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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 1998
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
COMMISSION FILE NUMBER 0-24372
THE THORSDEN GROUP, LTD.
(Name of small business issuer in its charter)
DELAWARE 33-0611746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4505 South Wasatch Blvd., Suite 340
Salt Lake City, Utah 84124
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 424-0044
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No ______
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $144,271.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 22, 1998 was not determinable since the Common Stock was
not traded during the period.
The number of shares outstanding of the issuer Common Stock, par value $.001 per
share, as of June 22, 1998 was 20,207,625 shares.
No documents are incorporated by reference in this report.
TRANSITIONAL SMALL BUSINESS DISCLOSURE
FORMAT (CHECK ONE):
Yes _____ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General; Plan of Operation
The Thorsden Group, Ltd. (the "Company") is a Delaware corporation organized in
1992 for the purpose of seeking and acquiring business opportunities. In
October 1997, the Company acquired Arkona, Inc., a Utah corporation, through a
wholly owned subsidiary corporation in a reverse triangular merger, accounted
for as a purchase. Arkona Inc.'s predecessor, Arkona LLC, a Utah limited
liability company, was founded in September 1996 and had limited business
operations prior to the acquisition.
On June 5, 1998 the Company formed a new subsidiary company, Qui Vive Inc.,
incorporated in Delaware. This company will carry out the business of "Project
Roswell" more fully described below.
The core business of the Company currently is developing, marketing and selling
software products for use in portable and distributed network computing and is
conducted through its wholly owned subsidiary Arkona, Inc.
During the fiscal year ended March 31, 1998, and since that date, the Company's
management has directed much of its efforts in securing the engineering talent
and creating the environment required to build world class software products.
Through March 31, 1998, a marketing strategy has been shaped and tested most
recently at the JavaOne Conference in San Francisco, in March 1998. The Company
is currently in the initial stages of forming technology partnerships as part of
this strategy. The next stage of the plan is to put in place the sales
professionals necessary to assure the penetration of key target markets with the
products & solutions described below.
Distributed Computing
For more than a decade, the computer industry has been striving to extend the
value of stored information from large enterprise systems to networked desktop
computers. Networked computing allowed corporations to empower workers by giving
them direct control of information and applications. As a result, productivity
skyrocketed in many instances. In recent years, the Internet has allowed
companies to extend the scope and value of their networks even further. Members
of the Internet's "connected" community can obtain a wide variety of corporate
data. The Company believes a third iteration of this theme is quietly but
forcefully gaining momentum. Information access is once again being extended
further than ever before - this time to a wave of mobile, disconnected, and
geographically distributed employees, partners, and customers. Organizations
that take advantage of this third wave can finally apply corporate knowledge at
its ultimate and most critical destination - the customer point of service.
Intelligent Synchronization
Arkona's unique software solutions are helping to bring about this "distributed"
information wave by extending access to a business' most critical information
and applications - large knowledge databases. These databases are monolithic in
size and complexity which makes them inherently poor applications for mobile
workers such as field sales and service representatives. However, field sales
and service personnel and other disconnected employees and partners have an
acute and growing need for immediate access to large corporate databases.
When field personnel visit customers for sales or service calls, it is paramount
that they arrive with all pertinent customer information, including detailed
information on products, pricing, contracts, and any other information which
might affect the customer. However, this kind of structured information is
ideally suited for large corporate databases and workhorse computers, rather
than portable devices. To make matters worse, the information is rarely stored
in a single repository. The result is a complex computing environment difficult
for field service professionals to access and efficiently utilize.
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The Company believes that this simple requirement of efficiently extracting
information from larger, disparate databases and seamlessly synchronizing it
upon check in from the field is a struggle that costs corporations millions in
lost knowledge capital, lost sales, and lost customers. The need to resolve this
dilemma was the genesis of Arkona's software solutions.
Instead of aiming to displace large corporate databases, which function very
well at the home office where there is ample computing power, Arkona extends the
value of these databases by cleanly extracting mission critical information for
point of service use. By doing so, Arkona's software maximizes existing
software investments by working equally well with any of the widely used
database systems including Oracle, Sybase, Informix, PeopleSoft, BAAN, SAP,
Microsoft, and others.
How the Customer Benefits
The Company's products and services help customers to:
Optimize Synchronization of Data and Applications. Arkona Universal Update
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technology optimizes the process of synchronizing distributed and mobile
data sources. The Universal Update Server reduces bandwidth requirements by
distributing and reconciling only incremental differences between client
and server data sources. Administrators may also define profiles for
individual users, groups, or other servers. Information is customized and
distributed based on business logic stored in the user profile.
Reduce the High Cost of Information and Application Updates. The Company's
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synchronization solutions eliminate data "snapshots" mailed to the field,
costly downtime for application updates, and time consuming support of
remote installation procedures. This technology allows customers to simply,
inexpensively and securely update and synchronize critical information and
distributed applications.
Simplify the Delivery of Information. End-users can update information and
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applications with the click of a button, avoiding data/application
reconciliation problems.
Profit from Flexible Synchronization Solutions. True object design and
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reusable code libraries allow the Company to quickly and efficiently create
proven synchronization solutions to a customer's exact specifications. The
Arkona custom solutions take advantage of multiple data sources, data
types, OS platforms, and various mobile devices.
Leverage and Revitalize Legacy Systems. Arkona custom solutions easily
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integrate with existing corporate information and knowledge systems. The
Company designs distributed applications that extend a company's
information system investments instead of replacing them.
The Arkona Solutions
Universal Update/TM/
The Universal Update client and server represent the Company's core technology.
These modules work as embedded components within specific vertical solutions.
Customers and solution providers may choose to license the Universal Update
technology for use in their own products, or can work with the Company to build
more specific vertical solutions.
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Arkona OnSite/TM/ Field Service
Arkona OnSite Field Service is the Company's first vertical solution, designed
specifically for field service engineers. Arkona OnSite gives field service
engineers access to critical customer, product, and inventory information even
when disconnected at the customer's site. Using this product, customers can
gather data from a legacy database and store a replica of the database in a
laptop used at the customer's site. The information can be accessed with this
OnSite product without being connected to a network. Stored reports and other
information can be transmitted later when network connection is conveniently
available. The system is useful in settings where telephones or network ports
are not readily available or where wireless networking technologies are not
practicable or not allowed (such as hospitals). This product was developed in
collaboration with OEC Medical Systems, Inc. ("OEC"), an unaffiliated customer
of Arkona.
Arkona OnSite/TM/ Publisher
Arkona OnSite Publisher is currently being designed in collaboration with an
Arkona solution provider. The Company believes that Arkona OnSite Publisher
will allow large reference publishers to virtually eliminate production and
distribution of CD ROM publications in favor of on-line distribution. Electronic
titles will be synchronized automatically with publisher archives and placed
directly into a subscriber's own electronic library solution. It is currently
anticipated that the first implementation will be released to large legal
publishers and law firms in the third quarter of fiscal 1999.
Project Roswell
The digital revolution has evolved around a simple notion: that information
should be permanent. Unlike other media formats, digital information can be
stored forever, recovered at will, copied with ease, and shared anywhere.
Unfortunately, these attributes also give digital information a more sinister
side. Digital communication---your email --can just as easily be saved, copied,
recovered, and redistributed by anyone at any time with or without your consent
and frequently without your knowledge. Once an electronic email message has
been sent, an author loses all control of his or her words. According to
industry analyst Esther Dyson, "The challenge is not to keep everything secret,
but to limit misuse of such information."
The Company has developed an approach to solving these problems. Dubbed
"Project Roswell" ("Roswell"), the Company's solution is being designed to
facilitate electronic communication and give content control back to the author.
The project is presently in the design and architecture phase of development.
When the first version of the project is ready for launch, it is expected to
give email users the chance to direct how their words will be released, who can
see them, how they can be redistributed, and whether they can be printed,
copied, or saved. There can be no assurance that the safeguards of Roswell-
enhanced email will not be abused or circumvented by someone with the requisite
degree of computer sophistication and a malicious motive. However, subsequent
versions will continue to raise the bar against potential abuse and compromise
of security that is so easily breached, often accidentally, with current
systems.
The Company expects the level of security embedded in the first implementation
of Roswell will be sufficient to cover the needs of most of the users of the
product recognizing the trusted communications inherent in most email. The
Company believes the features of the first version of Roswell will address the
needs of approximately 80% of the market. Enhancements increasing the security
and further simplifying the product's usability will be added over time, as with
all software.
The first version is expected to include the following key features:
Content Restrictions Authors can decide whether their email messages
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can be copied, saved, or pasted by the
recipient.
Forwarding Restrictions Authors can prohibit recipients from forwarding
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their email in whole or in part.
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Lifespan Limits Messages can be configured to self-destruct
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after a predefined period or be accessed only at
certain times.
Dynamic Self-Destruction Messages may destroy themselves as they are
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read.
Persistence Limits Email authors can define the number of times any
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message can be viewed.
Message Withdrawal Authors can retract their Roswell enabled
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messages even after they have been sent over the
Internet.
These essential features of Roswell will include:
1. Email is created using the sender's favorite email software. Roswell is
currently being designed as an add-on to existing email software.
Secure Roswell email will be sent from any Java enabled email client
including email products from Netscape, Microsoft, Lotus, and many
others. Once an email has been authored, the user selects appropriate
Roswell security and auditing options from a simple, easy to use
interface or relies on either the user-preset or embedded defaults.
