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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________ to
____________ Commission file number 0-29944
INFOWAVE SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
British Columbia, Canada 98 0183915
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(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
21520 - 30th Avenue S.E., Suite 109
Bothell, Washington, 98021
(Address of principal executive offices)
Registrant's telephone number: (425) 806-3100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the Registrant's Common Stock held by non-affiliates
as of December 31, 2000 was approximately US$60,545,840. The number of shares of
the Registrant's Common Shares outstanding as of December 31, 2000, was
21,095,458.
Documents Incorporated by Reference.
None
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Page
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ITEM 1: BUSINESS..............................................................1
ITEM 2: PROPERTIES............................................................9
ITEM 3: LEGAL PROCEEDINGS.....................................................9
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................9
ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...................................................9
ITEM 6: SELECTED FINANCIAL DATA...............................................11
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................12
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............16
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................16
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...................................16
ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT.............................17
ITEM 11: EXECUTIVE COMPENSATION...............................................19
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................................21
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................22
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K..................................................23
SIGNATURES.....................................................................
ITEM 1: BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Infowave Software, Inc. (the "Company" or "Infowave") develops, markets and
sells infrastructure software solutions that enable wireless computing.
Infowave's software leverages wireless communications networks to provide
secure, real-time mobile access to corporate information. The Company's software
enables the mobile workforce to gain access to email, corporate data, enterprise
productivity applications and the Internet.
The Company was formed on February 21, 1997 by the amalgamation of GDT Softworks
Inc., Infowave Wireless Messaging Incorporated and G.W. McIntosh Holdings Ltd.
under the laws of the Province of British Columbia, Canada. The registered and
records office of the Company is located at Suite 2600 - 595 Burrard Street,
Vancouver, British Columbia, V7X 1L3. The Company's Canadian head office is
located at Suite 200 - 4664 Lougheed Highway, Burnaby, British Columbia, V5C
5T5.
Infowave's wholly owned subsidiary, Infowave USA Inc., is located at Suite 109,
21520 - 30th Avenue S.E., Bothell, Washington, 98021. Infowave USA Inc. serves
as the U.S. headquarters of the Company and is the address of the principal
executive offices of Infowave Software, Inc.
On May 11, 2000, the Company announced the signing of a letter of intent to sell
the assets of the Company's imaging business. On September 11, 2000, Infowave
announced that it had entered into a definitive agreement for the sale of its
Imaging Division to Strydent Software, Inc., an unrelated third party. The
business is operated as a wholly owned subsidiary of Software 2000. The purchase
price of US$1.32 million in cash represented a premium to the book value of the
Imaging Division. The transaction was effective August 31, 2000.
All information presented in this filing excludes the business of the divested
Imaging Division and is presented in U.S. dollars unless otherwise stated.
COMPANY AND PRODUCT OVERVIEW
Infowave Software, Inc. develops, markets and sells software solutions for the
wireless computing business. Infowave's software leverages wireless
communications networks to enable mobile access to critical corporate data. This
includes personal productivity information such as email and contacts, corporate
data residing on an intranet, web-based applications and the Internet. The
Company's intelligent software sends the "right" information to the "right"
device at the "right" time, spanning a variety of wireless networks and a
spectrum of mobile devices ranging from laptop computers to the new generation
of digital mobile phones.
Enterprises have made significant investments in hardware, software and training
and in most cases, with little regard for the mobile worker. In addition,
businesses have become increasingly reliant on email, the Internet, corporate
intranets and other enterprise applications that drive business productivity.
Workers are under increasing pressure to be away from their desk and be closer
to their customers. These mobile workers need real-time access to their critical
desktop data to be effective when they are not at their desks. The most common
current solution is to have mobile workers dial-in to the Internet or corporate
network. This is often not feasible and is generally cumbersome.
Mobile professionals are currently comfortable with the use of wireless phones
and pagers and are increasingly comfortable with mobile computing devices such
as laptop and handheld computers (PDAs). This, in turn, is creating demand on
the enterprise to provide wireless access from these devices to corporate data
in order to maximize worker productivity. The enterprise must leverage its
current Information Technology (IT) infrastructure investment, while meeting the
diverse demands of mobile professionals to deliver the information they want,
when and where they want, on the device of their choice. The Infowave Wireless
Business Engine (TM) meets this demand today.
Page 1
Infowave's core commercial software product is the Infowave Wireless Business
Engine, which is a software infrastructure solution for extending corporate
information and applications to the mobile workforce. The Infowave Wireless
Business Engine supports multiple devices, networks, platforms and applications.
Consequently, the mobile worker is given choice and flexibility while providing
the enterprise with centralized management, scalability, security and encryption
to protect and extend existing corporate investments in information technology
(IT). The foundation of the Infowave Wireless Business Engine is a modular
architecture that provides an optimized backbone for enterprise applications.
The functionality of the Infowave Wireless Business Engine extends to a suite of
application connectors including the Exchange Connector, which provides access
to Microsoft(R) Exchange(R) data and the Web Connector, which provides access to
corporate intranets, web-enabled applications and the Internet.
In addition to the Infowave Wireless Business Engine, the Company has a desktop
solution called Symmetry, which is installed on any desktop computer. Symmetry
is focused on the thin client portion of the mobile device continuum, from
pagers and wireless phones to PDAs. Symmetry essentially re-directs Microsoft
Outlook(R) information to any data-capable device such as two-way pagers and PCS
phones.
Infowave's technology was attained through several years of research and
development. In the years ended December 31, 2000, 1999, and 1998 research and
development expenditures (net of depreciation and amortization) were $3.49
million, $1.23 million and $0.91 million, respectively.
INFOWAVE WIRELESS BUSINESS ENGINE
The Infowave Wireless Business Engine is a comprehensive wireless platform
supporting a suite of application connectors suitable for most enterprises. Each
new application connector, when plugged into the platform, leverages the
capabilities of the Infowave Wireless Business Engine. These capabilities
include end-to-end security, data transport and bandwidth optimizations, session
reliability, and multiple device and network support. Infowave is currently
shipping two application connectors; Exchange Connector and Web Connector.
Infowave is currently extending its messaging connector platform to include
Lotus(R) Domino (Notes).
The Infowave Wireless Business Engine also creates an efficient wireless Virtual
Private Network (VPN) and improves remote dial-up connections by optimizing
slower dialup (landline) connections into enterprise accounts and Wide Area
Networks (WANs). This allows customers to leverage Infowave's security and
optimization technologies when mobile workers connect to the enterprise over
either a wired or a wireless connection. The Infowave Wireless Business Engine
is also network intelligent, allowing users to access information from most
major wireless data network including CDPD, CDMA, GSM and Mobitex. The Company
is currently developing the Infowave Wireless Business Engine to support new
2.5G and 3G networks.
The Infowave Wireless Business Engine also includes a client software component.
The client software is installed on the wireless device and enables a secure
wireless connection that extends through a carrier, over the Internet and into
the Infowave Wireless Business Engine running at the enterprise or service
provider. The client and server software manages the connection to ensure
security, reliability, and optimization of all data sent and received. The
Infowave client software has been ported to various platforms including Windows
95/98/NT/2000 and Windows CE/Pocket PC. Development is also currently underway
to further expand on the support provided to Palm OS based devices and RIM
Blackberry pagers.
MODULAR ARCHITECTURE
Infowave has spent considerable time perfecting its modular architecture. The
Exchange Connector and Web Connector were the first products produced for the
Infowave Wireless Business Engine. Through this process, the Company has gained
considerable core competencies in wirelessly extending enterprise-based
applications. Unlike many other wireless solutions that allow users to access
only a subset of
Page 2
the features associated with an application, Infowave's connectors allow users
to gain access to the application as if they were in their office connected to
their corporate network. Each connector developed by Infowave literally extends
the application to any wireless device. The connectors, though highly specific
to applications already in use by an enterprise, are plugged into the Infowave
Wireless Business Engine allowing IT administrators to easily and efficiently
manage the solution. The Infowave capability in this area differentiates the
Infowave solution from competing wireless offerings.
APPLICATION CONNECTORS
INFOWAVE APPLICATION CONNECTORS
An Application Connector is a middleware layer that connects the Infowave
Wireless Business Engine to an application's business logic and data.
Application Connectors provide rich, fully featured thick-client connectivity to
enterprise applications. Historically, mobile workers have not been able to
access and utilize enterprise-based applications such as Enterprise Resource
Planning (ERP), Customer Relationship Management (CRM). These applications can
only be accessed through fast networks on full workstation computers, and have
not been well-suited for rendering to smaller devices in a mobile environment.
However, with Infowave Application Connectors, in conjunction with the Infowave
Wireless Business Engine, enterprise applications are extended to mobile
environments. The Infowave Wireless Business Engine fundamentally changes the
productivity and efficiency potential for the mobile workforce.
EXCHANGE CONNECTOR
Infowave's Exchange Connector provides wireless access to Microsoft Exchange
servers using Microsoft Outlook client software. Instead of plugging into a
phone jack, users simply turn on their portable computing device and launch
Infowave's software. The end-user opens Outlook, types a regular NT username and
password and is connected wirelessly and securely to the corporate Exchange
message store. A critical differentiating function and a beneficial timesaving
feature of Exchange Connector is that it does not require a traditional
synchronization procedure before enabling communication. All unread mail in the
corporate message store is immediately pushed out to the end-user and all
outgoing mail in the user's outbox is immediately sent. To ensure speed and
security all data transmission is encrypted and compressed. Infowave's Exchange
Connector features a real-time synchronization capability - all incoming
messages are stored to Microsoft Outlook and can be accessed when the user
disconnects from the network. This capability gives end users online and offline
access to data and allows productivity in situations such as on a plane, or when
out of a coverage area. There is essentially no unique training required because
Outlook is used exactly the same way in the mobile environment as it would be on
any desktop - no new interfaces or procedures are required.
Corporate Management Information Systems (MIS) managers would choose the
Exchange Connector because it provides all of the key security and manageability
requirements that they demand while minimizing the added workload to support
mobile users. MIS managers manage these users through the same standard
management utilities they already use so there is no new learning required.
Exchange Connector gives technology managers an opportunity to create
significant positive impact on their mobile personnel, while protecting their
existing infrastructure investments.
EXCHANGE CONNECTOR (WEB PHONES)
Infowave's Exchange Connector is also extended to Web-Ready phones and PDA's
using the Wireless Markup Language (WML) or Hypertext Markup Language (HTML)
standard for the Wireless Application Protocol (WAP). Though currently part of
the Exchange Connector, this product is intended to provide WAP functionality to
additional application connectors over time.
WEB CONNECTOR
Infowave's Web Connector is directed towards the growing demand for secure,
wireless access to the Internet, corporate intranets and extranets and web-based
enterprise applications using standard web browsers on mobile computing devices.
This connector is important as corporations are migrating to using intranets to
host information such as customer and sales data, service records and other
back-end databases that employees, partners, customers and management access and
share regularly. CRM and
Page 3
ERP applications are increasingly becoming available to web-based platforms.
With the Infowave Web Connector, the information available from these
applications is no longer unavailable to the mobile worker. With Web Connector,
corporations can install the wireless software and immediately attain secure,
reliable wireless access to this information. Corporations can then fully
leverage their existing applications, network architecture and important
corporate information. Corporate security policies and procedures for Internet
and intranet access are seamlessly extended to mobile users using the Infowave
Wireless Business Engine and do not require any modifications or changes to the
way in which these may be currently implemented.
DOMINO CONNECTOR (UNDER DEVELOPMENT)
Infowave is currently developing a Domino Connector. As with the Exchange
Connector, the Domino Connector will extend the Lotus Notes application to any
wireless device used by an enterprise's mobile work force including Web Ready
phones, PDAs and laptops. As with existing Application Connectors, the Domino
Connector will be plugged into the Infowave Wireless Business Engine and will
leverage the existing security and optimization technologies inherent to the
platform. Lotus Notes wireless support will be staged to support all the current
client devices that Infowave supports today. Initial support will be for Lotus
Notes email, followed with support for other Lotus-based applications.
OPEN APPLICATION CONNECTOR (UNDER DEVELOPMENT)
Infowave is currently developing an Open Application Connector and a Software
Development Kit, which will allow third-party software developers and enterprise
programmers to develop wireless applications that leverage the security and
optimization of the Infowave Wireless Business Engine. This solution will help
to provide a common platform for wireless access to all primary corporate
applications. Infowave currently believes this product will be released in 2001.
DESKTOP PRODUCTS
SYMMETRY
The Company's Symmetry software is a desktop solution that delivers email,
calendar, contacts and task information stored in Microsoft Outlook to any
wireless device capable of receiving text messages, including pagers and digital
mobile phones. All information sent to the wireless device is properly formatted
for the specific device. Symmetry allows users to forward email using specific
rules such as sender information and priority message information. If users have
wireless devices capable of two-way messaging they can retrieve contact
information directly from their desktop and handle meeting requests.
DISTRIBUTION CHANNELS
RESELLERS
During 2000, Infowave signed a worldwide reseller agreement with Compaq Computer
Corp. Compaq's professional services organization has 34,000 people in over 200
countries who can bring Infowave's products into their vast installed base of
accounts. Infowave's relationship with Compaq brings a global installation,
integration, and support infrastructure. The Company will also have direct
access to over 1600 Compaq resellers.
Infowave has developed an Authorized Partner Program for regional or specialty
channel partners. This standardized program allows the Company to scale its
relationships with many reseller channel partners and aggressively drive further
revenue opportunities and market penetration.
OEM AND EMBEDDED PARTNERS
Infowave is working to establish Original Equipment Manufacturers (OEM) and
bundling agreements with hardware manufactures (device, server, infrastructure)
and enterprise software vendors (such as CRM, GRP, ect.). The intent is for
Infowave products and technology to be embedded natively for distribution and
installation with partner products. In 2000, the Company signed a five-year
software license and development agreement with Intel Corporation, which
contributed 57% of total 2000 revenue.
Page 4
MARKETING ALLIANCES
Infowave has entered into a select number of marketing alliances with carriers,
hardware companies, and other software companies. Marketing alliance partners do
not resell the Company's products, but rather engage in joint marketing
initiatives such as customer referrals, events, and direct mail activities that
create sales leads for Infowave. Infowave is engaged in marketing activities
with companies such as AT&T Wireless Services Inc., Verizon Communications Inc.,
Rogers AT&T Wireless, Sierra Wireless, Inc., Novatel Wireless, Inc., and Nokia
Networks.
COMPETITION
The emerging wireless marketplace is presenting a variety of choice in wireless
products, which are required to satisfy the diverse needs of enterprises and
their different classes of mobile workers. Infowave differentiates itself by
offering intelligent support for multiple devices, platforms, networks,
applications, and services with centralized management. Enterprise customers can
therefore optimize choice while leveraging their existing investments in
hardware, software and training. Further, Infowave provides enterprise-grade
security and optimization along with real-time access to both corporate
applications and the Internet.
The mainstream market for business and consumer wireless data solutions is in
its early stages and distinct categories for solutions are still evolving.
Server-based solutions sit behind the firewall in the enterprise or in the case
of outsourced solutions are hosted by service providers. In the business to
consumer market, which could be generally categorized as any wireless solution
not sanctioned by the enterprise IT department, deployment is based on desktop
and service provider models. Infowave offers technology today to support all of
these solutions.
SERVER SOFTWARE
Over the past year, the competitive landscape has changed considerably within
the wireless industry. Currently Infowave's primary competition in the
enterprise-server space comes from Aether Systems, Inc., Extended Systems Inc.,
Research in Motion Limited (RIM), ThinAirApps, Inc., Wireless Knowledge, Inc.
and Broadbeam Corporation.
