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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________ to
____________
Commission file number 0-29944
INFOWAVE SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
British Columbia, Canada 98 0183915
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(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
200 - 4664 Lougheed Highway
Burnaby, British Columbia, Canada V5C 5T5
(Address of principal executive offices)
Registrant's telephone number: (604) 473-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2): Yes [ ] No [X]
Aggregate market value of the registrant's Common Shares held by non-affiliates
as of June 28, 2002 was approximately US$7,634,571. The number of the
Registrant's Common Shares outstanding as of March 26, 2003, was 66,659,578.
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Table of Contents
Part I............................................................................................................1
Item 1: Business..................................................................................................1
Item 2: Properties...............................................................................................15
Item 3: Legal Proceedings........................................................................................15
Item 4: Submission of Matters to a Vote of Security Holders......................................................16
Item 5: Market for Registrants Common Equity and Related Stockholder Matters.....................................16
Item 6: Selected Financial Data..................................................................................19
Item 7: Managements' Discussion and Analysis of Financial Condition and Results of Operations....................20
Item 7A: Quantitative and Qualitative Disclosure about Market Risk...............................................27
Item 8: Financial Statements and Supplementary Data..............................................................27
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................57
Part III.........................................................................................................57
Item 10: Directors and Officers of the Registrant................................................................57
Item 11: Executive Compensation..................................................................................59
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........62
Item 13: Certain Relationships and Related Transactions..........................................................63
Item 14: Controls and Procedures.................................................................................64
Part IV..........................................................................................................64
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................65
PART I
Item 1: Business
Forward-Looking Statements
Statements in this Annual Report about future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in any forward-looking statements.
These factors include, among others, those described in connection with the
forward-looking statements, and the factors listed in "Risk Factors".
In some cases, forward-looking statements can be identified by the use of words
such as "may", "will", "should", "could", "expect", "plan", "intend",
"anticipate", "believe", "estimate", "predict", "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements or other future events.
Moreover, neither the Company nor anyone else assumes responsibility for the
accuracy or completeness of forward-looking statements. The Company is under no
duty to update any of its forward-looking statements after the date of this
Annual Report. The reader should not place undue reliance on forward-looking
statements.
All dollar amounts noted in this Annual Report are in U.S. dollars unless
otherwise noted.
THE COMPANY
Infowave Software, Inc. ("Infowave" or the "Company") develops, markets and
sells infrastructure software solutions that facilitate wireless computing for
individuals, workgroups, enterprises and network operators. Focused on enabling
the wireless workplace since 1993, Infowave's product solutions connect workers
wirelessly in real-time to their corporate data, enabling businesses to
communicate more easily, deliver effective customer service and conduct more
business from any location. The Company provides a complete range of wireless
solutions, ranging from the individual email service of Symmetry Pro, to
workgroups and enterprises served by Infowave Mobile Messaging. The Company also
offers the Wireless Business Engine(TM), a wireless platform for large
corporations that provides access to email and collaboration tools, corporate
intranets, the Internet, Web-enabled applications and legacy and client/server
applications from a wide range of wireless devices such as handheld computers,
laptops, PDAs and emerging integrated phone devices.
The Company is amalgamated under the Company Act (British Columbia). The
Company's head office and development facilities are located at The Infowave
Building, Suite 200, 4664 Lougheed Highway, Burnaby, British Columbia, Canada,
V5C 5T5 (telephone 604.473.3600). The Company's registered office is at Suite
2600, Three Bentall Centre, 595 Burrard Street, PO Box 49314, Vancouver, British
Columbia, Canada, V7X 1L3. The Company's wholly owned subsidiary, Infowave USA
Inc., is incorporated under the laws of the State of Washington. The Company
operates a sales office in London, England at Cardinal Point, Park Road,
Rickmansworth, Hertfordshire WD3 1RE 4JS (telephone + 44 (1923) 432 632). The
Company also has a master reseller agreement with an agency for Continental
Europe located at Dreimuhlenstrabe 27, 80476 Munchen / Munich, Germany
(telephone 49 89 767368-94).
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was originally formed in 1984 as GDT Softworks Inc. under the laws
of the Province of British Columbia, Canada. Initially focused on developing
printer driver solutions, the Company expanded its focus to include developing
wireless messaging software in 1993.
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By 1996, the Company began to operate its wireless business (the "Wireless
Division") and its printer driver business (the "Imaging Division") as distinct
operating divisions. The Company's name was changed to Infowave Wireless
Messaging Incorporated in 1997 and to Infowave Software, Inc. in 1998. In 2000,
the Company focused its time and resources solely on the Wireless Division and
sold off the Imaging Division effective August 31, 2000. The development of the
Company's wireless business is described below under "Business of the Company".
In February 2001, Mr. Thomas Koll was appointed Chief Executive Officer of the
Company. Mr. Koll joined Infowave from Microsoft Corporation, where he held
several executive positions in the US and Europe from 1989 to 2001. Most
recently, he was Vice President of Microsoft's Network Solutions Group where he
was responsible for, among other things, Microsoft's worldwide business with
telecommunications companies in the wireless markets. Mr. Koll transitioned to
Chairman of the Board of Directors in April 2002.
In March 2002, the Company entered into a Strategic Alliance and Sales agreement
with Compaq Computer Corporation (now known as Hewlett-Packard Company or "HP").
Under the continuing agreement, HP and Infowave agreed to collaborate on joint
marketing activities, and HP agreed to make commercially reasonable efforts to
bundle certain of Infowave's products with certain of their products. Concurrent
with the signing of that agreement, HP made available to the Company, a
three-year $2 million revolving loan facility, convertible at HP's option into
Infowave Common Shares at a price of $1.00 per share. Infowave has also granted
HP the ability to have an observer attend meetings of the Board of Directors.
Throughout 2002, the Company released new versions of its software as well as
launched several new products to appeal to a broader wireless market. Infowave's
products provide value to individual professional consumers, to business
workgroups and enterprises, to large corporations, as well as to the network
operators (carriers).
The Company announced on January 9, 2003, that it entered into agreements with
Microsoft Corporation under which the two companies will non-exclusively develop
and market solutions for mobile network operators based on the Windows Powered
Microsoft mobile device platforms. Infowave and Microsoft will work together to
offer mobile operators complete solutions focused on Microsoft Windows Powered
devices and designed to increase subscriber adoption and consumption of wireless
data. In the first stage of development, Infowave will add support for the
Windows Powered Smartphone to its Symmetry(TM) Pro desktop personal e-mail
solution, its Infowave Mobile Messaging server product and its Mobile
Application Gateway solution suite for mobile network operators. Microsoft and
Infowave will cooperate on joint marketing and sales initiatives into the mobile
operator community. In addition, Infowave will make its Symmetry Pro product
available to Microsoft device original equipment manufacturers (OEMs).
BUSINESS OF THE COMPANY
Company Overview
The Company's flagship commercial software product is the Infowave Wireless
Business Engine, which is an infrastructure solution for extending corporate
information and applications out to mobile workers. The Infowave Wireless
Business Engine has a modular architecture optimized for enterprise applications
and supports multiple devices, networks, platforms and applications.
Consequently, the mobile worker is given greater choices and flexibility while
providing the enterprise with centralized management, scalability, security and
encryption to protect, extend and leverage existing corporate investments in
information technology. The Company's software solution, extending from mobile
devices to enterprise servers, creates a wireless Virtual Private Network
("VPN") that offers a very high level of security.
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The functionality of the Infowave Wireless Business Engine extends to Infowave's
suite of application connectors including the Exchange Connector (which provides
access to Microsoft(R) Exchange(R) data), the Web Connector (which provides
access to corporate intranets, web-enabled applications and the Internet), and
the Open Application Connector (which provides access to client server and
legacy applications). These application connectors connect enterprise software,
such as Microsoft(R) Exchange(R), to the Wireless Business Engine so that the
enterprise software can be operated wirelessly.
The Company launched several new products during 2002 to significantly broaden
the range of product offerings and reach a wider market audience. "Symmetry Pro"
was released in January 2002 as a desktop based wireless service for individual
professional consumers using both Palm & PocketPC powered devices. The launch of
Infowave "Mobile Messaging - Enterprise Edition", followed in September 2002, as
a server based solution for ten or more users within an organization. For
organizations with a few as five users, Infowave "Mobile Messaging - Workgroup
Edition" was also offered in November 2002 as a desktop service based
application solution for simple deployment
Infowave also formed a new Network Operator business initiative. Its goals are
to help network operators leverage off their significant existing data
investments, by offering compelling products to increase data subscription
rates, and value added services to their customers.
Infowave also launched the Mobile Application Gateway (the "Gateway") as a
revenue generating solution for network operators (carriers). The new wireless
services platform provides network operators a turnkey solution opportunity for
their customers, to capitalize immediately on offering wireless access to
corporate information including e-mail and calendar with Infowave branded
solutions. Infowave announced a licensing agreement in June 2002 with Asia's
network operator Hong Kong CSL to offer Symmetry branded products ("1010
Office") to their customers. In October 2002, Infowave announced that Swiss
wireless network service provider sunrise/tdc Switzerland AG ("sunrise") also
selected Infowave's Gateway to provide wireless e-mail solutions for its
subscribers.
Infowave utilizes value-added resellers, systems integrators and application
service providers to sell its product and services to both enterprises and
individual users. The Company also has Original Equipment Manufacturer ("OEM")
relationships with hardware and software vendors to develop proprietary or
private-label wireless solutions. The Company's revenue is primarily derived
from the sale of client access licenses, annual maintenance and support
agreements and OEM-related engineering fees for customization and branding.
The Company's current customers and commercial alliances include HP, AT&T
Wireless Services ("AT&T Wireless"), Rogers AT&T Wireless (Canada), ("Rogers
AT&T"), and TELUS Mobility ("Telus"). HP is currently reselling the Company's
software as a stand-alone product or with HP's Proliant Servers, iPAQnet Mobile
Intranet and iPAQnet Mobile Email Pocket PC. HP has also selected the Company's
products for internal deployment. Any future revenue from HP will depend upon
HP's success in reselling the Company's products through its various sales
channels. Each of AT&T Wireless, Rogers AT&T and TELUS Mobility has selected the
Company's products for internal deployment and are engaged in joint marketing
activities.
Market Opportunity
The wireless "middleware" industry represents an opportunity in the enterprise
software market that ties together several major trends that have developed over
the past decade:
o The deployment of back-end applications within the corporate Local
Area Network ("LAN") such as Enterprise Resource Planning ("ERP"),
Sales Force Automation ("SFA"), Groupware (Email, Personal Information
Management) and Customer Relationship Management ("CRM") services has
helped to drive increased productivity and efficiency within the
enterprise.
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o The increase in the number of mobile workers has expanded the virtual
office beyond the physical plant.
o The integration of the Internet and the extension of back-end database
applications to the Internet/Intranet have enabled web-based access to
mission-critical data.
o The increase in mobile device sales among professionals has driven the
demand for remote, wireless access to corporate data.
o The coming to market of new integrated PDA / phone devices being
offered by different manufacturers powered by various operating
systems.
Middleware is a general term for any programming that serves to "glue together"
or mediate between two separate and usually pre-existing software programs.
Messaging is a common service provided by middleware programs so that different
applications can communicate. Wireless middleware enables remote connectivity to
the corporate LAN without being physically connected to the network, just as the
cell phone removed the physical restraints of being connected to a land-based
telephone line.
Infowave believes that providing wireless access to corporate data provides the
following advantages:
o Improved productivity and efficiency by enabling mobile workers to
stay connected to mission-critical data at all times, either in the
field or at home.
o Leveraging existing hardware and software investments by extending
these applications out of the office and into the field.
o Improved revenue generation by selling the right product to the right
customer at the right time.
o Cost savings by providing faster and less expensive means to interact
with employees and clients, and by lowering customer acquisition costs
by reaching a wider audience unconstrained by time and place.
o Competitive advantage by being able to respond to customer
queries/concerns in a more timely and effective manner
The Company's objective is to become the leading provider of wireless
infrastructure software solutions to the enterprise through a two-pronged sales
strategy:
o First, selling wireless application solutions to Network Operators to
assist them in bringing comprehensive wireless data solutions to
market.
o Secondly, selling wireless software to corporate and enterprise
customers alongside strategic partners such as HP and wireless carrier
partners such as AT&T Wireless, T-Mobile USA, Vodafone UK, sunrise,
Rogers AT&T and TELUS Mobility.
In order to stimulate sales of our enterprise portfolio during the past fiscal
year, the Company developed a pilot project program designed to make our
solution easy to trial. Many companies want to "try before you buy" which
results in a trial implementation pilot project prior to making a major
commitment to wireless therefore extending the sales cycles. The Company
initiated pilots with enterprise customers during 2002 and remains actively
engaged in over a dozen pilot projects with enterprise customers.
In the Network Operator market, Infowave offers the Mobile Application Gateway,
a services platform designed specifically to assist network operators in
bringing wireless data applications to market. The solution allows for network
operator branded offerings and takes advantage of a network operator's existing
customer base, strong brand, network infrastructure and extensive distribution
channels to sell-through an Infowave-powered solution to business customers.
With their recent investments in upgrading their networks, network operators are
seeking compelling applications to include as part of their wireless data
offering. Infowave provides network operators with the critical applications
that allow them to go to market with solutions for their business customers.
4
Infowave Products
Infowave Wireless Business Engine
The Infowave Wireless Business Engine is a wireless platform installed on the
server and designed to support a suite of application connectors suitable for
most enterprises. The Infowave Wireless Business Engine provides end-to-end
security, data transport and bandwidth optimizations, session reliability, and
multiple device and network support. Application connectors allow applications
already being used by an enterprise behind a firewall to be accessed by the
Infowave Wireless Business Engine. Infowave is currently shipping three
application connectors: Exchange Connector, Web Connector and Open Application
Connector ("Connectors"). Infowave has also developed its messaging connector
platform to include support for the Lotus(R) Domino market.
The Infowave Wireless Business Engine also creates an efficient wireless Virtual
Private Network and improves remote dial-up connections by optimizing slower
dialup (landline) connections into enterprise accounts and Wide Area Networks.
As a result, mobile workers have fast, secure and feature-rich access to
corporate data over either a wired or a wireless connection. The Infowave
Wireless Business Engine is also network independent, allowing users to optimize
their access to information over most major wireless data networks, including
CDPD, CDMA, GRPS, GSM and Mobitex. The Company is currently developing the
Infowave Wireless Business Engine to support additional 2.5G and new 3G
networks.
The Infowave Wireless Business Engine also includes a client software component
for mobile computing devices using a Windows operating system. The client
software is installed on the wireless device and enables a secure wireless
connection that extends through a wireless carrier, over the Internet and into
the Infowave Wireless Business Engine installed at the enterprise or service
provider. The client and server software manages the connection to ensure
security, reliability, and optimization of all data sent and received.
Infowave's client software has been developed to work with Windows
95/98/NT/2000/XP and Windows CE / Pocket PC.
The Company generates revenue through the sale of end-user licenses, with the
price for each license varying based upon the number of Connectors purchased.
Preferential pricing is available for large enterprise site licenses. In
addition to one-time software license fees, the Company charges annual
maintenance and support fees. The Company also charges fees for installation
services, training and professional services such as customization of its
software products.
Infowave has developed Connectors for the Infowave Wireless Business Engine that
address the three areas of enterprise data: Messaging - Exchange Connector,
Intranet/Web - Web Connector and Client Server/Legacy - Open Application
Connector. The Connectors are plugged into the Infowave Wireless Business Engine
allowing IT managers to easily and efficiently manage the solution. Unlike many
other wireless solutions that allow users to access only a subset of the
features associated with an application, Infowave's Connectors allow users to
gain access to the application as if they were in their office connected to
their corporate network. Many corporate applications, such as ERP and CRM, have
traditionally been accessed only through fast networks on full workstation
computers and have not been well suited for smaller devices in a mobile
environment. However, each Connector developed by Infowave extends the entire
application to the wireless device.
Exchange Connector
Infowave's Exchange Connector is an application connector that provides wireless
access to Microsoft Exchange servers using Microsoft Outlook client software.
Rather than plugging into a phone jack, users simply turn on their portable
computing device and launch Infowave's software. The user then opens Microsoft
Outlook, types a regular username and password and is connected wirelessly and
securely to Microsoft(R) Exchange(R). An important and timesaving feature of
Exchange Connector is that it does not require a traditional synchronization
procedure before enabling communication. All unread email in the
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corporate message store is immediately pushed out to the end-user and all
outgoing email in the user's outbox is immediately sent. All data transmission
is encrypted and compressed for speed and security. Infowave's Exchange
Connector also features real-time synchronization capability - all incoming
messages are stored to Microsoft Outlook and can be accessed when the user
disconnects from the network. This capability gives end users online and offline
access to data and allows productivity in situations such as on an airplane or
when out of a wireless network coverage area. The user requires no unique
training because Microsoft Outlook is used in the same way in the mobile
environment as it would on a desktop. Similarly, the IT manager requires little
training as he or she manages users through existing standard management
utilities.
Lotus(R) Notes(R) and Domino(R) Connectors
The Company offers a bundled solution which integrates third party software that
enables wireless access to Lotus Notes(R) and Domino(R). This opens up a whole
new opportunity for Lotus Notes users by delivering a rich client, real-time
wireless solution that they can use to access information securely, reliably and
with optimized performance. Similar to the Exchange Connector, mobile Lotus
Notes users are freed from limiting landline connections. The new Domino
Connector will give mobile workers the ability to access their corporate
Domino-based email, calendar, to do lists and address book in real-time using a
spectrum of wireless devices including laptops, Internet-ready mobile phones,
and handheld computers. The Domino Connector will provide the same high level of
security, reliability, optimization and network/device support that the Wireless
Business Engine currently offers for Microsoft(R) Exchange(R) and
Internet/Intranet access.
Web Connector
Infowave's Web Connector is an application connector which is directed towards
the growing demand for secure, wireless access to the Internet, corporate
Intranets and extranets and web-based enterprise applications using standard web
browsers on mobile computing devices. This application connector is important
because enterprises are using Intranets to host information such as customer and
sales data, service records and other back-end databases that employees,
partners, customers and management access and share regularly. Upon installation
of the Web Connector, mobile workers are able to attain secure, reliable
wireless access to this information. Enterprises can then leverage their
existing applications, network architecture and important corporate information.
The Enterprise's security policies and procedures for Internet and Intranet
access are seamlessly extended to mobile users using the Infowave Wireless
Business Engine and do not require any modifications or changes to the way in
which these may be currently implemented.
Open Application Connector
The Open Application Connector and a corresponding software development kit are
designed to enable enterprises to independently develop solutions to wirelessly
enable their legacy client/server applications using the Wireless Business
Engine. The Infowave Open Application Connector leverages the security and
optimization of the Infowave Wireless Business Engine and is intended to help
provide a common platform for wireless access to all primary corporate
applications, including CRM and ERP. With the addition of the Open Application
Connector, Infowave offers a broad ranging enterprise solution enabling access
to an array of corporate data including: messaging, Intranet/Web and client
server/legacy applications.
Symmetry Pro
In January of 2002, Infowave released Symmetry Pro, a wireless software service
for individual Palm and PocketPC powered device users. Symmetry Pro enables
users to wirelessly access Microsoft(R) Exchange(R) corporate email, contacts,
attachments and calendar information. The service can be purchased and activated
by the end-user, generally without the assistance of his or her enterprise's
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information technology department. It requires installation of Infowave's
software on both of the client desktop and mobile device, as well as
subscription to the Infowave Symmetry Pro service. Symmetry Pro is marketed
directly by Infowave, through value added resellers and through global network
operators under branded offerings.
The Symmetry Pro service redirects email and other personal information
management ("PIM") information from the user's desktop computer to a Symmetry
Pro gateway (server) managed by Infowave or other secure third-party providers.
The gateway manages the flow of information between the user's mobile device and
desktop. Unlike Infowave's traditional software revenue model, Symmetry Pro is
sold as a service billed either as an annual subscription or as a monthly
recurring service charge for each user. Revenues from Symmetry Pro are
recognized in straight-line amortization over the period of the service
contract. The client component of Symmetry Pro is distributed through various
VAR's, and can be downloaded for a free 14 days trial directly from the
Company's website at www.symmetrypro.com.
