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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-29944
INFOWAVE SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 98 0183915
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(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
SUITE 188 -- 4664 LOUGHEED HIGHWAY
BURNABY, BRITISH COLUMBIA,
CANADA V5C 5T5
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER: (604) 473-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
--------------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Shares
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the Registrant's Common Stock held by non-affiliates
as of December 31, 1999 was approximately US$156,000,000. The number of shares
of the Registrant's Common Shares outstanding as of December 31, 1999, was
18,297,470.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ITEM 1: BUSINESS..................................................................................... 1
ITEM 2: PROPERTIES...................................................................................15
ITEM 3: LEGAL PROCEEDINGS............................................................................16
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................16
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................17
ITEM 6: SELECTED FINANCIAL DATA......................................................................19
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........20
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................................26
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................26
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.........26
ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT.....................................................27
ITEM 11: EXECUTIVE COMPENSATION.......................................................................29
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................31
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................34
</TABLE>
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FORWARD-LOOKING STATEMENTS
All statements, trend analysis and other information contained in this report
relative to markets for the Corporation's services and software products and
trends in revenue, gross margin and anticipated expense levels, as well as other
statements about anticipated future events or results constitute forward-looking
statements. Forward-looking statements often, but not always, are identified by
the use of words such as "seek," "anticipate," "believe," "plan," "estimate,"
"expect" and "intend" and statements that an event or result "may," "will,"
"should," "could" or "might" occur or be achieved and other similar expressions.
Forward-looking statements are subject to business and economic risks and
uncertainties and other factors that could cause actual results of operations to
differ materially from those contained in the forward-looking statements.
Forward-looking statements are based on estimates and opinions of management at
the date the statements are made. Some of these risks, uncertainties and other
factors are described in Item 1 of this report under the heading "Risk Factors."
The Corporation does not undertake any obligation to update forward-looking
statements even if circumstances or management's estimates or opinions should
change. Investors should not place undue reliance on forward-looking statements.
CURRENCY
All currency contained in this report is expressed in United States dollars,
unless otherwise stated.
TRADEMARKS
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Infowave for Exchange," "Infowave for the Net," "Symmetry," "PowerPrint" and
"StyleScript." All other trademarks or service marks appearing in this annual
report are trademarks or service marks of the companies that use them.
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PART I
ITEM 1: BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Founded in 1984, Infowave Software, Inc. (the "Corporation" or "Infowave")
develops, markets and sells software solutions for wireless mobile computing and
for printing. The Corporation has two operating divisions. The Wireless Division
was founded in 1993 and provides software solutions that leverage wireless
mobile data communications networks to enable mobile access to information such
as email, Internet content, corporate intranets and web-based applications. The
Imaging Division is the Corporation's legacy business and provides software
solutions for Apple Macintosh computers that improve print quality and expand
printing options.
The Corporation was formed on February 21, 1997 by the amalgamation of GDT
Softworks Inc., Infowave Wireless Messaging Incorporated and G.W. McIntosh
Holdings Ltd. under the laws of the Province of British Columbia, Canada. The
registered and records office of the Corporation is located at Suite 2600 - 595
Burrard Street, Vancouver, British Columbia, V7X 1L3.
In October 1999, the Corporation opened its temporary United States headquarters
at Suite F/105, 22125 - 17th Avenue SE, Bothell, WA, 98021. Effective April 1,
2000, Infowave's permanent U.S. headquarters will be located at 21520 - 30th
Avenue S.E., Bothell, WA, 98021.
The Corporation has been investigating opportunities to divest the Imaging
Division in order to focus its resources, including management time, on the
development of the Wireless Division.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Corporation has two reportable segments based on its two distinct product
lines, being the Wireless Division and Imaging Division software products. Refer
to Note 11(a) of the financial statements for segmented financial information.
WIRELESS DIVISION
INTRODUCTION - WIRELESS
Infowave's Wireless Division develops software that leverages wireless mobile
data communication networks to enable mobile access to information that is
normally available only from a desktop computer connected to a local area
network.
The Corporation believes that the convergence of several trends is creating a
significant market opportunity for wireless mobile computing solutions. These
trends include the proliferation of portable computing devices that are
data-centric and wireless-capable such as laptop and notebook computers,
palm-sized and handheld digital assistants, two-way pagers and digital mobile
phones; wireless carriers deploying faster digital wireless data networks with
expanded geographical coverage; outsourced service providers offering efficient
channels to deliver applications and services to enterprises and individuals;
Internet portals and software vendors offering content and applications
customized for mobile requirements; and significant investments by prominent
technology leaders that are validating the promise of wireless mobile computing.
Infowave believes that the primary adoption pattern and scale of wireless mobile
computing will be similar to that of wireless voice communications, beginning in
the enterprise market and then extending to the consumer market. Consequently,
Infowave's technology and marketing strategy is to initially target enterprise
requirements. In creating software products for the enterprise market, the
Corporation is creating solutions that it believes can also be applied to the
consumer market.
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SOFTWARE PRODUCTS AND TECHNOLOGY - WIRELESS
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ARCHITECTURE OF CURRENT AND PLANNED INFOWAVE WIRELESS ENTERPRISE SOLUTIONS
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[FIGURE]
The graphic above illustrates the architecture that enables mobile computing
devices - laptop computers, handheld computers, mobile phones etc. - to
communicate over wireless mobile data networks to connect to information
normally available only from a desktop computer connected to a local area
network. Infowave's server software is designed to be installed behind the
firewall of a corporation and enables wireless access to information such as
email and intranet content or applications such as enterprise resource planning
and customer relationship management. The server software is also designed to be
hosted by a service provider so that the service provider is able to deliver
information or applications over a wireless mobile data network to mobile
computing devices used by its subscribers.
Infowave's wireless software currently consists of three major product
offerings: Infowave for Exchange, Infowave for the Net and Symmetry. These
software products represent a suite of applications that provide mobile workers
with wireless access to important information using a broad range of mobile
computing devices that can communicate over a number of wireless mobile data
networks.
In the years ended December 31, 1999, 1998 and 1997 research and development
expenditures by the Corporation's Wireless Division were $1.37 million, $1.0
million and $0.79 million, respectively. Infowave's wireless software can be
separated into two categories: server-based software and desktop software.
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1. SERVER-BASED SOFTWARE PRODUCTS
INFOWAVE WIRELESS ENGINE
Infowave's server-based software products are built on the Infowave Wireless
Engine. The Infowave Wireless Engine forms the foundation for Infowave's current
and future server-based software product offerings.
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INFOWAVE'S WIRELESS ENGINE SERVES AS A WIRELESS PLATFORM. THE MODULAR
ARCHITECTURE ENABLES SERVER APPLICATION MODULES TO BE CONNECTED AND ENABLED
WIRELESSLY.
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[ FIGURE ]
The Infowave Wireless Engine serves as a platform into which server application
modules can be connected. The Wireless Engine acts as an interface between
wireless mobile data devices communicating over wireless data networks and the
applications or information that is located at an enterprise or outsourced
service provider. The Wireless Engine introduces encryption, authentication,
speed optimization, and session management and each application that is
connected to the Wireless Engine leverages these capabilities. The Corporation
entered into an indefinite non-exclusive licensing agreement with Certicom Corp.
on December 5, 1997 under which Certicom encryption and decryption technology is
integrated into the Corporation's wireless computing software products.
The Wireless Engine is currently compatible with mobile devices that use a
Microsoft Windows operating system and with Mobitex and Cellular Digital Packet
Data ("CDPD") wireless data networks. In addition to the core functionality
provided by the Wireless Engine, the server application modules include
application-specific business logic, functionality and other customized wireless
optimizations such as device formatting. Because all of the features of the
Wireless Engine extend to any application or information that is connected to
the Wireless Engine, this enables Infowave to develop additional server
application modules and target new strategic markets.
The Infowave Wireless Engine can be deployed directly by enterprises or can be
hosted by service providers such as application service providers, service
bureaus, Internet service providers, and Internet portals. The Wireless Engine
currently operates on the Windows NT operating system.
INFOWAVE FOR EXCHANGE
The Corporation's Infowave for Exchange software is a server application module
that enables wireless mobile access to Microsoft Exchange server using the
Microsoft Outlook client software installed on a mobile device. As a result,
users are able to use the Microsoft Outlook application on a mobile device in
the same manner that they would on a desktop computer. An important timesaving
feature of Infowave for Exchange is that it does not wait until the traditional
synchronization procedure is completed before enabling communication. The server
immediately forwards new incoming email to the mobile device. Similarly, the
mobile device is able to immediately send new outgoing email to the server for
distribution. All data transmission is encrypted and compressed. The Infowave
for Exchange server software runs on Windows NT and the client software runs
with Microsoft Outlook 98 or higher versions and works on mobile devices running
Windows 95/98/CE/NT.
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INFOWAVE FOR THE NET
The Corporation's Infowave for the Net software is a server application module
that provides wireless mobile access to the Internet, corporate intranets and
web-based applications using standard Internet browsers on mobile devices.
Corporations are rapidly adopting intranets to host a wide variety of
information such as sales data, service records and human resources information.
Traditional applications such as customer relationship management, sales force
automation and enterprise resource planning are moving from client/server
platforms to web-based platforms. As a result, corporations are relying on
information stored on intranets and in web-based applications to communicate
both internally and externally and provide up-to-date information. Infowave for
the Net provides wireless access to this information. Infowave for the Net's
server software runs on Windows NT and works with various Web servers including
Microsoft's Internet Information Server (IIS).
2. DESKTOP SOFTWARE PRODUCTS
SYMMETRY
The Corporation's Symmetry software delivers email, calendar, contacts and task
information stored in Microsoft Outlook to any wireless mobile device capable of
receiving text messages, including pagers and digital mobile phones. All
information sent to the wireless device is formatted for the specific device.
Symmetry allows users to forward email using specific rules such as sender
information and priority messages. It will send a user his or her calendar and
task information everyday at a pre-determined time set by the user. If a
calendar event is changed during the day, Symmetry will notify the user that the
event has changed. When meeting reminders are sent from Outlook, they are also
sent to the wireless device. If the wireless mobile device is capable of two-way
messaging the user can retrieve information, such as telephone numbers, directly
from his or her desktop.
The Symmetry software is installed on a user's desktop computer. The desktop
computer requires a Windows 98 or higher version operating system and Microsoft
Outlook 98 or higher version application software. The desktop computer must be
connected to an Exchange server through a local area network. No software is
required to be installed on the wireless mobile device.
PRODUCT DEVELOPMENT - WIRELESS
The Corporation is currently developing its next releases of Infowave for
Exchange and Infowave for the Net. It is anticipated that these next releases
will add compatibility with GSM and CDMA wireless data networks.
The Corporation is also currently developing a new server-based wireless
software solution to enable mobile devices utilizing the Wireless Application
Protocol (WAP) to access and view data from back-office databases and
applications such as Microsoft Exchange. It is expected that this software
product, Infowave for WAP, will support most major microbrowser-based interfaces
and will work with most wireless devices, such as PCS and GSM phones.
CUSTOMERS AND PARTNERS - WIRELESS
In collaboration with its channel partners, Infowave both licenses and rents its
wireless software solutions to the enterprise market. The Corporation is
building a direct sales force that is working with its marketing alliance
partners to establish reference accounts and generate demand for the reseller
channel. The Corporation has entered into marketing alliances with companies
that offer complementary software products or services to potential enterprise
customers. These include:
o Wireless data network carriers such as Rogers AT&T Wireless in Canada;
BellSouth Wireless Data LP, Bell Atlantic Mobile and AT&T Wireless Services
in the United States; and ST Mobile Data PTE Ltd. in Singapore.
o Hardware developers such as Glenayre Technologies Inc., Sierra Wireless
Inc. and Nokia Networks.
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o Enterprise software developers such as Pivotal Corporation.
Infowave intends to expand distribution of its wireless software solutions to
the enterprise market worldwide by using international, national and regional
systems integrators and value-added resellers ("VAR"). The Corporation has
entered into non-exclusive national reseller agreements with RAM Mobile Data
Ltd. in the United Kingdom and GE Capital IT Solutions in Canada. The
Corporation has also entered into non-exclusive regional agreements with
approximately 14 resellers in Canada and the United States.
The Corporation also intends to partner with a variety of service providers who
will host Infowave's Wireless Engine and server application modules and provide
wireless mobile computing services for a monthly fee. The Corporation intends to
target service bureaus, application service providers, Internet service
providers and Internet portals or content providers. To date, the Corporation
has entered into agreements with Mi8 Corporation, an application service
provider, and Investment.com, an Internet content provider. Each of these
companies intends to offer Infowave's wireless software solutions on a
subscription basis.
Infowave intends to distribute its Symmetry desktop product primarily through
agreements with wireless carriers and device manufacturers in the paging and
digital phone markets. The Corporation has formed an alliance with Glenayre
Technologies Inc., currently the world's largest paging infrastructure provider.
Glenayre intends to bundle Symmetry with each of its AccessLink II two-way
pagers and to resell Symmetry to paging carriers through its extensive global
sales channel. The Corporation has also received an order for a branded version
of Symmetry from Rogers AT&T Wireless.
In addition to working with wireless data carriers on various marketing
initiatives described above, Infowave expects to collect a portion of the
airtime revenue generated by licensees or subscribers of its wireless mobile
computing software.
During the past two years, no single Wireless Division customer accounted for
greater than 10% of consolidated sales.
COMPETITION - WIRELESS
The market for business and consumer users of wireless mobile data solutions is
in its early stage and distinct categories for solutions are still evolving. In
the Business-to-Business market, two models are emerging. The Enterprise Server
model requires servers and application software to be installed onsite by the
enterprise. The Service Provider model uses servers and applications that are
housed offsite at the Service Provider's data center. In the Business to
Consumer market, two models are emerging: the Service Provider model and the
Desktop model, the latter requiring no server software. Infowave competes in
each of the Enterprise Server, Service Provider and Desktop markets.
To the extent known by the Corporation, competitors in the Enterprise Server
market include Ericsson Inc., Telesis North Inc., Research in Motion Limited and
Aether Systems Inc. In addition, a variety of custom application vendors who
specialize in developer tools and niche applications pose a potential threat to
Infowave should they leverage their middleware and developer tools to create
applications that are competitive to those of Infowave.
To the extent known by the Corporation, competitors in the Service Provider
market include Wireless Telecom, Inc. and GoAmerica Communications Corp.
Messaging outsourcers, application service providers, and other forms of service
providers may also compete with Infowave depending on which wireless mobile
software products they use for their offerings. Infowave will sell its
commercial server software products to these outsourcers and will therefore
compete with those that choose other wireless software for their offerings.
To the extent known by the Corporation, competitors in the Desktop market
include Research in Motion Limited and Roku Technologies.
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Indirect competition for the Corporation also comes from other companies
operating in the wireless communications sector but targeting alternative market
segments. As the Corporation is expecting to expand its business to cover a
broader spectrum of wireless mobile data solutions, it is possible that it may
compete directly with these companies.
In addition, the wireless mobile data communications industry is subject to
rapid technological change and evolving industry standards. New competition may
arise from new technologies or new approaches to the market. See "Risk Factors -
Reliance on New Technologies" and "-Competition."
Many of the Corporation's present and potential competitors have substantially
greater financial, marketing, technical and other resources than the Corporation
and may succeed in establishing technology standards or strategic alliances in
the wireless mobile data communications market, obtain more rapid market
acceptance for their software products or otherwise gain a competitive
advantage. See "Risk Factors - Competition."
IMAGING DIVISION
INTRODUCTION - IMAGING
The Imaging Division of the Corporation develops, markets and sells the
Corporation's printer driver software products.
Computer operating systems such as Microsoft Windows ("Windows") and the Apple
Macintosh operating system ("Mac OS") use printer drivers to communicate to
printers. The printer driver is an independent software component that the
system software uses to exchange information between the computer and printer.
Windows supports thousands of different printers through printer drivers
included as part of the operating system. In contrast, the Mac OS includes only
printer drivers for a limited number of Apple compatible printers. Other printer
drivers are not included in the Mac OS and may be supplied either with the
printer or by a third-party.
Most printers use a parallel port to receive print data from the host computer.
Most operating systems, including Windows, transmit print data from the
computer's parallel port. In contrast, Apple computers use a serial or USB port
to transmit data to the printer. As a result, Apple computers are physically
incompatible with most other printers, resulting in users having fewer printer
models to choose from.
Only a few printer manufacturers like Hewlett-Packard and Epson have developed
Macintosh compatible printer models. These models are compatible with the Mac OS
because they include the printer drivers and appropriate cabling in the printer
box.
The Corporation has developed printer drivers and cable products to increase the
printer choices available to users of Macintosh computers.
Just as there are many different human languages, printers also communicate with
their own languages and protocols. Some of the more popular printer languages
are PostScript (Adobe Systems), PCL (Hewlett-Packard), and ESC/P2 (Epson).
PostScript is owned by Adobe Systems and was first released in 1985. PostScript
is both a printer language and a computer language. Printers and software
applications use it to describe the appearance of a page, including elements
such as text, graphics, and scanned images, to a printer or other output device.
Generally, PostScript is the standard printing language in the industry. The
advantages of PostScript over other printer languages include higher quality
printing, better color management, performance, and cross platform
compatibility.
PostScript requires interpretation, as do all printer languages. The
interpretation is done by the printer or computer (host). In most cases,
particularly with PostScript, the printer does the interpretation. However,
Adobe Systems has developed configurable PostScript interpreter ("CPSI"), which
allows PostScript to be interpreted in the computer (host) as opposed to the
printer. CPSI is, therefore, referred to as host-based PostScript.
