-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CiDaF7Tvtd66i1JXFcawDZm890rD8GW9WEzffhkPi2SAjeOQLbhC5QKnB1AsR58e WRUfFUufOev2tEvaAKQmiA== 0000912057-02-015746.txt : 20020419 0000912057-02-015746.hdr.sgml : 20020419 ACCESSION NUMBER: 0000912057-02-015746 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HTTP TECHNOLOGY INC CENTRAL INDEX KEY: 0001001601 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 133758042 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26888 FILM NUMBER: 02615429 BUSINESS ADDRESS: STREET 1: 46 BERKELEY SQUARE CITY: LONDON UNITED KINGDO ZIP: W1Y 7FF BUSINESS PHONE: 2124064700 MAIL ADDRESS: STREET 1: C/O LAW OFFICE OF BECKMAN MILLMAN & SAND STREET 2: 116 JOHN STREET CITY: NEW YORKMELVILLE STATE: NY ZIP: 10038 FORMER COMPANY: FORMER CONFORMED NAME: INTERNET HOLDINGS INC DATE OF NAME CHANGE: 19980520 FORMER COMPANY: FORMER CONFORMED NAME: CHINA BIOMEDICAL GROUP INC DATE OF NAME CHANGE: 19951003 10KSB 1 a2077272z10ksb.txt 10KSB - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-KSB (MARK ONE) /X/ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2001 OR / / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM TO
HTTP TECHNOLOGY, INC. (Name of Small Business Issuer in its Charter) DELAWARE 0-26886 13-4148725 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation or Organization) File Number) Identification No.) 46 BERKELEY SQUARE, LONDON, UNITED KINGDOM W1J 5AT (Address of Principal Executive Offices) (Zip Code) 011 44 207 598 4070 (Registrant's Telephone Number, Including Area Code)
Securities registered under section 12(b) of the Exchange Act: NOT APPLICABLE Securities registered under section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $0.001 PER SHARE Check whether the issuer: (1)filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporate by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / / State issuer's revenues for its most recent fiscal year: $225,086. State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY OF HTTP TECHNOLOGY, INC. HELD BY NON-AFFILIATES WAS $34,576,376, BASED ON THE AVERAGE BID AND ASKED PRICES OF SUCH COMMON EQUITY AS OF MARCH 26, 2002. ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes /X/ No / / APPLICABLE ONLY TO CORPORATE REGISTRANTS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. AS OF MARCH 26, 2002, THE NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF HTTP TECHNOLOGY, INC. ISSUED AND OUTSTANDING WAS 57,868,582. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (E.G., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (E.G., annual report to security holders for fiscal year ended December 24, 1990). NONE. Transitional Small Business Disclosure Format: (check one): Yes / / No /X/ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE REGARDING FORWARD LOOKING STATEMENTS Some of the statements in this Annual Report are forward-looking statements within the meaning of the federal securities laws. Generally forward-looking statements can be identified by the use of terms like "believe," "may," "will," "expect," "anticipate," "plan," "hope" and similar words, although this is not a complete list and we may express some forward-looking statements differently. Discussions relating to our plan of operation, our business strategy and our competition, among others, contain such statements. Actual results may differ materially from those contained in our forward-looking statements for a variety of reasons. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Company, discussed elsewhere in this Report. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events contained or incorporated by reference in this Prospectus might not occur. Throughout this report, when we refer to "HTTP" or "the Company", or when we speak of ourselves generally, we are referring collectively to HTTP Technology, Inc. and its subsidiaries unless the context indicates otherwise or as otherwise noted. NOTE REGARDING NUMBER OF SHARES AND SHARE PRICES On February 5, 2001, the Company effected a 2-for-1 forward split of its Common Stock (the "Split"). Throughout this Annual Report, all references to a number of shares of the Company's Common Stock or the price of the Company's Common Stock. PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Our business objective is to conceive, develop and commercialize innovative applications derived from our core technology through our wholly owned subsidiaries HTTP Software PLC ("Software"), HTTP Insights Ltd. ("Insights"), and a majority-owned subsidiary, Medicsight PLC ("Medicsight"). Software generates revenue from our systems integration business and is not currently active in developing new products or pursuing new customers. Insights owns our core technology, the Stochastic Perception Engine, part of which (data classification) is being used by Medicsight to commercialize a new technology in the medical field. In April 2000, we acquired Radical Technology PLC (now known as Software) which provided us with a business dedicated to systems integration and software development. In December 2000, we acquired Nightingale Technologies Ltd. (now known as Insights), the principal technology of which is a Stochastic Perception Engine. A Stochastic Perception Engine processes and classifies unstructured data into meaningful outputs, enabling it to be viewed, interpreted or further manipulated by the user of the application. Similar technologies sit at the core of many of today's major software applications. Our Stochastic Perception Engine is comprised of four principal modules: cluster analysis, statistical modeling, classification and prediction. This technology has the ability to offer unprecedented processing speed, accuracy and comprehensiveness of results when compared to existing data classification technologies. Our Stochastic Perception Engine has significant potential uses in a wide variety of fields, including medical image analysis, the design of pharmaceuticals, environmental mapping, handwriting recognition, robotics and surveillance. In addition, we develop other proprietary algorithms which are used for analyzing visual data. 2 We have recently restructured our business to focus more closely on the medical imaging applications derived from our original core technology. We have concluded the process of incorporating all research, software development, management and marketing activities related to our medical imaging initiatives into our subsidiary, Medicsight. Assets have been transferred and costs incurred on the development of the Medicsight system have been reimbursed and assigned by way of a loan note from Medicsight. The amount of the loan note to HTTP Technology, Inc. was L3,659,104, and this loan note has been converted into 58,868,582 ordinary shares of Medicsight issued to the Company and 15,000,000 ordinary shares of Medicsight issued to Nightingale. We were originally incorporated as a Utah corporation in 1977. On December 19, 2000, we entered into an Agreement and Plan of Merger with our wholly-owned subsidiary HTTP Technology, Inc., a Delaware corporation, and thereby effected a reincorporation from Utah to Delaware. All references in this Prospectus to "HTTP", "the Company", "we" or "us" refer to HTTP Technology, Inc., the Delaware corporation, if the event occurred on or after December 19, 2000 or to HTTP Technology, Inc., the Utah corporation, if the event occurred prior to December 19, 2000. We are authorized to issue 100,000,000 shares of Common Stock. On December 27, 2000, our Board of Directors approved a 2-for-1 forward split (the "Split") of our Common Stock, effective February 5, 2001, payable to holders of record on January 22, 2001. As of March 26, 2002, 57,868,582 shares of Common Stock were issued and outstanding. We maintain our corporate offices at 46 Berkeley Square, London, W1J 5AT, United Kingdom, telephone +44 (0) 207-598-4070, facsimile: +44 (0) 207-598-4071. RECENT ACQUISITIONS FAIRFAX EQUITY LTD. On October 27, 1999, we entered into a conditional Acquisition Agreement and Plan of Reorganization (the "Reorganization Agreement") with Fairfax Equity Ltd. ("Fairfax"), a holding company, and the stockholders of Fairfax whereby we would acquire all of the issued capital stock of Fairfax. The acquisition was contingent upon the completion of all of our previously unfiled audited financial statements, the filing of all outstanding reports required by the Exchange Act, and the settlement of all outstanding legal proceedings. On December 22, 1999, all the conditions precedent to the Reorganization Agreement were met and, accordingly, we proceeded to implement the transactions contemplated by the Reorganization Agreement. Pursuant to this implementation, we issued a total of 17,280,000 shares of Common Stock to the shareholders of Fairfax in order to acquire 100% of the issued capital stock of Fairfax. These shares accounted for 80.3% of our issued share capital. The shareholders of Fairfax as a group thus acquired a majority of the shares issued and STG Holdings Plc ("STG"), the major shareholder of Fairfax, controlled 60.2% of the Company. STG is a company incorporated in England and Wales. Simultaneously with the closing of the Reorganization Agreement, Stefan Allesch-Taylor, our present Chairman and Chief Executive Officer, Nicholas Thistleton, and Sir Euan Calthorpe, Bt., were appointed to the Board of Directors of the Company. Mr. Allesch-Taylor, Sir Euan Calthorpe and Mark Warde-Norbury, directors of the Company at the time of such acquisition, were also, at that time, directors and shareholders of STG. SOFTWARE. On April 21, 2000, we acquired, through a stock-for-stock tender offer, approximately 76.73% of the issued and outstanding ordinary shares of Software. We offered 100 shares of Common Stock of the Company (the "Exchange Stock") for every 143 shares of capital stock of Software. Through additional issuances of stock subsequent to April 21, 2000, we have acquired an aggregate of 99.5% of the outstanding shares of Software in exchange for 2,549,642 shares of our Common Stock. Accordingly, we have the right under applicable law to compulsorily acquire the balance and to treat Software as a wholly-owned subsidiary. Assuming full acceptance, a total of 2,563,428 shares of our Common Stock will be issued, constituting approximately 4.4% of our outstanding shares. Software was a computer software developer, business systems integrator and package software supplier. Component parts of Software have been transferred with Insights into Medicsight, except for a limited number of core staff. The current maintenance contracts with Software will be honored. 3 Current contracts between Software and existing customers may be extended but Software is not actively seeking new customers. CORE VENTURES, LTD. In September 2000, we acquired Core Ventures Limited ("Core"), a privately held Internet venture company, from Troy Limited, a Cayman corporation. Under the agreement, we issued 3,600,000 shares of our Common Stock for 100% of the outstanding stock of Core. Core's principal asset was an interest of less than 1% in Red Cube AG ("Red Cube"), a voice-over-IP telecommunications provider, and warrants to purchase further shares (less than 3%) in Red Cube. The agreement provided in part that Dr. Alexander Nill, a principal of Troy, guaranteed to us that, as of December 15, 2000, Core would have had assets of not less than $25,000,000. At the time of this transaction, Dr. Nill was one of our directors. He resigned from that position, effective February 27, 2001. On December 27, 2000, Dr. Nill signed a Memorandum of Understanding stipulating that the net assets of Core were estimated to be approximately $2,500,000 and that the warrants to purchase further Red Cube stock held by Core had no value. Dr. Nill acknowledged that he had been served by us with a formal demand to honor his obligations to us pursuant to the terms of the personal guarantee provided by him as security for the Core acquisition. As part of this obligation, we have received 3,140,000 shares (the "Escrow Shares") of our Common Stock from Dr. Nill, all of which have been duly endorsed and placed into an escrow account. In addition, approximately 930,000 shares of our Common Stock still held by Dr. Nill have been subjected to a "stop-transfer" order on our stock records. In the fiscal quarter ended September 30, 2001, an agent, NYPPe, LLC, was assigned by the escrow agent to dispose of the Escrow Shares in a secondary private placement. As of December 31, 2001, 15,000 of the Escrow Shares had been sold, resulting in net proceeds to the Company of approximately $75,000. On March 6, 2002, Core entered into voluntary liquidation proceedings. In accordance with the Companies Act governing companies organized in the British Virgin Islands, Core has appointed a liquidator to assess the fair value of its assets. The liquidator may have to initiate legal proceedings in the State of New York to enforce Dr. Nill's guarantee and to seek compensation for the shortfall in value on the guarantee, approximately $9,109,000, which has not yet been provided to us by Dr. Nill. The value of the guarantee after deducting net assets acquired was approximately $19,109,000. We currently have in our possession, as discussed elsewhere, over 4 million shares which we have valued at approximately $10,000,000 leaving the shortfall above of $9,109,000. INSIGHTS. On December 29, 2000, we acquired all of the issued and outstanding shares of Insights, in a stock-for-stock transaction then valued at approximately $180 million. We received the shares of Insights on that date but, pursuant to the terms of our offer, were not required to pay any consideration for the Insights shares until certain conditions were met. The first of these conditions, that we receive a validation by the Defence Evaluation and Research Agency ("DERA"), an agency of the United Kingdom Ministry of Defence, as to the technical and commercial viability of Insights' proprietary technology, was satisfied on February 22, 2001. As such, we issued the first tranche of contingent consideration of 15,000,000 shares of our Common Stock on that date, valued at approximately $93,000,000 based on a weighted average share price of $6.20 per share. Subsequent to September 30, 2001, upon agreement with Nightingale, the seller of Insights, and in variance of the conditions precedent set forth in the original agreement, the parties agreed on November 22, 2001 that the obligation to issue the second tranche of contingent consideration may be satisfied by the direct issuance of shares in Medicsight to Nightingale. On November 22, 2001, Medicsight issued 15,000,000 shares in Medicsight to Nightingale, and Nightingale accepted such shares in satisfaction of our obligation under the original purchase agreement. The second tranche was valued at $21,832,000 based on the share price of stock being allotted by Medicsight. Total consideration for the purchase of Insights was approximately $115 million. As of the date hereof, there is no public market for the Medicsight shares. 4 BUSINESS STRATEGY We are a developer of software technology. We have three principal operating subsidiaries, Software, Insights, and Medicsight. SOFTWARE. Over the last four years, Software has generated revenue from its systems integration business together with maintenance of its in-house developed systems integration and network software products. In 2001, we decided to focus Software's resources towards working with Insights to assist in development of the core technology of the Stochastic Perception Engine. The majority of the Software staff are now employed full-time by Medicsight. The current maintenance contracts with Software will be honored. Current contracts between Software and existing customers may be extended but Software is not actively seeking new customers. INSIGHTS. The research and development team at Insights conceived and continues to develop our core proprietary technologies. Our principal technology is a Stochastic Perception Engine that processes and classifies unstructured data into meaningful outputs, enabling it to be viewed, interpreted or further manipulated by the user of the application. This type of technology sits at the core of many of today's major software applications. Our Stochastic Perception Engine is comprised of four principal capabilities: cluster analysis, statistical modeling, classification and prediction. The Insights team is based in our head office in central London, where they work closely with our management in scoping, defining, planning and developing specific solutions for applications identified through our strategic market research team. All of the Insights team is currently focused on the Medicsight system and is now employed directly by Medicsight (as described below). Insights currently owns the Stochastic Perception Engine and the patent applications associated with the technology. Commercialization of the Stochastic Perception Engine is anticipated to occur through joint ventures and in-house development according to the optimum market entry strategy. The technology is designed to be deployed in the form of software modules or utility libraries, or embedded within microchips. In addition to the Medicsight system (described below), we are also working on developing other applications for our core technology. One area being explored is a computer vision system for the examination of baggage and packages being carried by airplanes. MEDICSIGHT. Our majority-owned subsidiary, Medicsight, is currently engaged in efforts to commercialize a state-of-the-art digital disease detection software system called the Medicsight system through the use of our core technology. At December 31, 2001, we owned 58,868,582 ordinary shares in Medicsight, constituting approximately 79.7% of the outstanding shares. Nightingale owns 15,000,000 ordinary shares of Medicsight, constituting approximately 20.3% of the outstanding shares. Medicsight is currently undertaking a private offering of an additional 6,000,000 shares, and if such offering is fully subscribed and sold, we will own approximately 73.7% of Medicsight's outstanding shares. The Medicsight system analyzes digital data from medical scanners, such as MRIs and CAT scans, and then alerts the clinician to any areas of possible abnormality. We believe the Medicsight system will be capable of reliably detecting cancer cells, calcification of the arteries and other abnormalities indicative of disease at earlier stages in the disease than current medical tools are able to detect. The potential advantage of the Medicsight system is that it does not rely on the human eye or human interpretation to detect possible abnormalities, thereby resulting in significant cost savings. After the system uses its technology to identify possible abnormalities, the clinician will then apply his/her education, training and experience to determine the next steps in medical diagnosis and treatment. The Medicsight system is capable of processing unprecedented volumes of images. It is now widely accepted that the most effective way to achieve early detection of these leading deadly diseases is through large scale screening. Such screening would allow national healthcare bodies to provide society with the best protection against premature death. 5 Medicsight will offer an early diagnosis solution previously not thought possible because: - The proprietary technology enables Medicsight to automate accurately and reliably the process of scan analysis. - The service will be significantly cheaper than at present as it does not rely on radiologists as first readers who in current practice account for a significant proportion of the scan cost. - Significant patient volume can be achieved as the analysis is fully automated; screening volumes are not constrained by the finite number of radiologists. - The business model is unique as we intend to establish broad penetration through a series of cost-effective, efficient, screening services. Primary target markets include 16 countries across Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom). These primary targets were selected on the basis of their demographics and attractiveness for implementing screening systems. Other principal markets such as the United States and Japan will be targeted in conjunction with the European launch. The total population within the 16 selected European countries is almost 400 million (source: United Nations Statistics Division). The primary target population is based on individuals at risk of developing coronary heart disease, lung or colon cancer. These 140 million people are aged between 45 and 75, of whom it is estimated that a minimum of 60 million could be clearly defined as being at significantly higher risk. The base plan forecasts a volume of 1.8 million scans per annum in 2006. This represents 1.3% of the at risk population aged 45-75 and 3% of those at significantly higher risk. Currently the Medicsight system is undergoing systematic testing to ensure our objectives are met. This is expected to be completed in 2002 when we intend to open a series of operational pilot units, and the first Medicsight centers are expected to be on stream by mid-2003. The initial units will be used to gain regulatory approval and acquire market and clinical data. Operational and development costs for Fiscal 2002 are estimated at approximately $5.5 million. Medicsight is currently raising approximately $8.7 million by way of a private placing of 6 million shares. This is in addition to the credit facility of L10,000,000 ($14.5 million) that expires in November 2004. Medicsight expects to incur further operational and development costs in 2003 of approximately $6.5 million before Medicsight is financially self sufficient in 2004. Our expansion strategy across Europe calls for several business models. Besides the Company-operated Medicsight scanning centers, we will operate partnerships with industry leaders to achieve rapid market penetration across our target regions. Revenue streams will include: scan analysis fees, service charges, franchise license fees and franchise royalties based on revenues. The marketing strategy will initially target all healthcare providers and insurance companies that can direct large numbers of individuals in the higher risk categories to Medicsight centers. In addition to professional referrals it is anticipated that individuals will self-refer to the centers. As with dental plans, we expect corporations and healthcare institutions to begin supporting individuals' screening plans in the near future. Higher risk individuals applying for life insurance or renewing their policies could automatically be enrolled in screening programs and would visit a service center for scans as a matter of routine. This concept will be marketed simultaneously to hospitals and institutions to ensure widespread credibility and acceptance. Medicsight services will be publicized through a series of marketing campaigns. We have yet to derive any revenue from the Medicsight system. We cannot assure you that Medicsight will be successful in commercializing the Medicsight system, or if such system is commercialized, that its use will be profitable to Medicsight. We face many obstacles in 6 commercializing our core technology. Current constraints in medical image analysis which prevent large-scale population screening include: - Cost Constraints: - Prohibitive cost of skilled radiologists - Human Constraints: - Shortage of qualified radiologists available to analyze the large increase in the number of images - Limitations of image analysis conducted by the human eye (e.g. fatigue, limited attention span, poor eyesight) - Technical Challenges: - Difficulty in differentiating normal from diseased tissues (i.e. high number of "false positives") - Inability correctly to identify disease types - Industry Supply Constraints: - Lack of affordable preventive healthcare programs We are not aware of any direct competition with the Medicsight system. There are computer-aided diagnostic systems and other screening businesses which work in the field, but, in our view, such existing systems are overly dependent on human resources to carry out the analysis, as none have automated diagnosis capability, and are therefore unable to achieve large economies of scale. EMPLOYEES As of March 26, 2002, the HTTP group had 40 employees, all of whom are full-time employees. Our employees are not part of a union. We believe that we have an excellent relationship with our employees. PATENTS AND TRADEMARKS Protection of our proprietary technology, and our rights over that technology, from copy or unchallenged use is essential to our future success. Any challenges to or disputes concerning our core technology will result in great expense, delays in bringing products to market and disruption of our focus on our core activities. They may also result in loss of rights over our technology or the right to operate in particular markets due to adverse legal decisions against us. We have filed patents in the UK, USA and ASEAN covering the application of our core technology. However, we have not yet been granted any patents. We cannot provide assurance that patents protecting our core technology will be granted or that they will not be challenged, or that rights granted to us will actually provide us with advantage over our competitors. Failure to register appropriate patents, copyrights or trade marks in any jurisdiction may impede our ability to create brand awareness in our products, result in expenses involved in pursuing or defending related legal action, or result in lost revenues through delays incurred due to intellectual property disputes. For example, others may already have been granted rights over similar technology that would impede our ability to enter markets freely and may challenge our entrance to those markets. Where we are required to purchase licenses from those with prior rights in any country, we cannot assure you that we will be able to do so at a commercially acceptable cost. 7 RESEARCH AND DEVELOPMENT The technology underlying the Medicsight system has not yet been commercialized. Under United States generally accepted accounting principles, until the technology is determined to be feasible, all research and development expenditures must be expensed rather than capitalized. During the twelve months ended December 31, 2001, we expended approximately $1,266,000 for research and development expenses for the Medicsight system. For the twelve months ended December 31, 2000 we did not expend any funds for research and development. We cannot predict the amount of additional expenditures that will be necessary prior to achieving commercialization. Asia IT Capital Investments Limited ("Asia IT") has provided a L10,000,000 ($14,500,000) three-year credit facility for our subsidiary, Medicsight. Asia IT own 9.6% of the outstanding shares of Medicsight. MAJOR CUSTOMERS Major customers in Fiscal 2001 were as follows: Commonwealth Secretariat approximately $67,000 or 29.8% of sales Eidos Interactive approximately $58,000 or 25.8% of sales Texaco approximately $51,000 or 22.7% of sales As of December 31, 2001, receivables from these customers represented 0% of total accounts receivable. In Fiscal 2000 the sales from customers representing greater than 10% of revenues were from were Red Cube AG, which accounted for 26.7% of sales (of which $74,000 was allowed as doubtful) and Texaco, which accounted for 13.4% of sales. In addition, there were sales to the following prior to acquisition: Radical Technology PLC, which accounted for 19.3% of sales, and Nightingale Technologies Ltd, which accounted for 25.7% of sales. GOVERNMENTAL REGULATION Medicsight is a system that analyzes digital data from medical scanners, such as MRI's and CAT scans, and then alerts the clinician to any areas of possible abnormality. It is not a diagnostic system. We are not aware of government regulations that would be applicable to the Medicsight system. To the extent that government regulations would apply depending upon the countries in which we sell or license the Medicsight system, such regulations could delay the commercial introduction of Medicsight and could significantly increase our costs of operations. GENERAL Our address is 46 Berkeley Square, London, W1J 5AT, United Kingdom. Our telephone number is 011-44-207-598-4070. Our Internet address is http://www.http-tech.com. Information on our website is not deemed to be a part of this Annual Report. ITEM 2. DESCRIPTION OF PROPERTY. We maintain our corporate offices at 46 Berkeley Square, Mayfair, London, United Kingdom W1J 5AT. The office is comprised of 9,642 square feet. We do not have a formal, written lease for these offices. Rent is paid quarterly in advance to a property management company, Berkeley Square Ventures Limited, who in turn collects the rent for International Cellulose Company Limited, who holds the lease on the property. In November 2001 International Cellulose Company Limited was acquired by STG (Holdings) PLC the majority stockholder of the Company. We maintain subsidiary and affiliate offices at Jessop House, 100 Tamworth Road, Croydon, Surrey, United Kingdom. The lease on these offices is currently for sale as all staff have been moved to 46 Berkeley Square and the office is not required. 8 The property currently occupied is adequate for the current needs of the Company. We do not currently, and do not intend to, invest in real estate or interests in real estate, real estate mortgages, or entities primarily engaged in real estate activities. ITEM 3. LEGAL PROCEEDINGS. On January 23, 2002, Chess Ventures LLC ("Chess") commenced a lawsuit against us in the Chancery Court of Delaware, seeking an order to compel us to remove restrictive legends from share certificates owned by Chess so that Chess could sell the shares represented by the certificates under Rule 144 of the Securities Act ("Rule 144"). Chess has also claimed money damages due to our failure to remove the legends. We have filed a defense and counterclaim to this claim and have subsequently instructed our transfer agent to remove the restrictive legends on all applicable certificates (including those held by Chess) should proper requests be made by the holders thereof in accordance with Rule 144. The matter currently remains in the pre-trial discovery stage. Accordingly, we are unable to state whether any outcome is either probable or remote. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The shares of our Common Stock are quoted on the OTC-Bulletin Board, maintained by the National Association of Securities Dealers, Inc. The Common Stock is trading under the symbol "HTTP". The following table sets forth the range of high and closing prices information for HTTP Common Stock for each quarter within the last two fiscal years, after giving effect to the Split. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:
