UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-27045
INTERNATIONAL WIRELESS, INC.
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(Exact name of small business issuer as specified in its charter)
Maryland 36-4286069
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Presidential Way Road, Woburn, Massachusetts 01801-1179
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(Address of principal executive offices)
781-939-7252
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(Issuer's telephone number)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 [ ]
As of August 19, 2002, the Company had 17,288,267 issued, and 15,888,273
outstanding shares of its $.009 par value common stock.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
INTERNATIONAL WIRELESS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets (Unaudited) - June 30, 2002 and December 31,
2001
Statements of Operations (Unaudited) - For the Three Months Ended June
30, 2002 and 2001, for the Six Months Ended June 30, 2001 and 2001,
and for the Period Septemner 27, 2000 (Inception) through June 30,
2002
Statements of Cash Flows (Unaudited) - For the Six Months Ended June
30, 2002 and 2001 and for the Period September 27, 2000 (Inception)
through June 30, 2002
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED BALANCE SHEETS
ASSETS
June 30, 2002 December 31, 2001
(Unaudited) (Audited)
------------ -----------------
CURRENT ASSETS
Cash and cash Equivalents $ 32,443 $ 54,310
Marketable securities, at market values 24,147 93,279
Prepaid expenses 131,189 164,117
---------- --------
Total Current Assets 187,779 311,706
SOFTWARE, net 5,077,478 -
PROPERTY AND EQUIPMENT, net 92,419 74,300
OTHER ASSETS
Loans receivable, related parties 6,753 292,915
Security deposits 39,454 41,856
---------- --------
46,207 334,771
---------- --------
TOTAL ASSETS $5,403,883 $720,777
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $598,334 $260,593
Loans payable - 42,000
Notes payable, related parties 122,385 146,830
Current portion of capital
lease obligations 7,986 7,986
---------- --------
Total Current Liabilities 728,705 457,409
LONG-TERM LIABILITIES
Capital lease obligations,
less current portion 17,108 20,520
STOCKHOLDERS EQUITY
Preferred stock $.001 par value,
5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.009 par value,
50,000,000 shares authorized;
15,585,419 and 10,715,904 issued and
outstanding 140,269 96,443
Paid-in-capital 11,865,895 4,682,116
Subscription receivable - (143,073)
Deficit accumulated
during development stage (7,348,094) (4,392,638)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,658,070 242,848
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,403,883 $ 720,777
========== ==========
The accompanying notes are an integral part of these financial statements.
1
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
June 30,
2002 2001
--------------------------
OPERATING EXPENSES
General and administrative expenses $ 849,347 $165,002
Depreciation and amortization 225,733 599
Total Operating Expenses 1,075,080 165,601
OTHER EXPENSES
Unrealized loss on sale of marketable securities - -
Loss on sale of marketable securities - -
Interest expense 3,250 1,365
----------- --------
Total Other Expenses 3,250 1,365
----------- --------
NET LOSS $1,078,330 $166,966
=========== ========
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.06) $ -
=========== ========
The accompanying notes are an integral part of these financial statements.
2
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Period
September 27, 2000
Six Months Ended (Inception)
June 30 through
2002 2001 June 30, 2002
------------------------- -------------
OPERATING EXPENSES
General and administrative expenses $2,427,514 $ 306,225 $3,698,265
Depreciation and amortization 450,181 1,198 456,076
---------- ---------- ----------
Total Operating Expenses 2,877,695 307,423 4,154,341
OTHER EXPENSES
Unrealized loss on sale of marketable securities 71,337 2,284,411 1,643,115
Loss on sale of marketable securities - - 1,535,360
Interest expense 6,424 2,730 15,278
---------- ---------- ----------
Total Other Expenses 77,761 2,287,141 3,193,753
---------- ---------- ----------
NET LOSS $2,955,456 $2,594,564 $7,348,094
========== ========== ==========
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.20) $ (0.44)
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,505,055 5,911,197
========== ==========
The accompanying notes are an integral part of these financial statements.
