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PROSPECTUS
FILE PURSUANT TO RULE 424(b)3
REGISTRATION NO. 333-32816
2,827,273 SHARES
[LOGO]
COMMON STOCK
------------------
This prospectus relates to 2,827,273 shares of our common stock that may be
offered and sold from time to time by certain of our stockholders.
Prior to May 23, 2000, our common stock was on the OTC Bulletin Board under
the symbol "AUOR." Commencing May 23, 2000, our common stock will begin trading
on the NASDAQ National Market System under the symbol "AUTH." On May 17, 2000,
the last reported sale price of our common stock was $11.00 per share.
The shares may be sold from time to time by the selling stockholders. Such
sales may be made:
- directly;
- through agents designated from time to time;
- through dealers and underwriters also to be designated;
- the NASDAQ National Market System; or
- otherwise at prices and at terms then prevailing or at prices related to
the then current market price or in negotiated transactions, which may
include the pledge or hypothecation of some or all of the shares of common
stock.
To the extent required by law, the specific shares of common stock to be sold,
name of the selling stockholder, or the pledgee of such selling stockholder, as
the case may be, public offering price, the names of any such agents, dealers or
underwriters, and any applicable commission or discount with respect to a
particular offer will be set forth in an accompanying prospectus supplement.
We will receive none of the proceeds from the sale of the common stock
offered in this prospectus. All expenses of registration incurred in connection
with this offering are being borne by us. All selling and other expenses
incurred by the selling stockholders will be borne by the selling stockholders.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is May 19, 2000.
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PROSPECTUS SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS BEFORE DECIDING
TO INVEST IN SHARES OF OUR COMMON STOCK.
OUR BUSINESS
We provide a patent-pending security solution which 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 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 off-line, 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:
- firewalls;
- virtual private networks;
- encryptions;
- security tokens;
- smart cards; and
- biometrics.
Our customer investments in these other security technologies can be
preserved and combined with our product suite.
Our executive offices are located at 1 Justin Road, Natick, Massachusetts
01760-5565. Our telephone number is (508) 650-3916 and our Website address is
http://www.authoriszor.com. The information contained on our Website is not
incorporated by reference into this prospectus.
THE OFFERING
This prospectus relates to 2,827,273 shares of common stock that may be
offered and sold from time to time by selling stockholders. We will not receive
any of the proceeds from the sale of shares of common stock by the selling
stockholders. The selling stockholders purchased the shares offered by this
prospectus from us in offerings exempt from the registration requirements of
U.S. federal securities laws.
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial data are derived from the
financial statements of the Company, which have been audited by Grant Thornton,
independent chartered accountants. The selected consolidated statement of
operations for the nine month periods ended March 31, 2000 and 1999 are
unaudited but, in the opinion of management, reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
information included therein. The financial data for the Company should be read
in conjunction with the Consolidated Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Prospectus. The results for the nine
month period ended March 31, 2000 are not necessarily indicative of results that
may be expected for the full year.
<TABLE>
<CAPTION>
JANUARY 15,
1997
(DATE OF
INCEPTION) YEAR ENDED NINE MONTHS ENDED
TO JUNE 30, MARCH 31,
JUNE 30, ------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statement of operations
data:
Net sales................. $ 3,290 $ -- $ 33,711 $ 32,682 $ 121,186
Operating loss............ (5,283) (23,821) (49,631) (27,504) (4,682,127)
Other income, net......... -- -- -- -- 73,263
Net loss.................. (5,283) (23,821) (49,631) (27,504) (4,608,864)
Loss per common share--
basic and diluted....... (0.00) (0.00) (0.00) (0.00) (0.32)
Weighted average shares
outstanding--basic and
diluted................. 13,765,808 13,765,808 13,765,808 13,765,808 14,462,226
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------ MARCH 31,
1997 1998 1999 2000
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance sheet data:
Current assets.......................... $ 4,855 $ 1,049 $ 3,196 $27,863,341
Current liabilities..................... 10,815 34,730 100,670 604,469
Total assets............................ 5,473 5,224 24,790 32,755,668
Stockholders' equity (deficit).......... (5,342) (29,506) (75,880) 32,151,199
</TABLE>
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RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE MAKING A DECISION
TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN
SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. THE RISK FACTORS
BELOW DO NOT NECESSARILY APPEAR IN ORDER OF IMPORTANCE. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS
AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS.
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW AND ANTICIPATE CONTINUED
LOSSES.
Since our formation, we have incurred operating losses and negative cash
flow. As of March 31, 2000, we had an accumulated deficit of approximately
$4,687,599. We also have experienced net losses during our entire history prior
to entering the Internet security business. We anticipate that our business will
generate operating losses for the foreseeable future until we are successful in
generating significant additional revenues to support our level of operating
expenses. We cannot assure you that we will ever achieve or sustain
profitability or that our operating losses will not increase in the future. If
we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis in the future. To the
extent we are unable to achieve profitability in the future, our business,
prospects, financial conditions and results of operations will suffer.
WE EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE.
We anticipate that our quarterly operating results will vary according to
several factors, any of which could have an adverse effect on sales. We are a
start-up operation in an immature market. Our revenues will initially tend to
take the form of pilot projects with large organizations leading to full
acceptance only on proof of our technology. This may tend to lead to an uneven
revenue stream. This trend may potentially also be exacerbated by long sales
lead times resulting in delays in receiving revenues.
We will operate with low backlog levels for product license sales.
Consequently, the volume of orders in a given quarter will have a significant
impact on the revenues for that quarter. Since our expense levels are based on
projected revenue expectations, if our backlog levels fall below those
expectations, then losses may increase.
WE ANTICIPATE A POTENTIAL DECLINE IN MARGINS IN OUR MARKET.
As the network management and security market matures, we anticipate that
there will be a move towards packaging of multiple functional elements at "less
than the sum of the parts" pricing. We believe that we will not experience a
decline in earnings if we can achieve our market share objectives in the early
market phase and can move towards a higher level of service based revenue
streams as margins decline. Failure to achieve these two objectives would have
serious, long term consequences for our profitability, if any, and our share
price.
RAPIDLY CHANGING TECHNOLOGIES MAY RENDER OUR PRODUCT SUITE OBSOLETE OR
UNMARKETABLE.
The network management and security market is subject to rapid technological
change and innovation. Customer requirements are also subject to significant
short-term changes. As a result, we must continuously adapt and improve our
product suite in response to changes in operating systems, application software,
computer and communications hardware, network software, programming tools and
computer language technology. The introduction of products embodying new
technologies and the emergence of new industry standards may render some or all
of our existing products obsolete or unmarketable.
In particular, the market for Internet, Intranet and Extranet applications
is very new and is evolving rapidly. Our operating results will depend upon our
ability to remain abreast of these advances. We cannot
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assure you that we will be successful in developing new products or product
enhancements that respond to technological changes and evolving industry
standards. We also cannot be certain that we will not experience difficulties
that could delay or prevent successful development, introduction or marketing of
these products, or that the new products will adequately meet the developing
needs of the market and achieve market acceptance. If we do not respond
adequately to the need for developing and introducing new products or
enhancements to our existing products in a timely manner in response to changing
market conditions or customer requirements, our business, operating results and
financial condition could be materially adversely affected.
OUR PACKAGE OF SOFTWARE MAY NOT BE ACCEPTED AS A PROPRIETARY STANDARD.
Our future success will depend in part on the adoption of our software
package as a proprietary standard by potential customers. This adoption may be
jeopardized by a public perception that the use of client-side software results
in a loss of flexibility and ease of access to software systems. Our view is
that our package of software is a valuable tool for assuring and enhancing tight
and continuing security, and that other commonly used Internet capabilities
require the use of client software. In order to utilize our package of software
to attain information security at a high level of confidentiality and integrity,
we must persuade customers either to adopt our package of software as a
proprietary standard or that our product suite will significantly facilitate
migration to a more secure environment. If we do not achieve either of these
objectives, then our business, operating results and financial condition could
be materially adversely affected.
WE FACE STRONG COMPETITION, ESPECIALLY IN NORTH AMERICA.
We face strong competition, particularly in North America where the majority
of our competitors are based. We expect our revenue to be derived from sales of
software security products, systems integration, consulting and support
services, and sales of hardware and other products. We face and expect to
continue to face competition in each of these market areas from various existing
and emerging information security providers. Many of these companies have
greater name recognition, longer operating histories, larger customer bases and
significantly greater financial, marketing, sales and other resources. We
generally do not seek exclusive relationships with our business and technology
partners; these partners may also compete with us from time to time. We expect
to face increasing competitive pressures from our current competitors and new
market entrants.
WE CANNOT ACCURATELY PREDICT THE SIZE OF OUR MARKET, AND IF OUR MARKET IS NOT AS
LARGE AS WE EXPECT, OUR BUSINESS PROSPECTS WILL SUFFER.
The markets for our product suite is rapidly evolving and we cannot assure
you that the Internet or common public protocols will continue to be used to
facilitate communications or that the market for network management and security
systems will continue to expand. Continued growth of this market will depend, in
large part, upon the continued expansion of Internet usage and the number of
organizations adopting or expanding intranets and upon the ability of their
respective infrastructures or complementary products and services to be
developed in a timely manner. Consequently, if the network management, security,
Internet and intranet markets fail to grow at the rate that we anticipate, then
our future business, operating results and financial condition could be
materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY.
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. If we litigate to enforce our rights, it would be
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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 may not have adequate remedies for infringement by others of our product
suite. We have five patent applications pending in the U.S. for our Authoriszor
product suite and we believe that such products may be patentable in the U.S.
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 may attempt to extend any successful U.S. applications into the UK and other
countries through the Paris Convention and 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 products similar to ours based on the
underlying technology by other persons in that territory.
We cannot assure you that others will not develop technologies that are
similar or superior to our technology. Despite our efforts to protect our
proprietary rights, unauthorized uses of our product suite will be difficult to
prevent, and although we are unable to predict the extent to which piracy of our
software products may occur, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries may not protect our
proprietary rights as fully as do the laws of the U.S. and the UK. We also
cannot assure you that our competitors will not independently develop similar
technology.
We may rely on technology that we license from third parties, including
software that is integrated with and into our product suite and which is
critical to the functionality of our product suite. Should we lose the right to
incorporate such software into our product suite, we would be required to seek
substitute software products, the lack of which or the use of which could
negatively affect the functionality and viability of our product suite.
We cannot assure you that third parties will not claim infringement by us
with respect to current or future products. We expect that software companies
will increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and the functionality of products
in different industry segments overlaps. Responding to such claims, regardless
of merit, could be time consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could have a material adverse effect upon our
business, operating results and financial condition.
We do not have registered trademark protection for all logos we use. We do
not have trademarks for any of the Authoriszor brand names/logos in the U.S. We
cannot guarantee that any trademark application for the Authoriszor brand
names/logos will be approved by the relevant governmental authority. Even if
appropriate applications were made and approved, third parties may oppose or
otherwise challenge such applications or registrations. Failure to obtain
trademark registrations in the territories in which we intend to market our
business could limit our ability to use the brand names/logos in those
territories. While we are not aware of any encumbrances in our ownership of, or
that any third parties are infringing upon our intellectual property rights and
we do not believe that the Authoriszor product suite infringes upon any third
party rights, the developers of the product gave no warranties of no third party
infringement when they transferred the intellectual property to us.
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OUR SUCCESS DEPENDS ON RETAINING OUR CURRENT KEY PERSONNEL AND ATTRACTING
ADDITIONAL PERSONNEL, PARTICULARLY IN THE AREAS OF MANAGEMENT, SALES AND
DISTRIBUTION, CLIENT SUPPORT AND TECHNICAL SERVICES.
Our success will depend largely on the continuing efforts of our executive
officers and senior management, especially those of Richard A. Langevin, our
President, Chief Executive Officer and Interim Chief Financial Officer, and
James L. Jackson, David Wray and David Blanchfield, the developers of our
product suite. We have entered into employment contracts with each of these
individuals. Our business may be adversely affected if the services of these
officers or any of our other key personnel become unavailable to us.
We have increased our sales and distribution and administrative staff in the
UK and have built sales and distribution and administrative infrastructures in
the U.S. We expect to continue to increase our staff in both the U.S. and UK in
the future. We also intend to hire a Chief Financial Officer. If we fail to
attract and retain qualified personnel to staff these positions, particularly in
the U.S., our business and prospects will likely be adversely affected.
We are currently expanding our technical services staff and will need to
increase our staff further to support expected new clients. The initiation of
new clients, the integration of our security solutions and ongoing client
support can be complex. Accordingly, we need highly trained client support,
technical personnel and outside consultants. Hiring client support and technical
personnel is very competitive in our industry due to the limited number of
people available with the necessary technical skills and understanding of our
software package. Our inability to attract, hire, train or retain the number of
highly qualified client support and technical services personnel that our
business needs, or the inability to hire qualified outside consultants to
perform these tasks, may cause our business and prospects to suffer.
OUR U.S. OPERATION MAY NOT BE SUCCESSFUL.
We anticipate that the main market for our product suite will be the U.S.
Prior to the first quarter of 2000, our operations had been based solely in the
UK. We believe that our target market, the U.S., cannot successfully be
penetrated, either geographically or culturally, by a small UK-based operation.
Additionally, we believe that the presence of U.S.-based employees in our U.S.
headquarters operation is a basic requirement for successful U.S. market
penetration. Accordingly, in the first quarter of 2000, we opened a U.S.
operational office which is presently staffed with 11 people. We cannot assure
you that our planned U.S. operations will be successful.
IF WE FAIL TO ACCESS OUR TARGET MARKET QUICKLY, WE MAY BE AT A SIGNIFICANT
COMPETITIVE DISADVANTAGE AGAINST OUR COMPETITORS.
A significant threat to the achievement of our marketing goals is any delay
in the time to market of our product suite. Currently, we have entered into only
one contract for the use of our product suite. We predict that delays in the
marketing program may result in an early lead being gained by one or more
companies that already supply Web security products. In that case,
differentiated positioning will become more important and we will need to be
more explicit in our marketing or the chance of market share gain will be
adversely affected. Our pricing policy will also suffer as a result of any
attempt to win market share and grow brand from a weaker position. If we fail to
achieve fast time to market in the U.S., our business, operating results and
financial condition could be materially adversely affected.
OUR PRODUCT SUITE MAY BE DEFECTIVE AND WE MAY FACE PRODUCT LIABILITY LAWSUITS.
Our product suite will be used for network management and security functions
which may be critical to organizations and, as a result, the eventual sale and
support of products by us may entail the risk of product liability and related
claims. We intend to attempt to explicitly limit our liability in our contracts;
however, we cannot guarantee that contractual limitations on liability will
protect us from liability in any of the nations or states in which we do
business. We currently have no product liability insurance. A product
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liability claim brought against us could have a materially adverse effect on our
business, operating results and financial condition.
Software products as complex as those we offer may contain undetected errors
or failures when first introduced or when new versions are released and errors
or failures may also emerge, once any version has been in use for some time. In
particular, the personal computer hardware environment is characterized by a
wide variety of non-standard configurations that make pre-release testing for
programming or compatibility errors very difficult and time consuming. Despite
our testing we cannot assure you that errors could not result in adverse
publicity, loss or delay in market acceptance, or claims by customers against
us, any of which could have a material adverse effect upon our business,
operating results and financial condition.
WE HAVE A LIMITED OPERATING HISTORY IN THE AREA OF INTERNET AND NETWORK
SECURITY.
We have been engaged in our current Internet and network security business
since July 22, 1999. Our activities have primarily been in research and
development, and elements of our product suite are in an early stage of
development. We have a limited operating history in the Internet and network
security business upon which our performance and prospects can be evaluated. We
face risks frequently encountered by developing businesses. These risks include
our potential inability to compete with more established firms and to retain and
maintain key personnel, as well as uncertainty as to which areas we should
target for growth and expansion and as to the source of funding for operations
and expansion.
OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH IN USE OF THE INTERNET.
Rapid growth in the use of and interest in the Internet is a recent
phenomenon. We cannot assure you that acceptance and use of the Internet will
continue to develop or that a sufficient base of users will emerge to support
our business. Sales of our product suite will depend largely on the widespread
acceptance and increased use of the Internet as a source of information and as a
vehicle for commerce and business. If use of the Internet does not continue to
grow or grows more slowly than we expect, or if the Internet infrastructure does
not effectively support growth that may occur, our business will be adversely
affected.
Due to the increasing popularity of the Internet, laws and regulations
applicable to Internet communications, commerce, advertising and direct
marketing are becoming more prevalent. The adoption or modification of such laws
or regulations could inhibit the growth of Internet use and decrease the
acceptance of the Internet as a communications and commercial medium, which
could decrease demand for our product suite and have a material adverse effect
on our business, results of operations and financial condition.
OUR ACQUISITIONS AND VENTURES MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON
OUR BUSINESS.
We intend to enter into new business opportunities and ventures to build
marketing and distribution capabilities. Typically, such opportunities require
extended negotiations and the investment of a substantial amount of capital and
will impose substantial burdens on our management personnel and our financial
and operational systems. We cannot assure you that such venture(s) or
acquisitions will be appropriately integrated or ever achieve or sustain
profitability.
WE FACE RISKS IN FOREIGN MARKETS.
We own subsidiaries, conduct operations and market our product suite
internationally. Conducting business in most countries will require us to become
familiar with and to comply with foreign laws, rules, regulations and customs.
We have limited experience conducting foreign business and we cannot assure
investors that we will be successful. Moreover, our failure to comply with
foreign laws, rules and
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regulations of which we are not aware may harm the development of our business.
Further risks are inherent in international operations, including the following:
- differing levels of Internet use in other countries;
- customers' agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system;
- foreign customers may have longer payment cycles;
- foreign countries may tax our foreign income and tax rates in certain
foreign countries may exceed those of the United States and foreign
earnings may be subject to withholding requirements or the imposition of
tariffs, exchange controls or other restrictions;
- intellectual property rights may be more difficult to enforce in foreign
countries;
- fluctuations in exchange rates may affect product demand and may adversely
affect the profitability in US dollars of products and services provided
by us in foreign markets where payment for our product suite and services
is made in the local currency;
- general economic conditions in the countries in which we operate could
have an adverse effect on our earnings from operations in those countries;
- unexpected changes in foreign laws or regulatory requirements may occur,
which could interfere with our business or operations;
- compliance with a variety of foreign laws and regulations may prove
difficult; and
- an overlap of different tax structures may prove too complex to administer
effectively,
There can be no assurance that any of these factors will not have a material
adverse effect on our business and results of operations.
WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND WE MAY
SUFFER ADVERSE CONSEQUENCES IF WE ARE DEEMED AN INVESTMENT COMPANY.
Certain strategic equity positions taken by us and our subsidiaries in other
businesses may be considered "investment securities" under the Investment
Company Act of 1940, as amended. Generally, any company that owns investment
securities with a value exceeding 40% of its total assets, excluding cash items
and government securities, is an "investment company" subject to registration
under, and compliance with, the Investment Company Act unless a particular
exemption or safe harbor applies. The value of investment securities held by us
may have exceeded the threshold under the 40% test on July 15, 1999 upon the
closing of the sale of Mineradora de Bauxita Ltda. to Minmet Plc and at times
since that date. Rule 3a-2 under the Investment Company Act, however, provides
that notwithstanding a company's ownership of investment securities with a value
in excess of 40% of its total assets, such a company will not be deemed an
investment company for a one-year period, provided that such company has a BONA
FIDE intent to be primarily engaged in a business other than that of investing
or trading in securities and this intent is evidenced by:
- the Company's business activities; and
- a resolution of its board of directors.
Our Board has adopted such a resolution stating that we intend to be
primarily engaged in a business other than that of investing and trading in
securities. Our Board further directed us to reduce the percentage of our total
assets comprised of investment securities to below the 40% threshold before the
expiration of the one-year period under Rule 3a-2 which will occur as early as
June 30, 2000. We may accomplish this by selling investment securities or
increasing our other assets. As a result, we may be
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obligated to dispose of assets sooner than we otherwise would at prices which
could be lower than they otherwise might be. Also, we will need the consent of
Minmet Plc in order to transfer the shares of Minmet Plc prior to January 6,
2001. We will also incur tax liabilities in connection with any asset
dispositions. In addition, we may be forced to forego opportunities to purchase
investment securities and asset purchases and this may harm our business and
results of operations.
If we fail to comply with the requirements of Rule 3a-2 or for any other
reason are deemed an investment company, we would be in violation of the
Investment Company Act and would be prohibited from engaging in business or
selling our securities and could be subject to civil and criminal actions for
doing so. In addition, our contracts would be voidable and a court could appoint
a receiver to take control of us and liquidate our business. Therefore, our
failure to comply with Rule 3a-2 and our classification as an investment company
for this or any other reasons would harm our business and results of operations.
THE EXERCISE OF WARRANTS AND OPTIONS TO PURCHASE OUR SHARES WILL HAVE DILUTIVE
EFFECT.
There are currently outstanding warrants and options to purchase 1,913,410
shares of our common stock, of which 35,000 of such warrants and options are
subject to certain conditions related to performance. There are additionally
400,286 shares of common stock available to be issued under our Stock Plan.
These options and warrants provide an opportunity for holders to profit from a
rise in the market price of our shares of common stock with resulting dilution
in the ownership interest held by you. Holders of these securities may opt to
exercise them and receive the underlying shares of common stock at a time when
we are seeking to obtain additional capital by an offering. As a result, the
terms, including price, on which we may be able to obtain additional capital
could be adversely affected.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE.
We have 2,000,000 shares of preferred stock authorized in our Certificate of
Incorporation, none of which are currently issued and outstanding. The preferred
stock may be issued with such designations, rights and preferences as may be
determined from time to time by our Board. Accordingly, our Board is empowered,
without stockholder approval, but subject to applicable government regulatory
restrictions and applicable corporate laws, including the fiduciary duties of
our Directors, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights senior to the holdings of shares of common stock. If
issued, the preferred stock could be utilized as a method of discouraging,
delaying or preventing a change in control. Although we have no present
intention to issue any additional shares of our preferred stock, we cannot
assure you that we will not do so in the future.
We are also subject to certain provisions of Delaware law (Section 203 of
the Delaware General Corporation Law) which may have the effect of discouraging
unsolicited takeover offers.
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.
The market price of our shares of common stock may be subject to wide
fluctuations. See "Price Range of Common Stock." Reasons for future fluctuations
may include variations in industry growth rates, general economic conditions,
divergence in financial results from analysts' expectations, changes in earnings
estimates by stock market analysts, our size relative to the market and other
events and factors. Stock prices and trading volumes for many Internet-related
companies fluctuate widely, often for reasons that may be unrelated to their
businesses or results of operations. In addition, international stock markets
have from time to time experienced extreme price and volume fluctuations which
have affected the market prices of securities and which have often been
unrelated to the operating performance of the companies affected.
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These broad market fluctuations, as well as general economic and political
conditions, could adversely affect the market price for our shares of common
stock.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION AND REGULATORY INQUIRY DUE
TO OUR EXPECTED STOCK PRICE VOLATILITY.
In the past, securities class action litigation and regulatory inquiries
have been brought against a company following periods of volatility in the
market price of its securities. In the future we may be the target of similar
litigation or inquiries. Even if groundless and ultimately unsuccessful,
securities litigation and regulatory inquiries may result in substantial costs
and divert management's attention and resources, which may seriously harm our
business, prospects, financial condition and results of operations and may also
harm our reputation.
WE FACE RISKS RELATED TO EXCHANGE RATES.
A proportion of our revenues are expected to be received in non-US
currencies and, in particular, we anticipate that a proportion of our revenues
will be received in Euros. This may give rise to an exchange risk against U.S.
dollars.
We may engage from time to time in foreign exchange hedging in respect of
the principal foreign currencies in which our receivables are denominated. There
can be no assurance that such hedging activities will continue or will be
effective to limit the impact of any movements in exchange rates on our results
or operations.
OUR EXECUTIVE OFFICERS AND DIRECTORS IN THE AGGREGATE CONTROL APPROXIMATELY 36%
OF OUR VOTING STOCK.
Our Directors and executive officers will together own beneficially
approximately 36% of the issued and outstanding shares of common stock of
Authoriszor Inc., including options exercisable within 60 days of the date of
this prospectus by such Directors and executive officers. If these stockholders
were to vote all of their shares in a similar manner, they would have sufficient
voting power to significantly influence the outcome of any corporate transaction
or any matter submitted to the stockholders for approval, including the election
of directors, mergers, consolidations or the sale of all or substantially all of
our assets, and to prevent or cause a change in control.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. Forward-looking statements are speculative and uncertain
and not based on historical facts. Because forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statement including those discussed under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus or to conform such statements to actual results.
USE OF PROCEEDS
This prospectus relates to shares of common stock that may be offered from
time to time by the selling stockholders. We will receive none of the proceeds
from the sale of the common stock offered in this prospectus.
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PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the OTC Bulletin Board during the
periods covered by this table, currently under the symbol "AUOR." Commencing on
May 23, 2000, our common stock will be 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.
<TABLE>
<CAPTION>
BID PRICE
-------------------
CALENDAR PERIOD HIGH LOW
--------------- -------- --------
<S> <C> <C>
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
</TABLE>
On May 17, 2000, the last reported bid price of our common stock on the OTC
Bulletin Board was $11.00 per share.
As of May 16, 2000, there were 17,414,081 shares of common stock
outstanding, held by approximately 388 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 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.
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AUTHORISZOR INC. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
financial statements of the Company, which have been audited by Grant Thornton,
independent chartered accountants. The selected consolidated statement of
operations for the nine month periods ended March 31, 2000 and 1999 are
unaudtied but, in the opinion of management, reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation of the
information included therein. The financial data for the Company should be read
in conjuction with the Consolidated Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this Prospectus. The results for the nine
month period ended March 31, 2000 are not necessarily indicative of results that
may be expected for the full year.
