UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ending December 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-27045
INTERNATIONAL WIRELESS, INC.
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(Name of Small Business Issuer in Its Charter)
Maryland 36-4286069
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(State or other jurisdiction (IRS Employer
of Incorporation) Identification No.)
120 Presidential Way
Woburn, Massachusetts 01801-1179
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(Address of principal executive offices) (Zip Code)
(781) 939-7252
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(Issuer's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, 0.001
par value.
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
1
Issuer's revenues for its most recent fiscal year were: None
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the Issuer filed all documents and reports required to be filed by
Section 12, 13, or 15(d) of the Exchange Act after distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE TO CORPORATE ISSUERS
On April 8, 2002, the Issuer had 16,579,052 issued, and 15,179,058 outstanding
shares of its $.009 par value common stock. The aggregate market value of the
Registrant's voting stock held by non-affiliates of the Registrant was
approximately $11,037,284 at the closing quotation for the Registrant's common
stock of $2.05 as of April 8, 2002.
Transitional Small Business Disclosure Format Used (check one): Yes [ ] No [X]
Documents incorporated by reference: None.
2
INTERNATIONAL WIRELESS, INC.
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business of the Company . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Securities Holders . . . . 10
PART II
Item 5. Market for the Issuer's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 15
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . 18
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . . . . . . 19
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . . . . . . . 19
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 21
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . 23
Item 12. Certain Relationships and Related Transactions . . . . . . . 26
Item 13. Exhibits, and Reports on Form 8-K . . . . . . . . . . . . . . 26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 27
3
PART I
ITEM 1. BUSINESS OF THE COMPANY
FORWARD-LOOKING STATEMENTS. This annual report contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties. In addition, the Company
(International Wireless, Inc., a Maryland corporation, and its subsidiary,
Mitigo, Inc. a Delaware corporation) may from time to time make oral
forward-looking statements. Actual results are uncertain and may be impacted by
many factors. In particular, certain risks and uncertainties that may impact the
accuracy of the forward-looking statements with respect to revenues, expenses
and operating results include without limitation; cycles of customer orders,
general economic and competitive conditions and changing customer trends,
technological advances and the number and timing of new product introductions,
shipments of products and components from foreign suppliers, and changes in the
mix of products ordered by customers. As a result, the actual results may differ
materially from those projected in the forward-looking statements.
Because of these and other factors that may affect the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.
(A) THE COMPANY
The Company was incorporated in the State of Maryland on April 6, 1999 as
Origin Investment Group, Inc. ("Origin"). On December 27, 2001, the Company went
through a reverse merger with International Wireless, Inc. ("International
Wireless"). Thereafter on January 2, 2002, the Company changed its name from
Origin to our current name, International Wireless, Inc.
The Company was originally formed as a non-diversified closed-end
management investment company, as those terms are used in the Investment Company
Act of 1940 ("1940 Act"). The Company at that time elected to be regulated as a
business development company under the 1940 Act. The 1940 Act defines a business
development company (a "BDC") as a closed-end management investment company that
provides small businesses that qualify as an "eligible portfolio company" with
investment capital and also significant managerial assistance. A BDC is required
under the 1940 Act to invest at least 70% of its total assets in "qualifying
assets" consisting of (a) "eligible portfolio companies" as defined in the 1940
Act and (b) certain other assets including cash and cash equivalents.
The Company's original investment strategy had been, since inception, to
invest in a diverse portfolio of private companies that in some way build the
Internet infrastructure by offering hardware, software and/or services which
enhance the use of the Internet. Prior to it's reverse merger with International
Wireless, the Company identified two eligible portfolio companies within which
they entered into agreements to acquire interests within such companies and to
further invest capital in these companies to further develop their business.
However, on each occasion and prior to each closing, the Company was either
unable to raise sufficient capital to consummate the transaction or discovered
information which modified its understanding of the eligible portfolio company's
financial status to such an extent where it was unadvisable for it to continue
and consummate the transaction. During the last fiscal year, the Company entered
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into a definitive share exchange agreement and investment agreement with
Vivocom, Inc., a San Jose, California based software company that had developed
a proprietary all media switching system which enables all forms of data to be
sent over a single IP channel. The Company intended on investing a minimum of
three million two hundred and fifty thousand dollars ($3,250,000) within Vivocom
over several months. Due to the Company's inability to raise this money, the
share exchange never took place and the agreement terminated.
On December 7, 2001, the Company held a special meeting of its shareholders
in accordance with a filed Form DEF 14A with the Securities and Exchange
Commission whereby the shareholders voted on withdrawing the Company from being
regulated as a business development company and thereby no longer be subject to
the Investment Company Act of 1940 and to effect a one-for-nine reverse split of
its total issued and outstanding common stock. On December 14, 2001 the Company
filed a Form N-54C with the Securities and Exchange Commission formerly
notifying its withdrawal from being regulated as a business development company.
The purpose of the withdrawal of the Company from being regulated as a business
development company and the one-for-nine reverse split of its total issued and
outstanding common stock was to allow the Company to merge with a potential
business in the future. By withdrawing from its status as a business development
company, the Company chose to be treated as a publicly traded "C" corporation.
On December 27, 2001, the Company went through a reverse merger whereby it
acquired all the outstanding shares of International Wireless. Under the said
reverse merger, the former Shareholders of International Wireless ended up
owning a 88.61% interest in the Company. Thereafter on January 2, 2002, the
Company changed its name from Origin to our current name, International
Wireless, Inc.
On January 15, 2002, the Company acquired Mitigo, Inc. a Delaware
corporation with its corporate headquarters located in Woburn, Massachusetts.
The acquisition consisted of a stock for stock exchange in which the Company
acquired all of the issued and outstanding common stock of Mitigo in exchange
for the issuance of a total of 4,398,000 shares of its common stock, 2,998,006
of which was delivered at closing, and the remaining 1,399,994 are being held in
escrow for distribution subject to the achievement of certain net income
performances for the years 2002 and 2003. As a result of this transaction,
Mitigo became a wholly-owned subsidiary of the Company.
(B) BUSINESS OF THE ISSUER
(1) PRINCIPAL PRODUCTS AND SERVICES
On January 11, 2002, the Company acquired Mitigo, Inc. a Delaware
corporation with its corporate headquarters located in Woburn, Massachusetts.
Mitigo is in the business of developing visual intelligence software solutions
for wireless and mobile devices. Mitigo software decodes barcodes and other
visual symbols in mobile handsets and Personal Data Assistants ("PDAs") that
have integrated digital cameras. This capability enables mobile devices to
conduct rapid mobile transactions and pinpoint navigation to multimedia content
and information. Management believes that Mitigo's technology significantly
improves the usability and functionality of mobile devices helping overcome user
interface barriers to mobile transactions and commerce. The Company currently
has no other products or services.
5
Mitigo has developed software to decode commercial 1D and 2D bar codes as
well as other emerging symbologies. The Mitigo bar code decoding technology is
based on software that represents the culmination of 7 years of work by Dr. Tom
Antognini, a PhD from MIT, and Mitigo's Vice President of Technology. Mitigo
plans to support the mobile telephone/Internet convergence market by enabling
mobile-commerce and e-commerce from print-based bar codes. Mitigo plans to
license its client software to device manufacturers, including producers of
mobile handsets, PDAs and other devices.
Mitigo's technology is protected by two patents granted to Mr. Antognini in
August, 2000 and January 2001, and licensed to Mitigo, and has been specifically
targeted to accommodate the constraints of decoding bar codes from any print
media, including magazines, catalogs, posters, billboards, newspapers,
promotional material, and direct mail, etc. The technology will also read a bar
code from a screen, such as would be found on a mobile handset, a PDA, personal
computers, or television.
Management believes that Mitigo's exclusive licensed software technology
helps solve a barrier to mobile commerce by enabling a mobile handset equipped
with a simple digital camera to also function as a bar code reader, thus
enabling potentially thousands of different mobile commerce applications. The
technology does not require an advanced wireless network infrastructure such as
3G to operate, and is functional across any of the wireless formats currently
supported by handset manufacturers and carriers. The Company believes that its
technology can be of value to telecom companies in its potential to enhance
revenue opportunities. By making it easier for consumers using mobile phones to
perform more transactions with their devices, the Company believes that the
mobile carriers will be able to earn additional revenues from the sale of goods
and services through the devices.
The Company believes that mobile handsets, PDAs and other device equipped
with the Mitigo technology will allow such devices to read and process bar codes
for instant commerce or content retrieval. For example, in the future,
consumers may be able to download train schedules into their PDAs or mobile
phone simply by scanning a bar code at the train station or purchase products by
scanning a bar code on an advertisement.
Mitigo's technology decodes using a digital image of a bar code that can be
captured by a digital camera. Mitigo does not employ laser scanning of any kind
to decode bar codes, as laser technology is presently not suitable for consumer
devices due to cost, energy consumption, physical size constraints, bar code
format constraints, etc. Mitigo's solution is software only. The Mitigo software
uses the digital camera, processor and storage capabilities of the handset that
are already present. As such, the Company believes that Mitigo's software
solution is a cost effective way to add functionality into a mobile handset or
PDA.
(2) BUSINESS STRATEGY
The Company's subsidiary, Mitigo was formed to take advantage of wireless
convergence. In the wireless arena, mobile handsets, PDAs and other devices are
transforming the way people around the world access and use information. At
present there is a reliance on the personal computer desktop only, for Internet
access, to access entertainment, news, products, and services. The Company
believes that in the future, consumers will demand access to this content on a
device they carry everywhere with them, their mobile telephone and/or PDA.
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The Company believes that Mitigo's functionality eliminates fundamental
barriers for users wishing to access the Internet from their mobile devices,
barriers caused by user interface constraints, lack of a full keyboard, and
mouse, that makes it cumbersome and difficult to navigate directly to a Web
destination. The Company believes that its software creates the ability for a
mobile telephone or PDA to easily connect directly to a Web site or other
destination via bar codes.
(a) ENABLING TECHNOLOGY
CMOS semiconductors have advanced with technology that now makes it
possible to recognize and decode a bar code from an image using a digital
camera, i.e., a CMOS image sensor. This advancement now makes it possible to put
a consumer-grade digital camera in a mobile telephone for a fraction of the cost
prior to these advances. Many mobile handset manufacturers have released models
containing digital cameras, or announced the inclusion of this feature in
upcoming models. The Company believes that there will be a significant
integration of the mobile phone and digital camera over the next one to five
years, with significant adoption in the Asian market over the next 6-18 months.
This integration will enable mobile phones, equipped with software such as
Mitigo's, to read and process bar codes for instant commerce or content
retrieval. Mitigo envisions that within 12 to 18 months, the decoding component
of its client software will be directly integrated into a variety of CMOS
digital camera chipsets, yielding a high quality digital camera and a bar code
reading device for inclusion in mobile handsets.
Mitigo's core technology has been designed to perform with high reliability
in difficult decoding situations. The decoding software is successful even when
the bar code images may suffer from low lighting conditions, low contrast, low
resolution, and high amounts of noise. Likewise, it is robust against
significant damage or distortion in the printed code. These abilities make the
technology suitable to a variety of "real world" conditions.
The Mitigo decoding algorithms have been largely driven by heavy
experimental work on a large number of test images. Over 30,000 images were
generated and tested against in the course of development or Mitigo's decoding
algorithms in order to test and tune the algorithms against a wide variety of
conditions.
The information densities supported by the underlying technology of
Mitigo's algorithms are unparalleled in the bar code industry. With a 300 dpi
imager and a high quality laser printer, the algorithms can reliably decode
information printed at a density of 3,400 bytes/sq. inch; with a 600 dpi imager
and a thermal printer, it has achieved densities of over 12,000 bytes/sq. inch.
Many of the targeted imagers for the algorithm have employed CMOS imaging
chips, from 8 megapixels in size down to QCIF images (180X148 or 28 kilopixels).
At the lower end, these imagers represent the precisely the type of imagers that
are found now in a variety of consumer devices, such as cell phones, PDAs,
gaming devices, TV remotes, car dashboards, toys, etc.
The Mitigo algorithm employs a variety of techniques to retrieve
information available only at a subpixel level. The algorithm can, with certain
imagers, retrieve information from a matrix code where the imager captures an
individual bit in an area less than 1.5X1.5 pixels. In contrast, most
competitive solutions in the industry expect areas of minimum 3.5X3.5 pixels for
their algorithms to work.
