FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________________ to _________________
Commission file number: 000-27407
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JAWS Technologies, Inc.
-------------------------------
(Exact name of registrant as specified in charter)
Delaware 98-167013
- -------------------------------------------- --------------------------
(State of Other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1 Concorde Gate, Suite 307, Toronto, Ontario, Canada M3C 3N6
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
1-888-301-5297
-------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(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 [ ]
The number of shares of the Registrant's common stock par value $0.001 per
share (the "Common Stock"), outstanding as of August 3, 2000 was 27,632,829
shares.
295277.4
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
JAWS Technologies, Inc.
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
As at
June 30, December 31, December 31, December 31,
2000 1999 1998 1997
$ $ $ $
- ----------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current
Cash and cash equivalents 5,653,340 8,430,701 33,732 111
Term deposits 28,494 431,729 -- --
Accounts receivable 1,197,922 338,825 7,243 --
Due from related parties 1,324,273 1,777 13,118 --
Prepaid expenses and deposits 323,534 75,144 140,456 7,500
- ----------------------------------------------------------------------------------------------------------------
8,527,563 9,278,176 194,549 7,611
Equipment and leasehold improvements, net 2,235,224 699,235 78,830 2,320
Intangible assets 17,757,075 2,629,000 -- --
Investment 20,000 -- -- --
- ----------------------------------------------------------------------------------------------------------------
28,539,862 12,606,411 273,379 9,931
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 2,943,472 1,177,278 428,600 32,976
Current portion of capital lease obligations 63,213 25,235 -- --
payable
Due to related parties 306,777 172,093 197,115 --
Due to stockholders 2,816 2,066 74,717 78,159
- ----------------------------------------------------------------------------------------------------------------
3,316,278 1,376,672 700,432 111,135
- ----------------------------------------------------------------------------------------------------------------
Capital lease obligations payable 244,656 68,227 -- --
Convertible debentures -- -- 146,606 --
- ----------------------------------------------------------------------------------------------------------------
244,656 68,227 146,606 --
- ----------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' equity (deficiency)
Authorized
95,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
Outstanding:
34,133,680 common shares issued and fully
paid (December 31, 1999 - 25,040,188; December 31,
1998 - 10,612,317)
Common stock issued and paid-up 34,133 25,040 10,612 4,000
Additional paid in capital 46,604,914 21,699,106 2,637,712 31,650
Cumulative translation adjustment (264,374) (181,717) (8,842) --
Deficit (21,395,745) (10,380,917) (3,213,141) (136,854)
- ----------------------------------------------------------------------------------------------------------------
24,978,928 11,161,512 (573,659) (101,204)
- ----------------------------------------------------------------------------------------------------------------
28,539,862 12,606,411 273,379 9,931
================================================================================================================
The accompanying notes are an integral part of these financial statements.
On behalf of the Board:
Director Director
295277.4
2
JAWS Technologies, Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
3 month period ended 6 month period ended
---------------------------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------
REVENUE
Consulting and product 2,221,410 7,133 2,768,095 10,180
revenue
Interest income 70,951 -- 176,248 --
- ---------------------------------------------------------------------------------------
2,292,361 7,133 2,944,343 10,180
- ---------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 880,111 -- 880,111 --
Advertising and promotion 616,546 35,519 1,091,712 184,767
General and administration 5,793,464 916,074 9,089,266 1,502,594
Software development costs -- -- -- --
- ---------------------------------------------------------------------------------------
7,290,121 951,593 11,061,089 1,687,361
Loss before interest,
financing fees, foreign
exchange (gain)/loss,
depreciation and
amortization (4,997,760) (944,460) (8,116,746) (1,677,181)
Interest expense, financing
fees and debt discount 1,424 257,929 14,789 705,814
Foreign exchange (gain)/loss 105,947 3,068 (69,618) 12,997
Depreciation 147,003 25,668 208,828 37,118
Amortization 1,742,643 -- 2,744,083 --
- ---------------------------------------------------------------------------------------
Net loss for the period (6,994,777) (1,231,125) (11,014,828) (2,433,110)
Other comprehensive loss
Foreign currency translation 88,542 (106,616) (82,657) (118,696)
adjustment
- ---------------------------------------------------------------------------------------
Comprehensive loss (6,906,235) (1,337,741) (11,097,485) (2,551,806)
- ---------------------------------------------------------------------------------------
Deficit, beginning of period (14,400,968) (4,415,126) (10,380,917) (3,213,141)
Net loss for the period (6,994,777) (1,231,125) (11,014,828) (2,433,110)
- ---------------------------------------------------------------------------------------
Deficit, end of period (21,395,745) (5,646,251) (21,395,745) (5,646,251)
=======================================================================================
Net loss per common share (0.22) (0.20) (0.35) (0.21)
Weighted average number of
common shares outstanding 32,049,806 12,191,759 31,077,935 11,428,319
=======================================================================================
The accompanying notes are an integral part of these financial statements.
295277.4
3
JAWS Technologies, Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
6 month period ended
-----------------------------
Year ended Year ended Period ended
June 30, June 30, December December December
2000 1999 31, 1999 31, 1998 31, 1997
$ $ $ $ $
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------
REVENUE
Consulting and product 2,768,095 10,180 573,255 27,042 --
revenue
Interest income 176,248 -- 18,791 2,026 --
- -----------------------------------------------------------------------------------------------------
2,944,343 10,180 592,046 29,068 --
- -----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 880,111 -- 2,066
-- --
Advertising and promotion 1,091,712 184,767 363,916 218,574 35,000
General and administration 9,089,266 1,502,594 5,587,833 1,574,453 101,274
Software development costs -- -- -- 909,003 --
- -----------------------------------------------------------------------------------------------------
11,061,089 1,687,361 5,953,815 2,702,030 136,274
Loss before interest,
financing fees, foreign
exchange (gain)/loss,
depreciation and
amortization (8,116,746) (1,677,181) (5,361,769)(2,672,962) (136,274)
Interest expense, financing
fees and debt discount 14,789 705,814 1,587,237 389,715 --
Foreign exchange (gain)/loss (69,618) 12,997 (12,452) (431) --
Depreciation 208,828 37,118 104,836 14,041 580
Amortization 2,744,083 -- 126,386 -- --
- -----------------------------------------------------------------------------------------------------
Net loss for the period (11,014,828) (2,433,110) (7,167,776)(3,076,287) (136,854)
Other comprehensive loss
Foreign currency translation (82,657) (118,696) (172,875) (8,842) --
adjustment
- -----------------------------------------------------------------------------------------------------
Comprehensive loss (11,097,485) (2,551,806) (7,340,651)(3,085,129) (136,854)
- -----------------------------------------------------------------------------------------------------
Deficit, beginning of period (10,380,917) (3,213,141) (3,213,141) (136,854) --
Net loss for the period (11,014,828) (2,433,110) (7,167,776)(3,076,287) (136,854)
- -----------------------------------------------------------------------------------------------------
Deficit, end of period (21,395,745) (5,646,251) (10,380,917)(3,213,141) (136,854)
=====================================================================================================
Net loss per common share (0.35) (0.21) (0.50) (0.42) (0.03)
Weighted average number of
common shares outstanding 31,077,935 11,428,319 14,342,053 7,405,421 4,000,000
=====================================================================================================
The accompanying notes are an integral part of these financial statements.
Period ended December 31, 1997 consists of the period from the date of
incorporation on January 27, 1997 to December 31, 1997.
295277.4
4
JAWS Technologies, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(all amounts are expressed in U.S. dollars)
Accumulated
Additional Other
Shares Par Value Paid in Comprehensive Accumulated Total
Capital Loss Deficit
# $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------------
Balance January 27, 1997 -- -- -- -- -- --
Issuance of common stock for cash 4,000,000 4,000 56,000 -- -- 60,000
Share issue costs -- -- (24,350) -- -- (24,350)
Loss for the year -- -- -- -- (136,854) (136,854)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 4,000,000 4,000 31,650 -- (136,854) (101,204)
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for services 400,000 400 199,600 -- -- 200,000
Issuance of common stock on
acquisition of subsidiary 1,500,000 1,500 838,248 -- -- 839,748
Issuance of common stock for cash 2,800,000 2,800 1,017,200 -- -- 1,020,000
Warrants issued with issuance of
convertible debentures -- -- 342,857 -- -- 342,857
Equity component of convertible
debentures -- -- 118,462 -- -- 118,462
Equity component of financing fees -- -- (35,760) -- -- (35,760)
Issue of common stock upon
conversion of convertible
debentures 1,912,317 1,912 211,886 -- -- 213,798
Financing fees associated with
converted debentures -- -- (21,117) -- -- (21,117)
Share issue costs -- -- (65,314) -- -- (65,314)
Loss for the year -- -- -- (8,842) (3,076,287) (3,085,129)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 10,612,317 10,612 2,637,712 (8,842) (3,213,141) (573,659)
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for cash 7,233,132 7,233 13,340,344 -- -- 13,347,577
Share issue costs -- -- (988,477) -- -- (988,477)
Equity component of convertible -- -- 617,867 -- -- 617,867
debentures
Equity component of financing fees -- -- (143,356) -- -- (143,356)
Warrants issued with issuance of
convertible debentures -- -- 341,538 -- -- 341,538
Issuance of common stock for services 360,547 360 309,379 -- -- 309,739
Exercise of employee stock options 15,000 15 2,235 -- -- 2,250
Issuance of stock options recorded
as compensation -- -- 810,000 -- -- 810,000
Issuance of common stock for
settlement of debt 3,215,355 3,215 1,493,076 -- -- 1,496,291
Issuance of common stock for cash as
a result of exercise of warrants 1,428,572 1,429 398,571 -- -- 400,000
Issuance of common stock for
settlement of warrants 751,648 752 258,193 -- -- 258,945
Issuance of common stock on
acquisition of subsidiary 1,385,546 1,386 2,354,042 -- -- 2,355,428
Issuance of common stock on
acquisition of assets 38,071 38 267,982 -- -- 268,020
Loss for the year -- -- -- (172,875) (7,167,776) (7,340,651)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 25,040,188 25,040 21,699,106 (181,717) (10,380,917) 11,161,512
- -----------------------------------------------------------------------------------------------------------------------------------
295277.4
5
Accumulated
Additional Other
Shares Par Value Paid in Comprehensive Accumulated Total
Capital Loss Deficit
# $ $ $ $ $
1,388,238 1,388 6,498,625 -- -- 6,500,013
Issuance of common stock for cash
Share issue costs (545,501) -- -- (545,501)
Exercise of employee stock options 407,000 408 133,596 -- -- 134,004
Issuance of common stock for cash as
a result of excersise of warrants 1,229,261 1,229 1,507,791 -- -- 1,509,020
Stock options exercised for no
consideration 590,475 590 (590) -- -- --
Issuance of common stock for services 81,875 82 504,918 -- -- 505,000
Issuance of common stock on
acquisition of subsidiaries 5,396,643 5,396 16,806,969 -- -- 16,812,365
Loss for the year -- -- -- (82,657) (11,014,828) (11,097,485)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 34,133,680 34,133 46,604,914 (264,374) (21,395,745) (24,978,928)
===================================================================================================================================
The accompanying notes are an integral part of these financial statements
295277.4
6
JAWS Technologies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
3 month period ended 6 month period ended
-------------------------------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
$ $ $ $
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Cash flows used in operating activities
Net loss for the period (6,994,777) (1,231,125) (11,014,828) (2,433,110)
Adjustments to reconcile loss to cash flows used
in operating activities:
General and administration expense not
involving the payment of cash -- -- -- --
Depreciation 147,003 25,668 208,828 37,118
Amortization 1,742,643 -- 2,744,083 --
Non cash consulting fees 341,640 -- 341,640 --
Non cash compensation expense -- -- -- --
Non-cash interest expense and amortization of
deferred financing fees and debt discount -- 255,153 -- 701,786
Software development costs -- -- -- --
Non-cash financing fees -- -- -- --
Foreign exchange (gain)/loss 105,947 3,068 (69,618) 12,997
Changes in non-cash working capital balances (283,789) (236,958) (547,086) 251,909
- ----------------------------------------------------------------------------------------------------------------
(4,941,333) (1,184,194) (8,336,981) (1,429,300)
- ----------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities
Purchase of equipment and leasehold improvements (966,723) (217,471) (1,378,690) (454,111)
Proceeds/(purchase) of term deposits 409,476 -- 403,235 --
Purchases of subsidiaries (1,225,001) -- (1,042,469) --
Purchase of investment -- -- (20,000) --
- ----------------------------------------------------------------------------------------------------------------
(1,782,248) (217,471) (2,037,924) (454,111)
- ----------------------------------------------------------------------------------------------------------------
Cash flows generated by financing activities
Proceeds from the issuance of common stock, net
of issue costs 3,913,315 2,871,800 7,597,544 2,973,300
Repayment of stockholder advances -- (9,533) -- (59,496)
Proceeds from stockholder advances -- 3,095 -- --
Proceeds on issue of convertible debenture -- 600,000 -- 1,100,000
Financing fees on issue of convertible debenture -- (60,000) -- (110,000)
- ----------------------------------------------------------------------------------------------------------------