<TABLE>
<CAPTION>
JANUARY 15, NINE MONTHS ENDED
1997 (DATE OF YEAR ENDED JUNE 30, MARCH 31,
INCEPTION) TO ------------------------- -------------------------
JUNE 30, 1997 1998 1999 1999 2000
-------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales................... $ 3,290 $ -- $ 33,711 $ 32,682 $ 121,186
Operating loss.............. (5,283) (23,821) (49,631) (27,504) (4,682,127)
Other income, net........... -- -- -- -- 73,263
Net loss.................... (5,283) (23,821) (49,631) (27,504) (4,608,864)
Loss per common share--basic
and diluted............... (0.00) (0.00) (0.00) (0.00) (0.32)
Weighted average shares
outstanding--basic and
diluted................... 13,765,808 13,765,808 13,765,808 13,765,808 14,462,226
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------ MARCH 31,
1997 1998 1999 2000
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance sheet data:
Current assets................................... $ 4,855 $ 1,049 $ 3,196 $27,863,341
Current liabilities.............................. 10,815 34,730 100,670 604,469
Total assets..................................... 5,473 5,224 24,790 32,755,668
Stockholders' equity (deficit)................... (5,342) (29,506) (75,880) 32,151,199
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF OUR COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. PLEASE SEE "RISK FACTORS" AND "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS; MARKET DATA" ELSEWHERE IN THIS PROSPECTUS.
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:
- firewalls;
- virtual private networks;
- encryption;
- security tokens;
- smart cards; and
- 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
company's 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 thirty-eight employees, including
Richard A. Langevin, our Chief Executive Officer, President and Interim Chief
Financial Officer. We also
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intend to create a network of resellers, systems integrators and other security
application vendors as clients and sales channel partners of our product suite.
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:
- financial services;
- healthcare services;
- government branches; and
- 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.
In January 2000, we secured a contract with Univentures International
Limited to implement a secure Web application for use throughout nine
universities located in Northern England.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the nine
months ended March 31, 2000 compared with the nine months ended March 31, 1999.
The operating loss increased to $4,682,127 for the nine months ended
March 31, 2000 compared to $27,504 for the respective period in 1999. This
increase was attributable primarily to the Company agreeing to reduce the
exercise price on options held by certain individuals, including Robert P.
Jeffcock, former officer and current Director of the Company, Robert A. Pearce,
former officer and Director of the Company and L. Clark Arnold, former officer
and Director, from the original exercise price of $1.00 to a new exercise price
of $0.66. The Company recorded a compensation expense of $1,694,000. The Company
also entered into an agreement with consultants wherein the consultants were to
be issued 120,000 shares of the Company's common stock, par value $.01 per share
("Common Stock") for services rendered. At March 31, 2000, all of the
120,000 shares had been earned and expenses equivalent to the trading value of
the shares of common stock at the point in time when the shares were earned has
been recorded at approximately $589,100. The remaining increase is attributable
to costs incurred in setting up the Company's development centers, preparing for
the opening of the sales offices, recruiting employees, legal and professional
fees in connection with the recapitalization transaction, as described in
Note B to the Company's financial statements included in this prospectus, and
costs in connection with being a public company.
The Company had sales of $121,000 in the nine months ended March 31, 2000
compared to $33,000 for the nine months ended March 31, 1999.
In the nine months ended March 31, 2000, the Company recognized a gain on
the sale of investment securities in the amount of $199,279. These securities
had been received in connection with the aforementioned recapitalization
transaction. The Company also recorded a write-down of its investment in Toucan
Mining Plc in the amount of $291,448 in the nine months ended March 31, 2000.
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For the period prior to July 1999, the activities of the Company were very
limited. Aggregate revenues and expenses from inception through June 30, 1999,
were $37,001 and $115,736, respectively.
FINANCING MANAGEMENT'S PLAN OF OPERATION
Following 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.
The Company has provided loans to Authoriszor Ltd. and Authoriszor Holdings
Limited, a wholly owned subsidiary of the Company ("AHL") through March 31, 2000
of approximately $3,600,000.
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 Plc (formerly Toucan Mining Limited) for $809,750 (L500,000) 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 private placement that was being arranged by Beeson
Gregory Limited ("Beeson Gregory"). Prior to the sale, Toucan Mining Plc
transferred to the Company warrants (the "Warrants") to purchase 7.7 million
shares of Minmet Plc at an exercise price of 8 pence (sterling) per share and
2 million Minmet Shares. The shares of Minmet Plc to be acquired on exercise of
the Warrants are not subject to any contractual restrictions with Minmet Plc;
however, the Minmet Shares cannot be sold until January 2001 without the consent
of Minmet Plc. Subsequently, in May 2000, the Company exercised the Warrants and
sold the underlying 7.7 million shares of Minmet Plc for sales proceeds, net of
the exercise price, of $2,209,130 (L1,463,000, based upon the currency exchange
rate of 1.51 British Pound per $1.00 U.S. on May 17, 2000), exclusive of
brokerage commissions.
In February 2000, the Company placed (the "Placement") 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 of 1933, as amended (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 has 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
(L25,000). The Company estimates that 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 has
filed a registration statement on Form S-1 ("Registration Statement") under the
Securities Act to register the resale of the Placing Shares and has made
application to list the Company's Common Stock on the Nasdaq National Market
System. The Company has incurred approximately $375,000 as of the date of this
prospectus in connection with the resale of the Placing Shares and for payment
of the Nasdaq listing fee. Additional expenses will continue to be incurred in
connection with the registration of the resale of the Placing Shares. Additional
expenses have been incurred in connection
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<PAGE>
with the Nasdaq Listing Application. The Company intends to use such net
proceeds 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 AHL, has acquired
25.1% of the stock of WRDC for an aggregate subscription price of $604,800
(L378,000). In addition, on making the subscription, AHL made a loan in the
principal amount of $195,200 (L122,000) to WRDC, repayable (with interest) over
a five year period beginning on the second anniversary date of the first
drawdown. Authoriszor Limited has converted the terms of the existing interest
free loan to WRDC in the principal amount of $160,800 (L100,000) to 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.
In the quarter ended March 31, 2000, the Company incurred expenses in
setting up its interim U.S. office at the home office of the Chief Executive
Officer in Natick, Massachusetts. In May, 2000 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 expects to spend approximately $100,000
to build out the new location. The Company has 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 expects to spend approximately
$200,000 in furnishings for the Burlington headquarters.
The Company's commitments for salaries will be significantly higher
subsequent to March 31, 2000. The Company has increased its U.S. staff
significantly. At present, the Company has employed 11 individuals, including
Richard A. Langevin in the following areas: four technology related employees,
three employees and one full-time consultant in sales and marketing and two
administrative employees.
The Company's operations headquarters are currently located on the first
floor of a leased facility in North Yorkshire, England consisting of
approximately 1,375 square feet of office space. The rent for this facility is
approximately $34,100 per year. The Company is planning to add 1,757 square feet
to the North Yorkshire facility, which will increase the rent to approximately
$76,633 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
$51,752 per year in the aggregate. The Company's U.K. operational office has
also increased its staff. Presently, there are eight employees in sales and
marketing, twelve employees in research and development, four in administration
and three 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
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maintain its competitive edge. The research and development team has currently
identified several competitive enhancements that are being considered for
development, such as:
- native code conversion to further improve system performance;
- implementation of secure file transfer;
- expanded user selectable encryption;
- active lightweight directory access protocol support; and
- the development of extended application programming interfaces.
For the nine months ended March 31, 2000, the Company incurred approximately
$529,000 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 quarter ended March 31, 2000, twelve 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.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from the historical use in computer software
programs and operating systems of a two digit number to represent the applicable
year. Marketplace concerns arose as to whether certain software and hardware
would fail to properly function when confronted with dates that contain "00" as
a two digit year. To address the potential risk of disruption of operations, the
Company reviewed its own software products and conducted an impact analysis. The
Company determined that all of the Company's products were designed to record,
store, and process calendar dates occurring before and after January 1, 2000
with the same full-year accuracy (i.e. four numeric characters instead of two)
and the impact analysis identified no major risk of failure within the Company's
in-house computer systems, which include the accounting and management
information systems.
To date, the Company has not experienced any material problems relating to
the Year 2000 issue. However, the Company has not yet experienced all factors
that might have Year 2000 readiness implications. The Company will continue to
monitor and evaluate internal Year 2000 compliance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company's primary market risk exposure is fluctuation in the value of
its investment in the common stock of Minmet Plc. 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 March 31, 2000, these securities have
a value of approximately $1,800,000. 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 Plc. 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 $180,000 change in stockholder's equity.
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
$3,600,000. Based on this loan amount, a 10% fluctuation in currency rates would
have a $360,000 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.
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BUSINESS
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 they are authorized. Validated requests for
information are handled by the protected 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:
- firewalls;
- virtual private networks;
- encryption;
- security tokens;
- smart cards; and
- 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
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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 which 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.
The following are some of the factors which may influence the growth in the
market for security products:
- the growth of network and client/server computing;
- the rapid adoption of the Internet and Internet protocols for E-Commerce,
intranets, extranets and virtual private networks;
- the development of electronic commerce in Europe and the Asia Pacific
region, which is reported to be at a slower rate than in the United
States;
- increasing awareness of the public relations and financial consequences of
not having a secure network;
- national and supranational legislation for trusted third parties;
- national and supranational legislation for digital signatures;
- the emergence of industry standards, enabling inter-operable security to
be built into standardized products;
- the rate of the move towards automated management of key systems;
- the need for effective management tools to control large communities of
users, including public key certificate management systems;
- the move towards doing significant business sight unseen, in some cases
across international borders, which requires non-repudiation; and
- 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
21
<PAGE>
enable people and organizations to conduct business confidently and
confidentially based upon the following principles:
- Authentication--verifying the identity of each party;
- Integrity--preventing alteration of information by unauthorized persons;
- Confidentiality--preventing disclosure of information in transit or in
storage to unauthorized persons; and
- 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.
A number of techniques have been devised which seek to address this. These
may be broadly categorized as:
<TABLE>
<CAPTION>
TECHNIQUE FUNCTION PERCEIVED PROBLEMS/LIMITATIONS
--------- ----------------------------- ------------------------------
<S> <C> <C>
Firewalls............................ A firewall limits access to a A user's identity can be
Web server according to a set "spoofed", i.e. an
of rules concerning the unauthorized user may pretend
identity of the user, message to be someone else who is
content, access request type, authorized.
protocol used, etc.
Encryption........................... A technique for "scrambling" Encrypted messages may be
a message while in transit or created or read by non-
stored such that an intruder authorized persons if the code
may not read the content of is "broken" or the decryption
the message without having key is stolen.
access to the encryption
code.
Public Key Infrastructure............ Public key infrastructure is Keys may be stolen, however
a generic term which securely they may be stored,
describes the process of with the user being unaware of
managing the encryption and the theft, allowing
decryption of messages unauthorized decryption of
between server and client messages.
using complex keys stored and
authenticated by a trusted
authority.
Biometrics........................... A user has many unique Does not in itself address the
biometric characteristics issue of encrypting data
(fingerprint, retinal scan, during transmission to prevent
etc.) that may be measured to unauthorized "eavesdropping"
certify the identity of a nor of managing the level of
user. access available to a user.
Virtual Private Networks............. Virtual private networks are The establishment of the link
an extension of hard wired must be based upon a highly
private networks, and once secure user identification
established, a Virtual technique, or otherwise a
private network creates an secure route to an
encrypted link between two or unauthorized person could be
more computers that can be unknowingly created.
regarded as highly secure.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
TECHNIQUE FUNCTION PERCEIVED PROBLEMS/LIMITATIONS
--------- ----------------------------- ------------------------------
<S> <C> <C>
Smart cards.......................... Smart cards contain embedded They can be stolen and some
electronic identity may be fraudulently
information which, when used duplicated.
as part of the log-on
process, can help to verify a
user's identity.
</TABLE>
The techniques listed above are embodied in a variety of products provided by
many companies, a few of which are listed below:
- Public key infrastructure--Verisign Inc., Baltimore Technologies Plc
- Firewalls--Checkpoint Software Technologies Ltd., Ascend
Communications Inc., Cisco Systems Inc., Raptor Systems Inc.
- Encryption--RSA Security Inc., Verisign Inc.
- Smart cards--GemPlus, Hewlett-Packard, Bull S.A.
- Virtual private networks--Checkpoint Software Technologies Ltd., Intel
Corporation, Microsoft Corporation, Novell Inc., Cisco Systems Inc.
- Biometrics--Siebel Systems, 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, which allow the management of a server's security policy to
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 which 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:
<TABLE>
<S> <C>
Authentication....... The Authoriszor product suite has strong in-built
client ID verification which 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.
</TABLE>
23
<PAGE>
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:
- each user seeking access to a server protected by our product suite is
positively identified as either "public" or as an individual "authorized
client";
- 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;
- 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;
- 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;
- 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 which could be "hacked" and no
route or portal through which a hacker may gain access to the secured
information; and
- 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:
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 which 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.
24
<PAGE>
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 which 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.
Pseudo uniform resource locators contain different levels of content for
different types of clients. For example:
<TABLE>
<CAPTION>
INTENDED RECIPIENT POSSIBLE CONTENT
------------------ -----------------------------------------
<S> <C>
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>
25
<PAGE>
The 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 disc and memory and effectively brings 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 38 employees, including Richard A. Langevin,
our Chief Executive Officer, President and Interim Chief Financial Officer, and
a full time consultant involved in sales and marketing. The consultant is Fred
Sawin who we retained on May 1, 2000 for a six month period to serve as Vice
President of Sales for North America. We also intend to create a network of
resellers, systems integrators and other security application vendors.
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:
- financial services;
- healthcare services;
- high-technology;
- government branches; and
- 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
26
<PAGE>
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
We have recently begun direct sales and marketing of the Authoriszor product
suite. We currently have a staff of eight sales people based in the UK. In
addition, we have two employees and a full time consultant engaged in sales and
marketing in the U.S. We are in the process of recruiting a further nine sales
and marketing staff during the current calendar year who will be based in both
the UK and the U.S.
Our 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:
- 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;
- 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;
- 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
- 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.
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 in the UK,
Germany, France and the U.S. and expect to hold discussions to set up agreements
covering these countries during 2000.
We are also seeking to further develop our distribution chain by acquiring
relevant companies or by making strategic equity investments. We have acquired
25.1% of the share capital of WRDC Limited, 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
27
<PAGE>
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:
- Financial Services
- UK Government
- Police
- Distribution
- Telecommunications
- Travel and Tourism
- UK Ministry of Defense
- Manufacturing
- Information Technology
- Health
The structure of the Authoriszor Group and WRDC is as follows:
[LOGO]
COMPETITION
We believe that we have no direct competitors offering a product with the
same benefits. Other companies offer solutions which 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 prospectus 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.
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.
28
<PAGE>
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 not yet sought patent protection in the
UK. We may attempt to extend any successful U.S. applications into the UK and
other countries through the Paris Convention and 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.
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:
- native code conversion to further improve system performance;
- implementation of secure file transfer;
- expanded user selectable encryption;
- active lightweight directory access protocol support; and
- the development of extended application programming interfaces.
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 Vasco as Director of Technology for U.S. operations. Prior to his
employment with the Company, Mr. Vasco served as Product Manager, Security for
the North American software division of Bull Information Systems. We intend to
increase our technical services staff.
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
29
<PAGE>
our customers. We intend to offer products that are compatible with new and
emerging operations platforms such as UNIX and to seamlessly integrate our
product without the need for re-registration in the case clients require major
upgrades.
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:
- native code conversion to further improve system performance;
- implementation of secure file transfer;
- expanded user selectable encryption;
- active lightweight directory access protocol support; and
- the development of extended applications programming interfaces.
For the one year period ending June 30, 1999, we incurred approximately
$67,000 related to research and development. For the nine months ended
March 31, 2000, we incurred approximately $529,000 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.
EMPLOYEES
As of May 17, 2000 there were thirty-eight people employed by us on a
full-time basis, including Richard A. Langevin. Of these, sixteen employees were
primarily involved in research and development, eleven employees and a full time
consultant were involved in sales and marketing, six in general administration
and support and three engaged in professional services. In addition, we 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.
FACILITIES
Our executive offices are currently located at the home office of our Chief
Executive Officer in Natick, Massachusetts. In May 2000, we signed a commercial
real estate lease in order to move our U.S. headquarters to a permanent location
in Burlington, Massachusetts. The lease commenced on May 1, 2000 and includes
11,950 square feet of office space. We plan to commence occupation of this space
during the week following the close of this prospectus. As a result, we will
incur a rental obligation of approximately $376,000 per annum over the term of
the five year lease. Our UK operations headquarters are currently located on the
second floor of a leased facility in North Yorkshire, England consisting of
approximately 1,375 square feet of office space. The rent for this facility is
approximately $34,100 per year. We are planning to add 1,757 square feet to the
North Yorkshire facility, which will increase the rent to approximately $76,633
per year. We maintain additional UK offices in a 400 square foot leased facility
in
30
<PAGE>
Birmingham, England and 3,174 square foot leased facility in Bradford, England.
The rent for these office spaces is approximately $51,752 in the aggregate per
year.
LEGAL MATTERS
From time to time we may be involved in litigation that arises through the
normal course of business operations. As of the date of this prospectus, we are
not a party to any litigation we believe could reasonably be expected to have a
material adverse affect on our business or results of operation.
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 July 15, 1999, Toucan Mining Plc sold its sole operating subsidiary to
Minmet Plc, a company listed on the Irish Stock Exchange and the London Stock
Exchange, in consideration for the issue of Minmet Plc ordinary shares, the
grant of warrants and other consideration. On July 22, 1999, we acquired the
whole of the issued share capital of Authoriszor Limited, which was then named
ITIS Technologies Limited, 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.
On January 12, 2000, Authoriszor Holdings Limited, a newly created
wholly-owned subsidiary of Authoriszor Inc., acquired the whole of the issued
share capital of Authoriszor Limited as part of an intra-group re-organization.
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
(L500,000) in cash. On the same date, Toucan Mining Plc agreed to transfer to
Authoriszor Inc. the beneficial interest in 2,000,000 shares in Minmet Plc and
warrants to subscribe for ordinary shares of Minmet Plc at a price of L0.08 per
share for a further 7,700,000 shares in Minmet Plc for a consideration of L1.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our current
directors and executive officers. The term of office for each director is one
year or until the next meeting of stockholders, at which time elections are held
for each seat on the board of directors.
<TABLE>
<CAPTION>
POSITION WITH AUTHORISZOR INC. DIRECTOR AND/OR
NAME OR AUTHORISZOR LTD. AGE EXECUTIVE OFFICER SINCE
---- ------------------------------ -------- -----------------------
<S> <C> <C> <C>
Raymond G. H. Seitz......... Chairman of the Board of Authoriszor 59 1999
Inc.
Richard A. Langevin......... President, Chief Executive Officer, 47 2000
Interim Chief Financial Officer and
Director of Authoriszor Inc.
James L. Jackson............ Vice President, Secretary and Director 59 1997(1)
of Authoriszor Inc. and Managing
Director of Authoriszor Ltd.
David R. Wray............... Director of Authoriszor Inc. and Chief 52 1999
Technical Officer of Authoriszor Ltd.
Sir Malcolm L. Rifkind...... Director of Authoriszor Inc. 53 2000
Robert P. Jeffcock.......... Director of Authoriszor Inc. 60 1996
Don Box..................... Director of Authoriszor Inc. 49 1996
Ian McNeill................. Chairman of the Board of 52 1999
Authoriszor Ltd.
David J. Blanchfield........ Research and Development Director of 50 1998(1)
Authoriszor Ltd.
Barry Jones................. Sales and Marketing Director of 56 1999
Authoriszor Ltd.
</TABLE>
------------------------
(1) James L. Jackson and David J. Blanchfield became directors and executive
officers of ITIS Technologies Limited, currently named Authoriszor Ltd., in
1997 and 1998 respectively.
RAYMOND G. H. SEITZ
Raymond Seitz became our Chairman of the Board of Directors in December 1999
for a three year term. He has served as Vice Chairman of Lehman Brothers Europe,
an investment bank, since 1995 and is currently a Director of Chubb Corporation,
British Airways Plc, Marconi Plc, Cable & Wireless Plc and Rio Tinto Plc. From
1991 through 1994, Mr. Seitz had served as U.S. Ambassador to the United
Kingdom.
RICHARD A. LANGEVIN
Richard Langevin became our President, Chief Executive Officer and Interim
Chief Financial Officer in January 2000 for a term ending on December 31, 2003.
Mr. Langevin has served on our Board since January 2000. Mr. Langevin has had
29 years of software and technology industry experience. From 1993 through 1997,
Mr. Langevin provided management consulting and venture capital investment
advice to emerging technology companies. From 1997 until December 1999, he
worked for Bullsoft, the software division of Groupe Bull, where he served as
General Manager--North America and Senior Director--Worldwide Sales Operations.
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<PAGE>
JAMES L. JACKSON
James Jackson is a joint founder of Authoriszor Ltd. and has served as its
Managing Director since the company's inception in 1997. Mr. Jackson joined our
Board in July 1999 and became our Vice President and Secretary in January 2000.
He served as Managing Director of Holdene Group plc, a UK computer information
systems and services company, from 1974 through 1996, the year that Holdene
Group plc entered administrative receivership in the UK.
DAVID R. WRAY
David Wray is a joint founder and since 1998 has been the Chief Technical
Officer of Authoriszor Ltd. He joined our Board in July 1999. He was the chief
architect of our product suite, which was developed with David J. Blanchfield
and James L. Jackson. Mr. Wray served as Managing Director of Synergetics GB, a
UK software development company, from 1997 through 1999 and of Servo
Computers Ltd., a computer systems integrator in the UK, from 1996 through 1997.
From 1984 through 1996, Mr. Wray held the position of Business Development
Manager at Holdene Group plc, a UK computer information systems and services
company, until such company entered administrative receivership in the UK.
SIR MALCOLM RIFKIND
Sir Malcolm Rifkind has served on our Board since January 2000 and has been
a consultant to us since October 1999. In his capacity as a consultant, Sir
Malcolm advises us on governmental organizations in the United Kingdom and
United States that require highly secure transfers of critical and confidential
information. In public service since 1974, he has served in the administrations
of English prime ministers Margaret Thatcher and John Major and held posts in
the UK including Secretary of State for Scotland, Secretary of State for
Transportation, Secretary of State for Defense and Foreign Secretary. Since his
retirement from public service in 1996, he has served as a consultant to several
businesses including PriceWaterhouseCoopers, and he currently is a director of
Ramco Energy Plc.
ROBERT P. JEFFCOCK
Robert Jeffcock served as the Chairman of our Board from May 1996 through
November 1999 and served as our Secretary from May 1996 through January 2000.
Mr. Jeffcock served as our President and Chief Executive Officer from May 1996
until December 1996 and resumed these positions on May 31, 1997 and continued in
these positions until January 2000. He also served as our Chief Financial
Officer from May 1996 until January 1998. He continues to serve as a Director on
our Board. For the past twelve years, Mr. Jeffcock has been involved as a
founder and director of a number of businesses in gold and diamond exploration
in South America, including our former operating subsidiary, Toucan Mining Plc.
He was responsible for identifying the opportunity for us to acquire ITIS
Technologies Limited and for managing the acquisition and subsequent
establishment of Authoriszor Ltd. as an operating company.
DON BOX
Don Box has served as one of our Directors since May 1996 and served as our
Assistant Secretary from May 1996 through January 2000. Mr. Box has served as an
Executive Vice President at Remington Oil and Gas Corporation, a publicly held
oil and gas exploration and production company, since November 1997. He served
as Chairman of the Board of Box Energy Corporation, which is listed on Nasdaq, a
public company owning oil and gas interests in the Gulf of Mexico and mainland
U.S., from 1993 through November 1997, and served as Chief Executive Officer and
President of Box Energy Corporation from January 1996 through November 1997.
Since 1992, Mr. Box has been President and a Director of Box Brothers Holding
Company, which is engaged in the oil and gas business. Box Brothers underwent a
plan of reorganization pursuant to Chaper 11 of the U.S. Bankruptcy Code in
Federal Bankruptcy Court in Delaware, which plan was confirmed in 1997. From
1990 until 1996, Mr. Box was President of Race
33
<PAGE>
Circuits Management of Texas, which was engaged in motor sports promotion. Don
Box holds a Bachelor of Science degree in Economics from the Wharton School of
Business and a Masters degree in Business Administration from Southern Methodist
University.
IAN MCNEILL
Ian McNeill has served as Chairman of Authoriszor Ltd. since July 1999. He
served as Managing Director of Commercial Technology Limited, which assists
information companies in the areas of re-financing and mergers and acquisitions,
from 1991 through 1999. Mr. McNeill is on the Boards of WRDC Limited and
Zilex.com Plc, both UK software suppliers.
DAVID J. BLANCHFIELD
David Blanchfield is a joint founder of Authoriszor Ltd. and has served as
Director of Research and Development of Authoriszor Ltd. since 1998.
Mr. Blanchfield was a software developer for Synergetics Ltd., a UK software
development company, from 1997 through 1999. He held the position of Personal
Computer Support Manager at Freemans Plc, a UK mail order company, from 1995
through 1997. David Blanchfield has had a varied career in the information
technology industry since 1969.
BARRY JONES
Barry Jones became the Sales and Marketing Director of Authoriszor Ltd. in
July 1999. From 1996 through 1999, Mr. Jones served as Managing Director of
Ubik.net Ltd., a UK company that specializes in business to consumer electronic
commerce software. Since 1995, Mr. Jones has provided consulting services
through CMM Ventures Limited to Internet and e-commerce start-ups. Prior to that
time Mr. Jones, commencing in 1991, provided consulting services, specializing
in channel mangement and marketing, to a number of large information technology
companies, including IBM, Digital Equipment Corporation and Sun MicroSystems, as
well as many smaller software companies. He also served as Director of European
Business Development for WebMate International Ltd., a subsidiary of WebMate
Technology Inc., which develops Web development software.
BOARD OF DIRECTORS
COMPENSATION. Directors currently do not receive any cash compensation from
us for their services as members of the Board or Board committees, except as
discussed below. Directors are reimbursed for actual and reasonable out of
pocket expenses in connection with attendance at Board and committee meetings.
Effective October 1, 1999, we appointed Malcolm Rifkind as a consultant to
our Board of Directors. Under his Consulting Agreement, we granted Sir Malcolm
Rifkind a stock option to acquire 200,000 shares of common stock at an exercise
price of $1.00 per share which is currently exercisable until September 30,
2002, and he is entitled to a retainer of L2,500 per month plus Value Added Tax.
