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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-29944
INFOWAVE SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
CANADA 98 0183915
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(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
200 - 4664 LOUGHEED HIGHWAY
BURNABY, BRITISH COLUMBIA, CANADA V5C 5T5
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER: (604) 473-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2): Yes [ ] No [X]
Aggregate market value of the registrant's Common Shares held by non-affiliates
as of June 30, 2003 was approximately US$39,587,072. The number of the
Registrant's Common Shares outstanding as of March 26, 2004, was 216,029,950.
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Table of Contents
Part I............................................................................................................1
Item 1: Business.................................................................................................1
Item 2: Properties..............................................................................................19
Item 3: Legal Proceedings.......................................................................................19
Item 4: Submission of Matters to a Vote of Security Holders.....................................................19
Part II..........................................................................................................20
Item 5: Market for Registrants Common Equity and Related Stockholders Matters...................................20
Item 6: Selected Financial Data.................................................................................21
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations...................22
Item 7A: Quantitative and Qualitative Disclosure about Market Risk..............................................33
Item 8: Financial Statements and Supplementary Data.............................................................34
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................72
Item 9A: Controls and Procedures................................................................................72
Part III.........................................................................................................72
Item 10: Directors and Officers of the Registrant...............................................................72
Item 11: Executive Compensation.................................................................................74
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........75
Item 13: Certain Relationships and Related Transactions.........................................................79
Part IV..........................................................................................................79
Item 14: Controls and Procedures................................................................................79
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................80
PART I
ITEM 1: BUSINESS
FORWARD-LOOKING STATEMENTS
Statements in this Annual Report about future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in any forward-looking statements.
These factors include, among others, those described in connection with the
forward-looking statements, and the factors listed in "Risk Factors".
In some cases, forward-looking statements can be identified by the use of words
such as "may", "will", "should", "could", "expect", "plan", "intend",
"anticipate", "believe", "estimate", "predict", "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements or other future events.
Moreover, neither the Company nor anyone else assumes responsibility for the
accuracy or completeness of forward-looking statements. The Company is under no
duty to update any of its forward-looking statements after the date of this
Annual Report. The reader should not place undue reliance on forward-looking
statements.
All dollar amounts noted in this Annual Report are in U.S. dollars unless
otherwise noted.
THE COMPANY-OVERVIEW
Infowave Software, Inc. ("Infowave" or the "Company") provides enterprise mobile
applications (EMA), including packaged configurable application software modules
that integrate business operations required by mobile workers like asset
management, field service and mobile e-mail as well as secure, scalable
infrastructure software solutions for developing and deploying mobile software
solutions infrastructure platforms. The Company sells direct to enterprises and
end-users as well as indirectly through channel partners like independent
software vendors (ISVs), System Integrators, Value Added Resellers (VARs) and
network operators.
Focused on enabling organizations with mobile workforces since 1993, Infowave
solutions enable mobile workers of all types to access critical enterprise
information at the point of work, including work orders, internal
communications, asset information, customer details, calendars, schedulization
and other important data required to perform their job functions more
effectively and productively. The Company provides a complete suite of mobile
software solutions, ranging from the individual and corporate e-mail service of
Symmetry, to complete enterprise-grade application suites like Telispark Mobile
Enterprise which streamlines and integrates business operations required by
mobile workers, such as Enterprise Resource Planning (ERP), Field Service,
Supply Chain and Asset Management operations. The Company also offers the
Wireless Business Engine, a wireless software platform for large corporations
that provides access to e-mail and collaboration tools, corporate intranets, the
Internet, Web-enabled applications and legacy and client/server applications
from a wide range of wireless devices such as handheld computers, laptops, PDAs
and emerging integrated phone devices. As well, Infowave offers the Mobility
Platform which offers users worry-free, remote access to behind-the-firewall
business software applications on Palm Powered or Pocket PC devices.
The Company is organized under the Canada Business Corporations Act. The
Company's head office and development facilities are located at The Infowave
Building, Suite 200, 4664 Lougheed Highway, Burnaby, British Columbia, Canada,
V5C 5T5 (telephone 604.473.3600). The Company's registered office is at Suite
2600, Three Bentall Centre, 595 Burrard Street, PO Box 49314, Vancouver, British
Columbia, Canada, V7X 1L3. The Company's wholly owned subsidiary, Infowave USA
Inc., is incorporated under the laws of the State of Washington. Infowave's
other subsidiary, Telispark Inc., is incorporated under the laws of the State of
Delaware. The Company operates a sales office in London, England at Cardinal
Point, Park Road, Rickmansworth, Hertfordshire WD3 1RE 4JS (telephone +
44.1923.432.632). The Company also has a master reseller agreement with an
agency for
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Continental Europe located at Dreimuehlenstrasse 27, 80476 Munchen/Munich,
Germany (telephone 49.89.767368.94).
THE COMPANY-HISTORY
The Company was originally formed in 1984 as GDT Softworks Inc. under the laws
of the Province of British Columbia, Canada. Initially focused on developing
printer driver solutions, the Company expanded its focus to include developing
wireless messaging software in 1993.
By 1996, the Company began to operate its wireless business (the "Wireless
Division") and its printer driver business (the "Imaging Division") as distinct
operating divisions. The Company's name was changed to Infowave Wireless
Messaging Incorporated in 1997 and to Infowave Software, Inc. in 1998. In 2000,
the Company focused its time and resources solely on the Wireless Division and
sold the Imaging Division effective August 31, 2000.
In February 2001, Mr. Thomas Koll was appointed Chief Executive Officer of the
Company. Mr. Koll joined Infowave from Microsoft Corporation, where he held
several executive positions in the US and Europe from 1989 to 2001. Most
recently, he was Vice President of Microsoft's Network Solutions Group where he
was responsible for, among other things, Microsoft's worldwide business with
telecommunications companies in the wireless markets. Mr. Koll transitioned to
Chairman of the Board of Directors in April 2002.
In April 2002, the Company established a management structure called the Office
of the President consisting of George Reznik, Chief Financial Officer, Sal
Visca, Chief Technology Officer and Jim McIntosh, Director, whose mandate was to
manage the day to day operations of the Company in addition to its strategic
direction.
Throughout 2002 and 2003, the Company released new versions of its software as
well as launched several new products to appeal to a broader wireless market.
Infowave's products provide value to individual professional consumers, to
business workgroups and enterprises, to large corporations, as well as to the
wireless network operators (carriers).
The Company announced on January 9, 2003, that it entered into agreements with
Microsoft Corporation under which the two companies will non-exclusively develop
and market solutions for mobile network operators based on the Windows Powered
Microsoft mobile device platforms. Infowave and Microsoft will work together to
offer mobile operators complete solutions focused on Microsoft Windows Powered
devices and designed to increase subscriber adoption and consumption of wireless
data. In the first stage of development, Infowave will add support for the
Windows Powered Smartphone to its Symmetry Pro desktop personal e-mail solution,
its Symmetry Workgroup and Enterprise server products and its Mobile Application
Gateway solution suite for mobile network operators. Microsoft and Infowave will
cooperate on joint marketing and sales initiatives into the mobile operator
community. In addition, Infowave will make its Symmetry Pro product available to
Microsoft device original equipment manufacturers (OEMs).
In March 2003, Infowave launched Symmetry Express, a wireless e-mail software
solution for mobile users seeking instant access to their personal e-mail
accounts on a range of integrated devices. Available in early Q2 2003, Symmetry
Express works on any Pocket PC, Smartphone(TM) and Palm(TM) powered device from
anywhere. The solution allows users to send and receive e-mail messages from
their POP3, Yahoo Mail and Hotmail accounts directly from their integrated
device and will be marketed through Infowave's network operator partners.
In May 2003, the Company entered into a sales referral agreement with Dell in
which the companies will cooperate in marketing Infowave's Wireless Business
Engine solution with Dell's GPRS wireless access offerings to the U.K. business
market.
On July 4, 2003, the Company completed the acquisition of substantially all of
the business and assets of HiddenMind Technology, LLC, a wireless software
company based in Cary, North Carolina ("HiddenMind"). HiddenMind offers a mobile
application platform that enables companies to extend existing data and
applications to mobile devices. Under the terms of the Asset Purchase Agreement
dated July 4, 2003, the Company acquired such business and assets in
consideration for US$2,031,105. The purchase price was paid by the Company
through the issuance to HiddenMind of 14,966,034 units (the "Units") of the
Company having a fair value of $0.15 (Cdn$0.19)
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per Unit. Each Unit consisted of one common share and one half of one warrant (a
"Warrant"). Each whole Warrant entitles the holder to purchase an additional
common share of the Company at an exercise price of $0.15 (Cdn$0.19) until July
4, 2005. The transaction was accounted for under the purchase method of
accounting.
In July 2003, the Company completed a brokered private placement of
approximately US$3.6 million in which the Company issued 29,642,037 units at
$0.12 (Cdn$0.16125). Each Unit consisted of one common share and one-half of one
common share purchase warrant of the Company. Each whole warrant entitles the
holder to purchase one common share for a period of two years from the closing
date at a price of $0.17 (Cdn$0.215) per common share. The common shares and
warrants comprising the units were subject to a four month hold period.
Also in July 2003, the Company completed a private placement financing of US$3.0
million private placement with Gerald Trooien, the majority shareholder of
HiddenMind, in which the Company issued 29,473,684 units at a price of $0.11
(Cdn$0.1425) per unit. Each Unit consisted of one common share and one-half of
one common share purchase warrant of the Company. Each whole warrant entitles
the holder to purchase one common share for a period of two years from the
closing date at a price of $0.15 (Cdn$0.19) per common share. The common shares
and warrants comprising the units were subject to a four month hold period.
Also in July 2003, the Company appointed Jean-Francois Heitz and Jerry Meerkatz
to its Board of Directors.
On October 21, 2003, the Company purchased all of the intellectual property
assets of Sproqit Technologies, Inc ("Sproqit"), a wireless software company
based in Kirkland, Washington. Sproqit offers a mobile application platform that
enables users to obtain e-mail and other data via hand held personal digital
assistant (PDA) and smartphone wireless devices running various operating
systems. Under the terms of the acquisition agreement, the Company acquired all
of the intellectual property of Sproqit and issued to Sproqit 4,038,550 common
shares of Infowave with an estimated fair value of $0.23 (Cdn$0.30) per share.
