available Information
Prior to the effectiveness of this Registration Statement, the Company
has not been required to file periodic reports with the Securities and Exchange
Commission. Syscan International Inc. is a fully reporting company on the
Toronto Canadian Dealing Network (CDN) trading under the symbol: SYSN. Audited
statements for the past three years for Syscan are included immediately
following the financial statements of the Company.
RISK FACTORS
THE COMPANY INCURRED SIGNIFICANT OPERATING LOSSES.
For the year ending June 30, 1999, the Company incurred a loss of
$818,123 on a consolidated basis and a loss of $1,950,200 on a pro forma basis
as compared to a loss of $2,242 for the initial fiscal year from February 24,
1998 to June 30, 1998 which was the first five months ended June 30, 1998. There
can be no assurance that the Company will be able to generate sufficient
revenues to operate profitably in the future or to pay the Company's debts as
they become due. The Company is dependent upon successful completion of future
capital infusions to continue operations. See " Management's Discussion and
Analysis of Financial Condition" and "Financial Statements".
THE COMPANY MIGHT NOT BE SUCCESSFUL IN IMPLEMENTING ITS DOMESTIC AND WORLDWIDE
PROPOSED TRANSITION FROM Y2K AND EXPANSION.
The Company intends to transition from the provision of Y2K products and
services to the provision of products, services and solutions in the mobile
communications and computing, control centers, Internet and e-Commerce and
systems integration and expand its operations domestically and internationally;
however, the Company has limited experience in effectuating rapid expansion or
in managing operations which are geographically dispersed. There can be no
assurance the Company's current management, personnel and other corporate
infrastructure will be adequate to manage the Company's growth. Expansion
internationally will require business relationships outside North America who
will provide capital and personnel to fund the operations internationally. There
can be no assurance business partners will perform its contemplated duties in
Europe and will be able to raise the capital and employ the personnel required
to successfully implement worldwide operations. Accordingly, there is
significant risk that the Company will not be able to meet its goal of
substantial domestic and international expansion within the next twelve months.
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THE COMPANY LACKS A LONG OPERATING HISTORY.
The Company has a limited operating history upon which an evaluation of
the Company can be based. The Company's prospects are subject to the risks,
expenses and uncertainties frequently encountered by companies in the new and
rapidly evolving markets for Internet, communications and computer systems. In
addition, the Company will be subject to all of the risks, uncertainties,
expenses, delays, problems and difficulties typically encountered in the growth
of an emerging business and the development and commercialization of new
products. There can be no assurance that unanticipated expenses, problems or
technical difficulties will not occur which would result in material delays in
product commercialization or that the Company's efforts will result in
successful product commercialization.
THE COMPANY MAY HAVE INSUFFICIENT CAPITAL FOR FUTURE OPERATIONS.
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that current cash reserves, together
with projected cash inflow from operations and access to debt financing, will be
sufficient to satisfy its contemplated cash requirements for the next fiscal
year. The expansion of operations through acquisitions and expanded requirements
for research and development relating to new product development will require
substantial financial funding. The failure to acquire additional funding when
required will have a material adverse effect on the Company's business
prospects. Delays in funding will delay new product development and acquisitions
postponed until sufficient capital resources are in place to meet expected cash
requirements. The Company currently has an established line of bank credit but
additional acquisitions and growth in contracts will necessitate increases to
these lines of credit. As the Company grows financing of contracts and
receivables will become critical to its growth. Changes in the economy
generally, or in the mobile communications and computing and the electronic
commerce field in particular, might make financing of customer contracts
unavailable, or if available, at unfavorable rates. Without the proper financing
of customer contracts by a finance company, the Company is likely to have
difficulty in funding its on-going operations.
THE COMPANY HAS NO ASSURANCE OF MARKET ACCEPTANCE OF ITS PRODUCTS.
The Company is at an early stage of growth and its earnings growth
depends primarily upon market acceptance of its products and services, including
the Y2K products, MC&C systems, Internet and electronic commerce services and
solutions and systems integration solutions. There can be no assurance that the
Company's product and service development efforts will progress further with
respect to any potential new products and services or that they will be
successfully completed. In addition, there can be no assurance that the
Company's potential new products will be capable of being produced in commercial
quantities at reasonable costs or that they will achieve customer acceptance.
THE COMPANY HAS NO ASSURANCE THAT ITS MARKETING AND DISTRIBUTION METHODS WILL BE
SUCCESSFUL.
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There can be no assurance that the Company's products will be
successfully marketed. The Company is dependent on value-added resellers, VARs
and distributors (business partners) in addition to its direct sales force to
market its products and services. There is no assurance that the Company's
business partners will be successful in marketing the Company's products and
services.
The Company's success is dependent in part on its ability to sell its
products to governmental agencies, including police forces, healthcare
organizations, educational institutions, and large business organizations.
Selling to governmental agencies and larger companies generally requires a long
sales process, with multiple layers of review and approval. Often non-business
factors enter into the decision to purchase products. Such factors might include
the residence and origin of the supplier of the products, the nature of the
supplier and the distributor, the ethnic and gender characteristics of personnel
and owners of the Company selling or distributing the products, political and
other contacts, and other peculiar factors. Accordingly, the success of selling
to these potential customers is uncertain.
The Company does not have sufficient experience in marketing its
products to determine the optimum distribution methods. Accordingly, the Company
might be in a position requiring change in its sales, distribution, and
marketing strategies and implementation.
THE COMPANY IS DEPENDENT ON SUCCESSFUL NEW PRODUCTS AND PRODUCT ENHANCEMENTS
INTRODUCTIONS AND MAY SUFFER PRODUCT DELAYS.
The Company's success depends on, among other things, the timely
introduction of successful new products and services or enhancements of existing
products to replace declining revenues from products at the latter stage of a
product cycle. Consumer preferences for software products are difficult to
predict, and few consumer software products achieve sustained market acceptance.
If revenues from new products or enhancements do not replace declining revenues
from existing products, the Company's business, operating results and financial
condition could be materially adversely affected. The process of developing
software products and electronic and communications systems such as those
offered by the Company is extremely complex and is expected to become more
complex. A significant delay in the introduction of one or more new products or
enhancements could have a material adverse effect on the ultimate success of
such products and on the Company's business, operating results and financial
condition.
THE COMPANY MUST DO BUSINESS IN A DEVELOPING MARKET AND FACE NEW ENTRANTS
The market for Wireless and Internet products and solutions is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed products and services. The diverse segments of the
Internet market might not provide opportunities for more than one supplier of
products and services similar to those of the Company. It is possible that a
single supplier may dominate one or more market segments.
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THE COMPANY FACES FORMIDABLE COMPETITION
The Company competes with many other Y2K, mobile communications and
computing, Internet and electronic commerce and systems integration providers.
The Company will face competition from numerous sources including communications
and computer companies, software houses, manufacturers, integrators and others
with the technical capabilities and expertise which would encourage them to
develop and commercialize competitive products and services. Certain of such
competitors have substantially greater financial, technical, marketing,
distribution, personnel and other resources than the Company. Increased
competition, resulting from, among other things, the timing of competitive
product releases and the similarity of such products to those of the Company,
may result in significant price competition, any of which could have a material
adverse effect on the Company's business, operating results or financial
condition. Current and future competitors with greater financial resources than
the Company may be able to carry larger inventories, undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and make higher
offers or guarantees to software developers and co-development partners than the
Company. There can be no assurance that the Company will have the resources
required to respond effectively to the market or technological changes or to
compete successfully with current or future competitors or that competitive
pressures faced by the Company will not materially and adversely affect the
Company's business, operating results or financial condition.
THE COMPANY MIGHT BE OVERTAKEN BY TECHNOLOGICAL CHANGE WHICH COULD MAKE THE
COMPANY'S PRODUCTS AND SERVICES OBSOLETE.
The markets for mobile communications and computing, Internet and
electronic commerce products and services are characterized by rapidly changing
technology which results in product obsolescence and short product life cycles.
Accordingly, the Company's success is dependent upon the ability of the
subsidiaries to anticipate technological changes in the industry and to
conditionally identify, obtain and successfully market new products and services
that satisfy evolving technologies, customer preferences and industry
requirements. There can be no assurance that competitors will not market
products and services which have perceived advantages over those of the
subsidiary or which render the subsidiary's products and services obsolete or
less marketable.
THE COMPANY MIGHT BE SUBJECT TO GOVERNMENT REGULATION WHICH COULD HARM THE
COMPANY'S PROSPECTS.
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The Company is not currently subject to direct regulation by any
government agency in the United States, other than regulations applicable to
businesses generally, and there are currently few laws or regulations directly
applicable to access to or commerce on the Internet. Due to the increasing
popularity and use of the Internet, it is possible that laws and regulations may
be adopted with respect to the Internet, covering issues such as user privacy,
pricing and characteristics and quality of products and services. For example,
although the Communications Decency Act was held to be unconstitutional, there
can be no assurance that similar legislation will not be enacted in the future.
Such laws or regulations could also limit the growth of the Internet, which
could in turn decrease the demand for the Company's proposed products and
services and increase the Company's cost of doing business. Inasmuch as the
applicability to the Internet of the existing laws governing issues such as
property ownership, libel and personal privacy is uncertain, any such new
legislation or regulation or the application of existing laws and regulations to
the Internet could have an adverse effect on the Company's business and
prospects.
THE SUCCESS OF THE COMPANY IS DEPENDENT ON EXECUTIVE OFFICERS AND KEY MANAGEMENT
PERSONNEL
The Company's success is dependent upon the continued contributions of
its executive officers and key management personnel in the subsidiary, many of
whom would be difficult to replace. The success of the Company is also dependent
upon its ability to hire and retain additional qualified management, marketing,
technical, financial and other personnel. Competition for qualified personnel is
intense and there can be no assurance that the Company will be able to hire or
retain qualified personnel. Any inability to attract and retain qualified
management and other personnel could have a material adverse effect on the
Company.
THE COMPANY MIGHT FACE LIABILITY FOR INFORMATION SERVICES.
Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company and may be subsequently distributed to
others, there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement, personal injury or
other theories based on the nature and content of such materials. Such claims
have been brought, and sometimes successfully pressed, against online service
providers in the past. The Company's general liability insurance might not cover
potential claims of this type or might not be adequate to indemnify the Company
for all liability that may be imposed. Any imposition of liability or legal
defense expenses that are not covered by insurance or in excess of insurance
coverage could have a material adverse effect on the Company's business,
operating results and financial condition.
AUTHORIZATION OF PREFERRED STOCK ALLOWS THE COMPANY TO ISSUE PREFERRED STOCK
WITHOUT THE INVESTORS' CONSENT.
The Company's Board of Directors is authorized to issue up to 1,000,000
shares of preferred stock without any need for approval of shareholders. The
Board of Directors has the power to establish the dividend rates, liquidation
preferences and voting rights of any series of preferred stock and these rights
may be superior to the rights of holders of the Common Stock.
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The Board also may establish redemption and conversion terms and privileges with
respect to any shares of preferred stock. The issuance of any shares of
preferred stock having rights superior to those of the Common Stock may result
in a decrease in the value or market price of the Common Stock, should such a
market develop, and could be used by the Board as a device to prevent a change
in control of the Company.
ELIMINATION OF DIRECTOR LIABILITY MAY INSULATE DIRECTORS AGAINST LIABILITY FOR
ACTIONS.
The Company's Articles of Incorporation contains a provision eliminating
a director's liability to the Company or its stockholders for monetary damages
for a breach of fiduciary duty, except in circumstances involving certain
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
The Company's Bylaws contain provisions obligating the Company to indemnify its
directors and officers to the fullest extent permitted under Colorado law. While
the Company believes that these provisions will assist the Company in attracting
and retaining qualified individuals to serve as directors, they could also serve
to insulate directors of the Company against liability for actions which damage
the Company or its stockholders.
THE COMPANY WILL PAY NO DIVIDENDS TO THE INVESTORS.
The Company has not paid and does not expect to pay any dividends in the
foreseeable future.
MANY SHARES WILL BECOME ELIGIBLE FOR FUTURE SALE, WHICH MIGHT ADVERSELY AFFECT
THE MARKET PRICE FOR THE SHARES.
As of June 30, 1999, 10,530,000 shares became eligible for trading under
Rule 144 promulgated under the Act. Restricted shares are those shares issued
without being registered with the SEC. Such shares may not be resold unless an
exemption is available, or unless the requirements of Rule 144 are met. Of these
shares, 8,803,408 shares are held by directors, officers, or 10% shareholders.
10% shareholders are shareholders who have beneficial ownership of 10% or more
of the outstanding shares, including shares subject to an option held by them.
3,117,000 144 eligible shares and 1,782,033 free trading shares are held by
other shareholders. The Company has issued 612,033 shares of the Company's
Common Stock pursuant to the exemption from registration provided under Rule 504
promulgated under Regulation D of the Securities and Exchange Act of 1933, as
amended (the `Act') (`Rule 504"). Ninety days after this Form 10 Registration
Statement becomes effective, the shares held by the nonaffiliate shareholders
will become eligible for trading, subject to the volume limitations and other
applicable limitations of Rule 144. The Company is unable to predict the effect
that sales of such shares may have on the then prevailing market price of the
Common Stock. Nonetheless, the possibility exists that the sale of these shares
may have a depressive effect on the price of the Company's Common Stock.
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THE COMPANY WILL REMAIN IN THE CONTROL OF PRESENT SHAREHOLDERS.
The officers and directors are the largest shareholders of the Company
and have in the aggregate beneficial ownership of 70.2% of the outstanding
shares of Common Stock of the Company, and 60.4% of shares on a fully diluted
basis. These shareholders are described under `Item 4 ` Security Ownership of
Certain Beneficial Owners and Management'. The Company does not have cumulative
voting in the election of directors; and the minority shareholders will not be
able to elect any director to the Company's Board of Directors.
ANTI-TAKEOVER PROVISIONS MAY THWART TAKE-OVER OR ACQUISITION OFFERS WHICH
INVESTORS MIGHT OTHERWISE WISH TO ACCEPT.
The Company's Board of Directors can, without obtaining shareholder
approval, issue shares of Preferred Stock having rights that could adversely
affect the voting power of the Common Stock. The possible issuance of shares of
Preferred Stock can be used to oppose hostile takeover attempts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This Item contains forward-looking statements. Please review the
information in light of the risk factors and other cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements.
PLAN OF OPERATION
OVERVIEW
The Company derives its revenues through its operating subsidiaries, ACC
and Axyn Technologies Corporation from the sale of software licenses and
services to provide Y2K solutions to its clients, and from the sale of
integrated computer, communications and software solutions.
The Company's products and services are marketed through a direct sales
force located in Ottawa and Toronto, Canada and through business partners,
distributors and resellers in Canada, the US, Europe, Australia, South America
and Africa
The Company anticipates a continued demand for Y2K products and services
particularly relating to personal computers, embedded systems and contingency
planning through the end of 1999 and continuing beyond the year 2000. As such
the Company will continue sales and product support activities with an expected
reduction in demand towards the end of the year. Much of the Company's Y2K
business is to well-established clients through government standing offers or
open contracts. The Company's Y2K business is structured to operate with a small
core staff and the Company does not
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anticipate such staff dislocation or cost impact with the diminishing volume of
Y2K business.
To date the Company has invested in the development and support of
technology and products to support its Y2K business. These investments include:
Date Overloading - a process to assist tools vendors in fixing
legacy code for multi-language and multi-platform applications.
DateTool for COBOL - a remediation tool available to assist end
users with software code remediation
DateManager 2000 - a personal computer software Y2K compliance
assessment tool
ACES - The Company's Embedded Systems methodology and supporting
data base tool.
DateManager and ACES are the basis for the Company's desktop and
embedded systems business and will continue to be supported as long as demand
for product and services continue.
The systems integration business was acquired in November 1998. Since
then it has delivered integrated computer solutions to support government and
commercial clients in Toronto and Ottawa. This unit is also providing
professional services for software development, system and network installation
and testing. Since the acquisition, the Company has reinforced the relationships
with key suppliers and has established new relationships with suppliers for
computer components such as memory chips. The Company anticipates growth in
sales from both integrated solutions and computer components in the next fiscal
year.
Over the next 12 months the Company anticipates an increase in staff of
15 of which it is likely that 9 will be full time staff and 6 will be term
employees and 14 of the 15 will be employed to support new contracts.
To date the business has been financed through the proceeds from the
sale of the Company shares and from shareholder loans to the Corporation. As
workload increases, there will be a need for bank financing to support the
Company's working capital needs and steps will be taken to secure financing
against firm contracts and receivables.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FULL FISCAL YEAR
The results for the first fiscal year were for the period from February
24, 1998 (inception) to June 30, 1998. During this period the Company was
primarily a research and development company. The Company developed and applied
for a patent on the Date Overloading algorithm, acquired Date Arithmetic
Remediation Technology (D.A.R.T) and
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the associated DATETOOL for COBOL from the Monroe Group and started the
assessment of methodologies, tools and factories to form the foundation for the
Company's Y2K business. The Company prepared marketing materials and developed a
Web site to support the business. Market research was started to determine
market size and opportunity for the Company in the Y2K business.
The statements for the period ended June 30, 1998, show no revenues and
a loss of $283,706 or $0.02 per share and principal liquid resources comprising
cash and receivables of $154,721. These results were in line with management's
expectations at the time.
In the first half of fiscal 1999 from July 1, 1998 to December 31, 1998,
the Company focused on Y2K desktop and embedded systems.
For the Y2K desktop business the Company assessed and tested products to
support personal computer and network hardware and software Y2K assessment and
the remediation of common desktop software packages. Distribution agreements
were negotiated for the following products:
- - DateManager 2000 for software application Y2K assessment;
- - PCAP (renamed DateManager Pro) for software application Y2K assessment and
inventory management;
- - Evolution PC 2000 for PC hardware Y2K assessment and remediation;
- - Network 2000 for data communications network hardware, software and firmware
Y2K assessment; and
- - Excelsior for the assessment and automated remediation of Microsoft Excel work
books.
The product suite was selected and agreements were finalized by December
1998.
During this period, the Company established the basis for its Y2K
product reseller network with resellers and businesses in Canada, the US,
Europe, India and Australia.
The Company recognized the opportunity to support public and private
enterprises in the inventory, assessment, remediation and testing of embedded
systems. The Company developed a methodology and started the development of the
necessary supporting tools for Y2K embedded systems projects. The development
was done in parallel with, and in support of, the embedded systems assessment
and testing of the World Bank facilities in Washington, DC.
In November 1998, the Company acquired Burlington Systems Integrators,
Inc. a systems integration company based in Toronto, Canada. This gives the
Company the experience, expertise and track record to provide computer and
communication system solutions for business applications. Burlington is
continuing to pursue its traditional business while providing services to
support the Company's Y2K customers in the Toronto region.
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In March, 1999, the Company launched its marketing and sales campaign
for Y2K products and embedded systems services and continued to build the
systems integration business.
The Company developed marketing materials for each Y2K desktop product
and a mailer that included a CD with each of the Company's desktop products and
the associated manuals and product specifications. An experienced
product-marketing manager was added to develop the new Web site and put in place
an electronic commerce system to purchase the Company's desktop products over
the Internet. Sales staff were added to make direct sales to larger customers
and to put in place additional distribution agreements with businesses for
indirect sales. A training manager was added to develop comprehensive training
packages for each product and to train businesses and customers.
Development of ACES, the Company's embedded systems methodology and
supporting database tool, continued and formed the foundation for the Company's
embedded systems service offering.
Milestones achieved during this period include:
- - The Company signed Computer World Services (CWS) as the lead business
partner for product sales to the US federal government. CWS is also listing the
Company products on its GSA (General Supply Agreement)) schedule to make it
easier for government departments to purchase them. The Company has received no
revenues from this agreement at this time.
- - The Company released Version 4.0 of DateManager 2000 that now determines the
compliance for over 23,000 software applications in over 30 languages.
- - New Brunswick Power Corporation contracted with the Company for planning and
training service.
The Company submitted proposals either directly or in support of the
Company's resellers for a number of large programs including:
- - Public Technologies Inc., a company representing state, county and city
governments across the United States for desktop and embedded systems products
and services.
- - The State of Colorado for desktop products and services.
- - Air Touch, Inc., for the Company's Excelsior tool to remediate Excel
workbooks.
The Company's products and services were selected in each of the above
competitions and the Company's products are authorized for use by each of these
organizations. No orders have been received at this time.
During the year ended June 30, 1999, revenues increased to $465,361 and
the Company incurred a
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loss of $818,123 or $.05 per share.
The Company completed a private placement under the terms of Regulation
D 504 private placement raising $847,250.
Management had anticipated much higher Y2K sales for the period.
Interest in the products was high, evaluation of the Company's products against
competing products was usually favorable and yet this converted into only a
small number of relatively small sales. This experience was consistent with that
of a number of the Company's competitors as potential customers deferred
decisions and/or chose to follow less comprehensive approaches to address their
Y2K issues. The Company also suffers from not being recognized as a 'name' brand
in the market place and some potential clients have chosen to buy from name
brand companies even though their products may be less effective.
Looking forward, management anticipates a modest increase in revenues
in FY 2000. This growth will come from:
- - The National Individual Standing Offer with Public Works Canada for embedded
systems work for Canadian Government owned buildings across Canada. This work
has started and initial assignments include work for Health Canada, RCMP,
National Research Council and Public Works and Government Services Canada.
- - Consolidated revenues from recent acquisitions; and
- - Increase in sales of integrated systems and related services. Additional sales
staff have been added and supplier relationships established to position the
Company to build this business.
Although the Company's business is not seasonal, the Y2K business is
finite and will decline quickly in the year 2000. The Company is repositioning
the business to take advantage of the growth of other technology fields. The
focus is shifting to mobile communications and computing and electronic
commerce.
REVENUES
Revenues increased to $465,361 on a consolidated basis over sales of
$2,242 during the previous period and on a pro forma basis sales during the
period were $4,062,302 over pro forma sales of $3,996,665 in fiscal 1998.
Revenue is derived from the licensing of software and the provision of
related services, which include product support, consulting and other services.
The Company generally licenses software and provides services subject to terms
and conditions consistent with industry standards. Revenue in the amount of
$364,361 is derived from service, $51,000 from licensing and $50,000 from
product sales. On a pro forma basis, sales of Syscan's mobile solutions and
mobile printers contributed to its sales increase.
COST OF SALES
Cost of sales during the period were $138,512 on a consolidated basis and
$2,540,805 on a pro forma basis, which included $2,402,293 for Syscan. The
consolidated cost of sales increased from $0 in 1998 as a result sales from the
Company's year 2000 efforts during the period. The cost of sales includes direct
costs associated with selling Y2K software items and direct costs of labor to
deliver Y2K embedded systems consulting services. In the case of Syscan the cost
of sales reflects a gross margin of 23.2% on sales of mobile solutions and
mobile printers.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses consist primarily of costs
associated with the accounting and human resources needs, professional expenses,
leasing of facilities, insurance, legal, depreciation expenses, and payroll. The
General and Administrative expenses from July 1, 1998, to June 30, 1999, were
$1,026,085 on a consolidated basis over $287,556 on a consolidated basis in the
previous period and $1,759,556 on a pro forma basis in the previous period. The
Company was in start-up mode in fiscal 1998 and the results reflect only costs
for 5 months of operation. In the current fiscal year costs increased as a
result of hiring additional staff in pursuit of new contracts relating to Year
2000 business.
Sales and Marketing expenses consist primarily of hiring sales staff, web
site development, marketing materials, e.g., brochure development and printing
costs, and hiring marketing staff.
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Selected Financial Data
Set forth below are selected financial data for the Company from
February 24, 1998 (inception) to the end of fiscal 1999 (June 30,
1999).
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED CONSOLIDATED
July 1, 1998 July 1, 1998 Feb. 24, 1998
to June 30, to June 30, to
1999 1999 June 30, 1998
------------ ------------ -------------
<S> <C> <C> <C>
Net Sales $ 4,062,302 $ 465,361 $ 2,242
Income (loss) from operations $(1,950,200) $ (818,123) $ (283,706)
Loss per share (0.13) (0.05) (0.02)
Total Assets $ 6,633,180 $ 6,633,180 $ 162,835
Total Current Assets $ 2,263,851 $ 2,263,851 $ 154,721
Long Term Liabilities $ 6,359 $ 6,359 0
Cash Dividends 0 0 0
</TABLE>
The Company's Common Stock trades in the over-the-counter market on the
Electronic Bulletin Board ("EBB") under the symbol "AXYN" (previously "TMPG").
The Company's EBB listing resulted from a reverse share exchange consummated on
June 18, 1998 between ACC and Thor Management Group, Inc. ("Thor"), the EBB
listed company. As a result of the transaction, Thor acquired all of the
outstanding Common Stock of ACC and Thor changed its name to AXYN Corporation.
Results Of Operations
Set forth below are key financial data on the Company's operations
showing consolidated and pro forma results for fiscal 1999 and 1998.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA CONSOLIDATED CONSOLIDATED
July 1, 1998 July 1, 1997 July 1, 1998 Feb. 24, 1998
to June 30, to June 30, to June 30, to
1999 1998 1999 June 30, 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenue $ 4,062,302 $ 3,996,665 $ 465,361 $ 2,242
Cost of Sales $ 2,636,738 $ 2,645,280 $ 138,512 $ 0
Gross Profit $ 1,425,564 $ 1,351,385 $ 326,849 $ 2,242
Selling, G&A and Other expenses $ 3,536,154 $ 1,759,896 $ 1,026,085 $ 287,556
Net Loss (Basic and Diluted) $(1,950,200) $ (221,481) $ (818,123) $ (283,706)
Loss per share $ (0.13) $ (0.01) $ (0.05) $ (0.02)
</TABLE>
GOODWILL
------------
The Company acquired Goodwill of $4,160,760 during the period. Goodwill is
the difference between the price the Company paid for each acquisition less the
fair value of the identified assets purchased. In determining the basis of
valuation the Company has determined that no proprietary technology has been
acquired for Burlington, SIQ, Profil CDI or Syscan. Goodwill arising from
acquisitions will be amortized over a 3 to 10 year period.