3
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Period
September
Six Months Ended 27, 2000
June 30 (Inception)
through
2002 2001 June 30, 2002
---------------------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,955,456) $(2,594,564) $(7,348,094)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 450,181 1,198 463,046
Loss on disposal of fixed asset 3,075 3,075
Stock based compensation 1,184,676 1,657,650
Unrealized loss on marketable securities 71,337 2,284,411 1,643,115
Loss on sale of marketable securities - - 1,535,360
Changes in operating assets and liabilities
Prepaid expenses 32,928 - (131,189)
Security deposit 2,402 (41,856) (39,454)
Accounts payable and accrued expenses 337,741 62,592 598,334
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (873,116) (288,219) (1,618,157)
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of marketable securities - - 202,892
Purchase of Office Equipment (32,060) (41,856) (73,136)
Repayment (advances) under loan receivable 39,699 (184,389) (253,216)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 7,639 (226,255) (123,460)
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from common stock issuance 871,467 205,280 1,905,190
Net (repayment) proceeds from note payable,
related party (24,445) 302,396 (122,385)
Repayment of capital lease obligations (3,412) - (8,745)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 843,610 507,676 1,774,060
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (21,867) (6,798) 32,443
CASH AND CASH EQUIVALENTS -
Beginning 54,310 - -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS -
Ending $ 32,443 $ (6,798) $ 32,443
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
---------------------
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary in order to make the financial
statements not misleading have been included. Results for the six
months ended June 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.
For further information, refer to the financial statements and
footnotes thereto included in the International Wireless, Inc. ("the
Company") annual report on Form 10-KSB for the year ended December 31,
2001. NOTE 2 DESCRIPTION OF BUSINESS, GOING CONCERN UNCERTAINTY AND
MANAGEMENT'S PLANS
THE COMPANY AND NATURE OF BUSINESS
----------------------------------
International Wireless, Inc. (the "Company") was incorporated on
September 27, 2000 in the State of Delaware. The Company intends to
acquire software companies involved in wireless technology. During the
period September 27, 2000 (Incorporation) through December 31, 2000
the company did not have any activity. Since January 2001, the
Company's efforts have been devoted to raising capital and seeking out
companies to acquire. Accordingly, through the date of these financial
statements, the Company is considered to be in the development stage
and the accompanying financial statements represent those of a
development stage enterprise.
REVERSE MERGER
--------------
On December 27, 2002, Origin Investment Group, Inc. ("Origin")
acquired all of the Company's outstanding common stock by the issuance
of 9,495,014 shares of $.009 par value common stock ("the Merger").
Simultaneously, Origin changed its name to International Wireless,
Inc. and effected a one-for-nine reverse stock split, which reduced
Origin's outstanding shares of common stock from 10, 985,565 to
1,220,890. In connection with the Merger, the Company became a wholly
owned subsidiary of Origin and the Company's officers and directors
replaced Origin's officers and directors. Prior to the Merger, Origin
was a non-operating "shell" corporation. Pursuant to Securities and
Exchange Commission rules, the Merger of a private operating company
(International Wireless, Inc.) into a non-operating public shell
corporation with nominal net assets (Origin) is considered a capital
transaction. Accordingly, for accounting purposes, the Merger has been
treated as an acquisition of Origin by the Company and a
recapitalization of the Company. The historical financial statements
prior to December 27, 2001 are those of the Company.
ACQUISITION AGREEMENT
---------------------
On January 22, 2002, the Company acquired 100% of the issued and
outstanding stock of CodePoint, Inc. ("CodePoint"), formerly known as
Mitigo, Inc., for an aggregate purchase price of 4,398,000 shares of
the Company's common stock to be issued to the stockholders of
CodePoint ("Sellers"). An aggregate of 2,998,006 shares were issued to
the sellers at closing and 1,399,994 shares are held in escrow. These
escrow shares will be released to the Sellers pursuant to a formula
based on net income for 2002 and 2003, as defined in the agreement.
Any escrow shares not released to the Sellers, will be returned to the
Company. 5
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 2 DESCRIPTION OF BUSINESS, GOING CONCERN UNCERTAINTY AND MANAGEMENTS
------------------------------------------------------------------
PLANS (Continued)
-----------------
ACQUISITION AGREEMENT (Continued)
---------------------------------
The allocation of the purchase price was as follows:
Fair Value Par
Shares Share Fair Value
Common Stock (a) (b) 2,998,006 1.76 $5,276,491
----------
Total Purchase Price $5,276,491
==========
Fair value of net assets acquired
---------------------------------
Property and equipment $ 3,989
Software (c) 5,518,998
Liabilities assumed (246,496)
Fair value of identifiable net assets acquired 5,276,491
Goodwill -
---------
$5,276,491
==========
Footnotes
---------
(a) based upon average of five day close price from the acquisition date.
