U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 5
General Form for Registration of Securities of Small Business Issuers
Under Section 12(b) or 12(g) of the Securities Exchange 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)
180-13777 Commerce Parkway, Richmond, British Columbia, Canada V6V 2X3
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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, $.001 Par Value
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this section and elsewhere in this
registration statement regarding matters that are not historical facts are
"forward-looking statements". Because such forward-looking statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. All statements which
address operating performance, events or developments that our management
expects or anticipates to incur in the future, including statements relating to
sales and earnings growth or statements expressing general optimism about future
operating results, are forward-looking statements. These forward-looking
statements are based on our management's current views and assumptions regarding
future events and operating performance. Many factors could cause actual results
to differ materially from estimates contained in our management's
forward-looking statements. The differences may be caused by a variety of
factors, including but not limited to adverse economic conditions, competitive
pressures, inadequate capital, unexpected costs, lower revenues, net income and
forecasts, the possibility of fluctuation and volatility of our operating
results and financial condition, inability to carry out marketing and sales
plans and loss of key executives, among other things.
Throughout this registration statement, we refer to United States dollars
as "$" and to Canadian dollars as "Cdn$."
The Company
We are a Nevada corporation, incorporated on October 2, 1997, as Equity
Capital Group, Inc. ("Equity Capital") and, through the transactions described
below, we are the successor to the voice service and related messaging business
founded by Voice Mobility Inc. ("VMI", or "the predecessor company") in 1993. On
June 24, 1999, we changed our name to Voice Mobility International, Inc.
("VMII"). Unless otherwise indicated, all references to the "Company" or "Voice
Mobility" means VMII and its predecessor company, VMI. See Item 1-"Background
and Recapitalization.
Currently, we are focused on the commercial introduction and sale of our
"e-go" 4.0 suite of products which we launched in July 1999. From 1993 until
early 1998, our predecessor developed and marketed voice mailbox servers and
other messaging products using the IBM OS2 platform and generated aggregate
revenues of approximately $930,000. In 1997, IBM elected no longer to support
the OS2 platform and the industry transitioned from OS2 platforms to Windows NT
platform based products. Thus, in early 1998, the focus of our predecessor's
business by necessity shifted to research and development efforts needed to
develop a Windows NT platform based product line and, as a result, during that
period, there were no significant revenues. Given this shift in our business
focus, we consider ourselves a development stage company even though we and our
predecessor company have had revenues from operations from 1993.
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The first e-go 4.0 product was delivered in fall 1999. Revenues to date
from the sale of e-go software have been incidental in nature. Management
anticipates that commercial sales and distribution of the e-go 4.0 product line
will commence during the first quarter of 2000. However, as of January 2000, we
have recorded no significant revenues from the e-go 4.0 or any other current
product offerings, and since our founding, we have recorded significant losses.
At September 30, 1999, we had an accumulated deficit of $8,181,505 and a
shareholders deficiency of $328,026.
Voice Mobility Inc. owns the trademark for "e-go" in Canada. All other
trademarks, tradenames and service marks are owned by other entities and are
intellectual property of their respective owners.
Our Product
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We are engaged in the area of the telecommunications market known as
"unified messaging." We are concentrating the marketing of our unified messaging
Windows NT based 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
("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 "subscribes" to 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.
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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.
Subscribers can call a single telephone number that is associated with all
other personal contact numbers. The system will cycle through personal numbers
ultimately finding the subscriber. The call is then connected in real time to
the subscriber. All messages are gathered in the single box to be reviewed,
stored, forwarded, or acted upon from any access device: the internet, a
cellular phone, a fixed line phone, etc. 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.
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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.
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 electronic 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.
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.
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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.
o Pager Notification. As the e-go software can also communicate using
standard paging protocols and external paging and messaging gateways. A
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 year 2000. 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.
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 that that 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.
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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 the 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 significant 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
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. 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.
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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 traditionally 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.
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.
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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 believe 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.
Vendors developing solutions for enterprise platforms are not considered by
management to be direct competitors. Only those participating in developing
products for ISPs are considered by management to be direct 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.
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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 a key relationship with Maritime Tel & Tel ("MTT"), 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 results 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 provide
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 currently 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 contains some degree of customization; and the
customization dictates its range.
In the licensing model the customer is typically 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 this licensing model to qualifying customers as it 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 licensing 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 licensing 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 actual 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.
As the market forces dictate, we will continually refine and customize our
pricing strategy to meet the needs of the market.
Risk Factors
The following risks and uncertainties could affect our operating results
and financial condition and could cause our actual results to differ materially
from our historical results.
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Uncertainty of Additional Capital
We did not record any significant sales revenue for the three months period
ended December 31, 1999. In addition, we anticipate our cash outflows will
continue to exceed our cash inflows over the next 12 months. Our liquidity over
the next 12 months is contingent on our raising money through equity (and debt)
financings to meet our short term needs. 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.
To the extent that available funds from operations are insufficient to fund
the our activities, we will need to raise additional funds through public and
private financing. No assurance can be given that additional financing will be
available or that, if available, it can be obtained on terms favorable to the
Company and its stockholders. Failure to obtain such financing could delay or
prevent our planned expansion, which could adversely affect the Company's
business, financial condition and results of operations.
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
implemented Cdn$2,000,000 key person insurance policies on James Hutton and
Jason Corless.
Early-Stage Company
In early 1998, the focus of our predecessor's business by necessity shifted
to research and development efforts needed to develop a Windows NT platform
based product line. Given this shift in our business focus, even though we and
our predecessor have had revenues from operations from 1993, 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.
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. If the Canadian dollar were to strengthen in relation to the
U.S. dollar, our effective costs would rise in relation to our revenues,
adversely affecting our profitability and competitive position.
12
<PAGE>
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.
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.
Shares Eligible for Future Sale
At January 24, 2000 we had outstanding approximately 20,760,321 common
share equivalents, consisting of 14,160,321 shares of common stock ("Common
Stock") and 6,600,000 shares of Common Stock issuable on conversion of all
outstanding Exchangeable Shares. See Item 8-"Description of Securities". All of
the 8,293,000 shares issued in April 1999 under the Rule 504 of the Securities
Act of 1933, as amended (the "Securities Act") are freely tradable.
The remaining outstanding shares have not been registered under the
Securities Act and therefore will be treated as "restricted securities" and may
be publicly sold in the United States only if registered or if the sale is made
in accordance with an exemption from registration, such as Rule 144 under the
Securities Act. Under these exemptions, however, substantially all of the other
12,467,321 shares of Common Stock generally will be eligible for resale in the
United States without registration one year from the date of issuance. This may
adversely affect the market price of our shares and could affect the amount of
trading of such shares.
13
<PAGE>
As of January 24, 2000, warrants to purchase an aggregate of 2,284,000
shares of Common Stock were outstanding. We intend to register under the
Securities Act the shares of Common Stock issuable upon exercise of such
warrants. We also intend to register under the Securities Act the shares of our
common stock reserved for issuance under the Fiscal 1999 Stock Option Plan. As
of September 30, 1999, options to purchase an aggregate of 2,976,750 shares of
Common Stock were outstanding under such Stock Option Plan. Upon such
registration, such shares, when issued, generally will be freely tradable.
Sale of a significant number of such shares, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
shares and could impair our future ability to raise capital through an offering
of equity securities, which in turn could adversely affect our business or
results of operations.
Minimal Trading History of Common Stock - Possible Stock Price Volatility
Our common stock currently trades on a limited basis on the National
Quotation Bureau's "Pink Sheets" and we currently intend to apply to have our
Common Stock quoted on the Over-the-Counter Bulletin Board upon meeting the
requirements of its "Eligibity Rules". 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.
14
<PAGE>
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).
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, MTT, 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. MTT conducted extensive testing for technical performance and
also for customer preferences and requirements. MTT's feedback enabled VMI to
refine its products to improve function and usability.
Voice Mobility and MTT had jointly agreed to conduct product trials 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.
All copyright, patent, and trade secret rights in any software
modifications, enhancements, and improvements and new developments made to
VoicePlus, predecessor name to e-go, in the course of the product trials are
owned by Voice Mobility.
15
<PAGE>
MTT is both a key early stage customer and a critical partner in the
obtaining of business, as well as a shareholder of the Company. See Item 7 -
"Certain Relationships and Related Transactions". It contributed monetary
support and intellectual and technical network expertise to the value of
VoicePlus. This value add was documented by MTT for the duration of the product
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, VMI was obligated to provide the hardware, software, and
technical testing. MTT was obligated to provide network human resources, network
architecture planning, network connectivity, as well as the testing location.
During the trials, VMI 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 MTT Network personnel
for administration and provisioning of the server. MTT was obligated to provide
a manual revision, customer support, research as outlined in a research plan,
service definition, business case, and a campaign brief. The Company has
received from MTT $97,011 in connection with sales arrangements from the first
sale in September 1997 to September 30, 1999.
One of our first opportunities to work with MTT was in the preparation of a
joint proposal to Cable and Wireless Bartel located in Barbados. Bartel agreed
to purchase and deploy e-go in its business and consumer markets, subject to a
technical and market trial of our products. We provided, with MTT, 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 MTT 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. MTT garnered Cdn$716,000,000 in revenues in
its last fiscal year.
Licenses, Patents and Trademarks
- --------------------------------
We use component software from 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, the Company has joined the developer programs of each
of the companies and will seek any opportunity to leverage partner programs or
develop relationships 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.
16
<PAGE>
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, the Company 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 January 24, 2000, we employed 36 people, 5 of whom are engaged in
marketing and sales, 22 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.
Background and Recapitalization
- -------------------------------
Our predecessor company, VMI, was incorporated in 1993, as a British
Columbia corporation. In December 1997, the shareholders of VMI entered into a
transaction with Acrex Ventures Ltd. ("Acrex"), an inactive company listed on
the Vancouver Stock Exchange with no business operations, through which the
Voice Mobility business plan would be financed. Prior to entering into the
agreement with VMI, Acrex had approximately 150 shareholders, excluding
participants in the Acrex private placements.
The proposed transaction with VMI was intended to be a "reverse takeover"
by VMI (the "RTO Concept"), and characterized as a recapitalization of VMI for
accounting purposes.
Between December 1997 through March 1999, Acrex consummated a series of
four private placements undertaken in Canada, and raising an aggregate of
Cdn$2,022,500 (approximately $1.4 million). In each private placement, investors
were offered units ("Acrex Units") consisting of Acrex common shares and
warrants to acquire Acrex common shares. Pending regulatory approval and
finalization of the transaction between Acrex and VMI, the net proceeds of such
private placements of approximately $1.26 million were loaned to VMI to fund
research and development activities, operations, and working capital.
On August 30, 1998, Acrex applied to the Vancouver Stock Exchange to
approve its acquisition of VMI as the basis for its first business operations.
However, by March 31, 1999, the application had not been approved by the
Vancouver Stock Exchange, being still in process, and the share acquisition
agreement between Acrex and the VMI shareholders expired. Because of these
continuing delays, management of Acrex and VMI decided to pursue other sources
of financing to expedite the strategy.
Thus, in March 1999, as an alternative to financing Voice Mobility's
business plan through Acrex, the directors and certain principals and
shareholders of VMI and Acrex initiated discussions with Equity Capital Group,
Inc. ("Equity Capital"), an unrelated Nevada corporation with shares listed on
the OTC Bulletin Board. The discussions were focused on structuring a
transaction in which the combined shareholders of VMI and Acrex and the
investors in the Acrex private placements would acquire control of Equity
Capital. Because the Acrex private placements contemplated the combination of
VMI and the financing of Voice Mobility's business plan, the principals of VMI
and Acrex effectively worked in concert as the effective shareholder or
"stakeholder" group implementing the Voice Mobility business plan and the RTO
Concept. Further, the three directors controlling VMI, were also Directors of
Acrex and effectively controlled the board of directors of Acrex.
