As filed with the Securities and Exchange Commission on June 6, 2003
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
m-Wise, Inc.
(Name of small business issuer as specified in its charter)
Delaware 4812 11-3536906
(State or Jurisdiction of Primary SIC Code (IRS Employer
incorporation or organization) Identification No.)
10 Hasadnaot Street Shay Ben-Asulin, Chairman of the Board
Herzeliya Pituach, Israel 46728 10 Hasadnaot Street
Telephone +972-9- 9581711 Herzeliya Pituach, Israel 46728
(Address, including zip code, and telephone number, including area code
Telephone +972-9- 9581711 of Registrant's principal executive offices)
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
copy to:
Jehu Hand
Hand & Hand, a professional corporation
24351 Pasto Road Suite B
Dana Point, California 92629
Tel. (949) 489-2400; Fax (949) 489-0034
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box:[ ]
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered Be Registered Per Share(1) Offering Price Registration Fee
common stock offered by
selling shareholders 8,595,632 $ 1.00 $ 8,595,632 $ 695.39
Total 8,595,632 $ 8,595,632 $ 695.39 (2)
(1) Estimated solely for purposes of calculating the registration
fee. The proposed maximum offering price per share is based upon the expected
public offering price of $1.00 per share pursuant to Rule 457(a). The common
stock is not traded on any market and the Registrant makes no
representation hereby as to the price at which its common stock shall trade.
Fee rate is $80.90 per $1 million pursuant to Release 33-8095.
(2) Filing fee paid with initial filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
m-Wise, Inc.
8,595,632 Shares of common stock
The 8,595,632 shares of common stock of m-Wise, Inc., a Delaware
corporation ("m-Wise"), are being offered by the selling stockholders. The
expenses of the offering, estimated at $9,000, will be paid by m-Wise. m-Wise
will not receive any proceeds from the sale of shares by the selling
stockholders. There is currently no trading market for our stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed on the
accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
Purchase of these securities involves risks. See "Risk Factors" on page 3.
Initial Offering Price Sales Commissions Total to selling stockholders
Per share $1.00 (1) $1.00
Total $8,595,632 (1) $8,595,632
(1) m-Wise will not receive any proceeds from this offering. No person
has agreed to underwrite or take down any of the securities. For sales on any
trading market, sales commissions will be limited to those paid in similar
market transactions. For private sale transactions, no sales commission can be
paid. There is no minimum amount of securities which may be sold. Following
commencement of any public trading market the sales price of the common stock
will likely fluctuate in accordance with market price.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The date of this prospectus is June 6, 2003.
[Illustration: schematic architecture of m-Wise core technology - the MOMA
platform]
PROSPECTUS SUMMARY
The following is only a summary of the information, financial statements
and notes included in this prospectus.
m-Wise
m-Wise develops, manufactures and supports a wireless middleware
technology. This middleware, a wireless application gateway marketed under the
brand MOMA Gateway, provides billing, reporting, provisioning, third-party
management, development, content, customer relationship management and
application platforms for cellular operators and wireless Application Service
Providers. Our clients include prominent global wireless application service
providers (WASP) and wireless operators. Our channel partners include
Hewlett-Packard in Asia, Siemens globally, Comverse globally and Ericsson EMEA
(Europe, Middle East and Africa).
m-Wise's technology allows our clients to enable consumers to utilize
and purchase data and multimedia value added services such as applications for
handset personalization (such as ringing tones and images), news, entertainment
and chat via cell phones and other wireless devices. We primarily operate
through channel partners, such as original equipment manufacturers, and regional
sales representatives to sell our products. m-Wise's revenues are primarily
derived from license fees and we spend a significant portion of our revenues on
continuing research and development.
Our cumulative losses as of March 31, 2003 were $7,709,694. The segment of
the technology industry in which we operate has been characterized by volatility
and financial instability.
The Offering
The offering is being made by the selling stockholders.
Securities Offered: 8,595,632 shares of common stock.
Initial Offering Price $1.00 per share.
Offering Period: Until [12 months from effective date]
Risk Factors The securities offered hereby involve a high
degree of risk and immediate substantial dilution and should not be purchased
by investors who cannot afford the loss of their entire investment. See "Risk
Factors".
Common stock Outstanding(1) Before Offering: 23,419,255(1) shares
Common stock Outstanding After Offering: 23,419,255(1) shares
(1) Based on 5,174,554 shares of common stock outstanding as of March 31, 2003,
as well as 9,707,745 shares of common stock currently issuable upon conversion
of 268,382 Series A, 489,456 Series B and 6,315,258 Series C preferred stock, as
of March 31, 2003, but does not include a warrant exercisable for 56,180 Series
A preferred stock and 8,480,775 shares of common stock currently issuable upon
exercise of outstanding warrants and options for nominal consideration (par
value $.01), on an as-converted basis. All above mentioned calculations were
made on a fully diluted and as-converted basis, whereby the conversion and
exercise of every preferred share and all warrants, options and shares of
preferred or common stock reserved for grant under m-Wise's employee stock
option plans were calculated as if all such shares, warrants and options were
converted or exercised.
The corporate offices of m-Wise are located at 10 Hasadnaot Street,
Herzeliya Pituach, Israel 46728, and its telephone number is +972-9- 9581711.
Risk Factors
The securities offered hereby are highly speculative and very risky.
Before you purchase, consider the following risk factors and the rest of this
prospectus.
RISK FACTORS
Without additional equity or debt financing we cannot carry out our business
plan.
Our current business plan will involve substantial costs, primarily
those costs associated with the restructuring of the Company's subsidiaries and
supporting the sales efforts of our channel partners. While cash generated by
operations will cover most of such costs, any current anticipated revenues will
be insufficient to cover all of such costs. Our auditors have included an
explanatory paragraph in their report on our financial statements relating to
uncertainty of our business as a going concern. If we are unable to obtain bank
financing or financing from debt or equity offerings, when needed, we may be
forced to curtail our operations and our future growth plans, which could
negatively affect our revenues, potential profitability and the value of your
investment.
Our quarterly revenues could fluctuate and lead to performance delays.
Our results of operations have fluctuated in the past and, we believe,
are likely to continue to fluctuate from period to period depending on a number
of factors, including but not limited to the timing and receipt of significant
orders, the timing of milestone payments within the license schedules, the
timing of completion of contracts, increased competition, or changes in the
demand for our products and services. Timing of sales could cause a lack of cash
and delay our completion of contracts, and we could face cancellation of
contracts for that reason. Because m-Wise currently recognizes revenue mostly on
a percentage of completion method, delays in completion of certain contracts has
caused and may cause delays in recognition of revenue and, consequently, has
caused and may cause unanticipated fluctuations in quarterly results. Since our
expense levels are relatively fixed and are based upon expectation of future
revenue, if revenue levels fall below expectations as a result of a delay in
completing a contract, the inability to obtain new contracts, the cancellation
of an existing contract or otherwise, our operating results are likely to be
adversely effected. As a result, net income may be disproportionately affected
because a relatively small amount of our expenses vary with our revenue. As a
result of the significant operating expenses related to start up operations,
operating results will be adversely affected if significant sales do not
materialize, whether due to competition or otherwise. There can be no assurance
that m-Wise will be able to grow in the future or attain profitability.
Dependence on wireless industry makes us vulnerable to problems inherent
in that industry.
All of our products are designed for the wireless communications
industry. In the past few years, that industry has been rapidly changing. Many
wireless providers have proven to be financially unstable, and have been unable
to pay their debts. Several of our clients defaulted on contracts in fiscal 2001
and 2002. In the future we can expect this uncertainty as well. We might devote
significant resources to obtain a contract, and we might even begin to perform
under a contract and not receive full or any payment for our services and
technology. Adherence to this business practice requires substantial funding,
which we may not have in the future.
Anti dilution rights of preferred stock limits our ability to raise
capital without significant dilution.
Series A, Series B and Series C preferred stock convert to common stock
upon a firm commitment underwritten public offering of m-Wise's common stock
which reflects a pre-offering valuation of m-Wise of at least $50 million, upon
the date specified by written consent or agreement of holders of at least a
majority of the shares of Series B preferred stock then outstanding, or
voluntarily upon the election of each holder of such stock, none of which have
occurred to date. The conversion rates of the Series B and Series C preferred
stock are subject to anti dilution protection in the event m-Wise sells shares
of common stock at less than $1.28 (reflecting anti dilution adjustments to the
Series B preferred stock conversion price due to the issuance of Series C
preferred stock) and $.048 per share, respectively.. m-Wise has granted options
to purchase Series B preferred stock under existing stock option plans and
warrants, and may grant such additional options or warrants in the future, and
the Series B preferred stock underlying such options will also bear
anti-dilution rights. Consequently, any offering by us of our common stock at
less than these prices will cause a corresponding increase in the number of
common shares issuable upon conversion of the Series B and Series C preferred
stock.
Our stockholders have pre-emptive rights to purchase securities of m-Wise, which
could impair our ability to raise capital.
Except for certain exempt issuances set forth in our Certificate of
Incorporation, our stockholders have certain pre-emptive rights to purchase
their pro-rata portion of any of our securities which we may, from time to time,
propose to sell and issue. Unless these rights are waived by all stockholders,
the delay occasioned by the procedures inherent in the pre-emptive right could
make outside equity financing difficult or impossible.
Changing technology can render our products obsolete unless we innovate.
Technology and consumer demand has created the wireless data value added
services (VAS) industry in only a few years. If m-Wise is unable to continually
upgrade and enhance its technology it will not continue to achieve sales. All
our products are custom designed based on our proprietary platform, so that we
often must begin enhancements and upgrades to our technology even before we have
a contract which will employ such upgrades. New communications technologies
could make wireless devices obsolete, and if m-Wise were unable to adapt its
expertise to that new technology it would also be unable to continue to achieve
sales.
We operate internationally and are subject to currency fluctuations, which could
cause us to lose money even if operations are profitable.
m-Wise currently operates directly and through our channel partners and
agents in the European Union, United Kingdom, Singapore and Taiwan. Our research
and development operations are conducted in Israel and we expect to operate in
additional markets, each with its own currency. Contracts can be denominated in
one of several currencies. A change in currency rates could cause us losses as
we perform under the contract or as we are paid. We do not engage in currency
trading operations to minimize this risk, but we might if warranted in the
future. Also, revenue of m-Wise earned abroad may be subject to taxation by more
than one jurisdiction, and this would reduce our earnings.
m-Wise is dependent upon certain major customers, and loss of such customers
could adversely affect our revenues and profitability.
In the year ended December 31, 2002, approximately 73% of our sales were
from sales to threecustomers, and 36% of sales were to one customer. The
agreement with a customer typically includes a down payment over a period in
which our system is installed, and subsequent payments which are a function of
actual use by the end-users of the system. At the current stages of our
business, the loss of any one of our major customers would seriously affect our
revenues and profit.
Software can be defective and cause us losses.
Our technology embodies software. From time-to-time software can contain
undetected errors or failures, and cause delays or loss of service to our
customers.
Our technology is proprietary and loss of our technology rights would affect our
sales or give rise to liability.
Our technology is proprietary. We rely on copyright, common-law trademarks
and trade secret, non-disclosure agreements and other contractual provisions to
protect our proprietary ownership. If our technology is wrongfully appropriated
it will affect our ability to compete. If our technology is alleged to infringe
on others' proprietary rights, we could be required to modify our technology
around the alleged infringement, pay a license fee or be engaged in expensive
litigation.
Antitakeover provisions discourage hostile takeovers and can reduce the
likelihood of stockholder's receiving a premium from a takeover.
Our Certificate of Incorporation gives the holders of preferred stock
the right to elect four of the five authorized directors, and two holders of
common stock, Putchkon.com LLC and Proton Marketing Associates LLC, also hold a
majority of the issued Series B preferred stock and were additionally granted
options to purchase Series B preferred stock. Holders of Series C preferred
stock are entitled to elect two members of the Board but have not done so to
date. As such, our officers, directors, founders and certain other stock holders
currently control the outcome of all matters submitted to a vote by the holders
of our common stock, including the election of our directors, amendments to our
Certificate of Incorporation and approval of significant corporate transactions.
Additionally, our officers/directors could delay, deter or prevent a change in
our control that might be beneficial to our other stockholders. In addition, our
Certificate of Incorporation also provides that upon occurrence of certain
events such as mergers or acquisitions, the holders of preferred stock are
entitled to receive m-Wise assets in preference to common stockholders, and also
gives preferred stockholders many other preferences. One of the effects of all
these provisions is to deter a takeover of m-Wise, even though there may come a
time in the future when a takeover would enable common stockholders to realize
more value for their shares.
Our auditors have rendered a going concern emphasis opinion on our financial
statements.
Our auditors have expressed concern as to our ability to continue as a
going concern. If our business is ultimately unsuccessful, the assets on our
balance sheet could be worth significantly less than their carrying value and
the amount available for distribution to stockholders on
liquidation would likely be insignificant.
Penny stock rules could make it hard to resell your shares.
m-Wise's common stock does not meet the listing requirements for any
trading market other than the OTC Bulletin Board. The OTC Bulletin Board may not
approve our listing. Consequently, the liquidity of m-Wise's securities could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in security
analysts' and the news media's coverage of m-Wise, and lower prices for m-Wise's
securities than might otherwise be attained.
In addition, the "penny stock" rules limit trading of securities not
traded on NASDAQ or a recognized stock exchange, or securities which do not
trade at a price of $5.00 or higher, in that brokers making trades in those
securities must make a special suitability determination for purchasers of the
security, and obtain the purchaser's consent prior to sale. The application of
these rules may make it difficult for purchasers in this offering to resell
their shares.
U.S. investors may have trouble in attempting to enforce liabilities based upon
U.S. Federal securities laws against us and our subsidiaries and our non-U.S.
resident directors.
Our research and development operations are conducted through our subsidiary,
m-Wise Ltd., which is incorporated and located in Israel and our marketing and
sales operations are conducted through channel partners and regional sales
representatives. All of our tangible assets are located outside the United
States. In addition, all of our directors are foreign citizens. As a result, it
may be difficult or impossible for United States investors to serve process
within the United States upon management or to enforce judgment upon management
for civil liabilities in United States courts.
Risks Related to our Location in Israel
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.
Our Israeli subsidiary, m-Wise Ltd., is incorporated under the laws of
the State of Israel and our research and development facilities as well as
significant executive officers are located in Israel. Although a substantial
portion of our sales are currently being made to customers outside of Israel,
political, economic and military conditions in Israel could nevertheless
directly affect our operations. Since the establishment of the State of Israel
in 1948, a number of armed conflicts have taken place between Israel and its
Arab neighbors and a state of hostility, varying in degree and intensity, has
led to security and economic problems for Israel. We could be adversely affected
by any major hostilities involving Israel, the interruption or curtailment of
trade between Israel and its trading partners, a significant increase in
inflation, or a significant downturn in the economic or financial condition of
Israel. Despite the progress towards peace between Israel and its Arab
neighbors, the future of these peace efforts is uncertain. Several Arab
countries still restrict business with Israeli companies which may limit our
ability to make sales in those countries. We could be adversely affected by
restrictive laws or policies directed towards Israel or Israeli businesses.
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.
Several male employees located in Israel are currently obligated to perform up
to thirty-six (36) days of annual reserve duty in the Israel Defense Forces
and are subject to being called for active military duty at any time. The loss
or extended absence of any of our officers and key
personnel due to these requirements could harm our business.
The rate of inflation in Israel may negatively impact our costs if it exceeds
the rate of devaluation of the NIS against the dollar.
Substantially all of our revenues are denominated in dollars or are
dollar-linked, but we incur a portion of our expenses, principally salaries and
related personnel expenses in Israel, in New Israeli Shekels (NIS). In 2002,
48%, and in the three months ended March 31, 2003, 56%, of our costs were
incurred in NIS. As a result, we are exposed to the risk that the rate of
inflation in Israel will exceed the rate of devaluation of the NIS in relation
to the US Dollar or that the timing of this devaluation will lag behind
inflation in Israel. In that event, the dollar cost of our operations in Israel
will increase and our dollar-measured results of operations will be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impact of Inflation and Currency Fluctuations."
