SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
[x] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended March 31, 2000
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to
Commission File Number 0-24372
Sundog Technologies, Inc.
(Name of small business issuer in its charter)
The Thorsden Group, Ltd.
(Former name of small business issuer)
DELAWARE 33-0611746
(State or other jurisdiction (IRS Employer Identification No.)
of 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 under Section 12(b) of the Act: None
Securities registered under 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 [ ]
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. [ ]
Issuer's revenues for its most recent fiscal year were $45,975.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2000 was not determinable since our common stock was
not traded during the period. The number of shares outstanding of the issuer's
common stock, par value $.001 per share, as of June 30, 2000 was 23,929,745
shares.
No documents are incorporated by reference in this report.
Transitional Small Business Disclosure
Format (Check one):
Yes [ ] No [X]
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Sundog Technologies, Inc. (the "Company") is filing this Amendment No.
1 on Form 10-KSB/A (this "Amendment") to its Annual Report on Form 10-KSB for
the year ended March 31, 2000 filed with the SEC on July 14, 3000 (the "Form
10-KSB") for the purpose of adding the information required by Part III of Form
10-KSB. The Company intended to include such information in a definitive Proxy
Statement for its 2000 Annual Meeting of Shareholders that it believed would be
filed within 120 days of March 31, 2000. (SEC rules permit incorporation by
reference of information in a Proxy Statement only if the definitive Proxy
Statement is filed within 120 days of the end of a registrant's fiscal year.)
Such definitive Proxy Statement will not be filed by such date; accordingly, by
means of this Amendment, we hereby amend the Form 10-KSB to include the
information required by Part III thereof.
In order to facilitate understanding of the Form 10-KSB, in addition to
providing the information required by Part III of Form 10-K, which part is
amended and restated in its entirety, this Amendment restates in its entirety
all information contained in initial Form 10-KSB. No changes have been made to
any Part of the Report other than Part III. All subsequent references to "Form
10-KSB" shall refer to the initial Form 10-KSB, as amended by and restated in
this Amendment.
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Table of Contents
PART I......................................................................2
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Item 1. Description of Business........................................2
Introduction...........................................................2
History................................................................2
Universal Update(TM)Overview...........................................3
Our Strategy...........................................................5
Protection of Intellectual Property....................................7
Competition............................................................7
Employees..............................................................8
Subsequent Events-- Sale of QV and Acquisition of Common
Shares of Envision...................................................8
Certain Risk Factors..................................................10
Item 2. Description of Property........................................14
Item 3. Legal Proceedings..............................................15
Item 4. Submission of Matters to a Vote of Security Holders...........15
PART II....................................................................15
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Item 5. Market for Common Equity and Related Stockholder Matters......15
Item 6. Management's Discussion and Analysis..........................16
Item 7. Financial Statements..........................................17
Item 8. Changes in and Disagreement With Accountants on Accounting
and Financial Disclosure......................................17
PART III...................................................................17
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Item 9. Directors and Executive Officers of the Registrant.............17
Item 10. Executive Compensation........................................20
Summary Compensation Table............................................20
Option Grants in Last Fiscal Year.....................................20
Aggregated Option Exercises in Last Fiscal Year and Year End
Option Values......................................................21
Director Compensation.................................................21
Item 11. Security Ownership of Certain Beneficial Owners and
Management................................................21
Item 12. Certain Relationships and Related Transactions................22
Item 13. Exhibits and Reports on Form 8-K..............................23
CONSOLIDATED FINANCIAL STATEMENTS.........................................F-1
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PART I
Item 1. Description of Business
Certain statements in this Annual Report on Form 10-K constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. You should regard any statement in these sections that
is not a statement of historical fact to be a forward-looking statement of
management's beliefs, expectations and plans, all of which may be adversely
affected by risks and other factors outside the control of the Company. Actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause actual results to vary from
the views expressed in forward-looking statements include, but are not limited
to, risk factors discussed below in " - Certain Risk Factors."
Introduction
Sundog Technologies, Inc. ("we," "Sundog" or the "Company") is a Delaware
corporation organized in 1992 for the purpose of seeking and acquiring business
opportunities. Sundog was formerly known as The Thorsden Group, Ltd, and changed
its name to "Sundog Technologies, Inc." in April 1999. In October 1997, we
acquired Arkona, Inc., a Utah corporation ("Arkona"), through a wholly-owned
subsidiary corporation. Arkona is continuing its business of developing,
marketing and selling software products for use in portable and distributed
network computing. Unless otherwise required by the context, references to "we,"
"Sundog" or the "Company" in this Report include Sundog and Arkona.
On June 5, 1998, we formed a new subsidiary called, Qui Vive Inc. ("QV"). QV is
engaged in the development of e-mail security software. On April 7, 2000, we
sold our interest in QV to Envision Development Corporation, a Florida
corporation ("Envision") in exchange for 1,482,500 shares of Envision common
stock. See "Subsequent Events - Sale of QV and Acquisition of Common Shares of
Envision."
In March 2000, we closed down our professional services division, which provided
our customers with both training and consulting in business process improvement
(BPI). The professional service group was unable to generate sufficient sales to
justify the cost of continuing the group's independent operation. We will
continue to provide BPI consulting services as requested by customers.
History
In 1997, Sundog's founders anticipated the growth of an emerging market niche,
enterprise information exchange (EIX), an outgrowth of the traditional data
replication/synchronization marketplace. This innovative technology allows rapid
integration of business information systems throughout the enterprise and easy
sharing of critical information with remote, occasionally connected workers and
partners around the world.
During December 1998, Arkona completed the first shipping version of its core
product, Universal Update(TM) and announced a strategic partnership with Open
Market, Inc. ("Open Market"), the market share leader in Internet electronic
commerce software and a provider of information commerce tools. We shipped
revised Universal Update(TM) v. 1.5, which includes special application
"adapters" that integrate Universal Update(TM) and Open Market products, in June
1999. Although the results of pre-release evaluations of the combined offering
conducted at several Open Market customer and partner sites were promising,
early versions of Universal Update(TM) v. 1.5 were poorly marketed and did not
sell well.
In January 2000, we hired a new CEO and President, Mr. Alan Rudd. Mr. Rudd
immediately brought on a new executive team made up of individuals who Mr. Rudd
has worked with and whose qualifications Mr. Rudd knows. In addition to the new
executive team, we have hired an experienced domestic sales force of 6
salespersons. Like the executive team, the sales force is made up of individuals
that have proven themselves successful in the software industry.
On April 17, 2000 we shipped Universal Update(TM) 1.6 with support for Linux. On
May 22, 2000 we signed a distribution agreement with our first ever distributor,
Alternative Technology. On June 13, 2000 we announced a partnership with Aether
Software to extend core information exchange processes to palm-held personal
digital assistants (the most common PDAs are palm pilots and cell phones)
("PDA"s) and cell phones. With our new executive team, sales force and product
offerings, we expect significant growth during the coming year.
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Universal Update(TM) Overview
Moving data between dissimilar computing environments is a fundamental problem
at many different levels within a computing environment. Universal Update(TM) is
a tool that is used to solve this problem at the data and application level.
Universal Update(TM) provides a centralized data distribution hub for all of a
company's information sources. It easily handles the complex logistics of moving
information throughout the enterprise----tracking the information, managing
updates and modifications, and selecting the best delivery methods. Universal
Update(TM) is the information clearinghouse for the mobile and distributed
enterprise.
Primary Features and Benefits of Universal Update(TM)
o Complex data selection and extraction processes are hidden behind a
simple point-and-click graphic user interface ("GUI"). Typically,
selecting and exporting data requires scripting or programming. Custom
programming is virtually eliminated by using Universal Update(TM) .
o Universal Update(TM) is non-intrusive to source data set. Universal
Update(TM) does not require modification to the source data or
processes. It does not embed any additional code or functions within
the source environment and requires only read access rights to extract
data. As a result, Universal Update(TM) dose not affect business
functions and environment stability.
o Universal Update(TM) automatically recognizes changes in source data.
Through patented technology, Universal Update(TM) automatically
recognizes changes in the source data set and replicates those changes
to the target data sets. This allows incremental updates to the target
data without having to periodically reload the entire data set from
source to target.
o Universal Update(TM) works with a wide variety of source and target
data sets. Universal Update(TM) incorporates sophisticated adapter
technology that enables data movement between many different types of
source and target data sets. By working through JDBC/ODBC drivers
(industry standard interfaces that allow users to access read/write
databases) or defined application program interfaces (APIs), Universal
Update(TM) gives users great flexibility in linking dissimilar data
environments.
By design, Universal Update(TM) is intended to be non-intrusive to the source
data. As a result, scanning source data for changes and replicating those
changes requires an overhead of time. The amount of time required to scan the
source data, recognize changes and replicate those changes depends on source
data set size and the speed of the servers used to host the source data and
Universal Update(TM) . Universal Update(TM) is categorized as a near real-time
data replication solution and is not intended to compete with enterprise-class
real-time transaction replication systems.
Universal Update(TM)'s Niche
There are many tools and technologies available for moving data between data
sets. If the data sets are identical - for example, both are Oracle database
sets - capabilities exist within the database itself for both local and remote
data replication.
The technological challenge becomes much more complex when moving data between
different kinds of databases or data environments. There are numerous products
in addition to Universal Update(TM) designed for this type of data movement;
however, most such products require a significant amount of manual integration
before they can be set up and used. For example, most database products include
interfaces that permit a user to extract data from or import data to other
sources. These interfaces by definition require that another program, or custom
programming, be used to handle the data extraction and moving. Third party
commercial products are available to take advantage of the database interfaces;
however, they typically require additional custom programming to ensure that the
correct data is extracted in the correct format.
In this type of environment, Universal Update(TM) adds value by allowing data to
be easily extracted and moved between disparate data sets. Little, if any,
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custom programming is required. In cases where custom programming is required, a
user can typically limit such changes to a small portion of the program, called
"adapters," through a software developer kit (SDK) included with Universal
Update(TM). Selecting data to be extracted is a simple point-and-click operation
through a feature rich GUI. A user may also further refine the data by applying
filters to the data targets. Since the transport protocol between the different
modules of Universal Update(TM) is TCP/IP, the product can be used to move data
between both local and remote data sets.
How the Customer Benefits From Universal Update(TM)
Universal Update(TM)technology:
- Extends a company's system investments,
- Eliminates the complexity of advanced data distribution,
- Lowers the cost of providing timely information updates,
- Improves communication between distributed partners, customers, and
employees, and
- Ensures flexibility for future integration with new data sources and
applications.
Current Status of Development
We are currently shipping v1.6 of Universal Update(TM) with plans to release
v1.7 at the end of August 2000. We plan to release new versions of the product
every 3 - 4 months for the next year. We invested $856,111 and $597,774 in
development of Universal Update(TM) in FY 1999 and FY 2000 respectively. The
reason for the decrease in development costs in FY 2000 was insufficient
funding.
The purpose for this aggressive release schedule is to catch up for cutbacks
experienced in FY 2000 and to meet additional customer demands. A sample of the
enhancements planned for implementation over the next year is listed below.
o We plan to make performance and task management improvements.
o Universal Update(TM) will be revised to maintain table to table
relationships when distributing information between disparate
database systems.
o We plan to add data preview tools to view data within a potential
source database system as an external tool
o We plan to alter Universal Update(TM) to include the ability to
create products that span multiple tables within a database
system without creating a custom view using database tools
provided by the particular database vendor(s).
o We plan to alter Universal Update(TM) to allow users with SQL
experience to make modification to the SQL statement used by
Universal Update(TM). This will give the user the ability to
provide more advanced filter criteria depending on the database
source and the expertise of the Universal Update(TM) user.
o We plan to add a transformation API that will allow users to
perform major data transformation during the data distribution
process of Universal Update(TM). With this, Universal Update(TM)
users with Java and SQL expertise will be able to write to this
API.
Opportunities for Use of Universal Update(TM)
Because of the universal nature of the data exchange problem, there are numerous
potential applications for Universal Update(TM) technology. Common tasks such as
effecting a change from older technology to new technology, tying together
different groups within a company and allowing data interchange between
companies all create opportunities for Universal Update(TM). Examples of tasks
for which our Universal Update(TM) technology has been and can be used, based on
our discussions with customers, include:
o Synchronizing data from different systems in a university
setting.