3,913,315 3,405,362 7,597,544 3,903,804
- ----------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash (2,810,266) 2,003,697 (2,777,361) 2,020,393
Cash and cash equivalents, beginning of period 8,463,606 50,428 8,430,701 33,732
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 5,653,340 2,054,125 5,653,340 2,054,125
================================================================================================================
Cash and cash equivalents consists of cash, term deposits with maturities less
than 30 days, and bank indebtedness
The accompanying notes are an integral part of these financial statements
295277.4
7
JAWS Technologies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
6 month period ended
-------------------------------
Year ended Year ended Period ended
June 30, June 30, December 31 December 31 December 31,
2000 1999 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows used in operating activities
Net loss for the period (11,014,828) (2,433,110) (7,167,776) (3,076,287) (136,854)
Adjustments to reconcile loss to cash flows used
in operating activities:
General and administration expense not
involving the payment of cash -- -- 99,839 200,000 --
Depreciation 208,828 37,118 104,836 14,041 580
Amortization 2,744,083 -- 126,386 -- --
Non cash consulting fees 341,640 -- -- -- --
Non cash compensation expense -- -- 810,000 -- --
Non-cash interest expense and amortization of --
deferred financing fees and debt discount 701,786 1,129,709 386,846 --
Software development costs -- -- -- 909,003 --
Non-cash financing fees -- -- 447,187 -- --
Foreign exchange (gain)/loss (69,618) 12,997 (12,452) (431) --
Changes in non-cash working capital balances (547,086) 251,909 279,193 439,422 25,476
- ----------------------------------------------------------------------------------------------------------------------------------
(8,336,981) (1,429,300) (4,183,078) (1,127,406) (110,798)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities
Purchase of equipment and leasehold improvements (1,378,690) (454,111) (636,267) (115,153) (2,900)
Proceeds/(purchase) of term deposits 403,235 -- (431,729) -- --
Purchases of subsidiaries (1,042,469) -- (30,656) 1,380 --
Purchase of investment (20,000) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
(2,037,924) (454,111) (1,098,652) (113,773) (2,900)
- ----------------------------------------------------------------------------------------------------------------------------------
--
Cash flows generated by financing activities --
Proceeds from the issuance of common stock, net
of issue costs 7,597,544 2,973,300 12,761,350 954,686 35,650
Repayment of stockholder advances -- (59,496) (72,651) (78,159) --
Proceeds from stockholder advances -- -- -- 20,273 78,159
Proceeds on issue of convertible debenture -- 1,100,000 1,100,000 420,000 --
Financing fees on issue of convertible debenture -- (110,000) (110,000) (42,000) --
- ----------------------------------------------------------------------------------------------------------------------------------
7,597,544 3,903,804 13,678,699 1,274,800 113,809
- ----------------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash (2,777,361) 2,020,393 8,396,969 33,621 111
Cash and cash equivalents, beginning of period 8,430,701 33,732 33,732 111 --
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 5,653,340 2,054,125 8,430,701 33,732 111
==================================================================================================================================
Cash and cash equivalents consists of cash, term deposits with maturities less
than 30 days, and bank indebtedness
The accompanying notes are an integral part of these financial statements
Period ended December 31, 1997 consists of the period from the date of
incorporation on January 27, 1997 to December 31, 1997.
295277.4
8
June 30, 2000 (unaudited)
1. BASIS OF PRESENTATION
JAWS Technologies, Inc., (the "Company") was incorporated on January 27, 1997
under the laws of the State of Nevada as "E-Biz" Solutions, Inc. On March 27,
1998, "E-Biz" Solutions, Inc. changed its name to JAWS Technologies, Inc. The
Company's business purpose is to continue to develop as a provider of secure
information management solutions. This is accomplished through offering
proprietary security software products, consulting services and secure Internet
and remote data storage services for key client groups including governments,
law enforcement, healthcare, legal and accounting, financial services,
e-commerce, internet service providers and application service providers. These
activities are carried out through the Company's wholly-owned Canadian
subsidiaries and U.S. subsidiary.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, JAWS Technologies, Inc. (Nevada), JAWS
Technologies Inc., an Alberta, Canada corporation ("JAWS Alberta"), JAWS
Technologies (Ontario) Inc. an Ontario, Canada corporation ("JAWS Ontario"),
JAWS Technologies (Delaware) Inc., a Delaware corporation ("JAWS Delaware"), and
Offsite Data Services Ltd., operating as JAWS Secure Network Storage Division,
an Alberta, Canada corporation ("Offsite"), after elimination of intercompany
accounts and transactions.
Effective July 1, 2000 JAWS Technologies Inc., an Alberta, Canada corporation
("JAWS Alberta"), JAWS Technologies (Ontario) Inc. an Ontario, Canada
corporation ("JAWS Ontario"), and Offsite Data Services Ltd., operating as JAWS
Secure Network Storage Division, an Alberta, Canada corporation, were
amalgamated to into one company: JAWS Technologies Inc., an Alberta, Canada
corporation.
Effective July 7, 2000 JAWS Technologies, Inc. (Nevada) migrated to the State of
Delaware and is now subject to corporate laws of Delaware.
The Company has experienced net losses over the past three years and, as of June
30, 2000, has an accumulated deficit of $21,395,745. Such losses are
attributable to both cash losses and losses resulting from costs incurred in the
development of the Company's services and infrastructure and non-cash interest
and amortization charges. The Company expects operating losses to continue for
the foreseeable future as it continues to develop and promote its services, and
establish its business, while working towards profitability. Accordingly, the
Company will be dependent upon obtaining additional financing to maintain its
continuing operations and rapid development.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States.
Interim Reporting
The accompanying unaudited consolidated interim financial statements for 2000
and 1999 have been prepared in accordance with generally accepted accounting
principles for interim financial statement information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for annual financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. The results for
the interim periods presented are not necessarily indicative of the results that
may be expected for any future period.
Use of estimates
295277.4
9
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
Cash, cash equivalents and term deposits, and bank indebtedness
Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and with original maturities of one month or
less when purchased. Bank indebtedness represents bank overdrafts on the
Company's chequing accounts. The Company invests its excess cash in term
deposits maintained primarily in Canadian financial institutions in an effort to
preserve principal and to maintain safety and liquidity.
Term deposits include investments with original maturities exceeding one month
when purchased.
Equipment and leasehold improvements
Equipment and leasehold improvements are recorded at cost and are depreciated at
the following annual rates which are designed to amortize the cost of the assets
over their estimated useful lives.
Security equipment - 20% straight line
Furniture and fixtures - 20% declining balance
Computer hardware - 33% straight line
Computer software for internal use - 33% straight line
Leasehold improvements - 20% straight line
295277.4
10
Capital leases
Leases in which substantially all the benefits and risks of ownership are
transferred to the Company are capitalized with an offsetting amount recorded as
a liability.
Long-Lived Assets
The Company follows financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present.
Intangible assets
Employee and Consultants Base
The employee and consultants base recorded on the acquisition of Pace, SDTC,
Offsite, Nucleus and Doctorvillage.com are recorded at cost and are being
amortized on a straight-line basis over three years.
Goodwill
Goodwill is recorded at cost and is being amortized on a straight-line basis
over three years.
The recoverability of employee and consultants bases and goodwill are assessed
periodically based on management estimates of undiscounted future operating
income from each of the acquired businesses to which the goodwill relates.
Software development
Software development costs are expensed when technological feasibility has not
yet been established. Subsequent to establishing technological feasibility, such
costs are capitalized until the commencement of commercial sales.
Revenue recognition
Product Revenue
Revenue from selling encryption software and revenue from the sale and
installation of computer software and hardware is recognized at the point of
delivery.
Consulting Revenue
Revenue from information technology services and outsourcing contracts is
recognized when the service is rendered.
Advertising
Advertising costs are expensed as incurred.
Financing fees
295277.4
11
Financing fees associated with that portion of the convertible debentures
classified as debt were deferred and amortized straight-line over the life of
the debentures. Financing fees associated with that portion of the convertible
debentures classified as additional paid in capital was charged to that account.
Income taxes
The Company follows the liability method of accounting for the tax effect of
temporary differences between the carrying amount and the tax basis of the
company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Future income taxes are recorded at the income tax rates
that are expected to apply when the future tax liability is settled or the
future tax asset is realized. When necessary, valuation allowances are
established to reduce future income tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in future income tax assets and liabilities.
Foreign currency translation
The functional currency of the Company's Canadian subsidiaries is the Canadian
dollar. Accordingly, assets and liabilities of the Canadian subsidiaries are
translated at the year-end exchange rate and revenues and expenses are
translated at average exchange rates. Gains and losses arising from the
translation of the financial statements of the subsidiaries are recorded in a
"Cumulative Translation Adjustment" account in stockholders' equity.
Transactions denominated in foreign currencies are translated at the exchange
rate on the transaction date. Foreign currency denominated monetary assets and
liabilities are translated at exchange rates in effect of the balance sheet
date. The resulting exchange gains and losses on these items are included in net
earnings.
Earnings (loss) per common share
Basic earnings (loss) per common share has been calculated based on the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per common share is calculated by adjusting outstanding shares, assuming
any dilutive effects of options, warrants, and convertible securities.
Stock based compensation
The Company applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.
3. ACQUISITIONS
a. JAWS Alberta
On February 10, 1998 the Company issued 1,500,000 restricted common shares with
an ascribed value of $1,200,000 CDN ($839,748 USD), as well as options to
purchase 400,000 shares of its restricted common stock at $0.50 per share in
exchange for all of the outstanding common stock of JAWS Alberta. The options
issued in connection with the acquisition have been ascribed no value. JAWS
Alberta was a development stage company which at the time of acquisition was in
the process of creating a new encryption software product. The acquisition has
been accounted for by the purchase method.
295277.4
12
The purchase price and the amounts allocated to software under development and
the common shares issued, net of other assets and liabilities acquired, was
determined based on estimates by management as to the replacement cost for the
encryption software development which had been incurred by JAWS Alberta prior to
the acquisition date. The purchase price has been allocated to the net assets
acquired based on their estimated fair values as follows:
$
- -----------------------------------------------------------------
Net assets acquired
Non-cash working capital (5,087)
Software under development 909,003
Equipment 2,891
Due to stockholders (54,443)
- -----------------------------------------------------------------
Net assets acquired, excluding cash 852,364
Acquisition costs (13,996)
Cash acquired 1,380
- -----------------------------------------------------------------
Net assets acquired for common stock 839,748
=================================================================
The amount allocated to software under development relates to encryption
software and its related algorithms, including the "L5" software. This software,
at the time of purchase, was not completely developed, tested or otherwise
available for sale and therefore has been immediately expensed in the
accompanying consolidated statements of loss and deficit. Coding and testing
activities for this software were completed on July 31, 1998.
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
Pro forma loss and pro forma loss per common share for the year ended December
31, 1998, giving effect to the acquisition of JAWS Alberta as though it had
occurred as at January 1, 1998 do not differ materially from that recorded.
b. Pace Systems Group Inc. ("Pace")
Effective November 3, 1999, the Company issued 1,385,546 exchangeable common
shares at $1.70 per share, which are exchangeable into 1,385,546 common shares
of the Company, in exchange for all of the outstanding common stock of Pace. In
addition, there is contingent consideration payable of 346,386 exchangeable
common shares subject to the achievement of certain targets. Fifty percent of
the additional share consideration will be released if on the 12 month
anniversary date of the effective date, actual gross revenues equal or exceed
$2,000,000 CDN. ($1,377,505 USD) for the previous 12 month period. The remaining
additional share consideration will be released if, on the 24 month anniversary
date of the effective date, actual revenues for the previous twelve months equal
or exceed $2,000,000 CDN. ($1,377,505 USD). The additional consideration has not
been reflected in these consolidated financial statements, as the outcome of the
contingent share consideration cannot be reasonably determined at this time. The
additional share consideration will be recorded as employee and consultants base
and goodwill as it becomes payable.
