U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 2
General Form for Registration of Securities of Small Business Issuers
Under Section 12(b) or 12(g) of the Securities Act of 1934.
VOICE MOBILITY INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 33-0777819
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
701-543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8
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(Address of Principal Executive Offices) (Zip Code)
(604) 482-0000
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this section and elsewhere in this
registration statement regarding matters that are not historical facts are
"forward-looking statements" (as defined in the Private Securities Litigation
Reform Act of 1995). Because such forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. All statements which address
operating performance, events or developments that our management expects or
anticipates to incur in the future, including statements relating to sales and
earnings growth or statements expressing general optimism about future operating
results, are forward-looking statements. These forward-looking statements are
based on our management's current views and assumptions regarding future events
and operating performance. Many factors could cause actual results to differ
materially from estimates contained in our management's forward-looking
statements. The differences may be caused by a variety of factors, including but
not limited to adverse economic conditions, competitive pressures, inadequate
capital, unexpected costs, lower revenues, net income and forecasts, the
possibility of fluctuation and volatility of our operating results and financial
condition, inability to carry out marketing and sales plans and loss of key
executives, among other things.
Summary
We are a Nevada corporation, formed on October 2, 1997 as Equity Capital
Group, Inc. ("Equity Capital Group"). In December, 1997, we acquired all of the
capital stock of Ward Enterprises, in a tax-free reorganization. Subsequently,
Ward Enterprises was liquidated into us. Our common stock has traded on the
Over-the-Counter Bulletin Board. On April 1, 1999, we issued 8,239,000 shares
for $200,000 to stakeholders of Voice Mobility, a private Canadian company, and
on that date also entered into an agreement to transfer all of our assets and
liabilities (net assets per our March 31, 1999 financial statements of $11,966)
into Pioneer Growth Corporation with the result that we (as Equity Capital
Group) became a shell comapany with no assets or liabilities. On June 24, 1999,
we acquired all the outstanding shares of Voice Mobility Canada Limited ("VM
Canada") which acquired all the outstanding shares of Voice Mobility.
Consideration for the acquisition of Voice Mobility was 6,600,000 exchangable
shares of VM Canada which the holders may exchange into 6,600,000 shares of our
common stock. We changed our name to Voice Mobility International, Inc. The
creation of VM Canada, as an intermediary company, and the issuance by VM Canada
of exchangeable shares to former shareholders of Voice Mobility were
necessitated by a tax deferral structure for the Canadian shareholders of Voice
Mobility.
Voice Mobility, incorporated in 1993, is based in Vancouver, British
Columbia, Canada with a development and engineering office in Victoria, British
Columbia. Its initial business concept was to develop and market telephone voice
mailbox servers for the voice service providers, the telephone companies. Over
time, it has refined its product offerings and abandoned certain directions.
Revenues have resulted from either the services provided from prototypes or
sales of prototypes. Voice Mobility is engaged in the development of unified
messaging software. Its release of the "e-go" 4.0 product in July, 1999 was its
first fully developed product launch. Management anticipates that cash flow from
the sale of e-Go 4.0 will commence during the first quarter of 2000. Currently,
Voice Mobility employs twelve management and staff personnel in Vancouver,
British Columbia, and eighteen in Victoria, British Columbia.
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On August 30, 1998, Acrex Ventures, a public Canadian company, applied to
the Vancouver Stock Exchange to approve its acquisition of Voice Mobility. On
March 31, 1999 the share acquisition agreement between Acrex Ventures and the
Voice Mobility shareholders expired. Until March 31, 1999, Acrex Ventures had
entered into four private placements raising Cdn$2,022,500 and settlement
agreements of Cdn$675,500. The money was advanced to Voice Mobility primarily to
fund operations and to pay costs associated with the proposed acquisition of
Voice Mobility capital stock by Acrex Ventures. Our acquisition of Voice
Mobility is a mirror of Acrex Venture's application to the Vancouver Stock
Exchange in August, 1998. The terms, shareholding and pricing of our shares of
common stock and common stock purchase warrants issued to acquire Voice Mobility
are effectively the same as the acquisition agreement between Acrex Ventures and
Voice Mobility except that the Canadian dollar pricing has been translated to
the United States dollar equivalent.
Our Product
We are engaged in the area of the telecommunications market known as
"unified messaging." We are concentrating the marketing of our unified messaging
platform, trademarked "e-go(tm)" to "Tier II" service providers that, in our
management's opinion, are the most aggressive of the local access providers.
Tier II service providers include Internet service providers (commercially known
as "ISPs"), competitive local exchange carriers (referred to as "CLECs"), cable
operators and smaller incumbent local exchange carriers.
Our software is distributed to customers on CD-ROMs and upgrades are
available online. The CD-ROM also includes full user support manuals and
administration support documentation. A carrier customer is supplied with a
hardware requirement specification that details all of the hardware components
that are required to run the e-go software. To date, we have authorized two
hardware manufacturers for the e-go system - IBM and Dell.
A carrier customer will procure the hardware and an installation team will
travel to the customer location and install and test all software on the system.
The system is then turned over to the customer to deploy. We can be engaged to
assist in the ongoing provisioning and monitoring of the systems but typically a
carrier will conduct this task internally. The physical system will often be
placed in the central office or switching environment and there will be little
requirement to conduct physical maintenance on the server. We supply online
technical support which can be purchased by the carrier.
The e-go product family is a state-of-the-art resilient message management
platform which has been produced to meet the evolving requirements of telephone
carriers and their customers. e-go facilitates the creation of a single personal
digital mailbox that can receive any type of communication regardless of its
incoming format or medium. Our voice and paging messaging products are based on
our management's perception that, presently, many different types of end users
and consumers must visit many communication locations in order to retrieve
information or messages destined for them. We believe that many of these end
users would subscribe to a service which simplifies the information retrieval
process. To meet this perceived need, we have developed the "Enhanced Services
Platform" as virtual post offices, each containing "cyber" mailboxes for
thousands of people. Each user "rents" a seven-digit virtual mailbox that can
receive, forward and contextualize stored information. e-go gives users easy
access to information and the ability to retrieve it through a variety of means.
For mobile workers, constant access to voice-mail and faxes over a network
has profound ramifications. Wireless providers offering unified messaging as a
value-added service could gain a huge benefit in the increase in per-minute
usage for airtime generated by the placing and receiving of phone calls and for
Internet access to downloaded e-mail, voice-mail and fax correspondence. Unified
messaging ensures that messages are never lost as it creates a web-based
reservoir of all incoming messages. Inbound cellular phone calls often do not
reach their recipients because the recipient's phone is off, the recipient is
out of range of the carrier's antennae, the volume of traffic is too high or for
other reasons. Increased messaging reliability is essential for business users
who generate or receive messages. Because service providers generate chargeable
airtime and create brand loyalty only when calls are completed, improved
reliability enhances the provider's income stream and competitive position.
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Subscribers can call a universal number and have all of their messages
"played" back to them, in spoken words, if required. The e-go platform, with its
inter-working software modules, converts all incoming messages to electronic
records that can be spoken to the user over a telephone or accessed as e-mail.
Due to threads between the different software modules, a fax can be played and
forwarded as voice mail; e-mail likewise can be played and forwarded as voice
mail. Fax and e-mail messages can also be directed to a secondary fax machine or
a temporary fax machine such as one in a client's office or in a hotel. A number
of companies are developing hand-held devices which can access e-mail. e-go is a
suitable medium for such devices.
An e-go user can connect securely to a web site and, at a glance, view the
following:
o number of voice mail messages
o telephone numbers of those persons who have left voice mail messages
o time at which each message was left
o number of fax messages
o number of pages of each fax
o number of e-mail messages sent to any of the user's e-mail addresses
o origin of each e-mail message
o subject of each e-mail message.
We have designed e-go to function on industry standard hardware such as
Intel processor-based servers. In addition, e-go uses peripheral hardware, such
as communication boards, based upon open system architectures, which support
basic standards. Thus, we have assured compatibility with legacy equipment
(equipment that is already in widespread use in the market) and adjunct hardware
that may be designed to work in conjunction with the e-go system. This concept
is also referred to as "backward compatibility". The pragmatic reason to provide
this legacy integration is that it allows for a sale into a customer that does
not wish to decommission older equipment.
Each of the independent software modules is described below:
e-go contact:
e-go contact is our full service unified communications solution, combining
all the features of e-go message, described below, with the convenience of one
phone number service. With e-go contact, subscribers can merge all their wired
and wireless communications, cellular telephone, pager, fax, home and office
numbers, into a single phone number. e-go contact subscribers receive a single
e-contact phone number for voice, faxing and paging. Those upgrading from e-go
fax or e-go message service use their e-go fax number as their e-go contact
number. Callers dial one number; and the system "hunts" for them at the
subscriber's various telephone numbers. Subscribers retain complete control as
they preset the calling sequence of the various contact numbers and notification
via pager.
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e-go message:
e-go message provides a single "unified e-mailbox" which enables a
subscriber to check for voice messages, faxes and e-mail. Through the use of
e-go message, subscribers no longer need to access faxes at the fax machine, or
listen on the phone to consecutive voice messages. A mouse-click starts, stops
or deletes a voice message, pops up a fax or displays an e-mail. The mailbox
stores a complete record of all messages; and these messages can be retained or
forwarded just as any other e-mail. Traveling subscribers can use their e-mail
program or their e-go Web page to send and receive messages anywhere in the
world, with complete confidentiality and without incurring long distance
charges. e-go message subscribers keep their phone numbers but forward their
messages to their unified mailbox. They receive an e-go fax number which they
also use to call e-go and retrieve their voice messages, faxes, and e-mail.
e-go fax:
e-go fax is a private, secure fax-to-e-mail service. The e-go fax converts
faxes to e-mail attachments that subscribers can view on-screen, print, save, or
forward. Confidential faxes remain confidential, instead of sitting in a common
"in-box" for anyone to see. The subscriber has no need for fax machines or
dedicated fax lines, as faxes are as easy to manage as regular e-mail. e-go fax
subscribers receive an e-go fax number. Faxes sent to the e-go fax number are
converted into e-mail attachments that can be viewed, saved, printed, forwarded,
or sent to a local fax machine for printing. Finally, subscribers can receive
fax notification via pager.
Features of e-go
o Greeting. Subscribers can change their customized greetings at any time by
dialing their numbers, entering personal identification numbers and
following instructions.
o Fax. Users receive a dedicated e-fax phone number. Faxes can be forwarded
to a fax machine for printing or converted to graphic files and attached to
e-mail, accessible either through subscribers' e-mail or e-go Web page. In
addition, subscribers can dial in and listen to faxes via text-to-speech
technology.
o Voice. Voice messages can be heard by telephone in the usual way. In
addition, voice messages are converted to sound files and attached to
e-mail, accessible through subscribers' e-mail or e-go Web page.
o Internet/Web. Web access to all e-messages eliminates long-distance
charges. Web pages can be customized by the subscriber or ISP for branding,
advertising, promotions and revenue generation. Web-based "inbox" displays
a summary of waiting messages. Subscribers can forward or delete all
e-messages or save to electronic folders in their computer's hard drive.
Subscribers who find themselves without computer or Internet access can
employ the telephone, which through the use of innovative text-to-speech
technology can "read" e-mail messages over the phone.
o Pager Notification. As the e-go software can also communicate using
standard paging protocols, subscribers with a pager equipped with
alphanumeric capability can be advised upon the arrival of an e-mail, fax
or a voice mail. In addition, users can be informed not only of the number
of the faxing or calling party, but also the subject line of any incoming
e-mail. Further enhancements to this software, which are under development,
will allow for the header of a fax to be sent to the pager as well as the
name of the calling party from a voice mail.
Management's Market Analysis
OVUM, a telecommunications market research firm, predicts that worldwide
telecommunications service revenues should grow to well over $1.1 trillion by
the end of the century. (Throughout this registration statement, we refer to
United States dollars as "$" and to Canadian dollars as "Cdn$.") Our management
believes that voice processing services such as those provided by our products
should become an increasingly important element of this revenue growth. Voice
processing is already widely available in North American fixed-line services and
is being deployed worldwide in most mobile networks. In addition, fixed-line
networks in Europe and emerging markets are starting to deploy these services.
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According to the Ovum, December 1998, briefing paper entitled "Unified
Messaging Services: Market Strategies" by Mary Ann O'Loughlin and Roger Walton,
direct revenues from unified messaging services in 1998 were approximately $3
million, with indirect revenues from additional service usage accounting for
another $7 million. By 2002, Ovum predicts that revenues will grow to $1.9
billion (including an equivalent value attributed to unified messaging services
in bundled offerings) and $3.5 billion in indirect revenues. By 2006, direct
revenues and indirect revenues will be more than $10 billion and $14 billion
respectively worldwide, with the total revenue contribution from unified
messaging services exceeding $24 billion. At the end of 1998 there were fewer
than 20,000 active mailboxes on unified messaging services worldwide. By the end
of 2002, Ovum predicts thatthat number of unified messaging mailboxes will grow
to 12 million; by the end of 2006 there will be nearly 152 million unified
messaging mailboxes.
Overall, the messaging market has been growing rapidly:
o Voice messaging markets are growing at 18% to 21% per year, in contrast to
the growth of the personal computer market which is estimated at
approximately 4% per year.
o The fax machine market is maintaining a growth rate of approximately 14%
per year.
o The number of e-mail users has been estimated to reach 200 million by 2000.
As global commerce and communications continue to evolve, the Internet is
beginning to be viewed more as a utility than a toy. This growing credibility
has placed upon the Internet builders and ISPs the responsibility to ensure the
Internet can be utilized with same ease as the global telephone network. E-mail
has become a pillar tool in the Internet with burgeoning uses in e-commerce,
research, and corporate and public communications. As e-mail props up the growth
of the Internet, our management believes that those connected will require
e-mail to provide a single communications interface carrying the electronic
equivalent of a postcard as well as faxes and voice mail. Thus, we believe that
Internet users will demand a single or "universal" inbox to introduce simplicity
to messages and to redirect calls from office to home or from home to mobile.
This functionality would be a huge step forward in easing complexity and
improving the power of the Internet.
We intend to continue to differentiate ourselves from other integrated
communication software developers and vendors on the basis of speed of
innovation and development as well as price/performance and ease of use. Unified
messaging, because it is among the first introductions of the "One Number"
concept is, we believe, an excellent place to start in the development of new
carrier software tools and applications. Our current research and development
initiatives are centered on the belief that there will exist a broad mix of
carriers and ISPs involved in communications service in the next few years.
Marketing Strategy
We are focusing our sales and development effort on building and selling
products to the Tier II telephone carriers and ISPs experiencing the greatest
level of growth. Our marketing strategy is focused on completely understanding
the needs of the mid-size companies in the following market segments:
o internet service providers
o competitive local exchange providers
o network service providers
o application service providers
o content providers (local, regional and national portals)
o cable companies
o wireless providers
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Data CLECs
Data CLECs, known as "DCLECs," base their business on the efficient
delivery of data services. Some DCLECs are regional, others are wider in
coverage, but most are focused on building high-speed data capacity and on
selling bandwidth to wholesale and/or retail customers. Many DCLECs have
developed divisions that sell Internet access, retail and wholesale, through
large modem pools. These modem pools are distributed as portals around their
network, serving multiple area codes or regions. For DCLECs, there is a rich
opportunity in offering Internet based technology. Internet based messaging to
current customers. Their primary corporate customers are already purchasing
high-speed data connections from them, and have already demonstrated a need for
a communications infrastructure. Thus, DCLECs are in a unique position to offer
combined services.
New exciting technologies, known as digital subscriber loops or more
commonly as "DSLs", are designed to transmit more information and very high
speed connections through the copper wire that connects most of the households
in North America. DSL is growing quite rapidly in the CLEC market. These
technologies have created an opportunity to offer voice and fax communications
over the same lines to the advantage of the entire unified messaging market. A
DSL user would likely be quite motivated by the opportunity to combine all of
his required services onto one medium.
Voice CLECs
Voice CLECs have generated business by providing competitive choices to
business and residential users for the provisioning of local telephone lines. In
some cases, several voice CLECs have augmented low margin local business by
entering the long-distance business. Unified messaging offers the voice-based
CLEC the opportunity to offer alternatives to the local phone company, both for
provisioning the simple phone line and for enhanced service offerings.
In order to stave off competitive threats, many of the voice centered CLECs
are offering basic Internet services to their customers. Unified messaging
offers another opportunity to meet competition. The process of connecting one
type of network to another is known as convergence. Typically, convergence is
used to describe the connection of the Internet to the voice network and ability
of both to carry information tradionally carried by the other. Convergent
technology connects to both the telephone network and the newer Internet network
to allow cost effective service offerings. This "bridging" technology joins
characteristics from one medium into the other.
Voice CLECs, principally based in the world of telephony, can add
substantial value to their clients by facilitating voice access to data, such as
voice mail that has originated on the Internet.
Wireless Providers
As competition continues to increase in the wireless market, wireless
providers are seeking innovative ways to increase profitability. Subscriber
turnover is one of the major factors in profitability. Subscribers often "churn"
so quickly that customer acquisition costs have not been recovered. In some
cases, it can take more than eighteen months for costs of acquiring a
subscriber's business to be recouped, and up to three years before a
subscriber's revenue provides an adequate return. Investing in customer loyalty
and network innovation are the most common defenses against churning. Although
each circumstance is unique, improving customer loyalty by as little as 5% has
been shown to improve overall profitability by almost 100%. In addition, all
subscribers are not equally profitable. As in many service businesses, a small
percentage of users accounts for the majority of revenues.
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Internet Service Providers
This market segment has recently been undergoing both consolidation and
re-engineering. With the increased competition for dial-up access, major
providers in this market are looking for alternative ways to increase business
and to retain the current customer base.
With increasing consumer options for Internet access, many ISPs have begun
to focus on vertical marketing with specialization in certain marketplaces.
Other ISPs have begun to move in the direction of transmission of voice services
by partnering with a CLEC or, in many cases, applying for CLEC status
themselves.
International Markets
International markets should offer us particularly strong opportunities.
Advanced international markets are being fueled by rapid deregulation, the rise
of the Internet and competition. Emerging markets are being fueled by the very
basic need for high performance low cost telecommunications infrastructure. In
these developing markets, ongoing problems exist in delivering high capacity
phone or data services to the population. The problem is only now beginning to
be addressed.
We perceive a specific opportunity in jurisdictions where local telephone
access is measured and billed at a per-minute usage rate. ISPs within these
jurisdictions have begun to move toward providing free Internet service to their
subscribers preferring to gain revenue by taking a percentage of the telephone
usage charges. Thus, an ISP which is able to decrease the number of calls a
subscriber must make to access all of the incoming messages (i.e. voice-mail and
fax mail delivered by e-mail) will likely win a greater local market share.
In the interim, we have a particular opportunity as our e-go system can be
used in conjunction with a wireless data service to deliver voice mail and fax
services to users beyond the reach of common carrier voice services. While a
particular user may not have a phone connection, he may have a wireless Internet
connection. e-go can be used to provide a working phone number with voice mail
and fax services to this user despite the fact that the telephone carrier
cannot.
Competition
Segmentation of the unified messaging market has begun to take place. The
market has become divided into two main camps: service provider platforms and
enterprise platforms.
Service Provider Platforms: A service provider platform is built to meet
the high capacity and high resiliency needs of the carrier environment.
Typically, carrier grade systems will have fault tolerant fail-over capability
and be able easily to handle many thousands of subscribers. In addition, a fully
featured billing engine is often designed directly into a carrier grade product.
Enterprise Platforms: An enterprise platform is built to be affixed to a
PBX system already in place and is typically functions not with carrier grade
facilities but facilities more commonly found connecting to office systems.
Capacity is typically under 500 users.
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Vendors developing solutions for enterprise platforms are not considered by
management to be competitors. Only those participating in developing product for
ISPs are considered by management to be competition. In addition, the
marketplace contains many companies which are themselves providers of service
rather than developers of software solutions that are sold to providers.
Most of our competitors which offer integrated messaging solutions sell
their products at significantly higher prices and, thus, appear to target larger
communications companies than those we have selected. Such competitors include
Centigram Communications, Amteva Technologies, Inc., Call Sciences, Inc.,
Pulsepoint Communications, Inc. and Wildfire Communications, Inc. Centigram
markets only to major telephone companies. A subsidiary of Cisco Systems, Inc.