7
(b) PRODUCTS
CodePoint - Version 1.0
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Now in beta form, Mitigo's bar code processing software, version 1.0, is
designed to decode 1D and 2D bar codes and support a variety of handheld
devices, including mobile phones, bar code readers, and PDAs. The software
recognizes, decodes and processes bar code images (bitmaps) generated by
consumer-grade CMOS image sensors. The software also acts as an operating system
to control sensing of bar codes in digital images and will include an API to
interface with the operating environment resident in the host device. This
software is Mitigo's primary offering and the Company believes Mitigo will offer
superior performance for bar code sensing and decoding when compared to other
commercially available software programs. Mitigo has optimized the software to
work inside of a consumer-grade CMOS digital camera. Other solutions on the
market require higher cost CCD or more expensive CMOS chips to function. The
Company believes that its Mitigo solution is the lowest cost, best performing
solution for consumer applications.
The Company's initial focus is on licensing our bar code processing
software to mobile handset manufacturers and makers of PDAs. The Company plans
to also license their decoding technology to device manufacturers, including bar
code reader manufacturers. As part of its strategy, the Company plans to support
all major mobile and wireless operating systems with their product set. The
Company is on schedule to ship V.1.0 of the software in Q2, 2002.
(3) PATENTS AND TRADEMARKS
Mitigo's exclusive licensed technology is protected by two patents US.
6,098,882 and 6,176,427 granted to Dr. Tom Antognini, Mitigo's Vice President of
Technology, in August, 2000 and January 2001, and has been specifically targeted
to accommodate the constraints of decoding bar codes from any print media,
including magazines, catalogs, posters, billboards, newspapers, promotional
material, and direct mail, etc. The technology will also easily read a bar code
from a screen, such as would be found on a mobile handset, a PDA, PC, or
television.
The ability to employ variable sized modules in a bar code is key to
attaining the greatest possible densities in the symbol, the smallest number of
pixels in a sensor used to decode a bar code, and the greatest robustness in
decoding at a given resolution. These features enable the smallest or densest
possible codes, the cheapest possible sensors, and the best user experience.
The patents in particular cover the concept of configuring modules in 2D
matrix codes so that only some pixels in a printed module can have ink or toner
assigned to them. That is, the inked areas of a module are separated by white
space from the inked areas of adjacent modules. This feature is crucial to
compensating for inkspread in an optimal manner. Without this patented
technique, inkspread causes the contents of one module to spill over into
adjacent modules, which will either cut down on the possible densities of
information, or will require higher resolution sensors to detect the smaller
white areas for modules that express an "off" bit. The technique also will
compensate for various forms of interpixel leakage that often occurs in sensors,
again allowing for smaller, cheaper sensors.
8
The power of the patented technique is demonstrated by the ability of the
technology to encode 1 MB of data on one side of a printed page using standard
printing processes and a 600 dpi scanner.
(4) OUR COMPETITION
The Company has identified over $1 billion in investment commitments to the
visual intelligence software solutions for wireless and mobile devices. Direct
competition will come from other software companies that produce software to
read bar codes from digital images. The Company, to date, has identified no
other companies who are engaged in selling into the mobile telephone market. The
Company's main software competitor, Axtel, sells solutions to device
manufacturers producing dedicated bar code scanners for business to business
applications in warehouses, retail, etc. The Company believes that the Axtel
software is not well suited for consumer devices from a performance perspective.
A potential partner for the Company's visual intelligence software
solutions for wireless and mobile devices is AirClic. Formed by Goldman Sachs,
Symbol, Motorola and others, the company received $290 million in funding
commitments. AirClic operates a centralized switching service to connect bar
codes through mobile devices to the Internet and is promoting the use of a small
1D bar code called the scanlet. AirClic does not produce decoding software for
bar codes, but rather works with manufacturers, carriers, etc to operate the
back end data network for bar code transactions through consumer devices. The
Company believes that it offers superior decoding software for 1D and 2D-bar
codes and as such, could work in concert with AirClic, and other companies in
the "global network" area such as Akamai, IBM, Microsoft, EMC, etc.
Other companies supporting this space include Digimarc and NeoMedia.
Presently these companies are focused on delivering content to devices based on
a decoded bar code. They are currently supporting older generation scanning
technologies to deliver non-wireless solutions to the marketplace. Mitigo's bar
code decoding technology is complementary to these companies.
(5) OUR STRATEGY
Mitigo plans to support the mobile telephone/Internet convergence market by
enabling mobile-commerce and e-commerce from print-based bar codes. Our client
software will be licensed to device manufacturers, including producers of mobile
handsets, PDAs and other devices. As part of our strategy, we will support all
major mobile and wireless operating systems with our product set. We are on
schedule to ship V.1.0 of the software in the 2nd quarter of 2002.
(6) OUR MARKETING STRATEGY
The Company plans to pursue multiple opportunities in licensing the
CodePoint product family into various channels. A primary sales channel is the
enterprise mobile computing area where a growing number of organizations are
looking to utilize visual symbol reading to streamline business processes,
update supply chain databases, equip field sales and support employees and other
users in the mobile workforce. An additional opportunity for the Company is in
the form of security related products. The CodePoint product family has
applicability in law enforcement, and building, property, and other security
applications. The company has entered into discussions with a firm that offer
applications such as these to commercial and government customers.
9
An additional primary sales channel involves licensing the CodePoint
software into mobile devices such as handsets. The Company has entered into
discussions with several multi-national consumer electronics manufacturing firms
regarding licensing the product for inclusion into mobile handsets and other
assorted electronic devices. The Company has also entered into discussions with
several Operating System developers that sell into the mobile handset category.
(7) EMPLOYEES
As of April 8, 2002, the Company, including its subsidiaries have fourteen
employees, consisting of full-time officers, software developers,
in-house-counsel, salespeople, and support staff. No employees are covered by
any collective bargaining agreements. We believe that our relationship with our
employees is good. The Company's success is dependent, in part, upon our
ability to attract and retain qualified management and technical personnel.
Competition for these personnel is intense, and the Company will be adversely
affected if it is unable to attract key employees. The Company presently has a
stock option plan for key employees and consultants.
(8) GOING CONCERN QUALIFICATION BY INDEPENDENT AUDITORS
The Company's independent auditors have reported that the Company has
suffered recurring net operating losses and has a current ratio deficit and a
shareholders deficit that raises substantial doubt about our Company's ability
to continue as a going concern. As shown in the accompanying financial
statements, the Company incurred a net loss of $4,392,638 during the year ended
December 31, 2001 resulting in a deficit accumulated during the development
stage of $4,392,638. On January 11, 2002 the Company acquired Mitigo, Inc.
Failure to raise capital or generate revenue through the Mitigo acquisition may
result in the Company depleting its available funds, being able to fund its
investment pursuits and cause it to curtail or cease operations. Additionally,
even if the Company does raise sufficient capital or generate revenue through
Mitigo, there can be no assurances that the net proceeds or the revenue will be
sufficient to enable it to develop business to a level where it will generate
profits and cash flows from operations.
ITEM 2. PROPERTIES
The Company's executive offices are located in a rented office space
located at 120 Presidential Way, Woburn, Massachusetts in the northern suburbs
of the City of Boston. On January 8, 2001 the Company entered into a
non-cancelable operating lease for office space which commenced on May 1, 2001
and expires July 31, 2005. The Company has paid a security deposit of $41,856
equivalent to six months of rent. The Company may elect to reduce the amount of
security deposit to $20,928 provided that no event of default has occurred after
the first anniversary of the commencement date.
ITEM 3. LEGAL PROCEEDINGS
On November 20, 2001 a judgment in the amount of $10,497.27 was entered
against the Company, and Omar A. Rizvi, the former Chairman of the Board of
Directors of Origin, by the Labor Commissioner in the State of California for
past wages, interest and penalties owed to a former employee of the Company who
alleged to have performed paralegal and bookkeeping services in California for
Origin. To date the judgment has not been paid. In addition, the Company has
10
cancelled all prior agreements it had between itself, Mr. Rizvi and Mr. Greg
Laborde the former President of the Company. For a more detailed discussion, see
the accompanying financial statements - Note 14d - Subsequent events, Other
Matters.
Other than the judgment above from the Labor Commissioner in the State of
California, there is no other past, pending or, to the Company's knowledge,
threatened litigation or administrative action which has or is expected by the
Company's management to have a material effect upon our Company's business,
financial condition or operations, including any litigation or action involving
our Company's officers, directors, or other key personnel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 7, 2001, the Company held a special meeting of its shareholders
in accordance with a filed Form DEF 14A with the Securities and Exchange
Commission whereby the shareholders were asked to vote on weather to withdraw
the Company from being regulated as a business development company and thereby
no longer be subject to the Investment Company Act of 1940 and to effect a
one-for-nine reverse split of its total issued and outstanding common stock. As
of December 7, 2001, there had been furnished, properly executed and valid
proxies covering 10,349,126 shares of common stock of the Company. The final
vote as to proposition one, to elect to withdraw from business development
company status and no longer be subject to to Section 55 through 65 of the
Investment Company Act of 1940, was 8,500,063 votes for, 4,600 votes against,
and 31,050 abstained. The final vote as to proposition two, to approve a
one-for-nine reverse split of the total issued and outstanding common stock of
the Company, was 10,312,876 votes for, 5,200 votes against, and 31,050
abstained. The purpose of the withdrawal of the Company from being regulated as
a business development company and the one-for-nine reverse split of its total
issued and outstanding common stock was to allow the Company to merge with a
potential business in the future. By withdrawing from its status as a business
development company, the Company chose to be treated as a publicly traded "C"
corporation.
In December 2001, after the one-for-nine reverse split whereby the existing
shareholders held in total 1,220,890 shares of common stock of the Company, the
Company asked its shareholders to approve the acquisition of International
Wireless, Inc. a Delaware Corporation, in a stock for stock exchange in which
the Company acquired all of the issued and outstanding common stock of
International Wireless in exchange for the issuance of newly issued 9,495,014
shares of its common stock.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUIY AND RELATED SHAREHOLDER
MATTERS
The Company was formed on April 6, 1999. Since April 1999, the Company's
common stock had been listed for trading on the OTC Bulletin Board under the
symbol "OGNI." The trading market for the Company's stock is limited and
sporadic and should not be deemed to constitute an "established trading market".
In connection with the change of the Company's name to International Wireless,
Inc., the Company's symbol was changed to "IWIN" on January 2, 2002.
The following table sets forth the range of bid prices of the Company's
common stock during the periods indicated. Such prices reflect prices between
dealers in securities and do not include any retail markup, markdown or
commission and may not necessarily represent actual transactions. The
information set forth below was provided by NASDAQ Trading & Market Services.
These quotations have not been adjusted for the December 7, 2001, one for nine
reverse stock split.
11
HIGH LOW
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FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter 6.50 3.00
Second Quarter 4.00 0.72
Third Quarter 2.03 0.31
Fourth Quarter 1.75 0.30
FISCAL YEAR ENDING DECEMBER 31, 2001
First Quarter 0.94 0.44
Second Quarter 0.80 0.35
Third Quarter 0.03 0.03
Fourth Quarter 0.14 0.14
The closing bid price for the common stock as reported by the OTC Bulletin
Board on April 8, 2002 was $2.05.
As of April 8, 2002, there were approximately 344 holders of record of the
Company's common stock.
TRANSFER AGENT
The Company's transfer agent and registrar of the common stock is
Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas
75034.
DIVIDEND POLICY
The Company has never paid dividends on the common stock and does not
anticipate paying dividends on its common stock in the foreseeable future. It is
the present policy of the Board of Directors to retain all earnings to provide
for the future growth of the Company. Earnings of the Company, if any, are
expected to be retained to finance the expansion of the Company's business. The
payment of dividends on the Company's common stock in the future will depend on
the results of operations, financial condition, capital expenditure plans and
other cash obligations of the Company and will be at the sole discretion of the
Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
The following is information for all securities that the Company has sold
since inception without registering the securities under the Securities Act.
These securities do not reflect a one-for-nine reverse split of the total issued
and outstanding common stock of the Company that took place in December 7, 2001:
The Company sold 100,000 shares of common stock for $100,000 to an
accredited investor on January 18, 2000, and sold 21,390 shares of common stock
for $99,998.25 to another accredited investor on February 12, 2000. These
investors were individuals personally known to members of the Company's
management. Each of the sales was conducted in accordance with Rule 606 of
Regulation E of the Securities Act of 1933 (as amended, the "Act") exempt from
registration and free trading.
