UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission file number: 001-51743
m-Wise, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 11-3536906 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3 Sapir Street, Herzeliya Pituach, Israel 46852
(Address of principal executive offices)
+972-73-2620000
(Registrant’s telephone number, including area code)
All Correspondence to:
Arthur S. Marcus, Esq.
Gersten Savage LLP
600 Lexington Avenue, 9th Floor
New York, New York 10022
(212) 752-9700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the Registrant is a large accelerated filer,, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares outstanding of the issuer's common stock, as of May 17, 2010, was 148,392,452.
Index
| | | Page |
| | | |
PART I: FINANCIAL INFORMATION | | | 2 |
| | | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | | 2 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | | | 10 |
Item 4T. | Controls and Procedures | | | 10 |
| | | | |
PART II: OTHER INFORMATION | | | 10 |
| | | |
Item 1. | Legal Proceedings | | | 10 |
Item 1A. | Risk Factors | | | 10 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | | 10 |
Item 3. | Defaults upon Senior Securities | | | 10 |
Item 4. | (Removed and Reserved) | | | 11 |
Item 5. | Other Information | | | 11 |
Item 6. | Exhibits | | | 11 |
| | | | |
SIGNATURES | | | 13 |
PART I:
FINANCIAL INFORMATION
Item 1: Financial Statements
M-WISE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2010 AND 2009
UNAUDITED
CONTENTS |
| | |
Condensed Consolidated Balance Sheets | | | 1 |
| | | |
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income | | | 2 |
| | | |
Condensed Consolidated Statements of Cash Flows | | | 3 |
| | | |
Notes to Condensed Consolidated Financial Statements | | | 4 - 13 |
M-WISE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of March 31, 2010 and December 31, 2009
| | March 31, | | | December 31, | |
| | 2010 | | | 2009 | |
| | (Unaudited) | | | (Audited) | |
ASSETS | | | | | | |
Current | | | | | | |
Cash | | $ | 274,393 | | | $ | 165,504 | |
Short-term investment | | | 7,842 | | | | 7,837 | |
Accounts receivable - trade (net of allowance for doubtful accounts of $22,239; - $12,563) | | | 784,302 | | | | 822,741 | |
Prepaid expenses and other assets | | | 82,321 | | | | 47,729 | |
Government grants receivable | | | 26,906 | | | | 87,026 | |
| | | | | | | | |
Total Current Assets | | | 1,175,764 | | | | 1,130,837 | |
| | | | | | | | |
Long-term Prepaid Expenses | | | 13,338 | | | | 10,930 | |
Plant and Equipment, net (note 3) | | | 74,336 | | | | 71,891 | |
| | | | | | | | |
Total Long-term Assets | | | 87,674 | | | | 82,821 | |
| | | | | | | | |
Total Assets | | $ | 1,263,438 | | | $ | 1,213,658 | |
| | | | | | | | |
LIABILITIES | | | | | | | | |
Current | | | | | | | | |
Accounts payable - trade | | $ | 19,737 | | | $ | 46,541 | |
Other payables and accrued expenses (note 8) | | | 1,185,883 | | | | 1,136,324 | |
Advances from stockholder (note 4) | | | 290,860 | | | | 304,688 | |
Billings in excess of costs on uncompleted contracts | | | - | | | | 24,400 | |
| | | | | | | | |
Total Current Liabilities | | | 1,496,480 | | | | 1,511,953 | |
Accrued Severance Pay (note 5) | | | 139,089 | | | | 127,493 | |
| | | | | | | | |
Total Liabilities | | | 1,635,569 | | | | 1,639,446 | |
Commitments and Contingencies (note 11) | | | | | | | | |
| | | | | | | | |
STOCKHOLDERS' DEFICIT | | | | | | | | |
Capital Stock (note 6) (148,392,452 common stock; 2009 - 139,322,145 common stock) | | | 252,267 | | | | 236,848 | |
Additional Paid-in Capital | | | 12,037,074 | | | | 11,850,838 | |
Accumulated Deficit | | | (12,661,472 | ) | | | (12,513,474 | ) |
| | | | | | | | |
Total Stockholders' Deficit | | | (372,131 | ) | | | (425,788 | ) |
| | | | | | | | |
Total Liabilities and Stockholders' Deficit | | $ | 1,263,438 | | | $ | 1,213,658 | |
(The accompanying notes are an integral part of these consolidated financial statements.)
M-WISE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
For the Three Months Ended March 31, 2010 and 2009
Unaudited
| | | | | (Note 13) | |
| | Three Months | | | Three Months | |
| | Ended | | | Ended | |
| | March 31, | | | March 31, | |
| | 2010 | | | 2009 | |
| | | | | | |
Sales | | | | | | |
Customer services and technical support | | $ | 445,857 | | | $ | 305,591 | |
Revenue share | | | 252,016 | | | | 284,241 | |
Product sales and license | | | 216,646 | | | | 202,947 | |
| | | | | | | | |
| | | 914,519 | | | | 792,779 | |
| | | | | | | | |
Cost of Sales | | | 338,453 | | | | 178,365 | |
| | | | | | | | |
Gross Profit | | | 576,066 | | | | 614,414 | |
| | | | | | | | |
Expenses | | | | | | | | |
General and administrative | | | 596,366 | | | | 335,052 | |
Research and development | | | 124,540 | | | | 139,119 | |
| | | | | | | | |
Total Expenses | | | 720,906 | | | | 474,171 | |
| | | | | | | | |
(Loss) Earnings from Operations | | | (144,840 | ) | | | 140,243 | |
| | | | | | | | |
Other Income (Expenses) | | | | | | | | |
Extinguishment of debt | | | 13,164 | | | | - | |
Interest and other | | | (16,322 | ) | | | 29,995 | |
| | | | | | | | |
Total Other Income (Expenses) | | | (3,158 | ) | | | 29,995 | |
| | | | | | | | |
(Loss) Earnings before Income Taxes | | | (147,998 | ) | | | 170,238 | |
Provision for income taxes (note 7) | | | - | | | | - | |
| | | | | | | | |
Net (Loss) Earnings and Comprehensive (Loss) Income | | $ | (147,998 | ) | | $ | 170,238 | |
| | | | | | | | |
(Loss) Earnings Per Share - Basic and Diluted | | $ | 0.00 | | | $ | 0.00 | |
| | | | | | | | |
Weighted Average Number of Common Shares Outstanding - Basic and Diluted | | | 146,507,200 | | | | 139,322,145 | |
(The accompanying notes are an integral part of these consolidated financial statements.)
