U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| Annual report under Section 13 or 15 (d) of the Securities Exchange Act of
1934 for the fiscal year ended June 30, 2000
|_| Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the transition period from _____________ to ____________
Commission File Number: 000-27869
AUTHORISZOR INC.
(Name of Small Business Issuer in its Charter)
Delaware 75-2661571
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Van de Graaff Drive
Suite 502
Burlington, Massachusetts 01803-5188
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(Address of Principal Executive Offices) (Zip code)
781-359-9650
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(Issuer's Telephone Number, Including Area Code.)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
NONE ---------------------
N/A
Securities registered under Section 12(g)
of the Exchange Act: Common Stock, $0.01 par value
-----------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes X No
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year: $121,000
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The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of September 25, 2000 was approximately
$87,823,910. For purposes of this computation, all executive officers, directors
and 10% stockholders were deemed affiliates. Such a determination should not be
construed as an admission that such executive officers, directors or 10%
stockholders are affiliates.
As of September 25, 2000, there were 17,414,081 shares of the common stock,
$0.01 par value, of the Company issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement pertaining to the 2000 Annual
Meeting of Stockholders (the "Proxy Statement") and filed or to be filed not
later than 120 days after the end of the fiscal year pursuant to Regulation 14A
is incorporated herein by reference into Part III.
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Authoriszor Inc.
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PART I
Item 1. Description of Business........................................................... 1
Item 2. Description of Properties......................................................... 12
Item 3. Legal Proceedings................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............................... 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.......................... 13
Item 6. Management's Discussion and Analysis or Plan of Operations........................ 15
Item 7. Financial Statements.............................................................. 21
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................................. 22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act............................................ 22
Item 10. Executive Compensation............................................................ 22
Item 11. Security Ownership of Certain Beneficial Owners and Management.................... 22
Item 12. Certain Relationships and Related Transactions.................................... 22
PART IV
Item 13. Exhibit List and Reports on Form 8-K.............................................. 22
SIGNATURES................................................................................................. 26
INDEX TO EXHIBITS.......................................................................................... 27
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PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into, this report.
Unless the context otherwise requires, "Authoriszor," the "Company,"
"we," "our," "us" and similar expressions refers to Authoriszor Inc., its
subsidiaries and predecessors.
Item 1: Description of Business
History
Our predecessor was incorporated as a Colorado corporation on January
20, 1989 under the name Starlight Acquisitions Inc. On May 10, 1996, Starlight
Acquisitions Inc. acquired Toucan Mining Plc (then named Toucan Mining Ltd.),
incorporated in the Isle of Man, the holding company of a mining group operating
in South America.
On July 29, 1996, Starlight Acquisitions, Inc. was reincorporated as a
Delaware corporation on July 22, 1996 under the name Toucan Gold Corporation.
Effective June 30, 1999, Toucan Mining Plc sold its sole operating subsidiary to
Minmet Plc ("Minmet"), a company listed on the Irish Stock Exchange and the
London Stock Exchange, in consideration for the issue of Minmet ordinary shares,
the grant of warrants and other consideration. Funding of the consideration for
the transaction was completed on July 15, 1999. On July 22, 1999, we acquired
the whole of the issued share capital of Authoriszor Limited, which was then
named ITIS Technologies Limited ("ITIS"), whose business comprised the basis of
our current business. On August 25, 1999, our name was changed to Authoriszor
Inc., and the name of our subsidiary was changed to Authoriszor Limited ("AL").
On January 12, 2000, Authoriszor Holdings Limited ("AHL"), a newly
created wholly-owned subsidiary of Authoriszor Inc., acquired the whole of the
issued share capital of AL as part of an intra-group reorganization.
On January 27, 2000, we sold our wholly-owned subsidiary, Toucan Mining
Plc, to Golden Ridge Group Limited for an aggregate consideration of $809,750
((pound)500,000) in cash. On the same date, Toucan Mining Plc agreed to transfer
to Authoriszor the beneficial interest in 2,000,000 shares in Minmet and
warrants to subscribe for ordinary shares of Minmet at a price of (pound)0.08
per share for a further 7,700,000 shares in Minmet for a consideration of
(pound)1.
General
We provide a patent-pending security solution which secures corporate
information while enabling businesses to provide secure access to their
corporate Website and applications and to conduct secure communications over
computer networks and the Internet. Our product suite and processes enable a
corporation to provide secure access to the information on its Web server to its
customers, suppliers, employees and public visitors from the Internet, according
to their pre-determined security profile.
We believe our solution to be innovatively different from other
security solutions available today. Our solution provides security by securing a
customer's Website, corporate information assets and contents offline, making
this information completely inaccessible, except through the customer's Web
server. This process eliminates any direct contact between the person requesting
information and the corporate information assets.
Each request for corporate information is submitted to the server.
Then, by using silent security verification not apparent to the user, the
Authoriszor product suite identifies, authenticates and, if authenticated,
authorizes the request to proceed. To be authenticated by a server which has our
product suite installed, the end user and the user's computer or terminal must
be validated. Our profile selector ensures that the person requesting
information is only provided with information to which such person is
authorized. Validated requests for information are handled by the protected
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server, which creates pseudo uniform resource locators that disconnect the name
of the data source and the location of the data on the corporate Web server.
Our virtual publisher then creates a response in the form of a virtual
Web page and, after ensuring that no changes have occurred in the environment or
device of the person requesting information since the request was submitted,
which ensures that requestor transmissions have not been intercepted nor
impersonated, and that the requestor identity is still the original requestor
that commenced the session, sends the requestor the Web page of information
off-line, publishing it through a virtual page publishing system. Our product
suite then immediately destroys the virtual Web page response that was sent to
the person requesting information.
The benefit of our product suite is that it has been designed to
provide an added dimension of security to existing security products, such as:
o firewalls;
o virtual private networks;
o encryption;
o security tokens;
o smart cards; and
o biometrics.
Customer investments in these other security technologies can be preserved and
combined with our product suite.
Industry Background
The Growth of the Internet and Electronic Business
The continued growth of the Internet and advances in network
technologies have fundamentally changed the way business is conducted. These
developments, as well as advances in broadband and wireless technologies, have
allowed organizations to make available their corporate computer networks and
applications to a wide range of users. This offers businesses the opportunity
both to enhance revenues by more efficiently accessing existing and potential
customers, and to reduce costs by removing supply chain layers and streamlining
distribution through extranets and the Internet.
Electronic business, or the ability to conduct business online, has
become critical for many organizations. Examples of electronic business
applications include supply chain management, online banking, document sharing,
both inside and outside the organization, order-entry systems, government tax
filing systems, marketing on the Internet, inventory management and
Internet-based commerce-known as E-Commerce.
Organizations are increasing their spending on solutions that provide
the necessary infrastructure to allow them to develop electronic business
initiatives. As businesses implement and extend their information technology
infrastructures to provide increased access to their networks, databases and
applications, they face significant new challenges. These challenges include
management of distributed computing environments, functionality of applications
and, critically, security of information and networks.
The market for Internet related electronic security products is
immature. Until recently, such security has been service-based and has primarily
involved custom tailored solutions. However, we believe it will rapidly shift
towards standard products.
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The following are some of the factors that may influence the growth in
the market for security products:
o the growth of network and client/server computing;
o the rapid adoption of the Internet and Internet protocols for
E-Commerce, intranets, extranets and virtual private networks;
o the development of electronic commerce in Europe;
o increasing awareness of the public relations and financial
consequences of not having a secure network;
o national and supranational legislation for trusted third parties;
o national and supranational legislation for digital signatures;
o the emergence of industry standards, enabling inter-operable
security to be built into standardized products;
o the rate of the move towards automated management of key systems;
o the need for effective management tools to control large
communities of users, including public key certificate management
systems;
o the move towards doing significant business sight unseen, in some
cases across international borders, which requires
non-repudiation; and
o any change to export standards and regulations.
The Need for a Security Infrastructure for Electronic Business
The continued growth of electronic business depends in large part on
whether a system for secure and trusted communication can be created that is
consistent with practices established in the non-electronic world. In the
non-electronic world, trust is established through procedures, policies and
credentials that enable people and organizations to conduct business confidently
and confidentially based upon the following principles:
o Authentication-verifying the identity of each party;
o Integrity-preventing alteration of information by unauthorized
persons;
o Confidentiality-preventing disclosure of information in transit
or in storage to unauthorized persons; and
o Non-repudiation-preventing either party from denying the
communication or transaction.
Conventional personal identification techniques, however, cannot be
used in the electronic business world and, consequently, an electronic security
framework is required.
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A number of techniques have been devised that seek to implement an
electronic security framework. These techniques may be broadly categorized as:
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Technique Function Perceived Problems/Limitations
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Firewalls......................... A firewall limits access to a Web server A user's identity can be "spoofed", i.e. an
according to a set of rules concerning the unauthorized user may pretend to be someone
identity of the user, message content, access else who is authorized.
request type, protocol used, etc.
Encryption........................ A technique for "scrambling" a message while Encrypted messages may be created or read by
in transit or stored such that an intruder may non-authorized persons if the code is "broken"
not read the content of the message without or the decryption key is stolen.
having access to the encryption code.
Public Key Infrastructure......... Public key infrastructure is a generic term Keys may be stolen, however securely they may
that describes the process of managing the be stored, with the user being unaware of the
encryption and decryption of messages between theft, allowing unauthorized decryption of
server and client using complex keys stored messages.
and authenticated by a trusted authority.
Biometrics........................ A user has many unique biometric Does not in itself address the issue of
characteristics (fingerprint, retinal scan, encrypting data during transmission to prevent
etc.) that may be measured to certify the unauthorized "eavesdropping" nor of managing
identity of a user. the level of access available to a user.
Virtual Private Networks.......... Virtual private networks are an extension of The establishment of the link must be based
hard wired private networks, and once upon a highly secure user identification
established, a Virtual private network creates technique, or otherwise a secure route to an
an encrypted link between two or more unauthorized person could be unknowingly
computers that can be regarded as highly created.
secure.
Smart cards....................... Smart cards contain embedded electronic They can be stolen and some may be
identity information that, when used as part fraudulently duplicated.
of the log-on process, can help to verify a
user's identity.
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The techniques listed above are embodied in a variety of products provided by
many companies, a few of which are listed below:
o Public key infrastructure-Verisign Inc., Baltimore Technologies
Plc
o Firewalls-Checkpoint Software Technologies Ltd., Ascend
Communications Inc., Cisco Systems Inc., Raptor Systems Inc.
o Encryption-RSA Security Inc., Verisign Inc.
o Smart cards-GemPlus Group, Hewlett-Packard Company, Bull S.A.
o Virtual private networks-Checkpoint Software Technologies Ltd.,
Intel Corporation, Microsoft Corporation, Novell Inc., Cisco
Systems Inc.
o Biometrics-Viisage Technology, Inc.
Despite the existence of these techniques and products, there have been
security breaches into company servers. Many companies have reported security
breaches where people have gained unauthorized access to their server and gained
access to confidential and valuable information.
Our product suite provides an environment with strong positive
identification of the user and his equipment, coupled with a set of network
management tools, that allow the management of a server's security policy to
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determine exactly who gets access to various classes of information and /or
applications by reference to the user's profile, which is itself stored in a
secure location. The Authoriszor product suite may be used in conjunction with
existing techniques to enhance the level of security available.
Importantly, access to an application hosted on a server protected by
our product suite requires only a Web browser at the client site together with a
small Authoriszor component that may be freely downloaded from our Website or
distributed through CD-ROM.
Reviewing the requirements identified above for electronic security in
business with respect to our product suite:
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Authentication................ The Authoriszor product suite has strong in-built client ID verification
that may be extended to incorporate other techniques.
Integrity..................... All access to a Web server is managed and controlled by the Authoriszor
management console.
Confidentiality............... Data and applications are stored where they cannot be accessed by the
Internet, and the requested data is transmitted using the user's preferred
encryption methodology.
Non-repudiation............... The Authoriszor product suite maintains a full audit trail of access to
applications and information.
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The Authoriszor Solution
We have developed a suite of software products that manages users'
access to a company's Web server and the level of information that is made
available to users once they have gained such access. This package of products
has been approved by Microsoft as an official Microsoft Backoffice Logo product.
