SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
FOR QUARTER ENDED MARCH 31, 2001
COMMISSION FILE NO. 000-27869
AUTHORISZOR INC.
(Exact name of registrant as specified in charter)
DELAWARE 75-2661571
- -------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
ONE VAN DE GRAAFF DRIVE, SUITE 502
BURLINGTON, MASSACHUSETTS 01803-5188
- -------------------------------------------------------------------------------
(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (781) 359-9650
--------------
(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
------ -------
As of May 11, 2001, there were 18,456,698 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
------- --------
AUTHORISZOR INC.
MARCH 31, 2001
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
------
Consolidated Balance Sheets as of March 31, 2001 (unaudited)
and June 30, 2000 (audited) ............................................................F-1
Consolidated Statements of Operations for the three and nine months
ended March 31, 2001 and 2000 (unaudited) and for the period
January 15, 1997 (date of inception) to March 31, 2001 (unaudited)......................F-2
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2001 and 2000 (unaudited) and for the period January 15,
1997 (date of inception) to March 31, 2001 (unaudited)..................................F-3
Notes to Consolidated Financial Statements (unaudited)..................................F-4
Item 2. Management's Discussion and Analysis and Plan of Operation................................1
------
Item 3. Quantitative and Qualitative Disclosure of Market Risk....................................5
------
PART II. OTHER INFORMATION 6
Item 1. Legal Proceedings.........................................................................6
------
Item 2. Changes in Securities ....................................................................6
------
Item 3. Defaults Upon Senior Securities...........................................................7
------
Item 4. Submission of Matters to a Vote of Security Holders.......................................7
------
Item 5. Other Information.........................................................................7
------
Item 6. Exhibits and Reports on Form 8-K..........................................................12
------
SIGNATURES..................................................................................................13
INDEX TO EXHIBITS
i
AUTHORISZOR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 2001 JUNE 30, 2000
(UNAUDITED) (AUDITED)
$ $
ASSETS
Cash 14,786,263 27,095,734
Receivables
VAT recoverable and trade 207,377 70,847
Accrued interest 297,598 246,832
Other 46,247 159,457
Prepaid expenses 136,313 76,568
-----------------------------------
TOTAL CURRENT ASSETS 15,473,798 27,649,438
Investment in securities, available-for-sale 924,462 1,992,769
Computer and office equipment, net of accumulated depreciation 949,871 681,094
Restricted bank deposits 959,826 408,000
Note receivable from WRDC 317,711 336,086
Investment in WRDC at net cost, adjusted for equity in
earnings or losses 549,712 506,880
Intangibles and other assets 194,294 70,643
-----------------------------------
3,995,472
3,895,876
-----------------------------------
$19,369,674 $31,644,910
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable - trade 608,591 798,846
Accrued liabilities 2,216,736 395,175
Current maturities of capital lease obligations 103,990 58,990
-----------------------------------
TOTAL CURRENT LIABILITIES 2,929,317 1,253,011
Long term capital lease obligations, less current maturities 257,830 133,442
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: 17,526,784 shares at
March 31, 2001 and 17,414,081 at June 30, 2000 175,267 174,141
Additional paid-in capital 35,094,703 33,946,818
Accumulated other comprehensive income 19,384 1,622,713
Accumulated deficit during the development stage (19,106,827) (5,485,215)
-----------------------------------
16,182,527 30,258,457
-----------------------------------
$19,369,674 $31,644,910
===================================
The accompanying notes are an integral part of these statements.
F-1
AUTHORISZOR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED JANUARY 15,
1997
MARCH 31, MARCH 31, (INCEPTION) TO
MARCH 31,
2001 2000 2001 2000 2001
$ $ $ $ $
Net sales 64,306 121,186 88,483 121,186 246,670
Cost of sales 36,005 1,277 38,710 1,277 55,385
-------------------------------------------------------------------------------------
Gross profit 28,301 119,909 49,773 119,909 191,285
OPERATING EXPENSES
Professional fees 643,372 435,210 3,234,787 1,131,615 5,042,959
Marketing and advertising 392,232 280,179 1,368,795 492,408 2,249,160
Administrative 2,404,803 2,462,470 9,334,331 3,178,013 14,317,862
-------------------------------------------------------------------------------------
Total operating expenses 3,440,407 3,177,859 13,937,913 4,802,036 21,609,981
-------------------------------------------------------------------------------------
Operating loss (3,412,106) (3,057,950) (13,888,140) (4,682,127) (21,418,696)
OTHER INCOME (EXPENSE)
Interest income 245,343 162,064 942,278 163,590 1,527,195
Loss on sale of subsidiary - - - (291,448) (291,448)
Gain on sale of investments 60,529 - 60,529 199,279 1,952,532
Currency transaction losses (224,615) - (855,870) - (950,826)
Equity in earnings of WRDC 63,545 1,842 119,591 1,842 74,416
-------------------------------------------------------------------------------------
Total other income (expense), net 144,802 163,906 266,528 73,263 2,311,869
-------------------------------------------------------------------------------------
NET LOSS $(3,267,304) $(2,894,044) $(13,621,612) $(4,608,864) $(19,106,827)
=====================================================================================
Weighted average shares outstanding
Basic and Diluted 17,523,538 15,719,912 17,474,486 14,462,226
==================================================================
Loss per common share
Basic and Diluted $(0.19) $(0.18) $(0.78) $(0.32)
==================================================================
The accompanying notes are an integral part of these statements.
