Back to GetFilings.com
1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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, 1999
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.
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 98 0183915
- ------------------------------------ ------------------------------------
(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
SUITE 188 -- 4664 LOUGHEED HIGHWAY
BURNABY, BRITISH COLUMBIA,
CANADA V5C 5T5
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER: (604) 473-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
--------------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Shares
------------------------------------------------------
(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, 1999 was approximately US$156,000,000. The number of shares
of the Registrant's Common Shares outstanding as of December 31, 1999, was
18,297,470.
================================================================================
2
TABLE OF CONTENTS
ITEM 1: BUSINESS..................................................................................... 1
ITEM 2: PROPERTIES...................................................................................15
ITEM 3: LEGAL PROCEEDINGS............................................................................16
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................16
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................17
ITEM 6: SELECTED FINANCIAL DATA......................................................................19
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........20
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................................26
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................26
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.........26
ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT.....................................................27
ITEM 11: EXECUTIVE COMPENSATION.......................................................................29
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................31
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................34
3
FORWARD-LOOKING STATEMENTS
All statements, trend analysis and other information contained in this report
relative to markets for the Corporation's services and software products and
trends in revenue, gross margin and anticipated expense levels, as well as other
statements about anticipated future events or results constitute forward-looking
statements. Forward-looking statements often, but not always, are identified by
the use of words such as "seek," "anticipate," "believe," "plan," "estimate,"
"expect" and "intend" and statements that an event or result "may," "will,"
"should," "could" or "might" occur or be achieved and other similar expressions.
Forward-looking statements are subject to business and economic risks and
uncertainties and other factors that could cause actual results of operations to
differ materially from those contained in the forward-looking statements.
Forward-looking statements are based on estimates and opinions of management at
the date the statements are made. Some of these risks, uncertainties and other
factors are described in Item 1 of this report under the heading "Risk Factors."
The Corporation does not undertake any obligation to update forward-looking
statements even if circumstances or management's estimates or opinions should
change. Investors should not place undue reliance on forward-looking statements.
CURRENCY
All currency contained in this report is expressed in United States dollars,
unless otherwise stated.
TRADEMARKS
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Infowave for Exchange," "Infowave for the Net," "Symmetry," "PowerPrint" and
"StyleScript." All other trademarks or service marks appearing in this annual
report are trademarks or service marks of the companies that use them.
4
PART I
ITEM 1: BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Founded in 1984, Infowave Software, Inc. (the "Corporation" or "Infowave")
develops, markets and sells software solutions for wireless mobile computing and
for printing. The Corporation has two operating divisions. The Wireless Division
was founded in 1993 and provides software solutions that leverage wireless
mobile data communications networks to enable mobile access to information such
as email, Internet content, corporate intranets and web-based applications. The
Imaging Division is the Corporation's legacy business and provides software
solutions for Apple Macintosh computers that improve print quality and expand
printing options.
The Corporation 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 Corporation is located at Suite 2600 - 595
Burrard Street, Vancouver, British Columbia, V7X 1L3.
In October 1999, the Corporation opened its temporary United States headquarters
at Suite F/105, 22125 - 17th Avenue SE, Bothell, WA, 98021. Effective April 1,
2000, Infowave's permanent U.S. headquarters will be located at 21520 - 30th
Avenue S.E., Bothell, WA, 98021.
The Corporation has been investigating opportunities to divest the Imaging
Division in order to focus its resources, including management time, on the
development of the Wireless Division.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Corporation has two reportable segments based on its two distinct product
lines, being the Wireless Division and Imaging Division software products. Refer
to Note 11(a) of the financial statements for segmented financial information.
WIRELESS DIVISION
INTRODUCTION - WIRELESS
Infowave's Wireless Division develops software that leverages wireless mobile
data communication networks to enable mobile access to information that is
normally available only from a desktop computer connected to a local area
network.
The Corporation believes that the convergence of several trends is creating a
significant market opportunity for wireless mobile computing solutions. These
trends include the proliferation of portable computing devices that are
data-centric and wireless-capable such as laptop and notebook computers,
palm-sized and handheld digital assistants, two-way pagers and digital mobile
phones; wireless carriers deploying faster digital wireless data networks with
expanded geographical coverage; outsourced service providers offering efficient
channels to deliver applications and services to enterprises and individuals;
Internet portals and software vendors offering content and applications
customized for mobile requirements; and significant investments by prominent
technology leaders that are validating the promise of wireless mobile computing.
Infowave believes that the primary adoption pattern and scale of wireless mobile
computing will be similar to that of wireless voice communications, beginning in
the enterprise market and then extending to the consumer market. Consequently,
Infowave's technology and marketing strategy is to initially target enterprise
requirements. In creating software products for the enterprise market, the
Corporation is creating solutions that it believes can also be applied to the
consumer market.
1
5
SOFTWARE PRODUCTS AND TECHNOLOGY - WIRELESS
- --------------------------------------------------------------------------------
ARCHITECTURE OF CURRENT AND PLANNED INFOWAVE WIRELESS ENTERPRISE SOLUTIONS
- --------------------------------------------------------------------------------
[FIGURE]
The graphic above illustrates the architecture that enables mobile computing
devices - laptop computers, handheld computers, mobile phones etc. - to
communicate over wireless mobile data networks to connect to information
normally available only from a desktop computer connected to a local area
network. Infowave's server software is designed to be installed behind the
firewall of a corporation and enables wireless access to information such as
email and intranet content or applications such as enterprise resource planning
and customer relationship management. The server software is also designed to be
hosted by a service provider so that the service provider is able to deliver
information or applications over a wireless mobile data network to mobile
computing devices used by its subscribers.
Infowave's wireless software currently consists of three major product
offerings: Infowave for Exchange, Infowave for the Net and Symmetry. These
software products represent a suite of applications that provide mobile workers
with wireless access to important information using a broad range of mobile
computing devices that can communicate over a number of wireless mobile data
networks.
In the years ended December 31, 1999, 1998 and 1997 research and development
expenditures by the Corporation's Wireless Division were $1.37 million, $1.0
million and $0.79 million, respectively. Infowave's wireless software can be
separated into two categories: server-based software and desktop software.
2
6
1. SERVER-BASED SOFTWARE PRODUCTS
INFOWAVE WIRELESS ENGINE
Infowave's server-based software products are built on the Infowave Wireless
Engine. The Infowave Wireless Engine forms the foundation for Infowave's current
and future server-based software product offerings.
3
7
- --------------------------------------------------------------------------------
INFOWAVE'S WIRELESS ENGINE SERVES AS A WIRELESS PLATFORM. THE MODULAR
ARCHITECTURE ENABLES SERVER APPLICATION MODULES TO BE CONNECTED AND ENABLED
WIRELESSLY.
- --------------------------------------------------------------------------------
[ FIGURE ]
The Infowave Wireless Engine serves as a platform into which server application
modules can be connected. The Wireless Engine acts as an interface between
wireless mobile data devices communicating over wireless data networks and the
applications or information that is located at an enterprise or outsourced
service provider. The Wireless Engine introduces encryption, authentication,
speed optimization, and session management and each application that is
connected to the Wireless Engine leverages these capabilities. The Corporation
entered into an indefinite non-exclusive licensing agreement with Certicom Corp.
on December 5, 1997 under which Certicom encryption and decryption technology is
integrated into the Corporation's wireless computing software products.
The Wireless Engine is currently compatible with mobile devices that use a
Microsoft Windows operating system and with Mobitex and Cellular Digital Packet
Data ("CDPD") wireless data networks. In addition to the core functionality
provided by the Wireless Engine, the server application modules include
application-specific business logic, functionality and other customized wireless
optimizations such as device formatting. Because all of the features of the
Wireless Engine extend to any application or information that is connected to
the Wireless Engine, this enables Infowave to develop additional server
application modules and target new strategic markets.
The Infowave Wireless Engine can be deployed directly by enterprises or can be
hosted by service providers such as application service providers, service
bureaus, Internet service providers, and Internet portals. The Wireless Engine
currently operates on the Windows NT operating system.
INFOWAVE FOR EXCHANGE
The Corporation's Infowave for Exchange software is a server application module
that enables wireless mobile access to Microsoft Exchange server using the
Microsoft Outlook client software installed on a mobile device. As a result,
users are able to use the Microsoft Outlook application on a mobile device in
the same manner that they would on a desktop computer. An important timesaving
feature of Infowave for Exchange is that it does not wait until the traditional
synchronization procedure is completed before enabling communication. The server
immediately forwards new incoming email to the mobile device. Similarly, the
mobile device is able to immediately send new outgoing email to the server for
distribution. All data transmission is encrypted and compressed. The Infowave
for Exchange server software runs on Windows NT and the client software runs
with Microsoft Outlook 98 or higher versions and works on mobile devices running
Windows 95/98/CE/NT.
4
8
INFOWAVE FOR THE NET
The Corporation's Infowave for the Net software is a server application module
that provides wireless mobile access to the Internet, corporate intranets and
web-based applications using standard Internet browsers on mobile devices.
Corporations are rapidly adopting intranets to host a wide variety of
information such as sales data, service records and human resources information.