Microsoft's Mobile Information Server will be built on Exchange 2000 technology
and will provide an application program interface (API) designed for developers
to create wireless messaging solutions. As with Infowave's product offering, it
will be marketed to both the enterprise and carrier spaces. Initial indications
are that Microsoft's solutions will be primarily focused on supporting Microsoft
server and client platforms.
DESKTOP SOFTWARE
Desktop products require that the end users have a desktop computer running at
all times in order to redirect information to their mobile device. These
solutions appeal to the individual rather than to the IT manager. Currently,
Infowave's primary competition includes Research in Motion's Blackberry service
and Microsoft's Mobile Outlook Manager.
SERVICE PROVIDERS
Service providers give rise to both competition and opportunity for Infowave.
Service providers that use the Infowave Wireless Business Engine create
customers for Infowave, yet others are competitors. Infowave has identified
GoAmerica and Omnisky as potential competitors within the service provider
marketplace.
PROPRIETARY PROTECTION
All Company software is protected by a combination of certain intellectual
property rights. The Company relies principally upon a combination of copyright,
trademark and trade secret laws, non-disclosure agreements and other contractual
provisions to establish and maintain its rights. As part of its confidentiality
procedures, the Company generally enters into a non-disclosure and
confidentiality agreement with each of its consultants and specifically with any
third-party that would have access to the source code for the Company's software
products. As well, the Company strictly limits access to and distribution of its
software in executable code form.
Page 5
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Infowave for Exchange," "Infowave for the Net," "Symmetry," "Wireless Business
Engine," "Web Connector," and "Exchange Connector".
There can be no assurance that the measures taken by the Company to protect its
intellectual property rights will adequately protect those rights.
Although the Company believes that it has the right to use all of the
intellectual property incorporated in its products, third parties may claim that
the Company's products violate their proprietary rights, including copyrights
and patents. If any such claims are made and found to be valid, the Company may
have to re-engineer its products or obtain licenses from third parties to
continue offering its products. Any efforts to re-engineer its products or
obtain licenses from third parties may not be successful and could substantially
increase the Company's costs and have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Risk Factors
- - Intellectual Property Protection."
Employees
As at December 31, 2000, the Company had 147 employees at its offices in
Burnaby, British Columbia and in Bothell, Washington in the following
capacities:
Burnaby Bothell
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Management & Administration 21 3
Research & Development 67 -
Sales & Marketing 21 35
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Total 109 38
RISK FACTORS
In addition to the other information contained in this report, readers should
carefully consider the following risk factors which may have a material adverse
effect on the Company's business, financial condition or results of operation.
HISTORY OF LOSSES
The Company is not currently profitable and incurred losses from continuing
operations (which excludes the Imaging Division) of $16,255,917 and $3,773,523
for the years ended December 31, 2000 and 1999, respectively. The Company
expects to continue to incur losses in the future. The Company anticipates that
its expenses will increase substantially as the Company continues to increase
its research and development, sales and marketing and general and administrative
expenses. The Company cannot predict if it will ever achieve profitability and,
if it does, it may not be able to sustain or increase profitability.
WIRELESS INDUSTRY GROWTH
There can be no assurance that the market for the Company's existing or proposed
wireless software products will grow, that firms within the industry will adopt
the Company's software products for integration with their wireless data
communications solutions, or that the Company will be successful in
independently establishing product markets for its wireless software products.
If the various markets in which the Company's software products compete fail to
grow, or grow more slowly than the Company currently anticipates, or if the
Company were unable to establish product markets for its new software products,
the Company's business, results of operation and financial condition would be
materially adversely affected.
Page 6
RELIANCE ON NEW TECHNOLOGIES
The wireless data communications market is characterized by rapidly changing
technology and evolving industry standards. Therefore, it is difficult to
predict the rate at which the market for the Company's wireless software
products will grow, if at all. If the market fails to grow, or grows more slowly
than anticipated, the Company will be materially adversely affected. Even if the
market does grow, there can be no assurance that the Company's products will
achieve commercial success. The Company may find itself competing in the market
for wireless mobile computing software against other companies with
significantly greater financial, marketing and other resources. Such competitors
may be able to institute and sustain price wars, or imitate the features of the
Company's wireless mobile computing software, reducing prices and the Company's
revenues and share of the market.
In addition, the Company's competitors may develop alternative technologies that
gain broader market acceptance than the Company's software solutions. As a
result, the life cycle of the Company's software solutions is difficult to
estimate. The Company may need to develop and introduce new products and
enhancements to its existing solutions on a timely basis to keep pace with
technological developments, evolving industry standards, changing customer
requirements and competitive technologies that may render its solution obsolete.
These research and development efforts may require the Company to expend
significant capital and other resources. In addition, as a result of the
complexities inherent in the Company's solutions, major enhancements or
improvements will require long development and testing periods. If the Company
fails to develop products and services in a timely fashion, or if it does not
enhance its products to meet evolving customer needs and industry standards,
including security technology, it may not remain competitive or sell its
solutions.
PRODUCT IMPROVEMENTS
The Company will be at risk if it is unable to continually upgrade and improve
its software products, or to develop new software products. The software
industry is characterized by a constant flow of new or improved products, which
quickly render existing software products obsolete. The Company's competitors
may develop technically superior and comparably priced or lower priced software
that would have a material adverse effect on the Company.
ADDITIONAL FINANCING
The Company may not have sufficient capital to fund its operations. In
particular, additional financing may be required in the near term to develop and
market the Company's wireless mobile computing software products and services.
No assurance can be given that any additional financing required will be
available, or that additional financing will be available on terms that may be
advantageous to existing shareholders. Such financings, to the extent they are
available may result in substantial dilution to shareholders. To the extent such
financing is not available, the Company may not be able to or may be delayed in
being able to commercialize its software products and services.
RELIANCE ON MICROSOFT
Some of the Company's wireless software products wirelessly enable the
functionality of Microsoft Exchange. The Company is aware that Microsoft has
developed its own wireless functionality for Microsoft Exchange that will likely
compete with software products of the Company.
RELIANCE ON INTEL
During 2000, approximately 57% of revenues were derived from the software
license and development agreement with Intel Company. There is no assurance that
additional engineering and development fees may be realized in future quarters,
nor that a future royalty stream may result from the software license and
development agreement.
RELIANCE ON COMPAQ
The Company has a worldwide reseller agreement with Compaq Computer Corp. and
it's software is sold as a stand-alone product as well as is bundled with
Compaq's Proliant Servers, and iPAQnet Mobile Intranet and iPAQnet Mobile Email
Pocket PC bundles. There is no assurance that this relationship will continue or
result in meaningful revenue for the Company.
Page 7
MANAGEMENT OF GROWTH
The Company has been expanding, and intends to continue to expand. This growth
has placed, and any further growth is likely to continue to place, a significant
strain on the Company's resources. The Company's ability to achieve and maintain
profitability, if at all, will depend on its ability to manage growth
effectively, to implement and expand operational and customer support systems,
and to hire additional personnel. The Company may not be able to augment or
improve existing systems and controls or implement new systems and controls to
respond to any future growth. In addition, future growth may result in increased
responsibilities for management personnel, which may limit their ability to
effectively manage the Company's business.
RELIANCE ON KEY PERSONNEL AND CONSULTANTS
The Company is currently dependent upon its senior management, board of
directors and consultants, the loss of any of which may significantly affect the
performance of the Company and its ability to carry out the successful
development and commercialization of its software products and services. Failure
to retain management, directors and consultants or to attract and retain
additional key employees with necessary skills could have a material adverse
impact upon the Company's growth and profitability. The Company is expecting
significant growth in employees as a result of the commercialization of its
products. This growth will place substantial demands on the Company. The
Company's ability to assimilate new personnel will be critical to its
performance. The Company will be required to recruit additional software
development personnel, expand its sales force, expand its customer support
functions and train, motivate and manage its employees. Competition for
qualified software development personnel is intense and expected to increase.
There can be no assurance that the Company will be able to recruit the personnel
required to execute its programs or to manage these changes successfully.
RELIANCE ON KEY THIRD-PARTY RELATIONSHIPS
The Company relies on key third-party relationships, including its relationships
with resellers and OEMs, for marketing and sales of its software products. These
third parties are not within the control of the Company, may not be obligated to
purchase software products from the Company and may also represent and sell
competing software products. The loss of any of these third-party relationships,
the failure of such parties to perform under agreements with the Company or the
inability of the Company to attract and retain new resellers or OEMs with the
technical, industry and application experience required to market and sell the
Company's software products successfully could have a material adverse effect on
the Company.
COMPETITION
Certain of the Company's competitors have substantially greater financial,
technical and marketing resources than the Company. In addition, the market for
wireless mobile computing software products continues to develop, additional
competitors with substantially greater financial, technical and marketing
resources than the Company may enter the market and competition may intensify.
Current or future competitors may develop software products that are superior to
the Company's software products or achieve greater market acceptance.
PRODUCT DEFECTS
Software products as complex as those offered by the Company may contain
undetected errors or defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in new software
products after commencement of commercial shipments resulting in product recalls
and market rejection of the Company's software products and resulting in damage
to the Company's reputation, as well as lost revenue, diverted development
resources and increased support costs.
INTELLECTUAL PROPERTY PROTECTION
The Company considers its software products and trademarks to be of value and
important to its business. The Company relies principally upon a combination of
copyright, trademark and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain its rights. The Company has one
patent application pending. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy or obtain and use
information that the
Page 8
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary information will prevent
misappropriation of such information. The cost of litigation necessary to
enforce the Company's proprietary rights may be prohibitive. Such steps may not
preclude competitors from developing confusingly similar brand names or
promotional materials or developing software products and services similar to
those of the Company.
Although the Company believes that it has the right to use all of the
intellectual property incorporated in its software products, third parties may
claim that the Company's software products violate their proprietary rights,
including copyrights and patents. If any such claims are made and found to be
valid, the Company may have to reengineer its software products or obtain
licenses from third parties to continue offering its software products. Any
efforts to reengineer its software products or obtain licenses from third
parties may not be successful and could substantially increase the Company's
costs and have a material adverse effect on the business, financial condition
and results of operations of the Company.
FOREIGN EXCHANGE RATE EXPOSURE
The majority of the Company's revenue is denominated in U.S. dollars (the
currency in which the Company's financial statements are presented) or
currencies other than Canadian dollars (the functional currency of the Company)
and in the future may be denominated in currencies other than Canadian or U.S.
dollars. The Company does not engage in currency hedging activities to limit the
risks of exchange rate fluctuations. As a result, changes in the relative value
of the U.S. dollar to the Canadian dollar and other foreign currencies will
affect the Company's revenues and operating margins. The impact of future
exchange rate fluctuations between the U.S. dollar and the Canadian dollar or
other foreign currencies on revenues and operating margins cannot be accurately
predicted and could have a material adverse effect on the Company.
ENFORCEMENT OF CIVIL LIABILITIES
The Company is a corporation incorporated under the laws of British Columbia,
Canada. Certain of the directors and the Company's professional advisors are
residents of Canada or otherwise reside outside of the U.S. All or a substantial
portion of the assets of such persons are or may be located outside of the U.S.
It may be difficult to effect service of process within the United States upon
the Company or upon such directors or professional advisors or to realize in the
U.S. upon judgments of U.S. courts predicated upon civil liability of the
Company or such persons under U.S. federal securities laws. The Company has been
advised that there is doubt as to whether Canadian courts would (i) enforce
judgments of U.S. courts obtained against the Company or such directors or
professional advisors predicated solely upon the civil liabilities provisions of
U.S. federal securities laws, or (ii) impose liabilities in original actions
against the Company or such directors and professional advisors predicated
solely upon such U.S. laws. However, a judgment against the Company predicated
solely upon civil liabilities provisions of such U.S. federal securities laws
may be enforceable in Canada if the U.S. court in which such judgment was
obtained has a basis for jurisdiction in that matter that would be recognized by
a Canadian court.
POTENTIAL FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS
The Company's financial results vary from quarter to quarter based on factors
such as the timing of significant orders and contract completions and the timing
of new product introductions. Any significant fluctuation in revenue could
materially adversely affect the Company.
POSSIBLE MARKET VOLATILITY
The market price for the Common Shares may be subject to significant volatility.
Quarterly operating results of the Company or of other companies involved in the
wireless industry specifically or technology industries generally, changes in
general conditions in the North American economy, the financial markets in North
America, failure to meet the projections of securities analysts or other
developments affecting the Company or its competitors could cause the market
price of the Common Shares to fluctuate substantially. In addition, in recent
years the stock market has experienced extreme price and volume fluctuations.
This volatility has had a significant effect on the market prices of securities
of many companies for reasons unrelated to their operating performance.
Page 9
ITEM 2: PROPERTIES
The Company owns no real property. Pursuant to a lease agreement that expires
May 31, 2006, the Company leases 30,276 square feet of office space in Burnaby,
British Columbia, which the Company uses as its corporate, administrative, and
research and development offices. Under a lease agreement that expires March 31,
2003, the Company leases an additional 11,920 square feet in Burnaby, which
space has been sublet to third parties.
Pursuant to a lease agreement that expires March 31, 2005, the Company leases
7,329 square feet of office space in Bothell, Washington that functions as its
sales and marketing offices. The Company has recently entered into a lease
agreement for 13,944 square feet of office space in Bothell under a lease
agreement that expires April 30, 2007. The new Bothell office will replace the
existing office after construction is completed in approximately May 2001, at
which time the existing Bothell office will be sublet to a third party.
ITEM 3: LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON SHARES
The Common Shares of the Company are currently traded on The Toronto Stock
Exchange (the "TSE") under the symbol "IW". The Common Shares were listed on the
TSE on October 14, 1999. Prior to listing on the TSE, the Common Shares were
listed on the Vancouver Stock Exchange (the "VSE") on October 14, 1997 and were
delisted from the VSE on November 26, 1999. The Common Shares do not currently
trade on any exchange in the United States. The following table sets forth the
high and low closing sale prices, as reported by the TSE and VSE, of the Common
Shares for the calendar quarters indicated.
PRICE RANGE OF COMMON SHARES
All prices are quoted in Canadian dollars.
High Low Stock Exchange
(Cdn.$) (Cdn.$)
--------------- ------- --------------
2000
Fourth Quarter 12.75 4.45 TSE
Third Quarter 17.20 8.00 TSE
Second Quarter 34.00 8.55 TSE
First Quarter 69.35 14.05 TSE
1999
Fourth Quarter 16.15 3.00 TSE; VSE
Third Quarter 4.26 3.07 VSE
Second Quarter 4.80 1.38 VSE
First Quarter 2.04 1.00 VSE
Page 10
As of December 31, 2000, there were 21,095,458 Common Shares issued and
outstanding. At such date, there were approximately 48 shareholders of record,
10 of whom had addresses in the United States who collectively held 1,013,025
Common Shares, or approximately 4.8% of the total number of issued and
outstanding Common Shares.
DIVIDENDS
The Company did not pay any dividends in the past fiscal year and it does not
foresee the declaration or payment of any dividends on the Common Shares in the
near future. Any decision to pay dividends on the Common Shares will be made by
the board of directors on the basis of the Company's earnings, financial
requirements and other conditions existing at such future time.