12
On April 14, 2000 the Company sold 50,000 shares of common stock to an
accredited investor for $50,000 or $1.00 per share. These shares were sold in
connection with a private offering pursuant to Section 4(2) of the Securities
Act and are restricted from resale pursuant to Rule 144 of the Act.
On May 8, 2000 the Company offered to sell and on May 24, 2000 completed
the sale of 142,000 units to private accredited investors for an aggregate of
$106,500 or $0.75 per unit. We received net proceeds totaling $96,500 after
payment of a 10% finders fee to a non affiliated third party. Each Unit was
comprised of one share of common stock (free trading pursuant to Rule 606 of
Regulation E) and one Class A common stock purchase warrant. Each Class A common
stock purchase warrant is exercisable for one restricted common stock upon
payment of $.75 per warrant. The Class A warrants are exercisable for a five
year period.
On February 29, 2000 the Company offered for sale 16,000 shares of Series A
Convertible Preferred Stock for $4,600,000 or $287.50 per share. The Series A
Convertible Preferred Stock was convertible into common stock in stages
occurring at one months intervals over a ten month period. The Series A
Convertible provided for (a) a liquidation preference of $1.00 per share (plus
all declared but unpaid dividends); (b) full voting rights based upon the number
of shares of common stock into which each share is convertible; (c) no
conversion price per share of common stock; and (d) an automatic conversion into
common stock on specified dates. Class 1 Series A investors received the above
terms and had their funds placed into an escrow account which was set up where
the aggregate proceeds deposited in this account was to be released to the
Company reached $2,650,000. The use of proceeds were allocated for a proposed
acquisition of Encore/Sigma and for working capital. If the funds did not reach
that amount by a specified date, all principal and interest earned was to be
returned to the Class 1 Series A Preferred holders. Class 2 Series A Convertible
Preferred holders were offered one additional restricted common stock for every
$10.00 they invested if they agreed to allow the Company to use their funds for
current working capital rather than have their funds deposited in the escrow
account.
On June 6, 2000 the Company terminated the Series A Convertible Preferred
Stock offering, and on June 23, 2000, we returned to our Class 1 investors an
aggregate of $638,763 plus accrued interest which was previously recorded as
restricted cash. Also on June 6 we offered our Class 2 investors, in lieu of
each Series A Convertible Preferred Stock and restricted stock awarded, 383.33
Units. Each Unit was comprised of one share of common stock and one Common Stock
Purchase Warrant where each Common Stock Purchase Warrant is redeemable for one
share of common stock at an exercise price of $1.50 per share. As a result of
this exchange, we issued 324,999 shares of common stock for $243,750 or $0.75
per share along with 324,999 Common Stock Purchase Warrants. The warrants are
exercisable for a period of five years. The common stock was free trading based
on filing an offering circular pursuant to Rule 604 of Regulation E of the
Securities Act. No shares underlying the Common Stock Purchase Warrants are
restricted from resale pursuant to Rule 144 of the Act. Proceeds received from
the sale were used for working capital purposes and payment of the break up fee
paid to Encore/Sigma.
On June 12, 2000 the Company sold 20,000 shares of common stock to two
accredited investors for $25,000 or $1.25 per share. These shares are restricted
from resale pursuant to Rule 144 of the Act. Proceeds received from the sale
were used for working capital purposes.
13
On August 24, 2000 the Company sold an aggregate of 344,827 shares of
common stock to ten accredited investors for $100,000 or $0.29 per share. These
shares were sold in connection with a private offering pursuant to Rule 606 of
Regulation E and are free trading. Proceeds received from the sale were used for
working capital purposes.
On August 29, 2000 the Company offered to sell and on September 12, 2000
completed the sale of 350,000 shares of common stock to an accredited investor
for an aggregate of $507,500 or $1.45 per share. Net proceeds received was
$456,750, net of direct related costs of $50,750. These shares were sold in
connection with filing an offering circular pursuant to Rule 604 of Regulation E
of the Securities Act. Use of proceeds from this offering include payment of
accounting fees, legal fees associated the Alpha transaction and Vivocom
transaction and with the evaluation of Vivocom's patent application, and for
general working and operating capital purposes.
On March 28, 2001 the Company sold 33,333 units to an investor for an
aggregate of $10,000 or $.30 per share. Each unit is comprised of one share of
common stock and one common stock warrant. Each warrant is redeemable for one
share of common stock upon the payment of $.40.
On April 4, 2001, the Company sold 100,000 units to an investor for an
aggregate of $30,000 or $.030 per unit. Each unit was comprised of one share of
common stock and one and one half common stock warrants, or 150,000 common stock
warrants. Each common stock warrant is redeemable for one share of common stock
upon payment of $.40 per warrant.
On May 9, 2001 the Company sold 50,000 units to an investor for an
aggregate of $20,000, or $0.40 per unit. Each unit is comprised of one share of
common stock and one common stock warrant. Each common stock warrant is
redeemable for one share of common stock upon the payment of $0.40 per warrant.
On May 15, 2001, the Company received $10,000 in the form of a short term
bridge loan from an investor. The duration of this loan is one month and has an
interest rate of 12% per annum. This investor also received common stock
warrants to purchase an aggregate of 15,000 shares of our common stock
exercisable at $.51 per share.
On May 17, 2001 the Company issued warrants to a non-affiliated consultant
to purchase an aggregate of 12,500 shares of common stock at an exercise price
of $0.40 per share.
On May 31, 2001 the Company sold 49,019.60 units to an investor for an
aggregate of $25,000, or $0.51 per unit. Each unit was comprised of one share of
common stock and six common stock purchase warrants. Each common stock warrant
is redeemable for one share of common stock upon the payment of $0.40 per
warrant.
On August 20, 2001 the Company offered to sell pursuant to a private
placement an aggregate of 5,400,000 shares of its common stock at $0.02 per
share for an aggregate of $108,000. Said shares shall be restricted pursuant to
Rule 144 of the Securities Act of 1933. Proceeds from the sale shall be used
for covering outstanding liabilities of the company and to pay for costs
associated with its continual listing on the NASDAQ OTC:BB exchange. At the
time of filing of this Form 10-Q, One investor for an aggregate had purchased
1,500,000 of these shares for an aggregate purchase price of $30,000.
14
On May 15, 2001, the Company received $10,000 in the form of a short-term
bridge loan from an investor. The duration of this loan is one month and has an
interest rate of 12% per annum. This investor also received common stock
warrants to purchase an aggregate of 15,000 shares of our common stock
originally exercisable at $.51 per share but adjusted to $0.40 per share and
also received an additional 10,000 common stock purchases warrants to purchase
an additional 10,000 shares of our common stock for extending the due date of
the note.
On May 17, 2001 the Company received $7,500 in the form of a short-term
bridge loan from an investor and on May 21, 2001 we received an additional
$2,500 from that investor as a short-term bridge loan. The duration of the loans
were 90 days and jointly due on August 21, 2001 and has an interest rate of 12%
per annum. This investor also received common stock purchase warrants to
purchase an aggregate of 25,000 shares of our common stock exercisable at $0.40
per share.
On May 21, 2001 the Company received $20,000 in the form of a short-term
bridge loan from an investor. The duration of the loan was 90 days and due on
August 21, 2001 and has an interest rate of 12% per annum. This investor also
received common stock purchase warrants to purchase an aggregate of 50,000
shares of our common stock exercisable at $0.40 per share.
On July 15, 2001 the Company received $12,000 in the form of a short-term
bridge loan from an investor. The duration of the loan was 60 days and due on
September 15, 2001 and has an interest rate of 12% per annum. This investor
also received common stock purchase warrants to purchase an aggregate of 50,000
shares of our common stock exercisable at $0.40 per share.
On August 20, 2001 the Company offered to sell five million four hundred
thousand shares (5,400,000) at a purchase price of $0.02 per share for an
aggregate of $108,000 ("Private Offering"). These shares are sold pursuant to
an exemption under the registration requirements of the Securities Act of 1933
(the "Securities Act') and are restricted from resale pursuant to Rule 144 of
the Securities Act.
On August 29, 2001 the Company sold 1,500,000 shares of the Private
Offering to an investor for an aggregate of $30,000. The investor was an
accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933. The offering was done pursuant to Rule 606 of Regulation
E.
On September 4, 2001 the Company sold 1,875,000 shares of the Private
Offering to an investor for an aggregate of $38,696 in the form of 101,834
shares of Telehublink, Inc. ("THLC") free trading common stock.
On September 19, 2001 the Company sold 525,500 shares of the Private
Offering to an investor for an aggregate of $10,500 in the form of 53,000 shares
of THLC free trading common stock at a value of $0.198 per share of THLC stock.
On October 3, 2001 the Company sold 250,000 shares of the Private Offering
to an investor for an aggregate of $5,000. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 4, 2001 the Company sold 250,000 shares of the Private Offering
to an investor for an aggregate of $5,000. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
15
On October 10, 2001 the Company sold 500,000 shares of the Private Offering
to an investor for an aggregate of $10,000. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 12, 2001 the Company sold 375,000 shares if the Private Offering
to an investor for an aggregate of $7,500. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
On October 17, 2001 the Company sold 125,000 shares of the Private Offering
to an investor for an aggregate of $2,500. The investor was an accredited
investor as that term is defined pursuant to Rule 501 of the Securities Act of
1933. The offering was done pursuant to Rule 606 of Regulation E.
The Company believes that the transactions described from inception through
January 2, 2002 above were exempt from registration under Regulation E
"Exemptions For Small Business Investment Companies" of the Securities Act of
1933 because the Company qualified at the time as a Small Business Investment
Company, the aggregate amount of the subject securities was not in excess of
$100,000 and the subject securities were sold to a limited group of persons,
each of whom was believed to have been a sophisticated investor. Restrictive
legends were placed, as applicable, on stock certificates evidencing the
securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS AND PLAN OF OPERATION
The following discussion and analysis provides certain information, which
the Company's management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition for the year
ended December 31, 2001. This discussion and analysis should be read in
conjunction with the Company's financial statements and related footnotes.
The Company's auditors have issued a going concern opinion. The Company's
auditors have reported that the Company has suffered net operating losses and
has a current ratio deficit that raises substantial doubt about our Company's
ability to continue as a going concern.
The statements contained in this section that are not historical facts are
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) that involve risks and uncertainties. Such
forward-looking statements may be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. From time to time, we or our representatives have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in our various filings with the SEC, or press
releases or oral statements made by or with the approval of our authorized
executive officers.
16
These forward-looking statements, such as statements regarding anticipated
future revenues, capital expenditures and other statements regarding matters
that are not historical facts, involve predictions. Our actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. We do not undertake any
obligation to publicly release any revisions to these forward-looking statements
or to reflect the occurrence of unanticipated events. Many important factors
affect our ability to achieve its objectives, including, among other things,
technological and other developments in the Internet field, intense and evolving
competition, the lack of an "established trading market" for our shares, and our
ability to obtain additional financing, as well as other risks detailed from
time to time in our public disclosure filings with the SEC.
The Company was incorporated in the State of Maryland on April 6, 1999 as
Origin Investment Group, Inc. ("Origin"). On December 27, 2001, the Company went
through a reverse merger whereby it acquired all the outstanding shares of
International Wireless, Inc. ("International Wireless"). Under the said reverse
merger, the former Shareholders of International Wireless ended up owning a
88.61% interest in the Company. Thereafter on January 2, 2002, the Company
changed its name from Origin to our current name, International Wireless, Inc.
The Company was originally formed as a non-diversified closed-end
management investment company, as those terms are used in the Investment Company
Act of 1940 ("1940 Act"). The Company at that time elected to be regulated as a
business development company under the 1940 Act. The 1940 Act defines a business
development company (a "BDC") as a closed-end management investment company that
provides small businesses that qualify as an "eligible portfolio company" with
investment capital and also significant managerial assistance. A BDC is required
under the 1940 Act to invest at least 70% of its total assets in "qualifying
assets" consisting of (a) "eligible portfolio companies" as defined in the 1940
Act and (b) certain other assets including cash and cash equivalents.
