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, 2002
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.)
55 Marble Ridge Road
North Andover, MA 01845
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(Address of principal executive offices) (Zip Code)
(339) 222-1130
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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, 0.009
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 [ ]
1
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]
Issuer's revenues for its most recent fiscal year were: $31,093
---------
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 June 9, 2003, the Issuer had 26,994,959 issued, and 25,594,965 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 $1,267,014 at the closing quotation for the Registrant's common
stock of $0.07 as of June 9, 2003.
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 . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Securities Holders . . 12
PART II
Item 5. Market for the Issuer's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . 13
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 18
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . 22
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . . . . 23
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . . . . . 23
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . 26
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . 30
Item 12. Certain Relationships and Related Transactions . . . . . 33
Item 13. Exhibits, and Reports on Form 8-K . . . . . . . . . . . . 34
Signatures . . . . . . . . . . . . . . . . . . . . . . . 36
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 imitation; 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 officially changed its
name with the State of Marland 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.
4
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
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, Inc., a Delaware
Corporation. Under the said reverse merger, the former Shareholders of
International Wireless, Inc., the Delaware Corporation, ended up owning a 88.61%
interest in the Company. Thereafter on January 2, 2002, the Company officially
changed its name with the State of Maryland 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.
On May 30, 2003, the Company entered into a Merger Agreement to merge the
Company with Scanbuy, Inc. a Delaware corporation with its corporate
headquarters located in New York, New York (hereinafter "Scanbuy"). Under said
Merger Agreement the Company is scheduled to issue to the shareholders of
Scanbuy 25,594,965 newly issued unregistered Common Shares which equal to the
issued and outstanding shares of the Company as of May 19, 2003.
5
The above Merger Agreement is subject to approval of the transaction by the
directors and shareholders of both the Company and Scanbuy including an increase
in the authorized number of shares of the Company to enable it to do the merger,
and execution of appropriate employment and non-compete agreements. The parties
anticipate closing the transaction on or before June 16, 2003.
(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. as
a result of the acquisition of Mitigo, the Company is in the business of
developing visual intelligence software solutions for wireless and mobile
devices. The Company's 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 the Company'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.
The Company has developed software to decode commercial 1D and 2D bar codes
as well as other emerging symbologies. The Company 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. The Company 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.
The Company's technology is protected by two patents granted to Mr.
Antognini in August, 2000 and January 2001, and licensed to the Company, 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 the Company's exclusive licensed software
technology, which is currently in dispute with the licensor, 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 Company's 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.
6
The Company's technology decodes using a digital image of a bar code that
can be captured by a digital camera. The Company 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. The Company's solution is software only. The
Company's software uses the digital camera, processor and storage capabilities
of the handset that are already present. As such, the Company believes that its
software solution is a cost effective way to add functionality into a mobile
handset or PDA.
Management believes that its anticipated acquisition of Scanbuy will
further its position in the bar code arena. Scanbuy, Inc. is a software company
located in New York City, New York dedicated to developing ScanCommerce(R)
solutions that link the physical world to the Internet using personal barcode
scanners. Scanbuy's core expertise lies in Web-based application development
allowing the user to upload barcode data from a scanner (handheld scanner, PDA
or cell phones enabled devices) to dedicated applications for processing
supplies orders, returning products, managing inventory, leads retrieval etc.
(2) BUSINESS STRATEGY
The Company acquired Mitigo 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.
The Company believes that its 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, which
makes it cumbersome and difficult to navigate directly to a Web destination. The
Company believes that its software with Scanbuy's application and marketing
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 its software, to read
and process bar codes for instant commerce or content retrieval. The Company
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.
7
The Company'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 Company's 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 its 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 the
Company'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 Company's 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.
(b) PRODUCTS
CodePoint - Version 1.0
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The Company'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 the Company's primary
offering and the it believes that it will offer superior performance for bar
code sensing and decoding when compared to other commercially available software
programs. The Company 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
its solution is the lowest cost, best performing solution for consumer
applications.
8
The Company's initial focus is on licensing its 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.
(3) PATENTS AND TRADEMARKS
The Company's exclusive licensed technology, which is in current dispute
with the licensor, is protected by two patents US. 6,098,882 and 6,176,427
granted to Dr. Tom Antognini, 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.
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.
9
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. The Company's
bar code decoding technology is complementary to these companies.
(5) OUR STRATEGY
The Company 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.
(6) OUR MARKETING STRATEGY
The Company plans through its planned merger with Scanbuy 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.
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 June 9, 2003, the Company, including its subsidiaries has three
employees, consisting of full-time officers and in-house-counsel. In the
beginning of 2003, due to financial difficulties the company could not maintain
its prior years work force consisting of developers, sales and marketing
personnel and support staff. The Company believes that in its anticipated merger
with Scanbuy, will solve its technical and sales force need to enable it to meet
its projected business plan. No employees are covered by any collective
bargaining agreements. The Company believes that our relationship with our
current employees is good. The Company is however in dispute with former
employees as to back salaries and severance pay. The Company's success is
dependent, in part, upon its ability to attract and retain qualified management
and technical personnel. The Company presently has a stock option plan for key
employees and consultants.
10
(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 $4,705,692 during the year ended
December 31, 2002 resulting in a deficit accumulated during the development
stage of $9,098,330. Failure to raise capital or generate revenue in the future
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, 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 until the proposed merger with Scanbuy
takes place are at the home of one of its directors. In the event of approval of
the merger with Scanbuy, the Company plans to move its operations to New York
City, New York where Scanbuy maintains its current operations. The Company's
former rented office space located at 120 Presidential Way, Woburn,
Massachusetts in the northern suburbs of the City of Boston, had to be vacated
in April 2003 due to the Company's inability to continue to pay the rent. On
January 8, 2001 the Company entered into a non-cancelable operating lease for
the office space which commenced on May 1, 2001 and expires July 31, 2005. As a
result of the breach of the lease by the Company, the Company by agreement was
evicted by the landlord.
ITEM 3. LEGAL PROCEEDINGS
In December, 2002 the Company was sued by Greg Laborde in U.S. District
Court for the District of New Jersey for Breach of Employment Contract and
Defamation seeking monetary damages including additional stocks and warrants.
The Company in response has filed a counter-claim against Mr. Laborde seeking
damages in his transaction in selling Origin Investment Group, Inc, to
International Wireless in its reverse merger in January 2002. The Company
believes it has a good defense to the above suit.