Amteva's services include Internet fax mail, single number reach, voice
messaging and electronic messaging. Amteva has established a testing and
implementation center that its customers can use as a staging ground while
developing in-house systems. We do not have such an implementation center.
Pulsepoint was acquired recently by Unisys Corp. It is difficult to speculate
how Unisys will orient Pulsepoint. Wildfire's marketing strategy has been to
introduce the unified messaging services in easy-to-consume bites under the
theory that once a subscriber is hooked on entry level features, he or she can
upgrade to more advanced features. We offer a package of features and believe
that our target market is dissimilar from that of Wildfire. Wildfire, as an
example, has elected to focus development and marketing efforts on a speech
enabled interface. However, it has not developed some of the features that we,
after extensive testing using focus groups, believe are needed by users.
Unique competitors that straddle the marketplace, in that they both develop
software and sell solutions to retail customers, also exist. Jfax.com, Inc. is
an example of a company which offers a fax and unified messaging service to
consumers while, at the same time, attempting to develop products to be sold to
ISPs and telecommunications companies. In our management's opinion, many of the
potential customers of Jfax and other such companies will view them as
competitors on the retail level.
Our management views Call Sciences as the competitor with the closest
strategic direction and product offerings directed at the Tier II providers. We
intend to compete with Call Sciences through our unique commercial licensing
program and through our international channel strategy.
In addition, through strategic alliances, we have the ability to offer
carrier to carrier consulting and training not only in the launching of a
unified messaging offering but also in its marketing.
The international strategy that we have developed includes using high-level
system integrators to provide full service consulting and engineering services
to emerging carriers. This strategy is based partly upon securing knowledge and
reliable IT consulting firms in the country or region of development and partly
upon building products that have an easy and intuitive interface. This interface
has been designed to easily be translated into another language without
excessive development burden. The strategy is built upon a complex software
architecture which can be readily adapted to foreign languages which, by
extension, creates market advantage by easing the way for us to enter foreign
markets. This advantage, while unique, is replicable by a motivated competitor.
Pricing Strategy
Our ongoing objective is to establish alliances with our component vendors
and, during the development and marketing of the initial e-go systems, we
invested significant effort to ensure that our vendors understood our long-term
goals. As a result, we created an environment in which excellent price points
for our system have been set. We have been able to achieve very high levels of
functionality and performance from our Microsoft NT-based servers, giving us a
wide price advantage compared to the competing systems which are Unix based.
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Our management has developed an annuity based pricing strategy that we
believe will produce excellent result in the short term as unified messaging
starts to have an impact on broader consumer markets.
The annuity-pricing model is our way of attempting to spark sales in this
emerging marketplace. We have attempted, in the crafting of the pricing model,
to remove barriers to entry for the target market. Large capital expenses are
not required as we effectively underwrite the cost of the software and "rent"
the software per mailbox per month to the carrier. The carrier would repackage
the software in local or corporate brand and then would resell the software in a
service bundle.
We have two methods of pricing our products. A customer may opt to purchase
the entire e-go suite of software for a single price per system or to purchase
the software through a longer-term commercial licensing model that allows for
"per mailbox, per month pricing". A turnkey system typically sells for between
$50,000 and $100,000 depending upon the scale and modules that are utilized.
Each system has some degree of customization to it and the customization
dictates the range.
In the licensing model the customer is required to commit to a two year
term and to per month mailbox minimums. Depending upon the minimum commitment
the cost per month, per mailbox is generally between $1.00 and $10.00. We will
only offer the licensing model to qualifying customers as this model is based
solely on growth and includes all maintenance and upgrades.
The notion driving this pricing model enables us to remove significant
barriers to entry for service providers of any size. Many opportunities exist
for ISPs to re-label a wholesale product and generate revenue accordingly but,
given the entrepreneurial characteristics of most service providers, they would
all prefer to provide the offering themselves as a single element in a overall
integrated market strategy.
Typical Commercial Licencing contracts are anticipated to be signed for a
two year term and include volume price breaks. All software and support is
included in the cost per user license. In all cases, the provider is expected to
purchase the relevant hardware to launch the offering. We have not yet entered
into a commercial licencing contract.
The support provided in our typical commercial licensing contracts is
defined as "Tier 3" support. Tier 3 support provides our customers with the
highest level of support related to hardware and software interruptions and
troubleshooting. Tier 3 support does not require that we provide direct support
to the acutal end-user of our product. Our customers are responsible for Tier 1
and Tier 2 support. Tier 1 support can be defined as the first level of support
between the end-user and the service provider typically through a help desk the
public can phone. Tier 2 support can be defined as the second level of support
that our customers provide to their internal customer support team or help desk.
Risk Factors
In order to take advantage of the safe harbor provisions for
forward-looking statements adopted by the Private Securities Litigation Reform
Act of 1995, we are identifying important risks and uncertainties that could
affect our operating results and financial condition and could cause our actual
results to differ materially from our historical results.
Uncertainty of Additional Capital
We will need to raise additional capital either through the sale of equity
or debt securities in private or public financing or through strategic
partnerships, in order fully to market and upgrade our products. We cannot offer
assurance that funds will be raised when we require them or that we can raise
funds on suitable terms. We can offer no assurance that holders of our warrants
will exercise them.
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Dependence on Key Personnel
We are highly dependent on two key members of our management, sales and
marketing and engineering team, James Hutton and Jason Corless. The loss of the
services of either or both of them may adversely affect our ability to achieve
our business plan. Recruiting and retaining qualified technical personnel to
carry out research and development and technical support will be critical to our
future success. Although our management believes that we will continue to be
successful in attracting and retaining skilled personnel, we can offer no
assurance that we can accomplish this objective on acceptable terms. Each
management employment contract contains a non-compete clause. We have not
implemented key person insurance on any management employee.
Early-Stage Company
We are at an early stage of entering the commercial marketplace. Our future
operating results are subject to a number of risks, including our abilities to
implement our strategic plan, to attract qualified personnel and to raise
sufficient financing as required. Our management's inability to guide growth
effectively (including implementing appropriate systems, procedures and
controls) could have an adverse effect on our financial condition and operating
results. (See "Item 7. Certain Relationships and Related Transactions.")
Foreign Currency Exchange
We face foreign currency exchange risk as a majority of our revenue is
denominated in United States dollars and a majority of operating costs are
incurred in Canadian dollars. Significant fluctuations in the foreign exchange
between U.S. and Canadian currency will result in fluctuations in our annual and
quarterly results. We have minimized our exchange risk by adopting a hedging
program to minimize the possible fluctuations in our annual and quarterly
results. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations.")
Technological Change
The telecommunications industry is characterized by rapidly changing
technology and evolving industry standards. Our success will depend heavily on
our continuing ability to develop and introduce enhancements to our existing
systems and new products that meet changing markets. We cannot provide assurance
that our technology or systems will not become obsolete due to the introduction
of alternative technologies. If we cannot continue to innovate successfully, our
business and operating results could be adversely affected.
Management of Rapid Growth and Limited Operating Experience
We anticipate that the management of rapid growth will be a key challenge.
Failure effectively to meet this challenge could have a material adverse effect
on our operating results. Successful commercialization of the e-go technology
will require management of a number of operational activities in which we have
little experience. There is no assurance that, if our business grows rapidly, we
will be able to manage such growth successfully.
No Patent Protection
We do not have and do not intend to apply for patents on our products.
Management believes that the patent application process in many countries in
which we intend to sell products would be time - consuming and expensive. In
addition, patents would have the effect of publicizing the source code or other
proprietary aspects of our products. Finally, we intend continually to improve
and upgrade our products. As a consequence, any patent protection may be out of
date by the time the patent is granted.
10
<PAGE>
Dependence on Suppliers
Although we perform almost all of our software development in-house, we
purchase some software and all our telephony boards (which are subcomponents and
a significant part of our e-go product line) from third parties. We do not have
written supply agreements with any of our suppliers. A disruption in supply or
degradation in quality could have an adverse impact on our business and
financial results, particularly at a time when we are attempting to build brand
identity and customer loyalty. In addition, an increase in prices from our
suppliers could also have an adverse impact on our business and financial
results.
Minimal Trading History of Common Stock - Possible Stock Price Volatility
Our common stock trades on a limited basis on the Over-the-Counter Bulletin
Board. The market price of our common stock could fluctuate substantially due to
a variety of factors, including market perception of our ability to achieve our
planned growth, quarterly operating results of other telephony companies, the
trading volume in our common stock, changes in general conditions in the
economy, the financial markets or other developments affecting us or our
competitors. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
Limitation on Officers' and Directors' Liabilities Under Nevada Law.
Our certificate of incorporation and our by-laws provide that we shall
indemnify any officer or director, or any former officer or director, to the
full extent permitted by law. In general, the Nevada Business Corporation Act
permits indemnification of officers and directors in those instances where the
officer or director acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. As a result, we may pay the judgment or
other settlement received by a plaintiff against one of our officers, directors,
employees or consultants as well as their legal expenses. This result could
constitute a risk to shareholders.
Effect of Anti-Takeover Provisions.
Our authorized capital consists of 50,000,000 shares of common stock and
1,000,000 shares of preferred stock. Our board of directors, without any action
by shareholders, is authorized to designate and issue shares of preferred stock
in such classes or series as it deems appropriate and to establish the rights,
preferences and privileges of such shares, including dividends, liquidation and
voting rights. The rights of holders of shares of preferred stock that may be
issued may be superior to the rights granted to the holders of the existing
shares of our common stock. Further, the ability of our board of directors to
designate and issue such undesignated shares could impede or deter an
unsolicited tender offer or takeover proposal and the issuance of additional
shares having preferential rights could adversely affect the voting power and
other rights of holders of our common stock.
Penny Stock Regulation
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on Nasdaq provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system) or to other than established customers or accredited
investors. [In general, "accredited investors" are defined as institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 with their spouses.]
11
<PAGE>
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Our securities are presently subject to the penny stock
rules, and, as a result, investors may find it more difficult to sell their
securities.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any computer
software program or hardware that has date-sensitive software of embedded chips
may recognize a date using "00" as the year 1900 rather than the year 2000 which
could result in system failures or miscalculations causing disruptions to
operations and normal business activities. We cannot guarantee that we have
eliminated all risks related to the Year 2000. In addition, certain
sub-components may not have been properly engineered to ensure date
compatibility. (For a full discussion of the Year 2000 problem and our steps to
deal with it, please see Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of Year 2000 Issue.")
Significant Customers
During the first quarter of 1998, Maritime Tel & Tel Limited, based in
Halifax, Nova Scotia, one of Canada's largest telephone companies, contracted
with Voice Mobility to deploy a technical and marketing trial of products
developed by Voice Mobility in Nova Scotia. Maritime Tel & Tel conducted
extensive testing for technical performance and also for customer preferences
and requirements. Maritime Tel & Tel's feedback enabled Voice Mobility to refine
its products to improve function and usability.
Voice Mobility and Maritime Tel & Tel had jointly agreed to conduct a
technical and market trial of the our product in Nova Scotia with a view to
developing enhancements to it suitable for launching the service in Nova Scotia
and exporting it to other service providers in the telecommunications industry.
A technical (stage 1) and market (stage 2) trial were fully specified in a
memorandum of understanding as to the manner in which each trials would be
conducted, the duration of the trial, the hardware and software to be provided
by each party, the technical and personnel responsibilities of each party, the
data to be generated and the analysis to be done on such data.
All copyright, patent, and trade secret rights in any software
modifications, enhancements, and improvements and new developments made to
VoicePlus in the course of the technical and market trial are owned by Voice
Mobility.
Maritime Tel & Tel is both a key early stage customer and a critical
partner in the obtaining of business. It contributed monetary support and
intellectual marketing and technical network expertise to the value of
VoicePlus. This value add was documented by Maritime Tel & Tel for the duration
of the technical and market trial and was recognized by Voice Mobility as an
investment in the success of both the launch of the product in Nova Scotia and
export opportunities. During the technical trial Voice Mobility was obligated to
provide the hardware, software, and technical testing. Maritime Tel & Tel was
obligated to provide network human resources, network architecture planning,
network connectivity, as well as the testing location.
12
<PAGE>
In the market trial, Voice Mobility was obligated to provide a user manual,
on-site/off-site server support, software that complied with the specifications
list as per the technical trial results and training of Maritime Tel & Tel
Network personnel for administration and provisioning of the server. Maritime
Tel & Tel was obligated to provide a manual revision, customer support, market
research as outlined in a market research plan, service definition, business
case, market briefs, marketing plans, and a campaign brief. The amount of
Maritime Tel & Tel's sales is approximately $80,000 to date.
One of our first opportunities to work with Maritime Tel & Tel was in the
preparation of a joint proposal to Cable and Wireless Bartel located in
Barbados. Bartel has agreed to purchase and deploy e-go in its business and
consumer markets, subject to a technical and market trial of our poducts. We
will provide, with Maritime Tel & Tel, training, implementation, planning and
marketing training and support.
Cable and Wireless Bartel serves a market size of approximately 1,000,000
people. The recent involvement of Maritime Tel & Tel in a Pan-Atlantic
consolidation of incumbent telephone companies has created a new company,
Aliant, Inc. The size of the market served by Aliant is 5,000,000 people and
present annual revenues are in excess of Cdn$1,700,000,000. Maritime Tel & Tel
garnered Cdn$716,000,000 in revenues in its last fiscal year.
Licenses, Patents and Trademarks
- --------------------------------
We use component software form the following vendors:
Microsoft Corporation
Allaire Corporation
SendMail Inc.
Microsoft Corporation provides the NT Operating System and the framework
for the relational database (SQL Server). This represents approximately 25% of
the code base. A further 2% is represented by SendMail, a small Internet mail
utility used to route and manage email in the product. We also uses the product
"Cold Fusion" developed by Allaire Corporation. This is a web-based utility to
build web pages that can extract data directly from a database. This represents
approximately 5% of the code base.
Where applicable, Voice Mobility has joined the developer programs of each
of the companies and will seek any opportunity to leverage partner programs or
developer relationship where possible. While we have written all of our software
to utilize component software from these developers, we have had extensive
experience with competitive offerings. Although the loss of one of these key
software vendors would result in some delay, our management does not consider
that a prolonged delay would be likely.
We have applied for trademark registrations in Canada for the e-go
tradename in conjunction with a stylized e-go mark inside a green circle. As of
June, 1999, Voice Mobility has trademark pending of both the name and the visual
of e-go in Canada. Further applications are pending for the United States and
Europe.
Employees.
- ----------
As of September 30, 1999, we employed 30 people, 5 of whom are engaged in
marketing and sales, 16 in research and development, and 9 in management and
administration. Our employees are not represented by a collective bargaining
unit. We consider relations with our employees to be good.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The following discussion should be read in conjunction with Consolidated
Financial Statements and related notes.
Voice Mobility International, Inc. is a Vancouver-based unified messaging
company focused on emergent technologies for telecommunications providers. We
are egaged in the development of unified voice messaging software and are
anticipating the introduction of our first retail "e-go" 4.0. Consequently all
revenue to date has been incidental in nature; the result of sales of products
or services from protoypes or the recovery of costs on abandoned services.
We market our lead product, e-go, both to telephone companies and Internet
service providers. e-go allows subscribers to use a single electronic mailbox to
store and retrieve voicemail, faxes, and e-mail from many types of devices,
including wireline and wireless phones, e-mail or Web browsers. Commencing in
1999 we have changed our fiscal year end from March 31 to December 31.
Results of Operations for the six months ended June 30, 1999 and June 30, 1998:
Revenue - All revenue over both periods is non-recurring sales of prototype
equipment and/or software that was in the beta stage of development.
Cost of Revenue - Cost of revenue is comprised of software licenses,
telephony hardware, data and voice transmission costs, and installation costs.
Cost of revenue was $27,727 compared to $42,705 for the six months ended June
30, 1999 and 1998 respectively.
Operating Expenses
Sales & Marketing - Our sales and marketing costs consist primarily of
personnel, advertising, promotions, public relations, trade shows and business
development. Total costs were $1,165,542 for the six months ended June 30, 1999
and $23,318 for the June 30, 1998 period. The increase of $1,142,224 reflects
employee stock option compensation cost of $908,750 that was determined using
the intrinsic method in accordance with "APB 25" (Accounting Principles Board
Opinion Number 25). The employee stock option costs will occur only when new
sales and marketing staff are hired and subsequently issued employee stock
options, or when bonus stock options are issued to existing employees.
The additional increase of $233,474 in sales and marketing expense between
the two periods is a result of an increase of $118,820 in sales and marketing
personnel, $64,078 in promotions, and $17,910 for participation in industry
trade shows. These costs have been incurred as result of market development
efforts.
Research and Development - Our research and development costs consist
primarily of personnel, data and voice transmission, and the lease of office
space. Research and development costs were $1,891,184 and $64,411 respectively
for the six months ended June 30, 1999 and June 30, 1998. The increase of
$1,826,773 in research and development costs from 1998 to 1999 primarily
reflects an employee stock option compensation cost of $1,268,600 that was
determined using the intrinsic method in accordance with "APB 25" (Accounting
Principles Board Opinion Number 25). The employee stock option costs may occur
in the future only when new research and development staff are hired and
subsequently issued employee stock options, or when bonus stock options are
issued to existing employees.
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<PAGE>
The additional increase of $558,173 in research and development costs
between the two periods is the result of an increase of $170,765 in personnel
costs, $14,002 in leased office space and utility costs, $23,780 in data and
voice transmission costs and $14,426 in general research and development costs.
As well, $335,200 in research and development costs were recognized as a result
of fulfulling the contingent obligation settlement with Maritime Tel & Tel in an
agreement dated March 26, 1999. As a result of the acquisition of Voice Mobility
Inc., we were obligated to issue 1,428,571 shares of our common stock and
recognize $335,200 of research and development costs that Maritime Tel & Tel had
incurred on behalf of Voice Mobility Inc. through technical trials of Voice
Mobility's software to determinetechnological feasibility.
General and Administrative - Our general and administrative costs consist
primarily of personnel costs, professional and legal costs, consulting fees,
travel, and the lease of office space. General and administrative costs were
$1,571,612 and $156,522 for the six months ended June 30, 1999 and June 30,
1998. The increase of $ 1,415,090 primarily reflects an employee stock option
compensation cost of $1,283,188 that was determined using the intrinsic method
in accordance with "APB 25." (Accounting Principles Board Opinion Number 25).
The employee stock option costs should occur only when new general and
administrative staff are hired and subsequently issued employee stock options,
or when bonus stock options are issued to existing employees and senior
management.
The additional increase of $131,902 in general and administrative costs
between the two periods is the result of an increase of $53,850 in personnel
costs, $19,673 in professional and legal costs, $31,248 in consulting fees,
$9,475 in lease of office space, and $17,797 in general administrative costs.
General and administrative costs as a percentage of revenue increased between
the two periods as a result of increases in expenses over the same periods. We
anticipate that general and administrative costs will continue to grow in the
foreseeable future as we implement our market growth strategies.
Interest Expense (Income), Net - Our interest expense is primarily related
to short-term debt. Interest expense (income), net was $37,800 and $13,935 for
the six months ended June 30, 1999 and June 30, 1998. We anticipate our interest
expense to decrease in the foreseeable future as we agreed to debt settlement
agreements with three major creditors. Short-term debt of $250,000 and $33,000
due to shareholders was settled in exchange for 750,000 common stock and 101,000
warrants respectively. The loans were advanced to us over time beginning in
1995. In addition $167,000 of notes payable was settled in exchange for 500,000
warrants.
Income Taxes - Operating loss carryforwards will begin expiring in the year
2004. For reconciliation to U.S. GAAP purposes, a valuation allowance was
recognized for the year ending December 31, 1998 to offset deferred tax assets
arising from temporary differences, tax credits and non-capital loss
carryforwards, for which realization is uncertain. The amounts of and benefits
from our net operating loss carryforwards when we operated as Equity Capital
Group, Inc. have not been included as the net operating loss carryforwards may
be impaired or limited following changes in the ownership of our common stock.
15
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Years Ended December 31, 1998 and 1997
VOICE MOBILITY INC.