WARRANTS
The Company issued 924,000 special warrants (the "Special Warrants") at a price
of Cdn.$32.50 per Special Warrant on April 13, 2000. The Special Warrants were
issued in reliance upon the exemption from registration requirements provided by
Rule 506 of Regulation D and the exclusion from registration requirements
provided by Rule 903 of Regulation S. Each Special Warrant entitled the holder,
upon exercise and without payment of additional consideration, to acquire one
Common Share. A final prospectus was receipted in British Columbia, Alberta and
Ontario on June 21, 2000 qualifying the distribution of 924,000 common shares
upon the exercise of the 924,000 previously issued Special Warrants. In
connection with this financing, the Company issued Special Compensation Warrants
(the "Agents' Warrants") to CIBC World Markets Inc., and Canaccord Capital
Corporation (in exchange for services as agent in connection with the Special
Warrant financing) entitling the agents in the financing to purchase an
aggregate of up to 46,200 Common Shares at a price of Cdn.$32.50 per Common
Share on or before April 13, 2002. All of the Special Warrants were deemed
exercised for Common Shares on June 21, 2000. As at December 31, 2000 there were
46,200 Agents' Warrants outstanding.
STOCK OPTION PLAN
The shareholders and Board of Directors have approved and adopted a Stock Option
Plan (the "Plan"). The principal purposes of the Plan are to promote a
proprietary interest in the Company among its directors and employees; to
retain, attract and motivate the qualified managers the Company requires; to
provide a long-term incentive element in overall compensation; and to promote
the long-term profitability of the Company.
The Board of Directors of the Company administers the Plan. Common Share options
may be granted at any time to any director, senior officer, full-time employee
or consultant of the Company, taking into consideration the present and
potential contribution of a particular director, senior officer, full-time
employee or consultant to the success of the Company and any other factors which
the Board of Directors may deem proper and relevant, provided that a director to
whom any option may be granted may not participate in the discussion of the
Board to grant such option.
The number of Common Shares that may be issued pursuant to the Plan to any one
person shall not exceed 5% of the Common Shares issued and outstanding on a
non-diluted basis. The number of Common Shares that may be issued to all
Insiders shall not exceed 10% of the Common Shares issued and outstanding on a
non-diluted basis. The number of Common Shares that may be issued to all
Insiders in a one-year period shall not exceed 10% of the Common Shares issued
and outstanding on a non-diluted basis. The number of Common Shares that may be
issued to any one Insider in a one-year period shall not exceed 5% of the Common
Shares issued and outstanding on a non-diluted basis. The price at which Common
Shares may be issued under the Plan will be determined from time to time by the
Board of Directors and shall, in any event, be in accordance with the rules and
policies of any stock exchange upon which the Common Shares may be listed. The
terms of the Plan, as amended June 5th, 2000 and approved by shareholders,
provide that the number of Common Shares that may be issued pursuant to the Plan
is set to not exceed 4,619,578 Common Shares.
As at December 31, 2000 the total number of Common Shares underlying all stock
options held by the directors and officers of the Company was 2,336,598. The
options have been granted as incentive and
Page 11
not in lieu of any compensation for services, and are subject to cancellation
should the optionee cease to act in a designated capacity.
SHAREHOLDER'S RIGHTS PLAN
On June 5, 2000, Infowave adopted a shareholder rights plan (the "Plan") to
ensure the fair and equal treatment of all of its shareholders in the event of a
Take-over Bid, in which a person, group of affiliated or associated persons, or
entity (a "Person") offers to acquire voting shares of Infowave resulting in
that Person possessing 20% or more of the outstanding voting shares of Infowave,
and to allow the board of directors of the Company and its shareholders adequate
time to assess and respond to such a bid. In order to implement the Plan, upon
adoption of the Plan, Infowave issued to each shareholder of record at the close
of business on June 5, 2000 (the "Record Time") one right (a "Right") in respect
of each outstanding Common Share to holders of record at the Record Time. In
addition, one Right will be issued in respect of each Common Share issued after
the Record Time and prior to the earlier of the separation date and the
expiration date. The Rights Plan is initially not dilutive and is not expected
to have any effect on the trading of common shares. However, if a flip-in event
occurs and the Rights separate from the common shares, reported earnings per
share and reported cash flow per share on a fully-diluted basis may be affected.
In addition, holders of Rights not exercising their Rights after a flip-in event
may suffer substantial dilution.
ITEM 6: SELECTED FINANCIAL DATA
Set forth below is certain selected financial information of the Company for
each year in the five-year period ended December 31, 2000. The selected
financial information for the three years ended December 31, 2000 is derived
from the Company's audited financial statements for such periods included in
"Item 14. Financial Statements." The selected financial information for the
years ended December 31, 1997 and 1996 is derived from the audited financial
statements for such periods. The selected financial information for the eight
quarters prior to December 31, 2000 is derived from the unaudited quarterly
financial statements of the Company. The Company's financial statements are
prepared in accordance with Canadian Generally Accepted Accounting Principles
("GAAP"), which are not materially different from United States GAAP except as
explained in "Item 14. Financial Statements - Financial Statements - Note 13."
The information below should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto.
Canadian GAAP
- -------------
Years Ended December 31
-----------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Income Statement Data
Net sales 1,513,557 355,001 170,911 85,471 62,726
Loss from continuing operations 16,255,917 3,773,523 2,675,389 1,693,913 857,081
Loss from continuing operations
per share 0.81 0.24 0.21 0.19 0.15
Net loss 17,988,868 3,288,251 1,206,266 1,677,032 187,713
Net loss per share 0.90 0.21 0.09 0.19 0.03
Balance Sheet Data
Total assets 12,445,349 8,054,492 6,687,941 1,625,326 2,102,781
Long term obligations - - - - 195,714
Share capital 35,148,040 12,526,949 6,798,707 2,456,847 587
Cash dividends declared per common - - - 91,476 -
share
Page 12
United States GAAP
- ------------------
Years Ended December 31
-----------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Income Statement Data
Net sales 1,513,557 355,001 176,509 94,496 70,497
Loss from continuing operations 16,465,529 3,829,598 2,909,175 1,989,375 962,205
Loss from continuing operations
per share 0.82 0.24 0.24 0.25 0.17
Net loss 18,198,480 3,344,326 1,440,052 1,970,792 210,717
Net loss per share 0.90 0.21 0.12 0.24 0.04
Balance Sheet Data
Total assets 12,445,349 8,020,392 6,546,596 1,508,802 2,349,819
Long term obligations - - - - 218,700
Share capital 36,192,899 13,325,591 7,416,454 2,515,083 658
Cash dividends declared per common - - - 103,306 -
share
Canadian GAAP
- -------------
Quarter Ended
-------------
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2000 2000 2000 2000 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
Income Statement Data
Net sales 768,544 509,849 132,730 102,434 106,145 98,317 32,899 117,640
Loss from continuing
operations 7,876,074 3,383,296 2,987,057 2,009,490 1,421,092 964,174 794,940 593,317
Loss from continuing
operations per share 0.37 0.16 0.16 0.11 0.08 0.06 0.05 0.04
Net loss 7,876,074 3,127,084 3,828,132 3,157,578 1,518,907 601,849 750,065 417,430
Net loss per share 0.37 0.15 0.20 0.17 0.09 0.04 0.05 0.03
United States GAAP
- ------------------
Quarter Ended
-------------
Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2000 2000 2000 2000 1999 1999 1999 1999
--------- --------- --------- --------- --------- -------- --------- ---------
Income Statement Data
Net sales 768,544 509,849 132,730 102,434 106,145 98,317 32,899 117,640
Loss from continuing
operations 8,070,593 3,388,126 2,992,525 2,014,285 1,432,714 978,439 809,457 608,988
Loss from continuing
operations per share 0.38 0.16 0.16 0.11 0.08 0.06 0.05 0.04
Net loss 8,070,593 3,131,914 3,833,600 3,162,373 1,530,529 616,114 764,582 433,101
Net loss per share 0.38 0.15 0.20 0.17 0.09 0.04 0.05 0.03
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investors should read the following in conjunction with the audited financial
statements and notes thereto included in Item 14 of this annual report and the
quarterly and annual financial information included in Item 6.
Page 13
FORWARD-LOOKING STATEMENTS
Statements in this filing about future results, levels of activity, performance,
goals or achievements or other future events constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in any forward-looking statements. These factors include,
among others, those described in connection with the forward-looking statements,
and the factors listed in Part 1, Item 1: Business Risk Factors.
In some cases, forward-looking statements can be identified by the use of words
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements or other future events.
Moreover, neither the Company nor anyone else assumes responsibility for the
accuracy and completeness of forward-looking statements. The Company is under no
duty to update any of its forward-looking statements after the date of this
filing. The reader should not place undue reliance on forward-looking
statements.
CORPORATE SUMMARY
During 2000, Infowave achieved significant growth in all areas of the
organization, with annual revenues representing a 326% increase over the prior
year. Infowave was also successful in attracting and recruiting new employees
throughout the year, adding talented and experienced staff in key areas
including development, quality assurance, sales and marketing. In addition, the
Company continued to expand its product offering and technology platform, adding
additional functionality, network support and device support to the Infowave
Wireless Business Engine.
Total headcount grew to 147 at December 31, 2000, compared to 60 wireless
division employees at December 31, 1999. The Company opened a permanent sales
and marketing office in Bothell, WA, and also set up regional sales managers and
systems engineers at key locations throughout the United States. Within research
and development, the Company added to its development and quality assurance
teams, and also formed an Architecture Technology group to focus on emerging
developments. In addition, the Company added to its administrative and
operations staff to support the growth of the company.
During the year, Infowave continued to develop and solidify relationships with
key partners and resellers, including Intel Corporation and Compaq Computer
Corp. The software license and development agreement with Intel provides the
Company with a combination of engineering fees, royalties, and license fees. The
Company began to recognize the fees for the engineering portion of the contract
in the third quarter of 2000 and expects to recognize royalties and license fees
beginning in 2001. Under the Compaq international reseller agreement, Compaq is
authorized to resell, distribute and integrate Infowave's wireless enterprise
software to Compaq's worldwide customer base. The Company expects revenues
related to the Compaq agreement to commence in 2001.
In the third quarter of 2000, Infowave introduced a simplified "per-seat"
pricing structure. The pricing ranges from $60 to $350 per seat and is designed
to provide an incentive for customers to purchase the full suite of Infowave
Wireless Business Engine connectors. The market reaction to this pricing
structure has been positive, with 70% of enterprise customers in the fourth
quarter purchasing the full Infowave suite.
Effective August 31, 2000 the Company completed the sale of its Imaging
Division. The total proceeds received on the sale were $1.32 million, which
represented a slight premium over the book value of the Imaging Division.
Following the divestiture of the Imaging Division, management was able to
concentrate its time and resources exclusively on the successful development of
its wireless business. The results below excludes the operations of the Imaging
Division prior to its sale.
QUARTER ENDED DECEMBER 31, 2000
Revenues for the fourth quarter of 2000 were $0.77 million, representing an
increase of 624% over revenues of $0.11 million in the fourth quarter of 1999,
and a 51% increase over 2000 third quarter
Page 14
revenues of $0.51 million. Included in 2000 fourth quarter revenue were software
license sales to AT&T Wireless Services and Telus Mobility, and engineering fees
associated with the completion of the second development milestone under the
Intel contract.
Fourth quarter revenues for 2000 were comprised of 28% license fees, 63%
technical service fees, 6% hardware sales, and 3% recurring service fees. When
viewed from a customer perspective, 61% of 2000 revenues were derived from OEM
relationships, and 39% of revenues were from enterprise customers.
Gross margins for the fourth quarter of 2000 were 95%, compared to 94% in the
comparable 1999 period and 97% in the third quarter of 2000. Cost of goods sold
includes hardware, royalties, packaging and distribution costs.
Research and development expenses of $1.17 million increased 146% over expenses
of $0.48 million in the fourth quarter of 1999 and increased 38% over expenses
of $0.85 million in the third quarter of 2000. These increases are mainly
attributable to increases in employee headcount. Research and development
headcount increased to 67 employees at December 31, 2000, compared to 29
employees at December 31, 1999 and 58 employees at September 30, 2000. Research
and development salaries were $0.75 million in the fourth quarter of 2000
compared to $0.29 million and $0.65 million in the respective comparable
quarters. Commensurate with the increases in employee headcount, the Company
also experienced higher recruiting, facilities, and communications costs in the
fourth quarter of 2000.
Sales and marketing expenses of $6.42 million for the fourth quarter of 2000
included costs of approximately $4.0 million related to a one-time branding and
advertising campaign. After excluding the cost of the campaign, sales and
marketing expenses were approximately $2.42 million, representing an increase of
332% over expenses of $0.60 million in the fourth quarter of 1999 and an
increase of 6% over expenses of $2.29 million in the third quarter of 2000. The
majority of the increase in sales and marketing expenses is attributable to an
increase in employee headcount to 56 employees December 31, 2000, compared to 23
employees at December 31, 1999 and 53 employees at September 30, 2000. Salaries
expense for the respective periods was $1.15 million, $0.29 million and $0.96
million.
Administrative costs for the quarter ended December 31, 2000 were $0.92 million,
representing an increase of 102% over expenses of $0.45 million in the
comparable 1999 period, and an increase of 11% over expenses of $0.83 million in
the third quarter of 2000. The increased spending in administration was largely
due to headcount increases and infrastructure costs required to support the
growth of the company. The increase in expenses over the third quarter of 2000
is due to recruiting, consulting and facilities costs.
Depreciation and amortization expense for the fourth quarter of 2000 was $0.25
million, compared to $0.08 million in the fourth quarter of 1999 and $0.19
million in the third quarter of 2000. These increases are attributable to
capital acquisitions of $2.86 million in 2000 and the amortization of the
remainder of the deferred charges balance.
Interest income for the fourth quarter of 2000 was $0.15 million, compared to
$0.05 million in the fourth quarter of 1999 and $0.28 million in the third
quarter of 2000. The fluctuations in interest income are commensurate with
fluctuations in the cash and investment balances held by the Company. The
Company invests excess funds in investment grade securities with terms to
maturity of less than one year.
YEAR ENDED DECEMBER 31, 2000
Total revenues for the year ended December 31, 2000 were $1.51 million,
representing an increase of 326% over revenues of $0.36 million in the prior
year. Revenues in 2000 were comprised of 28% software license fees, 58%
technical service fees, 11% hardware sales, and 3% recurring service revenues.
When viewed from a customer perspective, revenues for 2000 were derived 56% from
original equipment manufacturers and 44% from enterprise sales. Gross margins
for the year were 89%, compared to 92% in the prior year. The decrease in gross
margins compared to the prior year is largely the result of a one-time sale of
redundant hardware inventory in the second quarter of 2000.
Research and development expenses in 2000 totaled $3.49 million, compared to
$1.23 million in the prior year. The majority of this increase in expenditures
is attributable to employee-related costs, including salaries, recruitment,
communications and facilities. Research and development headcount was 67 at
Page 15
December 31, 2000 compared to 29 at December 31, 1999. These headcount increases
included additional software developers, quality assurance technicians and the
formation of an emerging technologies team. Total research and development
salaries were $2.36 million in 2000, compared to $0.79 million in 1999, with
average employee compensation increasing 30% over the prior year, largely due to
the addition of senior developers.
Sales and marketing expenses totaled $11.31 million in 2000, representing an
increase of 656% over expenses of $1.50 million in 1999. A large part of this
increase relates to an increase in employee headcount to 56 employees at
December 31, 2000 compared to 23 employees at December 31, 1999. The employee
additions included regional sales managers, inside sales representatives,
channel marketing managers and marketing event staff. Total salaries expense for
the department was $3.21 million in 2000, compared to $0.66 million in 1999.
Average employee compensation nearly doubled in 2000, largely due to the fact
that the majority of new staff are based in the United States. Sales and
marketing expenditures were also affected by significantly increased marketing
activities during 2000, including increased attendance at trade shows and
industry events, as well as the $4.0 million branding and advertising campaign
in the fourth quarter. Commensurate with the increased employee headcount and
marketing activities, the Company incurred significantly higher travel-related
costs in 2000. Sales and marketing expenses for travel, tradeshows, and other
related initiatives increased to $2.6 million in 2000, compared to $0.67 million
in the prior year.