M-WISE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2010 and 2009
Unaudited
| | | | | (Note 13) | |
| | Three Months | | | Three Months | |
| | Ended | | | Ended | |
| | March 31, | | | March 31, | |
| | 2010 | | | 2009 | |
| | | | | | |
Cash Flows from Operating Activities | | | | | | |
Net (loss) earnings | | $ | (147,998 | ) | | $ | 170,238 | |
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | | | | | | | | |
Consulting fees paid by issuance of common stock | | | 50,000 | | | | - | |
Depreciation | | | 7,588 | | | | 8,216 | |
Expense paid by cashless exercise of warrants | | | 3,172 | | | | - | |
Employee options vested | | | 68,850 | | | | 54,354 | |
| | | | | | | | |
| | | (18,388 | ) | | | 232,808 | |
Net changes in assets and liabilities: | | | | | | | | |
Accounts receivable - trade | | | 38,439 | | | | (17,678 | ) |
Prepaid expenses and other assets | | | (37,000 | ) | | | 8,454 | |
Government grants receivable | | | 60,120 | | | | - | |
Accounts payable - trade | | | (26,801 | ) | | | (13,982 | ) |
Other payables and accrued expenses | | | 49,559 | | | | (76,404 | ) |
Billings in excess of costs on uncompleted contracts | | | (24,400 | ) | | | - | |
Accrued severance pay | | | 11,596 | | | | (12,225 | ) |
| | | | | | | | |
Net Cash Provided by Operating Activities | | | 53,125 | | | | 120,973 | |
| | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | |
Acquisition of plant and equipment | | | (10,036 | ) | | | (1,769 | ) |
Short-term investment | | | (5 | ) | | | - | |
| | | | | | | | |
Net Cash Used in Investing Activities | | | (10,041 | ) | | | (1,769 | ) |
| | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | |
Payments to stockholder | | | (13,828 | ) | | | (6,392 | ) |
Proceeds from issuance of common stock | | | 79,633 | | | | - | |
| | | | | | | | |
Net Cash Provided by (Used in) Financing Activities | | | 65,805 | | | | (6,392 | ) |
| | | | | | | | |
Net Increase in Cash | | | 108,889 | | | | 112,812 | |
| | | | | | | | |
Cash - Beginning of Period | | | 165,504 | | | | 169,206 | |
| | | | | | | | |
Cash - End of Period | | $ | 274,393 | | | $ | 282,018 | |
| | | | | | | | |
Interest and Income Taxes Paid | | | | | | | | |
During the year, the Company had cash flows arising from income taxes and interest paid as follows: | | | | | | | | |
| | | | | | | | |
Interest | | $ | 21 | | | $ | 24 | |
| | | | | | | | |
Income taxes | | $ | - | | | $ | - | |
(The accompanying notes are an integral part of these consolidated financial statements.)
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
1. | Description of Business and Going Concern |
| a) | Description of Business |
m-Wise Inc. (the "Company") is a Delaware corporation that develops interactive messaging platforms for mobile phone-based commercial applications, transactions, and information services with internet billing capabilities.
The Company's wholly-owned subsidiaries are: m-Wise Ltd., which is located in Israel and was incorporated in 2000 under the laws of Israel; and m-Wise Tecnologia LTDA., which is located in Brazil and was incorporated in 2009 under the laws of Brazil.
The Company's unaudited consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company's negative working capital raises substantial doubt as to its ability to continue as a going concern. As at March 31, 2010 and December 31, 2009, the Company experienced a working capital deficit of $320,716 and $381,116, respectively.
The Company's ability to continue as a going concern is also contingent upon its ability to secure additional financing, continuing sale of its products and achieving profitable operations.
The Company is pursuing additional financing, but there can be no assurance that the Company will be able to secure financing when needed or obtain financing on terms satisfactory to the Company, if at all.
The unaudited consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
2. | Summary of Significant Accounting Policies |
The accounting policies of the Company are in accordance with accounting principles generally accepted in the United States of America, and their basis of application is consistent with that of the previous year. Outlined below are those policies considered particularly significant:
The unaudited consolidated financial statements presented herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial statements and in accordance with the instructions to Form 10-Q. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals which, in the opinion of management, are considered necessary for a fair presentation of the Company's consolidated financial position, results of operations and cash flows for the interim periods presented.
Results of operations for the interim periods are not necessarily indicative of results of operations for future interim periods or for the full fiscal year ending December 31, 2010. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended December 31, 2009.
| b) | Recent Accounting Pronouncements Affecting the Company |
In February 2010, the FASB issued ASI 2010-09, “Subsequent Events (Topic 855); Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-9”). The standard amends Subtopic 855-10, “Subsequent Events” to remove the requirement for a SEC filer to disclose the date through which subsequent events have been evaluated. ASI 2010-9 is effective upon issuance of the final update. The Company does not expect the adoption of ASI 2010-9 to have a material impact on its financial statements.
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
3. | Plant and Equipment, net |
Plant and equipment is comprised of the following:
| | | | | March 31, | | | | | | December 31, | |
| | | | | 2010 | | | | | | 2009 | |
| | | | | Accumulated | | | | | | Accumulated | |
| | Cost | | | Depreciation | | | Cost | | | Depreciation | |
| | | | | | | | | | | | |
Furniture and equipment | | $ | 73,559 | | | $ | 43,934 | | | $ | 73,559 | | | $ | 42,590 | |
Computer equipment | | | 185,014 | | | | 140,511 | | | | 174,978 | | | | 134,292 | |
Leasehold improvements | | | 2,592 | | | | 2,384 | | | | 2,592 | | | | 2,356 | |
| | | | | | | | | | | | | | | | |
| | $ | 261,165 | | | $ | 186,829 | | | $ | 251,129 | | | $ | 179,238 | |
| | | | | | | | | | | | | | | | |
Net carrying amount | | | | | | $ | 74,336 | | | | | | | $ | 71,891 | |
Depreciation expenses of $6,920 (2009 - $7,584) and $668 (2009 - $632) have been included in research and development, and general and administrative expenses, respectively.