Condensed Statements of Operations For the years ending
December 31, 1998 and December 31, 1997
(Expressed in U.S. Dollars)
1998 1997 1998 1997
$ $ % %
- --------------------------------------------------------------------------------
REVENUE
Sales 119,248 519,687 100% 100%
Less: cost of sales (75,439) (260,274) (63) (50)
- --------------------------------------------------------------------------------
43,809 259,413 37 50
- --------------------------------------------------------------------------------
EXPENSES
Sales and marketing 189,691 59,797 159 12
Research and development 283,918 66,126 238 13
General and administrative 460,911 236,158 387 45
- --------------------------------------------------------------------------------
934,520 362,081 784 70
- --------------------------------------------------------------------------------
Loss before other expenses (890,711) (102,668) (747) (20)
Other expenses
Loss on sale of marketable
securities - (39,098) 0 (8) 0
Interest expense (39,887) (26,973) (33) (5)
- --------------------------------------------------------------------------------
(39,887) (66,071) (33) (13)
- --------------------------------------------------------------------------------
Loss for the year (930,598) (168,739) (780%) (32%)
- --------------------------------------------------------------------------------
Loss per share (0.11) (0.13)
- --------------------------------------------------------------------------------
Results of Operations for the Year ended December 31, 1998 and December, 31,
1997:
Revenue - Revenue was $119,248 and $519,687 for the years ended December
31, 1998 and 1997 respectively. In December 1997 management decided to divest
the company of the entire service portfolio and the sale of centrex lines,
choosing instead to focus efforts on software development and marketing unified
messaging systems. The divestiture was complete by April, 1998.
Cost of Revenue - Cost of revenue is primarily comprised of software
licenses, telephony hardware, data and voice transmission costs and installation
costs. Cost of revenue was $75,439 or 63% of revenue and $260,273 or 50% of
revenue for the years ended December 31, 1998 and 1997, respectively. The
decrease of $184,835 in cost of revenue reflects management's decision to divest
the entire service portfolio and the sale of centrex lines.
Operating Expenses
Sales & Marketing - Our sales and marketing costs consist primarily of
sales and marketing personnel, advertising, promotions, public relations, trade
shows and business development. Sales and marketing expenses were $189,691 and
$59,797 for the years ended December 31, 1998 and 1997, respectively. The
increase of $129,894 in sales and marketing expense between the two periods
primarily reflects an increase in sales and marketing personnel, promotions, and
participation in industry trade shows. The increase also reflects business
development efforts that have resulted in a key strategic relationship with MTT.
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<PAGE>
Research and Development - Our research and development costs consist
primarily of personnel, data and voice transmission, and the lease of office
space. Research and development costs were $283,918 and $66,126 for the years
ended December 31, 1998 and 1997. The increase of $217,792 in research and
development costs from 1997 to 1998 primarily reflects increases in personnel
and leased office space.
General and Administrative - Our general and administrative costs consist
primarily of personnel costs, professional and legal costs, consulting fees,
travel and the lease of office space. The costs were $460,911 and $236,159 for
the years ended December 31, 1998 and 1997 respectively. The increase of
$224,752 from 1997 to 1998 includes the recruitment of personnel which resulted
in an increase of $74,258 from 1997 to 1998, as well as an increase of $21,554
in regulatory fees and $20,662 in legal and accounting fees over the same
period.
Interest Expense (Income), Net - Our interest expense is primarily related
to short-term debt. Interest expense (income), net was $39,887 compared to
$26,973 for the years ended December 31, 1998 and 1997 respectively.
Income Taxes - As of December 31, 1997, we had non-capital losses of
$318,965 carried forward and available to offset income in the future. Such net
operating loss carryforwards will begin expiring in the year 2004. For
reconciliation to U.S. GAAP purposes, a valuation allowance was recognized for
the year ending December 31, 1998 to offset deferred tax assets arising from
temporary differences, tax credits and non-capital loss carryforwards, for which
realization is uncertain.
Fluctuations in Annual and Quarterly Results
Our annual and quarterly operating results may fluctuate significantly in
the future as a result of numerous factors, including:
1. the amount and timing of expenditures required to develop strategic
relationships to enhance sales and marketing;
2. changes in the growth rate of Internet usage and acceptance by consumers of
unified messaging systems;
3. emergence of new services and technologies in the market in which we
compete; and
4. fluctuations of foreign currency exchange rates.
We face foreign currency exchange risk as a majority of our revenue is
denominated in U.S. currency and a majority of operating costs are incurred in
Canadian currency. Significant fluctuations in the foreign exchange between U.S.
and Canadian currency will result in fluctuations in our annual and quarterly
results.
17
<PAGE>
Liquidity and Capital Resources
We have incurred substantial operating losses, net losses and negative cash
flow since inception. For the years ended December 31, 1998 and 1997 we had an
operating loss of $890,711 and $102,668 respectively. We had a negative cash
flow from operating and investing activities of $1,127,149 and $35,603 for the
years ended December 31, 1998 and 1997. For the six months ended June 30, 1999
we had an operating loss of $4,237,743 and a negative cash flow from operations
of $1,232,064. Our total negative cash flow for the year is budgeted at
$4,200,000 and another $7,200,000 of cash is required for the year 2000. In the
past cash requirements were met by notes payable, shareholder loans or stock
subscriptions. Over the next several months we expect to receive the proceeds on
exercise of a portion of the $2,156,500 of warrants outstanding. All future cash
requirements should be financed by the equity markets.
We did not have any material commitments for capital expenditures as of the
end of the reported period. Our budgeted capital expenditures for the fiscal
year ending December 31, 1999 is approximately $404,000 of which $112,431 has
been purchased as of the end of the reported period. However, we are under no
legal obligation to purchase the remaining budgeted capital expenditures.
Our remaining capital expenditures are for the purpose of business
operations and research and development activities. The source of funds to pay
for the budgeted capital expenditures are expected to come from proceeds of
outstanding warrants.
Our operating expenses and capital expenditures for the six months ended
June 30, 1999 and June 30, 1998 have been entirely funded through debt and
equity financing. We anticipate that our operating expenses for the remaining
six months of the fiscal year ending December 31, 1999 to increase as a result
of increased sales and marketing activities, research and development
activities, as well as general and administrative activities.
Our sales revenue has been nominal to date and only as a result of
providing customers with prototypes of our software to trial. We do not
anticipate any significant sales revenue for the remaining fiscal period ending
December 31, 1999. As a result, we anticipate our cash outflows to continue to
exceed our cash inflows in the short-term.
We anticipate our sales revenue to increase in the long-term as we increase
our sales and marketing activities and introduce new versions of our software
that are technologically feasible. We also anticipate our operating expenses to
increase in the long-term as a result of the increase in sales and marketing
activities, research and development activities, as well as general and
administrative activities. As a result we expect that our cash outflows to
exceed our cash inflows in the long-term.
Our liquidity is contingent on our raising money through equity financing
to meet our short term and long term needs.
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Impact of Year 2000 Issue
Like many other companies, the Year 2000 issue creates risks for us. The
Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any computer
software program or hardware that has date-sensitive software of embedded chips
may recognize a date using "00" as the year 1900 rather than the year 2000 which
could result in system failures or miscalculations causing disruptions to
operations and normal business activities.
We are a comparatively new company and as a result, the software and
hardware we use to operate our business have all been purchased or developed in
the last several years. While we cannot guarantee that we have eliminated all
risks related to the Year 2000, we can state that steps have been taken to
minimize the risks associated to the Year 2000 issue.
We have developed and implemented Year 2000 compliance plans related to
both our internal business operations, as well as our product compliance. With
respect to our Year 2000 plan we have ensured all of our hardware equipment and
software used in normal business operations are certified as Y2K compliant. Our
strategy involves maintaining an extensive inventory of any and all
computer-related systems and software, whether initially thought to be exposed
to the Y2K bug or not. An assessment is made of each inventory item identifying
potential risks or uncertainties. All hardware that is not Year 2000 compliant
is disposed of, and all software used is certified to be Year 2000 compliant
through written documentation provided by the vendor.
We are committed to providing releases of our software which are certified
as being Year 2000 compliant. We have developed all of the e-go software
internally and have ensured that all date fields are compatible to the year
2000. However, certain subcomponents may not have been properly engineered to
ensure date compatibility. Steps have been taken to confirm sub-components
compatibility, but this area still remains one of moderate risk. Third party
products that are bundled into our unified messaging systems have been
researched for Year 2000 compliancy, and all of the vendors have released
statements indicating they are fully Year 2000 compliant.
The cost to address our Year 2000 issues has been minimal as most of our
development work has taken the Year 2000 issue into consideration from the onset
of the development of our product. We estimate that the costs to address our
Year 2000 issue to be approximately $100,000. This includes product development,
testing, as well as obtaining written documentation from vendors of our product
sub-components that they are Year 2000 compliant. The cost also includes the
cost of ensuring that the hardware and software used in internal operations are
Year 2000 compliant.
The risks that we face as a result of the Year 2000 issues include complete
interruption to our operations and development, however this risk has been
mitigated through our Year 2000 plan. Other risks include possible interruption
to communication for the users of our software. Users of our software include
our customers and ourselves. There is a risk of liability if our customer's
communication is interrupted resulting in adverse affects in their business
operations. In the worst case scenario a customer will lose the ability of
communicating by using our software, as well as possibly losing important stored
voice, fax, and email messages. If the loss is of significance to our customer,
there is the possibility of litigation and claims against our company.
We have prepared a contingency plan that covers worst case scenarios that
we may face. The plan covers how to deal with both internal systems that may be
affected by the Year 2000 issues, as well as how to deal with our product and
possible interruptions to its operation.
19
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY.
- ------- ------------------------
Our United States office is located in shared modern office premises at
Suite 200, 5031 South Ulster Parkway, Denver Colorado 80237 under a month to
month arrangement with the lessor of the premises who is not affiliated with us.
We pay no rent under an oral understanding.
Our operating subsidiary, Voice Mobility Inc., occupies approximately 2,000
square feet at 701-543 Granville Street, Vancouver, British Columbia V6C 1X8.
The lease, with a non-affiliated party, expires March 30, 2002. Rent is $53,276
per year. The company has recently entered into a lease for 4,900 square feet at
13777 Commerce Parkway, Richmond, B.C. at a basic rate of $75,950 per year plus
expenses. Payments commence April 1, 2000. Efforts are being made to sub-let the
Granville Street property.
Voice Mobility Inc. leases an engineering facility at 20 - 3318 Oak Street,
Victoria, BC, V8X 1R1, of 5,387 square feet, under a lease with an unaffiliated
party that expires on May 31, 2004, at $85,138 per year.
Voice Mobility Inc. also leases sales offices in Vancouver, BC, and
Mississauga, Ontario on a month to month basis.
We believe that existing facilities are adequate for our needs through at
least the end of 2000. Should we require additional space at that time, or prior
thereto, we believe that such space can be secured on commercially reasonable
terms and without undue operational disruption.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------ ---------------------------------------------------------------
We have set forth in the following table certain information regarding our
common stock beneficially owned on September 30, 1999, for (i) each shareholder
we know to be the beneficial owner of 5% or more of our outstanding common
stock, (ii) each of the our executive officers and directors, and (iii) all
executive officers and directors as a group. In general, a person is deemed to
be a "beneficial owner" of a security if that person has or shares the power to
vote or direct the voting of such security, or the power to dispose or to direct
the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which the person has the right to acquire beneficial
ownership within 60 days. At September 30, 1999, 17,650,321 shares of our common
stock were outstanding on a fully diluted basis.
20
<PAGE>
NAME AND ADDRESS NUMBER OF SHARES OF COMMON PERCENT OF
OR IDENTITY OF GROUP STOCK BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- -------------------- -------------------------- --------------------
Edith Marion Both(1) 2,700,000 15.3%
843 Ida Lane, Kamloops
BC, V2B 6V2
Canada
James Jay Hutton(2) 2,055,000 11.5%
6442-180th St.
Surrey, BC, V3S 7K2
Canada
William E. Krebs(3) 2,443,897 13.6%
300 Stewart Road
Salt Spring Island
BC, V8K 2C4
Canada
Robert Cashman(6) 250,000 1.5%
Mr. Robert L. Cashman
2100 West Orangewood Avenue
Orange, California 92868-1950
Jason Corless(4) 1,238,671 6.9%
312-3277 Glasgow Ave.
Victoria, BC, V8X 1M3
Canada
David H. Grinstead(7) 50,000 0.4%
48 Amin Street
Bedford, Nova Scotia
Canada
B4A 4A8
All Executive Officers and Directors 7,637,568 43.3%
as a Group (5 persons) (5)
- -----------------------
21
<PAGE>
(1) Includes 50,000 Plan Options. These shares are owned by E. W. G.
Investments Ltd. of which Ms. Both is the sole shareholder.
(2) Includes 36,778 shares which are owned by Janice Gurney, his wife, over
which Mr. Hutton disclaims beneficial ownership. Includes 250,000 Plan
Options.
(3) Includes 2,000,000 shares owned by Pacific Western Mortgage Corp. of which
Mr. Krebs is the sole shareholder and 93,897 shares owned by Margit
Kristiansen, Mr. Krebs' wife. Mr. Krebs disclaims beneficial ownership of
the shares owned by his wife. Includes 250,000 Plan Options.
(4) Includes 114,671 shares owned by Cathie Stevens, his wife, over which Mr.
Corless disclaims beneficial ownership. Includes 250,000 Plan Options.
(5) Does not include Plan Options.
Does not include shares owned by Robert Cashman.
(6) Mr. Cashman resigned from the board of directors on October 25, 1999
(7) Includes 50,000 Plan Options.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- ------- -------------------------------------------------------------
The following table sets forth the names, positions and ages of our
executive officers and directors. All our directors serve until the next annual
meeting of shareholders or until their successors are elected and qualify.
Officers are elected by the board of directors and their terms of office are,
except to the extent governed by employment contract, at the discretion of the
board of directors.
Name Age Position
---- --- --------
James J. Hutton 33 President, Chief Executive Officer and a Director
William E. Krebs 52 Chairman of the Board of Directors, Secretary
and Treasurer
Edith Marion Both 66 A Director
Robert Cashman 66 A Director (until November 1, 1999)
Randy G. Buchamer 44 A Director
David Grinstead 50 A Director (commencing November 1, 1999)
James J. Hutton has also served as President, Chief Executive Officer and a
Director of our subsidiary, Voice Mobility since 1998. From 1990 to the present,
he has also served as Director and President of Sycamore Group Holdings, a
family company involved in diversified investments. Mr. Hutton served as
Canadian Regional Manager for Ascend Communications (1995-1998). He served in
various capacities for Gandalf Systems, Inc., from 1989 to 1995, starting as a
sales executive and becoming Western Regional Manager. From 1987 to 1989, Mr.
Hutton was a Sales Trainee in the Automotive Electronics Group of Amp of Canada.
Mr. Hutton attended the University of British Columbia.
22
<PAGE>
William E. Krebs has been Chairman of the board of directors of our
subsidiary, Voice Mobility, since 1995. He also has served as President and a
director of Pacific Western Mortgage Corp. since 1987 and served as President
and a Director of Pacific Western Capital Corp. from 1994 to 1995. He has been a
director of Waverider Communications, Inc., a public company traded on the
Over-the-Counter Bulletin Board since 1997 and was its Secretary from 1997
through May, 1999. Mr. Krebs served as Director and President of TelcoPlus
Enterprises Ltd. and its wholly owned subsidiary, Intertec Telecommunications
Inc., from 1990 to 1995. Mr. Krebs is a Chartered Accountant and practiced as
such from 1970 to 1980. He served as a Director and President of CT&T
Telecommunications Inc. from 1990 to 1995. Mr. Krebs has been a member of the
Canadian Instititue of Chartered Accountants since 1973.
Edith Marion Both was employed by Transport Canada from 1980 to 1995 and
served as its Resource Manager from 1985 to 1995. She presently serves as the
Regional President of the Elizabeth Fry Society of Canada, a society which
assists woman who have had problems with legal authorities, and was Treasurer of
its National Board. She serves on the board of directors of the Women's Future
Fund, a cross discipline entity adjudicating funding for women issues. Mollie
became a registered Cytotechnologist in 1973.
Robert Cashman has served, from 1993 to the present, as chairman and senior
partner of The Charleston Group, a business consulting and investment banking
firm. From 1975 to 1992, he was President of Pacific Envelope Company. From
1989, to 1992, Mr. Cashman was a director of Pacific Inland Bank. Mr. Cashman
owned, from 1960 to 1974, Cashman Insurance Counselors, a general insurance
agency. In addition, he serves as Secretary and a director of the following
companies: Homelife, Inc. (OTCBB: HMLF) since 1996, Pacific Ocean Restaurants,
Inc. since 1998; and Aeromedical Group, Inc. since 1997. He served as President
and a director of our company when it was named Equity Capital Group, Inc., from
its inception in September, 1998 to June 30, 1999 and continues to serve as a
director. Mr. Cashman also is a Commissioner of the Orange County Airport, a
member of the MCAS El Toro Reuse Citizens Advisory Commission and City of
Anaheim Private Industry Council/Economic Development Council. He was a member
of the Los Angeles Olympic Organizing Committee from 1982 to 1984. Mr. Cashman
attended East Central State College, Oklahoma, Santa Ana College, California and
received his B.S. in Business Administration in 1956 from University of
California at Los Angeles. Mr. Cashman resigned from our board of directors on
October 25, 1999.
Randy G. Buchamer has served from 1996 as Vice President and Chief
Operating Officer of Mohawk Oil Retail SBU and from 1989 to 1996 as Vice
President Corporate Services and Chief Information Officer for Mohawk Oil
Company. From 1987 to 1988, he was Retail Market Specialist for Digital
Equipment of Canada Limited. Mr. Buchamer founded and served, from 1981 to 1988,
as President of Vartech Systems Corporation and RB Computer Products, an IBM
value added reseller and North American software publisher and distributer of
retail, distribution and manufacturing software solutions. From 1979 to 1981, he
was Sales Manager and, from 1978 to 1979, a Sales Representative for Micom
Canada Ltd. He received his MBA from Simon Fraser University's Executive
Management Development Program in 1994 and his BBA in Marketing and Finance from
the University of Illinois in 1978. He also has completed courses at the IBM
Canada Business Management School. He is a member of the Vancouver Board of
Trade and the Sales and Marketing Executives Association of Vancouver.
Mr. David Grinstead is Director, New Business Opportunities-
Telecommunications at Aliant Inc., a telecommunications and data services
organization based in Eastern Canada, with assets of $3 billion and annual
revenues of $1.7 billion and the parent company of Maritime Tel & Tel. He is
responsible for the development of new business opportunities, services, and
products with a particular focus on the creation of exportable business,
intellectual property and e-commerce opportunities as well as the development
and implementation of new business development and e-commerce strategies. From
1997 through January, 1999, Mr. Grinstead was Vice-President, Market &
Technology Development with The Bermuda Telephone Company Limited, Hamilton,
Bermuda. In this capacity Mr. Grinstead was responsible for all revenue
generation, business development, strategic planning and corporate
communications activities. Mr. Grinstead also held full operating responsibility
for BTC Mobility, the cellular subsidiary, and was Chairman of the Board of
Logic Communications Inc., Bermuda's largest internet service provider and
systems integrator. Immediatly, prior to joining The Bermuda Telephone Company,
Mr. Grinstead was Vice-President, Customer Solutions and Service of Northwestel
Inc., a subsidiary of Bell Canada Enterprises.and President of Northwestel Cable
TV Inc, and Executive Vice-President of Ardicom Digital Communications Inc. He
previously was Chief Operating Officer of MultiServices Canada Inc, and held
senior management roles with Picker International and DHL Worldwide Express.
23
<PAGE>
Key Management Employees of Voice Mobility, our operating subsidiary are:
James J. Hutton, our President, is also President and a director.
William E. Krebs, our Secretary and Treasurer, is Secretary and Treasurer
and a director.
William Gardiner (44 years old) has been Vice President - Business
Development since 1997 and served as a consultant from 1995 to 1997. At Voice
Mobility, he engineered the basic concept of the "follow me" number which is an
integral feature of the e-go platform and was responsible for introducing the
first e-mail to voice service in Canada, as well as call connect, same line fax,
fax to voice, and e-mail to voice. Mr. Gardiner earned a Diploma in Computer
Technology from Computer Data Institute in 1989.
