1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
March 29, 2001
VASCO DATA SECURITY INTERNATIONAL, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-24389 36-4169320
--------------- --------------- ----------------
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
1901 South Meyers Road, Suite 210
Oakbrook Terrace, Illinois 60181
--------------------------------
(Address of principal executive offices) (Zip Code)
(630) 932-8844
--------------
(Registrant's telephone number)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 29, 2001, VASCO Data Security, Inc. ("Subsidiary"), a wholly-owned
subsidiary of VASCO Data Security International, Inc. ("VASCO"), acquired more
than 90 percent of the outstanding capital stock of Identikey Limited
("Identikey"), pursuant to the terms of a Share Purchase Agreement (the
"Purchase Agreement") between Subsidiary, VASCO, Identikey and certain
shareholders of Identikey (the "Shareholders").
Under the terms of the Purchase Agreement, which is filed herewith as Exhibit
2.1 and is incorporated herein by reference, Subsidiary purchased 100,500,000
shares of Identikey's capital stock from the Shareholders in exchange for an
aggregate of 366,913 shares of VASCO's common stock (the "Common Stock"). The
Shareholders are also eligible to receive a contingent earn out payment in the
form of Common Stock as specified in the Purchase Agreement.
The transaction will be accounted for utilizing the purchase method and is
intended to qualify, for federal income tax purposes, as a tax-free
reorganization.
VASCO issued a press release announcing the transaction on April 4, 2001, which
is filed herewith as Exhibit 2.2 and is incorporated herein by reference.
VASCO hereby amends the following items, financial statements, exhibits or other
portions of its Current Report on Form 8-K, originally filed with the Securities
and Exchange Commission on April 12, 2001.
2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Identikey Limited (DENOMINATED IN AUSTRALIAN
DOLLARS):
Report of Independent Accountants, as of and for the year ended
June 30, 2000
Profit and Loss Statement for the year ended June 30, 2000
Balance Sheet at June 30, 2000
Statement of Cash Flows for the year ended June 30, 2000
Notes to Financial Statements
(b) Unaudited Pro Forma Financial Information:
Condensed Consolidated Pro Forma Balance Sheet as of
December 31, 2000
Condensed Consolidated Pro Forma Statements of Operations for the
year ended December 31, 2000
Notes to Pro Forma Financial Statements
(c) Exhibits:
2.1 Share Purchase Agreement dated March 29, 2001, by and among VASCO
Data Security, Inc., Identikey Limited and certain shareholders of
Identikey Limited.*
2.2 Press release of VASCO Data Security International, Inc.
dated April 4, 2001*
2.3 Consent of Ernst & Young
------------
* Previously filed (incorporated by reference to the Form 8-K dated March 29,
2001, and filed on April 12, 2001).
3
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Identikey Limited
We have audited the accompanying consolidated balance sheet of Identikey Limited
as of June 30, 2000, and the related profit and loss statements, and cash flows
for the period then ended. These financial statements are the responsibility of
the Group's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Identikey Limited at June 30,
2000, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Application of generally accepted accounting principles in
the United States of America would have affected equity as of June 30, 2000, and
the results of operations for the period then ended, to the extent summarized in
note 23 to the financial statements.
/s/ ERNST & YOUNG
Brisbane, Australia
December 18, 2000
4
IDENTIKEY LIMITED
PROFIT AND LOSS STATEMENT
--------------------------------------------------------------------------------
PERIOD FROM INCORPORATION NOTES CONSOLIDATED IDENTIKEY LIMITED
ON 17 MAY 2000 TO 30 JUNE 2000 2000 2000
$ $
OPERATING REVENUE 2 198,697 --
======= ======
OPERATING LOSS 2 (854,807) (24,494)
INCOME TAX ATTRIBUTABLE TO
OPERATING LOSS
3 -- --
------- ------
OPERATING LOSS AFTER TAX (854,807) (24,494)
------- ------
ACCUMULATED LOSSES AT THE BEGINNING
OF THE FINANCIAL PERIOD
-- --
------- ------
ACCUMULATED LOSSES AT THE END
OF THE FINANCIAL PERIOD (854,807) (24,494)
======= ======
5
IDENTIKEY LIMITED
BALANCE SHEET
--------------------------------------------------------------------------------
PERIOD ENDED 30 JUNE 2000 NOTES CONSOLIDATED IDENTIKEY LIMITED
2000 2000
$ $
CURRENT ASSETS
Cash 2,180,172 2,038,135
Receivables 4 671,623 --
Inventories 5,173 --
Prepayments 5 240,309 --
---------- ----------
TOTAL CURRENT ASSETS 3,097,277 2,038,135
---------- ----------
NON-CURRENT ASSETS
Property, plant & equipment 6 189,159 -
Intangibles 7 9,571,761 -
Investments 15 - 10,000,001
---------- ----------
TOTAL NON-CURRENT ASSETS 9,760,920 10,000,001
---------- ----------
TOTAL ASSETS 12,858,197 12,038,136
---------- ----------
CURRENT LIABILITIES
Creditors 8 805,421 120,638
Borrowings 9 757,224 -
Provisions 10 199,418 -
Unearned revenue 8,949 -
---------- ----------
TOTAL CURRENT LIABILITIES 1,771,012 120,638
---------- ----------
TOTAL LIABILITIES 1,771,012 120,638
---------- ----------
NET ASSETS 11,087,185 11,917,498
========== ==========
SHAREHOLDERS' EQUITY
Share capital 11 11,941,992 11,941,992
Accumulated losses (854,807) (24,494)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 11,087,185 11,917,498
========== ==========
6
IDENTIKEY LIMITED
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
PERIOD FROM INCORPORATION ON 17 MAY 2000 TO 30 JUNE 2000 NOTES CONSOLIDATED IDENTIKEY LIMITED
2000 2000
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 230,325 -
Payments to suppliers and employees (560,615) -
Interest received 130 -
--------- ---------
NET CASH FLOWS USED IN OPERATING ACTIVITIES
12 (330,160) -
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (41,486) -
Acquisition of investments - (1)
Cash received in purchase of controlled entity 263,682 -
--------- ---------
NET CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
222,196 (1)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from equity raising subsequently refunded 50,000 50,000
Cash proceeds from equity raising 1,988,136 1,988,136
Proceeds from related party loans 250,000 -
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
2,288,136 2,038,136
--------- ---------
NET INCREASE IN CASH HELD 2,180,172 2,038,135
ADD OPENING CASH BROUGHT FORWARD - -
--------- ---------
CASH HELD AT THE END OF THE YEAR 2,180,172 2,038,135
========= =========
7
IDENTIKEY LIMITED
NOTES
30 JUNE 2000
-------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial report has been prepared in accordance with the requirements
of the Corporations Law which includes applicable Accounting Standards.