4. | Advances from Stockholder |
The advances from the Company's major stockholder are non-interest bearing, unsecured and have no fixed terms of repayment. According to an agreement dated January 2003, the stockholder granted a credit facility of $500,000 to the Company in return for all preferred class "C" shares as described in note 6. As of March 31, 2010 and December 31, 2009, the line of credit had an outstanding balance of $290,860 and $304,688, respectively.
The Company accounts for its potential severance liability of its Israeli subsidiary in accordance with EITF 88-1, "Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan". The Company's liability for severance pay is calculated pursuant to applicable labour laws in Israel on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date for all employees. The Company's liability is fully accrued and reduced by monthly deposits with severance pay funds and insurance policies. As at March 31, 2010 and December 31, 2009, the amount of the liabilities accrued were $387,205 and $353,880, respectively. Severance pay expenses for the three months ended March 31, 2010, and 2009 were $27,241 and $16,444 respectively.
The Company makes monthly payments to the severance funds with insurance companies, that the employees choose. The amounts deposited with the insurance companies are not under the control or administration of the Company. The insurance companies are governed by local regulations that limit the asset allocation in high risk assets.
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
5. | Accrued Severance Pay (cont'd) |
The deposit funds include profits accumulated up to the balance sheet date from the Israeli company. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay laws or labour agreements. Cash surrender values of the deposit funds as of March 31, 2010, and December 31, 2009, were $248,116 and $226,387, respectively. Income earned from the deposit funds for 2010 and 2009 was immaterial.
Authorized:
| 310,000,000 | Common stock, par value $0.0017 per share |
| 170,000,000 | Preferred stock |
| Series "A": convertible, voting, par value of $0.0017 per share |
| Series "B": 10% non-cumulative dividend, redeemable, convertible, voting, par value of $0.0017 per share |
| Series "C": 10% non-cumulative dividend, convertible, voting, par value of $0.0017 per share |
| | March 31, | | | December 31, | |
| | 2010 | | | 2009 | |
Issued: | | | | | | |
148,392,452 Common stock (2009 - 139,322,145) | | $ | 252,267 | | | $ | 236,848 | |
Stock Options and Warrants:
The Company has accounted for its stock options and warrants in accordance with SFAS No. 123(R) "Share-Based Payments" ("FAS No. 123(R)"), and SFAS No. 148, "Accounting for Stock - Based Compensation - Transition and Disclosure - an amendment of FASB Statements No. 123" ("SFAS No. 148"). The value of options granted has been estimated by the Black Scholes option pricing model. The assumptions are evaluated annually and revised as necessary to reflect market conditions and additional experience. The following weighted average assumptions were used:
| | 2010 | | | 2009 | |
| | Israel | | | International | | | Israel | | | International | |
Expected discount yield | | | - | % | | | - | % | | | - | % | | | - | % |
Risk-free interest rate | | | 2.1 | % | | | 1.5 | % | | | 2.1 | % | | | 1.2 | % |
Expected volatility | | | 122 | % | | | 122 | % | | | 122 | % | | | 122 | % |
Expected life in years | | | 1.75 | | | | 3.75 | | | | 2 | | | | 4 | |
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
Warrants:
On December 18, 2009, the exercise price of the 5,263,158 warrants originally issued to Syntek was changed to $0.015, resulting in additional compensation cost of $17,369 included in interest and other.
On January 12, 2010, 5,263,158 warrants were converted into 5,263,158 common shares at an exercise price of $0.015 per warrant, and cash received was $79,633.
On January 17, 2010, 2,248,251 warrants were converted into 2,057,149 common shares in a cashless exercise.
Capital Stock:
On January 12, 2010, 5,263,158 warrants were converted into 5,263,158 common shares at an exercise price of $0.015 per warrant, and cash received was $79,633.
On January 17, 2010, 2,248,251 warrants were converted into 2,057,149 common shares, in a cashless exercise.
On February 1, 2010, the Company issued 750,000 common shares, valued at $30,000, for consulting services.
On March 10, 2010, the Company issued 1,000,000 common shares, valued at $20,000, for consulting services.
Stock Options:
Under the Israel 2001 Share Option Plan, management authorized stock options for 2,403,672 common shares of the Company, and under the International 2001 Share Option Plan, stock options for 300,000 common shares. As of March 31, 2010, 3,672 options under the Israel 2001 Share Option Plan for common stock were not yet granted and available for future grant.
Under the Israel 2003 Stock Option Plan, management authorized stock options (on a post conversion, post split basis) for 16,094,106 preferred Class "B" shares. On January 5, 2006, the share option plan was amended to authorize an additional 1,260,000 stock options. On August 14, 2006, the share option plan was amended to authorize an additional 6,000,000 stock options. On August 3, 2009, the exercise price of 5,000,000 options granted under the Israel 2003 Stock Option Plan and 11,000,000 options granted under the 2003 International Share Option Plan was amended to $0.02. As of March 31, 2010, 38,256 options under the Israel 2003 Stock Option Plan were not yet granted and available for future grant.
On August 3, 2009, the Company lowered the exercise price of 5,000,000 options in its Israel 2003 Stock Option Plan and 11,000,000 options in the International 2003 Share Option Plan to $0.02, resulting in additional compensation costs of $28,800 in accordance with SFAS 123(R), Paragraph A150. $28,800 was included in general and administrative expense.
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
Stock Options (cont'd):
On August 18, 2009, 180,000 stock options at an exercise price of $0.02 were granted under the International 2003 Share Option Plan.
On August 25, 2009, 60,000 stock options at an exercise price of $0.0017 were granted under the International 2003 Share Option Plan.
On October 22, 2009, 200,000 stock options at an exercise price of $0.03 were granted under the International 2003 Share Option Plan.
On December 30, 2009, 4,000,000 stock options at an exercise price of $0.02 and 7,000,000 stock options at an exercise price of $0.03 were granted under the International 2003 Share Option Plan.
On December 30, 2009, 13,000,000 stock options at an exercise price of $0.02 were granted under the Israel 2003 Stock Option Plan.
On March 23, 2010, 500,000 stock options at an exercise price of $0.03 were granted under the International 2003 Share Option Plan.