On January 12, 2000, we elected Sir Malcolm Rifkind to the Board.
On July 22, 1999, we entered into a consultancy agreement with Robert
Jeffcock under which he agreed to perform the roles of our Chairman, President
and Chief Executive Officer. The consultancy was for an initial period of
6 months, after which it was terminable on one month's notice by either party.
The fee payable under this consultancy was $10,000 per month. Mr. Jeffcock
resigned his Chairmanship as of December 1, 1999 and resigned as Chief Executive
Officer and President effective January 1, 2000.
Effective from December 1, 1999, we appointed Raymond Seitz to our Board to
serve as Chairman. We granted Mr. Seitz a stock option to acquire 200,000 shares
of our common stock at an exercise price of $3.00 per share which is currently
exercisable until October 30, 2002, and he is entitled to a retainer of $4,000
per month. He is required to devote an average of two days per month to his
duties to us.
34
<PAGE>
In April 1999, Don Box was awarded a stock grant of 20,000 shares of our
common stock for compensation for his services on our Board. These shares, which
are restricted securities as defined in Rule 144 of the Securities Act, were
valued for such purpose at $.20 per share, which was the current price of our
common stock on the OTC Bulletin Board as of April 27, 1999, the date of grant.
BOARD COMMITTEES. The audit committee consists of Don Box and Raymond
Seitz. The Board of Directors has adopted an Audit Committee Charter. Pursuant
to this Charter, the audit committee serves as an independent and objective
party to monitor our financial reporting process and internal control system,
reviews and appraises the audit efforts of our independent accountants and
provides an open avenue of communication among the independent accountants and
our senior management and the Board of Directors. The compensation committee
consists of Don Box and Sir Malcolm Rifkind. The compensation committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for our senior management. The compensation committee also reviews
our benefit plans and administers our 1999 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Prior to
January 12, 2000, we did not have a compensation committee or other committee of
the Board of Directors performing similar functions. Decisions concerning
compensation of executive officers generally have been made by the entire Board
of Directors. None of the executive officers or directors currently serves on
the compensation committee of another entity or on any other committee of the
Board of Directors of another entity performing similar functions.
DESIGNATIONS. As part of the share sale agreement dated July 22, 1999,
executed in connection with the acquisition of ITIS Technologies Limited, now
named Authoriszor Ltd., James L. Jackson and David R. Wray were nominated and
appointed to serve on our Board of Directors.
EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation
paid by us to our named executive officers in the fiscal year ended June 30,
1999 for services performed in all capacities for us with respect to our former
President and Chief Executive Officer. We had no other executive officer whose
salary and bonus exceeded $100,000 in the fiscal year ended June 30, 1999 or
whose current salary exceeds $100,000. We have changed our fiscal year end from
December 31 to June 30. The summary information provided is for the 12 months
ended June 30, 1999, the 12 months ended December 31, 1998 and the 12 months
ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
FISCAL ANNUAL NO. OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY UNDERLYING OPTIONS COMPENSATION
--------------------------- -------- -------- ------------------ ----------------
<S> <C> <C> <C> <C>
Robert P. Jeffcock, ...................... 1999 -- -- 250,000 shares
President and CEO(1) of common
stock(2)
1998 $ 90,000 200,000 --
1997 $120,000 --
</TABLE>
------------------------
(1) Mr. Jeffcock resigned as our President and CEO effective January 1, 2000.
(2) In April 1999, Mr. Jeffcock was granted 250,000 shares of our common stock
in lieu of compensation. These shares, which are restricted securities as
defined in Rule 144 of the Securities Act, were valued for such purpose at
$.20 per share, which was the current market price of our common stock on
the OTC Bulletin Board as of April 27, 1999, the date of grant.
35
<PAGE>
STOCK OPTIONS
The following table provides summary information concerning grants of stock
options to our former Chief Executive Officer in the fiscal year ended June 30,
1999. We had no other executive officers whose salary and bonus exceeded
$100,000 in the fiscal year ended June 30, 1999 or whose salary currently
exceeds $100,000.
OPTION GRANTS DURING 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME OPTIONS GRANTED DURING 1999 PRICE DATE
---- --------------------- -------------------- -------- ----------
<S> <C> <C> <C> <C>
Robert P. Jeffcock.................... 0(1) -- -- --
</TABLE>
------------------------
(1) In April 1999, we extended the expiration date of an option to purchase
200,000 shares of our common stock granted to Mr. Jeffcock prior to our 1999
fiscal year from December 31, 1999 to January 1, 2001.
The following table provides certain information concerning the unexercised
options to purchase our common stock held by the named executive officer at
June 30, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
1999 AND JUNE 30, 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT JUNE 30, 1999 (#) AT JUNE 30, 1999 ($)
ACQUIRED ON VALUE ------------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Jeffcock......... -- -- 200,000 -- 0 --
</TABLE>
1999 STOCK PLAN
BENEFITS; PURPOSE; SHARES. Our 1999 Stock Plan, ratified by our Board on
October 4, 1999, currently provides for the issuance to qualified participants
of up to 1,000,000 shares of our common stock pursuant to the grant of stock
options. The Stock Plan is subject to approval by stockholders in the event
required by law or any stock exchange or quotation system on which our common
stock is listed or quoted. The purpose of our Stock Plan is to promote our
interests and the interests of our stockholders by using investment interests in
Authoriszor Inc. to attract, retain and motivate eligible persons, to encourage
and reward their contributions to our performance and to align their interests
with those of our stockholders. As of May 17, 2000, options to purchase 599,714
shares of common stock had been awarded, of which 35,000 of such options are
subject to certain performance conditions, having exercise prices ranging from
$2.00 to $20.00 per share, under our Stock Plan. Of the options granted, all
have been Non-qualified Stock Options, or NQSOs. We may also grant options which
are intended to qualify as Incentive Stock Options, or ISOs, under Section 422
of the Internal Revenue Code, if the Stock Plan is approved by the Company's
stockholders prior to October 4, 2000.
ELIGIBILITY. Under our Stock Plan, we may grant ISOs to our employees and
officers and to any employee or officer of any parent company or subsidiary
company of ours. We may grant NQSOs to any person eligible to receive ISOs, and
also to Directors and to persons engaged by us, or any parent company or
subsidiary company of ours, to render bona fide consulting and advisory
services.
36
<PAGE>
ADMINISTRATION. Our Board of Directors, or a committee appointed by the
Board, is authorized to administer the Stock Plan and has the authority in its
discretion to determine which eligible persons will be granted stock options,
the number of shares subject to options, the period of exercise of each option
and the terms and conditions of such options. As a condition to the exercise of
an option, the Board may require the person exercising the option to represent
and warrant that the underlying shares are being purchased for investment only
and without any present intention to distribute such shares.
STOCK OPTIONS. Under our Stock Plan, we may grant ISOs or NQSOs. When
granted, each option must be designated as either an ISO or an NQSO. However,
regardless of such designation, in the event that the fair market value,
calculated in good faith by the Board based on the trading prices of the shares
of our common stock on the market on which our common stock trades, of shares
underlying ISOs held by an option holder in any calendar year exceeds $100,000,
such options shall be treated as NQSOs. When we grant options under the Stock
Plan, prospective option holders are required to enter into a Stock Option
Agreement with us that sets out the key terms on which the options are to be
granted. The Stock Option Agreements also detail the term of a market stand off
period during which we can require the holder to refrain from selling shares
during the 180-day period following the effective date of our filing a
registration statement under the Securities Act.
Options are generally non-transferable and are exercisable during the
lifetime of the holder. However, notwithstanding the foregoing, the option may
be transferred or assigned by the holder of the option:
- to family members, trusts or other entities for the benefit of the holder
of the option;
- for the benefit of the family members of the holder of the option by will
or by the laws of descent and distribution;
- or by the laws regulating testate or intestate succession applicable to
the holder of the option.
EXERCISE PRICE. The exercise price of shares to be issued upon exercise of
an option is determined by the Board as administrator of the Stock Plan, subject
to the following:
- In the case of an ISO granted to an employee who, at the time of the grant
of such option, owns stock representing more than 10% of the voting power
of all of our classes of stock or that of any of our parents or
subsidiaries, then the exercise price shall be no less than 110% of the
fair market value of our common stock on the date of grant;
- In the case of an ISO granted to any other employee, the per share
exercise price will be no less than 100% of the fair market value per
share on the date of grant; or
- In the case of an NQSO, the per share exercise price will be determined by
the Board as administrator.
EXERCISE OF OPTIONS. Option holders under the Stock Plan may exercise their
options at any time after their grant in accordance with the terms of exercise
set forth by the administrator of the Stock Plan and in their Stock Option
Agreements. The administrator has the sole discretion to accelerate the date on
which options may be exercised. In order to exercise options, option holders
must deliver to us a completed notice of exercise together with full payment for
the shares underlying such options. If a holder of options ceases to be a person
eligible to be granted options, his options will be exercisable for three months
after such person ceases to be eligible, except where such change in status is
as a result of the holders' death or disability, where such period is extended
to one year, unless specified in the grant of the option to be some other
period. Options must be exercised within ten years of their grant, or, if
determined by the Board, an earlier date.
AMENDMENT AND TERMINATION. Our Board may at any time amend, alter, suspend
or terminate the Stock Plan. The Board shall be required to obtain stockholder
approval of any Stock Plan amendments to the extent necessary to comply with
applicable laws and may seek stockholder approval of any Stock Plan
37
<PAGE>
amendments it deems desirable. No such amendment shall have a retroactive effect
on any options previously granted, unless the relevant option holders consent to
such amendment. The Stock Plan shall terminate automatically on the tenth
anniversary of the date of its adoption.
CHANGES IN CAPITAL STRUCTURE, MERGERS, ASSET SALES. In the event that we
cause a stock split, reverse stock split, stock dividend or any other decrease
or increase in the number of issued shares of our common stock without providing
consideration to option holders, the number of options to which such holders
have rights will be proportionally adjusted for any increase or decrease in the
number of issued shares resulting from any such change in capital structure. In
the event of our proposed dissolution or liquidation, the Board, as
administrator of the Stock Plan, is obliged to notify option holders of such
fact and may, at its discretion, allow such holders to exercise their options up
to 15 days prior to such event. Unless exercised, all options will lapse
immediately prior to a dissolution or liquidation. In the event of a merger of
by us with another corporation, each option may be assumed or an equivalent
option may be substituted by such successor corporation, or a parent or
subsidiary of such successor, without the consent of the option holder.
EMPLOYMENT AGREEMENTS
We entered into an Executive Employment Agreement with Richard A. Langevin,
dated as of January 1, 2000, under which he has been appointed our Chief
Executive Officer. The term of this agreement is four years, expiring
December 31, 2003, and terminable immediately for cause by either Mr. Langevin
or us. Mr. Langevin is entitled to compensation of:
- a base salary of $225,000;
- a minimum annual bonus of $125,000, payable in PRO RATA quarterly
increments, provided that certain quarterly Management-by-Objectives
targets are achieved; and
- stock options to purchase a cumulative total of 500,000 shares of common
stock at an exercise price of $6.75 per share, subject to certain
adjustments as provided in the Stock Option Agreements, in increments of:
- 200,000 shares exercisable on or after January 1, 2001;
- 100,000 shares exercisable on or after January 1, 2002;
- 100,000 shares exercisable on or after January 1, 2003; and
- 100,000 shares exercisable on or after January 1, 2004.
The options terminate on December 31, 2009. At Mr. Langevin's request, we
will file a registration statement on Form S-8 registering the issuance of the
shares underlying his options, provided that we meet the requirements of
Form S-8. In the event of a sale of Authoriszor Inc. during the term of the
agreement, all salary payments and bonus payments under the agreement would
become immediately due and payable and all options would become immediately
exercisable. The agreement contains a nondisclosure provision with an unlimited
duration and non-competition and non-interference provisions effective for
twelve months subsequent to termination of the agreement.
On July 22, 1999, we entered into a consultancy agreement with Robert
Jeffcock under which he agreed to perform the roles of our Chairman, President
and Chief Executive Officer. The consultancy was for an initial period of
6 months, after which it was terminable on one month's notice by either party.
The fee payable under this consultancy was $10,000 per month. Mr. Jeffcock
resigned his Chairmanship as of December 1, 1999 and resigned as Chief Executive
Officer and President effective January 1, 2000.
38
<PAGE>
Each of James Jackson, David Wray and David Blanchfield entered into service
agreements with Authoriszor Limited on July 22, 1999, under which they were
appointed as follows:
<TABLE>
<S> <C>
James Jackson................................ Managing Director
David Wray................................... Technical Director
David Blanchfield............................ Research Development Director
</TABLE>
The agreements are all for an initial fixed three year term and terminable
on 12 months' notice after the expiration of the term by either party. They are
each entitled to a salary of approximately $123,750 together with an entitlement
to earn up to a further approximately $41,250 by way of bonus, based on agreed
targets, during the first year after February 18, 2000, the date of completion
of the private placement. In addition, each individual is entitled to receive a
contribution of 7 1/2% of basic salary to his personal pension scheme. The
agreements also contain provisions dealing with the ownership of intellectual
property, and a restrictive covenant for a 12 month period after termination of
employment not to compete with Authoriszor.
Each of Commercial Technology Limited, which is controlled by Ian McNeill,
and CMM Ventures Limited, which was controlled by Barry Jones, entered into
consultancy agreements with Authoriszor Limited on July 22, 1999, under which:
- Commercial Technology Limited would provide the services of Ian McNeill to
manage the financial affairs of Authoriszor Limited; and
- CMM Ventures Limited would provide the services of Barry Jones as Sales
and Marketing Director of Authoriszor Limited.
The fee payable under each such agreement was approximately $4,950 plus
Value Added Tax per month.
The consultancy agreements were each set up for an initial period of
6 months, and after that period are terminable by either party on one month's
notice.
The CMM Ventures Limited consultancy agreement was terminated with effect
from November 30, 1999, at which time Barry Jones entered into a service
agreement with Authoriszor Limited with effect from December 1, 1999, on terms
similar to those set out above, at an annual salary of approximately $123,750
and an initial fixed term to expire on December 1, 2001.
The consultancy fee payable to Commercial Technology Limited was increased
with effect from December 1, 1999 to approximately $10,310 plus Value Added Tax
per month.
On March 15, 2000, the Company entered into an agreement with Ed Vasco,
pursuant to which Mr. Vasco will serve as Director of Technology for the
Company's U.S. operations. Mr. Vasco is entitled to a salary of $115,000 and up
to an additional $15,000 by way of bonus, based on agreed targets. Additionally
Mr. Vasco was granted stock options to purchase 20,000 shares of common stock,
which vest over four years at 25% per year.
On April 1, 2000, the Company entered into a Consulting Agreement with
Frederick Sawin pursuant to which Mr. Sawin serves as Vice President of Sales
for North America. Pursuant to the terms of the consulting agreement, Mr. Sawin
is entitled to receive $1,500 per day for four days per week in addition to 3%
of all North American sales that are revenued during the term of the consulting
agreement or that are booked during the term of the consulting agreement and are
revenued within 30 days after the expiration of the consulting agreement. The
term of the consulting agreement is 26 weeks; however either the Company or
Mr. Sawin may terminate this consulting agreement upon 45 days written notice.
In the event that the Company and Mr. Sawin agree to change the consulting
agreement to an employment agreement during the term of the consulting
agreement, the exercise price for any stock option that may be granted to
39
<PAGE>
Mr. Sawin will be the market price of the Company Common Stock at the close of
business on the business day prior to the commencement date of the consulting
agreement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation, as amended, and Bylaws provide that we
will indemnify our Directors to the full extent permitted by the General
Corporation Law of the State of Delaware and may indemnify our officers and
employees to such extent, except that we will not be obligated to indemnify any
such person with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense, without our prior
written consent, or for any amounts paid in settlement of an action indemnified
against by us without our prior written consent.
In addition, our Certificate of Incorporation, as amended, and Bylaws
provide that our directors will not be personally liable to us or our
stockholders for monetary damages for breach of his or her fiduciary duty as a
Director, except for liability:
- for any breach of the Director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for willful or negligent conduct in paying dividends or repurchasing stock
out of other than lawfully available funds; or
- for any transaction from which the Director derives an improper personal
benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances. Section 145 requires us to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred, including expenses of a derivative action, in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was our Director or
executive officer or a Director or executive officer of any of our affiliated
enterprises, provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to our best interests and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful.
We have entered into an employment agreement with Richard A. Langevin under
which we agreed to indemnify and hold him harmless, at a minimum in accordance
with the provisions contained in our Certificate of Incorporation and Bylaws,
against any losses, claims, damages, liabilities, costs, expenses, including
advancing from time to time his attorney's fees and expenses in advance of the
final disposition of any claim, action, suit, proceeding or investigation,
judgments, fines and amounts paid in settlement in connection with any
threatened or actual claim, action, suit, proceeding or investigation, whether
civil, criminal or administrative, in which the executive is, or is threatened
to be, made a party by reason of having been our Director or officer or serving
or having served at our request as a director, trustee, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action or failure to act in an official
capacity as a director, trustee, officer, employee or agent, provided that we
will have choice of counsel in any such action. Our obligations under such
indemnification provisions will survive the termination of his employment
agreement. Notwithstanding the foregoing, we will not be obligated to indemnify
Mr. Langevin beyond the extent permissible under Section 145 of the Delaware
General Corporation Law and other applicable law, including, without limitation,
applicable securities law.
40
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of our common stock, as of May 16, 2000, by each director, each named
executive officer, all directors and executive officers as a group, and each
person known to us to beneficially own 5% or more of our outstanding common
stock. The address for each listed executive officer and director is 1 Justin
Road, Natick, Massachusetts 01760-5565.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF SHARES
COMMON STOCK OF COMMON STOCK
PERSON OR GROUP BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
--------------- --------------------- ---------------------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
James Jackson(2)........................................ 1,329,298 7.6%
David Wray(2)........................................... 1,307,733 7.5%
Robert Jeffcock(3)...................................... 1,125,812 5.7%
Don Box................................................. 66,500 *
Raymond Seitz(4)........................................ 200,000 1.1%
Sir Malcolm Rifkind(5).................................. 200,000 1.1%
Richard A. Langevin(6).................................. 0 *
Directors and Executive Officers as a Group
(10 persons)(7)....................................... 6,300,252 36.2%
BENEFICIAL OWNERS OF 5% OR MORE OF OUR
OUTSTANDING COMMON STOCK
Roy Williams(8)......................................... 1,959,842 11.3%
David Blanchfield(2).................................... 1,307,733 7.5%
</TABLE>
------------------------
* Less than one percent (1%)
(1) Based upon 17,414,081 shares of common stock outstanding as of May 16, 2000
and calculated in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934. Also includes shares owned by a spouse,
minor children or by relatives sharing the same home, entities owned or
controlled by the named person. Also includes shares if the named person has
the right to acquire such shares within 60 days of May 16, 2000 by the
exercise of any right or option. Unless otherwise noted, shares are owned of
record and beneficially by the named person.
(2) Includes shares of our common stock issued to these individuals pursuant to
the acquisition of ITIS Technologies Ltd., now named Authoriszor Ltd. David
Blanchfield's holdings of our common stock are included in the category
Directors and Executive Officers as a group.
(3) Includes 675,812 shares held by Caithness Limited, a company organized under
the laws of the Isle of Man. Mr. Jeffcock is included in a class of
potential beneficiaries in an Isle of Man trust that owns Caithness Limited.
Mr. Jeffcock disclaims beneficial ownership of the shares owned by Caithness
Limited.
(4) Represents a stock option to acquire 200,000 shares of our common stock at
an exercise price of $3.00 per share which is currently exercisable until
October 30, 2002.
(5) Represents a stock option to acquire 200,000 shares of our common stock at
an exercise price of $1.00 per share which is currently exercisable until
September 30, 2002.
(6) Mr. Langevin has been granted options to acquire 500,000 shares of our
common stock at an exercise price of $6.75 per share, which options expire
December 31, 2009. However, such options vest at January 1, 2001,
January 1, 2002, January 1, 2003 and January 1, 2004 and thus Mr. Langevin
will not have the right to acquire such shares within 60 days of this filing
unless a change of control event
41
<PAGE>
occurs. In the event there is a change of control of Authoriszor Inc., all
of Mr. Langevin's options become immediately exercisable.
(7) Includes the shares of common stock acquirable upon exercise of the stock
options discussed in notes 4 and 5.
(8) Includes 655,334 shares of our common stock held by Zalcany Limited, a
company organized under the laws of the UK of which Roy Williams owns 50% of
the issued share capital and is one of two directors; 290,000 shares of our
common stock held by Mustardseed Estates Ltd., a company organized under the
laws of the UK of which Roy Williams retains 99.9% voting control; and
67,500 shares of our common stock held by the Cardinal Williams Pension
Fund, a UK pension fund of which Roy Williams is one of two trustees and the
sole beneficiary. Includes 484,008 shares held by an Isle of Man trust in
which Roy Williams is included in a class of potential beneficiaries.
Mr. Williams disclaims beneficial ownership of the shares owned by this
trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summarizes certain material agreements between us and our
officers, directors and certain of our existing shareholders. The summary is not
a complete description of such agreements and, therefore, this discussion is
qualified in its entirety by reference to the agreements, copies of which will
be made available for inspection upon written request. It is our intention that
in the future, transactions with our directors, officers, employees or
affiliates will be minimal and will be approved in advance by a majority of the
disinterested members of our Board of Directors.
In January 2000, we made an offer to Robert Jeffcock to discount the
exercise price of options held by him from $1.00 to 66.66 cents provided that
his option be exercised no later than January 31, 2000. The options were
exercised in January 2000.
On October 6, 1999, we repaid a loan of approximately $41,250 from James
Jackson with approximately $16,500 cash consideration and 15,000 shares of
common stock valued at a 20% discount from the current market price. James
Jackson subsequently transferred 7,500 of the shares to an assignee.
On July 22, 1999, we entered into a consultancy agreement with Robert
Jeffcock under which he agreed to perform the roles of our Chairman, President
and Chief Executive Officer. The consultancy was for an initial period of
6 months, after which it was terminable on one month's notice by either party.
The fee payable under this consultancy was $10,000 per month. Mr. Jeffcock
resigned his Chairmanship as of December 1, 1999 and resigned as Chief Executive
Officer and President effective January 1, 2000.
We acquired Authoriszor Ltd. on July 22, 1999. Pursuant to the share sale
agreement:
- Robert Jeffcock and Ian McNeill were elected to the Board of
Authoriszor Ltd.;
- We appointed James Jackson and David Wray to our Board of Directors;
- James Jackson received 1,307,733 shares of our common stock;
- David Blanchfield received 1,307,733 shares of our common stock;
- David Wray received 1,307,733 shares of our common stock;
- Ian McNeill received 688,390 shares of our common stock; and
- Barry Jones received 68,786 shares of our common stock and an option to
purchase 131,214 shares of our common stock at an exercise price of $2.00
per share which vests up to 25% per year annually beginning October 1,
2000.
- Mr. Jeffcock is no longer on the Board of Directors of Authoriszor
Limited.
Authoriszor Ltd. entered into employment contracts with James Jackson, David
Wray and David Blanchfield. See "Management--Employment Agreements."
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<PAGE>
Each of Commercial Technology Limited, which is controlled by Ian McNeill,
and CMM Ventures Limited, which was controlled by Barry Jones, entered into
consultancy agreements with Authoriszor Limited on July 22, 1999, under which:
- Commercial Technology Limited would provide the services of Ian McNeill to
manage the financial affairs of Authoriszor Limited; and
- CMM Ventures Limited would provide the services of Barry Jones as
Marketing Director designate of Authoriszor Limited.
The fee payable under each such agreement was approximately $4,950 plus
Value Added Tax per month.
The consultancy agreements were each set up for an initial period of
6 months, and after that period are terminable by either party on one month's
notice.
The CMM Ventures Limited consultancy agreement was terminated with effect
from November 30, 1999, at which time Barry Jones entered into a service
agreement with Authoriszor Limited with effect from December 1, 1999, on terms
similar to those set out above, at an annual salary of approximately $123,750
and an initial fixed term to expire on December 1, 2001.
The consultancy fee payable to Commercial Technology Limited was increased
with effect from December 1, 1999 to approximately $10,310 plus Value Added Tax
per month.
In July 1999, we issued 300,000 shares of our common stock to Roy Williams
upon the exercise by Minmet Plc of its option to purchase Mineradora de
Bauxita Ltda. as payment of his finder's fee pursuant to his finder's fee
agreement with us. These shares, which are restricted shares under Rule 144 of
the Securities Act, were valued for such purpose at $.20 per share, which was
the current market price of our common stock on the OTC Bulletin Board as of
April 27, 1999, the date we approved the issuance.
On April 27, 1999 we approved the issuance of 250,000 shares of our common
stock to Robert Jeffcock in lieu of paying Mr. Jeffcock his salary. The shares
of our common stock, which are restricted shares under Rule 144 of the
Securities Act, 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.
On April 27, 1999, we approved the issuance of 20,000 shares of our common
stock to Don Box in lieu of paying Mr. Box a $4,000 fee for his service to the
Company as a director. Such shares of our common stock, which are restricted
shares under Rule 144 of the Securities Act, were valued for such purpose at
$.20 per share, the price of our common stock on the OTC Bulletin Board as of
such date.
On April 27, 1999, our Board of Directors agreed to amend the terms of
Robert Jeffcock's stock option agreement to extend the exercise date of his
option to purchase 200,000 shares of our common stock to January 1, 2001. Robert
Jeffcock has exercised his option.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 30,000,000 shares of common stock,
par value $.01 per share, and 2,000,000 shares of preferred stock, par value
$.01 per share. The following summary does not purport to be complete and is
qualified by reference to our certificate of incorporation and bylaws, which are
incorporated by reference as exhibits to the registration statement of which
this prospectus is a part, and by provisions of applicable law.
As of May 16, 2000, 17,414,081 shares of our common stock and no shares of
our preferred stock were outstanding. As of May 16, 2000, there were 388 holders
of record of our Common Stock.