Access to information is controlled as follows:
o each user seeking access to a server protected by our product
suite is positively identified as either "public" or as an
individual "authorized client";
o once an authorized client has gained access to the server
protected by our product suite, the level of information made
available to that authorized client is monitored according to the
pre-determined security profile of the authorized client in
question;
o generic content is delivered to public users so that they are not
alerted to the fact that their access to secured information has
been denied;
o a record is automatically made of any attempted unauthorized
access by a public user, although again the public user will not
be alerted to this;
o the secured information delivered to authorized clients is
generated from a remote protected off-line source, so that there
exists no static on-line page containing the secured information
that could be "hacked" and no route or portal through which a
hacker may gain access to the secured information; and
o any "alien" files deposited on the server protected by our
product suite are continuously and automatically purged.
The following paragraphs describe the products involved in this process
in more detail:
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Positive ID
A component of the Authoriszor software product, known as Positive ID,
checks the identity of the computer seeking access to a server protected by our
product suite, or to a number of different servers, according to a number of
unique attributes including hardware and software parameters. In this way, each
user is identified as public or as an individual authorized client. An
individual authorized client is a person who the company has set up as being
authorized to have a specified level of access to private company information.
For example, an existing customer could be authorized to have access to stock
levels and delivery schedules; whereas, the company's chief executive could be
authorized to have access to all information. Identification is based upon an
individual client identification key for each authorized client. If a client
identification key is copied, it will automatically cause a record to be made of
such event and the reason for the event. This matter can then be dealt with in
accordance with defined security policy. A user is continually monitored during
the period of access, as well as during initial access or re-access. Users are
not alerted to this on-going authentication process.
Once an authorized client has gained access to the server protected by
our product suite, the level and type of information delivered to him or her can
be varied according to the characteristics of their client identification key.
Certain information can be reserved for specified groups of users or for
individual users. In this way, network performance can be optimized by sending
only data that is appropriate to the client in question; for example, on a
simple level, an audio file will not be sent to a configuration with no sound
card. In addition, the product is extendable, so that future developments in
smartcards, biometrics and other technologies can be incorporated as required.
The Positive ID product, therefore, specifically addresses the need for high
level authentication, privacy protection and security.
Profile Selector
Once an authorized client has gained access to a server protected by
our product suite, our Profile Selector product profiles the client to select
the information appropriate for that authorized client, whether in terms of his
or her level of authorization, the compatibility of his or her system and the
capacity of his system to cope with the information available or his or her
personal characteristics, such as the language he or she speaks. The ability to
create profiles for groups and individual clients means that security is
precisely configurable.
Private Pages
Access to standard Web pages on the Internet is gained through uniform
resource locators, which are addresses for real Web content, including actual
pages in static Hypertext Markup Language and scripts for dynamic pages. With a
conventional Web server that is not protected by Authoriszor, hackers are able
to gain access to page sources and scripts through the uniform resource
locators, which, in turn, enables them to gain access to the server.
Our Private Pages product implements pseudo uniform resource locators.
A pseudo uniform resource locator is a specification for a page that does not
exist on the Web server but is instead generated from a remote off-line source.
A pseudo uniform resource locator is constructed according to the profile of
each individual authorized client. It exists only for the time taken to
construct and transmit it to the client. No actual page or script exists
on-line.
On any request for information by a user, the Authoriszor product suite
uses its virtual page publication system to create a temporary page containing
the information resulting from the information profiling screening procedure.
This virtual page is sent to the client in exactly the same way as a requested
uniform resource locators but is then immediately deleted from the system. The
virtual page exists only for the amount of time necessary to send it to the
requesting client.
The source information for pages is stored off-line where it is
inaccessible from the Web and may even be stored on other computers not
connected to the Internet. In this way, information is protected from hackers.
If required, the Authoriszor product suite can also encrypt the page
for transmission using industry standard encryption methods.
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Pseudo uniform resource locators contain different levels of content
for different types of clients. For example:
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Intended Recipient Possible Content
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Public.......................................... Description of product.
Product graphics.
Overview of product features and benefits.
Product Dealer.................................. Description of product.
Product graphics.
Overview of product features and benefits.
Dealer pricing details.
Product Distributor............................. Description of product.
Product graphics.
Distributor pricing details.
Product Service Center.......................... Description of product.
Product graphics.
Spare parts pricing details.
Product recall information.
</TABLE>
The Authoriszor product is designed to ensure that pages are generated
in response to all information requests; even unidentified clients receive
publicly available information. This means that hackers are not made aware of
their refused access.
Active Surveillance
Our Active Surveillance product protects the user site against file
deposition attacks. A file deposition attack takes the form of a file or a
series of files deposited, sometimes through the firewall, and designed to take
unwanted action. For example, a file deposition attack may overflow its
allocated space until it fills available disk and memory space effectively
bringing the computer to a halt. These are known as buffer overflow attacks.
Alternatively, a file deposition attack may be designed to respond to a defined
set of circumstances that will enable it to find the effective control center of
the system-the Web root. This enables the file deposition attack to take
whatever action it likes with respect to the Web content or content accessed
from the Web root by scripting programs. Active Surveillance sweeps the
protected server every few seconds and institutes the user defined security
procedure on any files it does not recognize as having been present for more
than a pre-determined time.
Our Strategy
We intend to become one of the leading providers of electronic security
solutions worldwide. The principal elements of our strategy to achieve this are
as follows:
Technological leadership. We believe that we offer innovative and high quality
Web security solutions. We intend to maintain this technological lead by
devoting substantial resources to product research and development, and, if
appropriate, by acquiring new products and technologies. In addition, we intend
to increase the current functionality of our solutions, which we anticipate will
create further sales opportunities and additional technological barriers for
others. We will continue to focus on open, flexible and scalable solutions while
broadening the scope of our electronic security solutions.
Global presence. We intend to be a leading provider of Web security solutions
to large enterprises in Europe and North America and other high growth markets
by expanding our sales and marketing and support organizations. To this end, we
have increased our staff to 57 employees as of September 1, 2000, including
Richard A. Langevin, our Chief Executive Officer, President and Interim Chief
Financial Officer
Target new industry sectors and commercial certificate authorities. We plan to
continue to focus our sales and marketing efforts on industries where Web
security is essential. These markets are currently:
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o financial services;
o healthcare services;
o high-technology;
o government branches; and
o large enterprises.
We intend to target leading institutions in these markets and will also target
digital certificate service providers, known as commercial certificate
authorities or trusted third parties.
Develop strategic partnerships and customer relationships. We are working to
establish strategic relationships with leading partners to broaden and
accelerate the market acceptance of our Web security solutions. We will
strategically target relationships with companies and other organizations that
we expect to play a critical role in the future of electronic business. We
anticipate that these relationships should help to facilitate broad market
acceptance of our Web security solutions and we believe that they will help
achieve our goal of becoming a leading global provider of Web security products
and services.
Pursue selective growth opportunities. We intend to grow through both organic
expansion as well as through selected strategic acquisitions which we believe
will accelerate product, customer and geographic penetration.
Sales and Marketing
Since January 2000, we have been expanding our sales and marketing
organization. Sales staffing has increased from only 2 representatives in the UK
in January 2000 to currently 14 sales representatives, comprised of 5 sales
representatives in the UK and 9 sales representatives in the U.S. We have also
increased our marketing staff from 1 representative in the UK in January 2000 to
3 marketing representatives that is comprised of 2 UK representatives and 1 U.S.
representative. We have also expanded our global sales presence through the
expansion of our sales offices. From January 2000, we have increased our sales
offices from the initial 2 UK offices to a total of 9, including 7 new U.S.
field offices in Burlington, Massachusetts, Providence, Rhode Island, Chicago,
Illinois, St. Louis, Missouri, Phoenix, Arizona, Los Angeles, California and
Washington, D.C.
Our overall sales objective is to maximize organic sales growth,
develop a global brand and achieve a global capability by continuing to develop
the necessary support infrastructure and establishing sales channels worldwide.
In addition to direct sales, we intend to develop relationships with
other entities to market and sell our product suite and services. These sales
channels can be categorized as follows:
o Application Service Provider Vendors and Services.
Conventional Internet service provider services provide Web
servers and email services connected to the Internet.
Application service providers extend these services to include
offering software programs, from payroll or human resources
applications to a full enterprise resource planning
application. Our product suite is designed to provide an
essential fail-safe security environment for application
service provider Web services and applications;
o Product Re-sellers, Distributors and Sales Agents. The
companies and individuals in this category that we seek to
work with are, typically, geographically focused and offering
local market knowledge and contacts and sales skills;
o Original Equipment Manufacturers, including Application
Development Companies. These companies tend to operate
worldwide and embed security solutions into their own product
offerings. They tend to offer developed sales channels,
established customer bases and brand recognition; and
o Consultants, Value Added Resellers, Systems Integrators and
Worldwide Information Technology Vendors. These are companies
and individuals that may sell or recommend some or all of the
elements of our product suite to enhance their own solution.
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All of these types of sales channels will assist us by providing access
to new geographic areas and markets and the capacity to further penetrate our
existing markets.
Our Website is also a major marketing tool and the primary way in which
some potential customers will judge us and our product suite. We anticipate that
in the future it may become a significant sales channel and our primary support
channel.
We are also seeking to discuss partnership agreements with system
integrators and value added resellers. We have identified a number of such
opportunities in the UK, Germany, France and the U.S. and expect to hold
discussions to set up agreements covering these countries during calendar year
2000.
We are also seeking to further develop our distribution chain by
acquiring relevant companies or by making strategic equity investments. We have
acquired 27.2% of the share capital of WRDC Limited (25.1% on a fully diluted
basis), with an option to acquire the balance of its issued share capital after
October 31, 2001. WRDC Limited offers professional services in information
technology focused on core technologies of messaging, directories, network
security and data communications. Technology underpins all WRDC projects,
ranging from strategic and operational consultancy, through the design and
implementation of systems integration projects, to the provision of fully
managed information technology services.
From bases in Leeds and London, WRDC works with both UK and
international corporate clients from the following sectors:
o Financial Services
o UK Government
o Police
o Distribution
o Telecommunications
o Travel and Tourism
o UK Ministry of Defense
o Manufacturing
o Information Technology
o Health
Competition
We believe that we have no direct competitors offering a product with
the same benefits. Other companies offer solutions that contain some of the same
features as our solution, but we believe that none of these other solutions
contain the same strength of positive client identification or pseudo uniform
resource locators, which we regard as two key functions of our solution and in
respect of which patent applications have been made. In addition, a key
strategic positioning of the Authoriszor product suite is that it complements
existing electronic security products.
The markets in which we operate are characterized by intense
competition from producers of a variety of security solutions. Our indirect
competitors include those companies listed in the section of this Report
entitled "Business-Industry Background-The Need for a Security Infrastructure
for Electronic Businesses." We expect there are other competitors that we have
not identified. We believe that we compete with these and our other competitors
on the basis of the quality of our security solution, service level and price.
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We expect to face further competition from new market entrants and
possible alliances between competitors in the future. Certain of our current and
potential future competitors have greater financial, technical, market and other
resources than we do. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and changes in client requirements or to
devote greater resources to the development, promotion and sales of their
services than we can.
There can be no assurance that we will be able to compete successfully
with existing or new competitors or that competition will not have a material
adverse effect on our business, financial condition and operating results.
Intellectual Property Rights
We rely on a combination of copyright, trademark, service mark and
trade secret laws, confidentiality procedures and contractual restrictions to
establish and protect the proprietary rights in our software and services.
However, we will not be able to protect our intellectual property if we are
unable to enforce our rights or if we do not detect unauthorized use of our
intellectual property. In addition, these legal protections only provide us with
limited protection in certain geographic areas. If we litigate to enforce our
rights, it would be expensive, divert management resources and may not be
adequate to protect our business. Our inability to protect our proprietary
technology could have a material adverse effect on our business, prospects,
financial condition and results of operations.
We have five patent applications pending in the U.S. for our
Authoriszor product suite. However, because patent applications in the U.S. are
confidential, we cannot rule out the existence of earlier-filed patent
applications for technology similar or identical to our product suite, or the
possibility that another party may first secure patent protection in
substantially similar technology. Therefore, we cannot guarantee that our patent
applications will be successful. We have attempted to extend any successful U.S.
applications into the UK and other countries pursuant to the processes and
procedures provided by the Paris Convention and are currently evaluating the
necessity of extending any such successful U.S. patents pursuant to the Patent
Cooperation treaties; however, patent applications for software are more
difficult to obtain in some countries outside the U.S. Even where patent
protection is obtained, we cannot guarantee that third parties will not oppose
or otherwise challenge the patents granted. If we do not succeed in securing
patents in the U.S., UK and other territories, or if any granted patent is
successfully challenged, we may not be able to prevent the marketing of similar
products based on the underlying technology by other persons in that territory.