Sproqit has option to purchase back all of the intellectual property assets sold
to the Company for cash consideration equal to the original purchase price plus
a premium of 20%, pursuant to the Option Agreement, dated September 23, 2003 and
subsequesnt Amendment dated March 5, 2004 between Infowave and Sproqit for a
period of two years. Infowave licensed Sproqit's e-mail technology on an
exclusive basis in its core markets at preferential royalty rates, which will
continue in the event that the purchase option is exercised by Sproqit. In the
event that the option is not exercised by Sproqit, Infowave will retain
ownership with no future royalties payable to Sproqit.
In November 2003, Mr. Jerry Meerkatz was appointed President and Chief Executive
Officer of the Company resulting in the replacement of the Office of the
President with a more traditional management structure. Mr. Meerkatz joined
Infowave from Hewlett Packard, where he held several executive positions, most
recently, Vice President and General Manager of Enterprise Mobility Solutions.
In December 2003, Infowave entered into an agreement with Technology
Partnerships Canada ("TPC") for an investment up to Cdn$7.3 million to
complement Infowave's investment in research and development. Under the terms of
this agreement, TPC has agreed to contribute a specified percentage to match
Infwave's investment in research and development expenses for a several year
period.
On January 7, 2004, the Company entered into an agreement under which it has
acquired control of, and intends to ultimately acquire all of the outstanding
shares of, Telispark Inc. ("Telispark"), a provider of enterprise mobility
applications software based in Arlington, Virginia, USA. Under the terms of the
acquisition agreement, Infowave will pay a total of US$8.4 million for the
purchase of 100% of all of the issued and outstanding common shares of
Telispark, payable in approximately 46 million Infowave common shares, issuable
in two tranches. Infowave has completed the initial purchase of approximately
76% of Telispark shares pursuant to a Stock Purchase Agreement dated January 7,
2004. Infowave acquired the remaining Telispark common shares as a result of
shareholder approval at the Company's special general meeting, which took place
on March 30, 2004. The number of Infowave common shares issued in the second
tranche may increase by up to approximately 2.1 million Infowave common shares
in the event that the weighted average Infowave common share price declines
prior to closing of the second tranche. Infowave has also assumed Telispark
employee stock options, which will be exerciseable into approximately 1.9
million common shares of Infowave. Deloitte Consulting L.P. held approximately
90% of the shares of Telispark at the time Infowave acquired Telispark.
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On March 11, 2004, the Company completed a brokered private placement of
approximately $4.7 million (Cdn$6.1 million) in which the Company issued
27,931,818 units at $0.17 (Cdn$0.22). Each Unit consisted of one common share
and one-half of one common share purchase warrant of the Company. Each whole
warrant entitles the holder to purchase one common share for a period of two
years from the closing date at a price of $0.22 (Cdn$0.29) per common share.
Agents' commission and financing fees totaling $0.4 million (Cdn$0.5 million)
and an additional 300,000 units were paid in connection with this private
placement. The common shares and warrants comprising the units are subject to a
four month hold period.
In March 2004, the Company entered into an agreement with Gerald Trooien to
issue approximately 6 million common shares for $1.0 million (Cdn$1.3 million)
in a private placement financing. This private placement was subject to
shareholder approval. Such approval was obtained on March 30, 2004 and the
financing closed on March 31, 2004. The shares issued are subject to a four
month hold period.
COMPANY STRATEGY
Infowave's strategy is to become the leading enterprise mobile application
software provider, delivering mobile application and infrastructure software
solutions to organizations in need of real-time data access in the field. Today,
the Company is focused on vertical industries that are more likely to make large
capital investments which consist of utilities, oil and gas, governmental,
telecommunications and high tech sectors to help maintain and service complex
equipment and inventory in the field or in closed-campus environments like
warehouses and plants.
As well, Infowave's strategy is to enable enterprises to streamline their
business operations as they pertain to the mobile worker. By providing
enterprise mobile end-users with an easy to navigate, intuitive mobile
application that enables work flow automation, organizations can improve their
asset utilization, minimize inventory investment levels, optimize the supply
chain and financially depreciating assets, and provide more efficient service
through optimized work processes that eliminate error-prone paper-based
processes, increase wrench time, and improve data integrity in a mobile
environment. Infowave's Telispark Mobile Enterprise is a suite of ten
configurable pre-integrated "mix and match" mobile software applications that
seamlessly and quickly integrate with leading back-end systems including Oracle,
SAP, Lotus Notes, Microsoft Exchange, Siebel, MRO, and Indus. Infowave's
underlying standards-based mobile middleware software provides a highly
scalable, and secure platform for deploying and accessing enterprise data
applications consisting of mobile e-mail/PIM, internet applications and server
based applications such as CRM, ERP, Supply Chain, Enterprise Asset Management
(EAM) and others.
MARKET OPPORTUNITY
The mobile software market has evolved over the past 4 years. Enterprises and
vendors alike saw what worked and what failed, business models, applications,
and technology approaches, respectively. Today the market has matured to a point
where enterprises can reap real, measurable value from mobile deployments. The
enterprise mobile application industry represents an opportunity in the
enterprise software market that ties together several major trends that have
developed over the past decade:
o The deployment of back-end applications within the corporate Local
Area Network ("LAN") such as Enterprise Resource Planning (ERP), Sales
Force Automation (SFA), Groupware (E-mail, Personal Information
Management) and Customer Relationship Management (CRM) services has
helped to drive increased productivity and efficiency within the
enterprise.
o The increase in the number of mobile workers has expanded the virtual
office beyond the physical plant.
o The integration of the Internet and the extension of back-end database
applications to the Internet/Intranet have enabled web-based access to
mission-critical data.
o The increase in mobile device sales among professionals has driven the
demand for remote, wireless access to corporate data.
o The coming to market of new integrated PDA / phone devices being
offered by different manufacturers powered by various operating
systems.
Capital-intensive organizations have spent the past ten years implementing
business operations designed to increase operational efficiency and improve
asset utilization. Large, expensive systems like Supply Chain Management, CRM,
ERP, EAM, and SFA, helped enterprises make progress in preserving, protecting
and extending the life of capital assets and increasing operational
efficiencies. Unfortunately, these systems are often architected as disparate
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or non-integrated data sources, limiting the type and amount of enterprise
information that can be accessed and interacted with by the mobile user.
Today, large organizations find themselves at a crossroads. The current
economics and the ever-increasing size of mobile workforces are forcing
organizations to take a closer look at how they utilize their assets and the
costs associated with their current operations. Many find that current
capital-intensive operations, such as preventive and reactive maintenance, are
ineffective and cost millions of dollars a year in lost time and equipment. In
looking to fix the situation, organizations find themselves entrenched in
siloed, proprietary business operations that cannot be integrated with one
another without large services overhauls and the resulting expensive maintenance
fees. The bottom line is that enterprises need to improve their approach to the
mobile worker if they want to preserve their assets and save money.
Many vendors claim to offer enterprise mobile solutions. Unfortunately, most
options are characterized by expensive and non-integrated approaches to the
problem. The end result is a limited, unreliable end-user application that is a
mobilization of one back-end system.
In order to have a successful mobile application deployment, organizations must
consider the following:
o THE MOBILE BUSINESS PROCESS IS UNIQUE. Mobile users are not at their
most productive when a software application is a mirror of a clunky
single system. Chances are, the operational implementation was rolled
out for planning purposes and did not focus on the end-user.
o INTEGRATED, CROSS-ENTERPRISE DATA BUSINESS PROCESSES. Mobile users,
like utilities maintenance personnel, may need access to many
different data sources. For example, a software application that meets
the need would provide field techs with access to documentation for
equipment information, work orders from Enterprise Asset Management
systems, customer information from CIS systems, and Time and Materials
capability from financial applications. In most organizations, these
systems are disparate and unconnected. Organizations need these
systems to talk.
o VERTICAL EXPERTISE: Packaged software applications that address
industry-specific issues cut down on initial services costs as well as
deliver a solution that addresses an organization's unique business
needs and optimal mobile workflows.
o PACKAGED DELIVERY: Configurable, off-the-shelf software applications
enable rapid deployment of full-featured applications. In addition,
administrators can make application changes quickly and
cost-effectively as needs change and user bases expand.
o STANDARDS-BASED MOBILE TECHNOLOGY: Secure, robust mobile software
infrastructure is essential to an effective deployment. Selecting a
solution that enables uninterrupted application access, regardless of
network connection, is critical to ROI and achieving the business
objectives of the implementation. Robust synch, run-time, security and
standards based architecture are key technology features for
successful deployments.
The EMA market is a set of software vendors that aim to provide packaged,
configurable, pre-integrated enterprise applications for increasing operational
efficiency and improving asset utilization. EMA vendors combine the following in
delivering technology offerings:
o End-user-focused design principles.
o Unique business processes and workflows for mobile users.
o Vertical-specific expertise.
o Robust data adapters and EAI architecture for cross-enterprise
integrations.
o Advanced, standards-based mobile technology for offline access, synch,
security, etc.
EMA vendors focus on delivering packaged software applications that are
configurable for a certain vertical or business operation. EMA offerings focus
on delivering a mobile business process that is configured according to the
customer's need. It is not a software set of technologies alone. Mobile
technology is a component of executing a highly productive and efficient
business process that enables the customer to achieve rapid ROI through
increased operational efficiency.
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A mobile business process is the optimal application flow or order of access
that results in a more productive end-user. Mobile business processes are
designed with the mobile end-user at the center. They enable end users to access
multiple business operation systems, like ERP, Supply Chain, Financials,
Document Management and others. The result for the end-user is access to the
right information at the point-of work. A mobile business process is designed
very differently than traditional siloed business operations or "mobile"
offerings from traditional point solution vendors. These vendors often put a
transcoder or mobile technology on top of a solution that was designed for a PC
or a terminal. This ends up delivering limited functionality to the end-user and
propagates the problems mobile was intended to solve: lack of data integrity,
poor asset utilization and lags of productivity within the mobile workforce.