2. Roswell enabled mail server secures the email message. A Roswell
enabled mail server encapsulates and encrypts the email message. The
Roswell enabled email server will reside within a corporation or with
an Internet service provider.
3. Email recipient is notified. The Roswell enabled server notifies the
email recipient that a secured Roswell email has been received. Each
notification includes a hypertext link that quickly takes the recipient
to the secured message.
4. Access is granted using a personal password. Before the recipient can
open Roswell secured email, the recipient must first be authenticated.
This authentication process will employ industry standard
authentication mechanisms.
5. Content is controlled through sender-defined options. Even after access
has been granted, Roswell secured email continues to be restricted by
the sender defined options. Recipients cannot forward, save, or
manipulate the original email in any way forbidden by the sender.
Subsequent versions are expected to include some or all of the following
enhancements:
Auditing Using Roswell, email users can track the exact
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date and time their messages were received and
viewed. Authors can receive legal "proof of
delivery."
Anonymity Roswell can hide the fact that email messages
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were ever sent.
Digital Watermark Email recipients can be notified if messages
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have been compromised.
Standards Compliance Roswell will be fully compliant with existing
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email and key-certificate standards.
Recipient Protection Recipients can pre-screen their email by
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defining acceptable senders. Email from
unacceptable senders is returned unopened.
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Roswell is expected to be a critical solution for a wide variety of industries,
professions, and situations (and may well become the legally required standard
of care). In fact, the Company believes Roswell-secured email should be used in
any situation requiring discretion. Roswell is an ideal solution for:
- - Legal communications
- - Governmental agencies
- - Contract negotiations
- - Medical information
- - Sensitive human resource information
- - Communication of non-public corporate information
- - Any information which should not be public
- - Internal corporate strategy discussions
Roswell is currently in the design and architecture phase of development. It is
anticipated that the product will evolve from its initial implementation, which,
as described above, will represent a level of functionality sufficient to cover
most email users privacy concerns. However, it is the Company's intended goal
to implement other designs that eliminate intermediary services, further
simplify the functionality and usability of the product and simultaneously
increase the level of security in the product.
The ultimate design goal is to meet the most stringent secure messaging
requirements up to and including the standards of the US Department of Defense.
Increasing levels of security will be implemented en route to achieving this
final goal. In addition, implementations beyond email will be designed and
marketed once the email solution is successfully launched. Markets to be
targeted after the initial Roswell project is delivered include, but will not
necessarily be limited to: voice mail, pagers, databases, Usenet newsgroups, and
web publishing tools.
The Company is currently seeking to raise additional capital in order to
complete and move from the design and architecture phase of development to
completion, including the securing of all intellectual property protections
available, and marketing of the first version of Roswell.
The Company believes this can be done and Roswell will be launched in its
initial version by the end of calendar year 1998. However, there can be no
assurance that the Company will successfully complete the project, that as
completed, the product will include all or substantially all of the elements
described above, or that any of the other risks described herein will not
adversely affect the outcome of the Roswell project.
CERTAIN RISK FACTORS
The short and long-term success of the Company is subject to certain risks, many
of which are substantial in nature. Shareholders and prospective shareholders in
the Company should consider carefully the following risk factors, in addition to
other information contained herein. All forward-looking statements contained in
this Report are deemed by the Company to be covered by and to qualify for the
safe harbor protection provided by the Private Securities Litigation Reform Act
of 1995. Shareholders and prospective shareholders should understand that
several factors govern whether any forward-looking statement contained herein
will be or can be achieved. Any one of those factors could cause actual results
to differ materially from those projected herein. These forward-looking
statements include plans and objectives of management for future operations,
including plans and objectives relating to the products and the future economic
performance of the Company and its subsidiaries. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of any such statement should not be regarded as a representation by
the Company or any other person that the objectives or plans of the Company will
be achieved.
DEVELOPMENT STAGE; TECHNOLOGICAL UNCERTAINTY. The Company is a development
stage company. The Company has a limited operating history. There can be no
assurance that the Company will be able to achieve a significant level of sales
or attain profitability. The Company's operations have been limited to
developing software, initial sales and obtaining financing. As a result of the
increase in operating expenses caused by recent expansion of the Company's
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business, operating results may be adversely affected if significant sales do
not materialize, whether due to competition or otherwise.
There can be no assurance that the Company will be able to grow in the future or
attain profitability. As a result, the Company believes that its prior results
of operation are not necessarily meaningful and should not be relied upon as an
indication of future performance. The profit potential of the Company's
business is unproven, and, to be successful, the Company must, among other
things, develop and market software that is widely accepted by business
customers at prices that will yield a profit.
The Company's software is in a development stage and has only produced limited
sales. There can be no assurance that it will achieve broad commercial
acceptance. The Company's ability to generate future revenues will be
dependent on a number of factors, many of which are beyond the Company's control
and include, among others, the ability of the Company to carry on timely and
effective marketing campaigns and the rate the Company can establish new
products and competition.
Because of the foregoing factors, among others, the Company is unable to
forecast its revenues or the rate at which it will add new customers with any
degree of accuracy. There can be no assurance that the Company will be able to
increase its sales in accordance with its internal forecasts or to a level that
meets the expectations of investors. There can also be no assurance that the
Company will ever achieve favorable operating results or profitability. The
consolidated financial statements of the Company have been prepared on the
assumption that the Company will continue as a going concern. The Company's
independent public accountants have issued their report dated May 22, 1998 that
includes an explanatory paragraph stating that the Company's recurring losses
and accumulated deficit, among other things, raise substantial doubt about the
Company's ability to continue as a going concern. The Company's product line is
limited and it has been necessary to rely upon financing from the sale of its
equity securities to sustain operations. Additional financing will be required
if the Company is to continue as a going concern.
NEED FOR ADDITIONAL FUNDS. The business of the Company is capital intensive and
the Company will continue to incur significant operating losses over the next 12
months, primarily due to the market launch of its products, marketing
expenditures, and expansion of its research and development programs. Although
the Company believes it will have sufficient cash available to fund its
operations for approximately the next 12 months, additional funds may be
required in the event the Company has not begun to generate significant revenues
during that time.
As a result, the Company may find it necessary to postpone or cancel some of its
planned marketing and/or product development programs, which could adversely
affect future revenues and new product introductions. Notwithstanding revenues
that may be produced during the next 12 months, the Company anticipates that
additional funds will be required to continue the necessary levels of product
development and promotional expenses to meet the Company's long-term goals. The
Company intends to seek such additional funding through additional public or
private financings.
There can be no assurance that additional financing will be available, or, if
available, that it will be available on acceptable terms or in required amounts.
If additional funds are raised by issuing additional shares of Common Stock,
further dilution of the equity ownership of the Company's existing holders of
Common Stock will result. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its product
candidates and/or product development programs, and/or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its product candidates and/or technologies or
products that the Company would not otherwise relinquish.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results may fluctuate significantly in the future as a result of a
variety of factors, many of which are outside the Company's control. Factors
that may affect the Company's quarterly operating results include the rate at
which customers purchase the Company's software and the prices paid for such
software.
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Additional factors that may affect the Company's quarterly operating results
generally include the amount and timing of capital expenditures and other costs
relating to the expansion of the Company's business, the introduction of
software products by the Company or its competitors, price competition or
changes in the corporate Internet technology, technical difficulties or general
economic conditions and economic conditions specific to the Company's business.
A significant portion of the Company's expenses could be fixed in advance based
in large part on future revenue forecasts. If revenue is below expectations in
any given quarter, the adverse impact of the shortfall on the operating results
may be magnified by the inability to adjust spending to compensate for the
shortfall. Therefore, a shortfall in actual as compared to estimated revenue
would have an immediate adverse effect on the business, financial condition and
operating results that could be material.
In addition, the Company plans to increase operating expenses to fund additional
sales and marketing, general and administrative activities and infrastructure.
To the extent these expenses are not accompanied by an increase in revenues, the
business, operating results and financial condition could be materially
adversely affected.
Due to all of the foregoing factors, it is likely that the operating results in
one or more future quarters will fail to meet or exceed the expectations of
securities analysts or investors. In such event, the trading price of the
Common Stock of the Company, to the extent there is a market for such stock,
would likely be materially adversely affected.
MANAGEMENT OF EXPANDED OPERATIONS; DEPENDENCE ON KEY PERSONNEL. The Company may
not be equipped to successfully manage any future periods of rapid growth or
expansion, which could be expected to place a significant strain on managerial,
operating, financial and other resources. The Company is highly dependent upon
the efforts of management, and future performance will depend, in part, upon the
ability of management to manage growth effectively.
This will require the Company to implement financial controls, systems and
management information systems capabilities, to develop its operating,
administrative, financial and accounting systems and controls, to maintain close
coordination among engineering, accounting, finance, marketing, sales and
operations, and to hire and train additional technical and marketing personnel.
There is intense competition for management, technical and marketing personnel.
The loss of the services of any of the Company's management team or the failure
to attract and retain additional key employees could have a material adverse
effect on the business, operating results and financial condition.
Although the Company has obtained key-man life insurance on certain key members
of the staff, there can be no assurance that the amount of proceeds or any
recovery available under such policies would adequately compensate the Company
for the loss of services of any of these individuals.