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PostScript's quality, power and compatibility has made it a standard requirement
for graphic designers, desktop and professional publishers. PostScript is also
the basis for Adobe's cross platform electronic document format, popularized by
Adobe Acrobat. Companies use Acrobat for publishing high quality, complex
documents on the Internet.
OVERVIEW OF OPERATIONS - IMAGING
The Corporation has developed its own Apple Macintosh printer driver products
and has expanded by acquiring and licensing other companies' technologies. The
Corporation has been selling Macintosh printer connectivity solutions since 1985
and, as a result, has experience with most aspects of the computer software
retail market.
According to its 2000 first quarter results, Apple has shipped over 35 million
Macintosh systems worldwide since 1984. The Corporation has sold over 440,000
PowerPrint products, representing about 1.5% of the installed base of Macintosh
computers. The sale of the Corporation's printer driver products is highly
dependent on the sale of Apple computers. See "Risk Factors - Reliance on Sales
of Apple Macintosh Computers."
Currently, Apple supplies the majority of all Macintosh printer drivers bundled
with the Mac OS. In early 1998, the Corporation and Apple entered into a source
code license agreement (the "Source Code License Agreement") under which Apple
licensed to the Corporation its source code for a three year period to develop
printer connectivity solutions for designated Hewlett-Packard printers, and
granted the Corporation a three-year exclusive license to distribute these
printer connectivity solutions. Under the Source Code License Agreement, the
Corporation granted to Apple a non-exclusive license of its PowerPrint,
StyleScript and PowerPlot software products. Apple may use such programs only to
develop a software development kit of programming tools to be used by third
parties to create printer drivers. The Source Code License Agreement was
conditioned upon the Corporation entering into a software development agreement
with Hewlett-Packard satisfactory to Apple. In March 1998, the Corporation and
Hewlett-Packard entered into an umbrella development agreement (the "Development
Agreement") to develop printer driver software for Hewlett-Packard printers
based upon the Apple source code as modified by the Corporation. Under the
Development Agreement, the companies have agreed to execute individual software
development agreements to develop printer drivers for specified Hewlett-Packard
color inkjet printers. The exclusivity provided for under the terms of the
Source Code License Agreement expires in November 2000, following which the
Corporation retains a non-exclusive license. The Corporation expects to continue
to record revenue directly attributable to the exclusive nature of the agreement
until the second quarter of fiscal 2000 at which time Hewlett-Packard intends to
discontinue shipments of the printers designated in the agreement. Revenue
attributable to this agreement in 1998 was $4.15 million and represented 44% of
total Imaging sales. Revenue attributable to this agreement in 1999 was $1.09
million and represented 15% of total Imaging sales. Revenue attributable to this
agreement is expected to represent less than 10% of total Imaging sales in 2000.
On March 13, 2000 the Corporation entered into a non-exclusive licensing
agreement with Acticon Technologies, a division of General Patent Corporation
International, under which the Corporation has licensed certain patented
technology related to the cable that is packaged with some versions of the
Corporation's PowerPrint software.
The Corporation currently performs the majority of its research and development
internally and sub-contracts certain small projects. In the years ended December
31, 1999, 1998 and 1997 research and development expenditures by the
Corporation's Imaging Division were $1.55 million, $1.17 million and $0.54
million, respectively. All shrink-wrapped product is currently assembled by a
Vancouver-based third-party fulfillment Corporation. The Corporation also
sub-contracts the manufacturing of its hardware components.
PRODUCTS - IMAGING
The Corporation has developed a line of Macintosh printer drivers, which are
available for virtually all printers and plotters. The products connect either
directly or through a network. The Corporation's goal is to provide Mac OS users
with support for new printers and provide the graphic design and multimedia
markets with inexpensive PostScript solutions.
The Corporation's printer driver products are sold in over forty countries
throughout the world. The Corporation has also established an original equipment
manufacturer ("OEM") business, supplying printer manufacturers such as Brother,
Hewlett-Packard, Lexmark, Ricoh and Samsung. The Corporation also has an OEM
relationship with Adobe Systems, the developer of PostScript. The Corporation
supplies its OEM partners with printer driver technology for a wide range of
products and services.
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The following is a list of the Corporation's current printer driver products:
PRODUCT DESCRIPTION
------- -----------
PowerPrint Serial PowerPrint is a set of non-PostScript printer
drivers with a serial to parallel converter cable to
allow Macintosh computers to print to almost any
parallel printer including color ink jets and low cost
laser printers.
PowerPrint USB PowerPrint USB is a USB version of the PowerPrint
software that allows Apple's new line of Universal
Serial Bus ("USB") computers to print to almost any
non-USB printer. USB is the emerging new standard for
connecting computers to peripherals.
PowerPrint for Networks PowerPrint for Networks is a network version of the
PowerPrint software. PowerPrint for networks enables
Macintosh computers to connect to virtually any PC
printer over an Ethernet network.
StyleScript StyleScript is a host-based PostScript interpreter for
the Macintosh that supports a wide range of inkjet
printers from Hewlett-Packard, Epson, Canon and Apple.
SALES AND MARKETING - IMAGING
The Corporation previously focused its PowerPrint selling efforts by marketing
into the installed base, selling to customers who have both Windows and
Macintosh computers, and Macintosh laptop owners. The Corporation has now
extended its marketing efforts to new purchasers of Macintosh computers through
promotional campaigns at the point of sale, for example, through CompUSA. The
Corporation sells the StyleScript product into the graphic design and small
office/home office market, to provide consumers with an inexpensive PostScript
printing solution. The Corporation released a Japanese language version of
PowerPrint in the fall of 1999.
The Corporation currently uses a variety of sales channels for its printer
driver products. The majority of its products are sold through distributors and
resellers. The following is a list of the Corporation's major sales channels for
its printer driver products:
o OEMs - Hewlett-Packard, Canon, Brother, Lexmark, Co-Star, Ricoh and
Samsung
o Distributors - Ingram Micro, Inc. and Pinacor (US), Merisel Canada
(Canada) and Computer 2000 (International)
o Resellers - CompUSA, Fry's, MicroCenter, ComputerWare
o Mail Order Companies - MacWarehouse, MacZone, MacMall, MacConnection
and a network of Apple authorized VARs
o Channel Force - a representation firm focusing on retail stores in
the U.S.
o Direct Sales - via 800 telephone service
o Internet Web Marketing - through the Corporation's web site,
Cyberian Outpost, Software.net, Beyond.com and Buy.com
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During the past two years, no single Imaging Division customer accounted for
greater than 10% of consolidated sales, with the exception of (i) Ingram Micro,
which accounted for approximately 33% of sales in 1999 and 22% of sales in 1998
and (ii) Hewlett-Packard, which accounted for 17% of sales in 1999 and 45% of
sales in 1998.
PRODUCT DEVELOPMENT - IMAGING
The Corporation plans to continue to enhance the features and applications of
its printer driver products. It intends to expand its product offering to
include support of additional printers and form co-marketing relationships with
strategic printer manufacturers.
COMPETITION - IMAGING
The Corporation sells its printer driver software products into the "QuickDraw"
and "PostScript" markets. The Corporation sells its PowerPrint products into the
QuickDraw market. The Corporation is not aware of any significant competition
for PowerPrint at this time.
The Corporation sells its StyleScript product in the PostScript market.
StyleScript competes against iProof Systems' PowerRip product and Adobe Systems'
Adobe PressReady product.
The Corporation has established OEM agreements with Brother, Canon, Co-Star,
Hewlett-Packard, Lexmark, Ricoh and Samsung. Under the terms of these
agreements, the Corporation develops software that enables specified printers to
work with Apple Computers. The Corporation intends to negotiate similar
agreements with other printer manufacturers but there can be no assurance that
any such agreements will be successfully consummated. There can be no assurance
that any of these printer manufacturers will not develop their own Macintosh
printer drivers in-house.
PROPRIETARY PROTECTION
All Corporation software is protected by a combination of certain intellectual
property rights. The Corporation relies principally upon a combination of
copyright, trademark and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain its rights. As part of its
confidentiality procedures, the Corporation generally enters into a
non-disclosure and confidentiality agreement with each of its consultants and
specifically with any third-party that would have access to the source code for
the Corporation's software products. As well, the Corporation strictly limits
access to and distribution of its software in executable code form.
Infowave has trademarks for or has applied for a trademark for "Infowave,"
"Infowave for Exchange," "Infowave for the Net," "Symmetry," "PowerPrint" and
"StyleScript."
There can be no assurance that the measures taken by the Corporation to protect
its intellectual property rights will adequately protect those rights.
Although the Corporation believes that it has the right to use all of the
intellectual property incorporated in its products, third parties may claim that
the Corporation's products violate their proprietary rights, including
copyrights and patents. If any such claims are made and found to be valid, the
Corporation may have to reengineer its products or obtain licenses from third
parties to continue offering its products. Any efforts to reengineer its
products or obtain licenses from third parties may not be successful and could
substantially increase the Corporation's costs and have a material adverse
effect on the business, financial condition and results of operations of the
Corporation. See "Risk Factors - Intellectual Property Protection."
EMPLOYEES
As at December 31, 1999, the Corporation employed 115 employees at its head
office in Burnaby, British Columbia and at its U.S. headquarters in Bothell,
Washington in the following capacities:
10
<PAGE> 14
<TABLE>
<CAPTION>
WIRELESS IMAGING TOTAL
--------------------- --------------------- -------------------
Burnaby Bothell Burnaby Bothell Burnaby Bothell
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management & Administration 8 - 6 - 14 -
Research & Development 29 - 28 - 57 -
Sales & Marketing 13 10 21 - 34 10
TOTAL 50 10 55 - 105 10
</TABLE>
RISK FACTORS
In addition to the other information contained in this report, readers should
carefully consider the following risk factors, some of which apply to the
Corporation in general and some of which are specific to the Wireless Division
or Imaging Division, which may have a material adverse effect on the
Corporation's business, financial condition or results of operation.
GENERAL
History of Losses and Possible Divestiture of Imaging Division
The Corporation is not currently profitable and incurred losses of $3,288,251
and $1,206,266 for the years ended December 31, 1999 and 1998, respectively. In
particular, the Wireless Division is not profitable and incurred operating
losses of $3,891,727 and $2,724,899 for the years ended December 31, 1999 and
1998, respectively. The Corporation expects to continue to incur losses in the
near future and possibly longer. The Corporation anticipates that its expenses
will increase substantially in the foreseeable future as it expands the Wireless
Division and the Corporation continues to increase its research and development,
sales and marketing and general and administrative expenses. The Corporation
cannot predict if it will ever achieve profitability and, if it does, it may not
be able to sustain or increase profitability.
The Corporation has been investigating opportunities to divest the Imaging
Division in order to focus its resources, including management time, on the
development of the Wireless Division. Substantially all of the historical
revenue of the Corporation has been from the Imaging Division. In 1999, the
Imaging Division had revenue of $7,175,330 and the Wireless Division had revenue
of $355,001. Accordingly, if the Corporation divests itself of the Imaging
Division, it will be entirely reliant upon possible increased revenues from the
Wireless Division. There is no assurance that increased revenues from the
Wireless Division will materialize.
Reliance on New Technologies
The Corporation is focused upon growth from its Wireless Division. The wireless
data communications market is characterized by rapidly changing technology and
evolving industry standards. Therefore, it is difficult to predict the rate at
which the market for the Corporation's wireless software products will grow, if
at all. If the market fails to grow, or grows more slowly than anticipated, the
Corporation will be materially adversely affected. Even if the market does grow,
there can be no assurance that the Corporation's products will achieve
commercial success. The Corporation may find itself competing in the market for
wireless mobile computing software against other companies with significantly
greater financial, marketing and other resources. Such competitors may be able
to institute and sustain price wars, or imitate the features of the
Corporation's wireless mobile computing software, reducing prices and the
Corporation's revenues and share of the market.
In addition, the Corporation's competitors may develop alternative technologies
that gain broader market acceptance than the Corporation's software solutions.
As a result, the life cycle of the Corporation's software solutions is difficult
to estimate. The Corporation may need to develop and introduce new products and
enhancements to its
11
<PAGE> 15
existing solutions on a timely basis to keep pace with technological
developments, evolving industry standards, changing customer requirements and
competitive technologies that may render its solution obsolete. These research
and development efforts may require the Corporation to expend significant
capital and other resources. In addition, as a result of the complexities
inherent in the Corporation's solutions, major enhancements or improvements will
require long development and testing periods. If the Corporation fails to
develop products and services in a timely fashion, or if it does not enhance its
products to meet evolving customer needs and industry standards, including
security technology, it may not remain competitive or sell its solutions.
Product Improvements
The Corporation will be at risk if it is unable to continually upgrade and
improve its software products, or to develop new software products. The software
industry is characterized by a constant flow of new or improved products, which
quickly render existing software products obsolete. The Corporation's
competitors may develop technically superior and comparably priced or lower
priced software that would have a material adverse effect on the Corporation.
Additional Financing
The Corporation may not have sufficient capital to fund its operations. In
particular, additional financing may be required in the near term to develop,
commercialize and market the Corporation's wireless mobile computing software
products and services. No assurance can be given that any additional financing
required will be available, or that additional financing will be available on
terms that may be advantageous to existing shareholders. Such financings, to the
extent they are available may result in substantial dilution to shareholders. To
the extent such financing is not available, the Corporation may not be able to
or may be delayed in being able to commercialize its software products and
services.
Management of Growth
The Corporation has been expanding, and intends to continue to expand, its
Wireless Division. This growth has placed, and any further growth is likely to
continue to place, a significant strain on the Corporation's resources. The
Corporation's ability to achieve and maintain profitability will depend on its
ability to manage growth effectively, to implement and expand operational and
customer support systems, and to hire additional personnel. The Corporation may
not be able to augment or improve existing systems and controls or implement new
systems and controls to respond to any future growth. In addition, future growth
may result in increased responsibilities for management personnel, which may
limit their ability to effectively manage the Corporation's business.
Reliance on Key Personnel and Consultants
The Corporation is currently dependent upon its senior management, board of
directors, consultants, and strategic alliances, the loss of any of which may
significantly affect the performance of the Corporation and its ability to carry
out the successful development and commercialization of its software products
and services. Failure to retain management, directors and consultants or to
attract and retain additional key employees with necessary skills could have a
material adverse impact upon the Corporation's growth and profitability. The
Corporation is expecting significant growth in employees as a result of the
commercialization of its wireless mobile computing software products. This
growth will place substantial demands on the Corporation. The Corporation's
ability to assimilate new personnel will be critical to its performance. The
Corporation will be required to recruit additional software development
personnel, expand its direct sales force, expand its customer support functions
and train, motivate and manage its employees. Competition for qualified software
development personnel is intense and expected to increase. There can be no
assurance that the Corporation will be able to recruit the personnel required to
execute its programs or to manage these changes successfully.
Reliance on Key Third-Party Relationships
The Corporation relies on key third-party relationships, including its
relationships with VARs, resellers and OEMs, for marketing and sales of its
software products. These third parties are not within the control of the
Corporation, are
12
<PAGE> 16
not obligated to purchase software products from the Corporation and may also
represent and sell competing software products. The loss of any of these
third-party relationships, the failure of such parties to perform under
agreements with the Corporation or the inability of the Corporation to attract
and retain new VARs, resellers or OEMs with the technical, industry and
application experience required to market and sell the Corporation's software
products successfully could have a material adverse effect on the Corporation.
Competition
The Corporation experiences competition in the markets for both its wireless
mobile computing software and printer driver software. See "Competition -
Wireless" and "Competition - Imaging". As the market for the Corporation's
software products continues to develop, additional competitors with
substantially greater financial, technical and marketing resources than the
Corporation may enter the market and competition may intensify. Current or
future competitors may develop software products that are superior to the
Corporation's software products or achieve greater market acceptance.
Product Defects
Software products as complex as those offered by the Corporation may contain
undetected errors or defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Corporation and
by current and potential customers, errors will not be found in new software
products after commencement of commercial shipments resulting in product recalls
and market rejection of the Corporation's software products and resulting in
damage to the Corporation's reputation, as well as lost revenue, diverted
development resources and increased support costs.
Intellectual Property Protection
The Corporation considers its software products and trademarks to be of value
and important to its business. The Corporation relies principally upon a
combination of copyright, trademark and trade secret laws, non-disclosure
agreements and other contractual provisions to establish and maintain its
rights. The Corporation does not have any patents or patent applications
pending. Despite the Corporation's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or obtain and use information that the
Corporation regards as proprietary. There can be no assurance that the steps
taken by the Corporation to protect its proprietary information will prevent
misappropriation of such information. The cost of litigation necessary to
enforce the Corporation's proprietary rights may be prohibitive. Such steps may
not preclude competitors from developing confusingly similar brand names or
promotional materials or developing software products and services similar to
those of the Corporation.
Although the Corporation believes that it has the right to use all of the
intellectual property incorporated in its software products, third parties may
claim that the Corporation's software products violate their proprietary rights,
including copyrights and patents. If any such claims are made and found to be
valid, the Corporation may have to reengineer its software products or obtain
licenses from third parties to continue offering its software products. Any
efforts to reengineer its software products or obtain licenses from third
parties may not be successful and could substantially increase the Corporation's
costs and have a material adverse effect on the business, financial condition
and results of operations of the Corporation.