F-2
AUTHORISZOR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS JANUARY 15, 1997
ENDED MARCH 31, (INCEPTION)
TO MARCH 31,
2001 2000 2001
---- ---- ----
$ $ $
Cash flows used in operating activities
Net loss during the period (13,621,612) (4,608,864) (19,106,827)
Adjustments to reconcile net loss to net cash used in operating
activities:
Issuance of stock and stock options in exchange for services 689,012 613,949 1,470,961
Non-cash compensation expense 60,000 1,816,000 1,833,500
Equity in earnings in WRDC (119,591) 1,842 (74,416)
Loss on foreign exchange transactions - - 94,957
Loss on sale of subsidiary - 291,448 291,448
Gain on sale of investments (60,529) (199,279) (1,952,532)
Depreciation and amortization 279,780 43,197 391,367
Changes in operating assets and liabilities
Receivables and other assets 65,465 (69,353) (482,613)
Accounts payable and accrued liabilities 1,693,969 506,395 2,917,869
--------------------------------------------------------
Net cash used in operating activities (11,013,506) (1,604,665) (14,616,286)
Cash flows (used in) provided by investing activities
Proceeds from sale of subsidiary - 809,750 809,750
Acquisition of equipment (312,934) (292,815) (898,563)
Sale of investments 117,298 1,360,579 4,533,208
Exercise of warrants - - (977,608)
Investment in WRDC - (606,617) (604,800)
Advances to WRDC - (356,997) (356,000)
Purchase of intangible assets (70,564) (42,126) (149,399)
Increase in restricted bank deposits (551,729) - (959,729)
--------------------------------------------------------
Net cash flows (used in) provided by investing activities (817,929) 871,774 1,396,859
Cash flows provided by financing activities
Payments on capital leases (58,392) - (58,392)
Proceeds from the issuance of stock 400,000 28,567,705 28,732,847
Recapitalization - 711 711
--------------------------------------------------------
Net cash flows provided by financing activities 341,608 28,568,416 28,675,166
Effect of exchange rate changes on cash (819,644) (44,066) (669,476)
--------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (12,309,471) 27,791,459 14,786,263
Cash and cash equivalents at beginning of period 27,095,734 698 -
--------------------------------------------------------
Cash and cash equivalents at end of period $14,786,263 $27,792,157 $14,786,263
========================================================
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.
The Company is in discussions with the staff of the Securities and
Exchange Commission (SEC) with respect to the manner of accounting for the share
exchange transaction that occurred on July 22, 1999, pursuant to which Toucan
Gold Corporation (Toucan) acquired all of the outstanding capital stock of
Authoriszor Limited, formerly ITIS Technologies Limited. The Company accounted
for the share exchange as a recapitalization of Authoriszor Limited, whereas the
staff of the SEC has questioned this treatment, and has expressed the view that
the share exchange should have been accounted for as an acquisition of
Authoriszor Limited by Toucan. The outcome of these discussions may result in
the Company restating previously issued financial statements, including those
included in this Form 10-QSB.
NOTE B - CURRENCY TRANSACTION LOSSES
The Company incurred currency transaction losses of approximately
$856,000 during the nine months ended March 31, 2001. The losses are a result of
the Company (i) entering into foreign currency option transactions, (ii)
maintaining the majority of its operating cash in pound sterling through
December 31, 2000, and (iii) making U.S. dollar denominated loans to the
Company's UK subsidiary in the quarter ended March 31, 2001. The British Pound
has declined against the U.S. dollar during the three and nine months ended
March 31, 2001.
NOTE C - COMPREHENSIVE INCOME (LOSS)
January 15, 1997
Three months ended Nine months ended (date of inception)
March 31, March 31, to March 31,
2001 2000 2001 2000 2001
Foreign currency translation
adjustment $ (360,244) $ (56,237) $ (591,790) $ (64,437) $ (394,148)
Unrealized gain (loss) on
available-for-sale securities (255,428) 2,667,905 (1,072,068) 2,667,905 (1,478,471)
Reclassifications of gains on sale 60,529 - 60,529 - 1,892,003
Net loss (3,267,304) (2,894,044) (13,621,612) (4,608,864) (19,106,827)
-------------- --------------- ---------------- -------------- ---------------------
Comprehensive loss $(3,822,447) $ (282,376) $(15,224,941) $(2,005,396) $(19,087,443)
NOTE D - STOCK BASED COMPENSATION
In July 2000, the Company entered into a six-month consulting agreement
with an individual pursuant to which the individual 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, the individual agreed to
provide a minimum of 10 days per month of consulting services for the Company at
the rate of $3,000 per day. The daily compensation paid to the individual was
F-4
comprised of $2,000 in cash and such number of restricted shares of the
Company's common stock equal to $1,000 per consulting day, calculated weekly for
the days worked in such week at the last reported sales price of the Company's
common stock at the close of business on the last business day of the week in
which the individual performed the consulting services. The shares of restricted
stock granted are to be issued six months from the expiration date, January 21,
2001, of the agreement; provided, however, that such shares cannot be sold or
exchanged for a period of 12 months following the expiration of the agreement.
