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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, 2003
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)
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 30, 2003 was approximately US$39,587,072. The number of the
Registrant's Common Shares outstanding as of March 26, 2004, was 216,029,950.
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Table of Contents
Part I............................................................................................................1
Item 1: Business.................................................................................................1
Item 2: Properties..............................................................................................19
Item 3: Legal Proceedings.......................................................................................19
Item 4: Submission of Matters to a Vote of Security Holders.....................................................19
Part II..........................................................................................................20
Item 5: Market for Registrants Common Equity and Related Stockholders Matters...................................20
Item 6: Selected Financial Data.................................................................................21
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations...................22
Item 7A: Quantitative and Qualitative Disclosure about Market Risk..............................................33
Item 8: Financial Statements and Supplementary Data.............................................................34
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................72
Item 9A: Controls and Procedures................................................................................72
Part III.........................................................................................................72
Item 10: Directors and Officers of the Registrant...............................................................72
Item 11: Executive Compensation.................................................................................74
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........75
Item 13: Certain Relationships and Related Transactions.........................................................79
Part IV..........................................................................................................79
Item 14: Controls and Procedures................................................................................79
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................80
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-OVERVIEW
Infowave Software, Inc. ("Infowave" or the "Company") provides enterprise mobile
applications (EMA), including packaged configurable application software modules
that integrate business operations required by mobile workers like asset
management, field service and mobile e-mail as well as secure, scalable
infrastructure software solutions for developing and deploying mobile software
solutions infrastructure platforms. The Company sells direct to enterprises and
end-users as well as indirectly through channel partners like independent
software vendors (ISVs), System Integrators, Value Added Resellers (VARs) and
network operators.
Focused on enabling organizations with mobile workforces since 1993, Infowave
solutions enable mobile workers of all types to access critical enterprise
information at the point of work, including work orders, internal
communications, asset information, customer details, calendars, schedulization
and other important data required to perform their job functions more
effectively and productively. The Company provides a complete suite of mobile
software solutions, ranging from the individual and corporate e-mail service of
Symmetry, to complete enterprise-grade application suites like Telispark Mobile
Enterprise which streamlines and integrates business operations required by
mobile workers, such as Enterprise Resource Planning (ERP), Field Service,
Supply Chain and Asset Management operations. The Company also offers the
Wireless Business Engine, a wireless software platform for large corporations
that provides access to e-mail 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. As well, Infowave offers the Mobility
Platform which offers users worry-free, remote access to behind-the-firewall
business software applications on Palm Powered or Pocket PC devices.
The Company is organized under the Canada Business Corporations Act. 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. Infowave's
other subsidiary, Telispark Inc., is incorporated under the laws of the State of
Delaware. 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
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Continental Europe located at Dreimuehlenstrasse 27, 80476 Munchen/Munich,
Germany (telephone 49.89.767368.94).
THE COMPANY-HISTORY
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.
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 the Imaging Division effective August 31, 2000.
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 April 2002, the Company established a management structure called the Office
of the President consisting of George Reznik, Chief Financial Officer, Sal
Visca, Chief Technology Officer and Jim McIntosh, Director, whose mandate was to
manage the day to day operations of the Company in addition to its strategic
direction.
Throughout 2002 and 2003, 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
wireless 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 Pro desktop personal e-mail solution,
its Symmetry Workgroup and Enterprise server products 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).
In March 2003, Infowave launched Symmetry Express, a wireless e-mail software
solution for mobile users seeking instant access to their personal e-mail
accounts on a range of integrated devices. Available in early Q2 2003, Symmetry
Express works on any Pocket PC, Smartphone(TM) and Palm(TM) powered device from
anywhere. The solution allows users to send and receive e-mail messages from
their POP3, Yahoo Mail and Hotmail accounts directly from their integrated
device and will be marketed through Infowave's network operator partners.
In May 2003, the Company entered into a sales referral agreement with Dell in
which the companies will cooperate in marketing Infowave's Wireless Business
Engine solution with Dell's GPRS wireless access offerings to the U.K. business
market.
On July 4, 2003, the Company completed the acquisition of substantially all of
the business and assets of HiddenMind Technology, LLC, a wireless software
company based in Cary, North Carolina ("HiddenMind"). HiddenMind offers a mobile
application platform that enables companies to extend existing data and
applications to mobile devices. Under the terms of the Asset Purchase Agreement
dated July 4, 2003, the Company acquired such business and assets in
consideration for US$2,031,105. The purchase price was paid by the Company
through the issuance to HiddenMind of 14,966,034 units (the "Units") of the
Company having a fair value of $0.15 (Cdn$0.19)
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per Unit. Each Unit consisted of one common share and one half of one warrant (a
"Warrant"). Each whole Warrant entitles the holder to purchase an additional
common share of the Company at an exercise price of $0.15 (Cdn$0.19) until July
4, 2005. The transaction was accounted for under the purchase method of
accounting.
In July 2003, the Company completed a brokered private placement of
approximately US$3.6 million in which the Company issued 29,642,037 units at
$0.12 (Cdn$0.16125). 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 purchase one common share for a period of two years from the closing
date at a price of $0.17 (Cdn$0.215) per common share. The common shares and
warrants comprising the units were subject to a four month hold period.
Also in July 2003, the Company completed a private placement financing of US$3.0
million private placement with Gerald Trooien, the majority shareholder of
HiddenMind, in which the Company issued 29,473,684 units at a price of $0.11
(Cdn$0.1425) per unit. 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 purchase one common share for a period of two years from the
closing date at a price of $0.15 (Cdn$0.19) per common share. The common shares
and warrants comprising the units were subject to a four month hold period.
Also in July 2003, the Company appointed Jean-Francois Heitz and Jerry Meerkatz
to its Board of Directors.
On October 21, 2003, the Company purchased all of the intellectual property
assets of Sproqit Technologies, Inc ("Sproqit"), a wireless software company
based in Kirkland, Washington. Sproqit offers a mobile application platform that
enables users to obtain e-mail and other data via hand held personal digital
assistant (PDA) and smartphone wireless devices running various operating
systems. Under the terms of the acquisition agreement, the Company acquired all
of the intellectual property of Sproqit and issued to Sproqit 4,038,550 common
shares of Infowave with an estimated fair value of $0.23 (Cdn$0.30) per share.
Sproqit has option to purchase back all of the intellectual property assets sold
to the Company for cash consideration equal to the original purchase price plus
a premium of 20%, pursuant to the Option Agreement, dated September 23, 2003 and
subsequesnt Amendment dated March 5, 2004 between Infowave and Sproqit for a
period of two years. Infowave licensed Sproqit's e-mail technology on an
exclusive basis in its core markets at preferential royalty rates, which will
continue in the event that the purchase option is exercised by Sproqit. In the
event that the option is not exercised by Sproqit, Infowave will retain
ownership with no future royalties payable to Sproqit.
In November 2003, Mr. Jerry Meerkatz was appointed President and Chief Executive
Officer of the Company resulting in the replacement of the Office of the
President with a more traditional management structure. Mr. Meerkatz joined
Infowave from Hewlett Packard, where he held several executive positions, most
recently, Vice President and General Manager of Enterprise Mobility Solutions.
In December 2003, Infowave entered into an agreement with Technology
Partnerships Canada ("TPC") for an investment up to Cdn$7.3 million to
complement Infowave's investment in research and development. Under the terms of
this agreement, TPC has agreed to contribute a specified percentage to match
Infwave's investment in research and development expenses for a several year
period.
On January 7, 2004, the Company entered into an agreement under which it has
acquired control of, and intends to ultimately acquire all of the outstanding
shares of, Telispark Inc. ("Telispark"), a provider of enterprise mobility
applications software based in Arlington, Virginia, USA. Under the terms of the
acquisition agreement, Infowave will pay a total of US$8.4 million for the
purchase of 100% of all of the issued and outstanding common shares of
Telispark, payable in approximately 46 million Infowave common shares, issuable
in two tranches. Infowave has completed the initial purchase of approximately
76% of Telispark shares pursuant to a Stock Purchase Agreement dated January 7,
2004. Infowave acquired the remaining Telispark common shares as a result of
shareholder approval at the Company's special general meeting, which took place
on March 30, 2004. The number of Infowave common shares issued in the second
tranche may increase by up to approximately 2.1 million Infowave common shares
in the event that the weighted average Infowave common share price declines
prior to closing of the second tranche. Infowave has also assumed Telispark
employee stock options, which will be exerciseable into approximately 1.9
million common shares of Infowave. Deloitte Consulting L.P. held approximately
90% of the shares of Telispark at the time Infowave acquired Telispark.
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On March 11, 2004, the Company completed a brokered private placement of
approximately $4.7 million (Cdn$6.1 million) in which the Company issued
27,931,818 units at $0.17 (Cdn$0.22). 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 purchase one common share for a period of two
years from the closing date at a price of $0.22 (Cdn$0.29) per common share.
Agents' commission and financing fees totaling $0.4 million (Cdn$0.5 million)
and an additional 300,000 units were paid in connection with this private
placement. The common shares and warrants comprising the units are subject to a
four month hold period.
In March 2004, the Company entered into an agreement with Gerald Trooien to
issue approximately 6 million common shares for $1.0 million (Cdn$1.3 million)
in a private placement financing. This private placement was subject to
shareholder approval. Such approval was obtained on March 30, 2004 and the
financing closed on March 31, 2004. The shares issued are subject to a four
month hold period.
COMPANY STRATEGY
Infowave's strategy is to become the leading enterprise mobile application
software provider, delivering mobile application and infrastructure software
solutions to organizations in need of real-time data access in the field. Today,
the Company is focused on vertical industries that are more likely to make large
capital investments which consist of utilities, oil and gas, governmental,
telecommunications and high tech sectors to help maintain and service complex
equipment and inventory in the field or in closed-campus environments like
warehouses and plants.
As well, Infowave's strategy is to enable enterprises to streamline their
business operations as they pertain to the mobile worker. By providing
enterprise mobile end-users with an easy to navigate, intuitive mobile
application that enables work flow automation, organizations can improve their
asset utilization, minimize inventory investment levels, optimize the supply
chain and financially depreciating assets, and provide more efficient service
through optimized work processes that eliminate error-prone paper-based
processes, increase wrench time, and improve data integrity in a mobile
environment. Infowave's Telispark Mobile Enterprise is a suite of ten
configurable pre-integrated "mix and match" mobile software applications that
seamlessly and quickly integrate with leading back-end systems including Oracle,
SAP, Lotus Notes, Microsoft Exchange, Siebel, MRO, and Indus. Infowave's
underlying standards-based mobile middleware software provides a highly
scalable, and secure platform for deploying and accessing enterprise data
applications consisting of mobile e-mail/PIM, internet applications and server
based applications such as CRM, ERP, Supply Chain, Enterprise Asset Management
(EAM) and others.
MARKET OPPORTUNITY
The mobile software market has evolved over the past 4 years. Enterprises and
vendors alike saw what worked and what failed, business models, applications,
and technology approaches, respectively. Today the market has matured to a point
where enterprises can reap real, measurable value from mobile deployments. The
enterprise mobile application 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 (E-mail, Personal Information
Management) and Customer Relationship Management (CRM) services has
helped to drive increased productivity and efficiency within the
enterprise.
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.
Capital-intensive organizations have spent the past ten years implementing
business operations designed to increase operational efficiency and improve
asset utilization. Large, expensive systems like Supply Chain Management, CRM,
ERP, EAM, and SFA, helped enterprises make progress in preserving, protecting
and extending the life of capital assets and increasing operational
efficiencies. Unfortunately, these systems are often architected as disparate
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or non-integrated data sources, limiting the type and amount of enterprise
information that can be accessed and interacted with by the mobile user.
Today, large organizations find themselves at a crossroads. The current
economics and the ever-increasing size of mobile workforces are forcing
organizations to take a closer look at how they utilize their assets and the
costs associated with their current operations. Many find that current
capital-intensive operations, such as preventive and reactive maintenance, are
ineffective and cost millions of dollars a year in lost time and equipment. In
looking to fix the situation, organizations find themselves entrenched in
siloed, proprietary business operations that cannot be integrated with one
another without large services overhauls and the resulting expensive maintenance
fees. The bottom line is that enterprises need to improve their approach to the
mobile worker if they want to preserve their assets and save money.
Many vendors claim to offer enterprise mobile solutions. Unfortunately, most
options are characterized by expensive and non-integrated approaches to the
problem. The end result is a limited, unreliable end-user application that is a
mobilization of one back-end system.
In order to have a successful mobile application deployment, organizations must
consider the following:
o THE MOBILE BUSINESS PROCESS IS UNIQUE. Mobile users are not at their
most productive when a software application is a mirror of a clunky
single system. Chances are, the operational implementation was rolled
out for planning purposes and did not focus on the end-user.
o INTEGRATED, CROSS-ENTERPRISE DATA BUSINESS PROCESSES. Mobile users,
like utilities maintenance personnel, may need access to many
different data sources. For example, a software application that meets
the need would provide field techs with access to documentation for
equipment information, work orders from Enterprise Asset Management
systems, customer information from CIS systems, and Time and Materials
capability from financial applications. In most organizations, these
systems are disparate and unconnected. Organizations need these
systems to talk.
o VERTICAL EXPERTISE: Packaged software applications that address
industry-specific issues cut down on initial services costs as well as
deliver a solution that addresses an organization's unique business
needs and optimal mobile workflows.
o PACKAGED DELIVERY: Configurable, off-the-shelf software applications
enable rapid deployment of full-featured applications. In addition,
administrators can make application changes quickly and
cost-effectively as needs change and user bases expand.
o STANDARDS-BASED MOBILE TECHNOLOGY: Secure, robust mobile software
infrastructure is essential to an effective deployment. Selecting a
solution that enables uninterrupted application access, regardless of
network connection, is critical to ROI and achieving the business
objectives of the implementation. Robust synch, run-time, security and
standards based architecture are key technology features for
successful deployments.
The EMA market is a set of software vendors that aim to provide packaged,
configurable, pre-integrated enterprise applications for increasing operational
efficiency and improving asset utilization. EMA vendors combine the following in
delivering technology offerings:
o End-user-focused design principles.
o Unique business processes and workflows for mobile users.
o Vertical-specific expertise.
o Robust data adapters and EAI architecture for cross-enterprise
integrations.
o Advanced, standards-based mobile technology for offline access, synch,
security, etc.
EMA vendors focus on delivering packaged software applications that are
configurable for a certain vertical or business operation. EMA offerings focus
on delivering a mobile business process that is configured according to the
customer's need. It is not a software set of technologies alone. Mobile
technology is a component of executing a highly productive and efficient
business process that enables the customer to achieve rapid ROI through
increased operational efficiency.
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A mobile business process is the optimal application flow or order of access
that results in a more productive end-user. Mobile business processes are
designed with the mobile end-user at the center. They enable end users to access
multiple business operation systems, like ERP, Supply Chain, Financials,
Document Management and others. The result for the end-user is access to the
right information at the point-of work. A mobile business process is designed
very differently than traditional siloed business operations or "mobile"
offerings from traditional point solution vendors. These vendors often put a
transcoder or mobile technology on top of a solution that was designed for a PC
or a terminal. This ends up delivering limited functionality to the end-user and
propagates the problems mobile was intended to solve: lack of data integrity,
poor asset utilization and lags of productivity within the mobile workforce.
Infowave believes that providing mobile 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 enterprise mobile application
(EMA) provider of wireless infrastructure and EMA software solutions to the
enterprise through a two-pronged sales strategy:
o First, selling mobile software to corporate and enterprise customers
alongside strategic technology partners such as HP, Dell, IBM, Indus
International, MRO Software; and
o Second, selling mobile application software solutions to and with
network operators to assist them in bringing comprehensive wireless
data solutions to market.
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 easier 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 2003 and remains actively
engaged in pilot projects with enterprise customers.
By enhancing our solution offering to the enterprise market with the addition of
mobile applications obtained through Infowave's acquisition of Telispark in
January 2004, Infowave is better positioned to provide value to its enterprise
customers.
In the Network Operator market, Infowave offers the Mobile Application Gateway,
a software 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.
INFOWAVE SOFTWARE PRODUCTS
INFOWAVE PRODUCT TARGET MARKET REQUIREMENTS / FEATURES
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Telispark Mobile Enterprise Vertical enterprise companies such Provides work-flow process optimization in
as oil & gas, utilities, addition to access to corporate data on a mobile
telecom and high tech field service. basis.
- ---------------------------------- ---------------------------------------- ------------------------------------------------
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
- ---------------------------------- ---------------------------------------- ------------------------------------------------
6
INFOWAVE PRODUCT TARGET MARKET REQUIREMENTS / FEATURES
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Exchange, Lotus Notes, and other encryption. Efficient data compression
corporate applications such as CRM and optimization and connection fault tolerance.
SFA tools.