Traditional applications such as customer relationship management, sales force
automation and enterprise resource planning are moving from client/server
platforms to web-based platforms. As a result, corporations are relying on
information stored on intranets and in web-based applications to communicate
both internally and externally and provide up-to-date information. Infowave for
the Net provides wireless access to this information. Infowave for the Net's
server software runs on Windows NT and works with various Web servers including
Microsoft's Internet Information Server (IIS).
2. DESKTOP SOFTWARE PRODUCTS
SYMMETRY
The Corporation's Symmetry software delivers email, calendar, contacts and task
information stored in Microsoft Outlook to any wireless mobile device capable of
receiving text messages, including pagers and digital mobile phones. All
information sent to the wireless device is formatted for the specific device.
Symmetry allows users to forward email using specific rules such as sender
information and priority messages. It will send a user his or her calendar and
task information everyday at a pre-determined time set by the user. If a
calendar event is changed during the day, Symmetry will notify the user that the
event has changed. When meeting reminders are sent from Outlook, they are also
sent to the wireless device. If the wireless mobile device is capable of two-way
messaging the user can retrieve information, such as telephone numbers, directly
from his or her desktop.
The Symmetry software is installed on a user's desktop computer. The desktop
computer requires a Windows 98 or higher version operating system and Microsoft
Outlook 98 or higher version application software. The desktop computer must be
connected to an Exchange server through a local area network. No software is
required to be installed on the wireless mobile device.
PRODUCT DEVELOPMENT - WIRELESS
The Corporation is currently developing its next releases of Infowave for
Exchange and Infowave for the Net. It is anticipated that these next releases
will add compatibility with GSM and CDMA wireless data networks.
The Corporation is also currently developing a new server-based wireless
software solution to enable mobile devices utilizing the Wireless Application
Protocol (WAP) to access and view data from back-office databases and
applications such as Microsoft Exchange. It is expected that this software
product, Infowave for WAP, will support most major microbrowser-based interfaces
and will work with most wireless devices, such as PCS and GSM phones.
CUSTOMERS AND PARTNERS - WIRELESS
In collaboration with its channel partners, Infowave both licenses and rents its
wireless software solutions to the enterprise market. The Corporation is
building a direct sales force that is working with its marketing alliance
partners to establish reference accounts and generate demand for the reseller
channel. The Corporation has entered into marketing alliances with companies
that offer complementary software products or services to potential enterprise
customers. These include:
o Wireless data network carriers such as Rogers AT&T Wireless in Canada;
BellSouth Wireless Data LP, Bell Atlantic Mobile and AT&T Wireless Services
in the United States; and ST Mobile Data PTE Ltd. in Singapore.
o Hardware developers such as Glenayre Technologies Inc., Sierra Wireless
Inc. and Nokia Networks.
5
9
o Enterprise software developers such as Pivotal Corporation.
Infowave intends to expand distribution of its wireless software solutions to
the enterprise market worldwide by using international, national and regional
systems integrators and value-added resellers ("VAR"). The Corporation has
entered into non-exclusive national reseller agreements with RAM Mobile Data
Ltd. in the United Kingdom and GE Capital IT Solutions in Canada. The
Corporation has also entered into non-exclusive regional agreements with
approximately 14 resellers in Canada and the United States.
The Corporation also intends to partner with a variety of service providers who
will host Infowave's Wireless Engine and server application modules and provide
wireless mobile computing services for a monthly fee. The Corporation intends to
target service bureaus, application service providers, Internet service
providers and Internet portals or content providers. To date, the Corporation
has entered into agreements with Mi8 Corporation, an application service
provider, and Investment.com, an Internet content provider. Each of these
companies intends to offer Infowave's wireless software solutions on a
subscription basis.
Infowave intends to distribute its Symmetry desktop product primarily through
agreements with wireless carriers and device manufacturers in the paging and
digital phone markets. The Corporation has formed an alliance with Glenayre
Technologies Inc., currently the world's largest paging infrastructure provider.
Glenayre intends to bundle Symmetry with each of its AccessLink II two-way
pagers and to resell Symmetry to paging carriers through its extensive global
sales channel. The Corporation has also received an order for a branded version
of Symmetry from Rogers AT&T Wireless.
In addition to working with wireless data carriers on various marketing
initiatives described above, Infowave expects to collect a portion of the
airtime revenue generated by licensees or subscribers of its wireless mobile
computing software.
During the past two years, no single Wireless Division customer accounted for
greater than 10% of consolidated sales.
COMPETITION - WIRELESS
The market for business and consumer users of wireless mobile data solutions is
in its early stage and distinct categories for solutions are still evolving. In
the Business-to-Business market, two models are emerging. The Enterprise Server
model requires servers and application software to be installed onsite by the
enterprise. The Service Provider model uses servers and applications that are
housed offsite at the Service Provider's data center. In the Business to
Consumer market, two models are emerging: the Service Provider model and the
Desktop model, the latter requiring no server software. Infowave competes in
each of the Enterprise Server, Service Provider and Desktop markets.
To the extent known by the Corporation, competitors in the Enterprise Server
market include Ericsson Inc., Telesis North Inc., Research in Motion Limited and
Aether Systems Inc. In addition, a variety of custom application vendors who
specialize in developer tools and niche applications pose a potential threat to
Infowave should they leverage their middleware and developer tools to create
applications that are competitive to those of Infowave.
To the extent known by the Corporation, competitors in the Service Provider
market include Wireless Telecom, Inc. and GoAmerica Communications Corp.
Messaging outsourcers, application service providers, and other forms of service
providers may also compete with Infowave depending on which wireless mobile
software products they use for their offerings. Infowave will sell its
commercial server software products to these outsourcers and will therefore
compete with those that choose other wireless software for their offerings.
To the extent known by the Corporation, competitors in the Desktop market
include Research in Motion Limited and Roku Technologies.
6
10
Indirect competition for the Corporation also comes from other companies
operating in the wireless communications sector but targeting alternative market
segments. As the Corporation is expecting to expand its business to cover a
broader spectrum of wireless mobile data solutions, it is possible that it may
compete directly with these companies.
In addition, the wireless mobile data communications industry is subject to
rapid technological change and evolving industry standards. New competition may
arise from new technologies or new approaches to the market. See "Risk Factors -
Reliance on New Technologies" and "-Competition."
Many of the Corporation's present and potential competitors have substantially
greater financial, marketing, technical and other resources than the Corporation
and may succeed in establishing technology standards or strategic alliances in
the wireless mobile data communications market, obtain more rapid market
acceptance for their software products or otherwise gain a competitive
advantage. See "Risk Factors - Competition."
IMAGING DIVISION
INTRODUCTION - IMAGING
The Imaging Division of the Corporation develops, markets and sells the
Corporation's printer driver software products.
Computer operating systems such as Microsoft Windows ("Windows") and the Apple
Macintosh operating system ("Mac OS") use printer drivers to communicate to
printers. The printer driver is an independent software component that the
system software uses to exchange information between the computer and printer.
Windows supports thousands of different printers through printer drivers
included as part of the operating system. In contrast, the Mac OS includes only
printer drivers for a limited number of Apple compatible printers. Other printer
drivers are not included in the Mac OS and may be supplied either with the
printer or by a third-party.
Most printers use a parallel port to receive print data from the host computer.
Most operating systems, including Windows, transmit print data from the
computer's parallel port. In contrast, Apple computers use a serial or USB port
to transmit data to the printer. As a result, Apple computers are physically
incompatible with most other printers, resulting in users having fewer printer
models to choose from.
Only a few printer manufacturers like Hewlett-Packard and Epson have developed
Macintosh compatible printer models. These models are compatible with the Mac OS
because they include the printer drivers and appropriate cabling in the printer
box.
The Corporation has developed printer drivers and cable products to increase the
printer choices available to users of Macintosh computers.
Just as there are many different human languages, printers also communicate with
their own languages and protocols. Some of the more popular printer languages
are PostScript (Adobe Systems), PCL (Hewlett-Packard), and ESC/P2 (Epson).
PostScript is owned by Adobe Systems and was first released in 1985. PostScript
is both a printer language and a computer language. Printers and software
applications use it to describe the appearance of a page, including elements
such as text, graphics, and scanned images, to a printer or other output device.
Generally, PostScript is the standard printing language in the industry. The
advantages of PostScript over other printer languages include higher quality
printing, better color management, performance, and cross platform
compatibility.
PostScript requires interpretation, as do all printer languages. The
interpretation is done by the printer or computer (host). In most cases,
particularly with PostScript, the printer does the interpretation. However,
Adobe Systems has developed configurable PostScript interpreter ("CPSI"), which
allows PostScript to be interpreted in the computer (host) as opposed to the
printer. CPSI is, therefore, referred to as host-based PostScript.
7
11
PostScript's quality, power and compatibility has made it a standard requirement
for graphic designers, desktop and professional publishers. PostScript is also
the basis for Adobe's cross platform electronic document format, popularized by
Adobe Acrobat. Companies use Acrobat for publishing high quality, complex
documents on the Internet.
