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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark one)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended September 30, 2002
OR
[ ] Transition report under section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition Period from to
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Commission file number: 0-28475
KOALA INTERNATIONAL WIRELESS INC.
(Name of small business issuer in its charter)
Nevada 76-0616468
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
366 Bay Street, Suite 800
Toronto, Ontario, Canada M5H 4B2
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(Address of principal executive offices) (Zip Code)
Copies to:
141 - 757 West Hastings Street, Suite 676
Vancouver, British Columbia, Canada V6C 1A1
Registrant's telephone number: (416) 596-8520 (281)
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Securities registered under Section 12(b) of the Act:
None.
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Registrant's revenues for its most recent fiscal year: $nil
As of December 15, 2002, the aggregate market value of the voting common equity
held by non-affiliates of the registrant was approximately $400,000 based on
the closing trade reported on the NASD Over-the-Counter Bulletin Board National
Quotation System. Shares of common stock held by each officer and director and
by each person who owns five percent or more of the outstanding common stock
have been excluded from this calculation as such persons may be considered to be
affiliated with the Company.
On December 01, 2002, the registrant had 13,696,000 shares of Common Stock,
$0.001 par value per share, issued and outstanding.
Documents incorporated by reference: None
KOALA INTERNATIONAL WIRELESS INC.
Index to Annual Report on Form 10-KSB For the Year Ended September 30, 2002
Part I
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Item 1 Description of Business 3
Item 2 Description of Property 6
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
Part II
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Item 5 Market for Common Equity and Related Stockholder Matters 6
Item 6 Management's Discussion and Analysis of Financial
Condition or Plan of Operation 7
Item 7 Financial Statements 15
Item 8 Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 25
Part III
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Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act 25
Item 10 Executive Compensation 26
Item 11 Security Ownership of Certain Beneficial Owners
and Management 27
Item 12 Certain Relationships and Related Transactions 29
Item 13 Exhibits and Reports on Form 8-K 29
Signatures 30
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CORPORATE BACKGROUND
Koala International Wireless Inc. (formerly Kettle River Group Inc.) (the
"Company") is a developmental stage company that was incorporated in Nevada on
August 18, 1999. From inception through September 30, 2002, the Company's
activities have been organizational, directed at raising its initial capital and
developing its business plan. On February 14, 2000, the Company acquired a
license to distribute Vitaminalherb.com products to health and fitness
professionals in Great Britain. The Company did not commence selling the
products and has abandoned the license.
In June 2001, the Company decided to diversify its business plan and began to
investigate other businesses, at which time the opportunity to acquire
Urbanesq.com, Inc. ("Urbanesq"), a private Ontario corporation which owned the
rights to a handheld communications device, arose. The Company acquired
all of the outstanding shares of common stock of Urbanesq from the
stockholders of Urbanesq in exchange for an aggregate of 6,500,000 shares of its
common stock . Immediately following the exchange, certain stockholders of
the Company surrendered an aggregate of 7,500,000 shares of common stock to
the Company, which were immediately cancelled by the Company.
The exchange was effectively a reverse takeover of the Company by Urbanesq, in
that the stockholders of Urbanesq became majority holders of the Company's
outstanding common stock. Shortly after the exchange, new directors and
officers were appointed.
On December 5, 2001, the stockholders of the Company voted to adopt Amended
and Restated Articles of Incorporation, including a change of the Company's
name to Koala International Wireless Inc. A few days thereafter, the Company's
trading symbol was changed from KTLR to KIWI.
In August of 2002, the company altered its plans to develop an end-to-end
communication device and service through the purchase of three companies:
No-Wire Telecom Inc., IP Co. Ltd. and Route1 Corporation.
The Company's principal executive offices are located at 366 Bay Street,
Suite 800, Toronto, Ontario, Canada M5H 4B2.
PLANNED FUTURE OPERATIONS
The Company's business following its acquisition of Urbanesq was to
produce and market a product called the Hipster and the subscription services
associated with that product. The Company has ceased to pursue this business
and has extended its business model to launch a Windows based communication
device and associated services. The new device is being designed to access
information from the Internet, provide email service and other communication
functionality such as text messaging. The plan is to deliver multiple services,
some on a subscription basis, in a manner similar to the way a consumer
currently pays for a cellular telephone. The first market for the device and
services will be Europe followed by other GPRS markets.
Marketing and Distribution
The device and network services will be marketed to GPRS based wireless
operators for resale to end users as is the case for products like the Handsring
Treo and RIM Blackberry.
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Competition
The device will compete in the mass communication market alongside personal
Digital assistants and cellular telephones. Many of the Company's competitors
have successful sales, established employees, research and development
budgets, market acceptance and penetration and a strong overall financial
condition. The Company believes that the concept and design of its
device will surpass competitors' designs. The Company is smaller in size and
resources when compared to its competitors.
Research and Development
On September 17, 2002 the Company announced plans to acquire IP Co. Ltd. a
private company that has developed a device referred to as the "MOBI". IP Co.
Ltd. has completed development of the MOBI device which will allow Koala to
execute its business plan. The acquisition is now in the final stages and
should be completed shortly.
Regulatory Environment
The manufacture and use of the device will be subject to regulation by one
or more federal agencies, including the Federal Trade Commission and the
Canadian Radio and Television Commission. These activities also may be
regulated by various agencies of the states, localities and foreign
countries in which consumers reside.
Intellectual Property Protection
The product primarily uses confidential policies which are internally
implemented by the Company to protect the specific design. The Company is
exploring placing patents on the device and software developed for its
operation.
Business
The Company has abandoned its Vitamineralherb.com license.
The Company has abandoned the Urbanesq business plan.
The Company intends to acquire Routel Corporation as a next-generation
financial transaction processing company. (See the Company's 8K filed Dated
September 27, 2002, and amended December 13, 2002). As consideration for the
purchase, the vendor will issue 6,000,000 common shares of the company fairly
valued at $6,000 Usd, which will represent 30.46% of the then issued and
outstanding shares. Route1 Corporation is subject to a judgment for $97,000,
which amount has been accrued as a liability in Route1's financial statements.
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The Company has not yet issued as at January 11, 2003, the 6,000,000 shares to
Route1's shareholders pending resolution of this judgment, other issues relating
to the judgment, and the filing of an Information Statement.
Route1 is involved in the billing, tracking, settlement and data management for
Mobile Virtual Network Operators (MVNO's). Route1 has developed a number of
proprietary encryption and related software applications that enable the
delivery of secure data and short messaging transmissions over an MVNO. Route1's
technology and vision will allow the combined companies to complete the MVNO
strategy.
The Company intends to acquire NoWire Telecom, Inc., a wireless messaging
company incorporated in Cairo, Egypt, with corporate headquarters in Montreal,
Quebec. NoWire has secured virtual carrier agreements with more than 125
international telephone and data carriers to enable the delivery of premium data
and Short Messaging content and services to their customers.