On February 20, 2003 a judgment in the amount of $28,750 was entered
against the Company for unpaid rent on behalf of Graham Paxton, the former
President and CEO of the Company as part of his employee benefit plan.
11
On March 11, 2003 the Company received notice from Attorney Omar A. Rizvi
of his claim for breach of contract for failure to deliver to him 100,000 shares
for professional services allegedly performed on behalf of the Company, and
wrongful cancellation of additional warrants to purchase 200,000 shares of
International Wireless for which he claimed damages. No suit has been filed to
date and the Company believes that if such a suit is ever filed against the
Company, the Company has a good defense and proper grounds for a counter-suit.
On March 20, 2003 a judgment in the amount of $2,000 was entered against
the Company by Beyond Words Communication, Inc. for prior unpaid marketing
services rendered to the Company.
On March 31, 2003 a judgment in the amount of 99,089.59, which included
replenishment of approximately $60,000 in security deposits, was entered against
the Company for breach of contract for non payment of rent on the Company's
office facility in Woburn, Massachusetts.
In May, 2003 certain former employees filed complaints with the
Commonwealth of Massachusetts Attorney General's office for unpaid salaries and
accrued vacation pay. In accordance with Company's records the Company owes a
total around $100,000 in payroll taxes and a potential additional $60,138.27,
some of which are disputed, for back fees, gross salaries and accrued vacation
to the following individuals:
Thomas C. Antognini $12,273.03
John Poupolo $14,344.44
James K. Levinger $11,454.31
Tom Gosselin $ 5,332.40
Adam Cogley 6,234.09
Jerry Gruenbaum $12,500.00
----------
Total $60,138.27
==========
In addition there is a potential severance pay due to some individuals in
accordance with their employment agreement, should it be determined that they
were terminated without cause, totaling an additional $186,350 for which the
Company totally disputes.
Other than the matters above, 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, which has not been previously
disclosed, 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
None.
12
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUIY AND RELATED SHAREHOLDER
MATTERS
The Company common stock is currently trading on the Pink Sheet as a result
of its failure to timely file its required annual and quarterly reports which it
is now correcting. The Company was formed on April 6, 1999. In 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.
HIGH LOW
---- ----
FISCAL YEAR ENDED 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
FISCAL YEAR ENDING DECEMBER 31, 2002
First Quarter 3.25 2.60
Second Quarter 1.42 1.10
Third Quarter 0.45 0.33
Fourth Quarter 0.15 0.14
The closing bid price for the common stock as reported by the OTC Bulletin
Board on June 9, 2003 was $0.07.
As of June 9, 2003, there were approximately 413 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.
13
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.
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.
14
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.
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 were
$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.
15
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.
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.
16
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.
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.
17
During the year ended December 31, 2002, $42,000 of loans payable at
December 31, 2001 were converted into the Company's common stock under a private
placement for 49,900 shares and the exercise of 50,000 warrants.
During the year ended December 31, 2002, $160,149 of notes payable, related
parties was converted into 1,550,414 shares of common stock under the Company's
private placement offering.
During the year ended December 31, 2002, 5,863,928 shares of common stock
were issued for $691,772 in connection with a private placement offering.
During the year ended December 31, 2002, 620,351 shares of the Company's
common stock were issued to consultants for services rendered at a value of
$364,545.
During the year ended December 31, 2002, 890,832 common stock warrants were
exercised for $385,983 at prices ranging from $0.00 to $0.10 per share.
During the year ended December 31, 2002, 510,107 shares of common stock
were issued for the exercise of stock options for a consideration of $204,050.
The Company believes that the transactions described from inception through
January 3, 2001 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, 2002. 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.
18
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.
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., a Delaware corporation ("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 officially changed its name with the State of Maryland from Origin
to our current name, International Wireless, Inc. (a Maryland Corporation).
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.
19
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 the Delaware
corporation ended up owning a 88.61% interest in the Company. Thereafter on
January 2, 2002, the Company changed its name officially in the State of
Maryland 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
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.
The Company is a developer of visual intelligence software solutions for
wireless and mobile devices. The Company's 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. The Company's technology dramatically improves the usability and
functionality of mobile devices helping overcome user interface barriers to
mobile transactions and commerce.
On May 30, 2003, the Company entered into a Merger Agreement to merge the
Company with Scanbuy, Inc. a Delaware corporation with its corporate
headquarters located in New York, New York. Under said Merger Agreement the
Company is scheduled to issue to the shareholders of Scanbuy 25,594,965 newly
issued unregistered Common Shares which equal to the issued and outstanding
shares of the Company as of May 19, 2003.
The above Merger Agreement is subject to approval of the transaction by the
directors and shareholders of each of the Company and Scanbuy including an
increase in the authorized number of shares of the Company to enable it to do
the merge, and execution of appropriate employment and non-compete agreements.
The parties anticipate closing the transaction on or before June 16, 2003.
RESULT OF OPERATIONS FOR FISCAL YEARS ENDED 2002 AND 2001
We are a Development Stage Company, and had minimal revenues of $31,093 for
the fiscal years ended December 31, 2002 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 with
anticipated merger with Scanbuy, but can not guarantee, that for calendar year
2003, most of our revenue will be derived from the bar code processing software
technology.
20
Our General and Administrative Expenses for the fiscal year ended December
31, 2002 was $4,640,164. We anticipate that our General and Administrative
Expenses in future periods could increase as a result of an anticipated increase
in employees and the recent signing of the Merger Agreement with Scanbuy.
However, the Company believes that its revenues for calendar year 2003 will be
greater than it has been for calendar year 2002 and that its overall expenses
including the General and Administrative Expenses will be less due to cost
cutting measures. 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, 2002 was $4,705,692. A
component of the loss other than the General and Administrative Expenses was the
result of a $93,279 unrealized loss on marketable securities and a $3,342 net
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002, our cash balance was $24,966. Our working capital
requirements depend upon numerous factors, including, without limitation, levels
of resources that we devote to the further development of our 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 $5 million of additional capital from private investors
and institutional money managers in the next few months, 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 not
sufficient to fund our current operations into the third quarter of 2003. 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 2002 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.
21
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.