The market value of the shares earned under the agreement have been charged to
expense as earned.
In addition, the individual received an option to purchase 100,002
shares of Company common stock. The options vested on a monthly pro-rata basis
and are exercisable over a three-year period, which begins on the six-month
anniversary of the expiration date of the consulting agreement. The options
granted have an exercise price of $7.75 per share, which was the market price of
the stock on the date of grant. The options granted were recorded by the Company
at fair value resulting in an accounting charge to the Company for the nine
months ended March 31, 2001 of approximately $689,000.
NOTE E - ACQUISITION
On May 8, 2001, the Company purchased an additional equity interest in
WRDC, increasing its ownership interest in WRDC from 25.1% (on a fully diluted
basis) to 66.4% (on a fully diluted basis). The Company issued approximately
930,000 shares of common stock and paid cash of approximately $1,356,000 to the
shareholders of WRDC for the additional equity interest. On this same date, the
Company committed to issue an additional 195,000 shares of its common stock to
the shareholders of WRDC subject to the realization of certain of WRDC's
accounts receivable. In addition, the Company agreed to provide a capital
investment of $720,000 ((pound)500,000) to WRDC to enable WRDC to accelerate its
growth strategy, one half of which amount was advanced at the initial closing
with the balance to be advanced no later than six (6) months after the initial
closing. Also, the Company committed to acquire the remaining interest in WRDC
upon the occurrence of certain events, but in no event later than January 1,
2002, by issuing additional shares of common stock and paying cash. See Item 5.
Section 9 of Part II of this Form 10-QSB for more information concerning this
acquisition.
F-5
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;
1
o if the Company's new management team recently put in place is unable or
unqualified to effectively lead 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 months ended March 31, 2001 compared with the three months ended March 31,
2000.
The operating loss increased to $3,412,106 for the three ended March
31, 2001, compared to a loss from operations of $3,057,950 for the three months
ended March 31, 2000.
Professional fees increased by $208,162, or 47.9%, to $643,372 for the
three months ended March 31, 2001 from $435,210 for the three months ended March
31, 2000. This increase was primarily a result of fees incurred associated with
issuing stock options and stock to a consultant in the amount of approximately
$103,000. Additional increases included legal and accounting fees resulting from
severance agreements and the preparation of the Company's Post-Effective
Amendment to its Registration Statement (the "Registration Statement")
registering the resale of certain shares of Company common stock owned by
certain stockholders, including certain of the investors in the placement that
was completed in February 2000.
Marketing and advertising expenses increased by $112,053, or 40%, to
$392,232 for the three months ended March 31, 2001 from $280,179 for the three
months ended March 31, 2000. This increase is attributable primarily to costs
incurred in setting up additional sales offices and recruiting and hiring new
sales and marketing employees.
Administrative expenses decreased by $57,667, or 2.3%, to $2,404,803
for the three months ended March 31, 2001 from $2,462,470 for three months ended
March 31, 2000. The decrease is attributable to the new management implementing
cost savings plans and curtailing new hiring.
The Company had sales in the three months ended March 31, 2001 of
$64,306 as compared to sales of $121,186 for the three months ended March 31,
2000.
The Company recognized net currency transaction losses of $224,615 for
the three months ended March 31, 2001. The losses are a result of the Company
making U.S. dollar denominated loans to its UK subsidiary. The British Pound
declined against the U.S. dollar during the three months ended March 31, 2001.
The following is a discussion of the results of operations for the nine
months ended March 31, 2001 compared with the nine months ended March 31, 2000.
The operating loss increased to $13,888,140 for the nine months ended
March 31, 2001, compared to a loss from operations of $4,682,127 for the nine
months ended March 31, 2000.
Professional fees increased by $2,103,172, or 186%, to $3,234,787
for the nine months ended March 31, 2001 from $1,131,615 for the nine months
ended March 31, 2000. This increase is primarily a result of (i) costs of
$689,000 incurred in connection with the granting of stock options and
restricted stock to a consultant, (ii) recruiting fees of $610,000 as the
Company increased its employee headcount from 38 at March 31, 2000 to 67 as of
March 31, 2001, and (3) professional fees of $545,000, including legal and
accounting fees, primarily as a result of structuring and preparing severance
agreements, the preparation of appropriate filings and other documents required
as a public company and the preparation of the Post-Effective Amendment to its
2
Registration Statement and certain supplements to its prospectus contained in
the Registration Statement and other matters related to the Registration
Statement.
Marketing and advertising expenses increased by $876,387, or 178%, to
$1,368,795 for the nine months ended March 31, 2001 from $492,408 for the nine
months ended March 31, 2000. This increase is attributable primarily to costs
incurred in setting up additional sales offices, branding of our products
through website construction and other promotional activities and hiring new
sales and marketing employees.