Administrative expenses of $2.81 million in 2000 represented an increase of 119%
over 1999 expenses of $1.29 million. This increase is largely due to increased
employee headcount and infrastructure costs to support the growth of the
organization. The Company also incurred increased professional fees in 2000
related to increased business development activities and to securities reporting
obligations in Canada and the United States. In addition, a portion of the
increase in administrative expenses can be attributed to the fact that the prior
periods included an allocation of some administrative costs to the former
Imaging Division. Administration headcount was 24 at December 31, 2000 compared
to 8 at December 31, 1999, with salaries increasing to $0.95 million compared to
$0.33 million in the prior year. The average compensation for administrative
personnel was unchanged from the prior year.
Depreciation and amortization costs in 2000 totaled $0.70 million compared to
$0.20 million in 1999. This increase is directly attributable to capital
acquisitions of $2.86 million in 2000. Capital acquisitions included $1.72
million of computer equipment and software, $0.58 million of office equipment,
$0.46 million of leasehold improvements, and $0.10 million of purchased software
licenses. The capital acquisitions during the year were related to the increase
in employee headcount as well as to the move of the Burnaby office to new
facilities within the existing building and the move of the Bothell office to a
more permanent location.
Interest income for 2000 was $0.71 million, compared to $0.12 million in 1999.
The increase in interest income is due to the increase in cash and investment
balances held by the Company during 2000.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, Infowave raised $22.62 million in additional equity. This included
$19.03 million raised through the issuance of special warrants in the second
quarter of the year, as well as $3.59 million raised through the exercise of
previously issued share purchase warrants and employee stock options. Subsequent
to year-end, the Company raised $7.50 million through a public offering of
securities in Canada.
The Company used $16.14 million in operations during 2000, primarily due to the
$16.26 million loss from continuing operations, as well as from $1.63 million
used in the operations of the former Imaging Division. The effect of the loss on
cash flows was offset partially by a decrease of $0.98 million in accounts
receivable from cash collections from the Imaging Division prior to the
divestiture.
Net cash used in investing activities during 2000 was $8.21 million, which
consisted of $6.67 million used in the purchase of short term investments and
$2.86 million of capital acquisitions, offset by $1.32 million of proceeds from
the sale of the Imaging Division.
Infowave's cash and short-term investment position was $8.95 million and working
capital was $8.62 million at December 31, 2000, compared to $4.36 million and
$6.02 million, respectively, at December 31, 1999. The Company's primary sources
of liquidity at year end consisted of cash and short-term
Page 16
investments and an uncommitted line of credit of Cdn$2.0 million, which is
secured against short-term investments.
The Company believes that the total amount of cash and short-term investments
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures through 2001. Thereafter, depending on the development of
the business, the Company may need to raise additional capital for working
capital or other expenses. The Company may also encounter opportunities for
acquisitions or other business initiatives that require significant cash
commitments, or unanticipated problems or expenses that could result in a
requirement for additional cash before that time. There can be no assurance that
additional financing will be available on terms favorable to the Company or its
shareholders, or on any terms at all. The inability to obtain such financing
would have a material adverse impact on the Company's operations. To the extent
that such financing is available, it may result in substantial dilution to
existing shareholders.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company conducts the majority of its transactions in Canadian dollars and
therefore uses the Canadian dollar as its base currency of measurement. However,
most of the Company's revenues and some of its expenses are denominated in
United States dollars which results in an exposure to foreign currency gains and
losses on the resulting US dollar denominated cash, accounts receivable, and
accounts payable balances. As of December 31, 2000, the Company has not engaged
in any derivative hedging activities on foreign currency transactions and/or
balances. Although foreign currency gains and losses have not historically been
material, fluctuations in exchange rates between the United States dollar and
other foreign currencies and the Canadian dollar could materially affect the
Company's results of operations. To the extent that the Company implements
hedging activities in the future with respect to foreign currency exchange
transactions, there can be no assurance that the Company will be successful in
such hedging activities.
While the Company believes that inflation has not had a material adverse effect
on its results of operations, there can be no assurance that inflation will not
have a material adverse effect on the Company's results of operations in the
future.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements listed under the heading "(a)(1)
Financial Statements" of Item 14 herein, which financial statements are
incorporated herein by reference in response to this Item 8.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Page 17
ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table sets forth certain current information regarding the
executive officers, directors and key employees of Infowave:
Name Age Position
- ---- --- --------
Thomas Koll 44 Chief Executive Officer
Bijan Sanii 42 President, Chief Operating Officer and
Director
Todd Carter 40 Chief Financial Officer
Sal Visca 34 Chief Technology Officer
John Diack 42 Vice President, Business Development
David Hunter 56 Vice President, Product Development and
Customer Service
Ron Jasper 37 Vice President, Marketing
Morgan Sturdy (1) (2) 49 Chairman and Director
Gary Ames 56 Director
Jim McIntosh 36 Director
Scot Land (1) (2) 46 Director
David Neale (1)(2) 48 Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Thomas Koll has served as Chief Executive Officer since February 15, 2001. Prior
to joining Infowave, Mr. Koll was Vice President of the Network Solutions Group
at Microsoft Corporation in Redmond, Washington since 1997. Prior to that, Mr.
Koll served in several senior positions at Microsoft including general manager
of the Dedicated System Group and also served as general manager of Microsoft's
worldwide business planning and strategy.
Bijan Sanii has served as President since November 1999 and Chief Operating
Officer since September 1998. Mr. Sanii was appointed to the Board of Directors
on January 25, 2001. Mr. Sanii also served as Acting CEO from July 2000 to
February 2001. From December 1997 to September 1998, Mr. Sanii served as General
Manager of the Imaging Division of Infowave. From May 1997 to December 1997, Mr.
Sanii served as Vice President of Sales of Infowave. From May 1994 to May 1997,
Mr. Sanii served as Vice President of Sales and Marketing of INETCO Systems
Limited.
Todd Carter has served as Chief Financial Officer since October 1998. Mr. Carter
originally provided financial consulting services to Infowave beginning in
September 1997 pursuant to an independent contractor agreement with Capital
Ridge Communications Inc. (formerly Channel One Systems Corp.). Mr. Carter
served as President of Channel One, formerly a division of Nexus Engineering
Corp., from July 1986 to November 1990. He was appointed Managing Director for
Nexus European operations in December 1990 (based in the UK) and Vice President
of Operations of Nexus in January 1992. Mr. Carter took private control of
Channel One in November 1992 after Nexus was acquired by Scientific Atlanta Inc.
Sal Visca has served as Chief Technology Officer since November 1999. From July
1996 to November 1999, Mr. Visca served as Senior Manager of the e-business
Solution Development Business Unit for IBM Canada. Prior to July 1996, Mr. Visca
served as Lead Architect and Strategic Program Manager for IBM Canada from
January 1995 to July 1996. From July 1993 to January 1995 Mr. Visca served as
Development Manager for IBM Canada.
John Diack has served as Vice President, Business Development since June 2000.
Between September 1997 and June 2000, John held positions at NICE Systems Ltd.
as Director of Business Development and Director, North American Channel
Management. Prior to joining NICE, Mr. Diack was National Sales Manager with
Circon Systems Corp. and Western Region Sales Manager with Dynapro Systems.
Page 18
David Hunter has served as Vice President, Product Development and Customer
Service since January 2001. From June 2000 to December 2000, Mr. Hunter served
as Global Development Executive for Customer Care and Billing Solution for the
Telecommunications Industry at IBM. From 1996 to June 2000, Mr. Hunter served as
the Development Executive for the Americas for IBM.
Ron Jasper has served as Vice President, Marketing since October 1998. From
October 1997 to October 1998, Mr. Jasper served as Director of Product
Management of the Wireless Division of Infowave. Prior to October 1997, Mr.
Jasper served as a Product Manager for Chancery Software Ltd. from February 1996
to October 1997. From September 1993 to February 1996, Mr. Jasper served as a
Senior Systems Engineer for Chancery Software Ltd.
Morgan Sturdy has served as Chairman and a director since October 1999. Since
September 1997, Mr. Sturdy has served as Executive Vice President and Chief
Operating Officer of NICE Systems Ltd. Prior to September 1997, Mr. Sturdy
served as President of Dees Communications Engineering Ltd. from January 1985 to
August 1997.
Gary Ames has served as a director since November 2000. From 1995 to 2000, Mr.
Ames served as President & CEO of MediaOne International. Prior to joining
MediaOne International, Mr. Ames served as President & CEO of US West
Communications. From 1987 to 1988, Mr. Ames was President and CEO of Mountain
Bell. Mr. Ames also currently serves as a director of Albertson's Inc.,
TekTronix Inc., Pac-West Telecomm Inc., etrieve Inc., Imandi.com Inc. and AT&T
Latin America Corp.
Scot Land has served as a director since October 1997. Since September 1997, Mr.
Land has served as a Managing Director of EnCompass Ventures. Prior to joining
EnCompass, Mr. Land was a Senior Technology Analyst with Microsoft Corporation
from April 1994 to September 1997. Mr. Land also founded InVision Technologies,
Inc. in 1989 and served as its President and Chief Executive Officer until 1993.
Mr. Land also serves as a director of BSQUARE Corporation.
Jim McIntosh has served as a director since June 1991. From June 1991 to July
2000, Mr. McIntosh served as President and Chief Executive Officer of the
Company.
David Neale has served as a director since May 1998. Since November 1999, Mr.
Neale has served as Vice President, New Product Development for Rogers AT&T
Wireless Inc. (formerly, Rogers Cantel Inc.). From January 1998 to November
1999, Mr. Neale served as the Vice President of Data and Emerging Technologies
for Rogers AT&T Wireless Inc. From September 1995 to January 1998, Mr. Neale
served as the Vice President of Marketing and Planning for Rogers AT&T Wireless
Inc. Mr. Neale served as the Vice President of Sales and Marketing for Westel
Communications Ltd. from December 1993 to September 1995. Mr. Neale is currently
the Chairman of the Paging Executive Council, Chairman of the International
Mobitex Operators Association and an Executive Board member of the Portable
Computer and Communications Association.
Each director is elected for a period of one year at the annual general meeting
of shareholders and serves until the next annual general meeting or until his or
her successor is duly elected and qualified. Under the Corporate Governance
Policies adopted by the Board of Directors, the Board limits the length of
directorship to three years at which time the directorship can be extended by
mutual consent of both parties. The executive officers serve at the discretion
of the Board. Infowave is a foreign private issuer and, as such, its insiders
are not required to file reports under Section 16(a).
BOARD COMMITTEES
The Board of Directors has established three board committees -- an audit
committee, a compensation committee and a nominating committee.
Audit Committee. The responsibilities of the Audit Committee include reviewing
the Company's audited financial statements and presenting them to the Board for
approval, reviewing internal accounting procedures and consulting with and
reviewing the services provided by the Company's auditors. The Audit Committee
currently consists of David Neale, Morgan Sturdy and Scot Land.
Page 19
Compensation Committee. The responsibilities of the compensation committee
include reviewing and recommending to the board of directors the compensation
and benefits of all the executive officers of the Company, and establishing and
reviewing general policies relating to compensation and benefits for the
employees of the Company. The compensation committee currently consists of David
Neale, Morgan Sturdy and Scot Land. Except as described in Item 13 - "Certain
Relationships and Related Transactions," no interlocking relationships exist
between the Board of Directors or compensation committee and the Board of
Directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Nominating Committee. The Board of Directors approved the establishment of the
nominating committee as part of a corporate governance policy on March 20, 2000.
The responsibilities of the nominating committee include evaluating the
contribution of each director on an individual basis, assessing the collective
performance of the Board, proposing new nominees to the Board and analyzing the
existing structure of the Board. The members of the committee have not yet been
appointed.
DIRECTOR COMPENSATION
The Company does not currently pay cash compensation to directors for serving on
its Board, but does reimburse directors for out-of-pocket expenses for attending
Board and committee meetings. The Company does not provide additional
compensation for committee participation or special assignments of the Board of
Directors. All directors except for Bijan Sanii and Jim McIntosh have received
stock options for their participation on the Board of Directors. In 2000, Gary
Ames received options to purchase 100,000 common shares at a price of Cdn.$11.45
per share and Scot Land received options to purchase 40,000 common shares at a
price of Cdn.$9.90 per share.
EMPLOYMENT AGREEMENTS
The Company's policy is to require all employees, including its executive
officers, as a condition to their employment with the Company, to enter into
agreements requiring the non-disclosure of confidential information of the
Company, and the assignment and confirmation of the Company's ownership of all
intellectual property rights created in the course of such employee's employment
with the Company.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and four other most highly compensated executive officers earning more
than $100,000 for the years ended December 31, 2000, December 31, 1999 and
December 31, 1998.
Page 20
Summary Compensation Table
- --------------------------
Long-Term
Compensation
Annual Compensation ----------------------
---------------------------- Securities All Other
Name and Principal Position Salary Bonus Underlying Options Compensation
- --------------------------- ----------- ---------- ------------------ ------------
Jim McIntosh 2000 $101,042 $13,802 - $13,232
Director (1) 1999 74,052 51,657 250,000 12,925
1998 74,229 53,985 - 315
Bijan Sanii 2000 $94,257 $18,178 117,000 -
President and 1999 74,052 99,414 290,000 -
Chief Operating Officer (2) 1998 65,664 118,766 - $4,559
Todd Carter 2000 $94,257 $35,346 90,000 -
Chief Financial Officer 1999 74,052 60,588 150,000 -
1998 67,481 33,740 60,000 -
Sal Visca 2000 $121,188 $10,660 - -
Chief Technology Officer 1999 6,991 41,592 117,000 -
1998 - - - -
Ron Jasper 2000 $96,154 $26,500 45,000 $4,327
Vice President, Marketing 1999 60,588 11,564 25,000 1,346
1998 53,984 3,809 72,000 2,699
(1) Mr. McIntosh resigned as President and CEO of the Company on July 5, 2000
(2) Mr. Sanii was appointed Acting President and CEO effective July 5, 2000 and
was appointed President on November 9, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option grants
to our Chief Executive Officer and two other most highly compensated executive
officers during the year ended December 31, 2000. The potential realizable value
is calculated based on the assumption that the Common Stock appreciates at the
annual rate shown, compounded annually, from the date of grant until the
expiration of its term. These numbers are calculated based on Securities and
Exchange Commission requirements and do not reflect our projection or estimate
of future stock price growth. Potential realizable values are computed by
multiplying the number of Common Shares subject to a given option by the
exercise price; assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the table for the
entire five-year term of the option; and subtracting from that result the
aggregate option exercise price.
Option Grants in 2000(1)
- --------------------------------- -------------------------------------------------------- -----------------------------
INDIVIDUAL GRANTS
--------------------------------------------------------
Number of
Options % of Total Potential Realizable value
Securities Granted to Exercise at Assumed Annual Rates of
Underlying Employees in Price (per Stock Price Appreciation
Options Fiscal Year share)(3) Expiration for Option Term
Name Granted (2) Cdn.$ Date CDN$
- ---------------------- ------------ ------------- ----------- ----------- ---------------------------
Bijan Sanii 117,000 4.6% 11.85 Sept 15, 2005 383,050 846,442
Todd Carter 90,000 3.5% 10.40 Sept 23, 2005 258,599 571,437
Ron Jasper 45,000 1.8% 9.90 Oct 11, 2005 123,083 271,982
- ---------------------
Page 21
(1) On December 18, 2000, the Company granted 500,000 options to Thomas Koll at
an exercise price per share of CDN$6.10 in conjunction with Mr. Koll's
acceptance to join the Company as Chief Executive Officer. On February22,
2001, the Company granted an additional 500,000 options at an exercise
price of CDN$5.50 per share in conjunction with the closing of a public
offering of securities in Canada.