Infowave believes that providing mobile access to corporate data provides the
following advantages:
o Improved productivity and efficiency by enabling mobile workers to
stay connected to mission-critical data at all times, either in the
field or at home.
o Leveraging existing hardware and software investments by extending
these applications out of the office and into the field.
o Improved revenue generation by selling the right product to the right
customer at the right time.
o Cost savings by providing faster and less expensive means to interact
with employees and clients, and by lowering customer acquisition costs
by reaching a wider audience unconstrained by time and place.
o Competitive advantage by being able to respond to customer
queries/concerns in a more timely and effective manner
The Company's objective is to become the leading enterprise mobile application
(EMA) provider of wireless infrastructure and EMA software solutions to the
enterprise through a two-pronged sales strategy:
o First, selling mobile software to corporate and enterprise customers
alongside strategic technology partners such as HP, Dell, IBM, Indus
International, MRO Software; and
o Second, selling mobile application software solutions to and with
network operators to assist them in bringing comprehensive wireless
data solutions to market.
In order to stimulate sales of our enterprise portfolio during the past fiscal
year, the Company developed a pilot project program designed to make our
solution easier to trial. Many companies want to "try before you buy" which
results in a trial implementation pilot project prior to making a major
commitment to wireless therefore extending the sales cycles. The Company
initiated pilots with enterprise customers during 2003 and remains actively
engaged in pilot projects with enterprise customers.
By enhancing our solution offering to the enterprise market with the addition of
mobile applications obtained through Infowave's acquisition of Telispark in
January 2004, Infowave is better positioned to provide value to its enterprise
customers.
In the Network Operator market, Infowave offers the Mobile Application Gateway,
a software services platform designed specifically to assist network operators
in bringing wireless data applications to market. The solution allows for
network operator branded offerings and takes advantage of a network operator's
existing customer base, strong brand, network infrastructure and extensive
distribution channels to sell-through an Infowave-powered solution to business
customers. With their recent investments in upgrading their networks, network
operators are seeking compelling applications to include as part of their
wireless data offering. Infowave provides network operators with the critical
applications that allow them to go to market with solutions for their business
customers.
INFOWAVE SOFTWARE PRODUCTS
INFOWAVE PRODUCT TARGET MARKET REQUIREMENTS / FEATURES
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Telispark Mobile Enterprise Vertical enterprise companies such Provides work-flow process optimization in
as oil & gas, utilities, addition to access to corporate data on a mobile
telecom and high tech field service. basis.
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Wireless Business Engine Large corporations with a complete Installs with the server environment behind
wireless enterprise strategy. Fast, the corporate firewall. High security with
secure, reliable wireless access to MS Certicom 163-bit ECC algorithm & DESX
- ---------------------------------- ---------------------------------------- ------------------------------------------------
6
INFOWAVE PRODUCT TARGET MARKET REQUIREMENTS / FEATURES
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Exchange, Lotus Notes, and other encryption. Efficient data compression
corporate applications such as CRM and optimization and connection fault tolerance.
SFA tools.
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Mobility Platform Enterprises with mobile work force Provides access to enterprise applications
including CRM, SFA, ERP
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Pro Individual mobile professional Installs easily on user's desktop. Utilizes
secure AES encryption technology
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Enterprise Edition Companies with more than ten users Installs on the server with simple
administration, AES security encryption
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Express Individual consumers Access personal POP3 or Hotmail e-mail using
Smartphone of PDA device
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Symmetry Workgroup Edition Companies with fewer than 10 users Installs on a single desktop within the
workgroup, no IT resources required
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Mobile Operator Solution Suite Network mobile operators wanting to Hosted and non-hosted data gateway
increase revenues by offering configurations available. Rapid go-to-market
value-added wireless data services for strategy with a full range of secure, Infowave
their customers, drive adoption of branded products.
new integrated devices and
increase mobile data activations.
- ---------------------------------- ---------------------------------------- ------------------------------------------------
Telispark Mobile Enterprise:
Telispark Mobile Enterprise(TM) (TME) is a packaged suite of configurable
software applications designed to help large organizations service and manage
complex equipment in the field or in a campus environment like warehouses and
plants. Telispark's software applications are intended to enable a corporate
customer to increase the efficiency and productivity of its mobile enterprise
workforce, extend the life and effectiveness of its capital assets and increase
service revenues. Telispark has created configurable enterprise applications for
mobile employees who perform plant maintenance operations, field service
operations, asset management and maintenance repair and overhaul operations.
Telispark applications provide streamlined work-flow processes via mobile
devices and interaction with critical information from back-end systems.
Telispark has focused its marketing efforts on its target market consisting of
asset intensive companies in the following vertical segments that are likely to
make capital investments:
o Energy and utilities, including large telephone companies
o Oil and gas
o Defense and aerospace
o High tech field service
Deloitte has granted Telispark a non-exclusive license for its best practices
industry prints ("Industry Prints") that have been developed over the years from
Deloitte's enterprise re-engineering consulting engagements. The formal terms of
the license agreement relating to the Industry Prints does not include any
future royalty or maintenance payable by Telispark to Deloitte. Telispark's
objective was to productize the knowledge obtained from these various consulting
engagements to design mobile wireless software solutions for the enterprise that
are more cost effective for future customers resulting in supporting short pay
back and high return on investment.
TME is composed of ten complementary "mix and match" software modules that can
be deployed quickly and securely to yield rapid-ROI applications that streamline
and integrate business operations required by mobile workers, such as ERP, Field
Service, Supply Chain, Asset Management and personal information management
(PIM) operations. Telispark's robust enterprise data connectors enable rapid and
seamless integration with existing back-end data sources including SAP, Siebel,
MRO, Lotus Notes, Oracle, Microsoft Exchange and Indus.
MworkManager: Work Order Management & Processing. This module records start
and end times, breaks down causes and work performed and reviews equipment
configuration and repair history.
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Minspect: Customer Defined Inspection Toolkit. This module uses bar code
readers and fills out forms, provides real-time notification of work order
changes across personnel, shifts, and teams.
MDocs: Documentation Search & Retrieval Tool. This module accesses the most
current fault isolation procedures, user manuals, reports and schematics
from any documentation system.
MDepot: Production/Non-Production Stores Management. This module accesses
bill of materials, material availability and order replacement parts and
identifies parts inventory based on equipment configuration, track material
transfers.
Mwarehouse: Comprehensive Warehouse Management Tool. This module perform
inventory checks and audits, transfers stock within and between warehouses,
issues stock out to work sites, scraps and retires stock, returns equipment
to vendors for repair or replacement, performs purchase order receipts and
manages stock hierarchies.
MT&M: Document, Capture and Verify Invoicing. This module documents the
work performed, captures customer approval, reviews, updates, and approves
submitted invoices by field technicians using any standard web browser,
validates the work performed and accumulated charges before the invoice is
submitted for billing and provides for audit and reporting.
MAsset: Asset Management Tool. This module records assets at a given
location using bar code readers, automatically updates centralized
inventory information and manages configuration and maintenance of the
assets.
MOBILE QUICKSTART: This module is an out-of-the-box mobility solution from
HP and Telispark that packages all the software, hardware and services that
an enterprise needs to rapidly implement entry-level asset inspection and
maintenance solutions
Telispark believes that TME has a number of advantages for the enterprise, which
are as follows:
o Easily configurable, scalable and deployable. Telispark provides an easily
scalable solution that can be configured to match an enterprise's specific
mobile business processes. Telispark's platform and application suite uses
a logical business object framework, which maps to back-office systems. It
automatically replicates those objects and processes to a thick client for
reliability. Lastly, it manages those applications, with upgrades and data
transactions, across a wireless network.
o Accessibility across multiple back-office systems. The mobile worker often
requires information that resides in multiple systems. Telispark exchanges
and transacts data, such as work orders, material availability, equipment
configurations, schematics, and repair procedures, from the mobile client
to disparate back-office systems. This eliminates the inefficient
activities performed to access that information and leverages the
significant investments in back-office systems.
o Standards computing & device independence. Telispark employs a
state-of-the-art Java- and XML- based server architecture with advanced
client-side scripting. Telispark's thick client has a configurable Client
Database Management System that runs on any device. The client applications
are written in industry standard user interface development languages, HTML
and JavaScript, and supports the following operating systems, Pocket PC,
Palm, and Symbian.
o Business scalable enterprise solutions. Telispark teams with global
organizations for scalable solutions that seamlessly work with Telispark's
products. These partners include, but are not limited, to Hardware Vendors
(Compaq, Symbol, Siemens, Intermec, HP), Systems Integrators (Deloitte
Consulting, Accenture, KPMG), Network Providers, and Application Vendors
(SAP, Tibco, MRO Software, Datastream).
o Out-of-network coverage. Since wireless networks cannot be accessed from
remote locations, Telispark clients run as standalone thick client
applications that store data persistently on the users' handheld devices,
allow them to navigate the application, and update their work regardless of
network connectivity. The application will time
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stamp, prioritize and sequence the updates to the back-office system, when
the user comes back into wireless coverage.
o Automated data entry and mobile workflow. By using bar code readers and
automated workflows to systematically process data, Telispark ensures that
the maintenance technician provides timely and accurately entered data.
The Company generates revenue through the sale of TME end-user perpetual
licenses, with the price for each license varying based upon the module
purchased. Preferential pricing is available for large enterprise site licenses.
In addition to one-time software license fees, the Company charges annual
maintenance and support fees. The Company also charges fees for installation
services, training and professional services such as customization of its
software products.
TME is sold to enterprise customers by Infowave's sales force and also partners
with third party technology providers such as IBM, Indus and MRO in addition to
system integrators like Deloitte and HP on co-selling opportunities.
Infowave Wireless Business Engine(TM)
The Infowave Wireless Business Engine is a wireless software platform installed
on the server and designed to support a suite of application connectors suitable
for most enterprises. The Infowave Wireless Business Engine provides end-to-end
security, data transport and bandwidth optimizations, session reliability, and
multiple device and network support.