The Company's original investment strategy had been, since inception, to
invest in a diverse portfolio of private companies that in some way build the
Internet infrastructure by offering hardware, software and/or services which
enhance the use of the Internet. Prior to it's reverse merger with International
Wireless, the Company identified two eligible portfolio companies within which
they entered into agreements to acquire interests within such companies and to
further invest capital in these companies to further develop their business.
However, on each occasion and prior to each closing, the Company was either
unable to raise sufficient capital to consummate the transaction or discovered
information which modified their understanding of the eligible portfolio
company's financial status to such an extent where it was unadvisable for them
to continue and consummate the transaction. During the last fiscal year, the
Company entered into a definitive share exchange agreement and investment
agreement with Vivocom, Inc., a San Jose, California based software company that
had developed a proprietary all media switching system which enables all forms
of data to be sent over a single IP channel. The Company intended on investing a
minimum of three million two hundred and fifty thousand dollars ($3,250,000)
within Vivocom over several months. Due to the Company's inability to raise this
money, the share exchange never took place and the agreement terminated.
On December 27, 2001, the Company went through a reverse merger whereby it
acquired all the outstanding shares of International Wireless. Under the said
reverse merger, the former Shareholders of International Wireless ended up
owning a 88.61% interest in the Company. Therafter on January 2, 2002, the
Company changed its name from Origin to our current name, International
Wireless, Inc. The historical financial statements prior to December 27, 2001
are those of International Wireless, Inc. the Delaware corporation.
17
On January 15, 2002, the Company acquired Mitigo, Inc. a Delaware
corporation with its corporate headquarters located in Woburn, Massachusetts.
The Acquisition consisted of a stock for stock exchange in which the Company
acquired all of the issued and outstanding common stock of Mitigo in exchange
for the issuance of a total of 4,398,000 shares of its common stock, 2,998,006
at closing, and the remaining 1,399,994 held in escrow and to be distributed
subject to net income performance for the years 2002 and 2003. As a result of
this transaction, Mitigo became a wholly-owned subsidiary of the Company.
Mitigo is a developer of visual intelligence software solutions for
wireless and mobile devices. Mitigo software decodes barcodes and other visual
symbols in mobile handsets and PDAs that have integrated digital cameras. This
capability provides "visual intelligence" to mobile devices enabling rapid
mobile transactions and pinpoint navigation to multimedia content and
information. Mitigo technology dramatically improves the usability and
functionality of mobile devices helping overcome user interface barriers to
mobile transactions and commerce. The Company currently has no agreements for
the sale of its products nor does it have any other products or services.
RESULT OF OPERATIONS FOR FISCAL YEARS ENDED 2001 AND 2000
We are a Development Stage Company, and had no revenues for the fiscal
years ended December 31, 2001 and commenced operations January 1, 2001. We
anticipate that within the next few quarters, we will begin to receive material
revenues from new sources, namely the licensing of our bar code processing
software to mobile handset manufacturers and makers of PDAs as well as device
manufacturers including bar code reader manufacturers. We expect, but can not
guarantee, that for calendar year 2002, most of our revenue will be derived from
the bar code processing software technology.
Our General and Administrative Expenses for the fiscal year ended December 31,
2001 was $1,276,646. We anticipate that our General and Administrative Expenses
in future periods could increase as a result of an increase in employees and the
recent signing of Graham Paxton as the Company's new President and Chief
Executive Officer. However, the Company believes that its revenues for calendar
year 2002 will be greater than its overall expenses including the General and
Administrative Expenses and the related costs of sales. However, there can be no
assurance that the Company will be able to generate revenues in excess of
overall expenses and costs of sales.
Our net loss for the fiscal year ended December 31, 2001 was $4,392,638. A
component of the loss other than the General and Administrative Expenses was the
result of a $1,571,778 unrealized loss on marketable securities and a $1,535,360
loss on the sale of marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, our cash balance was $54,310. Our working capital
requirements depend upon numerous factors, including, without limitation, levels
of resources that we devote to the further development of our Mitigo bar code
processing software, technological advances, status of competitors and our
ability to establish collaborative arrangements with other organizations. We are
seeking to raise up to $10 million of additional capital from private investors
and institutional money managers prior to May, 2002, but there can be no
assurance that we will be successful in doing so. If we are not successful in
raising any of this additional capital, our current cash resources are expected
18
to be sufficient to fund our current operations only into the second quarter of
2002. We intend to accelerate our development and infrastructure spending in the
coming calendar quarters if we have sufficient capital resources available to do
so, however, our ability to do so is highly uncertain at this time. Our
independent auditors have noted in their report on our 2001 financial statements
that there are existing uncertain conditions that we face relative to our
capital raising activities, and these conditions raise substantial doubt as to
our ability to continue as a going concern.
RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations". SFAS No. 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which will become effective for the Company in 2002. SFAS No. 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairment of goodwill.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 changes the
accounting for long-lived assets to be held and used by eliminating the
requirement to allocate goodwill to long-lived assets to be tested for
impairment, by providing a probability weighted cash flow estimation approach to
deal with situations in which alternative courses of action to recover the
carrying amount of possible future cash flows and by establishing a
primary-asset approach to determine the cash flow estimation period for a group
of assets and liabilities that represents the unit of accounting for long-lived
assets to be held and used. SFAS No. 144 changes the accounting for long-lived
assets to be disposed of other than by sale by requiring that the depreciable
life of a long-lived asset to be abandoned be revised to reflect a shortened
useful life and by requiring the impairment loss to be recognized at the date a
long-lived asset is exchanged for a similar productive asset or distributed to
owners in a spin-off if the carrying amount of the asset exceeds its fair value.
SFAS No. 144 changes the accounting for long-lived assets to be disposed of by
sale by requiring that discontinued operations no longer be recognized on a net
realizable value basis (but at the lower of carrying amount or fair value less
costs to sell), by eliminating the recognition of future operating losses of
discontinued components before they occur and by broadening the presentation of
discontinued operations in the income statement to include a component of an
entity rather than a segment of a business. A component of an entity comprises
operations and cash flows that can be clearly distinguished, operationally, and
for financial reporting purposes, from the rest of the entity. SFAS No. 144 will
become effective for the Company in 2002.
ITEM 7. FINANCIAL STATEMENTS
The audited balance sheets of the Company as of December 31, 2001 and
related statements of operations, stockholders' equity and cash flows for the
years ended December 31, 2001 are included, following Item 13, in sequentially
numbered pages numbered F-1 through F-18. The page numbers for the financial
statement categories are as follows:
19
Index
Page
Independent auditors' report F-1
Consolidated balance sheet F-2
Consolidated statements of operations F-4
Consolidated statement of stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all directors
and executive officers of the Company and the key management personnel as of
December 31, 2001. The Board of Directors of the Company is comprised of only
one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Also provided is a brief description of the business experience of
each director and executive officer and the key management personnel during the
past five years and an indication of directorships held by each director in
other companies subject to the reporting requirements under the Federal
securities laws.
NAME AGE POSITION
---- --- --------
Stanley A. Young 75 Chairman of the Board of Directors,
and Chief Executive Officer (Retired
on April 5, 2002)
Graham F. Paxton 51 President, Chief Executive Officer and
Director (As of May 1, 2002)
Michael Dewar 25 Chief Operating Officer, Secretary and
Director (As of December 27, 2001)
Dr. Ira W. Weiss 54 Chairman of the Board and Director (As
of April 8, 2002)
Adam J. Cogley 26 Treasurer and Corporate Controller
(As of December 27, 2001)
20
THE OFFICERS AND DIRECTORS OF THE COMPANY ARE SET FORTH BELOW.
GRAHAM F. PAXTON was appointed the President, CEO and member of the Board
of Directors on April 2, 2002, effective May 1, 2002. Prior to joining the
Company, Mr. Paxton was the President and CEO of Siemens Information and
Communication Mobile LLC, the mobile group of Siemens AG based in Munich,
Germany. Prior to that, he was the executive vice president and a member of the
executive board of the Siemens Business Services division (SBS), with
responsibility for Europe, Africa and the Asia Pacific. He was instrumental in
shaping SBS from its inception in 1995 into a $7 billion information technology
company with 36,000 employees worldwide. At SBS, he successfully restructured
numerous country operations, and had a direct responsibility for large
outsourcing contracts, which represented approximately $2 billion of revenues.
Prior to Siemens Business Services, Mr. Paxton was an independent consultant for
Computer Sciences Corporation (London), Woolworth (part of the Kingfisher
Group), Philips Business Systems, Amdahl and Tesco. He began his career in 1970
at Unilever Computer Services LTS (London) as a computer services manager, and
fulfilled similar duties of increasing responsibility at British Homes Stores
and J. Sainsbury PLC until 1987. Mr. Paxton holds a Masters degree in
Engineering. He has also completed management courses at the Stanford
University Graduate School of Business, MIT's Sloan School of Management, INSEAD
(Paris, France) and Astridge Management College (United Kingdom).
DR. IRA W. WEISS was appointed a director of the Company in January 2002 as
part of the reverse merger with International Wireless, Inc. He has assumed the
position as Chairman of the Board since April 8, 2002. Since 1994, he has been
the Dean of the College of Business Administration of Northeastern University in
Boston, Massachusetts. From January 1992 to July 1994, Dr. Weiss was the Dean
of the Madrid School of Business, an education institution affiliated with the
University of Houston, in Madrid Spain. From 1989 to 1991, Dr. Weiss was the
Vice President and Associate Chancellor of Information Technology at the
University of Houston. Dr. Weiss holds a PhD with Distinction from the Graduate
School of Management of the University of California and has lectured and
published widely in the areas of management and information systems.
MICHAEL DEWAR was appointed The Chief Operating Officer and a director of
the Company in January 2002 as part of the reverse merger with International
Wireless, Inc. He is the co-founder of International Wireless, Inc. Prior to
his association with the Company, Mr. Dewar funded several portfolio companies
through debt-equity and equity financing, as well as created a wide variety of
offshore strategic partnerships as a General Partner at Atlantic Ventures
Management. He has acted as a founder, financier and Director of several
companies, particularly early stage technology start-up situations. Prior to
Atlantic Ventures Management, Mr. Dewar spent several years working in Europe
and Africa, where he continues to serve as a Director for Mercury Inter-Trade
Ltd. Mr. Dewar earned his Bachelor of Arts from Rollins College, with a major in
Economics, and his MBA in Management and Finance from Northeastern University.
21
ADAM J. COGLEY was appointed Treasurer and Corporate Controller of the
Company with the reverse merger of International Wireless with the Company in
December, 2001. Prior to joining International Wireless, Mr. Cogley spent
several years working in the accounting and operations sectors of both public
and private companies with an emphasis on venture capital backed start-up
companies. Most recently, Mr. Cogley was a senior member of the finance staff at
Alcita Technologies, Inc., one of Atlantic Ventures' portfolio companies, and as
an independent finance consultant to a division of Koch Industries, Inc., the
second-largest privately held company in the world. He also served as a finance
analyst at KPMG's Mergers and Acquisition group in Sydney, Australia, where his
focus was on market research, financial due diligence and the divesture and
privatization of public entities. Mr. Cogley earned a Bachelor of Liberal Arts,
cum laude, from Harvard University, Division of Continuing Educations, with a
concentration in Government. While attending Harvard, Mr. Cogley was one of the
first members of the finance and operations staff for a successful start-up
company later sold to a major, world-wide electronics firm. Previously, Mr.
Cogley had served on the staff of a U.S. Congressman.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of a registered class of the Company's equity securities to file various reports
with the Securities and Exchange Commission concerning their holdings of, and
transactions in, securities of the Company. Copies of these filings must be
furnished to the Company. During the fiscal years ended December 31, 2001 and
2000, the Company did not have any class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, and
accordingly, was not subject to the reporting requirements of Section 16 of the
Securities Exchange Act of 1934, as amended.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the fiscal
years ended December 31, 2001, 2000, and 1999 to the Company's Chief Executive
Officer. No officer of the Company received annual compensation in excess of
US$100,000 per annum during such years.
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR SALARY
----------------------------------------- ---- --------
Stanley A. Young(1), Chairman, and Chief 2001 $107,258
Executive Officer
Gregory H. Laborde(2), Director, and 2001 US$nil
Chief Executive Officer 2000 US$nil
1999 US$nil
Omar A. Rizvi(3), Chairman, and 2001 US$nil
Chief Executive Officer 2000 US$nil
1999 US$nil
22
(1) On April 5, 2002, Stanley A. Young retired as Chairman, and Chief Executive
Officer and Graham F. Paxton became Chief Executive Officer, President and a
member of the Board of Directors.