CAPITAL RESOURCES
The Company has not generated net cash from its operations since
inception. In fiscal 1999 the Company used $877,716 in its operations and
invested $244,679 in acquisitions and the purchase of fixed assets. The Company
had an opening cash position of $142,175 and raised $931,509 from financing
activities including the issuance of common and preferred stock and additional
shareholder loans. In fiscal 1998 the Company used $131,218 in its operations up
to June 30, 1998 and raised $279,778 from financing activities including the
issuance of common stock and from shareholder loans. At June 30, 1999 the
Company was in debt by a bank overdraft of $43,703. As noted earlier the Company
has funded its operations primarily through sales of Year 2000 products and
services, systems integration product and services sales, private sales of
equity securities, and loans from shareholders.
LIQUIDITY
The Company has principal liquid resources, comprising cash, receivables
and inventory of $2,188,680 as of June 30, 1999. During the period the Company
raised $918,288 from the sale of securities and $687,096 from shareholder
convertible loans to finance its operations.
Depending on the amount and timing of future sales and receipts, the
Company will seek to raise additional capital during FY2000. The Company has
filed a Form 10-SB with the SEC and will be seeking a listing on the Smallcap
market when it satisfies all requirements of the NASDAQ.
The Company will address the issue of funding for the various business
units acquired in subsequent business plans. Different and varied approaches
will be adopted as needs vary and the nature of the business units will vary.
Syscan has an established line of credit of $220,300 of which $49,418 was
unused as of June 30, 1999. Interest is determined at the time of borrowing
based on the bank's prime rate plus 0.75%. The loan is secured by Syscan's trade
receivables and inventory. The Company has set a number of short-term objectives
for Syscan. These include the hiring of a new President and CEO, hiring a Chief
Operations Officer, additional sales staff and an upgrade to internal reporting
systems. Syscan has a good order backlog in excess of $1.5M and will establish
contract and inventory financing programs to fund operations.
The high level of accounts receivable and inventory relate to Syscan
operations. During the period ending June 30, 1999, Syscan initiated the
manufacture of sufficient printer inventory to satisfy a contractual
requirement to deliver 1,400 units in November 1999. These units require six
months lead time to manufacture.
The Company has established internal procedures to assess credit risks.
Historically the Company has not experienced any bad debt and as such has not
established any allowance for bad debt. The Company does not have a
concentration of credit risk due to the wide number of clients and markets that
it operates in.
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IMPACT OF ACQUISITIONS
The Company completed the purchase of three companies on June 30, 1999.
The Company acquired Le Groupe Mobitech, Inc., Profil CDI, Inc. and Services
Internet Quebec, Inc., all of which are Canadian corporations. As June 30, 1999
was the last day of fiscal 1999, no operating results for these acquisitions
have been included in the audited consolidated financial statements. The
year-end June 30, 1999 audited financial statements provide pro forma quantified
detail (see note 6 of the Financial Statements) of the various acquisitions on
operating results.
In a subsequent event the Company received an offer to purchase its two
Internet companies, Profil CDI, Inc. and Services Internet Quebec, Inc., and has
signed a letter of intent to sell its two e-Commerce subsidiaries. The Company
expects to integrate into its Systems Integration business unit the group video
conferencing capabilities resident in Le Groupe Mobitech, Inc.
On June 30, 1999 the Company also completed the purchase of a controlling
interest in SYSCAN International through the acquisition of 57.6% of the shares
of the Corporation held by its founder, Mr. Daniel C. Benoit. Syscan is located
in Montreal, Quebec, and manufactures mobile printers and other computer
hardware and also develops software for mobile computing applications. The
shares of Syscan have been acquired in exchange for $225,000, 1,300,000 common
shares of the Company and a non-interest bearing note for $616,500 payable in
cash or shares of the Company in two installments in July and September 1999.
The 1,300,000 shares of the Company are to be held in escrow by the Vendor's
lawyer and will be released as to 1/3 on May 19, 2000, 1/3 on May 19, 2001 and
1/3 on May 19, 2002. The Company shares were issued in a structure that matched
the release of Syscan escrow shares to the Company. This structured release
matched the Ontario Securities Commission (OSC) escrow provisions that were
pre-existing on the Syscan shares held by the founder, Mr. Benoit. No conditions
were placed on the release of the shares outside of the passage of time. The
year-end June 30, 1999 audited financial statements provide pro forma quantified
detail (see note 6 of the Financial Statements) of the Syscan International
acquisition on operating results. Management anticipates growth from sales of
rugged mobile printers into the police and public safety markets from its
investment in Syscan International. When these sales occur management will seek
additional financing to manage cash flow requirements. The Company expects to
finance contracts in hand initially with debt financing and additional equity
financing.
The Company believes that the acquisitions will require additional
investment for expansion resulting from the hiring of sales and management staff
and with the expected increase of sales, additional financing to manage the cash
flow needs of each business.
The Company expects to continue to seek out acquisitions that complement
its existing lines of business. Specific acquisitions will also be targeted that
allow the company to gain better entry into existing and new markets. The
Company has identified both the US and European markets as targets for future
acquisitions. To fund these acquisitions, the Company anticipates that it will
raise capital through the sale of securities and through debt financing.
U.S. GAAP VERSUS CANADIAN GAAP RELATING TO SYSCAN INTERNATIONAL
The acquisition of Syscan International, a Canadian manufacturing,
research and development company resulted in the Company reporting Syscan
results under US GAAP accounting rules. In Canada, some costs associated with
R&D can be capitalized as Deferred Charges on the Balance Sheet showing as an
asset on the financial statements and expensed over a period of time. Under US
GAAP, these costs are expensed immediately thus materially changing the
interpretation of the Syscan results depending on which country's GAAP rules are
being applied. The net effect is that approximately $489,465 of R&D was expensed
resulting in an increase in the net loss reported for Syscan under US GAAP.
Year 2000 Compliance.
The Company has established a formal program to address any potential
Y2K compliance issues relating to its internal operating systems, products,
distributors, resellers and vendors. The Company is currently reviewing all of
its major internal operating systems and is continuing to monitor any new
additions to its internal operating systems
Page 22
<PAGE> 23
for Y2K compliance. Substantially all of the Company's internally-developed
products have been designed and tested to satisfy the Company's Y2K
specifications. The Company is currently reviewing the status of its
distributors, resellers and vendors with regards to Y2K compliance. The cost of
the Company's Y2K compliance program is not expected to have a material effect
on the Company's results of operations or liquidity. However, there can be no
assurance that the Company will not experience material adverse consequences in
the event that the Company's Y2K compliance program is not successful, or its
distributors, resellers or vendors are unable to resolve their Y2K compliance
issues in a timely manner.
The Company has purchased or procured its essential equipment,
software, systems, and inventory within the past 18 months. The Company has
sought and received confirmation from its key third-party suppliers and vendors
that the hardware, software, products, and services furnished by these vendors
are Y2K compliant. In addition, the vendors of the Company's own internal
network, computers, accounting, and other systems have assured the Company that
their products are Y2K compliant.
The worst case for the Company with respect to Y2K compliance would be
the failure of common services such as electrical supply, water supply, data or
voice communications or other common services that may disrupt the Company's
ability to provide services and products. For the Company, the consequences
could be that customers will refuse to pay for the Company's services and
products and the Company will suffer a decline in revenues. Costs would go up as
the Company would seek to mitigate its problems. The Company could lose its
goodwill, reputation for reliability, and some or all of its customer base.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company does not own any materially important physical properties.
The Company leases its headquarters under the terms of a commercial lease for
office space. The lease term is on a month by month basis with a 90 day notice
period requirement for termination. The Company could move its headquarters
without any material adverse affect on the Company. The Company does not intend
to make any investment in real property, either directly or in securities
relating to real property.
The Company has entered into several standard equipment leases.
The minimum amount of future annual lease payments for realty for
Burlington is $24,000 per annum until February 28, 2000. For the period ended
June 30, 1999 rent in the amount of $14,000 was paid. Burlington has also
entered into operating leases on two vehicles. Future minimum payments under
these leases for the year 2000 are $2,747.
The minimum future annual lease payments for SIQ is $28,800 per annum
until February, 2004.
Axyn Canada Corporation has entered has entered into operating leases for
premises, vehicles and computers. Future aggregate minimum payments under these
leases are as follows:
<TABLE>
<CAPTION>
$
- ------------------------------------------------------------------
<S> <C>
2000 59,326
- ------------------------------------------------------------------
2001 39,171
- ------------------------------------------------------------------
2002 32,335
- ------------------------------------------------------------------
2003 28,800
- ------------------------------------------------------------------
2004 19,200
- ------------------------------------------------------------------
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 30, 1999, the ownership of
the Company's Common Stock by (i) each director and executive officer of the
Company, (ii) all executive officers and directors of the Company as a group,
and (iii) all persons known by the Company to beneficially own more than 5% of
the Company's Common Stock.
Page 23
<PAGE> 24
<TABLE>
<CAPTION>
SERIES 1
COMMON PREFERRED
SHARES SHARES
AMOUNT AND AMOUNT AND COMMON
NATURE OF PERCENT NATURE OF PERCENT SHARES PERCENT
BENEFICIAL OF CLASS BENEFICIAL OF CLASS FULLY OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF TOTAL OWNERSHIP(1) OF TOTAL DILUTED(7) OF TOTAL(8)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHRIS-MATTHEW ZAWITKOWSKI, 1,705,002(2) 11% 100,000 20% 2,005,002 12%
1122 North Stanford Dr., (Founder)
Simi Valley, CA 93065 USA
- -----------------------------------------------------------------------------------------------------------------------------------
DOUGLAS SCOTT FEAGAN, 2,792,925(3) 18% 120,000 24% 3,152,925 19%
38 Grandview Road, (Founder)
Nepean, Ontario Canada K2H 8B3
- -----------------------------------------------------------------------------------------------------------------------------------
JANUSZ WACLAW RYDEL, 1,702,002(4) 11% 100,000 20% 2,002,002 12%
26 O'Hara Drive, (Founder)
Kanata, Ontario Canada K2W 1A2
- -----------------------------------------------------------------------------------------------------------------------------------
ROBERT LLOYD BELL, 2,792,952(5) 18% 120,000 24% 3,152,952 19%
8 Jackson Avenue, (Founder)
Ottawa, Ontario Canada K1S 4K8
- -----------------------------------------------------------------------------------------------------------------------------------
Directors and Executive Officers as 8,803,408 58% 440,000 88% 10,312,881 61%
a group
- -----------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP OF MORE THAN 5%
- -----------------------------------------------------------------------------------------------------------------------------------
ALEXANDER DUNCAN MCQUARRIE, 1804 des 693,301(6) 4% 60,000 12% 783,301 5%
Epinettes, Orleans, Ontario Canada (Founder)
K1 C 7A8
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934.
Unless otherwise stated below, each such person has sole voting and investment
power with respect to all such shares. Under Rule 13d-3(d), shares not
outstanding which are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the purpose of
calculating the number and percentage owned by such person, but are not deemed
outstanding for the purpose of calculating the percentage owned by each other
person listed.
(2) Includes 242,000 shares of Preferred Stock on a fully converted basis of
three Shares of Common Stock for each share of Preferred Stock.
(3) Includes 6,600 shares of Preferred Stock on a fully converted basis of
three Shares of Common Stock for each share of Preferred Stock.
(4) Includes 241,500 shares of Preferred Stock on a fully converted basis of
three Shares of Common Stock for each share of Preferred Stock.
(5) Includes 6,600 shares of Preferred Stock on a fully converted basis of
three Shares of Common Stock for each share of Preferred Stock.
(6) Includes 3,300 shares of Preferred Stock on a fully converted basis of
three Shares of Common Stock for each share of Preferred Stock.
(7) The conversion ratio of the Series 1 Preferred shares is three common shares
for each Series 1 Preferred share.
(8) The Company has acquired Axyn International GMBH. See Part I, Item 7, below.
Under the terms of the acquisition agreement, the Company anticipates issuing
shares to the former beneficial shareholders of Axyn International GMBH. If and
when the shares are issued, then the beneficial ownership of the Company's
securities by certain officers and directors will be as follows:
<TABLE>
<CAPTION>
Additional Total
Additional Series 1 Common %
Common Preferred Shares Beneficial
Shares Shares Fully Diluted Ownership
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chris Zawitkowski 500,000 218,334 3,160,002 17.15%
Janusz Rydel 500,000 218,334 3,157,002 17.13%
Scott Feagan 29,166 3,240,425 17.58%
Robert L. Bell 29,166 3,240,452 17.58%
- --------------------------------------------------------------------------------------------------
SUB 1,000,000 495,000 12,797,881 75.60%
A.D. McQuarrie 0 5,000 833,401 4.52%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Chris M. Zawitkowski, Chairman of the Board. Mr. Zawitkowski has served
as Chairman of the Board since the Company's inception in 1998. He has a Masters
Degree in Applied Mechanics from the University of Warsaw and has accumulated
almost 30 years of diverse experience in the United States, Canada, and Europe
working at senior levels for Litton Systems and Rockwell Corporation.
Page 24
<PAGE> 25
D. Scott Feagan is President of AXYN Corporation. Mr. Feagan has served
as President since the Company's inception in 1998. Prior to joining the Company
he held positions as President AGISS Software Corporation and CPAD Technologies
Inc. and was founder and President of AGISS Power Technologies Corporation. He
brings over 25 years of business experience in various senior management
positions in technology companies specializing in systems integration and Y2K
remediation services.
Robert L. Bell is a Director of AXYN Corporation. Mr. Bell has been a
Director since the Company's inception in 1998. He has operational
responsibilities for the Company's North American affiliate companies. He brings
30 years of project and business management experience including nine years as
Vice-President of Monenco AGRA Inc. and AGRA Systems Limited. During this time,
Mr. Bell conceived, built, and managed a successful project management, systems
engineering, and systems integration business with projects for clients in
Canada, Europe, Asia and South America.
Janusz W. Rydel is a Director of AXYN Corporation. Mr. Rydel has been a
Director since the Company's inception in 1998. He has operational
responsibilities for the Company's European affiliate companies. He brings 15
years experience in world-wide marketing as well as considerable expertise in
the computer field. He was co-founder and President of Eurocom Corporation, a
large manufacturer of notebook computers. He is a graduate of the Technical
University of Warsaw and the Technical University of Vienna, having earned a
Masters Degree in Electrical Engineering. He speaks four languages - English,
German, Polish, and Russian.
Officer Summary
<TABLE>
<CAPTION>
Name Age Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Chris M. Zawitkowski 51 Chairman and Director 1998
D. Scott Feagan 47 President, Secretary, Director 1998
Robert L. Bell 53 Director 1998
Janusz W. Rydel 45 Director 1998
</TABLE>
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected annually by the Board
of Directors and hold office until their successors are elected and qualified.
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five years.
<TABLE>
<S> <C>
Name and Position with Company Chris-Matthew Zawitkowski, Chairman
Residential Address 1122 North Stanford dr., Simi Valley, CA 93065-4955 USA
Date of Birth 25 February 1948
Professional Qualifications P.Eng., M.Sc.
Assoc. with other Public Companies None
5-Year Employment History Feb'98 to Present - Chairman, AXYN Corporation
Jan'94 to Present - Private Investor
</TABLE>
Page 25
<PAGE> 26
<TABLE>
<S> <C>
Name and Position with Company Douglas Scott Feagan, President and Secretary
Residential Address 38 Grandview Road, Nepean, Ontario Canada K2H 8B3
Date of Birth 13 December 1951
Professional Qualifications None
Assoc. with other Public Companies AGISS Corporation (NASD OTC EBB) Dec'96 to Jan'98
5-Year Employment History Feb'98 to Present - President, AXYN Corporation
Dec'96 to Jan'98 - President, AGISS
Corporation Jun'96 to Dec'96 -
President, CPAD Technologies Corporation
Feb'94 to Present - President, 1062497
Ontario Inc. Mar'90 to May'96 -
President, AGISS Power Technologies
Corporation
Name and Position with Company Janusz Waclaw Rydel, Director
Residential Address 26 O'Hara Drive, Kanata, Ontario Canada K2W 1A2
Date of Birth 26 MARCH 1954
Professional Qualifications P.Eng., M.Sc.
Assoc. with other Public Companies None
5-Year Employment History Feb'98 to Present - President, AXYN Unitra
Feb'97 to Jan'98 - Consultant, JWR Consulting
Dec'91 to Jan'97 - President, EUROCOM Corporation
Name and Position with Company Robert Lloyd Bell, Director
Residential Address 8 Jackson Avenue, Ottawa, Ontario Canada K1S 4K8
Date of Birth 27 MAY 1946
Professional Qualifications P.Eng./ Ing.
Assoc. with other Public Companies None
5-Year Employment History Feb'98 to Present - Director, AXYN Corporation
Jan'98 to Present - President, BPS Bell Professional Services
Apr'89 to Feb'98 - Vice President, Agra Monenco
</TABLE>
Page 26
<PAGE> 27
ITEM 6. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
---------------------------- ----------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options/SARs Payouts Compensation
- ------------------ ---- ------- ----- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chris M. Zawitkowski, 1998 0 0 0 0 0 0 0
Chairman 1999 0 0 0 0 0 0 0
D. Scott Feagan, 1998 $22,500 0 0 0 0 0 0
President 1999 0 0 0 0 0 0 0
Robert L. Bell, Director 1998 $22,500 0 0 0 0 0 0
1999 0 0 0 0 0 0 0
Janusz W. Rydel, 1998 0 0 0 0 0 0 0
Director 1999 0 0 0 0 0 0 0
</TABLE>
OPTION GRANTS IN FISCAL YEAR 1998 and 1999
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------
Percent of Potential Realizable Value at
Number of Total Options Exercise Market Assumed Annual Rates of Stock Price
Shares Granted to of Base Price on Appreciation for Option Term
Underlying Employees in Price Date of Expiration -----------------------------------
Name Options Fiscal Year ($/Sh) Grant(1) Date 5%($) 10%($)
- ---- ----------- ------------ -------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
None
</TABLE>
The Company also reimburses members of the board of directors for their
travel, entertainment, and other out-of-pocket expenses incurred on behalf of
the Company.
Page 27
<PAGE> 28
The Company has entered into employment agreements with Scott Feagan
and Robert Bell for an indefinite term. Pursuant to these employment agreements,
Mr. Feagan and Mr. Bell are each entitled to receive cash compensation of
$150,000 annually. If Mr. Feagan's or Mr. Bell's employment is terminated for
any reason, including cause and Mr. Feagan's or Mr. Bell's voluntary
termination, other than death and disability, then the Company is obligated to
pay him a severance amount equal to three times his gross salary for the
preceding 12 month period. In addition, the Company maintains a life insurance
policy on both Mr. Feagan and Mr. Bell in the amount of $C1,000,0000 each,
payable to the Company. Initially, Mr. Feagan and Mr. Bell had entered into a
shareholder's buy-sell agreement referenced in their employment agreements.
However, the buy-sell agreement was terminated at the time of the reverse share
exchange with the Company and ACC.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Directors and major shareholders have financed the Company by
providing working capital to the Company from time to time as needed. Advances
and repayments have been made from time to time beginning in March, 1998, and
ending in June, 1999. The amounts which the Company owes to its officers and
directors as of June 30, 1999, is set forth in the following table:
<TABLE>
<CAPTION>
Name Amount
------------------ -----------
<S> <C>
Scott Feagan $332,582.21
Robert Bell $211,668.15
Chris Zawitkowski $ 56,343.27
Janusz Rydel $ 40,584.07
</TABLE>
The officers and directors have advanced these funds pursuant to the
terms of a standard promissory note. The promissory note is payable upon demand
and bears interest at the prime rate of interest posted by the NationsBank as
being charged to its best commercial customers plus 2.0 % per annum, calculated
monthly. So long as AXYN remains liable to pay the whole or any part of this
obligation, the officers and directors may convert all or any part of the
remaining obligation into common shares of either 1) the Company at the
conversion rate of $1.50 per common share, or 2) free trading shares of Syscan
International at the conversion rate of $0.33 per common share held by the
Company and receive an additional equal value of Syscan escrow shares. This
right of conversion may be exercised at any time, including when and if the
common shares of the Company become registered within the meaning of the
Securities Act of 1933, as amended, or of any state. The shares of Syscan were
acquired in exchange for $225,000 in cash which was provided by shareholder
loans in two installments in March 1999 and June 1999. The price of the Syscan
shares was based on the value of the Syscan shares on the closing date of the
acquisition. The current value of the Syscan shares, as of September 15, 1999 is
$0.13. The value of the note, if converted into AXYN shares was 616,500 common
shares. The value of the shares was determined by the trading price of the
Company's shares on June 30, 1999 ($1.125) less a 1/8 discount (at a net value
therefore of $1.00) for the non-cash consideration. The effect of issuing shares
versus cash would result in a dilution to the Company's existing shareholders of
3.85% and would allow the Company to retain the equivalent amount in working
capital. The loans are convertible into shares of Syscan held by the Company for
the purpose of allowing the loans to be repaid without using working capital of
the Company. Syscan shares held by the Company are used so that the repayment of
the loans would be in assets intended to be at least partially liquid in the
hands of the recipients. Additional shares of the Syscan escrow shares were
included in the repayment to compensate for the probable lack of liquidity of
some or all of the stock. A fixed conversion price was used at the time of the
loans because the Company and the shareholders making the loans agreed that the
benefits to the shareholders of a fixed price conversion provided part of the
equivalent value of the cash actually loaned to the Company.
Scott Feagan, the president of the Company, served on the board of
directors of MPT Millennium Patent Technologies Corporation Limited, the
licensor of technology to the Company in 1998. Mr. Feagan resigned as a director
in 1999. Mr. Feagan has no direct or beneficial ownership interest in MPT
Millennium Patent Technologies Corporation Limited. Mr. Feagan receives no
direct or indirect compensation or financial benefit from MPT Millennium Patent
Technologies Corporation Limited. The contractual relationships between MPT
Millennium Patent Technologies Corporation Limited are described under
"Description of the Business - Y2K Desktop Solutions".
Page 28
<PAGE> 29
The Company acquired Axyn Technologies Corporation, a Delaware
corporation, on June 30, 1999. Axyn Technologies Corporation was majority owned
by Scott Feagan, 979,723 shares of common stock, Robert Bell, 979,750 shares of
common stock, Chris Zawitkowski, 875,000 shares of common stock, Janusz Rydel,
875,000 shares of common stock (collectively "founders"). Other investors and
employees of Axyn Technologies Corporation owned 1,290,527 shares of common
stock. Pursuant to the terms of the purchase agreement, the Company exchanged
1,000,000 Shares of its Common Stock on a one-for-one basis for the outstanding
shares of stock of Axyn Technologies Corporation as to the non-founder
shareholders. The Company exchanged 500,000 Shares of its Preferred Stock on a
one-for-four basis for the outstanding shares of stock of Axyn Technologies
Corporation as to the founders. The shares of Preferred Stock are convertible on
a one-for-three basis into Shares of Common Stock of the Company. The net
beneficial conversion rate is therefore three-eighths of a Share of Common Stock
of the Company for one shares of common stock of Axyn Technologies Corporation.
The Company prepared a valuation of Axyn Technologies Corporation for purposes
of determining the share exchange ratio in connection with this transaction.
This valuation was not reviewed by independent valuation experts. The Common
Shares were issued pursuant to Rule 506 of Regulation D.
The Company acquired the outstanding shares of Axyn International GMBH
("AI"), a Swiss corporation whose principal shareholders are Chris M.
Zawitkowski, the Chairman of the Board of Directors of the Company, and Janusz
W. Rydel, a director of the Company. Mr. Zawitkowski and Mr. Janusz hold some
of the shares on behalf of employees of Axyn International in Europe and on
behalf of Scott Feagan and Robert Bell, directors of the Company. The shares to
be issued have been included under Item 4 setting forth the beneficial ownership
of officers and directors. The letter of intent was approved as a binding
acquisition by the Board of Directors of the Company on November 18, 1999.
The business of AI is to design and build command and control centers,
including necessary infrastructure, hardware, software, and telecommunications
components in Europe and the middle east. AI has entered into a letter of intent
with the Government of Poland to design and build command and control centers.
The definitive contract with AI will depend upon AI's ability to enter into a
"teaming agreement" with another company that has the resources and capability
of building and completing the command and control centers. AI is currently
negotiating with several companies with respect to a teaming agreement, but no
agreement has been reached as of December 17, 1999.
The agreement to acquire AI sets forth a number of conditions which
have not yet been fulfilled. These conditions include the requirement that one
of the following conditions be satisfied: (a) AI signs a significant contract
for building a command and control center; (b) AI signs a definitive teaming
agreement with a major systems integration company with a commitment by the
systems integrator to fund the development of the project sufficiently to cover
costs until the command and control center contract funding is released by the
customer, or (c) AI meets or exceeds its third quarter revenue forecast of
$2,756,832 within AI's territory.