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o Consolidating data from different sources to a single
authoritative source within a data center.
o Replicating government employee contact information throughout
the enterprise from the human resources package that is the
authoritative source.
o Importing employee information from a human resources database
into a health insurers database.
o Updating a hosted web-based catalog from customer databases.
o Aggregating corporate data to specialized servers that distribute
data to hand-held devices.
Our Strategy
We have elected to focus on a parallel marketing strategy pursuing both
near-term niche opportunities and longer-term strategic opportunities. We hope
that this parallel approach will allow Sundog to realize near-term revenue while
establishing a longer-term strategic market position.
Seek Near-Term Niche Opportunities
In order to generate revenues in the near term, we are seeking opportunities
with the following characteristics, which projects we call "niche
opportunities":
o Little existing competition. There are applications and/or
databases that have not achieved wide market acceptance. As a
result, third party tools and services are limited -- creating
little or no existing competition for Sundog.
o Sufficient market size. Ideal markets are smaller segments that
are not well supported but offer reasonable revenue
opportunities.
o Easy technical market entry. Niche opportunities must require few
or no changes to our exisitng product. This will allow us to keep
the majority of our technical resources focused on longer-term
strategic opportunities.
o Well-defined, active channel. A well-defined and active channel
is key, even if the channel is small, allowing us to quickly
enter this market and fully leverage sales and marketing
resources.
o Sufficient time window. Once a need has been identified within a
market, there must be a sufficient window of opportunity to allow
reasonable time for sales and marketing activities. Factors
include a reasonably stable customer base and no significant
planned changes to the applications we are targeting.
o Possible synergy with other niches. An example would be
developing a solution for a financial package that could easily
be adapted to other similar financial packages.
Seek Long-Term Strategic Opportunities
In order to strategically position ourselves for the long term, we are seeking
opportunities with the following characteristics, which we view as "strategic
opportunities":
o Significant market opportunity. The ideal market opportunity
would be in a rapidly expanding market with substantial growth
potential.
o Strong partnership positions. We would like to gain market
entry and establish a strategic position though one or more
key partnerships.
o Long-term revenue potential. We are seeking a market with size
and dynamics that will permit us to establish a long-term
revenue position.
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o Competitive advantages. We hope to establish a technical
advantage and key strategic relationships.
Identified Near-Term Niche Opportunities and Long-Term Strategic Opportunities
Sundog Technologies has identified several near-term and longer-term market
opportunities, including the following:
-> Near-Term Opportunity - Business Intelligence
"Business Intelligence" refers to the process of gathering and analyzing data to
gain additional insight into business issues and processes. It encompasses
several traditional data functions including data mining, data distribution and
reporting. These functions are well established for mainstream markets; however,
we have identified several opportunities in smaller market segments and should
begin producing revenues from those segments by the end of August 2000.
-> Longer-Term Strategic Opportunity - Mobile Computing
Mobile computing is currently being heralded as the next great frontier for
computing opportunity. Business Research Group estimates that there are 50
million mobile workers in the United States alone. Gartner Group has predicted
that by the end of 2000, 40% of white-collar workers will work in a mobile
environment and that, by 2003, 137 million businesses worldwide will be
employing servicing or supporting the mobile computing workforce.
Mobile computing began with notebook computers but is currently being extended
to personal digital assistants - (PDA's) and web enabled phones - (WEP) through
wireless access protocol (WAP). Both of these last two platforms are far more
pervasive and widely used than desktop and notebook PC's. Industry experts
estimate that there are 1 billion wireless phones in use worldwide. As PDA's are
updated to include better connectivity capabilities (similar to wireless phones)
and as wireless phones gain additional computing capability (similar to PDA's),
a huge market will be created for content management and content delivery to
these platforms.
Corporations are beginning to recognize the importance of PDA's and WEP's as an
extension to their corporate computing platforms. One of the technical problems
involved with using these mobile devices for corporate computing is enabling
complex corporate processes on these platforms. One industry leader describes
this problem as "fitting an elephant in a teacup."
Our Universal Update(TM) is a perfect solution for this problem, allowing key
pieces of data to be extracted from complex corporate sources and replicated to
mobile computing devices. We are aggressively pursuing partnerships that will
allow us to offer this type of solution to the mobile computing market.
Our Partnership With Aether Software
One of the first such partnerships is our partnership with Aether Software,
announced on June 13, 2000. Aether Software produces a family of products called
ScoutWare(TM). ScoutWare(TM) products are designed to manage PDA's and the
content on those devices from a central server. By deploying ScoutWare(TM)
solutions, corporations can utilize PDA's as valuable mobile computing platforms
for a variety of enterprise IT functions. As Aether Software's technologies are
combined with Universal Update(TM), Sundog and Aether Software expect to offer a
powerful solution for accessing and updating corporate data sources from or to
PDAs. The benefits of this partnership provided by both Companies include:
o Aether provides the framework for centrally managing and
distributing information to PDAs,
o Sundog provides easy access to multiple complex data sources,
o Sundog eliminates the need for custom programming or scripting to
access data and create data conduits,
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o Sundog is non-intrusive to data sources so that no changes are
required to core data or business processes,
o Sundog automatically recognizes a change in source data, tracks
changes and distributes incremental updates and leverages
Aether's ScoutWare(TM) to ensure that all mobile targets have
current data sets,
o Interoperability between ScoutWare and Universal Update(TM)is
expected to provide ease of use,
o The combined solution is expected to include full automation of
conduit and forms development so that PDA forms and applications,
and access to the data that drives those forms, can be quickly
and easily developed and implemented, and
o The combined solution is expected to permit deployment of mobile
solutions in hours, versus days or weeks.
-> Under Consideration For Future Expansion
We are constantly considering additional market opportunities as a way to expand
our product line and gain revenue from other market segments. Some of the market
opportunities currently under consideration include.
o Web content management
o Business to business (B2B) data interchange
o Directory services enablement
These and other market opportunities are being evaluated in terms of market
potential, competition, expected growth and other factors.
Protection of Intellectual Property
We regard our intellectual property as critical to our success, and we rely on
copyright, patented and trade secret protection to protect our proprietary
rights in intellectual property. on December 7, 1999. We are currently pursuing
and expect to pursue the registration of additional copyrights, patents and
trademarks in the United States. In addition, all of our employees involved the
creation of any software or other products being developed by the Company have
signed confidentiality and invention agreements.
As our operations expand, we intend to effect appropriate registrations
internationally and domestically as our operations expand, but the United States
or foreign jurisdictions may not afford any protection for our intellectual
property. Any of our intellectual property rights may be challenged, invalidated
or circumvented, or the rights granted thereunder may not provide any
competitive advantage.
Competition
The computer software industry is highly competitive, global in scope and
comprised of myriad enterprises and individuals. Methods of competition within
the industry include, but are not limited to, marketing, product performance,
price, product differentiation, service, technology and compliance with industry
standards. We anticipate that present and potential competition in the various
markets we serve or intend to serve will come from enterprises and individuals
of various types, many of which are larger and have greater resources than we
do. Firms not now in direct competition with Sundog may introduce competing
products in the future. It is possible for companies to be at various times
competitors, customers and collaborators in different markets.
Competitors for Sundog's present products, including Universal Update(TM)
version 1.6, include Crossworld's (product) Peer Direct's(product) Data
Function's and (product). While they are competitors, we differentiate ourselves
in two significant ways. Our competitors require significant programming where
Universal Update(TM) provides a point and click easy-to-use interface and they
are very intrusive while Universal Update(TM) is non-intrusive in that it
requires read only rights.
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Employees
As of March 31, 2000, in addition to our executive officers, we had 18
employees, including 6 computer programmers, 9 marketing and sales employees,
and 3 administrative and clerical employees. None of our employees is
represented by a collective bargaining organization, and we consider our
relationship with all our employees to be satisfactory. All of our employees are
presently located at our facility in at 4505 South Wasatch Boulevard in Salt
Lake City, Utah and are expected to relocated to the facility at 10542 South
Jordan Gateway, Suite 200, South Jordan, Utah 84005.
Subsequent Events-- Sale of QV and Acquisition of Common Shares of Envision
The Purchase and Sale Transaction.
On June 5, 1998, we formed a new subsidiary company, Qui Vive Inc. QV is engaged
in the development of e-mail security software. During late 1999, our board of
directors determined that the funding requirements, business strategy and
corporate culture of QV were not compatible with Sundog's objectives and
resources and determined to sell the subsidiary.
We had previously had discussions with Envision Development Corporation
(successor in interest to "Perfumania.com") concerning a business relationship
and were aware of Envision's interest in acquiring rights in secure e-mail
products and technology. After extensive arms-length negotiations between
Envision and Sundog, on March 31, 2000 we entered into an Amended and Restated
Acquisition Agreement (the "Acquisition Agreement") with Envision, QV
Acquisition Co., and Rock Mountain Ventures Fund, LP.
Pursuant to the Acquisition Agreement, on April 7, 2000, we transferred to
Envision all of our interest in QV in exchange for 1,219,500 shares of Envision
common stock delivered at closing and an agreement by Envision to issue to
Sundog another 272,500 shares of Envision common stock within 2 business days of
the approval of such issuance by its shareholders. Approval of the Envision
shareholders for the issuance of the yet-unissued 272,500 shares of Envision
common stock is required by the rules of the American Stock Exchange, Inc.,
because Sundog will be issued more than 20% of the issued and outstanding stock
of Envision. If such shares are not issued to Sundog on or before July 31, 2000,
Envision has agreed borrow 272,500 shares of Envision common stock from its key
shareholder and issue such shares to Sundog.
The 1,219,500 shares of Envision common stock we presently own, and the 272,500
shares of Envision common stock we expect to acquire are subject to a
contractual covenant prohibiting sale of such stock in the open market any time
on or before October 7, 2001. We are permitted to sell such shares in large
blocks in privately negotiated transactions; nevertheless, because any acquirer
must take such shares subject to the prohibition on sale before October 7, 2001,
we expect interest in acquiring our Envision shares to be limited and the
purchase and sale price in any such transaction to be a significant discount
from current market prices. Even after all contractual restrictions on the sale
of our shares of Envision common stock have expired, such shares may continue to
be "control securities" and may not be resold expect pursuant to an effective
registration statement or pursuant to the so-called "leak out" provisions of
Rule 144 promulgated under the Securities Act.
Use of Our Shares of Envision common stock.
In the near-term, we intend to use our shares of Envision common stock to help
fund our operations. In light restrictions on resale imposed by the securities
laws and the contractual restriction prohibiting sale of our shares of Envision
common stock on an exchange prior to October 7, 2001, we do not intend to sell
our shares of Envision common stock in the market. Rather, we have entered into
a loan agreement pursuant to which a private lender has agreed to loan us up to
$8,000,000 (in eight $1,000,000 traunches secured by our shares of Envision
common stock) at an interest rate of 8.375% for a five-year term. (The lender's
obligation to fund such loan is contingent upon the market price for a share of
Envision common stock exceeding $28.50 or the lender's willingness to waive such
condition; although the market price for Envision common stock is below $28.50
as of July 12, 2000, the lender has indicated its intend to waive such condition
with respect to at least the first $1,000,000 traunche, and we expect to receive
the first $1,000,000 in loan proceeds during July 2000.) We are also considering
selling one or more large blocks of our shares of Envision common stock in a
privately negotiated transaction. We expect to us any proceeds from a loan
secured by a pledge of our Envision shares or from a sale of such shares to fund
our ongoing research, development and operations.
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Information Concerning Envision Development Corporation
Although our President and CEO, Alan Rudd, serves on the board of Envision and
we own approximately 19.9% of the outstanding shares of Envision common stock,
we do not intend to be actively involved in the management of Envision and, in
general, we do not have, and are unable to provide, information about the
operations or finances of Envisions. Envision files annual, quarterly, and
current reports, proxy statements, and other information with the SEC. You may
read and copy any reports, statements, or other information that Envision files
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room. The SEC also maintains an Internet site
(http://www.sec.gov) that makes available to the public reports, proxy
statements, and other information regarding issuers, such as Envision, that file
electronically with the SEC. We disclaim control of Envision. We do not warrant,
and expressly disclaim any knowledge or belief concerning, the accuracy of any
document filed by Envision with the SEC or any other publicly available
information concerning Envision disseminated to the public.