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Mobility Platform Enterprises with mobile work force Provides access to enterprise applications
including CRM, SFA, ERP
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Pro Individual mobile professional Installs easily on user's desktop. Utilizes
secure AES encryption technology
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Enterprise Edition Companies with more than ten users Installs on the server with simple
administration, AES security encryption
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Express Individual consumers Access personal POP3 or Hotmail e-mail using
Smartphone of PDA device
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Workgroup Edition Companies with fewer than 10 users Installs on a single desktop within the
workgroup, no IT resources required
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Mobile Operator Solution Suite Network mobile operators wanting to Hosted and non-hosted data gateway
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 branded products.
new integrated devices and
increase mobile data activations.
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Telispark Mobile Enterprise:
Telispark Mobile Enterprise(TM) (TME) is a packaged suite of configurable
software applications designed to help large organizations service and manage
complex equipment in the field or in a campus environment like warehouses and
plants. Telispark's software applications are intended to enable a corporate
customer to increase the efficiency and productivity of its mobile enterprise
workforce, extend the life and effectiveness of its capital assets and increase
service revenues. Telispark has created configurable enterprise applications for
mobile employees who perform plant maintenance operations, field service
operations, asset management and maintenance repair and overhaul operations.
Telispark applications provide streamlined work-flow processes via mobile
devices and interaction with critical information from back-end systems.
Telispark has focused its marketing efforts on its target market consisting of
asset intensive companies in the following vertical segments that are likely to
make capital investments:
o Energy and utilities, including large telephone companies
o Oil and gas
o Defense and aerospace
o High tech field service
Deloitte has granted Telispark a non-exclusive license for its best practices
industry prints ("Industry Prints") that have been developed over the years from
Deloitte's enterprise re-engineering consulting engagements. The formal terms of
the license agreement relating to the Industry Prints does not include any
future royalty or maintenance payable by Telispark to Deloitte. Telispark's
objective was to productize the knowledge obtained from these various consulting
engagements to design mobile wireless software solutions for the enterprise that
are more cost effective for future customers resulting in supporting short pay
back and high return on investment.
TME is composed of ten complementary "mix and match" software modules that can
be deployed quickly and securely to yield rapid-ROI applications that streamline
and integrate business operations required by mobile workers, such as ERP, Field
Service, Supply Chain, Asset Management and personal information management
(PIM) operations. Telispark's robust enterprise data connectors enable rapid and
seamless integration with existing back-end data sources including SAP, Siebel,
MRO, Lotus Notes, Oracle, Microsoft Exchange and Indus.
MworkManager: Work Order Management & Processing. This module records start
and end times, breaks down causes and work performed and reviews equipment
configuration and repair history.
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Minspect: Customer Defined Inspection Toolkit. This module uses bar code
readers and fills out forms, provides real-time notification of work order
changes across personnel, shifts, and teams.
MDocs: Documentation Search & Retrieval Tool. This module accesses the most
current fault isolation procedures, user manuals, reports and schematics
from any documentation system.
MDepot: Production/Non-Production Stores Management. This module accesses
bill of materials, material availability and order replacement parts and
identifies parts inventory based on equipment configuration, track material
transfers.
Mwarehouse: Comprehensive Warehouse Management Tool. This module perform
inventory checks and audits, transfers stock within and between warehouses,
issues stock out to work sites, scraps and retires stock, returns equipment
to vendors for repair or replacement, performs purchase order receipts and
manages stock hierarchies.
MT&M: Document, Capture and Verify Invoicing. This module documents the
work performed, captures customer approval, reviews, updates, and approves
submitted invoices by field technicians using any standard web browser,
validates the work performed and accumulated charges before the invoice is
submitted for billing and provides for audit and reporting.
MAsset: Asset Management Tool. This module records assets at a given
location using bar code readers, automatically updates centralized
inventory information and manages configuration and maintenance of the
assets.
MOBILE QUICKSTART: This module is an out-of-the-box mobility solution from
HP and Telispark that packages all the software, hardware and services that
an enterprise needs to rapidly implement entry-level asset inspection and
maintenance solutions
Telispark believes that TME has a number of advantages for the enterprise, which
are as follows:
o Easily configurable, scalable and deployable. Telispark provides an easily
scalable solution that can be configured to match an enterprise's specific
mobile business processes. Telispark's platform and application suite uses
a logical business object framework, which maps to back-office systems. It
automatically replicates those objects and processes to a thick client for
reliability. Lastly, it manages those applications, with upgrades and data
transactions, across a wireless network.
o Accessibility across multiple back-office systems. The mobile worker often
requires information that resides in multiple systems. Telispark exchanges
and transacts data, such as work orders, material availability, equipment
configurations, schematics, and repair procedures, from the mobile client
to disparate back-office systems. This eliminates the inefficient
activities performed to access that information and leverages the
significant investments in back-office systems.
o Standards computing & device independence. Telispark employs a
state-of-the-art Java- and XML- based server architecture with advanced
client-side scripting. Telispark's thick client has a configurable Client
Database Management System that runs on any device. The client applications
are written in industry standard user interface development languages, HTML
and JavaScript, and supports the following operating systems, Pocket PC,
Palm, and Symbian.
o Business scalable enterprise solutions. Telispark teams with global
organizations for scalable solutions that seamlessly work with Telispark's
products. These partners include, but are not limited, to Hardware Vendors
(Compaq, Symbol, Siemens, Intermec, HP), Systems Integrators (Deloitte
Consulting, Accenture, KPMG), Network Providers, and Application Vendors
(SAP, Tibco, MRO Software, Datastream).
o Out-of-network coverage. Since wireless networks cannot be accessed from
remote locations, Telispark clients run as standalone thick client
applications that store data persistently on the users' handheld devices,
allow them to navigate the application, and update their work regardless of
network connectivity. The application will time
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stamp, prioritize and sequence the updates to the back-office system, when
the user comes back into wireless coverage.
o Automated data entry and mobile workflow. By using bar code readers and
automated workflows to systematically process data, Telispark ensures that
the maintenance technician provides timely and accurately entered data.
The Company generates revenue through the sale of TME end-user perpetual
licenses, with the price for each license varying based upon the module
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.
TME is sold to enterprise customers by Infowave's sales force and also partners
with third party technology providers such as IBM, Indus and MRO in addition to
system integrators like Deloitte and HP on co-selling opportunities.
Infowave Wireless Business Engine(TM)
The Infowave Wireless Business Engine is a wireless software 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.
Infowave has developed Connectors for the Infowave Wireless Business Engine that
address the three areas of enterprise data: Messaging - Exchange Connector and
Domino 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 software 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.
The Infowave Wireless Business Engine creates an efficient wireless Virtual
Private Network (VPN) 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.
The Infowave Wireless Business Engine 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 Wireless Business Engine
end-user perpetual 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.
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
9
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 Exchange. An important and timesaving
feature of Exchange Connector is that it does not require a traditional
synchronization procedure before enabling communication. All unread e-mail in
the corporate message store is immediately pushed out to the end-user and all
outgoing e-mail 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 Notes and Domino Connectors
The Company offers a bundled solution, which integrates third party software
that enables wireless access to Lotus Notes and Domino. This gives 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 Domino Connector gives mobile workers the ability to
access their corporate Domino-based e-mail, 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.
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.
Infowave Mobility Platform
The Infowave Mobility Platform offers users worry-free, remote access to
behind-the-firewall business applications on Palm Powered or Pocket PC devices.
The Infowave Mobility Platform is uniquely positioned against competitive
products by its innovative offline and online capability. The platform can be
used to deploy almost any line-of-business application and manages content,
traffic, session longevity and all other aspects of the wireless connection.
When the device is out of coverage, the platform continues to track any and all
user actions that require a future update to the corporate service and makes the
changes when coverage is available.
Designed to allow the rapid development and deployment of applications for the
Infowave Mobility Platform, the Infowave Mobility Composer can be used to build
a new mobile version of line-of-business applications with a unique
wizard-driven approach. It can be used by developers and non-IT personnel alike
to build simple to complex solutions with a fraction of the effort traditionally
required.
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Symmetry(TM)
Symmetry is a wireless e-mail software service for individual Palm, Microsoft
PocketPC and Smartphone and Symbian powered device users. Symmetry enables users
to wirelessly access personal email such as POP3 or Microsoft Hotmail and
Microsoft Exchange corporate e-mail, 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 information technology department. It
requires installation of Infowave's software on both of the client desktop or
server and mobile device, as well as subscription to the Infowave Symmetry
service. Symmetry is marketed directly by Infowave, through value added
resellers and through global network operators under branded offerings.
The Symmetry service redirects e-mail and other personal information management
(PIM) information from the user's desktop or server source 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.
Symmetry is available in the following product options:
o Symmetry Express - Desktop based wireless e-mail service for personal
e-mail for individuals. The solution allows users to send and receive
e-mail messages from their POP3, Yahoo Mail and Hotmail accounts
directly from their integrated device.
o Symmetry Pro - Desktop based wireless e-mail service for Microsoft
Exchange business e-mail for individuals.
o Symmetry Workgroup - Desktop based wireless e-mail service for
Microsoft Exchange business e-mail for up to 10 users. 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 e-mail and solution.
o Symmetry Enterprise - Server based wireless e-mail service for
Microsoft Exchange business e-mail for 10 or more users.
Symmetry is sold either 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 or a service billed either as an annual subscription or as a
monthly recurring service charge for each user. Revenues from Symmetry are
recognized in straight-line amortization over the period of the service
contract.
Infowave Mobile Operator Solution Suite
The Infowave Mobile Operation Solution Suite 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 Exchange, 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 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.
11
Resellers
Infowave entered into a worldwide reseller agreement with Compaq (now HP) in
April 2000. 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. 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.
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, Wireless Logic,
Data Link, Handstep 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."
Infowave also distributes its Symmetry products through wireless network
operator distribution partners that include T-Mobile UK, Telus of Canada, CSL of
Hong Kong and sunrise/TDC of Switzerland AG.
OEM and Embedded Partners
Infowave is working to establish OEM distribution partnerships 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, IBM, Indus, MRO, T-Mobile and Dell
Computers.
COMPETITION
The emerging wireless infrastructure and mobile application 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. There has been recent consolidation in the industry that has resulted
in a lower number but stronger competitors.
Infowave has attempted to differentiate itself by offering intelligent support
for multiple devices, platforms, networks, applications, and services with
centralized management in addition to work-flow optimization by specific
vertical industry. Infowave believes this approach will 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.
Infowave has also attempted to differentiate itself by providing value added
software solutions to specific vertical industries via its acquisition of
Telispark such as utilities, oil and gas, telecom and hi-tech field services
obtained through its license of Deloitte's Industry Prints. This domain
expertise and productivity efficiency enhancement knowledge results in increased
understanding of Infowave's customer business issues to provide increased value
through the sale of its software solutions.
12
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, 2003, the Company had a total of 53 full time staff with
approximately fifty percent engaged in research and development activities. The
Company increased its total headcount to 90 full time employees on January 7,
2004 with the acquisition of Telispark. Due to the integration and restructuring
initiatives of the Company during 2004, the Company has reduced total employees
to 63 as at March 29, 2004. 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 has incurred operating losses from
continuing operations (calculated in accordance with Canadian Generally Accepted
Accounting Principles) of $5,797,515, $9,763,740 and $19,413,246 for the years
ended December 31, 2003, 2002 and 2001 respectively. The Company anticipates
that its expenses may increase as the Company continues to increase its research
and development, sales and marketing and general and administrative expenses and
if it acquires additional assets or technology. 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 2003 consolidated
financial statements includes additional comments for U.S. readers that states
that conditions and events exist that cost substantial doubt about the Company's
liability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
13
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
software 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.
Rapidly Changing 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 currently does and expects that it will
continue to 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 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
14
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.
Management of Growth and Expenses
The Company has had a history of expanding rapidly and then was forced to
reorganize and downsize to control expenses. This growth, as well as any future
growth, and this downsizing as well as any future downsizing, 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 and expenses effectively, to implement and expand operational and
customer support systems, and to hire additional personnel or rationalize
existing 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.
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.
15
Intellectual Property Protection
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. The cost of litigation necessary to defend the
Company's right to use the intellectual property incorporated in its software
products may be prohibitive. If any such claims are made and found to be valid
or the Company determines it prudent to settle any such claims, the Company may
have to reengineer its software products or obtain licenses from third parties
to continue offering its software products or in whole or in part cease using
such technology. Any efforts to re-engineer its' software products or obtain
licenses from third parties or cease using such technology 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 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 organized under the laws of 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.
Operating results are difficult to predict and may fluctuate, which may
contribute to fluctuations in our stock price
As a result of the rapidly changing and uncertain nature of the markets in which
we compete, our quarterly and annual revenue and operating results may fluctuate
from period to period, and period to period comparisons may not be meaningful.
These fluctuations are caused by a number of factors, many of which are beyond
our control. In past periods, our operating results have been affected by
personnel reductions and related charges, charges related to
16
losses on excess office facilities, and impairment charges for certain of our
assets. Our operating results may be adversely affected by similar or other
charges or events in future periods, which could cause the trading price of our
stock to decline.
Certain of our expense decisions (for example, research and development and
sales and marketing efforts and other business expenses generally) are based on
predictions regarding our business and the markets in which we compete. To the
extent that these predictions prove inaccurate, our revenue may not be
sufficient to offset these expenditures and our operating results may be harmed.
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 2003, revenue from three customers represented
approximately 40% of revenues. During 2002, three customers accounted for
approximately 63% of revenues. The Company has renewed its focus 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: Mobility Platform, Symmetry
Pro, Symmetry Pro Enterprise, Symmetry Pro Workgroup and Symmetry Mobile
Application Gateway. The Company also expanded its product offering with the
Telispark Mobile Enterprise obtained through its acquisition of Telispark on
January 7, 2004. 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, 2003. 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.
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.
Effects of Restructuring Activities
The Company reduced its workforce during 2001 and 2002 and will continue to
monitor the proper level of labor investment in future to manage expenses
accordingly. 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.
17
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.
The suit by Visto Corporation may not be successful and could harm our financial
results
On October 3, 2003 the Company was sued by Visto Corporation, a private company
based in California for patent infringement relating to the system and method
for synchronizing e-mail. On November 28, 2003, the Company filed a full answer
and counterclaim to a claim previously brought by Visto Corporation, a private
company based in California. We expect that the litigation, if it is not
resolved before trial, will carry on for several years. It is not possible to
predict accurately how much the litigation will cost, or its duration. The costs
of litigation could have an adverse impact on our operating results in excess of
our current expectations. The litigation may also distract our management team
from operational matters, which could harm our business results. The Company may
also not be successful in defending itself in this matter, which may have a
material impact on our financial position and future operations.
Our industry is experiencing consolidation that may cause us to lose key
relationships and intensify competition
The wireless mobility industry is undergoing substantial change, which has
resulted in increasing consolidation and formation of strategic relationships.
We expect this consolidation and strategic partnering to continue. Acquisitions
or other consolidating transactions could harm us in a number of ways including:
o We could lose key strategic relationships if our strategic partners
are acquired by or enter into relationships with a competitor (which
could cause us to lose access to distribution, content, technology and
other resources);
o We could lose customers if competitors or users of competing
technologies consolidate with our current or potential customers; and
o Our current competitors could become stronger, or new competitors
could form, from consolidations.
Any of these events put us at a competitive disadvantage, which could cause us
to lose customers, revenue and market share. Consolidation could also force us
to expend greater resources to meet new or additional competitive threats, which
could also harm our operating results.
Potential acquisitions involve risks that could harm our business and impair our
ability to realize potential benefits from acquisitions.
As part of our business strategy, we have acquired technologies and businesses
in the past, and expect that we will to continue to do so in the future. The
failure to adequately address the financial, legal and operational risks raised
by acquisitions of technology and businesses could harm our business and prevent
us from realizing the benefits of the acquisitions. Financial risks related to
acquisitions may harm our financial position, reported operating results or
stock price, and include:
o Potential equity dilution, use of cash resources and incurrence or
debt and contingent liabilities in funding acquisitions;
o Large write-offs and difficulties in assessment of the relative
percentages of in-process research and development expense that can be
immediately written off as compared to the amount which must be
amortized over the appropriate life of the asset; and
o Amortization expenses related to other intangible assets.
18
Acquisitions also involve operational risks that could harm our existing
operations or prevent realization of anticipated benefits from an acquisition.
These operational risks include:
o Difficulties and expenses in assimilating the operations, products,
technology, information systems or personnel of the acquired company;
o Diversion of management's attention from other business concerns and
the potential disruption of our ongoing business;
o Impairment of relationships with employees, affiliates, advertisers
and content providers of our business and the acquired business;
o The assumption of known and unknown liabilities of the acquired
company, including intellectual property claims; and
o Entrance into markets in which we have no direct prior experience.
If we are not successful in maintaining, managing and adding to our strategic
relationships, our business and operating results will be adversely affected.