Lack of Backlog
Because the Corporation generally ships software products within a short period
after receipt of an order, the Corporation typically does not have a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter. The Corporation's expense levels are
based in part on its expectations as to future revenues. Therefore, the
Corporation may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall of
demand in relation to the Corporation's expectations or any material delay of
customer orders would have an almost immediate adverse impact on the
Corporation's results of operations.
13
<PAGE> 17
Reliance on Export Sales
The Corporation's export sales to the United States and Europe represented 97%
of its total sales in the year ended December 31, 1999. There can be no
assurance that the Corporation will be able to maintain or increase
international demand for the Corporation's software products or that the
Corporation's distributors will be able to effectively meet that demand.
Additional risks inherent in the Corporation's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing software products for
foreign countries, longer accounts receivable payment cycles, difficulties in
managing international distributors, potentially adverse tax consequences,
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and changes in demand resulting from fluctuations in exchange
rates. In addition, the laws of certain foreign countries do not provide
protection for the Corporation's intellectual property to the same extent as do
the laws of Canada and the United States.
Foreign Exchange Rate Exposure
The majority of the Corporation's revenue is denominated in U.S. dollars (the
currency in which the Corporation's financial statements are stated) or
currencies other than Canadian dollars and in the future may be denominated in
currencies other than Canadian or U.S. dollars. The Corporation does not engage
in currency hedging activities to limit the risks of exchange rate fluctuations.
As a result, changes in the relative value of the U.S. dollar to the Canadian
dollar and other foreign currencies will affect the Corporation's revenues and
operating margins. The impact of future exchange rate fluctuations between the
U.S. dollar and the Canadian dollar or other foreign currencies on revenues and
operating margins cannot be accurately predicted and could have a material
adverse effect on the Corporation.
Enforcement of Civil Liabilities
The Corporation is a corporation incorporated under the laws of British
Columbia, Canada. Certain of the directors and the Corporation's professional
advisors are residents of Canada or otherwise reside outside of the U.S. All or
a substantial portion of the assets of such persons are or may be located
outside of the U.S. It may be difficult to effect service of process within the
United States upon the Corporation or upon such directors or professional
advisors or to realize in the U.S. upon judgments of U.S. courts predicated upon
civil liability of the Corporation or such persons under U.S. federal securities
laws. The Corporation has been advised that there is doubt as to whether
Canadian courts would (i) enforce judgments of U.S. courts obtained against the
Corporation or such directors or professional advisors predicated solely upon
the civil liabilities provisions of U.S. federal securities laws, or (ii) impose
liabilities in original actions against the Corporation or such directors and
professional advisors predicated solely upon such U.S. laws. However, a judgment
against the Corporation predicated solely upon civil liabilities provisions of
such U.S. federal securities laws may be enforceable in Canada if the U.S. court
in which such judgment was obtained has a basis for jurisdiction in that matter
that would be recognized by a Canadian court.
WIRELESS DIVISION
Wireless Industry Growth
The overall market for wireless data communications devices has experienced
significant growth in recent years. There can be no assurance that the market
for the Corporation's existing or proposed wireless software products will
continue to grow, that firms within the industry will adopt the Corporation's
software products for integration with their wireless data communications
solutions, or that the Corporation will be successful in independently
establishing product markets for its wireless software products. If the various
markets in which the Corporation's software products compete fail to grow, or
grow more slowly than the Corporation currently anticipates, or if the
Corporation were unable to establish product markets for its new software
products, the Corporation's business, results of operation and financial
condition would be materially adversely affected.
14
<PAGE> 18
Reliance on Microsoft
Some of the Corporation's wireless software products wirelessly enable the
functionality of Microsoft Exchange. The Corporation is aware that Microsoft has
developed its own wireless functionality for Microsoft Exchange that may compete
with software products of the Corporation. Also, United States federal and state
regulatory authorities have initiated broad antitrust actions against Microsoft.
The Corporation cannot predict to what extent these antitrust actions may affect
Microsoft or the Corporation's relationship with Microsoft.
IMAGING DIVISION
Reliance on Sales of Apple Macintosh Computers
The majority of the Corporation's revenues are currently derived from the sale
of the Corporation's printer driver products. The sale of these software
products currently relies on the sale of computers that use the Apple Macintosh
operating system. Any reduction in sales of computers using the Macintosh
operating system may have an immediate and material adverse effect on the
Corporation's revenues.
In addition, the Corporation's strategy of developing printer driver products
compatible with the Apple Macintosh operating system is substantially dependent
on the Corporation's ability to gain pre-release access to, and to develop
expertise in, current and future Macintosh product developments by Apple. There
can be no assurance that Apple will continue to cooperate with the Corporation,
and the inability of the Corporation to maintain and further develop its
relationship with Apple would have a material adverse affect on the
Corporation's results of operations from its Imaging Division.
Reliance on Independent VARs, Resellers and OEMs ("Distributors")
A significant portion of the Corporation's revenue from its Imaging Division is
derived from sales of printer driver products to Distributors that are not under
the direct control of the Corporation. These Distributors carry multiple product
lines and could reduce their support of the Corporation's software products in
favor of a competitor's software products or for any other reason. The loss of
any of the Corporation's major Distributors for its Imaging Division would have
a material adverse affect on the Corporation's results of operations from its
Imaging Division. Under certain conditions, the Corporation offers stock
balancing and price protection programs to its Distributors. Therefore, the
Corporation is exposed to the risk of product returns from Distributors. There
can be no assurance that the Corporation's recorded allowances for returns from
its Imaging Division will be adequate and a material increase in returns over
historical rates would have a material adverse affect on the Corporation's
results of operations from its Imaging Division. In 1999, Ingram Micro Inc. and
Hewlett-Packard were the Corporation's only significant Distributors, accounting
for 33% and 17% of the Corporation's sales, respectively.
ITEM 2: PROPERTIES
The Corporation owns no real property. Pursuant to a lease agreement that
expires on March 31, 2003, the Corporation leases 18,084 square feet of office
space in Burnaby, British Columbia, which the Corporation uses as its principal
executive offices. The Corporation also leases office space in Bothell,
Washington on a temporary basis until improvements are completed on new leased
premises on March 31, 2000. The new Bothell office lease includes 7,329 square
feet of office space and expires on March 31, 2005. Combined monthly lease
commitments for the Burnaby office and the new Bothell office are approximately
$26,600 per month.
The Corporation is currently in negotiations to assume an additional 18,000
square feet of office space at the Burnaby location and 2,100 square feet of
office space in Bothell. The additional office space in both locations will be
used to accommodate the expansion of the Wireless Division.
15
<PAGE> 19
ITEM 3: LEGAL PROCEEDINGS
As of the date hereof, there is no material litigation pending against the
Corporation.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
16
<PAGE> 20
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON SHARES
The Common Shares are currently traded on The Toronto Stock Exchange (the "TSE")
under the symbol "IW". The Common Shares were listed on the TSE on October 14,
1999. Prior to listing on the TSE, the Common Shares were listed on the
Vancouver Stock Exchange (the "VSE") on October 14, 1997 and were delisted from
the VSE on November 26, 1999. The Common Shares do not currently trade on any
exchange in the United States. The following table sets forth the high and low
closing sale prices, as reported by the TSE and VSE, of the Common Shares for
the calendar quarters indicated.
PRICE RANGE OF COMMON SHARES
All prices are quoted in Canadian dollars.
<TABLE>
<CAPTION>
HIGH LOW
(CDN.$) (CDN.$) STOCK EXCHANGE
------- ------- --------------
<S> <C> <C> <C>
1999
Fourth Quarter 16.15 3.00 TSE; VSE
Third Quarter 4.26 3.07 VSE
Second Quarter 4.80 1.38 VSE
First Quarter 2.04 1.00 VSE
1998
Fourth Quarter 1.60 0.95 VSE
Third Quarter 2.00 0.88 VSE
Second Quarter 3.50 1.70 VSE
First Quarter 3.30 1.40 VSE
</TABLE>
As of December 31, 1999, there were 18,297,470 Common Shares issued and
outstanding. At such date, there were approximately 41 shareholders of record, 4
of whom had addresses in the United States who collectively held 395,249 Common
Shares, or approximately 2.2% of the total number of issued and outstanding
Common Shares.
DIVIDENDS
The Corporation did not pay any dividends in the past fiscal year and it does
not foresee the declaration or payment of any dividends on the Common Shares in
the near future. Any decision to pay dividends on the Common Shares will be made
by the board of directors on the basis of the Corporation's earnings, financial
requirements and other conditions existing at such future time.
17
<PAGE> 21
WARRANTS
The Corporation issued 2,224,647 special warrants (the "Special Warrants") at a
price of Cdn.$3.25 per Special Warrant in two tranches on June 30, 1999 and July
8, 1999. The Special Warrants were issued in reliance upon the exemption from
registration provided by Rule 506 of Regulation D and the exclusion from
registration provided by Rule 903 of Regulation S. Each Special Warrant entitled
the holder, upon exercise and without payment of additional consideration, to
acquire one Common Share and one-half of one Common Share purchase warrant (the
"Purchase Warrants"). Each Purchase Warrant entitles the holder to purchase one
Common Share at a price of Cdn.$3.75 per Common Share until expiry on June 30,
2000. In connection with this financing, the Corporation issued Agents' Warrants
(the "Agents' Warrants") to Canaccord Capital Corporation, Yorkton Securities
Inc., Sprott Securities Limited and Taurus Capital Markets Ltd. (in exchange for
services as agent in connection with the Special Warrant financing) entitling
the agents in the financing to purchase an aggregate of up to 212,465 Common
Shares at a price of Cdn.$3.25 per Common Share on or before June 30, 2000.
A final prospectus was receipted in British Columbia, Alberta and Ontario on
September 23, 1999 qualifying the distribution of 2,224,647 common shares and
1,112,324 Purchase Warrants upon the exercise of the 2,224,647 previously issued
Special Warrants. All of the Special Warrants were deemed exercised for Common
Shares and Purchase Warrants on September 28,1999. As at December 31, 1999 there
were 811,747 Purchase Warrants and 143,414 Agents' Warrants outstanding.
STOCK OPTIONS
STOCK OPTION PLAN
The shareholders and Board of Directors have approved and adopted a Stock Option
Plan (the "Plan"). The principal purposes of the Plan are to promote a
proprietary interest in the Corporation among its directors and employees; to
retain, attract and motivate the qualified managers the Corporation requires; to
provide a long-term incentive element in overall compensation; and to promote
the long-term profitability of the Corporation.
The board of directors of the Corporation administers the Plan. Common share
options may be granted at any time to any director, senior officer, full-time
employee or consultant of the Corporation, taking into consideration the present
and potential contribution of a particular director, senior officer, full-time
employee or consultant to the success of the Corporation and any other factors
which the board of directors may deem proper and relevant, provided that a
director to whom any option may be granted may not participate in the discussion
of the board to grant such option.
The number of Common Shares that may be issued pursuant to the Plan to any one
person shall not exceed 5% of the Common Shares issued and outstanding on a
non-diluted basis. The price at which Common Shares may be issued under the Plan
will be determined from time to time by the board of directors and shall, in any
event, be in accordance with the rules and policies of any stock exchange upon
which the Common Shares may be listed. The terms of the Plan, as amended October
6, 1999 and subject to shareholder approval, provide that the number of Common
Shares that may be reserved for issuance pursuant to the Plan is set to not
exceed 3,552,540 Common Shares.
As at December 31, 1999 the total number of Common Shares underlying all stock
options held by the directors and officers of the Corporation was 2,206,658. The
options have been granted as incentive and not in lieu of any compensation for
services, and are subject to cancellation should the optionee cease to act in a
designated capacity.
The Corporation filed a Form S-8 registration statement for its employee stock
option plan on December 15, 1999. During the period from January 1, 1999 to
December 14, 1999 the Corporation granted a total of 1,698,263 unregistered
options. During this same period the Corporation issued 577,278 Common Shares
upon the exercise of options and cancelled options to purchase 221,895 Common
Shares.
18
<PAGE> 22
ITEM 6: SELECTED FINANCIAL DATA
Set forth below is certain selected financial information of the Corporation for
each year in the five-year period ended December 31, 1999. The selected
financial information for the three years ended December 31, 1999 is derived
from the Corporation's audited financial statements for such periods included in
"Item 14. Financial Statements". The selected financial information for the
years ended December 31, 1996 and 1995 is derived from the audited financial
statements for such periods. The Corporation's financial statements are prepared
in accordance with Canadian generally accepted accounting principals ("GAAP"),
which are not materially different from United States GAAP except as explained
in "Item 14. Financial Statements - Financial Statements - Note 13." The
information below should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto.
UNITED STATES GAAP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales - Imaging Division ............ 7,175,330 9,683,398 3,771,245 6,271,185 6,036,098
Sales - Wireless Division ........... 355,001 176,509 94,496 70,497 7,228
----------- ----------- ----------- ----------- -----------
Total Sales ......................... 7,530,331 9,859,907 3,865,741 6,341,682 6,043,326
Net Income (loss) ................... (3,344,326) (1,440,052) (1,970,792) (210,717) 48,917
Net Income (loss) per share
(0.21) (0.12) (0.24) (0.04) 0.01
BALANCE SHEET DATA
Total Assets ........................ 8,020,392 6,546,596 1,508,802 2,349,819 2,701,091
Long Term Debt ...................... -- -- -- 218,700 698,152
Share Capital ....................... 13,325,591 7,416,454 2,515,083 658 585
Retained Earnings (Deficit) ......... (6,250,800) (2,906,473) (1,466,421) 578,279 788,997
Dividends per Common Share .......... -- -- 103,306 -- --
----------- ----------- ----------- ----------- -----------
</TABLE>
CANADIAN GAAP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales - Imaging Division ............ 7,175,330 9,375,897 3,410,878 5,586,641 5,411,119
Sales - Wireless Division ........... 355,001 170,911 85,471 62,726 6,534
----------- ----------- ----------- ----------- -----------
Total Sales ......................... 7,530,331 9,546,808 3,496,349 5,649,367 5,417,653
Net Income (loss) ................... (3,288,251) (1,206,266) (1,677,032) (187,713) 43,853
</TABLE>
19
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Income (loss) per share (0.21) (0.09) (0.19) (0.03) 0.01
BALANCE SHEET DATA
Total Assets ........................ 8,054,492 6,687,941 1,625,326 2,102,781 2,409,369
Long Term Debt ...................... -- -- -- 195,714 622,769
Share Capital ....................... 12,526,949 6,798,707 2,456,847 587 536
Retained Earnings (Deficit) ......... (5,776,773) (2,488,522) (1,282,256) 534,467 722,181
Dividend per Common Share ........... -- -- 91,476 -- --
----------- ----------- ----------- ----------- -----------
</TABLE>
Eight Quarters Prior to December 1999 -- Canadian GAAP
<TABLE>
<CAPTION>
Year ended Dec. 31, 1999 Year ended Dec. 31, 1998
------------------------------------------- -----------------------------------------
Q-1 Q-2 Q-3 Q-4 Q-1 Q-2 Q-3 Q-4
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales - Imaging Division 1,607,486 1,531,339 2,415,744 1,620,761 1,085,848 1,265,456 2,473,867 4,550,726
Sales - Wireless Division 117,640 32,898 98,318 106,145 29,207 56,956 47,515 37,233
--------- --------- --------- --------- --------- --------- --------- ---------
Total Sales 1,725,126 1,564,237 2,514,062 1,726,906 1,115,055 1,322,412 2,521,382 4,587,959
Net income (loss) (417,430) (750,065) (601,849) (1,518,907) (620,742) (711,385) (208,247) 334,108
Net income (loss) per share (0.03) (0.05) (0.04) (0.09) (0.05) (0.06) (0.02) 0.02
Fully diluted net income (0.03) (0.05) (0.04) (0.09) (0.05) (0.06) (0.02) 0.02
(loss) per share
</TABLE>
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial information included in the above table of selected financial data
and in the audited financial statements of the Corporation for the years ended
December 31, 1999, 1998 and 1997 are presented in United States dollars, and
have been translated from the functional currency of the Corporation, Canadian
dollars, at the following rates:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------- --------------- ---------------- ---------------- ---------------
I/S B/S I/S B/S I/S B/S I/S B/S I/S B/S
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canadian GAAP 0.6732 0.6929 0.6534 0.6534 0.6534 0.6534 0.6534 0.6534 0.6534 0.6534
US GAAP 0.6732 0.6929 0.6748 0.6534 0.7224 0.6997 0.7335 0.7301 0.7288 0.7325
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS IS BASED ON THE CORPORATION'S AUDITED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 AND FROM UNAUDITED INFORMATION FOR
THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998. THE AUDITED FINANCIAL
STATEMENTS OF THE CORPORATION ARE INCLUDED IN "ITEM 14. FINANCIAL STATEMENTS".
THE CORPORATION'S FINANCIAL STATEMENTS ARE PREPARED IN ACCORDANCE WITH CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPALS ("GAAP"), WHICH ARE NOT MATERIALLY
DIFFERENT FROM UNITED STATES GAAP EXCEPT AS EXPLAINED IN "ITEM 14. FINANCIAL
STATEMENTS - FINANCIAL STATEMENTS - NOTE 13."
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
CORPORATE SUMMARY
For the year ended December 31, 1999 net sales decreased 21% to $7.53 million
compared to $9.55 million for the prior year. This decrease is attributable to a
decline in sales in the Imaging Division, offset slightly by increased sales in
the Wireless Division. Gross margin increased to 64% in 1999 from 53% in 1998
due to a shift in product sales toward higher margin software products and a
change in the structure of OEM sales.