NoWire provides a turnkey technology platform that enables the delivery of Short
Messaging and/or voice and data services to telecom carriers that lack the
infrastructure necessary to provide these services on a local and international
basis. Short Messaging enables the transmission of small amounts of data to
(and from) PDA's and cell phones, such as text messaging and the delivery of
custom ring tones, graphics and compelling content. Short Messaging is an
inexpensive and convenient form of communication over wireless networks. NoWire
has aggregated a substantial amount of Short Messaging content and services that
can be delivered to its customers.
The Company intends to acquire IP Co. Ltd., a mobile computing and hardware
development company based in Toronto, Ontario. The Company has developed a
proprietary, handheld personal intelligent network computing device that can be
produced at a cost substantially less than its competitors. The device, code
named "MOBI," communicates directly with multiple Short Messaging, data and
voice networks and delivers portable data, Internet access, email, Short
Messaging, calendaring, office tools, MP3 and other applications, some not
currently available in the marketplace.
The Company (Koala) based on its acquisitions is developing an International
Mobile Virtual Network Operator (IMVNO) platform to allow the delivery of voice,
data and short messaging over multiple networks. Concurrent with the IMVNO
development, the Company is pursuing the development of applicable devices to
serve the network subscribers. The IMVNO strategy will enable subscribers to
access the Internet, utilize existing applications including calendaring,
contact management systems, email and short messaging and additional
functionality, some not currently available in the marketplace.
Intellectual Property
The nature of patent and trademark registration is very complex and requires
legal expertise. To date, no applications have been prepared to patent any of
the Companies assets or concepts.
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Employees
The Company is in the developmental stage and currently has no employees. The
Company looks to its directors and officers for their combined entrepreneurial
skills and talents. Management plans to use consultants, attorneys and
accountants as necessary. A portion of any employee compensation package likely
would include the right to acquire stock in the Company, which would dilute the
ownership interest of holders of existing shares of the Company's common stock.
As discussed more fully in the Management's Discussion and Analysis - Liquidity
and Capital Resources section, the expenses of implementing the Company's
business plan will exceed the Company's current funding. The Company, therefore,
will have to obtain additional funding through an offering of its securities or
through capital contributions from its stockholders. No commitments to provide
additional funds have been made by management or stockholders. Accordingly,
there can be no assurance that any additional funds will be available on terms
acceptable to the Company or at all.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located at 366 Bay Street, Suite
800, Toronto, Ontario, Canada, M5H 4B2. The Company currently does not have any
lease payments as the office is shared with other companies. The Company will
find alternative office space once it commences production and marketing of the
communications device and services.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the Company's executive management and directors, neither
the Company nor its subsidiaries are party to any legal proceeding or litigation
and none of its property is the subject of a pending legal proceeding and the
executive officers and directors know of no other threatened or contemplated
legal proceedings or litigation other than a judgement held against Route1.
(Note: the company has not yet acquired Route1)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders during the year ended September
30, 2002.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was approved for trading on the Over-the-Counter
Bulletin Board (OTC-BB) under the symbol KTLR on August 24, 2001. In connection
with the change of the Company's name to Koala International Wireless Inc., the
Company's trading symbol was changed to KIWI on December 10, 2001.
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On November 30, 2002, the Company's issued and outstanding common stock
totalled 13,696,000 shares, held by approximately 77 stockholders of record
and by an undetermined number of additional stockholders through nominee or
street name accounts with brokers.
The Company has not paid dividends in prior years and has no plans to pay
dividends in the near future. The Company intends to reinvest its earnings, if
any are achieved, in the continued development and operation of its business.
Any payment of dividends would depend upon the Company's pattern of growth,
profitability, financial condition, and such other factors as the Board of
Directors may deem relevant.
RECENT SALES OF UNREGISTERED SECURITIES
On October 18, 2001, the Company issued 6,500,000 shares of common stock to the
stockholders of Urbanesq pursuant to a voluntary share exchange. The issuance
was conducted pursuant to an exemption from registration, namely Rule 506 of
Regulation D and/or Regulation S under the Securities Act of 1933, as amended.
The Company prepared and distributed an offering memorandum to the Urbanesq
stockholders before they signed the voluntary share exchange agreement and
subscribed for the stock. The 6,500,000 shares of the Company's common stock
held by the stockholders of Urbanesq are restricted securities subject to Rule
144 of the Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this report and elsewhere (such as in other filings by the
Company with the Securities and Exchange Commission ("SEC"), press releases,
presentations by the Company of its management and oral statements) may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended to
identify these forward-looking statements. Actual results may materially differ
from any forward-looking statements. Factors that might cause or contribute to
such differences include, among others, competitive pressures and constantly
changing technology and market acceptance of the Company's products and
services. The Company undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements, which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
The following discussion should be read in conjunction with the consolidated
financial statements included herein. Certain statements contained herein may
constitute forward-looking statements, as discussed above. Because such
statements include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in the
"Outlook: Issues and Uncertainties" section of this Form 10-KSB.
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PLAN OF OPERATIONS
The Company's business is still in its development stage. The Company has not
generated any revenue to date. The Company plans to generate revenue through
the production and marketing of its communication device and services.
During the period from August 25, 2000 (date of inception) through September 30,
2002, the Company engaged in no significant operations other than organizational
activities and research and development. The Company received no revenues during
this period.
For the most recent fiscal year, the Company incurred a loss in the amount of
$3,137,115, compared to a loss of $358,523 in the previous nine month period.
The Company's expenses increased from $0 during the year ended December 31, 2000
to $179,888 during the year ended September 30, 2001. The change is due to the
acquisition of Urbanesq, the Company's increased business presence and efforts
to develop its business plan. Operation costs over the next year will depend on
a number of factors, including the cost of producing the new communications
device, the cost of conducting marketing research and preparing a marketing
campaign.
On October 29, 2001, the Company changed its fiscal year end to September 30
from December 31.
The Company's business plan does not include any further work on its Hipster
business rather to continue development of the new communications device and to
launch the product during 2003. The Company intends to subcontract the
production of the device.
Recent Developments and Discussions
On March 18, 2002 the Company announced their intention to acquire Route1(TM)
Corporation. Routel is a next-generation financial transaction processing
company. The Company committed to issue 750,000 common shares to acquire all of
the outstanding shares of Route1, however Route1 notified the Company that it
would not proceed with the transaction. Currently the parties have agreed to the
issuance of 6,000,000 common shares for Route1 but have not yet closed the
transaction.
On March 22, 2002 the Company announced their intention to acquire Transcard
Canada, Limited. The Company committed to issue 750,000 common shares to acquire
all of the outstanding shares of Transcard plus up to an additional 750,000
common shares to be issued on a performance basis and committed to fund
Transcard with up to $500,000 for working capital. Subsequently, the Company
received a notice of termination from Transcard and is not pursuing the
acquisition.
On March 26, 2002 the Company announced their intention to acquire Esemde, Inc.