The acquisition was accounted for using the purchase method. The purchase price
has been allocated to the net assets based on their estimated fair values as
follows:
$
- --------------------------------------------------------------------
Employee and consultants base 1,193,042
Goodwill 1,193,042
- --------------------------------------------------------------------
Net assets acquired 2,386,084
====================================================================
295277.4
13
Consideration:
1,385,546 common stock 2,355,428
Acquisition costs 30,656
- --------------------------------------------------------------------
Total Consideration 2,386,084
====================================================================
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
c. Secure Data Technologies Corporation ("SDTC")
Effective December 31, 1999 the Company purchased substantially all of the
assets of SDTC for a total purchase price of $525,234, through the Company's
wholly-owned subsidiary JAWS Delaware. SDTC was incorporated in December 1998
and had no material operations prior to January 1, 1999. The purchase price
provided for a promissory note of $257,214 and 38,071 common shares, noticed for
issuance, at $7.04 per share, totalling $268,020, as well as contingent
consideration of an additional 9,516 common shares subject to the achievement of
certain targets. The issuance of 9,516 common stock is dependent upon achieving
revenues equal to the greater of $200,000 per employee, or a minimum of
$1,200,000, for the fiscal year 2000 only. The additional consideration has not
been reflected in these consolidated financial statements, as the outcome of the
contingent share consideration cannot be reasonably determined at this time. The
additional share consideration will be recorded as employee and consultants base
and goodwill as it becomes payable.
The acquisition was accounted for using the purchase method. The purchase price
has been allocated to the assets based on their estimated fair values as
follows:
$
- --------------------------------------------------------------------
Equipment 155,932
Employee and consultants base 184,651
Goodwill 184,651
- --------------------------------------------------------------------
Net assets acquired 525,234
====================================================================
Consideration:
38,071 common stock 268,020
Promissory note 257,214
- --------------------------------------------------------------------
Total Consideration 525,234
====================================================================
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the effective date of
acquisition.
d. Offsite Data Services Ltd. ("Offsite")
Effective January 29, 2000, the Company acquired 96% of the issued and
outstanding shares of Offsite Data Services Ltd., a company incorporated in the
Province of Alberta, Canada, in exchange for 5,056,799 exchangeable shares of
the Company with an ascribed value of $13,630,734 and 93% of the outstanding
Offsite warrants in exchange for 1,389,800 warrants.
Prior to March 31, 2000, the Company acquired the remaining issued and
outstanding shares of Offsite pursuant to the compulsory acquisition provisions
in exchange for 196,987 exchangeable shares of the Company, with an ascribed
value of $531,865. 889,800 of the total warrants entitle the holder to acquire
0.3524 of one of the Company's common shares at $0.40 CDN. ($0.28 USD) up to
March 15, 2000. Prior to expiry of these warrants,
295277.4
14
843,023 were exercised for 297,073 exchangeable shares of the Company and 46,777
expired. Exchangeable shares have economic rights, including the right to any
dividend and voting attributes equivalent to the Company's common stock. The
holders of the exchangeable shares have the right to receive Company common
stock on a one for one basis. The cash received from the exercised warrants was
$337,209 CDN. ($232,654 USD). The remaining 500,000 warrants entitle the holder
to acquire 0.3524 of one of the Company's common shares for prices ranging from
$0.50 CDN. ($0.34 USD) to $0.55 CDN. ($0.38 USD) up to September 29, 2001. In
addition, 910,584 stock options to purchase shares of Offsite have been
exchanged for 910,584 stock options to purchase shares of the Company. The
options entitle the holder to purchase 0.3524 of an exchangeable share of the
Company, at a price of $0.25 CDN. ($0.17 USD) and expire on March 15, 2004. A
value of $1,649,625 has been ascribed to the warrants and options acquired on
the acquisition.
The acquisition has been accounted for using the purchase method. The purchase
price has been allocated to the net assets acquired based on their estimated
fair values, as follows:
$
- -------------------------------------------------------------------------
Cash acquired 304,508
Other net assets acquired 125,201
Employee and consultants base 7,752,245
Goodwill 7,752,246
- -------------------------------------------------------------------------
Net assets acquired 15,934,200
=========================================================================
Consideration:
5,253,786 common stock 14,162,599
Value of warrants and options exchanged 1,649,625
Acquisition costs 121,976
- -------------------------------------------------------------------------
Total Consideration 15,934,200
=========================================================================
The operating results of the acquired company are included in the consolidated
statement of loss, deficit and comprehensive loss from the date of acquisition.
e. Nucleus Consulting Inc.
On April 20,2000, the Company purchased 100% of the outstanding common shares of
Nucleus Consulting, Inc. (Nucleus), a company incorporated in the State of
Illinois, USA, in exchange for $250,000 and 142,857 shares of the Company with
an ascribed value of $1,000,000. Nucleus provides consulting services related to
data networking, telephony and mobile communications. There was also cash
consideration paid of $750,000 into a trust to be released on the third, sixth
and nine month anniversaries of the closing of the transaction. In addition
there is contingent share consideration of 285,714 common shares of the Company
at an ascribed value of $7.00 per share. Half of the common share consideration
will be released if the actual revenues and earnings before interest and taxes
for the year ended April 20, 2001 equal or exceed $3,500,000 and $800,000
respectively and the remaining share consideration will be released if actual
revenues and earnings for the year ended April 20, 2002 equal or exceed
$5,250,000 and $1,200,000 respectively. The contingent share consideration has
not been reflected in these consolidated financial statements, as the outcome of
the contingent share consideration cannot be reasonably determined at this time.
The additional share consideration will be recorded as employee and consultants
base and goodwill as it becomes payable.
The acquisition has been accounted for using the purchase method. The purchase
price has been allocated to the net assets based on their estimated fair values
as follows:
$
- ------------------------------------------------------------------------
Employee & consultants base 1,083,833
295277.4
15
Goodwill 1,083,834
Other net assets acquired 132,333
- ------------------------------------------------------------------------
2,300,000
- ------------------------------------------------------------------------
Consideration:
142,857 common stock 1,000,000
Cash 1,000,000
Acquisition costs 300,000
- ------------------------------------------------------------------------
Total Consideration 2,300,000
- ------------------------------------------------------------------------
The operating results of the acquired Company are included in the consolidated
financial statements of loss, deficit and comprehensive loss from the date of
acquisition.
f. Doctorvillage.com Inc.
On May 3, 2000 the Company purchased the intellectual assets and operations of
Doctorvillage.com Inc. in exchange for $100,000 cash, payable in installments
and 20,000 common shares of the Company at an ascribed value of $5.00 per share.
At June 30, 2000 outstanding installments amounted to $50,000 and the common
shares were not yet issued. Accordingly, these amounts have been recorded in
accounts payable. Subsequent to June 30, 2000, these shares were issued. In
addition, there is contingent consideration of 60,000 common shares of the
Company at an ascribed value of $5.00 per share. This consideration will be
released over 36 months commencing on April 1, 2001, subject to continuing
employment conditions. This additional consideration, which will be recorded as
compensation expense, has not been reflected in these consolidated financial
statements as the outcome of the contingent share consideration cannot be
reasonably determined at this time.
The acquisition was accounted for using the purchase method.
$
- -------------------------------------------------------------------------
Goodwill 200,000
- ------------------------------------------------------------------------
200,000
========================================================================
Consideration:
20,000 common stock 100,000
Cash 100,000
- ------------------------------------------------------------------------
Total Consideration 200,000
========================================================================
g. Proforma results
The following pro forma results of operations give effect to the acquisitions of
Pace, SDTC, Offsite, Nucleus and DoctorVillage.com as if the transactions had
occurred January 1, 2000 and 1999 and includes the amortization of goodwill and
employee and consultants base calculated on a straight-line basis over a period
of 3 years.
6 month period ended Year ended
----------------------------------------------------------------
June 30, June 30, December 31, December 31,
2000 1999 1999 1998
$ $ $ $
- ---------------------------------------------------------------------------------------------
REVENUE 3,468,066 3,748,933 1,856,302 1,772,285
- ---------------------------------------------------------------------------------------------
EXPENSES
Cost of sales 1,023,777 2,518,329 2,209,205 1,604,394
295277.4
16
Other costs and expenses 13,605,350 2,700,976 14,250,474 8,683,076
- ---------------------------------------------------------------------------------------------
14,629,127 5,219,305 16,459,679 10,287,470
- ---------------------------------------------------------------------------------------------
Net loss (11,161,061) (1,470,372) (14,603,377) (8,515,185)
- ---------------------------------------------------------------------------------------------
Net loss per common share (0.36) (0.13) (1.02) (1.15)
- ---------------------------------------------------------------------------------------------
4. TERM DEPOSITS
The term deposits are on deposit with a Canadian Chartered Bank. The deposits,
have been pledged as collateral for certain corporate credit cards, and as such
are not available for the Company's general use.
5. INVESTMENT
On January 6, 2000, the Company exercised their option to purchase 2,000,000 of
Cobratech Industries Inc. common shares (25% of Cobratech) for $20,000, and
granted Cobratech the exclusive right to market and sell the Company's products
in Asia for a four year period commencing on October 19, 1999. The Company will
receive a 25% royalty on all products sold by Cobratech. No royalties have been
received to date. As Cobratech has issued additional common shares since January
6, 2000, JAWS currently holds less than 20% of the outstanding Cobratech common
shares. Accordingly, this investment has been recorded at cost.
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
--------------------------------------------------------------------------
June 30 December 31
----------------------------- -------------- -----------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------
Security equipment 28,912 -- 26,106 -- --
Furniture and fixtures 557,245 196,030 206,785 31,758 3,480
Computer hardware 1,353,915 104,331 367,301 47,371 --
Computer software for internal use 88,624 31,666 32,703 13,162 --
Leasehold improvements 533,653 138,700 184,637 -- --
- ----------------------------------------------------------------------------------------------------------------
2,562,349 470,727 817,532 92,291 3,480
- ----------------------------------------------------------------------------------------------------------------
Less accumulated depreciation 327,125 50,579 118,297 13,461 1,160
- ----------------------------------------------------------------------------------------------------------------
Net book value 2,235,224 420,148 699,235 78,830 2,320
================================================================================================================
295277.4
17
7. INTANGIBLE ASSETS
June 30, 2000
----------------------------------------------------
Accumulated Net Book Value
Cost amortization
$ $ $
- --------------------------------------------------------- ------------------ ----------------
Employee and consultants base 10,213,771 1,429,678 8,784,093
Goodwill 10,413,773 1,440,791 8,972,982
- --------------------------------------------------------- ------------------ ----------------
20,627,544 2,870,469 17,757,075
=============================================================================================
----------------------------------------------------
December 31,
1999
----------------------------------------------------
Accumulated Net Book Value
Cost amortization
$ $ $
- ---------------------------------------------------------------------------------------------
Employee and consultants base 1,377,693 63,193 1,314,500
Goodwill 1,377,693 63,193 1,314,500
- ---------------------------------------------------------------------------- ----------------
2,755,386 126,386 2,629,000
=============================================================================================
8. Share Capital
Authorized
95,000,000 common shares at $0.001 par value, including exchangeable shares
5,000,000 preferred shares at $0.001 par value
Common stock issued
During second quarter 2000, 81,875 (1999 - 0, 1998 - 400,000) restricted common
shares were issued for services provided by two consultants. The shares were
recorded at their estimated fair value of $505,000 (1999 - $0, 1998 - $200,000).
During second quarter 2000, 178,070 restricted common shares with a value of
$812,355 were issued to a director and 178,070 common shares with a value of
$812,355 were issued to a shareholder for services in relation to the
establishment of the capital structure of the Company. 234,335 common shares
with a value of $1,794,069 were issued to a shareholder as a result of the
exercise of 250,000 stock options for no consideration. The number of shares
issued was reduced from the number of shares originally granted in exchange for
receiving no cash. Shareholder's additional paid in capital has been reduced by
$590 net.
During 1999, the Company issued 141,000 and 11,999 common shares at $1.34 and
$0.90 per common share respectively for a total of $199,739 in settlement of
trade payables.