Administrative expenses increased by $6,156,318, or 194%, to $9,334,331
for the nine months ended March 31, 2001 from $3,178,013 for the nine months
ended March 31, 2000. This increase is attributable primarily to the severance
costs recorded associated with the separation of the CEO/President and Vice
President/Secretary of the Company for approximately $1,372,000. These cost are
accounted for within the three months ended December 31, 2000. Other significant
increases in administrative expenses during the nine months ended March 31, 2001
include salaries and benefits associated with an increase from 38 employees at
March 31, 2000 to 67 employees at March 31, 2001.
The Company had sales in the nine months ended March 31, 2001 of
$88,483 as compared to sales of $121,186 for the nine months ended March 31,
2000.
The Company recognized net currency transaction losses of $855,870 for
the nine months ended March 31, 2001. The losses are a result of the Company (i)
entering into foreign currency option transactions, (ii) maintaining the
majority of its operating cash in pound sterling through December 31, 2000, and
(iii) making U.S. dollar denominated loans to the Company's UK subsidiary in the
quarter ended March 31, 2001. The British Pound has declined against the U.S.
dollar during the three and nine months ended March 31, 2001.
FINANCING MANAGEMENT'S PLAN OF OPERATION
Effective January 31, 2001, Richard A. Langevin 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. As a result, a new management team
was appointed to executive positions in the Company. Paul Ayres was appointed
the Company's Chief Executive Officer and President, and Andrew Cussons was
appointed the Chief Financial Officer and Secretary of the Company.
The Company's new management team began a detailed review of the
Company's past business plan and the scalability of the Company's business plan
for the future. As a result of a detailed review of the business undertaken by
the new management team, a series of cost-cutting measures have recently been
initiated. As of March 31, 2001, there were 67 people employed by the Company on
a full-time basis. Of these, 18 employees were primarily involved in research
and development, and 20 employees were involved in sales and marketing, 11 in
general administration and support and 18 engaged in professional services.
However, on May 8, 2001 and in connection with management's review of the
Company's business, the Company announced a reduction in its staffing levels to
35 permanent staff, comprised of five employees in the U.S. and 30 employees in
the UK. These measures were undertaken to enable the business to operate at more
realistic financial levels that were in line with the Company's expected
revenues in the future. Presently, there are eleven employees primarily involved
in research and development, six employees involved in sales and marketing,
thirteen employees in general administration and support and five engaged in
professional services. Moreover, during the quarter ended March 31, 2001, the
Company terminated or failed to renew certain consulting agreements.
During the nine months ended March 31, 2001, 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 were initially
small, the Company established home office locations in Providence, Washington,
St. Louis, Phoenix, Los Angeles and Chicago. Subsequent to March 31, 2001 and in
connection with the Company's restructuring, the Company closed all of the field
offices, consolidating all U.S. operations in the Burlington, Massachusetts
office.
3
The review undertaken by the Company's new management team with respect
to the Company's core business functions, technology and the generic market for
the Company's products and services was concluded positively. Gartner Group and
Forrester Research were retained by the Company to provide independent reviews
of the Company's technology. The results of these independent reviews confirmed
management's belief that the Company was strongly positioned in the internet
security software market. However, management's review of the Company and the
independent reviews performed by Gartner and Forrester highlighted that the
Company needed to augment its existing consulting services capabilities.
Management's review of the Company and the independent reviews also
highlighted that the organization was over-staffed in a number of areas.
Specifically, having developed a significant presence in the U.S. over the last
15 months, the Company had failed to attract sufficient prospective customers to
enable it to sustain its investments in the U.S. As a result, the decision was
taken to reduce the staffing levels in the U.S. with a view to achieving growth
through acquisition, rather than organic growth.
The Company believes its future success will also 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 and to seamlessly integrate its product
without the need for re-registration in the case clients require major upgrades.
On May 8, 2001, the Company announced that an agreement had been
reached, which increased the Company's previous holding in WRDC from 25.1
percent to 66.4 percent. The acquisition of WRDC was and will be conducted in
three stages. First the Company agreed to provide a capital investment of
$720,000 ((pound)500,000) to enable WRDC to accelerate its growth strategy, one
half of which amount was advanced at the initial closing with the balance to be
advanced no later than six (6) months after the initial closing. Second, the
Company provided approximately $1.35 million in cash and approximately 900,000
Authoriszor shares to certain WRDC shareholders, with an additional 195,000
shares to be issued conditionally on certain accounts receivables being
realized. In addition, the senior management of WRDC has been granted options to
purchase shares of the Company's common stock in exchange for their respective
options to purchase shares of WRDC capital stock. Finally, upon the occurrence
of certain events, but in no event later than January 1, 2002, the Company will
acquire the remainder of share of outstanding capital stock of WRDC not then
already owned by the Company in exchange for shares of common stock and cash.
See Item 5. Section 9 of Part II of this Form 10-QSB for further information
about this transaction.
In addition, the Company and WRDC provide a complete range of
consulting services which enables organizations to obtain a complete suite of
security products and services by assessing their respective internet security
infrastructure needs in the light of an increasing internet security risk.
Authoriszor's strategy is to offer best-of-breed products and expert
professional services creating a secure customer-centric solution for its
customers.
