SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended December 31, 2000
Commission File No. 000-27869
AUTHORISZOR INC.
(Exact name of registrant as specified in charter)
Delaware 75-2661571
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
One Van de Graaff Drive, Suite 502
Burlington, Massachusetts 01803-5188
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(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (781) 359-9650
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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As of February 12, 2001, there were 17,526,784 shares of the common stock, $0.01
par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
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AUTHORISZOR INC.
December 31, 2000
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
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Consolidated Balance Sheets as of December 31, 2000 (unaudited)
and June 30, 2000 (audited) ............................................................F-1
Consolidated Statements of Operations for the three and six months
ended December 31, 2000 and 1999 (unaudited) and for the period
January 15, 1997 (date of inception) to December 31, 2000 (unaudited)...................F-2
Consolidated Statements of Cash Flows for the six months ended
December 31, 2000 and 1999 (unaudited) and for the period January 15,
1997 (date of inception) to December 31, 2000 (unaudited)...............................F-3
Notes to Consolidated Financial Statements (unaudited)..................................F-4
Item 2. Management's Discussion and Analysis and Plan of Operation................................1
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Item 3. Quantitative and Qualitative Disclosure of Market Risk....................................3
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PART II. OTHER INFORMATION 4
Item 1. Legal Proceedings.........................................................................4
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Item 2. Changes in Securities ....................................................................4
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Item 3. Defaults Upon Senior Securities...........................................................4
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Item 4. Submission of Matters to a Vote of Security Holders.......................................4
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Item 5. Other Information.........................................................................5
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Item 6. Exhibits and Reports on Form 8-K..........................................................10
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SIGNATURES..................................................................................................11
i
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2000 2000
(unaudited) (audited)
$ $
ASSETS
Cash 19,779,571 27,095,734
Receivables
VAT recoverable and trade 168,495 70,847
Accrued interest 19,219 246,832
Other 25,857 159,457
Prepaid expenses 135,272 76,568
-----------------------------------
Total current assets 20,128,414 27,649,438
Investment in securities, available-for-sale 1,176,132 1,992,769
Computer and office equipment, net of accumulated depreciation 1,024,033 681,094
Restricted bank deposits 708,000 408,000
Note receivable from WRDC 339,989 336,086
Investment in WRDC at net cost, adjusted for equity in
earnings or losses 528,488 506,880
Intangibles and other assets 194,931 70,643
-----------------------------------
3,971,573 3,995,472
-----------------------------------
$24,099,987 $31,644,910
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities 3,806,632 1,194,021
Current maturities of capital lease obligations 103,990 58,990
-----------------------------------
Total current liabilities 3,910,622 1,253,011
Long term capital leases obligations, less current maturities 287,557 133,442
Stockholders' equity
Preferred stock, par value $.01 per share; authorized: 2,000,000
shares; issued: none
Common stock, $.01 par value per share; authorized: 30,000,000
shares; issued and outstanding: 17,514,081 shares at
December 31, 2000 and 17,414,081 at June 30, 2000 175,141 174,141
Additional paid-in capital 34,991,663 33,946,818
Accumulated other comprehensive income 574,527 1,622,713
Accumulated deficit during the development stage (15,839,523) (5,485,215)
-----------------------------------
19,901,808 30,258,457
-----------------------------------
$24,099,987 $31,644,910
===================================
The accompanying notes are an integral part of these statements.
F-1
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended For the six months ended January 15, 1997
December 31, December 31, (date of inception)
to December 31,
2000 1999 2000 1999 2000
$ $ $ $ $
Net sales 15,937 - 24,176 - 182,363
Cost of sales 1,027 - 2,705 - 19,380
---------------- --------------- ----------------- --------------- ------------------
Gross profit 14,910 - 21,471 - 162,983
Operating expenses
Professional fees 1,518,353 660,405 2,584,183 696,399 4,399,587
Marketing and advertising 676,029 183,720 976,563 212,229 1,856,928
Administrative 4,800,345 359,482 6,910,377 715,549 10,139,557
Stock-based compensation - - - - 1,773,500
---------------- --------------- ----------------- --------------- ------------------
Total operating expenses 6,994,727 1,203,607 10,471,123 1,624,177 18,169,572
---------------- --------------- ----------------- --------------- ------------------
Operating loss (6,979,817) (1,203,607) (10,449,652) (1,624,177) (18,006,589)
Other income (expense)
Interest income 286,668 1,296 670,553 1,526 1,281,852
Loss on sale of subsidiary - (291,448) - (291,448) (291,448)
Gain on sale of investments - - - 199,279 1,892,003
Currency transaction gains (losses) 390,975 - (631,254) - (726,211)
Equity in earnings of WRDC 44,335 - 56,045 - 10,870
---------------- --------------- ----------------- --------------- ------------------
Total other income, net 721,978 (290,152) 95,344 (90,643) 2,167,066
---------------- --------------- ----------------- --------------- ------------------
Net loss $(6,257,839) $(1,493,759) $(10,354,308) $(1,714,820) $(15,839,523)
================ =============== ================= =============== ==================
Weighted average shares outstanding
Basic and Diluted 17,486,907 13,907,193 17,450,494 13,844,311
================ =============== ================= ===============
Loss per common share
Basic and Diluted $ (0.36) $ (0.11) $ (0.59) $ (0.12)
================ =============== ================= ===============
The accompanying notes are an integral part of these statements.