Infowave Mobile Messaging - Enterprise Edition
In September of 2002, Infowave launched Infowave Mobile Messaging Enterprise
Edition as a server based wireless software solution that enables organizations
with ten or more mobile employees to instantly access their Microsoft Exchange
corporate e-mail and calendar anywhere, using any PocketPC or Palm device.
Infowave Mobile Messaging redirects email and other PIM information from the
user's desktop computer to an Infowave Gateway or other secure third-party
providers. The gateway manages the flow of information between the user's mobile
device and desktop. The software is easy to install and is developed with both
the mobile users and the IT manager in mind.
Key Features and Benefits for the Mobile Organization -
o Instant and intuitive access to email - users get up and running with
no training required.
o Supports e-mail attachments - users are more responsive while away
from their desk
o Wireless propagation of message state - message states are changed on
the Exchange server
o User profile management - filter messages, meeting requests, and
message truncation
o Highly secure - uses the latest in security technology including
end-to-end AES cryptography
o Ease of installation and maintenance - automated installation and
simple administration
o Scalability from workgroups to large companies - supports thousands of
users & multiple servers
o Supports a broad range of devices & networks - removes the guesswork
from IT managers
The product is sold as a package of software licenses, along with technical
support and an annual service fee that will activate the product for one year
from purchase. Infowave Mobile Messaging Enterprise Edition is marketed directly
by Infowave, through value added resellers, and through global network operators
under branded offerings. The product can be downloaded for a free 14 days trial
directly from the Company's website at www.infowave.com
Infowave Mobile Messaging - Workgroup Edition
In November of 2002, Infowave released another complementary wireless software
solution for organizations with fewer than ten mobile employees. The Workgroup
Edition offers the same broad range of features as the Enterprise Edition, with
the added IT simplicity for workgroups.
The Workgroup Edition installs as a service on a single desktop and does not
require any installation, administration or maintenance assistance from IT
resources. This allows small and medium sized business or a single department to
independently adopt a wireless email and solution.
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The product is sold as an initial package of software licenses, along with
technical support and an annual service fee that will activate the product for
one year from purchase. Infowave Mobile Messaging Workgroup Edition is marketed
directly by Infowave, through value added resellers, and through global network
operators under branded offerings. The product can also be downloaded for a free
14 days trial directly from the Company's website at www.infowave.com
Infowave Mobile Operator Solution Suite
In October of 2002, the Company announced the launch of the Infowave Mobile
Operation Solution Suite that establishes a services platform for network
operators to offer wireless data solutions directly for their own corporate
customers on a variety of handheld devices. Starting with wireless e-mail and
calendar for Microsoft(R) Exchange(R), network operators can provide a turnkey
messaging application as part of their portfolio of wireless data services.
Available as either an Infowave-hosted model or deployed in the network
operator's own data centre, the Gateway solution can be installed quickly to
support a network operator's marketing initiatives. Infowave offers a
comprehensive "Go-to-Market" solution with its Symmetry Pro, Mobile Messaging
Enterprise & Workgroup Edition branded offerings that will appeal to virtually
every segment of the business market.
The Gateway is marketed and sold directly by Infowave to network operators as a
complete solution suite to offer compelling products to its customers and
generate additional revenues. Network operators can acquire the Gateway in a
variety of flexible configurations including hosted and non-hosted models, and
shared value-added services revenue.
Product Summary
- ------------------------------------------------------------------------------------------------------------------------
Infowave Product Target Market Requirements / Features
- ------------------------------------------------------------------------------------------------------------------------
Symmetry Pro Individual Professional User Installs easily on user's desktop. Utilizes
secure AES encryption technology
- ------------------------------------------------------------------------------------------------------------------------
Mobile Messaging Companies with more than ten users Installs on the server with simple
Enterprise Edition administration, AES security encryption
- ------------------------------------------------------------------------------------------------------------------------
Mobile Messaging Companies with fewer than 10 users Installs on a single desktop within the
Workgroup Edition workgroup, no IT resources required
- ------------------------------------------------------------------------------------------------------------------------
Wireless Business Engine Large Corporations with a complete Installs with the server environment behind
wireless enterprise strategy. Fast, the corporate firewall. High security with
secure, reliable wireless access to MS Certicom 163-bit ECC algorithm & DESX
Exchange, Lotus Notes, and other encryption. Efficient data compression
corporate applications such as CRM and optimization and connection fault tolerance.
SFA tools.
- ------------------------------------------------------------------------------------------------------------------------
Mobile Operator Network Mobile Operators wanting to Hosted and non-hosted data gateway
Solution Suite increase revenues by offering configurations available. Rapid go-to-market
value-added wireless data services
for strategy with a full range of secure,
Infowave their customers, drive adoption
of new branded products. integrated
devices and increase mobile data activations.
- ------------------------------------------------------------------------------------------------------------------------
Distribution Channels
Resellers
Infowave entered into a worldwide reseller agreement with Compaq (now HP) in
April 2000. HP professional services organization has 65,000 highly skilled
professionals in over 200 countries that can bring Infowave's products into
their vast installed base of accounts. Infowave's relationship with HP
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brings a global installation, integration and support infrastructure with the
Company having direct access to over 1,600 HP resellers. In March 2002, the
Company entered into the HP Strategic Alliance and Sales Agreement that builds
on previous sales, marketing and services agreements established between HP and
Infowave over the past two years. Under the terms of this agreement, HP and
Infowave will collaborate on a comprehensive marketing and communication program
and a sales engagement strategy designed to generate demand for software and
services. In addition to specific initiatives already underway, such as HP's
recent Wireless Enterprise Framework announcement, HP has agreed to make
commercially reasonable efforts to include certain Infowave software solutions
and documentation with certain HP product and service offerings.
The HP Strategic Alliance and Sales Agreement also contains various other terms
intended to expand and strengthen the relationship between the two companies.
Infowave and HP have agreed to participate in certain co-development projects
for new technology solutions with Infowave providing HP with a volume pricing
incentive. Infowave will showcase HP products and services at promotional events
and will provide HP with the opportunity to deliver presentations at these
events. Infowave and HP will explore methods of developing additional
partnerships between their respective existing strategic relationships.
Any future revenue from HP will depend upon HP's success in reselling the
Company's products through its various sales channels and upon HP continuing to
resell such products. There can be no assurance, however, that this relationship
with HP will prove successful or will generate material revenues for the
Company. See "Risk Factors - Reliance on HP."
Infowave has developed an Authorized Partner Program for regional or specialty
channel partners. This standardized program is designed to allow the Company to
scale its relationships with many reseller partners and drive further revenue
opportunities and market penetration. Infowave resellers include Handango,
Rogers AT&T and MobilePlanet in North America and Airlan Data, Data Link and
Getronics NV in Europe. Any future revenue from these resellers will depend upon
their success in reselling the Company's products through their various sales
channels and upon these resellers continuing to resell such products. See "Risk
Factors - Reliance on Key Third-Party Relationships."
The Germany sales office was re-organized in July 2002 to form an independent
master value-added reseller ("MVAR") who is paid commissions for sales brought
in for the geographic region. There can be no assurance, however, that this new
relationship will prove successful or will generate material revenues for the
Company.
OEM and Embedded Partners
Infowave is working to establish Original Equipment Manufacturers ("OEM") and
bundling agreements with hardware manufacturers (device, server, infrastructure)
and enterprise software vendors (such as CRM, ERP, etc.). The intent is for
Infowave products and technology to be embedded for distribution and
installation with partner products.
Marketing Alliances
Infowave has entered into a select number of marketing alliances with carriers,
hardware companies, and other software companies. Marketing alliance partners do
not resell the Company's products, but rather engage in joint marketing
initiatives such as customer referrals, events, and direct mail activities that
create sales leads for Infowave. Infowave is engaged in marketing activities
with companies such as Microsoft, HP, T-Mobile, AT&T Wireless (US), Rogers AT&T
and Telus.
Competition
The emerging wireless marketplace is presenting a variety of choices in wireless
products that are required to satisfy the diverse needs of enterprises and their
different classes of mobile workers. Infowave has attempted to differentiate
itself by offering intelligent support for multiple devices, platforms,
networks, applications, and services with centralized management. Infowave
believes this approach will
9
allow enterprise customers to optimize choice while leveraging their existing
investments in hardware, software and training. Furthermore, Infowave has
attempted to provide enterprise-grade security and optimization along with
real-time access to both corporate applications and the Internet.
Proprietary Protection
Infowave's software solutions are protected by certain intellectual property
rights and by a combination of copyright, trademark and trade secret laws,
non-disclosure agreements and other contractual provisions to establish and
maintain its rights. Infowave has also applied for several patents in the United
States, which are currently in process. As part of its confidentiality
procedures, the Company generally enters into a non-disclosure and
confidentiality agreement with all its employees and each of its consultants and
specifically with any third-party that would have access to the source code for
the Company's software products. As well, the Company strictly limits access to
and distribution of its software in executable code form.
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Symmetry", "Wireless Business Engine", "Infowave Wireless Enabler", the "I
Design" design mark and the Circle within a Circle design. Infowave has Canadian
and U.S. copyrights for "Infowave for Exchange", "Infowave for the Net" and
"Symmetry".
However, there can be no assurance that the measures taken by the Company to
protect its intellectual property rights will adequately protect those rights.
See "Legal Matters".
Although Infowave believes it has the right to use all of the intellectual
property incorporated in its products, third parties may claim that the
Company's products violate their proprietary rights, including copyrights and
patents. If any such claims are made and found to be valid, the Company may have
to re-engineer its products or obtain licenses from third parties to continue
offering its products. Any efforts to re-engineer its products or obtain
licenses from third parties may not be successful and could substantially
increase the Company's costs and have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Risk Factors
- - Intellectual Property Protection" and "Legal Matters".
Staff Headcount
As at December 31, 2002, the Company had a total of 41 full time staff with
approximately fifty percent engaged in research and development activities. The
Company's research and development employees are primarily software developers,
many with extensive experience in the wireless area. The Company currently
believes that there are sufficient available resources in the labour marketplace
to meet its short-term needs.
Risk Factors
In addition to the other information contained in this Annual Report, readers
should carefully consider the following risk factors that may have a material
adverse effect on the Company's business, financial condition or results of
operation.
History of Losses
The Company is not currently profitable and incurred operating losses from
continuing operations (which excludes the discontinued operations of the Imaging
Division) calculated in accordance with Canadian Generally Accepted Accounting
Principles of $9,763,740, $19,413,246 and $16,969,282 for the years ended
December 31, 2002, 2001 and 2000 respectively. The Company anticipates that its
expenses may increase as the Company continues to increase its research and
development, sales and marketing and
10
general and administrative expenses. The Company cannot predict if it will ever
achieve profitability, and if it does, it may not be able to sustain or increase
profitability. The auditor's report on the Company's 2002 consolidated financial
statements, comments which states that the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustment that might result from the outcome of that uncertainty.
Wireless Industry Growth
There can be no assurance that the market for the Company's existing or proposed
wireless software products will grow, that firms within the industry will adopt
the Company's software products for integration with their wireless data
communications solutions, or that the Company will be successful in
independently establishing product markets for its wireless software products.
If the various markets in which the Company's software products compete fail to
grow, or grow more slowly than the Company currently anticipates, or if the
Company were unable to establish product markets for its new software products,
the Company's business, results of operation and financial condition would be
materially adversely affected.
Reliance on New Technologies
The wireless data communications market is characterized by rapidly changing
technology and evolving industry standards. Therefore, it is difficult to
predict the rate at which the market for the Company's wireless software
products will grow, if at all. If the market fails to grow, or grows more slowly
than anticipated, the Company will be materially adversely affected. Even if the
market does grow, there can be no assurance that the Company's products will
achieve commercial success. The Company may find itself competing in the market
for wireless mobile computing software against other companies with
significantly greater financial, marketing and other resources. Such competitors
may be able to institute and sustain price wars, or imitate the features of the
Company's wireless mobile computing software, thereby reducing prices and thus,
the Company's revenues and share of the market.
In addition, the Company's competitors may develop alternative technologies that
gain broader market acceptance than the Company's software solutions. As a
result, the life cycle of the Company's software solutions is difficult to
estimate. The Company may need to develop and introduce new products and
enhancements to its existing solutions on a timely basis to keep pace with
technological developments, evolving industry standards, changing customer
requirements and competitive technologies that may render its solution obsolete.
These research and development efforts may require the Company to expend
significant capital and other resources. In addition, as a result of the
complexities inherent in the Company's solutions, major enhancements or
improvements will require long development and testing periods. If the Company
fails to develop products and services in a timely fashion, or if it does not
enhance its products to meet evolving customer needs and industry standards,
including security technology, it may not remain competitive or it may sell its
solutions.
Product Improvements
The Company will be at risk if it is unable to continually upgrade and improve
its software products, or to develop new software products. The software
industry is characterized by a constant flow of new or improved products, which
quickly render existing software products obsolete. The Company's competitors
may develop technically superior and/or comparable products at the same or lower
priced software that would have a materially adverse effect on the Company.
Additional Financing
The Company may not have sufficient capital to fund its own operations without
raising additional capital, and/or implementing additional reductions in
expenses. Further reductions in expenses may negatively
11
impact the Company's ability to grow the business. No assurance can be given
that any additional financing required would be available, or that additional
financing will be available on terms that may be advantageous to existing
shareholders. Such financing, to the extent that it is available may result in
substantial dilution to shareholders. To the extent such financing is not
available, the Company may not be able to, or may be delayed in, continuing to
commercialize its software products and services.
Reliance on Microsoft
Some of the Company's wireless software products wirelessly enable the
functionality of Microsoft Exchange. Microsoft may make changes to its products
that would require Infowave to similarly make changes to its software to
maintain functionality. The Company is aware that Microsoft has developed its
own wireless functionality for Microsoft Exchange. There is no assurance that
the Company can maintain any required upgrades to its software to remain
relevant and competitive.
The Company announced in January 2003, that it will collaborate with Microsoft
to develop and market solutions for mobile network operators based on the
Windows Powered Microsoft mobile device platforms. There is no assurance that
this collaboration will be successful, or that material revenues will be
generated from the relationship.
Reliance on HP
The Company entered into a Strategic Alliance and Sales Agreement and a
Worldwide Reseller Agreement with HP on March 8, 2002. Under these agreements,
the Company's software is sold both as a stand-alone product and bundled with
HP's Proliant Servers, and iPAQnet Mobile Intranet and iPAQnet Mobile Email
Pocket PC. There is no assurance, however, that this relationship with HP will
prove to be successful or result in material revenues for the Company.
Management of Growth
The Company has had a history of expanding rapidly. This growth, as well as any
future growth, has placed a significant strain on the Company's resources. The
Company's ability to achieve and maintain profitability, if at all, will depend
on its ability to manage growth effectively, to implement and expand operational
and customer support systems, and to hire additional personnel. The Company may
not be able to augment or improve existing systems and controls or implement new
systems and controls to respond to any future growth. In addition, future growth
may result in increased responsibilities for management personnel, which may
limit their ability to effectively manage the Company's business.
Reliance on Key Personnel and Consultants
The Company is currently dependent upon its senior management, board of
directors and consultants, the loss of any of which may significantly affect the
performance of the Company and its ability to carry out the successful
development and commercialization of its software products and services. Failure
to retain management, directors and consultants or to attract and retain
additional key employees with necessary skills could have a material adverse
impact upon the Company's growth and profitability. The Company may be required
to recruit additional software development personnel, and expand its sales force
and customer support functions as well as train, motivate and manage its
employees. The Company's ability to assimilate new personnel will be critical to
its performance. Competition for qualified software development personnel and
other professionals is expected to increase. There can be no assurance that the
Company will be able to recruit the personnel required to execute its programs
or to manage these changes successfully.
12
Reliance on Key Third-Party Relationships
The Company relies on key third-party relationships, including its relationships
with resellers and OEMs, for marketing and sales of its software products. These
third parties are not within the control of the Company, may not be obligated to
purchase software products from the Company and may also represent and sell
competing software products. The loss of any of these third-party relationships,
the failure of such parties to perform under agreements with the Company or the
inability of the Company to attract and retain new resellers or OEMs with the
technical, industry and application experience required to market and sell the
Company's software products successfully could have a material adverse effect on
the Company.
Competition
A number of competitors have substantially greater financial, technical and
marketing resources than the Company. In addition, the market for wireless
mobile computing software products continues to develop, and additional
competitors with substantially greater financial, technical and marketing
resources than the Company may enter the market and competition may intensify.
Current or future competitors may develop software products that are superior to
the Company's software products or achieve greater market acceptance.
Product Defects
The Company's complex software products may contain undetected errors or defects
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new software products after commencement of
commercial shipments resulting in product recalls and market rejection of the
Company's software products and resulting in damage to the Company's reputation,
as well as lost revenue, diverted development resources and increased support
costs.
Intellectual Property Protection
The Company considers its software products and trademarks to be of value and
important to its business. The Company relies principally upon a combination of
copyright, trademark and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain its rights. The Company has
several patent applications pending. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or obtain and
use information that the Company regards as proprietary. There can be no
assurance that the steps taken by the Company to protect its proprietary
information will prevent misappropriation of such information. The cost of
litigation necessary to enforce the Company's proprietary rights may be
prohibitive. Such steps may not preclude competitors from developing confusingly
similar brand names or promotional materials or developing software products and
services similar to those of the Company.
Although the Company believes that it has the right to use all of the
intellectual property incorporated in its software products, third parties may
claim that the Company's software products violate their proprietary rights,
including copyrights and patents. If any such claims are made and found to be
valid, the Company may have to reengineer its software products or obtain
licenses from third parties to continue offering its software products. Any
efforts to re-engineer its' software products or obtain licenses from third
parties may not be successful and could substantially increase the Company's
costs and have a material adverse effect on the business, financial condition
and results of operations of the Company.
Foreign Exchange Rate Exposure
The majority of the Company's revenue is denominated in U.S. dollars. The
Company does not engage in currency hedging activities to limit the risks of
exchange rate fluctuations. As a result, changes in the
13
relative value of the U.S. dollar to the Canadian dollar and other foreign
currencies will affect the Company's revenues and operating margins. The impact
of future exchange rate fluctuations between the U.S. dollar and the Canadian
dollar or other foreign currencies on revenues and operating margins cannot be
accurately predicted and could have a material adverse effect on the Company.
Enforcement of Civil Liabilities
The Company is a corporation incorporated under the laws of British Columbia,
Canada. A number of the Company's directors and professional advisors are
residing in Canada or outside of the U.S. All or a substantial portion of the
assets of such persons are or may be located outside of the U.S. It may be
difficult to effect service of process within the United States upon the Company
or upon such directors or professional advisors or to realize in the U.S. upon
judgments of U.S. courts predicated upon civil liability of the Company or such
persons under U.S. federal securities laws. The Company has been advised that
there is doubt as to whether Canadian courts would (i) enforce judgments of U.S.
courts obtained against the Company or such directors or professional advisors
predicated solely upon the civil liabilities provisions of U.S. federal
securities laws, or (ii) impose liability in original actions against the
Company or such directors and professional advisors predicated solely upon such
U.S. laws. However, a judgment against the Company predicated solely upon civil
liabilities provisions of such U.S. federal securities laws may be enforceable
in Canada if the U.S. court in which such judgment was obtained has a basis for
jurisdiction in that matter that would be recognized by a Canadian court.
Potential Fluctuations in Quarterly Financial Results
The Company's financial results vary from quarter to quarter based on factors
such as the timing of significant orders and contract completions and the timing
of new product introductions. Any significant fluctuation in revenue could
materially adversely affect the Company.
Change in Sales Strategy and Reliance on a Small Number of Customers
A significant proportion of the Company's revenues are from a small number of
customers with large orders. For 2002, revenue from three customers represented
approximately 63% of revenues. During 2001, four customers accounted for
approximately 61% of revenues. The Company has focused on larger Fortune 500
opportunities that have the potential for significant sales. Visibility for the
timing of closing such deals is difficult, and the Company may experience swings
in revenue, as single large opportunities can materially affect the revenue
results of any quarter, and it is difficult to accurately predict revenue timing
with these opportunities.
Introduction of New Products and Sales Mixture
Infowave launched a series of new products during the year to broaden and appeal
to virtually every segment of the business market: Symmetry Pro, Symmetry Pro
Enterprise, Symmetry Pro Workgroup and Symmetry Mobile Application Gateway. It
is too early at this time to determine how the market will accept the products
or whether a significant amount of revenue will be generated from these
products.