OVERVIEW OF OPERATIONS - IMAGING
The Corporation has developed its own Apple Macintosh printer driver products
and has expanded by acquiring and licensing other companies' technologies. The
Corporation has been selling Macintosh printer connectivity solutions since 1985
and, as a result, has experience with most aspects of the computer software
retail market.
According to its 2000 first quarter results, Apple has shipped over 35 million
Macintosh systems worldwide since 1984. The Corporation has sold over 440,000
PowerPrint products, representing about 1.5% of the installed base of Macintosh
computers. The sale of the Corporation's printer driver products is highly
dependent on the sale of Apple computers. See "Risk Factors - Reliance on Sales
of Apple Macintosh Computers."
Currently, Apple supplies the majority of all Macintosh printer drivers bundled
with the Mac OS. In early 1998, the Corporation and Apple entered into a source
code license agreement (the "Source Code License Agreement") under which Apple
licensed to the Corporation its source code for a three year period to develop
printer connectivity solutions for designated Hewlett-Packard printers, and
granted the Corporation a three-year exclusive license to distribute these
printer connectivity solutions. The exclusivity provided for under the terms of
the agreement expires in November 2000, following which the Corporation retains
a non-exclusive license. Under the Source Code License Agreement, the
Corporation granted to Apple a non-exclusive license of its PowerPrint,
StyleScript and PowerPlot software products. Apple may use such programs only to
develop a software development kit of programming tools to be used by third
parties to create printer drivers. The Source Code License Agreement was
conditioned upon the Corporation entering into a software development agreement
with Hewlett-Packard satisfactory to Apple. In March 1998, the Corporation and
Hewlett-Packard entered into an umbrella development agreement (the "Development
Agreement") to develop printer driver software for Hewlett-Packard printers
based upon the Apple source code as modified by the Corporation. Under the
Development Agreement, the companies have agreed to execute individual software
development agreements to develop printer drivers for specified Hewlett-Packard
color inkjet printers.
On March 13, 2000 the Corporation entered into a non-exclusive licensing
agreement with Acticon Technologies, a division of General Patent Corporation
International, under which the Corporation has licensed certain patented
technology related to the cable that is packaged with some versions of the
Corporation's PowerPrint software.
The Corporation currently performs the majority of its research and development
internally and sub-contracts certain small projects. In the years ended December
31, 1999, 1998 and 1997 research and development expenditures by the
Corporation's Imaging Division were $1.55 million, $1.17 million and $0.54
million, respectively. All shrink-wrapped product is currently assembled by a
Vancouver-based third-party fulfillment Corporation. The Corporation also
sub-contracts the manufacturing of its hardware components.
PRODUCTS - IMAGING
The Corporation has developed a line of Macintosh printer drivers, which are
available for virtually all printers and plotters. The products connect either
directly or through a network. The Corporation's goal is to provide Mac OS users
with support for new printers and provide the graphic design and multimedia
markets with inexpensive PostScript solutions.
The Corporation's printer driver products are sold in over forty countries
throughout the world. The Corporation has also established an original equipment
manufacturer ("OEM") business, supplying printer manufacturers such as Brother,
Hewlett-Packard, Lexmark, Ricoh and Samsung. The Corporation also has an OEM
relationship with Adobe Systems, the developer of PostScript. The Corporation
supplies its OEM partners with printer driver technology for a wide range of
products and services.
8
12
The following is a list of the Corporation's current printer driver products:
PRODUCT DESCRIPTION
- ------- -----------
PowerPrint Serial PowerPrint is a set of non-PostScript printer
drivers with a serial to parallel converter cable to
allow Macintosh computers to print to almost any
parallel printer including color ink jets and low cost
laser printers.
PowerPrint USB PowerPrint USB is a USB version of the PowerPrint
software that allows Apple's new line of Universal
Serial Bus ("USB") computers to print to almost any
non-USB printer. USB is the emerging new standard for
connecting computers to peripherals.
PowerPrint for Networks PowerPrint for Networks is a network version of the
PowerPrint software. PowerPrint for networks enables
Macintosh computers to connect to virtually any PC
printer over an Ethernet network.
StyleScript StyleScript is a host-based PostScript interpreter for
the Macintosh that supports a wide range of inkjet
printers from Hewlett-Packard, Epson, Canon and Apple.
SALES AND MARKETING - IMAGING
The Corporation previously focused its PowerPrint selling efforts by marketing
into the installed base, selling to customers who have both Windows and
Macintosh computers, and Macintosh laptop owners. The Corporation has now
extended its marketing efforts to new purchasers of Macintosh computers through
promotional campaigns at the point of sale, for example, through CompUSA. The
Corporation sells the StyleScript product into the graphic design and small
office/home office market, to provide consumers with an inexpensive PostScript
printing solution. The Corporation released a Japanese language version of
PowerPrint in the fall of 1999.
The Corporation currently uses a variety of sales channels for its printer
driver products. The majority of its products are sold through distributors and
resellers. The following is a list of the Corporation's major sales channels for
its printer driver products:
o OEMs - Hewlett-Packard, Canon, Brother, Lexmark, Co-Star, Ricoh and
Samsung
o Distributors - Ingram Micro, Inc. and Pinacor (US), Merisel Canada
(Canada) and Computer 2000 (International)
o Resellers - CompUSA, Fry's, MicroCenter, ComputerWare
o Mail Order Companies - MacWarehouse, MacZone, MacMall, MacConnection
and a network of Apple authorized VARs
o Channel Force - a representation firm focusing on retail stores in
the U.S.
o Direct Sales - via 800 telephone service
o Internet Web Marketing - through the Corporation's web site,
Cyberian Outpost, Software.net, Beyond.com and Buy.com
9
13
During the past two years, no single Imaging Division customer accounted for
greater than 10% of consolidated sales, with the exception of (i) Ingram Micro,
which accounted for approximately 33% of sales in 1999 and 22% of sales in 1998
and (ii) Hewlett-Packard, which accounted for 17% of sales in 1999 and 45% of
sales in 1998.
PRODUCT DEVELOPMENT - IMAGING
The Corporation plans to continue to enhance the features and applications of
its printer driver products. It intends to expand its product offering to
include support of additional printers and form co-marketing relationships with
strategic printer manufacturers.
COMPETITION - IMAGING
The Corporation sells its printer driver software products into the "QuickDraw"
and "PostScript" markets. The Corporation sells its PowerPrint products into the
QuickDraw market. The Corporation is not aware of any significant competition
for PowerPrint at this time.
The Corporation sells its StyleScript product in the PostScript market.
StyleScript competes against iProof Systems' PowerRip product and Adobe Systems'
Adobe PressReady product.
The Corporation has established OEM agreements with Brother, Canon, Co-Star,
Hewlett-Packard, Lexmark, Ricoh and Samsung. Under the terms of these
agreements, the Corporation develops software that enables specified printers to
work with Apple Computers. The Corporation intends to negotiate similar
agreements with other printer manufacturers but there can be no assurance that
any such agreements will be successfully consummated. There can be no assurance
that any of these printer manufacturers will not develop their own Macintosh
printer drivers in-house.
PROPRIETARY PROTECTION
All Corporation software is protected by a combination of certain intellectual
property rights. The Corporation 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 Corporation 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 Corporation's software products. As well, the Corporation strictly limits
access to and distribution of its software in executable code form.
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Infowave for Exchange," "Infowave for the Net," "Symmetry," "PowerPrint" and
"StyleScript."
There can be no assurance that the measures taken by the Corporation to protect
its intellectual property rights will adequately protect those rights.
Although the Corporation believes that it has the right to use all of the
intellectual property incorporated in its products, third parties may claim that
the Corporation's products violate their proprietary rights, including
copyrights and patents. If any such claims are made and found to be valid, the
Corporation may have to reengineer its products or obtain licenses from third
parties to continue offering its products. Any efforts to reengineer its
products or obtain licenses from third parties may not be successful and could
substantially increase the Corporation's costs and have a material adverse
effect on the business, financial condition and results of operations of the
Corporation. See "Risk Factors - Intellectual Property Protection."
EMPLOYEES
As at December 31, 1999, the Corporation employed 115 employees at its head
office in Burnaby, British Columbia and at its U.S. headquarters in Bothell,
Washington in the following capacities:
10
14
WIRELESS IMAGING TOTAL
--------------------- --------------------- -------------------
Burnaby Bothell Burnaby Bothell Burnaby Bothell
------- ------- ------- ------- ------- -------
Management & Administration 8 - 6 - 14 -
Research & Development 29 - 28 - 57 -
Sales & Marketing 13 10 21 - 34 10
TOTAL 50 10 55 - 105 10
RISK FACTORS
In addition to the other information contained in this report, readers should
carefully consider the following risk factors, some of which apply to the
Corporation in general and some of which are specific to the Wireless Division
or Imaging Division, which may have a material adverse effect on the
Corporation's business, financial condition or results of operation.