F-2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months January 15, 1997
ended December 31, (date of inception)
to December 31,
2000 1999 2000
---- ---- ----
$ $ $
Cash flows used in operating activities
Net loss during the period (10,354,308) (1,714,820) (15,839,523)
Adjustments to reconcile net loss to net cash used in operating
activities:
Issuance of stock and stock options in exchange for services 645,845 406,600 1,427,794
Non-cash compensation expense - 52,849 1,773,500
Equity in earnings in WRDC (56,045) - (10,870)
Loss on foreign exchange transactions - - 94,957
Loss on sale of subsidiary - 291,448 291,448
Gain on sale of investments - (199,279) (1,892,003)
Depreciation and amortization 189,501 27,901 301,088
Changes in operating assets and liabilities
Receivables and other assets 95,525 (80,766) (452,553)
Accounts payable and accrued liabilities 2,639,549 83,570 3,863,449
-------------------------------------------------------
Net cash used in operating activities (6,839,933) (1,132,497) (10,442,713)
Cash flows (used in) provided by investing activities
Proceeds from sale of subsidiary - - 809,750
Acquisition of equipment (276,743) (161,740) (862,372)
Sale of investments - 1,360,579 4,415,909
Exercise of warrants - - (977,608)
Investment in WRDC - - (604,800)
Advances to WRDC - (160,800) (356,000)
Purchase of intangible assets (75,690) (30,000) (154,525)
Purchase of restricted bank deposits (300,000) - (708,000)
-------------------------------------------------------
Net cash flows provided by investing activities (652,433) 1,008,039 1,562,354
Cash flows provided by financing activities
Payments on capital leases (28,664) - (28,664)
Proceeds from the issuance of stock 400,000 506,708 28,732,847
Recapitalization - 711 711
-------------------------------------------------------
Net cash flows provided by financing activities 371,336 507,419 28,704,894
Effect of exchange rate changes on cash (195,133) 10,846 (44,964)
-------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (7,316,163) 393,807 19,779,571
Cash and cash equivalents at beginning of period 27,095,734 698 -
-------------------------------------------------------
Cash and cash equivalents at end of period $19,779,571 $ 394,505 $19,779,571
=======================================================
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest - - -
Income taxes - - -
The accompanying notes are an integral part of these statements.
F-3
NOTE A - BASIS OF PREPARATION
The consolidated financial statements of Authoriszor Inc. and
subsidiaries (the "Company") contained herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments necessary for a fair presentation
of the consolidated financial statements have been made. All such adjustments,
in the opinion of management, are of a normal recurring nature. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States, have been condensed or omitted pursuant to the
interim reporting rules of the Securities and Exchange Commission. The interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes as of June 30, 2000,
included in the Company's Form 10-KSB.
NOTE B - CURRENCY TRANSACTION LOSSES
The Company incurred currency transaction losses of approximately
$631,000 during the six months ended December 31, 2000. The losses are a result
of the Company entering into foreign currency option transactions and related
bank deposits denominated in pound sterling. Additionally, the Company has
maintained the majority of its operating cash in pound sterling.