Other mandatory professional reporting requirements (Urgent Issues Group
Consensus Views) have also been complied with.
The financial statements have been prepared in accordance with the
historical cost convention.
CONSOLIDATED ENTITY
At 30 June 2000 the Identikey group comprised Identikey Limited and its
wholly owned subsidiaries Identikey International Pte Ltd, Identikey
Holdings Pty Ltd, Identikey Internet Security Limited and Identikey
(Australia) Pty Ltd. Identikey Internet Security Limited wholly owns the
USA incorporated company Identikey Corporation.
COMPARATIVE FIGURES
Identikey Limited was incorporated on 17 May 2000, accordingly no
comparatives have been provided in this report.
CONSOLIDATION
The consolidated financial statements are those of the consolidated
entity, comprising the parent entity and all entities, which it controlled
from time to time during the period and at balance date.
Information from the financial statements of the subsidiaries is included
from the date that the parent company obtains control or until such time
as control ceases. Where there is a loss of control of a subsidiary, the
consolidated financial statements include the results for the part of the
reporting period during which the parent company has control.
Subsidiary acquisitions are accounted for using the purchase method of
accounting.
The financial statements of subsidiaries are prepared for the same
reporting period as the parent entity, using consistent accounting
policies. Adjustments are made to bring into line any dissimilar
accounting policies, which may exist.
All intercompany balances and transactions, including unrealised profits
arising from intra-group transactions, have been eliminated in full.
Unrealised losses are eliminated unless the costs cannot be recovered.
8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXATION
The consolidated entity adopts the liability method of tax effect
accounting.
Income tax expense is calculated on operating profit or loss adjusted for
permanent differences between taxable and accounting income. The tax
effect of timing differences, which arises from items being brought to
account in different periods for income tax and accounting purposes, is
carried forward in the balance sheet as a future income tax benefit or a
deferred tax liability. The net future income tax benefit relating to tax
losses and timing differences is not carried forward as an asset unless
the benefit is virtually certain to be realised.
REVENUE RECOGNITION
Revenue is recognised to the extent that the economic benefits will flow
to the consolidated entity and the revenue can be reliably measured. The
consolidated entity recognises sales revenue when the control of goods has
passed to the buyer.
The company derives revenue from software licenses, postcontract customer
support (PCS), and services. Postcontract customer support includes
telephone support, bug fixes, and rights to upgrades on a when-and-if
available basis. Services range from installation, training and basic
consulting to software modification and customisation to meet specific
customer needs.
Software Licenses - The company recognises the revenue allocable to
software licenses and specified upgrades upon delivery of the software
product or upgrade to the end user, unless the fee is not fixed or
determinable or collectibility is not probable. If the fee is not fixed or
determinable, revenue is recognised as payments become due from the
customer. Arrangements that include specific acceptance terms are not
recognised until acceptance has occurred. If collectability is not
considered probable, revenue is recognised when the fee is collected.
Revenue on arrangements with customers who are not the ultimate users
(distribution, other resellers, etc) is not recognised until the software
is delivered to the end user.
Postcontract Customer Support - Revenue allocable to PCS is recognised on
a straight-line basis over the period the PCS is provided, usually 12
months.
CASH
For the purposes of the statement of cash flows, cash includes cash on
hand and in banks (including short term deposits), net of outstanding bank
overdrafts.
9
RECOVERABLE AMOUNT
Non-current assets are not carried at an amount above their recoverable
amount, and where carrying values exceed this recoverable amount assets
are written down. In determining recoverable amount the expected net cash
flows have been discounted to their present value using a market
determined risk adjusted discount rate.
INVENTORIES
All inventories are stated at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and
condition are accounted for on a weighted average basis.
10
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADE AND OTHER RECEIVABLES
Trade receivables are recognised and carried at original invoice amount
less a provision for any uncollectable debts. An estimate for doubtful
debts is made when collection of the full amount is no longer probable.
Bad debts are written-off as incurred.
INTANGIBLES
Intellectual property
Intellectual property is amortised by the straight line method over the
period during which benefits are expected to be received, being 12 months.