If the conditions of the agreement are satisfied, then the Company
would issue 1,000,000 common shares and 500,000 convertible preferred shares to
Mr. Zawitkowski and Mr. Rydel. The convertible preferred shares would be
converted at the rate of three shares of common stock for each share of
preferred stock. Other terms of the preferred stock have not been determined.
ITEM 8. DESCRIPTION OF SECURITIES.
DESCRIPTION OF SECURITIES.
Common Stock
The Company is authorized to issue up to 30,000,000 shares of Common
Stock, $0.0001 par value. Each share of Common Stock is entitled to share pro
rata in dividends and distributions, if any, with respect to the Common Stock
when, as and if declared by the Board of Directors from funds legally available
therefor, subject to the preferential rights of holders of shares of any series
of outstanding Preferred Stock. The Company has never paid any dividends on its
Common Stock and does not intend to do so in the foreseeable future. No holder
of Common Stock has any preemptive right to subscribe for any securities of the
Company. Upon liquidation, dissolution or winding up of the Company, each share
of the Common Stock is entitled to share ratably in the amount available for
distribution to holders of Common Stock. All shares of Common Stock presently
outstanding are fully paid and nonassessable.
Each holder of Common Stock is entitled to one vote per share with
respect to all matters that are required by law to be submitted to shareholders.
Shareholders are not entitled to cumulative voting in the election of directors.
Accordingly, the holders of more than 50% of the shares voting for the election
of directors can elect 100% of the directors if they choose to do so; and, in
such event, the holders of the remaining shares voting for the election of the
directors will be unable to elect any person to the Board of Directors.
Page 29
<PAGE> 30
The Common Stock is subject to any Preferred Stock issued by the
Company. The terms of the Preferred Stock are described below.
As of June 30, 1999, the Company had a weighted average number of shares
outstanding of 12,205,611 shares of Common Stock and had reserved: 0 shares of
Common Stock for issuance upon exercise of outstanding options.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, par value $.001 per share. The Board of Directors is authorized to divide
the Preferred Shares into series and to fix and determine the relative rights
and preferences of the series. These rights and preferences include the rate,
preference, and cumulative nature of dividends, terms and conditions of
redemption, if any, amounts payable upon voluntary and involuntary liquidation,
sinking funds, if any, conversion rights, if any, voting rights, if any, and
other rights and preferences. The shares of common stock are subject to the
rights and preferences of the preferred stock.
The Company has authorized 1,000,000 shares of Series 1 Preferred Stock
and has issued 500,000 shares Series 1 of Preferred Stock. The Company has
reserved 1,500,000 shares of Common Stock for the conversion of the Series 1
Preferred Stock. Each share of preferred stock is convertible into three shares
of Common Stock of the Company. The Preferred Shares are entitled to receive
dividends on the same basis as shares of Common Stock on an as, if, and when
declared basis, except that each share of Preferred Stock shall received three
times the amount of each share of Common Stock. Upon liquidation, the Preferred
Shares are entitled to receive distributions on the same basis as shares of
Common Stock, except that each share of Preferred Stock shall received three
times the amount of each share of Common Stock. The Preferred Stock shall have
the same voting rights as the Common Stock, except that each share of Preferred
Stock shall have three votes. The shares of Series 1 Preferred Stock are not
convertible until June 30, 2003.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.
The Company's Common Stock, par value $.0001 per share, is not eligible
for listing on the Nasdaq system; however, the Company's Common Stock is traded
on the Electronic Bulletin Board under the trading symbol `AXYN'. The following
table sets forth the high and low bid prices for the Company's Common Stock
since the beginning of the fiscal year 1998. The quotations reflect inter-dealer
prices, with no retail mark-up, mark-down or commissions, and may not represent
actual transactions. The information presented has been derived from National
Quotation Bureau, Inc.
<TABLE>
<CAPTION>
From To High Sales Price Low Sales Price Volume
- -------- ----------- ---------------- --------------- -------
<S> <C> <C> <C> <C>
Jan' 98 Mar' 98 N/A N/A N/A
Apr' 98 Jun' 98 N/A N/A N/A
</TABLE>
Page 30
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C>
July' 98 Sept' 98 2.750 0.375 47,500
Oct' 98 Dec' 98 2.625 1.125 780,900
Jan' 99 Mar' 99 2.625 0.875 810,100
Apr' 99 Jun(27)' 99 1.625 0.750 482,200
</TABLE>
On June 29, 1999, the last reported bid and asked prices for the Common
Stock were $1 1/32 and $1 1/8, respectively.
As of June 29, 1999, there were 490 holders of record of the Company's
Common Stock.
The Company has never declared a dividend on its Common Stock, and it
is anticipated that any earnings which might be available for distribution as
Common Stock dividends will be retained for the Company's operations for the
foreseeable future.
The transfer agent for the Company's Common Stock is Corporate Stock
Transfer located at Republic Plaza, 370 17th Street, Suite 2350, Denver,
Colorado 80202-4614, USA Ph: (303) 595-3300 Fax: (303) 592-8821.
ITEM 2. LEGAL PROCEEDINGS.
Neither the Company nor its property is involved in any legal
proceeding, and the Company is not aware of any pending or threatened legal
proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not changed accountants nor has it had any disagreement
with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company, known as Thor Management Group, Inc., was incorporated
under the laws of the State of Colorado on January 12, 1998 and was established
as a real estate management company located at 1422 Delgany Street, Denver, CO.
On January 28, 1998, the Company conducted an offering of shares pursuant to
Rule 504 of Regulation D. The Company raised $75,000 from 23 investors. The
Company never conducted any business prior to June 19, 1998.
The Company completed a reverse share exchange on June 18, 1998, with
ACC, pursuant to which ACC became a wholly owned subsidiary of the Company. The
Company issued a total of 10,530,000 shares of Common Stock to the individuals
and in the amounts set forth in Part I, Item 4, above. The shares were issued
pursuant to Rule 506 of Regulation D.
On June 30, 1999, the Company completed the purchase of a controlling
interest of 57.6% of the shares of Syscan International. The shares of Syscan
have been acquired in exchange for $225,000, a non-interest bearing note for
$616,500 due in two installments in July and September 1999, and 1,300,000
common shares of the Corporation. In addition, the Company entered into a
Commission Agreement with the founder, Mr. Benoit, based on future sales of
Syscan products. The terms are set forth in the Syscan Purchase Agreement
attached as Exhibit 6(l) to this Form 10. The installments on the Syscan note
due in July, 1999, and September, 1999, have been deferred indefinitely pending
a renegotiation between the Company and the former Syscan shareholder. The
shares, all of which were issued, are being held in escrow by the vendor's
lawyer and will be released as to 1/3 on May 19, 2000, 1/3 on May 19, 2001 and
1/3 on May 19, 2002. The shares in the Company were issued in a structure that
matched the release of Syscan escrow shares to the Company. This structured
release matched the Ontario Securities Commission escrow provisions that were
pre-existing on the Syscan shares held by the founder, Mr. Benoit. No conditions
were placed on the release of the shares outside the passage of time. The Escrow
Agreement is attached as a Schedule to Exhibit 6(l). The shares are nonvoting
until the shares are delivered out of escrow under the Escrow Agreement. All
dividends and distribution of securities with respect to the shares in escrow
will be held for the benefit of those entitled to receive the shares. Up to
300,000 of such shares may be used to satisfy indemnity obligations of those
otherwise entitled to receive the shares. The shares were issued under
Regulation S promulgated by the Securities and Exchange Commission.
On June 30, 1999, the Corporation completed the acquisition of 100% of
the issued and outstanding shares of Le Groupe Mobitech Inc., a Quebec company
that installs video conferencing equipment. The shareholder of Mobitech received
282,000 common shares of the Corporation valued at $298,920 using the trading
price as of the date of acquisition. All of the shares were issued on closing.
The shares were issued under Regulation S promulgated by the Securities and
Exchange Commission.
Page 31
<PAGE> 32
Page 32
<PAGE> 33
On June 30, 1999, the Corporation completed the acquisition of 100% of
the issued and outstanding shares of CDI, a Quebec company that sells Internet
and web centric services. The shareholder of CDI received 200,000 common shares
of the Corporation valued at $212,000 using the trading price as of the date of
acquisition. All of the shares were issued on closing. The shares were issued
under Regulation S promulgated by the Securities and Exchange Commission.
On June 30, 1999, the Corporation completed the acquisition of 100% of
the issued and outstanding shares of SIQ, a Quebec company that sells Internet
services. The shareholders of SIQ received 110,000 common shares of the
Corporation valued at $116,600 using the trading price as of the date of
acquisition. All of the shares were issued on closing. The shares were issued
under Regulation S promulgated by the Securities and Exchange Commission.
On June 30, 1999, the Corporation completed the acquisition of 100% of
the issued and outstanding shares of Axyn Tech, which provides Year 2000
products and services. The shareholders of Axyn Tech received 1,000,000 common
and 500,000 Series 1 preference shares convertible on the basis of three common
shares for each preference share, of the Corporation. All of the shares were
issued on closing. Since Axyn Tech and the Corporation were under common
control, the common control shareholders received the preference shares and the
other shareholders received the common shares. Therefore, the purchase price was
calculated as sixty percent of the book value of Axyn Tech's net assets plus the
fair value of the common shares issued based on their trading price as of the
date of acquisition. The common shares were issued pursuant to Rule 506 of
Regulation D. See Part 1, Item 1, and Part 1, Item 7 for additional information.
All of the acquisitions have been accounted for using the purchase
method. Pro forma information has been provided for Syscan since the results of
its operations are material. The results of the acquired companies have been
consolidated with those of the Corporation at their respective dates of
acquisition.
On November 20, 1998, the Company consummated an agreement with Angelo
Rocca, Rocco Spagnuolo, and Exceed Systems Ltd., all of which are residents of
Canada, who are the sole shareholders of Burlington Systems Integration, Inc.,
pursuant to which the Company acquired all outstanding shares of Burlington
Systems Integration, Inc. The Company issued 112,500 shares of its common stock
to each of Exceed Systems Ltd. and Angelo Rocca in exchange for such shares. The
shares were issued under Regulation S promulgated by the Securities and Exchange
Commission.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limit the liability of
directors by reason of the fact that they are directors if the directors acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the Company, and with respect to any criminal action or
proceeding, if the directors had no reasonable cause to believe the directors'
conduct was unlawful.
The Company's Articles of Incorporation limit the liability of
directors in the case of shareholder suits or derivative suits if the directors
acted in good faith and in a manner reasonably believed to be in, or not opposed
to, the best interests of the Company, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation, unless, and only to the extent that, the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnification for such
expenses which such court deems proper.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, and the Company is not aware of any pending or threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
The Company has not purchased Directors and Officers liability
insurance to defend and indemnify Directors and Officers who are subject to
claims made against them for their actions and omissions as directors and
officers of the Company.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This Form 10 SB contains certain forward-looking statements. The
Company's forward-looking statements include the plans and objectives of
management for future operations, including plans and objectives relating to the
Company's planned marketing efforts and future economic performance of the
Company and future capital raising activities of the Company. The
forward-looking statements and associated risks set forth in this Form 10 SB
include or relate to the ability of the Company to: (i) obtain meaningful
consumer acceptance and a successful market for the product on a national and
Page 33
<PAGE> 34
international basis at competitive prices; (ii) develop and maintain an
effective national and international sales network; (iii) forecast demand for
its product; (iv) maintain pricing and thereby maintain adequate profit margins;
and, (v) achieve adequate intellectual property protection.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that: (i) the Company will obtain equity
and/or debt capital; (ii) there will be no material adverse competitive or
technological change in condition of the Company's business; (iii) there will be
a demand for the Company's product; (iv) the Company's forecasts accurately
anticipate market demand; and, (v) there will be no material adverse change in
the Company's operations, business or governmental regulation affecting the
Company or its suppliers. The foregoing assumptions are based on judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in 'Risk Factors', there are a number of other
risks inherent in the Company's business and operations which could cause the
Company's operating results to vary markedly and adversely from prior results,
or the results contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and periodic
revisions must be made to reflect actual conditions and business developments,
the impact of which may cause the Company to alter its marketing, capital
investment and other expenditures, which may also materially adversely affect
the Company's results of operations. In light of significant uncertainties
inherent in forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the Company's objectives or plans will be achieved.
PART F/S
The Company's financial statements for FY1999 (June 30, 1999) are filed
as part of this Registration Statement.
The Company has included its audited financial statements for its first
partial year-end for FY1998 (June 30, 1998) that includes the period from
February 24, 1998 through to June 30, 1998. Such statements are incorporated by
reference from Form 10 as filed on August 6, 1999.
The Company has included the audited financial statements of Syscan
International for the years ended December 31, 1998 and 1997, and for the six
months ended June 30, 1999.
Page 34
<PAGE> 35
CONSOLIDATED FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
AXYN CORPORATION
JUNE 30, 1999
<PAGE> 36
AUDITORS' REPORT
To the Board of Directors and Shareholders of
AXYN CORPORATION
We have audited the accompanying consolidated balance sheets of AXYN CORPORATION
as of June 30, 1999 and 1998 and the related restated consolidated statements of
loss and comprehensive loss, consolidated statements of cash flows and changes
in stockholders' equity for the year ended June 30, 1999 and the period from
February 24, 1998 [inception] to June 30, 1998. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Syscan International Ltd, of which the
Corporation owns a controlling interest of 57%, which statements reflect total
assets of $1,954,552 as of June 30, 1999. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, in so far as it
relates to data included for Syscan International Ltd., is based solely on the
report of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
restated consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Axyn Corporation
as of June 30, 1999 and 1998 and the consolidated results of its operations and
its cash flows for the year ended June 30, 1999 and the period from February 24,
1998 [inception] to June 30, 1998 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the
Corporation will continue as a going concern. As discussed in Note 1 to the
financial statements, the Corporation has incurred significant operating losses,
a working capital deficiency and negative cash flow from operations which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Ottawa, Canada,
July 23, 1999. Chartered Accountants
<PAGE> 37
AXYN CORPORATION
CONSOLIDATED BALANCE SHEETS
[U.S. dollars, U.S. GAAP]
[See Note 1 - Going Concern Uncertainty]
<TABLE>
<CAPTION>
As at June 30
1999 1998
$ $
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents -- 142,175
Accounts receivable [note 2] 1,112,214 1,354
Income taxes recoverable 29,998 10,428
Inventories [note 3] 1,076,466 --
Prepaid expenses 45,173 764
- -------------------------------------------------------------------------------
2,263,851 154,721
Fixed assets [note 4] 197,086 3,018
Intangible assets [note 5] 4,160,760 5,096
Deferred charges 11,483 --
- -------------------------------------------------------------------------------
6,633,180 162,835
===============================================================================
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 43,703 --
Bank loan [note 7] 170,882 --
Accounts payable 1,699,802 85,314
Unearned revenue 29,141 --
Note payable [note 6] 616,500 --
Shareholder loans [note 8] 707,726 20,630
Current portion of long term debt 29,282 --
- -------------------------------------------------------------------------------
3,297,036 105,944
- -------------------------------------------------------------------------------
Long term debt 6,359 --
- -------------------------------------------------------------------------------
MINORITY INTEREST [note 6] 159,430 --
- -------------------------------------------------------------------------------
Commitments and contingencies [note 9]
STOCKHOLDERS' EQUITY
Common shares [1999 - 15,429,033 shares];
1998 - 11,700,000 shares [note 6, 12] 1,542 1,170
Series 1 Preference shares [1999 - 500,000 shares;
1998 - 0 shares] [note 6,12] 500 --
Additional paid up capital 4,270,142 339,427
Accumulated deficit (1,101,829) (283,706)
- -------------------------------------------------------------------------------
3,170,355 56,891
- -------------------------------------------------------------------------------
6,633,180 162,835
===============================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 38
AXYN CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
[U.S. dollars, U.S. GAAP]
[See Note 1 - Going Concern Uncertainty]
<TABLE>
<CAPTION>
FEBRUARY 24,
YEAR ENDED 1998 TO
JUNE 30, 1999 JUNE 30, 1998
$ $
- ---------------------------------------------------------------------------------
<S> <C> <C>
SALES 465,361 2,242
Cost of sales 138,512 --
- ---------------------------------------------------------------------------------
Gross profit 326,849 2,242
- ---------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 1,026,085 287,556
Amortization 50,511 1,697
Financial expense 20,532 --
Research and development 52,852 --
- ---------------------------------------------------------------------------------
1,149,980 289,253
- ---------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (823,131) (287,011)
Translation adjustment 5,008 3,305
- ---------------------------------------------------------------------------------
COMPREHENSIVE LOSS FOR THE PERIOD (818,123) (283,706)
Basic and diluted loss per share
[note 1] - restated (0.07) (0.02)
- ---------------------------------------------------------------------------------
Weighted average number of shares outstanding
[note 1] - restated 12,205,611 11,700,000
=================================================================================
</TABLE>
See accompanying notes
<PAGE> 39
AXYN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
[U.S. dollars, U.S. GAAP]
[See Note 1 - Going Concern Uncertainty]
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
PAID IN COMPREHENSIVE
SERIES 1 PAR VALUE CAPITAL DEFICIT LOSS TOTAL
COMMON PREFERRED $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 24, 1998 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares:
Private placement of shares 8,072,367 -- 807 68,044 -- -- 68,851
Issued for services 2,386,366 -- 239 78,876 -- -- 79,115
Acquisition of Monroe
Group Inc. 71,267 -- 7 2,370 -- -- 2,377
Reverse take-over 1,170,000 -- 117 (116) -- -- 1
Shares subscriptions
received in advance -- -- -- 190,253 -- -- 190,253
Loss -- -- -- -- (287,011) 3,305 (283,706)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 11,700,000 -- 1,170 339,427 (287,011) 3,305 56,891
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 612,033 -- 61 728,035 -- -- 728,096
Acquisition of Burlington 225,000 -- 22 365,603 -- -- 365,625
Acquisition of Axyn Tech. 1,000,000 500,000 600 831,746 -- -- 832,346
Acquisition of Syscan 1,300,000 -- 130 1,377,870 -- -- 1,378,000
Acquisition of Mobitech 282,000 -- 28 298,892 -- -- 298,920
Acquisition of SIQ 110,000 -- 11 116,589 -- -- 116,600
Acquisition of CDI 200,000 -- 20 211,980 -- -- 212,000
Loss -- -- -- -- (823,131) 5,008 (818,123)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 15,429,033 500,000 2,042 4,270,142 (1,110,142) 8,313 3,170,355
====================================================================================================================================
</TABLE>
See accompanying notes
<PAGE> 40
AXYN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars, U.S. GAAP]
[See Note 1 - Going Concern Uncertainty]
<TABLE>
<CAPTION>
FEBRUARY 24,
YEAR ENDED 1998
JUNE 30, TO JUNE 30,
1999 1998
$ $
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss (823,131) (287,011)
Non-cash items:
Amortization 50,511 1,697
Shares issued for services -- 79,115
- -------------------------------------------------------------------------------
(772,620) (206,199)
Change in non-cash working capital
Increase in accounts receivable (278,186) (1,334)
Increase in other working capital items 4,803 (10,270)
Increase in prepaid expenses (1,056) (753)
Increase in accounts payable 169,343 87,338
- -------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (877,716) (131,218)
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition costs (225,000) --
Increase in intangible assets -- (5,964)
Additions to fixed assets (19,679) (3,726)
- -------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (244,679) (9,690)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Shareholder loans 203,413 20,585
Issue of common and preference shares 728,096 259,193
- -------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 931,509 279,778
- -------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,008 3,305
- -------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (185,878) 142,175
Cash and cash equivalents, beginning of period 142,175 --
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD (43,703) 142,175
===============================================================================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: [note 13]
See accompanying notes
<PAGE> 41
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
These financial statements are the continuing financial statements of Axyn
Corporation, which was incorporated on February 24, 1998 in Denver, Colorado.
Axyn Corporation and its subsidiaries [see "Basis of Consolidation" below] are
collectively referred to as the "Corporation".
These consolidated financial statements have been prepared by the Corporation in
U.S. dollars and in accordance with accounting principles generally accepted
["GAAP"] in the United States of America ["U.S."].
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. In the opinion of management, these consolidated financial statements
reflect all adjustments necessary to present fairly the results for the period
presented. Actual results could differ from these estimates.
The functional currency of the Corporation is the Canadian dollar. However, for
reporting purposes, the Corporation has adopted the United States dollar as its
reporting currency. Accordingly, the Canadian dollar balance sheets have been
translated into United States dollars at the rates of exchange at the respective
period ends, while transactions during the periods and share capital amounts
have been translated at the weighted average rates of exchange for the
respective periods and the rate of exchange at the date of the transaction,
respectively. Gains and losses arising from these translation adjustments are
included in comprehensive loss.
GOING CONCERN UNCERTAINTY
The financial statements have been prepared by management in accordance with
U.S. GAAP on a going concern basis. This presumes that funds will be available
to finance ongoing operations and capital expenditures and permit the
realization of assets at their carrying values and the payment of liabilities in
the normal course of operations for the foreseeable future. The Corporation's
ability to continue as a going concern is in substantial doubt and is dependent
upon its ability to achieve sufficient revenues to cover expenses, or to obtain
appropriate levels of financing on a timely basis, the outcome of which cannot
be predicted at this time. Management of the Corporation has undertaken steps as
part of a plan to improve operations with the goal of sustaining Corporate
operations for the next twelve months and beyond. These steps include [I]
focusing sales and marketing on mobile communications and computing; [ii]
focusing on the completion of a Y2K supply contract with the Canadian
Government; and [iii] obtaining bank financing to support the Corporation's
working capital needs. These financial statements do not give effect to any
adjustments to the amounts and classification of assets and liabilities which
might be necessary should the Corporation be unable to continue its operations
as a going concern.
1
<PAGE> 42
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of Axyn Corporation
and its wholly owned subsidiaries Axyn Canada Corporation ["Axyn Canada"],
Burlington Systems Integration Inc. ["Burlington"], Axyn Technologies
Corporation ["Axyn Tech"], Le Group Mobitech Inc. ["Mobitech"], 9016-7230 Quebec
Inc. ["CDI"], S.I.Q. [Service Internet Quebec] Inc. ["SIQ"], and Syscan
International Ltd. ["Syscan"] of which the Corporation owns a controlling
interest of 57%. Intercompany transactions and balances have been eliminated.
Acquisitions during the period have been accounted for using the purchase
method.
The financial statements of the parent company and its subsidiaries have been
translated into U.S. dollars in accordance with the Financial Accounting
Standards Board [FASB] Statement No. 52, Foreign Currency Translation. All
balance sheet amounts have been translated using the exchange rates in effect at
the applicable period end. Income statement amounts have been translated using
the weighted average exchange rate for the applicable year.
REVENUE
Revenues are generally recognized, upon shipment when all significant
contractual obligations have been satisfied and collection is reasonably
assured. Consulting and other service revenues are recognized at the time of
performance or proportionately over the term of the contract, as appropriate.
Software license revenues are recognized when delivered in accordance with all
terms and conditions of the customers contracts.
CASH AND CASH EQUIVALENTS
Cash includes cash equivalents, which are investments that are generally held to
maturity and have terms of three months or less at the time of acquisition. Cash
equivalents typically consist of term deposits with major North American banks.
The carrying amounts of cash and cash equivalents are stated at cost, which
approximates their fair value.
INVENTORIES
Inventories are comprised principally of raw and finished goods and are stated
at the lower of cost, on a first in first out basis, or net realizable value.
2
<PAGE> 43
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is calculated using the straight
line method at the following fixed annual rates:
<TABLE>
<CAPTION>
ASSET RATE
----- ----
<S> <C> <C>
Leasehold improvements 20% or the term of
the lease if shorter
Office furniture and equipment 20%
Computer equipment and software 30%
</TABLE>
INTANGIBLE ASSETS
Patent costs are recorded at cost. Related amortization is calculated by the
straight-line method over a period of three years.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria and are expensed as incurred. The Corporation reassesses
whether it has met the relevant criteria for deferral and amortization at each
reporting date. Research costs are expensed as incurred.
Goodwill is recorded at cost. Related amortization is calculated using the
straight-line method over a period of three to ten years. The Corporation
evaluates the expected future net cash flows of the acquired business at each
reporting date, and adjusts goodwill for any impairment.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws.
NET LOSS PER SHARE
Net loss per common share has been computed on the basis of the weighted average
number of shares outstanding. In accordance with the rules of the Securities and
Exchange Commission, any stock sold at a nominal value, as compared to the
public offering, should be considered outstanding for all periods presented.
3
<PAGE> 44
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
SEGMENT INFORMATION
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ["SFAS No. 131"]. SFAS No. 131 requires public companies to report
financial and descriptive information about their reportable operating segments.
The Corporation identifies its operating segments based on how management
internally evaluates separate financial information (if available), business
activities and management responsibility. The Corporation believes it operates
in a single business segment and adoption of this standard did not have a
material impact on the Corporation's consolidated financial statements. Through
June 30, 1999 there have been no material foreign operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable include no allowance for doubtful accounts.