UNCERTAIN ABILITY TO OBTAIN AND PROTECT PROPRIETARY INFORMATION. The Company
regards its intellectual property as critical to its success, and relies or will
rely on copyright, patent and trade secret protection to protect its proprietary
rights. The Company is pursuing or may pursue the registration of its
copyrights and trademarks and patent protection in the United States. Effective
trademark, copyright, trade secret or patent protection may not be available in
every country in which the products are or become available.
The Company intends to effect appropriate registrations internationally and
domestically as its operations expand. There can be no assurance that the
United States or foreign jurisdictions will afford the Company any protection
for its intellectual property. There also can be no assurance that any
intellectual property right of the Company will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide any
competitive advantage.
The Company could also incur substantial costs in asserting its intellectual
property or proprietary rights against others, including any such rights
obtained from third parties, and/or defending any infringement suits brought
against the Company. Although the Company has entered and will enter into
confidentiality and invention agreements with its
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employees and consultants, there can be no assurance that such agreements will
be honored or that the Company will be able to protect its rights to its
unpatented trade secrets and know-how effectively.
Moreover, there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. In addition, the
Company may be required to obtain licenses to certain intellectual property or
other proprietary rights from third parties. There can be no assurance that any
such licenses or proprietary rights would be made available under acceptable
terms, if at all. If the Company does not obtain required licenses or
proprietary rights, it could encounter delays in product development or find
that the development or sale of products requiring such licenses could be
foreclosed.
BUDGET AND COST OVERRUNS; PRODUCTION DELAYS. The Company budgets the cost of
each project, reviews cost reports and updates its cost projections regularly.
However, there can be no assurance that the actual production costs for its
projects will remain within budget. Risks such as production delays, higher
talent costs, increased subcontractor costs, and other unanticipated events
(including, but not limited to delays in obtaining necessary financing) may
substantially increase production costs and delay or even prevent completion of
the production of any one or more of the programs now or in the future. The
failure to remain within budget and deliver products on time may have a material
adverse effect on the Company's operations.
Risk of Technological Change. The market for the Company's software products is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging nature of these
products and services and their rapid evolution will require that the Company
continually improve the performance, features and reliability of its software,
particularly in response to competitive offerings.
There can be no assurance that the Company will successfully respond quickly,
cost effectively and sufficiently to these developments. There may be a time-
limited market opportunity for the Company's products and there can be no
assurance that the Company will be successful in achieving widespread acceptance
of its products before competitors offer products and services with features and
performance similar to current offerings.
In addition, the widespread adoption of new technologies or standards could
require substantial expenditures by the Company to modify or adapt its products
and services and which could have a material adverse effect on the business,
operating results and financial condition. New software enhancements offered by
the Company may contain design flaws or other defects that could have a material
adverse effect on the business, operating results and financial condition.
There can also be no assurance that research and development and discoveries by
others will not render some or all of the Company's products or potential
product offerings uncompetitive or obsolete. The Company competes with a number
of entities that are currently developing and producing software products that
compete with its products. Many of these competitors have substantially greater
capital resources, research and development capabilities, and production and
marketing resources, capabilities and experience than the Company.
The Company's competitors may succeed in developing products that are more
effective or less costly than any products that may be developed by the Company,
or that gain market acceptance prior to any of the Company's products.
CONTROL BY OFFICERS AND DIRECTORS. The officers and directors of the Company
own 12,460,000 shares of the Company's outstanding Common Stock or approximately
62% of the outstanding Common Stock of the Company. As a result, such persons
(as a group) will be able to elect a majority of the Board of Directors, to
dissolve, merge, or sell the assets of the Company, and to direct and control
the operations, policies and business decisions.
NO PRIOR MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE. There
has been no market for the Common Stock of the Company and there is no assurance
that any market will develop. The Common Stock of the Company is not listed on
any exchange and its shares are not presently quoted and there is no market for
such shares. If and when
<PAGE>
such a market may develop, the market price of the Company's Common Stock, like
that of the securities of other software and high technology companies, may be
highly volatile.
Factors such as announcements by the Company or its competitors concerning
technological innovations, new products or procedures developed by the Company
or its competitors, proposed governmental regulations and developments in both
the United States and foreign countries, disputes relating to patents or
proprietary rights, publicity regarding actual or potential results relating to
product candidates under development by the Company or its competitors, delays
in product development, slow acceptance of the Company's products in new or
existing markets, and economic and other external factors, as well as period-to-
period fluctuations in financial results, may have a significant effect on the
market price of the Common Stock, to the extent a market develops.
The Company will apply for listing on the NASD Electronic Bulletin Board on or
before July 1, 1998. However, there can be no assurance that its application
will be approved or that, if approved, any market for the Company's securities
will thereafter develop.
RISKS OF LOW PRICED STOCKS. The National Association of Securities Dealers,
Inc. ("NASD") has recently increased the capital and surplus requirement for
initial listing and maintenance of securities on the NASDAQ SmallCap Market. The
Company intends to file for listing on the NASDAQ SmallCap Market upon
completion of future financings.
However, prior to that time, the Company's Common Stock will not be eligible for
quotation on NASDAQ and there can be no assurance that it will ever be so
eligible. Until such time as the Company is eligible to satisfy the listing
criteria of NASDAQ or another stock market, trading, if any, in the Common Stock
of the Company would be conducted in the over-the-counter market in the so-
called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
an investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, or the Company having
$2,000,000 in net tangible assets, trading in the Common Stock could be covered
by Rule 15c2-6 promulgated under the Exchange Act for non-NASDAQ and non-
exchange listed securities. Under such rule, broker-dealers who recommend such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
a net worth in excess of $1,000,000 or an annual income exceeding $200,000 or
$300,000, jointly with their spouse) must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale.
Securities are also exempt from this rule if the market price is at least $5 per
share. Under the rules and regulations of the SEC, additional disclosure is
required for penny stocks and for trades in any stock defined as a penny stock.
The SEC has defined a penny stock to be any NASDAQ or non-NASDAQ equity security
that has a market price or exercise price of less than $5 per share and allows
for the enforcement against violators of the rules. Unless exempt, the rules
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule prepared by the Commission explaining important concepts
involving the penny stock market, the nature of such market, terms used in such
market, the broker-dealer's duties to the customer, a toll-free telephone number
for inquiries about the broker-dealer's disciplinary history, and the customer's
rights and remedies in case of fraud or abuse in the sale.
Disclosure must also be made about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities, and,
if the broker-dealer is the sole market-maker for the securities, then such fact
must also be disclosed, as well as its control over the market. Finally,
monthly statements must be sent disclosing recent price information for the
penny stock held in the investor's account and information on the limited market
in penny stocks.
While many NASDAQ stocks are covered by the definition of penny stock,
transactions in a NASDAQ stock are exempt from all but the sole market-maker for
(i) issuers who have $2,000,000 in tangible assets ($5,000,000 if the issuer has
<PAGE>
not been in continuous operation for three years), (ii) transactions in which
the customer is an institutional accredited investor and (iii) transactions that
are not recommended by the broker-dealer. In addition, transactions in a NASDAQ
security directly with the NASDAQ market maker for such securities, are subject
only to the sole market-maker disclosure, and the disclosure with regard to
commissions to be paid to the broker-dealer and the registered representatives.
If the Company's securities are subject to the existing rules on penny stocks,
the market liquidity for the securities could be severely affected by limiting
the ability of broker-dealers to sell the securities and the ability of
purchasers in this offering to sell their securities in the secondary market.
ANTI-TAKEOVER EFFECT OF PREFERRED STOCK AND DELAWARE CORPORATE LAW. Under its
Certificate of Incorporation, as amended, the Company has authorized 10,000,000
shares of Preferred Stock, par value $.001 per share ("Preferred Stock") none of
which are outstanding. The Board of Directors has the authority to issue the
Preferred Stock with such voting and other rights superior to those of the
Common Stock, which could effectively deter any takeover attempt of the Company.
In addition, the Delaware General Corporation Law prohibits certain mergers,
consolidations, sales of assets or similar transactions between the Company on
the one hand and another company which is, or is an affiliate of, a beneficial
holder of 15% or more of the Company's voting power (defined as an "Interested
Stockholder") for three years after the acquisition of the voting power, unless
the acquisition of the voting power was approved beforehand by the Company's
Board of Directors or the transaction is approved by a majority of Company
shareholders (excluding the interested stockholder). The provisions prohibiting
interested stockholder transactions could also preserve control of the Company
by management.
Shares Eligible for Future Sale. As of March 31, 1998, 18,180,000 shares of the
Company's Common Stock outstanding are "restricted securities" as that term is
defined under Rule 144 of the Securities Act, and either presently or in the
future, may be sold pursuant to registration under the Securities Act, in
compliance with Rule 144 or pursuant to another exemption therefrom.
Rule 144, as currently in effect, provides that, in general, a person who has
beneficially owned restricted securities for a period of at least one year may,
within any three month period, sell in brokerage transactions an amount of
"restricted" shares that does not exceed the greater of 1% of the issuer's
then-outstanding securities or the average weekly trading volume of the issuer's
securities during the four calendar weeks prior to such sale. Rule 144, as
currently in effect, also permits, under certain circumstances, the sale of
shares without regard to the limitations described above, by non-affiliates of
the Company, after holding such shares for at least two years. Sales of
substantial amounts of the Common Stock of the Company in the public market
could adversely affect prevailing market prices.