We have copyrights on all aspects of the Authoriszor product suite and
are in the process of applying for UK trademarks in respect of the key
Authoriszor logos used for branding. We are also in the process of implementing
confidentiality procedures and contractual provisions to further protect our
proprietary rights. Additional protection for the software, documentation and
other written materials is afforded by trade secret and, in the U.S. only,
unfair competition laws. "AUTHORISZOR", SZ Logo, "A Logo" and "SECURES THE WEB"
are trademarks or registered trademarks of Authoriszor or its subsidiaries in
the United States and other countries.
Research and Development
We aim to maintain our security software technology leadership position
by continuing to enhance and broaden our product offerings. Through constant
monitoring of the industry, we plan to identify new security features and trends
in the marketplace that are required to maintain our competitive edge. The
research and development team has currently identified several competitive
enhancements that are being considered for development, such as:
o native code conversion to further improve system performance;
o implementation of secure file transfer;
o expanded user selectable encryption;
o active lightweight directory access protocol support; and
o the development of extended application programming
interfaces.
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Our future success will depend, in part, on our ability to attract,
retain and motivate highly qualified technical personnel. On March 15, 2000, we
hired Edward Vasko as Director of Technology for U.S. operations. Prior to his
employment with the Company, Mr. Vasko served as Product Manager, Security for
the North American software division of Bull S.A.
We believe our future success will also depend in large part on our
ability to enhance and leverage our technologies. We intend to continue to
develop new and innovative solutions to respond to the needs of our customers.
We intend to offer products that are compatible with existing operations
platforms such as UNIX and to seamlessly integrate our product without the need
for re-registration in the case clients require major upgrades.
For the one year period ending June 30, 2000, we incurred approximately
$792,000, including professional services, in expenses related to research and
development. We expect to continue to commit significant resources to our
research and development team in the future, including over the course of the
next 12 months.
Authoriszor 2000(TM)
Authoriszor 2000(TM) was designed to enhance ease-of-use for customers
and offer increased internet security and access management functionality for
its users. Specifically, some of the major enhancements available in this new
software version included:
o Security Profile Management. New user and group profile
management functionality designed to lower customers' deployment
costs and administrative workload;
o Single Process Web Site Configuration. The Web Site Import Wizard
allows managers and administrators to secure an entire website
using one process;
o Multiple Site Management. Authoriszor 2000(TM) is designed to
provide a unified view of multiple web sites, thereby reducing
the time involved in website administration.
Authoriszor 2000(TM) was designed to address certain B2B requirements
including:
o Protection from denial of service attacks that disable a
corporate web server by taking over available disk and memory
space;
o Targeted security that is designed to ensure that only authorized
users see confidential web content;
o Multiple encryption methods that are designed to protect the
customer's existing investment in their other security products.
Employees
As of September 1, 2000 there were 57 people employed by us on a
full-time basis. Of these, 16 employees were primarily involved in research and
development, and 21 employees were involved in sales and marketing, 7 in general
administration and support and 13 engaged in professional services, in addition
to our Chief Executive Officer, President and Interim Chief Financial Officer,
Richard Langevin. We also employ free-lance consultants from time to time to
assist various specific projects.
Our employees are not represented by any collective bargaining unit,
and we have never experienced a work stoppage. We believe our relations with our
employees to be good. From time to time we also employ independent contractors
to support our professional services, product development, sales, marketing and
business development organizations.
Our future success will depend, in part, on our ability to attract,
retain and motivate highly qualified technical and management personnel for whom
competition is intense. As part of our retention efforts, we seek to minimize
turnover of key employees by emphasizing the nature of our work, our work
environment, our encouragement of technical enhancements and our competitive
compensation packages.
Item 2: Description of Properties
Facilities
Our executive offices are currently located in Burlington,
Massachusetts. In May 2000, we signed a commercial real estate lease in order to
move our U.S. headquarters from the home office of our Chief Executive Officer
in Natick, Massachusetts to a permanent location in Burlington, Massachusetts.
The lease commenced on May 1, 2000 and includes 11,950 square feet of office
space. We commenced occupation of this space during the week of May 22, 2000. As
a result, we will incur a rental obligation of approximately $376,000 per annum
over the term of the five year lease. The Company's operations headquarters are
currently located on the first floor of a leased facility in Harrogate, England
consisting of approximately 3,132 square feet of office space. The rent and
service charge for this facility is approximately $72,000 per year. The Company
maintains additional UK offices in a 400 square foot leased facility in
Birmingham, England and a 3,174 square foot leased facility in Bradford,
England. The rent for these office spaces is approximately $48,000 in the
aggregate per year. In the opinion of the management of the Company, the U.S.
property in Burlington, Massachusetts and the UK properties in North Yorkshire,
Birmingham and Bradford are adequately covered by insurance.
In addition, during the previous three months, we have recruited field
staff in six major cities of the U.S. to provide local sales and technical
support to the marketplace and our customer base. As the operations are
initially small, we have either established home office locations, as in, for
example, Providence, Washington, St. Louis and Phoenix, or we have attempted to
locate and rent such other shared office space as was deemed appropriate for the
other field offices.
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ITEM 3: LEGAL PROCEEDINGS
We are not currently a party to any pending material legal proceedings,
nor is any of our property the subject of any pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted for vote to the security holders
through the solicitation of proxies or otherwise in the fourth quarter of the
fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was previously quoted on the OTC Bulletin Board during
some of the periods covered by this table under the symbol "AUOR." Commencing on
May 23, 2000, our common stock was quoted on the NASDAQ National Market System
under the symbol "AUTH." The following table sets forth, for the periods
indicated, the range of high and low bid price information per share of our
common stock. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Bid Price
Calendar Period High Low
1997
Third Quarter........................................ $1.375 $0.406
Fourth Quarter....................................... 2.125 0.406
1998
First Quarter.... ................................... 1.50 0.625
Second Quarter....................................... 1.06 0.041
Third Quarter........................................ 0.875 0.08
Fourth Quarter....................................... 0.53 0.055
1999
First Quarter........................................ 0.13 0.05
Second Quarter....................................... 0.0875 0.062
Third Quarter........................................ 2.00 0.625
Fourth Quarter.... .................................. 17.00 1.3125
2000
First Quarter........................................ 40.875 7.50
Second Quarter (1)................................... 22.50 8.875
(1) Commencing on May 23, 2000, during the "Second Quarter" of the
Company's fiscal year, our common stock was quoted on the NASDAQ
National Market System under the symbol "AUTH." Accordingly, the
information concerning the price of the Company's common stock as
traded on the Nasdaq National Market during the "Second Quarter"
reflects the high and low closing price of such shares of Company
common stock.
On September 25, 2000, the closing price of our common stock on the
Nasdaq National Market was $8.22 per share.
As of September 25, 2000, there were 17,414,081 shares of common stock
outstanding, held by approximately 415 holders of record.
Dividend Policy
We have not declared or paid any dividends on our capital stock since
our inception and do not anticipate declaring or paying dividends in the
foreseeable future. Our current policy is to retain earnings, if any, to finance
the expansion of our business. The future payment of dividends will depend on
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the results of operations, financial condition, capital expenditure plans and
other factors that we deem relevant and will be at the sole discretion of our
Board of Directors.
Recent Sales Of Unregistered Securities
On February 18, 2000, the Company sold 2,727,273 shares of common stock
at $11.00 per share. The placement ("Placement") was made pursuant to Regulation
S under the Securities Act, as amended ("Securities Act") in the United Kingdom
and Europe. The gross proceeds of the Placement were $30,000,003. In addition,
the Company granted an option to Beeson Gregory Limited ("Beeson Gregory"), the
placement agent, to purchase 136,363 shares of common stock at an exercise price
of $11.00 per share for a term of two years. Beeson Gregory also received a
commission of 5% of the total gross proceeds, the reimbursement of certain of
its expenses and has been appointed as the Company's financial advisor at an
annual advisory fee of approximately $40,000.
The offering of such securities in the Placement was not registered
under the Securities Act pursuant to Regulation S, and the shares were not
offered, sold, or delivered in the United States or for the account or benefit
of any United States Person (as such terms are defined in Regulation S). Such
securities may not be reoffered or resold in the United States absent
registration under the Securities Act or pursuant to an applicable exemption
from such registration requirements.
A Registration Statement on Form S-1 ("Registration Statement") was
filed with the SEC under the Securities Act on March 20, 2000, relating to the
offer and sale from time to time of shares issued in the Placement by certain
purchasers of such shares and certain additional shares from time to time
pursuant to an effective registration statement and prospectus ("Prospectus")
contained therein. The Registration Statement, as amended, was declared
effective by the SEC on May 18, 2000 under the Securities Act.
The Company issued 120,000 shares of common stock to Nicholas and
Ronald Reeves, collectively, as compensation for consulting services rendered
beginning in August 1999 and continuing for a six month term thereafter. The
shares of common stock were issued pursuant to the exemption from registration
under the Securities Act set forth in Section 4(2) of the Securities Act.
On October 6, 1999, the Company repaid a $41,415 loan from James L.
Jackson with $16,566 in cash consideration and 15,000 shares of common stock, at
a 20% discount from the then current market price. James Jackson subsequently
transferred 7,500 shares of common stock to an assignee. These shares of common
stock were issued pursuant to the exemption from registration under the
Securities Act set forth in Section 4(2) of the Securities Act.
On July 22, 1999, the Toucan Gold Corporation consummated the
acquisition of all of the issued and outstanding capital stock of ITIS
Technologies Limited ("ITIS") in exchange for 4,680,375 shares (the
"Consideration Shares") of common stock, pursuant to a Share Sale Agreement (the
"Share Sale Agreement"), dated July 22, 1999, by and among David J. Blanchfield,
James L. Jackson, David R. Wray, Barry Jones, Ian McNeill (the "ITIS
Shareholders") and the Company. The transaction was accounted for as a
recapitalization of ITIS. The Consideration Shares were issued on August 6, 1999
in the following amounts: (i) James L. Jackson, currently a Director, Vice
President and Secretary of the Company and Managing Director of AL, received
1,307,733 shares of common stock; (ii) David Blanchfield, currently Director of
Research and Development of AL, received 1,307,733 shares of common stock; (iii)
David Wray, currently a Director of the Company and Chief Technical Officer of
AL, received 1,307,733 shares of common stock; (iv) Ian McNeill, currently the
Chairman of AL, received 688,390 shares of common stock and currently owns
694,390 shares of common stock; and (v) Barry Jones, currently the Director of
Sales and Marketing for AL, and as of October 1, 2000 the Director of Alliance
and European Development of AL, received 68,786 shares of common stock. These
securities were issued pursuant to the exemption from registration under the
Securities Act set forth in Section 4(2) of the Securities Act.
On June 9, 1999, the Company entered into an Agreement of Settlement
and Release with Joseph J. Haraoui and related parties to resolve certain
disputes relating to the claims agreement reached in 1996 with Mr. Haraoui with
respect to the acquisition by Mineradora de Bauxita Ltda. ("MBL") of certain
mining claims in the Cuiaba Basin of Brazil. Pursuant to the terms of the
Settlement Agreement, the Company issued to Mr. Haraoui an aggregate of 250,000
shares of common stock. These shares were issued pursuant to the exemption from
registration under the Securities Act set forth in Section 4(2) of the
Securities Act.
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On April 27, 1999, the Company approved the issuance of 300,000 shares
of common stock to Roy Williams upon the exercise by Minmet of its option to
purchase MBL as payment of his finder's fee pursuant to his finder's fee
agreement with the Company. These shares were valued for such purpose at $.20
per share, which was the current market price of common stock on the OTC
Bulletin Board as of April 27, 1999, the date the Company approved the issuance.
Such shares were issued pursuant to the exemption from registration under the
Securities Act set forth in Section 4(2) of the Securities Act.
On April 27, 1999, the Company approved the issuance of shares of
common stock to the following persons in lieu of paying such persons salary or
fees owed to such persons. Such shares of common stock were valued for such
purpose at $.20 per share, the price of shares of common stock on the OTC
Bulletin Board as of April 27, 1999:
Name Number of Shares
---- ----------------
Robert P. Jeffcock 250,000
Robert A. Pearce 187,500
Don Box 20,000
Igor Mousasticoshvily 50,000
These shares were issued pursuant to the exemption from registration
under the Securities Act set forth in Section 4(2) of the Securities Act.