The Company has adopted SFAS No. 144 effective January 2, 2002. The
adoption of the new statement will not have a significant impact on the
Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS
The audited balance sheets of the Company as of December 31, 2002 and
related statements of operations, stockholders' equity and cash flows for the
years ended December 31, 2002 are included, following Item 13, in sequentially
numbered pages numbered F-1 through F-24. The page numbers for the financial
statement categories are as follows:
22
Index
Page
Independent auditors' report F-1
Consolidated balance sheet F-3
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, 2002. 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
---- --- --------
Dr. Ira W. Weiss 55 Chairman of the Board and Director
Stanley A. Young 76 Directors
Adam D. Young 40 Director (Resigned April 2003)
Michael Dewar 27 Chief Operating Officer, Treasurer and
Director
John B. Kelly 68 Director
Jerry Gruenbaum 47 Secretary and In-House Legal
Counsel
23
THE OFFICERS AND DIRECTORS OF THE COMPANY ARE SET FORTH BELOW.
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.
STANLEY A. YOUNG was appointed The Chief Executive Officer and the Chairman
of the Board of Directors of the Company in January 2002 as part of the reverse
merger with International Wireless, Inc. In April 2002 Mr. Young resigned from
the Board and has re-joined the Board in March 2003. Mr. Young is a co-founder
of International Wireless, Inc. He is an accomplished entrepreneur and venture
capitalist who over the past 40 years has founded, financed, and directed many
successful companies in a variety of industries. In 1996, Mr. Young was
instrumental in the successful IPO of Compressent Corporation and, in early
1997, successfully brought out SEEC, Inc. through H.C. Wainwright. In 1994, he
played a major role in the IPO of Andyne Computing, a developer of precision
support software for end-users. In 1990, as a director of Jet Form, Inc., he
helped the company secure financing and go public in 1993. In 1985, Mr. Young
re-structured and provided $700,000 of new capital to a small, insolvent garment
manufacturer. Nutmeg Mills Industries went on to design and manufacture a
popular line of apparel with valuable licensing rights from colleges and
professional sports franchises. The company went public within a year of Mr.
Young's involvement at a valuation of $16 million, besting even Microsoft's IPO
performance that year. In 1991, Dow Jones recognized Nutmeg as the second best
NYSE stock. In 1994, Nutmeg was acquired for $350 million. Also in 1985, Mr.
Young invested the seed money and became a Director of Parametric Technology, a
developer of CAD/CAM software. The company went public with Alex Brown in 1989
and today possesses a $1 billion market cap.
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.
24
ADAM D. YOUNG was appointed to the Board of Directors in April 2002. He
resigned from the Board in April 2003. For the past five years, Mr. Young has
worked in the real estate investment and development field as President of Young
Development Corp. Previously, Mr. Young worked as a venture capitalist,
investing primarily in computer hardware, computer software and
telecommunications firms. Mr. Young continues to invest in high tech firms and
maintains an ownership position in many promising private companies. He is a
significant shareholder in SEEC, Inc. (NASDAQ: SEEC) which provides technologies
for using the internet to access legacy data from mainframe systems. Mr. Young
received an A.B. degree from Harvard College in 1986.
JOHN B. KELLY was appointed to the Board of Directors in April 2002. Mr. is
currently a principal at Reid Eddison Inc., a Canadian technology mentoring
company. Throughout his career, Mr. Kelly has been a pioneer within the Canadian
high-technology industry. He was the President and CEO of JetForm Corporation
from 1995 until 1999. A global leader in providing open, client/server and
web-based E-Process software solutions, Jetform's revenues increased tenfold
from $10 million to $100 million under his leadership. Mr. Kelly founded and was
CEO of Why Interactive Inc., Canada's first interactive multimedia development
company. He was also founder, President and CEO at Computer Innovation
Distributors Inc. and Nabu Network Corporation, a cable-based software and
information distributor. A founder of SHL Systemhouse Ltd., Canada's largest
systems integrator, he served as Senior Vice-President and COO from the
company's inception in 1974 until 1980. In 1997, Mr. Kelly was recognized as
both the City of Ottawa's High Technology Citizen of the Year, and the Province
of Ontario's Master Entrepreneur of the Year. In 1998 he won the Ottawa Business
Journal's poll for the city's most respected CEO, and in 1999 he was presented
with the Ottawa Centre for Research and Innovation (OCRI) Civic Entrepreneur of
the Year Award. Mr. Kelly is Co-Chairman of the Board of Directors of the
Canadian Advanced Technology Alliance (CATA) and past Chair of Innovators
Alliance, an advisory council to the Government of Ontario with members
representing Ontario's fastest growing companies. He also serves on the Boards
of a number of private and public companies including AutoSkill International
Inc., Burntsand Inc., Impatica Inc. and NexInnovations Inc. He holds an honors
law degree and an honorary doctorate degree from the University of Ottawa, and
an honors B.B.A. degree (Finance) from Iona College in New Rochelle, New York.
JERRY GRUENBAUM, ESQ., is the Corporate Secretary, and General Counsel. He
has been admitted to practice law since 1979 and is a licensed attorney in
various states including the States of Massachusetts and Connecticut where he
maintains his practice, specializing in Securities Law, Mergers and
Acquisitions, Corporate Law, Tax Law, International Law and Franchise Law. He is
a former President and a Chairman of the Board of Directors of a multinational
publicly-traded company with operations in Hong Kong and the Netherlands. He
worked for the tax departments for Peat Marwick Mitchell & Co. (now KPMMG Peat
Marwick LLP) and Arthur Anderson & Co. (now Arthur Anderson LLP). He has served
as Compliance Director for CIGNA Securities, a division of CIGNA Insurance. He
has lectured and taught at various Universities throughout the United States in
the areas of Industrial and financial Accounting, taxation, business law, and
investments. Attorney Gruenbaum graduated with a B.S. degree from Brooklyn
College - C.U.N.Y. Brooklyn, New York; has a M.S. degree in Accounting from
Northeastern University Graduate School of Professional Accounting, Boston,
Massachusetts; has a J.D. degree from Western New England College School of Law,
Springfield, Massachusetts; and an LL.M. in Tax Law from the University of Miami
School of Law, Coral Gables, Florida.
25
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. The Company is in full compliance with Section 16(a).
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the fiscal
years ended December 31, 2002, 2001, and 2000 to the Company's Chief Executive
Officer.
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR SALARY
----------------------------------------- ---- --------
Graham F. Paxton (1) 2002 US$nil
Stanley A. Young(2), Chairman, and Chief 2001 $107,258
Executive Officer
Gregory H. Laborde(3), Director, and 2001 US$nil
Chief Executive Officer 2000 US$nil
Omar A. Rizvi(4), Chairman, and 2001 US$nil
Chief Executive Officer 2000 US$nil
(1) On August 19, 2002 Graham Paxton by Agreement with the Company resigned as
Chief Executive Officer, President and a member of the Board of Directors.