The Company will now operate as a "full service" solution provider;
providing products, technological inventions and a wide range of services to its
customers. Historically, the Company's security suite offerings were aggregated
together into a single product, Authoriszor 2000(TM). While this product remains
central to the Company's strategy, it is increasingly apparent that a number of
the components of the product can be sold as "stand alone" technologies to other
software vendors. As a result, the Company will now seek to provide some of its
patent pending technologies to other software vendors who may be able to embed
the Company's technologies into their own.
Although the Company has entered into and announced several contracts
with third parties that have purchased the Company's technologies and/or
services, the contracts do not represent material contracts with such third
parties. By way of example, the largest contract the Company has entered into to
date is comprised of a sale of technology and service support in an amount that
does not exceed $30,000.
Through constant monitoring of the industry, the Company plans to
identify new security partners, 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:
4
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 nine months ended March 31, 2001, the Company
incurred approximately $767,000 and $1,758,0000, respectively, in research and
development costs. The Company expects that it will continue to commit resources
to its research and development team in the future, including over the course of
the next 6 to 12 months.
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. During the quarter a small numbers of shares where sold,
resulting in a gain on the sale of $60,000. At March 31, 2001, the current
holdings of these securities have a market value of approximately $924,000.
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 and a portion of its cash flows, are expected to be received, in
non-U.S. currencies. In addition, as of March 31, 2001, the Company had
deposited cash in pound sterling denominated accounts in the amount of
$14,650,000. A ten (10%) percent fluctuation in currency rates would have a
$1,465,000 effect on the stockholders' equity of the Company. Also, as of March
31, 2001, there are U.S. dollar denominated loans outstanding from the Company
to its UK subsidiaries of approximately $4,000,000 that are not of a long-term
investment nature. A ten (10%) percent fluctuation in currency rates would have
an $400,000 effect on annual 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.
5
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
(a) None
(b) None
(c) Since the period beginning with the quarter ended March 31,
2001 and the date hereof, the Company issued the following
securities in transactions not registered under the Securities
Act of 1933, as amended (the "Securities Act"):
(i) 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, par value $.01 per share ("Common
Stock"), of the Company 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.
The issuance of these shares was not registered under
the Securities Act, are restricted securities under
the Securities Act and are subject to the
restrictions on trasfer set forth in Rule 144
thereunder. The Consulting Agreement with Mr. Rogers
was a privately negotiated transaction without
general solicitation or advertising with a consultant
that was a "sophisticated investors" within the
meaning of the Securities Act and who had access to
all information concerning the Company that such
consultant deemed necessary to make an informed
decision with respect to the Consulting Agreement.
The share certificates issued to the consultant
contained a legend with respect to the restrictions
on transfer of the shares issued pursuant to the
Consultant Agreement. The number of shares of Common
Stock issued by the Company to the consultant are
included in the number on the cover page indicating
the total number of currently issued and outstanding
shares of Common Stock.
(ii) The first step of the acquisition ("First Step
Transaction") of WRDC Ltd., a company registered in
the United Kingdom ("WRDC"), was consummated, in
part, at a closing (the "Initial Closing") on May 8,
2001. At the Initial Closing, in exchange for certain
shares of capital stock of WRDC held by shareholders
(the "Shareholders") of WRDC, Garcia Hanson and Brian
Edmondson, the Company issued to its transfer agent
irrevocable instructions to issue, in the aggregate,
929,914 shares of Common Stock to the Shareholders,
in addition to consideration in the form of a cash
payment. The Company is also obligated with respect
to the First Step Transaction to issue to the
Shareholders up to 195,555 additional shares (the
"Contingent Shares") of Common Stock, subject to the
realization of certain accounts receivables of WRDC.
Upon the occurrence of certain events, but in no
event later than January 1, 2002, the Company is
obligated to acquire the remaining capital stock of
WRDC not then owned by the Company in a second step
transaction (the "Second Step Transaction, the
closing of such Second Step Transaction is referred
to herein as the "Second Closing"). Subject to
certain exceptions, the consideration payable at the
6
Second Closing will consist of 55% in shares of
Common Stock and 45% in cash; provided, however, that
in no event will the Company be required to issue
more than 19.9% of the issued and outstanding shares
of Common Stock as of the date of the Initial
Closing. In the event that the exchange ratio set
forth in the acquisition agreements would otherwise
require the Company to issue more than 19.9% of the
issued and outstanding shares of Common Stock (the
"Excess Shares"), as of the Initial Closing, whether
due to changes in the market price of the Common
Stock or currency fluctuations during the interim
between the Initial Closing and the Second Closing or
otherwise, the Company will instead pay to the
Shareholders an amount in cash equivalent to the
aggregate market value of the Excess Shares. See Item
5. Section 6 of Part II of this Quarterly Report on
Form 10-QSB for more information concerning the terms
of the acquisition of capital stock of WRDC by the
Company.