(2) On December 27, 2001, Gregory H. Laborde resigned as Chief Executive Office
of the Company as part of the reverse merger with International Wireless, Inc.
(3) On August 11, 2001, Omar A. Rizvi resigned as President and Chairman of the
Board of the Company for personal reasons.
COMPENSATION AGREEMENTS
The Company has entered into a long-term employment agreement with Graham
F. Paxton as its new President, Chief Executive Officer and director effective
May 1, 2002 whereby the Company will pay a minimum total salary of $241,600 per
annum plus bonus, annual increase and stock options. This employment agreement
terminates on April 30, 2005, however it can be renewed for an additional three
years. In addition, the Company has entered into eight employment agreements
with other employees and officers of the company whereby the Company will pay a
minimum total salary of $889,200 per annum plus bonus, annual increase and stock
options. These employment agreements terminate on December 31, 2004, however
they will automatically renew annually thereafter unless terminated by the
employee or the Company.
BOARD OF DIRECTORS
During the year ended December 31, 2000, all corporate actions were
conducted by unanimous written consent of the Board of Directors. Directors
receive no compensation for serving on the Board of Directors, but are
reimbursed for any out-of-pocket expenses incurred in attending board meetings.
The Company had no audit, nominating or compensation committees, or committees
performing similar functions, during the year ended December 31, 2001.
STOCK OPTION PLAN
Effective December 27, 2001, the Company granted options to purchase
1,607,500 shares (representing post-Merger shares) of the Company's common
stock to employees and consultants with exercise prices ranging from $0.40
to $0.46 per share. These options vest between one and three years and
expire from one to five years from issuance date. The options issued to
employees have an intrinsic value of $1,517,000. The options issued to
consultants had a fair value of $435,000, calculated using the Black-Scholes
options pricing model.
During the year ended December 31, 2001, prior to the reverse merger, the
Company issued options to purchase 50,000 shares of the Company's common stock
to employees and consultants with an exercise price of $0.01 per share. These
options vest over one year and have no expiration date. Compensation expense for
the year ended December 31, 2001 relating to these options amounted to
$116,887. On December 27, 2001, the date of the reverse merger, these 50,000
options were recapitalized into 226,066 options to purchase the public entity's
common stock.
23
The following table contains information concerning the stock option grants made
to the following executive officers and directors for the fiscal year ended
December 31, 2001. No stock appreciation rights were granted to these
individuals during such year.
Number of Percent of total
Securities options/SARs
Underlying granted to
Options/SARs employees in Exercise or Expiration
Name and Principal Position granted fiscal year(1) Base Price Date
------------------------------------------------------------------------------------------------------
Stanley A. Young 600,000 32.7% $ 0.46 Dec. 31, 2004
Chief Executive Officer
and Chairman of the Board
(retired April 5, 2002)
Graham Paxton 0(2) 0.0%
President, Chief Executive Officer
and Director
Michael Dewar 450,000 24.5% $ 0.46 Dec. 31, 2004
Secretary, and Chief Operating
Officer and Director
Adam Cogley 45,213 2.5% $ 0.01 none
Treasurer and Corporate Comptroller 112,500 6.1% $ 0.46 Oct. 11, 2004
Ira Weiss 50,001 2.7% $ 0.46 Dec. 31, 2004
Chairman of the Board (since April 5
2002) and Director
1) Percentage based on 1,833,566 options outstanding at the end of the fiscal
year ending December 31, 2001. This does not reflect the original 500,000
options granted to Greg Laborde and subsequently terminated by the Company. See
footnote 14(d) to the Financial Statements.
2) Mr. Paxton holds 1,500,000 options granted in April, 2002. 250,000 options at
$1.05 per share vesting on May 1, 2002; 250,000 options at $1.05 per share
vesting upon the Company and/or its subsidiaries having received cumulative
aggregate orders for goods and/or services of at least $5 million from May 1,
2002; 250,000 options at $1.05 per share vesting upon the Company and/or its
subsidiaries having received cumulative aggregate orders for goods and/or
services of at least $10 million from May 1, 2002; 250,000 options at $2.25 per
share vesting upon the Company and/or its subsidiaries having received
cumulative aggregate orders for goods and/or services of at least $25 million
from May 1, 2002; 250,000 options at $2.25 per share vesting upon the Company
and/or its subsidiaries having received cumulative aggregate orders for goods
and/or services of at least $50 million from May 1, 2002; 250,000 options at
$2.25 per share vesting upon the Company and/or its subsidiaries having obtained
funding through one or more placements of either debt or equity or any
combination thereof in an aggregate amount of $4.5 million.
WARRANTS
In connection with the reverse merger on December 27, 2001 of International
Wireless, Inc. into Origin Investment, Inc., the Company assumed an aggregate of
1,614,482 warrants which were issued by Origin prior to the merger. These
warrants have exercise prices ranging from $0.10 to $13.50, are fully vested and
expire on February 10, 2006.
24
Warrants holders at the exercise price of $0.40 totaling 757,301 warrants
and at the exercise price of $0.75 totaling 142,000 were called in the first
quarter of 2002. These warrants were subject to a clause whereby the warrants
are not exercise-able until the Company sends the warrant holders written
confirmation that the five consecutive trading day average closing bid price
equals or exceed 150% of the value of the exercise price of the warrants. The
warrant holders had 10 business days to exercise the entire amount of the
warrants pursuant to the agreement, in the event the warrant holders failed to
exercise, the number of warrants outstanding as well as the exercise price were
subject to adjustment. During the first quarter of 2002, an aggregate of 807,500
of these warrants were exercised for $345,900 for exercise prices between $0.40
and $0.75 per warrant in exchange for 607,500 shares of the Company's common
stock. 91,801 warrants failed to exercise, these warrants were reversed 9 for 1
to a total of 10,201 warrants.
The following table summarizes information concerning warrants outstanding
at December 31, 2001.
Weighted
Number Average Weighted
Exercise Price Outstanding Remaining Number Average
Contractual Life Exercisable Exercise Price
-------------- ---------------- ---------------- ----------- ---------------
0.10 225,000 (1) 5 years 225,000 $ 0.10
0.20 200,000 5 years 200,000 $ 0.20
0.40 757,301 (2) 5 years -- $ 0.40
0.75 142,000 (2) 5 years -- $ 0.75
1.50 248,331 5 years 248,331 $ 1.50
2.70 8,332 5 years 8,332 $ 2.70
3.60 25,000 5 years 25,000 $ 3.60
13.50 8,518 5 years 8,518 $ 13.50
1) The Company has challenged the validity and legality of these warrants and
have decided not to honor them as of this date.
2) These warrants are subject to a clause whereby the warrants are not
exercise-able until the Company sends the warrant holders written confirmation
that the five consecutive trading day average closing bid price equals or exceed
150% of the value of the exercise price of the warrants. The warrant holders
shall have 10 business days to exercise the entire amount of the warrants
pursuant to the agreement; should the warrant holders fail to exercise, the
number of warrants outstanding as well as the exercise price are subject to
adjustment.
INDEMNIFICATION
Under the Company's Article of Incorporation and its Bylaws, the Company
may indemnify an officer or director who is made a party to any proceeding,
including a law suit, because of his position, if he acted in good faith and in
a matter he reasonably believed to be in the Company's best interest. The
Company may advance expenses incurred in defending a proceeding. To the extent
that the officer or director is successful on the merits in a proceeding as to
which he is to be indemnified, the Company must indemnify him against all
expenses incurred, including attorney's fees. With respect to a derivative
action, indemnity may be made only for expenses actually and reasonably incurred
in defending the proceeding, and if the officer or director is judged liable,
only by a court order. The indemnification is intended to be to the fullest
extent permitted by the laws of the State of Maryland.
25
Regarding indemnification for liabilities arising under the Securities Act
of 1933, which may be permitted to directors or officers under Maryland law, the
Company is informed that, in the opinion of the Securities and Exchange
Commission, indemnification is against public policy, as expressed in the Act
and is, therefore, unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 2001
with respect to the beneficial ownership of the common stock of the Company by
each beneficial owner of more than 5% of the outstanding shares of common stock
of the Company, each director, each executive officer and all executive officers
and directors of the Company as a group, the number of shares of common stock
owned by each such person and group and the percent of the Company's common
stock so owned.
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act as consisting of sole
or shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose of or direct the
disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws
where applicable. Each person has sole voting and investment power with respect
to the shares of common stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of common stock, except as
otherwise indicated. The address of those persons for which an address is not
otherwise indicated is 120 Presidential Way, Woburn, Massachusetts 01801-1179.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE OF CLASS(1)
------------------------ ------------------------ ----------------------
Graham F. Paxton --(2) --%
Dr. Ira W. Weiss --(3) --%
Michael Dewar 713,033(4) 6.65%
Adam J. Cogley 45,213(5) 0.42%
All Directors and Executive Officers
as a group (4 persons) 758,246 7.08%
5% Beneficial Owners
Stanley A. Young 6,638,765(6) 61.95%
Young Technology Fund II 1,652,153(7) 15.42%
Young Technology Fund I 2,976,759(8) 27.79%
(1) Calculations based upon 10,715,904 shares of common stock issued and
outstanding on December 31, 2001.
(2) Mr. Paxton holds 1,500,000 options. 250,000 options at $1.05 per share
vesting on May 1, 2002; 250,000 options at $1.05 per share vesting upon the
Company and/or its subsidiaries having received cumulative aggregate orders for
goods and/or services of at least $5 million from May 1, 2002; 250,000 options
at $1.05 per share vesting upon the Company and/or its subsidiaries having
received cumulative aggregate orders for goods and/or services of at least $10
million from May 1, 2002; 250,000 options at $2.25 per share vesting upon the
Company and/or its subsidiaries having received cumulative aggregate orders for
goods and/or services of at least $25 million from May 1, 2002; 250,000 options
26
at $2.25 per share vesting upon the Company and/or its subsidiaries having
received cumulative aggregate orders for goods and/or services of at least $50
million from May 1, 2002; 250,000 options at $2.25 per share vesting upon the
Company and/or its subsidiaries having obtained funding through one or more
placements of either debt or equity or any combination thereof in an aggregate
amount of $4.5 million.
(3) Dr. Weiss holds 50,001 options at $0.46 per share, exercisable 16,667 at
the end of each fiscal year for fiscal years 2002 through 2004.
(4) Represents 600,000 shares owned by Donald R. Dewar and 113,033 owned by
Brenda Dewar, the parents of Michael Dewar. In addition Mr. Dewar holds 450,000
options at $0.46 per share, exercisable 37,500 at the end of each fiscal quarter
for fiscal years 2002 through 2004.
(5) Represents 45,213 options at $0.01 per share fully vested. In addition,
Mr. Cogley holds 112,500 options at $0.46 per share, exercisable 9,375 at the
end of each fiscal quarter for fiscal years 2002 through 2004.
(6) Mr. Young owns 935,115 shares in his own name, plus 600,000 options at
$0.46 per share, exercisable 50,000 at the end of each fiscal quarter for fiscal
years 2002 through 2004. In addition he is attributable to owning in addition
474,738 shares owned by his wife Barbara Young, and is attributable to owning
2,976,759 shares owned by Young Technology Fund I and 1,652,153 shares owned by
Young Technology Fund II for whom he holds investment rights and a large
ownership percentage.
(7) Young Technology Fund II is managed by and is attributable to Mr. Stanley
A. Young.
(8) Young Technology Fund I is managed by and is attributable to Mr. Stanley
A. Young.
CHANGES IN CONTROL
On December 27, 2001, a change in control of the Company occurred in
conjunction with the closing under an Acquisition Agreement dated December 27,
2001, between the Company and International Wireless, Inc., a Delaware
corporation with its corporate headquarters located in Woburn, Massachusetts.
The closing under the Acquisition Agreement consisted of a stock for stock
exchange in which the Company acquired all of the issued and outstanding common
stock of International Wireless in exchange for the issuance of 9,721,080 shares
of its common stock, after a 9 for 1 reverse split of the Company's outstanding
shares. As a result of this transaction, International Wireless became a
wholly-owned subsidiary of the Company.