NO DIVIDENDS. The Company has never paid cash dividends on its Common Stock.
It is the Company's intention to retain its earnings, if any, to finance the
operation and expansion of its business and, therefore, the Company does not
expect to pay cash dividends on the Shares in the foreseeable future.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no real property. Commencing in October 1997, the Company
leased a 2300 square foot facility in Salt Lake City, Utah, from an unaffiliated
third party at which it conducts all of its corporate, administrative, research
and development activities. The lease of that facility expires December 31,
1998, with an option to renew for one year. The base monthly lease payment for
that facility is $3412. These terms were negotiated through arms-length
transactions, and the Company believes that such terms are consistent with
prevailing market conditions.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In January 1998, holders of a majority of the Company's issued and outstanding
Common Stock approved an amendment to the Company's Certificate of Incorporation
by written consent. This amendment increases the authorized number of shares of
Common Stock to 50,000,000 shares and the number of shares of Preferred Stock to
10,000,000 shares. It makes no change to the par value of the shares or to the
rights of any outstanding series or class of shares.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no current market for the Company's Common Stock and there is no
assurance that any market will ever develop for such shares. To the extent a
market does develop in the future, the market price of the Common Stock will be
subject to significant fluctuations as a result of several factors, over many of
which the Company has little or no control. The Company will apply for listing
on the NASD Electronic Bulletin Board on or before July 1, 1998. However, there
can be no assurance that its application will be approved or that, if approved,
any market for the securities will thereafter develop.
At June 15, 1998 there were approximately 20,207,625 shares of Common Stock
issued and outstanding held by approximately 281 holders of record. The
Company has never issued any shares of Preferred Stock.
Recent sales of Unregistered Securities.
Private Placement. During the fourth quarter of the year ended March 31, 1998,
the Company conducted a private placement of its securities. A total of 207,625
shares of Common Stock were sold at a price of $2.00 per share, for gross
proceeds to the Company of approximately $415,250. The purchase price included
warrants to purchase additional 103,813 shares of Common Stock at prices ranging
from $3.00 to $4.00 per share. These securities were offered and sold pursuant
to exemptions from registration under the Securities Act of 1933, as amended,
including exemptions under Section 4(2) and Regulation D, promulgated under the
Act. The purchasers in this offering were accredited investors as that term is
defined under Rule 501 of Regulation D, as well as a limited number of
sophisticated purchasers who had access to information concerning the Company
necessary to make an informed investment decision concerning their purchase of
the Company's securities. The offering is not closed and the Company desires to
continue the offering until such time as $4,000,000 of gross proceeds has been
received. There can be no assurance that the Company will be successful in
placing all of the securities offered in the private placement.
Stock Options. The Company has issued options to purchase Common Stock to
certain employees as follows: (1) on February 28, 1998, the Company granted
options to four employees to purchase an aggregate of 250,000 shares of Common
Stock at $.50 per share. These options expire on February 28, 2001. (2) on
June 2, 1998, the Company granted an option to an employee to purchase 50,000
shares of Common Stock at $.50 per share. This option expires on June 2, 2001.
No options were issued to executives or directors of the Company during the year
ended March 31, 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's plan of operations is included in the discussion under "Business,"
above.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31, 1998
Revenues for the year ended March 31, 1998 were $144,271, compared to $0 for the
previous year. Cost of revenues totaled $2,110 in the year ended March 31,
1998, compared to $0 in the previous year. Expenses for the year included
$278,750 in research and development expense compared to $0 in the previous
year. The Company expects that research and development expenditures (including
expenses associated with recruiting and hiring new personnel) will continue to
increase during the next 12 months as development of existing and new products
continues. The increased expenses in the year ended March 31, 1998 reflect the
addition of personnel and costs associated with the merger of the Company with
Arkona. The Company had $20,393 in interest income during the year ended March
31, 1998, compared
<PAGE>
to $41 in the previous year. The net loss for the year was $636,545 (or $0.06
per share) compared to a loss of $64,706 (or $0.15 per share) in the year ended
March 31, 1997.
Following the successful completion of the merger, management's focus for the
balance of the fiscal year was to ensure the recruitment of the core team
necessary for the success of the Company. Management believes it has made
progress in securing key engineering talent in a very competitive and tight
market place. Recruitment of key personnel will be an ongoing task in
successive quarters.
Revenues for the year ended March 31, 1998 were primarily related to an ongoing
service contract with an existing customer (OEC) and cost of sales reflects the
costs associated with delivery of these services. These services include
customer support and technical services on the Company's OnSite Field Service
software product. The Company is currently bidding for a number of projects
utilizing its core technologies and expects to report successes in subsequent
quarters.
Expenses incurred during the year reflect the additional cost of people,
engineering research and marketing and selling efforts, which management
believes will form the foundation of future increased revenue and profitability
growth.
The Company's primary marketing focus during the year was to establish the
Company's identity in the marketplace and to build a secure platform for future
growth. During the year and quarter ended March 31, 1998, the Company provided
support services for OEC pursuant to a written agreement. The Company has
entered into a license agreement with this same customer where the Company has
agreed to pay a royalty to OEC on revenues generated from the licensing or use
of the OnSite Field Service software product developed by Arkona in 1997. The
royalty will be an amount equal to 5% of net revenues until OEC has recovered
the amount paid to Arkona to develop the product ($125,000), 2% of net revenues
thereafter until OEC has recovered twice the amount of its payments to Arkona
and 1% of revenues thereafter. No royalties have been paid by the Company to
date under this agreement.
During the year ended March 31, 1998, the Company completed a private placement
of its Common Stock, generating gross proceeds of $2,000,000 in cash and
marketable securities. The Company funded its operations during the period with
the proceeds of this offering. Capital spending of $198,095 was primarily for
computer and related equipment used in the Company's operations. During the
year ended March 31, 1998, the Company's operating activities used $543,715 of
cash, compared to generating $11,618 during the previous fiscal year.
In March 1998 the Company initiated a further private placement of its Common
Stock with the aim of generating gross proceeds of $4,000,000 in cash. As of
June 15, 1998, 207,625 shares of Common Stock and warrants to acquire additional
103,813 shares of Common Stock had been issued for gross proceeds of $415,250.
Liquidity and Capital Resources
At March 31, 1998, the Company had cash and cash equivalents of $568,612 as
compared to cash and cash equivalents of $11,614 as of March 31, 1997.
Management believes that the cash available to the Company from the recently
completed and currently in progress private placements and cash provided by
operations will be sufficient to meet the business requirements of the Company
for the next twelve months. The Company does not expect to make any purchases
of new plants or significant equipment in the next twelve months. However, the
Company continues to evaluate new product opportunities and may, if necessary,
seek to add equipment and personnel to pursue such opportunities in the future.
If the Company expands its efforts to develop new products, it may be required
to seek additional funding through the sale of its securities or through
borrowing. Presently the Company does not have an established bank line of
credit or similar facility. There can be no assurance that additional funding
will be available as required or on terms that are favorable to the Company. The
issuance of shares of the Company's Common Stock or other securities convertible
into such securities will result in dilution to the other shareholders of the
Company and such dilution may be material and substantial.
<PAGE>
OUTLOOK
This section contains forward-looking statements, all of which are based on
current expectations. The purpose of this section is to inform shareholders of
anticipated developments in the Company. The reader is cautioned that because
of certain risks applicable to the Company's business and to the industry in
which the Company operates, actual results may vary from those anticipated by
the Company.
Such risks and related factors may include, but are not limited to, potential
financial and other effects of future acquisitions, one-time charges and related
operational risks associated with such transactions, moves into new market
segments and the cost of managing growth of the business, business and economic
conditions and growth of the Company's target market segments and of the economy
generally, changes in customer order patterns, including timing of project
initiation and completion, competitive factors, timing of the release of new
products, and possible litigation involving intellectual property matters.
The Company expects to have a beta version of its Universal Update technology
available in the summer of 1998. The OnSite Publisher solution will be
available in the fall of 1998. The first release of Roswell's email solution
will be available in the fall of 1998.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company required to be included in
Item 7 are set forth in the Financial Statements Index.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
As of June 15, 1998, the directors and executive officers of the Company are as
follows:
NAME AGE POSITION
- ----------------- --- -----------------------------------------------------
John Blumenthal 37 Chief Executive Officer, Director and Chairman of the
Board
Stephen Russell 45 Vice President Finance, Chief Financial Officer and
Director
John Zollinger 29 Vice President Engineering, Chief Technical Officer,
Director
Tim Kapp 29 Vice President Marketing and Director
Gary Wright 37 Product Marketing Director, Director
Jeff Barlow 35 Vice President Technical Operations, Director
Marty Alfred 38 Director of Operations, Secretary, Director
Bruce Baird 42 Corporate Counsel and Director
John Blumenthal, 37, President and Director. Mr. Blumenthal has worked in the
information technology industry for more than 12 years. Much of his career has
been spent in the financial industry in New York City, where he worked as a
software engineer for Deutsche Bank AG. In 1992, Mr. Blumenthal relocated to
Salt Lake City, Utah, where he continued in a software and systems engineering
capacity for RasterOps and on storage and security consulting projects for a
large telecommunications company and a major microchip manufacturer in the
western US. His activity in this field attracted the attention of Veritas
Software, which employed him in 1994 to lead the technical and partner
development of that company's Far East, Japan and South American operations. In
these projects, Mr. Blumenthal was instrumental in architecting and implementing
security and storage technology for global 500 companies. His clients included
some of the world's largest telecommunications, manufacturing and financial
corporations. In 1997, Veritas selected Mr. Blumenthal as the engineer of the
year for all international operations. Prior to founding Arkona, Inc., Mr.