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Certain Risk Factors
Our short and long-term success is subject to certain risks, many of which are
substantial in nature. You should consider carefully the following risk factors,
in addition to other information contained in this report as you evaluate us and
our business. Any one of these factors could cause actual results of our
operations to differ materially from projected results.
We are in the development stage, meaning that we have had only limited revenues
from sales of products or services.
We are is in the development stage and have a limited operating history. There
can be no assurance that we will be able to achieve a significant level of sales
or attain profitability. Our operations to this point have been limited to
developing software, making initial sales under contracts with two customers and
obtaining financing for our operations. As a result of the increase in operating
expenses caused by recent hiring of a sales force, operating results may be
adversely affected if significant sales do not materialize in the near term. We
can provide no assurance that we will be able to generate significant sales in
the near term or the long term.
We have incurred substantial losses since our inception, expect to continue to
incur losses and may never be profitable
We have incurred operating losses each year since our inception in 1992. As of
March 31, 2000, our accumulated deficit was approximately $8,402,222. We expect
to incur additional losses for the foreseeable future, and we expect our losses
to increase as our research and development efforts progress. Our operating
expenses are expected to increase as a result of our recent hiring of a 6 person
sales force, a new management team and planned additional. We do not expect
sales revenues to increase in sufficient amount during the coming fiscal year to
offset our operating expenses, and we can provide no assurance that our revenues
will ever be large enough to offset operating and other expenses. We do not
expect to be profitable in the near future and may never be profitable.
We require additional capital to meet our short term obligations and continue
development of our products.
We do not presently have working capital sufficient to meet our immediate term
obligations. We have entered into a loan agreement pursuant to which a private
lender has agreed to loan us up to $8,000,000 (in eight $1,000,000 traunches) at
an interest rate of 8.375% for a five-year term; however, one of the conditions
precedent to the lender's obligation to fund such loan--the market price for a
share of Envision common stock exceeding $28.50--is presently not satisfied and
may not be satisfied at any time in the near future. If the lender does not
waive such condition precedent (as the lender has indicated it intends to do)
and refuses to fund the loan, we will have a critical shortage of capital and,
if we cannot obtain funding from other sources, will be unable to pay our
current expenses.
Even if the loan does fund, if we do not begin to generate significant revenues
in the near future, we will need to raise additional funds to fund our rapid
expansion, to develop new or enhance existing services or products or to respond
to competitive pressures. If additional funds are raised through the issuance of
equity or equity-linked securities, the percentage ownership of our stockholders
would be reduced. In addition, these securities may have rights, preferences or
privileges senior to those of our stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our marketing and planned product development programs or
otherwise respond to competitive pressures would be significantly limited.
Our accountants have included an explanatory paragraph on our financial
statements regarding our status as a "going concern."
Our consolidated financial statements included in this report have been prepared
on the assumption that we will continue as a going concern. Our independent
public accountants have issued their report dated June 12, 2000_that includes an
explanatory paragraph stating that our recurring losses and accumulated deficit,
among other things, raise substantial doubt about our ability to continue as a
going concern. Our product line is limited and it has been necessary to rely
upon financing from the sale of our equity securities and certain assets
consisting of marketable securities to sustain operations. Additional financing
may be required if we are to continue as a going concern.
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<PAGE>
The market may not accept our software and technologies.
Our software is in a development stage. Our Universal Update(TM) 1.5 program was
first publicly distributed in December 1998 and has produced only limited sales
to date, despite the release and distribution of an enhanced version in June of
1999. Our Universal Update(TM) 1.6 with support for Linux was first released on
April 17, 2000, and we have no sales as of June 30, 2000. We can provide no
assurance that end-users will be interested in purchasing any of our existing or
future products in the near term or the longer term.
We face significant competition from remote access software developers.
The market for remote access software is highly competitive greater financial,
technical and marketing resources than we do. These advantages may enable them
to respond more quickly to new or emerging technologies and changes in customer
preferences. These advantages may also allow them to engage in more extensive
research and development, undertake extensive far-reaching marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential employees and strategic partners. As a result, we may be unable to
obtain a significant market share in the remote access software business. In
addition, competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may adversely affect our business, results of operations
and financial condition.
We are dependent upon highly qualified personnel, and the loss of such personnel
is a risk to our success.
We are highly dependent upon the efforts of management and technically skilled
personnel, including programmers and engineers, and future performance will
depend in part upon our ability to increase sales, manage growth effectively,
and to retain the services of our management, our technical staff and sales
staff. Because competition for management, technical and sales personnel is
intense, we may be unable to retain our key employees or attract other highly
qualified employees in the future. The loss of the services of any of our
management, technical or sales team of the failure to attract and retain
additional key employees could have a material adverse effect on our business,
financial condition and results of operations.
We rely on our intellectual property rights, and if we are unable to protect
these rights we may face increased competition and our business may be
materially adversely affected.
We regard our intellectual property as critical to our success, and we rely on
copyright, patent and trade secret protection to protect our proprietary rights
in intellectual property. We are currently pursuing and expect to pursue the
registration of copyrights, patents and trademarks in the United States.
Effective trademark, copyright, trade secret or patent protection may not be
available in every country in which our products are or become available. We
intend to effect appropriate registrations internationally and domestically as
our operations expand, but the United States or foreign jurisdictions may not
afford any protection for our intellectual property. Any of our intellectual
property rights may be challenged, invalidated or circumvented, or the rights
granted thereunder may not provide any competitive advantage. We could also
incur substantial costs in asserting our intellectual property or proprietary
rights against others, including any such rights obtained from third parties,
and/or defending any infringement suits brought against us. Although we enter
into confidentiality and invention agreements with our employees and
consultants, there can be no assurance that such agreements will be honored or
that we will be able to protect effectively our rights to unpatented trade
secrets and know-how. Moreover, there can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets and know-how. We may be
required to obtain licenses to certain intellectual property or other
proprietary rights from third parties. Such licenses or proprietary rights may
not be made available under acceptable terms, if at all. If we do not obtain
required licenses or proprietary rights, we could encounter delays in product
development or find that the development or sale of products requiring such
licenses is foreclosed.
The software industry, and in particular, the Internet, are characterized by
rapid development and change. We must develop products and technology that keep
pace with technological change.
The software and Internet markets are recognized for rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of these technologies, products and services and
their rapid evolution require that we continually improve the performance,
features and reliability of our software, particularly in response to
11
<PAGE>
competitive offerings by other companies. There can be no assurance that we will
successfully respond quickly, cost effectively and sufficiently to these
developments. There may be a time-limited market opportunity for our products,
and there can be no assurance that we will be successful in achieving widespread
acceptance of our 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 to modify or adapt our products and services and which could have a
material adverse effect on our business, financial condition and results of
operations. Furthermore, our new software enhancements may contain design flaws
or other defects that limit their marketability.
There can also be no assurance that research and development and discoveries by
others will not render some or all of our products or potential product
offerings uncompetitive or obsolete. We compete with a number of entities that
are currently developing and producing software products that compete with our
current and proposed products. Many of these competitors have substantially
greater capital resources, research and development capabilities, and production
and marketing resources, capabilities and experience than we have available to
us. These competitors may succeed in developing products that are more effective
or less costly than any products that we may develop, or that gain market
acceptance prior to any of our products, making market penetration more
difficult for us.
Our shares of Envision common stock may not be sold in the market until October
7, 2001. Even after such date, they will be "restricted securities" and subject
to certain restrictions.
The 1,219,500 shares of Envision common stock we presently own, and the 272,500
shares of Envision common stock we expect to acquire, are subject to a
contractual covenant prohibiting sale of such stock in the open market any time
on or before October 7, 2001. We are permitted to sale such shares in large
blocks in privately negotiated transactions; nevertheless, because any acquiror
must take such shares subject to the same prohibition on sale before October 7,
2001, we would expect interest in acquiring our Envision shares to be limited
and the purchase and sale price in any such transaction to be a significant
discount from current market prices.
Even after any contractual restrictions on the sale of our shares of Envision
common stock have expired, such shares will continue to be "control securities"
as that term is defined under the Securities Act, and may not be resold unless
and until such time as the relevant Envision shares are registered under
applicable federal and state securities laws or unless an exemption from
registration is available. After October 7, 2001, the Envision Shares may be
sold in compliance with Rule 144 adopted under the Securities Act. Rule 144
provides, in part, that a person holding control securities for a period of one
year may sell in any three-month period an amount equal to the greater of the
average weekly trading volume of the stock during the four calendar weeks
preceding the sale, or one percent of the issuer's outstanding common stock. As
a result of such restrictions on transferability, we will be unable to quickly
liquidate our Envision shares in the public market at any time. Our Envision
shares may significantly decrease in value before we are able to sell such
shares.
Shares of Envision common stock may be significantly overvalued.
The valuations of companies such as Envision that engage in business over the
Internet have been volatile and, despite such volatility, have generally
increased dramatically over the last few years. Such valuations have been far
out of line with the valuations attributed to companies engaged in other lines
of business and many investment advisors have warned that such valuations are
not warranted and are overinflated. There can be no assurance that the valuation
of our shares of Envision common stock will not suffer a significant correction
before such Envision shares can be sold in compliance with governing contractual
covenants and the securities laws.
We will be required to recognize capital gain and pay taxes on the sale of our
Envision shares.
If we sell some or all of our shares of Envision common stock, we will recognize
gain (or loss) for tax purposes on the Envision shares sold in an amount equal
to the difference between the sale price of such shares and our basis in each
such share. Moreover, if, in connection with our sale of any of our shares of
Envision common stock, our board of directors declares a dividend, shareholders
of Sundog entitled to receive such dividend will be required to pay income taxes
at the rate applicable to ordinary gains. To the extent you give any weight to
the value of our shares of Envision common stock in valuing our business or
shares, you should be aware that, because of applicable taxes, the amount of
money we may be able to use or distribute upon eventual disposition of our
shares of Envision common stock will be significantly less than the market price
of such shares.
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<PAGE>
Although our license terms limit our liability for product liability claims,
there can be no assurance that such a claim will not be brought in the future.
We have not experienced product liability claims to date. However, our products
include programs designed for mission critical applications, creating the risk
that the failure or malfunction of our products may result in serious damage or
loss and open us to a claim for damages. While contract terms limit our
exposure, there can also be no assurance that a court would not rule such
provisions to be invalid or unenforceable, or that changes in the law would
render such terms void or unenforceable. A successful claim could have a
material adverse effect on our operations and finances. Furthermore, the cost of
defending against a claim, even successfully, could be material and could have
an adverse effect on our results of operations and an adverse effect on the
marketing of our products.
There is no present market for our common stock, and it is possible no such
market may ever develop
There has been no market for our common stock, and it is possible that no market
will develop. Our common stock is not listed on any exchange, and it may never
be eligible to be listed on any exchange. We intend to seek listing on The
Nasdaq SmallCap Market or quotation on the Nasdaq OTC Bulletin Board during
2000, but our application may not be accepted. Until we are eligible to satisfy
the listing criteria of Nasdaq or another stock market or qualify to be quoted
on the Nasdaq OTC Bulletin Board, trading, if any, in our common stock will be
extremely limited or non-existent. Consequently, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
our securities.
The unpredictability of our quarterly results of operations makes it difficult
to predict our financial performance and, if a market for our common stock
develops, may adversely affect the trading price of our common stock
Our quarterly results of operations have varied in the past and are likely to
vary significantly from quarter to quarter. A number of factors are likely to
cause these variations, some of which are outside of our control. These factors
include:
o the rate at which customers purchase Sundog's software and the
prices paid for such software;
o the amount and timing of capital expenditures and other costs
relating to the expansion of Sundog's business;
o the introduction of software products by Sundog or its
competitors;
o price competition or changes in Internet and computer technology;
and
o technical difficulties or economic conditions specific to
Sundog's business.
Due to these and other factors, we believe that quarter-to-quarter comparisons
of our operating results may not be meaningful and you should not rely upon them
as an indication of our future performance. Our operating expenses are based on
expected future revenues and are relatively fixed in the short term. If our
revenues are lower than expected, we would incur greater than expected losses.
In addition, during future periods our operating results likely will fall below
the expectations of investors. In this event, the market price of our common
stock likely would decline.