17
<PAGE>
Equity Capital's acquisition of VMI was intended to mirror Acrex's
application to the Vancouver Stock Exchange in August 1998 to provide the
investors in the Acrex private placements with essentially the same economic
position in Equity Capital as they would have expected in the acquisition of
Voice Mobility by Acrex. This would be accomplished by mirroring the capital
structure of Equity Capital to the proposed capital structure of Acrex as
proposed to the Vancouver Stock Exchange. Thus, the number of common shares and
warrants of Equity Capital which each investor in the Acrex private placements
would receive was intended to mirror the number of shares and warrants to have
been received in the form of Acrex Units.
On April 1, 1999, certain principals of Voice Mobility Inc. took the first
steps to implement the Voice Mobility business plan through Equity Capital by
entering into a stock purchase agreement with Equity Capital and its majority
shareholder to acquire an aggregate of 8,418,000 common shares of Equity
Capital, representing over 90% of the outstanding common stock of Equity Capital
for a cash purchase price of $200,000. Of such 8,418,000 shares, 8,293,000
shares were newly issued shares and 125,000 shares were acquired from Equity
Capital's majority shareholder. The $200,000 purchase price was placed in trust
with Equity Capital's attorney subject to the closing of Equity Capital's
acquisition of Voice Mobility (which was consummated on June 24, 1999 as
described below) and other conditions. Among others, the April 1, 1999 agreement
also contemplated that Equity Capital would be a "shell" corporation, with no
assets or liabilities. From April 1999 to June 24, 1999, Equity Capital
completed the assignment of its remaining assets and liabilities to Pioneer
Growth Corporation, an unrelated third party. The 8,418,000 shares of Equity
Capital were held in trust by attorneys-in-fact for the purchasers subject to
the closing of the acquisition of Voice Mobility.
Following April 1, 1999, the original shareholders of Voice Mobility Inc.
were advised that they could face significant Canadian income tax liability as a
result of a cross-border transaction with the U.S. entity Equity Capital. The
shareholders of Voice Mobility Inc. immediately thereafter began to seek legal
counsel and tax advisors with sufficient professional experience in such
dealings. It took some time to find and retain qualified securities counsel and
tax accountants with experience in such transactions. Once the tax accountants
and securities lawyers were consulted it was determined that the most effective
means of minimizing personal Canadian taxes for the Voice Mobility Inc.
shareholders and to comply with Canadian tax legislation, required the formation
of a new corporation, Voice Mobility Canada Limited ("VM Canada"), as a wholly
owned subsidiary of Equity Capital. The formation of VM Canada took time to
complete because certain special share rights had to be properly structured and
drafted, various name searches needed to be conducted, and the company needed to
be incorporated and capitalized. See "Description of Capital Stock - Preferred
Stock".
Thus, on June 24, 1999, Equity Capital, through its newly created wholly
owned subsidiary, VM Canada, acquired 100% of the outstanding common shares of
VMI. In such acquisition, the shareholders of VMI exchanged their shares of VMI
for 6,600,000 Exchangeable Shares of VM Canada. Each VM Canada Exchangeable
Share is exchangeable for one VMII common share at any time at the option of the
shareholder, and will be exchanged no later than July 1, 2009, and is entitled
to the same voting, dividend and other rights as one VMII common share. In
addition, a share of preferred voting stock was issued to the transfer agent in
trust for the holders of the VM Canada Exchangeable Shares, to provide a
mechanism for holders of the VM Canada Exchangeable Shares to exercise their
voting rights. The Company considers each Exchangeable Share as equivalent to a
share of its common stock. Concurrent with this transaction, Equity Capital
changed its name to our current name, Voice Mobility International, Inc.
18
<PAGE>
Following the completion of the acquisition of VMI, on July 1, 1999, the
$200,000 purchase price for the 8,418,000 common shares of Equity Capital was
released by Equity Capital's attorney.
Following completion of the acquisition of VMI, VMII (formerly Equity
Capital) took the next steps in fulfilling Acrex's obligations to its investors
under the Acrex private placements. The 8,418,000 shares of Equity Capital held
by the attorneys-in-fact were issued as follows: 5,010,907 shares were issued to
the Acrex private placement investors, with each of the Acrex private placement
investors allowed to participate in such offering substantially pro rata in
relation to their participation in Acrex; 2,256,093 shares were issued to
certain original shareholders of Acrex; 101,000 shares were issued to an
original shareholder of Voice Mobility Inc.; and 1,050,000 shares were issued to
certain finders and outside professional advisors who assisted in the
consummation of the combined April 1 and June 24 transaction.
On June 30, 1999, VMII completed its undertaking to fulfill Acrex's
obligations to its investors under the Acrex private placements by issuing
warrants to acquire an aggregate of 4,793,000 shares of Common Stock of VMII to
the investors in the Acrex private placements. Such warrants were issued to the
investors substantially pro rata to the number of warrants the investors were to
have received in each of the Acrex private placements, at the same exercise
prices, as adjusted for the currency translation from Canadian dollars to U.S.
dollars. Thus, upon completion of transactions, the original investors in the
Acrex private placements received, in the aggregate through the April 1999
offering of Common Stock and the June 1999 offering of warrants, substantially
the equivalent economic terms in the form of VMII Common Stock and warrants,
which they would have received in the Acrex Units. As a result, Acrex discharged
its obligations under the private placements.
Upon completion of such transactions at June 24, 1999, the stakeholders in
Voice Mobility and Acrex (consisting of the original shareholders of VMI (43%),
certain shareholders of Acrex (15%), and the investors in the Acrex private
placement (32%) held approximately 90% of the capital stock of VMII (formerly
Equity Capital), thereby constituting a recapitalization of VMI through the
acquisition of Equity Capital.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
Overview
Pursuant to share purchase agreements dated April 1, 1999 and June 24,
1999, the stakeholders in Voice Mobility and Acrex (consisting of the original
shareholders of VMI, certain shareholders of Acrex, and the investors in the
Acrex private placement), sold their interests, had transferred to them 125,000
shares of Common Stock of Equity Capital by the majority shareholder of Equity
Capital, and VMII acquired 100% of the issued and outstanding common stock of
VMI by issuing 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, at June 24, 1999,
the stakeholders in Voice Mobility and Acrex effectively acquired 15,018,000
common stock equivalents of VMII which represents a controlling interest of
approximately 90%. 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 the consolidated financial statements. Accordingly, this transaction
represents a recapitalization of VMI, the legal subsidiary.
The unaudited interim 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
unaudited interim consolidated financial statements at their historical carrying
amounts. Operating results to June 24, 1999, are those of VMI. 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 453,750 previously
outstanding common stock of VMII deemed to be issued in the acquisition. The
additional $200,000 paid for this transaction has been expensed in these
financial statements.
The following discussion should be read in conjunction with the unaudited
interim consolidated financial statements for the nine-month ended September 30,
1999 and September 30, 1998 and the consolidated audited financial statements
for year ended December 31, 1998 and December 31, 1997.
- --------------------------------------------------------------------------------
Sales - All sales over both periods are non-recurring sales of prototype
equipment and/or software that was in the beta stage of development. On October
2, 1999 we completed the first delivery of our e-go 4.0 system. Our customer had
pre-paid for the system delivery in September 1999. Accordingly, the transaction
was recognized as deferred revenue.
Cost of sales - Cost of sales is comprised of third party software
licenses, telephony hardware, data and voice transmission costs, and
installation costs. Cost of revenue was $45,018 and $59,161 for the nine month
periods ended September 30, 1999 and 1998 respectively.
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<PAGE>
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 $1,325,900 and $51,638 for the nine months periods
ended September 30, 1999 and September 30, 1998 respectively. The increase of
$1,274,262 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 additional increase of $365,512 in sales and marketing expense between
the two periods is a result of an increase of $201,786 in sales and marketing
personnel, $95,216 in promotions, and $68,510 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 related facility costs.
Research and development costs were $2,536,753 and $141,567 respectively for the
nine months ended September 30, 1999 and September 30, 1998. The increase of
$2,395,186 in research and development costs from 1998 to 1999 primarily
reflects an employee stock option compensation cost of $1,553,500 that was
determined using the intrinsic method in accordance with "APB 25" (Accounting
Principles Board Opinion Number 25).
The additional increase of $841,686 in research and development costs
between the two periods is the result of an increase of $270,712 in personnel
costs, $22,562 in leased office space and utility costs, $30,430 in data and
voice transmission costs and $17,982 in general research and development costs.
$500,000 in research and development costs was recognized as a result of
fulfilling the contingent obligation settlement with MTT in an agreement dated
March 26, 1999. As a result of the acquisition of VMI, we were obligated to
issue 1,428,571 shares of our common stock valued at $500,000.
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
$1,956,213 and $310,366 for the nine months ended September 30, 1999 and
September 30, 1998. The increase of $ 1,645,847 primarily reflects an employee
stock option compensation cost of $1,428,688 that was determined using the
intrinsic method in accordance with "APB 25." (Accounting Principles Board
Opinion Number 25).
The additional increase of $217,159 in general and administrative costs
between the two periods is the result of an increase of $81,364 in personnel
costs, $47,605 in professional and legal costs, $46,736 in consulting fees,
$16,208 in lease of office space, and $25,246 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 $54,204 and $24,296 for
the nine month periods ended September 30, 1999 and September 30, 1998,
respectively. The increase of $29,908 in interest expense (income), net between
the two periods resulted from an increase in notes payable and shareholder
advances.
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Income Taxes - Operating loss carryforwards will begin expiring in the year
2004. 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.
Extraordinary Loss
In March 1999 VMI and Acrex agreed to a loan settlement transaction with
Ibex Investments Ltd. ("Ibex"). Pursuant to these understandings VMII issued
warrants to purchase 500,000 shares of Common Stock to Ibex in settlement of a
loan made by Ibex to VMI in the principal amount of Cdn$250,000, (one warrant
for every Cdn$0.50 invested, with an exercise price of $0.35). The original loan
agreement did not provide for the settlement of debt with equity instruments.
Consequently an extraordinary loss of $790,000 has been recorded based on the
difference between the fair value of the equity instruments issued and the
carrying value of the retired debt. The fair value of the warrants was estimated
using the Black Scholes option pricing model (see Note 3 of the unaudited
interim consolidated financial statements).
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 - 0 (39,098) 0 (8)
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)
- --------------------------------------------------------------------------------
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<PAGE>
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 $260,274 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 relationship with MTT.
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 $236,158 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. 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.
23
<PAGE>
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.
Liquidity and Capital Resources
Since the shift in the focus of our business to the development of Windows
NT platform based products in early 1998 our sales revenue has been less than
$158,000 and only as a result of sales of prototypes or the recovery of costs on
abandoned services. 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 over the next 12 months.
Our liquidity over the next 12 months is contingent on our raising money through
equity financings to meet our short term needs. On June 30, 1999 we had
5,394,000 warrants outstanding that would, upon exercise, provide the Company a
total of $2,366,850 in equity financing. As at January 24, 2000 the Company
received a total of $1,448,333 from the exercise of 3,110,000 warrants. If the
remaining 2,284,000 warrants are exercised we will receive $918,517 which would
be sufficient to provide the Company with the liquidity necessary to fund its
anticipated working capital and capital requirements for the next three months.
However, there can be no assurance that the remaining warrants will be
exercised.
Our budgeted capital expenditures for the fiscal year ending December 31,
1999 was approximately $404,000 of which $237,795 has been spent and we are
committed to purchase $58,000 of research and development equipment (See note 5
of the unaudited interim consolidated financial statements). We are under no
legal obligation to purchase the remaining budgeted capital expenditures.
We currently anticipate that cash flow from operations will increase in the
long-term as we increase our sales and marketing activities and introduce new
versions of our software that are technologically feasible. However, we also
anticipate our operating expenses will also 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. To the
extent that available funds from operations are insufficient to fund the
Company's activities, the Company may need to raise additional funds through
public and private financing. No assurance can be given that additional
financing will be available or that, if available, it an be obtained on terms
favorable to the Company and its stockholders. Failure to obtain such financing
could delay or prevent the Company's planned expansion, which could adversely
affect the Company's business, financial condition and results of operations. If
additional capital is raised through the sale of additional equity or
convertible securities, dilution to the Company's stockholders could occur.
24
<PAGE>
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.
25
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY.
- ------- ------------------------
Our United States office is located in shared 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.