Esemde has created a North America-wide virtual wireless network to provide SMS
and GPRS delivery services. SMS and GPRS are data transmission formats used by
wireless carriers such as AT&T Wireless, Cingular and Voicestream. This
capability enables providers with SMS and GPRS applications for the Vertical and
Enterprise markets, access to nationwide wireless coverage, from digital PCS
carriers but served by Esemde, Inc. The Esemde technology and service will
capitalizes on the growing need for low-cost, reliable, bi-directional wireless
data transmission, delivered nationwide to any SMS or GPRS application. The
Company has committed to issue 650,000 common shares to acquire all of the
outstanding shares of Esemde and has committed to fund Esemde with up to
$1,280,000 for working capital. The discussions with Esemde have been
8
terminated with no further obligations between the companies.
On April 4, 2002 the Company announced their intention to acquire INTERcard
Group Inc. INTERcard provides wireless debit and credit terminals, along with
related transaction clearing, to the hospitality industry. INTERcard has
accumulated substantial transaction and revenue data regarding payment through
POS terminals from a number of Canadian pilot locations. INTERcard and Koala
have held advanced contract discussions with a number of additional settlement
and certification organizations, which, if completed, will enable Koala and
INTERcard to immediately generate revenues as devices are deployed in the field.
The Company has committed to issue 112,902 common shares to acquire all of the
outstanding shares of INTERcard, subject to INTERcard selling 450 Ingenico
transaction automation 770 'units' and has committed to issue an additional
112,902 common shares each time an additional 450 'units' are delivered up to a
maximum aggregate of 451,608 common shares. The Company has agreed to issue
114,516 common shares as a finder's fee pursuant to the INTERcard acquisition.
Koala International Wireless and INTERcard were not able to conclude this
transaction.
Liquidity and Capital Resources
The Company has been able to pay its expenses and costs through the increase in
its accounts payable and payments made by others for the Company. As of
September 30, 2002, the Company had a working capital deficiency of $817,631
compared to a working capital deficiency of $34,251 at September 30, 2001. The
Company needs to raise additional funds through the sale of stock or borrowing
just to maintain the corporate existence of the Company and to maintain the
quotation of the Company's common stock on the OTC Bulletin Board. The Company
may not be successful in its efforts to raise equity financing and /or attain
profitable operations. As of September 30, 2002, the Company had a net
stockholders' deficit of $817,631, with accumulated losses during the
development stage of $3,239,646. There is doubt regarding the Company's ability
to continue as a going concern.
No material commitments for capital expenditures were made during the years
ended September 30, 2002 or 2001.
The Company estimates the cost of producing and marketing the device at
$1,000,000 Usd. The Company abandoned the Vitamineralherb.com project.
The Company is in the process of negotiating financing for completion of product
development and the first manufacturing run. The availability of future
financings will depend on market conditions. A portion of the funds may be
used to grow the business through acquisitions of other businesses.
The forecast of the period of time through which the Company's financial
resources will be adequate to support operations is a forward-looking statement
that involves risks and uncertainties. The actual funding requirements may
differ materially from this as a result of a number of factors including plans
to rapidly expand its new operations. There can be no guarantee that financing
adequate to carry out the Company's business plan will be available on terms
acceptable to the Company, or at all.
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EFFECT OF FLUCTUATIONS IN FOREIGN EXCHANGE RATES
The Company's reporting and functional currency is the US dollar. Currently, all
of the Company's operations are located in Canada. Transactions in Canadian
dollars have been translated into U.S. dollars using the current rate method,
such that assets and liabilities are translated at the rates of exchange in
effect at the balance sheet date and revenue and expenses are translated at the
average rates of exchange during the appropriate fiscal period. As a result, the
carrying value of the Company's investments in Canada is subject to the risk of
foreign currency fluctuations. Additionally, any revenues received from the
Company's international operations in other than U.S. dollars will be subject to
foreign exchange risk.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of APB No. 25 for (a) the definition of employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The Company will adopt FIN 44 in accounting for any stock options granted.
In March 2000, EITF 00-2 "Accounting for Web Site Development Costs" was
released. EITF 00-2 provides guidance on how an entity should account for costs
involved in such areas as planning, developing software to operate the web site,
graphics, content, and operating expenses. EITF 00-2 is effective for web site
development costs incurred for fiscal quarters beginning after June 30, 2000.
OUTLOOK: ISSUES AND UNCERTAINTIES
Stockholders and prospective purchasers of the Company's common stock should
carefully consider the following risk factors in addition to the other
information appearing in this Transitional Annual Report on Form 10-KSB.
BUSINESS RISKS
THE COMPANY MAY REQUIRE ADDITIONAL EQUITY FINANCING, WHICH MAY NOT BE AVAILABLE
AND MAY DILUTE THE OWNERSHIP INTERESTS OF INVESTORS.
The Company's ultimate success will depend on its ability to raise additional
capital. No commitments to provide additional funds have been made by
management or other stockholders. The Company has not investigated the
availability, source or terms that might govern the acquisition of additional
financing. When additional capital is needed, there is no assurance that funds
will be available from any source or, if available, that they can be obtained on
terms acceptable to the Company. If unavailable, the Company's operations could
be severely limited, and it may not be able to implement its business plan. If
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equity financing is used to raise additional working capital, the ownership
interests of existing stockholders may be diluted.
THE COMPANY'S OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY WHICH
COULD INCREASE THE VOLATILITY OF ITS STOCK PRICE.
As a result of the Company's limited operating history and the planned rapid
expansion of its business operations, the Company's quarterly and annual
operating results are likely to fluctuate from period to period. For this
reason, you should not rely on period-to-period comparisons of the Company's
financial results as indications of future results. The Company's future
operating results could fall below the expectations of public market analysts or
investors and significantly reduce the market price of its common stock.
Fluctuations in the Company's operating results could increase the volatility of
its stock price.
THE COMPANY'S DEPENDENCE ON RELATIONSHIPS WITH BUSINESSES AND GOVERNMENTS
OUTSIDE OF THE UNITED STATES MAY NEGATIVELY AFFECT ITS ABILITY TO OPERATE ITS
BUSINESS AS PLANNED.
The Company depends on its ability to establish and maintain successful
relationships with businesses and governments located outside of the United
States. If the Company is unable to establish and maintain such relationships,
it will not be able to implement the business plan in its current configuration,
which will affect both its revenue stream and profit potential. In addition,
the Company faces political sovereign risks of conducting international
business, including risks of changing economic conditions, which may have a
material adverse effect on its ability to expand its operations globally.
THE COMPANY MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, TRADE SECRETS
AND KNOW-HOW WHICH WOULD REMOVE A BARRIER TO COMPETITION AND MAY DIRECTLY AFFECT
THE AMOUNT OF REVENUE IT GENERATES.
The Company depends heavily on its unique communications device design. The
Company is dependent on its ability to keep trade secrets and obtain patents on
its technologies as well as on its ability to develop new processes,
technologies and products to meet the needs of its marketplace. Although the
Company intends to employ various methods, including trademarks, patents,
copyrights and confidentiality agreements with employees, consultants and third
party businesses, to protect its intellectual property and trade secrets, there
can be no assurance that it will be able to maintain the confidentiality of any
of its proprietary technologies, know-how or trade secrets, or that others will
not independently develop substantially equivalent technology. The failure or
inability to protect these rights could have a material adverse effect on the
Company's operations.