As a result of this Acquisition, a change in control of Company had
occurred. Prior to the Agreement, the Company had 9,485,569 shares of common
stock issued and outstanding. Following the closing, and an agreed to 9 for 1
reverse split, the Company had 1,220,890 shares of common stock outstanding.
The 9,721,080 shares of common stock have been issued to thirty seven different
shareholders. Stanley A. Young the new Chairman of the Board at that time owned
1,085,114 shares directly and is attributable to owning a total of 6,188,764
through relations and funds under his control.
27
In accordance with the Acquisition Agreement, the Board of Directors of the
Company had approved to file a change of name for the Company from Origin
Investment Group, Inc. to International Wireless, Inc., and to change the
corporate office from Santa Monica, California to its current location at 120
Presidential Way, Woburn, Massachusetts 01801. The change of corporate office
took place immediately. The change of name and the change in trading symbol
from OGNI to IWIN took place on January 2, 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 15, 2001 the Company entered into a revolving credit agreement
with Atlantic Venture Management, LLC ("Atlantic") whereby the Company would
advance or incur expenses on behalf of Atlantic up to $20,000. The note bears
interest at 6% and is due December 31, 2003. The balance due under this note
receivable at December 31, 2001 was $6,324. Stanley A. Young, the former Chief
Executive Officer and Chairman of the Board and Michael Dewar the current Chief
Operating Officer and director of the Company are also general partners of
Atlantic.
On September 1, 2001 the Company entered into a revolving credit agreement
with Mitigo, whereby the Company would advance or incur expenses on behalf of
Mitigo up to $600,000. The note bears interest at 6% and was due December 31,
2003. The balance due under this note receivable at December 31, 2001 was
$216,091. On January 11, 2002 the Company acquired all of the issued and
outstanding shares of Mitigo (See Note 14 to the audited financial statements).
On January 31, 2001 the Company entered into a three year consulting
agreement with Mercury Intertrade, LTD ("Mercury") whereby Mercury will provide
consulting services to negotiate and close contracts relating to wireless
technology primarily in the Republic of South Africa. Mercury is owned by a
relative of Michael Dewar the Chief Operating Officer and director of the
Company. Consulting fees paid in cash and issuance of marketable securities to
Mercury during the year ended December 31, 2001 amounted to $113,247.
During the year ended December 31, 2001 the Company advanced an aggregate
of $70,500 to the Chief Operating Officer and a relative of the Chief Operating
Officer. These loans are non-interest bearing loans and there are no formal
agreements or repayment terms for these loans.
The Company has two line of credit agreements with Stanley A. Young, the
former Chief Executive Officer and Chairman of the Board and a Company which he
and Michael Dewar the current Chief Operating Officer are general partners. The
total available under these agreements is $320,000 with interest rates of 6% and
due dates through December 31, 2003. The lenders may opt to convert all, or
part of these loans into common stock of the Company (at the market price at the
time of conversion), on or before the due dates. The balance outstanding under
these note agreements at December 31, 2001 was $146,830.
28
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Document Description
-------------- --------------------
3.1 Certificate of Incorporation of Origin Investment Group,
Inc. as filed with the Maryland Secretary of State on April
6, 1999, incorporated by reference to the Company's
Registration Statement on Form 10-SB filed with the
Securities and Exchange Commission on August 16, 1999
3.3 Bylaws of Origin Investment Group, Inc., incorporated by
reference to the Company's Registration Statement on Form
10- SB filed with the Securities and Exchange Commission on
August 16, 1999.
10.1 Acquisition Agreement between Origin Investment Group, Inc.
and International Wireless, Inc. to acquire International
Wireless, Inc. dated December 27, 2001, incorporated by
reference to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 17,
2002.
10.2 Acquisition Agreement to acquire Mitigo Inc. dated January
15, 2002, incorporated by reference to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on January 31, 2002.
10.3 Lease Agreement
10.4 Employment Agreement of Graham Paxton, President, Chief
Executive Officer and member of the Board of Directors,
effective May 1,2002, incorporated by reference to the
Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 12, 2002.
10.5 Employment Agreement of Michael Dewar, Chief Operating
Officer and member of the Board of Directors.
10.6 Employment Agreement of Adam Cogley, Treasurer and Corporate
Comptroller.
10.7 Licensing Agreement between Mitigo, Inc. and Cobblestone
Software, Inc. dated January 10, 2002.
21.1 Subsidiaries of the Company
(b) Reports on Form 8-K:
The Company filed a Form 8-K on July 20, 2001 relating to
the termination of the Company's intent to purchase Vivocom.
29
The Company filed a Form 8-K on August 27, 2001 relating to
the Notice that the Company was conducting a private
placement of 5,400,000 shares of its common stock at $0.02
per share for an aggregate of $108,000, and notice that the
Company's Chairman of the Board and President, Omar A.
Rizvi, resigned on August 11, 2001 due to personal reasons.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERNATIONAL WIRELESS INC.
------------------------------------------
(Registrant)
Date: 04/11/02 By: /s/ MICHAEL DEWAR
---------------------------------------
Michael Dewar
Chief Operating Officer and Secretary
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: 04/11/02 By: /s/ MICHAEL DEWAR
---------------------------------------
Michael Dewar
Chief Operating Officer and Secretary
and Director
Date: 04/11/02 By: /s/ ADAM J. COGLEY
---------------------------------------
Adam J. Cogley
Treasurer and Corporate Controller
Date: 04/11/02 By: /s/ IRA W. WEISS, PH.D.
---------------------------------------
Ira W. Weiss, Ph.D.
Chairman of the Board
30
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2001
31
INTERNATIONAL WIRELESS, INC.
CONTENTS
--------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8-19
32
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of
International Wireless, Inc.
We have audited the accompanying consolidated balance sheet of International
Wireless, Inc. and Subsidiary (a Development Stage Company) as of December 31,
2001 and the related consolidated statements 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.
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 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 International
Wireless, Inc. and Subsidiary as of December 31, 2001, and the results of its
operations and its cash flows for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company incurred a net loss of
$4,392,638, and there are existing uncertain conditions that the Company faces
relative to its capital raising activities. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Marcum & Kliegman LLP
February 22, 2002, except notes 14c, 14e,
and 14f as to which the date is April 11, 2002
New York, New York
F-1
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 2001
--------------------------------------------------------------------------------
ASSETS
------
CURRENT ASSETS
--------------
Cash and cash equivalents $ 54,310
Marketable securities, at market value 93,279
Prepaid expenses 164,117
--------
Total Current Assets $311,706
--------
PROPERTY AND EQUIPMENT, Net 74,300
--------------------------- --------
OTHER ASSETS
------------
Loans receivable, related parties 292,915
Security deposit 41,856
--------
Total Other Assets 334,771
--------
TOTAL ASSETS $720,777
========
The accompanying notes are an integral part of these financial statements.
F-2
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 2001
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 260,593
Loans payable 42,000
Notes payable, related parties 146,830
Current portion of capital lease obligations 7,986
------------
Total Current Liabilities $457,409
OTHER LIABILITIES
-----------------
Capital lease obligations, less current portion 20,520
--------
TOTAL LIABILITIES 477,929
--------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock, $.001 par value, 5,000,000 shares authorized;
none issued and outstanding --
Common stock, $.009 par value, 50,000,000 shares authorized;
10,715,904, issued and outstanding 96,443
Additional paid-in capital 4,682,116
Subscription receivable (143,073)
Deficit accumulated during development stage (4,392,638)
------------
TOTAL STOCKHOLDERS' EQUITY 242,848
--------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $720,777
========
The accompanying notes are an integral part of these financial statements.
F-3
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
--------------------------------------------------------------------------------
OPERATING EXPENSES
------------------
General and administrative expenses $ 1,276,646
------------
TOTAL OPERATING EXPENSES 1,276,646
OTHER EXPENSE
-------------
Interest expense, net $ (8,854)
Unrealized loss on marketable securities (1,571,778)
Loss on sale of marketable securities (1,535,360)
------------
TOTAL OTHER EXPENSES (3,115,992)
------------
NET LOSS $(4,392,638)
============
NET LOSS PER COMMON SHARE-
--------------------------
BASIC AND DILUTED $ (0.61)
----------------- ============
WEIGHTED AVERAGE COMMON
-----------------------
SHARES OUTSTANDING 7,150,193
------------------ ============
The accompanying notes are an integral part of these financial statements.
F-4
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 2001
------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional During
--------------------- Paid-in Subscription Development
Shares Amount Capital Receivable Stage Total
----------- -------- ----------- ------------ ------------ ------------
Issuance of shares in exchange
for marketable securities 1,483,384 $ 1,483 $3,395,466 $ -- $ -- $ 3,396,949
Issuance of common stock to
consultants 155,496 156 355,931 -- -- 356,087
Issuance of common stock options
for services rendered -- -- 116,887 -- -- 116,887
Issuance of common stock in connection
with private placements, net of
offering costs of $24,727 461,178 461 1,030,907 (143,073) -- 888,295
----------- -------- ----------- ------------ ------------ ------------
Subtotal 2,100,058 2,100 4,899,191 (143,073) -- 4,758,218
Reverse Merger (Note 1)
Exchange of International
Wireless, Inc. common stock (2,100,058) (2,100) 2,100 -- -- --
Issuance of common stock to
owners of International
Wireless, Inc. 9,495,014 85,455 (85,455) -- -- --
Outstanding common stock of Origin
Investment Group, Inc 1,220,890 10,988 (133,720) -- -- (122,732)
Net loss -- -- -- -- (4,392,638) (4,392,638)
----------- -------- ----------- ------------ ------------ ------------
BALANCE - December 31, 2001 10,715,904 $96,443 $4,682,116 $ (143,073) $(4,392,638) $ 242,848
=========== ======== =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-5
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2001
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net loss $(4,392,638)
------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization $ 12,865
Stock-based compensation 472,974
Unrealized loss on marketable securities 1,571,778
Loss on sale of marketable securities 1,535,360
Changes in operating assets and liabilities:
Prepaid expenses (164,117)
Security deposit (41,856)
Accounts payable and accrued expenses 171,251
-----------
TOTAL ADJUSTMENTS 3,558,255
------------
NET CASH USED IN OPERATING
ACTIVITIES (834,383)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Proceeds from sale of marketable securities 202,892
Purchases of property and equipment (41,076)
Advances under loans receivable to related parties (302,915)
-----------
NET CASH USED IN INVESTING
ACTIVITIES (141,099)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Net proceeds from notes payable, related parties 146,830
Payments on capital lease obligations (5,333)
Net proceeds from issuance of common stock 888,295
-----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 1,029,792
------------
The accompanying notes are an integral part of these financial statements.
F-6
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
For the Year Ended December 31, 2001
--------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 54,310
CASH AND CASH EQUIVALENTS - Beginning --
------------------------- -----------
CASH AND CASH EQUIVALENTS - Ending $ 54,310
------------------------- ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
Cash paid during the year for:
Interest $ 11,728
===========
Non-cash investing and financing activities:
Equipment acquired through capital leases $ 33,839
===========
Issuance of shares in exchange for marketable securities $3,396,949
===========
Subscription receivable in connection with issuance of
common stock $ 143,073
===========
Assets and liabilities acquired in connection with the Merger
(Note 1):
Marketable securities $ 6,360
Property and equipment 12,250
Loans payable, related party (10,000)
Accounts payable and accrued expenses (89,342)
Loans payable (42,000)
-----------
Net recapitalization in connection with Merger $ (122,732)
===========
The accompanying notes are an integral part of these financial statements.
F-7
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 -Description of Business, Going Concern Uncertainty and Management's
----------------------------------------------------------------------
Plans
-----
The Company and Nature of Business
---------------------------------------
International Wireless, Inc. (the "Company") was incorporated on September
27, 2000 in the State of Delaware. The Company intends to acquire software
companies involved in wireless technology. During the period September 27,
2000 (Incorporation) through December 31, 2000 the Company did not have any
activity. Since January 2001, the Company's efforts have been devoted to
raising capital and seeking out companies to acquire. Accordingly, through
the date of these financial statements, the Company is considered to be in
the development stage and the accompanying financial statements represent
those of a development stage enterprise.