3. INVENTORIES
<TABLE>
<CAPTION>
1999
$
- ------------------------------------------------------
<S> <C>
Raw materials 593,756
Work in progress 41,285
Finished goods 488,547
Valuation allowance (47,122)
- ------------------------------------------------------
1,076,466
- ------------------------------------------------------
</TABLE>
4. FIXED ASSETS
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold improvements 17,626 12,935 -- --
Office furniture and equipment 134,703 79,892 3,771 753
Computer equipment and software 410,271 272,687 -- --
- --------------------------------------------------------------------------------------
562,600 365,514 3,771 753
Accumulated amortization (365,514) (753)
- --------------------------------------------------------------------------------------
197,086 3,018
======================================================================================
</TABLE>
4
<PAGE> 45
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill 4,185,564 28,875 -- --
Patents 6,026 1,955 6,040 944
- --------------------------------------------------------------------------------
4,191,590 30,830 6,040 944
- --------------------------------------------------------------------------------
4,160,760 5,096
================================================================================
</TABLE>
6. ACQUISITIONS
FISCAL 1999 ACQUISITIONS
On November 20, 1998, the Corporation completed the acquisition of 100% of the
issued and outstanding shares of Burlington, an Ontario company that sells
computer hardware and systems integration, in exchange for 225,000 common shares
of the Corporation valued at $365,625 using the trading price as of the date of
acquisition. All of the shares were issued on closing.
On June 30, 1999, the Corporation completed the purchase of a controlling
interest of 57% of the shares of Syscan. Syscan is a Quebec company that
manufactures mobile printers and other computer hardware and also develops
software for mobile computing applications. The shares of Syscan have been
acquired in exchange for $225,000, a non-interest bearing note
for $616,500 due in two instalments in July and September 1999, and 1,300,000
common shares of the Corporation. The shares, all of which were issued, are
being held in escrow by the vendor's lawyer and will be released as to 1/3 on
May 19, 2000, 1/3 on May 19, 2001 and 1/3 on May 19, 2002.
On June 30, 1999, the Corporation completed the acquisition of 100% of the
issued and outstanding shares of Mobitech, a Quebec company that installs video
conferencing equipment. The shareholder of Mobitech received 282,000 common
shares of the Corporation valued at $298,920 using the trading price as of the
date of acquisition. All of the shares were issued on closing.
5
<PAGE> 46
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
6. ACQUISITIONS (CONT'D)
On June 30, 1999, the Corporation completed the acquisition of 100% of the
issued and outstanding shares of CDI, a Quebec company that sells internet and
web centric services. The shareholder of CDI received 200,000 common shares of
the Corporation valued at $212,000 using the trading price as of the date of
acquisition. All of the shares were issued on closing.
On June 30, 1999, the Corporation completed the acquisition of 100% of the
issued and outstanding shares of SIQ, a Quebec company that sells internet
services. The shareholders of SIQ received 110,000 common shares of the
Corporation valued at $116,600 using the trading price as of the date of
acquisition. All of the shares were issued on closing.
On June 30, 1999, the Corporation completed the acquisition of 100% of the
issued and outstanding shares of Axyn Tech, which provides Year 2000 products
and services. The shareholders of Axyn Tech received 1,000,000 common and
500,000 Series 1 preference shares convertible on the basis of three common
shares for each preference share, of the Corporation. All of the shares were
issued on closing. Since Axyn Tech and the Corporation were under common
control, the common control shareholders received the preference shares and the
other shareholders received the common shares. Therefore, the purchase price was
calculated as sixty percent of the book value of Axyn Tech's net assets plus the
fair value of the common shares issued based on their trading price as of the
date of acquisition.
All of the acquisitions have been accounted for using the purchase method. Pro
forma information has been provided for Syscan and Axyn Tech since the results
of their operations is material. The results of the acquired companies have been
consolidated with those of the Corporation as at their respective dates of
acquisition.
Total consideration, including acquisition costs, was allocated based on fair
values on the acquisition date for all companies.
6
<PAGE> 47
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
6. ACQUISITIONS (CONT'D)
<TABLE>
<CAPTION>
BURLINGTON SYSCAN MOBITECH SIQ CDI
$ $ $ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets acquired
Accounts receivable 15,678 776,075 -- 33,175 27,921
Inventories -- 1,049,552 -- -- 26,914
Other 15,018 128,925 10,169 20,477 16,712
- --------------------------------------------------------------------------------
30,696 1,954,552 10,169 53,652 71,547
Minority interest -- (159,430) -- -- --
Liabilities assumed (22,136) (1,583,784) -- (9,111) (83,771)
- --------------------------------------------------------------------------------
Net assets acquired 8,560 211,338 10,169 44,541 (12,224)
Goodwill 357,065 2,033,162 288,751 72,059 224,224
- --------------------------------------------------------------------------------
Purchase price 365,625 2,244,500 298,920 116,600 212,000
- --------------------------------------------------------------------------------
Consideration
Cash -- 225,000 -- -- --
Note payable -- 616,500 -- -- --
Shares 365,625 1,403,000 298,920 116,600 212,000
- --------------------------------------------------------------------------------
365,625 2,244,500 298,920 116,600 212,000
=================================================================================
</TABLE>
7
<PAGE> 48
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
6. ACQUISITIONS (CONT'D)
Unaudited pro forma information is as follows:
<TABLE>
<CAPTION>
RESTATED [c]
----------------------------
1999 1998
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales 4,062,302 3,996,665
Cost of sales 2,636,738 2,645,280
- --------------------------------------------------------------------------------
Gross profit 1,425,564 1,351,385
Expenses 3,536,154 1,759,896
- --------------------------------------------------------------------------------
Loss before income taxes (2,110,590) (408,511)
Deferred income taxes 19,546 (212)
Minority interest 140,844[b] 187,242[b]
- --------------------------------------------------------------------------------
NET LOSS (1,950,200) (221,481)
- --------------------------------------------------------------------------------
Net loss per share of common stock (0.13) (0.01)
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 15,164,688 14,817,000[a]
================================================================================
</TABLE>
[a] The weighted average number of shares outstanding includes shares issued on
all acquisitions during and subsequent to June 30, 1999. All shares issued
are considered outstanding for the year.
[b] Pro forma adjusting entry to record the 43% minority interest in Syscan.
[c] The unaudited pro forma information was restated to include the results of
operations from Axyn Corporation, Syscan, Axyn Tech, Burlington, Mobitech,
SIQ, CDI, Axyn International and UNITRA-AXYN.
8
<PAGE> 49
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
6. ACQUISITIONS (CONT'D)
FISCAL 1998 ACQUISITIONS
Effective June 17, 1998 Axyn Canada Corporation acquired 100% of the issued and
outstanding common shares of The Monroe Group Inc., a development stage
corporation consulting in the area of information technology and Year 2000
system solutions. As at the time of acquisition the company had net assets of
$2,377 which represented the fair market value. During fiscal 1999, The Monroe
Group Inc. was wound up into Axyn Canada Corporation.
Effective June 18, 1998, Axyn Corporation [formerly known as Thor Management
Group Inc.] acquired 100% of the issued and outstanding common shares of Axyn
Canada Corporation. At the date of acquisition, Axyn Corporation was a
non-operating company. By this transaction, sufficient common shares of Axyn
Corporation were issued so that a controlling interest of the corporate group
passed to the former shareholders of Axyn Canada Corporation. Accordingly, for
accounting purposes, Axyn Canada Corporation was treated as the purchaser, and
the acquisition was accounted for as a reverse take-over. The legal parent
company, Axyn Corporation, is deemed to be a continuation of Axyn Canada
Corporation and accordingly, these financial statements are a continuation of
the financial statements of the legal subsidiary, and not the legal parent. In
making the acquisition, Axyn Canada Corporation acquired net liabilities of
approximately $1,725 which amount has been expensed. The acquisition has been
accounted for using the purchase method with the cost of the purchase being a
nominal $1.
7. BANK LOAN
The bank loan is available to Syscan on an overdraft or short term basis to a
maximum of $220,300. Interest is determined at the time of borrowing based on
the bank's prime plus 0.75%. The loan is secured by Syscan's trade receivables
and inventory.
8. SHAREHOLDER LOANS
Shareholder loans are due upon demand and bear interest at Nation Bank's prime
rate plus 2%. At any time the shareholders have the right to convert such loans
to common stock at a value of $1.50 per share.
9
<PAGE> 50
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
9. COMMITMENTS AND CONTINGENCIES
Axyn Corporation has entered into operating leases for premises, vehicles and
computers. Future aggregate minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
$
- ------------------------------------------------------------
<S> <C>
2000 59,326
2001 39,171
2002 32,335
2003 28,800
2004 19,200
</TABLE>
Axyn Tech purchased distribution rights for Year 2000 software in November 1998.
Axyn Tech will pay 16% of the gross revenue from sales of the software plus
$10,000 payable on each anniversary of the agreement. The term of the agreement
is five years and thereafter shall be renewed for a period of one year unless
either party gives 90 days notice of termination prior to expiry of the original
term or any renewal term. Royalties of $10,300 were paid during the period ended
June 30, 1999.
Axyn Tech also purchased distribution rights for Year 2000 software in December
1998. Axyn Tech will pay between 8% and 18% of the revenue from various
products. The agreement expires in December 2000. Royalties of $2,100 were paid
during the period ended June 30, 1999.
The senior officers of the Corporation have employment agreements which provide
three years of severance upon termination for an aggregate of approximately
$850,000.
10
<PAGE> 51
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
10. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
The Corporation operates internationally in one business segment. The
Corporation provides consulting services along with developing, marketing, and
supporting computer software tools. The Corporation markets and supports these
products both directly and through resellers. Sales to three major customers
comprise 22%, 12% and 9% respectively, of revenues in 1999. During 1999, the
Corporation had export sales of approximately $25,000 [1998 - $0].
There is no material concentration of credit risk related to the Corporation's
position in trade accounts receivable due to the Corporation's dispersion of its
customer base. Credit risk, with respect to trade receivables, is minimized
because of the Corporation's large customer base.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Corporation's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and short term
loans, approximate the fair value due to their short maturities.
11. INCOME TAXES
The reported income tax provision differs from the amount computed by applying
the US rate. The reasons for this difference and the related tax effects are as
follows:
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Expected tax rate 34.0% 34.0%
Expected tax provision (280,000) (96,000)
Foreign tax rate differences (100,000) (29,000)
Losses not recognized 380,000 125,000
- --------------------------------------------------------------------------------
REPORTED INCOME TAX PROVISION -- --
================================================================================
</TABLE>
Deferred income taxes result principally from temporary differences in the
financial and tax reporting. Significant components of the Corporation's
deferred tax assets and liabilities as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating tax loss carryforwards 840,000 125,000
Research and development expense carryforwards 120,000 --
Fixed assets 20,000 --
Valuation allowance for deferred tax assets (960,000) (125,000)
- --------------------------------------------------------------------------------
Net deferred tax assets 20,000 --
================================================================================
</TABLE>
11
<PAGE> 52
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
11. INCOME TAXES (CONT'D)
The net change in the total valuation allowance for the period ended June 30,
1999 was $835,000.
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income in certain legal entities. This estimate could change in the near
term as future taxable income (loss) in the legal entities change.
As of June 30, 1999, the Corporation had tax loss carryforwards of approximately
$2,100,000 available to reduce future years' income for tax purposes. These
losses expire over 2000 to 2006. In addition, the Corporation's subsidiary has
scientific research and experimental development expenditures of $300,000
available to reduce future years income for tax purposes.
12. CAPITAL STOCK
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------
<S> <C> <C>
Authorized
30,000,000 common shares par value of $0.0001 per
share, voting on the basis of one vote per share
1,000,000 Series 1 preference shares par value of
$0.001 per share, voting on the basis of three
votes per share, convertible at anytime after
December 31, 2003 into common shares on the
basis of three common shares for each preference
shares
Issued and outstanding
Common shares 1,542 1,170
Series 1 Preferred shares 500 --
- --------------------------------------------------------------------------------
2,042 1,170
================================================================================
</TABLE>
Shares issued for services have been valued at the fair value of the services
provided unless that value cannot be reasonably determined in which case the
trading price of the shares is used.
12
<PAGE> 53
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
13. CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
$ $
Interest -- --
Taxes -- --
Shares issued for services -- 79,115
Shares issued for acquisitions 2,316,083 2,377
- ----------------------------------------------------------------------------------------------
</TABLE>
ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
SYSCAN AXYN TECH OTHERS 1999 1998
$ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash acquired -- 7,975 3,037 11,012 --
Total net assets acquired
other than cash 2,244,500 824,371 990,108 4,058,979 2,378
- ---------------------------------------------------------------------------------------------------------------------
Total purchase price 2,244,500 832,346 993,145 4,069,991 2,378
Less: cash acquired -- (7,975) (3,037) (11,012) --
Less: non-cash
consideration paid (2,019,500) (832,346) (993,145) (3,844,991) (2,378)
- ---------------------------------------------------------------------------------------------------------------------
Cash paid net of cash
acquired 225,000 (7,975) (3,037) 213,988 --
=====================================================================================================================
</TABLE>
14. SEGMENTED INFORMATION
Throughout fiscal 1999 and 1998 the Corporation has one reportable segment -
computer software tools which the Corporation sells as part of the Corporation's
consulting services.
Revenue is derived from the licensing of software and the provision of related
services, which include product support, consulting and other services. The
Corporation generally licenses software and provides services subject to terms
and conditions consistent with industry standards. Revenue in the amount of
$490,000 is derived from service, $51,000 from licensing and $50,000 from
product sales.
Revenue, expenses, assets and liabilities are substantially in Canada.
13
<PAGE> 54
AXYN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
[U.S. dollars, U.S. GAAP]
June 30, 1999
15. SUBSEQUENT EVENTS
Pursuant to a Letter of Intent between the Corporation and AXYN International
GmbH ["a Swiss Company"] to purchase a 100% interest in consideration for 1
million common and 500,000 preference shares of Axyn Corporation. The agreement
is conditional upon satisfactory due diligence. The purchase price is also
subject to the results of due diligence. The Swiss company controls 100% of
UNITRA-AXYN Sp. Z.o.o. ["a Polish company"] that provides Year 2000 consulting,
conversion and testing services and plans to provide Year 2000 crisis management
centers.
The Corporation has received a Letter of Intent for the sale of SIQ and CDI
subsequent to year end.
16. NEW ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued Statement of Position 97-2, "Software Revenue
Recognition" ["SOP 97-2"]. SOP 97-2 provides guidance on when revenue should be
recognized and in what amounts for licensing, selling, leasing or otherwise
marketing computer software. SOP 97-2 is effective for financial statements for
fiscal years beginning after December 15, 1997. During March 1998, the AICPA
issued Statement of Position 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition", ["SOP 98-4"]. SOP 98-4
defers for one year the limitation of what is considered vendor-specific
objective evidence of the fair value of the various elements in a
multiple-element arrangement, a requirement to recognize revenue for elements
delivered early in the arrangement. Effective June 1, 1998, the Corporation has
adopted SOP 97-2 and the adoption is not expected to have a material impact on
the Corporation's consolidated results of operations, financial position or cash
flows.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
all derivatives be recognized as either assets or liabilities on the balance
sheet and be measured at fair value. This Statement is effective for fiscal
years beginning after June 15, 2000, which is the year beginning July 1, 2000
for the Corporation. Prior periods should not be restated. The Corporation does
not expect the adoption of this Statement to have a material impact on its
results of operations or financial position.
17. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in fiscal 1999.
14
<PAGE> 55
CONSOLIDATED FINANCIAL STATEMENTS
AXYN CORPORATION
(A DEVELOPMENT STAGE COMPANY)
JUNE 30, 1998
<PAGE> 56
AUDITORS' REPORT
To the Board of Directors and Shareholders of
AXYN CORPORATION (A DEVELOPMENT STAGE COMPANY)
We have audited the accompanying consolidated balance sheet of AXYN CORPORATION
(a development stage company) as of June 30, 1998 and the consolidated
statements of net loss and comprehensive income, stockholders' deficiency and
cash flows for the period from February 24, 1998 (inception) to June 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Axyn Corporation (a development
stage company) as of June 30, 1998 and the consolidated results of its
operations and its cash flows for the period from February 24, 1998 (inception)
through June 30, 1998 in accordance with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred significant operating losses which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ ERNST & YOUNG LLP
Ottawa, Canada, ---------------------
September 29, 1998. Chartered Accountants
<PAGE> 57
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(U.S. dollars, U.S. GAAP)
[See Note 1 - Going Concern Uncertainty]
As at June 30
1998
$
- ------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 142,175
Accounts receivable [note 2] 1,354
Goods and services taxes receivable 10,428
Prepaid expenses 764
- ------------------------------------------------------------------------------------------
154,721
Fixed assets [note 3] 3,018
Intangible assets [note 4] 5,096
- ------------------------------------------------------------------------------------------
162,835
==========================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable 85,314
Convertible loans [note 6] 190,253
shareholder loans [note 7] 20,630
- ------------------------------------------------------------------------------------------
296,197
- ------------------------------------------------------------------------------------------
Commitments and contingencies [note 8]
STOCKHOLDERS' DEFICIENCY
Capital stock [note 5]
Common shares
Authorized
30,000,000 common shares par value of $0.0001 per share 1,000,000
preference shares par value of $0.001 per share
Issued
11,700,000 common shares 1,170
Paid in capital 149,174
Accumulated deficit during development stage (283,706)
- ------------------------------------------------------------------------------------------
(133,362)
- ------------------------------------------------------------------------------------------
162,835
==========================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 58
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE INCOME
(U.S. dollars, U.S. GAAP)
<TABLE>
<CAPTION>
FEBRUARY 24, 1998
TO
JUNE 30, 1998
$
- ------------------------------------------------------------------------------------------
<S> <C>
REVENUE 2,242
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 245,994
Research and development 38,257
Amortization 1,697
- ------------------------------------------------------------------------------------------
285,948
- ------------------------------------------------------------------------------------------
NET LOSS AND COMPREHENSIVE INCOME (283,706)
Loss per share [note 1]
Basic (0.02)
- ------------------------------------------------------------------------------------------
Weighted average number of shares [note 1]
Basic 11,700,000
==========================================================================================
See accompanying notes
</TABLE>
<PAGE> 59
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' DEFICIENCY
(U.S. dollars, U.S. GAAP)
[See Note 1 - Going Concern Uncertainty]
Period ended June 30
AMOUNT DEFICIT TOTAL
COMMON $ $ $
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, FEBRUARY 24, 1998 -- -- -- --
- ------------------------------------------------------------------------------------------
Issuance of shares:
Private placement of shares 8,072,367 68,851 -- 68,851
Issued for services 2,386,366 79,115 -- 79,115
Acquisition of Monroe Group Inc. 71,267 2,377 -- 2,377
Reverse take-over 1,170,000 1 -- 1
Loss -- -- (283,706) (283,706)
- ------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1998 11,700,000 150,344 (283,706) (133,362)
- ------------------------------------------------------------------------------------------
See accompanying notes
</TABLE>
<PAGE> 60
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars, U.S. GAAP)
[See Note 1 - Going Concern Uncertainty]
Period ended June 30
JUNE 30,
1998
$
- ------------------------------------------------------------------------------------------
<S> <C>
OPERATING ACTIVITIES
Net loss (283,706)
Non-cash items:
Amortization 1,697
Shares issued for services 79,115
- ------------------------------------------------------------------------------------------
(202,894)
Change in non-cash working capital
Increase in accounts receivable (1,334)
Increase in goods and services taxes receivable (10,270)
Increase in prepaid expenses (753)
Increase in accounts payable 84,033
- ------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (131,218)
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase in intangible assets (5,964)
Additions to fixed assets (3,726)
- ------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (9,690)
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Convertible loans 190,221
Shareholder loans 20,585
Issue of common shares 68,972
- ------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 279,778
- ------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,305
- ------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 142,175
Cash and cash equivalents, beginning of period --
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 142,175
==========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest --
Taxes --
- ------------------------------------------------------------------------------------------
See accompanying notes
</TABLE>
<PAGE> 61
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Axyn Corporation is in the development stage in accordance with Statement of
Financial Accounting Standards (SFAS) No. 7.
These consolidated financial statements have been prepared by the Corporation
(formerly known as Thor Management Group, Inc.) in U.S. dollars and in
accordance with generally accepted accounting principles ("GAAP") in the United
States of America ("U.S.").
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. In the opinion of management, these consolidated financial statements
reflect all adjustments necessary to state fairly the results for the period
presented. Actual results could differ from these estimates.
GOING CONCERN UNCERTAINTY
The financial statements have been prepared by management in accordance with
generally accepted accounting principles in the United States of America on a
going concern basis. This presumes that funds will be available to finance
ongoing operations and capital expenditures and permit the realization of assets
at their carrying values and the payment of liabilities in the normal course of
operations for the foreseeable future. The Company's ability to continue as a
going concern is dependent upon its ability to achieve sufficient revenues to
cover expenses, or to obtain appropriate levels of financing on a timely basis,
the outcome of which cannot be predicted at this time. These financial
statements do not give effect to any adjustments to the amounts and
classification of assets and liabilities what might be necessary should the
Company be unable to continue its operations as a going concern.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Corporation
and its subsidiaries. Intercompany transactions and balances have been
eliminated. Acquisitions during the period have been accounted for using the
purchase method.
The financial statements of the parent company and its subsidiaries have been
translated into U.S. dollars in accordance with the Financial Accounting
Standards Board (FASB) Statement No. 52, Foreign Currency Translation. All
assets, liabilities, revenues and expenditure amounts have been translated using
the exchange rates in effect at the applicable period end. Currency transaction
gains or losses are immaterial for all periods presented.
1
<PAGE> 62
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
REVENUE
Revenue from consulting, and other services is recognized at the time such
services are rendered. Revenue from software license sales are recognized upon
delivery, if collectability is assured. Revenue from maintenance or support
contracts is deferred and recognized ratably over the term of the contract.
CASH AND CASH EQUIVALENTS
Cash includes cash equivalents, which are investments that are generally held to
maturity and have terms of three months or less at the time of acquisition. Cash
equivalents typically consist of term deposits with major North American banks.
The carrying amounts of cash and cash equivalents are stated at cost, which
approximates their fair value.
FIXED ASSETS
Fixed assets are recorded at cost. Office furniture and equipment are amortized
20%, straight-line.
INTANGIBLE ASSETS
Intangible assets represents patent costs. Patent costs are recorded at cost.
Related amortization is calculated by the straight-line method over a period of
three years.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria and are expensed as incurred. Research costs are expensed as
incurred. The Corporation reassesses whether it has met the relevant criteria
for deferral and amortization at each reporting date.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws.
2
<PAGE> 63
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
NET LOSS PER SHARE
Net loss per common share has been computed on the basis of the weighted average
number of shares outstanding. In accordance with the rules of the Securities and
Exchange Commission, any stock sold at a nominal value, as compared to the
public offering, should be considered outstanding for the entire period.
2. ACCOUNTS RECEIVABLE
Accounts receivable include no allowance for doubtful accounts.
<TABLE>
<CAPTION>
3. FIXED ASSETS
1998
ACCUMULATED NET BOOK
----------------------------------
COST AMORTIZATION VALUE
$ $ $
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office furniture and equipment 3,771 (753) 3,018
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
4. INTANGIBLE ASSETS
1998
----------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Patents 6,040 (944) 5,096
==========================================================================================
</TABLE>
5. PURCHASE ACCOUNTING AND REVERSE TAKE-OVER
Effective June 17, 1998 Axyn Canada Corporation acquired 100% of the issued and
outstanding common shares of The Monroe Group Inc., a development stage
corporation consulting in the area of information technology and Year 2000
system solutions. As at the time of acquisition the company had net assets of
$2,377 which represented the fair market value.
3
<PAGE> 64
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
5. PURCHASE ACCOUNTING AND REVERSE TAKE-OVER (CONT'D)
Effective July 18, 1998, Axyn Corporation (formerly known as Thor Management
Group Inc.) acquired 100% of the issued and outstanding common shares of Axyn
Canada Corporation. At the date of acquisition, Axyn Corporation was a
non-operating company. By this transaction, sufficient common shares of Axyn
Corporation were issued so that a controlling interest of the corporate group
passed to the former shareholders of Axyn Canada Corporation. Accordingly, for
accounting purposes, Axyn Canada Corporation was treated as the purchaser, and
the acquisition was accounted for as a reverse take-over. The legal parent
company, Axyn Corporation, is deemed to be a continuation of Axyn Canada
Corporation and accordingly, these financial statements are a continuation of
the financial statements of the legal subsidiary, and not the legal parent. In
making the acquisition, Axyn Canada Corporation acquired net liabilities of
approximately $1,725 which amount has been expensed. The acquisition has been
accounted for using the purchase method with the cost of the purchase being a
nominal $1.
6. CONVERTIBLE LOANS
The convertible loans are non-interest bearing with no specified terms of
repayment; however, upon closing of any further public offering, the convertible
loan holders have the right to convert such loans to common stock at a value of
$1.50 per share.
7. SHAREHOLDER LOANS
Shareholder loans are due upon demand and bear interest at Nation Bank's prime
rate plus 2%.
8. COMMITMENTS AND CONTINGENCIES
The Corporation's offices and certain computer equipment are leased under
various terms. The annual aggregate lease expense in fiscal 1998 was $11,250.
The aggregate amount of payments for these operating leases, in each of the next
fiscal years are approximately as follows:
<TABLE>
<CAPTION>
$
- -----------------------------------------------------------------
<S> <C>
1999 10,200
2000 6,100
2001 6,100
</TABLE>
4
<PAGE> 65
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
8. COMMITMENTS AND CONTINGENCIES (CONT'D)
The Corporation has entered into an agreement with a related company for the use
of certain technology. An annual maintenance fee of $39,000 is due each year
that the technology is continued to be utilized by the Company. Furthermore,
revenues derived from the use or sale of such technology will be subject to a
maximum royalty of 39% payable to the related company. There were no such
charges during fiscal 1998.