THE COMPANY DEPENDS UPON A SMALL NUMBER OF KEY PERSONS TO IMPLEMENT ITS BUSINESS
PLAN, AND THE LOSS OF ANY OF THEM MAY AFFECT ITS BUSINESS OPERATIONS.
The Company is dependent on several key employees and consultants to implement
its business plan, and the loss of any of them may affect the Company's ability
to provide the required quality of service and technical support necessary to
achieve and maintain a competitive market position. There is no assurance that
these key employees and consultants will continue to manage the Company's
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affairs in the future. The Company has not obtained key man insurance with
respect to any of its employees.
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE ITS GROWTH WHICH COULD HAVE A
MATERIAL EFFECT ON ITS BUSINESS OPERATIONS.
The Company's ability to manage its growth depends in part upon its ability to
develop and expand operating, management, information and financial systems, and
production capacity, which may significantly increase its future operating
expenses. No assurance can be given that it will grow in the future or that it
will be able to effectively manage such growth. Its inability to manage its
growth successfully could have a material adverse effect on its business,
financial condition and results of operations. The Company cannot successfully
implement its business model if it fails to manage its growth. The Company plans
to rapidly and significantly expanded its operations domestically and
internationally and anticipates further expansion to take advantage of market
opportunities.
INVESTMENT RISK
CONCENTRATION OF OWNERSHIP OF DIRECTORS, OFFICERS AND SIGNIFICANT EMPLOYEES MAY
REDUCE THE CONTROL BY OTHER STOCKHOLDERS OVER THE COMPANY.
The Company's directors, officers and other control persons own or exercise full
or partial control over more than 51.12% of the Company's outstanding common
stock. As a result, other investors in the Company's common stock may not have
much influence on corporate decision-making. In addition, the concentration of
control over the Company's common stock among the insiders could prevent a
change in control of the Company.
THE COMPANY'S COMMON STOCK IS CONSIDERED A "PENNY STOCK", WHICH MAKES IT MORE
DIFFICULT TO SELL THAN AN EXCHANGE-TRADED STOCK.
The Company's securities are subject to the Securities and Exchange Commission
rule that imposes special sales practice requirements upon broker-dealers that
sell such securities to other than established customers or accredited
investors. For purposes of the rule, the phrase "accredited investor" means, in
general terms, institutions with assets exceeding $5,000,000 or individuals
having net worth in excess of $1,000,000 or having an annual income that exceeds
$200,000 (or that, combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of purchasers of the Company's securities to buy or sell in
any market that may develop.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." (A "penny stock" is any equity security that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions). Such rules include
Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the
Securities and Exchange Act of 1934, as amended. The rules may further affect
the ability of owners of the Company's shares to sell their securities in any
market that may develop for them. Stockholders should be aware that, according
to the Securities and Exchange Commission Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:
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- - control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
- - manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases;
- - "boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
- - excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
- - the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent
investor losses.
THE ISSUANCE OF ADDITIONAL SHARES MAY HAVE THE EFFECT OF DILUTING THE INTEREST
OF STOCKHOLDERS.
Any additional issuances of common stock by the Company from its authorized but
unissued shares may have the effect of diluting the percentage interest of
existing stockholders. Out of the Company's 100,000,000 authorized common
shares, 86,304,000 or approximately 86.3% remain unissued at December 01, 2002.
The Board of Directors has the power to issue such shares without stockholder
approval. None of the 20,000,000 authorized preferred shares of the Company are
issued. The Company fully intends to issue additional common shares or preferred
shares in order to raise capital to fund its business operations and growth
objectives or as compensation for services rendered on behalf of the Company.
BOARD OF DIRECTORS' AUTHORITY TO SET RIGHTS AND PREFERENCES OF PREFERRED STOCK
MAY PREVENT A CHANGE IN CONTROL BY STOCKHOLDERS OF COMMON STOCK.
Preferred shares may be issued in series from time to time with such
designation, rights, preferences and limitations as the Company's Board of
Directors determines by resolution and without stockholder approval. This is an
anti-takeover measure. The Board of Directors has exclusive discretion to issue
preferred stock with rights that may trump those of common stock. The Board of
Directors could use an issuance of Preferred Stock with dilutive or
voting preferences to delay, defer or prevent common stockholders from
initiating a change in control of the Company or reduce the rights of common
stockholders to the net assets upon dissolution. Preferred stock issuances may
also discourage takeover attempts that may offer premiums to holders of the
Company's common stock.
STOCKHOLDERS DO NOT HAVE THE AUTHORITY TO CALL A SPECIAL MEETING THEREBY
DISCOURAGING TAKEOVER ATTEMPTS.
Pursuant to the Company's articles of incorporation, only the Company's Board of
Directors has the power to call a special meeting of the stockholders, thereby
limiting the ability of stockholders to effect a change in control of the
Company.
THE COMPANY DOES NOT ANTICIPATTE PAYING DIVIDENDS TO ITS SECURITY HOLDERS IN THE
FORESEEABLE FUTURE WHICH MAKES INVESTMENT IN ITS STOCK SPECULATIVE OR RISKY.
The Company has not paid dividends on its common stock and does not anticipate
paying dividends on its common stock in the foreseeable future. The Board of
Directors has sole authority to declare dividends payable to the Company's
13
stockholders. The fact that the Company has not and does not plan to pay
dividends indicates that the Company must use all of its funds generated by
operations for reinvestment in its operating activities and also emphasizes that
the Company may not continue as a going concern. Investors also must evaluate an
investment in the Company solely on the basis of anticipated capital gains.
LIMITED LIABILITY OF THE COMPANY'S EXECUTIVE OFFICERS AND DIRECTORS MAY
DISCOURAGE STOCKHOLDERS FROM BRINGING A LAWSUIT AGAINST THEM.
The Company's articles of incorporation and bylaws contain provisions that limit
the liability of directors for monetary damages and provide for indemnification
of officers and directors. These provisions may discourage stockholders from
bringing a lawsuit against officers and directors for breaches of fiduciary duty
and may also reduce the likelihood of derivative litigation against officers and
directors even though such action, if successful, might otherwise have benefited
the stockholders. In addition, a stockholder's investment in the Company may be
adversely affected to the extent that costs of settlement and damage awards
against officers or directors are paid by the Company pursuant to the
indemnification provisions of the articles of incorporation and by-laws. The
impact on a stockholder's investment in terms of the cost of defending a lawsuit
may deter the stockholder from bringing suit against one of the Company's
officers or directors. The Company has been advised that the SEC takes the
position that this provision does not affect the liability of any director under
applicable federal and state securities laws.