(2) During 2000, options to purchase a total of 2,537,432 common shares were
issued to employees.
(3) The exercise price per share was equal to the fair market value of the
Common Shares at the close of business on the date prior to the date of
grant as determined by the board of directors.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth for the Chief Executive Officer and four other
most highly compensated executive officers earning over $100,000 the number of
shares acquired upon exercise of stock options during the year ended December
31, 2000 and the number of shares subject to exercisable and unexercisable stock
options held at December 31, 2000.
Aggregated Option Exercises in 2000 and Year-End Option Values
- --------------------------------------------------------------
Value of Unexercised but
Securities Aggregate Value Unexercised Options at Exercisable Options at
Acquired on Year End (#) Year End (1) (CDN$)
Name Exercise (#) Realized (CDN$) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- --------------- ------------------ ------------------------- --------------------------
Jim McIntosh 0 0 433,375/41,668 1,505,185/NIL
Bijan Sanii 56,847 1,325,323 89,505/291,418 70,281/65,450
Todd Carter 83,100 2,332,336 87,650/189,250 112,807/27,608
Sal Visca 0 0 39,000/78,000 3,900/7,800
Ron Jasper 53,890 1,006,208 24,866/86,868 68,450/103,068
- ----------------------
(1) The value of unexercised in-the-money options at December 31, 2000 is based
on Cdn.$5.30 per share, the closing price of the Common Shares at such
time, less the exercise price per share.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of its Common Shares as of December 31,
2000, by (i) each person known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Shares, (ii) each director of the Company,
(iii) each Named Executive Officer, and (iv) all directors and officers as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Shares listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
Page 22
Percent of
Directors, Executive Officers Earning More than $100,000 Number of Shares total Shares
and 5% Shareholders Beneficially Owned (1) Owned (2)
- ------------------- ---------------------- ---------
Transamerica Life Insurance Company of Canada 2,506,500 11.46
300 Consilium Place, Toronto, Ontario, M1H 3G2
Jim McIntosh (4) (5) 2,620,862 11.98
3007 Sunnyside Road, Anmore, British Columbia, V3H 4Y7
Gary McIntosh (5) (6) 1,631,313 7.46
4651 Fairlawn Drive, Burnaby, British Columbia, V5C 3R5
Morgan Sturdy 50,226 0.23
NICE Systems Ltd., #180-6651 Fraserwood Place, Richmond, British
Columbia, V6W 1J3
Gary Ames 10,975 0.05
605 39th Avenue East, Seattle, Washington, 98112
David Neale 5,556 0.03
Rogers AT&T, 1 Mount Pleasant Road, Toronto, Ontario, M4Y 2Y5
Scot Land 103,333 0.47
Encompass Ventures, 777-108th Avenue NE, Ste 2300, Bellevue,
Washington, 98004
David Wedge 20,503 0.09
David J. Wedge Computer Law, #100-1525 West 8th Avenue, Vancouver,
British Columbia, V6J 1T5
Bijan Sanii (3) 127,255 0.58
Todd Carter (3) 103,650 0.47
Sal Visca (3) 47,750 0.22
Ron Jasper (3) 37,915 0.17
All Directors and Executive Officers as a group (9 persons) 3,127,975 14.30
- ---------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Common Shares subject to options
currently exercisable, or exercisable within 60 days after December 31,
2000, are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership for any other person.
(2) Applicable percentage ownership is based on aggregate Common Shares
outstanding as of December 31, 2000 together with the applicable options of
such shareholder.
(3) Unless otherwise indicated, the address of each beneficial owner is that of
the Company.
(4) Includes 1,647,176 Common Shares beneficially owned by 529452 B.C. Ltd. See
note (5).
(5) 529452 B.C. Ltd. is the beneficial owner of 3,229,756 common shares. The
issued share capital of 529452 B.C. Ltd. consists of 100 Class A voting
shares and 100 Class B non-voting shares and 1,000 Class C preferred shares
and 1,000 Class D preferred shares. Gary McIntosh holds 49 Class A voting
shares, 49 Class B non-voting shares and all 1,000 of the Class C preferred
shares. Jim McIntosh holds 51 of the Class A voting shares, 51 of the Class
B non-voting shares and all 1,000 of the Class D preferred shares.
(6) Includes 1,582,580 Common Shares beneficially owned by 529452 B.C. Ltd. See
note (5).
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No director, senior officer or principal shareholder of the Company, or
associate or affiliate of any of the foregoing, has any other material interest,
direct or indirect, in any transaction or in any proposed transaction which has
materially affected or will materially affect the Company from January 1, 2000
through December 31, 2000, except as disclosed herein or as follows:
1. David Wedge, who resigned as a Director of the Company on January 25, 2001,
is the founder and proprietor of David J. Wedge Computer Law, a law firm
focused on the information technology industry. David J. Wedge Computer Law
has been acting as corporate counsel to the Company since 1994. In 2000 the
Company paid approximately $142,000 for legal services to David J. Wedge
Computer Law. David Wedge is the secretary of the Company.
Page 23
2. On March 16, 2000, the Company announced that Rogers AT&T Wireless Inc.
placed an order for a branded version of the Company's Symmetry software.
David Neale is Vice-President, Product Development and Deployment of Rogers
AT&T Wireless Inc. and a director of the Company. The total value of the
March 16, 2000 order is $60,000.
3. Pursuant to a Consulting Agreement dated as of July 4, 1997 between the
Company and GWM Enterprises Ltd. ("GWM"), a company controlled by Gary
McIntosh (a 5% shareholder of the Company), GWM provided management
services to the Company for $2693 per month. Pursuant to the Consulting
Agreement, the Company paid GWM a total of $10,772 in the first four months
of 2000, at which time the Consulting Agreement terminated.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statement, Financial Statement Schedules and Exhibits
The following financial statements of the Registrant and the Report of
Independent Accountants thereon are included herewith in Item 8 above.
1. Financial Statements
Auditors' Report to the Shareholders
Consolidated Balance Sheets
Consolidated Statements of Operations and Deficit
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
2. Consolidated financial statement schedules and Report of
Independent Accountants in those schedules are included as
follows:
Schedule II: Valuation and Qualifying Accounts
Page 24
3. Exhibits:
The following Exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
2.1++++ Asset Purchase Agreement dated September 8, 2000 between the
Corporation and Strydent Software Inc.
3.1* Memorandum and Articles of registrant
4.1* Employee Incentive Plan dated April 28, 1997, as
supplemented September 25, 1997
4.2* Special Warrant Indenture dated April 20, 1998 between the
Corporation and Montreal Trust Company of Canada
4.3** Special Warrant Indenture dated June 30, 1999 between the
Corporation and Montreal Trust Company of Canada
4.4*** Special Warrant Indenture dated April 13, 2000 between the
Corporation and Montreal Trust Company
4.5+ Stock Option Plan, as amended
4.6++ Form of Shareholders Rights Plan Agreement dated as of June
5, 2000 between the Corporation and Montreal Trust Company
of Canada
10.1* Investor Relations Agreement dated September 1, 1998 between
the Corporation and IRG Investor Relations Group Ltd.
10.2* Investor Relations Agreement dated September 1, 1998 between
the Corporation and Staff Financial Group Ltd. and 549452 BC
Ltd.
10.3* Loan Facility dated October 29, 1998 with a Canadian
chartered bank
10.4** Lease Agreement dated February 12, 1998 between Riocan
Holdings Inc. and the Corporation
10.5** Lease Agreement dated November 23, 1999 between Bedford
Property Investors, Inc. and the Corporation
o10.6* Corporate Development Agreement dated October 26, 1998
between the Corporation and Capital Ridge Communications
Inc. (formerly "Channel One Systems Corp.")
10.7* Strategic Partnership Agreement dated March 6, 1998 between
the Corporation and BellSouth Wireless Data
10.8* Development Agreement dated March 4, 1998 between the
Corporation and Hewlett-Packard
10.9* Source Code License Agreement dated March 31, 1998 between
the Corporation and DTS
10.10* Source Code License Agreement dated June 9, 1998 between the
Corporation and Wynd Communications Corporation
10.11* Source Code License Agreement dated November 13, 1997
between the Corporation and Apple Computers
10.12* OEM License Agreement dated December 5, 1997 between the
Corporation and Certicom Corp.
10.13* Letter Agreement dated April 20, 1998 between the
Corporation and Lexmark International, Inc.
o10.14* Employment Agreement dated May 2, 1991 between the
Corporation and Jim McIntosh
o10.15* Employment Agreement dated May 23, 1997 between the
Corporation and Bijan Sanii
Page 25
Exhibit
Number Description
------ -----------
o10.16** Employment Agreement dated September 16, 1999 between the
Corporation and Todd Carter
10.17* Agency Agreement dated March 31, 1998 between the
Corporation, Canaccord Capital Corporation and Yorkton
Securities Inc
10.18* Consulting Agreement dated July 4, 1997 between the
Corporation and GWM Enterprises Ltd.
10.19** Agency Agreement dated June 18, 1999 between the
Corporation, Canaccord Capital Corporation, Yorkton
Securities , Inc., Sprott Securities Limited and Taurus
Capital Markets Ltd.
10.20*** Letter of Intent dated May 8, 2000 among the Corporation,
Kevin Jampole and Robert Heath
10.21+++ Lease Agreement dated April 26, 2000 between the Corporation
and Tonko-Novam Management Ltd.
o10.22 Employment Agreement dated December 14, 2000 between the
Corporation and Thomas Koll
10.23 Lease dated December 7, 2000 between the Corporation and
Principal Development Investors, L.L.C.
23.1 Consent of KPMG LLP, independent accountants
- ----------------------
* Incorporated by reference to the Corporation's Registration Statement on
Form 20-F (No. 0-29944).
o Indicates management contract.
** Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1999.
*** Incorporated by reference to the Corporation's Annual Report on Form 10-Q
for the period ended March 31, 2000.
+ Incorporated by reference to the Corporation's Registration Statement on
Form S-8 (Registration No. 333-39582) filed on June 19, 2000
++ Incorporated by reference to the Corporation's Registration Statement on
Form 8-A filed on July 13, 2000
+++ Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 2000.
++++ Incorporated by reference to the Corporation's Form 8-K filed on September
25, 2000.
(b) Reports on Form 8-K
None.
Page 26
INDEX TO FINANCIAL STATEMENTS
Page
----
Auditors' Report to the Shareholders................................ F-2
Consolidated Balance Sheets......................................... F-3
Consolidated Statements of Operations and Deficit................... F-4
Consolidated Statements of Cash Flows............................... F-5
Notes to the Consolidated Financial Statements...................... F-7
F-1
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Infowave Software, Inc. as at
December 31, 2000 and 1999 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three year period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles. As required by the Company
Act (British Columbia), we report that, in our opinion, these principles have
been applied on a consistent basis.
Canadian generally accepted accounting principles vary in certain significant
respects with accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations and cash flows for each of the years
in the three year period ended December 31, 2000 and balance sheet items as at
December 31, 2000 and 1999 to the extent summarized in note 13 to the financial
statements.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
January 19, 2001, except as to note 12, which is as of February 13, 2001
F-2
INFOWAVE SOFTWARE, INC.
Consolidated Balance Sheets
(expressed in U.S. dollars)
December 31, 2000 and 1999
- -------------------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,368,092 $ 4,359,090
Short term investments 6,585,852 -
Accounts receivable, net of allowances of $19,044 (1999 - $53,739) 492,097 1,916,961
Inventory (note 3) 93,499 588,981
Prepaid expenses and deposits 374,687 170,662
- --------------------------------------------------------------------------------------------------------------
9,914,227 7,035,694
Capital assets (note 4) 2,531,122 984,698
Deferred charges, net of amortization of $230,847 (1999 - $196,747) - 34,100
- --------------------------------------------------------------------------------------------------------------
$ 12,445,349 $ 8,054,492
- --------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,087,536 $ 1,014,673
Deferred revenue 206,347 -
---------------------------------------------------------------------------------------------------------
1,293,883 1,014,673
Shareholders' equity:
Share capital (note 7):
Authorized: 100,000,000 voting common shares without par value
Issued: 21,095,458 (1999 - 18,297,470) common shares 35,148,040 12,526,949
Deficit (23,765,641) (5,776,773)
Cumulative translation account (230,933) 289,643
- --------------------------------------------------------------------------------------------------------------
11,151,466 7,039,819
Continuing operations (note 1(a))
Lease obligations (note 9)
Subsequent event (note 12)
- --------------------------------------------------------------------------------------------------------------
$ 12,445,349 $ 8,054,492
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Operations and Deficit
(expressed in U.S. dollars)
Years ended December 31, 2000, 1999 and 1998
- ----------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Revenues:
Sales $ 1,513,557 $ 355,001 $ 170,911
Cost of goods sold 170,393 28,703 48,536
- ----------------------------------------------------------------------------------------------------------------
1,343,164 326,298 122,375
Expenses:
Research and development 3,487,624 1,231,869 909,614
Sales and marketing 11,311,082 1,495,204 1,158,598
Administration 2,813,695 1,286,883 633,615
Depreciation and amortization 700,045 204,069 145,447
- ----------------------------------------------------------------------------------------------------------------
18,312,446 4,218,025 2,847,274
- ----------------------------------------------------------------------------------------------------------------
Operating loss from continuing operations 16,969,282 3,891,727 2,724,899
Other income (expenses):
Interest expense - - (23,917)
Interest income 713,365 118,204 73,427
- ----------------------------------------------------------------------------------------------------------------
713,365 118,204 49,510
- ----------------------------------------------------------------------------------------------------------------
Loss from continuing operations 16,255,917 3,773,523 2,675,389
Discontinued operations (note 2):
Loss (earnings) from operations 473,088 (485,272) (1,469,123)
Loss on disposal 1,259,863 - -
- ----------------------------------------------------------------------------------------------------------------
1,732,951 (485,272) (1,469,123)
- ----------------------------------------------------------------------------------------------------------------
Net Loss for the year 17,988,868 3,288,251 1,206,266
Deficit, beginning of year 5,776,773 2,488,522 1,282,256
- ----------------------------------------------------------------------------------------------------------------
Deficit, end of year $ 23,765,641 $ 5,776,773 $ 2,488,522
- ----------------------------------------------------------------------------------------------------------------
Loss (earnings) per share:
Continuing operations 0.81 0.24 0.21
Discontinued operations 0.09 (0.03) (0.11)
- ----------------------------------------------------------------------------------------------------------------
Net Loss per share $ 0.90 $ 0.21 $ 0.09
- ----------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 20,020,938 15,963,036 12,912,578
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
Years ended December 31, 2000, 1999 and 1998
- ---------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Income (loss) from continuing operations $ (16,255,917) $ (3,773,523) $ (2,675,389)
Items not involving cash:
Depreciation 688,678 160,390 89,900
Amortization of deferred charges 11,367 43,679 55,547
Changes in non-cash operating working capital:
Accounts receivable 984,119 1,581,881 (2,873,594)
Inventory 33,629 782,688 (1,132,654)
Prepaid expenses and deposits (372,770) 56,284 (202,253)
Accounts payable and accrued liabilities 199,647 (1,464,010) 1,927,021
Deferred revenue 203,095 - -
- ---------------------------------------------------------------------------------------------------------------
(14,508,152) (2,612,611) (4,811,422)
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations (1,732,951) 485,272 1,469,123
Items not involving cash:
Depreciation 119,160 162,904 119,126
Amortization of deferred charges 22,733 36,344 10,104
Gain on sale of Imaging Division (note 2) (41,492) - -
- ---------------------------------------------------------------------------------------------------------------
(1,632,550) 684,520 1,598,353
- ---------------------------------------------------------------------------------------------------------------
(16,140,702) (1,928,091) (3,213,069)
Cash flows from investing activities:
Short term investments (6,667,429) - -
Proceeds on sale of Imaging Division (note 2) 1,322,774 - -
Purchase of capital assets, net of investment
tax credits (2,861,833) (635,454) (387,837)
- ---------------------------------------------------------------------------------------------------------------
(8,206,488) (635,454) (387,837)
Cash flows from financing activities:
Issuance of shares for cash, net of issue costs 3,594,647 1,475,923 405,235
Issuance of special warrants for cash,
net of issue costs 19,027,038 4,284,797 3,946,115
- ---------------------------------------------------------------------------------------------------------------
22,621,685 5,760,720 4,351,350
Foreign exchange gain (loss) on cash and cash equivalents
held in a foreign currency (265,493) 114,596 -
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,990,998) 3,311,771 750,444
Cash and cash equivalents, beginning of year 4,359,090 1,047,319 296,875
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,368,092 $ 4,359,090 $ 1,047,319
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
INFOWAVE SOFTWARE, INC.