Our executive officers, directors and a single investor hold a majority of our
outstanding shares, which will allow them to influence the outcome of matters
submitted to stockholders for approval BTA Rewrite
of our issued and outstanding common stock. As a result, these stockholders have
substantial control over matters requiring approval by our stockholders, such as
the election of directors and approval of significant corporate transactions. In
addition, this concentration of ownership may also have the effect of delaying
or preventing a change in control.
Our board may issue preferred stock without shareholder approval, which may
adversely affect the value of our common stock and permit the our board to block
a takeover attempt.
Our board of directors has the authority to issue up to 10,000,000 shares of
preferred stock and to determine the rights, preferences, privileges and
restrictions of such shares without further vote or action by our stockholders.
The rights of the holders of common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. In addition, the issuance of preferred stock could have
the effect of making it more difficult for third parties to acquire a majority
of our outstanding voting stock.
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<PAGE>
Obtaining additional capital through the sale of common stock will result in
dilution of shareholder interests.
If additional funds are raised by issuing additional shares of common stock, or
securities such as options or warrants or preferred stock convertible into
common stock, further dilution of the equity ownership of existing holders of
our common stock will result. If adequate funds are not made available to us, we
may be required to delay, scale back or even eliminate one or more of our
product candidates and/or product development programs, and/or obtain funds
through arrangements with collaborative partners or others that may require us
to relinquish rights that we would not otherwise relinquish.
There is no present public market for our common stock. If and when such a
market develops, our stock price may be volatile.
There has been no market for our common stock and there is no assurance that any
market will develop. Our common stock is not listed on any exchange. If and when
such a more established market may develop, the market price of our common
stock, like that of the securities of other software and high technology
companies, may be highly volatile. Broad market fluctuations may adversely
affect the market price of our common stock. Our stock price may be affected by
each of the factors described above, as well as:
o Announcements by us or competitors concerning technological
innovations, new products or procedures developed by us or our
competitors,
o The adoption or amendment of governmental regulations and similar
developments in the United States and foreign countries that affect our
products or markets specifically or our markets generally,
o Disputes relating to patents or proprietary rights,
o Publicity regarding actual or potential results relating to product
candidates under development by us or a competitor,
o Delays in product development,
o Slow acceptance of our products in new or existing markets, and
o Economic and other external factors, as well as period-to-period
fluctuations in financial results.
Anti-takeover provisions of Delaware Corporate Law and our ability to issue
preferred stock may affect the price of our common stock and allows the Board of
Directors to issue securities that may significantly dilute your ownership and
voting power.
Under our Certificate of Incorporation, as amended, we are authorized to issue
up to 10,000,000 shares of preferred stock. We have not issued any Preferred
stock and there are no present plans to issue any Preferred stock. Our Board of
Directors has the authority to issue the Preferred stock with such voting and
other rights superior to those of our common stock, which could effectively
deter any attempted takeover of the Company. In addition, the Delaware General
Corporation Law prohibits certain mergers, consolidations, sales of assets or
similar transactions between a corporation on the one hand and another company
which is, or is an affiliate of, a beneficial holder of 15% or more of such
corporation'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 corporation's board of directors or
the transaction is approved by a majority of such corporation's shareholders
(excluding the Interested Stockholder). These provisions prohibiting Interested
Stockholder transactions could also preserve management's control of Sundog.
We have not declared any dividends with respect to our common stock.
We have never paid cash dividends on our common stock. We intend to retain
earnings, if any, to finance the operation and expansion of our business and,
therefore, we do not expect to pay cash dividends on Our shares of common stock
in the foreseeable future.
Item 2. Description of Property
We own no real property. We currently lease a 3,455 square foot facility located
at 4505 South Wasatch Boulevard in Salt Lake City, Utah from an unaffiliated
third party at which we conduct all of our corporate, administrative, research
(for Universal Update(TM) ) and development activities. The lease of the Salt
Lake facility expires December 31, 2000. The base monthly lease payment for that
facility totals $5,643.
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We are in the process of moving from our current location described above to a
8,340 square foot facility located at 10542 South Jordan Gateway, Suite 200,
South Jordan, Utah 84005. We are moving in order accommodate the additional
employees hired to date and those we expect to hire in the near future. Also,
the new office space is more centrally located so that the Company can draw from
both Salt Lake and Utah County employee markets. Our new lease will expire July
31, 2005, and our initial base monthly lease payment will be $13,205 per month.
We believe that our new facilities are adequate for our needs for at least the
next year and do not anticipate any expansion or the need to acquire, through
lease or otherwise, any additional facilities for at least one year.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
There is no current public trading market for our 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 our common stock will be
subject to significant fluctuations as a result of several factors over which we
will have little or no control.
As of July 15, 2000 there were approximately 23,929,745 shares of our common
stock issued and outstanding held by approximately 425 holders of record. We
have never issued any shares of preferred stock. We have never declared or paid
dividends on any class of our equity securities.
Recent sales of Unregistered Securities.
During the year ended March 31, 2000, the Company sold and issued 1,295,420
shares of common stock for cash proceeds of $1,640,168 at a range of prices
between $0.95 and $3.00. Between April 9, 1999 and June 2, 1999, 107,667 shares
were sold at $1.50 per share to 8 investors. On June 23, 1999, 16,667 shares
were sold at $2.00 per share to one investor. Between September 30, 1999 and
December 30, 1999, 855,719 shares were sold at $0.95 per share to 39 investors.
Between March 1, 2000 and March 9, 2000, 213,000 shares were sold at $2.00 per
share to 7 investors. On March 9, 2000, 1,667 shares were sold at $3.00 per
share to one investor.
The offer and sale of such shares of our common stock were effected in reliance
upon the exemption for sales of securities not involving a public offering, as
set forth in Section 4(2) of the Securities Act of 1933, as amended, based upon
the following: (a) the investors confirmed to us that they were "accredited
investors," as defined in Rule 501 of Regulation D promulgated under the
Securities Act and had such background, education, and experience in financial
and business matters as to be able to evaluate the merits and risks of an
investment in the securities; (b) there was no public offering or general
solicitation with respect to each offering; (c) the investors were provided with
any and all other information requested by the investors with respect to the
Company, (d) the investors acknowledged that all securities being purchased were
"restricted securities" for purposes of the Securities Act, and agreed to
transfer such securities only in a transaction registered under the Securities
Act or exempt from registration under the Securities Act; and (e) a legend was
placed on the certificates representing each such security stating that it was
restricted and could only be transferred if subsequently registered under the
Securities Act or transferred in a transaction exempt from registration under
the Securities Act.
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<PAGE>
Item 6. Management's Discussion and Analysis
Fiscal Year Ended March 31, 2000 ("FY2000") Compared With Year Ended March 31,
1999 ("FY1999")
The fiscal year ended March 31, 2000 was a year of transition and change for
Sundog. We began the year focused on getting products developed and released to
market; however, soon after the year started, we ran into cash flow problems. By
August 1999, several engineers and other staff employees had either left or were
asked to leave the Company. By the end of November 1999, most of the executive
staff had left the Company. By the end of December 1999, the Company's head
count was less than half of what it was when the fiscal year began.
In January 2000, Alan Rudd was hired as CEO and President of Sundog. Since
coming to the Company, Rudd has put in place an experienced executive team and
sales force. With that done, we are working to catch up on lost time and
accelerate growth and success. Unfortunately, the sales force and executive team
were not hired until the end of the 4th quarter of FY 2000 and in some cases the
beginning of the 1st quarter of FY 2001.
Revenues for the FY2000 were $45,975, compared to $75,167 for FY1999. Revenues
for FY2000 were due to fees for consulting services and the sale of software
licenses. Revenues for the year ended FY1999 were primarily due to fees for
consulting services. The reason for the decline in revenues is primarily the
reduction of consulting services during FY2000.
Cost of goods sold totaled $47,125 in FY2000, compared to $49,756 in FY1999.
Operating expenses for FY2000 totaled $3,076,682 as compared to $1,744,539 for
FY1999. The increase was primarily due to increases in marketing and general and
administrative expenses. Marketing, general and administrative expenses totaled
$2,431,783 in FY2000, compared to $838,672 in FY1999. The increase was due to an
increase in salaries of $405,269 and the following non-reoccurring expenses:
professional fees increased $262,572 over the previous year with the majority of
the increase due to the sale of Qui Vive; the now closed down consulting
services group experienced an increase in expenses of $233,171; we experienced
an increase in depreciation expense of $68,779 due to a change in the estimated
life of computer equipment from 5 years to 3 years; and we experienced contract
labor of $135,279.
Operating expenses in FY2000 included $597,774 in research and development
expense, compared to $856,111 in FY1999. This decrease in R&D costs was due to
the majority of the technical staff either leaving or being let go by the end of
August 2000. Notwithstanding last year's loss of technical personnel, we expect
that research and development expenditures will increase in the coming year due
to planned increases in engineering and testing.
We had $38,208 in interest income during FY2000, compared to $46,767 in FY1999.
The net loss for the year ended March 31, 2000 was $5,340,746 (or $0.23 per
share) compared to a loss of $2,356,758 (or $0.11 per share) in the year ended
March 31, 1999. The increased loss was due to the increase in marketing and
general and administrative expenses.
Despite the turbulent year, we released Universal Update(TM) v1.6 in May 2000.
In addition, during the fourth quarter of FY2000, our new marketing and sales
team has signed the Company's first distributor, and we are recruiting
resellers. In addition, we had some sales of Universal Update(TM) v1.5 in the
fourth quarter of FY2000 and are gleaning valuable information about customer's
needs and wants. Our marketing efforts are currently focused on leveraged
activities such as trade shows, user group meetings and targeted direct
mailings. While sales are still very slow, we are building momentum and
awareness in the market place.
Liquidity and Capital Resources
At March 31, 2000, we had cash and cash equivalents of $492,657 as compared to
cash and cash equivalents of $2,193,344 as of March 31, 1999.
We have been unable to finance our operations from cash flows from operating
activities. Substantial funds and additional time will be required to continue
developing and commercializing our products. Because operating activities have
not produced significant revenues to date and because we will require
significant capital to accomplish the objectives set forth above, additional
equity and/or debt funding will be required. Such funding may not be available
or may not be available on favorable terms.
Our current cash and cash equivalents are insufficient to fund our activities
during the coming year. In order to obtain needed capital, we have we have
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entered into a loan agreement pursuant to which a private lender has agreed to
loan us up to $8,000,000 (in eight $1,000,000 traunches, secured by our shares
of Envision Development Corporation common stock) at an interest rate of 8.375%
for a five-year term; however, the lender's obligation to fund such loan is
contingent upon the market price for a share of Envision common stock exceeding
$28.50 or the lender's willingness to waive such condition. Although the market
price for Envision common stock is below $28.50 as of July 12, 2000, the lender
has indicated its intent to waive such condition with respect to at least the
first $1,000,000 traunche, and we expect to receive the first $1,000,000 in loan
proceeds during July or August 2000.
Management believes that the cash available to the Company from the recently
signed credit facility and cash provided by operations will be sufficient to
meet the business requirements of the Company for the next 18 months. If we are
unable to capitalize on the current credit facility due to fluctuations and
uncertainties surrounding Envision's common stock, we will be required to seek
additional funding through the sale of our securities or through borrowing. In
addition, although we do not expect to make any purchases of new plants during
coming year, we do plan to purchase significant amounts of additional computer
equipment for our testing and research and development efforts. We also continue
to evaluate new product opportunities and may, if necessary, seek to add
equipment and personnel to pursue such opportunities in the future. If we
purchase significant amounts of additional computer equipment or expand our
operations to develop new products, we may need to seek additional financing
through borrowing or the sale of securities. 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
shareholders of the Company and such dilution may be material and substantial.
Our consolidated financial statements have been prepared on the assumption that
the Company will continue as a going concern. Our independent public accountants
have issued their report dated June 12, 2000 that includes an explanatory
paragraph stating that our recurring losses and accumulated deficit, among other
things, raise substantial doubt about our ability to continue as a going
concern. Our product line is limited, and it has been necessary to rely upon
financing from the sale of our equity securities to sustain operations.
Additional financing will be required if we are to continue as a going concern.