The shares of Common Stock issued to the Shareholders
at the Initial Closing (the "Initial Shares") were,
and the Contingent Shares and the shares of Common
Stock issuable to the Shareholders at the Second
Closing (the "Second Shares," collectively with the
Initial Shares, the "Shares") will not be, registered
under the Securities Act in reliance on the exemption
from registration set forth in Section 4(2) of the
Securities Act and Regulation D promulgated
thereunder. WRDC was a closely held company, and the
acquisition of WRDC by the Company was a privately
negotiated transaction without any general
solicitation or advertising in which WRDC and the
Shareholders were represented by counsel. Each
Shareholder who received Shares represented to the
Company that he was a "sophisticated investor" who
was acquiring the Shares for investment and not with
a view towards a public distribution, and further
that each had access to all material information
concerning the Company that was necessary to make an
informed decision with respect to the transaction.
Each Shareholder also acknowledged that the Shares
were restricted securities under the Securities Act
and were subject to restrictions set forth in Rule
144 thereunder. The share certificate with respect to
the Initial Shares contain, and the share
certificates with respect Contingent Shares and the
Second Shares will contain, a Rule 144 legend. Only
929,914 shares of Common Stock that were actually
issued by the Company to the Shareholders as of the
date hereof are included in the number on the cover
page indicating the total number of currently issued
and outstanding shares of Common Stock.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
The following significant events have occurred during the quarter ended
March 31, 2001 or subsequent thereto:
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. The Executive and representatives of the
Board of Directors negotiated the terms of 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
7
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 was 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 described 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 has been,
and 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 provided that all stock option agreements for
which the Executive was not vested as of the date of January 31, 2001
were rescinded and declared null and void and replaced by the Stock
Option Agreement. The Stock Option Agreement provided 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
affected 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 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
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. See Part 1. Item 2.
Management's Discussion and Analysis and Plan of Operation.
2. On January 29, 2001, the Board of Directors of the Company announced
that is had appointed Paul Ayres, the Managing Directors 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, effective January 29, 2001, the Board
of Directors of the Company appointed Mr. Ayres and Mr. Cussons to the
Board of Directors of the Company. See Part 1. Item 2. Management's
Discussion and Analysis and Plan of Operation.
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 29, 2001. Andrew Cussons replaced Mr.
8
Jackson as Secretary of the Company. As a result of Mr. Jackson's
resignation from his respective executive positions with the Company,
Mr. Jackson received a mutually agreed 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. See Part
1. Item 2. Management's Discussion and Analysis and Plan of Operation.
4. Effective January 31, 2001, Ian McNeill stepped down from his position
as Chairman of the Board of AHL 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.
See Part 1. Item 2. Management's Discussion and Analysis and Plan of
Operation.
5. The Compensation Committee of the Board of Directors agreed to amend
and restate that certain Employment Agreement, dated as of October 7,
2000, by and between Mr. Ayres and the Company, effective February 1,
2001. Subject to the negotiation and execution of definitive
documentation with respect to such agreement, the Compensation
Committee has determined that such agreement should include the
following terms:
o a base salary of(pound)300,000;
o stock options to purchase a cumulative total of 200,000 shares of
Common Stock at an exercise price of $1.50 per share under the
Company's 2000 Omnibus Stock and Incentive Plan (the "Plan"),
subject to certain adjustments as provided in the stock option
agreement to be negotiated and executed in connection with such
grant.
6. The Compensation Committee of the Board of Directors agreed to amend
and restate that certain Employment Agreement by and between Mr.
Cussons and the Company, effective February 1, 2001. Subject to the
negotiation and execution of definitive documentation with respect to
such agreement, the Compensation Committee has determined that such
agreement should include the following terms:
o a base salary of(pound)200,000;
o stock options to purchase a cumulative total of 200,000 shares of
Common Stock at an exercise price of $1.50 per share under the
Company's 2000 Omnibus Stock and Incentive Plan (the "Plan"),
subject to certain adjustments as provided in the stock option
agreement to be negotiated and executed in connection with such
grant.
7. The Compensation Committee of the Board of Directors agreed to amend
and restate that certain Employment Agreement by and between Mr. Karys
and the Company, effective February 1, 2001. Subject to the negotiation
and execution of definitive documentation with respect to such
agreement, the Compensation Committee has determined that such
agreement should include the following terms:
o a base salary of $250,000;
o stock options to purchase a cumulative total of 100,000 shares of
Common Stock at an exercise price of $1.50 per share under the
Company's 2000 Omnibus Stock and Incentive Plan (the "Plan"),
subject to certain adjustments as provided in the stock option
agreement to be negotiated and executed in connection with such
grant.
8. The Board of Directors of the Company adopted certain amendments to the
Bylaws of the Company at a meeting of the Board of Directors on March
21, 2001. The amendments to the Bylaws provide that any special meeting
of stockholders may be called by (a) the Chairman of the Board of
Directors, or (b) the President and shall be called by the President or
Secretary at the request in writing of a majority of the Board of
Directors, or (c) by the holders of fifty-one (51%) percent or more of
the outstanding shares of Common Stock; provided that such request
states the purpose of the proposed special meeting. The second
amendment to the Bylaws provides that in order for a shareholder
proposal, including a nomination for director, to be raised from the
floor at an annual meeting, written notice must be received by the
Company not less than sixty (60) days nor more than ninety (90) days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the meeting is
changed by more than 30 days from such anniversary date, notice by the
stockholder to be timely must be received no later than the close of
business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was
9
made. In particular, Sections 2.5 and 3.4 of the Bylaws were amended
and restated in their entirety, and a new Section 2.11 was added.