NOTE C - COMPREHENSIVE INCOME (LOSS)
January 15, 1997
Three months ended December Six months ended (date of inception)
31, December 31, to December 31,
2000 1999 2000 1999 2000
Foreign currency translation
Adjustment $ (241,480) $ (2,407) $ (229,418) $ (8,200) $ (33,904)
Unrealized gain (loss) on
Available-for-sale securities (1,329,085) - (818,768) - 608,431
Net loss (6,257,839) (1,493,759) (10,354,308) (1,714,820) (15,839,523)
-------------- --------------- ---------------- -------------- ---------------------
Comprehensive loss $(7,828,404) $(1,496,166) $(11,402,494) $(1,723,020) $(15,264,996)
F-4
Item 2. Management's Discussion and Analysis or Plan of Operation
The following description of "Management's Discussion and Analysis or
Plan of Operation" constitutes forward-looking statements for purposes of the
Securities Act of 1933, as amended (the "Securities Act" ), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as such involves
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. The words "expect," "estimate," anticipate,"
"predict," "believes," "plan," "seek," "objective" and similar expressions are
intended to identify forward-looking statements. Important factors that could
cause the actual results, performance or achievement of the Company to differ
materially from the Company's expectations include the following:
o one or more of the assumptions or other cautionary factors discussed in
connection with particular forward-looking statements or elsewhere in this
Form 10-QSB prove not to be accurate;
o the Company is unsuccessful in securing sales through its anticipated sales
and marketing efforts;
o errors in cost estimates and cost overruns;
o the Company's inability to obtain financing for general operations
including the marketing of the Company's products;
o non-acceptance of one or more products of the Company in the market place
for whatever reason;
o the Company's inability to supply any product to meet market demand;
o generally unfavorable economic conditions that would adversely effect
purchasing decisions by distributors, resellers or end-users;
o development of a similar competing product at a similar price point;
o the inability to successfully integrate one or more acquisitions, joint
ventures or new subsidiaries with the Company's operations (including the
inability to successfully integrate businesses that may be diverse as to
type, geographic area, or customer base and the diversion of management's
attention among several acquired businesses) without substantial costs,
delays or other problems;
o if the Company experiences labor and/or employment problems such as the
loss of key personnel, inability to hire and/or retain competent personnel,
etc.;
o if the Company experiences unanticipated problems and/or force majeure
events (including but not limited to accidents, fires, acts of God etc.),
or is adversely affected by problems of its suppliers, shippers, customers
or others;
o a slowing of the growth of the acceptance and use of the Internet as a
source of information and a vehicle for commerce and business;
o if the Company encounters difficulties in expanding and conducting business
in foreign markets;
o if the Company experiences additional currency translation losses due to
the continued decline of the pound sterling versus the U.S. dollar;
o if larger and more established competitors successfully employ their
greater financial, marketing and sales resources, name recognition,
customer contacts and/or relationships with business and technology
partners to gain significant advantages over the Company; and/or
o those factors identified in the Company's Quarterly Report on Form 10-KSB,
dated September 29, 2000, including without limitation, those factors
identified as risk factors in the Company's Prospectus, dated May 19, 2000,
as supplemented, and other factors that affect the business generally.
All written or oral forward-looking statements attributable to the Company
are expressly qualified in their entirety by such factors. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
The following is a discussion of the results of operations for the
three and six months ended December 31, 2000 compared with the three and six
months ended December 31, 1999.
The operating loss increased to $6,979,817 and $10,449,652 for the
three and six months ended December 31, 2000, respectively, compared to loss
from operations of $1,203,607 and $1,624,177 for the three and six months ended
December 31, 1999.
The increases are attributable primarily to the costs incurred in
setting up and expanding the Company's development centers, opening additional
sales offices, expanding the management team, recruiting and hiring employees,
research and development, infrastructure costs, increased marketing expenses and
legal, accounting and other professional fees. Included within professional fees
is an accounting charge of approximately $646,000, as a result of common stock
and stock options issued for services to Edward F. Rogers, a consultant to the
Company.
The Company did not have any sales in the three and six months ended
December 31, 1999 compared to sales of $15,937 for the three months ended
December 31, 2000 and to sales of $24,176 for the six months ended December 31,
2000.
The Company recognized net currency transaction gains in the amount of
$390,975 for the three months ended December 31, 2000, and net currency
transaction losses of $631,254 for the six months ended December 31, 2000. The
losses are a result of the Company entering into foreign currency option
transactions and related bank deposits denominated in pound sterling.
Financing Management's Plan of Operation
During the six months ended December 31, 2000, the Company recruited
field staff in six major cities of the U.S. to provide local sales and technical
support to the marketplace and customer base. As the operations are initially
small, the Company has either established home office locations, as in, for
example, Providence, Washington, St. Louis and Phoenix, or has attempted to
locate and rent such other shared office space as was deemed appropriate for the
other field offices in Los Angeles, Burlington and Chicago.
The Company has increased its U.S. staff significantly. As of December
31, 2000, there were 64 people employed by the Company on a full-time basis. Of
these, 14 employees were primarily involved in research and development, and 20
employees were involved in sales and marketing, 11 in general administration and
support and 19 engaged in professional services.
The Company's future success will depend, in part, on its ability to
retain and motivate highly qualified technical and management personnel. Over
the short term, the Company intends to maintain its existing levels of sales and
distribution, technical services and administrative staff in both the UK and in
the U.S. However, on a longer term basis, the Company will review the existing
levels of sales and distribution, technical services and administrative staff in
both the UK and U.S.
On January 31, 2001, the Company's then President, Chief Executive
Officer and Interim Chief Financial Officer, Richard A. Langevin, resigned from
such positions with the Company, along with his position on the Company's Board
of Directors and from positions held in certain of the Company's subsidiaries.
Mr. Langevin was replaced as President and Chief Executive Officer by Paul
Ayres, and Andrew Cussons assumed the role of Chief Financial Officer and
Secretary of the Company. In connection with the resignation from the positions
held in the Company by Richard A. Langevin, the Company entered into a Severance
and Release Agreement, dated as of January 29, 2001. See Part II. Item 5. Other
Information.