During 1999, the Company issued 207,548 common shares as per the contracted
terms, at $0.53 per common share or $110,000 for settlement of amounts
outstanding to two directors for services provided. The expense has been
included in general and administration expense [See note 9].
295277.4
18
Common stock held in escrow
Effective November 3, 1999, the Company placed 1,385,546 common shares in escrow
relating to the acquisition of Pace.
Options
The Company is authorized to grant employees options to purchase up to an
aggregate of common stock not in excess of 20% of the common stock issued and
outstanding, at prices based on the market price of the shares as determined on
the date of grant.
Weighted average
Number of Options Price per share exercise price
$ $
Outstanding at December 31, 1997 -- -- --
- ---------------------------------------------------------------------------------------
Granted 1,667,000 0.15 - 0.69 0.41
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Outstanding at December 31, 1998 1,667,000 0.15 - 0.69 0.41
- ---------------------------------------------------------------------------------------
Granted 2,371,725 0.37 - 7.56 2.33
Exercised (15,000) 0.15 0.15
Cancelled (85,267) 0.15 - 0.98 0.41
- ---------------------------------------------------------------------------------------
Outstanding at December 31, 1999 3,938,458 0.15 - 7.56 3.02
- ---------------------------------------------------------------------------------------
Granted 1,167,157 3.28 - 13.25 6.20
Exercised (641,335) 0.15 - 0.75 0.38
Cancelled (101,980) 0.48 - 7.88 1.92
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Outstanding at June 30, 2000 4,362,300 0.15 - 13.25 2.82
=======================================================================================
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of June 30, 2000 were
as follows:
Options outstanding Options exercisable
- ------------------------------------------------------------------------------- --------------------------------------
Weighted
average Weighted Weighted
Range of Number of remaining average average
exercise options contractual exercise Shares exercise
Prices outstanding life (years) price exercisable price
$ $ $
- --------------------- ------------------ ------------------- ------------------ ------------------ -------------------
0.32 - 0.37 211,499 4.21 0.34 39,167 0.33
0.48 - 0.87 1,344,500 3.28 0.62 1,045,167 0.59
1.44 - 2.72 1,448,242 2.84 1.85 1,244,293 1.78
3.28 - 8.00 1,162,929 3.83 5.80 -- --
8.56 - 13.25 195,130 3.69 10.06 -- --
- --------------------- ------------------ ------------------- ------------------ ------------------ -------------------
The fair value of each option granted to date is estimated on the date of grant
using the Black Scholes option-pricing model with the following assumptions:
expected volatility of 146% (December 31, 1999 - 151%; June 30, 1999 - 153%;
December 31, 1998 - 153%), risk-free interest rate of 6.09% (December 31, 1999 -
4.87%; June 30, 1999 - 4.0%; December 31, 1998 - 4.0%); no payment of common
share dividends for all years; and expected life of 3 years (December 31, 1999 -
3 years; June 30, 1999 - 10 years; December 31, 1998 - 10 years). Had
compensation cost for these plans been determined based upon the fair value at
grant date, consistent with the methodology prescribed in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and net loss per common share for the period ended June 30,
2000 would have been $11,740,100 and $0.38 respectively (December 31, 1999 -
$9,121,253 and $0.64; June 30, 1999 - $1,303,187 and $0.12; December 31, 1998 -
$3,324,618 and $0.45 respectively).
295277.4
19
During 1999 the Company granted a total of 500,000 options to two officers of
the Company at an exercise price of $1.88 per share which was calculated based
on the previous three month's average price. The difference between the exercise
price and the trading price on the day prior to the grant date, has been
recognized as compensation expense for the year ended December 31, 1999.
The weighted average fair value of options granted during 2000 was $6.20 (1999 -
$2.32; 1998 - $0.41).
Warrants issued
During 1998, the Company had entered into a Put Option agreement with an
investor, which allowed the Company to require the investor to purchase up to
25,000,000 shares of the common stock of the Company. In addition, the investor
was to be granted warrants to purchase up to 3,000,000 shares of common stock.
On April 26, 1999, the Company and the investor agreed to cancel the agreement
in exchange for warrants to the investor to purchase up to 1,000,000 shares of
common stock at an exercise price of $0.70 per share. The warrants expire April
15, 2002. On June 5, 2000, 150,000 common shares were issued in exchange for
$105,000.
On June 21, 1999, the Company issued 1,000,000 share purchase warrants, which
entitle the holder to purchase 1,000,000 common shares at $2.25 per share until
June 30, 2001.
On November 1, 1999, the Company issued 411,765 share purchase warrants, which
entitle the holder to purchase 411,765 common shares at $1.70 per share until
November 30, 2002.
On December 31, 1999, the Company issued 2,176,418 share purchase warrants in
connection with an issuance of 2,176,418 shares of common stock, which entitle
the holder to purchase one-half of one share of common stock of the Company at
an exercise price of $6.50 per share. As a financing fee, the Company issued
217,642 warrants to the placement agent, which entitle the agent to purchase one
share of common stock at an exercise price of $4.25 per share. Each warrant will
expire on March 29, 2003. If the share price of the Company exceeds $9.75 for 30
consecutive days any time after March 29, 2000, the Company, with 30 days
notice, may repurchase these warrants at a price of $0.001 per warrant.
On February 23, 2000, the Company issued 294,119 share purchase warrants in
connection with an issuance of 588,238 shares of common stock, which entitle the
holder to purchase one half of one share of common stock of the Company at $6.50
per share. In addition, as a financing fee, the Company issued 58,824 warrants
to the placement agent, which entitle the agent to purchase one share of common
stock at an exercise price of $4.25 per share. Each warrant will expire on March
29, 2003.
On June 22, 2000 the Company issued 240,000 share purchase warrants in
connection with an issuance of 800,000 shares of common stock which entitle the
holder to purchase one share of common stock at an exercise price of $5.00 per
share. Each warrant will expire on June 22, 2005.
In addition, the holders received adjustable warrants to purchase a number of
shares of common stock, at an exercise price of $0.001 per share. The number of
common stock to be purchased will be determined pursuant to a formula that is
applied at three separate 40 day adjustment periods commencing between the 150th
and 240th day following June 22, 2000. At each adjustment date, the holders will
be entitled to purchase under the adjustable warrants a number of common stock
equal to 33.33% of the common stock purchased, multiplied by the difference
between the quotient of $5.00 divided by .89 and the average of the 10 lowest
closing bid prices for the company's common stock during the 40 trading day
period preceding the applicable adjustment date.
9. RELATED PARTY TRANSACTIONS
Unless otherwise noted, all related party transactions have been recognized at
their exchange amounts. Amounts due to/from related parties consist of the
following amounts:
295277.4
20
June 30, December 31, December 31, December 31,
2000 1999 1998 1997
$ $ $ $
- ------------------------------------------------------------------------------------------------------
Due from related parties
e-Financial Depot.com 1,253,654 -- -- --
Oxford Capital Corp. 70,619 -- -- --
Bankton Financial Corp. -- -- -- --
Futurelink Corp. -- 1,777 13,118 --
- ------------------------------------------------------------------------------------------------------
1,324,273 1,777 13,118 --
- ------------------------------------------------------------------------------------------------------
Due to related parties
Supplies.com 20,334 -- -- --
Officers and stockholders -- 4,821 43,588 --
Futurelink Corp. 102,059 42,888 32,175 --
Willson Stationers Ltd. -- -- 1,352 --
Directors 184,384 124,384 120,000 --
- ------------------------------------------------------------------------------------------------------
306,777 172,093 197,115 --
- ------------------------------------------------------------------------------------------------------
Due to stockholders
Bankton Financial Corp. 793 -- 15,775 --
Cameron Chell 2,023 2,066 1,957 --
Hampton Park Ltd. -- -- 56,985 --
Other stockholder -- -- -- 78,159
- ------------------------------------------------------------------------------------------------------
2,816 2,066 74,717 78,159
- ------------------------------------------------------- ----------------------------------------------
General and administration expense for the period ended June 30, 2000, includes
June 30, 2000 - $231,562 (June 30, 1999 - $nil; December 31, 1999 - $84,420;
December 31, 1998 - $76,612; December 31, 1997 - $nil) in fees associated with
computer services provided by Futurelink Corp., an entity of which certain
shareholders were also shareholders of the Company. The Company provided sales
to Futurelink Corp. during the period ended June 30, 2000 in the amount of June
30, 2000 - $nil (June 30, 1999 - $1,175; December 31, 1999 - $1,777; December
31, 1998 - $13,118; December 31, 1997 - $nil).
General and administration expenses for the period ended June 30, 2000, include
$27,163 paid to eSupplies.com, an entity of which certain directors are also
directors and officers of the Company.
Revenues for the period ended June 30, 2000 include $1,253,654 in respect of
e-Financial Depot.com an entity in which certain directors were also directors
and officers of the Company.
General and administration expenses for the period ended June 30, 2000, include
June 30, 2000 - $nil (June 30, 1999 - $2,563; December 31, 1999 - $20,508;
December 31, 1998 - $8,035) paid to Willson Stationers Ltd., an entity of which
certain directors were also directors and officers of the Company.
During the period ended June 30, 2000, the Company expensed fees of June 30,
2000 - $331,536 (December 31, 1999 - $22,714) associated with and for the
benefit of the launch of IT Florida.com, a government sponsored taskforce, the
chairman of which is also a director of the Company.
For the period ended June 30, 2000, general and administration expense includes
June 30, 2000 - $nil (June 30, 1999 - $44,838; December 31, 1999 - $233,643;
December 31, 1998 - $198,168; December 31, 1997 - $nil) of management fees to
officers and stockholders of the Company for services provided. General and
administration
295277.4
21
for the period ended June 30, 2000 includes June 30, 2000 - $75,000 (June 30,
1999 - $60,000; December 31, 1999 - $124,384; December 31, 1998 - $33,333;
December 31, 1997 - $nil) of directors fees.
Due to stockholders represents advances received by the Company. The amount due
to Hampton Park Ltd., a company owned by a stockholder, incurred interest at 8%
per annum and was repaid in 1999. The remaining amount due to stockholders does
not bear interest and has no set repayment terms.
General and administration expenses for the period ended June 30, 2000 include
$499,587 of consulting services provided by stockholders. $341,640 of the
amountwas settled in common stock of the Company on April 5, 2000 and April 6,
2000. The Company also issued common stock to prepay consulting fees of $163,360
for the period from July to November 2000.
The Company entered into an agreement to lease premises from a stockholder who
is also an officer and director of the Company, commencing on November 1, 1998,
for a five year term. The minimum rent is $9.44 per square foot per annum with
9,920 square feet of net rentable area. Additional rent is estimated at $4.86
per square foot of net rentable area per annum. The net rent expense recognized
for the period ended June 30, 2000, that has been included in general and
administration expense, was June 30, 2000 - $70,588 (June 30, 1999 - $5,986;
December 31, 1999 - $129,611; December 31, 1998 - $3,991; December 31, 1997 -
$nil). The Company entered into a second lease agreement on April 1, 2000 to
lease premises from a stockholder who is also an officer and director of the
Company for a five year term. The minimum rent is $9.44 per square foot per
annum with 11,445 square feet of net rentable area. Additional rent is estimated
at $5.06 per square foot of net rentable area per annum. The net rent expense
recognized for the period ended June 30, 2000 was $33,282.
Oxford Capital Corp. is an entity whose shareholders are also shareholders of
the Company. For the period ended June 30, 2000, due from related parties
includes of salaries, rent and office expense recoveries.
Bankton Financial Corp. is an entity whose shareholders are also shareholders of
the Company.