GENERAL
History of Losses and Possible Divestiture of Imaging Division
The Corporation is not currently profitable and incurred losses of $3,288,251
and $1,206,266 for the years ended December 31, 1999 and 1998, respectively. In
particular, the Wireless Division is not profitable and incurred operating
losses of $3,891,727 and $2,724,899 for the years ended December 31, 1999 and
1998, respectively. The Corporation expects to continue to incur losses in the
near future and possibly longer. The Corporation anticipates that its expenses
will increase substantially in the foreseeable future as it expands the Wireless
Division and the Corporation continues to increase its research and development,
sales and marketing and general and administrative expenses. The Corporation
cannot predict if it will ever achieve profitability and, if it does, it may not
be able to sustain or increase profitability.
The Corporation has been investigating opportunities to divest the Imaging
Division in order to focus its resources, including management time, on the
development of the Wireless Division. Substantially all of the historical
revenue of the Corporation has been from the Imaging Division. In 1999, the
Imaging Division had revenue of $7,175,330 and the Wireless Division had revenue
of $355,001. Accordingly, if the Corporation divests itself of the Imaging
Division, it will be entirely reliant upon possible increased revenues from the
Wireless Division. There is no assurance that increased revenues from the
Wireless Division will materialize.
Reliance on New Technologies
The Corporation is focused upon growth from its Wireless Division. 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 Corporation's wireless software products will grow, if
at all. If the market fails to grow, or grows more slowly than anticipated, the
Corporation will be materially adversely affected. Even if the market does grow,
there can be no assurance that the Corporation's products will achieve
commercial success. The Corporation 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
Corporation's wireless mobile computing software, reducing prices and the
Corporation's revenues and share of the market.
In addition, the Corporation's competitors may develop alternative technologies
that gain broader market acceptance than the Corporation's software solutions.
As a result, the life cycle of the Corporation's software solutions is difficult
to estimate. The Corporation may need to develop and introduce new products and
enhancements to its
11
15
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 Corporation to expend significant
capital and other resources. In addition, as a result of the complexities
inherent in the Corporation's solutions, major enhancements or improvements will
require long development and testing periods. If the Corporation 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 Corporation 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 Corporation's
competitors may develop technically superior and comparably priced or lower
priced software that would have a material adverse effect on the Corporation.
Additional Financing
The Corporation may not have sufficient capital to fund its operations. In
particular, additional financing may be required in the near term to develop,
commercialize and market the Corporation'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 Corporation may not be able to
or may be delayed in being able to commercialize its software products and
services.
Management of Growth
The Corporation has been expanding, and intends to continue to expand, its
Wireless Division. This growth has placed, and any further growth is likely to
continue to place, a significant strain on the Corporation's resources. The
Corporation's ability to achieve and maintain profitability will depend on its
ability to manage growth effectively, to implement and expand operational and
customer support systems, and to hire additional personnel. The Corporation 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 Corporation's business.
Reliance on Key Personnel and Consultants
The Corporation is currently dependent upon its senior management, board of
directors, consultants, and strategic alliances, the loss of any of which may
significantly affect the performance of the Corporation 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 Corporation's growth and profitability. The
Corporation is expecting significant growth in both revenue and employees as a
result of the commercialization of its wireless mobile computing software
products. This growth will place substantial demands on the Corporation. The
Corporation's ability to assimilate new personnel will be critical to its
performance. The Corporation will be required to recruit additional software
development personnel, expand its direct 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 Corporation 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 Corporation relies on key third-party relationships, including its
relationships with VARs, resellers and OEMs, for marketing and sales of its
software products. These third parties are not within the control of the
Corporation, are
12
16
not obligated to purchase software products from the Corporation 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 Corporation or the inability of the Corporation to attract
and retain new VARs, resellers or OEMs with the technical, industry and
application experience required to market and sell the Corporation's software
products successfully could have a material adverse effect on the Corporation.
Competition
The Corporation experiences competition in the markets for both its wireless
mobile computing software and printer driver software. See "Competition -
Wireless" and "Competition - Imaging". As the market for the Corporation's
software products continues to develop, additional competitors with
substantially greater financial, technical and marketing resources than the
Corporation may enter the market and competition may intensify. Current or
future competitors may develop software products that are superior to the
Corporation's software products or achieve greater market acceptance.
Product Defects
Software products as complex as those offered by the Corporation 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 Corporation 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 Corporation's software products and resulting in
damage to the Corporation's reputation, as well as lost revenue, diverted
development resources and increased support costs.
Intellectual Property Protection
The Corporation considers its software products and trademarks to be of value
and important to its business. The Corporation 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 Corporation does not have any patents or patent applications
pending. Despite the Corporation's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or obtain and use information that the
Corporation regards as proprietary. There can be no assurance that the steps
taken by the Corporation to protect its proprietary information will prevent
misappropriation of such information. The cost of litigation necessary to
enforce the Corporation'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 Corporation.
Although the Corporation believes that it has the right to use all of the
intellectual property incorporated in its software products, third parties may
claim that the Corporation's software products violate their proprietary rights,
including copyrights and patents. If any such claims are made and found to be
valid, the Corporation 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 Corporation's
costs and have a material adverse effect on the business, financial condition
and results of operations of the Corporation.
Lack of Backlog
Because the Corporation generally ships software products within a short period
after receipt of an order, the Corporation typically does not have a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter. The Corporation's expense levels are
based in part on its expectations as to future revenues. Therefore, the
Corporation may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall of
demand in relation to the Corporation's expectations or any material delay of
customer orders would have an almost immediate adverse impact on the
Corporation's results of operations.
13
17
Reliance on Export Sales
The Corporation's export sales to the United States and Europe represented 97%
of its total sales in the year ended December 31, 1999. There can be no
assurance that the Corporation will be able to maintain or increase
international demand for the Corporation's software products or that the
Corporation's distributors will be able to effectively meet that demand.
Additional risks inherent in the Corporation's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing software products for
foreign countries, longer accounts receivable payment cycles, difficulties in
managing international distributors, potentially adverse tax consequences,
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and changes in demand resulting from fluctuations in exchange
rates. In addition, the laws of certain foreign countries do not provide
protection for the Corporation's intellectual property to the same extent as do
the laws of Canada and the United States.
Foreign Exchange Rate Exposure
The majority of the Corporation's revenue is denominated in U.S. dollars (the
currency in which the Corporation's financial statements are stated) or
currencies other than Canadian dollars and in the future may be denominated in
currencies other than Canadian or U.S. dollars. The Corporation 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 Corporation'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 Corporation.
Enforcement of Civil Liabilities
The Corporation is a corporation incorporated under the laws of British
Columbia, Canada. Certain of the directors and the Corporation'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 Corporation 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 Corporation or such persons under U.S. federal securities
laws. The Corporation has been advised that there is doubt as to whether
Canadian courts would (i) enforce judgments of U.S. courts obtained against the
Corporation 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 Corporation or such directors and
professional advisors predicated solely upon such U.S. laws. However, a judgment
against the Corporation 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.
WIRELESS DIVISION
Wireless Industry Growth
The overall market for wireless data communications devices has experienced
significant growth in recent years. There can be no assurance that the market
for the Corporation's existing or proposed wireless software products will
continue to grow, that firms within the industry will adopt the Corporation's
software products for integration with their wireless data communications
solutions, or that the Corporation will be successful in independently
establishing product markets for its wireless software products. If the various
markets in which the Corporation's software products compete fail to grow, or
grow more slowly than the Corporation currently anticipates, or if the
Corporation were unable to establish product markets for its new software
products, the Corporation's business, results of operation and financial
condition would be materially adversely affected.
14
18
Reliance on Microsoft
Some of the Corporation's wireless software products wirelessly enable the
functionality of Microsoft Exchange. The Corporation is aware that Microsoft has
developed its own wireless functionality for Microsoft Exchange that may compete
with software products of the Corporation. Also, United States federal and state
regulatory authorities have initiated broad antitrust actions against Microsoft.
The Corporation cannot predict to what extent these antitrust actions may affect
Microsoft or the Corporation's relationship with Microsoft.
IMAGING DIVISION
Reliance on Sales of Apple Macintosh Computers
The majority of the Corporation's revenues are currently derived from the sale
of the Corporation's printer driver products. The sale of these software
products currently relies on the sale of computers that use the Apple Macintosh
operating system. Any reduction in sales of computers using the Macintosh
operating system may have an immediate and material adverse effect on the
Corporation's revenues.
In addition, the Corporation's strategy of developing printer driver products
compatible with the Apple Macintosh operating system is substantially dependent
on the Corporation's ability to gain pre-release access to, and to develop
expertise in, current and future Macintosh product developments by Apple. There
can be no assurance that Apple will continue to cooperate with the Corporation,
and the inability of the Corporation to maintain and further develop its
relationship with Apple would have a material adverse affect on the
Corporation's results of operations from its Imaging Division.