Total operating expenses increased 28% to $8.16 million from $6.35 million in
1998. This increase is largely due to higher research and development and
administrative costs. Research and development costs increased 35% to $2.92
million due to new and ongoing projects in both the Imaging and Wireless
Divisions. The Corporation invested $0.18 per share in research and development
in 1999 compared to $0.17 per share in 1998. Administration costs increased 52%
to $2.11 million due to higher staff levels to support the growth of the
Corporation as well as due to finance-related projects pursued during the year.
This included the Corporation's listing of its Common Shares on the TSE and
ongoing Canadian and United States investor relations and reporting issuer
requirements. In addition, the Corporation increased sales and marketing
expenditures by 12% as a result of the increase in the Wireless Division sales
force to support the growth initiatives of the Corporation.
20
<PAGE> 24
Other income decreased to $0.03 million in 1999 from $0.10 million in the prior
year. Interest income earned on higher cash balances was offset by foreign
exchange losses incurred as a result of the effect of the increase in value of
the Canadian dollar during the year on foreign currency denominated cash and
accounts receivable balances.
The combination of a decline in Imaging Division sales and higher operating
costs resulted in a loss of $3.29 million, or $0.21 per share for the year ended
December 31, 1999 compared to a loss of $1.21 million, or $0.09 per share for
the year ended December 31, 1998.
WIRELESS DIVISION
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31 December 31
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ............................. $ 106,145 $ 37,233 $ 355,001 $ 170,911
Cost of Goods Sold ................ 6,881 13,837 28,703 48,536
----------- ----------- ----------- -----------
Gross Profit ...................... 99,264 23,396 326,298 122,375
Research and Development .......... 530,004 203,573 1,371,007 994,670
Sales and Marketing ............... 569,869 319,991 1,531,348 1,185,289
Administration .................... 467,276 246,613 1,315,670 667,315
----------- ----------- ----------- -----------
Total Operating Expenses .......... 1,567,149 770,177 4,218,025 2,847,274
----------- ----------- ----------- -----------
Operating Income (Loss) ........... (1,467,885) (746,781) (3,891,727) (2,724,899)
----------- ----------- ----------- -----------
Total depreciation expense included
in above .......................... 68,270 45,905 160,390 89,900
----------- ----------- ----------- -----------
</TABLE>
During 1999 the Wireless Division completed the development of its suite of
wireless software products with the shipping of two new software products,
Symmetry and Infowave for the Net, and a new version of Infowave for Exchange
that added support for a second wireless network, CDPD. During 1999, management
implemented an aggressive sales and marketing strategy to build the distribution
channels and branding for its wireless software products. In late 1999 and early
2000 Infowave completed strategic agreements with AT&T Wireless Services, Inc.,
Bell Atlantic Mobile, GE Capital IT Solutions, Nokia Networks, Pivotal
Corporation, RAM Mobile Data Ltd. and Sierra Wireless, Inc.
Sales revenue for the Wireless Division in 1999 was $0.36 million, which
represented an increase of 107% from 1998. This is the second successive year
that the Wireless Division has posted year-over-year revenue growth in excess of
100%. Approximately 65% of 1999 Wireless revenue was derived from software
license fees, 23% from technical services and engineering fees, and 12% from the
sale of third-party hardware.
The Wireless Division's gross profit margin for 1999 was 92%, increasing from
72% in 1998. The cost of goods sold consists primarily of the cost of
third-party hardware components. The increase in the gross profit margin
reflects the mix of software license revenue and sales of third-party hardware
components.
The Wireless Division's expenses in 1999 grew 48% from 1998, with research and
development spending increasing by 38% to $1.37 million and sales and marketing
expenses increasing by 29% to $1.53 million. Research and development salaries
and contract development increased to $1.08 million from $0.84 million in 1998
with the number of employees in Wireless research and development increasing
from 23 to 29. Research and development activities during 1999 focused on the
development of the first release of Symmetry and Infowave for the Net, and the
CDPD version of Infowave for Exchange. Sales and marketing salaries increased
30% to $0.65 million in 1999 from $0.50 million in 1998. General marketing
expenses for travel, trade-shows and advertising were $0.67 million in 1999, an
increase of 37% over $0.49 million incurred in 1998. During the year the
Corporation attended over twenty wireless trade shows and conferences. Wireless
administration costs increased to $1.32 million in 1999, reflecting an increase
in infrastructure and finance-related expenses incurred during the year. These
finance-related costs have been allocated to the Wireless Division.
21
<PAGE> 25
IMAGING DIVISION
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31 December 31
----------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ............................. $ 1,660,464 $ 4,535,918 $ 7,175,330 $ 9,375,897
Cost of Goods Sold ................ 483,369 2,135,042 2,663,757 4,455,458
----------- ----------- ----------- -----------
Gross Profit ...................... 1,177,095 2,400,876 4,511,573 4,920,439
Research and Development .......... 465,817 429,430 1,547,565 1,168,944
Sales and Marketing ............... 464,779 659,907 1,594,288 1,608,937
Administration .................... 256,785 270,378 796,918 724,408
----------- ----------- ----------- -----------
Total Operating Expenses .......... 1,187,381 1,359,715 3,938,771 3,502,289
----------- ----------- ----------- -----------
Operating Income (Loss) ........... (10,286) 1,041,161 572,802 1,418,150
----------- ----------- ----------- -----------
Total depreciation expense included
in above .......................... 53,328 39,560 162,904 119,126
----------- ----------- ----------- -----------
</TABLE>
Sales revenue for the Imaging Division in 1999 was $7.18 million, which
represented a decrease of 23% from a record high of $9.38 million in 1998. This
decline was primarily attributable to a decrease in sales to Original Equipment
Manufacturers ("OEM") and StyleScript retail sales. OEM sales decreased 54% to
$2.30 million in 1999 from $4.90 million in 1998. The Corporation diversified
its OEM relationships and entered into new licensing and development agreements
with Brother, Samsung, Canon and New Motion. However, the average revenue for
each OEM project in 1999 was significantly less than in 1998. Additionally,
gross sales for the year were affected by the migration in the structure of OEM
agreements from higher revenue private-label printing solutions (with cable) to
lower revenue royalty-based solutions. The Imaging Division also recorded
engineering fees of $0.18 million in 1999 compared to $0.33 million in the prior
year.
The Imaging Division recorded growth in the overall sale of retail software
products in 1999. Total 1999 retail shipments increased 11% to over 66,000
units. Retail shipments of Infowave's best-selling PowerPrint packages increased
sharply by 36% for the year and annual sales increased 35% to $4.62 million.
Sales of PowerPrint represented 65% of total Imaging revenue in 1999 versus 36%
of total revenue in 1998. The increase in sales of PowerPrint was partially
offset by low sales of StyleScript, which decreased 52% compared to 1998.
StyleScript unit shipments in 1999 declined throughout the year as no new
versions of the product were released and the printers that the current version
supports lost market share. A new version of StyleScript is currently scheduled
for release in the first half of 2000.
Imaging Division gross margins were 63% in 1999 compared to 53% in 1998,
reflecting the increase in the proportion of higher margin PowerPrint retail
sales as well as the migration in structure of OEM sales toward higher margin
royalties versus package sales. The Corporation also realized the benefit of
decreased component costs for PowerPrint due to cable changes implemented in the
fourth quarter of 1998. The cost of goods sold for retail and OEM sales includes
the media on which the software is reproduced, documentation, packaging, and in
some cases the cable which connects the computer to the printer and a royalty
payable to a third party in accordance with various licensing agreements. The
cost of sales for the Imaging business in 1999 was $0.90 million for OEM sales
and $1.44 million for retail sales.
Total Imaging Division expenses in 1999 increased 12% to $3.94 million with
research and development spending up 32% to $1.55 million and sales and
marketing expenses relatively unchanged at $1.59 million. Research and
development salaries and contract development increased from $0.87 million in
1998 to $1.01 million in 1999 with the number of employees in Imaging research
and development increasing from 22 to 28. During 1999 Infowave released three
major versions of its PowerPrint software: PowerPrint USB, PowerPrint for
Networks and PowerPrint with multi-function peripheral support. The Corporation
also developed various customized OEM printing kits. Sales and marketing
salaries for the Imaging Division in 1999 decreased to $0.63 million in 1999
from $0.72 million in 1998. General marketing expenses during the year -
advertising, trade shows, brochures etc. - increased to $0.69 million in 1999
from $0.67 million in 1998.
22
<PAGE> 26
QUARTER ENDED DECEMBER 31, 1999
Wireless Division sales of $0.11 million for the fourth quarter of 1999
represented an increase of 185% over the corresponding quarter in 1998. Wireless
Division sales in the fourth quarter of 1999 included recurring license fees
from hosted services and license sales to Glenayre Electronics, Inc. and several
new pilot customers.
Imaging Division sales of $1.66 million in the fourth quarter decreased 63% over
the fourth quarter of 1998 due to decreased OEM and retail sales. OEM sales of
$0.62 million decreased 80% from the prior year and retail sales decreased from
$1.5 million to $1.1 million. Imaging Division retail sales were affected by the
delayed release of PowerPrint 5.0, which did not reach the reseller channel
until mid-December.
The impact of the overall decrease in sales was offset slightly by an increase
in gross margins to 71% compared to 53% in the corresponding quarter in 1998.
This increase is attributable to decreased component costs and an increase in
the proportion of higher margin retail and OEM sales in the Imaging Division.
Total operating expenses in the fourth quarter of 1999 were $2.75 million
compared to $2.13 million in the comparable 1998 period. Research and
development expenditures increased 57% to $1.0 million principally due to new
product initiatives in the Wireless Division. Administrative expenses increased
37% to $0.72 million due to a buildup in infrastructure to support the growth
initiatives of the Corporation. Total sales and marketing expenses remained flat
at $1.03 million due to the fact that a $0.25 million increase in sales and
marketing expenditures in the Wireless Division was offset by a corresponding
decrease in the Imaging Division.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Corporation experienced significant growth in 1998. Rapid growth continued
into the fourth quarter and enabled the Corporation to post annual and quarterly
records for unit shipments and revenues. Fourth quarter sales of $4.6 million
were up 441% over the fourth quarter of 1997 and up 82% over the previous
quarter. Total 1998 sales of $9.5 million were up 173% over 1997. Fourth quarter
unit shipments of Infowave's printing solutions were nearly double the previous
quarter -- a record quarter itself -- and were up nearly 12 times over the
fourth quarter of 1997. Annual shipments quadrupled to over 200,000 units.
Demand for Infowave's printing solutions translated into earnings of $0.33
million, or $0.02 per share, in the fourth quarter, the first profitable quarter
for the Corporation since the first quarter of 1996. This compares to a loss of
$0.21 million, or $0.01 per share, in the previous quarter and a loss of $0.58
million, or $0.05 per share, in the fourth quarter of 1997. Infowave cut annual
losses to $1.21 million, or $0.09 per share, in 1998 from $1.68 million, or
$0.19 per share, in 1997. The Corporation invested $2.16 million, or $0.17 per
share, in research and development in 1998.
Annual operating expenses were up 68% to $6.35 million with head count
increasing from 48 to 59. Infowave increased total research and development
spending 64% and total sales and marketing spending by 65%. More expense detail
is provided with the analysis of the operating divisions.
Infowave's performance in 1998 was fuelled by growth of its Imaging Division.
Fourth quarter retail sales of Infowave's best-selling PowerPrint package were
up 188% over 1997. Year to date sales were up 81%. StyleScript was Infowave's
fastest-growing retail product in 1998 with annual sales up 83% over 1997. Total
1998 shipments through Infowave's various retail distribution channels increased
52% to over 60,000 units.
Demand for Infowave's private-label printing solutions from OEMs continued in
the fourth quarter. OEM sales of $2.94 million were up 124% over the third
quarter. Total annual OEM sales of $4.57 million was new business for Infowave
in 1998 and was generated primarily by licensing and development agreements
negotiated during the first half of the year with Apple Computer and
Hewlett-Packard. Infowave also recorded $0.33 million revenue from engineering
fees in 1998. Imaging Division gross margins for 1998 were 53%, compared with
62% in 1997. The decline is a result of the mix between retail and OEM business
as the Corporation charges lower prices to its OEM customers. The cost of goods
sold for retail and OEM sales may include the media on which the software is
23
<PAGE> 27
reproduced, documentation, packaging, and in some cases the cable which connects
the computer to the printer and a royalty payable to a third party in accordance
with various licensing agreements. The cost of sales for the Imaging business in
1998 was $2.29 million for OEM sales and $2.16 million for retail sales.
Total Imaging Division expenses in 1998 grew 65% to $3.50 million, with research
and development ("R&D") spending up 117% to $1.17 million and sales and
marketing expenses up 35% to $1.60 million. R&D salaries and contract
development were up from $0.37 million in 1997 to $0.87 million in 1998. During
the year the Imaging Division completed development of a custom chip for
PowerPrint, developed various customized OEM printing kits and introduced six
new retail product releases. Sales and marketing salaries in 1998 were up from
$0.31 million in 1997 to $0.70 million. General marketing expenses during the
year - advertising, trade shows, brochures etc. - were down slightly from $0.70
million in 1997 to $0.65 million.
Wireless sales during the fourth quarter were $0.04 million with annual sales of
$0.17 million up 100% over 1997. During the fourth quarter, two customers
extended their pilot programs and an existing customer added more seats. During
the course of 1998 Infowave received orders for its wireless software from a
total of 14 corporations and ended the year with four active customers, two
active pilots and two beta programs in place. Wireless gross profit margins were
72% with the cost of sales comprised primarily of the cost of third-party
hardware components.
Total Wireless Division expenses in 1998 grew 71%, with R&D spending up 27% to
$0.99 million and sales and marketing expenses up 139% to $1.17 million. R&D
salaries and contract development were up from $0.55 million in 1997 to $0.84
million in 1998. Infowave introduced two new versions of its wireless software
during the year that added increasing functionality and security--in particular,
Windows NT authentication and Certicom encryption. Infowave also incorporated
source code and architectural design elements derived from the source code
license acquired from Wynd Communications in April. Infowave Office Enabler
earned Microsoft BackOffice and Windows CE certification in 1998.
Sales and marketing salaries in 1998 were up from $0.16 million in 1997 to $0.50
million. General 1998 marketing expenses for travel, trade-shows and advertising
were $0.49 million, up 136% over $0.20 million in 1997.
Total administration expenses were up 79% to $1.39 million. 1998 salaries of
$0.33 million were up from $0.29 million in 1997. Professional fees increased
from $0.24 million in 1997 to $0.45 million in 1998 due to SEC Form 20-F
registration and various development and licensing agreements that were
negotiated during the year. Infowave was not a publicly traded company until
October 14th of 1997; therefore related costs of $0.30 million in 1998 were up
from $0.04 million in 1997. Travel expenses of $0.05 million and recruiting
expense of $0.03 million were up over 1997.
In fiscal 1997 the Corporation recorded amalgamation costs of $0.07 million and
dividends of $0.07 million in connection with the amalgamation of GDT Softworks
Inc., G.W. McIntosh Holdings Ltd. and Infowave Wireless Messaging Incorporated.
No such amounts were recorded in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Using the comparative balances at December 31, 1998 and December 31, 1999,
working capital increased from $3.33 million to $5.85 million and net tangible
assets increased from $4.17 million to $7.01 million. Infowave's cash position
increased from $1.05 million in 1998 to $4.36 million in 1999.
During the year the Corporation satisfied its operating cash requirements from
cash reserves and equity financing. Infowave's cash position increased primarily
from the private placement of 2,224,647 special warrants at Cdn.$3.25 for total
net proceeds of $4.28 million. Each special warrant entitled the holder to
receive one common share and one-half of a common share purchase warrant
expiring June 30, 2000. During the year 300,577 share purchase warrants were
exercised at Cdn.$3.75 and 69,051 agents' warrants were exercised at Cdn.$3.25
for combined net proceeds of $0.92 million. At December 31, 1999 there were a
total of 811,747 share purchase warrants and 143,414
24
<PAGE> 28
agents' warrants outstanding. In total, financing activities, including the
exercise of stock options, generated $5.76 million.
The Corporation used $1.93 million in operations in 1999, primarily due to the
loss for the period, as discussed previously. The effect of the loss on the
Corporation's cash position was partially offset by the net effect of a combined
decrease of $2.36 million in accounts receivable and inventories and a decrease
of $1.46 million in accounts payable, all of which are directly attributable to
the decline in Imaging Division sales in the fourth quarter of 1999.
Net cash used in investing activities during 1999 was $0.64 million, which
consisted primarily of the purchase of computer equipment.
On March 28, 2000, Infowave announced that it entered into an agreement with
CIBC World Markets Inc. and Canaccord Capital Corporation (the "Underwriters")
for an underwritten offering of 924,000 special warrants of Infowave (the
"Special Warrants") at a price of Cdn.$32.50 per Special Warrant for aggregate
gross proceeds of approximately $20.55 million. Each Special Warrant will
entitle the holder to acquire, for no additional consideration, one Common
Share. If Infowave does not obtain receipt (the "Receipts") from certain
securities regulatory authorities in Canada for a (final) prospectus qualifying
for distribution the Common Shares issuable upon exercise of the Special
Warrants on or before 90 days from the Closing Date or such later date as the
Underwriters may approve (the "Clearance Date"), then each Special Warrant will
be exercisable for 1.1 Common Shares. The closing of the Offering occurred on
April 13, 2000. A total of 75% of the gross proceeds of the offering were
released to Infowave on closing and the balance is currently being held in trust
to be released to Infowave at the time the Receipts are received.