Goodwill
Goodwill represents the excess of the purchase consideration over the fair
value of identifiable net assets acquired at the time of acquisition of a
business or shares in a controlled entity.
Goodwill is amortised by the straight line method over the period during
which the benefits are expected to be received. This is taken to be three
years.
PLANT AND EQUIPMENT
Depreciation
Depreciation is calculated on a diminishing value basis so as to write off
the depreciable amount of each item of plant and equipment over its
expected useful life. Major depreciation periods are:
- Plant and equipment 3-8 years
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred, except where
future benefits are expected, beyond any reasonable doubt, to exceed those
costs. Where research and development costs are deferred such costs are
amortised over future periods on the basis related to expected future
benefits. Unamortised costs are reviewed at each balance date to determine
the amount (if any) that is no longer recoverable and any amount
identified is written off.
11
TRADE PAYABLES
Liabilities for trade creditors and other amounts are carried at cost
which is fair value of the consideration to be paid in the future for
goods and services received, whether billed or not billed to the
consolidated entity.
Payables to related parties are carried at the principle amount. Interest,
when charged by the lender, is recognised as an expense on an accrual
basis.
12
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE ENTITLEMENTS
Provision is made for employee entitlement benefits accumulated as a
result of employees rendering services up to the reporting date. These
benefits include wages and salaries, annual leave, and long service leave.
Liabilities arising in respect of wages and salaries, annual leave and any
other employee entitlements expected to be settled within twelve months of
the reporting date are measured at their nominal amounts. All other
employee entitlement liabilities are measured at the present value of the
estimated future cash outflows to be made in respect of service provided
by employees up to the reporting date. In determining the present value of
future cash outflows, the interest rate attaching to government guaranteed
securities which have terms to maturity approximating the terms of the
related liability are used.
Employee entitlement expenses arising in respect of wages and salaries,
non-monetary benefits, annual leave, long service leave, other leave
entitlements and other types of employee entitlements are charged against
profits on a net basis.
FOREIGN CURRENCIES
Translation of foreign currency transactions
Transactions in foreign currencies of entities within the consolidated
entity are converted to local currency at the rate of exchange ruling at
the date of transaction.
Amounts payable to and by the entities within the consolidated entity that
are outstanding at the balance date and are denominated in foreign
currencies have been converted to local currency using rates of exchange
ruling at the end of the financial period.
Translation of financial reports of overseas operations
All overseas operations are deemed either integrated or self sustaining
upon review of the level of their financial and operational dependence on
Identikey Limited. The financial reports of overseas operations are
translated using either the temporal or current rate method as applicable
and any exchange rate differences are taken to the profit and loss or the
translation reserve as required.
13
LEASES
Leases are classified at their inception as either operating or finance
leases based on the economic substance of the agreement so as to reflect
the risks and benefits incidental to ownership.
Operating leases
The minimum lease payments of operating leases, where the lessor
effectively retains substantially all of the risks and benefits of
ownership of the leased item, are recognised as an expense on a straight
line basis.
Finance leases
Leases which effectively transfer substantially all the risks and benefits
incidental to ownership of the leased item to the group are capitalised at
the present value of the minimum lease payments and disclosed as property,
plant and equipment under lease. A lease liability of equal value is also
recognised.
Capitalised leased assets are depreciated over the shorter of the
estimated useful life of the assets and the lease term. Minimum lease
payments are allocated between interest expense and reduction of the lease
liability with the interest expense calculated using the interest rate
implicit in the lease and charged directly to profit and loss.
14
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND BORROWINGS
All loans are measured at the principle amount. Interest is charged as an
expense as it incurs.
Finance lease liability is determined in accordance with the requirements
of AASB 1008: Leases.
SHARE CAPITAL
Ordinary share capital is recognised at the fair value of the
consideration received by the company.
Any transaction costs arising on the issue of ordinary shares are
recognised directly in equity as a reduction of the share proceeds
received.
15
NOTES CONSOLIDATED IDENTIKEY LIMITED
PERIOD ENDED PERIOD ENDED
30 JUNE 2000 30 JUNE 2000
$ $
2. REVENUE AND EXPENSES
Operating loss before income tax is arrived
at after charging the following items:
Depreciation of plant and equipment 14,794 -
Amortisation of intangible asset 6,027 -
Amortisation of goodwill 275,844 -
Provision for employee entitlements (11,104) -
Bad and doubtful debts provision 10,684 -
Net loss on disposal of
property, plant and equipment 1,207 -
Interest expense - director-related entity 7,224 -
-------- -----
Included in the operating loss are the
following items of operating revenue:
- sales revenue 198,567 -
- interest revenue 130 -
------- -----
198,697 -
======= =====
16
NOTES CONSOLIDATED IDENTIKEY LIMITED
PERIOD ENDED PERIOD ENDED
30 JUNE 2000 30 JUNE 2000
$ $
3. INCOME TAX
The prima facie tax payable on the operating loss
differs from the income tax provided in the
accounts and is reconciled as follows:
Operating loss before tax 854,807 24,494
Prima facie tax benefit on operating loss @ 36%
307,731 8,818
Tax effect of permanent differences
Other items (net) (99,939) -
-------- ------
Income tax benefit adjusted for permanent
differences 207,792 8,818
Net loss attributable to change in tax rate (34,632) -
Future income tax benefit on timing differences
and tax losses not brought to account (173,160) (8,818)
-------- ------
Income tax (expense)/benefit for the year - -
======== ======
Future income tax benefit arising from tax losses of a
controlled entity not brought to account at balance
date as realisation of the benefit is not regarded
as virtually certain. 169,955 8,818
======== ======
This future income tax benefit will only be obtained if:
(a) future assessable income is derived of a
nature and of an amount sufficient to enable the
benefit to be realised;
(b) the conditions for deductibility imposed by
tax legislation continue to be complied with; and
(c) no changes in tax legislation adversely
affect the consolidated entity in realising the
benefit.