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<PAGE>
COMMON STOCK
DIVIDENDS. Holders of common stock are entitled to receive dividends, if
any, as may be declared by the Board of Directors out of legally available funds
subject to the payment of any preferential dividend to the holders of preferred
stock, if any. To date, we have not paid any cash dividends with respect to the
common stock.
VOTING RIGHTS. Holders of common stock do not have cumulative voting
rights. Holders of common stock are entitled to one vote for each share held,
subject to certain limitations on such voting rights provided by our certificate
of incorporation.
PREEMPTIVE RIGHTS. Holders of common stock have no preemptive rights.
LIQUIDATION. In the event of our liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in the assets available
for distribution after payment or provision for payment of our debts and other
liabilities, subject to the rights of any series of preferred stock, if any,
then outstanding.
PREFERRED STOCK
The authorized preferred stock may be issued from time to time in one or
more designated series or classes. The Board of Directors, without approval of
the stockholders, is authorized to establish the voting, dividend, redemption,
conversion, liquidation and other relative provisions as may be provided in a
particular series or class. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of common stock and, under certain circumstances, make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of the outstanding voting stock of Authoriszor Inc. We have no present
intention to issue any series or class of preferred stock.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date the person became an interested stockholder unless:
(i) before the person became an interested stockholder, the board of directors
of the corporation approved either the transaction in which the interested
stockholder became an interested person or the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time such transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which the person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above also
do not apply to certain business combinations proposed by an interested
stockholder following the public announcement or notification (as required by
Section 203) of a transaction that is one of certain extraordinary transactions
involving the corporation, and is with or by a person who either has not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, and is approved or not opposed by a majority of the board of
directors then in office.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
We agreed to grant registration rights to the holders of 2,727,273 shares of
our common stock placed in the United Kingdom and Europe under Regulation S of
the Securities Act pursuant to a Registration Rights Agreement dated as of
February 16, 2000. The Registration Rights Agreement provides that we were
obligated to prepare and file with the Securities and Exchange Commission as
soon as reasonably practicable, but in any event not later than a date which is
thirty calendar days after the completion of the placement, a registration
statement of which this prospectus forms a part, with respect to the offer and
sale of the shares from the placement by the holders from time to time:
- in brokerage transactions;
- over a stock exchange;
- utilizing the facilities of an inter-dealer quotation system;
- in an underwritten offering; or
- in privately negotiated off-market transactions.
The registration statement, of which this prospectus forms a part, was filed
with the Securities and Exchange Commission on March 20, 2000 in compliance with
the terms of the Registration Rights Agreement.
We have agreed to cause the registration statement to become effective under
the Securities Act not later than that date which is sixty days after the
registration statement is filed; provided that if the placement agent of the
shares in the private placement reasonably determines that we are acting in good
faith to cause the registration statement to be declared effective, such date
will be extended to ninety days after filing of the registration statement. We
also agreed to use our best efforts to keep the registration statement
continuously effective in order to permit this prospectus to be usable by
holders of the private placement shares for a period of two years from the date
this registration statement is declared effective by the SEC.
In the event that:
- for any reason the registration statement is not filed with the SEC or the
registration statement is not declared effective, in each instance, within
the time periods described above; or
- the registration statement ceases to be effective so that the prospectus
which forms a part of such registration statement is not usable by the
holders during the time period described above; or
- any of the securities remain restricted securities as defined in Rule 144
of the Securities Act following the time when the registration statement
is effective,
then if any holder so requests the following will apply:
- We are obligated, as promptly as practicable but in no event not more than
30 days after so requested by any holder, to file with the SEC and cause
to be declared effective under the Securities Act, a registration
statement, which may be at the election of the holder so requesting a
"shelf" registration statement, relating to the offer and sale of the
shares from the placement by the requesting holder from time to time in
accordance with the methods of distribution elected by such holder and set
forth in such registration statement; provided that, if permitted under
the Securities Act and by the SEC, we may file a pre- or post effective
amendment or supplement to the registration statement if such action would
completely fulfill our obligations.
- We are obligated to bear all expenses incurred in connection with any
registration statement and will reimburse the holders whose shares from
the placement are included in any registration statement for the
reasonable fees and disbursements of one firm or counsel, in addition to
one local
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<PAGE>
counsel in each relevant jurisdiction, designated by the holders of a
majority of shares included in such registration statement to act as
counsel for the holders, up to a cost of $20,000.
In the event that we fail to comply with any provision of the Registration
Rights Agreement, we are obligated within thirty days after the date on which we
were required to take any action or, if such date is undeterminable, the date of
the receipt by us of a demand from any holder, to purchase from each holder of
our shares from the placement all securities which could have been included in
any registration statement held by each respective holder for a purchase price
equal to the product of:
- the average market value per share during the period beginning on such
date and ending on the date of payment of the purchase price multiplied by
- the number of securities being purchased from such holder.
We are also obligated to pay all reasonable costs, including all transfer
taxes, stamp duty or SDRT, and fees associated with such purchase by us. Each
holder may, in its sole discretion, waive its right, in whole or in part, to
have us repurchase such securities held by him and retain the ownership of such
securities. For the purpose of calculating the purchase price, market value per
share at any date will be:
- the highest reported sale price on that date with respect to each type of
security in question listed on an international securities exchange or
admitted to unlisted trading privileges on such an exchange or, if
applicable,
- the highest reported sale price on that date with respect to each type of
security in question quoted or traded on the NASD OTC Bulletin Board or
NASDAQ National Market System or the European Association of Securities
Dealers Automated Quotation System or, if applicable, or, if applicable,
- if no such sale is made on such day, the mean of the closing bid and asked
prices for such day on such exchange or reported by NASD OTC Bulletin
Board or NASDAQ National Market System or the European Association of
Securities Dealers Automated Quotation System.
THE STARLIGHT WARRANTS
GENERAL. In a merger transaction involving the acquisition of Toucan Mining
Plc, certain stockholders of our predecessor, Starlight Acquisitions, Inc.
received warrants to purchase our shares of common stock. The Starlight warrants
entitle their holders to purchase from us, on or before the six month
anniversary of the closing of the first registration of an offering of our
securities pursuant to the Securities Act, 100,000 shares of our common stock at
the purchase price of $4.00 per share, subject to adjustment as provided in the
Warrant Agreement.
EXERCISE. Any whole number or all of the Starlight warrants may be
exercised upon any single occasion or from time to time on or before the
expiration date. The exercise price may be paid in cash with a remittance for
the aggregate subscription price of the Starlight warrant shares to be
exercised.
DILUTION. The number, price and kind of securities or other property for
which the Starlight warrants are exercisable are subject to adjustment in
certain events, such as stock dividends and stock splits, in which case the
number of Starlight warrant shares purchaseable upon exercise of the Starlight
warrants immediately prior to such event will be adjusted so that the Starlight
warrant holders shall be entitled to receive the kind and number of Starlight
warrant shares or other securities of ours that they would have owned or would
have been entitled to receive after the occurrence of any of the events
described above, had the Starlight warrants been exercised immediately prior to
the occurrence of such event or any record date with respect to such event.
REGISTRATION RIGHTS. Starlight warrant holders are entitled to certain
"piggyback registration" rights, which, subject to certain limitations and
restrictions, will permit such Starlight warrant holders to include
46
<PAGE>
their Starlight warrant shares in a registration statement of ours if we propose
the registration under the Securities Act of an offering of our equity
securities. The Starlight warrant holders have elected to include the warrant
shares in the registration statement of which this prospectus forms a part under
the same method of distribution as that of the other selling stockholders.
Notwithstanding the foregoing, if the offering of our securities pursuant to a
registration statement was to be made by or through underwriters, we would not
be required to include the Starlight warrant shares in such registration
statement if and to the extent that the underwriter(s) managing the offering
reasonably believes in good faith that such inclusion of the Starlight warrant
shares would materially adversely affect such offering. In the event the
underwriter(s) held such a conviction, the number of shares to be included in
the registration would be reduced as follows: the number of shares of our common
stock held by Starlight warrant holders and by other shareholders pursuant to
other piggyback registration rights shall be reduced pro rata among the
Starlight warrant holders and additional holders in accordance with the number
of shares of our common stock entitled to be registered pursuant to piggyback
registration rights by such Starlight warrant holders and additional holders.
All expenses incurred or sustained by us in connection with or arising out
of each registration pursuant to the Warrant Agreement will be borne and paid
for by us; provided, however, that we will not bear any costs for any counsel or
other professional engaged by the Starlight warrant holders so requesting
registration of the Starlight warrant shares. To the extent that registration
expenses incident to the registration are, under the terms of the Warrant
Agreement, not required to be paid by us, each Starlight warrant holder whose
Starlight warrant shares are included in such registration will pay all such
registration expenses that are attributable solely to the registration of such
Starlight warrant shares so included in such registration. The Starlight warrant
holders will be responsible for commissions and discounts with respect to the
sale of such securities to be registered.
CHANGE IN CONTROL
Our certificate of incorporation and bylaws contain the following provisions
that could delay, defer or prevent a change in control:
- the Board of Directors has broad discretion in evaluating any takeover
attempt and is authorized to use a "poison pill" defense; and
- the Board of Directors is authorized to issue "blank check" preferred
stock which provides the Board of Directors broad discretion to determine
the number of shares, voting rights and preferences of the preferred
stock.
SHARES ELIGIBLE FOR FUTURE SALE
We have agreed to file a registration statement to register the 2,727,273
shares of our common stock issued pursuant to the placement in the United
Kingdom and Europe under Regulation S of the Securities Act and holders of the
Starlight warrants, described in "Description of Capital Stock--The Starlight
Warrants," have elected to include the 100,000 shares underlying their warrants
in such registration statement.
We have an aggregate of 17,514,081 shares of common stock outstanding,
assuming no exercise of outstanding options or warrants except the Starlight
warrants. Of the outstanding shares, all of the shares registered pursuant to
this prospectus will be freely tradable, except that any shares acquired by
"affiliates," as that term is defined in Rule 144 promulgated under the
Securities Act, may only be sold pursuant to a registration statement or in
compliance with the resale limitations of Rule 144 described below.
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are required to be aggregated, including an affiliate, who has
beneficially owned restricted shares for at least one year is
47
<PAGE>
entitled to sell, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock; or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions.
In addition, a person who is not deemed to have been an affiliate at any
time during the 90 days preceding a sale and who has beneficially owned any
restricted shares proposed to be sold for at least two years would be entitled
to sell such shares under Rule 144(k) without regard to the requirements
described above. To the extent that shares were acquired from an affiliate, such
person's holding period for the purpose of effecting a sale under Rule 144
commences on the date of transfer from the affiliate.
Our Directors and officers and those of our subsidiaries hold an aggregate
of 6,300,252 shares of common stock, together with options to purchase 1,031,214
shares of common stock.
As of the date of this prospectus, we have granted options to purchase up to
1,913,410 shares of common stock including options exercisable for 599,714
shares of common stock granted to certain employees, officers, directors and
consultants under the 1999 Stock Plan, of which 35,000 are subject to certain
performance conditions. We intend to file a registration statement to register
the shares of common stock underlying the options granted under the 1999 Stock
Plan.
After the registration of the 2,727,273 shares of common stock from the
placement and the 100,000 shares issuable upon exercise of the Starlight
warrants, assuming these warrants are exercised, there will be 17,514,081 shares
of our common stock issued and outstanding. Of the issued and outstanding shares
after registration, 8,763,155 will be unrestricted shares and 3,102,219 shares
may be sold pursuant to Rule 144. The shares of our common stock held by our
Directors are subject to Lock-Up Agreements between each individual Director and
Beeson Gregory prohibiting the Directors from selling any of their shares for
six months following the closing date of the placement, February 18, 2000.
In connection with our acquisition of Authoriszor Limited, the former
shareholders of Authoriszor Limited have agreed not to dispose of any shares of
common stock for a period of 1 year commencing July 22, 1999. The former
shareholders of Authoriszor Limited have further agreed not to dispose of more
than one-third of each former shareholder's respective shares of common stock
per year in the first through fourth years following July 22, 1999.
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<PAGE>
PLAN OF DISTRIBUTION; SELLING STOCKHOLDERS
This prospectus relates to 2,827,273 shares of our common stock that may be
offered and sold from time to time by our selling stockholders. Set forth below
is information provided by our selling stockholders, as of the date of this
prospectus, regarding the beneficial ownership of shares of our common stock by
each selling stockholder.
<TABLE>
<CAPTION>
COMMON STOCK
NUMBER OF SHARES BENEFICIALLY OWNED
OF COMMON STOCK NUMBER OF AFTER OFFERING(2)
BENEFICIALLY OWNED SHARES OF COMMON ----------------------
SELLING STOCKHOLDERS PRIOR TO OFFERING(1) STOCK OFFERED NUMBER PERCENT
-------------------- -------------------- ---------------- -------- --------
<S> <C> <C> <C> <C>
John Harold Haynes........................ 4,500 4,500 0 *
3i plc.................................... 136,000 136,000 0 *
AAZ Finances.............................. 9,000 9,000 0 *
ABN AMRO Bank NV.......................... 5,000 5,000 0 *
Allied Commercial Exports Ltd............. 3,500 3,500 0 *
Apax Partners & Co........................ 28,000 28,000 0 *
Archdream Limited......................... 2,500 2,500 0 *
Aros Securities AB........................ 2,000 2,000 0 *
Bank of Copenhagen........................ 20,000 20,000 0 *
Beeson Gregory Limited.................... 168,363 32,000 136,363 *
Carr Sheppards Crosthwaite................ 2,300 2,300 0 *
Deutsche Asset Management................. 28,000 28,000 0 *
Duncan Lawrie Ltd......................... 90,000 90,000 0 *
Durlacher Ltd............................. 45,000 45,000 0 *
Eagle & Dominion Asset Mgmt............... 105,000 105,000 0 *
Ellis Partners Ltd........................ 60,000 60,000 0 *
Fiske & Co................................ 46,000 46,000 0 *
Fleming Investment Mgmt Ltd............... 115,000 115,000 0 *
Goodbody Stockbrokers..................... 8,750 8,750 0 *
Hargreaves (Marsden W.) Hale & Co......... 4,500 4,500 0 *
Index IT Partnership...................... 110,000 110,000 0 *
JM Finn & Co.............................. 5,000 5,000 0 *
JO Hambro & Partners Ltd.................. 70,000 70,000 0 *
JO Hambro Investment Mgmt................. 6,500 6,500 0 *
Julius Baer Asset Management.............. 590,000 590,000 0 *
Jupiter Asset Management.................. 340,000 340,000 0 *
Laing & Cruickshank....................... 210,000 210,000 0 *
Marwyn c/oRingwood Investments Ltd........ 14,000 14,000 0 *
Park Place Capital Ltd.................... 70,000 70,000 0 *
Petercam s.a.............................. 50,000 50,000 0 *
PI Capital................................ 7,500 7,500 0 *
Rathbone Laurence Keen Ltd................ 4,000 4,000 0 *
Reabourne Limited......................... 64,000 64,000 0 *
Rothschild Asset Management Ltd........... 102,000 102,000 0 *
Schroder Investment Mgmt Int'l Ltd........ 22,000 22,000 0 *
Smith & Williamson........................ 112,000 112,000 0 *
SocGen Asset Management................... 45,000 45,000 0 *
Societe Generale Asset Management......... 3,000 3,000 0 *
STG Asset Management AG................... 23,500 23,500 0 *
Tarnhelm Securities Ltd................... 900 900 0 *
Taylor Young Investment Mgmt Ltd.......... 31,000 31,000 0 *
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
NUMBER OF SHARES BENEFICIALLY OWNED
OF COMMON STOCK NUMBER OF AFTER OFFERING(2)
BENEFICIALLY OWNED SHARES OF COMMON ----------------------
SELLING STOCKHOLDERS PRIOR TO OFFERING(1) STOCK OFFERED NUMBER PERCENT
-------------------- -------------------- ---------------- -------- --------
<S> <C> <C> <C> <C>
WestLB.................................... 7,500 7,500 0 *
Williams de Broe.......................... 91,000 91,000 0 *
Williams de Broe Inv Mgmt Ltd............. 1,323 1,323 0 *
R. Hadyn Silleck.......................... 37,000 25,000 12,000 *
John B. Marvin............................ 25,000 25,000 0 *
Peter S. Daley............................ 35,000 25,000 10,000 *
Jay Lutsky................................ 97,000 25,000 72,000 *
</TABLE>
------------------------
* Indicates less than 1%.
(1) Unless otherwise indicated, to our knowledge, the persons and entities named
in the table have sole voting and sole investment power with respect to all
shares of our common stock beneficially owned, subject to community property
laws where applicable. Represents those shares of common stock held by the
selling stockholders, if any, together with those shares that such selling
stockholder has the right to acquire upon exercise of warrants or otherwise
within 60 days.
(2) Because the selling stockholders may sell all or a portion of their shares
of common stock pursuant to this prospectus at any time and from time to
time, no estimate can be made of the number of shares of common stocck that
each selling stockholder may retain upon completion of the offering by the
selling stockholders. Therefore, this table assumes that all shares of our
common stock offered by this prospectus by each selling stockholder are
actually sold. Such presentation is based on 17,414,081 shares of our common
stock outstanding as of May 16, 2000.
PLACEMENT SHARES
The shares of our common stock beneficially owned by certain of our selling
stockholders were acquired on February 18, 2000, in a placement of 2,727,273
shares of our common stock at a price of $11.00 per share. The placement was
made pursuant to Regulation S under the Securities Act in the United Kingdom and
Europe. In connection with the placement, we agreed to file the registration
statement of which this prospectus forms a part.
We agreed to grant certain registration rights to the holders of our shares
from the placement under a Registration Rights Agreement dated February 16,
2000, entered into in anticipation of the completion of the placement. The
Registration Rights Agreement provides that we are obligated to prepare and file
with the Securities and Exchange Commission a registration statement of which
this prospectus forms a part, with respect to the offer and sale of the shares
from the placement by the holders from time to time. See "Description of Capital
Stock--Registration Rights Agreement."
WARRANT SHARES
The remaining shares of our common stock beneficially owned by the selling
stockholders were acquired in a merger transaction involving the acquisition of
Toucan Mining Plc. Certain stockholders of our predecessor, Starlight
Acquisitions, Inc., received warrants to purchase our shares of common stock.
The Starlight warrants entitle their holders to purchase from us, on or before
the six month anniversary of the closing of the first registration of an
offering of our securities pursuant to the Securities Act, 100,000 shares of our
common stock at the purchase price of $4.00 per share, subject to adjustment as
provided in the Warrant Agreement.
Starlight warrant holders are entitled to certain "piggyback registration"
rights, which, subject to certain limitations and restrictions, will permit such
Starlight warrant holders to include their Starlight warrant shares in this
registration statement. See "Description of Capital Stock--Starlight Warrants."
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<PAGE>
Except as specifically set forth in this prospectus, none of the selling
stockholders has, or within the past three years has had, any position, office
or other material relationship with us or any of our predecessors or affiliates.
We have been advised by the selling stockholders that they or, subject to
applicable law, their pledgees, donees, distributees, transferees or other
successors in interest, intend to sell all or a portion of the shares of common
stock offered by this prospectus from time to time:
- on the NASDAQ National Market;
- otherwise than on the NASDAQ National Market;
- in negotiated transactions at fixed prices which may be changed;
- at market prices prevailing at the time of sale or at reasonably related
prices or at negotiated prices; or
- by a combination of the foregoing methods of sale, any of which may
involve crosses and block transactions.
The selling stockholders may effect such transactions by selling the shares of
common stock to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of the shares of common stock for
which such broker-dealers may act as agent or to whom they may sell as
principal, or both. We are not aware as of the date of this prospectus of any
agreements between any of the selling stockholders and any broker-dealers with
respect to the sale of the shares of common stock offered by this prospectus. In
connection with distributions of the shares of common stock or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares of common stock registered under this prospectus in the course of
hedging the positions they assume with selling stockholders. The selling
stockholders may also sell shares of our common stock short and deliver the
shares of common stock to close out such short positions. The selling
stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the shares of
common stock registered under this prospectus, which the broker-dealer may
resell pursuant to this prospectus. The selling stockholders may also pledge the
shares of common stock registered hereunder to a broker or dealer and upon a
default, the broker or dealer may effect sales of the pledged shares of common
stock pursuant to this prospectus.
The selling stockholders and any broker, dealer or other agent executing
sell orders on behalf of the selling stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event
commissions received by any such broker, dealer or agent and profit on any
resale of the shares of principal may be deemed to be underwriting commissions
under the Securities Act. Such commissions received by a broker, dealer or agent
may be in excess of customary compensation. The shares of common stock may also
be sold in accordance with Section 4(1) of the Securities Act or Rule 144 and
Rule 145 under the Securities Act.
Information as to whether underwriters who may be selected by the selling
stockholders, or any other broker-dealer, is acting as principal or agent for
the selling stockholders, the compensation to be received by underwriters who
may be selected by the selling stockholders, or any broker-dealer, acting as
principal or agent for the selling stockholders and the compensation to be
received by other broker-dealers, will, to the extent required by law be set
forth in a supplement to this prospectus. Any dealer or broker participating in
any distribution of the shares of our common stock may be required to deliver a
copy of this prospectus, including the prospectus supplement, if any, to any
person who purchases any of the shares of our common stock from or through such
dealer or broker.
All expenses of registration incurred in connection with the offering will
be borne by us. All selling and other expenses incurred by the selling
stockholders will be borne by the selling stockholders.
51
<PAGE>
The selling stockholders will be subject to applicable provisions of the
Securities Exchange Act and its rules and regulations, including without
limitation, Rule 102 under Regulation M, which provisions may limit the timing
of purchases and sales of any of the common stock by the selling stockholders.
Rule 102 under Regulation M provides, with certain exceptions, that it is
unlawful for a selling stockholder or its affiliated purchaser to, directly or
indirectly, bid for or purchase or attempt to induce any person to bid for or
purchase, for an account in which the selling stockholder or affiliated
purchaser has a beneficial interest in any securities that are the subject of
the distribution during the applicable restricted period under Regulation M. All
of the foregoing may affect the marketability of the common stock. We will
require each selling stockholder, and his or her broker if applicable, to
provide a letter that acknowledges his compliance with Regulation M under the
Securities Exchange Act before authorizing the transfer of such selling
stockholder's shares of common stock.
The selling stockholders may offer all of the shares of common stock for
sale. Further, because it is possible that a significant number of shares could
be sold at the same time under this prospectus, such sales, or the possibility
thereof, may have a depressive effect on the market price of our common stock.
The Company has agreed to indemnify the Selling Stockholders against certain
liabilities in connection with the Registration Statement, of which this
prospectus is a part, including certain liabilities under the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission with respect to the common stock offered in this offering.
For further information about us and this offering, you should refer to our
registration statement and its exhibits. Since the prospectus may not contain
all of the information that you may find important, you should review the full
text of the documents included or incorporated by reference in the registration
statement.
We file reports and other information with the Securities and Exchange
Commission. Our Securities and Exchange Commission filings are also available
over the Internet at the Securities and Exchange Commission's website at
http://www.sec.gov. You may also read and copy any document we file at the
Securities and Exchange Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for more information on the public reference room and their
copy charges.
You may request a copy of any filings referenced above, excluding exhibits,
at no cost, by contacting Richard A. Langevin, our Chief Executive Officer, at
the following address:
Authoriszor Inc.
1 Justin Road
Natick, Massachusetts 01760-5565
(508) 650-3916
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Jenkens & Gilchrist, a Professional Corporation, Dallas, Texas.
52
<PAGE>
EXPERTS
The consolidated financial statements of Authoriszor Inc. as of June 30,
1999 and 1998 and for the years then ended and for the period January 15 (date
of inception) to June 30, 1997 and 1999 have been audited by Grant Thornton.
The consolidated statements of Toucan Gold Corporation as of December 31,
1998 and 1997 and for the three years in the period December 31, 1998 have been
audited by Grant Thornton LLP.
The financial statements of WRDC Limited as of July 31, 1999 and for the
year ended have been audited by Brown Butler & Co.
The financial statements of WRDC Limited as of July 31, 1998 and 1997 and
for the years then ended have been audited by Marcus Phillips.
Each have been included in this prospectus and in the registration statement
in reliance on the authority of those firms as experts in accounting and
auditing.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AUTHORISZOR INC.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Stockholders' Equity
(Deficit)............................................... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
FINANCIAL STATEMENTS OF WRDC LIMITED
WRDC LIMITED JULY 31, 1999
Director's Report......................................... F-14
Auditor's Report.......................................... F-17
Profit and Loss Account................................... F-18
Balance Sheet............................................. F-19
Cash Flow Statement....................................... F-20
Notes to the Financial Statements......................... F-21
WRDC LIMITED JULY 31, 1998
Director's Report......................................... F-31
Auditor's Report.......................................... F-33
Profit and Loss Account................................... F-34
Balance Sheet............................................. F-35
Statement of total recognised gains and losses............ F-36
Notes to the Financial Statements......................... F-37
WRDC LIMITED JULY 31, 1997
Director's Report......................................... F-47
Auditor's Report.......................................... F-49
Profit and Loss Account................................... F-50
Balance Sheet............................................. F-51
Statement of total recognised gains and losses............ F-52
Notes to the Financial Statements......................... F-53
PRO FORMA CONDENSED FINANCIAL STATEMENTS
Note to Condensed Financial Statements.................... F-61
Pro Forma Condensed Statements of Operations.............. F-62
CONSOLIDATED FINANCIAL STATEMENTS OF TOUCAN GOLD CORPORATION
Report of Independent Certified Public Accountants........ F-63
Consolidated Balance Sheets............................... F-64
Consolidated Statements of Operations..................... F-65
Consolidated Statement of Stockholders' Equity............ F-66
Consolidated Statements of Cash Flows..................... F-67
Notes to Consolidated Financial Statements................ F-68
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Authoriszor Inc.
We have audited the accompanying consolidated balance sheets of Authoriszor
Inc. (a development stage enterprise) as of June 30, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended and for the periods January 15, 1997
(date of inception) to June 30, 1997 and 1999. 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 generally accepted auditing
standards 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. as of June 30, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended and for the periods
January 15, 1997 (date of inception) to June 30, 1997 and 1999, in conformity
with generally accepted accounting principles in the United States of America.