CLOSING PRICES ($) ---------------------- PERIOD HIGH LOW - ------ -------- -------- 2000 First Quarter............................................... 7.469 2.50 Second Quarter.............................................. 8.00 5.00 Third Quarter............................................... 10.063 7.50 Fourth Quarter.............................................. 9.00 6.438 2001 First Quarter............................................... 7.00 5.50 Second Quarter.............................................. 7.44 6.30 Third Quarter............................................... 7.10 5.30 Fourth Quarter.............................................. 6.00 4.50 2002 First Quarter............................................... 4.70 2.25
As of March 31, 2002, there were 1,556 holders of record of HTTP common stock. 9 DIVIDENDS. The Company has never declared or paid cash dividends on the Common Stock. The Company currently intends to retain earnings, if any, to support its growth strategy and does not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs and plans for expansion. RECENT SALES OF UNREGISTERED SECURITIES On October 25, 1999, the Company raised $50,000 through the issuance of a Convertible Loan Note (the "Note") to Palamon (Gestion) S.A. The Note was offered pursuant to an exemption from registration under Regulation S promulgated under the Securities Act. The purpose of this funding was to enable the Company to file all outstanding reports required by the Exchange Act, and to search for suitable acquisition candidates in Internet related fields. The Note bore interest at 5.5% per annum. The Note was converted by the Note holder into 400,000 shares of Common Stock of the Company at the rate of $0.125 per share on January 24, 2000. On December 22, 1999, the Company entered into an annual consulting agreement with Oxford Capital, Inc. This primarily related to the negotiation and execution of the reverse merger with Fairfax and the raising of equity funding through Panther Capital Ltd. as set out below. Payment was made by the issuance of 1,200,000 shares of common stock at the weighted average rate of approximately $1.35 per share. Such shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act. On January 6, 2000, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Panther Capital Ltd. ("Panther") to sell shares of Common Stock and warrants of the Company pursuant to an exemption from registration under Regulation S promulgated under the Securities Act. Pursuant to the terms of the Underwriting Agreement, the Company sold 10,000,000 shares of its Common Stock (the "Panther Shares"), at a price of $0.50 per share to certain sub-underwriters named in the Underwriting Agreement, for whom Panther acted as lead underwriter. In consideration for such underwriting, Panther received warrants to purchase up to 2,000,000 shares of Common Stock of the Company (the "Warrants"). The Warrants were exercisable at $0.50 per share if exercised within one year of the first closing of the Agreement, which occurred on January 28, 2000 (the "First Closing"), and at a price of $5.00 per share if exercised within two years of the date of the First Closing. The fair value of the Warrants on the date of the grant was approximately $4,428,000. On May 12, 2000, Panther exercised all the Warrants for $1,000,000. Under the Underwriting Agreement, the Company was obligated to prepare a registration statement covering 25% of the Panther Shares under the Securities Act and to file such registration statement with the Commission within 90 days of the completion of the offering of the Panther Shares (the "Registration Statement"). Prior to and during the period of 120 days after the Registration Statement is declared effective by the Commission, the Company has agreed not, without prior written consent of Panther, to issue, offer, sell, or grant options to purchase or otherwise dispose any of the Company's equity securities or any other securities convertible into or exchangeable for its common stock or other equity security, other than pursuant to transactions already disclosed to Panther. Additionally, for a period of 180 days after the first date that any of the Panther Shares are released for sale to the public, the officers and directors of the Company have agreed not to directly or indirectly sell or offer to sell or otherwise dispose any of their shares of common stock of the Company or any right to acquire any such shares without the prior written consent of Panther. The Registration Statement was filed by the Company on December 26, 2001, but such Registration Statement has not yet been declared effective. As the majority of the shares of Common Stock covered by the Registration Statement have been held for longer than two years, it is the Company's intent to 10 withdraw such registration statement. and to allow such shares to be resold in accordance with the requirements of Rule 144 under the Securities Act. On April 21, 2000, the Company acquired, through a stock-for-stock tender offer (the "Software Offer"), approximately 76.73% of the issued and outstanding ordinary shares of Radical Technology PLC (subsequently renamed HTTP Software PLC). Pursuant to the Software Offer, HTTP offered 100 shares of common stock of the Company (the "Exchange Stock") for every 143 shares of capital stock of Software. Through additional issuances of stock subsequent to April 21, 2000, the Company has acquired an aggregate of 99.5% of the outstanding shares of Software in exchange for 2,549,642 shares of the Company's Common Stock. Accordingly, the Company has the right under applicable law to compulsorily acquire the balance and to treat Software as a wholly owned subsidiary. Assuming full acceptance of the Software Offer, a total of 2,563,428 shares of the Company will be issued, constituting approximately 4.1% of the Company's outstanding shares. The Exchange Stock was not initially registered under the Securities Act. However, as a condition of the Software Offer, the Company had agreed to file a registration statement with the Commission covering the Exchange Stock within twelve months from the date of issue of the Exchange Stock. Furthermore, the Company agreed not to file a registration statement during this twelve-month period covering any shares held by STG Holdings PLC. The Company filed the Registration Statement covering the Exchange Stock on December 26, 2001. However, because the majority of the shares covered by the Registration Statement have now been held for longer than two years, it is the Company's intent to withdraw such registration statement and allow the shares to be resold in accordance with the requirements of Rule 144 under the Securities Act. On May 3, 2000, the Company entered into an agreement to acquire 51% of the outstanding stock of Ferman AG, a Swiss venture capital company ("Ferman"), for the issuance of 7,200,000 shares of the Company's Common Stock. On October 5, 2000, the Company executed an agreement to acquire 100% of Ferman's outstanding stock for 5,100,000 shares of the Company's Common Stock. Subsequently, after undertaking further due diligence, the Company determined that the conditions to closing had not been fulfilled, and accordingly, the Company decided not to proceed with the transaction. The Company never assumed management control of Ferman and no consideration was exchanged. Therefore, results and net assets of Ferman have not been consolidated in the financial statements contained in this Annual Report in any way. On May 25, 2000, the Company issued a private placement memorandum to raise up to $30 million through the sale of shares of Common Stock at a price of $6.25 per share pursuant to an exemption from registration under Regulation S promulgated under the Securities Act. The final closing of the placement was in November 2000. The Company raised the minimum allowed under the private placement, $10 million and established a $20 million credit facility (the "Credit Facility") with Asia IT Capital Investment Limited ("Asia IT") as of December 15, 2000 to cover the balance of the funds it sought to raise. At the time we entered into such credit facility Asia IT was a 12.2% stockholder of the Company. Since such time, Asia IT has sold a substantial portion of its interest in the Company in private transactions. As of December 31, 2001, there was an outstanding balance of $1,070,000 under the Credit Facility, and the Company anticipates that, in the foreseeable future, it will need to draw upon the Credit Facility to continue to operate and meet its obligations as and when they become due. The Credit Facility originally expired on December 31, 2001, but such expiration date has been extended to June 30, 2003. In September 2000, we acquired Core Ventures Limited ("Core"), a privately held Internet venture company, from Troy Limited, a Cayman corporation. Under the agreement, we issued 3,600,000 shares of our Common Stock for 100% of the outstanding stock of Core. Core's principal asset was an interest of less than 1% in Red Cube AG ("Red Cube"), a voice-over-IP telecommunications provider, and warrants to purchase further shares (less than 3%) in Red Cube. The agreement provided in part that Dr. Alexander Nill, a principal of Troy, guaranteed to us that, as of December 15, 2000, Core would 11 have had assets of not less than $25,000,000. At the time of this transaction, Dr. Nill was one of our directors. He resigned from that position, effective February 27, 2001. On December 27, 2000, Dr. Nill signed a Memorandum of Understanding stipulating that the net assets of Core were estimated to be approximately $2,500,000 and that the warrants to purchase further Red Cube stock held by Core had no value. Dr. Nill acknowledged that he had been served by us with a formal demand to honor his obligations to us pursuant to the terms of the personal guarantee provided by him as security for the Core acquisition. As part of this obligation, we have received 3,140,000 shares (the "Escrow Shares") of our Common Stock from Dr. Nill, all of which have been duly endorsed and placed into an escrow account. In addition, approximately 930,000 shares of our Common Stock still held by Dr. Nill have been subjected to a "stop-transfer" order on our stock records. In the fiscal quarter ended September 30, 2001, an agent, NYPPe, LLC, was assigned by the escrow agent to dispose of the Escrow Shares in a secondary private placement. As of December 31, 2001, 15,000 of the Escrow Shares had been sold, resulting in net proceeds to the Company of approximately $75,000. On March 6, 2002, Core entered into voluntary liquidation proceedings. In accordance with the Companies Act governing companies organized in the British Virgin Islands, Core has appointed a liquidator to assess the fair value of its assets. We intend to initiate legal proceedings in the State of New York to enforce Dr. Nill's guarantee and to seek compensation for the shortfall in value on the guarantee, approximately $9,109,000, which has not yet been provided to us by Dr. Nill. On December 29, 2000, the Company acquired all of the issued and outstanding shares of Insights, formerly known as Nightingale Technologies, Ltd., in a stock-for-stock transaction valued at approximately $180 million (the "Insights Offer"). The Company received the shares of Insights on that date but, pursuant to the terms of the Insights Offer, was not required to pay any consideration for the Insights shares until certain conditions were met. The first of these conditions, that the Company receive a validation by the Defence Evaluation and Research Agency ("DERA"), an agency of the United Kingdom Ministry of Defence, as to the technical and commercial viability of Insights' proprietary technology, was satisfied on February 22, 2001. As such, the Company issued the first tranche of contingent consideration of 15,000,000 shares of its Common Stock on that date. Such shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act. Subsequent to September 30, 2001, upon agreement with Nightingale, the seller of Insights, and in variance of the conditions precedent set forth in the original agreement, the parties agreed that the obligation to issue the second tranche of contingent consideration may be satisfied by the direct issuance of shares in Medicsight to Nightingale. On November 22, 2001, Medicsight issued 15,000,000 shares in Medicsight to Nightingale, and Nightingale accepted such shares in satisfaction of our obligation under the original purchase agreement. As of the date hereof, there is no public market for the Medicsight shares. Medicsight is currently undertaking a private offering of 6,000,000 of its ordinary shares, but such offering has not yet been completed. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Except for historical information, the material contained in this Management's Discussion and Analysis or Plan of Operation is forward-looking. This discussion includes, in addition to historical information, forward-looking statements, which involve risks and uncertainties. The Company's actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences are discussed below. These risks and uncertainties include the rate of market development and acceptance of technology, the unpredictability of the Company's revenues, the limited revenues and significant operating losses generated to date, and the possibility of significant ongoing capital requirements. For the purposes of the safe harbor protection for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995, readers are urged 12 to review the list of certain important factors set forth in "Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995". These forward-looking statements are subject to risks, uncertainties and assumptions about the Company, including, among other things: - Our ability to commercialize our technology; - Our business and prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets; - Our ability to attract and retain customers; - Our ability to secure financing as and when necessary; - Our ability to achieve adequate levels of revenue to recover our investment in capitalized software development costs and acquired technology; - Our ability to retain the services of our key management, and to attract new members of the management team; - The likelihood of significant ongoing capital requirements; and - Our ability to effect and retain appropriate patent, copyright and trademark protection of our products. - We have recently restructured our business to focus more closely on the medical imaging applications derived from our original core technology. We have concluded the process of incorporating all research, software development, management and marketing activities related to our medical imaging initiatives into our subsidiary, Medicsight. Assets have been transferred and costs incurred on the development of the Medicsight system have been reimbursed and assigned by way of a loan note from Medicsight. The amount of the loan note to HTTP Technology, Inc. was L3,659,104, and this loan note has been converted into 58,868,582 ordinary shares of Medicsight issued to the Company and 15,000,000 ordinary shares of Medicsight issued to Nightingale. The Medicsight system analyzes digital data from medical scanners, such as MRIs and CAT scans, and then alerts the clinician to any areas of possible abnormality. We believe the Medicsight system will be capable of reliably detecting cancer cells, calcification of the arteries and other abnormalities indicative of disease at earlier stages in the disease than current medical tools are able to detect. The potential advantage of the Medicsight system is that it does not rely on the human eye or human interpretation to detect possible abnormalities, thereby resulting in significant cost savings. After the system uses its technology to identify possible abnormalities, the clinician will then apply his/her education, training and experience to determine the next steps in medical diagnosis and treatment. The Medicsight system is capable of processing unprecedented volumes of images. It is now widely accepted that the most effective way to achieve early detection of these leading deadly diseases is through large scale screening. Such screening would allow national healthcare bodies to provide society with the best protection against premature death. Medicsight will offer an early diagnosis solution previously not thought possible because: - The proprietary technology enables Medicsight to automate accurately and reliably the process of scan analysis. - The service will be significantly cheaper than at present as it does not rely on radiologists as first readers who in current practice account for a significant proportion of the scan cost. 13 - Significant patient volume can be achieved as the analysis is fully automated; screening volumes are not constrained by the finite number of radiologists. - The business model is unique as we intend to establish broad penetration through a series of cost-effective, efficient, screening services. Primary target markets include 16 countries across Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom). These primary targets were selected on the basis of their demographics and attractiveness for implementing screening systems. Other principal markets such as the United States and Japan will be targeted in conjunction with the European launch. The total population within the 16 selected European countries is almost 400 million (source: United Nations Statistics Division). The primary target population is based on individuals at risk of developing coronary heart disease, lung or colon cancer. These 140 million people are aged between 45 and 75, of whom it is estimated that a minimum of 60 million could be clearly defined as being at significantly higher risk. The base plan forecasts a volume of 1.8 million scans per annum in 2006. This represents 1.3% of the at risk population aged 45-75 and 3% of those at significantly higher risk. Currently the Medicsight system is undergoing systematic testing to ensure our objectives are met. This is expected to be completed in 2002 when we intend to open a series of operational pilot units, and the first Medicsight centers are expected to be on stream by mid-2003. The initial units will be used to gain regulatory approval and acquire market and clinical data. Operational and development costs for Fiscal 2002 are estimated at approximately $5.5 million. Medicsight is attempting to raise approximately $8.7 million by way of a private placing of 6 million shares. This is in addition to the Asia IT facility of L10,000,000 ($14.5 million) that expires in November 2004. Medicsight expects to incur further operational and development costs in 2003 of approximately $6.5 million before Medicsight is financially self sufficient in 2004. Our expansion strategy across Europe calls for several business models. Besides the Company-operated Medicsight scanning centers, we will operate partnerships with industry leaders to achieve rapid market penetration across our target regions. Revenue streams will include: scan analysis fees, service charges, franchise license fees and franchise royalties based on revenues. The marketing strategy will initially target all healthcare providers and insurance companies that can direct large numbers of individuals in the higher risk categories to Medicsight centers. In addition to professional referrals it is anticipated that individuals will self-refer to the centers. As with dental plans, we expect corporations and healthcare institutions to begin supporting individuals' screening plans in the near future. Higher risk individuals applying for life insurance or renewing their policies could automatically be enrolled in screening programs and would visit a service center for scans as a matter of routine. This concept will be marketed simultaneously to hospitals and institutions to ensure widespread credibility and acceptance. Medicsight services will be publicized through a series of marketing campaigns. We have yet to derive any revenue from the Medicsight system. We cannot assure you that Medicsight will be successful in commercializing the Medicsight system, or if such system is commercialized, that its use will be profitable to Medicsight. We face many obstacles in commercializing our core technology. Current constraints in medical image analysis which prevent large-scale population screening include: - Cost Constraints: - Prohibitive cost of skilled radiologists 14 - Human Constraints: - Shortage of qualified radiologists available to analyze the large increase in the number of images - Limitations of image analysis conducted by the human eye (e.g. fatigue, limited attention span, poor eyesight) - Technical Challenges: - Difficulty in differentiating normal from diseased tissues (i.e. high number of "false positives") - Inability correctly to identify disease types - Industry Supply Constraints: - Lack of affordable preventive healthcare programs We are not aware of any direct competition with the Medicsight system. There are computer-aided diagnostic systems and other screening businesses which work in the field, but, in our view, such existing systems are overly dependent on human resources to carry out the analysis, as none have automated diagnosis capability, and are therefore unable to achieve large economies of scale. The Company commenced operations under the current management on October 18, 1999. As such, there is no comparable full-year data for the fiscal year ended December 31, 1999 ("Fiscal 1999"). The Company's functional currency is the United States Dollar. RESULTS OF OPERATIONS FISCAL YEAR ENDED DECEMBER 31, 2001 VS. FISCAL YEAR ENDED DECEMBER 31, 2000 REVENUES. For Fiscal 2001, our gross revenues from operations were approximately $225,000, as compared to approximately $514,000 in Fiscal 2000. We have relied heavily upon proceeds from the sale of our securities and a credit facility from one of our stockholders to fund our operations. Revenue is recognized as software maintenance services are performed, in accordance with the terms of the contractual arrangement, where persuasive evidence of an arrangement exists, the fee is fixed and determinable and collection is reasonably assured. Our revenues for Fiscal 2001 and 2000 were primarily comprised of software product consulting and support services. During Fiscal 2001, we had three customers who represented a significant portion of our revenues. The customers are Commonwealth Secretariat, which accounted for 29.8% of sales, Eidos Interactive, which accounted for 25.8% of sales and Texaco, which accounted for 22.7% of sales. In Fiscal 2000 the sales from customers representing greater than 10% of revenues were from were Red Cube AG, which accounted for 26.7% of sales (of which $74,000 was allowed as doubtful) and Texaco, which accounted for 13.4% of sales. In addition, there were sales to the following prior to acquisition: Radical Technology PLC, which accounted for 19.3% of sales, and Nightingale Technologies Ltd, which accounted for 25.7% of sales. The decrease in the revenues from Fiscal 2000 to Fiscal 2001 is due to the change in focus of Software's operations from providing software consulting services to third parties to providing testing and development services to the group on the Medicsight system and the Stochastic Perception Engine. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and administrative expenses were $10,522,000 in Fiscal 2001 compared to $5,785,000 for Fiscal 2000. The increase was due to an increase in staff and directors' compensation from $1,446,000 in Fiscal 2000 to $2,788,000 in Fiscal 2001. In addition, we moved to larger offices at 46 Berkeley Square in early 2001 to accommodate the increased staff numbers at the London office as Software staff were moved from the Company's 15 Croydon office. This increased rent and service charges from $315,000 in Fiscal 2000 to $1,452,000 in Fiscal 2001. Professional fees, including technology development and consulting services, were approximately $1,466,000 in Fiscal 2001 and $2,628,000 in Fiscal 2000. The reduction is due to the Company's no longer having consulting contracts outstanding. In addition, the Company amortized $4,494,000 of intangibles relating to the purchase of the Insights technology from Nightingale during Fiscal 2001. We expect selling, general and administrative expenses to continue at a similar level in the near future as we continue to devote resources to the expansion of the Company. SOFTWARE DEVELOPMENT COSTS WRITTEN OFF. During Fiscal 2001 software development costs of approximately $77,000 were written off as the projects concerned (Addserver--structure advertising software and Callanalysis--a website) were halted. During Fiscal 2000, we wrote off $2,020,000 in software development costs. These costs include $1,878,000 previously capitalized upon the acquisition of Software, but which was subsequently written off during the year. We decided to write off such costs because, after we acquired Software, we altered the strategic direction of Software to focus its resources on other projects, particularly the Stochastic Perception Engine project (the proprietary technology of Insights). Therefore, the software development costs written off were written down to an assessed net realizable value of zero. Software development costs also include $182,000 of in-process research and development costs that we wrote off when we acquired Software in April 2000. DEPRECIATION AND AMORTIZATION EXPENSE. We had excess of purchase price over net assets acquired of approximately $10,155,000, associated with the acquisition of Software. We received the shares of Insights on December 29, 2000; however we were not required to pay any consideration for such shares unless certain conditions were met. On February 22, 2001, the first of these conditions was met, and as such we issued the first tranche of consideration of 15,000,000 shares, valued at approximately $93,000,000 based on a weighted average share price of $6.20 per share. Subsequent to September 30, 2001, upon agreement with the seller of Insights and in variance of the conditions precedent set forth in the original agreement, the parties agreed that the obligation to issue the second tranche of contingent consideration may be satisfied by the direct issuance of shares in Medicsight to Nightingale, the seller of Insights. On November 22, 2001, Medicsight issued 15,000,000 shares in Medicsight to Nightingale, and Nightingale accepted such shares in satisfaction of our obligation under the original purchase agreement. The shares were valued at L1.00 ($1.45) (par value L0.05) based on the share price of stock being allotted by Medicsight. These issuances gave rise to an excess of purchase price over net assets acquired of approximately $102,313,000 from our acquisition of Insight. Our policy is to amortize goodwill over five years. The amortization charge for Fiscal 2001 was $15,385,000 compared to $1,260,000 for Fiscal 2000. This significant increase in amortization charge is primarily due to the amortization associated with the acquisition of Insights. The Company acquired intangibles from Software of Value of Workforce, $321,000 (expected useful life 4 years), Value of Trademark, $46,000 (2 years useful life), Value of Existing Contracts, $96,000 (2 years useful life). The Company acquired intangibles from Insights Technology, $22,470,000 (expected useful life 5 years) and Value of Workforce, $180,000 (expected useful life 2 years) The amortization charge for Fiscal 2001 was $4,662,000 and the charge for Fiscal 2000 was $143,000. As Software is no longer developing its in-house software we have fully impaired the Software intangibles. In addition we have fully impaired the Insights Value of Workforce as the initial employees have left the company. IMPAIRMENT OF GOODWILL. Impairment of goodwill relates to the excess purchase price over net assets acquired on the acquisition of Software. In Fiscal 2001, the impairment was $7,217,000. We have fully impaired the goodwill as Software is no longer developing its own in-house technology. 16 IMPAIRMENT LOSS ON INVESTMENTS. Impairment loss on investments of $2,412,000 relates to the impairment in the carrying values of Compaer AG, Red Cube AG and other immaterial investments. Based on the financial status of Compaer AG and Red Cube AG, the investments were permanently impaired, and the Company has recorded an impairment for the entire carrying value of these investments. Impairment loss on investments in Fiscal 2000 of $225,000 relates to the impairment in the carrying value of one of the Company's minority investments, Strategic Intelligence. IMPAIRMENT OF VENDOR GUARANTEE. In Fiscal Year 2001, impairment of a vendor guarantee in the amount of $9,109,000 relates to an impairment of the guarantee provided by Dr. Alexander Nill as to the fair value of certain assets acquired under the Company's acquisition of Core in September 2000. The vendor guarantee represents the fair value of 4,070,000 shares returned to the Company as partial consideration for the guarantee, of which 3,100,000 shares (the "Escrow Shares") were placed in escrow. In the third quarter of Fiscal 2001, an agent, NYPPe LLC, was assigned by the escrow agent to dispose of the Escrow Shares in a secondary private placement by the selling security holder. As of December 31, 2001, NYPPe LLC had disposed of 15,000 of these shares for a consideration of approximately $75,000. We have estimated the value of the guarantee as the value of the common stock, based on the recent history of the stock price, giving a realizable value of approximately $10,000,000. On March 6, 2002, Core entered into voluntary liquidation proceedings. In accordance with the Companies Act governing companies organized in the British Virgin Islands, Core has appointed a liquidator to assess the fair value of its assets. We intend to initiate legal proceedings in the State of New York to enforce Dr. Nill's guarantee and to seek compensation for the shortfall in value on the guarantee, approximately $9,109,000, which has not yet been provided to us by Dr. Nill. NET LOSS AND NET LOSS PER SHARE. Our net loss for Fiscal 2001 was ($45,845,000), compared to a net loss for Fiscal 2000 of ($8,714,000). Our net loss for Fiscal 2001 included amortization of goodwill of $15,385,000 and impairment of goodwill of $7,217,000. Our loss per share for Fiscal 2001 was ($0.82) based on weighted average shares outstanding of 55,690,212, compared to net loss per share for Fiscal 2000 of ($0.24), based on weighted average shares outstanding of 36,383,441. RELATED PARTY TRANSACTIONS. As more fully discussed in Note 9 of the financial statements included in this Annual Report, during September 2000, the Company acquired 100% of the outstanding stock of Core Ventures Limited. At the time of this transaction, Dr. Alexander Nill was a Director of the Company and principal beneficial shareholder of Core Ventures Limited. In connection with this acquisition, Dr. Nill had guaranteed the valuation of the net assets of Core Ventures Limited to be not less then $25,000,000 as of December 15, 2000. On December 27, 2000 Dr. Nill acknowledged the net assets of Core Ventures Limited to be approximately $2,500,000 and agreed to provide other investments valued at $10,900,000 to the Company. The remaining balance of $11,600,000 due under this guarantee was to be paid in cash no later than June 26, 2001. Dr. Nill resigned as a Director of the Company effective February 27, 2001. As more fully discussed in Note 9, during 2000 the Company entered into certain agreements to acquire Ferman AG. At the time of these agreements, Dr. Alexander Nill and Martin Lechner, the principal shareholder and Chief Executive Officer of Ferman AG, respectively, were Directors of the Company. As conditions to closing on the transaction had not been fulfilled, the Company decided not to proceed with the acquisition. Mr. Lechner and Dr. Nill resigned as Directors of the Company on December 11, 2000 and February 27, 2001, respectively. As more fully discussed in Note 9, on December 29, 2000, the Company acquired all of the issued and outstanding shares of Insights. Asia IT was a shareholder in Insights as well as the Company at the time of the acquisition, and has provided a credit facility for up to $20,000,000. The credit facility originally expired on December 31, 2001, but has been extended to June 30, 2003. All advances under 17 the credit facility accrue interest at 2% above LIBOR. The Company is restricted from borrowing funds, directly or indirectly, other than through the credit facility, without the consent of Asia IT. On November 20, 2001, Asia IT entered into a L10,000,000 ($14,500,000) credit facility with Medicsight. Such facility matures in November 2004 and is secured by a lien on all assets of Medicsight. Interest on outstanding amounts accrues at 2% above GBP LIBOR. Pursuant to such credit facility, Medicsight has covenanted to undertake a public offering of its ordinary shares in an amount not less than L25,000,000 not later than March 2002. If Medicsight does not complete such an offering, the credit facility nevertheless will remain in place. The loan is convertible into ordinary shares in Medicsight upon announcement of an Offer to Subscribe, Placing or other public offering of its ordinary shares at the same price per share as the offering price. Due to the private offering currently being undertaken by Medicsight, the loan is currently convertible. In addition Asia IT acquired approximately 7,080,000 Medicsight shares from the 15 million shares issued to Nightingale Technologies as part of the Insights acquisition. The Company's corporate offices at 46 Berkeley Square are leased by International Cellulose Company Limited (ICCL), a company registered in England and Wales. STG Holdings PLC, the majority stockholder of HTTP Technology, acquired 100% of the issued share capital of International Cellulose Company Limited in November 2001. Rent on 46 Berkeley Square is managed by Berkeley Square Ventures Limited (BSV), a property management company incorporated in England and Wales. Berkeley Square Ventures Limited estimates the rental space occupied by the tenants and collects the rents from the tenants (including HTTP and ICCL) on behalf of ICCL. There are no formal leases between BSV and the tenants or a formal agreement between ICCL and BSV for BSV to collect the rent due. In 2001 the Company paid BSV $285,000 in rent. CONTRACTUAL OBLIGATIONS AND COMMITMENTS. As of December 31, 2001, the Company was party to capital lease obligations in the amount of $24,836. These obligations require monthly payments of $665, including interest computed at the rate of 0.76% through October 2005 and are secured by the underlying equipment. The Company has property lease obligations in the amount of $125,000 for the lease of Software's Croydon offices. This lease is currently for sale as these offices are surplus to requirements. As discussed in the paragraph above the Company does not hold a lease for its corporate offices at 46 Berkeley Square. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL. At December 31, 2001, the Company had approximately $657,000 in current assets. Cash and cash equivalents amounted to approximately $203,000, and current liabilities were approximately $5,862,000. At December 31, 2000, the Company had approximately $6,856,000 in current assets, of which $6,231,000 consisted of cash and cash equivalents. Current liabilities were approximately $1,252,000. Working capital at the end of Fiscal 2001 was approximately $(5,205,000), as compared to approximately $5,604,000 at the end of Fiscal 2000. The decrease in working capital during Fiscal 2001 was attributable to the cash at 31 December 2000 being used to finance the operations in Fiscal 2001. The ratio of current assets to current liabilities was 0.11 to 1.0 at the end of Fiscal 2001, as compared to 5.5 to 1.0 at the end of Fiscal 2000. NET DECREASE IN CASH AND CASH EQUIVALENTS. During Fiscal 2001, the Company's cash and cash equivalents decreased by approximately $(6,028,000). This decrease was primarily the result of net cash used in operations of approximately $5,948,000 and net cash used in financing operations of approximately $1,615,000. The Company received net cash of approximately $1,572,000 in investment activities, primarily from the disposition of investments in Fiscal 2001. During Fiscal 2000, the Company's cash and cash equivalents increased by approximately $5,725,000. This increase was primarily the result of net cash provided by financing activities in the amount of $11,789,000. The 18 Company used net cash of $3,386,000 in operations and $2,658,000 in investment activities during Fiscal 2000. NET CASH USED IN OPERATIONS. The use of cash in operations of approximately $5,948,000 in Fiscal 2001 was as a result of minimal revenues at the same time that we incurred a significant increase in operating costs. These significant costs included professional fees, salaries and director compensation, and service charges associated with rental property and rent, all of which resulted from the acquisitions made in the last two fiscal years and the expansion of our infrastructure necessary to support the research and development necessary to commercialize the Medicsight system which is the first application to be derived from the data classification system of our core technology. NET CASH USED IN INVESTMENT ACTIVITIES. For Fiscal 2001, the Company had a net cash inflow from investment activities of approximately $1,572,000. Such funds were received in the first quarter of 2001 from the sale of the Company's shareholding in MDA Group PLC and from funds received as part of the Core guarantee. For Fiscal 2000, the Company had a net cash outflow from investment activities of approximately $2,658,000. Such funds were used for software development of $86,000 at Software and the purchase of fixed assets for $464,000. Cash paid for investments of $2,109,000 relates to minority interests in Compaer AG of $1,211,000, Eurindia of $633,000 and Strategic Intelligence of $262,000. The Company does not currently have any commitments for material capital expenditures. NET CASH FROM FINANCING ACTIVITIES. In Fiscal 2001, the Company used net cash of $1,615,000 in financing activities, primarily due to the net repayment of loans. In Fiscal 2000, the Company received net cash of $11,789,000 from financing activities, primarily due to the issuance during the year of shares of Common Stock for net proceeds of $15,480,000. Cash provided by share issuances included $10,000,000 from a private placement of shares in May 2000, $5,000,000 from a private placement in the first quarter of Fiscal 2000 and $1,000,000 from the conversion of warrants in May 2000. See "Market for Common Equity and Related Stockholder Matters--Recent Sales of Unregistered Securities". The Company acquired Insights in December 2000. At the time of such acquisition, Insights had outstanding $6,006,000 of long-term debt. This debt was part of the original loan of $10,000,000 that Insights owed to its parent company relating to the acquisition of patent applications for its Stochastic Perception Engine technology. The loan bears interest at 2% above LIBOR and is unsecured. The principal of the loan and accrued interest does not mature until October 5, 2003. STOCKHOLDERS' EQUITY. The Company's stockholders' equity at December 31, 2001 was approximately $101,853,000, including an accumulated deficit of ($54,459,000) and after deducting a vendor guarantee of approximately ($10,000,000). Additional paid-in capital at December 31, 2001 was approximately $166,299,000. The returned shares under the Core acquisition have been valued as a stockholder receivable, and are duly endorsed over to the Company. The Company's stockholders' equity was $23,215,000 at December 31, 2000. ADDITIONAL CAPITAL. The Company is likely to require additional capital during its fiscal year ending December 31, 2002 to implement its business strategies, including cash for (i) payment of increased operating expenses such as salaries for additional employees; and (ii) further implementation of its business strategies. Such additional capital may be raised through additional public or private financings, as well as borrowings. On December 15, 2000, the Company entered into an unsecured credit facility with Asia IT, which provides a $20,000,000 line of credit. Such line of credit originally expired on December 31, 2001, but has been extended until June 30, 2003. Interest on advances under the credit facility accrues at 2% above US LIBOR. The Company can draw down on this credit facility for its financing requirements, upon approval by the Company's Board of Directors and subject to approval by Asia IT (such approval not to be unreasonably withheld). The Company is restricted from borrowing funds, directly or 19 indirectly, other than through the credit facility with Asia IT, without the consent of Asia IT. The availability of the credit facility reduces upon the Company's sale of any of its investment assets. The Company estimates that, in the foreseeable future, it will need to draw upon such credit facility in order to meet its liabilities as they come due. On November 20, 2001, Asia IT entered into a L10,000,000 ($14,500,000) credit facility with Medicsight. Such facility matures in November 2004 and is secured by a lien on all assets of Medicsight. Interest on outstanding amounts accrues at 2% above GBP LIBOR. Pursuant to such credit facility, Medicsight has convenanted to undertake a public offering of its ordinary shares in an amount not less than L25,000,000 not later than March 2002. If Medicsight does not complete such an offering, the credit facility nevertheless will remain in place. The loan is convertible into ordinary shares in Medicsight upon announcement of an Offer to Subscribe, Placing or other public offering of its ordinary shares at the same price per share as the offering price. Due to the private offering currently being undertaken by Medicsight, the loan is currently convertible. In addition, Asia IT acquired approximately 7,080,000 Medicsight shares from the 15 million shares issued to Nightingale Technologies as part of the Insights acquisition. At December 31, 2001, the Company had drawn down approximately $1,070,000 under the $20 million facility with Asia IT, and Medicsight had drawn down approximately $255,000 under its L10,000,000 ($14,500,000) facility with Asia IT. During March 2002, Medicsight allotted 6,000,000 shares at L1.00 ($1.45) per share (par value L0.05) of which approximately 3,000,000 shares have been placed. Asia IT is underwriting the issue. As of March 25, 2002, Medicsight had received approximately $1,175,000 from the proceeds of such offering. To the extent that additional capital is raised through the sale of equity or equity-related securities, the issuance of such securities could result in dilution to the Company's stockholders. No assurance can be given, however, that the Company will have access to the capital markets in the future, or that financing will be available on acceptable terms to satisfy the Company's cash requirements to implement its business strategies. If we are unable to access the capital markets or obtain acceptable financing, our results of operations and financial conditions could be materially and adversely affected. We may be required to raise substantial additional funds through other means. The products derived from our proprietary software, including the Medicsight system, are expected to account for substantially all of our revenues from operations in the foreseeable future. Our technology has not yet been fully commercialized, and we have not begun to receive any revenues from commercial operations. We cannot assure our stockholders that our technology and products will be commercialized successfully, or that if so commercialized, that revenues will be sufficient to fund our operations. If adequate funds are not available to us, we may be required to curtail operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or products that we would not otherwise relinquish. CRITICAL ACCOUNTING POLICIES. In December 2001, the Securities and Exchange Commission requested that all registrants list their three to five most "critical accounting policies" in the Management's Discussion and Analyses of Financial Condition and Results of Operations. The Securities and Exchange Commission indicated a "critical accounting policy" is one which is both important to the portrayal of the company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our significant accounting policies are described in 20 the Notes to the consolidated financial statements included in Item 7 of this Form 10-KSB. We believe that the following accounting policies fit the definition of critical accounting policies: - Impairment of long-lived assets and long-lived assets to be disposed of--The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. - Impairment of excess of purchase price over net assets acquired--The Company evaluates the carrying value of goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. - Research and development--Costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance for in accordance with Statement of Financial Accounting Standards No.86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise marketed". Costs incurred prior to technological feasibility being established for the product are expensed as incurred. Technological feasibility is established upon completion of detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. Amortization commences when the product is available for general release to customers. - Recent accounting pronouncements--In June 2001, the Financial Accounting Standards Board authorized the issuance of Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 141 requires intangible assets to be recognized if they arise from contractual or legal rights or are "separable", i.e., it is feasible that they may be sold, transferred, licensed, rented, exchanged or pledged. As a result, it is likely that more intangible assets will be recognized under SFAS No. 141 than its predecessor, APB Opinion No. 16 although in some instances previously recognized intangibles will be subsumed into goodwill. - Under SFAS No. 142, goodwill will no longer be amortized over its estimated useful life, but will be tested for impairment on an annual basis and whenever indicators of impairment arise. The goodwill impairment test, which is based on fair value, is to be performed on a reporting unit level. A reporting unit is defined as a SFAS No. 131 operating segment or one level lower.. Goodwill will no longer be allocated to other long-lived assets for impairment testing under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Additionally, goodwill on equity method investments will no longer be amortized; however, it will continue to be tested for impairment in accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Under SFAS No. 142 intangible assets with indefinite lives will not be amortized. Instead they will be carried at the lower cost or market value and tested for impairment at least annually. All other recognized intangible assets will continue to be amortized over their estimated useful lives. 21 - SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 although goodwill on business combinations consummated after July 1, 2001 will not be amortized. On adoption the company may need to record a cumulative effect adjustment to reflect the impairment of previously recognized intangible assets. In addition, goodwill on prior business combinations will cease to be amortized. The Company has not determined the impact that these Statements will have on intangible assets or whether a cumulative effect adjustment will be required upon adoption. - SFAS No. 143. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the fair value of a liability for asset retirement obligations be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company has not yet assessed the potential impact of the adoption of SFAS No. 143. - In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in that it removes goodwill from its impairment scope and allows for different approaches in cash flow estimation. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of. SFAS No. 144 also supersedes the business segment concept in APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," in that it permits presentation of a component of an entity, whether classified as held for sale or disposed of, as a discontinued operation. However, SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations. The Company is required to adopt the provision of SFAS No. 144 beginning with its fiscal year that starts January 1, 2002. The Company does not believe that adoption of SFAS 144 will have a material effect on its consolidated financial statements. ITEM 7. FINANCIAL STATEMENTS. The information required by this Item is included on pages F-1 to F-20 of this Annual Report. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. PREVIOUS INDEPENDENT ACCOUNTANTS CALLAGHAN NAWROCKI LLP. On June 26, 2000, the Company and its independent accountants, Callaghan Nawrocki LLP, mutually agreed that Callaghan Nawrocki LLP would terminate its relationship as the Company's auditors. The Board of Directors recommended and approved the decision to change independent accountants. The reports of Callaghan Nawrocki LLP on the financial statements for the year ended December 31, 1998 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except for the report on the 1998 audited financial statements which included a modification on the Company's ability to continue as a going concern. In connection with the audit for the year ended December 31, 2000, the Company's new independent accountants, Arthur Andersen, conducted an independent audit of the financial statements for the year ended December 31, 1999, and in connection therewith, the Company amended its Annual Report for the year ended December 31, 1999 to include the financial statements for such year as 22 audited by Arthur Andersen. The amended and restated financial statements for the year ended December 31, 1999 modified, in certain respects, the financial statements for such fiscal year as previously reported. In connection with its audit for the year ended December 31, 1998, there were no disagreements with Callaghan Nawrocki LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of Callaghan Nawrocki LLP, would require disclosure. ARTHUR ANDERSEN. On June 26, 2000, the Company engaged Arthur Andersen as its independent accountants to examine and report on the Company's financial statements for the year ended December 31, 2000. This engagement was ratified by the stockholders of the Company at the Company's 2000 Annual Meeting. Prior to its engagement of Arthur Andersen, the Company did not consult with Arthur Andersen on items which (a) were, or should have been, subject to SAS 50 or (b) concerned a disagreement or reportable event with Callaghan Nawrocki LLP as described in Regulation S-B Item 304(a)(2). On December 31, 2001, Arthur Andersen resigned as the Company's independent auditors. During the fiscal year ended December 31, 2000 and for the period from inception (October 18, 1999) to December 31, 1999 and through December 31, 2001, there were no disagreements between the Company and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Arthur Andersen, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. The reports of Arthur Andersen on the financial statements for the year ended December 31, 2000 and for the period from inception (October 18, 1999) to December 31, 1999, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. Arthur Andersen provided the Company with a letter agreeing with the foregoing statements as to Arthur Andersen, and a copy of such letter is filed as an exhibit to the Company's Current Report on Form 8-K, filed with the SEC on January 8, 2002. NEW INDEPENDENT ACCOUNTANT On January 2, 2002, the Company engaged BDO Stoy Hayward to act as its independent accountant to examine and report on the Company's financial statements for the year ended December 31, 2001. Prior to its engagement of BDO Stoy Hayward, the Company did not consult with BDO Stoy Hayward on items which (a) were, or should have been, subject to SAS 50 or (b) concerned a disagreement or reportable event with Arthur Andersen as described in Regulation S-B Item 304(a)(2). 23 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. The following table sets forth the current officers and directors of HTTP:
NAME AGE POSITION - ---- -------- ---------------------------------------------- Stefan Allesch-Taylor........................... 32 Chairman, Chief Executive Officer, Chief Financial Officer and Director Matthew Gill.................................... 30 Director Mark Warde-Norbury.............................. 38 Director
Directors are elected in accordance with the Company's by-laws to serve until the next annual stockholders meeting and until their successors are elected in their stead. The Company does not currently pay compensation to directors for services in that capacity. Officers are elected by the Board of Directors and hold office until their successors are chosen and qualified, until their death or until they resign or have been removed from office. All corporate officers serve at the discretion of the Board of Directors. There are no family relationships between any director or executive officer and any other director or executive officer of the Company. STEFAN ALLESCH-TAYLOR has been our Chairman and Chief Executive Officer since December 1999. Since that date, his principal role has been to oversee corporate affairs of HTTP, including the creation of Medicsight. Mr. Allesch-Taylor has served as Chairman of STG Holdings PLC, a U.K. investment company, since 1997; STG is a major stockholder of HTTP Technology, Inc. and a number of other businesses. Mr. Allesch-Taylor led the team at STG that organized the Company and also acquired International Cellulose Company Limited in 2001. Over the past eight years, he has served as a Director of a wide variety of companies and acted for a number of substantial international trusts involved in the finance and technology sectors. MATTHEW GILL has served as a director of the Company since January 7, 2002. He obtained a BA (Hons) degree in 1995 and joined STG Holding PLC in 1996. For the past six years, Mr. Gill has worked on a number of corporate acquisitions and corporate finance matters as well as UK Public Company compliance. He was appointed a director of STG on February 19, 2002. In April 1999, he was appointed a Business Advisor to The Princes Trust, a charity assisting new businesses sponsored by the Trust, and continues to serve in that role. MARK WARDE-NORBURY has served as a director of the Company since January 29, 2001. He graduated from Durham University and spent fourteen years with the investment bank Robert Fleming & Co. and its subsidiary company Save & Prosper Group. As a senior manager in the bank, Mr. Warde-Norbury helped to launch and manage the Fleming Private Banking operation in the UK, working in conjunction with the Commercial Banking and Corporate Finance departments. Mr. Warde-Norbury's primary responsibilities for the Company will be in creating the structures of joint partnerships and alliances for our proprietary technology, and in presenting the company's varied operations and products. He is an Affiliate of The Securities Institute, and a Securities and Futures Authority (SFA) authorized Corporate Advisor, as well as a director of Capital Strategy PLC. Until January 2002, Mr. Ward-Norbury was a director and shareholder of STG Holdings PLC, the majority stockholder of the Company. Significant employees of Medicsight are: PETER VENTON OBE was appointed as a director of Medicsight on November 22, 2001. Mr. Venton has over 30 years' experience in the computing and telecommunications industry and holds several patents in the sector. Between 1985 and 2000, Mr. Venton held various chief executive posts, including Plessey Radar which became Siemens Plessey Electronic Systems after its takeover by Siemens in 1989. From 1993 to 1996, he was the Chief Executive of GEC-Marconi Prime Contracts. From 1997 to 2000, 24 Mr. Venton was the Regional Managing Director of GEC PLC (BAE Systems from December 1999), the supplier of defense, telecommunications, medical and industrial products and systems. He currently serves as the Deputy Chairman of International Hospitals Group and is the Technical Audit Chairman for the Defence Evaluation and Research Agency. He was made a member of the Order of the British Empire (OBE) in the Queen's Birthday Honours in 1989 for services to UK Industry. From March 2001 to January 27, 2002 Mr. Venton was a director of the Company. TONY DOWZALL was appointed Chief Operating Officer of Medicsight on April 8, 2002. Mr. Dowzall was awarded a BA (Hons) degree in Business Studies from Bournemouth University in 1988, and has subsequently completed an Executive Development course at Harvard Business School. Mr. Dowzall began his career at Nestle (UK) Ltd as a Sales Account Executive and then went on to work for STC Electronic Services Ltd., where he held the post of Senior Procurement Manager and was responsible for negotiating and purchasing computer IT equipment with a L1.5 million monthly budget. Thereafter, Mr. Dowzall joined Epson (UK) Ltd. as a Business Manager and was responsible for a 5% market share increase over a two-year period. In 1992 Mr. Dowzall joined Compaq as a Product Manager based in Munich. After five years he became the Director of the Consumer Product Development Centre, where he drove a L129 million business Profit & Loss turnaround in three years. In 1999, Mr. Dowzall was promoted to Vice President & General Manager of Compaq's Consumer Division based in Houston, Texas. He was responsible for leading worldwide business and product strategy for the $18.4 billion consumer computer group. Within two years, Mr. Dowzall achieved sustained market leadership and industry exceeding growth of over 24% whilst reducing direct operating costs. MARK CHARLTON was appointed Chief Financial Officer of Medicsight on March 20, 2002. Mr. Charlton is a qualified Chartered Accountant who began his career at Deloitte & Touche. From 1998 to 2001, Mr. Charlton was Chief Financial Officer at the software company Orchestream Holdings PLC from May 2000 until February 2002 and Vice President--Finance and Operations from September 1998 until May 2000. He was instrumental in listing that company on the London Stock Exchange and NASDAQ, raising equity funding and completing the subsequent acquisition of NASDAQ listed CrossKeys Networks Systems, Inc. Prior to that, he served as an independent consultant to several companies, including Taylor Nelson Sofres PLC, Diageo PLC, Compagnie Financiere Richemont AG, the holding company for organizations such as Rothmans International and Vendome Group, and United Artists communications, working on corporate and accounting matters. Mr. Charlton is a South African citizen and qualified as a Chartered Accountant (S.A.) in 1993 while employed by Deloitte & Touche. He received a Bachelor of Accounting Sciences (Honours) from the University of South Africa in 1992. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under the securities laws of the United States, the Company's directors, its executive officers, and any persons holding more than ten percent of the Company's common stock are required to report their initial ownership of the Company's common stock and any subsequent changes in that ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established and the Company is required to disclose any failure to file by these dates. Each of Stefan Allesch-Taylor and Mark Warde-Norbury (current directors of the Company), Sir Euan Calthorpe, Bt. (a former director of the Company) and STG Holdings PLC (a beneficial owner of more than 10% of the outstanding Common Stock) filed late Forms 4 with respect to acquisitions by STG Holdings PLC of our Common Stock during the current fiscal year as required by Section 16(a) of the Exchange Act. In addition, Asia IT, a beneficial owner of more than 10% of our outstanding Common Stock) has not filed a Form 3 with respect to its original acquisition of our Common Stock, as required by Section 16(a) of the Exchange Act. The failure of each such person and entity to timely file the required reports with the SEC is considered a knowing violation of Section 16(a) of the Exchange Act. 25 ITEM 10. EXECUTIVE COMPENSATION. The following table summarizes calendar 2001 compensation for services in all capacities of the Company's executive officers. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------- AWARDS PAYOUTS ANNUAL COMPENSATION ------------ -------- ------------------------------- SECURITIES LTIP SALARY BONUS UNDERLYING PAYOUTS ALL OTHER NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($) COMPENSATION - --------------------------- -------- -------- --------- ------------ -------- ------------ Stefan Allesch-Taylor ................. 2001 120,056 -- -- -- -- Chairman and CEO 2000 172,741 -- -- -- -- 1999 -- -- -- -- -- Jason E. Forsyth, CFO(2)............... 2001 90,788 -- -- -- -- 2000 115,967 -- -- -- -- -- -- -- -- -- -- Christopher J. Wilkes, ................ 2001 -- -- -- -- -- President and CEO(1) 2000 -- -- -- -- -- 1999 -- -- -- -- --
- ------------------------ (1) Christopher J. Wilkes served as the Company's President and Director from September 30, 1996 to January 10, 2000. He resigned from his positions with the Company as a result of the implementation of the Reorganization Agreement. (2) Jason E. Forsyth resigned as the Company's Chief Financial Officer effective December 27, 2001. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding beneficial ownership of the Company's common stock as of March 26, 2002, and before by: - each person known by the Company to be the beneficial owner of more than 5% of the outstanding common stock; - each person serving as a director or executive officer of the Company; and - all executive officers and directors of the Company as a group. Beneficial ownership is determined in accordance with the rules of the Commission. In general, a person who has voting power and/or investment power with respect to securities is treated as a beneficial owner of those securities. For purposes of this table, shares subject to outstanding warrants and options exercisable within 60 days of the date of this Annual Report are considered as beneficially owned by the person holding such securities. To our knowledge, except as set forth in this table, we believe that the persons named in this table have sole voting and investment power with respect to the shares shown. Except as otherwise indicated, the address of each of the directors, executive officers and 5% shareholders in this table is as follows: HTTP Technology, Inc., 46 Berkeley Square, London, UNITED KINGDOM, W1J 5AT 26 Percentage beneficially owned is based upon 57,868,582 shares of Common Stock issued and outstanding as of March 26, 2002.
NUMBER OF SHARES PERCENTAGE OF COMMON NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED EQUITY BENEFICIALLY OWNED - ------------------------ ------------------ ------------------------- 5% BENEFICIAL OWNERS STG Holdings PLC ...................................... 36,006,450 62.2% 46 Berkeley Square London, United Kingdom W1J 5AT Societe Privee, as Nominee ............................ 4,176,443(1) 7.2% 22 Grosvenor Square, London, United Kingdom W1X 9LF DIRECTORS AND OFFICERS Stefan Allesch-Taylor.................................. 40,520,926(2) 70.0% Matthew Gill........................................... 36,006,450(3) 62.2% Mark Warde-Norbury..................................... 123,524(4) * Total Officers and Directors as a Group (3 persons).... 40,644,450 70.2%
- ------------------------ * Less than 1%. (1) Consists of the holdings of 69 individuals and corporate entities none of whom i) holds more than 3.6% of the issued and outstanding shares of the Company; and ii) is an officer, director or control person or is related to an officer, director, control person or an affiliate. (2) Includes 36,006,450 shares of common stock directly owned by STG Holdings PLC. As a significant shareholder and a director of STG, Mr. Allesch-Taylor may be deemed to control the investment and voting decisions with respect to the stock held by STG in the Company. (3) Consists of 36,006,450 shares of common stock directly owned by STG Holdings PLC. As a significant shareholder and a director of STG, Mr. Gill may be deemed to control the investment and voting decisions with respect to the stock held by STG in the Company. (4) Consists of 40,000 shares held by a spouse, Lucy Warde-Norbury and 83,524 shares directly owned by Capital Strategy PLC. As a significant shareholder of Capital Strategy PLC, Mr. Warde-Norbury may be deemed to control the investment and voting decisions with respect to the stock held by Capital Strategy in the Company ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. FAIRFAX EQUITY LTD. On October 27, 1999, the Company entered into a conditional Acquisition Agreement and Plan of Reorganization (the "Reorganization Agreement") with Fairfax Equity Ltd. ("Fairfax"), a holding company, and the stockholders of Fairfax whereby the Company would acquire all of the issued capital stock of Fairfax. On December 22, 1999, all the conditions precedent to the Reorganization Agreement were met by the Company and, accordingly, the Company and Fairfax proceeded to implement the transactions contemplated by the Reorganization Agreement. Pursuant to this implementation, the Company issued a total of 17,280,000 shares of common stock to the shareholders of Fairfax in order to acquire 100% of the issued capital stock of Fairfax. These shares accounted for 80.3% of the issued share capital of the Company. The shareholders of Fairfax as a group thus acquired a majority of the shares issued and STG, the major shareholder of Fairfax, 27 controlled 60.2% of the Company. STG is an English company. Simultaneously with the closing of the Reorganization Agreement, Stefan Allesch-Taylor, the Company's current Chairman, Chief Executive Officer and Director, Nicholas Thistleton, and Sir Euan Calthorpe, Bt., a current Director, were appointed to the Board of Directors. In February 2001, Mark Warde-Norbury was appointed as a Director of the Company. Mr. Allesch-Taylor is Chairman, and Mr. Gill is a director, of STG. ACQUISITION OF CORE VENTURES, LTD. In September 2000, we acquired Core Ventures Limited ("Core"), a privately held Internet venture company, from Troy Limited, a Cayman corporation. Under the agreement, we issued 3,600,000 shares of our Common Stock for 100% of the outstanding stock of Core. Core's principal asset was an interest of less than 1% in Red Cube, a voice-over-IP telecommunications provider, and warrants to purchase further shares (less than 3%) in Red Cube. The agreement provided in part that Dr. Alexander Nill, a principal of Troy, guaranteed to us that, as of December 15, 2000, Core would have had assets of not less than $25,000,000. At the time of this transaction, Dr. Nill was one of our directors. He resigned from that position, effective February 27, 2001. On December 27, 2000, Dr. Nill signed a Memorandum of Understanding stipulating that the net assets of Core were estimated to be approximately $2,500,000 and that the warrants to purchase further Red Cube stock held by Core had no value. Dr. Nill acknowledged that he had been served by us with a formal demand to honor his obligations to us pursuant to the terms of the personal guarantee provided by him as security for the Core acquisition. As part of this obligation, we have received 3,140,000 shares (the "Escrow Shares") of our Common Stock from Dr. Nill, all of which have been duly endorsed and placed into an escrow account. In addition, approximately 930,000 shares of our Common Stock still held by Dr. Nill have been frozen on our books. In the fiscal quarter ended September 30, 2001, an agent, NYPPe, LLC, was assigned by the escrow agent to dispose of the Escrow Shares in a secondary private placement. As of December 31, 2001 15,000 of the Escrow Shares had been sold, resulting in net proceeds to the Company of approximately $75,000. On March 6, 2002, Core entered into voluntary liquidation proceedings. In accordance with the Companies Act governing companies organized in the British Virgin Islands, Core has appointed a liquidator to assess the fair value of its assets. We intend to initiate legal proceedings in the State of New York to enforce Dr. Nill's guarantee and to seek compensation for the shortfall in value on the guarantee, approximately $9,109,000, which has not yet been provided to us by Dr. Nill. ACQUISITION OF INSIGHTS. On December 29, 2000, the Company acquired all of the issued and outstanding shares of Insights, formerly known as Nightingale Technologies Ltd., in a stock-for-stock transaction valued then at approximately $180 million (the "Insights Offer"). The Company received the shares of Insights on that date but, pursuant to the terms of the Insights Offer, was not required to pay any consideration for the Insights shares until certain conditions were met. The first of these conditions, that the Company receive a validation by DERA as to the technical and commercial viability of Insights' proprietary technology, was satisfied on February 22, 2001. As such, the Company issued the first tranche of contingent consideration of 15,000,000 shares of its Common Stock on that date to Asia IT, Nightingale, Emirates Nominees and other former shareholders of Insights on the instruction of Nightingale. As a result of such transactions, each of Nightingale, Asia IT and Emirates Nominees became an owner of 5% or more of the Company's Common Stock. In connection with the Company's recent corporate reorganization, the assets of Insights have been transferred and costs associated with the development of the Medicsight system have been reimbursed and assigned by way of a loan note to Medicsight. The amount of the loan note from the Company was approximately $5,379,000, and this loan note has been converted into 58,828,582 ordinary shares of Medicsight. Subsequent to September 30, 2001, upon agreement with the seller of Insights and in variance of the conditions precedent set forth in the original agreement, the parties agreed that the obligation to issue the second tranche of contingent consideration may be satisfied by the direct issuance of shares in Medicsight. On November 22, 2001, Medicsight issued 15,000,000 shares in Medicsight to Nightingale, 28 and Nightingale accepted such shares in satisfaction of the Company's obligation under the original purchase agreement. As of the date hereof, there is no public market for the Medicsight shares. Nightingale is an 8.6% stockholder of the Company. Asia IT was a shareholder of Nightingale. Asia IT was also a stockholder owning more than 5% of our Common Stock at the time of this acquisition. CREDIT FACILITIES FROM ASIA IT. On December 15, 2000, the Company entered into an unsecured credit facility with Asia IT, which provides a $20,000,000 line of credit. Asia IT is the beneficial owner of 7,511,600 shares (or 12.2% of the outstanding shares) of Common Stock at December 31, 2001. Such line of credit originally expired on December 31, 2001, but has been extended until June 30, 2003. Interest on advances under the credit facility accrues at 2% above US LIBOR. The Company can draw down on this credit facility for its financing requirements, upon approval by the Company's Board of Directors and subject to approval by Asia IT (such approval not to be unreasonably withheld). The Company is restricted from borrowing funds, directly or indirectly, other than through the credit facility with Asia IT, without the consent of Asia IT. The availability of the credit facility reduces upon the Company's sale of any of its investment assets. As of the date of this Annual Report, the Company has drawn down approximately $1,340,000 under this credit facility. The Company estimates that, in the foreseeable future, it will need to further draw upon such credit facility in order to meet its liabilities as they come due. On November 20, 2001, Asia IT entered into a L10,000,000 ($14,500,000) credit facility with Medicsight. Such facility matures in November 2004 and is secured by a lien on all of the assets of Medicsight. Interest on outstanding amounts accrues at 2% above LIBOR. Pursuant to such credit facility, Medicsight has covenanted to undertake a public offering of its ordinary shares in an amount not less than L25,000,000 not later than March 2002. The outstanding loan may be converted, with the consent of Medicsight, into ordinary shares of Medicsight at the time Medicsight makes the public offering, at the public offering price. LEASE OF OFFICES. The Company's corporate offices at 46 Berkeley Square are leased by International Cellulose Company Limited (ICCL), a company registered in England and Wales. STG Holdings PLC, the majority stockholder of HTTP Technology, acquired 100% of the issued share capital of International Cellulose Company Limited in November 2001. Rent on 46 Berkeley Square is managed by Berkeley Square Ventures Limited (BSV), a property management company incorporated in England and Wales. Berkeley Square Ventures Limited estimates the rental space occupied by the tenants and collects the rents from the tenants (including HTTP and ICCL) on behalf of ICCL. There are no formal leases between BSV and the tenants or a formal agreement between ICCL and BSV for BSV to collect the rent due. In 2001 the Company paid BSV $285,000 in rent. 29 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS
EXHIBIT NO. DESCRIPTION - --------------------- ------------------------------------------------------------ 1.1 Underwriting Agreement between Internet Holdings, Inc. and Panther Capital Ltd., dated January 6, 2000(1) 2.1 Articles of Merger of HTTP Technology, Inc., a Utah corporation(2) 2.2 Certificate of Merger of HTTP Technology, Inc., a Delaware corporation(2) 2.3 Offering Document to acquire shares of Radical Technology PLC(3) 3.1 Certificate of Incorporation of HTTP Technology, Inc. and amendments thereto(2) 3.2 By-Laws of HTTP Technology, Inc.(2) 4.1 Loan Note issued by HTTP Insights, Ltd. to Nightingale Technologies Ltd.(8) 10.1 Stock Purchase Agreement, dated as of September 7, 2000, between Troy Ventures Ltd. and Internet Holdings, Inc.(4) 10.2 Share Sale Agreement between Nightingale Technologies Limited and HTTP Technology, Inc.(5) 10.3 Letter Agreement between Asia IT Capital Investments, Ltd. and HTTP Technology, Inc.(8) 10.4 Letter Agreement between Asia IT Capital Investments, Ltd. and Medicsight PLC (filed herewith) 16.1 Letter from Callaghan Nawrocki LLP regarding change in certifying accountant dated June 30, 2000.(6) 16.2 Letter from Arthur Andersen regarding change in certifying accountant, dated January 8, 2002.(7) 21.1 Subsidiaries (filed herewith)
- ------------------------ (1) Incorporated herein by reference to the Company's Current Report on Form 8-K filed January 31, 2000. (2) Incorporated herein by reference to the Company's Current Report on Form 8-K filed on January 10, 2001. (3) Incorporated herein by reference to the Company's Current Report on Form 8-K filed on May 23, 2000. (4) Incorporated herein by reference to the Company's Current Report on Form 8-K filed September 27, 2000. (5) Incorporated herein by reference to the Company's Current Report on Form 8-K filed March 7, 2001. (6) Incorporated herein by reference to the Company's Current Report on Form 8-K filed June 30, 2000. (7) Incorporated herein by reference to the Company's Current Report on Form 8-K, filed January 7, 2002, as amended on January 8, 2002 (8) Incorporated herein by reference to the Company's Registration Statement on Form SB-2, filed December 26, 2001. (B) REPORTS ON FORM 8-K None. 30 HTTP TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 TOGETHER WITH INDEPENDENT AUDITORS' REPORT HTTP TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 Independent Auditors' Report of BDO Stoy Hayward (fiscal year ended December 31, 2001)............................. F-2 Independent Auditors' Report of Arthur Andersen (fiscal year ended December 31, 2000).................................. F-3 Consolidated Balance Sheet as of December 31, 2001.......... F-4 Consolidated Statements of Operations for the years ended December 31, 2001 and December 31, 2000................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001 and December 31, 2000....... F-6 Consolidated Statements of Cash Flow for the years ended December 31, 2001 and December 31, 2000................... F-7 Notes to the Consolidated Financial Statements.............. F-8 to F-20