Infowave has developed Connectors for the Infowave Wireless Business Engine that
address the three areas of enterprise data: Messaging - Exchange Connector and
Domino Connector, Intranet/Web - Web Connector and Client Server/Legacy - Open
Application Connector. The Connectors are plugged into the Infowave Wireless
Business Engine allowing IT managers to easily and efficiently manage the
solution. Unlike many other wireless software solutions that allow users to
access only a subset of the features associated with an application, Infowave's
Connectors allow users to gain access to the application as if they were in
their office connected to their corporate network. Many corporate applications,
such as ERP and CRM, have traditionally been accessed only through fast networks
on full workstation computers and have not been well suited for smaller devices
in a mobile environment. However, each Connector developed by Infowave extends
the entire application to the wireless device.
The Infowave Wireless Business Engine creates an efficient wireless Virtual
Private Network (VPN) and improves remote dial-up connections by optimizing
slower dialup (landline) connections into enterprise accounts and Wide Area
Networks. As a result, mobile workers have fast, secure and feature-rich access
to corporate data over either a wired or a wireless connection. The Infowave
Wireless Business Engine is also network independent, allowing users to optimize
their access to information over most major wireless data networks.
The Infowave Wireless Business Engine includes a client software component for
mobile computing devices using a Windows operating system. The client software
is installed on the wireless device and enables a secure wireless connection
that extends through a wireless carrier, over the Internet and into the Infowave
Wireless Business Engine installed at the enterprise or service provider. The
client and server software manages the connection to ensure security,
reliability, and optimization of all data sent and received. Infowave's client
software has been developed to work with Windows 95/98/NT/2000/XP and
Windows CE/Pocket PC.
The Company generates revenue through the sale of Wireless Business Engine
end-user perpetual licenses, with the price for each license varying based upon
the number of Connectors purchased. Preferential pricing is available for large
enterprise site licenses. In addition to one-time software license fees, the
Company charges annual maintenance and support fees. The Company also charges
fees for installation services, training and professional services such as
customization of its software products.
Exchange Connector
Infowave's Exchange Connector is an application connector that provides wireless
access to Microsoft Exchange servers using Microsoft Outlook client software.
Rather than plugging into a phone jack, users simply turn on their
9
portable computing device and launch Infowave's software. The user then opens
Microsoft Outlook, types a regular username and password and is connected
wirelessly and securely to Microsoft Exchange. An important and timesaving
feature of Exchange Connector is that it does not require a traditional
synchronization procedure before enabling communication. All unread e-mail in
the corporate message store is immediately pushed out to the end-user and all
outgoing e-mail in the user's outbox is immediately sent. All data transmission
is encrypted and compressed for speed and security. Infowave's Exchange
Connector also features real-time synchronization capability - all incoming
messages are stored to Microsoft Outlook and can be accessed when the user
disconnects from the network. This capability gives end users online and offline
access to data and allows productivity in situations such as on an airplane or
when out of a wireless network coverage area. The user requires no unique
training because Microsoft Outlook is used in the same way in the mobile
environment as it would on a desktop. Similarly, the IT manager requires little
training as he or she manages users through existing standard management
utilities.
Lotus Notes and Domino Connectors
The Company offers a bundled solution, which integrates third party software
that enables wireless access to Lotus Notes and Domino. This gives Lotus Notes
users by delivering a rich client, real-time wireless solution that they can use
to access information securely, reliably and with optimized performance. Similar
to the Exchange Connector, mobile Lotus Notes users are freed from limiting
landline connections. The Domino Connector gives mobile workers the ability to
access their corporate Domino-based e-mail, calendar, to do lists and address
book in real-time using a spectrum of wireless devices including laptops,
Internet-ready mobile phones, and handheld computers.
Web Connector
Infowave's Web Connector is an application connector which is directed towards
the growing demand for secure, wireless access to the Internet, corporate
Intranets and extranets and web-based enterprise applications using standard web
browsers on mobile computing devices. This application connector is important
because enterprises are using Intranets to host information such as customer and
sales data, service records and other back-end databases that employees,
partners, customers and management access and share regularly. Upon installation
of the Web Connector, mobile workers are able to attain secure, reliable
wireless access to this information. Enterprises can then leverage their
existing applications, network architecture and important corporate information.
The Enterprise's security policies and procedures for Internet and Intranet
access are seamlessly extended to mobile users using the Infowave Wireless
Business Engine and do not require any modifications or changes to the way in
which these may be currently implemented.
Open Application Connector
The Open Application Connector and a corresponding software development kit are
designed to enable enterprises to independently develop solutions to wirelessly
enable their legacy client/server applications using the Wireless Business
Engine. The Infowave Open Application Connector leverages the security and
optimization of the Infowave Wireless Business Engine and is intended to help
provide a common platform for wireless access to all primary corporate
applications, including CRM and ERP. With the addition of the Open Application
Connector, Infowave offers a broad ranging enterprise solution enabling access
to an array of corporate data including: messaging, Intranet/Web and client
server/legacy applications.
Infowave Mobility Platform
The Infowave Mobility Platform offers users worry-free, remote access to
behind-the-firewall business applications on Palm Powered or Pocket PC devices.
The Infowave Mobility Platform is uniquely positioned against competitive
products by its innovative offline and online capability. The platform can be
used to deploy almost any line-of-business application and manages content,
traffic, session longevity and all other aspects of the wireless connection.
When the device is out of coverage, the platform continues to track any and all
user actions that require a future update to the corporate service and makes the
changes when coverage is available.
Designed to allow the rapid development and deployment of applications for the
Infowave Mobility Platform, the Infowave Mobility Composer can be used to build
a new mobile version of line-of-business applications with a unique
wizard-driven approach. It can be used by developers and non-IT personnel alike
to build simple to complex solutions with a fraction of the effort traditionally
required.
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Symmetry(TM)
Symmetry is a wireless e-mail software service for individual Palm, Microsoft
PocketPC and Smartphone and Symbian powered device users. Symmetry enables users
to wirelessly access personal email such as POP3 or Microsoft Hotmail and
Microsoft Exchange corporate e-mail, contacts, attachments and calendar
information.
The service can be purchased and activated by the end-user, generally without
the assistance of his or her enterprise's information technology department. It
requires installation of Infowave's software on both of the client desktop or
server and mobile device, as well as subscription to the Infowave Symmetry
service. Symmetry is marketed directly by Infowave, through value added
resellers and through global network operators under branded offerings.
The Symmetry service redirects e-mail and other personal information management
(PIM) information from the user's desktop or server source to a Symmetry Pro
Gateway (server) managed by Infowave or other secure third-party providers. The
Gateway manages the flow of information between the user's mobile device and
desktop.
Symmetry is available in the following product options:
o Symmetry Express - Desktop based wireless e-mail service for personal
e-mail for individuals. The solution allows users to send and receive
e-mail messages from their POP3, Yahoo Mail and Hotmail accounts
directly from their integrated device.
o Symmetry Pro - Desktop based wireless e-mail service for Microsoft
Exchange business e-mail for individuals.
o Symmetry Workgroup - Desktop based wireless e-mail service for
Microsoft Exchange business e-mail for up to 10 users. The Workgroup
Edition installs as a service on a single desktop and does not require
any installation, administration or maintenance assistance from IT
resources. This allows small and medium sized business or a single
department to independently adopt a wireless e-mail and solution.
o Symmetry Enterprise - Server based wireless e-mail service for
Microsoft Exchange business e-mail for 10 or more users.
Symmetry is sold either as a package of software licenses, along with technical
support and an annual service fee that will activate the product for one year
from purchase or a service billed either as an annual subscription or as a
monthly recurring service charge for each user. Revenues from Symmetry are
recognized in straight-line amortization over the period of the service
contract.
Infowave Mobile Operator Solution Suite
The Infowave Mobile Operation Solution Suite establishes a services platform for
network operators to offer wireless data solutions directly for their own
corporate customers on a variety of handheld devices. Starting with wireless
e-mail and calendar for Microsoft Exchange, network operators can provide a
turnkey messaging application as part of their portfolio of wireless data
services.
Available as either an Infowave-hosted model or deployed in the network
operator's own data centre, the Gateway solution can be installed quickly to
support a network operator's marketing initiatives. Infowave offers a
comprehensive "Go-to-Market" solution with its Symmetry branded offerings that
will appeal to virtually every segment of the business market.
The Gateway is marketed and sold directly by Infowave to network operators as a
complete solution suite to offer compelling products to its customers and
generate additional revenues. Network operators can acquire the Gateway in a
variety of flexible configurations including hosted and non-hosted models, and
shared value-added services revenue.
11
Resellers
Infowave entered into a worldwide reseller agreement with Compaq (now HP) in
April 2000. In March 2002, the Company entered into the HP Strategic Alliance
and Sales Agreement that builds on previous sales, marketing and services
agreements established between HP and Infowave. Under the terms of this
agreement, HP and Infowave will collaborate on a comprehensive marketing and
communication program and a sales engagement strategy designed to generate
demand for software and services.
Any future revenue from HP will depend upon HP's success in reselling the
Company's products through its various sales channels and upon HP continuing to
resell such products. There can be no assurance, however, that this relationship
with HP will prove successful or will generate material revenues for the
Company. See "Risk Factors - Reliance on HP."
Infowave has developed an Authorized Partner Program for regional or specialty
channel partners. This standardized program is designed to allow the Company to
scale its relationships with many reseller partners and drive further revenue
opportunities and market penetration. Infowave resellers include Handango,
Rogers AT&T and MobilePlanet in North America and Airlan Data, Wireless Logic,
Data Link, Handstep and Getronics NV in Europe. Any future revenue from these
resellers will depend upon their success in reselling the Company's products
through their various sales channels and upon these resellers continuing to
resell such products. See "Risk Factors - Reliance on Key Third-Party
Relationships."
Infowave also distributes its Symmetry products through wireless network
operator distribution partners that include T-Mobile UK, Telus of Canada, CSL of
Hong Kong and sunrise/TDC of Switzerland AG.