The options vest gradually over a period of four years from the date of grant for the Israel Plan and ten years (no less than 20% per year for five years for options granted to employees) for the International Plan. The term of each option shall not be more than eight years from the date of grant in Israel and ten years from the date of grant in the International Plan. The outstanding options that have vested have been expensed in the consolidated statements of operations as follows:
Year ended December 31, 2001 | | $ | 9,000 | |
Year ended December 31, 2002 | | | - | |
Year ended December 31, 2003 | | | 384,889 | |
Year ended December 31, 2004 | | | 25,480 | |
Year ended December 31, 2005 | | | 13,733 | |
Year ended December 31, 2006 | | | 117,044 | |
Year ended December 31, 2007 | | | 181,622 | |
Year ended December 31, 2008 | | | 583,477 | |
Year ended December 31, 2009 | | | 207,343 | |
Three months ended March 31, 2010 | | | 68,850 | |
| | | | |
| | $ | 1,591,438 | |
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
Stock Options (cont'd):
The following table summarizes the activity of common stock options during the three months ended March 31, 2010 and the year ended December 31, 2009:
| | 2010 | | | 2009 | |
| | Israel | | | International | | | Israel | | | International | |
| | | | | | | | | | | | |
Outstanding, beginning of period | | | 38,901,400 | | | | 39,616,797 | | | | 25,901,400 | | | | 28,176,797 | |
Granted | | | - | | | | 500,000 | | | | 13,000,000 | | | | 11,440,000 | |
Expired | | | - | | | | - | | | | - | | | | - | |
Cancelled | | | - | | | | - | | | | - | | | | - | |
Forfeited | | | (361,250 | ) | | | - | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding, end of period | | | 38,540,150 | | | | 40,116,797 | | | | 38,901,400 | | | | 39,616,797 | |
| | | | | | | | | | | | | | | | |
Weighted average fair value of options granted during the period | | $ | - | | | $ | 0.0236 | | | $ | 0.0157 | | | $ | 0.0153 | |
| | | | | | | | | | | | | | | | |
Weighted average exercise price of common stock options, beginning of period | | $ | 0.0262 | | | $ | 0.0286 | | | $ | 0.0315 | | | $ | 0.0356 | |
| | | | | | | | | | | | | | | | |
Weighted average exercise price of common stock options granted in the period | | $ | - | | | $ | 0.0300 | | | $ | 0.0200 | | | $ | 0.0262 | |
| | | | | | | | | | | | | | | | |
Weighted average exercise price of common stock options, end of period | | $ | 0.0262 | | | $ | 0.0356 | | | $ | 0.0262 | | | $ | 0.0286 | |
| | | | | | | | | | | | | | | | |
Weighted average remaining contractual life of common stock options | | 2.27 years | | | 2.40 years | | | 2.5 years | | | 2.63 year | |
The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No.109"). This standard prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates. The effects of future changes in tax laws or rates are not anticipated.
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
Under SFAS No. 109, income taxes are recognized for the following: a) amount of tax payable for the current year, and b) deferred tax liabilities and assets for future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Management determined that the values of its assets and liabilities recorded for financial reporting purposes are not materially different from their values for income tax purposes and therefore, no deferred tax assets/liabilities have been recorded in the accompanying financial statements to account for the temporary differences.
There are no differences between the Company's reported income tax expense on operating income and the expense that would otherwise result from the application of statutory rates. The Company's non capital loss carryforwards are being used to offset the current income tax expense.
The Company has deferred income tax assets as follows:
| | March 31, | | | December 31, | |
| | 2010 | | | 2009 | |
Deferred income tax assets | | | | | | |
Loss carryforwards | | $ | 3,065,000 | | | $ | 3,027,000 | |
Less: Valuation allowance | | | (3,065,000 | ) | | | (3,027,000 | ) |
| | | | | | | | |
Total net deferred tax assets | | $ | - | | | $ | - | |
For the three months ended March 31, 2010 and the year ended December 31, 2009, the Company provided a valuation allowance equal to the deferred income tax assets because it is not presently more likely than not that they will be realized.
As of March 31, 2010, the Company had approximately $12,038,000 tax loss carryforwards in the United States. Tax loss carryforwards in the United States, if not utilized, will expire in 20 years from the year of origin as follows:
December 31, 2020 | | $ | 751,500 | |
2021 | | | 2,398,000 | |
2022 | | | 778,000 | |
2023 | | | 5,005,000 | |
2024 | | | 581,000 | |
2025 | | | 560,500 | |
2026 | | | 196,000 | |
2027 | | | 700,000 | |
2028 | | | 945,000 | |
2029 | | | 123,000 | |
| | | | |
| | $ | 12,038,000 | |
As of March 31, 2010, the Company had approximately $212,000 (December 31, 2009 - $187,000) in tax losses in its Israeli subsidiary which will carryforward indefinitely.
M-WISE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2010 and 2009
8. | Related Party Transactions |
For the three months ended March 31, 2010, the Company incurred directors' consulting fees and salaries in the amount of $34,998 (2009 - $34,998). As of March 31, 2010, $637,722 (December 31, 2009 - $623,924) was unpaid and included in other payables and accrued expenses.
These transactions were in the normal course of business and recorded at an exchange value established and agreed upon by the related parties.
For the three months ended March 31, 2010, the Company had three major customers which primarily accounted for 24%, 20%, and 16% of total revenues. For the three months ended March 31, 2009, the Company had four major customers which primarily accounted for 35%, 18%, 17% and 11% of total revenues.
| | | Israel | | | USA | | | Brazil | | | Total | |
| | | | | | | | | | | | | |
Gross revenue | March 31, 2010 | | $ | 228,981 | | | $ | 685,538 | | | $ | - | | | $ | 914,519 | |
| March 31, 2009 | | $ | 165,683 | | | $ | 627,096 | | | $ | - | | | $ | 792,779 | |
Net income (loss) | March 31, 2010 | | $ | (24,590 | ) | | $ | (77,708 | ) | | $ | (45,700 | ) | | $ | (147,998 | ) |
| March 31, 2009 | | $ | 41,504 | | | $ | 128,734 | | | $ | - | | | $ | 170,238 | |
Total assets | March 31, 2010 | | $ | 515,718 | | | $ | 743,420 | | | $ | 4,300 | | | $ | 1,263,438 | |
| December 31, 2009 | | $ | 636,617 | | | $ | 577,041 | | | $ | - | | | $ | 1,213,658 | |
For the three months ended March 31, 2010, the Company derived 24% (2009 - 17%) of its revenues from sales to the Far East, 14% from sales to Europe (2009 - 16%) and 62% (2009 - 67%) from sales to America.