ADDITIONAL INFORMATION
m-Wise has filed a registration statement under the Securities Act with
respect to the securities offered hereby with the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. This prospectus, which is a part of the
registration statement, does not contain all of the information contained in the
registration statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to m-Wise and the securities
offered, reference is made to the registration statement, including all exhibits
and schedules thereto, which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates during regular business hours.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in its entirety by
such reference. m-Wise will provide, without charge upon oral or written request
of any person, a copy of any information incorporated by reference herein. This
request should be directed to m-Wise at 10 Hasadnaot Street, Herzeliya Pituach,
Israel 46728, telephone +972-9- 9581711. Our Registrant Agent offices in the
Unites States are Jehu Hand, Hand & Hand, a professional corporation, 24351
Pasto Road Suite B, Dana Point, California 92629, Tel. (949) 489-2400; Fax (949)
489-0034.
m-Wise is required to file reports and other information with the
Commission. All of such reports and other information may be inspected and
copied at the Commission's public reference facilities described above. The
public may obtain information on the operation of the public reference room in
Washington , D.C. by calling the Commission at 1-800-SEC-0330. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of such site is http://www.sec.gov. In addition, m-Wise
intends to make available to its shareholders annual reports, including audited
financial statements and such other reports as m-Wise may determine.
DIVIDEND POLICY
m-Wise has not paid any dividends on its common stock. We are
prohibited from paying dividends under certain promissory notes in the aggregate
amount of $1.8 million held by Syntek Capital AG and DEP Technology Holdings
Ltd. m-Wise currently intends to retain any earnings for use in its
business, and therefore does not anticipate paying cash dividends in the
foreseeable future.
MARKET PRICE OF COMMON STOCK
Our common stock has never been traded. As of March 31, 2003, there
were 11 record holders of stock of m-Wise, including 8 record holders of common
stock.
There are currently outstanding warrants for the purchase of 56,180
shares of Series A preferred stock (56,180 shares of common stock, on an as
converted basis) and 180,441 shares of Series B preferred stock (1,170,963
shares of common stock on an as converted basis); 1,074,636 shares of Series B
preferred stock (6,859,200 shares of common stock on an as converted basis) and
450,612 common stock reserved under employee stock option plans pursuant to
which additional shares may be issued; and an Investors' Rights Agreement with
the holders of Series A, Series B and Series C preferred stock. As of March 31,
2003, 23,419,254 shares of common stock or shares currently convertible into
common stock are issued and outstanding, on a fully diluted, as converted basis,
including the 8,595,632 shares of common stock which have been registered for
resale via this prospectus. There are 19,139,133 shares of common stock or
common stock equivalents which can be resold in the public market in reliance
upon the safe harbor provisions of Rule 144.
MANAGEMENT'S DISCUSSION AND ANALYSIS
m-Wise commenced operations on February 2000, upon incorporation, and
was initially primarily based upon providing pan-European wireless application
service provider operations by hosted MOMA Gateway 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. Altogether we were enabling
delivery and billing of data VAS to over 100 million wireless users by our
clients, such as content and media providers, advertising agencies and
entertainment companies.
m-Wise gained strong credibility and experience as a WASP during calendar 2000
and 2001, while it continued to build and develop its wireless middleware
product. The WASP operations provided m-Wise the ability to commercially test
its product across multiple geographic and vertical markets, to test its
Gateway's management of multiple applications and services across various
operators and partners, and to test its time-to-market and cost efficiencies in
developing VAS using different bearersand forms of interaction (e.g. SMS, IVR
and J2ME). SMS, which stands for Short Messaging Service, is built into all GSM
cellular phones and enables subscribers to send and receive text messages of up
to 160 characters. IVR, which stands for Interactive Voice Response, is utilized
for billing certain VAS using premium-rate fixed-line phone systems. J2ME, which
utilizes Java 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. However, m-Wise
lacked sufficient financial and management resources to dominate the
pan-European WASP market and achieve profitability. In the year ended December
31, 2001 m-Wise had revenues of $585,894 and a net loss of $4,033,913. By
December 31, 2001 m-Wise had invested $569,389 in equipment and had capital and
lease costs of $193,631 in calendar 2001.
Due to the high costs and low revenues in the European application service
provider (ASP) market, m-Wise's management has decided to transition its focus
toward installing and licensing its middleware technology at cellular operators
and WASPs worldwide, and to operate through channel partners and regional sales
representatives to sell our products. Therefore, m-Wise's management decided to
liquidate, or allow the liquidation of the UK subsidiary, m-Wise Ltd., and its
three subsidiaries in Italy, France and Spain, by creditors and local legal
authorities. These subsidiary companies have effectively ceased conducting
business, and the liquidation process is expected to take place within the next
few months.
In calendar 2002, m-Wise's management commenced a transition away from
pan-European WASP operations and toward installing and licensing its middleware
technology at cellular operators and WASPs worldwide. Our shift away from hosted
wireless application services using our Gateway enabled us to focus more on the
core middleware benefits of our technology in fiscal 2002. This shift toward
installed gateways also coincided with growing interest, as documented by
wireless industry analysts such as Ovum, among cellular operators and service
providers for wireless middleware's capability to support strategic service
delivery.
In fiscal 2002 m-Wise channeled its research and development efforts to enhance
and update its 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. We also upgraded our
middleware platform to incorporate modules for application deployment and
management, for centralized management of multiple VAS and multiple third-party
content and media providers, and for managing increased data traffic and
real-time billing and reporting requirements.
m-Wise also focused its efforts during this period toward establishing
distribution channels via original equipment manufacturer (OEM) and white-label
partnerships with major IT vendors and system integrators. During this period,
we took important steps to move from a direct sales strategy to using channel
partners and OEM to distribute our products. m-Wise is therefore building
partnerships with large OEMs and system integrators that already have large
sales teams, existing relationships with cellular operators, the visibility and
brand value to interest potential new clients and the requisite financial
backing to support the long sales cycle and finance m-Wise's customers where
necessary. m-Wise has formed agreements with Hewlett-Packard in Asia for
Hewlett-Packard to license, install and support the m-Wise MOMA Gateway for
cellular operators in Asia, and with Comverse's subsidiary, Starhome, to host
the m-Wise MOMA Gateway at the Starhome facilities and sell hosted wireless VAS
services to cellular operators using the m-Wise MOMA Gateway. There is no
guarantee that these partnerships will generate revenues, or that new
partnerships will be formed.
In the year ended December 31, 2002 our total revenue were $1,619,112
and our net loss was $2,255,988. In the three months ended March 31, 2003, our
total revenue was $192,324 and our net loss was $244,007. This represents a
significant improvement with respect to the 1st quarter of 2002, where we
achieved sales of $214,028, but a loss of $773,124. The principal reason for
this improvement is the drastic downsizing in m-Wise's operational costs,
personnel, network and ISP services, and its European subsidiaries. The
restructuring process and the change in the sales strategy involving a
transition from direct sales to channel sales - has resulted in fewer sales than
in the last quarter of 2002, as the sales cycles become longer.
As of June 2003, m-Wise will need from $600,000 to $1.2 million in cash
until the end of 2003, for general and administrative costs, research and
development for middleware upgrades to maintain our technological
competitiveness, strengthening and expanding our OEM, white label and sales
representative distribution channels; and vertical expansion such as entry into
voice, voice mail and roaming market areas. The cash estimate varies depending
on whether or not we obtain contracts currently under negotiation. Under our
contracts the license fee is paid in stages based upon milestones, such as
installation, acceptance tests and commercial launch. There is also an average
15% license fee paid as annual maintenance. Delays in installation, etc. (and
corresponding delays in revenue recognition) can be caused by delays in services
we rely upon from third-parties (e.g. if the client's premises are not ready, if
the hardware is not delivered on schedule for the installation, etc.)
m-Wise has historically funded its need for cash not funded by
operations by bank debt, stockholders loans and by sales of its equity. Initial
capital for m-Wise was derived from an aggregate investment of $1.3 million from
Cap Ventures Ltd. To date, m-Wise 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.). m-Wise was also extended a loan in an aggregate of $1,800,000 from Syntek
Capital AG and DEP Technology Holdings Ltd. (See "Certain Transactions") and as
of that date we had no funds available to us under bank lines of credit. Apart
from a credit line agreement with Miretzky Holdings Ltd., under which we have
received approximately $250,000 as of March 31, 2003, we do not have any
agreements or understandings with respect to sources of additional capital. Even
if we are successful in obtaining the required funding, we probably will need to
raise additional funds in 2004.
Information included in this prospectus includes forward looking
statements, which can be identified by the use of forward-looking terminology
such as may, will, expect, anticipate, believe, estimate, or continue, or the
negative thereof or other variations thereon or comparable terminology. The
statements in "Risk Factors" and other statements and disclaimers in this
prospectus constitute cautionary statements identifying important factors,
including risks and uncertainties, relating to the forward-looking statements
that could cause actual results to differ materially from those reflected in the
forward-looking statements.
Our auditors have included an explanatory paragraph in their report on
our financial statements, relating to the uncertainty of our business as a going
concern, due to our limited operating history, our lack of historical
profitability, and limited funds. Management believes that it will be able to
raise the required funds for operations from bank financings, or from one or
more future offerings, and to be able to achieve our business plan. Risks
inherent in the business as discussed under the caption "Risk Factors" may
affect the outcome of Management's plans.
BUSINESS
Background
m-Wise was incorporated in Delaware in February 2000 under the name of
Wireless Auctions, Inc. We develop, manufacture, market and support a software
and hardware-based wireless application gateway marketed under the brand MOMA
Gateway. The MOMA Gateway provides middleware technology that enables cellular
operators and WASPs, to provide data and multimedia value-added services and
content to their wireless subscribers. Our Gateway is an end-to-end application
and middleware platform that includes monitoring, billing, reporting, content
management, customer care, application development, generic application engines,
third-party provisioning and centralized third-party management tools. These
services are called VAS, for "value-added services", in the wireless industry.
m-Wise's platforms have been utilized since March 2000 in over 300 applications
across more than 20 European and Asian networks for over 50 various
internationally known content and media providers. These include applications
such as games, information services, alerts, advertising and promotions, which
were developed and delivered on a hosted basis for content and media providers.
Since the second half of 2002, m-Wise has terminated its provision of hosted
MOMA gateway services to concentrate on licenses and installed sales of its
technology.
We operate mainly through m-Wise Ltd., our wholly-owned subsidiary in
Israel. We currently sell our MOMA Gateway directly and through representative
offices in Taiwan and Singapore. In addition we have entered into prime
contractor arrangements with Siemens and Ericsson EMEA.
Industry Background
Growing Market for Value-added Services.
The wireless communications market primarily consists of cellular
telephone networks, but also includes pagers, personal digital assistants, and
private mobile networks such as those used by utility companies and delivery
services. Value-Added Services constitute significant additional revenue sources
for wireless networks, and have become essential components of cellular services
in only a few years. This has been documented by industry analysts and
journalists, as well as by the financial reports from various cellular operators
that describe data services as a growing percentage of the carriers' revenues.
Originally utilized solely for telephone communications, the wireless
phone networks have added data and multimedia content for the benefit of their
subscribers, such as:
* SMS - short message service - enables subscribers to send and receive short
(160 character) text messages and graphics images; * EMS - enhanced message
service - enables subscribers to send and receive high quality images and
graphics; * MMS -multimedia messaging service - enables the delivery of further
enhanced images and audio files; * WAP - web application protocol - enables
subscribers to access the internet and send and receive email; * Interactive
media, such as quizzes and online gaming, including Java (J2ME) technology; *
Subscriber information, such as stock quotes or sports news; * "Push"
technology, enabling content providers to broadcast advertisements to
subscribers; and * Entertainment media, including radio stations, music and
magazines.
The wireless middleware market represents a combination of the wireless
telecommunications providers and mainstream IT industries. Providers developing
middleware technology supply a means of integrating the wireless
telecommunications providers, mainstream IT, and content and media provider
industries to deliver VAS to wireless subscribers. The introduction of the
wireless VAS industry has put an onus on cellular operators and service
providers to use their internal operational infrastructure as an
externally-facing, strategic service delivery platform. Wireless middleware
technology seeks to form a crucial part of this platform, thus facilitating the
cellular operators and service providers' efforts to connect to content partners
and then deliver compelling services to their wireless subscriber base,
regardless of the device used by the subscribers.
Growing Importance of Middleware
m-Wise's MOMA Gateway provides a centralized approach to middleware.
m-Wise views the role of its middleware as central to the service offering by
reducing the complexity in the supply chain. Wireless operators and WASPs
currently negotiate with a large number of industry players to deliver content,
including access providers, payment providers, content aggregators and
applications developers. m-Wise emphasizes its business case as reducing service
development costs for wireless operators and WASPs by providing a single
horizontal platform on which to build and deliver VAS, and on which to manage
VAS content and billing relationships. We believe that the single middleware
solution reduces the time spent negotiating with third parties to implement and
run new services and then manage those agreements.
We believe that middleware will play a central role in the wireless operator and
WASP's service delivery offering. The core middleware will be installed on the
operator and WASP's network to fulfill the functions of service development and
management, with smaller versions of the gateway installed at the operator or
WASP's subsidiaries in additional geographic markets to share central sources of
information. This approach lowers the costs for the operator by centralizing the
processes that are currently built individually by content provider, geographic
market and other criteria.
The m-Wise Strategy
m-Wise believes that it was early to recognize the role of middleware in
an increasingly complex platform strategy, and that it positioned itself to
successfully prove the capacity of its application gateway to act as middleware
for wireless VAS regardless of different standards, device types and billing
standards. One of the ways in which m-Wise is promoting its middleware
technology is by addressing wireless operators and WASPs' requirements for a
centralized platform on which to build and manage VAS content and applications
from a number of different providers. In a similar approach, m-Wise is targeting
WASPs in order to provide them with a centralized platform on which to develop
and deliver their own service offering.
The m-Wise Solution
m-Wise's MOMA Gateway middleware provides operators and service
providers of wireless data systems an end-to-end range of functionalities
necessary to develop, manage and launch wireless VAS and transactions. These
functionalities include, among others:
* Minimize the capital, commercial, training and technical requirements by
providing a common platform for the operator or WASP's IT, marketing, customer
care and billing departments to manage current and next-generation wireless VAS;
* Minimize costs by providing a common platform for all third-party content and
service providers to connect and bill through the operator or WASP's wireless
network; * Increase VAS revenues by accelerating the time to market for
third-parties, and by increasing the number of content providers, media
companies and other enterprises able to enter the wireless VAS market; *
Eliminate the common problem of un-billed premium VAS for pre-paid wireless
subscribers by integrating in real-time with the operator's legacy pre-paid
billing system to ensure that an adequate pre-paid account balance exists prior
to delivering the VAS to the subscriber; * Centralize and itemize the operator
or WASP's reporting and billing for all VAS by third party, delivery channel
(e.g. SMS, MMS or other) or billing mechanism (e.g. premium messaging, IVR,
pre-paid data-card or other); and * Mitigate many typical problems, such as
real-time billing, anti-spam policies, itemized VAS billing and adequate
customer support, through the delivery of a live window and centralized controls
for all VAS, billing modules and third-party providers.
Products
We developed products which we sell to companies to effectively reduce
their middleware related delivery costs and expenses. These products are sold as
our complete MOMA Gateway wireless middleware technology, or as components of
this technology.
Our products, which are described below, include:
* The MOMA Gateway;
* The MOMA MMS Gateway, which retains the middleware functionality included in
the MOMA Gateway for MMS VAS; * The MOMA J2ME Gateway, which retains the
middleware functionality included in the MOMA Gateway for J2ME VAS; * The MOMA
Software Development Kit (SDK); * The MOMA Application Programming Interface
(API); * The MOMA Billing Module; and * The MOMA Generic Application Engines.