Certain Shareholders May Exercise Control Over Matters Voting Upon by the
Shareholders
Certain of the Company's officers, directors and entities affiliated with the
Company together beneficially owned a significant portion of the Company's
outstanding common shares as of December 31, 2002. While these shareholders do
not hold a majority of the Company's outstanding common shares, they may be able
to exercise significant influence over matters requiring shareholder approval,
including the election of directors and the approval of mergers, consolidations
and sales of the Company's assets. This may prevent or discourage tender offers
for the Company's common shares.
14
Possible Market Volatility
The market price for the Common Shares may be subject to significant volatility.
Quarterly operating results of the Company or of other companies involved in the
wireless industry specifically or technology industries generally, changes in
general conditions in the North American economy, the financial markets in North
America, failure to meet the projections of securities analysts or other
developments affecting the Company or its competitors could cause the market
price of the Common Shares to fluctuate substantially. In addition, in recent
years, the stock market has experienced extreme price and volume fluctuations.
This volatility has had a significant effect on the market prices of securities
of many companies for reasons unrelated to their operating performance.
Affects of Restructuring Activities
Beginning in the prior fiscal year and continuing into the past fiscal year, the
Company reduced its workforce from approximately 122 to 41 employees. There have
been and may continue to be substantial costs associated with this workforce
reduction related to severance and other employee-related costs and the
Company's restructuring plan may yield unanticipated consequences, such as
attrition beyond its planned reduction in workforce. This workforce reduction
has placed an increased burden on the Company's administrative, operational and
financial resources and has resulted in increased responsibilities for each of
its management personnel. As a result, the Company's ability to respond to
unexpected challenges may be impaired and it may be unable to take advantage of
new opportunities.
In addition, many of the employees who were terminated possessed specific
knowledge or expertise, and that knowledge or expertise may prove to have been
important to the Company's operations. In that case, their absence may create
significant difficulties. Further, the reduction in workforce may reduce
employee morale and may create concern among potential and existing employees
about job security at the Company, which may lead to difficulty in hiring and
increased turnover in its current workforce, and divert management's attention.
In addition, this headcount reduction may subject the Company to the risk of
litigation, which could result in substantial costs to it and could divert
management's time and attention away from business operations. Any failure by
the Company to properly manage this rapid change in workforce could impair its
ability to efficiently manage its business to maintain and develop important
relationships with third-parties and to attract and retain customers. It could
also cause the Company to incur higher operating costs and delays in the
execution of its business plan or in the reporting or tracking of its financial
results.
Item 2: Properties
The Company owns no real property. Pursuant to a lease agreement entered into on
July 1, 2002 which expires June 30, 2008, the Company currently leases 12,416
square feet of office space in Burnaby, British Columbia, which the Company uses
as its corporate, administrative, and research and development offices.
Pursuant to a lease agreement that expires March 31, 2005, the Company leases
7,329 square feet of office space in Bothell, Washington, the former sales and
marketing office of the Company, which the Company currently sublets to a third
party.
Item 3: Legal Proceedings
The Company received a letter dated September 17, 2001 from Glenayre
Electronics, Inc. ("Glenayre") informing the Company that Glenayre requires
indemnity under certain agreements Infowave has with Glenayre. A statement of
claim was received on June 24, 2002 from Glenayre seeking payment of legal and
other expenses for approximately $658,000 in connection with a previous settled
lawsuit between Glenayre and another unrelated third party. The Company does not
believe there was any infringement of intellectual property rights of any third
party. The dispute was settled on October 30, 2002, where
15
Infowave agreed to pay Glenayre $130,000 in cash plus warrants to purchase up to
20,000 Infowave common shares, exercisable at a price of CDN $0.22 per common
share for two years from the date of issue, and Glenayre has agreed to consent
to the dismissal of its claim.
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 2002.
PART II
Item 5: Market for Registrants Common Equity and Related Stockholder Matters
Common Shares
The Common Shares of the Company are currently traded on the TSX (formerly The
Toronto Stock Exchange) (the "TSX") under the symbol "IW". The Common Shares
were listed on the TSX on October 14, 1999. Prior to listing on the TSX, the
Common Shares were listed on the Vancouver Stock Exchange (the "VSE") on October
14, 1997 and were de-listed from the VSE on November 26, 1999. The Common Shares
do not currently trade on any exchange in the United States. The following table
sets forth the high and low closing sale prices, as reported by the TSX, of the
Common Shares for the calendar quarters indicated.
Price Range Of Common Shares
High Low
(CDN$) (CDN$)
------ ------
2001
----
Q1: Jan - Mar 7.90 2.40
Q2: Apr - Jun 4.35 2.05
Q3: Jul - Sep 2.60 0.36
Q4: Oct - Dec 1.86 0.38
2002
----
Q1: Jan - Mar 1.99 0.45
Q2: Apr - Jun 0.60 0.17
Q3: Jul - Sep 0.22 0.12
Q4: Oct - Dec 0.50 0.10
As of March 26, 2003, there were 66,659,578 Common Shares issued and
outstanding. At such date, there were approximately 141 shareholders of record,
but this number includes those shares held in street or nominee names.
Dividends
The Company has not paid any dividends to date and it does not foresee the
declaration or payment of any dividends on the Common Shares in the near future.
Any decision to pay dividends on the Common Shares will be made by the board of
directors on the basis of the Company's earnings, financial requirements and
other conditions existing at such future time.
Equity Compensation Plan
The following table provides information about the Company's common stock that
me be issued upon the exercise of options and rights under all of the Company's
existing equity compensation plans as of December 31, 2002.
16
- ---------------------------------------------------------------------------------------------------------------------
Number of securities Number of securities
to be issued upon Weighted-average remaining available for
exercise of exercise price of future issuance under
Plan Category outstanding options, outstanding options, equity compensation
warrants and rights warrants and rights plans (excluding
warrants and rights warrants and rights securities reflected
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation plans 5,255,183 $1.78 3,022,531
approved by security holders
- ---------------------------------------------------------------------------------------------------------------------
Equity compensation plans not - nil - - nil - - nil -
approved by security holders
- ---------------------------------------------------------------------------------------------------------------------
Total 5,255,183 $1.78 3,022,531
- ---------------------------------------------------------------------------------------------------------------------
Private Placement
On December 9, 2002, the Company issued of 8,500,000 units (the "Units") at a
price of $0.13 (Cdn $0.20) per Unit for gross proceeds of $1,078,065 (Cdn
$1,700,000) to persons outside the United States. Each Unit consisted of one
common share and one half of one common share purchase warrant of the Company.
Each whole warrant entitles the holder to acquire one common share for a period
of two years from the closing date at a price of $0.15 (Cdn $0.24) per common
share. The common shares and warrants comprising the Units are subject to a
four-month hold period. The agent for the offering was paid a cash commission
equal to 7.5% of the gross proceeds from the offering and 850,000 agent's
warrants (the "Agent's Warrants"). Each Agent's Warrant entitles the agent to
acquire one common share for a period of two years from the closing at a price
of $0.15 (Cdn $0.24) per common share. In addition, Infowave issued 185,000
Units to the agent as a corporate finance fee in connection with the offering.
As of December 31, 2002, none of the share purchase warrants or Agents' warrants
had been exercised. These securities were issued in reliance upon the exclusion
from registration available under Regulation 5 of the Securities Act of 1933, as
amended.
Convertible Loan/Credit Facility
The Company has entered into a convertible loan agreement dated March 8, 2002
with HP (the "HP Loan Agreement"). Under the terms of the HP Loan Agreement, HP
has made available to the Company a revolving loan (the "HP Loan") of up to $2
million expiring on March 8, 2005. The principal amount outstanding from time to
time under the HP Loan bears interest at the Canadian prime rate plus 3.25% and
may be converted into Common Shares at a price of $1.00 per share, subject to
adjustment in certain circumstances. The HP Loan is secured by substantially all
of the Company's assets, excluding intellectual property. The Company has also
granted HP a non-exclusive licence to certain aspects of the Company's
intellectual property in order to ensure that the Company fulfils its
obligations under the HP Strategic Alliance and Sales Agreement and other
agreements with HP. The Company may terminate the HP Loan Agreement at any time
provided that no amounts are outstanding or payable under the HP Loan. As at the
date of filing, the Company has not borrowed any amount under the HP Loan.
Under the terms of the HP Loan Agreement, the Company may borrow amounts from
time to time provided that certain working capital conditions are met. Until
December 31, 2002, the Company may draw down amounts not to exceed 150% of the
total amount of the Company's cash, cash equivalents and net accounts receivable
from HP. During the remainder of the term of the HP Loan, the Company may draw
down amounts not to exceed the Company's working capital (as defined in the HP
Loan Agreement) from time to time.
17
So long as the HP Loan Agreement remains in effect or the HP Strategic Alliance
and Sales Agreement remains in effect, the Company shall permit HP to have an
observer attend each meeting of the Board of Directors of the Company. In
addition, so long as the HP Loan Agreement remains in effect or the HP Strategic
Alliance and Sales Agreement remains in effect, the Company shall not: (i) issue
any equity or debt security to, or incur any other indebtedness to, any of Dell,
Hewlett Packard, IBM, Sun, Palm or Handspring (each, a "Specified Person"); (ii)
issue or invest in any equity or debt security to form, create or participate in
any partnership, joint venture or other corporate business enterprise with any
Specified Person; (iii) allow any director, officer, employee, agent or other
representative of any Specified Person to attend meetings of the Company's Board
of Directors or any committee thereof or any advisory committee as a
non-director representative; and (iv) vote or cause to be voted any of its
securities having the power to vote in the election of directors in favour of
the election of any director, officer, employee, agent or other representative
of a Specified Person to the Company's Board of Directors.
Exchange Controls
Canada has no system of exchange controls. There are no exchange restrictions on
borrowing from foreign countries or on the remittance of dividends, interest,
royalties and similar payments, management fees, loan repayments, settlement of
trade debts, or the repatriation of capital. However, any dividends remitted to
U.S. Holders, as defined below, will be subject to withholding tax. See the
heading "Taxation" below.
Taxation
Canadian Federal Income Tax Considerations
The following summarizes certain Canadian federal income tax considerations
generally applicable to the holding and disposition of Common Shares by a holder
(a) who, for the purposes of the Income Tax Act (Canada) (the "Tax Act"), is not
resident in Canada, deals at arm's length with the Company, is not affiliated
with the Company, holds the Common Shares as capital property, is not a
"financial institution" and does not use or hold the Common Shares in the course
of carrying on, or otherwise in connection with, a business in Canada, and (b)
who, for the purposes of the Canada-United States Income Tax Convention (the
"Treaty"), is a resident of the United States, has never been a resident of
Canada, and has not held or used (and does not hold or use) Common Shares in
connection with a permanent establishment or fixed base in Canada. Each such
holder who meets all such criteria in clauses (a) and (b) is referred to herein
as a "U.S. Holder." Except as otherwise expressly provided, the summary does not
deal with special situations, such as particular circumstances of traders or
dealers, limited liability companies, tax-exempt entities, insurers, financial
institutions (including those to which the mark-to-market provisions of the Tax
Act apply), or otherwise.
This summary is based on the current provisions of the Tax Act and the
regulations there under, all proposed amendments to the Tax Act and regulations
publicly announced by the Minister of Finance (Canada) to the date hereof, the
current provisions of the Treaty and the current administrative practices of the
Canada Customs and Revenue Agency, formerly known as Revenue Canada. It has been
assumed that all currently proposed amendments will be enacted as proposed and
that there will be no other relevant change in any governing law, the Treaty or
administrative policy, although no assurance can be given in these respects.
This summary does not take into account provincial, U.S. or other foreign income
tax considerations, which may differ significantly from those discussed herein.
This summary is not exhaustive of all possible Canadian income tax consequences.
It is not intended as legal or tax advice to any particular holder and should
not be so construed. The tax consequences to any particular holder will vary
according to the status of that holder as an individual, trust, corporation or
member of a partnership, the jurisdictions in which that holder is subject to
taxation and, generally, according to that holder's particular circumstances.
Each holder should consult the holder's own tax advisors with respect to the
income tax consequences applicable to the holder's own particular circumstances.
18
Dividends
Dividends deemed both paid or credited to U.S. Holder by the Company are subject
to Canadian withholding tax. Under the Treaty, the rate of withholding tax on
dividends paid or credited to a U.S. Holder is generally limited to 15% of the
gross dividend (or 5% in the case of corporate shareholders owning at least 10%
of our voting shares).
Disposition
A U.S. Holder is not subject to tax under the Tax Act in respect of a capital
gain realized on the disposition of a Common Share in the open market unless the
share is "taxable Canadian property" to the holder thereof and the U.S. Holder
is not entitled to relief under the Treaty.
A Common Share will be taxable Canadian property to a U.S. Holder if, at any
time during the 5 year period ending at the time of disposition, the U.S. Holder
or persons with whom the U.S. Holder did not deal at arm's length (or the U.S.
Holder together with such persons) owned, or had options, warrants or other
rights to acquire, 25% or more of our issued shares of any class or series. In
the case of a U.S. Holder to whom Common Shares represent taxable Canadian
property, no tax under the Tax Act will be payable on a capital gain realized on
a disposition of such shares in the open market by reason of the Treaty unless
the value of such shares is derived principally from real property situated in
Canada. The Company believes that the value of our Common Shares is not derived
principally from real property situated in Canada, and that no tax will
therefore be payable under the Tax Act on a capital gain realized by a U.S.
Holder on a disposition of Common Shares in the open market.
Item 6: Selected Financial Data
Set forth below is certain selected financial information of the Company for
each year in the five-year period ended December 31, 2002. The selected annual
financial information is derived from the Company's audited financial
statements. Annual sales for years 1999 and 1998 relate only to the Wireless
Division and exclude the Imaging Division. The selected financial information
for the eight quarters prior to December 31, 2002 is derived from the unaudited
quarterly financial statements of the Company. The Company's financial
statements are expressed in United States dollars and prepared in accordance
with Canadian Generally Accepted Accounting Principles ("GAAP"), which are not
materially different from United States GAAP except as explained in note 15 of
the financial statements included in "Item 8. Financial Statements and
Supplementary Data." The information below should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" along with the financial statements and notes thereto.
- ----------------------------------------------------------------------------------------------------------------------
Canadian GAAP Years Ended December 31 (audited)
- ----------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------------
Income Statement Data
Sales $ 170,911 $ 355,001 $ 1,513,557 $ 3,189,253 $ 1,821,041
Loss for the year 1,206,266 3,288,251 17,988,868 20,860,436 9,716,065
Loss per share 0.09 0.21 0.90 0.90 0.18
Balance Sheet Data
Total assets 6,687,941 8,054,492 12,445,349 13,657,675 4,158,757
Long term obligations - - - - -
Share capital 6,798,707 12,526,949 35,148,040 42,447,141 56,539,360
Cash dividends declared per - - - - -
Common Share
- ----------------------------------------------------------------------------------------------------------------------
19
- ----------------------------------------------------------------------------------------------------------------------
United States GAAP
- ----------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
- ----------------------------------------------------------------------------------------------------------------------
Income Statement Data
Sales $ 176,509 $ 355,001 $ 1,513,557 $ 3,189,253 $ 1,821,041
Loss for the year 1,440,052 3,344,326 18,198,480 20,986,922 9,716,065
Loss per share 0.12 0.21 0.90 0.79 0.17
Balance Sheet Data
Total assets 6,546,596 8,020,392 12,445,349 13,657,675 4,158,757
Long term obligations - - - - -
Share capital $ 7,416,454 $13,325,591 $36,192,899 $43,618,486 $57,710,705
Cash dividends declared per - - - - -
Common Share
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Canadian GAAP Quarter Ended (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
2001 2001 2001 2001 2002 2002 2002 2002
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
Income Statement
Sales $ 857,764 $ 873,340 $ 923,282 $ 534,867 $ 325,261 $ 517,977 $ 676,415 $ 301,388
Loss for the period 4,820,124 6,006,086 5,208,856 4,825,370 3,376,025 4,234,514 1,069,608 1,035,918
Loss per share 0.22 0.26 0.22 0.21 0.09 0.07 0.02 0.02
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
United States GAAP Quarter Ended (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
2001 2001 2001 2001 2002 2002 2002 2002
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
- ----------------------------------------------------------------------------------------------------------------------------------
Income Statement
Sales $ 857,764 $ 873,340 $ 923,282 $ 534,867 $ 325,261 $ 517,977 $ 676,415 $ 301,388
Loss for the period 4,943,854 6,006,086 5,208,856 4,828,126 3,376,025 4,234,514 1,069,608 1,035,918
Net loss per share 0.22 0.26 0.22 0.21 0.09 0.07 0.02 0.02
- ----------------------------------------------------------------------------------------------------------------------------------
Item 7: Managements' Discussion and Analysis of Financial
Condition and Results of Operations
Investors should read the following in conjunction with the audited financial
statements and notes thereto included in Item 8 of this Annual Report and the
quarterly and selected financial information included in Item 6.
Corporate Summary
The Company entered into the Compaq (now HP) Strategic Alliance and Sales
Agreement in March 2002. In conjunction with the expanded business relation, HP
agreed to provide Infowave with up to $2 million in the form of a revolving
loan, convertible at HP's option into Common Shares of the Company at $1.00 per
share.
George Reznik joined Infowave as Chief Financial Officer on March 1, 2002. The
economic environment during 2002 was very challenging as evidenced by the
turmoil in the financial markets and the continued sluggishness in the IT
spending environment. In order to preserve capital, the Company restructured its
business during the 2002-Q2 to significantly reduce its cost structure and
increase operational efficiencies.
Thomas Koll was appointed Chairman of the Board on April 24, 2002. At the same
time, a newly named executive management structure was formed in April 2002
called the Office of the President, charged with
20
the day-to-day operations of the Company. The members of this group comprise
George Reznik (CFO), Sal Visca (CTO), and Jim McIntosh (Director).
The Company reduced total headcount and reduced required office space
accordingly. The sales office in Germany was closed and transitioned to become
an independent Master Reseller for the Company. The office in Bellevue,
Washington was closed and the office space in the Burnaby, Canada office was
significantly reduced.
Prior to the restructuring, 2002-Q1 operating expenses net of depreciation &
amortization were $3.2 million. A total restructuring charge of $1,415,380 was
recorded during three months ended June 30, 2002. After the restructuring,
operating expenses net of depreciation & amortization were reduced by 66% to
$1.1 million for 2002-Q4. The Company continues to manage operating costs very
prudently.
In July 2002, Bill Tam was appointed Executive Vice President of Sales and
Marketing, and member of the Office of the President. Mr. Tam leads the
company's sales, business development and marketing initiatives.
While Infowave made progress over the past 2002 fiscal year regarding its new
Network Operator business initiative, expanded product offering and prudent
expense management, revenue declined for the year ended December 31, 2002 over
the prior year.
Management believes there are several events that will increase market growth
and acceptance of wireless solutions in 2003. These includes the commercial
launch of 2.5G and 3.0G networks, and general availability of new integrated
wireless devices such as the Handspring Treo and `smartphone' devices from
several vendors. These new devices and faster networks will provide the end-user
with more service options and functionality than have been previously available.
The Company has launched several new products to appeal to a broader range of
the wireless data market. Despite these trends, management is aware of revenue
risks associated with an emerging market. Revenue targets could be negatively
affected by delays in the deployment of such networks, changes in technologies
and consumer preferences. Management also recognizes that, as the market for
wireless solutions grows, new entrants and competitors will emerge.
Quarter Ended December 31, 2002 Compared to Quarters Ended December 31, 2001 and
September 30, 2002
Revenue for the fourth quarter of 2002 was $301,388, a decrease of 44% from
$534,867 for the same period in 2001, and a decrease of 55% from $676,415 for
the third quarter of 2002. Management believes a largely weaker global economy
continues to restrict general corporate year on year spending on IT initiatives.
Many companies require implementation of pilot project trials prior to making a
significant purchase of wireless technologies. This results in extended sales
cycles and greater uncertainty for timing the closing of deals. Although the
Company was successful in converting a major enterprise customer pilot project
into a large purchase in the previous quarter, there were a smaller number of
conversions during the fourth quarter with many customers extending their trials
of Infowave's software solution.
The Company cannot anticipate when pilots may convert to sales and there is a
limited history to judge the market's acceptance of the newly launched Symmetry
Pro products. Revenues for a given quarter are difficult to estimate and may
swing materially from each period.