The Company believes its future success will depend in large part on
its ability to enhance and leverage its technologies. The Company intends to
continue to develop new and innovative solutions to respond to the needs of its
customers. The Company intends to offer products that are compatible with new
and emerging operations platforms such as UNIX and to seamlessly integrate its
product without the need for re-registration in the case clients require major
upgrades.
In addition, the Company provides a range of consulting services which
enable organizations to assess their respective internet security infrastructure
needs in the light of an increasing internet security risk and to help
understand how the Company's software suite is designed to reduce the inherent
risks associated with internet. In the event that a customer decides to install
the Company's software technology, the consulting services group are able to
provide implementation and knowledge transfer engagements that helps to ensure
the successful installation and configuration of the software solution.
The Company aims to increase its security software technology
leadership position by enhancing and broadening the Company's product offerings.
Through constant monitoring of the industry, the Company plans to identify new
security features and trends in the marketplace that are required to maintain
its competitive edge. The research and development team has currently identified
several competitive enhancements that are being considered for development, such
as:
o native code conversion to further improve system performance;
o implementation of secure file transfer;
o expanded user selectable encryption;
o active lightweight directory access protocol support; and
o the development of extended application programming interfaces.
For the three and six months ended December 31, 2000, the Company
incurred approximately $641,000 and $991,000 respectively in research and
development costs. The Company expects that it will continue to commit
significant resources to its research and development team in the future,
including over the course of the next 6 to 12 months.
As of the quarter ended December 31, 2000, 14 full-time employees were
engaged in research and development for the Company. In addition, most of the
Company's technical staff and management team contribute to design, development
and testing activities.
Management considers that the cash resources of the Company are
adequate for its working capital requirements for at least the next twelve
months.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The Company has market risk exposure with respect to the fluctuation in
the value of its investment in the common stock of Minmet Plc. These securities
have been classified as available-for-sale which requires that they be carried
at the market price. At December 31, 2000, these securities have a value of
approximately $1,176,000. Fluctuations in value could result both from the price
of the equity securities in general as well as changes in the market's
perception of the value of the shares of Minmet Plc. Additionally, the valuation
of these securities are affected by currency fluctuations as Minmet Plc is
listed on the London Exchange in pound sterling. The Company has not deemed it
prudent to enter into transactions such as various types of hedges to minimize
risk.
The Company also has risk related to currency exchange rate
fluctuations. A portion of its cash flows are expected to be received in
non-U.S. currencies. In addition, as of December 31, 2000, the Company had
deposited cash in pound sterling denominated accounts in the amount of
$17,720,000. A ten (10%) percent fluctuation in currency rates would have a
$1,772,000 effect on the period's net income or loss and the stockholders'
equity of the Company. Also, as of December 31, 2000, there are loans
outstanding from the Company to its UK subsidiaries of approximately $873,000.
Based on this loan amount, a 10% fluctuation in currency rates would have a
$87,300 effect on the period's net income or loss. Although the Company may
choose to do so in the future, to date, the Company has not engaged in foreign
exchange hedging.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
(a) None
(b) None
(c) Since the beginning of the quarter ended December 31, 2000, the Company
issued the following securities in transactions not registered under
the Securities Act of 1933, as amended (the "Securities Act"):
(i) On May 10, 1996, Starlight Acquisitions, Inc. ("Starlight"), the
predecessor to Authoriszor Inc. (the "Company"), in accordance
with that certain Share Exchange Agreement, dated as of May 10,
1996, received warrants ("Warrants") to purchase 100,000 shares
("Warrant Shares") of common stock, par value $.01 per share
("Common Stock"), of the Company at an exercise price of $4.00
per share. The Warrants were issued to former officers and
directors of Starlight (the "Holders") in consideration of, among
other things, each persons agreement to indemnify the Company's
predecessors with respect to certain representations contained in
the Share Exchange Agreement. In October 2000, each Holder
exercised his respective Warrant to acquire 25,000 shares of
Common Stock for an aggregate of 100,000 Warrant Shares. The
Warrant Shares were issued pursuant to the exemption from
registration under the Securities Act set forth in Section 4(2)
of the Securities Act.
(ii) On July 21, 2000, the Company entered into a Consulting Agreement
with Edward F. Rogers pursuant to which Mr. Rogers would provide
a broad array of financial and other business-related consulting
services for the Company. In accordance with the terms of the
Consulting Agreement, a portion of the daily compensation to the
paid to Mr. Rogers was comprised of such number of restricted
shares of Common Stock equal to $1,000 per consulting day, which
was calculated weekly for the days worked in such week at the
last reported sales price of the Common Stock at the close of
business on the last business day of the week in which Mr. Rogers
performed such consulting services. The Consulting Agreement with
Mr. Rogers expired according to its terms on January 20, 2001.