Our MOMA Gateway capabilities and derivative products include:
* Support for VAS standards via SMS, EMS, MMS, WAP, USSD, IVR, J2ME, Web,
e-mail, pager and other channels;
* Provisioning with robust XML-based Application Programming Interface (API)
that reduces investments in content provider interfaces;
* Content-based billing module that integrates with existing billing systems,
manages premium messaging billing solutions, provides a pre-paid data card
integrated billing platform and supports billing via IVR, credit and debit
cards, and e-wallets; * Central reporting module with itemized reports and
tracking of all VAS and content providers; * Central monitoring console to
constantly monitor the hardware, off-the-shelf software, services, processes,
connections and critical applications within the MOMA Gateway infrastructure,
and utilize flexible rule-based SMS and email alerts to notify the cellular
operator or wireless ASP of any monitoring issues; * Application development via
the web-based rapid Software Development Kit (SDK); * Generic application
engines with automatically generated web-based administrative and CRM back-ends
for VAS applications such as SMS and MMS alerts, games, voting, digital content
delivery and push; and * Customer care solution to manage subscriber queries for
different services and providers, with user and session specific data, user
charge profile and credit balance, and XML interface data exchange with external
customer relationship management (CRM) systems such as those of Vantive and
Siebel.
The gateway currently connects to the operator's SMSC, MMSC, WAP gateway, GPRS
bearer and billing systems. It has built-in generic applications engines, which
include alerting platforms, games platforms, digital content delivery, community
platforms, push platforms, media platforms and promotions platforms. Customers
have the option to take the full gateway solution or components of the solution.
Each of the platforms retains the middleware functionality included in the MOMA
Gateway.
m-Wise's MOMA Gateway, embodied in hardware and software technology,
provides operators of mobile data systems the capability to offer the above and
other interactive content. Our technology enables necessary billing and
customer service functions and interfaces with commercially
available media content.
Customers
m-Wise's current wireless data customers include prominent global
wireless application service providers (WASP) and wireless operators. For 2002,
36% of our revenues were derived from our contract with one customer and 73%
with three customers.
Partners
m-Wise primarily operates through channel and OEM partners and regional
sales representatives to distribute and sell its products. We are currently
negotiating agreements or have formed partnerships with Hewlett-Packard in Asia
for installed middleware sales to cellular operators and with Comverse's
subsidiary, Starhome, for hosted gateway sales to cellular operators worldwide.
We also have recently established a prime-contractor relationship with Siemens
globally and Ericsson EMEA. Under these contracts, a wireless carrier requests a
major vendor to be the front supplier on our behalf, in return to a certain
mark-up, typically 20-30%. There is no guarantee that these partnerships will
generate revenues, or that new partnerships will be formed.
m-Wise has formed partnerships with several market leading content
aggregators and creators, which aggregates VAS content and applications from
dozens of providers around the world. These agreements enable m-Wise to, where
required by its cellular operator or WASP clients, also provide
VAS content and applications along with its middleware licenses.
Research and Development
m-Wise devotes significant resources to research and development. In
January 2003 m-Wise and Hewlett Packard were jointly awarded an SIIRD Grant (a
joint Israeli Singapore government grant of $186,343 USD) to upgrade the MOMA
Gateway to support MMS and J2ME (Java technology for wireless applications) for
wireless carriers in the Far East. We expect to continue significant research
and development activities to integrate new technologies into our gateway. In
the years ended December 31, 2001 and 2002 we expended $1,902,777 and
$1,923,806, respectively, in research and development activities.
The Israeli subsidiary, m-Wise Ltd., was granted an "Approved
Enterprise" status from the Israeli Ministry of Industry and Trade, for the
expansion of its facilities in the city of Ra'anana (currently Herzliya) in
Israel. The Approved Enterprise status grants the subsidiary certain tax
benefits and requires it to fulfill certain conditions and criteria, such as
notify the Ministry with respect to, for example, the progress of and any change
in its performance or its corporate structure and operations. Also, the
subsidiary is required to obtain approval from the Ministry for certain
transactions, including changes in its corporate equity holding of more than 49%
of its ownership, whether by private placement or a public offering on a stock
exchange.
Intellectual Property
Our intellectual property rights are important to our business. We
protect our intellectual property rights with a combination of copyright, the
use of contractual provisions with our customers and partners embodied in our
license and partnership agreements, and procedures to maintain the
confidentiality of trade secrets. Most of our intellectual property is embodied
in software. The functionality of all software can eventually be reverse
engineered, given enough time and resources. We rely on common law for
protection of our trademarks "MOMA Gateway" and "m-Wise".
Competition
We encounter competition from numerous competitors, including hundreds
of smaller companies addressing niche content markets. Our larger competitors
include Cash-U Mobile Technologies Ltd. in SMS and MMS, Mobilitech, Inc. in J2ME
and centralized technology platforms (middleware), Akumitti Ltd. in digital
content platforms, Openwave Systems Inc. in application platforms, and LogicaCMG
and Materna GmbH Information & Communications in the middleware arena. We
believe our competitive strengths are our superior technology, which was greatly
enhanced since its release, and our technical experience in integrating our
middleware with various third-party technologies already existing within the
cellular operator or WASP's network (e.g. SMSCs, MMSCs and legacy billing
systems). We also believe our competitive strengths are further enhanced by our
strong presence in the market through our sales to large local and global
content providers in each of the relevant vertical markets, partnering with
industry-leading global and regional OEM/channel partners as well as local sales
representatives, flexibility, and commercial experience in the industry.
Employees
m-Wise and its subsidiaries employ an aggregate of 12 employees,
including their officers. Two employees are engaged by m-Wise and 10 employees
are employed by m-Wise Israel. We believe our employee relations to be
excellent. None of our employees is represented by a labor union, and all
are full time.
Since m-Wise has determined to pursue an aggressive objective, which will
require it to maintain competitive advantages in a range of areas, we intend to
maintain a small core of highly skilled technical experts in key areas. This
team will be responsible for maintaining the leadership of the technology
platform, designing the future technology upgrades and products, and utilizing
outsourced development firms on an as-needed basis to implement the necessary
codes and assist in dealing with peaks derived from sales and projects.
We anticipate that managing growth during 2004-2005 while maintaining a small
core team will require m-Wise to hire, as required by growing sales volumes and
distribution channels, a few additional personnel for technical support, account
management and sales support for the distribution channels.
Israeli law and certain provisions of the nationwide collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the
Coordinating Bureau of Economic Organizations (the Israeli federation of
employers' organizations) apply to our Israeli employees. These provisions
principally concern the maximum length of the work day and the work week,
minimum wages, paid annual vacation, contributions to a pension fund, insurance
for work-related accidents, procedures for dismissing employees, determination
of severance pay and other conditions of employment. We provide our employees
with benefits and working conditions above the required minimum. Furthermore,
pursuant to such provisions, the wages of most of our employees are subject to
cost of living adjustments, based on changes in the Israeli CPI (Consumer Price
Index). The amounts and frequency of such adjustments are modified from time to
time. Israeli law generally requires the payment of severance pay upon the
retirement or death of an employee or upon termination of employment by the
employer or, in certain circumstances, by the employee. We typically fund our
ongoing severance obligations for our Israeli employees by making monthly
payments for manager's insurance policies and severance funds. Severance pay
expenses amounted to $43,689 in 2002 and $7,761 for the three months ended March
31, 2003.
Israeli law provides that employment arrangements with employees who are not in
senior managerial positions, or whose working conditions and circumstances do
not facilitate employer supervision of their hours of work, must provide for
compensation which differentiates between compensation paid to employees for a
45 hour work week or for maximum daily work hours and compensation for overtime
work. The maximum number of hours of overtime is limited by law. Certain of our
employment compensation arrangements are fixed and do not differentiate between
compensation for regular hours and overtime work. Therefore, we may face
potential claims from these employees asserting that the fixed salaries do not
compensate for overtime work, however, we do not believe that these claims would
have a material adverse effect on us.
Facilities
The Israeli company offices are located at 10 Hasadnaot Street,
Herzeliya Pituach, Israel 46728, in leased office space of approximately
250m(2).
Israeli Tax Consideration
Pursuant to the Law for the Encouragement of Capital Investments (1959), the
Government of the State of Israel, through the Investment Center, has granted an
"Approved Enterprise" status to our Israeli subsidiary's facility in Ra'anana
(currently Herzlyia). Consequently, we are eligible for certain tax benefits for
the first several years in which we generate taxable income. We have not,
however, begun to generate taxable income for purposes of this law and we do not
expect to utilize these tax benefits for the near future. The benefits available
to an approved enterprise are dependent upon the fulfillment of certain
conditions and criteria. If we fail to comply with these conditions and
criteria, the tax benefits that we receive could be partially or fully cancelled
and we could be forced to refund the amount of the benefits we received,
adjusted for inflation and interest. We currently believe that we will be
entitled to receive these benefits, although there can be no assurances that we
will be able to do so at this time. From time to time, the Government of Israel
has discussed reducing or limiting the benefits. We cannot assess whether these
benefits will be continued in the future at their current levels or at all.
Legal Proceedings
On January 10, 2003, Marsa Holdings Limited ("Marsa") filed a Winding-Up
Petition in the High Court of Justice, Chancery Division, Companies Court for a
compulsory liquidation order against the UK subsidiary, m-Wise Limited. The
Petition was filed with respect to a debt in the amount of (pound)34,728.97 due
by m-Wise UK to Marsa under a certain lease agreement. The first hearing was
held on February 26, 2003, and an order was made adjourning the petition to
April 9, 2003. m-Wise has not contested this procedure.
MANAGEMENT
Directors and Executive Officers
The members of the Board of Directors of m-Wise serve until the next
annual meeting of stockholders, or until their successors have been elected.
The officers serve at the pleasure of the Board of Directors. The following
are our directors and executive officers.
Name Age Position
Mordechai Broudo 44 Chief Executive Officer and Director
Shay Ben-Asulin 35 Chairman of the Board and Secretary
Gabriel Kabazo 30 Chief Financial Officer
Asaf Lewin 38 Chief Technology Officer
Mr. Mordechai Broudo co-founded m-Wise and has been a director since our
inception. Mr. Broudo has been acting as our Chief Executive Officer since
June 2001. Before founding m-Wise, Mr. Broudo was the Chief Technology Officer
of Need2Buy.com, Inc., a business-to-business Internet company
funded by Mitsubishi and several leading venture capital firms, from November
1999 to March 2000. From January 1997 to April 1998, Mr. Broudo served as the
Managing Director of the New York office of Mercado - DTL, a provider of
advanced intelligent data management systems. Mr. Broudo
received a Bachelor's Degree in Computer Science from Queens' College, New York,
in 1991.
Mr. Shay Ben-Asulin co-founded m-Wise and has been a director since our
inception. Mr. Ben-Asulin has been acting as our President and Chairman of the
Board of Directors since June 2001, focusing mainly on our European operations,
corporate strategy and funding and product planning. Before founding m-Wise, Mr.
Ben-Asulin served as the Business Development and Wireless Content Manager, from
April 1999 to March 2000, of PassCall Advanced Technologies Ltd., an Israeli
start-up company based in New York, focused on web-based content and
applications to wireless phones. In this position, Mr. Ben-Asulin acquired
extensive knowledge and expertise of the wireless communications market, and
developed sales and business development channels with US cellular operators,
system integrators and media companies. From January 1998 to September 1999, Mr.
Ben-Asulin served as the Chief Executive Officer of Mishin Investments Ltd., a
privately-owned company that promoted multinational projects and investments in
the Middle East region through business alliances in Israel and countries such
as Jordan, Oman, Qatar and Egypt.
Mr. Gabriel Kabazo, CPA, serves as our Chief Financial Officer since October
2002. From August 2000 to September 2002, Mr. Kabazo was the Controller of On
Track Innovations Ltd., a high-tech manufacturing company in the business of
contactless smart cards traded on the NASDAQ, with several subsidiaries
worldwide (North America, South Africa, Asia and Europe) and over 200 employees,
where he supervised the finance and accounting activities of the various
subsidiaries, the ongoing management of the accounting department, preparation
of budget plans, financial reports and reports to the SEC. Mr. Kabazo has led
several initiatives to enhance efficiency and reduce company spending as
required from market conditions and played a principal role in the preparation
of On Track Innovations Ltd.'s public offering, working closely with company
management, external attorneys and underwriters. From December 1997 to July
2000, Mr. Kabazo worked as a CPA, Senior Level, at Luboshitz Kasierer, one of
Israel's leading CPA firms. Mr. Kabazo received a Bachelor's Degree in
Accounting and Economics from the Faculty of Management of Tel-Aviv University
in 1997 and is a Certified Public Accountant registered in Israel since 1999.
Mr. Asaf Lewin serves as m-Wise's Chief Technology Officer since June 2001. From
August 2000 to September 2000, Mr. Lewin was a co-founder and managing director
at eCaddo Ltd., an Israeli start-up company in the field of scheduling/pricing
solutions for online directories. Before establishing eCaddo in March 2000, Mr.
Lewin oversaw the development of several extensive visual reconnaissance systems
at Elron Software (A wholly owned subsidiary of Elron Electronic Industries and
a recognized global leader in the development of innovative technology products
and services for advanced networking and Internet infrastructures), in the
capacity of division manager. Prior to his engagement by Elron Software in 1995,
Mr. Lewin was engaged by the development team at the Israeli Air Force Avionics
Software Center, where he participated in numerous research and development
projects in a variety of languages and development environments. He was honored
with an award of excellence from the Israeli Air Force Commander for a certain
project. Mr. Lewin received a Bachelor's Degree (cum laude) in Aeronautical
Engineering from the Israeli Technion (the Israel Institute of Technology) in
1988.
Executive Compensation
The following table sets forth the cash and all other compensation of
m-Wise's executive officers and directors during each of the last three fiscal
years. The remuneration described in the table includes the cost to m-Wise of
any benefits which may be furnished to the named executive officers, including
premiums for health insurance and other benefits provided to such individual
that are extended in connection with the conduct of m-Wise's business. The
executive officers named below did not receive any manner of compensation in the
years set forth below.
Summary Compensation Table
ANNUAL COMPENSATION LONG TERM COMPENSATION
Name and Other Annual Awards Payouts All
Principal Position Year Salary Bonus Compensation Other
Restricted Securities LTIP Compensation
stock Underlying Payouts ($)
Awards ($) Options SARs(#)
Shay BenAsulin 2002 $109,992 0 0 0 0 0 0
Chairman of the Board 2001 126,498 0 0 0 0 0
2000 83,333 0 0 0 0 0 0
Gabriel Kabazo 2002 $12,658 0 0 0 0 0 0
CFO 2001 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
Mordechai Broudo 2002 $109,992 0 0 0 0 0 0
CEO 2001 126,498 0 0 0 0 0 0
2000 83,333 0 0 0 0 0 0
Gabriel Kabazo's employment commenced in October 2002. The amounts shown for
Messrs. Ben Asulin and Broudo include for each $54,996 accrued but not paid in
2002.
Employment Agreements
Mordechai Broudo has an employment agreement dated January 8, 2001, as
amended, pursuant to which he provides m-Wise his services as Chief Executive
Officer, for an initial period of three years, renewed automatically unless
previously terminated. The agreement may be terminated, without cause, upon 90
days notice or by payment of three months salary, or may be immediately
terminated by m-Wise, without cause, provided that Mr. Broudo receives six
months severance pay. Mr. Broudo's current salary is $9,166 per month, plus 24
days paid annual vacation. In addition, m-Wise has a repurchase right with
respect to Mr. Broudo's ownership, directly or indirectly (such as through his
control of Proton Marketing), of shares, options, warrants or other rights to
acquire m-Wise shares, upon termination of Mr. Broudo's employment with m-Wise,
which is not termination for "good reason" or without cause. The repurchase
right shall expire on January 8, 2004, or upon the occurrence of certain events.