If such additional funding cannot be obtained, we may be required to scale back
or discontinue our operations. Even if such additional financing is available,
there can be no assurance that it will be on terms favorable to the Company. In
any event, such financing will result in immediate and possibly substantial
dilution to existing shareholders.
Item 7. Financial Statements
The Company's consolidated financial statements and associated notes
are set forth on pages F-1 through F-16 of this report.
Item 8. Changes in and Disagreement With Accountants on Accounting and Financial
Disclosure.
None.
PART III
Item 9. Directors and Executive Officers of the Registrant
Nominees for Election as Directors
The following tables sets forth the names, ages, positions, and tenure
of the directors and executive officers of the Company as March 31, 2000.
<TABLE>
<CAPTION>
Name Age Position Position Held Since
------------------------------------ ------------ ---------------------------------------- --------------
<S> <C> <C> <C>
Alan Rudd 48 CEO, President, Chairman of the Board January 2000
John Zollinger 32 CTO, Vice President of Engineering, October 1997
Director
Jerral Pulley 66 Director August 1998
Steve Russo 42 Vice President of Operations, Chief February 2000
Financial Officer
Art Dearing 41 Vice President of Worldwide Business February 2000
Development
Jeffrey L. Swain 41 Vice President of Strategic Relations February 2000
</TABLE>
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The following paragraphs sets forth certain biographical information about each
of the foregoing:
ALAN RUDD, 48 , joined Sundog as Chairman & Chief Executive Officer on
January 1, 2000. Rudd brings more than 20 years experience in the computer
industry to Sundog. From March 1996 to November 1999 Rudd was the CEO of Vinca
Corporation, a Utah-based company that provided continuous availability software
for Microsoft-, Novell- and IBM-distributed network platforms. Under Rudd's
leadership Vinca became a recognized worldwide leader in high availability
solutions. In recognition of his achievements, Rudd was named Utah's 1999
Entrepreneur of the Year. Vinca was acquired by Legato Systems of Palo Alto,
California (NASDAQ: LGTO) on July 31, 1999. In addition to his role as Chairman
and CEO of Sundog, Rudd serves on the Board of Directors of Envision Development
Corporation (AMEX: EDV), a leader in innovative ebusiness solutions. Sundog is
the owner of approximately 20% of the outstanding stock of Envision.
Rudd has a keen understanding of how to build a company from the
beginning stages to a driving market force. In addition to building Vinca
Corporation into a market leader, Rudd spent ten years in senior management
positions at Novell where he helped to grow Novell into the worldwide leader in
network computing with sales of more than $1.4 billion. His positions at Novell
included Legal Counsel, Regional Manager, Area Director and Vice President of
OEM Operations.
Rudd has a bachelor's degree in Business Administration and Finance and
a juris doctorate from Brigham Young University. Following law school, he spent
seven years as in-house legal counsel for several corporations including State
Farm Insurance and Prime Computer before joining Novell and moving into
corporate management.
JOHN ZOLLINGER, 32, has been a director at Sundog since October of
1997. Zollinger has been involved in nearly all aspects of the software
engineering industry during the past eleven years. His industry experience spans
enterprise development from warehousing/processing, telecommunications, banking,
oil and gas, insurance, and commodity trading systems. In addition to his skills
in analyzing, designing and implementing mission critical software systems,
Zollinger has a proven ability to manage and bring together diverse groups of
engineers to achieve complex software project goals.
While working with Moore Business Communications Services from 1986 to
1994, Zollinger led the engineering team that designed and implemented a
large-scale order fulfillment and management system for the telecommunications
industry. This system enabled AT&T to launch a new successful business unit and
has since been used by other large telecommunication companies such as Sprint,
MCI and GTE. As an independent engineering consultant for Palo Alto-based Filoli
from 1994 to 1996, Zollinger helped guide the development of a highly
distributed claims handling system for Industrial Indemnity. Zollinger brought
to this project extensive experience in the development of advanced data
migration and data distribution systems. Zollinger also assisted EOTT Energy
Partners in establishing standard practices for object-oriented analysis,
design, and implementation of an enterprise-wide oil and gas trading system.
JERRAL PULLEY, 66, has been a director at Sundog since August of 1998
and served as chairman until January 2000. Pulley brings substantial expertise
in marketing and sales innovation to the Company's management team having held
prior chief executive officer positions and having served as a senior executive
for several nationally recognized companies, including Procter & Gamble,
PepsiCo, Squibb, Ryder System, Hallmark and Borden.
While executive vice president of a division of Squibb Corporation, he
grew sales from $75 million to $500 million with a six-fold increase in pre-tax
profits, reflecting his ability to identify core strengths and roadmap strategic
paths to long-term growth.
For the past several years, Pulley has deployed his experience by
managing and/or consulting with a variety of mid-level companies seeking to grow
sales and improve profits, including First Scientific Inc., providing topical
antimicrobial and shin protection products to the Health Care Industry and as
Executive Vice President of Marketing for Universal Broadband Networks, a
provider of high speed DSL and telcom services, headquartered in Irvine,
California.
18
<PAGE>
Currently, Pulley serves as chairman of the board of directors of First
Scientific Inc.
STEPHEN L. RUSSO, 42, has been the Vice President of Operations and the
Chief Financial Officer of Sundog since February of 2000. He is a CPA, and his
education and experience in accounting and operations span more than 19 years
and include expertise in financial system design and implementation with
significant experience in SEC disclosure and compliance. From October of 1992 to
October of 1997, Russo served as vice president of operations and CFO of Vinca
Corporation where he was instrumental in growing the company to the worldwide
leader in high availability solutions. Russo was one of the key negotiators in
the sale of Vinca Corporation to Legato Systems, Palo Alto, California on July
31, 1999. From September of 1989 to October of 1992, Russo served as president
of Merisoft, a high-tech voice recognition company, where he was also
instrumental in growing the company and selling it for a substantial profit.
Russo is a graduate of Brigham Young University with a degree in Accounting.
In his position as Vice President of Operations, Russo is responsible
for maintaining strong profitability for Sundog by maintaining good profit
margins, budgeting and strategic fiscal management. He is also part of the team
deciding how to effectively position the Company for future profitability and
taking responsibility for growing the Company through acquisition of companies
and technologies that fit the mission and objectives of the Company. He is a key
part of implementing electronic tools and programs that are an integral part of
growing the business through technology. He and part of his team are responsible
to constantly look for new tools to make the Company more efficient and more
profitable by serving the customer better.
ART DEARING, 41, has been the Vice President of Worldwide Business
Development for Sundog since February of 2000. Dearing has been instrumental in
developing relationships with a number of key business partners in strategic
markets such as mobile computing. Dearing brings more than seventeen years of
experience in high technology, including the ownership of two successful
computer businesses offering complete system design and consulting services. He
was the principal architect of a POS system that is still being used today by a
major retail grocery chain. Prior to commencing work at Sundog, Dearing was
Director of Strategic Relations for Vinca Corporation from December of 1993 to
January of 2000, where he demonstrated the ability to more than double revenue
through an OEM and marketing relationship with IBM. Through the IBM partnership
he was the key player in multi-million dollar sales to both the Bank of Brazil
and Wal-Mart. Dearing has extensive experience in setting product strategy with
his broad range of technical expertise. He spent approximately two years, from
January of 1992 to November of 1993, at DEC in Technical Consulting where he was
responsible for supporting sales in the design and implementation of systems for
large enterprise customers. While at DEC Art was largely responsible for a
multi-million dollar deal with Micron for the technical support of PC LANs in
eight states. Art has a BS in Engineering from San Diego State University.
JEFFREY L. SWAIN, 41, has been Vice President of Strategic Relations
for Sundog since February of 2000. His role includes the development of a
two-tier distribution channel as well as the development of OEM partners with
the intent of proliferating Sundog's technologies into hot markets such as
mobile computing and Web content update. Swain brings more than twelve years of
sales experience in the network computing industry having served as Director of
Channel Sales for Legato Systems, Inc., a leader in enterprise storage
management, from January 1999 to February 2000. While at Legato, Jeff increased
channel sales over 40% in less than six months. He managed the inside sales team
and in one sales promotion his team increased software maintenance sales by
400%. Swain has shown an in-depth knowledge of selling through a channel and has
developed strong and sustained relationships with the key channel partners in
this industry. Prior to working at Legato, he was a Major Market Account Manager
for Informix in the Southeastern region from April 1996 to December 1997. He
proved his ability to sell to large complex companies such as Walt Disney World,
W.R. Grace and the State of Florida. Swain also sold a site license to twelve
counties in Florida to be used for statewide electronic ticketing. Jeff
developed particular expertise in selling to state and local government entities
as State and Local Government Sales Manager for Novell from July 1994 to April
1996. He and his team sold a master site license agreement to seventeen of the
twenty top states in the United States, plus multi-million dollar site licenses
to the EPA and US Courts. Swain attended Brigham Young University with an
emphasis in Business Management and Psychology.
In addition to the foregoing directors and executive officers, the
following employee is expected to make a significant contribution to the
business of Sundog:
19
<PAGE>
SUSAN RICHARDS, 52 , joined Sundog in April of 2000, bringing with her
more than fifteen years of experience in the network computing industry in all
facets of marketing communications. She has been instrumental in building
company and brand recognition for both large and small companies through public
relations, advertising, events and other marketing programs.
Prior to joining Sundog, Richards directed all marketing communications
for Vinca Corporation, the worldwide leader in high availability solutions from
April of 1993 to April of 1999. At Legato Systems, Inc., from August 1999 to
March of 2000 , Susan directed all public relations worldwide. Richards held
several key positions at Novell in Corporate Communications and Marketing
Communications for Service and Education from June of 1986 to April of 1993 and
she was also a senior associate with Network Associates handling public
relations activities for numerous clients including Novell and WordPerfect.
Item 10. Executive Compensation
Summary Compensation Table
The following table provides certain summary information concerning the
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer, as well as all other executive officers of the Company
whose aggregate compensation for the fiscal year ended March 31, 2000 exceeded
$100,000 (collectively, the "Named Executive Officers"). Carl Steffens was the
interim Chief Executive Officer of Sundog until November of 1999. Upon his
resignation, Mr. Rudd was appointed to serve as Chief Executive Officer.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Other Awards Payouts
Annual Restricted Securities All Other
Salary Bonus Compensation Stock Underlying LTIP Payouts Compensation
Name and Principal Position Year ($) ($) ($) Award(s)($) Options (*) ($) ($)
--------------------------- ---- --- --- --- ----------- ----------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan Rudd, CEO, President
(from Jan 1, 2000 to present) 56,250 0 0 0 0 0 0
Carl Steffens, interim CEO
(from August 1, 1999 to
November 30, 1999) 60,000 250,000
Stephen Russell CEO,
President (from April 1,
1999 to August 1, 1999 41,583
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth-individual grants of options to acquire
shares of Common Stock made to the Named Executive Officers during the fiscal
year ended March 31, 2000.
<TABLE>
<CAPTION>
Percent of Total
Options Granted to
Employees in Fiscal
Name Options Granted Year Exercise Price Expiration Date
---- --------------- ---- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen Russo 100,000 7% $0.30 02/01/05
Art Dearing 100,000 7% $0.30 01/10/05
Jeffrey Swain 100,000 7% $0.30 02/14/05
</TABLE>
20
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
The following table sets forth the aggregate value of unexercised options to
acquire shares of Common Stock held by the Named Executive Officers on March 31,
2000 and the value realized upon the exercise of options during the fiscal year
ended March 31, 2000. Our Common Stock is not listed on an exchange or other
quotations service, and accordingly, the Company cannot accurately determine the
fair market value of a share of Common Stock as of the end of its most recent
fiscal year. For purposes of the following table, we have assumed that the fair
market value of a share of Common Stock on March 31, 2000, the last day of our
most recent fiscal year, was $1.00.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at FY End 2000(1) In-the-Money Options at FY
Shares Acquired Value Realized End 2000 ($)(2)
Name on Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Stephen Russo -- -- Nil/100,000 Nil/$70,000
Art Dearing -- -- Nil/100,000 Nil/$70,000
Jeffrey Swain -- -- Nil/100,000 Nil/$70,000
------------------
</TABLE>
(1) Includes shares of Common Stock subject to options exercisable within
60 days of March 31, 2000.