In December 1999, we relocted the offices of our operating subsidiary, VMI,
and entered into a lease of approximately 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.
Our former offices are 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. Efforts are being made
to sublet the Granville Street property. The Company is responsible for the rent
on the Granville Street property until such time that the property is sublet.
VMI 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.
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.
26
<PAGE>
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 January 24, 2000, 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 January 24, 2000 we had outstanding approximately
20,760,321 common share equivalents, consisting of 14,160,321 shares of Common
Stock and 6,600,000 shares issuable upon conversion of all the outstanding
Exchangeable Shares.
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 13.0%
843 Ida Lane, Kamloops
BC, V2B 6V2
Canada
James J. Hutton(2) 2,146,778 10.3%
6442-180th St.
Surrey, BC, V3S 7K2
Canada
William E. Krebs(3) 2,543,897 12.3%
300 Stewart Road
Salt Spring Island
BC, V8K 2C4
Canada
Jason Corless(4) 1,262,671 6.1%
312-3277 Glasgow Ave.
Victoria, BC, V8X 1M3
Canada
David H. Grinstead(5) 50,000 0.24%
48 Amin Street
Bedford, Nova Scotia
Canada
B4A 4A8
Randy Buchamer (5) 50,000 0.24%
5453 Nancy Greene Way
Vancouver, BC, V7R 4N2
Canada
Thomas G. O'Flaherty (6) 500,000 2.4%
509 - 2008 Fullerton Ave.
Vancouver, BC, V7P 3G7
Canada
All Executive Officers and Directors 9,253,346 44.58%
as a Group (7 persons)
- -----------------------
27
<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. Includes 55,000 shares and 55,000 stock purchase warrants both of
which are held in a self-directed registered retirement savings plan.
(3) Includes 2,000,000 shares owned by PWMC 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. Includes 100,000 shares and 100,000 stock
purchase warrants both of which are held in a self-directed registered
retirement savings plan.
(4) Includes 114,671 shares owned by Cathie Stevens, his wife, over which Mr.
Corless disclaims beneficial ownership. Includes 250,000 Plan Options.
Includes 24,000 shares and 24,000 stock purchase warrants both of which are
held in a self-directed registered retirement savings plan.
(5) Includes 50,000 Plan Options.
(6) Includes 500,000 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
---- --- --------
Thomas G. O'Flaherty 57 President
James J. Hutton 33 Chief Executive Officer and a Director
William E. Krebs 53 Chairman of the Board of Directors, Secretary,
Treasurer, and Chief Financial Officer
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)
28
<PAGE>
Thomas G. O'Flaherty was appointed President in January 2000. Prior to
joining Voice Mobility, he served as the Sales & Marketing Leader of the
Technology Practice at Ernst & Young LLP from late 1995 to late 1999. >From mid
1993 to late 1995 Mr. O'Flaherty served various senior executive roles at
Modatech Systems Inc., a sales force automation software company. He joined
Modatech as the Vice President of Marketing in mid 1993, was promoted to
President in 1994, and further promoted to CEO in January 1995. In early 1989
Thomas O'Flaherty founded Richmond Technologies & Software Inc. to market
Maximizer, a contact management software product, which was subsequently
acquired by Modatech Systems Inc. in mid 1993. Prior to founding Richmond
Technologies & Software Inc., he co-founded Bedford Software Limited in 1983 as
the marketing partner, and served in this role until 1989. Bedford Software
Limited was listed on the Toronto Stock Exchange in 1988, and the business was
acquired by Computer Associates in 198 9. From 1972 to 1983 he held various
sales and marketing management positions at Xerox Canada Inc. Thomas O'Flaherty
began his career at the Nova Scotia Research Foundation in 1969, was appointed
as the Director of the Operational Research Division in 1971, and served in this
position until 1972. Mr. O'Flaherty received a Bachelor of Science from
Dalhousie University in 1963, a Bachelor's Degree in Mechanical Engineering in
1965, and a Master of Science Degree from Birmingham (UK) in 1968.
James J. Hutton has also served as President, Chief Executive Officer and a
Director of our subsidiary, VMI since 1998. From January 1998 to the present,
Mr. Hutton has also served as a director of Acrex Ventures Ltd. From 1990 to the
present, he has also served as Director and President of South 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.
William E. Krebs has been Chairman of the board of directors of our
subsidiary, Voice Mobility, since 1995. From January 1995 to the present, Mr.
Krebs has also served as a director of Acrex Ventures Ltd. He also has served as
President and a director of Pacific Western Mortgage Corp. ("PWMC") 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.,
(OTCBB:WAVC) a public company traded on the Over-the-Counter Bulletin Board
since 1997 and was its Secretary from 1997 through May, 1999. Mr. Krebs ceased
to be a director of Waverider Communications Inc., in September 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 Institute 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. Edith
Both also served on the board of directors of Acrex Ventures Ltd. from January
1998 until June 1999. Edith Both became a registered Cytotechnologist in 1973.
29
<PAGE>
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 distributor 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.
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. Immediately, 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.
Key Management Employees of VMI, our operating subsidiary are:
Thomas G. O'Flaherty, our President.
James J. Hutton, our CEO, is also 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 May 1998. William Gardiner served as President from November
1997 to April 1998, 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. Mr. Gardiner is the son of
Edith Both, a Director of VMII, and Ernest Weir Gardiner, the President of VMI
from September 1993 to October 1997.
30
<PAGE>
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. Stewart 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 College.
31
<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)
- ------------------ ---- ------ ----- ---------------
James J. Hutton 1999 $72,600 -0- -0- (1)
President and 1998 $48,000 -0- -0- (1)
Chief Executive Officer
since May, 1998
William Gardiner 1998 $36,720 -0- -0- (1)
President (Chief Executive Officer) 1997 $36,720 -0- -0- (1)
from Nov, 1997 to Apr, 1998
Ernest Weir Gardiner 1998 -0- -0- -0-
President (Chief Executive Officer) 1997 -0- -0- -0-
from Sep, 1993 to Oct, 1997
- ------------------------
1. Compensation was paid to Mr. Hutton and William Gardiner by VMI, our
operating subsidiary.
OPTION GRANTS IN THE LAST FISCAL YEAR.
- --------------------------------------
No options to purchase shares of common stock of VMI during the fiscal year
ended December 31, 1998 were issued to any person named in the Summary
Compensation Table.
* Subsequent to the end of the 1998 fiscal year, we have issued 250,000
options to Mr. Hutton. The options are exercisable at $1.00 and expire June
30, 2004
1999 STOCK OPTION PLAN
- ----------------------
In June 29, 1999, our board of directors adopted the 1999 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.
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 consisting of non-employee 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.
32
<PAGE>
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. Shareholders of the Company will be asked to approve the Plan at the
next annual meeting of shareholders.
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.
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 30, 1999, we granted 2,976,750 Plan Options. As of January
24, 2000, no Plan Options had been exercised.
33
<PAGE>
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.
AGGREGATED OPTION/ EXERCISES IN
LAST FISCAL YEAR AND 1998 FISCAL YEAR END OPTION/VALUES
-------------------------------------------------------
<TABLE>
<CAPTION>
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 VALUE UNEXERCISABLE UNEXERCISABLE
ON EXERCISE REALIZED
NAME (#) ($)
---- --------------- ---------- -------------------- -------------------
<S> <C> <C> <C> <C>
James J. Hutton 0 0 0 0*
William Gardiner 0 0 0 0**
Ernest Weir Gardiner 0 0 0 0
- -------------------
</TABLE>
* Subsequent to the end of the 1998 fiscal year, we issued 250,000 options to
Mr. Hutton. The options are exercisable 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.
** Subsequent to the end of the 1998 fiscal year, we issued 200,000 options to
Mr. William Gardiner. The options are excercisable at $1.00 and expire June
30, 2004.The intrinsic value of the options on September 30, 1999, is
$300,000 Based on our determination of fair market value of the purchased
shares on the option exercise date less the exercise price paid for the
shares.
34
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
NUMBER OF SHARES, PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR OTHER OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
RIGHTS MATURATION OR ------------------------------
(#) PAYOUT THRESHOLD TARGET MAXIMUM
NAME ($ OR #) ($ OR #) ($ OR #)
---- ---------------- ----------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
James J. Hutton 0 0 0 0 0
William Gardiner 0 0 0 0 0
Ernest Weir Gardiner 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. Thomas G. O'Flaherty, President of VMI, was hired on
December 16, 1999. He receives a salary of Cdn$150,000 plus 500,000 Plan Options
exercisable at $2.00 per share. James J. Hutton, CEO of VMI, 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 VMI, 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 250,000 Plan Options exercisable at $1.00 per share. (Options to
purchase shares of Acrex 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 VMI,
entered into an employment agreement on June 20, 1999 which terminates on June 1
9, 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. Geoff
Heston, Senior Vice-President of Sales and Marketing of VMI, entered into an
employment agreement on August 7, 1999 which terminates on August 6, 2001. He
receives a salary of Cdn$125,000 per year plus 200,000 Plan Options exercisable
at $1.00 per share . All employment contracts contain non-compete clauses.
35
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- -----------------------------------------------
In 1993, Ernest Weir Gardiner and certain other persons founded VMI. Ernest
Weir Gardiner served as a director of that company and its successors until
October 1997. Ernest Weir Gardiner is also the father of William Gardiner, our
Vice President of Business Development, and the former spouse of Edith Both, a
Director of the Company. In 1995, William Krebs, through PWMC, a company owned
and controlled by Mr. Krebs, became a shareholder of VMI and began to advance
funds to VMI to cover operating costs. Mr. Krebs is an officer and director of
the Company. In October 1997, VMI undertook a recapitalization and, as a result
of those transactions, PWMC, an entity controlled by Ernest Weir Gardiner, James
Hutton (who is currently the Chief Executive Officer and a director of the
Company) became the holders of substantially all of the issued and outstanding
capital stock of VMI. In a series of transactions commencing in November and
December of 1997, the entity undertook a series of additional recapitalization
transactions. See "Background and Recapitalization" for a more detailed
explanation of these transactions.
In March 1999, VMI and Acrex agreed to satisfy certain obligations with
PWMC, a company owned by Mr. Krebs, a director, officer, and shareholder of the
Company, incurred prior to December 1997. Pursuant to these understandings VMII
issued 750,000 shares of Common Stock to PWMC in settlement of a loan made by
PWMC to VMI in the principal amount of Cdn$375,000, including accrued interest.
The price per share of Common Stock (Cdn$0.50) used in settling such loan was
the same price per share as offered in the Acrex private placements in March
1999. The March 1999 agr eement provided that in the event VMI became a public
company or was owned by a public company, outstanding amounts of the loan could,
at the option of the debtor, be settled by shares of the public entity.
In March 1999 VMI and Acrex agreed to satisfy certain obligations with
Ernest Weir Gardiner incurred prior to December 1997. Pursuant to these
understandings, VMII issued warrants to purchase 101,000 shares of Common Stock
at a price of Cdn $0.50 per share. to Ernest Weir Gardiner, in settlement of a
loan made by Ernest Weir Gardiner to VMI in the principal amount of Cdn$50,500,
including accrued interest. The price per share of Common Stock (Cdn$0.50) used
in settling such loan was the same price per share as offered in the Acrex
private placements in March 1999. The March 1999 agreement provided that in the
event VMI became a public company or was owned by a public company, outstanding
amounts of the loan could, at the option of the debtor, be settled by a fixed
number of shares of the public entity.
By agreement dated March 26, 1999, among Acrex, VMI and MTT, in settlement
of amounts owed to MTT, Acrex and VMI agreed that in the event VMI became a
public company or was owned by a public company, MTT would settle such amounts
owed for an aggregate of 1,428,571 shares of such public entity, at a deemed
value of Cdn$500,000. The price per share of the 1,428,571 shares received by
MTT (Cdn$0.35) represented a discount of Cdn$0.15 per share below the price paid
by the investors in the Acrex private placements.
36
<PAGE>
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. We are also
authorized to issue up to 1,000,000 shares of preferred stock, par value $.001
per share, 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.