OEM and Embedded Partners
Infowave is working to establish OEM distribution partnerships and bundling
agreements with hardware manufacturers (device, server, infrastructure) and
enterprise software vendors (such as CRM, ERP, etc.). The intent is for Infowave
products and technology to be embedded for distribution and installation with
partner products.
Marketing Alliances
Infowave has entered into a select number of marketing alliances with carriers,
hardware companies, and other software companies. Marketing alliance partners do
not resell the Company's products, but rather engage in joint marketing
initiatives such as customer referrals, events, and direct mail activities that
create sales leads for Infowave. Infowave is engaged in marketing activities
with companies such as Microsoft, HP, IBM, Indus, MRO, T-Mobile and Dell
Computers.
COMPETITION
The emerging wireless infrastructure and mobile application marketplace is
presenting a variety of choices in wireless products that are required to
satisfy the diverse needs of enterprises and their different classes of mobile
workers. There has been recent consolidation in the industry that has resulted
in a lower number but stronger competitors.
Infowave has attempted to differentiate itself by offering intelligent support
for multiple devices, platforms, networks, applications, and services with
centralized management in addition to work-flow optimization by specific
vertical industry. Infowave believes this approach will allow enterprise
customers to optimize choice while leveraging their existing investments in
hardware, software and training. Furthermore, Infowave has attempted to provide
enterprise-grade security and optimization along with real-time access to both
corporate applications and the Internet.
Infowave has also attempted to differentiate itself by providing value added
software solutions to specific vertical industries via its acquisition of
Telispark such as utilities, oil and gas, telecom and hi-tech field services
obtained through its license of Deloitte's Industry Prints. This domain
expertise and productivity efficiency enhancement knowledge results in increased
understanding of Infowave's customer business issues to provide increased value
through the sale of its software solutions.
12
PROPRIETARY PROTECTION
Infowave's software solutions are protected by certain intellectual property
rights and by a combination of copyright, trademark and trade secret laws,
non-disclosure agreements and other contractual provisions to establish and
maintain its rights. Infowave has also applied for several patents in the United
States, which are currently in process. As part of its confidentiality
procedures, the Company generally enters into a non-disclosure and
confidentiality agreement with all its employees and each of its consultants and
specifically with any third-party that would have access to the source code for
the Company's software products. As well, the Company strictly limits access to
and distribution of its software in executable code form.
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Symmetry", "Wireless Business Engine", "Infowave Wireless Enabler", the "I
Design" design mark and the Circle within a Circle design. Infowave has Canadian
and U.S. copyrights for "Infowave for Exchange", "Infowave for the Net" and
"Symmetry".
However, there can be no assurance that the measures taken by the Company to
protect its intellectual property rights will adequately protect those rights.
See "Legal Matters".
Although Infowave believes it has the right to use all of the intellectual
property incorporated in its products, third parties may claim that the
Company's products violate their proprietary rights, including copyrights and
patents. If any such claims are made and found to be valid, the Company may have
to re-engineer its products or obtain licenses from third parties to continue
offering its products. Any efforts to re-engineer its products or obtain
licenses from third parties may not be successful and could substantially
increase the Company's costs and have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Risk Factors
- - Intellectual Property Protection" and "Legal Matters".
STAFF HEADCOUNT
As at December 31, 2003, the Company had a total of 53 full time staff with
approximately fifty percent engaged in research and development activities. The
Company increased its total headcount to 90 full time employees on January 7,
2004 with the acquisition of Telispark. Due to the integration and restructuring
initiatives of the Company during 2004, the Company has reduced total employees
to 63 as at March 29, 2004. The Company's research and development employees are
primarily software developers, many with extensive experience in the wireless
area. The Company currently believes that there are sufficient available
resources in the labour marketplace to meet its short-term needs.
RISK FACTORS
In addition to the other information contained in this Annual Report, readers
should carefully consider the following risk factors that may have a material
adverse effect on the Company's business, financial condition or results of
operation.
History of Losses
The Company is not currently profitable and has incurred operating losses from
continuing operations (calculated in accordance with Canadian Generally Accepted
Accounting Principles) of $5,797,515, $9,763,740 and $19,413,246 for the years
ended December 31, 2003, 2002 and 2001 respectively. The Company anticipates
that its expenses may increase as the Company continues to increase its research
and development, sales and marketing and general and administrative expenses and
if it acquires additional assets or technology. The Company cannot predict if it
will ever achieve profitability, and if it does, it may not be able to sustain
or increase profitability. The Auditor's report on the 2003 consolidated
financial statements includes additional comments for U.S. readers that states
that conditions and events exist that cost substantial doubt about the Company's
liability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
13
Wireless Industry Growth
There can be no assurance that the market for the Company's existing or proposed
wireless software products will grow, that firms within the industry will adopt
the Company's software products for integration with their wireless data
software solutions, or that the Company will be successful in independently
establishing product markets for its wireless software products. If the various
markets in which the Company's software products compete fail to grow, or grow
more slowly than the Company currently anticipates, or if the Company were
unable to establish product markets for its new software products, the Company's
business, results of operation and financial condition would be materially
adversely affected.
Rapidly Changing Technologies
The wireless data communications market is characterized by rapidly changing
technology and evolving industry standards. Therefore, it is difficult to
predict the rate at which the market for the Company's wireless software
products will grow, if at all. If the market fails to grow, or grows more slowly
than anticipated, the Company will be materially adversely affected. Even if the
market does grow, there can be no assurance that the Company's products will
achieve commercial success. The Company currently does and expects that it will
continue to find itself competing in the market for wireless mobile computing
software against other companies with significantly greater financial, marketing
and other resources. Such competitors may be able to institute and sustain price
wars, or imitate the features of the Company's wireless mobile computing
software, thereby reducing prices and thus, the Company's revenues and share of
the market.
In addition, the Company's competitors may develop alternative technologies that
gain broader market acceptance than the Company's software solutions. As a
result, the life cycle of the Company's software solutions is difficult to
estimate. The Company may need to develop and introduce new products and
enhancements to its existing solutions on a timely basis to keep pace with
technological developments, evolving industry standards, changing customer
requirements and competitive technologies that may render its solution obsolete.
These research and development efforts may require the Company to expend
significant capital and other resources. In addition, as a result of the
complexities inherent in the Company's solutions, major enhancements or
improvements will require long development and testing periods. If the Company
fails to develop products and services in a timely fashion, or if it does not
enhance its products to meet evolving customer needs and industry standards,
including security technology, it may not remain competitive or it may sell its
solutions.
Product Improvements
The Company will be at risk if it is unable to continually upgrade and improve
its software products, or to develop new software products. The software
industry is characterized by a constant flow of new or improved products, which
quickly render existing software products obsolete. The Company's competitors
may develop technically superior and/or comparable products at the same or lower
priced software that would have a materially adverse effect on the Company.
Additional Financing
The Company may not have sufficient capital to fund its own operations without
raising additional capital, and/or implementing additional reductions in
expenses. Further reductions in expenses may negatively impact the Company's
ability to grow the business. No assurance can be given that any additional
financing required would be available, or that additional financing will be
available on terms that may be advantageous to existing shareholders. Such
financing, to the extent that it is available may result in substantial dilution
to shareholders. To the extent such financing is not available, the Company may
not be able to, or may be delayed in, continuing to commercialize its software
products and services.
Reliance on Microsoft
Some of the Company's wireless software products wirelessly enable the
functionality of Microsoft Exchange. Microsoft may make changes to its products
that would require Infowave to similarly make changes to its software to
maintain functionality. The Company is aware that Microsoft has developed its
own wireless functionality for
14
Microsoft Exchange. There is no assurance that the Company can maintain any
required upgrades to its software to remain relevant and competitive.
The Company announced in January 2003, that it will collaborate with Microsoft
to develop and market solutions for mobile network operators based on the
Windows Powered Microsoft mobile device platforms. There is no assurance that
this collaboration will be successful, or that material revenues will be
generated from the relationship.
Management of Growth and Expenses
The Company has had a history of expanding rapidly and then was forced to
reorganize and downsize to control expenses. This growth, as well as any future
growth, and this downsizing as well as any future downsizing, has placed a
significant strain on the Company's resources. The Company's ability to achieve
and maintain profitability, if at all, will depend on its ability to manage
growth and expenses effectively, to implement and expand operational and
customer support systems, and to hire additional personnel or rationalize
existing personnel. The Company may not be able to augment or improve existing
systems and controls or implement new systems and controls to respond to any
future growth. In addition, future growth may result in increased
responsibilities for management personnel, which may limit their ability to
effectively manage the Company's business.
Reliance on Key Personnel and Consultants
The Company is currently dependent upon its senior management, board of
directors and consultants, the loss of any of which may significantly affect the
performance of the Company and its ability to carry out the successful
development and commercialization of its software products and services. Failure
to retain management, directors and consultants or to attract and retain
additional key employees with necessary skills could have a material adverse
impact upon the Company's growth and profitability. The Company may be required
to recruit additional software development personnel, and expand its sales force
and customer support functions as well as train, motivate and manage its
employees. The Company's ability to assimilate new personnel will be critical to
its performance. Competition for qualified software development personnel and
other professionals is expected to increase. There can be no assurance that the
Company will be able to recruit the personnel required to execute its programs
or to manage these changes successfully.
Reliance on Key Third-Party Relationships
The Company relies on key third-party relationships, including its relationships
with resellers and OEMs, for marketing and sales of its software products. These
third parties are not within the control of the Company, may not be obligated to
purchase software products from the Company and may also represent and sell
competing software products. The loss of any of these third-party relationships,
the failure of such parties to perform under agreements with the Company or the
inability of the Company to attract and retain new resellers or OEMs with the
technical, industry and application experience required to market and sell the
Company's software products successfully could have a material adverse effect on
the Company.
Competition
A number of competitors have substantially greater financial, technical and
marketing resources than the Company. In addition, the market for wireless
mobile computing software products continues to develop, and additional
competitors with substantially greater financial, technical and marketing
resources than the Company may enter the market and competition may intensify.