Jason Corless (29 years old) has served as Director of Engineering since
1997 and was a consultant to Voice Mobility from 1994 to 1997 where he assisted
in the design and development of prototypes of e-mail to speech, web paging, and
TNPP paging. Mr. Corless served as a software developer for Hughes Aircraft in
1994 where he was involved in network performance testing of the Canadian
Automated Air-Traffic Control System (known as "CAATS"). In 1991, he was a
software developer for Northern Telecom where he designed and developed software
for the "DSM 250" product line as part of the frame relay billing group. Mr.
Corless received a Bachelor of Science in Computer Science from the University
of Victoria in 1994 and a Master of Science in Computer Science from the
University of Victoria in 1995. His monograph entitled "Publication in Software"
was published in Practice and Experience Journal, Volume 28, Number 12, October
1998.
Budd Stewart (46 years old) has served as Vice President - Operations since
1999. From 1997 to 1999, he was Director of Operations at Enhanced Cellular
Systems Inc. where he was responsible for negotiating and maintaining various
U.S.A. carrier agreements and operating systems, as well as installation and
maintenance of the U.S.A.-based credit card cellular payphone network. From 1995
to 1996, he was Director of Customer Service for Prime Copy Office Systems where
his responsibilities included service, refurbishing and warehouse operations at
Canada's largest Mita copier and Panafax facsimile dealer. Mr. Steward served as
Director of Technical Operations, at Savin (Ricoh) Canada from 1994 to 1995 at
which firm he was in charge of ten branches in Western Canada with a staff of
over 90 service personnel. From 1989 to 1993, he was President and owner of
Stewart/Scotvold Holdings, a project manager for non-residents in custom home
construction. Mr. Stewart was employed by Bell Canada and Bell Canada
International from 1976 to 1989 in various capacities, successively Section
Manager - Repair Service Bureau, Director Operations - Customer Service and
Director Cost and Results. In this last capacity, he was responsible for
negotiating and tracking the $3 billion annual operating expense budget of the
seven business units of Bell Canada. Mr. Stewart received a Bachelor of Arts
from University of Toronto.
Geoff Heston (47 years old) has served as Senior Vice President of Sales
and Marketing since August, 1999. Prior to joining Voice Mobility, Mr. Heston
served, from 1997 to 1999 as Vice President - Wireless Marketing, for Diablo
Research Company, a contract engineering and consulting company. From 1994 to
1997, Mr. Heston was Vice President and General Manager, Canadian Operations, of
Metricom Inc. a provider of wireless Internet access. From 1989 to 1994, Mr.
Heston worked for Motorola successively as Senior Project Manager, Marketing
Manager - Public Wireless Networks and Major Account Manager. From 1984 to 1989,
he was Senior Applications Specialist for Gandalf Data Ltd. From 1976 to 1984,
Mr. Heston specialized in the operation and support of mainframe computers for
school administration and students successively for McGill University,
University of British Columbia and the Vancouver School Board. Mr. Heston
attended Mount Allison University and Marianopolis Collge.
24
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
- ------- -----------------------
CASH COMPENSATION.
- ------------------
The following table shows, for the two-year period ended December 31, 1998,
the cash and other compensation we paid to our Chief Executive Officer and to
each of our executive officers who had annual compensation in excess of
$100,000.
SUMMARY COMPENSATION TABLE
--------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ------------------ ---- ------ ----- ---------------
Robert Cashman 1998 -0- -0- -0-
President and 1997
Chief Executive Officer
(resigned June, 1999)
James J. Hutton 1999 $72,600 -0- -0- (1)
President and
Chief Executive Officer
of Voice Mobility Inc.
and since June, 1999
of the Company
- ------------------------
1. Compensation was paid to Mr. Hutton by Voice Mobility, Inc., our operating
subsidiary
OPTION GRANTS IN THE LAST FISCAL YEAR.
- --------------------------------------
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the fiscal year ended December
31, 1998 (Voice Mobility Inc.) and March 31, 1999 (the Company), to each person
named in the Summary Compensation Table.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN ($/SHARES) EXPIRATION
NAME GRANTED (#) FISCAL YEAR DATE
---- ----------- ----------- ---------- ----------
Robert Cashman 0 0 N/A N/A
James J. Hutton 0 0 N/A N/A*
* Subsequent to the end of the 1998 fiscal year, we have issued 250,000
options to Mr. Hutton. The options are excercisable at $1.00 and expire
June 30, 2004
1999 STOCK OPTION PLAN
- ----------------------
In June 29, 1999, our board of directors adopted the Fiscal 2000 Stock
Option Plan (the "Plan") as a means of increasing employees', board of advisors,
consultants' and non-employee directors' proprietary interest and to align more
closely their interests with the interests of our stockholders. The Plan should
also maintain our ability to attract and retain the services of experienced and
highly qualified employees and non-employee directors.
25
<PAGE>
Under the Plan, we have reserved an aggregate of 5,000,000 shares of common
stock for issuance pursuant to options ("Plan Options"). Our board of directors
or a committee of our board of directors (the "Committee") will administer the
Plan, including, without limitation, the selection of the persons who will be
granted Plan Options under the Plan, the type of Plan Options to be granted, the
number of shares subject to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of common stock owned
by the eligible person and receive a new Plan Option to purchase shares of
common stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of our common stock must be at least 110% of such fair
market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by our board of
directors or the Committee, provided that no Plan Option may be exercisable more
than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant. The exercise price of
Non-Qualified Options shall be determined by our board of directors or the
Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Our (and any of our subsidiary's) officers, directors, key employees and
consultants will be eligible to receive Non-Qualified Options under the Plan.
Only employees are eligible to receive Incentive Options.
Recipients of Plan Options may not assign or transfer them, except by will
or by the laws of descent and distribution. During the lifetime of the optionee,
an option may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee but is a member of our board of
directors and his service as a director is terminated for any reason, other than
death or disability, the Plan Option granted to him or her shall lapse to the
extent unexercised on the earlier of the expiration date or 30 days following
the date of termination. If the optionee dies during the term of his employment,
the Plan Option granted to him shall lapse to the extent unexercised on the
earlier of the expiration date of the Plan Option or the date one year following
the date of the optionee's death. If the optionee is disabled, the Plan Option
granted to him or her lapses to the extent unexercised on the earlier of the
expiration date of the option or one year following the date of the disability.
26
<PAGE>
Our board of directors or the Committee may amend, suspend or terminate the
Plan at any time, except that no amendment shall be made which (i) increases the
total number of shares subject to the Plan, or (ii) changes the definition of an
Eligible Person under the Plan.
As of September 1, 1999, we granted 2,666,750 Plan Options. As of September
30, 1999, no Plan Options had been exercised.
OPTION EXERCISES AND HOLDINGS.
- ------------------------------
The following table sets forth information with respect to the exercise of
options to purchase shares of our common stock during the fiscal year ended
March 31, 1999 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of 1999 fiscal year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/ EXERCISES IN
LAST FISCAL YEAR AND 1998 FISCAL YEAR END OPTION/VALUES
-------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS/
UNEXERCISED OPTIONS SARS AT 1998 FISCAL
AT 1998 FISCAL YEAR YEAR END ($)
END (#) EXERCISABLE/ EXERCISABLE/
SHARES ACQUIRED ON VALUE UNEXERCISABLE UNEXERCISABLE
EXERCISE REALIZED
NAME (#) ($)
---- ------------------- ------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Robert Cashman 0 0 0 0
James J. Hutton 0 0 0 0*
<FN>
- -------------------
* Subsequent to the end of the 1998 fiscal year, we issued 250,000 options to
Mr. Hutton. The options are excercisable at $1.00 and expire June 30, 2004.
The intrinsic value of the options on September 30, 1999, is $375,000 Based
on our determination of fair market value of the purchased shares on the
option exercise date less the exercise price paid for the shares.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
NUMBER OF SHARES, PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR OTHER OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
RIGHTS MATURATION OR ------------------------------
(#) PAYOUT THRESHOLD TARGET MAXIMUM
NAME ($ OR #) ($ OR #) ($ OR #)
---- ---------------- ----------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert Cashman 0 0 0 0 0
James Jay Hutton 0 0 0 0 0
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
- -------------------------------
We have not entered into any employment agreements with our officers and
directors and have paid no compensation to them. Our operating subsidiary, Voice
Mobility Inc., however, has entered into employment agreements with its
executive employees. James Jay Hutton, President of Voice Mobility Inc., entered
into an employment agreement on April 1, 1998 which terminates on March 31,
2000. He receives a salary of Cdn$100,000 per year plus 250,000 Plan Options
exercisable at $1.00 per share. William Gardiner, Vice-President - Business
Development of Voice Mobility, Inc., entered into an employment agreement on
August 1, 1998 which terminates on August 1, 2001. He receives a salary of
Cdn$60,000 per year plus 200,000 Plan Options exercisable at $1.00 per share.
Jason Corless, Director of Engineering of Voice Mobility Inc., entered into an
employment agreement on October 1, 1998 which terminates on August 1, 2001. He
receives a salary of Cdn$60,000 per year plus 200,000 Plan Options exercisable
at $1.00 per share. (Options to purchase shares of Acrex Ventures Inc. as set
forth in the employment contracts of Messrs. Hutton, Gardiner and Corless,
attached to this registration statement as exhibits, were amended by resolution
of our board of directors to provide options in our company in the same numbers
and at the exercise prices which had been previously determined.) Bud Stewart,
Vice-President - Operations of Voice Mobility Inc., entered into an employment
agreement on June 20, 1999 which terminates on June 19, 2001. He receives a
salary of Cdn$100,000 per year plus 250,000 Plan Options exercisable at $1.00
per share. Mr. Stewart may also receive an additional 250,000 Plan Options
pursuant to mutually agreeable performance criteria. Geof Heston, Senior
Vice-President of Sales and Marketing of Voice Mobility Inc., entered into an
employment agreement on August 7, 1998 which terminates on August 6, 2001. He
receives a salary of Cdn$100,000 per year plus 250,000 Plan Options exercisable
at $1.00 per share. All employment contracts contain non-compete clauses.
28
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- -----------------------------------------------
We were incorporated in the State of Nevada on October 2, 1997 under the
name Equity Capital Group, Inc. to serve as a merchant banking firm with a
business consulting/investment division and a real estate division. The initial
board of directors consisted of Robert Cashman, Yale Mizrahi and Georgia
Cashman.
Our initial certificate of incorporation authorized 10,100,000 shares of
capital stock divided into: 10,000,000 shares of common stock of $.001 par value
per share and 100,000 shares of preferred stock without par value. Our
certificate of incorporation was amended on June 24, 1999 to authorize the
issuance of 51,000,000 shares of capital stock divided into 50,000,000 shares of
common stock, $.001 par value each and 1,000,000 shares of preferred stock,
$.001 par value each.
On December 20, 1997, we entered into a Plan of Exchange Agreement with
Ward Enterprises, Inc., of which the McClintock Family Trust was the sole
stockholder, for the exchange of all the capital stock of Ward Enterprises for
1,500,000 of our shares of common stock. Ward Enterprises was subsequently
liquidated into our company.
During the first quarter of 1998, we sold 100,000 shares of our common
stock under Rule 504 of Regulation D to the Securities Act of 1933 for a total
of $100,000.
On January 15, 1998 Robert Cashman was elected as the Chairman of the board
of directors and John Vilagi was elected to the board of directors upon the
resignation of Yale Misrahi and Georgia Cashman.
On June 15, 1998, we entered into an exchange agreement with HomeLife Inc.,
a Nevada Corporation trading on the Over the Counter Bulletin Board under the
symbol "HMLF". The agreement involved the exchange of 375,000 shares of HomeLife
Inc. common stock in exchange for 75,000 of our shares of our common stock.
In July, 1998, we sold 100,000 shares of HomeLife, Inc. common stock for
cash consideration of $100,000.
Prior to our acquisition of Ward, Ward had sold envelope manufacturing
equipment to Specialty Envelope Company on credit terms. On October 20, 1998, we
entered into a settlement and mutual release in exchange for funds in the
principal amounts of the promissory notes. The notes bear interest at 15% and
are payable in payable in monthly installments of principal and interest of $835
and $2,000 respectively. Messrs. Vilagi and Cashman have agreed to release us
from the repayment obligations of the notes and to look to Pioneer Growth
Corporation for payment.
On April 1, 1999, we reverse split our shares of common stock 4:1 and on
that date sold an aggregate of 8,293,000 shares of our common stock to 72
persons. On that date, we also entered into an agreement with Pioneer Growth
Corporation under which it received all our assets and assumed our liabilities.
Messrs. Vilagi and Cashman agreed to release us and to look to Pioneer Growth
Corporation for repayment of their promissory notes. Pioneer Growth Corporation
issued to us 2,174,000 of its common stock which we distributed ratably to our
stockholders of record on March 31, 1999.
On June 24, 1999, we changed our name through an amendment to our
certificate of incorporation to Voice Mobility International, Inc. and on June
30, 1999 changed our trading symbol from EQCG to VMII on the Over the Counter
Bulletin Board.
29
<PAGE>
On September 15, 1993 "454581 B.C. Ltd." was incorporated under the laws of
British Columbia. and owned 100% by Ernest Weir Gardiner. Ernest Weir Gardiner
and Ernest William Gardiner constituted the initial board of directors. Ernest
Weir Gardiner was issued 100 Class "A" Common Shares. In June, 1994, he began to
finance operations through loans.
On July 20, 1994, the charter of "454581 B.C. Ltd." was amended to change
its name W.G.T. Teleserve Canada Inc.
In December, 1995, Pacific Western Mortgage Corporation, a company owned by
William E. Krebs, began to loan funds to W.G.T. Teleserve to fund operations.
On January 29, 1996, Ernest Weir Gardiner transferred 50 of his Class "A"
Shares in W.G.T. Teleserve to Pacific Western Mortgage Corporation.
On October 31, 1997, W.G.T. Teleserve purchased the 100 issued and
outstanding Class "A" common shares from Ernest Weir Gardiner and Pacific
Western Mortgage corp. for $1.00 per share and cancelled them. Concurrently, it
issued Class "B" common shares in the following numbers, for the price of $0.01
per share, as follows:
E.W.G. Investments Ltd. 3,750 shares
James Joseph Hutton 2,250 shares
Pacific Western Mortgage Corp. 1,500 shares
Jason David Corless 900 shares
On October 31, 1997, Ernest Weir Gardiner resigned as a director and
officer and Ernest Williams Gardiner, James Joseph Hutton and William Krebs were
appointed directors. The new board of directors elected Ernest William Gardiner
as President, James Joseph Hutton as Secretary, and William Krebs as Chairman of
the Board.
On November 4th, 1997. W.G.T. Teleserve by special resolution subdivided
its authorized capital of 200,000 shares into 200,000,000 shares. Thus the
authorized capital was 200,000,000 shares divided into:
100,000,000 Preferred shares with a par value of $0.01 each; and
25,000,000 Class "A" voting common shares without par value 25,000,000
Class "B" voting common shares without par value 25,000,000 Class "C"
voting common shares without par value 25,000,000 Class "D" non-voting
common shares without par value
In December, 1997, W.G.T. Teleserve shareholders agreed to merge it into
Acrex Ventures Ltd. Acrex Ventures subsequently initiated its first private
placement of 1,500,000 shares at Cdn$0.26625 per unit pursuant to a prospectus
exempt securities offering in British Columbia, Canada. Each unit consisted of
one share and one warrant exercisable at Cdn $0.50 to purchase an additional
share of Acrex Ventures Ltd. The resulting proceeds were loaned to W.G.T.
Teleserve to fund research and development activities and for working capital.
On June 10, 1998, W.G.T. Teleserve changed from being a British Columbia
corporation to a Canadian corporation and, simultaneously, changed its name to
Voice Mobility Inc.
In June, 1998, Voice Mobility Inc. began to conduct field trials of its
integrated messaging product with Maritime Tel & Tel Ltd. in Nova Scotia, at the
cost of MTT to be reimbursed by Voice Mobility. In addition, Voice Mobility and
MTT jointly developed new telecommunications applications for telecommunications
services providers.
30
<PAGE>
On August 30, 1998, Voice Mobility and its shareholders entered into an
agreement to sell 100% of its shares to Acrex Ventures, a transaction requiring
the approval of the Vancouver Stock Exchange.
In June 1998, Acrex Ventures initiated its second private placement of
1,000,000 units at Cdn$0.50 per share pursuant to a prospectus exempt securities
offering in British Columbia, Canada. Each unit consisted of one share and one
warrant exercisable at Cdn$0.50. The resulting proceeds were loaned to Voice
Mobility to fund research and development activities and for working capital.
In January, 1999, Acrex Ventures initiated its third private placement of
2,000,000 units at Cdn$0.50 pursuant to a prospectus exempt securities offering
in British Columbia, Canada. Each unit consisted of one share and one warrant
exercisable at Cdn$0.75. The resulting proceeds were loaned to Voice Mobility to
fund research and development activities and for working capital.
In May, 1999, Acrex Ventures initiated its fourth private placement of
258,000 units at Cdn$0.50 per unit pursuant to a prospectus exempt securities
offering in British Columbia, Canada. Each unit consisted of one share and one
warrant exercisable at Cdn$0.75. The resulting proceeds were loaned to Voice
Mobility to fund research and development activities and for working capital.
On March 31, 1999, the share acquisition agreement between Acrex Ventures
and shareholders of Voice Mobility whereby Acrex Ventures would acquire 100% of
the capital stock of Voice Mobility expired.
On June 24, 1999, we entered into an agreement with the shareholders of
Voice Mobility Inc. under which we agreed to acquire all the issued and
outstanding capital stock of Voice Mobility in exchange for 6,600,000 of our
shares of common stock. The shareholders of Voice Mobility listed below, agreed
that they would initially exchange their capital stock of Voice Mobility for
6,600,000 "exchange B" shares of a wholly-owned Canadian subsidiary in which we
would be the sole shareholder of "A" voting stock. From time to time, they could
exchange their shares of the subsidiary for an equal number of our shares of
common stock.
The 6,600,000 "exchange" shares of the Canadian subsidiary were agreed to
be divided among the stockholders of Voice Mobility as follows:
1. E.W.G. Investments Inc. 2,650,000 shares
2. James Hutton 1,750,000 shares
3. Jason Corless 850,000 shares
4. Pacific Western Mortgage Corporation 1,250,000 shares
5. Corey Scholefield 100 000 shares
This agreement was expanded on September 30, 1999, when we entered into a
voting, support and exchange trust agreement with our newly-acquired subsidiary,
Voice Mobility Canada Limited, a Canadian corporation ("VM Canada"), and Owen,
Bird, barristers and solicitors, a British Columbia partnership, as trustee for
the shareholders of Voice Mobility Pursuant to that agreement, VM Canada
purchased all of the capital stock of Voice Mobility in consideration for
6,600,000 exchangeable preferred shares (the "Exchangeable Shares") of VM
Canada. Each Exchangeable Share may be exchanged for one share of our common
stock.
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The Exchangeable Shares provide the former Voice Mobility shareholders with
a security of a Canadian issuer which has economic (including voting) attributes
that are, as nearly as practicable, equivalent to those of our shares of common
stock. Because the exchange of securities of Voice Mobility was made with a
taxable Canadian corporation, a deferral of Canadian income tax is available to
the shareholders of Voice Mobility all of whom are residents of British
Columbia. This deferral would not have been available in respect of the tender
of shares to us as we are not a Canadian corporation. Similarly, a tax deferral
would not be available to British Columbia residents if the shares of Voice
Mobility Inc. had been sold for cash.
In connection with the exchange, we agreed to issue a new non-participating
special voting share to the trustee for the benefit of the holders of the
Exchangeable Shares. The trustee will hold our special voting share. The trustee
will be entitled at our stockholder meetings, to a number of votes equal to that
number of votes which the holders of Exchangeable Shares outstanding at such
time would be entitled if they exchanged all of their Exchangeable Shares for
our shares of common stock. These voting rights will be exercised by the Trustee
only upon receipt of instructions from the holders of Exchangeable Shares.