(b) Does not include 1,399,994 shares held in escrow
(c) Software is being amortized over 5 years
GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS
------------------------------------------------
As shown in the accompanying financial statements, the Company
incurred a net loss of $2,955,456 during the six months ended June 31,
2002 resulting in a deficit accumulated during the development stage
of $7,348,094. Management's plans include the raising of capital,
seeking out additional companies to acquire and generating revenue
through the sale of CodePoint software. Failure to raise capital,
acquire additional companies or generate revenue may result in the
Company depleting its available funds, not, being able to fund its
investment pursuits and cause it to curtail or cease operations.
Additionally, even if the Company does raise sufficient capital,
acquire additional companies or generate revenue, there can be no
assurances that the net proceeds or the revenue will be sufficient to
enable it to develop business to a level where it will generate
profits and cash flows from operations.
These matters raise substantial doubt about the Company's ability to
continue as a going concern. However, the accompanying financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded
assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.
6
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 2 DESCRIPTION OF BUSINESS, GOING CONCERN UNCERTAINTY AND MANAGEMENT'S
-------------------------------------------------------------------
PLANS (Continued)
-----------------
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In July 2001, the Financial Accounting Standards Boars ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 141 requires the use of the
purchase method of accounting for business combinations initiated
after June 30, 2001, and eliminates the pooling-of-interests method.
SFAS No. 142 requires, among other things, the use of a
non-amortization approach for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized in earnings, but instead will be
reviewed for impairment at least annually.
In August 2001, the FASB issued SFAS NO. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived assets to Be Disposed Of." SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 but sets forth new criteria for
asset classification and broadens the scope of qualifying discontinued
operations.
The Company implemented these standards effective January 1, 2002 and
they did not have a material effect on the consolidated financial
statements.
NOTE 3 STOCKHOLDERS' EQUITY
--------------------
During the three months ended March 31, 2002 the Company issued 10,000
shares of the Company's common stock to a consultant for services
provided. Stock based compensation expense of $15,000 was recorded
during the three months ended March 31, 2002 in connection with this
issuance.
During the three months ended March 31, 2002, the company issued
100,000 shares of the Company's common stock to an individual, as a
commission related to employment of the Company's Chief Executive
Officer. Stock based compensation expense of $150,000 was recorded
during the three months ended March 31, 2002 in connection with this
issuance.
During the three months ended March 31, 2002, the Company issued 6,500
shares of common stock in exchange for 27,562 shares of common stock
of Telehublink, Inc. The difference between the value of the Company's
common stock exchanged for Telehublink, Inc. common stock at the date
of exchange was $8,065 which was recorded as stock based compensation
expense for the three months ended March 31, 2002.
During the three months ended March 31, 2002, the Company issued
26,000 shares of common stock as payment of a bridge loan payable and
accrued interest of approximately $13,000. The difference between the
value of the common stock and the principal and interest paid was
$62,400 which was recorded as stock based compensation expense for the
three months ended March 31, 2002.
During the three months ending June 30, 2002, the Company issued
196,777 shares of the Company's common stock to various consultants
for services provided. Stock based compensation expense of $257,983
was recorded during the three months ended June 30, 2002 in connection
with this issuance.
During the three months ended June 30, 2002, the Company received
proceeds of $143,073 from stock subscriptions receivables relating to
issuance of common stock during 2001.
7
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 3 STOCKHOLDERS' EQUITY(Continued)
-------------------------------
During the three months ended June 30, 2002, the company received
proceeds of $120,000 from the sale of 80,000 shares of its common
stock under a private placement.
During the three months ended June 30, 2002, the Company issued 23,900
shares of its common stock as payment of a bridge loan payable in the
amount of $10,000.
NOTE 4 STOCK OPTIONS
-------------
During the three months ended March 31, 2002, the Company issued
options to consultants to purchase 650,000 shares of common stock at
an exercise price of $.40 per common share. These options vest
immediately and expire after six months. These options had a fair
value of $637,875, calculated using the Black Scholes options pricing
model which was recorded as stock based compensation for the three
months ended March 31, 2002. During the three month period March 31,
2002, 450,000 of these options were exercised and the Company realized
total proceeds of $155,000. In April 2002, 312,500 of the options
exercised were rescinded. An additional 350,000 of these options were
exercised in April 2002 and the Company realized $149,000.