OUTLOOK
At December 31, 1999 the Corporation's primary source of liquidity consisted of
cash and cash equivalents of $4.36 million.
The Corporation intends to increase its number of employees in 2000 to continue
its growth in the Wireless Division. Additional resources will be allocated to
sales and marketing and research and development in the Wireless Division. These
additional resources will be used to pursue existing and new market development
opportunities and to continue to enhance and expand the range and features of
its wireless software products. The Corporation expects to leverage and develop
existing and new strategic relationships. The Corporation expects these
developments to have a positive impact on the sales of its wireless software
products in 2000. See "Note Regarding Forward-looking Statements."
At the start of the year 2000 management believed that its cash position would
be insufficient to finance its growth plans for 2000. To finance anticipated
increased expenditures as well as to further strengthen the Corporation's
financial position, facilitate growth, and provide the Corporation with
additional flexibility to take advantage of business opportunities that may
arise, the Corporation secured the $20.55 million special warrant financing. The
Corporation does not expect to require additional equity financing before the
end of 2001. If such financing is required, there can be no assurance that
additional financing will be available on terms favourable to the Corporation or
its shareholders, or on any terms at all. The inability to obtain such
financing, if necessary, would have a material adverse impact on the
Corporation's operations. To the extent that such financing is available, it may
result in substantial dilution to existing shareholders.
The Corporation has been investigating opportunities to divest its Imaging
Division in order to focus its resources, including management time, on the
development of the Wireless Division.
YEAR 2000
Many computer applications have been written using two digits rather than four
to define the applicable year and some date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. The year 2000 issue
could result in system failures or miscalculations that could disrupt the
operations of the Corporation.
25
<PAGE> 29
The Corporation, to its knowledge, has not experienced any systems failures or
disruptions of its operations resulting from the year 2000 issue.
To date, the Corporation has spent less than $100,000 on year 2000 compliance.
At this time, the Corporation does not expect to incur future expenditures
relating to year 2000 compliance matters.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Corporation conducts the majority of its transactions in Canadian dollars
and therefore uses the Canadian dollar as its base currency of measurement.
However, most of the Corporation's revenues and some of its expenses are
denominated in United States dollars which results in an exposure to foreign
currency gains and losses on the resulting US dollar denominated cash, accounts
receivable, and accounts payable balances. As of December 31, 1999, the
Corporation has not engaged in any derivative hedging activities on foreign
currency transactions and/or balances. Although foreign currency gains and
losses have not been material in the fiscal years 1997, 1998 and 1999,
fluctuations in exchange rates between the United States dollar and other
foreign currencies and the Canadian dollar could materially affect the
Corporation's results of operations. To the extent the Corporation implements
hedging activities in the future with respect to foreign currency exchange
transactions, there can be no assurance that the Corporation will be successful
in such hedging activities.
While the Corporation believes that inflation has not had a material adverse
effect on its results of operations, there can be no assurance that inflation
will not have a material adverse effect on the Corporation's results of
operations in the future.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements listed under the heading "(a)(1)
Financial Statements" of Item 14 herein, which financial statements are
incorporated herein by reference in response to this Item 8.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
26
<PAGE> 30
PART III
ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table sets forth certain current information regarding the
executive officers, directors and key employees of Infowave:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jim McIntosh................. 35 President, Chief Executive Officer, and Director
Bijan Sanii.................. 41 Chief Operating Officer
Todd Carter.................. 39 Chief Financial Officer
Sal Visca.................... 33 Chief Technology Officer
Robert Heath................. 53 General Manager, Imaging Division
Kevin Jampole................ 40 Vice President, Sales and Marketing, Imaging Division
Ron Jasper................... 36 Vice President, Marketing, Wireless Division
Jin Pak...................... 38 Vice President, Sales, Wireless Division
Morgan Sturdy (1)(2)......... 48 Director
Scot Land (1)(2)............. 45 Director
Gary McIntosh (1)(2)......... 61 Director
David Neale.................. 47 Director
</TABLE>
----------------
(1) Member of the audit committee
(2) Member of the compensation committee
Jim McIntosh has served as President, Chief Executive Officer, and a director
since June 1991.
Bijan Sanii has served as Chief Operating Officer since September 1998. From
December 1997 to September 1998, Mr. Sanii served as General Manager of the
Imaging Division of Infowave. From May 1997 to December 1997, Mr. Sanii served
as Vice President of Sales of Infowave. From May 1994 to May 1997, Mr. Sanii
served as Vice President of Sales and Marketing of INETCO Systems Limited.
Todd Carter has served as Chief Financial Officer since October 1998. Mr. Carter
originally provided financial consulting services to Infowave beginning in
September 1997 pursuant to an independent contractor agreement with Capital
Ridge Communications Inc. (formerly Channel One Systems Corp.). Mr. Carter has
served as President of Channel One, formerly a division of Nexus Engineering
Corp., since July 1986 to November 1990. He was appointed Managing Director for
European operations in December 1990 (based in the UK) and Vice President of
Operations in January 1992. Mr. Carter took private control of Channel One in
November 1992 after Nexus was acquired by Scientific Atlanta Inc.
Sal Visca has served as Chief Technology Officer since November 1999. From July
1996 to November 1999, Mr. Visca served as Senior Manager of the e-business
Solution Development Business Unit for IBM Canada. Prior to July 1996, Mr. Visca
served as Lead Architect and Strategic Program Manager for IBM Canada from
January 1995 to July 1996. From July 1993 to January 1995 Mr. Visca served as
Development Manager for IBM Canada.
Robert Heath has served as General Manager of the Imaging Division since January
2000. From August 1998 to January 2000, Mr. Heath served as Director of Business
Development (e-Commerce) with MacDonald Dettwiler and Associates. Prior to
August 1998, Mr. Heath served as Vice President, Sales and Marketing for Triant
Technologies
27
<PAGE> 31
from October 1997 to August 1998. From February 1993 to October 1997, Mr. Heath
served as Executive Vice-President of Cymbolic Sciences International.
Kevin Jampole has served as Vice President, Sales and Marketing for the Imaging
Division since October 1998. From October 1996 to October 1998, Mr. Jampole
served as General Manager of Vertigo Technology. Prior to October 1996, Mr.
Jampole served as a Senior Account Manager for Adobe Systems from March 1991 to
September 1996.
Ron Jasper has served as Vice President, Marketing for the Wireless Division
since October 1998. From October 1997 to October 1998, Mr. Jasper served as
Director of Product Management of the Wireless Division of Infowave. Prior to
October 1997, Mr. Jasper served as a Product Manager for Chancery Software Ltd.
from February 1996 to October 1997. From September 1993 to February 1996, Mr.
Jasper served as a Senior Systems Engineer for Chancery Software Ltd.
Jin Pak has served as Vice President, Sales for the Wireless Division since July
1999. From January 1999 to July 1999, Mr. Pak served as the Director of Sales
Development of Wireless Access for Glenayre Electronics, Inc. Prior to January
1999, Mr. Pak served as Vice President and General Manager of Asia North for
Glenayre Electronics Inc. from August 1995 to January 1999. From February 1994
to August 1995, Mr. Pak served as Director, Sales of Korea and Japan for
Glenayre Electronics Inc.
Morgan Sturdy has served as Chairman and a director since October 1999. Since
September 1997, Mr. Sturdy has served as Executive Vice President and Chief
Operating Officer of NICE Systems Ltd. Prior to September 1997, Mr. Sturdy
served as President of Dees Communications Engineering Ltd. from January 1985 to
August 1997.
Scot Land has served as a director since October 1997. Since September 1997, Mr.
Land has served as a Managing Director of EnCompass Ventures. Prior to joining
EnCompass, Mr. Land was a Senior Technology Analyst with Microsoft Corporation
from April 1994 to September 1997. Mr. Land also founded InVision Technologies,
Inc. in 1989 and served as its President and Chief Executive Officer until 1993.
Mr. Land also serves as a director of BSQUARE Corporation.
Gary McIntosh has served as a director since October 1984. Mr. McIntosh retired
in June 1991. From October 1984 to June 1991, Mr. McIntosh served as President
and Secretary of Infowave.
David Neale has served as a director since May 1998. Since November 1999, Mr.
Neale has served as Vice President, New Product Development for Rogers AT&T
Wireless Inc. (formerly, Rogers Cantel Inc.). From January 1998 to November
1999, Mr. Neale served as the Vice President of Data and Emerging Technologies
for Rogers AT&T Wireless Inc. From September 1995 to January 1998, Mr. Neale
served as the Vice President of Marketing and Planning for Rogers AT&T Wireless
Inc. Mr. Neale served as the Vice President of Sales and Marketing for Westel
Communications Ltd. from December 1993 to September 1995. Mr. Neale is currently
the Chairman of the Paging Executive Council, Chairman of the International
Mobitex Operators Association and an Executive Board member of the Portable
Computer and Communications Association.
Each director is elected for a period of one year at the annual general meeting
of shareholders and serves until the next annual general meeting or until his or
her successor is duly elected and qualified. The board limits the length of
directorship to three years at which time the directorship can be extended by
mutual consent of both parties. The executive officers serve at the discretion
of the board. The only family relationship involving the executive officers and
the board involves Gary McIntosh and Jim McIntosh who are father and son,
respectively.
Infowave is a foreign private issuer and, as such, its insiders are not required
to file reports under Section 16(a).
BOARD COMMITTEES
The board of directors has established three board committees -- an audit
committee, a compensation committee and a nominating committee.
28
<PAGE> 32
Audit Committee. The responsibilities of the audit committee include reviewing
the Corporation's audited financial statements and presenting them to the Board
for approval, reviewing internal accounting procedures and consulting with and
reviewing the services provided by the Corporation's auditors. The audit
committee currently consists of Gary McIntosh, Morgan Sturdy and Scot Land.
Compensation Committee. The responsibilities of the compensation committee
include reviewing and recommending to the board of directors the compensation
and benefits of all the executive officers of the Corporation, and establishing
and reviewing general policies relating to compensation and benefits of the
employees of the Corporation. The compensation committee currently consists of
Gary McIntosh, Morgan Sturdy and Scot Land. Except as described in Item 13 -
"Certain Relationships and Related Transactions," no interlocking relationships
exist between the board of directors or compensation committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Nominating Committee. The board of directors approved the establishment of the
nominating committee as part of a corporate governance policy on March 20, 2000.
The responsibilities of the nominating committee are expected to include
evaluating the contribution of each director on an individual basis, assessing
the collective performance of the board, proposing new nominees to the board and
analyzing the existing structure of the board. The members of the committee have
not yet been appointed.
DIRECTOR COMPENSATION
The Corporation does not currently pay cash compensation to directors for
serving on its board, but does reimburse directors for out-of-pocket expenses
for attending board and committee meetings. The Corporation does not provide
additional compensation for committee participation or special assignments of
the board of directors. All directors except for Gary McIntosh and Jim McIntosh
have received stock options for their participation on the board of directors.
Scot Land received options to purchase 100,000 common shares at a price of
Cdn.$1.00 per share, David Neale received options to purchase 100,000 common
shares at a price of Cdn.$2.55 per share and Morgan Sturdy received options to
purchase 100,000 common shares at a purchase price of Cdn.$3.57 per share.
EMPLOYMENT AGREEMENTS
The Corporation's policy is to require all employees, including its executive
officers, as a condition to their employment with the Corporation, to enter into
agreements requiring the non-disclosure of confidential information of the
Corporation, and the assignment and confirmation of the Corporation's ownership
of all intellectual property rights created in the course of such employee's
employment with the Corporation.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our Chief Executive
Officer and two other most highly compensated executive officers earning more
than $100,000 for the years ended December 31, 1998 and December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
--------------------------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Jim McIntosh........................ 1999 $ 74,052 $51,657 250,000 $12,925
President, Chief Executive 1998 74,229 53,985 -- 315
Officer, and a director
Bijan Sanii......................... 1999 74,052 99,414 290,000 --
Chief Operating Officer 1998 65,664 118,766 -- 4,559
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C> <C>
Todd Carter ........................ 1999 74,052 60,588 150,000 --
Chief Financial Officer 1998 67,481 33,740 60,000 --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option grants
to our Chief Executive Officer and two other most highly compensated executive
officers during the year ended December 31, 1999. The potential realizable value
is calculated based on the assumption that the common stock appreciates at the
annual rate shown, compounded annually, from the date of grant until the
expiration of its term. These numbers are calculated based on Securities and
Exchange Commission requirements and do not reflect our projection or estimate
of future stock price growth. Potential realizable values are computed by:
o multiplying the number of Common Shares subject to a given option by
the exercise price;
o assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the
table for the entire five-year term of the option; and
o subtracting from that result the aggregate option exercise price.
30
<PAGE> 34
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE FOR OPTION TERM
OPTIONS FISCAL YEAR PRICE (PER EXPIRATION --------------------------
NAME GRANTED (1) SHARE)(2) DATE 5% 10%
---- --------- ------------ ---------- ---------------- --------- ------------
CDN.$
<S> <C> <C> <C> <C> <C> <C>
Jim McIntosh................. 250,000 14.75 13.20 December 10, 2004 631,701 1,395,893
Bijan Sanii.................. 250,000 14.75 13.20 December 10, 2004 631,701 1,395,893
40,000 2.36 1.56 January 21, 2004 11,945 26,395
Todd Carter.................. 150,000 8.85 13.20 December 10, 2004 379,020 837,536
</TABLE>
------------
(1) During 1999, options to purchase a total of 1,694,584 common shares were
issued to employees.
(2) The exercise price per share was equal to the fair market value of the
Common Shares on the date of grant as determined by the board of directors.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth for the Chief Executive Officer and two other
most highly compensated executive officers earning over $100,000 the number of
shares acquired upon exercise of stock options during the year ended December
31, 1999 and the number of shares subject to exercisable and unexercisable stock
options held at December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jim McIntosh.................... -- -- 258,158 341,885 2,709,840 1,475,485
Bijan Sanii..................... 86,451 159,795 -- 320,770 -- 1,238,325
Todd Carter..................... 30,000 156,178 73,258 196,742 743,705 783,137
</TABLE>
------------
(1) The value of unexercised in-the-money options at December 31, 1999 is based
on Cdn.$16.15 per share, the closing price of the Common Shares at such
time, less the exercise price per share.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of its Common Shares as of December 31,
1999, by (i) each person known by the Company to be the beneficial owner
31
<PAGE> 35
of more than 5% of the outstanding Common Shares, (ii) each director of the
Company, (iii) each Named Executive Officer, and (iv) all directors and officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Shares listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
DIRECTORS, EXECUTIVE OFFICERS EARNING MORE THAN $100,000 AND 5% BENEFICIALLY OWNED TOTAL SHARES
SHAREHOLDERS (1) OWNED (2)
---------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Jim McIntosh (3) (4) (5) (6).............................................. 2,775,170 14.96
Gary McIntosh (6) (7)
4651 Fairlawn Drive, Burnaby, British Columbia V5C 3R5................ 1,808,613 9.88
Morgan Sturdy
NICE Systems Ltd., #180-6651 Fraserwood Place, Richmond, 13,890 0.08
British Columbia V6W 1J3...............................................
David Neale
Rogers AT&T, 1 Mount Pleasant Road, Toronto, Ontario, M4Y 2Y5.......... 31,116 0.17
Scot Land
Encompass Ventures, 777-108th avenue NE, Ste 2300, Bellevue, 73,750 0.40
Washington 98004.......................................................
Todd Carter (3)........................................................... 88,092 0.48
Bijan Sanii (3)........................................................... 17,000 0.09
All Directors and Executive Officers as a group (7 persons)............... 4,807,631 25.63
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Common Shares subject to options
currently exercisable, or exercisable within 60 days after December 31,
1999, are deemed outstanding for computing the percentage ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership for any other person.
(2) Applicable percentage ownership is based on aggregate Common Shares
outstanding as of December 31, 1999 together with the applicable options of
such shareholder.
(3) Unless otherwise indicated, the address of each beneficial owner is that of
the Company.
(4) Includes 140,625 Common Shares held on behalf of a trust established with
the company's Employee Incentive Plan. Jim McIntosh is the Trustee of and
has the power to vote the Common Shares held by this trust.
(5) Includes 1,784,876 Common Shares beneficially owned by 529452 B.C. Ltd. See
note (5).
(6) 529452 B.C. Ltd. is the beneficial owner of 3,499,756 common shares. The
issued share capital of 529452 B.C. Ltd. consists of 100 Class A voting
shares and 100 Class B non-voting shares and 1,000 Class C preferred shares
and 1,000 Class D preferred shares. Gary McIntosh holds 49 Class A voting
shares, 49 Class B non-voting shares and all 1,000 of the Class C preferred
shares. Jim McIntosh holds 51 of the Class A voting shares, 51 of the Class
B non-voting shares and all 1,000 of the Class D preferred shares.
(7) Includes 1,714,880 Common Shares beneficially owned by 529452 B.C. Ltd. See
note (5).
32
<PAGE> 36
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No director, senior officer or principal shareholder of the Corporation, or
associate or affiliate of any of the foregoing, has any other material interest,
direct or indirect, in any transaction or in any proposed transaction which has
materially affected or will materially affect the Corporation from January 1,
1999 through March 28, 2000, except as disclosed herein or as follows:
(1) The Corporation completed a private placement of 2,224,647 Special
Warrants in two tranches on June 30, 1999 and July 8, 1999 (see Item 5
- `Warrants'). Denise McIntosh, the spouse of Jim McIntosh (the
President, Chief Executive Officer and a Director of the Corporation)
acquired an aggregate of 100,000 Special Warrants for an aggregate
purchase price of $218,790. These Special Warrants were deemed
exercised for 100,000 Common Shares and 50,000 Purchase Warrants on
September 28,1999.