11. | Commitments and Contingencies |
The Company is committed under an operating lease for its premises expiring June 30, 2011. Minimum annual payments (exclusive of taxes, insurance, and maintenance costs) are as follows:
2010 | | $ | 61,000 | |
2011 | | | 38,400 | |
| | | | |
| | $ | 99,400 | |
In addition, the Company is committed under operating vehicle leases as follows:
2010 | | $ | 55,059 | |
2011 | | | 45,852 | |
2012 | | | 18,302 | |
2013 | | | 2,046 | |
| | | | |
| | $ | 121,259 | |
Rent expense paid during the three months ended March 31, 2010 and March 31, 2009 was $28,504 and $22,311, respectively.
During the year 2009, the Israeli subsidiary was authorized to receive approximately $253,000 from the Israeli government grant program. The Israeli subsidiary is required to pay the government agency royalties in the amount of 3% of gross sales from the products and services being developed relating to the grant during the initial 2 years and 3.5% per annum thereafter. As at March 31, 2010 the Company received approximately $155,346 and no royalties have been paid. The amount was recorded as a reduction of the research and development expense incurred in the year. The Company will complete the project in 2010.
13. | Comparative Information |
Certain comparative figures have been reclassified to conform to the current period’s financial statement presentation.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report.
This filing contains forward-looking statements. The words "anticipate," "believe," "expect, "plan," "intend," "seek," "estimate," "project," "will," "could," "may," and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation: (a) the timing of our sales could fluctuate and lead to performance delays; (b) without additional equity or debt financing we cannot carry out our business plan; (c) our stockholders have pre-emptive rights to purchase securities of m-Wise, which could impair our ability to raise capital; (d) we operate internationally and are subject to currency fluctuations, which could cause us to incur losses even if our operations are profitable; (e) we are dependent upon certain major customers, and the loss of one or more of such customers could adversely affect our revenues and profitability; (f) our research and development facilities are located in Israel and we have important facilities and resources located in Israel which could be negatively affected due to military or political tensions; (g) certain of our officers and employees are required to serve in the Israel defense forces and this could force them to be absent from our business for extended periods; (h) the rate of inflation in Israel may negatively impact our costs if it exceeds the rate of devaluation of the NIS against the U.S. Dollar. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. These forward-looking statements speak only as of the date of this Quarterly Report. Subject at all times to relevant federal and state securities law disclosure requirements, we expressly disclaim any obligation or undertaking to disseminate any update or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Consequently, all of the forward-looking statements made in this Quarterly Report are qualified by these cautionary statements and there can be no assurance of the actual results or developments.
OVERVIEW
We were incorporated in February 2000, and commenced operations immediately thereafter. We initially primarily provided pan-European wireless application service provider operations by hosted MOMA Platform services to customers in the United Kingdom, Spain, France and Italy. We established data centers in Spain, Italy, and France that were connected to our main data center in the United Kingdom. We had connectivity and billing arrangements with cellular operators that enabled us to provide our hosted services. We gained strong credibility and experience as a wireless application service provider during calendar years 2000 and 2001, while we continued to build and develop our wireless middleware product. However, due to the high costs and low revenues in the European wireless application service provider (ASP) market, in 2002, our management decided to transition our focus away from pan-European wireless application service providers, toward installing and licensing our middleware technology at cellular operators and wireless application service providers worldwide, and to operate through original equipment manufacturers (OEMs) and regional sales representatives to sell our products. Our shift away from hosted wireless application services using our Platform enabled us to focus more on the core middleware benefits of our technology in fiscal 2002.
During calendar 2002, we channeled our research and development efforts to enhance and update our middleware technology to interface with advanced and emerging wireless technologies such as MMS (Multimedia Messaging Service - delivery of highly enhanced images and audio files) and J2ME, which utilizes Java programming technology built into certain cellular phones, enables applications to be written once for a wide range of devices, to be downloaded dynamically, and to leverage each device’s native capabilities. We also upgraded our middleware platform to incorporate modules for application deployment and management, for centralized management of multiple value added services and multiple third-party content and media providers, and for managing increased data traffic and real-time billing and reporting requirements. In addition, we restructured our sales efforts toward establishing distribution channels via OEMs and partnerships with major IT vendors and system integrators. In fiscal 2003, we had to direct our research and development resources in an effort to respond to specific business opportunities that were introduced to us by our distributors and original equipment manufacturers, and to be able to meet our customers’ enhanced requirements in elements such as increased transactions volume support and new J2ME possibilities.
During calendar 2004, we followed the market evolution with respect to the enhanced ability to deliver downloadable content directly to mobile phones and invested significant research and development efforts to comply with such new market trends. We substantially improved the MOMA Platform mobile content management abilities, especially with respect to content adaptation to a growing number and types of mobile handsets, and connectivity between the MOMA platform and content presentation layers such as Internet and WAP interfaces. We also concluded sales agreements with new wireless operators and wireless application service provider clients, and at the same time, improved our product positioning in the market.
During calendar 2005, we continued to follow-up with the rapid changes in the mobile entertainment market, especially with the growing introduction of enhanced mobile entertainment services through the third generation infrastructure for wireless services, and the continuous development of wireless handsets and their ability to present higher levels of multi media. We invested significant research and development efforts in complying with these changes, and indeed, the delivery of enhanced mobile entertainment services became a central part of the MOMA Platform functionalities. We also identified a growing trend in the market that many potential customers preferred to outsource platform functionalities to service providers (ASPs) rather than to purchase platform and install on site (Customer Premises Model) and we invested significant funds and efforts in the infrastructure that was required for this ASP model. During 2006, we invested extensive efforts in establishing our customer base and expanding our distribution channels, by enhancing our technology and expanding the terms and scope of our relationships with our customers.
During calendar 2007, we were able to acquire prestige and market leader customers, and strengthen the profit share model that we began developing in 2005. We signed profit share based deals with News International, part of the News Corp group, to deliver mobile entertainment services in conjunction of leading UK newspapers, The Sun and The Times. We signed a profit share based deal with Telcogames, a leading mobile games company, to provide a hosted environment for the delivery of their services to their customers. This deal expanded the reach of our technology and it made it available to the large market of mobile games provider which we actively pursue. We signed a deal with Arvato Mobile, part of the great media group Bertelsmann and one of the largest leaders in mobile entertainment worldwide, to provide large variety of mobile content management and delivery services on a profit share model. We also strengthened our relationships with existing customers such as Thumbplay, SupportComm, Logia Mobile and Interchan (formerly Comtrend) by providing the needed support and technical expertise to their expansion and expanding the basis for cooperation. We clearly saw that our business shift made in 2005 from a license model to profit share model started to bear the desired outcome by generating a stable business environment for recurring revenues and consistently increasing profitability. Also during 2007, we made considerable business development investments in the penetration into the US market and the establishment of a local sales and marketing presence.