We rely on many strategic relationships with third parties in connection with
our business, including relationship providing for distribution of our products
and licensing of technology. The loss of current strategic relationships of the
failure of our existing relationships to achieve meaningful positive results for
us could harm our business. We may not be able to replace these relationships
with others on acceptable terms, or at all, or find alternative sources for
resources that these relationships provide.
Financial forecasting of our operating results will be difficult because of the
changing nature of our products and business, and our actual results may differ
from forecasts.
As a result of the dynamic and changing nature of our products and business, and
of the markets in which we compete, it is difficult to accurately forecast our
revenues, gross margin, operating expenses and other financial and operating
data. Our inability or the inability of the financial community to accurately
forecast our operating results could result in our reported net income (losses)
in a given quarter to differ from expectations, which could cause a decline in
the trading price of our common stock.
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
On October 3, 2003 the Company was sued by Visto Corporation, a private company
based in California for patent infringement relating to the system and method
for synchronizing e-mail. On November 28, 2003, the Company filed a full answer
and counterclaim to a claim previously brought by Visto Corporation, a private
company based in California. Infowave has made a counterclaim against Visto for,
among other things, a declaratory judgement of non-infringement and invalidity
of a Visto patent. As well, the Company intends to continue to vigorously defend
this matter and has retained Texas counsel and believes that the claim is
without merit.
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 2003. The Company held its annual general meeting for the year
ended December 31, 2002 on June 30, 2003 that included several resolutions for
vote by the Company's shareholders as described in the Company's Information
Circular sent in June 2003 regarding this meeting.
19
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. 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
2003
Q1: Jan - Mar 0.38 0.19
Q2: Apr - Jun 0.28 0.15
Q3: Jul - Sep 0.44 0.19
Q4: Oct - Dec 0.40 0.18
As of March 26, 2004, there were 216,029,950 Common Shares issued and
outstanding. At such date, there were approximately 308 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.
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
20
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.
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 25% or more of our issued shares of any
class or series, 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, 2003. The selected annual
financial information is derived from the Company's audited financial
statements. Annual sales for year 1999 relate only to the Wireless Division and
exclude the Imaging Division. The selected financial information for the eight
quarters prior to December 31, 2003 is derived from the unaudited quarterly
financial statements of the Company. The Company's financial statements are
expressed in United States
21
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)
-------------------------------------------------------------------------------
1999 2000 2001 2002 2003
--------------- --------------- --------------- --------------- ---------------
Income Statement Data
Sales $355,001 $1,513,557 $3,189,253 $1,821,041 $1,624,820
--------------- --------------- --------------- --------------- ---------------
Loss for the year 3,288,251 17,988,868 20,860,436 9,716,065 5,757,631
--------------- --------------- --------------- --------------- ---------------
Loss per share 0.21 0.90 0.90 0.18 0.05
--------------- --------------- --------------- --------------- ---------------
Balance Sheet Data
Total assets 8,054,492 12,445,349 13,657,675 4,158,757 9,935,349
--------------- --------------- --------------- --------------- ---------------
Long term obligations - - - - 218,292
--------------- --------------- --------------- --------------- ---------------
Share capital 12,526,949 35,148,040 42,447,141 56,539,360 65,700,311
--------------- --------------- --------------- --------------- ---------------
Cash dividends declared per
Common Share - - - - -
--------------- --------------- --------------- --------------- ---------------
UNITED STATES GAAP
1999 2000 2001 2002 2003
--------------- --------------- --------------- --------------- ---------------
Income Statement Data
Sales $355,001 $1,513,557 $3,189,253 $1,821,041 $1,624,820
--------------- --------------- --------------- --------------- ---------------
Loss for the year 3,344,326 18,198,480 20,986,922 10,138,827 5,757,631
--------------- --------------- --------------- --------------- ---------------
Loss per share 0.21 0.90 0.79 0.17 0.05
--------------- --------------- --------------- --------------- ---------------
Balance Sheet Data
Total assets 8,020,392 12,445,349 13,657,675 4,158,757 9,935,349
--------------- --------------- --------------- --------------- ---------------
Long term obligations - - - -
--------------- --------------- --------------- --------------- ---------------
Share capital $13,325,593 $36,192,899 $43,618,486 $57,710,705 $67,409,071
--------------- --------------- --------------- --------------- ---------------
Cash dividends declared per
Common Share - - - - -
--------------- --------------- --------------- --------------- ---------------
QUARTER ENDED (UNAUDITED)
-------------------------------------------------------------------------------------------------
2002 2002 2002 2002 2003 2003 2003 2003
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
Income Statement
Sales $325,261 $517,977 $676,415 $301,388 $411,856 $505,397 $381,395 $326,172
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
Loss for the period 3,376,025 4,234,514 1,069,608 1,035,918 955,460 919,970 1,505,648 2,376,553
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
Loss per share 0.09 0.07 0.02 0.02 0.01 0.01 0.01 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
Infowave Software, Inc. ("Infowave" or the "Company") provides enterprise mobile
applications (EMA), including packaged configurable application software modules
that integrate business operations required by mobile workers like asset
management, field service and mobile e-mail as well as secure, scalable
infrastructure software solutions for developing and deploying mobile solutions
and infrastructure platforms. The Company sells direct to enterprises and
end-users as well as indirectly through channel partners like independent
software vendors (ISVs), System Integrators and network operators (carriers).
Focused on enabling organizations with mobile workforces since 1993, Infowave
solutions enable mobile workers of all types to access critical enterprise
information at the point of work, including work orders, internal
22
communications, asset information, customer details, calendars, schedulization
and other important data required to perform their job functions more
effectively and productively. The Company provides a complete suite of mobile
solutions, ranging from the e-mail service of Symmetry, to complete
enterprise-grade application suites like Telispark Mobile Enterprise that
streamlines and integrates business operations required by mobile workers, such
as ERP, Field Service, Supply Chain and Asset Management operations. The Company
also offers the Wireless Business Engine, a wireless platform for large
corporations that provides access to e-mail 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. As well, it offers the
Mobility Platform which offers users worry-free, remote access to
behind-the-firewall business applications on Palm Powered or Pocket PC devices.
Over the last three years, our business has evolved to address changing dynamics
in our industry. We initially developed our business as a leading provider of
wireless data infrastructure software technology to enable mobile access for
enterprise employees to their corporate data applications. Due to the early
initial adoption of mobile e-mail within our enterprise customer base, we
leveraged our technology leadership position to increase our market efforts on
this solution offering in order to stimulate additional customer opportunities
with our more robust enterprise data mobile software product. This resulted in
the creation of Infowave's network operator business unit which was focused at
selling our wireless e-mail solution to network operators and their customers.
We have aggressively pursued development of these new businesses, both through
internal initiatives and strategic acquisitions of businesses and technologies.
Infowave signed up several network operators during this period to offer its
software solutions in the marketplace on a subscription based service revenue
model basis which is based upon the volume of subscribers who pay a monthly
service fee to Infowave via the network operator.
We continued to sell our wireless middleware software solutions to enterprise
customers on a perpetual licensing basis with annual maintenance support and
stimulated sales opportunities via pilot projects or trials. However, our
overall results have been substantially affected over the last three years by
weaker demand for our software products and services caused by macroeconomic
conditions that have resulted in cutbacks in capital and information technology
spending by our customers and potential customers. Some or all of these factors
have principally impacted our operating results in the following ways:
o A decline in demand for our business products and services resulting
in declines in related revenues;
o Personnel reduction and related charges in 2002 and 2001; and
o Losses on excess facilities and write down of assets in 2003, 2002 and
2001.
The following table sets forth certain financial data for periods indicated as a
percentage of total net revenues:
2003 2002 2001
----------------- ----------------- -----------------
Revenue 100% 100% 100%
Costs of sales 12% 22% 13%
----------------- ----------------- -----------------
Gross margin 88% 78% 87%
----------------- ----------------- -----------------
Operating expense
Research and development 117% 137% 169%
Sales and marketing 124% 212% 292%
Administration 113% 111% 139%
Restructuring - 78% 39%
Impairment 38% - -
Depreciation and amortization 54% 76% 57%
----------------- ----------------- -----------------
Total operating expenses 446% 614% 696%
----------------- ----------------- -----------------
Operating loss 358% 536% 609%
----------------- ----------------- -----------------
In 2003, gross Research and development costs were 144%, which is net of 27.5%
TPC investment contribution.
23
In January 2003, the Company entered into an agreement with Microsoft
Corporation to develop and market solutions for mobile network operators based
on the Windows Powered Microsoft mobile device platforms.
In May 2003, the Company entered into a co-marketing agreement with Dell in
which the companies will cooperate in marketing Infowave's Wireless Business
Engine solution with Dell's GPRS wireless access offerings to the U.K. business
market.
In July 2003, the Company completed the acquisition of HiddenMind Techology, LLC
based in North Carolina as well as the completion of two tranches of a brokered
private placement of approximately US$3.6 million and the completion of the
US$3.0 million private placement with Gerald Trooien. Also in July 2003, the
Company appointed Jean-Francois Heitz and Jerry Meerkatz to its Board of
Directors.
In October 2003, the Company completed the acquisition of the intellectual
property assets of Sproqit Technologies, Inc., a wireless software company based
in Kirkland, Washington.
In September 2003, the Company was made aware that Visto Corporation, a private
company based in California, issued a press release stating that it had filed
complaints alleging patent infringement against Infowave. In November, the
Company filed a full answer and counterclaim to the claim previously brought by
Visto.
In November 2003, Mr. Jerry Meerkatz was appointed Chief Executive Officer of
the Company resulting in the replacement of the Office of the President with a
more formal management structure. Mr. Meerkatz joined Infowave from Hewlett
Packard, where he held several executive positions, most recently, Vice
President and General Manager of Enterprise Mobility Solutions.
In December 2003, Infowave entered into an agreement with Technology
Partnerships Canada ("TPC") for an investment up to $5.6 million (Cdn$7.3
million) to complement Infowave's investment in research and development. Under
the terms of this agreement, TPC has agreed to contribute a specified percentage
to match Infwave's investment in research and development expenses for a several
year period up to a maximum of $5.6 million (Cdn$7.3 million). Based on the
Company's current expectations of its future investment in research and
development, the Company may not utilize the full benefit of this investment
with TPC.
In January 2004, the Company entered into an Acquisition Agreement to acquire
substantially all of the outstanding shares of Telispark Inc. ("Telispark"), a
provider of enterprise mobility applications (EMA) software solutions. As well,
it also announced a US$3.0 million convertible line of credit facility with
Gerald Trooien, an existing shareholder and a director of Infowave.
In March 2004, the Company completed the issuance of a brokered private
placement of units for gross proceeds of US$4.7 million (Cdn$6.1 million).
Agents' commission and financing fees totaling $0.4 million (Cdn$0.5 million)
and an additional 300,000 units were paid in connection with this private
placement.
In March 2004, the Company entered into an agreement with Gerald Trooien to
issue approximately 6 million common shares for $1.0 million (Cdn.$1.3 million)
in a private placement financing. This private placement was subject to
shareholder approval. Such approval was obtained on March 30, 2004, and the
financing closed on March 31, 2004. The shares issued are subject to a four
month hold period.
While Infowave made progress over the past 2003 fiscal year regarding its new
Network Operator business initiative, expanded product offering and prudent
expense management, revenue declined for the year ended December 31, 2003 over
the prior year.
Management believes there are several events that will increase market growth
and acceptance of wireless solutions in 2004. These include the commercial
launch of 2.5G and 3.0G networks, and general availability of new integrated
wireless devices 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.
24
Infowave has expanded its product offering while renewing its focus on the
enterprise market through its acquisition of Telispark on January 7, 2004. While
Infowave has increased its value proposition with enterprise mobility
application solutions targeted at specific vertical market segments, the sales
cycles may be long and Infowave remains exposed to macroeconomic environment
trends regarding capital expenditure spending by enterprise businesses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements require us to make estimates and
assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Our
critical accounting policies and estimates are as follows:
o Revenue recognition
o Continuing operations
o Basis of presentation
o Translation of foreign currency
o Income taxes
o Valuation of goodwill
o Valuation of deferred income taxes
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 or system integrators. Service
revenues are generated from consulting services sold to end-users and software
subscription services provided to customers.
As described below, significant management judgements and estimates must be made
and used in connection with the revenue recognized in any accounting period.
Material differences may result in the amount and timing of our revenue for any
period if management made different judgements or utilized different estimates.
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;
o The collection of the license fee is probable; and
o The arrangement does not require significant customization of the
software.
Some of our software arrangements include consulting implementation services
sold separately under consulting engagement contracts. Consulting revenues from
these arrangements are generally accounted for separately from new software
license revenues because the arrangements meet the criteria for the service
element to be accounted for separately as the services are performed as defined
in SOP 97-2. Revenues for consulting services are generally recognized as the
services are performed.
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.
For software license fees in single element arrangements and multiple element
arrangements that do not include customization or consulting services, delivery
typically occurs when the product is made available to the customer for download
or when products are shipped to the customer.
At the time of each transaction, we assess whether the fee associated with our
revenue transaction is fixed and determinable and whether or not collection is
probable. We assess whether the fee is fixed and determinable based
25
on the payment terms associated with the transaction. If a significant
portion of a fee is due significantly after our normal payment terms, is based
upon a variable matrix such as the minimum level of distribution or is subject
to refund, we consider the fee to not be fixed and determinable. In these cases,
we defer revenue and recognize it when it becomes due and payable.
We assess the probability of collection based on a number of factors, including
past transaction history with the customer and the current financial condition
of the customer. We do not request collateral from our customers but often
require payments before or at the time products and services are delivered. If
we determine that collection of a fee is not probable, we defer revenue until
the time collection becomes probable, which is generally upon receipt of cash.
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.
Service revenue attributable to consulting services or software subscription
services is recognized as the services are provided by the Company.
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, 2003, 2002 and 2001. To date, the Company has financed its
continuing operations through revenue and the issuance of common shares.
Continued operations of the Company will depend upon the attainment of
profitable operations, which may require the successful completion of external
financing arrangements.
Income Taxes
In accordance with Generally Accepted Accounting Principles, we must
periodically assess the likelihood that our future income tax assets will be
recovered from future taxable income, and to the extent that recovery is not
considered to be more likely than not, a valuation allowance must be
established. The establishment of a valuation allowance and increases to such an
allowance result in either increases to income tax expense or reduction of
income tax benefits in the statement of operations. Factors we consider in
making such an assessment include, but are not limited to, past performance and
our expectations of future taxable income, macro-economic conditions and issues
facing our industry, existing contracts, backlog, our ability to project future
results and any appreciation of our investments and other assets.
As of December 31, 2001, 2002 and 2003, we had recorded net deferred tax assets
of nil. Due to the net losses incurred during this period, difficult financial
conditions facing our industry and our customers, we determined that it was
appropriate to maintain a full valuation allowance.
REVENUES
Total net revenues of the Company for the years ended December 31 are as
follows:
2003 Change 2002 Change 2001
-------------------- ---------------- ------------------- --------------- ------------------
$1,624,820 (11%) $1,821,041 (43%) $3,189,253
-------------------- ---------------- ------------------- --------------- ------------------
26
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 or system integrators. Service
revenues are generated from consulting services sold to end-users and software
subscription services provided to customers.
The decrease in the revenue is attributable to reduced sales of the Company's
enterprise software solution in conjunction with slow adoption of subscribers by
the Company's network operator distribution partners. The Company has signed a
total of four network operator distribution partners for its Symmetry product
line in 2002 and 2003. However, the sell-through revenue results through these
carrier partners has been low.
Management believes a largely weaker global economy continues to restrict
general corporate year on year spending on IT initiatives, which have hindered
its sales results during the past several years.
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 during 2002 and 2003, there were a smaller number of
conversions during the periods 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
products. Revenues for a given quarter are difficult to estimate and may swing
materially from each period.
Included with 2001 were amounts for contract services of approximately $570,000
derived under a contract with Intel, for which no revenues were generated during
2002.
The three largest customers accounted for the following percentage of total
revenue of the Company:
Three largest customers 2003 2002 2001
- --------------------------------------------- ------------------ ------------------ ------------------
Revenues $649,928 $1,147,256 $1,945,444
Percentage of total revenues 40% 63% 61%
- --------------------------------------------- ------------------ ------------------ ------------------
The Company's geographical revenues are as follows with the largest attributable
to customers located in the United States:
Geographical Location 2003 Change 2002 Change 2001
- --------------------- ---------- ------ ---------- ------ ----------
United States $ 881,200 (12%) $1,001,573 (56%) $2,264,370
Canada 150,482 (41%) 254,946 (69%) 829,206
Europe 557,138 10% 505,522 428% 95,677
Asia/Rest of World 36,000 (39%) 59,000 N/A -
----------- ------ ---------- ------ ----------
Total $1,624,820 (11%) $1,821,041 (43%) $3,189,253
---------- ------ ---------- ------ ----------
Approximately 54% of the Company's 2003 revenue was from customers in the United
States, 9% from customers in Canada and 37% from customers in Europe and the
rest of the world. This compares to 55% from the United States, 14% from Canada
and 31% from Europe and the rest of the world in 2002. This also 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.