Gross margins for the fourth quarter were 87%, compared to 87% in the comparable
period in 2001, and 67% in the third quarter of 2002. Gross margins will
fluctuate depending on the product revenue mix and on the sales of third party
products.
Research and development ("R&D") expenses were $357,036, a 62% decrease from
$933,469 in the fourth quarter of 2001, and a 17% decrease from $430,822 in the
third quarter of 2002. Reductions in R&D expense from the fourth quarter of 2001
to the fourth quarter of 2002 were achieved through headcount and contract
personnel reductions. The Company has focussed R&D efforts on projects that, in
its opinion, had the greatest potential to positively impact revenue in the
short to mid-term.
21
Sales and Marketing ("S&M") expenses were $453,498 a 74% decrease from
$1,749,265, in the fourth quarter of 2001, and a 24% decrease from $597,865 in
the third quarter of 2002. Reductions in S&M expenses were achieved through
headcount reductions as well as significantly reduced expenses related to
marketing, advertising and other public relations activity where the Company did
not believe that, in the short term, such investments would result in a
commensurate increase in revenue.
General & Administration ("G&A") expenses were $321,600, a 70% decrease from
$1,072,797 the fourth quarter of 2001, and a 17% decrease from $386,442 in the
prior quarter. Year to year reduction in G&A expenses were largely attributable
to a reduced number of personnel.
Depreciation and amortization costs totaled $165,609 in the fourth quarter of
2002 compared to $483,152 in the fourth quarter of 2001 and $273,998 in the
third quarter of 2002. The year-over-year trend decrease is attributable to
reduced capital asset acquisitions during 2002.
Interest and other income for the fourth quarter of 2002 was $11,113 compared to
$12,610 in the fourth quarter of 2001 and $13,623 in the third quarter of 2002.
Fluctuations between this quarter and prior quarters are attributable to changes
in cash and short-term investment balances as well as to a decrease in interest
rates offered on short-term investments.
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
Total revenue for the year ended December 31, 2002 was $1,821,041 representing a
decline of 43% from $3,189,253 in 2001. Included with 2001 were amounts for
contract services of approximately $570,000 derived under contract agreement
with Intel, for which no revenues were generated for during 2002.
Three customers accounted for approximately 63% of 2002 revenue, compared with
four customers accounting for 61% of 2001 revenue.
Approximately 55% of the Company's 2002 revenue was from customers in the United
States, 14% from customers in Canada and 31% from customers in Europe. This
compares to 71% from the United States, 26% from Canada and 3% from Europe in
2001. The Company does not currently experience any revenue fluctuations on a
seasonal basis.
Gross margins for the current year were 78%, compared to 87% in 2001.
Total operating expenses (comprised of research and development, sales and
marketing, administration and excludes restructuring and depreciation charges)
for 2002 were $8,377,072 compared to $19,101,409 for 2002. Total operating
expenses excluded restructuring charges incurred in the year of $1,415,380 for
2002 and $1,253,707 for 2001. The Company's expense rate was significantly
higher in the first half of 2002, which was prior to the implementation of a
cost-reduction initiative. At the end of the year, company headcount was 41,
compared to 122 at the end of 2001.
In 2002, the Company charged restructuring costs of $1,415,380 related to the
expense reduction initiative commencing early 2002 as described earlier. This
included employee severance payments to 49 individuals of $354,834, lease
termination costs of $282,793 related to the Bellevue, WA office and write downs
of fixed assets of $777,753.
Research & Development ("R&D") expenses were $2,505,329, a decrease of 54% from
$5,394,684 in 2001. The decrease in total R&D expense is primarily a result of
reductions in R&D expense in the latter half of the year were achieved through
headcount reductions and reductions in the amounts spent on contract personnel,
as the Company focussed R&D efforts on projects that, in its opinion, had the
greatest potential to positively impact revenue in the short to mid-term.
Sales & Marketing ("S&M") expenses were $3,855,068, a 59% decrease from
$9,298,149 in 2001. The decrease in total S&M expense is primarily due to
headcount reductions, reductions in marketing, advertising and other public
relations programs over the latter half of the year.
22
General & Administrative ("G&A") expenses were $2,016,675, a 54% decrease from
$4,408,576 in 2001. Cost savings were achieved from reductions in headcount on a
year-over-year basis.
Depreciation and amortization costs totaled $1,383,675 in 2002 compared to
$1,831,301 in 2001. The year-over-year decrease is attributable to a lack of
capital asset acquisitions during the year.
Interest and other income for 2002 was $47,675 compared to $258,792 in 2001. The
reduction in income is attributable to a decline in cash and short-term
investment balances as well as to a decrease in interest rates offered on
short-term investments.
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
Total revenue for the year ended December 31, 2001 was $3,189,253, an increase
of 111% from $1,513,557 in 2000. In fiscal 2000, approximately 57% of revenue
was derived under an agreement with Intel. This contribution declined throughout
2001 and comprised 18% of full-year revenue. By the fourth quarter of 2001, it
represented 4%. Not including the Intel revenue, the Company's core business
grew by 300%.
In addition to the revenue obtained from Intel, three other customers accounted
for greater than 10% of 2001 revenue. In total, these four customers accounted
for 61% of 2001 revenue. No single customer accounted for greater than 20% of
revenues. This compares to 2000, where sales to Intel represented 57% of
revenue.
71% of the Company's 2001 revenue was from customers in the United States, 26%
from customers in Canada and 3% from customers in Europe. This compares to 96%
from the United States, 4% from Canada and 0% from Europe in 2000. The Company
does not currently experience any revenue fluctuations on a seasonal basis.
Gross margins for the year were 87%, compared to 80% in 2000. During 2001, the
Company reclassified sales commissions as costs of goods sold. Previous year
comparisons are restated to reflect this change. The Company also reduced its
sales commission structure in 2001, resulting in increased margins in 2001
compared to 2000. Management expects that gross margins will fluctuate between
80% and 85%, depending on the revenue mix.
Total operating expenses (comprised of research and development, sales and
marketing and administration) for 2001 were $19,101,409 compared to $17,484,802,
which included a one-time $4 million branding and advertising campaign in 2000.
The Company's expense rate was significantly higher in the first half of 2001,
which was prior to the implementation of a cost-reduction initiative. At
mid-year, company headcount peaked at 192, compared to 122 at the end of 2001
and 147 at the end of 2000. Therefore the Company believes that quarterly
comparisons as described above, are more relevant and can be better relied upon
as a future predictor of expense levels.
R&D expenses were $5,394,684, an increase of 55% from $3,487,624 in 2000. Total
R&D headcount was 55 at December 31, 2001, compared to 67 at December 31, 2000.
The increase in total R&D expense is primarily a result of increased headcount
and associated expenses in the first half of 2001, which peaked at 89 at the end
of the first quarter and was 85 at the end of the second quarter. Reductions in
R&D expense in the latter half of the year were achieved through headcount
reductions and reductions in the amounts spent on contract personnel, as the
Company focussed R&D efforts on projects which, had the greatest potential to
positively impact revenue in the short to mid-term.
S&M expenses were $9,298,149, a 17% decrease from $11,183,483 in 2000. A
one-time marketing and branding campaign of approximately $4 million impacted
expenses in 2000. Excluding this expense, S&M expenses increased approximately
29%. Total S&M headcount was 52 at December 31, 2001, compared to 56 at December
31, 2000. The increase in expenses was attributable to headcount additions in
the first half of 2001, which peaked at 82 at June 30, 2001. Expenses also
increased as a result of expansion into Europe through the opening of offices in
London, England and Munich, Germany. These increased
23
expenditures were partially offset in the latter half of the year through
headcount reductions and reductions in marketing, advertising and other public
relations programs.
G&A expenses were $4,408,576, a 57% increase from $2,813,695 in 2000. Total G&A
headcount was 15 at December 31, 2001, compared to 24 at December 31, 2000. Cost
savings achieved from reductions in headcount on a year-over-year basis was
offset by the addition of a US-based Chief Executive Officer and increased
executive compensation. Salary and other expense for G&A totalled $1.9 million
in 2001 compared to $0.8 million in 2000. G&A expenses also increased as a
result of increased professional fees resulting from various corporate
initiatives, including the filing of several patent applications.
In 2001, the Company charged restructuring costs of $1,253,707 related to the
expense reduction initiative commencing mid-2001 as described earlier. This
included employee severance payments to 57 individuals of $497,442, lease
termination costs of $468,680 related to the Bothell, WA office and write-downs
of unrecoverable leasehold improvements of $287,585, primarily to the Bothell,
WA office.
Depreciation and amortization costs totalled $1,831,301 in 2001 compared to
$700,045 in 2000. The year-over-year increase is attributable to capital asset
acquisitions during the year.
Interest and other income for 2001 was $258,792 compared to $713,365 in 2000.
The reduction in income is attributable to a decline in cash and short-term
investment balances as well as to a decrease in interest rates offered on
short-term investments. The company also charged $1,705,982 of interest and
financing costs during the year, primarily consisting of amortization of the
fair value of warrants granted as compensation for the credit facility as
described in Note 8(d)(iii) to the financial statements and interest costs
associated with the utilization of the credit facility.
Liquidity and Capital Resources
During 2002, the Company raised net funds of $1,031,657 through offerings of its
equity securities, net of issue costs.
The Company used $7,333,750 in operations during 2002, primarily due to the
$9,716,065 loss from continuing operations.
Net cash for investing activities was $133,885, which largely consisted of
nominal capital expenditures during the year.
At December 31, 2002, the Company's cash, cash equivalents and short-term
investments totalled $3,111,543. Included in this total amount is security of
$150,000 held in short term investments to support a lease obligation. Also
included in this total amount is $350,000 being held as allocated funds for
potential severance, as related to previously initiated business restructuring
during the current year. The Company does not engage in any foreign exchange or
other hedging activities, and is not a counter party to any derivative
securities transactions.
At December 31, 2002, the Company held accounts receivable of $394,712 net of
allowances for doubtful accounts of $67,125.
In conjunction with the signing of a Strategic Partnership and Sales Agreement
in March, the Company entered into a convertible loan agreement with HP (as
previously discussed). Under this convertible loan agreement, HP will provide
Infowave with a convertible revolving loan of up to $2 million. The principal
amount outstanding under the loan may be converted into Common Shares at a price
of $1.00 per share, at any time up to March 8, 2005, subject to adjustment in
certain circumstances. Infowave may draw down amounts under the loan at anytime
provided that certain standard working capital conditions are met. The principal
amount outstanding bears interest at the prime rate plus 3.25%. Certain assets
of Infowave, excluding its intellectual property, secure the convertible loan.
Infowave has also granted HP the right to have observers attend meetings of the
Board of Directors.
24
The Company has entered into lease agreements for premises and services. These
leases have been treated as operating leases for accounting purposes. The
approximate annual payment commitments for the next following years are:
$495,155 (2003), $313,211 (2004), $217,568 (2005), $185,687 (2006) and $278,530
(after 2006).
During the year ended December 31, 2002, the Company made operating lease
payments totalling approximately $683,000 (2001 - $829,000; 2000 - $702,000).
The Company may also encounter opportunities for acquisitions, or other business
initiatives that require significant cash commitments, or unanticipated problems
or expenses that could result in a requirement for additional cash. There can be
no assurance that additional financing will be available on terms favourable to
the Company or its shareholders, or on any terms at all. The inability to obtain
such financing would have a material adverse impact on the Company's operations.
To the extent that such financing is available, it may result in substantial
dilution to existing shareholders.
Critical Accounting Policies
Continuing operations
These financial statements have been prepared on a going concern basis
notwithstanding the fact that the Company has experienced operating losses and
negative cash flows from operations during each of the three years ended
December 31, 2002. To date, the Company has financed its continuing operations
through revenue, the issuance of common shares, and from cash flows from its
former Imaging Division. Continued operations of the Company will depend upon
the attainment of profitable operations, which may require the successful
completion of external financing arrangements.
Basis of presentation
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in Canada and include the accounts of
the Company and its wholly owned subsidiary company, Infowave USA Inc., which
was incorporated on July 1, 2000. All material intercompany transactions and
balances have been eliminated on consolidation. Material differences between the
accounting principles used in these financial statements and accounting
principles generally accepted in the United States are disclosed in financial
statements note 15.
Translation of foreign currency
These consolidated financial statements are presented in United States dollars
although the Company uses the Canadian dollar as its functional currency. The
Canadian dollar functional currency financial statements are translated into
U.S. dollars using the current rate method. Under this method, assets and
liabilities are translated at rates of exchange in effect at the balance sheet
date. Revenues and expenses are translated at rates in effect at the time of the
transaction. Any gains or losses from this translation are included in a
separate cumulative translation adjustment account in shareholders' equity on
the balance sheet. Prior to 1999, these financial statements were reported in
Canadian dollars. The change in reporting currency was accounted for by the
translation of convenience method with no retroactive effect.
The financial statements of the Company's integrated foreign subsidiary,
Infowave USA Inc. have been translated into the Canadian dollar functional
currency using the temporal method. Under this method, the financial statements
are translated as follows: monetary assets and liabilities at the rate in effect
on the balance sheet date; non-monetary assets and liabilities at the rate in
effect on the transaction date; and revenues and expenses at the average rate
for the period. Gains and losses on translation are included in results from
operations.
25
Sources of Revenue and Revenue Recognition Policy
Revenues are derived from the sale of licenses and services and maintenance.
License and maintenance revenues are normally generated from licensing our
products to end-users and value added resellers. Service revenues are generated
from consulting services sold to end-users.
License revenues are recognized on delivery of our solutions to the customer
when all of the following conditions have been satisfied (SOP 97-2):
o There is persuasive evidence of an arrangement
o The fee is fixed or determinable and
o The collection of the license fee is probable
Revenues for multiple-element arrangements (which may include software licenses,
maintenance and consulting services) are allocated among the component elements
based upon the relative fair value of each element. The fair value of each
element is determined by the price charged by us when that element is sold
separately.
The Company sells through resellers with arrangements that provide a fee payable
based on a percentage of list prices. The Company recognizes revenue of only the
net fee payable to us from the reseller upon sell-through to the end customer.
The Company generally sells first year maintenance with new sales of software
licenses. Maintenance revenue is recognized over the term of the maintenance
contract that is typically one year.
The Company also recognizes revenue on the percentage of completion basis for
certain software development contracts. The Company estimates the portion of
each contract that has been completed based on time and resources already
utilized and are still required for completion of the work. Unforeseen costs
could arise in the development process that could materially impact our
measurement of overall contract progress and the percentage of the contract
completed, both of which enter into the measurement of revenue to be recognized.
Income Taxes
The consolidated financial statements reflect a full valuation allowance against
the net future income tax assets based on the Company's assessment that it is
not more likely than not to be able to utilize certain deductions before their
expiry. The Company's assessment is based on a judgement of estimated loss
before such deductions. Changes in the timing of the recognition and amount of
revenues and expenses in the future may impact the Company's ability to utilize
these deductions.
Recent accounting pronouncements:
In April 2002, the FASB issued SFAS 145 "Rescission of SFAS 4, 44 and 64,
Amendment of SFAS 13 and Technical Corrections." This standard rescinds SFAS 4,
which required all gains and losses from extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of related income tax
effect. The standard also amends SFAS 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. The adoption
of this standard has had no impact on the Company's financial position, cash
flows or results of operations.
In July 2002, the FASB issued SFAS 146 "Accounting for Costs Associated with
Exit or Disposal Activities." This standard addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs
26
Incurred in a Restructuring)." The principal difference is that SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred versus on the date of an
entity's commitment to an exit plan. SFAS 146 also establishes that fair value
is the objective for initial measurement of the liability. The adoption of this
standard on January 1, 2003, will have a material impact the timing of
recognition of any future restructuring activities in the Company's financial
position, cash flows or results of operations.
In November 2002, the EITF reached a consensus on Issue 00-21,"Multiple Element
Arrangements". This issue addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services and/or rights
to use assets. The guidance can affect the timing of revenue recognition for
such arrangements. The final consensus will be applicable to agreements entered
into after June 15, 2003. The Company does not expect this issue to have a
material impact on its financial position, cash flows or results of operations
as the Company follows SOP 97-2 for recognition of their software sales.
Item 7A: Quantitative and Qualitative Disclosure about Market Risk
Although the Company reports in United States dollars, it conducts most of its
transactions in Canadian dollars and therefore uses the Canadian dollar as its
base currency of measurement. This results in an exposure to foreign currency
gains and losses on the resulting U.S. dollar denominated cash, accounts
receivable, and accounts payable balances. As of December 31, 2002, the Company
has not engaged in any derivative hedging activities on foreign currency
transactions and/or balances. Although foreign currency gains and losses have
not historically been material, fluctuations in exchange rates between the
United States dollar and other foreign currencies and the Canadian dollar could
materially affect the Company's results of operations. To the extent that the
Company implements hedging activities in the future with respect to foreign
currency exchange transactions, there can be no assurance that the Company will
be successful in such hedging activities.
While the Company believes that inflation has not had a material adverse effect
on its results of operations, there can be no assurance that inflation will not
have a material adverse effect on the Company's results of operations in the
future.
Item 8: Financial Statements and Supplementary Data
Financial Statements
(Expressed in United States dollars)
INFOWAVE SOFTWARE, INC.
Years ended December 31, 2002, 2001 and 2000
27
AUDITORS' REPORT TO SHAREHOLDERS
We have audited the consolidated balance sheets of Infowave Software, Inc. as at
December 31, 2002 and 2001 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three-year period ended
December 31, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied, after giving effect to the change in accounting for stock-based
compensation explained in note 2(m) to the financial statements, on a consistent
basis.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
January 17, 2003
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 2(a) to the financial statements. Our report to the shareholders dated
January 17, 2003 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors'
report when these are adequately disclosed in the financial statements.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
January 17, 2003
28
INFOWAVE SOFTWARE, INC.
Consolidated Balance Sheets
(Expressed in United States dollars)
December 31, 2002 and 2001
================================================================================
==============================================================================================================
2002 2001
- --------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,755,929 $ 9,087,730
Short term investments (notes 6(a) and 11(b)) 355,614 352,670
Accounts receivable, net of allowance of $67,125
(2001 - $148,539) 394,712 1,454,681
Inventory (note 4) 951 49,710
Prepaid expenses and deposits 135,402 181,740
- --------------------------------------------------------------------------------------------------------------
3,642,608 11,126,531
Fixed assets (note 5) 490,783 2,531,144
Other assets 25,366 -
- --------------------------------------------------------------------------------------------------------------
$ 4,158,757 $ 13,657,675
- --------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 463,096 $ 1,568,303
Deferred revenue 364,847 281,420
- --------------------------------------------------------------------------------------------------------------
827,943 1,849,723
Shareholders' equity:
Share capital (note 8):
Authorized: 200,000,000 voting common shares without par value
Issued: 66,439,578 (2001 - 23,440,203) common shares 56,539,360 42,447,141
Additional paid in capital 15,941 -
Special warrants, net of issue costs of $1,830,284 (note 8(e)) - 13,004,340
Other equity instruments (note 8(e)(iii)) 1,613,096 1,613,096
Deficit (54,342,142) (44,626,077)
Cumulative translation account (495,441) (630,548)
- --------------------------------------------------------------------------------------------------------------
3,330,814 11,807,952
- --------------------------------------------------------------------------------------------------------------
$ 4,158,757 $ 13,657,675
==============================================================================================================
Continuing operations (note 2(a))
Commitments and contingencies (note 11)
See accompanying notes to consolidated financial statements.