At January 24, 2000 we had outstanding approximately 20,760,321 common
share equivalents, consisting of 14,160,321 shares of Common Stock and 6,600,000
shares of Common Stock issuable on conversion of all outstanding Exchangeable
Shares.
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.
PREFERRED STOCK AND VM CANADA EXCHANGEABLE SHARES.
- --------------------------------------------------
To date, our Board of Directors has created one series of preferred stock,
the Series A Preferred Stock, and has issued one share of that class to
accommodate the Company's obligation related to the 6,600,000 Exchangeable
Shares of VM Canada issued to the former shareholders of VMI.
In turn, each Exchangeable Share may be exchanged for one share of our
Common Stock and was created to provide the former VMI shareholders with a
security of a Canadian issuer which has economic and voting attributes that are
equivalent to those of the Company's common stock. The Exchangeable Shares were
issued to provide a deferral of Canadian income tax to the shareholders of VMI
all of whom are residents of British Columbia, which deferral could not be
provided in the exchange between VMI, as a Canadian entity, and our Company, as
a U.S. corporation. To accommodate the matter, we issued the single share of
Series A Preferred Stock, to a trustee to hold and to have votes equal to the
unexercised exchange portion of the Exchangeable Shares, exercisable by the
Trustee only upon receipt of instructions from the holders of Exchangeable
Shares. As a result, the former VMI shareholders exercise their 6,600,000 votes
either through the Exchangeable Shares or Common Stock, if they exercise the
exchange. Pursuant to the terms of the Series A Preferred Stock, upon conversion
of a VM Canada Exchangeable Share for a share of our Common Stock, the number of
votes which the Trustee is entitled to exercise on behalf of the holders of
Exchangeable Shares is proportionately reduced.
37
<PAGE>
Each Exchangeable Share is entitled to dividends from VM Canada equal to
the dividends paid by us on our Common Stock. Upon the liquidation, dissolution
or winding-up of VM Canada or any other distribution of assets of VM Canada, a
holder of Exchangeable Shares will only be entitled to receive from VM Canada,
the number of shares of our Common Stock reserved for issuance on exchange of
the Exchangeable Shares. To accommodate any such transaction, we and VM Canada
have an overriding call right to purchase outstanding Exchangeable Shares, at
the same price in cash. The Exchangeable Shares themselves are non-voting and
are exchangeable at the option of the holder at any time for an equal number of
shares of Common Stock along with shares representing any declared and unpaid
dividends. To ensure that the holders of the Exchangeable Shares will be
protected on the same basis as our holders of Common Stock, we have granted the
trustee a put right which allows the trustee to automatically convert the
Exchangeable Shares into our Common Stock in the event of the insolvency of VM
Canada. Dividends on the VM Canada Exchangeable Shares are paid in the same form
and manner as are dividends on our Common Stock.
In any event, on July 1, 2009, any Exchangeable Shares and related
dividends will be exchanged for Common Stock. In addition, we will have a right
to purchase any remaining Exchangeable Shares, in cash. In the event of our
dissolution, liquidation or winding-up, the Exchangeable Shares will be treated
as Common Stock.
On the earlier of July 1, 2009 or when all the Exchangeable Shares have
been converted to our Common Stock, the trust will terminate and the single
outstanding share of Series A Preferred Stock shall be retired and cancelled
promptly thereafter.
WARRANTS
- --------
As of January 24, 2000, we have issued an aggregate of 5,394,000 warrants
to purchase Common Stock of which 3,110,000 have been exercised and the balance
remaining is outstanding. These warrants include the warrants to purchase
4,793,000 shares of Common Stock issued on June 30, 1999. On that date, we
issued 1,600,000 Class "A" Warrants exercisable at $0.35; 1,000,000 Class "B"
Warrants exercisable at $.50; 1,940,000 Class "C" Warrants exercisable at $.50
per share; and 253,000 Class "D" Warrants exercisable at $.50 per share. In
addition, we have issued 601,000 Class E warrants exercisable at $.35 per share
to Ibex Investments Ltd. and Ernest Weir Gardiner.
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.
38
<PAGE>
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 on the National Quotation Bureau,
LLC's "Pink Sheets" under the symbol "VMII". Prior to November 18, 1999 our
shares of Common Stock were 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 "ECQG".
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 January 24, 2000, was $2.875, as
traded on the National Quotation Bureau, LLC's "Pink Sheets". At January 24,
2000 we had outstanding approximately 20,760,321 common share equivalents,
consisting of 14,160,321 shares of Common Stock and 6,600,000 shares of Common
Stock issuable on conversion of all outstanding Exchangeable Shares, and 95
shareholders of record. Since a significant number of our shares of Common Stock
are held in nominees and through brokerage accounts we do not know the exact
number of the beneficial owners of our Common Stock, but we estimate that there
are approximately 200 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.
39
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
- ------- ------------------
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- ------- ----------------------------------------------
Our financial statements for the fiscal years ended December 31, 1997 and
December 31, 1998 have been audited by Bedford Curry & Co., Chartered
Accountants, Vancouver, B.C. In connection with our ongoing reporting
obligations under the U.S. Securities Exchange Act of 1934, we currently intend
to retain an internationally recognized accounting firm. On July 7, 1999, we
retained Ernst & Young LLP to provide assistance in connection with this
Registration Statement. As of this date, Ernst & Young LLP has not been engaged
as our principal accountant to audit the Company's financial statements for
fiscal 1999.
Bedford Curry & Co. has not resigned, declined to stand for reelection nor
been dismissed and will continue to be the independent accountant of record for
the fiscal years ended December 31, 1997 and December 31, 1998.
The reports of Bedford Curry & Co. for the years ended December 31, 1997
and 1998 contained no adverse opinion or disclaimer of opinion and except as set
forth in the section entitled, "Comments by Auditors for U.S. Readers on Canada
- - U.S. Reporting Conflict", were not qualified or modified as to uncertainty,
audit scope or accounting principle.
In connection with its audits for such fiscal years and through the date
hereof, there have been no disagreements with Bedford Curry & Co. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Bedford Curry & Co. would have caused such firm to make
reference thereto in their report on the financial statements for such years.
In retaining Ernst & Young LLP to assist with the Registration Statement,
we sought their advice on accounting principles generally accepted in the United
States as applicable to the unaudited interim financial statements for the six
months ended June 30, 1999, and the nine months ended September 30, 1999. Our
decision to retain Ernst & Young LLP was solely in furtherance of our desire to
consult with an internationally recognized U.S. accounting firm, in contrast to
Bedford Curry & Co., a local Canadian accounting firm, and not with respect to
their application of accounting principles to a specific completed or
contemplated transaction or type of audit opinion that might be rendered.
Bedford Curry & Co. was only consulted as to its views on U.S. generally
accounting principles with respect to the Company's financial statements for the
years ended December 31, 1997 and December 31, 1998.
Both Bedford Curry & Co. and Ernst & Young LLP have reviewed the disclosure
in this item and letters from each of them agreeing with the foregoing are
included as exhibits to this Registration Statement.
40
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- ------- ----------------------------------------
The following sets forth certain information concerning the currently
outstanding securities of the Company which were sold or issued by the Company
(and not VMI or Acrex) during the last three years without the registration of
the securities under the Securities Act in reliance on exemptions from such
registrations requirements.
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 issued an aggregate of 8,293,000 shares of our Common
Stock and had transferred 125,000 shares of our Common Stock by Equity Capital's
majority shareholder to 72 investors, for $200,000. To the extent that U.S.
securities laws were applicable to the issuance, the issuance was made in
reliance on Section 4(2) of the securities Act and under Rule 504 of Regulation
D thereunder.
From June 1998 to March 31, 1999, Acrex completed four private placements
of units. In the June 1999 implementation of the RTO Concept, the Company issued
warrants to acquire 4,793,000 shares of Common Stock. If all of the warrants are
exercised, the Company will receive an additional $2,156,500. To the extent that
U.S. securities laws were applicable to the issuance, the issuance was made in
reliance on Section 4(2) of the Securities Act and Regulation S thereunder.
Effective June 24, 1999, we entered into agreements with the stockholders
of VMI, a Canadian corporation, under which the stockholders exchanged all of
the capital stock of VMI for 6,600,000 "Exchange Shares" of our wholly-owned
subsidiary, VM Canada. The former shareholders of VMI have the right to exchange
the capital stock they own of VM Canada into 6,600,000 of our shares of Common
Stock.
In connection with the implementation of the RTO Concept, the Company
issued one share of its Series A Preferred Stock to accommodate the Company's
obligation related to the 6,600,000 Exchangeable Shares of VM Canada which were
issued to five former shareholders of Voice Mobility Inc. The Company has
reserved 6,600,000 of its Common Stock for issuance on the earlier of delivery
of the Exchangeable Shares by the holders or July 1, 2009. The Series A
Preferred Stock was issued in reliance on Section 4(2) of the Securities Act.
The Common Stock issuable upon exercise of the Exchangeable Shares, when issued,
will be restricted securities issued in reliance on Section 4(2) of the
Securities Act or, if applicable, in reliance on Section 3(a)(9) of the
Securities Act.
Effective March 1999, VMII issued 750,000 shares of Common Stock to PWMC, a
company owned by William E. Krebs, an officer an director of the Company, in
settlement of a loan made by PWMC to VMI in the principal amount of Cdn$375,000,
including accrued interest. To the extent U.S. securities laws were applicable
the shares were issued in reliance on Section 4(2) of the Securities Act.
Effective March 1999, VMII issued warrants to purchase 101,000 shares of
Common Stock to Ernest Weir Gardiner, in settlement of a loan made by Ernest
Weir Gardiner to VMI in the principal amount of Cdn$50,500, including accrued
interest. The warrants are exercisable through December 2000 at an exercise
price of $0.35. To the extent U.S. securities laws were applicable the shares
were issued in reliance on Section 4(2) of the Securities Act.
41
<PAGE>
Effective March 1999, VMII issued warrants to purchase 500,000 shares of
Common Stock to Ibex in settlement of a loan made by Ibex to VMI in the
principal amount of Cdn$250,000. The warrants are exercisable through December
2000 at an exercise price of $0.35. To the extent U.S. securities laws were
applicable the shares were issued in reliance on Section 4(2) of the Securities
Act.
In September 1999, the Company issued 1,428,571 shares to MTT in settlement
of a Cdn$500,000 obligation owed to MTT. The shares were issued in reliance on
Section 4(2) of the Securities Act.
During 1999, the Company has issued options to acquire an aggregate of
2,976,750 shares of Common Stock to 32 persons at exercise prices ranging
between $0.75 to $2.63. The options were issued in reliance on Section 4(2) of
the Securities Act and Rule 701 thereunder.
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.
42
<PAGE>
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.
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.
43
<PAGE>
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.
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.
44
<PAGE>
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:
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.
45
<PAGE>
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 corporation 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 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.
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.
46
<PAGE>
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 paragraph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directors 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 proceedings 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.
47
<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/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:
/s/William Krebs /s/James Hutton
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 revenue is recognized in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position SOP) 97-2, "Software
Revenue Recognition." For software contracts not requiring software
modification, the Company recognizes license revenue upon shipment of a product
to the client if a signed contract exists, the fee is fixed and determinable,
collection of resulting receivables is probable, and any uncertainties with
regard to customer acceptance are insignificant. For contracts with multiple
obligations (e.g. deliverable and undeliverable products, maintenance and other
services), the Company allocates revenue to each component of the contract based
on objective evidence of its fair value when it is determinable. The Company
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.
To the extent that objective evidence of fair value is not determinable,
the Company defers revenue until the earlier of the point at which (1)
sufficient evidence exists or (2) all elements of the arrangement have been
delivered. When the Company enters into a license agreement with a customer
requiring significant customization of the software products, the Company
recognizes revenue related to the license using contract accounting. Deferred
revenues represent the difference between amounts invoiced and amounts
recognized as revenues under software development and maintenance agreements.
Where vendor specific objective evidence exists, the revenue allocated to
maintenance fees is recognized ratably over the period during which the services
are performed.
Advertising
Advertising costs are charged to income as incurred.
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.
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.
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.
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 three 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.