Each Exchangeable Share is entitled to dividends from VM Canada payable at
the same time as, and in the same form as, dividends paid by us on each of our
shares of common stock and may be paid in stock or cash. Upon the liquidation,
dissolution or winding-up of VM Canada or any other distribution of assets of VM
Canada among its shareholders for the purpose of winding up its affairs, a
holder of Exchangeable Shares will be entitled to receive from VM Canada for
each such share an amount equal to the market price of one of our shares of
common stock on the business day prior to the liquidation date, which will be
satisfied by the delivery of shares of our common stock, together with an
additional amount equivalent to the full amount of all declared and unpaid
dividends on each Exchangeable Share and all dividends and distributions
declared on our shares of common stock that have not been declared on each
Exchangeable Share with a record date prior to the effective date of the
exchange. Notwithstanding, upon any proposed liquidation, dissolution or
winding-up of VM Canada, we and our subsidiary, VMI Sub, will have an overriding
call right to purchase outstanding Exchangeable Shares, at the same price in
cash.
The Exchangeable Shares are non-voting and are "retractable" at the option
of the holder at any time. Upon retraction the holders will be entitled to
receive from VM Canada for each share an amount equal to the market price of one
of our shares of common stock on the business day prior to the retraction date,
which will be satisfied by the delivery of our shares of common stock together
with an additional amount equivalent to the full amount of all declared and
unpaid dividends on each retracted Exchangeable Share and all dividends and
distributions declared on our common stock that have not been declared on each
Exchangeable Share with a record date prior to the effective date of the
exchange. Notwithstanding the foregoing, upon being notified by VM Canada of a
proposed retraction by a holder of Exchangeable Shares, we and VMI Sub will have
an overriding call right to purchase the Exchangeable Shares that are the
subject of the proposed retraction for the same price in cash.
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VM Canada shall redeem all of the Exchangeable Shares remaining outstanding
on July 1, 2009. Upon such redemption, the holder of an Exchangeable Share will
be entitled to receive from VM Canada for each Exchangeable Share redeemed an
amount equal to the market price of one of our shares of common stock, which
will be satisfied by the delivery of our shares of common stock, together with
an additional amount equivalent to the full amount of all declared and unpaid
dividends on each Exchangeable Share and all dividends and distributions
declared on a our common stock that have not been declared on each Exchangeable
Share with a record date prior to the effective date of the exchange.
Notwithstanding, we and VMI Sub will have an overriding call right to purchase
on the last business day prior to the date of redemption all the Exchangeable
Shares, at the same price in cash.
In the event of our dissolution, liquidation or winding-up, the
Exchangeable Shares will be automatically exchanged for an equivalent number of
our shares of common stock so that the holders of Exchangeable Shares may
participate in the dissolution, liquidation or winding-up on the same basis as
our stockholders.
Upon the exchange of Exchangeable Shares, the holder will no longer be a
beneficiary of the trust that holds the special voting share.
Our special voting share carries a number of voting rights, including
rights exercisable at any meeting of the holders of our shares of common stock,
equal to the number of Exchangeable Shares outstanding on the record date
established for any such meeting, subject to adjustment. Our stockholders and
the holders of Exchangeable Shares will vote together as a single class on all
matters unless otherwise required by applicable law. The special voting share
will not be entitled to dividends and will not participate in any dissolution,
liquidation or winding-up. At such time as the special voting share has no votes
attached to it because there are no Exchangeable Shares outstanding, it will be
cancelled. The special voting share, upon issue, will be held by the trustee for
the benefit of holders of Exchangeable Shares from time to time and each voting
right will be voted in accordance with the instructions received by the trustee
from such holders of Exchangeable Shares. In the absence of any instructions
received from such holder of Exchangeable Shares, the voting rights to which
such holder is entitled will not be exercised. Upon the exchange of Exchangeable
Shares for our shares of common stock, the voting rights will terminate.
Pursuant to the Exchange Agreement, we have granted to the trustee for the
benefit of the holders of the Exchangeable Shares a put right, exercisable upon
the insolvency of VM Canada. This put right, when exercised, will require us to
purchase from a holder of Exchangeable Shares all or any part of the
Exchangeable Shares held by such holder. The purchase price for each
Exchangeable Share will be an amount equal to the market price of one of our
shares of common stock on the business day prior to the date of closing the
purchase under the put right, which will be satisfied by the delivery of our
shares of common stock, together with an additional amount equivalent to the
full amount of all declared and unpaid dividends on each Exchangeable Share and
all dividends and distributions declared on our shares of common stock that have
not been declared on each Exchangeable Share with a record date prior to the
effective date of the exchange.
The Exchange Agreement provides that we will:
(a) not declare or pay any dividends on our shares of common stock unless (i)
VM Canada has sufficient assets available to pay equivalent dividends on
the Exchangeable Shares, and (ii) VM Canada simultaneously declares or
pays, as the case may be, such equivalent dividends on the Exchangeable
Shares;
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(b) take all actions and do all things as are necessary or desirable to enable
VM Canada to honour the redemption and retraction rights and ntially
identical to the warrants issued by Acrex Ventures to the subscribers in
its four private placements. All classes of warrant terminate on December
29, 2000. On that date, we issued 1,600,000 Class "A" Warrants exercisable
at $0.35; 1,000,000 Class "B" Warrants exercisable at $.50; 1,1940,000
Class "C" Warrants exercisable at $.50 per share; and 253,000 Class "D"
Warrants exercisable at $.50 per share.
On June 30, 1999, we began trading on the Over-the-Counter Bulletin Board
under the name Voice Mobility International, Inc. and under the symbol VMII.
In June, July and August, 1999, an aggregate of 400,000 Class A Warrants,
380,000 Class B Warrants and 100,000 Class C Warrants were exercised for an
aggregate of $380,000 into restricted shares of our common stock.
On September 16, we entered into an agreement with Maritime Tel & Tel
whereby we agreed to issued to Maritime Tel & Tel 1,428,571 shares of our common
stock in satisfaction of the obligations of Voice Mobility to Maritime Tel & Tel
and will permit Maritime Tel & Tel to appoint one of our directors.
During technical trials Maritime Tel & Tel expended more than Cdn$500,000
in carrying out its responsibilities and research and development activities. In
November 1998 Maritime Tel & Tel began discussions with Voice Mobility taking an
equity position in Voice Mobility in settlement of the fair value of their
expenditures. The fair value was agreed upon in a debt settlement agreement
dated March 26, 1999 between Acrex Ventures, Maritime Tel & Tel, and Voice
Mobility, Maritime Tel & Tel agreed that it would accept, in full satisfaction
of the Voice Mobility debt, delivery of 1,428,571 shares in the capital of Acrex
Ventures at a deemed price of Cdn$0.35. The number of shares that were agreed to
be issued to Maritime Tel & Tel in settlement of the Cdn$500,000 debt was based
on the previous trading history of Acrex Ventures.
However, the Cdn$500,000 obligation settlement was contingent and became
payable on completion of the acquisition of Voice Mobility by Acrex Ventures. In
the event that the acquisition of Voice Mobility by Acrex Ventures did not take
place, the $500,000 obligation was agreed to be extinguished. Based on the debt
settlement agreement dated March 26, 1999 the same number of shares of our
common stock were agreed to be issued to Maritime Tel & Tel in settlement of the
contingent liability.
Our management has chosen Ernst & Young as auditors for the fiscal year
ending December 31, 1999. This appointment is subject to approval by our board
of directors.
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ITEM 8. DESCRIPTION OF SECURITIES
- ------ --------------------------
Under our amended certificate of incorporation, we are authorized to issue
up to 50,000,000 shares of common stock, par value $.001 per share, of which
17,650,321 shares were outstanding as of September 30, 1999. We are also
authorized to issue up to 1,000,000 shares of preferred stock, par value $.001
per share, of which no shares were issued and outstanding as of September 30,
1999. We have issued one special voting share of preferred stock to Owen, Bird
as trustee for the former shareholders of Voice Mobility Inc.(see Item 7 Certain
Relationships and Related Transactions).
COMMON STOCK.
- -------------
Each shareholder is entitled to one vote for each share of common stock
owned of record. The holders of shares of common stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares voting for the election of directors can elect all of the directors, and
in such event the holders of the remaining shares will be unable to elect any of
our directors. Holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available at such times and in such
amounts as our board of directors may determine. Upon our liquidation,
dissolution, or winding, the assets legally available for distribution to our
shareholders will be distributed ratably among the holders of the shares
outstanding at the time. Holders of our shares of common stock have no
preemptive, conversion, or subscription rights, and our shares of common stock
are not subject to redemption. All our outstanding shares of common stock are
fully paid and non-assessable. As of September, 30, 1999, 17,650,321 shares of
our common stock were outstanding, on a fully diluted basis.
PREFERRED STOCK.
- ----------------
Under our amended certificate of incorporation, we are authorized to issue
preferred stock with such designations, rights and preferences as our Board of
Directors may from time to time determine. Accordingly, our board of directors
is empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of our stock. We could
issue preferred stock as a method of discouraging, delaying or preventing a
change of control of our company. Our board of directors has created one series
of preferred stock, Series A Preferred Stock (see Item 7 - Certain Relationships
and Related Transactions).
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WARRANTS
- --------
Up to March 31, 1999 Acrex Ventures had entered into four private
placements totaling Cdn$2,022,500 and loan settlement agreements of Cdn$675,500.
The money was primarily advanced to Voice Mobility to fund operations and to pay
costs associated with the proposed acquisition of the Voice Mobility common
shares by Acrex Ventures.
On June 30, 1999, Acrex Ventures agreed to transfer to us the receivables
resulting from the four private placements in consideration of our issuing
common stock warrants with terms and conditions substantially identical to the
warrants that would have been issued by Acrex Ventures to the subscribers in its
four private placements.
All classes of warrant terminate on December 29, 2000. The warrants are
immediately exercisable and are not redeemable. All of our shares issuable upon
exercise of the warrants will be fully paid and non-assessable. Share
certificates issued to holders of warrants who exercise them prior to the
effective date of a registration statement will be legended to prevent sale,
hypothecation or transfer in the absence of an effective registration or an
exemption from registration. On June 30, 1999, we issued 1,600,000 Class "A"
Warrants exercisable at $0.35; 1,000,000 Class "B" Warrants exercisable at $.50;
1,940,000 Class "C" Warrants exercisable at $.50 per share; and 253,000 Class
"D" Warrants exercisable at $.50 per share.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
- ------ --------------------------------------------------------------------
OTHER SHAREHOLDER MATTERS.
-------------------------
Our shares of common stock are traded over-the-counter and quoted on the
OTC Electronic Bulletin Board under the symbol "VMII". Prior to the third
calendar quarter of 1999, our shares of common stock were traded under the
symbol "ECGI". The reported high and low bid prices for the common stock are
shown below for the period from inception of trading in the fourth quarter of
1998 through June 30, 1999. All prices have been adjusted to reflect a 4:1
reverse split. The quotations reflect inter-dealer prices and do not include
retail mark-ups, mark-downs or commissions. The prices do not necessarily
reflect actual transactions.
HIGH BID LOW BID
-------- -------
1998
Fourth Quarter $18.00 $18.00
1999
First Quarter $18.00 $18.00
Second Quarter $18.00 $12.00
Third Quarter $ 3.00 $ 2.00
The closing price of our common stock on September 30, 1999, was $2.50, as
quoted on the OTC Electronic Bulletin Board. As of September 30, 1999, there
were 16,221,750 shares of common stock outstanding, 95 shareholders of record,
and approximately 95 beneficial holders.
Our transfer agent is OTR/Oxford Transfer, 317 Southwest Alder (Suite
1120), Portland Oregon 97204.
We have never paid cash dividends on our common stock and we presently
intend to retain future earnings, if any, to finance the expansion of our
business. We do not anticipate that any cash dividends will be paid in the
foreseeable future. Future dividend policy will depend on ours earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
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ITEM 2. LEGAL PROCEEDINGS.
- ------- ------------------
Not applicable.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- ------- ----------------------------------------------
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- ------- ----------------------------------------
During the first quarter of 1998, we sold 100,000 shares of our common stock
under Rule 504 of Regulation D to the Securities Act of 1933 to 32 investors for
a total of $100,000.
On April 1, 1999, we undertook a 4:1 reverse stock split of our common
stock. All figures set forth below give effect to the reverse split.
On April 1, 1999, we sold for an aggregate of $200,000 an aggregate of
8,293,000 shares of our common stock to 72 investors under Rule 504 of
Regulation D to the Securities Act of 1933.
On June 24, 1999 and September 20, 1999, we entered into agreements with
the stockholders of Voice Mobility, Inc., a Canadian corporation, under which
the stokholders exchanged all of the capital stock of Voice Mobility for
6,600,000 "Exchange Shares" of our wholly-owned subsidiary, Voice Mobility
Canada Ltd. The former shareholders of Voice Mobility have the right to exchange
the capital stock they own of our subsidiary into 6,600,000 of our shares of
common stock. (See "Item 7. Certain Relationship and Related Transactions" for a
complete description of this transaction.)
Up to March 31, 1999 Acrex Ventures had entered into four private
placements totaling Cdn$2,022,500 and loan settlement agreements of Cdn$675,500.
The money was primarily advanced to Voice Mobility to fund operations and to pay
costs associated with the proposed acquisition of the Voice Mobility common
shares by Acrex Ventures. On June 30, 1999, Acrex Ventures agreed to transfer to
us the receivables resulting from the four private placements in consideration
of our issuing common stock warrants with terms and conditions substantially
identical to the warrants that would have been issued by Acrex Ventures to the
subscribers in its four private placements.
All classes of warrant terminate on December 29, 2000. The warrants are
immediately exercisable and are not redeemable. All of our shares issuable upon
exercise of the warrants will be fully paid and non-assessable. Share
certificates issued to holders of warrants who exercise them prior to the
effective date of a registration statement will be legended to prevent sale,
hypothecation or transfer in the absence of an effective registration or an
exemption from registration. On June 30, 1999, we issued 1,600,000 Class "A"
Warrants exercisable at $0.35; 1,000,000 Class "B" Warrants exercisable at $.50;
1,940,000 Class "C" Warrants exercisable at $.50 per share; and 253,000 Class
"D" Warrants exercisable at $.50 per share.
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ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- ------- ------------------------------------------
Chapter 78 of the Nevada Revised Statutes permits the indemnification of
directors, employees, officers and agents of Nevada corporations as follows:
Section 78.7502 Discretionary and mandatory indemnification of officers,
directors, employees and agents:
- --------------------------------------------------------------------------------
General provisions.
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding,
he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually
and reasonably incurred by him in connection with the defense or settlement
of the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to
the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or suit
was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsections 1 and 2, or in defense of any
claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
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Section 78.751 Authorization required for discretionary indemnification;
advancement of expenses; limitation on indemnification and advancement of
expenses.
- --------------------------------------------------------------------------------
1. Any discretionary indemnification under NRS 78.7502 unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
2. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must
be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The provisions of
this subsection do not affect any rights to advancement of expenses to
which corporate personnel other than directors or officers may be entitled
under any contract or otherwise by law.
3. The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in another capacity while
holding his office, except that indemnification, unless ordered by a
court pursuant to NRS 78.7502 or for the advancement of expenses made
pursuant to subsection 2, may not be made to or on behalf of any
director or officer if a final adjudication establishes that his acts
or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors
and administrators of such a person.
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Section 78.752 Insurance and other financial arrangements against liability of
directors, officers, employees and agents.
- ----------------------------------------------------------------------------
1. A corporation may purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him
in his capacity as a director, officer, employee or agent, or arising out
of his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses.
2. The other financial arrangements made by the corporation pursuant to
subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection may provide
protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud or a knowing violation of law, except with respect to the
advancement of expenses or indemnification ordered by a court.
3. Any insurance or other financial arrangement made on behalf of a person
pursuant to this section may be provided by the corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
4. In the absence of fraud:
(a) The decision of the board of directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement
made pursuant to this section and the choice of the person to provide
the insurance or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal liability
for his action, even if a director approving the insurance or
other financial arrangement is a beneficiary of the insurance or
other financial arrangement.
5. A corporation or its subsidiary which provides self-insurance for itself or
for another affiliated corporation pursuant to this section is not subject
to the provisions of Title 57 of NRS.
Our Certificate of Incorporation provides as follows:
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Article XI
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under Nevada Law.
Article XII
The corporation is authorized to indemnify the directors and officers of
the corporation to the fullest extent permissible under Nevada Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Our By-Laws provide as follows:
ARTICLE X - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corpporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or porceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
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3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragarph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directrors who were not parties to such action, suit or
proceeding, (b) if by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or by the shareholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or perceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of shareholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
42
<PAGE>
Financial Statements
Voice Mobility Inc.
December 31, 1998
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Voice Mobility Inc.
We have audited the balance sheets of Voice Mobility Inc. as at December
31, 1998 and 1997 and the statements of earnings, shareholders' deficit and cash
flows for the years then ended. 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 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, 1998 and 1997
and the results of its operations and cash flows for the years then ended in
accordance with United States generally accepted accounting principles.
Vancouver, British Columbia, /s/Bedford Curry & Co.
March 29, 1999 Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING CONFLICT
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 significant uncertainties such as that referred to in
the attached balance sheet as at December 31, 1998 and 1997 and described in
Note 1 of the financial statements. The explanatory paragraph would state that,
as discussed in Note 1 to the financial statements, the Company has a working
capital deficiency and a net capital deficiency that raise doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty. The
above opinion is expressed in accordance with Canadian reporting standards which
do not permit a reference to such an uncertainty in the auditors' report when
the uncertainty is adequately disclosed in the financial statements.
Vancouver, British Columbia, /s//s/Bedford Curry & Co.
March 29, 1999. Chartered Accountants
<PAGE>
Voice Mobility Inc.
BALANCE SHEET
(presented in United States dollars)
As at December 31
1998 1997
$ $
- --------------------------------------------------------------------------------
ASSETS
Current
Cash 37,113 799
Accounts receivable (net of allowance
for doubtful debts $20,930;
1997 - $24,446) [note 3] 67,810 20,474
Prepaid expenses 17,116 2,882
Work-in-progress 14,919 -
- --------------------------------------------------------------------------------
Total current assets 136,958 24,155
- --------------------------------------------------------------------------------
Equipment and trademarks [note 4] 133,848 57,808
- --------------------------------------------------------------------------------
270,806 81,963
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities 117,092 162,694
Deferred revenue - 26,257
Notes payable [note 5] 792,323 49,669
Due to ACREX Ventures Ltd. [note 6] 419,592 34,725
Due to shareholder [note 7] 239,642 233,568
- --------------------------------------------------------------------------------
Total liabilities 1,568,649 506,913
- --------------------------------------------------------------------------------
Commitments and contingencies [note 10]
Shareholders' deficiency
Share capital [note 8] 59 59
Deficit (1,373,141) (442,542)
Translation adjustment 75,239 17,533
- --------------------------------------------------------------------------------
Total shareholders' deficiency (1,297,843) (424,950)
- --------------------------------------------------------------------------------
270,806 81,963
- --------------------------------------------------------------------------------
See accompanying notes
On behalf of the Board:
William Krebs James Hutton
Director Director
<PAGE>
Voice Mobility Inc.
STATEMENT OF EARNINGS
(presented in United States dollars)
Years ended December 31
1998 1997
$ $
- --------------------------------------------------------------------------------
REVENUE
Sales 119,248 519,687
Less: cost of sales (75,439) (260,274)
- --------------------------------------------------------------------------------
43,809 259,413
- --------------------------------------------------------------------------------
EXPENSES
Sales and marketing 189,691 59,797
Research and development 283,918 66,126
General and administrative 460,911 236,158
- --------------------------------------------------------------------------------
934,520 362,081
- --------------------------------------------------------------------------------
Loss before other expenses (890,711) (102,668)
Other expenses
Loss on sale of marketable securities - (39,098)
Interest expense (39,887) (26,973)
- --------------------------------------------------------------------------------
(39,887) (66,071)
- --------------------------------------------------------------------------------
Loss for the year (930,598) (168,739)
- --------------------------------------------------------------------------------
Loss per share (0.11) (0.13)
- --------------------------------------------------------------------------------
Weighted average number of shares outstanding 8,400,000 1,335,775
- --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Voice Mobility Inc.