Reverse Merger
---------------
On December 27, 2001, Origin Investment Group, Inc. ("Origin") acquired all
of the Company's outstanding common stock by the issuance of 9,495,014
shares of $.009 par value common stock (the "Merger"). Simultaneously,
Origin changed its name to International Wireless, Inc. and effected a
one-for-nine reverse stock split, which reduced Origin's outstanding shares
of common stock from 10,985,565 to 1,220,890. In connection with the
Merger, the Company became a wholly owned subsidiary of Origin and the
Company's officers and directors replaced Origin's officers and directors.
Prior to the Merger, Origin was a non-operating "shell" corporation.
Pursuant to Securities and Exchange Commission rules, the Merger of a
private operating company (International Wireless, Inc.) into a
non-operating public shell corporation with nominal net assets (Origin) is
considered a capital transaction. Accordingly, for accounting purposes, the
Merger has been treated as an acquisition of Origin by the Company and a
recapitalization of the Company. The historical financial statements prior
to December 27, 2001 are those of the Company. Since the Merger is a
recapitalization of the Company and not a business combination, proforma
information is not presented.
In September and October 2001, a relative of the Chief Operating Officer of
the Company acquired approximately 49% of Origin.
Going Concern Uncertainty and Management's Plans
-----------------------------------------------------
As shown in the accompanying financial statements, the Company incurred a
net loss of $4,392,638 during the year ended December 31, 2001 resulting in
a deficit accumulated during the development stage of $4,392,638.
Management's plans include the raising of capital and seeking out companies
to acquire. On January 11, 2002 the Company acquired Mitigo, Inc.
("Mitigo") (See Note 14). Failure to raise capital or generate revenue
through the Mitigo acquisition may result in the Company depleting its
available funds, being able to fund its investment pursuits and cause it to
curtail or cease operations. Additionally, even if the Company does raise
sufficient capital or generate revenue through Mitigo, there can be no
assurances that the net proceeds or the revenue will be sufficient to
enable it to develop business to a level where it will generate profits and
cash flows from operations.
F-8
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - Description of Business, Going Concern Uncertainty and Management's
--------------------------------------------------------------------
Plans,
------
continued
These matters raise substantial doubt about the Company's ability to
continue as a going concern. However, the accompanying financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course
of business. These financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of
the liabilities that might be necessary should the Company be unable to
continue as a going concern.
NOTE 2 - Summary of Significant Accounting Policies
----------------------------------------------
Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to
be cash equivalents.
Consolidated Financial Statements
-----------------------------------
The consolidated financial statements include the Company and its wholly
owned subsidiary. All significant intercompany transactions and balances
have been eliminated in consolidation.
Income Taxes
-------------
The Company accounts for income taxes using the liability method, which
requires the determination of deferred tax assets and liabilities based on
the differences between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
differences are expected to reverse. Deferred tax assets are adjusted by a
valuation allowance, if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets
will not be realized.
At December 31, 2001, the Company has net operating loss carryforwards of
approximately $1,200,000 which expire through 2021. Based on the fact that
the Company has generated operating losses since inception, a deferred tax
asset of approximately $480,000 has been offset by a valuation allowance of
$480,000. At December 31, 2001, Origin also had net operating loss
carryforwards. However, pursuant to Section 382 of the Internal Revenue
Code these carryforwards are eliminated.
F-9
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - Summary of Significant Accounting Policies, continued
----------------------------------------------
Property and Equipment and Depreciation
-------------------------------------------
Property and equipment is stated at cost and is depreciated using the
straight line method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed as
incurred and improvements that extend the useful life of the assets are
capitalized. When property and equipment is sold or otherwise disposed of,
the cost and related accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is recognized in operations.
Net Loss Per Common Share
-----------------------------
The Company computes per share amounts in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
No. 128 eliminates the presentation of primary and fully dilutive earnings
per share ("EPS") and requires presentation of basic and diluted EPS. Basic
EPS is computed by dividing the income (loss) available to Common
Stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of
shares of Common Stock and Common Stock equivalents outstanding during the
periods. The effect of the Merger has been given retroactive application in
the net loss per share calculation. Common stock equivalents have been
excluded from the weighted average shares outstanding calculation, as
inclusion is anti-dilutive.
Use of Estimates in the Financial Statements
--------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent asset and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
-------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation" prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock purchase
plans and stock appreciation rights. SFAS No. 123 requires employee
compensation expense to be recorded (i) using the fair value method or (ii)
using the intrinsic value method as prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related interpretations with pro forma disclosure of what net income
and earnings per share would have been had the Company adopted the fair
value method. The Company accounts for employee stock based compensation in
accordance with the provisions of APB 25. For non-employee options and
warrants, the Company uses the fair value method as prescribed in SFAS 123.
F-10
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - Summary of Significant Accounting Policies, continued
----------------------------------------------
Fair Value of Financial Instruments
---------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires that the Company disclose estimated fair values of financial
instruments. The carrying amounts reported in the statement of financial
position for current assets and current liabilities qualifying as financial
instruments are a reasonable estimate of fair value.
New Accounting Pronouncements
-------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations". SFAS No. 141 requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which will become effective for the Company in 2002. SFAS No. 142
requires, among other things, the discontinuance of goodwill amortization.
In addition, the standard includes provisions for the reclassification of
certain existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles, reclassification of
certain intangibles out of previously reported goodwill and the
identification of reporting units for purposes of assessing potential
future impairment of goodwill.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 changes the
accounting for long-lived assets to be held and used by eliminating the
requirement to allocate goodwill to long-lived assets to be tested for
impairment, by providing a probability weighted cash flow estimation
approach to deal with situations in which alternative courses of action to
recover the carrying amount of possible future cash flows and by
establishing a primary-asset approach to determine the cash flow estimation
period for a group of assets and liabilities that represents the unit of
accounting for long-lived assets to be held and used. SFAS No. 144 changes
the accounting for long-lived assets to be disposed of other than by sale
by requiring that the depreciable life of a long-lived asset to be
abandoned be revised to reflect a shortened useful life and by requiring
the impairment loss to be recognized at the date a long-lived asset is
exchanged for a similar productive asset or distributed to owners in a
spin-off if the carrying amount of the asset exceeds its fair value. SFAS
No. 144 changes the accounting for long-lived assets to be disposed of by
sale by requiring that discontinued operations no longer be recognized on a
net realizable value basis (but at the lower of carrying amount or fair
value less costs to sell), by eliminating the recognition of future
operating losses of discontinued components before they occur and by
broadening the presentation of discontinued operations in the income
statement to include a component of an entity rather than a segment of a
business. A component of an entity comprises operations and cash flows that
can be clearly distinguished, operationally, and for financial reporting
purposes, from the rest of the entity. SFAS No. 144 will become effective
for the Company in 2002.
F-11
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - Summary of Significant Accounting Policies, continued
-----------------------------------------------
The Company expects that the adoption of the new statements will not have a
significant impact on its financial statements.
NOTE 3 - Related Party, Consulting Fees
---------------------------------
On January 31, 2001 the Company entered into a three year consulting
agreement with Mercury Intertrade, LTD ("Mercury") whereby Mercury will
provide consulting services to negotiate and close contracts relating to
wireless technology primarily in the Republic of South Africa. Mercury is
owned by a relative of the Chief Operating Officer of the Company.
Consulting fees paid in cash and issuance of marketable securities to
Mercury during the year ended December 31, 2001 amounted to $113,247.
NOTE 4 - Marketable Securities
----------------------
Companies are required to classify each of their investments into one of
three categories, with different accounting for each category. At December
31, 2001, management has classified all their equity securities consisting
of shares of common stock of one marketable equity security, as
available-for-sale securities, which are reported at fair market value.
Unrealized losses in the amount of $1,571,778 on these securities have been
recorded in the consolidated statement of operations as an
other-than-temporary decline in the value of marketable securities. Gains
or losses on the sale of securities are recognized on a specific
identification basis. The Company's investment in marketable securities at
December 31, 2001 is summarized as follows:
BALANCE - at cost $ 1,665,057
-------
Unrealized losses (1,571,778)
------------
BALANCE - at fair value $ 93,279
------- ============
For the year ended December 31, 2001 there were also realized losses of
$1,535,360 on the sale and exchange of available-for-sale securities.
F-12
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 5 - Property and Equipment
------------------------
Property and equipment at December 31, 2001 consist of the following:
Estimated
Useful
2001 Lives
--------------------
Furniture and Fixtures $ 15,085 7 years
Equipment and software 55,045 5 years
Leasehold Improvements 17,035 4 years
---------
87,165
Less: accumulated amortization and depreciation (12,865)
---------
Property and Equipment, Net $ 74,300
=========
Depreciation and amortization expense for the year ended December 31, 2001
was $12,865.
NOTE 6 - Loans Receivable, Related Parties
------------------------------------
Loans receivable, related parties consist of the following at December 31,
2001.
Loans Receivable - Mitigo, Inc
----------------------------------
On September 1, 2001 the Company entered into a revolving credit agreement
with Mitigo, whereby the Company would advance or incur expenses on behalf
of Mitigo up to $600,000. The note bears interest at 6% and was due
December 31, 2003. The balance due under this note receivable at December
31, 2001 was $216,091. On January 11, 2002 the Company acquired all of the
issued and outstanding shares of Mitigo (See Note 14).
Loan Receivable - Atlantic Venture Management, LLC
--------------------------------------------------------
On April, 15 2001 the Company entered into a revolving credit agreement
with Atlantic Venture Management, LLC ("Atlantic") whereby the Company
would advance or incur expenses on behalf of Atlantic up to $20,000. The
note bears interest at 6% and is due December 31, 2003. The balance due
under this note receivable at December 31, 2001 was $6,324. The Chief
Executive Officer and Chief Operating Officer of the Company are also
general partners of Atlantic.
Loans Receivable - Other Related Parties
---------------------------------------------
During the year ended December 31, 2001 the Company advanced an aggregate
of $70,500 to the Chief Operating Officer and a relative of the Chief
Operating Officer. These loans are non-interest bearing loans and there are
no formal agreements or repayment terms for these loans.
F-13
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - Loans Payable
--------------
In connection with the Merger with Origin, the Company assumed an
aggregate of $42,000 in the form of short term bridge loans from three
accredited investors. These bridge loans varied in duration between sixty
and ninety days and bear interest at 12% per annum. As of December 31, 2001
these loans are past due and the Company has accrued interest through this
date.
NOTE 8- Notes Payable, Related Parties
---------------------------------
The Company has two line of credit agreements with the Chief Executive
Officer and a Company which the Chief Executive Officer and a Chief
Operating Officer are general partners. The total available under these
agreements is $320,000 with interest rates of 6% and due dates through
December 31, 2003. The lenders may opt to convert all, or part of these
loans into common stock of the Company (at the market price at the time of
conversion), on or before the due dates. The balance outstanding under
these note agreements at December 31, 2001 was $146,830.
NOTE 9 - Capital Lease Obligations
---------------------------
During the year ended December 31, 2001 the Company obtained various
equipment under capital leases expiring through January 2006. The assets
and liabilities under these capital leases are recorded at the lower of the
present values of the minimum lease payments or the fair values of the
assets. The assets are included in property and equipment and are
depreciated over their estimated useful lives.
As of December 31, 2001, minimum future lease payments under these capital
leases are:
For the
Years Ending
December 31, Amount
------------------------------------------ -------
2002 $10,982
2003 10,982
2004 7,297
2005 5,454
2006 88
-------
Total minimum lease payments (forward) $34,803
-------
F-14
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - Capital Lease Obligations, continued
---------------------------
For the
Years Ending
December 31, Amount
------------------------------------------ --------
Total minimum lease payments (forward) $34,803
Less: amounts representing interest (6,297)
--------
Net minimum lease payments 28,506
Less: current portion (7,986)
--------
Long-term portion $20,520
========
NOTE 10 - Stockholders' Equity
---------------------
On January 31, 2001, the Company issued 1,483,384 shares (6,706,839
post-Merger equivalent shares) of common stock to its Chief Executive
Officer, and other investors, in exchange for shares of common stock of
Telehublink Inc., a publicly traded entity ("Telehublink"). These common
shares issued by the Company have been valued at $3,396,949 representing
the fair value of the shares of Telehublink received by the Company. During
the year ended December 31, 2001, prior to the Merger the Company issued
461,178 shares (2,085,129 post-Merger equivalent shares) of common stock in
private placement transactions resulting in proceeds (excluding a
subscription receivable of $143,073,) net of transaction costs of $24,727,
of $888,295. During the year ended December 31, 2001, prior to the Merger,
the Company issued 155,496 shares (703,046 post-Merger equivalent shares)
of common stock to consultants for services provided to the Company and
recorded $356,087 in stock based compensation.