Blumenthal contributed to the product conception and strategic positioning of
the Veritas product line in the Internet marketplace. He also acted in an
advisory role to the US House of Representatives Subcommittee on Technology
concerning US encryption export law hearings held in 1997. While Mr.
Blumenthal's focus has been on comprehensive security and storage solutions, all
of his work has been consistently conditioned by the economics of managing
technology and people. At the Company, Mr. Blumenthal brings these experiences
to the relationships of a growing customer base, negotiates contracts,
contributes to engineering efforts and develops and manages the Company's
strategic direction. He has a BA from Columbia University in New York.
Stephen Russell, 45, Vice President Finance, Chief Financial Officer and
Director. Mr. Russell has a BS in Physics and Mathematics from the University
of Glasgow in Scotland. He is a Chartered Accountant and a graduate of the
International Advanced Management Program from The International Institute for
Management Development in Lausanne, Switzerland. Mr. Russell has over 20 years
experience as a general manager and CEO, CFO and management consultant.
Specializing in business and financial strategies to maximize profitability, the
management of change, people and communications, Mr. Russell's varied
assignments have taken him into a wide number of industries including computer
software, sales and service, construction, manufacturing, engineering and
electronics. Mr. Russell's expertise includes multi-country operations, owner-
managed businesses, start-ups, acquisitions and turnarounds. Mr. Russell has
demonstrated the ability to establish business goals and to meet them within
given constraints, provide leadership to ensure successful achievement of
individual and team goals, and deal effectively in a multi-cultural business and
social environment. While based in Switzerland and England, Mr. Russell
provided financial leadership to a $2 billion pan-European high tech business
ensuring successful turnaround of the business. As CEO of a $100
<PAGE>
million sales and service high tech company, Mr. Russell led a team that doubled
revenues in one year while meeting profitability targets.
John Zollinger, 29, Vice President Engineering, Chief Technical Officer and
Director. Mr. Zollinger has been involved in nearly all aspects of software
engineering during the past 11 years. He formed and managed a successful
software engineering consulting company, which completed contracts for Fortune
1000 companies across the United States. He is an expert on the management,
analysis, design and implementation of cutting edge object-oriented software
systems. Mr. Zollinger has been able to pass on his expertise through the
training and mentoring of other engineers, particularly in the area of
developing systems for a variety of industries and technologies. Mr.
Zollinger's past experience includes data warehousing/processing,
telecommunications, banking, oil and gas, insurance and trading systems. Mr.
Zollinger's experience in the software engineering process includes expertise in
project management, concept development, business analysis, design,
implementation, quality assurance and deployment. Prior to founding Arkona,
Inc., Mr. Zollinger assisted EOTT Energy Partners in establishing standard
practices for object-oriented analysis, design, and implementation to develop
strategies useful in that companies software engineering business. In the
development of the calling card fulfillment system for AT&T and an insurance
claim handling system for Filoli Information Systems, Mr. Zollinger developed
valuable strategies for legacy data migration and insuring extensibility of
products and components into new lines of business.
Tim Kapp, 29, Vice President Marketing and Director. Mr. Kapp holds a BA in
Economics and Econometric Modeling and an MBA from Brigham Young University. He
began his career as a financial analyst and his technical talent and analytical
ability led him to high-technology marketing. His career has focused almost
exclusively on the software industry and Internet technology providers since
1992. As Senior Market Research Analyst for Folio, a division of Open Market,
and as a Product Marketing Manager, he provided analysis of technology trends,
product forecasts, competitive strategies and customer requirements. In
addition to these roles, he has served as a member of the Internet Engineering
Task Force (IETF), the SGML Open Consortium, and as a representative to the
World Wide Web Consortium (W3C) Internet standards body. He brings to the
Company experience in market analysis, product positioning, pricing, and
software marketing strategies.
Gary Wright, 36, Director of Product Marketing and Director, has over 15 years
of diverse experience in a wide variety of industries. His primary strengths in
this field include his ability to evaluate and position new technologies,
implement systems and properly place personnel to insure completion of projects
on time and within budget, and his understanding of TQM and project processes.
His industry experience also includes computer software and hardware,
advertising and trade shows. He was an original founding member of CAAMS, Inc.
in Salt Lake City, Utah, a Divisional Manager for RasterOps, Inc., Vice
President of Serius Corporation, and, most recently, International Product
Marketing Manager for Folio Corporation. While serving as Divisional Director
for RasterOps, Mr. Wright established world wide sales and support groups that
won numerous awards and helped that company increase its revenues. At Serius,
Mr. Wright assisted in obtaining first and second round venture capital
investment. He successfully managed the creation of all localized language
versions of Folio's software products. Mr. Wright has a BS in Business
Administration from the University of Utah.
Jeff Barlow, 35, Vice President Technical Operations and Director, has more than
10 years experience in high-technology product development and management. He
has specialized skills in hardware and software design and testing, quality
assurance, product management, product data management, customer support and
regulatory affairs. He has demonstrated ability to work effectively among cross-
functional teams to maintain design integrity and product quality and to meet
customer needs. During the past decade, Mr. Barlow played a key role in the
growth of Wescor, Inc., a Utah-based high-technology medical device development
and manufacturing company. While with Wescor, he managed development and
publication of award-winning user and technical documentation. He designed and
managed the company-wide change control system. He was also instrumental in the
company's continuous quality improvement effort and was co-lead representative
for successful company-wide quality system audits by product safety and
regulatory agencies. He championed the use of information systems to enhance
and streamline corporate communications, and drove the design, selection,
installation, and maintenance of data processing, networking, and
<PAGE>
management information systems and software. Mr. Barlow was a member of the top-
level corporate steering committee, involved in setting long-range strategic
plans and evaluating new product opportunities. Mr. Barlow has a BS in Business
Administration, Production Management from Utah State University.
Martin Alfred, 38, Director of Operations, Secretary and Director, has more than
15 years of hands on business experience. He brings to the Company an ability to
plan, schedule and monitor the many jobs and tasks that occur simultaneously or
in succession, to manage working capital, accounts receivable, inventory, cash
and credit relations, to run day-to-day operations and to plan future
operations. Mr. Alfred has a BS in Business Administration from Valparaiso
University with an emphasis in accounting. Prior to joining the Company, Mr.
Alfred was a partner in a successful glass company located in Denver, Colorado.
During his tenure, the company continually improved profit margins and increased
revenues. He relocated to Salt Lake City after selling his interest in that
company.
Bruce Baird, 42, Corporate Counsel and Director. Mr. Baird has a BS in
Economics and a JD from the University of Utah. For nearly 20 years he has been
engaged in private practice of law in Salt Lake City, Utah.
All directors hold office until the next annual meeting of the stockholders of
the Company and until their successors have been elected and qualified. The
officers of the Company are elected annually and serve at the pleasure of the
Board of Directors. No executive officer or director of the Company has a
family relationship with any other executive officer or director of the Company.
Dr. David Valenti resigned as a Director on May 4 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
regulation of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms which they file. Based solely on its review
of the copies of such forms furnished to the Company during the fiscal year
ended March 31, 1998, the Company is not aware of any untimely filings.
ITEM 10. EXECUTIVE COMPENSATION
During the fiscal year ended March 31, 1998, the total compensation paid to the
Company's Chief Executive Officer, John Blumenthal, was $50,000. No
compensation was paid to the former Chief Executive Officer of the Company, Jehu
Hand, during the fiscal year ended March 31, 1998. No options or warrants or
similar rights to acquire securities of the Company were granted to executive
officers or directors of the Company during the year and no options, warrants or
similar rights to acquire securities of the Company were held by such persons at
the March 31, 1998. No executive officer of the Company received annual
compensation of $100,000 or more during the fiscal year ended March 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the Company's knowledge, the following table sets forth information regarding
ownership of the Company's outstanding Common Stock on June 15, 1998 by (i)
beneficial owners of more than 5% of the outstanding shares of Common Stock;
(ii) each director and each executive officer; and (iii) all directors and
executive officers as a group. Except as otherwise indicated below and subject
to applicable community property laws, each owner has sole voting and sole
investment powers with respect to the stock listed. The address of each person
identified below is the Company's principal office. There are no options or
warrants or similar rights to acquire shares of the Company's Common Stock
issued or outstanding. As of June 15, 1998, there were 20,207,625 shares of
Common Stock issued and outstanding.
<PAGE>
NAME AND ADDRESS SHARES OF COMMON STOCK
OF BENEFICIAL OWNERS BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ---------------------------------- ------------------ --------------------
Martin J. Alfred, Director 1,120,000 5.5%
Bruce Baird, Director 420,000 2.1%
Jeffrey Barlow, Director 1,540,000 7.6%
John Blumenthal, Director 2,940,000 14.5%
Timothy Kapp, Director 980,000 4.8%
Stephen Russell, Director 1,540,000 7.6%
David Valenti, 5% Beneficial Owner 1,540,000 7.6%
Gary Wright, Director 980,000 4.8%
John Zollinger, Director 2,940,000 14.5%
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP (8 PERSONS) 12,460,000 61.7%
There are no arrangements known to the Company, the operation of which may, at a
subsequent date, result in a change of ownership or control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits of the Company are included herein:
4.1 Form of Warrant to Purchase Common Stock (A)
4.2 Form of Warrant to Purchase Common Stock (B)
27 Financial Data Schedule
Financial statements for the year ended March 31, 1998
Reports on Form 8K. On April 3, 1998, the Company filed an amendment to a
Current Report on Form 8K relating to the acquisition of Arkona, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE THORSDEN GROUP, LTD.