(2) Pursuant to a Consulting Agreement dated as of July 4, 1997 between
the Corporation and GWM Enterprises Ltd. ("GWM"), a company controlled
by Gary McIntosh (a Director of the Corporation), GWM provides
management services to the Corporation for $2,693 per month. Pursuant
to the Consulting Agreement, the Corporation paid GWM a total of
$32,316 in 1999.
(3) The Corporation entered into an Independent Contractor Agreement dated
as of October 26, 1998 with Capital Ridge Communications Inc., a
company controlled by Todd Carter. Pursuant to this agreement, Capital
Ridge Communications Inc. provided services to the Corporation for
$10,098 per month. Todd Carter provided services specifically in the
role of Chief Financial Officer. The agreement terminated September
15, 1999 and was replaced by employee agreements with Infowave.
Pursuant to the Independent Contractor Agreement, the Corporation paid
a total of $133,584 to Mr. Carter in 1999.
(4) David Wedge, who resigned as a Director of the Corporation on October
6, 1999, is the founder and proprietor of David J. Wedge Computer Law,
a law firm focused on the information technology industry. David J.
Wedge Computer Law has been acting as corporate counsel to the
Corporation since 1994. In 1999 the Corporation paid approximately
$90,000 for legal services to David J. Wedge Computer Law. David Wedge
is the secretary of the Corporation.
(5) On March 16, 2000, the Corporation announced that Rogers AT&T Wireless
Inc. placed an order for a branded version of the Corporation's
Symmetry software. David Neale is Vice-President, Product Development
and Deployment of Rogers AT&T Wireless Inc. and a director of the
Corporation. The total value of the March 16, 2000 order is $60,000,
none of which to date has been paid to the Corporation.
33
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following financial statements of the Registrant and the Report of
Independent Accountants thereon are included herewith in Item 8 above.
(a) 1. Financial Statements
Auditors' Report to the Shareholders
Comments by Auditor for U.S. Readers on Canada-U.S.
Reporting Difference
Balance Sheets
Statements of Operations and Deficit
Statements of Cash Flows
Notes to the Financial Statements
2. Consolidated financial statement schedules and Report of Independent
Accountants in those schedules are included as follows:
Schedule II: Valuation and Qualifying Accounts
3. Exhibits:
The following Exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
3.1* Memorandum and Articles of registrant
4.1* Employee Incentive Plan dated April 28, 1997, as supplemented September 25,
1997
4.2* Special Warrant Indenture dated April 20, 1998 between the Corporation and Montreal Trust
Company of Canada
4.3++ Special Warrant Indenture dated June 30, 1999 between the Corporation and Montreal Trust
Company of Canada
4.4++ Stock Option Plan, as amended (incorporated by reference to the Corporation's Form 6-K dated
October 21, 1999)
10.1* Investor Relations Agreement dated September 1, 1998 between the Corporation and IRG Investor
Relations Group Ltd.
10.2* Investor Relations Agreement dated September 1, 1998 between the Corporation and Staff
Financial Group Ltd. and 549452 BC Ltd.
10.3* Loan Facility dated October 29, 1998 with a Canadian chartered bank
10.4++ Lease Agreement dated February 12, 1998 between Riocan Holdings Inc. and the Corporation
10.5++ Lease Agreement dated November 23, 1999 between Bedford Property Investors, Inc. and the
Corporation
+10.6* Corporate Development Agreement dated October 26, 1998 between the Corporation and Capital
Ridge Communications Inc. (formerly "Channel One Systems Corp.")
10.7* Strategic Partnership Agreement dated March 6, 1998 between the Corporation and BellSouth
Wireless Data
</TABLE>
34
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.8* Development Agreement dated March 4, 1998 between the Corporation
and Hewlett-Packard 10.9* Source Code License Agreement dated March 31,
1998 between the Corporation and DTS 10.10* Source Code License Agreement
dated June 9, 1998 between the Corporation and Wynd
Communications Corporation
10.9* Source Code License Agreement dated March 31, 1998 between the Corporation and DTS
10.10* Source Code License Agreement dated June 9, 1998 between the Corporation and Wynd Communications Corporation
10.11* Source Code License Agreement dated November 13, 1997 between the Corporation and Apple
Computers
10.12* OEM License Agreement dated December 5, 1997 between the Corporation and Certicom Corp.
10.13* Letter Agreement dated April 20, 1998 between the Corporation and Lexmark International, Inc.
+10.14* Employment Agreement dated May 2, 1991 between the Corporation and
Jim McIntosh
+10.15* Employment Agreement dated May 23, 1997 between the
Corporation and Bijan Sanii
+10.16++ Employment Agreement dated September 16, 1999 between the Corporation and Todd Carter
10.17* Agency Agreement dated March 31, 1998 between the Corporation, Canaccord Capital Corporation
and Yorkton Securities Inc.
10.18* Consulting Agreement dated July 4, 1997 between the Corporation and GWM Enterprises Ltd.
10.19++ Agency Agreement dated June 18, 1999 between the Corporation, Canaccord Capital Corporation,
Yorkton Securities , Inc., Sprott Securities Limited and Taurus Capital Markets Ltd.
23.1 Consent of KPMG LLP, independent accountants
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference to the Corporation's Registration Statement on
Form 20-F (No. 0-29944).
+ Indicates management contract.
++ Previously filed.
35
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Infowave Software, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
May 31, 2000.
INFOWAVE SOFTWARE, INC.
By: /s/ Jim McIntosh
----------------------
Jim McIntosh,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed by the following persons on behalf of Infowave Software,
Inc. in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Chief Executive Officer and May 31, 2000
/s/ Jim McIntosh Director (Principal Executive Officer)
---------------------------------------------
Jim McIntosh
Chief Financial Officer (Principal Financial May 31, 2000
/s/ Todd Carter and Accounting Officer)
---------------------------------------------
Todd Carter
May 31, 2000
/s/ Morgan Sturdy Director
---------------------------------------------
Morgan Sturdy
May 31, 2000
/s/ Gary McIntosh Director
---------------------------------------------
Gary McIntosh
May 31, 2000
/s/ Scot Land Director (Authorized U.S. Representative)
---------------------------------------------
Scot Land
May 31, 2000
/s/ David Neale Director
---------------------------------------------
David Neale
</TABLE>
<PAGE> 40
INFOWAVE SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
Financial Statements
Auditors' Report to the Shareholders..................... F-2
Comments by Auditor for U.S. Readers on Canada-U.S
Reporting Difference..................................... F-3
Balance Sheets........................................... F-4
Statements of Operations and Deficit..................... F-5
Statements of Cash Flows................................. F-6
Notes to the Financial Statements........................ F-8
Schedule II: Valuation and Qualifying Accounts........... F-25
<PAGE> 41
Financial Statements of
INFOWAVE SOFTWARE INC.
(expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<PAGE> 42
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheets of Infowave Software Inc. as at December 31,
1999 and 1998 and the statements of operations and deficit and cash flows for
each of the years in the three year period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and 1998
and the results of its operations and its cash flows for each of the years in
the three year period ended December 31, 1999 in accordance with Canadian
generally accepted accounting principles. As required by the Company Act
(British Columbia), we report that, in our opinion, these principles have been
applied on a consistent basis.
Canadian generally accepted accounting principles vary in certain significant
respects with accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations and cash flows for each of the years
in the three year period ended December 31, 1999 and balance sheet items as at
December 31, 1999 and 1998 to the extent summarized in note 13 to the financial
statements.
KPMG LLP (SIGNED)
Chartered Accountants
Vancouver, Canada
February 4, 2000
F-2
<PAGE> 43
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1(a) to the financial statements. Our report to the shareholders dated
February 4, 2000 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors'
report when these are adequately disclosed in the financial statements.
KPMG LLP (SIGNED)
Chartered Accountants
Vancouver, Canada
February 4, 2000
F-3
<PAGE> 44
INFOWAVE SOFTWARE INC.
Balance Sheets
(expressed in U.S. dollars)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,359,090 $ 1,047,319
Accounts receivable, net of allowance for bad debts and
sales returns of $53,739 (1998 - $39,204) 1,916,961 3,343,031
Inventory (note 2) 588,981 1,315,061
Prepaid expenses and deposits 170,662 215,564
-------------- --------------
7,035,694 5,920,975
Capital assets (note 3) 984,698 625,621
Deferred charges, net of amortization of $196,747 (1998 - $116,724) 34,100 141,345
-------------- --------------
$ 8,054,492 $ 6,687,941
============== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,014,673 $ 2,377,756
Shareholders' equity:
Share capital (note 6):
Authorized: 100,000,000 voting common shares
without par value
Issued: 18,297,470 (1998 - 15,236,500) common shares 12,526,949 6,798,707
Deficit (5,776,773) (2,488,522)
Cumulative translation account 289,643 -
-------------- --------------
7,039,819 4,310,185
Continuing operations (note 1(a))
Lease obligations (note 8)
Contingencies (note 9)
Subsequent events (note 12)
-------------- --------------
$ 8,054,492 $ 6,687,941
============== ==============
</TABLE>
See accompanying notes to financial statements.
On behalf of the Board:
"MORGAN STURDY" (SIGNED) Director
--------------------------------------
Morgan Sturdy
"JIM MCINTOSH" (SIGNED) Director
--------------------------------------
Jim McIntosh
F-4
<PAGE> 45
INFOWAVE SOFTWARE INC.
Statements of Operations and Deficit
(expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Sales $ 7,530,331 $ 9,546,808 $ 3,496,349
Cost of goods sold 2,692,462 4,503,994 1,435,314
-------------- -------------- --------------
4,837,869 5,042,814 2,061,035
Expenses:
Research and development 2,918,572 2,163,614 1,323,106
Sales and marketing 3,125,635 2,794,226 1,688,996
Administration 2,112,587 1,391,723 776,426
-------------- -------------- --------------
8,156,794 6,349,563 3,788,528
-------------- -------------- --------------
Loss from operations 3,318,925 1,306,749 1,727,493
Other income (expenses):
Interest expense - (23,917) (22,377)
Interest income 118,204 73,427 28,361
Gain on sale of marketable securities - - 15,665
Foreign exchange (87,530) 50,973 26,092
-------------- -------------- --------------
30,674 100,483 47,741
-------------- -------------- --------------
Loss before income taxes 3,288,251 1,206,266 1,679,752
Income tax expense (recovery):
Current - - -
Deferred - - (2,720)
-------------- -------------- --------------
- - (2,720)
-------------- -------------- --------------
Loss for the year 3,288,251 1,206,266 1,677,032
Deficit (retained earnings), beginning of year 2,488,522 1,282,256 (534,467)
Amalgamation costs - - 74,250
Dividend - - 65,441
-------------- -------------- --------------
Deficit, end of year $ 5,776,773 $ 2,488,522 $ 1,282,256
============== ============== ==============
Loss per share $ 0.21 $ 0.09 $ 0.19
============== ============== ==============
Weighted average number of shares outstanding 15,963,036 12,912,578 8,861,473
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 46
INFOWAVE SOFTWARE INC.
Statements of Cash Flows
(expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the year $ (3,288,251) $ (1,206,266) $ (1,677,032)
Items not involving cash:
Depreciation 323,294 209,026 172,243
Amortization of deferred charges 80,023 65,651 51,073
Deferred income taxes - - (2,720)
Gain on sale of marketable securities - - (15,665)
Changes in non-cash operating working capital:
Accounts receivable 1,581,881 (2,873,594) 34,745
Corporation taxes recoverable - - 62,959
Inventory 782,688 (1,132,654) 175,269
Prepaid expenses and deposits 56,284 (202,253) 9,680
Accounts payable and accrued liabilities (1,464,010) 1,927,021 64,684
Bonus payable - - (24,834)
-------------- --------------- --------------
(1,928,091) (3,213,069) (1,149,598)
Cash flows from investing activities:
Purchase of capital assets, net of investment
tax credits (635,454) (387,837) (198,420)
Proceeds from disposal of marketable securities - - 1,960
Decrease in advances to affiliate - - 2,365
Proceeds on disposal of capital assets - - 433
-------------- --------------- --------------
(635,454) (387,837) (193,662)
Cash flows from financing activities:
Issuance of shares for cash, net of issue costs 1,475,923 405,235 1,995,763
Issuance of special warrants for cash,
net of issue costs 4,284,797 3,946,115 -
Repayment of shareholder loan - - (106,269)
Redemption of shares - - (65)
Dividend - - (65,441)
Repayment of operating loan - - (450,833)
Amalgamation costs - - (74,250)
-------------- --------------- --------------
5,760,720 4,351,350 1,298,905
Foreign exchange gain on cash and cash equivalents
held in a foreign currency 114,596 - -
-------------- --------------- --------------
Increase (decrease) in cash and cash equivalents 3,311,771 750,444 (44,355)
Cash and cash equivalents, beginning of year 1,047,319 296,875 341,230
-------------- --------------- --------------
Cash and cash equivalents, end of year $ 4,359,090 $ 1,047,319 $ 296,875
============== =============== ==============
</TABLE>
F-6
<PAGE> 47
INFOWAVE SOFTWARE INC.
Statements of Cash Flows, Continued
(expressed in U.S. dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Supplementary information:
Interest paid $ - $ 23,917 $ 22,377
Interest received 118,204 73,427 28,361
Income taxes paid - - -
Non-cash transactions:
Cancellation of shares pursuant to
termination of employment contracts (32,478) (9,490) -
Exchange of marketable securities for
settlement of due to shareholders - - 400,776
Issue of shares to trust - - 267,567
Issue of shares for settlement of due to
shareholders - - 192,994
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 48
INFOWAVE SOFTWARE INC.
Notes to Financial Statements
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
The Company was formed on February 21, 1997, following the amalgamation of
GDT Softworks Inc., Infowave Wireless Messaging Incorporated and G.W.
McIntosh Holdings Ltd. (the "combining companies") and is incorporated
under the laws of the Province of British Columbia. The principal business
activities of the Company are software development and sales.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Continuing operations:
These financial statements have been prepared on a going concern basis
notwithstanding the fact that the Company has experienced operating
losses during the years ended December 31, 1999, 1998 and 1997.
Continued operations of the Company depend upon the attainment of
profitable operations and successful completion of external financing
arrangements.
It is the Company's intention to raise additional financing in the
year 2000, which, together with its existing working capital and the
exercise of options and warrants is expected to be sufficient to meet
the Company's projected working capital and cash requirements beyond
December 31, 2000. However, unanticipated costs and expenses or lower
than anticipated revenues could require additional financing. To the
extent financing is not available, the Company may not be able to or
be delayed in being able to commercialize its products and services.
The Company will continue to evaluate its projected expenditures
relative to its available cash and to evaluate additional means of
financing in order to satisfy its working capital and other cash
requirements.
(b) Basis of presentation:
Prior to their amalgamation, the combining companies were under common
control and, consequently, these financial statements have been
compiled on a continuity of interest basis similar to a
pooling-of-interests. Under this basis of accounting, the assets,
liabilities, shareholders' equity and results of operations of the
Company for all periods presented reflect the combined book values and
results of operations previously reported in the combining companies'
financial statements.
These financial statements are prepared in accordance with generally
accepted accounting principles in Canada. Material differences between
these principles and accounting principles generally accepted in the
United States are disclosed in note 13.
(c) Cash and cash equivalents:
Cash and cash equivalents include short term investments with
maturities of ninety days or less when acquired.
(d) Inventory:
Inventory is valued at the lower of cost and net realizable value.
Cost is determined using the weighted average cost method.
F-8
<PAGE> 49
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 2
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Deferred charges:
Shares issued to employees and service providers are measured and
recorded at the estimated fair value of the shares, taking into
account escrow restrictions, at the time of issue. The related stock
compensation expense is deferred on the balance sheet and charged to
income on a pro-rata basis as the related stock is released from
escrow.
(f) Capital assets:
Capital assets are recorded at cost. Depreciation is provided using
the following methods and annual rates:
<TABLE>
<CAPTION>
Asset Basis Rate
------------------------------------------- ----------------- ----------------
<S> <C> <C>
Computer equipment and system software Declining balance 30%
Computer software Declining balance 100%
Leasehold improvements Straight-line shorter of lease
term or 20%
Office equipment Declining balance 20%
Software licences and purchased source code Declining balance 30%
</TABLE>
(g) Deferred income taxes:
The Company follows the deferral method of income tax allocation.
Deferred income taxes arise from timing differences in the recognition
of income and expense for accounting and income tax purposes.
(h) Translation of foreign currency:
These consolidated financial statements are presented in U.S. dollars
although the Company uses the Canadian dollar as its functional
currency. The Canadian dollar functional currency financial statements
are translated into U.S. dollars using the current rate method. Under
this method, assets and liabilities are translated at rates of
exchange in effect at the balance sheet date. Revenues and expenses
are translated at rates in effect at the time of the transaction. Any
gains or losses from this translation are included in a separate
cumulative translation adjustment account in shareholders' equity on
the balance sheet.
Prior to 1999, these financial statements were presented in Canadian
dollars. Prior years' comparative figures have been translated into
U.S. dollars using the exchange rate at December 31, 1998.