During calendar 2008, we expanded our business in our primary markets of the USA and Brazil. Our US presence, which we established in 2007, developed and expanded as we had hoped, and we signed new deals in this territory during 2008. We geared our special expertise in the mobile entertainment industry and signed deals with records labels such as Universal Motown Republic Group and Interscope which are part of the Universal Records Group, to deliver various artist specific mobile content experience. We started working with the leading WPP advertising agency, Burson Marsteller, and delivered a relatively small mobile marketing project for them with the expectation to become their selected technology partner in this market segment and launch additional projects in the future. We also laid the groundwork for two additional significant business deals in the US which we expect to execute early in 2009. We also secured two major deals in the territory of Brazil with Zero 9 and David2Mobile’s Boltcel, leaders in the Italian mobile entertainment market that plan to launch their services in Brazil using our technology. We have also been able to strengthen our partnerships with existing customers, Thumbplay, Arvato Mobile, Interchan, Logia Mobile and Supportcomm and have been able to benefit from the revenue share model that we have established with some of them and see growth in our revenues following their growth in business. Unfortunately we have had to depart from customers such as The Sun newspaper (one of the accounts we had in News International), due to expiration of our contract, and Telcogames, due to Telcogames bankruptcy procedures. We have seen the implication of the global economy downturn reflected in the activity of some of our customers, yet despite that, we experienced significant improvement in our revenue growth of 23% since 2007.
During 2009, we expanded and further established our presence in the Americas. We increased volume of sales in the US market and engaged and expanded relationships with many key players in the entertainment industry such as Fox Mobile Group, Universal Records and Warner Music. We also significantly strengthened our position as a mobile marketing leader and executed mobile marketing campaigns for companies like Kodak and WPP's Burson Marsteller agency.
Additionally, we expanded our penetration into the Latin and Central America markets. We established a local presence in Brazil and launched new mobile entertainment services for local market leaders such as Zero 9, Mega-Vas and Boltcel. We see Brazil as a key market for m-Wise and we plan to expand our presence in this country and use it to establish access additional Latin American markets such as Mexico and Argentina. We also signed an agreement with the Digicel Group of mobile carriers who selected us to deliver mobile content services in 26 Caribbean and Central and Latin American markets. We expect to see the results of this agreement in 2010.
Calendar year 2009 was a significant year for m-Wise as we have been able to emphasize our unique position as an off-deck mobile marketing and mobile entertainment service provider. We have significantly enhanced the underlying technology of our content management and delivery platform and apply many improvements that would make it an off-the-shelf platform that significantly minimizes time-to-market for entertainment companies, content storefronts and mobile marketing campaigns.
Further, calendar year 2009 was a key year in the evolution of mobile entertainment as the expansion and further penetration of improved mobile networks and mobile devices became a clear phenomena this year. We foresee the expansion of mobile video and other rich media services as a result of improved mobile bandwidth and the growth of wide screen mobile devices and we continuously expand our investments in relevant and supporting technologies. With this evolution we expect to see in 2010 more and more businesses looking to establish and expand their presence and services in the mobile world and we believe that our one stop shop mobile platform will become very attractive for such companies and that we will continue to expand the reach of our business and our path of profit and growth.
During the first quarter of 2010, we made a strong investment effort in the expansion of our presence in the Brazilian market. We expanded the team dedicated to our Brazilian operations and set our first local human resources in the country. We strengthened our relationships with existing customers and other key players in Brazil such as mobile billing aggregators, local content providers and mobile carriers and we expect to see the results in significant growth in operation in this market towards the fourth quarter of fiscal 2010 and 2011. Naturally this investment will have an impact on our balance sheets during 2010. Brazil is one of the largest and fastest growing mobile markets worldwide and this market plays a key role in our growth strategy.
In addition, we have strengthened our position in the US market which is still our main market. We have initiated a focused approached to media and content companies which we believe are ready to take advantage of the mobile space and we expect to see the results of our efforts in the coming quarters of 2010.
For the rest of calendar 2010, we plan to continue our expansion in the US and Brazilian market and we plan to make our services available to many of the global players in the mobile entertainment market and so set the foundation to our expansion to other markets in Europe and in Latin America. We also plan to become more involved in the creative and operational side of our clients business and expand our role as a technology player and use our aggregated know how and expertise to provide more solutions and services to our existing and future clients.
Revenues
Our revenues grew from $792,779 in the three months ended March 31, 2009 to $914,519 in the three months ended March 31, 2010 and from $2,833,626 in the year ended December 31, 2008 to $3,166,276 in the year ended December 31, 2009. Management believes that our efforts to refocus our resources towards building relationships with OEMs may yield additional contracts. Although we are in negotiations for several new contracts there can be no assurance that such contracts will be secured or that they will generate significant revenue. We derive revenues from product sales, licensing, revenue share, customer services and technical support.
When we license our MOMA Platform solutions to our customers, we generate revenues by receiving a license payment, ongoing support fees which are typically 15% of the annual license payment, and professional service fees which are generated from our customers’ request for additional training, IT administration and tailoring of our products for their specific needs. When we license our products to our customers, we install our product at a location specified by our client. We also derive revenue through our hosted services, whereby we enable customers to remotely use features of our MOMA Platform (such as a mobile content sales and delivery service for ring tones and color images), which is installed and hosted at our location, and receive a set-up fee for launching the services for them, as well as a portion of our customer's revenues generated through our platform. When we provide hosted services, we maintain the MOMA Platform at our location on behalf of our customer.
Customers and customer concentration. Historically we have derived the majority of our revenues from a small number of customers and, although our customer base is expanding, we expect to continue to do so in the future. For the three months ended March 31, 2010, approximately 24% of our sales were derived from sales to Comtrend, 20% to Thumbplay and 16% to Boltcel. For the three months ended March 31, 2009, approximately 35% of our sales were derived from sales to Thumbplay, 18% to Arvato Mobile and 17% to Comtrend Corporation In the year ended December 31, 2009, approximately 32% of our sales were derived from sales to Thumbplay, 21% to Arvato Mobile and 10% to Comtrend.