STATEMENTS OF SHAREHOLDERS' DEFICIT
(presented in United States dollars)
Years ended December 31
<TABLE>
<CAPTION>
1998 1997
Ending Activity Ending Activity Beginning
Balance Balance Balance
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common stock shares
Issued and outstanding 8,400,000 - 8,400,000 8,399,900 100
Common stock, no par value $ 59 - 59 58 1
Accumulated deficit (1,373,141) (930,599) (442,542) (168,739) (273,803)
Accumulated foreign
currency translation 75,239 57,706 17,533 16,657 876
Accumulated comprehensive loss (1,297,902) (872,893) (425,009) (152,082) (272,927)
Total shareholders' deficit (1,297,843) (872,893) (424,950) (152,024) (272,926)
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
Voice Mobility Inc.
STATEMENT OF CASH FLOWS
(presented in United States dollars)
Years ended December 31
1998 1997
$ $
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Cash receipts from customers 44,047 456,997
Cash paid to suppliers and employees (1,014,350) (542,637)
Interest paid (3,701) (8,667)
- --------------------------------------------------------------------------------
Cash used in operating activities (974,004) (94,307)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of equipment (153,145) (31,129)
Proceeds on sale of marketable securities - 89,833
- --------------------------------------------------------------------------------
Cash provided by (used in) investing activities (153,145) 58,704
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable 753,033 35,850
Increase in advances from ACREX Ventures Ltd. 403,619 -
Increase in advances from a shareholder 6,811 -
Shares issued - 60
- --------------------------------------------------------------------------------
Cash provided by financing activities 1,163,463 35,910
- --------------------------------------------------------------------------------
Increase (decrease) in cash 36,314 307
Cash, beginning of year 799 492
- --------------------------------------------------------------------------------
Cash, end of year 37,113 799
- --------------------------------------------------------------------------------
See accompanying notes
<PAGE>
Voice Mobility Inc.
NOTES TO FINANCIAL STATEMENTS
(presented in United States dollars)
December 31, 1998 and 1997
1. NATURE OF OPERATIONS
Voice Mobility Inc. is a private company registered under the laws of the
Canada Business Corporations Act.
The Company is in the business of developing and marketing a telephone
message platform that seamlessly integrates the user's telephones, e-mail, fax
and paging into a unified message service.
The Company incurred an operating loss of $930,598 [1997 - $168,739] for
the year ended December 31, 1998 and had a working capital deficiency of
$1,431,691 [1997 - 482,758] as at December 31, 1998. The ability of the Company
to continue as a going concern is dependent upon the ability of the Company to
obtain necessary financing to complete the research and development and to
attain future profitable production or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumption that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reporting period. Actual results could differ from those
estimates.
Revenue recognition
Software Licenses - The Company recognizes the revenue allocable to
software licenses and specified upgrades upon delivery of the software product
or upgrade to the end user, unless the fee is not fixed or determinable or
collectibility is not probable. The Company considers all arrangements with
payment terms extending beyond twelve months and other arrangements with payment
terms longer than normal not to be fixed or determinable. If the fee is not
fixed or determinable, revenue is recognized as payments become due from the
customer. The Company's standard acceptance terms, which are considered to be
perfunctory, lapse after 30 days if the customer has not formally rejected the
software. The Company provides a reserve for estimated returns under the
standard acceptance terms at the time the revenue is recorded. Arrangements that
include acceptance terms beyond the Company's standard terms are not recognized
until acceptance has occurred. If collectibility is not considered probable,
revenue is recognized when the fee is collected. Revenue on arrangements with
customers who are not the ultimate users (distributors, other resellers, etc.)
is not recognized until the software is delivered to an end user.
Postcontract Customer Support-Revenue allocable to Postcontract customer
support "PCS" is recognized on a straight-line basis over the period the PCS is
provided.
Advertising
Advertising costs are charged to income as incurred.
<PAGE>
Work-in-progress
Work-in-progress represents only equipment and materials at cost.
Equipment
Equipment is recorded at cost and depreciated over the estimated useful
lives of the assets, commencing in the year the assets are put into use, as
follows:
Computer equipment 30% declining balance method
Computer software 100% declining balance method
Office equipment and furniture 20% declining balance method
Leasehold improvements 5 year straight line
One-half of the above rates is applied in the year of acquisition.
Trademarks
Trademarks are recorded at cost and depreciated over a three year period.
Research and development costs
Software Development Costs - Costs incurred internally to develop computer
software products and the costs to acquire externally developed software
products (which have no alternative future use) to be sold, leased or otherwise
marketed are charged to expense until the technological feasibility of the
product has been established. After technological feasibility has been
established and until the product is available for general release, software
development, product enhancements and acquisition costs are capitalized.
Amortization of capitalized costs is computed on a product-by-product basis over
(a) the period equal to the future revenue stream of the product using the ratio
that current revenues bears to the total of current and future anticipated
revenues of the product, or (b) the remaining estimated economic life of the
product (three years) using the straight-line method, whichever method results
in the greater amount. The Company periodically evaluates its capitalized
software costs for recoverability against anticipated future revenues, and
writes down or writes off capitalized software costs if recoverability is in
question.
Financial instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, notes payable and a shareholder loan.
A portion of the notes payable is interest free. It is management's opinion
that the Company is not exposed to significant interest, currency or credit risk
arising from its other financial instruments mentioned and that their fair
values approximate their carrying values, unless otherwise noted.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Foreign currency translation
The functional currency of the Company is the Canadian dollar. Assets and
liabilities are translated into US dollars at the rates of exchange in effect at
the balance sheet dates and revenues and expenses are translated at average
exchange rate for the periods. Translation adjustments are not included in
determining net income but are accumulated in a separate component of
shareholders' deficiency.
Segment information
The Company operates in one principal business segment in Canada. No other
foreign country or geographic area accounted for more than 10% of sales in any
of the years presented. There were no transfers between geographic areas during
the years ended December 31, 1998 and December 31, 1997.
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") effective December 31,
1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. For the years ended December 31, 1998 and 1997, there were
no material differences between comprehensive income and net income.
Loss per share
Basic loss per share excludes any dilutive effects of options. Basic loss
per share is computed using the weighted-average number of common shares
outstanding during the period. Diluted loss per share is equal to the basic loss
per share as the effect of the stock options is anti-dilutive. There are no
other dilutive common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation if their effect
is anti-dilutive.
Cash and cash equivalents
The Company has defined cash and cash equivalents to include cash and time
deposits with original maturities of 90 days or less.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Deferred income taxes
The Company follows the deferral method of accounting for income taxes.
Under U.S. GAAP, the liability method is used in accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect for the year in which the differences
are expected to reverse.
A valuation allowance has been recognized to offset deferred tax assets
arising from temporary differences, tax credits and non-capital loss
carryforwards, for which realization is uncertain.
Effect of recently issued accounting standards
New accounting pronouncements having relative applicability to the Company
include Statements of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits", effective for
fiscal years beginning after December 15, 1998 and No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective for fiscal years
beginning after June 15, 2000.
SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans.
SFAS No. 133 requires that all derivative instruments be recorded on the
consolidated balance sheets at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction.
The Company does not expect that the adoption of SFAS Nos. 132 and 133 will
have a material impact on its consolidated financial statements because the
Company does not provide for pension or other postretirement benefits, nor does
it currently hold any derivative instruments. Adoption of these statement will
not impact the Company's financial position, results of operations or cash flows
and any effect will be limited to the form and content of disclosures.
Additionally, the Accounting Standards Executive Committee of the American
Institute of CPA's issued Statement of Position 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use" and Statement of
Position 98-5 "Reporting on the Costs of Start-up Activities", which are
effective for fiscal years beginning after December 15, 1998. Adoption of these
standards is not expected to have a material impact on the Company's financial
position, results of operations or cash flows.
<PAGE>
3. ACCOUNTS RECEIVABLE
One customer represents 68% of the accounts receivable balance [1997 - two
customers represent 30% of the accounts receivable balance].
4. EQUIPMENT AND TRADEMARKS
Accumulated Net Book Value
Cost Depreciation 1998 1997
$ $ $ $
- --------------------------------------------------------------------------------
Computer equipment 104,357 22,486 81,870 48,569
Computer software 32,345 16,265 16,080 1,637
Equipment and fixtures 19,937 6,210 13,728 7,602
Leasehold improvements 18,476 616 17,860 -
- --------------------------------------------------------------------------------
175,115 45,577 129,538 57,808
Intangible property
Trademarks 4,310 - 4,310 -
- --------------------------------------------------------------------------------
179,425 45,577 133,848 57,808
- --------------------------------------------------------------------------------
5. NOTES PAYABLE
1998 1997
$ $
- --------------------------------------------------------------------------------
Note payable - Interest at 10% per annum,
no fixed terms of repayment.
Secured by a general security agreement
over the assets of the Company. 754,317 -
Note payable - Interest at the bank prime
rate [1997 - fixed rate of 10% per annum],
unsecured and no fixed terms of repayment.
Bank prime at December 31,
1998 was 6.75% [see note 11]. 38,006 49,669
- --------------------------------------------------------------------------------
792,323 49,669
- --------------------------------------------------------------------------------
6. DUE TO ACREX VENTURES LTD.
The advances from ACREX Ventures Ltd. are unsecured, interest free and have
no specific terms of repayment.
<PAGE>
7. DUE TO SHAREHOLDER
The amount due to shareholder is secured by a second fixed charge against
the Company's assets, with interest at the bank prime rate [1997 - fixed rate of
10% per annum]. Bank prime at December 31, 1998 was 6.75%.
8. CAPITAL STOCK
The authorized and issued share capital of the Company is as follows:
<TABLE>
<CAPTION>
Issued
- ------------------------------------------------------------------------------------------------
1998 1997
Authorized Number Amount Number Amount
# # $ # $
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A Common, voting, without par value 25,000,000 - - - -
B Common, voting, without par value 25,000,000 8,400,000 59 8,400,000 59
C Common, voting, without par value 25,000,000 - - - -
D Common, non-voting, without par value 25,000,000 - - - -
Preferred, non-voting, par value of 0.01 100,000,000 - - - -
- ------------------------------------------------------------------------------------------------
200,000,000 8,400,000 59 8,400,000 59
- ------------------------------------------------------------------------------------------------
</TABLE>
9. INCOME TAXES
The Company has non-capital and capital loss carryforwards, and credits in
respect of scientific research and development tax costs which may, subject to
certain restrictions, be available to offset future taxable income or taxes
payable. No future benefit of these losses and credits has been recognized in
these financial statements.
10. COMMITMENTS AND CONTINGENCIES
[i] Real estate lease commitments for the base rental payments for offices
are as follows:
$
- --------------------------------------------------------------------------------
2000 42,470
2001 43,123
2002 34,630
2003 8,493
- --------------------------------------------------------------------------------
128,716
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (continued)
[ii] The Company is subject to a claim that arose in the ordinary course of
business as a result of a signed contract by unauthorized personnel.
It is management's opinion that the total liability will not exceed
$11,761. The outcome of this matter is not presently determinable and
will be recorded in the accounts in the period of settlement.
<PAGE>
11. RELATED PARTY TRANSACTIONS
A note payable to shareholder [Note 5] amounting to $38,006 [1997 - 49,669]
which bears interest at bank prime rate [1997 - fixed rate of 10% per annum] is
unsecured and has no fixed terms of repayment. Interest amounting to $2,086
[1997 - $4,708] was earned by the shareholder during the year.
The amount due to shareholder [Note 7] of $239,642 [1997 - $233,568] is
secured by a second fixed charge against the Company's assets, bearing interest
at the bank prime rate [1997 - fixed rate of 10% per annum]. Interest amounting
to $15,014 [1997 - $21,418] was earned by the shareholder during the year.
The advances from ACREX Ventures Ltd., which is controlled by two of the
company's directors, are unsecured, interest free and have no specific terms of
repayment.
12. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect the Company's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties will be fully resolved.
13. SUBSEQUENT EVENT
Contingent obligation settlement
By an agreement dated March 26, 1999 between ACREX Ventures Ltd., Maritime
Tel & Tel Limited (MT&T) and the Company, the Company will assume an obligation
to pay MT&T $500,000 Canadian dollars for certain development work performed by
them on behalf of the Company. The obligation becomes payable on completion of
the acquisition of the Company by ACREX. In the event that the purchase does not
take place then the obligation is automatically extinguished.
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Balance Sheets
As at June 30, 1999 and June 30, 1998
(Unaudited)
1999 1998
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $14,414 $35,262
Accounts receivable
(net of allowance for doubtful debts:
1999 - $21,766; 1998 - $23,843) 49,300 4,899
Notes Receivable - Acrex Ventures Ltd. 146,000
Prepaid expenses 14,605 4,945
Inventory 68,779
- --------------------------------------------------------------------------------
293,097 45,106
Equipment and leasehold improvements
(net of accumulated depreciation
and amortization; 1999 - $79,719; 1998 - $59,894) 212,137 79,946
- --------------------------------------------------------------------------------
$505,234 $125,052
================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities 155,897 89,308
Other payables 40,692 30,043
Current portion on long-term debt 49,308
Notes payable 232,837
Due to Acrex Ventures Ltd. 148,087
Due to shareholders 286,394
- --------------------------------------------------------------------------------
245,897 786,669
Long-term debt 514,721
- --------------------------------------------------------------------------------
$760,618 $786,669
Stockholders' Equity
Common stock 11,051 59
Preferred stock 1
Additional paid-in capital 5,498,745
Retained earnings (Deficit) (5,983,745) (679,033)
Stock to be issued 173,333
Currency translation gains (losses) 45,231 17,357
- -------------------------------------------------------------------------------
(255,384) (661,617)
================================================================================
$505,234 $125,052
================================================================================
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Statements of Operations
For the six months ending June 30, 1999 and June 30, 1998
(Unaudited)
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Sales $ 83,262 $ 64,400 100 % 100 %
Less cost of sales (27,727) (42,706) (33)% (66)%
- --------------------------------------------------------------------------------
55,535 21,694 67 % 34 %
Operating Expenses
Sales and Marketing 1,165,542 23,318 1,400 % 36 %
Research and Development 1,891,184 64,411 2,271 % 100 %
General and Administrative 1,571,612 156,52 1,888 % 243 %
- --------------------------------------------------------------------------------
4,628,338 244,253 5,559 % 379 %
- --------------------------------------------------------------------------------
Loss before other items (4,572,803) (222,558) (5,492)% (346)%
Interest expense (37,800) (13,935) (45)% (22)%
- --------------------------------------------------------------------------------
(37,800) (13,935) (45)% (22)%
- --------------------------------------------------------------------------------
Loss ($4,610,603)($236,493) (5,537)% (367)%
================================================================================
Loss per share (0.43) (0.41)
================================================================================
Weighted average number of shares
outstanding 10,800,079 578,750
================================================================================
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
For the six months ending June 30, 1999 and June 30, 1998
(Unaudited)
1999 1998
- --------------------------------------------------------------------------------
OPERATIONS
Net loss ($4,610,603) ($236,493)
Non cash items included in net loss
Cost of acquiring public shell
Depreciation and amortization 34,978 18,916
- --------------------------------------------------------------------------------
(4,575,625) (217,578)
Change in accounts receivable 47,738 11,322
Change in accounts payable 74,017 (19,344)
Change in work-in progress (53,862)
Change in prepaid expenses 2,512 (2,174)
Change in accrued liabilities (36,834) (44,164)
Change in taxes payable 12,192
(2,302)
Change in current portion of long-term debt 49,308
- --------------------------------------------------------------------------------
(4,480,554) (274,240)
INVESTING ACTIVITIES
Acquisition of equipment & leasehold improvements (112,431) (58,207)
FINANCING ACTIVITIES
Decrease in notes payable (277,602) 234,917
Decrease in advances from Acrex Ventures Ltd. (419,592) 116,355
Decrease in advances from shareholders (239,642) 14,719
Increase in notes receivable - Acrex Ventures Ltd (146,000)
Increase in common stock 11,051
Increase in preferred stock 1
Change in currency translation gains/(losses) (30,008)
(615)
Stock option compensation 3,460,538
Increase in stock to be issued 173,333
Increase in additional paid-in capital 2,038,207
- --------------------------------------------------------------------------------
4,570,286 365,376
- --------------------------------------------------------------------------------
Increase (decrease) in cash (22,699) 32,929
Cash, beginning of period 37,113 2,332
- --------------------------------------------------------------------------------
Cash, end of period $14,414 $35,262
================================================================================
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
Consolidated Statement of Stockholders' Equity
For the years ending December 31, 1993, 1994, 1995, 1996, 1997, 1998,
and six months ending June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Common Preferred Addtn'l Retained Total
Stock Stock Stock Paid in Earnings Stockholders'
Issued Amount Issued Capital (Deficit) Other Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stock Issued on September 15, 1993 8,400,000 59 59
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,400,000 59 59
1994 Net loss (32,988) (32,988)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,400,000 59 (32,988) (32,929)
1995 Net loss (49,525) (49,525)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 8,400,000 59 (82,513) (82,454)
1996 Net loss (191,290) (191,290)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 8,400,000 59 (273,803) (273,744)
1997 Net loss (168,739) (168,739)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 8,400,000 59 (442,542) (442,483)
.
1998 Net loss (930,598) (930,598)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 8,400,000 59 (1,373,141) (1,373,082)
Reorganization of
Voice Mobility Inc. (8,400,000) (59) 1 58 0
Acquisition of
Equity Capital Group, Inc. 578,750 579 (579) 0
Stock to be issued 8,293,000 8,293 1,255,707 1,264,000
Stock issued on debt settlement 750,000 750 249,250 250,000
Warrants issued on debt settlement 200,000 200,000
Stock to be issued 173,333 173,333
Currency translation gains (losses) 45,231 45,231
Stock option compensation 3,460,538 3,460,538
Stock to be issued to MTT 1,428,571 1,429 333,771 335,200
Loss for 6 mont
ending June 30, 1999 (4,610,604) (4,610,604)
- ------------------------------------------------------------------------------------------------------
Balances, at June 30, 1999 11,050,321 $11,051 1 $5,672,078 $5,983,745) $45,231 $ (255,384)
======================================================================================================
</TABLE>
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
Notes to Consolidated Financial Information
June 30, 1999
Note 1 - Nature of Operations and Basis of Presentation
These consolidated financial statements are the continuing financial
statements of Voice Mobility International, Inc. ("VMII"), a non-operating
Nevada corporation, formed October 2, 1997, the common stock of which trades on
the Over the Counter Bulletin Board. On June 24, 1999, VMII acquired all of the
outstanding common stock of Voice Mobility Inc. ("VMI"), a Canadian company,
engaged in the development of unified voice messaging software. After the
acquisition, the accounting entity continued under the name of Voice Mobility
Inc. [Voice Mobility International, Inc. and Voice Mobility Inc are collectively
referred to as the "Company".]
A) Pursuant to share purchase agreements dated April 1, 1999 and June 24,
1999, the stakeholders of VMI acquired 8,293,000 shares of VMII common stock and
the right to acquire an additional 6,600,000 shares of VMII common stock in
exchange for $200,000 and all the capital stock of VMI. As a result of this
transaction, the shareholders of VMI effectively acquired 14,893,000 common
stock of VMII which represents a controlling interest of approximately 96%. This
transaction is considered an acquisition of VMII (the accounting
subsidiary/legal parent) by VMI (the accounting parent/legal subsidiary) and has
been accounted for as a purchase of the net assets of VMII by VMI in these
consolidated financial statements because VMII had no business operations or
operating assets at the time of acquisition. Accordingly, this transaction
represents a recapitalization of VMI, the legal subsidiary.
These consolidated financial statements are issued under the name of VMII,
but are a continuation of the financial statements of the accounting acquirer,
VMI. VMI's assets and liabilities are included in the consolidated financial
statements at their historical carrying amounts. Operating results to June 24,
1999, are those of VMI as, at June 24, 1999, VMII had no assets and no
liabilities. For purposes of this acquisition, the fair value of the net assets
of VMII of $-0- is ascribed to the 578,750 previously outstanding common shares
of VMII deemed to be issued in the acquisition.
B) At August 30, 1998, Acrex Ventures Inc. ("Acrex"), an inactive public
company trading on the Vancouver Stock Exchange, filed an application to the
Vancouver Stock Exchange to approve the 100% acquisition of VMI. Acrex had been
financing VMI's operations through a series of promissory notes to VMI since
December, 1997, when Acrex and VMI initially agreed to the acquisition. On March
31, 1999, the share acquisition agreement between Acrex and VMI pursuant to
which Acrex would acquire 100% of the capital stock of VMI expired.