14
ITEM 7. FINANCIAL STATEMENTS
Report of Independent Chartered Accountants 16
Balance Sheets as at September 30, 2002 and September 30, 2001 17
Statements of Operations for the years ended September 30, 2002,
and September 30, 2001, and for the period from August 25, 2000
(Date of Inception) to September 30, 2002 18
Statements of Stockholders Equity for the period from August 25, 2000
(Date of Inception) to September 30, 2002 19
Statements of Cash Flows for the years ended September 30,2002,
and September 30, 2001, and for the period from August 25, 2000
(Date of Inception) to September 30,2002 20
Notes to Financial Statements 21
15
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS
OF KOALA INTERNATIONAL WIRELESS INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY KETTLE RIVER GROUP INC.)
We have audited the consolidated balance sheets of Koala International Wireless
Inc. (formerly Kettle River Group Inc.) (a development stage company) as at
September 30, 2002 and 2001 and the statements of operations, changes in
stockholders' equity (deficiency) and cash flows for the years ended September
30, 2002 and 2001 and the cumulative totals for the development stage operations
from August 25, 2000 (inception) through September 30, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurances 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 September 30,
2002 and 2001 and the consolidated results of its operations and its cash flows
for the two years ended September 30, 2002 and 2001 and the cumulative totals
for the development stage operations from August 25, 2000 (inception) through
September 30, 2002 referred to above in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 3 to the
financial statements, the Company has no revenues and limited capital which
together raise substantial doubt about its ability to continue as a going
concern. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, British Columbia
January 28, 2003
16
KOALA INTERNATIONAL WIRELESS INC.
(FORMERLY KETTLE RIVER GROUP INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30
(U.S. DOLLARS)
- --------------------------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------------------------
(note 1)
ASSETS
CURRENT
Cash $ 0 $ 489
Accounts receivable 0 2,623
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 0 3,112
FIXED, net of accumulated depreciation of
$15,556 (2001 - $7,778) 23,952 31,730
- --------------------------------------------------------------------------------------------------
$ 23,952 $ 34,842
- --------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 841,583 $ 37,363
- --------------------------------------------------------------------------------------------------
Commitments (note 8)
STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------------------------------------
PREFERRED STOCK, $0.001 PAR VALUE, 20,000,000 SHARES
AUTHORIZED, NO SHARES ISSUED AND OUTSTANDING
COMMON STOCK AND PAID-IN CAPITAL IN EXCESS OF $0.001
PAR VALUE
100,000,000 Shares authorized
13,696,000 (2001 - 1,354,167) shares issued and 2,417,002 214,594
outstanding
OTHER COMPREHENSIVE INCOME 5,013 8,449
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE OF OPERATIONS (3,239,646) (225,564)
- --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIENCY (817,631) (2,521)
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,952 $ 34,842
- --------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
KOALA INTERNATIONAL WIRELESS INC.
(FORMERLY KETTLE RIVER GROUP INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2002, SEPTEMBER 30, 2001 AND FOR THE PERIOD FROM AUGUST 25, 2000
(INCEPTION) TO SEPTEMBER 30, 2002
(U.S. DOLLARS)
- --------------------------------------------------------------------------------------------------
FROM
DATE OF
INCEPTION
TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
- ----------------------------------------------------------------------------------------------
EXPENSES
Consulting $ 2,399,550 $ 0 $ 2,399,550
Professional fees 142,787 10,479 157,156
Marketing 138,800 54,610 193,410
Product development 129,040 0 129,040
Salaries 93,300 44,154 145,719
Financing and due diligence 73,450 0 73,450
Rent, office and administration 51,185 7,387 58,610
Write-off merger goodwill 38,013 0 38,013
Travel 33,000 17,224 50,564
Investor relations 27,112 0 27,112
Website 3,100 38,256 74,499
Depreciation 7,778 7,778 15,556
- ----------------------------------------------------------------------------------------------
NET LOSS $(3,137,115) $(179,888) $(3,362,679)
- ----------------------------------------------------------------------------------------------
NET LOSS PER SHARE $(0.249) $(0.1563)
- ----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 12,578,200 1,150,625
- ----------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
KOALA INTERNATIONAL WIRELESS INC.
(FORMERLY KETTLE RIVER GROUP INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED SEPTEMBER 30, 2002, THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND FOR THE PERIOD FROM AUGUST 25, 2000 (INCEPTION)
TO SEPTEMBER 30, 2002
(U.S. DOLLARS)
Total
Stockholders'
Number Subscriptions Comprehensive Accumulated Equity
of Shares Amount Receivable Income Deficit (Deficiency)
- -----------------------------------------------------------------------------------------------------------------------------------
August 25, 2000 inception 540,000 $ 27,189 $ 0 $ 0 $ 0 $ 27,189
Issuance of original common stock
For services and concept development 0 0 40,192 0 0 40,192
Foreign currency translation loss 0 0 0 (194) 0 (194)
Net loss for the initial thirty-six day period 0 0 0 0 (45,676) (45,676)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 540,000 27,189 40,192 (194) (45,676) 21,511
Issuance of common stock
for cash 814,167 187,405 (40,192) 0 0 147,213
Foreign currency translation gain 0 0 0 8,643 0 8,643
Net loss 0 0 0 0 (179,888) (179,888)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 1,354,167 214,594 0 8,449 (225,564) (2,521)
Shares of accounting subsidiary acquired
on reverse take-over 12,145,833 409,003 0 0 0 0
Adjustment to eliminate capital stock of
accounting subsidiary on reverse take-over 0 (409,003) 0 0 0 0
Cancellation of common stock on acquisition
of subsidiary (7,500,000) (119,218) 0 0 119,218 0
Common stock issuance as a result of
reverse take-over 6,500,000 1 0 0 0 1
Cancellation of common stock (500,000) (3,815) 0 0 3,815 0
Issuance for settlement of debt 1,646,000 59,380 0 0 0 59,380
Issuance for settlement of salaries 50,000 2,500 0 0 0 2,500
Value of options attached to common shares 0 2,263,560 0 0 0 2,263,560
Foreign currency translation loss 0 0 0 (3,436) 0 (3,436)
Net loss 0 0 0 0 (3,137,115) (3,137,115)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2002 13,696,000 $ 2,417,002 $ 0 $ 5,013 $(3,239,646) $ (817,631)
- -----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
KOALA INTERNATIONAL WIRELESS INC.
(FORMERLY KETTLE RIVER GROUP INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002, SEPTEMBER 30, 2001 AND FOR THE PERIOD FROM AUGUST 25, 2000
(INCEPTION) TO SEPTEMBER 30, 2002
(U.S. DOLLARS)
- -------------------------------------------------------------------------------------------------
FROM
DATE OF
INCEPTION
TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
- -------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(3,137,115) $(179,888) $(3,362,679)
Items not involving cash
Amortization 7,778 7,778 15,556
Stock option benefit 2,263,560 0 2,263,560
Salaries paid by share issuance 2,500 0 2,500
Consulting and travel paid by
share issuance 25,000 0 25,000
Shares issued to relinquish debt 34,380 0 89,069
Changes in operating assets
and liabilities 803,408 34,739 871,856
- -------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVATES (489) (137,371) (95,138)
INVESTING ACTIVITY
Fixed assets acquired 0 (39,508) (39,508)
FINANCING ACTIVITY
Issuance of common stock
for cash 0 134,646 134,646
- -------------------------------------------------------------------------------------------------
INFLOW (OUTFLOW) OF CASH (489) (42,233) 0
CASH, BEGINNING OF PERIOD 489 42,722 0
- -------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 0 $ 489 $ 0
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION
Shares issued for salaries,
consulting and debt $ 61,880 $ 0 $ 116,569
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
KOALA INTERNATIONAL WIRELESS INC.