295277.4
22
10. CONVERTIBLE DEBENTURES
June 30, December December
2000 31, 1999 31, 1998
$ $ $
- ----------------------------------------------------------------------------------------------
Principal
Net balance outstanding, beginning of
period -- 146,606 --
Funds advanced to date -- 1,100,000 420,000
Debentures converted during the
period -- (1,246,606) (210,000)
- ----------------------------------------------------------------------------------------------
-- -- 210,000
- ----------------------------------------------------------------------------------------------
Financing Fees
Fees paid on funds advanced to date -- (110,000) (42,000)
Intrinsic value associated with equity
component of debentures -- 33,329 11,760
Fees paid through issuance of warrants to
agent -- (341,538) (85,714)
Intrinsic value associated with equity
component of debentures -- 110,027 24,000
Amortization of financing fees to date -- 75,601 5,158
Financing fees associated with debentures
converted to date -- -- 21,117
Amortization of financing fees on settlement
of debt -- (232,581) --
- ----------------------------------------------------------------------------------------------
-- -- (65,679)
- ----------------------------------------------------------------------------------------------
Interest Expense
Accrued interest expense -- 77,323 2,285
Interest expense converted on settlement of
debt -- (77,323) --
- ----------------------------------------------------------------------------------------------
Net balance outstanding, end of period -- -- 146,606
==============================================================================================
In September, 1998 the Company entered into a debenture agreement to issue 10%
convertible debentures up to a total of $2,000,000 which mature on October 31,
2001. The debentures were convertible, at the holders' option, into common
shares of the Company at various prices as outlined in the agreement. The
Company could prepay any or all of the outstanding principal amounts at any
time, subject to the holders' right to convert into common shares. A financing
fee of 10% was charged on the principal sum of each convertible debenture
issued. Interest was payable in cash or common shares at maturity.
The agreement was amended in April, 1999 to include, among others, an increase
in the amount available from $2,000,000 to $5,000,000 and a reduction of the
financing fee to 8% on the additional amount available.
The Company issued $420,000 of debentures in 1998, and an additional $1,100,000
during 1999. Amounts of $118,462 and $617,867, in 1998 and 1999 respectively,
representing the intrinsic value of the conversion option, were recorded as
additional paid in capital with an offsetting charge to interest expense. The
portion of $152,000 of financing fees associated with the equity component of
the debentures were recorded as a reduction to paid in capital. The remainder,
which were recorded as a reduction of the debenture principal, were being
amortized on a straight-line basis over the life of the debentures.
295277.4
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At the time of initial funding in 1998, the Company issued 1,428,572 common
share purchase warrants (357,143 to the agent and 1,071,429 to the ultimate
subscriber of the issue). Each warrant granted the holder the right to purchase
one common share of the Company at $0.28 until October 31, 2001. The estimated
value of the subscriber warrants, in the amount of $342,857, was recorded as
additional paid in capital as they were exercisable upon issuance. The warrants
issued to the agent, with an estimated value of $85,714, were treated as a
financing fee; the portion thereof associated with the equity component of the
debenture ($24,000) was charged to additional paid in capital. The remainder was
being amortized on a straight-line basis over the life of the debentures. The
debenture amendment in April, 1999 included the issuance of an additional
923,077 warrants which granted the holder the right to purchase one common share
of the Company at $0.65. The estimated value of these warrants, in the amount of
$341,538 were recorded as additional paid in capital, reduced by an offsetting
amount of $110,027 attributable to the equity component of the debenture. The
remainder was charged as a discount to debt and was being amortized on a
straight-line basis over the life of the debentures.
During 1998, $210,000 principal amount of debentures, together with $3,798
interest, was converted into 1,912,317 common shares.
Effective November 1, 1999 the Company settled the entire outstanding principal
amount of the debentures in exchange for 3,157,712 common shares, at a
recognized value of $1,091,348. Accrued interest and penalties were settled in
exchange for 57,643 common shares valued at $404,943. As part of the settlement
of the debt, the Company issued 1,428,572 common shares upon exercise of the
1,428,572 common stock purchase warrants, which were granted at the time of the
initial funding of the debt. The warrants were exercised at the stated price of
$0.28 per warrant. The Company also issued 751,648 shares of common stock upon
exercise of the 923,077 common share purchase warrants, which were granted at
the time of the amendment in April 1999. In exchange for issuing 171,429 fewer
shares as per the exercise agreement terms, the warrant holders were not
required to pay cash on the exercise of these warrants; accordingly, the
original amount recognized as additional paid in capital has been reversed and
$258,945 was recognized as financing expense.
11. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is net loss for the period divided by the
weighted average number of common shares outstanding. The effect on earnings
(loss) per share of the exercise of options and warrants, and the conversion of
the convertible debentures is anti-dilutive.
The following table sets forth the computation of earnings (loss) per common
share:
6 month period ended Year ended
- ----------------------------------------------------------------------------------------------------------------
June 30, June 30, December December December
2000 1999 31, 1999 31, 1998 31, 1997
$ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------
Net loss (11,014,828) (2,433,110) (7,167,776) (3,076,287) (136,854)
- ----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per
common share:
Weighted average number of
common shares outstanding 31,077,935 11,428,319 14,342,053 7,405,421 4,000,000
- ----------------------------------------------------------------------------------------------------------------
Net loss per common share -
basic and diluted (0.35) (0.21) (0.50) (0.42) (0.03)
================================================================================================================
295277.4
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12. INCOME TAXES
The income tax benefit differs from the amount computed by applying the U.S.
federal statutory tax rates to the loss before income taxes for the following
reasons:
6 month period ended Year ended
- ----------------------------------------------------------------------------------------------------------------------
June 30, June 30, December December December
2000 1999 31, 1999 31, 1998 31, 1997
$ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
(34%) (34%) (34%) (34%) (34%)
Income tax benefit at U.S. statutory rate (3,745,042) (827,257) (2,437,044) (1,045,938) (46,530)
Increase (decrease) in taxes resulting
from:
Change in deferred tax asset valuation
allowance 3,208,466 730,684 2,500,670 1,106,172 46,530
Non-deductible expenses 1,071,614 251,741 322,810 128,162 --
Foreign tax rate differences (534,344) (154,568) (368,588) (188,396) --
State tax rate differences (52,815) -- 1,508 -- --
Federal tax rate differences on opening
assets
36,534 -- -- -- --
Income not previously recognized -- -- 2,439 -- --
Foreign exchange 15,587 -- (21,795) -- --
- ----------------------------------------------------------------------------------------------------------------------
Income tax benefit -- -- -- -- --
======================================================================================================================
For financial reporting purposes, loss before income taxes includes the
following components:
6 month period ended Year ended
- ----------------------------------------------------------------------------------------------------------------------
June 30, June 30, December December December
2000 1999 31, 1999 31, 1998 31, 1997
$ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
Pre-tax loss:
United States (2,717,569) (1,455,464) (3,697,076) (1,302,313) (136,854)
Foreign (8,297,259) (977,646) (3,470,700) (1,773,974) --
- ----------------------------------------------------------------------------------------------------------------------
(11,014,828) (2,433,110) (7,167,776) (3,076,287) (136,854)
======================================================================================================================
Future income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of the Company's
future tax assets are as follows:
June 30, December December December
2000 31, 1999 31, 1998 31, 1997
$ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Future tax assets:
Net operating loss carryforwards 6,137,939 3,209,318 697,768 --
Start-up costs 24,041 28,694 37,999 46,333
Depreciation 173,191 45,549 5,807 --
295277.4
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Organization costs 690 591 394 197
Debt issue costs -- -- 5,137 --
Finance costs 171,683 -- -- --
Donations 1,286 435 -- --
Software costs 353,008 368,785 405,597 --
- -------------------------------------------------------------------------------------------------------------
Net future tax assets 6,861,838 3,653,372 1,152,702 46,530
Valuation allowance (6,861,838) (3,653,372) (1,152,702) (46,530)
- -------------------------------------------------------------------------------------------------------------
Net future tax assets -- -- -- --
=============================================================================================================
The Company has provided a valuation allowance for the full amount of future tax
assets in light of its history of operating losses since its inception.
At June 30, 2000, the Company has U.S. operating losses carried forward of
$5,430,000 which expire as follows:
$
----------------
----------------
2018 880,000
2019 2,750,000
2020 1,800,000
The availability of these loss carryforwards to reduce future taxable income
could be subject to limitations under the Internal Revenue Code of 1986, as
amended. Certain ownership changes can significantly limit the utilization of
net operating loss carryforwards in the period following the ownership change.
The Company has not determined whether such changes have occurred and the effect
such changes could have on its ability to carry forward all or some of the U.S.
net operating losses.
295277.4
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At June 30, 2000, the Company has non-capital losses carried forward for
Canadian income tax purposes of $9,728,000. These losses expire as follows:
$
----------------
----------------
2003 46,000
2004 7,000
2005 884,000
2006 3,527,000
2007 5,264,000
13. CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at June 30, 2000 under capital and operating
leases are as follows:
Capital Leases Operating Leases
- -----------------------------------------------------------------------------------------
2000 48,387 395,210
2001 96,774 584,634
2002 95,925 580,406
2003 86,429 483,057
2004 66,863 596,805
- ------------------------------------------------------------------------------------------
Total future minimum lease payments 394,378 2,640,112
====================
Less: imputed interest (86,509)
- -----------------------------------------------------------------------
Balance of obligations under capital leases 307,869
Less: current portion (63,213)
- -----------------------------------------------------------------------
Long term obligation under capital leases 244,656
- -----------------------------------------------------------------------
Rent expense was $295,145 for the period ended June 30, 2000 (June 30, 1999 -
$82,099; December 31, 1999 - $269,004; December 31, 1998 - $29,637).
295277.4
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14. NET CHANGE IN NON-CASH WORKING CAPITAL
Operating Activities 6 month period ended Year ended
June 30, June 30, December December December
2000 1999 31,1999 31,1998 31,1997
$ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Accounts receivable (663,333) (35,293) (331,582) (7,243) --
Due from related parties (1,322,496) 13,118 11,341 (13,118) --
Prepaid expenses and deposits (72,456) 28,833 81,979 (132,956) (7,500)
Accounts payable and accrued liabilities 1,655,765 248,783 799,691 395,624 32,976
Due to related parties 135,434 (3,532) (25,022) 197,115 --
- ------------------------------------------------------------------------------------------------------------------
(267,086) 251,909 536,407 439,422 25,476
- ------------------------------------------------------------------------------------------------------------------
Attributed to investing activities -- -- 257,214 -- --
Attributed to financing activities (280,000) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Attributed to operating activities (547,086) 251,909 278,193 439,422 25,476
==================================================================================================================
295277.4
28
15. SEGMENTED INFORMATION
The Company's activities include professional security consulting services,
integration and installation of secure information systems, and remote data
storage and recovery services. The activities are conducted in one operating
segment and are carried out in three geographic segments as follows:
June 30, 2000
- -------------------------------------------------------------------------------------------------------------
Alberta, Ontario,
Canada Canada U.S. Total
$ $ $ $
- ----------------------------------------------------------------------------------------------------------
Loss information
Revenue 507,837 1,723,253 713,253 2,944,343
Cost of sales 108,272 451,250 320,589 880,111
Expenses 8,187,071 1,781,756 1,337,849 11,306,676
- ----------------------------------------------------------------------------------------------------------
(7,787,506) (509,753) (945,185) (9,242,444)
Corporate overheads (1,772,384)
- ----------------------------------------------------------------------------------------------------------
Net loss (11,014,828)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Selected balance sheet
information
Equipment and leasehold 1,719,637 156,288 359,299 2,235,224
improvements
Goodwill and employee and 13,351,206 1,862,018 2,543,851 17,757,075
consultants base
- ----------------------------------------------------------------------------------------------------------
295277.4
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June 30, 1999
- --------------------------------------------------------------------------------
Alberta, Ontario,
Canada Canada U.S. Total
$ $ $ $
- --------------------------------------------------------------------------------
Loss information
Revenue 10,180 -- -- 10,180
Expenses 1,465,644 -- -- 1,465,644
- --------------------------------------------------------------------------------
(1,455,464) -- -- (1,455,464)
Corporate overheads 977,646
- --------------------------------------------------------------------------------
Net loss (2,433,110)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Selected balance sheet
information
Equipment and
leasehold
improvements
420,148 -- -- 420,148
================================================================================
December 31, 1999
- --------------------------------------------------------------------------------
Alberta, Ontario,
Canada Canada U.S. Total
$ $ $ $
- --------------------------------------------------------------------------------
Loss information
Revenue 85,675 469,001 37,370 592,046
Expenses 3,414,558 610,966 11,098 4,036,622
- --------------------------------------------------------------------------------
(3,328,883) (141,965) 26,272 (3,444,576)
Corporate overheads (3,723,200)
- --------------------------------------------------------------------------------
Net loss (7,167,776)
- --------------------------------------------------------------------------------
Selected balance sheet
information
Equipment and
leasehold
improvements
520,507 27,379 151,349 699,235
Goodwill and employee
and consultants base -- 2,259,698 369,302 2,629,000
- --------------------------------------------------------------------------------
295277.4
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December 31, 1998
- --------------------------------------------------------------------------------
Alberta, Ontario,
Canada Canada U.S. Total
$ $ $ $
- --------------------------------------------------------------------------------
Loss information
Revenue 29,068 -- -- 29,068
Expenses 1,835,561 -- -- 1,835,561
- --------------------------------------------------------------------------------
(1,806,493) -- -- (1,806,493)
Corporate overheads 1,269,794
Net loss (3,076,287)
- --------------------------------------------------------------------------------
Selected balance sheet
information
Equipment and
leasehold
improvements
77,090 -- 1,740 78,830
- --------------------------------------------------------------------------------
16. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, term deposits, accounts receivable,
amounts due to and from related parties, bank indebtedness, accounts payable and
accrued liabilities, capital lease obligations, amounts due to related parties
and amounts due to stockholders approximate their fair value. It is management's
opinion that the Company is not exposed to significant currency risks arising
from these financial instruments.