17
NOTES CONSOLIDATED IDENTIKEY LIMITED
2000 2000
$ $
4. RECEIVABLES
Trade debtors 630,190 -
Provision for doubtful debts (10,684) -
--------- ---------
619,506 -
Funds on deposit - rental premises 47,538 -
Other debtors 4,579 -
--------- ---------
671,623 -
========= =========
Credit sales are normally on 30 day terms.
Australian dollar equivalent of amounts
receivable in foreign currencies
not effectively hedged:
United States dollars 12,878 -
Euro dollars 13,736 -
Great British Pounds 4,504 -
========= =========
5. PREPAID EXPENSES
Rent 18,737 -
Trade Shows 25,000 -
Direct Marketing 189,068 -
Employee Health Benefits 3,830 -
Corporate Services 3,674 -
--------- ---------
Total Prepaid Expenses 240,309 -
========= =========
6. PROPERTY, PLANT AND EQUIPMENT
Plant & equipment - cost 239,878 -
Accumulated Depreciation (50,719) -
--------- ---------
Total Plant and Equipment 189,159 -
========= =========
7. INTANGIBLES
Intellectual property at cost 100,000 -
Provision for amortisation (100,000) -
--------- ---------
- -
Goodwill at cost 9,847,605 -
--------- ---------
Provision for amortisation (275,844) -
--------- ---------
9,571,761 -
========= =========
18
NOTES CONSOLIDATED IDENTIKEY LIMITED
30 JUNE 2000 30 JUNE 2000
$ $
8. CREDITORS
Trade creditors 518,122 -
Other creditors and accruals 287,299 116,150
Amounts payable to subsidiary - 4,488
------- -------
805,421 120,638
======= =======
Trade liabilities are normally settled on 30 day terms.
Australian dollar equivalent of amounts payable
in foreign currencies not effectively hedged:
Euro dollars
Great British Pounds 104,953 -
Dutch Gilders 1,467 -
German Marks 13,015 -
260
======= =======
9. BORROWINGS (CURRENT)
Loan from director-related entity 757,224 -
======= =======
The terms and conditions relating to the above
loan from director-related
entity are set out in note 14.
10. PROVISIONS
Employee entitlements 54,046 -
Group tax 99,920 -
Superannuation 45,452 -
------- -------
199,418 -
======= =======
19
NOTES CONSOLIDATED IDENTIKEY LIMITED
30 JUNE 2000 30 JUNE 2000
$ $
11. SHARE CAPITAL
Issued and paid up capital
100,000,000 ordinary shares fully paid 10,000,000 10,000,000
Application for shares of 4,970,339 shares 1,988,136 1,988,136
Equity raising costs (46,144) (46,144)
---------- ----------
11,941,992 11,941,992
========== ==========
SHARES ISSUED DURING THE PERIOD:
On 26 May 2000, 100 ordinary shares were issued as consideration for 100%
of the shares of Identikey International Pte Ltd. The value placed on this
issue was $10,000,000.
On 1 June 2000, the company restructured its capital by subdividing its
share capital into 100,000,000 shares to be held in the same proportions
as the shares were held previously.
On 29 June 2000, the company received $1,538,135 of funds for the
purchase of 3,845,339 shares which, except for an application for $50,000
worth of shares which was refunded, were issued on 14 July 2000. As a
result of this refund, only 3,720,339 shares were issued for funds of
$1,488,135. On 30 June 2000, the company received $500,000 of funds for
the purchase of 1,250,000 shares which were issued on 31 July 2000.
Subsequent to year end, the company received $2,517,304 of funds for the
purchase of 6,293,261 shares.
20
NOTES CONSOLIDATED IDENTIKEY LIMITED
2000 2000
$ $
12. STATEMENT OF CASH FLOWS
(a) Reconciliation of operating loss after tax to the
net cash flows from operations:
Operating loss after tax (854,807) (24,494)
Depreciation of plant and equipment 14,794 -
Amortisation of intangible asset 6,027 -
Amortisation of goodwill 275,844 -
Loss on sale of property, plant and equipment 1,207 -
Equity raising costs (46,144) -
Interest expense from related party 7,224 -
Provision for doubtful debts 10,684 -
Changes in assets and liabilities:
Receivables - decrease 30,582 -
Inventory - (increase) (3,032) -
Creditors and borrowings - increase 227,461 24,494
-------- --------
Net cash flow used in operating activities (330,160) -
======== ========
13. DIRECTORS' REMUNERATION
a) Income paid or payable, or otherwise made available,
in respect of the financial period, to all directors
of each entity in the consolidated entity, directly
or indirectly, by the entities of
which they are directors or any related party: 67,759
========
b) Income paid or payable, or otherwise made
available, in respect of the financial period, to
all directors of Identikey Limited, directly or
indirectly, from the entity or any related party: 67,759
=======
21
13. DIRECTORS' REMUNERATION (CONTINUED)
The number of directors of Identikey Limited whose income falls within
the following bands is:
30 JUNE 2000
$0 - $9,999 8
$10,000 - $19,999 1
$20,000 - $29,999 2
14. RELATED PARTY DISCLOSURES
(a) The directors of Identikey Limited during the period ended 30 June 2000
were:
IDENTIKEY LIMITED
The Hon. Jeffrey Kennett Appointed 19 May 2000
Mark Kefford Appointed 19 May 2000
Hans-Rudolf Moser Appointed 19 May 2000
Peter Sauerberg Appointed 19 May 2000 Alternate to Hans-Rudolf Moser
Robert Murdoch Appointed 19 May 2000
Peter David Appointed 19 May 2000
Adrian McCullagh Appointed 19 May 2000
Alan Beanland Appointed 30 May 2000
Paul Williams Appointed 17 May 2000 Resigned 19 May 2000
Brian Moller Appointed 17 May 2000 Resigned 19 May 2000
Ryan O'Rourke Appointed 17 May 2000 Resigned 19 May 2000
(b) The following related party transactions occurred during the period
ended 30 June 2000:
TRANSACTIONS WITH DIRECTORS AND DIRECTOR-RELATED ENTITIES
Payments made by director-related entities under normal commercial terms
and conditions:
1. Payments totalling $10,888 were made on behalf of Identikey Limited
by Information Dynamics International Pty Ltd, an entity of which Mr
M Kefford is a director. These payments relate to miscellaneous
purchases.