VMII assumed Acrex's promissory note receivables from VMI and all amounts
payable to the investors of Acrex. The terms of the agreements between Acrex and
the investors in Acrex were essentially equal to the corresponding agreements
between VMII and those same investors. VMII's offer to the investors of Acrex
specifies the grandfathering of the "Acrex Subscription Agreements" whereby the
identical number of shares in VMII were issued for the funds subscribed; and the
warrants to purchase additional shares of VMII's common stock were translated
from Cdn$0.50 and Cdn$0.75 to US$0.35 and $US0.50 respectively, reflecting the
exchange rate between the currencies.
VMI's loans from Acrex were assigned to VMII in consideration for warrants
to purchase 4,793,000 shares of VMII's common stock that were components of the
Acrex Subscriptions Agreements. The right on the part of Acrex investors for
common shares and common share purchase warrants were replaced by similar shares
of common and warrants to purchase common stock of VMII and the pricing of the
shares and warrants were based on the last trading of Acrexs stock which was
"fair value" at that time. The VMII acquisition is essentially a replacement of
the Acrex acquisition. Loans advanced by Acrex were accordingly settled.
<PAGE>
C) By an agreement dated March 26, 1999 Maritime Tel & Tel Limited (MTT),
Acrex, and VMI agreed to recognize the expenditures of MTT on a joint test
project to a maximum amount of Cdn$500,000 (although it was understood by the
parties to that agreement that the MTT expenditures were in excess of
Cdn$500,000). It was agreed that VMI would not be required to reimburse MTT the
Cdn$500,000. In the event that VMI became a public company or was owned by a
public company then the amount must be settled by 1,428,571 shares of the public
entity. The identical terms of that agreement were assumed by VMII.
On June 29, 1999 the Company issued 750,000 shares of its common stock to
Pacific Western Mortgage Corporation in settlement of a $250,000 loan. The
conversion parity for the settlement was identical to the original settlement
agreement with Acrex.
On June 29, 1999, the Company issued 500,000 and 101,000 warrants with an
exercise price of $0.35 to Ibex Investments Ltd. and Ernest Gardiner in
settlement of $167,000 and $33,000 of notes payable. The terms for the
settlement were identical to the original settlement agreement with Acrex.
The combined issued and outstanding and additional paid in capital common
stock of the continuing consolidated entity as of June 24, 1999 is computed as
follows:
Existing share capital of VMI prior to acquisition $ 59
Ascribed value of the acquired common shares of VMII $ 0
Share capital of VMI as of June 24, 1999 $ 59
The number of outstanding common shares of VMII as of June 24, 1999 is
computed as follows:
Deemed share capital of VMII as of March 31, 1999 578,750
Shares of VMII deemed issued by VMI 8,293,000
Shares of VMII as of June 24, 1999 8,871,750
There is also outstanding one preferred share which represents voting
rights of certain VMI shareholders. It is neither exchangable nor convertible
into any other security.
Note 2 - Significant Accounting Policy
These unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
In the opinion of management, these unaudited interim financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the results of operations for such periods
and the financial position at such date. Historical results are not necessarily
indicative of future results, and results for any interim period are not
necessarily indicative of results of a full year.
The Company's significant accounting policies are as follows:
Research and development costs - Software Development Costs - Costs
incurred internally to develop computer software products and the costs to
acquire externally developed software products (which have no alternative future
use) to be sold, leased or otherwise marketed are charged to expense until the
technological feasibility of the product has been established. After
technological feasibility has been established and until the product is
available for general release, software development, product enhancements and
acquisition costs are capitalized. Amortization of capitalized costs is computed
on a product-by-product basis over (a) the period equal to the future revenue
stream of the product using the ratio that current revenues bears to the total
of current and future anticipated revenues of the product, or (b) the remaining
estimated economic life of the product (three years) using the straight-line
method, whichever method results in the greater amount. The Company periodically
evaluates its capitalized software costs for recoverability against anticipated
future revenues, and writes down or writes off capitalized software costs if
recoverability is in question.
<PAGE>
Revenue Recognition - Software Licenses The Company recognizes the revenue
allocable to software licenses and specified upgrades upon delivery of the
software product or upgrade to the end user, unless the fee is not fixed or
determinable or collectibility is not probable. The Company considers all
arrangements with payment terms extending beyond twelve months and other
arrangements with payment terms longer than normal not to be fixed or
determinable. If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer. The Company's standard acceptance terms,
which are considered to be perfunctory, lapse after 30 days if the customer has
not formally rejected the software. The Company provides a reserve for estimated
returns under the standard acceptance terms at the time the revenue is recorded.
Arrangements that include acceptance terms beyond the Company's standard terms
are not recognized until acceptance has occurred. If collectibility is not
considered probable, revenue is recognized when the fee is collected. Revenue on
arrangements with customers who are not the ultimate users (distributors, other
resellers, etc.) is not recognized until the software is delivered to an end
user.
Postcontract Customer Support - Revenue allocable to Postcontract customer
support "PCS" is recognized on a straight-line basis over the period the PCS is
provided.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary,
Voice Mobility Inc. All intercompany balances and transactions have been
eliminated in consolidation.
Foreign Currency -- The financial information provided in these statements
are reported in United States dollars. Monetary assets and liabilities of the
Company denominated in foreign currencies are translated at the year end
exchange rates. Retained earnings are translated using the average exchange rate
prevalent in the respective periods, and any differences are recognized on the
Balance Sheet as currency translation gains or (losses). Other assets,
liabilities, revenues and expenses are translated at the rates prevailing on the
respective transaction dates. Exchange gains and losses are recognized on income
Advertising -- Advertising costs are charged to income as incurred. We are
a research and development company and are incurring advertising costs as a
result of market development efforts.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumption that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reporting period. Actual results could differ
from those estimates.
Equipment and leasehold improvements -- Equipment is recorded at cost and
depreciated over the estimated useful lives of the assets, commencing in the
year the assets are put into use, as follows:
Computer equipment 30% declining balance method
Computer software 100% declining balance method
Office equipment and furniture 20% declining balance method
Leasehold improvements 5 year straight line
One-half of the above rates is applied in the year of acquisition.
Financial instruments -- The Company's financial instruments consists of
cash, accounts receivable, notes receivable, accounts payable, notes payable and
a shareholder loan.
It is management's opinion that the Company is not exposed to significant
interest, currency or credit risk arising from its other financial instruments
mentioned and that their fair values approximate their carrying values, unless
otherwise noted.
On June 30, 1999, the Company agreed to convert to a note payable of
$514,721 into a long term debt instrument with interest at 10% per annum and no
fixed terms of repayment.
<PAGE>
Weighted average loss per share -- The Company has adopted SFAS No 128,
"Earnings Per Share." Basic net loss per share is computed using the
weighted-average number of common shares outstanding during the period and
includes common shares issued subsequent to the period end for which all
consideration had been received prior to the period end and which no other
contingencies existed. Basic loss per share excludes any dilutive effects of
options. Diluted loss per share is equal to the basic loss per share as the
effect of the stock options is anti-dilutive. There are no other dilutive common
stock equivalent shares outstanding during the period. Common stock equivalent
shares are excluded from the computation if their effect is anti-dilutive
Cash and cash equivalents -- The Company has defined cash and cash
equivalents to include cash and time deposits with original maturities of 90
days or less.
Deferred Income Taxes -- The Company follows the deferral method of
accounting for income taxes. Under U.S. GAAP, the liability method is used in
accounting for income taxes pursuant to Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect for the
year in which the differences are expected to reverse.
A valuation allowance has been recognized to offset deferred tax assets
arising from temporary differences, tax credits and non-capital loss
carryforwards, for which realization is uncertain.
Recent Pronouncements -- New accounting pronouncements having relative
applicability to the Company include Statements of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," effective for fiscal years beginning after June 15, 2000.
SFAS No. 133 requires that all derivative instruments be recorded on the
consolidated balance sheets at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designed as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company has not
considered the impact of SFAS 133 at this time.
Note 3 -- Employee Stock Option Plan
On June 29, 1999 a stock option plan was adopted by the Company authorizing
an aggregate amount of 5,000,000 stock to be purchased pursuant to the exercise
of options. The following stock options were issued on June 29, 1999:
Number of common
shares issuable Exercise price ($)
---------------- ------------------
Senior Management 1,625,000 $1.00
Employees 1,041,750 $0.75
---------
Total 2,666,750
<PAGE>
The total options outstanding as at June 30, 1999 were 2,706,750 and were
exercisable upon this date. A stock option compensation cost of $3,406,538 was
determined using the intrinsic method in accordance with APB25. Had compensation
cost been determined based on the fair value at the grant dates for those
options issued to senior management and employees, consistent with the method
described in SFAS No. 123, the Company's loss and loss per share for the six
months ending June 30, 1999 would have been increased to the pro forma amount
indicated below:
Loss As reported $4,610,603
Pro Forma $6,114,189
The fair value of each option granted in the six months ended June 30, 1999
was estimated on the date of the grant using the Black Scholes option pricing
model with the following assumptions: no dividend yield; risk free interest rate
of 5.5%; expected volatility of 0.876 using the Company's closing stock price
for the 37 days traded beginning June 29, 1999; and an expected life of five
years.
No diluted loss per common share is provided as the options are considered
to be anti-dilutive.
Subsequent to June 30, 1999 the following employee stock options were
granted:
No of common shares issuable Exercise price ($)
July 14, 1999 35,000 $0.75
August 3, 1999 70,000 $0.75
August 20, 1999 55,000 $2.63
September 1, 1999 25,000 $2.45
Total 185,000
Note 4 -- Contingencies
[i] Real estate lease commitments for the base rental payments for offices
are as follows:
$
- --------------------------------------------------------------------------------
2000 42,470
2001 43,123
2002 41,163
2003 18,494
- --------------------------------------------------------------------------------
128,716
- --------------------------------------------------------------------------------
Note 5 Year-end
VMI has a December 31 year-end. Accordingly, as these consolidated
financial statements reflect a continuation of VMI, these financial statements
are for the six month period ended June 30, 1999 with the comparative figures
for the six month period ended June 30, 1998. The legal parent company,
previously named Equity Capital Group, Inc., had a March 31 year-end.
<PAGE>
CONTENTS
PAGE
TABLE OF CONTENTS 1
ACCOUNTANTS' AUDIT REPORT 2
FINANCIAL STATEMENTS
Balance Sheets 3 - 4
Statements of Operations 5
Statements of Comprehensive Income/(Loss) 6
Statements of Stockholders' Equity 7
Statements of Cash Flows 8 - 9
Notes to Consolidated Financial Statements 10 - 20
<PAGE>
Independent Auditors' Report
Board of Directors
Equity Capital Group, Inc. and Subsidiary
Orange, California
We have audited the accompanying balance sheets of Equity Capital Group,
Inc. and Subsidiary (a Nevada Corporation, successor to Ward Enterprises, Inc.,
(Note 1)) as of March 31, 1999 and 1998, and the related statements of
operations, comprehensive income, stockholders' equity, and cash flows for the
years then ended March 31, 1999, 1998, and 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
in all material respects, the financial position of Equity Capital Group, Inc.
and Subsidiary at March 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended March 31, 1999, 1998, 1997 in conformity
with generally accepted accounting principles.
/s/Hoffski & Pisano
Irvine, California Hoffski & Pisano, CPAs
August 30, 1999
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Balance Sheets
As of March 31, 1999 and 1998
ASSETS
March 31, March 31,
1999 1998
--------- ---------
Cash $ 1,454 $ 41,348
Accounts Receivable, net of allowance
for doubtful accounts of $155,215. 6,314 276,200
Accrued Interest Receivable (Note 5) - 30,327
Marketable Equity Securities (Note 3) 614 1,425,198
Notes Receivable - Current (Note 4) - 100,000
Lease Payments Receivable - Current (Note 5) - 7,508
---------- ------------
Total Current Assets 8,382 $ 1,880,581
Fixed Assets
Office Furniture & Equipment - Net (Notes 1 & 2) $ 20,610 $ 21,755
-------- ------------
Total Fixed Assets $ 20,610 $ 21,755
Other Assets
Organization Costs - Net (Note 1) $ 1,073 $ 1,427
Notes Receivable - Less Current Portion (Note 4) - 300,000
Lease Payments Receivable -
Less Current Portion (Note 5) - 311,469
Accrued Interest Receivable -
Less Current Portion (Note 5) - 112,623
--------- ------------
Total Other Assets $ 1,073 $ 725,519
--------- ------------
Total Assets $ 30,065 $ 2,627,855
======== ============
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Balance Sheets
As of March 31, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1999 1998
----------------------------
Current Liabilities
Accounts Payable $ 16,499 $ 5,057
Income Taxes Payable (Note 7) 1,600 13,869
Deposits - 14,000
Notes Payable (Note 9) - 4,640
---------- ----------
Total Current Liabilities $ 18,099 $ 37,566
---------- ----------
Long Term Liabilities
Deferred Income Taxes (Note 7) $ - 196,829
Unearned Interest Income (Note 5) - 142,950
----------- ----------
Total Long Term Liabilities $ $ 339,779
----------- ----------
Total Liabilities $ 18,099 $ 377,345
----------- ----------
Stockholders' Equity
Common Stock, $.001 Par Value, $ 2,174 $ 1,675
10,000,000 Shares Authorized
2,174,000 Shares Issued and Outstanding
(Notes 1 & 6)
Additional Paid-in Capital 2,520,186 1,841,385
Less: Notes Received for Stock Issued
(Notes 4 & 6) (450,000) -
Retained Earnings/(Deficit) (1,682,295) 407,450
Accumulated Unrealized Holding Loss on
Securities (376,800) -
Treasury Stock, 300 Shares of Common Stock (1,299) -
----------- ----------
Total Stockholders' Equity $ 11,966 $2,250,510
---------- ----------
Total Liabilities and Stockholders' Equity $ 30,065 $2,627,855
========== ==========
See accompanying notes and independent auditors' report.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Operations
For The Years Ended March 31, 1999, 1998 and 1997
March 31, March 31, March 31,
1999 1998 1997
-----------------------------------
Sales $ 303,213 $ 420,313 $ 15,000
Costs of Sales (269,400) (225,938) (65,000)
General & Administrative Expenses (1,253,187) (70,901) (11,015)
Other Income/(Expense) (1,079,469) 555,689 -
----------- --------- --------
Net Income/(Loss) Before Taxes (2,298,843) 679,163 (61,015)
----------- --------- --------
Benefit/(Provision) For Income Taxes
(Note 7) 209,098 (210,698) -
------------ ---------- ----------
Net Income/(Loss) $(2,089,745) $ 468,465 $ (61,015)
============ ========== ==========
Net Income/(Loss) Per Common Share
(Note 1) $ (1.17) $ 1.17 $ (61.02)
============ ========== ===========
Weighted Average Shares Outstanding 1,783,530 400,750 1,000
============ ========== ===========
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Comprehensive Income/(Loss)
For The Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Net Income/(Loss) $ (2,089,745) $ 468,465 $ (61,015)
Other Comprehensive Income/(Loss)
Unrealized Holding Loss on Securities (376,800) - -
-------------- ------------- -------------
Total Other Comprehensive Income/(Loss) (376,800) - -
-------------- ------------- -------------
Total Comprehensive Income/(Loss) $ (2,466,545) $ 468,465 $ (61,015)
============== ============= =============
</TABLE>
See accompanying notes and independent auditors' report.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Stockholders' Equity
For The Years Ended March 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Retained
Earnings/
Common Common Addtn'l Accum. Total
Stock Stock Paid in Holding Stockholders'
Shares Amount Capital Loss Equity
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, at March 31, 1996 - - - - -
Stock Issued on 6-2-96 (Note 1) 1,000 1,000 228,500 - 229,500
Net Income/(Loss) $ (61,015) (61,015)
----------- ----------- ----------- -------------- -----------
Balances, at March 31, 1997 1,000 $ 1,000 $ 228,500 $ (61,015) $ 168,485
----------- ----------- ----------- -------------- -----------
Stock Retired on 12-31-97 (Note 1) (1,000) (1,000) - - (1,000)
Stock Issued on 12-31-97 (Note 1) 1,600,000 1,600 1,237,960 - 1,239,560
Stock Issued on 3-31-98 (Note 1) 75,000 75 374,925 375,000
Net Income/(Loss) $ 468,465 468,465
----------- ----------- ----------- -------------- -----------
Balances, at March 31, 1998 1,675,000 $ 1,675 $ 1,841,385 $ 407,450 $ 2,250,510
----------- ----------- ----------- -------------- -----------
Stock Issued on 1-7-99 (Note 6) 99,300 99 124,201 - 124,300
Stock Issued on 1-14-99 (Note 6) 360,000 360 359,640 - 360,000
Stock Issued on 2-4-99 (Note 6) 5,000 5 19,995 - 20,000
Stock Issued on 3-1-99 (Note 6) 35,000 35 174,965 - 175,000
Treasury Stock Acquired on 2-1-99 (300) - (1,299) - (1,299)
(Note 6)
Notes Received for Stock Issued - - (450,000) (450,000)
Net Income/(Loss) (2,089,745) (2,089,745)
Unrealized Holding
Loss on Securities (376,800) (376,800)
----------- ----------- ----------- -------------- -------------
Balances, at March 31, 1999 2,174,000 $ 2,174 $2,068,887 $ (2,059,095) $ 11,966
=========== =========== =========== ============== =============
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Cash Flows
For The Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Cash Flows Used In Operating Activities:
Net Income/(Loss) $ (2,089,745) $ 468,465 $ (61,015)
Non Cash Items Included in Net Income:
Depreciation 1,145 1,145 -
Amortization 356 357 66
Provision for Bad Debt 163,215 - -
Write-off of Accounts Receivable (8,000) - -
Realized Gain on Sale of Stock (4,454) - -
Notes Receivable Written off to Bad Debt 725,000 - -
Change in Unearned Interest Income (148,766) 142,950 -
Change in Accounts Receivable 114,671 (276,200) -
Change in Deposits (14,000) 14,000 -
Change in Deferred Income Taxes (196,829) 196,829 -
Change in Accrued Interest Receivable - (142,950) -
Change in Accounts Payable 11,442 1,614 3,443
Change in Income Tax Payable (12,269) 13,869 -
-------------- ------------- --------------
Net Cash Used For Operating Activities $ (1,458,234) $ 420,079 $ (57,506)
Cash Flows Used In Investing Activities
Increase in Investments Receivable $ (52,500) $ - $ -
Change in Lease Payments Receivable 318,977 (318,977) -
Change in Organizational Costs - (850) (1,000)
Purchase of Furniture & Equipment - (22,900) -
Changes in Marketable Equity Securities 277,802 (1,261,698) (163,500)
Increase in Note Receivable 850,000 (400,000) -
------------- -------------- --------------
Net Cash Used For Investing Activities $ 1,394,279 $ (2,004,425) $ (164,500)
Cash Flows from Financing Activities
Issuance of Common Stock $ 30,000 $ 1,613,560 $ 229,500
Increase in Note Payable (4,640) 4,640 -
Purchase of Treasury Stock (1,299) - -
-------------- ------------- -------------
Net Cash Provided By Financing Activities $ 24,061 $ 1,618,200 $ 229,500
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statement of Cash Flows
For The Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Net Change In Cash $ (39,894) $ 33,854 $ 7,494
Cash At Beginning Of The Year $ 41,348 $ 7,494 $ -
------------ ---------- -----------
Cash At End Of The Year $ 1,454 $ 41,348 $ 7,494
============ ========== ===========
Supplemental Cash Flow Information:
Interest Paid $ (313) $ - $ -
============ ========== ===========
Income Taxes Paid $ - $ - $ -
============ ========== ===========
Non-cash Investing and Financing Activities:
Common Stock Issued for
Notes Receivable $ 450,000 - -
Unrealized Loss on Securities 376,800 - -
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 1 - ACCOUNTING POLICIES AND NATURE OF BUSINESS
Nature of Business
The Company will serve as a Merchant Banking Firm consisting of a business
consulting/investment division and a real estate division.