In March 1999, the Company issued to Igor Mousasticoshvily 133,333
shares of common stock pursuant to an exemption from registration under the
Securities Act set forth in Section 4(2) as part of the purchase price for
certain claims.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following description of "Management's Plan of Operation"
constitutes forward-looking statements for purposes of the Securities Act and
the Exchange Act and as such involves known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. The words
"expect", "estimate", "anticipate", "predict", "believes", "plan", "seek",
"objective" and similar expressions are intended to identify forward-looking
statements or elsewhere in this report. Important factors that could cause the
actual results, performance or achievement of the Company to differ materially
from the Company's expectations include the following: 1) one or more of the
assumptions or other factors discussed in connection with particular
forward-looking statements or elsewhere in this report prove not to be accurate;
2) the Company is unsuccessful in increasing sales through its anticipated
marketing efforts; 3) mistakes in cost estimates and cost overruns; 4) the
Company's inability to obtain financing for general operations including the
marketing of the Company's products; 5) non-acceptance of one or more products
of the Company in the marketplace for whatever reason; 6) the Company's
inability to supply any product to meet market demand; 7) generally unfavorable
economic conditions that would adversely effect purchasing decisions by
distributors, resellers or consumers; 8) development of a similar competing
product at a similar price point; 9) the inability to negotiate a favorable
agreement for or to adequately protect the Company's intellectual property; 10)
a failure by the Company or its third party vendors to accurately assess and
prepare for any problems that may arise related to the year 2000; (11) if the
Company experiences labor and/or employment problems such as the loss of key
personnel, inability to hire and/or retain competent personnel, etc.; 12) if the
Company experiences unanticipated problems and/or force majeure events
(including but not limited to accidents, fires, acts of God etc.), or is
adversely affected by problems of its suppliers, shippers, customers or others;
13) the risk factors of the Company as described in the section entitled "Risk
Factors" contained in the Prospectus, as amended; and (14) the factors contained
on page 3 of this Report concerning some of the factors that may influence the
growth in the market for security products. All written or oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by such factors. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto.
Overview
We provide a patent-pending security solution that secures corporate
Web-related information while enabling businesses to provide secure access to
their corporate Website and applications and to conduct secure communications
over computer networks and the Internet. Our product suite and processes enable
a corporation to provide secure access to the information on its Web server to
its customers, suppliers, employees and public visitors from the Internet,
according to their pre-determined security profile.
We believe that our solution is innovatively different from any current
security solution available today. Our solution provides security by securing a
customer's Website, corporate information assets and contents offline, making
this information completely inaccessible, except through the customer's Web
server. This process eliminates any direct contact between the person requesting
information and the corporate information assets.
The benefit of our product suite is that it has been designed to
provide an added dimension of security to existing security products, such as:
o firewalls;
o virtual private networks;
o encryption;
o security tokens;
o smart cards; and
o biometrics.
Customer investments in these other security technologies can be preserved and
combined with our product suite.
In order to begin our operations as an Internet-based company, on July
22, 1999 we acquired Authoriszor Ltd., then named ITIS Technologies Ltd., a
United Kingdom Internet security company. Following this acquisition, the name
of our company was changed to Authoriszor Inc., and the trading symbol for the
common stock on the OTC Bulletin Board was changed to "AUOR." On May 23, 2000
our shares of common stock commenced trading on the NASDAQ National Market
System under the symbol "AUTH." In November 1999, we changed our fiscal year end
from December 31 to June 30 in order to adopt the fiscal year end of Authoriszor
Ltd.
The principal elements of our strategy to achieve a leading position in
the worldwide Internet security solutions market are as follows:
Technological leadership. We believe that we offer innovative and high quality
Web security solutions. We intend to maintain this technological lead by
devoting substantial resources to product research and development, and, if
appropriate, by acquiring new products and technologies. In addition, we intend
to increase the current functionality of our solutions which we anticipate will
create further sales opportunities and additional technological barriers for
others. We will continue to focus on open, flexible and scalable solutions while
broadening the scope of our Web security solutions.
Global presence. We intend to be a leading provider of Web security solutions
to large enterprises in Europe and North America and other high growth markets
by expanding our sales and marketing and support organizations. To this end, we
have increased our staff to 57 employees as of September 1, 2000, including
Richard A. Langevin, our Chief Executive Officer, President and Interim Chief
Financial Officer. Effective May 2000, Fred Sawin, became a consultant with the
Company and serves as Vice President of U.S. Sales and Marketing. Additionally,
as of July 2000 we retained Edward Rogers, a former IBM Executive, for a six
month period as a consultant to provide worldwide financial operating and
marketing strategies.
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Target new industry sectors and commercial certificate authorities. We plan to
continue to focus our sales and marketing efforts on industries where Web
security is essential. These markets are currently:
o financial services;
o healthcare services;
o government branches;
o large enterprises; and
o high technology.
We intend to target leading institutions in these markets and will also target
digital certificate service providers, known as commercial certificate
authorities or trusted third parties.
Develop strategic partnerships and customer relationships. We are working to
establish strategic relationships with leading partners to broaden and
accelerate the market acceptance of our Web security solutions. We will
strategically target relationships with companies and other organizations that
we expect to play a critical role in the future of electronic business. We
anticipate that these relationships should help to facilitate broad market
acceptance of our Web security solutions, and we believe that they will help
achieve our goal of becoming a leading global provider of Web security products
and services.
Pursue selective growth opportunities. We intend to grow through both organic
expansion as well as through selected strategic acquisitions which we believe
will accelerate product, customer and geographic penetration.
In January 2000, we entered into a contract with UniVentures
International Limited to implement a secure Web application for use throughout
nine universities located in Northern England. Since entering into the
UniVentures contract, we have also entered into agreements with several other UK
firms including Kunick Leisure, Beeson Gregory and Building Information
Warehouse.
Results of Operations
The following is a discussion of the results of operations for the year
ended June 30, 2000 compared with the year ended June 30, 1999. The Company is
in the development stage and has had no material revenues to date.
Financing Management's Plan of Operation
At the time of the acquisition of Authoriszor Ltd. in July 1999, the
Company had approximately $1,600,000 in cash and other liquid assets, including
securities of Minmet Plc. ("Minmet"). Following the acquisition of Authoriszor
Ltd., the Company sold in the quarter ended September 30, 1999 10.5 million
Minmet shares with Minmet's consent at the price of 8 pence (sterling) per
share. These transactions resulted in net cash proceeds to the Company of
approximately $1,360,000. Pursuant to its agreement with Minmet, the Company may
not sell any of its remaining Minmet shares until January 6, 2001 without
Minmet's prior approval; provided, however, that Minmet has agreed that the
Minmet shares may be placed through Minmet's brokers with Minmet's consent at
any time, and Minmet has undertaken to act reasonably in respect of any requests
with regard to such sales of Minmet shares.
In January 2000, the Company, in an effort to raise capital, reduced
the exercise price of certain options to purchase 350,000 shares of common stock
from $1.00 to $.66 per share if such stock options were exercised by January 31,
2000. All of such stock options were exercised by January 31, 2000.
In addition, in January 2000 the Company sold the stock of its
subsidiary Toucan Mining for $809,750 ((pound)500,000) in cash. This transaction
was undertaken because of the Company's need to dispose of its mining interests
(except for the retained Minmet securities) in a timely fashion to be able to
pursue its current Internet security business and to facilitate the Regulation S
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private placement that was being arranged by Beeson Gregory. Prior to the sale,
Toucan Mining transferred to the Company warrants to purchase 7.7 million shares
of Minmet at an exercise price of 8 pence (sterling) per share and 2 million
Minmet shares. The shares of Minmet to be acquired on exercise of the warrants
were not subject to any contractual restrictions with Minmet; however, the other
Minmet shares cannot be sold until January 2001 without the consent of Minmet.
Subsequently, in May 2000, the Company exercised the warrants and sold the
underlying 7.7 million shares of Minmet for sales proceeds, net of the exercise
price, of approximately $2,078,000.
In February 2000, the Company placed 2,727,273 shares of common stock
("Placing Shares") at $11.00 per share pursuant to certain placing documents
(the "Placing Documents"). The Placement was made pursuant to Regulation S under
the Securities Act in the United Kingdom and Europe. The gross proceeds of the
Placement were $30,000,003. In addition, the Company granted an option to Beeson
Gregory, the placement agent, to purchase 136,363 shares of common stock at an
exercise price of $11.00 per share for a term of two years. The Company also
granted certain registration rights to the purchasers and future holders of the
Placing Shares.
Beeson Gregory received a commission of 5% of the total gross proceeds.
The Company has also appointed Beeson Gregory as its financial advisor and has
agreed to pay Beeson Gregory an annual financial advisory fee of $40,000
((pound)25,000). The proceeds of the offering, net of commissions payable to
Beeson Gregory and reimbursement of Beeson Gregory's expenses and other
expenses, resulted in cash available to the Company of approximately
$28,015,000. Pursuant to the Placing Documents, the Company filed on March 20,
2000, a Registration Statement under the Securities Act to register the resale
of the Placing Shares and made application to list the Company's common stock on
the Nasdaq National Market System. The Registration Statement, as amended, was
subsequently declared effective under the Securities Act on May 18, 2000. As of
such date, the Company had incurred a cost of approximately $375,000 in
connection with the resale of the Placing Shares and for payment of the Nasdaq
listing fee. Thereafter, the Company has incurred additional expenses in
connection with the resale of the Placing Shares under such Registration
Statement. In the future the Company may incur additional costs related to the
Registration Statement and the resale of the Placing Shares thereunder. The
Company has used, and expects to continue using, the net proceeds from the
Placement to provide working capital to the Company and its subsidiaries and to
fund strategic investments, acquisitions and research and development.
Upon completion of the Placement, the Company, through Authoriszor
Holdings Limited ("AHL"), acquired 27.2% of the stock of WRDC (25.1% on a fully
diluted basis) for an aggregate subscription price of $604,800 ((pound)378,000).
In addition, on making the subscription, AHL made a loan in the principal amount
of $195,200 ((pound)122,000) to WRDC, repayable (with interest) over a five year
period beginning on the second anniversary date of the first drawdown. AL has
converted the terms of the existing interest free loan to WRDC in the principal
amount of $160,800 ((pound)100,000) to a loan to WRDC with similar terms. The
WRDC Agreement contains the terms of an option pursuant to which AHL has the
right to acquire the balance of the issued share capital of WRDC after October
31, 2001, at a price based on the revenue and profits of WRDC for the previous
accounting period at the relevant time.
The Company also incurred nominal expenses in setting up its interim
U.S. office at the home office of the Chief Executive Officer in Natick,
Massachusetts. In May, 2000, however, the Company signed a commercial real
estate lease in order to move the Company's headquarters to a permanent location
in Burlington, Massachusetts. The lease commenced on May 1, 2000, and as a
result the Company will incur a rental obligation of approximately $376,000 per
annum over the term of the five year lease. In preparing the new headquarters
for operation, the Company spent approximately $100,000 to build out the new
location. The Company has also entered into personal property leases for
telephone systems and computer equipment for a term of three years that will
cost the Company approximately $190,000 in the aggregate over the course of such
leases. Additionally, the Company spent approximately $200,000 in furnishings
for the Burlington headquarters.
The Company's commitments for salaries will be significantly higher
subsequent to June 30, 2000, as the Company has increased its U.S. staff
significantly. At present, the Company's U.S. operations employ 20 individuals,
including Richard A. Langevin in the following areas: ten employees in sales and
marketing, two administrative employees, seven professional services employees
and the Company's Chief Executive Officer, President, and Interim Chief
Financial Officer, Richard A. Langevin. In addition, the Company has entered
into four consultant agreements with various individuals.
The Company's operations headquarters are currently located on the
first floor of a leased facility in Harrogate, England consisting of
approximately 3,132 square feet of office space. The rent and service charge for
this facility is approximately $72,000 per year. The Company maintains
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additional UK offices in a 400 square foot leased facility in Birmingham,
England and a 3,174 square foot leased facility in Bradford, England. The rent
for these office spaces is approximately $48,000 per year in the aggregate. The
Company's U.K. operational office has also increased its staff. Presently, there
are 10 employees in sales and marketing, 16 employees in research and
development, 5 in administration and 6 in professional services.