2. Sales to director-related entity under normal commercial terms
and conditions:
Sales made by Identikey Limited to Information Dynamics International
Pty Ltd, of which Mr M Kefford is a director, aggregating $36,500.
22
3. Consultant services were provided to Identikey Limited from
Information Dynamics International Pty Ltd, of which Mr M Kefford, is
a director aggregating $37,932.
EQUITY INSTRUMENTS OF DIRECTORS AND THEIR DIRECTOR-RELATED ENTITIES
Mark Kefford owns 35,000,000 shares of Identikey Limited directly and
35,000,000 shares through his wife, Anne Kefford.
Union Technologies Limited (a wholly owned subsidiary of Union
Capital Limited, of which Mr R Murdoch, Mr H Moser and Mr P Sauerberg
are directors), owns 30,000,000 ordinary shares of Identikey Limited.
14. RELATED PARTY DISCLOSURES (CONTINUED)
DIRECTOR-RELATED ENTITY LOAN
At 30 June 2000, there is an outstanding loan payable totaling $757,224 to
Murana Investments, an entity related to Mark Kefford. Of this balance
$500,000 was received on 17 May 2000 for a term of 12 months with the
ability for the company at it's discretion to repay at any time interest
to be accrued at 9.95% pa and $250,000 was received on 16 June 2000 for a
term of 12 months months with the ability for the company at it's
discretion to repay at any time with interest to be accrued at 9.95% pa.
Total interest accrued in relation to this loan as at 30 June 2000 is
$7,224.
OPTIONS OVER ORDINARY SHARES
--------------------------------------------------------
OPTIONS OVER ONE ORDINARY SHARE
--------------------------------------------------------
M G Kefford 5,000,000
P M David 6,000,000
J G Kennett 2,000,000
A McCullagh 350,000
A Beanland 250,000
H R Moser 250,000
R Murdoch 250,000
P Sauerberg 200,000
--------------------------------------------------------
PM David's options are exercisable at $0.25 each and expire on 30 June
2005. Mark Kefford's options are exercisable at $0.50 each and expire on
30 June 2005. The balance of options issued to directors are exercisable
at $0.50 each and expire on 30 June 2003. These options are valid on the
condition that Identikey Limited lists on the ASX or Nasdaq and that the
directors are directors of the company at that time.
23
15. INVESTMENTS IN CONTROLLED ENTITIES
NAME OF ENTITY COUNTRY OF CLASS OF CARRYING VALUE OF PERCENTAGE OF
INCORPORATION SHARES THE INVESTMENT EQUITY HELD
30 JUNE 2000 30 JUNE 2000
Identikey International Pte Ltd Singapore Ordinary 1,594,527 100%
Identikey Holdings Pty Ltd Australia Ordinary 8,405,472 100%
Identikey Internet Security Limited Australia Ordinary 1 100%
Identikey (Australia) Pty Ltd Australia Ordinary 1 100%
----------
10,000,001
At 30 June 2000 the Identikey group comprised Identikey Limited and its
wholly owned subsidiaries Identikey International Pte Ltd, Identikey
Holdings Pty Ltd, Identikey (Australia) Pty Ltd and Identikey Internet
Security Limited. Identikey Internet Security Limited wholly owns its
subsidiary Identikey Corporation.
24
NOTES CONSOLIDATED IDENTIKEY LIMITED
2000 2000
$ $
16. EMPLOYEE ENTITLEMENTS
The aggregate employee entitlement liability is comprised of:
Accrued wages, salaries and on costs 54,046 -
Provisions (current) 45,452 -
------ ---------
99,498 -
====== =========
An Employee Share Plan has been established with 8,000,000 options
allocated to certain employees in accordance with the stipulations of the
Plan. The options are exercisable on the condition that Identikey Limited
list on either the ASX or Nasdaq, and are exercisable at $0.50 each. These
options expire on 30 June 2003.