(2) Calculated based on the difference between the exercise price and the
price of a share of Common Stock on March 31, 2000. Our Common Stock is
not listed on an exchange or other quotations service, and accordingly,
the Company cannot accurately determine the fair market value of a
share of Common Stock as of the end of its most recent fiscal year. For
purposes of the following table, we have assumed that the fair market
value of a share of Common Stock on March 31, 2000, the last day of our
most recent fiscal year, was $1.00.
Director Compensation
Currently, non-employee directors are not compensated. In the future,
the Company may provide stock options and other incentive awards to such
directors in order to align their interests with the overall interests of the
Company.
Employment Agreements and Change of Control Arrangements
The Company has not entered into any employment agreements or change of
control agreements with its named executive officers.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of July 15, 2000 with respect to
the beneficial ownership of shares of the Common Stock by each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock, by
each director or nominee, by each of the Named Executive Officers and by all
directors and officers as a group. Unless otherwise noted, each person named has
sole voting and investment power with respect to the shares indicated. Except as
otherwise indicated below, each person named has sole voting and investment
power with respect to the shares indicated.
21
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Beneficial Ownership as of July 15, 2000(1)
Directors and Named Executive Officers Number of Shares Percentage of Class(2)
-------------------------------------- ---------------- ----------------------
<S> <C> <C>
Alan Rudd (CEO, President, Director)
6769 Walker Mill Dr.
Salt Lake City, UT 84124 0 0
John Zollinger (CTO, V.P. of Engineer, Director)
11008 Shelwood Circle
South Jordan, UT 84095 1,050,000 4.388%
Jerral Pulley (Director)
2566 Barcelona Drive
Sandy, UT 84093 170,000(4) **
Carl Steffens (Interim CEO Aug. - Nov. 1999)
1530 Tiptoe Lane
Los Altos, CA 94024 250,000(5) **
Stephen Russell (CEO Apr. - Aug. 1999)
134 Montelena Court
Mountain View, CA 94040 550,000 2.298%
Principal Holders of Common Stock
Caldera Holdings LLC (3)
36 South State St.
Suite 2000
Salt Lake City, UT 84111 7,523,000 31.438%
John Blumenthal
4432 Emigration Canyon
Salt Lake City, UT 84108 2,156,000 9.010%
All officers and directors as a group (8 persons) 2,020,000(6) 8.441%
</TABLE>
** Less than one percent
---------------------------
(1) Beneficial ownership as a percentage of the class for each person holding
options, warrants or other rights exercisable within 60 days of July 15, 2000
has been calculated as though shares of Common Stock subject to such options
were outstanding, but such shares have not been deemed outstanding for the
purpose of calculating the percentage of the class owned by any other person.
(2) The percentage indicated represents the number of shares of Common Stock,
warrants and options exercisable within 60 days held by the indicated
stockholder divided by the sum of (a) the number of shares subject to options
exercisable by such stockholder within 60 days and (b) ______, which is the
number of shares of Common Stock issued and outstanding as of July 15, 2000.
(3) Caldera obtained shares as part of an agreement entered into with certain
founding shareholders of the Company and described later in this report under
the heading "Certain Relationships And Related Transactions." While the
agreement remains in force, Caldera retains dispositive power and voting power
with respect to shares subject to the agreement.
(4) Includes 170,000 options to purchase Common Stock exercisable within 60 days
of July 15, 2000.
(5) Includes 250,000 options to purchase Common Stock exercisable within 60 days
of July 15, 2000
(6) Includes 420,000 options to purchase Common Stock exercisable within 60 days
of July 15, 2000.
Item 12. Certain Relationships and Related Transactions
Certain founding shareholders, specifically, Marty Alfred, Bruce Baird,
Jeffrey Barlow, John Blumenthal, Tim Kapp, Stephen Russell, Dave Valenti, Gary
Wright, and John Zollinger obtained Common Stock in return for contributions and
development of Sundog's predecessor, Arkona, L.L.C., which was subsequently
merged into The Thorsden Group Ltd., and renamed Sundog Technologies, Inc. These
founding shareholders received a total of 14,000,000 shares of Common Stock
between them and then, collectively, entered into an agreement with Caldera
Holding Company, L.C., wherein Caldera was given the right to grant derivative
options to third parties with respect to 7,523,000 shares of Common Stock in
order to encourage the development and increased productivity of Sundog. Holders
of the shares underlying the derivative options are entitled to dividends and
distributions with respect to such shares. However, Caldera retains dispositive
voting power with respect to all shares subject to its agreement with the
founding shareholders so long as the agreement remains in place. The agreement
expires upon Caldera's award of the last of the derivative options or at the end
of three years, whichever occurs first, at which time voting power returns to
the founding shareholders.
22
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Title of Document Location
--------------- ---------------------------------------------- ---------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to
Company's registration statement on
Form 10-SB, File No. 0-24372
3.2 Amendment to Certificate of Incorporation Incorporated by reference to
Definitive Information Statement on
Form 14C, filed with the SEC on May
6, 1998
3.3 Bylaws Incorporated by reference to
Company's registration statement on
Form 10-SB, File No. 0-24372
4.1 Specimen Stock Certificate Incorporated by reference to
Company's registration statement on
Form 10-SB, File No. 0-24372
10.1 1992 Stock Option Plan Incorporated by reference to
Company's registration statement on
Form 10-SB, File No. 0-24372
10.2 Form of Employee Confidentiality, Work Incorporated by reference to the
Product and Non-competition Agreement Company's Quarterly Report on Form
10-QSB for the quarter ended December
31, 1997, as amended
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title of Document Location
--------------- ---------------------------------------------- ---------------------------------------
<S> <C> <C>
10.3 1999 Stock Option Plan Incorporated by reference to the
Company's Annual Report on Form
10-KSB for the year ended March 31,
1999
10.4 Amended and Restated Stock Acquisition Incorporated by reference to the
Agreement by and among Envision Development Company's Current Report on Form 8K
Corporation, Qui Vive Acquisition filed with the SEC on April 24, 2000
Corporation, the Company and
RockMountain Ventures
Fund, LP, dated as of March 31, 2000.
10.5 Registration Rights Agreement by and among Incorporated by reference to Current
Envision Development Corporation, the Report on Form 8K filed with the SEC
Company and RockMountain Ventures Fund, LP, on April 24, 2000
dated as of April 7, 2000.
10.6 Master Lease between Parkway Tower, L.L.C. Incorporated by reference to Annual
and the Company. Report on Form 10-KSB filed with the
SEC on July 14, 2000.
10.7 Stock Loan Commitment and Agreement dated Incorporated by reference to Annual
June 16, 2000 between Trafalgar Resources, Report on Form 10-KSB filed with the
LLC and the Company. SEC on July 14, 2000.
27.1 Financial data schedule Incorporated by reference to Annual
Report on Form 10-KSB filed with the
SEC on July 14, 2000.
</TABLE>
(b) Reports on Form 8-K
We did not filed any Current Reports on Form 8-K during the quarter
ended March 31, 2000.
24
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Form
10KSB/A (Amendment No. 1) to be signed on its behalf by the undersigned,
thereunto duly authorized, on July 20, 2000.
Sundog Technologies, Inc.
By: /s/ Alan S. Rudd
--------------------
Alan S. Rudd
President, Chief Executive Officer
ADDITIONAL SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-KSB/A ("Amendment No. 1) has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
By: /s/ Alan S. Rudd President and Chief Executive July 20, 2000
Alan S. Rudd Officer and Director (Principal
Executive Officer)
By: /s/ Stephen Russo Chief Financial Officer July 20, 2000
Stephen Russo Principal Financial and
Accounting Officer)
By: /s/ signature omitted Director July 20, 2000
Jerral Pulley
By: /s/ John Zollinger* Director July 20, 2000
John Zollinger
* By: /s/ Alan Rudd
Alan Rudd,
Attorney-in-Fact
</TABLE>
25
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
ARKONA, INC. and Qui Vive, Inc.
[A DEVELOPMENT STAGE COMPANY]
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
[WITH INDEPENDENT AUDITORS' REPORT]
F-1
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A DEVELOPMENT STAGE COMPANY]
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Consolidated Balance Sheet -- March 31, 2000 2
Consolidated Statements of Operations and
Comprehensive Income for the years ended
March 31, 2000 and 1999, and for the period
from inception [June 11, 1992] through March 31, 2000
3
Consolidated Statement of Stockholders'
Equity/(Deficit) for the period from
inception [June 11, 1992] through March 31, 2000
4
Consolidated Statements of Cash Flows for the years
ended March 31, 2000 and 1999, and for the
period from inception [June 11, 1992] through March 31, 2000 5
Notes to Consolidated Financial Statements 6 -- 14
F-2
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Sundog Technologies, Inc.[a development stage company]
We have audited the accompanying consolidated balance sheet of Sundog
Technologies, Inc., [a development stage company] formerly known as The Thorsden
Group, Ltd., including the accounts of its subsidiaries, Arkona, Inc. and Qui
Vive, Inc. as of March 31, 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended March 31,
2000 and 1999, and for the period from June 11, 1992 [inception] through March
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sundog Technologies,
Inc., [a development stage company] including the accounts of its wholly-owned
subsidiaries as of March 31, 2000, and the results of operations and cash flows
for the periods ended March 31, 2000 and 1999, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated 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 10. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MANTYLA McREYNOLDS
Salt Lake City, Utah
June 12, 2000
F-3
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Consolidated Balance Sheet
March 31, 2000
ASSETS
Current Assets
Cash & cash equivalents - Notes 1 & 2 $ 489,297
Marketable securities available for sale - Note 8 3,360
Prepaid expenses 24,315
Total Current Assets 516,972
Property and Equipment - Note 6
Property and equipment 339,012
Less: Accumulated depreciation (152,805)
Net Property and Equipment 186,207
Other Assets
Deposits - Note 9 16,618
Other asset - Note 14 920,811
Intangible assets - Note 4 45,270
Total Other Assets 982,699
TOTAL ASSETS $ 1,685,878
LIABILITIES & STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities
Accounts payable $ 206,476
Accrued liabilities 73,902
Deferred contract services 1,500
Current portion of capital leases - Note 5 15,556
Net current liabilities of discontinued segment 460,449
Total Current Liabilities 757,883
Long-Term Liabilities
Capital leases payable - Note 5 30,544
Less current portion of capital leases (15,556)
Net long-term liabilities of discontinued segment 187,658
Total Long-Term Liabilities 202,646
Total Liabilities 960,529
Minority Interest in discontinued operations - Note 13 1,338,429
Stockholders' Equity/(Deficit) - Notes 7, 8, 11 & 13
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; 23,825,521 shares issued and outstanding 23,826
Additional paid-in capital 7,778,898
Accumulated unrealized losses on investments (13,582)
Deficit accumulated during the development stage (8,402,222)
Total Stockholders' Equity/(Deficit) (613,080)
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY/(DEFICIT) $ 1,685,878
See accompanying notes to financial statements
F-4
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Consolidated Statements of Operations and Comprehensive Income For the Years
Ended March 31, 2000 and 1999, and for the Period from Inception[June 11, 1992]
through March 31, 2000
<TABLE>
<CAPTION>
Year Year Period from
ended ended June 11,1992
3/31/00 3/31/99 Through 3/31/00
------------ ------------ ------------
<S> <C> <C> <C>
Revenues - Note 1 $ 45,975 $ 75,167 $ 265,413
Operating Expenses
Cost of sales 47,125 49,756 98,991
Research and development 597,774 856,111 1,739,245
Marketing, general and administrative 2,431,783 838,672 3,849,508
Total Operating Expenses 3,076,682 1,744,539 5,687,744
Net Loss from Operations (3,030,707) (1,669,372) (5,422,331)
Other Income/(Expense)
Interest income $ 38,208 $ 46,767 $ 105,819
Interest expense (6,202) (6,684) (16,086)
Other income 19 270 289
Other expense -0- (178) (288)
Loss on sale of securities available for -0- (4,068) (4,068)
sale
Total Other Income/(Expense) 32,025 36,107 85,666
Net Loss From Continuing