Shay Ben Asulin has an employment agreement dated January 8, 2001, as
amended, pursuant to which he provides m-Wise his services as Chairman of the
Board of Directors for an initial period of three years, renewed automatically
unless previously terminated. The agreement may be terminated, without cause,
upon 90 days notice or by payment of three months salary, or may be immediately
terminated by m-Wise, without cause, provided that Mr. Ben-Asulin receives six
months severance pay. Mr. Ben-Asulin's salary is $9,166 per month, plus 24 days
paid annual vacation. In addition, m-Wise has a repurchase right with respect to
Mr. Ben-Asulin's ownership, directly or indirectly (such as through his control
of Putchkon.com, LLC), of shares, options, warrants or other rights to acquire
m-Wise shares, upon termination of Mr. Ben-Asulin's employment with m-Wise,
which is not termination for "good reason" or without Cause. The repurchase
right shall expire on January 8, 2004, or upon the occurrence of certain events
Asaf Lewin has an employment agreement dated June 1, 2001, as amended,
and is employed as Chief Technology Officer. Pursuant to his employment
agreement, he receives NIS 33,000 per month. He also receives a manager's
insurance policy, which will be transferred to him upon termination of the
contract unless his employment is terminated for cause. He also receives a
vocational studies fund from m-Wise. His employment agreement may be terminated
upon 3 months' notice without cause, or immediately for cause. He has received
an option to purchase 139,354 shares of m-Wise's Series B preferred stock,
subject to certain vesting schedules and certain other restrictions.
Gabriel Kabazo has an employment agreement dated October 1, 2002, as
amended, and is employed as Chief Financial Officer. Pursuant to his employment
agreement, he receives NIS 15,000 per month. He also receives a manager's
insurance policy, which will be transferred to him upon termination of the
contract unless his employment is terminated for cause. He also receives a
vocational studies fund from m-Wise. His employment agreement may be terminated
upon one months' notice without cause, or immediately for cause. He has received
an option to purchase (i) 5,000 shares of Series B preferred stock and (ii)
60,000 shares of m-Wise's common stock, subject to certain vesting schedules and
certain other restrictions.
m-Wise adopted an Israel Stock Option Plan (2003) (the "2003 Israeli
Plan") and an International Stock Option Plan (2003) (the "2003 International
Plan") on January 16, 2003, by resolution of its Board of Directors and
stockholders, and an Israel share Option Plan (2001) and an International share
Option Plan (2000) by resolution of its Board of Directors on February 1, 2001.
The Plans enable m-Wise to offer an incentive based compensation system to
employees, directors and consultants of m-Wise and its subsidiaries and/or
affiliated companies, except for the Israel Stock Option Plan (2001) which does
not allow option grants to directors.
The following table lists the shares authorized and granted under the
Plans.
2003 International Plan - 654,390 Shares of Series B Preferred Authorized
(4,176,849 common as converted).
Number
Name of Shares Option Price Vesting
Proton Marketing 272,413 * $.01 Fully vested as of the effective date
(currently 1,738,761 shares of common stock, on an as-converted basis)
Associates, LLC
Putchkon.com, LLC 283,994* $.01 Fully vested as of the effective date
(currently 1,812,680 shares of common stock, on an as-converted basis)
Other Employees 97,983 ** $.01 Various
(currently 625,407 shares of common stock, on an as converted basis)
Israel 2003 Plan - 420,246 Shares of Series B preferred stock Authorized
(currently 2,682,351 shares of common, on an as-converted basis).
Shares of
Series B
Name preferred Option Price Vesting
Inter-Content Development
for the Internet, Ltd. 194,716* $.01 1/3 each year commencing 02/01/01
(currently 1,242,836 shares of common stock, on an as-converted basis)
Asaf Lewin 97,546 $.01 1/4 each year commencing 06/01/01
(currently 622,618 shares of common stock, on an as-converted basis)
Asaf Lewin 41,808 ** $.01 1/6 upon grant then 1/6 every six months
(currently 266,853 shares of common stock, on an as-converted basis)
Gabriel Kabazo 5,000 $.01 fully vested on October 1, 2003
(currently 31,914 shares of common stock, on an as-converted basis)
Other Employees 69,677** $.01 Various
* These options shall immediately vest in the event that (each, a
"Liquidation Event"): (i) any of Putchkon.com, LLC (beneficially owned by Mr.
Ben-Asulin), Proton Marketing Associates, LLC (beneficially owned by Mr. Broudo)
or Inter-Content Development for the Internet Ltd. sells, transfers or otherwise
disposes of any of their securities of m-Wise; (ii) if the aforementioned
stockholders receive stock or dividends as a result of certain M&A transaction;
or (iii) the initial public offering of securities of m-Wise.
** In 2003 the Board of Directors resolved to grant certain service
providers of m-Wise and its subsidiaries an aggregate of 62,712 options to
purchase shares of Series B preferred stock under the Israel 2003 Plan, subject
to a certain vesting schedule. If a Liquidation Event occurs prior to July 1,
2005, then the vesting of these options, as well as any additional options to
purchase shares of Series B preferred stock to be granted in the future under
the 2003 International Plan and/or the 2003 Israel Plan, and unless otherwise
determined by the Board of Directors, shall cease forthwith and such grantees
shall have no right to receive or exercise any options not vested prior to such
date. All such unvested options will be granted, fully vested, to Putchkon.com,
LLC (38.46%), Proton Marketing Associates, LLC (38.46%) and Inter-Content
Development for the Internet Ltd. (23.08%).
Israel 2001 Plan - 400,612 shares of common stock.
Shares of
common
Name stock Option Price Vesting
Gabriel Kabazo 60,000 $.01 50% upon October 1, 2003, remainder 1/4 per year
Other Employees 340,000 $.01 Various
International 2001 Plan - 50,000 common stock.
Granted - 50,000 shares of common stock.
In addition, in 2003 m-Wise issued a fully vested warrant to purchase
180,441 shares of Series B preferred stock (currently 1,170,963 shares of
common stock on an as-converted basis) at a price of $.01 per share to an
Israeli law firm. The shares issuable upon exercise of the Warrant are
registered for sale in this prospectus.
International Share Option Plan (2001)
The International Share Option Plan (2001) is administered by the Board
of Directors, or a committee appointed by the Board comprised of one or more
directors of m-Wise (the "Administrator"). The Plan provides for the Incentive
Stock Options or Nonstatutory Stock Options, as determined by the Administrator
at the time of grant, to employees, directors and consultants of m-Wise and its
subsidiaries. There are 50,000 shares of common stock authorized under the Plan.
m-Wise may increase the number of shares authorized for issuance under the
International Plan or may make other modifications to the Plan without
stockholder approval, unless required under applicable law, however, no
amendment may adversely change the existing rights of any option holder.
Any options which have been granted but not exercised may again be used
for awards under the Plan.
Nonstatutory stock options may be granted to service providers (employees,
directors or consultants of m-Wise and its subsidiaries). Incentive stock
options may only be granted to directors, officers and employees of m-Wise and
its subsidiaries. However, notwithstanding such designation, to the extent that
the aggregate fair market value of the shares with respect to which incentive
stock options are exercisable for the first time by the optionee during any
calendar year exceeds $100,000, such options shall be treated as nonstatutory
stock options. Incentive stock options may not be granted at a price less than
100% of the fair market value of the stock as of the date of grant (110% as to
any 10% shareholder at the time of grant); non-qualified stock options may not
be granted at a price less than 85% of fair market value of the stock as of the
date of grant (110% as to any 10% shareholder at time of grant).
Stock options may be exercised during a period of time fixed by the
Administrator except that no stock option may be exercised more than ten (10)
years (five (5) years if the optionee holds more than 10% of the voting power of
m-Wise) after the date of grant, provided that upon liquidation of m-Wise the
vesting of the option may accelerate. If the optionee ceases to be a service
provider as a result of death or disability, then the vested portion of the
option may be exercised within such period of time as set forth in the option
agreement (of at least six (6) months) or for 12 (twelve) months if the option
agreement does not specify such date, but in no event later than the expiration
term of such option as set forth in the option agreement. Except in the case of
options granted to officers, directors and consultants, options may become
exercisable at a rate of no less than 20% per year over five (5) years from the
date of grant. In the discretion of the Administrator, payment of the purchase
price for the shares of stock acquired through the exercise of a stock option
may be made in cash, check, or by delivery of promissory notes or consideration
received by m-Wise under a formal cashless exercise program adopted by m-Wise in
connection with the Plan, or any combination of the foregoing methods of
payment. Any option granted under the Plan is exercisable according to the terms
of the Plan and of the option agreement and at such times and under such
conditions as determined by the Administrator and set forth in the option
agreement. Shares issued upon exercise of an option are issued in the name of
the Optionee to a trustee, to be held by the trustee on behalf of the optionee
until the initial underwritten public offering of equity securities of m-Wise.
In the event of a merger of m-Wise with or into another corporation, or the sale
of substantially all of the assets of m-Wise, and the successor corporation
refuses to assume or substitute the outstanding options, then the option shall
fully vest shall be fully exercisable for a period of fifteen (15) days from the
date of the notice thereof to the optionee, and the option shall terminate upon
the expiration of such period.
Israel Share Option Plan (2001)
The Israel Share Option Plan (2001) is administered by the Board of
Directors, or a committee appointed by the Board. Employees and consultants of
m-Wise and its subsidiaries and affiliates become participants in the Plan upon
receiving option grants. There are 400,612 shares of common stock authorized
under the Plan. m-Wise may increase the number of shares authorized for issuance
under the Plan and extend the termination date of the Plan with the
recommendation of the Board of Directors and the approval of the general meeting
of the stockholders of m-Wise. The Plan is designed to conform to Section 102 of
the Israeli Income Tax Ordinance and the rules promulgated thereunder, however,
the Board of Directors, may, at its discretion, decide whether an option shall
be granted pursuant to Section 102 or otherwise, to a trustee or otherwise.
Where a conflict arises between any section of the Plan, the option agreement
and the provisions of the law and the rules, the latter shall apply and the
Board of Directors in its sole discretion determines the necessary changes to be
made to the Plan and its determination regarding this matter shall be final and
binding.
Options may be granted at a value as determined by the Board of
Directors, but not less than $.01 per share. Unless otherwise determined by the
Board of Directors, shares issued upon exercise of options shall be issued and
held by a trustee approved by the Israeli Tax Authorities until the earlier of 8
years or the completion the initial public offering of m-Wise pursuant to an
effective registration statement but in the case of grants pursuant to Section
102, not less then the period required or approved pursuant to Section 102. A
grantee who desires to exercise an option granted directly to him (and not
through the trustee) shall so notify m-Wise in writing in such form as shall be
prescribed by the Board of Directors from time to time. The Plan terminates and
no option shall be granted after the ten (10) year anniversary of the Plan.
Unless otherwise directed by the Board of Directors, options vest at the
rate of 1/4 at the end of the first year and 1/16 every 3 months thereafter. The
term of the options shall not be more than 8 years, provided that, and unless in
each case the applicable option agreement provides otherwise, upon liquidation
of m-Wise 1/5 of the outstanding options held by or on behalf of a grantee shall
be accelerated and become immediately vested and exercisable and upon the
occurrence of certain "significant events" all outstanding options held by or on
behalf on a grantee shall be accelerated and become immediately fully vested and
exercisable. Upon dismissal of the employee for Cause, all options held by or on
behalf of the grantee immediately expire. If the grantee's employment is
terminated as a result of death, disability or retirement after age 60 with the
approval of the Board of Directors, then the vested portion of the option may be
exercised for a period of 12 (twelve) months.
In the event that a grantee is exempt from vesting periods the Board of
Directors entitled to determine that where the grantee does not comply with the
conditions determined by the Board or Directors or ceases to be an employee, the
trustee, m-Wise or a related company thereof have the right to repurchase the
shares from the grantee for nominal or any other consideration paid by the
grantee. Any options which have been granted but not exercised may again be used
for awards under the Plan. If m-Wise shares should be registered for trading on
any stock exchange, then the options and/or shares allotted in accordance with
the Plan may be made conditional to any requirement or instruction of the stock
exchange authorities or of any other relevant authority acting pursuant to
applicable law as shall exist from time to time.
International Share Option Plan (2003)
The International Share Option Plan (2003) is administered by the Board
of Directors, or a committee appointed by the Board comprised of one or more
directors of m-Wise (the "Administrator"). The Plan provides for the Incentive
Stock Options or Nonstatutory Stock Options, as determined by the Administrator
at the time of grant, to employees, directors and consultants of m-Wise and its
subsidiaries. There are 654,390 shares of Series B preferred stock authorized
under the Plan. m-Wise may increase the number of shares authorized for issuance
under the International Plan or may make other modifications to the Plan without
stockholder approval, unless required under applicable law, however, no
amendment may adversely change the existing rights of any option holder.
Any options which have been granted but not exercised may again be used
for awards under the Plan.
Nonstatutory stock options may be granted to service providers (employees,
directors or consultants of m-Wise and its subsidiaries). Incentive stock
options may only be granted to employees, including officers and directors,
employed by m-Wise and its subsidiaries. However, notwithstanding such
designation, to the extent that the aggregate fair market value of the shares
with respect to which incentive stock options are exercisable for the first time
by the optionee during any calendar year exceeds $100,000, such options shall be
treated as nonstatutory stock options. Incentive stock options may not be
granted at a price less than 100% of the fair market value of the stock as of
the date of grant (110% as to any 10% shareholder at the time of grant);
non-qualified stock options may not be granted at a price less than 85% of fair
market value of the stock as of the date of grant (110% as to any 10%
shareholder at time of grant).
Stock options may be exercised during a period of time fixed by the
Administrator except that no stock option may be exercised more than ten (10)
years (five (5) years if the optionee holds more than 10% of the voting power of
m-Wise) after the date of grant, provided that upon liquidation of m-Wise the
vesting of the option may accelerate. If the optionee ceases to be a service
provider as a result of death or disability, then the vested portion of the
option may be exercised within such period of time as set forth in the option
agreement (of at least six (6) months) or for 12 (twelve) months if the option
agreement does not specify such date, but in no event later than the expiration
term of such option as set forth in the option agreement. Except in the case of
options granted to officers, directors and consultants, options may become
exercisable at a rate of no less than 20% per year over five (5) years from the
date of grant. In the discretion of the Administrator, payment of the purchase
price for the shares of stock acquired through the exercise of a stock option
may be made in cash, check, or by delivery of promissory notes or consideration
received by m-Wise under a formal cashless exercise program adopted by m-Wise in
connection with the Plan, or any combination of the foregoing methods of
payment. Any option granted under the Plan is exercisable according to the terms
of the Plan and of the option agreement and at such times and under such
conditions as determined by the Administrator and set forth in the option
agreement. Shares issued upon exercise of an option are issued in the name of
the Optionee to a trustee, to be held by the trustee on behalf of the optionee
until the initial underwritten public offering of equity securities of m-Wise.
In the event of a merger of m-Wise with or into another corporation, or the sale
of substantially all of the assets of m-Wise, and the successor corporation
refuses to assume or substitute the outstanding options, then the option shall
fully vest shall be fully exercisable for a period of fifteen (15) days from the
date of the notice thereof to the optionee, and the option shall terminate upon
the expiration of such period.
Israel Share Option Plan (2003)
The Israel Share Option Plan (2003) is administered by the Board of
Directors, or a committee appointed by the Board. Employees, directors, service
providers and consultants of m-Wise and its subsidiaries and affiliates become
participants in the Plan upon receiving option grants. There are 420,246 shares
of common stock authorized under the Plan. m-Wise may increase the number of
shares authorized for issuance under the Plan and extend the termination date of
the Plan with the recommendation of the Board of Directors and the approval of
the general meeting of the stockholders of m-Wise. The Plan is designed to
conform to Section 102 of the Israeli Income Tax Ordinance and the rules
promulgated thereunder, however, the Board of Directors, may, at its discretion,
decide whether an option shall be granted pursuant to Section 102 or otherwise,
to a trustee or otherwise. Where a conflict arises between any section of the
Plan, the option agreement and the provisions of the law and the rules, the
latter shall apply and the Board of Directors in its sole discretion determines
the necessary changes to be made to the Plan and its determination regarding
this matter shall be final and binding.
Options may be granted at a value as determined by the Board of
Directors, but not less than $.01 per share. Unless otherwise determined by the
Board of Directors, shares issued upon exercise of options shall be issued and
held by a trustee approved by the Israeli Tax Authorities until the earlier of 8
years or the completion the initial public offering of m-Wise pursuant to an
effective registration statement, but in the case of grants pursuant to Section
102, not less then the period required or approved pursuant to Section 102. A
grantee who desires to exercise an option granted directly to him (and not
through the trustee) shall so notify m-Wise in writing in such form as shall be
prescribed by the Board of Directors from time to time. The Plan terminates and
no option shall be granted after the ten (10) year anniversary of the Plan.