NOTE 11 - Commitments and Contingencies
-------------------------------
Office Lease
-------------
On January 8, 2001 the Company entered into a noncancelable operating lease
for office space which commenced on May 1, 2001 and expires on July 31,
2005. The Company has paid a security deposit of $41,856 equivalent to six
months of rent. The Company may elect to reduce the amount of security
deposit to $20,928 provided that no event of default has occurred after the
first anniversary of the commencement date.
F-15
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11 - Commitments and Contingencies, continued
-------------------------------
Minimum fixed rental payments are as follows:
For the
Year Ending
December 31, Amount
------------------ --------
2002 $ 83,712
2003 88,944
2004 91,560
2005 53,410
--------
Total $317,626
========
The Company also rents additional office space on a month-to-month basis
without a formal lease agreement with a monthly rent expense of $3,000.
Rent expense for the year ended December 31, 2001 amounted to $71,535.
Employment agreements
----------------------
The Company has entered into five employment agreements with employees and
officers of the Company whereby the Company will pay a minimum total salary
of $507,000 per annum plus bonus, annual increases and stock options. These
employment agreements terminate through December 2004, however they will
automatically renew annually thereafter unless terminated by the employee
or the Company. In addition, the Company assumed three employment contracts
with an aggregate annual of $382,200 through December 2004 as part of the
Mitigo, Inc. acquisition (Note 14a).
NOTE 12 - Stock Options
--------------
Effective December 27, 2001, the Company granted options to purchase
1,607,500 shares (representing post-Merger shares) of the Company's common
stock to employees and consultants with exercise prices ranging from $0.40
to $0.46 per share. These options vest between one and three years and
expire from one to five years from issuance date. The options issued to
employees have an intrinsic value of $1,517,000. The options issued to
consultants had a fair value of $435,000, calculated using the
Black-Scholes options pricing model. These options will be amortized over
their respective vesting periods commencing in 2002.
During the year ended December 31, 2001, prior to the Merger, the Company
issued options to purchase 50,000 shares of the Company's common stock to
employees and consultants with an exercise price of $0.01 per share. These
options vest over one year and have no expiration date. Compensation
expense for the year ended December 31, 2001 relating to these options
amounted to $116,887. On December 27, 2001, the date of the Merger, these
50,000 options were recapitalized into 226,066 options to purchase the
public entity's common stock.
F-16
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - Stock Options, continued
--------------
Transactions involving options are summarized as follows:
Number Weighted
Of Average
Options Exercise Price
-------------------------
Balance - January 1, 2001 -- $ --
-------
Options granted (representing post-Merger shares) 1,833,566 0.40
--------- --------------
Balance - December 31, 2001 1,833,566 $ 0.40
------- ========= ==============
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of SFAS 123. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions for the year ended December 31, 2001.
Assumptions
-------------------------------------------------------------------
Risk-free rate 2.26 - 5.43%
Dividend yield N/A
Volatility factor of the expected market price of the
Company's common stock 298%
Average life 4 -10 years
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options.
Accordingly, there is no difference between actual and pro forma results
during the year ended December 31, 2001.
The following table summarizes information concerning stock options
outstanding at December 31, 2001.
Weighted Average
Remaining
Exercise Price Number Outstanding Contractual Life Number Exercisable
--------------- ------------------ ---------------- ------------------
$ 0.01 226,066 No expiration 0
$ 0.40 - $0.46 1,607,500 4.6 years 0
F-17
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 13 - Warrants
--------
In connection with the Merger on December 27, 2001, the Company assumed an
aggregate of 1,614,482 warrants which were issued by Origin prior to the
Merger. These warrants have exercise prices ranging from $0.10 to $13.50,
are fully vested and expire on February 10, 2006.
Transactions involving warrants are summarized as follows:
Number Weighted
Of Average
Warrants Exercise Price
-------------------------
Balance - January 1, 2001 --
-------
Warrants assumed in the Merger (representing post-Merger shares) 1,614,482 $ 0.66
---------
Balance - December 31, 2001 1,614,482 $ 0.66
------- =========
The following table summarizes information concerning warrants outstanding
at December 31, 2001.
Weighted
Average Weighted
Number Remaining Number Average
Exercise Price Outstanding Contractual Life Exercisable Exercise Price
--------------- ---------------- ---------------- ----------- ---------------
0.10 225,000 5 years 225,000 $ 0.10
0.20 200,000 5 years 200,000 $ 0.20
0.40 757,301 (a) 5 years -- $ 0.40
0.75 142,000 (a) 5 years -- $ 0.75
1.50 248,331 5 years 248,331 $ 1.50
2.70 8,332 5 years 8,332 $ 2.70
3.60 25,000 5 years 25,000 $ 3.60
13.50 8,518 5 years 8,518 $ 13.50
(a) These warrants are subject to a clause whereby the warrants are not
exercisable until the Company sends the warrant holders written
confirmation that the five consecutive trading day average closing bid
price equals or exceed 150% of the value of the exercise price of the
warrants. The warrant holders shall have 10 business days to exercise the
entire amount of the warrants pursuant to the agreement; should the warrant
holders fail to exercise, the number of warrants outstanding as well as the
exercise price are subject to adjustment.
F-18
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 14 - Subsequent events
------------------
a. Acquisition agreement
----------------------
On January 11, 2002, the Company acquired 100% of the issued and
outstanding stock of Mitigo for an aggregate purchase price of 4,398,000
shares of the Company's common stock to be issued to the stockholders of
Mitigo ("Sellers"). An aggregate of 2,998,006 were issued to the sellers at
closing and 1,399,994 shares will be held in escrow. These escrow shares
will be released to the Sellers pursuant to a formula based on net income
for 2002 and 2003, as defined in the agreement. Any escrow shares not
released to the Sellers, will be returned to the Company.
The proforma unaudited condensed consolidated results of operations for the
year ended December 31, 2001 as if the purchase of Mitigo, Inc. had
occurred at the beginning of 2001 is as follows:
Revenues ----
Operating Expenses 1,931,478
----------
Loss from Operations <1,931,478>
Other Expenses 3,118,667
----------
Net Loss <5,050,145>
==========
Net Loss Per Common Share
-------------------------
Basic and Dilutive <$0.61>
==========
Weighted Average Common
Shares Outstanding 8,275,472
==========
The proforma information does not purport to be indicative of what would
have occurred had the acquisition of Mitigo, Inc. been completed as of
January 1, 2001, or results which may occur in the future.
b. Settlement Agreement
---------------------
On February 19, 2002 the Company entered into a settlement agreement with a
stockholder of the Company, whereby the stockholder is the holder of
133,332 warrants with an exercise price of $1.50 to purchase the Company's
common stock. These warrants were assumed by the Company in connection with
the Merger. The Company and the stockholder desire to settle any
differences between them with reference to these warrants whereby the
stockholder is granted the rights to exercise these warrants originally
issued with an exercise price of $1.50 to an agreed price of $0.46 to
purchase the Company's common stock.
c. Exercise of Warrants
----------------------
During the first quarter 2002, warrants to purchase 807,500 shares of
common stock were exercised at prices ranging from $0.40 to $0.75 resulting
in proceeds of $345,900 to the Company.
d. Other Matters
--------------
On December 12, 2001, the Company entered into an agreement with Origin to
issue 100,000 post-Merger shares of the Company's common stock to Omar
Rizvi, the former Chairman of the Board of Directors of Origin, for legal
services rendered in connection with the Merger. In managements opinion, as
a result of a subsequently discovered failure to disclose issues at the
time of performance of the legal services, the Company cancelled the
agreement and does not intend to issue the shares of common stock.
On December 27, 2001, the Company entered into an employment agreement with
Greg Laborde, then President and Chairman of the Board of Directors of
Origin, whereby Mr. Laborde was to receive a salary of $78,000 plus an
incentive bonus of 100,000 post-Merger shares for services rendered in
connection with the Merger. Mr. Laborde would also receive up to a total of
400,000 options to purchase the Company's common stock with an exercise
price of $1.00 per share subject to specified performance criteria: (i)
based on Mr. Laborde arranging for equity financing including the exercise
of the warrants held by the original Origin stockholders, and (ii) based on
the Company meeting certain market capitalization targets within two years
from the date of the Merger date, all as defined in the agreement. This
agreement was due to expire December 31, 2003, and if termination was
without cause, then the individual would be eligible for three months
salary and immediate vesting of all options as noted above.
It is the opinion of the Company's current management and Board of
Directors that there were material omissions and false disclosures relating
to a November 13, 2001 proxy filing of Origin. The proxy disclosed that on
August 13, 2001 the Company contacted all of its warrant holders
(representing approximately 1,900,000 warrants), and offered that in
exchange for their agreement to exercise their warrants within 10 business
days of the Company giving written notice that the five day average closing
bid price of the Company's common stock equaled or exceeded 150% of the
redemption price of their warrants, that agreeing to so accelerate their
redemption their warrants would not be subject to adjustment otherwise
required in the event of a recapitalization of the Company caused by a
merger, acquisition or other similar reverse split ("Callability Clause").
However, the proxy failed to disclose that:
- Mr. Laborde and Mr. Rizvi were the holders of 400,000 of these
warrants with exercise prices of $.10 and $.20.
- The actual warrant agreements held by Mr. Laborde and Mr. Rizvi
received substantially different exercise rights than as
represented in the proxy; their warrant agreements did not
contain the Callability Clause.
Based on the information above and certain other actions of Mr. Laborde, and in
accordance with the terms of his employment agreement, the Company terminated
Mr. Laborde. It is the opinion of management that this termination was for cause
whereby the salary, incentive bonus of 100,000 post-Merger shares and the
400,000 performance-based options would be rescinded. In addition, the Company
believes that the 400,000 warrants held by Mr. Laborde and Mr. Rizvi were
improperly amended and therefore has decided not to honor them. Furthermore, the
Company will make a full disclosure with respect to all of the above matters in
a Form 8-K.
The Company believes that the actions taken satisfactorily resolve all
matters discussed above. However, the Company cannot predict whether any
further actions or claims may arise as a result of these matters. The
financial statements do not include any adjustments that may be necessary
relating to the payment of salary, issuance of common stock or options to
Mr. Laborde or Mr. Rizvi.
F-19
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 14 - Subsequent events, continued
------------------
e. Employment Agreement
--------------------
On March 29, 2002, effective as of May 1, 2002 the Company entered into an
agreement with an individual in which he will become the President and
Chief Executive Officer of the Company. The agreement has an initial term
of three years and may be extended for an additional three year period by
approval of the Board of the Directors. The agreement provides for the
payment for a base salary, an incentive increment and the payment of a
discretionary bonus by the Company. Future minimum payments to be made
pursuant to this agreement are as follows:
For the
Year Ending
December 31, Amount
------------ --------
2002 $140,933
2003 285,350
2004 331,183
2005 142,334
--------
Total $899,800
========
Pursuant to the terms of this agreement the Company issued options to
purchase 1,500,000 shares of common stock which may be exercised on a
cashless basis. The initial 250,000 options are exercisable as of May 1,
2002 at a price of $1.05 per common share throughout the term of the
agreement. The balance of the options (1,250,000) are exercisable, upon
the attainment of certain financial goals, as defined, at prices ranging
from $1.05 to $2.25 per common share throughout the term of the agreement.
If the financial goals are achieved, the Company will recognize
compensation equal to the difference between the fair market value and the
exercise price at the time the performance conditions are achieved.
Issuance of the shares could result in substantial compensation expenses to
the Company.
The Company issued 100,000 shares of common stock to an individual, as a
commission related to employment of the Company's Chief Executive Officer.
f. Consulting Agreements
---------------------
During the period January 4, 2002 to March 31, 2002, four individuals
rendered consulting services to the Company. Pursuant to the terms of the
agreements the Company issued options to exercise 650,000 shares of common
stock at exercise price of $.40 per common share. These options were
exercisable, immediately. During the period options to purchase 557,500
shares of common stock were exercised and the Company realized total
proceeds of $223,000.
F-20