(2) 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.
(3) 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.
26
(4) 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 eight employment agreements with employees and
officers of the company whereby the Company has the potential liability to 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. Most of
these employees are no longer with the Company. The Company is in legal dispute
as to the degree of its obligations it may have to these employees.
BOARD OF DIRECTORS
During the year ended December 31, 2002, 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, 2002.
STOCK OPTION PLAN
Effective December 27, 2001, the Company granted qualified stock 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
the employees and consultants have no intrinsic value as of this date.
During the year ended December 31, 2002, the Company granted additional
options (net of cancellations) to employees and consultants with exercise prices
ranging from $0.15 to $1.44 per share. The option vest between one and three
years and expire from one to five years from issuance date. The options issued
to employees have an no intrinsic value as of this date.
During the year ended December 31, 2001, prior to the Merger, the Company
issued non-qualified 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.
During the year ended December 31, 2002, the Company issued an additional
197,666 non-qualified stock options to employees at an exercise price of $0.01
per share. These options vest over one year and have no expiration date.
Compensation expense was not provided for these options since the options were
issued to compensate for a reduction in salary.
27
For the year ended December 31, 2002, the Company has amortized stock based
compensation established in 2002 and 2001. The amount included in the financial
statement for the year ended December 31, 2002 and 2001 is $1,542,310 and
$116,887.
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
Black-Scholes option-pricing model with the following weighted-average
assumptions are as follows:
December 31,
------------
2002 2001
---- ----
Assumptions
-----------
Risk-free rate 1.99-4.16 2.26 - 5.43%
Dividend yield N/A N/A
Volatility factor of the expected market
price of the Company's common stock 45.37 298%
Average life 4 5 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 proforma results during the years
ended December 31, 2002 and 2001.
Stock option activity is summarized as follows:
Qualified Stock Options
-----------------------
Number Weighted Number of Weighted
of options Average Shares Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
Balance January 1, 2001 -
Option granted (representing
post-merger shares) 1,607,500
---------
Balance December 31, 2001 1,607,500 $0.46
Granted 1,774,000 $0.72
Exercised (487,500) $0.42
Cancelled (792,500) $0.75
--------- -----
Balance December 31, 2002 2,101,500 $0.52 804,655 $0.54
========= ===== ======= =====
28
Non Qualified Stock Options
------------------------------
Number Weighted Number of Weighted
of options Average Shares Average
Outstanding Exercise Price Exercisable Exercise Price
----------- -------------- ----------- --------------
Balance January 1, 2001 -
Granted 226,066 $0.01
------- -----
Balance December 31, 2001 226,066 $0.01
Granted 937,666 $0.08
Exercised (22,607) $0.01
Cancelled (740,000) $0.10
-------- -----
Balance December 31, 2002 401,125 $0.01 401,125 $0.01
======== ===== ======= =====
Total Qualified and
Non Qualified
Options Outstanding 2,502,625
=========
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.
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.
Transactions involving warrants are summarized as follows:
Balance - January 1, 2001 -
Warrants assumed in the Merger (representing post-Merger shares) 1,614,482
---------
Balance - December 31, 2001 1,614,482
Warrants exercised for cash (890,832)
Warrants exercised for debt conversion (50,000)
Warrants cancelled (429,166)
Adjustment for reverse merger (81,602)
---------
Balance December 31, 2002 162,882
=========
29
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
-------------- -------------- ----------- ----------- ---------------
0.40 21,534 5 years 21,534 $ 0.40
0.75 5,332 4 years 5,332 $ 0.75
1.50 114,999 4 years 114,999 $ 1.50
2.70 4,166 4 years - $ 2.70
3.60 8,333 4 years - $ 3.60
13.50 8,518 4 years - $13.50
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.
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, 2002
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.
30
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 55 Marble Ridge Road, North Andover, Massachusetts 01845.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE OF CLASS(1)
------------------------ ------------------------ ------------------
Dr. Ira W. Weiss --(2) --%
Michael Dewar 713,033(3) 3.07%
Stanley A. Young 8,818,763(4) 37.93%
John B. Kelly --- --%
Jerry Gruenbaum, Esq. ---(5) --%
All Directors and Executive Officers
as a group (4 persons) 9,531,796 41.00%
5% Beneficial Owners
Young Technology Fund II 1,652,153(5) 7.11%
Young Technology Fund I 2,976,759(6) 12.80%
(1) Calculations based upon 23,249,442 shares of common stock issued and
outstanding on December 31, 2002.
(2) 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.
(3) 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.
(4) Mr. Young owns 3,725,114 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 464,737 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.
(5) Atty. Jerry Gruenbaum holds 50,000 options at $0.46 per share exercisable
on or before December 31, 2005.
(6) Young Technology Fund II is managed by and is attributable to Mr. Stanley
A. Young.
31
(7) 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.
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 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.
On May 30, 2003, the Company entered into a Merger Agreement to merge the
Company with Scanbuy, Inc. a Delaware corporation with its corporate
headquarters located in New York, New York. Under said Merger Agreement the
Company is scheduled to issue to the shareholders of Scanbuy 25,594,965 newly
issued unregistered Common Shares which equal to the issued and outstanding
shares of the Company as of May 19, 2003.
The above Merger Agreement is subject to approval of the transaction by the
directors and shareholders of each of the Company and Scanbuy including an
increase in the authorized number of shares of the Company to enable it to do
the merge, and execution of appropriate employment and non-compete agreements.
The parties anticipate closing the transaction on or before June 16, 2003. if
the above merger takes place, that merger would result in a change of control of
the Company, and as such the Company's management team may change as well as the
location for its operations from Massachusetts to New York.
32
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 current director 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 3 and 7 to the audited financial
statements) and the loan has been eliminated as a result of the merger.
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.
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. During the year ended December
31, 2002, $50,000 was repaid to the Company and $20,500 was charged off to
consulting expenses for services rendered.
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, 2002 was $168,473.
33
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 dated January 8, 2001, incorporated by
reference to the Company's Annual Report on Form 10-KSB for
calendar year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002.
10.4 Employment Agreement of Michael Dewar, Chief Operating
Officer and member of the Board of Directors incorporated by
reference to the Company's Annual Report on Form 10-KSB for
calendar year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002.