Geographical breakdown. We sell our products primarily to customers in America and Europe. For the three months ended March 31, 2010, we derived 62% of our revenues from sales in America, 14% from sales in Europe and 24% from sales in the Far East. Of these revenues, 75% were derived from sales by the Company, and 25% of our revenues were derived from sales by our subsidiary. For the three months ended March 31, 2009, we derived 67% of our revenues from sales in America, 17% from sales in the Far East and 16% from sales in Europe.
For the year ended December 31, 2009, we derived 76% of our revenues from sales in America, 14% from sales in Europe and 10% from sales in the Far East. Of these revenues, 69% were derived from sales by the Company, and 31% of our revenues were derived from sales by our subsidiary.
Cost of revenues
Customer services and technical support cost of revenues consist of the salary and related costs for our technical staff that provide those services and support and related overhead expenses.
Operating expense
Research and development. Our research and development expenses consist primarily of salaries and related expenses of our research and development staff, as well as subcontracting expenses. All research and development costs are expensed as incurred except equipment purchases that are depreciated over the estimated useful lives of the assets.
General and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our executive, financial, administrative and sales and marketing staff. These expenses also include costs of professional advisors such as legal and accounting experts, depreciation expenses as well as expenses related to advertising, professional expenses and participation in exhibitions and tradeshows.
Financing income and expenses
Financing income consists primarily of interest earned on our cash equivalents balances and other financial investments and foreign exchange gains. Financing expenses consist primarily of interest payable on bank loans and foreign exchange losses.
Critical Accounting Policies.
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available.
These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of the periods presented. To fully understand and evaluate our reported consolidated financial results, we believe it is important to understand our revenue recognition policy.
Revenue recognition. Revenues from products sales are recognized on a completed-contract basis, in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101"), Statement of Position 97-2 "Software Revenue Recognition" and Statement of Position 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". The Company has primarily short-term contracts whereby revenues and costs in the aggregate for all contracts is expected to result in a matching of gross profit with period overhead or fixed costs similar to that achieved by use of the percentage-of-completion method. Accordingly, financial position and results of operations would not vary materially from those resulting from the use of the percentage-of- completion method. Revenue is recognized only after all the three stages of deliverables are complete; installation, approval of acceptance tests results by the customer and when the product is successfully put into real-life application. Customers are billed, according to individual agreements, a percentage of the total contract fee upon completion of work in each stage; approximately 40% for installation, 40% upon approval of acceptance tests by the customer and the balance of the total contract price when the software is successfully put into real-life application. The revenues, less its associated costs, are deferred and recognized on completion of the contract and customer acceptance. Amounts received for work performed in each stage are not refundable.
On-going service and technical support contracts are negotiated separately at an additional fee. The technical support is separate from the functionality of the products, which can function without on-going support.
Technology license revenues are recognized in accordance with SAB No. 101 at the time the technology and license is delivered to the customer, collection is probable, the fee is fixed and determinable, a persuasive evidence of an agreement exists, no significant obligation remains under the sale or licensing agreement and no significant customer acceptance requirements exist after delivery of the technology.
Revenue share is recognized as earned based on a certain percentage of our clients' revenues from selling services to end users. Usage is determined by receiving confirmation from the clients.
Revenues relating to customer services and technical support are recognized as the services are rendered ratably over the period of the related contract.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2010, COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 2009.
Revenues.
License fees and products. Revenues from license fees and products increased 7% to $216,646 for the three months ended March 31, 2010, from $202,947 for the same period in 2009. The increase is due to revenues which were derived from one contract with one customer during 2010 that were not earned in 2009.
Revenue share. Revenues from revenue share decreased 11% to $252,016 for the three months ended March 31, 2010, from $284,241 for the same period in 2009. The decrease is primarily due to a loss of one customer during the three months ended March 31, 2010.
Customer services and technical support. Revenues from customer services and technical support increased 46% to $445,857 for the three months ended March 31, 2010, from $305,591 for the same period in 2009. The increase is primarily due to an increase in orders and corresponding demand for customer services during 2010.
Cost of revenues.
Cost of revenues increased 90% to $338,453 for the three months ended March 31, 2010, from $178,365 for the same period in 2009. The increase was primarily due to increase in revenues from customer services and technical support during the three month period ended March 31, 2010.
Operating expenses.
Research and development. Research and development expenses decreased 10% to $124,540 for the three months ended March 31, 2010, from $139,119 for the same period in 2009. This decrease was primarily due to an increase of $54,249 in government grant income, partially offset by a $28,805 increase in payroll and related expenses. Research and development expenses, stated as a percentage of revenues decreased to 14% for the three months ended March 31, 2010, from 18% for the same period in 2009.
General and administrative.
General and administrative expenses increased 78% to $596,366 for the three months ended March 31, 2010, from $335,052 for the same period in 2009. This increase was primarily due to a $71,804 increase in payroll and related expenses, a $67,638 increase in consulting expenses and a $47,827 increase in marketing expenses. General and administrative expenses, stated as a percentage of revenues increased to 65% for the three months ended March 31, 2010 from 42% for the same period in 2009.
Other income (expenses).
Our other expenses were $3,158 for the three months ended March 31, 2010 compared with other income of $29,995 for the same period in 2009.
Liquidity and Capital Resources
Our principal sources of liquidity since our inception have been private sales of equity securities, stockholder loans, borrowings from banks and to a lesser extent, cash from operations. We had cash and cash equivalents of $274,393 as of March 31, 2010 and $165,504 as of December 31, 2009. Our initial capital came from an aggregate investment of $1.3 million from Cap Ventures Ltd. To date, we have raised an aggregate of $5,300,000 from placements of our equity securities (including the investment by Cap Ventures and a $4,000,000 investment by Syntek Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd. and as of the date of this quarterly report we have no funds available to us under bank lines of credit. We have a credit line agreement for $500,000 with Miretzky Holdings Limited. As of March 31, 2010, $290,860 is outstanding under the credit line. The credit line has no termination date and does not provide for interest payments.