17. AUDITORS REMUNERATION
Amounts received or due and receivable, by the auditor of Identikey
Limited for:
- audit of the financial report of the entity and any 20,000 -
other entity in the consolidated entity
- other services in relation to the entity and any 25,450 -
other entity in the consolidated entity
------ ---------
45,450 -
====== =========
Note: the audit and other service fees for the period to 30 June 2000
have been bourne by Identikey Holdings Pty Ltd., a wholly owned
subsidiary of Identikey Limited
18. SEGMENT INFORMATION
The consolidated entity operates predominantly in one industry being the
development licensing, marketing, distribution and supporting of computer
software and principally in one geographical area being Australia.
25
19. CONTINGENT LIABILITIES
The directors are not aware of any contingent liabilities which are likely
to have a material effect on the results of the entity except as disclosed
in this financial report.
20. SUBSEQUENT EVENTS
On 15 August 2000, Identikey Internet Security Limited acquired a 100%
owned subsidiary, Identikey (Europe) BV, a company incorporated in the
Netherlands. Shares in the newly incorporated company were acquired to the
value of $29,312.
Other than the matters disclosed above or in the financial report there
have been no other subsequent events which are likely to have a material
effect on the results that have not been otherwise disclosed in this
financial report.
26
21. FINANCIAL INSTRUMENTS
(a) INTEREST RATE RISK
The entity's exposure to interest rate risk, which is the risk that a
financial instrument's value will fluctuate as a result of changes in
market interest rates and the effective weighted average interest rates on
those financial assets and financial liabilities, is as follows:
Fixed Interest Rate Maturing
----------------------------
30 JUNE 2000
Weighted Floating Within 1 1 to 5 Over 5 Non-interest Total
Average Interest Year Years Years Bearing
Effective Rate
Interest Rate
% $ $ $ $ $ $
FINANCIAL ASSETS
Cash na - - - - 2,180,172 2,180,172
Receivables - trade na - - - - 619,506 619,506
Funds on deposit 5.9% 47,538 - - - - 47,538
Receivables - other na - - - - 4,579 4,579
------- ------- ------ ------ ------ --------- ---------
TOTAL FINANCIAL ASSETS
47,538 - - - 2,804,257 2,851,795
------- ------- ------ ------ ------ --------- ---------
FINANCIAL LIABILITIES
Trade creditors and
accruals na - - - - 805,421 805,421
Payables - related
party loan 9.95% - 757,224 - - - 757,224
------- ------- ------- ------ ------ --------- ---------
TOTAL FINANCIAL
LIABILITIES - 757,224 - - 805,421 1,562,645
------- ------- ------- ------ ------ --------- ---------
(b) NET FAIR VALUES
The aggregate carrying values of financial assets and financial
liabilities recognised at the balance date approximates the net fair
values.
27
(c) CREDIT RISK EXPOSURES
The entity's maximum exposure to credit risk at balance date in relation
to each class of recognised financial assets, is the carrying amount of
those assets as indicated in the balance sheet.
2000 1999
$ $
22. LEASE COMMITMENTS
Aggregate cancellable operating lease expenditure contracted for at
balance date but not provided for in the accounts, payable -
Not later than one year 60,003 -
Later than one year but not later than 5 years - -
Later than 5 years - -
------ -------
60,003 -
====== =======
The lease commitment relates to the lease over the office premises.
23. RECONCILIATION WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The consolidated financial statements have been prepared in accordance
with Australian generally accepted accounting principles ("Australian
GAAP"). Australian GAAP differs in some significant respects to US
generally accepted accounting principles ("US GAAP"). Differences which
have a significant effect on consolidated operating loss after tax and
equity are as follows:
PROFIT AND LOSS STATEMENT NOTES CONSOLIDATED
2000
A$
-------------
Operating (loss) after income tax attributable to the owners (854,807)
of the economic entity
Adjustments to accord with US GAAP:
- Amortization of Goodwill (b) 275,844
- Group losses for the period from 1 July 1999 to 17
May 2000 (a) (1,354,265)
----------
Adjusted (loss) according to US GAAP (1,933,228)
==========
28
SHAREHOLDERS EQUITY NOTES CONSOLIDATED
2000
A$
------------
Share Capital as Reported in accordance with Australian GAAP 11,941,992
Adjustments to accord with US GAAP:
- Goodwill (b) (9,847,605)
- Adjustment to share capital to account group losses
for the period from 1 July 1999 to date of (a) 1,354,265
reorganization (17 May 2000)
- Adjustment to share capital to account for
accumulated loss at 1 July 1999 (a) 93,304
------------
Adjusted Share Capital according to US GAAP 3,541,956
============
Accumulated Loss as Reported in accordance with Australian (854,807)
GAAP
- Amortization of Goodwill (b) 275,844
- Group losses for the period from 1 July 1999 to 17
May 2000 (a) (1,354,265)
- Adjustment to record accumulated loss at 1 July 1999 (a) (93,304)
------------
Adjusted Acccumulated Loss according to US GAAP (2,026,532)
============
The following is a summary of the significant adjustments made to the
financial statements to reconcile the Australian results with US GAAP.
(a) CORPORATE REORGANIZATION
On 17 May 2000, Identikey Limited was incorporated and thereafter acquired
the Identikey Group of companies that have been in operation since 13
October 1998. Under US GAAP, this transaction represents a reorganisation
of companies under common control and the transaction has been accounted
in a manner similar to a pooling of interests with the operations of all
of the Identikey companies included in the profit and loss statement
reconciled to US GAAP for the entire period from 1 July 1999 through 30
June 2000. Under Australian GAAP this transaction was accounted for as a
purchase and the operations of the Identikey companies are
29
included in profit and loss from the date of the reorganization.