10.5 Employment Agreement of Jerry Gruenbaum, Secretary and
General Counsel.
10.6 Licensing Agreement between Mitigo, Inc. and Cobblestone
Software, Inc. dated January 10, 2002 incorporated by
reference to the Company's Annual Report on Form 10-KSB
for calendar year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002.
21.1 Subsidiaries of the Company
99.1 Certification of Chief Operating Officer
99.2 Certification of Chief Financial Officer
34
(b) Reports on Form 8-K:
The Company filed a Form 8-K on January 17, 2002 relating to
change of control of the Company due to acquisition of
International Wireless, Inc. a Delaware corporation for
9,721,080 newly issued shares.
The Company filed a Form 8-K on January 31, 2002 relating to
acquisition 0f Mitigo, Inc. a Delaware corporation for
4,398,000 newly issued shares, 2,998,006 at closing and
1,399,994 in escrow.
The Company filed a Form 8-K/A on March 12, 2002 relating to
Form 8-K filed on January 17, 2002, correcting the amount of
shares issued in the acquisition from 9,721,080 to
9,495,014.
The Company filed a Form 8-K/A on March 27, 2002 relating to
Form 8-K filed on January 31, 2002, adding the audited
financial statements for Mitigo, Inc. and Pro Forma
financials for the combined companies.
The Company filed a Form 8-K on April 8, 2002 relating to
the Company's entering into an employment Agreement with
Graham Paxton as it future President and CEO effective May
1, 2002.
The Company filed a Form 8-K on April 12, 2002 relating to
the resignation of Stanley A. Young as member of the Board
of Directors and appointment of Ira Weiss as the new
Chairman of the Board.
The Company filed a Form 8-K on April 25, 2002 relating to
election of Adam Young to the Board of Directors.
The Company filed a Form 8-K on May 8, 2002 relating to
Correction to Articles of Amendment filed with the State of
Maryland to reflect change in par value for the Company's
shares from $0.001 to $0.009.
The Company filed a Form 8-K on June 21, 2002 relating to
replacing its current certifying accountants Marcum &
Kliegman LLP of New York, New York with William A. Meyler,
CPA of Middletown, New Jersey.
The Company filed a Form 8-K on August 19, 2002 relating to
Termination Agreement with Graham F. Paxton its then
President and CEO effective August 1, 2002 by mutual
consent.
35
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: 06/09/03 By: /s/ MICHAEL DEWAR
-----------------------------------
Michael Dewar
Chief Operating Officer
Date: 06/09/03 By: /s/ JERRY GRUENBAUM
-----------------------------------
Jerry Gruenbaum, Esq.
Secretary and General Counsel
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: 06/09/03 By: /s/ MICHAEL DEWAR
-----------------------------------
Michael Dewar
Chief Operating Officer and
Director
Date: 06/09/03 By: /s/ IRA W. WEISS, PH.D.
-----------------------------------
Ira W. Weiss, Ph.D.
Chairman of the Board
Date: 06/09/03 By: /s/ JERRY GRUENBAUM
-----------------------------------
Jerry Gruenbaum, Esq.
Secretary and General Counsel
Date: 06/09/03 By: /s/ STANLEY A. YOUNG
-----------------------------------
Stanley A. Young, Director
Date: 06/09/03 By: /s/ JOHN B. KELLY
-----------------------------------
John B. Kelly, Director
36
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002 AND 2001
MEYLER & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
ONE ARIN PARK
1715 HIGHWAY 35
MIDDLETOWN, NJ 07748
732-671-2244
- F1 -
INDEPENDENT AUDITOR'S 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,
2002 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. The consolidated balance sheets as of December 31, 2001 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 2001 were audited by Marcum and Kliegman, LLP for
which they expressed a qualified opinion in their report dated February 22,
2002.
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, 2002, and the results of its
operations and its cash flows for the year ended December 31, 2002, 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
- F2 -
Consolidated financial statements, the Company incurred a net loss of 4,705,692,
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/ Meyler & Company, LLC
March 1, 2003, except Not 17, to which the date is June 6, 2003
Middletown, NJ
- F3 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS December 31
-----------
CURRENT ASSETS 2002 2001
---- ----
Cash and cash equivalents $ 24,966 $ 54,310
Marketable securities, at market value - 93,279
Prepaid expenses 88,610 164,117
---------- ----------
Total Current Assets 113,576 311,706
PROPERTY AND EQUIPMENT, NET 812,590 74,300
OTHER
Loans receivable, related parties - 292,915
Security deposit 24,428 41,856
---------- ----------
Total Other assets 24,428 334,771
---------- ----------
$ 950,594 $ 720,777
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 551,837 $ 148,897
Accrued expenses 36,146 20,816
Accrued salaries 299,740 90,880
Accrued payroll taxes 121,103 -
Notes payable, related parties 168,473 146,830
Current portion of capital lease obligations 16,081 7,986
Loans payable 19,792 42,000
---------- ----------
Total Current Liabilities 1,213,172 457,409
OTHER LIABILITIES
Capital lease obligations, less current portion 14,018 20,520
Total Liabilities
STOCKHLDERS' EQUITY
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $0.009 par value, 50,000,000 shares
authorized; 23,249,442 and 10,715,904 at December
31, 2002 and 2001 respectively 209,245 96,443
Additional paid-in capital 8,612,489 4,682,116
Subscription receivable - (143,073)
Deficit accumulated during development stage (9,098,330) (4,392,638)
---------- ----------
Total Stockholders' Equity (276,596) 242,848
---------- ----------
$ 950,594 $ 720,777
========== ==========
The accompanying notes are an integral part of these financial statements.
- F4 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
Cumulative
January 1, 2001
For the Year Ended (Inception) to
December 31, December 31,
----------------------
2002 2001 2002
---- ---- ----
REVENUES $ 31,093 - $ 31,093
OPERATING EXPENSES 4,640,164 $1,276,646 5,916,810
Operating loss 4,609,071 1,276,646 5,885,717
----------- ----------- -----------
OTHER EXPENSE
Interest expense, net (3,342) (8,854) (12,196)
Unrealized loss on marketable securities (93,279) (1,571,778) (1,665,057)
Loss on sale of marketable securities - (1,535,360) (1,535,360)
----------- ----------- -----------
Total Other Expenses (96,621) (3,115,992) (3,212,613)
----------- ----------- -----------
NET LOSS $(4,705,692) $(4,392,638) $(9,098,330)
=========== =========== ===========
NET LOSS PER COMMON SHARE
Basic and Diluted $ (0.29) $ (0.61) $ (1.00)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 16,167,833 7,150,193 9,061,914
========== ========= =========
The accompanying notes are an integral part of these financial statements.