On April 18, 2002, the Company granted options to purchase 100,000
shares of the Company's common stock pursuant to a letter agreement
and a stock option agreement with a law firm whereby a portion of the
legal services provided will be paid by the issuance of these options.
These options will have an initial exercise price of $1.00, for
options which vest prior to October 15, 2002, and for options which
vest after October 15, 2002, the exercise price shall be changed to
the average closing price of the common stock for the 30 trading days
ending October 15, 2002. These options will be earned and shall vest
based on a value of $0.40 per option and will expire five years from
the date of grant. On august 8, 2002, it was agreed to reduce the
option price to $0.50 per share. As at the filing of this report,
48,772 options have been earned.
NOTE 5 WARRANTS
--------
EXERCISE OF WARRANTS
--------------------
During the six months ended June 30, 2002, an aggregate of 949,832
warrants were exercised for an aggregate of $417,233 at exercise
prices ranging from $0.40 to $0.75 per warrant in exchange for 949,832
shares of the Company's common stock. The Company realized cash
proceeds of $397,233 and converted a loan payable of $20,000.
ADJUSTMENT OF WARRANTS
----------------------
Certain warrants of the Company are subject to a clause whereby the
warrants are not exercisable until the Company sends the warrant
holders written confirmation that the five consecutive trading day
average closing bid price equals or exceed 150% of the value of the
exercise price of the warrants. The warrant holders shall have 10
business days to exercise the entire amount of the warrants pursuant
to the agreement; should the warrant holders fail to exercise, the
number of warrants outstanding as well as the exercise price are
subject to adjustment. During the six months ended June 30, 2002,
certain warrant holders did not exercise their warrants after
receiving written confirmation and therefore the total outstanding
warrants of the Company was reduced by 81, 601.
8
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 5 WARRANTS(Continued)
-------------------
SETTLEMENT AGREEMENT
--------------------
On February 19, 2002 the Company entered into a settlement agreement
with a holder of a warrant to purchase 133,332 shares of the company's
common stock with an exercise price of $1.50 per share. The holder had
records showing that he had ownership rights to additional warrants
not recorded on the company's books at the time of the reverse merger
with Origin in December 2001. In settlement the parties agreed to
cancel all other warrants of the holder in return for reducing the
exercise price on the warrant from $1.50 to $0.46 to per share.
NOTE 6 COMMITMENTS AND CONTINGENCIES
-----------------------------
RELATED PARTY LICENSING AGREEMENT
---------------------------------
On January 10, 2002, CodePoint entered into a licensing agreement with
Cobblestone Software, Inc. ("Cobblestone") whereby Cobblestone granted
CodePoint exclusive license to its intellectual property rights
relating to, among other things, decoding visible encoded
public-domain symbols for use in mobile commerce. In consideration for
the license granted, CodePoint paid Cobblestone $5,000 upon execution
of the agreement and an additional $25,000 will be due September 1,
2003 and each year thereafter. CodePoint may elect however at its sole
discretion to cede back certain intellectual property rights whereby
the payment due subsequent to such election and each year thereafter
would remain at $25,000. Cobblestone is owned by the Chief Technology
Officer of the CodePoint and a relative of the Chief Technology
Officer.
EMPLOYMENT AGREEMENT
--------------------
On March 29, 2002, effective as of May 1, 2002 the Company entered
into an agreement with an individual in which he will become the
President and Chief Executive Officer of the company. The agreement
has an initial term of three years and may be extended for an
additional three year period by approval of the Board of the
Directors. The agreement provides the payment for a base salary, an
incentive increment and the payment of a discretionary bonus by the
Company. Future minimum payments to be made pursuant to this agreement
are as follows:
For the
Year Ending
December 31, Amount
------------ --------
2002 $140,933
2003 285,350
2004 331,183
2005 142,334
--------
Total $899,800
========
Pursuant to the terms of this agreement the Company issued options to
purchase 1,500,000 shares of common stock which may be exercised on a
cashless basis. The initial 250,000 options are exercisable as of May
1, 2002 at a price of $1.05 per common share throughout the term of
the agreement. The balance of the options (1,250,000) are exercisable,
upon the attainment of certain financial goals, as defined, at prices
ranging from $1.05 to $2.25 per common share throughout the term of
the agreement. If the financial goals are achieved, the Company will
recognize compensation equal to the difference between the fair market
value and the exercise price at the time the
9
INTERNATIONAL WIRELESS, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)
NOTE 6 COMMITMENTS AND CONTINGENCIES(Continued)
----------------------------------------
EMPLOYMENT AGREEMENT(Continued) performance conditions are achieved.