Unless otherwise directed by the Board of Directors, options vest at the
rate of 1/4 at the end of the first year and 1/16 every 3 months thereafter. The
term of the options shall not be more than 8 years, provided that, and unless in
each case the applicable option agreement provides otherwise, upon liquidation
of m-Wise all of the outstanding options held by or on behalf of a grantee shall
be accelerated and become immediately vested and exercisable and upon the
occurrence of certain "significant events" all outstanding options held by or on
behalf on a grantee shall be accelerated and become immediately fully vested and
exercisable. Upon dismissal of the employee for Cause, all options held by or on
behalf of the grantee immediately expire. If the grantee's employment is
terminated as a result of death, disability or retirement after age 60 with the
approval of the Board of Directors, then the vested portion of the option may be
exercised for a period of 12 (twelve) months.
In the event that a grantee is exempt from vesting periods the Board of
Directors entitled to determine that where the grantee does not comply with the
conditions determined by the Board or Directors or ceases to be an employee, the
trustee, m-Wise or a related company thereof have the right to repurchase the
shares from the grantee for nominal or any other consideration paid by the
grantee. Any options which have been granted but not exercised may again be used
for awards under the Plan. If m-Wise shares should be registered for trading on
any stock exchange, then the options and/or shares allotted in accordance with
the Plan may be made conditional to any requirement or instruction of the stock
exchange authorities or of any other relevant authority acting pursuant to
applicable law as shall exist from time to time.
In 2003, the Board of Directors resolved to grant certain service
providers of m-Wise and its subsidiaries an aggregate of 62,712 options to
purchase shares of Series B preferred stock under the Israel 2003 Plan, subject
to a certain vesting schedule. If a Liquidation Event occurs prior to July 1,
2005, then the vesting of these options, as well as any additional options to
purchase shares of Series B preferred stock to be granted in the future under
the 2003 International Plan and/or the 2003 Israel Plan, and unless otherwise
determined by the Board of Directors, shall cease forthwith and such grantees
shall have no right to receive or exercise any options not vested prior to such
date. All such unvested options will be granted, fully vested, to Putchkon.com,
LLC (38.46%), Proton Marketing Associates, LLC (38.46%) and Inter-Content
Development for the Internet Ltd. (23.08%).
PRINCIPAL STOCKHOLDERS
The following table sets forth information relating to the beneficial
ownership of m-Wise shares of common stock as of the date of this prospectus by
(i) each person known by m-Wise to be the beneficial owner of more than 5% of
the outstanding shares of common stock (ii) each of m-Wise's directors and
executive officers, and (iii) the Percentage After Offering assumes the sale of
all shares offered. Unless otherwise noted below, m-Wise believes that all
persons named in the table have sole voting and investment power with respect to
all shares of common stock beneficially owned by them. For purposes hereof, a
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from the date hereof upon the exercise of warrants
or options or the conversion of convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that any warrants, options or
convertible securities that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date hereof,
have been exercised.
Percentage Percentage
Name and Address Common Stock Before Offering After Offering
Shay Ben-Asulin(1) 3,272,977 13.98
Mordechai Broudo(2) 3,272,978 13.98
Miretzky Holdings Ltd. (3) 6,315,258 26.97
All officers and directors as a
group (4 persons) (1)(2)(4)(5)(6)(7) 7,527,340 32.14
All above mentioned calculations were made on a fully diluted and as-converted
basis, taking into account the conversion and exercise of every share of
preferred stock and all outstanding warrants, options and shares of preferred or
common stock reserved for grant under m-Wises employee share option plans.
(1) Shay Ben-Asulin is the beneficial owner of Putchkon.com, LLC. The address of
Putchkon.com, LLC is c/o Doron Cohen - David Cohen, Law Offices, 14 Abba Hillel
Silver Rd. Ramat-Gan, Israel 52506. Includes 258,720 shares of common stock,
1,201,577 shares currently issuable upon conversion of 188,252 Series B
preferred stock and fully vested options to purchase 283,994 shares of Series B
preferred stock which are currently convertible into 1,812,680 shares of common
stock. (2) Mordechai Broudo is the beneficial owner of Proton Marketing
Associates, LLC. The address of Proton Marketing Associates, LLC is c/o Doron
Cohen - David Cohen, Law Offices, 14 Abba Hillel Silver Rd. Ramat-Gan, Israel
52506. Includes 332,640 shares of common stock, 1,201,577 shares of common stock
currently issuable upon conversion of 188,252 Series B preferred stock, and
272,413 fully vested options to purchase shares of Series B preferred stock
which are currently convertible into 1,738,761 shares of common stock.
(3) Includes 6,315,258 shares of Series C preferred Stock, currently
convertible into 6,315,258 shares of common stock.
(4) Includes 60,000 options to purchase common stock and 5,000 options to
purchase shares of Series B preferred stock which are currently convertible into
31,914 shares of common stock, granted to Gabriel Kabazo. (5) Includes 139,354
options to purchase shares of Series B preferred stock which are currently
convertible into 889,471 shares of common stock, granted to Asaf Lewin.
(6)Includes 31,914 shares of common stock issuable upon conversion of
5,000 shares of Series B preferred stock, as and when fully vested options to
purchase such preferred stock are exercised. Does not include 60,000 shares of
common stock issuable upon exercise of options not yet vested.
(7) Includes 733,817 shares of common stock issuable upon conversion of
115,568 shares of Series B preferred stock, as and when fully vested options to
purchase such preferred stock are exercised. Does not include 155,654 shares of
common stock issuable upon conversion of Series B preferred stock, of which the
exercise of the related 24,386 options are not yet vested.
Stockholders' Agreement
Cap Ventures Ltd., Miretzky Holdings Ltd., Proton Marketing Associates,
LLC, Putchkon.com, LLC, and certain other stockholders holding in aggregate of
10,584,483 shares of common stock or shares convertible into common stock have
entered into a stockholders' agreement dated January 11, 2001, agreeing to
restrictions on transfer and rights of first refusal on transfer.
SELLING STOCKHOLDERS
The shares of common stock of m-Wise offered by the selling stockholders
will be offered at market prices, as reflected on the National Association of
Securities Dealers Electronic Bulletin Board, or on the NASDAQ Small Cap Market
if the common stock is then traded on NASDAQ. It is anticipated that registered
broker-dealers will be allowed the commissions which are usual and customary in
open market transactions. There are no other arrangements or understandings with
respect to the distribution of the common stock. . The relationship, if any,
between m-Wise and any selling stockholder is set forth below.
Shares Beneficially Percentage
Owned Total Shares
Name and Address and Being Offered After Offering
Ecco Petroleum Family Limited Partnership 400,000 --
Brighton Capital, Inc. 674,454 --
24351 Pasto Road, Dana Point California 92629
(beneficial owner Jehu Hand, legal counsel)
Oxford Financial Group, Inc. 1,074,454 --
11 Brookridge Drive
Henderson, NV 89052
Others to be determined and disclosed
via pre-effective amendment 6,446,724
PLAN OF DISTRIBUTION
m-Wise has applied to have its shares of common stock registered on the
OTC Bulletin Board. m-Wise anticipates once the shares are trading on the OTC
Bulletin Board or any other market the selling stockholders will sell their
shares directly into any market created. The prices the selling stockholders
will receive will be determined by market conditions. Selling stockholders may
also sell in private transactions. m-Wise cannot predict the price at which
shares may be sold or whether the common stock will ever trade on any market.
The shares may be sold by the selling stockholders, as the case may be, from
time to time, in one or more transactions. m-Wise does not intend to enter into
any arrangements with any securities dealers concerning solicitation of offers
to purchase the shares.
Commissions and discounts paid in connection with the sale of the shares
by the selling stockholders will be determined through negotiations between them
and the broker-dealers through or to which the securities are to be sold and may
vary, depending on the broker-dealers fee schedule, the size of the transaction
and other factors. The separate costs of the selling stockholders will be borne
by them. The selling stockholders will, and any broker-broker dealer or agent
that participates with the selling stockholders in the sale of the shares by
them may, be deemed an "underwriter" within the meaning of the Securities Act,
and any commissions or discounts received by them and any profits on the resale
of shares purchased by them may be deemed to be underwriting commissions under
the Securities Act.
m-Wise will bear all costs of the offering in registering the shares
but will bear no selling expense cost. The costs of the offering are estimated
at $9,000. m-Wise will use its best efforts to update the registration
statement and maintain its effectiveness until one year.
CERTAIN TRANSACTIONS
Research and Development Services Agreements, License Agreements and
Loan Agreement. m-Wise has entered into a License Agreement with each of our
United Kingdom, France, Spain, Italy and Israeli subsidiaries, , and into
Research and Development Services Agreements with the Israeli subsidiary, m-Wise
Ltd.,. The License Agreements provide for the grant of a non-exclusive,
irrevocable and non-transferable license to each of the said subsidiaries to
use, sublicense, sell, market and distribute m-Wise's technology and platform,
for no consideration. As part of the reorganization process of m-Wise and its
sales channels, these agreement were terminated by m-Wise as of April 1, 2003.
The Research and Development Services Agreements with the Israeli subsidiary
provide for the performance of research and development services of the
components to be included in m-Wise's technology and platform, by the Israeli
subsidiary. During 2000, in consideration for the services, m-Wise paid the
Israeli subsidiary service fees in an amount equal to the sum of all costs of
the subsidiary, plus a fee equal to 5% of such costs (a "cost+" basis). As of
2001, m-Wise pays the Israeli subsidiary service fees on a "cost" basis, however
the parties may change the consideration from time to time, and when m-Wise
becomes profitable, the consideration shall be on a "cost plus" basis, or
another structure agreed by the parties. The Research and Development Services
and License agreements provide for the sole ownership of m-Wise of its
technology, platform, derivative invention and intellectual property. The Loan
Agreement with the United Kingdom subsidiary and its subsidiaries provides for
the extension by m-Wise of a loan in the amount of $3,200,000 to the
United-Kingdom subsidiary. The outstanding loan amount, together with simple
interest at a rate per annum of 4% shall be due and payable on the earlier of:
(i) August 31, 2006, or (ii) upon the occurrence of (A) any of the following
"exit events": (i) a consolidation, merger or reorganization of the subsidiary
with or into, or the sale of all or substantially all of the subsidiary's
assets, or substantially all of the subsidiary's issued and outstanding share
capital to any other company, or any other person, other than a wholly-owned
subsidiary of the subsidiary, or (ii) any transaction or series of related
transactions in which more than fifty percent (50%) of the outstanding share
capital of the subsidiary following such transaction or series of related
transactions is held by a shareholder or group of shareholders that held less
than fifty percent (50%) of the outstanding share capital of the subsidiary
prior to such transaction or series of transactions; or (B) (i) the insolvency
of the subsidiary; (ii) the commission of any act of bankruptcy by the
subsidiary; (iii) the execution by the subsidiary of a general assignment for
the benefit of creditors; (iv) the filing by or against the subsidiary of any
petition in bankruptcy or any petition for relief under the provisions of any
law for the relief of debtors, and the continuation of such petition without
dismissal for a period of ninety (90) days or more; (v) the appointment of a
receiver or trustee to take possession of a material portion of the property or
assets of the subsidiary and the continuation of such appointment without
dismissal for a period of ninety (90) days or more; or (vi) the subsidiary
ceases to conduct business in the normal course for a period of ninety (90) days
or more. The loans extended by the United Kingdom subsidiary to its subsidiaries
shall be repaid on the same terms and in the same manner as provided for with
respects to the loan extended by m-Wise, mutatis mutandis. The operations of the
Subsidiaries, except for the Israeli one, have been terminated. The Company does
not expect the repayment of the loan amount.
Promissory Note dated July 10, 2002 (canceling and replacing certain
Promissory Notes dated March 13, 2002) with each of Syntek Capital AG and DEP
Technology Holdings Ltd. During 2002, Syntek Capital and DEP, then the sole
holders of shares of Series B preferred stock of m-Wise and represented on its
Board of Directors, extended m-Wise an aggregate loan amount of $1,800,000.
Pursuant to the Promissory Notes, m-Wise is required to repay the loan amount,
together with accrued interest from the date of the Promissory Notes and until
the date of repayment, during the period of January 1, 2003 through December 31,
2007. The interest rate is determined according to the per annum LIBOR rate
offered by Citibank North America as of the date of the Promissory Notes, and
thereafter such LIBOR rate offered on each anniversary of the date of the
Promissory Notes, to apply for the following 12 month period. The repayment of
the loan amount, together with the accrued interest thereon, is to be made
exclusively from m-Wise's annual revenues generated during the repayment period,
as recorded in m-Wise's audited annual financial statements in such way that
each of the Syntek Capital and DEP Technology Holdings shall be entitled to
receive 2.5% of the revenues on account of the repayment of the loan amount
until the earlier to occur of: (i) each of Syntek Capital and DEP Technology
Holdings has been repaid the entire loan amounts; or (ii) any event in which the
loan amount becomes due and payable, as described below. Actual payments are on
a quarterly basis, within 45 days following the last day of the quarter, based
upon the quarterly financial reports. The entire unpaid portion of the loan
amount shall be automatically and immediately due and payable upon the earlier
to occur of (i) December 31, 2007; (ii) the closing of an exit transaction; or
(iii) an event of default. An "exit transaction" includes, inter alia: (a) the
acquisition of m-Wise by means of merger, acquisition or other form of corporate
reorganization in which the sstockholders of m-Wise prior to such transaction
hold less than 50% of the share capital of the surviving entity, (b) sale of all
or substantially all of m-Wise's assets or any other transaction resulting in
m-Wise's assets being converted into securities of any other entity, (c) the
acquisition of all or substantially all of the issued shares of m-Wise, (d) the
sale or exclusive license of m-Wise's intellectual property other than in the
ordinary course of business; or (e) a public offering of the securities of
m-Wise. An "event of default" includes, inter alia: (a) the breach by m-Wise of
any of its material obligations under the Promissory Notes (including any
default on any payment due under the Promissory Notes) which has not been
remedied within 20 days of written notice by Syntek Capital and DEP Technology
Holdings (b) the suspension of the transaction of the usual business of m-Wise
or its insolvency, (c) the commencement by m-Wise of any voluntary proceedings
under any bankruptcy reorganization, arrangement, insolvency, readjustment of
debt, receivership, dissolution or liquidation law or statute of a jurisdiction,
or if m-Wise shall be adjudicated insolvent or bankrupt by a decree of a court
of competent jurisdiction; if m-Wise shall petition or apply for, acquiesce in,
or consent to, the appointment of any receiver or trustee of m-Wise or for all
or any part of its property or if m-Wise applies for an arrangement with its
creditors or participants; or if m-Wise shall make an assignment of its
intellectual property for the benefit of its creditors (other than in the
ordinary course of business), or if m-Wise shall admit in writing its inability
to pay its debts as they mature or if any of the intellectual property of m-Wise
is purchased by or assigned to any one of its founders (and/or affiliates
thereof) under liquidation proceedings without the prior written consent of
Syntek Capital or DEP Technology Holdings, (d) or if there shall be commenced
against m-Wise any proceedings related to m-Wise under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, receivership,
dissolution or liquidation law or statute of any jurisdiction, and any such
proceedings shall remain undismissed for a period of thirty (30) days, or if
m-Wise by any act indicates its consent to, approval of or acquiescence in, any
such proceeding; or if a receiver or trustee shall be appointed for m-Wise or
for all or a substantial part of its property, and any such receivership or
trusteeship shall remain undischarged for a period of thirty (30) days; or (e)
if there shall have been a material deterioration of m-Wise's business,
financial condition or operations. Under the Promissory Notes, m-Wise undertook
that until the repayment of the loan amount: (i) we shall not create or suffer
to create a pledge, charge or other encumbrance over any or all of its assets
except for such pledge, charge or encumbrance in favor of a bank under the terms
of a loan or line of credit granted by a bank to m-Wise, provided that m-Wise
gave prior notice to Syntek Capital and DEP Technology Holdings with respect
such pledge, charge or encumbrance at least ten (10) days prior to its creation;
(ii) we shall not engage or permit any of its subsidiaries to engage in any
business other than the business engaged in by it at the date of the Promissory
Notes and any business substantially similar or related thereto (or incidental
thereto); (iii) we shall not declare or pay a dividend or make any distribution
or payment on account of m-Wise's shares, except for the purpose of purchasing
common stock of m-Wise held by Ogen LLC as applicable under a certain
undertaking of the principals of Ogen LLC towards m-Wise; (iv) we shall deliver
to Syntek Capital and DEP Technology Holdings audited financial statements
within 90 days of the end of our fiscal year, accompanied by the report of a
firm of independent certified public accountants of recognized standing and
unaudited quarterly financial statements signed by our Chief Financial Officer
within 30 (thirty) days of the end of each quarter and we shall also deliver to
Syntek Capital and DEP Technology Holdings any information which we make
generally available to m-Wise's stockholders or which Syntek Capital and DEP
Technology Holdings may otherwise reasonably require. As of March 31, 2003, we
have to pay $9,616 of the loan amount.