Consequently, adjustments are required to record (i) the losses of the
Group from 1 July 1999 to the date of the reorganization in the profit and
loss statement and in accumulated loss (deficit), (ii) to record the
accumulated loss of the Group at 1 July 1999 and (iii) to reverse the
effect of the purchase accounting adjustments in share capital which were
recorded in accordance with Australian GAAP.
(b) GOODWILL AND OTHER INTANGIBLES
In accordance with Australian GAAP goodwill from the acquisition of a
business is accounted for using the Purchase Method. Goodwill represents
the excess of the purchase consideration over the fair value of
identifiable net assets acquired at the time of acquisition of a business
or shares in a controlled entity. Goodwill is amortised by the straight
line method over the period during which the benefits are expected to be
received. This is taken to be three years. Goodwill has arisen in May 2000,
due to the purchases of 100% owned subsidiaries, Identikey International
Pte Ltd, Identikey Holdings Pty Ltd, and Identikey Corporation.
As described in note (a) above, under US GAAP, the acquisition of the 100%
owned subsidiaries in May 2000, constituted an internal restructure. As a
result goodwill of $9,847,605 and the accumulated amortization of goodwill
of $275,844, have been reversed from the balance sheet amounts as stated
under Australian GAAP.
The reversal of goodwill from the balance sheet under US GAAP results in
an increase in profit and loss of $275,844, representing the reversal of
amortisation of goodwill for the period.
(c) REVENUE RECOGNITION
The Company follows the American Institute of Certified Public Accountants
Statement of Position 97-2 (SOP 97-2), Software Revenue Recognition, to
recognize software revenue.
(d) RECENT PRONOUNCEMENTS
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues, as well as examples of how the staff applies revenue recognition
guidance to specific circumstances. The Company adopted SAB 101 in 2000.
Adoption of SAB 101 did not have a material effect on the Company's
financial position and results of operations.
30
(e) STATEMENT OF OPERATIONS - IN ACCORDANCE WITH US GAAP
CONSOLIDATED
2000
AS
Net revenues $ 821,978
Cost of goods sold 197,677
-----------
Gross profit 624,301
Operating costs:
-----------
Sales and marketing 1,527,774
Research and development 406,124
General and administrative 613,954
-----------
Total Operating Costs 2,547,852
-----------
Operating loss (1,923,551)
Interest income (expense) (7,380)
Other expense, net (2,297)
-----------
Loss before income taxes (1,933,228)
Provision for income taxes -
-----------
Net loss $(1,933,228)
-----------
(f) COMMITMENTS AND CONTINGENCIES
The company made verbal representations to employees and directors that
they would be granted options to purchase shares of the Company's ordinary
shares on the condition that Identikey Limited lists on the ASX or Nasdaq
and that they were employed by the company or were directors of the
company at that time. The option plan agreement was never formally adopted
by the Board of Directors and, based on advice from legal counsel, is not
legally enforceable. As a result no adjustments for options have been
included in the US GAAP reconciliation.
24. SUBSEQUENT EVENTS (UNAUDITED)
On March 29, 2001, VASCO Data Security, Inc., a wholly-owned subsidiary of
VASCO Data Security International, Inc., acquired more than 90 percent of
the outstanding share capital of Identikey Limited, pursuant to the terms
of a Share Purchase Agreement between VASCO Data Security, Inc., VASCO
Data Security International, Inc., Identikey Limited and certain
shareholders of Identikey Limited (the "Shareholders").
31
Under the terms of the Share Purchase Agreement, VASCO Data Security, Inc.
purchased 100,500,000 shares of Identikey Limited's capital from the
Shareholders in exchange for an aggregate of 366,913 shares of VASCO Data
Security International, Inc.'s common stock (the "Common Stock"). The
Shareholders are also eligible to receive a contingent earn out payment in
the form of Common Stock as specified in the Share Purchase Agreement.
VASCO has indicated that it intends to purchase the remaining shares in
Identikey Limited to then make Identikey Limited a wholly owned
subsidiary.
The financial effect of each of the above events has not been
recognized at 30 June 2000.
Since the report date, The Honourable J Kennett, Mr A McCullagh and Mr A
Beanland all resigned as directors on 16 January 2001, and Mr P Sauerberg
resigned as a director on 30 April 2001.
Other than the matters disclosed above or in the financial report there
have been no other subsequent events that are likely to have a material
effect on the results that have not been otherwise disclosed in this
financial report.
32
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF VASCO DATA SECURITY
INTERNATIONAL, INC. AND ACQUIRED BUSINESS
The following unaudited condensed consolidated pro forma balance sheet as
of December 31, 2000 and the unaudited condensed consolidated pro forma
consolidated statement of operations for the year ended December 31, 2000 give
effect to the Company's acquisition of approximately 90 percent of the
outstanding stock of Identikey Limited. The pro forma information is based on
the respective historical financial statements of VASCO Data Security
International, Inc., and Identikey Limited giving effect to the acquisition
under the purchase method of accounting using the assumptions and adjustments
described in the accompanying notes to unaudited pro forma financial statements.
The unaudited pro forma statements of operations for the year ended December 31,
2000 reflect adjustments as if the acquisition had occurred on January 1, 2000.
The unaudited pro forma balance sheet as of December 31, 2000 gives effect to
the acquisition as if it had occurred on December 31, 2000. The financial
effects of the acquisition as presented in the unaudited pro forma financial
statements are not necessarily indicative of either financial position or
results of operations that would have been obtained had the acquisition actually
occurred on the dates set forth above, nor are they necessarily indicative of
the results of future operations.