COST OF REVENUES
27
2003 Change 2002 Change 2001
---------- ------ ---------- ------ ----------
Revenues $1,624,820 (11%) $1,821,041 (43%) $3,189,253
Cost of Sales 199,704 (52%) 408,654 (2%) 416,082
---------- ------ ---------- ------ ----------
Gross Margin 1,425,116 1% 1,412,387 (49%) 2,773,171
---------- ------ ---------- ------ ----------
Cost of revenues consists of product related costs including documentation and
shipping, royalties to third parties for resale of technology and variable sales
costs. During 2002, the Company's revenues included a higher percentage of a
third party royalties resulting in lower gross margins. Gross margins for 2003
were 88%, compared to 78% in 2002 and 87% in 2001. Gross margins will fluctuate
depending on the product revenue mix and on the sales of third party products.
OPERATING EXPENSES
2003 Change 2002 Change 2001
---------- ------ ----------- ------ -----------
Total operating expenses $7,222,631 (35%) $11,176,127 (50%) $22,186,417
As a percentage of total revenues 446% 614% 696%
Total operating expenses for the Company (comprised of research and development,
sales and marketing, administration, restructuring and depreciation charges) for
2003 were $7,222,631 (net of TPC investment contribution of $452,692) compared
to $11,176,127 for 2002. Total operating expenses for 2001 were $22,186,417.
The Company's total operating expenses were lower in 2003 than the prior year
due to the restructuring initiatives of the Company completed in 2002. The
Company's expense rate was significantly higher during the first half of 2002,
which was prior to the implementation of a cost-reduction initiative. The
majority of this reduction is attributable to reduction in headcount over the
first two quarters of 2002 in addition to reduction of office facilities. At the
end of 2003, Company headcount was 54, compared to 41 at the end of 2002.
The Company's total operating costs were higher in 2001 than in 2002 primarily
due to its investment in headcount, sales and marketing programs and expansion
into new facilities. The Company had a total of 122 employees at the end of 2001
and reduced its cost structure in late 2001 with a restructuring resulting in
reduction on headcount.
Research and Development
2003 Change 2002 Change 2001
---------- ------ ---------- ------ ----------
Research and development $1,879,868 (25%) $2,505,329 (54%) $5,394,684
As a percentage of total revenues 117% 137% 169%
Research and development expenses consist primarily of salaries and related
personnel costs, consulting fees associated with product development and costs
of technology acquired from third parties to incorporate into products currently
under development.
Research and development (R&D) expenses were $1,879,868 in 2003 (net of TPC
investment contribution of US$452,692 recorded in the fourth quarter of 2003
which has not been received by the Company to date), a decrease of 25% from
$2,505,329 in 2002. The decrease in total R&D expense is primarily a result of
reductions in R&D expense in the beginning of 2002 achieved through reductions
in headcount and the amounts spent on contract personnel, as part of an overall
plan to control costs partially offset by the Company's incremental investment
due to its acquisition of HiddenMind Technologies in 2003. The TPC investment
contribution is net of amortization of $1.5 million (Cdn$2.0 million) warrants
to be issued by the Company to TPC in late 2005 and an amount relating to a
third party consultant engaged to assist in the preparation of the TPC
application. Subsequent to December 31, 2003, the agreement with this third
party consultant was cancelled and the Company was released from any financial
obligations relating to its agreement with this consultant. The Company focused
R&D efforts on projects that, in its opinion, had the greatest potential to
positively impact revenue in the short to mid-term.
28
R&D expenses decreased by 54% in 2002 to $2,505,329 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 2001 achieved through headcount reductions and reductions
in the amounts spent on contract personnel, as the Company focused R&D efforts
on projects that, in its opinion, had the greatest potential to positively
impact revenue in the short to mid-term.
Sales and Marketing
2003 Change 2002 Change 2001
---------- ------ ---------- ------ ----------
Sales and marketing $2,013,556 (48%) $3,855,068 (59%) $9,298,149
As a percentage of total revenues 124% 212% 292%
Sales and marketing expenses consist primarily of salaries and related personnel
costs, sales commissions, credit card fees, subscriber acquisition costs,
consulting fees, trade show expenses, advertising costs and costs of marketing
collateral.
Sales and marketing expenses were $2,013,556 in 2003, a 48% decrease from
$3,855,068 in 2002. The decrease in total sales and marketing expense is
primarily due to headcount reductions, reductions in marketing, advertising and
other public relations programs on a year-over-year basis.
Sales and marketing expenses were $3,855,068 in 2002, a 59% decrease from
$9,298,149 in 2001. The decrease in total sales and marketing expense is
primarily due to headcount reductions, reductions in marketing, advertising and
other public relations programs due to restructuring efforts made in 2002.
Administration
2003 Change 2002 Change 2001
---------- ------ ---------- ------ ----------
Administration $1,828,883 (9%) $2,016,675 (54%) $4,408,576
As a percentage of total revenues 113% 111% 139%
Administration expenses consist primarily of salaries, related personnel costs,
fees for professional and temporary services and other general corporate and
contractor costs.
Administration expenses were $1,828,883 in 2003, a 9% decrease from $2,016,675
in 2002. Cost savings were achieved from reductions in headcount on a
year-over-year basis due to the Company's restructuring performed in 2002.
Administration 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 due to the Company's restructuring performed in 2002.
Depreciation and Amortization
Depreciation and amortization costs totaled $885,746 in 2003 compared to
$1,383,675 in 2002. The year-over-year decrease is attributable to a lack of
fixed asset acquisitions during the year offset by Infowave's acquisition of
HiddenMind Technology and the intellectual property of Sproqit Technology in
2003. 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 lesser fixed
asset acquisitions in 2002 than in 2001.
Restructuring and Asset Impairment Charges
In 2003, the Company had asset impairment charges of $614,578, which is
primarily related to the writeoff of HiddenMind assets of $583,680.
29
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, Washington office and
write downs of fixed assets of $777,753.
The Company charged restructuring costs of $1,253,707 in 2001 that related to
the expense reduction initiative performed in 2001, which is primarily
attributable to reduction in employee headcount and write downs of fixed assets.
Interest and Other Income
Interest and other income for 2003 was $75,789 compared to $47,675 in 2002. The
increase in income is attributable to an increase in cash and short-term
investment balances.
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.
QUARTERLY FINANCIAL PERFORMANCE DURING THE YEAR ENDED DECEMBER 31, 2003
The following table summarizes un-audited financial performance for each quarter
of 2003:
Quarter ended
--------------------------------------------------------------------------------
Total December 31 September 30 June 30 March 31
-------------- ---------------- --------------- ---------------- ---------------
Revenue $1,624,820 $326,172 $381,395 $505,397 $411,856
Costs of sales 199,704 39,475 41,535 61,855 56,839
-------------- ---------------- --------------- ---------------- ---------------
Gross margin 1,425,116 286,697 339,860 443,542 355,017
-------------- ---------------- --------------- ---------------- ---------------
Operating expense
Research and development 1,879,868 300,337 623,476 466,252 489,803
Sales and marketing 2,013,556 648,099 628,728 380,455 356,274
Administration 1,828,883 701,509 436,686 372,901 317,787
Restructuring - - - - -
Impairment 614,578 614,578 - - -
Depreciation and amortization 885,746 366,651 310,813 99,972 108,310
-------------- ---------------- --------------- ---------------- ---------------
Total operating expenses 7,222,631 2,631,174 1,999,703 1,319,580 1,272,174
-------------- ---------------- --------------- ---------------- ---------------
Operating loss 5,797,515 2,344,477 1,659,843 876,038 917,157
-------------- ---------------- --------------- ---------------- ---------------
REVENUES
Revenue for the fourth quarter of 2003 was $326,172, an increase of 8% from
$301,388 for the same period in 2002, and a decrease of 14% from $381,395 for
the third quarter of 2003.
Infowave experienced lower revenue during the second half of 2003 due to low
sales of its Symmetry product line via its network operator distribution
partners. Revenues for the quarter ended June 30, 2003 included the conversion
of a significant pilot opportunity for the Company's enterprise Wireless
Business Engine software product line.
GROSS MARGIN
Gross margins for the fourth quarter were 88%, compared to 87% in the comparable
period in 2002, and 89% in the third quarter of 2002. Gross margins will
fluctuate depending on the product revenue mix and on the sales of third party
products and were consistent during 2003
OPERATING EXPENSES
30
Research and development expenses were $300,337 (gross expenses of $753,029 less
TPC investment contribution of US$452,692 recorded in the fourth quarter of 2003
which has not been received by the Company to date), which was a 16% decrease
from $357,036 in the fourth quarter of 2002, and a 52% decrease from $623,476 in
the third quarter of 2003. Increase in research and development expenses from
the fourth quarter of 2002 to the fourth quarter of 2003 was primarily due the
Company entering into a custom development and services agreement with Sproqit
of which, approximately $300,000 was expensed during year ended December 31,
2003. The Company also increased its investment in research and development with
its acquisition of HiddenMind Technology in 2003. The Company continues to focus
its Research and development efforts on projects that, in its opinion, had the
greatest potential to positively impact revenue in the short to mid-term.
This is increase was offset by the Company entering into an agreement during the
quarter ending December 31, 2003 with Technology Partnerships Canada ("TPC")
under which TPC committed to invest up to $5.6 million (Cdn$7.3 million) in
Infowave to match Infowave's investment in research and development. Under the
terms of this TPC agreement, the Company filed for TPC's investment based on the
research and development investment made by Infowave during the fifteen month
period ending December 31, 2003 which was offset by the amortization of $1.5
million (Cdn$2.0 million) in Infowave warrants to be granted to TPC by Infowave
after October 1, 2005 based on the percentage of the investment to be made by
TPC to date and an amount relating to a third party consultant engaged to assist
in the preparation of the TPC application. Subsequent to December 31, 2003, the
agreement with this third party consultant was cancelled and the Company was
released from any financial obligations relating to its agreement with this
consultant.
Sales and Marketing expenses were $648,099 a 43% increase from $453,498, in the
fourth quarter of 2002, and a 3% increase from $628,728 in the third quarter of
2003. The increase in sales and marketing expenses was a result of increased
headcount as well as significantly increased expenses related to marketing,
advertising and other public relations activity where the Company believed that,
in the short term, such investments would result in a commensurate increase in
revenue.
Administration expenses were $701,509, a 118% increase from $321,600 the fourth
quarter of 2002, and a 61% increase from $436,686 in the prior quarter. The
increase in administration expenses during the fourth quarter was largely
attributable to legal costs incurred with relation to the Visto lawsuit.
Depreciation and amortization costs totaled $366,651 in the fourth quarter of
2003 compared to $165,609 in the fourth quarter of 2002 and $310,813 in the
third quarter of 2003. The year-over-year trend increase is attributable to the
amortization of capital and intangible assets acquired in the acquisitions of
Sproqit and HiddenMind during 2003.
INTEREST AND OTHER INCOME
Interest and other income for the fourth quarter of 2002 was $21,373 compared to
$11,113 in the fourth quarter of 2002 and $27,042 in the third quarter of 2003.
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.
LIQUIDITY AND CAPITAL RESOURCES
During 2003, the Company raised gross funds of approximately $6.6 million
resulting in net funds of approximately $6.5 million through offerings of its
equity securities, net of issue costs.
The Company used $4,074,593 in operations during 2003, primarily due to the
$5,757,631 loss from continuing operations.
Net cash for investing activities was $391,873, which largely consisted of
capital expenditures during the year.
At December 31, 2003, the Company's cash, cash equivalents and short-term
investments totaled $5,138,998. Included in this total amount is security of
$150,000 held in short term investments to support a lease obligation. The
Company does not engage in any foreign exchange or other hedging activities, and
is not a counter party to any derivative securities transactions.
31
At December 31, 2003, the Company held accounts receivable of $331,202 net of
allowances for doubtful accounts of $70,094. As well, the Company held TPC
receivable of $798,038.
In conjunction with the signing of a Strategic Partnership and Sales Agreement
in March 2002, the Company entered into a Convertible Loan Agreement with HP.
Under this convertible loan agreement, HP will provide Infowave with a
convertible revolving loan of up to $2.0 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. Under the terms of this agreement, Infowave and HP were to
achieve minimum annual sales targets, which were not met for the years ended
December 31, 2002 and 2003. As a result of not attaining minimum annual sales
targets required under the terms of the Convertible Loan Agreement, any draw
downs by the Company require HP's prior written consent.
In December 2003, Infowave entered into an agreement with Technology
Partnerships Canada ("TPC") for an investment up to $5.6 million (Cdn$7.3
million) to complement Infowave's investment in research and development. Under
the terms of this agreement, TPC will contribute a specified percentage to match
Infowave's investment in research and development expenses for a several year
period.
In March 2004, the Company completed the issuance of a brokered private
placement of units for gross proceeds of US$4.7 million (Cdn$6.1 million).
Agents' commission and financing fees totaling $0.4 million (Cdn$0.5 million)
and an additional 300,000 units were paid in connection with this private
placement.
In March 2004, the Company also entered into an agreement with Gerald Trooien to
issue approximately 6 million common shares for $1.0 million (Cdn$1.3 million)
in a private placement financing. This private placement was subject to
shareholder approval. Such approval was obtained on March 30, 2004, and the
financing closed on March 31, 2004. The shares issued are subject to a four
month hold period.
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 following years are: $402,631
(2004), $258,059 (2005), $226,178 (2006), $226,178 (2007) and $113,088 (after
2007).
During the year ended December 31, 2003, the Company made operating lease
payments totaling approximately $575,700 (2002 - $683,000; 2001 - $829,000).
The Company's principal commitments include office leases and contractual
payments due to content and other service providers. We believe that our current
cash, cash equivalents, short term investments will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
twelve months.
The Company currently has no planned significant capital expenditures for 2004
other than those in the normal course of business. In the future, we may seek to
raise additional funds through public or private financing, or through other
sources such as credit facilities. The sale of additional equity securities
could result in dilution to our shareholders. In addition, in the future, we may
enter into cash or stock acquisition transactions or other strategic
transactions that could reduce cash available to fund our operations or result
in dilution to shareholders.
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 favorable 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"), which amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 is to be applied
prospectively for certain contracts entered into or modified after June 30,
32
2003. We have adopted SFAS No. 149, which had no effect on the Company's
consolidated financial statements.
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"), which establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. We have
adopted SFAS No. 150, which had no effect on the Company's consolidated
financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands on previously
issued accounting guidance and requires additional disclosure by a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of an
obligation assumed by issuing a guarantee. The provision for initial recognition
and measurement of the liability is applied on a prospective basis to guarantees
issued or modified after December 31, 2002. The application of FIN 45 in 2003
had no effect on the Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which, as subsequently amended, requires
the consolidation of a variable interest entity by the primary beneficiary. FIN
46 also requires additional disclosure by both the primary beneficiary and
enterprises that hold a significant variable interest in a variable interest
entity. FIN 46 is applicable to variable interest entities created after January
31, 2003. Entities created prior to February 1, 2003 must be consolidated in
2004. However, because the Company does not believe it has any variable interest
entities, there is not expected to be any impact on the Company's consolidated
financial statements.
In November 2002, the Emerging Issues Task Force 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 adoption of this
consensus did not have a material impact on the Company's 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, 2003, 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.
33
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
(Expressed in United States dollars)
INFOWAVE SOFTWARE, INC.
Years ended December 31, 2003, 2002 and 2001
34
AUDITORS' REPORT TO SHAREHOLDERS
We have audited the consolidated balance sheets of Infowave Software, Inc. as at
December 31, 2003 and 2002 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three-year period ended
December 31, 2003. 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, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2003 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 for the change in the method of accounting for
stock-based compensation as explained in note 2(o), to the financial statements,
on a consistent basis.
KPMG LLP (SIGNED)
Chartered Accountants
Vancouver, Canada
January 23, 2004, except as to note 3, which is as of March 31, 2004
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 23, 2004, except as to note 3 which is as of March 31, 2004, 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.
KPMG LLP (SIGNED)
Chartered Accountants
Vancouver, Canada
January 23, 2004, except as to note 3 which is as of March 31, 2004
35
INFOWAVE SOFTWARE, INC.