- F5 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Period January1, 2001 (Inception) to December 31, 2002
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivables Deficit 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 place-
ments, net of offering costs of
$24,727 461,178 461 1,030,907 (143,073) - 888,295
Reverse Merger(Note 1)
Exchange of International
Wireless, 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 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
Subscription receipts - - - 143,073 - 143,073
Conversion of notes payable
to common stock at $0.34
to $0.46 per share under
a private placement offering 99,900 899 41,101 - - 42,000
Conversion of related party
debt to common stock
at $0.10 per share 1,550,414 13,954 146,195 - - 160,149
Issuance of common stock
in connection with private
placement 5,863,928 52,775 638,997 - - 691,772
Issuance of common stock
for exercise of warrants at
$0.43 per share 890,832 8,018 377,965 - - 385,983
Issuance of common stock
for exercise of stock options
at $0.40 per share 510,107 4,591 199,459 - - 204,050
Issuance of common stock
to consultants at $0.15 to
$1.50 per share 620,351 5,583 358,962 - - 364,545
Issuance of common stock
options for services rendered - - 1,542,310 - - 1,542,310
Issuance of common stock
to acquire Mitigo software
at $0.2176 per share 2,998,006 26,982 625,384 - - 652,366
Net loss for year ended
December 31, 2002 - - - - (4,705,692) (4,705,692)
---------- -------- ---------- -------- ----------- ----------
23,249,442 $209,245 $8,612,489 - $(9,098,330) $ (276,596)
========== ======== ========== ======== =========== ==========
The accompanying notes are an integral part of these financial statements.
- F6 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
January 1, 2001
For the Year Inception to
December 31, December 31,
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001 2002
---- ---- ----
Net Loss $(4,705,692) $(4,392,638) $(9,098,330)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 25,746 12,865 38,611
Amortization of intangible asset 178,975 - 178,975
Prepaid consulting amortization 83,067 - 83,067
Conversion of loan receivable to consulting expenses 20,500 - 20,500
Loan receivable write off 6,324 - 6,324
Unrealized loss on marketable securities 93,279 1,571,778 1,665,057
Loss on sale of marketable securities - 1,535,360 1,535,360
Stock based compensation 1,906,855 472,974 2,379,829
Changes in operating assets and liabilities:
Increase in prepaid expenses (7,560) (164,117) (171,677)
Decrease (increase) in security deposits 17,428 (41,856) (24,428)
Increase in accounts payable 372,535 148,897 521,432
Increase in accrued expenses 15,330 20,816 36,146
Increase in accrued salaries 208,860 1,538 210,398
Increase in accrued payroll taxes 121,103 - 121,103
--------- --------- ---------
Total adjustments 3,042,442 3,558,255 6,600,697
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,663,250) (834,383) (2,497,633)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (37,949) (41,076) (79,025)
Repayment of loans receivable, related parties 50,000 - 50,000
Proceeds from sale of marketable securities - 202,892 202,892
Advances under loans receivable to related parties - (302,915) (302,915)
--------- --------- ----------
NET CASH PROVIDED (USED IN ) INVESTING
ACTIVITIES 12,051 (141,099) (129,048)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from notes payable, related parties 201,584 146,830 348,414
Payments, increased obligations on capital lease obligations (4,607) (5,333) (9,940)
Net proceeds from issuance of common stock 1,424,878 888,295 2,313,173
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,621,855 1,029,792 2,651,647
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (29,344) 54,310 24,966
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR 54,310 - -
--------- --------- ---------
CASH AND CASH EQUIVALENTS-END OF YEAR $ 24,966 $ 54,310 $ 24,966
========= ========= =========
The accompanying notes are an integral part of these financial statements.
- F7 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
January 1, 2001
For the Year Ended Inception to
December 31, December 31,
2002 2001 2002
---- ---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION Cash paid during the year for:
Interest $ 3,342 $ 11,728 $ 15,070
========= ========== ==========
Non-cash investing and financing activities:
Equipment acquired through capital leases $ 6,200 $ 33,839 $ 40,039
========= ========== ==========
Issuance of shares in exchange for marketable securities - $3,396,949 $3,396,949
========= ========== ==========
Subscription receivable in connection with issuance
of common stock $(143,073) $ 143,073 $ -
========= ========== ==========
Assets and liabilities acquired in connection with
Merger (Note 1 ):
Marketable securities $ 6,360 $ 6,360
Property and equipment 12,250 12,250
Loans payable, related party (10,000) (10,000)
Accounts payable and accrued expenses (89,342) (89,342)
Loans payable (42,000) (42,000)
---------- ----------
Net recapitalization in connection with merger $ (122,732) $ (122,732)
========== ==========
Acquisition of Mitigo, Inc. and allocation of purchase price:
Property and equipment $ 3,989 - $ 3,989
Software 894,873 - 894,873
Liabilities assumed (246,496) - (246,496)
--------- ----------
$ 652,366 - $ 652,366
========= ==========
The accompanying notes are an integral part of these financial statements.
-F8 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 and 2001
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 $0.009 par value common stock the (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 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.
- F9 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
NOTE 1 DESCRIPTION OF BUSINESS, GOING CONCERN UNCERTAINTY AND MANAGEMENT'S
PLANS (CONTINUED)
Going Concern Uncertainty and Management's Plans
As shown in the accompanying financial statements, the Company
incurred a net loss of $4,705,692 and $4,392,638 during the years
ended December 31, 2002 and 2001 resulting in a deficit accumulated
during the development stage of $9,098,330. Management's plans include
the raising of capital and seeking out companies to acquire. On
January 11, 2002 the Company acquired Mitigo, Inc. ("Mitgo"). 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.
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.
- F10 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2002, the Company has net operating loss carryforwards
of approximately $5,053,000 which expire through 2022. Based on the
fact that the Company has generated operating losses since inception,
a deferred tax asset of approximately $1,100,000 has been offset by a
valuation allowance of $1,100,000. 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.
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 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
- F11 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
Net Loss Per Common Share (Continued)
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 (1) using the
fair value method or (2) using the intrinsic value method as
prescribed by accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB25") 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.
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
- F12 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
Fair Value of Financial Instruments (Continued)
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 ("FSAB") 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 in a
net realizable value basis (but at
- F13 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
New Accounting Pronouncements (Continued)
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.