29
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Operations and Deficit
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
=================================================================================================================
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Revenues:
Sales $ 1,821,041 $ 3,189,253 $ 1,513,557
Cost of goods sold 408,654 416,082 297,992
- -----------------------------------------------------------------------------------------------------------------
1,412,387 2,773,171 1,215,565
Expenses:
Research and development 2,505,329 5,394,684 3,487,624
Sales and marketing 3,855,068 9,298,149 11,183,483
Administration 2,016,675 4,408,576 2,813,695
Restructuring (note 10) 1,415,380 1,253,707 -
Depreciation and amortization 1,383,675 1,831,301 700,045
- -----------------------------------------------------------------------------------------------------------------
11,176,127 22,186,417 18,184,847
- -----------------------------------------------------------------------------------------------------------------
Operating loss from continuing operations 9,763,740 19,413,246 16,969,282
Other earnings (expenses):
Interest and other earnings 47,675 258,792 713,365
Interest and financing costs - (1,705,982) -
- -----------------------------------------------------------------------------------------------------------------
Loss from continuing operations 9,716,065 20,860,436 16,255,917
Discontinued operations (note 3):
Loss from operations - - 473,088
Loss on disposal - - 1,259,863
- -----------------------------------------------------------------------------------------------------------------
- - 1,732,951
- -----------------------------------------------------------------------------------------------------------------
Loss for the year 9,716,065 20,860,436 17,988,868
Deficit, beginning of year 44,626,077 23,765,641 5,776,773
- -----------------------------------------------------------------------------------------------------------------
Deficit, end of year $ 54,342,142 $ 44,626,077 $ 23,765,641
- -----------------------------------------------------------------------------------------------------------------
Loss per share:
Continuing operations $ 0.18 $ 0.90 $ 0.81
Discontinued operations - - 0.09
- -----------------------------------------------------------------------------------------------------------------
Loss per share, basic and diluted $ 0.18 $ 0.90 $ 0.90
- -----------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 52,877,973 23,125,831 20,020,938
Adjustment for shares contingently issued - - (53,448)
- -----------------------------------------------------------------------------------------------------------------
52,877,973 23,125,831 19,967,490
=================================================================================================================
See accompanying notes to consolidated financial statements.
30
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================================================
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operations:
Loss from continuing operations $ (9,716,065) $ (20,860,436) $ (16,255,917)
Items not involving cash:
Depreciation and amortization 1,383,675 1,831,301 700,045
Write-off of fixed assets 777,753 287,585 -
Non-cash interest and financing costs - 1,590,184 -
Stock-based compensation 15,941 - -
Allowance for obsolescence of inventory 46,206 30,000 -
Changes in non-cash operating working capital:
Accounts receivable 1,067,848 (1,036,049) 984,119
Inventory 49,891 8,913 33,629
Prepaid expenses and deposits 48,918 176,496 (372,770)
Accounts payable and accrued liabilities (1,090,219) 569,201 199,647
Deferred revenue 82,302 91,316 203,095
- ----------------------------------------------------------------------------------------------------------------
(7,333,750) (17,311,489) (14,508,152)
Loss from discontinued operations - - (1,732,951)
Items not involving cash:
Depreciation - - 119,160
Amortization of deferred charges - - 22,733
Gain on sale of Imaging Division - - (41,492)
- ----------------------------------------------------------------------------------------------------------------
- - (1,632,550)
- ----------------------------------------------------------------------------------------------------------------
(7,333,750) (17,311,489) (16,140,702)
Cash flows from investing activities:
Redemption (purchase) of short-term investments (6,371) 6,071,499 (6,667,429)
Proceeds on sale of Imaging Division - - 1,322,774
Purchase of fixed assets (113,717) (2,288,424) (2,861,833)
Purchase of long term investments (25,604) - -
Proceeds on disposal of assets 11,807 - -
- ----------------------------------------------------------------------------------------------------------------
(133,885) 3,783,075 (8,206,488)
Cash flows from financing activities:
Issuance of shares and special warrants for cash,
net of issue costs 1,031,657 20,303,441 22,621,685
Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency 104,177 (55,389) (265,493)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,331,801) 6,719,638 (1,990,998)
Cash and cash equivalents, beginning of year 9,087,730 2,368,092 4,359,090
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,755,929 $ 9,087,730 $ 2,368,092
See accompanying notes to consolidated financial statements.
31
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Cash Flows, Continued
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Supplementary information:
Interest paid $ 7,958 $ 48,727 $ -
Interest received 70,189 243,033 491,567
Non-cash transactions:
Cancellation of shares pursuant to
termination of employment contracts - - (594)
Conversion of special warrants into
common shares 13,095,742 7,243,914 19,027,038
Warrants issued for financing costs
(note 8(e)(iii)) - 1,613,096 -
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
32
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
1. Operations:
The Company was formed on February 21, 1997, following the amalgamation of
GDT Softworks Inc., Infowave Wireless Messaging Incorporated and G.W.
McIntosh Holdings Ltd. and is incorporated under the laws of the Province
of British Columbia. The principal business activities of the Company are
software development and sales.
2. Significant accounting policies:
(a) Continuing operations:
These financial statements have been prepared on a going concern basis
notwithstanding the fact that the Company has experienced operating
losses and negative cash flows from operations during each of the
three years ended December 31, 2002. To date, the Company has financed
its continuing operations through revenue, the issuance of common
shares, and from cash flows from its former Imaging Division (note 3).
Continued operations of the Company will depend upon the attainment of
profitable operations, which may require the successful completion of
external financing arrangements.
Together with estimated revenue, the exercise of options and warrants,
the most recent equity financing in December of 2002 (note 8(e)(i)) of
approximately $1.1 million, and the credit facility (note 14),
existing working capital is expected to be sufficient to meet the
Company's projected working capital and cash requirements for the
foreseeable future. However, unanticipated costs and expenses or lower
than anticipated revenues could necessitate additional financing or
reductions in expenditures which may include further restructuring of
the Company. There can be no assurance that such financing, if
required, will be available on a timely or cost effective basis. To
the extent that such financing is not available or reductions in
expenditures are required, the Company may not be able to or may be
delayed in being able to commercialize its products and services and
to ultimately attain profitable operations. The Company will continue
to evaluate its projected expenditures relative to its available cash
and to evaluate additional means of financing in order to satisfy its
working capital and other cash requirements.
(b) Basis of presentation:
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada and include
the accounts of the Company and its wholly owned subsidiary company,
Infowave USA Inc., which was incorporated on July 1, 2000. All
material intercompany transactions and balances have been eliminated
on consolidation. Material differences between the accounting
principles used in these financial statements and accounting
principles generally accepted in the United States are disclosed in
note 15.
33
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(c) Cash and cash equivalents:
Cash and cash equivalents include short term investments, which are
highly liquid interest bearing marketable securities with maturities
of ninety days or less when acquired.
(d) Short-term investments:
Short-term investments, which consist of investment grade interest
bearing securities having terms to maturity when acquired of greater
than ninety days but less than one year, are stated at the lower of
cost and fair market value. Short-term investments include accrued
interest on interest bearing securities classified as short-term
investments.
(e) Inventory:
Inventory is valued at the lower of cost and net realizable value.
Cost is determined using the weighted average cost method.
(f) Fixed assets:
Fixed assets are recorded at cost. Depreciation is provided using the
following methods and annual rates:
---------------------------------------------------------------------------------------------
Asset Basis Rate
---------------------------------------------------------------------------------------------
Computer equipment and system software Straight-line three years
Computer software Straight-line two years
Leasehold improvements Straight-line shorter of lease
term or 20%
Office equipment Declining balance 20%
Software licences and purchased source code Declining balance 30%
---------------------------------------------------------------------------------------------
(g) Impairment of long-lived assets and assets to be disposed:
Fixed assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of the assets to future net
cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
excess of the carrying value over the undiscounted expected cash
flows. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
34
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(h) Income taxes:
Future income tax assets and liabilities are determined based on
temporary differences between the accounting and tax basis of the
assets and liabilities, and are measured using the tax rates expected
to apply when these differences reverse. A valuation allowance is
recorded against any future tax asset if it is more likely than not
that the asset will not be realized.
(i) Translation of foreign currency:
These consolidated financial statements are presented in United States
dollars although the Company uses the Canadian dollar as its
functional currency. The Canadian dollar functional currency financial
statements are translated into U.S. dollars using the current rate
method. Under this method, assets and liabilities are translated at
rates of exchange in effect at the balance sheet date. Revenues and
expenses are translated at rates in effect at the time of the
transaction. Any gains or losses from this translation are included in
a separate cumulative translation adjustment account in shareholders'
equity on the balance sheet. Prior to 1999, these financial statements
were reported in Canadian dollars. The change in reporting currency
was accounted for by the translation of convenience method with no
retroactive effect.
The financial statements of the Company's integrated foreign
subsidiary, Infowave USA Inc., have been translated into the Canadian
dollar functional currency using the temporal method. Under this
method, the financial statements are translated as follows: monetary
assets and liabilities at the rate in effect on the balance sheet
date; non-monetary assets and liabilities at the rate in effect on the
transaction date; and revenues and expenses at the average rate for
the period. Gains and losses on translation are included in results
from operations.
(j) Revenue recognition:
Revenue from the license of software products is recognized when all
of the following criteria have been met: (i) persuasive evidence of an
arrangement exists; (ii) the product has been delivered; (iii) the fee
is fixed and determinable; and (iv) the collection of the fee is
probable. An allowance for future returns is recorded at the time
revenue is recognized based on estimated future returns including
returns of older product versions.
Revenue on software development contracts is recognized on the
percentage of completion basis. Payments received in advance for
software support and maintenance are deferred and amortized over the
term of the contract. The Company believes that its accounting
policies comply with SOP 97-2 issued by the American Institute of
Certified Public Accountants.
35
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(k) Cost of goods sold:
Cost of goods sold includes the cost of commissions, royalties,
hardware, packaging and distribution costs associated with software
license revenue.
(l) Research and development costs:
Research costs are expensed as incurred. Development costs are
expensed as incurred unless certain specific criteria for deferral
have been met. No development costs have been deferred in the periods
ended December 31, 2002, 2001 and 2000 as the criteria for deferral
were not met.
(m) Stock-based compensation:
The Company has a stock-based compensation plan, which is described in
note 8(c). Effective January 1, 2002, the Company adopted the new
Recommendation of the Canadian Institute of Chartered Accountants
Handbook Section 3870, Stock-based Compensation and Other Stock-based
Payments. The Company applies Section 3870 prospectively to all
stock-based payments to employees and non-employees granted on or
after January 1, 2002.
The Company accounts for all options granted to employees, including
directors, under the intrinsic value method, whereby the excess, if
any, of the quoted market value of the stock at the date of grant over
the exercise price of the option is recorded as stock based
compensation expense. As the exercise price of options granted is
equal to the market value on the measurement date, the Company has
determined that the application of this accounting policy did not
effect reported results of operations for the year ended December 31,
2002.
Options granted to non-employees on or after January 1, 2002 are
accounted for under the fair value based method. Under this method,
options granted to non-employees are measured at their fair value and
recognized as the options are earned. Due to the nature of the
Company's stock options plans, no transition adjustments were required
to be recognized on adoption of the polices effective January 1, 2002.
(n) Advertising costs:
Expenditures related to advertising are expensed in the period the
first associated advertising takes place.
36
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
2. Significant accounting policies (continued):
(o) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. In particular,
management estimates are required in the determination of provisions
for doubtful accounts receivable, sales returns and obsolete
inventory. Actual results could differ from those estimates.
(p) Loss per share:
Basic loss per share has been calculated using the weighted average
number of common shares outstanding. For purposes of the weighted
average shares outstanding, shares held in escrow pursuant to the
employee incentive plan and employment agreements are excluded from
the calculation as they are considered contingently issuable.
Diluted per share amounts are calculated using the treasury stock
method. Dilutive securities, such as stock options and warrants, are
included in the calculation of diluted per share amounts only if the
market price of the underlying common shares exceeds the exercise
price. As the effect of outstanding options and warrants is
anti-dilutive, diluted loss per share does not differ from basic loss
per share.
(q) Comparative figures:
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
3. Discontinued operations:
Effective August 31, 2000 the Company completed the sale of the net assets
and business operations of its Imaging Division for net cash consideration
of $1,322,774. The measurement date used to determine the loss on
disposition was March 31, 2000.
The loss on disposal of the Imaging Division consisted of:
==========================================================================
Loss from operations subsequent to March 31, 2000 $ 1,096,120
Employee severance costs 91,277
Professional fees 113,958
Gain on sale of net assets (41,492)
--------------------------------------------------------------------------
$ 1,259,863
==========================================================================
37
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
4. Inventory:
Inventory on hand consists of:
---------------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------------
Finished goods $ 77,157 $ 79,710
Allowance for obsolete stock (76,206) (30,000)
---------------------------------------------------------------------------
$ 951 $ 49,710
---------------------------------------------------------------------------
5. Fixed assets:
-----------------------------------------------------------------------------------------------------------
Accumulated Net book
2002 Cost depreciation value
-----------------------------------------------------------------------------------------------------------
Computer equipment and system software $ 1,602,594 $ 1,319,154 $ 283,440
Computer software 1,812,971 1,795,718 17,253
Leasehold improvements 245,603 189,217 56,386
Office equipment 262,693 173,850 88,843
Software licenses and purchased source code 60,634 15,773 44,861
-----------------------------------------------------------------------------------------------------------
$ 3,984,495 $ 3,493,712 $ 490,783
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Accumulated Net book
2001 Cost depreciation value
-----------------------------------------------------------------------------------------------------------
Computer equipment and system software $ 2,127,436 $ 1,125,134 $ 1,002,302
Computer software 1,836,760 1,140,657 696,103
Leasehold improvements 425,590 110,840 314,750
Office equipment 619,634 151,669 467,965
Software licenses and purchased source code 192,895 142,871 50,024
-----------------------------------------------------------------------------------------------------------
$ 5,202,315 $ 2,671,171 $ 2,531,144
-----------------------------------------------------------------------------------------------------------
38
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
6. Operating loan:
(a) The Company has an operating loan facility with a credit limit of
$63,416 (CDN$100,000). The facility is repayable on demand, bears
interest at the prime rate plus 1.0% and is secured by a hypothecation
of short-term investments equal to the amount of the credit facility.
No amounts were outstanding as at December 31, 2002 and 2001.
(b) During the year ended December 31, 2001, the Company entered into an
agreement with Thomas Koll, Chief Executive Officer of the Company,
for a credit facility in the amount of $5,000,000. The Company was
able to draw down the credit facility at its discretion, with the
principal outstanding under the loan bearing interest at a rate of 8%
per annum, payable at maturity. The loan amounts drawn were secured by
a first charge on all of the assets of the Company and were to be due
and payable on demand on or after January 23, 2002. The Company also
agreed to pay Koll $50,000 as reimbursement for his legal expenses
incurred with respect to the operating loan. In addition, the Company
issued warrants to Thomas Koll (note 8(d)(iii)). Prior to December 31,
2001, the Company repaid all amounts that were outstanding under this
facility and terminated the agreement.
7. Related party transactions:
During the year ended December 31, 2002, the following related party
transactions occurred:
(a) The Company paid interest of nil (2001 - $42,184; 2000 - nil) to
Thomas Koll in connection with the operating loan (note 6(b));
(b) The Company paid $34,825 (2001 - $110,000; 2000 - $142,000) for legal
and consulting services to a firm controlled by a former director of
the Company;
(c) The Company recognized revenue of nil (2001 - $467,500; 2000 - nil) on
sales to a company that has a common director;
(d) Included in accounts receivable is approximately $28,000 (2001 -
$87,500) related to an employee compensation advance. The original
amount of the advance given by the Company during the year ended
December 31, 2001 was approximately $116,000. It is being amortized as
it is earned as a charge to operations over the period ending June 30,
2003, at which date the loan will be forgiven provided the person
continues to be an employee at that date.
39
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital:
The share capital of the Company is as follows:
(a) Authorized:
200,000,000 voting common shares without par value (2001 -
200,000,000).
(b) Issued:
------------------------------------------------------------------------------------------------------
Number
of shares Amount
------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 18,297,470 $ 12,526,949
Share issuance pursuant to exercise of share options 921,327 1,240,527
Share issuance pursuant to exercise of purchase warrants 811,747 2,037,586
Share issuance pursuant to exercise of agent's warrants 143,414 316,534
Share cancellation pursuant to termination of employment
contracts (2,500) (594)
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $1,266,383 924,000 19,027,038
------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 21,095,458 35,148,040
Share issuance pursuant to exercise of share options 72,017 55,187
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $886,205 2,272,728 7,243,914
------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 23,440,203 42,447,141
Share issuance pursuant to a private placement,
net of issue costs of $1,791,510 34,121,289 13,095,742
Share issuance pursuant to exercise of share options 193,086 41,488
Share issuance pursuant to a private placement,
net of issue costs of $132,807 8,685,000 954,989
------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 66,439,578 $ 56,539,360
------------------------------------------------------------------------------------------------------
40
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
- ------------------------------------------------------
8. Share capital (continued):
(c) Share purchase options:
The Company has reserved common shares, to a maximum of 20% of the
total number outstanding from time-to-time, pursuant to an Employee
Stock Option Plan ("Plan"). The purpose of the Plan is to assist
eligible employees to participate in the growth and development of the
Company. Options to purchase common shares of the Company under the
Plan may be granted by the Board of Directors to certain full-time
employees of the Company. These options are granted in Canadian
dollars, vest over periods from three to four years and expire five
years from the date of grant. All stock options granted by the Company
are exercisable in Canadian dollars.
A summary of the status of the Company's stock option plan as of
December 31, 2002, 2001 and 2000 and changes during the periods ended
on those dates is presented below:
-----------------------------------------------------------------------------------------------------------------------
2002 2001 2000
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
-----------------------------------------------------------------------------------------------------------------------
US$ / Cdn$ US$ / Cdn$ US$ / Cdn$
Outstanding, beginning of year 6,416,689 $3.88/6.18 4,269,883 $7.02/10.52 3,091,075 $3.52/5.08
Granted 3,350,400 0.17/0.26 3,468,908 1.42/2.26 2,802,488 9.32/13.97
Exercised (193,086) 0.23/0.35 (72,017) 0.77/1.22 (921,327) 0.91/1.98
Cancelled (4,318,820) 3.84/5.99 (1,250,085) 6.35/10.10 (702,353) $8.69/13.02
-----------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 5,255,183 $1.78/2.77 6,416,689 $3.88/6.18 4,269,883 $7.02/10.52
-----------------------------------------------------------------------------------------------------------------------
Options exercisable, end of year 2,077,298 $3.17/4.94 2,530,783 $4.81/7.66 1,075,626 $3.33/4.99
-----------------------------------------------------------------------------------------------------------------------
41
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
- ------------------------------------------------------
8. Share capital (continued):
(c) Share purchase options (continued):
The following table summarizes information about stock options
outstanding at December 31, 2002:
-------------------------------------------------------------------------------------------------------------
Options outstanding Options exercisable
Number Weighted Weighted Number
outstanding, average average exercisable, Weighted
Range of December 31, remaining exercise December 31, average
exercise prices 2002 contractual life price 2002 exercise price
-------------------------------------------------------------------------------------------------------------
US$/(Cdn$) US$/Cdn$ US$ / Cdn$
$0.10 to $0.63
($0.15 to $0.99) 3,426,950 4.40 years $0.17 / $0.26 843,283 $0.17 / $0.26
$0.64 to $1.28
($1.00 to $1.99) 118,823 3.89 1.00 / 1.56 83,473 1.00 / 1.56
$1.29 to $1.92
($2.00 to $2.99) 13,600 3.35 1.74 / 2.71 4,750 1.75 / 2.73
$1.92 to $2.56
($3.00 to $3.99) 30,468 2.71 2.44 / 3.81 18,468 2.48 / 3.87
$2.57 to $3.84
($4.00 to $5.99) 640,300 2.92 3.48 / 5.43 408,443 3.46 / 5.40
$3.85 to $5.12
($6.00 to $7.99) 617,534 2.98 3.92 / 6.11 361,604 3.91 / 6.10
$5.13 to $6.41
($8.00 to $9.99) 82,400 2.64 6.00 / 9.36 58,950 5.96 / 9.29
$6.41 to $7.69
($10.00 to $11.99) 87,510 2.59 6.86 / 10.70 74,574 6.84 / 10.67
$7.70 to $9.61
($12.00 to $14.99) 166,798 1.99 8.45 / 13.18 163,398 8.45 / 13.18
$9.62 to $12.82
($15.00 to $19.99) 30,000 2.42 10.86 / 16.94 23,370 10.86 / 16.94
$12.83 to $41.37
($20.00 to $64.50) 40,800 2.14 26.42 / 41.19 36,985 26.42 / 41.19
- ----------------------------------------------------------------------------------------------------------------------
$0.10 to $41.37
($0.15 to $64.50) 5,255,183 3.86 $1.78 / $2.77 2,077,298 $3.17 / $4.94
- ----------------------------------------------------------------------------------------------------------------------
42
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital (continued):
(d) Pro forma compensation expense:
Under the intrinsic value method, the Company has not recognized any
compensation expense for options issued to its employees during the
year ended December 31, 2002. Had the Company determined compensation
expense for option grants made to employees after December 31, 2001
based on the fair values at grant dates of the stock options
consistent with the fair value method, the Company's loss and loss per
share for the year ended December 31, 2002 would have been the pro
forma amounts indicated below:
----------------------------------------------------------------------
Net loss - as reported $ 9,716,065
Net loss - pro forma 9,802,575
Net loss per share - as reported 0.18
Net loss per share - pro forma 0.19
----------------------------------------------------------------------
The weighted average estimated fair value at the date of grant for
options granted during the year ended December 31, 2002 was $0.17 per
share.