Consolidated Balance Sheets
(Expressed in United States dollars)
December 31, 2003 and 2002
----------------------------
2003 2002
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 4,911,605 $ 2,755,929
Short-term investments 227,393 355,614
Accounts receivable, net of allowance of $70,094 (2002 - $67,125) 331,202 394,712
Technology Partnership Canada ("TPC") receivable (note 4) 798,038 --
Inventory -- 951
Prepaid expenses (note 9) 334,534 135,402
----------- -----------
6,602,772 3,642,608
Fixed assets (note 6) 526,330 490,783
Intellectual property assets held for sale (note 8) 1,018,681 --
Intangible assets (note 7) 1,562,566 --
Other assets (note 3(a)) 225,000 25,366
----------- -----------
$ 9,935,349 $ 4,158,757
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,333,064 $ 463,096
Deferred revenue 284,800 364,847
----------- -----------
1,617,864 827,943
Long-term liabilities (note 4) 218,292 --
Shareholders' equity:
Share capital (note 12):
Authorized: Unlimited voting common shares without par value
Issued: 148,369,989 (2002 - 66,439,578) common shares 65,700,311 56,539,360
Additional paid in capital 15,941 15,941
Other equity instruments (notes 5(a) and 12(f)(vii)) 2,150,511 1,613,096
Deficit (60,099,773) (54,342,142)
Cumulative translation account 332,203 (495,441)
----------- -----------
8,099,193 3,330,814
----------- -----------
$ 9,935,349 $ 4,158,757
=========== ===========
Continuing operations (note 2(a))
Commitments and contingencies (note 15)
Subsequent events (note 3)
See accompanying notes to consolidated financial statements.
36
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Operations and Deficit
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
-------------------------------------------------
2003 2002 2001
------------ ------------ ------------
Revenues:
Sales $ 1,624,820 $ 1,821,041 $ 3,189,253
Cost of sales 199,704 408,654 416,082
------------ ------------ ------------
1,425,116 1,412,387 2,773,171
Expenses:
Research and development (note 4) 1,879,868 2,505,329 5,394,684
Sales and marketing 2,013,556 3,855,068 9,298,149
Administration 1,828,883 2,016,675 4,408,576
Restructuring (note 14) -- 1,415,380 1,253,707
Impairment (note 2(i)) 614,578 -- --
Depreciation and amortization 885,746 1,383,675 1,831,301
------------ ------------ ------------
7,222,631 11,176,127 22,186,417
------------ ------------ ------------
Operating loss 5,797,515 9,763,740 19,413,246
Other earnings (expenses):
Interest and other earnings 75,189 47,675 258,792
Interest and financing costs (35,305) -- (1,705,982)
------------ ------------ ------------
Loss for the year 5,757,631 9,716,065 20,860,436
Deficit, beginning of year 54,342,142 44,626,077 23,765,641
------------ ------------ ------------
Deficit, end of year $ 60,099,773 $ 54,342,142 $ 44,626,077
============ ============ ============
Loss per share, basic and diluted $ 0.05 $ 0.18 $ 0.90
============ ============ ============
Weighted average number of shares outstanding 104,913,864 52,877,973 23,125,831
============ ============ ============
See accompanying notes to consolidated financial statements.
37
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
-----------------------------------------------------
2003 2002 2001
------------ ------------ -------------
Cash flows from operations:
Loss for the year $ (5,757,631) $ (9,716,065) $ (20,860,436)
Items not involving cash:
Depreciation and amortization 885,746 1,383,675 1,831,301
Amortization of TPC warrants (note 4) 218,292 -- --
Impairment (notes 2(i) and 14) 614,578 777,753 287,585
Non-cash interest and financing costs -- -- 1,590,184
Stock-based compensation (note 12(c)) 158,236 15,941 --
Allowance for obsolescence of inventory 1,071 46,206 30,000
Changes in non-cash operating working capital:
Accounts receivable 138,224 1,067,848 (1,036,049)
TPC receivables (737,446) -- --
Inventory -- 49,891 8,913
Prepaid expenses and deposits (156,729) 48,918 176,496
Accounts payable and accrued liabilities 243,931 (1,090,219) 569,201
Deferred revenue (147,487) 82,302 91,316
------------ ------------ -------------
(4,539,215) (7,333,750) (17,311,489)
Cash flows from investing activities:
Redemption (purchase) of short-term investments, net 190,360 (6,371) 6,071,499
Purchase of fixed assets (201,984) (113,717) (2,288,424)
Other assets -- (25,604) --
Proceeds on disposal of assets -- 11,807 --
Acquisition costs (380,250) -- --
------------ ------------ -------------
(391,874) (133,885) 3,783,075
Cash flows from financing activities:
Issuance of shares and special warrants for cash,
net of issue costs 6,624,025 1,031,657 20,303,441
Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency 462,740 104,177 (55,389)
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents 2,155,676 (6,331,801) 6,719,638
Cash and cash equivalents, beginning of year 2,755,929 9,087,730 2,368,092
------------ ------------ -------------
Cash and cash equivalents, end of year $ 4,911,605 $ 2,755,929 $ 9,087,730
============ ============ =============
38
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Cash Flows, Continued
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
-------------------------------------------------
2003 2002 2001
------------ ------------ ------------
Supplementary information:
Interest paid $ 4,487 $ 7,958 $ 48,727
Interest received 70,702 70,189 243,033
Non-cash transactions:
Issuance of common shares and warrants
on acquisitions (notes 5 and 8) 2,916,105 -- --
Conversion of special warrants into
common shares (note 12(g)(ii)) -- 13,095,742 7,243,914
Warrants issued for financing costs (note 12(g)(i)) -- -- 1,613,096
Acquisition costs 466,669 -- --
============ ============ ============
See accompanying notes to consolidated financial statements.
39
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
1. OPERATIONS:
Infowave Software Inc. (the "Company" or "Infowave") 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, 2003. To date, the Company has financed its
continuing operations through revenue and equity financing. 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
and the recent equity financings in March 2004 (notes 3(c) and (d))
totaling approximately $5.7 million (Cdn$6.0 million), management
believes that existing working capital is sufficient to meet the
Company's projected working capital and cash requirements for 2004.
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
Canadian generally accepted accounting principles and include the
accounts of the Company and its wholly owned subsidiary, Infowave USA
Inc., which was incorporated on July 1, 2000. All 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 19.
40
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Cash and cash equivalents:
Cash and cash equivalents include short-term deposits, which are highly
liquid interest bearing marketable securities with maturities of ninety
days or less when acquired. Short-term deposits are valued at cost.
(d) Government assistance:
Government assistance is recorded as either a reduction of the cost of
the applicable capital assets or credited against related expenses
incurred in the statement of operations, as determined by the terms and
conditions of the agreements under which the assistance is provided to
the Company and the nature of the costs incurred. Government assistance
is recognized when receipt of the assistance is reasonably assured. The
Company recognizes the liability to repay the government assistance in
the period in which conditions arise that will cause the assistance to
be repayable.
(e) 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.
(f) Inventory:
Inventory is valued at the lower of cost and net realizable value. Cost
is determined using the weighted average cost method.
(g) 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 3 years
Computer software Straight-line 2 years
Leasehold improvements Straight-line shorter of lease
term or 5 years
Office equipment Declining balance 20%
Software licenses and purchased source code Declining balance 30%
41
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Intangible assets:
Intangible assets acquired either individually or with a group of other
assets are initially recognized and measured at cost. The cost of a
group of intangible assets acquired in a transaction, including those
acquired in a business combination that meet the specified criteria for
recognition apart from goodwill, is allocated to the individual assets
acquired based on their relative fair values.
Intangible assets acquired in acquisitions with finite useful lives are
amortized over their estimated useful lives of 3 years using the
straight-line method. The amortization methods and estimated useful
lives of intangible assets are reviewed at least annually.
(i) Impairment of long-lived assets and assets to be disposed:
In December 2002, the CICA issued Section 3063, "Impairment of
Long-Lived Assets." This new section establishes standards for the
recognition, measurement and disclosure of the impairment of long-lived
assets, and replaced the write-down provisions of Section 3061,
"Property, Plant and Equipment." In accordance with Section 3063,
long-lived assets, such as property, plant and equipment and purchased
intangibles subject to amortization, 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
an asset to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value
of the asset. The Company adopted Section 3063 on January 1, 2003.
Prior to the adoption of the Section 3063, the impairment to be
recognized was 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.
During the year ended December 31, 2003, the Company reassessed the
portfolio of its intellectual property assets and their future cash
flow projections, and determined that certain assets were not
recoverable. The Company recorded an impairment loss of $614,578 during
the year ended December 31, 2003, primarily on the intangible assets
acquired from HiddenMind (note 5). The impairment charge is equal to
the amount by which the asset's carrying amount exceeded the net
present value of their estimated discounted future cash flows.
42
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Impairment of long-lived assets and assets to be disposed (continued):
In December 2002, the CICA issued new Section 3475, "Disposal of
Long-Lived Assets and Discontinued Operations," which applies to
disposal activities initiated on or after May 1, 2003. This new section
establishes standards for the recognition, measurement, presentation
and disclosure of the disposal of long-lived assets. It also
establishes standards for the presentation and disclosure of
discontinued operations, whether or not they include long-lived assets.
Under new Section 3475, assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposal group classified
as held for sale would be presented separately in the appropriate asset
and liability sections of the balance sheet. New Section 3475 replaced
the disposal provisions of Section 3061, "Property, Plant and
Equipment," and previous Section 3475, "Discontinued Operations".
There was no impact on the Company's financial position or results of
operations on adoption of Section 3063 and new Section 3475.
(j) 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 loss carryforwards, 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
not more likely than not that the asset will be realized.
(k) Translation of foreign currency:
These consolidated financial statements are presented in U.S. 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.
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.
43
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(l) 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. The basis of measurement in determining
the work accomplished is hours of work completed. 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 Statement of Position ("SOP") 97-2 issued by the
American Institute of Certified Public Accountants as amended.
Amounts received in advance of meeting these revenue recognition
criteria are recorded as deferred revenue.
(m) Cost of sales:
Cost of sales includes the cost of commissions, royalties, hardware,
packaging and distribution costs associated with software license and
related revenue.
(n) 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 years ended
December 31, 2003, 2002 and 2001 as the criteria for deferral were not
met.
(o) Stock-based compensation:
The Company has a stock-based compensation plan, which is described in
note 12(d). 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 years ended December 31, 2003 and 2002.
44
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(o) Stock-based compensation (continued):
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.
Prior to January 1, 2002, the Company accounted for stock-based
compensation by the settlement method under which no compensation
expense is recognized for options granted and proceeds received on
exercise are credited to share capital. 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.
(p) Advertising costs:
Expenditures related to advertising are expensed in the period the
first associated advertising takes place.
(q) Financing costs:
Financing costs incurred prior to the completion of a financing are
deferred and are expensed if the financing is abandoned. If the
transaction is completed, all financing costs are recorded as a
reduction of the stated value of the applicable equity.
(r) 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.
(s) 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 and sales returns. Actual results
could differ from those estimates.
(t) Comparative figures:
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
45
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
3. SUBSEQUENT EVENTS:
(a) On January 7, 2004, Infowave entered into a Stock Purchase Agreement
under which it has acquired control of, and will ultimately acquire all
of the outstanding shares of, Telispark Inc. ("Telispark"), a provider
of enterprise mobility applications software solutions based in
Arlington, Virginia. Pursuant to the terms of the agreement, Deloitte
Consulting L.P., the largest shareholder of Telispark, will hold
approximately 19%, but no more than 19.9%, of the issued and
outstanding Infowave common shares upon completion of Infowave's
acquisition of the Telispark shares. Under the terms of the acquisition
agreement, Infowave will pay a total of $8.4 million for the purchase
of all of the issued and outstanding common shares of Telispark,
payable in approximately 46 million Infowave common shares, issuable in
two tranches. Infowave has completed the initial purchase of
approximately 76% of Telispark shares. Infowave will acquire the
remaining Telispark common shares, subject to a number of conditions
precedent, including shareholder approval. Such approval was obtained
on March 30, 2004. The number of Infowave common shares issued in the
second tranche may increase by up to approximately 2.1 million Infowave
common shares in the event that the weighted average Infowave common
share price declines prior to closing of the second tranche. Infowave
has also assumed Telispark employee stock options which will be
exercisable into approximately 1.9 million common shares of Infowave.
At December 31, 2003, related acquisition costs comprising primarily of
professional fees totaling $225,000 were accrued and deferred.
(b) On January 8, 2004 the Company arranged a $3.0 million line of credit
facility with Gerald Trooien, a shareholder, as a condition to the
acquisition of Telispark. The credit facility has been arranged to give
Infowave access to additional working capital to carry out its current
objectives. Any amounts borrowed under the credit facility will be
repayable on December 31, 2005, together with interest accrued at a
Canadian Chartered bank's prime rate plus eight per cent. If Infowave
arranges alternative equity or debt financing within 150 days, the
amount available under the credit facility will be reduced by the
amount of the additional financing.
As consideration for providing the credit facility, Infowave will issue
Mr. Trooien warrants entitling him to acquire a minimum of 7.5 million
and a maximum of approximately 18.5 million Infowave common shares. The
specific number of warrants to be issued will be based on the total
principal amount of the credit facility which is available to Infowave,
after giving effect to any reduction in the credit limit as described
above, divided by the exercise price of the warrants. Each warrant
issuable under this arrangement entitles Mr. Trooien to purchase one
Infowave common share at a price of $0.16 (Cdn$0.21) for a period of
three years. The credit facility and the issuance of warrants were
subject to shareholders' approval. Such approval was obtained on March
30, 2004.
46
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
3. SUBSEQUENT EVENTS (CONTINUED):
(c) On February 16, 2004 the Company entered into an agreement with two
agents (collectively the "Agents") for a private placement offering of
units at a price of $0.17 (Cdn$0.22) per unit. The Agents have agreed
to offer the units on a commercially reasonable efforts basis. Each
unit shall consist of one common share and one half of one common share
purchase warrant. Each whole warrant will entitle the holder to acquire
one common share for a period of two years from the closing date at a
price of $0.22 (Cdn$0.29) per common share. The common shares and
warrants comprising the units will be subject to a four month hold
period. On March 11, 2004, the Company completed the issuance of a
brokered private placement of 27,931,818 units for gross proceeds of
$4.7 million (Cdn$6.1 million). Agents' commission and financing fees
totaling $0.4 million (Cdn$0.5 million) and an additional 300,000 units
were paid in connection with this private placement financing.
(d) In March 2004, the Company entered into an agreement with Gerald
Trooien to issue approximately 6 million common shares for $1.0 million
(Cdn$1.3 million) in a private placement financing. This private
placement was subject to shareholder approval. Such approval was
obtained on March 30, 2004, and the financing closed on March 31, 2004.
The shares issued are subject to a four month hold period.
4. TECHNOLOGY PARTNERSHIP CANADA RECEIVABLE:
On December 9, 2003, Infowave announced that it had received a $5.6 million
(Cdn$7.3 million) investment commitment from Technology Partnerships Canada
("TPC") to support research and development in wireless networking. This
investment is part of a $20.5 million (Cdn$26.5 million) project by
Infowave to develop a software platform for secure wireless networking
through mobile devices. This investment will be provided to Infowave over
time and is based on a contribution equal to 27.5% of eligible costs.
Infowave has agreed to pay a royalty on gross sales and, subject to
regulatory approval, will issue to TPC $1.5 million (Cdn$2 million) worth
of five-year common share purchase warrants on or after October 1, 2005
with an exercise price equal to the then current value of the common
shares. As a result of this financial obligation, the fair value of the
warrants of Cdn$2 million will be recognized through amortization and
expensed to offset the funding benefit recognized, based on the proportion
that the amount received from TPC funding relative to the total funding
approved. The amount amortized during the year ended December 31, 2003 was
$218,292 and was recorded as a long-term liability at December 31, 2003 to
recognize the Company's obligation to issue the warrants in the future.
Infowave engaged a third party consultant to assist in the preparation of
the TPC funding application and incurred expenses totaling $113,713 during
the year ended December 31, 2003. Subsequent to December 31, 2003, the
agreement with the third party consultant was cancelled and the Company was
released from any financial obligations relating to its agreement with the
consultant. During the year ended December 31, 2003, the Company claimed
$798,038 under the TPC commitment that has been recorded as a reduction of
research and development expense, net of amortization of the warrants.
47
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
5. ACQUISITION:
On July 4, 2003, the Company completed the acquisition of substantially all
of the business and assets of HiddenMind Technology, LLC ("HiddenMind"), a
wireless software company based in Cary, North Carolina. Under the terms of
the Asset Purchase Agreement, Infowave acquired substantially all of the
assets of HiddenMind in exchange for 14,966,034 units, each unit comprising
one common share and one-half of a share purchase warrant to be issued to
the shareholders of HiddenMind giving rise to an aggregate purchase price
of $2,031,105 based on exchange rates in effect at the date the terms of
the arrangement were agreed to and announced. Such amount has been
allocated to the underlying warrants based on fair value estimates using
the Black-Scholes pricing model as to $537,415 and $1,493,690 to the
underlying common shares (note 12(f)(ii)).