Current or future competitors may develop software products that are superior to
the Company's software products or achieve greater market acceptance.
Product Defects
The Company's complex software products may contain undetected errors or defects
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new software products after commencement of
commercial shipments resulting in product recalls and market rejection of the
Company's software products and resulting in damage to the Company's reputation,
as well as lost revenue, diverted development resources and increased support
costs.
15
Intellectual Property Protection
The Company relies principally upon a combination of copyright, trademark and
trade secret laws, non-disclosure agreements and other contractual provisions to
establish and maintain its rights. The Company has several patent applications
pending. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary information will prevent
misappropriation of such information. The cost of litigation necessary to
enforce the Company's proprietary rights may be prohibitive. Such steps may not
preclude competitors from developing confusingly similar brand names or
promotional materials or developing software products and services similar to
those of the Company.
Although the Company believes that it has the right to use all of the
intellectual property incorporated in its software products, third parties may
claim that the Company's software products violate their proprietary rights,
including copyrights and patents. The cost of litigation necessary to defend the
Company's right to use the intellectual property incorporated in its software
products may be prohibitive. If any such claims are made and found to be valid
or the Company determines it prudent to settle any such claims, the Company may
have to reengineer its software products or obtain licenses from third parties
to continue offering its software products or in whole or in part cease using
such technology. Any efforts to re-engineer its' software products or obtain
licenses from third parties or cease using such technology may not be successful
and could substantially increase the Company's costs and have a material adverse
effect on the business, financial condition and results of operations of the
Company.
Foreign Exchange Rate Exposure
The majority of the Company's revenue is denominated in U.S. dollars. The
Company does not engage in currency hedging activities to limit the risks of
exchange rate fluctuations. As a result, changes in the relative value of the
U.S. dollar to the Canadian dollar and other foreign currencies will affect the
Company's revenues and operating margins. The impact of future exchange rate
fluctuations between the U.S. dollar and the Canadian dollar or other foreign
currencies on revenues and operating margins cannot be accurately predicted and
could have a material adverse effect on the Company.
Enforcement of Civil Liabilities
The Company is a corporation organized under the laws of Canada. A number of the
Company's directors and professional advisors are residing in Canada or outside
of the U.S. All or a substantial portion of the assets of such persons are or
may be located outside of the U.S. It may be difficult to effect service of
process within the United States upon the Company or upon such directors or
professional advisors or to realize in the U.S. upon judgments of U.S. courts
predicated upon civil liability of the Company or such persons under U.S.
federal securities laws. The Company has been advised that there is doubt as to
whether Canadian courts would (i) enforce judgments of U.S. courts obtained
against the Company or such directors or professional advisors predicated solely
upon the civil liabilities provisions of U.S. federal securities laws, or (ii)
impose liability in original actions against the Company or such directors and
professional advisors predicated solely upon such U.S. laws. However, a judgment
against the Company predicated solely upon civil liabilities provisions of such
U.S. federal securities laws may be enforceable in Canada if the U.S. court in
which such judgment was obtained has a basis for jurisdiction in that matter
that would be recognized by a Canadian court.
Potential Fluctuations in Quarterly Financial Results
The Company's financial results vary from quarter to quarter based on factors
such as the timing of significant orders and contract completions and the timing
of new product introductions. Any significant fluctuation in revenue could
materially adversely affect the Company.
Operating results are difficult to predict and may fluctuate, which may
contribute to fluctuations in our stock price
As a result of the rapidly changing and uncertain nature of the markets in which
we compete, our quarterly and annual revenue and operating results may fluctuate
from period to period, and period to period comparisons may not be meaningful.
These fluctuations are caused by a number of factors, many of which are beyond
our control. In past periods, our operating results have been affected by
personnel reductions and related charges, charges related to
16
losses on excess office facilities, and impairment charges for certain of our
assets. Our operating results may be adversely affected by similar or other
charges or events in future periods, which could cause the trading price of our
stock to decline.
Certain of our expense decisions (for example, research and development and
sales and marketing efforts and other business expenses generally) are based on
predictions regarding our business and the markets in which we compete. To the
extent that these predictions prove inaccurate, our revenue may not be
sufficient to offset these expenditures and our operating results may be harmed.
Change in Sales Strategy and Reliance on a Small Number of Customers
A significant proportion of the Company's revenues are from a small number of
customers with large orders. For 2003, revenue from three customers represented
approximately 40% of revenues. During 2002, three customers accounted for
approximately 63% of revenues. The Company has renewed its focus on larger
Fortune 500 opportunities that have the potential for significant sales.
Visibility for the timing of closing such deals is difficult, and the Company
may experience swings in revenue, as single large opportunities can materially
affect the revenue results of any quarter, and it is difficult to accurately
predict revenue timing with these opportunities.
Introduction of New Products and Sales Mixture
Infowave launched a series of new products during the year to broaden and appeal
to virtually every segment of the business market: Mobility Platform, Symmetry
Pro, Symmetry Pro Enterprise, Symmetry Pro Workgroup and Symmetry Mobile
Application Gateway. The Company also expanded its product offering with the
Telispark Mobile Enterprise obtained through its acquisition of Telispark on
January 7, 2004. It is too early at this time to determine how the market will
accept the products or whether a significant amount of revenue will be generated
from these products.
Certain Shareholders May Exercise Control Over Matters Voting Upon by the
Shareholders
Certain of the Company's officers, directors and entities affiliated with the
Company together beneficially owned a significant portion of the Company's
outstanding common shares as of December 31, 2003. While these shareholders do
not hold a majority of the Company's outstanding common shares, they may be able
to exercise significant influence over matters requiring shareholder approval,
including the election of directors and the approval of mergers, consolidations
and sales of the Company's assets. This may prevent or discourage tender offers
for the Company's common shares.
Possible Market Volatility
The market price for the Common Shares may be subject to significant volatility.
Quarterly operating results of the Company or of other companies involved in the
wireless industry specifically or technology industries generally, changes in
general conditions in the North American economy, the financial markets in North
America, failure to meet the projections of securities analysts or other
developments affecting the Company or its competitors could cause the market
price of the Common Shares to fluctuate substantially. In addition, in recent
years, the stock market has experienced extreme price and volume fluctuations.
This volatility has had a significant effect on the market prices of securities
of many companies for reasons unrelated to their operating performance.
Effects of Restructuring Activities
The Company reduced its workforce during 2001 and 2002 and will continue to
monitor the proper level of labor investment in future to manage expenses
accordingly. There have been and may continue to be substantial costs associated
with this workforce reduction related to severance and other employee-related
costs and the Company's restructuring plan may yield unanticipated consequences,
such as attrition beyond its planned reduction in workforce. This workforce
reduction has placed an increased burden on the Company's administrative,
operational and financial resources and has resulted in increased
responsibilities for each of its management personnel. As a result, the
Company's ability to respond to unexpected challenges may be impaired and it may
be unable to take advantage of new opportunities.
17
In addition, many of the employees who were terminated possessed specific
knowledge or expertise, and that knowledge or expertise may prove to have been
important to the Company's operations. In that case, their absence may create
significant difficulties. Further, the reduction in workforce may reduce
employee morale and may create concern among potential and existing employees
about job security at the Company, which may lead to difficulty in hiring and
increased turnover in its current workforce, and divert management's attention.
In addition, this headcount reduction may subject the Company to the risk of
litigation, which could result in substantial costs to it and could divert
management's time and attention away from business operations. Any failure by
the Company to properly manage this rapid change in workforce could impair its
ability to efficiently manage its business to maintain and develop important
relationships with third-parties and to attract and retain customers. It could
also cause the Company to incur higher operating costs and delays in the
execution of its business plan or in the reporting or tracking of its financial
results.
The suit by Visto Corporation may not be successful and could harm our financial
results
On October 3, 2003 the Company was sued by Visto Corporation, a private company
based in California for patent infringement relating to the system and method
for synchronizing e-mail. On November 28, 2003, the Company filed a full answer
and counterclaim to a claim previously brought by Visto Corporation, a private
company based in California. We expect that the litigation, if it is not
resolved before trial, will carry on for several years. It is not possible to
predict accurately how much the litigation will cost, or its duration. The costs
of litigation could have an adverse impact on our operating results in excess of
our current expectations. The litigation may also distract our management team
from operational matters, which could harm our business results. The Company may
also not be successful in defending itself in this matter, which may have a
material impact on our financial position and future operations.
Our industry is experiencing consolidation that may cause us to lose key
relationships and intensify competition
The wireless mobility industry is undergoing substantial change, which has
resulted in increasing consolidation and formation of strategic relationships.
We expect this consolidation and strategic partnering to continue. Acquisitions
or other consolidating transactions could harm us in a number of ways including:
o We could lose key strategic relationships if our strategic partners
are acquired by or enter into relationships with a competitor (which
could cause us to lose access to distribution, content, technology and
other resources);
o We could lose customers if competitors or users of competing
technologies consolidate with our current or potential customers; and
o Our current competitors could become stronger, or new competitors
could form, from consolidations.
Any of these events put us at a competitive disadvantage, which could cause us
to lose customers, revenue and market share. Consolidation could also force us
to expend greater resources to meet new or additional competitive threats, which
could also harm our operating results.
Potential acquisitions involve risks that could harm our business and impair our
ability to realize potential benefits from acquisitions.
As part of our business strategy, we have acquired technologies and businesses
in the past, and expect that we will to continue to do so in the future. The
failure to adequately address the financial, legal and operational risks raised
by acquisitions of technology and businesses could harm our business and prevent
us from realizing the benefits of the acquisitions. Financial risks related to
acquisitions may harm our financial position, reported operating results or
stock price, and include:
o Potential equity dilution, use of cash resources and incurrence or
debt and contingent liabilities in funding acquisitions;
o Large write-offs and difficulties in assessment of the relative
percentages of in-process research and development expense that can be
immediately written off as compared to the amount which must be
amortized over the appropriate life of the asset; and
o Amortization expenses related to other intangible assets.
18
Acquisitions also involve operational risks that could harm our existing
operations or prevent realization of anticipated benefits from an acquisition.