The fair value of each option granted was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions:
---------------------------------------------------------------------
Risk-free interest rate 2.59%
Dividend yield -
Volatility factor 134%
Weighted average expected life of the options 5 years
---------------------------------------------------------------------
For the purposes of pro forma disclosures, the estimated fair value of
the option is amortized to expense on a straight-line basis over the
vesting period.
43
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital (continued):
(e) Share purchase warrants:
(i) On December 9, 2002, the Company issued of 8,500,000 units
(the "2002 Units") at a price of $0.13 (CDN$0.20) per 2002
Unit for gross proceeds of $1,078,065 (CDN$1,700,000). Each
2002 Unit consisted of one common share and one-half of one
common share purchase warrant of the Company. Each whole
warrant entitles the holder to purchase one common share for
a period of two years from the closing date at a price of
$0.15 (CDN$0.24) per common share. The common shares and
warrants comprising the 2002 Units are subject to a four
month hold period. The agent was paid a cash commission
equal to 7.5% of the gross proceeds from the offering and
850,000 warrants (the "Agents' Warrants"). Each Agents'
Warrant entitle the agent to purchase one common share and
one-half of one common share purchase warrant for two years
from the closing date at a price of $0.15 (CDN$0.24) per
common share. In addition, the Company issued 185,000 2002
Units to the agent as a corporate finance fee. As at
December 31, 2002, none of the share purchase warrants or
Agents' Warrants had been exercised.
(ii) On February 22, 2001, the Company issued 2,272,728 units
(the "2001 Units") at a price of $3.62 (CDN$5.50) per 2001
Unit for gross proceeds of $8,217,500 (CDN$12,500,000). Each
2001 Unit is comprised of one common share and one-half of
one common share purchase warrant of the Company. Each whole
warrant entitles the holder to purchase one common share for
a period of 18 months from the closing date at a price equal
to $4.71 (CDN$7.15) per common share. In addition, the
Company issued 113,636 units ("Agents' units") each
exercisable into one common share and one-half purchase
warrant of the Company at $3.62 (CDN$5.50) until August 22,
2002 to the agents as partial compensation for services
rendered in connection with the financing. All of the units
were converted into common shares and share purchase
warrants during the year. As at December 31, 2002, none of
the share purchase warrants or agents' units had been
exercised and expired.
(iii) During the year ended December 31, 2001, as consideration
for providing a credit facility (note 6(b)), the Company
granted Thomas Koll warrants to purchase up to 3,510,455
common shares at a price of CDN$1.10, exercisable for three
years. The fair value of these warrants of $1,613,096 has
been recognized as a financing cost that was being
recognized over the term of the related debt and as other
equity instruments. As at December 31, 2002, none of these
warrants had been exercised.
44
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
8. Share capital (continued):
(f) Special warrants:
(i) On April 13, 2000, the Company issued 924,000 special warrants at
a price of $21.96 (CDN$32.50) per special warrant for net cash
proceeds of $19,027,038. Each special warrant was exercisable
without payment of additional consideration for one Common Share
of the Company. In addition, the Company issued 46,200 special
compensation warrants to the underwriters in connection with this
issuance. Each special compensation warrant is exercisable
without additional consideration into one compensation warrant
entitling the holder to acquire one common share at a price of
$21.96 (CDN$32.50) per share for a two year period ending April
13, 2002. As at December 31, 2002, all of the special warrants
had been exercised. None of the special compensation warrants had
been exercised and have expired.
(ii) On November 23, 28 and 30, 2001, the Company issued 31,965,319,
1,960,784 and 195,186, special warrants at a price per special
warrant of $0.69, $0.81 and $0.86 respectively, for gross
proceeds of $14,887,252 (CDN$23,812,165) of which $4,475,309 was
held in escrow and included in cash and cash equivalents at
December 31, 2001. The special warrants are exercisable, without
payment of additional consideration, for units each comprised of
one common share and one-half of one common share purchase
warrant.
Each whole purchase warrant will entitle the holder to purchase
one common share for a period of three years at a price of $0.56
(CDN$0.90). The Company has the right to force conversion of the
purchase warrants thirty days after providing written notice that
the closing price for its common shares has equalled or exceeded
CDN$9.00 for 20 consecutive trading days. The purchase warrants
will also contain provisions for cashless exercise.
The agents were paid a cash commission equal to 7% of the gross
proceeds of the private placement and agents' warrants entitling
them to purchase 2,386,775 units at a price of $0.51 (CDN$0.81)
until November 23, 2004. Each unit shall be comprised of one
common share and one-half of one common share purchase warrant.
On February 21, 2002, the Company received final receipt for a
prospectus filed in certain provinces in Canada, qualifying the
special warrants for distribution and releasing the funds held in
escrow. The special warrants were deemed to be exercised for
freely tradable common shares and purchase warrants on February
26, 2002.
45
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
9. Income taxes:
Income taxes attributable to net loss in these financial statements differ
from amounts computed by applying the Canadian federal and provincial
statutory rate of 39.62% (2001 - 44.6%; 2000 - 45.62%) as follows:
----------------------------------------------------------------------------------------------------------
2002 2001 2000
----------------------------------------------------------------------------------------------------------
Net loss before income taxes $ 9,716,065 $ 20,860,436 $ 17,988,868
----------------------------------------------------------------------------------------------------------
Expected tax recovery $ 3,849,505 $ 9,307,927 $ 8,206,522
Tax effect of:
Loss of foreign subsidiary taxed at
lower rates (207,848) (776,192) (871,645)
Change in enacted tax rates (240,946) (958,830) (433,160)
Non-deductible interest expense (8,110) (27,355) (46,021)
Other non-deductible expenses (29,155) (709,576) -
Change in valuation allowance (3,363,446) (6,835,974) (6,855,696)
----------------------------------------------------------------------------------------------------------
$ - $ - $ -
----------------------------------------------------------------------------------------------------------
The Company has non-capital losses carried forward in Canada of
approximately $35,646,178 which are available to reduce future years'
income for income tax purposes and capital losses of $106,000 which are
available indefinitely to offset future capital gains for income tax
purposes.
Non-capital loss carry forwards expire in:
-------------------------------------------------------------------------
2003 $ 740,354
2004 1,677,907
2005 956,315
2006 1,341,068
2007 14,649,259
2008 11,089,723
2009 5,191,552
-------------------------------------------------------------------------
$ 35,646,178
-------------------------------------------------------------------------
As at December 31, 2002 the Company's wholly-owned subsidiary, Infowave USA
Inc. has non-capital losses carried forward of $12,577,590 which are
available to reduce future years' taxable income for income tax purposes to
2022. The Company also has available unclaimed Scientific Research and
Experimental Development Expenditures of approximately $1,013,232 as at
December 31, 2002, which may be carried forward indefinitely and used to
reduce future taxable income.
46
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
9. Income taxes (continued):
The tax effect of the significant temporary differences which comprise tax
assets and liabilities, at December 31, 2002 and 2001 are as follows:
----------------------------------------------------------------------------------------------------------
2002 2001
----------------------------------------------------------------------------------------------------------
Future income tax assets:
Amalgamation and reorganization costs $ 44,859 $ 43,370
Deferred revenues 56,715 -
Fixed assets, principally due to differences between
accounting and tax depreciation 1,513,330 818,602
Loss carry forwards 16,611,424 13,919,936
Scientific research and development
expenditure carry forwards 360,913 361,417
Share issue costs 841,656 1,211,404
----------------------------------------------------------------------------------------------------------
Total gross future income tax assets 19,428,897 16,354,729
Valuation allowance (19,428,897) (16,354,729)
----------------------------------------------------------------------------------------------------------
Net future income tax asset $ - $ -
----------------------------------------------------------------------------------------------------------
In assessing the ability to realize future income tax assets, management
considers whether it is more likely than not that some or all of the future
tax assets will be realized. The ultimate realization of the future tax
assets is dependent on the generation of taxable income during periods in
which the temporary differences reverse. Due to the fact that as at
December 31, 2002 and 2001, sufficient evidence does not exist to support a
conclusion that it is more likely than not that the future income tax
assets will be realized, a valuation allowance has been recorded against
all of the future tax assets.
10. Restructuring costs:
During the year ended December 31, 2002, the Company completed a
restructuring plan to significantly reduce operating expenses and preserve
capital. The restructuring costs incurred resulted from reductions in
staff, lease termination costs and write-down of fixed assets that were
either no longer being utilized, or the costs were no longer recoverable as
a result of the implementation of the restructuring plan. A total
restructuring cost of $1,415,380 was incurred comprised of $354,834 for
employee severance, $282,793 for lease terminations and $777,753 for
write-offs of unrecoverable leasehold improvements and fixed assets. All of
these restructuring charges have been settled, with no amounts included in
accounts payable and accrued liabilities at December 31, 2002.
In the year ended December 31, 2001 the Company completed a restructuring
that included employee severance payments of $497,442, lease termination
costs of $468,680 and the write-offs of unrecoverable leasehold
improvements of $287,585. Accounts payable and accrued liabilities includes
$120,200 related to these costs at December 31, 2001 (nil at December 31,
2002).
47
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
11. Commitments and contingencies:
(a) Lease obligations:
The Company has entered into lease agreements for premises and
equipment. These leases have been treated as operating leases for
accounting purposes. The annual payment commitments are as follows:
----------------------------------------------------------------
2003 $ 495,155
2004 313,211
2005 217,568
2006 185,687
After 2006 278,530
----------------------------------------------------------------
$ 1,490,151
----------------------------------------------------------------
During the year ended December 31, 2002, the Company made operating
lease payments totaling approximately $683,000 (2001 - $829,000; 2000
- $702,000).
(b) Letters of credit:
The Company has secured certain lease commitments through an
outstanding letter of credit totaling $150,000.
(c) Contingency:
The Company received a letter dated September 17, 2001 from Glenayre
Electronics, Inc. ("Glenayre") informing it that Glenayre requires
indemnity under certain agreements the Company has with Glenayre. The
Company has previously developed and supplied technology to Glenayre.
The claim comprised of $608,000 in legal fees and $50,000 internal
expenses, in connection with a previously settled lawsuit between
Glenayre and Research in Motion.
On October 30, 2002, the Company resolved the claim with Glenayre.
Under the settlement, the Company paid Glenayre a cash payment of
$130,000 plus 20,000 common share purchase warrants exercisable at a
price of $0.22 per common share for two years from the date of issue,
and Glenayre has agreed to a consent dismissal of its claim. The
issuance of the warrants is subject to receipt of applicable
regulatory approval.
48
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
12. Financial instruments and risk management:
(a) Fair values:
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable and accrued
liabilities approximate fair values due to their ability for prompt
liquidation and short-term to maturity.
(b) Credit risk:
The Company is exposed to credit risk only with respect to
uncertainties as to timing and amount of collectibility of accounts
receivable. At December 31, 2002, three customers represented 55% of
outstanding accounts receivable. In the previous year at December 31,
2001, two customers represented 57% of outstanding accounts
receivable. The Company mitigates its credit risk by concentrating its
direct sales efforts on Fortune 500 companies and conducting standard
credit checks on all new customers.
(c) Foreign currency risk:
Foreign currency risk is the risk to the Company's earnings that
arises from fluctuations in foreign currency exchange rates, and the
degree of volatility of these rates. A substantial portion of the
Company's sales are derived in United States dollars and accordingly
the majority of the Company's accounts receivable is denominated in
United States dollars. The Company has not entered into foreign
exchange contracts to hedge against gains or losses from foreign
exchange fluctuations.
13. Segmented information:
(a) Industry segments:
Until the disposition of the Imaging Division on August 31, 2000 (note
3), the Company had two reportable segments based on its two distinct
product lines, being the Company's wireless and imaging products.
Subsequent to August 31, 2000, the Company operates only in one
reportable segment being its wireless products. Segmented information
has not been presented as the results from the Imaging Division are
disclosed as discontinued operations on the statement of operations
and results from continuing operations consist of only the results of
the Wireless Division.
(b) Geographic information:
55% of sales for the year ended December 31, 2002 (2001 - 71%; 2000 -
96%) were to customers located in the United States, with 14% and 31%
of sales being to customers located in Canada and Europe, respectively
2001 - 26% and 3%; 2000 - 4% and nil). The Company's principal
corporate sales and administration office is located in Canada.
(c) Major customers:
For the year ended December 31, 2002, revenue from three (2001 - four;
2000 - one) customers represented approximately 63% (2001 - 61%; 2000
- 57%) of revenues.
49
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
14. Credit facility:
On March 8, 2002, the Company entered into a convertible loan agreement
with a strategic partner for a convertible revolving loan of up to
$2,000,000. The principal amount outstanding under the loan bears interest
at the prime rate plus 3.25% and may be converted into common shares of the
Company at a price of US$1.00 per share, which was greater than the market
price at that date, at any time up to March 8, 2005, subject to adjustment
in certain circumstances. The Company may draw down amounts under the loan
at anytime provided that certain standard working capital conditions are
met. The convertible loan will be secured by certain assets of the Company,
excluding its intellectual property. As at December 31, 2002, no amounts
have been drawn down from this as loan.
15. Reconciliation to United States generally accepted accounting principles:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These
principles differ in the following material respects from those in the
United States:
(a) Net loss and loss per share:
------------------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------------------------------------------------------------------------------
Loss from continuing operations in
accordance with Canadian GAAP $ 9,716,065 $ 20,860,436 $ 16,255,917
Adjustment for stock based compensation
relating to stock options issued to
non-employees (c)(i) - 126,486 195,690
Adjustment for stock based compensation
relating to escrow shares (c)(ii) - - 13,922
Adjustment for impairment of long-lived
assets to fair value (g) 422,762 - -
------------------------------------------------------------------------------------------------------
Loss from continuing operations in
accordance with United States GAAP 10,138,827 20,986,922 16,465,529
Discontinued operations:
Loss (earnings) from operations - - 473,088
Loss on disposal - - 1,259,863
------------------------------------------------------------------------------------------------------
10,138,827 - 1,732,951
------------------------------------------------------------------------------------------------------
Loss in accordance with United States GAAP $10,138,827 $ 20,986,922 $ 18,198,480
------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding
in accordance with Canadian and United States
GAAP 52,877,973 23,125,831 19,967,490
Adjustment for special warrants (e) 5,328,530 3,458,870 174,674
------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding
in accordance with United States GAAP 58,206,503 26,584,701 20,142,164
------------------------------------------------------------------------------------------------------
Loss per share:
Continuing operations $ 0.17 $ 0.79 $ 0.82
Discontinued operations - - 0.08
------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ 0.17 $ 0.79 $ 0.90
------------------------------------------------------------------------------------------------------
50
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. Reconciliation to United States generally accepted accounting principles
(continued):
(a) Net loss and loss per share (continued):
Comprehensive loss for the years ended December 31, 2002, 2001 and
2000 is as follows:
------------------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------------------------------------------------------------------------------
Loss in accordance with United States GAAP $ 10,138,827 $ 20,986,922 $ 18,198,480
Other comprehensive loss (income):
Foreign currency translation adjustment (135,107) 399,615 523,079
------------------------------------------------------------------------------------------------------
Comprehensive loss $ 10,003,720 $ 21,386,537 $ 18,721,559
------------------------------------------------------------------------------------------------------
(b) Balance sheet:
------------------------------------------------------------------------------------------------------
2002 2001
------------------------------------------------------------------------------------------------------
Total Assets
Total assets in accordance with Canadian GAAP and
United States GAAP $ 4,158,757 $ 13,675,675
------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital in accordance with Canadian GAAP $ 56,539,360 $ 42,447,141
Adjustments to share capital:
Foreign exchange effect on conversion of 1998 and
prior share capital transactions (d) 543,269 543,269
Additional paid in capital from stock based compensation
relating to stock options issued to non-employees (c)(i) 520,999 520,999
Additional paid in capital from stock based compensation
relating to escrow shares (c)(ii) 107,077 107,077
------------------------------------------------------------------------------------------------------
Share capital in accordance with United States GAAP 57,710,705 43,618,486
------------------------------------------------------------------------------------------------------
Additional paid-in capital in accordance with Canadian and
United States GAAP 15,941 -
Special warrants in accordance with Canadian and
United States GAAP - 13,004,340
------------------------------------------------------------------------------------------------------
Other equity instruments in accordance with Canadian and
United States GAAP 1,613,096 1,613,096
------------------------------------------------------------------------------------------------------
Deficit in accordance with Canadian GAAP (54,342,142) (44,626,077)
Adjustments to deficit:
Cumulative effect of stock based compensation relating
to stock options issued to non-employees (c)(i) (519,411) (519,411)
Foreign exchange effect on conversion of 1998 and
prior income statements (d) (189,240) (189,240)
Cumulative effect of stock based compensation
relating to escrow shares (c)(ii) (101,474) (101,474)
Adjustment for impairment of long-lived
assets to fair value (g) (422,762) -
------------------------------------------------------------------------------------------------------
Deficit in accordance with United States GAAP (carried forward) $(55,575,029) $(45,436,202)
------------------------------------------------------------------------------------------------------
51
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. Reconciliation to United States generally accepted accounting principles
(continued):
(b) Balance sheet (continued):
------------------------------------------------------------------------------------------------------
2002 2001
------------------------------------------------------------------------------------------------------
Deficit in accordance with United States GAAP (brought forward) $(55,575,029) $(45,436,202)
------------------------------------------------------------------------------------------------------
Cumulative translation account in accordance with Canadian GAAP (495,441) (630,548)
Adjustments to cumulative translation account:
Foreign exchange effect on conversion of 1998 and
prior income statements (d) (341,140) (341,140)
Cumulative foreign exchange effect of United States
GAAP adjustments (20,080) (20,080)
------------------------------------------------------------------------------------------------------
(856,661) (991,768)
------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with United States GAAP $ 2,908,052 $ 11,807,952
------------------------------------------------------------------------------------------------------
(c) Stock-based compensation:
(i) Stock options:
The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123") for stock options
granted to employees, including directors, and has elected to
continue measuring compensation costs using the intrinsic value
based method of accounting under APB Opinion 25. Under the
intrinsic value based method, employee stock option compensation
is the excess, if any, of the quoted market value of the stock at
the date of the grant over the amount an optionee must pay to
acquire the stock. As the exercise price of the options is equal
to the market value on the measurement date, the Company has
determined that this accounting policy has no significant effect,
with respect to employee stock options, on its results of
operations.
Had compensation cost for employee stock options been determined
based on fair value at the grant date of the stock options and
charged to earnings over the vesting period of the options
consistent with the measurement provision of FAS 123, net loss
under United States GAAP would have been increased by $86,510 for
the year ended December 31, 2002 (2001 - $8,603,514; 2000 -
$5,682,914). Pro forma net loss for the year ended December 31,
2002 would have been $10,225,337 (2001 - $29,590,436; 2000 -
$23,880,494). Net loss per share for the year ended December 31,
2002 would have been $0.18 (2001 - $1.11; 2000 - $1.19). The fair
value of these options for the year ended December 31, 2002 has
been determined using the Black-Scholes option pricing formula
with the following factors: expected dividend yield - 0%;
expected stock price volatility - 134% (2001 - 150%; 2000 -
149%); risk fee interest rate - 2.59% (2001 - 4.23%; 2000 -
5.64%); expected life of options - 5 years. The pro forma amounts
are consistent with those required to be disclosed under the new
CICA Handbook section related to stock-based compensation adopted
during the current year (notes 2(m) and 8(d))
52
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. Reconciliation to United States generally accepted accounting principles
(continued):
(c) Stock-based compensation (continued):
(i) Stock options (continued):
For United States GAAP purposes, stock options issued to
non-employees for services rendered were recorded and reflected
in the financials as compensation expense and charged to earnings
based on the fair value as the services are provided and the
options are earned. The amount of compensation costs is
calculated using the Black-Scholes options pricing formula and
assumptions as described above. During the year ended December
31, 2002, the Company adopted the new CICA Handbook section
related to stock-based compensation payments (note 2(m)). Under
this new policy, stock options issued to non-employees after
December 31, 2001 are accounted for consistently with United
States GAAP. Therefore, for the year ended December 31, 2002,
there was no measurement difference. Under United States GAAP for
non-employee options, additional compensation expense would have
been recorded of $126,486 for the year ended December 31, 2001
and $195,690 for the year ended December 31, 2000.