Company Formation
The Company was created on October 2, 1997 as an ultimate successor
corporation to Ward Enterprises, Inc. (Ward). The Company acquired all of the
shares of Ward in a tax-free reorganization pursuant to Internal Revenue Code
Section 368(a)(1)(B) and the regulations thereunder on December 31, 1997,
wherein 1,000 shares of no par value common stock of Ward were exchanged for
1,500,000 shares of $.001 par value common stock of the Company. Subsequently,
Ward was liquidated into its parent pursuant to Internal Revenue Code Section
332 and the regulations thereunder.
The transaction was accounted for under the pooling method of accounting.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, First Consolidated Securities, Inc.
All intercompany balances and transactions have been eliminated in
consolidation.
Income Taxes
The Company accounts for income taxes under the provisions of Statements of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in a company's financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates.
Office Furniture and Equipment
Office furniture and equipment are stated at cost. Major renewals and
betterments are capitalized to the asset accounts while the cost of maintenance
and repairs is charged against income as incurred. At the time assets are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is credited
to or charged against income.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 1 - ACCOUNTING POLICIES AND NATURE OF BUSINESS (CONTINUED)
Depreciation for financial reporting purposes is calculated by both
straight-line and accelerated methods over the estimated useful lives of the
assets. The Modified Accelerated Cost Recovery System (MACRS) method is used for
income tax purposes.
Organization Costs
Organization costs, totaling $1,850 and $1,000, respectively, are being
amortized using the straight line method over five years. During the years ended
March 31, 1999 and 1998, amortization expense amounted to $356 and $357,
respectively.
Net Income/(Loss) Per Share
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding.
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
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. Actual results could differ from those estimates.
NOTE 2 - OFFICE FURNITURE AND EQUIPMENT
Office Furniture and Equipment
Office Furniture and Equipment are summarized below:
Estimated
Useful Life Amount
-------------------------------
Office Furniture 5 years $ 11,450
Equipment 5 years 11,450
------------
22,900
Less: Accumulated Depreciation (2,290)
------------
$ 20,610
============
Depreciation expense for the year ended March 31, 1999 was $1,145.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 3 - MARKETABLE EQUITY SECURITIES
Cost and fair value of marketable equity securities at March 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1999
Available for Sale
Equity Securities $ 971,800 $ - $ 971,800 $ -
Trading
Equity Securities 609,350 - 608,736 614
------------- ------------ --------------- -----------
Totals $ 1,581,150 $ - $ 1,580,536 $ 614
============= ============ =============== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1998
Available for Sale
Equity Securities $ 500,000 $ - $ - $ 500,000
Trading
Equity Securities 397,962 527,236 - 925,198
-------------- -------------- ----------- ---------------
Totals $ 897,962 $ 527,236 $ - $ 1,425,198
============== =============== =========== ===============
</TABLE>
Pursuant to Statement of Financial Accounting Standards No. 115 (SFAS 115),
the change in net unrealized holding losses on trading securities in the amount
of $608,736 has been included in earnings for the year ended March 31, 1999.
Further, there has been an impairment of value in the Equity Securities
available for sale in the amount of $595,000 which has also been included in
earnings for the year ended March 31, 1999. Finally, there has been a temporary
decline in value in the Equity Securities available for sale in the amount of
$376,800. This amount is shown as a decrease in the equity section of the
balance sheet. Thus, there is a total unrealized loss of $1,580,536 for the year
ended March 31, 1999.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 4 - NOTES RECEIVABLE
Notes receivable consist of the following:
$350,000 Promissory Note secured by a UCC-1 financing statement on certain
assets. This note bears interest at 7% per annum. Interest only is to be
received until January 10, 2002. Thereafter, the entire balance becomes due and
payable. This note is currently in default. Further, since this note was issued
for stock and no cash was received, the amount is shown as a decrease in
additional paid in capital.
$100,000 Promissory Note secured by a UCC-1 financing statement on certain
assets. This note bears interest at 7% per annum. Interest only is to be
received until January 10, 2002. Thereafter, the entire balance becomes due and
payable. This note is currently in default. Further, since this note was issued
for stock and no cash was received, the amount is shown as a decrease in
additional paid in capital.
During the year, the Company wrote off three notes receivable, which were
charged to bad debt. They are as follows:
A 7%, $300,000 note, dated March 30, 1997, due in monthly installments of
$5,940.36, was issued to a corporation for cash. The note is due March 30, 2002;
however, no payments have been received to date and collection efforts expended
to date have been unsuccessful; consequently, it is management's opinion that
the note is uncollectable.
A balance of $250,000, originally reported as a trade accounts receivable,
was converted to a $250,000 non-interest bearing demand note at the beginning of
the March 31, 1999 fiscal year. In addition, on March 1, 1999, the Company
issued 35,000 shares of its common stock, valued at $5 per share, to an
individual in exchange for an account receivable. Before the end of the fiscal
year, the account receivable was exchanged for a $175,000 demand note, in
another company, held by that individual. During the fiscal year, the entities
issuing the $250,000 and $175,000 notes fell into severe financial distress.
Accordingly, management believes the notes are uncollectable.
NOTE 5 - LEASING ARRANGEMENTS
Direct Financing Lease
The Company was a lessor in a direct financing lease whereby an envelope
machine valued at $300,000 was repossessed. A loss in the amount of $20,202 was
incurred with the reacquisition of the machine. This machine was subsequently
sold to ASI Acquisition Corporation for 300,000 shares of ASI Acquisition
Corporation common stock. (Note 8)
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 5 - LEASING ARRANGEMENTS (CONTINUED)
No interest was accrued this year on account of foreclosure on direct
financing lease.
Operating Lease
The Company entered into an operating lease agreement with a related party
for office space. The lease term is month to month. Annual rent expense equaled
$18,000 and $7,500 for the years ended March 31, 1999 and 1998, respectively.
NOTE 6 - STOCKHOLDERS EQUITY
Common Stock
On January 7, 1999, the Company issued 24,300 shares of its common stock to
the minority shareholders of the Tuschner Financial Group, Inc. in exchange for
24,300 shares of Tuschner Financial Group, Inc.
Also, on January 7, 1999, the Company issued 75,000 shares to Tuschner &
Company, Inc. in exchange for a note receivable for $100,000. This note is shown
as a decrease in additional paid in capital.
On January 14, 1999, the Company issued 350,000 shares of its common stock
to Fun Karts Holdings, Inc. in exchange for a note receivable in the amount of
$350,000. (Note 4) This note is shown as a decrease in additional paid in
capital.
Also, on January 14, 1999, the Company issued 10,000 shares of its common
stock to Northstar Partners in connection with commission due to them for the
promotion of shares previously issued. The shares were valued at $10,000.
On February 4, 1999, the Company issued, to an unrelated party, 5,000
shares of its common stock valued at $4 per share for $20,000 in cash.
On March 1, 1999, the Company issued 35,000 shares of its common stock
valued at $5 per share to an individual in exchange for a note receivable held
by that individual for $175,000 from Aeromedical Group, Inc. This note was
written off and charged to bad debt during the year.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 6 - STOCKHOLDERS EQUITY (CONTINUED)
Treasury Stock
In February 1999, the Company reacquired 300 shares of its common stock on
the open market for $1,299. The stock is accounted for using the cost method of
accounting.
NOTE 7 - DEFERRED INCOME TAXES
The Company has a tax net operating loss of $913,227 available for
carryback to March 31, 1998 and carryforward of up to 20 years for federal
purposes. Pursuant to Internal Revenue Code section 382 and the regulations
thereunder, the amount of utilizable carryover may be limited as a result of
ownership changes or even eliminated if business continuity requirements are not
met. No carrybacks are available for state purposes while carryforwards of 50%
of the loss are permitted for up to 5 years.
The tax effect of temporary differences giving rise to the Company's
deferred tax liability is as follows:
March 31, March 31,
1999 1998
---------------------------
Current Deferred Tax Liabilities:
None $ - $ -
----------- -----------
Total Current Deferred Tax Liabilities $ - $ -
=========== ===========
Long-Term Deferred Tax Liabilities:
Tax Depreciation Expense in Excess of
Financial Depreciation $ (6,440) $ 6,440
SFAS 115 Change in Unrealized
Holding Gains (190,389) 190,389
------------ ------------
Total Long-Term Deferred Tax Liabilities $ (196,829) $ 196,829
============ ============
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 7 - DEFERRED INCOME TAXES (CONTINUED)
Components of Income Tax Expense are as follows:
March 31, March 31,
1999 1998
---------------------------------
CURRENT
Federal $ (13,069) $ 13,069
State 800 800
-------------- --------------
$ (12,269) $ 13,869
DEFERRED
Tax Depreciation Expense in Excess of
Financial Depreciation (6,440) 6,440
SFAS 115 Change in Unrealized
Holding Gains (190,389) 190,389
-------------- --------------
$ (209,098) $ 196,829
-------------- --------------
Net Provision/(Benefit) For Income Taxes $ (209,098) $ 210,698
============== ==============
The provisions for income taxes differ from the amounts computed by
applying the Federal tax rate of 34% to income before tax. A reconciliation of
these differences is as follows:
Tax Provision (Benefit) Calculated at 34% $ (209,898) $ 210,170
State Income Taxes Net of Federal Benefit 800 528
------------ -------------
Total $ (209,098) $ 210,698
NOTE 8 - ACQUISITIONS
On November 12, 1998, the Company acquired all the outstanding stock of a
newly formed corporation known as First Consolidated Securities, Inc. for
consideration of a note payable of $1,000. The acquisition was accounted for
under the purchase method of accounting.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 8 - ACQUISITIONS (CONTINUED)
On January 9, 1999, Equity Capital Group acquired 15% of the outstanding
common stock of ASI Acquisition Corporation in exchange for previously leased
machinery valued at $300,000. (Note 5) However, subsequent to the acquisition,
the investment was written off due to the fact that there is substantial doubt
as to whether ASI is a going concern.
On January 10, 1999, First Consolidated Securities, Inc. acquired 24.3% of
the outstanding common stock of Tuschner Financial Group, Inc. in exchange for
24,300 shares of Equity Capital Group Stock valued at $1 per share. The Company
accounts for this under the equity method of accounting. Following the
acquisition by the Company, Tuschner Financial Group, Inc. and its wholly owned
subsidiary Tuschner and Company, Inc. have fallen into extreme financial
distress. It is management's position that the value of the investment is
impaired and was written down to zero value pursuant to SFAS 115. (Note 3)
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company has a lease agreement for office space with The Charleston
Group, Inc. for $1,500 per month plus utilities. Robert L. Cashman, who is the
President and Director of Equity Capital Group, Inc. and Subsidiary, is also the
President/Director of The Charleston Group, Inc.
Robert L. Cashman was also the holder of two promissory notes as follows:
$49,000, 10% note payable, secured by stock in Pacific Ocean Restaurant
Group, Inc. (Note 3) Due on demand. This note was forgiven on March 31, 1999 by
the lender and recorded as Other Income, Debt Forgiveness.
$22,500, 15% note payable, unsecured, payable in monthly installments of
$2,000. Due March 9, 2000. This note was forgiven on March 31, 1999 by the
lender and recorded as Other Income, Debt Forgiveness.
John Vilagi, Secretary and Director of the Company, was the holder of the
following promissory note:
$25,000, 15% note payable, unsecured, payable in monthly installments of
$835. Due April 9, 2002. This note was forgiven on March 31, 1999 by the lender
and recorded as Other Income, Debt Forgiveness.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)
Management is of the opinion that these transactions were executed under
terms and conditions substantially equivalent to that which would have been
obtained between unrelated parties.
Tuschner & Company, Inc., a wholly owned subsidiary of Tuschner Financial
Group, Inc. (Note 8), is the holder of $52,500 of the Equity Capital Group,
Inc.'s marketable equity securities. These securities are valued as follows:
Trading
Time Financial Services, Inc. $ 52,500
Tuschner & Company, Inc. is registered as a broker and dealer of securities
with various regulatory agencies. As such, the Company is subject to the
Security and Exchange Commission's uniform net capital rule (Rule 15c3-1) which
requires a minimum net capital requirement and debt to equity ratio.
Equity Capital Group, Inc. agreed to pledge the $52,500, valued pursuant to
SFAS 115, to Tuschner & Company, Inc. to assist them in meeting the
aforementioned capital requirements. Due to Tuschner's poor financial situation,
the ultimate return of these securities is unlikely. Therefore, the entire
amount has been written off.
NOTE 10 - LOSS ON SECURITIES
Trading
During the year, the company sold 303,500 of its 410,500 shares of
Homelife, Inc. (OTC BB:HMLF) for a gain of 96,404. However, during the year, the
remaining 119,500 shares of Homelife, Inc. bearer certificates, which were
endorsed and to be used as collateral for a bank loan, were stolen by one of the
Company's consultants. The cost basis of these shares was $91,950, thus
resulting in a net realized gain of $4,454.
In the prior year, the Company recorded an unrealized holding gain relating
to Homelife, Inc. in the amount of $595,236 and included it as income. Since all
the stock was sold/stolen during the year, management accordingly reversed the
gain and charged it back as an unrealized holding loss.
The company also recorded an unrealized holding loss on its investment of
84,000 shares in Time Financial Services, Inc. (OTC BB:TIMF) in the amount of
$13,500.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 10 - LOSS ON SECURITIES (CONTINUED)
Available for Sale
At the close of the fiscal year, the Company held 145,000 shares of Pacific
Ocean Restaurants, Inc. These shares were purchased at various dates for a total
of $595,000. However, management decided that due to the numerous internal
reporting and financial problems that the company was experiencing, coupled with
the company's uncertain future, there was an impairment in value. Thus, an
unrealized loss in the amount of $595,000 was recorded on the entire investment.
The Company experienced an unrealized loss on Tuschner Financial Group,
Inc. stock in the amount of $24,300. In management's opinion, the Company has
experienced numerous personnel changes, legal problems, and its overall solvency
is in question. However, management feels that this is a temporary situation and
subsequently found a buyer for its interest. Accordingly, the loss was recorded
in the equity section of the balance sheet.
NOTE 11 - SUBSEQUENT EVENTS
On April 1, 1999, the Company entered into an agreement with Pioneer Growth
Corporation whereby all the remaining assets of $30,065 net of the liabilities
of $18,099 of Equity Capital Group, Inc. were transferred to Pioneer in exchange
for all of the remaining outstanding stock of Pioneer.
Also, on April 1, 1999 subsequent to the aforementioned transfer, the
Company issued 8,293,000 shares of freely tradable common stock pursuant to the
United States Securities Act of 1933, as amended, for $200,000. At that time,
the Company reverse split its issued and outstanding stock, 1 for 4.
Finally, the company distributed $200,000 and Pioneer capital stock, which
had a net book value of $11,966, to all shareholders of record at March 31,
1999.
On June 30, 1999, the Company changed its name to Voice Mobility
International, Inc. and changed its trade symbol to OTC BB:VMII.
<PAGE>
Equity Capital Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Audit Report)
For The Years Ended March 31, 1999, 1998, and 1997
NOTE 12 - YEAR 2000 AWARENESS PROGRAM
The Company recognizes that the arrival of the year 2000 poses unique
challenges to the ability of all systems to recognize the date change from
December 31, 1999 to January 1, 2000 and has not adopted a plan designed to
address the issues related to this transition.
Ultimately, the potential impact of the year 2000 issues will depend not
only on corrective measures the Company undertakes, but also on the way in which
the year 2000 issue is addressed by governmental entities, vendors, customers,
counterparts, and other entities who provide or receive data and services from
the Company. Management is addressing these issues and believes they will
develop a year 2000 plan which will permit the Company to function effectively
into the year 2000.
<PAGE>
PART III
--------
ITEM 2. INDEX TO EXHIBITS.
- ------- ------------------
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3.1 Articles of Incorporation*
3.2 Articles of Amendment of Articles of Incorporation*
3.6 By-Laws*
4.1 Common Stock Certificate**
4.2 Form of Warrant**
4.3 Certificate of Designations
10.1 Fiscal 2000 Stock Option Plan*
10.2 Employment Agreement of James Jay Hutton*
10.3 Employment Agreement of William Gardiner*
10.4 Employment Agreement of Jason Corless*
10.5 Employment Agreement of Bud Stewart*
10.6 Employment Agreement of Geof Heston*
10.7 Acquisition Agreement of Voice Mobility Inc.*
10.8 Agreement and Plan of Distribution of Equity Capital Group, Inc.*
10.9 List of Subsidiaries of Registrant (as amended)**
10.10 Debt Settlement Agreement with Maritime Tel & Tel*
10.11 Voting, Support and Exchange Trust Agreement**
23.1 Consent of Hoffski & Pisano*
23.2 Consent of Bedford Curry & Co.*
27.1 Financial Data Schedule
- ---------------------------------
* Previously submitted with initial filing of registration statement
** Previously submitted in First Amendment to registration statement
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
VOICE MOBILITY INTERNATIONAL, INC.
Date: November 5, 1999 By: /S/James J. Hutton
-----------------------
James J. Hutton, President
<PAGE>
Terms and Conditions of
Series A Preferred Stock
(a) Designation and Amount. One share of preferred stock share, $.001 par value
per share, is hereby constituted as a series of shares of the preferred
stock of the Corporation which shall be designated as the "Series A Special
Voting Preferred Share" (the "Series A Preferred Share"), the preferences
and relative, optional and other special rights of which and the
qualifications, limitations or restrictions of which are set forth herein.
(b) Dividends and Distributions. The holder of the Series A Preferred Share
shall not be entitled to receive any portion of any dividend or
distribution at any time.
(c) Voting Rights. The holder of the Series A Preferred Share shall have the
following voting rights:
(i) The Series A Preferred Share shall entitle the holder thereof to an
aggregate number of votes equal to the number of Exchangeable Shares
("Exchangeable Shares") of Voice Mobility Canada Limited, a Canadian
corporation ("VM Canada"), outstanding from time to time which are not
owned by the Corporation or any of its direct or indirect
subsidiaries.
(ii) Except as otherwise provided herein or by law, the holder of the
Series A Preferred Share and the holders of Shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(iii)Except as set forth herein, the holder of the Series A Preferred
Share shall have no special voting rights, and its consent shall not
be required (except to the extent it is entitled to vote with holders
of Shares of Common Stock as set forth herein) for taking any
corporate action.
(d) Additional Provisions.
(i) The Holder of the Series A Preferred Share is entitled to exercise the
voting rights attendant thereto in such manner as such holder desires.
(ii) At such time as (A) the Series A Preferred Share entitles its holder
to a number of votes equal to zero because there are no Exchangeable
Shares of VMI Canada outstanding which are not owned by the
Corporation or any of its direct or indirect subsidiaries, and (B)
there is no share of stock, debt, option or other agreement,
obligation or commitment of VMI Canada which could by its terms
require VMI Canada to issue any Exchangeable Shares to any person
other than the Corporation or any of its direct or indirect
subsidiaries, then the Series A Preferred Share shall thereupon be
retired and canceled promptly thereafter. Such share shall upon its
cancellation, and upon the taking of any action required by applicable
law, become an authorized but unissued shares of preferred stock and
may be reissued as part of a new series of preferred stock to be
created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth
herein.
<PAGE>
(e) Reacquired Share. If the Series A Preferred Share should be purchased or
otherwise acquired by the Corporation in any manner whatsoever, then the
Series A Preferred Share shall be retired and canceled promptly after the
acquisition thereof. Such share shall upon its cancellation, and upon the
taking of any action required by applicable law, become an authorized but
unissued preferred share and may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(f) Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution
or winding up of the Corporation, the holder of the Series A Preferred
Share shall not be entitled to any portion of any distribution.
(g) No Redemption or Conversion. The Series A Preferred Share shall not be
redeemable or convertible.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule June 30, 1999
</LEGEND>
<CIK> 0001094816
<NAME> Voice Mobility International, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,414
<SECURITIES> 0
<RECEIVABLES> 217,066
<ALLOWANCES> 21,766
<INVENTORY> 68,779
<CURRENT-ASSETS> 293,097
<PP&E> 306,461
<DEPRECIATION> 79,719
<TOTAL-ASSETS> 505,234
<CURRENT-LIABILITIES> 245,897
<BONDS> 0
0
0
<COMMON> 248,286
<OTHER-SE> 11,051
<TOTAL-LIABILITY-AND-EQUITY> 505,234
<SALES> 83,262
<TOTAL-REVENUES> 83,262
<CGS> 27,727
<TOTAL-COSTS> 27,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,800
<INCOME-PRETAX> (4,610,603)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,610,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,610,603)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