GRANT THORNTON
Leeds, England
November 10, 1999
F-2
<PAGE>
AUTHORISZOR INC
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, 1998 JUNE 30, 1999 2000
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash................................................... $ 617 $ 698 $27,792,157
VAT recoverable and other assets....................... 432 2,498 71,184
-------- -------- -----------
Total current assets................................. 1,049 3,196 27,863,341
Note receivable (WRDC) (Note C)........................ -- -- 356,100
Investment in securities, available-for-sale
(Note D)............................................. -- -- 3,620,605
Computer and office equipment, net of accumulated
depreciation......................................... 4,175 21,594 273,726
Investment in WRDC at cost, adjusted for equity in
earnings or losses (Note C).......................... -- -- 600,190
Intangible assets...................................... -- -- 41,706
-------- -------- -----------
4,175 21,594 4,892,327
-------- -------- -----------
$ 5,224 $ 24,790 $32,755,668
======== ======== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY
Accounts payable to related parties.................... $ 21,979 $ 76,144 $ 8,017
Accounts payable and other liabilities................. 12,751 24,526 596,452
-------- -------- -----------
Total current liabilities............................ 34,730 100,670 604,469
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value $.01 per share;
authorized: 2,000,000 shares; issued and
outstanding: none.................................. -- -- --
Common stock, $.01 par value per share; authorized:
30,000,000 shares; issued and outstanding: 60
shares at June 30, 1998 and 1999 and 17,414,081
shares at March 31, 2000........................... 9 9 174,141
Additional paid-in capital........................... -- -- 34,058,343
Accumulated other comprehensive income (loss)........ (411) 2,846 2,606,314
Accumulated deficit during the development stage..... (29,104) (78,735) (4,687,599)
-------- -------- -----------
(29,506) (75,880) 32,151,199
-------- -------- -----------
$ 5,224 $ 24,790 $32,755,668
======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 15, 1997 JANUARY 15,
(DATE OF FOR THE YEARS 1997 (DATE FOR THE NINE MONTHS ENDED
INCEPTION) ENDED JUNE 30, OF INCEPTION) MARCH 31,
TO JUNE 30, ------------------------- TO JUNE 30, -------------------------
1997 1998 1999 1999 1999 2000
----------------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 3,290 $ -- $ 33,711 $ 37,001 $ 32,682 $ 121,186
Cost of sales...................... -- -- 10,559 10,559 8,962 1,277
----------- ----------- ----------- --------- ----------- -----------
Gross profit....................... 3,290 -- 23,152 26,442 23,720 119,909
Operating expenses
Professional fees................ -- -- 5,071 5,071 5,071 1,131,615
Marketing and advertising........ -- -- -- -- -- 492,408
Administrative................... 8,573 23,821 67,712 100,106 46,153 3,178,013
----------- ----------- ----------- --------- ----------- -----------
Total operating costs and
expenses..................... 8,573 23,821 72,783 105,177 51,224 4,802,036
Operating loss..................... (5,283) (23,821) (49,631) (78,735) (27,504) (4,682,127)
Other income (expense)
Interest income.................. -- -- -- -- -- 163,590
Writedown of subsidiary held-for-
sale........................... -- -- -- -- -- (291,448)
Gain on sale of investments...... -- -- -- -- -- 199,279
Equity in earnings of WRDC....... -- -- -- -- -- 1,842
----------- ----------- ----------- --------- ----------- -----------
Total other income............. -- -- -- -- -- 73,263
----------- ----------- ----------- --------- ----------- -----------
Net loss........................... $ (5,283) $ (23,821) $ (49,631) $ (78,735) $ (27,504) $(4,608,864)
=========== =========== =========== ========= =========== ===========
Weighted average shares
outstanding...................... 13,765,808 13,765,808 13,765,808 13,765,808 14,462,226
=========== =========== =========== =========== ===========
Net loss per common share
Basic and diluted................ $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.32)
=========== =========== =========== =========== ===========
<CAPTION>
JANUARY 15,
1997
(DATE OF
INCEPTION)
TO MARCH 31,
2000
------------
<S> <C>
Net sales.......................... $ 158,187
Cost of sales...................... 11,836
-----------
Gross profit....................... 146,351
Operating expenses
Professional fees................ 1,136,686
Marketing and advertising........ 492,408
Administrative................... 3,278,119
-----------
Total operating costs and
expenses..................... 4,907,213
Operating loss..................... (4,760,862)
Other income (expense)
Interest income.................. 163,590
Writedown of subsidiary held-for-
sale........................... (291,448)
Gain on sale of investments...... 199,279
Equity in earnings of WRDC....... 1,842
-----------
Total other income............. 73,263
-----------
Net loss........................... $(4,687,599)
===========
Weighted average shares
outstanding......................
Net loss per common share
Basic and diluted................
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPRE- COMPRE-
--------------------- PAID-IN ACCUMULATED HENSIVE HENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME TOTAL INCOME
---------- -------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
January 15, 1997 (date of
inception).................. -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock
($0.06 per share)........... 20 3 -- -- -- 3 --
Comprehensive income (loss):
Foreign currency translation
adjustment................ -- -- -- -- (62) (62) (62)
Net loss during the
period.................... -- -- -- (5,283) -- (5,283) (5,283)
-----------
Total comprehensive loss...... -- -- -- -- -- -- (5,345)
---------- -------- ----------- ----------- ---------- ----------- ===========
Balance at June 30, 1997...... 20 3 -- (5,283) (62) (5,342)
Issuance of common stock
($0.15 per share)........... 40 6 -- -- -- 6
Comprehensive income (loss):
Foreign currency translation
adjustment................ -- -- -- -- (349) (349) (349)
Net loss during the year.... -- -- -- (23,821) -- (23,821) (23,821)
-----------
Total comprehensive loss...... -- -- -- -- -- -- (24,170)
---------- -------- ----------- ----------- ---------- ----------- ===========
Balance at June 30, 1998...... 60 9 -- (29,104) (411) (29,506)
Comprehensive income (loss):
Foreign currency translation
adjustment................ -- -- -- -- 3,257 3,257 3,257
Net loss during the year.... -- -- -- (49,631) -- (49,631) (49,631)
-----------
Total comprehensive loss...... -- -- -- -- -- -- (46,374)
---------- -------- ----------- ----------- ---------- ----------- ===========
Balance at June 30, 1999...... 60 9 -- (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
Net proceeds from issuance of
stock through private
placement................... 2,727,273 27,273 27,866,632 -- -- 27,893,905
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 issuance of stock
options..................... -- -- 1,694,000 -- -- 1,694,000
Issuance of stock options with
exercise price less than
fair value.................. -- -- 122,000 -- -- 122,000
Comprehensive income (loss):
Foreign currency translation
adjustment................ -- -- -- -- (64,437) (64,437) (64,437)
Unrealised gain on
available-for-sale
securities................ -- -- -- -- 2,667,905 2,667,905 2,667,905
Net loss during the
period.................... -- -- -- (4,608,864) -- (4,608,864) (4,608,864)
-----------
Total comprehensive loss...... -- -- -- -- -- -- (2,005,396)
---------- -------- ----------- ----------- ---------- ----------- ===========
Balance at March 31, 2000..... 17,414,081 $174,141 $34,058,343 $(4,687,599) $2,606,314 $32,151,199
========== ======== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 15, JANUARY 15, JANUARY 15,
1997 (DATE OF YEARS ENDED 1997 (DATE OF NINE MONTHS 1997 (DATE OF
INCEPTION) TO JUNE 30, INCEPTION) TO ENDED MARCH 31, INCEPTION) TO
JUNE 30, ------------------- JUNE 30, ----------------------- MARCH 31,
1997 1998 1999 1999 1999 2000 2000
------------- -------- -------- ------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows (used in) provided by
operating activities
Net loss during the period...... $(5,283) $(23,821) $(49,631) $(78,735) $(27,504) $ (4,608,864) $ (4,687,599)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Issuance of stock in exchange
for services................ -- -- -- -- -- 613,949 613,949
Non-cash compensation
expense..................... -- -- -- -- -- 1,816,000 1,816,000
Writedown of subsidiary
held-for-sale............... -- -- -- -- -- 291,448 291,448
Equity earnings in WRDC....... -- -- -- -- -- 1,842 1,842
Gain on sale of investments... -- -- -- -- -- (199,279) (199,279)
Depreciation and
amortization................ 15 245 10,135 10,395 926 43,197 53,592
Receivables and other
assets...................... (3,866) 3,450 (2,172) (2,588) (93) (69,353) (71,941)
Accounts payable and accrued
liabilities................. 10,690 23,554 70,176 104,420 32,551 506,395 610,815
------- -------- -------- -------- -------- ------------ ------------
Total adjustments........... 6,839 27,249 78,139 112,227 33,384 3,004,199 3,116,426
------- -------- -------- -------- -------- ------------ ------------
Net cash (used in) provided by
operating activities............ 1,556 3,428 28,508 33,492 5,880 (1,604,665) (1,571,173)
Cash flows (used in) provided by
investing activities
Proceeds from sale of
subsidiary.................... -- -- -- -- -- 809,750 809,750
Acquisition of equipment........ (625) (3,751) (28,399) (32,775) (2,216) (292,815) (325,590)
Sale of investments in
securities.................... -- -- -- -- -- 1,360,579 1,360,579
Investment in WRDC.............. -- -- -- -- -- (606,617) (606,617)
Advances to WRDC................ -- -- -- -- -- (356,997) (356,997)
Purchase of intangible assets... -- -- -- -- -- (42,126) (42,126)
------- -------- -------- -------- -------- ------------ ------------
Net cash flows (used in ) provided
by investing activities......... (625) (3,751) (28,399) (32,775) (2,216) 871,774 838,999
Cash flows provided by financing
activities
Proceeds from issuance of
stock......................... 3 6 -- 9 -- 28,567,705 28,567,714
Recapitalization................ -- -- -- -- -- 711 711
------- -------- -------- -------- -------- ------------ ------------
Net cash flows provided by
financing activities............ 3 6 -- 9 -- 28,568,416 28,568,425
Effect of exchange rate changes on
cash............................ 10 (10) (28) (28) 730 (44,066) (44,094)
------- -------- -------- -------- -------- ------------ ------------
Net (decrease) increase in cash... 944 (327) 81 698 4,394 27,791,459 27,792,157
Cash at beginning of period....... -- 944 617 -- 617 698 --
------- -------- -------- -------- -------- ------------ ------------
Cash at end of period............. 944 617 698 698 5,011 27,792,157 27,792,157
======= ======== ======== ======== ======== ============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest...................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Taxes......................... -- -- -- -- -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Insofar as the notes refer to the nine months ended March 31, 2000 and 1999,
they are not audited. In the opinion of management, all adjustments necessary
for a fair presentation of the unaudited consolidated financial position as of
March 31, 2000 and the unaudited consolidated results of operations and cash
flows for the nine months ended March 31, 2000 and 1999 have been made. All such
adjustments, in the opinion of management, are of a normal recurring nature. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full fiscal year.
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 (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 Authoriszor Limited. Toucan exchanged 4,680,375 shares of
common stock for all of Authoriszor Limited'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
Authoriszor Limited. The accompanying financial statements are those of
Authoriszor Limited. Also, Toucan changed its name to Authoriszor Inc. and its
fiscal year end to June 30, that of Authoriszor Limited. Immediately after the
Exchange, Authoriszor Limited's former shareholders owned approximately 34% of
the outstanding common stock of Toucan.
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 Standards 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
F-7
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 life is as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Computer and office equipment............................... 3-10
</TABLE>
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 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.
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.
NET LOSS PER SHARE
For all periods presented other than March 31, 2000, the Company's net 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 period
F-8
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ended March 31, 2000, loss per common share is based on the weighted average
number of common shares outstanding during the period. Stock options excluded
from the calculation of loss per share because their effect is anti-dilutive
amounted to 1,913,410 for the nine months ended March 31, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consists of cash and cash equivalents,
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 March 31, 2000, the Company held 5,000,000 shares of stock and warrants
to subscribe for a further 7.7 million 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 report in equity. The cost,
unrealized gains and fair values of the Company's available-for-sale securities
held at March 31, 2000 is summarized as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED FAIR
COST GAINS VALUE
-------- ---------------- --------------
<S> <C> <C> <C>
5,000,000 Minmet Shares............... $567,700 $1,251,851 $1,819,551
7,700,000 Warrant Shares.............. 385,000 1,416,054 1,801,054
-------- ---------- ----------
$952,700 $2,667,905 $3,620,605
======== ========== ==========
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2 "Software Revenue Recognition" (SOP 97-2) issued by
the American Institution of Certified Public Accountants ("ACIPA"). Fees for
services and maintenance are generally charged to customers separately from the
license of software. Revenues from license fees are recognized upon product
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 for which revenue is recognized when the services are performed.
Maintenance revenue consists of ongoing support and maintenance and product
updates for which revenue is deferred and recognized over the term of the
contract.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is the British pound sterling. The
financial statements are presented in U.S. dollars using the principles set out
in Statement of Financial Accounting Standards No. 52 Foreign Currency
Translation (SFAS No. 52). 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
F-9
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE C--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of exchange rates in effect during the period. The effects of exchange rate
fluctuations on translating foreign currency assets and liabilities into U.S.
dollars are included as part of the accumulated other comprehensive income
(loss) 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 being the United
Kingdom and the United States. At present, the Company's main operations are
conducted through Authoriszor Limited in the United Kingdom.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
No. 133). This statement establishes 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 has not yet made a determination of the impact on its
financial position or results of operations. SFAS No. 133 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 25.1% interest in WRDC Limited,
a private UK company, (WRDC) for a purchase price of $604,800 (L378,000). The
Company has accounted for its 25.1% interest in WRDC under the equity method.
The purchase price of WRDC exceeded the Company's proportionate share of the net
assets acquired by $584,500 (L366,236), which was recorded as goodwill and 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 (L100,000) and made a further
advance in February 2000 of $195,200 (L122,000). The total advances have been
converted into a note repayable to the Company over a five year period bearing
interest at 6% with quarterly principal and interest payments of L18,500,
beginning on the second anniversary date of the first drawdown. The Company has
the option to purchase the remaining 74.9% 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--INVESTMENT IN SECURITIES HELD-FOR-SALE
The Company had previously announced a spin-off to its stockholders of
Toucan Mining plc formerly known 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 and Exchange Act of 1934, as amended (the Exchange Act). In
light of the Company's desire
F-10
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE E--INVESTMENT IN SECURITIES HELD-FOR-SALE (CONTINUED)
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.
On January 28, 2000, the Company completed the sale (the sale) of all of the
share capital of Toucan Mining for an aggregate consideration of $809,750
(L500,000) 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).
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 for a further 7.7 million ordinary shares
of Minmet at an exercise price of $.13 (L.08) (the Warrant Shares). The Company
is not contractually restricted from selling the Warrant Shares.
Independent of the Minmet Shares and the Warrant Shares, the Company already
held an additional 3,000,000 shares in Minmet. The 3,000,000 shares carry the
same restrictions as the Minmet Shares. The Company has classified these equity
securities as available-for-sale. The closing market price of the Minmet shares
at March 31, 2000 was L.23 per share ($.36 at the then exchange rate).
As a result of the sale of Toucan Mining in January 2000, the Company wrote
its investment down at December 31, 1999 to net realizable value which resulted
in a loss of $291,448.
NOTE F--ACCOUNTS PAYABLE TO RELATED PARTIES
<TABLE>
<CAPTION>
JUNE 30,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
James Jackson (Director of the Company)......... $21,979 $72,566 $ 8,017
David Wray (Director of the Company)............ -- 1,789 --
David Blanchfield (Director of Authoriszor
Limited)...................................... -- 1,789 --
------- ------- -------
$21,979 $76,144 $ 8,017
======= ======= =======
</TABLE>
NOTE G--LEASE COMMITMENTS
The Company leases office space under operating lease agreements which
expire through 2008. Rent expense totalled approximately $14,000 for the nine
months ended March 31, 2000. In May 2000 the Company entered into additional
lease commitments for office space and equipment.
F-11
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE G--LEASE COMMITMENTS (CONTINUED)
The future minimum rental commitments as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
MARCH 31,
-------------
<S> <C>
2001........................................................ $ 525,185
2002........................................................ 516,485
2003........................................................ 514,309
2004........................................................ 403,700
2005........................................................ 403,700
Thereafter.................................................. 110,801
----------
$2,474,180
==========
</TABLE>
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.
NOTE H--COMMON STOCK TRANSACTIONS
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. The gross proceeds of the
placement were $30,000,003.
During the months of December 1999 and January 2000, the Company was seeking
to raise short term capital. In December, the Company offered an incentive to
parties holding 436,000 warrants to exercise their warrants by reducing the
exercise price from $1.50 to $1.00. Each of the 436,000 warrants was exercised
during December 1999. In January, the Company offered a similar 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. Each of the
350,000 options had an exercise price of $1.00 per share. The Company reduced
the exercise price to $0.66 per share and recorded a compensation expense of
$1,694,000. Each of the 350,000 options was exercised in January.
In October 1999, the Company repaid a $41,415 (L25,000) loan from an
employee/director with $16,566 (L10,000) cash consideration and 15,000 shares of
common stock at a 20% discount from the market price at the date of the
transaction. A compensation cost of $6,600 was recorded and is included in
administrative expenses.
In August 1999, the Company entered an agreement with consultants wherein
the consultants were to be issued 120,000 shares of common stock for services.
At March 31, 2000, the 120,000 shares had been earned through services rendered.
Expense equivalent to the trading value of the shares of common stock at the
point in time when the shares were earned has been recorded at $589,100 and is
included in professional fees.
F-12
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE I--STOCK OPTIONS AND WARRANTS
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 parent or 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 March 31, 2000 individuals have
been granted options to acquire 599,714 shares of common stock that vest
periodically through July 2005. The options have been granted at prices ranging
from $2.00 to $20.00.
The Company has entered into stock option agreements outside of the Plan. As
of March 31, 2000 options to acquire 1,116,363 shares of common stock have been
granted. Options to acquire 616,363 shares of common stock vested at date of
grant. These options were granted at prices ranging from $1.00 to $11.00 per
share. Options to acquire 500,000 shares of common stock vest periodically
through January 2004 and were granted at an exercise price of $6.75 per share.
An expense of approximately $122,000 has been recognized in the nine months
ended March 31, 2000 for 556,000 options granted at exercise prices below the
market share price at the date of grant. All other options were granted at
exercise prices equivalent to the market price at the date of grant.
There are also warrants outstanding as a result of the recapitalization
transaction discussed in Note B. At that date, Toucan Gold had 350,000 employee
options outstanding to purchase common stock at $1.00 per share and 533,333
warrants, issued in connection with sales of common stock, to purchase common
stock at $1.50 per share. All of the options and 436,000 warrants have been
exercised. At March 31, 2000, 97,333 warrants remained outstanding.
There are also warrants outstanding as a result of a recapitalization
transaction involving Toucan Gold's predecessor. These warrants were issued on
May 10, 1996 to purchase 100,000 shares of 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 on
the six month anniversary of the first registration of securities by the
Company.
NOTE J--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.
F-13
<PAGE>
AUTHORISZOR INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 2000 AND THE NINE-MONTH PERIODS ENDED
MARCH 31, 1999 AND 2000 IS UNAUDITED)
NOTE J--INCOME TAXES (CONTINUED)
At June 30, 1999, due to the Company's cumulative losses since inception, a
loss carryforward of approximately $78,000 may be utilized in the future for an
indefinite period.
A net deferred tax asset resulting from the loss carryforward has been
offset by a valuation allowance of an equal amount at June 30, 1999 due to the
uncertainty of realizing the net deferred tax asset through future operations.
The net deferred tax asset and valuation allowance was approximately $25,000.
Gross deferred tax liabilities were immaterial.
F-14
<PAGE>
W R D C LIMITED
DIRECTORS' REPORT
--------------------------------------------------------------------------------
The directors present their annual report and the audited financial statements
for the year ended 31 July 1999.
1. PRINCIPAL ACTIVITY
The principal activity of the company continues to be that of software
consultancy.
2. DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of
the company and of the profit or loss of the company for that period.
In preparing those financial statements, the directors are required to:-
-- Select suitable accounting policies and apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue to operate.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy, at any time, the financial position of
the company, and enable them to ensure that the financial statements comply
with the Companies Act 1985. They are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
3. DIRECTORS AND THEIR INTERESTS
The directors who held office during the year and their interests in the
shares of the company are as set out below:
<TABLE>
<CAPTION>
25P ORDINARY SHARES
31 JULY 1999 1 AUGUST 1998
<S> <C> <C>
G J Hanson 10,625 2,450
B G Edmondson 10,625 2,450
M Bray -- --
<CAPTION>
25P NON-VOTING ORDINARY SHARES
31 JULY 1999 1 AUGUST 1998
G J Hanson -- --
<S> <C> <C>
B G Edmondson -- --
M Bray -- --
</TABLE>
F-15
<PAGE>
W R D C LIMITED
DIRECTORS' REPORT
--------------------------------------------------------------------------------
4. YEAR 2000
The directors are pleased to report that the company did not experience any
year 2000 problems.
5. AUDITORS
A resolution to re-appoint Brown Butler & Co will be proposed at the
forthcoming Annual General Meeting.
The directors have taken advantage, in the preparation of their report, of the
special provisions of Part VII of the Companies Act 1985 relating to small
companies.
By order of the Board
B G Edmondson 16 December 1999
Secretary
F-16
<PAGE>
W R D C LIMITED
AUDITOR'S REPORT TO THE SHAREHOLDERS OF W R D C LIMITED
--------------------------------------------------------------------------------
We have audited the financial statements on pages F-18 to F-30 which have been
prepared under the historical cost convention and the accounting policies set
out on page F-21.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the directors' report the company's directors are responsible
for the preparation of the financial statements. It is our responsibility to
form an independent opinion, based on our audit, on those statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 July 1999 and of its profit for the year then
ended and have been properly prepared in accordance with the Companies Act 1985.
<TABLE>
<S> <C>
Yorkshire Bank Chambers Brown Butler & Co
Infirmary Street Chartered Accountants
Leeds and Registered Auditor
LS1 2JT
</TABLE>
16 December 1999, except for the information presented in notes 18 and 19 for
which the date is 14 March 2000.
F-17
<PAGE>
W R D C LIMITED
PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 JULY 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C>
Note
Turnover 1,130,408 797,075
Cost of sales 627,604 465,754
--------- -------
Gross profit 502,804 331,321
Distribution costs 88,802 66,434
Administrative expenses 297,826 155,028
--------- -------
Operating profit 116,176 109,859
Interest receivable 220 355
--------- -------
116,396 110,214
Interest payable and similar charges 18,592 23,305
--------- -------
Profit on ordinary activities before taxation 3 97,804 86,909
Tax on profit on ordinary activities 4 25,186 22,147
--------- -------
Profit on ordinary activities after taxation 72,618 64,762
Dividends on equity shares 5 60,500 61,000
--------- -------
Retained profit transferred to reserves 13 12,118 3,762
========= =======
</TABLE>
The company had no recognised gains or losses other than the profit for the
year, and the above results derive from continuing operations.
The notes on pages F-21 to F-30 form part of these financial statements.
F-18
<PAGE>
W R D C LIMITED
BALANCE SHEET
31 JULY 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C> <C>
Note
Fixed Assets
Tangible assets 6 94,418 134,696
Current Assets
Work in progress 37,430 3,584
Debtors 7 246,498 233,649
Cash at bank and in hand 72,549 42,588
------- -------
356,477 279,821
------- -------
Creditors: amounts falling due within one
year 8 234,155 235,628
------- -------
Net current assets 122,322 44,193
------- -------
Total assets less current liabilities 216,740 178,889
Creditors: amounts falling due after more
than one year 9 169,335 143,438
Provisions for liabilities and charges 11 -- 164
------- -------
169,335 143,602
------- -------
47,405 35,287
======= =======
Capital and reserves
Called up equity share capital 12 21,250 4,900
Profit and loss account 13 26,155 30,387
------- -------
Shareholders' funds 14 47,405 35,287
======= =======
</TABLE>
The directors have taken advantage, in the preparation of the financial
statements, of the special provisions of Part VII of the Companies Act 1985
relating to small companies.
These financial statements were approved by the board on 16 December 1999.
<TABLE>
<S> <C>
G J Hanson )
) Directors
B G Edmondson )
</TABLE>
The notes on pages F-21 to F-30 form part of these financial statements.
F-19
<PAGE>
W R D C LIMITED
CASH FLOW STATEMENT
YEAR ENDED 31 JULY 1999
<TABLE>
<CAPTION>
NOTE 1999 1998
<S> <C> <C> <C> <C> <C>
Net cash inflow from operating activities 18a 91,784 106,274
Returns on investments and servicing of finance
Interest received 220 355
Interest paid (18,592) (17,719)
Interest element of finance lease rentals -- (5,586)
------- -------
Net cash outflow from returns on investments and
servicing of finance (18,372) (22,950)
Taxation
Corporation tax (including ACT) (12,845) (14,367)
Capital expenditure and financial investment
Payments to acquire tangible assets (12,838) (12,079)
Receipts from sales of tangible assets 16,903 42,000
------- -------
Net cash inflow from capital expenditure and
financial investment 4,065 29,921
Equity dividends paid (60,500) (61,000)
Financing
New bank loan 108,000 100,000
Repayment of bank loan (36,932) (14,441)
Capital element of hire purchase contracts (43,859) (77,219)
Capital element of finance lease contracts (1,380) (1,236)
------- -------
Net cash inflow from financing 25,829 7,104
------- -------
Increase in cash l8b 29,961 44,982
======= =======
</TABLE>
The notes on pages F-21 to F-30 form part of these financial statements.
F-20
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 31 JULY 1999
1 ACCOUNTING POLICIES
(a) Accounting convention
The financial statements are prepared under the historical cost convention
and in accordance with applicable accounting standards.
(b) Turnover
Turnover represents amounts receivable for goods and services net of VAT.