The Company's future success will depend, in part, on its ability to
attract, retain and motivate highly qualified technical and management
personnel. The Company intends to increase its sales and distribution, technical
services and administrative staff in the UK and to increase the sales and
distribution and administrative infrastructures in the U.S. In addition the
Company is actively seeking a Chief Financial Officer. As a result the Company
expects to incur significant expenses related to such personnel growth in the
future.
The Company believes its future success will depend in large part on
its ability to enhance and leverage its technologies. The Company intends to
continue to develop new and innovative solutions to respond to the needs of its
customers. The Company intends to offer products that are compatible with new
and emerging operations platforms such as UNIX and to seamlessly integrate its
product without the need for re-registration in the case clients require major
upgrades.
The Company aims to maintain its security software technology
leadership position by continuing to enhance and broaden the Company's product
offerings. Through constant monitoring of the industry, the Company plans to
identify new security features and trends in the marketplace that are required
to maintain its competitive edge. The research and development team has
currently identified several competitive enhancements that are being considered
for development, such as:
o native code conversion to further improve system performance;
o implementation of secure file transfer;
o expanded user selectable encryption;
o active lightweight directory access protocol support; and
o the development of extended application programming
interfaces.
For the year ended June 30, 2000, the Company incurred approximately
$792,000, including professional services, related to research and development.
The Company expects that it will continue to commit significant resources to its
research and development team in the future, including over the course of the
next 12 months.
As of the year ended June 30, 2000, 16 full-time employees were engaged
in research and development for the Company. In addition, most of the Company's
technical staff and management team contribute to design and development
activities.
As the result of these transactions, management considers that the cash
resources of the Company are adequate for its working capital requirements for
approximately the next twelve months.
Quantitative and Qualitative Disclosure of Market Risk
The Company's primary market risk exposure is fluctuation in the value
of its investment in common stock of Minmet. These securities have been
classified as available-for-sale which requires that they be carried at the
market price. Based on the market price at June 30, 2000, these securities have
a value of approximately $1,993,000. Fluctuations in value could result both
from the price of the equity securities in general as well as changes in the
market's perception of the value of the shares of Minmet. The Company has not
deemed it prudent to enter into transactions such as various types of hedges to
minimize risk. A 10% change in the market price of Minmet shares would cause a
$199,300 change in stockholder's equity.
18
<PAGE>
The Company also has risk related to currency exchange rate
fluctuations. A portion of its cash flows are expected to be received in
non-U.S. currency. Also there are loans outstanding to the Company's UK
subsidiaries of approximately $860,000. Based on this loan amount, a 10%
fluctuation in currency rates would have a $86,000 effect on net income or loss.
Although the Company may choose to do so in the future, to date, the Company has
not engaged in foreign exchange hedging.
19
<PAGE>
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS AND REPORTS
OF INDEPENDENT CERTIFICATE PUBLIC ACCOUNTANTS
CONTENTS
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..............................................................F-1
CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS.........................................................................................F-2
STATEMENTS OF OPERATIONS...............................................................................F-3
STATEMENT OF STOCKHOLDERS' EQUITY......................................................................F-4
STATEMENTS OF CASH FLOWS...............................................................................F-6
NOTES TO FINANCIAL STATEMENTS...................................................................................F-7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Authoriszor Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Authoriszor Inc.
and Subsidiaries (a development stage enterprise) as of June 30, 2000 and 1999
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years then ended and for the period January 15,
1997 (date of inception) to June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Authoriszor Inc. and Subsidiaries as of June 30, 2000 and 1999 and the
consolidated results of their operations and their consolidated cash flows for
the years then ended and for the period January 15, 1997 (date of inception) to
June 30, 2000 in conformity with accounting principles generally accepted in the
United States of America.
GRANT THORNTON
Leeds, England
August 18, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1999 2000
<S> <C> <C>
Cash $ 698 $ 27,095,762
Receivables
VAT recoverable and trade 2,498 70,847
Interest - 246,832
Other - 159,457
Prepaid expenses - 76,568
Total current assets ------------- --------------
3,196 27,649,466
Investment in securities, available-for-sale - 1,992,769
Computer and office equipment, net of accumulated depreciation 21,594 681,094
Restricted bank deposits - 408,000
Note receivable from WRDC (Note D) - 336,086
Investment in WRDC at net cost, adjusted for equity in
earnings or losses - 506,880
Intangible assets - 70,643
------------- --------------
21,594 3,995,472
------------- --------------
24,790 31,644,938
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable to directors 76,144 -
Accounts payable and other liabilities 24,526 1,194,021
Current maturities of capital lease obligations (Note F) - 58,990
Total current liabilities ------------- ---------------
100,670 1,253,011
Long term capital leases obligations, less current maturities (Note F) - 133,442
Stockholders' equity (deficit)
Preferred stock, par value $0.01 per share; authorized: 2,000,000
shares; issued: none
Common stock, $0.01 par value per share; authorized: 30,000,000
shares; issued and outstanding: 60 shares at June 30, 1999 and
17,414,081 shares at June 30, 2000 9 174,141
Additional paid-in capital - 33,948,976
Accumulated other comprehensive income 2,846 1,620,583
Accumulated deficit during the development stage (78,735) (5,485,215)
------------- ---------------
(75,880) 30,258,485
------------- ---------------
24,790 31,644,938
============= ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
January 15, 1997
(date of inception)
For the years ended June 30, to June 30,
1999 2000 2000
<S> <C> <C> <C>
Net sales $ 33,711 $ 121,186 $ 164,276
Cost of sales 10,559 6,116 16,675
Gross profit ------------------ ------------------ ----------------------
23,152 115,070 141,512
Operating expenses
Professional fees 5,071 1,774,339 1,779,410
Marketing and advertising - 851,856 851,856
Administrative 67,712 4,967,077 5,067,183
------------------ ------------------ ----------------------
Total operating expenses 72,783 7,593,272 7,698,449
------------------ ------------------ ----------------------
Operating loss (49,631) (7,478,202) (7,556,937)
Other income (expense)
Interest income - 611,299 611,299
Loss on sale of subsidiary - (291,448) (291,448)
Gain on sale of investments - 1,892,003 1,892,003
Loss on foreign exchange transactions - (94,957) (94,957)
Equity in loss of WRDC - (45,175) (45,175)
Total other income, net ------------------ ------------------ ----------------------
- 2,071,722 2,071,722
Net loss ------------------ ------------------ ----------------------
(49,631) (5,406,480) (5,485,215)
================== ================== ======================
Weighted average shares outstanding
Basic and Diluted 13,765,808 15,198,167
================== ==================
Loss per common share
Basic and Diluted $ (0.00) $ (0.36)
================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional Accumulated
Common stock Paid-in Accumulated Comprehen- Comprehensive
Shares Amount Capital Deficit sive Income Total Income
<S> <C> <C> <C> <C> <C> <C> <C>
January 15, 1997 (date of inception) - $ - $ - $ - $ - $ - $ -
Issuance of common stock ($.06 per 20 - - - - 3 -
share)
Comprehensive income (loss):
Foreign currency translation - - - - (62) (62) (62)
adjustment
Net loss during the period - - - (5,283) - (5,283) (5,283)
Total comprehensive loss --------------
(5,345)
Balance at June 30, 1997 ---------- -------- --------- ------------ ---------- ----------- ==============
20 - - (5,283) (62) (5,342)
Issuance of common stock ($0.15 per 40 - - - - 6
share)
Comprehensive income (loss):
Foreign currency translation - - - - (349) (349) (349)
adjustment
Net loss for the year - - - (23,821) - (23,821) (23,821)
Total comprehensive loss --------------
(24,170)
Balance at June 30, 1998 ---------- -------- --------- ------------ ---------- ---------- ==============
60 - - (29,104) (411) (29,506)
Comprehensive income (loss):
Foreign currency translation - - - - 3,257 3,257 3,257
adjustment
Net loss during the year - - - (49,631) - (49,631) (49,631)
Total comprehensive loss --------------
(46,374)
Balance at June 30, 1999 ---------- -------- --------- ------------ ---------- ---------- ==============
60 - - (78,735) 2,846 (75,880)
Issuance of common stock
($0.16 per share) 17,835 2,828 - - - 2,828
Recapitalization 13,747,913 134,821 3,097,172 - - 3,231,993
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Additional Accumulated
Common stock Paid-in Accumulated Comprehen- Comprehensive
Shares Amount Capital Deficit sive Income Total Income
<S> <C> <C> <C> <C> <C> <C> <C>
Net proceeds from issuance of stock 2,727,273 $ 27,273 $27,631,765 $ - $ - $27,659,038 $ -
through private placement
Issuance of common stock for cash
($1.01 per share) 436,000 4,360 436,105 - - 440,465
($0.67 per share) 350,000 3,500 229,835 - - 233,335
Issuance of common stock for
services
($1.66 per share) 15,000 150 24,699 - - 24,849
($4.07 per share) 100,000 1,000 405,600 - - 406,600
($9.13 per share) 20,000 200 182,300 - - 182,500
Compensation expense resulting from - - 1,773,500 - - 1,773,500
issuance of stock options
Issuance of stock options for - - 168,000 - - 168,000
services
Comprehensive income (loss):
Foreign currency translation - - - - 192,668 192,668 192,668
adjustment
Unrealized gain on - - - - 1,425,069 1,425,069 1,425,069
available-for-sale securities
Net loss during the year - - - (5,406,480) - (5,406,480) (5,406,480)
Total comprehensive loss --------------
(3,788,743)
Balance at June 30, 2000 ---------- -------- ----------- ------------ ----------- ------------ ==============
17,414,081 174,141 33,948,976 (5,485,215) 1,620,583 30,258,485
========== ======== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
January 15, 1997
(date of
inception)
For the years ended June 30, to June 30,
1999 2000 2000
<S> <C> <C> <C>
Cash flows (used in) provided by operating activities
Net loss during the period $ (49,631) $ (5,406,480) $ (5,485,215)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Issuance of stock and stock options in exchange for - 781,949 781,949
services
Non-cash compensation expense - 1,773,500 1,773,500
Equity loss in WRDC - 45,175 45,175
Loss on foreign exchange transactions - 94,957 94,957
Loss on sale of subsidiary - 291,448 291,448
Gain on sale of investments - (1,892,003) (1,892,003)
Depreciation and amortization 10,135 101,192 111,587
Changes in operating assets and liabilities
Receivables and other assets (2,172) (557,254) (559,842)
Accounts payable and accrued liabilities 70,176 1,119,480 1,223,900
---------- ------------- ------------
28,508 (3,648,036) (3,614,544)
Net cash (used in) provided by operating activities
Cash flows (used in) provided by investing activities
Proceeds from sale of subsidiary - 809,750 809,750
Acquisition of equipment (28,399) (552,854) (585,629)
Sale of investments in securities - 4,415,909 4,415,909
Exercise of warrants - (977,608) (977,608)
Investment in WRDC - (604,800) (604,800)
Advances to WRDC - (356,000) (356,000)
Purchase of intangible assets - (78,835) (78,835)
Purchase of restricted bank deposits - (408,000) (408,000)
Net cash flows (used in) provided by investing activities --------- ------------ ------------
(28,399) 2,247,562 2,214,787
Cash flows provided by financing activities
Proceeds from issuance of stock - 28,332,838 28,332,847
Recapitalization - 711 711
---------- ------------- ------------
- 28,333,549 28,333,558
Net cash flows provided by financing activities
Effect of exchange rate changes on cash (28) 161,989 161,961
Net increase in cash --------- ----------- ------------
81 27,095,064 27,095,762
Cash at beginning of period 617 698 -
Cash at end of period --------- ----------- ------------
698 27,095,762 27,095,762
========= =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest - - -
Income taxes - - -
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
NOTE A - COMPANY DESCRIPTION
Authoriszor Inc. (the Company) develops and sells an internet, extranet
and intranet security solution that has been designed to manage identity, access
security, usage and functionality characteristics of Wide Area Networks accessed
through World-Wide Web technology.