VOICE MOBILITY INTERNATIONAL, INC.
A Development Stage Company
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
As at Unaudited
September 30, December 31,
1999 1998
$ $
- --------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $94,025 $37,113
Accounts receivable (net of allowance for
Doubtful debts; 1999 - $21,791; 1998 - $20,930) 68,081 67,810
Other Receivables 24,755 8,370
Prepaid expenses 23,621 17,116
Inventory 113,555 14,919
- --------------------------------------------------------------------------------
Total current assets 324,037 145,328
Equipment and leasehold improvements
(net of accumulated depreciation
and amortization; 1999 - $104,960; 1998 - $45,577) 312,260 133,848
- --------------------------------------------------------------------------------
Total Assets $636,297 $279,176
================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities 206,754 88,592
Employee related payables 69,723 36,870
Deferred revenue 64,796 -
Note payable, current portion (note 3) 5,705 792,323
Due to Acrex Ventures Ltd. - 419,592
Due to shareholder - 239,642
- --------------------------------------------------------------------------------
Total current liabilities 346,978 1,577,019
Note payable (note 3) 617,345 -
- --------------------------------------------------------------------------------
Total liabilities $964,323 $1,577,019
Commitments and contingencies (note 5)
Stockholders' deficiency (note 4)
Common stock 11,051 59
Preferred stock 1
Additional paid-in capital 7,797,278
Accumulated development state deficit (8,181,505) (1,373,141)
Other accumulated comprehensive income 45,149 75,239
- --------------------------------------------------------------------------------
Total stockholders' deficiency (328,026) (1,297,843)
================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $636,297 $279,176
================================================================================
See accompanying notes
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
A Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
Expressed in U.S. Dollars
<TABLE>
<CAPTION>
Unaudited
Three Months Ended Nine Months Ended Accumulated
September 30, September 30, Development
------------------- ----------------- Stage
1999 1998 1999 1998 Deficit
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Sales $ 15,553 $ 53,113 $ 99,725 $ 118,990 $1,108,302
Less cost of sales (11,450) (434) (45,018) (59,161) (687,033)
- --------------------------------------------------------------------------------------------
4,103 52,679 54,707 59,829 421,269
Operating Expenses
Sales and Marketing 125,924 24,987 1,325,900 51,638 1,747,996
Research and Development (note 6) 423,002 53,602 2,536,753 141,567 2,894,963
General and Administrative 316,947 106,107 1,956,213 310,366 2,825,891
Acquisition fee for recapitalization
(note 1) 200,000 200,000
Interest Expense 11,431 6,839 54,204 24,296 143,924
- --------------------------------------------------------------------------------------------
Loss before extraordinary items (873,201) (138,856) (6,018,363) (468,038) (7,391,505)
- --------------------------------------------------------------------------------------------
Extraordinary loss on settlement
of debt (note 3) - - (790,000) - (790,000)
- --------------------------------------------------------------------------------------------
Net loss for the period (873,201) (138,856) (6,808,363) (468,038) (8,181,505)
Currency translation gains (losses) (30,008) - (30,090) - 45,149
- --------------------------------------------------------------------------------------------
Net comprehensive loss (903,209) (138,856) (6,838,453) (468,038) (8,136,356)
============================================================================================
Loss per common share before
Extraordinary loss - basic and
diluted (note 4) $(0.05) $(0.02) $(0.38) $(0.07)
Loss per common share - basic and
diluted (note 4) (0.05) (0.02) (0.43) (0.07)
============================================================================================
Weighted average number of common
stock equivalents 17,329,054 6,600,000 15,812,447 6,600,000
============================================================================================
</TABLE>
See accompanying notes
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
A Development Stage Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in U.S. Dollars
<TABLE>
<CAPTION>
Nine months ended September 30 Unaudited
Accumulated
Development
1999 1998 Stage
$ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss for the period ($6,808,363) ($468,039) (8,181,505)
Non cash items included in loss for the period
Depreciation and amortization 59,383 24,799 104,960
Interest accrued on note payable 10,358 18,438 28,395
Acquisition fee for recapitalization 200,000 - 200,000
Stock issued on settlement of amounts due to MTT 500,000 - 500,000
Extraordinary loss on settlement of Ibex notes payable 790,000 - 790,000
Stock option compensation 3,890,938 - 3,890,938
Increase in allowance for doubtful accounts 861 - 21,791
- ---------------------------------------------------------------------------------------------------
(1,356,823) (424,802) (2,645,421)
Change in accounts receivable (16,656) (52,592) (114,627)
Change in accounts payable and other payables 151,015 (44,238) 276,477
Change in inventory (98,636) 19,145 (113,555)
Change in prepaid expenses (6,505) (2,835) (23,621)
Change in deferred revenue 64,796 - 64,796
- ---------------------------------------------------------------------------------------------------
Cash used in operating activities (1,262,809) (505,322) (2,555,951)
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of equipment & leasehold improvements (237,795) (88,288) (417,220)
- ---------------------------------------------------------------------------------------------------
Cash used in investing activities (237,795) (88,288) (417,220)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in notes payable, net 30,817 231,819 1,044,655
Increase in advances from Acrex Ventures Ltd. 733,456 405,079 1,154,000
Issuance of capital stock - - 59
Cash proceeds on exercise of warrants 823,333 - 823,333
- ---------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,587,606 636,898 3,022,047
- ---------------------------------------------------------------------------------------------------
Effect of foreign currency on cash (30,090) (38,566) 45,149
- ---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 56,912 4,722 94,025
Cash and cash equivalents, beginning of period 37,113 2,332 -
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $94,025 $7,054 94,025
===================================================================================================
Supplemental disclosures of cash information
Cash paid during the period for interest $54,204 $24,296 $143,924
Supplemental disclosure of non cash investing and financing activities
Stock issuance on conversion of debt 250,000 -
Warrants issued in settlement of Ibex notes payable 167,000 -
Warrants issued in settlement of Ernest Gardiner notes payable 33,000 -
Stock and warrants issued to Acrex investors 1,264,000 -
===================================================================================================
</TABLE>
See accompanying notes
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
A Development Stage Company
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Expressed in U.S. Dollars
Nine months ended September 30, 1999 Unaudited
<TABLE>
<CAPTION>
Other
Common Common Preferred Addtn'l Accumulated
Stock Stock Stock Paid in Comprehensive
Issued Amount Issued Capital (Deficit) Income Total
-----------------------------------------------------------------
<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)
Currency translation gains (losses) 75,239 75,239
1998 Net loss - - (930,598) - (930,598)
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 8,400,000 59 - - (1,373,141) 75,329 (1,297,843)
Exchange of Voice Mobility Inc.
Common stock (8,400,000) (59) 1 58 0
Acquisition of Equity Capital Group 453,750 454 (454) 0
Stock to be issued pursuant to Acrex
stock subscriptions 8,418,000 8,418 1,255,582 1,264,000
Stock subscriptions receivable (110,000) (110,000)
Acquisition fee for recapitalization 200,000 200,000
Stock issued on settlement of Pacific
Western note payable 750,000 750 249,250 250,000
Warrants issued on settlement of
Ernest Gardiner note payable 33,000 33,000
Warrants issued on settlement of Ibex
Investments Ltd. note payable 957,000 957,000
Stock issued on settlement of amounts
due to MTT (note 6) 1,428,571 1,429 498,571 500,000
Common stock issued pursuant to
exercise of common stock warrants 1,780,000 823,333 823,333
Currency translation gains (losses) (30,090) (30,090)
Stock based option compensation for
employees 3,890,938 3,890,938
Loss for 9 months ending September 30,
1999 (6,808,363) (6,808,363)
- -------------------------------------------------------------------------------------------------------
Balances, at September 30, 1999 12,830,321 $11,051 1 $7,797,278 (8,181,505) $45,149 ($328,026)
=======================================================================================================
</TABLE>
See accompanying notes
<PAGE>
VOICE MOBILITY INTERNATIONAL, INC.
A Development Stage Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expressed in U.S. Dollars
Unaudited as at and for the period ended September 30, 1999
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Description of business
Voice Mobility International, Inc., (the 'Company') is a Nevada corporation
engaged in the development of unified voice messaging software. The Company is
in its development stage.
The Company incurred an operating loss of $6,808,363 for the nine months
ended September 30, 1999 [nine months ended September 1998 - $468,038; year
ended December 31, 1998 - $930,598; year ended December 31, 1997 - $168,739],
and had a working capital deficiency of $22,941 as at September 30, 1999
[December 31, 1998 - $1,431,691; December 31, 1997 - $482,758]. 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 its research and development
and attain profitable operations.
Recapitalization of the Company
These consolidated financial statements are the continuing financial
statements of Voice Mobility Inc. ("VMI"), a company incorporated under the laws
of the Canada Business Corporations Act in 1993. Through a series of
transactions in June 1999, VMI was recapitalized and acquired the net assets of
Voice Mobility International, Inc. ("VMII") [formerly Equity Capital Group,
Inc.] an inactive United States company traded on the NASD OTC Bulletin Board.
[a] History of VMI
Prior to the reverse acquisition of VMII, the shareholders of VMI had been
negotiating to acquire Acrex Ventures Inc. ("Acrex") an inactive public company
trading on the Vancouver Stock Exchange (VSE) with no assets or liabilities.
Pending approval of this transaction by the VSE, Acrex and VMI entered into four
private placements for proceeds totalling Canadian $2,022,500 (US$1,400,000).
The net proceeds of US 1,264,000 were advanced to VMI to fund operations. Under
these arrangements stock subscriptions in the private placements entitled
investors to 1 common stock of Acrex and 1 warrant entitling the holder to
acquire 1 common stock of Acrex. At the time of this arrangement the fair value
of the warrants was determined to be nominal since the exercise price of these
warrants exceeded the fair value of the VMI common stock. This arrangement
between Acrex and VMI expired on March 31, 1999. In connection with the
acquisition of VMII, the Acrex investors agreed to assign all proceeds from the
four private placements to VMII and contribute an additional $.02 per share for
an aggregate $200,000, in exchange for common stock and common stock warrants
with terms and conditions substantially identical to the warrants that would
have been issued by Acrex to the subscribers of its four private placements.
Accordingly, in the financial statements the issuance of common stock and
warrants of VMII to Acrex investors has been reflected as a recapitalization of
VMI in the amount of $1,264,000. As at September 30, 1999 $110,000 remains
receivable from Acrex investors and has been presented as a reduction of share
capital.
<PAGE>
During its development stage, VMI has received advances in the form of
notes payable from PWMC, a shareholder of VMI and Ernest Gardiner, an Acrex
investor. In March 1999, these parties agreed to settle amounts owing to them by
VMI as follows; the issuance of 750,000 shares of Acrex in settlement of
$250,000 (Cdn$375,000) of amounts owing by VMI to PWMC. The fair value of the
shares issued was determined by management to be Cdn$.50 per share. the
issuance of warrants entitling Ernest Gardiner to acquire 101,000 shares of
Acrex at Cdn$.50 per share, in settlement of $33,000 (Cdn$50,500) of amounts
owning to Ernest Gardiner. The fair value of the warrants was determined to be
equivalent to the debt settled.
[b] Reverse acquisition of VMII
Pursuant to share purchase agreements dated April 1, 1999 and June 24,
1999, the stakeholders of VMI, sold their interest, had transferred to them
125,000 shares of Common Stock of Equity Capital by the majority shareholder of
Equity Capital, and VMII acquired 100% of the issued and outstanding common
stock of VMI by issuing 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
stakeholders in Voice Mobility and Acrex (consisting of the original
shareholders of VMI, certain shareholders of Acrex, and the investors in the
Acrex private placement) effectively acquired 15,018,000 common stock
equivalents of VMII which represents a controlling interest of approximately
90%. 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. 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. 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
$nil is ascribed to the 453,750 previously outstanding common stock of VMII
deemed to be issued in the acquisition. The additional $200,000 paid for this
transaction has been expensed in these financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
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.
<PAGE>
The Company's significant accounting policies are as follows:
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.