(ii) Shares held in escrow:
Certain shares held in escrow pursuant to the employee incentive
program and employment contracts were recorded as compensation
expense under Canadian GAAP at a deemed value of $0.23 (CDN$0.35)
per share based on their fair market value at the time of issue
discounted for escrow restrictions.
For United States GAAP purposes, any restrictions on the
employee's right to receive these shares would not be taken into
account for purposes of calculating compensation costs and would
result in additional compensation costs. No additional
compensation expense was recorded for the year ended December 31,
2002. In prior periods, additional compensation expense would
have been recorded for the year ended December 31, 2001 of nil
and $for the year ended December 31, 2000 of $13,992.
(iii) Weighted average fair value:
Financial statements prepared in accordance with U.S. GAAP
require the disclosure of weighted average grant date fair value
of stock options granted in the year by the Company. Weighted
average grant date fair values for options granted during the
years ended December 31, 2002, 2001 and 2000 are $0.17
(CDN$0.27), $0.99 (CDN$1.57) and $9.37 (CDN$14.05), respectively.
53
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. Reconciliation to United States generally accepted accounting principles
(continued):
(d) Foreign currency translation:
These financial statements are in U.S. dollars. Prior to 1999, these
financial statements were reported in Canadian dollars. In accordance
with Canadian GAAP effective to July 1, 2002, the comparative figures
presented for 1998 have been translated at the rate in effect on
December 31, 1998. For U.S. GAAP, the 1998 comparative figures should
have been restated retroactively as if the Company had always reported
in U.S. dollars. As a result, share capital and deficit would be
adjusted to translate the Canadian dollar functional currency
financial statements to U.S. dollars at the rates in effect on the
transaction dates with offsetting adjustments to the cumulative
translation account. Any changes in reporting currency after July 1,
2002 would be treated the same under both Canadian and United States
GAAP.
(e) Loss per share:
During the year ended December 31, 2001, the Company issued special
warrants, which were converted to common shares subsequent to their
issue. For Canadian GAAP purposes in 2001, the common shares were
included in the weighted average shares outstanding from the date the
special warrants were converted into common shares. For United States
GAAP purposes, where there are no material uncertainties with respect
to the ultimate issuance of the common shares that underlay the
special warrants, the effective number of common shares would be
included from the date that is the later of the date the special
warrants were issued and the date the uncertainty as to exercise is
removed.
(f) Short-term investments:
United States GAAP requires that investments in securities be
classified as either "trading", "held-to-maturity" or "available for
sale". Trading securities are bought and held principally for the
purpose of selling in the near term. Held-to-maturity securities are
those which the Company has the ability and intention of holding to
maturity. All other securities not included in trading or
held-to-maturity are classified as available for sale.
The Company's short-term investments would be classified as available
for sale securities and would be recorded at fair value with the
unrealized holding gains and losses reported as a separate component
of shareholders' equity. As explained in note 12(a), the carrying
value of the short-term investments approximates their fair value.
Accordingly, there are no unrealized gains or losses.
54
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. Reconciliation to United States generally accepted accounting principles
(continued):
(g) Impairment or Disposal of Long-Lived Assets:
United States GAAP required the Company to adopt the provisions in
FASB Statement of Financial Accounting Standards ("SFAS") No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" as of
January 1, 2002. Under this standard, an impairment loss calculated as
the difference between the carrying amount and the fair value of the
asset, should be recognized on long-lived assets held and used only if
the carrying amount of the asset is not recoverable from its
undiscounted cash flows. Long-lived assets to be disposed other than
by sale should be considered held and use until it is disposed of.
Long-lived assets to be disposed of by sale should be measured at the
lower of its carrying amount or fair value less cost to sell.
The Company wrote down certain long-lived assets to their net
recoverable amount during the year ended December 31, 2002. This was
part of the restructuring plan described in note 10. The difference
between the net recoverable amount determined based on undiscounted
expected future cash flows and fair value under US GAAP, measured by a
discounted cash flow, is $422,762, which has been recorded as
additional loss from continuing operations in accordance with US GAAP.
(h) Advertising costs:
United States GAAP requires the disclosure of amounts spent on
advertising costs. For the years ended December 31, 2002, 2001 and
2000, the Company spent approximately $27,756, $194,931 and
$4,146,004, respectively on advertising costs.
(i) Valuation and qualifying accounts:
--------------------------------------------------------------------------------------------------------------------
Effect of foreign
Beginning exchange on End of
of year Charged to Recoveries conversion year
balance expenses and write-offs to US$ balance
--------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended December 31, 2002 $ 136,471 $ 70,390 $ 139,833 $ 97 $ 67,125
Year ended December 31, 2001 12,698 172,067 45,711 (2,583) 136,471
Year ended December 31, 2000 12,164 - 977 (443) 12,698
Allowance for sales return:
Year ended December 31, 2002 12,068 - 12,068 - -
Year ended December 31, 2001 6,346 205,395 199,231 (442) 12,068
Year ended December 31, 2000 41,576 - 35,230 - 6,346
Allowance for obsolete stock:
Year ended December 31, 2002 30,000 46,206 - - 76,206
Year ended December 31, 2001 - 30,000 - - 30,000
Year ended December 31, 2000 41,572 - 41,572 - -
--------------------------------------------------------------------------------------------------------------------
55
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2002, 2001 and 2000
================================================================================
15. Reconciliation to United States generally accepted accounting principles
(continued):
(j) Recent accounting pronouncements:
(i) In June 2001, the FASB issued SFAS 143 "Accounting for Asset
Retirement Obligations." This standard established
accounting standards for the recognition and measurement of
an asset retirement obligation and its associated asset
retirement cost. The adoption of this standard on January 1,
2003 is not expected to have a material impact on the
Company's financial position, cash flows or results of
operations.
(ii) In April 2002, the FASB issued SFAS 145 "Rescission of SFAS
4, 44 and 64, Amendment of SFAS 13 and Technical
Corrections." This standard rescinds SFAS 4, which required
all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. The standard also
amends SFAS 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as
sale-leaseback transactions. The adoption of this standard
will have no impact on the Company's financial position,
cash flows or results of operations.
(iii) In July 2002, the FASB issued SFAS 146 "Accounting for Costs
Associated with Exit or Disposal Activities". This standard
addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)". The principal difference is
that SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized
when the liability is incurred versus on the date of an
entity's commitment to an exit plan. SFAS 146 also
establishes that fair value is the objective for initial
measurement of the liability. The adoption of this standard
on January 1, 2003, is not expected to have a material
impact on the Company's financial position, cash flows or
results of operations.
(iv) In November 2002, the EITF reached a consensus on Issue
00-21,"Multiple Element Arrangements". This issue addresses
how to account for arrangements that may involve the
delivery or performance of multiple products, services
and/or rights to use assets. The guidance can affect the
timing of revenue recognition for such arrangements. The
final consensus will be applicable to agreements entered
into after June 15, 2003. The Company does not expect this
issue to have a material impact on its financial position,
cash flows or results of operations as the Company follows
SOP 97-2 for recognition of their software sales.
56
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10: Directors and Officers of the Registrant
The following table sets forth certain current information regarding the
executive officers, directors and key employees of Infowave as at December 31,
2002.
Name Age Position
- ------------------------------------------------------------------------------------------------------------
George Reznik ................................. 36 Chief Financial Officer - Office of the President
Sal Visca ..................................... 36 Chief Technology Officer - Office of the President
Bill Tam ...................................... 35 EVP Sales and Marketing - Office of the President
Ron Jasper..................................... 38 VP Network Operators
Paul Huntingdon................................ 50 Director, Europe
Thomas Koll ................................... 46 Chairman of the Board (1) (2) (3)
Jim McIntosh .................................. 38 Director - Office of the President (1) (2) (3)
Barb Richardson ............................... 40 Director (2) (3)
Stephen Wu .................................... 38 Director (3)
Lew Turnquist ................................ 34 Director (1)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance and Nominating Committee
Executive Team
George Reznik has served as Chief Financial Officer since March 1, 2002 and has
over fifteen years of senior financial management experience. Prior to joining
Infowave, Mr. Reznik served as Vice-President of Finance at Pivotal Corporation
from April 1999 to February 2002, where he was a member of the executive
management team. From July 1994 to March 1999, Mr. Reznik was a Senior Manager,
Corporate Finance, at Deloitte & Touche, LLP, where he was a member of the
senior management team and led the business valuation practice for British
Columbia. Prior to July 1994, Mr. Reznik was with Deloitte & Touche LLP (since
May 1987) in various capacities with their London, UK, Caribbean and Winnipeg,
Canada offices. Mr. Reznik, who received a Bachelor's of Commerce (Honours)
degree from the University of Manitoba, is a Chartered Accountant, Certified
Fraud Examiner and Chartered Business Valuator.
Sal Visca has served as Chief Technology Officer since November 1999. Mr. Visca
has over 12 years of software development experience with IBM Canada where he
gained world-class architectural and design skills in the areas of leading edge
web technologies and application servers. His most recent IBM position, from May
1996 - October 1999, was Senior Manager, where he established the e-business
Solution Development Business Unit in Vancouver, Canada. This IBM Unit develops
and implements e-business and e-commerce web applications for major industry
groups, such as banking, airlines and government. Mr. Visca's previous IBM
positions included Lead Architect, Strategist Program Manager and Development
Manager. Mr. Visca graduated with honours from the University of Western Ontario
with a Bachelor of Science in Computer Science.
Bill Tam joined Infowave in July 2002 as Executive Vice President of Sales and
Marketing, to strengthen the Company's sales efforts and execute on revenue
generation. His career spans more than 14 years in the telecommunications
industry, most notably with Telco industry giants such as AT&T Canada, Rogers
Network Services and Bell Canada. He has held several senior executive
management positions, including Vice President of Business Development at AT&T
Canada and Vice President of Marketing at MetroNet.
Ron Jasper transitioned to Vice President Network Operators in April 2002 to
lead the Company's strategic new carrier focused business unit. Mr. Jasper is a
five-year veteran of Infowave, and previously led the organization's marketing
efforts as VP of Marketing. Mr. Jasper also has twelve years of experience in
the software industry as a software developer, systems integrator, systems
engineer, product manager, and marketer with hi-tech companies. Mr. Jasper has
spent time in the reseller and systems integrator channels of Apple, HP, IBM,
and most recently with GE Technology Services.
Paul Huntingdon joined Infowave March 2002 as Director, Channel Sales UK and was
subsequently promoted to General Manager, European Sales in January 2003. Prior
to joining Infowave, Mr. Huntingdon served with Compaq UK as the sales Manager
for Wireless and Mobility Solutions.
Directors
Thomas Koll joined Infowave in February 2001 as Chief Executive Officer and was
President of the Company from August 15, 2001 until April 2002. Mr. Koll joined
Infowave from Microsoft Corporation, where he held several executive positions
in the US and in Europe from 1989 to 2001. Most recently, from 1997 to 2001, he
was Vice President of Microsoft's Network Solutions Group where he was
responsible for Microsoft's worldwide business with telecommunications companies
in the wireline and wireless markets, network equipment providers and Internet
service providers. In this position, Mr. Koll was instrumental in developing
Microsoft's vision for mobility and initiated its wireless strategy. Prior to
this position, he held positions of General Manager of the Dedicated System
Group, General Manager of
57
Microsoft's worldwide business planning and strategy, as well as General Manager
and Acting Country Manager, Microsoft Germany. Thomas Koll holds a master's
degree in political science from Free University of Berlin. In April 2002, Mr.
Koll transitioned to a Chairman of the Board, and remains active in senior
business development activities.
Jim McIntosh has served as a director since June 1991. From June 1991 to July
2000, Mr. McIntosh served as President and Chief Executive Officer of the
Company.
Barb Richardson has served as a director since December 2001. Ms. Richardson is
the President of B.A. Richardson Consulting Services Inc. and since September
2000 has been a principal and director of SpringBank TechVentures Management
Inc., a Calgary-based investment fund focused on companies involved in
developing the enabling technologies, infrastructure and services to support the
growth sectors of wireless, Internet and telecommunications. Prior to
SpringBank, Ms. Richardson was a pioneer in MetroNet Communications joining the
small firm of 10 people in 1996 to lead the business development and planning
efforts. Ms. Richardson had the overall responsibility for developing MetroNet's
business strategy and plan that lead to over $1 billion in financing over an
18-month period and ultimately its merger with AT&T. Ms. Richardson was Chief
Integration Officer of AT&T Canada from May 1999 to March 2000. Ms. Richardson
currently serves as a member of the Calgary Centre for Non-Profit Management,
and the University of Calgary Faculty of Management Advisor Board.
Stephen Wu has served as a director since November 2002. Mr. Wu is a founder and
managing director of Alliance MG, a technology and investment advisory firm that
focuses on the telecommunications, wireless and high technology industries.
Prior to Alliance MG, Mr. Wu served with The Carlyle Group - one of the largest
private equity groups in the world - as a founding partner of their Asian
Technology Fund. Mr. Wu also served for over a decade at Microsoft Corporation
in various senior level management positions. From 1997 to 2000, Mr. Wu was
responsible for Microsoft's Asian Network Operator and MSN business units.
Lew Turnquist has served as a director since November 2002. Mr. Turnquist brings
over twelve years of experience in wireless high-tech and interactive services.
He was most recently President of JoCommerce Inc., a software vendor serving the
retail industry where he successfully implemented a turnaround strategy that led
to an acquisition by a large publicly traded competitor. Mr. Turnquist also
served as Executive Vice President and COO of Cell-Loc Inc. and CEO of its
wholly-owned subsidiary TimesThree Inc. Prior to joining Cell-Loc, Mr. Turnquist
was a co-founder and Director of Marketing at Saraide Inc., a wireless-Internet
joint venture of Nortel Networks, Ericsson, Microcell, Omnipoint and GSM
Capital. He also held senior positions at Nortel, New North Media Inc. and TELUS
Mobility (then AGT Cellular).
A newly named executive management structure was formed in April 2002 called the
Office of the President, charged with the day-to-day operations of the Company.
The members of this group comprise George Reznik, Sal Visca, Bill Tam and Jim
McIntosh.
Board Committees
The Board of Directors (the "Board") has established three board committees: the
Audit Committee; the Compensation Committee; and the Corporate Governance and
Nominating Committee.
Audit Committee
The responsibilities of the Audit Committee include: reviewing the Company's
audited financial statements and presenting them to the Board for approval,
reviewing internal accounting procedures and consulting with and reviewing the
services provided by the Company's auditors. The Audit Committee is comprised of
members independent of management.
58
Compensation Committee
The responsibilities of the compensation committee include: reviewing and
recommending to the Board the compensation and benefits of all the executive
officers of the Company, and establishing and reviewing general policies
relating to compensation and benefits for the employees of the Company.
Corporate Governance Committee
The responsibilities of the corporate governance committee include: evaluating
the contribution of each director on an individual basis, assessing the
collective performance of the Board, proposing new nominees to the Board and
analyzing the existing structure of the Board.
Compliance with Section 16(a) of the Exchange Act
The Company is a "foreign private issuer" as defined in Rule 3b-4 promulgated
under the Securities Exchange of 1934, as amended (the "Exchange Act"), and,
therefore, its officers, directors and greater than 10% shareholders are not
subject to section 16 of the Exchange Act pursuant to Rule 3a12-3(b) promulgated
under such Act.
Item 11: Executive Compensation
The following table sets forth the compensation paid to our Chief Executive
Officer and other most highly compensated executive officers earning more than
$100,000 for the years ended December 31, 2002, 2001, and 2000 (the "Named
Executive Officers").
59
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Annual Compensation Stock
Options
- -------------------------------------------------------------------------------------------------------------------
Salary Bonus Other
- -------------------------------------------------------------------------------------------------------------------
Thomas Koll 2002 $ 204,808 - - 675,000
Chairman of the Board (1) 2001 305,577 - - 925,000
2000 - - - -
- -------------------------------------------------------------------------------------------------------------------
Ron Jasper 2002 144,000 23,200 - 150,000
Vice President, Network Operator 2001 160,000 30,575 - 90,000
Solutions (2) 2000 96,154 26,500 4,327 45,000
- -------------------------------------------------------------------------------------------------------------------
Sal Visca 2002 141,801 12,200 - 225,000
Chief Technology Officer, 2001 141,291 15,457 - 198,000
Office of the President (3) 2000 121,188 10,660 - -
- -------------------------------------------------------------------------------------------------------------------
Paul Huntingdon 2002 93,611 3,086 16,175 74,000
Director, Channel Sales UK (4) 2001 - - - -
2000 - - - -
- -------------------------------------------------------------------------------------------------------------------
George Reznik 2002 88,152 19,783 - 375,000
Chief Financial Officer, 2001 - - - -
Office of the President (3)(5) 2000 - - - -
- -------------------------------------------------------------------------------------------------------------------
Bill Tam 2002 50,130 - - 250,000
EVP Sales & Marketing, 2001 - - - -
Office of the President (3)(6) 2000 - - - -
- -------------------------------------------------------------------------------------------------------------------
Jim McIntosh 2002 - - - 75,000
Office of the President (3)
- -------------------------------------------------------------------------------------------------------------------
(1) Thomas Koll joined the Company February 15, 2001 as CEO and was President
from August 15, 2001 until April 2002, when he was appointed Chairman of
the Board.
(2) Ron Jasper became Vice President Network Operator Solutions on July 2002.
Mr. Jasper left the Company in January 2003.
(3) A newly named executive management structure was formed in April 2002
called the Office of the President, charged with the day-to-day operations
of the Company. The members of this group comprise George Reznik (CFO), Sal
Visca (CTO), Bill Tam (EVP Sales & Marketing) and Jim McIntosh (Director).
(4) Paul Huntingdon joined the Company in March 2002 as Director, Channel Sales
UK and subsequently promoted to General Manager, Europe in January 2003.
(5) George Reznik joined the Company in March 2002 as Chief Financial Officer,
and subsequently joined the Office of the President in April 2002.
(6) Bill Tam joined in the Company as Executive Vice President of Sales &
Marketing, and member of the Office of the President in July 2002.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock option grants
to our Executive Officers and four other most highly compensated executive
officers during the year ended December 31, 2002. The potential realizable value
is calculated based on the assumption that the Common Stock appreciates at the
annual rate shown, compounded annually, from the date of grant until the
expiration of its term. These numbers are calculated based on Securities and
Exchange Commission requirements and do not reflect the Company's projection or
estimate of future stock price growth. Potential realizable values are computed
by multiplying the number of Common Shares subject to a given option by the
exercise price; assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the table for the
entire five-year term of the option; and subtracting from that result the
aggregate option exercise price.
60
Option Grants in 2002
- --------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------------------------
Number of Average
Securities % Of Total Options Option Potential Realizable Value
Underlying Granted to Exercise at Assumed Annual Rates
Options Employees in Fiscal Price (2) Expiration of Appreciation for the
Granted Year (1) CDN$ Date Option Term (CDN$)
---------------------------------------------------------------------------------------------------
Name 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------
Thomas Koll 75,000 2.2% 0.15 Jul 23/07 $ 3,108 $ 6,868
600,000 17.9% 0.22 Nov 1/07 36,469 80,587
- ----------------------------------------------------------------------------------------------------------------------------
Bill Tam 250,000 7.5% 0.17 Jul 10/07 11,742 25,947
- ----------------------------------------------------------------------------------------------------------------------------
George Reznik 150,000 4.5% 0.65 Mar 1/07 26,937 59,525
225,000 6.7% 0.18 Jul 10/07 11,189 24,726
- ----------------------------------------------------------------------------------------------------------------------------
Sal Visca 225,000 6.7% 0.18 Jul 10/07 11,189 24,726
- ----------------------------------------------------------------------------------------------------------------------------
Ron Jasper 150,000 4.5% 0.18 Jul 10/07 7,460 16,484
- ----------------------------------------------------------------------------------------------------------------------------
Paul Huntingdon 74,000 2.2% 0.18 Jul 10/07 2,487 5,495
- ----------------------------------------------------------------------------------------------------------------------------
Jim McIntosh 75,000 2.2% 0.15 Jul 23/07 3,108 6,868
- ----------------------------------------------------------------------------------------------------------------------------
(1) Total common stock options issued during 2002 were 3,351,400 to employees
and directors.