Consolidated Statements of Cash Flows, Continued
(expressed in U.S. dollars)
Years ended December 31, 2000, 1999 and 1998
- ---------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
Supplementary information:
Interest paid $ - $ - $ 23,917
Interest received 491,567 118,204 73,427
Non-cash transactions:
Cancellation of shares pursuant to
termination of employment contracts (594) (32,478) (9,490)
Conversion of special warrants into
common shares 19,027,038 4,284,797 3,946,115
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
The Company was formed on February 21, 1997, following the amalgamation of GDT
Softworks Inc., Infowave Wireless Messaging Incorporated and G.W. McIntosh
Holdings Ltd. and is incorporated under the laws of the Province of British
Columbia. The principal business activities of the Company are software
development and sales.
1. Significant accounting policies:
(a) Continuing operations:
These financial statements have been prepared on a going concern basis
notwithstanding the fact that the Company has experienced operating
losses during the years ended December 31, 2000, 1999 and 1998. To
date, the Company has financed its continuing operations through the
issuance of common shares and from cash flows from its former Imaging
Division (note 2). Continued operations of the Company will depend
upon the successful completion of external financing arrangements and,
ultimately, the attainment of profitable operations.
It is the Company's intention to raise additional financing in the
year 2001 (note 12), which, together with its existing working capital
and the exercise of options and warrants is expected to be sufficient
to meet the Company's projected working capital and cash requirements
beyond December 31, 2001. However, the Company cannot guarantee that
external financing will be available when needed, or that options and
warrants will be exercised. In addition, unanticipated costs and
expenses or lower than anticipated revenues could require additional
financing. To the extent financing is not available, the Company may
not be able to or be delayed in being able to commercialize its
products and services. The Company will continue to evaluate its
projected expenditures relative to its available cash and to evaluate
additional means of financing in order to satisfy its working capital
and other cash requirements.
(b) Basis of presentation:
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada and include
the accounts of the Company and its wholly owned subsidiary company,
Infowave USA Inc., which was incorporated on July 1, 2000. All
material intercompany transactions and balances have been eliminated
on consolidation. Material differences between the accounting
principles used in these financial statements and accounting
principles generally accepted in the United States are disclosed in
note 13.
(c) Cash and cash equivalents:
Cash and cash equivalents include short term investments, which are
highly liquid interest bearing marketable securities with maturities
of ninety days or less when acquired.
(d) Short term investments:
Short term investments, which consist of investment grade interest
bearing securities, are stated at the lower of cost and fair market
value. Short term investments includes accrued interest on interest
bearing securities classified as short term investments.
F-7
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 2
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
1. Significant accounting policies (continued):
(e) Inventory:
Inventory is valued at the lower of cost and net realizable value.
Cost is determined using the weighted average cost method.
(f) Deferred charges:
Shares issued to employees and service providers are measured and
recorded at the estimated fair value of the shares, taking into
account escrow restrictions, at the time of issue. The related stock
compensation expense is deferred on the balance sheet and charged to
income on a pro-rata basis as the related stock is released from
escrow.
(g) Capital assets:
Capital assets are recorded at cost. Depreciation is provided using
the following methods and annual rates:
-----------------------------------------------------------------------------------------------
Asset Basis Rate
-----------------------------------------------------------------------------------------------
Computer equipment and system software Straight-line three years
Computer software Straight-line two years
Leasehold improvements Straight-line shorter of lease
term or 20%
Office equipment Declining balance 20%
Software licences and purchased source code Declining balance 30%
-----------------------------------------------------------------------------------------------
(h) Impairment of long lived assets and assets to be disposed:
Long lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash
flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(i) Income taxes:
Effective January 1, 2000 the Canadian Institute of Chartered
Accountants changed the accounting standards relating to the
accounting for income taxes. Under the new standard future income tax
assets and liabilities are determined based on temporary differences
between the accounting and tax basis of the assets and liabilities,
and are measured using the tax rates expected to apply when these
differences reverse. A valuation allowance is recorded against any
future tax asset if it is more likely than not that the asset will not
be realized.
F-8
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 3
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
1. Significant accounting policies (continued):
(i) Income taxes (continued):
Prior to the adoption of this new accounting standard, the Company
accounted for income taxes using the deferral method whereby deferred
income tax expense was determined based on timing differences between
the accounting and tax treatment of items of expense or income, and
was measured using tax rates in effect in the year the differences
originated. Certain deferred tax assets, such as the benefit of tax
losses carried forward were not recognized unless there was virtual
certainty that they would be realized.
The Company has adopted the new income tax accounting standard
retroactively. However, the Company has determined that there is no
effect on prior years' results. The Company's future tax assets
consist primarily of loss carryforwards and scientific research and
development tax credits which are offset by a valuation allowance.
(j) Translation of foreign currency:
These consolidated financial statements are presented in United States
dollars although the Company uses the Canadian dollar as its
functional currency. The Canadian dollar functional currency financial
statements are translated into U.S. dollars using the current rate
method. Under this method, assets and liabilities are translated at
rates of exchange in effect at the balance sheet date. Revenues and
expenses are translated at rates in effect at the time of the
transaction. Any gains or losses from this translation are included in
a separate cumulative translation adjustment account in shareholders'
equity on the balance sheet.
The financial statements of the Company's integrated foreign
subsidiary, Infowave USA Inc., have been translated into the Canadian
dollar functional currency using the temporal method. Under this
method, the financial statements are translated as follows: monetary
assets and liabilities at the rate in effect on the balance sheet
date; non-monetary assets and liabilities at the rate in effect on the
transaction date; and revenues and expenses at the average rate for
the period. Gains and losses on translation are included in results
from operations.
(k) Revenue recognition:
Revenue from the license of software products is recognized when all
of the following criteria have been met: (a) persuasive evidence of an
arrangement exists; (b) the product has been shipped; (c) the fee is
fixed and determinable; and (d) the collection of the fee is probable.
An allowance for future returns is recorded at the time revenue is
recognized based on estimated future returns including returns of
older product versions.
Revenue on software development contracts is recognized on a
percentage of completion basis. All development contracts are less
than one year in length. Payment in advance for software support and
maintenance is deferred and amortized over the term of the contract.
The Company believes that its accounting policies comply with SOP 97-2
issued by the American Institute of Certified Public Accountants and
SAB 101 issued by the United States Securities and Exchange
Commission.
F-9
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 4
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
1. Significant accounting policies (continued):
(l) Cost of goods sold:
Cost of goods sold includes the cost of royalties, hardware, packaging
and distribution costs associated with software license revenue.
(m) Research and development costs:
Research costs are expensed as incurred. Development costs are
expensed as incurred unless certain specific criteria for deferral
have been met. No development costs have been deferred in the periods
ended December 31, 2000, 1999 and 1998 as the criteria for deferral
were not met. During the year ended December 31, 2000, the Company
received government assistance totaling $nil (1999 - $87,102; 1998 -
$102,914) related to research and development expenditures which has
been recorded as a reduction of research and development expenditures.
(n) Stock-based compensation plans:
The Company has a stock-based compensation plan, which is described in
note 7(c). No compensation expense is recognized for this plan when
stock options are issued to employees as the exercise price of the
options is equal to the price of the underlying common shares on the
date of grant. Any consideration paid by employees on exercise of
stock options is credited to share capital.
(o) Advertising costs:
Expenditures related to advertising are expensed in the period the
first associated advertising takes place.
(p) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. In particular,
management estimates are required in the determination of provisions
for doubtful accounts receivable, sales returns and obsolete
inventory. Actual results could differ from those estimates.
(q) Loss per share:
Basic loss per share has been calculated using the weighted average
number of common shares outstanding including shares held in escrow.
Fully diluted loss per share amounts have not been presented as the
effect of outstanding options and warrants is anti-dilutive.
(r) Comparative figures:
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
F-10
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 5
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
2. Discontinued operations:
Effective August 31, 2000 the Company completed the sale of the net assets
and business operations of its Imaging Division for net cash consideration
of $1,322,774. The measurement date used to determine the loss on
disposition was March 31, 2000.
The loss on disposal of the Imaging Division consisted of:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Loss from operations subsequent to March 31, 2000 $ 1,096,120
Employee severance costs 91,277
Professional fees 113,958
Gain on sale of net assets (41,492)
--------------------------------------------------------------------------
$ 1,259,863
--------------------------------------------------------------------------
The net assets of the Imaging Division on August 31, 2000 were comprised
of:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accounts receivable $ 392,957
Inventory 448,906
Prepaid expenses 68,777
Capital assets 451,534
Accounts payable and accrued liabilities (80,892)
---------------------------------------------------------------------------
$ 1,281,282
---------------------------------------------------------------------------
3. Inventory:
Inventory consists of:
--------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------
Raw materials $ - $ 503,646
Finished goods 93,499 126,907
--------------------------------------------------------------------------
93,499 630,553
Less allowance for obsolete stock - (41,572)
--------------------------------------------------------------------------
$ 93,499 $ 588,981
--------------------------------------------------------------------------
4. Capital assets:
----------------------------------------------------------------------------------------------------
Accumulated Net book
2000 Cost depreciation value
----------------------------------------------------------------------------------------------------
Computer equipment and system software $ 1,719,096 $ 536,810 $ 1,182,286
Computer software 513,102 214,736 298,366
Leasehold improvements 481,866 36,701 445,165
Office equipment 597,013 67,481 529,532
Software licenses and purchased source code 204,927 129,154 75,773
----------------------------------------------------------------------------------------------------
$ 3,516,004 $ 984,882 $ 2,531,122
----------------------------------------------------------------------------------------------------
F-11
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 6
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
4. Capital assets (continued):
---------------------------------------------------------------------------------------------------
Accumulated Net book
1999 Cost depreciation value
---------------------------------------------------------------------------------------------------
Computer equipment and system software $ 1,308,989 $ 687,697 $ 621,292
Computer software 212,739 183,180 29,559
Leasehold improvements 196,522 137,727 58,795
Office equipment 261,794 124,780 137,014
Software licenses and purchased source code 365,069 227,031 138,038
---------------------------------------------------------------------------------------------------
$ 2,345,113 $ 1,360,415 $ 984,698
---------------------------------------------------------------------------------------------------
5. Operating loan:
The Company has an operating loan facility with a credit limit of
Cdn.$2,000,000. The facility is repayable on demand, bears interest at the
prime rate plus 1.0% and is secured by a general hypothecation of short
term investments. As at December 31, 2000 and 1999 no amounts were
outstanding.
6. Related party transactions:
Pursuant to a consulting agreement dated July 4, 1997 and an independent
contractor agreement dated January 1, 1997, the Company paid $10,772 (1999
- $54,000; 1998 - $120,000) in management fees to companies controlled by
Directors of the Company. The Company also paid management fees of $nil
(1999 - $85,833; 1998 - $109,739) to a corporate shareholder pursuant to an
independent contractor agreement dated October 26, 1998. In addition, the
Company paid $142,000 (1999 - $90,000; 1998 - $71,800) for legal services
to a firm controlled by a Director of the Company.
7. Share capital:
The share capital of the Company is as follows:
(a) Authorized:
100,000,000 voting common shares without par value (1999 -
100,000,000).
(b) Issued:
------------------------------------------------------------------------------------------------
Number of shares Amount
------------------------------------------------------------------------------------------------
Balance, December 31, 1997 11,653,000 $ 2,456,847
Share issuance pursuant to exercise of agent's warrants 625,000 405,235
Share cancellation pursuant to termination of employment
contracts (41,500) (9,490)
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $710,459 3,000,000 3,946,115
------------------------------------------------------------------------------------------------
Balance, December 31, 1998, carried forward 15,236,500 6,798,707
------------------------------------------------------------------------------------------------
F-12
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 7
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
7. Share capital (continued):
(b) Issued (continued):
------------------------------------------------------------------------------------------------------
Number of shares Amount
------------------------------------------------------------------------------------------------------
Balance, December 31, 1998, brought forward 15,236,500 6,798,707
------------------------------------------------------------------------------------------------------
Share issuance pursuant to exercise of share options 604,535 560,576
Share issuance pursuant to exercise of purchase warrants 300,577 763,011
Share issuance pursuant to exercise of agent's warrants 69,051 152,336
Share cancellation pursuant to termination of employment
contracts (137,840) (32,478)
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $623,070 2,224,647 4,284,797
------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 18,297,470 12,526,949
Share issuance pursuant to exercise of share options 921,327 1,240,527
Share issuance pursuant to exercise of purchase warrants 811,747 2,037,586
Share issuance pursuant to exercise of agent's warrants 143,414 316,534
Share cancellation pursuant to termination of employment
contracts (2,500) (594)
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $1,266,383 924,000 19,027,038
-------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 21,095,458 $ 35,148,040
-------------------------------------------------------------------------------------------------------
(c) Share purchase options:
The Company has reserved common shares, to a maximum of 20% of the
total number outstanding from time-to-time, pursuant to an Employee
Stock Option Plan. The purpose of the Plan is to assist eligible
employees to participate in the growth and development of the Company.
Options to purchase common shares of the Company under the Plan may be
granted by the Board of Directors to certain full-time employees of
the Company. These options vest over periods from three to four years
and expire five years from the date of grant. All stock options
granted by the Company are exercisable in Canadian dollars.