Revenue recognition
Software revenue is recognized in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position SOP) 97-2, "Software
Revenue Recognition." For software contracts not requiring software
modification, the Company recognizes license revenue upon shipment of a product
to the client if a signed contract exists, the fee is fixed and determinable,
collection of resulting receivables is probable, and any uncertainties with
regard to customer acceptance are insignificant. For contracts with multiple
obligations (e.g. deliverable and undeliverable products, maintenance and other
services), the Company allocates revenue to each component of the contract based
on objective evidence of its fair value when it is determinable. The Company
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.
To the extent that objective evidence of fair value is not determinable,
the Company defers revenue until the earlier of the point at which (1)
sufficient evidence exists or (2) all elements of the arrangement have been
delivered. When the Company enters into a license agreement with a customer
requiring significant customization of the software products, the Company
recognizes revenue related to the license using contract accounting. Deferred
revenues represent the difference between amounts invoiced and amounts
recognized as revenues under software development and maintenance agreements.
Where vendor specific objective evidence exists, the revenue allocated to
maintenance fees is recognized ratably over the period during which the services
are performed.
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.
<PAGE>
Foreign currency
The functional currency of the Company is the Canadian dollar. These
financial statements have been presented in United States dollars. Accordingly,
all assets and liabilities of the Company denominated in foreign currencies are
translated at the year end exchange rates and revenues and expenses are
translated using a weighted average exchange rate for the applicable period. In
accordance with SFAS 52, any exchange gains and losses resulting are presented
as other accumulated comprehensive income.
Advertising
Advertising costs are charged to income as incurred.
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
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 and cash equivalents,
accounts receivable, accounts and other payables, notes payable, and a
shareholder loan. Unless otherwise stated the fair value of the instruments
approximates their carrying value.
Loss per share
Basic net loss per share is computed using the weighted-average number of
common shares and exchangeable shares outstanding, as described in Note 4.
Diluted loss per share is equal to the basic loss per share as the effect of the
stock options and warrants are anti-dilutive.
Cash and cash equivalents
Cash and cash equivalents includes cash and term deposits with original
maturities of 90 days or less, which have been recorded at amortized cost.
Inventory
Inventory is substantively comprised of hardware and nominal third party
software sold in conjunction with our software.
<PAGE>
Deferred income taxes
The Company follows the liability method of accounting for income taxes.
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.
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. The Company has not considered the impact of SFAS
133 at this time.
3. NOTES PAYABLE
September 30, December 31,
1999 1998
$ $
- --------------------------------------------------------------------------------
Note payable to Ibex Investment Inc. ("Ibex") -
Interest at 10% per annum, due the earlier of
December 31, 2000 or the next equity financing
of VMII, denominated in Canadian dollars.
Collateralized by a general security agreement
over the assets of the Company. 623,050 754,317
Note payable to Ernest Gardiner -
Interest at the bank prime rate, unsecured and
no fixed terms of repayment. Bank prime
at December 31, 1998 was 6.75% - 38,006
- --------------------------------------------------------------------------------
623,050 792,323
less current portion 5,705 792,323
- --------------------------------------------------------------------------------
617,345 -
================================================================================
In conjunction with the reorganization of the Company the note payable to
Ernest Gardiner was settled in March 1999, in exchange for 101,000 warrants with
a fair value equivalent to the then carrying value of the notes payable.
On June 29, 1999, in settlement of a $167,000 loan and a revision to the
repayment terms of the note payable to Ibex. the Company issued 500,000 warrants
with an exercise price of $0.35. The Company has recorded an extraordinary loss
of $790,000 based on the difference between the fair value of the equity
instruments issued and the carrying value of the debt.
The fair value of the warrants granted to Ibex 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 0.892; and an expected life of one year.
<PAGE>
4. SHARE CAPITAL
[a] Authorized
The Company is authorized to issue up to 50,000,000 shares of common stock,
par value $.001 per share, and 1,000,000 shares of preferred stock, par value
$.001 per share.
In connection with the recapitalization of VMI described in Note 1, Voice
Mobility Canada Limited (VM Canada) issued 6,600,000 VM Canada Exchangeable
Shares. VM Canada is a wholly owned subsidiary of VMII. Each VM Canada
Exchangeable Share is exchangeable for one VMII common share at any time at the
option of the shareholder, and will be exchanged no later than July 1, 2009, and
has essentially the same voting, dividend and other rights as one VMII common
share. A share of preferred voting stock, which was issued to a trustee in trust
for the holders of the VM Canada Exchangeable Shares, provides the mechanism for
holders of the VM Canada Exchangeable Shares to voting rights in VMII. The
Company considers each Exchangeable Share as equivalent to a share of its common
stock and therefore the Exchangeable Shares are included in the computation of
basic earnings per share.
As at September 30, 1999 the holders of the Exchangeable Shares are
entitled to 6,600,000 individual votes in all matters of Voice Mobility
International, Inc. As the Exchangeable Shares are converted into common stock
of the Company, the voting rights attached to the share of preferred voting
stock are proportionately reduced.
[b] Stock Options
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 granted on June 29,
1999:
Number of common Exercise price Date of
shares issuable $ Expiry
- --------------------------------------------------------------------------------
Senior management 1,625,000 1.00 June 29, 2004
Employees 1,041,750 0.75 June 29, 2004
- --------------------------------------------------------------------------------
2,666,750
================================================================================
Subsequent to June 30, 1999 the following employee stock options were
granted:
Number of common Exercise price
Shares issuable $
- --------------------------------------------------------------------------------
July 1, 1999 40,000 $0.75
July 14, 1999 35,000 $0.75
August 3, 1999 70,000 $0.75
August 20, 1999 55,000 $2.63
August 23, 1999 25,000 $2.31
September 7, 1999 35,000 $0.75
September 18, 1999 50,000 $1.00
- --------------------------------------------------------------------------------
Total 310,000
================================================================================
<PAGE>
4. SHARE CAPITAL (cont'd.)
The total options outstanding as at September 30, 1999 were 2,976,750 and
were exercisable upon this date. Consequently, stock option compensation cost of
$430,400 and $3,890,938 was determined for the three and nine months ended
September 30, 1999 respectively using the intrinsic method in accordance with
APB 25.
[c] Warrants
As at September 30, 1999, the Company has the following common stock
warrants outstanding;
Exercise
Number of common price Date of
shares issuable $ Expiry
- --------------------------------------------------------------------------------
Class A warrants 1,200,000 0.35 December 29, 2000
Class B, C and D warrants 1,813,000 0.50 December 29, 2000
Class E warrants 601,000 0.35 December 29, 2000
- --------------------------------------------------------------------------------
3,614,000
================================================================================
[d] Loss per share
Loss per share was calculated in accordance with SFAS 128. The following
table sets forth the computation of basic earnings per share for the periods;
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
$ $ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator
Net loss per share before
extraordinary loss $(873,201) $(138,856) $(6,018,363) $(468,038)
Net loss per share $(873,201) $(138,856) $(6,808,363) $(468,038)
Denominator
Weighted average number of common
stock outstanding 10,729,054 - 9,212,447 -
Weighted average number of common
stock issuable on exercise of
exchangeable shares 6,600,000 6,600,000 6,600,000 6,600,000
- ---------------------------------------------------------------------------------------------------
Average number of common stock
equivalents outstanding 17,329,054 6,600,000 15,812,447 6,600,000
- ---------------------------------------------------------------------------------------------------
Basic and diluted loss per share before
extraordinary loss $(.05) $(.02) $(.38) $(.07)
Basic and diluted loss per share (.05) (.02) (.43) (.07)
===================================================================================================
</TABLE>
<PAGE>
4. SHARE CAPITAL (cont'd.)
At September 30, 1999, the Company's 2,976,750 common shares issuable upon
the exercise of stock options and 5,394,000 common shares issuable upon the
exercise of warrants were excluded from the determination of diluted loss per
share as their effect would be antidilutive.
5. 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 41,163
2003 18,494
- --------------------------------------------------------------------------------
145,250
================================================================================
[ii] Capital expenditures
As at September 30, 1999, the Company has committed to acquire computer
equipment at a cost of approximately $58,000.
[iii] 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 an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties will be fully resolved.
6. MARITIME TEL & TEL LIMITED
By an agreement dated March 26, 1999 Maritime Tel & Tel Limited ("MTT"),
Acrex, and VMI agreed to recognize past contributions of MTT on a joint
development project to a maximum amount of Cdn$500,000 (US $335,200). It was
agreed that VMI would not be required to reimburse MTT the Cdn$500,000, unless
VMI became a public company or was owned by a public company. On March 26, 1999
it was determined this amount would be settled by the issuance of 1,428,571
shares of the public entity. The identical terms of the debt settlement
agreement involving Acrex were assumed by VMII. Under this arrangement MTT
received a beneficial conversion feature of $164,800, calculated at its
intrinsic value at the commitment date, which has been included as research and
development costs.
7. COMPARATIVE FIGURES
Certain of the comparative figures have been restated to conform to the
presentation adopted in these financial statements.
<PAGE>
Equity Capital is not a predecessor to Voice Mobility Inc. or VMII. Through
a reverse acquisition, Equity Capital acquired all of the outstanding share
capital of Voice Mobility Inc. This transaction is considered a recapitalization
of Voice Mobility Inc.
The historic financial statements of Equity Capital included reflect the
operations of Equity Capital management team prior to the recapitalization of
Equity Capital by Voice Mobility on June 24, 1999. Prior to the completion of
the recapitalization, Equity Capital's business operations as a Merchant banking
firm ceased and its net assets were distributed to shareholders of record as at
March 31, 1999.
None of the directors or officers of Equity Capital held any shares in
Voice Mobility Inc. nor did they hold any position as officer in Voice Mobility
Inc. As at June 24, 1999, the date of the recapitalization, the original
shareholders and management of Equity Capital no longer have any control over
the entity Equity Capital via voting rights or through positions they hold in
Voice Mobility Inc. As at June 24, 1999, the original shareholders and
management of Equity Capital only held approximately 3% of the outstanding
capital of Voice Mobility International, Inc. Mr. Robert Cashman, an officer and
director of Equity Capital as at March 31, 1999, continued to serve as a
director of VMII until his resignation on August 31, 1999.