The senior officers of the Corporation have employment agreements which provide
three years of severance upon termination for an aggregate of approximately
$1,125,000.
9. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
The Corporation operates internationally in one business segment. The
Corporation provides consulting services along with developing, marketing, and
supporting computer software tools. The Corporation markets and supports these
products both directly and through resellers. The Corporation is not dependent
on any single customer or group of customers or supplier.
There is no material concentration of credit risk related to the Corporation's
position in trade accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of The Corporation's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and short term
loans, approximate the fair value due to their short maturities.
10. INCOME TAXES
The reported income tax provision differs from the amount computed by applying
the US rate. The reasons for this difference and the related tax effects are as
follows:
<TABLE>
<CAPTION>
1998
$
- ------------------------------------------------------------------
<S> <C>
Expected tax rate 34.0%
Expected tax provision (96,000)
Foreign tax rate differences (29,000)
Losses not recognized 125,000
- ------------------------------------------------------------------
</TABLE>
5
<PAGE> 66
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
REPORTED INCOME TAX PROVISION 0%
- ------------------------------------------------------------------
6
<PAGE> 67
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
10. INCOME TAXES (CONT'D)
Deferred income taxes result principally from temporary differences in the
financial and tax reporting. Significant components of the Corporation's
deferred tax assets and liabilities as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
1998
$
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating tax loss carryforwards 125,000
Valuation allowance for deferred tax assets (125,000)
Net deferred tax assets --
</TABLE>
The net change in the total valuation allowance for the period ended June 30,
1998 was $125,000.
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income in certain legal entities. Realization is not likely. However,
this estimate could change in the near term as future taxable income in the
legal entities change.
As of June 30, 1998, the Corporation had tax loss carryforwards of approximately
$275,000 available to reduce future years' income for tax purposes. These losses
expire in 2004.
11. SEGMENTED INFORMATION
The Corporation has one reportable segment - computer software tools which the
Corporation sells as part of the Corporation's Year 2000 consulting services.
Revenue is derived from the licensing of software and the provision of related
services, which include product support, consulting and other services. The
Corporation generally licenses software and provides services subject to terms
and conditions consistent with industry standards.
Revenue, expenses, assets and liabilities are substantially in Canada.
7
<PAGE> 68
AXYN CORPORATION
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1998
12. SUBSEQUENT EVENTS
As at July 10, 1998, the Corporation filed, pursuant to an exemption under Rule
504 of Regulations D of the Securities Act of 1933, as amended (the "Act"), its
intent to raise capital solely to accredited and/or sophisticated investors,
400,000 common shares at $1.50 per share.
The Corporation is relying upon exemptions from registration believing it to be
available under federal and state securities laws in connection with the
offering. If it is later determined that a state law exemption was unavailable,
the Corporation may be required to rescind any sale(s) in that state and/or take
other steps as may be necessary to comply with the state's applicable securities
laws.
Subsequent to June 30, 1998 the Corporation has initiated development of a stock
option plan and a stock purchase plan.
13. PENDING ACCOUNTING STANDARDS
SFAS No. 133 which relates to accounting for derivative instruments and hedging
activities is pending and will be adopted by the Company in Fiscal 2000.
<PAGE> 69
Financial statements of
SYSCAN INTERNATIONAL INC.
June 30, 1999
<PAGE> 70
<TABLE>
<CAPTION>
SYSCAN INTERNATIONAL INC.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<S> <C>
Auditors' report..............................................................1
Statement of earnings and deficit.............................................2
Balance sheet.................................................................3
Statement of cash flows.......................................................4
Notes to the financial statements..........................................5-10
</TABLE>
<PAGE> 71
SAMSON BELAIR/DELOITTE & TOUCHE, S.E.N.C.
CHARTERED ACCOUNTANTS
1 Place Ville-Marie Telephone: (514) 393-7115
Suite 3000 Facsimile: (514) 390-4116
Montreal QC H3B 4T9
AUDITORS' REPORT
To the Shareholders of
Syscan International Inc.
We have audited the balance sheet of Syscan International Inc. as at June 30,
1999 and the statements of earnings and deficit and cash flows for the six-month
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 1999 and the
results of its operations and its cash flows for the six-month period then ended
in accordance with generally accepted accounting principles.
Chartered Accountants
July 22, 1999
<PAGE> 72
SYSCAN INTERNATIONAL INC.
STATEMENT OF EARNINGS AND DEFICIT
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
$ $
(6 MONTHS) (12 months)
---------- ----------
<S> <C> <C>
SALES 1,214,704 5,777,653
Cost of sales 1,231,244 3,888,609
---------- ----------
Gross (loss) profit (16,540) 1,889,044
---------- ----------
Expenses
Selling expenses 176,199 304,008
Administrative expenses 477,876 1,087,346
Financial expenses 46,263 123,776
---------- ----------
700,338 1,515,130
---------- ----------
Operating (loss) earnings (716,878) 373,914
Amortization of deferred charges 180,479 235,187
---------- ----------
(Loss) earnings before income taxes (897,357) 138,727
---------- ----------
Income taxes
Current (19,370) --
Deferred 8,861 19,735
---------- ----------
(10,509) 19,735
---------- ----------
NET (LOSS) EARNINGS (907,866) 158,462
Retained earnings, beginning of year 434,865 276,403
---------- ----------
(DEFICIT) RETAINED EARNINGS, END OF YEAR (473,001) 434,865
========== ==========
(Loss) earnings per share (0.05) 0.01
</TABLE>
Page 2 of 10
<PAGE> 73
SYSCAN INTERNATIONAL INC.
BALANCE SHEET
AS AT JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
$ $
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash -- 89,194
Accounts receivable (Note 3) 1,006,206 2,406,723
Inventories 1,535,495 924,115
Prepaid expenses 4,800 25,241
---------- ----------
2,546,501 3,445,273
Fixed assets (Note 4) 138,422 158,311
Deferred charges (Note 5) 559,568 736,037
---------- ----------
3,244,491 4,339,621
========== ==========
LIABILITIES
Current liabilities
Bank overdraft 17,870 --
Bank loans (Note 6) 302,143 1,112,432
Accounts payable and accrued charges 1,825,237 1,236,222
Deferred income 42,633 26,493
---------- ----------
2,187,883 2,375,147
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock (Note 7) 1,027,000 1,027,000
Contributed surplus 502,609 502,609
(Deficit) retained earnings (473,001) 434,865
---------- ----------
1,056,608 1,964,474
---------- ----------
3,244,491 4,339,621
========== ==========
</TABLE>
APPROVED BY THE BOARD
............................................Director
............................................Director
Page 3 of 10
<PAGE> 74
SYSCAN INTERNATIONAL INC.
STATEMENT OF CASH FLOWS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
$ $
(6 MONTHS) (12 months)
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) earnings (907,866) 158,462
Items not affecting cash
Depreciation of fixed assets 23,174 51,568
Amortization of deferred charges 180,479 235,187
---------- ----------
Deferred income taxes (8,861) (19,735)
(713,074) 425,482
Changes in non-cash operating working
capital items (Note 11) 1,414,733 (833,657)
---------- ----------
701,659 (408,175)
---------- ----------
FINANCING ACTIVITIES
Bank loans (810,289) 662,432
---------- ----------
INVESTING ACTIVITIES
Advances -- 84,000
Acquisition of fixed assets (3,285) (45,950)
Deferred charges 4,851 (164,463)
---------- ----------
1,566 (126,413)
---------- ----------
Net cash outflow (107,064) 127,844
Cash position, beginning of year 89,194 (38,650)
---------- ----------
CASH POSITION, END OF YEAR (17,870) 89,194
========== ==========
Supplemental disclosure of cash flow information
Interest paid 21,566 85,396
Income taxes received 62,710 30,693
</TABLE>
Page 4 of 10
<PAGE> 75
SYSCAN INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
1. INCORPORATION
The Company was incorporated under the Canada Business Corporations Act on
May 21 , 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
Measurement uncertainty
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories
The inventories are valued at the lower of cost and net realizable value.
Cost is determined on the first in, first out basis.
Fixed assets and depreciation
The fixed assets are recorded at cost. Depreciation is recorded at rates
and on bases determined to amortize the cost of fixed assets over their
estimated useful lives, as follows:
<TABLE>
<CAPTION>
Methods Terms/Rates
------------------ ------------
<S> <C> <C>
Furniture and fixtures Declining balance 20%
Computer Declining balance 30%
Software Straight-line 5 years
Leasehold improvements Straight-line 5 years
</TABLE>
Page 5 of 10
<PAGE> 76
SYSCAN INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred charges
Research and development costs are expensed as incurred, except if the
costs are related to the development and set-up of new products and
systems and there is a reasonable assurance that they will be recovered.
All development costs, which are capitalized and included in deferred
charges, are amortized when commercial production begins, using the
straight-line method over a period of three years. Where permanent
impairment occurs, such capitalized costs are written off.
Income taxes are accounted for according to the deferral method. Deferred
income taxes result from the fact that the Company claims depreciation for
tax purposes in amounts which exceed the charges recorded in the accounts.
Foreign currency translation
Monetary assets and liabilities denominated in a foreign currency are
translated into Canadian dollars at the rate of exchange in effect at the
balance sheet date. Non-monetary assets and liabilities are translated at
the rate of exchange in effect on the dates of translation. Revenue and
expense items are translated into Canadian dollars at the rate of exchange
in effect on the dates they occur. Exchange gains or losses that arise on
translation are included in the determination of net income for the
current period.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
$ $
--------- ---------
<S> <C> <C>
Trade 860,327 2,178,764
Investment tax credits receivable * 110,760 110,760
Income taxes receivable 20,861 102,941
Other 14,258 14,258
--------- ---------
1,006,206 2,406,723
========= =========
</TABLE>
* The investment tax credits receivable will be applied against future income
taxes of the Company.
Page 6 of 10
<PAGE> 77
SYSCAN INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
4. FIXED ASSETS
December 31,
JUNE 30, 1999 1998
-------------------------------------------- ------------
Accumulated
Depreciation
and Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Furniture and fixtures 157,771 111,048 46,723 51,914
Computer 402,262 324,015 78,247 88,482
Software 22,615 16,026 6,589 8,853
Leasehold improvements 25,787 18,924 6,863 9,062
----------- -------------- ------------- ----------
608,435 470,013 138,422 158,311
=========== ============== ============= ==========
</TABLE>
5. DEFERRED CHARGES
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
------- ------------
$ $
<S> <C> <C>
Development costs 514,172 694,652
Deferred income taxes 28,596 19,735
Others 16,800 21,650
------- -------
559,568 736,037
======= =======
</TABLE>
6. BANK LOANS
A bank loan of $250,000 is secured by a movable hypothec on book debts and
by a pledge on inventories at a preferential rate increase of 0.75%. The
other loan of $52,143 is secured by fixed assets at a preferential rate
increase of 2.40%.
7. CAPITAL STOCK
Authorized
An unlimited number of common shares, voting and participating
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
--------- ---------
$ $
<S> <C> <C>
Issued
18,148,763 common shares 1,027,000 1,027,000
========= =========
</TABLE>
Page 7 of 10
<PAGE> 78
SYSCAN INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
8. COMMITMENTS
The Company is committed, by the landlord, to a lease for its premises
expiring during the next year and to pay additional rents concerning the
escalation charges, such as insurance, taxes and heating. The minimum
rental payments for the nest year will amount to 77 880 $.
The Company is also committed to lease contracts on its equipment expiring
during the next year for a total amount of $6,352.
9. CREDIT RISK
Credit risk arises from the potential that a counterpart will fail to
perform its obligations. The Company conducts an assessment of credit
issued prior to committing to the investment and monitors the financial
health of its investees on an ongoing basis.
In addition, the Company is exposed to credit risk from customers.
However, the Company's businesses have diverse customers, which minimizes
concentration of credit risk.
10. INCOME TAXES
The Company has losses for income tax purposes totalling $1,075,650 at
Federal and $898,489 at Provincial for which the tax benefits have not
been recognized in the financial statements. These losses can be deducted
from future years' taxable income and expire as follows:
<TABLE>
<CAPTION>
Federal Provincial
------------------- ----------------
$ $
<S> <C> <C>
2000 132,171 132,171
2002 177,161 -
2003 60,299 60,299
2004 182,494 182,494
2006 523,525 523,525
</TABLE>
Research and development expenses totalling approximately $585,000 at
federal and $681,000 at provincial have not been deducted from income
taxes at the end of the current year, but can be deducted from income
taxes in subsequent years. The resulting earnings benefit has not been
recognized in the current year.
Page 8 of 10
<PAGE> 79
SYSCAN INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
11. CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
$ $
---------- ----------
<S> <C> <C>
Accounts receivable 1,400,517 (814,367)
Inventories (611,380) (377,384)
Prepaid expenses 20,441 6,352
Accounts payable and accrued charges 589,015 373,864
Deferred income 16,140 (22,122)
---------- ----------
1,414,733 (833,657)
========== ==========
</TABLE>
12. RECONCILIATION TO UNITED STATES GAAP
The Syscan International Inc. financial statement for the years ended
December 31, 1996, 1997 and 1998 have been prepared in accordance with
Canadian Generally Accepted Accounting Principles. They differ from those
generally accepted in the United States.
The consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP. The following adjustments and/or additional
disclosures, would be required in order to present the financial
statements in accordance with U.S. GAAP.
Under U.S. GAAP, the net earnings and earnings per common share figures
for the years ended December 31, 1998, 1996 and 1997 would be adjusted as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
$ $ $
<S> <C> <C> <C>
Net (loss) earnings
Canadian GAAP 158,462 (283,343) (35,837)
Adjustment to research and
development costs (142,848) (487,666) (332,365)
Adjustment to amortization of
deferred costs 205,873 62,355 --
Adjustment to income tax provision -- -- --
U.S. GAAP 221,487 (708,654) (368,202)
Earnings Per Common Share
based on U.S. GAAP 0.02 (0.06) --
</TABLE>
Page 9 of 10
<PAGE> 80
SYSCAN INTERNATIONAL INC.
NOTES TO THE FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
12. RECONCILIATION TO UNITED STATES GAAP (CONTINUED)
The adjustments under U.S. GAAP would result in changes to the
Consolidated Balance Sheet of the Company as at December 31 as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
$ $ $
<S> <C> <C> <C>
Deferred cost - as reported 736,037 787,026 431,278
- U.S. GAAP 41,385 31,563 117,253
Shareholders' equity
- as reported 1,964,474 1,806,012 2,089,355
- U.S. GAAP 1,269,822 1,050,549 1,775,330
</TABLE>
13. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect a Company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
14. COMPARATIVE FIGURES
The prior year's figures have been reclassified to conform with the
presentation adopted in the current year.
Page 10 of 10
<PAGE> 81
AUDITOR'S REPORT
To the Shareholders of Syscan International Inc.
We have audited the balance sheet of Syscan International Inc. as at December
31, 1998 and the statements of earnings and retained earnings and changes in
financial position for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
/s/Samson Belisle Deloitte Touche
Chartered Accountants
March 5, 1999
<PAGE> 82
STATEMENT OF EARNINGS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Sales 5,777,653 4,323,125
Cost of sales 3,888,609 3,068,692
Gross profit 1,889,044 1,254,433
EXPENSES
Selling expenses 304,008 305,440
Administrative expenses 1,087,346 973,013
Financial expenses 123,776 108,728
1,515,130 1,387,181
Operating earnings (loss) 373,914 (132,748)
Amortization of deferred charge 235,187 150,295
Earnings (loss) before income taxes 138,727 (283,043)
INCOME TAXES
Current -- 300
Deferred 19,735 --
Net earnings (loss) 158,462 (283,343)
Retained earnings, beginning of year 276,403 559,746
Retained earnings, end of year 434,865 276,403
0,01 (0,02)
</TABLE>
<PAGE> 83
BALANCE SHEET
AS AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash 89,194 --
Accounts receivable (Note 3) 2,406,723 1,592,356
Inventories 924,115 546,731
Prepaid expenses 25,241 31,593
Advances from a shareholder, -- 84,000
receivable within one year
3,445,273 2,254,680
Fixed assets (Note 4) 158,311 163,929
Deferred charges (Note 5) 736,037 787,026
4,339,621 3,205,635
LIABILITIES
Current liabilities
Bank overdraft 38,650
Bank loans (Note 6) 1,112,432 450,000
Accounts payable and accrued 1,236,222 862,358
charges
Deferred income 26,493 48,615
2,375,147 1,339,623
SHAREHOLDER'S EQUITY
Capital stock (Note 7) 1,027,000 1,027,000
Contributed surplus 502,609 502,609
Retained earnings 434,865 276,403
1,964,474 1,806,012
4,339,621 3,205,635
</TABLE>
<PAGE> 84
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) 158,462 (283,343)
Items not affecting cash
Depreciation of fixed assets 51,568 56,990
Amortization of deferred charges 235,187 150,295
Deferred Income taxes (19,735) --
425,482 (76,058)
Changes in non-cash operating (833,657) 104,974
working capital items (Note 11)
(408,175) 28,916
INVESTING ACTIVITIES
Advances 84,000 80,200
Acquisition of fixed assets (45,950) (20,652)
Deferred charges (164,463) (506,043)
(126,413) (446,495)
Net cash outflow (534,588) (417,579)
Cash position, beginning of year (488,650) (71,071)
CASH POSITION, END OF YEAR (1,023,238) (488,650)
</TABLE>
Cash position comprises cash, bank overdraft and bank loan
<PAGE> 85
NOTES TO THE FINANCIAL STATEMENTS
1. INCORPORATION
The Company was incorporated under the Canada Business Corporations Act on May
21 1996, bearing the name Dachatech Inc.
On November 1, 1996, Dachatech Inc. changed its name to Syscan International
Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
MEASUREMENT UNCERTAINTY
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES
The inventories are valued at the lower of cost and net realizable value. Cost
is determined on the first in, first out basis.
FIXED ASSETS AND DEPRECIATION
The fixed assets are recorded at cost. Depreciation is recorded at rates and on
bases determined to amortize the cost of fixed assets over their estimated
useful lives, as follows:
<TABLE>
<CAPTION>
METHODS TERMS/RATES
------- -----------
<S> <C> <C>
Furniture Declining balance 20%
Computer Declining Balance 30%
Software Straight-line 5 years
Leasehold improvements Straight-line 5 years
</TABLE>
DEFERRED CHARGES
Reorganization expenses related to the setting up of the Company have been
capitalized and totally amortized over eighteen months. Research and development
costs are expensed as incurred, except if the costs are related to the
development and set-up of new products and systems and there is a reasonable
assurance that they will be recovered. All development costs, which are
capitalized and included in deferred charges, are amortized when commercial
production begins, using the straight-line method over a period of three years.
Where permanent impairment occurs, such capitalized costs are written off.
Income taxes are accounted for according to the deferral method. Deferred income
taxes result from the fact that the Company claims depreciation for tax purposes
in amounts which exceed the charges recorded in the accounts.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in a foreign currency are translated
into Canadian dollars at the rate of exchange in effect at the balance sheet
date. Non-monetary assets and liabilities are translated at the rate of exchange
in effect on the dates of translation. Revenue and expense items are translated
into Canadian dollars at the rate of exchange in effect on the dates they occur.
Exchange gains or losses that arise on translation are included in the
determination of net income for the current period.
<PAGE> 86
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
$ $
--------- ---------
<S> <C> <C>
Trade 2,178,764 1,371,932
Investment tax credits receivable* 110,760 77,085
Income taxes receivable 102,941 126,321
Other 14,258 17,018
2,406,723 1,592,356
</TABLE>
* The investment tax credits receivable will be applied against future income
taxes of the company.
4. FIXED ASSETS
<TABLE>
<CAPTION>
ACCUMULATED AND 1998 1997
DEPRECIATED NET BOOK VALUE NET BOOK VALUE
COST $ $ $
------- ------- ------- -------
<S> <C> <C> <C> <C>
Furniture 157,771 105,857 51,914 56,912
Computer 398,977 310,495 88,482 87,287
Software 22,615 13,762 8,853 13,674
Leasehold Improvements 25,787 16,725 9,062 6,056
605,150 446,839 158,311 163,929
</TABLE>
5. DEFERRED CHARGES
<TABLE>
<CAPTION>
1998 1997
$ $
------- -------
<S> <C> <C>
Development costs 694,652 755,463
Reorganization expenses -- 29,313
Deferred income taxes 19,735
Others 21,650 2,250
736,037 787,026
</TABLE>
6. BANK LOANS
A bank loan of $660,000 is secured by a movable hypothec on book debts and by a
pledge on inventories at a preferential rate increase of 0.75%. The other loan
of $452,432 is secured by specific debts.
7. CAPITAL STOCK
Authorized
An unlimited number of common shares, voting and participating
<TABLE>
<CAPTION>
1998 1997
$ $
--------- ---------
<S> <C> <C>
Issued 18,148,763 common shares 1,027,000 1,027,000
</TABLE>
8. COMMITMENTS
<PAGE> 87
The Company is committed, by the landlord, for eighteen months after work
improvements to a lease for its premises for a total amount of $184,258 and to
pay additional rents concerning the escalation charges, such as insurance, taxes
and heating. The rent payments for the next two years will amount to:
<TABLE>
<S> <C>
1998 $136,648
1999 $ 47,610
</TABLE>
The Company is also committed to lease contracts on its equipment, for which
payments for the next two years will amount to:
<TABLE>
<S> <C>
1999 $17,442
2000 $ 6,352
</TABLE>
9. CREDIT RISK
Credit risk arises from the potential that a counterpart will fail to perform
its obligations. The Company conducts an assessment of credit issued prior to
committing to the investment and monitors the financial health of its investees
on an ongoing basis. In addition, the Company is exposed to credit risk from
customers. However, the Company's businesses have diverse customers, which
minimizes concentration of credit risk.
10. INCOME TAXES
The Company has losses for income tax purposes totalling $570,525 at Federal and
$393,364 at Provincial for which the tax benefits have not been recognized in
the financial statements. These losses can be deducted from future years'
taxable income and expire as follows:
<TABLE>
<CAPTION>
FEDERAL PROVINCIAL
$ $
------- -------
<S> <C> <C>
1999 18,400 18,400
2000 132,171 132,171
2002 177,161 --
2003 60,299 60,299
2004 182,494 182,494
</TABLE>
Research and development expenses totalling approximately $439,000 at federal
and $523,000 at provincial have not been deducted from income taxes at the end
of the current year, but can be deducted from income taxes in subsequent years.
The resulting earnings benefit has not been recognized in the current year.
<PAGE> 88
11. CHANGES IN NON-CASH
OPERATING WORKING
CAPITAL ITEMS
<TABLE>
<CAPTION>
1998 1997
$ $
-------- --------
<S> <C> <C>
Accounts receivable (814,367) (107,533)
Inventories (377,384) 160,475
Prepaid expenses 6,352 (9)
Accounts payable charges and accrued 373,864 62,594
Deferred income (22,122) (10,553)
(833,657) 104,974
</TABLE>
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect a Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
13. COMPARATIVE FIGURES
The prior year's figures have been reclassified to conform with the presentation
adopted in the current year,
<PAGE> 89
PART III
ITEM 1. INDEX TO EXHIBITS.
(b) The exhibits required by Part III of Form 1-A are set forth below.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C> <C>
(2) a. Articles of Incorporation.
b. Amendment one to Articles of Incorporation.
c [Deleted]
d. [Deleted]
e. Bylaws, incorporated by reference from Form 10-SB filed on August 6, 1999
(3)
(5)
(6) a. LE GROUPE MOBITECH INC. Share Purchase Agreement, incorporated by reference from
Form 10-SB filed on August 6, 1999. Schedules incorporated by reference from
Amendment No. One filed on September 7, 1999. Contract Summary included as part
of this Amendment No. Two.
b. PROFIL CDI MULTIMEDIA INC. Share Purchase Agreement, incorporated by reference from
Form 10-SB filed on August 6, 1999. Schedules incorporated by reference from
Amendment No. One filed on September 7, 1999. Schedule 1 included as part of this
Amendment No. Two.
c. S.I.Q. (SERVICE INTERNET QUEBEC) INC. Share Purchase Agreement incorporated by reference
from Form 10-SB filed on August 6, 1999. Schedules incorporated by reference from
Amendment No. One filed on September 7, 1999. Schedule 1 included as part of this
Amendment No. Two.
d. Department of Public Works and Government Services (DPWGS) - Standard Terms
and Conditions, incorporated by reference from Form 10-SB filed on August 6, 1999
e. Department of Public Works and Government Services - Standing Offer and
Call-up Authority, incorporated by reference from Form 10-SB filed on August 6, 1999
f. Scott Feagan Employment Agreement, incorporated by reference from Form 10-SB filed
on August 6, 1999
g. Robert Bell Employment Agreement, incorporated by reference from Form 10-SB filed
on August 6, 1999
h. Form of promissory note in favor of certain directors, incorporated by reference
from Form 10-SB filed on August 6, 1999
i. MPT MILLENNIUM PATENT TECHNOLOGIES CORPORATION LIMITED Distribution Agreement,
incorporated by reference from Form 10-SB filed on August 6, 1999. Schedules
incorporated by reference from Amendment No. One filed on September 7, 1999.
j. MPT MILLENNIUM PATENT TECHNOLOGIES CORPORATION LIMITED License Agreement,
incorporated by reference from Form 10-SB filed on August 6, 1999
k. Burlington Systems Integration Inc. Share Purchase Agreement, incorporated by
reference from Form 10-SB filed on August 6, 1999. Schedules incorporated by
reference from Amendment No. One filed on September 7, 1999.
l. Syscan International Inc. Share Purchase Agreement, incorporated by reference from
Form 10-SB filed on August 6, 1999. Schedules incorporated by reference from
Amendment No. One filed on September 7, 1999. A Consultancy Agreement with Daniel
Benoit and an Employment Agreement with Sylvain Benoit are included as schedules
to this exhibit as part of this Amendment No. Two.
m. Axyn Technologies Corporation Share Purchase Agreement, incorporated by reference
from Form 10-SB filed on August 6, 1999
n. Valuation of shares of Axyn Technologies Corporation.
o. Letter of Intent to Acquire Axyn International GMBH
p. Valuation of Shares of Axyn International GMBH
(10) a. Consent of Independent Auditors Ernst & Young LLP.
b. Consent of Independent Auditors Samson Belair/Deloitte & Touche.