The Company has adopted SFAS No. 144 effective January 2, 2002. The
adoption of the new statement will not have a significant impact on
the Company's financial statements.
NOTE 3 ACQUISITION OF MITIGO, INC.
On January 11, 2002, the company acquired 100% of the issued and
outstanding stock of Mitigo, Inc. ("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
shares were issued to the sellers at closing and 1,399,994 shares are
held in escrow. These escrow shares will be released to the Sellers
pursuant to a formula based upon 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 allocation of the purchase price was as follows:
Value of 2,998,006 shares of common stock at
$1.76(1)per share $5,267,491
Less: Write down of fair value due to impairment
of Company's publicly traded stock price at
December 31, 2002(2) 4,624,125
----------
Adjusted purchase price $ 652,366
==========
Fair value of net assets allocated as follows:
Property and equipment $ 3,989
Software (3) 894,873
Liabilities assumed (246,496)
----------
$ 652,366
==========
- F14 -
---------------------
(1) Based upon average of five day close price from acquisition date (2) Based
upon average of five day close price at December 31, 2002 (3) Software is being
amortized over 5 years.
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
NOTE 4 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 and amounted to $113,247.
NOTE 5 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 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 is summarized as follows:
December 31,
-------------------------
2002 2001
Balance - at cost $ 93,279 $ 1,665,057
Unrealized losses (93,279) $(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.
- F15 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment at December 31, consist of the following:
Estimated
Useful
2002 2001 Lives
-------- ------ ---------
Furniture and fixtures $ 20,438 $15,085 7 years
Equipment and software 975,875 55,045 5 years
Leashold improvements 33,862 17,035 4 years
-------- ------
1,030,175 87,165
Less: accumulated amortization and
depreciation (217,585) (12,865)
-------- ------
Property and Equipment, Net $ 812,590 $74,300
======== ======
Depreciation and amortization expense for the year ended December 31,
2002 and 2001 was $204,721 and $12,865 respectively.
NOTE 7 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 3) and the loan has been eliminated as a result of the
merger.
Loans Receivable - Atlantic Venture Management, LLC
On April, 15, 2001 the Company entered into a revolving credit
- F16 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
Loans Receivable - Atlantic Venture Management, LLC (Continued)
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 $6,234. The Chief Executive Officer and Chief Operating Officer of
the Company are also general partners of Atlantic. During the year
ended December 31, 2002, the balance was deemed uncollectible.
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. During the year ended December 31, 2002, $50,000 was repaid to
the Company and $20,500 was charged off to consulting expense for
services rendered.
NOTE 8 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 were past due. During the first quarter
of the year 2002, the notes were converted into the Company's common
stock for the original loan value plus account interest.
NOTE 9 NOTES PAYABLE, RELATED PARTIES
The Company has two lines 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, 2002
and 2001 was $42,928 and $146,830.
- F17 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2002 and 2001
NOTE 9 NOTES PAYABLE, RELATED PARTIES (CONTINUED)
Additionally, at December 31, 2002, the Company has a note payable to
the former President of the Company for $125,545.
NOTE 10 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, 2002, minimum future lease payments under these
capital leases are:
For the
Years Ending
December 31, Amount
------------ -------
2003 $20,182
2004 9,768
2005 5,660
2006 88
Total minimum lease payments (forward) $35,698
=======
For the Year Ended
December 31,
----------------------
2002 2001
Total minimum lease payments (forward) $35,698 $34,803
Less: amounts representing interest (5,599) (6,297)
------- -------
Net minimum lease payments 30,099 28,506
Less: current portion 16,081 7,986
------- -------
Long-term portion $14,018 $20,520
======= =======
- F18 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 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 transaction
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.
During the year ended December 31, 2002, $42,000 of loans payable at
December 31, 2001 were converted into the Company's common stock under
a private placement for 49,900 shares and the exercise of 50,000
warrants.
During the year ended December 31, 2002, $160,149 of notes payable,
related parties was converted into 1,550,414 shares of common stock
under the Company's private placement offering.
During the year ended December 31, 2002, 5,863,928 shares of common
stock were issued for $691,772 in connection with a private placement
offering.
During the year ended December 31, 2002, 620,351 shares of the
Company's common stock were issued to consultants for services
rendered at a value of $364,545.
During the year ended December 31, 2002, 890,832 common stock warrants
were exercised for $385,983 at prices ranging from $0.00 to $0.00 per
share.
During the year ended December 31, 2002, 510,107 shares of common
stock were issued for the exercise of stock options for a
consideration of $204,050. The options were exercised at a range of
$0.00 to $0.00 per share.
- F19 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the acquisition of Mitigo, Inc. on January 11,
2002, 2,998,006 shares of common stock were issued for $5,267,491
representing the fair value of the Company's common stock at the date
of issuance and subsequently adjusted to $652,366 as a result of the
impairment of the Company's publicly traded stock price.
NOTE 12 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 and on May 2, 2002 amended the lease for additional
office space. The Company has paid a security deposit of $41,856
equivalent to six months of rent. The Company has elected to reduce
the amount of security deposit to $20,928 under the terms of the lease
agreement. At December 31, 2002, the Company is in arrears $48,000 and
has agreed in February 2003 to offset the arrearages with the security
deposit and the letter of credit which was established for the
additional lease renovations.
Minimum fixed rental payments are as follows:
For the
Year Ending
December 31, Amount
------------ --------
2003 $171,132
2004 171,132
2005 85,566
--------
Total $427,830
========
Rent expense for the year ended December 31, 2002 and 2001 was
$116,868 and $71,535, respectively.
- F20 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 $942,500 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.
NOTE 13 STOCK OPTIONS
Effective December 27, 2001, the Company granted qualified stock
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, 2002, the Company granted
additional options (net of cancellations) to employees and consultants
with exercise prices ranging from $0.15 to $1.44 per share. The option
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 $4,560. The options issued to consultants had a fair value of
$150,048 calculated using the Block-Scholes options pricing model.
The options will be amortized over their respective vesting period
which commence in 2002.
During the year ended December 31, 2001, prior to the Merger, the
Company issued non-qualified options to purchase 50,000 shares of the
Company's common stock to employees and consultants with an exercise
- F21 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 STOCK OPTIONS (CONTINUED)
price of $0.01 per share. These optionsvest 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.