The transaction has been accounted for as a business combination by the
purchase method, with Infowave identified as the acquirer. The fair value
of the consideration issued has been assigned to the assets acquired based
on their fair values, as determined through an independent valuation at the
consummation date of the acquisition.
The following table summarizes the estimated fair value of the assets
acquired at the date of acquisition.
----------
Intellectual property $2,013,605
Employment contracts 292,500
Patents 50,000
Customer relationship 25,000
Computer equipment 150,000
----------
Total assets acquired 2,531,105
----------
Purchase price $2,531,105
==========
Consideration:
Common shares and warrants $2,031,105
Acquisition costs 500,000
----------
$2,531,105
==========
The following table presents unaudited pro forma results of operations for
the years ended December 31, 2003 and 2002 as if the acquisition of
HiddenMind had occurred on January 1, 2002. The unaudited pro forma
information is not necessarily indicative of the combined results that
would have occurred had the acquisition taken place at the beginning of the
periods presented, nor is it necessarily indicative of results that may
occur in the future.
-----------------------------
2003 2002
---------- -----------
(unaudited)
Revenue $1,728,560 $ 2,582,825
Loss for the year 7,617,693 30,120,105
---------- -----------
Loss per share $ 0.05 $ 0.40
========== ===========
48
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
6. FIXED ASSETS:
---------------------------------------------------------
Accumulated Net book
2003 Cost depreciation value
-------------------------------------- ------------- ------------- -----------
Computer equipment and system software $ 1,940,519 $ 1,721,724 $ 218,795
Computer software 2,409,153 2,267,635 141,518
Leasehold improvements 126,808 83,250 43,558
Office equipment 203,150 118,254 84,896
Software licenses and purchased source code 73,855 36,292 37,563
------------- ------------- -----------
$ 4,753,485 $ 4,227,155 $ 526,330
============= ============= ===========
---------------------------------------------------------
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
============= ============= ===========
7. INTANGIBLE ASSETS:
Intangible assets as of December 31, 2003 comprise of the following from
the acquisition of HiddenMind (note 5):
---------------------------------------------------------
Accumulated
amortization
and Net book
Cost write-down value
------------- ------------- -------------
(note 13)
Intellectual property $ 2,177,543 $ 856,622 $ 1,320,921
Employment contracts 316,314 123,984 192,330
Patents 54,071 21,194 32,877
Customer relationship 27,035 10,597 16,438
------------- ------------- -------------
$ 2,574,963 $ 1,012,397 $ 1,562,566
============= ============= =============
49
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
8. INTELLECTUAL PROPERTY ASSETS HELD FOR SALE:
On October 21, 2003, the Company acquired intellectual property assets of
Sproqit Technologies, Inc ("Sproqit"), a wireless software company based in
Kirkland, Washington. Sproqit offers a mobile application platform that
enables users to obtain email and other data via hand held personal digital
assistant and smartphone wireless devices running various operating
systems. Under the terms of the acquisition agreement, the Company acquired
all of the intellectual property assets of Sproqit and in consideration
issued 4,038,550 common shares to Sproqit. The value assigned to the
intellectual property assets was determined as follows:
Consideration:
Common shares $ 885,000
Acquisition costs 142,603
-------------
$ 1,027,603
=============
The common shares are subject to a four-month hold period. Sproqit holds an
option for one year to purchase back all of the intellectual property
assets sold to the Company for cash consideration equal to the original
purchase price plus a premium of 20%. Pursuant to the Option Agreement,
dated September 23, 2003 between Infowave and Sproqit, in the event that
the purchase option is exercised by Sproqit, Infowave will license the
intellectual property on an exclusive basis in its core markets at
preferential royalty rates. In the event that the option is not exercised
by Sproqit, Infowave will retain ownership of the intellectual property
with no future royalties payable to Sproqit. In December 2003, management
determined that these intellectual property assets were non-strategic for
the Company. As such the Company and Sproqit agreed to extend the Option
Agreement for an additional year. The intellectual property assets have
been classified as assets held for sale in these consolidated balance sheet
as of December 31, 2003 in anticipation of such option exercise by Sproqit
before the expiration of the Option Agreement in September 2005.
9. PREPAID EXPENSES:
In September 2003, the Company entered into a Custom Development and
Services Agreement with Sproqit whereby the Company engaged Sproqit to
develop mobile communication software interface for a total of $350,000.
The Company also provided Sproqit with a commitment to provide an advance
up to $200,000. During the year ended December 31, 2003, the Company
advanced a total of $400,000 to Sproqit pursuant to the Agreement. Sproqit
completed approximately $295,000 in services by December 31, 2003. The
balance of the Company's advance, net of development costs incurred at
December 31, 2003 of $105,000 is included in prepaid expenses, of which
$55,000 will be applied to development services to be completed by Sproqit
in 2004, and the remainder to be refunded by Sproqit upon the completion of
the development services.
50
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
10. OPERATING LOAN:
During the year ended December 31, 2001, the Company entered into an
agreement with Thomas Koll, Chief Executive Officer of the Company at that
time, 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 Thomas
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 12(f)(vii)). Prior to December 31, 2001, the Company repaid all
amounts that were outstanding under this facility and terminated the
agreement.
11. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 2003, the following related party
transactions occurred:
(a) The Company performed $100,000 (2002 - nil; 2001 - nil) in professional
services for a firm owned by a director of the Company of which $50,000
(2002 - nil; 2001 - nil) has been received in cash. In addition, the
Company sold $8,600 (2002 - nil; 2001 - nil) to the firm and the firm
purchased $7,676 in products from the Company during the year.
(b) The Company incurred $10,000 (2002 - $34,825; 2001 - $110,000) for
legal and consulting services to a firm controlled by a former director
of the Company;
(c) The Company incurred interest of nil (2002 - nil; 2001 - $42,184) to
Thomas Koll, in connection with the operating loan (note 10);
(d) The Company recognized revenue of nil (2002 - nil; 2001 - $467,500) to
a company that has a common director;
51
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL:
The share capital of the Company is as follows:
(a) Authorized:
Unlimited voting common shares without par value.
(b) Issued:
--------------------------------------
Number
of shares Amount
----------- --------------
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
Share issuance pursuant to a private placement, net of
issue costs of $330,827 29,942,114 3,253,068
Share issuance pursuant to the acquisition of HiddenMind
(notes 5 and 12(f)(ii)) 14,966,034 1,493,690
Share issuance pursuant to the private placement with the
majority shareholder of HiddenMind, net of issuance
costs of $49,778 (note 12(f)(i)) 29,473,684 2,950,222
Share issuance pursuant to exercise of share options 749,750 99,875
Share issuance pursuant to exercise of purchase warrants 1,341,781 234,966
Share issuance pursuant to exercise of agent warrants 493,498 85,894
Share issuance pursuant to management bonus (note 12(c)) 925,000 158,236
Share issuance pursuant to Sproqit acquisition (note 8) 4,038,550 885,000
----------- --------------
Balance, December 31, 2003 148,369,989 $ 65,700,311
=========== ==============
52
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL (CONTINUED)
(c) Stock bonuses:
(i) On July 1, 2003, the Company paid stock bonuses to senior
management for past services with the shares being issued at the
fair market on the date of issue. The Company issued 325,000
common shares with a fair value of $49,486 (Cdn$68,250).
(ii) On August 21, 2003, the Company paid a bonus of 600,000 shares
with a fair value of $108,750 (Cdn$150,000) in lieu of cash.
(d) Share purchase options:
On June 30, 2003, the 2003 Stock Incentive Plan ("2003 Plan") was
approved by the shareholders of the Company. The 2003 Plan serves as
the successor to the Director and Employee Stock Option Plan as amended
("1997 Plan") and supercedes that plan. The 2003 Plan is different from
the 1997 Plan in that it permits the board of directors to issue common
shares to employees, directors, senior officers or consultants as a
stock bonus for past services actually performed for the Company. Under
the terms of the 2003 Plan, up to 2,000,000 common shares were reserved
for issuance as stock bonuses. As well, the 2003 Plan also increased
the number of common shares available for issuance under stock options
by 3,056,654. This brings the aggregate number of common shares, which
may be reserved for issuance, to 13,125,333 of which 11,125,333 are
reserved for issuance for stock options and 2,000,000 for issuance as
stock bonuses. Options are granted and exercisable in Canadian dollars,
vest over periods from three to four years and expire five years from
the date of grant.
In October 2003, the Company's board of directors approved the
cancellation of 1,000,000 options previously granted to a director.
In November 2003, 2,500,000 options were granted to the Company's new
president and chief executive officer which are exercisable at $0.17
(Cdn$0.22), and expire in November 2008. This option grant is subject
to shareholder approval. Therefore these options are not considered
granted for accounting purposes and not reflected in the tables below.
A summary of the status of the Company's stock option plan as of
December 31, 2003, 2002 and 2001 and changes during the periods ended
on those dates is presented below:
------------------------------------------------------------------------------------
2003 2002 2001
-------------------------- ----------------------- -------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
---------- ------------- --------- ----------- --------- ------------
US$/Cdn$ US$/Cdn$ US$/Cdn$
Outstanding, beginning of year 5,255,183 $ 1.78/2.77 6,416,689 $ 3.88/6.18 4,269,883 $ 7.02/10.52
Granted 6,187,750 0.15/0.21 3,350,400 0.17/0.26 3,468,908 1.42/2.26
Exercised (749,750) 0.14/0.19 (193,086) 0.23/0.35 (72,017) 0.77/1.22
Cancelled (2,855,791) 1.90/2.66 (4,318,820) 3.84/5.99 (1,250,085) 6.35/10.10
---------- ------------ ---------- ----------- ---------- ------------
Outstanding, end of year 7,837,392 $ 0.80/1.03 5,255,183 $ 1.78/2.77 6,416,689 $ 3.88/6.18
========== ============ ========== =========== ========== ============
Options exercisable, end of year 3,621,166 $ 1.45/1.88 2,077,298 $ 3.17/4.94 2,530,783 $ 4.81/7.66
========== ============ ========== =========== ========== ============
53
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL (CONTINUED):
(d) Share purchase options (continued):
The following table summarizes information about stock options
outstanding at December 31, 2003:
---------------------------------------------------------------------------------------------
Options outstanding Options exercisable
------------------------------------------------------ ----------------------------------
Number Weighted Weighted Number
outstanding, average average exercisable, Weighted
Range of December 31, remaining exercise December 31, average
exercise prices 2003 contractual life price 2003 exercise price
------------------ ------------ ---------------- -------------- ------------ --------------
US$/(Cdn$) US$/Cdn $US$/Cdn$
$0.10 to $0.63
($0.15 to $0.99) 7,214,850 4.12 years $ 0.19 / $0.24 3,043,140 $ 0.19 / $0.23
$0.64 to $1.28
($1.00 to $1.99) 57,600 2.90 1.16 / 1.50 54,150 1.18 / 1.53
$1.29 to $1.92
($2.00 to $2.99) 13,600 2.35 2.09 / 2.71 9,000 2.10 / 2.72
$1.92 to $2.56
($3.00 to $3.99) 4,800 2.43 2.58 / 3.34 3,000 2.58 / 3.34
$2.57 to $3.84
($4.00 to $5.99) 140,300 1.10 3.99 / 5.17 133,142 4.00 / 5.18
$3.85 to $5.12
($6.00 to $7.99) 93,534 2.04 4.75 / 6.15 70,426 4.72 / 6.12
$5.13 to $6.41
($8.00 to $9.99) 37,400 1.48 6.73 / 8.71 35,000 6.68 / 8.65
$6.41 to $7.69
($10.00 to $11.99) 73,510 1.60 8.25 / 10.68 71,510 8.23 / 10.66
$7.70 to $9.61
($12.00 to $14.99) 138,198 0.99 10.17 / 13.17 138,198 10.17 / 13.17
$9.62 to $12.82
($15.00 to $19.99) 30,000 1.42 13.08 / 16.94 30,000 13.09 / 16.94
$12.83 to $41.37
($20.00 to $64.50) 33,600 1.14 33.25 / 43.05 33,600 33.25 / 43.05
-------------------- ------------ ---------------- -------------- ------------ --------------
$0.10 to $41.37
($0.15 to $64.50) 7,837,392 3.91 $ 0.80 / $1.03 3,621,166 $ 1.45 / $1.88
==================== ============ ================ ============== ============ ==============
54
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL (CONTINUED):
(e) 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, 2003. Had the Company determined compensation
expense for option grants made to employees after January 1, 2002 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, 2003 would have been the pro forma amounts
indicated below:
-------------------------------------
2003 2002
------------- -------------
Loss - as reported $ 5,757,631 $ 9,716,065
Loss - pro forma 6,050,794 9,802,575
Loss per share - as reported 0.05 0.18
Loss per share - pro forma 0.06 0.19
============= =============
The weighted average estimated fair value at the date of grant for
options granted during the year ended December 31, 2003 was $0.14
(Cdn$0.20) 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 2.75%
Dividend yield 0.0%
Volatility factor 110%
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.
55
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL (CONTINUED):
(f) Share purchase warrants:
(i) On July 4, 2003, the Company issued 29,473,684 units at a price
of $0.11 (Cdn$0.1425) per unit for gross proceeds of $3,000,000
to Gerald Trooien, the majority shareholder of HiddenMind. 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 purchase one common share for a period of
two years from the closing date at a price of $0.15 (Cdn$0.19)
per common share.
(ii) On July 4, 2003, the Company completed the acquisition of
substantially all of the business and assets of HiddenMind (note
5). The purchase price was paid by the Company through the
issuance to HiddenMind of 14,966,034 units of the Company having
a fair value of $0.15 (Cdn$0.19) per unit. Each unit consists of
one common share and one half of one warrant. Each whole warrant
entitles the holder to purchase an additional common share of the
Company at an exercise price of $0.15 (Cdn$0.19) until July 4,
2005. The fair value of these warrants of $537,415 has been
classified in other equity instruments within shareholders'
equity on the consolidated balance sheet.
(iii) On July 4, 2003 and July 14, 2003, the Company issued 22,785,882
units and 6,856,232 respectively for a total of 29,642,114 at a
price of $0.12 (Cdn$0.16125) per unit for gross proceeds of
$3,566,999 (Cdn$4,779,778). 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 purchase one
common share for a period of two years from the closing date at a
price of $0.17 (Cdn$0.215) per common share. The agent was paid a
cash commission equal to 7.5% of the gross proceeds from the
offering and 2,964,203 warrants (the "Agents' Warrants"). Each
Agents' Warrant entitles 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 $0.17 (Cdn$0.215) per common
share. In addition, the Company issued 300,000 units to the agent
as a corporate finance fee.
56
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL (CONTINUED):
(f) Share purchase warrants (continued):
(iv) On December 9, 2002, the Company issued 8,500,000 units at a
price of $0.13 (Cdn$0.20) per unit for gross proceeds of
$1,078,065 (Cdn$1,700,000). 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 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 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 entitles 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 units to the agent
as a corporate finance fee. As at December 31, 2003, 664,843
share purchase warrants and 468,561 Agents' Warrants had been
exercised as well as all units issued as a corporate finance fee.
(v) 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 agreed to a consent
dismissal of its claim. The warrants were issued on December 9,
2002.
(vi) On February 22, 2001, the Company issued 2,272,728 units at a
price of $3.62 (Cdn$5.50) per unit for gross proceeds of
$8,217,500 (Cdn$12,500,000). Each 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 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, 2003,
none of the share purchase warrants or agents' units had been
exercised and have expired.
57
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
12. SHARE CAPITAL (CONTINUED):
(f) Share purchase warrants (continued):
(vii) During the year ended December 31, 2001, as consideration for
providing a credit facility (note 10), 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, 2003, none of
these warrants had been exercised.
(g) 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 equaled 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.
58
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
13. 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 37.6% (2002 - 39.62%; 2001 - 44.6%) as follows:
2003 2002 2001
------------ ------------ -------------
Net loss before income taxes $ 5,797,515 $ 9,716,065 $ 20,860,436
============ ============ =============
Expected tax recovery $ 2,179,866 $ 3,849,505 $ 9,307,927
Tax effect of:
Loss of U.S. subsidiary taxed at
lower rates (25,200) (207,848) (776,192)
Change in enacted tax rates - (240,946) (958,830)
Non-deductible interest expense - (8,110) (27,355)
Permanent and other (145,746) (29,155) (709,576)
Change in valuation allowance (2,008,920) (3,363,446) (6,835,974)
------------ ------------ -------------
$ - $ - $ -
============ ============ =============
The Company has non-capital losses carried forward in Canada of
approximately $50,243,496 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 $ 910,842
2004 2,053,507
2005 1,202,343
2006 1,649,887
2007 18,022,672
2008 12,052,259
2009 9,048,687
2010 5,303,299
-----------
$50,243,496
===========
The Company also has available unclaimed Scientific Research and
Experimental Development Expenditures of approximately $436,030 as at
December 31, 2003, which may be carried forward indefinitely and used to
reduce future taxable income.