By: /s/ John Blumenthal
--------------------------------
John Blumenthal
Its: Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities on the dates
indicated.
By: /s/ John Blumenthal Date: June 29, 1998
------------------------------------------
John Blumenthal, Chief Executive Officer
Director and Chairman of the Board
By: /s/ Stephen Russell Date: June 25, 1998
------------------------------------------
Stephen Russell, Chief Financial Officer
Vice President Finance and Director
(Principal Accounting Officer)
By: /s/ John Zollinger Date: June 25, 1998
------------------------------------------
John Zollinger, Director
By: /s/ Tim Kapp Date: June 25, 1998
------------------------------------------
Tim Kapp, Director
By: /s/ Gary Wright Date: June 25, 1998
------------------------------------------
Gary Wright, Director
By: /s/ Marty Alfred Date: June 25, 1998
------------------------------------------
Marty Alfred, Director
By: /s/ Jeff Barlow Date: June 25, 1998
------------------------------------------
Jeff Barlow, Director
By: /s/ Bruce Baird Date: June 26, 1998
------------------------------------------
Bruce Baird, Director
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
FINANCIAL STATEMENTS
March 31, 1998
[WITH INDEPENDENT AUDITORS' REPORT]
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
TABLE OF CONTENTS
Page
----
Independent Auditors' Report. . . . . . . . . . . . . 1
Balance Sheet - March 31, 1998. . . . . . . . . . . . 2
Statements of Operations for the years ended March
31, 1998, and 1997, and for the Period June 11, 1992
(inception) Through March 31, 1998. . . . . . . . . . 3
Statements of Stockholders' Equity for the Period
June 11, 1992(inception) Through March 31, 1998 . . . 4
Statement of Cash Flows for the years ended March
31, 1998, and 1997, and for the Period June 11, 1992
(inception) Through March 31, 1998 . .. . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . 6-11
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
The Thorsden Group, Ltd.[a development stage company]
We have audited the accompanying balance sheet of The Thorsden Group, Ltd.,
including the accounts of its wholly-owned subsidiary, Arkona, Inc.[a
development stage company] as of March 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Arkona, LLC, a limited liability company
and predecessor of Arkona, Inc., for the period from inception through December
31, 1996, were audited by other auditors whose report dated September 30, 1997,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Thorsden Group, Ltd.,
including the accounts of its wholly-owned subsidiary, Arkona, Inc. [a
development stage company] as of March 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has experienced losses from operations since
its inception and has not yet begun generating significant revenue which raises
substantial doubt about the ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 14.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
--------------------------------
MANTYLA, McREYNOLDS & ASSOCIATES
Salt Lake City, Utah
May 22, 1998
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEET
MARCH 31, 1998
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C>
Cash & cash equivalents - Note 1 $ 568,612
Marketable securities available for sale - Note 8 681,600
Accounts receivable - Note 2 8,313
-----------
TOTAL CURRENT ASSETS 1,258,525
PROPERTY AND EQUIPMENT - NOTE 6
Property and equipment 199,099
Less: Accumulated depreciation (6,418)
-----------
NET PROPERTY AND EQUIPMENT 192,681
OTHER ASSETS
Deposits - Note 13 107,246
Intangible assets - Note 4 21,734
-----------
TOTAL OTHER ASSETS 128,980
TOTAL ASSETS $ 1,580,186
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 93,288
Accrued liabilities 70,928
Deferred income on maintenance contract - Note 2 10,417
Current portion of capital leases - Note 5 30,653
-----------
TOTAL CURRENT LIABILITIES 205,286
LONG-TERM LIABILITIES
Capital leases payable - Note 5 26,319
-----------
TOTAL LONG-TERM LIABILITIES 26,319
-----------
TOTAL LIABILITIES 231,605
STOCKHOLDERS' EQUITY - NOTES 7, 8, 9, 10 & 11
Preferred stock -- 10,000,000 shares authorized,
$.001 par value; no shares issued and outstanding
Capital stock -- 50,000,000 shares authorized,
$.001 par value; 20,000,000 shares issued and
outstanding 20,133
Additional paid-in capital 2,192,174
Accumulated unrealized losses on investments (159,010)
Deficit accumulated during the development stage (704,716)
-----------
TOTAL STOCKHOLDERS' EQUITY 1,348,581
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,580,186
===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
AND FOR THE PERIOD JUNE 11, 1992(INCEPTION) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
PERIOD FROM
YEAR YEAR JUNE
ENDED ENDED 11,1992
3/31/98 3/31/97 THROUGH
3/31/98
<S> <C> <C> <C>
Revenues - Note 1 $ 144,271 $ -0- $ 144,271
Operating Expenses
Cost of sales 2,110 2,110
Research and development 278,750 6,610 285,360
Marketing, general and
administrative 517,084 58,137 579,051
------------ --------- --------------
Total Operating Expenses 797,944 64,747 866,521
------------ --------- --------------
NET LOSS FROM OPERATIONS (653,673) (64,747) (722,250)
Other Income/(Expense)
Interest income $ 20,803 $ 41 $ 20,844
Interest expense (3,200) (3,200)
Other expense (110) (110)
------------ --------- --------------
TOTAL OTHER INCOME/(EXPENSE) 17,493 41 17,534
------------ --------- --------------
NET LOSS BEFORE INCOME TAXES (636,180) (64,706) (704,716)
Provision for income taxes -0- -0- - 0-
NET LOSS $ (636,180) $ (64,706) $ (704,716)
============ ========= ==============
LOSS PER SHARE - NOTE 1 $ (.06) $ (.15) $ (.34)
============ ========= ==============
WEIGHTED AVERAGE NUMBER SHARES 10,212,250 424,500 2,098,900
============ ========= ==============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 11, 1992(INCEPTION) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
ACCUM.
ADDITNL. LOSS TOTAL
SHARES COMMON PAID-IN DEVEL STOCKHOLDERS'
ISSUED STOCK CAPITAL STAGE EQUITY
---------- --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 11, 1992 -0- $ -0- $ -0- $ -0- $ -0-
Issued common stock for cash
through March 31, 1993 400,000 400 100 500
Net loss for the year ended
March 31, 1993 (269) (269)
---------- --------- ------------ ----------- ----------------
BALANCE, MARCH 31, 1993 400,000 $ 400 $ 100 $ (269) $ 231
---------- --------- ------------ ----------- ----------------
Capital contribution 500 500
---------- --------- ------------ ----------- ----------------
Issued shares in Private 24,500 25 221 246
Placement for cash
Net loss for the year ended
March 31, 1994 (221) (221)
---------- --------- ------------ ----------- ----------------
BALANCE, MARCH 31, 1994 424,500 $ 425 $ 821 $ (490) $ 756
---------- --------- ------------ ----------- ----------------
Net loss for the year ended
March 31, 1995 (2,262) (2,262)
---------- --------- ------------ ----------- ----------------
BALANCE, MARCH 31, 1995 424,500 $ 425 $ 821 $ (2,752) $ (1,506)
---------- --------- ------------ ----------- ----------------
Net loss for the year ended
March 31, 1996 (1,078) (1,078)
---------- --------- ------------ ----------- ----------------
BALANCE, MARCH 31, 1996 424,500 $ 425 $ 821 $ (3,830) $ (2,584)
---------- --------- ------------ ----------- ----------------
Net loss for the year ended
March 31, 1997 (64,706) (64,706)
---------- --------- ------------ ----------- ----------------
BALANCE, MARCH 31, 1997 424,500 $ 425 $ 821 $ (68,536) $ (67,290)
---------- --------- ------------ ----------- ----------------
Issued stock for assets as
part of Arkona merger 15,575,500 15,575 15,575
Issued shares in Private
Placement for cash and
securities 4,000,000 4,000 1,926,486 1,930,486
Issued shares in Private
Placement for cash 132,500 133 264,867 265,000
Net loss for the year ended
March 31, 1998 (636,180) (636,180)
---------- --------- ------------ ----------- ----------------
BALANCE, MARCH 31, 1998 20,132,500 $ 20,133 $ 2,192,174 $ (704,716) $ 1,507,591
---------- --------- ------------ ----------- ----------------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
AND FOR THE PERIOD FROM JUNE 11, 1992(INCEPTION) THROUGH TO MARCH 31, 1998
<TABLE>
<CAPTION>
Period
Year Year from
ended ended 6/11/92
3/31/98 3/31/97 to
3/31/98
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY/(USED FOR) OPERATING
ACTIVITIES
Net Loss $ (636,180) $(64,706) $ (704,716)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,418 6,418
Increase in accounts receivable (8,313) (8,313)
Increase in accounts payable 84,517 6,187 93,288
Increase in other current liabilities 29,791 40,137 70,928
(Decrease)/increase in deferred income (19,583) 30,000 10,417
---------- -------- ----------
NET CASH USED FOR OPERATING ACTIVITIES (543,350) 11,618 (531,978)
CASH FLOWS PROVIDED BY/(USED FOR) INVESTING
ACTIVITIES
Lease deposits (107,246) (107,246)
Patent costs (21,734) (21,734)
Capital expenditures (198,095) (1,004) (199,099)
---------- -------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (327,075) (1,004) (328,079)
CASH FLOWS PROVIDED BY/(USED FOR) FINANCING
ACTIVITIES
Increase in capital lease obligations 56,972 56,972
Proceeds from Private Placement of shares 1,370,451 1,370,697
Cash contribution 1,000 1,000
---------- -------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,427,423 1,000 1,428,669
---------- -------- ----------
NET INCREASE/(DECREASE) IN CASH 556,998 11,614 568,612
BEGINNING CASH BALANCE 11,614 -0- -0-
---------- -------- ----------
ENDING CASH BALANCE $ 568,612 11,614 $ 568,612
========== ======== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 3,200 -0- $ 3,200
Cash paid during the year for income taxes $ -0- -0- $ -0-
NONCASH FINANCING ACTIVITIES:
Issued stock for marketable securities $ 840,610 -0- $ 840,610
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
Note 1 Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
(a) Organization
The Thorsden Group, Ltd. [Company] originally incorporated under the
laws of the State of Delaware in 1992 for the purpose of seeking and
acquiring business opportunities. In October 1997, the Company merged
with Arkona, Inc., a Utah corporation (formerly Arkona, LLC), in a
reverse triangular merger, accounted for as a purchase. Since the
merger, the Company has continued the business of Arkona, Inc.;
developing, marketing, and selling software products for use in
portable network computing on a world-wide basis. Significant
operating activities have not commenced at this time and the Company
is considered to be in the development stage. The ultimate success of
the Company will be dependent on its ability to adequately fund,
develop and market the product. Results of operations have been
combined for all periods presented in the accompanying financial
statements.