Pursuant to the terms of the Consulting Agreement, the Company
issued Mr. Rogers 12,703 shares of Common Stock. However, in
accordance with the terms of the Consulting Agreement, the 12,703
shares cannot be sold or exchanged for a period of 12 months
following the expiration of the Consulting Agreement. These
shares of Common Stock are included in the number on the cover
page indicating the total number of currently issued and
outstanding shares of Common Stock. The shares of Common Stock
were issued pursuant to the exemption from registration under the
Securities Act set forth in Section 4(2) of the Securities Act.
Item 3. Default Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of stockholders (the "Meeting") on
November 10, 2000. At the Meeting, the stockholders voted (i) to elect seven
directors of the Company to hold office until the next annual meeting of
stockholders, or until their respective successors are duly elected and
qualified ("Proposal 1"); and (ii) to consider and act upon a proposal to
approve and implement the Company's 2000 Omnibus Stock and Incentive Plan
("Proposal 2"). No other matters were voted on at the Meeting. A total of
10,108,370 shares were represented at the Meeting.
The number of shares that were voted for, and that were withheld from,
each of the director nominees in Proposal 1 was as follows:
Director Nominee For Withheld
Raymond G. H. Seitz 10,170,360 1,010
Richard A. Langevin 10,170,360 1,010
Donald D. Box 10,096,360 12,010
James L. Jackson 10,170,360 1,010
Sir Malcolm Rifkind 10,170,360 1,010
Geoff Shingles 10,170,360 1,010
David R. Wray 10,170,360 1,010
The number of shares that were voted for, against and abstained from
Proposal 2 and the number of broker non-votes are as follows:
For Against Abstain Broker Non-Votes
7,473,431 121,775 8,500 2,504,664
Item 5. Other Information.
The following significant events have occurred during the quarter ended
December 31, 2000 or subsequent thereto and were not previously disclosed in the
Company's Form 10-QSB for the quarter ended September 30, 2000:
1. On January 31, 2001, Richard A. Langevin (the "Executive") resigned his
position as the President, Chief Executive Officer and Interim Chief
Financial Officer of the Company, and his position as director on the
Board of Directors of the Company. In addition, the Executive resigned
from the various officer and director positions he held in certain of
our affiliate companies, including our wholly-owned subsidiaries,
Authoriszor Holdings Corporation, Authoriszor U.S. Corporation and
Authoriszor Holdings Limited. In connection with such resignation, the
Company entered into a Severance and Release Agreement, dated January
31, 2001 (the "Severance Agreement") with the Executive.
In accordance with the terms of the Severance Agreement, the Company
paid the Executive the following sums of money: (i) $19,791.67, minus
applicable withholdings for federal and state income tax, FICA, and any
other withholdings required by federal, state or local law, which
payment reflects salary and bonus earned through January 31, 2001; (ii)
$450,000.00, minus applicable withholdings for federal and state income
tax, FICA, and any other withholdings required by federal, state or
local law, which payments reflect a severance payment equal to two
years of salary; (iii) $31,250.00, minus applicable withholdings for
federal and state income tax, FICA, and any other withholdings required
by federal, state or local law, for purposes of the Executive's October
to December bonus for the year 2000; and (iv) 23,958.00, minus
applicable withholdings for federal and state income tax, FICA, and any
other withholdings required by federal, state or local law, reflecting
payment for the Executive's accrued but unused vacation time during the
year 2000.
On January 31, 2002, the Company is obligated to pay the Executive the
sum of $250,000.00, minus applicable withholdings for federal and state
income tax, FICA, and any other withholdings required by federal, state
or local law, as an additional severance payment equal to the
Executive's bonus compensation for a two year period. However, this
bonus payment will be placed in an interest bearing escrow account on
January 31, 2001 with instructions to release such funds to the
Executive on January 31, 2002. As a condition to the payment of the
funds herein, the Executive must comply with the terms and conditions
of the Severance Agreement and shall have not revoked his releases and
waivers under the Age Discrimination in Employment Act. All interest
earned on the funds held in the escrow account will be retained by us.
In addition, the Company and the Executive entered into a Stock Option
Agreement, dated as of January 31, 2001 (the "Stock Option Agreement").
The Severance Agreement provides that all stock option agreements for
which the Executive is not vested as of the date of January 31, 2001
are rescinded and declared null and void and replaced by the Stock
Option Agreement. The Stock Option Agreement provides the Executive
with an option to purchase 200,000 shares of Common Stock of the
Company exercisable in increments of (i) 100,000 shares exercisable
beginning on January 31, 2001, and (ii) 100,000 shares exercisable
beginning on January 31, 2002, all at an exercise price of $6.75 per
share. Neither the Severance Agreement nor the Stock Option Agreement
affects the Executives rights to options granted under prior stock
option agreements and which were vested as of the date of the Severance
Agreement.