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS.
Exhibits Attached.
Page 35
<PAGE> 90
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
AXYN CORPORATION
(Registrant)
Date: December 17, 1999 By /s/ Scott Feagan
-------------------------------------
Scott Feagan, President
Page 36
<PAGE> 1
EXHIBIT (2)a
ARTICLES OF INCORPORATION
OF
THOR MANAGEMENT GROUP, INC.
KNOW ALL MEN BY THESE PRESENTS:
That I, Scott M. Thornock, desiring to establish a corporation under the
name of THOR MANAGEMENT GROUP, INC., for the purpose of becoming a body
corporate under and by virtue of the laws of the State of Colorado and, in
accordance with the provisions of the laws of said State, do hereby make,
execute and acknowledge this certificate in writing of my intention to become a
body corporate, under and by virtue of said laws.
ARTICLE I
The name of the corporation shall be: THOR MANAGEMENT GROUP, INC.
ARTICLE II
The nature of the business and the objects and purposes to be transacted,
promoted and carried on are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do, and in any
part of the world, viz:
(a) To transact all lawful business for which corporations may be
incorporated pursuant to the Colorado Corporation Code.
(b) To manufacture, purchase or otherwise acquire and to hold, own,
mortgage or otherwise lien, pledge, lease, sell, assign, exchange,
transfer or in any manner dispose of, and to invest, deal and trade in and
with goods, wares, merchandise and personal property of any and every
class and description, within or without the State of Colorado.
(c) To acquire the goodwill, rights and property and to undertake
the whole or any part of the assets and liabilities of any person, firm,
association or corporation; to pay for the same in cash, the stock of the
corporation, bonds or otherwise; to hold or in any manner dispose of the
whole or any part of the property so purchased; to conduct in any lawful
manner the whole or any part of any business so acquired and to exercise
all the powers necessary or convenient in and about the conduct and
management of such business.
(d) To guarantee, purchase or otherwise acquire, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of shares of the capital
stock, bonds or other evidences of indebtedness created by other
corporations and, while the holder of such stock, to exercise all the
rights and privileges of ownership, including the right to vote thereon,
to the same extent as natural persons might or could do.
(e) To purchase or otherwise acquire, apply for, register, hold, use,
sell or in any manner dispose of and to grant licenses or other rights in
and in any
<PAGE> 2
manner deal with patents, inventions, improvements, processes, formulas,
trademarks, trade names, rights and licenses secured under letters patent,
copyright or otherwise.
(f) To enter into, make and perform contracts of every kind for any
lawful purpose, with any person, firm, association or corporation, town,
city, county, body politic, state, territory, government, colony or
dependency thereof.
(g) To borrow money for any of the purposes of the corporation and
to draw, make, accept, endorse, discount, executive, issue, sell, pledge
or otherwise dispose of promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable,
transferable or nontransferable instruments and evidences of indebtedness,
and to secure the payment thereof and the interest thereon by mortgage or
pledge, conveyance or assignment in trust of the whole or any part of the
property of the corporation at the time owned or thereafter acquired.
(h) To lend money to, or guarantee the obligations of, or to
otherwise assist the directors of the corporation or of any other
corporation the majority of whose voting capital stock is owned by the
corporation, upon the affirmative vote of at least a majority of the
outstanding shares entitled to vote for directors.
(i) To purchase, take, own, hold, deal in, mortgage or otherwise
pledge, and to lease, sell, exchange, convey, transfer or in any manner
whatever dispose of real property, within or without the State of Colorado.
(j) To purchase, hold, sell and transfer the shares of its capital
stock.
(k) To have one or more offices and to conduct any and all
operations and business and to promote its objects, within or without the
State of Colorado, without restrictions as to place or amount.
(l) To do any or all of the things herein set forth as principal,
agent, contractor, trustee, partner or otherwise, alone or in company with
others.
(m) The objects and purposes specified herein shall be regarded as
independent objects and purposes and, except where otherwise expressed,
shall be in no way limited or restricted by reference to or inference from
the terms of any other clauses or paragraph of these Articles of
Incorporation.
(n) The foregoing shall be constructed both as objects and powers
and the enumeration thereof shall not be held to limit or restrict in any
manner the general powers conferred on this corporation by the laws of the
State of Colorado.
ARTICLE III
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is 11,000,000 of which 1,000,000
shall be shares of preferred stock, $.001 par value per share, and 10,000,000
shall be shares of common stock, $.0001 par value per share, and the
designations, preferences, limitations and relative rights of the shares of
each class shall be as follows:
-2-
<PAGE> 3
(a) Shares of Preferred Stock. The corporation may divide and
issue the shares of preferred stock in series. Shares of preferred stock
of each series, when issued, shall be designated to distinguish them from
the shares of all other series. The Board of Directors is hereby vested
with authority to divide the class of shares of preferred stock into
series and to fix and determine the relative rights and preferences of the
shares of any such series so established to the full extent permitted by
these Articles of Incorporation and the Colorado Corporation Code in
respect of the following:
(i) The number of shares to constitute such series, and the
distinctive designations thereof;
(ii) The rate and preference of dividends, if any, the time
of payment of dividends, whether dividends are cumulative and the
date from which any dividends shall accrue;
(iii) Whether shares may be redeemed and, if so, the
redemption price and the terms and conditions of redemption;
(iv) The amount payable upon shares in event of involuntary
liquidation;
(v) The amount payable upon shares in event of voluntary
liquidation;
(vi) Sinking fund or other provisions, if any, for the
redemption or purchase of shares;
(vii) The terms and conditions upon which shares may be
converted, if the shares of any series are issued with the privilege
of conversion;
(viii) Voting powers, if any; and
(ix) Any other relative rights and preferences of shares of
such series, including, without limitation, any restriction on an
increase in the number of shares of any series theretofore
authorized and any limitation or restriction of rights or powers to
which shares of any future series shall be subject.
(b) Shares of Common Stock. The rights of holders of shares of
common stock to receive dividends or share in the distribution of assets
in the event of liquidation, dissolution or winding up of the affairs of
the corporation shall be subject to the preferences, limitations and
relative rights of the shares of preferred stock fixed in the resolution
or resolutions which may be adopted from time to time by the Board of
Directors of the corporation providing for the issuance of one or more
series of shares of preferred stock.
The capital stock, after the subscription price has been paid in, shall
not be subject to assessment to pay the debts of the corporation. Any stock of
the corporation may be issued for money, property, services rendered, labor
done, cash advances for the corporation or for any other assets of value in
accordance with the action of the Board of Directors, whose judgment as to
value received in return therefor shall be conclusive and said stock when
issued shall be fully-paid and nonassessable.
-3-
<PAGE> 4
ARTICLE IV
The corporation shall have perpetual existence.
ARTICLE V
The governing board of this corporation shall be known as the Board of
Directors, and the number of directors may from time to time be increased in
such manner as shall be provided by the Bylaws of this corporation.
The name and post office address of the incorporator is as follows:
Scott M. Thornock 1422 Delgany Street
Denver, Colorado 80202
The name and post office address of the directors comprising the original
Board of Directors of the corporation are as follows:
Scott M. Thornock 1422 Delgany Street
Denver, Colorado 80202
Jeff H. Lee 1422 Delgany Street
Denver, Colorado 80202
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(a) To manage and govern the corporation by majority vote of members
present at any regular or special meeting at which a quorum shall be
present unless the act of a greater number is required by the laws of the
state of incorporation, these Articles of Incorporation or the Bylaws of
the Corporation.
(b) To make, alter, or amend the Bylaws of the corporation at any
regular or special meeting.
(c) To fix the amount to be reserved as working capital over and
above its capital stock paid in.
(d) To authorize and cause to be executed mortgages and liens upon
the real and personal property of this corporation.
(e) To designate one or more committees, each committee to consist
of two or more of the directors of the corporation, which, to the extent
provided by resolution or in the Bylaws of the corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the corporation. Such committee or committees
shall have such name or names as may be stated in the Bylaws of the
corporation or as may be determined from time to time by resolution
adopted by the Board of Directors.
The Board of Directors shall have power and authority to sell, lease,
exchange or otherwise dispose of all or substantially all of the property and
assets of the corporation, if in the usual and regular course of its business,
upon such terms and conditions as the Board of Directors may determine without
vote or consent of its shareholders.
-4-
<PAGE> 5
The Board of Directors shall have power and authority to sell, lease,
exchange or otherwise dispose of all or substantially all the property or
assets of the corporation, including its goodwill, if not in the usual and
regular course of its business, upon such terms and conditions as the Board of
Directors may determine, provided that such sale shall be authorized or
ratified by the affirmative vote of the shareholders of at least a majority of
the shares entitled to vote thereon at a shareholders' meeting called for that
purpose, or when authorized or ratified by the written consent of all the
shareholders of the shares entitled to vote thereon.
The Board of Directors shall have the power and authority to merge or
consolidate the corporation upon such terms and conditions as the Board of
Directors may authorize, provided that such merger or consolidation is approved
or ratified by the affirmative vote of the shareholders of at least a majority
of the shares entitled to vote thereon at a shareholders meeting called for
that purpose, or when authorized or ratified by the written consent of all the
shareholders of the shares entitled to vote thereon.
The corporation shall be dissolved upon the affirmative vote of the
shareholders of at least a majority of the shares entitled to vote thereon at a
meeting called for that purpose, or when authorized or ratified by the written
consent of all the shareholders of the shares entitled to vote thereon.
The corporation shall revoke voluntary dissolution proceedings upon the
affirmative vote of the shareholders of at least a majority of the shares
entitled to vote at a meeting called for that purpose, or when authorized or
ratified by the written consent of all the shareholders of the shares entitled
to vote thereon.
ARTICLE VI
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the corporation, and the same are in
furtherance of and not in limitation of the powers conferred by law.
No contract or other transactions of the corporation with any other
person, firm or corporation, or in which this corporation is interested, shall
be affected or invalidated by (a) the fact that any one or more of the
directors or officers of this corporation is interested in or is a director or
officer of such other firm or corporation; or (b) the fact that any director
or officer of this corporation, individually or jointly with others, may be a
party to or may be interested in any such contract or transaction, so long as
the contract or transaction is authorized, approved or ratified at a meeting of
the Board of Directors by sufficient vote thereon by directors not interested
therein, to whom such fact or relationship or interest has been disclosed, or
so long as the contract or transaction is fair and reasonable to the
corporation. Each person who may become a director or officer of the
corporation is hereby relieved from any liability that might otherwise arise
by reason of his contracting with the corporation for the benefit of himself or
any firm or corporation in which he may be in any way interested.
The officers, directors and other members of management of this
corporation shall be subject to the doctrine of corporate opportunities only
insofar as it applies to business opportunities in which this corporation has
expressed an interest as determined from time to time by the corporation's
Board of Directors as evidenced by resolutions appearing in the corporation's
minutes. When such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
officers, directors and other members of management of this corporation shall
be disclosed promptly to this corporation and made available to it. The Board
of Directors may reject any business opportunity presented to it and thereafter
any officer, director or other member of management may avail himself of such
opportunity. Until
- 5 -
<PAGE> 6
such time as this corporation, through its Board of Directors, has designated an
area of interest, the officers, directors and other members of management of
this corporation shall be free to engage in such areas of interest on their own
and the provisions hereof shall not limit the right of any officer, director or
other member of management of this corporation to continue a business existing
prior to the time that such area of interest is designated by this corporation.
This provision shall not be construed to release any employee of the
corporation (other than an officer, director or member of management) from any
duties which he may have to the corporation.
ARTICLE VII
Each director and officer of the corporation shall be indemnified by the
corporation as follows:
(a) The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by
him in connection with such action, suit or proceeding, if he acted in
good faith and in a manner he reasonably believed to be, or not opposed
to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere
or its equivalent, shall not of itself create a presumption that the
person did not act in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation, to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation, unless, and only to the extent that, the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably entitled
to indemnification for such expenses which such court deems proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections (a) and (b) of this
Article, or in defense of
-6-
<PAGE> 7
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under Section (a) or (b) of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the officer,
director and employee or agent is proper in the circumstances, because he has
met the applicable standard of conduct set forth in Section (a) or (b) of this
Article. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum, consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such quorum is not obtainable or, even
if obtainable, if a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the affirmative
vote of the holders of a majority of the shares of stock entitled to vote and
represented at a meeting called for such purpose.
(e) Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding, as authorized in
Section (d) of this Article, upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount, unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
(f) The Board of Directors may exercise the corporation's power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under this Article.
(g) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under these Articles of Incorporation, the Bylaws, agreements, vote of
the shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs and
personal representatives of such a person.
ARTICLE VIII
The initial registered and principal office of said corporation shall be
located at 1422 Delgany Street, Denver, Colorado 80202, and the initial
registered agent of the corporation at such address shall be Scott M. Thornock.
Part or all of the business of said corporation may be carried on in the
County of Denver, or any other place in the State of Colorado or beyond the
limits of the State of Colorado, in other states or territories of the United
States and in foreign countries.
-7-
<PAGE> 8
ARTICLE IX
Whenever a compromise or arrangement is proposed by the corporation
between it and its creditors or any class of them, and/or between said
corporation and its shareholders or any class of them, any court of equitable
jurisdiction may, on the application in a summary way by said corporation, or
by a majority of its stock, or on the application of any receiver or receivers
appointed for said corporation, or on the application of trustees in
dissolution, order a meeting of the creditors or class of creditors and/or of
the shareholders or class of shareholders of said corporation, as the case may
be, to be notified in such manner as the said court decides. If a majority in
number, representing at least three-fourths in amount of the creditors or class
of creditors, and/or the holders of a majority of the stock or class of stock
of said corporation, as the case may be, agree to any compromise or arrangement
and/or to any reorganization of said corporation, as a consequence of such
compromise or arrangement, the said compromise or arrangement and/or the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding upon all the creditors or class of creditors,
and/or on all the shareholders or class of shareholders of said corporation, as
the case may be, and also on said corporation.
ARTICLE X
No shareholder in the corporation shall have the preemptive right to
subscribe to any or all additional issues of stock and/or other securities of
any or all classes of this corporation or securities convertible into stock or
carrying stock purchase warrants, options or privileges.
ARTICLE XI
Meetings of shareholders may be held at any time and place as the Bylaws
shall provide. At all meetings of the shareholders, one-third of all shares
entitled to vote shall constitute a quorum.
ARTICLE XII
Cumulative voting shall not be allowed.
ARTICLE XIII
These Articles of Incorporation may be amended by resolution of the Board
of Directors if no shares have been issued, and if shares have been issued, by
affirmative vote of the shareholders of at least a majority of the shares
entitled to vote thereon at a meeting called for that purpose, or, when
authorized, when such action is ratified by the written consent of all the
shareholders of the shares entitled to vote thereon.
ARTICLE XIV
Any action for which the laws of the State of Colorado require the
approval of two-thirds of the shares of any class or series entitled to vote
with respect thereto, unless otherwise provided in the Articles of
Incorporation, shall require for approval the affirmative vote of a majority of
the shares of any class or series outstanding and entitled to vote thereon.
-8-
<PAGE> 9
ARTICLE XV
No director shall be personally liable to the corporation or any
shareholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 7-5-114 of the Colorado Revised Statutes, or any amendment thereto or
successor provision thereto and except for any matter in respect of which such
director shall be liable by reason that he (i) has breached his duty of loyalty
to the corporation or its shareholders, (ii) has not acted in good faith or, in
failing to act, has not acted in good faith, (iii) has acted in a manner
involving intentional misconduct or a knowing violation of law or, in failing
to act, has acted in a manner involving intentional misconduct or a knowing
violation of law, or (iv) has derived an improper personal benefit. Neither the
amendment nor repeal of this Article XV, nor the adoption of any provision of
the Articles of Incorporation inconsistent with this Article XV, shall
eliminate or reduce the effect of this Article XV in respect of any matter
occurring, or any cause of action, suite or claim that, but for this Article XV
would accrue or arise prior to such amendment, repeal or adoption of an
inconsistent provision.
IN TESTIMONY WHEREOF, I have hereunto set my hand on this 12th day of
January, 1998, and, by my signature below, I hereby further consent to my
appointment as the initial registered agent of the corporation.
/s/ SCOTT M. THORNOCK
----------------------------------------
Scott M. Thornock
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
I, JEFFREY BENTEL, a Notary Public, in and for the said county and state,
hereby certify that there personally appeared before me, Scott M. Thornock, who
being first duly sworn, declared that he is the person who executed the
foregoing document as the incorporator and the initial registered agent of the
corporation, and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of
January, 1998.
My commission expires: 9/9/2001 /s/ JEFFREY BENTEL
----------------------------------------
Notary Public
<PAGE> 1
EXHIBIT (2)b
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
THOR MANAGEMENT GROUP, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The Name of the Corporation is Thor Management Group, Inc.
SECOND: The following amendment to the Articles of Incorporation was
adopted on June 17, 1998, as prescribed by the Colorado Business Corporation
Act, in the manner marked with an X below:
[ ] No shares have been issued or Directors Elected -- Action by
Incorporators
[ ] No shares have been issued but Directors Elected -- Action by
Directors
[ ] Such amendment was adopted by the board of directors where
shares have been issued.
[X] Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for approval.
Article I of the Corporation's Articles of Incorporation shall be amended
so that, as amended, Article I will read in its entirety as set forth below:
ARTICLE I
The name of the corporation shall be: AXYN Corporation.
Article III of the Corporation's Articles of Incorporation shall be
amended so that, as amended, the first paragraph of Article III will read in
its entirety as set forth below and, except as amended in the manner provided
below, the remainder of Article III of the Articles of Incorporation will
remain in full force and effect:
ARTICLE III
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is 31,000,000, of which
1,000,000 shall be shares of preferred stock, $.001 par value per share,
and 30,000,000 shall be shares of common stock, $.0001 par value per
share, and the designations, preferences, limitations and relative rights
of the shares of each class shall be as follows:
<PAGE> 2
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: None.
If these amendments are to have a delayed effective date, please list that
date: Not applicable.
(Not to exceed ninety (90) days from the date of filing)
THOR MANAGEMENT GROUP, INC.
By: /s/ SCOTT M. THORNOCK
----------------------------
Scott M. Thornock, Secretary
<PAGE> 1
EXHIBIT 6(a)
CONTRACT SUMMARY
BETWEEN
LE CENTRE DE SANTE DE LA BASE COTE-NORD
AND
MOBITECHVISIO, AUTHORIZED DISTRIBUTOR OF TANDBERG,
710, RUE BOUVIER SUITE 103
QUEBEC, CANADA
<PAGE> 2
EQUIPMENTS
BLANC-SABLON
<TABLE>
<S> <C>
- Vision 800 $14,990
- Monitor 48" SONY $ 4,000
- Stand $ 875
- Mixer $ 1,490
- 4 microphones $ 1,200
- ELMO EV-400 Camera $ 4,590
- PC/SVGA Converter $ 2,650
- RNIS Adapter $ 820
Total:$30,615
Final Price: $27,553
</TABLE>
ST-AUGUSTIN/LA TABATIERE/CHEVERY
<TABLE>
<CAPTION>
<S> <C> <C>
TRAINING & MEETING ROOM
Vision 800 $ 14,990
Monitor 33" $ 2,330
RNIS Adapter $ 820
EXAM ROOM
Camera Sony with infrared control and tripod $ 2,475
Stand with wheels $ 875
Monitor 14" $ 495
Microphone $ 350
Video amplifier $ 396
Video mixer (medical equipment) $ 360
Back Up Monitor 9" Sony $ 560
Total: $ 5,511/ea
Final Price: $21,285/ea
OTHER SITES(6)
Vision 800
Monitor 27" with stand
RNIS Adaptor
Total $16,810/ch
EQUIPMENT TOTAL
Blanc-Sablon $ 27,533
St- Augustin/La Tabatiere/Chevery $ 63,855
Other sites(6) $ 100,860
GRAND TOTAL: $ 192,268
PERIPHERAL EQUIPMENT
Cardiac Monitor $ 33,000
INSTALLATION, MATERIALS & TRAINING
Blanc-Sablon $ 1,425
St-Augustin/La Tabatiere/Chevery $ 1,875/ea
Other Sites(6) $ 950/ea
TOTAL OF INSTALLATIONS: $ 12,750
</TABLE>
<PAGE> 3
- - All parts for installation will be provided by the supplier.
- - Transportation and travel and living expenses for the technician between
installation sites will be paid for by the client.
- - The supplier will assume responsibility for travel by the technician
between Quebec and Blanc-Sablon.
- - Training will be provide on site in two phases - technical and
practical.
TRANSPORTATION OF EQUIPMENT
The supplier will assume full responsibility for the transportation of the
equipment.
<TABLE>
<S> <C>
All equipment will be FOB destination.
TOTAL: $ 3,500
</TABLE>
MAINTENANCE AND WARRANTY
- - System warranty is one year and includes parts and on-site labor.
- - Telephone Support response time - 2 hours.
- - Replacement parts and technical on-site support - 48 hours.
- - Technical support - regular office hours (8:00 am to 5:00 pm).
- - Technical support evening and weekends as required at no charge.
SERVICE CONTRACT
Terms of the service contract are as follows:
- - System maintenance.
- - Defective parts replacement and related labour.
- - Telephone Support response time - 2 hours.
- - Replacement parts and technical on-site support - 48 hours.
- - Technical support - regular office hours (8:00 am to 5:00 pm).
- - Technical support evening and weekends as required at no charge.
- - Service contract will come in effect at the end of the first year
warranty.
<TABLE>
<S> <C>
Cost per system: $ 1,350 Total Cost: $ 13,500/year
</TABLE>
<PAGE> 4
DELIVERY & INSTALLATION
Delivery six (6) weeks after receipt of order. Installation two (2) weeks.
SUMMARY
<TABLE>
<S> <C>
Equipment and Maintenance $265,768
Installation and Training $ 12,750
Transportation of Equipment $ 3,500
GRAND TOTAL $282,018
</TABLE>
Note: Taxes extra.
<PAGE> 1
EXHIBIT 6(b)
SCHEDULE 1 - JUNE 30, 1999 FINANCIAL STATEMENTS
PROFIL CDI MULTIMEDIA
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
Bank Overdraft (805)
Accounts Receivable 153,742
R&D 40,618
Office Equipment 2,181
Computer Equipment 21,748
217,484
LIABILITIES
Accounts Payables 213,231
EQUITY
Common Stock 10,107
Current Month Loss (659)
Dividends (51,307)
Retained Earnings 46,112
Total Equity 4,253
Total Liability & Equity 217,484
Revenue 51,632
Cost of Sales 12,612
Gross Margin 39,020
Expenses 20,097
18,923
</TABLE>
<PAGE> 1
EXHIBIT 6(c)
SCHEDULE 1 - FINANCIAL STATEMENTS
S.I.Q. (SERVICES INTERNET QUEBEC) INC.
INCOME STATEMENT
PERIOD 01 JUNE 1999 TO 30 JUNE 1999
<TABLE>
<S> <C>
Revenues 24,958
Expenses 6,710
Net Income 18,248
BALANCE SHEET
30 JUIN 1999
ASSETS
Bank Overdraft (615)
Accounts Receivable 69,383
Office Equipment 5,278
Computer Equipment 74,215
148,261
LIABILITIES
Accounts Payable 62,114
Equity 86,147
148,261
</TABLE>
<PAGE> 1
EXHIBIT 6(L)
CONSULTANCY AGREEMENT
THIS AGREEMENT made the 30th day of June 1999.
BETWEEN: SYSCAN INTERNATIONAL INC., a corporation
incorporated under the laws of Canada,
(hereinafter called "SYSCAN")
OF THE FIRST PART
AND: 2977541 CANADA INC., a corporation
incorporated under the laws of Canada,
(hereinafter called "2977541")
AND: DANIEL C. BENOIT, businessman of Montreal,
Quebec,
(hereinafter called "Benoit")
OF THE SECOND PART
AND: AXYN CANADA CORPORATION, a corporation
incorporated under the laws of Ontario,
(hereinafter called "AXYN CANADA")
OF THE THIRD PART
AND: AXYN CORPORATION, a corporation incorporated
under the laws of Colorado,
(hereinafter called "AXYN")
OF THE FOURTH PART
WHEREAS AXYN Canada, AXYN, 2977541 and Benoit have entered into a purchase
agreement concurrently with the present Agreement in virtue of which 2977541 and
Benoit have agreed to sell, assign and transfer to AXYN Canada which has agreed
to purchase from 2977541 and Benoit, 10,460,031 issued and outstanding common
shares in the capital stock of Syscan.