(i) Revenue recognition:
Revenue from the sale of software products is recognized when the
product is shipped. An allowance for future returns is recorded at the
time revenue is recognized based on estimated future returns including
returns of older product versions. Revenue on software development
contracts is recognized when engineering milestones are satisfied
which represents the stage of completion. All development contracts
are less than one year in length. Payment in advance for license and
development fees are deferred and amortized over the term of the
contract.
F-9
<PAGE> 50
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 3
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(j) Research and development:
Research costs are expensed as incurred. Development costs are
expensed as incurred unless certain criteria for deferral have been
met. These criteria include establishing the technological feasibility
of new software products which normally occurs when the Company has
completed all planning, designing, coding and testing activities
required to establish that the products can be produced to meet its
design specifications including functions, features and technical
performance requirements. To December 31, 1999, no development costs
have been deferred. During the year ended December 31, 1999, the
Company received government assistance totalling $87,102 (1998 -
$102,914; 1997 - $nil) related to research and development
expenditures which has been recorded as a reduction of research and
development expenditures.
(k) Stock-based compensation plans:
The Company has a stock-based compensation plan, which is described in
note 6(d). No compensation expense is recognized for this plan when
stock options are issued to employees as the exercise price of the
options is equal to the price of the underlying common shares on the
date of grant. Any consideration paid by employees on exercise of
stock options or purchase of stock is credited to share capital.
(l) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. In particular,
management estimates are required in the determination of provisions
for doubtful accounts receivable, sales returns and obsolete
inventory. Actual results could differ from those estimates.
(m) Loss per share:
Basic loss per share has been calculated using the weighted average
number of common shares outstanding including shares held in escrow.
Fully diluted loss per share amounts have not been presented as the
effect of outstanding options and warrants is anti-dilutive.
(n) Comparative figures:
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
F-10
<PAGE> 51
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 4
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
2. INVENTORY:
Inventory consists of:
<TABLE>
<CAPTION>
1999 1998
------------ --------------
<S> <C> <C>
Raw materials $ 503,646 $ 1,308,253
Finished goods 126,907 55,852
------------ --------------
630,553 1,364,105
Less allowance for obsolete stock (41,572) (49,044)
------------ --------------
$ 588,981 $ 1,315,061
============ ==============
</TABLE>
3. CAPITAL ASSETS:
<TABLE>
<CAPTION>
Accumulated Net book
1999 Cost depreciation value
--------------- -------------- --------------
<S> <C> <C> <C>
Computer equipment and system software $ 1,308,989 $ 687,697 $ 621,292
Computer software 212,739 183,180 29,559
Leasehold improvements 196,522 137,727 58,795
Office equipment 261,794 124,780 137,014
Software licenses and purchased source code 365,069 227,031 138,038
--------------- -------------- --------------
$ 2,345,113 $ 1,360,415 $ 984,698
=============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Accumulated Net book
1998 Cost depreciation value
--------------- -------------- --------------
<S> <C> <C> <C>
Computer equipment and system software $ 834,716 $ 483,061 $ 351,655
Computer software 144,867 138,673 6,194
Leasehold improvements 103,875 93,729 10,146
Office equipment 167,016 95,350 71,666
Software licenses and purchased source code 344,267 158,307 185,960
--------------- -------------- --------------
$ 1,594,741 $ 969,120 $ 625,621
=============== ============== ==============
</TABLE>
4. OPERATING LOAN:
The Company has an operating loan facility with a credit limit of $225,200.
The facility is repayable on demand, bears interest at the prime rate plus
1.0% and is secured by a general security agreement including the
assignment of accounts receivable trade indemnity insurance. At December
31, 1999 and 1998, no amounts were outstanding under this loan facility.
F-11
<PAGE> 52
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 5
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
5. RELATED PARTY TRANSACTIONS:
Pursuant to a consulting agreement dated July 4, 1997 and an independent
contractor agreement dated January 1, 1997, the Company paid $54,000 (1998
- $120,000; 1997 - $120,000) in management fees to companies controlled by
Directors of the Company. The Company also paid management fees of $85,833
(1998 - $109,739; 1997 - $29,403) to a corporate shareholder pursuant to an
independent contractor agreement dated October 26, 1998.
Pursuant to a Debt Exchange Agreement dated as of February 21, 1997,
between the Company and a shareholder, an interest bearing loan to
shareholder of $192,994, was settled in exchange for an aggregate of
349,397 common shares.
Pursuant to the amalgamation agreement dated February 21, 1997, the Company
disposed of certain assets previously held by G.W. McIntosh Holdings Ltd.,
including cash and marketable securities in settlement of the non-interest
bearing shareholder loan of $507,050 and a dividend of $65,441 (net of
refundable taxes) as follows:
<TABLE>
<S> <C>
Liabilities settled:
Shareholder loan $ 507,050
Dividend payable (net of refundable taxes) 65,441
------------
$ 572,491
============
Fair value of assets exchanged to settle liabilities:
Cash $ 171,715
Marketable securities 400,776
------------
$ 572,491
============
</TABLE>
The dividend was declared and payable to the sole shareholder of G.W.
McIntosh Holdings Ltd. prior to the amalgamation.
F-12
<PAGE> 53
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 6
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
6. SHARE CAPITAL:
The share capital of the Company is as follows:
(a) Authorized:
100,000,000 voting common shares without par value (1998 -
100,000,000).
(b) Issued:
<TABLE>
<CAPTION>
Number
of shares Amount
---------- ------------
<S> <C> <C>
Balance, December 31, 1996 5,570,603 $ 587
Share redemption pursuant to Amalgamation Agreement (100,000) (65)
Share issuance for cash to a former employee 10,000 1
Share issuance pursuant to Debt Exchange Agreement (note 5) 349,397 192,994
Share issuance to trust pursuant to employment contracts 670,000 153,222
Share issuance to trust pursuant to an Employee
Performance Incentive Plan 500,000 114,345
Share issuance for cash pursuant to a private placement,
net of issue costs 2,153,000 630,501
Share issuance for cash pursuant to an initial public offering,
net of issue costs 2,500,000 1,365,262
---------- ------------
Balance, December 31, 1997 11,653,000 2,456,847
Share issuance pursuant to exercise of agent's warrants 625,000 405,235
Share cancellation pursuant to termination of employment
contracts (41,500) (9,490)
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $710,459 3,000,000 3,946,115
---------- ------------
Balance, December 31, 1998 15,236,500 6,798,707
Share issuance pursuant to exercise of share options 604,535 560,576
Share issuance pursuant to exercise of purchase warrants 300,577 763,011
Share issuance pursuant to exercise of agent's warrants 69,051 152,336
Share cancellation pursuant to termination of employment
contracts (137,840) (32,478)
Share issuance pursuant to issue and conversion of
special warrants, net of issue costs of $623,070 2,224,647 4,284,797
---------- ------------
Balance, December 31, 1999 18,297,470 $ 12,526,949
========== ============
</TABLE>
F-13
<PAGE> 54
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 7
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
6. SHARE CAPITAL (CONTINUED):
(c) Escrow shares:
Pursuant to certain employment contracts and an Employee Performance
Incentive Plan, the Company issued shares to certain employees which
were held in escrow. As at December 31, 1999, no shares (1998 -
223,333; 1997 - 446,666) issued pursuant to employment contracts
remain in escrow and 140,625 (1998 - 394,750; 1997 - 500,000) shares
issued pursuant to the Employment Performance Incentive Plan remain in
escrow. The escrow shares are being released at rates ranging from
8.25% to 25% every quarter with the balance being released by October
14, 2000. No performance criteria must be met in order for the shares
to be released other than that the employee remain with the Company
during the period these shares are released from escrow.
The amounts related to the employment contracts and the Employee
Performance Incentive Plan have been included in deferred charges
(note 1(d)) on the balance sheet. For the fiscal year ended December
31, 1999, $80,023 (1998 - $65,651; 1997 - $51,073) of the deferred
charges were amortized to income.
(d) Share purchase options:
The Company has reserved common shares, to a maximum of 20% of the
total number of outstanding from time-to-time, pursuant to an Employee
Stock Option Plan. The purpose of the Plan is to assist eligible
employees to participate in the growth and development of the Company.
Options to purchase common shares of the Company under the Plan may be
granted by the Board of Directors to certain full-time employees of
the Company. These options vest over a period of three years and
expire five years from the date of grant. To December 31, 1999, all
stock options granted by the Company are exercisable in Canadian
dollars.
A summary of the status of the Company's stock option plan as of
December 31, 1999, 1998 and 1997 and changes during the years ending
on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ---------------------------- --------------------------
Weighted Weighted Weighted
average average average
Shares exercise price Shares exercise price Shares exercise price
--------- -------------- --------- -------------- --------- --------------
U.S.$/Cdn.$ U.S.$/Cdn.$ U.S.$/Cdn.$
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 2,087,921 $ 0.82/1.26 1,589,751 $ 0.65/1.00 - $ - /-
Granted 1,829,584 5.37/7.75 912,458 1.41/2.16 1,618,755 0.66/1.01
Exercised (604,535) 0.94/1.36 - - /- - - /-
Cancelled (221,895) 0.93/1.34 (414,288) 0.82/1.25 (29,004) 0.66/1.01
--------- ----------- --------- ----------- --------- -----------
Outstanding,
end of year 3,091,075 $ 3.52/5.08 2,087,921 $ 0.82/1.26 1,589,751 $ 0.65/1.00
========= =========== ========= =========== ========= ===========
Options exercisable,
end of year 841,462 $ 0.87/1.25 797,958 $ 0.75/1.15 82,500 $ 0.65/1.00
========= =========== ========= =========== ========= ===========
</TABLE>
F-14
<PAGE> 55
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 8
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
6. SHARE CAPITAL (CONTINUED):
(d) Share purchase options (continued):
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------- -----------------------------
Number Weighted Weighted Number
outstanding, average average exercisable, Weighted
Range of December 31, remaining exercise December 31, average
exercise prices 1999 contractual life price 1999 exercise price
------------ ---------------- ------------ ------------ --------------
U.S.$(Cdn.$) U.S.$/Cdn.$ U.S.$/Cdn.$
<S> <C> <C> <C> <C> <C>
$0.69 to $1.38
($1.00 to $1.99) 1,307,500 3.03 years $ 0.79/1.14 772,272 $ 0.78/1.12
$1.39 to $2.07
($2.00 to $2.99) 123,668 3.32 1.79/2.58 60,856 1.79/2.58
$2.08 to $2.76
($3.00 to $3.99) 704,360 4.63 2.60/3.76 8,334 2.47/3.57
$2.77 to $3.46
($4.00 to $4.99) 3,223 4.83 2.77/4.00 - - /-
$3.47 to $5.54
($5.00 to $7.99) 146,003 4.84 3.78/5.45 - - /-
$7.62 to $9.56
($11.00 to $13.80) 806,321 4.92 8.96/12.93 - - /-
--------- ---- ----------- ------- -----------
$0.69 to $9.56
($1.00 to $13.80) 3,091,075 3.99 $ 3.52/5.08 841,462 $ 0.87/1.25
========= ==== =========== ======= ===========
</TABLE>
(e) Share purchase warrants:
In June and July 1999, the Company issued a total of 2,224,647 special
warrants at a price of $2.21 (Cdn. $3.25) per special warrant which
were exercisable into 2,224,647 common shares and 1,112,324 common
share purchase warrants. Each purchase warrant entitles the holder
thereof to purchase one common share at a price of $2.56 (Cdn. $3.75)
per common share until the expiration date of the purchase warrants on
June 30, 2000. As at December 31, 1999, all of the special warrants
have been exercised and 811,747 share purchase warrants remain
outstanding.
In accordance with an agency agreement dated June 18, 1999, the
Company issued an additional 212,465 non-transferable purchase
warrants to the agents as partial compensation for services rendered
in connection with the Company's offering of special warrants. Each
purchase warrant is exercisable into one common share at $2.21 (Cdn.
$3.25) per share and expires on June 30, 2000. As at December 31,
1999, 143,414 of these share purchase warrants remain outstanding.
7. INCOME TAXES:
The Company has non-capital losses carried forward of approximately
$4,677,000 which are available to reduce future years' income for income
tax purposes to 2006. The Company also has available unclaimed Scientific
Research and Experimental Development Expenditures of $1,766,900 that may
be carried forward indefinitely and used to reduce future taxable income.
The benefit of these losses and unclaimed expenditures have not been
recorded in the accounts.
F-15
<PAGE> 56
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 9
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
8. LEASE OBLIGATIONS:
The Company has entered into lease agreements for premises and equipment.
These leases have been treated as operating leases for accounting purposes.
The annual payment commitments are as follows:
<TABLE>
<S> <C>
2000 $ 303,379
2001 331,283
2002 333,643
2003 179,421
2004 127,233
$ 1,274,959
</TABLE>
During the year ended December 31, 1999, the Company made operating lease
payments totalling approximately $160,000 (1998 - $117,900; 1997 -
$124,400).
9. CONTINGENCIES:
The Company has been notified of certain claims. No legal action has yet
proceeded on these claims and, in the opinion of management, these claims
are without substantial merit and no provision has been made for them in
the accounts.
10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
(a) Fair values:
The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable and accrued liabilities approximate fair values
due to their ability for prompt liquidation and short-term to
maturity.
(b) Credit risk:
The Company is exposed to credit risk only with respect to
uncertainties as to timing and amount of collectibility of accounts
receivable. At December 31, 1999, three customers (1998 - two)
represented approximately 78% (1998 - 75%) of accounts receivable.
These receivables are from large reputable customers with an
established credit history with the Company. Trade receivables are
covered by trade indemnity insurance.
(c) Foreign currency risk:
Foreign currency risk is the risk to the Company's earnings that
arises from fluctuations in foreign currency exchange rates, and the
degree of volatility of these rates. A substantial portion of the
Company's sales are derived in United States dollars and accordingly
the majority of the Company's accounts receivable is denominated in
United States dollars. The Company has not entered into foreign
exchange contracts to hedge against gains or losses from foreign
exchange fluctuations.
F-16
<PAGE> 57
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 10
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
11. SEGMENTED INFORMATION:
(a) Industry segments:
The Company has two reportable segments based on its two distinct
product lines, being the Company's wireless and imaging products.
<TABLE>
<CAPTION>
Total all
reporting
1999 Wireless Imaging segments Corporate Total
---------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Customer sales 355,001 7,175,330 7,530,331 - 7,530,331
Research and development 1,371,007 1,547,565 2,918,572 - 2,918,572
Depreciation expense 160,390 162,904 323,294 - 323,294
Operating profit (loss) (3,891,727) 572,802 (3,318,925) - (3,318,925)
Segment assets 843,842 2,817,460 3,661,302 4,393,190 8,054,492
Capital expenditures 406,387 229,067 635,454 - 635,454
</TABLE>
<TABLE>
<CAPTION>
Total all
reporting
1999 Wireless Imaging segments Corporate Total
---------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Customer sales 170,911 9,375,897 9,546,808 - 9,546,808
Research and development 994,670 1,168,944 2,163,614 - 2,163,614
Depreciation expense 89,900 119,126 209,026 - 209,026
Operating profit (loss) (2,724,899) 1,418,150 (1,306,749) - (1,306,749)
Segment assets 298,963 5,200,314 5,499,277 1,188,664 6,687,941
Capital expenditures 262,235 125,602 387,837 - 387,837
</TABLE>
<TABLE>
<CAPTION>
Total all
reporting
1999 Wireless Imaging segments Corporate Total
---------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Customer sales 85,471 3,410,878 3,496,349 - 3,496,349
Research and development 785,447 537,659 1,323,106 - 1,323,106
Depreciation expense 88,732 83,511 172,243 - 172,243
Operating profit (loss) (1,693,913) (33,580) (1,727,493) - (1,727,493)
Segment assets 118,574 993,434 1,112,008 513,368 1,625,376
Capital expenditures 109,222 89,198 198,420 - 198,420
</TABLE>
(b) Geographic information:
All of the Company's assets are located in Canada. The Company earned
revenues attributed to the following countries based on the location
of the customer:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
United States $ 6,822,623 $ 8,684,657 $ 2,640,598
Europe 444,337 732,255 497,051
Canada and other 263,371 129,896 358,700
--------------- --------------- --------------
$ 7,530,331 $ 9,546,808 $ 3,496,349
=============== =============== ==============
</TABLE>
F-17
<PAGE> 58
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 11
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
11. SEGMENTED INFORMATION (CONTINUED):
(c) Major customers:
For the year ended December 31, 1999, revenue from two customers of
the Company's imaging products represents approximately $3,776,233
(1998 - $6,465,393; 1997 - $875,556) of the Imaging products' total
revenue. No other customer represents in excess of 10% of total
revenue.
12. SUBSEQUENT EVENTS:
(a) The Company issued 251,327 common shares at $2.56 (Cdn. $3.75) per
share and 37,000 common shares at $2.21 (Cdn. $3.25) per share
pursuant to the exercise of share purchase and agents warrants,
respectively.
(b) The Company issued 210,220 common shares at prices ranging from $0.69
(Cdn. $1.00) to $1.77 (Cdn. $2.55) pursuant to the exercise of
employee stock options.
(c) Pursuant to the Company's Employee Stock Option Plan, 236,313 share
options were issued with exercise prices ranging between $11.19 (Cdn.
$16.15) and $19.09 (Cdn. $27.55).