The Executive has elected to reinstate and continue in accordance with
the terms of the Company's medical plan and the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, ("COBRA"), and the
Company has agreed to pay on behalf of the Executive, the applicable
premium which is required to reinstate and continue such group medical
coverage, but only to the extent such coverage was in effect on the
date immediately prior to the Executive's resignation date. The Company
will continue such premium payments until the earlier of the following:
(i) the first date that the Executive becomes eligible for medical
coverage under any other group medical plan; (ii) the date the
Executive elects to discontinue medical coverage for himself and his
dependents; (iii) the first date that the Executive is no longer
otherwise eligible for coverage under COBRA, as determined by the
Company; and (iv) the first anniversary of the Executive's resignation
date.
In consideration of the payment of the above described sums of money
and the issuance of the options to purchase shares of Common Stock of
the Company, the Executive agreed to release and waive any and all
claims against the Company and its subsidiaries with respect to and
including, without limitation, any claim relating the Employment
Agreement, dated as of January 1, 2000 (the "Employment Agreement"),
between the Company and the Executive, any claim under state or federal
law which provides for civil remedies for the enforcement or rights
arising out of the employment relationship, any claims for unpaid or
withheld wages, and any claims sounding in contract, tort or otherwise;
provided, however, that the Executive remains subject to certain
provisions in the Employment Agreement relating to non-competition,
non-disclosure and non-solicitation provisions.
The Severance Agreement also provides that the Executive is required to
return all the Company's proprietary material, including notes,
records, reports and such other items obtained by him during the course
of his employment. In addition, the Executive is required to return the
vehicle provided to him by the Company. The Company has permitted the
utilization by the Executive, at the Executive's own expense, of a
certain third-party executive recruiting firm.
2. On January 29, 2001, the Board of Directors of the Company announced
that it had appointed Paul Ayres, the Managing Director of Authoriszor
Ltd., the Company's wholly-owned subsidiary, to the positions of
President and Chief Executive Officer of the Company and appointed
Andrew Cussons, the Finance Director of Authoriszor Ltd., the Chief
Financial Officer of the Company to replace the Executive, effective as
of January 31, 2001. In addition, as of January 31, 2001, the Board of
Directors of the Company appointed Mr. Ayres and Mr. Cussons to the
Board of Directors of the Company.
3. James L. Jackson resigned from his position as Chairman of the Board of
Authoriszor Ltd. and from his position as the Company's Vice President
and Secretary, effective January 31, 2001. Andrew Cussons has assumed
the role of Secretary of the Company. As a result of his resignation
from his respective executive positions with the Company, Mr. Jackson
will receive a mutually agreed to payment from the Company in
accordance with the terms of that certain Service Agreement, dated as
of July 22, 1999, by and between the Company and Mr. Jackson.
4. Effective January 31, 2001, Ian McNeill stepped down from his position
as Chairman of the Board of Authoriszor Holdings Ltd. and will continue
as an active consultant to our Board of Directors. Mr. McNeill has been
replaced by Geoff Shingles, a current member of the Company's Board of
Directors.
5. On July 21, 2000, the Company entered into a Consulting Agreement with
Edward F. Rogers pursuant to which Mr. Rogers would provide a broad
array of financial and other business-related consulting services for
the Company. In accordance with the terms of the Consulting Agreement,
a portion of the daily compensation to the paid to Mr. Rogers was
comprised of such number of restricted shares of Common Stock equal to
$1,000 per consulting day, which was calculated weekly for the days
worked in such week at the last reported sales price of the Common
Stock at the close of business on the last business day of the week in
which Mr. Rogers performed such consulting services. The Consulting
Agreement with Mr. Rogers expired according to its terms on January 20,
2001.
Pursuant to the terms of the Consulting Agreement, the Company will
issue Mr. Rogers 12,703 shares of Common Stock. However, in accordance
with the terms of the Consulting Agreement, the 12,703 shares cannot be
sold or exchanged for a period of 12 months following the expiration of
the Consulting Agreement. The shares of Common Stock were issued
pursuant to the exemption from registration under the Securities Act
set forth in Section 4(2) of the Securities Act.
6. Effective October 1, 2000, the Consulting Agreement by and between the
Company and Frederick Sawin was extended. The terms of the amended
Consulting Agreement with Mr. Sawin were substantially similar to the
terms contained in his prior Consulting Agreement, dated as of April 1,
2000. In accordance with the terms of such Consulting Agreement, Mr.
Sawin was entitled to receive $1,500 per day for four days per week in
addition to 3% of all North American sales that were revenued during
the term of the Consulting Agreement. The Consulting Agreement was
renewable monthly on a rolling basis at the option of either party. On
January 19, 2001, the Consulting Agreement was further amended to
provide that Mr. Sawin was entitled to receive $2,500 per day for two
days per week for a one month term renewable at the option of either
the Company or Mr. Sawin.
7.