<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>
See accompanying notes and independent auditors' report
Equity Capital Group, Inc. and Subsidiary
Balance Sheets
As of March 31, 1999 and 1998
(in United States dollars)
ASSETS
<TABLE>
<CAPTION>
March 31, March 31,
<S> <C> <C>
1999 1998
Current Assets -------------- -------------
Cash $ 1,454 $ 41,348
Accounts Receivable, net of allowance
for doubtful accounts of $155,215. 6,314 276,200
Accrued Interest Receivable (Note 6) - 30,327
Marketable Equity Securities (Note 4) 614 1,425,198
Notes Receivable - Current (Note 5) - 100,000
Lease Payments Receivable - Current (Note 6) - 7,508
-------------- -------------
Total Current Assets $ 8,382 $ 1,880,581
Fixed Assets
Office Furniture & Equipment - Net (Notes 2 & 3) $ 20,610 $ 21,755
-------------- -------------
Total Fixed Assets $ 20,610 $ 21,755
Other Assets
Organization Costs - Net (Note 2) $ 1,073 $ 1,427
Notes Receivable - Less Current Portion (Note 5) - 300,000
Lease Payments Receivable - Less Current Portion (Note 6) - 311,469
Accrued Interest Receivable - Less Current Portion (Note 6) - 112,623
-------------- -------------
Total Other Assets $ 1,073 $ 725,519
-------------- -------------
Total Assets $ 30,065 $ 2,627,855
============== =============
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Balance Sheets
As of March 31, 1999 and 1998
(in United States dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, March 31,
<S> <C> <C>
1999 1998
------------- -------------
Current Liabilities
Accounts Payable $ 16,499 $ 5,057
Income Taxes Payable (Note 8) 1,600 13,869
Deposits - 14,000
Notes Payable (Note 10) - 4,640
------------- -------------
Total Current Liabilities $ 18,099 $ 37,566
Long Term Liabilities
Deferred Income Taxes (Note 8) $ - 196,829
Unearned Interest Income (Note 6) - 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
2,500,000 Shares Authorized
543,500 Shares Issued and Outstanding (Notes 1 & 7)
Additional Paid-in Capital 2,520,186 1,841,385
Less: Notes Received for Stock Issued (Notes 5 & 7) (450,000) -
Retained Earnings/(Deficit) (1,682,295) 407,450
Accumulated Unrealized Holding Loss on Securities (376,800) -
Treasury Stock, 75 Shares of Common Stock (1,299) -
------------- -------------
Total Stockholders' Equity $ 11,966 $ 2,250,510
------------- -------------
Total Liabilities and Stockholders' Equity $ 30,065 $ 2,627,855
============= =============
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Operations
For The Years Ended March 31, 1999, 1998 and 1997
(in United States dollars)
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Income from Continuing Operations $ - $ - $ -
Income/(Loss) from Discontinued Operations,
Net of Income Tax Recovery/(Expense) of
$209,098 (1998 - ($210,698); 1997 - nil) (Note 1) (2,089,745) (468,465) (61,015)
--------------- -------------- ---------------
Net Income $ (2,089,745) $ (468,465) $ (61,015)
=============== ============== ===============
Income from Continuing Operations $ - $ - $ -
Income/(Loss) from Discontinued Operations (4.69) 4.68 (244.02)
--------------- -------------- ---------------
Net Income/(Loss) per Common Share $ (4.69) $ 4.68 $ (244.02)
=============== ============== ===============
Weighted Average Shares Outstanding 445,882 100,187 250
=============== ============== ===============
</TABLE>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Comprehensive Income/(Loss)
For The Years Ended March 31, 1999, 1998 and 1997
(in United States dollars)
<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>
<PAGE>
Equity Capital Group, Inc. and Subsidiary
Statements of Stockholders' Equity
For The Years Ended March 31, 1999, 1998, and 1997
(in United States dollars)
<TABLE>
<CAPTION>
Retained
Earnings/
Common Common Addtn'l Accumulated Total
Stock Paid in Holding Stockholders' Stock
Shares Amount Capital Loss Equity
--------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances, at March 31, 1996 - - - - -
Stock Issued on 6-2-96 (Note 1) 250 1,000 228,500 - 229,500
--------- --------- ----------- ---------- ------------
Net Income/(Loss) $ (61,015) (61,015)
Balances, at March 31, 1997 250 $ 1,000 $ 228,500 $ (61,015) $ 168,485
--------- --------- ----------- ---------- ------------
Stock Retired on 12-31-97 (Note 1) (250) (1,000) - - (1,000)
--------- --------- ----------- ---------- ------------
Stock Issued on 12-31-97 (Note 1) 400,000 1,600 1,237,960 - 1,239,560
Stock Issued on 3-31-98 (Note 1) 18,750 75 374,925 375,000
Net Income/(Loss) $ 468,465 468,465
--------- -------- ----------- ---------- -----------
Balances, at March 31, 1998 418,750 $ 1,675 $ 1,841,385 $ 407,450 $ 2,250,510
--------- -------- ----------- ---------- -----------
Stock Issued on 1-7-99 (Note 6) 24,825 99 124,201 - 124,300
Stock Issued on 1-14-99 (Note 6) 90,000 360 359,640 - 360,000
Stock Issued on 2-4-99 (Note 6) 1,250 5 19,995 - 20,000
Stock Issued on 3-1-99 (Note 6) 8,750 35 174,965 - 175,000
Treasury Stock Acquired on 2-1-99 (75) - (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 543,500 $ 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
(in United States dollars)
<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
(in United States dollars)
<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
(in United States dollars)
NOTE 1 - NATURE OF BUSINESS AND DISCONTINUED OPERATIONS
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
375,000 shares common stock of the Company. Subsequently, Ward was liquidated
into its parent pursuant to Internal Revenue Code Section 332 and the
regulations thereunder. This transaction was accounted for under the pooling
method of accounting. The Company has served as a Merchant Banking Firm
consisting of a business consulting/investment division and a real estate
division.
On April 1, 1999 and June 24, 1999 Equity Capital acquired 100% of the
issued and outstanding common stock of Voice Mobility Inc. by issuing 8,293,000
common shares of Equity Capital, having 125,000 shares transferred by Equity
Capital's majority shareholder, and the right to acquire 6,600,000 common shares
of Equity Capital, in exchange for cash of $200,000 and all the capital stock of
Voice Mobility Inc. Also on April 1, 1999, the Company entered into an agreement
with Pioneer Growth Corporation whereby all the assets of $30,065, net
liabilities of $18,099, direct finance lease, and operating lease of Equity
Capital Group, Inc. as of March 31, 1999 were transferred to Pioneer in exchange
for all the remaining outstanding stock of Pioneer. The Company then distributed
the $200,000 and the Pioneer capital stock, which had a net book value of
$11,966 to all shareholders of record at March 31, 1999.
Accordingly, the Company's operations as a Merchant Banking Firm have been
presented as discontinued operations in these financial statements. No gain or
loss arose on disposal of the Company's net assets to Pioneer Growth.
Sales of the Merchant Banking Firm were $303,213 in 1999 ($420,313 in 1998;
$15,000 in 1997).
On June 30, 1999, the Company changed its name to Voice Mobility
International, Inc. and changed its trade symbol to OTC BB:VMII.
NOTE 2 - ACCOUNTING POLICIES
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.
<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
(in United States dollars)
NOTE 2 - ACCOUNTING POLICIES (CONTINUED)
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.
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.
<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
(in United States dollars)
NOTE 3 - 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.
NOTE 4 - 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>
<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
(in United States dollars)
NOTE 4 - MARKETABLE EQUITY SECURITIES (CONTINUED)
<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.
NOTE 5 - 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.
<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
(in United States dollars)
NOTE 5 - NOTES RECEIVABLE (CONTINUED)
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 6 - 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 9)
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.
<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
(in United States dollars)
NOTE 7 - STOCKHOLDERS' EQUITY
Common Stock
On January 7, 1999, the Company issued 6,075 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 18,750 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 87,500 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 2,500 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, 1,250
shares of its common stock valued at $4 per share for $20,000 in cash.
On March 1, 1999, the Company issued 8,750 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.
On April 1, 1999, prior to the transaction described in Note 1, the Company
reverse split its issued and outstanding common stock, 1 for 4. This reverse
split has been reflected retroactively for all periods presented.
Treasury Stock
In February 1999, the Company reacquired 75 shares of its common stock on
the open market for $1,299. The stock is accounted for using the cost 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
(in United States dollars)
NOTE 8 - 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
(in United States dollars)
NOTE 8 - DEFERRED INCOME TAXES (CONTINUED)
Components of Income Tax Expense are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
-------------- --------------
<S> <C> <C>
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
============== =============
</TABLE>
NOTE 9 - 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
(in United States dollars)
NOTE 9 - 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
6,075 shares of Equity Capital Group Stock valued at $4 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 4)
NOTE 10 - 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
(in United States dollars)
NOTE 10 - 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 9), 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 11 - 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
(in United States dollars)
NOTE 11 - 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 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 J. 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 Geoff 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**
10.12 Debt Settlement Agreement with Pacific Western Mortgage Corporation****
10.13 Debt Settlement Agreement with Ernest Weir Gardiner****
10.14 Stock Purchase Agreement******
10.15 Form of Subscription Agreement
10.16 Exchange Agreement
23.1 Consent of Hoffski & Pisano*
23.2 Consent of Bedford Curry & Co.*
27.1 Financial Data Schedule
99.1 Letter of Bedford Curry & Co.******
99.2 Letter of Ernst & Young LLP******
- ---------------------------------
* Previously submitted with initial filing of registration statement
** Previously submitted in First Amendment to registration statement
*** Previously submitted in Second Amendment to registration statement
**** Previously submitted in Third Amendment to registration statement
***** Previously filed with the Amended Quarterly Report on Form 10QSB/A
for the quarter ended September 30, 1999.
****** Previously filed with the Fourth 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: February 11, 2000 By: /S/James J. Hutton
--------------------------
James J. Hutton, CEO
SUBSCRIPTION AGREEMENT
Agreement (this "Agreement"), made as of this 1st day of April, 1999, by
and between EQUITY CAPITAL GROUP, INC., a Nevada corporation (the "Company") and
- ----------------------------------- ("Subscriber").
In consideration of the mutual promises and covenants herein contained, the
parties hereto (the "Parties") agree as follows:
WHEREAS, the Company has entered into a "Stock Purchase Agreement" dated
this date under which it authorized a 4:1 reverse split of the issued and
outstanding shares of its common stock, $0.001 par value each ("Shares"); and,
immediately thereafter, sold an aggregate of 8,293,000 Shares all of which are
freely tradable pursuant to Rule 504 of the United States Securities Act of 1933
(the "Securities Act") to William E. Krebs and James J. Hutton as "Buyers'
Attorneys in Fact" as representatives of Subscriber and other subscribers and
not as principals in consideration of an aggregate purchase price of $200,000;
and
WHEREAS, this Agreement is one of a series of subscription agreements
containing identical terms and conditions between the Company and the individual
subscribers represented by the Buyers' Attorneys in Fact which, in the
aggregate, represent the sale of 8,293,000 Shares pursuant to the Stock Purchase
Agreement.
ARTICLE 1
SUBSCRIPTION
1.01 Subscription. Subject to the terms and conditions hereof and to
acceptance by the Company, Subscriber hereby irrevocably offers to purchase
- ----------- Shares for U.S. $0.02412 each, being a total of U.S.
$-------------------.
1.02 Acceptance of Subscription. The Company by its execution of this
Agreement accepts the Subscriber's subscription in full. It is acknowledged by
the Parties that the purchase price of the Shares has been paid in full to the
Buyers' Attorneys in Fact.
1.03 Lack of Registration of the Shares. The Shares have not been
registered under the Securities Act or any applicable state securities laws and
are issued pursuant to an exemption from registration under the Securities Act
provided by Rule 504 thereto.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 Status of Subscriber. Subscriber, if an individual, is at least 18
years of age. If an association, each individual of the association is at least
18 years of age. If a trust, the trustee is at least 18 years of age.
2.02 Access to Information. Because of Subscriber's pre-existing business
or personal relationship with the Company or with the officers and directors of
the Company, or by reason of the business or financial experience of Subscriber
or his/her/its professional advisors who are unaffiliated with and who are not
compensated by the Company, or any affiliate thereof. Subscriber has the
capacity to protect his/her/its own interests in connection with the offer and
sale of the Shares.
Subscriber has had access to all material and relevant information
necessary to enable Subscriber to make an informed investment decision. All data
requested by Subscriber from the Company or its representatives concerning the
business and financial condition of the Company and the terms and conditions of
the offering have been furnished to Subscriber's satisfaction. Subscriber has
had the opportunity to ask questions of and receive answers from the Company
concerning the terms and conditions of this offering, and to obtain from the
Company any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of the information received.
2.03 Understanding of Investment Risks. Subscriber understands that there
is a limited market for the Shares and no assurance that a substantial market
will develop, and that realization of the objectives of the Company is subject
to significant economic and business risks.
2.04 Understanding of Nature of the Shares. Subscriber understands that the
Shares have not been registered under the Securities Act and may be traded under
the exemptions to registration provided by Rule 504 to the Securities Act.
2.05 Investment Intent. Subscriber represents and warrants that:
(a) Subscriber is acquiring the Shares for the Subscriber's own account
and not for or on behalf of any other person;
(b) Subscriber is acquiring the Shares for investment and not for
distribution or with the intent to divide Subscriber's participating
with others or of distributing the Shares;
(c) neither Subscriber nor anyone acting on Subscriber's behalf has paid
any commission or other remuneration to any person in connection with
the purchase of the Shares; and
(d) Subscriber will not sell the Shares without registration under the
Securities Act or other applicable securities laws or regulations, or
an exemption therefrom.
<PAGE>
2.06 Residence of Subscriber. The residence of Subscriber set forth below
is the true and correct residence of Subscriber and he or she has no present
intention of becoming a resident of domiciliary of any other state, country, or
jurisdiction.
2.07 Further Assurance. Subscriber will execute and deliver to the Company
any do any other act or thing, which the Company may reasonably request in
connecting with the acquisition of the Shares.