F-1 INDEPENDENT AUDITORS' REPORT Board of Directors HTTP Technology, Inc. London, England We have audited the accompanying consolidated balance sheet of HTTP Technology, Inc., as of December 31, 2001 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HTTP Technology, Inc. at December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. BDO Stoy Hayward London, England March 27, 2002 F-2 INDEPENDENT AUDITORS' REPORT To the Shareholders and Directors of HTTP Technology, Inc. We have audited the consolidated balance sheet of HTTP Technology, Inc., formerly Internet Holdings, Inc., and subsidiaries as of December 31, 2000, and the accompanying related consolidated statement of operations, stockholders equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HTTP Technology, Inc. and Subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN London, England April 11, 2001 F-3 HTTP TECHNOLOGY, INC. AND SUBSIDIARIES (FORMERLY INTERNET HOLDINGS, INC,) CONSOLIDATED BALANCE SHEET DECEMBER 31, 2001
2001 ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents................................... 202,662 Accounts receivable (net of allowance for doubtful debts of $74,000).................................................. 93,398 Other receivables........................................... 182,661 Prepaid expenses............................................ 117,605 VAT Receivable.............................................. 60,676 ------------ Total current assets...................................... 657,002 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of $315,000.................................. 358,874 INVESTMENTS, at cost........................................ 700,100 SECURITY DEPOSITS........................................... 50,119 INTANGIBLE ASSET, at cost, net of accumulated amortization of $4,494,000............................................. 17,976,000 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated amortization of $16,645,000................... 88,918,408 Total assets.............................................. $108,660,503 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ 641,087 Accrued expenses............................................ 436,849 Accrued professional expenses............................... 208,906 Short term debt............................................. 4,574,852 ------------ Total current liabilities................................. 5,861,694 ------------ CAPITAL LEASE............................................... 18,856 ------------ Total liabilities......................................... 5,880,550 ------------ STOCKHOLDERS' EQUITY: Common stock, $.001 par value, 100,000,000 shares authorized, 57,868,582 shares issued and outstanding.... 57,869 Additional paid-in capital.................................. 166,298,623 Vendor guarantee.......................................... (10,000,000) Cumulative foreign currency translation adjustment.......... (44,269) Accumulated deficit......................................... (54,458,798) ------------ Total stockholders' equity................................ 101,853,425 MINORITY INTEREST........................................... 926,528 ------------ Total stockholders' equity................................ 102.779.953 Total liabilities and stockholders' equity................ $108,660,503 ============
The accompanying notes are an integral part of these statements. F-4 HTTP TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
2001 2000 ------------ ------------ REVENUES.................................................... $ 225,086 $ 514,152 EXPENSES: Selling, general and administrative......................... 10,521,623 5,784,838 Software development cost................................... 76,934 2,020,024 Research and development cost............................... 1,266,000 0 Impairment of intangibles................................... 386,715 0 Impairment of investments................................... 2,412,239 224,948 Income on stockholder guarantee............................. 0 (19,109,329) Impairment of other receivable.............................. 0 19,109,329 Impairment of vendor guarantee.............................. 9,109,352 0 Amortization of goodwill.................................... 15,384,820 1,259,871 Impairment of goodwill...................................... 7,217,404 0 ------------ ------------ 46,375,087 9,289,681 Operating (loss)............................................ (46,150,001) (8,775,529) OTHER INCOME/EXPENSE: Interest and other income................................... 191,030 138,393 Net foreign exchange losses................................. 0 (109,617) ------------ ------------ 191,030 28,776 Net (loss) before minority interest......................... (45,958,971) (8,746,753) MINORITY INTEREST........................................... 114,084 32,674 Net income (loss)........................................... $(45,844,887) $ (8,714,079) PER SHARE DATA: Basic and diluted loss per share............................ $ (0.82) $ (0.24) Weighted average number of common shares outstanding........ 55,690,212 36,383,441
The accompanying notes are an integral part of these statements. F-5 HTTP TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
COMMON STOCK* ---------------------- ADDITIONAL VENDOR ACCUMULATED SHARES AMOUNT PAID-IN CAPITAL GUARANTEE WARRANTS DEFICIT ----------- -------- --------------- ------------ ---------- ------------ BALANCE, DECEMBER 31, 1999......... 22,718,940 22,719 2,626,002 -- -- (30,228) =========== ======= ============ ============ ========== ============ Issuance of warrants............... -- -- -- -- 4,427,877 Issuance of shares pursuant to convertible loan note............................. 400,000 400 49,600 -- -- -- Issuance of shares pursuant to Regulation S offerings........... 11,600,000 11,600 10,308,148 -- -- -- Issuance of shares upon exercise of warrants......................... 2,000,000 2,000 5,425,877 -- (4,427,877) -- Issuance of shares in connection with acquisition of Radical Technology PLC................... 2,429,330 2,429 12,144,221 -- -- -- Issuance of shares in connection with acquisition of Core Ventures Limited.......................... 3,600,000 3,600 20,360,831 -- -- -- Less Vendor Guarantee.............. -- -- -- (19,109,330) -- -- COMPREHENSIVE LOSS Net loss for the year.............. -- -- -- -- -- (8,714,079) Net effect of foreign currency translation adjustments.......... -- -- -- -- -- -- Exercise of subsidiary stock option........................... -- -- -- -- -- 130,396 Total Comprehensive Loss......... -- -- -- -- -- (8,583,683) BALANCE, DECEMBER 31, 2000......... $42,748,270 $42,748 $ 50,914,679 $(19,109,330) $ -- $(8,613,911) =========== ======= ============ ============ ========== ============ Issuance of shares in connection with acquisition of Radical Technology PLC................... 120,312 121 601,449 -- -- -- Issuance of shares in connection with acquisition of Nightingale Technologies Ltd................. 15,000,000 15,000 92,985,000 -- -- -- Transfer of MDA PLC to STG (Holdings) PLC................... -- -- 1,056,620 -- -- -- Impairment of vendor guarantee..... -- -- -- 9,109,330 -- -- Medicsight shares issued to Nightingale in settlement of loan agreement........................ -- -- 20,740,875 -- -- -- COMPREHENSIVE LOSS: Net loss for the year............ -- -- -- -- -- (45,844,887) Translation adjustment........... Total comprehensive loss......... BALANCE, DECEMBER 31, 2001......... $57,868,582 $57,869 $166,298,623 $(10,000,000) $(54,458,798) =========== ======= ============ ============ ========== ============ TOTAL ACCUMULATED OTHER STOCKHOLDERS' COMPREHENSIVE LOSS EQUITY ------------------- ------------- BALANCE, DECEMBER 31, 1999......... -- 2,618,493 ======== ============ Issuance of warrants............... -- 4,427,877 Issuance of shares pursuant to convertible loan note............................. -- 50,000 Issuance of shares pursuant to Regulation S offerings........... -- 10,319,748 Issuance of shares upon exercise of warrants......................... -- 1,000,000 Issuance of shares in connection with acquisition of Radical Technology PLC................... -- 12,146,650 Issuance of shares in connection with acquisition of Core Ventures Limited.......................... -- 20,364,431 Less Vendor Guarantee.............. -- (19,109,330) COMPREHENSIVE LOSS Net loss for the year.............. -- (8,714,079) Net effect of foreign currency translation adjustments.......... (19,416) (19,416) Exercise of subsidiary stock option........................... -- 130,396 Total Comprehensive Loss......... -- (8,603,099) BALANCE, DECEMBER 31, 2000......... $(19,416) $ 23,214,770 ======== ============ Issuance of shares in connection with acquisition of Radical Technology PLC................... 601,570 Issuance of shares in connection with acquisition of Nightingale Technologies Ltd................. 93,000,000 Transfer of MDA PLC to STG (Holdings) PLC................... 1,056,620 Impairment of vendor guarantee..... 9,109,330 Medicsight shares issued to Nightingale in settlement of loan agreement........................ 20,740,875 COMPREHENSIVE LOSS: Net loss for the year............ -- Translation adjustment........... (24,853) Total comprehensive loss......... (45,869,741) BALANCE, DECEMBER 31, 2001......... $(44,269) $101,853,425 ======== ============
- ------------------------------ * All share issuances have been retroactively restated to give effect to 2-for-1 stock split on February 5, 2001 F-6 HTTP TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(45,844,887) $(8,714,079) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization of intangibles.............. 4,867,220 253,733 Impairment of intangibles................................. 386,715 -- Amortization of goodwill.................................. 15,384,820 1,259,872 Impairment of goodwill.................................... 7,217,404 -- Capitalized software development costs written off........ 76,934 2,020,024 Provision for doubtful accounts........................... 2,834 71,041 Non-cash consulting expenses.............................. -- 1,580,055 Impairment of investment.................................. 2,412,239 224,948 Impairment of vendor guarantee............................ 9,109,352 -- Minority interest in net earnings of subsidiary........... (114,084) (32,674) Changes in operating assets and liabilities, net of effects from acquisitions of businesses........................... Decrease in accounts receivable........................... 20,536 197,241 (Increase) in other receivables........................... (35,294) (15,109) Decrease/(Increase) in prepaid expenses................... 170,258 (199,209) Decrease/(Increase) in VAT receivable..................... 98,356 (159,032) (Increase)/Decrease in unbilled services.................. (85,803) 27,433 Decrease/(Increase) in security deposits.................. 194,459 (244,579) (Decrease)/Increase in accounts payable................... (48,464) 157,690 Increase/(decrease) in accrued expenses................... 267,824 (50,741) (Decrease)/Increase in accrued professional expenses...... (28,270) 237,176 ------------ ----------- Net cash (used) in operating activities................. (5,947,851) (3,386,210) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets.................................... (163,590) (463,715) Funds received from Core guarantee.......................... 75,193 -- Capitalized software development costs...................... -- (85,417) Liquidation/(purchase) of investments....................... 1,660,000 (2,109,137) ------------ ----------- Net cash from (used in) investing activities............ 1,571,603 (2,658,269) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in capitalized lease............................... (4,475) -- Increase in loan to Insights (pre-acquisition).............. -- (5,000,000) (Decrease) in bank overdraft................................ (179,018) 179,018 Increase in line of credit.................................. 1,324,851 -- Decrease in loan note....................................... (2,756,025) -- Shares issued on conversion of warrants..................... -- 1,000,000 Exercise of option.......................................... -- 130,396 Shares issued for cash...................................... -- 15,479,467 ------------ ----------- Net cash (used) provided by financing activities........ (1,614,667) 11,788,881 ------------ ----------- Effects of exchange rates on cash and cash equivalents...... (37,558) (19,416) NET (DECREASE) INCREASE IN CASH............................. $ (6,028,473) $ 5,724,986 ------------ ----------- CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD................ 6,231,135 506,149 ------------ ----------- CASH & CASH EQUIVALENTS, END OF PERIOD...................... $ 202,662 $ 6,231,135 ============ =========== Cash paid for income taxes.................................. $ nil $ 8,000 NON CASH FINANCING ACTIVITIES Issuance of shares for acquisitions......................... $115,399,064 $32,511,081 Issuance of shares for convertible loan note................ $ -- $ 50,000
The accompanying notes are an integral part of these consolidated financial statements. F-7 HTTP TECHNOLOGY, INC. AND SUBSIDIARIES (FORMERLY INTERNET HOLDINGS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND BASIS OF PRESENTATION HTTP Technology, Inc. and its subsidiaries (the "Company") is a developer of sophisticated software technology. The Company's business objective is to conceive, develop and commercialize innovative products based around the Company's core technology. In April 2000, the Company acquired Radical Technology PLC (now known as HTTP Software PLC) which provided the Company with a business dedicated to systems integration and software development. In December 2000, the Company acquired Nightingale Technologies Limited (now known as HTTP Insights Ltd.), the principal technology of which is a Stochastic Perception Engine, formerly known as the Data Classification Engine. A Stochastic Perception Engine, processes and classifies unstructured data into meaningful outputs, enabling it to be viewed, interpreted or further manipulated by the user of the application. Similar technologies sit at the core of many of today's major software applications. HTTP's Stochastic Perception Engine is comprised of four principal modules: cluster analysis, statistical modeling, classification and prediction. This technology offers unsurpassed processing speed, accuracy and comprehensiveness of results when compared to existing data classification or neural network based technologies. The Company is concentrating on the development and commercialization of the Medicsight system and as such has effectively merged the Insights scientific department and the Software development department into Medicsight PLC. Software's own core technology has not been further developed since acquisition. Software will complete current software maintenance contracts with existing suppliers. Insights retains the Stochastic Perception Engine. The Company is the successor consolidated entity formed by the reverse acquisition on December 22, 1999 by Fairfax Equity, Ltd. of Internet Holdings, Inc. a publicly-held company originally incorporated in Utah in 1977, under the name, Trolley Enterprises, Inc. Fairfax Equity, Ltd. ("Fairfax") which was treated as the accounting acquirer in the transaction, was incorporated in the United Kingdom on October 18, 1999. On October 12, 2000, the Company changed its name from Internet Holdings, Inc. to HTTP Technology, Inc. Prior to its reverse acquisition by Fairfax, control of the former Internet Holdings, Inc., as well as the corporate name, had changed many times. All prior operations had previously been discontinued and all claims and counterclaims were settled, the last of which settlements occurred in November 1999. Pursuant to the reverse acquisition, Fairfax's shareholders were issued 17,280,000 shares of the Company's common shares, then constituting 80.3% of outstanding common shares. At the time of acquisition, the majority stockholder of Fairfax represented the value of its cash and investment assets to be not less than $2,160,000. In the event that when the investment is realized, the net proceeds, together with cash at the date of acquisition, total less than $2,160,000, the majority stockholder of Fairfax has guaranteed to contribute additional cash to bring the total amount up to $2,160,000 (see Note 3). On December 19, 2000, HTTP Technology, Inc. entered into an Agreement and Plan of Merger with its wholly-owned subsidiary HTTP Technology, Inc., a Delaware corporation and thereby effected a reincorporation of the Company from Utah to Delaware. F-8 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of HTTP Technology, Inc. and its subsidiaries in which it has a controlling interest. Subsidiaries acquired are consolidated from the date of acquisition. All inter-company accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS--The Company considers investments with original maturities of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE--Accounts receivable are stated at cost. The Company maintains allowances for uncollectible accounts. The balance for the years ended December 31, 2001 and December 31, 2000 for provision of doubtful accounts was approximately $74,000 and $71,000, respectively. INVESTMENTS--Investments consist of equity ownership in various corporations. The Company records these investments at historical cost, subject to any provision for impairment. PROPERTY AND EQUIPMENT--Property and equipment are stated at cost. Depreciation is calculated on the various asset classes over their estimated useful lives, which range from two to five years. INTANGIBLE ASSETS--Intangible assets consist primarily of software development costs, trademarks, workforce and existing contracts. These intangible assets are being amortized on a straight-line basis over two to five years. The Company evaluates the periods of amortization continually to determine whether later events or circumstances warrant revised estimates of useful lives. The Company viewed the development of the Medicsight system and staff changes as such and so intangible assets acquired from Software and Insights (Value of Workforce) were fully impaired in Fiscal 2001. The balance of the intangibles relates to the Technology acquired from Insights for $22,470,000 less $4,494,000 amortized in Fiscal 2001. Accumulated amortization was approximately $4,494,000 at December 31, 2001 and approximately $143,000 at December 31, 2000. EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED--Excess of purchase price over net assets acquired ("goodwill") represents the excess of acquisition purchase price over the fair value of the net assets acquired. To the extent possible, a portion of the excess purchase price is assigned to identifiable intangible assets. Goodwill is being amortized on a straight-line basis over five years. The balance of goodwill (net of amortization of $16,645,000) at December 31, 2001 of $88,918,000 relates to the acquisition of Insights. The goodwill attributable to the Insights acquisition comprising the first tranche of 15 million shares issued by the Company of $67,086,000 and the second tranche of 15 million shares issued by Medicsight on behalf of the Company of $21,832,000, both amounts stated after amortization. IMPAIRMENT OF EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED--The Company evaluates the carrying value of goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The goodwill attributable to the acquisition of Software was fully impaired during the fiscal year ended December 31, 2001 in response to the halt on the development of its own software to concentrate on the Medicsight system. An impairment of approximately $6,906,000 was recorded. A further impairment of the goodwill acquired on the acquisition of Insights of $311,000 was recorded during the fiscal year ended December 31, 2001 after comparing preliminary estimates with a valuation undertaken on behalf of the company. F-9 IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF--The Company evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's assessment for impairment of an asset involves estimating the undiscounted cash flows expected to result from use of the asset and its eventual disposition. An impairment loss recognized is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. FOREIGN CURRENCY TRANSLATION--The accounts of the Company's foreign subsidiaries are maintained using the local currency as the functional currency. For these subsidiaries, assets and liabilities are translated into U.S. dollars at year-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net gains and losses from foreign currency translation are excluded from operating results and are accumulated as a separate component of stockholders' equity. Gains and losses on foreign currency transactions are reflected in current operating results. REVENUE RECOGNITION--Revenue is recognized as software maintenance services are performed, in accordance with the terms of the contractual arrangement, where persuasive evidence of an arrangement exists, the fee is fixed and determinable and collection is reasonably assured. The Company's principal revenues relate to maintenance and support services for contracts entered into by Software. RESEARCH AND DEVELOPMENT--Costs incurred in connection with the development of software products that are intended for sale are accounted for in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed". Costs incurred prior to technological feasibility being established for the product are expensed as incurred. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. Amortization commences when the product is available for general release to customers. During Fiscal 2001 software development costs of approximately $77,000 were written off as the projects concerned (Addserver--structure advertising software and Callanalysis--a website) were halted. During Fiscal 2000, the Company wrote off $2,020,000 in software development costs. These costs include $1,878,000 previously capitalized upon the acquisition of Software, but which was subsequently written off during the year. The Company decided to write off such costs because, after Software was acquired, the Company altered the strategic direction of Software to focus its resources on other projects, particularly the Stochastic Perception Engine project (the proprietary technology of Insights). Software development costs also include $182,000 of in-process research and development costs that we wrote off when we acquired Software in April 2000. INCOME TAXES--The Company has adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", to account for deferred income taxes. Deferred taxes are computed based on the tax liability or benefit in future years of the reversal of temporary differences in the recognition of income or deduction of expenses between financial and tax reporting purposes. The net difference, if any, between the provision for taxes and taxes currently payable is reflected in the balance sheet as deferred taxes. Deferred tax assets and/or liabilities, if any, are classified as current and noncurrent based on the classification of the related asset or liability for financial reporting purposes, or based on the expected reversal date for deferred taxes that are not related to an asset or liability. Valuation allowances are recorded to reduce deferred tax assets to that amount which is more likely than not to be realized. F-10 LOSS PER SHARE--Basic loss per share is calculated by dividing net income or loss attributable to the stockholders by the weighted average number of shares of Common Stock outstanding during the period. Diluted loss per share is calculated by dividing the net income or loss attributable to the stockholders by the sum of the weighted average number of shares of Common Stock outstanding and diluted potential shares of Common Stock. COMPREHENSIVE LOSS--Comprehensive loss reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss is comprised of net (loss) and foreign currency translation adjustments. FAIR VALUE OF FINANCIAL INSTRUMENTS--Statement of Financial Accounting Standards 107, requires all entities to disclose the fair value of certain financial instruments in their financial statements. Accordingly, the Company reports that the carrying amount of cash and cash equivalents, accounts receivable, monetary prepayments, accounts payable and accrued liabilities, advances and short-term debt approximates fair value due to the short maturity of these instruments. SEGMENT REPORTING--The Company follows the provisions of SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information". This approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas and major customers. All of the Company's revenues were generated by HTTP Software, which was acquired during April 2000 and all revenues were generated in the United Kingdom. During the current year, the Company had three customers that represented a significant portion of its revenues. The Company acquired two of these customers during the year ended December 31, 2000. The customers are as follows: Commonwealth Secretariat: approximately $67,000 or 29.8% of sales. Eidos Interactive: approximately $58,000 or 25.8% of sales. Texaco: approximately $51,000 or 22.7% of sales. As of December 31, 2001, receivables from these customers represented 0% of total accounts receivable. In Fiscal 2000, the sales from the customers representing greater than 10% of revenues were from Red Cube AG, which accounted for 26.7% of sales (of which $74,000 was allowed as doubtful), and Texaco, which accounted for 13.4% of sales. In addition, there were sales to the following prior to acquisition: Radical Technology PLC, which accounted for 19.3% of sales, and Nightingale Technologies Ltd, which accounted for 25.7% of sales. COMMON STOCK--The holder of each share of common stock outstanding is entitled to one vote per share. STOCK OPTIONS--The Company accounts for stock options under the provisions of Accounting Principles Board Opinion ("APB") No. 25. Where options are issued to acquire a fixed number of shares with a fixed exercise price the intrinsic value measured at the grant date is amortized over the vesting period of the options. All options issued in 2000 were subsequently cancelled in 2001. Currently there are no stock options outstanding. Options issued to non-employees are accounted for in accordance with the fair value method under SFAS No. 123. This requires the use of an option pricing model, to determine the fair value of the option. Currently there are no stock options issued to non-employees. The measurement date is the earlier of either of the following: - The date at which a commitment for performance is reached (a performance commitment) or F-11 - The date at which the counter party's performance is complete USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as revenues and expenses during the reporting period. Actual results could vary from those estimates. RECENT ACCOUNTING PRONOUNCEMENTS--In June 2001, the Financial Accounting Standards Board authorized the issuance of Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 also requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. SFAS No. 141 requires intangible assets to be recognized if they arise from contractual or legal rights or are "separable", i.e., it is feasible that they may be sold, transferred, licensed, rented, exchanged or pledged. Under SFAS No. 142, goodwill will no longer be amortized over its estimated useful life, but will be tested for impairment on an annual basis and whenever indicators of impairment arise. The goodwill impairment test, which is based on fair value, is to be performed on a reporting unit level. A reporting unit is defined as a SFAS No. 131 operating segment or one level lower. Goodwill will no longer be allocated to other long-lived assets for impairment testing under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Additionally, goodwill on equity method investments will no longer be amortized; however, it will continue to be tested for impairment in accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Under SFAS No. 142 intangible assets with indefinite lives will not be amortized. Instead they will be carried at the lower cost or market value and tested for impairment at least annually. All other recognized intangible assets will continue to be amortized over their estimated useful lives. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 although goodwill on business combinations consummated after July 1, 2001 will not be amortized. On adoption the company may need to record a cumulative effect adjustment to reflect the impairment of previously recognized intangible assets. In addition, goodwill on prior business combinations will cease to be amortized. The Company has not determined the impact that specific Statements will have on intangible assets or whether a cumulative effect adjustment will be required upon adoption. SFAS No. 143. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the fair value of a liability for asset retirement obligations be recognized in the period in which it is incurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company has not yet assessed the potential impact of the adoption of SFAS No. 143. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in that it removes goodwill from its impairment scope and allows for different approaches in cash flow estimation. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of. SFAS No. 144 also supersedes the business segment concept in APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," in that it permits presentation of a component of an entity, whether classified as held for sale or disposed of, as a discontinued operation. However, SFAS No.144 retains the requirement of APB Opinion No. 30 to report discontinued operations F-12 separately from continuing operations. The Company is required to adopt the provision of SFAS No. 144 beginning with its fiscal year that starts January 1, 2002. The Company does not believe that adoption of SFAS 144 will have a material effect on its consolidated financial statements. (3) INVESTMENTS The Company accounts for its investments in non-marketable securities under the cost method of accounting as it owns less than a 20% interest in each of the companies. The Company reviews each investment continually to assess for other-than-temporary decreases in value in its investments. The Company reviews all available financial and non-financial data, in assessing the extent of any impairment. At December 31, 2001, the Company held the following investments: - A 6% holding in Eurindia PLC, a company which seeks to invest in small Indian IT services, valued at $634,000. - A 1% holding in Strategic Intelligence PLC, a market research company based in Singapore at $36,000. On April 19, 2000 the Company purchased the holding in Strategic Intelligence PLC for cash of approximately $262,000. As of December 31, 2000, the Company viewed that the investment was permanently impaired by approximately $225,000 based upon a valuation undertaken by a third party, and that amount was written off. - A holding in Top Tier Inc, a software company based in California, USA at $30,000 On April 17, 2000 the Company purchased a 5% holding in Compaer AG, a supplier of online insurance for both business-to-business and business-to-customer markets in Germany for cash of DM2.5 million (approximately $1,314,000). Based on information received, in Q2 2001, regarding the financial status of Compaer AG, management concluded that the value of investment was permanently impaired as Compaer filed for insolvency in May 2001 and the Company has recorded an impairment write-down equivalent to the entire carrying value of this investment. The Company sold its interest in MDA Group PLC to STG Holdings PLC, a major stockholder, on March 23, 2001 for the guaranteed value of $1,660,000 representing an excess over book value of approximately $1,000,000. As this amount represented a guarantee by a previous shareholder this excess over book value is reflected as a contribution to stockholders' equity for the year ended December 31, 2001 On September 20, 2000 the Company acquired Core Ventures Limited in a stock for stock acquisition. The principal asset of Core Ventures Limited was an investment in Red Cube AG that was provisionally valued at approximately $1,255,000. During 2001, based on the deteriorating financial status of Red Cube AG, evidenced by non-payment of HTTP Software bills and the difficulty in obtaining information or responses from the Red Cube, the management concluded that the value of the investment was permanently impaired, and the Company has recorded an impairment write-down equivalent to the entire carrying value of this investment. During 2001, based upon the deteriorating financial status the Company permanently impaired the values of its immaterial investments in Fix-It-On-Line Ltd ($20,000) and M3U.com Ltd ($12,000), both companies being registered in England & Wales. F-13 (4) PROPERTY AND EQUIPMENT Property and equipment consist of the following as of December 31, 2001: Computer hardware and software.............................. $ 305,045 Furniture and fixtures...................................... 156,637 Motor vehicles.............................................. 212,350 --------- 674,032 Less: Accumulated depreciation.............................. (315,158) --------- $ 358,874 =========
(5) LINE OF CREDIT On December 15, 2000, the Company entered into an unsecured credit facility with Asia IT Capital Investments Limited ("Asia IT"), which provides a $20,000,000 line of credit. Such line of credit originally expired on December 31, 2001, but has been extended until June 30, 2003. Interest on advances under the credit facility accrues at 2% above US LIBOR. At December 31, 2001 US LIBOR was 2.445%. The Company can draw down on this credit facility for its financing requirements, upon approval by the Company's Board of Directors and subject to approval by Asia IT (such approval not to be unreasonably withheld). The Company is restricted from borrowing funds, directly or indirectly, other than through the credit facility with Asia IT, without the consent of Asia IT. The availability of the credit facility reduces upon the Company's sale of any of its investment assets. On November 20, 2001, Asia IT entered into a L10,000,000 ($14,500,000) credit facility with Medicsight. Such facility matures in November 2004, and is secured by a lien on all of the assets of Medicsight. Interest on outstanding amounts accrues at 2% above GBP LIBOR. At December 31, 2001 GBP LIBOR was 4.471%. Pursuant to such credit facility, Medicsight has covenanted to undertake a public offering of its ordinary shares in an amount not less than L25,000,000 not later than March 2002. If Medicsight does not complete such offering, the facility will nevertheless remain in place. The loan is convertible into ordinary shares in Medicsight on announcement of an Offer to Subscribe, Placing or other public offering of its ordinary shares, at the same price per share as the offering price. Due to the private offering being undertaken by Medicsight, the loan is currently convertible. At December 31, 2001, the Company had drawn down approximately $1,070,000 under the $20 million facility with Asia IT, and Medicsight had drawn down approximately $255,000 under its L10,000,000 ($14,500,000) facility with Asia IT. (6) CAPITAL LEASE OBLIGATION As of December 31, 2001, the Company was party to capital lease obligations in the amount of $24,836. These obligations require monthly payments of $564, excluding interest through August 2005 and are secured by the underlying equipment. (7) SHORT-TERM DEBT The Company acquired Insights in December 2000. At the time of such acquisition, Insights had outstanding $6,006,000 of long-term debt. This debt was part of the original loan of $10,000,000 that Insights owed to its parent company relating to the acquisition of patent applications for its Stochastic Perception Engine technology. The loan bears interest at 2% above US LIBOR and is unsecured. The principal of the loan and accrued interest does not mature until October 5, 2003. As of December 31, 2001, the balance of this loan was $3,250,000. Interest accrues on the loan on a day to day basis and is payable when the loan is redeemed. The terms of the loan note include a provision whereby the lender can require repayment within one business day of giving notice of demand, in the event of Insights F-14 ceasing to be a wholly-owned subsidiary of its former parent. No notice has been given as of December 31, 2001 and management does not expect the notice to be given. (8) STOCKHOLDERS' EQUITY On February 5, 2001, the Company effected a 2-for-1 split (the "Split") of its Common Stock. As such, all share and per share information in the accompanying financial statements have been restated to reflect the Split. The Company sold its interest in MDA Group PLC to STG Holdings PLC, a major stockholder, on March 23, 2001 for the guaranteed value of $1,660,000 representing an excess over book value of approximately $1,000,000. As this amount represented a guarantee by a previous shareholder this excess over book value is reflected as a contribution to stockholders' equity for the year ended December 31, 2001 In connection with the acquisition agreement with Fairfax Equity Ltd. on December 22, 1999, the Company entered into a consulting agreement with an unrelated company to assist the Company with its strategy, expansion and financing. Upon signing of the agreement, the Company issued 1,200,000 shares of common stock as consideration for services to be rendered over the year ended December 22, 2000. The fair value of these shares was approximately $1,620,000, of which $1,580,000 was recorded as a prepaid expense. The expense was recognized over the term of the contract. On October 25, 1999, Internet Holdings, Inc. raised $50,000 through the issuance of a convertible loan note (the "Note"). The Note was offered pursuant to an exemption from registration under Section 4 (2) of the Securities Act of 1933, as amended, and/or Regulation S promulgated by the Securities and Exchange Commission. The purpose of this funding was to enable the Company to file all outstanding reports required by the Securities Exchange Act of 1934, as amended, and to search for suitable acquisition candidates in the Internet related fields. The Note bore interest at 5.5% per annum. On January 24, 2000, the $50,000 convertible loan note was converted into 400,000 shares of the Company's common stock. On January 28, 2000, the Company sold 10,000,000 shares of common stock at a price of $.50 per share pursuant to Regulation S. The Company has agreed to register 25% of the shares under the Securities Act of 1933, as amended. In consideration for underwriting the issue in full, the underwriter received warrants to purchase up to 2,000,000 shares of common stock of the Company at a price of $0.50 per share. The fair value of the warrants, which has been recorded as a reduction of the proceeds, is approximately $4,428,000. On May 12, 2000, the underwriters exercised all the warrants for $1,000,000. The shares are not yet registered. On November 20, 2000, the Company sold 1,600,000 shares of its common stock at a price of $6.25 per share pursuant to Regulation S. The Company received proceeds of $9,747,625, net of $252,375 of expenses associated with this stock issuance. (9) CORPORATION ACQUISITIONS On April 21, 2000, the Company acquired through a stock for stock tender offer approximately 76.73% of the outstanding ordinary shares of Radical Technology PLC (subsequently renamed HTTP Software PLC) ("Software"). Through subsequent additional issuances of stock the Company has acquired 99.5% of Software's outstanding common stock in exchange for 2,549,742 shares of the Company's common stock which was valued at approximately $12,748,220. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the assets acquired and liabilities assumed have been recorded at their fair values as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed has been assigned to in process research and development, other identifiable intangibles including trademarks, F-15 workforce, covenant not to compete, software development costs, existing contracts and the remaining amount has been recorded as excess of purchase price over net assets acquired on the accompanying balance sheet. The fair values have been based on an independent valuation. The value assigned to in-process research and development, approximately $181,000, has been expensed and is reflected in software development costs written off in the accompanying consolidated statements of operations. The costs incurred in the acquisition are included in the cost of the investment. In September 2000, we acquired Core Ventures Limited ("Core"), a privately held Internet venture company, from Troy Limited, a Cayman corporation. Under the agreement, we issued 3,600,000 shares of our Common Stock for 100% of the outstanding stock of Core. Core's principal asset was an interest of less than 1% in Red Cube AG ("Red Cube"), a voice-over-IP telecommunications provider, and warrants to purchase further shares (less than 3%) in Red Cube. The agreement provided in part that Dr. Alexander Nill, a principal of Troy, guaranteed to us that, as of December 15, 2000, Core would have had assets of not less than $25,000,000. At the time of this transaction, Dr. Nill was one of our directors. He resigned from that position, effective February 27, 2001. The 3,600,000 shares of the Company's common stock were valued at $20,364,000 based upon the average share price over the two weeks of the announcement of the acquisition on March 28, 2000 less a discount of 10% to represent the limited liquidity of the stock. On December 27, 2000, Dr. Nill signed a Memorandum of Understanding stipulating that the net assets of Core were estimated to be approximately $2,500,000 and that the warrants to purchase further Red Cube stock held by Core had no value. Dr. Nill acknowledged that he had been served by us with a formal demand to honor his obligations to us pursuant to the terms of the personal guarantee provided by him as security for the Core acquisition. As part of this obligation, we have received 3,140,000 shares (the "Escrow Shares") of our Common Stock from Dr. Nill, all of which have been duly endorsed and placed into an escrow account. In addition, approximately 930,000 shares of our Common Stock still held by Dr. Nill have been being subjected to a stop transfer order. The stock held but not signed over to the company is valued at $10,000,000. In the fiscal quarter ended September 30, 2001, an agent, NYPPe, LLC, was assigned by the escrow agent to dispose of the Escrow Shares in a secondary private placement. As of December 31, 2001 15,000 of the Escrow Shares had been sold, resulting in net proceeds to the Company of approximately $75,000. No further Escrow Shares have been sold and the disposal has been closed. On March 6, 2002, Core entered into voluntary liquidation proceedings. In accordance with the Companies Act governing companies organized in the British Virgin Islands, Core has appointed a liquidator to assess the fair value of its assets. We intend to initiate legal proceedings in the State of New York to enforce Dr. Nill's guarantee and to seek compensation for the shortfall in value on the guarantee, approximately $9,109,000, which has not yet been provided to us by Dr. Nill. IMPAIRMENT OF VENDOR GUARANTEE. Impairment of a vendor guarantee in the amount of $9,109,000 relates to an impairment of the guarantee provided by Dr. Alexander Nill ("Guarantor") as to the fair value of certain assets acquired under the Company's acquisition of Core in September 2000. The vendor guarantee represents the fair value of 4,070,000 shares returned to the Company as partial consideration for the guarantee. On October 5, 2000, the Company entered into a Purchase and Sale Agreement to acquire 100% of the outstanding capital stock of Ferman AG, a Swiss venture capital company ("Ferman") for the issuance of 5,100,000 shares of common stock. The Company, having undertaken further due diligence, had determined that conditions to closing had not been fulfilled, and accordingly, the Company had decided not to proceed with the transaction. Therefore, results and net assets of Ferman have not been consolidated in the financial statements contained in this Annual Report in any way. On December 29, 2000, the Company acquired all of the issued and outstanding shares of HTTP Insights Limited ("Insights"), formerly known as Nightingale Technologies, Ltd., in a stock-for-stock F-16 transaction valued at approximately $180 million (the "Insights Offer"). The Company received the shares of Insights on that date but, pursuant to the terms of the Insights Offer, was not required to pay any consideration for the Insights shares until certain conditions were met. The first of these conditions, that the Company receive a validation by the Defence Evaluation and Research Agency ("DERA"), an agency of the United Kingdom Ministry of Defence, as to the technical and commercial viability of Insights' proprietary technology. This condition was met on February 22, 2001, and as such we issued the first tranche of consideration of 15,000,000 shares, valued at approximately $93,000,000 based on a weighted average share price of $6.20 per share. Subsequent to September 30, 2001, upon agreement with the seller of Insights and in variance of the conditions precedent set forth in the original agreement, the parties agreed that the obligation to issue the second tranche of contingent consideration may be satisfied by the direct issuance of shares in Medicsight to Nightingale Technologies Ltd. ("Nightingale"), the seller of Insights. On November 22, 2001, Medicsight issued 15,000,000 shares in Medicsight to Nightingale, and Nightingale accepted such shares in satisfaction of our obligation under the original purchase agreement. Nightingale is an 8.6% stockholder of the Company. The value attributed to the cost of the issuance of the second tranche was $21,832,000, which was treated as excess of the purchase price over the fair value of the assets acquired. This was based on the allocation of Medicsight PLC stock in March 2002 at L1.00 ($1.45) per share. At the date of acquisition, the Company completed a preliminary purchase price allocation. During the fourth quarter of 2001, the Company finalized the purchase price allocation as follows:
$ USEFUL LIFE ----------- ----------- Tangible Fixed Assets................................ 67,000 2-5 yrs Technology........................................... 22,470,000 5 yrs Value of Workforce................................... 180,000 2 yrs Net current liabilities.............................. (10,198,000) Goodwill............................................. 102,313,000 5 yrs 114,832,000
During 2001, the Value of the Workforce was impaired and the Technology was accounted for as an intangible. The Company has accounted for the covenant not to compete as a component of goodwill and not as separately identifiable and marketable assets. Results of operations for all acquisitions have been included in the accompanying consolidated financial statements since their respective dates of acquisition. The unaudited pro forma consolidated statement of operations for 12 months ended December 31, 2000 gives effect to the acquisition of HTTP Insights Limited, Core Ventures Limited and HTTP Software Limited as if they had occurred at the beginning of Fiscal 2000:
TWELVE MONTHS ENDED PRO FORMA: DECEMBER 31, 2000 - ---------- ------------------- Revenues.................................................. $ 632,943 Net loss.................................................. $(35,768,222) Basic and diluted net loss per share...................... $ (0.65) Weighted average shares outstanding....................... 54,844,160
The unaudited pro forma consolidated financial information does not purport to represent what the Company's financial position or results of operations would actually have been if these transactions had occurred at such dates or to project the Company's future results of operations. F-17 (10) EMPLOYEE STOCK OPTIONS On May 3, 2000, the Board of Directors approved the Company's Combined Incentive and Nonqualified Stock Option Plan and reserved 2,500,000 shares of its common stock for issuance upon exercise of options granted under this plan. During 2000 the Company granted 1,168,000 options to its employees. These options were returned to the Company by the employees later in the year. There was no consideration provided to the employees related to the return of the options. These stock options were subsequently cancelled in 2000. As of December 31, 2001 there were no options issued and outstanding. (11) INCOME TAXES The income tax provision is summarized as follows for the years ended December 31, 2001 and December 31, 2000:
YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 ------------------ ------------------ Current Federal................................... $0 $ 8,000 State and local........................... 0 0 Foreign................................... 0 0 Deferred.................................... 0 (8,000) Total income tax provision (benefit)........ 0 0
Significant components of deferred tax assets were as follows as of December 31, 2001: Deferred Tax Assets Tax loss carryforward....................................... $ 9,561,000 Property and plant depreciation methods..................... 49,000 Total....................................................... 9,610,000 Valuation Allowance......................................... (9,610,000) ----------- Net deferred tax asset...................................... $ 0 ===========
The Company has net operating loss carryforwards to offset future taxable income of approximately $25,105,000 expiring in years 2004 through 2016. As it is not more likely than not that the resulting deferred tax benefits will be realized, a valuation allowance has been recognized for such deferred tax assets. The provision for income tax differs from the amount computed by applying the statutory federal income tax rate to income before the provision for income taxes. The sources and tax effects of the differences are as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 ------------------ ------------------ Tax benefit at the federal statutory rates..................................... (34)% (34)% Change in valuation allowance............... 10 20 Nondeductible amortization.................. 18 -- Foreign operations.......................... 4 4 Other....................................... 2 10 --- --- Effective rate of income tax................ 0% 0% === ===
F-18 (12) LEASE COMMITMENTS The Company has entered into various operating leases for its facilities and equipment. Future minimum obligations (in United States Dollars) under these lease arrangements are as follows:
FOR THE YEAR ENDING DECEMBER 31, FACILITIES LEASES EQUIPMENT LEASES TOTAL - -------------------------------- ----------------- ---------------- -------- 2002................................... 75,000 14,531 89,531 2003................................... 50,000 12,918 62,918 2004................................... -- 8,203 8,203 2005................................... -- 5,469 5,469 2006 and thereafter.................... -- -- --