(FORMERLY KETTLE RIVER GROUP INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2002, SEPTEMBER 30, 2001 AND FOR THE PERIOD FROM
AUGUST 25, 2000 (INCEPTION) TO SEPTEMBER 30, 2002
(U.S. DOLLARS)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Urbanesq.com Inc. ("Urbanesq") was incorporated August 25, 2000 under the
laws of the Province of Ontario, Canada.
Effective October 18, 2001, Urbanesq completed a merger with Koala
International Wireless Inc. ("Koala", "the Company") (formerly Kettle River
Group Inc.), a public company incorporated in the State of Nevada, such
transaction having constituted a reverse takeover of Urbanesq by Koala. The
Company has had no operations other than organizational and administrative
activities since inception.
These financial statements reflect the acquisition applying reverse
takeover accounting whereby the legal parent (Koala) is considered to have
been acquired by the legal subsidiary (Urbanesq). Capital stock represents
the authorized and issued capital of the legal parent and the dollar amount
is that of the legal subsidiary, the ongoing operating company. The
consolidated statements of operations and deficit and cash flows represent
the results of Urbanesq for the year ended September 30, 2002 and the
results of Koala for the period from October 19, 2001 to September 30,
2002.
All significant inter-company balances and transactions have been
eliminated. Note 5 describes the shares issued and purchase price
allocation of the merger.
The comparative figures included in the consolidated statements of
operations and deficit and cash flows represent the results of Urbanesq for
the year ended September 30, 2001.
2. DEVELOPMENT STAGE COMPANY
Koala acquired a license to market and distribute a product in Maine, New
Hampshire and Vermont. This license was cancelled. On February 14, 2000, as
a replacement for this license, the Company was granted additional rights
to market and distribute vitamins, minerals, nutritional supplements and
other health and fitness products in Great Britain. The grantor of the
license offered these products for sale from various suppliers on their
website. The original license was granted to the Company by a partnership
for consideration of 2,000,000 common shares value at $2,000 (note 5).
These shares were paid evenly to the ten partners. The replacement license
was granted by the same partnership. The general manager of that
partnership was, at the time, the spouse of a former director and officer
of the Company. The value of $2,000 and other costs of acquiring the
license have been charged to operations. Subsequently, the license was
abandoned.
21
In a development stage company, management devotes most of its activities
to preparing the business for operations. Planned principal activities have
not yet begun. The ability of the Company to emerge from the development
stage with respect to any planned principal business activity is dependent
upon its successful efforts to raise additional equity financing and/or
attain profitable operations. There is no guarantee that the Company will
be able to raise any equity financing or sell any of its products at a
profit. There is, therefore, doubt regarding the Company's ability to
continue as a going concern.
3. GOING CONCERN
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America on a going
concern basis. This presumes funds will be available to finance on-going
development, operations and capital expenditures and the realization of
assets and the payment of liabilities in the normal course of operations
for the foreseeable future.
The Company has minimal capital resources presently available to meet
obligations which normally can be expected to be incurred by similar
companies and has accumulated stockholders' deficiency of $817,631. These
factors raise substantial doubt about the Company's ability to continue as
a going concern and is dependent on its ability to obtain and maintain an
appropriate level of financing on a timely basis and to achieve sufficient
cash flows to cover obligations and expenses. The outcome of these matters
cannot be predicted. These financial statements do not give effect to any
adjustments to the amounts and classification of assets and liabilities
which might be necessary should the company be unable to continue as a
going concern.
4. SIGNIFICANT ACCOUNTING POLICIES
(a) Foreign currency translation
Amounts recorded in foreign currency are translated into U.S. dollars as
follows:
(i) Monetary assets and liabilities at the rate of exchange in effect as
at the balance sheet date;
(ii) Non-monetary assets and liabilities at the exchange rates prevailing
at the time of the acquisition of the assets or assumption of the
liabilities; and
(iii)Revenues and expenses (excluding depreciation and amortization which
are translated at the same rate as the related asset), at the average
rate of exchange for the year.
Gains and losses arising from this translation of foreign currency are
included in other comprehensive income as a separate component of
stockholders' equity (deficiency).
22
(b) Comprehensive loss
Comprehensive loss is comprised of net loss and other comprehensive
income arising from foreign currency translation.
(c) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and would impact
future results of operations and cash flows.
(d) Financial instruments
The Company's financial instruments include cash, accounts receivable,
accounts payable and accrued liabilities and loans payable. It is
management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial
statements, except as disclosed in the notes to the financial
statements. The fair values of these financial statements approximates
their carrying value.
(e) Fixed assets
Fixed assets are carried at cost, net of accumulated amortization.
Amortization is provided using the straight-line method based on the
following estimated useful life:
Furniture and equipment - 5 years
(f) Net loss per share
Net loss per share computations are based on the weighted average
number of common shares outstanding during the year. Diluted loss per
share has not been presented separately as the outstanding options are
anti-dilutive for each of the years presented.
5. CAPITAL STOCK
(a) On July 10, 2002, Koala cancelled 500,000 of its outstanding shares.
On August 20, 2002, Koala issued 1,146,000 shares at an average price
of $0.03 per share, which was applied against an outstanding debt. The
Company also issued 50,000 shares at an average price of $0.05 per
share in fulfilment of an employee contract, resulting in a charge to
salaries for the September 30, 2002 year-end of $2,500. Further, the
Company issued 500,000 shares for consulting work at $0.05 per share,
resulting in a charge to consulting fees of $25,000 for the year ended
September 30, 2002.
23
(b) The Company has adopted an incentive stock option plan effective
October 31, 2001 whereby up to 2,000,000 shares of common stock may be
optioned and sold up to October 31, 2011 or until sooner terminated.
(i) Options outstanding
As of September 30, the following options were outstanding:
----------------------------------------------------------------------
Exercise
Expiry Date Price 2002 2001
----------------------------------------------------------------------
April 15, 2004 $ 5.00 100,000 0
-------------- ------- ------- -
March 22, 2005 $ 0.03 600,000 0
-------------- ------- ------- -
June 15, 2005 $ 7.50 100,000 0
------------- ------- ------- -
August 20, 2005 $ 0.50 300,000 0
--------------- ------- ------- -
September 1, 2007 $ 10.00 100,000 0
----------------------------------------------------------------------
Subsequent to the year-end, the Company granted the remaining 800,000
options allowed by the plan at an exercise price of $0.05 per share
expiring October 8, 2005.
Subsequent to the year-end 485,000 options were exercised at $0.03 per
share.