Issuance of the shares would result in substantial compensation
expenses to the Company. On August 1, 2002, a termination agreement
was signed by the employee and the Company. See Note 7, Subsequent
Events - Termination Agreement
OPERATING LEASE
---------------
During May 2002, the Company entered into a noncancelable operating
lease for additional space at their corporate headquarters. This lease
is due to commence on July 1, 2002 with initial rental payments of
$79,575 per annum plus expenses increasing to $91,560 per annum plus
expenses through the termination date of July 2005
NOTE 7 SUBSEQUENT EVENTS
-----------------
TERMINATION AGREEMENT
---------------------
On August 1, 2002, the Company entered into a termination agreement
with its President and Chief Executive Officer Graham F. Paxton. Mr.
Paxton signed an employment agreement on March 29, 2002. As part of
the consideration for termination, the Company converted monies
advanced by Mr. Paxton to a promissory note bearing interest at 6%
commencing August 1, 2002 for $125,000, due on February 28, 2003. From
monies raised from the sale of Company stock, 10% of such proceeds
shall be paid towards loan amortization with the balance due on
February 28, 2003. In addition to other considerations, a stock option
for 250,000 shares of the Company's common stock was granted at a
price of $1.05 per share. The option terminates on August 1, 2003.
DEBT CANCELLATION
-----------------
The Company has entered into an agreement with a creditor to issue
50,000 shares of its common stock in satisfaction of $71,555 of
accounts payable obligations. If the total cash value received from
the sale of the shares does not liquidate the obligations, an
additional 20,000 shares may be issued.
EMPLOYMENT AGREEMENT
--------------------
On July 1, 2002, the Company entered into an employment agreement with
an individual to serve as a merger and acquisition adviser and to
evaluate, manage and develop a business strategy for the Company's
Wireless Money Division. The term of the agreement shall be for one
year from the effective date July 1, 2002 and may be renewed for
periods of one year. The employee shall receive 6,250 shares of the
company's common stock per month. Additionally, a success fee shall be
part based upon the "Lehman Formula' and a 10% commission shall be
paid on sales that he or his associates are directly responsible for.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
2002 contains "forward-looking" statements within the meaning of the Federal
securities laws. These forward-looking statements include, among others,
statements concerning the Company's expectations regarding sales trends, gross
and net operating margin trends, political and economic matters, the
availability of equity capital to fund the Company's capital requirements, and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts. The forward-looking statements in this Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 2002 are subject
to risks and uncertainties that could cause actual results to differ materially
from those results expressed in or implied by the statements contained herein.
The interim financial statements have been prepared by International Wireless,
Inc. and in the opinion of management, reflect all material adjustments which
are necessary to a fair statement of results for the interim periods presented,
including normal recurring adjustments. Certain information and footnote
disclosures made in the most recent annual financial statements included in the
Company's Form 10-KSB for the year ended December 31, 2001, have been condensed
or omitted for the interim statements. It is the Company's opinion that, when
the interim statements are read in conjunction with the December 31, 2001
financial statements, the disclosures are adequate to make the information
presented not misleading. The results of operations for the three months ended
March 31, 2002 are not necessarily indicative of the operating results for the
full fiscal year.
The Company's auditors in the most recent annual financial statements included
in the Company's Form 10-KSB for the year ended December 31, 2001 have issued a
going concern opinion. The Company's auditors have reported that the Company has
suffered recurring net operating losses and has a current ratio deficit that
raises substantial doubt about our Company's ability to continue as a going
concern. Additionally even if the Company does raise sufficient capital, acquire
additional companies or generate revenues, there can be no assurances that the
net proceeds or the revenues will be sufficient to enable it to develop the
business to a level where it will generate profits and cash flows from
operations.
The Company is in the development stage and to date, has not generated any
revenues from operation. The Company intends to fund its operations and other
capital needs for the next 12 months substantially from proceeds from additional
private or public offerings of equity and/or from debt financing, but there can
be no assurance that such funds will be sufficient for these purposes. In
addition, there can be no assurance that such financing will be available, or
that such financing will be available on acceptable terms.