At June 30, 2000 approximately 50% of consolidated accounts receivable are due
from a related party engaged in the business of providing financial products and
services.
17. RECENT PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivatives and Hedging
Activities", which will be effective for fiscal years beginning after June 15,
2000. The Company does not expect this pronouncement to have a material effect.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 Revenue Recognition in Financial Statements, which will become
effective December 31, 2000. The Company does expect the standard to have a
material effect on its results, however an analysis has not been completed.
18. SUBSEQUENT EVENTS
On July 17, 2000, in connection with the private placement financing agreement
dated June 22, 2000 and subsequent to the effectiveness of the Company's
registration statement, the Company issued 400,000 common shares for proceeds of
$2,000,000. In connection with this private placement, the Company issued
120,000 share purchase warrants which entitle the holder to purchase one share
of common stock at an exercise price of $5.00 per share. Each warrant will
expire on July 17, 2005. The investors also received adjustable warrants to
purchase a number of shares of common stock, at an exercise price of $0.001 per
share, to be determined pursuant to a formula that is applied at three separate
40 day adjustment periods commencing between the 150th and 240th day following
July 17, 2005. The terms of the adjustable warrants are consistent with the
terms of the adjustable warrants issued in connection with the private placement
on June 22, 2000.
295277.4
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
JAWS is currently the parent corporation of five subsidiaries. The
two material operating companies are JAWS Canada and JAWS Technologies
(Delaware), Inc. ("JAWS USA"). The third subsidiary is JAWS, Inc., an Illinois
corporation (formerly "Nucleus Consulting, Inc."). The other two subsidiaries,
which are non-operating, are JAWS Acquisition Corporation ("JAC") and JAWS
Acquisition Canada Corporation ("JACC"), which serve the sole purpose of
facilitating Canadian acquisitions. Both of JAWS two primary operating
subsidiaries, JAWS Canada and JAWS USA, specialize in the field of end-to-end
information security, providing consulting services and software solutions to
minimize the threats to clients' information and communications.
JAWS recently reorganized its corporate structure by reincorporating
the parent company, JAWS Technoligies, Inc., a Nevada Corporation, to the state
of Delaware. In addition, JAWS amalgamated four operating subsidiaries in Canada
(JAWS Technologies Inc., an Alberta corporation ("JAWS Alberta"), JAWS
Technologies (Ontario) Inc., an Ontario corporation ("JAWS Ontario"), Pace
Systems Group Inc., an Ontario corporation ("PACE"), and Offsite Data Services
Ltd., an Alberta corporation ("Offsite")) to form a single operating subsidiary,
JAWS Canada. JAWS Canada is extra-provincially registered to carry on business
in the province of Ontario.
The overall strategic goal for JAWS is to consolidate the highly
fragmented information security industry, achieve increasing economies of scale
through the acquisition of high growth, emerging market firms and integrate such
firms through centralized administration and planning. Through industry and
management expertise, JAWS attempts to ensure that acquired firms receive the
capital and corporate planning necessary to maximize the growth potential within
each information security niche.
The shares of JAWS common stock are included for quotation on the
Nasdaq National Market under the symbol "JAWZ".
JAWS is organized under a vertical model, with six target verticals,
namely Financial Services, Health Care, Cyber-crime & Forensics, Government,
Telecommunications (which includes ISP's and ASP's), and Emerging Markets.
JAWS has also developed or purchased several strategic horizontal
product or service offerings that it offers to its customers across all
verticals. These horizontal offerings include managed services (which includes
JAWS Secure Network Storage offering) and managed security services,
professional services and professional security services, JAWS products and
best-of-breed third party products.
In addition to the vertical model outlined above, and a horizontal
offering across all verticals, JAWS has also developed several Centers' of
Excellence. At its offices in Calgary, Alberta, JAWS Canada develops proprietary
encryption software using what is currently one of the world's strongest
encryption algorithms, L5, to secure binary data in various forms, including
streamlining or blocking data. In addition, JAWS Secure Network Storage offers
secure, fully automated on-line backup, retrieval and storage services through
the Internet from its data center in Calgary. At its offices in Toronto,
Ontario, JAWS' financial information technology security solutions services are
provided and include services in the area of payment systems, including POS/ABM
EFT switch implementation, point of sale application and device integration,
network architecture and design, system integration and project management.
295277.4
32
Results of Operations
Three months ended June 30, 2000 (second fiscal quarter 2000) compared with the
three months ended June 30, 1999 (second fiscal quarter 1999)
JAWS' total revenue increased by $2,214,277 (31,043%) for the three
months ended June 30, 2000 from $7,133 in the three months ended June 30, 1999.
This increase is primarily due to three key factors. The first is the continued
internal growth of JAWS' operations as the company completes the transition from
research and development stage company to the commercialization stage. The
second key factor is the integration and subsequent growth associated with JAWS'
acquisitions (including PACE, SDTC, Offsite, and Nucleus). The third key factor
was an increase in interest income of $70,951, which resulted from short term
investing of funds received in connection with JAWS' private placement
financings.
Cost of sales increased to $880,111 for the three months ended June
30, 2000 from $0 in the three months ended June 30, 1999. This increase is
directly related to the increase in revenue above and the direct and
identifiable costs associated with generating that business recorded as a cost
of sales.
Selling, general and administrative expenses increased 549% to
$5,793,464 for the three months ended June 30, 2000 from $892,420 in the three
months ended June 30, 1999. This increase was primarily due to the continued
growth of JAWS' operations including geographic expansion, moving JAWS products
toward and into the commercialization stage and the expenses related to the
preparation of various marketing and sales documents and materials, wages and
benefits, requirements for office space, supplies and other office related
expenses.
Advertising and promotion expenses increased 1,636% to $616,546 for
the three months ended June 30, 2000 from $35,519 in the three months ended June
30, 1999. This increase was primarily due to increased sales and marketing
activities related to moving JAWS' products toward and into the
commercialization stage based on JAWS vertical and geographical product and
consulting services strategies.
Interest expense, financing fees and amortization of debt discount
decreased by approximately 99% to $1,424 for the three months ended June 30,
2000 from $281,583 for the three months ended June 30, 1999. The decrease was
due to the retirement of the convertible debentures (which occurred in November,
1999) and the associated accelerated amortizations of the deferred financing
fees and debt discount.
Amortization expense was $1,742,643 for the three months ended June
30, 2000 as compared to $0 for the three months ended June 30, 1999. This
increase was primarily due to the amortization of goodwill and employee and
consultants base associated with JAWS' acquisitions of PACE, SDTC, Offsite, and
Nucleus.
The Company's net loss for the three months ended June 30, 2000 was
$6,994,777 as compared with $1,205,457 for the three months ended June 30, 1999.
The increase in the net loss is primarily due to the continued growth of JAWS'
operations, moving JAWS products toward and into the commercialization stage
including geographic expansion and the expenses related to the preparation of
various marketing and sales documents and materials, wages and benefits,
requirements for office space, supplies and other office related expenses.
Six-Months ended June 30, 2000 compared with the Three and Six-Months ended June
30, 1999(1)
JAWS' total revenue increased by $2,934,163 (27,092%) for the
six-months ended June 30, 2000 from $10,180 for the six months ended June 30,
1999. This increase is primarily due to three key factors. The first is the
continued internal growth of JAWS' operations as the company completes the
transition from research and development stage company to the commercialization
stage. The second key factor is the integration and subsequent growth associated
with JAWS' acquisitions (including PACE, SDTC, Offsite, and Nucleus). The third
key factor was an increase in interest income of $176,248, which resulted from
short term investing of funds received in connection with JAWS' private
placement financings.
295277.4
33
Cost of sales increased to $880,111 for the six months ended June 30,
2000 from $0 in the six months ended June 30, 1999. This increase is directly
related to the increase in revenue referenced above and the direct and
identifiable costs associated with generating that business recorded as a cost
of sales.
Selling, general and administrative expenses increased 505% to
$9,089,266 for the six months ended June 30, 2000 from $1,502,594 in the six
months ended June 30, 1999. This increase was primarily due to the continued
growth of JAWS' operations including geographic expansion, moving JAWS products
toward and into the commercialization stage and the expenses related to the
preparation of various marketing and sales documents and materials, wages and
benefits, requirements for office space, supplies and other office related
expenses.
Advertising and promotion expenses increased 491% to $1,091,712 for
the six months ended June 30, 2000 from $184,767 in the six months ended June
30, 1999. This increase was primarily due to increased sales and marketing
activities related to moving JAWS' products toward and into the
commercialization stage based on JAWS vertical and geographical product and
consulting services strategies.
Interest expense, financing fees and amortization of debt discount
decreased by approximately 98% to $14,789 for the six months ended June 30, 2000
from $705,814 for the six months ended June 30, 1999. The decrease was due to
the retirement of the convertible debentures (which occurred in November, 1999)
and the associated accelerated amortizations of the deferred financing fees and
debt discount.
Amortization expense was $2,744,083 for the six months ended June 30,
2000 as compared to $0 for the six months ended June 30, 1999. This increase was
primarily due to the amortization of goodwill and employee and consultants base
associated with JAWS' acquisitions of PACE, SDTC, Offsite, and Nucleus.
The Company's net loss for the six months ended June 30, 2000 was
$11,014,828 as compared with $2,433,110 for the six months ended June 30, 1999.
The increase in the net loss is primarily due to the continued growth of JAWS'
operations, moving JAWS products toward and into the commercialization stage
including geographic expansion and the expenses related to the preparation of
various marketing and sales documents and materials, wages and benefits,
requirements for office space, supplies and other office related expenses.
295277.4
34
Litigation
Except as provided in Part II, Item 1, JAWS is not a party to any
material pending legal proceedings other than ordinary routine litigation
incidental to the business of JAWS which JAWS does not believe is material.
Liquidity and Capital Resources
Net cash used in operations for the six months ended June 30, 2000
was $8,336,981, compared with $8,430,701 as of December 31, 1999. These
increases are a result of the increased expenses incurred as noted above.
Cash and cash equivalents on hand at June 30, 2000 was $5,563,340,
compared with $8,430,701 at December 31, 1999. During six months ended June 30,
2000, JAWS completed two private placements. The first private placement
financing of approximately $2,500,000 gross proceeds on February 23, 2000, and
an additional private placement for $4,000,000 gross proceeds on June 22, 2000
(together, the "Private Placement Transactions"). In addition, several options
and warrants were exercised during the six month period ending June 30, 2000.
These funds were used to fund current and anticipated losses from operations.
These funds will continue to be deployed primarily to fund operations.
The Company has experienced net losses over the past three years and
as of June 30, 2000, had an accumulated deficit of approximately $21.4 million.
Such losses are attributable to both cash losses and losses resulting from costs
incurred in the development of the Company's services and infrastructure and
non-cash interest and amortization charges. The Company expects operating losses
to continue for the foreseeable future as it continues to develop and promote
its services. Until such time as the company achieves profitability and positive
cash flow, JAWS' will need to raise additional capital to fund future
operations.
Accounts payable and accrued liabilities have increased 150% to
$2,943,472 as of June 30, 2000 as compared to $1,177,278 as of December 31,
1999. These increases are a result of the efforts of management to increase
sales revenue and grow JAWS' operations and are consistent with the other
expense increases in the first three months of the year 2000. JAWS has
anticipated and budgeted for these increases to provide for the organizations'
shift from research and development to commercialization and to provide for the
growth of operations.