Operations (2,998,682) (1,633,265) (5,336,665)
Discontinued Operations: Note 14
Loss from discontinued operations (2,342,064) (723,493) (3,065,557)
Net Loss $ (5,340,746) $ (2,356,758) $ (8,402,222)
Other comprehensive income:
Unrealized holding gains(loss) 172 145,256 (13,582)
Comprehensive Income (Loss) (5,340,574) (2,211,502) (8,415,804)
Basic & Diluted Loss/share - Note 1
Continuing Operations $ (0.13) $ (0.08) $ (0.74)
Discontinued Operations (0.10) (0.03) (0.43)
Basic & Diluted Net Loss per share (0.23) (0.11) (1.17)
Weighted average number shares 23,089,178 20,922,574 7,201,019
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Consolidated Statement of Stockholders' Equity/(Deficit)
For the Period from Inception [June 11, 1992] through March 31, 2000
<TABLE>
<CAPTION>
Accum. Total
Additnl. Unrealized Stockholders'
Shares Issued Common Paid-In Loss on Accum. Loss Equity/
Stock Capital Investments Devel Stage (Deficit)
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 11, 1992 -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Issued common stock for cash
through March 31, 1993, $0.00125 400,000 400 100 -- -- 500
per share
Net loss for the year ended
March 31, 1993 -- -- -- -- (269) (269)
Balance, March 31, 1993 400,000 $ 400 $ 100 $ -0- $ (269) $ 231
Capital contribution -- -- 500 -- -- 500
Issued shares in Private Placement 24,500 25 221 -- -- 246
for cash, $0.01 per share
Net loss for the year ended
March 31, 1994 -- -- -- -- (221) (221)
Balance, March 31, 1994 424,500 $ 425 $ 821 $ -0- $ (490) $ 756
Net loss for the year ended
March 31, 1995 -- -- -- -- (2,262) (2,262)
Balance, March 31, 1995 424,500 $ 425 $ 821 $ -0- $ (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 $ -0- $ (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 $ -0- $ (68,536) $ (67,290)
Issued stock for assets as part of
Arkona merger, $0.001 per share 15,575,500 15,575 -- -- -- 15,575
Issued shares in Private Placement
for cash and securities, $0.48 per 4,000,000 4,000 1,926,486 -- -- 1,930,486
share
Issued shares in Private Placement
for cash 132,500 133 264,867 -- -- 265,000
Adjustment for unrealized loss on
investments -- -- -- (159,010) -- (159,010)
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 $ (159,010) $ (704,716) $ 1,348,581
Issued shares in Private Placement
for cash, $1.40 per share 2,397,601 2,397 3,365,352 -- -- 3,367,749
Adjustment to unrealized loss on
investments -- -- -- 145,256 -- 145,256
Net loss for the year ended
March 31, 1999 -- == == == (2,356,758) (2,356,758)
Balance, March 31, 1999 22,530,101 $ 22,530 $ 5,557,526 $ (13,754) $(3,061,474) $ 2,504,828
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Consolidated Statement of Stockholders' Equity/(Deficit)
For the Period from Inception [June 11, 1992] through March 31, 2000
<TABLE>
<CAPTION>
Accum. Total
Shares Common Additnl. Unrealized Accum. Loss Stockhldrs'
Issued Stock Paid-In Loss on Devel Stage Equity/Deficit
Capital Investment
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1999 22,530,101 $ 22,530 $ 5,557,526 ($ 13,754) ($3,061,474) $ 2,504,828
Issued shares in Private Placement
for cash, $1.50 per share 107,668 108 161,392 -- -- 161,500
Exercise of A & B warrants for cash,
$2.00 per share (3/98 PPM) 42,867 43 85,691 -- -- 85,734
Exercise of A & B warrants for cash,
$0.95 per share (October offer) 855,718 856 812,077 -- -- 812,933
Exercise of B warrants for cash,
$3.00 per share (3/98PPM) 1,667 2 4,999 -- -- 5,001
Issued shares in Private Placement
(2000) for cash, $2.00 per share 287,500 287 574,713 -- -- 575,000
Adjustment to unrealized loss on
investments -- -- -- 172 -- 172
Compensation expense for stock
options granted -- -- 582,500 -- -- 582,500
Net loss for the year ended
March 31, 2000 -- -- -- -- (5,340,748) (5,340,748)
Balance, March 31, 2000 23,825,521 $ 23,826 $ 7,778,898 ($ 13,582) ($8,402,222) ($ 613,080)
========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2000 and 1999
and for the Period from Inception [June 11, 1992] through
March 31, 2000
<TABLE>
<CAPTION>
Period from
Year ended Year ended 6/11/92
3/31/00 3/31/99 to 3/31/00
----------- --------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $(5,340,748) $(2,356,758) $(8,402,222)
Minority interest net loss (612,635) 0 (612,635)
Adjustments to reconcile net income to net cash provided by 0
operating activities:
Depreciation and amortization 172,485 45,758 224,661
Amortization of stock options 1,029,808 0 1,029,808
Recorded gain on disposal of segment (920,811) 0 (920,811)
Decrease/(increase) in accounts receivable 51,200 (42,887) 0
Increase/(decrease) in accounts payable 342,736 47,460 483,484
Increase/(decrease) in other current liabilities 40,903 4,894 116,725
Increase/(decrease) in deferred income 1,500 (10,417) 1,500
Decrease in prepaid expenses 1,235 (25,550) (24,315)
Net Cash Used for Operating Activities (5,234,327) (2,337,500) (8,103,805)
Cash Flows from Investing Activities
Long-term security deposits 52,158 1,641 (53,447)
Sale of Marketable Securities 823,668 823,668
Patent costs (127,933) (38,249) (187,916)
Proceeds from sale of minority interest 1,503,756 1,503,756
Capital expenditures (263,300) (181,337) (643,736)
Net Cash Used for Investing Activities 1,164,681 605,723 1,442,325
Cash Flows from Financing Activities
Bank overdraft in discontinued operation 140,619 140,619
Financing on equipment purchases (37,464) 11,036 30,544
Proceeds from issuance of common shares 1,640,168 3,367,749 6,378,614
Proceeds from borrowing (Qui Vive, Inc.) 600,000 600,000
Cash contribution 1,000
Net Cash Provided by Financing Activities 2,343,323 3,378,785 7,150,777
Net Increase/(Decrease) in Cash (1,726,323) 1,647,008 489,297
Beginning Cash Balance 2,215,620 568,612 -0-
Ending Cash Balance $ 489,297 2,215,620 $ 489,297
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 6,202 6,684 $ 16,086
Cash paid during the year for income/franchise taxes $ 134 -0- $ 134
Noncash Financing Activities:
Issued stock for marketable securities $ -0- -0- $ 840,610
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Consolidated Financial Statements
March 31, 2000
Note 1 Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
(a) Organization
Sundog Technologies, Inc. [Company] originally incorporated under the
laws of the State of Delaware in 1992 as The Thorsden Group, Ltd., for
the purpose of seeking and acquiring business opportunities. On March
25, 1999 the Company changed its name to Sundog Technologies, Inc.,
effective June 10, 1999. 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 which incrementally and
automatically update database content, reference documents, and
enterprise applications required by organizations with distributed
business centers, field professionals, telecommuters, partners, and
customers. The Company also has expanded to provide Business Process
Improvement (BPI) and related Knowledge Management services through its
Professional Services Group. BPI helps managers identify how their
organizations must change to meet the challenges of tomorrow and
provides a road map for implementing that change. In June of 1998, the
Company formed a subsidiary company, Qui Vive, Inc. (see Note 14), to
expand its software products developing, marketing, and selling.
Principal operating activities have not yet commenced 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 its products. Results of operations have been
combined for all periods presented in the accompanying financial
statements. Intercompany transactions have been eliminated in
consolidation.
(b) Income Taxes
The Company uses 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.
(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.
(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 and by providing services. 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 commitments are satisfied.
F-9
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Financial Statements
March 31, 2000
[continued]
(g) Patents
The Company is in the process of obtaining various patents for certain
aspects of its products. The costs of obtaining patents are capitalized
as incurred and shall be amortized over estimated useful lives.
Amortization is computed on the straight-line method. One patent has
been issued as of March 31, 2000, and is being amortized over seven
years (see Note 4).
Note 1 Organization and Summary of Significant Accounting Policies[continued]
-----------------------------------------------------------
(h) Software Costs
Costs incurred to establish the technological feasibility of software
products to be sold, leased or otherwise marketed by the Company are
expensed as research and development. Once technological feasibility is
established, costs will be capitalized until the product is available
for general release to customers. Capitalized costs will be amortized
on a product-by-product basis and will be the greater of the amount
computed on either the gross revenue or straight-line methods (using
the remaining established economic life of the product).
(i) Advertising Costs
Advertising costs of the Company are charged to expense as incurred.
Note 2 Concentration
-------------
The Company maintains cash balances in a financial institution located
in Salt Lake City, Utah. Accounts at this institution are insured by
the Federal Deposit Insurance Corporation up to $100,000. The Company
had cash of $43,506 in excess of the FDIC insured limit at March 31,
2000.
Note 3 Income Taxes
------------
The Company has the following temporary differences and loss
carryforward amounts as of the balance sheet date. The timing
difference multiplied by the estimated tax rate, for the period the
temporary differences are expected to reverse, becomes a deferred tax
asset or liability.
<TABLE>
<CAPTION>
Description Tax Rate
----------- --- ----
<S> <C> <C> <C>
Net operating loss (expires thru 2020) $8,402,222 $3,276,867 39%
Stock compensation 582,500 227,175 39%
Valuation allowance (3,504,042)
Deferred tax asset 3/31/2000 $0
</TABLE>
The allowance has increased $2,310,067 from $1,193,975 as of March 31,
1999. For the years ending March 31, 2000 and 1999 the Company had no
significant income tax expense or liability as a result of net
operating losses incurred. Currently, there is no reasonable assurance
that the Company will be able to take advantage of deferred tax assets,
thus, an offsetting allowance has been established for the deferred
asset.
Note 4 Intangible Assets
-----------------
The Company has applied for patent protection for its proprietary
software and has expended $187,916 for these rights. The cost of
various trademarks were written off in the current year in the amount
of $21,260. The Company has begun to amortize one patent which was
granted on December 7, 1999. Amortization expense for the year ended
March 31, 2000 was $3,482. Unamortized patent costs, related to
continuing operations, as of March 31, 2000, is $45,270.
Note 5 Leases
------
The Company has various capital lease agreements collateralized with
property and equipment as of March 31, 2000. These leases bear interest
at 12% and have remaining terms of one to four years. Future minimum
lease payments are as follows:
F-10
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Financial Statements
March 31, 2000
[continued]
Minimum
Year Ending Lease Payments Principal Interest
----------- -------------- --------- --------
3/31/2001 $ 18,244 $15,556 $2,688
3/31/2002 7,743 7,093 650
3/31/2003 5,731 5,578 153
3/31/2004 2,221 2,117 104
Total $ 33,939 $30,344 $3,595
The Company has operating leases for its office facilities which expire
at various times through June 2005.
Minimum
Year Ending Lease Payments
----------- --------------
3/31/2001 $ 167,400
3/31/2002 161,935
3/31/2003 166,105
3/31/2004 179,310
3/31/2005 and thereafter 183,480
Total $ 858,230
Rent expense during the current year was $84,062 for 2000 and $44,980
for 1999.
Note 6 Property and Equipment
----------------------
Property and equipment are summarized by major classifications as
follows:
<TABLE>
<CAPTION>
Accumulated
Acquisition Amortization/ Net Book
Cost Depreciation Value
---- ------------ -----
<S> <C> <C> <C>
Office Furniture $ 50,455 $ 7,664 $42,791
Computer Software 57,164 33,510 23,654
Computer Equipment 231,393 111,631 119,762
Total $ 339,012 $ 152,805 $186,207
</TABLE>
The Company has acquired approximately $115,366 in computer equipment
financed through capital lease. Depreciation expense, including the
amortization of assets acquired by capital lease, amounted to $172,485
($63,063 attributable to discontinued operations) and $45,758 during
the years ended March 31, 2000 and 1999, respectively. The Company
computes depreciation using the straight-line method over three years.
Note 7 Merger with Arkona, Inc.
------------------------
Effective October 7, 1997, all of the Arkona, Inc. common stock issued
and outstanding was converted into and exchanged for 2,972,200 shares
of Sundog Technologies, Inc., common stock. At that time all converted
Arkona stock was canceled. Additional shares were issued in the amount
of 11,027,800 to shareholders of Arkona and 1,575,500 shares were
issued to shareholders of Sundog. The financial statements in this
report have been restated, where necessary, for the effects of this
merger.