2.08 Non-disclosure. Subscriber has not distributed any written materials
furnished to Subscriber by the Company to anyone other than the Subscriber's
professional advisors.
2.09 Ability to Bear Economic Risk. Subscriber is able to bear the economic
risk of an investment in the Shares and to maintain his investment in the Shares
for an indefinite period of time and, further, could bear a total loss of the
investment and not change his standard of living which existed at the time of
such investment.
2.10 For Partnership, Corporations, Trusts or Other Entities Only. If
Subscriber is a partnership, corporation, trust, or other entity:
(a) Subscriber has enclosed with this Agreement appropriate evidence of
the authority of the individual executing this Agreement to act on its
behalf (i.e. if a trust, a copy of the trust agreement; if a
corporation, a certified corporate resolution authorizing the
signature and a copy of the articles of incorporation; or if a
partnership, a copy of the partnership agreement); and
(b) Subscriber has the full power and authority to execute this
Subscription Agreement on behalf of such entity and to make the
representations and warranties made herein on its behalf and this
investment in the Company has been affirmatively authorized by the
governing board of such entity and is not prohibited by the governing
documents of the entity.
2.11 Subscribers in Canada. Residents of Canada, including corporations or
entities whose principal place of business or place of organization is Canada,
agree to concurrently herein sign and deliver to the Company a British Columbia
Securities Commission Form 20A.
ARTICLE III
RIGHTS OF RESCISSION
3.01 Subscribers residing in Canada shall have the rights of rescission and
action described in the Offering Memorandum issued by the Company with respect
to its offering of the Shares, and the various rights of rescission and action
granted by the securities laws of the Province in which they reside, and the
provisions thereof are deemed to be included in this Agreement as though they
were set out in full herein.
3.02 All of the rights referred to in Clause 4.01 are in addition to, and
not in derogation from the rights of the Subscriber pursuant to the common law.
<PAGE>
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 Captions and Headings. The Article and Section headings throughout
this Agreement are for convenience of reference only and shall in no way be
deemed to define, limit or add to any provision of this Agreement.
4.02 Entire Agreement; Amendment. This Agreement states the entire
agreement and understanding of the Parties and shall supersede all prior
agreements and understandings. No amendment of the Agreement shall be made
without the express written consent of the Parties.
4.03 Severability. The invalidity of unenforceability of any particular
provision of this Agreement shall not affect any other provision hereof, which
shall be construed in all respects as if such invalid or unenforceable provision
were omitted.
4.04 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada for contracts made and to be
performed within the State of Nevada.
4.05 Notices. All notices, requests, demands, consents, and other
communications hereunder shall be transmitted in writing and shall be deemed to
have been duly given when hand-delivered or sent by certified mail, postage
prepaid, with return receipt requested, addressed to the Parties as follows: to
the Company, at 2100 West Orangewood Avenue, Suite 220, Orange, California
92868-1950; and to Subscriber, at the address indicated below. Any Party may
change his/her/its address for purposes of this Agreement by giving written
notice to the other as provided herein.
IN WITNESS WHEREOF the Parties have executed this Agreement the day and
year first above written.
EQUITY CAPITAL GROUP, INC.
Per:
--------------------------
Authorized Officer
- --------------------------
Subscriber's Signature
- --------------------------
- --------------------------
- --------------------------
Subscriber's Address
<PAGE>
THIS EXCHANGE AGREEMENT made and effective as of July 5, 1999.
A WARRANTS
BETWEEN: ACREX VENTURES LTD., a body corporate, incorporated pursuant to
the laws of the Province of British Columbia and having its registered office at
1710 - 1177 West Hastings Street, in the City of Vancouver, Province of British
Columbia, V6E 2L3, Canada
(hereinafter referred to as "Acrex")
OF THE FIRST PART
AND:
VOICE MOBILITY INTERNATIONAL, INC., a body corporate, incorporated under
the laws of the State of Nevada, United States of America, having an office at
Suite 220, 2100 West Orangewood Avenue, in the City of Orange, State of
California, 92868-1950, United States of America
(hereinafter referred to as the "Issuer")
OF THE SECOND PART
AND:
The person, company or other entity described as "Subscriber" on the last
page of this Agreement
(hereinafter referred to as "Subscriber")
OF THE THIRD PART
WHEREAS:
A. Subscriber has signed a Subscription Agreement with Acrex (the "Acrex
Agreement") pursuant to which Subscriber paid to Acrex the amount (in
Canadian funds) shown opposite the Subscriber's name on the last page
hereof ("Subscription Amount") for securities of Acrex;
B. Acrex has not obtained the approval of the Acrex Agreement by the Vancouver
Stock Exchange and therefore wishes to be relieved of its obligations to
Subscriber.
C. The Subscription Amount was loaned by Acrex to Voice Mobility Inc. ("VMI")
on terms which make VMI responsible to repay the said amount (such
obligation being herein described as the "Debt");
D. The Subscriber wishes to acquire rights to purchase voting common shares of
the Issuer ("Shares").
E. The Parties are agreed that VMI's obligation to repay the Subscription
Amount be assigned by Acrex to the Issuer to be applied by the Issuer as
hereinafter provided;
NOW THEREFORE in consideration of the premises and the covenants and
agreements hereinafter contained, the parties agree as follows:
1. Acrex hereby assigns and transfers the Debt to the Issuer.
2. Subscriber agrees to the assignment of the Debt by Acrex to the Issuer and
hereby remises, releases and forever discharges Acrex from any further
liabilities, obligations or commitments whatsoever that exist or might be
alleged to exist pursuant to the Acrex Agreement. The Subscriber further
agrees that the delivery to Acrex of a copy of this Agreement showing the
execution of it by the Subscriber shall be proof to Acrex of the release
herein given to it by the Subscriber.
<PAGE>
3. The Issuer agrees, in satisfaction of its obligations under the Debt, that
Subscriber shall have the non-cancellable rights (hereinafter called
"Warrants" or "A" Warrants) to purchase up to the number of Shares in the
capital of the Issuer set opposite Subscriber's name on the final page of
this Agreement, on the following basis:
(a) the Warrants may be exercised by Subscriber in whole or in part from
time to time;
(b) Subscriber may exercise Warrants by giving a notice to such effect to
the Issuer and sending payment of the appropriate amounts of money to
the Issuer;
(c) the Warrants will be exercisable at and for a price of $0.35 (US) per
share on or before December 29, 2000;
(d) the Shares which Subscriber shall receive upon the exercise of
Warrants shall be common shares in the capital of the Issuer as they
are constituted as of the date hereof; PROVIDED THAT if subsequent to
this date, there shall be any alteration in the voting common shares
of the Issuer other than an increase or decrease in the number
authorized or issued, the shares which Subscriber will receive upon
the exercise of Warrants will be shares of the same class as are
equivalent to the shares of the Issuer which Subscriber would receive
if it exercised Warrants on the date of this Agreement;
(e) if Subscriber exercises Warrants and its payments therefore are
cleared into the account of the Issuer, the Issuer shall cause a
certificate for the appropriate number of Shares to be forthwith
issued and delivered to Subscriber; and
(f) the Shares issued to Subscriber pursuant to the exercise of Warrants
will be issued to it as fully paid and non-assessable shares free of
liens, but they will be subject to such trading restrictions as may be
applicable to them from time to time pursuant to the securities laws
of the United States of America and of the Province of Canada in which
the Subscriber resides.
4. Neither the Warrants, nor the Shares that will be issued pursuant to the
exercise of Warrants, have been registered under the United States
Securities Act of 1933 ("Securities Act") or any applicable securities laws
of any State of the United States of America, and will be issued to
Subscriber pursuant to an exemption from registration under the Securities
Act provided by Rule 504 thereunder and pursuant to prospectus exemption
provisions in the securities laws of the Province in which Subscriber
resides.
5. The Issuer covenants and warrants in favour of Subscriber that:
(a) it is a corporation duly incorporated pursuant to the laws of the
State of Nevada, United States of America, and is in good standing and
in full satisfaction of all of its obligations pursuant to the laws
and regulations of the said State;
(b) The shares of the Issuer are traded on the National Association of
Securities Dealers' Over The Counter Bulletin Board ("BB") and the
Issuer is in full compliance with all applicable rules and
requirements of the NASD;
<PAGE>
(c) the Issuer is unrestricted in its right to enter into this agreement,
and is not restricted from satisfying its obligations hereunder by the
terms of any other agreement to which it is a party or any outstanding
orders or judgments;
6. Subscriber covenants and warrants in favour of the Issuer that:
(a) Subscriber is acquiring the Warrants for Subscriber's own account and
not for or on behalf of any other person;
(b) Subscriber is acquiring the Warrants for investment and not for
distribution or with the intent to divide Subscriber's participation
with others;
(c) neither Subscriber nor anyone acting on Subscriber's behalf has paid
any commission or other remuneration to any person in connection with
the acquisition of the Warrants; and
(d) Subscriber will not sell the Warrants, or the Shares received on the
exercise of Warrants, without registration under the Securities Act or
other applicable securities laws or regulations, or an exemption
therefrom.
7. Subscriber undertakes to execute or cause to be executed and delivered to
the Issuer, and assist the Issuer in filing on a timely basis any report or
undertaking with any securities commission, stock exchange or other
regulatory authority which may be required by applicable securities
legislation and stock exchange rules in connection with its acquisition of
the Warrants.
8. All covenants, representations, warranties and indemnities made herein
shall survive the closing of this Agreement.
9. The Parties hereto agree to do, execute and deliver, or cause to be done,
executed and delivered, all such further assignments, documents, acts,
matters and things as, from time to time, may be reasonably required to
give effect to this agreement and the obligations of the parties hereunder.
10.
(a) Subscribers residing in Canada shall have the rights of rescission and
action described in its Offering Memorandum dated June 30, 1999 (a
copy of which Subscriber hereby acknowledges having received) and the
various rights of rescission and action granted by the securities laws
of the Provinces in which they reside, and the provisions thereof are
deemed to be included in this Agreement as though they were set out in
full herein.
(b) All of the rights referred to in sub-clause (a) are in addition to,
and not in derogation from, the rights of Subscriber pursuant to the
common law.
11. Time shall be of the essence of this agreement and of each and every part
hereof.
12. This agreement may be executed in any number of counterparts and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.
13. This agreement shall be interpreted according to the laws of the State of
Nevada and the laws of the United States of America applicable therein.
<PAGE>
14. Any notice which is required to be given hereunder shall be given in
writing and will be effectively given if the same is:
(a) delivered or mailed by prepaid registered or certified post to the
address of the intended recipient set forth in this agreement;
(b) delivered to a director of an intended corporate recipient;
(c) sent be telecopier (fax) to the intended recipient at the following
numbers:
Subscriber: Number set forth on final page of this Agreement
Issuer: (604) 482-1169
Acrex: (604) 681-0139
provided that any party may give notice to the other parties of new
addresses or new fax numbers to be used for the purpose of this provision.
Any notice which is delivered shall be deemed to have been given on the
date of delivery. Any notice which is sent by telecopier shall be deemed to
be given on the first weekday following the date upon which the telecopied
message is transmitted. Any notice that is sent by prepaid mail shall be
deemed to have been given on the 5th weekday after the date upon which the
notice is mailed from a Post Office in continental Canada or the United
States of America.
15. None of the parties may assign any of their rights hereunder without the
prior written consent of the other parties, such consent not to be
unreasonably withheld.
16. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF the parties hereto have caused this agreement to be
executed by their duly authorized officers as and from the day and year first
above written.
ACREX VENTURES LTD.
Per: /s/ W.E. Krebs
-----------------------------
W.E. Krebs - Secretary
VOICE MOBILITY INTERNATIONAL, INC.
Per: /s/ J. Hutton
-----------------------------
J. Hutton - President
Subscriber:
- ---------------------------------------- ------------------
Signature Shares
$
- ---------------------------------------- ------------------
Name of Subscriber Amount paid Acrex
- ----------------------------------------
- ----------------------------------------
Address of Subscriber
- ----------------------------------------
Fax Number