Overview:
International Wireless, Inc. (the "Company") was incorporated in the State of
Maryland on April 6, 1999 as Origin Investment Group, Inc. ("Origin"). On
December 27, 2001, the Company went through a reverse merger with International
Wireless, Inc., a Delaware corporation ("International Wireless"). Thereafter on
January 2, 2002, the Company changed its name from Origin to our current name,
International Wireless, Inc.
11
The Company was originally formed as a non-diversified closed-end management
investment company, as those terms are used in the Investment Company Act of
1940 ("1940 Act"). The Company at that time elected to be regulated as a
business development company under the 1940 Act. The Company's original
investment strategy had been, since inception, to invest in a diverse portfolio
of private companies that in some way build the Internet infrastructure by
offering hardware, software and/or services which enhance the use of the
Internet. On December 7, 2001, the Company held a special meeting of its
shareholders in accordance with a filed Form DEF 14A with the Securities and
Exchange Commission whereby the shareholders voted on withdrawing the Company
from being regulated as a business development company and thereby no longer be
subject to the Investment Company Act of 1940 and to effect a one-for-nine
reverse split of its total issued and outstanding common stock. On December 14,
2001 the Company filed a Form N-54C with the Securities and Exchange Commission
formally notifying its withdrawal from being regulated as a business development
company. The purpose of the withdrawal of the Company from being regulated as a
business development company and the one-for-nine reverse split of its total
issued and outstanding common stock was to allow the Company to merge on
December 27, 2001, through a reverse merger to acquire all the outstanding
shares of International Wireless. Under the said reverse merger, the former
Shareholders of International Wireless ended up owning a 88.61% interest in the
Company. Thereafter on January 2, 2002, the Company changed its name from Origin
to our current name, International Wireless, Inc.
On January 11, 2002, the Company acquired Mitigo, Inc. a Delaware corporation
with its corporate headquarters located in Woburn, Massachusetts. The
acquisition consisted of a stock for stock exchange in which the Company
acquired all of the issued and outstanding common stock of Mitigo in exchange
for the issuance of a total of 4,398,000 shares of its common stock, 2,998,006
of which was delivered at closing, and the remaining 1,399,994 are being held in
escrow for distribution subject to the achievement of certain net income
performances for the years 2002 and 2003. As a result of this transaction,
Mitigo became a wholly-owned subsidiary of the Company.
Principal products and services:
Mitigo is in the business of developing visual intelligence software solutions
for wireless and mobile devices. Mitigo software decodes barcodes and other
visual symbols in mobile handsets and Personal Data Assistants ("PDAs") that
have integrated digital cameras. This capability enables mobile devices to
conduct rapid mobile transactions and pinpoint navigation to multimedia content
and information. The Company believes that the Mitigo technology significantly
improves the usability and functionality of mobile devices helping overcome user
interface barriers to mobile transactions and commerce. The Company currently
has no other products or services.
12
Mitigo has developed software to decode commercial 1D and 2D bar codes as well
as other emerging symbologies. The Mitigo bar code decoding technology is based
on software that represents the culmination of 7 years of work by Dr. Tom
Antognini, a PhD from MIT, and Mitigo's Vice President of Technology. Mitigo
plans to support the mobile telephone/Internet convergence market by enabling
mobile-commerce and e-commerce from print-based bar codes. Mitigo plans to
license its client software to device manufacturers, including producers of
mobile handsets, PDAs and other devices.
Mitigo's technology is protected by two patents granted to Mr. Antognini in
August, 2000 and January 2001, and licensed to Mitigo, and has been specifically
targeted to accommodate the constraints of decoding bar codes from any print
media, including magazines, catalogs, posters, billboards, newspapers,
promotional material, and direct mail, etc. The technology will also read a bar
code from a screen, such as would be found on a mobile handset, a PDA, personal
computers, or television.
Mitigo's exclusive licensed software technology helps solve a barrier to mobile
commerce by enabling a mobile handset equipped with a simple digital camera to
also function as a bar code reader. The technology does not require an advanced
wireless network infrastructure such as 3G to operate, and is functional across
any of the wireless formats currently supported by handset manufacturers and
carriers. The Company believes that its technology can be of value to telecom
companies in its potential to enhance revenue opportunities. By making it easier
for consumers using mobile phones to perform more transactions with their
devices, the Company believes that the mobile carriers will be able to earn
additional revenues from the sale of goods and services through the devices.