33
VASCO DATA SECURITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED PRO-FORMA BALANCE SHEET
AS OF DECEMBER 31, 2000
(UNAUDITED)
VASCO DATA SECURITY IDENTIKEY PRO-FORMA PRO FORMA
INTERNATIONAL INC. LIMITED ADJUSTMENTS CONSOLIDATED
------------------- ------------- ------------ -------------
Current Assets
Cash 13,832,645 556,120 14,388,765
Receivables, net 6,486,397 279,892 6,766,289
Inventories 1,111,751 23,876 1,135,627
Prepaid Items 463,094 51,938 515,032
Other current assets 615,081 -- 615,081
----------- ----------- -----------
Total Current Assets 22,508,968 911,826 23,420,794
----------- ----------- -----------
Property, Plant and Equipment
PP&E, net 3,797,529 123,896 3,921,425
--
Intangibles, net 1,438,537 -- 1,215,685 2,654,222
--
Other assets 1,568,285 -- 1,568,285
----------- ----------- -----------
TOTAL ASSETS 29,313,319 1,035,722 31,564,726
=========== =========== ===========
Current Liabilities
Current maturities of
long-term debt 362,250 -- 362,250
Accounts payable 2,790,698 182,956 2,973,654
Accrued expenses 3,098,284 75,860 3,174,144
Deferred revenue 1,950,322 14,719 1,965,041
---------- ----------- -----------
Total Current Liabilities 8,201,554 273,535 8,475,089
----------- ----------- -----------
Long-term debt 3,763,858 -- 3,763,858
Minority Interest 74,506 74,506
TOTAL LIABILITIES 11,965,412 273,535 12,238,947
Stockholders' Equity
Common and preferred stocks 6,807,965 3,382,510 (3,382,143) 6,808,332
Additional paid-in capital 36,871,200 -- 1,902,999 38,774,199
Accumulated deficit (26,331,258) (2,620,323) 2,620,323 (26,331,258)
----------- ----------- -----------
Total Stockholders' Equity 17,347,907 762,187 19,251,273
----------- ----------- -----------
TOTAL LIABLITIES & EQUITY 29,313,319 1,035,722 31,564,726
=========== =========== ===========
34
VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
PRO-FORMA ADJUSTED
VASCO IDENTIKEY ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------ -------------
Net revenues $28,065,680 $ 754,688 $28,820,368
Cost of Goods Sold 10,068,969 149,701 10,218,670
----------- ----------- -----------
Gross Profit 17,996,711 604,987 18,601,698
----------- ----------- -----------
Operating Costs:
Sales and marketing 9,953,598 1,935,318 11,888,916
Research and development 4,581,001 441,960 5,022,961
General and administrative 5,560,995 653,970 173,669 6,388,634
Non-cash compensation 501,743 -- 501,743
----------- ----------- -----------
Total operating costs 20,597,337 3,031,248 23,802,254
----------- ----------- -----------
Operating loss (2,600,626) (2,426,261) (5,200,556)
Interest income (expense) 29,334 (16,280) 13,054
Other expense, net (1,195,234) 15,446 (1,179,788)
----------- ----------- -----------
Loss before income taxes (3,766,526) (2,427,095) (6,367,290)
Provision for income taxes 395,246 -- 395,246
----------- ----------- -----------
Net loss (4,161,772) (2,427,095) (6,762,536)
Preferred stock accretion (581,992) -- -- (581,992)
----------- ----------- -----------
Net loss available to common stockholders $(4,743,764) $(2,427,095) $(7,344,528)
=========== =========== ===========
Basic and diluted net loss per common share $ (0.17) $ -- $ (0.27)
=========== =========== ===========
Weighted average common shares outstanding 27,341,439 -- 366,913 27,708,352
=========== =========== ===========
35
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
On March 29, 2001, the Company acquired in excess of 90 percent of the
outstanding stock of Identikey Limited. The unaudited pro forma financial
statements combine the audited balance sheet of VASCO Data Security
International, Inc. (the "Company") as of December 31, 2000 and the
unaudited balance sheet of Identikey Limited at December 31, 2000. The
unaudited pro forma statement of operations for the year ended December 31,
2000 combines the audited statement of operations of the Company and the
unaudited statement of operations of Identikey Limited for the year then
ended.
2. PRO FORMA ADJUSTMENTS.
(a) The Company acquired in excess of 90 percent of the outstanding stock
of Identikey Limited for 366,913 shares of the Company's common stock,
with potential additional earn-out payments made in the form of
additional shares which are based on defined performance incentives as
specified in the purchase agreement. The acquisition of Identikey
Limited was accounted for under the purchase method of accounting.
Accordingly, the purchase price has been allocated to identifiable
tangible and intangible assets and liabilities assumed based on their
estimated fair values. Total consideration for the purchase, not
including contingent earn-out payments was $1,903,000. Of this amount
$1,215,685 was allocated to goodwill in the pro forma condensed
consolidated balance sheet at December 31, 2000 and the remainder is
allocated to tangible assets. The goodwill is being amortized over 7
years. The pro forma condensed consolidated statement of operations for
the year ended December 31, 2000, reflects an adjustment for
amortization of goodwill of $173,669. The average shares outstanding
for the year ended December 31, 2000 reflects the assumption that the
shares for the acquisition were issued on January 1, 2000.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VASCO Data Security International, Inc.
/s/ Dennis D. Wilson
Executive Vice President and Chief Financial Officer