<PAGE> 2
AND WHEREAS Syscan wishes to retain 2977541 as a consultant for a period of 3
years, subject to a non-competition undertaking from 2977541;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT the parties hereto agree as follow:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. In this Agreement, the following terms shall have the
following meanings:
a) "AGREEMENT" means this Consulting Agreement and all instrument
delivered pursuant hereto or in amendment or confirmation
hereof; "hereof", "hereto" and "hereunder" and similar
expressions mean and refer to this Agreement and not to any
particular Article or Section-, "Article" or "Section" means and
refers to the specified article or Section of this Agreement;
b) "Person" includes an individual, partnership, corporation,
unincorporated organization, trust, joint venture, the Crown or
any agency or instrumentality thereof or any juridical entity.
1.2 DIVISION. HEADINGS, INDEX. The division of this Agreement into Articles,
Sections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation hereof.
1.3 GENDER AND NUMBER. Unless the context otherwise requires, words
importing the singular include the plural and vice versa and words
importing gender include all genders.
1.4 PROPER LAW OF AGREEMENT. This Agreement shall be governed and construed
in accordance with the laws of the Province of Quebec and the laws of
Canada applicable therein and shall be treated, in all respects, as an
Quebec contract. Each party hereby irrevocably attorns to and submits to
the exclusive jurisdiction of the Courts of Quebec with respect to any
matter arising hereunder or related hereto.
1.5 INVALIDITY OF PROVISIONS. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
unenforceability of any other provision hereof and any such invalid or
unenforceability provision shall be deemed to be severable.
1.6 ENTIRE AGREEMENT . This Agreement, together with the agreements and
other documents to be delivered pursuant hereto, constitute the entire
agreement between the parties hereto pertaining to the subject matter
hereof and supersede all prior agreements, understandings, negotiations
and discussions, whether written or oral, of the parties hereto, and
there are no warranties, representations or other agreements between the
parties in connection with the subject matter hereof except as
specifically set forth or referred to herein. No amendment, waiver or
termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided.
<PAGE> 3
1.7 SUCCESSORS -and Assigns. This Agreement shall be binding upon and shall
enure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and permitted assigns.
1.8 CURRENCY. Unless otherwise indicated, all dollar amounts referred to in
this Agreement are in Canadian funds.
1.9 TENDER . Any tender of documents or money hereunder may be made upon the
parties or their respective counsel and money be tendered by official
bank draft drawn upon a Canadian chartered bank or by negotiable cheque
payable in Canadian funds and certified by a Canada chartered bank or
trust company.
ARTICLE 2
RESIGNATION AND CONSULTANCY
2.1 RESIGNATION. Subject to the consultancy agreement provided in paragraph
2.2, Benoit hereby resigns from all his functions and offices at Syscan,
including as officer and employee of Syscan.
2.2 CONSULTANCY. Syscan hereby retains 2977541 as a consultant to perform
certain services for Syscan.
ARTICLE 3
TERM
3.1 Subject to the provisions Article 5 provided hereinunder, 2977541 will
have to render services as a consultant as of the date hereof and for a
period of three (3) years (the "Term").
ARTICLE 4
FEES
4.1 Syscan agrees to pay 2977541 for consulting services rendered only and
directly by Benoit to Syscan the amount of $1,000 per day, payable
monthly. Based on a minimum of 200 days per year, this represents
approximately $600,000 in service fees for three years.
<PAGE> 4
ARTICLE 5
TERMINATION
5.1 BY SYSCAN. Notwithstanding any other provision of this Agreement, Syscan
may terminate 2977541's consultancy at any time by written notice upon
payment of 1/3 of the balance of the service fees provided in Article 4.
5.2 INSURANCE. Syscan and 2977541 agree that Syscan will fund life insurance
coverage for Benoit at a minimum of $1.0 million payable to Syscan in
the event of the death or long term disability of Benoit.
ARTICLE 6
NON COMPETITION
6.1 NON COMPETITION. In consideration of the present Agreement, 2977541 and
Benoit hereby agree that they shall not, for a period of two (2) years
from the date of termination of the present Agreement, on their own
behalf or on behalf of any Person, directly or indirectly, in any
capacity whatsoever including, without limitation, as an employer,
employee, mandator, mandatory, principal, agent, joint venturer,
partner, shareholder or other equity holder, independent contractor,
licenser, licensee, franchiser, franchisee, distributor, consultant,
supplier, trustee or by, through or in connection with any Person, carry
on or be engaged in or have any financial or other interest in or be
otherwise commercially involved in any endeavour, activity or business
in all or any country or territory in which Syscan has established a
market that is the same or substantially the same as the business
presently exploited by Syscan or in competition with such business.
ARTICLE 7
GUARANTEE
7.1 AXYN Canada and AXYN hereby agree to perform all the obligations of
Syscan under this agreement, should Syscan fail to do so.
ARTICLE 8
MISCILLANEOUS
8.1 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one
instrument. This Agreement may be executed by telecopier and such
execution shall be valid and binding upon the parties hereto.
8.2 FURTHER ASSURANCES. The parties hereto agree to promptly do, make,
execute, deliver or cause to be done, made, executed or delivered all
such further acts, documents and things as the other party hereto may
reasonably require for the purpose of giving affect to this Agreement.
<PAGE> 5
8.3 LANGUAGE. The parties acknowledge that they have required that the
present Agreement be drawn up in English. Les parties reconnaissent
avoir exige la redaction en anglais de la presente convention.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
SYSCAN INTERNATIONAL INC.
PER:
2977541 CANADA INC.
PER:
DANIEL C. BENOIT
AXYN CANA DA CORPORATION
PER:
AXYN CORPORATION
PER:
<PAGE> 6
EMPLOYMENT AGREEMENT
THIS AGREEMENT made the 30" day of June 1999.
BETWEEN:
SYSCAN INTERNATIONAL INC., a corporation
incorporated under the laws of Canada,
(hereinafter called "SYSCAN
OF THE FIRST PART
AND:
SYLVAIN BENOIT, businessman of Montreal,
Quebec,
(hereinafter called "BENOIT")
OF THE SECOND PART
AND:
AXYN CANADA CORPORATION, a corporation
incorporated under the laws of Ontario,
(hereinafter called "AXYN CANADA")
OF THE THIRD PART
AND:
AXYNCORPORATION, a corporation incorporated
under the laws of Colorado,
(hereinafter called "AXYN")
OF THE FOURTH PART
WHEREAS AXYN Canada, AXYN, 2977541 Canada Inc. and Daniel Benoit have entered
into a purchase agreement concurrently with the present Agreement in virtue of
which 2977541 Canada Inc. and Daniel Benoit have agreed to sell, assign and
transfer to AXYN Canada which has agreed to purchase from 2977541 Canada Inc.
and Benoit, 10,460,031 issued and outstanding common shares in the capital stock
of Syscan.
<PAGE> 7
AND WHEREAS Syscan wishes to retain Benoit as a employee for a period of 3
years,
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT the parties hereto agree as follow:
ARTICLE 1
INTERPRETATION
1.1 Definitions. In this Agreement, the following terms shall have the
following meanings:
a) "AGREEMENT" means this Employment Agreement and all instrument
delivered pursuant hereto or in amendment or confirmation hereof;
"hereof', "hereto" and "hereunder" and similar expressions mean and
refer to this Agreement and not to any particular Article or Section;
"Article" or "Section" means and refers to the specified article or
Section of this Agreement;
b) "PERSON" includes an individual, partnership, corporation,
unincorporated organization, trust, joint venture, the Crown or
anyagency or instrumentality thereof or any juridical entity.
1.2 DIVISION, HEADINGS, INDEX. The division of this Agreement into Articles,
Sections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation hereof.
1.3 GENDER AND NUMBER. Unless the context otherwise requires, words
importing the singular include the plural and vice versa and words
importing gender include all genders.
1.4 PROPER LAW OF AGREEMENT. This Agreement shall be governed and construed
in accordance with the laws of the Province of Quebec and the laws of
Canada applicable therein and shall be treated, in all respects, as an
Quebec contract. Each party hereby irrevocably attorns to and submits to
the exclusive jurisdiction of the Courts of Quebec with respect to any
matter arising hereunder or related hereto.
1.5 INVALIDITY OF PROVISIONS. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
unenforceability of any other provision hereof and any such invalid or
unenforceability provision shall be deemed to be severable.
1.6 ENTIRE AGREEMENT. This Agreement, together with the agreements and other
documents to be delivered pursuant hereto, constitute the entire
agreement
<PAGE> 8
between the parties hereto pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto, and there
are no warranties, representations or other agreements between the
parties in connection with the subject matter hereof except as
specifically set forth or referred to herein. No amendment, waiver or
termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided.
1.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
enure to the benefit of the parties hereto and their respective heirs,
executors, egal representatives, successors and permitted assigns.
1.8 CURRENCY. Unless otherwise indicated, all dollar amounts referred to in
this Agreement are in Canadian funds.
1.9 TENDER. Any tender of documents or money hereunder may be made upon the
parties or their respective counsel and money be tendered by official
bank draft drawn upon a Canadian chartered bank or by negotiable cheque
payable in Canadian funds and certified by a Canada chartered bank or
trust company.
ARTICLE 2
RESIGNATION AND EMPLOYMENT
2.1 RESIGNATION. Subject to the employment agreement provided in paragraph
2.2., Benoit hereby resigns from all his functions and offices at
Syscan, including as employee of Syscan.
2.2 EMPLOYMENT. Syscan hereby employs Benoit to perform certain duties and
services for Syscan.
ARTICLE 3
TERM
3.1 Subject to the provisions of Article 5 provided hereinunder, the
employment shall commence as of the date hereof for a period of three
(3) years (the.'Term")
<PAGE> 9
ARTICLE 4
REMUNERATION
4.1 Syscan agrees to remunerate Benoit for the services rendered by Benoit
to Syscan described herein an annual base salary of $65,000.00 payable
in 26 consecutive equal installments.
ARTICLE 5
TERMINATION
5.1 BY SYSCAN. Notwithstanding any other provision of this Agreement, Syscan
may terminate Benoit's employment at any time by written notice upon
payment of one (1) year salary as indemnity and severance pay.
5.2 BY REASON OF DEATH, LONG TERM DISABILITY, RETIREMENT OR VOLUNTARY
TERMINATION OF WORK. In the event of (i) the death of Benoit; (ii) the
retirement of Benoit, (iii) a voluntary termination of Benoit's
employment, and (vi) a long term disability that prevents Benoit from
performing its duties for a period of 6 months or more, thereafter the
present Agreement will be terminated and any remuneration or benefits to
which Benoit may be entitled hereunder shall immediately terminate.
ARTICLE 6
GUARANTEE
6.1 AXYN Canada and AXYN hereby agree to perform all the obligations of
Syscan under this agreement, should Syscan fail to do so.
ARTICLE 7
MISCELLANEOUS
7.1 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one
instrument. This Agreement may be executed by telecopier and such
execution shall be valid and binding upon the parties hereto.
7.2 FURTHER ASSURANCES. The parties hereto agree to promptly do, make,
execute, deliver or cause to be done, made, executed or delivered all
such further acts, documents and things as the other party hereto may
reasonably require for the purpose of giving effect to this Agreement.
<PAGE> 10
7.3 LANGUAGE. The parties acknowledge that they have required that the
present Agreement be drawn up in English. Les parties reconnaissent
avoir exige la redaction en anglais de la presente convention.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
SYSCAN INTERNATIONAL INC.
Per:
SYLVAIN BENOIT
AXYN CANADA CORPORATION
Per:
AXYN.CORPO RATION
Per:
<PAGE> 1
EXHIBIT 6(n)
[AXYN LOGO]
Monday, May 24, 1999
The Board of Directors
AXYN Corporation
#201-338 Montreal Road
Vanier, Ontario K1L 6B3
Canada
RE: VALUATION FOR AXYN TECHNOLOGIES CORPORATION
Dear Sirs:
AXYN Technologies ("TECH") was created on June 18, 1998 by the founding partners
of AXYN Corporation as a Delaware corporation. Since initial operations were
expected to be supported by AXYN Canada, the founders left TECH as a private
company expecting that when sufficient business plans and opportunities had been
developed that TECH would be integrated into AXYN Corporation. AXYN Canada has
become more focused on its Canadian operations and its ability to support the US
operation is limited. The Board recognized that TECH must be integrated into
AXYN Corporation ("CORP") if it is to meet expected targets for significant
growth coming from the US and the need to focus more attention specifically on
getting the US business into the AXYN group of companies. In completing the
integration into AXYN (we all appreciate that we have been operating AXYN
Technologies as though it was part of the AXYN group) we need to provide
supporting information for the valuation established by the Board of AXYN
Corporation.
The purpose of this letter is to look at potential valuation issues and to put
forth a strong rationale for undertaking the acquisition at this time.
The Board determined that the transaction was an all share exchange to provide
"outside" investors with immediate 144 treasury shares in AXYN Corporation and
to limit the founders to a more restrictive share structure recognizing that
they have the most to gain. This structure should allow the other non-insider
shareholders to have an earlier opportunity to exit AXYN if that is their
choice.
Thus the Board established that:
1. One million shares (of the 5 million issued) in TECH held by non-insiders
would be converted 1:1 for treasury shares in CORP;
2. The insiders, who hold the remaining 4,000,000 shares in TECH, would
convert these shares into CORP Convertible Preferred Shares ("CPS"). The
4,000,000 TECH shares held are to be converted into 500,000 CPS shares and
these CPS shares would have conversion rights of 1 CPS for 3 common shares
not convertible prior to December 31, 2003. Thus the insiders are reducing
their holding from 4,000,000 common shares in TECH to 1,500,000 common
shares in CORP on a fully diluted basis; and
3. In return AXYN Corporation agrees to take over existing shareholder loans,
by the insiders with terms equivalent to other insider loan arrangements in
CORP. The loans are approx.
AXYN CORPORATION www.axyn.com
- --------------------------------------------------------------------------------
201-338 Montreal Road, Vanier, Ontario Canada K1L 6B3 Tel: (613) 564-2996
Fax: (613) 742-6068
<PAGE> 2
-2-
$467,924 USD and represent start-up costs, payroll and benefits and
contract delivery costs during the first 12 months of operations of AXYN
Technologies.
Initial valuations were tied to share price, effective contribution margin from
US based business and the value of its assets. The table below summarizes the
trading details during the period December 1, 1998 through to May 21, 1999. A
more detailed listing is provided at ANNEX A - AXYN Corporation Historical Stock
Performance.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
ITEM DATE OPEN HI LOW CLOSE VOLUME
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WEEKLY AVERAGES 1.5529 1.7223 1.321 1.5144 63,032
------------------------------------------------------------------------
</TABLE>
COMMON SHARE VALUATION
In determining a fair market value of AXYN 1,000,000 common shares, AXYN has
used the average closing trading price of $1.5144 USD for the period from
December 1, 1998 through to May 20, 1999 for the AXYN Corporation shares to
calculate the value of the shares being offered to TECH. Based on this value,
offering 1,000,000 common shares of AXYN would be valued at $1.5144M USD for
free trading shares today. Since these shares are 144 shares under the US
Securities definition, the shares must be held for a minimum of 12 months before
they can be traded. AXYN has further discounted the value by 50% which
represents the inherent risks to the shareholders given the nature of AXYN stock
being an OTCBB stock. Thus a value of $750.K USD has been assigned to these
shares for the purposes of valuation only.
CONVERTIBLE PREFERRED SHARES
The offering of 500,000 convertible preferred shares (CPS) that are not
convertible prior to December 31, 2003 or out at least 4.5 years also must be
valued. Putting a value on these is more difficult to determine given the timing
and market volatility. Certainly the timing and uncertainty introduces
significant risks and as such their value should be discounted accordingly. For
these reasons a 50% discount to market was applied, as above for the common
shares, and a further .36118 discount factor was applied for the effects of net
present value (NPV). NPV equates to the present value of cash, if it was
available today instead of having to wait 4.5 years, assuming a annual earning
rate of 10% on the capital. Thus the value of the convertible preferred shares
are calculated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
TOTAL SHARE DISCOUNT EFFECTS OF NPV EFFECTS OF
CPS RATIO COMMONS VALUE TO MKT DISCOUNT FACTOR NPV
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
500,000 3 1,500,000 $1.5144 50.00% $1,135,800 .36118 $725,569
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Thus, based on a 100% share exchange between AXYN Corporation and AXYN
Technologies, AXYN has valued the transactions at $1.47M USD ($750,000 +
$725,569 = $1.47M).
Lets now take a look at how AXYN Technologies has valued its net worth.
AXYN TECHNOLOGIES CORPORATION
The effective date of the integration of AXYN Technologies into AXYN Corporation
has been established as of June 30, 1999. The US market represents the largest
single target market for the sales and delivery of AXYN solutions worldwide.
AXYN Technologies, under AXYN Corporation will have five (5) business units.
These business units are: 1) Y2K; 2) Systems Integration; 3) Control Centres; 4)
Internet/e-Commerce Services; and 5) Mobile Communications and Computing. AXYN
Technologies has identified its 3-year forecast for Sales, Gross Margin and Net
Contribution Margin (NCM) detailed at Annex "B". The
<PAGE> 3
-3-
forecast includes low, medium and high forecasts. AXYN has used the low forecast
in assessing the valuation for AXYN Technologies. The following chart summarizes
the AXYN Technologies forecasts:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
BUDGET FORECAST FORECAST
PRODUCT/SERVICE OFFERING FY2000 FY2001 FY2002 TOTAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Y2K Products and Services $ 29,719 $ -- $ -- $ 29,719
Systems Integration $283,038 $1,797,241 $ 3,000,000 $ 5,080,279
Control Centres $424,557 $2,246,551 $ 6,000,000 $ 8,671,108
Mobile Communications and Computing $ -- $ 449,310 $ 1,000,000 $ 1,449,310
Internet Solutions $ -- $ 449,310 $ 1,000,000 $ 1,449,310
================================================================================================================
Total Sales $737,314 $4,942,413 $11,000,000 $16,679,726
COST OF GOODS SOLD
Y2K Products and Services $ 14,859 $ -- $ --
Systems Integration $226,430 $1,617,517 $ 2,700,000 $ 4,318,237
Control Centres $318,418 $1,797,241 $ 4,800,000 $ 6,915,659
Mobile Communications and Computing $ -- $ 292,052 $ 650,000 $ 942,052
Internet Solutions $ -- $ 292,052 $ 650,000 $ 942,052
================================================================================================================
Total Cost of Sales $559,708 $3,998,861 $ 8,800,000 $13,117,999
================================================================================================================
GROSS MARGIN $177,606 $ 943,551 $ 2,200,000 $ 3,561,727
GROSS MARGIN % 24% 19% 20% 21%
INDIRECT COSTS
Labour $ 29,719 $ 224,655 $ 400,000 $ 654,374
Expenses $ 38,210 $ 224,655 $ 400,000 $ 662,865
================================================================================================================
Total Indirect Costs $ 67,929 $ 449,310 $ 800,000 $ 1,317,239
Indirect Cost % 9% 9% 7% 8%
CONTRIBUTION MARGIN $109,677 $ 494,241 $ 1,400,000 $ 2,244,488
CONTRIBUTION MARGIN % 15% 10% 13% 13%
================================================================================================================
</TABLE>
For evaluation purposes, AXYN Technologies 3-year low FY2002 numbers were
extended two additional years at 0% growth. Thus overall revenues are forecast
at $38.7M with net contribution margin forecast at $5.M over the next 5 years.
Using the net present value factors identified above to calculate the net
contribution margin forecast value today drives a $3.3M USD NCM (NPV factors of
.9052, .8194, .7417, .6714, .6078 for year 1 -5 respectively) value.
OTHER CONSIDERATIONS
LICENSE SOFTWARE: In establishing the US operation, AXYN Technologies was
instrumental in negotiating the purchase of DateManager2000 software from The
Guide Associates, located in Tampa and Denver. DateManager2000 has become one of
AXYN's primary Y2K sales tools.
CUSTOMERS: AXYN Technologies has established selling channels through national
contracts with: the US government, through the General Services Administration
(GSA) Supply Agreement with AXYN Technology's partner - Computer World Services
(CWS); a direct agreement for access to state, local and city governments with
Public Technologies Inc. (PTI) for sales to all cities throughout the United
States; a direct Supply Agreement with the State of Colorado for sales of Y2K
products and services; and the World Bank contract for Y2K embedded systems
services. AXYN believes that the value of these relationships will assist AXYN
in future sales and market penetration. No specific value has been assigned to
these relationships.
FINANCIAL RESULTS: The acquisition of Technologies using the pooling accounting
method, according to US GAAP rules, allows AXYN to consolidate its operating
results by combining Technologies financial results. The net effect is that the
net addition to AXYN is $124,367 of revenues and an accumulated loss
<PAGE> 4
-4-
of $428,845. The financial statements for AXYN Technologies are detailed at
Appendix "B" to this document and are summarized in the following table:
<TABLE>
<CAPTION>
------------------------------------------
$USD YTD YTD S/H
REVENUES EARNINGS LOANS
----------------------------------------------------
<S> <C> <C> <C>
TECH $124,367 $(428,845) $467,924
----------------------------------------------------
</TABLE>
The key valuation numbers for Technologies are its client base, the value of its
sales forecast going forward for its five business units and the value of its
licensing revenues from the sale of DateManager2000 to continental US customers
and through resale agreements with other resellers in the US and Australia.
SUMMARY
In evaluating the fair market value for the acquisition of AXYN Technologies
many factors come into play, as noted above. Using the 5-year low forecast, the
net contribution margin to AXYN, taking into account the effects of net present
values, generates a net value in excess of $3.0M USD. AXYN believes that the
price of $1.47M to be a reasonable valuation.
Given that the existing Board of Directors has a vested interest in both sides
of this evaluation, the Board must rely upon a fair and equitable valuation that
treats all shareholders equally. Using the most conservative approaches to
valuing the transaction provides such fairness.
I trust that the Board will review the approach outlined in this letter and
provide supportive documentation and constructive comment with respect to these
valuations. If you are in agreement please endorse this approach by signing your
acknowledgement in the place indicated below. Should you have any questions or
additional points and/or concerns, please forward these to the undersigned at
your earliest convenience. Yours very truly,
Scott Feagan
President, AXYN Corporation
The undersigned to hereby acknowledge and agree with the valuations as set forth
herein:
/s/ Robert L. Bell /s/ Scott Feagan
Robert L. Bell Scott Feagan
/s/ Chris Zawitkowski /s/Janusz Rydel
Chris Zawitkowski Janusz Rydel
<PAGE> 5
-5-
ANNEXES
<PAGE> 6
-6-
ANNEX A - AXYN CORPORATION HISTORICAL STOCK PERFORMANCE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ITEM DATE OPEN HI LOW CLOSE VOLUME
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 04-Dec-98 1.500 1.875 1.250 1.875 54,400
- -------------------------------------------------------------------------------
2 11-Dec-98 1.875 1.875 1.250 1.250 11,800
- -------------------------------------------------------------------------------
3 18-Dec-98 1.406 1.875 1.406 1.500 13,800
- -------------------------------------------------------------------------------
4 25-Dec-98 1.750 2.625 1.718 2.310 340,500
- -------------------------------------------------------------------------------
5 01-Jan-99 2.312 2.312 1.812 2.312 115,100
- -------------------------------------------------------------------------------
6 08-Jan-99 2.343 2.625 2.000 2.125 96,300
- -------------------------------------------------------------------------------
7 15-Jan-99 2.187 2.375 2.000 2.000 78,700
- -------------------------------------------------------------------------------
8 22-Jan-99 2.000 2.125 1.687 2.000 71,900
- -------------------------------------------------------------------------------
9 29-Jan-99 2.000 2.062 1.875 1.937 48,000
- -------------------------------------------------------------------------------
10 05-Feb-99 1.937 2.218 1.687 1.875 215,000
- -------------------------------------------------------------------------------
11 12-Feb-99 1.937 2.062 1.625 1.625 63,000
- -------------------------------------------------------------------------------
12 19-Feb-99 1.625 1.875 1.625 1.812 26,700
- -------------------------------------------------------------------------------
13 26-Feb-99 1.812 1.812 1.562 1.562 14,000
- -------------------------------------------------------------------------------
14 05-Mar-99 1.750 1.750 1.250 1.375 17,100
- -------------------------------------------------------------------------------
15 12-Mar-99 1.250 1.500 0.875 1.500 41,100
- -------------------------------------------------------------------------------
16 19-Mar-99 1.500 1.625 1.187 1.250 43,100
- -------------------------------------------------------------------------------
17 26-Mar-99 1.250 1.250 0.937 1.062 72,700
- -------------------------------------------------------------------------------
18 02-Apr-99 1.250 1.437 1.125 1.350 46,200
- -------------------------------------------------------------------------------
19 09-Apr-99 1.250 1.312 1.000 1.250 43,800
- -------------------------------------------------------------------------------
20 16-Apr-99 1.250 1.250 1.000 1.187 37,400
- -------------------------------------------------------------------------------
21 23-Apr-99 0.937 1.062 0.937 1.000 15,100
- -------------------------------------------------------------------------------
22 30-Apr-99 0.750 1.125 0.750 1.000 14,600
- -------------------------------------------------------------------------------
23 07-May-99 1.015 1.015 0.812 0.890 14,700
- -------------------------------------------------------------------------------
24 14-May-99 1.000 1.000 0.812 0.812 14,900
- -------------------------------------------------------------------------------
25 21-May-99 0.937 1.015 0.843 1.000 65,900
- -------------------------------------------------------------------------------
WEEKLY AVERAGES 1.5529 1.7223 1.321 1.5144 63,032
===============================================================================
</TABLE>
<PAGE> 7
-7-
ANNEX B - AXYN TECHNOLOGIES 3-YEAR SALES FORECAST
<PAGE> 8
-8-
ANNEX C - AXYN TECHNOLOGIES CORPORATION JUNE 30, 1999 STATEMENTS
<PAGE> 1
EXHIBIT (6)o
[AXYN GRAPHIC]
CONFIDENTIAL
Wednesday, 17 November 1999
The Board of Directors
AXYN International GmbH
C/O Unitra-AXYN Sp. z o.o.