(ii) The following table summaries the Company' stock option activity for
the period:
----------------------------------------------------------------------
Weighted
Exercise Average
Number Price Exercise
of Shares Per Share Price
----------------------------------------------------------------------
Balance, September 2001 0 $ 0.00 $ 0.00
Granted during year 1,200,000 $0.03 - $10.00 2.02
----------------------------------------------------------------------
Balance, September
30, 2002 1,200,000 $0.03 - $10.00 $ 2.02
----------------------------------------------------------------------
(iii)The Company applies APB Opinion no. 25 and related interpretations in
accounting for its stock options granted to employees, and
accordingly, compensation expense of $Nil was recognized as wages
expense for the year ended September 30, 2002 (September 30, 2001 -
$Nil). Had compensation expense been determined as provided in SFAS
123 using the Black-Scholes option - pricing model, the pro-forma
effect on the Company's net loss and per share amounts would have been
as follows:
----------------------------------------------------------------------
Net loss, as reported $(3,137,115)
Net loss, pro-forma (3,553,132)
Net loss per share, as reported (0.2464)
Net loss per share, pro-forma (0.2825)
----------------------------------------------------------------------
During the year ended September 30, 2002, 600,000 options were granted
to consultants. These options were accounted for using the
Black-Scholes option-pricing model, which resulted in consulting
expenses totalling $2,263,560.
24
The fair value of each option grant is calculated using the following
weighted average assumption:
----------------------------------------------------------------------
Expected life (years) 3.62
Interest rate 3.00%
Volatility 84%
Dividend yield 0.00%
----------------------------------------------------------------------
6. MERGER AND SUPPLEMENTAL INFORMATION
As a result of the merger described in note 1, Koala has acquired all of
the outstanding common shares of Urbanesq. Each Urbanesq shareholder
received 4.8 shares of common stock of Koala for a total of 6,500,000
consolidated shares. Immediately following the exchange of shares, Koala
purchased and cancelled 7,500,000 of its pre-existing shares, thereby
ensuring that the shareholders of Urbanesq have a controlling interest in
Koala.
6. MERGER AND SUPPLEMENTAL INFORMATION (Continued)
----------------------------------------------------------------------------
The purchase price allocation was as follows:
----------------------------------------------------------------------------
Purchase price $1
Accounts payable in excess of assets acquired (38,013)
----------------------------------------------------------------------------
Goodwill on acquisition 38,012
Goodwill write-off (38,012)
----------------------------------------------------------------------------
$0
----------------------------------------------------------------------------
The net liabilities arising from the merger have been applied to
shareholders' deficiency for the year ended September 30, 2002.
7. INCOME TAXES
The Company has operating losses which may be carried forward to apply
against future year's taxable income.
The components of future income tax assets are as follows:
----------------------------------------------------------------------------
2002 2001
---- ----
Future income tax assets
Non-capital loss carry forwards $1,194,065 $358,523
Approximate tax rate 35% 35%
----------------------------------------------------------------------------
417,900 125,483
Valuation allowance (417,900) (125,483)
----------------------------------------------------------------------------
$0 $0
----------------------------------------------------------------------------
Income tax losses expire in 2009 - $(835,542); 2008 - $(352,748); and 2007
$(5,775).
8. COMMITMENTS
The Company has committed to pay $30,000 for professional services expiring
February 28, 2003, at which time the contract will proceed on a
month-to-month basis and will be up for negotiation.
25
9. RELATED PARTY TRANSACTION
Consulting fees for the year ended September 30, 2002 includes $37,600 of
fees payable to two former directors of Koala (2001 - $Nil).
10. LICENSES
The licenses referred to in note 2 were acquired on February 14, 2000 for a
term of three years. The Company agreed to pay an annual fee of $500 for
maintenance of the grantor's website commencing February 14, 2001. The
grantor of the license retains 50% of the profit on all sales made through
the website. To September 30, 2002, no sales have occurred and the license
was abandoned.
11. SUBSEQUENT EVENTS
(a) Pursuant to a voluntary share exchange agreement the Company is
negotiating to acquire Route1 Corporation as a next-generation
financial transaction processing company. As consideration for the
purchase, the vendor will be issued 6,000,000 shares of the Company
valued at $6,000, which will then represent 30.46% of the issued and
outstanding shares.
(b) Pursuant to a voluntary Share Exchange Agreement dated November 20,
2002, the Company agreed to acquire all of the partnership interests
from the partners of NoWire Telecom, Inc. ("NoWire"), an Egyptian
partnership company, based in Cairo, from the partners of NoWire in
exchange for an aggregate of 6,000,000 shares of its common stock. The
intended acquisition of NoWire is the second of a series of intended
acquisitions whereby the Company will also acquire a 100% interest in
IP Co. Limited ("IP Co.") for the issuance of 28,000,000 shares of the
Company's common stock, thereby resulting in a change in control of
the Company whereby the Company will be effectively controlled by the
shareholders of Route1 Corporation, NoWire Telecom and IP Co. Under
the terms of the agreement, Koala must also issue up to 5,000,000
common shares for issuance under a private placement financing to be
conducted either before or after closing of the above transactions.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no reportable disagreements on accounting or financial disclosure
issues.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
This table sets forth the name, age and position of each director and executive
officer of the Company:
Name of Director Age Position
K. Andrew White 38 CEO, Secretary and a Director
Miguel Caron 29 President, and a Director
Lorne Catling 46 Director
Christine Cerisse 48 Director
26
K. Andrew White - Chief Executive Officer, Secretary and a Director
Mr. White has 10 years of entrepreneurial experience in technology. During this
time, he has started three technology business including Route1 Corporation
which he founded in 1995. Prior to founding Route1, he was the Manager of
Information Systems for Delrina (Symantec) Corporation. Under contract, Mr.
White developed a Software Testing Facility for a division of the Ontario
Research Foundation. He has significant experience in product architecture,
operations, marketing, sales, and equity financing.
Miguel Caron - President, and a Director
Miguel Caron, the founder of NoWire Telecom, has extensive experience in sales,
marketing and management in the electronics industry. In the recent past he has
been COO for Atlas Telecom Mobile, and Director of Sales in Eastern Canada for
Wysdom inc. His expertise is identifying, developing and closing direct sales
business with companies focused on providing wireless services and mobility
solutions to their end users, customers, partners and employees. In 1994 Miguel
graduated from the Royal Military College in St-Jean, Quebec with a Degree in
Polemologie with specialization (Social Studies of War).
Lorne Catling - Director
Mr. Catling has 25 years of direct sales and sales management experience in
various wholesale and retail fields. This includes and is not limited to real
estate, automotive, home renovation, and the carpet industry. He has held
managerial positions with a major Ford Dealership and offered sales and
motivational training to the staff. After 8 years in the auto industry
Lorne was Western Regional Sales Manager for a Northwestern U.S. pay-phone
provider. He managed and trained a successful sales force that gained a
substantial foothold in the Western Canadian market. Most recently Lorne has
been raising capital for small start-up companies involved in the wireless
remote surveillance and non-institutional ATM industry.