Total rent expense for the year ended December 31, 2001 was $495,386 and for the year ended December 31, 2000 was $268,266. (13) RELATED PARTY TRANSACTIONS As more fully discussed in Note 9, during September 2000, the Company acquired 100% of the outstanding stock of Core Ventures Limited. At the time of this transaction, Dr. Alexander Nill was a Director of the Company and principal beneficial shareholder of Core Ventures Limited. In connection with this acquisition, Dr. Nill had guaranteed the valuation of the net assets of Core Ventures Limited to be not less then $25,000,000 as of December 15, 2000. On December 27, 2000 Dr. Nill acknowledged the net assets of Core Ventures Limited to be approximately $2,500,000 and agreed to provide other investments valued at $10,900,000 to the Company. The remaining balance of $11,600,000 due under this guarantee was to be paid in cash no later than June 26, 2001. Dr. Nill resigned as a Director of the Company effective February 27, 2001. As more fully discussed in Note 9, during 2000 the Company entered into certain agreements to acquire Ferman AG. At the time of these agreements, Dr. Alexander Nill and Martin Lecher, the principal shareholder and Chief Executive Officer of Ferman AG, respectively, were Directors of the Company. As conditions to closing on the transaction had not been fulfilled, the Company decided not to proceed with the acquisition. Mr. Lechner and Dr. Nill resigned as Directors of the Company on December 11, 2000 and February 27, 2001, respectively. As more fully discussed in Note 9, on December 29, 2000, the Company acquired all of the issued and outstanding shares of HTTP Insights Limited ("Insights"). Asia IT was a shareholder in Insights as well as the Company at the time of the acquisition, and has provided a credit facility for up to $20,000,000. The credit facility originally expired on December 31, 2001, but has been extended to June 30, 2003. All advances under the credit facility accrue interest at 2% above US LIBOR. The Company is restricted from borrowing funds, directly or indirectly, other than through the credit facility, without the consent of Asia IT. On November 20, 2001, Asia IT entered into a L10,000,000 ($14,500,000) credit facility with Medicsight. Such facility matures in November 2004, and is secured by a lien on all of the assets of Medicsight. Interest on outstanding amounts accrues at 2% above GBP LIBOR. At December 31, 2001 GBP LIBOR was 4.471%. Pursuant to such credit facility, Medicsight has covenanted to undertake a public offering of its ordinary shares in an amount not less than L25,000,000 not later than March 2002. If Medicsight does not complete such offering, the facility will nevertheless remain in place. The loan is convertible into ordinary shares in Medicsight on announcement of an Offer to Subscribe, Placing or other public offering of its ordinary shares, at the same price per share as the offering price. Due to the private offering being undertaken by Medicsight, the loan is currently convertible. The Company's corporate offices at 46 Berkeley Square are leased by International Cellulose Company Limited (ICCL), a company registered in England and Wales. STG Holdings PLC, the F-19 majority stockholder of HTTP Technology, acquired 100% of the issued share capital of International Cellulose Company Limited in November 2001. Rent on 46 Berkeley Square is managed by Berkeley Square Ventures Limited (BSV), a property management company incorporated in England and Wales. Berkeley Square Ventures Limited estimates the rental space occupied by the tenants and collects the rents from the tenants (including HTTP and ICCL) on behalf of ICCL. There are no formal leases between BSV and the tenants or a formal agreement between ICCL and BSV for BSV to collect the rent due. In 2001 the Company paid BSV $285,000 in rent. (14) LEGAL PROCEEDINGS On January 23, 2002, Chess Ventures LLC ("Chess") commenced a lawsuit against the Company in the Chancery Court of Delaware, seeking an order to compel the Company to remove restrictive legends from share certificates owned by Chess so that Chess could sell the shares represented by the certificates under Rule 144 of the Securities Act ("Rule 144"). Chess has also claimed money damages due to the Company's failure to remove the legends. The Company has filed a defense and counterclaim to this claim and have subsequently instructed its transfer agent to remove the restrictive legends on all applicable certificates (including those held by Chess) should proper requests be made by the holders thereof in accordance with Rule 144. The matter currently remains in the pre-trial discovery stage. Accordingly, the Company is unable to state whether any outcome is either probable or remote. (15) SUBSEQUENT EVENTS During March 2002, Medicsight allotted 6,000,000 shares at L1.00 ($1.45) per share (par value L0.05) of which approximately 3,000,000 have been placed. Asia IT is underwriting the issue. As of April 5, 2002, the Company has received approximately $1,750,000. F-20 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HTTP TECHNOLOGY, INC. April 19, 2002 /s/ STEFAN ALLESCH-TAYLOR ------------------------------------------ Stefan Allesch-Taylor, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER (PRINCIPAL EXECUTIVE By: OFFICER AND PRINCIPAL FINANCIAL OFFICER)
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ STEFAN ALLESCH-TAYLOR ------------------------------------------- Director April 19, 2002 Stefan Allesch-Taylor /s/ MATTHEW GILL ------------------------------------------- Director April 19, 2002 Matthew Gill /s/ MARK WARDE-NORBURY ------------------------------------------- Director April 19, 2002 Mark Warde-Norbury
EX-10.4 3 a2077272zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 ASIA IT CAPITAL INVESTMENT LIMITED 4 Etage, 15 rue de la Confederation 1204 Geneva Switzerland Tel: +41 22 318 00 90 Fax: +4122 318 00 95 20 November 2001 Medicsight Limited 46 Berkeley Square London W1 J 5AT England For the attention of Mr S Allesch-Taylor This letter sets out the terms and conditions on which we are prepared to offer a cash advance facility in pounds sterling: 1. INTERPRETATION In this letter: "Amount Drawn Down" MEANS the amount of each advance requested by you on each occasion you give notice requesting an advance in accordance with clause 3.2 "Facility" MEANS the sum of El 0,000,000 "Facility Letter" MEANS the agreement constituted by this letter and your acceptance "Repayment Date" MEANS 20 November 2004 "Security" MEANS a second fixed charge on all your shares and other securities and all land and buildings and a second floating charge on all your other assets In the form contained in the Security Documents "Security Documents" MEANS a Loan Stock Instrument in the form attached to this Facility Letter "Termination Date" MEANS the Repayment Date or, if earlier, the date on which the Facility is cancelled under clause 7 2. CONDITIONS PRECEDENT The Facility shall be made available to you when we have received in form and substance satisfactory to us, 2.1 the duplicate of this Facility Letter with the attached acceptance, duly signed by you; 2.2 budget estimates for the period during which the Facility may be drawn down; and 2.3 a copy of the Security Documents duly executed by you. 3. ADVANCES 3.1 Subject to the terms of this Facility Letter, the Facility shall be available to you until the Termination Date. 3.2 Notice requesting an advance must be received by us no later than noon (London time) two days before the date on which the advance is required. The notice must specify the amount of the advance required. 3.3 Unless we specifically agree, you may not request an advance more than once each month. 3.4 You must supply a copy of your management accounts with each request for an advance; such management accounts must show that expenditure is not more than 110 per cent of budgeted estimates, plus the amount of any Income in excess of budgeted income or less the amount of any income under budgeted income (other than loans, advances and share capital Issues and expenses relating to share capital issues). 3.5 We shall have no obligation to make any advance if: 3.5.1 the management accounts delivered pursuant to clause 3.4 show expenditure more than 110 per cent of budgeted estimates (adjusted as provided In 3.4 above), but this shall not preclude us from advancing part of the Facility if we think fit, and if we do so on one occasion we shall not be committed to do so on any other occasion; 3.5.2 the representations, warranties and/or undertakings in clause 6 shall not be true and correct; or 3.5.3 any event of default under clause 7 has occurred and is continuing. -2- 4. INTEREST AND REPAYMENT 4.1 Interest shall be charged on the Facility at an annual rate 2% above the London Inter-Bank Offered Rate for Sterling of an amount equal to the Amount Drawn Down (or if quotations cannot readily be obtained for the Amount Drawn Down, the average of the amounts for which quotations can be readily obtained higher and lower than the Amount Drawn Down) at 11.00 am London time on the date of this Facility Letter for a period of one year (or if quotations for a period of one year are not available, for the longest period that is less than one year) and a certificate from Barclays Bank Pic (or any other bank selected by you) as to the rates offered to that bank shall be conclusive and binding on you and us. 4.2 Interest will be calculated on a daily basis in arrears on the basis of a 365 day year and, unless the Facility is converted by us into ordinary shares in accordance with the terms of the Security Documents, shall be payable on the Repayment Date. 4.3 Unless the Facility is converted by us into ordinary shares in accordance with the terms of the Security Documents, you. shall repay the Facility on the Repayment Date. 4.4 Subject to the provisions of the Security Documents, you may repay the Facility, in whole or in part, at any time on giving not less than [one month's) notice. 5. PAYMENTS 5.1 All payments to be made by you under this Facility Letter shall be made in pounds sterling in London and in immediately available funds. 5.2 All payments to be made by you to us under this Facility Letter shall be made without set-off or counterclaim and free and clear without any deduction (save for any amount you are required to withhold in respect of tax on the interest payable on the Facility). 6. REPRESENTATIONS AND WARRANTIES 6.1 You represent and warrant to us that: 6.1.1 you have full power to enter into and perform your obligations under this Facility Letter (which has been duly accepted by you) and to borrow and repay up to the maximum amount of the Facility and have obtained and will maintain in effect all necessary corporate authorisatlons and all other necessary consents, licences and authorities; 6.1.2 acceptance of this Facility Letter and the drawing of any part of the Facility does not, and will not, constitute an event of default under or breach of the terms of the charge, contract, undertaking or restrictions binding on you; -3- 6.1.3 no event has occurred which constitutes (or with the giving of notice or lapse of time or both would constitute) one of the events of default specified in clause 7 below; 6.1.4 you are not in default under any agreement to which you are a party which would have a material adverse effect on your financial condition; and 6.1.5 no litigation, arbitration or proceeding is taking place, pending or, to your knowledge, threatened against you or any of your assets which may have a material adverse effect on your assets or financial condition. 6.2 You undertake to us that you will make a public offer of ordinary shares to raise the sum of not less than (pound)25,000,000 (including the expenses of issue) no later than three months after the date any part of the Facility is advanced by us to you. In the event the full amount is not raised this facility is not compromised. 6.3 Each of your representations, warranties and undertakings shall be continuing and deemed to be repeated on the making of any request for an Amount Drawn Down 7. EVENTS OF DEFAULT 7.1 If: 7.1.1 default is made for more than 14 days in the payment on the due date of any amount payable under the Facility; 7.1.2 you are in materially breach of any other of your obligations under this Facility for more than 30 days after written notice from us to you requiring such breach to be remedied; 7.1.3 you admit in writing your inability to pay or shall become unable to pay your debts generally as they fall due, or a petition is issued for your winding up, or you shall give notice to creditors and/or members convening meetings to consider a proposal for a Creditors Voluntary Winding up or become insolvent, or file any petition for the making of an Administration Order in respect of you, or for action for relief under any bankruptcy, insolvency or moratorium law; 7.1.4 proceedings are started for the appointment of a receiver, trustee or similar officer of all or any of your revenues and assets; 7.1.5 a distress or other execution is levied on or against any substantial part of your property and is not discharged within 15 days; 7.1.6 there shall be a change in the Identity of the person who exercises control (as defined in section 840 of the Income and Corporation Taxes Act 1988) of you from the person who exercises such control at the date hereof; -4- 7.1.7 any representation or warranty made by you to us in or pursuant to this Facility Letter, and which would have adversely affected our decision to lend the Facility to you, shall prove to have been incorrect in any material respect when made (or deemed made) or, if repeated at any time hereafter by reference to the facts subsisting at such time, would no longer be correct in all material respects; 7.1.8 your undertaking in clause 6.2 shall not be compiled with we shall immediately be entitled to declare that the Facility is cancelled, whereupon no further part of the Facility may be drawn and/or to demand the payment of the Facility together with all interest and other monies due under this Facility Letter, whereupon the same shall become immediately due and repayable without presentation, demand, protest or other notice whatever. 7.2 You will notify us forthwith in writing of the occurrence of any of the events specified in this clause 7. 8. FEES AND EXPENSES You shall reimburse us on demand for any costs or expenses (including but not limited to legal fees) incurred by us in the enforcement of this Facility Letter. 9. LAW AND JURISDICTION 9.1 This Facility Letter shall be governed by and construed in accordance with English law. You and we hereby irrevocably submit to the jurisdiction of the English courts. 9.2 The submission to jurisdiction in clause 9.1 above shall not prevent proceedings being brought in any other competent court. 10. PERIOD OF OFFER Please confirm your acceptance of the offer in this letter `by signing the acceptance on the enclosed duplicate of this letter and returning it to us within 21 days of today's date, failing which this offer shall lapse Yours faithfully for and on behalf of Asia IT Capital Investments Limited W. Paterson-Brown Director -5- Form of Acceptance To: Asia IT Capital Investments Limited We hereby accept your offer of a Facility on the terms and subject to the conditions in the Facility Letter of which a copy is attached. Dated 20th November, 2001 for and on behalf of Medicsight Limited /s/ S. ALLESCH-TAYLOR S. Allesch-Taylor Director -6- BETWEEN: (1) MEDICSIGHT LIMITED, incorporated in England and Wales under company number 4268510 whose registered office is at 46 Berkeley Square, London W1J 5AT ("the Company"); and (2) ASIA IT CAPITAL INVESTMENTS LIMITED incorporated in the Commonwealth of the Bahamas under company number 11 1704B, whose registered office is at 3rd Floor, Bolman House, King George Street, Nassau, Bahamas, whose principal trading address is 4 Etage, 15 rue de la Confederation, 1204 Geneva, Switzerland and whose address for service in England is care of Paul Webster, Davies Arnold Cooper, 6-8 Bouverie Street, London EC4Y 8DD ("the Lender") WHEREAS the Company by resolution of its board of directors passed on ______21st November 2001 has created the (pound)10,000,000 Convertible Secured Loan Stock to be constituted as set out in this instrument on and subject to the terms and conditions set out in this instrument. NOW THIS INSTRUMENT WITNESSES: 1. DEFINITIONS AND INTERPRETATIONS 1.1 In this instrument and the recital and the appendices to this instrument the following words and expressions shall have the meanings set out opposite them: "Loan Stock" MEANS the (pound)10,000,000 convertible secured loan stock constituted by this instrument, the amount thereof for the time being outstanding or the principal moneys represented by the same as the case may require; "Registered Office" MEANS the registered office for the time being of the Company; and "Stockholder" MEANS the person or persons from time to time holding the Loan Stock. 1.1.1. reference to any statute or statutory provision includes a reference to that statute or statutory provision as amended, extended or re-enacted and to any regulation, order, instrument or subordinate legislation under the relevant statute or statutory provision; 1.1.2. reference to the singular includes a reference to the plural and vice versa; 1.1.3. reference to any recital, condition, clause, sub-clause or appendix is to a recital, condition, clause, sub-clause or appendix (as the case may be) of or to this instrument; 1.1.4. reference to any gender includes a reference to all other genders; and 1.1.5. references to persons in this Instrument and the appendices include bodies corporate, unincorporated associations and partnerships and any reference to any party who is an individual Is also deemed to include their respective legal personal representative(s). 2. TERMS AND CONDITIONS OF ISSUE 2.1 The Loan Stock is hereby issued subject to the terms and conditions set out in appendix 2. 2.2 Title The Loan Stock shall be held subject to and with the benefit of the terms and conditions set out in appendix 2 and such terms and conditions shall be binding on the Company and the Stockholders and all persons claiming through them respectively. 2.3 Loan Stock Certificate -2- Each Loan Stock Certificate shall be executed by the Company as a deed. Each Loan Stock Certificate shall refer to this instrument and be in the form or substantially in the form of appendix 1 and the legend in appendix 2 shall be endorsed on or attached to each such Loan Stock Certificate. 3. MAXIMUM NOMINAL AMOUNT The maximum nominal amount of the Loan Stock shall not exceed E10,000,000. The Loan Stock Is secured as provided by clause 4. 4. SECURITY 4.1 The Company charges with full title guarantee the payment and discharge to the Stockholder of all monies and liabilities by the Security Documents covenanted to be paid or discharged by the Company and of all other sums now or in the future intended to be secured by the Security Documents: 4.1.1. by way of fixed charge, all stocks, shares, bonds, loans, loan stock and other securities of whatsoever nature of any company (whether a subsidiary of the Company or not) owned by the Company from time to time; 4.1.2. by way of fixed charge, all estates or interests in any freehold and leasehold property of the Company now and in the future owned by or vested in the Company, together with all buildings, fixtures (including trade fixtures) and fixed plant and machinery from time to time on that property; 4.1.3. by way of floating charge, all the Company's present and future undertaking and assets, whatever and wherever including (without limitation) the uncalled capital for the time being of the Company and all other property and assets not subject to a fixed charge under this clause 4; -3- subject to the first fixed and floating charges created by the Company by a Loan Stock Instrument made on ninth November 2001 between the Company (1) and HTTP Technology, Inc (2) 4.2 The security created by clause 4.1 shall be: 4.2.1. a continuing security to the Lender and the Stockholders notwithstanding any settlement of account or other matter or thing whatever; 4.2.2. attached to monies from time to time payable under this instrument and the conditions which the Lender may hold now or hereafter on all or any part of the property, assets and undertaking of the Company; and 4.2.3. in addition to any rights, powers and remedies at law or in equity or otherwise 4.3 Section 103 of the Law of Property Act 1925 shall not apply to the security created by this clause 4. The statutory power of sale shall be exercisable at any time after the execution of this instrument. The Lender shall not exercise its power of sale until payment has been demanded, but this provision shall not affect a purchaser or put him on enquiry whether such demand has been made. 5. ENFORCEMENT 5.1 Subject to the provisions of clause 5.9, at any time after the Loan Stock shall have become immediately due and repayable, the Lender (to the exclusion of the Stockholders) may, at Its discretion, and shall on request in writing of Stockholders holding at least 40% of the Loan Stock then in issue (but subject to the Lender being indemnified to its satisfaction against all proceedings, claims and demands to which the Lender may be liable and all costs, charges and expenses which may be incurred by the Lender In connection therewith), and without notice take such proceedings against the Company as it may deem fit. -4- 5.2 The Lender shall be. entitled to prove in any winding up of the Company in respect of the principal and/or interest payable in relation to the Loan Stock or other monies payable under any provision of this instrument. 5.3 No Stockholder (other than the Lender) shall in any circumstances be entitled to any remedy (whether by way of action, petition or otherwise howsoever) for the recovery of the Loan Stock or any part of it or any interest, unless the Lender, having become bound to take proceedings in accordance with this Instrument fail to do so. In that case any Stockholder may, in the name of the Lender itself either take such proceedings against the Company or prove in the winding up of the Company. 5.4 At any time after the Lender shall make an declaration for the payment of the principal amount of the Loan Stock or any interest thereon under the Loan Stock conditions (or If requested to do so by the Company) the Lender may appoint by writing any person which expression shall include any substituted receiver(s) and manager(s)) of all or any part of the property charged by the Company by clause 4 or any assets of the Company from time to time representing the same 5.5 The Lender may from time to time determine the remuneration of the Receiver and may remove the Receiver and appoint another in his place. 5.6 The Receiver shall be the Company's agent (subject to the terms of the Insolvency Act 1986) and shall have all powers conferred or which may be conferred by the Law of Property Act 1925 and/or the Insolvency Act 1986. The Company alone shall be responsible for his acts and omissions and for his remuneration. 5.7 In particular, but without limiting any general powers or the Lender's pow er of sale, the Receiver shall have power: 5.7.1. to take possession of, collect and get in all or any part of the charged property and assets of the Company and for that purpose to take any proceedings in the Company's name or otherwise as he shall think fit; -5- 5.7.2. to take, continue or defend any proceedings and make any arrangement or compromise which the Lender or the Receiver shall think fit; 5.7.3. to appoint managers, officers and agents for any of the above purposes, at such salaries as the Receiver or the Lender may determine; 5.7.4. to do all other acts and things which he may consider to be Incidental or conducive to any of the above powers. 5.8 Any monies received by the Receiver shall be applied: 5.8.1. first, in satisfaction of all costs, charges and expenses properly Incurred and payments properly made by the Lender or the Receiver and the remuneration of the Receiver; and 5.8.2. secondly, in accordance with the provisions of Clause 6. 5.9 No Stockholder (including the Lender, except when acting pursuant to a resolution of Stockholders): 5.9.1. ________________________________ the Security, or; 5.9.2. shall be entitled to vote on any resolution to exercise any powers under this clause 5, or exercise any other power to enforce the Security; if he has given notice to convert the Loan Stock (or any part thereof) registered in his name in to Shares of the Company pursuant to Condition 3 in Appendix 2 6. APPLICATION OF MONLES If the Company is wound up (whether compulsorily, voluntarily or subject to the supervision of the Court), all amounts payable to and received by the Lender and payable by and received from the liquidator of the Company in respect of the Loan Stock by way of principal and/or interest or otherwise payable under any of the provisions of this Instrument will be received by them on trust for application: -6- 6.1 first, in payment or satisfaction of the costs, charges, expenses and liabilities incurred by the Lender (including any unpaid remuneration) In or about the execution of the trusts of this instrument. 6.2 secondly, In payment of interest outstanding and owing on or in respect of the Loan Stock; and 6.3 thirdly, as to the balance (if any) in or towards payment of the principal outstanding and owing on or in respect of the Loan Stock. 7. PLACE OF PAYMENT All principal moneys and interest payable in respect of the Loan Stock shall be payable at the Registered Office. 8. REDEMPTION The Company may at any time redeem the Loan Stock subject to the terms and conditions set out in appendix 2 at any price agreed between the Stockholders and the Company. 9. COVENANT The Company may not create or issue any loan Stock (whether or not identical in all respects and forming a single series with the Loan Stock), or create any charge whatsoever ranking as to security in priority to or pari passu with the Loan Stock. 10. LENDER'S REMUNERATION 10.1 The Company shall pay to. the Lender for its services as trustee for Stockholders other than the Lender (if any) of this instrument remuneration at such rate as shall from time to time be agreed between the Company and the Lender. Remuneration shall be exclusive of any Value Added Tax (or analogous duty) which shall be added at the applicable rate and paid by the Company. -7- 10.2 If the Lender and the Company fall to agree on the amount of the remuneration or the amount of any additional remuneration for duties of an exceptional nature or otherwise outside the scope of the normal duties of the Lender (as trustee for Stockholders other than the Lender) under this instrument, such matters shall be determined by a person nominated (on the application of the Lender) by the President for the time being of the Law Society of England and Wales. The expenses involved in such nomination and the fees of such person shall be payable by the Company. The determination of any such person shall be final and binding on the Company and the Lender. 10.3 The Company shall also pay or discharge all costs, charges, liabilities and expenses properly incurred by the Lender in relation to the preparation and execution of, the exercise of its powers, authorities and discretions, and the performance of its duties under this instrument Including (but not limited to) legal and travelling expenses and any stamp and other taxes and duties properly paid by the Lender in connection with any legal proceedings brought or contemplated by the Lender against the Company for enforcing any obligations under this instrument. 