Reliance on Independent VARs, Resellers and OEMs ("Distributors")
A significant portion of the Corporation's revenue from its Imaging Division is
derived from sales of printer driver products to Distributors that are not under
the direct control of the Corporation. These Distributors carry multiple product
lines and could reduce their support of the Corporation's software products in
favor of a competitor's software products or for any other reason. The loss of
any of the Corporation's major Distributors for its Imaging Division would have
a material adverse affect on the Corporation's results of operations from its
Imaging Division. Under certain conditions, the Corporation offers stock
balancing and price protection programs to its Distributors. Therefore, the
Corporation is exposed to the risk of product returns from Distributors. There
can be no assurance that the Corporation's recorded allowances for returns from
its Imaging Division will be adequate and a material increase in returns over
historical rates would have a material adverse affect on the Corporation's
results of operations from its Imaging Division. In 1999, Ingram Micro Inc. and
Hewlett-Packard were the Corporation's only significant Distributors, accounting
for 33% and 17% of the Corporation's sales, respectively.
ITEM 2: PROPERTIES
The Corporation owns no real property. Pursuant to a lease agreement that
expires on March 31, 2003, the Corporation leases 18,084 square feet of office
space in Burnaby, British Columbia, which the Corporation uses as its principal
executive offices. The Corporation also leases office space in Bothell,
Washington on a temporary basis until improvements are completed on new leased
premises on March 31, 2000. The new Bothell office lease includes 7,329 square
feet of office space and expires on March 31, 2005. Combined monthly lease
commitments for the Burnaby office and the new Bothell office are approximately
$26,600 per month.
The Corporation is currently in negotiations to assume an additional 18,000
square feet of office space at the Burnaby location and 2,100 square feet of
office space in Bothell. The additional office space in both locations will be
used to accommodate the expansion of the Wireless Division.
15
19
ITEM 3: LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Corporation.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
16
20
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON SHARES
The Common Shares are currently traded on The Toronto Stock Exchange (the "TSE")
under the symbol "IW". The Common Shares were listed on the TSE on October 14,
1999. Prior to listing on the TSE, the Common Shares were listed on the
Vancouver Stock Exchange (the "VSE") on October 14, 1997 and were delisted from
the VSE on November 26, 1999. The Common Shares do not currently trade on any
exchange in the United States. The following table sets forth the high and low
closing sale prices, as reported by the TSE and VSE, of the Common Shares for
the calendar quarters indicated.
PRICE RANGE OF COMMON SHARES
All prices are quoted in Canadian dollars.
HIGH LOW
(CDN.$) (CDN.$) STOCK EXCHANGE
------- ------- --------------
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
1998
Fourth Quarter 1.60 0.95 VSE
Third Quarter 2.00 0.88 VSE
Second Quarter 3.50 1.70 VSE
First Quarter 3.30 1.40 VSE
As of December 31, 1999, there were 18,297,470 Common Shares issued and
outstanding. At such date, there were approximately 41 shareholders of record, 4
of whom had addresses in the United States who collectively held 395,249 Common
Shares, or approximately 2.2% of the total number of issued and outstanding
Common Shares.
DIVIDENDS
The Corporation 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 Corporation's earnings, financial
requirements and other conditions existing at such future time.
17
21
WARRANTS
The Corporation issued 2,224,647 special warrants (the "Special Warrants") at a
price of Cdn.$3.25 per Special Warrant in two tranches on June 30, 1999 and July
8, 1999. The Special Warrants were issued in reliance upon the exemption from
registration provided by Rule 506 of Regulation D and the exclusion from
registration 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 and one-half of one Common Share purchase warrant (the
"Purchase Warrants"). Each Purchase Warrant entitles the holder to purchase one
Common Share at a price of Cdn.$3.75 per Common Share until expiry on June 30,
2000. In connection with this financing, the Corporation issued Agents' Warrants
(the "Agents' Warrants") to Canaccord Capital Corporation, Yorkton Securities
Inc., Sprott Securities Limited and Taurus Capital Markets Ltd. (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 212,465 Common
Shares at a price of Cdn.$3.25 per Common Share on or before June 30, 2000.
A final prospectus was receipted in British Columbia, Alberta and Ontario on
September 23, 1999 qualifying the distribution of 2,224,647 common shares and
1,112,324 Purchase Warrants upon the exercise of the 2,224,647 previously issued
Special Warrants. All of the Special Warrants were deemed exercised for Common
Shares and Purchase Warrants on September 28,1999. As at December 31, 1999 there
were 811,747 Purchase Warrants and 143,414 Agents' Warrants outstanding.
STOCK OPTIONS
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 Corporation among its directors and employees; to
retain, attract and motivate the qualified managers the Corporation requires; to
provide a long-term incentive element in overall compensation; and to promote
the long-term profitability of the Corporation.
The board of directors of the Corporation administers the Plan. Common share
options may be granted at any time to any director, senior officer, full-time
employee or consultant of the Corporation, taking into consideration the present
and potential contribution of a particular director, senior officer, full-time
employee or consultant to the success of the Corporation 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 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 October
6, 1999 and subject to shareholder approval, provide that the number of Common
Shares that may be reserved for issuance pursuant to the Plan is set to not
exceed 3,552,540 Common Shares.
As at December 31, 1999 the total number of Common Shares underlying all stock
options held by the directors and officers of the Corporation was 2,206,658. The
options have been granted as incentive and not in lieu of any compensation for
services, and are subject to cancellation should the optionee cease to act in a
designated capacity.
The Corporation filed a Form S-8 registration statement for its employee stock
option plan on December 15, 1999. During the period from January 1, 1999 to
December 14, 1999 the Corporation granted a total of 1,698,263 unregistered
options. During this same period the Corporation issued 577,278 Common Shares
upon the exercise of options and cancelled options to purchase 221,895 Common
Shares.
18
22
ITEM 6: SELECTED FINANCIAL DATA
Set forth below is certain selected financial information of the Corporation for
each year in the five-year period ended December 31, 1999. The selected
financial information for the three years ended December 31, 1999 is derived
from the Corporation's audited financial statements for such periods included in
"Item 14. Financial Statements". The selected financial information for the
years ended December 31, 1996 and 1995 is derived from the audited financial
statements for such periods. The Corporation's financial statements are prepared
in accordance with Canadian generally accepted accounting principals ("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.
UNITED STATES GAAP
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
Sales - Imaging Division ............ 7,175,330 9,683,398 3,771,245 6,271,185 6,036,098
Sales - Wireless Division ........... 355,001 176,509 94,496 70,497 7,228
----------- ----------- ----------- ----------- -----------
Total Sales ......................... 7,530,331 9,859,907 3,865,741 6,341,682 6,043,326
Net Income (loss) ................... (3,344,326) (1,440,052) (1,970,792) (210,717) 48,917
Net Income (loss) per share
(0.21) (0.12) (0.24) (0.04) 0.01
BALANCE SHEET DATA
Total Assets ........................ 8,020,392 6,546,596 1,508,802 2,349,819 2,701,091
Long Term Debt ...................... -- -- -- 218,700 698,152
Share Capital ....................... 13,325,591 7,416,454 2,515,083 658 585
Retained Earnings (Deficit) ......... (6,250,800) (2,906,473) (1,466,421) 578,279 788,997
Dividends per Common Share .......... -- -- 103,306 -- --
----------- ----------- ----------- ----------- -----------
CANADIAN GAAP
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
Sales - Imaging Division ............ 7,175,330 9,375,897 3,410,878 5,586,641 5,411,119
Sales - Wireless Division ........... 355,001 170,911 85,471 62,726 6,534
----------- ----------- ----------- ----------- -----------
Total Sales ......................... 7,530,331 9,546,808 3,496,349 5,649,367 5,417,653
Net Income (loss) ................... (3,288,251) (1,206,266) (1,677,032) (187,713) 43,853
19
23
Net Income (loss) per share (0.21) (0.09) (0.19) (0.03) 0.01
BALANCE SHEET DATA
Total Assets ........................ 8,054,492 6,687,941 1,625,326 2,102,781 2,409,369
Long Term Debt ...................... -- -- -- 195,714 622,769
Share Capital ....................... 12,526,949 6,798,707 2,456,847 587 536
Retained Earnings (Deficit) ......... (5,776,773) (2,488,522) (1,282,256) 534,467 722,181
Dividend per Common Share ........... -- -- 91,476 -- --
----------- ----------- ----------- ----------- -----------
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial information included in the above table of selected financial data
and in the audited financial statements of the Corporation for the years ended
December 31, 1999, 1998 and 1997 are presented in United States dollars, and
have been translated from the functional currency of the Corporation, Canadian
dollars, at the following rates:
1999 1998 1997 1996 1995
---------------- --------------- ---------------- ---------------- ---------------
I/S B/S I/S B/S I/S B/S I/S B/S I/S B/S
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Canadian GAAP 0.6732 0.6929 0.6534 0.6534 0.6534 0.6534 0.6534 0.6534 0.6534 0.6534
US GAAP 0.6732 0.6929 0.6748 0.6534 0.7224 0.6997 0.7335 0.7301 0.7288 0.7325
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS IS BASED ON THE CORPORATION'S AUDITED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND FROM UNAUDITED INFORMATION FOR
THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998. THE AUDITED FINANCIAL
STATEMENTS OF THE CORPORATION ARE INCLUDED IN "ITEM 14. FINANCIAL STATEMENTS".