F-11
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Financial Statements
March 31, 2000
[continued]
Note 8 Private Placement Memorandum/Marketable Securities
--------------------------------------------------
Closing of the merger referred to in Note 7 was subject to an offering
of 4,000,000 shares of common stock through a private placement
memorandum. The shares are exempt from registration under the
Securities Act of 1933, and applicable state securities laws, pursuant
to exemptions contained therein. Accordingly, the shares were offered
by the Company to a limited number of persons. The 4,000,000 shares
($.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 Sundog (then 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 reducing the number of shares issued, the
subscriber 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. All of the InterjetNet shares were sold in
June of 1998 for approximately $820,000. The net unrealized loss on
investments was reduced during the year by approximately $145,000 due
to the market value increase and subsequent sale of the InterjetNet
stock.
The March 31, 2000 unrealized loss on investments of $13,582 was
related to the Eurogas securities. The unrealized loss is based on the
original cost of the securities verses current market value. As of
March 31, 2000, the Company had 3,000 shares remaining. These
securities are available for sale and have been adjusted to fair market
value as of March, 31, 2000.
An additional Private Placement Memorandum (dated March 4, 1998) was
circulated. This offering originally involved the issuance of up to
2,000,000 units, consisting of 2,000,000 shares of common stock of the
Company and 2,000,000 common stock purchase warrants. In July of 1998
the memorandum was amended to change the common stock price from
$2/share to $1.50/share, which increased the total offering to
2,666,666 shares. The warrants enable the purchasers to buy an
additional 1,333,333 shares of common stock at prices ranging from $2
to $3 per share over a two year period. Proceeds from this offering, of
approximately $3.83 million through June 10, 1999, have been used
primarily to fund the development and marketing of the Company.
In October 1999, the Company offered the holders of A and B warrants
the opportunity to exercise at the special purchase price of $.95 per
share. Warrants were exercised to purchase 812,077 common shares for
approximately $812,933.
A third Private Placement Memorandum was created in February 2000,
which allows the Company to make renewable offerings to raise up to a
total of $3,000,000 in shares of common stock at $2.00 per share.
Through March 31, 2000, 287,500 shares have been issued for $575,000
under such offerings.
Note 9 Deposits
--------
In conjunction with its lease obligations, the Company has placed
security deposits with its landlords. A deposit of $3,413 was paid at
the inception of the current office lease. An additional deposit of
$13,205 was paid to a new landlord who will be leasing new space to the
Company beginning June 2000. The remaining amount is composed of a
certificate of deposit placed in financial institutions which is
collateral for the a lease.
Contract Requiring Deposit Rate Amount Maturity
-------------------------- ---- ------ --------
Office Lease (Qui Vive) 4.000% 36,829 June 23, 2000
Note 10 Going Concern
-------------
The Company has incurred losses from inception to March 31, 2000
amounting to $8,417,402. 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 anticipates reaching a level of
profitable operations. To the extent that cash flow requirements are
not met by operations, management intends to raise additional capital
through private placement offerings or eventually through the sale of
securities obtained in the sale of Qui Vive, (see Note 14) .
Note 11 Stock Option Plans
------------------
The Company has established two Stock Option Plans (1992 and 1999) 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
F-12
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Financial Statements
March 31, 2000
[continued]
and employees considered essential for long-range success. Granting of
options is at the discretion of the Stock Option Committee of the
Board. The Committee may determine the terms and conditions of options,
consistent with the Plan. Each plan currently has authorized 2,000,000
shares.
Through March 31, 2000, the 1992 Plan has granted 1,460,000 options
(135,000 of which have expired) to 37 holders with stock purchase
prices of $.50,$1.50, and $2.00 per share. The 1999 Plan has granted
1,200,000 stock options (220,000 of which have been canceled) to 16
individuals with a purchase price of $0.30 or $1.50 per share. These
options vest over two to three years, and, when fully vested, allow the
holders to purchase common shares. In the 1992 plan, 847,500 options
have vested; through the date of this report, 30,000 options have been
exercised.
Qui Vive, Inc. (QV) has its own stock option plan which originally
provided for granting 450,000 options to purchase 450,000 common shares
of QV, available to key individuals. In October 1999, QV reserved an
additional 200,000 shares of common stock for grants. These options
generally become exercisable in six-month increments over a period of
two and three years and may be exercised up to a maximum of 5 and 10
years from the date of grant, for non-qualified and incentive options,
respectively. Through March 2000, 480,900 options have been granted
with exercise prices ranging from $.10 to $1.30 per share. Of these
options, approximately 279,535 have vested. In December, 1999, 70,775
options were exercised to purchase common shares of Qui Vive, Inc. (See
Note 13)
Compensation cost for stock options is measured as the excess , if any,
of the estimated fair market value of the Company's stock at the date
of grant over the amount the recipient must pay to acquire the stock.
Unearned compensation, which is shown as a separate component of
stockholders' equity, as a result of compensatory stock options is
being amortized to expense over the vesting periods of the underlying
stock options. The amounts amortized to expense for March 31, 2000 were
$582,500 and $447,308, for Sundog and Qui Vive, respectively. Unearned
compensation at March 31, 2000 represents the intrinsic value of stock
options granted but not yet vested. A summary of the Company's stock
option plans as of March 31, 2000 and 1999, and changes during the
periods ending thereon is presented below:
<TABLE>
<CAPTION>
2000 1999
Weighted average Weighted average
Shares exercise price Shares exercise price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding, beginning number 1,060,000 $ 0.50 340,000 $ 0.50
Granted 1,740,000 0.84 780,000 0.50
Exercised 0 0.00 0 0.00
Forfeited/Cancelled (295,000) 0.84 (60,000) 0.50
Outstanding at end of period 2,505,000 $ 0.70 1,060,000 $ 0.50
Options exercisable at end of period 1,062,500 $ 0.90 135,000 $ 0.50
</TABLE>
F-13
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Financial Statements
March 31, 2000
[continued]
Information on stock options outstanding at March 31, 2000 is
summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Weighted Average Average Weighted Average
Range of exercise Number Remaining Exercise Number Exercise
prices Outstanding Contractual Life Price Exercisable Price
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$0.30 850,000 58 months 0
$0.50 985,000 5 months 642,500
$1.50 660,000 37 months 410,000
$2.00 10,000 9 months 10,000
2,505,000 32 months $0.70 1,062,500 $0.90
</TABLE>
Note 12 401K Profit Sharing Plan
------------------------
On January 15, 1998, the Directors adopted an employee benefit program
consisting of a 401K Profit Sharing 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 sole
discretion of management. Profit sharing expense recognized under this
plan was $18,247 and $18,977 for the years ended March 31, 2000 and
1999, respectively.
Note 13 Minority Interest in Qui Vive, Inc.
-----------------------------------
In October 1999 the Company effected a plan of recapitalization of Qui
Vive, Inc. whereby it converted its entire common stock holding
(550,000 shares) into Series A preferred stock at a one for one
conversion rate.
On November 9, 1999, Sundog closed an agreement to issue 180,000 shares
of Series B preferred stock of Qui Vive at $8.333 per share to
RockMountain Ventures Fund, LP through a private placement (aggregate
proceeds of $1,499,940 less $25,142 in costs). In conjunction with this
private placement, and in consideration of $60, warrants were issued to
the investor to purchase an aggregate of 52,500 shares of Qui Vive
Series B preferred stock at an exercise price of $10.41625 per share.
The holders of Series A and Series B preferred stock are entitled to
receive dividends at the rate of $0.25 and $0.58 per share, per annum,
respectively. The right to such dividends on preferred stock shall not
be mandatory or cumulative, and no right shall accrue to holders of
preferred stock by reason of the fact that dividends are not declared
in any prior year. Holders of Series A and B preferred stock are
entitled, voting as separate classes, to elect two and one directors of
the board, respectively. Preferred stock holders are also allowed to
participate with common stockholders, voting as single class, to elect
the remaining board members.
In December 1999, Qui Vive issued 70,775 shares of common stock for
cash of $3,757, pursuant to the exercise of stock options. This further
reduced Sundog's interest in Qui Vive.
The Minority Interest at March 31, 2000, ($1,338,429) is the net of
cash proceeds ($1,503,756) plus earned options ($447,308), less the
minority share of loss from discontinued operations ($612,635).
Note 14 Subsequent Events/Discontinued Operation
----------------------------------------
On April 7, 2000, the Company completed the first stage of a stock
acquisition agreement (dated as of March 31, 2000) whereby 100% of its
preferred shares of Qui Vive, Inc., were exchanged for common shares of
Envision Development Corporation (EDV), a publicly held company listed
on the American Stock Exchange. EDV issued 1,219,500 shares of its
restricted stock with an additional 272,500 common shares to be issued
within two days of receiving EDV shareholder approval. EDV purchased
107,000 Series B preferred shares from RockMountain Ventures Fund, LP
to bring EDV's ownership of Qui Vive to 80%.
F-14
<PAGE>
SUNDOG TECHNOLOGIES, INC.
Including the accounts of its subsidiaries
[A Development Stage Company]
Notes to Financial Statements
March 31, 2000
[continued]
On April 7, 2000, the closing price of EDV free trading stock was
$66.25 per share, which would indicate a gross market value of
$98,845,000 (1,492,000 shares at $66.25). However, because these shares
are restricted from trading for 18 months from the closing of this sale
of Qui Vive, the Company anticipates valuing these shares at
approximately $25 per share or $37,500,000, which is a discount of 62%.
This valuation is due to the trading restriction and volatility of this
stock.
Sundog has recognized a loss from discontinued operations of Qui Vive,
Inc. as of March 31, 2000, but will recognize a gain on the transaction
in April 2000 when it was finalized. As of March 31, 2000, the Company
has recorded an asset of $920,811, which represents the recovery of
recorded losses on the disposal of Qui Vive through the closing date.
Any additional gain will be recorded when realized. The net liabilities
being disposed are composed of the following:
<TABLE>
<CAPTION>
Description Balance Description Balance
----------- ------- ----------- -------
<S> <C> <C> <C>
Bank overdraft (140,620) Net property 235,591
Current liabilities (319,831) Note payable (600,000)
Deposits & Intangibles 176,751
Net current liabilities ($460,451) Net long-term liabilities ($187,658)
</TABLE>
The following pro forma balance sheet and income statement show the
Company's financial statements as if the transaction had closed on
March 31, 2000.
Pro Forma Balance Sheet as of March 31, 2000
ASSETS
Current Assets $ 516,972
Total Current Assets 516,972
Property & Equipment 186,207
Total Property & Equipment 186,207
Marketable securities available for sale 37,300,000
(restricted until Oct 2001)
Other Assets 61,888
Total Other Assets 37,361,888
TOTAL ASSETS $ 38,065,067
F-15
<PAGE>
Note 14 Subsequent Events/Discontinued Operation[continued]
----------------------------------------
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities $ 297,434
Total Current Liabilities 297,434
Deferred tax liablity 14,187,884
Long-Term Liabilities 14,988
Total Long-Term Liabilities 14,202,872
Total Liabilities 14,500,306
Stockholders' Equity 23,564,761
Total Stockholders' Equity 23,564,761
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 38,065,067
Pro Forma Income Statement for the year ended March 31, 2000
Revenue $ 45,975
Total operating expenses (3,076,682)
Net other income or expense 32,025
Net Loss from continuing operations (2,998,682)
Discontinued Operations
Loss from discontinued operations (2,342,064)
Gain on disposal of segment 22,191,305
Net Income 16,850,559
</TABLE>
Note 15 Note Payable
------------
In February and March, Qui Vive, Inc., received advances from a related
party for at total of $600,000. Additional advances of $500,000 were
received after year end. The loans are due on demand beginning two
month after the loan dates, are collateralized by substantially all of
Qui Vive's assets, and bear interest, payable semi-annually at LIBOR
plus 3.5%. The creditor is a related party through EDV, and not through
Sundog.
Note 16 Contracts
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The Company has entered into contracts with two customers to develop
software applications using the Company's proprietary systems. As a
provision of one contract, the Company agreed to pay a 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 such
customer.