A summary of the status of the Company's stock option plan as of
December 31, 2000, 1999 and 1998 and changes during the years ended on
those dates is presented below:
----------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
average average average
Shares exercise price Shares exercise price Shares exercise price
---------------------------------------------------------------------------------------------------------------------
U.S.$/Cdn.$ U.S.$/Cdn.$ U.S.$/Cdn.$
Outstanding,
beginning of year 3,091,075 $ 3.52/5.08 2,087,921 $ 0.82/1.26 1,589,751 $ 0.65/1.00
Granted 2,802,488 9.32/13.97 1,829,584 5.37/7.75 912,458 1.41/2.16
Exercised (921,327) 0.91/1.98 (604,535) 0.94/1.36 - -/-
Cancelled (702,353) 8.69/13.02 (221,895) 0.93/1.34 (414,288) 0.82/1.25
---------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 4,269,883 $ 7.02/10.52 3,091,075 $ 3.52/5.08 2,087,921 $ 0.82/1.26
---------------------------------------------------------------------------------------------------------------------
Options exercisable,
end of year 1,075,626 $ 3.33/4.99 841,462 $ 0.87/1.25 797,958 $ 0.75/1.15
---------------------------------------------------------------------------------------------------------------------
F-13
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 8
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
7. Share capital (continued):
(c) Share purchase options (continued):
The following table summarizes information about stock options
outstanding at December 31, 2000:
-------------------------------------------------------------------------------------------------------------------
Options outstanding Options exercisable
------------------------------------------------- --------------------------------
Number Weighted Weighted Number
outstanding, average average exercisable, Weighted
Range of December 31, remaining exercise December 31, average
exercise prices 2000 contractual life price 2000 exercise price
-----------------------------------------------------------------------------------------------------
U.S.$(Cdn.$) U.S.$/Cdn.$ U.S.$/Cdn.$
$0.67 to $1.33
($1.00 to $1.99) 597,068 1.84 years $ 0.74/1.11 540,883 $ 0.72/1.08
$1.34 to $1.99
($2.00 to $2.99) 67,468 2.38 1.74/2.60 55,518 1.74/2.61
$2.00 to $3.31
($3.00 to $4.99) 307,615 3.71 2.43/3.64 121,793 2.43/3.64
$3.32 to $4.67
($5.00 to $6.99) 838,223 4.41 4.00/6.00 39,000 3.47/5.20
$4.68 to $6.00
($7.00 to $8.99) 171,500 4.45 5.71/8.55 5,674 5.40/8.08
$6.01 to $7.34
($9.00 to $10.99) 456,673 4.24 6.89/10.32 44,682 6.91/10.35
$7.35 to $10.00
($11.00 to $14.99) 1,158,936 4.24 8.46/12.67 258,907 8.60/12.87
$10.01 to $13.35
($15.00 to $19.99) 268,200 4.39 11.30/16.92 9,169 10.82/16.20
$13.36 to $26.70
($20.00 to $39.99) 356,200 3.76 18.60/27.86 - -/-
$26.71 to $43.06
($40.00 to $64.50) 48,000 4.16 34.66/51.92 - -/-
-----------------------------------------------------------------------------------------------------
$0.67 to $43.06
($1.00 to $64.50) 4,269,883 3.84 $ 7.02/10.52 1,075,626 $ 3.33/4.99
-----------------------------------------------------------------------------------------------------
F-14
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 9
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
7. Share capital (continued):
(d) Share purchase warrants:
On April 13, 2000 the Company issued 924,000 special warrants at a
price of $21.96 (Cdn.$32.50) per special warrant for net cash proceeds
of $19,027,038. Each special warrant is exercisable without payment of
additional consideration for one Common Share of the Company. In
addition, the Company issued 46,200 special compensation warrants to
the underwriters in connection with this issuance. Each special
compensation warrant is exercisable without additional consideration
into one compensation warrant entitling the holder to acquire one
common share at a price of $21.96 (Cdn.$32.50) per share for a two
year period ending April 13, 2002. As at December 31, 2000, all of the
special warrants and none of the special compensation warrants had
been exercised.
In June and July 1999, the Company issued a total of 2,224,647 special
warrants at a price of $2.21 (Cdn. $3.25) per special warrant which
were exercisable into 2,224,647 common shares and 1,112,324 common
share purchase warrants. Each purchase warrant entitled the holder
thereof to purchase one common share at a price of $2.56 (Cdn. $3.75)
per common share until the expiration date of the purchase warrants on
June 30, 2000. The Company also issued an additional 212,465
non-transferable purchase warrants to the agents as partial
compensation for services rendered in connection with the Company's
offering of the special warrants. Each agents' warrant was exercisable
into one common share at $2.21 (Cdn. $3.25) per share and expired on
June 30, 2000. As at December 31, 2000, all of the special warrants,
purchase warrants and agents' warrants had been exercised.
(e) Escrow shares:
Pursuant to certain employment contracts and an Employee Performance
Incentive Plan, the Company issued shares to certain employees which
were held in escrow. As at December 31, 2000, no shares (1999 - nil;
1998 - 223,333) issued pursuant to employment contracts remained in
escrow and no shares (1999 - 140,625; 1998 - 394,750) shares issued
pursuant to the Employee Performance Incentive Plan remained in
escrow. The escrow shares were being released at rates ranging from
8.25% to 25% every quarter with the balance being released on October
14, 2000.
The amounts related to the employment contracts and the Employee
Performance Incentive Plan were included in deferred charges (note
1(f)) on the balance sheet. For the fiscal year ended December 31,
2000, $34,100 (1999 - $80,023; 1998 - $65,651) of the deferred charges
were amortized to income.
F-15
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 10
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
8. Income taxes:
Infowave Software, Inc. has non-capital losses carried forward in Canada of
approximately $13,431,080 which are available to reduce future years'
income for income tax purposes and capital losses of $113,127 which are
available indefinitely to offset future capital gains for income tax
purposes.
Non-capital loss carry forwards expire in:
---------------------------------------------------------------------------
2003 $ 823,015
2004 1,784,331
2005 1,016,970
2006 1,228,170
2007 8,578,594
---------------------------------------------------------------------------
$ 13,431,080
---------------------------------------------------------------------------
The Company's wholly owned subsidiary, Infowave USA Inc. has non-capital
losses carried forward of $7,372,292 which are available to reduce future
years' taxable income for income tax purposes to 2020. The Company also has
available unclaimed Scientific Research and Experimental Development
Expenditures of approximately $2,957,000 which may be carried forward
indefinitely and used to reduce future taxable income.
The tax effect of the significant temporary differences which comprise tax
assets and liabilities, at December 31, 2000 and 1999 are as follows:
----------------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------
Future income tax assets:
Amalgamation and reorganization costs $ 49,941 $ 14,368
Deferred revenues 61,444 -
Capital assets, principally due to differences
in depreciation 228,493 -
Loss carry forwards 8,164,128 2,133,649
Scientific research and development expenditure carry forwards 1,196,959 806,058
Share Issue Costs 679,438 -
----------------------------------------------------------------------------------------------------------
Total gross future income tax assets 10,380,403 2,954,075
Less valuation allowance (10,380,403) (2,850,033)
----------------------------------------------------------------------------------------------------------
Net future income tax asset - 104,042
Future income tax liability:
Capital assets, principally due to differences in
depreciation - (104,042)
----------------------------------------------------------------------------------------------------------
Net future income tax asset $ - $ -
----------------------------------------------------------------------------------------------------------
F-16
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 11
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
8. Income taxes (continued):
In assessing the ability to realize future income tax assets, management
considers whether it is more likely than not that some or all of the future
tax assets will be realized. The ultimate realization of the future tax
assets is dependent on the generation of taxable income during periods in
which the temporary differences reverse. Due to the fact that as at
December 31, 2000 sufficient evidence does not exist to support a
conclusion that it is more likely than not that the future income tax
assets will be realized, a valuation allowance has been recorded against
all of the future tax assets.
9. Commitments:
(a) Lease obligations:
The Company has entered into lease agreements for premises and
equipment. These leases have been treated as operating leases for
accounting purposes. The annual payment commitments are as follows:
----------------------------------------------------------------------
2001 637,065
2002 731,274
2003 681,015
2004 682,854
2005 596,507
After 2005 510,074
----------------------------------------------------------------------
$ 3,838,789
----------------------------------------------------------------------
During the year ended December 31, 2000, the Company made operating
lease payments totaling approximately $302,000 (1999 - $160,000; 1998
- $117,900).
(b) Letters of credit:
The Company has secured certain lease commitments through outstanding
letters of credit totaling $625,000.
10. Financial instruments and risk management:
(a) Fair values:
The carrying amounts of cash and cash equivalents, short term
investments, accounts receivable and accounts payable and accrued
liabilities approximate fair values due to their ability for prompt
liquidation and short term to maturity.
(b) Credit risk:
The Company is exposed to credit risk only with respect to
uncertainties as to timing and amount of collectibility of accounts
receivable. At December 31, 2000, no individual customer represented
greater than ten percent of outstanding accounts receivable.
F-17
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 12
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
10. Financial instruments and risk management (continued):
(c) Foreign currency risk:
Foreign currency risk is the risk to the Company's earnings that
arises from fluctuations in foreign currency exchange rates, and the
degree of volatility of these rates. A substantial portion of the
Company's sales are derived in United States dollars and accordingly
the majority of the Company's accounts receivable is denominated in
United States dollars. The Company has not entered into foreign
exchange contracts to hedge against gains or losses from foreign
exchange fluctuations.
11. Segmented information:
(a) Industry segments:
Until the disposition of the Imaging Division on August 31, 2000 (note
2), the Company had two reportable segments based on its two distinct
product lines, being the Company's wireless and imaging products.
Subsequent to August 31, 2000, the Company operates only in one
reportable segment being its wireless products. Segmented information
has not been presented as the results from the Imaging Division are
disclosed as discontinued operations on the statement of operations
and results from continuing operations consist of only the results of
the Wireless Division.
(b) Geographic information:
96% of sales in 2000 (1999 - 97%; 1998 - 99%) were to customers
located in the United States, with the remaining sales being to
customers located in Canada. 20% of capital assets at December 31,
2000 were located in the United States (1998 - nil%), and the
remaining capital assets were located in Canada.
(c) Major customers:
For the year ended December 31, 2000, revenue from one customer
represented approximately 57% of Wireless Division revenues.
12. Subsequent event:
On February 13, 2001 the Company filed a short form prospectus with the
securities commissions in the provinces of British Columbia, Alberta and
Ontario for a public offering of 2,272,728 units (the "Units") at a price
of $3.62 (CDN$5.50) per Unit for gross proceeds of $8,217,500
(CDN$12,500,000). Each Unit is comprised of one common share (the "Common
Share") and one-half of one common share purchase warrant (the " Warrant")
of Infowave. Each whole Warrant will entitle the holder to purchase one
Common Share for a period of 18 months from closing at a price that
represents a 30% premium to the Unit offering price.
F-18
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 13
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These
principles differ in the following material respects from those in the
United States:
(a) Net loss and loss per share:
-------------------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------------------------
Loss from continuing operations in accordance
with Canadian GAAP $ 16,255,917 $ 3,773,523 $ 2,675,389
Adjustment for foreign currency translation
differences on net loss calculated in
accordance with Canadian GAAP (e) - - 39,561
Adjustment for stock based compensation
relating to stock options issued to
non-employees (d)(i) 195,690 21,782 165,166
Adjustment for stock based compensation
relating to escrow shares (d)(ii) 13,922 34,293 29,059
-------------------------------------------------------------------------------------------------------------
Loss from continuing operations in accordance
with United States GAAP 16,465,529 3,829,598 2,909,175
Discontinued operations:
Loss (earnings) from operations 473,088 (485,272) (1,469,123)
Loss (gain) on disposal 1,259,863 - -
-------------------------------------------------------------------------------------------------------------
1,732,951 (485,272) (1,469,123)
-------------------------------------------------------------------------------------------------------------
Net loss in accordance with
United States GAAP $ 18,198,480 $ 3,344,326 $ 1,440,052
-------------------------------------------------------------------------------------------------------------
F-19
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 14
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(a) Net loss and loss per share (continued):
--------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding in accordance with Canadian
GAAP 20,020,938 15,963,036 12,912,578
Adjustment for special warrants (f)(ii) 174,674 - -
Adjustment for weighted average number of
contingently issued shares
pursuant to employee incentive plan (f)(i) (53,448) (249,188) (444,877)
Adjustment for weighted average number of
contingently issued shares
pursuant to employment agreement (f)(i) - - (335,000)
--------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding in accordance with US GAAP 20,142,164 15,713,848 12,132,701
--------------------------------------------------------------------------------------------------------
Loss (earnings) per share:
Continuing operations 0.82 0.24 0.24
Discontinued operations 0.09 (0.03) (0.12)
--------------------------------------------------------------------------------------------------------
Net loss per share $ 0.90 $ 0.21 $ 0.12
--------------------------------------------------------------------------------------------------------
Comprehensive loss for the years ended December 31, 2000, 1999 and 1998 is
as follows:
----------------------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------------------
Net loss in accordance with U.S. GAAP $ 18,198,480 $ 3,344,326 $ 1,440,052
Other comprehensive loss (income):
Foreign currency translation adjustment 523,079 (272,067) 318,563
----------------------------------------------------------------------------------------------------------
Comprehensive loss $ 18,721,559 $ 3,072,259 $ 1,758,615
----------------------------------------------------------------------------------------------------------
F-20
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 15
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(b) Balance sheet:
------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------
Total Assets
Total assets in accordance with Canadian GAAP $ 12,445,349 $ 8,054,492
Adjustments to total assets:
Deferred charges ((e)(ii)) - (34,100)
------------------------------------------------------------------------------------------------------
Total assets in accordance with United States GAAP $ 12,445,349 $ 8,020,392
------------------------------------------------------------------------------------------------------
Shareholders' Equity
Share capital in accordance with Canadian GAAP $ 35,148,040 $ 12,526,949
Adjustments to share capital:
Foreign exchange effect on conversion of 1998 and
prior share capital transactions(e) 543,269 543,269
Additional paid in capital from stock based compensation
relating to stock options issued to non-employees ((d)(i)) 605,967 206,303
Additional paid in capital from stock based compensation
relating to escrow shares ((d)(ii)) 107,077 107,348
Deferred compensation related to stock options
issued to non-employees ((d)(i)) (211,454) (7,480)
Deferred compensation related to shares held in
trust pursuant to Employee Incentive Plan ((d)(ii)) - (50,796)
------------------------------------------------------------------------------------------------------
Share capital in accordance with United States GAAP 36,192,899 13,325,593
------------------------------------------------------------------------------------------------------
Deficit in accordance with Canadian GAAP (23,765,641) (5,776,773)
Adjustments to deficit:
Foreign exchange effect on conversion of 1998 and
prior income statements (e) (189,240) (189,240)
Cumulative effect of stock based compensation relating to
stock options issued to non-employees ((d)(i)) (392,925) (197,235)
Cumulative effect of stock based compensation
Relating to escrow shares ((d)(ii)) (101,474) (87,552)
------------------------------------------------------------------------------------------------------
Deficit in accordance with United States GAAP (24,449,280) (6,250,800)
------------------------------------------------------------------------------------------------------
Cumulative translation account in accordance with Canadian GAAP (230,933) 289,643
Adjustments to cumulative translation account:
Foreign exchange effect on conversion of 1998 and prior
income statements (e) (341,140) (341,140)
Cumulative foreign exchange effect of
US GAAP adjustments (20,080) (17,577)
------------------------------------------------------------------------------------------------------
(592,153) (69,074)
------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with United States GAAP $ 11,151,466 $ 7,005,719
------------------------------------------------------------------------------------------------------
F-21
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 16
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(c) Cash flow statement:
-------------------------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Cash used by operating activities
in accordance with Canadian GAAP $ (16,140,702) $ (1,928,091) $ (3,213,069)
Adjustment for foreign currency
translation (e) - - (105,376)
-------------------------------------------------------------------------------------------------------------------
Cash flows used by operating activities
in accordance with U.S. GAAP (16,140,702) (1,928,091) (3,318,445)
Cash flows from investing activities:
Cash used by investing activities in
accordance with Canadian GAAP (8,206,488) (635,454) (387,837)
Adjustment for foreign currency
translation (e) - - (12,719)
-------------------------------------------------------------------------------------------------------------------
Cash flows used by investing activities
in accordance with U.S. GAAP (8,206,488) (635,454) (400,556)
Cash flows from financing activities:
Cash used by investing activities in
accordance with Canadian GAAP 22,621,685 5,760,720 4,351,350
Adjustment for foreign currency
translation (e) - - 280,469
-------------------------------------------------------------------------------------------------------------------
Cash flows used by investing activities
in accordance with U.S. GAAP 22,621,685 5,760,720 4,631,819
Effect of exchange gains on cash and cash
equivalents held in a foreign currency
in accordance with U.S. GAAP (265,493) 114,596 (183,439)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents in accordance with U.S.