Other than the credit line agreement with Miretzky, we do not have any commitments from any of our affiliates or current stockholders, or any other non-affiliated parties, to provide additional sources of capital to us. We have an equity line for $10.0 million with Dutchess Private Equity Fund and as of May 13, 2010 we have drawn $828,675 under the Equity Line. We will need approximately $1.2 million for the next twelve months for our operating costs which mainly include salaries, office rent and network connectivity, which we estimate will total approximately $80,000 per month, and for working capital. We intend to finance this amount from our ongoing sales and through the sale of either our debt or equity securities or a combination thereof, to affiliates, current stockholders and/or new investors. Currently we do not believe that our future capital requirements for equipment and facilities will be material.
Operating activities.
For the three months ended March 31, 2010, net cash provided by operating activities was $53,125 primarily due to a $68,850 in employee vested options expense, a $60,120 decrease in government grants receivable and a $50,000 consulting fees paid by issuance of common stock, partially offset by our net loss of $ 147,998. In the same period in 2009, net cash provided by operating activities was $ $120,973 primarily due to our net earnings of $170,238 and $54,354 in employee vested options expense, partially offset by a $76,404 decrease in other payables and accrued expenses and a $17,678 increase in accounts receivable – trade.
Investing and financing activities.
Property and equipment consist primarily of computers, software, and office equipment. For the three months ended March 31, 2010, net cash used in investing activities was $10,041 consisting of an investment of $10,036 in equipment and a $5 increase in short-term investment. In the same period in 2009, net cash used in investing activities was $ $1,769 consisting of an investment of $1,769 in equipment.. For the three months ended March 31, 2010, net cash provided by financing activities was $65,805 consisting of $79,633 proceeds from issuance of common stock, partially offset by a $13,828 decrease in advances from shareholders. In the same period in 2009, net cash used in financing activities was $6,392 due to a decrease in advances from shareholders.
Dividends
We have not paid any dividends on our common stock. We currently intend to retain any earnings for use in our business, and therefore do not anticipate paying cash dividends in the foreseeable future.
Off Balance Sheet Arrangements
None.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Not applicable.
Item 4T. | Controls and Procedures |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to management, to allow for timely decisions regarding required disclosure of material information required to be disclosed in the reports that we file or submit under the Exchange Act.
There were no changes in our internal control over financial reporting identified in connection with the evaluation described above during the period covered by this report that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting.
PART II:
OTHER INFORMATION
None.
Not applicable.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults upon Senior Securities |
Not applicable.
Item 4. | (Removed and Reserved) |
Not applicable.
Exhibit No. | | Description |
| | |
3.1 | | Amended and Restated Certificate of Incorporation(2) |
| | |
3.2 | | Bylaws(2) |
| | |
4.1 | | Purchase and registration rights agreement and schedule of details(2) |
| | |
10.1 | | Amended and Restated Employment Agreement with Mordechai Broudo(2) |
| | |
10.2 | | Amendment to Amended and Restated Employment Agreement with Mordechai Broudo(2) |
| | |
10.3 | | Amended and Restated Employment Agreement with Shay Ben-Asulin(2) |
| | |
10.4 | | Amendment to Amended and Restated Employment Agreement with Shay Ben-Asulin(2) |
| | |
10.5 | | Employment Agreement, Gabriel Kabazo(2) |
| | |
10.6 | | Confidentiality Rider to Gabriel Kabazo Employment Agreement(2) |
| | |
10.7 | | Employment Agreement Asaf Lewin(2) |
| | |
10.8 | | 2003 International Share Option Plan(2) |
| | |
10.9 | | Form of Option Agreement, 2003 International Share Option Plan(2) |
| | |
10.10 | | 2001 International Share Option Plan(2) |
| | |
10.11 | | Form of Option Agreement, 2001 International Share Option Plan(2) |
| | |
10.12 | | 2003 Israel Stock Option Plan(2) |
| | |
10.13 | | Form of Option Agreement, 2003 Israel Stock Option Plan(2) |
| | |
10.14 | | 2001 Israel Share Option Plan(2) |
| | |
10.15 | | Form of Option Agreement, 2001 Israel Share Option Plan(2) |
| | |
10.16 | | Investors' Rights Agreement dated January 11, 2001(2) |
| | |
10.17 | | Stockholders Agreement(2) |
| | |
10.18 | | Agreement for Supply of Software and Related Services dated October 14, 2002, by and between i Touch plc and m-Wise, Inc. (2) |
| | |
10.19 | | Purchase Agreement between m-Wise, Inc. and Comtrend Corporation dated May 22, 2002(2) |
| | |
10.20 | | Amended and Restated Consulting agreement between Hilltek Investments Limited and m-Wise dated November 13, 2003(2) |
| | |
10.21 | | Consulting Agreement between Hilltek Investments Limited and m-Wise dated June 24, 2003, subsequently amended (see Exhibit 10.20 above) (2) |
10.22 | | Amendment to Investors' Rights Agreement dated October 2, 2003(2) |
| | |
10.23 | | Appendices to 2003 Israel Stock Option Plan(2) |
| | |
10.24 | | Appendices to 2001 Israel Share Option Plan(2) |
| | |
10.25 | | Credit Line Agreement between m-Wise, Inc. and Miretzky Holdings, Limited dated January 25, 2004(2) |
| | |
10.26 | | Termination and Release Agreement by and among the Company and Syntek capital AG.(3) |
| | |
10.27 | | Termination and Release Agreement dated February 2, 2006, by and among the Company and DEP Technology Holdings Ltd. (4) |
| | |
21.1 | | List of Subsidiaries (2) |
| | |
31.1 | | Rule 13a-14(a)/15d-14(a) Certification. (1) |
| | |
31.2 | | Rule 13a-14(a)/15d-14(a) Certification. (1) |
| | |
32.1 | | Certification by the Chairman Relating to a Periodic Report Containing Financial Statements. (1) |
| | |
32.2 | | Certification by the Chief Financial Officer Relating to a Periodic Report Containing Financial Statements. (1) |
(1) Filed herewith.
(2) Incorporated by reference from the registration statement filed with the Securities and Exchange Commission Registration Statement on Form SB-2 (Reg. No. 333-106160).
(3) Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on January 13, 2006.
(4) Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on February 7, 2006.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| m-Wise, Inc. |
| (Registrant) |
| | |
Date: May 17, 2010 | By: | /s/ Mordechai Broudo |
| Name: Mordechai Broudo |
| Title: Chairman |
| |
Date: May 17, 2010 | By: | /s/ Gabriel Kabazo |
| Name: Gabriel Kabazo |
| Title: Chief Financial Officer and Principal |
| Accounting Officer |