THE CORPORATION'S FINANCIAL STATEMENTS ARE PREPARED IN ACCORDANCE WITH CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPALS ("GAAP"), WHICH ARE NOT MATERIALLY
DIFFERENT FROM UNITED STATES GAAP EXCEPT AS EXPLAINED IN "ITEM 14. FINANCIAL
STATEMENTS - FINANCIAL STATEMENTS - NOTE 13."
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
CORPORATE SUMMARY
For the year ended December 31, 1999 net sales decreased 21% to $7.53 million
compared to $9.55 million for the prior year. This decrease is attributable to a
decline in sales in the Imaging Division, offset slightly by increased sales in
the Wireless Division. Gross margin increased to 64% in 1999 from 53% in 1998
due to a shift in product sales toward higher margin software products and a
change in the structure of OEM sales.
Total operating expenses increased 28% to $8.16 million from $6.35 million in
1998. This increase is largely due to higher research and development and
administrative costs. Research and development costs increased 35% to $2.92
million due to new and ongoing projects in both the Imaging and Wireless
Divisions. The Corporation invested $0.18 per share in research and development
in 1999 compared to $0.17 per share in 1998. Administration costs increased 52%
to $2.11 million due to higher staff levels to support the growth of the
Corporation as well as due to finance-related projects pursued during the year.
This included the Corporation's listing of its Common Shares on the TSE and
ongoing Canadian and United States investor relations and reporting issuer
requirements. In addition, the Corporation increased sales and marketing
expenditures by 12% as a result of the increase in the Wireless Division sales
force to support the growth initiatives of the Corporation.
20
24
Other income decreased to $0.03 million in 1999 from $0.10 million in the prior
year. Interest income earned on higher cash balances was offset by foreign
exchange losses incurred as a result of the effect of the increase in value of
the Canadian dollar during the year on foreign currency denominated cash and
accounts receivable balances.
The combination of a decline in Imaging Division sales and higher operating
costs resulted in a loss of $3.29 million, or $0.21 per share for the year ended
December 31, 1999 compared to a loss of $1.21 million, or $0.09 per share for
the year ended December 31, 1998.
WIRELESS DIVISION
Three months ended Twelve months ended
December 31 December 31
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Sales ............................. $ 106,145 $ 37,233 $ 355,001 $ 170,911
Cost of Goods Sold ................ 6,881 13,837 28,703 48,536
----------- ----------- ----------- -----------
Gross Profit ...................... 99,264 23,396 326,298 122,375
Research and Development .......... 530,004 203,573 1,371,007 994,670
Sales and Marketing ............... 569,869 319,991 1,531,348 1,185,289
Administration .................... 467,276 246,613 1,315,670 667,315
----------- ----------- ----------- -----------
Total Operating Expenses .......... 1,567,149 770,177 4,218,025 2,847,274
----------- ----------- ----------- -----------
Operating Income (Loss) ........... (1,467,885) (746,781) (3,891,727) (2,724,899)
----------- ----------- ----------- -----------
Total depreciation expense included
in above .......................... 68,270 45,905 160,390 89,900
----------- ----------- ----------- -----------
During 1999 the Wireless Division completed the development of its suite of
wireless software products with the shipping of two new software products,
Symmetry and Infowave for the Net, and a new version of Infowave for Exchange
that added support for a second wireless network, CDPD. During 1999, management
implemented an aggressive sales and marketing strategy to build the distribution
channels and branding for its wireless software products. In late 1999 and early
2000 Infowave completed strategic agreements with AT&T Wireless Services, Inc.,
Bell Atlantic Mobile, GE Capital IT Solutions, Nokia Networks, Pivotal
Corporation, RAM Mobile Data Ltd. and Sierra Wireless, Inc.
Sales revenue for the Wireless Division in 1999 was $0.36 million, which
represented an increase of 107% from 1998. This is the second successive year
that the Wireless Division has posted year-over-year revenue growth in excess of
100%. Approximately 65% of 1999 Wireless revenue was derived from software
license fees, 23% from technical services and engineering fees, and 12% from the
sale of third-party hardware.
The Wireless Division's gross profit margin for 1999 was 92%, increasing from
72% in 1998. The cost of goods sold consists primarily of the cost of
third-party hardware components. The increase in the gross profit margin
reflects the mix of software license revenue and sales of third-party hardware
components.
The Wireless Division's expenses in 1999 grew 48% from 1998, with research and
development spending increasing by 38% to $1.37 million and sales and marketing
expenses increasing by 29% to $1.53 million. Research and development salaries
and contract development increased to $1.08 million from $0.84 million in 1998
with the number of employees in Wireless research and development increasing
from 23 to 29. Research and development activities during 1999 focused on the
development of the first release of Symmetry and Infowave for the Net, and the
CDPD version of Infowave for Exchange. Sales and marketing salaries increased
30% to $0.65 million in 1999 from $0.50 million in 1998. General marketing
expenses for travel, trade-shows and advertising were $0.67 million in 1999, an
increase of 37% over $0.49 million incurred in 1998. During the year the
Corporation attended over twenty wireless trade shows and conferences. Wireless
administration costs increased to $1.32 million in 1999, reflecting an increase
in infrastructure and finance-related expenses incurred during the year. These
finance-related costs have been allocated to the Wireless Division.
21
25
IMAGING DIVISION
Three months ended Twelve months ended
December 31 December 31
----------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Sales ............................. $ 1,660,464 $ 4,535,918 $ 7,175,330 $ 9,375,897
Cost of Goods Sold ................ 483,369 2,135,042 2,663,757 4,455,458
----------- ----------- ----------- -----------
Gross Profit ...................... 1,177,095 2,400,876 4,511,573 4,920,439
Research and Development .......... 465,817 429,430 1,547,565 1,168,944
Sales and Marketing ............... 464,779 659,907 1,594,288 1,608,937
Administration .................... 256,785 270,378 796,918 724,408
----------- ----------- ----------- -----------
Total Operating Expenses .......... 1,187,381 1,359,715 3,938,771 3,502,289
----------- ----------- ----------- -----------
Operating Income (Loss) ........... (10,286) 1,041,161 572,802 1,418,150
----------- ----------- ----------- -----------
Total depreciation expense included
in above .......................... 53,328 39,560 162,904 119,126
----------- ----------- ----------- -----------
Sales revenue for the Imaging Division in 1999 was $7.18 million, which
represented a decrease of 23% from a record high of $9.38 million in 1998. This
decline was primarily attributable to a decrease in sales to Original Equipment
Manufacturers ("OEM") and StyleScript retail sales. OEM sales decreased 54% to
$2.30 million in 1999 from $4.90 million in 1998. The Corporation diversified
its OEM relationships and entered into new licensing and development agreements
with Brother, Samsung, Canon and New Motion. However, the average revenue for
each OEM project in 1999 was significantly less than in 1998. Additionally,
gross sales for the year were affected by the migration in the structure of OEM
agreements from higher revenue private-label printing solutions (with cable) to
lower revenue royalty-based solutions. The Imaging Division also recorded
engineering fees of $0.18 million in 1999 compared to $0.33 million in the prior
year.
The Imaging Division recorded growth in the overall sale of retail software
products in 1999. Total 1999 retail shipments increased 11% to over 66,000
units. Retail shipments of Infowave's best-selling PowerPrint packages increased
sharply by 36% for the year and annual sales increased 35% to $4.62 million.
Sales of PowerPrint represented 65% of total Imaging revenue in 1999 versus 36%
of total revenue in 1998. The increase in sales of PowerPrint was partially
offset by low sales of StyleScript, which decreased 52% compared to 1998.
StyleScript unit shipments in 1999 declined throughout the year as no new
versions of the product were released and the printers that the current version
supports lost market share. A new version of StyleScript is currently scheduled
for release in the first half of 2000.
Imaging Division gross margins were 63% in 1999 compared to 53% in 1998,
reflecting the increase in the proportion of higher margin PowerPrint retail
sales as well as the migration in structure of OEM sales toward higher margin
royalties versus package sales. The Corporation also realized the benefit of
decreased component costs for PowerPrint due to cable changes implemented in the
fourth quarter of 1998. The cost of goods sold for retail and OEM sales includes
the media on which the software is reproduced, documentation, packaging, and in
some cases the cable which connects the computer to the printer and a royalty
payable to a third party in accordance with various licensing agreements. The
cost of sales for the Imaging business in 1999 was $0.90 million for OEM sales
and $1.44 million for retail sales.
Total Imaging Division expenses in 1999 increased 12% to $3.94 million with
research and development spending up 32% to $1.55 million and sales and
marketing expenses relatively unchanged at $1.59 million. Research and
development salaries and contract development increased from $0.87 million in
1998 to $1.01 million in 1999 with the number of employees in Imaging research
and development increasing from 22 to 28. During 1999 Infowave released three
major versions of its PowerPrint software: PowerPrint USB, PowerPrint for
Networks and PowerPrint with multi-function peripheral support. The Corporation
also developed various customized OEM printing kits. Sales and marketing
salaries for the Imaging Division in 1999 decreased to $0.63 million in 1999
from $0.72 million in 1998. General marketing expenses during the year -
advertising, trade shows, brochures etc. - increased to $0.69 million in 1999
from $0.67 million in 1998.