Pursuant to Item 601 of Regulation S-K promulgated under the Securities
Act, the Bylaws of the Company, as amended to date, are attached hereto
as Exhibit 3.1 and incorporated herein by reference.
9. On May 8, 2001, the Company entered into certain agreements (the
"Acquisition Agreements") pursuant to which the Company, directly or
through its wholly owned subsidiary, Authoriszor Holdings Limited
("AHL"), agreed to (i) initially increase its ownership interest from
25.1% (on a fully diluted basis) to 66.4% (on a fully diluted basis) of
the outstanding capital stock of WRDC, and (ii) subscribe for an
additional amount of capital stock of WRDC of approximately $720,000
((pound)500,000) for WRDC working capital purposes (the "Funding,"
collectively with (i) above, referred to herein as the "First Step
Transaction,"); and (iii) ultimately acquire the remaining shares of
WRDC capital stock not then already owned by the Company or AHL upon
the occurrence of certain events (the "Second Step Transaction"). In
arriving at a purchase price, the Company considered comparable
transactions within the industry and conducted its own analysis of
WRDC, including a review of the financial condition of WRDC and the
strategic value of WRDC to the Company. The terms of the Acquisition
Agreements and the Acquisition, including the consideration payable in
connection with the First Step Transaction and the Second Step
Transaction, were determined pursuant to arms-length negotiations among
the parties thereto. The source of the cash consideration with respect
to the First Step Transaction is, and with respect to the Second Step
Transaction is expected to be, the Company's cash reserves. Each of the
dollar amounts contained herein reflect the currency exchange rate in
effect immediately prior to the execution of the Acquisition
Agreements.
The First Step Transaction was consummated, in part, at a closing (the
"Initial Closing") on May 8, 2001. At the Initial Closing, in exchange
for certain shares of capital stock of WRDC held by the Shareholders,
the Company (i) issued to its transfer agent irrevocable instructions
to issue, in the aggregate, 929,914 shares of Common Stock to the
Shareholders and (ii) paid to the Shareholders approximately $1,356,000
((pound)941,766) in cash. The Company is also obligated to issue to the
Shareholders up to 195,555 additional shares of Common Stock, subject
to the realization of certain accounts receivable of WRDC. In addition,
at the Initial Closing, holders of options ("WRDC Options") to purchase
shares of capital stock of WRDC were granted options to purchase
237,000 shares of Common Stock under the Plan in exchange for such WRDC
Options at an exercise price of $1.01. Also, additional options
("Reserve Options") to purchase an aggregate of 265,000 shares of
Common Stock may be granted from time to time to employees of WRDC
under the Plan as approved by the Board of Directors of WRDC; provided,
that the director appointed by the Company to the Board of Directors of
WRDC pursuant to the Acquisition Agreements votes in favor of any such
grants of Reserve Options. Also, the existing loan for (pound)122,000
owed by WRDC to AHL under the terms of that certain Loan Agreement,
dated as of February 22, 2000, will, if in the best interest of WRDC,
be capitalized in due course. Finally, with respect to the Funding, one
half of such amount was subscribed for at the Initial Closing, with the
balance to be subscribed for no later than six (6) months after the
Initial Closing.
The Acquisition Agreements also provide that the Company will purchase
the remaining shares of WRDC capital stock not then already owned by
the Company or AHL at the closing (the "Second Closing") in connection
with the Second Step Transaction upon the earliest to occur of (i) the
date on which the Company receives net proceeds in an amount that
exceeds, in the aggregate, $10,000,000 in connection with any
fundraising or series of fundraising transactions by the Company; (ii)
the date on which the Company receives a notice from a Shareholder
requiring such action (a "Shareholder Notice") or such earlier date as
the Company and the Shareholders may mutually agree from time to time;
or (iii) January 1, 2002 (collectively, the "Events"), at a purchase
price of approximately (pound)2.1 million ($3,000,000, based on the
current currency exchange rate). Pursuant to the provisions of the
Acquisition Agreements, a Shareholder Notice may be issued to the
Company upon (i) the Company declaring, or otherwise seeking, or being
forced to seek, protection from creditors under the federal bankruptcy
laws (an "Insolvency Event"); (ii) the Company receiving a bona fide
offer by a third party to acquire all issued and outstanding shares of
Common Stock not then owned by such third party; or (iii) the sale of a
controlling interest in WRDC to a third party. The Second Closing will
take place ten business days following the occurrence of an Event.