(c) Depreciation
Depreciation of tangible fixed assets is provided on cost over their
estimated useful lives. The annual rates and methods of depreciation are as
follows:-
<TABLE>
<S> <C>
Improvements to short leasehold property 25% straight line basis
Office equipment 25% straight line basis
Motor vehicles 25% straight line basis
</TABLE>
(d) Leases and hire purchase contracts
Fixed assets acquired under hire purchase contracts are included in the
balance sheet at cost and an appropriate provision is made for depreciation.
The outstanding liabilities under such agreements less interest not yet due
are included in creditors.
(e) Work in progress
Work in progress is stated at the lower of cost and net realisable value.
(f) Pensions
The company has a defined contribution pension scheme. The pension costs
charged to the profit and loss account are the premiums payable in respect of
the accounting period.
(g) Deferred tax
Deferred tax is the tax attributable to timing differences between profits
or losses as computed for tax purposes and results as stated in the financial
statements.
Deferred tax is provided to the extent that it is probable that a liability
will crystallise in the foreseeable future.
(h) Cash flow statement
The company qualifies as a small company under the Companies Act 1985. The
directors have elected to take advantage of the exemption under FRS1 not to
prepare a cash flow statement.
F-21
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
2 STAFF COSTS
Employee costs, including directors, during the year:-
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Wages and salaries 54,347 283,886
Social security costs 61,177 27,421
Other pension costs 13,020 6,081
------- -------
628,544 317,388
Directors' emoluments:-
Remuneration 142,985 124,030
Other emoluments 24,497 25,020
------- -------
Aggregate emoluments 167,482 149,050
Pension contributions 5,228 4,913
------- -------
172,710 153,963
======= =======
</TABLE>
3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
The profit is after charging:-
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Depreciation of owned assets 16,787 7,489
Depreciation of assets held under hire purchase contracts
and finance leases 27,426 25,296
Loss on disposal of tangible assets -- 8,729
Auditor's remuneration 3,000 4,000
Interest on hire purchase contracts 10,162 11,712
====== ======
</TABLE>
4 TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Corporation tax 25,350 22,347
Transfer from deferred tax (164) (1,037)
------ ------
25,186 21,310
Adjustments for prior years -- 837
------ ------
25,186 22,147
====== ======
</TABLE>
F-22
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
5 DIVIDENDS ON EQUITY SHARES
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Ordinary interim paid on 28 August 1998 3,000 2,000
Ordinary interim paid on 25 September 1998 3,000 2,000
Ordinary interim paid on 30 October 1998 3,000 2,000
Ordinary interim paid on 27 November 1998 1,000 2,000
Ordinary interim paid on 24 December 1998 1,500 2,000
Ordinary interim paid on 29 January 1999 3,000 7,000
Ordinary interim paid on 26 February 1999 4,000 2,000
Ordinary interim paid on 29 March 1999 4,000 11,000
Ordinary interim paid on 30 April 1999 4,000 3,000
Ordinary interim paid on 28 May 1999 4,000 11,000
Ordinary interim paid on 29 June 1999 15,000 7,000
Ordinary interim paid on 29 July 1999 15,000 10,000
------ ------
60,500 61,000
====== ======
</TABLE>
6 TANGIBLE ASSETS
<TABLE>
<CAPTION>
IMPROVEMENTS
TO SHORT
LEASEHOLD OFFICE MOTOR
PROPERTY EQUIPMENT VEHICLES TOTAL
<S> <C> <C> <C> <C>
Cost
At 1 August 1998 4,069 30,913 156,217 191,199
Additions -- 12,838 8,000 20,838
Disposals -- -- (48,517) (48,517)
----- ------ ------- -------
At 31 July 1999 4,069 43,751 115,700 163,520
----- ------ ------- -------
Depreciation
At 1 August 1998 746 17,209 38,548 56,503
Charge for the year 1,017 10,937 32,259 44,213
On disposals -- -- (31,614) (31,614)
----- ------ ------- -------
At 31 July 1999 1,763 28,146 39,193 69,102
----- ------ ------- -------
Net book value
At 31 July 1998 3,323 13,704 117,669 134,696
===== ====== ======= =======
At 31 July 1999 2,306 15,605 76,507 94,418
===== ====== ======= =======
</TABLE>
F-23
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
6 TANGIBLE ASSETS (CONTINUED)
Assets held under hire purchase contracts and finance leases included
above:-
<TABLE>
<S> <C> <C>
Depreciation charge 27,426 27,426
====== ======
Net book value 76,507 76,507
====== ======
</TABLE>
7 DEBTORS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Trade debtors 215,959 199,428
ACT recoverable -- 16,967
Directors' loan 9,767 7,783
Other debtors 11,593 5,547
Prepayments 9,179 3,924
------- -------
246,498 233,649
======= =======
</TABLE>
8 CREDITORS
Amounts falling due within one year:-
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Bank loan 53,586 34,154
Trade creditors 35,251 74,391
Corporation tax 27,091 31,553
Social security and other taxes 77,028 36,987
Other creditors 9,107 14,819
Hire purchase and finance lease creditors 26,666 38,166
Accruals 5,426 5,558
------- -------
234,155 235,628
======= =======
</TABLE>
Hire purchase and finance lease creditors are secured.
9 CREDITORS
Amounts falling due after more than one year-
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Bank loan 123,856 72,220
Hire purchase and finance lease creditors 45,479 71,218
------- -------
169,335 143,438
======= =======
</TABLE>
F-24
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
9 CREDITORS (CONTINUED)
Hire purchase and finance lease creditors are secured and are payable within
five years from the balance sheet date.
10 LOANS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Repayable by instalments
Bank loans 177,442 106,374
======= =======
Analysis of loan instalments
Due within one year 53,586 34,154
Due between one and two years 90,106 33,336
Due between two and five years 33,750 38,884
------- -------
177,442 106,374
======= =======
</TABLE>
The loans are secured by a fixed and floating charge over the assets of the
company.
11 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax is analysed over the following timing
differences:-
Capital allowances in excess of depreciation -- 164
==== ======
</TABLE>
The above provision represents the full liability for deferred tax.
Movements on the provision for deferred tax are as follows:-
<TABLE>
<S> <C> <C>
At 1 August 1998 164 1,201
Credit (164) (1,037)
---- ------
At 31 July 1999 -- 164
==== ======
</TABLE>
F-25
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
12 CALLED UP EQUITY SHARE CAPITAL
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Authorised
85,000 ordinary shares of 25p each 21,250 10,000
15,000 non-voting ordinary shares of 25p each 3,750 --
------ ------
25,000 10,000
====== ======
Allotted, called up and fully paid
ordinary shares of 25p each
At 1 August 1998 4,900 4,900
Bonus issue 16,350 --
------ ------
At 31 July 1999 21,250 4,900
====== ======
</TABLE>
On 11 December 1998 the authorised share capital was converted from
10000 L1 ordinary shares to 34000 25p ordinary shares and 6000 25p non-voting
ordinary shares. On the same day the company's authorised share capital was
increased by 51000 25p ordinary shares and 9000 25p non-voting ordinary shares.
13 PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
At 1 August 1998 30,387 26,625
Retained profit for the year 12,118 3,762
Bonus issue of shares (16,350) --
------- ------
At 31 July 1999 26,155 30,387
======= ======
</TABLE>
During the year the company capitalised part of its profit and loss account
by the allocation of a bonus issue of 65,400 25p ordinary shares on 11 December
1998.
14 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Profit for the year 72,618 64,762
Dividends (60,500) (61,000)
------- -------
12,118 3,762
------- -------
Net addition to shareholders' funds 12,118 3,762
Opening shareholders' funds 35,287 31,525
------- -------
Closing shareholders' funds 47,405 35,287
======= =======
</TABLE>
F-26
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
15 LEASING COMMITMENTS
At 31 July 1999 the company had operating lease commitments for the
following year as set out below:-
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Operating leases which expire:--
within one year -- 8,059
from one to five years 30,531 13,432
over five years 2,580 --
------ ------
33,111 21,491
====== ======
</TABLE>
16 RELATED PARTY TRANSACTIONS
The following directors had interest free loans during the year. The
movement on these loans was as follows:-
<TABLE>
<CAPTION>
MAXIMUM
IN YEAR 1999 1998
<S> <C> <C> <C>
G J Hanson 9,882 9,549 7,565
B G Edmondson 218 218 218
===== ===== =====
</TABLE>
17 CONTROLLING PARTY
The company was controlled throughout the current and previous period by its
directors Mr G J Hanson and Mr B G Edmondson by virtue of the fact that between
they own all of the company's ordinary share capital.
F-27
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 31 JULY 1999
18. CASH FLOW STATEMENT
a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Operating profit 116,176 109,859
Depreciation of tangible assets 44,213 32,785
Loss on disposal of tangible assets -- 8,729
Increase in stocks (33,846) (3,584)
Increase in debtors (29,816) (101,070)
(Decrease)/Increase in creditors (4,943) 59,555
------- --------
Net cash inflow from operating activities 91,784 106,274
======= ========
</TABLE>
b) Reconciliation of net cash flow to movement in net debt
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Increase in cash 29,961 44,982
Cash to repay bank loan 36,932 14,441
Cash to repay hire purchase creditors 43,859 77,219
Cash to repay finance leases 1,380 1,236
Cash inflow from new bank loan (108,000) (100,000)
-------- --------
Change in net debt resulting from cash flows 4,132 37,878
New hire purchase contracts (8,000) (93,883)
-------- --------
Movement in net debt resulting from cash flows in the
year (3,868) (56,005)
Net debt at beginning of year (173,170) (117,165)
-------- --------
Net debt at end of year (177,038) (173,170)
======== ========
</TABLE>
c) Analysis of changes in net debt
<TABLE>
<CAPTION>
AT OTHER AT
01 08 98 CASH FLOWS CHANGES 31 07 99
<S> <C> <C> <C> <C>
Cash at bank and in hand 42,588 29,961 72,549
-------
Increase in cash 29,961
Debts due within one year (34,154) 13,904 (33,336) (53,586)
Debts due after more than one year (72,220) (84,972) 33,336 (123,856)
Hire purchase contracts (106,520) 43,859 (8,000) (70,661)
Finance leases (2,864) 1,380 -- (1,484)
-------- ------- ------- --------
Total (173,170) 4,132 (8,000) (177,038)
======== ======= ======= ========
</TABLE>
F-28
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
19. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP"),
which differ in certain material respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements as well as
additional disclosures required by US GAAP.
The following is a summary of the key areas of difference and their
relevance to these financial statements:
(a) Reconciliation of profit and loss accounts:
<TABLE>
<CAPTION>
1999
<S> <C>
Retained profit transferred to reserves for the
financial year under UK GAAP. 12,118
US GAAP adjustments
Dividends paid during the year (i) 60,500
------
Net income in accordance with US GAAP 72,618
======
</TABLE>
(b) Reconciliation of shareholders' equity
There are no differences to report between UK GAAP and US GAAP as the above
dividends were declared and paid in the year.
(i) Under UK GAAP, dividends are linked to the year's profit. Under
US GAAP, dividends are not attributable to any particular period's
earnings and are recorded as a reduction to retained earnings at the
point in time that they are formally declared by the board of directors.
The following is a description of a US GAAP reconciling item:
Cash flow information
Under UK GAAP, the cash flow statement is presented in accordance with UK
Financial Reporting Standard No. 1 ("FRS 1"). The statement prepared under
FRS 1 presents substantially the same information as that required under
US GAAP as interpreted by SFAS No. 95. Under UK GAAP, cash comprises cash in
hand and at bank (including overnight deposits), net of bank overdrafts. Under
US GAAP , cash and cash equivalents include cash and short-term investments with
original maturities of three months or less.
Under UK GAAP, cash flows are presented for operating activities; returns on
investments and servicing of finance; taxation; capital expenditure and
financial investment; equity dividends paid; and financing. US GAAP requires the
classification of cash flows as resulting from operating, investing and
financing activities.
Cash flows under UK GAAP in respect of interest received, interest paid and
taxation would be included within operating activities. Capital expenditure and
financial investment would be included within investing activities under US
GAAP. Dividends paid and servicing of finance would be included within financing
activities under US GAAP.
F-29
<PAGE>
W R D C LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 JULY 1999
19. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") (CONTINUED)
A summary of the operating, investing, and financing activities, classified
in accordance with US GAAP is presented below. For purposes of this summary,
cash and cash equivalents consist of cash at bank and in hand and short term
deposits.
<TABLE>
<CAPTION>
1999
<S> <C>
Cash provided by operating activities 60,567
Cash provided by investing activities 41,544
Cash used in financing activities (72,150)
-------
Net increase in cash and cash equivalents 29,961
Cash and cash equivalents at the beginning of the year 42,588
-------
Cash and cash equivalents at the end of the year 72,549
=======
</TABLE>
F-30
<PAGE>
WRDC LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 JULY 1998
The directors present their report and financial statements of the company,
together with the auditor's report, for the year ended 31 July 1998.
PRINCIPAL ACTIVITIES
The principal activity of the company is software consultancy.
REVIEW OF BUSINESS
In the fourth year of trading the company has established a firm foundation
of regular business from computer manufacturers, vendors and a number of end
user accounts around the World.
The results for the year and financial position of the company are shown on
the attached accounts and show an increased turnover for the fourth period of
trade. The directors anticipate an increase in turnover and profitability in the
following year.
RESULTS AND DIVIDENDS
The audited accounts for the year ended 31 July 1998 are set out on
pages F-34 to F-43. The profit for the year, after taxation was 64,762 (1997
25,100).
Dividends totaling 61,000 were paid during the year (1997 21,600).
DIRECTORS
The directors who served during the accounting year and the interests in the
shares and debentures of those serving at the end of the year were as follows:
<TABLE>
<CAPTION>
AT 31 JULY 1998 AT 31 JULY 1997
<S> <C> <C>
GJ Hanson (appointed 4 July 1994) 2,450 2,450
BG Edmondson (appointed 4 May 1995) 2,450 2,450
MS Bray (appointed August 1996) -- --
</TABLE>
POLITICAL AND CHARITABLE CONTRIBUTIONS
The company has made no political or charitable contributions.
DIRECTORS' RESPONSIBILITIES FOR THE ACCOUNTS
Company Law requires the directors to prepare accounts for each financial
year which give a true and fair view of the state of the affairs of the company
and of the profit or loss of the company for that period. In preparing those
accounts the directors are required to:
- select suitable accounting policies and apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the accounts; and
- prepare the accounts on a going concern basis unless it is inappropriate
to assume that the company will continue in business.
F-31
<PAGE>
WRDC LIMITED
DIRECTORS' REPORT (CONTINUED)
YEAR ENDED 31 JULY 1998
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for prevention and detection of fraud and
other irregularities.
YEAR 2000 COMPLIANCE
The company is currently undertaking an audit of all its electronic business
systems. The directors regard year 2000 compliance as being of fundamental
importance to the company's operation and that of its customers.
A review has taken place of all office systems and systems supporting WRDC
customers. The company is using the BSI standard PD2000-1:1998 as the starting
point for this year 2000 compliance testing. The directors are of the opinion
that all risks have been identified and remedial action is taking place. It is
anticipated that this action will be completed by 31 December 1999.
Key suppliers have been identified and contacted. The directors do not
believe that there is a significant risk to the business in relation to the
suppliers, as the core product of the business is consultancy time and in the
opinion of the directors all of WRDC's consultants are aware of the year 2000
issue. However, should any key suppliers indicate that they are not year 2000
compliant the directors will seek alternatives prior to 31 December 1999.
The core business of WRDC is software consultancy on existing customer
systems. However, in some instances, the company has supplied software and
occasionally hardware to customers. A review is currently being made of all
sales to identify such products. This is expected to be completed by June 1999.
The directors have designated a support manager to test the products supplied
and to identify those items which are not year 2000 compliant. Where such items
are identified the directors will undertake to ensure that the customer is aware
of the non-compliance.
The directors are not of the opinion that they have a responsibility to such
customers for the non-compliance. The directors are not of the opinion that any
material costs will be incurred in relation to these products.
AUDITORS
In accordance with the Companies Act 1985 the company has passed a
resolution appointing Marcus Phillips as auditor. Marcus Phillips has indicated
his willingness to fulfill this office.
SMALL COMPANY EXEMPTION
This report has been prepared in accordance with the special provisions of
Part VII of the Companies Act 1985 relating to small companies.
The Report of the Directors was approved by the board on 28 May 1999 and
signed on its behalf by BG Edmondson.
BG Edmondson
Secretary
28 May 1999
F-32
<PAGE>
AUDITOR'S REPORT TO THE SHAREHOLDERS OF WRDC LIMITED
ON THE ACCOUNTS OF WRDC LIMITED
I have audited the accounts on pages F-34 to F-43 which have been prepared
under the historical cost convention (as modified by the revaluation of certain
fixed assets) and the accounting policies set out on pages F-37 and F-38.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As described on page F-31 the company's directors are responsible for the
preparation of accounts. It is my responsibility to form an independent opinion,
based on my audit, on those accounts and to report my opinion to you.
BASIS OF OPINION
I conducted my audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes an examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgments made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
I planned and performed my audit so as to obtain all the information and
explanations which I considered necessary in order to provide me with sufficient
evidence to give reasonable assurance that the accounts are free from material
misstatement, whether caused by fraud, or other irregularity or error. In
forming my opinion I also evaluated the overall adequacy of the presentation of
information in the accounts.
OPINION
In my opinion the accounts give a true and fair view of the state of the
company's affairs as at 31 July 1998 and of its profit for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
MARCUS PHILLIPS
Chartered Accountant
Registered Auditor
Ilkley
28 May 1999
F-33
<PAGE>
WRDC LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
NOTES 1998 1997
-------- -------- --------
<S> <C> <C> <C>
TURNOVER 2 797,075 454,315
Cost of sales (525,898) (344,134)
-------- --------
GROSS PROFIT 271,177 110,181
Administrative costs (148,506) (67,683)
Marketing costs (12,812) 0
-------- --------
OPERATING PROFIT 3 109,859 42,498
Interest payable 6 (23,305) (9,225)
Interest receivable 355 0
-------- --------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 86,909 33,273
Tax on profit on ordinary activities 7 (22,147) (8,173)
-------- --------
PROFIT FOR THE FINANCIAL YEAR 64,762 25,100
Dividends 8 (61,000) (21,600)
-------- --------
PROFIT RETAINED FOR THE FINANCIAL YEAR 3,762 3,500
======== ========
</TABLE>
F-34
<PAGE>
WRDC LIMITED
BALANCE SHEET
AS AT 31 JULY 1998
<TABLE>
<CAPTION>
NOTES 1998 1997
-------- -------- --------
<S> <C> <C> <C>
FIXED ASSETS 134,696 112,248
------- -------
Tangible assets 9 134,696 112,248
------- -------
CURRENT ASSETS
Work in progress 10 3,584 --
Debtors 11 233,649 115,612
Cash in hand 42,588 986
------- -------
279,821 116,598
CREDITORS: amounts due within one year 12 235,628 125,011
------- -------
NET CURRENT ASSETS/(LIABILITIES) 44,193 (8,413)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 178,889 103,835
CREDITORS: amounts falling due after more than 1 year 13 143,438 71,109
PROVISIONS FOR LIABILITIES AND CHARGES 14 164 1,201
------- -------
NET ASSETS 35,287 31,525
======= =======
CAPITAL AND RESERVES
Called up share capital 15 4,900 4,900
Profit and loss account 30,387 26,625
------- -------
17 35,287 31,525
======= =======
</TABLE>
The accounts have been prepared in accordance with the special provisions of
part VII of the Companies Act 1985 relating to small companies.
GJ Hanson Director
28 May 1999
F-35
<PAGE>
WRDC LIMITED
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
NOTES 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Profit for the financial year 64,762 25,100
Prior year adjustment to depreciation -- 5,247
------ ------
Total gains and losses recognised since last annual report
and accounts 64,762 30,347
====== ======
</TABLE>
There are no gains or losses in the current year other than the profit for
the year. The cumulative effect of the prior year adjustment at 31 July 1997 was
to increase retained earnings by 15,059.
F-36
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT 31 JULY 1998
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention, modified to
include the revaluation of freehold land and buildings, and in accordance with
applicable accounting standards.
CASH FLOW STATEMENT
The company has taken advantage of the exemption, conferred by Financial
Reporting Standard 1, from presenting a cash flow statement, as it qualifies as
a small company.
TURNOVER
Turnover represents amounts receivable (excluding VAT) for services provided
to third parties.
TANGIBLE FIXED ASSETS
All fixed assets are originally recorded at cost.
DEPRECIATION
Depreciation is provided on tangible fixed assets at rates calculated to
write off their cost, on a straight line basis, over their anticipated useful
lives.
Estimated useful lives are:
<TABLE>
<S> <C>
Freehold buildings 50 years
Tools and equipment and leasehold additions 4 years
Motor vehicles 4 years
</TABLE>
No depreciation is provided in respect of freehold land.
WORK IN PROGRESS
Work in progress is stated at the lower of cost and net realizable value.
Cost comprises direct materials and labour and attributable overheads.
Net realisable value comprises estimated sales price less further costs to
completion and realisation.
TAXATION
Corporation tax payable is provided on taxable profits at the current rate.
Deferred tax is provided under the liability method only to the extent that it
is likely that the liability will become payable within the foreseeable future.
Advance corporation tax payable on dividends paid or provided for in the
year is written off, except when recoverability against corporation tax payable
is considered to be reasonably assured. Credit is taken for advance corporation
tax written off in previous years when it is recovered against corporation tax
liabilities.
F-37
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1998
1. ACCOUNTING POLICIES (CONTINUED)
LEASED ASSETS
Where assets are financed by leasing agreements that give rights
approximating to ownership ('finance leases') the assets are treated as if they
had been purchased outright. The amount capitalized is the present value of the
minimum lease payments payable over the term of the lease. The corresponding
liability to the leasing company is included as an obligation under finance
leases. Depreciation on leased assets is charged to the profit and loss account
so as to write off the asset over the shorter of the lease term and the assets
useful life. Leasing payments are treated as consisting of capital and interest
elements and interest is charged to the profit and loss account on an actuarial
basis. Hire purchase transactions are dealt with similarly, except that assets
are depreciated over their useful lives. All other leases are treated as
operating leases and the annual rentals are charged to the profit and loss
account on a straight line basis over the lease term.
PENSION COSTS
The company operates a defined contribution scheme. The assets of the scheme
are held separately from those of the company in an independently administered
fund. The pension cost charge represents contributions payable by the company to
the fund. Differences between contributions payable in the year and
contributions actually paid are shown as either accruals or prepayments in the
balance sheet.
FOREIGN CURRENCY
Transactions in foreign currencies are recorded at the rate of exchange at
the date of the transaction. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is included as an exchange gain
or loss in the profit and loss account.
2. SEGMENT INFORMATION
Turnover and profit on ordinary activities before taxation arose solely from
the principal activity of the company.
3. OPERATING PROFIT
Operating profit is arrived at after charging/(crediting):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Directors' emoluments (see note 4) 153,963 130,482
Depreciation of assets under hire purchase and finance
lease contracts 25,296 15,120
Depreciation of owned assets 7,489 4,086
Higher purchase and finance lease interest 11,712 7,288
Loss on disposal of fixed assets 8,729 3,886
Operating leases on office equipment 1,503 3,910
Auditor's remuneration 4,000 1,200
======= =======
</TABLE>
F-38
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1998
4. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Management remuneration 124,030 112,124
Contributions to pension scheme 4,913 5,350
Benefits in kind 25,020 13,008
------- -------
153,963 130,482
======= =======
</TABLE>
Pension contributions are made by the company in respect of all 3 directors
5. STAFF COSTS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Wages and salaries 283,887 190,083
Other pension costs 6,081 5,560
Social security costs 27,421 19,008
------- -------
317,389 214,651
======= =======
</TABLE>
The average number of employees during the year was 9.
Other pension costs represents payments to the defined contribution scheme
disclosed above, and there was 168 accrued at 31 July 1998.
6. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Hire and lease purchase interest 11,712 7,288
Interest on bank loans & overdrafts payable within 5 years 11,024 1,937
Other interest payable 569 --
------ -----
23,305 9,225
====== =====
</TABLE>
F-39
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1998
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
UK Corporation tax at 21/22.3% 22,347 7,269
UK Corporation tax prior year under/(over) provision 837 (297)
Deferred tax prior year under/(over) provision (1,037) 1,201
------ ------
22,147 8,173
====== ======
</TABLE>
8. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Dividends paid during the accounting year 61,000 21,600
====== ======
</TABLE>
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LEASEHOLD OFFICE
CARS IMPROVEMENTS EQUIPMENT TOTAL
-------- ------------ --------- --------
<S> <C> <C> <C> <C>
Cost:
As at 1 August 1997 121,264 2,960 19,943 144,167
Additions 93,883 1,109 10,970 105,962
Disposals (58,930) -- -- (58,930)
------- ----- ------ -------
As at 31 July 1998 156,217 4,069 30,913 191,199
------- ----- ------ -------
Depreciation:
As at 1 August 1997 22,438 -- 9,481 31,919
Charge for the year 24,311 746 7,728 32,785
Disposals (8,201) -- -- (8,201)
------- ----- ------ -------
As at 31 July 1998 38,548 746 17,209 56,503
------- ----- ------ -------
Net book values:
As at 31 July 1997 98,826 2,960 10,462 112,248
------- ----- ------ -------
As at 31 July 1998 117,669 3,323 13,704 134,696
======= ===== ====== =======
</TABLE>
The net book amounts of tangible fixed assets include 119,983 (1997 -
102,298) in respect of assets held under finance leases and hire purchase
contracts.
10. WORK IN PROGRESS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Unbilled work undertaken as at 31 July 1998/1997 3,584 --
===== ========
</TABLE>
F-40
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1998
11. DEBTORS: AMOUNTS FALLING DUE WITHIN 1 YEAR
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Trade debtors 199,428 99,415
Other debtors and prepayments 9,471 7,914
Loans to directors (Note 18) 7,783 8,283
Advance corporation tax recoverable 16,967 --
------- -------
233,649 115,612
======= =======
</TABLE>
12. CREDITORS: AMOUNTS FALLING DUE WITHIN 1 YEAR
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Trade Creditors 69,774 25,378
VAT 21,657 6,154
Bank loans - portion repayable within 1 year 34,154 14,333
Overdraft -- 3,380
Accrued expenses 35,366 40,668
Net obligation under higher purchase and finance leases 38,166 29,329
Corporation tax 25,053 1,869
Advance corporation tax 6,500 3,900
Deferred income 4,958 --
------- -------
235,628 125,011
======= =======
</TABLE>
The bank loan and overdraft referred to above and in note 13 below includes
106,374 (1997 16,889) secured against the company's assets both present and
future.
13. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN 1 YEAR
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Bank loan - repayable between 1 and 2 years 33,336 6,482
Bank loan - repayable between 2 and 5 years 38,884 --
Net obligation under higher purchase and finance leases
between 1 and 3 years 71,218 64,627
------- ------
143,438 71,109
======= ======
</TABLE>
14. PROVISION FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax (accelerated capital allowances) 164 1,201
=== =====
</TABLE>
The above represents the full amount provided and there is no amount of
unprovided deferred tax at 31 July 1998.
F-41
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1998
15. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Authorised ordinary shares of L1 each 10,000 10,000
====== ======
Issued ordinary shares of L1 each 4,900 4,900
====== ======
</TABLE>
All shares are fully paid up.
16. RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS
ACCOUNT
1998 1997
-------- --------
<S> <C> <C>
Retained profit/(loss) for the accounting period 3,762 3,500
===== =====
</TABLE>
17. RECONCILIATION OF MOVEMENTS OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Opening shareholders funds 31,525 28,025
Profit for the financial year 64,762 25,100
Dividends paid (61,000) (21,600)
------- -------
Closing shareholders funds 35,287 31,525
======= =======
</TABLE>
18. LOANS TO DIRECTORS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
GJ Hanson 7,565 8,065
BG Edmondson 218 218
----- -----
7,783 8,283
===== =====
</TABLE>
19. OBLIGATIONS UNDER HIGHER PURCHASE CONTRACTS AND FINANCE LEASES
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current obligations 38,166 29,329
Due 1 to 3 years 71,218 64,627
------- ------
109,384 93,956
======= ======
</TABLE>
The above excludes future finance charges.
F-42
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1998
20. RELATED PARTIES
In the opinion of the directors no party has control of the company. It is
owned in 2 equal shares. In the opinion of the directors the following are the
related parties of the company, their relationship to the company, and the total
of the transactions requiring disclosure under Financial Reporting Standard 8.
MR GJ HANSON - RELATED BECAUSE HE IS A DIRECTOR
<TABLE>
<S> <C>
Loan from company and due to it at 31 July 1998 7,565
======
Reimbursed employee expenses and travel advances. 10,100
======
</TABLE>
MR. BG EDMONDSON - RELATED BECAUSE HE IS A DIRECTOR
<TABLE>
<S> <C>
Loan from company and due to it at 31 July 1998 218
=====
Reimbursed employee expenses 7,282
=====
</TABLE>
MR. MS BRAY - RELATED BECAUSE HE IS A DIRECTOR
<TABLE>
<S> <C>
Reimbursed employee expenses 10,606
======
</TABLE>
All amounts due to the company are repayable on demand and no interest is
charged. All amounts arose during the year except for the loans to BG Edmondson
and GJ Hanson. The maximum loan outstanding to GJ Hanson at any time during the
year was 15,565.
All reimbursed expenses represent the actual costs the directors incurred.
21. CONTINGENT LIABILITIES
At the present time the company is not covered by Professional Indemnity or
Product Liability Insurance. There are, as far as the directors are aware, no
pending claims in relation to either of these areas at the date of the signing
of the accounts and directors' report, and accordingly no provision has been
made in the accounts. It is not practicable to estimate what future claims may
amount to, if there are any.
22. FINANCIAL COMMITMENTS
Annual commitments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Within 1 year 8,059 --
Between 2 and 5 years 13,432 --
------ ---------
21,491 --
====== =========
</TABLE>
F-43
<PAGE>
COMMENT ON FOOTNOTE 23: SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")
Footnote 23 on pages F-45 and F-46 was prepared 14 March 2000 by Marcus
Phillips, Chartered Accountant, and has been appended to the audited financial
statements.
The footnote formed no part of the financial statements upon which the audit
report issued by Marcus Phillips on 28 May 1999 was issued.
The footnote was prepared based upon the audited financial statements
though, as indicated above, has not itself been subject to audit or been
reported upon by audit report.
Marcus Phillips
Chartered Accountant
Ilkley
14 March 2000
Note: Marcus Phillips, Chartered Accountant, ceased to be a Registered
Auditor in December 1999.
F-44
<PAGE>
WRDC LIMITED
YEARS ENDED 31 JULY 1997 AND 31 JULY 1998
FOOTNOTE 23: SUMMARY OF UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP"),
which differ in certain material respects from generally accepted accounting
principles in the United States ("US GAAP"). Such differences involve methods
for measuring the amounts shown in the financial statements as well as
additional disclosure required by US GAAP.
The following is a summary of those differences identified in the
accompanying financial statements:
a. RECONCILIATION OF PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEAR END
-----------------------------
JULY 31, 1998 JULY 31, 1997
------------- -------------
L L
<S> <C> <C>
Retained profit transferred to reserves for the
financial year reported under UK GAAP 3,762 3,500
US GAAP adjustments
Dividends paid during the year(1) 61,000 21,600
------ ------
Net income in accordance with US GAAP 64,762 25,100
====== ======
</TABLE>
(1) Under UK GAAP dividends are linked to the year's profit. Under US GAAP
dividends are not attributable to any particular period's earnings and
are recorded as a reduction to retained earnings at the point in time
that they are formally declared by the board of directors.
b. RECONCILIATION OF SHAREHOLDERS EQUITY
There are no differences to report between UK GAAP and US GAAP as the above
dividends were declared and paid in the year to which they relate.
The following is a description of a US GAAP reconciling item:
CASH FLOW INFORMATION
Under UK GAAP a Cash Flow Statement, when prepared, is presented in
accordance with UK Financial Reporting Standard 1 ("FRS 1"). The statement
prepared under FRS 1 presents substantially the same information as that
required under US GAAP as interpreted by SFAS No. 95. Under UK GAAP cash
comprises cash in hand and at bank (including overnight deposits), net of bank
overdrafts. Under US GAAP cash and cash equivalents include cash and short term
investments with original maturities of 3 months or less.
Under UK GAAP WRDC, Ltd. was exempt from the requirements to prepare a Cash
Flow Statement under FRS 1, because FRS 1 exempted the company on the ground
that it was small, as defined under Companies Act 1985. Therefore no UK Cash
Flow Statement was prepared.
Under UK GAAP cash flows are presented for operating activities, returns on
investments and servicing of finance, taxation, capital expenditure and
financial investment, equity dividends paid, and financing. US GAAP requires the
classification of cash flows as resulting from operating, investing and
financing activities.
F-45
<PAGE>
WRDC LIMITED
YEARS ENDED 31 JULY 1997 AND 31 JULY 1998
FOOTNOTE 23: SUMMARY OF UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
Capital expenditure and financial investment would be included within
investing activities under US GAAP. Dividends paid and servicing of finance
would be included within financing activities under US GAAP.
A summary of the operating, investing and financing activities classified in
accordance with US GAAP, is presented below. For purposes of this summary, cash
and cash equivalents consist of cash at bank and in hand and short term
deposits.
<TABLE>
<CAPTION>
YEAR END
-----------------------------
JULY 31, 1998 JULY 31, 1997
------------- -------------
L L
<S> <C> <C>
Cash provided by operating activities 69,162 43,080
Cash used in investing activities (63,962) (71,174)
Cash provided by financing activities 36,402 29,080
------- -------
Net increase in cash and cash equivalents 41,602 986
Cash and cash equivalents at the beginning of the
year 986 0
------- -------
Cash and cash equivalents at the end of the year 42,588 986
======= =======
</TABLE>
F-46
<PAGE>
WRDC LIMITED
DIRECTORS' REPORT
YEAR ENDED 31 JULY 1997
The directors present their report and financial statements of the company,
together with the auditor's report, for the year ended 31 July 1997.
PRINCIPAL ACTIVITIES
The principal activity of the company is the provision of computer
consultancy and project management services.
REVIEW OF BUSINESS
In the third year of trading the company has established a firm foundation
of regular business from computer manufacturers, vendors and a number of end
user accounts around the World.
The results for the year and financial position of the company are shown on
the attached accounts and show an increased turnover for the third period of
trade. The directors anticipate an increase in turnover and profitability in the
following year.
RESULTS AND DIVIDENDS
The audited accounts for the year ended 31 July 1997 are set out on
pages F-50 to F-60. The profit for the year, after taxation was 25,100 (1996, as
restated, 31,224)
Dividends totalling 21,600 were paid during the year.
DIRECTORS
The directors who served during the accounting year and the interests in the
shares and debentures of those serving at the end of the year were as follows:
<TABLE>
<CAPTION>
AT 31 JULY 1997 AT 31 JULY 1996
<S> <C> <C>
GJ Hanson (appointed 4 July 1994) 2,450 2,450
BG Edmondson (appointed 4 May 1995) 2,450 2,450
MS Bray (appointed August 1996)
</TABLE>
POLITICAL AND CHARITABLE CONTRIBUTIONS
The company has made no political or charitable contributions.
F-47
<PAGE>
WRDC LIMITED
DIRECTORS' REPORT (CONTINUED)
YEAR ENDED 31 JULY 1997
DIRECTORS' RESPONSIBILITIES FOR THE ACCOUNTS
Company Law requires the directors to prepare accounts for each financial
year which give a true and fair view of the state of the affairs of the company
and of the profit or loss of the company for that period. In preparing those
accounts the directors are required to:
- select suitable accounting policies and then apply them consistently
- make judgements and estimates that are reasonable and prudent
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the accounts; and
- prepare the accounts on a going concern basis unless it is inappropriate
to assume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for prevention and detection of fraud and
other irregularities.
AUDITORS
In accordance with the Companies Act 1985 the company has passed a
resolution appointing Marcus Phillips as auditor. Marcus Phillips has indicated
his willingness to fulfill this office.
SMALL COMPANY EXEMPTION
This report has been prepared in accordance with the special provisions of
Part VII of the Companies Act 1985 relating to small companies.
The Report of the Directors was approved by the board on 28 April 1998 and
signed on its behalf by BG Edmonson.
BG Edmondson
Secretary
28 April 1998
F-48
<PAGE>
AUDITOR'S REPORT TO THE SHAREHOLDERS OF WRDC LIMITED
ON THE ACCOUNTS OF WRDC LIMITED
I have audited the accounts on pages F-50 to F-60 which have been prepared
under the historical cost convention (as modified by the revaluation of certain
fixed assets) and the accounting policies set out on pages F-53 and F-54.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As described on page F-48 the company's directors are responsible for the
preparation of accounts. It is my responsibility to form an independent opinion,
based on my audit, on those accounts and to report my opinion to you.
BASIS OF OPINION
I conducted my audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes an examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
I planned and performed my audit so as to obtain all the information and
explanations which I considered necessary in order to provide me with sufficient
evidence to give reasonable assurance that the accounts are free from material
misstatement, whether caused by fraud, or other irregularity or error. In
forming my opinion I also evaluated the overall adequacy of the presentation of
information in the accounts.
OPINION
In my opinion the accounts give a true and fair view of the state of the
company's affairs at as 31 July 1997 and of it's profit for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
MARCUS PHILLIPS
Chartered Accountant
Registered Auditor
Ilkley
28 April 1998
F-49
<PAGE>
WRDC LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 JULY 1997
<TABLE>
<CAPTION>
Notes
1997 1996
<S> <C> <C> <C>
TURNOVER 2 454,315 290,075
Cost of sales (344,134) (202,887)
-------- --------
GROSS PROFIT 110,181 87,188
Administrative costs (67,683) (41,453)
-------- --------
OPERATING PROFIT 3 42,498 45,735
Interest payable 6 (9,225) (7,090)
-------- --------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 33,273 38,645
Tax on profit on ordinary activities 7 (8,173) (7,421)
-------- --------
PROFIT FOR THE FINANCIAL YEAR 25,100 31,224
Dividends 8 (21,600) (13,000)
<CAPTION>
-------- --------
PROFIT RETAINED FOR THE FINANCIAL YEAR 3,500 18,224
<S> <C> <C> <C>
======== ========
</TABLE>
F-50
<PAGE>
WRDC LIMITED
BALANCE SHEET
AS AT 31 JULY 1997
<TABLE>
<CAPTION>
Notes
1997 1996
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 10 112,248 64,166
-------- ------
112,248 64,166
-------- ------
CURRENT ASSETS
Work in progress 11 -- --
Debtors 12 115,612 94,036
Cash in hand 986 --
-------- ------
116,598 94,036
CREDITORS: amounts due within one year 13 125,011 90,123
-------- ------
NET CURRENT ASSETS (8,413) 3,913
-------- ------
TOTAL ASSETS LESS CURRENT LIABILITIES 103,835 68,079
CREDITORS: amounts falling due after more than 1 year 14 71,109 40,054
PROVISION FOR LIABILITIES AND CHARGES 15 1,201 --
-------- ------
NET ASSETS 31,525 28,025
CAPITAL AND RESERVES
Called up share capital 16 4,900 4,900
Profit and loss account 26,625 23,125
-------- ------
18 31,525 28,025
======== ======
</TABLE>
The accounts have been prepared in accordance with the special provisions of
part VII of the Companies Act 1985 relating to small companies.
The accounts were prepared in accordance with the Financial Reporting
Standard For Smaller Entities.
GJ Hanson Director
28 April 1998
F-51
<PAGE>
WRDC LIMITED
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 JULY 1997
<TABLE>
<CAPTION>
Notes
1997 1996
<S> <C> <C> <C>
Profit for the financial year 24,707 25,977
======
Prior year adjustment to depreciation 9 5,247
------
Total gains and losses recognised since last annual report
and accounts 29,954
======
</TABLE>
The cumulative effect of the prior year adjustment at 31 July 1997 is to
increase retained earnings by 15,059.
F-52
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS
AS AT 31 JULY 1997
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention, modified to
include the revaluation of freehold land and buildings, and in accordance with
applicable accounting standards.
CASH FLOW STATEMENT
The company has taken advantage of the exemption, conferred by Financial
Reporting Standard 1, from presenting a cash flow statement, as it qualifies as
a small company.
TURNOVER
Turnover consists of the invoiced value (excluding VAT) for services
provided to third parties.
TANGIBLE FIXED ASSETS
All fixed assets are originally recorded at cost.
DEPRECIATION
Depreciation is provided on tangible fixed assets at rates calculated to
write off their cost, on a straight line basis, over their anticipated useful
lives.
<TABLE>
<S> <C>
Estimated useful lives are:
Freehold buildings 50 years
Tools and equipment and leasehold additions 4 years
Motor vehicles 4 years
</TABLE>
No depreciation is provided in respect of freehold land.
WORK IN PROGRESS
Work in progress is stated at the lower of cost and net realisable value.
Cost comprises direct materials and labour and attributable overheads.
Net realizable value comprises estimated sales price less further costs to
completion and realization.
F-53
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
1. ACCOUNTING POLICIES (CONTINUED)
TAXATION
Corporation tax payable is provided on taxable profits at the current rate.
Deferred tax is provided under the liability method only to the extent that it
is likely that the liability will become payable within the foreseeable future.
Advance corporation tax payable on dividends paid or provided for in the
year is written off, except when recoverability against corporation tax payable
is considered to be reasonably assured. Credit is taken for advance corporation
tax written off in previous years when it is recovered against corporation tax
liabilities.
LEASED ASSETS
Where assets are financed by leasing agreements that give rights
approximating to ownership ("finance leases") the assets are treated as if they
had been purchased outright. The amount capitalised is the present value of the
minimum lease payments payable over the term of the lease. The corresponding
liability to the leasing company is included as an obligation under finance
leases. Depreciation on leased assets is charged to the profit and loss account
so as to write off the asset over the shorter of the lease term and the assets
useful life. Leasing payments are treated as consisting of capital and interest
elements and interest is charged to profit and loss account on an actuarial
basis. Hire purchase transactions are dealt with similarly, except that assets
are depreciated over their useful lives. All other leases are treated as
operating leases and the annual rentals are charged to the profit and loss
account on a straight line basis over the lease term.
PENSION COSTS
The company operates a defined contribution scheme. The assets of the scheme
are held separately from those of the company in an independently administered
fund. The pension cost charge represents contributions payable by the company to
the fund. Differences between contributions payable in the year and
contributions actually paid are shown as either accruals or prepayments in the
balance sheet.
2. SEGMENT INFORMATION
Turnover and profit on ordinary activities before taxation arose solely from
the principal activity of the company.
F-54
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
3. OPERATING PROFIT
Operating profit is arrived at after charging/(crediting):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Directors' emoluments (see note 4) 130,482 88,376
Depreciation of assets under hire purchase and finance lease
contracts 15,120 15,259
Depreciation of owned assets 4,086 2,779
Higher purchase and finance lease interest 7,288 6,158
Loss on disposal of fixed assets 3,886 1,568
Operating leases on office equipment 3,910 2,247
Auditor's remuneration 1,200 --
======= =======
</TABLE>
4. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Management remuneration 112,124 77,000
Contributions to pension scheme 5,350 3,600
Benefits in kind 13,008 7,776
------- ------
130,482 88,376
======= ======
</TABLE>
Pension contributions are made by the company in respect of all 3 directors.
5. STAFF COSTS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Wages and salaries 190,083 103,324
Other pension costs 5,560 3,709
Social security costs 19,008 11,230
------- -------
214,651 118,263
======= =======
</TABLE>
The average number of employees during the year was 5.
Other pension costs represents payments to the defined contribution scheme
disclosed above, and there were no amounts accrued or prepaid at 31 July 1997.
6. INTEREST PAYABLE
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Hire and lease purchase interest 7,288 6,158
Interest on bank loans & overdrafts payable within 5 years 1,937 932
----- -----
9,225 7,090
===== =====
</TABLE>
F-55
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
UK Corporation tax at 23/24.7% 7,269 7,421
Prior year over provision (297) --
Deferred tax 1,201 --
----- -----
8,173 7,421
===== =====
</TABLE>
8. DIVIDENDS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Dividends paid during the accounting year 21,600 13,000
====== ======
</TABLE>
9. PRIOR PERIOD ADJUSTMENT
The accounts for the year ended 31 July 1996 have been restated to reflect
the change in accounting policy whereby depreciation on vehicles is charged from
the date of acquisition rather than a full year's charge being made for the year
of acquisition. This has resulted in a reduced charge to depreciation for that
year of 5,247 and consequently an increase in net assets at 31 July 1996 of
5,247, and an increase in the profit for the year then ended of 5,247.
The reason for the change in depreciation policy is to more fairly reflect
the use of these fixed assets over time.
The comparative figures in the primary statements and notes have been
restated to reflect the new policy.
The effect of the change of accounting policy in the accounts for the year
ended 31 July 1997 is to increase profit before tax by 9,812.
F-56
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
10. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LEASEHOLD OFFICE
CARS IMPROVEMENTS EQUIPMENT TOTAL
<S> <C> <C> <C> <C>
Cost
As at 1 August 1996 67,301 -- 11,114 78,415
Additions 73,035 2,960 8,829 84,824
Disposals (19,072) -- -- (19,072)
------- ----- ------ -------
As at 31 July 1997 121,264 2,960 19,943 144,167
======= ===== ====== =======
Depreciation
As at 1 August 1996 10,012 -- 4,237 14,249
Charge for the year 13,962 -- 5,244 19,206
Disposals (1,536) -- -- (1,536)
------- ----- ------ -------
As at 31 July 1997 22,438 -- 9,481 31,919
======= ===== ====== =======
Net book values:
As at 31 July 1996 57,289 -- 6,877 64,166
------- ----- ------ -------
As at 31 July 1997 98,826 2,960 10,462 112,248
======= ===== ====== =======
</TABLE>
The net book amounts of tangible fixed assets include 102,298 (1996 52,042)
in respect of assets held under finance leases and hire purchase contracts.
11. WORK IN PROGRESS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Unbilled work undertaken as at 31 July 1997/1996 -- --
===== =====
</TABLE>
The accounts for the year ended 31 July 1996 included work in progress
valued at 40,555. Audit review of opening balances has identified that this
balance should have been classified as debtors rather than as work in progress
and the prior year comparative in the 1997 accounts has been amended
accordingly.
12. DEBTORS: AMOUNTS FALLING DUE WITHIN 1 YEAR
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Trade debtors 99,415 88,516
Other debtors and prepayments 7,914 5,237
Loans to directors (Note 19) 8,283 283
------- ------
115,612 94,036
======= ======
</TABLE>
F-57
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
13. CREDITORS: AMOUNTS FALLING DUE WITHIN 1 YEAR
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Trade creditors 25,378 33,877
VAT 6,154 1,355
Bank loans--portion repayable within 1 year 14,333 9,253
Overdraft 3,380 2,036
Accrued expenses 40,668 20,896
Net obligation under higher purchase and finance leases 29,329 16,128
Corporation tax 1,869 3,828
Advance corporation tax 3,900 2,750
------- ------
125,011 90,123
======= ======
</TABLE>
The bank loan and overdraft referred to above and in note 14 below includes
16,889 secured against the company's assets both present and future.
14. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN 1 YEAR
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Bank loan--repayable between 1 and 2 years 6,482 3,667
Net obligation under higher purchase and finance leases
between 1 and 3 years 64,627 36,387
------ ------
71,109 40,054
====== ======
</TABLE>
15. PROVISION FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax (accelerated capital allowances) 1,201 --
===== =====
</TABLE>
The above represents the full amount provided and there is no amount of
unprovided deferred tax at 31 July 1997.
16. SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Authorised ordinary shares of L1 each 10,000 10,000
====== ======
Issued ordinary shares of L1 each 4,900 4,900
====== ======
</TABLE>
All shares are fully paid up.
F-58
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
17. RESERVES
<TABLE>
<CAPTION>
PROFIT AND LOSS
ACCOUNT
1997 1996
<S> <C> <C>
Retained profit/(loss) for the accounting period 3,500 18,224
===== ======
</TABLE>
18. RECONCILIATION OF MOVEMENTS OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Opening shareholders funds as previously stated 22,778 9,801
Prior year adjustment 5,247 --
------- -------
Opening shareholders funds as restated 28,025 9,801
Profit for the financial year 25,100 25,977
Dividends paid (21,600) (13,000)
------- -------
Closing shareholders funds 31,525 22,778
======= =======
</TABLE>
19. LOANS TO DIRECTORS
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
GJ Hanson 8,065 65
BG Edmondson 218 218
----- ---
8,283 283
===== ===
</TABLE>
20. OBLIGATIONS UNDER HIGHER PURCHASE CONTRACTS AND FINANCE LEASES
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current obligations 29,329 16,128
Due 1 to 3 years 64,627 36,387
------ ------
93,956 52,515
====== ======
</TABLE>
The above excludes future finance charges.
21. RELATED PARTIES
In the opinion of the directors no party has control of the company. It is
owned in 2 equal shares.
In the opinion of the directors the following are the related parties of the
company, their relationship to the company, and the total of the transactions
requiring disclosure under Financial Reporting Standard 8.
F-59
<PAGE>
WRDC LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS AT 31 JULY 1997
21. RELATED PARTIES (CONTINUED)
MR GJ HANSON--RELATED BECAUSE HE IS A DIRECTOR
<TABLE>
<S> <C>
Loan from company and due to it at 31 July 1997 8,065
======
Reimbursed employee expenses and travel advances, net of
1,320 repaid by GJ Hanson to the company 12,026
======
</TABLE>
MR BG EDMONDSON--RELATED BECAUSE HE IS A DIRECTOR
<TABLE>
<S> <C>
Loan from company and due to it at 31 July 1997 218
======
Reimbursed employee expenses 6,641
======
</TABLE>
MR MS BRAY--RELATED BECAUSE HE IS A DIRECTOR
<TABLE>
<S> <C>
Reimbursed employee expenses 10,678
======
</TABLE>
All amounts due to the company are repayable on demand and no interest is
charged. All amounts arose during the year except for the loan to BG Edmondson
and 65 of the amount due from GJ Hanson. The amounts shown as outstanding above
are as at 31 July 1997 and are also the maximum amounts due during the year.
All reimbursed expenses represent the actual costs the directors incurred.
F-60
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma condensed financial statements (the "Pro Forma
Financial Statements") are presented to give effect to the acquisition of a
25.1% interest in WRDC Limited (WRDC) in February 2000, and the sale of common
stock in February 2000, resulting in net proceeds of $28,000,000, which provided
the funds for the acquisition of WDRC. The Pro Forma Financial Statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results that would have occurred if the transactions given pro
forma effect herein had been consummated as of the time reflected herein, nor
are they necessarily indicative of the future operating results or financial
position of the Company. The pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The 25.1% investment in WRDC has been accounted for under equity method of
accounting. Differences between the amounts included herein and the final
allocations are not expected to have a material effect on the Pro Forma
Financial Statements. These Pro Forma Financial Statements should be read in
conjunction with the historical financial statements and related notes of the
Company and WRDC included elsewhere in this Prospectus.
The following unaudited pro forma condensed statements of operations for the
year ended June 30, 1999 and the nine months ended March 31, 2000 give effect to
the investment in WRDC as though it had occurred on July 1, 1998.