JAWS has not established any lines of credit outside of trade
accounts and will not be in a position to negotiate any lines of credit until
sales contracts have been validated and matured. JAWS has not used any debt
instruments to date due to its early stage of operations, other than long-term
capital leases and Thomson Kernaghan's convertible debentures which were
converted to equity.
Year 2000 Issues
By the end of 1999, JAWS completed a ten phase year 2000 plan which
addressed the year 2000 readiness of all of our internal and external systems,
including software, network equipment, bandwidth providers and suppliers. We
have not, to date, experienced any year 2000 disruptions in these systems. JAWS
continues to assess all of its internal systems for operational effectiveness
and efficiency beyond year 2000 concerns.
JAWS management believes that JAWS' significant suppliers and
customers are year 2000 compliant and have not, to date, been made aware that
any significant suppliers or customers have suffered year 2000 disruptions in
their systems.
295277.4
35
In the event JAWS discovers year 2000 problems in any of these
systems, we will endeavor to resolve these problems by making modifications to
our systems or purchasing new systems on a timely basis. Although we are not
aware of any material operational issues associated with preparing these systems
for the year 2000 we will not experience material, unanticipated, negative
consequences and/or material costs caused by undetected errors or defects in
such systems or by our failure to adequately prepare for the results of such
errors or defects, including costs of related litigation, if any. The impact of
such consequences could have a material and adverse effect on our business,
financial condition and results of operations. Our costs of year 2000
compliance, to date, are approximately $10,000 and we do not anticipate material
year 2000 compliance costs in the future.
295277.4
36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On August 10, 2000, Bristol Asset Management, LLC ("Bristol") filed
a complaint in Superior Court of the State of California (Case No. SC 062765)
against JAWS and its Chairman alleging, among other things, breach of contract,
fraud in the inducement, breach of fiduciary duty and unfair competition and
requesting, among other things, specific performance, statutory penalties and
injunctive relief and damages in excess of $10 million (the "Complaint"). The
Complaint relates to a warrant (the "Warrant") issued by JAWS to Bristol to
purchase 1,000,000 shares of JAWS' common stock, and Bristol's rights relating
to the exercise of the Warrant and the registration of shares underlying the
Warrant. JAWS is currently reviewing the Complaint and intends to defend it
vigorously.
Item 2. Changes in Securities.
On April 20, 2000, JAWS closed the purchase of all the issued and
outstanding common stock of Nucleus Consulting, Inc., a private, Illinois
corporation (subsequently renamed JAWS Inc.) from Charles A. Ehredt, the sole
stockholder of Nucleus Consulting, Inc. The stock purchase agreement provided
for JAWS to receive all of the issued and outstanding shares of Nucleus
Consulting, Inc. in exchange, in part, for a cash payment of $1,000,000 and
142,857 shares of JAWS' common stock. The stock purchase agreement further
provided for the issuance of up to 142,857 additional shares of JAWS' common
stock on each of the first and second anniversary dates of the closing, subject
to Mr. Ehredt's the achievement of certain revenue and earnings milestones by
JAWS Inc. over the respective post-closing periods.
On May 3, 2000 JAWS purchased the intellectual assets and operations
of Doctorvillage.com Inc. in exchange for $100,000 cash, payable in installments
and 20,000 common shares of the Company at an ascribed value of $5.00 per share.
At June 30, 2000 outstanding installments amounted to $50,000 and the common
shares were not yet issued. Accordingly, these amounts have been recorded in
accounts payable.
On June 22, 2000, JAWS completed a private placement transaction with
two institutional investors. The securities purchase agreement provided for the
purchase of 800,000 shares of JAWS common stock and five-year warrants to
purchase 240,000 shares of our common stock at an exercise price of $5.00 per
share, for an aggregate price of $4,000,000. The securities purchase agreement
also provided that, promptly upon the effectiveness of a registration statement
covering these shares of common stock, the investors were obligated to purchase
an additional 400,000 shares of common stock in exchange for a purchase price of
$2,000,000. This second private placement was consummated on July 17, 2000. The
investors also received warrants to purchase 120,000 shares of JAWS common stock
at an exercise price of $5.00 per share.
In connection with this transaction, the investors also received
five-year adjustable warrants to purchase shares of JAWS common stock at an
exercise price of $.001 per share. The exact number of shares is to be
determined using a formula that is applied at three separate 40 day adjustment
periods commencing between the 150th and 240th day following June 22, 2000.
In addition to the foregoing, JAWS has granted the investors certain
demand and "piggyback" registration and related rights in respect of the shares
of common stock purchased and those shares underlying the warrants and
adjustable warrants.
In each case set forth in this Pat II, Item 2 (except in the case of
Doctorvillage.com Inc.), the securities were issued pursuant to exemption from
the registration requirements of the Securities Act of 1933, as amended, under
Section 4(2).
295277.4
37
Reincorporation in Delaware
On July 7, 2000, JAWS reincorporated in the State of Delaware, which
was effected promptly upon JAWS obtaining the requisite stockholder approval and
approval by JAWS' board of directors. This was accomplished by merging JAWS
Technologies, Inc., a Nevada corporation, with and into JAWS Technologies, Inc.,
a Delaware corporation and formerly a wholly-owned subsidiary of JAWS
Technologies, Inc., a Nevada corporation. Upon consummation of the
reincorporation of the Company in the State of Delaware, JAWS Technologies,
Inc., a Nevada corporation, ceased to exist and JAWS Technologies, Inc., a
Delaware corporation, continues to operate the business of the Company under its
current name JAWS Technologies, Inc.
For a description of the differences between Nevada law and Delaware
law, see the Company's proxy statement on Schedule 14A, filed with the
Securities and Exchange Commission on April 28, 2000.
Amalgamation of Certain Subsidiaries
As of July 1, 2000, JAWS Technologies Inc., an Alberta corporation,
Pace Systems Group Inc., Offsite Data Services Ltd., and JAWS Technologies
(Ontario), Inc., were amalgamated into a newly-formed corporation; Jaws
Technologies Inc., an Alberta corporation. The newly-formed Jaws Technologies
Inc., an Alberta corporation, is extra provincially registered to carry on
business in the province of Ontario.
295277.4
38
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1(1) Articles of Incorporation of "e-biz" solutions, inc.(now
JAWS Technologies, Inc., a Nevada corporation), dated
January 27, 1997.
3.2(2) Certificate of Amendment of Articles of Incorporation of
JAWS Technologies, Inc., a Nevada corporation, dated
March 30, 1998, changing the name of E-Biz to JAWS
Technologies, Inc.
3.3(3) Certificate of Amendment of Articles of Incorporation of
JAWS Technologies, Inc., a Nevada corporation,
increasing the total number of common stock which JAWS
is allowed to issue from 20,000,000 to 95,000,000.
3.4(4) Bylaws of "e-biz" solutions, inc. (now JAWS
Technologies, Inc., a Nevada corporation), dated January
27, 1997.
3.5(5) Certificate of Incorporation of JAWS Technologies, Inc.,
a Delaware corporation, dated April 28, 2000.
4.1(6) Investment Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Bristol Asset Management
LLC dated August 27, 1998 and letter of termination.
4.2(7) Debenture Acquisition Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated September 25, 1998.
4.3(8) Amendment No. 1 to Debenture Purchase Agreement by and
between JAWS and Thomson Kernaghan, dated April 27,
1999.
- ------------------------------
(1) Incorporated by reference to Exhibit 3.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(2) Incorporated by reference to Exhibit 3.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(3) Incorporated by reference to Exhibit 3.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(4) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(5) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1/A (File
No. 333-38088), filed with the SEC on July 13, 2000.
(6) Incorporated by reference to Exhibit 4.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(7) Incorporated by reference to Exhibit 4.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(8) Incorporated by reference to Exhibit 4.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
295277.4
39
4.4(9) Warrant to purchase 1,000,000 shares of common stock of
JAWS Technologies, Inc., a Nevada corporation, issued to
Bristol Asset Management LLC, dated April 20, 1999.
4.5(10) Form of Warrant to purchase 834,000 shares of common
stock of JAWS Technologies, Inc., a Nevada corporation,
issued to Glentel Inc., dated June 21, 1999.
4.6(11) Schedule of Warrant holders which received the Form of
Warrant set forth in 4.5 above.
4.7(12) Form of Warrant issued by JAWS in connection with the
Private Placement Transaction.
4.8(13) Schedule of Warrant holders which received the Form of
Warrant set forth in 4.9 above.
4.9(14) Warrant to purchase 217,642 shares of common stock of
JAWS Technologies, Inc., a Nevada corporation, issued to
Thomson Kernaghan & Co. Limited, dated December 31,
1999.
4.10(15) Certificate of the Designation, Voting Power, Preference
and Relative, Participating, optional and other Special
Rights and Qualifications, Limitations or Restrictions
of the Special Series & Preferred Voting Stock of JAWS
Technologies, Inc., dated November 30, 1999.
4.11(16) Incentive and Non-Qualified Stock Option Plan of JAWS
Technologies, Inc., a Nevada corporation.
4.12(17) Placement Agency Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated December 31, 1999.
- ------------------------------
(9) Incorporated by reference to Exhibit 4.4 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(10) Incorporated by reference to Exhibit 4.5 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(11) Incorporated by reference to Exhibit 4.6 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(12) Incorporated by reference to Exhibit 4.7 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(13) Incorporated by reference to Exhibit 4.8 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(14) Incorporated by reference to Exhibit 4.9 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(15) Incorporated by reference to Exhibit 4.10 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(16) Incorporated by reference to Exhibit 4.11 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(17) Incorporated by reference to Exhibit 10.13 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
295277.4
40
4.13(18) Placement Agency Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated February 15, 2000.
4.14(19) Placement Agency Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and SmallCaps
Online LLC, dated February 15, 2000.
4.15(20) Form of Subscription Agreement to purchase 235,295 Units
of JAWS Technologies, Inc., a Nevada corporation, by and
between JAWS Technologies, Inc., a Nevada corporation,
and BPI Canadian Small Companies Fund, dated December
20, 1999.
4.16(21) Schedule of Subscribers that purchased subscriptions
pursuant to the Form of Subscription Agreement set forth
above in 10.14.
10.1(22) Director's Agreement between JAWS Technologies, Inc., a
Nevada corporation, and Arthur Wong dated July 1998.
10.2(23) Director's Agreement between JAWS Technologies, Inc., a
Nevada corporation, and Julia Johnson, dated July 30,
1998.
10.3(24) Letter Agreement between JAWS Technologies, Inc., a
Nevada corporation, and Arrow Communications (ApexMail),
dated August 10, 1999.
10.4(25) Addendum to the Letter Agreement between JAWS
Technologies, Inc., a Nevada corporation, and
ApexMail.net, dated September 20, 1999.
10.5(26) Assignment from James L. A. Morrison to JAWS
Technologies Inc., a Nevada corporation, dated October
9, 1998.
10.6(27) Notification of Assignment from United States Department
of Commerce, Patent and Trademark Office, dated March
15, 1999.
- ------------------------------
(18) Incorporated by reference to Exhibit 4.13 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(19) Incorporated by reference to Exhibit 4.14 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(20) Incorporated by reference to Exhibit 10.14 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(21) Incorporated by reference to Exhibit 4.16 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(22) Incorporated by reference to Exhibit 10.1 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(23) Incorporated by reference to Exhibit 10.2 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(24) Incorporated by reference to Exhibit 10.3 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(25) Incorporated by reference to Exhibit 10.4 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(26) Incorporated by reference to Exhibit 10.5 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
295277.4
41
10.7(28) Indemnity Agreements by and between JAWS Technologies,
Inc., a Nevada corporation, and Ms. Julia L. Johnson.
10.8(29) Indemnity Agreements by and between JAWS Technologies,
Inc., a Nevada corporation, and Mr. Arthur Wong.
10.9(30) Form of Stock Purchase Agreement to purchase 1,000,000
shares of common stock and warrants to purchase 834,000
shares of common stock by and between JAWS Technologies,
Inc., a Nevada corporation, and Glentel Inc., dated June
21, 1999.
10.10(31) Schedule of purchasers which purchased shares of common
stock pursuant to the Form of Stock Purchase Agreement
set forth in 10.09.
10.11(32) Form of Investor Rights Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Glentel
Inc., dated June 21, 1999.
10.12(33) Schedule of investors that received rights pursuant to
the Form of Investors Rights Agreement set forth above
in 10.11.