(a) The biographical information for Paul Ayres is as follows:
PAUL AYRES became our President and Chief Executive Officer
and a member of our Board of Directors on January 31, 2001. He
became Managing Director of Authoriszor Ltd. in October 2000.
Prior to joining Authoriszor Ltd., Mr. Ayres was the General
Manager for European Operations for Real Networks, Inc. from
1997 until joining Authoriszor. During 1995-1997, Mr. Ayres
was General Manager for Netscape Communications' Northern
European operations. Mr. Ayres attended the University of
Essex/Cambridge University, majoring in Political Science and
Law. Mr. Ayres is 34 years old.
(b) The biographical information for Andrew Cussons is as follows:
ANDREW CUSSONS became our Chief Financial Officer and
Secretary, and as a member of our Board of Directors, on
January 31, 2001. Mr. Cussons was appointed Finance Director
of Authoriszor Ltd., and Finance Director of Authoriszor
Holdings Ltd., both wholly-owned subsidiaries of the Company,
in January 2000. Prior to joining Authoriszor Ltd., Mr.
Cussons was Finance Director and Secretary for Meta4Systems, a
firm specializing in engineering systems integration, from
1998 until joining the company. From 1996 until 1998, Mr.
Cussons was employed by Cadhouse Systems, a Manchester,
England based engineering software business, as the Finance
Director and Secretary. Prior to 1996, Mr. Cussons was the
proprietor of Churchgate Consulting. Mr. Cussons has a degree
in Economics from Manchester University and is a Chartered
Accountant and is 41 years old.
(c) The biographical information for Alec P. Karys is as follows:
ALEC P. KARYS became Vice President of Engineering for
Authoriszor Inc. in October 2000. From 1995 until June 1998,
Mr. Karys worked for InterQual, a company specializing in the
development of medical software, as VP-Software Development
and Technical Services. After the sale of the company in June
1998, he joined Universal Software Corporation as VP -
Business Development from April 1999 until October, 1999. In
addition, during that time, Mr. Karys was co-founder and CEO
of Cognate Technologies, Inc., e-learning company, which was
subsequently acquired in October 2000. Mr. Karys is a graduate
of Northeastern University with a degree in Electrical
Engineering. In 1978, he obtained his MBA. He also attended
the Stanford University Engineering Executive Program. Mr.
Karys is 56 years old.
(d) Information concerning the beneficial ownership of the shares
of Common Stock of the Company is as follows:
(i) The Company's only outstanding class of equity
securities is its common stock.
The following table sets forth certain information
with respect to beneficial ownership of the Company's
Common Stock as of February 13, 2001, by (i) each of
the Company's directors and executive officers, (ii)
all directors and executive officers as a group, and
(iii) each person who is known by the Company to
beneficially own more than 5% of the Company's common
stock.
Shares of Percentage of Shares
Common Stock of Common Stock
Person or Group Beneficially Owned (1) Beneficially Owned (1)
---------------------- ----------------------
Executive Officers and Directors:
James L. Jackson (2)+ 1,272,608 7.3%
David R. Wray (2)+ 1,260,429 7.2%
Don Box (3)++ 166,500 *
Raymond G. H. Seitz (4)+ 200,000 1.1%
Sir Malcolm L. Rifkind (5)+ 200,000 1.1%
David J. Blanchfield (2)+ 1,275,037 7.3%
Barry Jones (6)+ 98,714 *
Geoff Shingles (7)+ 100,000 *
Paul Ayres(8)+++ 0 *
Andrew Cussons (9)+ 34,300 *
Alec Karys(10)++++ 0 *
Directors and Executive Officers as a Group 4,607,588 26.3%
(11 persons) (11)
Beneficial Owners of 5% or More of the
Company's Outstanding Common Stock
Roy Williams (12) 1,959,842 11.2%
Birkett House, 27 Albermarle Street
London W1X 4LQ, England
- -----------------------------------------------------------------
+ The address for these executive officers and directors is
Windsor House, Cornwall Road, Harrogate, North Yorkshire
HG12PW England.
++ The address for this director is 8201 Preston Road, Suite 600,
Dallas, Texas 75225-6211.
+++ The address for this executive officer and director is Knyvett
House, The Causeway, Staines, Middlesex TW18 3BA, England.
++++ The address for this executive officer is One Van de Graaff
Drive, Suite 502, Burlington, Massachusetts 01803-5188.
* Less than one percent (1%)
(1) Based upon 17,526,784 shares of common stock outstanding as of
February 12, 2001 and calculated in accordance with Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Unless otherwise indicated,
includes shares owned by a spouse, minor children or by
relatives sharing the same home, entities owned or controlled
by the named person. Also includes shares if the named person
has the right to acquire such shares within 60 days of
February 13, 2001 by the exercise of any right or option.
Unless otherwise noted, shares are owned of record and
beneficially by the named person.
(2) Includes shares of the Company's common stock issued to these
individuals pursuant to the acquisition of ITIS Technologies
Ltd., now named Authoriszor Ltd.