Agreement, Security Agreement, Escrow Agreement and Undertaking.
In July 2002, Proton Marketing Associates, LLC, Putchkon.com, LLC (each a
founding stockholder of m-Wise and represented on the Board of Directors) and
Inter-Content Development for the Internet Ltd. (the "Buying stockholders")
purchased all of the Series B preferred stock of m-Wise then held by DEP
Technology Holdings Ltd. and Syntek Capital AG, thus becoming the sole holders
of Series B preferred stock of m-Wise, except for options granted to purchase
Series B preferred stock. In consideration for the stock purchased, each of the
Buying stockholders is required to pay each of DEP Technology Holdings and
Syntek Capital, upon the consummation of any "liquidation event" (as described
below), an amount equal to 50% (to be reduced by 5 percentage points at the end
of each 6 months commencing as of July 1, 2002, provided that from and after
June 30, 2005, such percentage shall equal 20%) of any gross distribution to or
any gross proceeds received by the Buying stockholders by reason of their
ownership of, or rights in, any shares of m-Wise or options to purchase shares
of m-Wise, whether such shares are held by the Buying stockholders directly,
indirectly, or by an affiliate (the "Founders securities"). The consideration
will be paid upon the consummation of a liquidation event which is defined as
the: (i) sale, transfer, conveyance, pledge or other disposal by the Buying
stockholders or any affiliate thereof of any of their Founders securities; (ii)
any event in which the Buying stockholders or any affiliate thereof receive
stock (in kind or cash dividends) from m-Wise or any surviving corporation
following the consummation of a merger and acquisition transaction (any
transaction in which m-Wise shall merge into or consolidate with any other
corporation in which m-Wise is not the surviving entity); or (iii) the initial
public offering of securities of m-Wise. In the event of an initial public
offering of securities of m-Wise, the consideration shall be paid in Founders
securities and shall equal 50% (as adjusted) of the securities held by the
Buying stockholders prior to the public offering. Until payment of the
consideration as aforesaid, the purchased Series B preferred stock and any
securities as shall be issued and/or or granted to either of the Buying
stockholders during the terms of the Agreement (the "Secured collateral"), are
subject to a certain first priority interest granted in favor of each of DEP
Technology Holdings and Syntek Capital (and subject to adjustment as aforesaid)
pursuant to a Security Agreement signed between the parties, and are placed in
escrow pursuant to a certain Escrow Agreement until the occurrence of a
liquidation event, such as the sale, transfer, conveyance, pledge or other
disposal by the Buying stockholders of any of their securities in m-Wise or the
consummation of an initial public offering of securities of m-Wise. Under the
Security Agreement, the Buying stockholders undertook, inter alia, not to
encumber or pledge or to suffer any such encumbrance, pledge, attachment or
other third party rights on any of the Secured collateral. In an event of
default in any transfer of the consideration pursuant to the Agreement, DEP
Technology Holdings and Syntek Capitals shall have all rights of a secured
creditor subject to the terms of the Agreement and may immediately take
ownership of any part of the Secured collateral and sell, assign or transfer any
part of the Secured collateral. Under a Letter of Consent, Approval and
Undertaking, each beneficial owner of Proton Marketing Associates, Putchkon.com
and Inter-Content Development for the Internet undertook towards DEP Technology
Holdings and Syntek Capital, inter alia, not to transfer any securities and that
such transfer shall be null and void unless approved in writing by DEP
Technology Holdings and Syntek Capital.
DESCRIPTION OF SECURITIES
Common stock
m-Wise's Certificate of Incorporation authorizes the issuance of
210,000,000 shares of common stock, $.01 par value per share, of which 5,174,554
shares were issued as of March 31, 2003. Holders of shares of common stock are
entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of shares of common stock have no cumulative voting
rights. Holders of shares of common stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the Board of
Directors in its discretion, from funds legally available therefore and subject
to any preferential rights conferred to the holders of preferred stock. In the
event of a liquidation, dissolution or winding up of m-Wise, the holders of
shares of common stock are entitled to share pro rata with the holders of shares
of preferred stock all assets remaining after payment in full of all liabilities
and the liquidation preference to holders of preferred stock. Each stockholder
of m-Wise is granted a preemptive right to purchase m-Wise's common stock. There
are no conversion rights, redemption or sinking fund provisions with respect to
the common stock.
Meetings of stockholders may be called by the Board of Directors.
Holders of a majority of the shares outstanding and entitled to vote at the
meeting must be present, in person or by proxy, for a quorum to be present to
enable the conduct of business at the meeting.
Preferred stock
m-Wise's Certificate of Incorporation authorizes the issuance of
170,000,000 shares of preferred stock, $.01 par value, including 325,000
authorized and 268,382 issued shares of Series A preferred stock, 3,000,000
authorized and 489,456 issued shares of Series B preferred stock and 20,000,000
shares authorized and 6,315,258 issued of Series C preferred stock.
Series A Preferred Stock
Holders of Series A preferred stock has no special dividend rights.
After payment of the preferential payments to holders of Series B and C
preferred stock, holders of Series A preferred stock shall be entitled to share
pro rata with the holders of Series B and C preferred stock and holders of
common stock the m-Wise assets upon liquidation based on the number of shares of
common stock into which the Series A, B and C preferred stock are then
convertible. relevant] Each share of Series A preferred stock is convertible
into one share of common stock, following adjustment upon the occurrence of
certain events, including in the event m-Wise issues shares of common stock at a
price less than $4.45 per share, excluding shares issued upon conversion of
Series A, B or C preferred stock, dividends or distributions thereon, employee,
director, consultants, subcontractors or officer stock options under the Plans,
and a warrant dated April 26, 2000 to purchase shares of Series A preferred. The
current holders of Series A preferred stock waived their right to anti-dilution
right pursuant to m-Wise's Certificate of Incorporation.
The holders of Series A preferred stock have such number of votes per
share as if their shares were then converted into common stock at the then
applicable conversion rate. In addition, they have the right, voting as a class,
to elect one member of the Board of Directors. In addition, so long as at least
7% of the outstanding common shares (on an as-converted basis) are represented
by the Series A preferred stock, the consent of no less than 50% of the holders
of Series A preferred stock or, if applicable, the director nominated by the
Series A preferred stock, shall be required to approve a material change in the
nature of character of the m-Wise business, the creation of a class of
securities with rights superior to the Series A preferred stock, or any
dissolution, liquidation or winding up of m-Wise. Holders of Series A preferred
stock have no special redemption rights.
Series B and Series C Preferred Stock
Holders of Series B and Series C preferred stock have similar but not
identical rights. They have the right to non-cumulative dividends, when and if
declared by the Board of Directors, prior to payments of dividends to the
holders of common stock or Series A preferred stock, at the rate of 10% of their
original sale price (effectively $8.17 per share for the Series B preferred
stock and $.0048 per share for the Series C preferred stock).
Holders of Series B and Series C preferred stock have a liquidation
preference over holders of common stock and Series A preferred stock at the rate
of three times their original sale price (in effect $24.51 per share of Series B
preferred stock and $.144 per share of Series C preferred stock). In the event
the assets of m-Wise are insufficient to pay both classes of Series B and Series
C preferred stock, such assets shall be distributed first to holders of Series C
preferred stock and then to holders of Series B preferred stock.
Holders of Series B common stock voting as a class have the right to
elect one member of the Board of Directors. Holders of Series C common stock
have the right to elect two members of the Board of Directors. Otherwise,
holders of Series B and Series C preferred stock have the right to vote as a
class with the holders of common stock and Series A preferred stock, as if such
holder had converted its shares of Series B or C preferred stock into common
stock. As of March 31, 2003, each shares of the Series B preferred stock was
convertible into 6.382 shares of common stock and each share of Series C
preferred stock was convertible into 1 share of common stock. Each share of
Series B and C preferred stock is convertible into 1 share of common stock,
subject to adjustment upon the occurrence of certain events, including in the
event m-Wise issues shares of common stock at a price less than $8.17 per share
of Series B and $.0048 for the Series C, excluding shares issued upon conversion
of Series A, B or C preferred stock, dividends or distributions thereon,
employee, director, consultants, subcontractors or officer stock options under
the Plans, and a warrant dated April 26, 2000 to purchase shares of Series A
preferred stock.
Automatic Conversion
Pursuant to m-Wise's Certificate of Incorporation, Series A, B and C
preferred stock are automatically converted into common stock upon the date
specified by written consent of holders of a majority of Series B preferred
stock, or upon the sale of common stock in a firm commitment underwriting under
the Securities Act of 1933 or on the London stock Exchange, Paris stock Exchange
or the Frankfurt stock Exchange, which offering reflects a pre-offering
valuation of at least $50 million. The offering made by this prospectus does not
cause a mandatory conversion of the preferred stock.
Holders of Series B preferred stock shall have the right, upon 60 to 120
days notice, to cause redemption of their shares at a price of $8.17 per share
plus 10% per year from the date of issuance.
Rights of First Refusal and Pre-Emption
The current holders of common and preferred stock have the right of
first refusal for a period of twenty (20) days after notice thereof to purchase
any securities offered by m-Wise. The right of first refusal does not extend to
securities issuable upon conversion of existing preferred stock, upon the
exercise of existing options, or upon the conversion of outstanding loans, upon
the acquisition of another company provided m-Wise controls 51% or more of such
acquired entity, in a firm commitment public underwriting of $7.5 million or
more and in certain other circumstances.
The Holders of Series C preferred stock who own more than 5% of the
issued and outstanding share capital have the right of first refusal for 15 days
after notice to purchase any shares offered by any m-Wise stockholders, pursuant
to m-Wise's Certificate of Incorporation. The holders of Series A, Series B and
Series C preferred stock have certain rights of first refusal to purchase shares
offered by m-Wise stockholders pursuant to a certain Stockholders Agreement
dated January 11, 2001.
Certain Events Deemed a Liquidation (Certain Changes of Control)
In the event m-Wise merges or sells substantially all of its assets in a
transaction in which 50% or more of the voting power of m-Wise is disposed of or
transferred, such event will be deemed a "liquidation" of m-Wise. However, if
such circumstance occur prior to June 16, 2003, then the liquidation preferences
of the preferred stock are different than as explained above in that (i) Series
A preferred holders shall be entitled to receive 40% of their original purchase
price, after Series B and C holders have received one-third of their
preferential amount, (ii) thereafter m-Wise's management shall receive such
amount as resolved by the Board of Directors, then (ii) the Series A preferred
holders shall receive an additional 30% of their original purchase price, after
payments of the preference amounts to Holders of Series B and C preferred stock.
Although m-Wise knows of no person seeking to obtain control of m-Wise at this
time, this provision has the effect of discouraging takeovers of m-Wise and
could have an effect on the value of m-Wise common stock in any trading market
which may exist in the future.
m-Wise's Board of Directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
146,675,000 shares of preferred stock in one or more series and to determine the
voting rights, preferences as to dividends and liquidation, conversion rights,
and other rights of such series, subject to certain restricting provisions
requiring the approval of the directors appointed by the Series A, Series B or
Series C preferred stock. m-Wise considers it desirable to have preferred stock
available to provide increased flexibility in structuring possible future
acquisitions and financings, and in meeting corporate needs which may arise. If
opportunities arise that would make desirable the issuance of preferred stock
through either public offering or private placements, the provisions for
preferred stock in m-Wise's Certificate of Incorporation would avoid the
possible delay and expense of a shareholder's meeting, except as may be required
by law or regulatory authorities. Issuance of the preferred stock could result,
however, in a series of securities outstanding that will have certain
preferences with respect to dividends and liquidation over the common stock,
which would result in dilution of the income per share and net book value of the
common stock. Issuance of additional common stock pursuant to any conversion
right that may be attached to the terms of any series of preferred stock may
also result in dilution of the net income per share and the net book value of
the common stock. The specific terms of any series of preferred stock will
depend primarily on market conditions, terms of a proposed acquisition or
financing, and other factors existing at the time of issuance. Therefore, it is
not possible at this time to determine in what respect a particular series of
preferred stock will be superior to m-Wise's common stock or any other series of
preferred stock which m-Wise may issue. The Board of Directors may issue
additional preferred stock in future financings, but has no current plans to do
so at this time.
The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of m-Wise.
m-Wise intends to furnish holders of its common stock annual reports
containing audited financial statements and to make public quarterly reports
containing unaudited financial information.
Transfer Agent
The transfer agent for the common stock is Colonial Stock Transfer
Corporation, 66 Exchange Place, Salt Lake City, Utah 84111, and its telephone
number is (801) 355-5740.
INTEREST OF NAMED EXPERTS AND COUNSEL
The legality of the Shares offered hereby will be passed upon for m-Wise
by Hand & Hand, a professional corporation, Dana Point, California. The
principal of Hand & Hand, Jehu Hand beneficially owns 1,074,454 shares of
common stock.
EXPERTS
The audited financial statements of m-Wise, Inc. included in this
Prospectus as of December 31, 2002 and 2001 have been audited by SF Partnership
LLP, independent certified public accountants, to the extent and for the periods
set forth in their report thereon, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
INDEMNIFICATION
m-Wise has adopted provisions in its certificate of incorporation and
bylaws that limit the liability of its directors and provide for indemnification
of its directors and officers to the full extent permitted under the Delaware
General Corporation Law ("DGCL"). Under m-Wise's certificate of incorporation,
and as permitted under the Delaware General Business Act, directors are not
liable to m-Wise or its stockholders for monetary damages arising from a breach
of their fiduciary duty of care as directors. Such provisions do not, however,
relieve liability for breach of a director's duty of loyalty to m-Wise or its
stockholders, liability for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, liability for transactions
in which the director derived as improper personal benefit or liability for the
payment of a dividend in violation of Delaware law. Further, the provisions do
not relieve a director's liability for violation of, or otherwise relieve m-Wise
or its directors from the necessity of complying with federal or state
securities laws or affect the availability of equitable remedies such as
injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of m-Wise where indemnification will be
required or permitted. M-Wise is not aware of any threatened litigation or
proceeding that may result in a claim for indemnification by any
director or officer.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of m-Wise pursuant to the foregoing provisions, or otherwise, m-Wise has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by m-Wise of expenses incurred or paid by a director,
officer or controlling person of m-Wise in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, m-Wise will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
No dealer, salesman or other person is authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by m-Wise.
This Prospectus does not constitute an offer to sell or a solicitation to an
offer to buy the securities offered hereby to any person in any state or other
jurisdiction in which such offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
m-Wise, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
CONTENTS
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Deficit 3
Consolidated Statement of Earnings 4
Consolidated Statement of Changes in Stockholders' Equity 5
Schedule of Expenses 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8-15
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
m-Wise, Inc.