NOTE B - RECAPITALIZATION OF SHARES
On July 22, 1999, Toucan Gold Corporation (a public company
incorporated under the laws of the State of Delaware, United States of America,
in July 1996) (Toucan) acquired all of the outstanding capital stock of
Authoriszor Limited ("AL") (formerly known as ITIS Technologies Ltd, a company
incorporated pursuant to English Law in January 1997), in exchange for
restricted shares of common stock of Toucan (the Exchange) pursuant to a Share
Exchange Agreement between Toucan and AL. Toucan exchanged 4,680,375 shares of
common stock for all of AL's issued and outstanding shares of common stock. At
June 30, 1999, Toucan had disposed of all of its operations. For accounting
purposes, the Exchange has been treated as a recapitalization of AL. The
accompanying financial statements for the periods prior to July 22, 1999 are
those of AL. Also, Toucan changed its name to Authoriszor Inc. and its fiscal
year end to June 30, that of AL. Immediately after the Exchange, AL's former
shareholders owned approximately 34% of the outstanding common stock of Toucan.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts and
operations of Authoriszor, Inc., and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Development stage company
The Company (a development stage company) is in the development stage
as defined by Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises".
Software development costs
Software development costs are expensed as incurred. Statement of
Financial Accounting Standard No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established, which the Company defines as establishment of a
working model. The working model criteria used as the Company's process of
creating software (including enhancements) does not include a detailed program
design. To date, the period between achieving technological feasibility and the
general availability of such software has been short and software development
costs qualifying for capitalization have been insignificant. Accordingly, the
Company has not capitalized any software development costs.
Computer and office equipment
Computer and office equipment are stated at cost. Depreciation is
provided in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated services lives. The straight line method of
depreciation is followed for financial reporting purposes. The useful lives
range from three to 10 years.
Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the lives of
assets are capitalized. Upon sale or retirement of depreciable property, the
F-7
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cost and accumulated depreciation are removed from the related accounts and any
gain or loss is reflected in the results of operations.
Cash
For the purposes of the financial statements, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Restricted bank deposits are held by a bank that require such deposits
be maintained as security for standby letters of credit. There are three
deposits, two of which mature in June 2001, the other in April 2002.
Income taxes
The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and liabilities are
provided on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
Use of estimates in financial statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Loss per share
For all years presented prior to the year ended June 30, 2000, the
Company's loss per share amount has been computed by dividing net loss by the
number of shares (4,680,375) issued by Toucan on July 22, 1999, for the
acquisition of all of the Company's issued and outstanding shares, added to the
weighted average shares outstanding of Toucan (9,085,433) held by the pre-merger
Toucan shareholders. For the year ended June 30, 2000, the loss per share is
based on the weighted average number of common shares outstanding during the
year. Stock options and warrants excluded from the calculation of loss per share
because their effect is anti dilutive amounted to 1,868,411 for the year ended
June 30, 2000 (983,333 for June 30, 1999).
Fair Value of Financial Instruments
The Company's financial instruments consists of cash, restricted bank
deposits, trade receivables, trade payables and accrued liabilities. The
carrying amount of these instruments approximate the fair values because of
their short maturity.
Investment in securities
At June 30, 2000, the Company held 5,000,000 shares of stock in an
Irish publicly traded company, Minmet Plc (Minmet). The Company has classified
these equity securities as available-for-sale. Available-for-sale securities are
measured at fair value, with net unrealized gains and losses reported in equity.
The cost, unrealized gains and fair values of the Company's available-for-sale
securities held at June 30, 2000 is summarized as follows:
Cost Gross Unrealized Gains Estimated Fair Value
$567,700 $1,425,069 $1,992,769
F-8
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statements of Position 97-2 and 98-9 issued by the American Institution of
Certified Public Accountants. Fees for services and maintenance are generally
charged to customers separately from the license of software. Revenues from
license fees are recognized upon shipment when fees are fixed, collectability is
probable and the Company has no significant obligations remaining under the
licensing agreement. In instances where a significant vendor obligation exists,
revenue recognition is delayed until such obligation has been satisfied.
Services revenue consists of training and consulting and is recognized when the
services are performed. Maintenance revenue consists of ongoing support and
maintenance and product updates and is deferred and recognized over the term of
the contract.
Foreign Currency Translation
Assets and liabilities are translated at the rate of exchange in effect
at the close of the period. Revenues and expenses are translated at the weighted
average of exchange rates in effect during the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities into US
dollars are included as part of the accumulated other comprehensive income
component of stockholders' equity.
Segment information
The Company's operations involve a single industry segment, the
development and distribution of an Internet, extranet and intranet security
solution software. The Company operates in two geographic segments the United
Kingdom and the United States. The Company's primary operations are conducted
through AL in the United Kingdom.
New Accounting Standards not yet adopted
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standards (SFAS) No. 133 and No. 138. These statements
establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company is currently assessing the effects of adopting SFAS
No. 133 and No. 138, and has not yet made a determination of the impact on its
financial position or results of operations. These standards will be effective
for the Company's first quarter of fiscal year 2001.
NOTE D - ACQUISITION OF WRDC
On February 22, 2000, the Company acquired a 27.2% interest in WRDC
Limited, a private UK company (WRDC) for a purchase price of $604,800. The
Company has accounted for its 27.2% interest in WRDC under the equity method.
The purchase price of WRDC exceeded the Company's proportionate share of the net
assets acquired by $584,400, which is being amortized on a straight line basis
over ten years. The Company made a cash advance to WRDC in December 1999 of
$160,800 and made a further advance in February 2000 of $195,200. The total
advances have been converted into a note repayable to the Company over a five
year period bearing interest at 6% with quarterly principle and interest
payments of (pound)18,500, beginning on the second anniversary date of the first
drawdown. The Company has the option to purchase the remaining 72.8% of WRDC
Limited after October 31, 2001, at a price based on the revenue and profits of
WRDC for the previous accounting period at the relevant time.
NOTE E - SALE OF SUBSIDIARY
The Company had previously announced a spin-off to its stockholders of
Toucan Mining plc formerly know as Toucan Mining Limited (Toucan Mining), a
wholly-owned subsidiary of the Company, subject to the satisfaction of certain
conditions, including the registration of the shares of Toucan Mining pursuant
to the Securities Exchange Act of 1934, as amended. In light of the Company's
desire to dispose of Toucan Mining in a timely fashion in order to be able to
pursue its current internet security business, the Company determined to sell
Toucan Mining rather than pursuing the proposed spin-off.
F-9
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 28, 2000, the Company completed the sale of all of the share
capital of Toucan Mining for an aggregate consideration of $809,750 in cash. The
sale of Toucan Mining was made to Golden Ridge Group Limited, a company
registered in the British Virgin Islands, pursuant to a Share Sale Agreement,
dated January 28, 2000 (the "Agreement"). The sale resulted in a loss of
$291,448.
On the same date, and prior to the aforementioned sale of Toucan
Mining, Toucan Mining transferred to the Company, 2 million ordinary shares of
Minmet, (the "Minmet Shares"). The Minmet Shares cannot be sold by the Company
without the consent of Minmet until January 6, 2001. In addition, Toucan Mining
transferred to the Company warrants to subscribe to a further 7.7 million
ordinary shares of Minmet at an exercise price of $.13 ((pound)0.08). The
Company exercised the 7.7 million warrants in April 2000 and sold the underlying
shares in May 2000. The Company received $3,055,000 in proceeds from the sale
and recognized a gain of $1,693,000 on the transaction.
Independent of the Minmet Shares and Warrant Shares, the Company
already held an additional 3,000,000 shares in Minmet. The 3,000,000 shares
carry the same restrictions as the Minmet Shares. The Company has classified
these equity securities as available-for-sale. The closing market price of the
Minmet shares at June 30, 2000 was (pound).26 per share ($.398 at the then
exchange rate).
NOTE F - COMMITMENTS
Capital leases
The Company leases telephone and computer equipment under
noncancellable capitalized leases.
June 30, June 30,
1999 2000
Equipment $ - $ 202,772
Less accumulated depreciation - (5,304)
-------- ----------
- 197,468
======== ==========
The following is a schedule by years of future minimum lease payments
under the capital leases together with the present value of the net minimum
lease payments as of June 30, 2000.
Year ending June 30,
2001 $ 77,774
2002 77,774
2003 71,293
Thereafter -
---------
226,841
Less amount representing interest (34,409)
---------
Present value of net minimum lease payments 192,432
Less current maturities 58,990
---------
Long term obligation of capital leases 133,442
=========
F-10
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating leases
The Company leases office space, vehicles and equipment under operating
lease agreements which expire through May 2009. Rent expense totalled
approximately $103,000 the year ended June 30, 2000 (zero in 1999).
The future minimum rental commitments as of June 30, 2000 are as
follows:
Vehicles and
Office space equipment
Period ending June 30,
2001 $ 501,717 $ 26,268
2002 434,863 26,268
2003 434,863 22,173
2004 440,827 9,267
2005 382,085 458
Thereafter 233,742 -
--------------- ---------------
2,428,097 84,434
=============== ===============
The leases generally provide that property taxes, insurance and maintenance
expenses are obligations of the Company. It is expected that in the normal
course of business, operating leases that expire will be reviewed or replaced by
leases on other properties.
Letters of credit
The Company has irrevocable standby letters of credit which expire
through June 2005 and collateralize the Company's capital lease obligations.
There were no outstanding obligations under the letters of credit at June 30,
2000.
NOTE G - COMMON STOCK OFFERING
In February 2000, the Company completed, in the United Kingdom and
Europe, a private placement of 2,727,273 shares of common stock at $11.00 per
share pursuant to Regulation S under the Securities Act of 1933. The gross
proceeds of the placement were $30,000,003.
NOTE H - STOCK OPTIONS AND WARRANTS
Options
In October 1999, the Authoriszor Inc. 1999 Stock Plan (the Plan) was
ratified by the Company's Board of Directors. Pursuant to the Plan, the Company
may grant Incentive Stock Options to any employee or officer of the Company or
of any subsidiary of the Company, and may grant Non-qualified Stock Options to
any person eligible to receive Incentive Stock Options, and also to directors,
consultants or advisors of the Company or its subsidiaries. The maximum number
of shares that may be subject to options and issued under the Plan is 1,000,000
shares of common stock. As of June 30, 2000 individuals have been granted
options to acquire 554,714 shares of common stock that vest periodically through
July 2005.
The Company has entered into stock option agreements outside of the
Plan. As of June 30, 2000 options to acquire 1,116,364 shares of common stock
have been granted. Of these, 136,364 were issued for fees in connection with the
private placement of common stock and 80,000 were issued to consultants. Options
granted to employees to acquire 900,000 shares of common stock vest periodically
through January 2004. Options granted to non-employees vested immediately.
The Company charged $247,500 to expense in the year ended June 30, 2000
as a result of grants to consultants and grants to employees with an exercise
price below the market share price at the date of grant.
F-11
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were options outstanding at the time of the recapitalization
transaction discussed in Note B. At that date, Toucan Gold Corporation (Toucan)
had 350,000 employee options outstanding to purchase common stock at $1.00 per
share. In January 2000, the Company offered an incentive to the then President
and a current director of the Company holding options to purchase 200,000 shares
of common stock along with three other individuals holding options to purchase
in the aggregate 150,000 shares of common stock. The Company reduced the
exercise price from $1.00 to $0.66 per share and recorded a compensation expense
of $1,694,000. Each of the 350,000 options was exercised in January 2000.
The Company has adopted only the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Therefore, the Company accounts for stock options
under Accounting Principles Board Opinion No. 25. Had compensation cost for
stock options been determined consistent with SFAS 123, the Company's net loss
and loss per share would have been the following pro forma amounts:
June 30, 1999 June 30, 2000
Net loss
As reported $ (49,631) $ (5,406,480)
Pro forma (49,631) (7,723,621)
Loss per share-basic and diluted
As reported (0.00) (0.36)
Pro forma (0.00) (0.51)
The fair value of these options were estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions; expected volatility of 208 percent; average risk-free interest rate
of 6.3 percent; average expected life of 4.10 years. Dividends were assumed not
to be paid during the terms of the options. Option pricing models require the
input of highly subjective assumptions including the expected stock price
volatility. Also, the Company's employee stock options have characteristics
significantly different from those of traded options including long-vesting
schedules, and changes in the subjective input assumptions can materially affect
the fair value estimate. Management believes the best assumptions available were
used to value the options and the resulting values are reasonable.