These operational risks include:
o Difficulties and expenses in assimilating the operations, products,
technology, information systems or personnel of the acquired company;
o Diversion of management's attention from other business concerns and
the potential disruption of our ongoing business;
o Impairment of relationships with employees, affiliates, advertisers
and content providers of our business and the acquired business;
o The assumption of known and unknown liabilities of the acquired
company, including intellectual property claims; and
o Entrance into markets in which we have no direct prior experience.
If we are not successful in maintaining, managing and adding to our strategic
relationships, our business and operating results will be adversely affected.
We rely on many strategic relationships with third parties in connection with
our business, including relationship providing for distribution of our products
and licensing of technology. The loss of current strategic relationships of the
failure of our existing relationships to achieve meaningful positive results for
us could harm our business. We may not be able to replace these relationships
with others on acceptable terms, or at all, or find alternative sources for
resources that these relationships provide.
Financial forecasting of our operating results will be difficult because of the
changing nature of our products and business, and our actual results may differ
from forecasts.
As a result of the dynamic and changing nature of our products and business, and
of the markets in which we compete, it is difficult to accurately forecast our
revenues, gross margin, operating expenses and other financial and operating
data. Our inability or the inability of the financial community to accurately
forecast our operating results could result in our reported net income (losses)
in a given quarter to differ from expectations, which could cause a decline in
the trading price of our common stock.
ITEM 2: PROPERTIES
The Company owns no real property. Pursuant to a lease agreement entered into on
July 1, 2002 which expires June 30, 2008, the Company currently leases 12,416
square feet of office space in Burnaby, British Columbia, which the Company uses
as its corporate, administrative, and research and development offices.
Pursuant to a lease agreement that expires March 31, 2005, the Company leases
7,329 square feet of office space in Bothell, Washington, the former sales and
marketing office of the Company, which the Company currently sublets to a third
party.
ITEM 3: LEGAL PROCEEDINGS
On October 3, 2003 the Company was sued by Visto Corporation, a private company
based in California for patent infringement relating to the system and method
for synchronizing e-mail. On November 28, 2003, the Company filed a full answer
and counterclaim to a claim previously brought by Visto Corporation, a private
company based in California. Infowave has made a counterclaim against Visto for,
among other things, a declaratory judgement of non-infringement and invalidity
of a Visto patent. As well, the Company intends to continue to vigorously defend
this matter and has retained Texas counsel and believes that the claim is
without merit.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 2003. The Company held its annual general meeting for the year
ended December 31, 2002 on June 30, 2003 that included several resolutions for
vote by the Company's shareholders as described in the Company's Information
Circular sent in June 2003 regarding this meeting.
19
PART II
ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON SHARES
The Common Shares of the Company are currently traded on the TSX (formerly The
Toronto Stock Exchange) (the "TSX") under the symbol "IW". The Common Shares
were listed on the TSX on October 14, 1999. The Common Shares do not currently
trade on any exchange in the United States. The following table sets forth the
high and low closing sale prices, as reported by the TSX, of the Common Shares
for the calendar quarters indicated.
PRICE RANGE OF COMMON SHARES
HIGH LOW
(CDN$) (CDN$)
------ ------
2001
Q1: Jan - Mar 7.90 2.40
Q2: Apr - Jun 4.35 2.05
Q3: Jul - Sep 2.60 0.36
Q4: Oct - Dec 1.86 0.38
2002
Q1: Jan - Mar 1.99 0.45
Q2: Apr - Jun 0.60 0.17
Q3: Jul - Sep 0.22 0.12
Q4: Oct - Dec 0.50 0.10
2003
Q1: Jan - Mar 0.38 0.19
Q2: Apr - Jun 0.28 0.15
Q3: Jul - Sep 0.44 0.19
Q4: Oct - Dec 0.40 0.18
As of March 26, 2004, there were 216,029,950 Common Shares issued and
outstanding. At such date, there were approximately 308 shareholders of record,
but this number includes those shares held in street or nominee names.
DIVIDENDS
The Company has not paid any dividends to date and it does not foresee the
declaration or payment of any dividends on the Common Shares in the near future.
Any decision to pay dividends on the Common Shares will be made by the board of
directors on the basis of the Company's earnings, financial requirements and
other conditions existing at such future time.
EXCHANGE CONTROLS
Canada has no system of exchange controls. There are no exchange restrictions on
borrowing from foreign countries or on the remittance of dividends, interest,
royalties and similar payments, management fees, loan repayments, settlement of
trade debts, or the repatriation of capital. However, any dividends remitted to
U.S. Holders, as defined below, will be subject to withholding tax. See the
heading "Taxation" below.
TAXATION
Canadian Federal Income Tax Considerations
The following summarizes certain Canadian federal income tax considerations
generally applicable to the holding and disposition of Common Shares by a holder
(a) who, for the purposes of the Income Tax Act (Canada) (the "Tax
20
Act"), is not resident in Canada, deals at arm's length with the Company, is not
affiliated with the Company, holds the common shares as capital property, is not
a "financial institution" and does not use or hold the common shares in the
course of carrying on, or otherwise in connection with, a business in Canada,
and (b) who, for the purposes of the Canada-United States Income Tax Convention
(the "Treaty"), is a resident of the United States, has never been a resident of
Canada, and has not held or used (and does not hold or use) common shares in
connection with a permanent establishment or fixed base in Canada. Each such
holder who meets all such criteria in clauses (a) and (b) is referred to herein
as a "U.S. Holder." Except as otherwise expressly provided, the summary does not
deal with special situations, such as particular circumstances of traders or
dealers, limited liability companies, tax-exempt entities, insurers, financial
institutions (including those to which the mark-to-market provisions of the Tax
Act apply), or otherwise.
This summary is based on the current provisions of the Tax Act and the
regulations there under, all proposed amendments to the Tax Act and regulations
publicly announced by the Minister of Finance (Canada) to the date hereof, the
current provisions of the Treaty and the current administrative practices of the
Canada Customs and Revenue Agency, formerly known as Revenue Canada. It has been
assumed that all currently proposed amendments will be enacted as proposed and
that there will be no other relevant change in any governing law, the Treaty or
administrative policy, although no assurance can be given in these respects.
This summary does not take into account provincial, U.S. or other foreign income
tax considerations, which may differ significantly from those discussed herein.
This summary is not exhaustive of all possible Canadian income tax consequences.
It is not intended as legal or tax advice to any particular holder and should
not be so construed. The tax consequences to any particular holder will vary
according to the status of that holder as an individual, trust, corporation or
member of a partnership, the jurisdictions in which that holder is subject to
taxation and, generally, according to that holder's particular circumstances.
Each holder should consult the holder's own tax advisors with respect to the
income tax consequences applicable to the holder's own particular circumstances.
Dividends
Dividends deemed both paid or credited to U.S. Holder by the Company are subject
to Canadian withholding tax. Under the Treaty, the rate of withholding tax on
dividends paid or credited to a U.S. Holder is generally limited to 15% of the
gross dividend (or 5% in the case of corporate shareholders owning at least 10%
of our voting shares).
Disposition
A U.S. Holder is not subject to tax under the Tax Act in respect of a capital
gain realized on the disposition of a common share in the open market unless the
share is "taxable Canadian property" to the holder thereof and the U.S. Holder
is not entitled to relief under the Treaty.
A common share will be taxable Canadian property to a U.S. Holder if, at any
time during the 5 year period ending at the time of disposition, the U.S. Holder
or persons with whom the U.S. Holder did not deal at arm's length (or the U.S.
Holder together with such persons) owned 25% or more of our issued shares of any
class or series, or had options, warrants or other rights to acquire 25% or more
of our issued shares of any class or series. In the case of a U.S. Holder to
whom Common Shares represent taxable Canadian property, no tax under the Tax Act
will be payable on a capital gain realized on a disposition of such shares in
the open market by reason of the Treaty unless the value of such shares is
derived principally from real property situated in Canada. The Company believes
that the value of our Common Shares is not derived principally from real
property situated in Canada, and that no tax will therefore be payable under the
Tax Act on a capital gain realized by a U.S. Holder on a disposition of Common
Shares in the open market.
ITEM 6: SELECTED FINANCIAL DATA
Set forth below is certain selected financial information of the Company for
each year in the five-year period ended December 31, 2003. The selected annual
financial information is derived from the Company's audited financial
statements. Annual sales for year 1999 relate only to the Wireless Division and
exclude the Imaging Division. The selected financial information for the eight
quarters prior to December 31, 2003 is derived from the unaudited quarterly
financial statements of the Company. The Company's financial statements are
expressed in United States
21
dollars and prepared in accordance with Canadian Generally Accepted Accounting
Principles ("GAAP"), which are not materially different from United States GAAP
except as explained in note 15 of the financial statements included in "Item 8.
Financial Statements and Supplementary Data." The information below should be
read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" along with the financial
statements and notes thereto.