We have audited the accompanying balance sheets of m-Wise, Inc. (the "Company")
as of December 31, 2002 and 2001, and the related statements of deficit,
earnings, change in stockholders' equity 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
auditing standards generally accepted in the United States of America. 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 audits provide 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 the Company as of December 31, 2002
and 2001, and the results of its operation, changes in its accumulated deficit
and its cash flows for the years ended, in conformity with accounting principles
generally accepted in the United States of America. The accompanying financial
statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the Company has
suffered recurring losses from inception and has negative cash flows from
operations which raises substantial doubt about its ability to continue as a
going concern. Management's plan in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
"SF PARTNERSHIP, LLP"
Toronto, Canada CHARTERED ACCOUNTANTS
April 4, 2003
m-Wise, Inc.
Balance Sheet
December 31, 2002 and 2001
2002 2001
ASSETS
Current
Cash and cash equivalents $ 215,575 $ 405,266
Accounts receivable and other current assets (note 3) 232,322 266,833
Prepaid and sundry assets 86,809 117,885
534,706 789,984
Long-term Prepaid Expenses (note 4) 17,018 18,621
Property and Equipment (note 5) 499,974 407,131
$ 1,051,698 $ 1,215,736
LIABILITIES
Current
Bank indebtedness $ 5,839 $ 10,833
Trade accounts payable 1,110,267 395,425
Other payables and accrued liabilities (note 6)446,182 409,681
1,562,288 815,939
Accrued Severance Pay 21,577 20,856
Notes Payable (note 7) 1,807,988 300,000
3,391,853 1,136,795
STOCKHOLDERS' DEFICIENCY
Capital Stock (note 8) $ 7,579 $ 7,579
Paid in Capital 5,292,726 5,292,726
Accumulated Other Comprehensive Loss (177,773) (14,665)
Accumulated Deficit (7,462,687) (5,206,699)
(2,340,155) 78,941
$ 1,051,698 $ 1,215,736
APPROVED ON BEHALF OF THE BOARD
"SHAY BEN ASULIN" "MORDECHAI BROUDO"
Director Director
m-Wise, Inc.
Consolidated Statement of Deficit
Years Ended December 31, 2002 and 2001
2002 2001
Deficit - beginning of year $ (5,206,699) $ (1,172,786)
Net loss (2,255,988) (4,033,913)
Deficit - end of year $ (7,462,687) $ (5,206,699)
m-Wise, Inc.
Consolidated Statement of Earnings
Years Ended December 31, 2002 and 2001
2002 2001
Sales $ 1,619,112 $ 585,894
Expenses
General and administrative (page 6) 1,924,661 2,717,030
Research and development (page 6) 1,923,806 1,902,777
Financial 26,633 -
3,875,100 4,619,807
Net Loss $ (2,255,988) $ (4,033,913)
Basic Loss Per Share $ (2.57) (4.60)
Fully Diluted Loss Per Share (note 8) $ (2.57) (4.60)
Basic Weighted Average Number of Shares 876,738 876,738
m-Wise, Inc.
Consolidated Statement of Stockholders' Equity Period from January 1, 2001 to
December 31, 2002
Common Shares Preferred Shares Accumulated Paid in
Other Capital in
Number of Number of Comprehensive excess of par Accumulated
Shares $ Shares $ Loss Value Deficit
Balance, January 1, 2001 876,738 1 268,382 2,684 - $1,297,316 $(1,172,786)
Issuance of class "B" Preferred
shares - - 489,456 4,894 - 3,995,410 -
Net Loss - - - - - - (4,033,913)
Financial statement translation - - - - (14,665) - -
Balance, December 31, 2001 876,738 1 757,838 7,578 (14,665) $5,292,726 $(5,206,699)
Balance, January 1, 2002 876,738 1 757,838 7,578 (14,665) $5,292,726 $(5,206,699)
Net Loss - - - - - - (2,255,988)
Financial statement translation - - - - (163,108) - -
Balance, December 31, 2002 876,738 1 757,838 7,578 (177,773) $5,292,726 $(7,462,687)
m-Wise, Inc.
Schedule of Expenses
Years Ended December 31, 2002 and 2001
2002 2001
General and Administrative
Payroll and related expenses $ 476,283 $ 760,130
Consulting 381,248 596,797
Other expenses 242,195 138,103
Marketing 199,932 378,655
Rent 165,397 193,631
Professional services 145,629 277,312
Depreciation 132,992 79,994
Communications 113,359 167,897
Travel 67,626 124,511
$ 1,924,661 $ 2,717,030
Research and Development
Materials and components $ 879,775 $ 739,818
Payroll and related expenses 677,300 818,983
Travel 175,231 132,874
Vehicle maintenance 86,661 114,057
Depreciation 85,129 56,776
Shipment and freight 19,710 40,269
$ 1,923,806 $ 1,902,777
m-Wise, Inc.
Consolidated Statement of Cash Flows
Years Ended December 31, 2002 and 2001
2002 2001
Cash Flows from Operating Activities
Net loss $ (2,255,988) $ (4,033,913)
Adjustments for:
Depreciation 218,121 136,770
(2,037,867) (3,897,143)
Change in non-cash working capital
Accounts receivable and other
current assets 34,511 (183,689)
Prepaid and sundry assets 31,076 (117,885)
Trade accounts payable 714,842 182,551
Other payables and accrued liabilities 36,501 243,214
Long-term prepaid expenses 1,603 (12,153)
Accrued severance pay 721 20,856
(1,218,613) (3,764,249)
Cash Flows from Investing Activities
Acquisition of capital assets (310,964) (281,653)
Foreign exchange on translation (163,108) (14,665)
(474,072) (296,318)
Cash Flows from Financing Activities
Issuance of common stock - 4,000,304
Notes payable 1,507,988 300,000
Bank indebtedness (4,994) 10,833
1,502,994 4,311,137
Net (Decrease) Increase in Cash
and Cash Equivalents (189,691) 250,570
Cash and Cash Equivalents -
beginning of year 405,266 154,696
Cash and Cash Equivalents -
end of year $ 215,575 $ 405,266
1. Description of Business and Going Concern
a) Description of Business
m-Wise Inc. (the "Company") is a U.S. corporation which develops interactive
messaging platforms for mobile phone-based commercial applications, transactions
and information services with internet billing capabilities. The Company has a
wholly-owned subsidiary in Israel, which was incorporated in 2000 under the laws
of Israel and a wholly-owned subsidiary in England, which was incorporated in
2000 under the laws of England. The English company has wholly-owned
subsidiaries in France, Italy and Spain, which were incorporated under the laws
of their respective countries. b) Going Concern The Company's 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 has experienced recurring losses since inception and has
negative cash flows from operations that raise substantial doubt as to its
ability to continue as a going concern. For the years ended December 31, 2002
and 2001, the Company experienced net losses of $2,255,988 and $4,033,913
respectively. The Company is in an industry where operational fluctuation is
usually higher than other ordinary industries. The accompanying financial
statements reflect management's current assessment of the impact to date of the
economic situation on the financial position of the Company. Actual results may
differ materially from management's current assessment. 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 attaining profitable
operations. Management is pursuing various sources of equity financing. Although
the Company plans to pursue additional financing, there can be no assurance that
the Company will be able to secure financing when needed or obtain such on terms
satisfactory to the Company, if at all. The 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.
2. Summary of Significant Accounting Policies
The accounting policies of the company are in accordance with U.S. generally
accepted accounting principles, and their basis of application is consistent
with that of the previous year. Outlined below are those policies considered
particularly significant:
a) Reporting currency
A majority of the Company's revenues are generated in U.S. dollars. In
addition, a substantial portion of the Company's costs are incurred in U.S.
dollars. Management has determined that the U.S. dollar will be used as the
Company's functional and reporting currency.
Accordingly, monetary accounts maintained in currencies other than the
reporting currency are remeasured into U.S. dollars in accordance with
Statement of Financial Accounting Standard No. 52 (SFAS 52), "Foreign
Currency Translation". All transaction gains and losses from the remeasurement
of monetary balance sheet items are reflected in stockholders' equity. b) Cash
and cash equivalents Cash equivalents include cash and highly liquid investments
with initial maturities of three months or less. c) Prepaid expenses Prepaid
expenses are amortized using the straight-line method over the period during
which such costs are recovered. d) Property, Equipment and Depreciation Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
based on the estimated useful lives of the assets and is provided using the
undernoted annual rates and methods: Furniture and equipment 6-15% Straight-line
Computer equipment 33% Straight-line e) Revenue Recognition The Company
generates revenues from product sales, licensing, customer services and
technical support. Revenues are recognized at the time of sale or when the
services are rendered.
2. Summary of Significant Accounting Policies (cont'd)
f) Research and Development Costs
Research and development costs are expensed as incurred.
g) Use of Estimates
The preparation of financial statements, in conformity with U.S. 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. h) Severance
Pay The Company's liability for severance pay in Israel 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. 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. The
value of these policies is recorded as an asset in the Company's balance sheet.
Severance pay expenses for the years ended December 31, 2001 and 2002 were
$20,856 and $2,013 respectively. i) Concentration of Credit Risk SFAS No. 105,
"Disclosure of Information About Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentration of Credit Risk", requires
disclosure of any significant off-balance sheet risk and credit risk
concentration. The Company does not have significant off-balance sheet risk or
credit concentration. The Company maintains cash and cash equivalents with major
Israel financial institutions.
2. Summary of Significant Accounting Policies (cont'd)
j) Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair value. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. At December 31, 2001 and 2002, the carrying amounts of
cash equivalents, short-term bank deposits, trade receivables and trade payables
approximate their fair values due to the short-term maturities of these
instruments. k) Impact of Recently Issued Accounting Standards The FASB recently
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," that is applicable to financial statements issued for fiscal years
beginning after December 15, 2001. The FASB's new rules on asset impairment
supercede FASB Statement 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and portions of APB Opinion
30, "Reporting the Results of Operations." SFAS No. 144 provides a single
accounting model for long-lived assets to be disposed of and significantly
changes the criteria that must be met to classify an asset as "held-for-sale."
Classification as "held-for-sale" is an important distinction since such assets
are not depreciated and are stated at the lower of fair value and carrying
amount. SFAS No. 144 also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in which the losses are
incurred, rather than as of the measurement date as currently required. The
provisions of SFAS No. 144 are not expected to have a material effect on the
company's financial position or operating results. 3. Accounts Receivable and
other current assets
2002 2001
Trade debtors $ 127,868 $ 208,999
Government authorities 100,857 29,363
Accrued income 573 3,730
Other 3,024 24,741
$ 232,322 $ 266,833
4. Long-term Prepaid Expenses
The long-term prepaid expenses consist of prepaid car lease payments
representing the last three months of the lease period ending in the year 2004.
5. Property and Equipment
Property and equipment is comprised as follows:
2002 2001
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Furniture and equipment $ 70,176 $ 22,510 $ 52,276 $ 16,087
Computer equipment 830,961 378,653 517,113 146,171
$ 901,137 $ 401,163 $ 569,389 $ 162,258
Net carrying amount $ 499,974 $ 407,131
6. Other payables and accrued expenses
2002 2001
Employee payroll accruals $ 119,106 $ 88,950
Accrued payroll taxes 78,939 57,452
Government institutions - 11,181
Accrued expenses 242,988 242,908
Others 5,149 9,190
$ 446,182 $ 409,681
7. Notes Payable
2002 2001
Syntek Capital AG $ 900,000 $ 150,000
DEP Technology Holdings Ltd. 900,000 150,000
Accrued interest 7,988 -
$ 1,807,988 $ 300,000
The promissory notes are unsecured, bear interest at the per annum LIBOR rate
offered by Citibank North America and are repayable on December 31, 2007. The
annual principal repayments are calculated as 2.5% of annual revenues. To date,
no principal repayments have been made. These notes
replace the notes originally issue in 2001.
Under the loan agreements, the company is not allowed to declare dividends
except for the purpose of purchasing Ogen LLC Common Stock.
The Company may not create a pledge, charge or other encumbrance over any or all
of its assets for financing without the lenders' consent and must provide notice
to the lender at least 10 days prior to any such action.
8. Capital Stock
Authorized
210,000,000 Common shares
170,000,000 Preferred shares
Series "A": convertible, voting, par value of $0.01 per share
Series "B": 10% non-cumulative dividend, redeemable,
convertible, voting, par value of $0.01 per share
2002 2001
Issued
876,738 Common shares $ 1 $ 1
268,382 Series "A" Preferred shares 2,684 2,684
489,456 Series "B" Preferred shares 4,894 4,894
$ 7,579 $ 7,579
During the 2001 year, 489,456 Series B Preferred shares were issued for
cash consideration of $4,000,304.
8. Capital Stock (cont'd)
Stock options:
In February 2001 the Board of Directors of the Company adopted two option
plans to allow employees and consultants to purchase ordinary shares of the
company. The Israel share option plan granted 220,000 common shares of m-Wise,
Inc. having a $0.01 nominal par value each and an exercise price to be
determined by the Company on the date of grant. The International share option
plan granted 230,612 common shares of m-Wise, Inc. having a $0.01 nominal par
value each and an exercise price to be determined by the Company on the date of
grant. The options vest gradually over a period of 4 years from the date of
grant for Israel and 10 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 8 years from the date of grant in Israel and 10
years from the date of grant in the International plan. As of December 31, 2002
no options have been exercised. The stock options and the preferred shares have
not been included in the calculation of the diluted earnings per share as their
inclusion would be antidilutive.
9. Lease Commitments The Company is committed
to lease obligations, expiring December 2003. Future minimum annual payments
(exclusive of taxes, insurance and maintenance costs) under these leases are as
follows: 2003 $ 24,000
10. Income Taxes Each company is paying taxes under the
rules of the state under which it is incorporated.
11. Related Party Transactions
During the year the company made payments to its directors as follows:
2002 2001
Consulting fees and salaries $ 240,000 $ 514,497
These transactions were in the normal course of business and recorded at an
exchange value established and agreed upon by the above mentioned parties. 12.
Subsequent Events a) Due to the high costs and low revenues in the European
application service provider (ASP) market, the Company's management has decided
to allow the liquidation of the English subsidiary, m-Wise Ltd., and its three
subsidiaries in Italy, France and Spain, by creditors and local legal
authorities. These subsidiary companies have effectively ceased conducting
business (m-Wise Italy's 2-year ASP contract with Vodafone Omnitel expired in
the end of March 2003), and the liquidation process is expected to take place
within the next fiscal period. As a result, the trade accounts payable of the
European companies of about $900,000 are not expected to be paid due to
insufficient funds. No debt reduction has been provided for in the books and
records of the subsidiaries. As at December 31, 2002 the net deficiency in the
subsidiaries amounted to approximately $3,400,000. b) In January 2003, the
Company adopted a share option plan for key employees under section 102 of
Israel's tax law. Under the plan, 420,246 stock options will be issued, each
exercisable for Series "B" Preferred shares at its par value of $0.01 per share.
The options are exercisable from 3 to 4 years.
m-Wise, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 2003 AND 2002
CONTENTS
Consolidated Balance Sheet 1
Consolidated Statement of Deficit 2
Consolidated Statement of Earnings 3
Consolidated Statement of Changes in Stockholders' Equity 4
Schedule of Expenses 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-11
m-Wise, Inc.
Balance Sheet
March 31, 2003 and 2002
2003 2002
ASSETS
Current
Cash and cash equivalents $ 20,078 $ 128,360
Accounts receivable and other current assets 275,814 625,533
Prepaid and sundry assets 92,545 170,102
388,437 923,995
Long-term Prepaid Expenses 6,064 17,524
Property and Equipment - net of accumulated depreciation 442,787 558,294
$ 837,288 $ 1,499,813
LIABILITIES
Current
Bank indebtedness $ 21,596 $ -
Trade accounts payable 1,054,896 565,525
Other payables and accrued liabilities 435,781 375,001
1,512,273 940,526
Accrued Severance Pay 15,214 21,112
Notes Payable 1,807,988 1,200,000
3,335,475 2,161,638
STOCKHOLDERS' DEFICIENCY
Capital Stock (note 3) $ 7,579 $ 7,579
Paid in Capital 5,292,726 5,292,726
Accumulated Other Comprehensive (Loss) Income (88,798) 17,693
Accumulated Deficit (7,709,694) (5,979,823)
(2,498,187) (661,825)
$ 837,288 $ 1,499,813
APPROVED ON BEHALF OF THE BOARD
"SHAY BEN ASULIN" "MORDECHAI BROUDO"
Director Director
m-Wise, Inc.
