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.
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.
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.
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.
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
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.
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.