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These
principles differ in the following material respects from those in the
United States:
(a) Net loss and loss per share:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss in accordance with Canadian GAAP $ (3,288,251) $ (1,206,266) $ (1,677,032)
Adjustment for foreign currency translation
differences on net loss calculated in
accordance with Canadian GAAP (g) - (39,561) (177,179)
Adjustment for amalgamation costs (f) - - (82,094)
Adjustment for stock based compensation
relating to stock options issued to
non-employees (e)(i) (21,782) (165,166) (10,287)
Adjustment for stock based compensation
relating to escrow shares (e)(ii) (34,293) (29,059) (24,200)
-------------- -------------- --------------
Net loss in accordance with
United States GAAP $ (3,344,326) $ (1,440,052) $ (1,970,792)
============== ============== ==============
</TABLE>
F-18
<PAGE> 59
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 12
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(a) Net loss and loss per share (continued):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Weighted average number of shares
outstanding in accordance with Canadian
GAAP 15,963,036 12,912,578 8,861,473
Adjustment for weighted average number of
contingently issued shares
pursuant to employee incentive plan (h) (249,188) (444,877) (338,356)
Adjustment for weighted average number of
contingently issued shares
pursuant to employment agreement (h) - (335,000) (453,703)
------------- ------------- -------------
Weighted average number of shares
outstanding in accordance with US GAAP 15,713,848 12,132,701 8,069,414
============= ============= =============
Net loss per share $ (0.21) $ (0.12) $ (0.24)
============= ============= =============
</TABLE>
Comprehensive income (loss) for the years ended December 31, 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss in accordance with U.S. GAAP $ (3,344,326) $ (1,440,052) $ (1,970,792)
Other comprehensive income (loss):
Foreign currency translation adjustment 272,067 (318,563) (41,586)
-------------- -------------- --------------
Comprehensive income (loss) $ (3,072,259) $ (1,758,615) $ (2,012,378)
============== ============== ==============
</TABLE>
F-19
<PAGE> 60
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 13
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(b) Balance sheet:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Deferred charges
((e)(ii)) $ 34,100 $ - $ 141,349 $ -
============= ============= ============ =============
SHAREHOLDERS' EQUITY
Share capital 12,526,949 13,070,216 6,798,707 7,341,974
Additional paid in capital from
stock based compensation
relating to stock options
issued to non-employees
((e)(i)) - 206,303 - 206,303
Additional paid in capital from
stock based compensation
relating to escrow shares
((e)(ii)) - 107,348 - 122,287
Deferred compensation
related to stock options
issued to non-employees
((e)(i)) - (7,480) - (30,854)
Deferred compensation
related to shares held in
trust pursuant to Employee
Incentive Plan ((e)(ii)) - (50,796) - (142,586)
Deferred compensation related
to shares held in escrow
pursuant to employment
contracts ((e)(ii)) - - - (80,670)
Deficit (5,776,773) (6,250,800) (2,488,522) (2,906,473)
Accumulated other
comprehensive income (loss):
Cumulative translation
amount 289,643 (69,072) - (341,145)
------------- ------------- ------------ ------------
$ 7,039,819 $ 7,005,719 $ 4,310,185 $ 4,168,836
============= ============= ============ ============
</TABLE>
F-20
<PAGE> 61
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 14
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(c) Cash flow statement:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash used by operating activities
in accordance with Canadian GAAP $ (1,928,091) $ (3,213,069) $ (1,149,598)
Adjustment for foreign currency
translation (g) - (105,376) (121,456)
-------------- -------------- --------------
Cash flows used by operating activities
in accordance with U.S. GAAP (1,928,091) (3,318,445) (1,271,054)
Cash flows from investing activities:
Cash used by investing activities in
accordance with Canadian GAAP (635,454) (387,837) (193,662)
Adjustment for foreign currency
translation (g) - (12,719) (20,460)
-------------- -------------- --------------
Cash flows used by investing activities
in accordance with U.S. GAAP (635,454) (400,556) (214,122)
Cash flows from financing activities:
Cash used by investing activities in
accordance with Canadian GAAP 5,760,720 4,351,350 1,298,905
Adjustment for foreign currency
translation (g) - 280,469 113,306
-------------- -------------- --------------
Cash flows used by investing activities
in accordance with U.S. GAAP 5,760,720 4,631,819 1,412,211
Effect of exchange gains on cash and cash
equivalents held in a foreign currency
in accordance with U.S. GAAP 114,596 (183,439) 9,588
-------------- -------------- --------------
Increase (decrease) in cash and cash
equivalents in accordance with U.S.
GAAP 3,311,771 729,379 (63,377)
Cash and cash equivalents, beginning of year 1,047,319 317,940 381,317
-------------- -------------- --------------
Cash and cash equivalents, end of year $ 4,359,090 $ 1,047,319 $ 317,940
============== ============== ==============
</TABLE>
(d) Income taxes:
United States accounting principles require the use of the asset and
liability method of accounting for income taxes whereby deferred tax
assets or liabilities are recognized for estimated future tax effects
attributable to differences between the financial statement carrying
amount of existing assets and liabilities and their respective tax
bases, measured using the provisions of enacted tax laws expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment dates.
A net deferred tax asset is reduced by a valuation allowance to the
extent that it is not more likely than not that the deferred tax asset
will be realized during the carry forward period. As the net
calculated deferred tax asset of the Company would be fully reduced by
a valuation allowance, the application of United States accounting
principles does not result in a material difference from Canadian
accounting principles.
F-21
<PAGE> 62
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 15
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(d) Income taxes (continued):
The tax effect of the significant temporary differences which would
comprise tax assets and liabilities, at December 31, 1999 and 1998 for
United States GAAP purposes are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Amalgamation costs $ 14,368 $ 20,325
Capital assets, principally due to differences
in depreciation - 26,255
Net operating loss and scientific research and
development expenditures carry forwards 2,939,707 1,313,344
-------------- -------------
Total gross deferred tax assets 2,954,075 1,359,924
Less valuation allowance (2,850,033) (1,359,924)
-------------- -------------
Total deferred tax asset 104,042 -
Deferred tax liability:
Capital assets, principally due to differences in
depreciation (104,042) -
-------------- -------------
Net deferred tax asset $ - $ -
============== =============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent on the generation of
future income during the periods in which those temporary differences
become deductible.
(e) Stock-based compensation:
(i) Stock options:
The Company has adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123") for stock options
granted to employees and has elected to continue measuring
compensation costs using the intrinsic value based method of
accounting under APB Opinion 25.
Under the intrinsic value based method, employee stock option
compensation is the excess, if any, of the quoted market value of
the stock at the date of the grant over the amount an optionee
must pay to acquire the stock. As the exercise price of the
options has been determined in accordance with the applicable
regulations of the Toronto Stock Exchange which approximates the
market value at the date of grant, the Company has determined
that this accounting policy has no significant effect, with
respect to employee stock options, on its results of operations.
F-22
<PAGE> 63
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 16
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(e) Stock-based compensation (continued):
(i) Stock options (continued):
Had compensation cost for employee stock options been determined
based on fair value at the grant dates of the stock options and
charged to earnings over the vesting period of the options
consistent with the measurement provision of FAS 123, net loss
under United States GAAP would have been charged an additional
$382,689 for the year ended December 31, 1999 (1998 - $270,685;
1997 - $11,126) . Net loss would have been $3,727,015 (1998 -
$1,710,737; 1997 - $1,981,918) and net loss per share in
accordance with U.S. GAAP would have been $0.24 (1998 - $0.14;
1997 - $0.25). The fair value of these options has been
determined using the Black-Scholes option pricing formula with
the following factors: expected dividend yield - 0%; expected
stock price volatility - 175% (1998 - 117%; 1997 - 82%); risk fee
interest rate - 5.01% (1998 - 5.1%; 1997 - 5%); expected life of
options - 5 years.
For United States GAAP purposes, stock options issued to
non-employees for services rendered would be considered
compensation expense and charged to earnings over the expected
service period which normally is the period during which the
options vest. The amount of compensation costs is calculated
based on the fair value of the options at the grant date as
calculated using the Black-Scholes option pricing formula as
described above. Using this method of measuring compensation
costs would result in additional compensation expense of $21,782
for the year ended December 31, 1999 (1998 - $165,166; 1997 -
$10,287) and deferred compensation of $7,480 as at December 31,
1999 (1998 - $30,854).
(ii) Shares held in escrow:
Certain shares held in escrow pursuant to the employee incentive
program and employment contracts were recorded as compensation
expense under Canadian GAAP at a deemed value of $0.23 (Cdn.
$0.35) per share based on their fair market value at the time of
issue discounted for escrow restrictions. The total compensation
cost was recorded as deferred charges on the balance sheet and is
being amortized as the shares are released from escrow. For
United States GAAP purposes, deferred stock based compensation
would be shown as a deduction in the shareholders' equity section
of the balance sheet. Accordingly, deferred charges of $34,100
and $141,349 as at December 31, 1999 and 1998, respectively,
would be included as deferred compensation in the shareholders'
equity section of the balance sheet.
For United States GAAP purposes, any restrictions on the
employee's right to receive these shares would not be taken into
account for purposes of calculating compensation costs and would
result in additional compensation costs. As a result, additional
compensation expense of $34,293 would be recorded for the year
ended December 31, 1999 (1998 - $29,059; 1997 - $24,200) and the
resulting balance of deferred compensation expense of $50,796
(1998 - $223,256) would be reflected as a deduction in
shareholders' equity which is being amortized over the period the
shares are released from escrow.
F-23
<PAGE> 64
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 17
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(e) Stock-based compensation (continued):
(iii) Weighted average fair value:
Financial statements prepared in accordance with U.S. GAAP
require the disclosure of weighted average grant date fair value
of stock options granted in the year by the Company. Weighted
average grant date fair values for options granted during the
years ended December 31, 1999, 1998 and 1997 are $5.49 (Cdn.
$7.92), $1.24 (Cdn. $1.90), and $0.35 (Cdn. $0.53) respectively.
(f) Amalgamation costs:
United States GAAP requires that expenses incurred to affect a
business combination accounted for using the pooling of interests
method be accounted for as a charge against income of the combining
entities in the period the costs were incurred. The amount to be
expensed under U.S. GAAP of $82,094 differs from that charged under
Canadian GAAP as recognized in the statement of deficit due to
differences in methods of foreign currency translation as described in
(g).
(g) Foreign currency translation:
These financial statements are in U.S. dollars. Prior to 1999, these
financial statements were reported in Canadian dollars. In accordance
with Canadian GAAP, the comparative figures presented for 1998 and
1997 have been translated at the rate in effect on December 31, 1998.
For U.S. GAAP, the prior year's comparative figures should be restated
retroactively as if the Company had always reported in U.S. dollars.
As a result, net loss and cash flows from operating, investing and
financing activities for the years ended December 31, 1998 and 1997
would be adjusted to translate the Canadian dollar functional currency
financial statements to U.S. dollars at the rates in effect on the
transaction dates with offsetting adjustments to the cumulative
translation account.
For U.S. GAAP purposes, foreign exchange gains or losses on
translation of foreign currency denominated transactions and resulting
assets and liabilities into the Canadian dollar functional currency
are included in loss from operations. Accordingly, loss from
operations for the years ended December 31, 1999, 1998 and 1997 would
be $3,406,455, $1,296,961 and $1,881,155, respectively.
(h) Earnings (loss) per share:
The Company has adopted Statement of Financial Accounting Standards
No. 128 ("FAS 128") Earnings per Share for United States GAAP
purposes. Under FAS 128, basic earnings (loss) per share, similar to
Canadian GAAP, is based on the weighted average number of shares
outstanding during the year. Diluted earnings (loss) per share is
based on the weighted average number of shares outstanding during the
year plus common stock equivalents.
F-24
<PAGE> 65
INFOWAVE SOFTWARE INC.
Notes to Financial Statements, page 18
(expressed in U.S. dollars)
Years ended December 31, 1999 and 1998
13. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED):
(h) Earnings (loss) per share (continued):
For United States GAAP purposes, 140,625 shares held in escrow
pursuant to the employment contracts and employee incentive plan (note
6(c)) as at December 31, 1999 (1998 - 618,083; 1997 - 966,666) are
considered contingently issuable. Accordingly, these shares are
excluded from the weighted average number of shares for purposes of
loss per share calculations. Shares released from escrow during the
year are included in the calculation of weighted average shares
outstanding for purposes of the calculation of loss per share from the
beginning of the month during which the shares were released resulting
in adjustments for contingently issued shares pursuant to employee
incentive plan of 249,188, 444,877 and 338,756 shares for the years
ended December 31, 1999, 1998 and 1997, respectively, and adjustments
for contingently issued shares pursuant to employment contracts of
nil, 335,000 and 453,703 shares for the years ended December 31, 1999,
1998 and 1997, respectively.
Schedule II: Valuation and Qualifying Accounts
INFOWAVE SOFTWARE INC.
STATEMENT OF VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999
USD
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Effect of
Foreign
Charged Exchange
Beginning to costs on End of
of Year and Conversion Year
Description Balance Expenses Deductions to USD Balance
Allowance for Doubtful Accounts
Year ended December 31, 1999 0 11,819 0 345 12,164
Year ended December 31, 1998 0 0 0 0 0
Year ended December 31, 1997 16,335 0 16,335 0 0
Sales Returns Allowance
Year ended December 31, 1999 39,204 0 0 2,372 41,575
Year ended December 31, 1998 16,335 22,869 0 39,204
Year ended December 31, 1997 16,335 0 0 16,335
Reserve for Redundant Stock
Year ended December 31, 1999 49,044 11,570 21,709 2,667 41,572
Year ended December 31, 1998 81,673 49,044 81,673 49,044
Year ended December 31, 1997 88,860 0 7,187 81,673
</TABLE>
INFOWAVE SOFTWARE INC.
STATEMENT OF VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1999
CAD
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Effect of
Foreign
Charged Exchange
Beginning to costs on End of
of Year and Conversion Year
Description Balance Expenses Deductions to USD Balance
Allowance for Doubtful Accounts
Year ended December 31, 1999 0 17,556 17,556
Year ended December 31, 1998 0 0 0 0 0
Year ended December 31, 1997 25,000 0 25,000 0 0
Sales Returns Allowance
Year ended December 31, 1999 60,000 60,000
Year ended December 31, 1998 25,000 35,000 60,000
Year ended December 31, 1997 25,000 25,000
Reserve for Redundant Stock
Year ended December 31, 1999 75,062 17,186 32,248 60,000
Year ended December 31, 1998 125,000 75,062 125,000 75,062
Year ended December 31, 1997 136,000 11,000 125,000
</TABLE>
F-25
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1* Memorandum and Articles of registrant
4.1* Employee Incentive Plan dated April 28, 1997, as supplemented September 25,
1997
4.2* Special Warrant Indenture dated April 20, 1998 between the Corporation and Montreal Trust
Company of Canada
4.3++ Special Warrant Indenture dated June 30, 1999 between the Corporation and Montreal Trust
Company of Canada
4.4++ Stock Option Plan, as amended (incorporated by reference to the Corporation's Form 6-K dated
October 21, 1999)
10.1* Investor Relations Agreement dated September 1, 1998 between the Corporation and IRG Investor
Relations Group Ltd.
10.2* Investor Relations Agreement dated September 1, 1998 between the Corporation and Staff
Financial Group Ltd. and 549452 BC Ltd.
10.3* Loan Facility dated October 29, 1998 with a Canadian chartered bank
10.4++ Lease Agreement dated February 12, 1998 between Riocan Holdings Inc. and the Corporation
10.5++ Lease Agreement dated November 23, 1999 between Bedford Property Investors, Inc. and the
Corporation
+10.6* Corporate Development Agreement dated October 26, 1998 between the Corporation and Capital
Ridge Communications Inc. (formerly "Channel One Systems Corp.")
10.7* Strategic Partnership Agreement dated March 6, 1998 between the Corporation and BellSouth
Wireless Data
10.8* Development Agreement dated March 4, 1998 between the Corporation
and Hewlett-Packard 10.9* Source Code License Agreement dated March 31,
1998 between the Corporation and DTS 10.10* Source Code License Agreement
dated June 9, 1998 between the Corporation and Wynd
Communications Corporation
10.9* Source Code License Agreement dated March 31, 1998 between the Corporation and DTS
10.10* Source Code License Agreement dated June 9, 1998 between the Corporation and Wynd
Communications Corporation
10.11* Source Code License Agreement dated November 13, 1997 between the Corporation and Apple
Computers
10.12* OEM License Agreement dated December 5, 1997 between the Corporation and Certicom Corp.
10.13* Letter Agreement dated April 20, 1998 between the Corporation and Lexmark International, Inc.
+10.14* Employment Agreement dated May 2, 1991 between the Corporation and Jim McIntosh
+10.15* Employment Agreement dated May 23, 1997 between the
Corporation and Bijan Sanii
+10.16++ Employment Agreement dated September 16, 1999 between the Corporation and Todd Carter
10.17* Agency Agreement dated March 31, 1998 between the Corporation, Canaccord Capital Corporation
and Yorkton Securities Inc.
10.18* Consulting Agreement dated July 4, 1997 between the Corporation and GWM Enterprises Ltd.
10.19++ Agency Agreement dated June 18, 1999 between the Corporation, Canaccord Capital Corporation,
Yorkton Securities , Inc., Sprott Securities Limited and Taurus Capital Markets Ltd.
23.1 Consent of KPMG LLP, independent accountants
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference to the Corporation's Registration Statement on
Form 20-F (No. 0-29944).
+ Indicates management contract.
++ Indicates previously filed.