F-61
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999 AND THE NINE MONTHS ENDED
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999 NINE MONTHS ENDED MARCH 31, 2000
------------------------------------ --------------------------------------
PRO FORMA PRO FORMA
COMPANY ADJUSTMENT PRO FORMA COMPANY ADJUSTMENT PRO FORMA
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 33,711 $ -- $ 33,711 $ 121,186 $ -- $ 121,186
Cost of sales................ (10,559) -- (10,559) (1,277) -- (1,277)
---------- -------- ---------- ----------- -------- -----------
Gross profit............... 23,152 -- 23,152 119,909 -- 119,909
Operating expenses........... (72,783) -- (72,783) (4,802,036) -- (4,802,036)
---------- -------- ---------- ----------- -------- -----------
Operating loss............. (49,631) -- (49,631) (4,682,127) -- (4,682,127)
Other income (expense)
Equity in earnings (loss)
of WRDC.................. -- (26,472)(1) (26,472) -- (49,236) (49,236)
Other, net................. -- -- -- 71,421 -- 71,421
---------- -------- ---------- ----------- -------- -----------
-- -- (26,472) 71,421 (49,236) 22,185
---------- -------- ---------- ----------- -------- -----------
Net loss..................... $ (49,631) $(26,472) $ (76,103) $(4,610,706) $(49,236) $(4,659,942)
========== ======== ========== =========== ======== ===========
Loss per share............... $ 0.00 $ 0.00 $ (0.32) $ (0.32)
========== ========== =========== ===========
Weighted average number of
shares outstanding......... 13,765,808 78,000 13,843,808 14,462,226 78,000 14,540,226
========== ======== ========== =========== ======== ===========
</TABLE>
Notes:
(1) To record equity in earnings or loss of WRDC for the year ended July 31,
1999 and the nine months ended April 30, 2000, respectively, adjusted to
provide amortization of goodwill of $56,000 for the year ended June 30,
1999, and $42,000 for the nine months ended March 31, 2000. Goodwill is
being amortized over ten years by the straight-line method. The fiscal year
of WRDC ends on July 31.
(2) To reflect the portion of the shares issued in the offering in February
2000, the proceeds of which were used to fund the $800,000 investment in
WRDC.
(3) Revenue and net earnings of WRDC were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED APRIL 30,
JULY 31, 1999 2000
-------------- ----------------
<S> <C> <C>
Revenues............................................... $1,831,261 $2,075,000
Net earnings (loss).................................... $ 117,641 $ (28,830)
</TABLE>
F-62
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Toucan Gold Corporation
We have audited the accompanying consolidated balance sheets of Toucan Gold
Corporation as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998, and the period from November
3, 1995 (inception) through December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial position of Toucan Gold
Corporation as of December 31, 1997 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998 and the period from November 3, 1995 through December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is in its
development stage and is not generating cash from operations. As discussed in
Note C, additional financing is necessary for the Company to continue its
exploration and development activities. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note C. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
GRANT THORNTON LLP
Dallas, Texas
March 5, 1999
F-63
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998 JUNE 30, 1999
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash................................................... $ 504,795 83,973 $ 711
Receivables and other assets........................... 16,375 47,844 1,024,200
----------- ----------- -----------
Total current assets............................... 521,170 131,817 1,024,911
Noncurrent receivable.................................. -- -- 718,900
Investment in subsidiary............................... -- -- 1,707,398
Mineral rights......................................... 3,087,895 2,559,869 --
----------- ----------- -----------
$ 3,609,065 $ 2,691,686 $ 3,451,209
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Amounts payable to related parties..................... $ 131,139 $ 100,436 $ 70,000
Accrued expenses and other liabilities................. 67,974 -- 149,207
----------- ----------- -----------
Total current liabilities.......................... 199,113 100,436 219,207
Stockholders' equity
Preferred stock, par value $.01 per share;
authorized, 2,000,000 shares; issued and
outstanding, none.................................. -- -- --
Common stock, $.01 par value per share; authorized
30,000,000 shares; issued and outstanding 8,039,933
shares and 8,237,933 shares and 9,085,433.......... 80,399 82,379 90,854
Additional paid-in capital........................... 4,488,606 4,526,226 4,687,251
Deficit accumulated during the development stage..... (1,159,053) (2,017,355) (1,546,103)
----------- ----------- -----------
Total stockholders' equity......................... 3,409,952 2,591,250 3,232,002
----------- ----------- -----------
$ 3,609,065 $ 2,691,686 $ 3,451,209
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 3, 1995 NOVEMBER 3, 1995
(COMMENCEMENT FOR THE SIX (COMMENCEMENT
FOR THE YEARS ENDED DECEMBER 31, OF OPERATIONS) MONTHS OF OPERATIONS)
--------------------------------- THROUGH ENDED THROUGH JUNE 30,
1996 1997 1998 DECEMBER 31, 1998 JUNE 30, 1999 1999
--------- --------- --------- ------------------ -------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cost and expenses
Legal and professional
fees.................. $ 156,442 $ 312,007 $ 141,261 $ 612,210 $ 128,568 $ 740,778
Consulting fees......... 24,000 237,288 214,985 476,273 170,581 646,854
Abandoned claims........ -- 50,000 385,420 435,420 -- 435,420
Travel costs............ 114,264 82,254 14,818 253,889 15,031 268,920
Public relations........ 33,655 59,613 62,766 156,034 2,388 158,422
Other................... 30,110 42,553 15,101 88,054 12,124 100,178
--------- --------- --------- ----------- --------- -----------
Total cost and
expenses............ 358,471 783,715 834,351 2,021,880 328,692 2,350,572
Other (income) expense
Interest income......... (17,650) (59,168) (1,898) (78,716) -- (78,716)
Gain on sale of
subsidiary............ -- -- -- -- (799,944) (799,944)
Interest expense........ 48,342 -- 25,849 74,191 -- 74,191
--------- --------- --------- ----------- --------- -----------
Total other (income)
expense............. 30,692 (59,168) 23,951 (4,525) (799,944) (804,469)
--------- --------- --------- ----------- --------- -----------
Net earnings (loss)... $(389,163) $(724,547) $(858,302) $(2,017,355) $ 471,252 $(1,546,103)
========= ========= ========= =========== ========= ===========
Basic and diluted earnings
(loss) per share........ $ (.09) $ (.09) $ (.11) $ .06
========= ========= ========= =========
Weighted average shares
outstanding--basic and
diluted................. 4,210,334 7,476,372 8,050,891 8,533,318
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
-------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at November 3, 1995............. -- $ -- $ -- $ -- $ --
Issuance of common stock................ 647,857 96,170 -- -- 96,170
Net loss................................ -- -- -- (45,343) (45,343)
--------- -------- ---------- ----------- ----------
Balance at January 1, 1996.............. 647,857 96,170 -- (45,343) 50,827
Recapitalization of Toucan Mining
Limited and merger with Starlight
Acquisitions, Inc..................... 4,453,602 (50,787) 150,787 -- 100,000
Issuance of common stock, net of
expenses of $519,700.................. 2,331,141 28,943 3,899,892 -- 3,928,835
Net loss................................ -- -- -- (389,163) (389,163)
--------- -------- ---------- ----------- ----------
Balance at December 31, 1996............ 7,432,600 74,326 4,050,679 (434,506) 3,690,499
Issuance of common stock................ 607,333 6,073 437,927 -- 444,000
Net loss................................ -- -- -- (724,547) (724,547)
--------- -------- ---------- ----------- ----------
Balance at December 31, 1997............ 8,039,933 80,399 4,488,606 (1,159,053) 3,409,952
Issuance of common stock................ 198,000 1,980 37,620 -- 39,600
Net loss................................ -- -- -- (858,302) (858,302)
--------- -------- ---------- ----------- ----------
Balance at December 31, 1998............ 8,237,933 82,379 4,526,226 (2,017,355) 2,591,250
Issuance of common stock................ 847,500 8,475 161,025 -- 169,500
Net earnings............................ -- -- -- 471,252 471,252
--------- -------- ---------- ----------- ----------
Balance at June 30, 1999 (unaudited).... 9,085,433 $ 90,854 $4,687,251 $(1,546,103) $3,232,002
========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-66
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 3, 1995 NOVEMBER 3, 1995
FOR THE YEARS ENDED (COMMENCEMENT FOR THE (COMMENCEMENT
DECEMBER 31, OF OPERATIONS) SIX MONTHS OF OPERATIONS
------------------------------------- THROUGH ENDED THROUGH
1996 1997 1998 DECEMBER 31, 1998 JUNE 30, 1999 JUNE 30, 1999
----------- ----------- --------- ------------------ ------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net earnings (loss)............. $ (389,163) $ (724,547) $(858,302) $(2,017,355) $ 471,252 $(1,546,103)
Adjustments to reconcile net
earnings (loss) to net cash
used in operating activities
Claims written off.......... -- 50,000 385,420 435,420 -- 435,420
Gain on sale of
subsidiary................ -- -- -- -- (799,944) (799,944)
Issuance of common stock in
payment of expense........ -- -- -- -- 169,500 169,500
Net changes in operating assets
and liabilities
Receivables and other
assets...................... 1,626 (10,001) (19,269) (35,644) 12,725 (22,919)
Accrued expenses and other
liabilities................. (11,289) 169,802 220,007 419,120 71,315 490,435
----------- ----------- --------- ----------- --------- -----------
Net cash used in operating
activities................ (398,826) (514,746) (272,144) (1,198,459) (75,152) (1,273,611)
Investing activities
Acquisition and exploration of
mineral rights................ (1,235,912) (1,446,453) (710,748) (3,512,643) (78,110) (3,590,753)
Sale of option (Note C)......... -- -- 275,000 275,000 -- 275,000
Net cash used in investing
activities................ (1,235,912) (1,446,453) (435,748) (3,237,643) (78,110) (3,315,753)
Financing activities
Net repayments/borrowings from
related parties............... $ (72,260) $ (9,051) $ 287,070 $ 287,070 $ 70,000 $ 357,070
Issuance of common stock, net of
expenses...................... 3,624,835 444,000 -- 4,133,005 -- 4,133,005
Proceeds from merger with
Starlight
Acquisitions, Inc............. 100,000 -- -- 100,000 -- 100,000
----------- ----------- --------- ----------- --------- -----------
Net cash provided by
financing activities...... 3,652,575 434,949 287,070 4,520,075 70,000 4,590,075
----------- ----------- --------- ----------- --------- -----------
Net increase (decrease) in
cash...................... 2,017,837 (1,526,250) (420,822) 83,973 (83,262) 711
Cash at beginning of period....... 13,208 2,031,045 504,795 -- 83,973 --
----------- ----------- --------- ----------- --------- -----------
Cash at end of period............. $ 2,031,045 $ 504,795 $ 83,973 $ 83,973 $ 711 $ 711
=========== =========== ========= =========== ========= ===========
Cash paid for:
Interest........................ $ 48,342 $ -- $ 7,680 $ 56,022 $ -- $ 56,022
Noncash investing and financing
activities:
Mineral rights acquired for
common stock.................. 336,000 30,000 3,600 369,600 -- 369,600
Securities received on sale of
option........................ -- -- 677,500 677,500 -- 677,500
Securities used to satisfy
liabilities................... -- -- 665,300 665,300 -- 665,300
Common stock issued for
services...................... -- -- 36,000 58,500 -- 58,500
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE A--ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION
Starlight Acquisitions, Inc. (Starlight) was formed in 1989 and was a
publicly-held development stage company with no principal operations since its
incorporation. On May 10, 1996, Starlight merged with Toucan Mining Limited
(Toucan Mining), an Isle of Man corporation which began operations on
November 3, 1995. Pursuant to the terms of the merger agreement, each
stockholder of Toucan Mining received seven shares of Starlight common stock for
each share of Toucan Mining common stock. Immediately after the merger, the
stockholders of Toucan Mining owned approximately 89% of the outstanding common
stock of Starlight. Therefore, the merger has been accounted for as a reverse
merger, whereby Toucan Mining is deemed for accounting purposes to have acquired
Starlight.
During July 1996, Starlight formed Toucan Gold Corporation (Toucan Gold or
the Company), a wholly-owned subsidiary and a Delaware corporation. On July 29,
1996, Starlight merged into Toucan Gold, and pursuant to the terms of the
merger, the outstanding shares of Starlight were canceled in exchange for shares
of Toucan Gold. (See Note H).
NATURE OF OPERATIONS
Toucan Gold Corporation and subsidiaries, collectively (the Company) are
engaged in acquiring, exploring and developing mineral rights in Brazil. No
revenues have been generated. See Note C regarding sale of option to purchase
the Company's mineral rights.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
CONSOLIDATION
The consolidated financial statements include the accounts of the Toucan
Gold Corporation and its wholly-owned subsidiaries, Toucan Mining Limited
(Mining), and Isle of Man company, and Mineradora de Bauxita Ltd. (MBL), a
Brazilian company.
MINERAL RIGHTS
Acquisition costs of mineral rights and related exploration and development
expenditures are deferred. If deferred expenditures exceed estimated net
realizable values, the assets will be written down to their estimated net
realizable values. Costs relating to abandoned properties will be written-off
when such a decision is made.
CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. The remeasurement of local currencies and transactions denominated in
local currencies creates translation adjustments which are included in
operations. For 1996, 1997 and 1998, these translation adjustments were not
material.
F-68
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and payables
approximate fair value due to the short-term maturity of these financial
instruments.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM PERIOD FINANCIAL STATEMENTS
The consolidated financial statements of Toucan Gold Corporation and
subsidiaries as of June 30, 1999 and for the six month period then ended,
contained herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial position as of June 30, 1999, and the consolidated
results of operations and cash flows for the six month period then ended, have
been made. In addition, all such adjustments made, in the opinion of management,
are of a normal recurring nature. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the interim reporting rules of the
Securities and Exchange Commission.
NOTE C--SALE OF OPTION TO PURCHASE MINERAL RIGHTS
On December 3, 1998, the Company sold an option to Minmet PLC (Minmet), an
Irish publicly-traded company, to purchase all of the outstanding capital stock
of MBL. The option price was 7.5 million shares of Minmet valued at $677,500.
The option has an exercise price of 25 million Minmet shares and expires
June 30, 1999. In connection with the purchase of option, Minmet agreed to spend
$500,000 on exploration of MBL's mineral claims, to make a survey of the claims,
and to pay the operating costs of MBL for the period from November 1, 1998 to
June 30, 1999.
Minmet also acquired from the Company for $275,000, an option to acquire
$995,000 of debt owed by MBL to the Company. The option exercise price is
$250,000 plus warrants to purchase 7.7 million Minmet shares at (pound) .08 per
share. This option also expires on June 30, 1999.
The proceeds of $952,500 from the sale of the options have been applied
against the carrying value of the mineral interests. Based on the market price
of Minmet shares on March 1, 1999 of (pound) .075 ($.12), the Company would
recognize a gain of approximately $700,000 if both options were exercised.
However, there is no assurance the options will be exercised.
F-69
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D--REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
company as a going concern. However, the Company is a development stage company
which has undertaken a program of mineral exploration to target and explore
selected areas of its claims to determine which areas are most likely to contain
economic gold reserves.
The recoverability of the cost of mineral rights is dependent on the
Company's ability to continue exploration, establish the existence of
economically recoverable reserves, develop these reserves, and achieve
profitable production or obtain sufficient proceeds from the disposition of the
rights. The Company's ability to continue exploration is dependent upon raising
additional capital or embarking into joint ventures to fund these activities.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
in existence. As discussed in Note C, the Company has sold an option to Minmet
PLC for the purchase of mineral rights.
NOTE E--MINERAL RIGHTS
Mineral rights include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Consideration paid for priority claims................... $1,642,000 $1,350,680
Other acquisition and exploration costs (Note F)......... 1,445,895 2,161,689
---------- ----------
3,087,895 3,512,369
Less proceeds from sale of options..................... -- 952,500
---------- ----------
$3,087,895 $2,559,869
========== ==========
</TABLE>
The Company owns priority claims for approximately 480,000 (1,233,317 in
1997) hectares which were filed for exploration in 1995 with the Departamento
Nacional De Produca Mineral (DNPM), the Brazilian governmental agency
responsible for regulating mineral rights. The Company was not required to make
any payments to the DNPM or third parties in relation to the filing of these
claims.
In November 1996, the Company entered into a transaction with a Brazilian
individual to acquire 25 additional priority claims, over a period of time, as
each of these claims were confirmed by the DNPM. As of December 31, 1997, the
Company had acquired 16 of these claims, approximately 97,000 hectares,
although, the Company was informed by the DNPM that the seller did not hold
priority title on one of these 16 claims. As a result, the Company currently
holds priority claim on only 15 of these claims. Consideration paid for these
claims included $1,076,000 in cash and 210,000 shares of common stock.
In 1997, the Company acquired 10 claims from a stockholder for $50,000 in
cash, 133,333 shares of the Company's common stock, and warrants to purchase
133,333 shares at $1.50 per share. The warrants expire on January 1, 2000. In
1998, the Company acquired one claim from the same stockholder for
F-70
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--MINERAL RIGHTS (CONTINUED)
$48,000. The stockholder holds the claims on behalf of the Company under an
agreement of beneficial ownership.
In 1998, the Company abandoned 85 claims covering approximately 800,000
hectares, which resulted in a write-off of $385,420. No significant exploration
had been performed on these claims.
At December 31, 1998, the Company's remaining claims filed for exploration
covered approximately 941,000 hectares. The number of hectares for which
exploration is granted by DNPM is expected to be less than the number of
hectares for which the Company has filed.
NOTE F--RELATED PARTIES
From November 3, 1995 (inception) until November 1996, the Company's
activities were primarily financed by related parties in the form of short-term
loans. Advances and repayments during 1996 under the short-term loans were
$646,704 and $767,564, respectively. Interest expense paid in 1996 to related
parties in relation to these loans was $48,342.
Amounts payable to related parties at December 1997 and 1998 was $131,139
and $100,436, respectively.
In 1996, 1997, and 1998, the Company made payments of approximately
$307,000, $526,000 and $259,000, respectively, to related parties, including
five stockholders, for various consulting services including geological surveys
and advice, working with the DNPM to establish beneficial ownership of the
priority claims, Brazilian legal and regulatory advice in relation to the
priority claims, and the registration of MBL. Included in these costs are
approximately $250,000, $330,000 and $174,000 in 1996, 1997 and 1998,
respectively, which are considered to be costs relating to the acquisition and
exploration of mineral rights and have been capitalized as mineral rights.
In 1998, a fee of $60,000 was paid to a related party for assistance in
connection with the sale of the option to Minmet PLC (Note C).
In 1998, related parties advanced $434,000 to the Company. Substantially all
of these advances, including interest of $18,000, were repaid by December 31,
1998 with shares of Minmet PLC received in connection with the sale of an option
(Note C). See Note E regarding other related party transactions.
NOTE G--PER SHARE DATA
Earnings (loss) per share is determined by dividing net earnings (loss) by
the weighted average number of common shares outstanding during the period. No
effect has been given to assumed exercise of options or warrants because their
effect would be anti-dilutive.
NOTE H--STOCK OPTIONS AND WARRANTS
As described in Note A, Starlight's outstanding shares were canceled in
exchange for shares of the Company. Additionally, Starlight warrants issued on
May 10, 1996 to purchase an additional 100,000 shares of Starlight common stock
at an exercise price of $4.00 per share were exchanged for the Company's
warrants to purchase 100,000 shares of the Company's common stock at an exercise
price of $4.00 per share. The holders of these warrants have certain piggy-back
registration rights with respect to the shares
F-71
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK OPTIONS AND WARRANTS (CONTINUED)
of the Company's common stock underlying the warrants. The warrants are
immediately exercisable and expire on the six month anniversary of closing of
the first registration of securities by the Company.
On November 1, 1996, the Company completed an offering of 1,600,000 units
for gross proceeds of $4 million. Each unit consisted of one share of common
stock, par value $.01 per share, and one common stock share purchase warrant
(the Company Warrants). Each Company Warrant entitles the holder to subscribe
for one additional share of Company common stock at a price of $3.50 per share.
These warrants expired on January 31, 1998.
During 1997, the Company issued warrants to certain individual stockholders
to purchase 533,000 shares of the Company's common stock at an exercise price of
$1.50 per share. The warrants are immediately exercisable and expire in
January 1, 2000.
The Company issued stock options to employees in 1997. All options were
granted at prices no less than market price at date of grant. The Company
accounts for stock option grants pursuant to the provisions of APB No. 25 and
accordingly, has recognized no expense related to the grants. All options are
exercisable immediately, and expire over periods of approximately two to four
years after grant.
Option activity for 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at January 1, 1997........................... -- $ --
Granted................................................ 350,000 1.00
------- -----
Outstanding at December 31, 1997 and 1998................ 350,000 1.00
=======
Exercisable at December 31, 1997 and 1998................ 350,000 $1.00
======= =====
</TABLE>
The weighted average remaining life at December 31, 1997 of the options was
1.1 years.
If the Company had elected to account for stock options under the fair value
method pursuant to Statement of Financial Accounting Standards No. 123, net loss
and loss per share would have been increased to the pro forma amounts set forth
below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net loss:
Actual.............................................. $858,302 $724,547
Pro forma........................................... 950,802 759,547
Loss per share
Actual.............................................. $ 0.11 $ 0.09
Pro forma........................................... $ 0.12 $ 0.10
</TABLE>
F-72
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK OPTIONS AND WARRANTS (CONTINUED)
The fair value of these options was estimated at date of grant using the
Black-Scholes option pricing model with the following assumptions used:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Dividend yield............................................. 0% 0%
Volatility................................................. 122% 122%
Risk-free interest rate.................................... 5.0% 5.0%
Expected life.............................................. 1 year 2 years
</TABLE>
The weighted average fair value per share of options granted in 1997 and
1998 were $0.35 and $0.23, respectively.
NOTE I--INCOME AND OTHER TAXES
Income tax expense for all years differs from the amount computed by
applying the applicable U.S. corporate income tax rate of 34% to net loss before
taxes because a benefit has not been recorded for net operating loss
carryforwards due to uncertainty over their realization.
The tax effects of temporary differences that give rise to deferred tax
assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax asset
Net operating loss carryforwards.................... $ 188,000 $ 105,000
Organization costs.................................. 172,000 172,000
--------- ---------
Gross deferred tax assets............................. 360,000 277,000
Valuation allowance................................... (360,000) (277,000)
--------- ---------
Net deferred taxes................................ $ -- $ --
========= =========
</TABLE>
At December 31, 1998, the Company had approximately $500,000 of U.S. net
operating loss carryforwards expiring through 2018.
Under Brazilian tax law, MBL must begin to pay property taxes on the claims
under exploration upon the public disclosure of the claims by the Brazilian
authorities.
NOTE J--COMMITMENT AND CONTINGENCIES
Under an agreement with a Brazilian individual (Note E) , the Company is
committed to acquire 9 additional priority claims upon clearance of title by the
DNPM. A dispute has arisen between the parties as to the amount to be paid for
the additional claims. The Company interprets the agreement to provide for
consideration for each claim of $36,000 in cash and 12,000 shares of common
stock. Pending resolution of the dispute, the Brazilian individual is
withholding transfer documentation for the registration with the DNPM of the 15
claims previously delivered (Note E) . While transfer documentation is not a
prerequisite to registration of claims, the lack of documentation complicates
and prolongs the registration process. The Company has commenced the
registration process and believes that it will be successful in obtaining
registration of all 15 claims. However, there is no assurance that these claims
will be certified by the DNPM.
F-73
<PAGE>
TOUCAN GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J--COMMITMENT AND CONTINGENCIES (CONTINUED)
The Company is required to obtain the consent of surface owners to access
the surface property for exploration and mining. In the event an agreement
cannot be reached with the surface owner, the Company may seek legal recourse
under Brazilian law which provides the claim holder the right to access if
conducting mineral exploration activities. The surface owner is granted a
royalty on future production.
NOTE K-- INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(1) Sale of Mineral Rights
On June 30, 1999, Minmet exercised its options to purchase (1) all of the
outstanding capital stock of Mineradora de Bauxita Ltda. (MBL), a Brazilian
company and a wholly-owned subsidiary, and (2) debt in the amount of $1,000,000
plus interest owed by MBL to the Company. The aggregate exercise price of the
options was $3,400,000 consisting of 25 million Minmet ordinary shares, $250,000
in cash, and warrants to purchase 7.7 million shares of Minmet at (pound) .08
per share. The closing market price of Minmet shares at June 30, 1999 was
(pound) .0825 per share ($.13 at the then exchange rate). For accounting
purposes, the Company has valued the Minmet shares at (pound) .07 ($.1106) per
share, which is a discount from market because of restrictions agreed to by the
Company on their sale. The warrants were valued at $385,000. A gain on the sale
of $799,944 was recognized.
At June 30, 1999, the amounts due to Toucan Gold Corporation from Minmet are
reflected on the balance sheet as a receivable. A portion of the consideration
due from Minmet is owed to Toucan Mining Ltd. (TML), a wholly-owned subsidiary
which is no longer consolidated. See Note K(2). In July 1999, Minmet paid to
Toucan Gold Corporation and TML the entire amount of consideration due.
(2) Spin-Off of Subsidiary
On July 16, 1999, the Board of Directors approved the spin-off of all of the
outstanding common shares of TML to the shareholders of Toucan Gold Corporation.
Record date for the spin-off is August 3, 1999; provided, however, that the
record date will be effective only if the spin-off is effected within 60 days of
the record date. Accordingly, in the balance sheet at June 30, 1999, TML has
been deconsolidated and is carried on the equity method of accounting. At
June 30, 1999, the assets of TML consisted of cash of $498, a receivable from
Minmet of $1,656,900 and mineral rights in the amount of $50,000. The receivable
represents the portion of the sale proceeds due to TML (Note K(1)) and consists
of the warrants to purchase 7.7 million Minmet shares, valued at $385,000, and
11.5 million Minmet shares valued at $1,271,900.
(3) Purchase of ITIS Technologies Limited (ITIS)
On July 22, 1999, Toucan Gold Corporation acquired all of the outstanding
capital stock of ITIS, a U.K. company. Consideration given was 4,680,375 common
shares, which resulted in the ITIS shareholders owning 34% of the common stock
of Toucan Gold Corporation. ITIS is a software development company offering
business to business software to facilitate secure internet transactions.
As a result of the sale of MBL and the spin-off of TML, Toucan Gold will
have no operations, and its assets consist of only cash and receivables. The
acquisition or ITIS, therefore, will be accounted for as a recapitalization of
ITIS.
F-74
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 4
Special Note Regarding Forward-Looking
Statements; Market Data............. 12
Use of Proceeds....................... 12
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Authoriszor Inc. Selected Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Management............................ 32
Certain Relationships and Related
Transactions........................ 42
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 47
Plan of Distribution; Selling
Stockholders........................ 49
Where You Can Find More Information... 52
Legal Matters......................... 52
Experts............................... 53
Index to Financial Statements......... F-1
</TABLE>
2,827,273 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MAY 19, 2000
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