During the year ended December 31, 2002, the Company issued an
additional 197,666 non-qualified stock options to employees at an
exercise price of $0.01 per share. These options vest over one year
and have no expiration date. Compensation expense was not provided for
these options since the options were issued to compensate for a
reduction in salary.
For the year ended December 31, 2002, the Company has amortized stock
based compensation established in 2002 and 2001. The amount included
in the financial statement for the year ended December 31, 2002 and
2001 is $1,542,310 and $116,887.
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 Black-Scholes option-pricing model with the following
weighted-average assumptions are as follows:
December 31,
---------------------
2002 2001
---- ----
Assumptions
-----------
Risk-free rate 1.99-4.16 2.26 - 5.43%
Dividend yield N/A N/A
Volatility factor of the expected market price of the
Company's common stock 45.37 298%
Average life 4 5 years
- F22 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 STOCK OPTIONS (CONTINUED)
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
proforma results during the years ended December 31, 2002 and 2001.
Stock option activity is summarized as follows:
Qualified Stock Options
-----------------------
Weighted Number of Weighted
Number of options Average Shares Average
Outstanding Exercise Price Exercisable Exercise Price
----------------- -------------- ----------- --------------
Balance January 1, 2001 -
Option granted (representing
post-merger shares) 1,607,500
---------
Balance December 31, 2001 1,607,500 $0.46
Granted 1,774,000 $0.72
Exercised (487,500) $0.42
Cancelled (792,500) $0.75
--------- -----
Balance December 31, 2002 2,101,500 $0.52 804,655 $0.54
========= ===== ======= =====
Non Qualified Stock Options
---------------------------
Balance January 1, 2001 -
Granted 226,066 $0.01
--------- -----
Balance December 31, 2001 226,066 $0.01
Granted 937,666 $0.08
Exercised (22,607) $0.01
Cancelled (740,000) $0.10
--------- -----
Balance December 31, 2002 401,125 $0.01 401,125 $0.01
========= ===== ======= =====
Total Qualified and Non Qualified
Options Outstanding 2,502,625
=========
- F23 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 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:
Balance - January 1, 2001 -
Warrants assumed in the Merger (representing post-Merger shares) 1,614,482
---------
Balance - December 31, 2001 1,614,482
Warrants exercised for cash (890,832)
Warrants exercised for debt conversion (50,000)
Warrants cancelled (429,166)
Adjustment for reverse merger (81,602)
---------
Balance December 31, 2002 162,882
=========
The following table summarized information concerning warrants
outstanding at December 31, 2002:
Average Weighted
Exercise Number Remaining Number Average
Price Outstanding Contractual Live Exercisable Exercise Price
-------- ----------- ---------------- ----------- --------------
$ 0.40 21,534 5 years 21,534 $ 0.40
$ 0.75 5,332 4 years 5,332 $ 0.75
$ 1.50 114,999 4 years 114,999 $ 1.50
$ 2.70 4,166 4 years - $ 2.70
$ 3.60 8,333 4 years - $ 3.60
$13.50 8,518 4 years - $13.50
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 exceeds 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.
- F24 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 PRIVATE PLACEMENT OFFERING
The Company, in 2002, did a private placement offering on a "min/max"
basis of a minimum of $500,000 or 5,000,000 shares up to a maximum of
$15,000,000 shares of common stock having a par value of $0.009 per
share at $0.10 per share. Approximately half of the minimum will be
met by converting pre-existing cash loans to the company's equity.
Thus, no proceeds were held in an escrow account and all funds will be
immediately available to the Company. During the year ended December
31, 2002, 5,913,928 shares were issued under the private placement in
an exchange for cash and loan conversions aggregating $711,772.
NOTE 16 LITIGATION
On November 20, 2001, a judgement in the amount of $10,497 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 December 2002, the Company was sued by Greig Laborde in U.S.
District Court for the District of New Jersey for Breach of Employment
Contract and Defamation seeking monetary damages including additional
stocks and warrants. The Company in response has filed a counter-claim
against Mr. Laborde seeking damages in his transaction in selling
Origin Investment Group, Inc. to International Wireless in its reverse
merger in January 2002. The company believes the claim is without
merit and had adequate defenses.
NOTE 17 SUBSEQUENT EVENTS
Litigation
----------
On February 20, 2003, a judgment in the amount of $28,750 was entered
against the Company for unpaid rent on behalf of Graham Paxton, the
former President and CEO of the Company as part of his employee
benefit plan.
On March 11, 2003, the Company received notice from Attorney Omar A.
Rizvi of his claim for breach of contract for failure to deliver to
- F25 -
INTERNATIONAL WIRELESS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Litigation (Continued)
----------
him 100,000 shares for professional services allegedly performed on
behalf of the company, and wrongful cancellation of additional
warrants to purchase 200,000 shares of International Wireless for
which he claimed damages. No suit has been filed to date and the
company believes that if such a suit is ever filed against the
company, the company has a good defense and proper grounds for a
counter-suit.
On March 20, 2003, a judgment in the amount of $2,000 was entered
against the company by Beyond Words Communication, Inc. for prior
unpaid marketing services rendered to the company.
On March 31, 2003, a judgment in the amount of $99,089, which included
$50,000 security deposit replenishment, was entered against the
company for breach of contract for non-payment of rent on the
company's office facility in Woburn, Massachusetts. Additionally, the
company is contingently liable for the balance of the lease which
expires July 31, 2005. See Note 12 to the Financial Statements.
In May 2003, certain former employees filed complaints with the
Commonwealth of Massachusetts Attorney General's office for unpaid
salaries and accrued vacation pay. In accordance with the Company's
records the Company owes a total of $60,138 for back fees, gross
salaries and accrued vacation. In addition, there is a potential
severance pay due to these employees in accordance with their
employment agreement totalling an additional $186,350 for which the
Company totally disputes.
Merger
------
On May 30, 2003, the Company entered into a reverse merger agreement
with Scanbuy, Inc. (hereinafter "Scanbuy") a Delaware corporation with
its corporate headquarters located in New York, New York. Under said
merger agreement, the Company is scheduled to issue to the
shareholders of Scanbuy 25,594,965 newly issued unregistered common
shares which equal to the issued and outstanding shares of the Company
as of May 19, 2003. The merger agreement is subject to approval by the
directors and shareholders of the Company and Scanbuy including an
increase in the authorized number of shares of the Company to enable
it to do the merger and the execution of appropriate employment and
non-compete egreements. The parties anticipate closing the transaction
on or before June 16, 2003.
- F26 -