F-12
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Following is a summary of stock option activity:
Weighted
average Weighted
Exercise exercise average
Options price price fair-value
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at June 30, 1999 - - - -
Toucan Gold Corporation employee
options outstanding at July 22, 1999 350,000 1.00 1.00 .23
Granted:
Exercise price equals market price at
date of grant 990,078 2.00-11.00 7.12 6.60
Exercise price exceeds market price
at date of grant 100,000 2.50 2.50 1.27
Exercise price is less than market
price at date of grant 581,000 1.00-7.10 2.42 2.79
Exercised (350,000) .66 .66 .66
Cancelled or expired - - - -
Outstanding at June 30, 2000 1,671,078 5.21 4.98
Exercisable at June 30, 2000 616,364 3.99 3.44
</TABLE>
<TABLE>
<CAPTION>
Following is additional information regarding stock options outstanding at June 30, 2000
Outstanding Exerciseable
----------------------------------------------------------------- ------------------------------
Weighted Weighted Weighted
Range of average average average
exercise Number remaining exercise Number exercise
prices outstanding contractual life price exercisable Price
<S> <C> <C> <C> <C> <C> <C>
1.00 240,000 3.0 1.00 240,000 1.00
2.00-2.50 256,214 8.0 2.24 - -
3.00-4.67 291,000 3.9 3.18 240,000 3.00
6.75-7.10 625,000 8.0 6.76 - -
8.75-11.00 258,864 3.8 10.59 136,364 11.00
------------ -------------
1,671,078 616,364
============ =============
</TABLE>
Warrants
There were also warrants outstanding at the time of the
recapitalization transaction (Note B). At that date, Toucan had 533,333 warrants
issued in connection with sales of common stock to purchase common stock at
$1.50 per share. During the month of December 1999, the Company was seeking to
raise short term capital. The Company offered an incentive to parties holding
533,333 warrants to exercise their warrants by reducing the exercise price from
$1.50 to $1.00. Warrants underlying 436,000 of such shares of common stock were
exercised during December 1999. At June 30, 2000, 97,333 warrants remained
outstanding.
There are also warrants outstanding as a result of a recapitalization
transaction involving Toucan's predecessor. These warrants were issued on May
10, 1996 to purchase 100,000 shares of the Company common stock at an exercise
price of $4.00 per share. The holders of these warrants have certain piggy-back
registration rights with rights to the shares of the Company's common stock
underlying the warrants. The warrants are immediately exercisable and expire in
November 2000. None had been exercised at June 30, 2000.
F-13
<PAGE>
AUTHORISZOR INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - INCOME TAXES
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". Accordingly, a
deferred tax liability or deferred tax asset (benefit) is computed by applying
the current statutory tax rates to net taxable or deductible temporary
differences between pre-tax financial and taxable income.
Deferred tax benefits are recorded only to the extent that the amount
of net deductible temporary differences or carryforward attributes may be
utilized against current period earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. Deferred tax liabilities are
provided for on differences between amounts reported for financial and tax basis
accounting. At June 30, 2000, a loss carryforward of approximately $5,400,000 is
available to offset future taxable income.
A net deferred tax asset resulting from the loss carryforward has been
offset by a valuation allowance of an equal amount at June 30, 2000 due to the
uncertainty of realizing the net deferred tax asset through future operations.
The valuation allowance was approximately $1,800,000. Gross deferred tax
liabilities were immaterial. The effective tax rate differs from the statutory
rate as a result of the valuation allowance.
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent accountants to report under this Item 8.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" in the
Company's 2000 Definitive Proxy Statement ("Proxy Statement") is incorporated
herein by reference in response to this Item 9.
ITEM 10. EXECUTIVE COMPENSATION
Information contained under the captions "Executive Compensation" and
"Election of Directors" in the Proxy Statement is incorporated herein by
reference in response to this Item 10.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Principal Stockholders" in the
Proxy Statement is incorporated herein by reference in response to this Item 11.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by reference
in response to this Item 12.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements:
--------------------
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements at page F-1.
(b) Financial Statement Schedules:
-----------------------------
All schedules have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(c) Exhibits:
---------
The following documents are filed as a part of this report. Those
exhibits previously filed and incorporated herein by reference are identified
below. Exhibits not required for this report have been omitted.
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger, dated July 29, 1996, and among Toucan Gold
Corporation and Starlight Acquisitions, Inc. (incorporated by reference
from the Current Report on Form 8-K dated July 29, 1996, Exhibit 2.1).
2.2 Share Exchange Agreement, dated May 10, 1996, by and among Starlight
Acquisitions, Inc. and Toucan Mining Limited (incorporated by reference
from the Current Report on Form 8-K dated May 13, 1996, Exhibit 2).
22
<PAGE>
2.3(4) Share Sale Agreement regarding ITIS Technologies Ltd., dated July 22,
1999, by and among David J. Blanchfield, James L. Jackson, David R. Wray,
Barry Jones, Ian McNeill and Toucan Gold Corporation. (Exhibit 10.1)
3.1 Certificate of Incorporation of Toucan Gold Corporation filed on July 22,
1996 with the Secretary of State of the State of Delaware (incorporated by
reference from the Current Report on Form 8-K dated July 29, 1996, Exhibit
4.1).
3.2 Amendment to our Certificate of Incorporation filed on August 25, 1999,
with the Secretary of State of Delaware (incorporated by reference to our
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999,
Exhibit 3.1)
3.3(1) Bylaws of Authoriszor Inc. (Exhibit 3.2).
4.1(3) Option Agreement, dated September 27, 1997, by and between L. Clark
Arnold and Toucan Gold Corporation (incorporated by reference to Exhibit
10.2 to our Annual Report on Form 10-KSB for the period ended December 31,
1997)
4.2(3) Amendment Number One to Stock Option Agreement, dated as of April 27,
1999, by and between L. Clark Arnold and Toucan Gold Corporation (Exhibit
4.2)
4.3(3) Amended and Restated Stock Option Agreement, dated as of April 1, 1999,
by and between Robert P. Jeffcock and Toucan Gold Corporation (Exhibit 4.4)
4.4(3) Option Agreement, dated February 2, 1998, by and between Robert A. Pearce
and Toucan Gold Corporation (incorporated by reference to Exhibit 10.4 to
our Annual Report on Form 10-KSB for the period ended December 31, 1997)
4.5(3) Amendment Number One to Stock Option Agreement, dated as of April 27,
1999, by and between Robert A. Pearce and Toucan Gold Corporation (Exhibit
4.6)
4.6(3) Amended and Restated Stock Option Agreement, dated as of April 1, 1999,
by and between David Carmichael and Toucan Gold Corporation (Exhibit 4.8)
10.1(1) Warrant Agreement, dated July 29, 1996, by and between Toucan Gold
Corporation and R. Haydn Silleck (Exhibit 10.1).
10.2(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and John B. Marvin (Exhibit 10.2).
10.3(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Peter S. Daley (Exhibit 10.3).
10.4(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Jay Lutsky (Exhibit 10.4).
10.5(2) Agreement for the sale and purchase of the whole of the issued share
capital of Anagram Limited, dated December 3, 1998, among Toucan Mining
Limited, Toucan Gold Corporation, Inc. and Minmet Plc (Exhibit 10.1).
10.6(2) Supplemental Agreement, dated December 3, 1998 among Toucan Mining
Limited, Toucan Gold Corporation, Inc. and Minmet Plc (Exhibit 10.2).
10.7(2) Option Agreement Regarding Mineradora De Bauxita Ltda, dated December 3,
1998, among Toucan Mining Limited, Toucan Gold Corporation, Inc. and
Anagram Limited (Exhibit 10.3).
10.8(2) Agreement for the purchase of the whole of the issued share capital of
Mineradora de Bauxita Ltda, dated December 3, 1998 among Toucan Mining
Limited, Toucan Gold Corporation, Inc. and Anagram Limited (Exhibit 10.4).
10.9(2) Form of Minmet Plc Warrant Instrument (Exhibit 10.5).
10.10(4) Deed of Indemnity, dated July 22, 1999, by and among David J.
Blanchfield, James L. Jackson, David R. Wray, Barry Jones, Ian McNeill and
Toucan Gold Corporation. (Exhibit 10.2)
10.11(4) Letter of Appointment, dated July 22, 1999, by and between David J.
Blanchfield and ITIS Technologies Ltd. (Exhibit 10.3)
10.12(4) Letter of Appointment, dated July 22, 1999, by and between James L.
Jackson and ITIS Technologies Ltd. (Exhibit 10.4)
10.13(4) Letter of Appointment, dated July 22, 1999, by and between David R.
Wray and ITIS Technologies Ltd. (Exhibit 10.5)
10.14(4) Engagement Letter, dated July 22, 1999, by and between CCM Ventures
Ltd. and ITIS Technologies Ltd. (Exhibit 10.7)
10.15(4) Engagement Letter, dated July 22, 1999, by and between Robert Jeffcock
and Toucan Gold Corporation. (Exhibit 10.8)
+10.16 Consulting Agreement, dated September 23, 1999 by and between Sir Malcolm
Rifkind and Authoriszor Ltd. (incorporated by reference to our Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1999, Exhibit
10.9)
23
<PAGE>
+10.17(5) Executive Employment Agreement, dated as of January 1, 2000, by and
between Authoriszor Inc. and Richard A. Langevin. (Exhibit 10.1)
+10.18(5) Authoriszor Inc. 1999 Stock Plan. (Exhibit 10.2)
+10.19(7) Form of Agreement under the 1999 Stock Plan and Schedule of Agreements
+10.20(5) Agreement, dated November 12, 1999, by and between Authoriszor Inc.
and Raymond G. H. Seitz (Exhibit 10.4)
+10.21(5) Consulting Agreement, dated September 23, 1999, by and between
Authoriszor Inc. and Sir Malcolm Rifkind (Exhibit 10.5)
+10.22(5) Stock Option Agreement, dated as of September 23, 1999, by and between
Authoriszor Inc. and Sir Malcolm Rifkind. (Exhibit 10.6)
10.23(5) Placing Agreement, dated as of January 28, 2000, by and among
Authoriszor Inc., Beeson Gregory Limited and certain Directors of
Authoriszor Inc. (Exhibit 10.7)
10.24(5) Supplemental Placing Agreement, dated as of February 9, 2000, by and
among Authoriszor Inc., Beeson Gregory Limited and certain Directors of
Authoriszor Inc. (Exhibit 10.8)
10.25(5) Registration Rights Agreement, dated February 16, 2000, by and between
Authoriszor Inc. and Beeson Gregory Limited. (Exhibit 10.9)
10.26(5) Lock-up Agreement, dated January 2000, by and among Authoriszor Inc.,
Beeson Gregory Limited and Raymond Seitz and others. (Exhibit 10.10)
10.27(5) Deed of Covenant, dated as of February 22, 2000, by and among
Authoriszor Holdings Limited, WRDC Limited and certain persons named in
Schedule 1 to the Deed. (Exhibit 10.11)
10.28(5) Shareholders' Agreement, dated as of January 27, 2000, by and among
Authoriszor Holdings Limited, WRDC Limited, the shareholders of WRDC
Limited and Authoriszor Inc., relating to WRDC Limited. (Exhibit 10.12)
10.29(5) Letter Agreement, dated February 22, 2000, by and between Authoriszor
Holdings Limited and WRDC Limited regarding credit facility. (Exhibit
10.13)
10.30(5) Letter Agreement, dated February 22, 2000, by and between Authoriszor
Holdings Limited and WRDC Limited regarding credit facility. (Exhibit
10.14)
10.31(6) Share Sale Agreement, dated as of January 28, 2000, by and between the
Company and Golden Ridge Group Limited. (Exhibit 2.1)
+10.32(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.33(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.34(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.35(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.36(7) Stock Option Agreement, dated as of November 1, 1999, between
Authoriszor Inc. and Raymond Seitz.
10.37(7) Lease Agreement, dated as of April 28, 2000, between Authoriszor Inc.
and Massachusetts Mutual Life Insurance Company.
10.38(7) Consulting Agreement, dated as of April 2000, between Authoriszor Inc.
and Fred Sawin.
10.39(7) Employment Agreement, dated as of March 15, 2000, between Authoriszor
Inc. and Ed Vasko.
10.40+ Consulting Agreement, dated July 1, 2000, between Authoriszor Inc. and
Commercial Technology Ltd.
10.41+ Reimbursement Agreement, dated September 28, 2000 and effective as of
October 1, 1999, between Authoriszor Inc. and Authoriszor Limited.
27.1+ Financial Data Schedule
-----------
+ Filed herewith.
* Previously filed.