22
26
QUARTER ENDED DECEMBER 31, 1999
Wireless Division sales of $0.11 million for the fourth quarter of 1999
represented an increase of 185% over the corresponding quarter in 1998. Wireless
Division sales in the fourth quarter of 1999 included recurring license fees
from hosted services and license sales to Glenayre Electronics, Inc. and several
new pilot customers.
Imaging Division sales of $1.66 million in the fourth quarter decreased 63% over
the fourth quarter of 1998 due to decreased OEM and retail sales. OEM sales of
$0.62 million decreased 80% from the prior year and retail sales decreased from
$1.5 million to $1.1 million. Imaging Division retail sales were affected by the
delayed release of PowerPrint 5.0, which did not reach the reseller channel
until mid-December.
The impact of the overall decrease in sales was offset slightly by an increase
in gross margins to 71% compared to 53% in the corresponding quarter in 1998.
This increase is attributable to decreased component costs and an increase in
the proportion of higher margin retail and OEM sales in the Imaging Division.
Total operating expenses in the fourth quarter of 1999 were $2.75 million
compared to $2.13 million in the comparable 1998 period. Research and
development expenditures increased 57% to $1.0 million principally due to new
product initiatives in the Wireless Division. Administrative expenses increased
37% to $0.72 million due to a buildup in infrastructure to support the growth
initiatives of the Corporation. Total sales and marketing expenses remained flat
at $1.03 million due to the fact that a $0.25 million increase in sales and
marketing expenditures in the Wireless Division was offset by a corresponding
decrease in the Imaging Division.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Corporation experienced significant growth in 1998. Rapid growth continued
into the fourth quarter and enabled the Corporation to post annual and quarterly
records for unit shipments and revenues. Fourth quarter sales of $4.6 million
were up 441% over the fourth quarter of 1997 and up 82% over the previous
quarter. Total 1998 sales of $9.5 million were up 173% over 1997. Fourth quarter
unit shipments of Infowave's printing solutions were nearly double the previous
quarter -- a record quarter itself -- and were up nearly 12 times over the
fourth quarter of 1997. Annual shipments quadrupled to over 200,000 units.
Demand for Infowave's printing solutions translated into earnings of $0.33
million, or $0.02 per share, in the fourth quarter, the first profitable quarter
for the Corporation since the first quarter of 1996. This compares to a loss of
$0.21 million, or $0.01 per share, in the previous quarter and a loss of $0.58
million, or $0.05 per share, in the fourth quarter of 1997. Infowave cut annual
losses to $1.21 million, or $0.09 per share, in 1998 from $1.68 million, or
$0.19 per share, in 1997. The Corporation invested $2.16 million, or $0.17 per
share, in research and development in 1998.
Annual operating expenses were up 68% to $6.35 million with head count
increasing from 48 to 59. Infowave increased total research and development
spending 64% and total sales and marketing spending by 65%. More expense detail
is provided with the analysis of the operating divisions.
Infowave's performance in 1998 was fuelled by growth of its Imaging Division.
Fourth quarter retail sales of Infowave's best-selling PowerPrint package were
up 188% over 1997. Year to date sales were up 81%. StyleScript was Infowave's
fastest-growing retail product in 1998 with annual sales up 83% over 1997. Total
1998 shipments through Infowave's various retail distribution channels increased
52% to over 60,000 units.
Demand for Infowave's private-label printing solutions from OEMs continued in
the fourth quarter. OEM sales of $2.94 million were up 124% over the third
quarter. Total annual OEM sales of $4.57 million was new business for Infowave
in 1998 and was generated primarily by licensing and development agreements
negotiated during the first half of the year with Apple Computer and
Hewlett-Packard. Infowave also recorded $0.33 million revenue from engineering
fees in 1998. Imaging Division gross margins for 1998 were 53%, compared with
62% in 1997. The decline is a result of the mix between retail and OEM business
as the Corporation charges lower prices to its OEM customers. The cost of goods
sold for retail and OEM sales may include the media on which the software is
23
27
reproduced, documentation, packaging, and in some cases the cable which connects
the computer to the printer and a royalty payable to a third party in accordance
with various licensing agreements. The cost of sales for the Imaging business in
1998 was $2.29 million for OEM sales and $2.16 million for retail sales.
Total Imaging Division expenses in 1998 grew 65% to $3.50 million, with research
and development ("R&D") spending up 117% to $1.17 million and sales and
marketing expenses up 35% to $1.60 million. R&D salaries and contract
development were up from $0.37 million in 1997 to $0.87 million in 1998. During
the year the Imaging Division completed development of a custom chip for
PowerPrint, developed various customized OEM printing kits and introduced six
new retail product releases. Sales and marketing salaries in 1998 were up from
$0.31 million in 1997 to $0.70 million. General marketing expenses during the
year - advertising, trade shows, brochures etc. - were down slightly from $0.70
million in 1997 to $0.65 million.
Wireless sales during the fourth quarter were $0.04 million with annual sales of
$0.17 million up 100% over 1997. During the fourth quarter, two customers
extended their pilot programs and an existing customer added more seats. During
the course of 1998 Infowave received orders for its wireless software from a
total of 14 corporations and ended the year with four active customers, two
active pilots and two beta programs in place. Wireless gross profit margins were
72% with the cost of sales comprised primarily of the cost of third-party
hardware components.
Total Wireless Division expenses in 1998 grew 71%, with R&D spending up 27% to
$0.99 million and sales and marketing expenses up 139% to $1.17 million. R&D
salaries and contract development were up from $0.55 million in 1997 to $0.84
million in 1998. Infowave introduced two new versions of its wireless software
during the year that added increasing functionality and security--in particular,
Windows NT authentication and Certicom encryption. Infowave also incorporated
source code and architectural design elements derived from the source code
license acquired from Wynd Communications in April. Infowave Office Enabler
earned Microsoft BackOffice and Windows CE certification in 1998.
Sales and marketing salaries in 1998 were up from $0.16 million in 1997 to $0.50
million. General 1998 marketing expenses for travel, trade-shows and advertising
were $0.49 million, up 136% over $0.20 million in 1997.
Total administration expenses were up 79% to $1.39 million. 1998 salaries of
$0.33 million were up from $0.29 million in 1997. Professional fees increased
from $0.24 million in 1997 to $0.45 million in 1998 due to SEC Form 20-F
registration and various development and licensing agreements that were
negotiated during the year. Infowave was not a publicly traded company until
October 14th of 1997; therefore related costs of $0.30 million in 1998 were up
from $0.04 million in 1997. Travel expenses of $0.05 million and recruiting
expense of $0.03 million were up over 1997.
In fiscal 1997 the Corporation recorded amalgamation costs of $0.07 million and
dividends of $0.07 million in connection with the amalgamation of GDT Softworks
Inc., G.W. McIntosh Holdings Ltd. and Infowave Wireless Messaging Incorporated.
No such amounts were recorded in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Using the comparative balances at December 31, 1998 and December 31, 1999,
working capital increased from $3.33 million to $5.85 million and net tangible
assets increased from $4.17 million to $7.01 million. Infowave's cash position
increased from $1.05 million in 1998 to $4.36 million in 1999.
During the year the Corporation satisfied its operating cash requirements from
cash reserves and equity financing. Infowave's cash position increased primarily
from the private placement of 2,224,647 special warrants at Cdn.$3.25 for total
net proceeds of $4.28 million. Each special warrant entitled the holder to
receive one common share and one-half of a common share purchase warrant
expiring June 30, 2000. During the year 300,577 share purchase warrants were
exercised at Cdn.$3.75 and 69,051 agents' warrants were exercised at Cdn.$3.25
for combined net proceeds of $0.92 million. At December 31, 1999 there were a
total of 811,747 share purchase warrants and 143,414
24
28
agents' warrants outstanding. In total, financing activities, including the
exercise of stock options, generated $5.76 million.
The Corporation used $1.93 million in operations in 1999, primarily due to the
loss for the period, as discussed previously. The effect of the loss on the
Corporation's cash position was partially offset by the net effect of a combined
decrease of $2.36 million in accounts receivable and inventories and a decrease
of $1.46 million in accounts payable, all of which are directly attributable to
the decline in Imaging Division sales in the fourth quarter of 1999.
Net cash used in investing activities during 1999 was $0.64 million, which
consisted primarily of the purchase of computer equipment.
On March 28, 2000, Infowave announced that it entered into an agreement with
CIBC World Markets Inc. and Canaccord Capital Corporation (the "Underwriters")
for an underwritten offering of 924,000 special warrants of Infowave (the
"Special Warrants") at a price of Cdn.$32.50 per Special Warrant for aggregate
gross proceeds of approximately $20.55 million. Each Special Warrant will
entitle the holder to acquire, for no additional consideration, one Common
Share. If Infowave does not obtain receipt (the "Receipts") from certain
securities regulatory authorities in Canada for a (final) prospectus qualifying
for distribution the Common Shares issuable upon exercise of the Special
Warrants on or before 90 days from the Closing Date or such later date as the
Underwriters may approve (the "Clearance Date"), then each Special Warrant will
be exercisable for 1.1 Common Shares. A total of 75% of the gross proceeds of
the offering will be released to Infowave on closing and the balance will be
held in trust to be released to Infowave at the time the Receipts are received.