10.13(34) Debenture Amendment and Settlement Agreement, dated
November 17, 1999 and effective as of November 1, 1999,
by and between JAWS Technologies, Inc., a Nevada
corporation, and Thomson Kernaghan & Co. Limited.
10.14(35) Form of Employment Agreement.
10.15(36) Schedule of officers of JAWS Technologies, Inc., a
Nevada corporation, who executed employment agreements
the form of which is set forth in Exhibit 10.20.
- ------------------------------
(27) Incorporated by reference to Exhibit 10.6 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(28) Incorporated by reference to Exhibit 10.7 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(29) Incorporated by reference to Exhibit 10.8 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(30) Incorporated by reference to Exhibit 10.9 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(31) Incorporated by reference to Exhibit 10.10 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(32) Incorporated by reference to Exhibit 10.11 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(33) Incorporated by reference to Exhibit 10.12 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(34) Incorporated by reference to Exhibit 10.16 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(35) Incorporated by reference to Exhibit 10.17 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(36) Incorporated by reference to Exhibit 10.18 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
295277.4
42
10.16(37) Stock Purchase Agreement, dated as of April 20, 2000 by
and between JAWS Technologies, Inc., a Nevada
corporation, Nucleus Consulting, Inc., an Illinois
corporation and Charles A. Ehredt.
10.17(38) First Amendment to Stock Purchase Agreement, dated as of
May 19, 2000 by and between JAWS Technologies, Inc.,
Nucleus Consulting, Inc. and Charles A. Ehredt.
10.18(39) Agreement and Plan of Merger of JAWS Technologies, Inc.,
a Nevada corporation, with and into JAWS Technologies,
Inc., a Delaware corporation, entered into as of April
28, 2000.
10.19(40) Securities Purchase Agreement, dated as of June 22,
2000, among JAWS Technologies, Inc. and investors
signatory thereto.
10.20(41) Registration Rights Agreement, made and entered into as
of June 22, 2000, among JAWS Technologies, Inc. and the
investors signatory thereto.
- ------------------------------
(37) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on May 5, 2000.
(38) Incorporated by reference to Exhibit 10.17 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(39) Incorporated by reference to Exhibit 10.18 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(40) Incorporated by reference to Exhibit 10.19 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(41) Incorporated by reference to Exhibit 10.20 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
295277.4
43
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
A current report on Form 8-K was filed by the Company on April 13, 2000,
reporting the acquisition of all the issued and outstanding capital stock
of Nucleus Consulting, Inc.
295277.4
44
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JAWS TECHNOLOGIES, INC.
Date: August 14, 2000
By: /s/ Robert J. Kubbernus
-------------------------------
Name: Robert J. Kubbernus
Title: Chairman of the Board,
President and Chief Executive
Officer
(Principal Executive Officer):
Date: August 14, 2000
By: /s/ Riaz Mamdani
-------------------------------
Name: Riaz Mamdani
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
295277.4
S-1
EXHIBIT INDEX
-------------
Exhibit Description
3.1(1) Articles of Incorporation of "e-biz" solutions, inc.
(now JAWS Technologies, Inc., a Nevada corporation),
dated January 27, 1997.
3.2(2) Certificate of Amendment of Articles of Incorporation of
JAWS Technologies, Inc., a Nevada corporation, dated
March 30, 1998, changing the name of E-Biz to JAWS
Technologies, Inc.
3.3(3) Certificate of Amendment of Articles of Incorporation of
JAWS Technologies, Inc., a Nevada corporation,
increasing the total number of common stock which JAWS
is allowed to issue from 20,000,000 to 95,000,000.
3.4(4) Bylaws of "e-biz" solutions, inc. (now JAWS
Technologies, Inc., a Nevada corporation), dated January
27, 1997.
3.5(5) Certificate of Incorporation of JAWS Technologies, Inc.
a Delaware corporation, dated April 28, 2000.
4.1(6) Investment Agreement by and between JAWS Technologies,
Inc., a Nevada corporation, and Bristol Asset Management
LLC dated August 27, 1998 and letter of termination.
4.2(7) Debenture Acquisition Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated September 25, 1998.
4.3(8) Amendment No. 1 to Debenture Purchase Agreement by and
between JAWS and Thomson Kernaghan, dated April 27,
1999.
- ------------------------------
(1) Incorporated by reference to Exhibit 3.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(2) Incorporated by reference to Exhibit 3.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(3) Incorporated by reference to Exhibit 3.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(4) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(5) Incorporated by reference to Exhibit 3.4 of the Company's Form S-1/A (File
No. 333-38088), filed with the SEC on July 13, 2000.
(6) Incorporated by reference to Exhibit 4.1 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(7) Incorporated by reference to Exhibit 4.2 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(8) Incorporated by reference to Exhibit 4.3 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
295277.4
Exh Indx-1
4.4(9) Warrant to purchase 1,000,000 shares of common stock of
JAWS Technologies, Inc., a Nevada corporation, issued to
Bristol Asset Management LLC, dated April 20, 1999.
4.5(10) Form of Warrant to purchase 834,000 shares of common
stock of JAWS Technologies, Inc., a Nevada corporation,
issued to Glentel Inc., dated June 21, 1999.
4.6(11) Schedule of Warrant holders which received the Form of
Warrant set forth in 4.5 above.
4.7(12) Form of Warrant issued by JAWS in connection with the
Private Placement Transaction.
4.8(13) Schedule of Warrant holders which received the Form of
Warrant set forth in 4.9 above.
4.9(14) Warrant to purchase 217,642 shares of common stock of
JAWS Technologies, Inc., a Nevada corporation, issued to
Thomson Kernaghan & Co. Limited, dated December 31,
1999.
4.10(15) Certificate of the Designation, Voting Power, Preference
and Relative, Participating, optional and other Special
Rights and Qualifications, Limitations or Restrictions
of the Special Series & Preferred Voting Stock of JAWS
Technologies, Inc., dated November 30, 1999.
4.11(16) Incentive and Non-Qualified Stock Option Plan of JAWS
Technologies, Inc., a Nevada corporation.
4.12(17) Placement Agency Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated December 31, 1999.
- ------------------------------
(9) Incorporated by reference to Exhibit 4.4 of the Company's Form S-1 (File No.
333-30406), filed with the SEC on February 14, 2000.
(10) Incorporated by reference to Exhibit 4.5 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(11) Incorporated by reference to Exhibit 4.6 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(12) Incorporated by reference to Exhibit 4.7 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(13) Incorporated by reference to Exhibit 4.8 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(14) Incorporated by reference to Exhibit 4.9 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(15) Incorporated by reference to Exhibit 4.10 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(16) Incorporated by reference to Exhibit 4.11 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(17) Incorporated by reference to Exhibit 10.13 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
295277.4
Exh Indx-2
4.13(18) Placement Agency Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited, dated February 15, 2000.
4.14(19) Placement Agency Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and SmallCaps
Online LLC, dated February 15, 2000.
4.15(20) Form of Subscription Agreement to purchase 235,295 Units
of JAWS Technologies, Inc., a Nevada corporation, by and
between JAWS Technologies, Inc., a Nevada corporation,
and BPI Canadian Small Companies Fund, dated December
20, 1999.
4.16(21) Schedule of Subscribers that purchased subscriptions
pursuant to the Form of Subscription Agreement set forth
above in 10.14.
10.1(22) Director's Agreement between JAWS Technologies, Inc., a
Nevada corporation, and Arthur Wong dated July 1998.
10.2(23) Director's Agreement between JAWS Technologies, Inc., a
Nevada corporation, and Julia Johnson, dated July 30,
1998.
10.3(24) Letter Agreement between JAWS Technologies, Inc., a
Nevada corporation, and Arrow Communications (ApexMail),
dated August 10, 1999.
10.4(25) Addendum to the Letter Agreement between JAWS
Technologies, Inc., a Nevada corporation, and
ApexMail.net, dated September 20, 1999.
10.5(26) Assignment from James L. A. Morrison to JAWS
Technologies Inc., a Nevada corporation, dated October
9, 1998.
10.6(27) Notification of Assignment from United States Department
of Commerce, Patent and Trademark Office, dated March
15, 1999.
- ------------------------------
(18) Incorporated by reference to Exhibit 4.13 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(19) Incorporated by reference to Exhibit 4.14 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(20) Incorporated by reference to Exhibit 10.14 of the Company's Form S-1 (File
No.333-30406), filed with the SEC on February 14, 2000.
(21) Incorporated by reference to Exhibit 4.16 of the Company's Form 10-K405,
filed with the SEC on March 24, 2000.
(22) Incorporated by reference to Exhibit 10.1 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(23) Incorporated by reference to Exhibit 10.2 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(24) Incorporated by reference to Exhibit 10.3 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(25) Incorporated by reference to Exhibit 10.4 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(26) Incorporated by reference to Exhibit 10.5 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
295277.4
Exh Indx-3
10.7(28) Indemnity Agreements by and between JAWS Technologies,
Inc., a Nevada corporation, and Ms. Julia L. Johnson.
10.8(29) Indemnity Agreements by and between JAWS Technologies,
Inc., a Nevada corporation, and Mr. Arthur Wong.
10.9(30) Form of Stock Purchase Agreement to purchase 1,000,000
shares of common stock and warrants to purchase 834,000
shares of common stock by and between JAWS Technologies,
Inc., a Nevada corporation, and Glentel Inc., dated June
21, 1999.
10.10(31) Schedule of purchasers which purchased shares of common
stock pursuant to the Form of Stock Purchase Agreement
set forth in 10.09.
10.11(32) Form of Investor Rights Agreement by and between JAWS
Technologies, Inc., a Nevada corporation, and Glentel
Inc., dated June 21, 1999.
10.12(33) Schedule of investors that received rights pursuant to
the Form of Investors Rights Agreement set forth above
in 10.11.
10.13(34) Debenture Amendment and Settlement Agreement, dated
November 17, 1999 and effective as of November 1, 1999,
by and between JAWS Technologies, Inc., a Nevada
corporation, and Thomson Kernaghan & Co. Limited.
10.14(35) Form of Employment Agreement.
10.15(36) Schedule of officers of JAWS Technologies, Inc., a
Nevada corporation, who executed employment agreements
the form of which is set forth in Exhibit 10.20.
- ------------------------------
(27) Incorporated by reference to Exhibit 10.6 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(28) Incorporated by reference to Exhibit 10.7 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(29) Incorporated by reference to Exhibit 10.8 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(30) Incorporated by reference to Exhibit 10.9 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(31) Incorporated by reference to Exhibit 10.10 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(32) Incorporated by reference to Exhibit 10.11 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(33) Incorporated by reference to Exhibit 10.12 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(34) Incorporated by reference to Exhibit 10.16 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(35) Incorporated by reference to Exhibit 10.17 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
(36) Incorporated by reference to Exhibit 10.18 of the Company's Form S-1 (File
No. 333-30406), filed with the SEC on February 14, 2000.
295277.4
Exh Indx-4
10.16(37) Stock Purchase Agreement, dated as of April 20, 2000 by
and between JAWS Technologies, Inc., a Nevada
corporation, Nucleus Consulting, Inc., an Illinois
corporation and Charles A. Ehredt.
10.17(38) First Amendment to Stock Purchase Agreement, dated as of
May 19, 2000 by and between JAWS Technologies, Inc.,
Nucleus Consulting, Inc. and Charles A. Ehredt.
10.18(39) Agreement and Plan of Merger of JAWS Technologies, Inc.,
a Nevada corporation, with and into JAWS Technologies,
Inc., a Delaware corporation, entered into as of April
28, 2000.
10.19(40) Securities Purchase Agreement, dated as of June 22,
2000, among JAWS Technologies, Inc. and investors
signatory thereto.
10.20(41) Registration Rights Agreement, made and entered into as
of June 22, 2000, among JAWS Technologies, Inc. and the
investors signatory thereto.
27.1 Financial Data Schedule.
- ------------------------------
(37) Incorporated by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed with the SEC on May 5, 2000.
(38) Incorporated by reference to Exhibit 10.17 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(39) Incorporated by reference to Exhibit 10.18 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(40) Incorporated by reference to Exhibit 10.19 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
(41) Incorporated by reference to Exhibit 10.20 of the Company's Form S-1/A
(File No. 333-38088), filed with the SEC on July 13, 2000.
295277.4
Exh Indx-5