(2) The exercise price per share was equal to the fair market value of the
Common Shares at the close of business on the date prior to the date of
grant as determined by the Board.
Option Exercises and Fiscal Year-End Values
The following table sets forth for the Executive Officers and four other most
highly compensated executive officers earning over $100,000 the number of shares
acquired upon exercise of stock options during the year ended December 31, 2002
and the number of shares subject to exercisable and non-exercisable stock
options held at December 31, 2002.
Aggregated Option Exercises in 2002 and Year-End Option Values
- ----------------------------------------------------------------------------------------------------------------------
Name Securities Aggregate Value Number of Securities Value of Unexercised
Underlying Unexercised In-the-money Options at
Options at Year End Year End (CDN$)
Acquired on Exercisable / Exercisable /
Exercise (#) Realized (CDN$) Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
Thomas Koll - - 81,250 / 593,750 $4,625 / $20,875
- ----------------------------------------------------------------------------------------------------------------------
Sal Visca 44,000 $51,920 56,250 / 168,750 $3,938 / $11,813
- ----------------------------------------------------------------------------------------------------------------------
George Reznik - - 56,250 / 168,750 $3,938 / $11,813
- ----------------------------------------------------------------------------------------------------------------------
Bill Tam - - 15,625 / 234,375 $1,094 / $16,406
- ----------------------------------------------------------------------------------------------------------------------
Ron Jasper 11,000 $18,700 37,500 / 112,500 $2,625 / $ 7,875
- ----------------------------------------------------------------------------------------------------------------------
Paul Huntingdon - - 12,500 / 61,500 $ 875 / $ 4,305
- ----------------------------------------------------------------------------------------------------------------------
Jim McIntosh - - 181,248 / 43,750 $3,125 / $ 4,375
- ----------------------------------------------------------------------------------------------------------------------
(1) The value of unexercised in-the-money options at December 31, 2001 is based
on Cdn.$0.25 share, the closing price of the Common Shares at such time,
less the exercise price per share.
Employment Agreements
The Company's policy is to require all employees, including its executive
officers, to enter into agreements requiring the non-disclosure of confidential
information of the Company, and the assignment and confirmation of the Company's
ownership of all intellectual property rights in the course of such employee's
employment with the Company.
61
Thomas Koll was appointed Chief Executive Officer of the Company commencing
February 15, 2001. Mr. Koll has entered into an employment agreement with the
Company which provides that, if he is terminated without cause, he shall be
given: (a) 12 months written notice; or (b) 12 months salary, which was
US$350,000, and immediate vesting of options which would have vested during the
following 12 months. In the event of a "change of control" of the Company and,
as a result, Mr. Koll's position with the Company is changed or he ceases to
serve as a member of the Board of the Company, Mr. Koll may elect to be deemed
to have been terminated without cause in accordance with the foregoing
provisions, provided that all unvested options shall vest immediately.
The Company has entered into an employment agreement with Sal Visca, Chief
Technology Officer, which provides that the Company will pay Mr. Visca a
retention bonus of Cdn.$175,000, payable in the following circumstances and at
the earliest of the following times: (a) if his employment is neither terminated
by him, nor by the Company for cause prior to July 31, 2003, on August 1, 2003;
(b) if he voluntarily terminates his employment or if the Company terminates his
employment for cause between August 1, 2002 and July 31, 2003, on the day after
his employment is so terminated; or (c) if his employment is terminated by the
Company without cause at any time before July 31, 2003, then on the day after
his employment is terminated.
Except as described above, no Named Executive Officer has any special
compensatory plan or arrangement, including payment to be received from the
Company or any of its subsidiaries, if such plan or arrangement results or will
result from the resignation, retirement or any other termination of employment
of the executive officer's employment with the Company and its subsidiaries or
from a change of control of the Company or any subsidiary or a change in the
executive officer's responsibilities following a change-in-control where the
amount involved, including all periodic payments or installments, exceeds
$100,000.
Director Compensation
The Company does not currently pay cash compensation to directors for serving on
its Board, but does reimburse directors for out-of-pocket expenses for attending
Board and committee meetings. The Company does not provide additional
compensation for committee participation or special assignments of the Board. On
July 23, 2002, each director at that time, received an option grant to purchase
75,000 Common Shares at a price of Cdn.$0.15 expiring July 23, 2007.
Compensation Committee Interlocks and Insider Participation
During the past fiscal year, the Company's Compensation Committee was composed
of Messrs. Koll, McIntosh and Ms. Richardson. No member of the Compensation
Committee was an officer or employee of the Company when deliberations of the
Compensation Committee occurred regarding executive officer compensation. No
executive officer of the Company serves as a member of the board or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board or Compensation Committee.
Item 12: Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of its Common Shares as of December 31,
2002, by (i) each person known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Shares, (ii) each director of the Company,
(iii) each Named Executive Officer, and (iv) all directors and officers as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Shares listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
The principle address of each of the individuals identified below is 4664
Lougheed Highway, Suite 200, Burnaby, British Columbia, Canada, V5C 5T5, except
where another address is listed.
62
-------------------------------------------------------------------------------------------------------------------
Directors, Executive Officers Earning More Number of Shares Percent of total Shares
Than $100,000 and 5% Shareholders Beneficially Owned Owned
-------------------------------------------------------------------------------------------------------------------
Thomas Koll(1) 6,489,989 9.02%
Jim McIntosh(2)(3) 1,811,426 2.52%
Sal Visca(4) 372,517 0.52%
Ron Jasper(5) 179,000 0.25%
George Reznik(6) 112,500 0.16%
Barb Richardson(7) 68,750 0.10%
Bill Tam(8) 31,250 0.04%
Lew Turnquist - -
Steven Wu - -
Paul Huntingdon 25,000 0.03%
All Directors and Executive Officers as a group (9) 9,090,432 12.63%
-------------------------------------------------------------------------------------------------------------------
(1) Includes 1,018,750 shares related to options exercisable and 3,510,455
shares for warrants exercisable within 60 days from December 31, 2002
(2) Includes 1,301,753 Common Shares beneficially owned through 529452 B.C.
Ltd. (See note (3)) and 220,138 shares related to options exercisable.
(3) The issued share capital of 529452 B.C. Ltd. consists of 100 Class A voting
shares and 100 Class B non-voting shares and 1,000 Class C preferred shares
and 1,000 Class D preferred shares. Jim McIntosh holds 51 of the Class A
voting shares, 51 of the Class B non-voting shares and all 1,000 of the
Class D preferred shares.
(4) Relates to 372,517 shares for options exercisable within 60 days of
December 31, 2002
(5) Relates to 179,000 shares for options exercisable within 60 days of
December 31, 2002
(6) Relates to 112,500 shares for options exercisable within 60 days of
December 31, 2002
(7) Relates to 68,750 shares for options exercisable within 60 days of December
31, 2002
(8) Relates to 31,250 shares for options exercisable within 60 days of December
31, 2002
(9) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Common Shares subject to options
currently exercisable, or exercisable within 60 days after December 31,
2002, are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership for any other person.
Item 13: Certain Relationships and Related Transactions
No director, senior officer or principal shareholder of the Company, or
associate or affiliate of any of the foregoing, has any other material interest,
direct or indirect, in any transaction or in any proposed transaction which has
materially affected or will materially affect the Company from January 1, 2002
through December 31, 2002, except as disclosed herein or as follows:
63
- -------------------------------------------------------------------------------------------------------------------
Financially
Largest Amount Assisted
Name and Involvement of Amount Outstanding Securities
Principal Issuer or Outstanding as at Dec. 31, Purchased Security for
Position Subsidiary During 2002 2002 During 2002 Indebtedness
- -------------------------------------------------------------------------------------------------------------------
Sal Visca,
Chief Technology
Officer Company Cdn$175,000 Cdn$175,000 - nil - - nil -
- -------------------------------------------------------------------------------------------------------------------
The foregoing amount was loaned to Mr. Visca as part of a retention arrangement
made between Mr. Visca and the Company. See "Directors and Officers of
Registrant - Employment Agreements". The amount bears no interest and is
repayable on demand on or after July 1, 2002 and matures on the earlier of July
31, 2003 and the date of cessation of Mr. Visca's employment with Infowave.
PART IV
Item 14: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company's management,
including the members of the Company's Office of the President and Chief
Financial Officer, the Company evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rule
139-14(c) under the Securities Exchange Act of 1934, as amended) as of a date
(the "Evaluation Date") within 60 days prior to the filing date of this report.
Based upon that evaluation, the members of the Company's Office of the President
and Chief Financial Officer concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were effective in timely alerting
them to the material information relating to the Company (or its consolidated
subsidiaries) required to included in the Company's periodic SEC filings.
(b) Changes in Internal Controls
There were no significant changes made to the Company's internal controls or, to
its knowledge, in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
taken with regard to significant deficiencies and material weaknesses.
64
Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List the following documents filed as a part of the report:
Financial Statements
Auditor's Report..........................................................28
Consolidated Balance Sheet................................................29
Consolidated Statements of Operations and Deficit.........................30
Consolidated Statements of Cash Flows.....................................31
Notes to Consolidated Financial Statements................................33
Exhibits
Exhibit
Number Description
- ------ -----------
2.1(1) Asset Purchase Agreement dated September 8, 2000 between the
Corporation and Strydent Software Inc.
3.1(2) Memorandum and Articles of registrant
*4.1(2) Employee Incentive Plan dated April 28, 1997, as supplemented
September 25, 1997
4.2(2) Special Warrant Indenture dated April 20, 1998 between the
Corporation and Montreal Trust Company of Canada
4.3(3) Special Warrant Indenture dated June 30, 1999 between the
Corporation and Montreal Trust Company of Canada
4.4(4) Special Warrant Indenture dated April 13, 2000 between the
Corporation and Montreal Trust Company
*4.5(5) Stock Option Plan, as amended
4.6(6) Form of Shareholders Rights Plan Agreement dated as of June 5,
2000 between the Corporation and Montreal Trust Company of Canada
4.7(10) Warrant Certificate dated July 24, 2001 issued to Thomas Koll
10.1(2) Investor Relations Agreement dated September 1, 1998 between the
Corporation and IRG Investor Relations Group Ltd.
10.2(2) Investor Relations Agreement dated September 1, 1998 between the
Corporation and Staff Financial Group Ltd. and 549452 BC Ltd.
10.3(2) Loan Facility dated October 29, 1998 with a Canadian chartered
bank
10.4(3) Lease Agreement dated February 12, 1998 between Riocan Holdings
Inc. and the Corporation
10.5(3) Lease Agreement dated November 23, 1999 between Bedford Property
Investors, Inc. and the Corporation
*10.6(2) Corporate Development Agreement dated October 26, 1998 between
the Corporation and Capital Ridge Communications Inc. (formerly
"Channel One Systems Corp.")
10.7(2) Strategic Partnership Agreement dated March 6, 1998 between the
Corporation and BellSouth Wireless Data
10.8(2) Development Agreement dated March 4, 1998 between the Corporation
and Hewlett-Packard
10.9(2) Source Code License Agreement dated March 31, 1998 between the
Corporation and DTS
65
Exhibit
Number Description
- ------ -----------
10.10(2) Source Code License Agreement dated June 9, 1998 between the
Corporation and Wynd Communications Corporation
10.11(2) Source Code License Agreement dated November 13, 1997 between the
Corporation and Apple Computers
10.12(2) OEM License Agreement dated December 5, 1997 between the
Corporation and Certicom Corp.
10.13(2) Letter Agreement dated April 20, 1998 between the Corporation and
Lexmark International, Inc.
*10.14(2) Employment Agreement dated May 2, 1991 between the Corporation
and Jim McIntosh
*10.15(2) Employment Agreement dated May 23, 1997 between the Corporation
and Bijan Sanii
*10.16(3) Employment Agreement dated September 16, 1999 between the
Corporation and Todd Carter
10.17(2) Agency Agreement dated March 31, 1998 between the Corporation,
Canaccord Capital Corporation and Yorkton Securities Inc.
10.18(2) Consulting Agreement dated July 4, 1997 between the Corporation
and GWM Enterprises Ltd.
10.19(3) Agency Agreement dated June 18, 1999 between the Corporation,
Canaccord Capital Corporation, Yorkton Securities, Inc., Sprott
Securities Limited and Taurus Capital Markets Ltd.
10.20(4) Letter of Intent dated May 8, 2000 among the Corporation, Kevin
Jampole and Robert Heath
10.21(7) Lease Agreement dated April 26, 2000 between the Corporation and
Tonko-Novam Management Ltd.
*10.22(8) Employment Agreement dated December 14, 2000 between the
Corporation and Thomas Koll
10.23(8) Lease dated December 7, 2000 between the Corporation and
Principal Development Investors, L.L.C.
10.24(9) Employment Agreement dated April 16, 2001 between the Corporation
and Jeff Feinstein
10.25(9) Lease Agreement between the Corporation and Sterling Realty
Organization Co.
10.26(9) Lease Termination Agreement dated May 24, 2001 between the
Corporation and Principal Development Investors, LLC
10.27(10) Loan Agreement dated July 24, 2001 between the Corporation and
Thomas Koll
10.28(10) Security Agreement dated July 24, 2001 made by the Corporation in
favor of Thomas Koll
10.29(10) Intellectual Property Security Agreement dated July 24, 2001 made
by the Corporation in favor of Thomas Koll
10.30(10) Loan Agreement dated August 10, 2001 between the Corporation and
Sal Visca
66
Exhibit
Number Description
- ------ -----------
10.31(10) Promissory Note dated August 10, 2001 between the Corporation and
Sal Visca
10.32(10) Employment letter dated August 10, 2001 between the Corporation
and Sal Visca
*10.33(11) Employment letter dated March 8, 2002 between the Corporation and
George Reznik
10.34(11) Convertible loan agreement dated March 8, 2002 between the
Corporation and Compaq
10.35(12) Lease Termination Agreement dated May 25, 2002 between the
Corporation and Sterling Realty Organization Co.
10.36(12) Lease Agreement dated June 18, 2002 between the Corporation and
Tonko Realty Advisors (B.C.) Ltd.
10.37(12) Surrender of Lease Agreement dated June 18, 2002 between the
Corporation and Tonko Realty Advisors (B.C.) Ltd.
10.38(12) Surrender of Lease Agreement dated June 18, 2002 between the
Corporation and Tonko Realty Advisors (B.C.) Ltd.
10.39(12) Modification and Partial Surrender of Lease Agreement dated June
18, 2002 between the Corporation and Tonko Realty Advisors (B.C.)
Ltd.
*10.40(13) Employment Agreement between the Corporation and Sal Visca dated
November 26, 1999
*10.41(13) Amendment to Employment Agreement between the Corporation and Sal
Visca dated February 1, 2002
*10.42(13) Amendment to Employment Agreement between the Corporation and Sal
Visca dated July 9, 2002
*10.43(13) Amendment to Employment Agreement between the Corporation and Sal
Visca dated September 5, 2002
*10.44(13) Employment Agreement between the Corporation and Thomas Koll
dated April 23, 2002
*10.45(13) Employment Agreement between the Corporation and Ron Jasper dated
October 10, 1997
*10,46(13) Amendment to Employment Agreement between the Corporation and Ron
Jasper dated July 9, 2002
*10.47(13) Employment Agreement between the Corporation and Bill Tam dated
July 9, 2002
*10.48(13) Employment Agreement between the Corporation and George Reznik
dated July 9, 2002
21.1 List of Subsidiaries
23.1 Consent of KPMG LLP
- ----------------------
* Indicates management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the Corporation's Form 8-K filed on September
25, 2000.
(2) Incorporated by reference to the Corporation's Registration Statement on
Form 20-F (No. 0-29944).
(3) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1999.
67
(4) Incorporated by reference to the Corporation's Annual Report on Form 10-Q
for the period ended March 31, 2000.
(5) Incorporated by reference to the Corporation's Registration Statement on
Form S-8 (Registration No. 333-39582) filed on June 19, 2000
(6) Incorporated by reference to the Corporation's Registration Statement on
Form 8-A filed on July 13, 2000
(7) Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 2000.
(8) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2000.
(9) Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 2001.
(10) Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the period ended September 30, 2001.
(11) Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2001.
(12) Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 2002.
(13) Incorporated by reference to the Corporation's Form 8-K filed on September
26, 2002.
(b) Reports on Form 8-K
On November 27, 2002, the Company filed a form 8-K with a press release attached
thereto announcing a proposed financing involving the Company.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Infowave Software, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. Pursuant to the
requirements of the Securities Exchange Act of 1934, this report to be signed by
the following persons on behalf of Infowave Software, Inc. in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ George Reznik Chief Financial Officer, March 31, 2003
- ------------------------------ Office of the President
George Reznik (Principal Financial,
Accounting and Executive
Officer)
/s/ Sal Visca
- ------------------------------ Chief Technical Officer, March 31, 2003
Sal Visca Office of the President
(Principle Executive Officer)
EVP Sales & Marketing, March 31, 2003
/s/ Bill Tam Office of the President
- ------------------------------ (Principle Executive Officer)
Bill Tam
/s/ Jim McIntosh Director, March 31, 2003
- ----------------------------- Office of the President
Jim McIntosh (Principle Executive Officer)
/s/ Thomas Koll Chairman of the Board March 31, 2003
- -----------------------------
Thomas Koll
/s/ Barb Richardson Director March 31, 2003
- -----------------------------
Barb Richardson
/s/ Stephen Wu Director March 31, 2003
- -----------------------------
Stephen Wu
/s/ Llewellyn Turnquist Director March 31, 2003
- -----------------------------
LLewellyn Turnquist
69
CERTIFICATION
I, George Reznik, certify that:
1. I have reviewed this annual report on Form 10-K of Infowave Software, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
/s/ George Reznik
- ---------------------------------
George Reznik
Chief Financial Officer,
Office of the President
(Principal Financial and Accounting
Officer and Principal Executive Officer)
CERTIFICATION
I, Bill Tam, certify that:
1. I have reviewed this annual report on Form 10-K of Infowave Software, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
/s/ Bill Tam
- ------------------------------
Bill Tam
Office of the President
(Principal Executive Officer)
CERTIFICATION
I, Sal Visca, certify that:
1. I have reviewed this annual report on Form 10-K of Infowave Software, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
/s/ Sal Visca
- ------------------------------
Sal Visca
Office of the President
(Principal Executive Officer)
CERTIFICATION
I, Jim McIntosh, certify that:
1. I have reviewed this annual report on Form 10-K of Infowave Software, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
/s/ Jim McIntosh
- --------------------------------
Jim McIntosh
Office of the President
(Principal Executive Officer)
CERTIFICATION OF GEORGE REZNIK AS THE CORPORATION'S
CHIEF FINANCIAL OFFICER AND AS A MEMBER
OF THE OFFICE OF THE PRESIDENT PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Infowave Software Inc. (the "Company")
on Form 10-K for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I George Reznik,
Chief Financial Officer and member of the Office of the President of the
Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The report fully complies with the requirements of the Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.
/s/ George Reznik
--------------------------------
George Reznik
Chief Financial Officer,
Office of the President
March 31, 2003
CERTIFICATION OF BILL TAM AS A MEMBER OF THE
CORPORATION'S OFFICE OF THE PRESIDENT
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Infowave Software Inc. (the "Company")
on Form 10-K for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I Bill Tam, a member
of the Office of the President of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to the best of my knowledge:
(1) The report fully complies with the requirements of the Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Bill Tam
--------------------------------
Bill Tam
Office of the President
March 31, 2003
CERTIFICATION OF SAL VISCA AS A MEMBER OF THE
CORPORATION'S OFFICE OF THE PRESIDENT
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Infowave Software Inc. (the "Company")
on Form 10-K for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I Sal Visca, a member
of the Office of the President of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to the best of my knowledge:
(15) The report fully complies with the requirements of the Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Sal Visca
--------------------------------
Sal Visca
Office of the President
March 31, 2003
CERTIFICATION OF JIM MCINTOSH AS A MEMBER OF THE
CORPORATION'S OFFICE OF THE PRESIDENT
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Infowave Software Inc. (the "Company")
on Form 10-K for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I Jim McIntosh, a
member of the Office of the President of the Company, certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The report fully complies with the requirements of the Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly represents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Jim McIntosh
--------------------------------
Jim McIntosh
Office of the President
March 31, 2003