+ Compensation plan, benefit plan or employment contract or arrangement.
(1) Incorporated by reference to the exhibit shown in parenthesis included in
our Annual Report on Form 10-KSB for the period ended December 31, 1996,
filed by us with the Securities and Exchange Commission.
24
<PAGE>
(2) Incorporated by reference to the exhibit shown in parenthesis included in
our Current Report on Form 8-K, filed January 5, 1999 by us with the
Securities and Exchange Commission.
(3) Incorporated by reference to the exhibit shown in parenthesis to our
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on January 10, 2000.
(4) Incorporated by reference to the exhibit shown in parenthesis included in
our Current Report on Form 8-K, filed by us with the Securities and
Exchange Commission on August 6, 1999.
(5) Incorporated by reference to the exhibit shown in parenthesis from our
Quarterly Report on Form 10-QSB for the quarter ended December 31, 1999.
(6) Incorporated by reference to the exhibit shown in parenthesis from our
Current Report on Form 8-K, filed by us on February 14, 2000 with the
Securities and Exchange Commission.
(7) Incorporated by reference to the Exhibit shown in parenthesis from our
Registration Statement on Form S-1, filed by us on May 18, 2000 with the
Securities and Exchange Commission.
(d) Reports of Form 8-K.
-------------------
The Company did not file any reports on Form 8-K during the quarterly
period ended June 30, 2000:
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on September, __,
2000.
AUTHORISZOR INC.
By: /s/ Richard A. Langevin
--------------------------------------
Richard. A. Langevin
Chief Executive Officer, President and
Interim Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated. Each person whose signature to
this report appears below hereby appoints Richard A. Langevin and James L.
Jackson and each of them, any one of whom may act without the joinder of the
other, as his or her attorney-in-fact to sign on his behalf, individually and in
each capacity stated below, and to file all amendments to this report, which
amendment or amendments may make such changes in and additions to the report as
any such attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Raymond G.H. Seitz Chairman of the Board and Chairman September 28, 2000
------------------------------------ of the Company
Raymond G.H. Seitz
/s/ Richard A. Langevin Chief Executive Officer (Principal September 28, 2000
------------------------------------ Executive and Financial Officer),
Richard A. Langevin President, Interim Chief Financial
Officer and Director
/s/ James L. Jackson Vice-President, Secretary and September 28, 2000
------------------------------------ Director
James. L. Jackson
Director September __, 2000
------------------------------------
Sir Malcolm Rifkind
/s/ Donald D. Box Director September 28, 2000
------------------------------------
Donald. D. Box
/s/ David R. Wray Director September 28, 2000
------------------------------------
David R. Wray
</TABLE>
26
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits
previously filed and incorporated herein by reference are identified below.
Exhibits not required for this report have been omitted.
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger, dated July 29, 1996, and among Toucan Gold
Corporation and Starlight Acquisitions, Inc. (incorporated by reference
from the Current Report on Form 8-K dated July 29, 1996, Exhibit 2.1).
2.2 Share Exchange Agreement, dated May 10, 1996, by and among Starlight
Acquisitions, Inc. and Toucan Mining Limited (incorporated by reference
from the Current Report on Form 8-K dated May 13, 1996, Exhibit 2).
2.3(4) Share Sale Agreement regarding ITIS Technologies Ltd., dated July 22,
1999, by and among David J. Blanchfield, James L. Jackson, David R. Wray,
Barry Jones, Ian McNeill and Toucan Gold Corporation. (Exhibit 10.1)
3.1 Certificate of Incorporation of Toucan Gold Corporation filed on July 22,
1996 with the Secretary of State of the State of Delaware (incorporated by
reference from the Current Report on Form 8-K dated July 29, 1996, Exhibit
4.1).
3.2 Amendment to our Certificate of Incorporation filed on August 25, 1999,
with the Secretary of State of Delaware (incorporated by reference to our
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999,
Exhibit 3.1)
3.3(1) Bylaws of Authoriszor Inc. (Exhibit 3.2).
4.1(3) Option Agreement, dated September 27, 1997, by and between L. Clark
Arnold and Toucan Gold Corporation (incorporated by reference to Exhibit
10.2 to our Annual Report on Form 10-KSB for the period ended December 31,
1997)
4.2(3) Amendment Number One to Stock Option Agreement, dated as of April 27,
1999, by and between L. Clark Arnold and Toucan Gold Corporation (Exhibit
4.2)
4.3(3) Amended and Restated Stock Option Agreement, dated as of April 1, 1999,
by and between Robert P. Jeffcock and Toucan Gold Corporation (Exhibit 4.4)
4.4(3) Option Agreement, dated February 2, 1998, by and between Robert A. Pearce
and Toucan Gold Corporation (incorporated by reference to Exhibit 10.4 to
our Annual Report on Form 10-KSB for the period ended December 31, 1997)
4.5(3) Amendment Number One to Stock Option Agreement, dated as of April 27,
1999, by and between Robert A. Pearce and Toucan Gold Corporation (Exhibit
4.6)
4.6(3) Amended and Restated Stock Option Agreement, dated as of April 1, 1999,
by and between David Carmichael and Toucan Gold Corporation (Exhibit 4.8)
10.1(1) Warrant Agreement, dated July 29, 1996, by and between Toucan Gold
Corporation and R. Haydn Silleck (Exhibit 10.1).
10.2(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and John B. Marvin (Exhibit 10.2).
10.3(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Peter S. Daley (Exhibit 10.3).
10.4(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Jay Lutsky (Exhibit 10.4).
10.5(2) Agreement for the sale and purchase of the whole of the issued share
capital of Anagram Limited, dated December 3, 1998, among Toucan Mining
Limited, Toucan Gold Corporation, Inc. and Minmet Plc (Exhibit 10.1).
10.6(2) Supplemental Agreement, dated December 3, 1998 among Toucan Mining
Limited, Toucan Gold Corporation, Inc. and Minmet Plc (Exhibit 10.2).
10.7(2) Option Agreement Regarding Mineradora De Bauxita Ltda, dated December 3,
1998, among Toucan Mining Limited, Toucan Gold Corporation, Inc. and
Anagram Limited (Exhibit 10.3).
10.8(2) Agreement for the purchase of the whole of the issued share capital of
Mineradora de Bauxita Ltda, dated December 3, 1998 among Toucan Mining
Limited, Toucan Gold Corporation, Inc. and Anagram Limited (Exhibit 10.4).
10.9(2) Form of Minmet Plc Warrant Instrument (Exhibit 10.5).
10.10(4) Deed of Indemnity, dated July 22, 1999, by and among David J.
Blanchfield, James L. Jackson, David R. Wray, Barry Jones, Ian McNeill and
Toucan Gold Corporation. (Exhibit 10.2)
27
<PAGE>
10.11(4) Letter of Appointment, dated July 22, 1999, by and between David J.
Blanchfield and ITIS Technologies Ltd. (Exhibit 10.3)
10.12(4) Letter of Appointment, dated July 22, 1999, by and between James L.
Jackson and ITIS Technologies Ltd. (Exhibit 10.4)
10.13(4) Letter of Appointment, dated July 22, 1999, by and between David R.
Wray and ITIS Technologies Ltd. (Exhibit 10.5)
10.14(4) Engagement Letter, dated July 22, 1999, by and between CCM Ventures
Ltd. and ITIS Technologies Ltd. (Exhibit 10.7)
10.15(4) Engagement Letter, dated July 22, 1999, by and between Robert Jeffcock
and Toucan Gold Corporation. (Exhibit 10.8)
+10.16 Consulting Agreement, dated September 23, 1999 by and between Sir Malcolm
Rifkind and Authoriszor Ltd. (incorporated by reference to our Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1999, Exhibit
10.9)
+10.17(5) Executive Employment Agreement, dated as of January 1, 2000, by and
between Authoriszor Inc. and Richard A. Langevin. (Exhibit 10.1)
+10.18(5) Authoriszor Inc. 1999 Stock Plan. (Exhibit 10.2)
+10.19(7) Form of Agreement under the 1999 Stock Plan and Schedule of Agreements
+10.20(5) Agreement, dated November 12, 1999, by and between Authoriszor Inc.
and Raymond G. H. Seitz (Exhibit 10.4)
+10.21(5) Consulting Agreement, dated September 23, 1999, by and between
Authoriszor Inc. and Sir Malcolm Rifkind (Exhibit 10.5)
+10.22(5) Stock Option Agreement, dated as of September 23, 1999, by and between
Authoriszor Inc. and Sir Malcolm Rifkind. (Exhibit 10.6)
10.23(5) Placing Agreement, dated as of January 28, 2000, by and among
Authoriszor Inc., Beeson Gregory Limited and certain Directors of
Authoriszor Inc. (Exhibit 10.7)
10.24(5) Supplemental Placing Agreement, dated as of February 9, 2000, by and
among Authoriszor Inc., Beeson Gregory Limited and certain Directors of
Authoriszor Inc. (Exhibit 10.8)
10.25(5) Registration Rights Agreement, dated February 16, 2000, by and between
Authoriszor Inc. and Beeson Gregory Limited. (Exhibit 10.9)
10.26(5) Lock-up Agreement, dated January 2000, by and among Authoriszor Inc.,
Beeson Gregory Limited and Raymond Seitz and others. (Exhibit 10.10)
10.27(5) Deed of Covenant, dated as of February 22, 2000, by and among
Authoriszor Holdings Limited, WRDC Limited and certain persons named in
Schedule 1 to the Deed. (Exhibit 10.11)
10.28(5) Shareholders' Agreement, dated as of January 27, 2000, by and among
Authoriszor Holdings Limited, WRDC Limited, the shareholders of WRDC
Limited and Authoriszor Inc., relating to WRDC Limited. (Exhibit 10.12)
10.29(5) Letter Agreement, dated February 22, 2000, by and between Authoriszor
Holdings Limited and WRDC Limited regarding credit facility. (Exhibit
10.13)
10.30(5) Letter Agreement, dated February 22, 2000, by and between Authoriszor
Holdings Limited and WRDC Limited regarding credit facility. (Exhibit
10.14)
10.31(6) Share Sale Agreement, dated as of January 28, 2000, by and between the
Company and Golden Ridge Group Limited. (Exhibit 2.1)
+10.32(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.33(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.34(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.35(7) Stock Option Agreement, dated as of January 1, 2000, between
Authoriszor Inc. and Richard A. Langevin.
+10.36(7) Stock Option Agreement, dated as of November 1, 1999, between
Authoriszor Inc. and Raymond Seitz.
10.37(7) Lease Agreement, dated as of April 28, 2000, between Authoriszor Inc.
and Massachusetts Mutual Life Insurance Company.
10.38(7) Consulting Agreement, dated as of April 2000, between Authoriszor Inc.
and Fred Sawin.
10.39(7) Employment Agreement, dated as of March 15, 2000, between Authoriszor
Inc. and Ed Vasko.
10.40+ Consulting Agreement, dated July 1, 2000, between Authoriszor Inc. and
Commercial Technology Ltd.
28
<PAGE>
10.41+ Reimbursement Agreement, dated September 28, 2000 and effective as of
October 1, 1999, between Authoriszor Inc. and Authoriszor Limited.
27.1+ Financial Data Schedule
-----------
+ Filed herewith.
* Previously filed.
+ Compensation plan, benefit plan or employment contract or arrangement.
(1) Incorporated by reference to the exhibit shown in parenthesis included in
our Annual Report on Form 10-KSB for the period ended December 31, 1996,
filed by us with the Securities and Exchange Commission.
(2) Incorporated by reference to the exhibit shown in parenthesis included in
our Current Report on Form 8-K, filed January 5, 1999 by us with the
Securities and Exchange Commission.
(3) Incorporated by reference to the exhibit shown in parenthesis to our
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on January 10, 2000.
(4) Incorporated by reference to the exhibit shown in parenthesis included in
our Current Report on Form 8-K, filed by us with the Securities and
Exchange Commission on August 6, 1999.
(5) Incorporated by reference to the exhibit shown in parenthesis from our
Quarterly Report on Form 10-QSB for the quarter ended December 31, 1999.
(6) Incorporated by reference to the exhibit shown in parenthesis from our
Current Report on Form 8-K, filed by us on February 14, 2000 with the
Securities and Exchange Commission.
(7) Incorporated by reference to the Exhibit shown in parenthesis from our
Registration Statement on Form S-1, filed by us on May 18, 2000 with the
Securities and Exchange Commission.
29