The consideration payable at the Second Closing will consist of 55% in
shares of Common Stock and 45% in cash; provided, however, that in no
event will the Company be required to issue more than 19.9% of the
10
issued and outstanding shares of Common Stock as of the date of the
Initial Closing. In the event that the exchange ratio set forth in the
Acquisition Agreements would otherwise require the Company to issue
more than 19.9% of the issued and outstanding shares of Common Stock
(the "Excess Shares"), as of the Initial Closing, whether due to
changes in the market price of the Common Stock or currency
fluctuations during the interim between the Initial Closing and the
Second Closing or otherwise, the Company will instead pay to the
Shareholders an amount in cash equivalent to the aggregate market value
of the Excess Shares. In addition, upon the occurrence of an Insolvency
Event and the issuance of a Shareholder's Notice in connection
therewith, the Company may be obligated to pay to the Shareholders the
entire purchase price in cash and in lieu of issuing shares of Common
Stock to pay an amount in cash equivalent to the aggregate market value
of the Common Stock that would otherwise have been required to be
issued as of the Second Closing. Furthermore, if the Company is not
listed on Nasdaq or the OTC Bulletin Board, or otherwise quoted on a
public market in North America ("Listed"), as of the Second Closing,
the Company will have 30 business days in which to become Listed. After
the expiration of such period and if the Company is not then Listed, a
Shareholder may return to the Company the shares of Common Stock issued
to him at the Second Closing in which event the Company will be
obligated to pay such Shareholder an amount in cash equivalent to the
aggregate market value of the shares of Common Stock that were issued
to him at the Second Closing.
10. In connection with the execution of the Acquisition Agreements, the
Board of Directors of the Company has appointed Garcia Hanson, one of
the Shareholders, as Chief Operating Officer of the Company. In
addition, the Board of Directors of AHL has appointed Mr. Garcia as the
Operations Director of AHL. Mr. Garcia will also continue in his
capacity as Managing Director of WRDC.
11. Beginning in early February 2001, the Company's new management team
began a detailed review of the Company's past business plan and the
scalability of the Company's business plan for the future. As a result
of a detailed review of the business undertaken by the new management
team, a series of cost-cutting measures have recently been initiated.
As of March 31, 2001, there were 67 people employed by the Company on a
full-time basis. Of these, 18 employees were primarily involved in
research and development, and 20 employees were involved in sales and
marketing, 11 in general administration and support and 18 engaged in
professional services. However, on May 8, 2001 and in connection with
management's review of the Company's business, the Company announced a
reduction in its staffing levels to 35 permanent staff, comprised of
five employees in the U.S. and 30 employees in the UK. These measures
were undertaken to enable the business to operate at more realistic
financial levels that were in line with the Company's expected revenues
in the future. Presently, there are eleven employees primarily involved
in research and development, six employees involved in sales and
marketing, thirteen employees in general administration and support and
five engaged in professional services.
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .
EXHIBITS
The following exhibits are furnished in accordance with Item 601 of Regulation
S-B.
2.1+ Stock Purchase Agreement, dated as of May 8, 2001, by and among
Authoriszor Inc., Authoriszor Holdings Limited and the Shareholders
named therein.
2.2+ Subscription Agreement, dated as of May 8, 2001, by and among
Authoriszor Inc., Authoriszor Holdings Limited, WRDC Limited and the
Shareholders named therein.
2.3+ Articles of Association of WRDC Limited, dated as of May 8, 2001.
2.4+ Deed of Mortgage, dated as of May 8, 2001, by and between Authoriszor
Inc., Garcia Hanson and Brian Edmondson.
3.1* Bylaws of Authoriszor Inc., as amended March 21, 2001
10.1++ Service Agreement, dated as of May 8, 2001, by and among Authoriszor
Inc. and Garcia Hanson.
10.2+ Form of Stock Option Agreement, dated as of May 8, 2001, by and between
the Authoriszor Inc. and each of the former holders of WRDC Options.
-----------------
+ 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 May 9, 2001.
* Filed herewith.
+ Compensation plan, benefit plan or employment contract or arrangement.
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.
2. The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on May 9, 2001, reporting the execution and
consummation of the acquisition by the Company all of the issued and
outstanding capital stock of WRDC.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Quarterly Report to be signed on
its behalf by the undersigned thereunto duly authorized.
AUTHORISZOR INC.
(Registrant)
Date: May 15, 2001 By: /s/ Andrew Cussons
-----------------------------------------
Andrew Cussons
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
13
INDEX TO EXHIBITS
2.1+ Stock Purchase Agreement, dated as of May 8, 2001, by and among
Authoriszor Inc., Authoriszor Holdings Limited and the Shareholders
named therein.
2.2+ Subscription Agreement, dated as of May 8, 2001, by and among
Authoriszor Inc., Authoriszor Holdings Limited, WRDC Limited and the
Shareholders named therein.
2.3+ Articles of Association of WRDC Limited, dated as of May 8, 2001.
2.4+ Deed of Mortgage, dated as of May 8, 2001, by and between Authoriszor
Inc., Garcia Hanson and Brian Edmondson.
3.1* Bylaws of Authoriszor Inc., as amended March 21, 2001
10.1++ Service Agreement, dated as of May 8, 2001, by and among Authoriszor
Inc. and Garcia Hanson.
10.2+ Form of Stock Option Agreement, dated as of May 8, 2001, by and between
the Authoriszor Inc. and each of the former holders of WRDC Options.
- -----------------
+ 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 May 9, 2001.
* Filed herewith.
+ Compensation plan, benefit plan or employment contract or arrangement.