Christine Cerisse - Director
Ms. Cerisse is the former Chairman, President and Secretary-Treasurer of Koala
from February 1, 2001 to September, 2002. Ms. Cerisse is a former Chartered and
Registered Financial Planner, with over 20 years experience in the financial
industry in the field of financial planning and financial management. From
October, 1999 to December, 2002, Ms. Cerisse has been providing management and
business consulting for start-up project teams. Ms. Cerisse has been a principal
in various entrepreneurial businesses and has over 20 years of sales and
marketing experience, both of products and services in industries including
nutrition and health, financial and real estate services, and technology. Ms.
Cerisse has been responsible for financial and corporate management and the
preparation of contracts and financial documentation for the companies she has
worked with.
ITEM 10. EXECUTIVE COMPENSATION
No officer or director of the Company, or Urbanesq, has received any
remuneration since inception. Although there is no current plan in existence,
it is possible that the Company will adopt a plan to pay or accrue compensation
to its officers for services provided to the Company.
COMPENSATION OF DIRECTORS
Directors are not compensated for their service as directors. All directors are
reimbursed for any reasonable expenses incurred in the course of fulfilling
their duties as a director of the Company.
EMPLOYMENT CONTRACTS
The Company does not have employment contracts with its executive officers and
directors. The Company may in the future execute written consulting agreements
with the consulting companies owned by its executive officers and consultants.
27
STOCK OPTION PLAN
The Company's stockholders adopted the Company's 2001 Stock Option Plan (the
"Plan") at a special meeting on December 6, 2001. The purpose of the Plan is to
enable the Company to offer its officers, directors, employees and consultants
and advisors performance-based incentives and other equity interests in the
Company, thereby attracting, retaining, and rewarding such personnel. The
Company believes that increased share ownership by such persons more closely
aligns stockholder and employee interests by encouraging a greater focus on the
profitability of the Company. There is reserved for issuance under the Plan an
aggregate of 2,000,000 shares of common stock. All of the shares may, but need
not, be issued pursuant to the exercise of incentive stock options. Options
granted under the Plan may be either "incentive stock options," as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-statutory stock options. To date, no options have been granted under the
plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 14, 2001 certain information known
to the Company regarding the beneficial ownership of the Company's common stock,
and as adjusted to reflect the share ownership for (i) each executive officer or
director of the Company who beneficially owns shares; (ii) each stockholder
known to the Company to beneficially own five percent or more of the outstanding
shares of its common stock; and (iii) all executive officers and directors as a
group. The Company believes that the beneficial owners of the common stock
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.
PERCENTAGE OF
OUTSTANDING
NAME AND POSITION NUMBER OF SHARES SHARES
K. Andrew White - CEO, Secretary and Director (6) *** 754,672 2.94%
Miguel Caron - President and Director (7)*** 5,550,000 21.60%
Christine Cerisse - Director (3)* 0 0.00%
Lorne Catling - Director (5)* 0 0.00%
Capital Partners Fund I(8)*** 2,991,364 11.64%
Michael McGrath - (1) 1,632,000 6.35%
Robert Vivacqua - (2) 2,208,000 8.59%
Larry Wintemute - (4)** 0 0.00%
ALL CURRENT DIRECTORS AND
OFFICERS AS A GROUP (5 Persons) 6,304,672 24.54%
* Each of these Directors have options to purchase 100,000 shares of common
stock of the Company at $0.50 per share.
** This former Director has the option to purchase 100,000 shares of common
stock of the Company at $0.50 per share.
*** These shares will be issued on closing of the acquisition of Route1
Corporation and No-Wire Telecom Inc.
(1) Mr. McGrath is sole principal of Manumit Enterprises Inc., a private
Tortola, British Virgin Islands company, which directly owns all 1,632,000
shares of common stock beneficially owned by Mr. McGrath. Mr. McGrath's
business address is #800, 366 Bay Street, Toronto, Ontario, M5H 4B2.
28
(2) Mr. Vivacqua is sole principal of Steinberg Hathaway Inc., a
private Nassau, Bahamas company, which directly owns all 2,208,000 shares
of common stock beneficially owned by Mr. Vivacqua. Mr. Vivacqua's business
address is #800, 366 Bay Street, Toronto, Ontario, M5H 4B2.
(3) Ms. Cerisse's business address is #676, 141 - 757 West Hastings Street,
Vancouver, British Columbia, Canada, V6C 1A1.
(4) Mr. Wintemute's business address is 7705 Flint Road S.E. Calgary, Alberta,
Canada, T2H 1G3.
(5) Mr. Catling's business address is 7705 Flint Road S.E. Calgary, Alberta,
Canada, T2H 1G3.
6) Mr.White's business address is 366 Bay Street, Suite 800, Toronto, Ontario,
Canada, M5H 4B2.
(7)Mr. Caron's business address is 366 Bay Street, Suite 800, Toronto,
Ontario, Canada, M5H 4B2.
(8) Capital Partners Fund I is a public company, that is incorporated in Nevada
and trades on the New York Stock Exchange. The Company's business address is
1211 Avenue of the Americas, New York, New York, 10036.
CHANGE IN CONTROL
The Company is not aware of any arrangement that would upset the control
mechanisms currently in place. Although it is conceivable that a third party
could attempt a hostile takeover of the Company, the Company has not received
notice of any such effort.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions with management or other parties occurred during the year that
would otherwise be reported under this section.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: none
REPORTS ON FORM 8-K:
8k filed with the SEC on December 5, 2002 and amendments thereto.
8k filed with the SEC on October 15, 2002 and amendments thereto.
29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KOALA INTERNATIONAL WIRELESS INC.
By: /s/ Miguel Caron
Miguel Caron
President and Director
Date: January 28, 2002
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Miguel Caron Date: January 28, 2002
Miguel Caron
President and Director
By: /s/ K. Andrew White Date: January 28, 2002
K. Andrew White
Chief Executive Officer, Secretary and Director
By: /s/ Lorne Catling Date: January 28, 2002
Lorne Catling
Director
By: /s/ Christine Cerisse Date: January 28, 2002
Christine Cerisse
Director
30
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER
PURSUANT NTO
18 W.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, K. Andrew White, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report on Form 10-KSB of Koala International Wireless Inc. for the fiscal year
ended September 30, 2002 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Annual Report on Form 10-KSB fairly presents in all material
respects the financial condition and results of operations of Koala
International Wireless Inc.
By: /s/ K. Andrew White
---------------------
Name: K. Andrew White
Title: Chief Executive Officer
Date: January 28, 2003
I, Miguel Caron, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report on Form 10-KSB of Koala International Wireless Inc. for the fiscal year
ended September 30, 2002 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Annual Report on Form 10-KSB fairly presents in all material
respects the financial condition and results of operations of Koala
International Wireless Inc.
By: /s/ Miguel Caron
-----------------------------
Name: Miguel Caron
Title: Chief Financial Officer
Date: January 28, 2003
31