CANADIAN GAAP
YEARS ENDED DECEMBER 31 (AUDITED)
-------------------------------------------------------------------------------
1999 2000 2001 2002 2003
--------------- --------------- --------------- --------------- ---------------
Income Statement Data
Sales $355,001 $1,513,557 $3,189,253 $1,821,041 $1,624,820
--------------- --------------- --------------- --------------- ---------------
Loss for the year 3,288,251 17,988,868 20,860,436 9,716,065 5,757,631
--------------- --------------- --------------- --------------- ---------------
Loss per share 0.21 0.90 0.90 0.18 0.05
--------------- --------------- --------------- --------------- ---------------
Balance Sheet Data
Total assets 8,054,492 12,445,349 13,657,675 4,158,757 9,935,349
--------------- --------------- --------------- --------------- ---------------
Long term obligations - - - - 218,292
--------------- --------------- --------------- --------------- ---------------
Share capital 12,526,949 35,148,040 42,447,141 56,539,360 65,700,311
--------------- --------------- --------------- --------------- ---------------
Cash dividends declared per
Common Share - - - - -
--------------- --------------- --------------- --------------- ---------------
UNITED STATES GAAP
1999 2000 2001 2002 2003
--------------- --------------- --------------- --------------- ---------------
Income Statement Data
Sales $355,001 $1,513,557 $3,189,253 $1,821,041 $1,624,820
--------------- --------------- --------------- --------------- ---------------
Loss for the year 3,344,326 18,198,480 20,986,922 10,138,827 5,757,631
--------------- --------------- --------------- --------------- ---------------
Loss per share 0.21 0.90 0.79 0.17 0.05
--------------- --------------- --------------- --------------- ---------------
Balance Sheet Data
Total assets 8,020,392 12,445,349 13,657,675 4,158,757 9,935,349
--------------- --------------- --------------- --------------- ---------------
Long term obligations - - - -
--------------- --------------- --------------- --------------- ---------------
Share capital $13,325,593 $36,192,899 $43,618,486 $57,710,705 $67,409,071
--------------- --------------- --------------- --------------- ---------------
Cash dividends declared per
Common Share - - - - -
--------------- --------------- --------------- --------------- ---------------
QUARTER ENDED (UNAUDITED)
-------------------------------------------------------------------------------------------------
2002 2002 2002 2002 2003 2003 2003 2003
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
Income Statement
Sales $325,261 $517,977 $676,415 $301,388 $411,856 $505,397 $381,395 $326,172
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
Loss for the period 3,376,025 4,234,514 1,069,608 1,035,918 955,460 919,970 1,505,648 2,376,553
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
Loss per share 0.09 0.07 0.02 0.02 0.01 0.01 0.01 0.02
----------- ----------- ------------ ----------- ----------- ------------ ----------- -----------
ITEM 7: MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investors should read the following in conjunction with the audited financial
statements and notes thereto included in Item 8 of this Annual Report and the
quarterly and selected financial information included in Item 6.
CORPORATE SUMMARY
Infowave Software, Inc. ("Infowave" or the "Company") provides enterprise mobile
applications (EMA), including packaged configurable application software modules
that integrate business operations required by mobile workers like asset
management, field service and mobile e-mail as well as secure, scalable
infrastructure software solutions for developing and deploying mobile solutions
and infrastructure platforms. The Company sells direct to enterprises and
end-users as well as indirectly through channel partners like independent
software vendors (ISVs), System Integrators and network operators (carriers).
Focused on enabling organizations with mobile workforces since 1993, Infowave
solutions enable mobile workers of all types to access critical enterprise
information at the point of work, including work orders, internal
22
communications, asset information, customer details, calendars, schedulization
and other important data required to perform their job functions more
effectively and productively. The Company provides a complete suite of mobile
solutions, ranging from the e-mail service of Symmetry, to complete
enterprise-grade application suites like Telispark Mobile Enterprise that
streamlines and integrates business operations required by mobile workers, such
as ERP, Field Service, Supply Chain and Asset Management operations. The Company
also offers the Wireless Business Engine, a wireless platform for large
corporations that provides access to e-mail and collaboration tools, corporate
intranets, the Internet, Web-enabled applications and legacy and client/server
applications from a wide range of wireless devices such as handheld computers,
laptops, PDAs and emerging integrated phone devices. As well, it offers the
Mobility Platform which offers users worry-free, remote access to
behind-the-firewall business applications on Palm Powered or Pocket PC devices.
Over the last three years, our business has evolved to address changing dynamics
in our industry. We initially developed our business as a leading provider of
wireless data infrastructure software technology to enable mobile access for
enterprise employees to their corporate data applications. Due to the early
initial adoption of mobile e-mail within our enterprise customer base, we
leveraged our technology leadership position to increase our market efforts on
this solution offering in order to stimulate additional customer opportunities
with our more robust enterprise data mobile software product. This resulted in
the creation of Infowave's network operator business unit which was focused at
selling our wireless e-mail solution to network operators and their customers.
We have aggressively pursued development of these new businesses, both through
internal initiatives and strategic acquisitions of businesses and technologies.
Infowave signed up several network operators during this period to offer its
software solutions in the marketplace on a subscription based service revenue
model basis which is based upon the volume of subscribers who pay a monthly
service fee to Infowave via the network operator.
We continued to sell our wireless middleware software solutions to enterprise
customers on a perpetual licensing basis with annual maintenance support and
stimulated sales opportunities via pilot projects or trials. However, our
overall results have been substantially affected over the last three years by
weaker demand for our software products and services caused by macroeconomic
conditions that have resulted in cutbacks in capital and information technology
spending by our customers and potential customers. Some or all of these factors
have principally impacted our operating results in the following ways:
o A decline in demand for our business products and services resulting
in declines in related revenues;
o Personnel reduction and related charges in 2002 and 2001; and
o Losses on excess facilities and write down of assets in 2003, 2002 and
2001.
The following table sets forth certain financial data for periods indicated as a
percentage of total net revenues:
2003 2002 2001
----------------- ----------------- -----------------
Revenue 100% 100% 100%
Costs of sales 12% 22% 13%
----------------- ----------------- -----------------
Gross margin 88% 78% 87%
----------------- ----------------- -----------------
Operating expense
Research and development 117% 137% 169%
Sales and marketing 124% 212% 292%
Administration 113% 111% 139%
Restructuring - 78% 39%
Impairment 38% - -
Depreciation and amortization 54% 76% 57%
----------------- ----------------- -----------------
Total operating expenses 446% 614% 696%
----------------- ----------------- -----------------
Operating loss 358% 536% 609%
----------------- ----------------- -----------------
In 2003, gross Research and development costs were 144%, which is net of 27.5%
TPC investment contribution.
23
In January 2003, the Company entered into an agreement with Microsoft
Corporation to develop and market solutions for mobile network operators based
on the Windows Powered Microsoft mobile device platforms.
In May 2003, the Company entered into a co-marketing agreement with Dell in
which the companies will cooperate in marketing Infowave's Wireless Business
Engine solution with Dell's GPRS wireless access offerings to the U.K. business
market.
In July 2003, the Company completed the acquisition of HiddenMind Techology, LLC
based in North Carolina as well as the completion of two tranches of a brokered
private placement of approximately US$3.6 million and the completion of the
US$3.0 million private placement with Gerald Trooien. Also in July 2003, the
Company appointed Jean-Francois Heitz and Jerry Meerkatz to its Board of
Directors.
In October 2003, the Company completed the acquisition of the intellectual
property assets of Sproqit Technologies, Inc., a wireless software company based
in Kirkland, Washington.
In September 2003, the Company was made aware that Visto Corporation, a private
company based in California, issued a press release stating that it had filed
complaints alleging patent infringement against Infowave. In November, the
Company filed a full answer and counterclaim to the claim previously brought by
Visto.
In November 2003, Mr. Jerry Meerkatz was appointed Chief Executive Officer of
the Company resulting in the replacement of the Office of the President with a
more formal management structure. Mr. Meerkatz joined Infowave from Hewlett
Packard, where he held several executive positions, most recently, Vice
President and General Manager of Enterprise Mobility Solutions.
In December 2003, Infowave entered into an agreement with Technology
Partnerships Canada ("TPC") for an investment up to $5.6 million (Cdn$7.3
million) to complement Infowave's investment in research and development. Under
the terms of this agreement, TPC has agreed to contribute a specified percentage
to match Infwave's investment in research and development expenses for a several
year period up to a maximum of $5.6 million (Cdn$7.3 million). Based on the
Company's current expectations of its future investment in research and
development, the Company may not utilize the full benefit of this investment
with TPC.
In January 2004, the Company entered into an Acquisition Agreement to acquire
substantially all of the outstanding shares of Telispark Inc. ("Telispark"), a
provider of enterprise mobility applications (EMA) software solutions. As well,
it also announced a US$3.0 million convertible line of credit facility with
Gerald Trooien, an existing shareholder and a director of Infowave.
In March 2004, the Company completed the issuance of a brokered private
placement of units for gross proceeds of US$4.7 million (Cdn$6.1 million).
Agents' commission and financing fees totaling $0.4 million (Cdn$0.5 million)
and an additional 300,000 units were paid in connection with this private
placement.
In March 2004, the Company entered into an agreement with Gerald Trooien to
issue approximately 6 million common shares for $1.0 million (Cdn.$1.3 million)
in a private placement financing. This private placement was subject to
shareholder approval. Such approval was obtained on March 30, 2004, and the
financing closed on March 31, 2004. The shares issued are subject to a four
month hold period.
While Infowave made progress over the past 2003 fiscal year regarding its new
Network Operator business initiative, expanded product offering and prudent
expense management, revenue declined for the year ended December 31, 2003 over
the prior year.
Management believes there are several events that will increase market growth
and acceptance of wireless solutions in 2004. These include the commercial
launch of 2.5G and 3.0G networks, and general availability of new integrated
wireless devices and `Smartphone' devices from several vendors. These new
devices and faster networks will provide the end-user with more service options
and functionality than have been previously available. The Company has launched
several new products to appeal to a broader range of the wireless data market.
Despite these trends, management is aware of revenue risks associated with an
emerging market. Revenue targets could be negatively affected by delays in the
deployment of such networks, changes in technologies and consumer preferences.
Management also recognizes that, as the market for wireless solutions grows, new
entrants and competitors will emerge.
24
Infowave has expanded its product offering while renewing its focus on the
enterprise market through its acquisition of Telispark on January 7, 2004. While
Infowave has increased its value proposition with enterprise mobility
application solutions targeted at specific vertical market segments, the sales
cycles may be long and Infowave remains exposed to macroeconomic environment
trends regarding capital expenditure spending by enterprise businesses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements require us to make estimates and
assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Our
critical accounting policies and estimates are as follows:
o Revenue recognition
o Continuing operations
o Basis of presentation
o Translation of foreign currency
o Income taxes
o Valuation of goodwill
o Valuation of deferred income taxes
Sources of Revenue and Revenue Recognition Policy
Revenues are derived from the sale of licenses and services and maintenance.
License and maintenance revenues are normally generated from licensing our
products to end-users and value added resellers or system integrators. Service
revenues are generated from consulting services sold to end-users and software
subscription services provided to customers.
As described below, significant management judgements and estimates must be made
and used in connection with