Consolidated Statement of Deficit
Quarters Ended March 31, 2003 and 2002
2003 2002
Deficit - beginning of period $ (7,462,687) $ (5,206,699)
Net loss (247,007) (773,124)
Deficit - end of period $ (7,709,694) $ (5,979,823)
m-Wise, Inc.
Consolidated Statement of Earnings
Quarters Ended March 31, 2003 and 2002
2003 2002
Sales $ 192,324 $ 214,028
Expenses
General and administrative (page 5) 229,531 575,983
Research and development (page 5) 205,668 409,070
Financial 4,132 2,099
439,331 987,152
Net Loss $ (247,007) $ (773,124)
Basic Loss Per Share $ (0.28) (0.88)
Fully Diluted Loss Per Share (note 3) $ (0.28) (0.88)
Basic Weighted Average Number of Shares 876,738 876,738
m-Wise, Inc.
Consolidated Statement of Stockholders' Equity
Quarters Ended March 31, 2003 and 2002
Common Shares Preferred Shares Accumulated Paid in
Other Capital in
Number of Number of Comprehensive excess of par Accumulated
Shares $ Shares $ (Loss) Income Value Deficit
Balance, January 1, 2002 876,738 1 757,838 7,578 (14,665) $5,292,726 $(5,206,699)
Net Loss - - - - - - (773,124)
Financial statement translation - - - - 32,358 - -
Balance, March 31, 2002 876,738 1 757,838 7,578 17,693 $5,292,726 $(5,979,823)
Balance, January 1, 2003 876,738 1 757,838 7,578 (177,773) $5,292,726 $(7,462,687)
Net Loss - - - - - - (247,007)
Financial statement translation - - - - 88,975 - -
Balance, March 31, 2003 876,738 1 757,838 7,578 (88,798) $5,292,726 $(7,709,694)
m-Wise, Inc.
Schedule of Expenses
Quarters Ended March 31, 2003 and 2002
2003 2002
General and Administrative
Consulting $ 68,446 $ 14,348
Payroll and related expenses 58,160 76,118
Depreciation 40,197 32,936
Professional services 32,002 24,894
Communications 25,274 46,011
Other expenses 13,263 43,372
Rent 7,592 59,762
Travel 4,258 61,013
Marketing (19,661) 217,529
Research and Development $ 229,531 $ 575,983
Materials and components $ 80,572 $ 122,881
Payroll and related expenses 53,123 234,352
Travel 26,406 24,599
Depreciation 24,153 -
Vehicle maintenance 21,414 27,238
$ 205,668 $ 409,070
m-Wise, Inc.
Consolidated Statement of Cash Flows
Quarters Ended March 31, 2003 and 2002
2003 2002
Cash Flows from Operating Activities
Net loss $ (247,007) $ (773,124)
Adjustments for:
Depreciation 64,350 32,936
(182,657) (740,188)
Change in non-cash working capital
Accounts receivable and other current assets (43,492) (358,700)
Prepaid and sundry assets (5,736) (52,217)
Trade accounts payable (55,371) 170,100
Other payables and accrued liabilities (10,401) (34,680)
Long-term prepaid expenses 10,954 1,097
Accrued severance pay (6,363) 256
(293,066) (1,014,332)
Cash Flows from Investing Activities
Acquisition of capital assets (7,163) (184,099)
Foreign exchange on translation 88,975 32,358
81,812 (151,741)
Cash Flows from Financing Activities
Notes payable - 900,000
Bank indebtedness 15,757 (10,833)
15,757 889,167
Net Decrease in Cash and Cash Equivalents (195,497) (276,906)
Cash and Cash Equivalents - beginning of period 215,575 405,266
Cash and Cash Equivalents - end of period $ 20,078 $ 128,360
1. Description of Business
m-Wise Inc. (the "Company") is a U.S. corporation which develops interactive
messaging platforms for mobile phone-based commercial applications, transactions
and information services with internet billing capabilities. The Company has a
wholly-owned subsidiary in Israel, which was incorporated in 2000 under the laws
of Israel and a wholly-owned subsidiary in England, which was incorporated in
2000 under the laws of England.
The English company has wholly-owned subsidiaries in France, Italy and Spain,
which were incorporated under the laws of their respective countries.
2. Summary of Significant Accounting Policies
The accounting policies of the company are in accordance with U.S. generally
accepted accounting principles, and their basis of application is consistent
with that of the previous year. Outlined below are those policies considered
particularly significant:
a) Reporting currency
A majority of the Company's revenues are generated in U.S. dollars. In
addition, a substantial portion of the Company's costs are incurred in U.S.
dollars. Management has determined that the U.S. dollar will be used as the
Company's functional and reporting currency.
Accordingly, monetary accounts maintained in currencies other than the
reporting currency are remeasured into U.S. dollars in accordance with
Statement of Financial Accounting Standard No. 52 (SFAS 52), "Foreign Currency
Translation". All transaction gains and losses from the remeasurement
of monetary balance sheet items are reflected in stockholders' equity.
b) Cash and cash equivalents
Cash equivalents include cash and highly liquid investments with initial
maturities of three months or less.
2. Summary of Significant Accounting Policies (cont'd)
c) Prepaid expenses
Prepaid expenses are amortized using the straight-line method over the period
during which such costs are recovered.
d) Property, Equipment and Depreciation
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is based on the estimated useful lives of the assets and is
provided using the undernoted annual rates and methods: Furniture and equipment
6-15% Straight-line Computer equipment 33% Straight-line e) Revenue Recognition
The Company generates revenues from product sales, licensing, customer services
and technical support. Revenues are recognized at the time of sale or when the
services are rendered. f) Research and Development Costs Research and
development costs are expensed as incurred. g) Use of Estimates The preparation
of financial statements, in conformity with U.S. 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.
2. Summary of Significant Accounting Policies (cont'd)
h) Severance Pay
The Company's liability for severance pay in Israel 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. 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. The
value of these policies is recorded as an asset in the Company's balance sheet.
i) Concentration of Credit Risk SFAS No. 105, "Disclosure of Information About
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk", requires disclosure of any significant
off-balance sheet risk and credit risk concentration. The Company does not have
significant off-balance sheet risk or credit concentration. The Company
maintains cash and cash equivalents with major Israel financial institutions. j)
Fair Value of Financial Instruments The estimated fair value of financial
instruments has been determined by the Company using available market
information and valuation methodologies. Considerable judgment is required in
estimating fair value. Accordingly, the estimates may not be indicative of the
amounts the Company could realize in a current market exchange. At March 31,
2002 and 2003, the carrying amounts of cash equivalents, short-term bank
deposits, trade receivables and trade payables approximate their fair values due
to the short-term maturities of these instruments.
2. Summary of Significant Accounting Policies (cont'd)
k) Impact of Recently Issued Accounting Standards
The FASB recently issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001. The FASB's new rules
on asset impairment supercede FASB Statement 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and portions
of APB Opinion 30, "Reporting the Results of Operations." SFAS No. 144 provides
a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that must be met to classify an asset as
"held-for-sale." Classification as "held-for-sale" is an important distinction
since such assets are not depreciated and are stated at the lower of fair value
and carrying amount. SFAS No. 144 also requires expected future operating losses
from discontinued operations to be displayed in the period(s) in which the
losses are incurred, rather than as of the measurement date as currently
required. The provisions of SFAS No. 144 are not expected to have a material
effect on the company's financial position or operating results. 3. Capital
Stock Authorized 210,000,000 Common shares 170,000,000 Preferred shares
Series "A": convertible, voting, par value of $0.01 per share
Series "B": 10% non-cumulative dividend, redeemable,
convertible, voting, par value of $0.01 per share
2003 2002
Issued
876,738 Common shares $ 1 $ 1
268,382 Series "A" Preferred shares 2,684 2,684
489,456 Series "B" Preferred shares 4,894 4,894
$ 7,579 $ 7,579
3. Capital Stock (cont'd)
Stock options:
In February 2001 the Board of Directors of the Company adopted two option
plans to allow employees and consultants to purchase ordinary shares of the
company.
The Israel share option plan granted 220,000 common shares of m-Wise, Inc.
having a $0.01 nominal par value each and an exercise price to be determined by
the Company on the date of grant. The International share option plan granted
230,612 common shares of m-Wise, Inc. having a $0.01 nominal par value each and
an exercise price to be determined by the Company on the date of grant. The
options vest gradually over a period of 4 years from the date of grant for
Israel and 10 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 8 years from the date of grant in Israel and 10 years from the
date of grant in the International plan. As of March 31, 2003 no options have
been exercised. The stock options and the preferred shares have not been
included in the calculation of the diluted earnings per share as their inclusion
would be antidilutive. 4. Subsequent Events Due to the high costs and low
revenues in the European application service provider (ASP) market, the
Company's management has decided to allow the liquidation of the English
subsidiary, m-Wise Ltd., and its three subsidiaries in Italy, France and Spain,
by creditors and local legal authorities. These subsidiary companies have
effectively ceased conducting business (m-Wise Italy's 2-year ASP contract with
Vodafone Omnitel expired in the end of March 2003), and the liquidation process
is expected to take place within the current fiscal year. As a result, the trade
accounts payable of the European companies of about $900,000 are not expected to
be paid due to insufficient funds. No debt reduction has been provided for in
the books and records of the subsidiaries. As at December 31, 2002 the net
deficiency in the subsidiaries amounted to approximately $3,400,000.
TABLE OF CONTENTS Page
Prospectus Summary 2
Risk Factors 4
Additional Information 5
Dividend Policy 5
Market Price of common stock 6
Plan of Operation 6
Business 7
Management 10
Principal stockholders 14
Selling stockholders 14
Plan of Distribution 21
Certain Transactions 21
Description of Securities 22
Interest of Named Experts
and Counsel 23
Experts 23
Indemnification 23
Financial Statements F-1
m-Wise, INC.
SHARES
8,595,632
PROSPECTUS
June 6, 2003
m-Wise, INC.
PART II
Item 24. Indemnification of Directors and Officers.
m-Wise has adopted provisions in its articles of incorporation and
bylaws that limit the liability of its directors and provide for indemnification
of its directors and officers to the full extent permitted under the Delaware
General Corporation Law. Under m-Wise's articles of incorporation, and as
permitted under the Delaware General Corporation Law, directors are not liable
to m-Wise or its stockholders for monetary damages arising from a breach of
their fiduciary duty of care as directors. Such provisions do not, however,
relieve liability for breach of a director's duty of loyalty to m-Wise or its
stockholders, liability for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, liability for transactions
in which the director derived as improper personal benefit or liability for the
payment of a dividend in violation of Delaware law. Further, the provisions do
not relieve a director's liability for violation of, or otherwise relieve m-Wise
or its directors from the necessity of complying with, federal or state
securities laws or affect the availability of equitable remedies such as
injunctive relief or recision.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of m-Wise where indemnification will be
required or permitted. m-Wise is not aware of any threatened litigation or
proceeding that may result in a claim for indemnification by any
director or officer.
Item 25. Other Expenses of Issuance and Distribution. (all to be paid by
m-Wise)
Filing fee under the Securities Act of 1933 $ 695.39
Printing and engraving(1) $ 300.00
Legal Fees $ 500.00
Blue Sky Fees $ 1,200.00
Auditors Fees(1) $ 6,000.00
NASD Filing Fees $ 500.00
Miscellaneous(1) $ 804.61
TOTAL $ 9,000.00
(1) Estimates
Item 26. Recent Sales of Unregistered Securities.
Class of Total
Purchaser Date Stock Shares Price
e-Street
International, AG 01/09/01 Series B 244,728 $ 2,000,162
D.E.P. Technology
Holdings Ltd. 01/09/01 Series B 244,728 $ 2,000,162
Cap Ventures Ltd. 04/12/00 Series A 168,672 $ 750,000(1)
Cap Ventures Ltd. 09/04/00 Series A 56,180 250,000
Cap Ventures Ltd. 11/15/00 Series A 43,530 300,000
Proton Marketing
Associates, LLC Common 332,640
Proton Marketing 7/23/02 Series B 188,252
Associates, LLC
Putchkon.com, LLC Common 258,720
Putchkon.com, LLC Series B 188,252
Chinese Whispers, LLC Common 100,800
Ogen, LLC Common 147,840
Doron Cohen(1) Common 10,695
Irit Cohen Common 10,695
Yuval Horn Common 15,348
Inter-Content Development Series B 112,952
for the Internet Ltd.
(1) Plus a warrant to purchase 56,180 shares of Series A preferred stock,
at an exercise price of $4.45 per share.
In April 2003 m-Wise issued for services valued at $.01 per share the following
common stock:Ecco Petroleum Family Limited Partnership, 400,000 shares;
Brighton Capital, Inc., 674,454 shares; Oxford Financial Group, Inc., 1,074,454
shares. These investors are all accredited investors.
No underwriter was involved in the above transactions. The transactions were
exempt under section 4(2) of the Securities Act of 1933 as one not involving any
public solicitation public offering.
Item 27. Exhibits and Financial Schedules
3. Certificate of Incorporation and Bylaws
3.1. Amended and Restated Certificate of Incorporation(1)
3.2 Bylaws(1)
4. Instrments definingt the rights of security holders
4.1 Purchase and registration rights agreement and schedule of details(1)
5. Opinion of Hand & Hand as to legality of securities being registered.(1)
10. Material contracts
10.1 Amended and Restated Employment Agreement with Mordechai Broudo(1)
10.2 Amendment to Amended and Restated Employment Agreement with Mordechai
Broudo(1)
10.3 Amended and Restated Employment Agreement with Shay Ben-Asulin(1)
10.4 Amendment to Amended and Restated Employment Agreement with Shay
Ben-Asulin(1)
10.5 Employment Agreement, Gabriel Kabazo (1)
10.6 Confidentiality rider to Kabazo Employment Agreement(1)
10.7 Employment Agreement Asaf Lewin(1)
10.8 2003 International Stock Option Plan (1)
10.9 Form of Option Agreement, 2003 International Stock Option Plan (1)
10.10 2001 International Stock Option Plan (1)
10.11 Form of Option Agreement, 2001 International Stock Option Plan (1)
10.12 2003 Israel Stock Option Plan (1)
10.13 Form of Option Agreement, 2003 Isreal Stock Option Plan (1)
10.14 2001 Isreal Stock Option Plan (1)
10.15 Form of Option Agreement, 2001 Israel Stock Option Plan (1)
21. Subsidiaries of the small business issuer. We operate only one
subsidiary, m-Wise Ltd., which is incorporated in Israel. We operate under no
other tradenames.
23. Consents of Experts and Counsel
23.1 Consent of SF Partnership LLP(1)
23.2 Consent of Hand & Hand
included in Exhibit 5 hereto
All other Exhibits called for by Rule 601 of Regulation S-B are not
applicable to this filing.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is included in the financial statements or notes thereto.
(1) Filed herewith.
Item 28. Undertakings.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(I) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together represent a fundamental change in the
information in the registration statement;
(iii) Include any material or changed information the
plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities as at that time to be
the initial bona fide offering thereof.
(3) File a post effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel that matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(f) The undersigned small business issuer hereby undertakes that it
will:
(1) For purposes of determining any liability under the
Securities Act that the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time the Commission declared it effective.
(2) For the purpose of determining any liability under the
Securities Act, that each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that as the
initial bona fide offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it meets all the requirements for filing on Form SB-2
and has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Tel
Aviv, on June 14, 2003.
m-Wise, INC.
By: /s/ Shay Ben-Asulin
Shay Ben-Asulin
Chairman
In accordance with the requirements of the Securities Act of 1933, this
amendment to Registration Statement has been signed by the following persons in
the capacities indicated on June 14, 2003.
By: /s/ Shay Ben-Asulin Chairman
Shay Ben-Asulin (principal executive officer)
By: /s/ Gabriel Kabazo Chief Financial Officer (principal
__Gabriel Kabazo__________ financial and accounting officer)
By: /s/ Mordechai Broudo Chief Executive Officer and Director
Mordecai Broudo