As a result of changes in ownership of the Company in 2003 for U.S. tax
purpose, the amount of net operating loss carryforward incurred up to July
2003 which Infowave USA Inc. may utilize has been reduced to nil. As at
December 31, 2003, Infowave USA Inc. has a net operating loss carryforward
of approximately $700,000 which is available to reduce future years' U.S.
taxable income up to 2023.
59
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
13. INCOME TAXES (CONTINUED):
The tax effect of the significant temporary differences which comprise tax
assets and liabilities, at December 31, 2003 and 2002 are as follows:
2003 2002
------------ ------------
Future income tax assets:
Deferred revenues $ - $ 56,715
Fixed assets and intangibles,
principally due to differences
between accounting and tax
depreciation and amortization 1,046,045 1,558,189
Loss carry forwards 18,124,685 16,611,424
Scientific research and development
expenditure carry forwards 155,227 360,913
Share issue costs 725,745 841,656
Long-term investments 10,999 -
Long-term liability 77,708 -
------------ ------------
Total gross future income tax assets 20,140,409 19,428,897
Valuation allowance (20,140,409) (19,428,897)
------------ ------------
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, 2003 and 2002, 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.
60
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
14. 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, 2003.
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. All of these restructuring changes have been
settled, with no amounts included in accounts payable and accrued
liabilities at December 31, 2003.
15. 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 and consist primarily of the office space in
Burnaby, B.C. (lease due to expire June 30, 2008) and the former office
space in Bothell, Washington (lease due to expire March 30, 2005). The
annual payment commitments are as follows:
2004 $ 402,631
2005 258,059
2006 226,178
2007 226,178
2008 113,089
-------
$1,226,135
==========
During the year ended December 31, 2003, the Company made operating
lease payments totaling approximately $575,700 (2002 - $643,000; 2001 -
$829,000).
(b) Letters of credit:
The Company has secured certain lease commitments through an
outstanding letter of credit totaling $150,000.
61
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
15. COMMITMENTS AND CONTINGENCIES (CONTINUED):
(c) Contingency:
in September 2003, the Company was made aware that Visto Corporation, a
private company based in California, filed complaints alleging patent
infringement against Infowave and against Seven Networks, Inc. in the
U.S. District Court for the Eastern District of Texas. It claims that
Infowave is violating a patent relating to the system and method for
synchronizing email. In November 2003, the Company filed a full answer
and counterclaim to the claim. The counterclaim against Visto calls
for, among other things, a declaratory judgment of non-infringement and
invalidity of a Visto patent. The Company intends to continue to
vigorously defend this matter and believes that the claim is without
merit.
16. 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, 2003, four customers represented 47% of
outstanding accounts receivable. In the previous year at December 31,
2002, three customers represented 55% 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.
Foreign currency exchange gain (loss) for the year ended December 31,
2003 was ($35,305) (2002 - ($14,556); 2001 - $37,386).
62
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
17. SEGMENTED INFORMATION:
In the opinion of management, the Company carried on business in one
operating segment, being the development of wireless software. Management
of the Company makes decisions about allocating resources based on the one
operating segment. Substantially all of the Company's long-lived assets are
located in Canada. A summary of revenue by location of the customer is as
follows:
2003 2002 2001
---------- ---------- ----------
By region:
Canada $ 150,482 $ 254,946 $ 829,206
United States 881,200 1,001,573 2,264,370
Other 593,138 564,522 95,677
---------- ---------- ----------
Total sales $1,624,820 $1,821,041 $3,189,253
========== ========== ==========
Revenues by major customer are as follows:
2003 2002 2001
------------- ------------- ----------
By major customer:
Company A $ 335,815 less than 10% $ -
Company B 201,815 - -
Company C less than 10% 349,947 -
Company D less than 10% 195,460 -
Company E less than 10% 376,500 503,970
Company F less than 10% 220,000 450,000
============ ======= =======
18. 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
provided that certain standard working capital conditions and revenue
targets are met. The convertible loan will be secured by certain assets of
the Company, excluding its intellectual property. As at December 31, 2003,
no amounts have been drawn down from this as loan, and as the Company has
not met its revenue target in 2003, no amounts were available under the
credit facility.
63
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES OF AMERICA:
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"). These
principles differ in the following material respects from those in the
United States ("United States GAAP"):
(a) Net loss and loss per share:
2003 2002 2001
------------ ------------ ------------
Loss in accordance with Canadian GAAP $ 5,757,631 $ 9,716,065 $ 20,860,436
Adjustment for stock based compensation
relating to stock options issued to
non-employees (c)(i) - - 126,486
------------ ------------ ------------
Loss in accordance with United States GAAP $ 5,757,631 $ 9,716,065 $ 20,986,922
============ ============ ============
Weighted average number of shares outstanding
in accordance with Canadian and United States
GAAP 104,913,864 52,877,973 23,125,831
Adjustment for special warrants (e) - 5,328,530 3,458,870
------------ ------------ ------------
Weighted average number of shares outstanding
in accordance with United States GAAP 104,913,864 58,206,503 26,584,701
============ ============ ============
Loss per share in accordance with United
States GAAP: $ 0.05 $ 0.17 $ 0.79
============ ============ ============
Comprehensive loss for the years ended December 31, 2003, 2002 and 2001 is as
follows:
2003 2002 2001
------------ ------------ ------------
Loss in accordance with United States GAAP $ 5,757,631 $ 10,138,827 $ 20,986,922
Other comprehensive loss (income):
Foreign currency translation adjustment (827,644) (135,107) 399,615
------------ ------------ ------------
Comprehensive loss $ 4,929,987 $ 10,003,720 $ 21,386,537
============ ============ ============
64
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES OF AMERICA (CONTINUED):
(b) Balance sheet:
2003 2002
------------ ------------
TOTAL ASSETS
Total assets in accordance with Canadian
and United States GAAP $ 9,935,349 $ 4,158,757
============ ============
TOTAL LIABILITIES
Total liabilities in accordance with Canadian GAAP and
United States GAAP $ 1,836,156 $ 827,943
============ ============
SHAREHOLDERS' EQUITY
Share capital in accordance with Canadian GAAP $ 65,700,311 $ 56,539,360
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 $ 66,871,656 $ 57,710,705
============ ============
Additional paid-in capital in accordance with
Canadian and United States GAAP $ 15,941 $ 15,941
============ ============
Other equity instruments in accordance with
Canadian and United States GAAP $ 2,150,511 $ 1,613,096
============ ============
Deficit in accordance with Canadian GAAP
$(60,099,773) $(54,342,142)
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)
Cumulative translation account in accordance with Canadian GAAP 332,203 (495,441)
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)
------------ ------------
(29,017) (856,661)
------------ ------------
Shareholders' equity in accordance with United States GAAP $ 8,099,193 $ 3,330,814
============ ============
65
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES OF AMERICA (CONTINUED):
(c) Stock-based compensation:
(i) Stock options:
The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 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.
The fair value of each option grant to employees is estimated on
the date of the grant using the Black-Scholes option-pricing model
with the following assumptions:
2003 2002 2001
------- ------- -------
Expected dividend yield 0% 0% 0%
Expected stock price 150% 134% 150%
volatility
Risk-free interest rate 2.75% 2.59% 4.23%
Expected life of options 5 years 5 years 5 years
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting
period on a straight-line basis. Had recognized compensation
expense for the Company's stock option plan been determined based
on the fair value at the grant date for awards under those plans
consistent with the provisions of SFAS No. 123 and the assumptions
set out above, the Company's loss and loss per share under United
States GAAP would have been as follows:
66
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA (CONTINUED):
(c) Stock-based compensation (continued):
(i) Stock options (continued):
2003 2002 2001
------------ ------------- --------------
Loss in accordance with United States
GAAP, as reported $ (5,757,631) $ (10,138,827) $ (20,986,922)
Add: Employee stock-based compensation
expense (recovery), as reported 158,236 15,941 -
Deduct: Employee stock-based
compensation expense determined under
the fair value method (2,803,333) (4,946,214) (8,603,513)
------------ ------------- -------------
Pro forma loss in accordance with
United States GAAP $ (8,402,728) $ (15,069,100) $ (29,590,435)
============ ============= =============
Pro forma loss per share, basic and diluted
in accordance with United States GAAP $ (0.08) $ (0.26) $ (1.11)
============ ============= =============
The pro forma assumptions are consistent with those disclosed under the
new CICA Handbook section related to stock-based compensation adopted
during the current year (notes 2(o) and 12(d)).
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. On January 1, 2002,
the Company adopted the new CICA Handbook section related to
stock-based compensation payments (note 2(o)). Under this new policy,
stock options issued to non-employees after December 31, 2001 are
accounted for consistently with United States GAAP. Therefore, for
grants made in the years ended December 31, 2003 and 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.
(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,
2003 (2002 - nil; 2001 - nil).
67
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA (CONTINUED):
(c) Stock-based compensation (continued):
(iii) Weighted average fair value:
Financial statements prepared in accordance with United States
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, 2003, 2002 and 2001 are $0.14
(Cdn$0.20), $0.10 (Cdn$0.17) and $0.99 (Cdn$1.57), respectively.
(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 United States 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) Impairment or disposal of long-lived assets:
United States GAAP required the Company to adopt the provisions in 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 used 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.
68
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
- -------------------------------------------------------------------------------
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA (CONTINUED):
(f) Impairment or disposal of long-lived assets (continued):
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 14. There was no
difference between the net recoverable amount determined based on
undiscounted expected future cash flows and fair value under United
States GAAP, measured by a discounted cash flow as the related assets
were disposed by December 31, 2002.
As a result of the adoption of Section 3063 for Canadian GAAP on
January 1, 2003 (note 2(i)), the method of accounting for the
impairment of long-lived assets is substantially the same as under
United States GAAP in accordance with SFAS No. 144. Therefore, for the
year ended December 31, 2003, there was no measurement difference.
(g) Intangible assets:
The following table summarizes the estimated future amortization
expenses as of December 31, 2003:
Year ending December 31:
2004 $ 626,267
2005 626,267
2006 310,032
(h) Advertising costs:
United States GAAP requires the disclosure of amounts spent on
advertising costs. For the years ended December 31, 2003, 2002 and
2001, the Company spent approximately $7,797, $27,756 and $194,931,
respectively on advertising costs.
(i) Accounts receivable:
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the Company's
existing accounts receivable. The Company determines the allowance
based on analysis of historical bad debts, customer concentrations,
customer credit-worthiness and current economic trends. The Company
reviews its allowance for doubtful accounts quarterly. Past due
balances over 90 days and specified other balances are reviewed
individually for collectibility. All other balances are reviewed on an
aggregate basis. Account balances are written off against the allowance
after all means of collection have been exhausted and the potential for
recovery is considered remote. The Company does not have any
off-balance sheet credit exposure related to its customers.
69
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA (CONTINUED):
(j) Valuation and qualifying accounts:
Effect of foreign
Beginning exchange on End of
of year Charged to Recoveries conversion year
balance expenses and write-offs to US$ balance
-------- ---------- -------------- ------------------ -------
Allowance for doubtful accounts:
Year ended December 31, 2003 $ 67,125 $ 1,950 $ - $ 1,019 $70,094
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
Allowance for sales return:
Year ended December 31, 2003 - - - - -
Year ended December 31, 2002 12,068 - 12,068 - -
Year ended December 31, 2001 6,346 205,395 199,231 (442) 12,068
(k) Recent accounting pronouncements:
(i) In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS No. 149"), which amends and clarifies financial accounting
and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No.149 is to be
applied prospectively for certain contracts entered into or
modified after June 30, 2003. We have adopted SFAS No. 149, which
had no effect on the Company's consolidated financial statements.
(ii) In May 2003, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity"
("SFAS No. 150"), which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is
effective for financial instruments entered into or modified
after May 31, 2003. We have adopted SFAS No. 150, which had no
effect on the Company's consolidated financial statements.
(iii)In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"). FIN 45 expands on previously issued accounting
guidance and requires additional disclosure by a guarantor to
recognize, at the inception of a guarantee, a liability for the
fair value of an obligation assumed by issuing a guarantee. The
provision for initial recognition and measurement of the liability
is applied on a prospective basis to guarantees issued or modified
after December 31, 2002. The application of FIN 45 in 2003 had no
effect on the Company's consolidated financial statements.
70
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Years ended December 31, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA (CONTINUED):
(k) Recent accounting pronouncements (continued):
(iv) In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which,
as subsequently amended, requires the consolidation of a variable
interest entity by the primary beneficiary. FIN 46 also requires
additional disclosure by both the primary beneficiary and
enterprises that hold a significant variable interest in a
variable interest entity. FIN 46 is applicable to variable
interest entities created after January 31, 2003. Entities created
prior to February 1, 2003 must be consolidated in 2004. However,
because the Company does not believe it has any variable interest
entities, there is not expected to be any impact on the Company's
consolidated financial statements.
(v) In November 2002, the Emerging Issues Task Force 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 adoption of this consensus did not have a material impact on
the Company's financial position, cash flows or results of
operations as the Company follows SOP 97-2 for recognition of
their software sales.
71
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A: CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 132-15(e) under the
Securities Exchange Act of 1934, as amended) as of December 31, 2003 (the
"Evaluation Date"). Based upon that evaluation, the Company's Chief Executive
Officer 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.
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,
2003.
NAME AGE POSITION
- ----------------------------------------------- ------ -------------------------------------
Jerry Meerkatz................................. 46 President and Chief Executive Officer
George Reznik ................................. 37 Chief Financial Officer
Sal Visca ..................................... 37 Chief Technology Officer
Thomas Koll ................................... 47 Chairman of the Board (3)
Jim McIntosh .................................. 39 Director (1) (2)
Stephen Wu .................................... 39 Director (2)
Lew Turnquist ................................ 35 Director (1) (2)
Jean-Francois Heitz............................ 54 Director (1) (3)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance and Nominating Committee
EXECUTIVE TEAM
JERRY MEERKATZ has served as President and Chief Executive Officer since
November 18, 2003 and has over twenty-four years of senior executive management
experience in the IT industry. Prior to Infowave, Mr. Meerkatz served as former
Vice President and General Manager of Enterprise Mobility Solutions for HP. Most
notably, he is credited with heading the creation of the iPAQ sub-brand and
bringing the original iPAQ commercial desktop and iPAQ PDA products to market.
Mr. Meerkatz also formed Compaq's Global Mobile/Wireless Solutions Strategy
Group where he structured the Global Compaq Wireless Internet Development office
focusing on business modeling, solutions development, wireless solutions centers
and global market messaging.
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
72
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 to 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.
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 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 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.
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).
JEAN FRANCOIS HEITZ has served as a director since July 2003. He was the Deputy
Chief Financial Officer at Microsoft Corporation up until June 2003, where he
headed the development of long-term organizational strategies for the company's
finance organization. Mr. Heitz joined Microsoft in 1989 as Deputy General
Manager and was promoted in 1991 to General Manager, Business Operations for
Microsoft France and Director of Finance and Administration for Southern Europe.
In 1994 he moved to Microsoft's corporate headquarters to serve as Assistant
Treasurer and was named Treasurer in 1998.
JERRY MEERKATZ has served as a director since July 2003. Jerry Meerkatz brings
to Infowave's board of directors twenty four years of senior executive
management experience in the IT industry. Mr. Meerkatz is former Vice President
and General Manager of Enterprise Mobility Solutions for Hewlett Packard Company
where he focused on creating solutions for mobilizing the enterprise in global
vertical and horizontal market segments. For fourteen years
73
he served at Compaq Computer Corporation and remained with the company after the
merger with HP in 2002. For eight of those fourteen years, Mr. Meerkatz held
several Vice President/General Manager positions for a number of Compaq's
worldwide divisions. As of November 18, Mr. Meerkatz was hired as the Company's
President and Chief Executive Officer.
The Office of the President consisting of George Reznik, Chief Financial
Officer, Sal Visca, Chief Technology Officer, and Jim McIntosh, Director, was
created in April 2002 and charged with the strategy and day-to-day operations of
the Company. The Office of the President ceased with the hiring of Jerry
Meerkatz as President and CEO in November 2003.
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. As at December 31, 2003, the Audit
Committee is comprised of Jean-Francois Heitz, Jim McIntosh and Lew Turnquist
who are independent of management. The Chairman of the Audit Committee is
Jean-Francois Heitz who is a financial expert.
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. As at
December 31, 2003, the Compensation Committee comprised of Lew Turnquist,
Chairman, Stephen Wu and Jim McIntosh.
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. As at December 31, 2003, the
Corporate Governance Committee consisted of William Weiss, Chairman, Thomas Koll
and Jean-Francois Heitz.
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.