GAAP (1,990,998) 3,311,771 729,379
Cash and cash equivalents, beginning of year 4,359,090 1,047,319 317,940
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,368,092 $ 4,359,090 $ 1,047,319
-------------------------------------------------------------------------------------------------------------------
F-22
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 17
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(d) Stock-based compensation:
(i) Stock options:
The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123") for stock options
granted to employees and has elected to continue measuring
compensation costs using the intrinsic value based method of
accounting under APB Opinion 25.
Under the intrinsic value based method, employee stock option
compensation is the excess, if any, of the quoted market value of
the stock at the date of the grant over the amount an optionee
must pay to acquire the stock. As the exercise price of the
options is equal to the market value on the measurement date, the
Company has determined that this accounting policy has no
significant effect, with respect to employee stock options, on
its results of operations.
Had compensation cost for employee stock options been determined
based on fair value at the grant dates of the stock options and
charged to earnings over the vesting period of the options
consistent with the measurement provision of FAS 123, net loss
under United States GAAP would have been charged an additional
$5,682,014 for the year ended December 31, 2000 (1999 - $382,689;
1998 - $270,685) . Net loss would have been $23,880,494 (1999 -
$3,727,015; 1998 - $1,710,737) and net loss per share in
accordance with U.S. GAAP would have been $1.19 (1999 - $0.24;
1998 - $0.14). The fair value of these options has been
determined using the Black-Scholes option pricing formula with
the following factors: expected dividend yield - 0%; expected
stock price volatility - 149% (1999 - 175%; 1998 - 117%); risk
fee interest rate - 5.64% (1999 - 5.01%; 1998 - 5.1%); expected
life of options - 5 years.
For United States GAAP purposes, stock options issued to
non-employees for services rendered would be considered
compensation expense and charged to earnings over the expected
service provision period which normally is the period during
which the options vest. The amount of compensation costs is
calculated based on the fair value of the options at the
performance completion date using the Black-Sholes option pricing
formula as described above. Using this method of measuring
compensation costs results in additional compensation expense of
$195,690 for the year ended December 31, 2000 (1999 - $21,782;
1998 - $165,166) and deferred compensation of $211,454 as at
December 31, 2000 (1999 - $7,480).
(ii) Shares held in escrow:
Certain shares held in escrow pursuant to the employee incentive
program and employment contracts were recorded as compensation
expense under Canadian GAAP at a deemed value of $0.23 (Cdn.
$0.35) per share based on their fair market value at the time of
issue discounted for escrow restrictions. The total compensation
cost was recorded as deferred charges on the balance sheet and
was amortized to income as the shares were released from escrow.
For United States GAAP purposes, deferred stock based
compensation would be shown as a deduction in the shareholders'
equity section of the balance sheet. Accordingly, deferred
charges of $nil and
F-23
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 18
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(d) Stock-based compensation (continued):
(ii) Shares held in escrow (continued):
$34,100 as at December 31, 2000 and 1999, respectively, would be
included as deferred compensation in the shareholders' equity
section of the balance sheet.
For United States GAAP purposes, any restrictions on the
employee's right to receive these shares would not be taken into
account for purposes of calculating compensation costs and would
result in additional compensation costs. As a result, additional
compensation expense of $13,922 is recorded for the year ended
December 31, 2000 (1999 - $34,293; 1998 - $29,059) and the
resulting balance of deferred compensation expense of $nil (1999
- $50,796) would be reflected as a deduction in shareholders'
equity which is being amortized over the period the shares are
released from escrow.
(iii) Weighted average fair value:
Financial statements prepared in accordance with U.S. GAAP
require the disclosure of weighted average grant date fair value
of stock options granted in the year by the Company. Weighted
average grant date fair values for options granted during the
years ended December 31, 2000, 1999 and 1998 are $9.37 (Cdn.
$14.03), $5.49 (Cdn. $7.92), and $1.24 (Cdn. $1.90) respectively.
(e) Foreign currency translation:
These financial statements are in U.S. dollars. Prior to 1999, these
financial statements were reported in Canadian dollars. In accordance
with Canadian GAAP, the comparative figures presented for 1998 have
been translated at the rate in effect on December 31, 1998. For U.S.
GAAP, the 1998 comparative figures should be restated retroactively as
if the Company had always reported in U.S. dollars. As a result, net
loss and cash flows from operating, investing and financing activities
for the year ended December 31, 1998 would be adjusted to translate
the Canadian dollar functional currency financial statements to U.S.
dollars at the rates in effect on the transaction dates with
offsetting adjustments to the cumulative translation account.
(f) Earnings (loss) per share:
The Company has adopted Statement of Financial Accounting Standards
No. 128 ("FAS 128") Earnings per Share for United States GAAP
purposes. Under FAS 128, basic earnings (loss) per share, similar to
Canadian GAAP, is based on the weighted average number of shares
outstanding during the year. Diluted earnings (loss) per share is
based on the weighted average number of shares outstanding during the
year plus common stock equivalents.
(i) For United States GAAP purposes, shares held in escrow pursuant
to the employment contracts and employee incentive plan (note
6(c)) are considered contingently issuable (nil shares were held
in escrow at December 31, 2000; 1999 - 140,625; 1998 - 618,083).
Accordingly, these shares are excluded from the weighted average
number of shares for purposes of loss per share calculations.
F-24
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 19
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(f) Earnings (loss) per share (continued):
(i) Shares released from escrow during the year are included in the
calculation of weighted average shares outstanding for purposes
of the calculation of loss per share from the beginning of the
month during which the shares were released resulting in
adjustments for contingently issued shares pursuant to employee
incentive plan of 53,448, 249,188, and 444,877 shares for the
years ended December 31, 2000, 1999 and 1998, respectively, and
adjustments for contingently issued shares pursuant to employment
contracts of nil, nil and 335,000 shares for the years ended
December 31, 2000, 1999 and 1998, respectively.
(ii) During the year the Company issued Special Warrants, which were
converted to common shares subsequent to their issue. For
Canadian GAAP purposes, the common shares were included in the
weighted average shares outstanding from the date the Special
Warrants were converted into common shares. For United States
GAAP purposes, these shares would be included from the date the
Special Warrants were issued.
(g) Short term investments:
United States GAAP requires that investments in securities be
classified as either "trading", "held-to-maturity" or "available for
sale". Trading securities are bought and held principally for the
purpose of selling in the near term. Held-to-maturity securities are
those which the Company has the ability and intention of holding to
maturity. All other securities not included in trading or
held-to-maturity are classified as available for sale.
The Company's short term investments would be classified as available
for sale securities and would be recorded at fair value with the
unrealized holding gains and losses reported as a separate component
of shareholders' equity. As explained in note 10(a), the carrying
value of the short term investments approximates their fair value.
Accordingly, there are no unrealized gains or losses.
(h) Future income taxes:
Under both Canadian and United States GAAP, future income tax assets
and liabilities are measured using the income tax rates and income tax
laws that, at the balance sheet date, are expected to apply when the
assets are realized or the liabilities are settled. In Canada,
announcements of changes in income tax rates and tax laws by the
government have the effect of being substantially enacted at the
balance sheet date even though the enacted date is subsequent to the
balance sheet date. When persuasive evidence exists that the
government is able and committed to enacting proposed changes in the
foreseeable future, the substantially enacted rate is used to measure
the future tax assets and liabilities. Under US GAAP, only the income
tax rates and income tax laws enacted at the balance sheet date are
used to measure the future income tax assets and liabilities.
F-25
INFOWAVE SOFTWARE, INC.
Notes to Consolidated Financial Statements, page 20
(expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
13. Reconciliation to United States generally accepted accounting principles
(continued):
(h) Future income taxes (continued):
Had the Company followed US GAAP, the future income tax assets,
liabilities and valuation allowance would have been as follows:
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
Future income tax assets:
Amalgamation and reorganization costs $ 57,799 $ 14,368
Deferred Revenue 62,822 -
Capital assets, principally due to differences
in depreciation 248,489 -
Loss carry forwards 8,730,577 2,133,649
Scientific research and development expenditure carryforwards 1,343,706 806,058
Share Issue Costs 734,256 -
-------------------------------------------------------------------------------------------------------------------
Total gross future income tax assets (11,177,649) 2,954,075
Less valuation allowance (11,177,649) (2,850,033)
-------------------------------------------------------------------------------------------------------------------
Total future income tax asset - 104,042
Future income tax liability:
Capital assets, principally due to differences in
depreciation - (104,042)
-------------------------------------------------------------------------------------------------------------------
Net future income tax asset $ - $ -
-------------------------------------------------------------------------------------------------------------------
(i) Recent accounting pronouncements:
(1) Effective July 1, 2000, the Company was required to adopt the
recommendations outlined in the Financial Accounting Standards
Board ("FASB") Interpretation No. 44 - Accounting for certain
transactions involving stock compensation ("FIN 44"). FIN 44
clarifies certain issues arising from the application of
Accounting Principles Board Opinion No. 25 - Accounting for stock
issued to employees. FIN 44 requires application prospectively to
all new awards and modifications to outstanding awards. The
Company has determined that application of FIN 44 will not
significantly affect the financial statements as the Company
already follows the recommendations in the interpretation.
(2) Effective January 1, 2001, the recommendations outlined in FASB
Statement No. 133 - Accounting for derivative Instruments and
hedging activities requires adoption by the Company. Since the
Company does not have any outstanding derivative instruments and
does not engage in hedging activities, adoption of this new
standard will not affect the financial statements of the Company.
F-26
Schedule II: Valuation and Qualifying Accounts
INFOWAVE SOFTWARE INC.
STATEMENT OF VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2000
USD
Effect of
Foreign
Charged Exchange
Beginning to costs on End of
of Year and Conversion Year
Description Balance Expenses Deductions to USD Balance
Allowance for Doubtful Accounts
Year ended December 31, 2000 12,164 - 976 (443) 10,745
Year ended December 31, 1999 - 11,819 - 345 12,164
Year ended December 31, 1998 - - - - -
Sales Returns Allowance
Year ended December 31, 2000 41,575 - 33,276 - 8,299
Year ended December 31, 1999 39,204 - - 2,372 41,576
Year ended December 31, 1998 16,335 22,869 - - 39,204
Reserve for Redundant Stock
Year ended December 31, 2000 41,572 - 41,572 - -
Year ended December 31, 1999 49,044 11,570 21,709 2,667 41,572
Year ended December 31, 1998 81,673 49,044 81,673 - 49,044
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Infowave Software, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
April 2, 2001
INFOWAVE SOFTWARE, INC.
By: /s/ Thomas Koll
-----------------------------------
Thomas Koll,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed by the following persons on behalf of Infowave Software,
Inc. in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas Koll Chief Executive Officer April 2, 2001
- ---------------------------- (Principal Executive
Thomas Koll Officer)
/s/ Todd Carter Chief Financial Officer April 2, 2001
- ---------------------------- (Principal Financial
Todd Carter and Accounting Officer)
Director April 2, 2001
- ----------------------------
Morgan Sturdy
/s/ Jim McIntosh Director April 2, 2001
- ----------------------------
Jim McIntosh
Director April 2, 2001
- ---------------------------- (Authorized U.S.
Scot Land Representative)
/s/ David Neale Director April 2, 2001
- ----------------------------
David Neale
/s/ Bijan Sanii President, Chief Operating April 2, 2001
- ---------------------------- Officer and Director
Bijan Sanii
/s/ Gary Ames
- ---------------------------- Director April 2, 2001
Gary Ames
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
2.1++++ Asset Purchase Agreement dated September 8, 2000 between the
Corporation and Strydent Software Inc.
3.1* Memorandum and Articles of registrant
4.1* Employee Incentive Plan dated April 28, 1997, as
supplemented September 25, 1997
4.2* Special Warrant Indenture dated April 20, 1998 between the
Corporation and Montreal Trust Company of Canada
4.3** Special Warrant Indenture dated June 30, 1999 between the
Corporation and Montreal Trust Company of Canada
4.4*** Special Warrant Indenture dated April 13, 2000 between the
Corporation and Montreal Trust Company
4.5+ Stock Option Plan, as amended
4.6++ Form of Shareholders Rights Plan Agreement dated as of June
5, 2000 between the Corporation and Montreal Trust Company
of Canada
10.1* Investor Relations Agreement dated September 1, 1998 between
the Corporation and IRG Investor Relations Group Ltd.
10.2* Investor Relations Agreement dated September 1, 1998 between
the Corporation and Staff Financial Group Ltd. and 549452 BC
Ltd.
10.3* Loan Facility dated October 29, 1998 with a Canadian
chartered bank
10.4** Lease Agreement dated February 12, 1998 between Riocan
Holdings Inc. and the Corporation
10.5** Lease Agreement dated November 23, 1999 between Bedford
Property Investors, Inc. and the Corporation
o10.6* Corporate Development Agreement dated October 26, 1998
between the Corporation and Capital Ridge Communications
Inc. (formerly "Channel One Systems Corp.")
10.7* Strategic Partnership Agreement dated March 6, 1998 between
the Corporation and BellSouth Wireless Data
10.8* Development Agreement dated March 4, 1998 between the
Corporation and Hewlett-Packard
10.9* Source Code License Agreement dated March 31, 1998 between
the Corporation and DTS
10.10* Source Code License Agreement dated June 9, 1998 between the
Corporation and Wynd Communications Corporation
10.11* Source Code License Agreement dated November 13, 1997
between the Corporation and Apple Computers
10.12* OEM License Agreement dated December 5, 1997 between the
Corporation and Certicom Corp.
10.13* Letter Agreement dated April 20, 1998 between the
Corporation and Lexmark International, Inc.
o10.14* Employment Agreement dated May 2, 1991 between the
Corporation and Jim McIntosh
o10.15* Employment Agreement dated May 23, 1997 between the
Corporation and Bijan Sanii
Page 25
Exhibit
Number Description
------ -----------
o10.16** Employment Agreement dated September 16, 1999 between the
Corporation and Todd Carter
10.17* Agency Agreement dated March 31, 1998 between the
Corporation, Canaccord Capital Corporation and Yorkton
Securities Inc
10.18* Consulting Agreement dated July 4, 1997 between the
Corporation and GWM Enterprises Ltd.
10.19** Agency Agreement dated June 18, 1999 between the
Corporation, Canaccord Capital Corporation, Yorkton
Securities , Inc., Sprott Securities Limited and Taurus
Capital Markets Ltd.
10.20*** Letter of Intent dated May 8, 2000 among the Corporation,
Kevin Jampole and Robert Heath
10.21+++ Lease Agreement dated April 26, 2000 between the Corporation
and Tonko-Novam Management Ltd.
o10.22 Employment Agreement dated December 14, 2000 between the
Corporation and Thomas Koll
10.23 Lease dated December 7, 2000 between the Corporation and
Principal Development Investors, L.L.C.
23.1 Consent of KPMG LLP, independent accountants
- ----------------------
* Incorporated by reference to the Corporation's Registration Statement on
Form 20-F (No. 0-29944).
o Indicates management contract.
** Incorporated by reference to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1999.
*** Incorporated by reference to the Corporation's Annual Report on Form 10-Q
for the period ended March 31, 2000.
+ Incorporated by reference to the Corporation's Registration Statement on
Form S-8 (Registration No. 333-39582) filed on June 19, 2000
++ Incorporated by reference to the Corporation's Registration Statement on
Form 8-A filed on July 13, 2000
+++ Incorporated by reference to the Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 2000.
++++ Incorporated by reference to the Corporation's Form 8-K filed on September
25, 2000.