(b) Income Taxes
Effective April 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 [the Statement],
"Accounting for Income Taxes." The Statement requires an asset and
liability approach for financial accounting and reporting for income
taxes, and the recognition of deferred tax assets and liabilities for
the temporary differences between the financial reporting bases and
tax bases of the Company's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled.
The cumulative effect of this change in accounting for income taxes as
of March 31, 1998 is $0 due to the valuation allowance established as
described below.
(c) Net Loss Per Common Share
In accordance with Financial Accounting Standards No. 128, "Earnings
Per Share," basic loss per common share is computed using the weighted
average number of common shares outstanding. Diluted earnings per
share is computed using weighted average number of common shares plus
dilutive common share equivalents outstanding during the period using
the treasury stock method. Common stock equivalents were not included
in the computation of loss per share for the periods presented because
their inclusion is antidilutive.
(d) Cash & Cash Equivalents
For purposes of the statements of cash flows, the Company considers
cash on deposit in the bank and other unrestricted investments with
original maturities of three months or less at the time of purchase to
be cash equivalents.
6
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
[CONTINUED]
Note 1 Organization and Summary of Significant Accounting Policies[continued]
----------------------------------------------------------------------
(e) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities; 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.
(f) Revenue recognition
The Company recognizes revenue upon delivery of the software products
to the customer. Any additional obligations related to the software,
such as service agreements, are negotiated under a separate contract;
revenue on these items is recognized over the period of service as is
appropriate.
Note 2 Concentration
-------------
The Company entered into a contract to develop a software application
using the Company's proprietary system. This contract and sale was
made to the Company's only customer to date. The contract provided
for installment payments at specific dates. The total contract amount
was $125,000 and was paid during 1997.
As an additional provision of the contract, the Company agreed to pay
the customer royalties of two percent of net revenues up to the
contract amount ($125,000) and one percent of net revenues thereafter,
from subsequent sales or licensing to third parties of the product
developed for the customer.
Accounts receivable consists entirely of amounts due from this
customer. No reserve has been provided for uncollectible amounts.
The customer has prepaid on a service contract which has been recorded
as deferred income on maintenance contract.
Note 3 Income Taxes
------------
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which is effective for
fiscal years beginning after December 15, 1992. The Standard requires
the recognition of deferred tax assets and liabilities for the
temporary differences between the financial reporting basis and tax
basis of the Company's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled.
No provision has been made in the financial statements for income
taxes because the Company has accumulated substantial losses from
operations. Prior years' financial statements have not been restated
to apply the provisions of Statement No. 109.
7
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
[CONTINUED]
Note 4 Intangible Assets
-----------------
The Company has applied for patent protection for its proprietary
software and has expended $21,734 for these rights. The patents are
still in the process of being granted. The Company will begin to
amortize these assets upon completion of patent registration or at the
point when the products begin to generate revenue.
Note 5 Leases
------
The Company has various capital lease agreements collateralized with
property and equipment as of March 31, 1998. These leases bear
interest at 12% and have remaining terms of one to five years. Future
minimum lease payments are as follows:
Minimum
Year Ending Lease Principal Interest
----------- Payments
-----------------------------
3/31/1999 $35,986 $30,653 $5,333
3/31/2000 22,150 20,814 1,336
3/31/2001 2,367 1,708 659
3/31/2002 2,367 1,961 406
3/31/2003 1,977 1,836 141
-----------------------------
Total $64,847 $56,972 $7,875
=============================
The Company has an operating lease for its office facilities which
expires December 31, 1998. Future minimum lease payments for the
office facilities amount to $30,713. Rent expense during the current
year for the office was $11,643.
8
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
[CONTINUED]
Note 6 Property and Equipment
----------------------
Property and equipment are summarized by major classifications as
follows:
ACCUMULATED
ACQUISITION AMORTIZATION/ NET BOOK
COST DEPRECIATION VALUE
----------- ------------- ---------
Office Furniture $ 14,470 $ 528 $ 13,942
Computer Software 55,638 -0- 55,638
Computer Equipment 128,991 5,890 123,101
----------- ------------- ---------
TOTAL $ 199,099 $ 6,418 $ 192,681
=========== ============= =========
The Company has acquired approximately $69,008 in computer equipment
financed through capital lease. Depreciation expense, including the
amortization of assets acquired by capital lease, amounted to $6,418
during the year ended March 31, 1998. The Company computes
depreciation using the straight-line method over five years.
Depreciation is first charged in the quarter following the quarter of
acquisition.
Note 7 Merger with Arkona, Inc.
------------------------
Effective October 7, 1997, all of the Arkona, Inc. common stock issued
and outstanding was converted into and exchanged for 2,972,200 shares
of The Thorsden Group, Ltd., common stock. At that time all converted
Arkona stock was canceled. Additional shares were issued in the amount
of 11,027,800 to shareholders of Arkona and 1,575,500 shares were
issued to shareholders of Thorsden. The financial statements in this
report have been restated, where necessary, for the effects of this
merger.
Note 8 Private Placement Memorandum/Marketable Securities
--------------------------------------------------
Closing of the merger was subject to an offering of 4,000,000 shares
of common stock through a private placement memorandum. The shares are
exempt from registration under the Securities Act of 1933, and
applicable state securities laws, pursuant to exemptions contained
therein. Accordingly, the shares were offered by the company to a
limited number of persons. The 4,000,000 shares ($.001 par) were
issued for cash ($1,159,390 less $69,514 in costs) and securities
(valued at $840,610) to equal $2,000,000 or $.50 per share, prior to
settlement fees. The securities delivered in the placement consisted
of 3,000 shares of Eurogas Corporation (valued at $7.00 per share) and
204,200 shares of InterjetNet Corporation (valued at $5.00 per share).
A provision for accepting the securities allowed for the Company to
receive, upon sale of said securities, at least $.50 per share in cash
proceeds for the Thorsden stock issued under the offering. Any
shortfall in the value of the securities when sold would result in a
reduction of the number of shares issued through the offering. Rather
than
9
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
[CONTINUED]
Note 8 Private Placement Memorandum/Marketable Securities[continued]
-------------------------------------------------------------
reducing the number of shares issued, the subscriber has made a verbal
commitment to contribute additional shares of InterjetNet to ensure
that the Company is able to realize cash equal to the original market
value. As of March 31, 1998, the Company had remaining 3,000 shares
of Eurogas and 169,200 shares of Interjet. The securities are
available for sale and have been adjusted to fair market value as of
March, 31, 1998.
An additional Private Placement Memorandum (dated March 4, 1998) has
been issued. This offering involves issuance of up to 2,000,000 units,
consisting of 2,000,000 shares of common stock of the Company and
common stock purchase warrants. Proceeds from this offering of
$3,600,000 ($4,000,000 less $400,000 placement agent commissions) will
be used primarily to fund the development and marketing of the
Company's new "Project Roswell" email security software. As of March
31, 1998, 132,500 units had been issued for $265,000.
Note 9 Increase in Authorized Shares
-----------------------------
On January 15, 1998, the Board of Directors approved an amendment to
the Certificate of Incorporation of the Company to increase the
authorized number of shares from 20,000,000 to 50,000,000 for common
stock, and from 1,000,000 to 10,000,000 for preferred stock. The
preferred stock terms and conditions are to be determined by the Board
within the guidelines outlined in the Certificate of Incorporation.
Note 10 Subsequent Events
-----------------
The Board of Directors created a subsidiary (Qui Vive, Inc.), on June
5, 1998, for development of a new product. Pending approval of a
viable business case and an acceptable structure the new entity may
require restructure of current management.