The Company believes that mobile handsets, PDAs and other device equipped with
the Mitigo technology will allow such devices to read and process bar codes for
instant commerce or content retrieval. For example, in the future, consumers may
be able to download train schedules into their PDAs or mobile phone simply by
scanning a bar code at the train station or purchase products by scanning a bar
code on an advertisement.
Mitigo's technology decodes using a digital image of a bar code that can be
captured by a digital camera. Mitigo does not employ laser scanning of any kind
to decode bar codes, as laser technology is presently not suitable for consumer
devices due to cost, energy consumption, physical size constraints, bar code
format constraints, etc. Mitigo's solution is software only. The Mitigo software
uses the digital camera, processor and storage capabilities of the handset that
are already present. As such, the Company believes Mitigo's software solution is
a cost effective way to add functionality into a mobile handset or PDA.
CodePoint - Version 1.0:
Now in beta form, Mitigo's bar code processing software, version 1.0, is
designed to decode 1D and 2D bar codes and support a variety of handheld
devices, including mobile phones, bar code readers, and PDAs. The software
recognizes, decodes and processes bar code images (bitmaps) generated by
consumer-grade CMOS image sensors. The software also acts as an operating system
to control sensing of bar codes in digital images and will include an API to
13
interface with the operating environment resident in the host device. This
software is Mitigo's primary offering and the Company believes to offer superior
performance for bar code sensing and decoding when compared to other
commercially available software programs. Mitigo has optimized the software to
work inside of a consumer-grade CMOS digital camera. Other solutions on the
market require higher cost CCD or more expensive CMOS chips to function. The
Company believes that its Mitigo solution is the lowest cost, best performing
solution for consumer applications.
The Company's initial focus is on licensing our bar code processing software to
mobile handset manufacturers and makers of PDAs. The Company plans to also
license their decoding technology to device manufacturers, including bar code
reader manufacturers. As part of its strategy, the Company plans to support all
major mobile and wireless operating systems with their product set. The Company
is on schedule to ship Version 1.0 of the software in the 3rd quarter of 2002.
The consolidated financial statements of the Company include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All material
intercompany balances and transactions are eliminated at consolidation. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States.
Plan of Operation:
The Company plans to support the mobile telephone/Internet convergence market by
enabling mobile-commerce and e-commerce from print-based bar codes. It plans to
license its software to device manufacturers, including producers of mobile
handsets, PDAs and other devices. As part of its strategy, the Company plans to
support all major mobile and wireless operating systems with their product set.
The Company is on schedule to ship Version 1.0 of its software in the 3rd
quarter of 2002.
The Company plans to pursue multiple opportunities in licensing its CodePoint
product family into various channels. A primary sales channel is the enterprise
mobile computing area where a growing number of organizations are looking to
utilize visual symbol reading to streamline business processes, update supply
chain databases, equip field sales and support employees and other users in the
mobile workforce. An additional opportunity for the Company is in the form of
security related products. The CodePoint product family can have applicability
in law enforcement, building, property, and other security applications.
The Company in addition is pursuing licensing the CodePoint software into mobile
devices such as handsets through manufacturers of mobile handsets and operating
systems developers.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGSS
None
14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2002 the Company issued 10,000 shares of
the Company's common stock to a consultant for services provided. Stock based
compensation expense of $15,000 was recorded during the three months ended March
31, 2002 in connection with this issuance.
During the three months ended March 31, 2002, the company issued 100,000 shares
of the Company's common stock to an individual, as a commission related to
employment of the Company's Chief Executive Officer. Stock based compensation
expense of $150,000 was recorded during the three months ended March 31, 2002 in
connection with this issuance.
During the three months ended March 31, 2002, the Company issued 6,500 shares of
common stock in exchange for 27,562 shares of common stock of Telehublink, Inc.
The difference between the value of the Company's common stock exchanged for
Telehublink, Inc. common stock at the date of exchange was $8,065 which was
recorded as stock based compensation expense for the three months ended March
31, 2002.
During the three months ended March 31, 2002, the Company issued 26,000 shares
of common stock as payment of a bridge loan payable and accrued interest of
approximately $13,000. The difference between the value of the common stock and
the principal and interest paid was $62,400 which was recorded as stock based
compensation expense for the three months ended March 31, 2002.
During the three months ending June 30, 2002, the Company issued 196,777 shares
of the Company's common stock to various consultants for services provided.
Stock based compensation expense of $257,983 was recorded during the three
months ended June 30, 2002 in connection with this issuance.