The Company does not have a Code of Ethics but plans to adopt a Code of Ethics
in the upcoming fiscal year.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and other executive officers earning more than $100,000 for the years
ended December 31, 2003, 2002, and 2001 (the "Named Executive Officers").
74
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ---------------------- ALL OTHER
SALARY BONUS SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION (US$) (US$) UNDERLYING OPTIONS (US$)
- --------------------------------------- ------- -------------- ------------- ---------------------- ----------------
Jerry Meerkatz 2003 $25,000 $6,250 2,650,000(6) -
President & Chief Executive Officer(1) 2002 - - - -
2001 - - - -
- --------------------------------------- ------- -------------- ------------- ---------------------- ----------------
George Reznik 2003 $125,057 $61,119 675,000
Chief Financial Officer(2) 2002 $88,152 $19,783 375,000 -
2001 - - - -
- --------------------------------------- ------- -------------- ------------- ---------------------- ----------------
Sal Visca 2003 $167,151 $122,058 593,750
Chief Technology Officer 2002 $141,801 $12,200 230,000 -
2001 $141,291 $15,457 198,000 -
- --------------------------------------- ------- -------------- ------------- ---------------------- ----------------
Thomas Koll 2003 $52,500 150,000 $350,000
Chairman of the Board(3) 2002 $204,808 - 675,000 -
Former President 2001 $305,577 - 930,000 -
- --------------------------------------- ------- -------------- ------------- ---------------------- ----------------
Jim McIntosh 2003 $- $- 150,000
Director 2002 - - 75,000 -
Former President(4)(5) 2001 - - - -
- --------------------------------------- ------- -------------- ------------- ---------------------- ----------------
Notes:
(1) Mr. Meerkatz was appointed President and Chief Executive Officer in
November 2003.
(2) Mr. Reznik joined the Company in February 2002.
(3) Mr. Koll was appointed Chief Executive Officer and Director on February
15, 2001. Mr. Koll was appointed President on August 8, 2001. Mr. Koll
was appointed Chairman on April 23, 2002 and resigned as President and
Chief Executive Officer on that date. Other compensation refers to a
severance payment of US$350,000 which was deferred from 2002.
(4) Mr. McIntosh, in his capacity as a Director, served as a shareholder of
the Office of the President from April 23, 2002 until November 2003.
See Note 7 below.
(5) Effective April 23, 2002, the Company appointed an Office of the
President, which was a committee comprised of George Reznik, Chief
Financial Officer, Sal Visca, Chief Technology Officer, Bill Tam, then
Executive Vice President Sales and Marketing, and Jim McIntosh,
Director. As the Company Act (British Columbia) required the Company to
have a President, Jim McIntosh was formally appointed President. As of
November 18, 2003, the Office of the President was dissolved due to the
hiring of Jerry Meerkatz as President and Chief Executive Officer.
(6) Exercise of 1,400,000 of these options is subject to shareholder
approval at the next annual general meeting of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option grants
to our Chief Executive Officer and the Named Executive Officers during the year
ended December 31, 2003. 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 options; and subtracting from that result the aggregate option exercise
price.
75
OPTION GRANTS IN 2003
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM
UNDERLYING EMPLOYEES IN PRICE (PER (CDN$)
OPTIONS FISCAL YEAR SHARE)(3) EXPIRATION ---------------------------
NAME GRANTED (2) (CDN$) DATE 5% 10%
- --------------------------------- ------------- -------------- --------------- ------------- -------------- ------------
Jerry Meerkatz 150,000 1.7% $0.21 Jul 1/08 $8,703 $19,231
2,500,000(1) 28.8% $0.22 Nov 18/08 $151,955 $335,781
- --------------------------------- ------------- -------------- --------------- ------------- -------------- ------------
George Reznik 375,000 4.3% $0.21 Jul 1/08 $21,757 $48,078
300,000 3.5% $0.22 Nov 18/08 $18,235 $40,294
- --------------------------------- ------------- -------------- --------------- ------------- -------------- ------------
Sal Visca 293,750 3.4% $0.21 Jul 1/08 $17,043 $37,661
300,000 3.5% $0.22 Nov 18/08 $18,235 $40,294
- --------------------------------- ------------- -------------- --------------- ------------- -------------- ------------
Thomas Koll(4) 150,000 1.7% $0.21 Jul 1/08 $8,703 $19,231
- --------------------------------- ------------- -------------- --------------- ------------- -------------- ------------
Jim McIntosh(4) 150,000 1.7% $0.21 Jul 1/08 $8,703 $19,231
- --------------------------------- ------------- -------------- --------------- ------------- -------------- ------------
Notes:
(1) Exercise of 1,400,000 of these options is subject to shareholder
approval at the next annual general meeting of the Company.
(2) During 2003, options to purchase a total of 8,687,750 Common Shares
were issued to employees and directors.
(3) 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.
(4) The options were granted to Mr. McIntosh and Mr. Koll as compensation
for their services as Directors.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth for the Chief Executive Officer and the Named
Executive Officers earning over $100,000 the number of shares acquired upon
exercise of stock options during the year ended December 31, 2003 and the number
of shares subject to exercisable and non-exercisable stock options held at
December 31, 2003.
AGGREGATED OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
VALUE OF UNEXERCISED BUT
NUMBER OF SECURITIES EXERCISABLE IN-THE-MONEY
SECURITIES AGGREGATE VALUE UNDERLYING UNEXERCISED OPTIONS AT YEAR END(3)
ACQUIRED ON REALIZED OPTIONS(2) AT YEAR END (#) EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#) (CDN$) EXERCISABLE/UNEXERCISABLE (CDN$)
- --------------------- ----------------- ------------------ ----------------------------- -----------------------------
Jerry Meerkatz(1) - - 75,000/2,575,000 $1,500/$26,500
- --------------------- ----------------- ------------------ ----------------------------- -----------------------------
George Reznik 225,000 $11,200 79,168/595,832 $1,417/$9,083
- --------------------- ----------------- ------------------ ----------------------------- -----------------------------
Sal Visca 107,000 $5,350 183,626/528,124 $7,046/$7,729
- --------------------- ----------------- ------------------ ----------------------------- -----------------------------
Thomas Koll - - 650,000/175,000 $12,500/$2,500
- --------------------- ----------------- ------------------ ----------------------------- -----------------------------
Jim McIntosh - - 150,000/75,000 $7,500/$1,500
- --------------------- ----------------- ------------------ ----------------------------- -----------------------------
Notes:
(1) Exercise of 1,400,000 of these options is subject to shareholder
approval at the next annual general meeting of the Company.
(2) Options to purchase Common Shares.
(3) Maximum notional value at December 31, 2003 based upon the December 31,
2003 closing price of the Common Shares on the Toronto Stock Exchange
of Cdn$0.23.
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.
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
76
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. As of December 31, 2003, the above severance
amount had been paid to Mr. Koll.
The Company has entered into an Employment Agreement with Jerry Meerkatz,
President and Chief Executive Officer, which provides that if he is terminated
without cause, he is entitled to a severance payment equal to 12 months salary.
As well, in the event the Company is sold, acquired or otherwise merged and the
transaction results in a person or combination of persons acquiring more than
50% of the voting securities of the Company (or results in existing shareholders
of the Company holding less than 50% of the voting securities of the Company) or
the Company sells all or substantially all of the assets of the Company (a
"Change of Control") 50% (in the first 12 months of employment) and 100% (after
12 months employment) of unvested options shall vest immediately.
The Company has entered into an Employment Agreement with George Reznik, Chief
Financial Officer, which provides that if Mr. Reznik is terminated without
cause, he shall be given 6 months notice or pay in lieu of notice, plus benefits
during the 6 month period. In the event of a Change of Control and Mr. Reznik is
terminated without cause at any time within 6 months following such Change of
Control, he is entitled to a severance payment equal to 6 months salary and
benefits during the 6 month period. In addition, 50% of Mr. Reznik's unvested
options will immediately vest and become exercisable.
The Company has also entered into an Employment Agreement with Sal Visca, Chief
Technology Officer, which provides that if Mr. Visca is terminated without
cause, he shall receive written notice and a package equal to 7.5 months which,
at the Company's discretion may be given as a combination of pay in lieu of
notice and working notice, provided that any working notice shall not exceed 2
months notice. The package will consist of 7.5 months of salary, payment of 100%
of his quarterly bonus then due, 50% of bonuses that would have been earned
during the 7.5 month period, and continued benefits during the 7.5 month period.
In the event of a Change of Control of the Company and Mr. Visca is terminated
without cause at any time within 6 months following such Change of Control, he
is entitled to a severance payment equal to 7.5 months salary plus benefits
during the 7.5 month period, payment of 100% of his quarterly bonus then due and
50% of bonuses that would have been earned during the 7.5 month period following
termination. In addition, 100% of Mr. Visca's unvested options will immediately
vest and become exercisable.
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 1, 2003, each director at that time, received an option grant to purchase
150,000 Common Shares at a price of Cdn$0.21 expiring July 1, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Between January 2003 and April 2003, the Compensation Committee was comprised of
Barb Richardson and Jim McIntosh, both of whom are unrelated directors, and
Thomas Koll, Chairman, who is a related director but an outside director. Ms.
Richardson resigned as a director in April 2003. In June 2003, the Compensation
Committee was re-constituted with Lew Turnquist, Stephen Wu and Jerry Meerkatz,
all of whom were unrelated directors. Jerry Meerkatz served on the Compensation
Committee until his appointment as President and Chief Executive Officer in
November 2003 and Mr. Wu served until he resigned as a director in January 2004.
77
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN
The following table provides information about the Company's common stock that
may be issued upon the exercise of options and rights under all of the Company's
existing equity compensation plans as of December 31, 2003:
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 7,837,392 $0.80 747,226
approved by security
holders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
not approved by security
holders - nil - - nil - - nil -
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 7,837,392 $0.80 747,226
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
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,
2003, 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 principal 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.
DIRECTORS, EXECUTIVE OFFICERS EARNING MORE NUMBER OF SHARES PERCENT OF
THAN $100,000 AND 5% SHAREHOLDERS BENEFICIALLY OWNED TOTAL SHARES OWNED
-------------------------------------------------------------------------------------------------------------------
Gerald Trooien (1) 44,439,718 20.57%
-------------------------------------------------------------------------------------------------------------------
Thomas Koll (2) 6,408,739 2.97%
-------------------------------------------------------------------------------------------------------------------
Jim McIntosh (3) (4) 1,767,566 0.82%
-------------------------------------------------------------------------------------------------------------------
Sal Visca (5) 487,614 0.23%
-------------------------------------------------------------------------------------------------------------------
Lew Turnquist (6) 187,500 0.09%
-------------------------------------------------------------------------------------------------------------------
Steven Wu (7) 187,500 0.09%
-------------------------------------------------------------------------------------------------------------------
George Reznik (8) 182,297 0.08%
-------------------------------------------------------------------------------------------------------------------
Jerry Meerkatz (9) 87,500 0.04%
-------------------------------------------------------------------------------------------------------------------
Bill Weiss (10) 87,500 0.04%
-------------------------------------------------------------------------------------------------------------------
Jean-Francois Heitz (11) 87,500 0.04%
-------------------------------------------------------------------------------------------------------------------
All Directors and Executive Officers as a group (12) 53,923,434 24.96%
-------------------------------------------------------------------------------------------------------------------
(1) Includes 14,966,034 shares held by HiddenMind Technologies Inc. (which
Mr. Trooien's company controls)
(2) Includes 937,500 shares related to options exercisable and 3,510,455
shares for warrants exercisable within 60 days from December 31, 2003
(3) Includes 1,197,713 common shares beneficially owned through 529452 B.C.
Ltd. (See note (7)) and
78
312,498 shares related to options exercisable.
(4) 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.
(5) Relates to 487,614 shares for options exercisable within 60 days of
December 31, 2003.
(6) Relates to 187,500 shares for options exercisable within 60 days of
December 31, 2003.
(7) Relates to 187,500 shares for options exercisable within 60 days of
December 31, 2003.
(8) Relates to 182,297 shares for options exercisable within 60 days of
December 31, 2003.
(9) Relates to 87,500 shares for options exercisable within 60 days of
December 31, 2003.
(10) Relates to 87,500 shares for options exercisable within 60 days of
December 31, 2003.
(11) Relates to 87,500 shares for options exercisable within 60 days of
December 31, 2003.
(12) 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, 2003
through December 31, 2003.
PART IV
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The fees billed by KPMG LLP for the indicated services performed during
fiscal 2003 and fiscal 2002 were as follows:
FISCAL 2003 FISCAL 2002
------------------- ------------------
Audit fees $ 55,900 $ 67,330
Audit-related fees 63,600 44,065
Tax fees 27,537 -
All other fees 42,973 -
------------------- ------------------
Total fees $ 190,010 $ 111,395
=================== ==================
Audit fees: Consists of fees related to professional services rendered in
connection with the audit of our annual financial statements, the reviews of the
financial statements included in each of our Quarterly Reports on Form 10-Q and
accounting consultations that relate to the audited financial statements and are
necessary to comply with generally accepted auditing standards.
Audit-related fees: Consists of fees for assurance and related services
and consisted primarily professional services rendered in connection with equity
financings.
Tax fees: Consists of fees billed for professional services related to
federal and state tax return preparation.
All other fees: Consists primarily of fees for a subscription to
electronic research materials.
79
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of Independent Auditors. All fees billed by outside auditors incurred in 2003
were pre-approved by the audit committee. Our audit committee has determined
that KPMG's rendering of all other non-audit services is compatible with
maintaining auditor independence.
The audit committee's policy is to pre-approve all audit and permissible
non-audit services performed by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
The Audit Committee has adopted a policy for the pre-approval of services
provided by the independent auditors. Under the policy, pre-approval is
generally provided for particular services or categories of services, including
planned services, project based services and routine consultations projects.
Each category is subject to a specific budget or quarterly dollar amount. In
addition, the Audit Committee may also pre-approve particular services on a
case-by-case basis. For each proposed service, the independent auditor is
required to provide detailed back-up documentation at the time of approval.
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....................................................................
Consolidated Balance Sheet..........................................................1
Consolidated Statements of Operations and Deficit...................................2
Consolidated Statements of Cash Flows...............................................3
Notes to Consolidated Financial Statements..........................................5
EXHIBITS
(a) Exhibits
EXHIBIT NO. 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
80
EXHIBIT NO. DESCRIPTION
- ---------- -----------
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
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, llc
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.
81
EXHIBIT NO. DESCRIPTION
- ---------- -----------
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
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
*10.49 (14) Acquisition Agreement dated May 28, 2003 between the Company and HiddenMind
*10.50 (15) Stock Purchase Agreement among Infowave Software, Inc., Telispark, Inc. and the Sellers Named in the
82
EXHIBIT NO. DESCRIPTION
- ---------- -----------
First Paragraph dated January 7, 2004
*10.51 (16) Telispark, Inc. 2000 Stock Option Plan, as amended
*31.1 Section 302 Certification of Chief Executive Officer
*31.2 Section 302 Certification of Chief Financial Officer
*32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
*32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Private Securities Litigation Reform Act of 1995 - Safe Harbor for Forward-Looking Statements
* 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.
(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.
(14) Incorporated by reference to the Corporation's Form 8-K filed on July
21, 2003.
(15) Incorporated by reference to the Corporation's Form 8-K filed on
January 7, 2004.
(16) Incorporated by reference to the Corporation's Form S-8 filed on
February 20, 2004.
(b) REPORTS ON FORM 8-K
The following reports on 8-K were filed during the three months ended on
December 31, 2003:
83
October 9, 2003-Press release dated October 6, 2003 pertaining to the Company
being made aware that Visto issued a press release in which in filed claims
against the Company alleging patent infringement.
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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
--------- ----- ----
President and Chief Financial
/s/ Jerry Meerkatz Officer March 30, 2004
- --------------------------------------------- ------------------------------
Jerry Meerkatz
/s/ George Reznik Chief Financial Officer March 30, 2004
- --------------------------------------------- ------------------------------
George Reznik
/s/ Thomas Koll Chairman of the Board March 30, 2004
- --------------------------------------------- ------------------------------
Thomas Koll
/s/ Jim McIntosh Director March 30, 2004
- --------------------------------------------- ------------------------------
Jim McIntosh
/s/ Gerald Trooien Director March 30, 2004
- --------------------------------------------- ------------------------------
Gerald Trooien
/s/ Jean-Francois Heitz Director March 30, 2004
- --------------------------------------------- ------------------------------
Jean-Francois Heitz
/s/ Llewellyn Turnquist Director March 30, 2004
- --------------------------------------------- ------------------------------
Llewellyn Turnquist
/s/ Christine Rogers Director March 30, 2004
- --------------------------------------------- ------------------------------
Christine Rogers
Director
- --------------------------------------------- ------------------------------
Leonard Brody
Director
- --------------------------------------------- ------------------------------
Tarrnie Williams
85