In June of 1998, the Company received an additional $50,000 for stock
as part of the March 4, 1998 Private Placement Memorandum.
Note 11 Stock Option Plan
-----------------
The Company established the 1992 Stock Option Plan to provide
incentives to its directors, officers, employees and advisors, to do
business with the Company, and to enable the Company to obtain and
retain the services of the type of directors, officers, advisors and
employees considered essential for long-range success. Granting of
options is at the absolute discretion of the Stock Option Committee of
the Board. The Committee may determine the terms and conditions of
options, consistent with the Plan.
10
<PAGE>
THE THORSDEN GROUP, LTD.
INCLUDING THE ACCOUNTS OF ITS WHOLLY-OWNED SUBSIDIARY, ARKONA, INC.
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
[CONTINUED]
Note 11 Stock Option Plan[continued]
----------------------------
In February 1998, 250,000 non-qualified stock options were granted to
four individuals. These options vest over three years, expire
February 28, 2001, and, when fully vested, allow the holder to
purchase common shares at $.50 per share.
Note 12 401K Profit Sharing Plan and Cafeteria Plan
-------------------------------------------
On January 15, 1998, the Directors adopted employee benefit programs
consisting of a 401K Profit Sharing Plan and a Cafeteria Plan. The
401K Plan provides for employees to contribute on a pretax basis,
employer matching, and a broad portfolio of investment options within
the plan to be selected by the employee. Employer matching
contributions are made at the discretion of management. However, the
Company intends to match employee contributions fifty cents per dollar
of the first six percent of income contributed by employees. Profit
sharing expense recognized in the current year under this plan was
$4,138.
Note 13 Deposits
--------
In conjunction with its lease obligations, the Company has paid
security deposits of $107,246. Of this amount, $3,413 was paid at the
inception of the office lease to the landlord. The remaining amount
is composed of two certificates of deposit placed in financial
institutions which are collateral for the equipment and office leases.
Contract Requiring Deposit Rate Amount Maturity
-------------------------- ------ ------- -----------------
Equipment Lease 6.160% 62,883 November 4, 1999
Office Lease 5.100% 40,950 December 31, 1998
-------
Total 103,833
=======
Note 14 Going Concern
-------------
The Company has incurred losses from inception to March 31, 1998
amounting to $704,716. Financing the Company's activities to date has
primarily been the result of private placement offerings. The
Company's ability to achieve a level of profitable operations and/or
additional financing may impact the Company's ability to continue as
it is presently organized. Management intends to raise additional
capital through private placement offerings (see Note 10).
11
<PAGE>
EXHIBIT 4.1
EXHIBIT C
FORM OF SERIES A WARRANT
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THE THORSDEN GROUP, LTD.
SERIES A STOCK PURCHASE WARRANT
-------------------------------
Warrant No. A-[__] Dated ____________, 1998
The Thorsden Group, Ltd., a Delaware corporation (the "Company"), hereby
certifies that, for value received, [___________________], or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to a total of [ ] shares of Common Stock, $.001
par value per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an exercise price
equal to $3.00 per share (as adjusted from time to time as provided in Section
7, the "Exercise Price"), at any time and from time to time from and after the
date hereof and through and including ___________, 1999 (the "Expiration Date"),
and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant
by the transferee thereof shall be deemed the acceptance of such transferee of
all of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
<PAGE>
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:00 P.M., Salt Lake City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:00
P.M., Salt Lake City, Utah, time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 5 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 10 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company.
Any person so designated by the Holder to receive Warrant Shares shall be deemed
to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all
of the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
-2-
<PAGE>
account the adjustments and restrictions of Section 7). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
7. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 7. Upon each such adjustment of the
Exercise Price pursuant to this Section 7, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 7(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
7(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements
-3-
<PAGE>
of the Company) (an "Appraiser") mutually selected in good faith by the holders
of a majority in interest of the Warrants then outstanding and the Company. Any
determination made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 7, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 7 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii)the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock of the
Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or property; or
-4-
<PAGE>
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
8. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in cash or, in the event that a registration statement covering the resale of
the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, (note that
nothing herein shall obligate the Company to file such a registration statement
at any time), as follows:
(a) Cash Exercise. The Holder shall deliver immediately
-------------
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant
-----------------
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
9. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 9, be issuable
on the exercise of this Warrant, the Company
-5-
<PAGE>
shall, at its option, (i) pay an amount in cash equal to the Exercise Price
multiplied by such fraction or (ii) round the number of Warrant Shares issuable,
up to the next whole number.
10. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to The Thorsden Group, Ltd.,
4505 South Wasatch Blvd., Suite 340, Salt Lake City, Utah 84124, or to Facsimile
No.: (801) 424-0033 Attention: Chief Financial Officer, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 10.
11. Warrant Agent.
-------------
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
12. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 12(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
THE THORSDEN GROUP, LTD.
By:_______________________________
Name:_____________________________
Title:____________________________
-7-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To The Thorsden Group, Ltd.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of The
Thorsden Group, Ltd. and encloses herewith $________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
__________________________________________
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
______________________________________________________________________________
Dated:__________, _____ Name of Holder:
(Print)___________________________________
(By:)_____________________________________
(Name:) __________________________________________
(Title:)
__________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
-8-
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of The Thorsden Group,
Ltd. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of The Thorsden Group, Ltd. with full power
of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
G:\KRP\Arkona\warrantA.wpd
-9-
<PAGE>
EXHIBIT D
FORM OF SERIES B WARRANT
NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THE THORSDEN GROUP, LTD.
SERIES B STOCK PURCHASE WARRANT
-------------------------------
Warrant No. B-[__] Dated ____________, 1998
The Thorsden Group, Ltd., a Delaware corporation (the "Company"), hereby
certifies that, for value received, [___________________], or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to a total of [ ] shares of Common Stock, $.001
par value per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an exercise price
equal to $4.00/1/ per share (as adjusted from time to time as provided in
Section 7, the "Exercise Price"), at any time and from time to time from and
after the date hereof and through and including ___________, 2000 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant
by the transferee thereof shall be deemed the acceptance of such transferee of
all of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing
- -----------------------
/1/ The exercise price will be $3.00 per share if (i) exercised prior to
_____________, 1999, and (ii) the holder has also exercised or simultaneously
exercises all Series A Stock Purchase Warrants held by the holder.
<PAGE>
in the aggregate the right to purchase the number of Warrant Shares which may
then be purchased hereunder. Any such New Warrant will be dated the date of such
exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:00 P.M., Salt Lake City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:00
P.M., Salt Lake City, Utah, time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 5 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 10 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company.
Any person so designated by the Holder to receive Warrant Shares shall be deemed
to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all
of the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the
<PAGE>
purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as
herein provided, the number of Warrant Shares which are then issuable and
deliverable upon the exercise of this entire Warrant, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders (taking into account the adjustments and restrictions of Section 7). The
Company covenants that all Warrant Shares that shall be so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.
7. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 7. Upon each such adjustment of the
Exercise Price pursuant to this Section 7, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 7(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
7(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
a
-3-
<PAGE>
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") mutually selected in good faith by the holders of a majority in
interest of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 7, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 7 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock of the
Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company,
or any compulsory share exchange whereby the
-4-
<PAGE>
Common Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
8. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in cash or, in the event that a registration statement covering the resale of
the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, (note that
nothing herein shall obligate the Company to file such a registration statement
at any time), as follows:
(a) Cash Exercise. The Holder shall deliver immediately
-------------
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant to the
-----------------
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common Stock
for the five (5) Trading Days immediately prior to (but not including) the
Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
9. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number
-5-
<PAGE>
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 9,
be issuable on the exercise of this Warrant, the Company shall, at its option,
(i) pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
10. Notices. Any and all notices or other communications or
-------
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to The Thorsden Group, Ltd.,
4505 South Wasatch Blvd., Suite 340, Salt Lake City, Utah 84124, or to Facsimile
No.: (801) 424-0033 Attention: Chief Financial Officer, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 10.
11. Warrant Agent.
-------------
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
12. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 12(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
THE THORSDEN GROUP, LTD.
By:_______________________________
Name:_____________________________
Title:____________________________
-7-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To The Thorsden Group, Ltd.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.001 par value per share, of The
Thorsden Group, Ltd. and encloses herewith $________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise Price
(as defined in the Warrant) for the number of shares of Common Stock to which
this Form of Election to Purchase relates, together with any applicable taxes
payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
-------------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Dated:_________, _____ Name of Holder:
(Print)____________________________________
(By:)______________________________________
(Name:) ___________________________________________
(Title:) ___________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
-8-
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of The Thorsden Group,
Ltd. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of The Thorsden Group, Ltd. with full power
of substitution in the premises.
Dated:
_______________, ____
_______________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE THORSDEN GROUP LTD. FOR THE YEAR ENDED 3/31/98 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> MAR-31-1998
<CASH> 568
<SECURITIES> 682
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1258
<PP&E> 199
<DEPRECIATION> 6
<TOTAL-ASSETS> 1580
<CURRENT-LIABILITIES> 205
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 1328
<TOTAL-LIABILITY-AND-EQUITY> 1580
<SALES> 144
<TOTAL-REVENUES> 144
<CGS> 2
<TOTAL-COSTS> 796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (636)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