50 ul. Nowogrodzka
00-950 Warszawa
Poland
Dear Sirs:
RE: ACQUISITION OF AXYN INTERNATIONAL GMBH
("INTL")
This letter follows our discussions and exchanges of information with respect to
the proposed acquisition of AXYN International GmbH. The purpose of this letter
is to outline our proposal to acquire all of the shares of AXYN International
GmbH and is in addition to our letter dated May 24, 1999.
Since our initial discussions in December, 1998, we have confirmed our belief
that a merger of AXYN and INTL is in the best interest of both parties from a
financial and business perspective. The acquisition of INTL by AXYN will result
in a tiered share exchange to the shareholders of INTL, would allow the existing
administration and structure of INTL to remain intact and be a significant part
of AXYN and would further enhance INTL's and AXYN's future profitability in the
information technology sector.
No legally binding arrangements will be created between us except upon the
entering into of a definitive Purchase Agreement satisfactory to our respective
counsel and the satisfaction of all the terms contained in the attached Term
Sheet.
Our Offer to Purchase is subject to the Term Sheet attached to this letter of
intent, which includes the following:
(1) approval of the offer by the board of directors of AXYN;
(2) AXYN being satisfied with financial, business and legal due diligence of
INTL;
(3) the execution of all definitive agreements giving affect to this letter,
including a Share Purchase Agreement between AXYN and the shareholders of INTL,
and employment and non-competition agreements with all key AXYN International
employees(the "Principals");
(4) the obtaining of all required consents and approvals, including those of
regulatory nature; and
If you wish to accept this offer, please return one executed copy of this letter
to AXYN Corporation, attention: Scott Feagan, President no later than 5:00 p.m.
on May 25, 1999.
<PAGE> 2
-2-
Yours truly,
AXYN CORPORATION
Per: ________________________
Scott Feagan
President
We accept this Offer this ____ day of May, 1999
AXYN International GmbH
Per: _______________________
THE PRINCIPALS
____________________________ __________________________
Chris Zawitkowski Janusz Rydel
<PAGE> 3
-3-
TERM SHEET
PURCHASE BY AXYN CORPORATION ("AXYN") OF
ALL OF THE ISSUED AND OUTSTANDING SHARES IN THE SHARE
CAPITAL OF AXYN INTERNATIONAL GMBH ("INTL")
PURCHASER AXYN Corporation
VENDOR Shareholders of AXYN International GmbH
OBJECT Purchase all of the issued and outstanding shares of AXYN
International GmbH
CLOSING DATE July 8, 1999
OFFER SUMMARY Offer of $1.00 USD cash and 1,000,000 Common shares and
500,000 Convertible Preferred shares in AXYN Corporation
for all of the shares of INTL payable as follows:
(I) Payment of $1.00 USD cash on closing;
(II) Issuance of 1,000,000 Common shares deliverable
upon signing of a significant Control Centre
contract or the signing of a definitive Teaming
Agreement with a major Systems Integration partner
with a commitment to fund the development of the
significant Control Centre project sufficiently to
cover all costs until the contract is released by
the customer or upon AXYN International meeting or
exceeding its Q3 FY2000 revenue forecast of
$2,756,832 for sales within the International
territory; and
(ii) Issuance of 500,000 Convertible Preferred shares of
AXYN Corporation with a conversion date of no
sooner than December 31, 2003 and convertible into
AXYN Corporation shares at the rate of each
Convertible Preferred share into three (3) Common
shares upon signing of a significant Control Centre
contract or the signing of a definitive Teaming
Agreement with a major Systems Integration partner
with a commitment to fund the development of the
significant Control Centre project sufficiently to
cover all costs until the contract is released by
the customer or upon AXYN International meeting or
exceeding its Q3 FY2000 revenue forecast of
$2,756,832 for sales within the International
territory.
EMPLOYEE SHARE
PURCHASE PLAN All employees of INTL will be entitled to participate in
AXYN's employee share purchase plan upon acceptance and
ratification by the AXYN Corporation Board of Directors.
EMPLOYEE OPTION PLAN
All employees of INTL will be entitled to participate in
AXYN's employee option plan upon acceptance and
ratification by the AXYN Corporation Board of Directors.
SALE OF COMMON SHARES
Subject to any regulatory provisions, the Vendors may be
subject to regulatory or other restrictions on the sale of
the AXYN shares in conformance with applicable securities
regulations. The stock purchased by Vendor shall have
equitable registration rights upon AXYN Corporation stock
becoming registered on the NASDAQ or such other registered
stock exchange.
<PAGE> 4
-4-
SALE OF PREFERRED SHARES
The certificates representing the Convertible Preferred
shares of AXYN shall be held in escrow pending their
release in accordance with the terms of an escrow
agreement.
CONDITION PRECEDENT
TO CLOSING
The completion of the transaction is subject to the
following:
(i) AXYN being satisfied with the due diligence;
(ii) Approval by the Board of Directors of AXYN and INTL
(iii) Execution of a Purchase Agreement between the
parties and other legal documents that may be
required or customary for a transaction of such
nature
(iv) Obtaining of regulatory approvals or other required
approvals or consents, if any;
(v) Execution of employment contract and non-compete
agreements with all key employees;
(vi) To extent practicable and as long as there is no
adverse financial or legal impact on AXYN,
transaction to be structured tax effectively for
the vendors;
REPRESENTATION AND
WARRANTIES BY VENDOR
Standard representation and warranties for a transaction
of such nature shall be a part of the Share Purchase
Agreement.
<PAGE> 1
EXHIBIT (6)p
[AXYN LETTERHEAD]
The Board of Directors
AXYN Corporation
#201-338 Montreal Road
Vanier, Ontario K1L 6B3
Canada
RE: Valuation for AXYN INTERNATIONAL GMBH ("INTL")
Dear Sirs:
AXYN International GmbH ("INTL") was created by the founding partners of AXYN
Corporation as a Swiss GmbH company in the Canton of Zug. Since initial
operations were expected to be supported by AXYN Canada, the founders left INTL
as a private company expecting that when sufficient business plans and
opportunities had been developed that INTL would be integrated into AXYN
Corporation. AXYN Canada has become more focused on its Canadian operations and
its ability to support the INTL operation is limited. The Board recognized that
INTL must be integrated into AXYN Corporation ("CORP") if it is to meet expected
targets for significant growth coming from Europe and the need to focus more
attention specifically on getting the European business into the AXYN group of
companies. In completing the integration into AXYN (we all appreciate that we
have been operating INTL as though it was part of the AXYN group) we need to
provide supporting information for the valuation established by the Board of
AXYN Corporation.
The purpose of this letter is to look at potential valuation issues and to put
forth a strong rationale for undertaking the acquisition at this time.
The Board determined that the transaction had to take into consideration the
work undertaken to secure a substantial contract with a European Government (the
Control Centre Contract) and that upon the award of this contract to AXYN, that
the size of this contract would merit additional consideration, if within
acceptable parameters to AXYN. So a dual valuation method was agreed to.
Thus the Board established that the purchase of 100% of the equity in INTL for
$1.00 USD cash on closing and acceptance of the transfer of existing shareholder
loans, by the insiders with terms equivalent to other insider loan arrangements
in CORP to be fair and equitable. The loans are approx. $444,978 USD and
represent start-up costs and operation of Unitra-AXYN Sp. Z.o.o., payroll and
benefits and contract delivery costs from start-up to July 8, 1999 and costs
associated with the establishment of AXYN International GmbH. INTL has existing
Year 2000 contracts and is expected to be profitable by Q1 FY2000.
The Board further agreed to the issuance of 1,000,000 Common shares to existing
INTL shareholders deliverable upon signing of the significant Control Centre
contract or the signing of a definitive Teaming Agreement with a major Systems
Integration partner with a commitment to fund the development of the significant
Control Centre project sufficiently to cover all costs until the contract is
released by the customer or exceeding its Q3 FY2000 revenue forecast of
$2,756,832 for sales within the International territory; and to further issue of
500,000 Convertible Preferred shares of AXYN Corporation with a conversion date
of no sooner than December 31, 2003 and convertible into AXYN Corporation shares
at the rate of each Convertible Preferred share into three (3) Common shares
upon signing of the Control Centre contract or the signing of a definitive
Teaming Agreement with a major Systems Integration partner with a commitment to
fund the development of the Control Centre project sufficiently to cover all
<PAGE> 2
-2-
costs until the contract is released by the customer or exceeding its Q3 FY2000
revenue forecast of $2,756,832 for sales within the International territory
(hereinafter referred to as the Valuation Adjustment). The Board also stipulated
that if the Control Centre contract or other conditions were not met by March
31, 2000 that the Valuation Adjustment would expire and no further payments
would be due to the INTL shareholders.
The initial valuation of $1.00 USD was based on the current book value of INTL,
contracts in hand and the inherent upside should the Control Centre Contract be
awarded. The Valuation Adjustment was tied to AXYN share price. The table below
summarizes the trading details during the period December 1, 1998 through to May
21, 1999. A more detailed listing is provided at ANNEX A - AXYN Corporation
Historical Stock Performance.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
ITEM DATE OPEN HI LOW CLOSE VOLUME
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WEEKLY AVERAGES 1.5529 1.7223 1.321 1.5144 63,032
--------------------------------------------------------------------
</TABLE>
COMMON SHARE VALUATION
In determining a fair market value of AXYN 1,000,000 common shares, AXYN has
used the average closing trading price of $1.5144 USD for the period from
December 1, 1998 through to May 20, 1999 for the AXYN Corporation shares to
calculate the value of the shares being offered to INTL. Based on this value,
offering 1,000,000 common shares of AXYN would be valued at $1.5144M USD for
free trading shares today. Since these shares are 144 shares under the US
Securities definition, the shares must be held for a minimum of 12 months before
they can be traded. AXYN has further discounted the value by 50% which
represents the inherent risks to the shareholders given the nature of AXYN stock
being an OTCBB stock. Thus a value of $750.K USD has been assigned to these
shares for the purposes of valuation only.
CONVERTIBLE PREFERRED SHARES
The offering of 500,000 convertible preferred shares (CPS) that are not
convertible prior to December 31, 2003 or out at least 4.5 years also must be
valued. Putting a value on these is more difficult to determine given the timing
and market volatility. Certainly the timing and uncertainty introduces
significant risks and as such their value should be discounted accordingly. For
these reasons a 50% discount to market was applied, as above for the common
shares, and a further .36118 discount factor was applied for the effects of net
present value (NPV). NPV equates to the present value of cash, if it was
available today instead of having to wait 4.5 years, assuming a annual earning
rate of 10% on the capital. Thus the value of the convertible preferred shares
are calculated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TOTAL SHARE DISCOUNT EFFECTS OF NPV EFFECTS OF
CPS RATIO COMMONS VALUE TO MKT DISCOUNT FACTOR NPV
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
500,000 3 1,500,000 $ 1.5144 50.00% $ 1,135,800 .36118 $725,569
- -----------------------------------------------------------------------------------------------
</TABLE>
Thus, based on a 100% share exchange between AXYN Corporation and AXYN
International with the Control Centre contract, AXYN has valued the transactions
at $1.47M USD ($750,000 + $725,569 = $1.47M).
Lets now take a look at how AXYN International has valued the Control Centre
contract.
VALUATION ADJUSTMENT
In June 1999 Unitra-AXYN signed a Letter Of Intent (LOI) with the a large
European government for the design, management, construction, installation,
integration, commissioning and support for a network of regional Control Centre
facilities along with supporting information technology infrastructure,
hardware,
<PAGE> 3
-3-
software and communications, collectively called the Control Centre project.
INTL believes the effective contribution margin from this project to be in
excess of $50.M USD over 3-5 years.
The effective date of the integration of AXYN International into AXYN
Corporation has been established as of July 8, 1999.
OTHER CONSIDERATIONS
CUSTOMERS: AXYN International has been primarily focussed on the Y2K and control
centre businesses for AXYN.It has established an impressive list of customers,
including Bank PKO BP, Elktrim S.A., Minex Export-Import S.A., the Ministry of
Internal Affairs and Administration and the Ministry of Industry of the Polish
government, PZU S.A., Energo Projekt Consulting and the Siersza Electric Power
Generating Plant. AXYN believes that the value of these relationships will
assist AXYN in future sales and market penetration. No specific value has been
assigned to these relationships.
FINANCIAL RESULTS: The acquisition of International using the pooling accounting
method, according to US GAAP rules, allows AXYN to consolidate its operating
results by combining International financial results. The net effect is that the
net addition to AXYN is $124,367 of revenues and an accumulated loss of
$428,845. The financial statements for AXYN International are detailed at
Appendix "B" to this document and are summarized in the following table:
<TABLE>
<CAPTION>
------------------------------------
$USD CONTRACT RETAINED S/H
BACKLOG EARNINGS LOANS
---------------------------------------------
<S> <C> <C> <C>
INTL $ 450,000 $(343,406) $ 444,976
---------------------------------------------
</TABLE>
SUMMARY
In evaluating the fair market value for the acquisition of AXYN International
many factors come into play, as noted above. Using the net contribution margin
to AXYN, taking into account the Control Centre project to be in excess of $50.M
USD over 3-5 years. AXYN believes that the price of $1.47M to be a reasonable
valuation.
Given that the existing Board of Directors has a vested interest in both sides
of this evaluation, the Board must rely upon a fair and equitable valuation that
treats all shareholders equally. Using the most conservative approaches to
valuing the transaction provides such fairness.
I trust that the Board will review the approach outlined in this letter and
provide supportive documentation and constructive comment with respect to these
valuations. If you are in agreement please endorse this approach by signing your
acknowledgement in the place indicated below. Should you have any questions or
additional points and/or concerns, please forward these to the undersigned at
your earliest convenience. Yours very truly,
Scott Feagan
President, AXYN Corporation
The undersigned to hereby acknowledge and agree with the valuations as set forth
herein:
- ------------------------------ ------------------------------
Robert L. Bell Scott Feagan
- ------------------------------ ------------------------------
Chris Zawitkowski Janusz Rydel
<PAGE> 4
-4-
ANNEXES
<PAGE> 5
-5-
ANNEX A - AXYN CORPORATION HISTORICAL STOCK PERFORMANCE
<TABLE>
<CAPTION>
--------------------------------------------------------------------
ITEM DATE OPEN HI LOW CLOSE VOLUME
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 04-Dec-98 1.500 1.875 1.250 1.875 54,400
--------------------------------------------------------------------
2 11-Dec-98 1.875 1.875 1.250 1.250 11,800
--------------------------------------------------------------------
3 18-Dec-98 1.406 1.875 1.406 1.500 13,800
--------------------------------------------------------------------
4 25-Dec-98 1.750 2.625 1.718 2.310 340,500
--------------------------------------------------------------------
5 01-Jan-99 2.312 2.312 1.812 2.312 115,100
--------------------------------------------------------------------
6 08-Jan-99 2.343 2.625 2.000 2.125 96,300
--------------------------------------------------------------------
7 15-Jan-99 2.187 2.375 2.000 2.000 78,700
--------------------------------------------------------------------
8 22-Jan-99 2.000 2.125 1.687 2.000 71,900
--------------------------------------------------------------------
9 29-Jan-99 2.000 2.062 1.875 1.937 48,000
--------------------------------------------------------------------
10 05-Feb-99 1.937 2.218 1.687 1.875 215,000
--------------------------------------------------------------------
11 12-Feb-99 1.937 2.062 1.625 1.625 63,000
--------------------------------------------------------------------
12 19-Feb-99 1.625 1.875 1.625 1.812 26,700
--------------------------------------------------------------------
13 26-Feb-99 1.812 1.812 1.562 1.562 14,000
--------------------------------------------------------------------
14 05-Mar-99 1.750 1.750 1.250 1.375 17,100
--------------------------------------------------------------------
15 12-Mar-99 1.250 1.500 0.875 1.500 41,100
--------------------------------------------------------------------
16 19-Mar-99 1.500 1.625 1.187 1.250 43,100
--------------------------------------------------------------------
17 26-Mar-99 1.250 1.250 0.937 1.062 72,700
--------------------------------------------------------------------
18 02-Apr-99 1.250 1.437 1.125 1.350 46,200
--------------------------------------------------------------------
19 09-Apr-99 1.250 1.312 1.000 1.250 43,800
--------------------------------------------------------------------
20 16-Apr-99 1.250 1.250 1.000 1.187 37,400
--------------------------------------------------------------------
21 23-Apr-99 0.937 1.062 0.937 1.000 15,100
--------------------------------------------------------------------
22 30-Apr-99 0.750 1.125 0.750 1.000 14,600
--------------------------------------------------------------------
23 07-May-99 1.015 1.015 0.812 0.890 14,700
--------------------------------------------------------------------
24 14-May-99 1.000 1.000 0.812 0.812 14,900
--------------------------------------------------------------------
25 21-May-99 0.937 1.015 0.843 1.000 65,900
--------------------------------------------------------------------
WEEKLY AVERAGES 1.5529 1.7223 1.321 1.5144 63,032
--------------------------------------------------------------------
</TABLE>
<PAGE> 6
-6-
ANNEX B
AXYN INTERNATIONAL GMBH JULY 8, 1999 STATEMENTS
[NO ATTACHMENT IN ORIGINAL.]
<PAGE> 7
ANNEX A
AXYN TECHNOLOGIES CORPORATION
PROFIT AND LOSS
JULY 1998 THROUGH JUNE 1999
<TABLE>
<CAPTION>
ORDINARY INCOME/EXPENSE JUL'98 - JUN'99
- ----------------------- ---------------
<S> <C>
Income
4000 - Revenue 174,301.30
4055 - US Exchange 12,250.00
-----------
Total Income 186,551.30
-----------
Gross Profit 186,551.30
-----------
Expense
5120 - Marketing 89,293.89
5200 - Office - Ottawa 60,434.98
5300 - Corporate 8,762.71
5600 - Labour Variances 530,787.29
5800 - Travel Expense 47,063.41
6999 - Uncategorized Expenses 93,477.09
-----------
Total Expense 829,819.37
-----------
Net Ordinary Income (643,268.07)
-----------
NET INCOME (643,268.07)
-----------
</TABLE>
<PAGE> 8
ANNEX A
AXYN TECHNOLOGIES CORPORATION
BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS JUN 30, `99
----------
Current Assets
Chequing/Savings
1100 - Bank US 11,987.77
----------
Total Chequing/Savings 11,987.77
----------
Accounts Receivable
1200 Accounts Receivable 43,533.89
----------
Total Accounts Receivables 43,533.89
----------
Other Current Assets
1300 - Intercompany Recoverables 49,536.17
----------
Total Current Other Assets 49,536.17
----------
Total Current Assets 105,057.83
----------
Fixed Assets
1500 - Computers 4,789.92
1600 - Equipment 1,008.18
----------
Total Fixed Assets 5,798.10
----------
TOTAL ASSETS 110,855.93
==========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
2100 - Account Payable 16,849.81
----------
Total Accounts Payable 16,849.81
----------
Total Current Liabilities 16,849.81
----------
Total Liabilities 16,849.81
----------
Equity
3800 - Share Capital - Common Shares 37,500.00
3840 - Shareholders' Loans 701,886.34
3900 - Retained Earnings (2,112.15)
Net Income (643,268.07)
----------
Total Equity 94,006.12
----------
TOTAL LIABILITIES & EQUITY 110,855.93
==========
</TABLE>
<PAGE> 9
ANNEX B
AXYN TECHNOLOGIES 3-YEAR SALES FORECAST
I HI - FORECAST
<TABLE>
<CAPTION>
BUDGET FORECAST FORECAST
PRODUCT/SERVICE OFFERING 2000 2001 2002 TOTAL
------------------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE
Year 2000 Products and Services $ 70,000 $ 70,000
Systems Integration and Commodities Brokerage $ 666,667 $2,000,000 $ 3,000,000 $ 5,666,667
Command and Control Systems $1,000,000 $2,500,000 $ 6,000,000 $ 9,500,000
Mobile Communications and Computing $ -- $ 500,000 $ 1,000,000 $ 1,500,000
Internet Solutions $ -- $ 500,000 $ 1,000,000 $ 1,500,000
========== ========== =========== ===========
Total Sales $1,736,667 $5,500,000 $11,000,000 $18,236,667
COST OF GOODS SOLD
Year 2000 Products and Services $ 35,000 $ -- $ --
Systems Integration and Commodities Brokerage $ 533,333 $1,800,000 $ 2,700,000 $ 4,816,667
Command and Control Systems $ 750,000 $2,000,000 $ 4,800,000 $ 7,550,000
Mobile Communications and Computing $ -- $ 325,000 $ 650,000 $ 975,000
Internet Solutions $ -- $ 325,000 $ 650,000 $ 975,000
========== ========== =========== ===========
Total Cost of Sales $1,318,333 $4,450,000 $ 8,800,000 $14,316,667
========== ========== =========== ===========
GROSS MARGIN $ 418,333 $1,050,000 $ 2,200,000 $ 3,920,000
GROSS MARGIN % 24% 19% 20% 21%
INDIRECT COSTS
Labour $ 70,000 $ 250,000 $ 400,000 $ 720,000
Expenses $ 90,000 $ 250,000 $ 400,000 $ 740,000
========== ========== =========== ===========
Total Indirect Costs $ 160,000 $ 500,000 $ 800,000 $ 1,460,000
Indirect Cost % 9% 9% 7% 8%
CONTRIBUTION MARGIN $ 258,333 $ 550,000 $ 1,400,000 $ 2,460,000
CONTRIBUTION MARGIN % 15% 10% 13% 13%
========== ========== =========== ===========
</TABLE>
<PAGE> 10
ANNEX B (CONT'D)
AXYN TECHNOLOGIES 3-YEAR SALES FORECAST
II LO - FORECAST
<TABLE>
<CAPTION>
BUDGET FORECAST FORECAST
PRODUCT/SERVICE OFFERING 2000 2001 2002 TOTAL
------------------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Year 2000 Products and Services $ 29,719 $ -- $ -- $ 29,719
Systems Integration and Commodities Brokerage $283,038 $1,797,241 $ 3,000,000 $ 5,080,279
Command and Control Systems $424,557 $2,246,551 $ 6,000,000 $ 8,671,108
Mobile Communications and Computing $ -- $ 449,310 $ 1,000,000 $ 1,449,310
Internet Solutions $ -- $ 449,310 $ 1,000,000 $ 1,449,310
======== ========== =========== ===========
Total Sales $737,314 $4,942,413 $11,000,000 $16,679,726
COST OF GOODS SOLD
Year 2000 Products and Services $ 14,859 $ -- $ --
Systems Integration and Commodities Brokerage $226,430 $1,617,517 $ 2,700,000 $ 4,318,237
Command and Control Systems $318,418 $1,797,241 $ 4,800,000 $ 6,915,659
Mobile Communications and Computing $ -- $ 292,052 $ 650,000 $ 942,052
Internet Solutions $ -- $ 292,052 $ 650,000 $ 942,052
======== ========== =========== ===========
Total Cost of Sales $559,708 $3,998,861 $ 8,800,000 $13,117,999
======== ========== =========== ===========
GROSS MARGIN $177,606 $ 943,551 $ 2,200,000 $ 3,561,727
GROSS MARGIN % 24% 19% 20% 21%
INDIRECT COSTS
Labour $ 29,719 $ 224,655 $ 400,000 $ 654,374
Expenses $ 38,210 $ 224,655 $ 400,000 $ 662,865
======== ========== =========== ===========
Total Indirect Costs $ 67,929 $ 449,310 $ 800,000 $ 1,317,239
Indirect Cost % 9% 9% 7% 8%
CONTRIBUTION MARGIN $109,677 $ 494,241 $ 1,400,000 $ 2,244,488
CONTRIBUTION MARGIN % 15% 10% 13% 13%
======== ========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT (10)a
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 23, 1999 with respect to the consolidated financial
statements of Axyn Corporation for the period ended June 30, 1999 in the
Registration Statement Form 10-SB of Axyn Corporation for the registration of
its common and preference stock.
/s/ ERNST & YOUNG LLP
Ottawa, Canada ERNST & YOUNG LLP
December 14, 1999 Chartered Accountants
<PAGE> 1
[SAMSON BELAIR DELOITTE & TOUCHE LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated March 5, 1999, with respect to the consolidated
financial statements of Syscan International Inc. in Canadian GAAP and in
Canadian $ for the period ended December 31, 1998, in the Registration
Statement Form 10-SB of AXYN Corporation for the registration of its common and
preference stock.
Samson Belair Deloitte & Touche
Chartered Accountants
December 21, 1999
<PAGE> 2
[SAMSON BELAIR/DELOITTE & TOUCHE LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our reported dated July 22, 1999 with respect to the consolidated
financial statements of Syscan International Inc. in Canadian GAAP and in
Canadian $ for the period ended Jule 30, 1999 in the Registration Statement
Form 10-SB of AXYN Corporation for the registration of its common and
preference stock.
/s/ SAMSON BELAIR/DELOITTE & TOUCHE
Chartered Accountants
December 17, 1999