(3) Mr. Box has been granted a stock option to acquire 100,000
shares of our common stock at an exercise price of $7.75 per
share. The stock option is immediately exercisable for a three
(3) year term.
(4) Represents a stock option to acquire 200,000 shares of the
Company's common stock at an exercise price of $3.00 per share
which is currently exercisable until October 30, 2002.
(5) Represents a stock option to acquire 200,000 shares of the
Company's common stock at an exercise price of $1.00 per share
which is currently exercisable until September 30, 2002.
(6) Mr. Jones has been granted an option to purchase 131,214
shares of common stock at an exercise price of $2.00 per share
which vests up to 25% per year annually beginning October 1,
2000. In the event there is a change in control of Authoriszor
Inc., all options granted to Mr. Jones become immediately
exercisable.
(7) Pursuant to the agreement between the Company and Mr. Shingles
relating to his appointment to the Board of Directors, the
Company has granted Mr. Shingles a stock option to acquire
100,000 shares of Company common stock at an exercise price of
$9.875 per share. The stock option is immediately exercisable
for a three (3) year term.
(8) Mr. Ayres has been granted an option to purchase 200,000
shares of common stock at an exercise price of $9.75 per share
which vests up to 25% per year annually beginning on November
10, 2001. In the event that there is a change in control of
the Company, all options granted to Mr. Ayres become
immediately exercisable.
(9) Mr. Cussons has been granted an option to purchase 100,000
shares of common stock at an exercise price of $6.75 per share
which vests up to 25% per year annually beginning January 1,
2001. In the event that there is a change in control of the
Company, all options granted to Mr. Cussons become immediately
exercisable.
(10) Mr. Karys has been granted an option to purchase 100,000
shares of common stock at an exercise price of $10.75 per
share which vests up to 25% per year annually beginning
November 10, 2001. In the event that there is a change in
control of the Company, all options granted to Mr. Cussons
become immediately exercisable.
(11) Includes the shares of common stock issuable upon exercise of
the stock options discussed in notes 3, 4, 5, 6 and 7 and
32,803 and 25,000 shares of common stock issuable upon
exercise of stock options granted to Mr. Jones and Mr.
Cussons, respectively.
(12) Includes 655,334 shares of the Company's common stock held by
Zalcany Limited, a company organized under the laws of the UK
of which Roy Williams owns 50% of the issued share capital and
is one of two directors; 290,000 shares of the Company's
common stock held by Mustardseed Estates Ltd., a company
organized under the laws of the UK of which Roy Williams
retains 99.9% voting control; and 67,500 shares of the
Company's common stock held by the Cardinal Williams Pension
Fund, a UK pension fund of which Roy Williams is one of two
trustees and the sole beneficiary. Includes 484,008 shares
held by an Isle of Man trust in which Roy Williams is included
in a class of potential beneficiaries. Mr. Williams disclaims
beneficial ownership of the shares owned by this trust.
(e) Effective November 10, 2000, the membership on the
Compensation and Audit Committees of the Company's Board of
Directors was adjusted such that the Compensation Committee
consisted of Messrs. Box, Rifkind and Shingles, and the Audit
Committee consisted of Messrs. Box, Seitz and Shingles.
Effective January 31, 2001, Mr. Langevin was replaced on the
Executive Committee of the Board of Directors by Mr. Ayres.
Item 6. Exhibits and Reports on Form 8-K .
EXHIBITS
The following exhibits are furnished in accordance with Item 601 of Regulation
S-B.
10.1+ Severance and Release Agreement, dated as of January 29, 2001,
by and between the Company and Richard A. Langevin.
10.2+ Stock Option Agreement, dated as of January 31, 2000, by and
between the Company and Richard A. Langevin.
27* Financial Data Schedule (Exhibit 27)
- -----------------
+ Incorporated by reference to the exhibit shown in parenthesis from the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 30, 2001.
* Filed herewith.
REPORTS ON FORM 8-K
1. The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on January 30, 2001, reporting the resignation of
Richard A. Langevin as the Company's President, Chief Executive Officer
and Chief Financial Officer, and as a member of the Company's Board of
Directors, and other matters related thereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Amended Quarterly Report to be
signed on its behalf by the undersigned thereunto duly authorized.
AUTHORISZOR INC.
(Registrant)
Date: February 14, 2001 By: /s/ Andrew Cussons
-------------------------------------
Andrew Cussons
Chief Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit Description of Exhibit
10.1+ Severance and Release Agreement, dated as of January 29, 2001, by and
between the Company and Richard A. Langevin.
10.2+ Stock Option Agreement, dated as of January 31, 2000, by and between
the Company and Richard A. Langevin.
27* Financial Data Schedule (Exhibit 27)
- -----------------
+ Incorporated by reference to the exhibit shown in parenthesis from the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 30, 2001.
* Filed herewith.