During the three months ended March 31, 2002, the Company received proceeds of
$143,073 from stock subscriptions receivables relating to issuance of common
stock during 2001.
During the three months ended June 30, 2002, the company received proceeds of
$120,000 from the sale of 80,000 shares of its common stock under a private
placement.
During the three months ended June 30, 2002, the Company issued 23,900 shares of
its common stock as payment of a bridge loan payable in the amount of $10,000.
Stock Options
During the three months ended March 31, 2002, the Company issued options to
consultants to purchase 650,000 shares of common stock at an exercise price of
$.40 per common share. These options vest immediately and expire after six
months. These options had a fair value of $637,875, calculated using the Black
Scholes options pricing model which was recorded as stock based compensation for
the three months ended March 31, 2002. During the three month period March 31,
2002, 450,000 of these options were exercised and the Company realized total
proceeds of $155,000. In April 2002, 312,500 of the options exercised were
rescinded. An additional 350,000 of these options were exercised in April 2002
and the Company realized $149,000.
On April 18, 2002, the Company granted options to purchase 100,000 shares of the
Company's common stock pursuant to a letter agreement and a stock option
agreement with a law firm whereby a portion of the legal services provided will
be paid by the issuance of these options. These options will have an initial
exercise price of $1.00, for options which vest prior to October 15, 2002, and
for options which vest after October 15, 2002, the exercise price shall be
changed to the average closing price of the common stock for the 30 trading days
ending October 15, 2002. These options will be earned and shall vest based on a
value of $0.40 per option and will expire five years from the date of grant. On
august 8, 2002, it was agreed to reduce the option price to $0.50 per share. As
at the filing of this report, 48,772 options have been earned.
Warrants
During the six months ended June 30, 2002, an aggregate of 949,832 warrants were
exercised for an aggregate of $417,233 at exercise prices ranging from $0.40 to
$0.75 per warrant in exchange for 949,832 shares of the Company's common stock.
The Company realized cash proceeds of $397,233 and converted a loan payable of
$20,000.
15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By a Special Meeting of the Shareholders held on the 22nd day of April, 2002 at
the Company's office in Woburn, Massachusetts, a quorum representing 7,397,011
issued and outstanding shares being present, it was unanimousley approved that
Adam D. Young, the son of Stanley A. Young, the former Chairman of the Board and
major shareholder who retired on April 5, 2002 due to personal reasons be
elected to the Board of Directors of the Company until the next Annual Meeting
of Shareholders.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99.1 Certification of Chief Operating Officer Michael Dewar
pursuant to 18 U.S.C. 1350
Exhibit 99.2 Certification of Chief Operating Officer Adam Cogley
pursuant to 18 U.S.C. 1350
(b) Reports on Form 8-K:
Three Months Ended June 30, 2002
The Company filed a Form 8-K on April 2, 2002 announcing the hiring of
Graham F. Paxton as its new President, Chief Executive Officer and
director. As of August 1, 2002, Mr. Paxton is no longer employed by
the Company by mutual agreement.
The Company filed a Form 8-K on April 5, 2002 announcing the
retirement of Stanley A. Young from the Board of Directors of the
Company due to personal reasons. The retirement was not as a result of
any disagreement with the Company on any matter relating to the
Company's operations, policies or procedures.
The Company filed a Form 8-K on April 22, 2002 announcing the election
of Adam D. Young, the son of Stanley A. Young, the former Chairman of
the Board and major shareholder who retired on April 5, 2002, be
elected to the Board of Directors.
The Company filed a Form 8-K on April 30, 2002 stating that the
Company filed with the State Department of Assessments and Taxation of
Maryland a Certificate of Correction to the Articles of Amendment to
reflect a prior typographical error.
The Company filed a Form 8-K on June 11, 2002 as a result of a special
meeting of the Board of Directors to establish an audit committee for
the Company and to replace Marcum & Kliegman LLP its prior auditors
with William A. Meyler, CPA.
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL WIRELESS, INC.
----------------------------
(Registrant)
Date: August 19, 2002 By: /s/ MICHAEL DEWAR
--------------------------------
Michael Dewar
Chief Operating Officer
(Duly Authorized
Officer)
Date: August 19, 2002 By: /s/ ADAM COGLEY
---------------------------------
Adam Cogley
Chief Financial Officer
(Principal Financial
and Accounting Officer)