The Underwriters may terminate the Offering at their discretion in the event of
a material adverse change in Infowave or certain other stated events. Subject to
the foregoing, closing of the Offering is expected to occur on or about April
13, 2000.
OUTLOOK
At December 31, 1999 the Corporation's primary source of liquidity consisted of
cash and cash equivalents of $4.36 million.
The Corporation intends to increase its number of employees in 2000 to continue
its growth in the Wireless Division. Additional resources will be allocated to
sales and marketing and research and development in the Wireless Division. These
additional resources will be used to pursue existing and new market development
opportunities and to continue to enhance and expand the range and features of
its wireless software products. The Corporation expects to leverage and develop
existing and new strategic relationships. The Corporation expects these
developments to have a positive impact on the sales of its wireless software
products in 2000. See "Note Regarding Forward-looking Statements."
Management believes that its current cash position will be insufficient to
finance its growth plans for 2000. To finance these anticipated increased
expenditures as well as to further strengthen the Corporation's financial
position, facilitate growth, and provide the Corporation with additional
flexibility to take advantage of business opportunities that may arise, the
Corporation intends to raise additional capital in 2000 through additional
equity financing. There can be no assurance that additional financing will be
available on terms favorable to the Corporation or its shareholders, or on any
terms at all. The inability to obtain such financing would have a material
adverse impact on the Corporation's operations. To the extent that such
financing is available, it may result in substantial dilution to existing
shareholders.
The Corporation has been investigating opportunities to divest its Imaging
Division in order to focus its resources, including management time, on the
development of the Wireless Division.
YEAR 2000
Many computer applications have been written using two digits rather than four
to define the applicable year and some date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. The year 2000 issue
could result in system failures or miscalculations that could disrupt the
operations of the Corporation.
25
29
The Corporation, to its knowledge, has not experienced any systems failures or
disruptions of its operations resulting from the year 2000 issue.
To date, the Corporation has spent less than $100,000 on year 2000 compliance.
At this time, the Corporation does not expect to incur future expenditures
relating to year 2000 compliance matters.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Corporation 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 Corporation'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, 1999, the
Corporation has not engaged in any derivative hedging activities on foreign
currency transactions and/or balances. Although foreign currency gains and
losses have not been material in the fiscal years 1997, 1998 and 1999,
fluctuations in exchange rates between the United States dollar and other
foreign currencies and the Canadian dollar could materially affect the
Corporation's results of operations. To the extent the Corporation implements
hedging activities in the future with respect to foreign currency exchange
transactions, there can be no assurance that the Corporation will be successful
in such hedging activities.
While the Corporation 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 Corporation'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
26
30
PART III
ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table sets forth certain current information regarding the
executive officers, directors and key employees of Infowave:
NAME AGE POSITION
- ---- --- --------
Jim McIntosh................. 35 President, Chief Executive Officer, and Director
Bijan Sanii.................. 41 Chief Operating Officer
Todd Carter.................. 39 Chief Financial Officer
Sal Visca.................... 33 Chief Technology Officer
Robert Heath................. 53 General Manager, Imaging Division
Kevin Jampole................ 40 Vice President, Sales and Marketing, Imaging Division
Ron Jasper................... 36 Vice President, Marketing, Wireless Division
Jin Pak...................... 38 Vice President, Sales, Wireless Division
Morgan Sturdy (1)(2)......... 48 Director
Scot Land (1)(2)............. 45 Director
Gary McIntosh (1)(2)......... 61 Director
David Neale.................. 47 Director
- ----------------
(1) Member of the audit committee
(2) Member of the compensation committee
Jim McIntosh has served as President, Chief Executive Officer, and a director
since June 1991.
Bijan Sanii has served as Chief Operating Officer since September 1998. 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 has
served as President of Channel One, formerly a division of Nexus Engineering
Corp., since July 1986 to November 1990. He was appointed Managing Director for
European operations in December 1990 (based in the UK) and Vice President of
Operations 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.
Robert Heath has served as General Manager of the Imaging Division since January
2000. From August 1998 to January 2000, Mr. Heath served as Director of Business
Development (e-Commerce) with MacDonald Dettwiler and Associates. Prior to
August 1998, Mr. Heath served as Vice President, Sales and Marketing for Triant
Technologies
27
31
from October 1997 to August 1998. From February 1993 to October 1997, Mr. Heath
served as Executive Vice-President of Cymbolic Sciences International.
Kevin Jampole has served as Vice President, Sales and Marketing for the Imaging
Division since October 1998. From October 1996 to October 1998, Mr. Jampole
served as General Manager of Vertigo Technology. Prior to October 1996, Mr.
Jampole served as a Senior Account Manager for Adobe Systems from March 1991 to
September 1996.
Ron Jasper has served as Vice President, Marketing for the Wireless Division
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.
Jin Pak has served as Vice President, Sales for the Wireless Division since July
1999. From January 1999 to July 1999, Mr. Pak served as the Director of Sales
Development of Wireless Access for Glenayre Electronics, Inc. Prior to January
1999, Mr. Pak served as Vice President and General Manager of Asia North for
Glenayre Electronics Inc. from August 1995 to January 1999. From February 1994
to August 1995, Mr. Pak served as Director, Sales of Korea and Japan for
Glenayre Electronics Inc.
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.
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.
Gary McIntosh has served as a director since October 1984. Mr. McIntosh retired
in June 1991. From October 1984 to June 1991, Mr. McIntosh served as President
and Secretary of Infowave.
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. 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. The only family relationship involving the executive officers and
the board involves Gary McIntosh and Jim McIntosh who are father and son,
respectively.
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.
28
32
Audit Committee. The responsibilities of the audit committee include reviewing
the Corporation'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 Corporation's auditors. The audit
committee currently consists of Gary McIntosh, Morgan Sturdy and Scot Land.
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 Corporation, and establishing
and reviewing general policies relating to compensation and benefits of the
employees of the Corporation. The compensation committee currently consists of
Gary McIntosh, 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 are expected to 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 Corporation 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 Corporation does not provide
additional compensation for committee participation or special assignments of
the board of directors. All directors except for Gary McIntosh and Jim McIntosh
have received stock options for their participation on the board of directors.
Scot Land received options to purchase 100,000 common shares at a price of
Cdn.$1.00 per share, David Neale received options to purchase 100,000 common
shares at a price of Cdn.$2.55 per share and Morgan Sturdy received options to
purchase 100,000 common shares at a purchase price of Cdn.$3.57 per share.
EMPLOYMENT AGREEMENTS
The Corporation's policy is to require all employees, including its executive
officers, as a condition to their employment with the Corporation, to enter into
agreements requiring the non-disclosure of confidential information of the
Corporation, and the assignment and confirmation of the Corporation's ownership
of all intellectual property rights created in the course of such employee's
employment with the Corporation.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and two other most highly compensated executive officers earning more
than $100,000 for the years ended December 31, 1998 and December 31, 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- --------------------------- -------- -------- ------------------ ------------
Jim McIntosh........................ 1999 $ 74,052 $51,657 250,000 $12,925
President, Chief Executive 1998 74,229 53,985 -- 315
Officer, and a director
Bijan Sanii......................... 1999 74,052 99,414 290,000 --
Chief Operating Officer 1998 65,664 118,766 -- 4,559
29
33
Todd Carter ........................ 1999 74,052 60,588 150,000 --
Chief Financial Officer 1998 67,481 33,740 60,000 --
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option grants
to our Chief Executive Officer and two other most highly compensated executive
officers during the year ended December 31, 1999. The potential realizable value
is calculated based on the assumption that the common stock appreciates at the
annual rate shown, compounded annually, from the date of grant until the
expiration of its term. These numbers are calculated based on Securities and
Exchange Commission requirements and do not reflect our projection or estimate
of future stock price growth. Potential realizable values are computed by:
o multiplying the number of Common Shares subject to a given option by
the exercise price;
o assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the
table for the entire five-year term of the option; and
o subtracting from that result the aggregate option exercise price.
30
34
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS
----------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM
OPTIONS FISCAL YEAR PRICE (PER EXPIRATION --------------------------
NAME GRANTED (1) SHARE)(2) DATE 5% 10%
- ---- --------- ------------ ---------- ---------------- --------- ------------
CDN.$
Jim McIntosh................. 250,000 14.75 13.20 December 10, 2004 631,701 1,395,893
Bijan Sanii.................. 250,000 14.75 13.20 December 10, 2004 631,701 1,395,893
40,000 2.36 1.56 January 21, 2004 11,945 26,395
Todd Carter.................. 150,000 8.85 13.20 December 10, 2004 379,020 837,536
- ------------
(1) During 1999, options to purchase a total of 1,694,584 common shares were
issued to employees.
(2) The exercise price per share was equal to the fair market value of the
Common Shares on 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 two other
most highly compensated executive officers earning over $100,000 the number of
shares acquired upon exercise