10.4 All costs, charges, liabilities and expenses properly incurred and payments properly, made by the Lender in the lawful exercise of its powers under this instrument and all remuneration payable to the Lender shall be payable by the Company on demand. Payments actually made by the Lender prior to the demand shall (if not paid within 3 days after demand and the Lender so requires) carry interest at the rate of 3% per annum above the London Inter-Bank Offered Rate for Sterling of an amount of all other cases, interest shall accrue at such rate from the date 30 days after the date of demand or (where the demand specifies that payment shall be made on an earlier date) from such earlier date. 11. LENDER'S POWERS The Lender shall have all the powers conferred on trustees by the Trustee Act 1925 and: -8- 11.1 the Lender may In relation to this Instrument act on the opinion or advice of or information obtained from the Registrars or any lawyer, valuer, surveyor, banker, broker, auctioneer, accountant or other expert whether obtained by the Company or by the Lender or otherwise and shall not be responsible for any loss occasioned by so acting. Any such opinion, advice or information may be sent or obtained by letter, telemessage, facsimile or e-mail and the Lender shall not be liable for acting on any opinion, advice or information purporting to be conveyed by such means, eve n If it shall contain some error or shall not be authentic; 11.2 the Lender shall not be bound to take any steps to ascertain whether any event of default listed in the Conditions has happened; 11.3 save as otherwise expressly provided in this Instrument, the Lender shall, as regards all trusts, powers, authorities and discretions vested in it by this Instrument, have absolute and uncontrolled discretion as to their exercise and, provided it shall not have acted fraudulently, shall not be responsible for any loss, costs, damages or expenses that may result from the exercise or non-exercise thereof. In particular, the Lender shall not be bound to act (whether at the request or direction of the Stockholders or otherwise) under any of the provisions of this Instrument unless the Lender shall first be Indemnified to its satisfaction against all proceedings, claims and demands to which the Lender may become so liable and all costs, charges and expenses which may be so incurred by the Lender. 11.4 The Lender shall not be responsible for having acted upon any resolution purported to have been passed at any meeting of the Stockholders of which minutes have been made and signed, even though it may subsequently be found that there was some defect in the constitution of the meeting or the passing of the resolution or that, for any reason, the resolution was not valid or binding on the Stockholders; 11.5 Without prejudice to the right of indemnity by law given to Lender, the Lender and every attorney, manager, agent, delegate or other person appointed by it under this Instrument shall be Indemnified by the Company against all liabilities and -9- expenses properly Incurred by it or them in the execution of the powers and trusts of this Instrument or of any powers, authorities or discretions vested in it or them pursuant to this instrument. This indemnity shall extend to all actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted in relation to this Instrument. The Lender may in priority to any payment to the Stockholders retain and pay out of any monies in its hands on the trusts of this Instrument the amount of any such liabilities and expenses and also the remuneration (if any) of the Lender as provided in this Instrument; 11.6 The Lender may call for and shall be at liberty to accept a certificate signed by any two directors of the Company as sufficient evidence of any fact or matter on which the Lender may require to be satisfied or to have information or to the effect that, in the opinion of the persons so certifying, any particular dealing, transaction, step or thing is expedient. The Lender shall not be bound to call for further evidence and shall not be responsible for any loss occasioned by acting on any such certificate; and 11.7 As between itself and the Stockholders, the Lender shall have full power to determine all questions and doubts arising in relation to any of the provisions of this Instrument. Every such determination made in good faith (whether or not the same shall relate in whole or in part to the acts and proceedings of the Lender under this Instrument) shall be conclusive and binding on the Lender and the Stockholders. 12. LENDER'S POWER TO DELEGATE Whenever it thinks fit, the Lender may delegate by power of attorney or otherwise, to any person or persons all or any of the trusts, powers and discretions vested in it by this instrument. Delegation may be made upon such terms and subject to such conditions including (but not limited to) power to sub-delegate and subject to such regulations as the Lender may think fit. The Lender shall not be bound to supervise, the proceedings or be responsible for -10- any loss incurred by reason of any misconduct or omission on the part of any such delegate or sub-delegate. 13. APPOINTMENT OF AGENTS BY LENDER The Lender may employ and pay an agent to transact or concur in transacting any business and to do or concur in doing all acts required to be done by the Lender, including the receipt and payment of money. 14. LENDER NOT PRECLUDED FROM ENTERING INTO CONTRACTS The Lender (or any director or officer of a corporation acting as trustee of this instrument) shall not be precluded from: 14.1 holding any office or employment with the Company or any subsidiary or any person associated with the Company or any subsidiary; or 14.2 underwriting or guaranteeing the subscription of or subscribing for or otherwise acquiring, holding or dealing with the whole or any part of the Loan Stock either with or without commission or other remuneration; or 14.3 entering into any contract of insurance with the Company or any subsidiary or any person so associated for a premium or other consideration; or 14.4 otherwise at any time contracting or entering into any contract or any financial or other transaction with the Company or any subsidiary or any person so associated or being Interested in any such contract or transaction; or 14.5 accepting or holding the trusteeship of any other Trust constituting or securing any other securities issued by the Company or any subsidiary or any person associated and neither it nor they shall not be liable to account whether to the Company or any subsidiary or any person so associated or the Stockholders, for any profit made or customary share of brokerage or commission received by it or them as a result. -11- 15. LENDER CONSENTS Any consent granted by the Lender pursuant to this instrument may be granted on such terms and subject to such conditions (if any) as the Lender may in its absolute discretion determine and may be given retrospectively. Any breach of or failure to, comply with any of such terms and conditions by the Company shall constitute a breach of this instrument. 16. WAIVER BY LENDER The Lender may, resolution of the Stockholders, and on such terms and subject to such conditions as it shall think fit: 16.1 authorise or waive any proposed breach or any breach by the Company of any of the terms of this Instrument or the conditions of the Loan Stock or any proposed breach or breach by any subsidiary of such terms, without prejudice to the rights of the Lender in respect of any subsequent breach of any such terms; and 16.2 determine that any event which constitutes (or which, with the giving of notice and/or lapse of time or any other matter would constitute) an event on the happening of which the Loan Stock shall have or may become Immediately due and repayable shall not be treated as such for the purposes of this Instrument or the conditions, without prejudice to the rights of the Lender in respect of any subsequent such event. 17. APPOINTMENT AND RETIREMENT OF TRUSTEES 17.1 The statutory power to appoint new trustees of this Instrument shall be vested in the Company, but no trustee shall be appointed who shall not previously have been approved by a resolution of the Stockholders. A trust corporation may be appointed as sole trustee of this Instrument. Wherever there shall be more than two trustees of this Instrument a majority of such trustees may exercise all the functions, powers and duties by this Instrument vested in the Lender generally. -12- 17.2 A trustee may retire at any time, on giving to the Company not less than three months' written notice, without assigning any reason and without being responsible for any costs occasioned by such retirement. The retirement or removal of any trustee who Is the only trustee of this Instrument, shall not become effective until a successor trustee (being a trust corporation) or trustees is appointed in accordance with this clause. 18. LENDER MAY ASSUME COMPLIANCE BY THE COMPANY 18.1 Except as expressly provided in this Instrument, the Lender shall be and is authorised to assume without enquiry, in the absence of knowledge by, or an express notice to it to the contrary, that the Company is duly performing and observing all the terms of this Instrument and the conditions to be performed and observed by the Company. term, it shall be In the discretion of the Lender whether to take any action or proceedings or to enforce performance until in any such case the Lender are required to do so by a resolution of the Stockholders or in writing by not less than two fifths of the Stockholders and then only if the L ender shall be indemnified to its satisfaction against all actions, proceedings and claims to which it may render itself liable and all costs, charges, damages and expenses which it may Incur by so doing. 19. MISCELLANEOUS 19.1 The headings to the clauses and conditions and any underlining in this Instrument and in the schedules are for ease of reference only and shall not form any part of this Instrument for the purposes of construction. 19.2 This Instrument and the appendices set out the entire terms and conditions in connection with the Loan Stock. 19.3 If at any time any term or provision in this Instrument including the appendices shall be hold to be illegal, invalid or unenforceable, In whole or in part, under any -13- rule of law or enactment, such term or provision or part shall to that extent be deemed not to form part of this Instrument, but the enforceability of the remainder of this Instrument shall not be affected. 20. GOVERNING LAW AND JURISDICTION This Instrument and the schedules shall be governed by and construed in accordance with English law and the Company, the Lender and the Stockholders hereby submit to the exclusive jurisdiction of the English courts. IN WITNESS WHEREOF this Instrument has been executed by the Company as a deed on the day and in the year first written above. MEDICSIGHT LIMITED (INCORPORATED UNDER THE COMPANIES ACT 1985) CONVERTIBLE SECURED LOAN STOCK 2004 (THE "LOAN STOCK") Principal amount of Loan Stock: No.: (pound)[ ] [ ] Issue of F-[ I ("the Principal Amount") Convertible Secured Loan Stock (part of an issue of El 0,000,000 Convertible Secured Loan Stock 2004) created, pursuant to the Memorandum and Articles of Association of the Company, by a resolution of the board of directors of the Company passed on ( ] November 2001. THIS IS TO CERTIFY THAT: The [name] of [address] is the registered holder of E [ ] Loan Stock fully paid. The holder of the Loan Stock is and will be entitled to the benefit of and will be subject to the provisions contained in an instrument entered into by the Company and dated [ ] November 2001 which include the terms and conditions endorsed on this certificate. Interest at the rate of 2 per cent, per annum above LIBOR is payable in accordance with the provisions of condition 2. DATED this day of 2001 -14- EXECUTED AS A DEED ) AND DELIVERED on behalf of) MEDICSIGHT by: )...........................................Director .................................Director/Secretary NOTE: No transfer of this Loan Stock may be made without the production of the certificate relating to it, which certificate must be surrendered before any transfer can occur. The Loan Stock is transferable in multiples of F-1,000. -15- CONDITIONS 1.1 The Company shall, unless It shall already have done so under the provisions of condition 7, pay the whole of the Principal Amount to the.Stockholder on [ ] November 2004 1.2 On making a payment under condition 1.1, the Company shall pay to the Stockholder interest accrued under condition 2 on the Principal Amount down to the date of payment 1.3 The Company may, if the balance of the Principal Amount outstanding after conversion has taken place pursuant to condition 3, is less than E1,000 pay the whole (but not part only) of the Principal Amount then outstanding to the Stockholder at any time 2. The Company shall, on the day the Principal Amount is due to be repaid, pay interest on the Principal Amount to the Stockholder at the rate of 2 per cent over the London Inter-Bank Offered Rate for Sterling of an amount equal to the Principal Amount (or if quotations cannot readily be obtained for such an amount, the average of the amounts for which quotations can be readily obtained higher and lower than the Principal Amount) at 11.00 am London time on the date of this Loan Stock for a period of one year (or if quotations for a period of one year are not available, for the longest period that is less than one year) and a certificate from Barclays Bank Pic (or any other bank selected by the Company) as to the rates offered to that bank shall be conclusive and binding on the Company and the Stockholder. 3.1 If, before the Principal Amount has been repaid by the Company to the Stockholder, the Company shall announce an Offer for Subscription, Placing or other public offering of Its ordinary shares, the Stockholder may give notice to the Company (and shall at the same time send this Deed to the Company) but no later than the earlier of (a) (I) the time allowed for applicants to apply for ordinary shares In an Offer for Subscription, or (11) fifteen days after ordinary shares in the Company are placed or (III) the date on which any other public offering closes (as the case may be) and (b) the due date for the repayment of the Principal Amount In accordance with condition 1.1, that it wishes to convert its rights In relation to the Principal Amount and interest thereon, or any part thereof, Into ordinary shares in the Company save that the Stockholder may only give notice to convert with the Company's written consent if the Stockholder has exercised any of its rights contained In condition 5. A notice given as provided by this condition 3 may not be withdrawn without the consent of the Company. The Company shall on the day an Offer for Subscription or other public offering (other than a Placing) closes or in any other case five business days after receipt of such notice, allot to the Stockholder ordinary shares in the Company at the same price per share as the shares are offered by the Company in the Offer for -16- Subscription, Placing or other public offering. 3.2 The ordinary shares so allotted shall be credited as fully paid and shall rank parl passu in all respects at that time with the fully paid ordinary shares in the Company which are issued pursuant to the Offer for Subscription, Placing or other public offering 3.3 If any part of the Principal Amount shall remain outstanding after conversion, and shall not then be repaid pursuant to condition 1, the Company shall following conversion of that part of the Principal Amount converted into ordinary shares, issue to the Stockholder a Deed for the balance of the Principal Amount 3.4 Interest shall cease to be payable on the Principal Amount (or such part thereof as shall be converted Into ordinary shares of the Company) on the date the Company shall allot such shares to the Stockholder 4.1 The Company shall not, while It has outstanding any obligations under the Loan Stock, permit there to be in issue any equity share capital (as defined in Section 744 of the Companies Act 1985) In the Company which is not In all respects uniform with the ordinary shares in the Company which are in issue at the date hereof save: (a) as to the date from which such capital shall rank for dividend; (b) by the Company in general meeting to staff and employees (including directors holding executive office with the Company or any of its subsidiaries); or (c) for any share capital which has attached thereto rights as to dividend, capital and voting which are in no respect more favourable than those attached to the ordinary shares in the Company in issue at the date such issue is publicly announced 4.2 The Company shall procure that during the period (if any) that the Stockholder may exercise any conversion rights, there are sufficient unissued ordinary shares in the authorised share capital of the Company to satisfy the rights of the Stockholder under condition 3 4.3 The Company shall not, while it has outstanding any obligations under the Loan Stock, issue any equity share capital that would result in the ordinary shares to be issued to the Stockholder upon conversion to be Issued at less than their nominal value 4.4 The Company shall send to the Stockholder (a) a copy of every document sent to the holders of ordinary shares at the same time as it is sent to the holders of ordinary shares and (b) a copy of every Offer for Subscription document, Placing memorandum or other Placing document, and any other document relating to a public offering of any shares in the Company on the day such document Is -17- published or otherwise first made available to any prospective placee or other offeree of shares In the Company 4.5 After making payment under the provisions of condition 1 .1 or 1.2, as the case may require or allotting ordinary shares under the provisions of conditions 2.1, the Company shall have no further obligations by virtue of the provisions of this Deed 5. The Principal Amount and interest thereon is secured by an instrument made on November 2001 between the Company (1) and Asia IT Capital Investments Limited for itself and as trustee for the Stockholders (2) by way of fixed and floating charges on all the Company's undertaking and assets, subject to a first charge in favour of HTTP Technology, Inc. dated 9 November 2001. The Company may not create charges ranking in priority to or pari passu with the charge in favour of the Stockholders. 6. The Company shall not without the written consent of Stockholders holding not less than three quarters of the total of the Secured Loan Stock 2004 outstanding, or the consent of a special resolution of the Stockholders, while it has outstanding any obligations under this deed do any of the following: 6.1 Reduce the capital of the Company; 6.2 Cancel any part of the Company's share premium account; 6.3 Redeem any of the Company's shares; 6.4 Purchase any of the Company's shares; or 6.5 Permit any subsidiary of the Company to do any of the above 7.1 Notwithstanding the provisions of Condition 1 the Principal Amount together with all outstanding interest accrued thereon shall be payable immediately if: (i) the Company shall enter into any composition or arrangement with or for the benefit of its creditors; (ii) the Company shall become unable to pay Its debts as that expression is defined in Section 123 of the Insolvency Act 1986; (iii) any order shall be made, petition presented or resolution passed for the winding up of the Company save in connection with a scheme of arrangement for the reorganisation of the Company or for the amalgamation of its business and undertaking of that and any other company or companies; (i) a petition shall be presented for the making of an administration order, within the meaning of Section 8 of the Insolvency Act 1986, in relation to the Company; (ii) a receiver shall be appointed or a mortgagee shall enter into possession of any of the assets of the Company or if any mortgagee shall otherwise seek to enforce the security of any such mortgage; (iii) sell or attempt to sell any of the assets over which the Company has created fixed charges as described In condition 3, or deal with any of the assets over which the Company has created a floating charge otherwise than In the ordinary course of business; (iv) -18- (v) a petition shall be presented for the making of an administration order, within the meaning of Section 8 of the Insolvency Act 1986, in relation to the Company; (vi) a receiver shall be appointed or a mortgagee shall enter into possession of any of the assets of the Company or if any mortgagee shall otherwise seek to enforce the security of any such mortgage; (vii) sell or attempt to sell any of the assets over which the Company has created fixed charges as described In condition 3, or deal with any of the assets over which the Company has created a floating charge otherwise than In the ordinary course of business; (viii) the Company or any subsidiary shall breach any of the terms of condition 6; (ix) the Company shall stop payment or shall cease or threaten to cease to carry on substantially the whole of Its business; or (x) if default is made by the Company in performance of its obligations under these conditions or under the terms of the Loan Stock Instrument (other than any covenant for the payment of principal and interest in respect of the Loan Stock) and (except where, In the opinion of the Lender, such default Is not capable of remedy when no such continuation or notice as is referred to below will be required) such default continues for more than 14 days after the Lender give the Company written notice requiring such default to be remedied. 7.2 Any payment of the Principal Amount; made by virtue of the provisions of condition 7.1 shall be deemed for all purposes of this Deed to have been made under the provisions of condition 1.1 8. Any change of address on the part of the Stockholder shall be notified to the Company Immediately 9. The Company will recognise the Stockholder as the absolute owner of the Principal Amount and will not be bound to take notice of or to see to the execution of any trust whether express, Implied or constructive to which the Principal Amount may be subject and the receipt by the Stockholder of the Principal Amount, shall be a good discharge to the Company notwithstanding any notice that It may have whether express or otherwise of the right, title, interest or claim of any other person to or in the Principal Amount 10.1 The Stockholder will be entitled to transfer the Principal Amount (in multiples of E1,000) together with accrued Interest by a transfer in writing In the usual common form. There shall not be Included in any transfer any loan Stocks or other monies payable by the Company other than the Principal Amount together with accrued Interest. Such transfer must be signed by the transferor who shall -19- be deemed to remain the owner of the Principal Amount together with accrued interest until the name of the transferee is entered In the register of Loan Stockholders. The transfer need not be a deed. 10.2 Each transfer of the Principal Amount together with accrued Interest must be left at the registered office for the time being accompanied by this Deed and such other evidence (if any) as the directors of the Company may require to prove the title of the transferor or his right to transfer the Principal Amount and accrued Interest, and if the transfer Is executed by some other person on his behalf, the authority of that person to do so. All transfers may be retained by the Company. No fee will be charged in respect of any transfer or for the registration of any probate, letters of administration, certificate of marriage or death, power of attorney or other document relating to or affecting the title of the Principal Amount and accrued interest. The ability to transfer may be suspended at such times and for such periods as the Company may determine save that such suspension shall not be more than 30 days in any one year. No transfer of the Principal Amount shall occur or be permitted where notice of repayment or conversion has been given. the death or bankruptcy of the Stockholder may (upon producing such evidence as the directors of the Company shall think sufficient that he sustains the character In respect of which he proposes to act under this condition or of his title) become the holder of the Principal Amount and accrued interest or (subject to the preceding conditions as to transfer) may transfer the Principal Amount and accrued interest. The Company may retain the Principal Amount which any person under condition -10 is entitled to transfer until such person shall become the holder or transfer the same as aforesaid 12 The principal monies or any other monies payable on or in respect of the Principal Amount and interest by the Company may be paid by cheque or warrant and sent through the post to the registered address of the Stockholder. Payment of the cheque or warrant by the bank on whom it is drawn shall be a satisfaction of the monies represented thereby. Every such cheque or warrant shall be sent at the risk of the person entitled to the Principal Amount and interest represented thereby. 13 If this Deed becomes worn out or defaced then upon production of such Deed to the directors of the Company, the Company may cancel It and may issue a new Deed in lieu of It and If any such Deed is lost or destroyed then upon proof of such loss or destruction to the satisfaction of the directors of the Company and upon such terms as to evidence an indemnity and the payment of out of pocket expenses of the Company In investigating evidence as the directors of the Company may deem adequate being given, a new Deed in lieu of that lost or destroyed may be given to the person(s) entitled to such lost or destroyed Deed. A record of the indemnlty (if any) shall be retained by the Company -20- 14 A notice or document (including this Deed) may be served by the Company on the Stockholder either personally or by sending it by first class post in a pre-paid envelope addressed to such Stockholder at his registered address or, if he has no registered address within the United Kingdom, to the address (if any) within the United Kingdom supplied by him to the Company as his address for the service of notices, Where a notice or other document Is served by post, service shall be deemed to be effected on the second business day after the envelope containing the same is posted and in proving such service it shall be sufficient to prove that such envelope was properly addressed, stamped and posted. A notice may be served on the Company by sending it by first class post in a pre-paid envelope addressed to the Company at its registered office EXECUTED AS A DEED ) AND DELIVERED on behalf of ) MEDICSIGHT LIMITED by: ) /s/ S.ALLESCH-TAYLOR.....................Director ........................................Secretary EXECUTED AS A DEED ) AND DELIVERED on behalf of ) MEDICSIGHT LIMITED by: ) /s/ W. PATERSON BROWN....................Director ...............................Director/Secretary -21- EX-21.1 4 a2077272zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF HTTP TECHNOLOGY, INC.
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION - ------------------ ---------------------------- Core Ventures Limited British Virgin Islands Fairfax Equity Limited England and Wales HTTP Defence Limited England and Wales HTTP Electronics Limited England and Wales HTTP Healthcare Limited England and Wales HTTP Insights Limited England and Wales HTTP Medical Limited England and Wales HTTP Signals Limited England and Wales HTTP Software PLC England and Wales HTTP Statistics Limited England and Wales HTTP Talking Limited England and Wales HTTP Tech, Inc. New York Medical Vision Systems, Inc. Delaware Medicsight PLC England and Wales
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